Ingram Micro 2008 Annual Report Download - page 44

environment, as well as the 0.21% of net sales impact of the region’s portion of the goodwill impairment charge. The
slight increase in operating margin for EMEA in 2007 compared to 2006 was primarily attributable to continued
focus on profitable growth while continuing ongoing cost containment efforts. The implementation of a new
warehouse management system in Germany in the second half of 2006 negatively impacted our profitability
through the first half of 2007 as we sought to address the operational issues and win back market share lost by the
operational complications arising from the conversion. Our Asia-Pacific negative operating margin was 5.12% in
2008 compared to operating margin of 1.64% and 1.25% in 2007 and 2006, respectively. The goodwill impairment
impact in Asia-Pacific, which was 6.88% of the region’s net sales, was partially offset by improvements in gross
margin and ongoing cost containment efforts in the region. The increase in operating margin in 2007 compared to
2006 primarily reflects improvements and strengthening of our operating model, the economies of scale associated
with the higher volume of business and the gain of approximately four basis points from the sale of our Asian
semiconductor business. Our Latin American operating margin was 2.50% in 2008 compared to a negative
operating margin of 0.28% in 2007 and operating margin of 2.02% in 2006. The improvement in Latin America
reflected enhanced gross margins and the economies of scale associated with the higher volume of business and
ongoing cost containment efforts from 2006 through 2008, as well as the positive impact in 2008 of the $8.2 million
reversal of a portion of the reserve for a Brazilian commercial tax charge. The loss in 2007 was largely attributable
to the commercial tax charge in Brazil, which was 1.94% of Latin American revenues.
Other expense (income) consisted primarily of interest income and expense, foreign currency exchange gains
and losses, and other non-operating gains and losses. We incurred net other expense of $50.0 million, $61.2 million
and $55.1 million in 2008, 2007 and 2006, respectively, or 0.14%, 0.17% and 0.18% of net sales, respectively. The
decrease in 2008 compared to 2007 primarily reflects lower net interest expense from decreased borrowings
associated with the lower volume of business and overall declines in average interest rates. The increase in 2007 net
other expense compared to 2006 is commensurate with the overall growth in the business during that year and is also
reflective of higher market interest rates on certain variable rate debt.
Our provision for income taxes in 2008, 2007 and 2006 was $12.8 million, $109.3 million and $101.6 million,
respectively. Our effective tax rate in 2008, 2007 and 2006 was (3.3%), 28.4% and 27.6%, respectively. Because a
majority of the goodwill impairment charge is non-deductible for tax purposes, only $82.9 million of tax benefit
was realized from the charge. As a result, we have a tax provision on a pre-tax loss in 2008. Aside from the goodwill
impairment, the changes in our effective tax rates in 2008, 2007 and 2006 are primarily attributable to the changes in
the proportion of income earned within the various taxing jurisdictions and impacts of our ongoing tax strategies.
Our effective tax rate in 2008 was positively impacted by the $8.2 million reversal of a portion of the reserve for a
Brazilian commercial tax charge, for which we did not recognize an income tax expense, consistent with the
negative impact of $30.1 million net Brazilian commercial tax charge in 2007, for which we did not recognize an
income tax benefit. The 2008 tax provision also includes the release of tax reserves related to certain hedge gains
recorded in prior period, offset in part by an increase in our valuation allowances placed against certain of our
deferred tax assets in certain EMEA business units.
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