Ingram Micro 2008 Annual Report Download - page 36

Selling, General and Administrative Expenses or SG&A Expenses
Another key area for our overall profitability management is the monitoring and control of the level of SG&A
expenses. As the various factors discussed above have impacted our levels of sales over the past several years, we
have instituted a number of cost reduction and profit enhancement programs. Among other things, these efforts have
included our announced outsourcing and optimization plan in North America in 2005, our outsourcing of IT
application development functions in 2006 and a number of other reorganization actions across multiple regions to
further enhance productivity and profitability. Additionally, we have completed numerous acquisitions to add to our
traditional distribution business over the past several years. While these acquisitions increase our revenues and
market share, they also represent opportunities to streamline and realize operational synergies from the combined
operations. We have also made acquisitions to increase our presence in adjacent product offerings, such as AIDC/
POS, in addition to organic growth of other adjacent lines, such as our fee-for-service logistics business.While these
lines of business generally carry higher gross margins, as discussed above, they also generally carry a higher level of
SG&A expenses. The combination of these factors, along with continued revenue growth, has generally yielded a
trend of reduced SG&A expenses as a percentage of revenues in recent years. However, in 2008, our SG&A
expenses increased to 4.40% of net sales from 4.18% in the prior year, as the rapid decline in net sales exceeded the
rate at which we could reduce costs in the short term. As a result of the declining net sales, we implemented a
number of expense-reduction programs, resulting in the rationalization and re-engineering of certain roles and
processes and targeted reduction of headcount, primarily in EMEA and North America, and have announced
additional programs to be implemented in 2009. We continue to pursue and implement business process
improvements, IT systems enhancements and organizational changes to create sustained cost reductions without
sacrificing customer service over the long-term. Implementation of other actions, including integration of acqui-
sitions in the future, if any, could result in additional costs as well as additional operating income improvements.
Reorganization and Expense-Reduction Program Costs
In 2005, we incurred integration expenses of $12.7 million related to our acquisition of Tech Pacific,
comprised of $6.7 million of reorganization costs primarily for employee termination benefits, facility exit costs
and other contract termination costs for associates and facilities of Ingram Micro made redundant by the acquisition
as well as $6.0 million of other costs charged to SG&A primarily for consulting, retention and other expenses
related to the integration of Tech Pacific (see Note 3 to our consolidated financial statements). We substantially
completed the integration of the operations of our pre-existing Asia-Pacific business with Tech Pacific in the third
quarter of 2005. In 2005, we also announced an outsourcing and optimization plan to improve operating efficiencies
within our North American region. The plan, which was completed by 2006, included an outsourcing arrangement
that moved transaction-oriented service and support functions in our North America operations — including
selected functions in finance and shared services, customer service, vendor management, technical support and
inside sales (excluding field sales and management positions) — to a leading global business process outsource
provider. As part of the plan, we also restructured and consolidated other job functions within the North American
region. Total costs of the actions, or major-program costs, incurred in 2005 were $26.6 million ($9.7 million of
reorganization costs, primarily for workforce reductions and facility exit costs, as well as $16.9 million of other
costs charged to SG&A primarily for consulting, retention and other expenses).
In 2006, we incurred approximately $10.3 million of incremental technology enhancement costs primarily
associated with our decision to outsource certain IT application development functions to a leading global IT
outsource service provider, which we believe will improve our capabilities and more effectively manage costs over
the long-term. Most of the expenses incurred were for separation costs and other transition expenses, as well as for
expenditures related to improving our existing systems.
Starting in the second quarter of 2008, we announced cost-reduction programs, resulting in the rationalization
and re-engineering of certain roles and processes primarily at the regional headquarters in EMEA and targeted
reductions of primarily administrative and back-office positions in North America. Total costs of the actions
incurred in EMEA were $16.4 million, comprised of $14.9 million of reorganization costs related to employee
termination benefits for workforce reductions and facility consolidations, as well as $1.5 million of other costs
charged to SG&A expenses, comprised of consulting, legal and other expenses associated with implementing the
reduction in workforce. In North America, the net costs of the actions were $1.8 million, all of which were
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