Intcomex, Inc. - FORM 10-Q

Intcomex, Inc. - FORM 10-Q - May 14, 2012

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended March 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, Miami, FL 33178

(Address of principal executive offices) (Zip Code)

(305) 477-6230

(Registrant’s telephone number, including area code)

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 x No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, 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). x Yes ¨ No

Indicate by check mark whether the 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 Exchange Act). ¨ Yes x No

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

As of May 11, 2012, the registrant had 167,388 shares of Common Stock, par value $0.01 per share, outstanding. There is no public trading market for the stock.

INTCOMEX, INC.

INDEX TO QUARTERLY REPORT ON FORM 10-Q


		Page

PART I—FINANCIAL INFORMATION

Item 1.	Financial Statements.

	Condensed Consolidated Balance Sheets as of March 31, 2012 and December 31, 2011		3

	Condensed Consolidated Statements of Operations - Three months ended March 31, 2012 and 2011		4

	Condensed Consolidated Statements of Cash Flows - Three months ended March 31, 2012 and 2011		5

	Notes to Condensed Consolidated Financial Statements (Unaudited)		6

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations.		32

Item 3.	Quantitative and Qualitative Disclosures About Market Risk.		46

Item 4.	Controls and Procedures.		46

PART II—OTHER INFORMATION

Item 1.	Legal Proceedings.		47

Item 1A.	Risk Factors.		47

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds.		47

Item 3.	Defaults Upon Senior Securities.		47

Item 4.	Mine Safety Disclosures.		47

Item 5.	Other Information.		47

Item 6.	Exhibits.		48

Signatures			49

Part I—FINANCIAL INFORMATION

Item 1.

Financial Statements.

INTCOMEX, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Dollars in thousands, except per share data)


	March 31, 2012			December 31, 2011
	(Unaudited)
Assets
Current assets
Cash and cash equivalents	$	17,253		$	25,707
Restricted cash		413			206
Trade accounts receivable (net of allowance for doubtful accounts of $5,009 and $5,232 at March 31, 2012 and December 31, 2011, respectively)		159,042			137,921
Inventories		199,914			169,138
Prepaid expenses, notes receivable and other		59,312			58,617
Due from related parties		376			298

Total current assets		436,310			391,887
Property and equipment, net		15,326			15,410
Goodwill		18,087			17,979
Identifiable intangible assets		1,993			2,096
Notes receivable and other		17,839			17,609

Total assets	$	489,555		$	444,981


Liabilities and Shareholders’ Equity
Liabilities
Current liabilities
Lines of credit	$	54,996		$	31,841
Current maturities of long-term debt		5,452			5,567
Accounts payable		221,213			208,409
Accrued expenses and other		27,083			24,726
Due to related parties		39			40

Total current liabilities		308,783			270,583
Long-term debt, net of current maturities		106,480			106,239
Other long-term liabilities		4,599			4,645

Total liabilities		419,862			381,467

Commitments and contingencies

Shareholders’ equity
Common stock, voting $0.01 par value, 200,000 shares authorized, 168,240 shares issued and 167,388 outstanding		2			2
Additional paid in capital		63,800			64,153
Treasury stock, 852 shares		(494	)		(494	)
Retained earnings		11,001			5,684
Accumulated other comprehensive loss		(4,616	)		(5,831	)

Total shareholders’ equity		69,693			63,514

Total liabilities and shareholders’ equity	$	489,555		$	444,981

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

INTCOMEX, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Dollars in thousands, except share data)

(Unaudited)


	Three Months Ended March 31,
	2012			2011
Revenue	$	390,500		$	250,751

Cost of revenue		356,468			225,413

Gross profit		34,032			25,338

Operating expenses
Selling, general and administrative		23,705			19,686
Depreciation and amortization		1,180			1,122

Total operating expenses		24,885			20,808

Operating income		9,147			4,530

Other expense (income)
Interest expense		5,378			5,018
Interest income		(86	)		(240	)
Foreign exchange (gain) loss		(2,714	)		104
Other expense, net		76			9

Total other expense		2,654			4,891

Income (loss) before provision for income taxes		6,493			(361	)
Provision for income taxes		1,176			957

Net income (loss)	$	5,317		$	(1,318	)


Net income (loss) per weighted average share of common stock:
Basic	$	31.76		$	(10.19	)

Diluted	$	31.66		$	(10.19	)


Weighted average number of common shares used in per share calculation:
Basic		167,388			129,357

Diluted		167,928			129,357


Comprehensive income (loss):
Net income (loss)	$	5,317		$	(1,318	)
Foreign currency translation adjustment		1,215			447

Total comprehensive income (loss)	$	6,532		$	(871	)

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

INTCOMEX, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Dollars in thousands)

(Unaudited)


	Three Months Ended March 31,
	2012			2011
Cash flows from operating activities:
Net income (loss)	$	5,317		$	(1,318	)
Adjustments to reconcile net income (loss) to net cash used in operating activities:
Stock-based compensation expense		28			27
Depreciation expense		979			1,031
Amortization expense		816			681
Bad debt expense		177			83
Inventory obsolescence expense		1,416			60
Deferred income tax expense		(508	)		240
Loss (gain) on disposal of property and equipment and other		5			(25	)

Change in operating assets and liabilities:
Decrease (increase) in:
Trade accounts receivables		(21,122	)		1,161
Inventories		(31,380	)		(7,857	)
Prepaid expenses, notes receivable and other		(884	)		(3,240	)
Due from related parties		(78	)		(40	)
(Decrease) increase in:
Accounts payable		12,145			(426	)
Accrued expenses and other		2,320			4,105
Due to related parties		(1	)		(2	)

Net cash used in operating activities		(30,770	)		(5,520	)

Cash flows from investing activities:
Purchases of property and equipment		(848	)		(992	)
Proceeds from notes receivable and other		7			35
Proceeds from disposition of assets		4			37

Net cash used in investing activities		(837	)		(920	)

Cash flows from financing activities:
Borrowings under lines of credit, net		23,155			2,008
Payments of long-term debt		(181	)		(142	)

Net cash provided by financing activities		22,974			1,866
Effect of foreign currency exchange rate changes on cash and cash equivalents		179			265

Net decrease in cash and cash equivalents		(8,454	)		(4,309	)
Cash and cash equivalents, beginning of period	$	25,707		$	28,867

Cash and cash equivalents, end of period	$	17,253		$	24,558

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

INTCOMEX, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except per share data)

(Unaudited)

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 computer information technology (“IT”) products focused solely on serving Latin America and the Caribbean (the “Region”). Intcomex distributes computer equipment, components, peripherals, software, computer systems, accessories, networking products, digital consumer electronics and mobile devices to more than 47,000 customers in 40 countries. Intcomex offers single source purchasing to its customers by providing an in-stock selection of more than 13,000 products from over 140 vendors, including many of the world’s leading IT product manufacturers. The Company operates a sales and distribution center in the U.S. (the “Miami Operations”) and 25 sales and distribution centers in Latin America and the Caribbean with in-country operations in 12 countries—Argentina, Chile, Colombia, Costa Rica, Ecuador, El Salvador Guatemala, Jamaica, Mexico, Panama, Peru and Uruguay, collectively, (the “In-country Operations”).

Organization

The accompanying unaudited condensed 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”). 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-1, LLC (“Intcomex SPC-1 Mexico”), a dually formed company in the U.S. and Mexico and parent company of Comercializadora, S.A. de C.V. (“Intcomex Mexico”). The unaudited condensed consolidated financial statements reflect the Company as the reporting entity for all periods presented.

Use of Accounting Estimates

The Company prepares its unaudited condensed consolidated financial statements in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”). The 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 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.

Principles of Consolidation

The accompanying unaudited condensed consolidated financial statements have been prepared in conformity with the instructions to the Quarterly Report on Form 10-Q and Article 10 of Regulation S-X, pursuant to the rules and regulations of the United States Securities and Exchange Commission (“SEC”). Accordingly, they do not include certain information and disclosures normally required for comprehensive annual consolidated financial statements. Therefore, the condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and the notes thereto for the year ended December 31, 2011, included in the Company’s Annual Report on Form 10-K filed with the SEC on March 14, 2012 (“Annual Report”). The results of operations for the three months ended March 31, 2012 may not be indicative of the results of operations that can be expected for the full year.

In management’s opinion, the accompanying unaudited condensed 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 March 31, 2012, and its results of operations for the three months ended March 31, 2012 and 2011 and its statements of cash flows for the three months ended March 31, 2012 and 2011. All significant intercompany accounts and transactions have been eliminated in consolidation.

INTCOMEX, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except per share data)

(Unaudited)

Basis of Presentation

The Company evaluated subsequent events through the date of the filing of this Quarterly Report on Form 10-Q (“Quarterly Report”), the date the Company issued its unaudited condensed consolidated financial statements.

Fair Value of Financial Instruments

Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“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 $120,000 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 March 31, 2012 and December 31, 2011, the 13¹/4% Senior Notes were tradable at 99.5 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 foreign currency price risk, its primary risk. The Company’s derivative transactions may be comprised of the following types of financial 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 unaudited condensed consolidated statements of operations 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 unaudited, condensed consolidated statements of operations in the period in which the value changes with the offsetting amount for unsettled positions included in other current assets or liabilities in the unaudited condensed, consolidated balance sheets. The location and amounts of the fair value in the balance sheets and (gain) loss in the statements of operations related to the Company’s derivative instruments are described in “Note 9. Fair Value of Derivative Instruments” in these Notes to Condensed Consolidated Financial Statements (Unaudited).

There were no changes to our valuation methodology for assets and liabilities measured at fair value during the three months ended March 31, 2012 and 2011. The Company did not have any foreign currency collars or contracts outstanding as of March 31,

INTCOMEX, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except per share data)

(Unaudited)

2012. The Company recognized a loss of $569 on the foreign currency forward contract outstanding in one of the Company’s In-Country Operations that closed during the three months ended March 31, 2012. 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.

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 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 condensed 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 March 31, 2012 and December 31, 2011, the Company factored approximately $18,300 and $11,700, respectively, of accounts receivable pursuant to the Company’s agreements, representing the face amount of total outstanding receivables. For the three months ended March 31, 2012, the Company incurred approximately $300 in expenses pursuant to the agreements. For the three months ended March 31, 2011, the Company did not incur any expenses pursuant to the agreements.

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.

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 (the “Common Stock”) and Class B, non-voting 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 amended its certificate of incorporation to increase 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 Common Stock.

INTCOMEX, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except per share data)

(Unaudited)

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 Three Months Ended March 31,
	2012		2011
Numerator for basic and diluted net income (loss) per share of common stock⁽¹⁾:
Net income (loss)	$	5,317	$	(1,318	)


Denominator:
Denominator for basic net income (loss) per share of common stock⁽¹⁾ – weighted average shares		167,388		129,357


Effect of dilutive securities:
Stock options and unvested restricted shares of common stock⁽²⁾		540		—


Denominator for diluted net income (loss) per share of common stock – adjusted weighted average shares		167, 928		129,357


Net income (loss) per weighted average share of common stock:
Basic	$	31.76	$	(10.19	)

Diluted	$	31.66	$	(10.19	)

(1)	Basic and diluted net income (loss) per share of common stock were calculated using the Common Stock in the denominator for the three months ended March 31, 2012 and the Original Common Stock in the denominator for the three months ended March 31, 2011.

(2)

The stock options were anti-dilutive as of March 31, 2012, as the fair value was below the exercise price. The stock options were antidilutive as of March 31, 2011, as the Company had a net loss for the three months ended March 31, 2011. The shares of restricted Common Stock were dilutive during the three months ended March 31, 2012. The shares of restricted Common Stock were antidilutive during three months ended March 31, 2011.

Note 2.

Summary of Significant Accounting Policies

Our significant accounting policies are described in Note 1 to our audited consolidated financial statements included in the Company’s Annual Report. These accounting policies have not significantly changed.

Recently Issued and Adopted Accounting Guidance

Recently Issued Accounting Guidance

In December 2011, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2011-12, Balance Sheet (Topic 210): Disclosures about Offsetting Assets and Liabilities which enhances disclosures required by U.S. GAAP by requiring improved information about financial instruments and derivative instruments that are either offset in accordance with either Section 210-20-45 or 815-10-45 or subject to an enforceable master netting arrangement or similar agreement, irrespective of whether they are offset in accordance with either Section 210-20-45 or 815-10-45. This update is effective for annual reporting periods beginning on or after January 1, 2013, and interim periods within those annual periods. The Company does not expect the adoption of this guidance will have a material impact on the Company’s financial statements.

In May 2011, the FASB and International Accounting Standards Board issued a new accounting standard that 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 accounting standard does not extend the use of fair value accounting but provides guidance on how it

INTCOMEX, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except per share data)

(Unaudited)

should be applied where its use is already required or permitted by other standards within U.S. GAAP or International Financial Reporting Standards. This standard is effective beginning with the quarter ending April 30, 2012. 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 September 2011, the FASB issued ASU 2011-08, Intangibles—Goodwill and Other (Topic 350): Testing Goodwill for Impairment which amended then 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 is 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 pronouncement on January 1, 2012. The adoption of this pronouncement did not have an impact on the Company’s financial statements.

In June 2011, the FASB issued ASU 2011-05, Comprehensive Income (Topic 22): Presentation of Comprehensive Income 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 pronouncement on January 1, 2012. The adoption of this guidance did not have a material impact on the Company’s financial statements.

Note 3.

Brightpoint 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”). 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 the Brightpoint Latin America operations and the equity associated with its 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, the Company and Brightpoint 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.

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. The fair value has not yet been finalized. Goodwill has been allocated on a preliminary basis, with $2,622 allocated to the Miami Operations and $1,850 allocated to the In-country Operations in Guatemala and Colombia. The total preliminary 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

INTCOMEX, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except per share data)

(Unaudited)

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

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


	Amounts Recognized as of Transaction Date (Provisional)^{( 1)}		Adjustments			Amounts Recognized as of March 31, 2012 (Provisional)
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

(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 preliminary purchase price allocation for the Brightpoint Transaction was based upon the Company’s preliminary calculations, valuation, estimates and assumptions, which are subject to change, as the Company obtains additional information for the estimates during the respective measurement period of no later than one year from the Transaction Date. The primary areas of those preliminary purchase price allocations that are not yet finalized relate to certain tangible assets acquired and liabilities assumed, identifiable intangible assets, taxes, valuation of equity consideration and residual goodwill. The Brightpoint Transaction is not material for the pro-forma disclosure in the notes to condensed consolidated financial statements (unaudited).

INTCOMEX, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except per share data)

(Unaudited)

Note 4.

Property and Equipment, Net

Property and equipment, net consisted of the following:


	As of
	March 31, 2012			December 31, 2011
Property and equipment, net
Land	$	760		$	760
Building and leasehold improvements		10,107			9,901
Office furniture, vehicles and equipment		12,947			12,555
Warehouse equipment		2,697			2,622
Software		11,518			11,209

Total property and equipment		38,029			37,047
Less accumulated depreciation		(22,703	)		(21,637	)

Total property and equipment, net	$	15,326		$	15,410

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		—			228			228

Total activity	$	51		$	57		$	108

As of March 31, 2012
Goodwill	$	14,204		$	22,660		$	36,864
Accumulated impairment losses		(11,531	)		(7,246	)		(18,777	)

Total goodwill	$	2,673		$	15,414		$	18,087

INTCOMEX, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except per share data)

(Unaudited)

There were no impairment charges recorded against goodwill for the three months ended March 31, 2012 and 2011.

Identifiable Intangible Assets, Net

Identifiable intangible assets, net consisted of the assets of Intcomex Mexico including the following:

As of March 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

(2,485

)

(180

)

965

10.0

Customer relationships – Brightpoint Transaction

258

(48

)

—

210

5.0

Noncompete agreement – Brightpoint Transaction

1,170

(352

)

—

818

3.0

Total identifiable intangible assets, net

5,058

(2,885

)

(180

)

1,993


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 three months ended March 31, 2012 and 2011, the Company recorded amortization expense related to the intangible assets of $201 and $91, respectively. There was no impairment charge for identifiable intangible assets for the three months ended March 31, 2012 and 2011.

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.

INTCOMEX, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except per share data)

(Unaudited)

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


	As of
	March 31, 2012		December 31, 2011
Lines of credit

Miami Operations:
SBA Miami	$	37,811	$	14,530

In-country Operations:
Intcomex S.A. de C.V. – El Salvador		7,075		3,669
Intcomex Peru S.A.C.		3,949		4,022
Intcomex de Guatemala, S.A.		3,001		2,536
Intcomex de Ecuador, S.A.		1,502		1,662
Intcomex Costa Rica Mayorista en Equipo de Cómputo, S.A.		600		2,000
Intcomex Colombia LTDA		558		515
Computación Monrenca Panama, S.A.		500		2,500
TGM S.A. – Uruguay		—		407

Total lines of credit	$	54,996	$	31,841

The change in the outstanding balance of lines of credit was primarily attributable to the increased borrowing in our Miami Operations under its senior secured revolving credit facility. As of March 31, 2012 and December 31, 2011, the total remaining credit amount available was $22,437 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 provided 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.

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 required SBA to pay a monthly maintenance fee and commitment fee of 0.25% of the unused commitment amount.

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 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.

INTCOMEX, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except per share data)

(Unaudited)

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 March 31, 2012, SBA’s outstanding draws against the PNC Credit Facility were $37,811, net of $1,042 of excess cash in bank, and the remaining amount available was $12,189. As of March 31, 2012, SBA did not have any outstanding undrawn stand-by letters of credit.

As of March 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 9.8% with maturity dates from May 2012 to July 2014.

As of March 31, 2012 and December 31, 2011, Intcomex S.A. (“Intcomex Chile”) had undrawn stand-by letters of credit of $18,700 and $25,700, respectively.

Note 7.

Long-Term Debt

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


	As of
	March 31, 2012			December 31, 2011
Long-term debt, net of current portion
Intcomex, Inc. –13¹/4% Senior Notes, net of discount of $3,818 and $4,125, respectively	$	111,183		$	110,875
Other, including various capital leases		749			931

Total long-term debt		111,932			111,806
Current maturities of long-term debt		(5,452	)		(5,567	)

Total long-term debt, net of current portion	$	106,480		$	106,239

Intcomex, Inc. —13¹/4% Senior Notes

On December 22, 2009, the Company completed a private offering to eligible purchasers (the “Original 13¹/4% Senior Notes Offering”) of the $120,000 principal amount of the Original 13¹/4% Senior Notes due December 14, 2014 (the “Original 13¹/4% Senior Notes). 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 “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.

INTCOMEX, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except per share data)

(Unaudited)

On February 8, 2011, the Company commenced an exchange offer for all of its 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 is required to redeem $5,000 aggregate principal amount of the 13¹/4% Senior Notes on December 15, 2012 and $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 Company may redeem the 13¹/4% Senior Notes, in whole or in part, at any time on or after December 15, 2012 at a price equal to 100% of the aggregate principal amount of the 13¹/4% Senior Notes plus a “make-whole” premium of 6.625% of the principal amount for any redemptions between December 15, 2012 and December 14, 2013. At any time prior to December 15, 2012, the Company is required to redeem up to 35% of the aggregate principal amount of the 13¹/4% Senior Notes with the net cash proceeds of an IPO which occurs on or prior to December 15, 2012 at a price equal to 113.25% of the principal amount of the 13¹/4% Senior Notes. In addition, at its option, the Company may redeem up to 10% of the original aggregate principal amount of the 13¹/4% Senior Notes from time to time prior to December 15, 2012, but no more than once in any 12-month period, at 103% of the aggregate principal amount of the 13¹/4% Senior Notes.

The indenture governing the Company’s New 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.

For the three months ended March 31, 2012, the Company did not repurchase any of its 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) 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.

As of March 31, 2012 and December 31, 2011, the carrying value of the $115,000 principal amount of the remaining outstanding 13¹/4% Senior Notes was $111,183 and $110,875. As of March 31, 2012 and December 31, 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 the Miami office and warehouse equipment. Interest is due monthly at 6.84% of the total equipment costs and all outstanding amounts are due April 30, 2012. As of March 31, 2012 and December 31, 2011, $127 and $210, respectively, remained outstanding under the lease agreement.

INTCOMEX, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except per share data)

(Unaudited)

Note 8.

Income Taxes

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


	For the Three Months Ended March 31,
	2012			2011
Income tax provision
Current expense:
Federal and state	$	—		$	—
Foreign		1,684			717

Total current expense		1,684			717

Deferred (benefit) expense:
Federal and state		—			—
Foreign		(508	)		240

Total deferred (benefit) expense		(508	)		240

Total provision for income taxes	$	1,176		$	957

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


	For the Three Months Ended March 31,
	2012			%			2011			%
Effective tax rate
(Loss) income before provision for income taxes:
U.S.	$	(1,333	)				$	(3,549	)
Foreign		7,826						3,187

Income (loss) before provision (benefit) for income taxes	$	6,493					$	(362	)


Tax expense (benefit) at statutory rate	$	2,207			34	%	$	(123	)		34	%
State income taxes, net of federal income tax (benefit) provision		(144	)		(2	)%		(182	)		50	%
Effect of tax rates from non-U.S. operations		(1,311	)		(20	)%		(77	)		21	%
Change in valuation allowance		424			6	%		1,339			(369	)%

Effective tax provision (benefit) for income taxes	$	1,176			18	%	$	957			(264	)%

The effective tax provision increased by $219, to $1,176 for the three months ended March 31, 2012, as compared to $957 for the three months ended March 31, 2011. The change was primarily due to the higher taxable earnings in the In-country Operations, primarily Argentina, Peru, Costa Rica and El Salvador and increased levels of valuation allowances recorded against U.S. net operating losses (“NOLs”).

INTCOMEX, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except per share data)

(Unaudited)

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


	As of
	March 31, 2012			December 31, 2011
Deferred tax assets
Current assets:
Allowance for doubtful accounts	$	914		$	1,164
Inventories		885			772
Accrued expenses		657			699
Other		1,051			1,002

Total current assets		3,507			3,637


Non-current assets:
Tax goodwill		308			370
Net operating losses		24,006			23,045
Other		1,567			1,524
Valuation allowances		(13,808	)		(13,384	)

Total non-current assets		12,073			11,555

Total deferred tax assets	$	15,580		$	15,192


Deferred tax liabilities
Current liabilities:
Other	$	—		$	—

Total current liabilities		—			—

Non-current liabilities:
Fixed assets		(1,887	)		(1,979	)
Amortizable intangible assets		(373	)		(398	)
Other		(23	)		(26	)

Total non-current liabilities		(2,283	)		(2,403	)

Total deferred tax liabilities		(2,283	)		(2,403	)

Net deferred tax assets	$	13,297		$	12,789

As of March 31, 2012 and December 31, 2011, the balance of SBA’s tax goodwill was $821 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 March 31, 2012 and December 31, 2011, the Company’s U.S. federal and state of Florida NOLs resulted in $21,253 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 March 31, 2012 and December 31, 2011, the Company recorded a valuation allowance of $13,808 and $12,884, respectively, against the respective NOLs, of which $11,192 and $10,616, respectively, related to the U.S. and $2,616 and $2,268, respectively, related to the Company’s In-country Operations.

INTCOMEX, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except per share data)

(Unaudited)

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 March 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	$	55,700	$	21,253	$	11,192			$	54,499	$	20,676	$	10,616
Foreign

Intcomex Argentina S.R.L.		6,380		2,234		2,234		2012		5,389		1,886		1,886		2011
Intcomex Jamaica Ltd		411		137		—				303		101		—
Intcomex Mexico		1,274		382		382		2018		1,273		382		382		2018

Total foreign	$	8,065	$	2,753	$	2,616			$	6,965	$	2,369	$	2,268

Total	$	63,765	$	24,006	$	13,808			$	61,464	$	23,045	$	12,884

A future ownership change could limit the amount of NOL carryforwards that can be utilized annually to offset future taxable income and tax. In general, an “ownership change” as defined by Section 382 of the Internal Revenue Code results from a transaction or series of transactions over a three-year period resulting in an ownership change of more than 50 percentage points of the outstanding stock of a company by certain stockholders or public groups. On April 19, 2011, the Company issued 38,769 shares of Common Stock, pursuant to the Brightpoint Transaction.

The undistributed earnings in foreign subsidiaries are permanently invested abroad and will not be repatriated to the U.S. in the foreseeable future. Because they are considered to be indefinitely reinvested, no U.S. federal or state deferred income taxes have been provided on these earnings. Upon distribution of those earnings, in the form of dividends or otherwise, the Company would be subject to both U.S. income taxes (subject to an adjustment for foreign tax credits) and withholding taxes payable to the various foreign countries in which the Company operates. It is not practicable to determine the U.S. foreign income tax liability that would be payable if such earnings were not reinvested indefinitely because of the availability of U.S. foreign tax credits.

The Company files tax returns in the state of Florida, the U.S. and in various foreign jurisdictions and is subject to periodic audits by state, domestic and foreign tax authorities. By statute, the Company’s U.S. tax returns are subject to examination by the Florida Department of Revenue and the Internal Revenue Service for fiscal years 2008 through 2010. The Company is subject to inspection by the tax authorities under the applicable law in the foreign jurisdictions throughout Latin America and the Caribbean in which the Company conducts business, for various statutes of limitation.

The Company believes its accruals for tax liabilities are adequate for all open fiscal years based upon an assessment of factors, including but not limited to, historical experience and related tax law interpretations. The Company does not have any unrecognized tax benefits as of March 31, 2012 and December 31, 2011 and does not anticipate that the total amount of unrecognized tax benefits related to any particular tax position will change significantly within the next 12 months. The Company classifies tax liabilities that are expected to be paid within the current year, if any, as current income tax liabilities and all other uncertain tax positions as non-current income tax liabilities. The Company recognizes interest and penalties related to income tax matters in the provision for income taxes in the consolidated statements of operations.

INTCOMEX, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except per share data)

(Unaudited)

Note 9.

Fair Value of Derivative Instruments

The Company accounts for derivative instruments and hedging activities in accordance with FASB ASC 815, Derivatives and Hedging. The Company is exposed to certain risks related to its ongoing business operations including fluctuations in foreign exchange rates and reduces its exposure to these fluctuations by using derivative financial instruments from time to time, particularly foreign currency forward contracts and foreign currency option collar contracts. The Company enters into these foreign currency contracts to manage its primary risks including foreign currency price risk associated with forecasted inventory purchases used in the Company’s normal business activities, in a currency other than the currency in which the products are sold. The Company has and expects to continue to utilize derivative financial instruments with respect to a portion of its foreign exchange risks to achieve a more predictable cash flow by reducing its exposure to foreign exchange fluctuations. The Company enters into foreign currency forward and option collar contracts with large multinational banks.

All derivative instruments are recorded in the Company’s consolidated balance sheet at fair value which represents the amount required to enter into similar offsetting contracts with similar remaining maturities based on quoted market prices. The derivative instruments are not designated as hedging instruments and therefore, the changes in fair value are recognized currently in earnings during the period of change. The notional amount of forward exchange contracts is the amount of foreign currency bought or sold at maturity and is indicative of the extent of the Company’s involvement in the various types and uses of derivative instruments, but not a measure of the Company’s exposure to credit or market risks through its use of derivative instruments.

As of March 31, 2012, the Company did not have any derivative instruments 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. A summary of the location and amounts of the fair value in the consolidated balance sheets and loss (gain) in the statements of operations related to the Company’s derivative instruments during the periods presented consisted of the following:


	Location of Fair Value⁽²⁾ in Balance Sheet	As of
		March 31, 2012		December 31, 2011
Derivatives instruments not designated or qualifying as hedging instruments under ASC 815⁽¹⁾:
Foreign currency contracts	Other assets (liabilities)	$	—	$	61

Total		$	—	$	61

(1)	Further information on the Company’s purpose for entering into derivative instruments not designated as hedging instruments and the overall risk management strategies are discussed in Part I—Financial Information, 1A. “Risk Factors,” of the Company’s Annual Report.

(2)	Fair value is classified and disclosed as Level 2 category where significant other observable inputs that can be corroborated by observable market data.


	Location of Loss in Statements of Operations	For the Three Months Ended March 31,
		2012		2011
Derivative instruments not designated or qualifying as hedging instruments under ASC 815:
Foreign currency contracts	Other expense (income)	$	569	$	—

Total		$	569	$	—

INTCOMEX, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except per share data)

(Unaudited)

Note 10.

Share-Based Compensation

On April 19, 2011, the Company amended 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 into shares of Common Stock, as described in “Note 1. Organization and Basis of Presentation” in these Notes to Condensed Consolidated Financial Statements (Unaudited).

The Company recognizes compensation expense for its share-based compensation plans utilizing the modified prospective method for awards issued, modified, repurchased or canceled under the provisions of FASB ASC 718, Compensation-Stock Compensation. Share-based compensation expense is based on the fair value of the award and measured at grant date, recognized as an expense in earnings over the requisite service period and is recorded in salary, wages and benefits in the consolidated statements of operations as part of selling, general and administrative expenses.

Compensation expense related to the Company’s share-based compensation arrangements consists of the following for the periods presented:


	For the Three Months Ended March 31,
	2012		2011
Share-based compensation arrangements charged against income:
Stock options⁽¹⁾	$	—	$	—
Restricted shares⁽²⁾		28		27

Total	$	28	$	27

(1)	Stock options were issued pursuant to the 2007 Founders’ Grant Stock Option Plan (the “2007 Founders’ Option Plan”).

(2)	Restricted shares were issued pursuant to the annual equity compensation in 2009, 2010 and 2011 to certain Directors for service on our Company’s Board (collectively the “2009, 2010 and 2011 Restricted Stock Issuances”.)

Outstanding compensation costs related to the Company’s unvested share-based compensation arrangements consisted of the following:


	As of
	March 31, 2012		December 31, 2011
Outstanding compensation costs for unvested share-based compensation arrangements:
Stock options⁽¹⁾	$	—	$	—
Restricted shares⁽²⁾		136		164

Total	$	136	$	164

(1)	Stock options were issued pursuant to the 2007 Founders’ Option Plan.

(2)	Restricted shares were issued pursuant to the 2009, 2010 and 2011 Restricted Stock Issuances.

As of March 31, 2012 and December 31, 2011, the outstanding compensation costs for unvested share-based compensation arrangements will be recognized over a weighted-average period of 1.7 and 1.9 years, respectively.

Stock Options

In February 2007, options to acquire an aggregate of 1,540 shares of Class B common stock, non-voting were granted under the 2007 Founders’ Option Plan to certain management employees and independent, non-employee directors. The options were granted at an exercise price of $1,077 per share, which was equal to the fair value of our common stock on the date of grant. The weighted-average grant date fair value of the options granted during the year ended December 31, 2007 was $566 per share. The shares vest ratably over a three-year vesting period of one-third per year on the annual anniversary date and expire 10 years from the date of grant. There were no stock options granted during the three months ended March 31, 2012 and 2011. As of March 31, 2012 and December 31, 2011, all of the outstanding options were vested.

INTCOMEX, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except per share data)

(Unaudited)

A summary of the stock option activity and changes under the 2007 Founders’ Option Plan consisted of the following for the periods presented:


	Shares			Weighted- Average Exercise Price per Share (in dollars)		Weighted- Average Remaining Contractual Term (in years)
Outstanding at January 1, 2011		1,280		$	1,077		6.1

Granted		—			—
Exercised		—			—
Forfeited or expired		(420	)		—

Outstanding at December 31, 2011		860		$	1,077		5.1

Granted		—			—
Exercised		—			—
Forfeited or expired		—			—

Outstanding at March 31, 2012		860		$	1,077		4.8

Vested and expected to vest at March 31, 2012		860		$	1,077		4.8

Exercisable at March 31, 2012		860		$	1,077		4.8

The options were antidilutive as of March 31, 2012 and December 31, 2011, as the fair value of the options was below the exercise price of the options. The fair value of the options was determined using the Black-Scholes option pricing model as of April 23, 2007, the measurement date or the date the Company received unanimous approval from shareholders for the 2007 Founders’ Option Plan. The Black-Scholes option pricing model was developed for use in estimating the fair value of traded options, and requires the input of subjective assumptions, including expected price volatility and term. Changes in these subjective assumptions can materially affect the fair value of the estimate, and therefore, existing valuation models do not provide a precise measure of the fair value of the Company’s employee stock options. Projected data related to the expected volatility and expected life of stock options is typically based upon historical and other information. The fair value of the options granted in 2007 was estimated at the date of grant using the following assumptions:


Expected term	6 years
Expected volatility	37.00	%
Dividend yield	0.00	%
Risk-free investment rate	4.58	%

The expected term of the options granted under the 2007 Founders’ Option Plan is based on the simplified method for estimating the expected life of the options, as historical data related to the expected life of the options is not available. The Company used the historical volatility of the industry sector index, as it is not practicable to estimate the expected volatility of the Company’s share price. The risk-free investment rate for periods within the contractual life of the option is based on the U.S. Treasury yield curve of the same maturity in effect at the time of grant. The Company estimates forfeitures in calculating the expense relating to stock-based compensation. At the grant date, the Company estimated the number of shares expected to vest and will subsequently adjust compensation costs for the estimated rate of forfeitures on an annual basis. The Company will use historical data to estimate option exercise and employee termination in determining the estimated forfeiture rate. The estimated forfeiture rate applied as of the option grant date was 1%.

INTCOMEX, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except per share data)

(Unaudited)

Restricted Shares of Common Stock

On April 1, 2011, the Company 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. As of March 31, 2012 and December 31, 2011, there were no shares of Common Stock granted or issued under this plan.

On April 19, 2011, the Company filed an amendment to its certificate of incorporation pursuant to which each outstanding share of the Original Class B Common Stock was automatically converted into one share of voting Common Stock. As of the filing of such amendment, the Company no longer had any shares of Class B, non-voting common stock authorized, issued or outstanding and all previously granted restricted shares of Original Class B Common Stock were converted into restricted shares of Common Stock.

On May 18, 2011, the Company’s Board of Directors authorized and the Company’s shareholders approved the issuance of 86 restricted shares of Common Stock with a three-year cliff vesting period to each of the Company’s directors Messrs. Henriques and Madden, as annual equity consideration for their board membership and 48 restricted shares of Common Stock with a three-year annual vesting period to Mr. Olson, as annual equity consideration (collectively the “2011 Restricted Stock Issuance”).

On June 30, 2011, the 73 and 41 restricted shares of Common Stock that were issued in June 2008 to Messrs. Henriques and Madden, respectively, vested.

A summary of the unvested restricted shares of common stock award activity and changes consisted of the following during the periods presented:


	Restricted Common Stock (in shares)			Weighted-Average Grant-Date Fair Value per Share (in dollars)
Unvested Balance at January 1, 2011		434		$	899	⁽¹⁾

Granted		220		$	580	⁽²⁾
Vested		(114	)		1,225
Forfeited		—			—

Unvested Balance at December 31, 2011		540		$	870	⁽¹⁾


Granted		—			—
Vested		—			—
Forfeited		—			—

Unvested Balance at March 31, 2012		540		$	870	⁽¹⁾

(1)	The fair value was determined using the weighted-average fair value per share to reflect the portion of the period during which shares were outstanding.

(2)	The fair value was determined as of the date the Company granted the shares.

INTCOMEX, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except per share data)

(Unaudited)

Note 11.

Commitments and Contingencies and Other

Commitments and Contingencies

The Company accrues 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.

Legal Proceedings

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

Leases

The Company leases office, warehouse facilities and warehouse equipment under non-cancelable operating leases that expire on various dates through 2021, including SBA’s office and warehouse space in Miami, Florida. The original commencement date of this 10-year lease was May 1, 2007, with a monthly base rent expense of $146 per month and an annual 3.0% escalation clause. In October 2011, SBA entered into an amendment to the agreement for the lease of the Miami office, warehouse facilities and warehouse equipment and decreased the leased space by 48,095 to 172,926 square feet effective September 1, 2011. The amendment also modified the monthly base rent expense to $120 beginning December 1, 2011 with an annual 2.2% escalation clause and extended the term of the lease. The lease has a new commencement date of August 1, 2017 and termination date of August 31, 2021.

Indemnity Letter Agreement

On March 16, 2011, the Company entered into an indemnity letter agreement with Anthony and Michael Shalom, (the “Shaloms”) and a CVC International subsidiary, CVCI Intcomex Investment LP (“CVCI Investment”), pursuant to which the Company agreed to return approximately $927 (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 the Company 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 the Company 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’ pro rata 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 the Company or any of its subsidiaries is bound; and (ii) a change of control other than that as a result of an IPO.

Note 12.

Additional Paid in Capital

Total compensation expense for share-based compensation arrangements charged against income was $28 and $27 for the three months ended March 31, 2012 and 2011, respectively. For a detailed discussion of the share-based compensation, see “Note 10. Share-Based Compensation” in these Notes to Condensed Consolidated Financial Statements (Unaudited).

On July 15, 2011, the Company repurchased 852 shares of Common Stock from one of its shareholders using the proceeds from the Brightpoint Transaction, for a total purchase price of $494, in connection with the departure of such shareholder’s principal owner as an employee of Intcomex Argentina, S.R.L.

INTCOMEX, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except per share data)

(Unaudited)

Note 13.

Segment Information

FASB ASC 280, Segment Reporting provides guidance on the disclosures about segments and information related to reporting units. The Company operates in a single industry segment, that being a distributor of IT products. The Company’s operating segments are based on geographic location. Geographic areas in which the Company operates 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: Argentina, Chile, Colombia, Costa Rica, Ecuador, El Salvador, Guatemala, Jamaica, Mexico, Panama, Peru, and Uruguay, collectively, the In-country Operations. The In-country Operations have been aggregated as one segment due to similar products and economic characteristics. The Company sells and distributes one type of product line, IT products, and does not provide any separately billable services. It is impracticable for the Company to report the revenues from external customers for the group of similar products within the product line because the general ledger used to prepare the Company’s financial statements does not track sales by product.

Inter-segment revenue primarily represents intercompany revenue between the Miami Operations and the In-country Operations at established prices. Intercompany revenue between the related companies is eliminated in consolidation. The measure for the Company’s segment profit is operating income. Financial information by geographic operating segment consisted of the following for the periods presented:


	For the Three Months Ended March 31,
	2012			2011
Statement of Operations Data:
Revenue:
Miami Operations
Revenue from unaffiliated customers⁽¹⁾	$	127,263		$	60,942
Intersegment		85,287			73,087

Total Miami Operations		212,550			134,029
In-country Operations
In-country Operations, excluding Intcomex Chile		186,441			137,600
Intcomex Chile		76,796			52,209

In-country Operations		263,237			189,809
Eliminations of inter-segment		(85,287	)		(73,087	)

Total revenue	$	390,500		$	250,751


Operating income:
Miami Operations	$	3,742		$	1,416
In-country Operations		5,405			3,114

Total operating income	$	9,147		$	4,530

INTCOMEX, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except per share data)

(Unaudited)


	As of
	March 31, 2012		December 31, 2011
Balance Sheet Data:
Assets:
Miami Operations	$	203,282	$	185,918
In-country Operations
In-country Operations, excluding Intcomex Chile		154,399		138,678
Intcomex Chile		131,874		120,385

In-country Operations		286,273		259,063

Total assets	$	489,555	$	444,981

Property & equipment, net:
Miami Operations	$	6,037	$	6,245
In-country Operations		9,289		9,165

Total property & equipment, net	$	15,326	$	15,410


Goodwill:
Miami Operations	$	2,673	$	2,622
In-country Operations		15,414		15,357

Total goodwill	$	18,087	$	17,979

⁽¹⁾	For purposes of geographic disclosure, revenue is attributable to the country in which the Company’s individual business resides.

Note 14.

Guarantor Condensed Consolidating Financial Statements

The 13¹/4% Senior Notes are unconditionally guaranteed on a senior secured basis by each of the Company’s existing and future domestic restricted subsidiaries (collectively, the “Subsidiary Guarantors”), but not the Company’s foreign subsidiaries (collectively, the “Non-Guarantor Subsidiaries”). Each of the note guarantees covers the full amount of the 13¹/4% Senior Notes and each of the Subsidiary Guarantors is 100% owned by the Company. Pursuant to Rule 3-10(f) of Regulation S-X under the rules promugated under the Securities Act of 1933, the Parent company has prepared condensed consolidating financial information for the Parent company, the subsidiaries that are Guarantors of the Company’s obligations under the Original 13¹/4% Senior Notes and 13¹/4% Senior Notes on a combined basis and the Non-Guarantor Subsidiaries on a combined basis.

The indentures governing the 13¹/4% Senior Notes and the security documents executed in connection therewith provide that, in the event that Rule 3-16 of Regulation S-X under the rules promulgated under the Securities Act of 1933, or any successor regulation, requires the filing of separate financial statements of any of the Company’s subsidiaries with the SEC, the capital stock pledged as collateral securing the Original 13¹/4% Senior Notes and 13¹/4% Senior Notes, the portion or, if necessary, all of such capital stock pledged as collateral securing the 13¹/4% Senior Notes, necessary to eliminate such filing requirement, will automatically be deemed released and not have been part of the collateral securing the 13¹/4% Senior Notes.

The Rule 3-16 requirement to file separate financial statements of a subsidiary is triggered if the aggregate principal amount, par value, or book value of the capital stock of the subsidiary, as carried by the registrant, or the market value of such capital stock, whichever is greatest, equals 20% or more of the principal amount of the notes. These values are calculated by using a discounted cash flow model that combines the unlevered free cash flows from our annual five-year business plan plus a terminal value based upon the final year earnings before interest, taxes, depreciation and amortization, or EBITDA, of that business plan which is then multiplied by a multiple based upon comparable companies’ implied multiples, validated by third-party experts, to arrive at an enterprise value. Existing debt, net of cash on hand, is then subtracted to arrive at the estimated market value.

INTCOMEX, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except per share data)

(Unaudited)

Supplemental financial information for Intcomex, Inc., our combined Subsidiary Guarantors and Non-Guarantor Subsidiaries is presented below.

CONDENSED CONSOLIDATING BALANCE SHEET

As of March 31, 2012

INTCOMEX,
INC.
(PARENT)

GUARANTORS

NON-
GUARANTORS

ELIMINATIONS

INTCOMEX,
INC.
CONSOLIDATED

Current assets

Cash and equivalents

—

222

17,031

—

17,253

Trade accounts receivable, net

—

97,897

155,243

(94,098

)

159,042

Inventories

—

68,238

131,676

—

199,914

Other

42,389

6,047

88,859

(77,194

)

60,101

Total current assets

42,389

172,404

392,809

(171,292

)

436,310

Long-term assets

Property and equipment, net

3,908

2,129

9,289

—

15,326

Investments in subsidiaries

176,440

253,215

—

(429,655

)

—

Goodwill

2,673

7,418

7,996

—

18,087

Other

15,234

71,452

9,235

(76,089

)

19,832

Total assets

240,644

506,618

419,329

(677,036

)

489,555

Liabilities and shareholders’ equity

Current liabilities

12,123

228,649

239,243

(171,232

)

308,783

Long-term debt, net of current maturities

106,270

—

210

—

106,480

Other long-term liabilities

52,558

18,154

15,348

(81,461

)

4,599

Total liabilities

170,951

246,803

254,801

(252,693

)

419,862

Total shareholders’ equity

69,693

259,815

164,528

(424,343

)

69,693

Total liabilities and shareholders’ equity

240,644

506,618

419,329

(677,036

)

489,555

INTCOMEX, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except per share data)

(Unaudited)

CONDENSED CONSOLIDATING BALANCE SHEET

As of December 31, 2011


	INTCOMEX, INC. (PARENT)		GUARANTORS		NON- GUARANTORS		ELIMINATIONS			INTCOMEX, INC. CONSOLIDATED
Current assets
Cash and equivalents	$	—	$	40	$	25,667	$	—		$	25,707
Trade accounts receivable, net		—		85,390		138,352		(85,821	)		137,921
Inventories		—		49,087		120,051		—			169,138
Other		42,777		7,198		91,607		(82,461	)		59,121

Total current assets		42,777		141,715		375,677		(168,282	)		391,887
Long-term assets
Property and equipment, net		4,011		2,235		9,164		—			15,410
Investments in subsidiaries		164,189		239,706		—		(403,895	)		—
Goodwill		2,622		7,418		7,939		—			17,979
Other		15,681		82,385		8,168		(86,529	)		19,705

Total assets	$	229,280	$	473,459	$	400,948	$	(658,706	)	$	444,981

Liabilities and shareholders’ equity
Current liabilities	$	8,102	$	200,575	$	230,126	$	(168,220	)	$	270,583
Long-term debt, net of current maturities		105,976		—		263		—			106,239
Other long-term liabilities		51,688		30,601		15,135		(92,779	)		4,645

Total liabilities		165,766		231,176		245,524		(260,999	)		381,467
Total shareholders’ equity		63,514		242,283		155,424		(397,707	)		63,514

Total liabilities and shareholders’ equity	$	229,280	$	473,459	$	400,948	$	(658,706	)	$	444,981

INTCOMEX, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except per share data)

(Unaudited)

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS

Three Months Ended March 31, 2012

INTCOMEX,
INC.
(PARENT)

GUARANTORS

NON-
GUARANTORS

ELIMINATIONS

INTCOMEX,
INC.
CONSOLIDATED

Revenue

—

212,550

263,237

(85,287

)

390,500

Cost of revenue

—

200,641

241,237

(85,410

)

356,468

Gross profit

—

11,909

22,000

123

34,032

Operating expenses

3,481

4,686

16,718

—

24,885

Operating (loss) income

(3,481

)

7,223

5,282

123

9,147

Other expense, net

Interest expense, net

4,899

676

(283

)

—

5,292

Other, net

(11,035

)

(11,046

)

(2,374

)

21,817

(2,638

)

Total other (income) expense

(6,136

)

(10,370

)

(2,657

)

21,817

2,654

Income (loss) before (benefit) provision for income taxes

2,655

17,593

7,939

(21,694

)

6,493

(Benefit) provision for income taxes

(2,662

)

2,471

1,367

—

1,176

Net income (loss)

5,317

15,122

6,572

(21,694

)

5,317

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS

Three Months Ended March 31, 2011


	INTCOMEX, INC. (PARENT)			GUARANTORS			NON- GUARANTORS			ELIMINATIONS			INTCOMEX, INC. CONSOLIDATED
Revenue	$	—		$	134,030		$	189,808		$	(73,087	)	$	250,751
Cost of revenue		—			125,321			172,970			(72,878	)		225,413

Gross profit		—			8,709			16,838			(209	)		25,338
Operating expenses		2,650			4,436			13,722			—			20,808

Operating (loss) income		(2,650	)		4,273			3,116			(209	)		4,530
Other expense, net
Interest expense, net		5,064			478			(764	)		—			4,778
Other, net		(4,748	)		(4,425	)		973			8,313			113

Total other expense (income)		316			(3,947	)		209			8,313			4,891
(Loss) income before (benefit) provision for income taxes		(2,966	)		8,220			2,907			(8,522	)		(361	)
(Benefit) provision for income taxes		(1,648	)		1,457			1,148			—			957

Net (loss) income	$	(1,318	)	$	6,763		$	1,759		$	(8,522	)	$	(1,318	)

INTCOMEX, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except per share data)

(Unaudited)

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS

Three Months Ended March 31, 2012


	INTCOMEX, INC. (PARENT)			GUARANTORS			NON- GUARANTORS			ELIMINATIONS		INTCOMEX, INC. CONSOLIDATED
Cash flows from operating activities	$	307		$	(22,957	)	$	(8,120	)	$	—	$	(30,770	)

Cash flows from investing activities
Purchases of property and equipment, net		(295	)		(43	)		(510	)		—		(848	)
Other		—			—			11			—		11

Cash flows from investing activities		(295	)		(43	)		(499	)		—		(837	)

Cash flows from financing activities
Payments (borrowings) under lines of credit, net		—			23,281			(126	)				23,155
Payments of long-term debt		(12	)		(99	)		(70	)		—		(181	)

Cash flows from financing activities		(12	)		23,182			(196	)		—		22,974

Effects of exchange rate changes on cash		—			—			179			—		179

Net increase (decrease) in cash and cash equivalents		—			182			(8,636	)		—		(8,454	)
Cash and cash equivalents, beginning of period		—			40			25,667			—		25,707

Cash and cash equivalents, end of period	$	—		$	222		$	17,031		$	—	$	17,253

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS

Three Months Ended March 31, 2011


	INTCOMEX, INC. (PARENT)			GUARANTORS			NON- GUARANTORS			ELIMINATIONS		INTCOMEX, INC. CONSOLIDATED
Cash flows from operating activities	$	(1,309	)	$	(1,706	)	$	(2,505	)	$	—	$	(5,520	)

Cash flows from investing activities
Purchases of property and equipment, net		(675	)		(39	)		(278	)		—		(992	)
Other		1,989			(1,985	)		68			—		72

Cash flows from investing activities		1,314			(2,024	)		(210	)		—		(920	)

Cash flows from financing activities
Payments (borrowings) under lines of credit, net		—			3,607			(1,599	)				2,008
Borrowings under long-term debt		—			—			—			—		—
Payments of long-term debt		—			(95	)		(47	)		—		(142	)

Cash flows from financing activities		—			3,512			(1,646	)		—		1,866

Effects of exchange rate changes on cash		—			—			265			—		265

Net increase (decrease) in cash and cash equivalents		5			(218	)		(4,096	)		—		(4,309	)
Cash and cash equivalents, beginning of period		—			273			28,594			—		28,867

Cash and cash equivalents, end of period	$	5		$	55		$	24,498		$	—	$	24,558

INTCOMEX, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except per share data)

(Unaudited)

Note 15.

Restructuring Plan

In late March 2012, management implemented a plan to significantly reduce the Company’s In-country Operations in Argentina. Under the plan, the Company will essentially cease operations at its subsidiary, Intcomex Argentina S.R.L. (“Intcomex Argentina”), by the end of fiscal 2012. For the three months ended March 31, 2012, the Company recorded $621 in expenses related to these restructuring actions. The restructuring included involuntary workforce reductions and employee benefits and other costs incurred in connection with vacating leased facilities. These expenses were recorded in operating expenses in the condensed consolidated statement of operations. As of March 31, 2012, no payments have been made.

The Company does not consider its In-country Operations in Argentina to be material. At December 31, 2011, Intcomex Argentina’s total assets represented approximately 1.4% of the Company’s total consolidated assets. For the year ended December 31, 2011, Intcomex Argentina’s total revenues represented approximately 1.3% of the Company’s total consolidated revenues and Intcomex Argentina’s operating loss represented 2.8% of the Company’s consolidated operating income on an absolute value basis. Accordingly, the Company will not present its In-country Operations in Argentina as discontinued operations.

For the three months ended March 31, 2012 and 2011, Intcomex Argentina’s operating loss was $1,134 and $453, respectively.

Item 2.

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

Forward-Looking Statements

This Quarterly Report on Form 10-Q, or Quarterly 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. 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’s assumptions about our company, our future performance, our liquidity and the Information Technology, or 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 are 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 involve a number of 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 identified below, elsewhere herein and under “Part II—Other Information, Item 1A. Risk Factors” in our Annual Report on Form 10-K filed with the SEC on March 14, 2012, or Annual Report, under “Part I. Item 1A. Risk Factors.” 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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business interruptions due to natural or manmade disasters, extreme weather conditions including 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 Quarterly 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 Quarterly Report or included in our Annual Report. The following discussion and analysis of our financial condition and results of operations should be read together with the audited consolidated financial statements and notes thereto, which are included in our Annual Report, and our unaudited condensed consolidated financial statements for the fiscal quarter and year to date period ended March 31, 2012, which are included in this Quarterly Report.

Overview

We believe we are the largest pure play value-added distributor of computer IT products focused solely on serving Latin America and the Caribbean, or the Region. 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 Region. We distribute computer equipment components, peripherals, software, computer systems, accessories, networking products, digital consumer electronics and mobile devices to more than 47,000 customers in 40 countries. We offer single source purchasing to our customers by providing an in-stock selection of more than 13,000 products from over 140 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 12 Latin American and Caribbean countries, or our In-country Operations.

Our results for the three months ended March 31, 2012, reflect an increase in revenue across most of our product lines and our customer markets, with mobile devices representing the most significant portion of the revenue growth, as compared to the corresponding period in 2011. Revenue increased $139.7 million, or 55.7% to $390.5 million for the three months ended March 31, 2012, as compared to $250.7 million for the three months ended March 31, 2011. Gross profit increased $8.7 million, or 34.3% to $34.0 million for the three months ended March 31, 2012, as compared to $25.3 million for the three months ended March 31, 2011. The improvement in gross profit was primarily the result of the higher sales volume.

Total operating expenses increased $4.1 million, or 19.6% to $24.9 million for the three months ended March 31, 2012, as compared to $20.8 million for the three months ended March 31, 2011. The increase in operating expenses resulted primarily from the additional salary and payroll-related expenses, including severance costs, facilities-related expenses, bad debt expense, travel and transportation expenses, incurred during the period. Other expense, net decreased $2.2 million, or 45.7% to $2.7 million during the three months ended March 31, 2012, as compared to $4.9 million during the three months ended March 31, 2011. The decrease was primarily driven by foreign exchange gains realized during the three months ended March 31, 2012, as compared to the foreign exchange losses realized during the same period in 2011.

Net income was $5.3 million for the three months ended March 31, 2012, as compared to net loss of $1.3 million for the three months ended March 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, Inc., which facilitates 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 18.4% annually between 2001 and 2011, as compared to growth in revenue from our Miami Operations of an average of 13.0% annually over the same period. Revenue from our In-country Operations accounted for 67.4% and 75.7% of consolidated revenue for the three months ended

March 31, 2012 and 2011, 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 expect the expansion of our In-country Operations to grow at a faster rate than our Miami Operations over the long term.

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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 United States, or 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 Argentina, Chile, Colombia, Costa Rica, Guatemala, Jamaica, Mexico, Peru and Uruguay, 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, the 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 include a foreign exchange gain of $2.7 million for the three months ended March 31, 2012 and a foreign exchange loss of $0.1 million for the three months ended March 31, 2011. 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 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 Region.

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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% Second Priority Senior Notes, due December 15, 2014, or 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 three months ended March 31, 2012 and 2011, interest expense was $5.4 million and $5.0 million, respectively.

Additionally, on January 25, 2012, SBA together with its consolidated subsidiaries executed an 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.

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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 the 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.

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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 March 31, 2012 and December 31, 2011, our U.S. and state of Florida NOLs resulted in $21.3 million and $20.7 million, respectively, of deferred tax assets, which will begin to expire in 2026. As of March 31, 2012 and December 31,

2011, Intcomex Argentina, S.R.L. had $6.4 million and $5.4 million, respectively, in NOLs resulting in $2.2 million and $1.9 million, respectively, of deferred tax assets, which began to expire in 2011. As of March 31, 2012 and December 31, 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 March 31, 2012 and December 31, 2011, we had a valuation allowance of $11.2 million and $10.6 million, respectively, related to our U.S. and state of Florida NOLs and $2.6 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 three months ended March 31, 2012 we recorded $0.6 million related to the restructuring actions that we implemented to significantly reduce our In-country Operations in Argentina. 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 as an increase to our operating expenses. For the three months ended March 31, 2011, we did not incur any restructuring charges.

Brightpoint 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 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 the Brightpoint Latin America operations and the equity associated with its operations in Colombia and Guatemala, collectively 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.

The expected benefits from this business transaction depend 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 three months ended March 31, 2012, as compared to the same period of 2011, is impacted by the Brightpoint Transaction. In our discussion of the comparison of the three months ended March 31, 2012, as compared to the same period of 2011 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.

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 quarter ended March 31, 2012 versus the quarter ended March 31, 2011

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


	Three Months Ended March 31, 2012					Three Months Ended March 31, 2011
	Dollars (in thousands)		Percentage of Revenue			Dollars (in thousands)			Percentage of Revenue
Revenue	$	390,500		100.0	%	$	250,751			100.0	%
Cost of revenue		356,468		91.3	%		225,413			89.9	%

Gross profit		34,032		8.7	%		25,338			10.1	%
Selling, general and administrative		23,705		6.0	%		19,686			7.9	%
Depreciation and amortization		1,180		0.3	%		1,122			0.5	%

Total operating expenses		24,885		6.4	%		20,808			8.3	%

Operating income		9,147		2.3	%		4,530			1.8	%
Other expense, net		2,654		0.7	%		4,891			2.0	%

Income (loss) before provision for income taxes		6,493		1.7	%		(361	)		(0.1	)%
Provision for income taxes		1,176		0.3	%		957			0.4	%

Net income (loss)	$	5,317		1.4	%	$	(1,318	)		(0.5	)%

Revenue. Revenue increased $139.7 million, or 55.7%, to $390.5 million for the three months ended March 31, 2012, from $250.8 million for the three months ended March 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 $71.9 million, notebook computers of $23.6 million, basic “white-box” systems of $13.3 million, software of $5.7 million, central processing units, or CPUs, of $3.9 million, printers of $3.9 million and hard disk drives of $2.0 million, offset by the decrease in sales of memory products. We experienced a 5.3% increase in unit shipments across our core product lines, which excludes mobile devices, for the three months ended March 31, 2012, as compared to the same period in 2011. We experienced an 18.6% increase in average sales prices across the same core products for the three months ended March 31, 2012, as compared to the same period in 2011, due to the impact of pricing on basic “white-box” systems and hard disk drives. Revenue derived from our In-country Operations increased $73.4 million, or 38.7%, to $263.2 million for the three months ended March 31, 2012, from $189.8 million for the three months ended March 31, 2011. Revenue derived from our In-country Operations accounted for 67.4% of our total revenue for the three months ended March 31, 2012, as compared to 75.7% of our total revenue for the three months ended March 31, 2011. The growth in revenue from our In-country Operations was mainly driven by the overall increase in sales in Peru, Chile, El Salvador, Colombia and Guatemala, and, to a lesser extent, also driven by the increase in sales in Ecuador and Costa Rica. This growth was driven by the increased sales volume of mobile devices, notebook computers, basic “white-box” systems, software, CPUs, printers and hard disk drives. Revenue derived from our Miami Operations increased $66.3 million to $127.3 million for the three months ended March 31, 2012 (net of $85.3 million of revenue derived from sales to our In-country Operations) from $60.9 million for the three months ended March 31, 2011 (net of $73.1 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, printers, basic “white-box” systems and hard disk drives.

Gross profit. Gross profit increased $8.7 million, or 34.3%, to $34.0 million for the three months ended March 31, 2012, from $25.3 million for the three months ended March 31, 2011. The increase was primarily driven by higher sales volume in our In-country Operations and our Miami Operations. Gross profit from our In-country Operations increased $5.5 million, or 33.5%, to $22.1 million for the three months ended March 31, 2012, from $16.5 million for the three months ended March 31, 2011. The improvement in gross profit from our In-country Operations was driven by the increase in sales volume of notebook computers, basic “white-box” systems, mobile devices, software, printers and hard disk drives, particularly in Chile, Colombia, Ecuador, Guatemala and Peru, partially offset by the decreased sales of memory products. Gross profit from our In-country Operations accounted for 64.8% of our consolidated gross profit for the three months ended March 31, 2012, as compared to 65.3% for the three months ended March 31, 2011. Gross profit from our Miami Operations increased $3.2 million, or 35.9%, to $12.0 million for the three months ended March 31, 2012, as compared to $8.8 million for the three months ended March 31, 2011. The improvement in gross profit from our Miami Operations was driven by the increased sales volume of mobile devices, CPUs, software, printers, basic “white-box” systems and hard disk drives, partially offset by the decreased sales of memory products. As a percentage of revenue, gross margin was 8.7% for the three months ended March 31, 2012, as compared to 10.1% for the three months ended March 31, 2011. The decrease in gross margin of 1.4% was primarily driven by the dilutive impact of mobile device sales and the impact of $1.4 million in additional inventory obsolescence provision recognized during the quarter ended March 31, 2012 when compared to the quarter ended March 31, 2011.

Operating expenses. Total operating expenses increased $4.1 million, or 19.6% to $24.9 million for the three months ended March 31, 2012, as compared to $20.8 million for the three months ended March 31, 2011. The increase in operating expenses resulted from higher salary and payroll-related expenses of $2.8 million, facilities-related expenses of $0.3 million, bad debt expense of $0.3 million, travel and transportation expenses of $0.4 million. As a percentage of revenue, operating expenses decreased to 6.4% for the three months ended March 31, 2012, as compared to 8.3% for the three months ended March 31, 2011. As a percentage of total operating expenses, salary and payroll-related expenses increased to 58.0% of total operating expenses for the three months ended March 31, 2012, as compared to 55.8% for the three months ended March 31, 2011. Operating expenses from our In-country Operations increased $3.2 million, or 24.2% to $16.7 million for the three months ended March 31, 2012, as compared to $13.4 million for the three months ended March 31, 2011. The increase resulted from higher salary and payroll-related expenses of $1.8 million, of which $0.6 million related to severance payments related to our operations in Argentina. The increase also resulted from higher facilities-related expenses of $0.4 million. Operating expenses from our Miami Operations increased $0.8 million, or 11.3%, to $8.2 million for the three months ended March 31, 2012, as compared to $7.4 million for the three months ended March 31, 2011, due to the higher salary and payroll-related expenses of $1.0 million, partially offset by lower facilities-related expenses of $0.1 million.

It should be noted that the increase in operating expenses mirrors the Company’s expansion of its product offerings and the need to support the incremental business. While the absolute dollars have increased, the Company has been able to improve leverage due to the increased revenues. As a result, operating expenses as a percentage of revenues has decreased by 1.9% for the three months ended March 31, 2012, compared to the same period in 2011.

Operating income. Operating income increased $4.6 million to $9.1 million for the three months ended March 31, 2012, from $4.5 million for the three months ended March 31, 2011, due to the higher sales volumes of primarily mobile devices. Operating income from our In-country Operations increased $2.3 million, or 73.5%, to $5.4 million for the three months ended March 31, 2012, from $3.1 million for the three months ended March 31, 2011. Operating income from our Miami Operations increased $2.3 million to $3.7 million for the three months ended March 31, 2012, from $1.4 million for the three months ended March 31, 2011.

Other expense, net. Other expense, net decreased $2.2 million, or 45.7%, to $2.7 million for the three months ended March 31, 2012, from $4.9 million for the three months ended March 31, 2011. The decrease in other expense, net was primarily attributable to foreign exchange gains of $2.7 million, primarily in Chile and Colombia, during the three months ended March 31, 2012, as compared to the foreign exchange losses of $0.1 million during the same period in 2011.

Provision for income taxes. Provision for income taxes increased $0.2 million, or 22.9%, to $1.2 million for the three months ended March 31, 2012, from $1.0 million for the three months ended March 31, 2011. The increase was due to higher taxable earnings in our In-country Operations, particularly, Peru, Costa Rica and El Salvador and the reduced levels of valuation allowance recorded in the U.S. against its NOLs.

Net income (loss). Net income was $5.3 million for the three months ended March 31, 2012, as compared to net loss of $1.3 million for the three months ended March 31, 2011.

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 $120.0 million aggregate principal amount 13¹/4% Second Priority Senior Secured Notes due December 15, 2014, or our “13¹/4% Senior Notes.”

Our cash and cash equivalents were $17.3 million as of March 31, 2012, as compared to $25.7 million as of December 31, 2011. The decrease in cash and cash equivalents was primarily attributable to the increase in our inventory, primarily offset by the lines of credit borrowings during the three months ended March 31, 2012. Our working capital increased to $127.5 million as of March 31, 2012, as compared to $121.3 million as of December 31, 2011, primarily as a result of the increase in inventories of $30.8 million and the increase in accounts receivable of $21.1 million, offset by the increase in lines of credit borrowing of $23.2 million and the increase in accounts payable of $12.8 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.

Changes in Financial Condition

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


	For the Three Months Ended March 31,
	2012			2011
	(Dollars in thousands)
Cash flows used in operating activities	$	(30,770	)	$	(5,520	)
Cash flows used in investing activities		(837	)		(920	)
Cash flows provided by financing activities		22,974			1,866
Effect of foreign currency exchange rate changes on cash and cash equivalents		179			265

Net decrease in cash and cash equivalents	$	(8,454	)	$	(4,309	)

Cash flows from operating activities. Our cash flows from operating activities resulted in a requirement of $30.8 million for the three months ended March 31, 2012, as compared to $5.5 million during the three months ended March 31, 2011. The change was primarily driven by the growth in inventories, net of the increases in accounts payable and trade accounts receivable.

Cash flows from investing activities. Our cash flows from investing activities resulted in a requirement of $0.8 million for the three months ended March 31, 2012, as compared to $0.9 million during the three months ended March 31, 2011.

Cash flows from financing activities. Our cash flows from financing activities resulted in a generation of $23.0 million for the three months ended March 31, 2012, as compared to $1.9 million for the three months ended March 31, 2011. The change was primarily the result of the higher net borrowings under our lines of credit by our Miami Operations and our operations in El Salvador during the three months ended March 31, 2012.

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 March 31, 2012			As of December 31, 2011
	(Dollars in thousands)
Balance sheet data:
Trade accounts receivable, net of allowance	$	159,042		$	137,921
Inventories		199,914			169,138
Accounts payable		221,213			208,409

Other data:
Trade accounts receivable days ⁽¹⁾		37.1			31.5
Inventory days ⁽²⁾		51.0			42.7
Accounts payable days ⁽³⁾		(56.5	)		(52.7	)

Cash conversion cycle ⁽⁴⁾		31.6			21.5

(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 91 days for the three months ended March 31, 2012 and 92 days for the three months ended December 31, 2011. 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 91 days for the three months ended March 31, 2012 and 92 days for the three months ended December 31, 2011.

(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 91 days for the three months ended March 31, 2012 and 92 days for the three months ended December 31, 2011.

(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 increased to 31.6 days as of March 31, 2012, from 21.5 days as of December 31, 2011. Trade accounts receivable days increased to 37.1 days as of March 31, 2012, from 31.5 days as of December 31, 2011. Trade accounts receivable days were partially influenced by the timing of sales within the respective quarters. Inventory days increased to 51.0 days as of March 31, 2011, from 42.7 days as of December 31, 2011, due to growth in inventory levels primarily in our Miami Operations. Accounts payable days increased to 56.5 days as of March 31, 2012, as compared to 52.7 days as of December 31, 2011, due to the increase in inventory related payables, primarily for mobile 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 one customer accounted for more than 3.8% of sales for the three months ended March 31, 2012 and 2.0% of sales for the three months ended March 31, 2011. 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 $25.0 million with an aggregate deductible of $1.0 million; the policy expires on August 31, 2012. 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 expires on October 31, 2012.

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 operation 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 $0.8 million for the three months ended March 31, 2012, as compared to $1.0 million for the three months ended March 31, 2011.

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 March 31, 2012 and December 31, 2011, the total amounts available under our lines of credit, overdraft and credit facilities were $22.4 million and $39.1 million, respectively, of which $12.2 million and $15.5 million, respectively related to our Miami Operations and $10.2 million and $23.6 million, respectively related to our In-country Operations.

SBA Miami—PNC Bank Revolving Credit Facility

On July 25, 2011, Software Brokers of America, Inc., or 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 provided 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 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.

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.

On January 25, 2012, SBA together with its consolidated subsidiaries executed an 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 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 March 31, 2012, SBA’s outstanding draws against the PNC Credit Facility were $37.8 million, net of $1.0 million of excess cash in bank, and the remaining amount available was $12.2 million. As of March 31, 2012, SBA did not have any outstanding undrawn stand-by letters of credit. As of March 31, 2012, we and SBA were in compliance with all of the covenants and restrictions 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 Original 13¹/4% Senior Notes, or the Original 13¹/4% Senior Notes Offering, of $120.0 million aggregate principal amount of our 13¹/4% Senior Notes due December 15, 2014 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. 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%.

In connection with the Original 13¹/4% Senior Notes Offering, our company and certain of our subsidiaries that guaranteed our obligations, or the Guarantors under the indenture governing our Prior 11³/4% Senior Notes, or the 11³/4% Senior Notes Indenture, entered into an indenture, or the 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 are secured on a second priority basis by a lien on 100% of the capital stock of certain of ours and each Guarantor’s directly owned domestic restricted subsidiaries; 65% of the capital stock of ours 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, we commenced the exchange offer for all of our outstanding Original 13¹/4% Secured Notes not registered under the Securities Act of 1933, for an equal principal amount of 13¹/4% Second Priority Senior Secured Notes due 2014, which have been registered under the Securities Act of 1933, or the 13¹/4% Senior Notes. 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 are required to redeem $5.0 million aggregate principal amount of the New 13¹/4% Senior Notes on December 15, 2012 and $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, plus accrued and unpaid interest to the redemption date subject to certain requirements. We may redeem the 13¹/4% Senior Notes, in whole or in part, at any time prior to December 15, 2012 at a price equal to 100% of the aggregate principal amount of the 13¹/4% Senior Notes plus a “make-whole” premium of 6.625% of the principal amount for any redemptions between December 15, 2012 and December 14, 2013. At any time prior to December 15, 2012, we may redeem up to 35% of the aggregate principal amount of the 13¹/4% Senior Notes with the net cash proceeds of certain equity offerings. In addition, at our option, we may redeem up to 10% of the original aggregate principal amount of the 13¹/4% Senior Notes from time to time prior to December 15, 2012, but no more than once in any 12-month period at $103.00 of the aggregate principal amount of the 13¹/4% Senior Notes. We will be required to redeem up to 35% of the aggregate principal amount of the 13¹/4% Senior Notes if an initial public offering occurs on or prior to December 15, 2012 at a price equal to 113.25% of the principal amount of the 13¹/4% Senior Notes.

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 restrictive covenant. We must maintain a consolidated fixed charges coverage 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 March 31, 2012 and December 31, 2011, we had a consolidated fixed charges coverage ratio of 3.1 to 1.00 and 2.9 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, on our New 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) 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 the 13¹/4% Senior Notes of $121 for the year ended December 31, 2011.

As of March 31, 2012 and December 31, 2011, the carrying value of the $115.0 million principal amount of the remaining outstanding 13¹/4% Senior Notes was $111.2 million and $110.9 million, respectively. As of March 31, 2012 and December 31, 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 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 CVC International subsidiary, CVCI Intcomex Investment LP, or CVCI Investment, pursuant to which we agreed to return approximately $927, 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. As of March 31, 2012, there were no shares of Common Stock granted or issued under this plan.

Certificate of Incorporation Amendment

On April 19, 2011, we amended our certificate of incorporation pursuant to which each outstanding share of Class B non-voting common stock was automatically converted into one share of voting common stock. As of the filing of such amendment, we no longer have any shares of Class B, no-voting common stock authorized or issued or outstanding.

Brightpoint Transaction

On April 19, 2011, we and two of our subsidiaries, Intcomex Colombia and Intcomex Guatemala, completed an investment agreement to purchase certain assets consisting of certain of its Latin American operations, excluding certain legacy business in Puerto Rico, and equity, or the Acquired Assets, from 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 the Brightpoint Latin America operations 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 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. As a result of the transaction, Brightpoint Latin America owns an approximate 23% equity ownership interest in our company and has one representative on our Board of Directors.

Brightpoint Latin America joined Citi Venture Capital International, a unit of Citigroup Inc. and Anthony and Michael Shalom as significant shareholders of ours. In connection with the Investment Agreement, we entered into the Fifth Amended and Restated Shareholders Agreement by and among the CVC Shareholders, the Shalom Shareholders, the Centel Shareholders, the Additional Shareholders and Brightpoint Latin America.

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 Original Equipment Manufacturer, or 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 3.8% or more of our revenue; 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 economicdownturn 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.

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.

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 audited 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.

Item 3.

Quantitative and Qualitative Disclosures About Market Risk.

There have been no material changes in our quantitative and qualitative disclosures about market risk during the fiscal quarter covered by this Quarterly Report from those disclosed in our Annual Report. For a detailed discussion of the quantitative and qualitative disclosures about market risk, see Part II. Item 7A. “Quantitative and Qualitative Disclosures About Market Risk” in our Annual Report.

Item 4.

Controls and Procedures.

Evaluation of Disclosure Controls and Procedures. Under the supervision and with the participation of management, including the Company’s principal executive officer and principal financial officer, the Company has evaluated the effectiveness of its disclosure controls and procedures as defined in Rule 13a-15(e) and 15d-15(e) under the Exchange Act for the end of the period covered by this Quarterly Report. Based on that evaluation, the Company’s principal executive officer and principal financial officer have concluded as of March 31, 2012, that these controls and procedures were effective to ensure that information required to be disclosed in reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the rules and forms of the SEC, and is accumulated and communicated to management, including the principal executive officer and the principal financial officer, as appropriate, to allow for timely decisions regarding required disclosure.

Changes in Internal Control over Financial Reporting. There were no changes in our internal control over financial reporting that occurred during the quarterly period ended March 31, 2012 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Part II—OTHER INFORMATION

Item 1.

Legal Proceedings.

As of March 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 the outcome of any legal proceedings currently pending or threatened will have a material adverse affect on our business, future consolidated results of operations and financial condition.

Item 1A.

Risk Factors.

In addition to the other information set forth in this Quarterly Report, readers should carefully consider the risk factors discussed in Part I—Financial Information, 1A. “Risk Factors” in our Annual Report, which could materially affect our business, future consolidated results of operations and financial condition. The risk factors described in the Annual Report may not be the only risk facing our Company. Additional risks and uncertainties that we currently deem to be immaterial or are not currently known to us may also materially and adversely affect our business, consolidated results of operations and financial condition.

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds.

Not applicable.

Item 3.

Defaults Upon Senior Securities.

Not applicable.

Item 4.

Mine Safety Disclosures.

Not applicable.

Item 5.

Other Information.

Not applicable.

Item 6.

Exhibits.


Exhibit No.		Description

31.1		Certification of Chief Executive Officer Pursuant to Securities Exchange Act Rules 13a-14(a) and 15d-14(a), As Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.*

31.2		Certification of Chief Financial Officer Pursuant to Securities Exchange Act Rules 13a-14(a) and 15d-14(a), As Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.*

32.1		Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.*

32.2		Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.*

101.INS**		XBRL Instance Document

101.SCH**		XBRL Taxonomy Extension Schema

101.CAL**		XBRL Taxonomy Extension Calculation Linkbase

101.LAB**		XBRL Taxonomy Extension Label Linkbase

101.PRE**		XBRL Taxonomy Extension Presentation Linkbase

*	Filed herewith.

Pursuant to Rule 406T of Regulation S-T, these interactive data files are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933 or Section 18 of the Securities Exchange Act of 1934 and otherwise are not subject to liability.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


Signature	Title	Date

/S/ Anthony Shalom		May 14, 2012
Anthony Shalom	Chairman of the Board of Directors

/S/ Michael F. Shalom
Michael F. Shalom	President and Chief Executive Officer	May 14, 2012

/S/ Russell A. Olson
Russell A. Olson	Chief Financial Officer	May 14, 2012

Exhibit Index


Exhibit No.		Description

31.1		Certification of Chief Executive Officer Pursuant to Securities Exchange Act Rules 13a-14(a) and 15d-14(a), As Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.*

31.2		Certification of Chief Financial Officer Pursuant to Securities Exchange Act Rules 13a-14(a) and 15d-14(a), As Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.*

32.1		Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.*

32.2		Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.*

101.INS**		XBRL Instance Document

101.SCH**		XBRL Taxonomy Extension Schema

101.CAL**		XBRL Taxonomy Extension Calculation Linkbase

101.LAB**		XBRL Taxonomy Extension Label Linkbase

101.PRE**		XBRL Taxonomy Extension Presentation Linkbase

*	Filed herewith.

Large accelerated filer

Accelerated filer

Non-accelerated filer

x (Do not check if a smaller reporting company)

Smaller reporting company