Ingram Micro 2013 Annual Report Download - page 23

Table of Contents
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Unless otherwise stated, all currency amounts, other than per share information, contained in this Management’s Discussion and Analysis of Financial
Condition and Results of Operations are stated in thousands.
Overview of Our Business
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We are the largest wholesale technology distributor and a global leader in IT supply-chain, mobile device lifecycle services and logistics solutions
worldwide based on revenues. We offer a broad range of IT products and supply chain solutions and help generate demand and create efficiencies for our
customers and suppliers around the world. Our results of operations have been, and are expected to continue to be, directly affected by the conditions in the
economy in general. Our sales and results of operations have also been impacted by our acquisitions of BrightPoint, in October 2012, which expanded our
product and service offerings to mobile device lifecycle services and logistics solutions worldwide, and to a lesser extent by the smaller acquisitions of Aptec,
in October 2012 and Promark in November 2012. We also completed the strategic acquisitions of SoftCom, CloudBlue and Shipwire in the fourth quarter of
2013, which also enhanced our existing portfolio of products and services. The effects of the acquisitions during 2013 described above individually, and in
aggregate, were not material to our consolidated results of operations.
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The IT distribution industry in which we operate is characterized by narrow gross profit as a percentage of net sales, or gross margin, and narrow income
from operations as a percentage of net sales, or operating margin. Historically, our margins have also been impacted by pressures from price competition and
declining average selling prices, as well as changes in vendor terms and conditions, including, but not limited to, variations in vendor rebates and incentives,
our ability to return inventory to vendors, and time periods qualifying for price protection. We expect competitive pricing pressures and restrictive vendor
terms and conditions to continue in the foreseeable future. In addition, our margins have been and may continue to be impacted by our inventory levels which
are based on projections of future demand, product availability, product acceptance and marketability, and market conditions. Any sudden decline in demand
and/or rapid technological changes in products could cause us to have a charge for excess and/or obsolete inventory. To mitigate these factors, we have
implemented changes to and continue to refine our pricing strategies, inventory management processes and vendor program processes. In addition, we
continuously monitor and work to change, as appropriate, certain terms, conditions and credit offered to our customers to reflect those being imposed by our
vendors, to recover costs and/or to facilitate sales opportunities. We have also strived to improve our profitability through diversification of product offerings,
including our presence in adjacent product categories, such as automatic identification/data capture and point-of-sale, or AIDC/POS, enterprise computing,
cloud computing, consumer electronics and fee-for-service logistics offerings.
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Another key area for our overall profitability management is the monitoring and control of our level of SG&A expenses. We have instituted a number of
cost reduction and profit enhancement programs and as well as other reorganization actions across each of our segments to respond to changes in the economy
and to further enhance productivity and profitability.These actions have included the rationalization and re-engineering of certain roles and processes, resulting
in the reduction of headcount and consolidation of certain facilities. Our acquisition of BrightPoint, as well as our smaller strategic acquisitions of SoftCom,
CloudBlue and Shipwire increased our presence in fee-for-service mobility device lifecycle solutions, and traditional logistics offerings and cloud solutions,
which have higher margins but also higher service costs. As such, we expect our SG&A expenses will increase as a percent of consolidated net sales with the
increase in this mix of business.
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Our overall profitability is also impacted by amortization of our intangible assets primarily due to our recent acquisitions.
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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 proceeds from our senior unsecured notes 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
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