Ingram Micro 2010 Annual Report Download - page 40

function of: the rapid decline in our net sales, at a pace faster than we were able to reduce costs through our
reorganization actions; the related reduction in volume-based rebates in 2009; and the more competitive pricing
environment as the economic downturn worsened into 2009. These factors were partially offset by gross margin
improvement from mix of business and pricing discipline throughout the business. In EMEA, we also mitigated the
impact of these factors on our profitability through the previously discussed disposition of certain operations in the
Nordic region.
Net other expense consisted primarily of interest income and expense, foreign currency exchange gains and
losses, costs of discounting drafts received from customers, primarily in EMEA, and other non-operating gains and
losses. We incurred net other expense of $46,372, $26,692 and $49,969 in 2010, 2009 and 2008, respectively. The
increase in 2010 compared to 2009 is primarily attributable to higher interest expense related to the August 2010
offering of $300,000 in senior unsecured notes; $6,482 in higher costs related to discounting drafts received from
our customers; lower net cash positions as a result of $152,285 in share repurchases during 2010; and increased
working capital required to support year-over-year sales growth, partially offset by a net foreign exchange gain. The
decrease in 2009 compared to 2008 primarily reflects lower net interest expense from decreased borrowings
associated with the lower volume of business and overall declines in average interest rates, partially offset by higher
foreign currency exchange losses.
Our provision for income taxes in 2010, 2009 and 2008 was $120,001, $67,110 and $12,783, respectively. Our
effective tax rate in 2010, 2009 and 2008 was 27.4%, 24.9% and (3.3%), respectively. Our effective tax rate in 2010,
2009 and 2008 was positively impacted by the $9,112, $9,758 and $8,224, respectively, for reversals of portions 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 $30,134 net Brazilian commercial tax charge in 2007, for which we did not recognize an
income tax benefit. Because a majority of the goodwill impairment charge in 2008 is non-deductible for tax
purposes, only $82,873 of tax benefit was realized from the charge. As a result, we had a tax provision on a pre-tax
loss in 2008. The 2008 tax provision also included the release of tax reserves related to certain hedge gains recorded
in a 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. Aside from the items discussed above, the changes in our effective tax rates
in 2010, 2009 and 2008 were primarily attributable to the increase in revenue, shifts in product mix, changes in the
proportion of income earned within the various taxing jurisdictions, and impacts of our ongoing tax strategies. Our
effective tax rate includes the impact of not providing U.S. taxes on undistributed foreign earnings considered
indefinitely reinvested.
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