Ingram Micro 2008 Annual Report Download - page 24

adverse industry trends will be successful. Dynamic changes in the industry have resulted in new and increased
responsibilities for management personnel and have placed and continue to place a significant strain upon our
management, operating and financial systems, and other resources. This strain may result in disruptions to our
business and decreased revenues and profitability. In addition, we may not be able to attract or retain sufficient
personnel to manage our operations through such dynamic changes. Even with sufficient personnel we cannot assure
our ability to successfully manage future adverse industry trends. Also crucial to our success in managing our
operations will be our ability to achieve additional economies of scale. Our failure to achieve these additional
economies of scale could harm our profitability or lead to restructuring actions which may have incremental discrete
costs. In addition, we may not achieve the objectives of our process improvement efforts or be able to adequately
adjust our cost structure in a timely fashion to remain competitive, which may cause our profitability to suffer.
If our business does not perform well, we may be required to recognize further impairments of our
intangible or other long-lived assets or to establish a valuation allowance against our deferred income tax
assets, which could adversely affect our results of operations or financial condition. In the fourth quarter of
2008, consistent with the drastic decline in the capital markets in general, we experienced a similar decline in the
market value of our stock. As a result, our market capitalization was significantly lower than our book value. In
accordance with the provisions of Statement of Financial Accounting Standards No. 142, “Goodwill and Other
Intangible Assets” (“FAS 142”), we performed an impairment test of our goodwill during the fourth quarter of 2008,
which coincided with the timing of our normal annual impairment test. As a result of this test, we recognized a
charge of $742.6 million to impair all of our goodwill in the fourth quarter of 2008. This non-cash charge materially
impacted our equity and results of operations in 2008, but does not impact our ongoing business operations,
liquidity, cash flow or compliance with covenants for our credit facilities.
Deferred income tax represents the tax effect of the differences between the book and tax bases of assets and
liabilities. Deferred tax assets, which also include net operating loss carryforwards for entities that have generated
or continue to generate taxable losses, are assessed periodically by management to determine if they are realizable.
Factors in management’s determination include the performance of the business and the feasibility of ongoing tax
planning strategies. If based on available information, it is more likely than not that the deferred income tax asset
will not be realized then a valuation allowance must be established with a corresponding charge to net income. Such
charges could have a material adverse effect on our results of operations or financial condition.
Our future results of operations may be impacted by the prolonged weakness in the current economic
environment which may result in an impairment of any goodwill recorded in the future and/or other long-lived
assets or valuation allowance on our deferred tax assets, which could adversely affect our results of operations or
financial condition.
We continually experience intense competition across all markets for our products and services, which
may intensify in a more difficult global economy. Our competitors include local, regional, national, and
international distributors, as well as suppliers that employ a direct-sales model. As a result of intense price
competition in the IT products and services distribution industry, our gross margins have historically been narrow
and we expect them to continue to be narrow in the future. In addition, when there is overcapacity in our industry,
our competitors may reduce their prices in response to this overcapacity. We offer no assurance that we will not lose
market share, or that we will not be forced in the future to reduce our prices in response to the actions of our
competitors and thereby experience a further reduction in ourgrossmargins. Furthermore, toremain competitive we
may be forced to offer more credit or extended payment terms to our customers. This could increase our required
capital, financing costs, and the amount of our bad debt expenses. We have also initiated and expect to continue to
initiate other business activities and may face competition from companies with more experience and/or from new
entries in those new markets. As we enter new business areas, we may encounter increased competition from current
competitors and/or from new competitors, some of which may be our current customers or suppliers, which may
negatively impact our sales or profitability.
We operate a global business that exposes us to risks associated with international activities. We have
local sales offices and/or Ingram Micro representatives in 35 countries, and sell our products and services to
resellers in approximately 150 countries. A large portion of our revenue is derived from our international
operations. As a result, our operating results and financial condition could be significantly affected by risks
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