Ingram Micro Inc. (NYSE: IM), the world's largest technology distributor, today announced financial results for the fourth quarter and fiscal year of 2009, which ended January 2, 2010.
Worldwide sales for the fourth quarter were $8.81 billion, an increase of one percent compared with sales of $8.68 billion in the prioryear period. The translation of relatively stronger foreign currencies had a positive effect of approximately six percentage points.
Fourth quarter net income was $107.0 million, or $0.64 per diluted share, which included a net benefit of $0.03 per share comprised of the following items: a benefit recorded in cost of sales of $9.8 million, or $0.06 per diluted share, related to the release of a portion of the reserves for commercial taxes on software imports into Brazil, for which the statute of limitations for an assessment has expired; and costs of approximately $7.7 million, or $0.03 per diluted share, related to expensereduction programs primarily in North America and Europe.
In the fourth quarter of 2008, the company posted a net loss of $564.3 million, or $3.48 per diluted share, which included: a noncash charge of $742.6 million ($659.8 million after tax), or $4.07 per diluted share, for the impairment of goodwill; a benefit recorded in cost of sales of $8.2 million, or $0.05 per diluted share, related to the release of a portion of the reserves for commercial taxes in Brazil; and costs of approximately $6.8 million or $0.03 per diluted share, related to expensereduction programs.
"We ended 2009 on a high note, with strong sequential growth in the final two quarters and good progress in our largest regions," said Gregory Spierkel, chief executive officer, Ingram Micro Inc. "North America delivered the highest sequential sales growth in seven years, on top of the nearrecord sequential growth in the third quarter. EMEA is back on track with operating income at healthy, prerecession levels, while Asia-Pacific generated yearonyear growth. The benefits of our expensereduction actions were evident, even excluding the impact of the prior year goodwill impairment charge, as operating expenses declined on higher revenues compared with the prioryear period. There is still more work to do, but the trends are positive and we are externally focused on growth with enhanced profitability."
Additional Fourth Quarter Highlights For additional detail regarding the results outlined below, please refer to the financial statements and schedules attached to this news release or visit www.ingrammicro.com.
Regional Sales
North America sales were $3.59 billion (41 percent of total sales), a decrease of five percent versus the $3.80 billion reported in the yearago quarter.
Europe, Middle East and Africa (EMEA) sales grew four percent to $3.05 billion (35 percent of total sales) versus $2.95 billion in the yearago quarter. The translation impact of relatively stronger European currencies had a positive effect of approximately 10 percentage points.
Asia-Pacific sales grew 16 percent to $1.72 billion (19 percent of total sales) versus $1.49 billion reported in the yearago quarter. The translation impact of regional currencies had a positive effect of approximately 13 percentage points.
Latin America sales were $446 million (5 percent of total sales), a decline of two percent versus $455 million reported a year ago. The translation impact of relatively stronger local currencies had a positive effect of approximately seven percentage points.
Gross Margin Gross margin for the 2009 fourth quarter was 5.69 percent, a decrease of 23 basis points versus the tenyear high achieved in the prioryear quarter. The partial release of commercial tax reserves in Brazil, described above, had a positive fourthquarter impact of 11 basis points in 2009 and nine basis points in 2008. Yearover- year comparisons are impacted by softer volumes in the feeforservice division, weak margins in our North American highend home entertainment division, greater mix of business in lowermargin geographies such as China, and the limited, strategic use of gross margins to drive sales growth.
Operating Expenses
Total operating expenses were $354.7 million (4.03 percent of total sales), which included $7.7 million (0.09 percent of total sales) in costs associated with the company's expensereduction programs. In the yearago quarter, operating expenses were $1.11 billion, which included the previously discussed goodwill impairment charge. Excluding this charge, non-GAAP operating expenses in the prior year quarter were $368.8 million, or 4.25 percent of sales, which included $6.8 million (0.08 percent of sales) in severance and other costs related to the company's expensereduction programs.
Operating Income Worldwide operating income was $146.5 million (1.66 percent of total sales), which included the aggregate benefit of $2.1 million (0.02 percent of total sales) from the release of Brazilian commercial tax reserves, partially offset by expensereduction program costs. In the prioryear quarter, the company posted an operating loss of $597.1 million including the goodwill impairment charge. Excluding this charge, non-GAAP operating income was $145.5 million (1.68 percent of sales), which included a twobasispoint net benefit related to the partial release of Brazilian commercial tax reserves and the expensereduction program costs.
North America operating income was $53.4 million (1.49 percent of North America sales), which included $5.7 million (0.16 percent of sales) in expensereduction program costs. In the yearago quarter, North America posted an operating loss of $179.5 million, which included a goodwill impairment charge of $243.2 million. Excluding this charge, non-GAAP operating income was $63.7 million (1.68 percent of sales), which included $0.3 million (0.01 percent of sales) in expensereduction program costs.
EMEA operating income was $53.9 million (1.77 percent of EMEA sales), which included $1.2 million (0.04 percent of sales) in expensereduction program costs. In the yearago quarter, the region's operating income was $4.3 million, which included a goodwill impairment charge of $24.1 million. Excluding this charge, non-GAAP operating income was $28.4 million (0.96 percent of sales), which included $6.5 million (0.22 percent of sales) in expensereduction program costs.
Asia-Pacific operating income was $25.7 million (1.49 percent of Asia-Pacific sales), which included $0.7 million (0.04 percent of sales) in expensereduction program costs. In the comparable period in the prior year, Asia-Pacific's operating loss was $444.1 million, which included $475.3 million of the goodwill impairment charge. Excluding this charge, non-GAAP operating income was $31.2 million (2.10 percent of sales).
Latin America operating income was $21.0 million (4.70 percent of Latin America sales), including the benefit of $9.8 million (2.19 percent of sales) related to the previously described release of a portion of the company's commercial tax reserve in Brazil, and $0.1 million (0.02 percent of sales) in expensereduction program costs. In the yearago quarter, operating income was $21.5 million (4.74 percent of sales), which also included a partial release of the commercial tax reserve in Brazil of $8.2 million (1.81 percent of sales).
Stockbased compensation expense was $7.4 million. This compares with a net benefit to operating income of $0.7 million in the prioryear quarter, the result of reduced accruals for longterm incentive compensation programs tied to performancebased restricted stock units. Stockbased compensation impacts are presented as a separate reconciling amount in the company's segment reporting in both periods and are not included in the regional operating results, but are included in the total worldwide operating results.
Other expense for the quarter was $5.6 million versus $14.3 million in the yearago period, primarily driven by higher net cash levels (cash less debt outstanding) and lower average interest rates.
The effective tax rate for the quarter was 24 percent, which was favorably impacted by approximately 2 percentage points from the release of reserves for commercial taxes on software imports into Brazil for which no income tax was applied.
Total depreciation and amortization was $17.1 million.
Capital expenditures were $21.7 million.
Balance Sheet Highlights The cash and cash equivalents balance at year end was $911 million, an increase of $148 million over the 2008 yearend balance.
Total debt was $379 million, a decrease of $99 million from 2008 yearend. Debttocapitalization was reduced to 11 percent versus 15 percent at the end of 2008.
Inventory was $2.5 billion, or 27 days on hand, compared with $2.3 billion, or 28 days on hand, at the end of 2008.
Working capital days were 21 versus 22 at yearend 2008.
"The business seems to have hit an inflection point," said William Humes, senior executive vice president and chief financial officer. "We made progressive improvements in the last half of the year and delivered a modest increase in revenues despite fewer selling days compared with last year's fourth quarter. The two years of work toward reducing expenses, fixing underperforming businesses and adjusting terms and conditions for certain accounts are paying off, providing a strong platform for future operating leverage. We intend to drive growth intelligently, balancing gross margin stability, expense maintenance and working capital management to enhance profitability and return on invested capital. Our strong balance sheet provides ample capacity to invest in advantageous expansion opportunities."
Fiscal Year Results
For the twelve months ended Jan. 2, 2010, worldwide sales were $29.52 billion, a 14 percent decrease from $34.36 billion reported for the same period a year ago, reflecting the challenging global economic environment and unfavorable translation impact of weaker foreign currencies of approximately three percentage points.
Sales for North America were $12.33 billion (a 13 percent decrease versus 2008); $9.48 billion for EMEA (an 18 percent decrease, which included a sixpercentagepoint negative impact from the translation of weaker foreign currencies); $6.24 billion for Asia-Pacific (a 10 percent decrease, which included a fivepercentagepoint negative impact from the translation of weaker foreign currencies); and $1.46 billion for Latin America (a 16 percent decrease, which included a ninepercentagepoint negative impact from the translation of weaker foreign currencies).
Worldwide operating income for the full year was $295.9 million (1.00 percent of total sales), which included items aggregating to a net charge of $30.4 million (0.11 percent of sales) comprised of the following: a benefit of $9.8 million (0.03 percent of sales) related to the partial release of the Brazilian tax reserve, more than offset by expensereduction program costs of $37.6 million (0.13 percent of sales) and a goodwill impairment charge totaling $2.5 million (0.01 percent of sales). For the 2008 fiscal year, the company posted a worldwide operating loss of $332.2 million, which included items aggregating to a charge of $753.0 million (2.19 percent of sales) comprised of the following: a benefit of $8.2 million (0.02 percent of sales) related to the partial release of the Brazilian tax reserve, more than offset by expensereduction program costs of $18.6 million (0.05 percent of sales) and a goodwill impairment charge of $742.6 million (2.16 percent of sales).
Twelvemonth net income was $202.1 million, or $1.22 per diluted share, which included the items listed above aggregating to an aftertax charge of $19.9 million, or $0.12 per diluted share. For the 2008 fiscal year, the company posted a net loss of $394.9 million, or $2.37 per diluted share, which included the goodwill impairment charge of $742.6 million ($659.8 million after tax, or $3.96 per diluted share) discussed previously, as well as net charges described above totaling $0.03 per diluted share.
Outlook
"The new year is off to a good start," said Spierkel. "For the first quarter of 2010, we expect a sequential revenue decline within historical seasonal norms, which should still result in strong yearoveryear growth. Gross margins should also decline seasonally, with continued tight management of operating expenses. We will continue to invest in growth and improvement initiatives that meet our strategic imperatives."
Spierkel continued, "We are encouraged by signs of economic growth. The improvements we've made since mid-2008, coupled with our reenergized attitude toward profitable growth, have us wellpositioned for the rebound in demand. While we do not expect the economies to improve uniformly among all regions, we are singularly focused on improving returns on invested capital through profitable growth and enhancing total returns for our shareholders."
Conference Call and Webcast Additional information about Ingram Micro's financial results will be presented in a conference call with presentation slides today at 5 p.m. ET. To listen to the conference call Web cast and view the accompanying presentation slides, visit the company's Web site at www.ingrammicro.com (Investor Relations section). The conference call is also accessible by telephone at (888) 455-0750 (tollfree within the United States and Canada) or (210) 839-8501 (other countries).
The replay of the conference call with presentation slides will be available for one week at www.ingrammicro.com (Investor Relations section) or by calling (800) 678-3180 or (402) 220-3063 outside the United States and Canada.
Worldwide sales for the fourth quarter were $8.81 billion, an increase of one percent compared with sales of $8.68 billion in the prioryear period. The translation of relatively stronger foreign currencies had a positive effect of approximately six percentage points.
Fourth quarter net income was $107.0 million, or $0.64 per diluted share, which included a net benefit of $0.03 per share comprised of the following items: a benefit recorded in cost of sales of $9.8 million, or $0.06 per diluted share, related to the release of a portion of the reserves for commercial taxes on software imports into Brazil, for which the statute of limitations for an assessment has expired; and costs of approximately $7.7 million, or $0.03 per diluted share, related to expensereduction programs primarily in North America and Europe.
In the fourth quarter of 2008, the company posted a net loss of $564.3 million, or $3.48 per diluted share, which included: a noncash charge of $742.6 million ($659.8 million after tax), or $4.07 per diluted share, for the impairment of goodwill; a benefit recorded in cost of sales of $8.2 million, or $0.05 per diluted share, related to the release of a portion of the reserves for commercial taxes in Brazil; and costs of approximately $6.8 million or $0.03 per diluted share, related to expensereduction programs.
"We ended 2009 on a high note, with strong sequential growth in the final two quarters and good progress in our largest regions," said Gregory Spierkel, chief executive officer, Ingram Micro Inc. "North America delivered the highest sequential sales growth in seven years, on top of the nearrecord sequential growth in the third quarter. EMEA is back on track with operating income at healthy, prerecession levels, while Asia-Pacific generated yearonyear growth. The benefits of our expensereduction actions were evident, even excluding the impact of the prior year goodwill impairment charge, as operating expenses declined on higher revenues compared with the prioryear period. There is still more work to do, but the trends are positive and we are externally focused on growth with enhanced profitability."
Additional Fourth Quarter Highlights For additional detail regarding the results outlined below, please refer to the financial statements and schedules attached to this news release or visit www.ingrammicro.com.
Regional Sales
North America sales were $3.59 billion (41 percent of total sales), a decrease of five percent versus the $3.80 billion reported in the yearago quarter.
Europe, Middle East and Africa (EMEA) sales grew four percent to $3.05 billion (35 percent of total sales) versus $2.95 billion in the yearago quarter. The translation impact of relatively stronger European currencies had a positive effect of approximately 10 percentage points.
Asia-Pacific sales grew 16 percent to $1.72 billion (19 percent of total sales) versus $1.49 billion reported in the yearago quarter. The translation impact of regional currencies had a positive effect of approximately 13 percentage points.
Latin America sales were $446 million (5 percent of total sales), a decline of two percent versus $455 million reported a year ago. The translation impact of relatively stronger local currencies had a positive effect of approximately seven percentage points.
Gross Margin Gross margin for the 2009 fourth quarter was 5.69 percent, a decrease of 23 basis points versus the tenyear high achieved in the prioryear quarter. The partial release of commercial tax reserves in Brazil, described above, had a positive fourthquarter impact of 11 basis points in 2009 and nine basis points in 2008. Yearover- year comparisons are impacted by softer volumes in the feeforservice division, weak margins in our North American highend home entertainment division, greater mix of business in lowermargin geographies such as China, and the limited, strategic use of gross margins to drive sales growth.
Operating Expenses
Total operating expenses were $354.7 million (4.03 percent of total sales), which included $7.7 million (0.09 percent of total sales) in costs associated with the company's expensereduction programs. In the yearago quarter, operating expenses were $1.11 billion, which included the previously discussed goodwill impairment charge. Excluding this charge, non-GAAP operating expenses in the prior year quarter were $368.8 million, or 4.25 percent of sales, which included $6.8 million (0.08 percent of sales) in severance and other costs related to the company's expensereduction programs.
Operating Income Worldwide operating income was $146.5 million (1.66 percent of total sales), which included the aggregate benefit of $2.1 million (0.02 percent of total sales) from the release of Brazilian commercial tax reserves, partially offset by expensereduction program costs. In the prioryear quarter, the company posted an operating loss of $597.1 million including the goodwill impairment charge. Excluding this charge, non-GAAP operating income was $145.5 million (1.68 percent of sales), which included a twobasispoint net benefit related to the partial release of Brazilian commercial tax reserves and the expensereduction program costs.
North America operating income was $53.4 million (1.49 percent of North America sales), which included $5.7 million (0.16 percent of sales) in expensereduction program costs. In the yearago quarter, North America posted an operating loss of $179.5 million, which included a goodwill impairment charge of $243.2 million. Excluding this charge, non-GAAP operating income was $63.7 million (1.68 percent of sales), which included $0.3 million (0.01 percent of sales) in expensereduction program costs.
EMEA operating income was $53.9 million (1.77 percent of EMEA sales), which included $1.2 million (0.04 percent of sales) in expensereduction program costs. In the yearago quarter, the region's operating income was $4.3 million, which included a goodwill impairment charge of $24.1 million. Excluding this charge, non-GAAP operating income was $28.4 million (0.96 percent of sales), which included $6.5 million (0.22 percent of sales) in expensereduction program costs.
Asia-Pacific operating income was $25.7 million (1.49 percent of Asia-Pacific sales), which included $0.7 million (0.04 percent of sales) in expensereduction program costs. In the comparable period in the prior year, Asia-Pacific's operating loss was $444.1 million, which included $475.3 million of the goodwill impairment charge. Excluding this charge, non-GAAP operating income was $31.2 million (2.10 percent of sales).
Latin America operating income was $21.0 million (4.70 percent of Latin America sales), including the benefit of $9.8 million (2.19 percent of sales) related to the previously described release of a portion of the company's commercial tax reserve in Brazil, and $0.1 million (0.02 percent of sales) in expensereduction program costs. In the yearago quarter, operating income was $21.5 million (4.74 percent of sales), which also included a partial release of the commercial tax reserve in Brazil of $8.2 million (1.81 percent of sales).
Stockbased compensation expense was $7.4 million. This compares with a net benefit to operating income of $0.7 million in the prioryear quarter, the result of reduced accruals for longterm incentive compensation programs tied to performancebased restricted stock units. Stockbased compensation impacts are presented as a separate reconciling amount in the company's segment reporting in both periods and are not included in the regional operating results, but are included in the total worldwide operating results.
Other expense for the quarter was $5.6 million versus $14.3 million in the yearago period, primarily driven by higher net cash levels (cash less debt outstanding) and lower average interest rates.
The effective tax rate for the quarter was 24 percent, which was favorably impacted by approximately 2 percentage points from the release of reserves for commercial taxes on software imports into Brazil for which no income tax was applied.
Total depreciation and amortization was $17.1 million.
Capital expenditures were $21.7 million.
Balance Sheet Highlights The cash and cash equivalents balance at year end was $911 million, an increase of $148 million over the 2008 yearend balance.
Total debt was $379 million, a decrease of $99 million from 2008 yearend. Debttocapitalization was reduced to 11 percent versus 15 percent at the end of 2008.
Inventory was $2.5 billion, or 27 days on hand, compared with $2.3 billion, or 28 days on hand, at the end of 2008.
Working capital days were 21 versus 22 at yearend 2008.
"The business seems to have hit an inflection point," said William Humes, senior executive vice president and chief financial officer. "We made progressive improvements in the last half of the year and delivered a modest increase in revenues despite fewer selling days compared with last year's fourth quarter. The two years of work toward reducing expenses, fixing underperforming businesses and adjusting terms and conditions for certain accounts are paying off, providing a strong platform for future operating leverage. We intend to drive growth intelligently, balancing gross margin stability, expense maintenance and working capital management to enhance profitability and return on invested capital. Our strong balance sheet provides ample capacity to invest in advantageous expansion opportunities."
Fiscal Year Results
For the twelve months ended Jan. 2, 2010, worldwide sales were $29.52 billion, a 14 percent decrease from $34.36 billion reported for the same period a year ago, reflecting the challenging global economic environment and unfavorable translation impact of weaker foreign currencies of approximately three percentage points.
Sales for North America were $12.33 billion (a 13 percent decrease versus 2008); $9.48 billion for EMEA (an 18 percent decrease, which included a sixpercentagepoint negative impact from the translation of weaker foreign currencies); $6.24 billion for Asia-Pacific (a 10 percent decrease, which included a fivepercentagepoint negative impact from the translation of weaker foreign currencies); and $1.46 billion for Latin America (a 16 percent decrease, which included a ninepercentagepoint negative impact from the translation of weaker foreign currencies).
Worldwide operating income for the full year was $295.9 million (1.00 percent of total sales), which included items aggregating to a net charge of $30.4 million (0.11 percent of sales) comprised of the following: a benefit of $9.8 million (0.03 percent of sales) related to the partial release of the Brazilian tax reserve, more than offset by expensereduction program costs of $37.6 million (0.13 percent of sales) and a goodwill impairment charge totaling $2.5 million (0.01 percent of sales). For the 2008 fiscal year, the company posted a worldwide operating loss of $332.2 million, which included items aggregating to a charge of $753.0 million (2.19 percent of sales) comprised of the following: a benefit of $8.2 million (0.02 percent of sales) related to the partial release of the Brazilian tax reserve, more than offset by expensereduction program costs of $18.6 million (0.05 percent of sales) and a goodwill impairment charge of $742.6 million (2.16 percent of sales).
Twelvemonth net income was $202.1 million, or $1.22 per diluted share, which included the items listed above aggregating to an aftertax charge of $19.9 million, or $0.12 per diluted share. For the 2008 fiscal year, the company posted a net loss of $394.9 million, or $2.37 per diluted share, which included the goodwill impairment charge of $742.6 million ($659.8 million after tax, or $3.96 per diluted share) discussed previously, as well as net charges described above totaling $0.03 per diluted share.
Outlook
"The new year is off to a good start," said Spierkel. "For the first quarter of 2010, we expect a sequential revenue decline within historical seasonal norms, which should still result in strong yearoveryear growth. Gross margins should also decline seasonally, with continued tight management of operating expenses. We will continue to invest in growth and improvement initiatives that meet our strategic imperatives."
Spierkel continued, "We are encouraged by signs of economic growth. The improvements we've made since mid-2008, coupled with our reenergized attitude toward profitable growth, have us wellpositioned for the rebound in demand. While we do not expect the economies to improve uniformly among all regions, we are singularly focused on improving returns on invested capital through profitable growth and enhancing total returns for our shareholders."
Conference Call and Webcast Additional information about Ingram Micro's financial results will be presented in a conference call with presentation slides today at 5 p.m. ET. To listen to the conference call Web cast and view the accompanying presentation slides, visit the company's Web site at www.ingrammicro.com (Investor Relations section). The conference call is also accessible by telephone at (888) 455-0750 (tollfree within the United States and Canada) or (210) 839-8501 (other countries).
The replay of the conference call with presentation slides will be available for one week at www.ingrammicro.com (Investor Relations section) or by calling (800) 678-3180 or (402) 220-3063 outside the United States and Canada.
