Ingram Micro 2010 Annual Report Download - page 33

have instituted a number of cost reduction and profit enhancement programs and a number of other reorganization
actions across each of our regions to respond to the downturn in the economy and to further enhance productivity
and profitability. As the economic downturn began in 2008, and impacted our levels of sales as discussed previously
herein, our SG&A expenses increased to 4.41% and 4.53% of consolidated net sales in 2008 and 2009, respectively,
from 4.18% or less in the years prior. To counter this, we implemented in 2008 and 2009 a number of additional
expense-reduction programs with the most significant impacts in North America and EMEA. These actions
included the rationalization and re-engineering of certain roles and processes, resulting in the reduction of
headcount and consolidation of certain facilities (see Note 3 to our consolidated financial statements). These
efforts to take costs out of our business, as well as continued cost control measures since the completion of these
actions, allowed us to leverage our higher volume of net sales in 2010, resulting in the decline of SG&A expenses as
a percentage of sales to 4.07%, our lowest level for this metric since 2006. Our SG&A expenses have also been
impacted by 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 and enterprise computing, and have invested in 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.
Acquisitions
We have complemented our internal growth initiatives with strategic business acquisitions over the past five
years. During this period, we have expanded our value-added distribution of AIDC/POS solutions through
acquisitions of the distribution businesses of Eurequat SA, or Eurequat, Intertrade A.F. AG, or Intertrade, Paradigm
Distribution Ltd., or Paradigm, and Symtech Nordic AS, or Symtech, in EMEA, and Vantex Technology
Distribution Limited, or Vantex, and the Cantechs Group in Asia Pacific. We have expanded our presence in
the mid-range enterprise market through the acquisitions of Computacenter Distribution, or CCD, Albora
Soluciones SL, or Albora, and interAct BVBA, or interAct, in EMEA and Value Added Distributors Limited,
or VAD, and Asiasoft Hong Kong Limited, or Asiasoft, in Asia Pacific. We have also expanded our presence in the
consumer electronics market in North America through the acquisition of DBL Distributing Inc., or DBL, in the
U.S., and have expanded our networking products and services offerings through the acquisitions of VPN Dynamics
Inc. and Securematics Inc. in the U.S.
Working Capital and Debt
The IT products and services distribution business is working capital intensive. Our business requires
significant levels of working capital primarily trade accounts receivable and inventory, which is partially financed
by vendor trade accounts payable. As a general rule, our net investment in working capital increases when sales
volumes increase. Conversely, this level of investment tends to decline in times of declining sales. For our working
capital needs, we rely heavily on trade credit from vendors, and also on trade accounts receivable financing
programs and debt facilities. Due to our narrow operating margins, we maintain a strong focus on management of
working capital and cash provided by operations, as well as our debt and cash levels. However, our debt and/or cash
levels may fluctuate significantly on a day-to-day basis due to timing of customer receipts and periodic payments to
vendors. A higher concentration of payments received from customers toward the end of each month, combined
with the timing of payments we make to our vendors, often yields lower debt balances and higher cash balances at
our period-ends than is the case throughout the quarter or year. Our future debt requirements may increase and/or
our cash levels may decrease to support growth in our overall level of business, changes in our required working
capital profile, or to fund acquisitions, share repurchases or other investments in the business.
Our Critical Accounting Policies and Estimates
The discussions and analyses of our consolidated financial condition and results of operations are based on our
consolidated financial statements, which have been prepared in conformity with accounting principles generally
accepted in the U.S. The preparation of these financial statements requires us to make estimates and assumptions
that affect the reported amounts of assets and liabilities, disclosure of significant contingent assets and liabilities at
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