Ingram Micro 1999 Annual Report Download - page 24

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Ingram Micro
Annual Report
systems.The overall decrease in SG&A expenses as a percentage of sales is attributable to economies of scale from greater sales
volume, the reorganization efforts during 1999, and continued cost-control measures, partially offset by the higher bad debt
expenses as a percentage of sales.
In February 1999, the Company initiated a plan primarily in the U.S., but also in Europe, to streamline operations and
reorganize resources to increase flexibility and service and maximize cost savings and operational efficiencies.This reorganization
plan included several organizational and structural changes, including the closing of the Company’s California-based consolidation
center and certain other redundant locations, realignment of the Company’s sales force and the creation of a product management
organization that integrates purchasing, vendor services, and product marketing functions, as well as a realignment of administrative
functions and processes throughout the U.S. organization. In addition, during the fourth quarter of 1999, further organizational and
strategic changes were implemented in the Company’s assembly and custom-configuration operations, including the selection of an
outsource partner to produce unbranded systems and the reallocation of resources to support the Company’s custom-configuration
services capabilities.
In connection with these reorganization efforts, the Company recorded a charge of $20.3 million for the fiscal year ended
January 1, 2000.The reorganization charge included $12.3 million in employee termination benefits for approximately 597
employees, $6.4 million for the write-off of software used in the production of unbranded systems, $1.3 million for closing and
consolidation of redundant facilities relating primarily to excess lease costs net of estimated sublease income, and $0.3 million
for other costs associated with the reorganization.These initiatives were substantially complete as of January 1, 2000.
Income from operations, excluding reorganization costs, decreased as a percentage of net sales to 0.8% in 1999 from 2.2%
in 1998.The decrease in income from operations, excluding reorganization costs, as a percentage of net sales is primarily due to
the significant decrease in gross profit as a percentage of net sales as described above. U.S. income from operations, excluding
reorganization costs, decreased as a percentage of net sales to 0.9% in 1999 from 2.8% in 1998. European income from operations,
excluding reorganization costs, decreased as a percentage of net sales to 0.3% in 1999 from 1.1% in 1998. For geographic regions
outside the U.S. and Europe, income from operations, excluding reorganization costs, decreased as a percentage of net sales to
1.0% in 1999 from 1.4% in 1998. Income from operations, including reorganization costs, as a percentage of net sales decreased
to 0.8% in 1999 from 2.2% in 1998.
Other (income) expense consisted primarily of interest, foreign currency exchange losses, gains on sales of securities and
miscellaneous non-operating (income) expenses. During 1999, the Company recorded net other income of $90.5 million, or 0.3%
as a percentage of net sales, as compared to net other expense of $79.7 million, or 0.4% as a percentage of net sales in 1998.The
increase in other income over 1998 is primarily attributable to the gain realized on the sale of Softbank common stock, partially
offset by an increase in interest expense. In December 1999, the Company sold 346,800 shares or 35% of its original holdings in
Softbank common stock for a pre-tax gain of approximately $201.3 million, net of related costs. Interest expense increased primar-
ily due to increased borrowings to finance the January 1999 ERL acquisition; the fourth quarter 1998 investment in Softbank;
the July 1998 acquisition of Macrotron; changing vendor terms and conditions associated with floor plan financing arrangements;
and the growth of the Company’s ongoing operations.This increase was partially offset by a decrease in average interest rates in
fiscal 1999 as compared to fiscal 1998. Foreign exchange losses decreased by $3.7 million in 1999 compared to 1998 primarily
due to the strengthening of currencies in Latin America as compared to the U.S. dollar.