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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
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(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED JANUARY 3, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM _______________ TO ________________.
COMMISSION FILE NUMBER: 1-12203
INGRAM MICRO INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 62-1644402
(STATE OR OTHER JURISDICTION OF INCORPORATION (I.R.S. EMPLOYER IDENTIFICATION NO.)
OR ORGANIZATION)
1600 E. ST. ANDREW PLACE, SANTA ANA, CALIFORNIA 92799-5125
(ADDRESS, INCLUDING ZIP CODE, OF PRINCIPAL EXECUTIVE OFFICES)
(714) 566-1000
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
CLASS A COMMON STOCK, PAR VALUE $.01 PER SHARE
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The aggregate market value of the voting stock held by non-affiliates of
the Registrant at March 6, 1998 was $1,955,612,055 based on the closing sale
price on such date of $36.625.
The Registrant had 38,074,224 shares of Class A Common Stock, par value
$.01 per share, and 99,714,672 shares of Class B Common Stock, par value $.01
per share, outstanding at March 6, 1998.
DOCUMENTS INCORPORATED BY REFERENCE:
Portions of the Annual Report to Shareowners for the fiscal year ended
January 3, 1998 are incorporated by reference into Parts I and II of this Annual
Report on Form 10-K. Portions of the Proxy Statement for the Registrant's Annual
Meeting of Shareowners to be held May 6, 1998 are incorporated by reference into
Part III of this Annual Report on Form 10-K.
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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 computer-based technology
products and services worldwide. The Company markets microcomputer hardware,
networking equipment, and software products to more than 100,000 reseller
customers in more than 120 countries. As a wholesale distributor, the Company
markets its products to resellers as opposed to marketing directly to end-user
customers.
Ingram Micro offers one-stop shopping to its reseller customers by
providing a comprehensive inventory, which in the aggregate on a global basis,
consists of more than 145,000 products (as measured by distinct manufacturer's
part numbers) from over 1,400 suppliers, including most of the microcomputer
industry's leading hardware manufacturers, networking equipment suppliers, and
software publishers. The Company's broad product offerings include: desktop and
notebook PCs, servers, and workstations; mass storage devices; CD-ROM drives;
monitors; printers; scanners; modems; networking hubs, routers, and switches;
network interface cards; business application software; entertainment software;
and computer supplies. In addition, to enhance sales and to support its
suppliers and reseller customers, the Company provides a wide range of
outsourcing and value-added programs, such as order fulfillment, tailored
financing programs, channel assembly, systems configuration, and marketing
programs.
Ingram Micro entered the master reseller business in late 1994 with the
launch of Ingram Alliance. The Company further expanded its master reseller
business by acquiring Intelligent Electronics, Inc.'s Reseller Network Division
("RND") in July 1997 and integrating RND into Ingram Alliance. The Company's
master reseller business is designed to offer resellers access to the industry's
leading hardware manufacturers at competitive prices by utilizing a lower cost
business model that depends upon a higher average order size, lower product
returns percentage, and supplier-paid financing. The Company's success in its
master reseller business has, to a large degree, been attributable to its
ability to leverage Ingram Micro's distribution infrastructure and capitalize on
strong supplier relationships. In addition, a substantial majority of the
Company's master reseller sales are funded by floor plan financing companies
whose fees are subsidized by the Company's suppliers. The Company typically
receives payment from these financing institutions within three business days
from the date of the sale, allowing the Company's master reseller business to
operate at much lower relative working capital levels than the Company's
wholesale distribution business.
The Company is focused on providing a broad range of products and services,
quick and efficient order fulfillment, and consistent on-time and accurate
delivery to its reseller customers around the world. The Company believes that
IMpulse, the Company's on-line information system, provides a competitive
advantage through real-time worldwide information access and processing
capabilities. IMpulse is a single, standardized, real-time information system
and operating environment, used across substantially all of the Company's
worldwide operations. This on-line information system, coupled with the
Company's exacting operating procedures in telesales, credit support, customer
service, purchasing, technical support, and warehouse operations, enables the
Company to provide its reseller customers with superior service in an efficient
and low cost manner.
The Company's earliest predecessor began business in 1979 as a California
corporation named Micro D, Inc. This company and its parent, Ingram Micro
Holdings Inc. ("Holdings"), grew through a series of acquisitions, mergers, and
internal growth to encompass the Company's current operations. Ingram Micro Inc.
was incorporated in Delaware on April 29, 1996, in order to effect the
reincorporation of the Company in Delaware. The successor to Micro D, Inc. and
Holdings were merged into Ingram Micro Inc. in October 1996.
In November 1996, the Company completed the sale of 23,200,000 shares of
its Class A Common Stock pursuant to an initial public offering (the "IPO") at
an offering price of $18.00 per share. Cash proceeds of the offering totaled
$393.8 million, net of underwriters' discounts and expenses of the offering, of
which approximately $366.3 million were used to repay indebtedness to its then
parent, Ingram Industries Inc.
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("Ingram Industries"). The remaining proceeds of the offering, amounting to
$27.5 million, were used for working capital purposes. Immediately prior to the
closing of the IPO, the Company was split-off from Ingram Industries in a
tax-free reorganization (the "Split-Off").
THE INDUSTRY
The worldwide microcomputer products distribution industry generally
consists of suppliers, which sell directly to wholesalers, resellers, and
end-users; wholesale distributors, which sell to resellers; and resellers, which
sell to other resellers and directly to end-users. A variety of reseller
categories exists, including corporate resellers, value-added resellers or
"VARs," systems integrators, original equipment manufacturers, direct marketers,
independent dealers, owner-operated chains, franchise chains, and computer
retailers. Different types of resellers are defined and distinguished by the
end-user market they serve, such as large corporate accounts, small and
medium-sized businesses, or home users, and by the level of value they add to
the basic products they sell. Wholesale distributors generally sell only to
resellers and purchase a wide range of products in bulk directly from
manufacturers. Different wholesale distribution models have evolved in
particular countries and geographies depending on the characteristics of the
local reseller environment, as well as other factors specific to a particular
country or region.
The growth of the microcomputer products wholesale distribution industry
continues to exceed that of the microcomputer industry as a whole. Faced with
the pressures of declining product prices and the increasing costs of selling
direct to a large and diverse group of resellers, suppliers are increasingly
relying upon wholesale distribution channels for a greater proportion of their
sales. To minimize costs and focus on their core capabilities in manufacturing,
product development, and marketing, many suppliers are also outsourcing an
increasing portion of certain functions such as distribution, service, technical
support, and final assembly to the wholesale distribution channel. Growing
product complexity, shorter product life cycles, and an increasing number of
microcomputer products due to the emergence of open systems architectures and
the recognition of certain industry standards have led resellers to depend on
wholesale distributors for more of their product, marketing, and technical
support needs. In addition, resellers are relying to an increasing extent on
wholesale distributors for inventory management and credit to avoid stocking
large inventories and maintaining credit lines to finance their working capital
needs. The Company believes that new opportunities for growth in the
microcomputer products wholesale distribution industry will emerge as new
product categories, such as computer telephone integration ("CTI") and the
digital video disc format, arise from the ongoing convergence of computing,
communications, and consumer electronics.
Markets outside the United States, which represent over half of the
microcomputer industry's sales, are characterized by a more fragmented wholesale
distribution channel than in the United States. Increasingly, suppliers and
resellers pursuing global growth are seeking wholesale distributors with
international sales and support capabilities. In addition, the microcomputer
products industry in certain international markets is less mature and growing
more rapidly than in the United States, and as such, international growth
opportunities for microcomputer wholesaler distributors are significant.
The evolution of open sourcing during the past several years is a
phenomenon specific to the U.S. microcomputer products wholesale distribution
market. Historically, branded computer systems from large suppliers such as
Apple Computer, Compaq Computer, Hewlett-Packard, and IBM were sold in the
United States only through authorized master resellers. Under this single
sourcing model, resellers were required to purchase these products exclusively
from one master reseller. Competitive pressures led some of the major computer
suppliers to authorize second sourcing, in which resellers may purchase a
supplier's product from a source other than their primary master reseller,
subject to certain restrictive terms and conditions (such as higher prices or
the elimination of floor planning subsidies). More recently, all major PC
manufacturers have authorized open sourcing, a model under which resellers can
purchase the supplier's product from any source on equal terms and conditions.
Open sourcing has blurred the distinction between wholesale distributors and
master resellers, which are increasingly able to serve the same reseller
customers, whereas previously master resellers had a captive reseller customer
base. The Company believes that open sourcing puts the largest and most
efficient distributors of microcomputer products, which provide the highest
value through superior service and pricing, in the best position to compete for
reseller customers.
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A number of emerging industry trends are providing new opportunities and
challenges for microcomputer distributors. Significant changes in the supply
chain process have led traditional suppliers to seek ways of outsourcing
component procurement and final product assembly, thereby reducing inventory
related costs and shortening time-to-market for their products. In turn, certain
distributors and large resellers are instituting channel assembly programs
wherein the distributor or large reseller, on behalf of suppliers, acquires
components and assembles and delivers products to the customer site. This
build-to-order model lowers finished goods inventory and the risks associated
with it. Another industry trend, the emergence of the Internet, provides
distributors an additional means to serve both suppliers and reseller customers
through the development and use of effective electronic commerce tools. The
growing presence and importance of such electronic commerce capabilities also
provides distributors with new business opportunities as new categories of
products, customers, and suppliers develop.
The dynamics of the microcomputer products wholesale distribution business
favor the largest distributors which have access to financing and are able to
achieve economies of scale, breadth of geographic coverage, and the strongest
vendor relationships. Consequently, the distributors with these characteristics
are tending to take share from smaller distributors as the industry undergoes a
process of consolidation. However, smaller high value-added niche distributors
may continue to compete successfully in the consolidated market. The need for
wholesale distributors to implement high volume/low cost operations on a
worldwide basis is continuing to grow due to ongoing price competition, the
increasing demand for value-added services, the realization of open sourcing,
the trend towards channel assembly, the increasing utilization of electronic
commerce, and the increasing globalization of the microcomputer products
industry. In summary, the microcomputer wholesale distribution industry is
growing rapidly while simultaneously consolidating, creating an industry
environment in which market share leadership and cost efficiency are of
paramount importance.
BUSINESS STRATEGY
All of the Company's strategic decisions and activities are guided by the
following Vision and Mission statements, which were formalized in January 1997:
OUR VISION. We will always exceed expectations . . . with every partner,
every day.
OUR MISSION. To maximize shareowner value by being the best distributor of
technology for the world.
In addition, the Company's values encourage teamwork, respect,
accountability, integrity and innovation.
The Company believes that it is the leading worldwide wholesale distributor
of computer-based technology products and services and that it has developed the
capabilities and scale of operations critical for long-term success in the
microcomputer products distribution industry.
The Company's strategy of offering a broad line of products and services
provides reseller customers with one-stop shopping. The Company generally is
able to purchase products in large quantities and to avail itself of special
purchase opportunities from a broad range of suppliers. This allows the Company
to take advantage of various discounts from its suppliers, which in turn enables
the Company to provide competitive pricing to its reseller customers. The
Company's global market presence provides suppliers with access to a broad base
of geographically dispersed resellers, serviced by the Company's extensive
network of distribution centers and support offices. The Company's size has
permitted it to attract highly qualified associates and increase investment in
personnel development and training. Also, the Company benefits from being able
to make large investments in information systems, warehousing systems, and
infrastructure. Further, the Company is able to spread the costs of these
investments across its worldwide operations.
The Company is pursuing a number of strategies to further enhance its
leadership position within the microcomputer marketplace. These include:
EXPAND WORLDWIDE MARKET COVERAGE. Ingram Micro is committed to extending
its already extensive worldwide market coverage through internal growth in all
markets in which it currently participates. In addition, the Company intends to
pursue acquisitions, joint ventures, and strategic relationships outside the
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United States in order to take advantage of growth opportunities and to leverage
its strong systems, infrastructure, and global management skills.
By providing greater worldwide market coverage, Ingram Micro also increases
the scale of its business, which results in more cost economies. In addition, as
it increases its global reach, the Company diversifies its business across
different markets, reducing its exposure to individual market downturns. In
1997, the Company made six acquisitions: Intelligent Electronic's RND (U.S.),
Computacion Tecnica, S.A. ("Computek") (Miami, Florida, Chile, Brazil, and
Peru), Latino Americana de Software Ltda. (Brazil), J & W Computer GmbH
(Germany, Switzerland, Austria, and France), TT Microtrading Oy (Finland), and
Tallgrass Technologies AS. (Norway). The Company also acquired a 21% interest in
Electronic Resources Ltd. ("Electronic Resources"), a leading distributor of
electronic components and computer peripherals in Asia. Electronic Resources, in
turn, acquired the Company's Singapore and Malaysian operations. The Company has
grown its operations outside the United States principally through acquisitions
and currently has operations or sales representatives in 23 countries including
Argentina, Brazil, Canada, Colombia, Chile, Ecuador, Japan, Mexico, Norway,
Peru, Switzerland, and most of the countries of the European Union. Through its
equity interest in Electronic Resources, the Company has distribution
capabilities in Australia, New Zealand and seven Asian countries: China, India,
Indonesia, Malaysia, Singapore, Thailand, and Vietnam. The Company believes that
it is the market share leader in the United States, Canada, and Mexico, the
third largest full-line distributor in Europe, and the second largest Pan-Latin
America distributor, based on publicly available data and management's knowledge
of the industry. The Company's objective is to achieve the number one market
share position in each of the markets in which it operates. In keeping with this
objective, Ingram Micro continues efforts aimed at maintaining a leadership
position in providing global technology solutions. The Company entered into an
alliance during 1997 with Allied Computing Services Ltd. (ACSL), an
international association of computer resellers in North America, Europe, and
Japan. This alliance with ACSL offers Ingram Micro's reseller partners a number
of strategic services on a global basis, including fulfillment of international
information technology bids and purchasing agreements, asset-management
consulting, worldwide terms and conditions, and international project
coordination with local implementation.
EXPLOIT INFORMATION SYSTEMS LEADERSHIP. Ingram Micro continually invests in
its information systems which are crucial in supporting the Company's growth and
its ability to maintain high service and performance levels. The Company has
developed a scalable, full-featured information system, IMpulse, which the
Company believes is critical to its ability to deliver worldwide, real-time
information to both suppliers and reseller customers. IMpulse is a single,
standardized information system, used across substantially all of the Company's
markets worldwide, that has been customized to suit local market requirements.
The Company believes that it is the only full-line wholesale distributor of
microcomputer products in the world with such a centralized global system.
The Company will continue to invest in the enhancement and expansion of its
systems to create additional applications and functionality including further
expansion in electronic links with reseller customers and suppliers to provide
better access to the Company's extensive database for pricing, product
availability, and technical information.
PROVIDE SUPERIOR EXECUTION FOR RESELLER CUSTOMERS. Ingram Micro continually
refines its systems and processes to provide superior execution and service to
reseller customers. The Company's electronic commerce capabilities have expanded
to include the Internet-based Electronic Catalog, In-Depth Library, and Auction
Block. In the United States, the Company has implemented CTI Technology, which
provides onscreen caller identification, abandoned call management capabilities,
and speed dialing to telesales associates. Also in the United States, the POWER
system provides improved response time to resellers' product returns and other
customer service requests. To support future customer requirements, the Company
continues to expand and upgrade its distribution network. For example, a new
600,000 square foot state-of-the-art distribution center in Millington,
Tennessee was opened in mid-1997. This distribution center is strategically
located near several major transportation hubs and benefits from lower regional
labor costs. The Company has also implemented formal systems for evaluating and
tracking key performance metrics such as responsiveness to customers, processing
accuracy, and order fulfillment. Ingram Micro uses these metrics as
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well as customer satisfaction surveys to measure improvements on all the key
elements that are believed to be important to the customer.
Ingram Micro strives to maintain high order fill rates by keeping extensive
supplies of product in its 33 distribution centers worldwide. In the United
States and Canada, the Company has implemented control systems and processes
referred to as Bulletproof Shipping, which include stock-keeping unit ("SKU")
bar coding for all products and on-line quality assurance methods. As a result
of this program, substantially all orders in the United States received by 5:00
p.m. are shipped on the same day, with highly accurate shipping performance.
A recent example of the Company's ability to provide superior execution for
its reseller customers was the Company's ability to respond to a strike against
an independent shipping company that the Company uses for delivery of a majority
of the Company's products to its customers in the United States. On August 4,
1997, members of the International Brotherhood of Teamsters began a nationwide
strike against United Parcel Service ("UPS"). Although this 2 1/2 week strike
materially impaired UPS' ability to perform shipping services required by the
Company within the United States, the Company was able to successfully shift all
of its U.S. shipments to other carriers, although on less favorable terms in
some cases. As a result of the successful execution of the Company's contingency
plans, and the teamwork among the Company's associates, outside vendors and
carriers, the Company was able to maintain outbound shipping at a near 100
percent service level, which the Company believes was a level unmatched by any
of the Company's competitors. In addition, the increased volume in U.S. sales
experienced by the Company during and immediately after the termination of the
strike reflected the Company's ability to meet shipping demands for customers
during the strike.
DELIVER WORLD-CLASS OUTSOURCING AND VALUE-ADDED PROGRAMS TO SUPPLIERS AND
RESELLERS. Ingram Micro is committed to providing a diverse range of value-added
wholesaling and "for fee" services to its supplier and reseller customers.
Together, these services are intended to link reseller customers and suppliers
to Ingram Micro as a one-stop provider of microcomputer products and related
services, while meeting demand by suppliers and resellers to outsource non-core
business activities and thereby lower their operating costs.
The Company's value-added wholesaling services include channel assembly
(assembly on behalf of either vendors or resellers and shipment of customized
finished systems to reseller customers), product configuration, pre- and
post-sale technical support, order fulfillment, financing programs, product demo
evaluation and on-site service and support. In the channel assembly area, the
Company currently assembles products on behalf of Acer, Compaq Computer, Digital
Equipment, IBM, and Hewlett-Packard.
In addition to these value-added wholesaling services, the Company offers a
variety of "for fee" services for its reseller customers and suppliers. These
services include: contract assembly and configuration, contract fulfillment,
contract warehousing, contract telesales, contract credit/accounts receivable
management, contract inventory management, and contract technical support for
customers. The Company is focused on identifying and developing services that
directly meet reseller customer and supplier needs.
MAINTAIN LOW COST LEADERSHIP THROUGH CONTINUOUS IMPROVEMENTS IN SYSTEMS AND
PROCESSES. The microcomputer products industry is characterized by intense
competition and narrow margins, and as a result, achieving economies of scale
and controlling operating expenses are critical to achieving and maintaining
profitable growth.
Over the last five years, the Company has been successful in reducing SG&A
expenses (including expenses allocated from Ingram Industries) as a percentage
of net sales, to 4.2% in 1997 from 5.6% in 1993. The Company has embarked on a
number of programs that are designed to continue to reduce operating expenses as
a percentage of net sales.
Many U.S. developed programs continue to be adapted for implementation in
the Company's international operations. These programs include: (i) the use of
advanced inventory processes and techniques; (ii) the use of proprietary
warehouse productivity programs, such as Bulletproof Shipping and Pick
Assignment; (iii) the enhancement of associates' productivity through the use of
technology such as CTI, and the expanded use of multimedia workstations for
functions such as Telesales; and (iv) the electronic
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automation of the ordering and information delivery process through electronic
commerce to decrease the number of non-order telesales calls. See
"-- Information Systems."
DEVELOP HUMAN RESOURCES FOR EXCELLENCE AND TO SUPPORT FUTURE GROWTH. Ingram
Micro's growth to date is a result of the talent, dedication, and teamwork of
its associates. Future growth and success will be substantially dependent upon
the retention and development of existing associates, as well as the recruitment
of superior talent.
Transferring functional skills and implementing cross-training programs
across all Ingram Micro locations have proven to be important factors in the
Company's growth and global expansion. In conjunction with these programs, the
Company intends to expand its human resource systems to provide enhanced career
planning, training support, applicant tracking, and benefits administration.
Also, the Company continues to seek top quality associates worldwide through
local, professional, and college recruiting programs. Recognizing that hiring
and retaining top talent hinges, in part, on providing a competitive salary and
benefits package, the Company is developing a global salary structure based on a
comprehensive review of competitive salaries and benefits by region.
The Company has also implemented a values-based management approach which
is guided by and links individual rewards and incentive programs to the
Company's values.
CUSTOMERS
Ingram Micro sells to more than 100,000 reseller customers in more than 120
countries worldwide. No single customer accounted for more than 4% of Ingram
Micro's net sales in 1997, 1996, or 1995.
The Company conducts business with most of the leading resellers of
microcomputer products around the world including, in the United States, CDW
Computer Centers, Catalink, CompuCom, CompUSA, Computer City, Connected
Resources, Electronic Data Systems, En Pointe Technologies, Entex Information
Services, GE Capital Information Technologies Solutions, Insight, Micro
Warehouse, Office Max, PC Connection, Staples, and Vanstar. The Company's
reseller customers outside the United States include 06-Software Centre Europe,
B.V., Complet Data A/S, Compugen Systems Ltd., Consultores en Diagnostico
Organizacional y de Sistemas, DSG Retail Ltd., Future Shop, GE Capital
Technologies, Jump Ordenadores, London Drugs, Maxima S.A., Norsk Datasenter,
Owell Svenska AB, Redes de Micros, SHL Systemhouse, SNI Siemens Nixdorf Infosys
AG, Soluciones Integrales, and TC Sistema S.p.A. The Company has certain limited
contracts with its reseller customers, although most such contracts have a short
term, or are terminable at will, and have no minimum purchase requirements. The
Company's business is not substantially dependent on any such contracts.
SALES AND MARKETING
Ingram Micro's telesales department is comprised of approximately 2,000
telesales representatives worldwide, of whom more than 1,050 representatives are
located in the United States. These telesales representatives assist resellers
with product specifications, system configuration, new product/service
introductions, pricing, and availability. The Company's two main United States
telesales centers are located in Santa Ana, California and Williamsville
(Buffalo), New York and are supported by an extensive national field sales
organization. Currently, Ingram Micro has more than 210 field sales
representatives worldwide, including more than 75 in the United States.
The sales organization is organized to focus on resellers who address the
VAR (consisting of value-added resellers, system integrators, network
integrators, application VARs, original equipment manufacturers and Internet
service providers), Commercial (consisting of corporate resellers, direct
marketers, independent dealers and owner-operated chains), Consumer (consisting
of consumer electronics stores, computer superstores, mass merchants, office
product superstores, software only stores and warehouse clubs), and
Telecommunications (consisting of telephone companies, telecommunications
contractors and interconnect value-added resellers) market sectors. In addition,
the Company utilizes a variety of product-focused groups specializing in
specific product types. Specialists in mass storage, memory, networks,
processors, telephony,
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UNIX workstations and servers, and other product categories promote sales growth
and facilitate customer contacts for their particular product group. Ingram
Micro also offers a variety of marketing programs tailored to meet specific
supplier and reseller customer needs. Services provided by the Company's
in-house marketing services group include advertising, direct mail campaigns,
market research, on-line marketing, retail programs, sales promotions, training,
and assistance with trade shows and other events.
PRODUCTS AND SUPPLIERS
Ingram Micro believes that it has the largest inventory of products in the
industry, based on a review of publicly available data with respect to its major
competitors. The Company distributes and markets more than 145,000 products from
the industry's premier microcomputer hardware manufacturers, networking
equipment suppliers, and software publishers worldwide. Product assortments vary
by market, and the relative importance of manufacturers to Ingram Micro varies
from country to country. On a worldwide basis, the Company's sales mix is more
heavily weighted toward hardware products and networking equipment than software
products. Net sales of software products have decreased as a percentage of total
net sales in recent years due to a number of factors, including bundling of
software with microcomputers; sales growth in Ingram Alliance, which is a
hardware-only business; declines in software prices; and the emergence of
alternative means of software distribution, such as site licenses and electronic
distribution. The Company believes that this is a trend that applies to the
microcomputer products distribution industry as a whole, and the Company expects
it to continue. See Item 7. -- Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Overview.
Ingram Micro's worldwide supplier list includes almost all of the leading
microcomputer hardware manufacturers, networking equipment manufacturers, and
software publishers such as Acer, Apple Computer, Cisco Systems, Compaq
Computer, Corel, Epson, Hewlett-Packard, IBM, Intel, Iomega, Microsoft, NEC,
Novell, Seagate, Sun Microsystems, Symantec, 3Com, Toshiba, Viewsonic, and
Western Digital.
The Company's suppliers generally warrant the products distributed by the
Company and allow the Company to return defective products, including those that
have been returned to the Company by its customers. The Company does not
independently warrant the products it distributes; however, the Company has
recently begun to warrant the following: (i) its services with regard to
products which it configures for its customers, and (ii) products which it
builds to order from components purchased from other sources.
The Company's business, like that of other wholesale distributors, is
subject to the risk that the value of its inventory will be affected adversely
by suppliers' price reductions or by technological changes affecting the
usefulness or desirability of the products comprising the inventory. It is the
policy of most suppliers of microcomputer products to protect distributors, such
as the Company, who purchase directly from such suppliers, from the loss in
value of inventory due to technological change or the supplier's price
reductions. However, major PC suppliers have stated that it is their intent to
reduce the amount of inventory in the channel, particularly in light of the
growth of channel assembly strategies. Consequently, if major PC suppliers
substantially decrease the availability of price protection to wholesale
distributors, such change in policy could have a material adverse effect on the
Company's financial condition and results of operations.
The Company has written distribution agreements with many of its suppliers;
however, these agreements usually provide for nonexclusive distribution rights
and often include territorial restrictions that limit the countries in which
Ingram Micro is permitted to distribute the products. The agreements are also
generally short term, subject to periodic renewal, and often contain provisions
permitting termination by either party without cause upon relatively short
notice. The Company does not believe that its business is substantially
dependent on the terms of any such agreements. Under the terms of many
distribution agreements, suppliers will credit the distributor for declines in
inventory value resulting from the supplier's price reductions if the
distributor complies with certain conditions. In addition, under many such
agreements, the distributor has the right to return for credit or exchange for
other products a portion of those inventory items purchased, within a designated
period of time. A supplier who elects to terminate a distribution agreement
generally will repurchase from the distributor the supplier's products carried
in the distributor's inventory.
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While the industry practices discussed above are sometimes not embodied in
written agreements and do not protect the Company in all cases from declines in
inventory value, management believes that these practices provide a significant
level of protection from such declines. No assurance can be given, however, that
such practices will continue or that they will adequately protect the Company
against declines in inventory value. The Company's risk of inventory loss could
be greater outside the United States, where agreements with suppliers are more
restrictive with regard to price protection and the Company's ability to return
unsold inventory. The Company establishes reserves for estimated losses due to
obsolete inventory in the normal course of business. Historically, the Company
has not experienced losses due to obsolete inventory materially in excess of
established inventory reserves.
OUTSOURCING AND VALUE-ADDED PROGRAMS
Ingram Micro offers a myriad of programs and services to its suppliers and
reseller customers as an integral part of its wholesaling efforts. The Company
categorizes these services into value-added wholesale distribution and "for fee"
services. Together, these services are intended to link reseller customers and
suppliers to Ingram Micro as a one-stop provider of microcomputer products and
related services, while meeting demand by suppliers and resellers to outsource
non-core business activities and thereby lower their operating costs.
The Company's value-added wholesaling services are an important complement
to its distribution activities and include pre- and post-sale technical support,
order fulfillment, financing programs, product demo evaluation, and on-site
service and support.
In addition to these value-added wholesaling services, the Company offers a
variety of "for fee" services for its reseller customers and suppliers. These
services include: contract warehousing, contract telesales, contract
credit/accounts receivable management, contract inventory management, and
contract technical support for customers. The Company is focused on identifying
and developing services that directly meet reseller customer and supplier needs.
All of these services are currently available in the Company's U.S.
operations. The degree of implementation of these value-added services in Ingram
Micro's operations outside the United States varies depending on particular
market circumstances. Although the Company believes that value-added services
are important as a complement to its core business, such services do not, and
are not in the future expected to, generate a material percentage of the
Company's net sales. See "-- Frameworks Total Integration Services" below. In
addition, such value-added services do not, and are not in the future expected
to, require a material portion of the Company's resources.
FRAMEWORKS TOTAL INTEGRATION SERVICES
To better serve both global and regional customers, the Company introduced
Frameworks Total Integration Services ("Frameworks"), a worldwide channel
assembly and configuration initiative that is anticipated to deliver customized,
fully tested computer systems to its reseller customers. Frameworks is designed
to provide fast, flexible build-to-order capabilities including custom
configuration capabilities, competitive pricing on OEM components to facilitate
assembly and configuration efforts by the Company's reseller customers, and
drop-ship functionality. In addition, Frameworks' material planning systems and
just-in-time procurement are designed to enable Ingram Micro to ship components
and finished systems within three to five days of order. The Company plans to
sell the assembled systems and products to all customer sectors, including
Consumer, Commercial and VAR customers. To support this global initiative, the
Company opened a new 488,470 square foot global integration center in Memphis,
Tennessee in March 1998.
INFORMATION SYSTEMS
The Company's core information system, IMpulse, is central to its ability
to provide superior execution to its customers, and as such, the Company
believes that it represents an important competitive advantage.
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Ingram Micro's systems are primarily mainframe-based in order to provide
the high level of scalability and performance required to manage such a large
and complex business operation. IMpulse is a single, standardized, real-time
information system and operating environment, used across substantially all of
the Company's worldwide operations. It has been customized as necessary for use
in almost all countries in which the Company operates and has the capability to
handle multiple languages and currencies. On a daily basis, the Company's
systems typically handle 34 million on-line transactions, 51,000 orders, and
123,000 shipments. The Company has designed IMpulse as a scalable system that
has the capability to support increased transaction volume. The overall on-line
response time for the Company's network of over 13,000 user stations (terminals,
printers, personal computers, and radio frequency hand held terminals) is less
than one second.
Worldwide, Ingram Micro's centralized processing system supports more than
40 operational functions including receiving, customer management, order
processing, shipping, inventory management, and accounting. At the core of the
IMpulse system is on-line, real-time distribution software to which considerable
enhancements and modifications have been made to support the Company's growth
and its low cost business model. The Company makes extensive use of advanced
telecommunications technologies with customer service-enhancing features, such
as Automatic Call Distribution to route customer calls to the telesales
representatives. The Telesales Department relies on its Sales Wizard system for
on-line, real-time tracking of all customer calls, for proactive outbound
calling, and for status reports on sales statistics such as number of customer
calls, customer call intentions, and total sales generated. IMpulse allows the
Company's telesales representatives to deliver real-time information on product
pricing, inventory, availability, and order status to reseller customers. The
Sales Adjusted Gross Profit (SAGP) pricing system enables telesales
representatives to make informed pricing decisions through access to specific
product and order-related costs for each order.
In the United States, the Company has implemented CTI technology, which
provides the telesales representatives with Automatic Number Identification
capability and advanced telecommunications features such as on-screen call
waiting and automatic call return, thereby reducing the time required to process
customer orders.
To complement Ingram Micro's telesales, customer service, and technical
support capabilities, IMpulse offers a number of different electronic products
and services through which customers can conduct business with the Company, such
as the Customer Automated Purchasing System (CAPS), Electronic Data Interchange
(EDI), the Bulletin Board Service, and the Ingram Micro Web site. The Company's
latest additions to its electronic commerce capabilities are its Internet-based
Electronic Catalog, In-Depth Library, and Auction Block. The Electronic Catalog
provides reseller customers with real-time access to product pricing and
availability, with the capability to search by product category, name, or
manufacturer. The In-Depth Library is a comprehensive multi-manufacturer
database of timely and accurate product, sales, marketing, and technical
information, which is updated nightly for new information. Auction Block is a
real-time, on-line bidding service that allows reseller customers to
competitively bid on unopened products that are not returnable to the suppliers
(e.g., discontinued products, products with cosmetic damage to their packaging,
returned products not conforming to supplier's return policies, etc.).
The Company's warehouse operations use extensive bar-coding technology and
radio frequency technology for receiving and shipping, and real-time links to
UPS and FedEx for freight processing and shipment tracking. The Customer Service
Department uses the POWER System for on-line documentation and faster processing
of customer product returns. To ensure that adequate inventory levels are
maintained, the Company's buyers depend on the Purchasing system to track
inventory on a continual basis. Many other features of IMpulse help to expedite
the order processing cycle and reduce operating costs for the Company as well as
its reseller customers and suppliers.
The Company employs various security measures and backup systems designed
to protect against unauthorized use or failure of its information systems.
Access to the Company's information systems is controlled through the use of
passwords and additional security measures are taken with respect to especially
sensitive information. The Company has a five year contract with Sungard
Recovery Services for disaster recovery and twice per year performs a complete
systems test, including applications and database integrity. In
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addition, the Company has backup power sources for emergency power and also has
the capability to automatically reroute incoming calls, such as from its Santa
Ana (West Coast sales) facility to its Buffalo (East Coast sales) facility. The
Company has not in the past experienced significant failures or downtime of
IMpulse or any of its other information systems, but any such failure or
significant downtime could prevent the Company from taking customer orders,
printing product pick-lists, and/or shipping product and could prevent customers
from accessing price and product availability information from the Company.
As is the case with many computer software systems, some of the Company's
systems use two digit data fields which recognize dates using the assumption
that the first two digits are "19" (i.e., the number 97 is recognized as the
year 1997). Therefore, the Company's date critical functions relating to the
year 2000 and beyond, such as sales, distribution, purchasing, inventory
control, facilities, and financial systems, may be severely affected unless
changes are made to these computer systems. With the assistance of an outside
consultant, the Company commenced a review of the Company's internal systems in
mid-1997 to identify applications that are not Year 2000 ready and to assess the
impact of the Year 2000 problem. The Company has developed an overall plan and a
systematic process to modify its internal systems to be Year 2000 ready. The
Company commenced remediation of its mainframe programs in early 1998 to comply
with Year 2000 requirements. The Company anticipates that the other required
Year 2000 modifications will be made on a timely basis and does not believe that
the cost of such modifications will have a material effect on the Company's
operating results. However, the Company faces risks to the extent that suppliers
of products (including components for its channel assembly and configuration
initiative), services (including services provided by independent shipping
companies), and business on a worldwide basis may not have business systems or
products that comply with Year 2000 requirements. In the event any such third
parties cannot provide the Company with products, services or systems that meet
Year 2000 requirements in a timely manner, the Company's operating results could
be materially adversely affected. Furthermore, there can be no assurance that
these or other factors relating to Year 2000 compliance issues, including
litigation, will not have a material adverse effect on the Company's business,
operating results or financial condition.
NON-U.S. OPERATIONS AND EXPORT SALES
OPERATIONS OUTSIDE THE UNITED STATES. The Company, through its
subsidiaries, operates in a number of countries outside of the United States,
including Brazil, Canada, Chile, Mexico, Norway, Peru, Switzerland, and most
countries of the European Union. In 1997, 1996, and 1995, 30.8%, 33.0%, and
32.3%, respectively, of the Company's net sales were derived from operations
outside of the United States. The Company expects its international net sales to
increase as a percentage of total net sales in the future, due to organic growth
as well as growth from acquisitions such as that of Computek in Latin America.
In addition, the Company purchased a minority interest in Electronic Resources,
a distributor of information technology products in the Asia-Pacific region. The
Company's net sales from operations outside the United States are primarily
denominated in currencies other than the U.S. dollar. Accordingly, the Company's
operations outside the United States impose risks upon its business as a result
of exchange rate fluctuations. Although the Company attempts to mitigate the
effect of exchange rate fluctuations on its business, primarily by attempting to
match the currencies of sales and costs, as well as through the use of foreign
currency borrowings and derivative financial instruments such as forward
exchange contracts, the Company does not seek to remove all risk associated with
such fluctuations. Accordingly, there can be no assurance that exchange rate
fluctuations will not have a material adverse effect on the Company's business,
financial condition, or results of operations in the future. In certain
countries outside the United States, operations are accounted for primarily on a
U.S. dollar denominated basis. In the event of an unexpected devaluation of the
local currency in those countries (as occurred in Mexico in December 1994 and
more recently in 1997 in Asia and Latin America), the Company may experience
significant foreign exchange losses. See Item 7. -- Management's Discussion and
Analysis of Financial Condition and Results of Operations.
The Company's operations outside the United States are subject to other
risks such as the imposition of governmental controls, export license
requirements, restrictions on the export of certain technology, political
instability, trade restrictions, tariff changes, difficulties in staffing and
managing international operations, difficulties in collecting accounts
receivable and longer collection periods, and the impact of local economic
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conditions and practices. These risks are more prevalent in regions where the
economic and political environments are less stable than in more stable areas
such as Canada and Western Europe. As the Company continues to expand its
international business, its success will be dependent, in part, on its ability
to anticipate and effectively manage these and other risks. There can be no
assurance that these and other factors will not have a material adverse effect
on the Company's operations or its business, financial condition, and results of
operations as a whole.
EXPORT MARKETS. The Company's Export operations continue to serve those
markets where the Company does not have a stand-alone, in-country presence. The
Miami, Florida; Santa Ana, California; and Brussels, Belgium Export operations
(which have been reorganized as part of the Latin America, U.S. and European
operations, respectively) serve more than 2,500 resellers in over 100 countries.
In addition, the Export branch in Latin America has field sales representatives
based in Buenos Aires, Argentina; Bogota, Colombia; and Quito, Ecuador. The
Export branch in Santa Ana also has field sales representatives based in Tokyo,
Japan.
For segment information regarding the Company's United States and
international operations, see Note 10 of Notes to Consolidated Financial
Statements.
COMPETITION
The Company operates in a highly competitive environment, both in the
United States and internationally. The microcomputer products distribution
industry is characterized by intense competition, based primarily on price,
product availability, speed and accuracy of delivery, effectiveness of sales and
marketing programs, credit availability, ability to tailor specific solutions to
customer needs, quality and breadth of product lines and service, and
availability of technical and product information. The Company believes it
competes favorably with respect to each of these factors. In addition, the
Company believes that outsourcing and value-added capabilities (such as channel
assembly, configuration, innovative financing programs, and order fulfillment
program) will become more important competitive factors.
The Company is constantly seeking to expand its business into areas closely
related to its core microcomputer products distribution business. As the Company
enters new business areas, it may encounter increased competition from current
competitors and/or from new competitors, some of which may be current customers
of the Company. For example, the Company intends to distribute media in the new
digital video disc format and may compete with traditional music and printed
media distributors. Also, as electronic purchases of software become more
prevalent in the industry, electronic software distributors may become
significant competitors of the Company. In addition, certain services the
Company provides may directly compete with those provided by the Company's
reseller customers. There can be no assurance that increased competition and
adverse reaction from customers resulting from the Company's expansion into new
business areas will not have a material adverse effect on the Company's
business, financial condition, or results of operations.
Ingram Micro's U.S. competitors include full-line distributors Tech Data
and Merisel, as well as specialty distributors such as Arrow Electronics (a
worldwide industrial electronics distributor), Avnet, Access Graphics (a G.E.
Capital company), SYNNEX Information Technologies, and SED International. The
principal competitors to the Ingram Alliance program include MicroAge, Datago
(operated by SYNNEX), Inacom, and Tech Data Elect, a division of Tech Data.
Ingram Micro competes internationally with a variety of national and regional
distributors. European competitors include international distributors such as
Computer 2000 (owned by German conglomerate Viag AG), CHS Electronics, and Tech
Data (Softmart and Macrotron), and several regional and local distributors,
including Actebis, Scribona, and Metrologie. In Canada, Ingram Micro competes
with Merisel, Globelle, Beamscope, and Tech Data. In Mexico, Ingram Dicom is the
leading distributor, competing with such companies as MPS, CHS Electronics,
Dataflux and Intertec. In November 1997 Ingram Micro expanded its reach into
other Latin American markets by acquiring the distribution firm Computek. As a
result, Ingram Micro competes in Latin America with international distributors
including CHS Electronics, Computer 2000, Tech Data, and several regional and
local distributors including Sonda-Beamscope S.A. In the Asia Pacific market,
Ingram Micro (through a minority interest in Electronic Resources) faces both
regional and local competitors, of whom the largest are
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Tech Pacific, a subsidiary of Hagemeyer, which operates in more than five Asian
markets, and SIS Distribution Ltd., a Hong Kong-based distributor of
microcomputer products.
Ingram Micro also competes with hardware manufacturers and software
publishers that sell directly to reseller customers and end-users.
ASSET MANAGEMENT
The Company maintains sufficient quantities of product inventories to
achieve high order fill rates. The Company believes that the risks associated
with slow moving and obsolete inventory are substantially mitigated by price
protection and stock return privileges provided by suppliers. In the event of a
supplier price reduction, the Company generally receives a credit for products
in its inventory. In addition, the Company has the right to return a certain
percentage of purchases, subject to certain limitations. Historically, price
protection, stock return privileges, and inventory management procedures have
helped to reduce the risk of decline in the value of inventory. However, major
PC suppliers have stated that it is their intention to reduce the amount of
inventory in the channel, particularly in light of the growth of channel
assembly strategies. Consequently, if major PC suppliers substantially decrease
the availability of price protection to wholesale distributors, such change in
policy could have a material adverse effect on the Company's financial condition
and results of operations. The Company's risk of decline in the value of
inventory could be greater outside the United States, where agreements with
suppliers are more restrictive with regard to price protection and the Company's
ability to return unsold inventory. The Company establishes reserves for
estimated losses due to obsolete inventory in the normal course of business.
Historically, the Company has not experienced losses due to obsolete inventory
materially in excess of established inventory reserves. Inventory levels may
vary from period to period, due in part to the addition of new suppliers or new
lines with current suppliers and large cash purchases of inventory due to
advantageous terms offered by suppliers. In addition, payment terms with
inventory suppliers may vary from time to time, and could result in less
inventory being financed by vendors and a greater amount of inventory being
financed by the Company's debt.
The Company offers various credit terms to qualifying customers as well as
prepay, credit card, and COD terms. The Company closely monitors customers'
credit worthiness through its on-line computer system which contains detailed
information on each customer's payment history and other relevant information.
In addition, the Company participates in a national credit association which
exchanges credit rating information on customers of association members. In most
markets, the Company utilizes various levels of credit insurance to allow sales
expansion and control credit risks. The Company establishes reserves for
estimated credit losses in the normal course of business. Historically, the
Company has not experienced credit losses materially in excess of established
credit loss reserves. However, if the Company's receivables experience a
substantial deterioration in their collectibility or the Company cannot obtain
credit insurance at reasonable rates, the Company's financial condition and
results of operations may be adversely impacted.
EMPLOYEES
As of January 3, 1998, the Company had approximately 12,000 associates
located as follows: United States -- 7,526, Europe -- 2,697, all other
regions -- 1,788. Ingram Micro believes that its success depends on the skill
and dedication of its associates. The Company strives to attract, develop, and
retain outstanding personnel. Certain of the Company's operations in Europe,
Latin America and Canada are subject to collective bargaining or similar
arrangements. The Company considers its employee relations to be good.
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EXECUTIVE OFFICERS OF REGISTRANT
The following table sets forth certain information with respect to each
person who is an executive officer of the Company:
NAME AGE PRESENT AND PRIOR POSITIONS HELD(1) YEARS POSITIONS HELD
---- --- ----------------------------------- --------------------
Jerre L. Stead(2)......... 55 Chairman of the Board and Chief Aug. 1996 - Present
Executive Officer
Chief Executive Officer and Jan. 1995 - Aug. 1995
Chairman of the Board, Legent
Corporation, a software
development company
Executive Vice President, Chairman May 1993 - Dec. 1994
and Chief Executive Officer, AT&T
Corp. Global Information
Solutions (NCR Corp.), a computer
manufacturer
President and Chief Executive Sept. 1991 - Apr. 1993
Officer, AT&T Corp. Global
Business Communication Systems, a
communications company
Jeffrey R. Rodek(3)....... 44 President; Worldwide Chief Dec. 1994 - Present
Operating Officer
Senior Vice President, Americas and July 1991 - Sept. 1994
Caribbean, Federal Express, an
overnight courier firm
David R. Dukes(4)......... 54 Vice Chairman Apr. 1996 - Present
Chief Executive Officer, Ingram Jan. 1994 - Present
Alliance
Co-Chairman Jan. 1992 - Apr. 1996
Chief Operating Officer Sept. 1989 - Dec. 1993
President Sept. 1989 - Dec. 1991
Sanat K. Dutta............ 48 Executive Vice President; Oct. 1996 - Present
President, Ingram Micro U.S.
Executive Vice President Aug. 1994 - Oct. 1996
Senior Vice President, Operations May 1988 - Aug. 1994
Michael J. Grainger....... 45 Executive Vice President; Worldwide Oct. 1996 - Present
Chief Financial Officer
Chief Financial Officer May 1996 - Oct. 1996
Vice President and Controller, July 1990 - Oct. 1996
Ingram Industries
James E. Anderson, Jr..... 50 Senior Vice President, Secretary Jan. 1996 - Present
and General Counsel
Vice President, Secretary and Sept. 1991 - Nov. 1996
General Counsel, Ingram
Industries
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NAME AGE PRESENT AND PRIOR POSITIONS HELD(1) YEARS POSITIONS HELD
---- --- ----------------------------------- --------------------
David M. Carlson.......... 57 Senior Vice President, Chief Feb. 1997 - Present
Technology Officer
President, Consumer Focused Jan. 1996 - Feb. 1997
Technology, a consulting firm
Vice President, Technology and Mar. 1995 - Dec. 1995
Network Services, Florist
Transworld Delivery Corp.
Senior Vice President, Corporate July 1985 - Jan. 1995
Information Systems, K Mart
Corporation, a retail company
Philip D. Ellett.......... 43 Senior Vice President; President, May 1997 - Present
Ingram Micro Europe
Senior Vice President; Chief Jan. 1997 - April 1997
Operating Officer, Ingram Micro
Europe
Senior Vice President; General Jan. 1996 - Jan. 1997
Manager, U.S. Consumer Markets
Division
President, Gates/Arrow, an Aug. 1994 - Dec. 1995
electronics distributor
President and Chief Executive Oct. 1991 - Aug. 1994
Officer, Gates/F.A. Distributing,
Inc.
David M. Finley........... 57 Senior Vice President, Human July 1996 - Present
Resources, Worldwide
Senior Vice President, Human May 1995 - July 1996
Resources, Budget Rent a Car, a
car rental company
Vice President, Human Resources, Jan. 1977 - May 1995
The Southland Corporation, a
convenience retail company
James M. Kelly............ 61 Senior Vice President, Management Feb. 1991 - Present
Information Systems
Edward F. Pensel.......... 45 Senior Vice President, Global Oct. 1997 - Present
Configuration Operations
Vice President, Manufacturing, Data 1990 - Oct. 1997
General, a manufacturer of
servers and high-end storage
devices
- ---------------
(1) The first position and any other positions not given a separate corporate
identification are with the Company.
(2) Mr. Stead is a director of Armstrong World Industries, Inc., American
Precision Industries, Inc., and TJ International, Inc.
(3) Mr. Rodek is a director of Arbor Software and a member of its Compensation
Committee (since January 21, 1998).
(4) Mr. Dukes has been a director of Electronic Resources since December 1997.
Mr. Dukes recently announced his retirement to be effective at the close of
the Company's 1998 Annual Meeting of Shareowners on May 6, 1998.
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TRADEMARKS AND SERVICE MARKS
The Company owns or is the licensee of various trademarks and service
marks, including, among others, "Ingram Micro," "IMpulse," the Ingram Micro
logo, "Partnership America," "Leading the Way in Worldwide Distribution," and
"Frameworks Total Integration Services." Certain of these marks are registered,
or are in the process of being registered, in the United States and various
other countries. Even though the Company's marks may not be registered in every
country where the Company conducts business, in many cases the Company has
acquired rights in those marks because of its continued use of them. Management
believes that the value of the Company's marks is increasing with the
development of its business, but that the business of the Company as a whole is
not materially dependent on such marks.
SAFE HARBOR FOR FORWARD-LOOKING INFORMATION
The Private Securities Litigation Reform Act of 1995 (the "Act") provides a
"safe harbor" for "forward-looking statements" to encourage companies to provide
prospective information, so long as such information is identified as
forward-looking and is accompanied by meaningful cautionary statements
identifying important factors that could cause actual results to differ
materially from those discussed in the statement. Except for historical
information, certain statements contained in this Annual Report on Form 10-K may
be "forward-looking statements" within the meaning of the Act. In order to take
advantage of the "safe harbor" provisions of the Act, the Company identifies the
following important factors which could affect the Company's actual results and
cause such results to differ materially from those projected, forecasted,
estimated, budgeted or otherwise expressed by the Company in forward-looking
statements made by or on behalf of the Company:
(1) Intense competition may lead to reduced prices and lower gross margins.
(2) The Company's narrow margins magnify the impact on operating results of
variations in operating costs. A number of factors may reduce the
Company's margins even further. For example, if the Company's
receivables experience a substantial deterioration in their
collectibility or the Company cannot obtain credit insurance at
reasonable rates, the Company's financial condition and results of
operations may be adversely impacted.
(3) Seasonal variations in the demand for products and services, as well as
the introduction of new products, may cause variations in the Company's
quarterly results.
(4) The availability (or lack thereof) of capital on acceptable terms may
hamper the Company in its efforts to fund its increasing working
capital needs.
(5) The failure of the Company to adequately manage its growth may
adversely impact the Company's results of operations.
(6) A failure of the Company's information systems may adversely impact the
Company's results of operations.
(7) Devaluation of a foreign currency, or other disruption of a foreign
market, may adversely impact the Company's operations in that country.
(8) The loss of a key executive officer or other key employee may adversely
impact the Company's operations.
(9) The inability of the Company to obtain products on favorable terms may
adversely impact the Company's results of operations.
(10) The Company's operations may be adversely impacted by an acquisition
that (i) is not suited for the Company, (ii) is improperly executed,
or (iii) substantially increases the Company's debt.
(11) The Company's financial condition may be adversely impacted by a
decline in value of a portion of the Company's inventory.
(12) The failure of certain shipping companies to deliver product to the
Company, or from the Company to its customers, may adversely impact
the Company's results of operations.
(13) Rapid technological change may alter the market for the Company's
products and services, requiring the Company to anticipate such
technological changes, to the extent possible.
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(14) The failure of the Company or its vendors, resellers, customers,
shipping companies, and other third party systems to achieve
substantial Year 2000 compliance may adversely impact the Company's
financial condition and results of operations.
(15) If the Company's inventory suppliers terminate or substantially reduce
the subsidies relating to floor planning financing for the Company's
master reseller business, such change in policy could have a material
adverse effect on the Company's financial condition and results of
operations.
Reference is made to Exhibit 99.01 hereto for additional discussion of the
foregoing factors, as well as additional factors which may affect the Company's
actual results and cause such results to differ materially from those projected,
forecasted, estimated, budgeted or otherwise expressed in forward-looking
statements.
ITEM 2. PROPERTIES
Ingram Micro's worldwide executive headquarters, as well as its West Coast
sales and support offices, are located in a three-building office complex in
Santa Ana, California. The Company also maintains an East Coast operations
center in Williamsville (Buffalo), New York.
The Company operates seven distribution centers in the continental United
States located in Carrollton, Texas, Chicago, Illinois, Fremont, California,
Fullerton, California, Harrisburg, Pennsylvania, Millington, Tennessee, and
Miami, Florida. The Company also operates 26 international distribution centers
located in Brazil, Canada, Chile, Mexico, Norway, Peru, and most countries of
the European Union.
The Company opened a new 488,470 square foot global integration center in
Memphis, Tennessee in March 1998. The Company also operates a consolidation
center in Fremont, California, and three returns centers in North America, two
in Santa Ana, California and one in Ontario, Canada.
All of the Company's facilities are leased, with the exception of the Santa
Ana campus, the Brussels, Belgium office and the distribution centers in
Harrisburg, Pennsylvania and Roncq, France. These leases have varying terms. The
Company does not anticipate any material difficulty in renewing any of its
leases as they expire or securing replacement facilities, in each case on
commercially reasonable terms. In addition, the Company owns two undeveloped
properties in Santa Ana, California totaling approximately 16.27 acres.
ITEM 3. LEGAL PROCEEDINGS
There are no material pending legal proceedings to which the Company is a
party or to which any of its property is subject.
As a result of an internal review by the Company of export shipments made
from its United States distribution facilities, the Company has determined that
certain of these shipments and related documentation were not in compliance with
U.S. export regulations. The Company has notified the appropriate federal
government agencies pursuant to applicable voluntary self disclosure procedures.
The reported shipments consisted of modems and other telecommunications products
and shrink-wrapped, commercial software readily available through normal retail
outlets which contained encryption features controlled under export regulations.
These shipments had a total value of approximately $673,240. Violations of
export laws and regulations are subject to both civil and criminal penalties,
including in appropriate circumstances suspension or loss of export privileges.
The Company is not able to estimate at this time the amount or nature of
penalties, if any, that might be sought against the Company as a result of the
reported violations; however, penalties to which the Company potentially may be
subject could be material.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted during the fourth quarter of the fiscal year
covered by this report to a vote of security holders, through the solicitation
of proxies or otherwise.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
As of March 6, 1998, there were 509 holders of record of the Class A Common
Stock and 169 holders of record of the Class B Common Stock. The Company
believes that there are approximately 22,000 beneficial holders of the Class A
Common Stock.
Information as to the Company's quarterly stock prices is included on page
44 of the Company's 1997 Annual Report to Shareowners, which is included as part
of Exhibit 13.01 and is incorporated in this Annual Report on Form 10-K.
Information as to the principal market on which the Class A Common Stock is
traded is included on page 44 of the Company's 1997 Annual Report to
Shareowners, which is included as part of Exhibit 13.01 and is incorporated in
this Annual Report on Form 10-K.
DIVIDEND POLICY
The Company has never declared or paid any dividends on its Class A or
Class B Common Stock other than a distribution of $20 million to Ingram
Industries in connection with the Split-Off. The Company currently intends to
retain its future earnings to finance the growth and development of its business
and therefore does not anticipate declaring or paying cash dividends on its
Class A or Class B Common Stock for the foreseeable future. Any future decision
to declare or pay dividends will be at the discretion of the Board of Directors
and will be dependent upon the Company's financial condition, results of
operations, capital requirements, and such other factors as the Board of
Directors deems relevant. In addition, certain of the Company's debt facilities
contain restrictions on the declaration and payment of dividends.
ITEM 6. SELECTED FINANCIAL DATA
The selected financial information of Ingram Micro for the five year period
ended January 3, 1998 is included on page 14 of the Company's 1997 Annual Report
to Shareowners, which is included as part of Exhibit 13.01 and is incorporated
in this Annual Report on Form 10-K. It should be read in conjunction with the
consolidated financial statements included on pages 26 through 43 of the
Company's 1997 Annual Report to Shareowners which are also included as part of
Exhibit 13.01 and incorporated in this Annual Report on Form 10-K and the
financial statement schedule below in Item 14 of this Annual Report on Form
10-K.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Management's Discussion and Analysis of Financial Condition and Results of
Operations is included on pages 15 through 24 of the Company's 1997 Annual
Report to Shareowners, which are also included as part of Exhibit 13.01 and are
incorporated in this Annual Report on Form 10-K.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Company's consolidated financial statements are included on pages 25
through 43 of the Company's 1997 Annual Report to Shareowners, which are also
included as part of Exhibit 13.01 and incorporated in this Annual Report on Form
10-K. Reference is made to the Index to the Financial Statements in Item 14
below.
A financial statement schedule for the Company, and report thereon, are
included on pages 21 and 20, respectively, of this Annual Report on Form 10-K.
Reference is made to the Index to Financial Statements in Item 14 below.
ITEM 9.CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
There have been no changes in the Company's independent accountants or
disagreements with such accountants on accounting principles or practices or
financial statement disclosures.
18
19
PART III
Information regarding executive officers required by Item 401 of Regulation
S-K is furnished in a separate disclosure in Part I of this report because the
Company will not furnish such information in its definitive Proxy Statement
prepared in accordance with Schedule 14A.
The Notice and Proxy Statement for the 1998 Annual Meeting of Shareowners,
to be filed pursuant to Regulation 14A under the Securities Exchange Act of
1934, as amended, which is incorporated by reference in this Annual Report on
Form 10-K pursuant to General Instruction G(3) of Form 10-K, will provide the
remaining information required under Part III (Items 10, 11, 12, and 13).
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) 1. The consolidated financial statements, together with the report thereon
of Price Waterhouse LLP dated February 17, 1998, all appearing on pages 25
through 43 in the 1997 Annual Report to Shareowners, are incorporated in this
Annual Report on Form 10-K. With the exception of the aforementioned information
and the information incorporated in Items 5, 6, 7, and 8, the 1997 Annual Report
to Shareowners is not deemed filed as part of this Annual Report on Form 10-K.
PAGE NO. IN
ANNUAL REPORT
INGRAM MICRO INC. TO SHAREOWNERS
----------------- --------------
Index to Financial Information.............................. 13
Consolidated Balance Sheet at January 3, 1998 and December
28, 1996.................................................. 26
Consolidated Statement of Income for the years ended January
3, 1998, December 28, 1996, and December 30, 1995......... 27
Consolidated Statement of Stockholders' Equity for the years
ended January 3, 1998, December 28, 1996, and December 30,
1995...................................................... 28
Consolidated Statement of Cash Flows for the years ended
January 3, 1998, December 28, 1996, and December 30,
1995...................................................... 29
Notes to Consolidated Financial Statements.................. 30-43
Report of Independent Accountants........................... 25
Pages 13 through 44 of the 1997 Annual Report to Shareowners of Ingram
Micro Inc. include the Selected Financial Data, Management's Discussion and
Analysis of Financial Condition and Results of Operations, the Consolidated
Financial Statements and related notes thereto, the Independent Accountants'
Report, Shareholder Information and Quarterly Stock Prices. These pages are
filed with the Securities and Exchange Commission as Exhibit 13.01 to this
Annual Report on Form 10-K.
2. Financial Statement Schedules:
Report of Independent Accountants on Financial Statement Schedule
Schedule II -- Valuation and Qualifying Accounts
3. List of Exhibits:
EXHIBIT
NO.
-------
3.01 -- Form of Certificate of Incorporation of the Registrant
(incorporated by reference to Exhibit 3.01 to the Company's
Registration Statement on Form S-1 (File No. 333-08453) (the
"IPO S-1"))
3.02 -- Amended and Restated Bylaws of the Registrant
10.01 -- Ingram Micro Inc. Executive Incentive Bonus Plan
(incorporated by reference to Exhibit 10.01 to the IPO S-1)
10.02 -- Ingram Micro Inc. Management Incentive Bonus Plan
(incorporated by reference to Exhibit 10.02 to the IPO S-1)
19
20
EXHIBIT
NO.
-------
10.03 -- Ingram Micro Inc. General Employee Incentive Bonus Plan
(incorporated by reference to Exhibit 10.03 to the IPO S-1)
10.04 -- Agreement dated as of December 21, 1994 between the Company
and Jeffrey R. Rodek (incorporated by reference to Exhibit
10.04 to the IPO S-1)
10.05 -- Agreement dated as of April 25, 1988 between the Company and
Sanat K. Dutta (incorporated by reference to Exhibit 10.05
to the IPO S-1)
10.06 -- Amendment No. 1 to the Ingram Micro Inc. Amended and
Restated 1996 Equity Incentive Plan
10.07 -- Ingram Micro Inc. Rollover Stock Option Plan (incorporated
by reference to Exhibit 10.07 to the IPO S-1)
10.08 -- Ingram Micro Inc. Key Employee Stock Purchase Plan
(incorporated by reference to Exhibit 10.08 to the IPO S-1)
10.09 -- Ingram Micro Inc. 1996 Equity Incentive Plan (incorporated
by reference to Exhibit 10.09 to the IPO S-1)
10.10 -- Ingram Micro Inc. Amended and Restated 1996 Equity Incentive
Plan (incorporated by reference to Exhibit 10.10 to the IPO
S-1)
10.11 -- Severance Agreement dated as of June 1, 1996 among the
Company, Ingram Industries, Linwood A. Lacy, Jr., and
NationsBank, N.A., as trustee of the Linwood A. Lacy, Jr.
1996 Irrevocable Trust dated February 1996 (incorporated by
reference to Exhibit 10.11 to the IPO S-1)
10.12 -- Credit Agreement dated as of October 30, 1996 among the
Company and Ingram European Coordination Center N.V., Ingram
Micro Singapore Pte Ltd., and Ingram Micro Inc., as
Borrowers and Guarantors, certain financial institutions, as
the Lenders, NationsBank of Texas, N.A., as Administrative
Agent for the Lenders and The Bank of Nova Scotia as
Documentation Agent for the Lenders (incorporated by
reference to Exhibit 10.12 to the Company's Registration
Statement on Form S-1 (File No. 333-16667) (the "Thrift Plan
S-1"))
10.13 -- Amended and Restated Reorganization Agreement dated as of
October 17, 1996 among the Company, Ingram Industries, and
Ingram Entertainment (incorporated by reference to Exhibit
10.13 to the Thrift Plan S-1)
10.14 -- Registration Rights Agreement dated as of November 6, 1996
among the Company and the persons listed on the signature
pages thereof (incorporated by reference to Exhibit 10.14 to
the Thrift Plan S-1)
10.15 -- Board Representation Agreement dated as of November 6, 1996
(incorporated by reference to Exhibit 10.15 to the Thrift
Plan S-1)
10.16 -- Thrift Plan Liquidity Agreement dated as of November 6, 1996
among the Company and the Ingram Thrift Plan (incorporated
by reference to Exhibit 10.16 to the Thrift Plan S-1)
10.17 -- Tax Sharing and Tax Services Agreement dated as November 6,
1996 among the Company, Ingram Industries, and Ingram
Entertainment (incorporated by reference to Exhibit 10.17 to
the Thrift Plan S-1)
10.18 -- Master Services Agreement dated as of November 6, 1996 among
the Company, Ingram Industries, and Ingram Entertainment
(incorporated by reference to Exhibit 10.18 to the Thrift
Plan S-1)
10.19 -- Employee Benefits Transfer and Assumption Agreement dated as
of November 6, 1996 among the Company, Ingram Industries,
and Ingram Entertainment (incorporated by reference to
Exhibit 10.19 to the Thrift Plan S-1)
20
21
EXHIBIT
NO.
-------
10.20 -- Data Center Services Agreement dated as of November 6, 1996
among the Company, Ingram Book Company, and Ingram
Entertainment Inc. (incorporated by reference to Exhibit
10.20 to the Thrift Plan S-1)
10.21 -- Amended and Restated Exchange Agreement dated as of November
6, 1996 among the Company, Ingram Industries, Ingram
Entertainment and the other parties thereto (incorporated by
reference to Exhibit 10.21 to the Thrift Plan S-1)
10.22 -- Agreement dated as of August 26, 1996 between the Company
and Jerre L. Stead (incorporated by reference to Exhibit
10.22 to the IPO S-1)
10.23 -- Definitions for Ingram Funding Master Trust Agreements
(incorporated by reference to Exhibit 10.23 to the IPO S-1)
10.24 -- Asset Purchase and Sale Agreement dated as of February 10,
1993 between Ingram Industries and Ingram Funding Inc.
(incorporated by reference to Exhibit 10.24 to the IPO S-1)
10.25 -- Pooling and Servicing Agreement dated as of February 10,
1993 among Ingram Funding, Ingram Industries and Chemical
Bank (incorporated by reference to Exhibit 10.25 to the IPO
S-1)
10.26 -- Amendment No. 1 to the Pooling and Servicing Agreement dated
as of February 12, 1993, the Asset Purchase and Sale
Agreement dated as of February 12, 1993, and the Liquidity
Agreement dated as of February 12, 1993 (incorporated by
reference to Exhibit 10.26 to the IPO S-1)
10.27 -- Certificate Purchase Agreement dated as of July 23, 1993
(incorporated by reference to Exhibit 10.27 to the IPO S-1)
10.28 -- Schedule of Certificate Purchase Agreements (incorporated by
reference to Exhibit 10.28 to the IPO S-1)
10.29 -- Series 1993-1 Supplement to Ingram Funding Master Trust
Pooling and Servicing Agreement dated as of July 23, 1993
(incorporated by reference to Exhibit 10.29 to the IPO S-1)
10.30 -- Schedule of Supplements to Ingram Funding Master Trust
Pooling and Servicing Agreement dated as of July 23, 1993
(incorporated by reference to Exhibit 10.30 to the IPO S-1)
10.31 -- Letter of Credit Reimbursement Agreement dated as of
February 10, 1993 (incorporated by reference to Exhibit
10.31 to the IPO S-1)
10.32 -- Liquidity Agreement dated as of February 10, 1993
(incorporated by reference to Exhibit 10.32 to the IPO S-1)
10.33 -- Amendment No. 2 to the Pooling and Servicing Agreement dated
as of February 12, 1993, the Asset Purchase and Sale
Agreement dated as of February 12, 1993, and the Liquidity
Agreement dated as of February 12, 1993 (incorporated by
reference to Exhibit 10.33 to the IPO S-1)
10.34 -- Agreement dated as of October 10, 1996 between the Company
and Michael J. Grainger (incorporated by reference to
Exhibit 10.34 to the IPO S-1)
10.35 -- Form of Repurchase Agreement (incorporated by reference to
Exhibit 10.35 to the IPO S-1)
10.36 -- First Amendment to the Credit Agreement dated as of October
28, 1997 (incorporated by reference to Exhibit 10.36 to the
Company's Registration Statement on Form S-3 (File No.
333-39457) (the "Rollover/Thrift Plan S-3"))
10.37 -- European Credit Agreement dated as of October 28, 1997 among
the Company and Ingram European Coordination Center N.V., as
Borrowers and Guarantors, certain financial institutions, as
the Lenders, The Bank of Nova Scotia, as Administrative
Agent for the Lenders and NationsBank of Texas, N.A. as
Documentation Agent for the Lenders, as arranged by The Bank
of Nova Scotia and NationsBanc Capital Markets, Inc., as the
Arrangers (incorporated by reference to Exhibit 10.37 to the
Rollover/Thrift Plan S-3)
21
22
EXHIBIT
NO.
-------
10.38 -- Canadian Credit Agreement dated as of October 28, 1997 among
the Company and Ingram Micro Inc. (Canada), as Borrowers and
Guarantors, certain financial institutions, as the Lenders,
The Bank of Nova Scotia., as Administrative Agent for the
Lenders, Royal Bank of Canada as the Syndication Agent for
the Lenders, and Bank of Tokyo-Mitsubishi (Canada) as the
Co-Agent (incorporated by reference to Exhibit 10.38 to the
Rollover/Thrift Plan S-3)
13.01 -- Portions of Annual Report to Shareowners for the year ended
January 3, 1998
21.01 -- Subsidiaries of the Registrant
23.01 -- Consent of Independent Accountants regarding certain
Registration Statements on Form S-8
23.02 -- Consent of Independent Accountants regarding Registration
Statement on Form S-3
27.01 -- Financial Data Schedule (included in electronic version
only)
99.01 -- Cautionary Statements for Purposes of the "Safe Harbor"
Provisions of the Private Securities Litigation Reform Act
of 1995
(b) Reports on Form 8-K
No reports on Form 8-K have been filed during the three months ended
January 3, 1998.
22
23
REPORT OF INDEPENDENT ACCOUNTANTS ON
FINANCIAL STATEMENT SCHEDULE
To the Board of Directors
of Ingram Micro Inc.
Our audits of the consolidated financial statements referred to in our
report dated February 17, 1998 appearing in the 1997 Annual Report to
Shareowners of Ingram Micro Inc. (which report and consolidated financial
statements are incorporated by reference in this Annual Report on Form 10-K)
also included an audit of the Financial Statement Schedule listed in Item
14(a)(2) of this Form 10-K. In our opinion, this Financial Statement Schedule
presents fairly, in all material respects, the information set forth therein
when read in conjunction with the related consolidated financial statements.
Price Waterhouse LLP
Costa Mesa, California
February 17, 1998
23
24
INGRAM MICRO INC.
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
BALANCE AT CHARGED TO
BEGINNING COSTS AND BALANCE AT
DESCRIPTION OF YEAR EXPENSES DEDUCTIONS OTHER(*) END OF YEAR
----------- ---------- ---------- ---------- -------- -----------
Allowance for doubtful accounts
receivable & sales returns:
1997................................... $38,622 $31,652 $(27,102) $5,369 $48,541
1996................................... 30,791 28,619 (25,394) 4,606 38,622
1995................................... 25,668 24,168 (19,718) 673 30,791
Inventory obsolescence:
1997................................... $13,326 $21,524 $(20,201) $4,237 $18,886
1996................................... 12,245 13,836 (12,602) (153) 13,326
1995................................... 10,706 13,199 (11,867) 207 12,245
- ---------------
* Other includes recoveries, acquisitions and the effect of fluctuation in
foreign currency.
24
25
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934, THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON
ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED.
INGRAM MICRO INC.
By: /s/ JAMES E. ANDERSON, JR.
--------------------------------------
Name: James E. Anderson, Jr.
Title: Senior Vice President,
Secretary and General
Counsel
April 1, 1998
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS
REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE
REGISTRANT AND IN THE CAPACITIES AND ON THE DATES INDICATED.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ JERRE L. STEAD Chief Executive Officer April 1, 1998
- -------------------------------------------------------- (Principal Executive Officer),
Jerre L. Stead Chairman of the Board
/s/ MICHAEL J. GRAINGER Executive Vice President and April 1, 1998
- -------------------------------------------------------- Worldwide Chief Financial
Michael J. Grainger Officer (Principal Financial
Officer and Principal
Accounting Officer)
/s/ MARTHA R. INGRAM Director April 1, 1998
- --------------------------------------------------------
Martha R. Ingram
/s/ JOHN R. INGRAM Director April 1, 1998
- --------------------------------------------------------
John R. Ingram
/s/ DAVID B. INGRAM Director April 1, 1998
- --------------------------------------------------------
David B. Ingram
/s/ PHILIP M. PFEFFER Director April 1, 1998
- --------------------------------------------------------
Philip M. Pfeffer
/s/ DON H. DAVIS, JR. Director April 1, 1998
- --------------------------------------------------------
Don H. Davis, Jr.
/s/ J. PHILLIP SAMPER Director April 1, 1998
- --------------------------------------------------------
J. Phillip Samper
/s/ JOE B. WYATT Director April 1, 1998
- --------------------------------------------------------
Joe B. Wyatt
25