Ingram Micro 2013 Annual Report Download - page 28

Table of Contents
fluctuations in our sales growth in the near term, or these modifications may negatively impact our gross margin. In addition, increased competition and any
further retractions or softness in economies throughout the world may hinder our ability to maintain and/or improve gross margins from the levels realized in
recent periods.
Total SG&A expenses increased $348,923, or 22.6%, and increased 37 basis points as a percentage of net sales in 2013 compared to 2012. The
increase in SG&A costs largely reflects our acquisitions in the fourth quarter of 2012 and during 2013, which added approximately $330,000 of costs and
approximately $14,000 is related to the translation impacts of foreign currencies The increase also reflects an incremental $8,568 for acquisition, integration,
and other transition costs and a charge of approximately $5,000 recorded for estimated potential penalties and other charges related to indirect tax declarations
in Europe. We also incurred incremental direct variable costs associated with the growth in volume of our business, and investment in key strategic areas
across regions to further diversify our revenue. These increases were partially offset by the receipt of a legal settlement of $29,494 in 2013 related to the LCD
class action settlement.
The increase in amortization expense in 2013 compared with 2012 was primarily due to our acquisition of BrightPoint, and to a lesser extent, our
acquisitions of Aptec, Promark, SoftCom, CloudBlue and Shipwire.
In 2013, we incurred net reorganization costs of $34,629 primarily relating to a number of key initiatives, including: (a) the integration of BrightPoint
operations into Ingram Micro, resulting in headcount reductions and the closure of certain facilities; (b) headcount reductions in Europe to respond to the
current market environment, and (c) the transition of certain transaction-oriented service and support functions to shared services centers. In 2012, we
incurred net reorganization costs of $9,676, primarily related to workforce reductions associated with transition of some functions to shared services centers
(see Note 3 to our consolidated financial statements).
Operating margin remained relatively flat in 2013 compared to 2012, reflecting the higher gross margin as discussed above, offset by the higher SG&A
expenses, amortization of intangible assets and reorganization and integration costs, all of which are discussed previously.
The increase in our North American operating margin in 2013 compared to 2012 reflects the impact of the LCD class action settlement of $28,461, or
17 basis points of North American net sales, recognized in this region, and greater contribution from higher margin businesses, offset by reorganization and
integration costs of nine basis points. Throughout the year, the region continued to face competitive pricing pressure which also negatively impacted margins.
In addition, the 2012 year benefited from the favorable pricing on hard disk drives of approximately six basis points.
The decrease in our European operating margin in 2013 compared to 2012 reflects the impact of incremental integration and reorganization costs , of eight
basis points of European net sales, a charge of $5,000, or five basis points of European net sales, related to the indirect tax declarations noted above and the
impact of continued challenging macro-economic conditions throughout the region.
The increase in our Asia-Pacific operating margin in 2013 compared to 2012 primarily relates to improvement in Australia, which reduced its operating
loss by approximately $28,000 in the current year and continued growth in India, partially offset by volume declines in China noted above.
The increase in our Latin American operating margin in 2013 compared to 2012 primarily reflects profitability improvements in Brazil and the impact
of the LCD class action settlement of $1,033, or five basis points of Latin American net sales, recognized in this region in 2013, as well as the impact country
exit costs in Argentina recognized in 2012 which did not recur. These increases were partially offset by declines in higher margin revenues in Mexico and in
our Miami export business versus 2012.
Operating margins for our BrightPoint segment in 2012 reflect only the results of operations from the October 15, 2012 date of acquisition, in the fourth
quarter of 2012, which is the seasonally strongest and most profitable quarter of the year compared to the full year average in 2013. We continued to integrate
the BrightPoint operations into our business, streamlining processes and optimizing facilities, which resulted in integration and reorganization charges of
$24,977, or 55 basis points for the full year of 2013, and $6,852, or 63 basis points in the stub period of 2012, respectively, for headcount reductions and
facility closures. We have exceeded our annual accretion targets for BrightPoint in 2013.
Other expense, net, consisted primarily of interest expense and income, foreign currency exchange losses and gains, and other non-operating gains and
losses. We incurred other expenses of $78,776 in 2013 compared to $66,168 in 2012. The year-over-year increase is primarily attributable to higher interest
expense due to an increase in average debt outstanding resulting primarily from our acquisition of BrightPoint.
We recorded an income tax provision of $125,516, or an effective tax rate of 28.8%, in 2013 compared to $90,275, or an effective tax rate of 22.8%,
in 2012. The 2013 income tax provision included $18,854 of net discrete tax benefits, or 4.3 percentage
28