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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
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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
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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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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:
NAME AGE PRESENT AND PRIOR POSITIONS HELD(1) YEARS POSITIONS HELD
- ---- --- ----------------------------------- --------------------
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
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NAME AGE PRESENT AND PRIOR POSITIONS HELD(1) YEARS POSITIONS HELD
- ---- --- ----------------------------------- --------------------
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
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NAME AGE PRESENT AND PRIOR POSITIONS HELD(1) YEARS POSITIONS HELD
- ---- --- ----------------------------------- --------------------
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
- -----------------------------------
(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
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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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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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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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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.
INGRAM MICRO INC.
----------------- PAGE NO. IN
ANNUAL REPORT
TO SHAREHOLDERS
---------------
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
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
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3. List of Exhibits:
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)
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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.
(b) Reports on Form 8-K
No reports on Form 8-K have been filed during the three months ended
December 28, 1996.
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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
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INGRAM MICRO INC.
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
(in thousands)
Balance at Charged to Balance
beginning costs and at end of
Description of year expenses Deductions Other(*) year
- ----------- ----------- ---------- ---------- -------- ---------
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
- -------------------
* Other includes recoveries, acquisitions and the effect of fluctuations in
foreign currency.
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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.
SIGNATURE TITLE DATE
--------- ----- ----
/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
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