1
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10-K
------------------------
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED JANUARY 3, 1998
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 INCORPORATION (I.R.S. EMPLOYER IDENTIFICATION NO.)
OR ORGANIZATION)
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)
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
CLASS A COMMON STOCK, PAR VALUE $.01 PER SHARE
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 if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The aggregate market value of the voting stock held by non-affiliates of
the Registrant at March 6, 1998 was $1,955,612,055 based on the closing sale
price on such date of $36.625.
The Registrant had 38,074,224 shares of Class A Common Stock, par value
$.01 per share, and 99,714,672 shares of Class B Common Stock, par value $.01
per share, outstanding at March 6, 1998.
DOCUMENTS INCORPORATED BY REFERENCE:
Portions of the Annual Report to Shareowners for the fiscal year ended
January 3, 1998 are incorporated by reference into Parts I and II of this Annual
Report on Form 10-K. Portions of the Proxy Statement for the Registrant's Annual
Meeting of Shareowners to be held May 6, 1998 are incorporated by reference into
Part III of this Annual Report on Form 10-K.
================================================================================
2
PART I
ITEM 1. BUSINESS
OVERVIEW
Ingram Micro Inc. (hereinafter referred to as "Ingram Micro" or the
"Company") is the leading wholesale distributor of computer-based technology
products and services worldwide. The Company markets microcomputer hardware,
networking equipment, and software products to more than 100,000 reseller
customers in more than 120 countries. As a wholesale distributor, the Company
markets its products to resellers as opposed to marketing directly to end-user
customers.
Ingram Micro offers one-stop shopping to its reseller customers by
providing a comprehensive inventory, which in the aggregate on a global basis,
consists of more than 145,000 products (as measured by distinct manufacturer's
part numbers) from over 1,400 suppliers, including most of the microcomputer
industry's leading hardware manufacturers, networking equipment suppliers, and
software publishers. The Company's broad product offerings include: desktop and
notebook PCs, servers, and workstations; mass storage devices; CD-ROM drives;
monitors; printers; scanners; modems; networking hubs, routers, and switches;
network interface cards; business application software; entertainment software;
and computer supplies. In addition, to enhance sales and to support its
suppliers and reseller customers, the Company provides a wide range of
outsourcing and value-added programs, such as order fulfillment, tailored
financing programs, channel assembly, systems configuration, and marketing
programs.
Ingram Micro entered the master reseller business in late 1994 with the
launch of Ingram Alliance. The Company further expanded its master reseller
business by acquiring Intelligent Electronics, Inc.'s Reseller Network Division
("RND") in July 1997 and integrating RND into Ingram Alliance. The Company's
master reseller business is designed to offer resellers access to the industry's
leading hardware manufacturers at competitive prices by utilizing a lower cost
business model that depends upon a higher average order size, lower product
returns percentage, and supplier-paid financing. The Company's success in its
master reseller business has, to a large degree, been attributable to its
ability to leverage Ingram Micro's distribution infrastructure and capitalize on
strong supplier relationships. In addition, a substantial majority of the
Company's master reseller sales are funded by floor plan financing companies
whose fees are subsidized by the Company's suppliers. The Company typically
receives payment from these financing institutions within three business days
from the date of the sale, allowing the Company's master reseller business to
operate at much lower relative working capital levels than the Company's
wholesale distribution business.
The Company is focused on providing a broad range of products and services,
quick and efficient order fulfillment, and consistent on-time and accurate
delivery to its reseller customers around the world. The Company believes that
IMpulse, the Company's on-line information system, provides a competitive
advantage through real-time worldwide information access and processing
capabilities. IMpulse is a single, standardized, real-time information system
and operating environment, used across substantially all of the Company's
worldwide operations. This on-line information system, coupled with the
Company's exacting operating procedures in telesales, credit support, customer
service, purchasing, technical support, and warehouse operations, enables the
Company to provide its reseller customers with superior service in an efficient
and low cost manner.
The Company's earliest predecessor began business in 1979 as a California
corporation named Micro D, Inc. This company and its parent, Ingram Micro
Holdings Inc. ("Holdings"), grew through a series of acquisitions, mergers, and
internal growth to encompass the Company's current operations. Ingram Micro Inc.
was incorporated in Delaware on April 29, 1996, in order to effect the
reincorporation of the Company in Delaware. The successor to Micro D, Inc. and
Holdings were merged into Ingram Micro Inc. in October 1996.
In November 1996, the Company completed the sale of 23,200,000 shares of
its Class A Common Stock pursuant to an initial public offering (the "IPO") at
an offering price of $18.00 per share. Cash proceeds of the offering totaled
$393.8 million, net of underwriters' discounts and expenses of the offering, of
which approximately $366.3 million were used to repay indebtedness to its then
parent, Ingram Industries Inc.
2
3
("Ingram Industries"). The remaining proceeds of the offering, amounting to
$27.5 million, were used for working capital purposes. Immediately prior to the
closing of the IPO, the Company was split-off from Ingram Industries in a
tax-free reorganization (the "Split-Off").
THE INDUSTRY
The worldwide microcomputer products distribution industry generally
consists of suppliers, which sell directly to wholesalers, resellers, and
end-users; wholesale distributors, which sell to resellers; and resellers, which
sell to other resellers and directly to end-users. A variety of reseller
categories exists, including corporate resellers, value-added resellers or
"VARs," systems integrators, original equipment manufacturers, direct marketers,
independent dealers, owner-operated chains, franchise chains, and computer
retailers. Different types of resellers are defined and distinguished by the
end-user market they serve, such as large corporate accounts, small and
medium-sized businesses, or home users, and by the level of value they add to
the basic products they sell. Wholesale distributors generally sell only to
resellers and purchase a wide range of products in bulk directly from
manufacturers. Different wholesale distribution models have evolved in
particular countries and geographies depending on the characteristics of the
local reseller environment, as well as other factors specific to a particular
country or region.
The growth of the microcomputer products wholesale distribution industry
continues to exceed that of the microcomputer industry as a whole. Faced with
the pressures of declining product prices and the increasing costs of selling
direct to a large and diverse group of resellers, suppliers are increasingly
relying upon wholesale distribution channels for a greater proportion of their
sales. To minimize costs and focus on their core capabilities in manufacturing,
product development, and marketing, many suppliers are also outsourcing an
increasing portion of certain functions such as distribution, service, technical
support, and final assembly to the wholesale distribution channel. Growing
product complexity, shorter product life cycles, and an increasing number of
microcomputer products due to the emergence of open systems architectures and
the recognition of certain industry standards have led resellers to depend on
wholesale distributors for more of their product, marketing, and technical
support needs. In addition, resellers are relying to an increasing extent on
wholesale distributors for inventory management and credit to avoid stocking
large inventories and maintaining credit lines to finance their working capital
needs. The Company believes that new opportunities for growth in the
microcomputer products wholesale distribution industry will emerge as new
product categories, such as computer telephone integration ("CTI") and the
digital video disc format, arise from the ongoing convergence of computing,
communications, and consumer electronics.
Markets outside the United States, which represent over half of the
microcomputer industry's sales, are characterized by a more fragmented wholesale
distribution channel than in the United States. Increasingly, suppliers and
resellers pursuing global growth are seeking wholesale distributors with
international sales and support capabilities. In addition, the microcomputer
products industry in certain international markets is less mature and growing
more rapidly than in the United States, and as such, international growth
opportunities for microcomputer wholesaler distributors are significant.
The evolution of open sourcing during the past several years is a
phenomenon specific to the U.S. microcomputer products wholesale distribution
market. Historically, branded computer systems from large suppliers such as
Apple Computer, Compaq Computer, Hewlett-Packard, and IBM were sold in the
United States only through authorized master resellers. Under this single
sourcing model, resellers were required to purchase these products exclusively
from one master reseller. Competitive pressures led some of the major computer
suppliers to authorize second sourcing, in which resellers may purchase a
supplier's product from a source other than their primary master reseller,
subject to certain restrictive terms and conditions (such as higher prices or
the elimination of floor planning subsidies). More recently, all major PC
manufacturers have authorized open sourcing, a model under which resellers can
purchase the supplier's product from any source on equal terms and conditions.
Open sourcing has blurred the distinction between wholesale distributors and
master resellers, which are increasingly able to serve the same reseller
customers, whereas previously master resellers had a captive reseller customer
base. The Company believes that open sourcing puts the largest and most
efficient distributors of microcomputer products, which provide the highest
value through superior service and pricing, in the best position to compete for
reseller customers.
3
4
A number of emerging industry trends are providing new opportunities and
challenges for microcomputer distributors. Significant changes in the supply
chain process have led traditional suppliers to seek ways of outsourcing
component procurement and final product assembly, thereby reducing inventory
related costs and shortening time-to-market for their products. In turn, certain
distributors and large resellers are instituting channel assembly programs
wherein the distributor or large reseller, on behalf of suppliers, acquires
components and assembles and delivers products to the customer site. This
build-to-order model lowers finished goods inventory and the risks associated
with it. Another industry trend, the emergence of the Internet, provides
distributors an additional means to serve both suppliers and reseller customers
through the development and use of effective electronic commerce tools. The
growing presence and importance of such electronic commerce capabilities also
provides distributors with new business opportunities as new categories of
products, customers, and suppliers develop.
The dynamics of the microcomputer products wholesale distribution business
favor the largest distributors which have access to financing and are able to
achieve economies of scale, breadth of geographic coverage, and the strongest
vendor relationships. Consequently, the distributors with these characteristics
are tending to take share from smaller distributors as the industry undergoes a
process of consolidation. However, smaller high value-added niche distributors
may continue to compete successfully in the consolidated market. The need for
wholesale distributors to implement high volume/low cost operations on a
worldwide basis is continuing to grow due to ongoing price competition, the
increasing demand for value-added services, the realization of open sourcing,
the trend towards channel assembly, the increasing utilization of electronic
commerce, and the increasing globalization of the microcomputer products
industry. In summary, the microcomputer wholesale distribution industry is
growing rapidly while simultaneously consolidating, creating an industry
environment in which market share leadership and cost efficiency are of
paramount importance.
BUSINESS STRATEGY
All of the Company's strategic decisions and activities are guided by the
following Vision and Mission statements, which were formalized in January 1997:
OUR VISION. We will always exceed expectations . . . with every partner,
every day.
OUR MISSION. To maximize shareowner value by being the best distributor of
technology for the world.
In addition, the Company's values encourage teamwork, respect,
accountability, integrity and innovation.
The Company believes that it is the leading worldwide wholesale distributor
of computer-based technology products and services and that it has developed the
capabilities and scale of operations critical for long-term success in the
microcomputer products distribution industry.
The Company's strategy of offering a broad line of products and services
provides reseller customers with one-stop shopping. The Company generally is
able to purchase products in large quantities and to avail itself of special
purchase opportunities from a broad range of suppliers. This allows the Company
to take advantage of various discounts from its suppliers, which in turn enables
the Company to provide competitive pricing to its reseller customers. The
Company's global market presence provides suppliers with access to a broad base
of geographically dispersed resellers, serviced by the Company's extensive
network of distribution centers and support offices. The Company's size has
permitted it to attract highly qualified associates and increase investment in
personnel development and training. Also, the Company benefits from being able
to make large investments in information systems, warehousing systems, and
infrastructure. Further, the Company is able to spread the costs of these
investments across its worldwide operations.
The Company is pursuing a number of strategies to further enhance its
leadership position within the microcomputer marketplace. These include:
EXPAND WORLDWIDE MARKET COVERAGE. Ingram Micro is committed to extending
its already extensive worldwide market coverage through internal growth in all
markets in which it currently participates. In addition, the Company intends to
pursue acquisitions, joint ventures, and strategic relationships outside the
4
5
United States in order to take advantage of growth opportunities and to leverage
its strong systems, infrastructure, and global management skills.
By providing greater worldwide market coverage, Ingram Micro also increases
the scale of its business, which results in more cost economies. In addition, as
it increases its global reach, the Company diversifies its business across
different markets, reducing its exposure to individual market downturns. In
1997, the Company made six acquisitions: Intelligent Electronic's RND (U.S.),
Computacion Tecnica, S.A. ("Computek") (Miami, Florida, Chile, Brazil, and
Peru), Latino Americana de Software Ltda. (Brazil), J & W Computer GmbH
(Germany, Switzerland, Austria, and France), TT Microtrading Oy (Finland), and
Tallgrass Technologies AS. (Norway). The Company also acquired a 21% interest in
Electronic Resources Ltd. ("Electronic Resources"), a leading distributor of
electronic components and computer peripherals in Asia. Electronic Resources, in
turn, acquired the Company's Singapore and Malaysian operations. The Company has
grown its operations outside the United States principally through acquisitions
and currently has operations or sales representatives in 23 countries including
Argentina, Brazil, Canada, Colombia, Chile, Ecuador, Japan, Mexico, Norway,
Peru, Switzerland, and most of the countries of the European Union. Through its
equity interest in Electronic Resources, the Company has distribution
capabilities in Australia, New Zealand and seven Asian countries: China, India,
Indonesia, Malaysia, Singapore, Thailand, and Vietnam. The Company believes that
it is the market share leader in the United States, Canada, and Mexico, the
third largest full-line distributor in Europe, and the second largest Pan-Latin
America distributor, based on publicly available data and management's knowledge
of the industry. The Company's objective is to achieve the number one market
share position in each of the markets in which it operates. In keeping with this
objective, Ingram Micro continues efforts aimed at maintaining a leadership
position in providing global technology solutions. The Company entered into an
alliance during 1997 with Allied Computing Services Ltd. (ACSL), an
international association of computer resellers in North America, Europe, and
Japan. This alliance with ACSL offers Ingram Micro's reseller partners a number
of strategic services on a global basis, including fulfillment of international
information technology bids and purchasing agreements, asset-management
consulting, worldwide terms and conditions, and international project
coordination with local implementation.
EXPLOIT INFORMATION SYSTEMS LEADERSHIP. Ingram Micro continually invests in
its information systems which are crucial in supporting the Company's growth and
its ability to maintain high service and performance levels. The Company has
developed a scalable, full-featured information system, IMpulse, which the
Company believes is critical to its ability to deliver worldwide, real-time
information to both suppliers and reseller customers. IMpulse is a single,
standardized information system, used across substantially all of the Company's
markets worldwide, that has been customized to suit local market requirements.
The Company believes that it is the only full-line wholesale distributor of
microcomputer products in the world with such a centralized global system.
The Company will continue to invest in the enhancement and expansion of its
systems to create additional applications and functionality including further
expansion in electronic links with reseller customers and suppliers to provide
better access to the Company's extensive database for pricing, product
availability, and technical information.
PROVIDE SUPERIOR EXECUTION FOR RESELLER CUSTOMERS. Ingram Micro continually
refines its systems and processes to provide superior execution and service to
reseller customers. The Company's electronic commerce capabilities have expanded
to include the Internet-based Electronic Catalog, In-Depth Library, and Auction
Block. In the United States, the Company has implemented CTI Technology, which
provides onscreen caller identification, abandoned call management capabilities,
and speed dialing to telesales associates. Also in the United States, the POWER
system provides improved response time to resellers' product returns and other
customer service requests. To support future customer requirements, the Company
continues to expand and upgrade its distribution network. For example, a new
600,000 square foot state-of-the-art distribution center in Millington,
Tennessee was opened in mid-1997. This distribution center is strategically
located near several major transportation hubs and benefits from lower regional
labor costs. The Company has also implemented formal systems for evaluating and
tracking key performance metrics such as responsiveness to customers, processing
accuracy, and order fulfillment. Ingram Micro uses these metrics as
5
6
well as customer satisfaction surveys to measure improvements on all the key
elements that are believed to be important to the customer.
Ingram Micro strives to maintain high order fill rates by keeping extensive
supplies of product in its 33 distribution centers worldwide. In the United
States and Canada, the Company has implemented control systems and processes
referred to as Bulletproof Shipping, which include stock-keeping unit ("SKU")
bar coding for all products and on-line quality assurance methods. As a result
of this program, substantially all orders in the United States received by 5:00
p.m. are shipped on the same day, with highly accurate shipping performance.
A recent example of the Company's ability to provide superior execution for
its reseller customers was the Company's ability to respond to a strike against
an independent shipping company that the Company uses for delivery of a majority
of the Company's products to its customers in the United States. On August 4,
1997, members of the International Brotherhood of Teamsters began a nationwide
strike against United Parcel Service ("UPS"). Although this 2 1/2 week strike
materially impaired UPS' ability to perform shipping services required by the
Company within the United States, the Company was able to successfully shift all
of its U.S. shipments to other carriers, although on less favorable terms in
some cases. As a result of the successful execution of the Company's contingency
plans, and the teamwork among the Company's associates, outside vendors and
carriers, the Company was able to maintain outbound shipping at a near 100
percent service level, which the Company believes was a level unmatched by any
of the Company's competitors. In addition, the increased volume in U.S. sales
experienced by the Company during and immediately after the termination of the
strike reflected the Company's ability to meet shipping demands for customers
during the strike.
DELIVER WORLD-CLASS OUTSOURCING AND VALUE-ADDED PROGRAMS TO SUPPLIERS AND
RESELLERS. Ingram Micro is committed to providing a diverse range of value-added
wholesaling and "for fee" services to its supplier and reseller customers.
Together, these services are intended to link reseller customers and suppliers
to Ingram Micro as a one-stop provider of microcomputer products and related
services, while meeting demand by suppliers and resellers to outsource non-core
business activities and thereby lower their operating costs.
The Company's value-added wholesaling services include channel assembly
(assembly on behalf of either vendors or resellers and shipment of customized
finished systems to reseller customers), product configuration, pre- and
post-sale technical support, order fulfillment, financing programs, product demo
evaluation and on-site service and support. In the channel assembly area, the
Company currently assembles products on behalf of Acer, Compaq Computer, Digital
Equipment, IBM, and Hewlett-Packard.
In addition to these value-added wholesaling services, the Company offers a
variety of "for fee" services for its reseller customers and suppliers. These
services include: contract assembly and configuration, contract fulfillment,
contract warehousing, contract telesales, contract credit/accounts receivable
management, contract inventory management, and contract technical support for
customers. The Company is focused on identifying and developing services that
directly meet reseller customer and supplier needs.
MAINTAIN LOW COST LEADERSHIP THROUGH CONTINUOUS IMPROVEMENTS IN SYSTEMS AND
PROCESSES. The microcomputer products industry is characterized by intense
competition and narrow margins, and as a result, achieving economies of scale
and controlling operating expenses are critical to achieving and maintaining
profitable growth.
Over the last five years, the Company has been successful in reducing SG&A
expenses (including expenses allocated from Ingram Industries) as a percentage
of net sales, to 4.2% in 1997 from 5.6% in 1993. The Company has embarked on a
number of programs that are designed to continue to reduce operating expenses as
a percentage of net sales.
Many U.S. developed programs continue to be adapted for implementation in
the Company's international operations. These programs include: (i) the use of
advanced inventory processes and techniques; (ii) the use of proprietary
warehouse productivity programs, such as Bulletproof Shipping and Pick
Assignment; (iii) the enhancement of associates' productivity through the use of
technology such as CTI, and the expanded use of multimedia workstations for
functions such as Telesales; and (iv) the electronic
6
7
automation of the ordering and information delivery process through electronic
commerce to decrease the number of non-order telesales calls. See
"-- Information Systems."
DEVELOP HUMAN RESOURCES FOR EXCELLENCE AND TO SUPPORT FUTURE GROWTH. Ingram
Micro's growth to date is a result of the talent, dedication, and teamwork of
its associates. Future growth and success will be substantially dependent upon
the retention and development of existing associates, as well as the recruitment
of superior talent.
Transferring functional skills and implementing cross-training programs
across all Ingram Micro locations have proven to be important factors in the
Company's growth and global expansion. In conjunction with these programs, the
Company intends to expand its human resource systems to provide enhanced career
planning, training support, applicant tracking, and benefits administration.
Also, the Company continues to seek top quality associates worldwide through
local, professional, and college recruiting programs. Recognizing that hiring
and retaining top talent hinges, in part, on providing a competitive salary and
benefits package, the Company is developing a global salary structure based on a
comprehensive review of competitive salaries and benefits by region.
The Company has also implemented a values-based management approach which
is guided by and links individual rewards and incentive programs to the
Company's values.
CUSTOMERS
Ingram Micro sells to more than 100,000 reseller customers in more than 120
countries worldwide. No single customer accounted for more than 4% of Ingram
Micro's net sales in 1997, 1996, or 1995.
The Company conducts business with most of the leading resellers of
microcomputer products around the world including, in the United States, CDW
Computer Centers, Catalink, CompuCom, CompUSA, Computer City, Connected
Resources, Electronic Data Systems, En Pointe Technologies, Entex Information
Services, GE Capital Information Technologies Solutions, Insight, Micro
Warehouse, Office Max, PC Connection, Staples, and Vanstar. The Company's
reseller customers outside the United States include 06-Software Centre Europe,
B.V., Complet Data A/S, Compugen Systems Ltd., Consultores en Diagnostico
Organizacional y de Sistemas, DSG Retail Ltd., Future Shop, GE Capital
Technologies, Jump Ordenadores, London Drugs, Maxima S.A., Norsk Datasenter,
Owell Svenska AB, Redes de Micros, SHL Systemhouse, SNI Siemens Nixdorf Infosys
AG, Soluciones Integrales, and TC Sistema S.p.A. The Company has certain limited
contracts with its reseller customers, although most such contracts have a short
term, or are terminable at will, and have no minimum purchase requirements. The
Company's business is not substantially dependent on any such contracts.
SALES AND MARKETING
Ingram Micro's telesales department is comprised of approximately 2,000
telesales representatives worldwide, of whom more than 1,050 representatives are
located in the United States. These telesales representatives assist resellers
with product specifications, system configuration, new product/service
introductions, pricing, and availability. The Company's two main United States
telesales centers are located in Santa Ana, California and Williamsville
(Buffalo), New York and are supported by an extensive national field sales
organization. Currently, Ingram Micro has more than 210 field sales
representatives worldwide, including more than 75 in the United States.
The sales organization is organized to focus on resellers who address the
VAR (consisting of value-added resellers, system integrators, network
integrators, application VARs, original equipment manufacturers and Internet
service providers), Commercial (consisting of corporate resellers, direct
marketers, independent dealers and owner-operated chains), Consumer (consisting
of consumer electronics stores, computer superstores, mass merchants, office
product superstores, software only stores and warehouse clubs), and
Telecommunications (consisting of telephone companies, telecommunications
contractors and interconnect value-added resellers) market sectors. In addition,
the Company utilizes a variety of product-focused groups specializing in
specific product types. Specialists in mass storage, memory, networks,
processors, telephony,
7
8
UNIX workstations and servers, and other product categories promote sales growth
and facilitate customer contacts for their particular product group. Ingram
Micro also offers a variety of marketing programs tailored to meet specific
supplier and reseller customer needs. Services provided by the Company's
in-house marketing services group include advertising, direct mail campaigns,
market research, on-line marketing, retail programs, sales promotions, training,
and assistance with trade shows and other events.
PRODUCTS AND SUPPLIERS
Ingram Micro believes that it has the largest inventory of products in the
industry, based on a review of publicly available data with respect to its major
competitors. The Company distributes and markets more than 145,000 products from
the industry's premier microcomputer hardware manufacturers, networking
equipment suppliers, and software publishers worldwide. Product assortments vary
by market, and the relative importance of manufacturers to Ingram Micro varies
from country to country. On a worldwide basis, the Company's sales mix is more
heavily weighted toward hardware products and networking equipment than software
products. Net sales of software products have decreased as a percentage of total
net sales in recent years due to a number of factors, including bundling of
software with microcomputers; sales growth in Ingram Alliance, which is a
hardware-only business; declines in software prices; and the emergence of
alternative means of software distribution, such as site licenses and electronic
distribution. The Company believes that this is a trend that applies to the
microcomputer products distribution industry as a whole, and the Company expects
it to continue. See Item 7. -- Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Overview.
Ingram Micro's worldwide supplier list includes almost all of the leading
microcomputer hardware manufacturers, networking equipment manufacturers, and
software publishers such as Acer, Apple Computer, Cisco Systems, Compaq
Computer, Corel, Epson, Hewlett-Packard, IBM, Intel, Iomega, Microsoft, NEC,
Novell, Seagate, Sun Microsystems, Symantec, 3Com, Toshiba, Viewsonic, and
Western Digital.
The Company's suppliers generally warrant the products distributed by the
Company and allow the Company to return defective products, including those that
have been returned to the Company by its customers. The Company does not
independently warrant the products it distributes; however, the Company has
recently begun to warrant the following: (i) its services with regard to
products which it configures for its customers, and (ii) products which it
builds to order from components purchased from other sources.
The Company's business, like that of other wholesale distributors, is
subject to the risk that the value of its inventory will be affected adversely
by suppliers' price reductions or by technological changes affecting the
usefulness or desirability of the products comprising the inventory. It is the
policy of most suppliers of microcomputer products to protect distributors, such
as the Company, who purchase directly from such suppliers, from the loss in
value of inventory due to technological change or the supplier's price
reductions. However, major PC suppliers have stated that it is their intent to
reduce the amount of inventory in the channel, particularly in light of the
growth of channel assembly strategies. Consequently, if major PC suppliers
substantially decrease the availability of price protection to wholesale
distributors, such change in policy could have a material adverse effect on the
Company's financial condition and results of operations.
The Company has written distribution agreements with many of its suppliers;
however, these agreements usually provide for nonexclusive distribution rights
and often include territorial restrictions that limit the countries in which
Ingram Micro is permitted to distribute the products. The agreements are also
generally short term, subject to periodic renewal, and often contain provisions
permitting termination by either party without cause upon relatively short
notice. The Company does not believe that its business is substantially
dependent on the terms of any such agreements. Under the terms of many
distribution agreements, suppliers will credit the distributor for declines in
inventory value resulting from the supplier's price reductions if the
distributor complies with certain conditions. In addition, under many such
agreements, the distributor has the right to return for credit or exchange for
other products a portion of those inventory items purchased, within a designated
period of time. A supplier who elects to terminate a distribution agreement
generally will repurchase from the distributor the supplier's products carried
in the distributor's inventory.
8
9
While the industry practices discussed above are sometimes not embodied in
written agreements and do not protect the Company in all cases from declines in
inventory value, management believes that these practices provide a significant
level of protection from such declines. No assurance can be given, however, that
such practices will continue or that they will adequately protect the Company
against declines in inventory value. The Company's risk of inventory loss could
be greater outside the United States, where agreements with suppliers are more
restrictive with regard to price protection and the Company's ability to return
unsold inventory. The Company establishes reserves for estimated losses due to
obsolete inventory in the normal course of business. Historically, the Company
has not experienced losses due to obsolete inventory materially in excess of
established inventory reserves.
OUTSOURCING AND VALUE-ADDED PROGRAMS
Ingram Micro offers a myriad of programs and services to its suppliers and
reseller customers as an integral part of its wholesaling efforts. The Company
categorizes these services into value-added wholesale distribution and "for fee"
services. Together, these services are intended to link reseller customers and
suppliers to Ingram Micro as a one-stop provider of microcomputer products and
related services, while meeting demand by suppliers and resellers to outsource
non-core business activities and thereby lower their operating costs.
The Company's value-added wholesaling services are an important complement
to its distribution activities and include pre- and post-sale technical support,
order fulfillment, financing programs, product demo evaluation, and on-site
service and support.
In addition to these value-added wholesaling services, the Company offers a
variety of "for fee" services for its reseller customers and suppliers. These
services include: contract warehousing, contract telesales, contract
credit/accounts receivable management, contract inventory management, and
contract technical support for customers. The Company is focused on identifying
and developing services that directly meet reseller customer and supplier needs.
All of these services are currently available in the Company's U.S.
operations. The degree of implementation of these value-added services in Ingram
Micro's operations outside the United States varies depending on particular
market circumstances. Although the Company believes that value-added services
are important as a complement to its core business, such services do not, and
are not in the future expected to, generate a material percentage of the
Company's net sales. See "-- Frameworks Total Integration Services" below. In
addition, such value-added services do not, and are not in the future expected
to, require a material portion of the Company's resources.
FRAMEWORKS TOTAL INTEGRATION SERVICES
To better serve both global and regional customers, the Company introduced
Frameworks Total Integration Services ("Frameworks"), a worldwide channel
assembly and configuration initiative that is anticipated to deliver customized,
fully tested computer systems to its reseller customers. Frameworks is designed
to provide fast, flexible build-to-order capabilities including custom
configuration capabilities, competitive pricing on OEM components to facilitate
assembly and configuration efforts by the Company's reseller customers, and
drop-ship functionality. In addition, Frameworks' material planning systems and
just-in-time procurement are designed to enable Ingram Micro to ship components
and finished systems within three to five days of order. The Company plans to
sell the assembled systems and products to all customer sectors, including
Consumer, Commercial and VAR customers. To support this global initiative, the
Company opened a new 488,470 square foot global integration center in Memphis,
Tennessee in March 1998.
INFORMATION SYSTEMS
The Company's core information system, IMpulse, is central to its ability
to provide superior execution to its customers, and as such, the Company
believes that it represents an important competitive advantage.
9
10
Ingram Micro's systems are primarily mainframe-based in order to provide
the high level of scalability and performance required to manage such a large
and complex business operation. IMpulse is a single, standardized, real-time
information system and operating environment, used across substantially all of
the Company's worldwide operations. It has been customized as necessary for use
in almost all countries in which the Company operates and has the capability to
handle multiple languages and currencies. On a daily basis, the Company's
systems typically handle 34 million on-line transactions, 51,000 orders, and
123,000 shipments. The Company has designed IMpulse as a scalable system that
has the capability to support increased transaction volume. The overall on-line
response time for the Company's network of over 13,000 user stations (terminals,
printers, personal computers, and radio frequency hand held terminals) is less
than one second.
Worldwide, Ingram Micro's centralized processing system supports more than
40 operational functions including receiving, customer management, order
processing, shipping, inventory management, and accounting. At the core of the
IMpulse system is on-line, real-time distribution software to which considerable
enhancements and modifications have been made to support the Company's growth
and its low cost business model. The Company makes extensive use of advanced
telecommunications technologies with customer service-enhancing features, such
as Automatic Call Distribution to route customer calls to the telesales
representatives. The Telesales Department relies on its Sales Wizard system for
on-line, real-time tracking of all customer calls, for proactive outbound
calling, and for status reports on sales statistics such as number of customer
calls, customer call intentions, and total sales generated. IMpulse allows the
Company's telesales representatives to deliver real-time information on product
pricing, inventory, availability, and order status to reseller customers. The
Sales Adjusted Gross Profit (SAGP) pricing system enables telesales
representatives to make informed pricing decisions through access to specific
product and order-related costs for each order.
In the United States, the Company has implemented CTI technology, which
provides the telesales representatives with Automatic Number Identification
capability and advanced telecommunications features such as on-screen call
waiting and automatic call return, thereby reducing the time required to process
customer orders.
To complement Ingram Micro's telesales, customer service, and technical
support capabilities, IMpulse offers a number of different electronic products
and services through which customers can conduct business with the Company, such
as the Customer Automated Purchasing System (CAPS), Electronic Data Interchange
(EDI), the Bulletin Board Service, and the Ingram Micro Web site. The Company's
latest additions to its electronic commerce capabilities are its Internet-based
Electronic Catalog, In-Depth Library, and Auction Block. The Electronic Catalog
provides reseller customers with real-time access to product pricing and
availability, with the capability to search by product category, name, or
manufacturer. The In-Depth Library is a comprehensive multi-manufacturer
database of timely and accurate product, sales, marketing, and technical
information, which is updated nightly for new information. Auction Block is a
real-time, on-line bidding service that allows reseller customers to
competitively bid on unopened products that are not returnable to the suppliers
(e.g., discontinued products, products with cosmetic damage to their packaging,
returned products not conforming to supplier's return policies, etc.).
The Company's warehouse operations use extensive bar-coding technology and
radio frequency technology for receiving and shipping, and real-time links to
UPS and FedEx for freight processing and shipment tracking. The Customer Service
Department uses the POWER System for on-line documentation and faster processing
of customer product returns. To ensure that adequate inventory levels are
maintained, the Company's buyers depend on the Purchasing system to track
inventory on a continual basis. Many other features of IMpulse help to expedite
the order processing cycle and reduce operating costs for the Company as well as
its reseller customers and suppliers.
The Company employs various security measures and backup systems designed
to protect against unauthorized use or failure of its information systems.
Access to the Company's information systems is controlled through the use of
passwords and additional security measures are taken with respect to especially
sensitive information. The Company has a five year contract with Sungard
Recovery Services for disaster recovery and twice per year performs a complete
systems test, including applications and database integrity. In
10
11
addition, the Company has backup power sources for emergency power and also has
the capability to automatically reroute incoming calls, such as from its Santa
Ana (West Coast sales) facility to its Buffalo (East Coast sales) facility. The
Company has not in the past experienced significant failures or downtime of
IMpulse or any of its other information systems, but any such failure or
significant downtime could prevent the Company from taking customer orders,
printing product pick-lists, and/or shipping product and could prevent customers
from accessing price and product availability information from the Company.
As is the case with many computer software systems, some of the Company's
systems use two digit data fields which recognize dates using the assumption
that the first two digits are "19" (i.e., the number 97 is recognized as the
year 1997). Therefore, the Company's date critical functions relating to the
year 2000 and beyond, such as sales, distribution, purchasing, inventory
control, facilities, and financial systems, may be severely affected unless
changes are made to these computer systems. With the assistance of an outside
consultant, the Company commenced a review of the Company's internal systems in
mid-1997 to identify applications that are not Year 2000 ready and to assess the
impact of the Year 2000 problem. The Company has developed an overall plan and a
systematic process to modify its internal systems to be Year 2000 ready. The
Company commenced remediation of its mainframe programs in early 1998 to comply
with Year 2000 requirements. The Company anticipates that the other required
Year 2000 modifications will be made on a timely basis and does not believe that
the cost of such modifications will have a material effect on the Company's
operating results. However, the Company faces risks to the extent that suppliers
of products (including components for its channel assembly and configuration
initiative), services (including services provided by independent shipping
companies), and business on a worldwide basis may not have business systems or
products that comply with Year 2000 requirements. In the event any such third
parties cannot provide the Company with products, services or systems that meet
Year 2000 requirements in a timely manner, the Company's operating results could
be materially adversely affected. Furthermore, there can be no assurance that
these or other factors relating to Year 2000 compliance issues, including
litigation, will not have a material adverse effect on the Company's business,
operating results or financial condition.
NON-U.S. OPERATIONS AND EXPORT SALES
OPERATIONS OUTSIDE THE UNITED STATES. The Company, through its
subsidiaries, operates in a number of countries outside of the United States,
including Brazil, Canada, Chile, Mexico, Norway, Peru, Switzerland, and most
countries of the European Union. In 1997, 1996, and 1995, 30.8%, 33.0%, and
32.3%, respectively, of the Company's net sales were derived from operations
outside of the United States. The Company expects its international net sales to
increase as a percentage of total net sales in the future, due to organic growth
as well as growth from acquisitions such as that of Computek in Latin America.
In addition, the Company purchased a minority interest in Electronic Resources,
a distributor of information technology products in the Asia-Pacific region. The
Company's net sales from operations outside the United States are primarily
denominated in currencies other than the U.S. dollar. Accordingly, the Company's
operations outside the United States impose risks upon its business as a result
of exchange rate fluctuations. Although the Company attempts to mitigate the
effect of exchange rate fluctuations on its business, primarily by attempting to
match the currencies of sales and costs, as well as through the use of foreign
currency borrowings and derivative financial instruments such as forward
exchange contracts, the Company does not seek to remove all risk associated with
such fluctuations. Accordingly, there can be no assurance that exchange rate
fluctuations will not have a material adverse effect on the Company's business,
financial condition, or results of operations in the future. In certain
countries outside the United States, operations are accounted for primarily on a
U.S. dollar denominated basis. In the event of an unexpected devaluation of the
local currency in those countries (as occurred in Mexico in December 1994 and
more recently in 1997 in Asia and Latin America), the Company may experience
significant foreign exchange losses. See Item 7. -- Management's Discussion and
Analysis of Financial Condition and Results of Operations.
The Company's operations outside the United States are subject to other
risks such as the imposition of governmental controls, export license
requirements, restrictions on the export of certain technology, political
instability, trade restrictions, tariff changes, difficulties in staffing and
managing international operations, difficulties in collecting accounts
receivable and longer collection periods, and the impact of local economic
11
12
conditions and practices. These risks are more prevalent in regions where the
economic and political environments are less stable than in more stable areas
such as Canada and Western Europe. As the Company continues to expand its
international business, its success will be dependent, in part, on its ability
to anticipate and effectively manage these and other risks. There can be no
assurance that these and other factors will not have a material adverse effect
on the Company's operations or its business, financial condition, and results of
operations as a whole.
EXPORT MARKETS. The Company's Export operations continue to serve those
markets where the Company does not have a stand-alone, in-country presence. The
Miami, Florida; Santa Ana, California; and Brussels, Belgium Export operations
(which have been reorganized as part of the Latin America, U.S. and European
operations, respectively) serve more than 2,500 resellers in over 100 countries.
In addition, the Export branch in Latin America has field sales representatives
based in Buenos Aires, Argentina; Bogota, Colombia; and Quito, Ecuador. The
Export branch in Santa Ana also has field sales representatives based in Tokyo,
Japan.
For segment information regarding the Company's United States and
international operations, see Note 10 of Notes to Consolidated Financial
Statements.
COMPETITION
The Company operates in a highly competitive environment, both in the
United States and internationally. The microcomputer products distribution
industry is characterized by intense competition, based primarily on price,
product availability, speed and accuracy of delivery, effectiveness of sales and
marketing programs, credit availability, ability to tailor specific solutions to
customer needs, quality and breadth of product lines and service, and
availability of technical and product information. The Company believes it
competes favorably with respect to each of these factors. In addition, the
Company believes that outsourcing and value-added capabilities (such as channel
assembly, configuration, innovative financing programs, and order fulfillment
program) will become more important competitive factors.
The Company is constantly seeking to expand its business into areas closely
related to its core microcomputer products distribution business. As the Company
enters new business areas, it may encounter increased competition from current
competitors and/or from new competitors, some of which may be current customers
of the Company. For example, the Company intends to distribute media in the new
digital video disc format and may compete with traditional music and printed
media distributors. Also, as electronic purchases of software become more
prevalent in the industry, electronic software distributors may become
significant competitors of the Company. In addition, certain services the
Company provides may directly compete with those provided by the Company's
reseller customers. There can be no assurance that increased competition and
adverse reaction from customers resulting from the Company's expansion into new
business areas will not have a material adverse effect on the Company's
business, financial condition, or results of operations.
Ingram Micro's U.S. competitors include full-line distributors Tech Data
and Merisel, as well as specialty distributors such as Arrow Electronics (a
worldwide industrial electronics distributor), Avnet, Access Graphics (a G.E.
Capital company), SYNNEX Information Technologies, and SED International. The
principal competitors to the Ingram Alliance program include MicroAge, Datago
(operated by SYNNEX), Inacom, and Tech Data Elect, a division of Tech Data.
Ingram Micro competes internationally with a variety of national and regional
distributors. European competitors include international distributors such as
Computer 2000 (owned by German conglomerate Viag AG), CHS Electronics, and Tech
Data (Softmart and Macrotron), and several regional and local distributors,
including Actebis, Scribona, and Metrologie. In Canada, Ingram Micro competes
with Merisel, Globelle, Beamscope, and Tech Data. In Mexico, Ingram Dicom is the
leading distributor, competing with such companies as MPS, CHS Electronics,
Dataflux and Intertec. In November 1997 Ingram Micro expanded its reach into
other Latin American markets by acquiring the distribution firm Computek. As a
result, Ingram Micro competes in Latin America with international distributors
including CHS Electronics, Computer 2000, Tech Data, and several regional and
local distributors including Sonda-Beamscope S.A. In the Asia Pacific market,
Ingram Micro (through a minority interest in Electronic Resources) faces both
regional and local competitors, of whom the largest are
12
13
Tech Pacific, a subsidiary of Hagemeyer, which operates in more than five Asian
markets, and SIS Distribution Ltd., a Hong Kong-based distributor of
microcomputer products.
Ingram Micro also competes with hardware manufacturers and software
publishers that sell directly to reseller customers and end-users.
ASSET MANAGEMENT
The Company maintains sufficient quantities of product inventories to
achieve high order fill rates. The Company believes that the risks associated
with slow moving and obsolete inventory are substantially mitigated by price
protection and stock return privileges provided by suppliers. In the event of a
supplier price reduction, the Company generally receives a credit for products
in its inventory. In addition, the Company has the right to return a certain
percentage of purchases, subject to certain limitations. Historically, price
protection, stock return privileges, and inventory management procedures have
helped to reduce the risk of decline in the value of inventory. However, major
PC suppliers have stated that it is their intention to reduce the amount of
inventory in the channel, particularly in light of the growth of channel
assembly strategies. Consequently, if major PC suppliers substantially decrease
the availability of price protection to wholesale distributors, such change in
policy could have a material adverse effect on the Company's financial condition
and results of operations. The Company's risk of decline in the value of
inventory could be greater outside the United States, where agreements with
suppliers are more restrictive with regard to price protection and the Company's
ability to return unsold inventory. The Company establishes reserves for
estimated losses due to obsolete inventory in the normal course of business.
Historically, the Company has not experienced losses due to obsolete inventory
materially in excess of established inventory reserves. Inventory levels may
vary from period to period, due in part to the addition of new suppliers or new
lines with current suppliers and large cash purchases of inventory due to
advantageous terms offered by suppliers. In addition, payment terms with
inventory suppliers may vary from time to time, and could result in less
inventory being financed by vendors and a greater amount of inventory being
financed by the Company's debt.
The Company offers various credit terms to qualifying customers as well as
prepay, credit card, and COD terms. The Company closely monitors customers'
credit worthiness through its on-line computer system which contains detailed
information on each customer's payment history and other relevant information.
In addition, the Company participates in a national credit association which
exchanges credit rating information on customers of association members. In most
markets, the Company utilizes various levels of credit insurance to allow sales
expansion and control credit risks. The Company establishes reserves for
estimated credit losses in the normal course of business. Historically, the
Company has not experienced credit losses materially in excess of established
credit loss reserves. However, if the Company's receivables experience a
substantial deterioration in their collectibility or the Company cannot obtain
credit insurance at reasonable rates, the Company's financial condition and
results of operations may be adversely impacted.
EMPLOYEES
As of January 3, 1998, the Company had approximately 12,000 associates
located as follows: United States -- 7,526, Europe -- 2,697, all other
regions -- 1,788. Ingram Micro believes that its success depends on the skill
and dedication of its associates. The Company strives to attract, develop, and
retain outstanding personnel. Certain of the Company's operations in Europe,
Latin America and Canada are subject to collective bargaining or similar
arrangements. The Company considers its employee relations to be good.
13
14
EXECUTIVE OFFICERS OF REGISTRANT
The following table sets forth certain information with respect to each
person who is an executive officer of the Company:
NAME AGE PRESENT AND PRIOR POSITIONS HELD(1) YEARS POSITIONS HELD
---- --- ----------------------------------- --------------------
Jerre L. Stead(2)......... 55 Chairman of the Board and Chief Aug. 1996 - Present
Executive Officer
Chief Executive Officer and Jan. 1995 - Aug. 1995
Chairman of the Board, Legent
Corporation, a software
development company
Executive Vice President, Chairman May 1993 - Dec. 1994
and Chief Executive Officer, AT&T
Corp. Global Information
Solutions (NCR Corp.), a computer
manufacturer
President and Chief Executive Sept. 1991 - Apr. 1993
Officer, AT&T Corp. Global
Business Communication Systems, a
communications company
Jeffrey R. Rodek(3)....... 44 President; Worldwide Chief Dec. 1994 - Present
Operating Officer
Senior Vice President, Americas and July 1991 - Sept. 1994
Caribbean, Federal Express, an
overnight courier firm
David R. Dukes(4)......... 54 Vice Chairman Apr. 1996 - Present
Chief Executive Officer, Ingram Jan. 1994 - Present
Alliance
Co-Chairman Jan. 1992 - Apr. 1996
Chief Operating Officer Sept. 1989 - Dec. 1993
President Sept. 1989 - Dec. 1991
Sanat K. Dutta............ 48 Executive Vice President; Oct. 1996 - Present
President, Ingram Micro U.S.
Executive Vice President Aug. 1994 - Oct. 1996
Senior Vice President, Operations May 1988 - Aug. 1994
Michael J. Grainger....... 45 Executive Vice President; Worldwide Oct. 1996 - Present
Chief Financial Officer
Chief Financial Officer May 1996 - Oct. 1996
Vice President and Controller, July 1990 - Oct. 1996
Ingram Industries
James E. Anderson, Jr..... 50 Senior Vice President, Secretary Jan. 1996 - Present
and General Counsel
Vice President, Secretary and Sept. 1991 - Nov. 1996
General Counsel, Ingram
Industries
14
15
NAME AGE PRESENT AND PRIOR POSITIONS HELD(1) YEARS POSITIONS HELD
---- --- ----------------------------------- --------------------
David M. Carlson.......... 57 Senior Vice President, Chief Feb. 1997 - Present
Technology Officer
President, Consumer Focused Jan. 1996 - Feb. 1997
Technology, a consulting firm
Vice President, Technology and Mar. 1995 - Dec. 1995
Network Services, Florist
Transworld Delivery Corp.
Senior Vice President, Corporate July 1985 - Jan. 1995
Information Systems, K Mart
Corporation, a retail company
Philip D. Ellett.......... 43 Senior Vice President; President, May 1997 - Present
Ingram Micro Europe
Senior Vice President; Chief Jan. 1997 - April 1997
Operating Officer, Ingram Micro
Europe
Senior Vice President; General Jan. 1996 - Jan. 1997
Manager, U.S. Consumer Markets
Division
President, Gates/Arrow, an Aug. 1994 - Dec. 1995
electronics distributor
President and Chief Executive Oct. 1991 - Aug. 1994
Officer, Gates/F.A. Distributing,
Inc.
David M. Finley........... 57 Senior Vice President, Human July 1996 - Present
Resources, Worldwide
Senior Vice President, Human May 1995 - July 1996
Resources, Budget Rent a Car, a
car rental company
Vice President, Human Resources, Jan. 1977 - May 1995
The Southland Corporation, a
convenience retail company
James M. Kelly............ 61 Senior Vice President, Management Feb. 1991 - Present
Information Systems
Edward F. Pensel.......... 45 Senior Vice President, Global Oct. 1997 - Present
Configuration Operations
Vice President, Manufacturing, Data 1990 - Oct. 1997
General, a manufacturer of
servers and high-end storage
devices
- ---------------
(1) The first position and any other positions not given a separate corporate
identification are with the Company.
(2) Mr. Stead is a director of Armstrong World Industries, Inc., American
Precision Industries, Inc., and TJ International, Inc.
(3) Mr. Rodek is a director of Arbor Software and a member of its Compensation
Committee (since January 21, 1998).
(4) Mr. Dukes has been a director of Electronic Resources since December 1997.
Mr. Dukes recently announced his retirement to be effective at the close of
the Company's 1998 Annual Meeting of Shareowners on May 6, 1998.
15
16
TRADEMARKS AND SERVICE MARKS
The Company owns or is the licensee of various trademarks and service
marks, including, among others, "Ingram Micro," "IMpulse," the Ingram Micro
logo, "Partnership America," "Leading the Way in Worldwide Distribution," and
"Frameworks Total Integration Services." Certain of these marks are registered,
or are in the process of being registered, in the United States and various
other countries. Even though the Company's marks may not be registered in every
country where the Company conducts business, in many cases the Company has
acquired rights in those marks because of its continued use of them. Management
believes that the value of the Company's marks is increasing with the
development of its business, but that the business of the Company as a whole is
not materially dependent on such marks.
SAFE HARBOR FOR FORWARD-LOOKING INFORMATION
The Private Securities Litigation Reform Act of 1995 (the "Act") provides a
"safe harbor" for "forward-looking statements" to encourage companies to provide
prospective information, so long as such information is identified as
forward-looking and is accompanied by meaningful cautionary statements
identifying important factors that could cause actual results to differ
materially from those discussed in the statement. Except for historical
information, certain statements contained in this Annual Report on Form 10-K may
be "forward-looking statements" within the meaning of the Act. In order to take
advantage of the "safe harbor" provisions of the Act, the Company identifies the
following important factors which could affect the Company's actual results and
cause such results to differ materially from those projected, forecasted,
estimated, budgeted or otherwise expressed by the Company in forward-looking
statements made by or on behalf of the Company:
(1) Intense competition may lead to reduced prices and lower gross margins.
(2) The Company's narrow margins magnify the impact on operating results of
variations in operating costs. A number of factors may reduce the
Company's margins even further. For example, if the Company's
receivables experience a substantial deterioration in their
collectibility or the Company cannot obtain credit insurance at
reasonable rates, the Company's financial condition and results of
operations may be adversely impacted.
(3) Seasonal variations in the demand for products and services, as well as
the introduction of new products, may cause variations in the Company's
quarterly results.
(4) The availability (or lack thereof) of capital on acceptable terms may
hamper the Company in its efforts to fund its increasing working
capital needs.
(5) The failure of the Company to adequately manage its growth may
adversely impact the Company's results of operations.
(6) A failure of the Company's information systems may adversely impact the
Company's results of operations.
(7) Devaluation of a foreign currency, or other disruption of a foreign
market, may adversely impact the Company's operations in that country.
(8) The loss of a key executive officer or other key employee may adversely
impact the Company's operations.
(9) The inability of the Company to obtain products on favorable terms may
adversely impact the Company's results of operations.
(10) The Company's operations may be adversely impacted by an acquisition
that (i) is not suited for the Company, (ii) is improperly executed,
or (iii) substantially increases the Company's debt.
(11) The Company's financial condition may be adversely impacted by a
decline in value of a portion of the Company's inventory.
(12) The failure of certain shipping companies to deliver product to the
Company, or from the Company to its customers, may adversely impact
the Company's results of operations.
(13) Rapid technological change may alter the market for the Company's
products and services, requiring the Company to anticipate such
technological changes, to the extent possible.
16
17
(14) The failure of the Company or its vendors, resellers, customers,
shipping companies, and other third party systems to achieve
substantial Year 2000 compliance may adversely impact the Company's
financial condition and results of operations.
(15) If the Company's inventory suppliers terminate or substantially reduce
the subsidies relating to floor planning financing for the Company's
master reseller business, such change in policy could have a material
adverse effect on the Company's financial condition and results of
operations.
Reference is made to Exhibit 99.01 hereto for additional discussion of the
foregoing factors, as well as additional factors which may affect the Company's
actual results and cause such results to differ materially from those projected,
forecasted, estimated, budgeted or otherwise expressed in forward-looking
statements.
ITEM 2. PROPERTIES
Ingram Micro's worldwide executive headquarters, as well as its West Coast
sales and support offices, are located in a three-building office complex in
Santa Ana, California. The Company also maintains an East Coast operations
center in Williamsville (Buffalo), New York.
The Company operates seven distribution centers in the continental United
States located in Carrollton, Texas, Chicago, Illinois, Fremont, California,
Fullerton, California, Harrisburg, Pennsylvania, Millington, Tennessee, and
Miami, Florida. The Company also operates 26 international distribution centers
located in Brazil, Canada, Chile, Mexico, Norway, Peru, and most countries of
the European Union.
The Company opened a new 488,470 square foot global integration center in
Memphis, Tennessee in March 1998. The Company also operates a consolidation
center in Fremont, California, and three returns centers in North America, two
in Santa Ana, California and one in Ontario, Canada.
All of the Company's facilities are leased, with the exception of the Santa
Ana campus, the Brussels, Belgium office and the distribution centers in
Harrisburg, Pennsylvania and Roncq, France. These leases have varying terms. The
Company does not anticipate any material difficulty in renewing any of its
leases as they expire or securing replacement facilities, in each case on
commercially reasonable terms. In addition, the Company owns two undeveloped
properties in Santa Ana, California totaling approximately 16.27 acres.
ITEM 3. 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.
As a result of an internal review by the Company of export shipments made
from its United States distribution facilities, the Company has determined that
certain of these shipments and related documentation were not in compliance with
U.S. export regulations. The Company has notified the appropriate federal
government agencies pursuant to applicable voluntary self disclosure procedures.
The reported shipments consisted of modems and other telecommunications products
and shrink-wrapped, commercial software readily available through normal retail
outlets which contained encryption features controlled under export regulations.
These shipments had a total value of approximately $673,240. Violations of
export laws and regulations are subject to both civil and criminal penalties,
including in appropriate circumstances suspension or loss of export privileges.
The Company is not able to estimate at this time the amount or nature of
penalties, if any, that might be sought against the Company as a result of the
reported violations; however, penalties to which the Company potentially may be
subject could be material.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted during the fourth quarter of the fiscal year
covered by this report to a vote of security holders, through the solicitation
of proxies or otherwise.
17
18
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
As of March 6, 1998, there were 509 holders of record of the Class A Common
Stock and 169 holders of record of the Class B Common Stock. The Company
believes that there are approximately 22,000 beneficial holders of the Class A
Common Stock.
Information as to the Company's quarterly stock prices is included on page
44 of the Company's 1997 Annual Report to Shareowners, which is included as part
of Exhibit 13.01 and is incorporated in this Annual Report on Form 10-K.
Information as to the principal market on which the Class A Common Stock is
traded is included on page 44 of the Company's 1997 Annual Report to
Shareowners, which is included as part of Exhibit 13.01 and is incorporated in
this Annual Report on Form 10-K.
DIVIDEND POLICY
The Company has never declared or paid any dividends on its Class A or
Class B Common Stock other than a distribution of $20 million to Ingram
Industries in connection with the Split-Off. The Company currently intends to
retain its future earnings to finance the growth and development of its business
and therefore does not anticipate declaring or paying cash dividends on its
Class A or Class B Common Stock for the foreseeable future. Any future decision
to declare or pay dividends will be at the discretion of the Board of Directors
and will be dependent upon the Company's financial condition, results of
operations, capital requirements, and such other factors as the Board of
Directors deems relevant. In addition, certain of the Company's debt facilities
contain restrictions on the declaration and payment of dividends.
ITEM 6. SELECTED FINANCIAL DATA
The selected financial information of Ingram Micro for the five year period
ended January 3, 1998 is included on page 14 of the Company's 1997 Annual Report
to Shareowners, which is included as part of Exhibit 13.01 and is incorporated
in this Annual Report on Form 10-K. It should be read in conjunction with the
consolidated financial statements included on pages 26 through 43 of the
Company's 1997 Annual Report to Shareowners which are also included as part of
Exhibit 13.01 and incorporated in this Annual Report on Form 10-K and the
financial statement schedule below in Item 14 of this Annual Report on Form
10-K.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Management's Discussion and Analysis of Financial Condition and Results of
Operations is included on pages 15 through 24 of the Company's 1997 Annual
Report to Shareowners, which are also included as part of Exhibit 13.01 and are
incorporated in this Annual Report on Form 10-K.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Company's consolidated financial statements are included on pages 25
through 43 of the Company's 1997 Annual Report to Shareowners, which are also
included as part of Exhibit 13.01 and incorporated in this Annual Report on Form
10-K. Reference is made to the Index to the Financial Statements in Item 14
below.
A financial statement schedule for the Company, and report thereon, are
included on pages 21 and 20, respectively, of this Annual Report on Form 10-K.
Reference is made to the Index to Financial Statements in Item 14 below.
ITEM 9.CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
There have been no changes in the Company's independent accountants or
disagreements with such accountants on accounting principles or practices or
financial statement disclosures.
18
19
PART III
Information regarding executive officers required by Item 401 of Regulation
S-K is furnished in a separate disclosure in Part I of this report because the
Company will not furnish such information in its definitive Proxy Statement
prepared in accordance with Schedule 14A.
The Notice and Proxy Statement for the 1998 Annual Meeting of Shareowners,
to be filed pursuant to Regulation 14A under the Securities Exchange Act of
1934, as amended, which is incorporated by reference in this Annual Report on
Form 10-K pursuant to General Instruction G(3) of Form 10-K, will provide the
remaining information required under Part III (Items 10, 11, 12, and 13).
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) 1. The consolidated financial statements, together with the report thereon
of Price Waterhouse LLP dated February 17, 1998, all appearing on pages 25
through 43 in the 1997 Annual Report to Shareowners, are incorporated in this
Annual Report on Form 10-K. With the exception of the aforementioned information
and the information incorporated in Items 5, 6, 7, and 8, the 1997 Annual Report
to Shareowners is not deemed filed as part of this Annual Report on Form 10-K.
PAGE NO. IN
ANNUAL REPORT
INGRAM MICRO INC. TO SHAREOWNERS
----------------- --------------
Index to Financial Information.............................. 13
Consolidated Balance Sheet at January 3, 1998 and December
28, 1996.................................................. 26
Consolidated Statement of Income for the years ended January
3, 1998, December 28, 1996, and December 30, 1995......... 27
Consolidated Statement of Stockholders' Equity for the years
ended January 3, 1998, December 28, 1996, and December 30,
1995...................................................... 28
Consolidated Statement of Cash Flows for the years ended
January 3, 1998, December 28, 1996, and December 30,
1995...................................................... 29
Notes to Consolidated Financial Statements.................. 30-43
Report of Independent Accountants........................... 25
Pages 13 through 44 of the 1997 Annual Report to Shareowners of Ingram
Micro Inc. include the Selected Financial Data, Management's Discussion and
Analysis of Financial Condition and Results of Operations, the Consolidated
Financial Statements and related notes thereto, the Independent Accountants'
Report, Shareholder Information and Quarterly Stock Prices. These pages are
filed with the Securities and Exchange Commission as Exhibit 13.01 to this
Annual Report on Form 10-K.
2. Financial Statement Schedules:
Report of Independent Accountants on Financial Statement Schedule
Schedule II -- Valuation and Qualifying Accounts
3. List of Exhibits:
EXHIBIT
NO.
-------
3.01 -- Form of Certificate of Incorporation of the Registrant
(incorporated by reference to Exhibit 3.01 to the Company's
Registration Statement on Form S-1 (File No. 333-08453) (the
"IPO S-1"))
3.02 -- Amended and Restated Bylaws of the Registrant
10.01 -- Ingram Micro Inc. Executive Incentive Bonus Plan
(incorporated by reference to Exhibit 10.01 to the IPO S-1)
10.02 -- Ingram Micro Inc. Management Incentive Bonus Plan
(incorporated by reference to Exhibit 10.02 to the IPO S-1)
19
20
EXHIBIT
NO.
-------
10.03 -- Ingram Micro Inc. General Employee Incentive Bonus Plan
(incorporated by reference to Exhibit 10.03 to the IPO S-1)
10.04 -- Agreement dated as of December 21, 1994 between the Company
and Jeffrey R. Rodek (incorporated by reference to Exhibit
10.04 to the IPO S-1)
10.05 -- Agreement dated as of April 25, 1988 between the Company and
Sanat K. Dutta (incorporated by reference to Exhibit 10.05
to the IPO S-1)
10.06 -- Amendment No. 1 to the Ingram Micro Inc. Amended and
Restated 1996 Equity Incentive Plan
10.07 -- Ingram Micro Inc. Rollover Stock Option Plan (incorporated
by reference to Exhibit 10.07 to the IPO S-1)
10.08 -- Ingram Micro Inc. Key Employee Stock Purchase Plan
(incorporated by reference to Exhibit 10.08 to the IPO S-1)
10.09 -- Ingram Micro Inc. 1996 Equity Incentive Plan (incorporated
by reference to Exhibit 10.09 to the IPO S-1)
10.10 -- Ingram Micro Inc. Amended and Restated 1996 Equity Incentive
Plan (incorporated by reference to Exhibit 10.10 to the IPO
S-1)
10.11 -- Severance Agreement dated as of June 1, 1996 among the
Company, Ingram Industries, Linwood A. Lacy, Jr., and
NationsBank, N.A., as trustee of the Linwood A. Lacy, Jr.
1996 Irrevocable Trust dated February 1996 (incorporated by
reference to Exhibit 10.11 to the IPO S-1)
10.12 -- Credit Agreement dated as of October 30, 1996 among the
Company and Ingram European Coordination Center N.V., Ingram
Micro Singapore Pte Ltd., and Ingram Micro Inc., as
Borrowers and Guarantors, certain financial institutions, as
the Lenders, NationsBank of Texas, N.A., as Administrative
Agent for the Lenders and The Bank of Nova Scotia as
Documentation Agent for the Lenders (incorporated by
reference to Exhibit 10.12 to the Company's Registration
Statement on Form S-1 (File No. 333-16667) (the "Thrift Plan
S-1"))
10.13 -- Amended and Restated Reorganization Agreement dated as of
October 17, 1996 among the Company, Ingram Industries, and
Ingram Entertainment (incorporated by reference to Exhibit
10.13 to the Thrift Plan S-1)
10.14 -- Registration Rights Agreement dated as of November 6, 1996
among the Company and the persons listed on the signature
pages thereof (incorporated by reference to Exhibit 10.14 to
the Thrift Plan S-1)
10.15 -- Board Representation Agreement dated as of November 6, 1996
(incorporated by reference to Exhibit 10.15 to the Thrift
Plan S-1)
10.16 -- Thrift Plan Liquidity Agreement dated as of November 6, 1996
among the Company and the Ingram Thrift Plan (incorporated
by reference to Exhibit 10.16 to the Thrift Plan S-1)
10.17 -- Tax Sharing and Tax Services Agreement dated as November 6,
1996 among the Company, Ingram Industries, and Ingram
Entertainment (incorporated by reference to Exhibit 10.17 to
the Thrift Plan S-1)
10.18 -- Master Services Agreement dated as of November 6, 1996 among
the Company, Ingram Industries, and Ingram Entertainment
(incorporated by reference to Exhibit 10.18 to the Thrift
Plan S-1)
10.19 -- Employee Benefits Transfer and Assumption Agreement dated as
of November 6, 1996 among the Company, Ingram Industries,
and Ingram Entertainment (incorporated by reference to
Exhibit 10.19 to the Thrift Plan S-1)
20
21
EXHIBIT
NO.
-------
10.20 -- Data Center Services Agreement dated as of November 6, 1996
among the Company, Ingram Book Company, and Ingram
Entertainment Inc. (incorporated by reference to Exhibit
10.20 to the Thrift Plan S-1)
10.21 -- Amended and Restated Exchange Agreement dated as of November
6, 1996 among the Company, Ingram Industries, Ingram
Entertainment and the other parties thereto (incorporated by
reference to Exhibit 10.21 to the Thrift Plan S-1)
10.22 -- Agreement dated as of August 26, 1996 between the Company
and Jerre L. Stead (incorporated by reference to Exhibit
10.22 to the IPO S-1)
10.23 -- Definitions for Ingram Funding Master Trust Agreements
(incorporated by reference to Exhibit 10.23 to the IPO S-1)
10.24 -- Asset Purchase and Sale Agreement dated as of February 10,
1993 between Ingram Industries and Ingram Funding Inc.
(incorporated by reference to Exhibit 10.24 to the IPO S-1)
10.25 -- Pooling and Servicing Agreement dated as of February 10,
1993 among Ingram Funding, Ingram Industries and Chemical
Bank (incorporated by reference to Exhibit 10.25 to the IPO
S-1)
10.26 -- Amendment No. 1 to the Pooling and Servicing Agreement dated
as of February 12, 1993, the Asset Purchase and Sale
Agreement dated as of February 12, 1993, and the Liquidity
Agreement dated as of February 12, 1993 (incorporated by
reference to Exhibit 10.26 to the IPO S-1)
10.27 -- Certificate Purchase Agreement dated as of July 23, 1993
(incorporated by reference to Exhibit 10.27 to the IPO S-1)
10.28 -- Schedule of Certificate Purchase Agreements (incorporated by
reference to Exhibit 10.28 to the IPO S-1)
10.29 -- Series 1993-1 Supplement to Ingram Funding Master Trust
Pooling and Servicing Agreement dated as of July 23, 1993
(incorporated by reference to Exhibit 10.29 to the IPO S-1)
10.30 -- Schedule of Supplements to Ingram Funding Master Trust
Pooling and Servicing Agreement dated as of July 23, 1993
(incorporated by reference to Exhibit 10.30 to the IPO S-1)
10.31 -- Letter of Credit Reimbursement Agreement dated as of
February 10, 1993 (incorporated by reference to Exhibit
10.31 to the IPO S-1)
10.32 -- Liquidity Agreement dated as of February 10, 1993
(incorporated by reference to Exhibit 10.32 to the IPO S-1)
10.33 -- Amendment No. 2 to the Pooling and Servicing Agreement dated
as of February 12, 1993, the Asset Purchase and Sale
Agreement dated as of February 12, 1993, and the Liquidity
Agreement dated as of February 12, 1993 (incorporated by
reference to Exhibit 10.33 to the IPO S-1)
10.34 -- Agreement dated as of October 10, 1996 between the Company
and Michael J. Grainger (incorporated by reference to
Exhibit 10.34 to the IPO S-1)
10.35 -- Form of Repurchase Agreement (incorporated by reference to
Exhibit 10.35 to the IPO S-1)
10.36 -- First Amendment to the Credit Agreement dated as of October
28, 1997 (incorporated by reference to Exhibit 10.36 to the
Company's Registration Statement on Form S-3 (File No.
333-39457) (the "Rollover/Thrift Plan S-3"))
10.37 -- European Credit Agreement dated as of October 28, 1997 among
the Company and Ingram European Coordination Center N.V., as
Borrowers and Guarantors, certain financial institutions, as
the Lenders, The Bank of Nova Scotia, as Administrative
Agent for the Lenders and NationsBank of Texas, N.A. as
Documentation Agent for the Lenders, as arranged by The Bank
of Nova Scotia and NationsBanc Capital Markets, Inc., as the
Arrangers (incorporated by reference to Exhibit 10.37 to the
Rollover/Thrift Plan S-3)
21
22
EXHIBIT
NO.
-------
10.38 -- Canadian Credit Agreement dated as of October 28, 1997 among
the Company and Ingram Micro Inc. (Canada), as Borrowers and
Guarantors, certain financial institutions, as the Lenders,
The Bank of Nova Scotia., as Administrative Agent for the
Lenders, Royal Bank of Canada as the Syndication Agent for
the Lenders, and Bank of Tokyo-Mitsubishi (Canada) as the
Co-Agent (incorporated by reference to Exhibit 10.38 to the
Rollover/Thrift Plan S-3)
13.01 -- Portions of Annual Report to Shareowners for the year ended
January 3, 1998
21.01 -- Subsidiaries of the Registrant
23.01 -- Consent of Independent Accountants regarding certain
Registration Statements on Form S-8
23.02 -- Consent of Independent Accountants regarding Registration
Statement on Form S-3
27.01 -- Financial Data Schedule (included in electronic version
only)
99.01 -- Cautionary Statements for Purposes of the "Safe Harbor"
Provisions of the Private Securities Litigation Reform Act
of 1995
(b) Reports on Form 8-K
No reports on Form 8-K have been filed during the three months ended
January 3, 1998.
22
23
REPORT OF INDEPENDENT ACCOUNTANTS ON
FINANCIAL STATEMENT SCHEDULE
To the Board of Directors
of Ingram Micro Inc.
Our audits of the consolidated financial statements referred to in our
report dated February 17, 1998 appearing in the 1997 Annual Report to
Shareowners of Ingram Micro Inc. (which report and consolidated financial
statements are incorporated by reference in this Annual Report on Form 10-K)
also included an audit of the Financial Statement Schedule listed in Item
14(a)(2) of this Form 10-K. In our opinion, this Financial Statement Schedule
presents fairly, in all material respects, the information set forth therein
when read in conjunction with the related consolidated financial statements.
Price Waterhouse LLP
Costa Mesa, California
February 17, 1998
23
24
INGRAM MICRO INC.
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
BALANCE AT CHARGED TO
BEGINNING COSTS AND BALANCE AT
DESCRIPTION OF YEAR EXPENSES DEDUCTIONS OTHER(*) END OF YEAR
----------- ---------- ---------- ---------- -------- -----------
Allowance for doubtful accounts
receivable & sales returns:
1997................................... $38,622 $31,652 $(27,102) $5,369 $48,541
1996................................... 30,791 28,619 (25,394) 4,606 38,622
1995................................... 25,668 24,168 (19,718) 673 30,791
Inventory obsolescence:
1997................................... $13,326 $21,524 $(20,201) $4,237 $18,886
1996................................... 12,245 13,836 (12,602) (153) 13,326
1995................................... 10,706 13,199 (11,867) 207 12,245
- ---------------
* Other includes recoveries, acquisitions and the effect of fluctuation in
foreign currency.
24
25
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(D) 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/ JAMES E. ANDERSON, JR.
--------------------------------------
Name: James E. Anderson, Jr.
Title: Senior Vice President,
Secretary and General
Counsel
April 1, 1998
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS
REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE
REGISTRANT AND IN THE CAPACITIES AND ON THE DATES INDICATED.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ JERRE L. STEAD Chief Executive Officer April 1, 1998
- -------------------------------------------------------- (Principal Executive Officer),
Jerre L. Stead Chairman of the Board
/s/ MICHAEL J. GRAINGER Executive Vice President and April 1, 1998
- -------------------------------------------------------- Worldwide Chief Financial
Michael J. Grainger Officer (Principal Financial
Officer and Principal
Accounting Officer)
/s/ MARTHA R. INGRAM Director April 1, 1998
- --------------------------------------------------------
Martha R. Ingram
/s/ JOHN R. INGRAM Director April 1, 1998
- --------------------------------------------------------
John R. Ingram
/s/ DAVID B. INGRAM Director April 1, 1998
- --------------------------------------------------------
David B. Ingram
/s/ PHILIP M. PFEFFER Director April 1, 1998
- --------------------------------------------------------
Philip M. Pfeffer
/s/ DON H. DAVIS, JR. Director April 1, 1998
- --------------------------------------------------------
Don H. Davis, Jr.
/s/ J. PHILLIP SAMPER Director April 1, 1998
- --------------------------------------------------------
J. Phillip Samper
/s/ JOE B. WYATT Director April 1, 1998
- --------------------------------------------------------
Joe B. Wyatt
25
1
EXHIBIT 3.02
AMENDED AND RESTATED BYLAWS OF
INGRAM MICRO INC.
* * * * *
ARTICLE I
OFFICES
SECTION 1. REGISTERED OFFICE. The registered office shall be in
the City of Wilmington, County of New Castle, State of Delaware.
SECTION 2. OTHER OFFICES. The Corporation may also have offices
at such other places both within and without the State of Delaware as the Board
of Directors may from time to time determine or the business of the Corporation
may require.
SECTION 3. BOOKS. The books of the Corporation may be kept within
or without the State of Delaware as the Board of Directors may from time to time
determine or the business of the Corporation may require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
SECTION 1. TIME AND PLACE OF MEETINGS. All meetings of
stockholders shall be held at such place, either within or without the State of
Delaware, on such date and at such time as may be determined from time to time
by the Board of Directors (or the chief executive officer in the absence of a
designation by the Board of Directors).
SECTION 2. ANNUAL MEETINGS. Annual meetings of stockholders,
commencing with the year 1997, shall be held to elect the Board of Directors and
transact such other business as may properly be brought before the meeting.
SECTION 3. SPECIAL MEETINGS. Special meetings of stockholders may
be called by the Board of Directors or the chairman of the Board of Directors
and shall be called by the secretary at the request in writing of stockholders
having at least ten percent of the outstanding voting power of the Corporation.
Such request shall state the purpose or purposes of the proposed meeting.
SECTION 4. NOTICE OF MEETINGS AND ADJOURNED MEETINGS; WAIVERS OF
NOTICE. (a) Whenever stockholders are required or permitted to take any action
at a meeting, a
1
2
written notice of the meeting shall be given which shall state the place, date
and hour of the meeting, and, in the case of a special meeting, the purpose or
purposes for which the meeting is called. Unless otherwise provided by the
General Corporation Law of the State of Delaware as the same exists or may
hereafter be amended ("DELAWARE LAW"), such notice shall be given not less than
10 nor more than 60 days before the date of the meeting to each stockholder of
record entitled to vote at such meeting. Business transacted at any special
meeting of stockholders shall be limited to the purposes stated in the notice.
Unless these Bylaws otherwise require, when a meeting is adjourned to another
time or place (whether or not a quorum is present), notice need not be given of
the adjourned meeting if the time and place thereof are announced at the meeting
at which the adjournment is taken; provided that if the adjournment is for more
than 30 days, or after the adjournment a new record date is fixed for the
adjourned meeting, a notice of the adjourned meeting shall be given to each
stockholder of record entitled to vote at the meeting. At the adjourned meeting,
the Corporation may transact any business which might have been transacted at
the original meeting.
(b) A written waiver of any such notice signed by the person
entitled thereto, whether before or after the time stated therein, shall be
deemed equivalent to notice. Attendance of a person at a meeting shall
constitute a waiver of notice of such meeting, except when the person attends
the meeting for the express purpose of objecting, at the beginning of the
meeting, to the transaction of any business because the meeting is not lawfully
called or convened.
SECTION 5. QUORUM. Unless otherwise provided under the
certificate of incorporation or these Bylaws and subject to Delaware Law, the
presence, in person or by proxy, of the holders of a majority of the votes
entitled to be cast by the stockholders entitled to vote generally, shall
constitute a quorum for the transaction of business at any meeting of the
stockholders; provided that in the case of any vote to be taken by classes, the
holders of a majority of the votes entitled to be cast by the stockholders of a
particular class shall constitute a quorum for the transaction of business by
such class.
SECTION 6. VOTING. (a) Unless otherwise provided by Delaware Law
or by the certificate of incorporation, each stockholder of record of any class
or series of capital stock of the Corporation shall be entitled to such number
of votes for each share of such stock as may be fixed in the certificate of
incorporation or in the resolution or resolutions adopted by the Board of
Directors providing for the issuance of such stock.
(b) Each stockholder entitled to vote at a meeting of
stockholders or to express consent or dissent to a corporate action in writing
without a meeting may authorize another person or persons to act for him by
proxy, but no such proxy shall be voted or acted upon after three years from its
date, unless the proxy provides for a longer period.
(c) Unless otherwise provided by Delaware Law, the certificate of
incorporation or these Bylaws, the affirmative vote of shares of capital stock
of the Corporation representing a majority of the outstanding voting power of
the Corporation present, in person or by proxy, at a meeting of stockholders and
entitled to vote on the subject matter shall be the act of the stockholders.
SECTION 7. ACTION BY CONSENT. (a) Unless otherwise provided in
the certificate of incorporation, any action required to be taken at any special
meeting of stockholders,
2
3
or any action which may be taken at any special meeting of stockholders, may be
taken without a meeting, without prior notice and without a vote, if a consent
or consents in writing, setting forth the action so taken, shall be signed by
the holders of outstanding capital stock having not less than the minimum number
of votes that would be necessary to authorize or take such action at a meeting
at which all shares entitled to vote thereon were present and voted and shall be
delivered to the Corporation by delivery to its registered office in Delaware,
its principal place of business, or an officer or agent of the Corporation
having custody of the book in which proceedings of meetings of stockholders are
recorded. Delivery made to the Corporation's registered office shall be by hand
or by certified or registered mail, return receipt requested. Prompt notice of
the taking of the corporate action without a meeting by less than unanimous
written consent shall be given to those stockholders who have not consented in
writing.
(b) Every written consent shall bear the date of signature of
each stockholder who signs the consent, and no written consent shall be
effective to take the corporate action referred to therein unless, within 60
days of the earliest dated consent delivered to the Corporation in the manner
required by this Section 7 of Article II and Delaware Law, written consents
signed by a sufficient number of holders to take action are delivered to the
Corporation by delivery to its registered office in Delaware, its principal
place of business, or an officer or agent of the Corporation having custody of
the book in which proceedings of meetings of stockholders are recorded. Delivery
made to the Corporation's registered office shall be by hand or by certified or
registered mail, return receipt requested.
SECTION 8. ORGANIZATION. At each meeting of stockholders, the
chairman of the Board of Directors, if one shall have been elected, (or in his
absence or if one shall not have been elected, the chief executive officer)
shall act as chairman of the meeting. The secretary (or in his absence or
inability to act, the person whom the chairman of the meeting shall appoint
secretary of the meeting) shall act as secretary of the meeting and keep the
minutes thereof.
SECTION 9. ORDER OF BUSINESS. The order of business at all
meetings of stockholders shall be as determined by the chairman of the meeting.
ARTICLE III
DIRECTORS
SECTION 1. GENERAL POWERS. Except as otherwise provided in
Delaware Law or the certificate of incorporation, the business and affairs of
the Corporation shall be managed by or under the direction of the Board of
Directors. Each member of the Board of Directors, and all committees of the
Board of Directors, shall have at all times full access to the books and records
of the Corporation and all minutes of stockholder, Board of Directors and
committee meetings, proceedings and actions. Each member of the Board of
Directors shall have the right to add items to any agenda for a meeting of the
Board of Directors.
SECTION 2. NUMBER, ELECTION AND TERM OF OFFICE. The number of
directors which shall constitute the whole Board of Directors shall be fixed
from time to time by resolution of the Board of Directors but shall in no event
be less than seven nor more than nine; provided, however, that once the Board of
Directors is expanded to eight directors, it shall not be
3
4
contracted to a smaller size. At a time when seven or eight directors comprise
the Board of Directors, the Board of Directors may be expanded up to nine
members by the affirmative vote of a majority of the seven or eight directors,
as the case may be. Such eighth or ninth director shall be Independent, as
provided in Section 3(a)(iii) of this Article III and shall be nominated by a
majority of the Nominating Committee. After the initial qualification and
election of such eighth or ninth director as set forth in this Section 2 of
Article III, any vacancy created by the death, disability, resignation or
removal of such director shall be filled pursuant to Section 13 of this Article
III. The directors shall be elected at the annual meeting of the stockholders,
except as provided in this Section 2 or Section 13 of this Article III, and each
director so elected (including any such director elected pursuant to Section 13
of this Article III) shall hold office for a term commencing with the election
of such director and ending at such time after the next annual meeting of
stockholders as such director's successor is elected and qualified or until such
director's earlier death, disability, resignation or removal in accordance with
these Bylaws or as provided under Delaware Law.
SECTION 3. QUALIFICATIONS. (a) Directors shall possess the
following qualifications: (i) three individuals who are designated by the Family
Stockholders, as hereinafter defined, and who need not be Independent, as
hereinafter defined, and may be Family Stockholders (the "FAMILY DIRECTORS");
(ii) one individual who is designated by the chief executive officer of the
Corporation, who need not be Independent and who may be the chief executive
officer of the Corporation (the "MANAGEMENT DIRECTOR"); and (iii) three (in the
case of a Board of Directors consisting of seven directors), four (in the case
of a Board of Directors consisting of eight directors) or five (in the case of a
Board of Directors consisting of nine directors) individuals, as the case may be
from time to time, who shall be Independent (the "INDEPENDENT DIRECTORS").
Directors need not be stockholders.
(b)(i) As used in these Bylaws, "INDEPENDENT" means an individual other
than an executive officer or other employee of the Corporation or Martha R.
Ingram, her descendants (including adopted persons and their descendants) and
their respective spouses.
(ii) As used in these Bylaws, "FAMILY STOCKHOLDERS" means the following
and all of their Permitted Transferees (as hereinafter defined):
- QTIP Marital Trust created under the E. Bronson Ingram Revocable
Trust Agreement dated January 4, 1995
- Martha R. Ingram
- Orrin H. Ingram, II
- John R. Ingram
- David B. Ingram
- Robin B. Ingram Patton
- E. Bronson Ingram 1995 Charitable Remainder 5% Unitrust
4
5
- E. Bronson Ingram 1994 Charitable Lead Annuity Trust
- Martha and Bronson Ingram Foundation
- Trust for Orrin Henry Ingram, II, under Agreement with E. Bronson
Ingram dated October 27, 1967
- Trust for Orrin Henry Ingram, II, under Agreement with E. Bronson
Ingram dated June 14, 1968
- Trust for Orrin Henry Ingram, II, under Agreement with Hortense B.
Ingram dated December 22, 1975
- The Orrin H. Ingram Irrevocable Trust dated July 9, 1992
- Trust for the Benefit of Orrin H. Ingram established by Martha R.
Rivers under Agreement of Trust originally dated April 30, 1982, as
amended
- Trust for John Rivers Ingram, under Agreement with E. Bronson Ingram
dated October 27, 1967
- Trust for John Rivers Ingram, under Agreement with E. Bronson Ingram
dated June 14, 1968
- Trust for John Rivers Ingram, under Agreement with Hortense B.
Ingram dated December 22, 1975
- The John R. Ingram Irrevocable Trust dated July 9, 1992
- Trust for the Benefit of John R. Ingram established by Martha R.
Rivers under Agreement of Trust originally dated April 30, 1982, as
amended
- The John and Stephanie Ingram Family 1996 Generation Skipping Trust
- Trust for David B. Ingram, under Agreement with E. Bronson Ingram
dated October 27, 1967
- Trust for David B. Ingram, under Agreement with E. Bronson Ingram
dated June 14, 1968
- Trust for David B. Ingram, under Agreement with Hortense B. Ingram
dated December 22, 1975
- The David B. Ingram Irrevocable Trust dated July 9, 1992
- Trust for the Benefit of David B. Ingram established by Martha R.
Rivers under Agreement of Trust originally dated April 30, 1982, as
amended
- David and Sarah Ingram Family 1996 Generation Skipping Trust
- Trust for Robin Bigelow Ingram, under Agreement with E. Bronson
Ingram dated
5
6
October 27, 1967
- Trust for Robin Bigelow Ingram, under Agreement with E. Bronson
Ingram dated June 14, 1968
- Trust for Robin Bigelow Ingram, under Agreement with Hortense B.
Ingram dated December 22, 1975
- The Robin Ingram Patton Irrevocable Trust dated July 9, 1992
- Trust for the Benefit of Robin B. Ingram established by Martha R.
Rivers under Agreement of Trust originally dated April 30, 1982, as
amended
(iii) As used in these Bylaws, "PERMITTED TRANSFEREE" means, with
respect to any Family Stockholder, including any Approving Family Stockholder,
as hereinafter defined, any of the other Family Stockholders or any of their
respective spouses, descendants (including adopted persons and their
descendants), estates, affiliates or any trust or other entities for the benefit
of any of the foregoing persons, and beneficiaries of the QTIP Marital Trust
created under the E. Bronson Ingram Revocable Trust Agreement dated January 4,
1995 upon the death of Martha R. Ingram, whether the transfer occurs voluntarily
during life or at death, whether by appointment, will or intestate descent or
distribution. Without limiting the generality of the foregoing, transfers from
the QTIP Marital Trust created under the E. Bronson Ingram Revocable Trust
Agreement dated January 4, 1995 to the Martha and Bronson Ingram Foundation, the
Ingram Charitable Fund or any of the other beneficiaries thereof shall be deemed
to be transfers to Permitted Transferees.
SECTION 4. QUORUM AND MANNER OF ACTING. (a) Unless the
certificate of incorporation or these Bylaws require a greater number, a
majority of the entire Board of Directors shall constitute a quorum for the
transaction of business, and the affirmative vote of a majority of the entire
Board of Directors shall be the act of the Board of Directors.
(b) When a meeting is adjourned to another time or place (whether
or not a quorum is present), notice need not be given of the adjourned meeting
if the time and place thereof are announced at the meeting at which the
adjournment is taken. At the adjourned meeting, the Board of Directors may
transact any business which might have been transacted at the original meeting.
If a quorum shall not be present at any meeting of the Board of Directors the
directors present thereat may adjourn the meeting, from time to time, without
notice other than announcement at the meeting, until a quorum shall be present.
SECTION 5. TIME AND PLACE OF MEETINGS. The Board of Directors
shall hold its meetings at such place, either within or without the State of
Delaware, and at such time as may be determined from time to time by the Board
of Directors (or the chief executive officer in the absence of a determination
by the Board of Directors).
SECTION 6. ANNUAL MEETING. The Board of Directors shall meet for
the purpose of organization, the election of officers and the transaction of
other business, as soon as practicable after each annual meeting of
stockholders, on the same day and at the same place where such annual meeting
shall be held. Notice of such meeting need not be given. In the event such
annual meeting is not so held, the annual meeting of the Board of Directors may
be held at
6
7
such place either within or without the State of Delaware, on such date and at
such time as shall be specified in a notice thereof given as hereinafter
provided in Section 8 of this Article III or in a waiver of notice thereof
signed by any director who chooses to waive the requirement of notice.
SECTION 7. REGULAR MEETINGS. After the place and time of regular
meetings of the Board of Directors shall have been determined and notice thereof
shall have been once given to each member of the Board of Directors, regular
meetings may be held without further notice being given.
SECTION 8. SPECIAL MEETINGS. Special meetings of the Board of
Directors may be called by the chief executive officer and shall be called by
the secretary on the written request of three directors. Notice of special
meetings of the Board of Directors shall be given to each director at least
three days before the date of the meeting in such manner as is determined by the
Board of Directors.
SECTION 9. COMMITTEES. (a) The Board of Directors shall have at
least four committees with the designations, qualifications, powers and
composition set forth in this Section 9 of Article III, which four committees
shall be: (i) an Executive Committee, (ii) a Nominating Committee, (iii) a Human
Resources Committee, and (iv) an Audit Committee. All committees of the Board of
Directors shall act by a majority vote of the entire number of directors which
constitute any such committee.
(b) The Executive Committee shall consist of three directors, one of
whom shall be a Family Director, one of whom shall be the Management Director
and one of whom shall be an Independent Director. During the period of time
between each regularly scheduled meeting of the Board of Directors, management
decisions requiring the immediate attention of the Board of Directors may be
made with the approval of a majority of the members of the Executive Committee;
provided, however, that the Executive Committee shall not have the authority to
approve any of the following items, all of which require the approval of the
Board of Directors: (i) any action that would require approval pursuant to
Article V of these Bylaws or that would require approval of a majority of the
outstanding voting power held by the stockholders entitled to vote thereon at
any annual or special meeting under applicable law or under the certificate of
incorporation or Bylaws of the Corporation (provided, however, that subject to
applicable law, the Board of Directors shall be entitled to delegate to the
Executive Committee the authority to negotiate and finalize actions, the general
terms of which have been approved by the Board of Directors); (ii) any
acquisition with a total aggregate consideration in excess of 2% of the
Corporation's stockholders' equity calculated in accordance with generally
accepted accounting principles for the most recent fiscal quarter for which
financial information is available (after taking into account the amount of any
indebtedness to be assumed or discharged by the Corporation or any of its
subsidiaries and any amounts required to be contributed, invested or borrowed by
the Corporation or any of its subsidiaries); (iii) any action outside of the
ordinary course of business of the Corporation; or (iv) any other action
involving a material shift in policy or business strategy for the Corporation.
(c) The Nominating Committee shall consist of three directors, two of
whom shall be Family Directors, and one of whom shall be the Management
Director. All nominations of persons for election to the Board of Directors
shall be made by the Nominating Committee, and the Nominating Committee shall
name the directors to serve on the Board committees, pursuant to the
7
8
qualification requirements set forth in Section 3 of this Article III. Subject
to the provisions of this Section 9(c), the Nominating Committee shall be
appointed by the Board of Directors. The Nominating Committee shall fulfill such
other roles, with respect to the filling of vacancies and otherwise, as are set
forth in these Bylaws.
(d) The Human Resources Committee shall consist of three directors, one
of whom shall be a Family Director, and two of whom shall be Independent
Directors. The Human Resources Committee shall establish the compensation of all
executive officers of the Corporation and shall administer all stock option,
purchase and equity incentive plans.
(e) The Audit Committee shall consist of at least three directors, at
least a majority of whom shall be Independent Directors. The Audit Committee
shall have the primary responsibility to: (i) recommend to the Board of
Directors the firm to be employed by the Corporation as its independent auditor,
(ii) consult with the independent auditors with regard to the plan of audit,
(iii) review (in consultation with the independent auditors) the report of audit
or proposed report and the accompanying management letter of the independent
auditors, and (iv) consult with the independent auditors periodically, as
appropriate, out of the presence of management, with regard to the adequacy of
the internal controls and, if need be, to consult also with the internal
auditors.
(f) No committee of the Board of Directors shall have the power or
authority in reference to amending the certificate of incorporation, adopting an
agreement of merger or consolidation, recommending to the stockholders the sale,
lease or exchange of all or substantially all of the Corporation's property and
assets, recommending to the stockholders a dissolution of the Corporation or a
revocation of a dissolution, amending the Bylaws of the Corporation, or
authorizing any action required pursuant to these Bylaws to be authorized or
approved by a majority of the entire Board of Directors; and unless the
resolution of the Board of Directors, the certificate of incorporation or these
Bylaws expressly so provide, no such committee shall have the power or authority
to declare a dividend or to authorize the issuance of capital stock by the
Corporation. Each committee shall keep regular minutes of its meetings and
report the same to the Board of Directors when required.
(g) The Board of Directors may, by resolution passed by a majority of
the entire Board of Directors, designate one or more additional committees, each
such committee to consist of one or more directors of the Corporation. Any such
additional committee, to the extent provided in the resolution of the Board of
Directors and subject to Section 9(f) of this Article III, shall have and may
exercise all the powers and authority of the Board of Directors in the
management of the business and affairs of the Corporation and may authorize the
seal of the Corporation to be affixed to all papers which may require it.
Notwithstanding the foregoing, no committee designated by the Board of Directors
pursuant to this Section 9(g) shall have powers or authority which conflict with
or impinge or encroach upon the powers and authority granted to the committees
designated in Sections 9(b), 9(c), 9(d) or 9(e) of this Article III.
SECTION 10. ACTION BY CONSENT. Unless otherwise restricted by the
certificate of incorporation or these Bylaws, any action required or permitted
to be taken at any meeting of the Board of Directors or of any committee thereof
may be taken without a meeting, if all members of the Board or committee, as the
case may be, consent thereto in writing, and the writing or writings are filed
with the minutes of proceedings of the Board or committee.
SECTION 11. TELEPHONIC MEETINGS. Unless otherwise restricted by
the
8
9
certificate of incorporation or these Bylaws, members of the Board of
Directors, or any committee designated by the Board of Directors, may
participate in a meeting of the Board of Directors, or such committee, as the
case may be, by means of conference telephone or similar communications
equipment by means of which all persons participating in the meeting can hear
each other, and such participation in a meeting shall constitute presence in
person at the meeting.
SECTION 12. RESIGNATION. Any director may resign at any time by
giving written notice to the Board of Directors or to the secretary of the
Corporation. The resignation of any director shall take effect upon receipt of
notice thereof or at such later time as shall be specified in such notice; and
unless otherwise specified therein, the acceptance of such resignation shall not
be necessary to make it effective.
SECTION 13. VACANCIES. Unless otherwise provided in the
certificate of incorporation, if, as a result of the death, disability,
resignation or removal of a director, a vacancy is created on the Board of
Directors, the vacancy shall be filled in the following manner with individuals
with the following qualifications: (a) if the vacancy resulted from the death,
disability, resignation or removal of a Family Director, the vacancy shall be
filled by a person qualifying to be a Family Director as designated by a
majority of the remaining Family Directors; (b) if the vacancy resulted from the
death, disability, resignation or removal of the Management Director, the
vacancy shall be filled by a person qualifying to be a Management Director as
designated by the chief executive officer of the Corporation; and (c) if the
vacancy resulted from the death, disability, resignation or removal of an
Independent Director, the vacancy shall be filled by a person qualifying to be
an Independent Director nominated by the Nominating Committee and approved by a
majority of the entire Board of Directors then in office. If such vacancy on the
Board of Directors also creates a vacancy on any committee thereof, the
Nominating Committee shall appoint such replacement director elected in
accordance with Sections 9 and 13 of this Article III to fill the committee
position or positions held by his or her predecessor. If there are no Family
Directors in office (in the case of filling a vacancy previously held by a
Family Director), then an election of directors may be held in accordance with
these Bylaws and Delaware Law.
Unless otherwise provided in the certificate of incorporation, a vacancy
created on the Board of Directors as a result of the increase in the number of
directors to seven, eight or nine as provided in Section 2 of this Article III
may be filled in each case in a manner consistent with the provisions of
Sections 2, 3 and 13 of this Article III.
SECTION 14. REMOVAL. Any director or the entire Board of
Directors may be removed, with or without cause, at any time by the affirmative
vote of the holders of a majority of the outstanding voting power of all of the
shares of capital stock of the Corporation then entitled to vote generally for
the election of directors, voting together as a single class, and the vacancies
thus created shall be filled in accordance with Section 13 of this Article III.
A Committee member shall be subject to removal from his or her position as a
Committee member by the affirmative vote of a majority of the members of the
Nominating Committee, and the vacancies thus created shall be filled in
accordance with Sections 9 and 13 of this Article III.
SECTION 15. COMPENSATION. Unless otherwise restricted by the
certificate of incorporation or these Bylaws, the Board of Directors shall have
authority to fix the compensation of directors, including fees and reimbursement
of expenses.
9
10
ARTICLE IV
OFFICERS
SECTION 1. PRINCIPAL OFFICERS. The principal officers of the
Corporation shall be a chief executive officer, who shall have the power, among
other things, to appoint regional officers of the Corporation, a president, one
or more vice presidents, a treasurer and a secretary who shall have the duty,
among other things, to record the proceedings of the meetings of stockholders
and directors in a book kept for that purpose. The Corporation may also have
such other principal officers, including a chairman, a vice chairman or one or
more controllers, as the Board of Directors may in its discretion appoint. One
person may hold offices and perform the duties of any two or more of said
officers, except that no person shall hold the offices and perform the duties of
president and secretary.
SECTION 2. ELECTION, TERM OF OFFICE AND REMUNERATION. The
principal officers of the Corporation shall be elected annually by the Board of
Directors at the annual meeting thereof. Each such officer shall hold office
until his successor is elected and qualified, or until his earlier death,
disability, resignation or removal. The remuneration of all officers of the
Corporation shall be fixed by the Board of Directors. Any vacancy in any office
shall be filled in such manner as the Board of Directors shall determine.
SECTION 3. SUBORDINATE OFFICERS. In addition to the principal
officers enumerated in Section 1 of this Article IV, the Corporation may have
one or more assistant treasurers, assistant secretaries and assistant
controllers and such other subordinate officers, agents and employees as the
Board of Directors may deem necessary, each of whom shall hold office for such
period as the Board of Directors may from time to time determine. The Board of
Directors may delegate to any principal officer the power to appoint and to
remove any such subordinate officers, agents or employees.
SECTION 4. REMOVAL. Except as otherwise permitted with respect to
subordinate officers, any officer may be removed, with or without cause, at any
time, by the Board of Directors.
SECTION 5. RESIGNATIONS. Any officer may resign at any time by
giving written notice to the Board of Directors (or to a principal officer if
the Board of Directors has delegated to such principal officer the power to
appoint and to remove such officer). The resignation of any officer shall take
effect upon receipt of notice thereof or at such later time as shall be
specified in such notice; and unless otherwise specified therein, the acceptance
of such resignation shall not be necessary to make it effective.
SECTION 6. POWERS AND DUTIES. The officers of the Corporation
shall have such powers and perform such duties incident to each of their
respective offices and such other duties as may from time to time be conferred
upon or assigned to them by the Board of Directors.
10
11
ARTICLE V
ACTIONS REQUIRING CONSENT OF
APPROVING FAMILY STOCKHOLDERS
SECTION 1. DEFINITIONS. As used in these Bylaws, the following terms
shall have the meanings specified below:
(a) "APPROVING FAMILY STOCKHOLDERS" means the following and all of their
Permitted Transferees:
- QTIP Marital Trust created under the E. Bronson Ingram Revocable
Trust Agreement dated January 4, 1995
- Martha R. Ingram
- Orrin H. Ingram, II
- John R. Ingram
- David B. Ingram
- Robin B. Ingram Patton
- E. Bronson Ingram 1995 Charitable Remainder 5% Unitrust
- Martha and Bronson Ingram Foundation
- Trust for Orrin Henry Ingram, II, under Agreement with E. Bronson
Ingram dated October 27, 1967
- Trust for Orrin Henry Ingram, II, under Agreement with E. Bronson
Ingram dated June 14, 1968
- Trust for Orrin Henry Ingram, II, under Agreement with Hortense B.
Ingram dated December 22, 1975
- The Orrin H. Ingram Irrevocable Trust dated July 9, 1992
- Trust for the Benefit of Orrin H. Ingram established by Martha R.
Rivers under Agreement of Trust originally dated April 30, 1982, as
amended
- Trust for John Rivers Ingram, under Agreement with E. Bronson Ingram
dated October 27, 1967
- Trust for John Rivers Ingram, under Agreement with Hortense B.
Ingram dated December 22, 1975
- The John R. Ingram Irrevocable Trust dated July 9, 1992
11
12
- Trust for the Benefit of John R. Ingram established by Martha R.
Rivers under Agreement of Trust originally dated April 30, 1982, as
amended
- The John and Stephanie Ingram Family 1996 Generation Skipping Trust
- Trust for David B. Ingram, under Agreement with Hortense B. Ingram
dated December 22, 1975
- The David B. Ingram Irrevocable Trust dated July 9, 1992
- Trust for the Benefit of David B. Ingram established by Martha R.
Rivers under Agreement of Trust originally dated April 30, 1982, as
amended
- David and Sarah Ingram Family 1996 Generation Skipping Trust
- Trust for Robin Bigelow Ingram, under Agreement with E. Bronson
Ingram dated October 27, 1967
- Trust for Robin Bigelow Ingram, under Agreement with Hortense B.
Ingram dated December 22, 1975
- The Robin Ingram Patton Irrevocable Trust, dated July 9, 1992
- Trust for the Benefit of Robin B. Ingram established by Martha R.
Rivers under Agreement of Trust originally dated April 30, 1982, as
amended.
(b) "APPROVING VOTING POWER" means, as of any date, the number of votes
able to be cast pursuant to this Article V by the Approving Family Stockholders.
With respect to any vote pursuant to this Article V, and as of any given date,
each Approving Family Stockholder shall be entitled to cast a number of votes
equal to (i) the Outstanding Voting Power, as hereinafter defined, of all
capital stock of the Corporation owned of record by such Approving Family
Stockholder, plus (ii) the attributed voting power set forth in Section 1(c) of
this Article V.
(c)(i) Martha R. Ingram shall be attributed and entitled to cast a
number of votes equal to the Outstanding Voting Power of all capital stock of
the Corporation owned by the Trust for John Rivers Ingram, under an Agreement
with E. Bronson Ingram dated June 14, 1968, plus the Outstanding Voting Power of
all capital stock of the Corporation owned by the Trust for David B. Ingram,
under an Agreement with E. Bronson Ingram dated October 27, 1967, plus the
Outstanding Voting Power of all capital stock of the Corporation owned by the
Trust for the Benefit of David Bronson Ingram, dated June 14, 1968, plus the
Outstanding Voting Power of all capital stock of the Corporation owned by the
Trust for Robin Bigelow Ingram, under an Agreement with E. Bronson Ingram dated
June 14, 1968;
(ii) Orrin H. Ingram, II shall be attributed and entitled to cast a
number of votes equal to twenty-five percent (25%) of the Outstanding Voting
Power of all capital stock of the Corporation owned by the E. Bronson Ingram
1994 Charitable Lead Annuity Trust;
(iii) John R. Ingram shall be attributed and entitled to cast a number
of votes equal to twenty-five percent (25%) of the Outstanding Voting Power of
all capital stock of the Corporation
12
13
owned by the E. Bronson Ingram 1994 Charitable Lead Annuity Trust;
(iv) David B. Ingram shall be attributed and entitled to cast a number
of votes equal to twenty-five percent (25%) of the Outstanding Voting Power of
all capital stock of the Corporation owned by the E. Bronson Ingram 1994
Charitable Lead Annuity Trust; and
(v) Robin B. Ingram Patton shall be attributed and entitled to cast a
number of votes equal to twenty-five percent (25%) of the Outstanding Voting
Power of all capital stock of the Corporation owned by the E. Bronson Ingram
1994 Charitable Lead Annuity Trust.
(d) "OUTSTANDING VOTING POWER" means, as of any date, the number of
votes able to be cast for the election of directors represented by all the
shares of common stock of the Corporation, including the Class A common stock
and the Class B common stock, par value $0.01 per share, of the Corporation.
SECTION 2. SIGNIFICANT ACTIONS. (a) In addition to any vote required by
applicable law or the certificate of incorporation, the following actions
("SIGNIFICANT ACTIONS") will not be taken by or on behalf of the Corporation
without the written approval of Approving Family Stockholders, acting in their
sole discretion, holding at least a majority of the Approving Voting Power held
by all of the Approving Family Stockholders:
(i) any sale or other disposition or transfer of all or
substantially all of the assets of the Corporation (considered together
with its subsidiaries);
(ii) any merger, consolidation or share exchange involving the
Corporation, other than mergers effected for administrative reasons of
subsidiaries owned at least 90% by the Corporation which under
applicable law can be effected without stockholder approval;
(iii) any issuance (or transfer from treasury) of additional
equity, convertible securities, warrants or options with respect to the
capital stock of the Corporation, or any of its subsidiaries, or the
adoption of any additional equity plans by or on behalf of the
Corporation or any of its subsidiaries except for (A) options granted or
stock sold in the ordinary course of business pursuant to plans approved
by the Approving Family Stockholders or adopted prior to the initial
public offering of the Corporation's capital stock, and (B) the issuance
of capital stock of the Corporation valued at Fair Market Value, as
hereinafter defined, in acquisitions as to which no approval is required
under subsection (iv) of this Section 2 of Article V or as to which
approval has been obtained under subsection (iv) of this Section 2 of
Article V;
(iv) any acquisition by or on behalf of the Corporation or one of
its subsidiaries involving a total aggregate consideration in excess of
10% of the Corporation's stockholders' equity calculated in accordance
with generally accepted accounting principles for the most recent fiscal
quarter for which financial information is available (after taking into
account the amount of any indebtedness for borrowed money to be assumed
or discharged by the Corporation or any of its subsidiaries and any
amounts required to be contributed, invested or borrowed by the
Corporation or any of its subsidiaries if such contribution, investment
or borrowing is reasonably contemplated by the Corporation to be
necessary within 12 months after the date of the acquisition);
13
14
(v) any guarantee of indebtedness of an entity other than a
subsidiary of the Corporation exceeding 5% of the Corporation's
stockholders' equity calculated in accordance with generally accepted
accounting principles for the most recent fiscal quarter for which
financial information is available;
(vi) incurrence of indebtedness by the Corporation after the
consummation of the initial public offering of the Corporation's capital
stock (other than indebtedness incurred after the initial public
offering of the Corporation which renews or replaces a previously
existing facility so long as the aggregate amount of indebtedness is not
increased) in a transaction which could be reasonably expected to reduce
the Corporation's investment rating lower than one grade below the
ratings of the Corporation by Moody's Investors Service ("Moody's"),
Fitch Investors Service, L.P. ("Fitch") or Standard & Poor's Rating
Group ("Standard & Poor's") immediately following the initial public
offering, but in any event incurrence of indebtedness by the Corporation
after the consummation of the initial public offering which could be
reasonably expected to reduce such investment rating lower than Baa by
Moody's; BBB- by Fitch; or BBB- by Standard & Poor's; and
(vii) any other transaction having substantially the same effect
as a transaction described in clauses (i) through (vi) of this Section
2(a) of Article V.
(b) As used in Section 2(a)(iii) of this Article V, "FAIR MARKET VALUE"
means with respect to the capital stock of the Corporation, as of any given date
or dates, the reported closing price of a share of such class of capital stock
on such exchange or market as is the principal trading market for such class of
capital stock. If such class of capital stock is not traded on an exchange or
principal trading market on such date, the Fair Market Value of a share of the
capital stock of the Corporation shall be determined by the Board of Directors
in good faith taking into account as appropriate the recent sales of the capital
stock of the Corporation, recent valuations of the capital stock of the
Corporation, the lack of liquidity of the capital stock of the Corporation, the
fact that certain shares of the capital stock of the Corporation may represent a
minority interest and such other factors as the Board of Directors shall in its
discretion deem relevant or appropriate.
ARTICLE VI
GENERAL PROVISIONS
SECTION 1. FIXING THE RECORD DATE. (a) In order that the
Corporation may determine the stockholders entitled to notice of or to vote at
any meeting of stockholders or any adjournment thereof, the Board of Directors
may fix a record date, which record date shall not precede the date upon which
the resolution fixing the record date is adopted by the Board of Directors, and
which record date shall not be more than 60 nor less than 10 days before the
date of such meeting. If no record date is fixed by the Board of Directors, the
record date for determining stockholders entitled to notice of or to vote at a
meeting of stockholders shall be at the close of business on the day next
preceding the day on which notice is given, or, if notice is waived, at the
close of business on the day next preceding the day on which the meeting is
held. A determination of stockholders of record entitled to notice of or to vote
at a meeting of stockholders shall apply to
14
15
any adjournment of the meeting; provided that the Board of Directors may fix a
new record date for the adjourned meeting.
(b) In order that the Corporation may determine the stockholders
entitled to consent to corporate action in writing without a meeting, the Board
of Directors may fix a record date, which record date shall not precede the date
upon which the resolution fixing the record date is adopted by the Board of
Directors, and which date shall not be more than 10 days after the date upon
which the resolution fixing the record date is adopted by the Board of
Directors. If no record date has been fixed by the Board of Directors, the
record date for determining stockholders entitled to consent to corporate action
in writing without a meeting, when no prior action by the Board of Directors is
required by Delaware Law, shall be the first date on which a signed written
consent setting forth the action taken or proposed to be taken is delivered to
the Corporation by delivery to its registered office in Delaware, its principal
place of business, or an officer or agent of the Corporation having custody of
the book in which proceedings of meetings of stockholders are recorded. Delivery
made to the Corporation's registered office shall be by hand or by certified or
registered mail, return receipt requested. If no record date has been fixed by
the Board of Directors and prior action by the Board of Directors is required by
Delaware Law, the record date for determining stockholders entitled to consent
to corporate action in writing without a meeting shall be at the close of
business on the day on which the Board of Directors adopts the resolution taking
such prior action.
(c) In order that the Corporation may determine the stockholders
entitled to receive payment of any dividend or other distribution or allotment
of any rights or the stockholders entitled to exercise any rights in respect of
any change, conversion or exchange of stock, or for the purpose of any other
lawful action, the Board of Directors may fix a record date, which record date
shall not precede the date upon which the resolution fixing the record date is
adopted, and which record date shall be not more than 60 days prior to such
action. If no record date is fixed, the record date for determining stockholders
for any such purpose shall be at the close of business on the day on which the
Board of Directors adopts the resolution relating thereto.
SECTION 2. DIVIDENDS. Subject to limitations contained in
Delaware Law and the certificate of incorporation, the Board of Directors may
declare and pay dividends upon the shares of capital stock of the Corporation,
which dividends may be paid either in cash, in property or in shares of the
capital stock of the Corporation.
SECTION 3. FISCAL YEAR. The fiscal year of the Corporation shall
commence on the day following the end of the preceding fiscal year of the
Corporation and end on the Saturday nearest December 31 of each year.
SECTION 4. CORPORATE SEAL. The corporate seal shall have
inscribed thereon the name of the Corporation, the year of its organization and
the words "Corporate Seal, Delaware". The seal may be used by causing it or a
facsimile thereof to be impressed, affixed or otherwise reproduced.
SECTION 5. VOTING OF STOCK OWNED BY THE CORPORATION. The Board of
Directors may authorize any person, on behalf of the Corporation, to attend,
vote at and grant proxies to be used at any meeting of stockholders of any
corporation (except this Corporation) in which the Corporation may hold stock.
15
16
SECTION 6. AMENDMENTS. (a) So long as the Family Stockholders and
their Permitted Transferees together hold beneficially at least 25,000,000
shares of the capital stock of the Corporation (as such number is equitably
adjusted to reflect stock splits, stock dividends, recapitalizations or other
transactions in the capital stock of the Corporation) (i) the stockholders may
alter, amend, restate or repeal these Bylaws or any of them, or make new bylaws,
only by the affirmative vote of 75 % of the votes entitled to be cast thereon at
any annual or special meeting and (ii) the Board of Directors may alter, amend,
restate or repeal these Bylaws or any of them, or make new bylaws, only by the
affirmative vote of three-quarters (3/4) of the members of the entire Board of
Directors.
(b) Beginning on the first date on which the Family Stockholders and
their Permitted Transferees together hold beneficially less than 25,000,000
shares of the capital stock of the Corporation (as such number is equitably
adjusted to reflect stock splits, stock dividends, recapitalizations or other
transactions in the capital stock of the Corporation) (i) the stockholders may
alter, amend, restate or repeal these Bylaws or any of them, or make new bylaws,
by the affirmative vote of a majority of the votes entitled to be cast thereon
at any annual or special meeting and (b) the Board of Directors may alter,
amend, restate or repeal these Bylaws or any of them, or make new bylaws, by the
affirmative vote of a majority of the members of the entire Board of Directors.
(c) Notwithstanding sections (a) and (b) of this Section 6 of Article
VI, if the Board Representation Agreement between the Corporation and certain
other persons signatory thereto dated November 6, 1996, shall be adjudicated to
be void or terminated and of no further force and effect by the final,
non-appealable order of a court of competent jurisdiction or shall be terminated
and made to be of no further force and effect by the unanimous, written consent
of the Family Stockholders and their Permitted Transferees then holding stock of
the Corporation, beginning on the date such final order becomes non-appealable
or the date such unanimous, written consent is delivered to the Secretary of the
Corporation, as the case may be, (i) the stockholders may alter, amend, restate
or repeal these Bylaws or any of them, or make new bylaws, by the affirmative
vote of a majority of the votes entitled to be cast thereon at any annual or
special meeting and (ii) the Board of Directors may alter, amend, restate or
repeal these Bylaws or any of them, or make new bylaws, by the affirmative vote
of a majority of the members of the entire Board of Directors.
Amended 5/7/97
1
EXHIBIT 10.6
FIRST AMENDMENT TO INGRAM MICRO INC.
AMENDED AND RESTATED 1996 EQUITY INCENTIVE PLAN
This First Amendment to Ingram Micro Inc. Amended and Restated 1996 Equity
Incentive Plan is made by Ingram Micro Inc. (the "Company") with reference to
the following facts:
The Company has established the Ingram Micro Inc. Amended and Restated
1996 Equity Incentive Plan (hereinafter the "Plan"). The Plan provides that it
may be amended from time to time in accordance with the procedures provided
therein. The Company has executed this First Amendment for the purpose of
amending the Plan in the manner hereinafter provided.
NOW, THEREFORE, the Plan is hereby amended as follows:
Effective January 1, 1997, Section 14(b) of the Plan is hereby amended and
replaced in its entirety by the following:
"(b) Nontransferability. (i) Except as provided in subsection (ii) below,
no Award may be assigned, alienated, pledged, attached, sold or otherwise
transferred or encumbered by a Participant, except by will or the laws of
descent and distribution.
(ii) Notwithstanding subsection (i) above, the Committee may determine
that an Award may be transferred by a Participant to one or more members of the
Participant's immediate family, to a partnership of which the only partners are
members of the Participant's immediate family, or to a trust established by the
Participant for the benefit of one or more members of the Participant's
immediate family. For this purpose, immediate family means the Participant's
spouse, parents, children, grandchildren and the spouses of such parents,
children and grandchildren. A transferee described in this subsection (ii) may
not further transfer an Award. An Award transferred pursuant to this subsection
shall remain subject to the provisions of the Plan, including, but not limited
to, the provisions of Section 11 relating to the effect on the Award of the
death, retirement or termination of employment of the Participant, and shall be
subject to such other rules as the Committee shall determine."
IN WITNESS WHEREOF, this First Amendment is executed effective as of the
date set forth herein.
INGRAM MICRO INC.
By:
------------------------------------
James E. Anderson, Jr.
Senior Vice President,
Secretary and General Counsel
1
EXHIBIT 13.01
INDEX TO FINANCIAL INFORMATION
Selected Consolidated Financial Data page 14
Management's Discussion And Analysis Of Financial
Condition And Results Of Operations page 15
Management's Statement Of Financial Responsibility page 25
Report Of Independent Accountants page 25
Consolidated Balance Sheet page 26
Consolidated Statement Of Income page 27
Consolidated Statement Of Stockholders' Equity page 28
Consolidated Statement Of Cash Flows page 29
Notes To Consolidated Financial Statements page 30
Company Information page 44
13
2
SELECTED CONSOLIDATED FINANCIAL DATA
The following table presents selected consolidated financial data of
Ingram Micro Inc. ("Ingram Micro" and the "Company"). The information set forth
below should be read in conjunction with "Management's Discussion and Analysis
of Financial Condition and Results of Operations" and the historical
consolidated financial statements and notes thereto included elsewhere in this
Annual Report to Shareowners.
The fiscal year of the Company is a 52- or 53-week period ending on the
Saturday nearest to December 31. References below to 1993, 1994, 1995, 1996 and
1997 represent the fiscal years ended January 1, 1994 (52 weeks), December 31,
1994 (52 weeks), December 30, 1995 (52 weeks), December 28, 1996 (52 weeks), and
January 3, 1998 (53 weeks), respectively.
FISCAL YEAR
(in 000s, except per share data) 1997 1996 1995 1994 1993
=============================================================================================================================
Selected Operating Information
Net sales $ 16,581,539 $ 12,023,451 $ 8,616,867 $ 5,830,199 $ 4,044,169
Gross profit 1,085,689 812,384 605,686 438,975 329,642
Income from operations (1) 376,579 247,508 186,881 140,290 103,028
Income before income taxes
and minority interest (1) 326,489 196,757 134,616 100,705 82,855
Net income (1) 193,640 110,679 84,307 63,344 50,355
Basic earnings per share (1) (2) . 1.43 0.99 0.79 0.59 0.47
Diluted earnings per share (1) (2) 1.32 0.88 0.74 0.57 0.47
Weighted average common
shares outstanding (2) 135,764,053 112,285,058 107,251,362 107,251,362 107,251,362
Diluted weighted average common
shares outstanding (2) 146,307,532 125,436,376 114,517,371 110,641,131 107,913,865
- -----------------------------------------------------------------------------------------------------------------------------
Selected Balance Sheet Information
Cash $ 92,212 $ 48,279 $ 56,916 $ 58,369 $ 44,391
Total assets 4,932,151 3,366,947 2,940,898 1,974,289 1,296,363
Total debt (3) 1,141,131 304,033 850,548 552,283 398,929
Stockholders' equity 1,038,206 825,150 310,795 221,344 155,459
============================================================================================================================
(1) Reflects a noncash compensation charge in 1997 and 1996 of $7.2 million
($5.9 million, or $0.04 per share, net of tax ) and $23.4 million ($19.5
million, or $0.16 per share, net of tax), respectively, in connection
with the granting of Rollover Stock Options. See Note 12 of Notes to
Consolidated Financial Statements.
(2) Earnings per share has been restated based on the adoption of FAS 128
for all periods. See Note 2 of Notes to Consolidated Financial
Statements.
(3) Includes long-term debt, current maturities of long-term debt and debt
due to Ingram Industries.
14
3
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
Ingram Micro is the leading wholesale distributor of computer-based
technology products and services worldwide. The Company's net sales have grown
to $16.6 billion in 1997 from $4.0 billion in 1993. This sales growth reflects
substantial expansion of its existing operations, resulting from the addition of
new customers, increased sales to the existing customer base, the addition of
new product categories and suppliers, and the establishment of Ingram Alliance,
as well as the successful integration of sixteen acquisitions worldwide. Net
income has grown to $193.6 million in 1997 from $50.4 million in 1993.
In November 1996, the Company was split-off (the "Split-Off") from
Ingram Industries Inc. ("Ingram Industries"), the company's former parent
company, and Ingram Entertainment Inc. ("Ingram Entertainment"), and the Company
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 $13 million in trust certificate-backed commercial paper was
outstanding at the time, in satisfaction of remaining amounts due to Ingram
Industries. See "-Liquidity and Capital Resources."
The microcomputer wholesale distribution industry in which the Company
operates is characterized by narrow gross and operating margins that have
declined industrywide in recent years, primarily due to intense price
competition. The Company's gross margins declined to 6.5% in 1997 from 8.2% in
1993. To partially offset the decline in gross margins, the Company has
continually instituted operational and expense controls that have reduced
selling, general and administrative ("SG&A") expenses (including charges
allocated from Ingram Industries prior to the Split-Off) as a percentage of net
sales to 4.2% in 1997 from 5.6% in 1993. As a result, the Company's operating
margins have declined less than gross margins while net margins have remained
constant. Operating margins declined from 2.6% in 1993 to 2.1% in 1996, before
rebounding to 2.3% in 1997. Net margins declined from 1.2% in 1993 to 0.9% in
1996, before returning to 1.2% in 1997. Operating margins and net margins were
impacted in 1996 and 1997 by the noncash compensation charges described below.
There can be no assurance that the Company will be able to continue to reduce
operating expenses as a percentage of net sales to mitigate further reductions
in gross margins. Although the Company's operations outside the United States
have historically had gross margins similar to the Company's U.S. traditional
wholesale operations, these non-U.S. operations have historically had lower
operating margins due in part to greater economies of scale in the U.S.
operations.
Ingram Micro entered the master reseller business in late 1994 with the
launch of Ingram Alliance. The Company further expanded its master reseller
business by acquiring Intelligent Electronics, Inc.'s Reseller Network Division
("RND") in July 1997 and integrating RND into Ingram Alliance. The Company's
master reseller business is designed to offer resellers access to the industry's
leading hardware manufacturers at competitive prices by utilizing a lower cost
business model that depends upon a higher average order size, lower product
returns percentage, and supplier-paid financing. The Company's success in its
master reseller business has, to a large degree, been attributable to its
ability to leverage Ingram Micro's distribution infrastructure and capitalize on
strong supplier relationships. In addition, a substantial majority of the
Company's master reseller sales are funded by floor plan financing companies
whose fees are subsidized by the Company's suppliers. The Company typically
receives payment from these financing institutions within three business days
from the date of the sale, allowing the Company's master reseller business to
operate at much lower relative working capital levels than the Company's
wholesale distribution business.
15
4
MANAGEMENT'S DISCUSSION AND ANALYSIS CONTINUED
The Company sells microcomputer hardware, networking equipment and
software products. Sales of hardware products (including networking equipment)
represent a majority of total net sales and have historically generated a higher
operating margin than sales of software products, although operating margins of
both hardware products and software products have historically declined.
Hardware products and networking equipment have comprised an increasing
percentage, and software products a decreasing percentage, of the Company's net
sales in recent years, and the Company expects this trend to continue. Net sales
of software products have decreased as a percentage of total net sales in recent
years due to a number of factors, including bundling of software with
microcomputers; sales growth of Ingram Alliance, which is a hardware-only
business; declines in software prices; and the emergence of alternative means of
software distribution, such as site licenses and electronic distribution.
The microcomputer wholesale distribution business is capital intensive.
The Company's business requires significant levels of capital to finance
accounts receivable and product inventory that is not financed by trade
creditors. The Company has relied heavily on debt financing for its increasing
working capital needs in connection with the expansion of its business. The
Company will need additional capital to finance its accounts receivable and
product inventory as it expands its business. The Company's interest expense for
any current or future indebtedness will be subject to fluctuations in interest
rates and may cause fluctuations in the Company's net income.
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 Common Stock ("Rollover Stock Options"). The
Company recorded a pre-tax noncash compensation charge of approximately $23.4
million ($19.5 million net of tax) and $7.2 million ($5.9 million net of tax) in
1996 and 1997, respectively, 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. These additional
charges, including charges for certain 1996 restricted stock grants, are
expected to be approximately $4.8 million ($3.7 million net of tax) for 1998,
$2.7 million ($1.9 million net of tax) for 1999 and $1.1 million ($0.7 million
net of tax) for 2000.
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.
FISCAL YEAR
1997 1996 1995
-----------------------------------------------------------------------------
(dollars in millions)
NET SALES BY GEOGRAPHIC REGION:
UNITED STATES $11,478 69.2% $ 8,058 67.0% $ 5,834 67.7%
EUROPE 3,353 20.2% 2,590 21.6% 1,849 21.5%
OTHER INTERNATIONAL 1,751 10.6% 1,375 11.4% 934 10.8%
-----------------------------------------------------------------------------
TOTAL $16,582 100.0% $12,023 100.0% $ 8,617 100.0%
=============================================================================
16
5
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
FISCAL YEAR
1997 1996 1995
-----------------------------
NET SALES 100.0% 100.0% 100.0%
COST OF SALES 93.5% 93.2% 93.0%
-----------------------------
GROSS PROFIT 6.5% 6.8% 7.0%
EXPENSES:
SG&A EXPENSES AND CHARGES ALLOCATED
FROM INGRAM INDUSTRIES 4.2% 4.5% 4.8%
NONCASH COMPENSATION CHARGE 0.0% 0.2% 0.0%
-----------------------------
INCOME FROM OPERATIONS 2.3% 2.1% 2.2%
OTHER EXPENSE, NET 0.3% 0.5% 0.6%
-----------------------------
INCOME BEFORE INCOME TAXES AND MINORITY INTEREST 2.0% 1.6% 1.6%
PROVISION FOR INCOME TAXES 0.8% 0.7% 0.6%
MINORITY INTEREST 0.0% 0.0% 0.0%
-----------------------------
NET INCOME 1.2% 0.9% 1.0%
=============================
1997 COMPARED TO 1996
Consolidated net sales increased 37.9% to $16.6 billion in 1997 from
$12.0 billion in 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, expansion of the
Company's product offerings, and the acquisition of several companies in 1997.
Net sales from U.S. operations increased 42.4% to $11.5 billion in 1997
from $8.1 billion in 1996. U.S. net sales were positively impacted by the
acquisition of RND, which was completed on July 18, 1997. Concurrent with the
RND acquisition, the Company more fully integrated its master reseller business
into its wholesale distribution business. Net sales from European operations
increased 29.4% to $3.4 billion in 1997 from $2.6 billion in 1996. Other
international net sales increased 27.4% to $1.8 billion in 1997 from $1.4
billion in 1996, principally due to the growth in net sales from the Company's
Mexican, Canadian and Export Division operations.
Cost of sales as a percentage of net sales increased to 93.5% in 1997
from 93.2% in 1996. This increase was largely attributable to the increase as a
percentage of net sales of the master reseller business, which has lower
margins, as well as competitive pricing pressures, while partially offset by
improved margins in Europe.
Total SG&A expenses, including charges allocated from Ingram Industries
in 1996, increased 29.6% to $702.0 million in 1997 from $541.5 million in 1996,
but decreased as a percentage of net sales to 4.2% in 1997 from 4.5% in 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 SG&A expenses as a percentage of sales is
attributable to the growth of the Company's master reseller business, which
utilizes a lower cost business model, and economies of scale from higher sales
volumes.
During 1997, the Company recorded a noncash compensation charge of $7.2
million ($5.9 million, net of tax) in connection with the Rollover Stock
Options. In 1996, the Company recorded a noncash compensation charge of $23.4
million ($19.5 million, net of tax) in connection with the Rollover Stock
Options.
17
6
MANAGEMENT'S DISCUSSION AND ANALYSIS CONTINUED
Excluding the noncash compensation charges, total income from operations
remained constant as a percentage of net sales at 2.3% in 1997 and 1996. Income
from operations in the United States, excluding the noncash compensation charge
remained constant as a percentage of net sales at 2.7% in 1997 and 1996. Income
from operations in Europe, excluding the noncash compensation charge, increased
as a percentage of net sales to 1.2% in 1997 from 0.8% in 1996. This increase
was partially offset by a decrease in income from operations, excluding the
noncash compensation charge, as a percentage of net sales for geographic regions
outside the United States and Europe to 1.8% in 1997 from 2.2% in 1996.
Income from operations, including the noncash compensation charges,
increased 52.1% to $376.6 million in 1997 from $247.5 million in 1996, and, as a
percentage of net sales, increased to 2.3% in 1997 from 2.1% in 1996.
Other expense, net, which consists primarily of net interest expense
(including interest expense charged by Ingram Industries), foreign currency
exchange losses, and miscellaneous nonoperating expenses, decreased 1.3% to
$50.1 million in 1997 from $50.8 million in 1996, and decreased as a percentage
of net sales to 0.3% in 1997 from 0.5% in 1996. Although other expense, net,
remained relatively constant overall, the Company experienced lower interest
expense in 1997, primarily due to the reduction in average outstanding
borrowings (including amounts due to Ingram Industries) following the IPO. The
Company's interest expense increased toward the end of 1997 as a result of
increased borrowings to finance acquisitions and the expansion of the Company's
business. The Company expects its interest expense in 1998 to increase.
The provision for income taxes increased 54.9% to $131.5 million in 1997
from $84.9 million in 1996, reflecting the 65.9% increase in the Company's
income before income taxes and minority interest. The Company's effective tax
rate was 40.3% in 1997 compared to 43.1% in 1996. The decrease in the effective
tax rate was primarily due to the reduction in the noncash compensation charge,
much of which is not deductible for tax purposes, as well as the effect of
certain international taxes in 1997.
Excluding the noncash compensation charges, net income increased 53.3%
to $199.6 million in 1997 from $130.2 million in 1996 and, as a percentage of
net sales, increased to 1.2% in 1997 from 1.1% in 1996. Pro forma diluted
earnings per share, excluding the noncash compensation charges, increased 30.8%
to $1.36 in 1997 from $1.04 in 1996. Net income, including the noncash
compensation charges, increased 75.0% to $193.6 million in 1997 from $110.7
million in 1996. Diluted earnings per share, including the noncash compensation
charge, increased 50.0% to $1.32 in 1997 from $0.88 in 1996.
1996 COMPARED TO 1995
Consolidated net sales increased 39.5% to $12.0 billion in 1996 from
$8.6 billion in 1995. 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, and expansion of the
Company's product offerings. Microsoft Windows 95 was launched in the third
quarter of 1995 with net sales of $267.5 million in 1995.
Net sales from U.S. operations increased 38.1% to $8.1 billion in 1996
from $5.8 billion in 1995. 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 157.3% to $1.88 billion in 1996 from $729
million in 1995. Net sales from European operations increased 40.1% to $2.6
billion in 1996 from $1.8 billion in 1995. Other international net sales
increased 47.2% to $1.4 billion in 1996 from $934 million in 1995, principally
due to the growth in net sales from the Company's Canadian operations and growth
in the Export Division.
Cost of sales as a percentage of net sales increased to 93.2% in 1996
from 93.0% in 1995. This increase was largely attributable to competitive
pricing pressures, especially in Europe, and the increase as a percentage of net
sales of the lower gross margin Ingram Alliance business.
Total SG&A expenses and charges allocated from Ingram Industries
increased 29.3% to $541.5 million in 1996 from $418.8 million in 1995, but
decreased as a percentage of net sales to 4.5% in 1996 from 4.8% in 1995. 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 was primarily attributable to the growth of Ingram Alliance, which
utilizes a lower cost business model, and economies of scale from higher sales
volumes.
18
7
During 1996, the Company recorded a noncash compensation charge of $23.4
million ($19.5 million, net of tax) or 0.2% of net sales in connection with the
Rollover Stock Options. The Company did not record any such charge during 1995.
Excluding the $23.4 million noncash compensation charge in 1996, total
income from operations increased as a percentage of net sales to 2.3% in 1996
from 2.2% in 1995. Income from operations in the United States, excluding the
noncash compensation charge, increased as a percentage of net sales to 2.7% in
1996 from 2.6% in 1995. Income from operations in Europe, excluding the noncash
compensation charge, decreased as a percentage of net sales to 0.8% in 1996 from
1.0% in 1995. This decrease was offset by an increase in income from operations,
excluding the noncash compensation charge, as a percentage of net sales for
geographic regions outside the United States and Europe to 2.2% in 1996 from
1.5% in 1995.
For the reasons set forth above, income from operations, including the
$23.4 million noncash compensation charge, increased 32.4% to $247.5 million in
1996 from $186.9 million in 1995, but, as a percentage of net sales, decreased
to 2.1% in 1996 from 2.2% in 1995.
Other expense, net, which consists primarily of net interest expense
(including interest expense charged by Ingram Industries), foreign currency
exchange losses, and miscellaneous nonoperating expenses, decreased 2.9% to
$50.8 million in 1996 from $52.3 million in 1995, and decreased as a percentage
of net sales to 0.5% in 1996 from 0.6% in 1995. The decrease in other expense
was largely attributable to a year-over-year decrease in the amount of foreign
currency losses to $0.7 million in 1996 from $7.8 million in 1995, primarily
related to the Mexican peso devaluation. Such decrease was partially offset by a
higher level of borrowings to finance the Company's worldwide business
expansion.
The provision for income taxes increased 59.7% to $84.9 million in 1996
from $53.1 million in 1995, reflecting the 46.2% increase in the Company's
income before income taxes and minority interest. The Company's effective tax
rate was 43.1% in 1996 compared to 39.5% in 1995. The increase in the effective
tax rate was primarily due to the effect of the noncash compensation charge,
much of which is not deductible for income tax purposes, as well as the effect
of certain international taxes in 1996.
Excluding the $19.5 million (net of tax) noncash compensation charge,
net income increased 54.4% to $130.2 million in 1996 from $84.3 million in 1995
and, as a percentage of net sales, increased to 1.1% in 1996 from 1.0% in 1995.
Pro forma earnings per share, excluding the noncash compensation charge,
increased 40.5% to $1.04 in 1996 from $0.74 in 1995. Net income, including the
$19.5 million (net of tax) noncash compensation charge, increased 31.3% to
$110.7 million in 1996 from $84.3 million in 1995. Diluted earnings per share,
including the noncash compensation charge, increased 18.9% to $0.88 in 1996 from
$0.74 in 1995.
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. Specific historical seasonal
variations in the Company's operating results have included a reduction of
demand in Europe during the summer months, increased Canadian government
purchasing in the first quarter, and worldwide pre-holiday stocking in the
retail channel during the September to November period. In addition, as was the
case with the introduction of Microsoft Windows 95 in August 1995, the product
cycle of major products may materially impact the Company's business, financial
condition, or results of operations.
The following table sets forth certain unaudited quarterly historical
financial data for each of the twelve quarters up to the period ended January 3,
1998. This unaudited quarterly information has been prepared on the same basis
as the annual information presented elsewhere herein and, in the Company's
opinion, includes all adjustments (consisting only of normal recurring
adjustments) necessary for a fair presentation of the selected quarterly
information. This information should be read in conjunction with the
consolidated financial statements and notes thereto included elsewhere in this
Annual Report to Shareowners. The operating results for any quarter shown are
not necessarily indicative of results for any future period.
19
8
MANAGEMENT'S DISCUSSION AND ANALYSIS CONTINUED
CONSOLIDATED QUARTERLY INFORMATION
INCOME BEFORE
INCOME INCOME TAXES AND BASIC DILUTED
NET GROSS FROM MINORITY NET EARNINGS EARNINGS
SALES PROFIT OPERATIONS INTEREST INCOME PER SHARE(4) PER SHARE(4)
------------------------------------------------------------------------------------------
(In millions, except per share data.)
FISCAL YEAR ENDED DECEMBER 30, 1995
THIRTEEN WEEKS ENDED:
APRIL 1, 1995 $ 1,879.5 $ 132.4 $ 38.5 $ 24.3 $ 17.1 $ 0.16 $ 0.15
JULY 1, 1995 1,859.6 138.9 40.2 30.0 18.4 0.17 0.16
SEPTEMBER 30, 1995 2,331.6 151.2 45.2 33.8 20.8 0.19 0.18
DECEMBER 30, 1995 2,546.2 183.2 63.0 46.5 28.0 0.27 0.25
FISCAL YEAR ENDED DECEMBER 28, 1996
THIRTEEN WEEKS ENDED(1):
MARCH 30, 1996 $ 2,752.7 $ 186.6 $ 54.9 $ 39.6 $ 23.8 $ 0.22 $ 0.20
JUNE 29, 1996 2,790.4 190.5 59.5 44.9 26.8 0.25 0.22
SEPTEMBER 28, 1996 2,931.6 197.4 61.5 48.9 27.0 0.25 0.22
DECEMBER 28, 1996 3,548.8 237.9 71.6 63.4 33.1 0.27 0.24
FISCAL YEAR ENDED JANUARY 3, 1998
THIRTEEN WEEKS ENDED(2):
MARCH 29, 1997 $ 3,650.0 $ 234.7 $ 78.8 $ 69.0 $ 40.4 $ 0.30 $ 0.28
JUNE 28, 1997 3,716.8 242.1 79.2 68.0 40.0 0.30 0.27
SEPTEMBER 27, 1997 4,087.3 264.0 85.6 75.7 44.3 0.32 0.30
JANUARY 3, 1998(3) 5,127.4 344.9 133.0 113.8 68.9 0.51 0.47
(1) Reflects a noncash compensation charge of $6.7 million, $1.1 million,
$1.1 million, and $14.5 million for the first, second, third and fourth
quarters of 1996, respectively, in connection with the granting of the
Rollover Stock Options.
(2) Reflects a noncash compensation charge of $1.8 million, $1.7 million,
$1.8 million, and $1.9 million for the first, second, third and fourth
quarters of 1997, respectively, in connection with the granting of the
Rollover Stock Options.
(3) Fourteen weeks ended January 3, 1998.
(4) Earnings per share has been restated based on the adoption of FAS 128
for all periods. See Note 2 of Notes to Consolidated Financial
Statements.
As indicated in the table above, the increases in the Company's net
sales in the fourth quarter of each fiscal year have generally been higher than
those in the other three quarters in the same fiscal year. The trend of higher
fourth quarter net sales is attributable to calendar year-end business purchases
and holiday period purchases made by customers. Additionally, gross profit in
the fourth quarter of each year has historically been favorably impacted by
attractive year-end product buying opportunities which have often resulted in
higher purchase discounts to the Company.
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 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 $647.7 million in 1997 as compared
to cash provided by operating activities of $78.0 million in 1996 and cash used
by operating activities of $251.3 million in 1995. The significant decrease in
cash provided by operating activities in 1997 compared to 1996 was primarily
attributable to increases in accounts receivable and product inventory that was
not financed by trade creditors resulting from the continued growth of the
Company. The significant increase in cash provided by operating activities in
1996 compared to cash used by operating activities in 1995 was partially
attributable to the increase in net income and the difference between accounts
receivable, inventory levels, and accounts payable in 1996 as compared to 1995
attributable to the launch of Microsoft Windows 95 in the third quarter of 1995.
20
9
MANAGEMENT'S DISCUSSION AND ANALYSIS CONTINUED
Net cash used by investing activities was $193.3 million, $107.2
million, and $48.8 million in 1997, 1996, and 1995, respectively. These
increases were due in part to the Company's expansion of warehouse and other
facilities in each year. In 1997, acquisitions, net of cash acquired, were
approximately $34 million relating primarily to the acquisition of RND,
Computacion Tecnica, S.A. ("Computek"), Latino Americana de Software Ltda.
("LASoft"), J & W Computer GmbH, Tallgrass Technologies AS, and TT Microtrading
Oy. Additionally, the Company acquired 21% of the outstanding common stock as
well as approximately 19% of outstanding warrants and an option to acquire
additional common stock of Electronic Resources Ltd. ("ERL") for $71.2 million.
In 1996, purchases of property and equipment included $22.6 million related to
the acquisition, in connection with the Split-Off, of certain previously leased
facilities utilized by the Company.
Net cash provided by financing activities was $888.4 million, $21.3
million, and $298.3 million in 1997, 1996 and 1995, respectively. Net cash
provided by financing activities in 1997 was due primarily to the increase in
revolving credit of $770.4 million. Net cash provided by financing activities in
1996 includes the receipt of $393.8 million in net proceeds from the IPO. The
decrease in net cash provided by financing activities in 1996 as compared to
1995 was caused primarily by the repayment of borrowings from Ingram Industries
totaling $513.8 million as a result of the Split-Off and a $20.0 million
distribution to Ingram Industries in 1996. The decrease in borrowings from
Ingram Industries was partially offset by proceeds from debt totaling $49.7
million and net borrowings under the revolving credit facility of $80.6 million.
On July 18, 1997, the Company completed its acquisition of RND. The
purchase price was $73 million, payable by the assumption of liabilities in
excess of current assets (including $30 million in cash acquired), based on the
balance sheet of RND at closing. This acquisition was accounted for using the
purchase method and the results of RND's operations have been combined with
those of the Company since the date of acquisition. The purchase price was
allocated to the assets acquired and liabilities assumed based on their
estimated fair values at the date of acquisition. The excess of purchase price
over net assets acquired of approximately $81 million is being amortized on a
straight-line basis over 20 years.
In April 1997, the Company acquired Tallgrass Technologies A.S., a
distributor of computer products based in Norway. In August 1997, the Company
acquired J&W Computer GmbH, a distributor of computer products with operations
in Germany, France, Switzerland, and Austria. In November 1997, the Company
acquired Computek, a distributor of computer products with operations in Chile,
Brazil, Peru, Miami, and Florida and TT Microtrading Oy, a software distribution
company based in Finland. In December 1997, the Company also acquired certain
assets of LASoft, a distributor of primarily software products with operations
in Brazil. The combined consideration paid for these companies was approximately
$75 million. The acquisitions were accounted for using the purchase method of
accounting, and the results of operations of the acquired companies have been
combined with those of the Company since the dates of acquisition. The purchase
price was allocated to the assets acquired and the liabilities assumed based
upon their estimated fair values at the dates of acquisition. The excess of
purchase price over net assets acquired for all five acquisitions totaled
approximately $40 million and is being amortized on a straight-line basis over
20 years.
In December 1997, the Company completed its purchase of 49,606,000
shares, or approximately 21% of the outstanding common stock of ERL, a
publicly-traded electronic components distributor based in Singapore and
operating in Australia, New Zealand, and seven Asian countries. In addition, the
Company purchased approximately 19% of an outstanding class of warrants to
acquire 8,443,195 shares of ERL and obtained an option, which expires April 30,
1999, to purchase an additional 8.4% of the common shares outstanding. The
aggregate purchase price was approximately $71 million. The Company is
accounting for the investment under the equity method. The Company's investment
in ERL has been recorded in other assets at January 3, 1998, and includes the
unamortized excess of the Company's investment over its equity in the net assets
of ERL. The excess of approximately $40 million is being amortized on a
straight-line basis over the estimated useful life of up to 20 years. At January
3, 1998, the aggregate market value of the Company's shares of ERL common stock
and warrants, as quoted on the Stock Exchange of Singapore, was approximately
$59 million.
21
10
MANAGEMENT'S DISCUSSION AND ANALYSIS CONTINUED
Prior to the Split-Off in 1996, the Company's sources of capital were
primarily borrowings from Ingram Industries. Ingram Industries no longer
provides financing to the Company following the Split-Off. 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 1997, the Company entered into two additional
credit facilities which together provide an additional $650 million, bringing
the total amount available to the Company under these facilities to $1.65
billion. Under the credit facilities, the Company is required to comply with
certain financial covenants, including minimum tangible net worth, restrictions
on funded debt, current ratio and interest coverage. The credit facilities also
restrict the Company's ability to pay dividends. Borrowings are subject to the
satisfaction of customary conditions, including the absence of any material
adverse change in the Company's business or financial condition. Borrowings
under the $1 billion credit facility were used to repay outstanding revolving
indebtedness related to amounts drawn by certain of the Company's subsidiaries,
as participants in Ingram Industries' existing unsecured credit facility, which
was terminated concurrent with the Split-Off. Borrowings under these facilities
also have partially financed the increase in accounts receivable and inventories
at January 3, 1998 as compared to December 28, 1996, and December 28, 1996, as
compared to December 30, 1995. At January 3, 1998, the Company had $938.6
million in outstanding borrowings under the credit facilities.
In November 1996, the Company sold 23,200,000 shares of Class A Common
Stock in the IPO at $18.00 per share. The Company received net proceeds of
$393.8 million of which approximately $366.3 million were used to repay certain
existing indebtedness to Ingram Industries.
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 medium-term
certificates with various commencement dates between June 1, 1998, and February
1, 2004. In addition approximately $13 million of trust certificate-backed
commercial paper was outstanding on the Split-Off date. 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. Assumption of the
securitization program resulted in a $160 million reduction of trade accounts
receivable and long-term debt on the Company's subsequent consolidated balance
sheets. 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 a variable rate
certificate which supports the commercial paper program. At January 3, 1998, and
December 28, 1996, the amount of commercial paper outstanding totaled $150
million and $50 million, respectively. The commercial paper program arrangement
with the trust extends to December 31, 1999, renews biannually, subject to
certain conditions, and has a final termination date of February 10, 2013.
The Company and its foreign subsidiaries have uncommitted lines of
credit and short-term overdraft facilities in various currencies which
aggregated $119 million and $92 million at the end of 1997 and 1996,
respectively. These facilities are used principally for working capital and bear
interest at market rates.
The exercise of stock options provides an additional source of cash to
the Company. In 1997 and 1996, respectively, cash proceeds from the exercise of
stock options, including applicable tax benefits, totaled $28.4 million and
$11.3 million, respectively. The Company believes that cash provided by
operating activities, supplemented as necessary with funds available under
credit arrangements (including the $1.65 billion in credit facilities), will
provide sufficient resources to meet its present and future working capital and
cash requirements for at least the next 12 months.
The Company presently expects to spend approximately $100 million in
1998 for capital expenditures due to continued expansion of its business.
22
11
MARKET RISK
The Company is exposed to the impact of foreign currency fluctuations
and interest rate changes due to its international sales and global funding. In
the normal course of business, the Company employs established policies and
procedures to manage its exposure to fluctuations in the value of foreign
currencies and interest rates using a variety of financial instruments. It is
the Company's policy to utilize financial instruments to reduce risks where
internal netting cannot be effectively employed. The Company does not enter into
foreign currency or interest rate transactions for speculative purposes.
In addition to product sales and costs the Company has foreign currency
risk related to debt that is denominated in currencies other than the U.S.
dollar and cross-currency swaps hedging inter-company debt. The Company's
foreign currency risk management objective is to protect its earnings and cash
flows resulting from sales, purchases and other transactions from the adverse
impact of exchange rate movements. Foreign exchange risk is managed by using
forward and option contracts to hedge receivables and payables. By policy, the
Company maintains hedge coverage between minimum and maximum percentages.
Cross-currency swaps are used to hedge foreign currency denominated payments
related to intercompany and third party loans. Hedged transactions are
denominated primarily in British pounds, Canadian dollars, French francs, German
marks, Italian lira, Spanish pesetas, and Swedish krona.
The Company is exposed to changes in interest rates primarily as a
result of its long-term debt used to maintain liquidity and finance inventory,
capital expenditures and business expansion. Interest rate risk is also present
in the cross-currency swaps hedging intercompany and third party loans. The
Company's interest rate risk management objective is to limit the impact of
interest rate changes on earnings and cash flows and to lower its overall
borrowing costs. To achieve its objectives the Company uses a combination of
fixed and variable rate debt. The Company finances working capital needs through
various bank loans and commercial paper programs.
MARKET RISK MANAGEMENT
Foreign exchange and interest rate risk and related derivatives use is
monitored using a variety of techniques including a review of market value,
sensitivity analysis and Value-at-Risk (VaR). The VaR model determines the
maximum potential loss in the fair value of foreign exchange rate-sensitive
financial instruments assuming a one day holding period. The VaR model estimates
were made assuming normal market conditions and a 95% confidence level. There
are various modeling techniques that can be used in the VaR computation. The
Company's computations are based on interrelationships between currencies and
interest rates (a "variance/co-variance" technique). These interrelationships
were determined by observing foreign currency market changes and interest rate
changes over the preceding 90 days. The value of foreign currency options does
not change on a one-to-one basis with changes in the underlying currency rate.
The potential loss in option value was adjusted for the estimated sensitivity
(the "delta" and "gamma") to changes in the underlying currency rate. The model
includes all of the Company's forwards, options, cross-currency swaps and
nonfunctional currency denominated debt (i.e., the Company's market-sensitive
derivative and other financial instruments as defined by the Securities and
Exchange Commission). The accounts receivable and accounts payable denominated
in foreign currencies, which certain of these instruments are intended to hedge,
were excluded from the model.
The VaR model is a risk analysis tool and does not purport to represent
actual losses in fair value that will be incurred by the Company, nor does it
consider the potential effect of favorable changes in market rates. It also does
not represent the maximum possible loss that may occur. Actual future gains and
losses will differ from those estimated because of changes or differences in
market rates and interrelationships, hedging instruments and hedge percentages,
timing and other factors.
The estimated maximum loss in fair value on the Company's foreign
currency sensitive financial instruments and interest rate sensitive financial
instruments, derived using the VaR model and a one day holding period, was $1.6
million and $0.1 million, respectively, at January 3, 1998. The Company believes
that this hypothetical loss in fair value of its derivatives would be offset by
increases in the value of the underlying transactions being hedged.
23
12
MANAGEMENT'S DISCUSSION AND ANALYSIS CONTINUED
YEAR 2000
As is the case with many computer software systems, some of the
Company's systems use two digit data fields which recognize dates using the
assumption that the first two digits are "19" (i.e., the number 97 is recognized
as the year 1997). Therefore, the Company's date critical functions relating to
the year 2000 and beyond, such as sales, distribution, purchasing, inventory
control, merchandise planning and replenishment, facilities, and financial
systems, may be severely affected unless changes are made to these computer
systems. With the assistance of an outside consultant, the Company commenced a
review of the Company's internal systems in mid-1997 to identify applications
that are not Year 2000 ready and to assess the impact of the Year 2000 problem.
The Company has developed an overall plan and a systematic process to modify its
internal systems to be Year 2000 ready. The Company commenced remediation of its
main frame programs in early 1998 to comply with Year 2000 requirements. The
Company anticipates that the other required Year 2000 modifications will be made
on a timely basis and does not believe that the cost of such modifications will
have a material effect on the Company's operating results. If the Company does
not modify successfully and in a timely manner all of its internal services and
systems to comply with Year 2000 requirements, it could have a material adverse
effect on the Company's operating results. There can be no assurance, however,
that the Company will be able to modify successfully and in a timely manner all
of its internal services and systems to comply with Year 2000 requirements,
which could have a material adverse effect on the Company's operating results.
In addition, the Company faces risks to the extent that suppliers of products
(including components for its channel assembly and configuration initiative),
services (including services provided by independent shipping companies), and
business on a worldwide basis may not have business systems or products that
comply with the Year 2000 requirements. In the event any such third parties
cannot provide the Company with products, services or systems that meet Year
2000 requirements in a timely manner, the Company's operating results could be
materially adversely affected. The Company's operating results also could be
materially adversely affected if it were to be held responsible for the failure
of any products sold by the Company to be Year 2000-compliant despite its
disclaimer of product warranties and the limitation of liability contained in
its sales terms and conditions.
NEW ACCOUNTING STANDARDS
In June 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 130, "Reporting Comprehensive Income"
("FAS 130") which will become effective in fiscal 1998. The Company does not
expect the adoption of FAS 130 to have a material impact on its reported
financial condition or results of operation.
In June 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 131, "Disclosure about Segments of an
Enterprise and Related Information" ("FAS 131") which will become effective in
fiscal 1998. FAS 131 establishes standards for the way publicly-held companies
report information about operating segments as well as disclosures about
products and services, geographic area and major customers. However, the company
does not expect the adoption of FAS 131 to have a material impact on its
reported consolidated financial condition or results of operations.
CAUTIONARY STATEMENTS FOR PURPOSES OF THE SAFE HARBOR PROVISIONS OF THE PRIVATE
SECURITIES LITIGATION REFORM ACT OF 1995
The matters in this Annual Report that are forward-looking statements
are based on current management expectations that involve certain risks,
including without limitation: the potential decline as well as seasonal
variations in demand for the Company's products; the potential termination of a
supply agreement with a major supplier; continued pricing and margin pressures;
product supply shortages; rapid product improvement and technological changes,
and resulting obsolescence risks; unavailability of adequate capital; the impact
on management of growth and acquisitions; foreign currency fluctuations; the
failure to achieve substantial Year 2000 compliance; and reliability of
information systems. For a further discussion of these and other significant
factors to consider in connection with forward-looking statements concerning the
Company, reference is made to Exhibit 99.1 of the Company's Annual Report on
Form 10-K for fiscal year ended January 3, 1998; other risks or uncertainties
may be detailed from time to time in the Company's future Securities and
Exchange Commission filings.
24
13
MANAGEMENT'S STATEMENT OF FINANCIAL RESPONSIBILITY
Management is responsible for the integrity of the financial information
contained in this annual report, including the Company's consolidated financial
statements, which have been prepared in conformity with generally accepted
accounting principles and include amounts based upon management's informed
estimates and judgments.
Management maintains an effective system of internal accounting
controls, including an internal audit program, that is designed to provide
reasonable, but not absolute, assurance that assets are safeguarded and that
accounting records provide a reliable basis for the preparation of financial
statements. This system is continuously reviewed, improved and modified in
response to changing business conditions and operations and recommendations made
by the independent accountants and internal auditors. Management believes that
the accounting and control systems provide reasonable assurance that assets are
safeguarded and financial information is reliable.
The Company's Bylaws provide that a majority of the members of the Audit
Committee of the Board of Directors shall be Independent Directors who are not
employees of the Company. The Audit Committee represents the shareowners and the
Board of Directors on matters relating to corporate accounting, financial
reporting, internal accounting control and auditing including the ongoing
assessment of the activities of the independent accountants and internal
auditors. The independent accountants and internal auditors advise the Audit
Committee of significant findings and recommendations arising from their
activities and have free access to the Audit Committee, with or without the
presence of management.
/s/ JERRE L. STEAD /s/ MICHAEL J. GRAINGER
- ---------------------------- ---------------------------------
Jerre L. Stead Michael J. Grainger
Chairman of the Board and Executive Vice President and
Chief Executive Officer Worldwide Chief Financial Officer
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of Ingram Micro Inc.
In our opinion, the accompanying consolidated balance sheet and the
related consolidated statements of income, of stockholders' equity and of cash
flows present fairly, in all material respects, the financial position of Ingram
Micro Inc. and its subsidiaries at January 3, 1998 and December 28, 1996, and
the results of their operations and their cash flows for each of the three
fiscal years in the period ended January 3, 1998, in conformity with generally
accepted accounting principles. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
/s/ PRICE WATERHOUSE LLP
- ------------------------------
PRICE WATERHOUSE LLP
Costa Mesa, California
February 17, 1998
25
14
CONSOLIDATED BALANCE SHEET
(Dollars in 000s, except per share data.)
FISCAL YEAR END
1997 1996
------------------------------
ASSETS
CURRENT ASSETS:
CASH $ 92,212 $ 48,279
TRADE ACCOUNTS RECEIVABLE (LESS ALLOWANCES OF
$48,541 IN 1997 AND $38,622 IN 1996) 1,635,728 1,143,028
INVENTORIES 2,492,646 1,818,047
OTHER CURRENT ASSETS 225,408 145,964
------------------------------
TOTAL CURRENT ASSETS 4,445,994 3,155,318
PROPERTY AND EQUIPMENT, NET 215,148 161,172
GOODWILL, NET 142,478 25,918
OTHER 128,531 24,539
------------------------------
TOTAL ASSETS $ 4,932,151 $ 3,366,947
==============================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
ACCOUNTS PAYABLE $ 2,415,001 $ 2,047,988
ACCRUED EXPENSES 292,515 162,887
CURRENT MATURITIES OF LONG-TERM DEBT 21,869 23,899
------------------------------
TOTAL CURRENT LIABILITIES 2,729,385 2,234,774
LONG-TERM DEBT 1,119,262 280,134
OTHER 23,843 6,190
------------------------------
TOTAL LIABILITIES 3,872,490 2,521,098
MINORITY INTEREST 4,862 3,476
COMMITMENTS AND CONTINGENCIES (NOTE 9)
REDEEMABLE CLASS B COMMON STOCK 16,593 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; 37,366,389 AND 25,047,696 SHARES ISSUED AND
OUTSTANDING IN 1997 AND 1996, RESPECTIVELY 374 250
CLASS B COMMON STOCK, $0.01 PAR VALUE, 135,000,000
SHARES AUTHORIZED; 99,714,672 AND 109,043,762 SHARES
ISSUED AND OUTSTANDING IN 1997 AND 1996 (INCLUDING
2,370,400 AND 2,460,400 REDEEMABLE SHARES IN 1997
AND 1996), RESPECTIVELY 973 1,066
ADDITIONAL PAID IN CAPITAL 484,912 449,657
RETAINED EARNINGS 566,441 372,801
CUMULATIVE TRANSLATION ADJUSTMENT (14,236) 1,910
UNEARNED COMPENSATION (258) (534)
------------------------------
TOTAL STOCKHOLDERS' EQUITY 1,038,206 825,150
------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 4,932,151 $ 3,366,947
==============================
See accompanying notes to these consolidated financial statements
26
15
CONSOLIDATED STATEMENT OF INCOME
(Dollars in 000s, except per share data.)
FISCAL YEAR
--------------------------------------------------
1997 1996 1995
NET SALES $ 16,581,539 $ 12,023,451 $ 8,616,867
COST OF SALES 15,495,850 11,211,067 8,011,181
--------------------------------------------------
GROSS PROFIT 1,085,689 812,384 605,686
EXPENSES:
SELLING, GENERAL AND ADMINISTRATIVE 701,958 537,893 415,344
CHARGES ALLOCATED FROM INGRAM INDUSTRIES -- 3,633 3,461
NONCASH COMPENSATION CHARGE (NOTE 12) 7,152 23,350 --
--------------------------------------------------
709,110 564,876 418,805
--------------------------------------------------
INCOME FROM OPERATIONS 376,579 247,508 186,881
OTHER (INCOME) EXPENSE:
INTEREST INCOME (3,924) (2,060) (3,479)
INTEREST EXPENSE 37,940 14,812 13,451
INTEREST EXPENSE CHARGED BY INGRAM INDUSTRIES -- 35,123 32,606
NET FOREIGN CURRENCY EXCHANGE LOSS 2,430 701 7,751
OTHER 13,644 2,175 1,936
--------------------------------------------------
50,090 50,751 52,265
--------------------------------------------------
INCOME BEFORE INCOME TAXES
AND MINORITY INTEREST 326,489 196,757 134,616
PROVISION FOR INCOME TAXES 131,463 84,889 53,143
--------------------------------------------------
INCOME BEFORE MINORITY INTEREST 195,026 111,868 81,473
MINORITY INTEREST 1,386 1,189 (2,834)
--------------------------------------------------
NET INCOME $ 193,640 $ 110,679 $ 84,307
==================================================
BASIC EARNINGS PER SHARE $ 1.43 $ 0.99 $ 0.79
==================================================
DILUTED EARNINGS PER SHARE $ 1.32 $ 0.88 $ 0.74
==================================================
See accompanying notes to these consolidated financial statements.
27
16
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(Dollars in 000s.)
ADDITIONAL CUMULATIVE
COMMON STOCK PAID IN RETAINED TRANSLATION UNEARNED
CLASS A CLASS B CAPITAL EARNINGS ADJUSTMENT COMPENSATION
------------------------------------------------------------------------------------------------
DECEMBER 31, 1994 $ -- $ 1,073 $ 22,427 $ 197,815 $ 29 $ -
TRANSLATION ADJUSTMENT 5,144
NET INCOME 84,307
------------------------------------------------------------------------------------------------
DECEMBER 30, 1995 -- 1,073 22,427 282,122 5,173 --
NONCASH COMPENSATION
CHARGE RELATED TO
STOCK OPTIONS 23,170
DISTRIBUTION TO
INGRAM INDUSTRIES (20,000)
GRANT OF RESTRICTED
CLASS B
COMMON STOCK 1 713 (714)
NET PROCEEDS FROM
SALE OF CLASS A
COMMON STOCK 232 393,612
STOCK OPTIONS EXERCISED 10 1,612
INCOME TAX BENEFIT
FROM EXERCISE OF
STOCK OPTIONS 8,123
CONVERSION OF
CLASS B COMMON
STOCK TO CLASS A
COMMON STOCK 8 (8)
AMORTIZATION OF
UNEARNED
COMPENSATION 180
TRANSLATION ADJUSTMENT (3,263)
NET INCOME 110,679
------------------------------------------------------------------------------------------------
DECEMBER 28, 1996 250 1,066 449,657 372,801 1,910 (534)
NONCASH COMPENSATION
CHARGE RELATED TO
STOCK OPTIONS 6,876
STOCK OPTIONS EXERCISED 31 6,546
INCOME TAX BENEFIT
FROM EXERCISE OF
STOCK OPTIONS 21,833
CONVERSION OF
CLASS B COMMON
STOCK TO CLASS A
COMMON STOCK 93 (93)
AMORTIZATION OF
UNEARNED
COMPENSATION 276
TRANSLATION ADJUSTMENT (16,146)
NET INCOME 193,640
------------------------------------------------------------------------------------------------
JANUARY 3, 1998 $ 374 $ 973 $ 484,912 $ 566,441 $ (14,236) $ (258)
================================================================================================
TOTAL
----------------
DECEMBER 31, 1994 $ 221,344
TRANSLATION ADJUSTMENT 5,144
NET INCOME 84,307
----------------
DECEMBER 30, 1995 310,795
NONCASH COMPENSATION
CHARGE RELATED TO
STOCK OPTIONS 23,170
DISTRIBUTION TO
INGRAM INDUSTRIES (20,000)
GRANT OF RESTRICTED
CLASS B
COMMON STOCK --
NET PROCEEDS FROM
SALE OF CLASS A
COMMON STOCK 393,844
STOCK OPTIONS EXERCISED 1,622
INCOME TAX BENEFIT
FROM EXERCISE OF
STOCK OPTIONS 8,123
CONVERSION OF
CLASS B COMMON
STOCK TO CLASS A
COMMON STOCK --
AMORTIZATION OF
UNEARNED
COMPENSATION 180
TRANSLATION ADJUSTMENT (3,263)
NET INCOME 110,679
----------------
DECEMBER 28, 1996 825,150
NONCASH COMPENSATION
CHARGE RELATED TO
STOCK OPTIONS 6,876
STOCK OPTIONS EXERCISED 6,577
INCOME TAX BENEFIT
FROM EXERCISE OF
STOCK OPTIONS 21,833
CONVERSION OF
CLASS B COMMON
STOCK TO CLASS A
COMMON STOCK --
AMORTIZATION OF
UNEARNED
COMPENSATION 276
TRANSLATION ADJUSTMENT (16,146)
NET INCOME 193,640
----------------
JANUARY 3, 1998 $1,038,206
===============
28
See accompanying notes to these consolidated financial statements.
17
CONSOLIDATED STATEMENT OF CASH FLOWS
(Dollars in 000s.)
FISCAL YEAR
-----------------------------------------
1997 1996 1995
Cash provided (used) by operating activities:
Net income $ 193,640 $ 110,679 $ 84,307
Adjustments to reconcile net income to
cash provided by operating activities:
Depreciation and amortization 47,835 36,170 25,394
Deferred income taxes 8,226 (1,635) (8,632)
Minority interest 1,387 1,189 (2,834)
Noncash compensation charge 7,152 23,350 --
Changes in operating assets and liabilities,
net of effects of acquisitions:
Trade accounts receivable (485,711) (237,747) (320,177)
Inventories (542,886) (239,054) (580,116)
Other current assets (61,642) (46,291) (15,877)
Accounts payable 92,396 399,995 543,822
Accrued expenses 91,912 31,372 22,828
-----------------------------------------
Cash (used) provided by operating activities (647,691) 78,028 (251,285)
Cash provided (used) by investing activities:
Purchase of property & equipment (101,458) (105,584) (52,985)
Acquisitions, net of cash acquired (33,960) -- --
Investment in Electronic Resources Ltd. (71,212) -- --
Proceeds of sale of property & equipment 12,963 -- --
Other 320 (1,596) 4,188
-----------------------------------------
Cash used by investing activities (193,347) (107,180) (48,797)
Cash provided (used) by financing activities:
Proceeds from sale of Class A Common Stock -- 393,844 --
Proceeds from sale of Redeemable
Class B Common Stock (630) 17,223 --
Exercise of stock options including tax benefits 28,410 11,331 --
(Decrease) increase in borrowings from Ingram Industries -- (513,792) 224,437
Proceeds (repayment) of debt 90,219 49,717 (838)
Net borrowings under revolving credit facility 770,367 80,618 74,666
Distribution to Ingram Industries -- (20,000) --
Minority interest investment -- 2,400 --
-----------------------------------------
Cash provided by financing activities 888,366 21,341 298,265
Effect of exchange rate changes on cash (3,395) (826) 364
Increase (decrease) in cash 43,933 (8,637) (1,453)
Cash, beginning of year 48,279 56,916 58,369
-----------------------------------------
Cash, end of year $ 92,212 $ 48,279 $ 56,916
Supplemental disclosure of cash flow information:
Cash payments during the year:
Interest $ 36,185 $ 50,071 $ 45,164
Income taxes 107,129 101,091 54,506
=========================================
CASH PAYMENTS INCLUDE PAYMENTS MADE TO INGRAM INDUSTRIES FOR INTEREST AND U.S.
INCOME TAXES.
See accompanying notes to these consolidated financial statements.
29
18
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN 000S, EXCEPT PER SHARE DATA)
NOTE 1 - ORGANIZATION AND BASIS OF PRESENTATION
Ingram Micro Inc. (the "Company" or "Ingram Micro"), formerly Ingram
Micro Holdings Inc., is primarily engaged in wholesale distribution of
computer-based technology products and services worldwide. The Company conducts
the majority of its operations in North America, Europe, and Latin America. 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. See Note 3 for further information.
The accompanying historical consolidated financial statements have been
prepared as if the Company had operated as an independent stand-alone entity for
all periods presented except that prior to the Split-Off, the Company generally
had no significant borrowings in North America other than amounts due to Ingram
Industries. See Notes 7 and 11 regarding long-term debt and related party
transactions.
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES
The Company's significant accounting policies are described below:
Basis of Consolidation
The consolidated financial statements include the accounts of the
Company and its wholly-owned and majority-owned subsidiaries. All significant
intercompany accounts and transactions have been eliminated in consolidation.
Investments in affiliates, owned more than 20 percent but not in excess of 50
percent, are recorded on the equity method.
Fiscal Year
The fiscal year of the Company is a 52 or 53 week period ending on the
Saturday nearest to December 31. All references herein to "1997" represent the
53 week fiscal year ended January 3, 1998. All references herein to "1996" and
"1995" represent the 52 week fiscal years ended December 28, 1996, and December
30, 1995, respectively.
Accounting Estimates
Preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at the
date of the financial statements, disclosure of contingent liabilities at the
financial statement date and reported amounts of revenue and expenses during the
reporting period. Actual results could differ from these estimates.
Cash
Book overdrafts of $108,399 in 1997 and $128,233 in 1996 are included in
accounts payable. The Company considers all highly liquid investments with
original maturities of three months or less to be cash equivalents.
Revenue Recognition
Revenue is recognized at the time of product shipment. The Company,
under specific conditions, permits its customers to return or exchange products.
The provision for estimated sales returns is recorded concurrently with the
recognition of revenue.
Vendor Programs
Funds received from vendors for price protection, product rebates,
marketing or training programs are recorded net of direct costs as adjustments
to product costs, selling, general and administrative expenses or revenue
according to the nature of the program.
The Company does not provide warranty coverage for its product sales.
However, to maintain customer relations, the Company facilitates domestic vendor
warranty policies by accepting for exchange, with the Company's prior approval,
most defective products within 90 days of invoicing. Defective products received
by the Company are subsequently returned to the vendor for credit or
replacement.
The Company generated approximately 38% of its net sales in fiscal 1997,
35% in 1996, and 32% in 1995 from products purchased from three vendors.
30
19
Inventories
Inventories are stated at the lower of average cost or market.
Property and Equipment
Property and equipment are recorded at cost and depreciated using the
straight-line method over the following estimated useful lives. Leasehold
improvements are amortized over the shorter of the lease term or the estimated
useful life:
Buildings 40 years
Leasehold improvements 3 - 12 years
Distribution equipment 5 - 7 years
Computer equipment 2 - 5 years
Maintenance, repairs and minor renewals are charged to expense as
incurred. Additions, major renewals and betterments to property and equipment
are capitalized. Realization of carrying value is assessed on a regular basis.
Goodwill
Goodwill is amortized on a straight-line basis over periods ranging from
five to twenty years. Accumulated amortization was $21,638 at January 3, 1998,
and $16,566 at December 28, 1996. Amortization expense totaled $4,955, $2,990,
and $3,642 for fiscal years 1997, 1996, and 1995, respectively. The Company
evaluates the recoverability of goodwill and reviews the amortization periods on
a regular basis. Recoverability is measured on the basis of anticipated
undiscounted cash flows from operations. At January 3, 1998, and December 28,
1996, no impairment was indicated.
Income Taxes
The temporary differences between the financial reporting basis and the
income tax basis of the Company's assets and liabilities are provided using the
liability method.
Foreign Currency Translation
Financial statements of foreign subsidiaries are translated into U.S.
dollars using the exchange rate at each balance sheet date for assets and
liabilities and a weighted average exchange rate for each period for the results
of operations. Translation adjustments are recorded as a separate component of
stockholders' equity when the local currency is the functional currency.
Translation adjustments are recorded in income when the U.S. dollar is the
functional currency. The U.S. dollar is the functional currency for the
Company's subsidiaries in Latin America.
Fair Value of Financial Instruments
The carrying amounts of cash, accounts receivable, accounts payable and
other accrued expenses approximate fair value because of the short maturity of
these items.
The carrying amounts of debt issued pursuant to bank credit agreements
approximate fair value because interest rates on these instruments approximate
current market interest rates.
Concentration of Credit Risk
Financial instruments that potentially subject the Company to
significant concentrations of credit risk consist principally of trade accounts
receivable and derivative financial instruments. Credit risk with respect to
trade accounts receivable is limited due to the large number of customers and
their dispersion across geographic areas. The Company sells its products
primarily in the United States, Europe, Canada and Latin America. The Company
performs ongoing credit evaluations of its customers' financial condition,
utilizes floor plan financing arrangements with third party financing companies,
obtains credit insurance in certain locations and requires collateral in certain
circumstances. The Company maintains an allowance for potential credit losses.
Historically, such losses have been within management's expectations.
31
20
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
(DOLLARS IN 000S, EXCEPT PER SHARE DATA)
Derivative Financial Instruments
The Company operates internationally with distribution facilities in
various locations around the world. The Company reduces its exposure to
fluctuations in interest rates and foreign exchange rates by creating offsetting
positions through the use of derivative financial instruments. The market risk
related to the foreign exchange agreements is offset by changes in the valuation
of the underlying items being hedged. The majority of the Company's derivative
financial instruments have terms of 90 days or less. The Company currently does
not use derivative financial instruments for trading or speculative purposes,
nor is the Company a party to leveraged derivatives.
Derivative financial instruments are accounted for on an accrual basis.
Income and expense are recorded in the same category as that arising from the
related asset or liability being hedged. Gains and losses resulting from
effective hedges of existing assets, liabilities or firm commitments are
deferred and recognized when the offsetting gains and losses are recognized on
the related hedged items. Written foreign currency options are used to mitigate
currency risk in conjunction with purchased options. Gains or losses on written
foreign currency options are adjusted to market value at the end of each
accounting period and have not been material to date.
The notional amount of forward exchange contracts and options is the
amount of foreign currency bought or sold at maturity. The notional amount of
currency interest rate swaps is the underlying principal and currency amounts
used in determining the interest payments exchanged over the life of the swap.
Notional amounts are indicative of the extent of the Company's involvement in
the various types and uses of derivative financial instruments and are not a
measure of the Company's exposure to credit or market risks through its use of
derivatives. The estimated fair value of derivative financial instruments
represents the amount required to enter into like off-setting contracts with
similar remaining maturities based on quoted market prices.
Credit exposure is limited to the amounts, if any, by which the
counterparties' obligations under the contracts exceed the obligations of the
Company to the counterparties. Potential credit losses are minimized through
careful evaluation of counterparty credit standing, selection of counterparties
from a limited group of high quality institutions and other contract provisions.
Derivative financial instruments comprise the following:
1997 1996
-----------------------------------------------------
NOTIONAL ESTIMATED NOTIONAL ESTIMATED
AMOUNTS FAIR VALUE AMOUNTS FAIR VALUE
-----------------------------------------------------
Foreign exchange forward contracts $279,911 $ 2,197 $178,873 $ 1,498
Purchased foreign currency options 37,966 320 30,857 146
Written foreign currency options 49,214 (185) 44,017 (112)
Currency interest rate swaps 15,832 1,492 25,655 410
Employee Benefits
Prior to the Split-Off, the Company participated in Ingram Industries'
defined contribution plan covering substantially all U.S. employees. As a result
of the Split-Off, the Company established its own employee benefit plans. The
plans permit eligible employees to make contributions up to certain limits which
are matched by the Company at stipulated percentages. The Company's
contributions charged to expense were $2,678 in 1997, $1,642 in 1996, and $1,399
in 1995.
Accounting for Stock-Based Compensation
The Company adopted the disclosure requirements of Statement of
Financial Accounting Standards No. 123, "Accounting for Stock Based
Compensation" ("FAS 123") in 1996. As permitted by FAS 123, the Company
continues to measure compensation cost in accordance with Accounting Principles
Board Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB 25") but
provides pro forma disclosures of net income and earnings per share as if the
fair value method (as defined in FAS 123) had been applied beginning in 1996.
32
21
Earnings Per Share
Effective in the fourth quarter of fiscal year 1997, the Company adopted
Statement of Financial Accounting Standards No. 128, "Earnings per Share" ("FAS
128") and related interpretations. FAS 128 requires 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 reported period,
after giving retroactive effect to the Split-Off (Notes 1 and 3). Diluted EPS
reflects the potential dilution that could occur if stock options and other
commitments to issue common stock were exercised using the treasury stock
method. Earnings per share for all prior periods have been restated to reflect
the adoption of FAS 128.
The composition of Basic EPS and Diluted EPS is as follows:
1997 1996 1995
------------------------------------------------
Net income $ 193,640 $ 110,679 $ 84,307
================================================
Weighted average shares 135,764,053 112,285,058 107,251,362
================================================
Basic earnings per share $ 1.43 $ 0.99 $ 0.79
================================================
Weighted average shares including
the dilutive effect of stock options
(10,543,479, 13,151,318 and 7,266,009 for
fiscal 1997, 1996, and 1995, respectively) 146,307,532 125,436,376 114,517,371
================================================
Diluted earnings per share $ 1.32 $ 0.88 $ 0.74
================================================
New Accounting Standards
In June 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 130, "Reporting Comprehensive Income"
("FAS 130"), which will become effective in fiscal 1998. The Company does not
expect the adoption of FAS 130 to have a material impact on its reported
consolidated financial condition or results of operations.
In June 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 131, "Disclosure about Segments of an
Enterprise and Related Information" ("FAS 131"), which will become effective in
fiscal 1998. FAS 131 establishes standards for the way publicly-held companies
report information about operating segments as well as disclosures about
products and services, geographic areas and major customers. However, the
Company does not expect the adoption of FAS 131 to have a material impact on its
reported consolidated financial condition or results of operations.
NOTE 3 - SPLIT-OFF, REORGANIZATION AND EXCHANGE
In November 1996, the Split-Off was effected pursuant to a
Reorganization Agreement among the Company, Ingram Industries, and its
subsidiary, Ingram Entertainment Inc. ("Ingram Entertainment"), and an Exchange
Agreement among such companies and the stockholders of Ingram Industries.
Pursuant to the Reorganization Agreement, the Company retained all of the assets
and liabilities associated with the Company's business and indemnified Ingram
Industries for all liabilities related to the Company's business and operations
or otherwise assigned to the Company. In addition, the Reorganization Agreement
provided for the sharing by the Company of approximately 73% of certain
contingent assets and liabilities not allocated to one of the parties. The
Company assumed a portion of Ingram Industries' debt in return for the
extinguishment of intercompany indebtedness (see Note 7).
33
22
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
(DOLLARS IN 000S, EXCEPT PER SHARE DATA)
In connection with the Reorganization Agreement, the Company entered
into an Employee Benefits Transfer and Assumption Agreement with Ingram
Industries which provided for the allocation of employee benefit assets and
liabilities to each of the parties relating to their continuing employees. The
Company also entered into a Tax Sharing and Tax Services Agreement pursuant to
which the Company will be responsible for its allocable share of Ingram
Industries' consolidated federal and state income tax liabilities for fiscal
1996 through the date of the Split-Off and approximately 73% of any adjustment
in excess of reserves already established by Ingram Industries for past federal
and state liabilities of the Company and Ingram Industries. Similarly, the
Company will share in any refunds received with respect to such periods. The
Company also entered into Transitional Service Agreements related to certain
administrative services and data processing (see Note 11).
Pursuant to the Exchange Agreement, 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.
NOTE 4 - ACQUISITIONS
On July 18, 1997, the Company completed the acquisition of the
Intelligent Electronics Inc. ("IE") indirect distribution business, its Reseller
Network Division ("RND"). The purchase price was $73,000, payable by the
assumption of liabilities in excess of current assets (including $30,000 in cash
acquired), based on the balance sheet of RND at closing. This acquisition was
accounted for using the purchase method, and the results of RND's operations
have been combined with those of the Company since the date of acquisition. The
purchase price was allocated to the assets acquired and liabilities assumed
based on their estimated fair values at the date of acquisition. The excess of
purchase price over net assets acquired of approximately $81,000 is being
amortized on a straight-line basis over 20 years.
The following table reflects unaudited pro forma combined results of
operations of the Company and RND as if the acquisition had occurred at the
beginning of fiscal 1996. These unaudited pro forma results have been prepared
for comparative purposes only and include certain pro forma adjustments. Such
pro forma amounts are not necessarily indicative of what actual consolidated
results of operations might have been or will be in the future.
FISCAL YEAR
1997 1996
--------------------------------
Net sales $17,630,842 $15,109,451
Net income 177,119 106,223
Diluted earnings per share 1.21 0.85
Pro forma combined results of operations for the year ended December 28,
1996, exclude a nonrecurring charge of approximately $61,600 taken by RND in
fiscal 1996 primarily relating to the write-off of previously recorded goodwill.
If this nonrecurring charge were included, pro forma combined results of
operations for the year ended December 28, 1996, would reflect net income of
$44,623 and diluted earnings per share of $0.36.
In April 1997, the Company acquired Tallgrass Technologies AS., a
distributor of computer products based in Norway. In August 1997, the Company
acquired J&W Computer GmbH, a distributor of computer products with operations
in Germany, France, Switzerland, and Austria. In November 1997, the Company
acquired Computacion Tecnica, S.A., a distributor of computer products with
operations in Chile, Brazil, Peru, Miami, and Florida and TT Microtrading Oy, a
software distribution company based in Finland. In December 1997, the Company
acquired Latino Americana de Software, a distributor of primarily software
products with operations in Brazil. The combined consideration paid was
approximately $75,053. The acquisitions were accounted for using the purchase
method of accounting and the results of operations of the acquired companies
have been combined with those of the Company since the respective dates of
acquisition. The purchase price was allocated to the assets acquired and the
liabilities assumed based upon their estimated fair values at the respective
dates of acquisition. The excess of purchase price over net assets acquired for
all five acquisitions totaled approximately $40,000 and is being amortized on a
straight-line basis over 20 years. Pro forma results of operations have not been
presented because the effect of these five acquisitions was not significant.
34
23
In December 1997, the Company completed its purchase of 49,606,000
shares, or approximately 21% of the outstanding common stock, of ERL, a
publicly-traded electronic components distributor based in Singapore and
operating in Australia, New Zealand, and seven Asian countries. In addition, the
Company purchased approximately 19% of an outstanding class of warrants to
acquire 8,443,195 shares of Electronic Resources and obtained an option, which
expires April 30, 1999, to purchase an additional 8.4% of the shares
outstanding. The aggregate purchase price for this transaction was approximately
$71,000. The Company is accounting for the investment under the equity method.
The Company's investment in ERL has been recorded in other assets at January 3,
1998, and includes the unamortized excess of the Company's investment over its
equity in the net assets of ERL. This excess of approximately $40,000 is being
amortized on a straight-line basis over the estimated useful life of up to 20
years. At January 3, 1998, the aggregate market value of the Company's share of
ERL common stock and warrants, as quoted on the Stock Exchange of Singapore, was
approximately $59,000.
NOTE 5 - ACCOUNTS RECEIVABLE
From February 1993 through the Split-Off, the Company had an arrangement
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.
In connection with the Split-Off, in partial satisfaction of amounts due
to Ingram Industries, the Ingram Industries accounts receivable securitization
agreement as it related to the Company was assumed by the Company. As of the
Split-Off, the trust had sold $160,000 of medium-term certificates with various
amortization commencement dates between June 1, 1998, and February 1, 2004. In
addition, approximately $13,000 of trust certificate-backed commercial paper was
outstanding on the Split-Off date. Assumption of the securitization program
resulted in a $160,000 reduction of trade accounts receivable and long-term debt
on the Company's subsequent consolidated balance sheets. Amounts outstanding
under the commercial paper program totaling $150,000 and $50,000 are included in
accounts receivable and long-term debt in the consolidated balance sheet at
January 3, 1998, and December 28, 1996, respectively. The commercial paper
program arrangement with the trust extends to December 31, 1999, renews
biannually, subject to certain conditions, and has a final termination date of
February 10, 2013.
Fees in the amount of $11,102 and $1,537 in 1997 and 1996, respectively,
related to the sale of trade accounts receivable under the medium-term
certificates, are included in other expenses in the consolidated statement of
income. Prior to the Company assuming the accounts receivable securitization
program, such fees were included in interest expense charged by Ingram
Industries.
NOTE 6 - PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
FISCAL YEAR END
1997 1996
---------------------------
Land $ 19,414 $ 18,746
Buildings and leasehold improvements 93,529 67,765
Distribution equipment 120,879 83,242
Computer equipment 109,570 83,594
---------------------------
343,392 253,347
Accumulated depreciation (128,244) (92,175)
---------------------------
$ 215,148 $ 161,172
===========================
Depreciation expense was $42,880 in 1997, $33,180 in 1996, and $21,785 in 1995.
35
24
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
(DOLLARS IN 000S, EXCEPT PER SHARE DATA)
NOTE 7 - LONG-TERM DEBT
Prior to the Split-Off, Ingram Industries managed most treasury
activities for the Company, including the arrangement of short-term and
long-term financing on a centralized, consolidated basis. Using a centralized
cash management system, the Company's domestic cash receipts were remitted to
Ingram Industries and domestic cash disbursements were funded by Ingram
Industries on a daily basis. The Company's historical financial statements
reflect funding provided by Ingram Industries to the Company, and net cash used
by the Company, as amounts due to Ingram Industries. This arrangement was
terminated effective with the Split-Off.
Ingram Industries charged the Company interest expense on the
outstanding intercompany balance based on Ingram Industries' domestic weighted
average cost of funds. The average rate was 7.25% in 1996 and 7.38% in 1995.
Prior to the Split-Off, the Company and other Ingram Industries
affiliates participated in Ingram Industries' unsecured revolving credit
agreement with a syndicate of banks. Under this agreement, Ingram Industries and
its affiliates borrowed in various currencies up to $380,000 at various money
market and bid rates. The Company's participation in Ingram Industries'
revolving credit agreement was terminated concurrently with the Split-Off.
Effective upon completion of the Company's initial public offering, the
Company entered into a $1,000,000 revolving credit agreement (the "U.S. Credit
Facility") with a syndicate of banks. The U.S. Credit Facility is unsecured and
matures on October 30, 2001. In October 1997, the Company entered into two
additional multi-currency revolving credit agreements of $500,000 (the "European
Credit Facility") and $150,000 (the "Canadian Credit Facility") with two bank
syndicates. The European Credit Facility and the Canadian Credit Facility are
unsecured and mature on October 28, 2002 and October 28, 2001, respectively. The
Company intends to exercise its option to extend its U.S. and Canadian credit
facilities to match the European Credit Facility term. Collectively, the U.S.
Credit Facility, the European Credit Facility, and the Canadian Credit Facility
are referred to as the "Credit Facilities."
Revolving loan rate and competitive bid interest rate options are
available under the Credit Facilities. The spread over LIBOR for revolving rate
loans and associated facility fees are determined by reference to certain
financial ratios or credit ratings by recognized rating agencies on the
Company's senior unsecured debt. At January 3, 1998, and December 28, 1996, the
Company had $938,638 and $201,475, respectively, of outstanding borrowings under
the Credit Facilities. The weighted average interest rate on outstanding
borrowings under the Credit Facilities at January 3, 1998, and December 28,
1996, was 5.76% and 5.44%, respectively.
The Company is required to comply with certain financial covenants,
including minimum tangible net worth, current ratio and interest coverage. The
Company is also subject to certain restrictions on the amount of funded debt and
the payment of dividends. At January 3, 1998, the Company was in compliance with
these covenants.
At January 3, 1998, and December 28, 1996, commercial paper in the
amount of $150,000 and $50,000, respectively, was outstanding under the
Company's accounts receivable securitization program (see Note 5) and is
included in long-term debt. The weighted average interest rate on the commercial
paper portion of the Company's accounts securitization program was 5.76% and
5.70% at January 3, 1998, and December 28, 1996, respectively.
The Company has additional lines of credit and short-term overdraft
facilities with various banks worldwide which provide for borrowings aggregating
$119,043 and $91,877 in 1997 and 1996, respectively. Most of these arrangements
are on an uncommitted basis and are reviewed periodically for renewal. At
January 3, 1998, and December 28, 1996, the Company had $52,493 and $52,558,
respectively, outstanding under these facilities.
36
25
Long-term debt consists of the following:
FISCAL YEAR END
1997 1996
-----------------------------
CREDIT FACILITIES $ 938,638 $ 201,475
OVERDRAFT FACILITIES 21,869 22,752
COMMERCIAL PAPER 150,000 50,000
OTHER 30,624 29,806
-----------------------------
1,141,131 304,033
LESS CURRENT MATURITIES OF LONG-TERM DEBT (21,869) (23,899)
-----------------------------
$ 1,119,262 $ 280,134
=============================
Annual maturities of long-term debt as of January 3, 1998, are as follows:
1998 $ 21,869
1999 --
2000 --
2001 --
2002 AND THEREAFTER 1,119,262
-----------
$ 1,141,131
===========
NOTE 8 - INCOME TAXES
The components of income before taxes and minority interest consist of
the following:
FISCAL YEAR
1997 1996 1995
--------------------------------------------
UNITED STATES $279,762 $165,576 $124,277
FOREIGN 46,727 31,181 10,339
--------------------------------------------
TOTAL $326,489 $196,757 $134,616
============================================
The provision for income taxes consists of the following:
FISCAL YEAR
1997 1996 1995
-----------------------------------------
CURRENT:
FEDERAL $ 87,156 $ 64,252 $ 44,615
STATE 16,697 9,952 9,544
FOREIGN 19,384 13,076 7,616
-----------------------------------------
123,237 87,280 61,775
DEFERRED:
FEDERAL 7,355 (5,241) (4,082)
STATE 1,582 462 (949)
FOREIGN (711) 2,388 (3,601)
-----------------------------------------
8,226 (2,391) (8,632)
-----------------------------------------
TOTAL INCOME TAX PROVISION $ 131,463 $ 84,889 $ 53,143
=========================================
37
26
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
(DOLLARS IN 000S, EXCEPT PER SHARE DATA)
Deferred income taxes reflect the tax effect of temporary differences
between the carrying amount of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
the Company's net deferred tax assets and liabilities are as follows:
FISCAL YEAR
1997 1996
-----------------------
NET DEFERRED TAX ASSETS AND LIABILITIES:
TAX IN EXCESS OF BOOK BASIS OF FOREIGN OPERATIONS $ 23,838 $ 18,511
ITEMS NOT CURRENTLY DEDUCTIBLE 216 20,296
DEPRECIATION (1,618) (881)
OTHER 7,590 758
-----------------------
TOTAL $ 30,026 $ 38,684
=======================
Net current deferred tax assets of $12,856 and $22,038 are included in
other current assets and other current liabilities at January 3, 1998, and
December 28, 1996, respectively. Net noncurrent deferred tax assets of $17,170
and $16,646 are included in other assets and other liabilities at January 3,
1998, and December 28, 1996, respectively.
Reconciliation of the statutory U.S. federal income tax rate to the
Company's effective tax rate is as follows:
FISCAL YEAR
1997 1996 1995
---------------------
U.S. STATUTORY RATE 35% 35% 35%
STATE INCOME TAXES, NET OF FEDERAL
INCOME TAX BENEFIT 4% 4% 4%
NONCASH COMPENSATION 0% 2% --
FOREIGN RATES IN EXCESS OF STATUTORY RATE 1% 2% 1%
---------------------
EFFECTIVE TAX RATE 40% 43% 40%
=====================
The Company was included in the consolidated federal income tax return
filed by Ingram Industries through the date of the Split-Off. Taxes related to
the Company, prior to the Split-Off, were determined on a separate entity basis
and taxes payable were remitted to Ingram Industries every two months. Taxes
payable to Ingram Industries of $0 and $10,521 at January 3, 1998, and December
28, 1996, respectively, are included in accrued expenses.
At January 3, 1998, the Company had foreign net operating loss
carryforwards of $62,478 of which approximately one-half have no expiration
date. The remaining foreign net operating loss carryforwards expire through the
year 2007.
The Company does not provide for income taxes on undistributed earnings
of foreign subsidiaries as such earnings are intended to be permanently
reinvested in those operations. Any related taxes on the undistributed earnings
are immaterial.
NOTE 9 - COMMITMENTS AND CONTINGENCIES
There are various claims, lawsuits and pending actions against the
Company incident to the Company's operations. It is the opinion of management
that the ultimate resolution of these matters will not have a material effect on
the Company's financial position or results of operations.
The Company has arrangements with certain finance companies which
provide accounts receivable and inventory financing facilities for its
customers. In conjunction with certain of these arrangements, the Company has
inventory repurchase agreements with the finance companies that would require it
to repurchase certain inventory which might be repossessed from the customers by
the finance companies. Such repurchases have been insignificant to date.
38
3
27
The Company leases the majority of its facilities and certain equipment
under noncancelable operating leases. Renewal and purchase options at fair
values exist for a substantial portion of the leases. Rental expense for the
years ended January 3, 1998, December 28, 1996, and December 30, 1995, was
$42,321, $34,784, and $28,367, respectively.
Future minimum rental commitments on operating leases that have
remaining noncancelable lease terms in excess of one year as of January 3, 1998,
are as follows:
1998 $ 32,143
1999 30,569
2000 24,562
2001 19,436
2002 15,147
Later years 47,803
NOTE 10 - SEGMENT INFORMATION
The Company operates predominantly in a single industry segment as a
wholesale distributor of microcomputer hardware and software. Geographic areas
in which the Company operates include the United States, Europe (Austria,
Belgium, Denmark, Finland, France, Germany, Italy, the Netherlands, Norway,
Spain, Sweden, Switzerland, and the United Kingdom) and Other (Brazil, Canada,
Chile, Malaysia, Mexico, Peru, and Singapore). Transfers between geographic
areas primarily represent intercompany sales which are accounted for based on
established sales prices between the related companies and are eliminated in
consolidation. Net sales, income from operations and identifiable assets by
geographic area are as follows:
FISCAL YEAR
1997 1996 1995
--------------------------------------------------
NET SALES
UNITED STATES
SALES TO UNAFFILIATED CUSTOMERS $ 11,478,262 $ 8,058,578 $ 5,833,641
TRANSFERS BETWEEN GEOGRAPHIC AREAS 190,765 140,721 86,961
EUROPE 3,352,451 2,590,120 1,849,129
OTHER 1,750,826 1,374,753 934,097
ELIMINATIONS (190,765) (140,721) (86,961)
--------------------------------------------------
TOTAL $ 16,581,539 $ 12,023,451 $ 8,616,867
==================================================
INCOME FROM OPERATIONS:
UNITED STATES $ 303,958 $ 195,298 $ 152,995
EUROPE 41,046 21,593 19,576
OTHER 31,575 30,617 14,310
--------------------------------------------------
TOTAL $ 376,579 $ 247,508 $ 186,881
==================================================
IDENTIFIABLE ASSETS:
UNITED STATES $ 3,139,114 $ 2,227,997 $ 1,996,642
EUROPE 1,180,792 800,755 669,309
OTHER 612,245 338,195 274,947
--------------------------------------------------
TOTAL $ 4,932,151 $ 3,366,947 $ 2,940,898
==================================================
Products sold through the U.S. Export Division are classified as other
international results. This change in presentation was implemented in the second
quarter of 1997. Prior to the change, the Company classified U.S. Export
Division as U.S. Prior periods have been reclassified to conform to the 1997
presentation. Additionally, U.S. includes all noncash compensation charges.
No single customer accounts for 10% or more of the Company's net sales.
39
28
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
(DOLLARS IN 000S, EXCEPT PER SHARE DATA)
NOTE 11 - TRANSACTIONS WITH RELATED PARTIES
Historically, Ingram Industries provided certain administrative services
to the Company. Prior to the Split-Off, the Company was allocated a portion of
the costs of these administrative services. Charges for these services were
based upon utilization and at amounts which management believes are less than
the amounts which the Company would have incurred as a stand-alone entity. Such
amounts are reflected as charges allocated from Ingram Industries on the
consolidated statement of income. Subsequent to the Split-Off, such allocations
ceased and the Company entered into Transitional Service Agreements with Ingram
Industries relating to the continued provision of certain administrative
services, including payroll processing through December 31, 1997. The Company
believes that the terms of these agreements were on a basis as favorable as
those that would be obtained from third parties on an arm's length basis. In
addition, the Company entered into the Data Center Services Agreements with
Ingram Entertainment and a division of Ingram Industries pursuant to which the
Company has agreed to provide computer services and maintenance. Charges for
these services are based on a prorata allocation of costs incurred by the
Company in operating the data services center.
Prior to the Split-Off, Ingram Industries also provided guarantees to
certain of the Company's vendors and for certain of the Company's leases; no
charges from Ingram Industries were reflected in the Company's consolidated
financial statements for such guarantees. Such guarantees ceased concurrently
with the Split-Off.
The Company leases warehouse and office space from certain of its
shareowners. Total rental payments were $1,645 in fiscal 1997, 1996, and 1995,
respectively.
Other transactions with Ingram Industries affiliates include sales of
$4,482, $3,464, and $5,281 in 1997, 1996, and 1995, respectively.
NOTE 12 - STOCK OPTIONS AND INCENTIVE PLANS
The Company adopted the disclosure requirements of Statement of
Financial Accounting Standards No. 123 ("FAS 123") in 1996. As permitted by FAS
123, the Company continues to measure compensation cost in accordance with APB
25. Therefore, the adoption of FAS 123 had no impact on the Company's financial
condition or results of operations. Had compensation cost for the Company's
stock option plans been determined based on the fair value of the options
consistent with the method of FAS 123, the Company's net income and earnings per
share would have been reduced to the pro forma amounts indicated below:
1997 1996
-------------------------
NET INCOME AS REPORTED $ 193,640 $110,679
PRO FORMA 182,977 106,825
DILUTED EARNINGS PER SHARE AS REPORTED 1.32 0.88
PRO FORMA 1.25 0.85
For pro forma disclosure, the fair value of compensatory stock options,
restricted stock grants and stock purchase rights was estimated using the
Black-Scholes option pricing model using the following weighted average
assumptions for 1996: dividend yield of 0%; expected volatility of 0% for
options granted prior to the IPO and 39.4% for options granted concurrently with
the IPO, risk free interest rates ranging from 5.6% to 5.8%, and expected lives
for each plan ranging from 1.71 years to 3.5 years. The following are the
weighted average assumptions for 1997: dividend yield of 0%, expected volatility
of 47.0%, risk free interest rates ranging from 5.9% to 7.0%, and expected lives
for each plan to be 4.0 years.
40
29
Rollover Stock Option Plan
Certain of the Company's employees participated in Ingram Industries'
qualified and nonqualified stock option and SAR plans. Ingram Industries' plans
provided for the grant of options and SARs at fair value. In conjunction with
the Split-Off, Ingram Industries options and SARs held by the Company's
employees and certain other Ingram Industries options, SARs and Incentive Stock
Units ("ISUs") were converted to or exchanged for Ingram Micro options
("Rollover Stock Options") to purchase Class A Common Stock. Approximately
10,989,000 Rollover Stock Options were outstanding immediately following the
conversion. The majority of the Rollover Stock Options will be fully vested by
the year 2000, and no such options expire later than 10 years from the date of
grant. The Company recorded a noncash compensation charge of approximately
$7,152 ($5,915 net of tax) in 1997 and $23,350 ($19,483 net of tax) in 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 weighted average
fair value of Rollover Stock Options for pro forma disclosure was $7.60 in 1996.
1996 Equity Incentive Plan
As of April 30, 1996, the Company adopted the 1996 Equity Incentive
Plan, as amended (the "Plan"), and Ingram Industries approved the grant of
options under this plan. The Plan authorized the granting of options to purchase
up to 12,000,000 shares of Common Stock. In June 1996, the Company issued
options under the Plan at $7.00 per share to purchase an aggregate of
approximately 4,618,000 shares of Class B Common Stock to all eligible employees
of the Company. These options vest and generally become exercisable over five
years from the issue date and expire eight years from the issue date.
In November 1996, the Company issued options under the Plan at $18.00
per share (the initial public offering price) to purchase an aggregate of
approximately 5,137,000 shares of Class A Common Stock to certain executive
officers, employees and directors of the Company. Options to purchase 2,680,000
shares vest at the end of nine years; however, such options will vest earlier if
the Company achieves certain performance criteria. All such options expire ten
years from the issue date. The remaining options to purchase 2,457,000 shares
vest and generally become exercisable over five years and expire eight years
from the issue date.
In 1997, the Company issued options under the Plan at exercise prices
ranging from $20.12 to $30.18 to purchase approximately 1,900,000 shares of
Class A Common Stock to certain executive officers, employees, and directors of
the Company. The grant price is determined by the market price at the date of
grant. The options to purchase 1,900,000 shares vest over five years and expire
eight years from issue date.
The weighted average fair value of options granted in 1997 and 1996 for
pro forma disclosure was $11.34 and $3.87, respectively.
A summary of the status of the Company's stock option plans as of
January 3, 1998, December 28, 1996 and December 28, 1995 is presented below:
WEIGHTED-
SHARES AVERAGE
(000'S) EXERCISE PRICE
----------------------------
OUTSTANDING AT DECEMBER 30, 1995 -- $ --
ROLLOVER STOCK OPTIONS 10,989 1.83
STOCK OPTIONS GRANTED DURING THE YEAR 9,756 12.79
STOCK OPTIONS EXERCISED (1,078) 1.32
FORFEITURES (20) 1.87
----------------------------
OUTSTANDING AT DECEMBER 28, 1996 19,647 7.30
STOCK OPTIONS GRANTED DURING THE YEAR 1,888 23.22
STOCK OPTIONS EXERCISED (3,085) 2.13
FORFEITURES (417) 5.67
----------------------------
OUTSTANDING AT JANUARY 3, 1998 18,033 $ 7.46
============================
41
30
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
(DOLLARS IN 000S, EXCEPT PER SHARE DATA)
The following table summarizes information about stock options
outstanding and exercisable at January 3, 1998:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
-----------------------------------------------------------------------------------------------
WEIGHTED-
NUMBER AVERAGE WEIGHTED- NUMBER WEIGHTED-
RANGE OF EXERCISE OUTSTANDING REMAINING AVERAGE EXERCISABLE AT AVERAGE
PRICES AT 1/3/98 (000'S) LIFE EXERCISE PRICE 1/3/98 (000'S) EXERCISE PRICE
- ------------------------------------------------------------------------------------------------------------------------
$0.66 - $ 3.32 7,023 4.6 $ 1.52 2,422 $1.58
$7.00 3,987 6.5 7.00 347 7.00
$18.00 5,135 6.8 18.00 235 18.00
$20.12 -$ 30.18 1,888 7.5 23.22 -- --
------- ----------------------------------------------------
18,033 $ 7.46 3,004 $ 3.49
======= ====================================================
Stock options exercisable totaled 3,004 and 1,948 at January 3, 1998 and
December 28, 1996, respectively, at weighted average exercise prices of $3.49
and $3.18, respectively.
1996 Employee Stock Purchase Plan
In October 1996, the Board of Directors and stockholders adopted the
1996 Employee Stock Purchase Plan (the "ESPP"). The ESPP permits eligible
employees of the Company to purchase Class A Common Stock through payroll
deductions, provided that no employee may accrue the right to purchase more than
$25 worth of stock under all employee stock purchase plans of the Company in any
calendar year. Up to 1,000,000 shares of Class A Common Stock will be initially
available for sale under the ESPP. The initial offering period commenced on
November 1, 1996, and will end on the last market trading day on or before
December 31, 1998. The purchase price under the initial offer is the lower of
$18.00 per share or the last reported transaction price of the Class A Common
Stock reported on the New York Stock Exchange on December 31, 1998. Employees
may end their participation in the ESPP at any time during an offering period,
and they will be paid their payroll deductions accumulated to date. The ESPP
will terminate on December 31, 1998.
A second offering ("ESPP2") pursuant to the ESPP commenced on June 29,
1997, and will end on the last market trading day on or before December 31,
1998. The ESPP2 has the same rights and restrictions as the ESPP except the
purchase price under the ESPP2 is the lower of $24.06 per share or the last
reported transaction price of the Class A Common Stock reported on the New York
Stock Exchange on December 31, 1998. A third offering ("ESPP3") commenced on
December 31, 1997, and will end on the last trading day on or before December
31, 1998. The ESPP3 has the same rights and restrictions as the ESPP except the
purchase price under the ESPP3 is the lower of $29.12 per share or the last
reported transaction price of the Class A Common Stock reported on the New York
Stock Exchange on December 31, 1998.
NOTE 13 - 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) the fifth anniversary of the consummation of the
Split-Off; (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.
42
31
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. The remaining amount of $27,504 was used
for working capital purposes.
Key Employee Stock Purchase Plan
As of April 30, 1996, the Company adopted the Key Employee Stock
Purchase Plan (the "Stock Purchase Plan") which provides for the issuance of up
to 4,000,000 shares of Class B Common Stock to certain employees. In June 1996,
the Company offered 2,775,000 shares of its Class B Common Stock for sale to
certain employees pursuant to the Stock Purchase Plan, and subsequently sold
2,510,400 shares with proceeds of approximately $17,573. The shares sold thereby
are subject to certain restrictions on transfer and to repurchase by the Company
upon termination of employment prior to certain specified vesting dates at the
original offering price. The Company has repurchased 140,000 of such shares.
In addition, the Company granted, pursuant to the Stock Purchase Plan,
107,000 restricted shares of Class B Common Stock to certain officers and
employees of the Company. These shares are subject to vesting. Prior to vesting,
these restricted grant shares are subject to forfeiture to the Company without
consideration upon termination of employment. At January 3, 1998, 10,000 of such
shares have been forfeited to the Company. Unearned compensation in the amount
of $679 related to the restricted shares was recorded as a separate component of
stockholders' equity and is amortized to noncash compensation over the vesting
period. The amount amortized to noncash compensation in 1997 and 1996 was $241
and $180, respectively.
The detail of changes in the number of issued and outstanding shares of
Class A Common Stock, Class B Common Stock, and Redeemable Class B Common Stock
for the three year period ended January 3, 1998, is as follows:
COMMON STOCK
REDEEMABLE
CLASS A CLASS B CLASS B
--------------------------------------------------
DECEMBER 31, 1994 -- 107,251,362 --
SHARES ISSUED DURING THE YEAR -- -- --
--------------------------------------------------
DECEMBER 30, 1995 -- 107,251,362 --
SHARES ISSUED DURING THE YEAR FOR:
GRANT OF RESTRICTED CLASS B COMMON STOCK 107,000
FORFEITURE OF RESTRICTED
CLASS B COMMON STOCK (5,000)
SALE OF CLASS A COMMON STOCK 23,200,000
SALE OF REDEEMABLE CLASS B COMMON STOCK 2,510,400
REPURCHASE OF REDEEMABLE
CLASS B COMMON STOCK (50,000)
STOCK OPTIONS EXERCISED 1,077,696
CONVERSION OF CLASS B COMMON STOCK
TO CLASS A COMMON STOCK 770,000 (770,000)
--------------------------------------------------
DECEMBER 28, 1996 25,047,696 106,583,362 2,460,400
STOCK OPTIONS EXERCISED 3,084,603
REPURCHASE OF REDEEMABLE
CLASS B COMMON STOCK (90,000)
FORFEITURE OF RESTRICTED
CLASS B COMMON STOCK (5,000)
CONVERSION OF CLASS B COMMON STOCK
TO CLASS A COMMON STOCK 9,234,090 (9,234,090)
--------------------------------------------------
JANUARY 3, 1998 37,366,389 97,344,272 2,370,400
==================================================
43
32
COMPANY INFORMATION
BOARD OF DIRECTORS
JERRE L. STEAD
Chairman of the Board and Chief Executive Officer,
Ingram Micro Inc.
DON H. DAVIS, JR.
Chairman and Chief Executive Officer,
Rockwell International Corp.
DAVID B. INGRAM
Chairman and President, Ingram Entertainment Inc.
JOHN R. INGRAM
Co-President, Ingram Industries Inc.
MARTHA R. INGRAM
Chairman of the Board, Ingram Industries Inc.
PHILIP M. PFEFFER
President and Chief Operating Officer, Random House, Inc.
J. PHILLIP SAMPER
Chief Executive Officer, AVISTAR Systems Corp.
JOE B. WYATT
Chancellor, Vanderbilt University
CORPORATE OFFICES
Ingram Micro Inc.
1600 E. St. Andrew Place
Santa Ana, CA 92705
Phone: (714) 566-1000
ANNUAL MEETING
The 1998 Annual Meeting of Shareowners will be held at 11 a.m. (EDT) Wednesday,
May 6, 1998, at 1740 Wehrle Drive in Williamsville, New York. Shareowners are
cordially invited to attend.
SHAREOWNER INQUIRIES
Requests for information may be sent to the
Investor Relations Department at our corporate offices.
Investor Relations' telephone information line:
(714) 566-1000 ext. 28282.
Investor Relations' electronic mail address:
investor.relations@ingrammicro.com.
Additional information also is available on our web site
at www.ingrammicro.com.
TRANSFER AGENT AND REGISTRAR
First Chicago Trust Company of New York
Post Office Box 2500
Jersey City, NJ 07303-2500
(201) 324-1644
COMMON STOCK
The Class A Common Stock of Ingram Micro is traded on the New York Stock
Exchange under the symbol "IM". Ingram Micro made its initial public offering on
November 1, 1996, at a price of $18 per share.
Price Range of Class A Common Stock
HIGH LOW
FISCAL 1996 FOURTH QUARTER $ 28.13 $ 20.00
FISCAL 1997 FIRST QUARTER $ 25.88 $ 19.00
SECOND QUARTER 25.25 20.75
THIRD QUARTER 30.13 23.63
FOURTH QUARTER 34.75 23.50
44
1
EXHIBIT 21.01
INGRAM MICRO INC.
SUBSIDIARIES
AS OF MARCH 14, 1998
JURISDICTION
------------
A. Ingram Micro Export Company Ltd............................. Barbados
B. Ingram Micro Inc............................................ Canada
C. Ingram Laboratories Division................................
D. Ingram Alliance Division....................................
E. CD Access Inc............................................... Iowa
F. Ingram Micro Delaware Inc. ................................. Delaware
G. Ingram Micro Management Company............................. California
H. Ingram Dicom S.A. de C.V.(1)................................ Mexico
1. Export Services Inc...................................... California
I. Ingram European Coordination Center S.A./N.V................ Belgium
J. Ingram Micro S.A.R.L........................................ France
K. Ingram Micro N.V............................................ Belgium
L. Ingram Micro B.V............................................ The Netherlands
1. Micro Communications Services B.V........................ The Netherlands
2. Bright Communications B.V................................ The Netherlands
M. Ingram Micro S.p.A.......................................... Italy
N. Ingram Micro Holding GmbH................................... Germany
1. Ingram Micro Deutschland GmbH............................ Germany
2. J & W Computer GmbH...................................... Germany
(a) Ingram Micro AG......................................... Switzerland
(b) Ingram Micro Computer Ges.m.b.H......................... Austria
3. Ingram Micro GmbH Zweigniederlassung Oesterriech......... Austria
O. Ingram Micro Holdings Limited............................... United Kingdom
1. Ingram Micro (UK) Limited................................ United Kingdom
2. Metrocom Computer Systems Limited(3)..................... United Kingdom
3. Document Technology Limited(3)........................... United Kingdom
4. Software Limited(3)...................................... United Kingdom
P. Ingram Micro Singapore Inc.................................. California
1. Ingram Micro Hong Kong Ltd............................... Hong Kong
2. Capitage Trading Ltd..................................... Hong Kong
Q. Ingram Micro Japan Inc...................................... Delaware
R. Ingram Micro S.A............................................ Spain
S. Ingram Micro AB............................................. Sweden
1. Ingram Micro A/S......................................... Denmark
2 Ingram Micro A.S.......................................... Norway
3. Ingram Micro International OY(2)......................... Finland
T. Incro SA/AG(2).............................................. Switzerland
U. IMI Washington Inc.......................................... Delaware
V. Ingram Funding Inc.......................................... Delaware
W. Ingram Micro CLBT Inc....................................... Delaware
2
JURISDICTION
------------
X. Ingram Micro Latin America.................................. Cayman Islands
1. Ingram Micro Caribbean................................... Cayman Islands
2. Computacion Tecnica, S.A................................. Chile
3. Ingram Micro do Brazil................................... Brazil
(a) Systems & Solutions Information Ltda.................... Brazil
4. Computacion Tecnica Peruana S.A.......................... Peru
Y. RND, Inc.................................................... Colorado
Z. Intelligent Advanced Systems, Inc........................... Delaware
AA. Intelligent Distribution Services, Inc...................... Delaware
BB. Intelligent Express, Inc.................................... Pennsylvania
CC. Intelligent SP, Inc......................................... Colorado
DD. Ingram Micro OY............................................. Finland
EE. Computek Enterprises (U.S.A.) Inc........................... Florida
FF. Ingram Micro Compania de Servicios S.A de C.V.(1)........... Mexico
GG. Ingram Micro Taiwan Inc..................................... Delaware
- ---------------
(1) 70% owned by Ingram Micro Inc.
(2) Dormant
(3) Under liquidation
1
EXHIBIT 23.01
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statements on Form S-8 (Nos. 333-23821, 333-23823, 333-23825, 333-23827 and
333-43447) of Ingram Micro Inc. of our report dated February 17, 1998 appearing
on page 25 of the 1997 Annual Report to Shareowners of Ingram Micro Inc., which
is incorporated by reference in this Annual Report on Form 10-K. We also consent
to the incorporation by reference of our report on the Financial Statement
Schedule, which appears in such Annual Report on Form 10-K.
PRICE WATERHOUSE LLP
Costa Mesa, California
March 31, 1998
1
EXHIBIT 23.02
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectus
constituting part of the Registration Statement on Form S-3 (No. 333-39457) of
Ingram Micro Inc. of our report dated February 17, 1998 appearing on page 25 of
the 1997 Annual Report to Shareowners of Ingram Micro Inc., which is
incorporated by reference in this Annual Report on Form 10-K. We also consent to
the incorporation by reference of our report on the Financial Statement
Schedule, which appears in such Annual Report on Form 10-K.
PRICE WATERHOUSE LLP
Costa Mesa, California
March 31, 1998
5
1,000
12-MOS
JAN-03-1998
DEC-29-1996
JAN-3-1998
92,212
0
1,684,269
48,541
2,492,646
4,445,994
343,393
128,245
4,932,151
2,729,385
0
0
0
1,347
1,036,859
4,932,151
16,581,539
16,581,539
15,495,850
16,204,960
16,074
0
37,940
326,489
131,463
193,640
0
0
0
193,640
1.43
1.32
For Purposes of This Exhibit, Primary means Basic.
5
1,000
YEAR YEAR 3-MOS 6-MOS 9-MOS
DEC-30-1995 DEC-28-1996 JAN-03-1998 JAN-03-1998 JAN-03-1998
JAN-01-1995 DEC-31-1995 DEC-29-1996 DEC-29-1996 DEC-29-1996
DEC-30-1995 DEC-28-1996 MAR-29-1997 JUN-28-1997 SEP-27-1997
56,916 48,279 62,138 71,316 60,211
0 0 0 0 0
1,102,066 1,181,650 1,237,388 1,234,939 1,356,719
30,791 38,622 42,896 45,398 52,243
1,582,922 1,818,047 2,117,410 1,825,520 2,251,663
2,799,616 3,155,318 3,522,787 3,228,867 3,786,507
150,363 253,347 266,810 275,910 305,724
61,237 92,175 97,329 106,805 118,241
2,940,898 3,366,947 3,744,005 3,450,722 4,129,927
1,779,977 2,234,774 2,346,162 2,018,724 2,728,499
0 0 0 0 0
0 0 0 0 0
0 0 0 0 0
1,073 1,316 1,324 1,327 1,344
309,722 823,834 863,812 905,660 965,917
2,940,898 3,366,947 3,744,005 3,450,722 4,129,927
8,616,867 12,023,451 3,649,978 7,366,805 11,454,139
8,616,867 12,023,451 3,649,978 7,366,805 11,454,139
8,011,181 11,211,067 3,415,270 6,889,972 10,713,183
8,429,986 11,775,943 3,571,228 7,208,885 11,210,506
9,687 2,876 3,211 6,568 10,326
0 0 0 0 0
13,451 14,812 7,308 16,404 23,348
134,616 196,757 69,045 137,000 212,669
53,143 84,889 28,453 56,028 87,101
84,307 110,679 40,377 80,345 124,637
0 0 0 0 0
0 0 0 0 0
0 0 0 0 0
84,307 110,679 40,377 80,345 124,637
0.79 0.99 0.30 0.60 0.92
0.74 0.88 0.28 0.55 0.85
1
EXHIBIT 99.01
CAUTIONARY STATEMENTS FOR PURPOSES OF THE
"SAFE HARBOR" PROVISIONS OF THE PRIVATE
SECURITIES LITIGATION REFORM ACT OF 1995
The Private Securities Litigation Reform Act of 1995 (the "Act") provides a
"safe harbor" for "forward-looking statements" to encourage companies to provide
prospective information, so long as such information is identified as
forward-looking and is accompanied by meaningful cautionary statements
identifying important factors that could cause actual results to differ
materially from those discussed in the forward-looking statement(s). Ingram
Micro Inc. (the "Company") desires to take advantage of the safe harbor
provisions of the Act.
Except for historical information, the Company's Annual Report on Form 10-K
for the year ended January 3, 1998 to which this exhibit is appended, the
Company's quarterly reports on Form 10-Q, the Company's current reports on Form
8-K, periodic press releases, as well as other public documents and statements,
may contain forward-looking statements within the meaning of the Act.
In addition, representatives of the Company from time to time participate
in speeches and calls with market analysts, conferences with investors and
potential investors in the Company's securities, and other meetings and
conferences. Some of the information presented in such speeches, calls, meetings
and conferences may be forward-looking within the meaning of the Act.
It is not reasonably possible to itemize all of the many factors and
specific events that could affect the Company and/or the microcomputer products
distribution industry as a whole. In some cases, information regarding certain
important factors that could cause actual results to differ materially from
those projected, forecasted, estimated, budgeted or otherwise expressed in
forward-looking statements made by or on behalf of the Company may appear or be
otherwise conveyed together with such statements. The following additional
factors (in addition to other possible factors not listed) could affect the
Company's actual results and cause such results to differ materially from those
projected, forecasted, estimated, budgeted or otherwise expressed in
forward-looking statements made by or on behalf of the Company:
Intense Competition. The Company operates in a highly competitive
environment, both in the United States and internationally. The microcomputer
products distribution industry is characterized by intense competition, based
primarily on price, product availability, speed and accuracy of delivery,
effectiveness of sales and marketing programs, credit availability, ability to
tailor specific solutions to customer needs, quality and breadth of product
lines and services, and availability of technical and product information. The
Company's competitors include regional, national, and international wholesale
distributors, as well as hardware manufacturers, networking equipment
manufacturers, and software publishers that sell directly to resellers and large
resellers who resell to other resellers. There can be no assurance that the
Company will not lose market share in the United States or in international
markets, or that it will not be forced in the future to reduce its prices in
response to the actions of its competitors and thereby experience a further
reduction in its gross margins. See "Narrow Margins" below.
The Company entered the channel assembly business during 1997. Certain of
the Company's competitors in channel assembly may be more experienced and may
have more established contacts with suppliers and other types of partners,
providing those competitors with a competitive advantage over the Company.
Success in the channel assembly business requires a significant infrastructure
investment, and there can be no assurance that product can be assembled and
delivered in a cost effective manner sufficient to adequately cover the
Company's investment. As the Company initiates other business models, such as
electronic software distribution, it faces competition from companies with more
experience in this arena. There also exists a risk that, after investing in the
new distribution method, this form of software delivery may not generate the
volume adequate to cover the Company's investment. In addition, as the Company
enters new business areas, it may also encounter increased competition from
current competitors and/or from new competitors, some of which may be current
customers of the Company. There can be no assurance that increased competition
and
A-1
2
adverse reaction from customers resulting from the Company's expansion into new
business areas will not have a material adverse effect on the Company's
business, financial condition, or results of operations.
Narrow Margins. As a result of intense price competition in the
microcomputer products wholesale distribution industry, the Company's margins
have historically been narrow and are expected in the future to continue to be
narrow. These narrow margins magnify the impact on operating results of
variations in operating costs. The Company receives purchase discounts from
suppliers based on a number of factors, including sales or purchase volume and
breadth of customers. These purchase discounts directly affect gross margins.
Because many purchase discounts from suppliers are based on percentage increases
in sales of products, it may become more difficult for the Company to achieve
the percentage growth in sales required for larger discounts due to the current
size of the Company's revenue base. The Company's gross margins have been
further reduced by the Company's entry into the master reseller business, which
has lower gross margins than the Company's traditional wholesale distribution
business. In addition, as a result of the Company's narrow margins, if the
Company's receivables experience a substantial deterioration in their
collectibility or the Company cannot obtain credit insurance at reasonable
rates, the Company's financial condition and results of operations may be
adversely impacted.
Fluctuations in Quarterly Results. The Company's quarterly net sales and
operating results have varied significantly 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 margins may magnify the impact
of these factors on the Company's operating results. The Company believes that
period-to-period comparisons of its operating results should not be relied upon
as an indication of future performance. In addition, the results of any
quarterly period are not indicative of results to be expected for a full fiscal
year. In certain future quarters, the Company's operating results may be below
the expectations of public market analysts or investors. In such event, the
market price of the Common Stock would be materially adversely affected.
Capital Intensive Nature of Business. The Company's business requires
significant levels of capital to finance accounts receivable and product
inventory that is not financed by trade creditors. In order to continue its
expansion, including acquisitions, the Company will need additional financing,
including debt financing, which may or may not be available on terms acceptable
to the Company, or at all. In addition to the Company's prospects, financial
condition and results of operations, macroeconomic factors such as fluctuations
in interest rates or a general economic downturn may restrict the Company's
ability to raise the necessary capital. No assurance can be given that the
Company will continue to be able to raise capital in adequate amounts for these
or other purposes on terms acceptable to the Company, and the failure to do so
could have a material adverse effect on the Company's business, financial
condition, and results of operations. See "-- Fluctuations in Quarterly
Results," "-- Acquisitions" and "-- Risk of Termination of Subsidized Floor Plan
Financing for the Company's Master Reseller Business" below.
Management of Growth. The rapid growth of the Company's business has
required the Company to make significant recent additions in personnel and has
significantly increased the Company's working capital requirements. Although the
Company has experienced significant sales growth in recent years, such growth
should not be considered indicative of future sales growth. Such growth has
resulted in new and increased responsibilities for management personnel and has
placed and continues to place a significant strain upon the Company's
management, operating and financial systems, and other resources. There can be
no assurance that the strain placed upon the Company's management, operating and
financial systems, and other resources will not have a material adverse effect
on the Company's business, financial condition, and results of operations, nor
can there be any assurance that the Company will be able to attract or retain
sufficient personnel to continue the expansion of its operations. Also crucial
to the Company's success in managing its growth will be its ability to achieve
additional economies of scale. There can be no assurance that the Company will
be able
A-2
3
to achieve such economies of scale, and the failure to do so could have a
material adverse effect on the Company's business, financial condition, and
results of operations.
Dependence on Information Systems. The Company depends on a variety of
information systems for its operations, particularly its centralized IMpulse
information processing system which supports more than 40 operational functions
including inventory management, order processing, shipping, receiving, and
accounting. At the core of IMpulse is on-line, real-time distribution software
which supports basic order entry and processing and customers' shipments and
returns. Although the Company has not in the past experienced significant
failures or downtime of IMpulse or any of its other information systems, any
such failure or significant downtime could prevent the Company from taking
customer orders, printing product pick-lists, and/or shipping product and could
prevent customers from accessing price and product availability information from
the Company. In order to react to changing market conditions, the Company must
continuously expand and improve IMpulse and its other information systems. From
time to time the Company may acquire other businesses having information systems
and records which must be converted and integrated into IMpulse or other Company
information systems. This can be a lengthy and expensive process that results in
a significant diversion of resources from other operations.
The Company believes that customer information systems are becoming
increasingly important in the wholesale distribution of technology products. As
a result, the Company has recently enriched its customer information systems by
adding new features, including on-line ordering through the Internet. However,
there can be no assurance that competitors will not develop customer information
systems that are superior to those offered by the Company. The inability of the
Company to develop competitive customer information systems could adversely
affect the Company's business, financial condition, and results of operations.
As is the case with many computer software systems, some of the Company's
systems use two digit data fields which recognize dates using the assumption
that the first two digits are "19" (i.e., the number 97 is recognized as the
year 1997). Therefore, the Company's date critical functions relating to the
year 2000 and beyond, such as sales, distribution, purchasing, inventory
control, merchandise planning and replenishment, facilities, and financial
systems, may be severely affected unless changes are made to these computer
systems. With the assistance of an outside consultant, the Company commenced a
review of the Company's internal systems in mid-1997 to identify applications
that are not Year 2000 ready and to assess the impact of the Year 2000 problem.
The Company has developed an overall plan and a systematic process to modify its
internal systems to be Year 2000 ready. The Company commenced remediation of its
main frame programs in early 1998 to comply with Year 2000 requirements. The
Company anticipates that the other required Year 2000 modifications will be made
on a timely basis and does not believe that the cost of such modifications will
have a material effect on the Company's operating results. There can be no
assurance, however, that the Company will be able to modify successfully and in
a timely manner all of its internal services and systems to comply with Year
2000 requirements, which could have a material adverse effect on the Company's
operating results. In addition, the Company faces risks to the extent that
suppliers of products (including components for its channel assembly and
configuration initiative), services (including services provided by independent
shipping companies), and business on a worldwide basis may not have business
systems or products that comply with Year 2000 requirements. In the event any
such third parties cannot provide the Company with products, services or systems
that meet Year 2000 requirements in a timely manner, the Company's operating
results could be materially adversely affected. The Company's operating results
also could be materially adversely affected if it were to be held responsible
for the failure of any products sold by the Company to be Year 2000 compliant
despite its disclaimer of product warranties and the limitation of liability
contained in its sales terms and conditions.
Exposure to Foreign Markets; Currency Risk. The Company, through its
subsidiaries, operates in a number of countries outside the United States, and
the Company expects its international net sales to increase as a percentage of
total net sales in the future. The Company's international net sales are
primarily denominated in currencies other than the U.S. dollar. Accordingly, the
Company's international operations impose risks upon its business as a result of
exchange rate fluctuations. Through its recent acquisitions in Latin America and
joint venture in Asia, the Company now has operations in certain countries which
may be viewed as having greater risk of exchange rate fluctuations. There can be
no assurance that exchange rate fluctuations
A-3
4
will not have a material adverse effect on the Company's business, financial
condition, or results of operations in the future. In certain countries outside
the United States, operations are accounted for primarily on a U.S. dollar
denominated basis. In the event of an unexpected devaluation of the local
currency in those countries (as occurred in Mexico in December 1994 and more
recently in 1997 in Asia and Latin America), the Company may experience
significant foreign exchange losses. In addition, the Company's operations may
be significantly adversely affected as a result of the general economic impact
of the devaluation of the local currency.
The Company's international operations are subject to other risks such as
the imposition of governmental controls, export license requirements,
restrictions on the export of certain technology, political instability, trade
restrictions, tariff changes, difficulties in staffing and managing
international operations, difficulties in collecting accounts receivable and
longer collection periods, and the impact of local economic conditions and
practices.
Dependence on Key Individuals. The Company is dependent in large part on
its ability to retain the services of its key management, sales, and operational
personnel. The Company's continued success is also dependent upon its ability to
retain and attract other qualified employees, including highly skilled
technical, managerial, and marketing personnel, to meet the Company's needs.
Competition for qualified personnel is intense, particularly in the area of
technical support. The Company may not be successful in attracting and retaining
the personnel it requires, which could have a material adverse effect on the
financial condition and results of operations of the Company.
Product Supply; Dependence on Key Suppliers. The ability of the Company to
obtain particular products or product lines in the required quantities and to
fulfill customer orders on a timely basis is critical to the Company's success.
In most cases, the Company has no guaranteed price or delivery agreements with
its suppliers. As a result, the Company has experienced, and may in the future
continue to experience, short-term inventory shortages. In addition,
manufacturers who currently distribute their products through the Company may
decide to distribute, or to substantially increase their existing distribution,
through other distributors, their own dealer networks, or directly to resellers.
Further, the personal computer industry experiences significant product supply
shortages and customer order backlogs from time to time due to the inability of
certain manufacturers to supply certain products on a timely basis. There can be
no assurance that suppliers will be able to maintain an adequate supply of
products to fulfill the Company's customer orders on a timely basis or that the
Company will be able to obtain particular products or that a product line
currently offered by suppliers will continue to be available.
Acquisitions. As part of its growth strategy, the Company pursues the
acquisition of companies that either complement or expand its existing business.
Acquisitions involve a number of risks and difficulties, including expansion
into new geographic markets and business areas, the possibility that the Company
could incur or acquire substantial debt in connection with the acquisitions, the
requirement to understand local business practices, the diversion of
management's attention to the assimilation of the operations and personnel of
the acquired companies, the integration of the acquired companies' management
information systems with those of the Company, potential adverse short-term
effects on the Company's operating results, the amortization of acquired
intangible assets, and the need to present a unified corporate image.
Risk of Declines in Inventory Value. The Company's business, like that of
other wholesale distributors, is subject to the risk that the value of its
inventory will be adversely affected by price reductions by suppliers or by
technological changes affecting the usefulness or desirability of the products
comprising the inventory. It is the policy of most suppliers of microcomputer
products to protect distributors such as the Company, who purchase directly from
such suppliers, from the loss in value of inventory due to technological change
or the supplier's price reductions. These policies are sometimes not embodied in
written agreements and do not protect the Company in all cases from declines in
inventory value. No assurance can be given that such practices will continue,
that unforeseen new product developments will not materially adversely affect
the Company, or that the Company will be able to successfully manage its
existing and future inventories. The Company's risk of declines in inventory
value could be greater outside the United States where agreements with suppliers
are more restrictive with regard to price protection and the Company's ability
to return unsold
A-4
5
inventory. For those suppliers participating in the Company's channel assembly
program, the extent to which the amount of inventory in the channel is reduced
may directly impact the amount of price protection which will be provided by
those suppliers. If major PC suppliers substantially decrease the availability
of price protection to wholesale distributors, such change in policy could have
a material adverse effect on the Company's financial condition and results of
operations.
Dependence on Independent Shipping Companies. The Company relies almost
entirely on arrangements with independent shipping companies for the delivery of
its products. The termination of the Company's arrangements with one or more of
these independent shipping companies, or the failure or inability of one or more
of these independent shipping companies to deliver products from suppliers to
the Company or products from the Company to its reseller customers or their
end-user customers could have a material adverse effect on the Company's
business, financial condition, or results of operations.
Rapid Technological Change; Alternate Means of Software Distribution. The
microcomputer products industry is subject to rapid technological change, new
and enhanced product specification requirements, and evolving industry
standards. These changes may cause inventory in stock to decline substantially
in value or to become obsolete. In addition, suppliers may give the Company
limited or no access to new products being introduced.
Net sales of software products have decreased as a percentage of total net
sales in recent years due to a number of factors, including bundling of software
with microcomputers; sales growth in Ingram Alliance, which is a hardware-only
business; declines in software prices; and the emergence of alternative means of
software distribution, such as site licenses and electronic distribution. The
Company expects this trend to continue.
Risk of Termination of Subsidized Floor Plan Financing for the Company's
Master Reseller Business. The master reseller business is characterized by gross
margins and operating margins that are even narrower than those of the U.S.
microcomputer products wholesale distribution business and by competition based
almost exclusively on price, programs, and execution. A substantial majority of
the Company's master reseller sales are funded by floor plan financing
companies. The Company typically receives payment from these financing
institutions within three business days from the date of the sale, allowing the
Company's master reseller business to operate at much lower relative working
capital levels than the Company's wholesale distribution business. Such floor
plan financing is typically subsidized for the Company's reseller customers by
its suppliers. If the arrangements for such subsidies are terminated or
substantially reduced, such change in policy could have a material adverse
effect on the Company's financial condition and results of operations.
A-5
