Ingram Micro 2008 Annual Report Download - page 42

11 percentage-points positive impact compared to the prior year. Net sales from our Asia-Pacific operations were
$6.90 billion, $7.13 billion and $5.54 billion in 2008, 2007 and 2006, respectively. The decline in our Asia-Pacific
net sales of 3.2% in 2008 compared to 2007 was attributable to the softer demand for technology products and
services, which began in the larger economies in the region during the second quarter of 2008 and spread throughout
the region in the second half of 2008, combined with proactive efforts to exit or turn away unprofitable business in
certain markets. The growth in our Asia-Pacific net sales of 28.8% in 2007 compared to 2006 primarily reflects the
strong demand for IT products and services across the region and the appreciation of regional currencies compared
to the U.S. dollar, which had an approximately 10 percentage-point positive impact in 2007 over 2006. Net sales
from our Latin American operations were $1.73 billion, $1.55 billion and $1.48 billion in 2008, 2007 and 2006,
respectively. The year-over-year growth in Latin America net sales of 11.5% and 4.8% in 2008 and 2007,
respectively, primarily reflects the overall solid demand for IT products and services in the region. However, the
impacts of the weakening global economy experienced in our larger regions in the previous three quarters of 2008
spread to Latin America in the fourth quarter of 2008, and may intensify in 2009, thereby negatively impacting
demand for IT products and our revenue in the region.
Our gross margin was 5.65% in 2008, 5.45% in 2007 and 5.37% in 2006. The 2008 gross margin includes the
positive impact of $8.2 million, or 0.02% of sales, from a partial release of our commercial tax reserve in Brazil. The
2007 gross margin includes a net commercial tax charge in Brazil of $30.1 million, or 0.09% of sales (see Note 10 to
our consolidated financial statements). Despite a competitive and overall weak market in 2008, we have continued
our focus on pricing discipline and our more profitable businesses, including our fee-for-service logistics business,
and other enhancements in gross margin such as our freight recovery program described below. The slight increase
in 2007 compared to 2006 was driven primarily by the impact of our acquisitions of certain businesses, such as
AVAD and DBL, which have higher gross margins but also higher operating expenses; and other general
enhancements in gross margin, offset by the net Brazilian commercial tax charge noted above, and the impact
from the issues with the implementation of our German warehouse management system in 2006. We continuously
evaluate and modify our pricing policies and certain terms, conditions and credit offered to our customers to reflect
those being imposed by our vendors and general market conditions. In 2008, we introduced incremental freight
recovery charges to a large portion of our account base. This initiative commenced during the third quarter of 2008
and was largely implemented worldwide by the end of the quarter. We believe this initiative may have negatively
impacted our sales volumes during the second half of 2008 and may negatively impact our revenue over the near
term. Such sales volume decrease could also have a negative impact on our volume-based rebates. In this regard, as
we continue to evaluate our existing pricing policies and make modifications or future changes, if any, we may
experience moderated or continued negative 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 were $1.51 billion, $1.46 billion and $1.26 billion in 2008, 2007 and 2006, respectively.
Total SG&A expense as a percentage of net sales was 4.41%, 4.18% and 4.03% in 2008, 2007 and 2006,
respectively. In 2008, SG&A expenses as a percentage of net sales increased compared to 2007, primarily due to the
decline in revenues as a result of the downturn in the global economies in general, which exceeded the rate at which
we were able to reduce costs in the short term. With the downturn in the macroeconomic environment, we instituted
a number of actions during 2008 to reduce costs. On a global basis, we significantly reduced discretionary spending
in areas such as travel and professional services, in addition to managing headcount levels through attrition.
Additionally, primarily in North America and EMEA, where the downturn was most pronounced early in the year,
specific actions were taken to reduce headcount and operating expenses as further described below. We estimate
that these actions yielded at least $20 million annualized reductions as we entered 2009, although the 2008 impact is
much less due to the timing with which the actions were completed throughout the year. Also, driving the year-over-
year increase were: the investments in strategic initiatives and system enhancements; higher labor costs related to
our growing fee-for-service logistics business, which also yields a higher gross margin, as discussed above; and a
full year of operating expenses in 2008 from the addition of DBL in June 2007. The translation impact of foreign
currencies also contributed to the growth in SG&A dollars by approximately $26 million, or approximately two
percentage-points. These factors were partially offset by the year-over-year reduction of stock-based compensation
of $23.0 million, primarily the result of lower estimated achievement and payout under our long-term incentive
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