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FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(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 29, 1997
OR
[ ] 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: 1-12203
INGRAM MICRO INC.
(Exact name of Registrant as specified in its charter)
DELAWARE 62-1644402
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1600 E. ST. ANDREW PLACE, SANTA ANA, CALIFORNIA 92799-5125
(Address, including zip code, of principal executive offices)
(714) 566-1000
(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
--- ---
The Registrant had 25,786,779 shares of Class A Common Stock, par value $.01 per
share, and 109,043,762 shares of Class B Common Stock, par value $.01 per share,
outstanding at March 29, 1997.
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INGRAM MICRO INC.
INDEX
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements Pages
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Consolidated Balance Sheet at March 29, 1997 and December 28, 1996 3
Consolidated Statement of Income for the thirteen weeks ended
March 29, 1997 and March 30, 1996 4
Consolidated Statement of Cash Flows for the thirteen weeks ended
March 29, 1997 and March 30, 1996 5
Notes to Consolidated Financial Statements 6-7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 8-12
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 13
Item 6. Exhibits and Reports on Form 8-K 13
Signatures 13
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
INGRAM MICRO INC.
CONSOLIDATED BALANCE SHEET
(DOLLARS IN 000S, EXCEPT PER SHARE DATA)
MARCH 29, DECEMBER 28,
1997 1996
----------- ------------
(UNAUDITED)
ASSETS
Current assets:
Cash $ 62,138 $ 48,279
Trade accounts receivable (less allowances of $42,896
in 1997 and $38,622 in 1996) 1,194,492 1,143,028
Inventories 2,117,410 1,818,047
Other current assets 148,747 145,964
----------- -----------
Total current assets 3,522,787 3,155,318
Property and equipment, net 169,481 161,172
Goodwill, net 25,057 25,918
Other 26,680 24,539
----------- -----------
Total assets $ 3,744,005 $ 3,366,947
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 2,132,911 $ 2,047,988
Accrued expenses 200,081 162,887
Current maturities of long-term debt 13,170 23,899
----------- -----------
Total current liabilities 2,346,162 2,234,774
Long-term debt 495,361 280,134
Other 16,432 6,190
----------- -----------
Total liabilities 2,857,955 2,521,098
Minority interest 3,691 3,476
Commitments and contingencies
Redeemable Class B Common Stock 17,223 17,223
Stockholders' equity:
Preferred Stock, $0.01 par value, 1,000,000 shares
authorized; no shares issued and outstanding - -
Class A Common Stock, $0.01 par value, 265,000,000 shares
authorized; 25,786,779 and 25,047,696 shares issued
and outstanding in 1997 and 1996, respectively 258 250
Class B Common Stock, $0.01 par value, 135,000,000
shares authorized; 109,043,762 shares issued and
outstanding in 1997 and 1996 (including
2,460,400 redeemable shares) 1,066 1,066
Additional paid in capital 457,679 449,657
Retained earnings 413,178 372,801
Cumulative translation adjustment (6,571) 1,910
Unearned compensation (474) (534)
----------- -----------
Total stockholders' equity 865,136 825,150
----------- -----------
Total liabilities and stockholders' equity $ 3,744,005 $ 3,366,947
=========== ===========
See accompanying notes to these consolidated financial statements.
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INGRAM MICRO INC.
CONSOLIDATED STATEMENT OF INCOME
(DOLLARS IN 000S, EXCEPT PER SHARE DATA)
(UNAUDITED)
THIRTEEN WEEKS ENDED
MARCH 29, MARCH 30,
1997 1996
----------- -----------
Net sales $ 3,649,978 $ 2,752,735
Cost of sales 3,415,270 2,566,170
----------- -----------
Gross profit 234,708 186,565
Expenses:
Selling, general and administrative 154,145 123,304
Charges allocated from Ingram Industries - 1,583
Noncash compensation charge 1,813 6,745
----------- -----------
155,958 131,632
----------- -----------
Income from operations 78,750 54,933
Other (income) expense:
Interest income (814) (340)
Interest expense 7,308 3,926
Interest expense charged by Ingram Industries - 10,635
Net foreign currency exchange loss 63 226
Other 3,148 876
----------- -----------
9,705 15,323
----------- -----------
Income before income taxes and
minority interest 69,045 39,610
Provision for income taxes 28,453 15,854
----------- -----------
Income before minority interest 40,592 23,756
Minority interest 215 (72)
----------- -----------
Net income $ 40,377 $ 23,828
=========== ===========
Earnings per share $ 0.28 $ 0.20
=========== ===========
See accompanying notes to these consolidated financial statements.
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INGRAM MICRO INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(DOLLARS IN 000S)
(UNAUDITED)
THIRTEEN WEEKS ENDED
MARCH 29, MARCH 30,
1997 1996
--------- ---------
CASH PROVIDED (USED) BY OPERATING ACTIVITIES:
Net income $ 40,377 $ 23,828
Adjustments to reconcile net income to
cash provided by operating activities:
Depreciation and amortization 10,326 7,700
Deferred income taxes (1,892) (2,285)
Minority interest 215 (72)
Noncash compensation charge 1,813 6,745
Changes in operating assets and liabilities:
Trade accounts receivable (81,599) (10,214)
Inventories (322,031) 135,278
Other current assets (3,916) (4,635)
Accounts payable 114,732 (117,676)
Accrued expenses 50,620 (3,444)
--------- ---------
Cash (used) provided by operating activities (191,355) 35,225
CASH PROVIDED (USED) BY INVESTING ACTIVITIES:
Purchase of property & equipment (19,358) (14,186)
Other (1,955) (1,925)
--------- ---------
Cash used by investing activities (21,313) (16,111)
CASH PROVIDED (USED) BY FINANCING ACTIVITIES:
Exercise of stock options including tax benefits 6,276 -
Decrease in borrowings from Ingram Industries - (55,930)
Proceeds from debt 53,135 238
Net borrowings under revolving credit facility 168,750 15,456
Minority interest investment - 2,400
--------- ---------
Cash provided (used) by financing activities 228,161 (37,836)
Effect of exchange rate changes on cash (1,634) (619)
--------- ---------
Increase (decrease) in cash 13,859 (19,341)
Cash, beginning of period 48,279 56,916
--------- ---------
Cash, end of period $ 62,138 $ 37,575
========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash payments during the period:
Interest $ 7,089 $ 15,216
Income taxes 15,324 22,913
Cash payments include payments made to Ingram Industries for interest and U.S.
income taxes.
See accompanying notes to these consolidated financial statements.
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INGRAM MICRO INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(DOLLARS IN 000S, EXCEPT PER SHARE DATA)
NOTE 1 - ORGANIZATION AND BASIS OF PRESENTATION
Ingram Micro Inc. (the "Company" or "Ingram Micro") is primarily engaged
in wholesale distribution of technology products and services. The Company
conducts the majority of its operations in North America and Europe. In November
1996, the Company's former parent, Ingram Industries Inc. ("Ingram Industries"),
consummated a split-off of the Company in a tax-free reorganization (the
"Split-Off"). In connection with the Split-Off, certain stockholders of Ingram
Industries exchanged all or some of their shares of Ingram Industries Common
Stock for 107,251,362 shares of Class B Common Stock of the Company in specified
ratios.
The consolidated financial statements included herein have been prepared
by the Company, without audit, pursuant to the rules and regulations of the
Securities and Exchange Commission. In the opinion of management, the
accompanying unaudited consolidated financial statements contain all material
adjustments, consisting of only normal recurring adjustments, necessary to
present fairly the financial position of the Company and its wholly-owned and
majority-owned subsidiaries as of March 29, 1997 and the results of their
operations and cash flows for the thirteen weeks ended March 29, 1997 and March
30, 1996. All significant intercompany accounts and transactions have been
eliminated in consolidation. The results of operations for the thirteen week
period may not be indicative of the results of operations that can be expected
for the full year.
NOTE 2 - EARNINGS PER SHARE
Historical earnings per share for the thirteen weeks ended March 30, 1996
reflects the Company's capital structure as a result of the Split-Off. Earnings
per share is determined based on the number of shares outstanding after giving
effect to the Split-Off in addition to all dilutive common stock and common
stock equivalent shares. Pursuant to the Securities and Exchange Commission
Staff Accounting Bulletins and Staff policy, such shares issued within 12 months
of the initial public offering (the "IPO") of the Company's Class A Common Stock
are treated as if they were outstanding for all periods presented prior to the
IPO using the treasury stock method. The number of common and common equivalent
shares outstanding used in the computation of earnings per share for the
thirteen weeks ended March 29, 1997 and March 30, 1996 was 145,369,321 and
121,406,591, respectively.
In March 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128, "Earnings per Share" ("FAS 128")
which will become effective in the fourth quarter of 1997. FAS 128 replaces the
presentation of earnings per share reflected on the Statement of Income with a
dual presentation of Basic Earnings per Share ("Basic EPS") and Diluted Earnings
per Share ("Diluted EPS"). Basic EPS excludes dilution and is computed by
dividing net income by the weighted average number of common shares outstanding
during the period. Diluted EPS reflects the potential dilution that could occur
if stock options and other commitments to issue common stock were exercised
resulting in the issuance of common stock that then shared in the earnings of
the Company. FAS 128 does not permit early application; however, it requires,
when implemented in the fourth quarter, the restatement of previously reported
earnings per share for each income statement presented. Pro forma disclosure of
earnings per share information as if the Company had implemented FAS 128 during
the thirteen weeks ended March 29, 1997 and March 30, 1996 is as follows:
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INGRAM MICRO INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(DOLLARS IN 000S, EXCEPT PER SHARE DATA)
PRO FORMA EARNINGS PER SHARE: THIRTEEN WEEKS ENDED
MARCH 29, MARCH 30,
1997 1996
------------ ---------------
Net income $ 40,377 $ 23,828
=========== ===============
Weighted average shares 134,773,566 107,251,362
=========== ===============
Basic earnings per share $ 0.30 $ 0.22
=========== ===============
Weighted average shares including
the dilutive effect of stock options
(10,595,755 and 14,155,229 at March 29,
1997 and March 30, 1996, respectively) 145,369,321 121,406,591
=========== ===============
Diluted earnings per share $ 0.28 $ 0.20
=========== ===============
NOTE 3 - COMMON STOCK
The Company has two classes of Common Stock, consisting of 265,000,000
authorized shares of $0.01 par value Class A Common Stock and 135,000,000
authorized shares of $0.01 par value Class B Common Stock, and 1,000,000
authorized shares of $0.01 par value Preferred Stock. Class A stockholders are
entitled to one vote on each matter to be voted on by the stockholders whereas
Class B stockholders are entitled to ten votes on each matter to be voted on by
the stockholders. The two classes of stock have the same rights in all other
respects. Each share of Class B Common Stock may at any time be converted to a
share of Class A Common Stock; however, conversion will occur automatically on
the earliest to occur of (i) November 6, 2001; (ii) the sale or transfer of such
share of Class B Common Stock to any person not specifically authorized to hold
such shares by the Company's Certificate of Incorporation; or (iii) the date on
which the number of shares of Class B Common Stock then outstanding represents
less than 25% of the aggregate number of shares of Class A Common Stock and
Class B Common Stock then outstanding.
Initial Public Offering
On November 1, 1996, the Company sold 23,200,000 shares of Class A Common
Stock at $18.00 per share in an initial public offering. Proceeds of $393,844,
net of underwriters' commissions and expenses of the offering aggregating
$23,756, were received and used to repay indebtedness to Ingram Industries in
the amount of $366,340.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
Ingram Micro is the leading wholesale distributor of technology products
and services worldwide. In November 1996, the Company was split-off from Ingram
Industries (the "Split-Off") and completed an initial public offering (the
"IPO") of its Class A Common Stock that raised $393.8 million, net of
underwriters' discounts and expenses, of which approximately $366.3 million was
used to repay certain indebtedness to Ingram Industries. Concurrently with the
completion of the IPO, the Company entered into a $1 billion Credit Facility
with a syndicate of banks for which NationsBank of Texas, N.A. and The Bank of
Nova Scotia acted as agents. In addition, the Company assumed an Ingram
Industries accounts receivable securitization program under which $160 million
of fixed rate medium term certificates and $105 million in trust
certificate-backed commercial paper was outstanding at March 29, 1997. See " --
Liquidity and Capital Resources."
In connection with the Split-Off, certain outstanding Ingram Industries
stock options, incentive stock units ("ISUs"), and stock appreciation rights
("SARs") held by certain employees of Ingram Industries, Ingram Entertainment,
and Ingram Micro were converted to options to purchase up to an aggregate of
approximately 10,989,000 shares of Class A Common Stock ("Rollover Stock
Options"). The Company recorded a pre-tax noncash compensation charge of
approximately $1.8 million ($1.4 million net of tax) in the thirteen weeks ended
March 29, 1997 and $6.7 million ($4.1 million net of tax) in the thirteen weeks
ended March 30, 1996 related to the vested portion of certain Rollover Stock
Options based on the difference between the estimated fair value of such options
at the applicable measurement dates and the exercise price of such options. The
Company will record additional noncash compensation charges over the remaining
vesting periods of the Rollover Stock Options. On an annual basis, these
additional charges are expected to be approximately $7.3 million ($5.8 million
net of tax) for 1997, $4.8 million ($3.7 million net of tax) for 1998 and $2.7
million ($1.9 million net of tax) for 1999.
RESULTS OF OPERATIONS
The following table sets forth the Company's net sales by geographic
region (excluding intercompany sales), and the percentage of total net sales
represented thereby, for each of the periods indicated.
THIRTEEN WEEKS ENDED
MARCH 29, MARCH 30,
1997 1996
------------------- -------------------
NET SALES BY GEOGRAPHIC REGION (1): (DOLLARS IN MILLIONS)
United States $2,535 69.4% $1,834 66.6%
Europe 758 20.8% 633 23.0%
Other international 357 9.8% 286 10.4%
------------------- -------------------
Total $3,650 100.0% $2,753 100.0%
=================== ===================
- ----------
(1) Net sales are classified by location of the Company entity. For example,
products sold through Ingram Alliance or the U.S. Export Division are
classified as United States sales.
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MANAGEMENT'S DISCUSSION AND ANALYSIS CONTINUED
The following table sets forth certain items from the Company's
Consolidated Statement of Income as a percentage of net sales, for each of the
periods indicated.
PERCENTAGE OF NET SALES
-----------------------
THIRTEEN WEEKS ENDED
MARCH 29, MARCH 30,
1997 1996
-------- --------
Net sales 100.0% 100.0%
Cost of sales 93.6% 93.2%
----- -----
Gross profit 6.4% 6.8%
Expenses:
SG&A expenses and charges allocated
from Ingram Industries 4.2% 4.6%
Noncash compensation charge 0.0% 0.2%
----- -----
Income from operations 2.2% 2.0%
Other expense, net 0.3% 0.6%
----- -----
Income before income taxes and minority interest 1.9% 1.4%
Provision for income taxes 0.8% 0.6%
Minority interest 0.0% 0.0%
----- -----
Net income 1.1% 0.8%
===== =====
THIRTEEN WEEKS ENDED MARCH 29, 1997 COMPARED TO THIRTEEN WEEKS ENDED MARCH 30,
1996
Consolidated net sales increased 32.6% to $3.6 billion in the first
quarter of 1997 from $2.8 billion in the first quarter of 1996. The increase in
worldwide net sales was attributable to growth in the microcomputer products
industry in general, the addition of new customers, increased sales to the
existing customer base, improved product availability, and expansion of the
Company's product offerings.
Net sales from U.S. operations increased 38.2% to $2.54 billion in the
first quarter of 1997 from $1.83 billion in the first quarter of 1996. In
addition to the factors above that impacted net sales worldwide, U.S. net sales
were positively impacted by the strong growth in Ingram Alliance sales which
grew 82.6% to $681.0 million in the first quarter of 1997 from $373.0 million in
the first quarter of 1996. Net sales from European operations increased 19.7% to
$757.6 million in the first quarter of 1997 from $632.8 million in the first
quarter of 1996. The U.S. dollar was stronger against most European currencies
during the first quarter of 1997 relative to the first quarter of 1996. At
constant exchange rates, net sales from European operations would have increased
27% in the first quarter of 1997 as compared to the first quarter of 1996. Other
international net sales increased 25.2% to $357.6 million in the first quarter
of 1997 from $285.7 million in the first quarter of 1996, principally due to
growth in net sales of the Company's Canadian and Mexican operations.
Cost of sales as a percentage of net sales increased to 93.6% in the first
quarter of 1997 from 93.2% in the first quarter of 1996. This increase was
largely attributable to the increase as a percentage of net sales of the Ingram
Alliance business which has lower gross margins.
Total SG&A expenses (including charges allocated from Ingram Industries in
1996) increased 23.4% to $154.1 million in the first quarter of 1997 from $124.9
million in the first quarter of 1996, but decreased as a percentage of net sales
to 4.2% in the first quarter of 1997 from 4.6% in the first quarter of 1996. The
increased level of spending was attributable to expenses required to support
expansion of the Company's business, consisting primarily of incremental
personnel and support costs, lease payments relating to new operating
facilities, and expenses associated with the development and maintenance of
information systems. The decrease in operating expenses as a percentage of net
sales
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MANAGEMENT'S DISCUSSION AND ANALYSIS CONTINUED
was primarily attributable to the growth of Ingram Alliance, which utilizes a
lower cost business model, and economies of scale from higher sales volumes.
In the first quarter of 1996 and 1997, the Company recorded noncash
compensation charges related to the vested portion of previously granted stock
options converted to Ingram Micro stock options. Noncash compensation charges
decreased 73.1% to $1.8 million in the first quarter of 1997 from $6.7 million
in the first quarter of 1996. The higher amount in 1996 was due to the initial
noncash compensation charge recorded in the first quarter of 1996 when the terms
and grants of these stock options were established. The Company expects to
record additional noncash compensation charges of $1.8 million in each of the
second, third and fourth quarters of 1997.
Excluding noncash compensation charges, total income from operations
expressed as a percentage of net sales remained unchanged at 2.2% in the first
quarter of 1997 and the first quarter of 1996. Income from operations in the
United States excluding the noncash compensation charge increased as a
percentage of U.S. net sales to 2.7% in the first quarter of 1997 from 2.6% in
the first quarter of 1996. Income from operations in Europe excluding the
noncash compensation charge decreased as a percentage of European net sales to
1.0% in the first quarter of 1997 from 1.1% in the first quarter of 1996. Income
from operations for other international regions excluding the noncash
compensation charge decreased as a percentage of other international net sales
to 1.7% in the first quarter of 1997 from 2.5% in the first quarter of 1996 due
to the impact of higher cost of sales as a percentage of other international net
sales.
For the reasons set forth above, income from operations, including noncash
compensation charges, increased 43.4% to $78.8 million in the first quarter of
1997 from $54.9 million in the first quarter of 1996, and, as a percentage of
net sales, increased to 2.2% in the first quarter of 1997 from 2.0% in the first
quarter of 1996.
Other expense, net, which consists primarily of net interest expense
(including interest expense charged by Ingram Industries in 1996), foreign
currency exchange losses, and miscellaneous non-operating expenses, decreased
36.7% to $9.7 million in the first quarter of 1997 from $15.3 million in the
first quarter of 1996, and decreased as a percentage of net sales to 0.3% in the
first quarter of 1997 from 0.6% in the first quarter of 1996. The decrease in
other expense was largely attributable to a year-over-year decrease in interest
expense to $7.3 million in the first quarter of 1997 from $14.6 million
(including interest expense charged by Ingram Industries) in the first quarter
of 1996, primarily related to repayment of indebtedness to Ingram Industries
with proceeds from the Company's initial public offering in the fourth quarter
of 1996. The decrease in interest expense was partially offset by the increase
in other expense to $3.1 million in the first quarter of 1997 from $0.9 million
in the first quarter of 1996 resulting from the classification of $2.9 million
of financing costs in the first quarter of 1997 relating to the Company's
accounts receivable securitization program. See -- "Liquidity and Capital
Resources". Such expenses were reflected as interest expense charged by Ingram
Industries in the first quarter of 1996.
The provision for income taxes increased 79.5% to $28.5 million in the
first quarter of 1997 from $15.9 million in the first quarter of 1996,
reflecting the 74.3% increase in the Company's income before income taxes and
minority interest. The Company's effective tax rate was 41.2% in the first
quarter of 1997 compared to 40.0% in the first quarter of 1996. The increase in
the effective tax rate was primarily due to the effect of higher state taxes and
tax benefits of noncash compensation charges. In 1996, the Company filed
consolidated state tax returns with Ingram Industries which allowed the Company
to take advantage of certain apportionment benefits among the states. In 1997,
the Company will file its own separate state tax returns. In addition,
approximately one-half of the noncash compensation charge for the first quarter
of 1997 is not deductible for income tax purposes. The noncash compensation
charge for the first quarter of 1996 was fully deductible for income tax
purposes.
Excluding noncash compensation charges of $1.4 million (net of tax) for
the first quarter of 1997 and $4.1 million (net of tax) for the first quarter of
1996, net income increased 49.7% to $41.8 million in the first quarter of 1997
from $27.9 million in the first quarter of 1996 and, as a percentage of net
sales, increased to 1.1% in the first quarter of 1997 from 1.0% in the first
quarter of 1996. Pro forma earnings per share, excluding noncash compensation
charges, increased 26.0% to $0.29 in the first quarter of 1997 from $0.23 in the
first quarter of 1996. Net income, including noncash compensation charges,
increased 69.5% to $40.4 million in the first quarter of 1997 from $23.8 million
in the first quarter of 1996. Earnings per share, including the noncash
compensation charge, increased 40.0% to $0.28 in the
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MANAGEMENT'S DISCUSSION AND ANALYSIS CONTINUED
first quarter of 1997 from $0.20 in the first quarter of 1996.
QUARTERLY DATA; SEASONALITY
The Company's quarterly sales and operating results have varied in the
past and will likely continue to do so in the future as a result of seasonal
variations in the demand for the products and services offered by the Company,
the introduction of new hardware and software technologies and products offering
improved features and functionality, the introduction of new products and
services by the Company and its competitors, the loss or consolidation of a
significant supplier or customer, changes in the level of operating expenses,
inventory adjustments, product supply constraints, competitive conditions
including pricing, interest rate fluctuations, the impact of acquisitions,
currency fluctuations, and general economic conditions. The Company's narrow
operating margins may magnify such fluctuations, particularly on a quarterly
basis.
LIQUIDITY AND CAPITAL RESOURCES
The Company has financed its growth and cash needs largely through income
from operations and borrowings, trade and supplier credit and, more recently,
the public sale of 23,200,000 shares of its Class A Common Stock at $18.00 per
share in the IPO completed in November 1996.
Cash used by operating activities was $191.4 million in the first quarter
of 1997 as compared to cash provided by operating activities of $35.2 million in
the first quarter of 1996. The significant increase in cash used by operating
activities in the first quarter of 1997 over the first quarter of 1996 was due
to the increase in accounts receivable and inventory levels at March 29, 1997 as
compared to March 30, 1996. Cash provided by the increase in accounts payable in
the first quarter of 1997 partially offset the use related to accounts
receivable and inventory. The increase in inventory levels at March 29, 1997 was
due to the growth in sales volume, new product launches and the pursuit of
attractive product buying opportunities in order to maintain high customer order
fill rates.
Net cash used by investing activities was $21.3 million in the first
quarter of 1997 as compared to $16.1 million in the first quarter of 1996. The
increase was due to the Company's expansion of warehouse and other facilities.
Net cash provided by financing activities was $228.2 million in the first
quarter of 1997 as compared to cash used by financing activities of $37.8
million in the first quarter of 1996. The increase in net cash provided by
financing activities was caused primarily by proceeds drawn under the revolving
credit facility and new long-term debt of $221.9 million in the first quarter of
1997 as compared to the net repayment of borrowings from Ingram Industries
totaling $55.9 million in the first quarter of 1996. Borrowings under the
revolving credit facility and long-term debt were used, in part, to finance the
increase in accounts receivable and inventories.
Prior to the Split-Off, the Company's sources of capital had primarily
been borrowings from Ingram Industries. Ingram Industries no longer provides
financing to the Company following the Split-Off. In November 1996, the Company
entered into a $1 billion Credit Facility (the "Credit Facility") with a
syndicate of banks for which NationsBank of Texas, N.A. and The Bank of Nova
Scotia acted as agents. The Company is required to comply with certain financial
covenants, including minimum net worth, restrictions on funded debt, current
ratio and interest coverage, which will be tested as of the end of each fiscal
quarter. The Credit Facility also restricts the Company's ability to pay
dividends. Borrowings will be subject to the satisfaction of customary
conditions, including the absence of any material adverse change in the
Company's business or financial condition. At March 29, 1997, the Company was in
compliance with these financial covenants and had $363.5 million in outstanding
borrowings under the Credit Facility.
From February 1993 through the Split-Off, the Company had an agreement
with Ingram Industries whereby the Company sold all of its domestic trade
accounts receivable to Ingram Industries on an ongoing basis. Ingram Industries
transferred certain trade accounts receivable from the Company and other Ingram
Industries affiliates to a trust which sold certificates representing undivided
interests in the total pool of trade receivables without recourse. As of
November 1, 1996, Ingram Industries had sold $160 million of fixed rate medium
term certificates and established a commercial paper program, supported by a
variable rate certificate. The arrangement with the trust extends to December
31, 1999,
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MANAGEMENT'S DISCUSSION AND ANALYSIS CONTINUED
renewable biannually under an evergreen provision up to a maximum term of 20
years. In connection with the Split-Off, in partial satisfaction of amounts due
to Ingram Industries, the Ingram Industries accounts receivable securitization
program was assumed by the Company, which is now the sole seller of receivables.
Under the amended program, certain of the Company's domestic receivables are
transferred to the trust. The Company believes the amended program contains
sufficient trade accounts receivable to support the outstanding fixed rate
medium term certificates as well as an unspecified amount under the variable
rate certificate which supports the commercial paper program. At March 29, 1997,
the amount of commercial paper outstanding totaled $105.0 million. Assumption of
the securitization program resulted in a $160 million reduction of trade
accounts receivable and long-term debt in the Company's consolidated balance
sheet at March 29, 1997 and December 28, 1996.
The Company announced on April 30, 1997 that it has signed a definitive
agreement to acquire the Intelligent Electronics Inc. ("IE") indirect
distribution business, its Reseller Network Division ("RND"). Under the terms of
the agreement, Ingram Micro will pay a total of $78 million, subject to
adjustment, in a combination of cash and assumption of liabilities in excess of
current assets. Pending regulatory review and IE stockholder approval, the
transaction is expected to close as soon as three months from the announcement
date. The RND business model -- also known as "wholesale aggregation" or "master
reseller" -- is complementary to Ingram Alliance. The Company believes that the
agreement will provide a new revenue source as well as strengthen the Company's
relationships to resellers through new programs, better access to key
manufacturers and improved operations. The Company will also become the primary
wholesaler to IE's XLSource division, an authorized direct sales organization
and reseller for products of more than 80 technology manufacturers, for an
initial term of up to three years. The Company believes that its existing cash
and credit facilities are adequate to pay the purchase price for RND and
discharge its other obligations under the agreement, as well as finance the
anticipated increase in accounts receivable and inventories upon completion of
the acquisition of RND.
COMMENTS ON FORWARD-LOOKING INFORMATION
In connection with the "safe-harbor" provisions of the Private Securities
Litigation Reform Act of 1995, the Company, in its Annual Report on Form 10-K
for the year ended December 28, 1996, outlined cautionary statements identifying
important factors that could cause the Company's actual results to differ
materially from those projected in forward-looking statements made by, or on
behalf of, the Company. Such forward-looking statements, as made within this
Form 10-Q, should be considered in conjunction with the information included in
the Company's Annual Report on Form 10-K for the year ended December 28, 1996,
including Exhibit 99.01 attached thereto.
NEW ACCOUNTING STANDARDS
In March 1997, the Financial Accounting Standards Board issued FAS 128
which will become effective in the fourth quarter of 1997. FAS 128 replaces the
presentation of earnings per share reflected on the Statement of Income with a
dual presentation of Basic Earnings per Share ("Basic EPS") and Diluted Earnings
per Share ("Diluted EPS"). FAS 128 does not permit early application; however,
it requires, when implemented in the fourth quarter of 1997, restatement of
previously reported earnings per share for each income statement presented. The
Company does not expect the adoption of FAS 128 to have a material impact on its
financial condition or results of operations. However, pro forma disclosure of
earnings per share as computed under FAS 128 is presented in the notes to
consolidated financial statements.
12
13
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
There are no material pending legal proceedings to which the Company is a
party or to which any of its property is subject.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits
No. Description
--- -----------
27 Financial Data Schedule
b) Reports on Form 8-K
No reports on Form 8-K have been filed during the thirteen weeks ended
March 29, 1997.
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.
INGRAM MICRO INC.
By: /s/ Michael J. Grainger
-------------------------------------
Name: Michael J. Grainger
Title: Executive Vice President and
Worldwide Chief Financial Officer
(Principal Financial Officer and Principal
Accounting Officer)
May 8, 1997
13
5
1,000
3-MOS
JAN-03-1998
DEC-29-1996
MAR-29-1997
62,138
0
1,237,388
42,896
2,117,410
3,522,787
266,810
97,329
3,744,005
2,346,162
0
0
0
1,324
863,812
3,744,005
3,649,978
3,649,978
3,415,270
3,571,228
3,211
0
7,308
69,045
28,453
40,377
0
0
0
40,377
0.28
0.28
