UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-K

(Mark One)

x	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2012

¨	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number: 333-134090

LOGO

Intcomex, Inc.

(Exact name of registrant as specified in its charter)

Delaware

65-0893400

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification No.)

3505 NW 107^th Avenue, Suite A, Miami, FL 33178

(Address of principal executive offices) (Zip Code)

(305) 477-6230

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:


Title of each class		Name of each exchange on which registered
None

Securities registered pursuant to Section 12(g) of the Act:

None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ¨ No x

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes x No ¨

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ¨ No x

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. x

Indicate by check mark if registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ¨ No x

The registrant had 167,819 shares of Common Stock, voting, par value $0.01 per share outstanding at March 22, 2013. There is no public trading market for the stock.

DOCUMENTS INCORPORATED BY REFERENCE: None

TABLE OF CONTENTS


PART I

Item 1.	Business	1
Item 1A.	Risk Factors	12
Item 1B.	Unresolved Staff Comments	22
Item 2.	Properties	23
Item 3.	Legal Proceedings	24
Item 4.	Mine Safety Disclosures	24

PART II

Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	24
Item 6.	Selected Financial Data	25
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	26
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk	48
Item 8.	Financial Statements and Supplementary Data	50
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	95
Item 9A.	Controls and Procedures	95
Item 9B.	Other Information	96

PART III

Item 10.	Directors, Executive Officers and Corporate Governance	96
Item 11.	Executive Compensation	101
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	111
Item 13.	Certain Relationships and Related Transactions, and Director Independence	113
Item 14.	Principal Accounting Fees and Services	115

PART IV

Item 15.	Exhibits, Financial Statement Schedules	116

SIGNATURES

PART I

Item 1. Business.

Company

We believe Intcomex, Inc. and its subsidiaries, or Intcomex (or the Company, we, us, or our), is the largest pure play value-added international distributor of information technology, or IT, products focused solely on serving Latin America and the Caribbean, or the Regions. We believe the continued convergence of IT, consumer electronics and mobile ‘smart’ device technology extends our products offerings beyond traditional computer based IT products into other, complimentary, IT products that address consumer demand for mobile computing devices, such as smart phones and tablets, throughout the Regions. We distribute computer equipment, components, peripherals, software, computer systems, accessories, networking products, digital consumer electronics and mobile devices to more than 50,000 customers in 39 countries. We offer single source purchasing to our customers by providing an in-stock selection of more than 12,000 products from over 130 vendors, including many of the world’s leading IT product manufacturers. We serve the Latin American and Caribbean IT products markets using a dual distribution model as a wholesale aggregator and an in-country distributor:

•

As a Miami-based wholesale aggregator, we sell primarily to:

•

third-party distributors, resellers and retailers of IT products based in countries in Latin America and the Caribbean where we do not have a local presence;

•

third-party distributors, resellers and retailers of IT products based in countries in Latin America and the Caribbean where we have a local presence but whose volumes are large enough to enable them to efficiently acquire products directly from United States, or U.S.-based wholesale aggregators;

•

other Miami-based exporters of IT products to Latin America and the Caribbean; and

•

our in-country operations.

•

As an in-country distributor in 11 countries, we sell to over 50,000 local reseller and retailer customers, including value-added resellers (companies that sell, install and support IT products and personal computers, or PCs), systems builders (companies that specialize in building complete computer systems by combining components from different vendors), smaller distributors and retailers.

History

Anthony Shalom and Michael Shalom, or the Shaloms, founded our company as a small software retailer in South Florida in 1988. In 1989, we started exporting IT products from Miami, Florida, or Miami to Latin America and moved our headquarters to the vicinity of the Port of Miami and the Miami International Airport in order to capitalize on the growing export trade of IT products to Latin America and the Caribbean. We established our first in-country sales and distribution operations in Mexico in 1990, and expanded our presence to include Chile and Panama in 1994; Guatemala, Peru and Uruguay in 1997; Costa Rica, Ecuador, El Salvador and Jamaica in 2000; Argentina in 2003; and Colombia in 2004.

In 2001, we exchanged our interest in Centel S.A. de C.V., or Intcomex Mexico, our then-existing Mexican operations, with Intcomex Mexico’s management, for all the shares of Intcomex held by Intcomex Mexico’s management. In June 2005, we re-established our presence in Mexico by re-acquiring all of the outstanding shares of Intcomex Mexico. Our growth into new markets has been largely organic, typically in partnership with talented local managers knowledgeable about the IT products distribution business in their country.

In 2004, CVC International, or CVCI, a unit of Citigroup Inc., engaged in private equity investments in emerging markets, acquired 52.5% of our voting equity interests. As part of that transaction, we redeemed all of the equity interests in our company held by our former non-management shareholders and some of the equity interests in our company held by our management shareholders. We incorporated in the state of Delaware in August 2004. After giving effect to the acquisition and redemptions, Anthony Shalom and Michael Shalom became our second and third largest shareholders after CVCI, with holdings of 23.0% and 9.0%, respectively, of our voting common stock. Our other shareholders, also members of our management, entered into a shareholders’ agreement providing for, among other things, certain governance arrangements among our shareholders.

In December 2009, certain of our company’s existing shareholders and their affiliates contributed $20.0 million of new capital in exchange for newly-issued shares of our Class B common stock, non-voting. Following the capital contribution, CVCI maintained 52.5% of our voting equity interests and held 47.6% of our non-voting common stock. Anthony Shalom and Michael Shalom remained our second and third largest shareholders after CVCI, with holdings of 23.0% and 9.0%, respectively, of our voting equity interests and each held 6.1% of our non-voting common stock.

In April 2011, we filed an amendment to our certificate of incorporation, which increased the number of authorized shares of Common Stock to 200,000 shares, eliminated the original non-voting Class B Common Stock and converted all outstanding shares of the original non-voting Class B Common Stock to shares of voting Common Stock.

Also in April 2011, we and two of our subsidiaries, Intcomex Colombia LTDA, or Intcomex Colombia, and Intcomex de Guatemala, S.A., or Intcomex Guatemala, completed an investment agreement, the Brightpoint Transaction, with two subsidiaries of Brightpoint, Inc., Brightpoint Latin America and Brightpoint International Ltd., collectively Brightpoint, a global leader in providing supply chain solutions to the wireless industry. Pursuant to such agreement, we issued an aggregate 38,769 shares of our Common Stock to Brightpoint Latin America. Effectively, the Brightpoint Transaction was comprised of two transactions: (1) the sale of 25,846 shares of Common Stock for $15.0 million in cash; and (2) the acquisition of certain assets and liabilities of certain Brightpoint Latin America operations and the equity associated with Brightpoint’s operations in Colombia and Guatemala, collectively the Brightpoint Latin America Operations, in exchange for 12,923 shares of Common Stock valued at $7.5 million plus $0.2 million cash, net, at closing. Following the sale and acquisition transactions, CVCI held 39.7% and Brightpoint held 23.2% of our voting equity ownership interests and had one representative on our Board of Directors. Anthony Shalom and Michael Shalom, our third and fourth largest shareholders after CVC International and Brightpoint, held 14.8% and 6.4%, respectively, of our voting equity ownership interests.

In early 2012, we implemented a plan to cease operations by the end of fiscal 2012 of our subsidiary in Argentina, Intcomex Argentina S.R.L., or Intcomex Argentina. On January 15, 2013, we completed the sale of Intcomex Argentina.

On June 29, 2012, we entered into an agreement with Brightpoint, or the Release Agreement, to, among other things, (i) eliminate the mutual non-competition covenants included in (a) the purchase agreement dated March 16, 2011 (as amended) underlying the Brightpoint Transaction, or the Purchase Agreement, and (b) the Fifth Amended and Restated Shareholders Agreement dated as of April 19, 2011, or the Fifth Amended and Restated Shareholders Agreement, and (ii) terminate the license agreement dated April 19, 2011, or the License Agreement, with immediate effect, provided that we retained the right to use the Brightpoint names and logos as set forth in the License Agreement in accordance with its terms for a period of 90 days from June 29, 2012. The Release Agreement was entered into in relation to Brightpoint entering into a merger agreement with a global IT wholesale distributor. Additionally, Brightpoint agreed to pay $5.0 million to us, which we received in July 2012. As a result of this transaction, we recognized a gain of $4.3 million related to the termination of the mutual non-compete agreement with Brightpoint, which was recorded in other income in our consolidated statement of operations and comprehensive income (loss). In connection with the Release Agreement, Brightpoint permanently and irrevocably waived all of its voting and information rights under the Shareholders Agreement.

Also on June 29, 2012, we entered into a separate transaction with Brightpoint pursuant to which Brightpoint granted to us an option to purchase our 38,769 shares of common stock held by Brightpoint for $3.0 million, less any dividends further paid on such shares to Brightpoint. The option became exercisable upon the closing of a change of control of Brightpoint on October 15, 2012, and is exercisable for five years from the date of that event. We are currently precluded from exercising the option pursuant to the terms of the indenture governing our 13¹/₄% Senior Notes.

As of March 22, 2013, CVCI and Brightpoint hold 39.6% and 23.1%, respectively, of our voting equity interests; Anthony Shalom and Michael Shalom hold 14.8% and 6.4%, respectively, of our voting equity interests.

Industry

IT products generally follow a three-tiered distribution system from the manufacturer to end-users in Latin America and the Caribbean:

•

Wholesale aggregators, like our Miami-based operations, typically based in Miami, purchase IT products from vendors, and sell those products to other Miami-based exporters and in-country distributors. They typically maintain warehouses and sales forces in Miami and do not have substantial operations outside of Miami.

•

In-country distributors, like our In-country Operations, typically purchase IT products from wholesale aggregators and sell them to local resellers and retailers. The in-country distributors typically have a limited geographic focus (generally limited to one country or cities within one country), a local sales force in direct contact with their customers and local warehousing. The in-country distributors’ limited size, capital and geographic reach often prevent them from establishing and maintaining direct relationships with leading IT vendors, which are located predominantly in the U.S. and Asia and which focus their relationships on IT distributors with broad geographic coverage or large order sizes. In most markets most in-country distributors lack sufficient size to benefit from significant economies of scale and are not sufficiently capitalized to offer their customers a full range of products and services. We have in-country sales and distribution operations in 11 countries in Latin America and the Caribbean.

•

Resellers typically acquire IT products from the in-country distributors and resell them to the end-user (typically individuals, small and medium businesses or governments). Resellers vary greatly in size and type, from one-person operations to large retailers.

LOGO

Latin America and the Caribbean are comprised of more than 45 countries, many unique with respect to their logistical infrastructure, regulatory and legal framework, trade barriers, taxation, currency and language. This fragmentation presents challenges to IT product manufacturers seeking to establish a regional distribution, sales, logistics and service network, because such a network would have to be created separately for each country, with limited economies of scale due to the small size of most markets and barriers to entry associated with cross-border complexities. The distribution model for IT products in Latin America and the Caribbean is markedly different from that of more advanced markets where direct sales by IT vendors are common. In Latin America and the Caribbean, IT vendors rely extensively on wholesale distribution rather than direct sales. We believe that our dual distribution model, as well as our extensive geographic presence in the Regions, is not only unique but also valuable to our vendors and customers and difficult to replicate.

According to International Data Corporation, or IDC, a market intelligence and advisory firm in the IT and telecommunications industries, IT distributors (including local dealers, resellers, retailers and assemblers) comprised about 74% of total PC volume shipped in Latin America and the Caribbean, while the remaining 26% were sold directly to end-users through the internet and original equipment manufacturer, or OEM, direct sales forces for 2012. Despite the well publicized growth in smartphones and tablets, PCs continue to remain the single-most representative category in the Latin American hardware space, representing 36% of all hardware spending and 24% of all IT spending in Latin America in 2012.

Operations

Our Regional Presence

We operate a sales and distribution center in the U.S. and 25 sales and distribution centers in Latin America and the Caribbean. We believe we have the broadest geographical scope of any IT distributor in Latin America and the Caribbean, with in-country operations in 11 countries—Chile, Colombia, Costa Rica, Ecuador, El Salvador, Guatemala, Jamaica, Mexico, Panama, Peru and Uruguay, or collectively, our In-country Operations.

Revenue derived from sales to customers located in Latin America and the Caribbean accounted for almost all of our consolidated revenue for the years ended December 31, 2012, 2011 and 2010. The following chart shows our revenue for the year ended December 31, 2012, by our customers’ country of origin.

LOGO

Our Miami Operations

Our Miami Operations serves as the headquarters for our entire company. Our Miami Operations handles purchases from our vendors, and a majority of the products that we acquire from our vendors pass through our Miami warehouse (with the exception of products sourced from Asia, which are usually shipped directly to our In-country Operations). Our Miami Operations supplies our 25 in-country sales and distribution centers and also sells products directly to third parties. Miami third-party customers include U.S., Latin American and Caribbean distributors, resellers and retailers, who in turn, distribute or sell products throughout Latin America and the Caribbean.

Our Miami purchasing department handles most of our vendor relationships and contracts. Our Miami Operations monitors our entire inventory pipeline on an ongoing basis and uses information regarding the levels of inventory, in conjunction with input from the in-country managers regarding our customer demand patterns, to place orders with vendors. The centralization of our purchasing function allows our In-country Operations to focus attention on more country-specific issues such as sales, local marketing, credit control and collections. The centralization of purchasing also allows our Miami Operations to maintain the records with regard to all vendor back-end rebates, promotions and incentives to ensure they are collected and to adjust pricing of products accordingly.

Our Miami distribution center typically ships products to each of our in-country sales and distribution operations twice a week by air and once a week by sea. These frequent shipments facilitate more efficient inventory management and increased inventory turnover. Generally, we do not have long-term contracts with logistics providers, except in Mexico and Chile. Where we do not have long-term contracts, we seek to obtain the best rates and fastest delivery times on a shipment-by-shipment basis. Our Miami Operations coordinates direct shipments to third-party customers and In-country Operations from vendors in Asia.

We have sales and marketing staff located in our Miami headquarters. For a detailed discussion of our sales and marketing staff, see “—Customers, Sales and Marketing.” Other functions performed in our Miami headquarters include human resources, treasury and accounting, strategic planning, consolidated information systems development and maintenance and overall marketing strategy.

As of December 31, 2012, 2011 and 2010, our Miami Operations total assets were $182.5 million, $185.9 million and $125.7 million, respectively. For detailed information of our revenue and operating income (loss) from our Miami Operations, see our segment information in Part II—Item 8. Financial Statements and Supplemental Data, “Note 15. Segment Information” in the Notes to Consolidated Financial Statements of this Annual Report.

Our In-country Operations

Each of our in-country sales and distribution operations has a local sales force and substantial inventory. Our In-country Operations sells to more than 50,000 customers in 11 countries.

Each of our In-country Operations is critical to meeting the needs of local resellers and retailers which are often small, locally owned companies that lack the size and the knowledge to buy directly from the U.S. or Asia and to handle customs processing, including taxes and duties. By selling directly to resellers and retailers from locally-based facilities, our In-country Operations provide a competitive advantage over other multinational companies that export products into those markets. We believe that we offer our customers some of the shortest product delivery times in the industry by leveraging our capabilities as a Miami-based aggregator and as an in-country distributor. Our local presence also allows us to obtain timely and accurate information with respect to each market’s growth potential and the needs of the customers in each market.

Each of our In-country Operations is responsible for the following functions: sales, human resources, local marketing, extension of credit (in compliance with our corporate credit policies), collections, inventory controls, local accounting and financial controls, shipping to customers when needed and providing local input and data from their IT systems to Miami for purchasing decisions.

As of December 31, 2012, 2011 and 2010, our In-country Operations total assets were $279.7 million, $259.1 million and $220.4 million, respectively. For detailed information of our revenue and operating income (loss) from In-country Operations, see our segment information in Part II—Item 8. Financial Statements and Supplemental Data, “Note 15. Segment Information” in the Notes to Consolidated Financial Statements of this Annual Report.

Products

We offer single source purchasing to our reseller and retailer customers so they can purchase all of their IT product needs from us, including computer products, components, peripherals and mobile devices. We believe that our wide selection of products is a key attraction for resellers and retailers to purchase products from us. The single source purchasing concept is especially important for assemblers of unbranded or “white-box” PCs, who must source all the necessary components before the assembly process begins. White-box PCs typically have lower retail selling prices but higher margins than branded computer systems. We do not focus on selling branded desktop PCs other than our own Hurricane operating PCs, Blue Code PC kits and PCs we assemble under our customers’ brands.

Our in-country product lines typically include between 1,500 and 3,000 products in stock. Our catalog of products offers a broad selection that demonstrates our focus on responding to market demands, reflecting increasing demand for portable computing devices such as notebook computers and netbooks, bare-bones notebook computers designed specifically for web browsing, multimedia access and gaming, and mobile and ultraportable products. The breadth and diversity of our product lines allows us a key competitive advantage by enhancing our leadership position within the IT distribution industry and mitigating the risks inherent in our competitive market. The following table presents the percentage of our consolidated revenue represented by our product categories in each of the last three years:


	Year Ended December 31,
*Category*	2012			2011			2010
Computer systems		27.2	%		28.4	%		31.7	%
Components		21.5	%		25.8	%		32.5	%
Peripherals		14.2	%		14.0	%		15.6	%
Mobile devices		13.9	%		12.7	%		—
Accessories		10.4	%		9.1	%		9.7	%
Software		7.7	%		6.1	%		6.1	%
Networking		2.3	%		2.5	%		3.0	%
Other products		2.8	%		1.4	%		1.4	%

Total		100.0	%		100.0	%		100.0	%

Our product categories are:

•

Computer systems. This category consists of self-standing computer systems capable of functioning independently, including notebook computers and netbooks. In most of our operations, we assemble and sell PC and notebook computers under our own brands, under our customers’ brands and in unbranded cases.

•

Components. This category consists of the components that are the basic building blocks of a PC and includes motherboards, processors, memory chips, internal hard drives, internal optical drives, cases and monitors.

•

Peripherals. This category consists of devices that are used in conjunction with computer systems and includes printers, power protection/backup devices, mice, scanners, external disk drives, storage devices, multimedia peripherals, modems, projectors and digital cameras.

•

Mobile devices. This category consists of small, hand-held wireless communication devices and includes cellular phones, smart phones, tablets, personal digital assistants (PDAs) and other mobile and computing interface devices.

•

Accessories. This category consists of computer cables, connectors, computer and networking tools, media, media storage, keyboard and mouse accessories, speakers, computer furniture and networking accessories.

•

Software. This category consists of operating system, security and anti-virus software.

•

Networking. This category consists of hardware that enables two or more PCs to communicate, and includes adapters, modems, routers, switches, hubs and wireless local area network, or LAN, access points and interface cards.

•

Other products. This category consists of digital consumer electronics and special order products.

We focus primarily on distribution of components, computer systems, peripherals and accessories categories, as these product categories tend to have higher margins than the other product categories. We believe our focus on these product categories and our attention to the vendor price protection policies described below under “—Vendors,” help us reduce the risks associated with inventory obsolescence. While our inventory obsolescence rates for the year ended December 31, 2012, was unusually high for us at 0.33% of revenue, our inventory obsolescence rates for the years ended December 31, 2011 and 2010, have historically been low by industry standards at 0.14% and 0.18%, respectively, of revenue. One of our strategies is to maintain our core mix of product categories, in particular, to maintain high levels of sales in the components, systems, peripherals and mobile devices categories as more people in Latin America and the Caribbean become increasingly computer and technology users.

While the percentage of products in our components and computer systems product categories has declined from prior year’s levels, the percentage of products in our mobile products category has increased, as we have experienced an increase in market demand for mobile products. Excluding sales of mobile devices, sales in our computer systems product category was 31.6% and 32.5%, respectively, of our consolidated revenue for the years ended December 31, 2012 and 2011. We believe this reflects the continued customer demand for portable computing devices such as notebook computers and netbooks designed specifically for web browsing, multimedia access and gaming devices, smart phones and tablets, each of which serves as a portable solution for accessing the web’s multimedia alternatives. In addition, as the mobile devices category continues to evolve, a further dilutive effect on the other product categories will continue for the next several years.

Due to the continued convergence of IT products and mobile devices, we launched our initial foray into the mobile devices market in the latter half of 2010. In April 2011, we entered into a strategic transaction with Brightpoint aimed at facilitating our further expansion into the wireless mobile devices distribution market. Additionally, we have and expect to continue to enter into contracts with certain mobile devices manufacturers for the distribution of their products throughout Latin America and the Caribbean to increase revenues related to these products and services.

In addition to growth in the mobile devices product category, among our other growth strategies is the expansion of our offerings in the following product categories or subcategories: enterprise-class networking products (including networking products, servers, storage and software), enterprise IP telephony products (including IP, PBX systems and IP telephones), gaming and “infotainment” products (including video game systems), digital consumer electronics (including digital cameras and plasma displays) and products sold under our proprietary brands (comprised of FORZA Power Technologies, KLIP Xtreme, NEXXT Solutions and Nuqleo). We plan to expand into these product categories or subcategories gradually as demand for these products grows among our customers and end user markets, our existing vendors begin to offer these products and as we initiate relationships with new vendors offering these products. Such product and category additions allow us to sell more products to our existing customer base and to add new customer segments to our business. We constantly update our list of products to satisfy the rapidly evolving IT products requirements of our customers.

Vendors

We have established long-term direct relationships with many of the major global manufacturers of branded computer and mobile device products, including Acer, AMD, APC, Blackberry (formerly Research in Motion, or RIM), Brother, Canon, Cisco, Dell, Epson, Hewlett Packard, HSI, Intel, Kingston, Lenovo, Linksys, Logitech, LG, Microsoft, Motorola, MSI, Nokia, Samsung, SanDisk, Seagate, Sony, Toshiba, Viewsonic Western Digital and Xerox, as well as a number of generic component vendors from the U.S. and Asia. For the years ended December 31, 2012, 2011 and 2010, our top 10 vendors manufactured products that accounted for 68.0%, 65.1% and 65.7%, respectively, of our total revenue and the products of our top vendor accounted for 22.4%, 19.4% and 18.6%, respectively, of our total revenue. We continue to believe in the strategic importance of diversifying our revenues among multiple vendors.

We have entered into written distribution agreements, which provide for nonexclusive distribution rights for specific territories with many of our vendors. The distribution agreements are generally short-term and subject to periodic renewal. We believe it is not common for vendors in our industry to have exclusive relationships with distributors. We also believe our customers are better served by our ability to carry a breadth of competing brands because the IT products market is subject to rapid change and reliant upon product innovation. Our vendors typically extend to us payment terms of between 30 and 60 days. Vendors of branded products often offer to us back-end rebates, promotions and incentives, to drive sales of their products.

Like other IT distributors, we are subject to the risk that the value of our inventory will be affected adversely by vendors’ price reductions or by technological changes affecting the usefulness or desirability of the products comprising our inventory. It is the policy of many vendors of IT products to offer distributors like us, who purchase directly from them, some protection from the loss in value of inventory due to technological change or a vendor’s price reductions. Under many of these agreements, there is only a limited, specified period of time in which the distributor may return products for credit, exchange products for other products or claim price protection credits. We take various actions to maximize our participation in these vendor approved programs and reduce our inventory risk including monitoring our inventory levels, soliciting frequent input from in-country managers about demand projections and controlling the timing of purchases.

Although we do not offer our own rebates or price protection to our customers, we provide some of the benefits of vendor-sponsored rebates. When we sell a product, we issue to our customer a product warranty with the same terms as the vendor’s product warranty issued to us. We track the unique serial numbers of all products passing through each of our distribution facilities which enables us to determine whether specific products under product warranty presented by our customers of our In-country Operations for service or repair benefit from the product warranty issued by us. This tracking system allows us to limit the quantity of unauthorized returns of merchandise and provide fast, high quality return-to-manufacturer authorization, or RMA, service across Latin America and the Caribbean. We incurred expenses in administering the warranties issued to our customers of $2.0 million, $1.8 million and $1.8 million for the years ended December 31, 2012, 2011 and 2010, respectively.

Customers, Sales and Marketing

Customers

We currently sell to over 50,000 distributors, resellers and retailers in 39 countries. Although the end users of our products are mostly individuals and small and medium-sized businesses, we supply these end users through a well-established network of in-country distributors, value-added resellers, system builders and retailers, as well as through U.S.-based exporters selling into the Regions. We have always emphasized customer care and long-term customer development. We seek to build customer loyalty not only by having wide product selection and quick delivery times, but also by offering customs and duties payment management, marketing assistance, product training, new product exposure, technical support and local warranty service and by providing trade credit (when the customer is approved under our credit policies). We believe that the extension of payment terms to creditworthy customers is one of our key competitive advantages. Many of our local competitors do not have the financial resources to do so and, as a result, offer products only on a cash-and-carry basis.

For the years ended December 31, 2012, 2011 and 2010, no single customer accounted for more than 1.6%, 2.5% and 1.4%, respectively, of our consolidated revenue and the top 10 customers by sales volume accounted for approximately 10.7%, 10.9% and 8.9%, respectively, of our consolidated revenue. Our strategy is to not rely on any single customer for a large percentage of sales, but to diversify our revenues and maximize sales from a large quantity of individual customers.

Sales

As of December 31, 2012, we maintained a sales force of 517 people in our In-country Operations and 37 employees in our Miami Operations dedicated to serving our third-party customers. Each in-country sales force is managed by a general manager and, in some cases, a sales manager, depending on the size of the operation. The general managers and sales managers are responsible for developing and maintaining relationships with new and existing customers. Our Chief Executive Officer also spends a considerable amount of time visiting customers and our In-country Operations to develop new customer accounts and solidify and improve existing relationships.

We use an incentive-based compensation structure for our sales force that varies from country to country. Generally, the compensation consists of a base salary and variable commission or bonus, based on pre-established sales and performance metrics. The commission is generally calculated as a percentage of collected gross profits and net customer additions.

Marketing

As of December 31, 2012, our marketing department consisted of 11 employees in Miami and 46 employees throughout Latin America and the Caribbean. The marketing department’s responsibilities include oversight of our corporate identity, preparation of marketing materials, creation and coordination of various types of media activity and development of marketing research studies and specialized reseller-focused events. In addition, the marketing department works with vendors to establish periodic marketing and sales programs to generate vendor brand awareness and product demand. In this regard, our marketing department acts as a liaison between our company and our vendors.

The marketing department uses marketing and business development funds available from vendors of branded IT products for various activities, including the preparation of our annual product catalog and monthly pricing books, customer training, specialized events and trade shows. Our Miami Operations administers and distributes a majority of the marketing funds as needed to our In-country Operations.

Our marketing events allow vendors to present and showcase their products and solutions to reseller customers and sales executives, introduce new products and programs and provide individualized training of their products throughout the Regions including the following: Promotional Floordays, Reseller Training Labs, IT Educational & Training Seminars, IntcomExpos, Strategic Business Summits and Retail Workshops.

Our advertising, publications and direct marketing methods allow our vendors to showcase their products to our resellers and customers throughout the Regions including the following: Intcomex Product Catalogs, Intcomex Webstore and Webstore Advertisements, IBlasts Electronic Direct Marketing Mailings, Interactive Email Signatures and Intcomex Out Call Campaigns.

Credit Risk Management

We extend payment terms, generally up to 30 days, to creditworthy customers of our Miami Operations and of most of our In-country Operations, although some higher-volume customers, such as large retailers, receive longer payment terms. In other countries (most notably Mexico, where sales are primarily on a cash-and-carry basis), we establish our credit policies on a country-by-country basis depending mostly on local macroeconomic conditions, the nature of our customers and local market practices.

We have established standardized credit policies for our Miami Operations and our In-country Operations. Our credit policies include credit analysis, credit database checks, vendor and bank relationship checks and, where necessary, collateralization. In addition, other than accounts receivable owed by affiliates, substantially all of our Miami Operations’ foreign accounts receivables are insured by a worldwide credit insurance company. The policy’s aggregate limit is $35.0 million with an aggregate deductible of $1.0 million; the policy expires on August 31, 2013. In addition, 10% or 20% buyer coinsurance provisions and sub-limits in coverage on a per-buyer and on a per-country basis apply. The policy also covers certain large, local companies that purchase directly from our In-country Operations in Costa Rica, El Salvador, Guatemala, Jamaica and Peru. Our In-country Operations in Chile insures certain customer accounts with a credit insurance company in Chile; the policy expired on October 31, 2012 and was not renewed.

We believe that our relatively low bad debt expenses of 0.18%, 0.20% and 0.17% of net revenues for the years ended December 31, 2012, 2011 and 2010, respectively, are a result of our standardized credit policies, our close and proactive monitoring of accounts receivable and collections by our Miami and In-country Operations and the diversification of our receivables over a large number of countries and customers. We are more cautious in extending credit to our customers when adverse financial and economic developments arise. Most of our credit losses are with respect to customers of our Miami Operations, where we serve larger customers who in some cases are afforded credit lines in excess of $100,000. In our In-country Operations, where credit lines typically do not exceed $10,000, credit losses have been nominal.

Information Systems

Our company-wide core enterprise resource planning, or ERP, management and financial accounting system is a scalable IT ERP system that enables simultaneous decentralized decision-making by our employees included in sales and purchasing while permitting control of daily operating functions by our senior management. We use the logistics and inventory management system in order to better manage our increasing shipping volumes. We continuously perform regular server upgrades and enhancements to increase the performance of our system.

Our e-commerce sales platform helps maximize online revenues and reduce costs and risks associated with running our e-commerce operation. Our e-commerce platform is a centralized system and critical solution to serving the customers in our Miami Operations and In-country Operations through rich functionality to deliver a large volume of transactions in an integrated environment. The e-commerce infrastructure includes site development and hosting, order management and merchandising, reporting and analytics, product fulfillment and multilingual customer service.

Competition

The IT products distribution industry in Latin America and the Caribbean is highly competitive. The factors on which we compete include:

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price;

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availability and quality of products and services;

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terms and conditions of sale;

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availability of credit and credit terms;

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timeliness of delivery;

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flexibility in tailoring specific solutions to customers’ needs;

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effectiveness of marketing and sales programs;

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availability of technical and product information; and

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availability and effectiveness of warranty programs.

The IT products distribution industry in Latin America and the Caribbean is very fragmented and contains several public multinational companies, such as Ingram Micro Inc. (operations in Argentina, Brazil, Chile and Mexico), Tech Data Corporation (operations in Chile, Mexico, Peru and Uruguay), Avnet, Inc. (operations in Argentina, Brazil, Colombia and Mexico) and SYNNEX Corporation (operations in Mexico), (we refer to these companies as our public company competitors), and a large number of local companies that operate in a single country, such as Grupo Deltron S.A. in Peru and Makro Computo in Colombia. In addition, we also compete with multinational mobile device distributors, such as Brightstar Corporation and Celistics Group., who provide distribution and logistical services to the wireless carriers throughout the Regions. We believe we have the broadest in-country presence in Latin America and the Caribbean in terms of the number of countries served through our in-country presence.

Our principal public company competitors are Ingram Micro and Tech Data, each of which operates local distribution centers in the limited number of markets listed above. In contrast, we are able to offer our vendors an in-country distribution channel to many Latin American and Caribbean markets. Additionally, while our product offering is more focused on components for white-box personal computers, Ingram Micro and Tech Data are focused on high-end branded equipment, including servers. While these competitors are larger and better capitalized than we are, and, in the case of the Mexican market, have a significantly larger market share than we do, we believe that our multi-country, components-focused business model is better suited to Latin America and the Caribbean.

Our relatively large size provides us with certain advantages over smaller local distributors, who sometimes have a lower cost structure than we do, in part because we believe they may operate in the grey market or “informal” economy. We believe our advantages generally include more developed vendor relationships, broader product offerings, greater product availability and more extensive customer service (including credit and technical support).

Our participation at two levels of the distribution chain (Miami and in-country), coupled with our extensive geographic footprint, creates a market presence that we believe is unmatched by any of our competitors in terms of the number of countries served through an in-country presence and enables us to generate industry-leading margins among our public company competitors. Our dual distribution approach links a diversified set of vendors, primarily located in the U.S. and Asia, to a fragmented number of customers spread throughout Latin America and the Caribbean, and delivers value to both ends of the supply chain. To our vendors, we provide access to markets and customers that would be costly and inefficient for them to reach directly. To our customers, which are often small local resellers and retailers that lack the scale and access to buy directly from the U.S. and Asia, we provide broad and timely product availability, local staff, multi-vendor single source purchasing, technical support, customs management and local warranty service.

Trademarks and Domain Names

We have registered a number of trademarks and domain names for use in our business. We have registered trademarks such as “Intcomex,” “Blue Code,” “CENTEL,” “FORZA,” “FORZA Power Technologies,” “Hurricane,” “KLIP,” “KLIP XTREME, “NEXXT Solutions,” “Nuqleo” and “PRIMUS” in the U.S. and/or in various Latin American and Caribbean jurisdictions. We also have registered domain names, such as intcomex.com, intcomex.cl, intcomex.ec and intcomex.com.pe, accvent.com, e-ias.com, forzaon.com, forzaups.com, hurricanesys.com, klipxtreme.co, klipxtreme.com, klipxtreme.net, marketing-intcomex.com, nextlearningcenter.com, nexxtsolution.net, nexxtsolutions.com, nuqleo.co, nuqleo.com, nuqleo.net, nuqleocellular.com, nuqleowwireless.com, primusgaming.com, primusone.com, tecnologistics.com. We believe that our trademarks help us build name recognition in the Regions in which we operate.

Market and Industry Data

Market and industry data used throughout this Annual Report on Form 10-K, or Annual Report, were obtained from our internal surveys, industry publications, unpublished industry data and estimates, discussions with industry sources and currently available information. The sources for this data include IDC and Gartner. Industry publications generally state that the information contained therein has been obtained from sources believed to be reliable, but there can be no assurance as to the accuracy and completeness of such information. Based on our familiarity with the market, we believe that estimates by these third party sources are reliable; however, we have not independently verified such market data. Similarly, while believed by us to be reliable, our internal surveys have not been verified by any independent sources. Accordingly, no assurance can be given that such data will prove to be accurate.

Personnel

As of December 31, 2012, we employed 1,971 people, of which 213 were in Miami and the rest located in our In-country Operations. We do not have any collective bargaining agreements with our employees, nor are they unionized, except for our employees in Mexico. We believe that our relations with our employees are generally good.

As of May 1, 2011, we entered into a service agreement with Oasis Outsourcing, Inc., or Oasis, to provide certain professional employment services such as payroll services and other benefits for the employees of our Miami Operations. Pursuant to this agreement, our Miami personnel became employees of Oasis, but are considered to be employees of Intcomex. We lease the services of these employees from Oasis and reimburse Oasis for the costs of compensation and benefits. As of December 16, 2012, our service agreement was terminated with Oasis. In June 2012, we entered into a services agreement with ADP, Inc., or ADP, to provide certain professional services such as payroll services, human resources, performance management, recruitment, employee assistance and other benefits for the employees of our Miami Operations effective January 1, 2013. Pursuant to this agreement, our Miami personnel are employees of Software Brokers of America, Inc., or SBA.

Website Access to Exchange Act Reports and Available Information

We file periodic reports and other information with the U.S. Securities and Exchange Commission, or the SEC. A copy of those reports and the exhibits and schedules thereto may be inspected without charge at the public reference room maintained by the SEC located at 100 F Street, N.E., Room 1580, Washington, DC 20549. Copies of those reports may be obtained from such offices upon payment of prescribed fees. The public may obtain information on the operation of the public reference room by calling the SEC at 1-800-SEC-0330. The SEC maintains a website at www.sec.gov that contains reports, proxy and information statements and other information regarding issuers that file electronically with the SEC.

Financial and other information can also be accessed through our website at www.intcomex.com, where we make available, free of charge, copies of our Annual Report, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and amendments to those reports filed or furnished, as soon as reasonably practicable after filing such material electronically or otherwise furnishing it to the SEC. Our website and the information contained therein or connected thereto are not incorporated into this Annual Report.

Item 1A. Risk Factors.

The forward-looking statements contained in this Annual Report should be considered in connection with the following risk factors because they could cause the actual results and conditions to differ materially from those projected in the forward-looking statements. The occurrence of any of the following events could materially and negatively affect our business, financial condition or results of operations. Additional risks not currently known to us or that we now deem immaterial may also harm or affect our business.

Risks Related to Our Industry and our Business

Our revenue, operating results and margins could fluctuate and adversely be affected by many factors related to our industry and our business, including but not limited to, the following:

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general economic, political, social and health conditions and developments in the global environment and throughout Latin America and the Caribbean;

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competitive conditions and fluctuations in the foreign currency in the environment in which we operate;

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market acceptance of the products we distribute;

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credit exposure to our customers’ financial condition and creditworthiness;

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operating and financial restrictions of our creditors and sufficiency of trade credit from our vendors;

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dependency on accounting and financial reporting, IT and telecommunications management and systems;

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compliance with accounting rules and standards and corporate governance and disclosure requirements; and

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fluctuations in foreign exchange rates.

We had net losses in one of the last three fiscal years, and there can be no assurance that we will continue to be profitable, and if so, when.

We operate in a highly competitive environment and, as a result, we may not be able to compete effectively or maintain or increase our sales, market share or margins, particularly if our business is adversely affected by unfavorable global economic and industry conditions.

The IT products distribution industry in Latin America and the Caribbean is highly competitive. The factors on which IT distributors compete include:

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price;

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availability and quality of products and services;

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terms and conditions of sale;

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availability of credit and credit terms;

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timeliness of delivery;

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flexibility in tailoring specific solutions to customers’ needs;

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effectiveness of marketing and sales programs;

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availability of technical and product information; and

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availability and effectiveness of warranty programs.

The IT products distribution industry in Latin America and the Caribbean is very fragmented. In certain markets, we compete against large multinational public companies (including Ingram Micro Inc., Tech Data Corp., Avnet Inc. and SYNNEX Corp) that are significantly better capitalized than we are and potentially have greater bargaining power with vendors than we do. In addition, Ingram Micro Inc., our main competitor in Mexico, has a significantly larger market share than we do in that country. In all of our in-country markets, we also compete against a substantial number of locally-based distributors, many of which have a lower cost structure than we do, in some cases because they operate in the gray market and the local “informal” economy. Due to intense competition in our industry, we may not be able to compete effectively against our existing competitors or new entrants to the industry, or maintain or increase our sales, market share or margins.

In addition, overcapacity in our industry and price reductions by our competitors may result in a reduction of our prices and thereby a reduction of our gross margins. As a result, we may also lose market share, need to offer customers more credit or extended payment terms or need to reduce our prices in order to remain competitive, and any of these measures may result in an increase in our required capital, financing costs and bad debt expense in the future.

The global economic downturn in recent years and ongoing volatility and disruptions in the global credit markets could cause a severe disruption in our operations and adversely affect our business and results of operations.

The global financial markets experienced a significant economic downturn and substantial disruption in recent years, including, among other things, volatility in securities prices, severely diminished liquidity and credit availability, and rating downgrades of certain investments. The global economic downturn and the associated credit crisis could have a further negative impact on financial institutions and the global financial system, which would, in turn, have a negative impact on us and our creditors.

Although the global economy has improved from this severe downturn, a prolonging or further deterioration of the economic conditions could result in severely negative implications to our business that may exacerbate many other risks described below.

If such conditions continue or further deteriorate, our business may be adversely impacted resulting in intensified competition, regionally and internationally, which may negatively affect our margins. The impact may be in the form of reduced prices, lower sales or reduced sales growth, loss of market share, lower gross margins, loss of vendor rebates, extended payment terms with customers, increased bad debt risks, shorter payment terms with vendors, increased capital investment and interest costs, increased inventory losses related to obsolescence and/or excess quantities, all of which could adversely affect our results of operations and financial condition. Our vendors and customers may become insolvent and file for bankruptcy, which also would negatively impact our results of operations.

Credit insurers could drop coverage on our customers and increase premiums, deductibles and co-insurance levels on our remaining or prospective customers. Our suppliers could tighten trade credit, which could negatively impact our liquidity. We may not be able to borrow additional funds under our existing credit facilities if participating banks become insolvent or their liquidity is limited or impaired. The recent tightening of credit in financial markets could also result in a decrease in the demand for IT products. global recession could adversely affect the ability of our vendors and customers to obtain financing for operations and result in continued severe job losses and lower consumer confidence. Certain markets may experience deflation, which could negatively impact our average selling price and our revenue.

Our business requires significant levels of capital to finance accounts receivable and inventory that is not financed by trade creditors. We believe that our existing sources of liquidity, including cash resources and cash provided by operating activities, supplemented as necessary with funds available under our credit arrangements, will provide sufficient resources to meet our present and future working capital and cash requirements for at least the next 12 months. However, the capital and credit markets have experienced unprecedented levels of volatility and disruption. Continued disruptions in the credit markets may affect our ability to access the capital markets or the capital we require may not be available on terms acceptable to us, or at all, due to inability of our finance partners to meet their commitments to us. We are unable to predict the duration and severity of such disruptions in the financial markets and adverse domestic and/or global economic conditions and the impact these events may have on our operations and the industry in general.

We are dependent on a variety of IT and telecommunications systems including our company-wide ERP management and financial accounting system, and any disruptions in our systems could adversely impact our ability to effectively manage our business and prepare accurate and timely financial information.

We are dependent on a variety of IT and telecommunications systems, including systems for managing our inventories, accounts receivable, accounts payable, order processing, shipping and accounting. In addition, our ability to price products appropriately and the success of our expansion plans depend upon our IT and telecommunications systems. In recent years we completed the implementation and integration of our company-wide ERP management and financial accounting system, and scalable IT system that enables our employees involved in sales and purchasing simultaneous decentralized decision-making while allowing senior management control over daily operating functions. We also use the logistics and inventory management system in order to better adapt to higher shipping volumes.

Our experience with this platform was limited and required training of our local employees. New installations may require further or enhanced modifications in order to handle the varied accounting requirements specific to the countries in which it is installed. Any temporary or long-term failure of these systems could adversely impact our ability to effectively manage our business and prepare accurate and timely financial information and our failure to adapt and upgrade our systems to keep pace with our future development and expansion could have an adverse effect on our results of operations.

If the IT products market in Latin America and the Caribbean does not grow as we expect, our inability to maintain or increase our present growth rate could adversely impact our results of operations and financial condition.

Historically, the growth of our business has been driven in large part by the growth of the IT products market in Latin America and the Caribbean. In particular, we have benefited from rapid growth in PC and Internet penetration rates. We expect that our future growth will also depend in large part on further growth in the IT market including growth in PC and internet penetration rates and increasing demand for notebook computers and mobile computing devices. If the IT products market, particularly the mobile devices market, does not grow as quickly and in the manner we expect for any reason, including but not limited to, the developments throughout Latin America and the Caribbean, we may not be able to maintain or grow our business as expected which could have a material and adverse effect on our results of operations and financial condition.

Our mobile devices business is dependent on a variety of factors, including a limited number of suppliers and vendors that provide us products, as well as developments in the global telecommunications market, which could affect our results of operations.

We have recently focused on growth in the mobile devices market, in which we distribute mobile devices and provide certain functions such as prepaid solutions, activation management and other services for many manufacturers, operators, retailers and enterprises participating in the mobile device industry. The operation and expansion of our business in the mobile device market depends upon various key suppliers and vendors, including Blackberry (formerly RIM), Samsung and Nokia, to provide us with handsets, network equipment or services. We are particularly dependent on Blackberry, which accounted for 80.6% and 94.2%, respectively, of our total mobile device product sales for the years ended December 31, 2012 and 2011. If these suppliers or vendors fail to provide equipment or service to us on a timely basis, including as a result of labor problems affecting the supplier or vendor, the extension of delivery times, or an increase in prices or limited supply due to the suppliers’ or vendors’ own shortages, which satisfies our customers’ needs, we could be negatively affected. Currently, telecommunications carriers are the primary source of distribution of mobile devices, particularly cellular and “smart” phones. We expect this model of distribution to evolve into an environment where distributors fulfill products directly to retailers. If such an evolution fails to occur, it could limit our growth in the mobile devices market. Additionally, developments in the global telecommunications market, particularly in Latin America, relating to consumer demand, manufacturer supply, competition and regulation may adversely affect the mobile devices market, which could have an adverse effect on our revenues and results of operations.

Economic, political, social or legal developments in Latin America and the Caribbean could adversely impact our results of operations and financial condition.

Historically, sales to Latin America and the Caribbean have accounted for almost all of our consolidated revenues, thus, our financial results are particularly sensitive to the performance of the economies of countries in Latin America and the Caribbean. Local, regional or worldwide developments may result in adverse economic, political, social or legal developments and adversely affect the economies of any of the countries in which we conduct business, which could have a material and adverse effect on our results of operations and financial condition. Our results are also impacted by political and social developments in the countries in which we conduct business and changes in the laws and regulations affecting our business in those countries. Changes in local laws and regulations could, among other things, make it more difficult for us to sell our products in the affected countries, restrict or prevent our receipt of cash from our customers, result in longer payment cycles, impair our collection of accounts receivable and make it more difficult for us to repatriate capital and dividends from our foreign subsidiaries to the ultimate U.S. parent company.

The economic, political, social, legal and other risks we are subject to in the regions or countries where we conduct business or obtain technology products include but are not limited to:

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deteriorating economic, political or social conditions, instability, military conflicts or civilian unrest and terrorism;

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additional tariffs, import and export controls or other trade barriers that restrict our ability to sell products into countries in Latin America and the Caribbean;

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changes in local tax regimes, including the imposition of significantly increased withholding or other taxes or an increase in VAT or sales tax on products we sell;

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changes in laws and other regulatory requirements governing foreign capital transfers and the repatriation of capital and dividends;

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increases in costs for complying with a variety of different local laws, trade customs and practices;

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delays in shipping and delivering products to us or customers across borders for any reason, including more complex and time-consuming customs procedures (for example, the import restrictions enacted by Argentina in February 2012);

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fluctuations of local currencies;

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business interruptions due to natural or manmade disasters, extreme weather conditions, including but not limited to, earthquakes, fires, floods, hurricanes, tornados, tsunamis, medical epidemics, power and/or water shortages and telecommunication failures.

Disruptions in the supply of products and prolonged product shortages, like that resulting from the flooding in Thailand in October 2011 and the Japanese earthquake in March 2011, could severely disrupt our ability to acquire products from Asia. The interruption of power supply, factory closings and cessation of production of key components used by many of our vendors in their products could result in our inability to acquire the necessary quantity of products from affected vendors, coordinate direct shipments to third-party customers to each of our In-country Operations and could have a material and adverse effect on our results of operations and financial condition.

Fluctuations in foreign currency exchange rates could reduce our gross profit and gross margins and increase our operating expenses in U.S. dollar terms.

We periodically engage in foreign currency forward contracts when available and when doing so is not cost prohibitive. In periods when we do not engage in these contracts, foreign currency fluctuations may adversely affect our results of operations, including our gross margins and operating margins.

A significant portion of our revenues from our In-country Operations is invoiced in currencies other than the U.S. dollar and a significant amount of our operating expenses from our In-country Operations is denominated in currencies other than U.S. dollars. In markets where we invoice in local currency including Chile, Colombia, Costa Rica, Guatemala, Jamaica, Mexico and Peru, the appreciation (or devaluation) of the U.S. dollar could have a marginal impact on our results of operations due to lower (or higher) demand caused by the appreciation (or devaluation) of the U.S. dollar. In markets where our books and records are prepared in currencies other than the U.S. dollar, the appreciation (or devaluation) of the local currency will increase (or decrease) our operating expenses and decrease (or increase) our operating margins in U.S. dollar terms.

For example, excluding depreciation and amortization, operating expenses from our In-country Operations increased $11.3 million for the year ended December 31, 2012. Excluding depreciation and amortization and the effects of the weakening currencies, operating expenses from our In-country Operations increased $11.6 million for the year ended December 31, 2012, as compared to the same period in 2011, due mainly to the higher salary and payroll-related expenses in Chile, Colombia, Costa Rica and Peru.

Large and sustained devaluations of local currencies can make many of our products more expensive in local currencies causing our customers to have difficulty paying those invoices and, in turn, result in a decrease in our revenue. Moreover, such devaluations may adversely impact demand for our products because our customers may be unable to afford them.

We are exposed to market risk and credit exposure and loss as we engage in foreign currency exchange forward contracts to hedge foreign currency denominated payables for inventory purchases, in a currency other than the currency in which the products are sold.

We are exposed to fluctuations in foreign exchange rates and reduce our exposure to the fluctuations by sometimes using derivative financial instruments, particularly foreign currency forward contracts. We use these contracts to hedge foreign currency denominated payables for inventory purchases in the normal course of business, in a currency other than the currency in which the products are sold. Derivative financial instruments potentially subject us to risk. Volatile foreign currency exchange rates increase our risk related to products purchased in a currency other than the currency in which the products are sold in the normal course of business.

We are exposed to market risk related to volatility in foreign currency exchange rates, including devaluation and revaluation of local currencies. The market risk related to the forward contracts is offset by changes in the valuation of the underlying foreign currencies being hedged. We are also exposed to credit loss in the event of nonperformance by our counterparties to foreign exchange forward contracts and we may not be able to adequately mitigate all foreign currency related risks. We manage our exposure to fluctuations in the value of currencies and interest rates using foreign currency forward contracts with creditworthy financial institution counterparties and monitor the creditworthiness of these financial institution counterparties.

Credit exposure for derivative financial instruments is limited to the amounts by which the counterparties’ obligations under the contracts exceed our obligations to the counterparties. We manage the potential risk of credit loss through careful evaluation of counterparty credit standing, selection of counterparties from a limited group of financial institutions and other contract provisions. We do not use derivative financial instruments for trading or speculative purposes. The realization of any or all of these risks could have a material and adverse effect on our results of operations and financial condition.

Our international sales and operations are subject to applicable laws relating to trade, export controls and foreign corrupt practices, the violation of which could adversely affect our operations.

We must comply with all applicable export control laws and regulations of the U.S. and other countries. U.S. laws and regulations applicable to us include the Export Administration Regulations, or EAR, and the economic sanctions laws and regulations administered by the U.S. Department of the Treasury’s Office of Foreign Assets Control, or OFAC. In addition, we are subject to the Foreign Corrupt Practices Act, or FCPA, and other anti-bribery laws that generally bar bribes or unreasonable gifts to foreign governments or officials. Violations of these laws or regulations could result in severe criminal or civil sanctions and penalties, sanctions including fines, debarment from export privileges and loss of authorizations needed to conduct aspects of our international business and could materially adversely affect our business, financial condition and results of operations.

Our expansion into new markets may present additional risks, which may limit our success in those markets and could adversely impact our results of operations.

We currently have in-country sales and distribution operations in 11 Latin American and Caribbean countries and expect to enter into new geographic markets both within the countries where we already conduct operations and in new countries where we have no prior operating or distribution experience. In new markets, we will face challenges such as customers’ lack of awareness of our brand, difficulties in hiring personnel and our unfamiliarity with local markets. New markets may also have different competitive conditions from our existing markets and may generate lower margins. Any failure on our part to recognize or effectively respond to these differences may limit the success of our operations in those markets, and could have an adverse effect on our results of operations.

Our management and financial reporting systems, internal and disclosure controls and finance and accounting personnel may not be sufficient to meet our management and reporting needs.

We rely on a variety of management and financial reporting systems and internal and disclosure controls to provide management with accurate and timely information about our business and operations and prepare accurate and timely financial information for our investors. This information is important because it enables management to capitalize on business opportunities and identify unfavorable developments and risks at an early stage.

The challenge of establishing and maintaining sufficient systems and controls and hiring, training and retaining sufficient accounting and finance personnel has intensified as our business has grown rapidly in recent years and expanded into new geographic markets. As a result, we have identified the need to expand our finance and accounting staff and enhance internal controls at both the corporate and in-country levels, and to enhance the training of in-country management personnel regarding internal controls and management reporting to meet our current needs. This process is ongoing and we expect our ERP management and financial accounting system to enhance the control of senior management’s daily oversight functions. We continuously seek to add personnel to our finance and accounting staff, institute new controls and enhance existing controls at our consolidated and subsidiary operating levels.

Although we believe our current management and financial reporting systems, internal and disclosure controls and finance and accounting personnel are sufficient to enable us to effectively manage our business, identify unfavorable developments and risks at an early stage and produce financial information in an accurate and timely manner, we cannot be sure this will be the case. Management’s corrective actions to remediate failed controls may prove to be ineffective or inadequate and may expose us to risk of misstatements in our financial statements. In such circumstances, investors and other users of our financial statement may lose confidence in the reliability of our financial information and we could fail to comply with certain covenants in our debt agreements.

No matter how well designed and operated, a control system can provide only reasonable, not absolute, assurance that its objectives are met. Its inherent limitations include the realities that judgments in decision-making can be faulty and failures can occur due to simple mistakes. Moreover, controls can be circumvented by the acts of an individual, collusion of two or a group of people or by management’s decision to override the existing controls. We believe that we need to continue to expand our finance and accounting staff and enhance internal controls at both the corporate and in-country levels and enhance the training of in-country management personnel regarding internal controls and management reporting to meet our future needs in anticipation of our future growth. We cannot be sure that we will be able to take all necessary actions in a timely manner to keep pace with our anticipated growth.

Although we believe our controls are effective, if we fail to maintain sufficient management and financial reporting systems and internal and disclosure controls, hire, retain and train sufficient accounting and finance personnel, and enhance the training of in-country management personnel regarding internal controls and management reporting, our ability to prepare accurate and timely financial information could be impaired, hinder our growth and have a material and adverse effect on our current or future business, results of operations and financial condition.

We could experience difficulties in staffing and managing our operations, particularly in our Latin America and Caribbean locations, which could result in reduced revenues and difficulties in realizing our growth strategy.

We have many sales and distribution centers in multiple countries, which require us to attract managers of our business in each of those locations. In establishing and developing many of our in-country sales and distribution operations, we have relied in large part on the local market knowledge and entrepreneurial skills of a limited number of local managers in those markets. We have no employment agreements with any of our in-country managers. The loss of the services of any of these managers could adversely impact our results of operations in the market in which the manager is located. Further, it may prove difficult to find and attract new talent, including accounting and finance personnel, in our existing markets or any new markets we enter in Latin America and the Caribbean who possess the expertise required to successfully manage and operate our in-country sales and distribution operations. In 2011, we appointed a Chief Operating Officer to assume responsibility for commercial operations, supply chain management, IT and human resources. If we fail to recruit highly qualified candidates, we may experience greater difficulty realizing our growth strategy, which could adversely affect our results of operations.

If we lose the services of our key executive officers, we may not succeed in implementing our business strategy.

We are currently managed by certain key executive officers, including both of our founders, Anthony Shalom and Michael Shalom. The Shaloms have extensive experience and knowledge of our industry and the many local markets in which we operate. They also have been integral in establishing and expanding some of our most significant customer and vendor relationships and building our unique distribution platform. The loss of the services of these key executive officers could adversely affect our ability to implement our business strategy and new members of management may not be able to successfully replace them. We have an employment agreement with our Chief Operating Officer.

The interests of our principal shareholder may not be aligned with yours.

As our controlling shareholder, CVCI can elect a majority of the members of our Board of Directors, select our management team, determine our corporate and management policies and make decisions relating to fundamental corporate actions. In addition, under the shareholders agreement among us and our shareholders, the members of our Board of Directors appointed by the Shaloms have veto rights over certain decisions, which could result in a deadlock and consequently delay our management’s decision-making process. On June 29, 2012, Brightpoint, our second largest shareholder, permanently and irrevocably waived all of its voting and information rights in exchange for a release from certain mutual non-competition provisions contained in the Fifth Amended and Restated Shareholders Agreement, and no longer has a position on our board of directors.

We may be required to recognize further impairments of our goodwill, identifiable intangible assets or other long-lived assets or to establish further valuation allowances against our deferred income tax assets, which could adversely affect our results of operations and financial condition.

An extended period of economic contraction or a deterioration of our operating performance could result in impairment to the carrying amount of our goodwill and further impair our existing goodwill or goodwill recorded in the future and/or other long-lived assets or further valuation allowances on our deferred tax assets, which could have a material and adverse effect on our results of operations and financial condition.

Deferred tax assets, which also include net operating loss, or NOL, carryforwards for entities that have generated or continue to generate operating losses, are assessed periodically by management to determine if their future benefit will be fully realized. If it is more likely than not that the deferred income tax asset will not be realized, then a valuation allowance must be established with a corresponding charge to net income (loss). Such charges could have a material adverse effect on our results of operations or financial condition. We establish a valuation allowance against our NOLs when we do not believe that we will realize the full benefit of the NOLs. As of December 31, 2012 and 2011, we recorded a valuation allowance of $16.5 million and $12.9 million, respectively, against the respective NOLs, of which $13.6 million and $10.6 million, respectively, related to our U.S. Operations and $2.9 million and $2.3 million, respectively, related to our In-country Operations.

Our substantial debt could limit the cash flow available for our operations, which could adversely affect our business.

We have and will continue to have a substantial amount of debt, which requires significant interest and principal payments. As of December 31, 2012, we had $157.7 million of total debt outstanding (consisting of $107.2 million outstanding under our 13¹/₄% Second Priority Senior Secured Notes due December 15, 2014, or the 13¹/₄% Senior Notes, net of discount, $38.6 million outstanding under SBA’s revolving credit and security agreement with PNC Bank, or our PNC Credit Facility, net of cash with banks, $11.4

million outstanding debt of our foreign subsidiaries, and $0.5 million other debt, including capital leases). As of December 31, 2011, we had $143.6 million of total debt outstanding (consisting of $110.9 million outstanding under our 13¹/₄% Senior Notes, net of discount, $14.5 million outstanding under our PNC Credit Facility net of cash with banks, $17.3 million outstanding debt of our foreign subsidiaries, and $0.9 million other debt, including capital leases).

Subject to the limits contained in the indenture governing the 13¹/₄% Senior Notes and our other debt instruments, we may be able to incur additional debt from time to time to finance working capital, capital expenditures, investments or acquisitions, or for other purposes. If we incur additional debt, the risks related to our high level of debt could intensify. Specifically, our high level of debt could have important consequences to the holders of our common stock, including the following:

•

limiting our ability to obtain additional financing to fund future working capital, capital expenditures, acquisitions or other general corporate requirements;

•

requiring a substantial portion of our cash flows to be dedicated to debt service payments instead of other purposes;

•

increasing our vulnerability to general adverse economic and industry conditions;

•

limiting our flexibility in planning for and reacting to changes in the industry in which we compete;

•

placing us at a disadvantage compared to other, less leveraged competitors; and

•

increasing our cost of borrowing.

On January 25, 2012, SBA together with its consolidated subsidiaries executed a first amendment to the PNC Credit Facility, or the PNC Credit Facility Amendment, increasing the maximum amount available for borrowing under the facility from $30.0 million to $50.0 million, including standby letters of credit commitments in an aggregate undrawn face amount of up to $3.0 million.

The indenture governing the 13¹/₄% Senior Notes and the credit agreement governing our PNC Credit Facility impose significant operating and financial restrictions on our company and our subsidiaries, which may prevent us from capitalizing on business opportunities.

The indenture governing the 13¹/₄% Senior Notes imposes significant operating and financial restrictions on us. These restrictions limit our ability, among other things, to (i) incur additional indebtedness or enter into sale and leaseback obligations; (ii) pay certain dividends or make certain distributions on our capital stock or repurchase our capital stock or repurchase our capital stock; (iii) make certain investments or other restricted payments; (iv) place restrictions on the ability of subsidiaries to pay dividends or make other payments to us; (v) engage in transactions with shareholders or affiliates; (vi) sell certain assets or merge with or into other companies; (vii) guarantee indebtedness; or (viii) create liens.

The PNC Credit Facility contains provisions requiring us and SBA to maintain compliance with minimum consolidated fixed charge coverage ratios each not less than 1.00 to 1.00 for us and 1.10 to 1.00 for SBA, in each case, for the four quarter period ending December 31, 2011 and as of the end of each fiscal quarter thereafter. The PNC Credit Facility is subject to several customary covenants and certain events of default, including but not limited to, non-payment of principal or interest on obligations when due, violation of covenants, creation of liens, breaches of representations and warranties, cross default to certain other indebtedness, bankruptcy events and change of ownership or control. In addition, the PNC Credit Facility contains a number of covenants that, among other things, restrict SBA’s ability to: (i) incur additional indebtedness; (ii) make certain capital expenditures; (iii) guarantee certain obligations; (iv) create or allow liens on certain assets; (v) make investments, loans or advances; (vi) pay dividends, make distributions or undertake stock and other equity interest buybacks; (vii) make certain acquisitions; (viii) engage in mergers, consolidations or sales of assets; (ix) use the proceeds of the revolving credit facility for certain purposes; (x) enter into transactions with affiliates in non-arms’ length transactions; (xi) make certain payments on subordinated indebtedness; and (xii) acquire or sell subsidiaries.

SBA’s failure to comply with the restrictive covenants described above could result in an event of default, which, if not cured or waived, could result in either of us having to repay our respective borrowings before their respective due dates. If SBA is forced to refinance these borrowings on less favorable terms, our results of operations or financial condition could be harmed. In addition, if we are in default under any of our existing or future debt facilities, we also will not be able to borrow additional amounts under those facilities to the extent they would otherwise be available and may not be able to repay our existing indebtedness.

We anticipate that we may need to raise additional financing to grow our business but it may not be available on terms acceptable to us, if at all.

We expect our operating expenditures and working capital needs will increase over the next several years as our sales volume increases and we expand our geographic presence and product portfolio. If our results of operations are not as favorable as we anticipate (including as a result of increased competition), our funding requirements are greater than we expect (including as a result of growth in our business) or our liquidity sources are not at anticipated levels (including levels of available trade credit), our resources may not be sufficient and we may have to raise additional capital to support our business.

In addition, we may not be able to accurately predict future operating results or changes in our industry which may change these funding requirements. In the event that such additional financing is necessary, we may seek to raise such funds through public or private equity or debt financing or other means. We may not be able to obtain additional financing when we need it, or we may not be able to raise financing on terms acceptable to us. The current tightening in the credit markets heightens this risk. In addition, we may not be able to borrow additional funds under our existing credit facilities if participating banks become insolvent or their liquidity is limited or impaired. In the event that adequate funds are not available in a timely manner, our business and results of operations may be harmed.

We have significant credit exposure to our customers. If we are unable to manage our accounts receivable effectively, it could result in longer payment cycles, increased collection costs and defaults exceeding our expectations and adversely impact the cost or availability of our financing.

We extend credit for a significant portion of sales to our customers. Any negative trends in our customer’s businesses as well as their inability to obtain financing for operations could increase the risk that we may be unable to collect on receivables on a timely basis, or at all. If our customers fail to pay or delay payment for the products they purchase from us, it could result in longer payment cycles, increased collection costs, defaults exceeding our expectations and an adverse impact on the cost or availability of financing. If there is a substantial deterioration in the collectability of our receivables, we may not be able to obtain credit insurance at reasonable rates and credit insurers may drop coverage on our customers and increase premiums, deductibles and co-insurance levels on our remaining or prospective coverage. If we are unable to collect under existing credit insurance policies, or fail to take other actions to adequately mitigate such credit risk, our earnings, cash flows and our ability to utilize receivable-based financing could deteriorate. These risks may be exacerbated by a variety of factors, including adverse economic conditions, solvency issues experienced by our customers as a result of an economic downturn or a decrease in IT spending by end-users, decreases in demand for our products and negative trends in the businesses of our customers.

We have a number of credit facilities under which the amount we are able to borrow is based on the value and quality of our accounts receivable, which is affected by several factors, including:

•

the collectability of our accounts receivable;

•

general and regional industry and economic conditions; and

•

our financial condition and creditworthiness and that of our customers.

Any reduction in our borrowing capacity under these credit facilities could adversely affect our ability to finance our working capital and other needs.

Although we obtain credit insurance against the failure to pay or delay in payment for our products by some of the customers of our Miami Operations, our results of operations and liquidity could be hurt by a loss for which we do not have insurance or that is subject to an exclusion or that exceeds our applicable policy limits. In addition, increasing insurance premiums could adversely affect our results of operations. Moreover, failure to obtain credit insurance may have a negative impact on the amount of borrowing capacity available to our Miami Operations under our PNC Credit Facility.

Our inability to obtain sufficient trade credit from our vendors or other sources in a timely manner and on reasonable terms could inhibit our growth and have an adverse effect on our results of operations.

Our business is working capital intensive and our vendors historically have been an important source of funding our business growth through the provision of trade credit. We expect to continue to rely on trade credit from our vendors to provide a significant amount of our working capital. If our vendors fail to provide us with sufficient trade credit, including larger amounts of trade credit, in a timely manner as our business grows, we may have to rely on other sources of financing, which may not be readily available or, if available, may not be on terms acceptable or favorable to us. Volatility and disruptions in the global economic environment including tightening in the credit markets could heighten the risk that we may not be able to obtain trade credit or alternative sources of financing, or that to the extent we can obtain it, the terms are unfavorable.

Our ability to pay for products is largely dependent upon the payment terms that our principal vendors provide us and facilitate the efficient use of our capital. The payment terms are based on several factors, including (i) our recent operating results, financial position (including our level of indebtedness) and cash flows; (ii) our payment history with the vendor; (iii) the vendor’s credit granting policies (including any contractual restrictions to which it is subject), our creditworthiness (as determined by various entities) and general industry conditions; (iv) prevailing interest rates; and (v) the vendors’ ability to obtain credit insurance in respect of amounts that we owe. Adverse changes in any of these factors, many of which are not within our control, could increase the costs of financing our inventory, limit or eliminate our ability to obtain vendor financing and adversely affect our results of operations and financial condition.

We are dependent upon a relatively small number of vendors for products that make up a significant portion of our revenue and the loss of a relationship with any of our key vendors may adversely impact our results of operations.

A significant portion of our revenue is derived from products manufactured by a relatively small number of vendors. For the years ended December 31, 2012, 2011 and 2010, our top 10 vendors manufactured products that accounted for 68.0%, 65.1% and 65.7%, respectively, of our total revenue and the products of our top vendor accounted for 22.4%, 19.4% and 18.6%, respectively, of our total revenue. We expect that we will continue to obtain most of our products from a relatively small number of vendors and the portion of our revenue that we obtain from such vendors may continue to increase in the future. Due to intense competition in the IT products distribution industry, our key vendors can choose to work with other distributors and, pursuant to standard terms in our vendor agreements, may terminate their relationships with us on short notice. A continued or prolonged global economic downturn may lead to the consolidation of certain vendors with other vendors, contract assemblers or distributors. The increased size, operating and financial resources of such consolidated vendors could allow them to sell more products directly to customers and reduce the number of authorized distributors with which they conduct business. Such direct sales by vendors and/or the loss of a relationship with any of our key vendors could adversely affect our results of operations.

Our vendors generally can unilaterally change the terms of the sales agreements for future orders and adverse changes in the terms could adversely affect our results of operations.

The sales agreements provided by our vendors are generally at-will agreements that have short terms. Generally, each vendor has the ability to unilaterally change the terms and conditions of its sales agreements for future orders, including a reduction in the level of purchase discounts, rebates and marketing programs available to us. Our inability to pass the impact of these changes through to our reseller and retailer customers (usually through increased prices) could adversely affect our results of operations.

We are dependent upon vendors to maintain adequate inventory levels and oversupplies may adversely affect our margins and product shortages may adversely affect our revenues and costs.

Our inventory levels may vary from period to period, due primarily to the anticipated and actual sales levels and our purchasing levels. The IT industry occasionally experiences an oversupply of IT products, which vendors then sell on the market at reduced prices. Oversupplies could adversely affect our results of operations. One recent example of such an oversupply that affected us was the excess supply of certain mobile device products in the second quarter of fiscal year 2012, which resulted in us selling the excess inventories at severe discounts. The IT industry is also characterized by periods of severe product shortages due to vendors’ difficulties in projecting demand for certain products distributed by us. When such product shortages occur, we typically receive an allocation of products from the vendor such as our experience in late 2011 when manufacturers of hard disk drives experienced manufacturing disruptions from the severe flooding of their Thailand production facilities. Our vendors may not be able to maintain an adequate supply of products to fulfill all of our customer orders on a timely basis and the costs of these products to us may increase. Any supply shortages or delays (some or all of which are beyond our control) could cause us to be unable to service customers on a timely basis. A decline in sales or increase in costs due to product shortages not offset by higher margins could adversely affect our results of operations.

If our vendors fail to respond quickly to technological changes and innovations and our product offerings fail to satisfy consumers’ tastes or respond to changes in consumer preferences, our revenues may decline and our competitors may gain additional market share.

Our ability to stay competitive in the IT products distribution industry and increase our customer base depends on our ability to offer, on a continuous basis, a selection of appealing products that reflect our customers’ preferences. To be successful, our product offerings must be broad in scope, competitively priced, well-made, innovative and attractive to a wide range of consumers whose preferences may change regularly. This depends largely on the ability of our key vendors to respond quickly to technological changes and innovations and to manufacture new products that meet the new and changing demands of our customers and requires on the part of vendors a continuous investment of resources to develop and manufacture new products. If our key vendors fail to respond on a timely basis to the rapid technological changes that have been characteristic of the IT products industry, fail to provide new products

that are desired by consumers or otherwise fail to compete effectively against other IT products manufacturers, the products that we offer may be less desirable to consumers and we could suffer a significant decline in our revenue. For example, for the year ended December 31, 2012, we realized a negative impact on sales of mobile devices due to the softening demand, increased competition and excess availability of certain models in the market, which resulted in reduced gross margins and increased inventory obsolescence expense recognized during the period. The ability and willingness of our vendors to develop new products depends on factors beyond our control. If our product offerings fail to satisfy consumers’ tastes or respond to changes in consumer preferences, our revenues may decline and our competitors may gain additional market share.

We are subject to the risk that our inventory values may decline, which could adversely affect our results of operations.

The IT products distribution industry is subject to rapid technological change, new and enhanced product specification requirements and evolving industry standards. These factors may cause a substantial decline in the value of our inventory or may render all or substantial portions of our inventory obsolete. Changes in customs or security procedures in the countries through which our inventory is shipped, as well as other logistical difficulties that slow the movement of our products to our customers, can also exacerbate the impact of these factors. While some of our vendors offer us limited protection against the decline in value of our inventory due to technological change or new product developments in the form of credit or partial refunds, these protective policies are largely subject to the discretion of our vendors and change from time to time. In addition, we distribute private label products for which price protection and rights of return are not customarily contractually available, and for which we bear increased risks. In any event, the protective terms of our vendor agreements may not adequately cover declines in our inventory value and these vendors may discontinue providing these terms at any time in the future. Any decline in the value of our inventory not offset by vendor credits or refunds could adversely affect our results of operations.

We may suffer from theft of inventory, which could result in losses and increases in security and insurance costs.

We store significant quantities of inventory at warehouses in Miami, China and throughout Latin America and the Caribbean. We and our third party shippers have experienced inventory theft at, or in transit to or from, certain facilities in several of our locations at various times in the past. In the future, we may be subject to significant inventory losses due to theft from our warehouses, hijacking of trucks carrying our inventory or other forms of theft. The implementation of security measures beyond those we already utilize, which include the establishment of alarm systems in our warehouses, GPS tracking systems on delivery vehicles and armed escorts for shipment of our products, in each case in certain of our locations, would increase our operating costs.

Any losses of inventory could exceed the limits of, or be subject to an exclusion from, coverage under our insurance policies. In addition, claims filed by us under our insurance policies could lead to increases in the insurance premiums payable by us or the termination of coverage under the relevant policy. As a result, losses of inventory, whether or not insured, could adversely affect our results of operations.

Direct sourcing by our customers could result in our customers reducing their purchases from us, which would adversely impact our results of operations.

We occupy a position in the middle of the IT products distribution chain in Latin America and the Caribbean, between IT product vendors, on the one hand, and locally-based distributors, resellers and retailers, on the other. Further industry consolidation, increased competition, technological changes and other developments, including improvements in regional infrastructure, may cause our vendors to bypass us and sell directly to our customers. As a result, our distributor, reseller and retailer customers and our vendors may increase the level of direct business they do with each other, which could reduce their purchases from us and hurt our results of operations.

We rely on third party shippers and carriers whose operations are outside our control, and any failure by them to deliver products to our customers in a timely manner may damage our reputation and could cause us to lose customers.

We rely on arrangements with third-party shippers and carriers such as independent shipping companies for timely delivery of our products to our in-country sales and distribution operations and third-party distributors, resellers and retailers. As a result, we are subject to carrier disruptions and increased costs due to factors that are beyond our control, including labor strikes, inclement weather and increased fuel costs. If the services of any of these third parties become unsatisfactory, we may experience delays in meeting our customers’ product demands and we may not be able to find a suitable replacement on a timely basis or on commercially reasonable terms. Any failure to deliver products to our customers in a timely manner may damage our reputation and could cause us to lose customers.

We may not realize the expected benefits from any future acquisitions, thereby adversely impacting our growth.

As part of our strategy, from time to time, we may pursue acquisitions. Our success in realizing the expected benefits from any business acquisitions depends on a number of factors, including retaining or hiring local management personnel to run our operations in new countries, successfully integrating the operations, IT systems, customers, vendors and partner relationships of the acquired companies and devoting sufficient capital and management attention to the newly acquired companies in light of other operational needs. Our efforts to implement our strategy could be affected by a number of factors beyond our control, such as increased competition and general economic conditions in the countries where the newly acquired companies operate. Any failure to effectively implement our strategy could adversely impact our growth.

We are exposed to the risk of natural disasters, war and terrorism that could disrupt our business and result in increased operating costs and capital expenditures.

Our Miami headquarters, some of our sales and distribution centers and certain of our vendors and customers are located in areas prone to natural disasters such as earthquakes, floods, hurricanes, tornados or tsunamis. In addition, demand for our services is concentrated in major metropolitan areas. Adverse weather conditions, major electrical or telecommunications failures or other events in these major metropolitan areas may disrupt our business and may adversely affect our ability to distribute products. Our exposure to these risks may be heightened because we do not have a comprehensive disaster recovery system or disaster recovery plan. Our failure to have such a system or plan in place could hurt our results of operations and financial condition.

We operate in multiple geographic markets, several of which may be susceptible to acts of war and terrorism. Security measures and customs inspection procedures have been implemented in a number of jurisdictions in response to the threat of terrorism. These procedures have made the import and export of goods, including to and from our Miami headquarters, more time-consuming and expensive. Such measures have added complexity to our logistical operations and may extend our inventory cycle. Our business may be harmed if our ability to distribute products is further impacted by any such events. In addition, more stringent processes for the issuance of visas and the admission of non-U.S. persons to the U.S. may make travel to our headquarters in Miami by representatives of some vendors and customers more difficult. These developments may also hurt our relationships with these vendors and customers.

The combination of the factors described above could diminish the attractiveness of Miami as a leading business center for Latin America and the Caribbean in general, and as the central hub for the Latin American and Caribbean IT products distribution industry in particular. In the event of the emergence of one or more other hubs serving Latin America and the Caribbean that are more favorable to IT distributors, competitors operating in those locations could have an advantage over us. The relocation of all or a part of our main warehouse and logistics center in Miami to any such new hubs could materially increase our operating costs or capital expenditures.

In addition, because of concerns arising from large damage awards and incidents of terrorism, it has become increasingly difficult for us to obtain adequate terrorism insurance coverage at reasonable premiums, which has increased our costs.

Item 1B. Unresolved Staff Comments.

Not applicable.

Item 2. Properties.

Our corporate headquarters are located in a 172,926 square foot facility in Miami, Florida, and contain our Miami office and warehouse facility. We support our operations throughout Latin America and the Caribbean from this Miami facility, which is an extensive sales and administrative office and distribution network integrating executive-level management, warehousing, RMA, purchasing, sales, marketing, human resources, credit, finance, technical support and customer service functions. Our Miami facility is located near the Port of Miami and Miami International Airport which facilitates access to the area’s air and container-cargo networks. The original commencement date of our Miami facility lease was May 1, 2007 and the amended lease termination date is August 31, 2021.

As of December 31, 2012, we operated a sales and distribution center in the U.S., 25 sales and distribution centers in 11 countries in Latin America and the Caribbean, and a warehouse in Shenzhen, China. The foreign distribution centers include our In-Country Operations office and warehouses. Some of the distribution centers include assembly lines for “white-box” PCs that we or our value-added reseller and retailer customers assemble locally. In total, our sales and distribution centers in our Miami Operations and in our In-country Operations represent nearly 682,000 square feet of space (including 212,000 square feet of office space and 470,000 square feet of warehouse space). As of December 31, 2012, we leased substantially all of our facilities on varying terms with the exception of a portion of our sales and distribution center in Santiago, Chile, San Salvador, El Salvador and warehouse space in Lima, Peru. We have an option to purchase for $3.0 million, the office and warehouse facility located in Mexico City, Mexico, which we currently lease, prior to December 31, 2013, the option termination date. We do not anticipate any material difficulties with the renewal of any of our leases when they expire or in securing replacement facilities on commercially reasonable terms.

The following table sets forth information regarding our facilities including location, use, size and ownership or lease status as of March 22, 2013:


Location	Use	Approximate Gross Square Feet		Owned or Leased
Santiago, Chile	Office/Warehouse		85,519	Owned-54%; Leased-46%
Iquique, Chile	Office/Warehouse		7,750	Leased
Shenzhen, China	Warehouse		Various	Leased
Bogotá, Colombia	Office/Warehouse		14,171	Leased
Cota, Colombia	Office/Warehouse		13,358	Leased
San José, Costa Rica	Office/Warehouse		43,056	Leased
Quito, Ecuador	Office/Warehouse		28,589	Leased
Guayaquil, Ecuador	Office/Warehouse		8,191	Leased
San Salvador, El Salvador	Office/Warehouse		17,352	Leased
Guatemala City, Guatemala	Office/Warehouse		37,104	Leased
Kingston, Jamaica	Office/Warehouse		16,968	Leased
Cancun, Mexico	Office/Warehouse		6,459	Leased
León, Mexico	Office/Warehouse		4,650	Leased
Merida, Mexico	Office/Warehouse		14,589	Leased
Mexico City, Mexico	Office/Warehouse		15,984	Leased
Monterrey, Mexico	Office/Warehouse		4,306	Leased
Plaza, Mexico	Office/Warehouse		4,596	Leased
Puebla, Mexico	Office/Warehouse		6,178	Leased
Querétaro, Mexico	Office/Warehouse		4,069	Leased
Tlalnepantla, Mexico	Office/Warehouse		43,142	Leased
Tuxtla, Mexico	Office/Warehouse		6,459	Leased
Veracruz, Mexico	Office/Warehouse		8,170	Leased
Panama City, Panama	Office/Warehouse		34,445	Leased
Chiriqui, Panama	Office/Warehouse		6,480	Leased
Lima, Peru	Office/Warehouse		52,152	Owned-82%; Leased-18%
Montevideo, Uruguay	Office/Warehouse		25,058	Leased
Miami, United States	Office/Warehouse		172,926	Leased

Item 3. Legal Proceedings.

As of December 31, 2012, we had no material legal proceedings pending. From time to time, we are the subject of legal proceedings arising in the ordinary course of business. We do not believe that any proceedings currently pending or threatened will have a material adverse effect on our business or results of operations.

Item 4. Mine Safety Disclosures.

Not applicable.

PART II

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.

Common Stock. Prior to April 19, 2011, we had two classes of common stock: voting common stock, or the Common Stock, and non-voting Class B common stock, or the Original Class B Common Stock, (collectively herein referred to as the Original Common Stock). On April 19, 2011, we filed an amendment to our certificate of incorporation, which increased the number of authorized shares of Common Stock to 200,000 shares, eliminated the Original Class B Common Stock and converted all outstanding shares of the Original Class B Common Stock to shares of voting Common Stock.

We had 167,819 shares of common stock outstanding as of December 31, 2012 and 167,388 shares of common stock outstanding as of December 31, 2011. Our Common Stock is privately held and not traded on a public stock exchange.

As of March 22, 2013, there were 51 holders of record of our Common Stock. For a detailed discussion of the ownership of our company, see Part III—Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters, of this Annual Report.

Issuances of Unregistered Securities; Purchases of Securities. We did not issue any unregistered securities during the three-month period ended December 31, 2012 that were not previously reported in a Current Report on Form 8-K, and we did not repurchase any securities during that period.

Dividend Policy. We declared and paid a $20.0 million dividend on our Common Stock on August 25, 2005, using a portion of the proceeds from the offering of the $120.0 million aggregate principal amount of our 11³/₄% Senior Notes due January 15, 2011, or the Prior 11³/₄% Senior Notes. We have neither declared nor paid a dividend on our Common Stock subsequently. We currently intend to retain future earnings to fund ongoing operations and finance the growth and development of our business and, therefore, do not anticipate declaring or paying cash dividends on our Common Stock for the foreseeable future.

Any determination to pay dividends in the future will be made at the discretion of our Board of Directors and will depend on our results of operations, financial condition, contractual restrictions, restrictions imposed by applicable law and other factors our board deems relevant. The terms of our 13¹/₄% Senior Notes and SBA’s outstanding indebtedness substantially restrict the ability of either company to pay dividends. In addition, because we are a holding company, our ability to pay dividends depends on our receipt of cash dividends from our subsidiaries.

Equity Compensation Plan Information. For a detailed discussion of the equity compensation plan of our company, see Part III—Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters, of this Annual Report.

Item 6. Selected Financial Data.

The following table presents selected consolidated financial information and other data as of and for the years ended December 31, 2012, 2011, 2010, 2009 and 2008 and includes the results of operations of our acquisitions that have been combined with our results of operations beginning on their acquisition dates. We derived the statement of operations and other data set forth below for the years ended December 31, 2012, 2011 and 2010, and the balance sheet data as of December 31, 2012 and 2011 from our audited consolidated financial statements (together with the notes thereto) included elsewhere in this Annual Report. We derived the selected financial information and other data for the years ended December 31, 2009 and 2008 and as of December 31, 2010, 2009 and 2008 from our audited consolidated financial statements with respect to such date and periods not included in this Annual Report. The information set forth below should be read in conjunction with Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the historical consolidated financial statements and notes thereto, included in this Annual Report.


	As of or For the Years Ended December 31,
	2012			2011			2010			2009			2008
	(Dollars in thousands, except per share and other data)
Statement of Operations Data:
Revenue	$	1,430,478		$	1,286,973		$	1,013,272		$	917,168		$	1,071,551
Cost of revenue		1,307,663			1,162,161			917,529			825,587			970,955

Gross profit		122,815			124,812			95,743			91,581			100,596
Operating expenses		101,675			91,995			79,638			71,256			105,723	⁽¹⁾

Operating income		21,140			32,817			16,105			20,325			(5,127	)
Other expense (income)
Interest expense		22,096			20,542			20,933			17,495			17,431
Interest income		(480	)		(413	)		(309	)		(514	)		(941	)
Foreign exchange (gain) loss, net		(1,015	)		5,474			(2,025	)		(3,130	)		15,533
Other income, net		(3,830	)		(129	)		(237	)		(3,563	)		(3,427	)

Total other expense		16,771			25,474			18,362			10,288			28,596

Income (loss) before provision for income taxes		4,369			7,343			(2,257	)		10,037			(33,723	)
Provision for income taxes		2,297			3,162			1,393			2,844			1,595

Net income (loss)	$	2,072		$	4,181		$	(3,650	)	$	7,193		$	(35,318	)

Net income (loss) per weighted average share of common stock:
Basic	$	12.37		$	26.75		$	(28.21	)	$	69.94		$	(345.63	)

Diluted	$	12.29		$	26.67		$	(28.21	)	$	69.94		$	(345.63	)

Weighted average number of common shares used in per share calculation:
Basic		167,503			156,316	⁽³⁾		129,357			102,852	⁽²⁾		102,182

Diluted		168,625			156,773	⁽³⁾		129,357			102,852	⁽²⁾		102,182


	As of or For the Years Ended December 31,
	2012		2011		2010		2009		2008
Balance Sheet Data:
Cash and cash equivalents	$	30,586	$	25,707	$	28,867	$	27,234	$	22,344
Working capital⁽⁴⁾		116,457		121,304		104,358		110,693		75,726
Total assets		462,202		444,981		346,105		308,101		284,068
Long-term debt (including current maturities and capital leases)		107,708		111,806		116,251		114,982		105,865
Total debt		157,729		143,647		137,507		129,711		136,906
Total shareholders’ equity		66,475		63,514		39,041		42,734		14,550
Other Data:
Cash dividends per common share	$	—	$	—	$	—	$	—	$	—
Ratio of earnings to fixed charges⁽⁵⁾	$	1.2x	$	1.3x	$	18,676		1.5x	$	(16,292	)

(1)	Operating expenses includes the goodwill impairment charge of $18,777 for the year ended December 31, 2008.

(2)

Weighted average number of common shares used in the per share calculation for the periods presented reflects the issuance of 27,175 shares of the Original Class B Common Stock to certain of our existing shareholders and their affiliates, concurrently with the redemption and cancellation of our Prior 11³/₄% Senior Notes and the closing of the offering on December 22, 2009 of our $120.0 million aggregate principal amount of the Original 13¹/₄% Second Priority Senior Notes, due December 15, 2014, or the Original 13¹/₄% Senior Notes.

(3)

Weighted average number of common shares used in the per share calculation for the periods presented reflects the issuance of 38,769 shares of Common Stock to Brightpoint Latin America, 25,846 shares sold for $15.0 million in cash and 12,923 shares in exchange for the acquisition of certain assets and liabilities and the equity associated with the Brightpoint Latin America operations on April 19, 2011.

(4)	Working capital is defined as current assets less current liabilities.

(5)

For purposes of calculating the ratio of earnings to fixed charges: (i) earnings is defined as income before income taxes plus fixed charges; and (ii) fixed charges is defined as interest expense (including capitalized interest and amortization of debt issuance costs) and the portion of operating rental expense which management believes would be representative of the interest component of rental expense. A ratio of less than one-to-one coverage requires the disclosure of the dollar amount of the deficiency.

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Forward-Looking Statements

This Annual Report on Form 10-K, or Annual Report, including this Management’s Discussion and Analysis of Financial Condition and Results of Operations, contains forward-looking statements regarding future events and our future results that are subject to the safe harbors created under the Securities Act of 1933 and the Securities Exchange Act of 1934, as amended. All statements other than statements of historical facts are statements that could be deemed forward-looking statements. These statements are based on current expectations, beliefs, estimates, forecasts, projections and management assumptions about our company, our future performance, our liquidity and the IT products distribution industry in which we operate. Words such as “anticipate,” “assume,” “believe,” “estimate,” “expect,” “intend,” “goal,” “plan,” “seek,” “project,” “target” and variations of such words and similar expressions are intended to identify such forward-looking statements. In addition, any statements that refer to projections of our future financial performance, our anticipated growth and trends in our businesses, and other characterizations of future events or circumstances including but not limited to, management’s expectations for competition, revenues, margin, expenses and other operating results, capital expenditures, liquidity, capital requirements, acquisitions and exchange rate fluctuations, each of which involves numerous risks and uncertainties are forward-looking statements. These forward-looking statements are only predictions and are subject to risks and uncertainties that could cause actual results to differ materially from those suggested by the forward-looking statements. Forward-looking statements should, therefore, be considered in light of various factors, including those set forth in this Annual Report under Part I—Item 1A. Risk Factors and elsewhere herein. These risks and uncertainties include, but are not limited to, the following:

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adverse changes in general economic, political, social and health conditions and developments in the global environment and throughout Latin America and the Caribbean in the markets in which we operate or plan to operate, which may lead to a decline in our business and our results of operations;

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adverse changes in the telecommunications devices market and distribution methods of mobile devices, particularly in Latin America and the Caribbean, and the ability for our suppliers and venders to provide us products in a timely manner;

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business interruptions due to natural or manmade disasters, extreme weather conditions including but not limited to, earthquakes, fires, floods, hurricanes, medical epidemics, power and/or water shortages, telecommunication failures, tsunamis;

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competitive conditions and fluctuations in the foreign currency in the markets in which we operate or plan to operate;

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market acceptance of the products we distribute, adverse changes in our relationships with vendors and customers or declines in our inventory values;

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credit exposure to our customers’ financial condition and creditworthiness;

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operating and financial restrictions of our creditors and sufficiency of trade credit from our vendors;

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dependency on accounting and financial reporting, IT and telecommunications management and systems;

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difficulties in maintaining and enhancing internal controls and management and financial reporting systems;

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compliance with accounting rules and standards, and corporate governance and disclosure requirements; and,

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difficulties in staffing and managing our foreign operations or departures of our key executive officers.

This list of factors that may affect future performance and the accuracy of forward-looking statements is illustrative but not exhaustive. In addition, new risks and uncertainties may arise from time to time. Accordingly, all forward-looking statements should be evaluated with an understanding of their inherent uncertainty. We caution you not to place undue reliance on these forward-looking statements, which speak only as of the date they were made. We do not undertake any obligation to publicly release any revisions to these forward-looking statements to reflect events or circumstances after the date of this Annual Report. All forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by this cautionary statement.

Therefore, actual results may differ materially and adversely from those expressed in any forward-looking statement because of certain factors discussed below or elsewhere in this Annual Report. The following discussion and analysis of our financial condition and results of operations should be read together with our audited consolidated financial statements and notes thereto for the fiscal year ended December 31, 2012, which are included in this Annual Report.

Overview

We believe we are the largest pure play value-added distributor of IT products focused solely on serving Latin America and the Caribbean. We believe the continued convergence of IT, consumer electronics and mobile “smart” device technology extends our products offerings beyond traditional computer based IT products into complimentary products that address consumer demand for mobile computing devices, such as smart phones and tablets, throughout the Regions. We distribute computer equipment components, peripherals, software, computer systems, accessories, networking products, digital consumer electronics and mobile devices to more than 50,000 customers in 39 countries. We offer single source purchasing to our customers by providing an in-stock selection of more than 12,000 products from over 130 vendors, including the world’s leading IT product manufacturers. From our headquarters and main distribution center in Miami, we support a network of 25 sales and distribution operations in 11 Latin American and the Caribbean countries, or our In-country Operations.

Our results for the year ended December 31, 2012 reflect an increase in revenue across most of our product lines and our customer markets with sales of mobile devices and software representing the most significant portion of the revenue growth, as compared to the corresponding period in 2011. Revenue increased $143.5 million, or 11.2% to $1,430.5 million for the year ended December 31, 2012, as compared to $1,287.0 million for the year ended December 31, 2011. Gross profit decreased $2.0 million, or 1.6% to $122.8 million for the year ended December 31, 2012, as compared to $124.8 million for the year ended December 31, 2011. The decline in gross profit was primarily the result of the lower average selling price of our core products, most notably mobile devices, and the increase in the reserve for inventory obsolescence provision for the year ended December 31, 2012, as compared to the same period in 2011.

Total operating expenses increased $9.7 million, or 10.5% to $101.7 million for the year ended December 31, 2012, as compared to $92.0 million for the year ended December 31, 2011. The increase in operating expenses resulted primarily from the additional salary and payroll-related expenses incurred during the period. Other expense, net decreased $8.7 million, or 34.2% to $16.8 million during the year ended December 31, 2012, as compared to $25.5 million for the year ended December 31, 2011. The decrease was primarily driven by the one-time $4.3 million gain recognized on the termination of the mutual non-compete agreement with Brightpoint and foreign exchange gain of $1.0 million realized during the year ended December 31, 2012, as compared to foreign exchange loss of $5.5 million realized during the same period in 2011.

Net income was $2.1 million for the year ended December 31, 2012, as compared to $4.2 million for the year ended December 31, 2011.

Factors Affecting Our Results of Operations

The following events and developments have in the past, or are expected in the future to have, a significant impact on our financial condition and results of operations:

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Impact of price competition, vendor terms and conditions. Historically, our gross profit margins have been impacted by price competition, changes to vendor terms and conditions, including but not limited to, reductions in product rebates and incentives, our ability to return inventory to manufacturers, and time periods during which vendors provide price protection. We expect these competitive pricing pressures and modifications to vendor terms and conditions to continue into the foreseeable future.

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Sale of Mobile Devices. Due to the continued convergence of IT products and mobile devices, we launched our initial foray into the mobile devices market in the latter half of 2010. In April 2011, we completed our strategic transaction with Brightpoint which facilitated our further expansion into the wireless mobile devices distribution market. Additionally, we have entered into contracts with certain mobile devices manufacturers for the distribution of their products throughout Latin America and the Caribbean. We expect to enter into more contracts with other mobile devices manufacturers, which may result in the increase in revenues related to these products and services. In addition, we expect the growth of our revenues to continue to be significantly driven by growth in the sales of mobile devices.

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Shift in revenue to In-country Operations. One of our growth strategies is to expand the geographic presence of our In-country Operations into areas in which we believe we can achieve higher gross margins than our Miami Operations. Miami gross margins are generally lower than gross margins from our In-country Operations because the Miami export market is more competitive due to the high concentration of other Miami-based IT distributors who compete for the export business of resellers and retailers located in Latin America or the Caribbean. In addition, these resellers and retailers generally have larger average order quantities than customers of our In-country Operations segment, and as a result, benefit from lower average prices. Revenue from our In-country Operations grew by an average of 18.1% annually between 2002 and 2012, as compared to growth in revenue from our Miami Operations of an average of 11.3% annually over the same period. Revenue from our In-country Operations accounted for 71.8%, 69.8% and 78.6% of consolidated revenue for the years ended December 31, 2012, 2011 and 2010, respectively. While the recent increase in sales related to mobile devices has resulted in a greater increase in revenue from our Miami Operations than our In-country Operations, we still expect the expansion of our In-country Operations to grow at a faster rate than our Miami Operations over the long term, particularly as we work toward shifting more of our mobile device sales to our In-country Operations.

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Exposure to fluctuations in foreign currency. A significant portion of the revenues from our In-country Operations is invoiced in currencies other than the U.S. dollar and a significant amount of the operating expenses from our In-country Operations are denominated in currencies other than U.S. dollar. In markets where we invoice in local currency, including Chile, Colombia, Costa Rica, Guatemala, Jamaica, Mexico and Peru, appreciation of a local currency could have a marginal impact on our gross profit and gross margins in U.S. dollar terms. In markets where our books and records are prepared in currencies other than the U.S. dollar, appreciation of the local currency will increase our operating expenses and decrease our operating margins in U.S. dollar terms. Our consolidated statements of operations and comprehensive income (loss) includes foreign exchange gain of $1.0 million, loss of $5.5 million and gain of $2.0 million, for the years ended December 31, 2012, 2011 and 2010, respectively. We periodically engage in foreign currency forward contracts when available and when doing so is not cost prohibitive. In periods when we do not, foreign currency fluctuations may adversely affect our results of operations, including our gross margins and operating margins.

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Trade credit. All of our key vendors and many of our other vendors provide us with trade credit, an important source of liquidity to finance our growth. Although our overall available trade credit has increased significantly over time, from time to time the trade credit available from certain vendors has not kept pace with the growth of our business with them. During periods of economic downturn, our vendors may reduce the level of available trade credit extended to us as a result of our liquidity at the time.

It is necessary for us to increase our use of available cash or borrowings under our credit facility to the extent available in order to pay certain vendors for their products, which adversely affects our liquidity and can adversely affect our results of operations and opportunities for growth. We purchase credit insurance to support trade credit lines extended to our customers, which has been restricted due to regional or global economic events or disruptions in the credit markets. Periodically, credit insurers may tighten the requirements for extending credit insurance coverage thereby limiting our capacity to extend trade credit to our customers and the growth of our business throughout the Regions.

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Increased levels of indebtedness. During December 2009, we completed a cash tender offer for $96.9 million aggregate principal amount of our Prior 11³/₄% Senior Notes outstanding. We financed the tender offer with the net cash proceeds of $120.0 million aggregate principal amount of the Original 13¹/₄% Senior Notes, that were sold in a private placement transaction and closed on December 22, 2009, with an interest rate of 13.25% per year, payable semi-annually on June 15 and December 15 of each year, commencing on June 15, 2010. We used the proceeds from the sale of the Original 13¹/₄% Senior Notes to repay our borrowings under and renew our senior secured revolving credit facility, repurchase, redeem or otherwise discharge our Prior 11³/₄% Senior Notes and the balance for general corporate purposes. For the years ended December 31, 2012, 2011 and 2010, interest expense was $22.1 million, $20.5 million and $20.9 million, respectively.

Additionally, on January 25, 2012, SBA together with its consolidated subsidiaries executed the PNC Credit Facility Amendment, increasing the maximum amount available for borrowing under the facility from $30.0 million to $50.0 million, including standby letters of credit commitments in an aggregate undrawn face amount of up to $3.0 million.

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Goodwill impairment. Goodwill represents the excess of the purchase price over the fair value of the net assets. We perform our impairment test of our goodwill and other intangible assets on an annual basis. The goodwill impairment charge represents the extent to which the carrying values exceeded the fair value attributable to our goodwill. Fair values are determined based upon market conditions and the income approach which utilizes cash flow projections and other factors. Our future results of operations may be impacted by a prolonged weakness in the economic environment, which may result in a further impairment of any existing goodwill or goodwill and/or other long-lived assets recorded in the future.

In connection with our goodwill impairment testing and analysis conducted in 2012, we noted that as of December 31, 2012, the fair value of Comercializadora Intcomex S.A. de C.V., or Intcomex Mexico, and Intcomex Costa Rica Mayorista en Equip de Cómputo, S.A., or Intcomex Costa Rica, exceeded the carrying value of the reporting units by 5.5% and 5.4%, respectively. The fair values of Intcomex Mexico and Intcomex Costa Rica were determined using management’s estimate of fair value based upon the financial projections for the respective businesses. As of December 31, 2012, the balance of Intcomex Mexico’s goodwill was $3.0 million, which represented 12.6% of the carrying value of Intcomex Mexico and less than 1.0% of our total assets. As of December 31, 2012, the balance of Intcomex Costa Rica’s goodwill was $3.0 million, which represented 15.0% of the carrying value of Intcomex Costa Rica and less than 1.0% of our total assets.

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Deferred tax assets. Deferred income tax represents the tax effect of the differences between the book and tax bases of assets and liabilities. Deferred tax assets, which also include NOL carryforwards for entities that have generated or continue to generate operating losses, are assessed periodically by management to determine if their future benefit will be fully realized. If it is more likely than not that the deferred income tax asset will not be realized, then a valuation allowance must be established with a corresponding charge to net income (loss). Such charges could have a material adverse effect on our results of operations or financial condition.

As of December 31, 2012 and 2011, our U.S. and state of Florida NOLs resulted in $23.5 million and $20.7 million, respectively, of deferred tax assets, which will begin to expire in 2026. As of December 31, 2012 and 2011, Intcomex Argentina, S.R.L. had $7.3 million and $5.4 million, respectively, in NOLs resulting in $2.6 million and $1.9 million, respectively, of deferred tax assets, which began to expire in 2011. As of December 31, 2012 and 2011, Intcomex Mexico had $1.3 million in NOLs resulting in $0.4 million of deferred tax assets, which will expire in 2018.

We periodically analyze the available evidence related to the realization of the deferred tax assets, considered the current negative economic environment and determined it is now more likely than not that we will not recognize a portion of our deferred tax assets associated with the NOL carryforwards. Factors in management’s determination include the performance of the business and the feasibility of ongoing tax planning strategies. As of December 31, 2012 and 2011, we had a valuation allowance of $13.6 million and $10.6 million, respectively, related to our U.S. and state of Florida NOLs and $2.9 million and $2.3 million, respectively, related to our foreign NOLs, as management does not believe it will realize the full benefit of these NOLs. Our future results of operations may be impacted by a prolonged weakness in the economic environment, which may result in further valuation allowances on our deferred tax assets and adversely affect our results of operations or financial condition.

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Restructuring Charges. For the year ended December 31, 2012, we recorded $0.6 million related to the restructuring actions that we implemented to close our subsidiary in Argentina. For the years ended December 31, 2011 and 2010, we did not incur any restructuring charges. The restructuring included involuntary workforce reductions and employee benefits and other costs incurred in connection with vacating leased facilities. The charges were recorded in our statements of operations and comprehensive income (loss) as an increase to our operating expenses. During January 2013, we completed the sale of Intcomex Argentina for approximately $0.5 million.

Brightpoint Transaction

April 2011 Transaction

From time to time, we evaluate opportunities to pursue business transactions that we view as strategic and complementary to our current business and align with our global strategy to expand our services and our supply chain solution capabilities to customers and vendors throughout Latin America and the Caribbean.

On April 19, 2011, we and two of our subsidiaries, Intcomex Colombia and Intcomex Guatemala completed an investment agreement, the Brightpoint Transaction, with two subsidiaries of Brightpoint, a global leader in providing supply chain solutions to the wireless industry. Pursuant to such agreement, we issued an aggregate 38,769 shares of our Common Stock to Brightpoint Latin America. Effectively, the Brightpoint Transaction was comprised of two transactions: (1) the sale of 25,846 shares of Common Stock for $15.0 million in cash; and (2) the acquisition of certain assets and liabilities of certain operations of Brightpoint Latin America and the equity associated with the Brightpoint Latin America Operations, in exchange for 12,923 shares of Common Stock valued at $7.5 million plus $0.2 million cash, net, at closing.

Additionally, the acquisition of the Brightpoint Latin America Operations provided for a post-closing working capital adjustment to be settled in cash. In September 2011, together with Brightpoint, we finalized the working capital adjustment resulting in an additional payable by Brightpoint to us of $0.9 million, which we received in October 2011.

Following the sale and acquisition transaction, Brightpoint held approximately 23% of the voting equity ownership interests in our company and had one representative on our Board of Directors.

The expected benefits from this business transaction were dependent upon a number of factors, including retaining management personnel to run the operations, successfully integrating the operations, IT systems, customers, vendors and partner relationships of the acquired companies and devoting sufficient capital and management attention to the newly acquired companies. The comparability of our operating results for the year ended December 31, 2012, as compared to the same period of 2011, and for the year ended December 31, 2011, as compared to the same period of 2010, is impacted by the Brightpoint Transaction. In our discussion of the comparison of the year ended December 31, 2012, as compared to the same period of 2011, and the year ended December 31, 2011, as compared to the same period of 2010, in our results of operations, the incremental contribution of the Brightpoint Transaction to our business is presented as if the acquisition was not separately identifiable, as the integration was made directly into our existing operations and was insignificant to our results of operations during the periods presented.

We engaged independent valuation experts to assist in the determination of the fair value of the assets and liabilities acquired in the Brightpoint Transaction. Goodwill of $4.4 million was allocated, with $2.7 million allocated to the Miami Operations and $1.7 million allocated to the In-country Operations in Guatemala and Colombia. The total transaction value was approximately $22.7 million.

June 2012 Transaction

On June 29, 2012, we entered into an agreement with Brightpoint, or the Release Agreement, to, among other things, (i) eliminate the mutual non-competition covenants included in (a) the Purchase Agreement underlying the Brightpoint Transaction, and (b) the Fifth Amended and Restated Shareholders Agreement, and (ii) terminate the License Agreement, with immediate effect, provided that we retained the right to use the Brightpoint names and logos as set forth in the License Agreement in accordance with its terms for a period of 90 days from June 29, 2012. The Release Agreement was entered into in relation to Brightpoint entering into a merger agreement with a global IT wholesale distributor. Additionally, Brightpoint agreed to pay $5.0 million to us, which we received in July 2012. As a result of this transaction, we recognized a gain of $4.3 million related to the termination of the mutual non-compete agreement with Brightpoint, which was recorded in other income in our consolidated statement of operations and comprehensive income (loss). In connection with the Release Agreement, Brightpoint permanently and irrevocably waived all of its voting and information rights under the Shareholders Agreement.

Also on June 29, 2012, we entered into a separate agreement with Brightpoint pursuant to which Brightpoint granted to us an option to purchase our 38,769 shares of common stock held by Brightpoint for $3.0 million, less any dividends paid on such shares to Brightpoint. The option became exercisable upon the closing of a change of control of Brightpoint on October 15, 2012, and is exercisable for five years from the date of that event. We are currently precluded from exercising the option pursuant to the terms of the indenture governing our 13¹/₄% Senior Notes.

Critical Accounting Policies and Estimates

Our consolidated financial statements have been prepared in conformity with U.S. GAAP. The preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. On an ongoing basis, we evaluate our estimates and judgments related to assets, liabilities, contingent assets and liabilities, revenue and expenses. 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 estimates about the carrying values of assets and liabilities that are not readily apparent from other sources. Although we believe our estimates, judgments and assumptions are appropriate and reasonable based upon available information, these assessments are subject to various other factors. Actual results may differ from these estimates under different assumptions and conditions.

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

Revenue Recognition. Revenue is recognized when persuasive evidence of an arrangement exists, the sales price is fixed or determinable, collection of the related receivable is reasonably assured and delivery has occurred. Delivery to customers occurs at the point of shipment, provided that title and risk of loss have transferred and no significant obligations remain. We allow our customers to return defective products for exchange or credit within 30 days of delivery based on the warranty of the OEM. An exception is infrequently made for long-standing customers with current accounts, on a case-by-case basis and upon approval by management. A return is recorded in the period of the return because, based on past experience, these returns are infrequent and immaterial.

Our revenues are reported net of any sales, gross receipts or value added taxes. Shipping and handling costs billed to customers are included in revenue and related expenses are included in the cost of revenue.

We extend a warranty for products to customers with the same terms as the OEM’s warranty to us. All product-related warranty costs incurred by us are reimbursed by the OEMs.

Accounts Receivable. We provide allowances for doubtful accounts on our accounts receivable for estimated losses resulting from our customers’ inability to make required payments due to changes in our customers’ financial condition or other unanticipated events, which could result in charges for additional allowances exceeding our expectations. These estimates require judgment and are influenced by factors, including but not limited to, the following: the large number of customers and their dispersion across wide geographic areas; the fact that no single customer accounted for more than 1.6%, 2.5% and 1.4%, respectively, of our consolidated revenue for the years ended December 31, 2012, 2011 and 2010; the continual credit evaluation of our customers’ financial condition; the aging of our customers’ receivables, individually and in the aggregate; the value and adequacy of 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 due to an economic downturn resulting in our customers’ inability to obtain capital. Uncollectible accounts are written-off against the allowance on an annual basis.

Vendor Programs. We receive funds from vendors for price protection, product rebates, marketing and promotions and competitive programs, which are recorded as adjustments to product costs or selling, general and administrative expenses according to the nature of the program. Some of these programs may extend over one or more quarterly reporting periods. We recognize 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 provide reserves for receivables on vendor programs for estimated losses resulting from vendors’ inability to pay or rejections of claims by vendors. These reserves require judgment and are based upon aging and management’s estimate of collectability.

Inventories. Our inventory levels are based on our projections of future demand and market conditions. Any unanticipated decline in demand or technological changes could cause us to have excess or obsolete inventories. On an ongoing basis, we review for estimated excess or obsolete inventories and make provisions for our inventories to reflect their estimated net realizable value based upon our forecasts of future demand and market conditions. These forecasts require judgment as to future demand and market conditions. If actual market conditions are less favorable than our forecasts, additional inventory obsolescence provisions may be required. Our estimates are influenced by the following considerations: the availability of protection from loss in value of inventory under certain vendor agreements; the extent of our right to return to vendors a percentage of our purchases; the aging of inventories; variability of demand due to an economic downturn and other factors; and, the frequency of product improvements and technological changes. Rebates earned on products sold are recognized when the product is shipped to a third party customer and are recorded as a reduction to cost of revenue.

Goodwill, Identifiable Intangible and Other Long-Lived Assets. We review goodwill at least annually for potential impairment or between annual tests if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount. Our annual impairment review requires extensive use of accounting judgment and financial estimates, including projections about our business, our financial performance and the performance of the market and overall economy. Application of alternative assumptions and definitions could produce significantly different results. Because of the significance of the judgments and estimates used in the processes, it is likely that materially different amounts could result if different assumptions were made or if the underlying circumstances were changed.

Our goodwill represents the excess of the purchase price over the fair value of the net assets of acquired businesses. Potential impairment exists if the fair value of a reporting unit to which goodwill has been allocated is less than the carrying value of the reporting unit. The amount of an impairment loss is recognized as the amount by which the carrying value of the goodwill exceeds its implied value.

Future changes in the estimates used to conduct the impairment review, including revenue projections, market values and changes in the discount rate used could cause the analysis to indicate that our goodwill is impaired in subsequent periods and result in a write-off of a portion or all of the goodwill. The discount rate used is based on our capital structure and, if required, an additional premium on the reporting unit based upon its geographic market and operating environment. The assumptions used in estimating revenue projections are consistent with internal planning.

Our intangible assets are presented at cost, net of accumulated amortization. Intangible assets are amortized on a straight line basis over their estimated useful lives and assessed for impairment. We recognize an impairment of long-lived assets if the net book value of such assets exceeds the estimated future undiscounted cash flows attributable to such assets. If the carrying value of a long-lived asset is considered impaired, a loss is recognized based on the amount by which the carrying value exceeds the fair value of the long-lived asset for assets to be held and used, or the amount by which the carrying value exceeds the fair value less cost to dispose for assets to be disposed. Fair value is determined using the anticipated cash flows discounted at a rate commensurate with the risk involved. We test intangible assets for recoverability whenever events or changes in circumstances indicate that their carrying amount may not be recoverable.

determining the expected future undiscounted cash flows of the asset. There are numerous uncertainties and inherent risks in conducting business, such as general economic conditions, actions of competitors, ability to manage growth, actions of regulatory authorities, pending investigations or litigation, customer demand and risk relating to international operations. Adverse effects from these or other risks may result in adjustments to the carrying value of our other long-lived assets.

There are numerous uncertainties and inherent risks in conducting business, such as but not limited to general economic conditions, actions of competitors, ability to manage growth, actions of regulatory authorities, pending investigations and/or litigation, customer demand and risk relating to international operations. Adverse effects from these risks may result in adjustments to the carrying value of our assets and liabilities in the future, including but not necessarily limited to, goodwill.

Income taxes. We account for the effects of income taxes resulting from activities during the current and preceding years. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to temporary differences between the financial statement carrying amounts of assets and liabilities and their respective tax bases as measured by the enacted tax rates which will be in effect when these differences reverse. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the results of operations in the period that includes the enactment date under the law. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized, unless it is more likely than not that such assets will be realized.

We are subject to income and other related taxes in areas in which we operate. When recording income tax expense, certain estimates are required by management due to timing and the impact of future events on when income tax expenses and benefits are recognized by us. We periodically evaluate our net operating losses and other carryforwards to determine whether gross deferred tax assets and related valuation allowances should be adjusted for future realization in our consolidated financial statements.

Highly certain tax positions are determined based upon the likelihood of the positions sustained upon examination by the taxing authorities. The benefit of a tax position is recognized in the financial statements in the period during which management believes it is more likely than not that the position will be sustained.

In the event of a distribution of the earnings of certain international subsidiaries, we would be subject to withholding taxes payable on those distributions to the relevant foreign taxing authorities. Since we currently intend to reinvest undistributed earnings of these international subsidiaries indefinitely, we have made no provision for income taxes that might be payable upon the remittance of these earnings. We have also not determined the amount of tax liability associated with an unplanned distribution of these permanently reinvested earnings. In the event that in the future we consider that there is a reasonable likelihood of the distribution of the earnings of these international subsidiaries (for example, if we intend to use those distributions to meet our liquidity needs), we will be required to make a provision for the estimated resulting tax liability, which will be subject to the evaluations and judgments of uncertainties described above.

We conduct business globally and, as a result, one or more of our subsidiaries file income tax returns in U.S. federal, state and foreign jurisdictions. In the normal course of business, we are subject to examination by taxing authorities in the countries in which we operate. We are currently under ongoing tax examinations in several countries. While such examinations are subject to inherent uncertainties, we do not currently anticipate that any such examination would have a material adverse impact on our consolidated financial statements.

Commitments and Contingencies. We accrue for contingent obligations when the obligation is probable and the amount is reasonably estimable. As facts concerning contingencies become known, we reassess our position and make appropriate adjustments to the financial statements. Estimates that require judgment and are particularly sensitive to future changes include those related to taxes, legal matters, the imposition of international governmental monetary, fiscal or other controls, changes in the interpretation and enforcement of international laws (in particular related to items such as duty and taxation), and the impact of local economic conditions and practices, which are all subject to change as events evolve and as additional information becomes available.

As part of our normal course of business, we are involved in certain claims, regulatory and tax matters. In the opinion of our management, the final disposition of such matters will not have a material adverse impact on our results of operations and financial condition.

Recently Issued and Adopted Accounting Guidance

Recently Issued Accounting Guidance

In February 2013, the FASB issued Accounting Standards Update (“ASU”) 2013-02, Comprehensive Income (Topic 220): Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income. This update provides that an entity that reports items of accumulated other comprehensive income improves the transparency of reporting reclassifications by presenting the effects on the line items of net income of significant amounts reclassified out of accumulated other comprehensive income, either on the face of the statement where net income is presented or in the notes, but only if the item reclassified is required under U.S. GAAP to be reclassified to net income in its entirety in the same reporting period. This update is effective for reporting periods beginning after December 15, 2012. We will adopt this guidance for the fiscal year ended December 31, 2013. We do not expect the adoption of this guidance will have a material impact on our financial statements.

In July 2012, the FASB issued ASU 2012-02, Intangibles-Goodwill and Other (Topic 350) which amended then existing guidance by giving an entity the option not to calculate annually the fair value of an indefinite-lived intangible asset if the entity determines that it is not more likely than not that the asset is impaired. Previous guidance required an entity to test indefinite-lived intangible assets for impairment, on at least an annual basis, by comparing the fair value of the asset with its carrying amount. If the carrying amount of the intangible asset exceeds its fair value, an entity should recognize an impairment loss in the amount of that excess. This update is effective for annual and interim impairment tests performed for fiscal years beginning after September 15, 2012. We will adopt this guidance for the fiscal year ended December 31, 2013. We do not expect the adoption of this guidance will have a material impact on our financial statements.

Recently Adopted Accounting Guidance

In December 2011, the FASB issued ASU 2011-12, Comprehensive Income (Topic 220): Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income in Accounting Standards Update No. 2011-05. This update indefinitely defers the provisions ASU 2011-05, Comprehensive Income (Topic 22): Presentation of Comprehensive Income (“ASU 2011-05”) that required entities to present reclassification adjustments out of accumulated other comprehensive income by component in both the statement in which net income is presented and the statement in which other comprehensive income is presented for both interim and annual financial statements. The other provisions in ASU 2011-05 are unaffected by the deferral. During the deferral period, entities will still need to comply with the existing U.S. GAAP requirement for the presentation of reclassification adjustments. This update was effective for annual and interim periods beginning after December 15, 2011. We adopted this guidance on January 1, 2012. The adoption of this guidance did not have a material impact on our financial statements.

In September 2011, the FASB issued ASU 2011-08, Intangibles—Goodwill and Other (Topic 350): Testing Goodwill for Impairment which amended the existing guidance by giving an entity the option to first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. Entities will need to perform a more detailed two-step goodwill impairment test which is used to identify potential goodwill impairments and to measure the amount of goodwill impairment losses to be recognized, if any. This update was effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011, with early adoption permitted. We adopted this guidance on January 1, 2012. The adoption of this guidance did not have a material impact on our financial statements.

In June 2011, the FASB issued ASU 2011-05 to increase the prominence of other comprehensive income in the financial statements. This update provides that an entity that reports items of other comprehensive income either as a continuous single statement of comprehensive income containing two sections—net income and other comprehensive income or in two separate but consecutive statements. This update was effective for fiscal years and interim periods within those years beginning after December 15, 2011. We adopted this guidance on January 1, 2012. The adoption of this guidance did not have a material impact on our financial statements.

In May 2011, the FASB and International Accounting Standards Board issued ASU 2011-04, Fair Value Measurement (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs which amends the wording used to describe many of the requirements in U.S. GAAP for measuring fair value and for disclosing information about fair value measurements. This update does not extend the use of fair value accounting but provides guidance on how it should be applied where its use is already required or permitted by other standards within U.S. GAAP or International Financial Reporting Standards. We adopted this guidance on April 1, 2012. The adoption of this guidance did not have a material impact on our financial statements.

Results of Operations

We report our business in two operating segments based upon the geographic location of where we originate the sale: Miami and In-country. Our Miami segment, or Miami Operations, includes revenue from our Miami, Florida headquarters, including sales from Miami to our in-country sales and distribution centers and sales directly to resellers, retailers and distributors that are located in countries in which we have in-country sales and distribution operations or in which we do not have any in-country operations. Our in-country segment, or In-country Operations, includes revenue from our in-country sales and distribution centers, which have been aggregated because of their similar economic characteristics. Most of our vendor rebates, incentives and allowances are reflected in the results of our Miami segment. When we consolidate our results, we eliminate revenue and cost of revenue attributable to inter-segment sales, and the financial results of our Miami segment discussed below reflect these eliminations.

Comparison of the year ended December 31, 2012 versus the year ended December 31, 2011 and of the year ended December 31, 2011 versus the year ended December 31, 2010

The following table sets forth selected financial data and percentages of revenue for the periods presented:


	Year Ended December 31, 2012					Year Ended December 31, 2011					Year Ended December 31, 2010
	Dollars (in thousands)		Percentage of Revenue			Dollars (in thousands)		Percentage of Revenue			Dollars (in thousands)			Percentage of Revenue
Revenue	$	1,430,478		100.0	%	$	1,286,973		100.0	%	$	1,013,272			100.0	%
Cost of revenue		1,307,663		91.4	%		1,162,161		90.3	%		917,529			90.6	%

Gross profit		122,815		8.6	%		124,812		9.7	%		95,743			9.4	%
Selling, general and administrative		97,133		6.8	%		87,153		6.7	%		75,315			7.4	%
Depreciation and amortization		4,542		0.3	%		4,842		0.4	%		4,323			0.4	%

Total operating expenses		101,675		7.1	%		91,995		7.1	%		79,638			7.9	%

Operating income		21,140		1.5	%		32,817		2.5	%		16,105			1.6	%
Other expense, net		16,771		1.2	%		25,474		2.0	%		18,362			1.8	%

Income (loss) before provision for income taxes		4,369		0.3	%		7,343		0.6	%		(2,257	)		(0.2	)%
Provision for income taxes		2,297		0.2	%		3,162		0.2	%		1,393			0.1	%

Net income (loss)	$	2,072		0.1	%	$	4,181		0.3	%	$	(3,650	)		(0.4	)%

Revenue. Revenue increased $143.5 million, or 11.2%, to $1,430.5 million for the year ended December 31, 2012, from $1,287.0 million for the year ended December 31, 2011. Our revenue growth was driven by the increased demand for our products throughout Latin America and the Caribbean combined with our efforts to grow and diversify our product offerings. Revenue growth was driven primarily by the increase in sales of mobile devices of $36.3 million, software of $33.0 million, hard disk drives of $19.2 million, basic “white-box” systems of $18.8 million, printers of $13.6 million, notebook computers of $10.5 million, offset by the decrease of memory products, central processing units, or CPUs, motherboards and monitors. We experienced a 0.7% decrease in unit shipments across our core product lines, which include mobile devices, for the year ended December 31, 2012, as compared to the same period in 2011. During the year ended December 31, 2012, we were lapping over the effects of the Brightpoint Transaction and our expansion into the mobile devices market. We experienced a 16.0% decrease in average sales prices across the same core products for the year ended December 31, 2012, as compared to the same period in 2011, due to the impact of pricing on mobile devices. Revenue derived from our In-country Operations increased $128.9 million, or 14.4%, to $1,027.3 million for the year ended December 31, 2012, from $898.4 million for the year ended December 31, 2011. Revenue derived from our In-country Operations accounted for 71.8% of our total revenue for the year ended December 31, 2012, as compared to 69.8% of our total revenue for the year ended December 31, 2011. The growth in revenue from our In-country Operations was mainly driven by the overall increase in sales in Peru, Chile and Colombia, and to a lesser extent, also driven by the increase in sales in Costa Rica, Panama, Mexico and Ecuador. This growth was driven by the increased sales volume of software, mobile devices, basic “white-box” systems, notebook computers, hard disk drives and printers. Revenue derived from our Miami Operations increased $14.6 million, or 3.7%, to $403.2 million for the year ended December 31, 2012 (net of $323.5 million of revenue derived from sales to our In-country Operations) from $388.6 million for the year ended December 31, 2011 (net of 346.6 million of revenue derived from sales to our In-country Operations). The growth in revenue derived from our Miami Operations reflected the increased sales volume of hard disk drives, mobile devices, printers, software and basic “white-box” systems, partially offset by the decrease in memory products and CPUs.

During the latter part of the year ended December 31, 2012, we realized a negative impact on sales of mobile devices due to the softening demand, increased competition and excess availability of certain models in the market. This resulted in reduced gross margins and increased obsolescence expense. Although we continue to experience the dilutive effect of mobile device sales on our gross margins, we continue to focus our efforts on broadening our product offerings and increasing mobile device sales in our In-country Operations, so as to counteract these market conditions.

Revenue increased $273.7 million, or 27.0%, to $1,287.0 million for the year ended December 31, 2011, from $1,013.3 million for the year ended December 31, 2010. Our revenue growth was driven by the increased demand for our products throughout Latin America and the Caribbean combined with our efforts to grow and diversify our product offerings. Revenue growth was driven primarily by the increase in sales of mobile devices of $165.6 million due to new contracts with mobile device manufacturers, CPUs of $30.9 million, basic “white-box” systems of $19.6 million, software of $15.7 million, notebook computers of $14.8 million and printers of $6.3 million, offset by the decrease in sales of memory products, hard disk drives, monitors and motherboards. We experienced an 11.2% increase in unit shipments across our core product lines, which excludes mobile devices, for the year ended December 31, 2011, as compared to the same period in 2010. We experienced a 2.8% decrease in average sales prices across the same core products for the year ended December 31, 2011, as compared to the same period in 2010. Revenue derived from our In-country Operations increased $101.6 million, or 12.7%, to $898.4 million for the year ended December 31, 2011, from $796.8 million for the year ended December 31, 2010. Revenue derived from our In-country Operations accounted for 69.8% of our total revenue for the year ended December 31, 2011, as compared to 78.6% of our total revenue for the year ended December 31, 2010. The growth in revenue from our In-country Operations was mainly driven by the overall increase in sales in El Salvador, Colombia, Guatemala, Peru, Ecuador, Panama and Uruguay. This growth was driven by the increased sales volume of mobile devices, basic “white-box” systems, notebook computers, software and printers. Revenue derived from our Miami Operations increased $172.1 million, or 79.5%, to $388.6 million for the year ended December 31, 2011 (net of $346.6 million of revenue derived from sales to our In-country Operations) from $216.5 million for the year ended December 31, 2010 (net of $275.6 million of revenue derived from sales to our In-country Operations). The growth in revenue derived from our Miami Operations reflected the increased sales volume of mobile devices, CPUs, software, basic “white-box” systems and motherboards.

Gross profit. Gross profit decreased $2.0 million, or 1.6%, to $122.8 million for the year ended December 31, 2012, from $124.8 million for the year ended December 31, 2011. The decrease was primarily driven by the increase of $2.9 million in inventory obsolescence provision related to our In-country Operations and our Miami Operations. Gross profit from our In-country Operations increased $8.2 million, or 10.7%, to $85.0 million for the year ended December 31, 2012, from $76.8 million for the year ended December 31, 2011. The improvement in gross profit from our In-country Operations was driven by the increase in sales volume of software, mobile devices, basic “white-box” systems, notebook computers, hard disk drives and printers, partially offset by the incremental inventory obsolescence provision. Gross profit from our In-country Operations accounted for 69.2% of our consolidated gross profit for the year ended December 31, 2012, as compared to 61.5% for the year ended December 31, 2011. Gross profit from our Miami Operations decreased $10.2 million, or 21.3%, to $37.8 million for the year ended December 31, 2012, as compared to $48.1 million for the year ended December 31, 2011. The decline in gross profit from our Miami Operations was driven by the decreased sales volume of memory products, CPUs, motherboards and monitors and the incremental inventory obsolescence provision, offset by the increased sales volume of hard disk drives, mobile devices, printers, software and basic “white-box” systems. Gross profit from our Miami Operations accounted for 30.8% of our consolidated gross profit for the year ended December 31, 2012, as compared to 38.5% for the year ended December 31, 2011. As a percentage of revenue, gross margin was 8.6% for the year ended December 31, 2012, as compared to 9.7% for the year ended December 31, 2011. The decrease of gross margin of 1.1% was primarily driven by the dilutive impact of mobile device sales and the loss of 20 basis points due to additional inventory obsolescence provision recognized during the year ended December 31, 2012, as compared to the same period in 2011.

Gross profit increased $29.1 million, or 30.4%, to $124.8 million for the year ended December 31, 2011, from $95.7 million for the year ended December 31, 2010. The increase was primarily driven by higher sales volume in both our In-country Operations and our Miami Operations coupled with improved margins in our In-country Operations. Gross profit from our In-country Operations increased $9.9 million, or 14.8%, to $76.8 million for the year ended December 31, 2011, from $66.8 million for the year ended December 31, 2010. The improvement in gross profit from our In-country Operations was driven by the increase in sales volume of basic “white-box” systems, notebook computers, software and printers, particularly in El Salvador, Colombia, Guatemala, Peru and Ecuador, partially offset by the decreased sales of memory products, hard disk drives and monitors. Gross profit from our In-country Operations accounted for 61.5% of our consolidated gross profit for the year ended December 31, 2011, as compared to 69.8% for the year ended December 31, 2010. Gross profit from our Miami Operations increased $19.2 million, or 66.3%, to $48.1 million for the year ended December 31, 2011, as compared to $28.9 million for the year ended December 31, 2010. The improvement in gross profit from our Miami Operations was driven by the increased sales volume of mobile devices, CPUs, basic “white-box” systems, software and motherboards, partially offset by the decreased sales of memory products, hard disk drives, monitors, notebook computers and printers. As a percentage of revenue, gross margin was 9.7% for the year ended December 31, 2011, as compared to 9.4% for the year ended December 31, 2010.

Operating expenses. Total operating expenses increased $9.7 million, or 10.5% to $101.7 million for the year ended December 31, 2012, as compared to $92.0 million for the year ended December 31, 2011. Excluding the effects of weakening foreign currencies, the increase in operating expenses resulted from higher salary and payroll-related expenses of $7.3 million, marketing and advertising expense of $1.0 million, travel and transportation expenses of $0.9 million and facilities-related expenses of $0.8 million, partially offset by lower professional fees of $0.2 million. The increase in operating expenses reflects our expansion of product offerings and the need to support the incremental business. As a percentage of revenue, operating expenses were 7.1% of revenue for the years ended December 31, 2012 and 2011. As a percentage of total operating expenses, salary and payroll-related expenses increased to 56.1% of total operating expenses for the year ended December 31, 2012, as compared to 54.3% for the year ended December 31, 2011. Operating expenses from our In-country Operations increased $11.3 million, or 19.2% to $70.2 million for the year ended December 31, 2012, as compared to $58.9 million for the year ended December 31, 2011. Excluding the effects of weakening foreign currencies, the increase in the operating expenses from our In-country Operations resulted primarily from higher salary and payroll-related expenses of $5.2 million, of which $0.6 million related to severance costs resulting from the restructuring actions to cease operations in Argentina during 2012, higher facilities-related expenses of $1.0 million, marketing and advertising expenses of $0.9 million, travel and transportation expenses of $0.7 million and bad debt expense of $0.4 million. Operating expenses from our In-country Operations benefited from the effects of weakening foreign currencies of $0.3 million primarily in Mexico and Uruguay. Operating expenses from our Miami Operations decreased $1.6 million, or 5.0%, to $31.5 million for the year ended December 31, 2012, as compared to $33.1 million for the year ended December 31, 2011, due primarily lower bad debt expense of $0.4 million, facilities-related expenses of $0.3 million and insurance related expenses of $0.3 million.

Total operating expenses increased $12.4 million, or 15.5% to $92.0 million for the year ended December 31, 2011, as compared to $79.6 million for the year ended December 31, 2010. Excluding the effects of strengthening foreign currencies, the increase in operating expenses resulted from higher salary and payroll-related expenses of $6.1 million, of which $1.3 million related to severance expenses incurred in our In-country operations in Argentina, Chile, Guatemala, Mexico, Panama, Peru and in our Miami Operations, facilities-related expenses of $1.4 million, bad debt expense of $0.9 million and marketing and advertising expense of $0.6 million. The increase in operating expenses resulted from the effects of strengthening currencies totaling $1.3 million primarily in Chile, Colombia, Costa Rica, Guatemala and Mexico. As a percentage of revenue, operating expenses decreased to 7.1% of revenue for the year ended December 31, 2011, as compared to 7.9% for the year ended December 31, 2010. As a percentage of total operating expenses, salary and payroll-related expenses increased to 54.3% of total operating expenses for the year ended December 31, 2011, as compared to 54.1% for the year ended December 31, 2010. Operating expenses from our In-country Operations increased $6.9 million, or 13.2% to $58.9 million for the year ended December 31, 2011, as compared to $52.0 million for the year ended December 31, 2010. Excluding the effects of strengthening foreign currencies, the increase in operating expenses from our In-country Operations resulted from higher salary and payroll-related expenses of $4.1 million, of which $1.0 million related to severance payments, and facilities-related expenses of $0.9 million. The increase in operating expenses from our In-country Operations resulted from the effects of the strengthening currencies of $1.3 million primarily in Chile, Colombia, Costa Rica, Guatemala and Mexico. Operating expenses from our Miami Operations increased $5.5 million, or 19.9%, to $33.1 million for the year ended December 31, 2011, as compared to $27.6 million for the year ended December 31, 2010, due to the higher salary and payroll-related expenses of $1.9 million, of which $0.3 million related to severance expenses, bad debt expense of $0.4 million, marketing and advertising expenses of $0.7 million and facilities-related expenses of $0.6 million.

Operating income. Operating income decreased $11.7 million, or 35.6%, to $21.1 million for the year ended December 31, 2012, from $32.8 million for the year ended December 31, 2011, due to the higher operating expenses in our In-country Operations and lower sales and margins on the sale of mobile devices in our Miami Operations. Operating income from our In-country Operations decreased $3.1 million, or 17.3%, to $14.8 million for the year ended December 31, 2012, from $17.9 million for the year ended December 31, 2011. Operating income from our Miami Operations decreased $8.6 million, or 57.5%, to $6.4 million for the year ended December 31, 2012, from $14.9 million for the year ended December 31, 2011.

Operating income increased $16.7 million, or 103.8%, to $32.8 million for the year ended December 31, 2011, from $16.1 million for the year ended December 31, 2010, due to the higher sales volumes of primarily mobile devices, improved gross profit and expense containment efforts. Operating income from our In-country Operations increased $3.0 million, or 20.6%, to $17.9 million for the year ended December 31, 2011, from $14.8 million for the year ended December 31, 2010. Operating income from our Miami Operations increased $13.7 million to $14.9 million for the year ended December 31, 2011, from $1.3 million for the year ended December 31, 2010.

Other expense, net. Other expense, net decreased $8.7 million, or 34.2%, to $16.8 million for the year ended December 31, 2012, from $25.5 million for the year ended December 31, 2011. The decrease in other expense, net was primarily attributable to the one-time $4.3 million gain recognized related to the termination of the mutual non-compete agreement with Brightpoint and foreign exchange gain of $1.0 million, primarily in Chile, during the year ended December 31, 2012, as compared to foreign exchange loss of $5.5 million, primarily in Chile and Colombia, during the same period in 2011.

Other expense, net increased $7.1 million, or 38.7%, to $25.5 million for the year ended December 31, 2011, from $18.4 million for the year ended December 31, 2010. The increase in other expense, net was primarily attributable to foreign exchange losses of $5.5 million, primarily in Chile, Colombia and Mexico, during the year ended December 31, 2011, as compared to foreign exchange gains of $2.0 million during the same period in 2010.

Provision for income taxes. Provision for income taxes decreased $0.9 million, or 27.4% to $2.3 million for the year ended December 31, 2012, from $3.2 million for the year ended December 31, 2011. The change was primarily due to the increased deferred benefits from our In-country Operations, offset by higher current expense from our In-country Operations.

Provision for income taxes increased $1.8 million to $3.2 million for the year ended December 31, 2011, from $1.4 million for the year ended December 31, 2010. The increase was due to the higher taxable earnings in our In-country Operations, primarily Chile, Guatemala, El Salvador and Costa Rica and partially reduced by decreased levels of valuation allowances recorded against U.S. NOLs.

Net income. Net income was $2.1 million for the year ended December 31, 2012, as compared to $4.2 million for the year ended December 31, 2011.

Net income was $4.2 million for the year ended December 31, 2011, as compared to net loss of $3.7 million for the year ended December 31, 2010.

Liquidity and Capital Resources

The IT products distribution business is working-capital intensive. Historically, we have financed our working capital needs through a combination of cash generated from operations, trade credit from manufacturers, borrowings under revolving bank lines of credit (including issuance of letters of credit), asset-based financing arrangements that we have established in certain Latin American markets and the issuance of our 13¹/₄% Senior Notes.

Our cash and cash equivalents were $30.6 million as of December 31, 2012, as compared to $25.7 million as of December 31, 2011. Our working capital decreased to $116.5 million as of December 31, 2012, as compared to $121.3 million as of December 31, 2011, primarily as a result of the increase in lines of credit borrowing of $18.2 million, offset by the increase in notes and other receivables of $10.6 million. We believe our existing cash and cash equivalents, as well as any cash expected to be generated from operating activities, will be sufficient to meet our anticipated cash needs for at least the next 12 months.

Our cash and cash equivalents were $25.7 million as of December 31, 2011, as compared to $28.9 million as of December 31, 2010. The decrease in cash and cash equivalents was primarily attributable to the increase in inventories, offset by the net cash received from the Brightpoint Transaction and the increase in our lines of credit borrowings during the year ended December 31, 2011. Our working capital increased to $121.3 million as of December 31, 2011, as compared to $104.4 million as of December 31, 2010, primarily as a result of the increase in inventories of $58.7 million and the increase in accounts receivable of $21.0 million, partially offset by the increase in accounts payable of $61.3 million for the year ended December 31, 2011.

Changes in Financial Condition

The following table summarizes our cash flows for the periods presented:


	For the Years Ended December 31,
	2012			2011			2010
	(Dollars in thousands)
Cash flows used in operating activities	$	(10,172	)	$	(19,974	)	$	(174	)
Cash flows provided by (used in) investing activities		2,421			(2,369	)		(4,159	)
Cash flows provided by financing activities		12,761			19,573			6,460
Effect of foreign currency exchange rate changes on cash and cash equivalents		(131	)		(390	)		(494	)

Net increase (decrease) in cash and cash equivalents	$	4,879		$	(3,160	)	$	1,633

Cash flows from operating activities. Our cash flows from operating activities resulted in a requirement of $10.2 million for the year ended December 31, 2012, as compared to a requirement of $20.0 million for the year ended December 31, 2011. The variance was primarily driven by the change in trade accounts receivable which resulted in decreased usage of cash totaling $16.1 million. The change between years was also driven by the decrease in inventory, net of related changes in accounts payable, which resulted in an incremental $4.1 million in operating cash flow during the current year. These favorable variances were offset by various other working capital movements driven by the decrease in operating income.

Our cash flows from operating activities resulted in a requirement of $20.0 million for the year ended December 31, 2011, as compared to a requirement of $0.2 million for the year ended December 31, 2010. The change was primarily driven by the growth in inventories, net of the increases in accounts payable of $12.0 million, trade accounts receivable of $4.6 million, notes receivable of $9.3 million and prepaid expenses and other of $4.0 million all due to the overall revenue growth in 2011 compared to 2010.

Cash flows from investing activities. Our cash flows from investing activities resulted in a generation of $2.4 million for the year ended December 31, 2012, as compared to a requirement of $2.4 million for the year ended December 31, 2011. The change was primarily driven by the $5.0 million proceeds from the termination for the mutual non-compete agreement with Brightpoint.

Our cash flows from investing activities resulted in a requirement of $2.4 million for the year ended December 31, 2011, as compared to a requirement $4.2 million during the year ended December 31, 2010. The change was primarily a result of the absence of capital expenditures related to the implementation of our company-wide ERP management and financial accounting system in our operations in Mexico and the server upgrade in our Miami Operations during the year ended December 31, 2010. Acquisition of business reflects the net cash impact of the Brightpoint strategic transaction closed in April 2011 and the subsequent collection on the working capital adjustment in October 2011.

Cash flows from financing activities. Our cash flows from financing activities resulted in a generation of $12.8 million for the year ended December 31, 2012, as compared to a generation of $19.6 million for the year ended December 31, 2011. The change was primarily the result of the absence of the $15.0 million proceeds received from the issuance of common stock in connection with the Brightpoint Transaction in 2011, offset by the higher net borrowings under our lines of credit by our Miami Operations during the year ended December 31, 2012.

Our cash flows from financing activities resulted in a generation of $19.6 million for the year ended December 31, 2011, as compared to a generation of $6.5 million for the year ended December 31, 2010. The change was primarily due to higher borrowings under our lines of credit primarily by our In-country Operations during the year ended December 31, 2011, as compared to the same period in 2010, combined with the $15.0 million cash received from the shares issued in connection with the Brightpoint Transaction in April 2011, partially offset by the redemption of $5.0 million of our 13¹/₄% Senior Notes in arm’s length transactions.

Working Capital Management

The successful management of our working capital needs is a key driver of our growth and cash flow generation. The following table sets forth certain information about the largest components of our working capital: our trade accounts receivable, inventories and accounts payable:


	As of December 31,
	2012			2011			2010
	(Dollars in thousands)
Balance sheet data:
Trade accounts receivable, net of allowance	$	142,431		$	137,921		$	116,888
Inventories		163,355			169,138			110,390
Accounts payable		212,210			208,409			147,129

Other data:
Trade accounts receivable days⁽¹⁾		36.4			39.1			42.1
Inventory days⁽²⁾		45.7			53.1			43.9
Accounts payable days⁽³⁾		(59.4	)		(65.5	)		(58.5	)

Cash conversion cycle days⁽⁴⁾		22.7			26.7			27.5

(1)

Trade accounts receivable days is defined as our consolidated trade accounts receivable (net of allowance for doubtful accounts) as of the last day of the period divided by our consolidated revenue for such period times 366 days for the year ended December 31, 2012 and 365 days for the years ended December 31, 2011 and 2010. Our consolidated trade accounts receivable for our In-country Operations include value added tax at a rate of between 5% and 27% (depending on the country). The exclusion of such value added tax would result in lower trade accounts receivable days.

(2)	Inventory days is defined as our consolidated inventory as of the last day of the period divided by our consolidated cost of goods sold for such period times 366 days for the year ended December 31, 2012 and 365 days for the years ended December 31, 2011 and 2010.

(3)	Accounts payable days is defined as our consolidated accounts payable as of the last day of the period divided by our consolidated cost of goods sold for such period times 366 days for the year ended December 31, 2012, 365 days for the years ended December 31, 2011 and 2010.

(4)	Cash conversion cycle is defined as our trade accounts receivable days plus inventory days less accounts payable days.

Cash conversion cycle days. One measurement we use to monitor working capital is the cash conversion cycle, which measures the number of days to convert trade accounts receivable and inventory, net of accounts payable, into cash. Our cash conversion cycle decreased to 22.7 days as of December 31, 2012, from 26.7 days as of December 31, 2011. Trade accounts receivable days decreased to 36.4 days as of December 31, 2012, from 39.1 days as of December 31, 2011. Inventory days decreased to 45.7 days as of December 31, 2012, from 53.1 days as of December 31, 2011. Accounts payable days decreased to 59.4 days as of December 31, 2012, as compared to 65.5 days as of December 31, 2011, due to the increase in inventory-related payables.

Our cash conversion cycle decreased to 26.7 days as of December 31, 2011, from 27.5 days as of December 31, 2010. Trade accounts receivable days decreased to 39.1 days as of December 31, 2011, from 42.1 days as of December 31, 2010. Inventory days increased to 53.1 days as of December 31, 2011, from 43.9 days as of December 31, 2010, due to growth in our on-hand inventory levels primarily in our In-country Operations, mostly Chile, Colombia, Guatemala and Peru, and, to a lesser extent, mobile wireless devices in our Miami Operations. Accounts payable days increased to 65.5 days as of December 31, 2011, as compared to 58.5 days as of December 31, 2010, due to the increase in inventory-related payables, primarily for mobile wireless devices.

Trade accounts receivable. We principally sell products to a large base of third-party distributors, resellers and retailers throughout Latin America and the Caribbean and to other Miami-based exporters of IT products to Latin America and the Caribbean. Credit risk on trade receivables is diversified over several geographic areas and a large number of customers. No single customer accounted for more than 1.6%, 2.5% and 1.4%, respectively, of our consolidated revenue for the years ended December 31, 2012, 2011 and 2010. We provide trade credit to our customers in the normal course of business. The collection of a substantial portion of our receivables is susceptible to changes in Latin America and Caribbean economies and political climates. We monitor our exposure for credit losses and maintain allowances for anticipated losses after giving consideration to delinquency data, historical loss experience, and economic conditions impacting our industry. The financial condition of our customers and the related allowance for doubtful accounts is continually reviewed by management.

Prior to extending credit to a customer, we analyze the customer’s financial history and obtain personal guarantees, where appropriate. Our Miami Operations and In-country Operations in Chile use credit insurance and make provisions for estimated credit losses. Our other In-country Operations make provisions for estimated credit losses but generally do not use credit insurance. Our Miami Operations has a credit insurance policy covering trade sales to non-affiliated buyers. The policy’s aggregate limit is $35.0 million with an aggregate deductible of $1.0 million; the policy expires on August 31, 2013. In addition, 10% or 20% buyer coinsurance provisions and sub-limits in coverage on a per-buyer and per-country basis apply. The policy also covers certain large, local companies in Argentina, Costa Rica, El Salvador, Guatemala, Jamaica and Peru. Our In-country Operations in Chile insures certain customer accounts with a credit insurance company in Chile; the policy expired on October 31, 2012 and was not renewed.

Our large customer base and our credit policies allow us to limit and diversify our exposure to credit risk on our trade accounts receivable.

Inventory. We seek to minimize our inventory levels and inventory obsolescence rates through frequent product shipments, close and ongoing monitoring of inventory levels and customer demand patterns, optimal use of carriers and shippers and the negotiation of clauses in some vendor supply agreements protecting against loss of value of inventory in certain circumstances. The Miami distribution center ships products to each of our In-country Operations approximately twice per week by air and once per week by sea. These frequent shipments result in efficient inventory management and increased inventory turnover. We do not have long-term contracts with logistics providers, except in Mexico and Chile. Where we do not have long-term contracts, we seek to obtain the best rates and fastest delivery times on a shipment-by-shipment basis. Our Miami Operations also coordinates direct shipments to third-party customers and each of our In-country Operations from vendors in Asia.

Accounts payable. We seek to maximize our accounts payable days through centralized purchasing and management of our vendor back-end rebates, promotions and incentives. This centralization of the purchasing function allows our In-country Operations to focus their attention on more country-specific issues such as sales, local marketing, credit control and collections. The centralization of purchasing also allows our Miami Operations to control the records and receipts of all vendor back-end rebates, promotions and incentives to ensure their collection and to adjust pricing of products according to such incentives.

Capital Expenditures and Investments

Capital expenditures decreased to $3.0 million for the year ended December 31, 2012, as compared to $3.4 million for the year ended December 31, 2011.

Capital expenditures decreased to $3.4 million for the year ended December 31, 2011, as compared to $4.2 million for the year ended December 31, 2010. The decrease was primarily a result of the absence of the expenditures related to the implementation of our company-wide ERP management and financial accounting system.

Our future capital requirements will depend on many factors which will affect our ability to generate additional cash, including the timing and amount of our revenues, the timing and extent of spending to support our product offerings and introduction of new products, the continuing market acceptance of our products and our investment decisions. We believe that our existing cash and cash equivalents will be sufficient to meet our anticipated cash requirements for working capital and capital expenditures for the foreseeable future. Thereafter, if cash generated from operations and financing activities is insufficient to satisfy our working capital requirements, we may seek additional funding through bank borrowings or other means. There can be no assurance that we will be able to raise any such capital on terms acceptable to us or at all. We anticipate that capital expenditures will be approximately $3.5 million per year over the next few years, as we have no further facility expansion needs. We have the option to purchase the warehouse and office facility located in Mexico City, Mexico, which we currently lease, prior to December 31, 2013, the option termination date. If we exercise this option, our capital expenditures will increase by $3.0 million in the year of exercise.

Capital Resources

We currently believe that our cash on hand, anticipated cash provided by operations, available and anticipated trade credit and borrowings under our existing credit facility and lines of credit, will provide sufficient resources to meet our anticipated debt service requirements, capital expenditures and working capital needs for the next 12 months. If our results of operations are not as favorable as we anticipate (including as a result of increased competition), our funding requirements are greater than we expect (including as a result of growth in our business), or our liquidity sources are not at anticipated levels (including levels of available trade credit), our resources may not be sufficient and we may have to raise additional financing or capital to support our business. In addition, we may not be able to accurately predict future operating results or changes in our industry that may change these needs. We continually assess our capital needs and may seek additional financing as needed to fund working capital requirements, capital expenditures and potential acquisitions. We cannot assure you that we will be able to generate anticipated levels of cash from operations or to obtain additional debt or equity financing in a timely manner, if at all, or on terms that are acceptable to us. Our inability to generate sufficient cash or obtain financing could hurt our results of operations and financial condition and prevent us from growing our business as anticipated.

We have lines of credit, short-term overdraft and credit facilities with various financial institutions in the countries in which we conduct business. Many of the In-country Operations also have limited credit facilities. These credit facilities fall into the following categories: asset-based financing facilities, letters of credit and performance bond facilities, and unsecured revolving credit facilities and lines of credit. The lines of credit are available sources of short-term liquidity for us.

As of December 31, 2012 and 2011, the total amounts outstanding under our lines of credit, overdraft and credit facilities were $50.0 million and $31.8 million, respectively, of which $38.6 million and $14.5 million, respectively, related our Miami Operations and $11.4 million and $17.3 million, respectively, related to our In-country Operations.

SBA Miami – PNC Bank Revolving Credit Facility

On July 25, 2011, SBA terminated the senior secured revolving credit facility with Comerica Bank, or the Comerica Credit Facility, and, collectively with its consolidated subsidiaries, replaced it with a revolving credit and security agreement with PNC Bank, or the PNC Credit Facility. On July 26, 2011, with proceeds from the PNC Credit Facility, SBA paid the remaining balance outstanding under the Comerica Credit Facility of $15.1 million and had no outstanding borrowings under the Comerica Credit Facility. The PNC Credit Facility provides for a secured revolving credit facility in the aggregate amount of $30.0 million, including standby letters of credit commitments in an aggregate undrawn face amount of up to $3.0 million. The borrowing capacity under the PNC Credit Facility is based upon 85.0% of eligible accounts receivable, plus the lesser of: (i) 60.0% of eligible domestic inventory; (ii) 90% of the liquidation value of eligible inventory; or (iii) $16.5 million. The PNC Credit Facility has a three-year term and is scheduled to mature on July 25, 2014. SBA’s obligations under the PNC Credit Facility are secured by a first priority lien on all of its assets. We entered into a guaranty agreement with PNC Bank to guarantee the performance of SBA’s obligations under the PNC Credit Facility. SBA will use the PNC Credit Facility for working capital, capital expenditures and general corporate purposes.

Borrowings under the PNC Credit Facility bear interest at the daily PNC Bank prime rate plus applicable margin of up to 0.50%, but not less than the federal funds open rate plus 0.50%, or the daily LIBOR rate plus 1.0%, whichever is greater. Alternatively, at SBA’s option, borrowings may bear interest at a rate based on 30, 60 or 90 Day LIBOR plus an applicable margin of up to 2.75%, and in each such case payment is due at the end of the respective period. Additional default interest of 2.0% is payable after an event default. The PNC Credit Facility also requires SBA to pay a monthly maintenance fee and commitment fee of 0.25% of the unused commitment amount.

On January 25, 2012, SBA together with its consolidated subsidiaries executed the PNC Credit Facility Amendment, increasing the maximum amount available for borrowing under the facility from $30.0 million to $50.0 million, including standby letters of credit commitments in an aggregate undrawn face amount of up to $3.0 million. The PNC Credit Facility Amendment also increased the monthly collateral evaluation fee, the annual facility fee of the unused commitment amount from 0.25% to 0.375% and the inventory cap from $16.5 million to $25.0 million.

As of December 31, 2012, SBA’s outstanding draws against the PNC Credit Facility were $38.6 million, net of $0.2 million excess cash in bank, and the remaining amount available was $11.4 million. As of December 31, 2012, SBA did not have any outstanding undrawn standby letters of credit.

As of December 31, 2012, SBA was in compliance with all of its covenants under the PNC Credit Facility.

Intcomex, Inc. – 13¹/₄% Senior Notes

On December 22, 2009, we completed a private offering, to eligible purchasers, of the $120.0 million aggregate principal amount of our original 13¹/₄% Senior Notes due December 15, 2014, or the Original 13¹/₄% Senior Notes, with an interest rate of 13.25% per year, payable semi-annually on June 15 and December 15 of each year, commencing on June 15, 2010, or the Original 13¹/₄% Senior Notes Offering. The Original 13¹/₄% Senior Notes were offered at an initial offering price of 94.43% of par, or an effective yield to maturity of approximately 14.875%.

We used the net proceeds from the Original 13¹/₄% Senior Notes Offering to, among other things, repay outstanding borrowings under the Comerica Credit Facility, fund the repurchase, redemption or other discharge of our Prior 11³/₄% Senior Notes, for which we conducted a tender offer, and for general corporate purposes. The 13¹/₄% Senior Notes are guaranteed by all of our existing and future domestic restricted subsidiaries that guarantee our obligations under the Comerica Credit Facility.

In connection with the Original 13¹/₄% Senior Notes Offering, we and certain of our subsidiaries that guaranteed our obligations, or the Guarantors, under the indenture governing our Prior 11³/₄% Senior Notes, or the Prior 11³/₄% Senior Notes Indenture, entered into an indenture, or the Original 13¹/₄% Senior Notes Indenture, with The Bank of New York Mellon Trust Company, N.A., or the Trustee. Our obligations under the Original 13¹/₄% Senior Notes and the Guarantors’ obligations under the guarantees were secured on a second priority basis by a lien on 100% of the capital stock of certain of our and each Guarantor’s directly owned domestic restricted subsidiaries; 65% of the capital stock of our and each Guarantor’s directly owned foreign restricted subsidiaries; and substantially all the assets of SBA, to the extent that those assets secure the Comerica Credit Facility with Comerica Bank, subject to certain exceptions.

On February 8, 2011, we commenced the exchange offer for all of our outstanding Original 13¹/₄% Senior Notes for an equal principal amount of 13¹/₄% Senior Notes. The 13¹/₄% Senior Notes are substantially identical to the Original 13¹/₄% Senior Notes, except that the 13¹/₄% Senior Notes have been registered under the Securities Act of 1933 and do not bear any legend restricting their transfer. The exchange offer was scheduled to expire on March 9, 2011 and was extended until March 11, 2011. We accepted for exchange all of the $120.0 million aggregate principal amount of the Original 13¹/₄% Senior Notes, representing 100% of the principal amount of the outstanding Original 13¹/₄% Senior Notes, which were validly tendered and not withdrawn.

Subject to certain requirements, we were required to redeem $5.0 million aggregate principal amount of the 13¹/₄% Senior Notes on December 15, 2011 and $5.0 million aggregate principal amount of the 13¹/₄% Senior Notes on December 15, 2012 and are required to redeem $10.0 million aggregate principal amount of the 13¹/₄% Senior Notes on December 15, 2013, at a redemption price equal to 100% of the aggregate principal amount of the 13¹/₄% Senior Notes to be redeemed, together with accrued and unpaid interest to the redemption date subject to certain requirements.

The indenture governing our 13¹/₄% Senior Notes imposes operating and financial restrictions on us. These restrictive covenants limit our ability, among other things to: (i) incur additional indebtedness or enter into sale and leaseback obligations; (ii) pay certain dividends or make certain distributions on our capital stock or repurchase our capital stock; (iii) make certain investments or other restricted payments; (iv) place restrictions on the ability of subsidiaries to pay dividends or make other payments to us; (v) engage in transactions with shareholders or affiliates; (vi) sell certain assets or merge with or into other companies; (vii) guarantee indebtedness; and (viii) create liens. We may only pay a dividend if we are in compliance with all covenants and restrictions in the indenture prior to and after payment of a dividend.

The 13¹/₄% Senior Notes contain a single financial restrictive covenant. We must maintain a consolidated leverage ratio not to exceed 4.75 to 1.00. Our failure to comply with the restrictive covenant could result in an event of default, which, if not cured or waived, could result in either of us having to repay our respective borrowings before their respective due dates. If we are forced to refinance these borrowings on less favorable terms, our results of operations or financial condition could be harmed. In addition, if we are in default under any of our existing or future debt facilities, we also will not be able to borrow additional amounts under those facilities to the extent they would otherwise be available. As of December 31, 2012 and 2011, we had a consolidated total leverage ratio of 3.32 to 1.00 and 2.90 to 1.00, respectively.

On June 15 and December 15, 2011, we made mandatory semi-annual interest payments of $8.0 million and $7.6 million, respectively, on our 13¹/₄% Senior Notes. On June 15 and December 15, 2010, we made mandatory semi-annual interest payments of $7.6 million and $8.0 million, respectively, on our Original 13¹/₄% Senior Notes.

On September 14, September 27 and November 10, 2011, we purchased $2.1 million, $1.8 and $1.1 million, respectively, (an aggregate of $5.0 million face value) of our 13¹/₄% Senior Notes in arm’s length transactions, at 98.25, 97.50 and 96.50, respectively, of face value plus accrued interest and recognized a gain on the redemption of our 13¹/₄% Senior Notes of $121 for the year ended December 31, 2011, which is included in other expense, net in the consolidated statements of operations and comprehensive income (loss). This satisfied our redemption requirements for December 15, 2011.

On June 14, 2012, we made a mandatory semi-annual interest payment of $7.6 million on our 13¹/₄% Senior Notes.

On September 5, 2012, we purchased $1.0 million face value of our 13¹/₄% Senior Notes in an arm’s length transaction, at 102.25 of face value plus accrued interest. We recognized a loss on the redemption of our 13¹/₄% Senior Notes of $23 thousand for the year ended December 31, 2012, which is included in other expense, net in the consolidated statements of operations and comprehensive income (loss). On December 14, 2012, we redeemed $4.0 million face value of our 13¹/₄% Senior Notes, as required by the indenture governing our 13¹/₄% Senior Notes, at 100.00 of face value. Also, on December 14, 2012, we made a semi-annual interest payment of $7.6 million, on the 13¹/₄% Senior Notes. This satisfied our redemption requirements for December 15, 2012.

As of December 31, 2012 and 2011, the principal amount of the remaining outstanding 13¹/₄% Senior Notes was $110.0 million and $115.0 million, respectively, and the carrying value was $107.2 million and $110.9 million. As of December 31, 2012 and 2011, we were in compliance with all of the covenants and restrictions under the 13¹/₄% Senior Notes.

Off-Balance Sheet Arrangements

We have agreements with unrelated third parties to factor specific accounts receivable in several of our In-country Operations. The factoring is treated as a sale in accordance with FASB ASC 860, Transfers and Servicing, and is accounted for as an off-balance sheet arrangement. Proceeds from the transfers reflect the face value of the account less a discount, which is recorded as a charge to interest expense in our consolidated statements of operations and comprehensive income (loss) in the period the sale occurs. Net funds received are recorded as an increase to cash and a reduction to accounts receivable outstanding in our consolidated balance sheets. We report the cash flows attributable to the sale of receivables to third parties and the cash receipts from collections made on behalf of and paid to third parties, on a net basis as trade accounts receivables in cash flows from operating activities in our consolidated statement of cash flows.

We act as the collection agent on behalf of the third party for the arrangements and have no significant retained interests or servicing liabilities related to the accounts receivable sold. In order to mitigate credit risk related to our factoring of accounts receivable, we may purchase credit insurance, from time to time, for certain factored accounts receivable, resulting in risk of loss being limited to the factored accounts receivable not covered by credit insurance, which we do not believe to be significant.

Indemnity Letter Agreement

On March 16, 2011, we entered into an indemnity letter agreement with Anthony and Michael Shalom, or the Shaloms, and a CVCI subsidiary, CVCI Intcomex Investment LP, or CVCI Investment, pursuant to which we agreed to return approximately $0.9 million, or the Reimbursement Amount, to the Shaloms. The return of the Reimbursement Amount is a result of an overpayment by the Shaloms of an indemnification payment owed to CVCI Investment and paid to us pursuant to an indemnity agreement letter between the Shaloms and CVCI Investment, dated as of June 29, 2007. The Reimbursement Amount represents a refund claimed by the Shaloms, as a result of a tax benefit recognized by us in connection with the gross indemnifiable loss. Accordingly, the original indemnification payment exceeded the ultimate indemnifiable loss because it did not account for the effect of this tax benefit. The Reimbursement Amount is equal to the indemnifying shareholders’ prorata share of the tax benefit recognized. The Reimbursement Amount is payable at the earlier of: (i) such time that such payment is not prohibited by any agreement by which we or any of its subsidiaries is bound; and (ii) a change of control other than that as a result of an IPO.

Restricted Stock Grant Agreement

On April 1, 2011, we adopted a basic employee membership restricted stock grant agreement compensation plan for eligible employees to receive compensation in the form of restricted shares of Common Stock, or the Employee Restricted Stock Plan. On July 1, 2012, 1,444 restricted shares of Common Stock were granted and issued to employees under the Employee Restricted Stock Plan. As of December 31, 2012, of the 1,444 restricted shares of Common Stock that were issued on July 1, 2012 to employees, 256 shares vested and 1,188 shares remained restricted.

As of December 31, 2011, there were no shares of Common Stock granted or issued under this plan.

Certificate of Incorporation Amendment

On April 19, 2011, we filed an amendment to our certificate of incorporation, which increased the number of authorized shares of Common Stock to 200,000 shares, eliminated the Original Class B Common Stock and converted all outstanding shares of the Original Class B Common Stock to shares of voting Common Stock.

Brightpoint Transaction

April 2011 Transaction

On April 19, 2011, we and two of our subsidiaries, Intcomex Colombia and Intcomex Guatemala, completed an investment agreement, the Brightpoint Transaction with Brightpoint. Pursuant to such agreement, we issued an aggregate of 38,769 shares of our Common Stock to Brightpoint Latin America. Effectively, the Brightpoint Transaction was comprised of two transactions: (1) the sale of 25,846 shares of Common Stock for $15.0 million in cash; and (2) the acquisition of certain assets and liabilities of certain operations of Brightpoint Latin America and the equity associated with the Brightpoint Latin America Operations, in exchange for 12,923 shares of Common Stock valued at $7.5 million plus $0.2 million cash, net, at closing.

Following the sale and acquisition transaction, Brightpoint held approximately 23% equity ownership interests in our company and had one representative on our Board of Directors.

June 2012 Transaction

On June 29, 2012, we entered into an agreement with Brightpoint, or the Release Agreement, to, among other things, (i) eliminate the mutual non-competition covenants included in (a) the Purchase Agreement underlying the Brightpoint Transaction, and (b) the Fifth Amended and Restated Shareholders Agreement and (ii) terminate the License Agreement, with immediate effect, provided that we retained the right to use the Brightpoint names and logos as set forth in the License Agreement in accordance with its terms for a period of 90 days from June 29, 2012. The Release Agreement was entered into in relation to Brightpoint entering into a merger agreement with a global IT wholesale distributor. Additionally, Brightpoint agreed to pay $5.0 million to us, which we received in July 2012. As a result of this transaction, we recognized a gain of $4.3 million related to the termination of the mutual non-compete agreement with Brightpoint, which was recorded in other income in our consolidated statement of operations and comprehensive income (loss). In connection with the Release Agreement, Brightpoint permanently and irrevocably waived all of its voting and information rights under the Shareholders Agreement.

Contractual Obligations

The following table summarizes our contractual obligations and the payments due on such obligations as of December 31, 2012:


	Payments Due by Period (Dollars in millions)
Contractual Obligations	Total		Less than 1 Year		1 – 3 Years		3 – 5 Years		5 Years
Debt obligations⁽¹⁾	$	160.6	$	60.3	$	100.3	$	—	$	—
Interest on debt obligations⁽²⁾		27.9		14.6		13.3		—		—
Operating lease obligations		24.7		4.5		7.0		2.9		10.3

Total	$	213.2	$	79.4	$	120.6	$	2.9	$	10.3

(1)	Debt obligations include our short and long term debt principal and the $2.8 million original issue discount remaining related to the issuance of our 13¹/₄% Senior Notes.

(2)	Interest on debt obligations is calculated assuming no early prepayment or redemption.

Critical Accounting Policies and Estimates

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

We extend a warranty for products to customers with the same terms as the OEM’s warranty to us. All product-related warranty costs incurred by us are reimbursed by the OEMs.

In addition, we review other long-lived assets, principally property, plant and equipment, for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If the carrying amount of an asset exceeds the asset’s fair value, we measure and record an impairment loss for the excess. We assess an asset’s fair value by determining the expected future undiscounted cash flows of the asset. There are numerous uncertainties and inherent risks in conducting business, such as general economic conditions, actions of competitors, ability to manage growth, actions of regulatory authorities, pending investigations or litigation, customer demand and risk relating to international operations. Adverse effects from these or other risks may result in adjustments to the carrying value of our other long-lived assets.

Recently Issued and Adopted Accounting Guidance

Recently Issued Accounting Guidance

In February 2013, the FASB issued ASU 2013-02, Comprehensive Income (Topic 220): Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income. This update provides that an entity that reports items of accumulated other comprehensive income improves the transparency of reporting reclassifications by presenting the effects on the line items of net income of significant amounts reclassified out of accumulated other comprehensive income, either on the face of the statement where net income is presented or in the notes, but only if the item reclassified is required under U.S. GAAP to be reclassified to net income in its entirety in the same reporting period. This update is effective for reporting periods beginning after December 15, 2012. We will adopt this guidance for the fiscal year ended December 31, 2013. We do not expect the adoption of this guidance will have a material impact on our financial statements.

Recently Adopted Accounting Guidance

Item 7A.

Quantitative and Qualitative Disclosures About Market Risk.

Foreign exchange risk

Our principal market risk relates to foreign exchange rate sensitivity, which is the risk related to fluctuations of local currencies in our in-country markets, as compared to the U.S. dollar. We periodically engage in foreign currency derivative instruments when available and when doing so is not cost prohibitive. In periods when we do not, foreign currency fluctuations may adversely affect our results of operations, including our gross and operating margins. As of December 31, 2012, we did not have any derivative instruments outstanding. As of December 31, 2011, our foreign currency forward contracts with a notional amount of $9.4 million had a fair value of $0.1 million.

A significant portion of our revenues from our In-country Operations is invoiced in currencies other than the U.S. dollar, even though prices for IT products in our in-country markets are based on U.S. dollar amounts. For the years ended December 31, 2012, 2011 and 2010, 45.3%, 44.4% and 45.3%, respectively, of our total revenue was invoiced in currencies other than the U.S. dollar. In addition, a significant majority of our cost of revenue is driven by the pricing of products in U.S. dollars. As a result, our gross profit and gross margins will be affected by fluctuations in foreign currency exchange rates. In addition, a significant amount of our in-country operating expenses are denominated in currencies other than the U.S. dollar. For the years ended December 31, 2012, 2011 and 2010, 57.6%, 57.3% and 53.8%, respectively, of our operating expenses were denominated in currencies other than the U.S. dollar. As a result, our operating expenses and operating margins will be affected by fluctuations in foreign currency exchange rates.

In most markets, including Chile, Colombia, Costa Rica, Guatemala, Jamaica, Mexico, Peru and Uruguay, we invoice in local currency. Foreign currency fluctuations in these markets will impact our results of operations, both through foreign currency transactions and through the remeasurement of the financial statements into U.S. dollars. In the case of foreign currency transactions, inventory is recorded in the books and records of each of our In-country Operations in the local currency at the exchange rate in effect on the date the inventory is received. When a sale of this inventory is made by our In-country Operations, it is invoiced and recorded in the books and records in the local currency based on the U.S. dollar price converted at the exchange rate in effect on the date of sale. As a result, the appreciation of a local currency in one of these markets between the time that inventory is purchased and the time it is sold could have a marginal impact on our gross profit in U.S. dollar terms, thereby impacting our gross margins. In these cases, the settlement of the initial payable owed to a vendor (including, in many cases, our Miami Operations) results in a foreign exchange loss (gain), which is included in foreign exchange (gain) loss in our consolidated statements of operations and comprehensive income (loss) and which effectively offsets, in part, the reduction in gross profit. Conversely, the weakening of a local currency in one of these markets will have the opposite effect from those described above on our gross profit and gross margins.

The U.S. dollar is the functional currency in the preparation of our consolidated financial statements in each of our In-country Operations, except in Mexico where the functional currency is the Mexican Peso. In most of our In-country Operations, including Argentina, Chile, Colombia, Costa Rica, Guatemala, Jamaica, Mexico, Peru and Uruguay, our books and records are prepared in currencies other than the U.S. dollar. Remeasurement into the U.S. dollar is required for the preparation of our consolidated financial statements and will impact our results of operations. Remeasurement of our operating expenses is performed using an appropriately weighted-average exchange rate for the period. For periods where the local currency has appreciated relative to the U.S. dollar, the remeasurement increases the U.S. dollar amount of our operating expenses, thereby adversely impacting our operating margins. Conversely, the weakening of a local currency in one of these markets will have the opposite effect from those described above on operating expenses and operating margins. For example, we estimate that a one percent weakening or strengthening of the U.S. dollar against these local currencies would have increased or decreased our selling, general and administrative expenses by approximately $0.6 million, $0.5 million and $0.4 million for the years ended December 31, 2012, 2011 and 2010, respectively. Remeasurement of our monetary assets and liabilities is performed using exchange rates at the balance sheet date, with the changes being recognized in foreign exchange (gain) loss in our consolidated statements of operations and comprehensive income (loss).

In Ecuador, El Salvador and Panama, all of our transactions are conducted in U.S. dollars and all of our financial statements are prepared using the U.S. dollar, and therefore, foreign exchange fluctuations do not directly impact our results of operations.

We believe that our broad geographical scope reduces our exposure to the risk of significant and sustained currency fluctuations in any of our Latin American or Caribbean markets. In addition, a relatively small portion of the sales from our In-country Operations in Chile, Costa Rica, Peru and Uruguay can be invoiced, at the election of certain of our customers, in U.S. dollars, thereby reducing the overall impact of fluctuations in foreign currency exchange rates in these countries. In addition, from time to time, in Chile, Guatemala and Peru, we reduce our exposure to the risk of currency devaluation by drawing on a local currency-denominated line of credit to acquire U.S. dollars.

If there are large and sustained devaluations of local currencies, many of our products can become more expensive in local currencies which could result in our customers having difficulty paying those invoices and, in turn, resulting in decreases in revenue. Moreover, such devaluations may adversely impact demand for our products because our customers may be unable to afford them. In these circumstances, we will usually offer a repayment plan for an affected customer, which in our experience has usually resulted in successful collection. In addition, other than accounts receivable owed by affiliates, substantially all of our Miami Operations’ foreign accounts receivable are insured by a worldwide credit insurance company. The policy’s aggregate limit is $35.0 million with an aggregate deductible of $1.0 million; the policy expires on August 31, 2013. In addition, 10% or 20% buyer coinsurance provisions apply, as well as sub-limits in coverage on a per-buyer and on a per-country basis. The policy also covers certain large, local companies in Argentina, Costa Rica, El Salvador, Guatemala, Jamaica and Peru. Our In-country Operations in Chile insures certain customer accounts with a credit insurance company in Chile; the policy expired on October 31, 2012 and was not renewed.

It is our policy not to enter into foreign currency transactions for speculative purposes.

Interest rate risk

We are also exposed to market risk related to interest rate sensitivity, which is the risk that future changes in interest rates may affect our net income or our net assets. Given that a majority of our debt is a fixed rate obligation, we do not believe that we have a material exposure to interest rate fluctuations. As of December 31, 2012, assuming SBA’s $50.0 million floating rate revolving credit facility with PNC Bank was fully drawn for the entire year, a 1.0% (100 basis points) increase (or decrease) in the U.S. prime lending rate would result in $500,000 increase (or decrease) in our current expense for the year.

It is our policy not to enter into interest rate transactions for speculative purposes.

Item 8.

Financial Statements and Supplementary Data.

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS


	Page
Report of Independent Registered Public Accounting Firm BDO USA, LLP		51
Consolidated Balance Sheets as of December 31, 2012 and 2011		52
Consolidated Statements of Operations and Comprehensive Income (Loss) for the Years Ended December 31, 2012, 2011 and 2010		53
Consolidated Statements of Changes in Shareholders’ Equity for the Years Ended December 31, 2012, 2011 and 2010		54
Consolidated Statements of Cash Flows for the Years Ended December 31, 2012, 2011 and 2010		55
Notes to Consolidated Financial Statements		57
Financial Statement Schedule		116

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

BDO USA, LLP

Intcomex, Inc. and Subsidiaries

We have audited the accompanying consolidated balance sheets of Intcomex, Inc. and Subsidiaries (the “Company”) as of December 31, 2012 and 2011, and the related consolidated statements of operations and comprehensive income (loss), changes in shareholders’ equity and cash flows for each of the three years in the period ended December 31, 2012. In connection with our audits of the consolidated financial statements, we have also audited the financial statement schedule listed in the accompanying index. These consolidated financial statements and schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements and schedule based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal controls over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements and schedule. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Intcomex, Inc. and Subsidiaries at December 31, 2012 and 2011, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2012, in conformity with accounting principles generally accepted in the United States of America.

Also, in our opinion, the financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, present fairly, in all material respects, the information set forth therein.


Miami, Florida				/s/ BDO USA, LLP

March 22, 2013

INTCOMEX, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS AS OF DECEMBER 31, 2012 AND 2011

(Dollars in thousands, except share data)


	As of December 31,
	2012			2011
Assets
Current assets
Cash and cash equivalents	$	30,586		$	25,707
Restricted cash		226			206
Trade accounts receivable (net of allowance for doubtful accounts of $5,944 and $5,232 at December 31, 2012 and 2011, respectively)		142,431			137,921
Notes and other receivables		43,584			32,962
Due from related parties		505			298
Inventories		163,355			169,138
Prepaid expenses and other		25,317			22,018
Deferred tax assets		4,642			3,637

Total current assets		410,646			391,887
Property and equipment, net		14,598			15,410
Goodwill		18,069			17,979
Identifiable intangible assets		906			2,096
Deferred tax assets		13,275			11,555
Other assets		4,708			6,054

Total assets	$	462,202		$	444,981

Liabilities and Shareholders’ Equity
Liabilities
Current liabilities
Lines of credit	$	50,021		$	31,841
Current maturities of long-term debt		10,253			5,567
Accounts payable		212,210			208,409
Income taxes payable		659			1,708
Due to related parties		40			40
Accrued expenses and other		21,006			23,018

Total current liabilities		294,189			270,583
Long-term debt, net of current maturities		97,455			106,239
Other long-term liabilities		2,368			2,242
Deferred tax liabilities		1,715			2,403

Total liabilities		395,727			381,467
Commitments and contingencies

Shareholders’ equity
Common stock, voting $0.01 par value, 200,000 shares authorized, 168,688 shares issued and 167,819 outstanding as of December 31, 2012 and 168,240 shares issued and 167,388 shares outstanding as of December 31, 2011		2			2
Additional paid in capital		64,062			64,153
Treasury stock, 869 shares		(508	)		(494	)
Retained earnings		7,756			5,684
Accumulated other comprehensive loss		(4,837	)		(5,831	)

Total shareholders’ equity		66,475			63,514

Total liabilities and shareholders’ equity	$	462,202		$	444,981

The accompanying notes are an integral part of the consolidated financial statements.

INTCOMEX, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)

FOR THE YEARS ENDED DECEMBER 31, 2012, 2011 AND 2010

(Dollars in thousands, except per share data)


	For the Years Ended December 31,
	2012			2011			2010
Revenue	$	1,430,478		$	1,286,973		$	1,013,272
Cost of revenue		1,307,663			1,162,161			917,529


Gross profit		122,815			124,812			95,743

Operating expenses
Selling, general and administrative		97,133			87,153			75,315
Depreciation and amortization		4,542			4,842			4,323

Total operating expenses		101,675			91,995			79,638


Operating income		21,140			32,817			16,105

Other expense (income)
Interest expense		22,096			20,542			20,933
Interest income		(480	)		(413	)		(309	)
Foreign exchange (gain) loss		(1,015	)		5,474			(2,025	)
Other income, net		(3,830	)		(129	)		(237	)

Total other expense		16,771			25,474			18,362

Income (loss) before provision for income taxes		4,369			7,343			(2,257	)

Provision for income taxes		2,297			3,162			1,393

Net income (loss)	$	2,072		$	4,181		$	(3,650	)


Net income (loss) per weighted average share of common stock:
Basic	$	12.37		$	26.75		$	(28.21	)

Diluted	$	12.29		$	26.67		$	(28.21	)


Weighted average number of common shares, used in per share calculation:
Basic		167,503			156,316			129,357

Diluted		168,625			156,773			129,357


Comprehensive income (loss):
Net income (loss)	$	2,072		$	4,181		$	(3,650	)
Foreign currency translation gain (loss)		994			(1,829	)		(194	)


Total comprehensive income (loss)	$	3,066		$	2,352		$	(3,844	)

The accompanying notes are an integral part of the consolidated financial statements.

INTCOMEX, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

FOR THE YEARS ENDED DECEMBER 31, 2012, 2011 AND 2010

(Dollars in thousands)


	For the Years Ended December 31, 2012, 2011 and 2010
	Shares
	Common Stock			Original Class B Common Stock			Par Value		Additional Paid in Capital			Treasury Stock			Retained Earnings			Accumulated Other Comprehensive (Loss) Income			Shareholders’ Equity
Balance at December 31, 2009		100,000			29,357		$	1	$	41,388			—		$	5,153		$	(3,808	)	$	42,734
Share-based compensation		—			—			—		151			—			—			—			151
Net loss		—			—			—		—			—			(3,650	)		—			(3,650	)
Foreign currency translation loss		—			—			—		—			—			—			(194	)		(194	)

Balance at December 31, 2010		100,000			29,357		$	1	$	41,539			—		$	1,503		$	(4,002	)	$	39,041
Share-based compensation		—			—			—		115			—			—			—			115
Vesting of restricted common stock		114			—			—		—			—			—			—			—
Issuance of common stock from Brightpoint Transaction		38,769			—			1		22,499			—			—			—			22,500
Conversion of Original Class B common stock to Common Stock		29,357			(29,357	)		—		—			—			—			—			—
Repurchase of treasury stock		(852	)		—			—		—			(494	)		—			—			(494	)
Net income		—			—			—		—			—			4,181			—			4,181
Foreign currency translation loss		—			—			—		—			—			—			(1,829	)		(1,829	)

Balance at December 31, 2011		167,388			—		$	2	$	64,153		$	(494	)	$	5,684		$	(5,831	)	$	63,514
Share-based compensation		—			—			—		290			—			—			—			290
Vesting of restricted common stock		448			—			—		—			—			—			—			—
Shares withheld for taxes upon vesting of restricted common stock		(17	)		—			—		—			(14	)		—			—			(14	)
Brightpoint transaction		—			—			—		(381	)		—			—			—			(381	)
Net income		—			—			—		—			—			2,072			—			2,072
Foreign currency translation gain		—			—			—		—			—			—			994			994

Balance at December 31, 2012		167,819			—		$	2	$	64,062		$	(508	)	$	7,756		$	(4,837	)	$	66,475

The accompanying notes are an integral part of the consolidated financial statements.

INTCOMEX, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE YEARS ENDED DECEMBER 31, 2012, 2011 AND 2010

(Dollars in thousands)


	For the Years Ended December 31,
	2012			2011			2010
Cash flows from operating activities:
Net income (loss)	$	2,072		$	4,181		$	(3,650	)
Adjustments to reconcile net income (loss) to net cash used in operating activities:
Stock-based compensation expense		290			115			151
Depreciation expense		3,932			4,183			3,908
Amortization expense		3,159			3,162			2,914
Bad debt expense		2,598			2,615			1,765
Inventory obsolescence expense		4,767			1,848			1,783
Deferred income tax benefit		(3,413	)		(970	)		(1,154	)
Gain on termination of non-compete agreement		(4,285	)		—			—
Loss (gain) on extinguishment of long-term debt		23			(121	)		—
(Gain) loss on disposal of property and equipment and other		(8	)		(11	)		67
Impairment charge and other non-cash items		—			—			482
Change in operating assets and liabilities:
(Increase) decrease in:
Trade accounts receivables		(6,945	)		(23,033	)		(18,415	)
Inventories		1,693			(54,965	)		(16,988	)
Notes and other receivables		(525	)		(11,609	)		(2,355	)
Prepaid expenses and other		(13,480	)		(6,721	)		(2,760	)
Due from related parties		(207	)		(11	)		(15	)
Increase (decrease) in:
Accounts payable		3,265			55,841			29,913
Income taxes payable		(1,049	)		991			649
Accrued expenses and other		(2,059	)		4,542			3,555
Due to related parties		—			(11	)		(24	)

Net cash used in operating activities		(10,172	)		(19,974	)		(174	)

Cash flows from investing activities:
Purchases of property and equipment		(2,975	)		(3,410	)		(4,184	)
Proceeds from termination of non-compete agreement		5,000			—			—
Acquisition of business, net of acquired cash		—			697			—
Borrowings (proceeds) from notes receivable and other		353			62			(171	)
Proceeds from disposition of assets		43			282			196

Net cash provided by (used in) investing activities		2,421			(2,369	)		(4,159	)

Cash flows from financing activities:
Borrowings under lines of credit, net		18,180			10,585			6,527
Proceeds from borrowings under long-term debt		355			280			543
Payments of long-term debt		(5,774	)		(5,798	)		(610	)
Proceeds from issuance of common stock		—			15,000			—
Payments for purchase of treasury stock		—			(494	)		—

Net cash provided by financing activities		12,761			19,573			6,460
Effect of foreign currency exchange rate changes on cash and cash equivalents		(131	)		(390	)		(494	)

Net increase (decrease) in cash and cash equivalents		4,879			(3,160	)		1,633
Cash and cash equivalents, beginning of period	$	25,707		$	28,867		$	27,234

Cash and cash equivalents, end of period	$	30,586		$	25,707		$	28,867

The accompanying notes are an integral part of the consolidated financial statements.

INTCOMEX, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE YEARS ENDED DECEMBER 31, 2012, 2011 AND 2010—(Continued)

(Dollars in thousands)


	For the Years Ended December 31,
	2012		2011			2010
Supplemental disclosure of operating cash flow information:
Cash paid for:
Interest	$	20,825	$	19,374		$	18,561
Income taxes	$	5,582	$	3,719		$	3,510

Supplemental disclosure of non-cash flow information:

Non-cash investing and financing activities in connection with business acquisition:
Fair value of assets acquired⁽¹⁾	$	—	$	14,853		$	—
Fair value of liabilities assumed		—		(7,353	)		—

Fair value of equity consideration in connection with business acquisition	$	—	$	7,500		$	—


Non-cash financing activities:
Property and equipment acquired through financing	$	—	$	—		$	72

(1)	Reflects total assets acquired of $15,027, net of $174 acquired for cash.

The accompanying notes are an integral part of the consolidated financial statements.

INTCOMEX, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except per share data)

Note 1.

Organization and Basis of Presentation

Nature of Operations

Intcomex, Inc. (“Intcomex”) is a United States (“U.S.”) based pure play value-added international distributor of information technology (“IT”) products focused solely on serving Latin America and the Caribbean (the “Regions”). Intcomex distributes computer equipment, components, peripherals, software, computer systems, accessories, networking products, digital consumer electronics and mobile devices to more than 50,000 customers in 39 countries. Intcomex offers single source purchasing to its customers by providing an in-stock selection of more than 12,000 products from over 130 vendors, including many of the world’s leading IT product manufacturers. The Company serves the Latin American and Caribbean IT products markets using a dual distribution model as a wholesale aggregator and an in-country distributor:

•

As a Miami-based wholesale aggregator, the Company sells primarily to:

•

third-party distributors, resellers and retailers of IT products based in countries in Latin America and the Caribbean where the Company does not have a local presence;

•

third-party distributors, resellers and retailers of IT products based in countries in Latin America and the Caribbean where the Company has a local presence but whose volumes are large enough to enable them to efficiently acquire products directly from U.S.-based wholesale aggregators;

•

other Miami-based exporters of IT products to Latin America and the Caribbean; and

•

its in-country Operations.

•

As an in-country distributor in 11 countries, the Company sells to over 50,000 local reseller and retailer customers, including value-added resellers (companies that sell, install and support IT products and personal computers (“PCs”)), systems builders (companies that specialize in building complete computer systems by combining components from different vendors), smaller distributors and retailers.

Organization

The accompanying consolidated financial statements include the accounts of Intcomex (the “Parent”) and its subsidiaries (collectively referred to herein as the “Company”) including the accounts of Intcomex Holdings, LLC (“Holdings”) (parent company of Software Brokers of America, Inc. (“SBA”), a Florida corporation), IXLA Holdings, Ltd. (“IXLA”), IFC International, LLC, a Delaware limited liability company (“IFC”), Intcomex International Holdings Cooperatief U.A., a Netherlands cooperative (“Coop”). SBA is the parent company of one subsidiary located in Florida. IXLA is the Cayman Islands limited time duration holding company of 14 separate subsidiaries located in Central America, South America and the Caribbean. IFC and Coop are the parent companies of Intcomex Holdings SPC-I, LLC (“Intcomex SPC-I Mexico”), a dually formed company in the U.S. and Mexico and parent company of Comercializadora Intcomex, S.A. de C.V. (“Intcomex Mexico”). The consolidated financial statements reflect the Company as the reporting entity for all periods presented.

The Company’s operations include sales generated from and invoiced by the Miami, Florida operations (the “Miami Operations”) and sales generated from and invoiced by all of the Latin American and Caribbean subsidiary operations. The subsidiary operations conduct business with sales and distribution centers in the following countries: Chile, Colombia, Costa Rica, Ecuador, El Salvador, Guatemala, Jamaica, Mexico, Panama, Peru, and Uruguay (collectively, the “In-country Operations”).

Principles of Consolidation

The accompanying consolidated financial statements have been prepared in conformity with the instructions to the Annual Report on Form 10-K (the “Annual Report”) and Article 10 of Regulation S-X, pursuant to the rules and regulations of the United States Securities and Exchange Commission (“SEC”). The consolidated financial statements include the accounts of Intcomex, Inc. and its subsidiaries. In management’s opinion, the consolidated financial statements reflect all material adjustments, consisting only of normal recurring adjustments, necessary to fairly state the financial position of the Company as of December 31, 2012 and 2011, its results of operations, statements of changes in shareholders’ equity and its statements of cash flows for the years ended December 31, 2012, 2011 and 2010. All significant intercompany accounts and transactions have been eliminated in consolidation. The consolidated financial statements reflect the Company as the reporting entity for all periods presented.

INTCOMEX, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except per share data)

As of December 31, 2012, the Company had one wholly-owned subsidiary: Holdings. Holdings has three wholly owned subsidiaries: SBA, IXLA, and IFC. Holdings owns 99.99% and the Company owns 0.01% of Coop.

SBA owns 100.0% of the following subsidiary (which own 100.0% of the subsidiaries listed below their names) each of which is a Florida limited liability company:

•

Accvent LLC (“Accvent”), a Florida corporation:

•

FORZA Power Technologies LLC;

•

KLIP Xtreme LLC;

•

NEXXT Solutions LLC; and

•

Nuqleo LLC

IXLA owns 100.0% of the following subsidiaries (which own 100.0% of the subsidiaries listed below their names) in their respective locations in Latin America and the Caribbean:

•

Intcomex S.A., Chile:

•

Intcomex Iquique S.A., Chile;

•

Intcomex del Ecuador S.A., Ecuador;

•

Intcomex Latin America Finance Corp., Cayman Islands;

•

Hurricane Systems S.A., Ecuador;

•

Intcomex Colombia LTDA, Colombia:

•

XCB de Colombia Ltd, British Virgin Islands;

•

Intcomex Costa Rica Mayorista en Equipo de Cómputo, S.A., Costa Rica;

•

Intcomex, S.A. de C.V., El Salvador;

•

Intcomex de Guatemala, S.A., Guatemala:

•

XGB de Guatemala S.A., Guatemala;

•

Intcomex Jamaica Ltd., Jamaica;

•

Computación Monrenca Panama, S.A., Panama;

•

Intcomex de las Americas, S.A., Panama;

•

Intcomex Peru, S.A.C., Peru;

•

T.G.M., S.A., Uruguay;

•

Latin CAS, S.D., El Salvador;

•

Latin Service, S.A., Guatemala; and

•

Compañía de Servicios IMSC, S. de R.L. de C.V., Mexico.

Coop and IFC own 99.0% and 1.0%, respectively, of Intcomex SPC-I Mexico.

Intcomex SPC-I Mexico has one wholly owned subsidiary: Comercializadora Intcomex S.A. de C.V., located in Mexico.

The Company operates a sales and distribution center in the U.S. and 25 sales and distribution centers in 11 countries in Latin America and the Caribbean—Chile, Colombia, Costa Rica, Ecuador, El Salvador, Guatemala, Jamaica, Mexico, Panama, Peru and Uruguay.

Fiscal Year

The Company’s fiscal year ends on December 31 and is based on a calendar year.

INTCOMEX, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except per share data)

Use of Accounting Estimates

The Company prepares its consolidated financial statements in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”). These principles require the Company to make judgments, estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, the reported amounts of revenues and expenses, cash flows and the related footnote disclosures during the reporting period. On an on-going basis, the Company reviews and evaluates its estimates and assumptions, including but not limited to, those that relate to the realizable value of accounts receivable, inventories, identifiable intangible assets, goodwill and other long-lived assets, income taxes and contingencies. Actual results could differ from these estimates.

Foreign Currency Translation and Remeasurement

The U.S. dollar is considered the functional currency in all of the Company’s foreign subsidiary operations, except in Mexico where the functional currency is the Mexican Peso. Non-monetary balance sheet amounts are translated using historical exchange rates. Other balance sheet amounts are translated at the exchange rates in effect at the balance sheet date. Statements of operations amounts, excluding those items of income and expense that relate to non-monetary balance sheet amounts, are translated at the average exchange rate for the month. Remeasurement adjustments are included in the determination of net income (loss) under foreign exchange (gain) loss in the consolidated statements of operations and comprehensive income (loss). These amounts include the effect of foreign currency remeasurement, realized foreign currency transaction gains and losses and changes in the value of foreign currency denominated accounts receivable and accounts payable. In the accompanying consolidated statements of operations and comprehensive income (loss), the Company had foreign exchange (gain) loss of $(1,015), $5,474 and $(2,025) for the years ended December 31, 2012, 2011 and 2010, respectively.

Translation adjustments related to the Company’s Mexican subsidiary are recorded in accumulated other comprehensive loss under shareholders’ equity in the Company’s consolidated balance sheets and consolidated statement of changes in shareholders’ equity. In the accompanying consolidated statements of changes in shareholders’ equity, foreign currency translation gain (loss) adjustments of $994, $(1,829) and $(194) were included for the years ended December 31, 2012, 2011 and 2010, respectively.

Cash Equivalents

The Company considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 305-10-20, Cash and Cash Equivalents Glossary. The majority of the Company’s cash and cash equivalents is cash in banks.

Accounts Receivable

The Company maintains an allowance for doubtful accounts for estimated losses resulting from the inability of its customers to make required payments due to changes in the financial condition of the Company’s customers or other unanticipated events, which could result in charges for additional allowances exceeding the Company’s expectations. These estimates require judgment and are influenced by factors, including but not limited to, the following: the large number of customers and their dispersion across wide geographic areas; the fact that no single customer accounted for more than 1.6%, 2.5% and 1.4%, respectively, of the Company’s consolidated revenue for the years ended December 31, 2012, 2011 and 2010; the continual credit evaluation of the Company’s customers’ financial condition; the aging of the Company’s customers’ receivables, individually and in the aggregate; the value and adequacy of credit insurance coverage; the value and adequacy of collateral received from the Company’s customers (in certain circumstances); the Company’s historical loss experience; and, increases in credit risk due to an economic downturn resulting in the Company’s customers’ inability to obtain capital. Uncollectible accounts are written-off against the allowance on an annual basis.

Inventories

Inventories consist entirely of finished goods and are stated at the lower of cost or market. Cost is determined primarily on the first-in, first-out (“FIFO”) method. Due to the availability of “price protection” guarantees offered by many of the Company’s vendors on a significant portion of inventory, some of the Company’s In-country Operations use the average cost method that approximates FIFO. The Company operates in an industry characterized by the continual introduction of new products, rapid technological advances and product obsolescence. The Company continuously evaluates the salability of its inventories and utilizes incentive sales programs for slow moving items. Rebates earned from the Company’s suppliers on products sold are recognized when the product is shipped to a third party customer and is recorded as a reduction to cost of revenue.

INTCOMEX, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except per share data)

Property and Equipment, Net

Property and equipment are recorded at cost and depreciated over the estimated economic lives of the assets. Depreciation is computed using the straight-line and accelerated methods based on the estimated economic lives of the related assets as follows:


	Years
Buildings and leasehold improvements		30 – 39
Office furniture, vehicles and equipment		5 – 7
Warehouse equipment		5 – 7
Software		5

Goodwill, Identifiable Intangible and Other Long-Lived Assets

FASB ASC 350, Intangibles-Goodwill and Other provides guidance on the annual assessment of goodwill for impairment using fair value measurement techniques. The Company reviews goodwill at least annually for potential impairment or between annual tests if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount. The Company’s annual impairment review requires extensive use of accounting judgment and financial estimates, including projections about the Company’s business, its financial performance and the performance of the market and overall economy. Application of alternative assumptions and definitions could produce significantly different results. Because of the significance of the judgments and estimates used in the processes, it is likely that materially different amounts could result if different assumptions were made or if the underlying circumstances were changed.

The Company’s goodwill represents the excess of the purchase price over the fair value of the net assets of acquired businesses. Potential impairment exists if the fair value of a reporting unit to which goodwill has been allocated is less than the carrying value of the reporting unit. The amount of an impairment loss is recognized as the amount by which the carrying value of the goodwill exceeds its implied value.

Future changes in the estimates used to conduct the impairment review, including revenue projections, market values and changes in the discount rate used could cause the analysis to indicate that the Company’s goodwill is impaired in subsequent periods and result in a write-off of a portion or all of the goodwill. The discount rate used is based on the Company’s capital structure and, if required, an additional premium on the reporting unit based upon its geographic market and operating environment. The assumptions used in estimating revenue projections are consistent with internal planning.

The Company’s intangible assets are presented at cost, net of accumulated amortization. Intangible assets are amortized on a straight line basis over their estimated useful lives and assessed for impairment. The Company recognizes an impairment of long-lived assets if the net book value of such assets exceeds the estimated future undiscounted cash flows attributable to such assets. If the carrying value of a long-lived asset is considered impaired, a loss is recognized based on the amount by which the carrying value exceeds the fair value of the long-lived asset for assets to be held and used, or the amount by which the carrying value exceeds the fair value less cost to dispose for assets to be disposed. Fair value is determined using the anticipated cash flows discounted at a rate commensurate with the risk involved. The Company tests intangible assets for recoverability whenever events or changes in circumstances indicate that their carrying amount may not be recoverable.

The Company reviews long-lived assets, principally property, plant and equipment, for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If the carrying amount of an asset exceeds the asset’s fair value, the Company measures and records an impairment loss for the excess. The Company assesses an asset’s fair value by determining the expected future undiscounted cash flows of the asset. There are numerous uncertainties and inherent risks in conducting business, such as general economic conditions, actions of competitors, ability to manage growth, actions of regulatory authorities, pending investigations or litigation, customer demand and risk relating to international operations. Adverse effects from these or other risks may result in adjustments to the carrying value of the Company’s other long-lived assets.

There are numerous uncertainties and inherent risks in conducting business, such as but not limited to general economic conditions, actions of competitors, ability to manage growth, actions of regulatory authorities, pending investigations and/or litigation, customer demand and risk relating to international operations. Adverse effects from these risks may result in adjustments to the carrying value of the Company’s assets and liabilities in the future, including but not limited to, goodwill.

INTCOMEX, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except per share data)

Deferred Loan Costs

Deferred loan costs are amortized over the life of the applicable indebtedness using the straight-line method. As of December 31, 2012 and 2011, deferred loan costs, net of accumulated amortization, amounted to $2,317 and $3,428, respectively, and are included in other assets in the consolidated balance sheets.

Fair Value of Financial Instruments

FASB ASC 820, Fair Value Measurements and Disclosures (“ASC 820”) establishes a framework for all fair value measurements and expands disclosures related to fair value measurement and developments. ASC 820 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. ASC 820 requires that assets and liabilities measured at fair value are classified and disclosed in one of the following three categories:

Level 1—Quoted market prices for identical assets or liabilities in active markets or observable inputs;

Level 2—Significant other observable inputs that can be corroborated by observable market data; and

Level 3—Significant unobservable inputs that cannot be corroborated by observable market data.

The carrying amounts of cash and cash equivalents, restricted cash, trade accounts receivable, notes receivable and other, accounts payable, accrued expenses and other approximate fair value because of the short-term nature of these items. The carrying amounts of outstanding short-term debt approximate fair value because interest rates over the term of these financial instruments approximate current market interest rates available to the Company. The current market price of outstanding long-term debt approximates fair value because the Company’s $110,000 aggregate principal amount 13¹/₄% Second Priority Senior Secured Notes due December 15, 2014 (the “13¹/₄% Senior Notes”) are currently publicly tradable. As of December 31, 2012 and 2011, the 13¹/₄% Senior Notes were tradable at 101.50 and 92.50, respectively, of the principal amount.

The Company is exposed to fluctuations in foreign exchange rates and reduces its exposure to the fluctuations by periodically using derivative financial instruments and entering into derivative transactions with large multinational banks to manage its primary risk, foreign currency price risk. The Company’s derivative instruments are comprised of the following types of instruments:

Foreign currency forward contracts—Derivative instruments that convert one currency to another currency and contain a fixed amount, fixed exchange rate used for conversion and fixed future date on which the conversion will be made. The Company recognizes unrealized loss (gain) in the consolidated statements of operations and comprehensive income (loss) for temporary fluctuations in the value of non-qualifying derivative instruments designated as cash flow hedges, if the fair value of the underlying hedged currency increases (decreases) prior to maturity. The Company reports realized loss (gain) upon conversion if the fair value of the underlying hedged currency increases (decreases) as of the maturity date.

Foreign currency collars—Derivative instruments that contain a fixed floor price (put option) and fixed ceiling price (call option). If the market price exceeds the call option strike price or falls below the put option strike price, the Company receives the fixed price or pays the counterparty bank the market price. If the market price is between the call and put option strike prices, neither the Company nor the counterparty bank are required to make a payment.

The amount required to enter into similar offsetting contracts with similar remaining maturities based on quoted market prices approximates the fair value of derivative financial instruments. The Company’s foreign currency forward contracts are measured on a recurring basis based on foreign currency spot rates quoted by financial institutions (Level 2) and are marked-to-market each period with gains and losses on these contracts recorded in foreign exchange (gain) loss in the Company’s consolidated statements of operations and comprehensive income (loss) in the period in which the value changes, with the offsetting amount for unsettled positions included in other current assets or liabilities in the consolidated balance sheets. The location and amounts of the fair value in the consolidated balance sheets and (gain) loss in the statements of operations and comprehensive income (loss) related to the Company’s derivative instruments are described in “Note 9. Fair Value of Derivative Instruments” in these Notes to Consolidated Financial Statements.

There were no changes to the Company’s valuation methodology for assets and liabilities measured at fair value during the year ended December 31, 2012 and 2011. As of December 31, 2012, there were no foreign currency forward contracts outstanding. As of December 31, 2011, the notional amount of the foreign currency forward contract outstanding in one of the Company’s In-country Operations was $9,396.

INTCOMEX, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except per share data)

Off-Balance Sheet Arrangements

The Company has agreements with unrelated third parties for factoring of specific accounts receivable in several of its In-country Operations. The factoring is treated as a sale in accordance with FASB ASC 860, Transfers and Servicing, and is accounted for as an off-balance sheet arrangement. Proceeds from the transfers reflect the face value of the account less a discount, which is recorded as a charge to interest expense in the Company’s consolidated statements of operations and comprehensive income (loss) in the period the sale occurs. Net funds received are recorded as an increase to cash and a reduction to accounts receivable outstanding in the consolidated balance sheets. The Company reports the cash flows attributable to the sale of receivables to third parties and the cash receipts from collections made on behalf of and paid to third parties, on a net basis as trade accounts receivables in cash flows from operating activities in the Company’s consolidated statement of cash flows.

The Company acts as the collection agent on behalf of the third party for the arrangements and has no significant retained interests or servicing liabilities related to the accounts receivable sold. In order to mitigate credit risk related to the Company’s factoring of accounts receivable, the Company may purchase credit insurance, from time to time, for certain factored accounts receivable, resulting in risk of loss being limited to the factored accounts receivable not covered by credit insurance, which the Company does not believe to be significant.

As of December 31, 2012 and 2011, the Company factored approximately $23,538 and $11,700, respectively, of accounts receivable pursuant to the Company’s agreements, representing the face amount of total outstanding receivables. For the years ended December 31, 2012 and 2011, the Company incurred approximately $1,180 and $600, respectively, in expenses pursuant to the agreements.

Revenue Recognition

Revenue is recognized when there is persuasive evidence of an arrangement, the sales price is fixed or determinable, collection of the related receivable is reasonably assured and delivery has occurred. Delivery to customers has occurred at the point of shipment, provided that title and risk of loss have transferred and no significant obligations remain. The Company allows its customers to return defective products for exchange or credit within 30 days of delivery based on the warranty of the original equipment manufacturer (“OEM”). An exception is infrequently made for long-standing customers with current accounts, on a case-by-case basis and upon approval by management. A return is recorded in the period of the return because, based on past experience, these returns are infrequent and immaterial.

The Company’s revenues are reported net of any sales, gross receipts or value added taxes. Shipping and handling costs billed to customers are included in revenue and related costs are included in the cost of revenue.

The Company extends a warranty for products to customers with the same terms as the OEM’s warranty to the Company. All product-related warranty costs incurred by the Company are reimbursed by the OEMs.

Product Rebates, Price Protection and Vendor Program Incentives

The Company receives funds from vendors for price protection, product rebates, marketing and promotions and competitive programs, which are recorded as adjustments to product costs or selling, general and administrative expenses according to the nature of the program. Some of these programs may extend over one or more quarterly reporting periods. The Company recognizes product rebates or other vendor program incentives when earned, based upon sales of qualifying products or as services are provided in accordance with the terms of the related program. The Company estimates and records reserves for receivables on vendor programs for estimated losses resulting from vendors’ inability to pay or rejections of claims by vendors on a quarterly basis. These reserves require management’s judgment and are based upon aging, historical trends and data specific to each reporting period, management’s estimate of collectability and other factors.

Write-Off of Initial Public Offering Expenses

For the years ended December 31, 2011 and 2010, the Company wrote off $159 and $482, respectively, related to the Company’s 2009 proposed initial public offering (“IPO”) transaction to take the Company public. The costs were recorded as an increase in operating expenses in the consolidated statement of operations as they were one-time charges that were not indicative of operations in the normal course of business and relate to a non-recurring transaction that would normally be netted against IPO proceeds. The Company did not write off or incur any additional costs related to the proposed IPO transaction for the year ended December 31, 2012.

INTCOMEX, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except per share data)

Restructuring Activities

The provision for restructuring relates to the estimated costs of reorganizations including the costs of closure or discontinuance of lines of activities. FASB ASC 420, Exit or Disposal Cost Obligations requires that a liability be recognized for those costs only when the liability is incurred. Liabilities related to one-time employee termination benefits are recognized ratably over the future service period if those employees are required to render services to the Company, if that period exceeds 60 days or a longer legal notification period. Employee termination benefits covered by a contract or under an ongoing benefit arrangement are recognized when it is probable that the employees will be entities to the benefits and the amounts can be reasonably estimated.

In late March 2012, the Company’s management implemented a plan to cease operations at its subsidiary, Intcomex Argentina S.R.L. (“Intcomex Argentina”), by the end of fiscal 2012. The Company recorded $621 in expenses related to these restructuring actions for the year ended December 31, 2012. The Company did not record any expenses related to these restructuring actions for the years ended December 31, 2011 and 2010. The restructuring included involuntary workforce reductions and employee benefits and other costs incurred in connection with vacating leased facilities. These expenses were recorded as operating expenses in the consolidated statement of operations and comprehensive income (loss). As of December 31, 2012, all of the payments were made. In January 2013, the Company completed the sale of Intcomex Argentina for approximately $500.

Income Taxes

The Company accounts for the effects of income taxes resulting from activities during the current and preceding years in accordance with FASB ASC 740, Income Taxes. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to temporary differences between the financial statement carrying amounts of assets and liabilities and their respective tax bases as measured by the enacted tax rates which will be in effect when these differences reverse. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the results of operations in the period that includes the enactment date under the law. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized, unless it is more likely than not that such assets will be realized.

The Company is subject to income and other related taxes in areas in which the Company operates. When recording income tax expense, certain estimates are required by management due to timing and the impact of future events on when income tax expenses and benefits are recognized by the Company. The Company periodically evaluates its net operating losses and other carryforwards to determine whether gross deferred tax assets and related valuation allowances should be adjusted for future realization in the Company’s consolidated financial statements.

In the event of a distribution of the earnings of certain international subsidiaries, the Company would be subject to withholding taxes payable on those distributions to the relevant foreign taxing authorities. Since the Company currently intends to reinvest undistributed earnings of these international subsidiaries indefinitely, the Company has made no provision for income taxes that might be payable upon the remittance of these earnings. The Company has also not determined the amount of tax liability associated with an unplanned distribution of these permanently reinvested earnings. In the event that in the future the Company considers that there is a reasonable likelihood of the distribution of the earnings of these international subsidiaries (for example, if the Company intends to use those distributions to meet its liquidity needs), the Company will be required to make a provision for the estimated resulting tax liability, which will be subject to the evaluations and judgments of uncertainties described above.

The Company conducts business globally and, as a result, one or more of its subsidiaries file income tax returns in U.S. federal, state and foreign jurisdictions. In the normal course of business, The Company is subject to examination by taxing authorities in the countries in which the Company operates. The Company is currently under ongoing tax examinations in several countries. While such examinations are subject to inherent uncertainties, the Company does not currently anticipate that any such examination would have a material adverse impact on its consolidated financial statements.

Computation of Net Income (Loss) per Share

The Company reports both basic and diluted net income (loss) per share. Basic net income (loss) per share excludes dilution and is computed by dividing net income (loss) by the weighted average number of common shares outstanding during the period. Diluted net income (loss) per share is computed using the weighted average number of common shares and dilutive potential common shares outstanding during the period. Dilutive potential common shares primarily reflect the potential dilution that could occur if stock options and other commitments to issue common stock were exercised using the treasury stock method.

INTCOMEX, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except per share data)

FASB ASC 260, Earnings per Share, requires that employee equity share options, non-vested shares and similar equity instruments granted by the Company be treated as potential common shares outstanding in computing diluted net income (loss) per share. Diluted shares outstanding include the dilutive effect of in-the-money options which is calculated based on the average share price for each fiscal period using the treasury stock method. Under the treasury stock method, the amount the employee must pay for exercising stock options, the amount of compensation cost for future service that the Company has not yet recognized, and the amount of tax benefits that would be recorded in additional paid in capital when the award becomes deductible are assumed to be used to repurchase shares.

Prior to the Company’s completion of an investment agreement with two subsidiaries of Brightpoint, Inc. on April 19, 2011, the Company had two classes of common stock: voting common stock (the “Common Stock”) and non-voting Class B common stock (the “Original Class B Common Stock”) (collectively herein referred to as the “Original Common Stock”). The two classes of common stock had substantially identical rights with respect to any dividends or distributions of cash or property declared on shares of common stock and ranked equally as to the right to receive proceeds on liquidation or dissolution of the Company after the payment of the Company’s indebtedness. Prior to April 19, 2011, the Company used the two-class method for calculating net income (loss) per share. Basic and diluted net income (loss) per share of common stock for both classes are the same.

On April 19, 2011, the Company filed an amendment to its certificate of incorporation, which increased the number of authorized shares of Common Stock to 200,000 shares, eliminated the Original Class B Common Stock and converted all outstanding shares of Original Class B Common Stock to shares of voting Common Stock.

The following table sets forth the computation of basic and diluted net income (loss) per weighted average share of common stock for the periods presented:


	For the Years Ended December 31,
	2012		2011		2010
Numerator for basic and diluted net income (loss) per share of common stock⁽¹⁾:
Net income (loss)	$	2,072	$	4,181	$	(3,650	)

Denominator:
Denominator for basic net income (loss) per share of common stock⁽¹⁾ – weighted average shares		167,503		156,316		129,357

Effect of dilutive securities:
Stock options and unvested restricted shares of common stock⁽²⁾		1,122		457		—

Denominator for diluted net income (loss) per share of common stock – adjusted weighted average shares		168,625		156,773		129,357

Net income (loss) per share of common stock:
Basic	$	12.37	$	26.75	$	(28.21	)

Diluted	$	12.29	$	26.67	$	(28.21	)

(1)	Basic and diluted net income (loss) per share of common stock were calculated using the Common Stock in the denominator for the years ended December 31, 2012 and 2011 and the Original Class B Common Stock in the denominator for year ended December 31, 2010.

(2)

As of December 31, 2012 and 2011, 860 stock options and 660 stock options, respectively, were antidilutive, as the fair value was below the exercise price of the options. As of December 31, 2010, 1,280 stock options were antidilutive, as the Company had a net loss for the year ended December 31, 2010. During the year ended December 31, 2012 and 2011, the shares of restricted Common Stock were dilutive. During the year ended December 31, 2012, 434 shares of restricted Common Stock were antidilutive.

INTCOMEX, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except per share data)

Recently Issued and Adopted Accounting Guidance

Recently Issued Accounting Guidance

In February 2013, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2013-02, Comprehensive Income (Topic 220): Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income. This update provides that an entity that reports items of accumulated other comprehensive income improves the transparency of reporting reclassifications by presenting the effects on the line items of net income of significant amounts reclassified out of accumulated other comprehensive income, either on the face of the statement where net income is presented or in the notes, but only if the item reclassified is required under U.S. GAAP to be reclassified to net income in its entirety in the same reporting period. This update is effective for reporting periods beginning after December 15, 2012. The Company will adopt this guidance for the fiscal year ended December 31, 2013. The Company does not expect the adoption of this guidance will have a material impact on the Company’s financial statements.

In July 2012, the FASB issued ASU 2012-02, Intangibles-Goodwill and Other (Topic 350) which amended then existing guidance by giving an entity the option not to calculate annually the fair value of an indefinite-lived intangible asset if the entity determines that it is not more likely than not that the asset is impaired. Previous guidance required an entity to test indefinite-lived intangible assets for impairment, on at least an annual basis, by comparing the fair value of the asset with its carrying amount. If the carrying amount of the intangible asset exceeds its fair value, an entity should recognize an impairment loss in the amount of that excess. This update is effective for annual and interim impairment tests performed for fiscal years beginning after September 15, 2012. The Company will adopt this guidance for the fiscal year ended December 31, 2013. The Company does not expect the adoption of this guidance will have a material impact on the Company’s financial statements.

Recently Adopted Accounting Guidance

In December 2011, the FASB issued ASU 2011-12, Comprehensive Income (Topic 220): Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income in Accounting Standards Update No. 2011-05. This update indefinitely defers the provisions ASU 2011-05, Comprehensive Income (Topic 22): Presentation of Comprehensive Income (“ASU 2011-05”) that required entities to present reclassification adjustments out of accumulated other comprehensive income by component in both the statement in which net income is presented and the statement in which other comprehensive income is presented for both interim and annual financial statements. The other provisions in ASU 2011-05 are unaffected by the deferral. During the deferral period, entities will still need to comply with the existing U.S. GAAP requirement for the presentation of reclassification adjustments. This update was effective for annual and interim periods beginning after December 15, 2011. The Company adopted this guidance on January 1, 2012. The adoption of this guidance did not have a material impact on the Company’s financial statements.

In September 2011, the FASB issued ASU 2011-08, Intangibles—Goodwill and Other (Topic 350): Testing Goodwill for Impairment which amended the existing guidance by giving an entity the option to first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. Entities will need to perform a more detailed two-step goodwill impairment test which is used to identify potential goodwill impairments and to measure the amount of goodwill impairment losses to be recognized, if any. This update was effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011, with early adoption permitted. The Company adopted this guidance on January 1, 2012. The adoption of this guidance did not have a material impact on the Company’s financial statements.

In June 2011, the FASB issued ASU 2011-05 to increase the prominence of other comprehensive income in the financial statements. This update provides that an entity that reports items of other comprehensive income either as a continuous single statement of comprehensive income containing two sections—net income and other comprehensive income or in two separate but consecutive statements. This update was effective for fiscal years and interim periods within those years beginning after December 15, 2011. The Company adopted this guidance on January 1, 2012. The adoption of this guidance did not have a material impact on the Company’s financial statements.

In May 2011, the FASB and International Accounting Standards Board issued ASU 2011-04, Fair Value Measurement (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs which amends the wording used to describe many of the requirements in U.S. GAAP for measuring fair value and for disclosing information about fair value measurements. This update does not extend the use of fair value accounting but provides guidance on how it should be applied where its use is already required or permitted by other standards within U.S. GAAP or International Financial Reporting Standards. The Company adopted this guidance on April 1, 2012. The adoption of this guidance did not have a material impact on the Company’s financial statements.

INTCOMEX, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except per share data)

Reclassifications

Certain reclassifications have been made to prior period balances in order to conform to the current period’s presentation.

Note 2.

Business and Credit Concentrations

The Company principally sells products to a large base of third-party distributors, resellers and retailers throughout Latin America and the Caribbean and to other Miami-based exporters of IT products to Latin America and the Caribbean. Credit risk on trade receivables is diversified over several geographic areas and a large number of customers. No single customer accounted for more than 1.6%, 2.5% and 1.4%, respectively, of the Company’s consolidated revenue for the years ended December 31, 2012, 2011 and 2010. The Company provides trade credit to its customers in the normal course of business. The collection of a substantial portion of the Company’s receivables is susceptible to changes in Latin American economies and political climates. The Company monitors its exposure for credit losses and maintains allowances for anticipated losses after giving consideration to delinquency data, historical loss experience, and economic conditions impacting the industry. The Company’s management continually reviews the financial condition of its customers and the related allowance for doubtful accounts.

Prior to extending credit, the Company analyzes the customer’s financial history and, if appropriate, obtains forms of personal guarantees. The Company’s Miami Operations and In-country Operations in Chile use credit insurance and make provisions for estimated credit losses. The Company’s other In-country Operations make provisions for estimated credit losses but generally do not use credit insurance. The Company’s Miami Operations has a credit insurance policy covering trade sales to non-affiliated buyers. The policy’s aggregate limit is $35,000 with an aggregate deductible of $1,000; the policy expires on August 31, 2013. In addition, 10% or 20% buyer coinsurance provisions and sub-limits in coverage on a per-buyer and per-country basis apply. The policy also covers certain large, local companies in Costa Rica, El Salvador, Guatemala, Jamaica and Peru. The Company’s In-country Operations in Chile insured certain customer accounts with Coface Chile, S.A. credit insurance company; the policy expired on October 31, 2012 and was not renewed.

The Company’s large customer base and its credit policies allow the Company to limit and diversify its exposure to credit risk on its trade accounts receivable. In some countries there are risks of continuing periodic devaluations of local currencies. In these countries, no hedging mechanism exists. The Company’s risks in these countries are that such devaluations could cause economic loss and negatively impact future sales since its product costs would increase in local terms after such devaluations.

The Company purchases products from various suppliers located in the U.S. and Asia. Products purchased from the Company’s top two vendors accounted for 22.4% and 11.2%, 19.4% and 12.0% and 18.6% and 7.0%, of its total revenue for the years ended December 31, 2012, 2011 and 2010, respectively.

Note 3.

Brightpoint Transaction

April 2011 Transaction

On April 19, 2011 (the “Transaction Date”), the Company and two of its subsidiaries, Intcomex Colombia LTDA (“Intcomex Colombia”) and Intcomex de Guatemala, S.A., (“Intcomex Guatemala”) completed an investment agreement (the “Brightpoint Transaction”) with two subsidiaries of Brightpoint, Inc., Brightpoint Latin America and Brightpoint International Ltd. (collectively herein referred to as “Brightpoint”), a global leader in providing supply chain solutions to the wireless industry. Pursuant to such agreement, the Company issued an aggregate 38,769 shares of its Common Stock to Brightpoint Latin America. Effectively, the Brightpoint Transaction was comprised of two transactions: (1) the sale of 25,846 shares of Common Stock for $15,000 in cash; and (2) the acquisition of certain assets and liabilities of certain operations of the Brightpoint Latin America and the equity associated with Brightpoint’s operations in Colombia and Guatemala (collectively herein referred to as the “Brightpoint Latin America Operations”), in exchange for 12,923 shares of Common Stock valued at $7,500 plus $174 cash, net, at closing.

Additionally, the acquisition of the Brightpoint Latin America Operations provided for a post-closing working capital adjustment to be settled in cash. In September 2011, together with Brightpoint, the Company finalized the working capital adjustment resulting in an additional payable by Brightpoint to the Company of $871, which the Company received in October 2011.

The Company included the financial results of Brightpoint in its consolidated financial statements from the Transaction Date. These results were not material to the Company’s consolidated financial statements.

INTCOMEX, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except per share data)

Following the sale and acquisition transactions, Brightpoint held approximately 23% of the voting equity ownership interests in our company and had one representative on our Board of Directors.

The expected benefits from this business transaction were dependent upon a number of factors, including retaining management personnel to run the operations, successfully integrating the operations, IT systems, customers, vendors and partner relationships of the acquired companies and devoting sufficient capital and management attention to the newly acquired companies. The comparability of the Company’s operating results for the year ended December 31, 2012, as compared to the same period of 2011, and for the year ended December 31, 2011, as compared to the same period of 2010, is impacted by the Brightpoint Transaction. The incremental contribution of the Brightpoint Transaction to the Company’s business is presented as if the acquisition was not separately identifiable, as the integration was made directly into the Company’s existing operations and was insignificant to the Company’s results of operations during the periods presented.

For the year ended December 31, 2011, the cash flows from the transaction have been presented in the consolidated statement of cash flows as $15,000 received on issuance of Common Stock in cash flows from financing activities and $697 net, of working capital adjustment, received on acquisition of net assets in cash flows from investing activities.

The Company engaged independent valuation experts to assist in the determination of the fair value of the assets and liabilities acquired in the Brightpoint Transaction. Goodwill of $4,352 was allocated, of which $2,673 was allocated to the Miami Operations and $1,679 was allocated to the In-country Operations in Guatemala and Colombia. The total transaction value was approximately $22,674, consisting of the following:

Transactional Values in the Brightpoint Transaction:


Fair value of common stock sold for cash	$	15,000
Fair value of total consideration transferred for acquisition of Brightpoint Latin America Operations	$	7,674

Recognized Amounts of Identifiable Assets Acquired and Liabilities Assumed at Acquisition:

In allocating the total purchase price based on estimated fair values, the Company recognized assets acquired and liabilities assumed of the Brightpoint Latin America Operations, consisting of the following:


	Amounts Recognized as of Transaction Date (Provisional)⁽¹⁾		Adjustments			Final Allocation

Assets acquired:
Current assets
Cash	$	—	$	—		$	—
Accounts receivable		938		(27	)		911
Inventories		6,953		(98	)		6,855
Prepaid expenses and other		116		1,161	⁽²⁾		1,277	⁽²⁾

Total current assets		8,007		1,036			9,043
Fixed assets		—		204			204
Goodwill		—		4,352			4,352
Intangible assets		6,937		(5,509	)		1,428

Total assets acquired	$	14,944	$	83		$	15,027

Liabilities assumed:
Current liabilities
Accounts payable	$	5,789	$	(66	)	$	5,723
Accrued expense		1,481		149			1,630

Total liabilities assumed		7,270		83			7,353

Net assets acquired	$	7,674	$	—		$	7,674


Consideration:
Equity	$	7,500	$	—		$	7,500
Cash paid at closing, net		174		—			174

Total consideration	$	7,674	$	—		$	7,674

INTCOMEX, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except per share data)

(1)	As previously reported in the Company’s Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2011.

(2)	Includes $871 working capital adjustment due from Brightpoint; collected in October 2011.

The purchase price allocation for the Brightpoint Transaction was based upon the Company’s calculations, valuation, estimates and assumptions. The Brightpoint Transaction is not material for the pro-forma disclosure in the notes to consolidated financial statements.

June 2012 Transaction

On June 29, 2012, (the “Fifth Amended and Restated Shareholders Agreement”). the Company entered into an agreement with Brightpoint (the “Release Agreement”) to, among other things, (i) eliminate the mutual non-competition covenants included in (a) the purchase agreement dated March 16, 2011 (as amended) underlying the Brightpoint Transaction (the “Purchase Agreement,” and (b) the Fifth Amended and Restated Shareholders Agreement, dated as of April 19, 2011 (the “Fifth Amended and Restated Shareholders Agreement”), and (ii) terminate the license agreement dated April 19, 2011 (the “License Agreement”) with immediate effect, provided that the Company retained the right to use the Brightpoint names and logos as set forth in the License Agreement in accordance with its terms for a period of 90 days from June 29, 2012. The Release Agreement was entered into in relation to Brightpoint entering into a merger agreement with a global IT wholesale distributor. Additionally, Brightpoint agreed to pay $5,000 to the Company, which we received in July 2012. As a result of this transaction, the Company recognized a gain of $4,285 related to the termination of the mutual non-compete agreement with Brightpoint, which was recorded in other income in the consolidated statement of operations and comprehensive income (loss). In connection with the Release Agreement, Brightpoint permanently and irrevocably waived all of its voting and information rights under the Shareholders Agreement.

Also on June 29, 2012, the Company entered into a separate agreement with Brightpoint pursuant to which Brightpoint granted to the Company an option to purchase the Company’s 38,769 shares of common stock held by Brightpoint for $3,000, less any dividends paid on such shares to Brightpoint. The option became exercisable upon the closing of a change of control of Brightpoint on October 15, 2012, and is exercisable for five years from the date of that event. The Company is currently precluded from exercising the option pursuant to the terms of the indenture governing the 13¹/₄% Senior Notes.

Note 4.

Property and Equipment, Net

Property and equipment, net consisted of the following:


	As of December 31,
	2012			2011
Property and equipment, net
Land	$	716		$	760
Building and leasehold improvements		10,067			9,901
Office furniture, vehicles and equipment		13,355			12,555
Warehouse equipment		2,780			2,622
Software		12,126			11,209

Total property and equipment		39,044			37,047
Less accumulated depreciation		(24,446	)		(21,637	)

Total property and equipment, net	$	14,598		$	15,410

Property and equipment, net included approximately $1,049 and $1,746 of capitalized leases at December 31, 2012 and 2011, respectively. There was no interest expense capitalized to property and equipment during the years ended December 31, 2012, 2011 and 2010.

INTCOMEX, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except per share data)

Note 5.

Goodwill and Identifiable Intangible Assets, Net

Goodwill

Goodwill represents the excess of the purchase price over the fair value of the net assets acquired. In connection with the annual impairment test, the Company uses current market capitalization, control premiums, discounted cash flows and other factors as the best evidence of fair value and to determine if its goodwill is impaired. The impairment charge represents the extent to which the carrying values exceed the fair value attributable to the goodwill. Fair values were determined based upon market conditions, the income approach which utilized cash flow projections and other factors.

The changes in the carrying amount of goodwill relate to the goodwill acquired in the Brightpoint Transaction and the accumulated foreign currency translation effect of the Mexican Peso on previously acquired goodwill and consisted of the following for the periods presented:


	Miami Operations			In-Country Operations			Total
As of December 31, 2011
Goodwill	$	14,153		$	22,603		$	36,756
Accumulated impairment losses		(11,531	)		(7,246	)		(18,777	)

Total goodwill	$	2,622		$	15,357		$	17,979

Activity:
Fair value adjustment	$	51		$	(171	)	$	(120	)
Translation adjustment		—			210			210

Total activity	$	51		$	39		$	90

As of December 31, 2012
Goodwill	$	14,204		$	22,642		$	36,846
Accumulated impairment losses		(11,531	)		(7,246	)		(18,777	)

Total goodwill	$	2,673		$	15,396		$	18,069

There were no goodwill impairment charges recorded for the years ended December 31, 2012, 2011 and 2010.

An extended period of economic contraction or a deterioration of operating performance could result in an impairment to the carrying amount of the Company’s goodwill.

In connection with the Company’s goodwill impairment testing and analysis conducted in 2012, the Company noted that as of December 31, 2012, the fair value of Comercializadora Intcomex S.A. de C.V. (“Intcomex Mexico”) and Intcomex Costa Rica Mayorista en Equip de Cómputo, S.A. (“Intcomex Costa Rica”), exceeded the carrying value of the reporting units by 5.5% and 5.4%, respectively. The fair values of Intcomex Mexico and Intcomex Costa Rica were determined using management’s estimate of fair value based upon the financial projections for the respective businesses. As of December 31, 2012, the balance of Intcomex Mexico’s goodwill was $2,959, which represented 12.6% of the carrying value of Intcomex Mexico and less than 1.0% of the Company’s total assets. As of December 31, 2012, the balance of Intcomex Costa Rica’s goodwill was $2,977, which represented 15.0% of the carrying value of Intcomex Costa Rica and less than 1.0% of the Company’s total assets.

INTCOMEX, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except per share data)

Identifiable Intangible Assets, Net

Identifiable intangible assets, net consisted of the assets of Intcomex Mexico and that of the Brightpoint Transaction including the following:

As of December 31, 2012

Gross
Carrying
Amount

Accumulated
Amortization

Cumulative
Foreign Currency
Translation Effect

Net
Carrying
Amount

Useful Life
(in years)

Identifiable intangible assets, net

Customer relationships – Intcomex Mexico

3,630

(2,758

)

(140

)

732

10.0

Customer relationships – Brightpoint Transaction

258

(84

)

—

174

5.0

Non-compete agreement – Brightpoint Transaction

—

3.0

Total identifiable intangible assets, net

3,888

(2,842

)

(140

)

906


As of December 31, 2011	Gross Carrying Amount		Accumulated Amortization			Cumulative Foreign Currency Translation Effect			Net Carrying Amount		Useful Life (in years)
Identifiable intangible assets, net
Customer relationships – Intcomex Mexico	$	3,630	$	(2,395	)	$	(278	)	$	957		10.0
Customer relationships – Brightpoint Transaction		258		(35	)		—			223		5.0
Noncompete agreement – Brightpoint Transaction		1,170		(254	)		—			916		3.0

Total identifiable intangible assets, net	$	5,058	$	(2,684	)	$	(278	)	$	2,096

For the years ended December 31, 2012, 2011 and 2010, the Company recorded amortization expense related to the intangible assets of $610, $659 and $408, respectively. There was no impairment charge for identifiable intangible assets for the years ended December 31, 2012, 2011 and 2010.

As described above, the non-compete agreement with Brightpoint was terminated on June 29, 2012 in exchange for $5,000, which was collected during July 2012. The Company recognized a gain of approximately $4,285 as a result of this transaction, which is included in other expense (income) in the Company’s consolidated statements of operations and comprehensive income (loss).

Expected future identifiable intangible asset amortization is as follows for the periods presented:


For the Year Ended December 31,
2013	$	414
2014		414
2015		57
2016		21
2017		—
Thereafter		—

	$	906

INTCOMEX, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except per share data)

Note 6.

Lines of Credit

The Company’s lines of credit are available sources of short-term liquidity for the Company. Lines of credit consist of short-term overdraft and credit facilities with various financial institutions in the countries in which the Company and its subsidiary operations conduct business, consisting of the following categories: asset-based financing facilities, letter of credit and performance bond facilities, and unsecured revolving credit facilities and lines of credit.

The outstanding balance of lines of credits consisted of the following:


	As of December 31,
	2012		2011
Lines of credit

Miami Operations:
SBA Miami	$	38,574	$	14,530

In-country Operations:
Intcomex de Guatemala, S.A.		4,120		2,536
Intcomex Peru S.A.C.		3,285		4,022
Intcomex S.A. de C.V. – El Salvador		1,424		3,669
Intcomex S.A. – Chile		1,084		—
Intcomex Costa Rica Mayorista en Equipo de Cómputo, S.A.		800		2,000
Intcomex Colombia LTDA		599		515
TGM S.A. – Uruguay		130		407
Intcomex de Ecuador, S.A.		5		1,662
Computación Monrenca Panama, S.A.		—		2,500

Total lines of credit	$	50,021	$	31,841

The change in the outstanding balance of lines of credit was primarily attributable to the increased borrowing in the Company’s Miami Operations under its senior secured revolving credit facility. As of December 31, 2012 and 2011, the total remaining credit amount available under the Company’s lines of credit was $36,588 and $39,126, respectively.

SBA Miami – PNC Bank Revolving Credit Facility

On July 25, 2011, SBA terminated the senior secured revolving credit facility with Comerica Bank (the “Comerica Credit Facility”) and, collectively, with its consolidated subsidiaries, replaced it with a revolving credit and security agreement with PNC Bank (the “PNC Credit Facility”). On July 26, 2011, with the proceeds from its PNC Credit Facility, SBA paid the remaining balance outstanding under the Comerica Credit Facility of $15,103 and had no outstanding borrowings under the Comerica Credit Facility. The PNC Credit Facility provides for a secured revolving credit facility in the aggregate amount of $30,000, including standby letters of credit commitments in an aggregate undrawn face amount of up to $3,000. The borrowing capacity under the PNC Credit Facility is based upon 85.0% of eligible accounts receivable, plus the lesser of: (i) 60.0% of eligible domestic inventory; (ii) 90% of the liquidation value of eligible inventory; or (iii) $16,500. The PNC Credit Facility has a three-year term and is scheduled to mature on July 25, 2014. Under the PNC Credit Facility, SBA’s obligations are secured by a first priority lien on all of its assets. The Company entered into a guaranty agreement with PNC Bank to guarantee the performance of SBA’s obligations under the PNC Credit Facility. SBA will use the PNC Credit Facility for working capital, capital expenditures and general corporate purposes.

The PNC Credit Facility contains provisions requiring the Company and SBA to maintain compliance with minimum consolidated fixed charge coverage ratios each not less than 1.00 to 1.00 for the Company and 1.10 to 1.00 for SBA, in each case, for the four quarter period ending December 31, 2011 and as of the end of each fiscal quarter thereafter. The PNC Credit Facility is subject to several customary covenants and certain events of default, including but not limited to, non-payment of principal or interest

INTCOMEX, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except per share data)

on obligations when due, violation of covenants, creation of liens, breaches of representations and warranties, cross default to certain other indebtedness, bankruptcy events and change of ownership or control. In addition, the PNC Credit Facility contains a number of covenants that, among other things, restrict SBA’s ability to: (i) incur additional indebtedness; (ii) make certain capital expenditures; (iii) guarantee certain obligations; (iv) create or allow liens on certain assets; (v) make investments, loans or advances; (vi) pay dividends, make distributions or undertake stock and other equity interest buybacks; (vii) make certain acquisitions; (viii) engage in mergers, consolidations or sales of assets; (ix) use the proceeds of the revolving credit facility for certain purposes; (x) enter into transactions with affiliates in non-arms’ length transactions; (xi) make certain payments on subordinated indebtedness; and (xii) acquire or sell subsidiaries.

On January 25, 2012, SBA together with its consolidated subsidiaries executed a first amendment to the PNC Credit Facility (the “PNC Credit Facility Amendment”), increasing the maximum amount available for borrowing under the facility from $30,000 to $50,000, including standby letters of credit commitments in an aggregate undrawn face amount of up to $3,000. The PNC Credit Facility Amendment also increased the monthly collateral evaluation fee, the annual facility fee of the unused commitment amount from 0.25% to 0.375% and the inventory cap from $16,500 to $25,000.

As of December 31, 2012, SBA’s outstanding draws against the PNC Credit Facility were $38,574, net of $193 excess cash in bank, and the remaining amount available was $11,426. As of December 31, 2011, SBA’s outstanding draws against the PNC Credit Facility were $14,530, net of $1,549 excess cash in bank, and the remaining amount available was $15,470. As of December 31, 2012 and 2011, SBA did not have any outstanding undrawn standby letters of credit.

As of December 31, 2012, SBA was in compliance with all of its covenants under the PNC Credit Facility.

In-country Operations Lines of Credit

The Company’s In-country Operations have lines of credit with various local financial institutions. The lines of credit carry interest rates ranging from 1.0% to 11.0% with maturity dates from March 2013 to October 2013.

As of December 31, 2012 and 2011, Intcomex S.A. (“Intcomex Chile”) had undrawn standby letters of credit of $21,200 and $25,700, respectively.

Note 7.

Long-Term Debt

Long-term debt consisted of the following for the periods presented:


	As of December 31,
	2012			2011
Long-term debt, net of current portion
Intcomex, Inc. – 13¹/₄% Senior Notes, net of discount of $2,827 and $4,125 at December 31, 2012 and 2011, respectively	$	107,173		$	110,875
Other, including various capital leases		535			931

Total long-term debt		107,708			111,806
Current maturities of long-term debt		(10,253	)		(5,567	)

Total long-term debt, net of current portion	$	97,455		$	106,239

Annual maturities of long-term debt consisted of the following for the periods presented:


For the Years Ended December 31,
2013	$	10,253
2014		97,455
2015		—
2016		—
2017 and thereafter		—

	$	107,708

INTCOMEX, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except per share data)

Intcomex, Inc. – 13¹/₄% Senior Notes

On December 22, 2009, the Company completed a private offering of the $120,000 principal amount of the original 13¹/₄% Senior Notes due December 15, 2014 (the “Original 13¹/₄% Senior Notes) to eligible purchasers (the “Original 13¹/₄% Senior Notes Offering”). The Original 13¹/₄% Senior Notes were offered at an initial offering price of 94.43% of par, or an effective yield to maturity of 14.875%.

In connection with the Original 13¹/₄% Senior Notes Offering, the Company and certain subsidiaries of the Company that guaranteed the Company’s obligations (the “Guarantors”) entered into an indenture (the “Original 13¹/₄% Senior Notes Indenture”) with The Bank of New York Mellon Trust Company, N.A., (the “Trustee”), relating to the Original 13¹/₄% Senior Notes. The Company’s obligations under the Original 13¹/₄% Senior Notes and the Guarantors’ obligations under the guarantees were secured on a second priority basis by a lien on 100% of the capital stock of certain of the Company’s and each Guarantor’s directly owned domestic restricted subsidiaries; 65% of the capital stock of the Company’s and each Guarantor’s directly owned foreign restricted subsidiaries; and substantially all the assets of SBA, to the extent that those assets secure the Comerica Credit Facility, subject to certain exceptions.

On February 8, 2011, the Company commenced an exchange offer for all of its outstanding Original 13¹/₄% Senior Notes for an equal principal amount of the 13¹/₄% Senior Notes. The 13¹/₄% Senior Notes are substantially identical to the Original 13¹/₄% Senior Notes, except that the 13¹/₄% Senior Notes have been registered under the Securities Act of 1933 and do not bear any legend restricting their transfer. The exchange offer was scheduled to expire on March 9, 2011 and was extended until March 11, 2011. The Company accepted for exchange all of the $120,000 aggregate principal amount of the Original 13¹/₄% Senior Notes, representing 100% of the principal amount of the outstanding Original 13¹/₄% Senior Notes, which were validly tendered and not withdrawn.

Subject to certain requirements, the Company was required to redeem $5,000 aggregate principal amount of the 13¹/₄% Senior Notes on December 15, 2011 and $5,000 aggregate principal amount of the 13¹/₄% Senior Notes on December 15, 2012 and is required to redeem $10,000 aggregate principal amount of the 13¹/₄% Senior Notes on December 15, 2013, at a redemption price equal to 100% of the aggregate principal amount of the 13¹/₄% Senior Notes to be redeemed, together with accrued and unpaid interest to the redemption date subject to certain requirements.

The indenture governing the Company’s 13¹/₄% Senior Notes imposes operating and financial restriction on the Company. These restrictive covenants limit the Company’s ability, among other things to: (i) incur additional indebtedness or enter into sale and leaseback obligations; (ii) pay certain dividends or make certain distributions on the Company’s capital stock or repurchase the Company’s capital stock; (iii) make certain investments or other restricted payments; (iv) place restrictions on the ability of subsidiaries to pay dividends or make other payments to the Company; (v) engage in transactions with shareholders or affiliates; (vi) sell certain assets or merge with or into other companies; (vii) guarantee indebtedness; and (viii) create liens. The Company may only pay a dividend if the Company is in compliance with all covenants and restrictions in the indenture prior to and after payment of a dividend.

On June 15, 2011 and December 15, 2011, the Company made mandatory semi-annual interest payments of $7,950 and $7,619, respectively, on the 13¹/₄% Senior Notes. On June 15 and December 15, 2010, the Company made mandatory semi-annual interest payments of $7,641 and $7,950, respectively, on the Original 13¹/₄% Senior Notes.

On September 14, September 27 and November 10, 2011, the Company purchased $2,100, $1,750 and $1,150, respectively, (an aggregate of $5,000 face value) of its 13¹/₄% Senior Notes in arm’s length transactions, at 98.25, 97.50 and 96.50, respectively, of face value plus accrued interest. The Company recognized a gain on the redemption of the 13¹/₄% Senior Notes of $121 for the year ended December 31, 2011, which is included in other expense, net in the consolidated statements of operations and comprehensive income (loss). This satisfied the Company’s redemption requirement for December 15, 2011.

On June 14, 2012, the Company made a mandatory semi-annual interest payment of $7,619 on the 13¹/₄% Senior Notes.

On September 5, 2012, the Company purchased $1,000 face value of its 13¹/₄% Senior Notes in an arm’s length transaction, at 102.25 of face value plus accrued interest. The Company recognized a loss on the redemption of the 13¹/₄% Senior Notes of $23 for the year ended December 31, 2012, which is included in other expense, net in the consolidated statements of operations and comprehensive income (loss). On December 14, 2012, the Company redeemed $4,000 face value of its 13¹/₄% Senior Notes as required by the indenture governing the Company’s 13¹/₄% Senior Notes, at 100.00 of face value. Also, on December 14, 2012, the Company made a semi-annual interest payment of $7,553, on the 13¹/₄% Senior Notes. This satisfied the Company’s redemption requirement for December 15, 2012.

INTCOMEX, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except per share data)

As of December 31, 2012 and 2011, the principal amount of the remaining outstanding 13¹/₄% Senior Notes was $110,000 and $115,000, respectively, and the carrying value was $107,173 and $110,875. As of December 31, 2012 and 2011, the Company was in compliance with all of the covenants and restrictions under the 13¹/₄% Senior Notes.

SBA – Capital lease

On April 30, 2007, SBA entered into a lease agreement with Comerica Bank in the principal amount of $1,505 for the lease of equipment for the Miami office and warehouse. Interest is due monthly at 6.84% of the total equipment costs and all outstanding amounts were due August 31, 2012. As of December 31, 2012 and 2011, $0 and $210, respectively, remained outstanding under the lease agreement.

As of December 31, 2012, 2011 and 2010, the Company’s effective borrowing rate was 14.7%, 14.6% and 15.7%, respectively.

Note 8.

Income Taxes

Income tax provision consisted of the following for the periods presented:


	For the Years Ended December 31,
	2012			2011			2010
Income tax provision
Current (benefit) expense:
Federal and state	$	—		$	(48	)	$	(31	)
Foreign		5,710			4,180			2,578

Total current expense		5,710			4,132			2,547

Deferred benefit:
Federal and state		(686	)		(500	)		(483	)
Foreign		(2,727	)		(470	)		(671	)

Total deferred benefit		(3,413	)		(970	)		(1,154	)

Total provision for income taxes	$	2,297		$	3,162		$	1,393

A reconciliation of the statutory federal income tax rate and effective rate as a percentage of (loss) income before provision for income taxes consisted of the following for the periods presented:


	For the Years Ended December 31,
	2012			%			2011			%			2010			%
Effective tax rate
(Loss) income before provision for income taxes:
U.S.	$	(10,040	)				$	(5,088	)				$	(18,576	)
Foreign		14,409						12,431						16,319

Income (loss) before provision for income taxes	$	4,369					$	7,343					$	(2,257	)


Tax expense at statutory rate	$	1,485			34	%	$	2,497			34	%	$	(771	)		34	%
State income taxes, net of federal income tax provision for income taxes		(534	)		(12	)%		(126	)		(2	)%		(976	)		43	%
Effect of tax rates on non-U.S. operations		(1,799	)		(41	)%		(28	)		—	%		(3,528	)		156	%
Effect of tax rates on subpart F income		—			—	%		—			—	%		535			(23	)%
Change in valuation allowance		3,145			72	%		819			11	%		6,133			(272	)%

Effective tax (benefit) provision for income taxes	$	2,297			53	%	$	3,162			43	%	$	1,393			(62	)%

The effective tax provision decreased by $865, to $2,297 for the year ended December 31, 2012, as compared to $3,162 for the year ended December 31, 2011. The change was primarily due to the increased deferred benefits from our In-country Operations, offset by higher current expense from our In-country Operations.

INTCOMEX, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except per share data)

The Company’s net deferred tax assets were attributable to the following:


	As of December 31,
	2012			2011
Deferred tax assets
Current assets
Allowance for doubtful accounts	$	1,380		$	1,164
Inventories		961			772
Accrued expenses		992			699
Other		1,309			1,002

Total current assets		4,642			3,637

Non-current assets:
Tax goodwill		123			370
Net operating losses		26,899			23,045
Other		2,781			1,524
Valuation allowances		(16,528	)		(13,384	)

Total non-current assets		13,275			11,555

Total deferred tax assets	$	17,917		$	15,192

Deferred tax liabilities
Current liabilities:
Other	$	—		$	—

Total current liabilities		—			—


Non-current liabilities:
Fixed assets		(1,388	)		(1,979	)
Amortizable intangible assets		(296	)		(398	)
Other		(31	)		(26	)

Total non-current liabilities		(1,715	)		(2,403	)

Total deferred tax liabilities		(1,715	)		(2,403	)

Net deferred tax assets	$	16,202		$	12,789

As of December 31, 2012 and 2011, the balance of SBA’s tax goodwill was $329 and $985, respectively. SBA recorded tax goodwill of approximately $9,843 in July 1998, which is being amortized for tax purposes over 15 years. SBA established $262 of deferred tax assets for foreign withholding taxes paid in El Salvador during 2005.

As of December 31, 2012 and 2011, the Company’s U.S. federal and state of Florida net operating losses (“NOLs”) resulted in $23,523 and $20,676, respectively, of deferred tax assets, which will begin to expire in 2026. The Company analyzed the available evidence related to the realization of the deferred tax assets, considered the global economic environment and continues to believe it is more likely than not that the Company will not recognize a portion of its deferred tax assets associated with the NOL carryforwards. Factors in management’s determination include the performance of the business and the feasibility of ongoing tax planning strategies.

The Company establishes a valuation allowance against its NOLs when it does not believe that it will realize the full benefit of the NOLs. As of December 31, 2012 and 2011, the Company recorded a valuation allowance of $16,528 and $12,884, respectively, against the respective NOLs, of which $13,581 and $10,616, respectively, related to the U.S. Operations and $2,947 and $2,268, respectively, related to the Company’s In-country Operations.

As of December 31, 2012 and 2011, the Company did not recognize any subpart F income related to intercompany loans from its foreign affiliates. As of December 31, 2012 and 2011, the Company did not provide additional tax provisions for future realization of subpart F income.

INTCOMEX, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except per share data)

The Company’s NOLs, deferred tax asset resulting from the NOLs and the related valuation allowance consisted of the following for the periods presented:

As of December 31, 2012

As of December 31, 2011

Gross
NOL

NOL
Deferred
Tax Asset

Valuation
Allowance

NOL
Expiration

Gross
NOL

NOL
Deferred
Tax Asset

Valuation
Allowance

NOL
Expiration

U.S. federal and state

61,705

23,523

13,581

54,499

Large accelerated filer

Accelerated filer

Non-accelerated filer

x (Do not check if a smaller reporting company)

Small reporting company

Intcomex, Inc. 10-K