Overview of Our Business

Sales

We are the largest distributor of IT products and services worldwide based on net sales. We offer a broad range of IT products and services and help generate demand and create efficiencies for our customers and suppliers around the world. Our results of operations have been directly affected by the conditions in the economy in general. Our net sales grew from $25.5 billion in 2004 to a record high of $35.0 billion in 2007, with annual sales growth ranging from nine percent to thirteen percent. These increases primarily reflected the improving demand environment for IT products and services in most economies worldwide as well as the additional revenue arising from the integration of numerous acquisitions worldwide, such as Techpac Holdings Limited, or Tech Pacific, in 2004, AVAD in 2005, DBL Distributing Inc., or DBL, in 2007 and a number of small but strategic acquisitions of businesses in automatic identification and data capture/point-of-sale, or AIDC/POS, and network security. Also contributing to the growth trend over this period were the addition of new product categories and suppliers, the addition and expansion of adjacent product lines and services, the addition of new customers and increased sales to our existing customer base. In 2008, our net sales declined 2.0% to $34.4 billion despite the relative year-over-year strength of foreign currencies, which provided approximately two percentage-points of growth. The decline reflects our efforts to exit or turn away certain unprofitable business relationships during the year, as well as the severe downturn in the macroeconomic environment, which began in early 2008 in Europe and North America but began to adversely impact Asia Pacific and Latin America as the year progressed. This economic downturn is expected to continue through the balance of 2009. We expect these conditions will continue to negatively affect our revenues and profitability over the near term but the severity of the impacts could be exacerbated by worsening economic conditions over an extended period in the major markets in which we operate, more intense competitive pricing pressures, and/or the expansion of a direct sales strategy by one or more of our major vendors.

Gross Margin

The IT distribution industry in which we operate is characterized by narrow gross profit as a percentage of net sales ("gross margin") and narrow income from operations as a percentage of net sales ("operating margin"). Historically, our margins have been negatively impacted by extensive price competition, as well as changes in vendor terms and conditions, including, but not limited to, reductions in vendor rebates and incentives, tighter restrictions on our ability to return inventory to vendors and reduced time periods qualifying for vendor price protection. To mitigate these factors, we have implemented, and continue to refine, changes to our pricing strategies, inventory management processes and vendor program processes. We continuously monitor and change, as appropriate, certain of the terms and conditions offered to our customers to reflect those being set by our vendors. In addition, we have pursued expansion into adjacent product markets such as AIDC/POS and consumer electronics and related products and accessories, which generally have higher gross margins, and into certain service categories, including our Ingram Micro Logistics fee-for-service business. While these dynamics have kept our overall gross margin relatively stable, near or above 5.40% on an annual basis since 2003, the shift in overall mix of business toward our more profitable adjacent businesses and growth in our fee-for-service business, coupled with efforts to exit or turn away certain unprofitable business relationships during 2008, helped to yield our highest gross margin level since 1998. We expect that restrictive vendor terms and conditions and competitive pricing pressures will continue and may possibly worsen in the foreseeable future if the current economic downturn continues, which will hinder our ability to maintain and/or improve our gross margins or overall profitability from the levels realized in recent years.

Selling, General and Administrative Expenses or SG&A Expenses

Another key area for our overall profitability management is the monitoring and control of the level of SG&A expenses. As the various factors discussed above have impacted our levels of sales over the past several years, we have instituted a number of cost reduction and profit enhancement programs. Among other things, these efforts have included our announced outsourcing and optimization plan in North America in 2005, our outsourcing of IT application development functions in 2006 and a number of other reorganization actions across multiple regions to further enhance productivity and profitability. Additionally, we have completed numerous acquisitions to add to our traditional distribution business over the past several years. While these acquisitions increase our revenues and market share, they also represent opportunities to streamline and realize operational synergies from the combined operations. We have also made acquisitions to increase our presence in adjacent product offerings, such as AIDC/POS, in addition to organic growth of other adjacent lines, such as our fee-for-service logistics business. While these lines of business generally carry higher gross margins, as discussed above, they also generally carry a higher level of SG&A expenses. The combination of these factors, along with continued revenue growth, has generally yielded a trend of reduced SG&A expenses as a percentage of revenues in recent years. However, in 2008, our SG&A expenses increased to 4.40% of net sales from 4.18% in the prior year, as the rapid decline in net sales exceeded the rate at which we could reduce costs in the short term. As a result of the declining net sales, we implemented a number of expense-reduction programs, resulting in the rationalization and re-engineering of certain roles and processes and targeted reduction of headcount, primarily in EMEA and North America, and have announced additional programs to be implemented in 2009. We continue to pursue and implement business process improvements, IT systems enhancements and organizational changes to create sustained cost reductions without sacrificing customer service over the long-term. Implementation of other actions, including integration of acquisitions in the future, if any, could result in additional costs as well as additional operating income improvements.

Reorganization and Expense-Reduction Program Costs

In 2005, we incurred integration expenses of $12.7 million related to our acquisition of Tech Pacific, comprised of $6.7 million of reorganization costs primarily for employee termination benefits, facility exit costs and other contract termination costs for associates and facilities of Ingram Micro made redundant by the acquisition as well as $6.0 million of other costs charged to SG&A primarily for consulting, retention and other expenses related to the integration of Tech Pacific (see Note 3 to our consolidated financial statements). We substantially completed the integration of the operations of our pre-existing Asia-Pacific business with Tech Pacific in the third quarter of 2005. In 2005, we also announced an outsourcing and optimization plan to improve operating efficiencies within our North American region. The plan, which was completed by 2006, included an outsourcing arrangement that moved transaction-oriented service and support functions in our North America operations - including selected functions in finance and shared services, customer service, vendor management, technical support and inside sales (excluding field sales and management positions) - to a leading global business process outsource provider. As part of the plan, we also restructured and consolidated other job functions within the North American region. Total costs of the actions, or major-program costs, incurred in 2005 were $26.6 million ($9.7 million of reorganization costs, primarily for workforce reductions and facility exit costs, as well as $16.9 million of other costs charged to SG&A primarily for consulting, retention and other expenses).

In 2006, we incurred approximately $10.3 million of incremental technology enhancement costs primarily associated with our decision to outsource certain IT application development functions to a leading global IT outsource service provider, which we believe will improve our capabilities and more effectively manage costs over the long-term. Most of the expenses incurred were for separation costs and other transition expenses, as well as for expenditures related to improving our existing systems.

Starting in the second quarter of 2008, we announced cost-reduction programs, resulting in the rationalization and re-engineering of certain roles and processes primarily at the regional headquarters in EMEA and targeted reductions of primarily administrative and back-office positions in North America. Total costs of the actions incurred in EMEA were $16.4 million, comprised of $14.9 million of reorganization costs related to employee termination benefits for workforce reductions and facility consolidations, as well as $1.5 million of other costs charged to SG&A expenses, comprised of consulting, legal and other expenses associated with implementing the reduction in workforce. In North America, the net costs of the actions were $1.8 million, all of which were

reorganization costs primarily related to employee termination benefits for workforce reductions and other costs related to contract terminations for equipment leases. During the third quarter of 2008, we also announced cost-reduction programs related to our Asia-Pacific operations, incurring reorganization costs of $0.3 million, primarily related to employee termination benefits.

As most economists expect the current economic downturn to last through most of 2009 and potentially beyond, we continue to make adjustments to improve profitability and position us for the future. We are taking additional actions in 2009 to ensure our expenses remain aligned with declines in sales volume, including further restructuring actions in Europe and North America. These actions are expected to generate savings of approximately $100 million to $120 million annually, reaching the full run-rate by the time we exit 2009. Total restructuring and other related costs associated with these actions are expected to range from approximately $45 million to $65 million.

Acquisitions

We have complemented our internal growth initiatives with strategic business acquisitions including our acquisitions over the past five years of the distribution businesses of Eurequat SA, Intertrade A.F. AG, Paradigm Distribution Ltd. and Symtech Nordic AS in EMEA, the Cantechs Group in Asia-Pacific and Nimax in North America, each of which expanded our value-added distribution of mobile data and AIDC/POS solutions; AVAD, the leading distributor for solution providers and custom installers serving the home automation and entertainment market in the U.S.; DBL, a leading distributor of consumer electronics accessories in the U.S.; VPN Dynamics and Securematics, which expanded our networking product and services offerings in the U.S.; and Tech Pacific, one of Asia-Pacific's largest technology distributors.

Working Capital and Debt

The IT products and services distribution business is working capital intensive. Our business requires significant levels of working capital primarily to finance accounts receivable and inventories. However, our business generally requires less financing during an economic downturn because of reduced working capital demands. We have relied heavily on trade credit from vendors, accounts receivable financing programs and debt facilities for our working capital needs. Due to our narrow operating margins, we maintain a strong focus on management of working capital and cash provided by operations, as well as our debt levels. However, our debt levels may fluctuate significantly on a day-to-day basis due to timing of customer receipts and periodic payments to vendors. Our future debt requirements may increase to support growth in our overall level of business, changes in our required working capital profile, or to fund acquisitions or other investments in the business.

Our Critical Accounting Policies and Estimates

The discussions and analyses of our consolidated financial condition and results of operations are based on our consolidated financial statements, which have been prepared in conformity with accounting principles generally accepted in the U.S. The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of significant contingent assets and liabilities at the financial statement date, and reported amounts of revenue and expenses during the reporting period. On an ongoing basis, we review and evaluate our estimates and assumptions, including, but not limited to, those that relate to accounts receivable; vendor programs; inventories; goodwill, intangible and other long-lived assets; income taxes; and contingencies and litigation. Our estimates are based on our historical experience and a variety of other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making our judgment about the carrying values of assets and liabilities that are not readily available from other sources. Although we believe our estimates, judgments and assumptions are appropriate and reasonable based upon available information, these assessments are subject to a wide range of sensitivity. Therefore, actual results could differ from these estimates.

We believe the following critical accounting policies are affected by our judgments, estimates and/or assumptions used in the preparation of our consolidated financial statements.

• Accounts Receivable - We provide allowances for doubtful accounts on our accounts receivable for estimated losses resulting from the inability of our customers to make required payments. Changes in the financial condition of our customers or other unanticipated events, which may affect their ability to make payments, could result in charges for additional allowances exceeding our expectations. Our estimates are influenced by the following considerations: the large number of customers and their dispersion across wide geographic areas; the fact that no single customer accounts for 10% or more of our net sales; a continuing credit evaluation of our customers' financial condition; aging of receivables, individually and in the aggregate; credit insurance coverage; the value and adequacy of collateral received from our customers in certain circumstances; our historical loss experience; and increases in credit risk resulting from an economic downturn and resulting decline in capital availability to customers.

• Vendor Programs - We receive funds from vendors for price protection, product rebates, marketing/promotion, infrastructure reimbursement and meet-competition programs, which are recorded as adjustments to product costs, revenue, or SG&A expenses according to the nature of the program. Some of these programs may extend over more than one quarterly reporting period. 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. Actual rebates may vary based on volume or other sales achievement levels, which could result in an increase or reduction in the estimated amounts previously accrued. We also provide reserves for receivables on vendor programs for estimated losses resulting from vendors' inability to pay or rejections of claims by vendors.

• Inventories - Our inventory levels are based on our projections of future demand and market conditions. Any sudden decline in demand and/or rapid product improvements and technological changes could cause us to have excess and/or obsolete inventories. On an ongoing basis, we review for estimated excess or obsolete inventories and write down our inventories to their estimated net realizable value based upon our forecasts of future demand and market conditions. If actual market conditions are less favorable than our forecasts, additional inventory write-downs may be required. Our estimates are influenced by the following considerations:
protection from loss in value of inventory under our vendor agreements; our ability to return to vendors only a certain percentage of our purchases as contractually stipulated; aging of inventories; a sudden decline in demand due to an economic downturn; and rapid product improvements and technological changes.

• Goodwill, Intangible Assets and Other Long-Lived Assets - We apply the provisions of Statement of Financial Accounting Standards No. 142, "Goodwill and Other Intangible Assets," or FAS 142, in our evaluation of goodwill and other intangible assets. FAS 142 eliminates the requirement to amortize goodwill, but requires that goodwill be reviewed at least annually for potential impairment.

In the fourth quarter of 2008, consistent with the drastic decline in the capital markets in general, we experienced a similar decline in the market value of our stock. As a result, our market capitalization was significantly lower than our book value. Our reporting units under FAS 142 are our regional operating segments. While the Latin America region does not have any goodwill, we conducted goodwill impairment tests in each of our other regional reporting units during the fourth quarter of 2008, which coincides with the timing of our normal annual impairment test. In performing this test, we, among other things, consulted an independent valuation advisor.

In accordance with FAS 142, we used a two step process to test for goodwill impairment. The first step is to determine if there is an indication of impairment by comparing the estimated fair value of each reporting unit to its carrying value including existing goodwill. Goodwill is considered impaired if the carrying value of a reporting unit exceeds the estimated fair value. We utilized a combination of income and market approaches to estimate the fair value of our reporting units in the first step.

The income approach utilizes estimates of discounted cash flows of the reporting units, which requires assumptions of, among other things, the reporting units' expected long-term revenue trends, as well as estimates of profitability, changes in working capital and long-term discount rates, all of which require significant judgment. The income approach also requires the use of appropriate discount rates that take into account the current risks in the capital markets. The market approach evaluates comparative market multiples applied to our reporting units' businesses to yield a second assumed value of each reporting unit.

We compared a weighted average of the output from the income and market approaches to the carrying value of each reporting unit, which yielded an indication of impairment in each of the North America, EMEA and Asia-Pacific reporting units. We also compared the aggregate of the estimated fair values of each of our four regional reporting units to our overall market capitalization, taking into account an acceptable control premium considered supportable based upon historical comparable transactions.

Step two of the impairment test requires us to compute a fair value of the assets and liabilities, including identifiable intangible assets, within each of the three reporting units with indications of impairment, and compare the implied fair value of goodwill to its carrying value. The results of step two indicated that the goodwill for each of the North America, EMEA and Asia Pacific reporting units was fully impaired. As a result, we recorded a charge of $742.6 million in the fourth quarter of 2008, which is made up of $243.2 million, $24.1 million and $475.3 million in carrying value of goodwill prior to the impairment in North America, EMEA and Asia-Pacific, respectively. This non-cash charge materially impacted our equity and results of operations in 2008, but does not impact our ongoing business operations, liquidity, cash flow or compliance with covenants for our credit facilities.

We also assess potential impairment of our other identifiable intangible assets and other long-lived assets when there is evidence that recent events or changes in circumstances such as significant changes in the manner of use of the asset, negative industry or economic trends, and significant underperformance relative to historical or projected future operating results, have made recovery of an asset's carrying value unlikely. The amount of an impairment loss would be recognized as the excess of the asset's carrying value over its fair value. We conducted impairment tests of our intangible assets and other long-lived assets in the fourth quarter of 2008. Our results indicated that the carrying value of these assets was recoverable from undiscounted cash flows and no impairment was indicated.

• Income Taxes - As part of the process of preparing our consolidated financial statements, we estimate our income taxes in each of the taxing jurisdictions in which we operate. This process involves estimating our actual current tax expense together with assessing any temporary differences resulting from the different treatment of certain items, such as the timing for recognizing revenues and expenses for tax and 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 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 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. Our effective tax rate includes the impact of not providing U.S. 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.

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 it is more likely than not that they will be sustained. 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.

• Contingencies and Litigation - There are various claims, lawsuits and pending actions against us, including those noted in Item 3. If a loss arising from these actions is probable and can be reasonably estimated, we record the amount of the estimated loss. If the loss is estimated using a range within which no point is more probable than another, the minimum estimated liability is recorded. As additional information becomes available, we assess any potential liability related to these actions and may need to revise our estimates. Ultimate resolution of these matters could materially impact our consolidated results of operations, cash flows or financial position (see Note 10 to our consolidated financial statements).

Results of Operations

We do not allocate stock-based compensation recognized (see Notes 11 and 12 to our consolidated financial statements) to our operating units; therefore, we are reporting this as a separate amount. The following tables set forth our net sales by geographic region and the percentage of total net sales represented thereby, as well as operating income and operating margin by geographic region for each of the fiscal years indicated.

                                                   2008                       2007                       2006
                                                                         ($ in millions)

Net sales by geographic region:
North America                              $ 14,192         41.3 %    $ 13,923         39.7 %    $ 13,585         43.3 %
EMEA                                         11,535         33.6        12,439         35.5        10,754         34.3
Asia-Pacific                                  6,905         20.1         7,133         20.4         5,537         17.7
Latin America                                 1,730          5.0         1,552          4.4         1,481          4.7

Total                                      $ 34,362        100.0 %    $ 35,047        100.0 %    $ 31,357        100.0 %

As presented below, our income (loss) from operations in 2008 includes the goodwill impairment charge of $742.6 million or 2.16% of consolidated net sales ($243.2 million, or 1.71% of sales, in North America; $24.1 million, or 0.21% of sales, in EMEA; and $475.3 million, or 6.88% of sales, in Asia-Pacific) as discussed in Notes 2 and 4 to our consolidated financial statements. Income
(loss) from operations in 2008 also includes reorganization and expense-reduction program costs of $18.6 million, or 0.05% of consolidated net sales, ($1.8 million of charges in North America; $16.4 million of charges in EMEA; and $0.3 million of charges in Asia-Pacific) as discussed in Note 3. In addition, our income from operations in Latin America in 2008 includes the release of a portion of our commercial tax reserve in Brazil totaling $8.2 million, or 0.48% of Latin America net sales and 0.02% of consolidated net sales, as discussed in Note 10.

In 2007, our loss from operations in Latin America includes a net commercial tax charge in Brazil of $30.1 million or 1.94% of Latin American net sales (0.09% of consolidated net sales) and our income from operations in North America includes a charge of $15.0 million or 0.11% of North American net sales (0.04% of consolidated net sales) for estimated losses related to a SEC matter, both discussed in Note 10.

                                                           2008                       2007                      2006
                                                                               ($ in millions)

Operating income (loss) and operating margin
(loss) by geographic region:
North America                                      $  (49.0 )     (0.35 )%     $ 219.9        1.58 %     $ 225.2       1.66 %
EMEA                                                   42.0        0.36          151.5        1.22         126.8       1.18
Asia-Pacific                                         (353.5 )     (5.12 )        117.3        1.64          69.4       1.25
Latin America                                          43.2        2.50           (4.4 )     (0.28 )        29.9       2.02
Stock-based compensation expense                      (14.9 )         -          (37.9 )         -         (28.9 )        -
. . .