NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In 000s, except per share data)
Note 1 Organization and Basis of Presentation
Ingram Micro Inc. and its subsidiaries are primarily engaged in the distribution of information technology
(IT) products and supply chain, mobile device lifecycle services and logistics solutions worldwide. Ingram Micro Inc. and its subsidiaries operate in North America, Europe, Asia-Pacific, Middle East and Africa
(Asia-Pacific), and Latin America. In 2012, we have added a reportable segment for mobility which reflects our acquisition of Brightpoint, Inc. (BrightPoint).
Note 2 Significant Accounting Policies
Basis of Consolidation
The consolidated financial statements include the accounts of Ingram Micro Inc. and its subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation. Unless
the context otherwise requires, the use of the terms Ingram Micro, we, us and our in these notes to consolidated financial statements refers to Ingram Micro Inc. and its subsidiaries.
Fiscal Year
Our fiscal year is a 52- or 53-week period ending on the Saturday nearest to December 31. All references herein to 2012, 2011, and 2010 represent the 52-week
fiscal years ended December 29, 2012, December 31, 2011 and January 1, 2011, respectively.
Use of
Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the
United States of America (U.S.) requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the financial statement date, and reported
amounts of revenue and expenses during the reporting period. We review our estimates and assumptions on an on-going basis. Significant estimates primarily relate to the realizable value of accounts receivable, vendor programs, inventory, goodwill,
intangible and other long-lived assets, income taxes and contingencies and litigation. Actual results could differ from these estimates.
Revenue Recognition
Revenue is recognized when: an arrangement
exists; delivery has occurred, including transfer of title and risk of loss for product sales, or services have been rendered for service revenues; the price to the buyer is fixed or determinable; and collection is reasonably assured. Service
revenues represent less than 10% of total net sales for 2012, 2011 and 2010. We, under specific conditions, permit our customers to return or exchange products. The provision for estimated sales returns is recorded concurrently with the recognition
of revenue. The net impact on gross margin from estimated sales returns is included in allowances against trade accounts receivable in the consolidated balance sheet. We also have limited contractual relationships with certain of our customers and
suppliers whereby we assume an agency relationship in the transaction. In such arrangements, we recognize as revenues the net fee associated with serving as an agent.
Vendor Programs
Funds received from vendors for price protection,
product rebates, marketing/promotion, infrastructure reimbursement and meet-competition programs are recorded as adjustments to product costs, revenue, or selling,
50
INGRAM MICRO INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In 000s, except per share data)
general and administrative (SG&A) expenses according to the nature of the program. Some of these programs may extend over one or more quarterly reporting periods. We accrue
rebates or other vendor incentives as earned based on sales of qualifying products or as services are provided in accordance with the terms of the related program.
We sell products purchased from many vendors, but generated approximately 18%, 21% and 23% of our net sales in 2012, 2011 and 2010, respectively, from products purchased from Hewlett-Packard Company and
10% of our net sales in 2012 from products purchased from Apple, Inc. There were no other vendors whose products represented 10% or more of our net sales for each of the last three fiscal years.
Warranties
Our suppliers generally warrant the products distributed by us and allow returns of defective products, including those that have been returned to us by our customers. We generally do not independently
warrant the products we distribute; however, local laws might impose warranty obligations upon distributors (such as in the case of supplier liquidation). We are obligated to provide warranty protection for sales of certain IT products within the
European Union (EU) for up to two years as required under the EU directive where vendors have not affirmatively agreed to provide pass-through protection. In addition, we warrant the services we provide, products that we build-to-order
from components purchased from other sources, and our own branded products. Provision for estimated warranty costs is recorded at the time of sale and periodically adjusted to reflect actual experience. Warranty expense and the related obligations
are not material to our consolidated financial statements.
Foreign Currency Translation and Remeasurement
Financial statements of our foreign subsidiaries, for which the functional currency is the local currency, are
translated into U.S. dollars using the exchange rate at each balance sheet date for assets and liabilities and a weighted average exchange rate for each period for statement of income items. Translation adjustments are recorded in accumulated
other comprehensive income, a component of stockholders equity. The functional currency of a few operations within our Europe, Asia-Pacific and Latin America regions is the U.S. dollar; accordingly, the monetary assets and liabilities of
these subsidiaries are translated into U.S. dollars at the exchange rate in effect at the balance sheet date. Revenues, expenses, gains or losses are translated at the average exchange rate for the period, and nonmonetary assets and liabilities
are translated at historical rates. The resultant remeasurement gains and losses of these operations as well as gains and losses from foreign currency transactions are included in the consolidated statement of income.
Cash and Cash Equivalents
We consider all highly liquid investments with original maturities of three months or less from the date of purchase to be cash equivalents.
Book overdrafts of $415,207 and $511,172 as of December 29, 2012 and December 31, 2011, respectively, represent checks issued
on disbursement bank accounts but not yet paid by such banks. These amounts are classified as accounts payable in our consolidated balance sheet. We typically fund these overdrafts through normal collections of funds or transfers from bank balances
at other financial institutions. Under the terms of our facilities with the banks, the respective financial institutions are not legally obligated to honor the book overdraft balances as of December 29, 2012 and December 31, 2011, or any
balance on any given date.
51
INGRAM MICRO INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In 000s, except per share data)
Trade Accounts Receivable Factoring Programs
We have three uncommitted factoring programs, one in North America and two in Europe, under which trade accounts receivable of two
large customers may be sold, without recourse, to financial institutions. The total amount of receivables factored under these programs, at any point in time, cannot exceed approximately $355,000 based on December 29, 2012 exchange rates.
Available capacity under these programs is dependent on the amount of trade accounts receivable already sold to and held by the financial institutions, the level of our trade accounts receivable eligible to be sold into these programs and the
financial institutions willingness to purchase such receivables. At December 29, 2012 and December 31, 2011, we had a total of $242,626 and $165,744, respectively, of trade accounts receivable sold to and held by the financial
institutions under these programs. Factoring fees of $3,822, $3,068 and $1,605 incurred in 2012, 2011 and 2010, respectively, related to the sale of trade accounts receivable under both facilities are included in other in the other
expense (income) section of our consolidated statement of income.
Inventory
Our inventory consists of finished goods purchased from various vendors for resale. Inventory is stated at the lower of average cost or
market, and is determined from the price we pay vendors, including freight and duties. We do not include labor, overhead or other general or administrative costs in our inventory.
Property and Equipment
Property and equipment are recorded at cost and depreciated using the straight-line method over the estimated useful lives noted below. We also capitalize computer software costs that meet both the
definition of internal-use software and defined criteria for capitalization. Leasehold improvements are amortized over the shorter of the lease term or the estimated useful life. Depreciable lives of property and equipment are as follows:
|
|
|
|
|
Buildings
|
|
|
30-40 years
|
|
Leasehold improvements
|
|
|
3-17 years
|
|
Distribution equipment
|
|
|
5-10 years
|
|
Computer equipment and software
|
|
|
3-10 years
|
|
Maintenance, repairs and minor renewals are charged to expense as incurred. Additions, major renewals and
betterments to property and equipment are capitalized.
Long-Lived and Intangible Assets
We assess potential impairments to our long-lived and intangible assets when events or changes in circumstances indicate that the carrying
amount may not be fully recoverable. If required, an impairment loss is recognized as the difference between the carrying value and the fair value of the assets. The gross carrying amounts of the finite-lived identifiable intangible assets of
$445,385 and $183,557 at December 29, 2012 and December 31, 2011, respectively, are amortized over their remaining estimated lives ranging up to 20 years with the predominant amounts having lives of 3 to 10 years. The net carrying
amount was $372,482 and $73,330 at December 29, 2012 and December 31, 2011, respectively. Amortization expense was $20,711, $12,550 and
52
INGRAM MICRO INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In 000s, except per share data)
$16,743 for 2012, 2011 and 2010, respectively. Future minimum amortization expense of finite-lived identifiable intangible assets that we expect to recognize over the next five years and
thereafter are as follows:
|
|
|
|
|
2013
|
|
$
|
46,660
|
|
2014
|
|
|
46,533
|
|
2015
|
|
|
43,383
|
|
2016
|
|
|
38,121
|
|
2017
|
|
|
38,035
|
|
Thereafter
|
|
|
159,750
|
|
|
|
|
|
|
|
|
$
|
372,482
|
|
|
|
|
|
|
There were no impairments to our long-lived and other identifiable intangible assets in 2012, 2011 and
2010.
Goodwill
Goodwill represents the excess of the purchase price over the fair value of the identifiable net assets acquired in an acquisition and should be reviewed at least annually for potential impairment.
Additions to goodwill in 2012 were due to our acquisitions of BrightPoint and Promark Technology Inc. (Promark)
in North America and Aptec Holdings Ltd. (Aptec) in Asia-Pacific during the fourth quarter of 2012 (see Note 4).
The changes in the carrying amount of goodwill for 2012 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North
America
|
|
|
Asia-
Pacific
|
|
|
BrightPoint
|
|
|
Total
|
|
Balance at December 31, 2011
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Acquisitions
|
|
|
4,555
|
|
|
|
4,951
|
|
|
|
418,895
|
|
|
|
428,401
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 29, 2012
|
|
$
|
4,555
|
|
|
$
|
4,951
|
|
|
$
|
418,895
|
|
|
$
|
428,401
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Concentration of Credit Risk
Financial instruments that potentially subject us to significant concentrations of credit risk consist principally of cash and cash
equivalents, trade accounts receivable from customers and vendors, and derivative financial instruments. Our cash and cash equivalents are deposited and/or invested with various financial institutions globally that are monitored by us regularly for
credit quality. Credit risk with respect to trade accounts receivable is limited due to the large number of customers and their dispersion across geographic areas. No single customer has accounted for 10% or more of our consolidated net sales in
2012, 2011 and 2010 and no customer accounts receivable balance was greater than 10% at December 29, 2012 and December 31, 2011. We perform ongoing credit evaluations of our customers financial conditions, obtain credit insurance in
many locations and require collateral in certain circumstances. We maintain an allowance for estimated credit losses.
Derivative Financial Instruments
We operate in various locations around the world. We reduce our exposure to fluctuations in foreign exchange rates by creating offsetting positions through the use of derivative financial instruments in
situations
53
INGRAM MICRO INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In 000s, except per share data)
where there are not offsetting balances that create a natural hedge. The market risk related to the foreign exchange agreements is offset by changes in the valuation of the underlying items being
hedged. In accordance with our policy, we do not use derivative financial instruments for trading or speculative purposes, nor are we a party to leveraged derivatives.
Foreign exchange risk is managed primarily by using forward contracts to hedge foreign currency-denominated receivables, payables and intercompany loans and expenses. Interest rate swaps and forward
contracts are used to hedge foreign currency-denominated principal and interest payments related to intercompany loans.
All
derivatives are recorded in our consolidated balance sheet at fair value. The estimated fair value of derivative financial instruments represents the amount required to enter into similar offsetting contracts with similar remaining maturities based
on market-derived prices. Changes in the fair value of derivatives not designated as cash flow hedges are recorded in current earnings.
The notional amount of forward exchange contracts is the amount of foreign currency bought or sold at maturity. The notional amount of interest rate swaps is the underlying principal amount used in
determining the interest payments exchanged over the life of the swap. Notional amounts are indicative of the extent of our involvement in the various types and uses of derivative financial instruments but are not a measure of our exposure to credit
or market risks through our use of derivatives.
Credit exposure for derivative financial instruments is limited to the
amounts, if any, by which the counterparties obligations under the contracts exceed our obligations to the counterparties. We manage the potential risk of credit losses through careful evaluation of counterparty credit standing, selection of
counterparties from a limited group of financial institutions and other contract provisions including collateral deposits.
Fair Value Measurement
The carrying amounts of our cash equivalents, trade accounts receivable, marketable trading securities (included in other current assets in our consolidated balance sheet), accounts payable and other
accrued expenses approximate fair value because of the short maturity of these items. Our North American, European and Asia-Pacific revolving trade accounts receivable-backed financing programs bear interest at variable rates based on designated
commercial paper rates and local reference rates, respectively, plus a predetermined fixed margin. The interest rates of our revolving unsecured credit facilities and other debt are dependent upon the local short-term bank indicator rate for a
particular currency, which also resets regularly. The carrying amounts of all these facilities approximate their fair value because of the revolving nature of the borrowings and because the all-in rate (consisting of variable rates and fixed margin)
adjusts regularly to reflect current market rates with appropriate consideration for our credit profile.
Our $300,000 senior
unsecured notes due in August 2022 (see Note 6) had a fair value of approximately $307,000 at December 29, 2012 while our $300,000 senior unsecured notes due in August 2017 had a fair value of approximately $326,000 and $324,000 at
December 29, 2012 and December 31, 2011, respectively.
Treasury Stock
We account for repurchased shares of common stock as treasury stock. Treasury shares are recorded at cost and are included as a component
of stockholders equity in our consolidated balance sheet.
54
INGRAM MICRO INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In 000s, except per share data)
Comprehensive Income
Effective January 1, 2012, we adopted the provisions of a new accounting standard and provided a consolidated statement of
comprehensive income for the three years ended December 29, 2012. Comprehensive income consisted primarily of our net income, foreign currency translation adjustments, fair value adjustments to our interest rate swap agreement designated as a cash
flow hedge, which we settled in September 2011, and unrealized gains and losses from our foreign currency forward contracts designated as cash flow hedges.
Earnings Per Share
We report a dual presentation of Basic Earnings
Per Share (Basic EPS) and Diluted Earnings Per Share (Diluted EPS). Basic EPS excludes dilution and is computed by dividing net income by the weighted average number of common shares outstanding during the
reported period. Diluted EPS uses the treasury stock method to compute the potential dilution that could occur if stock-based awards and other commitments to issue common stock were exercised.
The computation of Basic EPS and Diluted EPS is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended
|
|
|
|
2012
|
|
|
2011
|
|
|
2010
|
|
Net income
|
|
$
|
305,909
|
|
|
$
|
244,240
|
|
|
$
|
318,060
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares
|
|
|
150,654
|
|
|
|
155,882
|
|
|
|
160,504
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share
|
|
$
|
2.03
|
|
|
$
|
1.57
|
|
|
$
|
1.98
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares including the dilutive effect of stock-based awards (3,063, 3,706 and 3,357 for 2012, 2011 and 2010,
respectively)
|
|
|
153,717
|
|
|
|
159,588
|
|
|
|
163,861
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share
|
|
$
|
1.99
|
|
|
$
|
1.53
|
|
|
$
|
1.94
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
There were approximately 3,487, 2,671 and 5,266 stock-based awards in 2012, 2011 and 2010, respectively,
which were not included in the computation of Diluted EPS because the exercise price was greater than the average market price of the Class A Common Stock, thereby resulting in an antidilutive effect.
Income Taxes
We estimate income taxes in each of the taxing jurisdictions in which we operate. This process involves estimating our actual current tax expense together with assessing the future tax impact of any
differences resulting from the different treatment of certain items, such as the timing for recognizing revenues and expenses for tax versus financial reporting purposes. These differences may result in deferred tax assets and liabilities, which are
included in our consolidated balance sheet. We are required to assess the likelihood that our deferred tax assets, which include net operating loss carryforwards, tax credits and temporary differences that are expected to be deductible in future
years, will be recoverable from future taxable income. In making that assessment, we consider the nature of the deferred tax assets and related statutory limits on utilization, recent operating results, future market growth, forecasted earnings,
future taxable income, the mix of earnings in the jurisdictions in which we operate and prudent and feasible tax planning strategies. If, based upon available
55
INGRAM MICRO INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In 000s, except per share data)
evidence, recovery of the full amount of the deferred tax assets is not likely, we provide a valuation allowance on any amount not likely to be realized. In that regard, we recorded a charge of
$41,845 in the fourth quarter of 2012 to provide a valuation allowance on our deferred tax assets in Australia, and a benefit of $29,978 for the partial release of a valuation allowance on our deferred tax assets for the foreign tax credit
carryforwards in the U.S.
Our effective tax rate includes the impact of not providing taxes on undistributed foreign earnings
considered indefinitely reinvested. Material changes in our estimates of cash, working capital and long-term investment requirements in the various jurisdictions in which we do business could impact our effective tax rate if we no longer consider
our foreign earnings to be indefinitely reinvested.
The provision for tax liabilities and recognition of tax benefits
involves evaluations and judgments of uncertainties in the interpretation of complex tax regulations by various taxing authorities. In situations involving uncertain tax positions related to income tax matters, we do not recognize benefits unless
their sustainability is deemed more likely than not. As additional information becomes available, or these uncertainties are resolved with the taxing authorities, revisions to these liabilities or benefits may be required, resulting in additional
provision for or benefit from income taxes reflected in our consolidated statement of income.
Accounting for
Stock-Based Compensation
We use the Black-Scholes option-pricing model to determine the fair value of stock options
and the closing market price of our common stock on the date of the grant to determine the fair value of our restricted stock and restricted stock units. Stock-based compensation expense is recorded for all stock options, restricted stock and
restricted stock units that are ultimately expected to vest as the requisite service is rendered. We recognize these compensation costs, net of an estimated forfeiture rate, on a straight-line basis over the requisite service period of the award,
which is the vesting term of outstanding stock-based awards. We estimate the forfeiture rate based on our historical experience during the preceding five fiscal years.
New Accounting Standards
In July 2012, the Financial Accounting
Standards Board (FASB) issued an accounting standard update regarding the testing of indefinite-lived intangible assets for impairment. This update provides an entity the option to assess qualitative factors to determine whether the
existence of events and circumstances indicates that it is more likely than not that the indefinite-lived intangible asset is impaired. If the entity concludes that it is more likely than not that an indefinite-lived intangible asset is impaired, it
is required to determine the fair value of the asset and perform the quantitative impairment test in accordance with the guidance on the impairment of intangible assets other than goodwill. If an entity concludes otherwise, no further quantitative
assessment is required. This guidance is effective for us beginning December 30, 2012 (the first day of fiscal 2013). Early adoption is permitted. We do not expect the adoption of this standard update to have a material impact on our
consolidated results of operations, cash flows or financial position.
In December 2011, the FASB issued a new accounting
standard related to enhanced disclosures on offsetting (netting) of assets and liabilities in the financial statements. This standard requires improved information about financial instruments and derivative instruments that are either allowed to be
offset in accordance with another accounting standard or subject to an enforceable master netting arrangement or similar agreement, irrespective of whether they are offset in accordance with another accounting standard. Under this standard,
financial statements should disclose the gross amounts of those recognized assets and liabilities and the amounts offset, whether permitted by another accounting standard or subject to master netting arrangement, to determine the net amounts
presented in the statement of financial position. This standard is effective for us
56
INGRAM MICRO INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In 000s, except per share data)
beginning December 30, 2012 (the first day of fiscal 2013) and must be applied retrospectively for all comparative periods presented. We are currently in the process of assessing what impact
this standard may have on our consolidated financial position.
Note 3 Reorganization Costs
During 2012, we implemented headcount reductions primarily in Australia and New Zealand to better align our operating
expenses with each countrys lower sales volumes. Additionally, we moved certain transactions-oriented service and support functions to shared service centers in Asia-Pacific and Europe. We closed our in-country Argentina operations in Latin
America and will service this market through our export operations in Miami. Associated with these actions, we incurred reorganization costs of $9,044, that was comprised of $8,744 related to employee termination benefits for workforce reductions
for 359 employees, and $300 related to contract terminations in BrightPoint all of which were fully utilized by end of 2012. The employee termination benefits by segment were $4,523 for 261 employees in Asia-Pacific, $3,087 for 54 employees in
Europe, $668 for 19 employees in BrightPoint, $432 for 21 employees in Latin America, and $34 for 4 employees in North America. The reorganization costs and activities in 2012 and the remaining liabilities related to these actions are summarized in
the table below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reorganization
Costs
|
|
|
Amounts Paid
and
Charged
Against the
Liability
|
|
|
Adjustments
|
|
|
Remaining
Liability at
December 29,
2012
|
|
Employee termination benefits
|
|
$
|
8,744
|
|
|
$
|
(6,959
|
)
|
|
$
|
41
|
|
|
$
|
1,826
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjustments reflected in the table above include the net foreign currency impact that increased the U.S.
dollar liability by $41. We expect the remaining liabilities to be substantially utilized by the end of 2014.
During 2012, we
also recorded a charge for asset impairments of $1,923 associated with the closure of our in-country Argentina operations. This charge is included in SG&A expenses in the accompanying consolidated statement of income.
In the second half of 2011, we implemented a cost-reduction program related to our Australian operations in Asia-Pacific primarily to
align our level of operating expenses with declines in sales volume as a result of the system-implementation complications and loss of market share in that country. We also implemented headcount reductions in certain operations in North America,
Europe and Latin America. The remaining liabilities and 2012 activities associated with these actions are summarized in the table below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Remaining
Liability at
December 31,
2011
|
|
|
Amounts Paid
and
Charged
Against the
Liability
|
|
|
Adjustments
|
|
|
Remaining
Liability at
December 29,
2012
|
|
Employee termination benefits
|
|
$
|
2,948
|
|
|
$
|
(2,659
|
)
|
|
$
|
(210
|
)
|
|
$
|
79
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjustments reflected in the table above include a reduction of $115 and $158 to reorganization
liabilities recorded in prior years in Asia-Pacific and North America, respectively, for lower than expected employee termination benefits, as well as the net foreign currency impact that increased the U.S. dollar liability by $63. The remaining
liabilities will be substantially utilized by mid-2013.
57
INGRAM MICRO INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In 000s, except per share data)
The reorganization costs in 2010 primarily represent a net charge of $1,137, which
consisted of $1,354 in North America primarily for higher than expected costs associated with exited facilities, partially offset by $183 in Europe for lower than expected costs associated with employee termination benefits and facility
consolidations and $34 in Asia-Pacific for lower than expected costs associated with employee termination benefits.
In 2009
and earlier, we incurred costs to integrate past acquisitions, as well as launching various other outsourcing and optimization plans, to improve operating efficiencies and better align our level of operating expenses with the decline in sales
volumes resulting from the economic downturn in recent years. While these reorganization actions were completed prior to the periods included herein, future cash outlays are required for future lease payments related to exited facilities. The
remaining liabilities and 2012 activities associated with these actions are summarized in the table below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Remaining
Liability at
December 31,
2011
|
|
|
Amounts Paid
and
Charged
Against the
Liability
|
|
|
Adjustments
|
|
|
Remaining
Liability at
December 29,
2012
|
|
Facility costs
|
|
$
|
8,280
|
|
|
$
|
(3,069
|
)
|
|
$
|
1,003
|
|
|
$
|
6,214
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjustments reflected in the table above include a net charge of $937 and reduction of $32 to
reorganization liabilities recorded in prior years in North America and Europe, respectively, primarily for lower than expected facility exit costs, as well as the net foreign currency impact that increased the U.S. dollar liability by $98. We
expect the remaining liabilities, all of which are associated with facility costs, to be fully utilized by the end of 2015.
Note 4 Acquisitions
On October 15, 2012, we completed the acquisition of BrightPoint, a U.S. publicly traded entity and a global
leader in providing device lifecycle services to the wireless industry for cash and the assumption of its debt, through the merger of BrightPoint and Beacon Sub, Inc., a direct wholly-owned subsidiary of Ingram Micro, under the Merger Agreement
dated June 29, 2012. As a result of the merger, BrightPoint became a wholly-owned subsidiary of Ingram Micro and the results of operations of BrightPoint are included in our consolidated financial statements from the date of the merger. For the
period from October 16, 2012 to December 29, 2012, BrightPoints net sales and operating income were $1,041,374 and $11,290, respectively.
The consideration paid was $868,192, primarily comprised of $9.00 cash per share of BrightPoints outstanding common stock, restricted stock units and shares issued pursuant to restricted stock
awards, net of cash acquired. We also paid BrightPoints outstanding debt of $260,257. We funded the acquisition using the proceeds from our August 2012 offering of senior unsecured notes, revolving senior unsecured credit facility and existing
cash. The fair value assigned to the consideration is as follows:
|
|
|
|
|
Purchase price:
|
|
|
|
|
Payments to common shareholders
|
|
$
|
573,439
|
|
Payment of outstanding debt
|
|
|
260,257
|
|
Payments of other acquisition-related consideration
|
|
|
34,496
|
|
|
|
|
|
|
|
|
$
|
868,192
|
|
|
|
|
|
|
The acquired assets and assumed liabilities were recorded by us at their estimated fair values. We
determined the estimated fair values with the assistance of appraisals or valuations performed by independent third party specialists, which incorporated discounted cash flow analyses, quoted market prices where available,
58
INGRAM MICRO INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In 000s, except per share data)
and estimates made by management. We expect to realize operational benefits by leveraging existing channel relationships and utilize the assembled workforce. We also expect the combined entity to
achieve significant savings in corporate and operational overhead costs. We anticipate opportunities for growth through our entry into the global wireless industry, expansion of our geographic reach and customer segment diversity, and the ability to
leverage additional products and capabilities. These factors, among others, contributed to a purchase price in excess of the estimated fair value of BrightPoints net identifiable assets acquired, and, as a result, we have recorded goodwill in
connection with this transaction.
Goodwill acquired was allocated to our BrightPoint operating segment as a part of the
purchase price allocation. We do not expect the goodwill recognized to be deductible for income tax purposes. Any impairment charges made in the future associated with goodwill will not be tax deductible.
A portion of the overall purchase price was allocated to acquired intangible assets. Amortization expense associated with acquired
intangible assets is not deductible for tax purposes. Therefore, approximately $84,424 was established as a deferred tax liability for the future amortization of these intangibles.
The following table summarizes the allocation of the purchase price to the estimated fair values of the assets acquired and liabilities
assumed on the closing date of October 15, 2012:
|
|
|
|
|
Tangible assets (includes trade accounts receivable, inventory, property and equipment and other assets)
|
|
$
|
1,156,075
|
|
Goodwill
|
|
|
418,895
|
|
Identifiable intangible assets
|
|
|
309,000
|
|
Liabilities (includes accounts payable, accrued expenses and other liabilities)
|
|
|
(1,015,778
|
)
|
|
|
|
|
|
|
|
$
|
868,192
|
|
|
|
|
|
|
The fair value of trade accounts receivable, inventory, other current assets, accounts payable and other
accrued liabilities generally approximated historical carrying values given the short-term nature of these assets and liabilities. The fair values of acquired property and equipment, intangible assets and other long-term assets were determined with
the assistance of independent valuation specialists. The values of deferred tax assets and the liabilities were based on the expected realizable value or expected amount due.
Valuations of intangible assets acquired
The components of
intangible assets acquired in connection with the BrightPoint acquisition were as follows:
|
|
|
|
|
|
|
|
|
|
|
Fair Value
|
|
|
Estimated
Useful Life
|
|
Logistics customer relationships
|
|
$
|
237,000
|
|
|
|
10 years
|
|
Distribution customer relationships
|
|
|
59,000
|
|
|
|
7 years
|
|
Trade name
|
|
|
13,000
|
|
|
|
3 years
|
|
|
|
|
|
|
|
|
|
|
Total intangible assets
|
|
$
|
309,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisition and integration costs directly related to the BrightPoint merger totaled $11,898 for the year
ended December 29, 2012. These costs were recorded in SG&A expenses. In addition, reorganization charges primarily related to employee termination benefits amounted to $968 for the same period (see Note 3).
59
INGRAM MICRO INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In 000s, except per share data)
The following represents pro-forma operating results as if BrightPoint had been included
in our consolidated statements of operations as of the first date of fiscal year 2011 presented below. The following represents pro-forma operating results as if BrightPoint had been included in our consolidated statements of operations as of the
first date of fiscal year 2011 and include business combination accounting effects from our acquisition including amortization of acquired intangible assets and increase in interest expense associated with the issuance of our senior unsecured notes
due in 2022 and additional borrowings from our revolving senior unsecured credit facility debt to fund the acquisition.
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year
|
|
|
|
2012
|
|
|
2011
|
|
Net sales
|
|
$
|
41,802,220
|
|
|
$
|
41,573,084
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
310,791
|
|
|
$
|
282,901
|
|
|
|
|
|
|
|
|
|
|
Earnings per share
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
2.06
|
|
|
$
|
1.81
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
$
|
2.02
|
|
|
$
|
1.77
|
|
|
|
|
|
|
|
|
|
|
The above unaudited pro forma results have been prepared for informational purposes only and do not
purport to represent what the results of operations would have been had the acquisition occurred as of those dates, nor of future results of operations.
On August 13, 2012, we announced the signing of a definitive agreement to acquire certain IT distribution businesses of Aptec, a Dubai-based value-added distributor in the Middle East and Africa,
with products and solutions covering data center, storage, security, networking and software categories, including technical services. We acquired Aptec, excluding its Saudi Arabia business, in the fourth quarter of 2012 for a cash price of
approximately $16,302. The acquisition of the Saudi Arabia business is expected to close within the first half of 2013. This acquisition broadens our reach into the Middle East and Africa, while also building our portfolio of higher margin
value-added distribution business. The purchase price has been preliminarily allocated to the assets acquired and liabilities assumed based on their estimated fair values on the transaction dates, resulting in the recording of goodwill of $4,951 and
identifiable intangible assets of $1,834, primarily related to vendor and customer relationships and trademarks with estimated useful lives of 10 and 3 years, respectively. Amortization expense associated with acquired intangible assets is not
deductible for tax purposes. No deferred tax liability for the future amortization of these intangibles was recorded due to a zero tax-rate jurisdiction.
On November 30, 2012, we acquired all of the outstanding shares of Promark, a value added distributor in the U.S. with a core technology focus on data storage, data management and electronic document
imaging products and services. This acquisition further strengthens our position in higher value products and solutions and extends our reach within the public sector in the North American region. We acquired Promark for an initial cash payment of
$7,707; payment of its outstanding debt of $4,675; a hold-back amount of $2,250, which will be released upon settlement of certain closing matters, and a maximum potential earn-out of $1,000 to be paid out by the first quarter of 2015 based upon the
achievement of certain pre-defined targets. We have recorded an earn-out obligation of $800, which reflects the estimated fair value of the payout to be achieved. The aggregate purchase price of $15,432 has been preliminarily allocated to the assets
acquired and liabilities assumed based on their estimated fair values on the transaction dates, resulting in the recording of goodwill of $4,555 and identifiable intangible assets of $8,526, primarily related to U.S. General Services Administration
IT schedule
60
INGRAM MICRO INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In 000s, except per share data)
and vendor and customer relationships with estimated useful lives of 20 and 10 years, respectively. Amortization expense associated with acquired intangible assets is not deductible for tax
purposes. Therefore, approximately $3,291 was established as a deferred tax liability for the future amortization of these intangibles.
In 2011, we acquired the assets and liabilities of Aretê Sistemas S.A. (Aretê) in Spain, which further strengthened our capabilities in value-added distribution in our European
region. Our agreement with Aretê called for an initial cash payment of $1,066, a hold-back amount of $1,040, which was released during the second quarter of 2011 upon settlement of certain closing matters, and a maximum potential earn-out of
$5,000 to be paid out over four years through December 31, 2014 based upon the achievement of certain pre-defined targets. We recorded an earn-out obligation of $2,062, which reflected the estimated fair value of the payout to be achieved. The
aggregate purchase price of $4,168 has been allocated to the assets acquired and liabilities assumed based on their estimated fair values on the transaction dates, including identifiable intangible assets of $4,142, primarily related to vendor and
customer relationships with estimated useful lives of 10 years.
In 2010, we acquired all of the outstanding shares of
interAct BVBA and Albora Soluciones SL in our European region and the assets and liabilities of Asiasoft Hong Kong Limited in our Asia-Pacific region. These acquisitions further strengthened our capabilities in virtualization, security and
middleware solutions and enterprise computing. These entities were acquired for an aggregate cash price of $8,329, which was allocated to the assets acquired and liabilities assumed based on their estimated fair values on the transaction dates,
including identifiable intangible assets of $6,044, primarily related to vendor and customer relationships with estimated useful lives of 10 years and deferred tax liabilities of $1,840 related to the intangible assets, none of which are deductible
for income tax purposes.
All acquisitions for the periods presented above, with the exception of BrightPoint were not
material, individually or in aggregate, to us as a whole and therefore, pro forma financial information has not been presented.
Note 5 Property and Equipment
Property and equipment consist of the following:
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year End
|
|
|
|
2012
|
|
|
2011
|
|
Land
|
|
$
|
11,706
|
|
|
$
|
5,061
|
|
Buildings and leasehold improvements
|
|
|
186,934
|
|
|
|
125,466
|
|
Distribution equipment
|
|
|
278,064
|
|
|
|
250,792
|
|
Computer equipment and software
|
|
|
636,723
|
|
|
|
530,271
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,113,427
|
|
|
|
911,590
|
|
Accumulated depreciation
|
|
|
(632,103
|
)
|
|
|
(588,329
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
481,324
|
|
|
$
|
323,261
|
|
|
|
|
|
|
|
|
|
|
61
INGRAM MICRO INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In 000s, except per share data)
Note 6 Debt
The carrying value of our outstanding debt consists of the following:
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year End
|
|
|
|
2012
|
|
|
2011
|
|
Senior unsecured notes, 5.25% due 2017
|
|
$
|
300,000
|
|
|
$
|
300,000
|
|
Senior unsecured notes, 5.00% due 2022, net of unamortized discount of $1,725
|
|
|
298,275
|
|
|
|
|
|
North America revolving trade accounts receivable-backed financing program
|
|
|
345,000
|
|
|
|
|
|
Asia-Pacific revolving trade accounts receivable-backed financing program
|
|
|
|
|
|
|
|
|
Lines of credit and other debt
|
|
|
111,268
|
|
|
|
92,428
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,054,543
|
|
|
|
392,428
|
|
Short-term debt and current maturities of long-term debt
|
|
|
(111,268
|
)
|
|
|
(92,428
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
943,275
|
|
|
$
|
300,000
|
|
|
|
|
|
|
|
|
|
|
In August 2012, we issued through a public offering $300,000 of 5.00% senior unsecured notes due
2022, resulting in cash proceeds of approximately $296,256, net of discount and issuance costs of $1,794 and $1,950, respectively. Interest on the notes is payable semiannually in arrears on February 10 and August 10, commencing
February 10, 2013. At December 29, 2012, our senior unsecured notes due 2022 have a carrying value of $298,275, net of unamortized discount of $1,725. We also have $300,000 of 5.25% senior unsecured notes due 2017. Interest on the notes is
payable semiannually in arrears on March 1 and September 1 of each year. These notes may be redeemed by us in whole at any time or in part from time to time, at our option, at redemption prices that are designated in the terms and
conditions of the respective notes.
We have a revolving trade accounts receivable-backed financing program in North America
which provides for up to $675,000 in borrowing capacity. In November 2012, we entered into an agreement to increase the borrowing capacity of this program to $675,000 from the previous amount of $500,000, and to extend its maturity to November 2015.
This financing program, subject to the financial institutions approval and availability of eligible receivables, may be increased to $900,000 in accordance with the extended terms of the program. The interest rate of this program is dependent
on designated commercial paper rates (or, in certain circumstances, an alternate rate) plus a predetermined margin. We had borrowings of $345,000 and $0 at December 29, 2012 and December 31, 2011, respectively, under this North American
financing program.
We have a revolving trade accounts receivable-backed financing program in Europe that matures in
January 2014 and provides for a borrowing capacity of up to 100,000, or approximately $132,000 at December 29, 2012 exchange rates. The current program requires certain commitment fees, and borrowings under this program incur
financing costs based on EURIBOR plus a predetermined margin. We had no borrowings at December 29, 2012 and December 31, 2011 under this European financing program.
We have two other revolving trade accounts receivable-backed financing programs in Europe, which mature in May 2013, and respectively provide for a maximum borrowing capacity of £60,000, or
approximately $97,000, and 90,000, or approximately $119,000, at December 29, 2012 exchange rates. These programs require certain commitment fees, and borrowings under the programs incur financing costs, based on LIBOR and EURIBOR,
respectively, plus a predetermined margin. We had no borrowings at December 29, 2012 and December 31, 2011 under these European financing programs.
62
INGRAM MICRO INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In 000s, except per share data)
We have a multi-currency revolving trade accounts receivable-backed financing program in
Asia-Pacific that matures in May 2014 and provides for a borrowing capacity of up to 160,000 Australian dollars, or approximately $166,000 at December 29, 2012 exchange rates. The interest rate for this financing program is dependent upon
the currency in which the drawing is made and is related to the local short-term bank indicator rate for such currency plus a predetermined margin. We had no borrowings at December 29, 2012 and December 31, 2011, under this Asia-Pacific
financing program.
Our ability to access financing under all our trade accounts receivable-backed financing programs in North
America, Europe and Asia-Pacific, as discussed above, is dependent upon the level of eligible trade accounts receivable as well as continued covenant compliance. We may lose access to all or part of our financing under these programs under certain
circumstances, including: (a) a reduction in sales volumes leading to related lower levels of eligible trade accounts receivable; (b) failure to meet certain defined eligibility criteria for the trade accounts receivable, such as
receivables remaining assignable and free of liens and dispute or set-off rights; (c) performance of our trade accounts receivable; and/or (d) loss of credit insurance coverage for our European and Asia-Pacific facilities. At
December 29, 2012, our actual aggregate capacity under these programs was approximately $1,124,000 based on eligible trade accounts receivable available, of which $345,000 of such capacity was used. Even if we do not borrow, or choose not to
borrow to the full available capacity of certain programs, most of our trade accounts receivable-backed financing programs prohibit us from assigning, transferring or pledging the underlying eligible receivables as collateral for other financing
programs. At December 29, 2012, the amount of trade accounts receivable which would be restricted in this regard totaled approximately $1,529,000.
We have a $940,000 revolving senior unsecured credit facility from a syndicate of multinational banks, which matures in September 2016. In November 2012, we entered into a lender joinder agreement
with an additional syndicate of multinational banks, which increased our revolving senior unsecured credit facility to $940,000 from the previous amount of $750,000. The interest rate on this facility is based on LIBOR, plus a predetermined margin
that is based on our debt ratings and leverage ratio. We had no borrowings at December 29, 2012 and December 31, 2011, under this credit facility. This credit facility may also be used to issue letters of credit. At December 29, 2012
and December 31, 2011, letters of credit of $4,491 and $4,700, were issued to certain vendors and financial institutions to support purchases by our subsidiaries, payment of insurance premiums and flooring arrangements. Our available capacity
under the agreement is reduced by the amount of any outstanding letters of credit.
We also have additional lines of credit,
short-term overdraft facilities and other credit facilities with various financial institutions worldwide, which provide for borrowing capacity aggregating approximately $804,000 at December 29, 2012. Most of these arrangements are on an
uncommitted basis and are reviewed periodically for renewal. At December 29, 2012 and December 31, 2011, respectively, we had $111,268 and $92,428 outstanding under these facilities. The weighted average interest rate on the outstanding
borrowings under these facilities, which may fluctuate depending on geographic mix, was 7.9% and 8.1% per annum at December 29, 2012 and December 31, 2011, respectively. At December 29, 2012 and December 31, 2011, letters of
credit totaling $30,829 and $31,405, respectively, were issued to various customs agencies and landlords to support our subsidiaries. The issuance of these letters of credit reduces our available capacity under these agreements by the same amount.
We are required to comply with certain financial covenants under the terms of certain of our financing facilities, including
restrictions on funded debt and liens and covenants related to tangible net worth, leverage and interest coverage ratios and trade accounts receivable portfolio performance including metrics related to
63
INGRAM MICRO INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In 000s, except per share data)
receivables and payables. We are also restricted by other covenants, including, but not limited to, restrictions on the amount of additional indebtedness we can incur, dividends we can pay, and
the amount of common stock that we can repurchase annually. At December 29, 2012, we were in compliance with all material covenants or other material requirements set forth in our trade accounts receivable-backed programs, senior unsecured
notes due 2017 and 2022, revolving senior unsecured credit facility and other credit agreements, as discussed above.
Note 7 Income Taxes
We account for income taxes under the asset and liability method, which requires the recognition of deferred tax assets
and liabilities for the expected future tax consequences of events that have been included in the financial statements. Under this method, deferred tax assets and liabilities are determined based on the differences between the financial statement
and tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in income in the period
that includes the enactment date. The estimates and assumptions we use in computing the income taxes reflected in our consolidated financial statements could differ from the actual results reflected in our income tax returns filed during the
subsequent year. We record adjustments based on filed returns as such returns are finalized and resultant adjustments are identified.
The components of income before income taxes consist of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended
|
|
|
|
2012
|
|
|
2011
|
|
|
2010
|
|
United States
|
|
$
|
156,134
|
|
|
$
|
129,412
|
|
|
$
|
86,200
|
|
Foreign
|
|
|
240,050
|
|
|
|
258,459
|
|
|
|
351,861
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
396,184
|
|
|
$
|
387,871
|
|
|
$
|
438,061
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The provision for income taxes consists of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended
|
|
|
|
2012
|
|
|
2011
|
|
|
2010
|
|
Current:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
13,642
|
|
|
$
|
29,238
|
|
|
$
|
36,859
|
|
State
|
|
|
2,547
|
|
|
|
3,951
|
|
|
|
3,839
|
|
Foreign
|
|
|
80,003
|
|
|
|
81,617
|
|
|
|
87,664
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
96,192
|
|
|
|
114,806
|
|
|
|
128,362
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
|
(20,738
|
)
|
|
|
23,772
|
|
|
|
(718
|
)
|
State
|
|
|
1,161
|
|
|
|
707
|
|
|
|
3,401
|
|
Foreign
|
|
|
13,660
|
|
|
|
4,346
|
|
|
|
(11,044
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5,917
|
)
|
|
|
28,825
|
|
|
|
(8,361
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for income taxes
|
|
$
|
90,275
|
|
|
$
|
143,631
|
|
|
$
|
120,001
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
64
INGRAM MICRO INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In 000s, except per share data)
The reconciliation of the statutory U.S. federal income tax rate to our effective
tax rate is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended
|
|
|
|
2012
|
|
|
2011
|
|
|
2010
|
|
U.S. statutory rate
|
|
|
35.0
|
%
|
|
|
35.0
|
%
|
|
|
35.0
|
%
|
State income taxes, net of federal income tax benefit
|
|
|
1.2
|
|
|
|
1.5
|
|
|
|
1.4
|
|
U.S. tax on foreign earnings, net of foreign tax credits
|
|
|
0.6
|
|
|
|
0.2
|
|
|
|
(8.8
|
)
|
Effect of international operations
|
|
|
(7.7
|
)
|
|
|
(9.7
|
)
|
|
|
(14.7
|
)
|
Effect of change in valuation allowances
|
|
|
2.6
|
|
|
|
8.7
|
|
|
|
13.6
|
|
Effect of worthless stock deduction
|
|
|
(9.0
|
)
|
|
|
|
|
|
|
|
|
Other
|
|
|
0.1
|
|
|
|
1.3
|
|
|
|
0.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effective tax rate
|
|
|
22.8
|
%
|
|
|
37.0
|
%
|
|
|
27.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As noted in the table above, the effective tax rate for 2012 reflects a tax benefit of $35,613 or a 9%
decrease in the effective tax rate, related to the write-off of the historical tax basis of the investment we have maintained in one of our Latin American subsidiary holding companies.
Deferred income taxes reflect the tax effect of temporary differences between the carrying amount of assets and liabilities for financial
reporting purposes and the amounts used for income tax purposes. Significant components of our net deferred tax assets and liabilities are as follows:
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year End
|
|
|
|
2012
|
|
|
2011
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
Net operating loss carryforwards
|
|
$
|
223,790
|
|
|
$
|
149,134
|
|
Tax credit carryforwards
|
|
|
94,732
|
|
|
|
76,319
|
|
Employee benefits, including stock-based compensation
|
|
|
60,292
|
|
|
|
55,138
|
|
Reorganization and restructuring reserves
|
|
|
4,410
|
|
|
|
4,576
|
|
Inventory
|
|
|
31,999
|
|
|
|
27,046
|
|
Depreciation and amortization
|
|
|
69,264
|
|
|
|
53,694
|
|
Allowance on trade accounts receivable
|
|
|
13,476
|
|
|
|
12,583
|
|
Reserves and accruals not currently deductible for income tax purposes
|
|
|
26,478
|
|
|
|
20,045
|
|
Other
|
|
|
17,700
|
|
|
|
19,713
|
|
|
|
|
|
|
|
|
|
|
Total deferred tax assets
|
|
|
542,141
|
|
|
|
418,248
|
|
Valuation allowance
|
|
|
(241,095
|
)
|
|
|
(186,021
|
)
|
|
|
|
|
|
|
|
|
|
Subtotal
|
|
|
301,046
|
|
|
|
232,227
|
|
|
|
|
|
|
|
|
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
(227,799
|
)
|
|
|
(37,899
|
)
|
Other
|
|
|
(17,272
|
)
|
|
|
(16,456
|
)
|
|
|
|
|
|
|
|
|
|
Total deferred tax liabilities
|
|
|
(245,071
|
)
|
|
|
(54,355
|
)
|
|
|
|
|
|
|
|
|
|
Net deferred tax assets
|
|
$
|
55,975
|
|
|
$
|
177,872
|
|
|
|
|
|
|
|
|
|
|
65
INGRAM MICRO INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In 000s, except per share data)
Out of the amounts shown above, net current deferred tax assets of $106,986 and $61,484
are included in other current assets at December 29, 2012 and December 31, 2011, respectively. Net non-current deferred tax liabilities of $51,011 as of December 29, 2012 is included in other liabilities and net non-current deferred
tax assets of $116,388 as of December 31, 2011 is included in other assets. As part of purchase accounting for BrightPoint, we recorded $84,424 of non-current deferred tax liabilities attributable to the identifiable intangible assets.
We record net deferred tax assets to the extent we believe these assets will more likely than not be realized. In making such
determination, we consider all available positive and negative evidence, including the nature of the deferred tax assets and related statutory limits on utilization, recent operating results, future reversals of existing taxable temporary
differences, projected future taxable income, tax planning strategies and recent financial operations. In the event we were to determine that we would be able to realize our deferred income tax assets in the future in excess of or less than the net
recorded amount, we would make an adjustment to the valuation allowance which would reduce or increase the provision for income taxes.
After multiple years of profitability, our operational performance in Australia has weakened over the last two years, generating operating losses of $43,116 and $55,610 in 2012 and 2011, respectively.
Although net operating losses in Australia can be carried forward indefinitely, and despite continuing to execute against our performance improvement plan and making progress in regaining market share with several strategic vendors, such progress
has been slower than originally planned. As we finished the fourth quarter of 2012, we are now forecasting a third consecutive year of pre-tax losses in 2013. While the 2013 forecasted loss is significantly lower than 2011 and 2012, we are required
to periodically reevaluate all available positive and negative evidence and at December 29, 2012, we ultimately concluded it was no longer more likely than not the deferred tax assets would be realized. As such, we established a full reserve for all
Australian deferred tax assets recorded to date, which resulted in a non-cash charge of $41,845 that impacted the fourth quarter and full year effective tax rate. We will continue to work on improving the performance of our operations in Australia
and will monitor for objectively verifiable positive evidence that may alter our conclusion as to the likelihood of realizing such deferred tax assets in future periods.
We also considered new events that occurred during the fourth quarter of 2012, in particular the acquisition of BrightPoint and the impact the combination will have on our ability to utilize our foreign
tax credits in the U.S., and concluded that it is now more likely than not that an additional $29,978 of foreign tax credits are realizable, resulting in a partial release of the valuation allowance on those deferred tax assets.
At December 29, 2012, we had deferred tax assets related to net operating loss carryforwards of $223,790, along with a valuation
allowance of $182,510, with the net amount reflecting the amount more likely than not to be realized. Acquisition of BrightPoint entities increased the net operating loss carryforwards and valuation allowance by $52,068 and $25,670, respectively. Of
the remaining $41,280 of net deferred tax assets associated with NOL carryforwards, $12,249 has no expiration date. Further, a portion of the carryforwards may expire before being applied to reduce future income tax liabilities. We monitor all of
our other deferred tax assets for realizability in a similar manner to those described above and will record or release valuation allowances as required to reflect the amount more likely than not to be realized.
At December 29, 2012, our total deferred tax assets related to foreign tax credit carryforwards in the U.S. was $92,401 and our total
valuation allowance related to such credit carryforwards was $41,168, with the net amount reflecting the amount more likely than not to be realized based on our current ability to generate the character of income required to utilize these credits
prior to expiry through 2021.
66
INGRAM MICRO INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In 000s, except per share data)
The valuation allowance increased by a net $55,074 during 2012, driven largely by net of
the Australia charge and U.S. foreign tax credit release described above, plus $49,441 of valuation allowances associated with some of the acquired BrightPoint deferred tax assets, as well as smaller changes in other jurisdictions.
We have not provided deferred taxes on undistributed earnings from certain of our foreign subsidiaries that are indefinitely reinvested.
These undistributed earnings may become taxable upon an actual or deemed repatriation of assets from the subsidiaries or a sale or liquidation of the subsidiaries. We estimate that our total net undistributed earnings upon which we have not provided
deferred tax total approximately $2,100,000 at December 29, 2012, and $1,900,000 at December 31, 2011. A determination of the deferred tax liability on such earnings is not practicable as such liability is dependent upon our U.S. foreign
tax credit position that would exist at the time any remittance would occur.
In order to advance the operational and legal
entity integration of BrightPoint, we concluded that it would be beneficial to transfer the ownership of BrightPoints non-U.S. subsidiaries into one of our existing foreign subsidiaries, leaving the former BrightPoint foreign subsidiary that
held those entities with approximately $272,000 of undistributed earnings. As it is our intention to distribute those previously undistributed earnings in the future, we have recorded a deferred tax liability of $61,560, representing an estimate of
the future U.S. taxes that will be due when such earnings are distributed.
Tax benefits claimed from the exercise of employee
stock options and other employee stock programs that are in excess of (less than) the amount recorded upon grant are recorded as an increase (decrease) in stockholders equity. In 2012 and 2011, these amounts totaled $5,810 and $3,625,
respectively.
The total amount of gross unrecognized tax benefits is $38,790 as of December 29, 2012, substantially all
of which would impact the effective tax rate if recognized. A reconciliation of the beginning and ending balances of the total amounts of gross unrecognized tax benefits is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended
|
|
|
|
2012
|
|
|
2011
|
|
|
2010
|
|
Gross unrecognized tax benefits at beginning of the year
|
|
$
|
24,888
|
|
|
$
|
23,641
|
|
|
$
|
21,254
|
|
Increases in tax positions for prior years
|
|
|
17,281
|
|
|
|
3,953
|
|
|
|
805
|
|
Decreases in tax positions for prior years
|
|
|
(900
|
)
|
|
|
(1,221
|
)
|
|
|
(2,459
|
)
|
Increases in tax positions for current year
|
|
|
2,716
|
|
|
|
1,197
|
|
|
|
4,877
|
|
Decreases in tax positions for current year
|
|
|
|
|
|
|
|
|
|
|
(54
|
)
|
Settlements
|
|
|
(343
|
)
|
|
|
(789
|
)
|
|
|
|
|
Lapse in statute of limitations
|
|
|
(4,852
|
)
|
|
|
(1,893
|
)
|
|
|
(782
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross unrecognized tax benefits at end of the year
|
|
$
|
38,790
|
|
|
$
|
24,888
|
|
|
$
|
23,641
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The largest driver of the year-over-year increase in gross unrecognized tax benefits was associated with
BrightPoint which totaled $16,740. We recognize interest and penalties related to unrecognized tax benefits in income tax expense. As of December 29, 2012, the total accrual for interest and penalties on our unrecognized tax benefits is $7,889.
We conduct business globally and, as a result, we and/or one or more of our subsidiaries file income tax returns in the
U.S. federal and various state jurisdictions and in over thirty foreign jurisdictions. In the normal course of business, we are subject to examination by taxing authorities in many of the jurisdictions in which we
67
INGRAM MICRO INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In 000s, except per share data)
operate. In the U.S., we concluded our IRS federal income tax audit for tax years 2007 to 2009 during the second quarter of 2012, effectively closing all years to IRS audit up through 2007. As
the statute of limitations has been extended for the periods 2008 to 2009, it is possible that the IRS may reopen audits for these periods. Based on the conclusion of the IRS audit, we reversed tax liabilities of $1,449 including interest, for
previously recorded unrecognized tax benefits ultimately realized. In our material tax jurisdictions, the statute of limitation is open, in general, for 3 - 5 years.
It is possible that within the next twelve months, ongoing tax examinations in the U.S. states and several of our foreign jurisdictions may be resolved, that new tax exams may commence and that other
issues may be effectively settled. However, we do not expect our assessment of unrecognized tax benefits to change significantly over that time.
Note 8 Derivative Financial Instruments
The notional amounts and fair values of derivative instruments in our consolidated balance sheet were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notional Amounts(1)
|
|
|
Fair Value
|
|
|
|
December 29,
|
|
|
December 31,
|
|
|
December 29,
|
|
|
December 31,
|
|
|
|
2012
|
|
|
2011
|
|
|
2012
|
|
|
2011
|
|
Derivatives not receiving hedge accounting treatment recorded in:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other current assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange contracts
|
|
$
|
817,172
|
|
|
$
|
552,677
|
|
|
$
|
2,897
|
|
|
$
|
10,689
|
|
Accrued expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange contracts
|
|
|
607,836
|
|
|
|
574,018
|
|
|
|
(3,776
|
)
|
|
|
(3,976
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1,425,008
|
|
|
$
|
1,126,695
|
|
|
$
|
(879
|
)
|
|
$
|
6,713
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Notional amounts represent the gross amount of foreign currency bought or sold at maturity for foreign exchange contracts and the underlying principal amount in
interest rate swap contract.
|
The amount recognized in earnings on our derivative instruments, including
ineffectiveness, was a net gain (loss) of $(35,181), $1,799 and $6,874 in 2012, 2011 and 2010, respectively, which was largely offset by the change in the fair value of the underlying hedged assets or liabilities. The gains or losses on derivative
instruments are classified in our consolidated statement of income on a consistent basis with the classification of the change in fair value of the underlying hedged assets or liabilities. The unrealized gains (losses) associated with our cash flow
hedging transactions, were reflected in our consolidated statement of comprehensive income for 2012, 2011 and 2010.
Cash Flow Hedges
Our designated hedges have typically consisted of an interest rate swap to hedge variable interest rates on a portion of our senior unsecured term loan, which we terminated upon repaying the underlying
loan in September 2011 (see Note 6), and foreign currency forward contracts to hedge certain foreign currency-denominated intercompany loans and anticipated management fees. There were no such designated hedges outstanding as of December 29,
2012 and December 31, 2011. We also use foreign currency forward contracts that are not designated as hedges primarily to manage currency risk associated with foreign currency-denominated trade accounts receivable, accounts payable and
intercompany loans.
68
INGRAM MICRO INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In 000s, except per share data)
Note 9 Fair Value Measurements
Our assets and liabilities carried at fair value are classified and disclosed in one of the following three categories:
Level 1 quoted market prices in active markets for identical assets and liabilities; Level 2 observable market-based inputs or unobservable inputs that are corroborated by market data; and Level 3
unobservable inputs that are not corroborated by market data.
At December 29, 2012 and December 31, 2011, our
assets and liabilities measured at fair value on a recurring basis included cash equivalents, consisting primarily of money market accounts and short-term certificates of deposit, of $189,381 and $399,420, respectively, and marketable trading
securities (included in other current assets in our consolidated balance sheet) of $46,938 and $44,498, respectively, determined based on Level 1 criteria, as defined above, and derivative assets of $2,897 and $10,689, respectively, and
derivative liabilities of $3,776 and $3,976, respectively, determined based on Level 2 criteria. The change in the fair value of derivative instruments was a net unrealized gain (loss) of $(7,592), $31,886 and $1,861 for 2012, 2011 and 2010,
respectively, which was essentially offset by the change in fair value of the underlying hedged assets or liabilities. The fair value of the cash equivalents approximated cost and the gain or loss on the marketable trading securities was recognized
in the consolidated statement of income to reflect these investments at fair value.
Note 10 Commitments and Contingencies
Our Brazilian subsidiary has received a number of tax assessments including: (1) a 2005 Federal import tax
assessment claiming certain commercial taxes totaling Brazilian Reais 12,714 ($6,232 at December 29, 2012 exchange rates) were due on the import of software acquired from international vendors for the period January through September of 2002;
(2) a 2007 Sao Paulo Municipal tax assessment claiming Brazilian Reais 29,111 ($14,270 at December 29, 2012 exchange rates) of service taxes were due on the resale of acquired software covering years 2002 through 2006, plus Brazilian Reais
25,972 ($12,731 at December 29, 2012 exchange rates) of associated penalties; and (3) a 2011 Federal income tax assessment, a portion of which claims statutory penalties totaling Brazilian Reais 15,900 ($7,794 at December 29, 2012
exchange rates) for delays in providing certain electronic files during the audit of tax years 2008 and 2009, which was conducted through the course of 2011. After working with our advisor, we believe the matters raised in the various assessments,
other than the three assessments noted above, represent a remote risk of loss.
In addition to the amounts assessed, it is
possible that we could also be assessed up to Brazilian Reais 27,253 ($13,359 at December 29, 2012 exchange rates) for penalties and interest on the 2005 assessment and up to Brazilian Reais 120,394 ($59,017 at December 29, 2012 exchange
rates) for interest and inflationary adjustments on the 2007 assessment. After working with our advisors on these matters, we believe we have good defenses against each matter and do not believe it is probable that we will suffer a material loss for
amounts in the 2007 and the 2011 assessments or any other unassessed amounts noted above. While we will continue to vigorously pursue administrative and, if applicable, judicial action in defending against the 2005 Federal import tax assessment, we
continue to maintain a reserve for the full amount assessed at December 29, 2012.
There are various other claims,
lawsuits and pending actions against us incidental to our operations. It is the opinion of management that the ultimate resolution of these matters will not have a material adverse effect on our consolidated financial position, results of operations
or cash flows. However, we can make no assurances that we will ultimately be successful in our defense of any of these matters.
As is customary in the IT distribution industry, we have arrangements with certain finance companies that provide inventory-financing
facilities for our customers. In conjunction with certain of these arrangements, we
69
INGRAM MICRO INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In 000s, except per share data)
have agreements with the finance companies that would require us to repurchase certain inventory, which might be repossessed from the customers by the finance companies. Due to various reasons,
including among other items, the lack of information regarding the amount of saleable inventory purchased from us still on hand with the customer at any point in time, repurchase obligations relating to inventory cannot be reasonably estimated.
Repurchases of inventory by us under these arrangements have been insignificant to date.
We have guarantees to third parties
that provide financing to a limited number of our customers. Net sales under these arrangements accounted for less than one percent of our consolidated net sales for 2012, 2011 and 2010. The guarantees require us to reimburse the third party for
defaults by these customers up to an aggregate of $11,000. The fair value of these guarantees has been recognized as cost of sales to these customers and is included in other accrued liabilities.
We lease the majority of our facilities and certain equipment under noncancelable operating leases. Rental expense, including obligations
related to IT outsourcing services, for the years ended 2012, 2011 and 2010 was $96,669, $93,725 and $89,484, respectively.
Future minimum rental commitments on operating leases that have remaining noncancelable lease terms as well as minimum contractual
payments under the IT outsourcing agreements as of December 29, 2012 are as follows:
|
|
|
|
|
2013
|
|
$
|
96,633
|
|
2014
|
|
|
79,538
|
|
2015
|
|
|
61,483
|
|
2016
|
|
|
49,029
|
|
2017
|
|
|
47,939
|
|
Thereafter
|
|
|
113,477
|
|
|
|
|
|
|
|
|
$
|
448,099
|
|
|
|
|
|
|
The above minimum payments have not been reduced by minimum sublease rental income of $11,963 due in the
future under noncancelable sublease agreements as follows: $4,908, $4,324 and $2,731 in 2013, 2014 and 2015, respectively.
Note 11 Segment Information
We operate predominantly in a single industry segment as a distributor of IT products and supply chain solutions
worldwide. Our IT distribution operating segments are based on geographic location, and the measure of segment profit is income from operations. We do not allocate stock-based compensation recognized (see Note 12) to our operating units;
therefore, we are reporting this as a separate amount.
Geographic areas in which we operated during 2012 include
North America (the United States and Canada), Europe (Austria, Belgium, France, Germany, Hungary, Italy, the Netherlands, Spain, Sweden, Switzerland and the United Kingdom), Asia-Pacific (Australia, the Peoples Republic of China including
Hong Kong, India, Indonesia, Malaysia, New Zealand, Singapore, Thailand, Lebanon, United Arab Emirates, Turkey, Egypt and South Africa), and Latin America (Brazil, Chile, Mexico, Peru, and our Latin American export operations in Miami).
During 2012, we closed our in-country Argentina operations in Latin America.
As discussed in Note 4, our acquisition of
BrightPoint in October 2012 expanded our product and service offerings to mobile device lifecycle services and logistics solution worldwide. BrightPoint had operations in the
70
INGRAM MICRO INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In 000s, except per share data)
following geographic areas: the United States, Finland, Germany, Norway, Poland, Portugal, Senegal, Slovakia, South Africa, Spain, Sweden, Switzerland, the United Arab Emirates and the United
Kingdom, Australia, Hong Kong, India, Malaysia, New Zealand, and Singapore.
Financial information by reportable segment is as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended
|
|
|
|
2012
|
|
|
2011
|
|
|
2010
|
|
Net sales
|
|
|
|
|
|
|
|
|
|
|
|
|
IT Distribution:
|
|
|
|
|
|
|
|
|
|
|
|
|
North America
|
|
$
|
15,880,103
|
|
|
$
|
15,250,560
|
|
|
$
|
14,549,103
|
|
Europe
|
|
|
10,614,811
|
|
|
|
11,371,043
|
|
|
|
10,871,237
|
|
Asia-Pacific
|
|
|
8,347,170
|
|
|
|
7,920,649
|
|
|
|
7,570,403
|
|
Latin America
|
|
|
1,943,841
|
|
|
|
1,786,449
|
|
|
|
1,598,241
|
|
BrightPoint
|
|
|
1,041,374
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
37,827,299
|
|
|
$
|
36,328,701
|
|
|
$
|
34,588,984
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations
|
|
|
|
|
|
|
|
|
|
|
|
|
IT Distribution:
|
|
|
|
|
|
|
|
|
|
|
|
|
North America
|
|
$
|
283,689
|
|
|
$
|
281,155
|
|
|
$
|
230,458
|
|
Europe
|
|
|
103,278
|
|
|
|
136,306
|
|
|
|
135,681
|
|
Asia-Pacific
|
|
|
53,613
|
|
|
|
46,508
|
|
|
|
113,003
|
|
Latin America
|
|
|
37,700
|
|
|
|
25,488
|
|
|
|
32,353
|
|
BrightPoint
|
|
|
11,290
|
|
|
|
|
|
|
|
|
|
Stock-based compensation expense
|
|
|
(27,218
|
)
|
|
|
(30,811
|
)
|
|
|
(27,062
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
462,352
|
|
|
$
|
458,646
|
|
|
$
|
484,433
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
|
|
|
|
|
|
|
|
|
|
|
IT Distribution:
|
|
|
|
|
|
|
|
|
|
|
|
|
North America
|
|
$
|
64,529
|
|
|
$
|
91,873
|
|
|
$
|
59,252
|
|
Europe
|
|
|
4,420
|
|
|
|
8,745
|
|
|
|
7,424
|
|
Asia-Pacific
|
|
|
17,945
|
|
|
|
21,100
|
|
|
|
6,880
|
|
Latin America
|
|
|
1,161
|
|
|
|
470
|
|
|
|
2,736
|
|
BrightPoint
|
|
|
4,245
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
92,300
|
|
|
$
|
122,188
|
|
|
$
|
76,292
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
|
|
|
|
|
|
|
|
|
|
IT Distribution:
|
|
|
|
|
|
|
|
|
|
|
|
|
North America
|
|
$
|
33,383
|
|
|
$
|
35,059
|
|
|
$
|
33,949
|
|
Europe
|
|
|
13,990
|
|
|
|
13,205
|
|
|
|
12,791
|
|
Asia-Pacific
|
|
|
8,066
|
|
|
|
6,556
|
|
|
|
12,155
|
|
Latin America
|
|
|
2,167
|
|
|
|
2,462
|
|
|
|
2,654
|
|
BrightPoint
|
|
|
12,810
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
70,416
|
|
|
$
|
57,282
|
|
|
$
|
61,549
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
71
INGRAM MICRO INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In 000s, except per share data)
The income from operations in 2012 includes an aggregate of $26,041 in charges comprised
of $9,676 in reorganization and $16,365 primarily for legal, consulting and other integration costs associated with our BrightPoint acquisition, as well as asset impairments associated with the closure of our in-country Argentina operations, charged
to SG&A, ($9,628, $3,055, $4,451, $2,355 and $6,552 of net charges in North America, Europe, Asia-Pacific, Latin America and BrightPoint, respectively), as discussed in Notes 3 and 4. The income from operations in 2011 includes
reorganization and expense-reduction program costs of $5,131 ($749, $1,453, $2,730 and $199 of net charges in North America, Europe, Asia-Pacific and Latin America, respectively). The income from operations in Latin America includes
the release of a portion of the 2007 commercial tax reserve in Brazil totaling $9,112 in 2010.
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year End
|
|
|
|
2012
|
|
|
2011
|
|
Identifiable assets
|
|
|
|
|
|
|
|
|
IT Distribution:
|
|
|
|
|
|
|
|
|
North America
|
|
$
|
4,103,657
|
|
|
$
|
3,922,713
|
|
Europe
|
|
|
2,883,678
|
|
|
|
3,066,825
|
|
Asia-Pacific
|
|
|
1,880,431
|
|
|
|
1,640,771
|
|
Latin America
|
|
|
652,552
|
|
|
|
516,207
|
|
BrightPoint
|
|
|
1,960,130
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
11,480,448
|
|
|
$
|
9,146,516
|
|
|
|
|
|
|
|
|
|
|
Long-lived assets
|
|
|
|
|
|
|
|
|
IT Distribution:
|
|
|
|
|
|
|
|
|
North America
|
|
$
|
329,175
|
|
|
$
|
290,075
|
|
Europe
|
|
|
50,498
|
|
|
|
59,143
|
|
Asia-Pacific
|
|
|
45,898
|
|
|
|
36,760
|
|
Latin America
|
|
|
9,415
|
|
|
|
10,613
|
|
BrightPoint
|
|
|
418,820
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
853,806
|
|
|
$
|
396,591
|
|
|
|
|
|
|
|
|
|
|
Net sales for the United States, which is our country of domicile, were $14,464,308, $13,385,690 and
$12,487,517 in 2012, 2011 and 2010, respectively. Long-lived assets located in the United States were $595,949 and $288,730 as of December 29, 2012 and December 31, 2011, respectively.
Note 12 Stock-Based Compensation
Our stock-based compensation expense for 2012, 2011 and 2010 was $27,218, $30,811 and $27,062, respectively, and the
related income tax benefits were $8,075, $8,760 and $7,563, respectively.
72
INGRAM MICRO INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In 000s, except per share data)
We have elected to use the Black-Scholes option-pricing model to determine the fair
value of stock options. The Black-Scholes model incorporates various assumptions including volatility, expected life, and interest rates. The expected volatility is based on the historical volatility of our common stock over the most recent period
commensurate with the estimated expected life of our stock options. The expected life of an award is based on historical experience and the terms and conditions of the stock-based awards granted to employees. The fair value of options granted in
2012, 2011 and 2010 was estimated assuming no dividends and using the following weighted average assumptions:
|
|
|
|
|
|
|
|
|
Fiscal Year Ended
|
|
|
2012
|
|
2011
|
|
2010
|
Expected life of stock options
|
|
5.0 years
|
|
5.0 years
|
|
5.0 years
|
Risk-free interest rate
|
|
0.89%
|
|
2.11%
|
|
2.28%
|
Expected stock volatility
|
|
34.6%
|
|
32.7%
|
|
33.8%
|
Fair value of options granted
|
|
$5.79
|
|
$6.35
|
|
$6.16
|
Equity Incentive Plan
In 2011, our shareholders approved the Ingram Micro Inc. 2011 Incentive Plan (the 2011 Plan), which constitutes an amendment
and restatement of the Ingram Micro Inc. Amended and Restated 2003 Equity Incentive Plan and a consolidation with the Ingram Micro Inc. 2008 Executive Incentive Plan. The 2011 Plan increased the number of shares that we may issue by 13,500, for the
granting of equity-based incentive awards including incentive stock options, non-qualified stock options, restricted stock, restricted stock units and stock appreciation rights, among others, to key employees and members of our Board of Directors.
Under the 2011 Plan, the existing authorized pool of shares available for grant is a fungible pool, where the authorized share limit is reduced by one share for every share subject to a stock option or stock appreciation right granted and
2.37 shares for every share granted under any award other than an option or stock appreciation right for awards granted after June 8, 2011. We grant time- and/or performance-vested restricted stock and/or restricted stock units, in
addition to stock options, to key employees and members of our Board of Directors. Options granted generally vest over a period of up to three years and have expiration dates not longer than 10 years. A portion of the restricted stock and
restricted stock units vest over a time period of one to three years. The remainder of the restricted stock and restricted stock units vests upon achievement of certain performance measures over a time period of one to three years. In 2012, 2011 and
2010, the performance measures for restricted stock and restricted stock units for grants to management were based on earnings growth, return on invested capital total shareholder return and profit before tax. As of December 29, 2012,
approximately 9,335 shares were available for grant under the 2011 Plan, taking into account granted options, time-vested restricted stock units/awards and performance-vested restricted stock units assuming maximum achievement.
During 2012, 2011 and 2010 previously granted restricted stock units of 2,132, 1,144 and 769, respectively, were converted to
Class A Common Stock. Approximately 683, 326 and 246 shares, respectively, were withheld to satisfy the employees minimum statutory obligation for the applicable taxes and cash was remitted to the appropriate taxing authorities. Total
payments for the employees tax obligations to the taxing authorities were approximately $13,011, $6,294 and $4,378 in 2012, 2011 and 2010, respectively. The withheld shares had the effect of share repurchases by us as they reduced and retired
the number of shares that would have otherwise been issued as a result of the vesting. Of the restricted stock and/or units that were converted to Class A Common Stock, there were 1,495, 133 and 143 in 2012, 2011 and 2010, respectively, based
on performance-based grants previously approved by the Human Resources Committee of the Board of Directors. In 2011, the Human Resources Committee of the Board of Directors determined that the performance measures for certain performance-based
grants were not met, resulting in the cancellation of approximately 772 restricted stock units.
73
INGRAM MICRO INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In 000s, except per share data)
Stock Award Activity
Stock option activity under the 2011 Plan was as follows for the three years ended December 29, 2012:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
No. of Shares
|
|
|
Weighted-
Average
Price
|
|
|
Weighted-Average
Remaining
Contractual
Term
(in Years)
|
|
|
Aggregate
Intrinsic
Value
|
|
Outstanding at January 2, 2010
|
|
|
14,028
|
|
|
$
|
16.10
|
|
|
|
4.1
|
|
|
|
|
|
Granted
|
|
|
48
|
|
|
|
18.36
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(2,799
|
)
|
|
|
13.73
|
|
|
|
|
|
|
|
|
|
Forfeited/cancelled/expired
|
|
|
(862
|
)
|
|
|
17.86
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at January 1, 2011
|
|
|
10,415
|
|
|
|
16.41
|
|
|
|
3.7
|
|
|
|
|
|
Granted
|
|
|
40
|
|
|
|
19.62
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(2,397
|
)
|
|
|
15.44
|
|
|
|
|
|
|
|
|
|
Forfeited/cancelled/expired
|
|
|
(42
|
)
|
|
|
16.25
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2011
|
|
|
8,016
|
|
|
|
16.72
|
|
|
|
2.8
|
|
|
|
|
|
Granted
|
|
|
51
|
|
|
|
18.31
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(2,116
|
)
|
|
|
14.80
|
|
|
|
|
|
|
|
|
|
Forfeited/cancelled/expired
|
|
|
(306
|
)
|
|
|
18.37
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 29, 2012
|
|
|
5,645
|
|
|
|
17.36
|
|
|
|
2.7
|
|
|
$
|
4,288
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vested and expected to vest at December 29, 2012
|
|
|
5,645
|
|
|
|
17.36
|
|
|
|
2.7
|
|
|
$
|
4,288
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at December 29, 2012
|
|
|
5,641
|
|
|
|
17.36
|
|
|
|
2.7
|
|
|
$
|
4,288
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The aggregate intrinsic value in the table above represents the difference between our closing stock
price on December 29, 2012 and the option exercise price, multiplied by the number of in-the-money options on December 29, 2012. This amount changes based on the fair market value of our common stock. Total intrinsic value of stock options
exercised in 2012, 2011 and 2010 was $8,273, $9,999 and $10,496, respectively. Total fair value of stock options vested and expensed was $298, $251 and $1,728 for 2012, 2011 and 2010, respectively. As of December 29, 2012, substantially all
compensation costs related to stock options have been recognized.
Cash received from stock option exercises in 2012, 2011 and
2010 was $31,335, $39,465 and $38,439, respectively, and the actual benefit realized for the tax deduction from stock option exercises of the share-based payment awards totaled $2,975, $3,248 and $3,844 in 2012, 2011 and 2010, respectively.
74
INGRAM MICRO INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In 000s, except per share data)
The following table summarizes information about stock options outstanding and
exercisable at December 29, 2012:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options Outstanding
|
|
|
Options Exercisable
|
|
Range of Exercise Prices
|
|
Number
Outstanding
at
December 29,
2012
|
|
|
Weighted-
Average
Remaining
Life
|
|
|
Weighted-
Average
Exercise
Price
|
|
|
Number
Exercisable
at
December 29,
2012
|
|
|
Weighted-
Average
Exercise
Price
|
|
$10.15 $12.03
|
|
|
461
|
|
|
|
1.8
|
|
|
$
|
10.98
|
|
|
|
461
|
|
|
$
|
10.98
|
|
$13.05 $15.81
|
|
|
1,004
|
|
|
|
1.9
|
|
|
|
14.82
|
|
|
|
1,004
|
|
|
|
14.82
|
|
$16.57 $19.93
|
|
|
3,307
|
|
|
|
2.9
|
|
|
|
18.14
|
|
|
|
3,303
|
|
|
|
18.17
|
|
$20.00 $21.60
|
|
|
873
|
|
|
|
3.4
|
|
|
|
20.71
|
|
|
|
873
|
|
|
|
20.71
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,645
|
|
|
|
2.7
|
|
|
|
17.36
|
|
|
|
5,641
|
|
|
|
17.36
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Activity related to restricted stock and restricted stock units was as follows for the three years ended
December 29, 2012:
|
|
|
|
|
|
|
|
|
|
|
Number of
Shares
|
|
|
Weighted-
Average
Grant Date
Fair Value
|
|
Non-vested at January 2, 2010
|
|
|
5,095
|
|
|
$
|
14.90
|
|
Granted
|
|
|
1,823
|
|
|
|
18.24
|
|
Vested
|
|
|
(764
|
)
|
|
|
14.46
|
|
Forfeited
|
|
|
(1,044
|
)
|
|
|
17.37
|
|
|
|
|
|
|
|
|
|
|
Non-vested at January 1, 2011
|
|
|
5,110
|
|
|
|
10.84
|
|
Granted
|
|
|
1,961
|
|
|
|
19.37
|
|
Vested
|
|
|
(1,145
|
)
|
|
|
9.92
|
|
Forfeited
|
|
|
(1,006
|
)
|
|
|
18.02
|
|
|
|
|
|
|
|
|
|
|
Non-vested at December 31, 2011
|
|
|
4,920
|
|
|
|
12.98
|
|
Granted
|
|
|
2,866
|
|
|
|
17.21
|
|
Vested
|
|
|
(2,132
|
)
|
|
|
12.79
|
|
Forfeited
|
|
|
(147
|
)
|
|
|
17.66
|
|
|
|
|
|
|
|
|
|
|
Non-vested at December 29, 2012
|
|
|
5,507
|
|
|
|
15.13
|
|
|
|
|
|
|
|
|
|
|
As of December 29, 2012, the unrecognized stock-based compensation cost related to non-vested
restricted stock and restricted stock units was $37,335. We expect this cost to be recognized over a remaining weighted-average period of approximately 1.4 years.
Employee Benefit Plans
Our U.S.-based employee benefit plans permit
eligible employees to make contributions up to certain limits, which are matched by us at stipulated percentages. Our contributions charged to expense were $4,350, $3,859 and $1,909 in 2012, 2011 and 2010, respectively.
75
INGRAM MICRO INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In 000s, except per share data)
Note 13 Common Stock
Share Repurchase Program
In October 2010, our Board of Directors authorized a new three-year, $400,000 share repurchase program, of which $124,095 is remaining for repurchase at December 29, 2012. Under the program, we may
repurchase shares in the open market and through privately negotiated transactions. Our repurchases are funded with available borrowing capacity and cash. The timing and amount of specific repurchase transactions will depend upon market conditions,
corporate considerations and applicable legal and regulatory requirements. We have also issued shares of common stock out of our cumulative balance of treasury shares. Such shares are issued to certain of our associates upon the exercise of their
options or vesting of their equity awards under the 2011 Plan (see Note 12).
Our stock repurchase and issuance activity for
2012, 2011 and 2010 are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
Repurchased
|
|
|
Weighted-
Average
Price Per Share
|
|
|
Net Amount
Repurchased
|
|
Cumulative balance at January 2, 2010
|
|
|
15,095
|
|
|
$
|
16.11
|
|
|
$
|
243,219
|
|
Repurchase of Class A Common Stock
|
|
|
8,960
|
|
|
|
16.99
|
|
|
|
152,285
|
|
Issuance of Class A Common Stock
|
|
|
(342
|
)
|
|
|
19.53
|
|
|
|
(6,687
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cumulative balance at January 1, 2011
|
|
|
23,713
|
|
|
|
16.40
|
|
|
|
388,817
|
|
Repurchase of Class A Common Stock
|
|
|
12,476
|
|
|
|
18.11
|
|
|
|
225,905
|
|
Issuance of Class A Common Stock
|
|
|
(546
|
)
|
|
|
19.01
|
|
|
|
(10,391
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cumulative balance at December 31, 2011
|
|
|
35,643
|
|
|
|
16.96
|
|
|
|
604,331
|
|
Repurchase of Class A Common Stock
|
|
|
2,729
|
|
|
|
18.32
|
|
|
|
50,000
|
|
Issuance of Class A Common Stock
|
|
|
(343
|
)
|
|
|
18.27
|
|
|
|
(6,265
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cumulative balance at December 29, 2012
|
|
|
38,029
|
|
|
|
17.04
|
|
|
$
|
648,066
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Classes of Common Stock
We have two classes of Common Stock, consisting of 500,000 authorized shares of $0.01 par value Class A Common Stock and 135,000
authorized shares of $0.01 par value Class B Common Stock, and 25,000 authorized shares of $0.01 par value Preferred Stock.
76
INGRAM MICRO INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In 000s, except per share data)
There were no issued and outstanding shares of Class B Common Stock or Preferred
Stock during the three-year period ended December 29, 2012. The detail of changes in the number of outstanding shares of Class A Common Stock for the three-year period ended December 29, 2012, is as follows:
|
|
|
|
|
|
|
Class
A
Common Stock
|
|
January 2, 2010
|
|
|
164,383
|
|
Stock options exercised
|
|
|
2,799
|
|
Release of restricted stock units, net of shares withheld for employee taxes
|
|
|
509
|
|
Grant of restricted Class A Common Stock
|
|
|
14
|
|
Repurchase of Class A Common Stock
|
|
|
(8,960
|
)
|
|
|
|
|
|
January 1, 2011
|
|
|
158,745
|
|
Stock options exercised
|
|
|
2,397
|
|
Release of restricted stock units, net of shares withheld for employee taxes
|
|
|
791
|
|
Grant of restricted Class A Common Stock
|
|
|
27
|
|
Repurchase of Class A Common Stock
|
|
|
(12,476
|
)
|
|
|
|
|
|
December 31, 2011
|
|
|
149,484
|
|
Stock options exercised
|
|
|
2,116
|
|
Release of restricted stock units, net of shares withheld for employee taxes
|
|
|
1,432
|
|
Grant of restricted Class A Common Stock
|
|
|
17
|
|
Repurchase of Class A Common Stock
|
|
|
(2,729
|
)
|
|
|
|
|
|
December 29, 2012
|
|
|
150,320
|
|
|
|
|
|
|
77