Ingram Micro 1999 Annual Report Download - page 23

1999 Compared to 1998
Consolidated net sales increased 27.4% to $28.1 billion in 1999 from $22.0 billion in 1998.The increase in worldwide net
sales was primarily attributable to the addition of new customers, increased sales to the existing customer base, and the expansion
of the Company’s product and service offerings. Net sales also increased as a result of the January 1999 acquisition of Electronic
Resources, Ltd. (“ERL”) in the Asia Pacific region and the July 1998 acquisition of Munich, Germany-based Macrotron AG
(“Macrotron”).
Net sales from U.S. operations increased 16.8% to $16.8 billion in 1999 from $14.4 billion in 1998 primarily due to growth
of its current business. Net sales from European operations increased 30.6% to $7.3 billion in 1999 from $5.6 billion in 1998 due
to the overall growth in the Company’s existing European operations and the acquisition of Macrotron in July 1998. For geographic
regions outside the U.S. and Europe, net sales increased 93.9% to $3.9 billion in 1999 from $2.0 billion in 1998 due to the acquisi-
tion of ERL and growth in the Company’s Canadian and Latin American operations.
Gross profit, as a percentage of net sales, decreased to 4.8% in 1999 from 6.3% in 1998.The significant decline in the gross
profit percentage was primarily due to reduced vendor rebates and incentives and intense price competition in the U.S. and in the
larger countries in Europe.The decline was exacerbated by excess capacity in the information technology products and services
distribution industry. In addition, during 1999, the Company recorded substantially higher expenses totaling approximately $94.8
million ($48.4 million for the fourth quarter of 1999) related to excess and obsolete inventory as compared to $26.1 million for
1998 ($10.8 million for the fourth quarter of 1998).The higher excess and obsolete inventory provisions primarily resulted from
the rapid changes experienced in the technology marketplace and the significant changes in vendor terms and conditions during
1999. Also in the fourth quarter of 1999, the Company recorded additional expenses to cost of sales totaling approximately $53.6
million related to estimated losses from vendor incentive and subsidy programs.The estimated losses on vendor incentive and
subsidy programs primarily originated from recent dramatic changes in the terms and conditions for reimbursements of customer
rebates and competitive price programs by the Company’s major personal computer suppliers.The majority of these higher
provisions related to inventory and vendor programs in the U.S. region with some in the European region.The Company is
implementing and continually refining changes to its pricing strategies, inventory management processes and administration of
vendor subsidized programs. In addition, the Company continues to change certain of the terms and conditions offered to its
customers to reflect those being imposed by its vendors.The Company believes these plans will help mitigate the impact of these
changes in vendor terms and conditions and intense price competition. However, there can be no assurance that the Company
will not continue to experience higher levels of these related expenses as compared to historical levels.
Total SG&A expenses increased 23.4% to $1.1 billion in 1999 from $904.6 million in 1998, but decreased as a percentage of
net sales to 4.0% in 1999 from 4.1% in 1998.The increase in SG&A spending was attributable in part to the acquisition of ERL in
January 1999, and the full-year impact of the acquisition of Macrotron in July 1998. In addition, during fiscal year 1999, the
Company recorded significantly higher bad debt expense of approximately $75.8 million or 0.27% as a percentage of net sales
($40.6 million for the fourth quarter of 1999) as compared to fiscal year 1998 expense of approximately $32.5 million or 0.15%
as a percentage of net sales ($11.7 million for the fourth quarter of 1998).The larger bad debt provision was primarily the result of
negotiations with several large customers primarily in the area of unauthorized product returns. SG&A also increased to support
the expansion of the Company’s business. Expenses related to expansion consisted of incremental personnel and support costs,
lease expenses related to new operating facilities, and expenses associated with the development and maintenance of information
2211
Ingram Micro
Annual Report