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Ingram Micro Inc. Reports Operating Results (10-Q)

November 10, 2009 | About:
10qk

10qk

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Ingram Micro Inc. (IM) filed Quarterly Report for the period ended 2009-10-03.

Ingram Micro, Inc. is one of the leading distributors of information technology products and services worldwide. The company markets computer hardware, networking equipment, and software products to reseller customers in numerous countries. The company also provides logistics and fulfillment services to vendor and reseller customers. Ingram Micro Inc. has a market cap of $3.04 billion; its shares were traded at around $18.67 with a P/E ratio of 14.3 and P/S ratio of 0.1. Ingram Micro Inc. had an annual average earning growth of 20.5% over the past 5 years.

Highlight of Business Operations:

Our income from operations for the thirteen weeks ended October 3, 2009 includes $8.4 million of charges ($30.0 million of charges for the thirty-nine weeks ended October 3, 2009), comprised of $7.1 million of charges in North America ($18.6 million for the thirty-nine weeks ended October 3, 2009), $0.6 million of charges in EMEA ($8.2 million for the thirty-nine weeks ended October 3, 2009) and $0.7 million of charges in Asia-Pacific ($2.9 million for the thirty-nine weeks ended October 3, 2009) related to our reorganization and expense-reduction programs, as well as costs incurred associated with the acquisition and integration of VAD and Vantex, as discussed in Note 9 to our consolidated financial statements. There were also charges totaling $0.2 million for the thirty-nine weeks ended October 3, 2009 in Latin America related to these same programs. In addition, the thirty-nine-week period ended October 3, 2009 includes a goodwill impairment charge of $2.5 million in Asia-Pacific as discussed in Note 8 to our consolidated financial statements. Our income (loss) from operations for the thirteen and thirty-nine week periods ended September 27, 2008 include $4.1 million and $11.8 million of net charges, respectively, consisting of: $0.7 million and $1.6 million of net charges, respectively, in North America; $3.1 million and $9.9 million of charges, respectively, in EMEA; and $0.3 million of charges for both periods in Asia-Pacific, related to our reorganization and expense-reduction programs.

Our consolidated net sales decreased 10.9% to $7.38 billion for the thirteen weeks ended October 3, 2009 or third quarter of 2009, from $8.28 billion for the thirteen weeks ended September 27, 2008, or third quarter of 2008. The primary driver of the year-over-year decline in our net sales is the continued weak global economy and demand for technology products and services in most of our business units globally. Also contributing to the year-over-year decline in net sales is the translation impact of weaker foreign currencies, which generated approximately three percentage points of negative impact. At the regional level, the translation impact of the strengthening U.S. dollar compared to European, Asia-Pacific and Latin American currencies negatively impacted the regional net sales by approximately six, five, and thirteen percentage-points, respectively. To a lesser extent, our efforts to improve our overall returns on invested capital impacted sales as we made deliberate choices to weigh higher returns and profitable relationships over gross additional revenues. While the weak demand environment is recently showing some modest signs of improvement, the overall weakness compared to 2008 and years prior may continue, and may worsen, over the near term. Net sales from our North American operations decreased 10.2% to $3.22 billion in the third quarter of 2009 from $3.59 billion in the third quarter of 2008. Net sales from our EMEA operations decreased 16.1% to $2.15 billion in the third quarter of 2009 from $2.57 billion in the third quarter of 2008. Our exit of the broad line distribution business in Finland and Norway, as well as the sale of the broad line distribution operations in Denmark, in the second quarter of 2009, negatively impacted EMEAs current period net sales by approximately four percentage-points, offset by the increase in net sales of approximately one percentage-point related to the acquisitions of Eurequat SA and Intertrade A.F. AG in the fourth quarter of 2008. Net sales from our Asia-Pacific operations decreased 3.6% to $1.64 billion in the third quarter of 2009 from $1.70 billion in the third quarter of 2008. This year-over-year decrease is net of an approximate two percentage-point increase in net sales in the third quarter of 2009 resulting from the VAD and Vantex acquisitions completed earlier in the year. Net sales from our Latin American operations decreased 13.4% to $373 million in the third quarter of 2009 from $430 million in the third quarter of 2008.

Total selling, general and administrative expenses, or SG&A expenses, decreased 12.0% to $331.7 million in the third quarter of 2009 from $376.8 million in the third quarter of 2008, and decreased by six basis points, as a percentage of net sales, to 4.49% in the third quarter of 2009 from 4.55% in the third quarter of 2008. These decreases were primarily attributable to the benefits of our expense-reduction initiatives implemented over the past six quarters, the lower variable expenses associated with reduced sales levels, and the translation effect of weaker foreign currencies compared to the U.S. dollar, which contributed approximately $12 million, or three percentage-points of the change, partially offset by an increase in stock-based compensation of approximately $6.6 million, or nearly two percentage-points of the change. The lower stock-based compensation in the third quarter of 2008 was the result of lower estimated achievement and payout under our long-term incentive compensation plans which were payable in performance-based restricted stock units.

We previously announced that we are taking further actions in 2009 to better align our expenses with declines in sales volume. These actions, including the prior year actions we commenced in the second quarter of 2008, are expected to generate savings of approximately $120 million to $140 million annually, when compared to our first quarter 2008 run-rate. We expect to reach the full run-rate of these savings by the time we exit 2009. As we enter the fourth quarter of 2009, we estimate we are realizing approximately 75% of these annualized savings. Total restructuring and other related costs associated with these actions, which commenced in the fourth quarter of 2008, are expected to be towards the lower end of our previously disclosed range of charges of $45 million to $65 million. To date, we have incurred $35.3 million in charges associated with these actions. In the third quarter of 2009, we incurred a charge to reorganization costs of $7.0 million, or 0.09% of consolidated net sales, which consisted of: (a) $1.3 million of employee termination benefits for workforce reductions in three regions ($0.5 million in North America, $0.6 million in EMEA and $0.2 million in Asia-Pacific) and (b) $5.7 million for facility consolidations, including $1.3 million of charges related to higher than expected costs to settle lease obligations from prior reorganization actions ($5.4 million in North America and $0.3 million in Asia-Pacific). In the third quarter of 2009, we also incurred costs of approximately $1.4 million, or 0.02% of consolidated net sales, ($1.2 million in North America and $0.2 million in Asia-Pacific) which were recorded in SG&A expenses, primarily consisted of accelerated depreciation of fixed assets related to the exit of facilities, retention and consulting costs associated with implementing the expense-reduction actions and the acquisition and integration of VAD and Vantex in Asia-Pacific.

Our consolidated net sales decreased 19.4% to $20.71 billion for the thirty-nine weeks ended October 3, 2009, or the first nine months of 2009, from $25.68 billion for the thirty-nine weeks ended September 27, 2008, or the first nine months of 2008. Net sales from our North American operations decreased 16.0% to $8.74 billion in the first nine months of 2009 from $10.40 billion in the first nine months of 2008. Net sales from our EMEA operations decreased 25.1% to $6.43 billion in the first nine months of 2009 from $8.59 billion in the first nine months of 2008. Net sales from our Asia-Pacific operations decreased 16.5% to $4.52 billion in the first nine months of 2009 from $5.42 billion in the first nine months of 2008. Net sales from our Latin American operations decreased 20.3% to $1.02 billion in the first nine months of 2009 from $1.28 billion in the first nine months of 2008. The significant year-over-year decline in our consolidated net sales, as well as our regional net sales, is primarily attributable to the same factors discussed in our quarterly net sales above. The translation impact of the strengthening U.S. dollar compared to most foreign currencies contributed approximately five percentage-points of the year-over-year decline in consolidated net sales. The translation impact of the strengthening U.S. dollar compared to European, Asia-Pacific and Latin American currencies negatively impacted the regional net sales by approximately 11, 9 and 15 percentage-points, respectively.

In the first nine months of 2009, we incurred net charges to reorganization costs of $27.1 million, or 0.13% of consolidated net sales, which consisted of: (a) $16.1 million of employee termination benefits for workforce reductions in all four regions, net of $0.2 million of credit adjustments related to prior reorganization actions ($7.0 million in North America, net of $0.1 million of credit adjustments related to prior actions; $6.4 million in EMEA, net of less than $0.1 million of credit adjustments related to prior actions; $2.5 million in Asia-Pacific; and $0.2 million in Latin America), (b) $10.3 million for facility consolidations, including $1.6 million of net charges related to prior reorganization actions ($8.5 million in North America, including $1.7 million of charges related to higher than expected costs to settle lease obligations from prior actions; $1.5 million in EMEA, net of $0.1 million of credit adjustments related to prior actions; and $0.3 million in Asia-Pacific), and (c) $0.7 million for contract terminations primarily for equipment leases in North America. SG&A expenses for the first nine months of 2009 also include approximately $2.9 million (0.01% of consolidated net sales) of program costs ($2.4 million in North America, $0.3 million in EMEA and $0.2 million in Asia-Pacific) primarily consisting of accelRead the The complete ReportIM is in the portfolios of Third Avenue Management.

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