<PAGE> 1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED APRIL 1, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ________ TO ___________
COMMISSION FILE NUMBER: 1-12203
INGRAM MICRO INC.
(Exact name of Registrant as specified in its charter)
DELAWARE 62-1644402
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1600 E. ST. ANDREW PLACE, SANTA ANA, CALIFORNIA 92799-5125
(Address, including zip code, of principal executive offices)
(714) 566-1000
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No __
The Registrant had 71,837,021 shares of Class A Common Stock, par value $.01 per
share, and 73,149,103 shares of Class B Common Stock, par value $.01 per share,
outstanding at April 1, 2000.
<PAGE> 2
INGRAM MICRO INC.
INDEX
PART I. FINANCIAL INFORMATION
<TABLE>
<CAPTION>
Pages
-----
<S> <C>
Item 1. Financial Statements
Consolidated Balance Sheet at April 1, 2000 and January 1, 2000 3
Consolidated Statement of Income for the thirteen weeks
ended April 1, 2000 and April 3, 1999 4
Consolidated Statement of Cash Flows for the thirteen weeks
ended April 1, 2000 and April 3, 1999 5
Notes to Consolidated Financial Statements 6-10
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 11-16
Item 3. Quantitative and Qualitative Disclosures About Market Risk 16
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 17
Item 2. Changes in Securities and Use of Proceeds 17
Item 3. Defaults Upon Senior Securities 17
Item 4. Submission of Matters to a Vote of Security Holders 17
Item 5. Other Information 17
Item 6. Exhibits and Reports on Form 8-K 17
Signatures 17
</TABLE>
2
<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
INGRAM MICRO INC.
CONSOLIDATED BALANCE SHEET
(DOLLARS IN 000S, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
APRIL 1, JANUARY 1,
2000 2000
---- ----
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash $ 106,507 $ 128,152
Investment in available-for-sale securities -- 142,338
Accounts receivable:
Trade receivables 1,637,408 2,853,509
Retained interest in securitized receivables 1,097,687 --
----------- -----------
Total accounts receivable (less allowances of $94,423 and $100,754) 2,735,095 2,853,509
Inventories 2,720,125 3,471,565
Other current assets 390,350 373,365
----------- -----------
Total current assets 5,952,077 6,968,929
Investment in available-for-sale-securities 440,190 474,525
Property and equipment, net 332,605 316,643
Goodwill, net 445,690 455,473
Other 76,592 56,357
----------- -----------
Total assets $ 7,247,154 $ 8,271,927
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 3,635,126 $ 4,322,303
Accrued expenses 243,502 317,283
Current maturities of long-term debt 46,379 31,020
----------- -----------
Total current liabilities 3,925,007 4,670,606
Convertible debentures 398,033 440,943
Other long-term debt 600,940 876,172
Deferred income taxes and other liabilities 364,580 313,561
----------- -----------
Total liabilities 5,288,560 6,301,282
----------- -----------
Redeemable Class B Common Stock -- 3,800
----------- -----------
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; 71,837,021 and 71,212,517 shares issued
and outstanding 718 712
Class B Common Stock, $0.01 par value, 135,000,000 shares
authorized; 73,149,103 and 73,280,871 shares issued and
outstanding (including 542,855 redeemable shares at January 1, 2000) 731 727
Additional paid in capital 653,185 645,182
Retained earnings 1,091,168 995,035
Accumulated other comprehensive income 215,468 328,285
Unearned compensation (2,676) (3,096)
----------- -----------
Total stockholders' equity 1,958,594 1,966,845
----------- -----------
Total liabilities and stockholders' equity $ 7,247,154 $ 8,271,927
=========== ===========
</TABLE>
See accompanying notes to these consolidated financial statements.
3
<PAGE> 4
INGRAM MICRO INC.
CONSOLIDATED STATEMENT OF INCOME
(DOLLARS IN 000S, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
THIRTEEN WEEKS ENDED
APRIL 1, APRIL 3,
2000 1999
---- ----
<S> <C> <C>
Net sales $ 7,796,350 $ 6,725,275
Cost of sales 7,430,154 6,366,021
----------- -----------
Gross profit 366,196 359,254
----------- -----------
Expenses:
Selling, general and administrative 295,665 267,509
Reorganization costs -- 6,234
----------- -----------
295,665 273,743
----------- -----------
Income from operations 70,531 85,511
----------- -----------
Other (income) expense:
Interest income (1,367) (1,319)
Interest expense 26,860 25,224
Gain on sale of available-for-sale securities (111,458) --
Net foreign currency exchange loss (income) 318 (324)
Other 4,198 783
----------- -----------
(81,449) 24,364
----------- -----------
Income before income taxes and extraordinary item 151,980 61,147
Provision for income taxes 57,976 22,671
----------- -----------
Income before extraordinary item 94,004 38,476
Extraordinary gain on repurchase of debentures, net of
$1,295 and $2,405 in income taxes 2,129 3,778
----------- -----------
Net income $ 96,133 $ 42,254
=========== ===========
Basic earnings per share:
Income before extraordinary item $ 0.65 $ 0.27
Extraordinary gain on repurchase of debentures 0.01 0.03
----------- -----------
Net income $ 0.66 $ 0.30
=========== ===========
Diluted earnings per share:
Income before extraordinary item $ 0.64 $ 0.26
Extraordinary gain on repurchase of debentures 0.01 0.03
----------- -----------
Net income $ 0.65 $ 0.29
=========== ===========
</TABLE>
See accompanying notes to these consolidated financial statements.
4
<PAGE> 5
INGRAM MICRO INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(DOLLARS IN 000S)
(UNAUDITED)
<TABLE>
<CAPTION>
THIRTEEN WEEKS ENDED
APRIL 1, APRIL 3,
2000 1999
---- ----
<S> <C> <C>
CASH PROVIDED (USED) BY OPERATING ACTIVITIES:
Net income $ 96,133 $ 42,254
Adjustments to reconcile net income to cash provided by
operating activities:
Depreciation 20,389 16,967
Amortization of goodwill 5,582 4,936
Deferred income taxes 59,785 (3,832)
Pretax gain on available-for-sale securities (111,458) --
Gain (net of tax) on repurchase of debentures (2,129) (3,778)
Noncash interest charge 5,816 6,423
Noncash compensation charge 1,332 509
Changes in operating assets and liabilities, net of effects of acquisitions:
Accounts receivable 120,462 180,325
Inventories 752,179 295,863
Other current assets 1,746 (14,140)
Accounts payable (664,312) 85,754
Accrued expenses (73,897) 17,003
--------- ---------
Cash provided by operating activities 211,628 628,284
--------- ---------
CASH PROVIDED (USED) BY INVESTING ACTIVITIES:
Purchases of property and equipment (36,211) (22,998)
Proceeds from sale of property and equipment -- 6,910
Acquisitions, net of cash acquired -- (222,260)
Net proceeds from sales of available-for-sale-securities 119,228 --
Other (8,464) (9,261)
--------- ---------
Cash provided (used) by investing activities 74,553 (247,609)
--------- ---------
CASH (USED) PROVIDED BY FINANCING ACTIVITIES:
Exercise of stock options including tax benefits 1,407 8,152
Repurchase of convertible debentures (43,219) (50,321)
Repayments of debt (29,624) (8,482)
Net repayments under revolving credit facilities (232,849) (322,740)
--------- ---------
Cash (used) by financing activities (304,285) (373,391)
--------- ---------
Effect of exchange rate changes on cash (3,541) (3,354)
--------- ---------
(Decrease) increase in cash (21,645) 3,930
Cash, beginning of period 128,152 96,682
--------- ---------
Cash, end of period $ 106,507 $ 100,612
========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash payments during the period:
Interest $ 28,334 $ 24,386
Income taxes 9,580 12,065
</TABLE>
See accompanying notes to these consolidated financial statements.
5
<PAGE> 6
INGRAM MICRO INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(DOLLARS IN 000S, EXCEPT PER SHARE DATA)
NOTE 1 - ORGANIZATION AND BASIS OF PRESENTATION
Ingram Micro Inc. (the "Company" or "Ingram Micro") is primarily engaged,
directly and through its wholly- and majority-owned subsidiaries, in wholesale
distribution of information technology products and services worldwide. The
Company conducts the majority of its operations in the United States (the
"U.S."), Europe, Canada, Latin America, and Asia Pacific.
The consolidated financial statements include the accounts of Ingram Micro
Inc. and all wholly- and majority-owned subsidiaries. These financial statements
have been prepared by the Company, without audit, pursuant to the rules and
regulations of the Securities and Exchange Commission. In the opinion of
management, the accompanying unaudited consolidated financial statements contain
all material adjustments (consisting of only normal, recurring adjustments)
necessary to present fairly the financial position of the Company as of April 1,
2000, and its results of operations and cash flows for the thirteen weeks ended
April 1, 2000 and April 3, 1999. All significant intercompany accounts and
transactions have been eliminated in consolidation. The results of operations
for the thirteen weeks ended April 1, 2000 may not be indicative of the results
of operations that can be expected for the full year.
NOTE 2 - EARNINGS PER SHARE
The Company reports a dual presentation of Basic Earnings per Share ("Basic
EPS") and Diluted Earnings per Share ("Diluted EPS"). Basic EPS excludes
dilution and is computed by dividing net income by the weighted average number
of common shares outstanding during the reported period. Diluted EPS reflects
the potential dilution that could occur if stock options and other commitments
to issue common stock were exercised using the treasury stock method or the
if-converted method, where applicable.
The composition of Basic EPS and Diluted EPS is as follows:
<TABLE>
<CAPTION>
THIRTEEN WEEKS ENDED
APRIL 1, APRIL 3,
2000 1999
---- ----
<S> <C> <C>
Income before extraordinary item $ 94,004 $ 38,476
============ ============
Weighted average shares 144,756,321 142,755,066
============ ============
Basic earnings per share before extraordinary item $ 0.65 $ 0.27
============ ============
Weighted average shares including the dilutive effect
of stock options (2,579,901 and 5,430,404 for the 13 weeks
ended April 1, 2000 and April 3, 1999, respectively) 147,336,222 148,185,470
============ ============
Diluted earnings per share before extraordinary item $ 0.64 $ 0.26
============ ============
</TABLE>
At April 1, 2000, there were $398,033 in Zero Coupon Convertible Senior
Debentures that were convertible into approximately 5,741,000 shares of Class A
Common Stock. For the thirteen weeks ended April 1, 2000 and April 3, 1999,
respectively, these potential shares were excluded from the computation of
Diluted EPS because their effect would not be dilutive. Additionally, there were
approximately 9,853,000 and 3,119,000 stock options and warrants for the
thirteen weeks ended April 1, 2000 and April 3, 1999, respectively, that were
not included in the
6
<PAGE> 7
INGRAM MICRO INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(DOLLARS IN 000S, EXCEPT PER SHARE DATA)
computation of Diluted EPS because the exercise price was greater than the
average market price of the Class A Common Stock, thereby resulting in an
antidilutive effect.
NOTE 3 - COMPREHENSIVE INCOME
Statement of Financial Accounting Standards No. 130, "Reporting
Comprehensive Income" ("FAS 130") establishes standards for reporting and
displaying comprehensive income and its components in the Company's consolidated
financial statements. Comprehensive income is defined in FAS 130 as the change
in equity (net assets) of a business enterprise during a period from
transactions and other events and circumstances from nonowner sources and is
comprised of net income and other comprehensive income (loss).
The components of accumulated other comprehensive income (loss) are as
follows:
<TABLE>
<CAPTION>
FOREIGN UNREALIZED ACCUMULATED
CURRENCY GAIN (LOSS) ON OTHER
TRANSLATION AVAILABLE FOR COMPREHENSIVE
ADJUSTMENT SALE SECURITIES INCOME (LOSS)
---------- --------------- -------------
<S> <C> <C> <C>
Balance at January 2, 1999 $(11,580) $ 6,666 $ (4,914)
Change in foreign currency translation adjustment (16,282) -- (16,282)
Unrealized holding gain arising during the quarter -- 61,664 61,664
-------- -------- --------
Balance at April 3, 1999 $(27,862) $ 68,330 $ 40,468
======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
FOREIGN UNREALIZED ACCUMULATED
CURRENCY GAIN (LOSS) ON OTHER
TRANSLATION AVAILABLE FOR COMPREHENSIVE
ADJUSTMENT SALE SECURITIES INCOME (LOSS)
---------- --------------- -------------
<S> <C> <C> <C>
Balance at January 1, 2000 $ (28,651) $ 356,936 $ 328,285
Change in foreign currency translation adjustment (9,483) -- (9,483)
Unrealized holding loss arising during the quarter -- (34,007) (34,007)
Realized gain included in net income -- (69,327) (69,327)
--------- --------- ---------
Balance at April 1, 2000 $ (38,134) $ 253,602 $ 215,468
========= ========= =========
</TABLE>
Total comprehensive (loss) income for the thirteen weeks ended April 1,
2000 and April 3, 1999 was ($16,684) and $87,636, respectively.
In December 1998, the Company purchased 990,800 shares of common stock of
SOFTBANK Corp. ("Softbank"), Japan's largest distributor of software,
peripherals and networking products, for approximately $50,262. During December
1999, the Company sold 346,800 shares or approximately 35% of its original
investment in Softbank common stock for approximately $230,109 resulting in a
pre-tax gain of approximately $201,318, net of related expenses. In January
2000, the Company sold an additional 148,600 shares or approximately 15% of its
original holdings in Softbank common stock for approximately $119,228, net of
expenses, resulting in a pre-tax gain of approximately $111,458. At April 1,
2000 and January 1, 2000, the unrealized holding gain associated with the
Softbank common stock totaled $253,602 and $356,936, respectively, net of
deferred taxes of $161,458 and $227,248, respectively.
NOTE 4 - EXTRAORDINARY ITEM
In the first quarters of 2000 and 1999, the Company repurchased Zero Coupon
Convertible Senior Debentures with carrying values of $46,642 and $56,504,
respectively, for $43,219 and $50,321, respectively. The debenture repurchases
resulted in extraordinary gains of $2,129 and $3,778 (net of taxes of $1,295 and
$2,405), for the thirteen weeks ended April 1, 2000 and April 3, 1999,
respectively.
7
<PAGE> 8
INGRAM MICRO INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(DOLLARS IN 000S, EXCEPT PER SHARE DATA)
NOTE 5 - ACCOUNTS RECEIVABLE SECURITIZATION
The Company has an arrangement pursuant to which certain U.S. trade
accounts receivable of the Company are transferred to a trust, which in turn has
sold certificates representing undivided interests in the total pool of trade
receivables without recourse. The trust has issued fixed-rate medium-term
certificates and variable rate certificates to support a commercial paper
program, resulting in a reduction of accounts receivable on the Company's
consolidated financial statements. In March 2000, the Company completed a new
5-year accounts receivable securitization program, which provides for the
issuance of up to $700,000 in commercial paper. At April 1, 2000 and January 1,
2000, the amount of medium-term certificates outstanding totaled $75,000 at both
dates and the amount of commercial paper outstanding at April 1, 2000 and
January 1, 2000 totaled $50,000 and $0, respectively.
The Company also has certain other facilities relating to accounts
receivable in Europe and Canada. Under these programs, the Company has sold
approximately $250,000 and $188,000 of trade accounts receivable in the
aggregate at April 1, 2000 and January 1, 2000, respectively, resulting in a
further reduction of trade accounts receivable in the Company's Consolidated
Balance Sheet.
The aggregate amount of trade accounts receivable sold as of April 1, 2000
and January 1, 2000 totaled approximately $375,000 and $263,000, respectively.
Proceeds from these accounts receivable facilities are generally used to repay
existing indebtedness.
NOTE 6 - SEGMENT INFORMATION
The Company operates predominantly in a single industry segment as a
distributor of information technology products and services. The Company's
reportable operating segments are based on geographic location, and the measure
of segment profit is income from operations. Geographic areas in which the
Company operates include the U.S., Europe (Austria, Belgium, Denmark, Finland,
France, Germany, Hungary, Italy, The Netherlands, Norway, Portugal, Spain,
Sweden, Switzerland, and the United Kingdom) and Other international (Argentina,
Australia, Brazil, Canada, Chile, China, India, Indonesia, Malaysia, Mexico, New
Zealand, Panama, Peru, Singapore, and Thailand). Inter-geographic sales
primarily represent intercompany sales that are accounted for based on
established sales prices between the related companies and are eliminated in
consolidation.
8
<PAGE> 9
INGRAM MICRO INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(DOLLARS IN 000S, EXCEPT PER SHARE DATA)
Financial information by geographic segments is as follows:
<TABLE>
<CAPTION>
THIRTEEN WEEKS ENDED
APRIL 1, APRIL 3,
2000 1999
---- ----
<S> <C> <C>
NET SALES:
United States
Sales to unaffiliated customers $ 4,588,295 $ 4,137,414
Transfers between geographic areas 41,888 37,417
Europe 2,044,532 1,747,289
Other international 1,163,523 840,572
Eliminations (41,888) (37,417)
----------- -----------
Total $ 7,796,350 $ 6,725,275
=========== ===========
INCOME FROM OPERATIONS:
United States $ 49,450 $ 65,617
Europe 14,521 10,336
Other international 6,560 9,558
----------- -----------
Total $ 70,531 $ 85,511
=========== ===========
IDENTIFIABLE ASSETS:
United States $ 4,905,210 $ 4,143,630
Europe 1,465,511 1,721,697
Other international 876,433 941,622
----------- -----------
Total $ 7,247,154 $ 6,806,949
=========== ===========
CAPITAL EXPENDITURES:
United States $ 24,749 $ 20,522
Europe 6,899 1,160
Other international 4,563 1,316
----------- -----------
Total $ 36,211 $ 22,998
=========== ===========
DEPRECIATION AND AMORTIZATION:
United States $ 15,226 $ 12,992
Europe 5,746 4,604
Other international 4,999 4,307
----------- -----------
Total $ 25,971 $ 21,903
=========== ===========
</TABLE>
9
<PAGE> 10
INGRAM MICRO INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(DOLLARS IN 000S, EXCEPT PER SHARE DATA)
NOTE 7 - REORGANIZATION COSTS
During 1999, the Company initiated a reorganization plan primarily in the
U.S., but also in Europe. In connection with this reorganization plan, the
Company recorded a charge of $20,305 for the fiscal year ended January 1, 2000
($6,234 in the first quarter of 1999). The 1999 reorganization charge included
$12,322 in employee termination benefits for approximately 597 employees, $6,381
for the write-off of software used in the production of unbranded systems,
$1,284 for closing and consolidation of redundant facilities relating primarily
to excess lease costs net of estimated sublease income, net of adjustments, and
$318 for other costs associated with the reorganization, net of adjustments.
These initiatives were substantially completed at January 1, 2000.
At January 1, 2000, the outstanding liability under this reorganization
plan was approximately $2,320. The payment activities during the first quarter
of 2000 are summarized as follows:
<TABLE>
<CAPTION>
AMOUNTS PAID
OUTSTANDING AND CHARGED REMAINING
LIABILITY AT AGAINST THE LIABILITY AT
JANUARY 1, 2000 LIABILITY ADJUSTMENTS APRIL 1, 2000
--------------- --------- ----------- -------------
<S> <C> <C> <C> <C>
Employee termination benefits $1,708 $ 612 $ -- $1,096
Facility costs 612 105 -- 507
------ ------ ------ ------
Total $2,320 $ 717 $ -- $1,603
====== ====== ====== ======
</TABLE>
NOTE 8 - NEW ACCOUNTING STANDARDS
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities" ("FAS 133"). FAS 133 establishes accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts (collectively referred to as
derivatives), and for hedging activities. FAS 133 was updated by the issuance of
Statement of Financial Accounting Standards No. 137, "Accounting for Derivative
Instruments and Hedging Activities - Deferral of the Effective Date of FAS No.
133" and is effective for the Company in fiscal 2001. The Company does not
expect the adoption of FAS 133 to have a material impact on its reported
consolidated financial condition or results of operations.
10
<PAGE> 11
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
In evaluating the business of Ingram Micro, readers should carefully
consider the important factors discussed in Exhibit 99.01 to the Company's
Annual Report on Form 10-K for the fiscal year ended January 1, 2000 and
"Cautionary Statements for the Purpose of the Safe Harbor Provisions of the
Private Securities Litigation Reform Act of 1995."
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>
THIRTEEN WEEKS ENDED
APRIL 1, APRIL 3,
2000 1999
---- ----
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C>
Net sales by geographic region:
United States $4,588 58.9% $4,137 61.5%
Europe 2,045 26.2 1,747 26.0
Other international 1,163 14.9 841 12.5
---------------- ----------------
Total $7,796 100.0% $6,725 100.0%
================ ================
</TABLE>
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
THIRTEEN WEEKS
ENDED
APRIL 1, APRIL 3,
2000 1999
-------- --------
<S> <C> <C>
Net sales 100.0% 100.0%
Cost of sales 95.3 94.7
----- -----
Gross profit 4.7 5.3
Expenses:
SG&A expenses 3.8 4.0
Reorganization costs 0.0 0.0
----- -----
Income from operations 0.9 1.3
Other (income) expense, net (1.0) 0.4
----- -----
Income before income taxes and extraordinary item 1.9 0.9
Provision for income taxes 0.7 0.3
----- -----
Income before extraordinary item 1.2 0.6
Extraordinary gain on repurchase of debentures,
net of income taxes 0.0 0.0
----- -----
Net income 1.2% 0.6%
===== =====
</TABLE>
THIRTEEN WEEKS ENDED APRIL 1, 2000 COMPARED TO THIRTEEN WEEKS ENDED APRIL 3,
1999
Consolidated net sales increased 15.9% to $7.80 billion for the thirteen
weeks ended April 1, 2000 (or "first quarter of 2000") from $6.73 billion for
the thirteen weeks ended April 3, 1999 (or "first quarter of 1999"). The
increase in worldwide net sales was primarily attributable to the addition of
new customers, increased sales to the existing customer base, and expansion of
the Company's product and service offerings.
Net sales from U.S. operations increased 10.9% to $4.59 billion in the
first quarter of 2000 from $4.14 billion in the first quarter of 1999 primarily
due to growth of the Company's ongoing business. Net sales from European
operations increased 17.0% to $2.04 billion in the first quarter of 2000 from
$1.75 billion in the first quarter of 1999 primarily due to the overall growth
in the Company's existing European operations. This growth was partially offset
by the impact of weakening European currencies as compared to the U.S. dollar.
For geographic regions
11
<PAGE> 12
MANAGEMENT'S DISCUSSION AND ANALYSIS CONTINUED
outside the U.S. and Europe, net sales increased 38.4% to $1.16 billion in the
first quarter of 2000 from $840.6 million in the first quarter of 1999 primarily
due to growth in the Company's Latin American and Asia Pacific operations. The
Company's Canadian operations, however, experienced relatively flat sales as
compared to the prior year primarily due to a softness in demand for technology
products and services in the Canadian market for the first quarter of 2000, and
less than anticipated purchases by the Canadian government during the first
quarter of 2000. The Canadian government purchases are generally strong in the
first quarter of each year as this coincides with the Canadian government's
fiscal year-end.
Gross profit, as a percentage of net sales, decreased to 4.7% in the first
quarter of 2000 from 5.3% in the first quarter of 1999. The decline in the gross
profit percentage was primarily due to changes in vendor terms and conditions
largely related to reductions in vendor rebates and incentives which were
aggravated by intense price competition in the U.S., Canada and the larger
countries in Europe, and to a lesser extent, tighter restrictions on the
Company's ability to return inventory to vendors and reduced time periods
qualifying for price protection. The Company expects these competitive pricing
pressures and the restrictive terms and conditions to continue for the
foreseeable future. The Company is implementing and continually refining changes
to its pricing strategies, inventory management processes and administration of
vendor subsidized programs. In addition, the Company continues to change certain
of the terms and conditions offered to its customers to reflect those being
imposed by its vendors. The Company believes that these plans will help mitigate
the impact of these changes in vendor terms and conditions and intense price
competition. However, there can be no assurance that the Company will not
continue to be impacted by the changes in vendor terms and conditions and
intense price competition.
Total SG&A expenses increased 10.5% to $295.7 million in the first quarter
of 2000 from $267.5 million in the first quarter of 1999, but decreased as a
percentage of net sales to 3.79% in the first quarter of 2000 from 3.98% in the
first quarter of 1999. The increase in SG&A spending was attributable to
increased expenses required to support the expansion of the Company's business.
Expenses related to expansion consist of incremental personnel and support
costs, lease expense related to new operating facilities, and the expenses
associated with the development and maintenance of information systems. The
overall decrease in SG&A expenses as a percentage of net sales is attributable
to economies of scale from greater sales volume, continued cost-control measures
and the Company's reorganization efforts in 1999.
In the first quarter of 1999, the Company recorded a charge of $6.2 million
related primarily to reorganization efforts in the U.S. The Company did not
incur any reorganization charges in the first quarter of 2000.
Income from operations, excluding reorganization costs, decreased as a
percentage of net sales to 0.9% in the first quarter of 2000 from 1.4% in the
first quarter of 1999. The decrease in income from operations, excluding
reorganization costs, as a percentage of net sales is primarily due to the
decrease in gross profit as a percentage of net sales as described above. U.S.
income from operations, excluding reorganization costs, as a percentage of net
sales decreased to 1.1% in the first quarter of 2000 from 1.7% in the first
quarter of 1999. European income from operations, excluding reorganization
costs, as a percentage of net sales increased to 0.7% in the first quarter of
2000 compared to income from operations of 0.6% in the first quarter of 1999
primarily due to a decrease in SG&A expenses as a percentage of net sales which
exceeded the reduction in gross profit as a percentage of net sales. For
geographic regions outside the U.S. and Europe, income from operations,
excluding reorganization costs, as a percentage of net sales decreased to 0.6%
in the first quarter of 2000 as compared to 1.1% in the first quarter of 1999.
Income from operations, including reorganization costs, as a percentage of net
sales decreased to 0.9% in the first quarter of 2000 from 1.3% in the first
quarter of 1999.
Other (income) expense consisted primarily of interest, foreign currency
exchange losses, gain on sale of available-for-sale securities and miscellaneous
non-operating expenses. For the first quarter of 2000, the Company recorded net
other income of $81.4 million, or 1.0% as a percentage of net sales, as compared
to net other expense of $24.4 million for the first quarter of 1999, or 0.4% as
a percentage of net sales in 1999. The increase in other income over the first
quarter of 1999 is primarily attributable to the gain realized on the sale of
Softbank common stock, partially offset by an increase in interest and other
expenses. In January 2000, the Company sold 148,600 shares or approximately 15%
of its original holdings in Softbank common stock for a pre-tax gain of
approximately $111.5 million, net of related costs. The increase in other
expenses is attributable primarily to an increase in the amount of accounts
receivable securitization fees and interest expense, as well as to other
miscellaneous non-operating expenses.
12
<PAGE> 13
MANAGEMENT'S DISCUSSION AND ANALYSIS CONTINUED
The provision for income taxes, excluding extraordinary items, increased
155.7% to $58.0 million in the first quarter of 2000 from $22.7 million in the
first quarter of 1999, reflecting the 148.5% increase in the Company's income
before income taxes. The Company's effective tax rate was 38.1% in the first
quarter of 2000 compared to 37.1% in the first quarter of 1999. The increase in
the current quarter effective tax rate is primarily attributable to the
proportion of income earned within the various taxing jurisdictions and tax
rates applicable to such taxing jurisdictions.
In the first quarters of 2000 and 1999, the Company repurchased Zero Coupon
Convertible Senior Debentures with carrying values of $46.6 million and $56.5
million, respectively, for approximately $43.2 million and $50.3 million,
respectively. The debenture repurchases resulted in extraordinary gains of $2.1
million and $3.8 million (net of taxes of $1.3 million and $2.4 million,
respectively), for the thirteen weeks ended April 1, 2000 and April 3, 1999,
respectively.
QUARTERLY DATA; SEASONALITY
The Company's quarterly operating results have fluctuated 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;
competitive conditions including pricing; variation in the amount of provisions
for excess and obsolete inventory, vendor sponsored programs and doubtful
accounts; changes in the level of operating expenses; the impact of
acquisitions; the introduction of new hardware and software technologies and
products and services offering improved features and functionality by the
Company and its competitors; the loss or consolidation of a significant supplier
or customer; product supply constraints; interest rate fluctuations; currency
fluctuations; and general economic conditions. The Company's narrow operating
margins may magnify the impact of these factors on the Company's operating
results. 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 (except in the
first quarter of 2000 as explained above), and worldwide pre-holiday stocking in
the retail channel during the September-to-November period. In addition, the
product cycle of major products may materially impact the Company's business,
financial condition, or results of operations.
LIQUIDITY AND CAPITAL RESOURCES
Cash Flows
The Company has financed its growth and cash needs largely through income
from operations, borrowings, trade and supplier credit, its initial public stock
offering in November 1996, the issuance of its Zero Coupon Convertible Senior
Debentures in June 1998, and the sale of Softbank common stock in December 1999
and January 2000.
Net cash provided by operating activities was $211.6 million in the first
quarter of 2000 as compared to $628.3 million in the first quarter of 1999. The
decrease in cash provided by operating activities was primarily attributable to
a reduction in trade creditor financing of product inventory as compared to the
first quarter of 1999.
Net cash provided by investing activities was $74.6 million in the first
quarter of 2000 compared to cash used by investing activities of $247.6 million
in the first quarter of 1999. The net cash provided by investing activities in
the first quarter of 2000 primarily resulted from the sale of available-for-sale
securities, which provided cash proceeds of approximately $119.2 million,
partially offset by capital expenditures. The net cash used by investing
activities in the first quarter of 1999 was primarily due to the acquisition of
Electronic Resources, Ltd. in the Asia Pacific region.
Net cash used by financing activities was $304.3 million in the first
quarter of 2000 compared to $373.4 million in the first quarter of 1999. Net
cash used by financing activities in the first quarter of 2000 was primarily due
to the repurchase of the convertible debentures of $43.2 million, the net
decrease in borrowings under the revolving credit facilities and other debt
primarily resulting from the use of the proceeds received from the sale of
Softbank common stock to repay indebtedness, as well as to the continued focus
on working capital management. Net cash used by financing activities in 1999 was
primarily due to the repurchase of the convertible debentures of $50.3 million
and the net decrease in borrowings under the revolving credit facilities and
other debt. The repayments in the first quarter of 1999 were made possible
through the Company's management of trade debtors and trade
13
<PAGE> 14
MANAGEMENT'S DISCUSSION AND ANALYSIS CONTINUED
creditors.
Capital Resources
The Company has three credit facilities with bank syndicates providing an
aggregate availability of $1.65 billion. Under these credit facilities, the
Company is required to comply with certain financial covenants, including
minimum tangible net worth, restrictions on funded debt and interest coverage.
The credit facilities also restrict the amount of dividends the Company can pay
as well as the amount of common stock that the Company can repurchase annually.
Borrowings are subject to the satisfaction of customary conditions, including
the absence of any material adverse change in the Company's business or
financial condition. At April 1, 2000, the Company had $223.2 million in
outstanding borrowings under these credit facilities.
The Company has an arrangement pursuant to which certain U.S. trade
accounts receivable of the Company are transferred to a trust, which in turn has
sold certificates representing undivided interests in the total pool of trade
receivables without recourse. The trust has issued fixed-rate medium-term
certificates and variable rate certificates to support a commercial paper
program, resulting in a reduction of accounts receivable on the Company's
consolidated financial statements. In March 2000, the Company completed a new
5-year accounts receivable securitization program, which provides for the
issuance of up to $700 million in commercial paper. At April 1, 2000 and January
1, 2000, the amount of medium-term certificates outstanding totaled $75,000 at
both dates and the amount of commercial paper outstanding at April 1, 2000 and
January 1, 2000 totaled $50,000 and $0, respectively.
The Company also has certain other facilities relating to accounts
receivable in Europe and Canada. Under these programs, the Company has sold
approximately $250,000 and $188,000 of trade accounts receivable in the
aggregate at April 1, 2000 and January 1, 2000, respectively, resulting in a
further reduction of trade accounts receivable in the Company's Consolidated
Balance Sheet.
The aggregate amount of trade accounts receivable sold as of April 1, 2000
and January 1, 2000 totaled approximately $375,000 and $263,000, respectively.
Proceeds from these accounts receivable facilities are generally used to repay
existing indebtedness. The Company believes that there are sufficient trade
accounts receivable to support the outstanding medium-term certificates, the new
U.S. commercial paper program and the European and Canadian facilities.
On June 9, 1998, the Company sold $1.33 billion aggregate principal amount
at maturity of its Zero Coupon Convertible Senior Debentures due 2018 in a
private placement. The Company has subsequently registered the resale of these
debentures with the SEC. Gross proceeds from the offering were $460.4 million.
The debentures were sold at an issue price of $346.18 per $1,000 principal
amount at maturity (representing a yield to maturity of 5.375% per annum), and
are convertible into shares of the Company's Class A Common Stock at a rate of
5.495 shares per $1,000 principal amount at maturity, subject to adjustment
under certain circumstances. In the first quarters of 2000 and 1999, the Company
repurchased Zero Coupon Convertible Senior Debentures with carrying values of
$46.6 million and $56.5 million, respectively, for approximately $43.2 million
and $50.3 million, respectively. The debenture repurchases resulted in
extraordinary gains of $2.1 million and $3.8 million (net of taxes of $1.3
million and $2.4 million, respectively), for the thirteen weeks ended April 1,
2000 and April 3, 1999, respectively.
The debentures are currently convertible into approximately 5.7 million
shares of the Company's Class A Common Stock. The debentures are redeemable at
the option of the Company on or after June 9, 2003 at the issue price plus
accrued original issue discount to the date of redemption. Each debenture is
subject to repurchase at the option of the holder, as of June 9, 2001, June 9,
2003, June 9, 2008, and June 9, 2013, or if there is a Fundamental Change (as
defined), at the issue price plus accrued original issue discount to the date of
the redemption. In the event of a repurchase at the option of the holder (other
than upon a Fundamental Change), the Company may, at its option, satisfy the
redemption in cash or Class A Common Stock, or any combination thereof. In the
case of any such repurchase as of June 9, 2001, the Company may elect, in lieu
of the payment of cash or Class A Common Stock, to satisfy the redemption by the
issuance of new Zero Coupon Convertible Senior Debentures due 2018.
The Company and its foreign subsidiaries have additional lines of credit,
commercial paper, and short-term overdraft facilities with various banks
worldwide, which provide for borrowings aggregating $795.9 million at April 1,
2000. Most of these arrangements are on an uncommitted basis and are reviewed
periodically for renewal. At
14
<PAGE> 15
MANAGEMENT'S DISCUSSION AND ANALYSIS CONTINUED
April 1, 2000, the Company had $424.1 million outstanding under these
facilities.
The Company believes that cash provided by operating activities,
supplemented as necessary with funds available under credit arrangements
(including the $1.65 billion in credit facilities, the June 1998 sale of the
Company's convertible debentures and the Company's facilities relating to
accounts receivable), will provide sufficient resources to meet its present and
future working capital and cash requirements for at least the next 12 months.
EURO CONVERSION
On January 1, 1999, a single currency called the euro was introduced in
Europe. Eleven of the 15 member countries of the European Union adopted the euro
as their common legal currency on that date. Fixed conversion rates between
these participating countries' existing currencies (the "legacy currencies") and
the euro were established as of that date. The legacy currencies are scheduled
to remain legal tender as denominations of the euro until at least January 1,
2002 (but not later than July 1, 2002). During this transition period, parties
may settle transactions using either the euro or a participating country's
legacy currency. Beginning in January 2002, new euro-denominated bills and coins
will be issued and legacy currencies will be withdrawn from circulation. The
Company has implemented plans to address the issues raised by the euro currency
conversion. These plans include, among others, the need to adapt computer
information systems and business processes and equipment to accommodate
euro-denominated transactions; the need to analyze the legal and contractual
implications on contracts; and the ability of the Company's customers and
vendors to accommodate euro-denominated transactions on a timely basis. Since
the implementation of the euro on January 1, 1999, the Company has experienced
improved efficiencies in its cash management program in Europe as all
intracompany transactions within participating countries are conducted in euros.
In addition, the Company has reduced hedging activities in Europe for
transactions conducted between euro participating countries. Since the Company's
information systems and processes generally accommodate multiple currencies, the
Company anticipates that modifications to its information systems, equipment and
processes will be made on a timely basis and does not expect any failures which
would have a material adverse effect on the Company's financial position or
results of operations or that the costs of such modifications will have a
material effect on the Company's financial position or results of operations.
The Company has not experienced any material adverse effects on its financial
position or results of operations in connection with the January 1, 1999 first
stage conversion.
NEW ACCOUNTING STANDARDS
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities" ("FAS 133"). FAS 133 establishes accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts (collectively referred to as
derivatives), and for hedging activities. FAS 133 was updated by the issuance of
Statement of Financial Accounting Standards No. 137, "Accounting for Derivative
Instruments and Hedging Activities - Deferral of the Effective Date of FAS No.
133" and is effective for the Company in fiscal 2001. The Company does not
expect the adoption of FAS 133 to have a material impact on its reported
consolidated financial condition or results of operations.
CAUTIONARY STATEMENTS FOR THE PURPOSE OF THE SAFE HARBOR PROVISIONS OF THE
PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
The matters in this Form 10-Q that are forward-looking statements are based
on current management expectations that involve certain risks, including without
limitation: intense competition; continued pricing and margin pressures; the
potential for continued restrictive vendor terms and conditions; the potential
decline as well as seasonal variations in demand for the Company's products;
unavailability of adequate capital; management of growth; reliability of
information systems; foreign currency fluctuations; dependency on key
individuals; product supply shortages; the potential termination of a supply
agreement with a major supplier; acquisitions; rapid product improvement and
technological change, and resulting obsolescence risks; risk of credit loss;
dependency on independent shipping companies; and the termination of subsidized
floor plan financing.
The Company has and continues to institute changes to its strategies,
operations and processes to address these risk factors and to mitigate their
impact on the Company's results of operations and financial condition. However,
15
<PAGE> 16
MANAGEMENT'S DISCUSSION AND ANALYSIS CONTINUED
no assurances can be given that the Company will be successful in these efforts.
For a further discussion of these and other significant factors to consider in
connection with forward-looking statements concerning the Company, reference is
made to Exhibit 99.01 of the Company's Annual Report on Form 10-K for the fiscal
year ended January 1, 2000; other risks or uncertainties may be detailed from
time to time in the Company's future SEC filings.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
16
<PAGE> 17
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Not applicable.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
Not applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
ITEM 5. OTHER INFORMATION
On March 6, 2000, the Company named Kent B. Foster chief executive officer
and president. He was also elected to Ingram Micro's board of directors. Jerre
L. Stead will remain chairman of the board until his retirement at the Company's
annual meeting of shareowners in May 2000, at which time Mr. Foster will succeed
him as chairman.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits
<TABLE>
No. Description
--- -----------
<S> <C>
27 Financial Data Schedule
</TABLE>
b) Reports on Form 8-K
No reports on Form 8-K were filed by the Company during the thirteen weeks
ended April 1, 2000.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
INGRAM MICRO INC.
By: /s/ Michael J. Grainger
-------------------------------------
Name: Michael J. Grainger
Title: Executive Vice President and Worldwide
Chief Financial Officer
(Principal Financial Officer and
Principal Accounting Officer)
May 16, 2000
17
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-30-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> APR-01-2000
<CASH> 106,507
<SECURITIES> 0
<RECEIVABLES> 2,829,518
<ALLOWANCES> 94,423
<INVENTORY> 2,720,125
<CURRENT-ASSETS> 5,952,077
<PP&E> 569,813
<DEPRECIATION> (237,208)
<TOTAL-ASSETS> 7,247,154
<CURRENT-LIABILITIES> 3,925,007
<BONDS> 398,033
0
0
<COMMON> 1,449
<OTHER-SE> 1,957,145
<TOTAL-LIABILITY-AND-EQUITY> 7,247,154
<SALES> 7,796,350
<TOTAL-REVENUES> 7,796,350
<CGS> 7,430,154
<TOTAL-COSTS> 7,725,819
<OTHER-EXPENSES> (106,942)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 26,860
<INCOME-PRETAX> 151,980
<INCOME-TAX> 57,976
<INCOME-CONTINUING> 94,004
<DISCONTINUED> 0
<EXTRAORDINARY> 2,129
<CHANGES> 0
<NET-INCOME> 96,133
<EPS-BASIC> .66
<EPS-DILUTED> .65
</TABLE>
