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FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 28, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ________ TO ___________
COMMISSION FILE NUMBER: 1-12203
INGRAM MICRO INC.
(Exact name of Registrant as specified in its charter)
DELAWARE 62-1644402
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1600 E. ST. ANDREW PLACE. SANTA ANA, CALIFORNIA 92799-5125
(Address, including zip code, of principal executive offices)
(714) 566-1000
(Registrant's telephone number, including area code)
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 5, 1997 was $995,737,470 based on the closing sale price on
such date of $24-3/8.
The Registrant had 25,786,779 shares of Class A Common Stock, par value $.01 per
share, and 109,043,762 shares of Class B Common Stock, par value $.01 per share,
outstanding at March 5, 1997.
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DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Annual Report to Shareholders for the year ended December 28,
1996 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 7, 1997 are incorporated by reference into Part III
of this Annual Report on Form 10-K.
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PART I
ITEM 1. BUSINESS
OVERVIEW
Ingram Micro Inc. (hereinafter referred to as "Ingram Micro" or the
"Company") is the leading wholesale distributor of microcomputer products
worldwide. The Company markets microcomputer hardware, networking equipment, and
software products to more than 100,000 reseller customers in approximately 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 of more than 100,000 distinct items from
over 1,100 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 value-added
services, such as technical training, order fulfillment, tailored financing
programs, systems configuration, and marketing programs.
Ingram Micro entered the master reseller (also known as "aggregation")
business in late 1994 with the launch of Ingram Alliance. Ingram Alliance 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. Over 95% of Ingram Alliance's sales in 1996 were
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 Ingram Alliance to operate at much lower relative working
capital levels than the Company's wholesale distribution business. Such floor
plan financing is typically subsidized for Ingram Alliance's reseller customers
by its suppliers. Since its inception, Ingram Alliance has experienced rapid
growth. In 1996, Ingram Alliance achieved net sales in excess of $1.88 billion,
and it currently has 13 suppliers and more than 1,100 reseller customers.
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 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.
THE SPLIT-OFF AND INITIAL PUBLIC OFFERING
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 was used to repay indebtedness to its then
parent, Ingram Industries Inc. ("Ingram Industries"). The remaining proceeds of
the offering, amounting to $27.5 million, were used for working capital
purposes.
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Immediately prior to the closing of the IPO, the Company was split-off from
its former parent, Ingram Industries, in a tax-free reorganization (the
"Split-Off"). In the Split-Off, Ingram Industries, a company controlled by the
family of the late E. Bronson Ingram and affiliated stockholders (the "Ingram
Family Stockholders") consummated an exchange, pursuant to which certain
existing stockholders of Ingram Industries exchanged eligible shares of Ingram
Industries common stock for 107,251,362 shares of Class B Common Stock of the
Company in specified ratios. Immediately after the Split-Off and the closing of
the IPO, none of the Class A or Class B Common Stock was held by Ingram
Industries, other than 246,000 shares of Class A Common Stock purchased by
Ingram Industries in the IPO including 15,000 shares purchased by Ingram
Entertainment Inc. ("Ingram Entertainment"), a subsidiary of Ingram Industries.
At January 31, 1997, 66.4% of the outstanding Class A and Class B Common Stock
(and 80.1% of the outstanding voting power) was held by the Ingram Family
Stockholders. In connection with the Split-Off, agreements relating to board
representation and registration rights with respect to Common Stock held by the
Ingram Family Stockholders (including shares of Class A Common Stock issued upon
conversion of Class B Common Stock) were entered into by the Company and the
Ingram Family Stockholders. See Part III.
In connection with the Split-Off, the Company, Ingram Industries and Ingram
Entertainment allocated certain liabilities and obligations among themselves.
See Part III.
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, 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 United States, for
example, is distinguished by the presence of master resellers, or aggregators,
which are functionally similar to wholesale distributors, but which focus on
selling relatively few product lines--typically high volume, brand name hardware
systems--to a network of franchised dealers and affiliates.
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 international markets is less mature and growing more
rapidly than in the United States, and as such, international growth
opportunities for microcomputer
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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. Over the past few years, competitive pressures have
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, certain computer manufacturers have authorized open sourcing, a model
under which resellers can purchase the supplier's product from any source on
equal terms and conditions. The trend toward 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
continued movement towards second sourcing and 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.
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. 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
trend toward open sourcing, 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
The Company is the preeminent worldwide wholesale distributor of
microcomputer products and services and believes 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 full 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 international 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
United States in order to take advantage of growth opportunities and to leverage
its strong systems, infrastructure, and international management skills.
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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. The
Company has grown its operations outside the United States principally through
acquisitions and currently has operations in 19 countries including Canada,
Mexico, most countries of the European Union, Norway, Malaysia, and Singapore.
The Company believes that it is the market share leader in the United States,
Canada, and Mexico, and the third largest full-line distributor in Europe, based
on publicly available data and management's knowledge of the industry. The
Company's objective is to achieve the number one market share in each of the
markets in which it operates.
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 all 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. In the United States, the Company is currently implementing
CTI technology, which will provide automatic caller identification, onscreen
call waiting, and abandoned call management capabilities to telesales and
customer service associates. Also in the United States, the recently installed
POWER system will improve response time to reseller customers' 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 warehouse is under construction in Millington, Tennessee. The
Company is implementing formal systems for evaluating and tracking key
performance metrics such as responsiveness to customers, process accuracy, order
processing cycle time, and order fulfillment efficiency. Ingram Micro will use
this customer satisfaction monitoring system to identify potential areas of
improvement as part of the Company's focus on providing superior service.
Ingram Micro strives to maintain high order fill rates by keeping extensive
supplies of product in its 30 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.
DELIVER WORLD-CLASS VALUE-ADDED SERVICES 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 final assembly and
configuration of products, technical education programs, pre- and post-sale
technical support, order fulfillment, and product demo evaluation.
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 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.
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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 4.5% in 1996 from 5.8% in 1992. 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 to reduce the number of shipments
from multiple warehouses to fulfill a single order; (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 Customer Service; and (iv) the electronic
automation of the ordering and information delivery process through CIS 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 international 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.
CUSTOMERS
Ingram Micro sells to more than 100,000 reseller customers in approximately
120 countries worldwide. No single customer accounted for more than 3% of Ingram
Micro's net sales in 1996, 1995, or 1994.
The Company conducts business with most of the leading resellers of
microcomputer products around the world, including, in the United States, CDW
Computer Centers, CompuCom, CompUSA, Computer City, Electronic Data Systems, En
Pointe Technologies, Entex Information Services, GE Capital Information
Technologies Solutions, Micro Warehouse, Sam's Club, Staples, and Vanstar. The
Company's reseller customers outside the United States include Complet Data A/S,
Consultores en Diagnostico Organizacional y de Sistemas, DSG Retail Ltd., 06
Software Centre Europe, B.V., GE Capital Technologies, Jump Ordenadores, Maxima
S.A., Norsk Datasenter, Owell Svenska AB, SNI Siemens Nixdorf Infosys AG, 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 1,700
telesales representatives worldwide, of whom more than 950 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 two main United States telesales
centers are located in Santa Ana, California and Buffalo, New York and are
supported by an extensive national field sales organization. Currently, Ingram
Micro has more than 200 field sales representatives worldwide, including more
than 60 in the United States.
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The sales organization is organized to focus on resellers who address the
VAR (consisting of value-added resellers, system integrators, network
integrators, application VARs and original equipment manufacturers), Commercial
(consisting of corporate resellers, direct marketers, independent dealers and
owner-operated chains) and Consumer (consisting of consumer electronics stores,
computer superstores, mass merchants, office product superstores, software only
stores and warehouse clubs) market sectors. In addition, the Company utilizes a
variety of product-focused groups specializing in specific product types.
Specialists in processors, mass storage, networks, 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, retail programs, sales promotions, training, and
assistance with trade shows and other events.
In certain markets outside the United States, the Company relies more
heavily on telesales and maintains a relatively smaller field sales organization
to cover its customer base.
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 100,000 distinct
items 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.
In the United States, Ingram Micro's suppliers include almost all of the
leading microcomputer hardware manufacturers, networking equipment
manufacturers, and software publishers such as Apple Computer, Cisco Systems,
Compaq Computer, Creative Labs, Hewlett-Packard, IBM, Intel, Microsoft, NEC,
Novell, Quantum, Seagate, Sun Microsystems, 3Com, Toshiba, and U.S. Robotics.
Outside the United States, Ingram Micro has secured distribution agreements with
most of the leading suppliers, and products are added to the Company's mix in
response to local market demands.
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.
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. Although the Company has written distribution agreements with many
of its suppliers, 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
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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. 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.
VALUE-ADDED SERVICES
Ingram Micro offers a myriad of programs and services to its supplier 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 final assembly and configuration of
products, technical education programs, pre- and post-sale technical support,
order fulfillment, and product demo evaluation.
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 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.
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. 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.
INFORMATION SYSTEMS
The Company's 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.
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 all of the Company's
worldwide operations. It has been customized as necessary for use in every
country 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 12 million on-line transactions, 26,000 orders, and 37,000 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 8,000 user stations (terminals, printers, personal
computers, and radio frequency hand held terminals) is less than one-half
second.
Worldwide, Ingram Micro's centralized processing system supports more than
40 operational functions including receiving, order processing, shipping,
inventory management, and accounting. At the core of the IMpulse
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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 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 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 is in the process of implementing CTI
technology, which will provide the telesales and customer service
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 and
customer service requests.
To complement Ingram Micro's telesales, customer service, and technical
support capabilities, IMpulse supports CIS, which integrates all of the
Company's electronic services into a single solution. CIS offers a number of
different electronic media 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 CIS are its Internet-based Electronic
Catalog and Manufacturer Information Library. 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
Manufacturer Information Library is a comprehensive multi-manufacturer database
of timely and accurate product, sales, marketing, and technical information,
which is updated nightly for new information.
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 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.
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 Canada, Mexico, most countries of the
European Union, Norway, Malaysia and Singapore. In 1996, 1995, and 1994, 31.0%,
30.7% and 29.3%, respectively, of the Company's net sales were derived from
operations outside of 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 net sales from operations outside the United States are
primarily denominated in
10
<PAGE> 11
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, the Company may experience significant
foreign exchange losses. For example, the devaluation of the Mexican peso, which
began in December 1994, significantly affected the Company's Mexican operations.
The primary impact on the Company's operating results was a foreign exchange
pre-tax charge of approximately $7.8 million and $6.9 million in 1995 and 1994,
respectively. In addition, the Company's net sales in Mexico were adversely
affected in 1995 as a result of the general economic impact of the devaluation
of the Mexican peso. 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
conditions and practices. 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
Ingram Micro's Export Division continues to expand in markets where the
Company does not have a stand-alone, in-country presence. The Miami, Santa Ana,
and Belgium offices serve more than 2,500 resellers in over 100 countries. In
addition, the Export Division has field sales representatives based in Buenos
Aires, Argentina and Quito, Ecuador.
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 value-added services capabilities (such as configuration,
innovative financing programs, order fulfillment, contract telesales, and
contract warehousing) will become more important competitive factors.
The Company entered the master reseller business through Ingram Alliance in
late 1994. The Company competes with other master resellers, which sell to
groups of affiliated franchisees and third-party dealers. Many of the Company's
competitors in the master reseller business are more experienced and have more
established contacts with affiliated resellers, third-party dealers, or
suppliers, which may provide them with a competitive advantage over the Company.
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
11
<PAGE> 12
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. 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 primary competitors include large U.S.-based international
distributors such as Merisel, Tech Data, and Arrow Electronics (a worldwide
industrial electronics distributor), as well as national distributors such as
AmeriQuest Technologies (majority owned by Computer 2000), Handleman, Navarre,
and Avnet. Ingram Alliance's principal competitors include such master resellers
as Intelligent Electronics, MicroAge, Datago, 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 Softmart/Tech Data, and several local and regional
distributors, including Actebis, Scribona, Microtech and Macrotron. In Canada,
Ingram Micro competes with Merisel, Globelle, Beamscope, and Tech Data. Ingram
Dicom is the leading distributor in Mexico, competing with such companies as
MPS, CHS Electronics, Intertec, and Dataflux. In the Asia Pacific market, Ingram
Micro faces both regional and local competitors, of whom the largest is Tech
Pacific, a division of First Pacific Holdings, which operates in more than five
Asia Pacific markets.
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
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. 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.
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.
EMPLOYEES
As of December 28, 1996, the Company had approximately 9,008 associates
located as follows: United States--5,681, Europe--1,973, Canada--844,
Mexico--415, and Asia-Pacific--95. 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. None of the Company's
associates in the United States, Europe, Canada, Malaysia, and
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<PAGE> 13
Singapore are represented by unions. In Mexico, Ingram Dicom has collective
bargaining agreements with one of the national unions. The Company considers its
employee relations to be good.
EXECUTIVE OFFICERS OF REGISTRANT
The following table sets forth certain information with respect to each
person who is an executive officer of the Company:
<TABLE>
<CAPTION>
NAME AGE PRESENT AND PRIOR POSITIONS HELD(1) YEARS POSITIONS HELD
- ---- --- ----------------------------------- --------------------
<S> <C> <C> <C>
Jerre L. Stead(2) 54 Chief Executive Officer and Chairman Aug. 1996 - Present
of the Board
Chief Executive Officer and Chairman Jan. 1995 - Aug. 1995
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 Officer, AT&T Sept. 1991 - Apr. 1993
Corp. Global Business Communication
Systems, a communications company
Jeffrey R. Rodek 43 Worldwide President; Chief Operating Dec. 1994 - Present
Officer
Senior Vice President, Americas and July 1991 - Sept. 1994
Caribbean, Federal Express, an
overnight courier firm
David R. Dukes(3) 53 Vice Chairman Apr. 1996 - Present
Chief Executive Officer, Ingram Alliance Jan. 1994 - Present
Co-Chairman Jan. 1992 - Apr. 1996
Chief Operating Officer Sept. 1989 - Dec. 1993
President Sept. 1989 - Dec. 1991
Sanat K. Dutta 47 Executive Vice President; President, Ingram Oct. 1996 - Present
Micro U.S.
Executive Vice President Aug. 1994 - Oct. 1996
Senior Vice President, Operations May 1988 - Aug. 1994
Michael J. Grainger 44 Executive Vice President; Worldwide Chief Oct. 1996 - Present
Financial Officer
Chief Financial Officer May 1996 - Oct. 1996
Vice President and Controller, Ingram July 1990 - Oct. 1996
Industries
John Wm. Winkelhaus, II 46 Executive Vice President; President, Ingram Jan. 1996 - Present
Micro Europe
Senior Vice President, Ingram Micro Europe Feb. 1992 - Dec. 1995
</TABLE>
13
<PAGE> 14
<TABLE>
<CAPTION>
NAME AGE PRESENT AND PRIOR POSITIONS HELD(1) YEARS POSITIONS HELD
- ---- --- ----------------------------------- --------------------
<S> <C> <C> <C>
James E. Anderson, Jr. 49 Senior Vice President, Secretary, and Jan. 1996 - Present
General Counsel
Vice President, Secretary, and General Sept. 1991 - Nov. 1996
Counsel, Ingram Industries
Douglas R. Antone 44 Senior Vice President; President, Ingram June 1994 - Present
Alliance
Senior Vice President, Worldwide Sales, Nov. 1993 - May 1994
and Marketing, Borland International,
a software development company
Senior Vice President, Worldwide Sales July 1990 - Nov. 1993
Borland International
David M. Carlson 56 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 - Nov. 1994
Information Systems, K Mart
Corporation, a retail company
Victoria L. Cotten 42 Senior Vice President, Purchasing Jan. 1997 - Present
Vice President, Purchasing Jan. 1993 - Dec. 1996
Senior Director, Purchasing Aug. 1991 - Dec. 1992
Larry L. Elchesen 46 Senior Vice President June 1994 - Present
President, Ingram Micro Asia Pacific Dec. 1996 - Present
President, Ingram Micro Canada May 1989 - Dec. 1996
Philip D. Ellett 42 Senior Vice President; Chief Operating Jan. 1997 - Present
Officer, Ingram Micro Europe
Senior Vice President; General Manager, Feb. 1996 - Dec. 1996
U.S. Consumer Markets Division
President, Gates/Arrow, an electronics Aug. 1994 - Dec. 1995
distributor
President and Chief Executive Officer, Oct. 1991 - Aug. 1994
Gates/F.A. Distributing, Inc.
David M. Finley 56 Senior Vice President, Human Resources July 1996 - Present
Senior Vice President, Human Resources, May 1995 - July 1996
Budget Rent a Car, a car rental
company
Vice President, Human Resources, The Jan. 1977 - May 1995
Southland Corporation, a convenience
retail company
</TABLE>
14
<PAGE> 15
<TABLE>
<CAPTION>
NAME AGE PRESENT AND PRIOR POSITIONS HELD(1) YEARS POSITIONS HELD
- ---- --- ----------------------------------- --------------------
<S> <C> <C> <C>
Robert Furtado 40 Senior Vice President, Operations Aug. 1994 - Present
Vice President, Operations July 1989 - Aug. 1994
Robert Grambo 33 Senior Vice President, Telesales Oct. 1995 - Present
Vice President, Sales Apr. 1994 - Sept. 1995
Vice President, Product Marketing Apr. 1993 - Mar. 1994
President, Bloc Publishing Corp., a Apr. 1992 - Apr. 1993
software publishing firm
Senior Director, Purchasing, Ingram Jan. 1990 - Apr. 1992
Micro
Ronald K. Hardaway 53 Senior Vice President; Chief Financial Jan. 1992 - Present
Officer, Ingram Micro U.S.
Worldwide Chief Financial Officer Jan. 1992 - Dec. 1993
Gregory J. Hawkins 42 Senior Vice President, Sales Oct. 1995 - Present
Vice President, Sales Jan. 1993 - Oct. 1995
Vice President, Major Accounts Aug. 1992 - Jan. 1993
Director, Major Accounts, Consumer June 1992 - Aug. 1992
Markets
Director, Marketing Jan. 1991 - June 1992
James M. Kelly 60 Senior Vice President, Management Feb. 1991 - Present
Information Systems
David W. Rutledge 43 Senior Vice President; President, Jan. 1997 - Present
Ingram Micro Canada, President,
Latin America and Export Markets
Senior Vice President, Asia Pacific, Latin Jan. 1996 - Dec. 1996
America and Export Markets
Senior Vice President, Administration Sept. 1991 - Dec. 1995
</TABLE>
- -----------------------------------
(1) The first position and any other positions not given a separate corporate
identification are with the Company.
(2) Jerre L. Stead is a director of Armstrong World Industries, Inc., TGB
Group, and TJ International, Inc.
(3) David R. Dukes is a director of National Education Corporation.
TRADEMARKS AND SERVICE MARKS
The Company holds various trademarks and service marks, including, among
others, "Ingram Micro," "IMpulse," the Ingram Micro logo, "Partnership America,"
and "Leading the Way in Worldwide Distribution." 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
15
<PAGE> 16
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 discounts. A number of factors may reduce
the Company's margins even further.
(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 is either (i) not suited for the Company or (ii) improperly
executed.
(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.
Reference is made to Exhibit 99 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.
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<PAGE> 17
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. In November 1996, the Company acquired ownership of two
of the buildings within the Santa Ana office complex as well as a distribution
center in Harrisburg, PA by assuming underlying mortgages in the aggregate
amount of approximately $22.6 million. The Company also maintains an East Coast
operations center in Buffalo, New York.
The Company operates eight distribution centers in the continental United
States located in Atlanta, GA, Carrollton, TX, Chicago, IL, Fremont, CA,
Fullerton, CA, Harrisburg, PA, Memphis, TN, and Miami, FL. In addition, the
Company operates 22 international distribution centers located in Canada,
Mexico, most countries of the European Union, Norway, Malaysia and Singapore.
A new United States distribution center in Millington, Tennessee is
expected to be completed in April 1997, adding 600,000 square feet to the
Company's warehouse capacity. This distribution center will be strategically
located near several major transportation hubs and is expected to benefit from
lower regional labor costs. The U.S. network of distribution centers permits
Ingram Micro to keep an extensive supply of product close to reseller customers,
which enables the Company to provide substantially all of its U.S. reseller
customers with one- or two-day ground delivery.
All of the Company's facilities, with the exception of two buildings within
the Santa Ana campus, the Brussels office and the distribution centers in
Chicago, Harrisburg and Roncq, France, are leased. 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 has recently purchased
three undeveloped properties in Santa Ana, California totaling approximately
23.27 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.
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.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
As of March 5, 1997, there were 498 holders of record of the Class A Common
Stock and 150 holders of record of the Class B Common Stock. The Company
believes that there are approximately 24,000 beneficial holders of the Class A
Common Stock and 25 beneficial holders of the Class B Common Stock.
Information as to the Company's quarterly stock prices is included on the
inside back cover of the Company's 1996 Annual Report to Shareholders, which is
included as part of Exhibit 13 and is incorporated in this Annual Report on Form
10-K.
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<PAGE> 18
Information as to the principal market on which the Class A Common Stock is
being traded is included on the inside back cover of the Company's 1996 Annual
Report to Shareholders, which is included as part of Exhibit 13 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.
PRIVATE SALES OF UNREGISTERED SECURITIES
In the second quarter of 1996, the Company offered 2,775,000 shares of its
Class B Common Stock to certain of its employees, of which 2,510,400 shares were
purchased for $17.6 million. The shares were issued without registration under
the Securities Act of 1933, as amended (the "Securities Act"), in reliance upon
the exemptions from registration afforded by Section 4(2) of the Securities Act,
and Regulation D and Regulation S promulgated under the Securities Act. All such
shares were issued pursuant to the Company's Key Employee Stock Purchase Plan
and are subject to certain restrictions.
Reference is made to Item 1. -- Business -- Overview -- The Split-Off and
Initial Public Offering regarding shares of the Company's Common Equity, issued
in connection with the Split-Off, the purchasers thereof and the consideration
therefor. The stock options so converted have exercise prices ranging from $0.66
to $3.32. Such issuances occurred without registration under the Securities Act
in reliance upon the exemptions from registration afforded by Section 4(2) of
the Securities Act.
ITEM 6. SELECTED FINANCIAL DATA
The selected financial information of Ingram Micro for the five year period
ended December 28, 1996 is included on page 14 of the Company's 1996 Annual
Report to Shareholders, which is included as part of Exhibit 13 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 24
through 42 of the Company's 1996 Annual Report to Shareholders which are also
included as part of Exhibit 13 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 23 of the Company's 1996 Annual
Report to Shareholders, which are also included as part of Exhibit 13 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 24
through 42 of the Company's 1996 Annual Report to Shareholders, which are also
included as part of Exhibit 13 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 22 and 23, respectively, of this Annual Report on Form 10-K.
Reference is made to the Index to Financial Statements in Item 14 below.
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<PAGE> 19
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
There have been no changes in the Company's independent auditors or
disagreements with such auditors on accounting principles or practices or
financial statement disclosures.
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 1997 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 18, 1997, all appearing on pages 24
through 43 in the 1996 Annual Report to Shareholders, 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
1996 Annual Report to Shareholders is not deemed filed as part of this
Annual Report on Form 10-K.
<TABLE>
<CAPTION>
INGRAM MICRO INC.
----------------- PAGE NO. IN
ANNUAL REPORT
TO SHAREHOLDERS
---------------
<S> <C>
Consolidated Balance Sheet at December 28, 1996 and December 30, 1995 24
Consolidated Statement of Income for the years ended December 28, 1996,
December 30, 1995 and December 31, 1994 25
Consolidated Statement of Stockholders' Equity for the years ended
December 28, 1996, December 30, 1995 and December 31, 1994. 26
Consolidated Statement of Cash Flows for the years ended
December 28, 1996, December 30, 1995 and December 31, 1994. 27
Notes to Consolidated Financial Statements 28
Report of Independent Accountants 43
Shareholder Information Inside back cover
</TABLE>
Pages 14 through 43 and the inside back cover of the 1996 Annual
Report to Shareholders of Ingram Micro Inc. include the Five Year
Summary, Management's Discussion and Analysis of Financial Condition and
Results of Operations, the Consolidated Financial Statements and related
notes thereto, the Independent Auditors' Report, Shareholder Information
and Quarterly Stock Prices. These pages are filed with the Securities and
Exchange Commission as Exhibit 13 to this Annual Report on Form 10-K.
2. Financial Statement Schedules:
Report of Independent Accountants on Financial Statement Schedules
Schedule II - Valuation and Qualifying Accounts
19
<PAGE> 20
<TABLE>
3. List of Exhibits:
<S> <C> <C>
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 -- Form of Amended and Restated Bylaws of the Registrant (incorporated by reference to Exhibit
3.03 to the IPO S-1)
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)
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 -- Agreement dated as of June 21, 1991 between the Company and John Wm. Winkelhaus, II
(incorporated by reference to Exhibit 10.06 to the IPO S-1)
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)
</TABLE>
20
<PAGE> 21
<TABLE>
<S> <C> <C>
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)
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
(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)
13.01 -- Portions of Annual Report to Shareholders for the year ended December 28, 1996
21.01 -- Subsidiaries of the Registrant
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.
</TABLE>
(b) Reports on Form 8-K
No reports on Form 8-K have been filed during the three months ended
December 28, 1996.
21
<PAGE> 22
REPORT OF INDEPENDENT ACCOUNTANTS ON
FINANCIAL STATEMENT SCHEDULES
To the Board of Directors
of Ingram Micro Inc.
Our audits of the consolidated financial statements referred to in our report
dated February 18, 1997 appearing in the 1996 Annual Report to Shareholders 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 Schedules listed in Item 14(a) of this Form
10-K. In our opinion, these Financial Statement Schedules present 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 18, 1997
22
<PAGE> 23
INGRAM MICRO INC.
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
(in thousands)
<TABLE>
<CAPTION>
Balance at Charged to Balance
beginning costs and at end of
Description of year expenses Deductions Other(*) year
- ----------- ----------- ---------- ---------- -------- ---------
<S> <C> <C> <C> <C> <C>
Allowance for doubtful accounts
receivable & sales returns:
1996 30,791 28,619 (25,394) 4,606 38,622
1995 25,668 24,168 (19,718) 673 30,791
1994 18,594 20,931 (13,853) (4) 25,668
Inventory obsolescence:
1996 12,245 13,836 (12,602) (153) 13,326
1995 10,706 13,199 (11,867) 207 12,245
1994 9,431 9,410 (8,392) 257 10,706
</TABLE>
- -------------------
* Other includes recoveries, acquisitions and the effect of fluctuations in
foreign currency.
23
<PAGE> 24
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
March 24, 1997
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.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Jerre L. Stead Chief Executive Officer (Principal March 24, 1997
- ------------------------------------------ Executive Officer); Chairman of the
Jerre L. Stead Board
/s/ Michael J. Grainger Executive Vice President and Worldwide March 24, 1997
- ------------------------------------------ Chief Financial Officer (Principal
Michael J. Grainger Financial Officer and Principal
Accounting Officer)
/s/ Martha R. Ingram Director March 24, 1997
- ------------------------------------------
Martha R. Ingram
/s/ John R. Ingram Director March 24, 1997
- ------------------------------------------
John R. Ingram
/s/ David B. Ingram Director March 24, 1997
- ------------------------------------------
David B. Ingram
/s/ Philip M. Pfeffer Director March 24, 1997
- ------------------------------------------
Philip M. Pfeffer
/s/ Don H. Davis, Jr. Director March 24, 1997
- ------------------------------------------
Don H. Davis, Jr.
/s/ J. Phillip Samper Director March 24, 1997
- ------------------------------------------
J. Phillip Samper
/s/ Joe B. Wyatt Director March 24, 1997
- ------------------------------------------
Joe B. Wyatt
</TABLE>
24
<PAGE> 1
EXHIBIT 13.01
SELECTED CONSOLIDATED FINANCIAL DATA
The following table presents selected consolidated financial data of 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 Shareholders.
The fiscal year of the Company is a 52- or 53-week period ending on the
Saturday nearest to December 31. References below to 1992, 1993, 1994, 1995 and
1996 represent the fiscal years ended January 2, 1993 (53 weeks), January 1,
1994 (52 weeks), December 31, 1994 (52 weeks), December 30, 1995 (52 weeks) and
December 28, 1996 (52 weeks), respectively. The Company's next 53-week fiscal
year will be fiscal year 1997.
<TABLE>
<CAPTION>
Fiscal Year
(in 000s, except per share data) 1996 1995 1994 1993 1992 (1)
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
SELECTED OPERATING INFORMATION
Net sales $ 12,023,451 $ 8,616,867 $ 5,830,199 $ 4,044,169 $ 2,731,272
Gross profit 812,384 605,686 438,975 329,642 227,570
Income from operations (2) 247,508 186,881 140,290 103,028 68,934
Income before income taxes
and minority interest (2) 196,757 134,616 100,705 82,855 48,502
Net income (2) 110,679 84,307 63,344 50,355 30,973
Earnings per share (2) 0.88 0.69 0.52 0.41 0.26
Weighted average common
shares outstanding 125,436,376 121,406,591 121,406,591 121,406,591 121,406,591
----------- ----------- ----------- ----------- -----------
SELECTED BALANCE SHEET INFORMATION
Cash $ 48,279 $ 56,916 $ 58,369 $ 44,391 $ 25,276
Total assets 3,366,947 2,940,898 1,974,289 1,296,363 915,590
Total debt (3) 304,033 850,548 552,283 398,929 295,389
Stockholders' equity 825,150 310,795 221,344 155,459 109,418
----------- ----------- ----------- ----------- -----------
</TABLE>
(1) The 1992 results reflect the adoption of FAS 109.
(2) Reflects a noncash compensation charge in 1996 of $23.4 million ($19.5
million, or $0.16 per share, net of tax) in connection with the granting
of Rollover Stock Options. See Note 12 of Notes to Consolidated
Financial Statements.
(3) Includes long-term debt, current maturities of long-term debt and debt
due to Ingram Industries.
1
<PAGE> 2
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
Ingram Micro is the leading wholesale distributor of microcomputer products
worldwide. The Company's net sales have grown to $12.0 billion in 1996 from $2.7
billion in 1992. 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 ten acquisitions worldwide. Net income has grown to $110.7
million in 1996 from $31.0 million in 1992.
In November 1996, the Company was split-off from Ingram Industries (the
"Split-Off") and completed an initial public offering (the "IPO") of its Class A
Common Stock that raised $393.8 million, net of underwriters' discounts and
expenses, of which approximately $366.3 million was used to repay certain
indebtedness to Ingram Industries. Concurrently with the completion of the IPO,
the Company entered into a $1 billion Credit Facility with a syndicate of banks
for which NationsBank of Texas N.A. and the Bank of Nova Scotia acted as agents.
In addition, the Company assumed an Ingram Industries accounts receivable
securitization program under which $160 million of fixed rate medium term
certificates and $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 6.8% in 1996 from 8.3% in
1992. 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 4.5% in 1996 from 5.8% in 1992. As a result, the Company's operating
margins and net margins have declined less than gross margins. Operating margins
declined to 2.1% in 1996 (1996 operating margins were 2.3% excluding the impact
of noncash compensation charges totaling $23.4 million) from 2.5% in 1992, and
net margins declined to 0.9% in 1996 (1996 net margins were 1.0% excluding the
impact of noncash compensation charges totaling $19.5 million, net of tax) from
1.1% in 1992. 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 (also known as "aggregation")
business in late 1994 through the launch of Ingram Alliance. Ingram Alliance is
designed to offer resellers access to certain of 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. Ingram Alliance contributed over $1.8 billion and
$700 million of net sales to the Company in 1996 and 1995, respectively. Since
its inception in late 1994, Ingram Alliance has operated with lower gross
margins, lower SG&A expenses as a percentage of net sales, and lower financing
costs than the Company's traditional wholesale distribution business.
Accordingly, if Ingram Alliance's sales continue to grow as a percentage of the
Company's total net sales, the Company expects such increase to cause its
overall gross margins to decline.
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
2
<PAGE> 3
MANAGEMENT'S DISCUSSION AND ANALYSIS CONTINUED
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 product inventory and accounts receivable 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) 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 Company will record additional noncash compensation charges
over the remaining vesting periods of the Rollover Stock Options. These
additional charges, including charges for a 1996 restricted stock grant, are
expected to be approximately $7.3 million ($5.8 million net of tax) for 1997,
$4.8 million ($3.7 million net of tax) for 1998 and $2.7 million ($1.9 million
net of tax) for 1999.
RESULTS OF OPERATIONS
The following table sets forth the Company's net sales by geographic region
(excluding intercompany sales), and the percentage of total net sales
represented thereby, for each of the periods indicated.
<TABLE>
<CAPTION>
FISCAL YEAR
1996 1995 1994
---------------------- ---------------------- ----------------------
NET SALES BY GEOGRAPHIC REGION (1): (DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
United States $ 8,290 69.0% $ 5,970 69.3% $ 4,122 70.7%
Europe 2,590 21.5% 1,849 21.4% 1,078 18.5%
Other international 1,143 9.5% 798 9.3% 630 10.8%
---------------------- ---------------------- ----------------------
Total $12,023 100.0% $ 8,617 100.0% $ 5,830 100.0%
====================== ====================== ======================
</TABLE>
(1) Net sales are classified by location of the Company entity. For example,
products sold through Ingram Alliance or the U.S. Export Division are
classified as United States sales.
3
<PAGE> 4
MANAGEMENT'S DISCUSSION AND ANALYSIS CONTINUED
The following table sets forth certain items from the Company's Consolidated
Statement of Income as a percentage of net sales, for each of the periods
indicated.
<TABLE>
<CAPTION>
PERCENTAGE OF NET SALES
FISCAL YEAR
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
Net sales 100.0% 100.0% 100.0%
Cost of sales 93.2% 93.0% 92.5%
-------- -------- --------
Gross profit 6.8% 7.0% 7.5%
Expenses:
SG&A expenses and charges allocated
from Ingram Industries 4.5% 4.8% 5.1%
Noncash compensation charge 0.2% 0.0% 0.0%
-------- -------- --------
Income from operations 2.1% 2.2% 2.4%
Other expense, net 0.5% 0.6% 0.7%
-------- -------- --------
Income before income taxes and minority interest 1.6% 1.6% 1.7%
Provision for income taxes 0.7% 0.6% 0.6%
Minority interest 0.0% 0.0% 0.0%
-------- -------- --------
Net income 0.9% 1.0% 1.1%
======== ======== ========
</TABLE>
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 38.9% to $8.3 billion in 1996 from
$6.0 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 40.0% to $2.6
billion in 1996 from $1.8 billion in 1995. Other international net sales
increased 43.3% to $1.1 billion in 1996 from $798 million in 1995, principally
due to the growth in net sales from the Company's Canadian operations.
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.
During 1996, the Company recorded a noncash compensation charge of $23.4
million ($19.5 million, net of
4
<PAGE> 5
MANAGEMENT'S DISCUSSION AND ANALYSIS CONTINUED
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 2.0% in 1996 from
1.3% 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 non-operating 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, remained constant at 1.0% in 1996 and in 1995. Pro
forma earnings per share, excluding the noncash compensation charge, increased
50.7% to $1.04 in 1996 from $0.69 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. Earnings per share, including the
noncash compensation charge, increased 27.5% to $0.88 in 1996 from $0.69 in
1995.
1995 COMPARED TO 1994
Consolidated net sales increased 47.8% to $8.6 billion in 1995 from $5.8
billion in 1994. 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, as well as to the release of significant new
products, including the Microsoft Windows 95 operating system in August 1995.
Net sales from U.S. operations increased 44.8% to $6.0 billion in 1995 from
$4.1 billion in 1994. The increase in U.S. net sales was largely attributable to
the growth of Ingram Alliance in 1995, its first full year of operations, as
well as an increase in the Company's customer base and product lines. Net sales
from European operations increased 71.5% to $1.8 billion in 1995 from $1.1
billion in 1994. In addition to factors affecting sales worldwide, European net
sales were positively impacted by the full year contribution in 1995 of the
Company's Scandinavian operations, which were acquired in September 1994. Other
international net sales increased 26.7% to $798.0 million in 1995 from $629.6
million in 1994. The increase in net sales from other international operations
was entirely
5
<PAGE> 6
MANAGEMENT'S DISCUSSION AND ANALYSIS CONTINUED
attributable to an increase in Canadian sales, partially offset by a decrease in
Mexican net sales resulting from the distressed Mexican economy and the related
peso devaluation.
Cost of sales as a percentage of net sales increased to 93.0% in 1995 from
92.5% in 1994. This increase was largely attributable to competitive pricing
pressures worldwide and the growth of Ingram Alliance, which is characterized by
lower gross margins than the Company's traditional wholesale distribution
business. Gross margin was favorably impacted by effective operational controls
and an increase in worldwide purchase discounts and rebates from the Company's
suppliers.
Total SG&A expenses and charges allocated from Ingram Industries increased
40.2% to $418.8 million in 1995 from $298.7 million in 1994, but decreased as a
percentage of net sales to 4.8% in 1995 from 5.1% in 1994. 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 facilities, and expenses associated with
the development and maintenance of information systems. The decreased level of
spending as a percentage of net sales was primarily attributable to economies of
scale resulting from higher sales volumes, increased operating efficiencies, and
the growth of Ingram Alliance, which is characterized by lower SG&A expenses as
a percentage of net sales than the Company's traditional wholesale distribution
business.
For the reasons set forth above, income from operations increased 33.2% to
$186.9 million in 1995 from $140.3 million in 1994, but decreased as a
percentage of net sales to 2.2% in 1995 from 2.4% in 1994. Income from U.S.
operations decreased as a percentage of net sales to 2.6% in 1995 from 3.0% in
1994. This decrease was partially offset by an increase in income from European
operations as a percentage of net sales to 1.1% in 1995 from 0.7% in 1994.
Other expense, net increased 32.0% to $52.3 million in 1995 from $39.6
million in 1994, but decreased as a percentage of net sales to 0.6% in 1995 from
0.7% in 1994. The increase in other expense was largely attributable to a higher
level of borrowings to finance the Company's worldwide business expansion. The
Company was also negatively impacted by the effect of a distressed Mexican
economy and the related peso devaluation. Primarily due to events in Mexico, the
Company sustained a net foreign currency exchange loss of $7.8 million in 1995
as compared to a $6.9 million loss in 1994.
The provision for income taxes increased 34.2% to $53.1 million in 1995 from
$39.6 million in 1994, reflecting the 33.7% increase in the Company's income
before income taxes and minority interest. The Company's effective tax rate was
39.5% in 1995 as compared to 39.3% in 1994.
Net income increased 33.1% to $84.3 million in 1995 from $63.3 million in
1994, but decreased as a percentage of net sales to 1.0% in 1995 from 1.1% in
1994.
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.
6
<PAGE> 7
MANAGEMENT'S DISCUSSION AND ANALYSIS CONTINUED
The following table sets forth certain unaudited quarterly historical
financial data for each of the twelve quarters up to the period ended December
28, 1996. 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 Shareholders. The operating results for any quarter shown are
not necessarily indicative of results for any future period.
CONSOLIDATED QUARTERLY INFORMATION
<TABLE>
<CAPTION>
INCOME INCOME BEFORE
NET GROSS FROM INCOME TAXES AND NET EARNINGS
SALES PROFIT OPERATIONS MINORITY INTEREST INCOME PER SHARE
-------- --------- ------------- -------------------- --------- -----------
(IN MILLIONS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
FISCAL YEAR ENDED DECEMBER 31, 1994
THIRTEEN WEEKS ENDED:
April 2, 1994 $1,266.6 $92.4 $26.1 $19.4 $11.6 0.10
July 2, 1994 1,298.9 96.8 28.3 19.5 12.1 0.10
October 1, 1994 1,387.0 105.1 32.9 24.3 14.6 0.12
December 31, 1994 1,877.7 144.7 53.0 37.5 25.0 0.20
FISCAL YEAR ENDED DECEMBER 30, 1995
THIRTEEN WEEKS ENDED:
April 1, 1995 $1,879.5 $132.4 $38.5 $24.3 $17.1 0.14
July 1, 1995 1,859.6 138.9 40.2 30.0 18.4 0.15
September 30, 1995 2,331.6 151.2 45.2 33.8 20.8 0.17
December 30, 1995 2,546.2 183.2 63.0 46.5 28.0 0.23
FISCAL YEAR ENDED DECEMBER 28, 1996
THIRTEEN WEEKS ENDED:
March 30, 1996 $2,752.7 $186.6 $54.9(1) $39.6(1) $23.8(1) 0.20(1)
June 29, 1996 2,790.4 190.5 59.5(2) 44.9(2) 26.8(2) 0.22(2)
September 28, 1996 2,931.6 197.4 61.5(3) 48.9(3) 27.0(3) 0.22(3)
December 28, 1996 3,548.8 237.9 71.6(4) 63.4(4) 33.1(4) 0.24(4)
</TABLE>
- ----------
(1) Reflects a noncash compensation charge of $6.7 million ($4.1 million, or
$0.03 per share, net of tax) in connection with the granting of the
Rollover Stock Options.
(2) Reflects a noncash compensation charge of $1.1 million ($0.7 million, or
less than $0.01 per share, net of tax) in connection with the granting
of the Rollover Stock Options.
(3) Reflects a noncash compensation charge of $1.1 million ($0.6 million, or
less than $0.01 per share, net of tax) in connection with the granting
of the Rollover Stock Options.
(4) Reflects a noncash compensation charge of $14.5 million ($14.1 million,
or $0.11 per share, net of tax) in connection with the granting of the
Rollover Stock Options.
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.
7
<PAGE> 8
MANAGEMENT'S DISCUSSION AND ANALYSIS CONTINUED
LIQUIDITY AND CAPITAL RESOURCES
The Company has financed its growth and cash needs largely through income
from operations and borrowings, trade and supplier credit and, more recently,
the public sale of 23,200,000 shares of its Class A Common Stock at $18.00 per
share in the IPO completed in November 1996.
Cash provided by operating activities was $78.0 million in 1996 as compared
to cash used in operating activities of $251.3 million in 1995 and $87.1 million
in 1994. The significant increase in cash provided by operating activities in
1996 over cash used in operating activities in 1995 was partially due to higher
net income and the difference between accounts receivable, inventory levels, and
accounts payable in 1996 as compared to 1995 due to the launch of Microsoft
Windows 95 in the third quarter of 1995. The significant increase in cash used
by operating activities in 1995 over 1994 was due to the increased levels of
inventory and an increase in accounts receivable. Cash provided by the increase
in accounts payable in 1995 partially offset the use related to inventory and
accounts receivable. The increase in the difference in inventory levels and
accounts payable in 1995 as compared to 1994 was partially due to the launch of
Microsoft Windows 95.
Net cash used by investing activities was $107.2 million, $48.8 million, and
$42.6 million in 1996, 1995, and 1994, respectively. These increases were due to
the Company's expansion of warehouse and other facilities in each year. 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 used by investing activities in
1994 included acquisitions of operations in four European countries in 1994.
Net cash provided by financing activities was $21.3 million, $298.3 million,
and $143.3 million in 1996, 1995 and 1994, respectively. 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 is partially offset by proceeds from debt
totaling $49.7 million and net borrowings under the revolving credit facility of
$80.6 million. The increase in net cash provided by financing activities in 1995
as compared to 1994 was primarily provided by an increase in borrowings from
Ingram Industries.
Historically, the Company's sources of capital have primarily been
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
(the "Credit Facility") with a syndicate of banks for which NationsBank of Texas
N.A. and The Bank of Nova Scotia acted as agents. The Company is required to
comply with certain financial covenants, including minimum net worth,
restrictions on funded debt, current ratio and interest coverage, which will be
tested as of the end of each fiscal quarter. The Credit Facility also restricts
the Company's ability to pay dividends. Borrowings will be subject to the
satisfaction of customary conditions, including the absence of any material
adverse change in the Company's business or financial condition. Borrowings
under the 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, as well as partial financing for the
increase in accounts receivable and inventories at December 28, 1996 as compared
to December 30, 1995.
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 was used to repay certain existing
indebtedness to Ingram Industries. Primarily as a result of the IPO,
stockholders' equity increased to $825.2 million at December 28, 1996, up
165.5%, from $310.8 million at December 30, 1995. In addition, the Company's
debt to capitalization ratio was 27% at December 28, 1996, down from 73% at
December 30, 1995. At December 28, 1996, the Company had $201.5 million in
outstanding borrowings under the Credit Facility.
8
<PAGE> 9
MANAGEMENT'S DISCUSSION AND ANALYSIS CONTINUED
From February 1993 through the Split-Off, the Company had an agreement with
Ingram Industries whereby the Company sold all of its domestic trade accounts
receivable to Ingram Industries on an ongoing basis. Ingram Industries
transferred certain trade accounts receivable from the Company and other Ingram
Industries affiliates to a trust which sold certificates representing undivided
interests in the total pool of trade receivables without recourse. As of
November 1, 1996, Ingram Industries had sold $160 million of fixed rate medium
term certificates and established a commercial paper program, supported by a
variable rate certificate, under which $13.0 million was outstanding. The
arrangement with the trust extends to December 31, 1997, renewable biannually
under an evergreen provision up to a maximum term of 20 years. In connection
with the Split-Off, in partial satisfaction of amounts due to Ingram Industries,
the Ingram Industries accounts receivable securitization program was assumed by
the Company, which is now the sole seller of receivables. Under the amended
program, certain of the Company's domestic receivables are transferred to the
trust. The Company believes the amended program contains sufficient trade
accounts receivable to support the outstanding fixed rate medium term
certificates as well as an unspecified amount of variable rate certificates
which support the commercial paper program. At December 28, 1996, the amount of
commercial paper outstanding totaled $50 million. Assumption of the
securitization program resulted in a $160 million reduction of trade accounts
receivable and long-term debt in the Company's consolidated balance sheet at
December 28, 1996.
The Company and its foreign subsidiaries have uncommitted lines of credit and
short-term overdraft facilities in various currencies which aggregated $62.4
million as of December 28, 1996. 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 1996, cash proceeds from the exercise of stock options, including
applicable tax benefits, totaled $11.3 million.
The Company believes that the net proceeds from the IPO, together with net
cash provided by operating activities, supplemented as necessary with funds
available under credit arrangements (including the $1 billion Credit Facility),
will provide sufficient resources to meet its present and future working capital
and cash requirements for at least the next 12 months, or earlier if the Company
were to engage in significant, material corporate transactions not currently
anticipated, in which event the Company anticipates that additional debt or
equity financing would be required.
The Company presently expects to spend approximately $90 million in 1997 for
capital expenditures due to continued expansion of its business.
NEW ACCOUNTING STANDARDS
The Company will adopt Statement of Financial Accounting Standards No. 125,
"Accounting for Transfers and Servicing of Financial Assets and Extinguishments
of Liabilities" ("FAS 125") in 1997. The Company does not expect the adoption of
FAS 125 to have a material impact on its financial condition or results of
operations.
9
<PAGE> 10
INGRAM MICRO INC.
CONSOLIDATED BALANCE SHEET
(DOLLARS IN 000S, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FISCAL YEAR END
1996 1995
------------- -------------
<S> <C> <C>
ASSETS
Current assets:
Cash $ 48,279 $ 56,916
Trade accounts receivable (less allowances of $38,622
in 1996 and $30,791 in 1995) 1,143,028 1,071,275
Inventories 1,818,047 1,582,922
Other current assets 145,964 88,503
------------- -------------
Total current assets 3,155,318 2,799,616
Property and equipment, net 161,172 89,126
Goodwill, net 25,918 29,871
Other 24,539 22,285
------------- -------------
Total assets $ 3,366,947 $ 2,940,898
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 2,047,988 $ 1,652,073
Accrued expenses 162,887 121,572
Current maturities of long-term debt 23,899 6,332
------------- -------------
Total current liabilities 2,234,774 1,779,977
Long-term debt 280,134 170,424
Due to Ingram Industries - 673,792
Other 6,190 5,697
------------- -------------
Total liabilities 2,521,098 2,629,890
Minority interest 3,476 213
Commitments and contingencies (Note 9)
Redeemable Class B Common Stock 17,223 -
Stockholders' equity:
Preferred Stock, $0.01 par value, 1,000,000 shares
authorized; no shares issued and outstanding - -
Class A Common Stock, $0.01 par value, 265,000,000 shares
authorized; 25,047,696 shares issued and outstanding in 1996 250 -
Class B Common Stock, $0.01 par value, 135,000,000
shares authorized; 109,043,762 and 107,251,362 shares
issued and outstanding in 1996 and 1995 (including
2,460,400 redeemable shares in 1996) 1,066 1,073
Additional paid in capital 449,657 22,427
Retained earnings 372,801 282,122
Cumulative translation adjustment 1,910 5,173
Unearned compensation (534) -
------------- -------------
Total stockholders' equity 825,150 310,795
------------- -------------
Total liabilities and stockholders' equity $ 3,366,947 $ 2,940,898
============= =============
</TABLE>
See accompanying notes to these consolidated financial statements
10
<PAGE> 11
INGRAM MICRO INC.
CONSOLIDATED STATEMENT OF INCOME
(DOLLARS IN 000S, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FISCAL YEAR
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
Net sales $ 12,023,451 $ 8,616,867 $ 5,830,199
Cost of sales 11,211,067 8,011,181 5,391,224
------------ ------------ ------------
Gross profit 812,384 605,686 438,975
Expenses:
Selling, general and administrative 537,893 415,344 296,330
Charges allocated from Ingram Industries 3,633 3,461 2,355
Noncash compensation charge (Note 12) 23,350 - -
------------ ------------ ------------
564,876 418,805 298,685
------------ ------------ ------------
Income from operations 247,508 186,881 140,290
Other (income) expense:
Interest income (2,060) (3,479) (937)
Interest expense 14,812 13,451 8,744
Interest expense charged by Ingram Industries 35,123 32,606 24,189
Net foreign currency exchange loss 701 7,751 6,873
Other 2,175 1,936 716
------------ ------------ ------------
50,751 52,265 39,585
------------ ------------ ------------
Income before income taxes and
minority interest 196,757 134,616 100,705
Provision for income taxes 84,889 53,143 39,604
------------ ------------ ------------
Income before minority interest 111,868 81,473 61,101
Minority interest 1,189 (2,834) (2,243)
------------ ------------ ------------
Net income $ 110,679 $ 84,307 $ 63,344
============ ============ ============
Earnings per share $ 0.88 $ 0.69 $ 0.52
============ ============ ============
</TABLE>
See accompanying notes to these consolidated financial statements
11
<PAGE> 12
INGRAM MICRO INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(DOLLARS IN 000S)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL CUMULATIVE
------------------ PAID IN RETAINED TRANSLATION UNEARNED
CLASS A CLASS B CAPITAL EARNINGS ADJUSTMENT COMPENSATION TOTAL
------- ------- ---------- -------- ----------- ------------ --------
<S> <C> <C> <C> <C> <C> <C> <C>
JANUARY 1, 1994 $ -- $1,073 $ 22,427 $134,471 $(2,512) $ -- $155,459
Translation adjustment 2,541 2,541
Net income 63,344 63,344
---- ------ ------- -------- ------- ----- --------
DECEMBER 31, 1994 -- 1,073 22,427 197,815 29 -- 221,344
Translation adjustment 5,144 5,144
Net income 84,307 84,307
---- ------ ------- -------- ------- ----- --------
DECEMBER 30, 1995 -- 1,073 22,427 282,122 5,173 -- 310,795
Noncash compensation charge
related to stock options 23,170 23,170
Distribution to Ingram Industries (20,000) (20,000)
Grant of restricted Class B
Common Stock 1 713 (714) --
Net proceeds from sale of
Class A Common Stock 232 393,612 393,844
Stock options exercised 10 1,612 1,622
Income tax benefit from
exercise of stock options 8,123 8,123
Conversion of Class B Common
Stock to Class A Common Stock 8 (8) --
Amortization of unearned
compensation 180 180
Translation adjustment (3,263) (3,263)
Net income 110,679 110,679
---- ------ -------- -------- ------- ----- --------
DECEMBER 28, 1996 $250 $1,066 $449,657 $372,801 $ 1,910 $(534) $825,150
==== ====== ======== ======== ======= ===== ========
</TABLE>
See accompanying notes to these consolidated financial statements
12
<PAGE> 13
INGRAM MICRO INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(DOLLARS IN 000S)
<TABLE>
<CAPTION>
FISCAL YEAR
--------------------------------------------
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
CASH PROVIDED (USED) BY OPERATING ACTIVITIES:
Net income $ 110,679 $ 84,307 $ 63,344
Adjustments to reconcile net income to
cash provided by operating activities:
Depreciation and amortization 36,170 25,394 18,675
Deferred income taxes (1,635) (8,632) (4,668)
Minority interest 1,189 (2,834) (2,243)
Noncash compensation charge 23,350 -- --
Changes in operating assets and liabilities,
net of effects of acquisitions:
Trade accounts receivable (237,747) (320,177) (232,268)
Inventories (239,054) (580,116) (345,511)
Other current assets (46,291) (15,877) (12,846)
Accounts payable 399,995 543,822 411,012
Accrued expenses 31,372 22,828 17,452
------------ ------------ ------------
Cash provided (used) by operating activities 78,028 (251,285) (87,053)
CASH PROVIDED (USED) BY INVESTING ACTIVITIES:
Purchase of property & equipment (105,584) (52,985) (31,286)
Acquisitions, net of cash acquired -- -- (15,088)
Other (1,596) 4,188 3,765
------------ ------------ ------------
Cash used by investing activities (107,180) (48,797) (42,609)
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 17,223 -- --
Exercise of stock options including tax benefits 11,331 -- --
(Decrease) increase in borrowings from Ingram Industries (513,792) 224,437 103,580
Proceeds (repayment) of debt 49,717 (838) (4,930)
Net borrowings under revolving credit facility 80,618 74,666 44,636
Distribution to Ingram Industries (20,000) -- --
Minority interest investment 2,400 -- --
------------ ------------ ------------
Cash provided by financing activities 21,341 298,265 143,286
Effect of exchange rate changes on cash (826) 364 354
------------ ------------ ------------
(Decrease) increase in cash (8,637) (1,453) 13,978
Cash, beginning of year 56,916 58,369 44,391
------------ ------------ ------------
Cash, end of year $ 48,279 $ 56,916 $ 58,369
============ ============ ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash payments during the year:
Interest $ 50,071 $ 45,164 $ 32,528
Income taxes 101,091 54,506 47,152
</TABLE>
Cash payments include payments made to Ingram Industries for interest and U.S.
income taxes.
See accompanying notes to these consolidated financial statements
13
<PAGE> 14
INGRAM MICRO INC.
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 and marketing of
microcomputer hardware and software products. The Company conducts the majority
of its operations in North America and Europe. In November 1996, the Company's
former parent, Ingram Industries Inc. ("Ingram Industries"), consummated a
split-off of the Company in a tax-free reorganization (the "Split-Off"). In
connection with the Split-Off, certain stockholders of Ingram Industries
exchanged all or some of their shares of Ingram Industries Common Stock for
107,251,362 shares of Class B Common Stock of the Company in specified ratios.
See Note 3 for further information.
On April 29, 1996, Ingram Micro Inc., a Delaware corporation, was formed
to hold all of the outstanding stock of Ingram Micro Holdings Inc. ("Holdings").
In October 1996, just prior to the Company's initial public offering, Holdings
merged with and into such Delaware corporation. The merger did not impact the
Company's financial statements, since the Company's historical financial
statements for earlier periods reflect the capital structure described herein.
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 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.
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 "1996," "1995" and
"1994" represent the 52 week fiscal years ended December 28, 1996, December 30,
1995, and December 31, 1994, 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
Outstanding checks of $128,233 in 1996 and $72,868 in 1995 are included in
accounts payable.
14
<PAGE> 15
INGRAM MICRO INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN 000S, EXCEPT PER SHARE DATA)
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, reduction of 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 35% of its net sales in fiscal
1996, 32% in 1995 and 22% in 1994 from products purchased from three vendors.
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:
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 annually.
Goodwill
Goodwill is amortized on a straight-line basis over periods ranging from
five to twenty years. Accumulated amortization was $16,566 at December 28, 1996
and $13,576 at December 30, 1995. The Company evaluates the recoverability of
goodwill and reviews the amortization periods on an annual basis. Recoverability
is measured on the basis of anticipated undiscounted cash flows from operations.
At December 28, 1996 and December 30, 1995, 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.
15
<PAGE> 16
INGRAM MICRO INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN 000S, EXCEPT PER SHARE DATA)
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 Mexico, Singapore and Malaysia.
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 intercompany debt due to Ingram Industries and
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 Mexico. 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.
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
16
<PAGE> 17
INGRAM MICRO INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN 000S, EXCEPT PER SHARE DATA)
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:
<TABLE>
<CAPTION>
1996 1995
-------------------- -------------------
NOTIONAL ESTIMATED NOTIONAL ESTIMATED
AMOUNTS FAIR VALUE AMOUNTS FAIR VALUE
-------- ---------- -------- ----------
<S> <C> <C> <C> <C>
Foreign exchange forward contracts $178,873 $1,498 $109,218 $(1,971)
Purchased foreign currency options 30,857 146 75,928 485
Written foreign currency options 44,017 (112) 121,183 (615)
Currency interest rate swaps 25,655 410 25,655 (1,056)
</TABLE>
Employee Benefits
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 $1,642 in fiscal 1996, $1,399 in 1995 and $764 in 1994.
Accounting for Stock-Based Compensation
The Company adopted 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.
Earnings Per Share
Historical earnings per share for fiscal 1995 and 1994 reflect the
Company's capital structure as a result of the formation of the Delaware
corporation in connection with the Split-Off. Earnings per share is determined
based on the number of shares outstanding after giving effect to the Split-Off
(109,043,762, 107,251,362 and 107,251,362 at December 28, 1996, December 30,
1995 and December 31, 1994, respectively) in addition to all dilutive common
stock and common stock equivalent shares. Pursuant to the Securities and
Exchange Commission Staff Accounting Bulletins and Staff policy, such shares
issued within 12 months of the initial public offering (the "IPO") of the
Company's Class A Common Stock are treated as if they were outstanding for all
periods presented prior to the IPO using the treasury stock method (14,155,229
at December 30, 1995 and December 31, 1994). The number of common and common
equivalent shares outstanding used in the computation of earnings per share for
the fiscal years ended December 28, 1996, December 30, 1995 and December 31,
1994 was 125,436,376, 121,406,591 and 121,406,591, respectively.
17
<PAGE> 18
INGRAM MICRO INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN 000S, EXCEPT PER SHARE DATA)
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 5).
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
In April and August 1994, the Company acquired two separate wholesale
distributors (Keylan S.A. and Datateam Sverige AB) with operations in Spain,
Sweden, Denmark and Norway. The combined consideration paid was $15,088 cash and
$5,279 of notes payable to sellers. The acquired companies had assets of $48,748
and liabilities of $35,034. The acquisitions were accounted for using the
purchase method of accounting. The purchase price was allocated to the assets
purchased and the liabilities assumed based on fair values at the date of
acquisition. The excess of the purchase price over fair value of net assets
acquired totaling $6,653 was recorded as goodwill.
The operating results of these acquired businesses have been included in
the consolidated statement of income from the date of acquisition. Pro forma
results of operations have not been presented because the effect of these
acquisitions was not significant.
18
<PAGE> 19
INGRAM MICRO INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN 000S, EXCEPT PER SHARE DATA)
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. At December
30, 1995, the accounts receivable and due to Ingram Industries amounts in the
Company's consolidated balance sheet have not been reduced to reflect the sale
of such receivables.
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. The
arrangement with the trust extends to December 31, 1997 and renews biannually
under an evergreen provision up to a maximum term of twenty years. As of the
Split-Off, the trust had sold $160,000 of medium term certificates. In addition,
approximately $13,000 of trust certificate-backed commercial paper was
outstanding on that date. Assumption of the securitization program resulted in a
$160,000 reduction of trade accounts receivable and long-term debt on the
Company's consolidated balance sheet at December 28, 1996 to reflect the sale of
such receivables. Amounts outstanding under the commercial paper program
totaling $50,000 at December 28, 1996 are included in long-term debt in the
consolidated balance sheet at December 28, 1996.
Fees in the amount of $1,537 in 1996 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:
<TABLE>
<CAPTION>
FISCAL YEAR END
1996 1995
--------------- ----------------
<S> <C> <C>
Land $ 18,746 $ 2,359
Buildings and leasehold improvements 67,765 26,381
Distribution equipment 83,242 62,462
Computer equipment 83,594 59,161
--------------- ----------------
253,347 150,363
Accumulated depreciation (92,175) (61,237)
--------------- ----------------
$ 161,172 $ 89,126
=============== ================
</TABLE>
Depreciation expense was $33,180 in 1996 and $21,785 in 1995.
19
<PAGE> 20
INGRAM MICRO INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN 000S, EXCEPT PER SHARE DATA)
NOTE 7 - LONG-TERM DEBT AND DUE TO INGRAM INDUSTRIES
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. At December 28, 1996, all amounts due to Ingram Industries had been
repaid with the exception of certain federal and state estimated tax payments
made on the Company's behalf relating to the period prior to 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 fiscal 1996, 7.38% in 1995 and 6.99% in
1994.
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 weighted average borrowing rate was 7.00% at December 30, 1995. The
agreement was guaranteed by certain subsidiaries of the Company and other Ingram
Industries affiliates. 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 "Credit
Facility") with a syndicate of banks. The Credit Facility is unsecured and
matures on October 30, 2001. Revolving loan rate and competitive bid interest
rate options are available under the Credit Facility. The spread over LIBOR for
revolving rate loans as well as a facility fee will be determined by reference
to certain financial ratios or credit ratings by recognized rating agencies on
the Company's senior unsecured debt. At December 28, 1996, the Company had
$201,475 of outstanding borrowings under this Credit Facility. The weighted
average interest rate on outstanding borrowings at December 28, 1996 was 5.44%.
The Company is required to comply with certain financial covenants,
including minimum 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 December 28, 1996, the Company was in compliance with
these covenants.
At December 28, 1996, commercial paper in the amount of $50,000 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
this commercial paper was 5.7% at December 28, 1996.
The Company's subsidiaries outside the United States have lines of credit
and short-term overdraft facilities with various banks worldwide which provide
for borrowings aggregating $62,424. Most of these arrangements are reviewed
periodically for renewal. At December 28, 1996, the Company had $22,752
outstanding under these facilities.
20
<PAGE> 21
INGRAM MICRO INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN 000S, EXCEPT PER SHARE DATA)
Long-term debt consists of the following:
<TABLE>
<CAPTION>
FISCAL YEAR END
-----------------------------
1996 1995
----------- -----------
<S> <C> <C>
Revolving credit facility $ 201,475 $ 141,521
Overdraft facilities 22,752 5,782
Commercial paper 50,000 -
Other 29,806 29,453
----------- -----------
304,033 176,756
Less current maturities of long-term debt (23,899) (6,332)
----------- -----------
$ 280,134 $ 170,424
=========== ===========
</TABLE>
Annual maturities of long-term debt as of December 28, 1996 are as follows:
<TABLE>
<S> <C>
1997 $ 23,899
1998 512
1999 460
2000 393
2001 and thereafter 278,769
-----------
$ 304,033
===========
</TABLE>
NOTE 8 - INCOME TAXES
The components of income before taxes and minority interest consist of the
following:
<TABLE>
<CAPTION>
FISCAL YEAR END
--------------------------------------
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
United States $ 165,576 $ 124,277 $ 99,701
Foreign 31,181 10,339 1,004
---------- ---------- ----------
Total $ 196,757 $ 134,616 $ 100,705
========== ========== ==========
</TABLE>
The provision for income taxes consists of the following:
<TABLE>
<S> <C> <C> <C>
Current:
Federal $ 64,252 $ 44,615 $ 35,989
State 9,952 9,544 4,060
Foreign 13,076 7,616 4,223
---------- ---------- ----------
87,280 61,775 44,272
Deferred:
Federal (5,241) (4,082) (2,472)
State 462 (949) 136
Foreign 2,388 (3,601) (2,332)
---------- ---------- ----------
(2,391) (8,632) (4,668)
---------- ---------- ----------
Total income tax provision $ 84,889 $ 53,143 $ 39,604
========== ========== ==========
</TABLE>
21
<PAGE> 22
INGRAM MICRO INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(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:
<TABLE>
<CAPTION>
FISCAL YEAR END
----------------------------
1996 1995 1994
------- -------- -------
<S> <C> <C> <C>
Net deferred tax assets and liabilities:
Tax in excess of book basis of foreign
operations $18,511 $ 19,511 $13,816
Items not currently deductible 20,296 18,610 12,813
Depreciation (881) (1,564) (958)
Other 758 492 263
------- -------- -------
Total $38,684 $ 37,049 $25,934
======= ======== =======
</TABLE>
Net current deferred tax assets of $22,038 and $19,307 are included in
other current assets and other current liabilities at December 28, 1996 and
December 30, 1995, respectively. Net non-current deferred tax assets of $16,646
and $17,742 are included in other assets and other liabilities at December 28,
1996 and December 30, 1995, respectively.
Reconciliation of the statutory U.S. federal income tax rate to the
Company's effective tax rate is as follows:
<TABLE>
<CAPTION>
FISCAL YEAR END
--------------------------
1996 1995 1994
------ ------ ------
<S> <C> <C> <C>
U.S. statutory rate 35% 35% 35%
State income taxes,
net of federal income tax benefit 4% 4% 3%
Noncash compensation 2%
Foreign rates in excess of statutory rate 2% 1% 1%
---- ---- ----
Effective tax rate 43% 40% 39%
==== ==== ====
</TABLE>
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 $10,521 at December 28, 1996 and $14,303 at
December 30, 1995 are included in accrued expenses.
At December 28, 1996, the Company had foreign net operating loss
carryforwards of $50,530 of which approximately one-half have no expiration
date.
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.
22
<PAGE> 23
INGRAM MICRO INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN 000S, EXCEPT PER SHARE DATA)
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. The
Company assesses the financial stability of the finance companies and the
payment terms are within 3 to 30 days of product shipment. 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.
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 December 28, 1996, December 30, 1995 and December 31, 1994 was
$34,784, $28,367 and $16,574, respectively.
Future minimum rental commitments on operating leases that have remaining
noncancelable lease terms in excess of one year as of December 28, 1996 are as
follows:
<TABLE>
<S> <C> <C>
1997 $24,628
1998 21,268
1999 19,184
2000 12,922
2001 9,739
Later years 31,905
</TABLE>
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 (United States and the
majority of the Company's exports), Europe (Austria, Belgium, Denmark, France,
Germany, Italy, the Netherlands, Norway, Spain, Sweden and the United Kingdom)
and Other (Canada, Malaysia, Mexico, 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:
23
<PAGE> 24
INGRAM MICRO INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN 000S, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FISCAL YEAR
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
NET SALES
United States
Sales to unaffiliated customers $ 8,289,776 $ 5,969,749 $ 4,122,338
Transfers between geographic areas 140,721 86,961 76,696
Europe 2,590,120 1,849,129 1,078,250
Other 1,143,555 797,989 629,611
Eliminations (140,721) (86,961) (76,696)
------------ ------------ ------------
Total $ 12,023,451 $ 8,616,867 $ 5,830,199
============ ============ ============
INCOME FROM OPERATIONS:
United States $ 201,961 $ 156,749 $ 123,796
Europe 21,593 19,576 8,079
Other 23,954 10,556 8,415
------------ ------------ ------------
Total $ 247,508 $ 186,881 $ 140,290
============ ============ ============
IDENTIFIABLE ASSETS:
United States $ 2,227,997 $ 1,996,642 $ 1,381,798
Europe 800,755 669,309 393,346
Other 338,195 274,947 199,145
------------ ------------ ------------
Total $ 3,366,947 $ 2,940,898 $ 1,974,289
============ ============ ============
</TABLE>
No single customer accounts for 10% or more of the Company's net sales.
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 are 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 Agreement 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 pro-rata 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 financial
statements for such guarantees. Such guarantees ceased concurrently with the
Split-Off.
The Company leases warehouse and office space from certain of its
stockholders. Total rental payments were $1,645 in fiscal 1996 and 1995,
respectively, and $784 in 1994.
24
<PAGE> 25
INGRAM MICRO INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN 000S, EXCEPT PER SHARE DATA)
Other transactions with Ingram Industries affiliates include sales of
$3,464 in fiscal 1996, $5,281 in 1995 and $3,056 in 1994.
NOTE 12 - STOCK OPTIONS AND INCENTIVE PLANS
The Company adopted 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:
<TABLE>
1996
----
<S> <C> <C>
Net Income As reported $110,679
Pro forma 106,825
Earnings per share As reported $ 0.88
Pro forma 0.85
</TABLE>
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: 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.
Rollover Stock Option Plan
Certain of the Company's employees participated in Ingram Industries'
qualified and non-qualified 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
$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.
25
<PAGE> 26
INGRAM MICRO INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN 000S, EXCEPT PER SHARE DATA)
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.
The weighted average fair value of options granted in 1996 for pro forma
disclosure was $3.87.
A summary of the status of the Company's stock option plans as of December
28, 1996 and changes during the year then ended is presented below:
<TABLE>
<CAPTION>
WEIGHTED-
AVERAGE EXERCISE
SHARES (000) PRICE
------------ ----------------
<S> <C> <C>
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 end of year 19,647 $ 7.30
====== ======
</TABLE>
The following table summarizes information about stock options outstanding
at December 28, 1996:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
--------------------------------------- ------------------------------
WEIGHTED-
NUMBER AVERAGE WEIGHTED- NUMBER WEIGHTED-
RANGE OF EXERCISE OUTSTANDING REMAINING AVERAGE EXERCISABLE AT AVERAGE
PRICES AT 12/28/96 LIFE EXERCISE PRICE 12/28/96 EXERCISE PRICE
- ----------------- ----------- --------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
$0.66 - $3.32 9,891 5.4 $ 1.83 1,748 $ 1.48
$7.00 4,618 7.5 7.00 - -
$18.00 5,138 7.8 18.00 200 18.00
------ ---------- ----- ------------
19,647 $ 7.30 1,948 $ 3.18
====== ========== ===== ============
</TABLE>
26
<PAGE> 27
INGRAM MICRO INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN 000S, EXCEPT PER SHARE DATA)
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.
Participation ends automatically on termination of employment with the Company
and will terminate in all events on the last business day of October 2006.
The weighted average fair value of these purchase rights granted in 1996
was $4.79.
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.
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 50,000 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 December 28, 1996, 5,000 of
such shares have been forfeited to the Company.
27
<PAGE> 28
INGRAM MICRO INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN 000S, EXCEPT PER SHARE DATA)
Unearned compensation in the amount of $714 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 1996 was $180.
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 December 28, 1996 is as follows:
<TABLE>
<CAPTION>
COMMON STOCK
REDEEMABLE
CLASS A CLASS B CLASS B
-------------- -------------- --------------
<S> <C> <C> <C>
JANUARY 1, 1994 -- 107,251,362 --
Shares issued during the year -- -- --
-------------- -------------- --------------
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 102,000
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
============== ============== ==============
</TABLE>
28
<PAGE> 29
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 December 28, 1996 and December 30, 1995, and the
results of their operations and their cash flows for each of the three fiscal
years in the period ended December 28, 1996, 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.
PRICE WATERHOUSE LLP
Costa Mesa, California
February 18, 1997
29
<PAGE> 30
COMMON STOCK
The 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. From Nov. 1, 1996 through Dec. 28, 1996, the
trading price of the Class A common stock ranged from a high of $28.125 per
share to a low of $20 per share.
30
<PAGE> 1
INGRAM MICRO INC. EXHIBIT 21.01
SUBSIDIARIES
AS OF MARCH 1, 1997
<TABLE>
<CAPTION>
JURISDICTION
<S> <C> <C>
A. Ingram Micro GmbH Zweigniederlassung Osterreich Austria
B. Ingram Micro Europe Division
C. Ingram Micro Export Company Ltd. Barbados
D. Ingram Micro Inc. Canada
E. Ingram Laboratories Division
F. Ingram Alliance Division
G. CD Access Inc. Iowa
H. Ingram Micro Delaware Inc. Delaware
I. Ingram Micro Management Company Delaware
J. Ingram Dicom S.A. de C.V. (1) Mexico
1. Export Services Inc. California
K. Ingram European Coordination Center S.A./N.V. Belgium
L. Ingram Micro S.A.R.L. France
M. Ingram Micro N.V. Belgium
N. Ingram Micro B.V. The Netherlands
1. Micro Communication Services B.V. The Netherlands
O. Ingram Micro S.p.A. Italy
P. Ingram Micro GmbH Germany
Q. Ingram Micro Holdings Limited United Kingdom
1. Ingram Micro (UK) Limited United Kingdom
2. Metrocom Computer Systems Limited United Kingdom
3. Document Technology Limited United Kingdom
4. Software Limited (2) United Kingdom
R. Ingram Micro Singapore Inc. California
1. Ingram Micro Malaysia Sdn Bhd Malaysia
2. Ingram Micro Singapore Pte Ltd. Singapore
(a) Ingram Micro Hong Kong Ltd. Hong Kong
(b) Capitage Trading Ltd. Hong Kong
S. Ingram Micro Japan Inc. Delaware
T. Ingram Micro S.A. Spain
U. Ingram Micro AB Sweden
1. Ingram Micro A/S Denmark
2. Ingram Micro A.S. Norway
3. Datateam Norm AB (3) Sweden
4. Oy Datateam AB (3) Finland
V. Ingram Micro SA/AG Switzerland
W. IMI Washington Inc. Delaware
X. Ingram Funding Inc. Delaware
Y. Ingram Micro CLBT Inc. Delaware
</TABLE>
- -------------------------------------------
(1) 70% owned by Ingram Micro Inc.
(2) Name-saving corporation
(3) Dormant
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS OF INGRAM MICRO INC. FOR THE YEAR ENDED
DECEMBER 28, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-28-1996
<PERIOD-START> DEC-31-1995
<PERIOD-END> DEC-28-1996
<CASH> 48,279
<SECURITIES> 0
<RECEIVABLES> 1,181,650
<ALLOWANCES> 38,622
<INVENTORY> 1,818,047
<CURRENT-ASSETS> 3,155,318
<PP&E> 253,347
<DEPRECIATION> 92,175
<TOTAL-ASSETS> 3,366,947
<CURRENT-LIABILITIES> 2,234,774
<BONDS> 0
0
0
<COMMON> 1,316
<OTHER-SE> 823,834
<TOTAL-LIABILITY-AND-EQUITY> 3,366,947
<SALES> 12,023,451
<TOTAL-REVENUES> 12,023,451
<CGS> 11,211,067
<TOTAL-COSTS> 11,775,943
<OTHER-EXPENSES> 2,876
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 49,935
<INCOME-PRETAX> 196,757
<INCOME-TAX> 84,889
<INCOME-CONTINUING> 110,679
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 110,679
<EPS-PRIMARY> 0.88
<EPS-DILUTED> 0.88
</TABLE>
<PAGE> 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 December 28, 1996 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 "aggregator" or "master reseller" business by
launching Ingram Alliance in late 1994. Many of the Company's competitors in the
master reseller business are more experienced and have more established contacts
with affiliated resellers, third-party dealers, or suppliers, which may provide
them with a competitive advantage over the Company. In addition, 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.
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.
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.
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<PAGE> 2
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 through Ingram Alliance,
which has lower gross margins than the Company's traditional wholesale
distribution business.
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, 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" above.
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 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
2
<PAGE> 3
information systems. This can be a lengthy and expensive process that results in
a significant diversion of resources from other operations.
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. 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), 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 executive officers. The loss of any
of the Company's executive officers could have a material adverse effect on the
Company. The Company's continued success is also dependent upon its ability to
retain and attract other qualified employees to meet the Company's needs.
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 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 inventory.
3
<PAGE> 4
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.
4
