Ingram Micro 1999 Annual Report Download - page 25

The provision for income taxes, excluding extraordinary items, decreased 31.4% to $110.9 million in 1999 from $161.7 million
in 1998, reflecting the 28.6% decrease in the Company’s income before income taxes.The Company’s effective tax rate was 38.1% in
1999 compared to 39.7% in 1998.The decrease in the effective tax rate was primarily due to tax planning in certain countries.
In March 1999, the Company repurchased Zero Coupon Convertible Senior Debentures with a carrying value of $56.5 million
as of the repurchase date for approximately $50.3 million in cash.The debenture repurchase resulted in an extraordinary gain of
$3.8 million (net of $2.4 million in income taxes).
1998 Compared to 1997
Consolidated net sales increased 32.9% to $22.0 billion in 1998 from $16.6 billion in 1997.The increase in worldwide net
sales was primarily attributable to the addition of new customers, increased sales to the existing customer base, expansion of the
Company’s product offerings, growth in the information technology products and services distribution industry in general, and the
July 1998 acquisition of Macrotron.
Net sales from U.S. operations increased 24.7% to $14.4 billion in 1998 from $11.5 billion in 1997 primarily due to growth
of its current business, which was favorably impacted by the RND acquisition in July 1997.The U.S. sales increase was tempered,
however, by manufacturers making more product directly available to resellers during the fourth quarter of 1998, resulting in less
business through distribution. Net sales from European operations increased 67.8% to $5.6 billion in 1998 from $3.4 billion in
1997 due primarily to the acquisition of Macrotron, as well as to the overall growth in the Company’s existing European opera-
tions. Other international net sales increased 19.4% to $2.0 billion in 1998 from $1.7 billion in 1997 primarily due to the
November 1997 acquisition of Computacion Tecnica, S.A. (“Computek”) in Latin America as well as growth in the Company’s
Canadian operations.
Gross profit, as a percentage of net sales, decreased to 6.3% in 1998 from 6.5% in 1997. During the fourth quarter of 1998,
the Company’s operations experienced a significant decrease in gross profit percentage compared to the fourth quarter of 1997,
which continued into 1999.These decreases were largely attributable to significant competitive pricing pressures experienced
primarily in the U.S. and the larger countries in Europe. Furthermore, during 1998, the Company incurred significant costs
associated with its investment in its assembly and custom-configuration operations, which negatively impacted gross profit.
Total SG&A expenses increased 27.6% to $904.6 million in 1998 from $709.1 million in 1997, but decreased as a percentage
of net sales to 4.1% in 1998 from 4.2% in 1997.The increase in SG&A spending was attributable to the acquisitions in July 1998
of Macrotron, a manufacturing facility and related business in The Netherlands in June 1998, the full year’s effect of the 1997
acquisitions of RND and Computek, as well as the increased expenses required to support the expansion of the Company’s business.
Expenses related to expansion consisted of incremental personnel and support costs, lease expenses relating to new operating facilities,
and expenses associated with the development and maintenance of information systems.The overall decrease in SG&A expenses as
a percentage of sales is attributable to economies of scale from greater sales volume as well as continued cost-control measures.
Income from operations decreased as a percentage of net sales to 2.2% in 1998 from 2.3% in 1997. U.S. income from opera-
tions increased as a percentage of net sales to 2.8% in 1998 from 2.6% in 1997; however, European income from operations
decreased as a percentage of net sales to 1.1% in 1998 from 1.2% in 1997. For geographic regions outside the U.S. and Europe,
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Ingram Micro
Annual Report