<PAGE> 1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JULY 3, 1999
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)
<TABLE>
<S> <C>
DELAWARE 62-1644402
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
</TABLE>
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)
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 [ ]
The Registrant had 69,864,853 shares of Class A Common Stock, par value $.01 per
share, and 73,098,364 shares of Class B Common Stock, par value $.01 per share,
outstanding at July 3, 1999.
<PAGE> 2
INGRAM MICRO INC.
INDEX
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
<TABLE>
<CAPTION>
Pages
-----
<S> <C> <C>
Consolidated Balance Sheet at July 3, 1999 and January 2, 1999 3
Consolidated Statement of Income for the thirteen weeks and twenty-six weeks
ended July 3, 1999 and July 4, 1998 4
Consolidated Statement of Cash Flows for the twenty-six weeks ended
July 3, 1999 and July 4, 1998 5
Notes to Consolidated Financial Statements 6-10
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 11-19
Item 3. Quantitative and Qualitative Disclosures About Market Risk 19
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 20
Item 2. Changes in Securities and Use of Proceeds 20
Item 3. Defaults Upon Senior Securities 20
Item 4. Submission of Matters to a Vote of Security Holders 20-21
Item 5. Other Information 21
Item 6. Exhibits and Reports on Form 8-K 21
Signatures 21
</TABLE>
2
<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
INGRAM MICRO INC.
CONSOLIDATED BALANCE SHEET
(DOLLARS IN 000S, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
JULY 3, JANUARY 2,
1999 1999
----------- -----------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash $ 142,500 $ 96,682
Trade accounts receivable (less allowances of $64,674 and
$55,904 at July 3, 1999 and January 2, 1999, respectively) 2,664,804 2,562,050
Inventories 2,848,583 3,094,227
Other current assets 309,267 278,591
----------- -----------
Total current assets 5,965,154 6,031,550
Property and equipment, net 280,533 254,718
Goodwill, net 439,265 232,112
Other 307,260 215,024
----------- -----------
Total assets $ 6,992,212 $ 6,733,404
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 3,589,572 $ 3,306,045
Accrued expenses 296,238 254,627
Current maturities of long-term debt 29,480 38,978
----------- -----------
Total current liabilities 3,915,290 3,599,650
Convertible debentures 428,639 473,475
Other long-term debt 926,006 1,208,003
Other 56,404 45,205
----------- -----------
Total liabilities 5,326,339 5,326,333
----------- -----------
Commitments and contingencies
Redeemable Class B Common Stock 3,837 7,814
----------- -----------
Stockholders' equity:
Preferred Stock, $0.01 par value, 1,000,000 shares
authorized; no shares issued and outstanding -- --
Class A Common Stock, $0.01 par value, 265,000,000 shares
authorized; 69,864,853 and 66,520,715 shares issued
and outstanding at July 3, 1999 and January 2, 1999, respectively 699 665
Class B Common Stock, $0.01 par value, 135,000,000
shares authorized; 73,646,489 and 75,459,710 shares issued and
outstanding (including 548,125 and 1,116,250 redeemable shares)
at July 3, 1999 and January 2, 1999, respectively 731 743
Additional paid in capital 622,348 591,235
Retained earnings 904,209 811,616
Accumulated other comprehensive income (loss) 134,087 (4,914)
Unearned compensation (38) (88)
----------- -----------
Total stockholders' equity 1,662,036 1,399,257
----------- -----------
Total liabilities and stockholders' equity $ 6,992,212 $ 6,733,404
=========== ===========
</TABLE>
See accompanying notes to these consolidated financial statements.
3
<PAGE> 4
INGRAM MICRO INC.
CONSOLIDATED STATEMENT OF INCOME
(DOLLARS IN 000S, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
THIRTEEN WEEKS ENDED TWENTY-SIX WEEKS ENDED
----------------------------- -----------------------------
JULY 3, JULY 4, JULY 3, JULY 4,
1999 1998 1999 1998
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net sales $ 6,804,813 $ 4,956,121 $ 13,530,088 $ 10,106,209
Cost of sales 6,436,985 4,640,639 12,803,006 9,460,817
------------ ------------ ------------ ------------
Gross profit 367,828 315,482 727,082 645,392
Expenses:
Selling, general and administrative 258,175 204,884 525,684 418,670
Reorganization costs 2,050 -- 8,284 --
------------ ------------ ------------ ------------
260,225 204,884 533,968 418,670
------------ ------------ ------------ ------------
Income from operations 107,603 110,598 193,114 226,722
Other (income) expense:
Interest income (1,336) (1,393) (2,655) (2,806)
Interest expense 25,642 15,896 50,866 35,136
Net foreign currency exchange loss 948 1,219 624 2,794
Other 2,731 2,259 3,514 4,971
------------ ------------ ------------ ------------
27,985 17,981 52,349 40,095
------------ ------------ ------------ ------------
Income before income taxes 79,618 92,617 140,765 186,627
Provision for income taxes 29,279 36,992 51,950 74,466
------------ ------------ ------------ ------------
Income before extraordinary item 50,339 55,625 88,815 112,161
Extraordinary gain on repurchase
of debentures, net of $2,405 in income taxes -- -- 3,778 --
------------ ------------ ------------ ------------
Net income $ 50,339 $ 55,625 $ 92,593 $ 112,161
============ ============ ============ ============
Basic earnings per share:
Income before extraordinary item $ 0.35 $ 0.40 $ 0.62 $ 0.81
Extraordinary gain on repurchase of debentures -- -- 0.03 --
------------ ------------ ------------ ------------
Net income $ 0.35 $ 0.40 $ 0.65 $ 0.81
============ ============ ============ ============
Diluted earnings per share:
Income before extraordinary item $ 0.34 $ 0.37 $ 0.60 $ 0.75
Extraordinary gain on repurchase of debentures -- -- 0.03 --
------------ ------------ ------------ ------------
Net income $ 0.34 $ 0.37 $ 0.63 $ 0.75
============ ============ ============ ============
</TABLE>
See accompanying notes to these consolidated financial statements.
4
<PAGE> 5
INGRAM MICRO INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(DOLLARS IN 000S)
(UNAUDITED)
<TABLE>
<CAPTION>
TWENTY-SIX WEEKS ENDED
-----------------------
JULY 3, JULY 4,
1999 1998
--------- ---------
<S> <C> <C>
CASH PROVIDED (USED) BY OPERATING ACTIVITIES:
Net income $ 92,593 $ 112,161
Adjustments to reconcile net income to cash provided by
operating activities:
Depreciation 35,262 26,121
Amortization of goodwill 10,252 4,162
Deferred income taxes (9,456) 89
Gain on repurchase of debentures (3,778) --
Noncash interest charge 12,178 1,738
Noncash compensation charge 1,018 2,294
Changes in operating assets and liabilities,
net of effects of acquisitions:
Trade accounts receivable 140,855 (216,068)
Inventories 322,125 519,422
Other current assets (22,784) 18,252
Accounts payable 132,020 (266,536)
Accrued expenses 44,838 (47,495)
--------- ---------
Cash provided by operating activities 755,123 154,140
--------- ---------
CASH (USED) PROVIDED BY INVESTING ACTIVITIES:
Purchases of property and equipment (57,819) (59,967)
Proceeds from sale of property and equipment 7,652 --
Acquisitions, net of cash acquired (227,019) (8,085)
Other (3,136) (4,403)
--------- ---------
Cash used by investing activities (280,322) (72,455)
--------- ---------
CASH (USED) PROVIDED BY FINANCING ACTIVITIES:
Redemption of Redeemable Class B Common Stock (70) (335)
Exercise of stock options including tax benefits 12,187 39,673
Proceeds from issuance of convertible debentures -- 449,604
Repurchase of convertible debentures (50,321) --
(Repayments) proceeds of debt (5,821) 10,816
Net repayments under revolving credit facilities (379,323) (559,976)
--------- ---------
Cash used by financing activities (423,348) (60,218)
--------- ---------
Effect of exchange rate changes on cash (5,635) (278)
--------- ---------
Increase in cash 45,818 21,189
Cash, beginning of period 96,682 92,212
--------- ---------
Cash, end of period $ 142,500 $ 113,401
========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash payments during the period:
Interest $ 50,782 $ 35,489
Income taxes 42,422 69,539
</TABLE>
See accompanying notes to these consolidated financial statements.
5
<PAGE> 6
INGRAM MICRO INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(DOLLARS IN 000S, EXCEPT PER SHARE DATA)
NOTE 1 - ORGANIZATION AND BASIS OF PRESENTATION
Ingram Micro Inc. (the "Company" or "Ingram Micro") is primarily engaged
in wholesale distribution of computer-based technology products and services
worldwide. The Company conducts the majority of its operations in North America,
Europe, Latin America, and Asia Pacific.
The consolidated financial statements included herein have been prepared
by the Company, without audit, pursuant to the rules and regulations of the
Securities and Exchange Commission. In the opinion of management, the
accompanying unaudited consolidated financial statements contain all material
adjustments necessary to present fairly the financial position of the Company
and its wholly-owned and majority-owned subsidiaries as of July 3, 1999, their
results of operations for the thirteen and twenty-six weeks ended July 3, 1999
and July 4, 1998 and their cash flows for the twenty-six weeks ended July 3,
1999 and July 4, 1998. All significant intercompany accounts and transactions
have been eliminated in consolidation. The results of operations for the
thirteen and twenty-six week periods ended July 3, 1999 may not be indicative of
the results of operations that can be expected for the full year.
NOTE 2 - EARNINGS PER SHARE
The Company has adopted Statement of Financial Accounting Standards No.
128, "Earnings per Share" ("FAS 128") and related interpretations. FAS 128
requires dual presentation of Basic Earnings per Share ("Basic EPS") and Diluted
Earnings per Share ("Diluted EPS"). Basic EPS excludes dilution and is computed
by dividing net income by the weighted average number of common shares
outstanding during the reported period. Diluted EPS reflects the potential
dilution that could occur if stock options and other commitments to issue common
stock were exercised using the treasury stock method or the if-converted method,
where applicable.
The composition of Basic EPS and Diluted EPS is as follows:
<TABLE>
<CAPTION>
THIRTEEN WEEKS ENDED TWENTY-SIX WEEKS ENDED
---------------------------- -----------------------------
JULY 3, JULY 4, JULY 3, JULY 4,
1999 1998 1999 1998
----------- ----------- ----------- ------------
<S> <C> <C> <C> <C>
Net income before extraordinary item $ 50,339 $ 55,625 $ 88,815 $ 112,161
=========== =========== =========== ============
Weighted average shares 143,120,896 138,898,854 142,938,040 138,154,012
=========== =========== =========== ============
Basic earnings per share before extraordinary item $ 0.35 $ 0.40 $ 0.62 $ 0.81
=========== =========== =========== ============
Weighted average shares including the dilutive effect of
stock options (4,945,912 and 11,021,954 for the 13 weeks
ended July 3, 1999 and July 4, 1998, respectively, and
5,188,158 and 10,902,854 for the 26 weeks ended
July 3, 1999 and July 4, 1998, respectively) 148,066,808 149,920,808 148,126,198 149,056,866
=========== =========== =========== ============
Diluted earnings per share before extraordinary item $ 0.34 $ 0.37 $ 0.60 $ 0.75
=========== =========== =========== ============
</TABLE>
At July 3, 1999, there was $428,639 in Zero Coupon Convertible Senior
Debentures that were convertible into 6,427,721 shares of Class A Common Stock.
For the thirteen and twenty-six weeks ended July 3, 1999 and July 4, 1998,
respectively, these potential shares were excluded from the computation of
Diluted EPS because their effect would be antidilutive. Additionally, there were
approximately 3,226,433 and 83,892 options for the thirteen and twenty-six weeks
ended
6
<PAGE> 7
INGRAM MICRO INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(DOLLARS IN 000S, EXCEPT PER SHARE DATA)
July 3, 1999 and July 4, 1998, respectively, that were not included in the
computation of Diluted EPS because the exercise price was greater than the
average market price of the Class A Common Stock, thereby resulting in an
antidilutive effect.
NOTE 3 - COMPREHENSIVE INCOME
The Company has adopted Statement of Financial Accounting Standards No.
130, "Reporting Comprehensive Income" ("FAS 130"). FAS 130 establishes standards
for reporting and displaying comprehensive income and its components in the
Company's consolidated financial statements. Comprehensive income is defined in
FAS 130 as the change in equity (net assets) of a business enterprise during a
period from transactions and other events and circumstances from nonowner
sources.
The components of accumulated other comprehensive income (loss) are as
follows:
<TABLE>
<CAPTION>
FOREIGN UNREALIZED ACCUMULATED
CURRENCY GAIN ON OTHER
TRANSLATION AVAILABLE FOR COMPREHENSIVE
ADJUSTMENT SALE SECURITIES INCOME (LOSS)
-------------- ------------------ -----------------
<S> <C> <C> <C>
Balance at January 3, 1998 $ (14,236) $ - $ (14,236)
Thirteen week change (2,407) - (2,407)
-------------- ------------------ -----------------
Balance at April 4, 1998 (16,643) - (16,643)
Thirteen week change 121 - 121
-------------- ------------------ -----------------
Balance at July 4, 1998 (16,522) - (16,522)
Thirteen week change 5,359 - 5,359
-------------- ------------------ -----------------
Balance at October 3, 1998 (11,163) - (11,163)
Thirteen week change (417) 6,666 6,249
============== ================== =================
Balance at January 2, 1999 $ (11,580) $ 6,666 $ (4,914)
============== ================== =================
</TABLE>
<TABLE>
<CAPTION>
FOREIGN UNREALIZED ACCUMULATED
CURRENCY GAIN ON OTHER
TRANSLATION AVAILABLE FOR COMPREHENSIVE
ADJUSTMENT SALE SECURITIES INCOME (LOSS)
-------------- ------------------ -----------------
<S> <C> <C> <C>
Balance at January 2, 1999 $ (11,580) $ 6,666 $ (4,914)
Thirteen week change (16,282) 61,664 45,382
-------------- ------------------ -----------------
Balance at April 3, 1999 (27,862) 68,330 40,468
Thirteen week change (9,099) 102,718 93,619
-------------- ------------------ -----------------
Balance at July 3, 1999 $ (36,961) $ 171,048 $ 134,087
============== ================== =================
</TABLE>
Total comprehensive income for the thirteen weeks ended July 3, 1999 and
July 4, 1998 was $143,958 and $55,746, respectively. Total comprehensive income
for the twenty-six weeks ended July 3, 1999 and July 4, 1998 was $231,594 and
$109,875, respectively.
NOTE 4 - EXTRAORDINARY ITEM
In March 1999, the Company repurchased Zero Coupon Convertible Senior
Debentures with a carrying value of $56,504 as of the repurchase date for
approximately $50,321 in cash. The debenture repurchase resulted in an
extraordinary gain of $3,778 (net of $2,405 in income taxes).
NOTE 5 - ACQUISITION
In January 1999, the Company purchased 44,114,340 shares of Electronic
Resources Ltd. ("ERL") common stock from certain shareholders, which increased
the Company's ownership to 39.6% from the 21% ownership held in 1998. In
accordance with Singapore law, the Company was required to extend a tender offer
for the remaining
7
<PAGE> 8
INGRAM MICRO INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(DOLLARS IN 000S, EXCEPT PER SHARE DATA)
shares and warrants of ERL as a result of its increased
ownership. The Company offered to purchase the remaining outstanding shares and
warrants for approximately $1.20 and $0.65 per share and warrant, respectively,
during the tender offer period from January 4, 1999 to February 19, 1999. In
addition, during January and February 1999, the Company made open market
purchases of ERL shares and warrants. As a result of the open market purchases
and the tender offer, the Company's ownership in ERL increased to approximately
95%. The aggregate purchase price paid in 1999 for these ERL shares and warrants
was approximately $232,010. Prior to 1999, the Company accounted for its
investment in ERL under the equity method. Due to the purchase of ERL common
stock and warrants in 1999, the Company has accounted for the acquisition of ERL
under the purchase method; accordingly, the results of ERL's operations have
been combined with those of the Company for the thirteen and twenty-six weeks
ended July 3, 1999. The purchase price was allocated to the assets acquired and
liabilities assumed based on their estimated fair values at the date of
acquisition. The excess of the purchase price, including the $71,212 paid in
December 1997, over the net assets acquired is approximately $208,120 and is
being amortized on a straight-line basis over 30 years. The final allocation of
the purchase price may vary as additional information is obtained; accordingly,
the final allocations may differ from those used in the unaudited consolidated
financial statements included herein.
In July 1999, the Company purchased an additional 7,956,231 shares of the
common stock of Ingram Micro Asia Ltd. (formerly known as ERL) for approximately
$9,119 in cash, increasing the Company's ownership position to approximately
98.3%. In addition, the Company commenced an unconditional voluntary take-over
offer for the remaining Ingram Micro Asia Ltd. shares and warrants not already
owned by the Company.
NOTE 6 - SEGMENT INFORMATION
Effective in 1998, the Company adopted the disclosure requirements of
Statement of Financial Accounting Standards No. 131, "Disclosures about Segments
of an Enterprise and Related Information" ("FAS 131"). The Company's reportable
operating segments are based on geographic location, and the measure of segment
profit is income from operations.
The Company operates predominantly in a single industry segment as a
wholesale distributor of computer-based technology products and services.
Geographic areas in which the Company operates include the United States, Europe
(Austria, Belgium, Denmark, Finland, France, Germany, Italy, the Netherlands,
Norway, Spain, Sweden, Switzerland, and the United Kingdom) and Other
(Australia, Brazil, Canada, Chile, China, India, Indonesia, Malaysia, Mexico,
New Zealand, Peru, Singapore, and Thailand). Inter-geographic sales primarily
represent intercompany sales which are accounted for based on established sales
prices between the related companies and are eliminated in consolidation.
8
<PAGE> 9
INGRAM MICRO INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(DOLLARS IN 000S, EXCEPT PER SHARE DATA)
Financial information by geographic segments is as follows:
<TABLE>
<CAPTION>
THIRTEEN WEEKS ENDED TWENTY-SIX WEEKS ENDED
------------------------------ ------------------------------
JULY 3, JULY 4, JULY 3, JULY 4,
1999 1998 1999 1998
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
NET SALES:
United States
Sales to unaffiliated customers $ 4,294,687 $ 3,478,694 $ 8,432,101 $ 6,934,781
Transfers between geographic areas 37,043 36,708 74,460 77,508
Europe 1,600,263 1,011,439 3,347,552 2,186,428
Other 909,863 465,988 1,750,435 985,000
Eliminations (37,043) (36,708) (74,460) (77,508)
------------ ------------ ------------ ------------
Total $ 6,804,813 $ 4,956,121 $ 13,530,088 $ 10,106,209
============ ============ ============ ============
INCOME FROM OPERATIONS:
United States $ 90,280 $ 92,481 $ 155,897 $ 184,095
Europe 7,932 10,928 18,268 30,426
Other 9,391 7,189 18,949 12,201
------------ ------------ ------------ ------------
Total $ 107,603 $ 110,598 $ 193,114 $ 226,722
============ ============ ============ ============
IDENTIFIABLE ASSETS:
United States $ 4,295,742 $ 3,072,884 $ 4,295,742 $ 3,072,884
Europe 1,676,245 1,055,961 1,676,245 1,055,961
Other 1,020,225 543,605 1,020,225 543,605
------------ ------------ ------------ ------------
Total $ 6,992,212 $ 4,672,450 $ 6,992,212 $ 4,672,450
============ ============ ============ ============
CAPITAL EXPENDITURES:
United States $ 21,713 $ 29,104 $ 42,235 $ 52,618
Europe 10,996 2,903 12,156 5,201
Other 2,112 908 3,428 2,148
------------ ------------ ------------ ------------
Total $ 34,821 $ 32,915 $ 57,819 $ 59,967
============ ============ ============ ============
DEPRECIATION AND AMORTIZATION:
United States $ 13,477 $ 10,293 $ 26,469 $ 20,726
Europe 5,714 2,601 10,318 5,520
Other 4,420 1,987 8,727 4,037
------------ ------------ ------------ ------------
Total $ 23,611 $ 14,881 $ 45,514 $ 30,283
============ ============ ============ ============
</TABLE>
9
<PAGE> 10
INGRAM MICRO INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(DOLLARS IN 000S, EXCEPT PER SHARE DATA)
NOTE 7 - REORGANIZATION COSTS
In February 1999, the Company initiated a plan primarily in the United
States to streamline operations and reorganize resources to increase flexibility
and service and maximize cost savings and operational efficiencies. This
reorganization plan includes instituting 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 sales, and product marketing functions, as well as a
realignment of administrative functions and processes throughout the U.S.
organization.
In connection with the reorganization plan, the Company recorded a charge
of $6,234 in the thirteen weeks ended April 3, 1999 related primarily to
reorganization efforts in the United States. This reorganization charge included
$4,269 in employee termination benefits for approximately 358 employees, $1,519
for closing and consolidation of redundant facilities relating primarily to
excess lease costs net of estimated sublease income, and $446 for other costs
associated with the reorganization. Additionally, the Company recorded a
reorganization charge of $2,050 during the thirteen weeks ended July 3, 1999, in
connection with the reorganization of certain of the Company's European
operations. This reorganization charge included $1,735 in employee termination
benefits for approximately 98 employees and $315 for other costs associated with
the reorganization. These initiatives are expected to be largely completed by
the end of 1999.
The reorganization charges and related activity for the twenty-six weeks
ended July 3, 1999 are summarized as follows:
<TABLE>
<CAPTION>
AMOUNTS PAID
1999 AND CHARGED REMAINING
REORGANIZATION AGAINST THE LIABILITY AT
CHARGE LIABILITY ADJUSTMENTS JULY 3, 1999
--------------- ------------- ------------ -------------
<S> <C> <C> <C> <C>
Employee termination benefits $ 6,004 $ 5,245 $ - $ 759
Facility costs 1,519 86 - 1,433
Other costs 761 129 - 632
--------------- ------------- ------------ -------------
Total $ 8,284 $ 5,460 $ - $ 2,824
=============== ============= ============ =============
</TABLE>
NOTE 8 - NEW ACCOUNTING STANDARDS
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities" ("FAS 133"), which will become effective for the Company
in fiscal 2001. FAS 133 establishes accounting and reporting standards for
derivative instruments, including certain derivative instruments embedded in
other contracts (collectively referred to as derivatives), and for hedging
activities. The Company does not expect the adoption of FAS 133 to have a
material impact on its reported consolidated financial condition or results of
operations.
10
<PAGE> 11
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
The following table sets forth the Company's net sales by geographic
region (excluding intercompany sales), and the percentage of total net sales
represented thereby, for each of the periods indicated.
<TABLE>
<CAPTION>
THIRTEEN WEEKS ENDED TWENTY-SIX WEEKS ENDED
-------------------------------------- ---------------------------------------
JULY 3, JULY 4, JULY 3, JULY 4,
1999 1998 1999 1998
---------------- ---------------- ---------------- -----------------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales by geographic region:
United States $ 4,295 63.1% $ 3,479 70.2% $ 8,432 62.3% $ 6,935 68.6%
Europe 1,600 23.5% 1,011 20.4% 3,348 24.7% 2,186 21.6%
Other international 910 13.4% 466 9.4% 1,750 13.0% 985 9.8%
------- ----- ------- ----- ------- ----- ------- -----
Total $ 6,805 100.0% $ 4,956 100.0% $13,530 100.0% $10,106 100.0%
======= ===== ======= ===== ======= ===== ======= =====
</TABLE>
The following table sets forth certain items from the Company's
Consolidated Statement of Income as a percentage of net sales, for each of the
periods indicated.
<TABLE>
<CAPTION>
PERCENTAGE OF NET SALES
----------------------------------------
THIRTEEN WEEKS TWENTY-SIX WEEKS
ENDED ENDED
----------------- ------------------
JULY 3, JULY 4, JULY 3, JULY 4,
1999 1998 1999 1998
------- ------ ------ ------
<S> <C> <C> <C> <C>
Net sales 100.0% 100.0% 100.0% 100.0%
Cost of sales 94.6% 93.6% 94.6% 93.6%
----- ----- ----- -----
Gross profit 5.4% 6.4% 5.4% 6.4%
Expenses:
SG&A expenses 3.8% 4.1% 3.9% 4.1%
Reorganization costs 0.0% -- 0.1% --
----- ----- ----- -----
Income from operations 1.6% 2.3% 1.4% 2.3%
Other expense, net 0.4% 0.4% 0.4% 0.4%
----- ----- ----- -----
Income before income taxes 1.2% 1.9% 1.0% 1.9%
Provision for income taxes 0.5% 0.8% 0.4% 0.8%
----- ----- ----- -----
Income before extraordinary item 0.7% 1.1% 0.6% 1.1%
Extraordinary gain on repurchase of debentures, net of income tax -- -- 0.0% --
----- ----- ----- -----
Net income 0.7% 1.1% 0.6% 1.1%
===== ===== ===== =====
</TABLE>
THIRTEEN WEEKS ENDED JULY 3, 1999 COMPARED TO THIRTEEN WEEKS ENDED JULY 4, 1998
Consolidated net sales increased 37.3% to $6.80 billion in the second
quarter of 1999 from $4.96 billion in the second quarter of 1998. 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 computer-based technology products
and services industry in general, the July 1998 acquisition of Munich,
Germany-based Macrotron AG ("Macrotron"), and the consolidation of ERL resulting
from the Company's increased ownership position in ERL (the "ERL Acquisition" -
See Note 5 of Notes to Consolidated Financial Statements).
Net sales from U.S. operations increased 23.5% to $4.29 billion in the
second quarter of 1999 from $3.48 billion in the second quarter of 1998
primarily due to growth of the Company's ongoing business. Net sales from
European operations increased 58.2% to $1.60 billion in the second quarter of
1999 from $1.01 billion in the second quarter of 1998 primarily due to the July
1998 acquisition of Macrotron and the overall growth in the Company's
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MANAGEMENT'S DISCUSSION AND ANALYSIS CONTINUED
existing European operations. Other net sales increased 95.3% to $909.9 million
in the second quarter of 1999 from $466.0 million in the second quarter of 1998
primarily due to the ERL Acquisition in January 1999 as well as growth in the
Company's Canadian operations.
Gross profit, as a percentage of net sales, decreased to 5.4% in the second
quarter of 1999 from 6.4% in the second quarter of 1998. The decrease was
largely attributable to significant competitive pricing pressures experienced
primarily in the U.S. and larger countries in Europe combined with changes in
supplier terms and conditions. The Company expects this to continue for the
foreseeable future.
Total SG&A expenses, excluding reorganization costs, increased 26.0% to
$258.2 million in the second quarter of 1999 from $204.9 million in the second
quarter of 1998, but decreased as a percentage of net sales to 3.8% in the
second quarter of 1999 from 4.1% in the second quarter of 1998. The increase in
SG&A expenses was attributable to the acquisitions of ERL in January 1999 and
Macrotron in July 1998 as well as the increased expenses required to support the
expansion of the Company's business. Expenses related to expansion consists of
incremental personnel and support costs, lease expense related to new operating
facilities, and the expenses associated with the development and maintenance of
information systems. The overall decrease in SG&A expenses as a percentage of
net sales is attributable to economies of scale from greater sales volume, the
reorganization efforts during 1999 and continued cost-control measures.
In the second quarter of 1999, the Company recorded a reorganization
charge of approximately $2.0 million in connection with the reorganization of
certain of the Company's European operations. This reorganization charge
included approximately $1.7 million in employee termination benefits for
approximately 98 employees and $0.3 million for other costs associated with the
reorganization. Based upon the Company's reorganization efforts and continued
cost control measures, the Company expects its SG&A expenses to remain below
4.0% of consolidated net sales for the foreseeable future. However, any
significant decline in future sales growth rates or significant changes in the
business or industry in which the Company operates could impact this trend.
Income from operations, excluding reorganization costs, decreased as a
percentage of net sales to 1.6% in the second quarter of 1999 from 2.3% in the
second quarter of 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, as a
percentage of net sales decreased to 2.1% in the second quarter of 1999 from
2.7% in the second quarter of 1998. European income from operations, excluding
reorganization costs, as a percentage of net sales decreased to 0.6% in the
second quarter of 1999 from 1.1% in the second quarter of 1998. For geographic
regions outside the United States and Europe, income from operations, excluding
reorganization costs, as a percentage of net sales decreased to 1.0% in the
second quarter of 1999 from 1.5% in the second quarter of 1998. Income from
operations, including reorganization costs, as a percentage of net sales
decreased to 1.6% in the second quarter of 1999 from 2.3% in the second quarter
of 1998.
Other expense, net, which consists primarily of interest expense, foreign
currency exchange losses, and miscellaneous non-operating expenses, increased
55.6% to $28.0 million in the second quarter of 1999 from $18.0 million in the
second quarter of 1998. Other expense, net, remained constant as a percentage of
net sales at 0.4% for the second quarters of 1999 and 1998. Interest expense
grew as a result of increased borrowings to finance the ERL and Macrotron
acquisitions; the investment in SOFTBANK Corp ("Softbank"), Japan's largest
distributor of software, peripherals and networking products; expansion of the
Company's business; and ongoing sales growth. In 1999, the Company expects its
interest expense to increase over comparable periods in 1998 primarily due to
the factors described above. Foreign exchange losses decreased by $0.3 million
in the second quarter of 1999 compared to the second quarter of 1998 primarily
due to the strengthening of currencies in Latin America as compared to the U.S.
dollar.
The provision for income taxes decreased 20.9% to $29.3 million in the
second quarter of 1999 from $37.0 million in the second quarter of 1998,
reflecting the 14.0% decrease in the Company's income before income taxes. The
Company's effective tax rate was 36.8% in the second quarter of 1999 compared to
39.9% in the second quarter of 1998. The decrease in the effective tax rate was
primarily due to tax planning in certain countries as well as the
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MANAGEMENT'S DISCUSSION AND ANALYSIS CONTINUED
acquisition of ERL, which has a lower effective tax rate compared to the
Company's overall effective tax rate.
TWENTY-SIX WEEKS ENDED JULY 3, 1999 COMPARED TO TWENTY-SIX WEEKS ENDED JULY 4,
1998
Consolidated net sales increased 33.9% to $13.53 billion in the first half
of 1999 from $10.11 billion in the first half of 1998. The increase in worldwide
net sales was primarily attributable to the same factors summarized in the
discussion of net sales for the thirteen weeks ended July 3, 1999 and July 4,
1998.
Net sales from U.S. operations increased 21.6% to $8.43 billion in the
first half of 1999 from $6.93 billion in the first half of 1998 primarily due to
growth of the Company's ongoing business. Net sales from European operations
increased 53.1% to $3.35 billion in the first half of 1999 from $2.19 billion in
the first half of 1998 primarily due to the July 1998 acquisition of Macrotron
and the overall growth in the Company's existing European operations. Other net
sales increased 77.7% to $1.75 billion in the first half of 1999 from $985.0
million in the first half of 1998 primarily due to the ERL Acquisition in
January 1999 as well as growth in the Company's Canadian operations.
Gross profit, as a percentage of net sales, decreased to 5.4% in the first
half of 1999 from 6.4% in the first half of 1998. The decrease was largely
attributable to the same factors summarized in the discussion of gross profit
for the thirteen weeks ended July 3, 1999 and July 4, 1998.
Total SG&A expenses, excluding reorganization costs, increased 25.6% to
$525.7 million in the first half of 1999 from $418.7 million in the first half
of 1998, but decreased as a percentage of net sales to 3.9% in the first half of
1999 from 4.1% in the first half of 1998. The change in SG&A expenses in dollar
terms and as a percentage of net sales was largely attributable to the same
factors summarized in the discussion of SG&A expenses for the thirteen weeks
ended July 3, 1999 and July 4, 1998.
In February 1999, the Company initiated a plan, primarily in the United
States, 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 instituting 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 sales, and product
marketing functions, as well as a realignment of administrative functions and
processes throughout the United States organization.
In connection with the reorganization plan, the Company recorded a charge
of approximately $8.3 million in the twenty-six weeks ended July 3, 1999. This
reorganization charge included approximately $6.0 million in employee
termination benefits for approximately 456 employees, $1.5 million for closing
and consolidation of redundant facilities primarily relating to excess lease
costs net of estimated sublease income, and $0.8 million for other costs
associated with the reorganization (See Note 7 to Notes to Consolidated
Financial Statements). These charges related primarily to the reorganization
efforts in the United States operations as well as certain countries within the
European operations. Based upon these changes and continued cost control
measures, the Company expects its SG&A expenses to remain below 4.0% of
consolidated net sales for the foreseeable future. However, any significant
decline in future sales growth rates or significant changes in the business or
industry in which the Company operates could impact this trend.
Income from operations, excluding reorganization costs, decreased as a
percentage of net sales to 1.5% in the first half of 1999 from 2.3% in the first
half of 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, as a percentage of net sales
decreased to 1.9% in the first half of 1999 from 2.7% in the first half of 1998.
European income from operations, excluding reorganization costs, as a percentage
of net sales decreased to 0.6% in the first half of 1999 from 1.4% in the first
half of 1998. For geographic regions outside the United States and Europe,
income from operations, excluding reorganization costs, as a percentage of net
sales decreased to 1.1% in the first half of 1999 from 1.2% in the first half of
1998. Income from operations, including reorganization costs, as a percentage of
net sales decreased to 1.4% in the first half of 1999 from 2.3% in the first
half of 1998.
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MANAGEMENT'S DISCUSSION AND ANALYSIS CONTINUED
Other expense, net, which consists primarily of interest expense, foreign
currency exchange losses, and miscellaneous non-operating expenses, increased
30.6% to $52.3 million in the first half of 1999 from $40.1 million in the first
half of 1998. Other expense, net, remained constant as a percentage of net sales
at 0.4% for the first half of 1999 and 1998. Interest expense grew primarily due
to the same factors summarized in the discussion of other expense, net, for the
thirteen weeks ended July 3, 1999 and July 4, 1998. Foreign exchange losses
decreased by $2.2 million in the first half of 1999 compared to the first half
of 1998 primarily due to the strengthening of currencies in Latin America as
compared to the U.S. dollar.
The provision for income taxes decreased 30.2% to $52.0 million in the
first half of 1999 from $74.5 million in the first half of 1998, reflecting the
24.6% decrease in the Company's income before income taxes. The Company's
effective tax rate was 36.9% in the first half of 1999 compared to 39.9% in the
first half of 1998. The decrease in the effective tax rate was primarily due to
tax planning in certain countries as well as the acquisition of ERL, which has a
lower effective tax rate compared to the Company's overall effective tax rate.
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).
QUARTERLY DATA; SEASONALITY
The Company's quarterly sales and operating results have varied in the past
and will likely continue to do so in the future as a result of seasonal
variations in the demand for the products and services offered by the Company,
the introduction of new hardware and software technologies and products offering
improved features and functionality, the introduction of new products and
services by the Company and its competitors, the loss or consolidation of a
significant supplier or customer, changes in the level of operating expenses,
inventory adjustments, product supply constraints, competitive conditions
including pricing, interest rate fluctuations, the impact of acquisitions,
currency fluctuations, and general economic conditions. The Company's narrow
operating margins may magnify such fluctuations, particularly on a quarterly
basis.
LIQUIDITY AND CAPITAL RESOURCES
Cash Flows
The Company has financed its growth and cash needs largely through income
from operations, borrowings, trade and supplier credit, the public sale of
23,200,000 shares of its Class A Common Stock at $18.00 per share in the initial
public offering completed in November 1996, and the issuance of the Zero Coupon
Convertible Senior Debentures in June 1998.
Net cash provided by operating activities was $755.1 million in the first
six months of 1999 as compared to $154.1 million in the first six months of
1998. The increase in cash provided by operating activities was largely
attributable to the reduction of trade receivables, excluding acquisitions, for
the first six months of 1999 compared to the first six months of 1998, as well
as the increase in trade creditor financing of product through the increase in
accounts payable, excluding acquisitions, in the first six months of 1999
compared to the first six months of 1998.
Net cash used by investing activities was $280.3 million in the first six
months of 1999 compared to $72.5 million in the first six months of 1998. The
increase was primarily due to the Company's acquisition of ERL and the expansion
of warehouse and other facilities. In the first six months of 1999, the Company
used approximately $227.0 million in cash, net of cash acquired, primarily for
the purchase of common stock and warrants of ERL (see Note 5 of the Notes to
Consolidated Financial Statements).
Net cash used by financing activities was $423.3 million in the first six
months of 1999 compared to $60.2 million in the first six months of 1998. The
increase in cash used by financing activities was due to repayments of
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MANAGEMENT'S DISCUSSION AND ANALYSIS CONTINUED
debt under the revolving credit facilities through the management of trade
debtors and creditors, repayments of other debt and repurchases of convertible
debentures.
Acquisitions
In December 1997, the Company completed its purchase of approximately 21%
of the outstanding common stock and approximately 19% of an outstanding class of
warrants of ERL, a publicly traded electronic components distributor based in
Singapore, for approximately $71 million. In January 1999, the Company purchased
additional shares from specific shareholders, which brought the Company's total
ownership to approximately 39.6%. In January and February 1999, the Company made
open market purchases of ERL shares and warrants, and on February 19, 1999
completed a tender offer for the remaining outstanding shares and warrants of
ERL. These additional purchases resulted in a 95% ownership of the outstanding
common stock and a 95% ownership of the outstanding warrants of ERL. The total
cash paid for these purchases during 1999 was approximately $232 million.
In July 1999, the Company purchased an additional 7,956,231 shares of the
common stock of Ingram Micro Asia Ltd. (formerly known as ERL) for approximately
$9 million in cash, increasing the Company's ownership position to approximately
98.3%. On July 14, 1999, the Company commenced an unconditional voluntary
take-over offer for the remaining Ingram Micro Asia Ltd. shares and warrants not
already owned by the Company.
Capital Resources
The Company has three credit facilities with bank syndicates providing an
aggregate availability of $1.65 billion. Under the credit facilities, the
Company is required to comply with certain financial covenants, including
minimum tangible net worth, restrictions on funded debt and interest coverage.
The credit facilities also restrict the Company's ability to pay dividends.
Borrowings are subject to the satisfaction of customary conditions, including
the absence of any material adverse change in the Company's business or
financial condition. At July 3, 1999, the Company had $604.9 million in
outstanding borrowings under these credit facilities.
The Company has an arrangement pursuant to which certain U.S. trade
accounts receivable of the Company are transferred to a trust, which in turn has
sold certificates representing undivided interests in the total pool of trade
receivables without recourse. The trust has issued fixed-rate medium-term
certificates (which results in a reduction of trade accounts receivable and debt
on the Company's Consolidated Balance Sheet) and a variable rate certificate to
support a commercial paper program. At July 3, 1999 and January 2, 1999, the
amount of medium-term certificates outstanding totaled $75 million and $100
million, respectively, and the amount of commercial paper outstanding totaled
$130 million and $150 million, respectively. In addition, the Company has
certain other facilities relating to accounts receivable in Europe beginning in
1999. Under these programs, the Company has sold approximately $66 million of
receivables resulting in a reduction of trade accounts receivable and debt on
the Company's Consolidated Balance Sheet at July 3, 1999. The Company believes
that there are sufficient trade accounts receivable to support the outstanding
medium-term certificates as well as the commercial paper program and European
facilities.
On June 9, 1998, the Company sold $1.33 billion aggregate principal amount
at maturity of its Zero Coupon Convertible Senior Debentures due 2018 in a
private placement. The Company has subsequently registered the resale of these
debentures with the SEC. Gross proceeds from the offering were $460.4 million.
The debentures were sold at an issue price of $346.18 per $1,000 principal
amount at maturity (representing a yield to maturity of 5.375% per annum), and
are convertible into shares of the Company's Class A Common Stock at a rate of
5.495 shares per $1,000 principal amount at maturity, subject to adjustment
under certain circumstances. 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).
The debentures are currently convertible into approximately 6.4 million
shares of the Company's Class A Common Stock. The debentures are redeemable at
the option of the Company on or after June 9, 2003 at the issue price plus
accrued original issue discount to the date of redemption. Each debenture is
subject to repurchase at the option of the holder, as of June 9, 2001, June 9,
2003, June 9, 2008, and June 9, 2013, or if there is a Fundamental Change (as
defined), at the issue price plus accrued original issue discount to the date of
the redemption. In the event of a repurchase at the option of the holder (other
than upon a Fundamental Change), the Company may, at its
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Management's Discussion And Analysis Continued
option, satisfy the redemption in cash or Class A Common Stock, or any
combination thereof. In the case of any such repurchase as of June 9, 2001, the
Company may elect, in lieu of the payment of cash or Class A Common Stock, to
satisfy the redemption in new Zero Coupon Convertible Senior Debentures due
2018.
EURO CONVERSION
On January 1, 1999, a single currency called the euro was introduced in
Europe. Eleven of the 15 member countries of the European Union adopted the euro
as their common legal currency on that date. Fixed conversion rates between
these participating countries' existing currencies (the "legacy currencies") and
the euro were established as of that date. The legacy currencies are scheduled
to remain legal tender as denominations of the euro until at least January 1,
2002 (but not later than July 1, 2002). During this transition period, parties
may settle transactions using either the euro or a participating country's
legacy currency. Beginning in January 2002, new euro-denominated bills and coins
will be issued and legacy currencies will be withdrawn from circulation. The
Company has implemented plans to address the issues raised by the euro currency
conversion. These plans include, among others, the need to adapt computer
information systems and business processes and equipment to accommodate
euro-denominated transactions; the need to analyze the legal and contractual
implications on contracts; and the ability of the Company's customers and
vendors to accommodate euro-denominated transactions on a timely basis. Since
the implementation of the euro on January 1, 1999, the Company has experienced
improved efficiencies in its cash management program in Europe as all
intracompany transactions within participating countries are conducted in euros.
In addition, the Company has reduced hedging activities in Europe for
transactions conducted between euro participating countries. Since the Company's
information systems and processes generally accommodate multiple currencies, the
Company anticipates that modifications to its information systems, equipment and
processes will be made on a timely basis and does not expect any failures which
would have a material adverse effect on the Company's financial position or
results of operations or that the costs of such modifications will have a
material effect on the Company's financial position or results of operations.
The Company has not experienced any material adverse effects on its financial
position or results of operations in connection with the January 1, 1999 first
stage conversion.
YEAR 2000 MATTERS
Introduction. The Company's Year 2000 ("Y2K") readiness issues are broad
and complex. As is the case with many computer software systems, some of the
Company's systems use two-digit data fields that recognize dates using the
assumption that the first two digits are "19" (i.e., the number "99" is
recognized as the year "1999"). Therefore, the Company's date-critical functions
relating to the year 2000 and beyond, such as sales, distribution, purchasing,
inventory control, merchandise planning and replenishment, facilities, and
financial systems, may be severely affected unless changes are made to these
systems.
State of Readiness. With the assistance of an outside consultant, the
Company commenced a review of its internal information technology ("IT") systems
to identify applications that are not Y2K ready and to assess the impact of the
Y2K problem. The Company has developed an overall plan to modify its internal
systems to be Y2K ready. In addition, the Company formed a Y2K Global Project
Team to provide global oversight to the Company's Y2K readiness activities in
the IT and non-IT areas, the assessment of Y2K risks in connection with
third-party relationships and the development of contingency plans.
The Company's Y2K plan is divided into three major sections: IT systems,
non-IT systems ("Non-IT Systems"), and Y2K interfaces with material third
parties. The broad phases of the plan are generally common to all three
sections. The phases consist of: (1) inventorying potential Y2K sensitive items,
(2) assigning priorities to identified items, (3) assessing the Y2K readiness of
items determined to be material to the Company, (4) repairing or replacing
material items that are determined not to be Y2K ready ("remediation"), (5)
testing material items and/or certification of Y2K readiness, i.e., validation
and written confirmation that the process, activity or component can properly
process a date beyond December 31, 1999 as it does earlier dates and (6)
designing and implementing contingency and business continuation plans for the
Company.
Please refer to "--Contingency Planning and Risks" regarding the Company's
progress for its Y2K plan with
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MANAGEMENT'S DISCUSSION AND ANALYSIS CONTINUED
respect to ERL, which became a subsidiary of the Company in February 1999.
Information Technology Systems. The Company has completed an inventory and
technical assessment (with the exception of personal computers, which are
assessed and remediated in a single step) of all of its global hardware,
operating systems, software (including business applications, but excluding
desktop software such as office tools) and electronic interfaces that were in
operation by the end of December 1998 ("IT Systems") for Y2K remediation. With
the exception of the Company's recently acquired German subsidiary, Macrotron,
the Company has completed remediation and unit testing or upgrading/replacement
of its IT Systems in the second quarter of 1999. As a result of the Company's
continued integration and consolidation of the Macrotron facilities, the Company
anticipates that the second-quarter 1999 completion date for remediation and
unit testing or upgrading/replacement of Macrotron's IT Systems will be extended
by two months. With the exception of Macrotron and ERL, the Company has
completed system and century testing and certification of Y2K readiness of all
of its IT Systems in the second quarter of 1999. All systems or systems
enhancements implemented since December 1998 have been developed as Y2K ready
and do not require remediation. However, all are subjected to Y2K unit and
century testing.
The Company uses different test methodologies for different phases: (1)
unit testing is used to verify that the individually changed components function
properly at the unit level, (2) system/integration testing is used to verify
that all changed components function as a complete system, (3) regression
testing is used to verify that changes made for Y2K readiness do not impact any
other functions within the IT system, and (4) century testing, i.e., simulating
the transition to January 1, 2000, is used to validate that the entire IT system
will function on or after such date.
With respect to desktop software on the Company's personal computers, the
Company provided to its associates before the end of 1998 a list of Y2K ready
versions of software. Associates were advised that if they have non-Y2K ready
versions of software on their personal computers, they must request upgrades to
Y2K ready versions of software. The Company has provided the necessary IT
support to upgrade associates' personal computers and is periodically reminding
associates to assure that the necessary upgrades occur and to make appropriate
adjustments to date-sensitive databases or programs.
Non-Information Technology Systems. The Non-IT Systems consist of any
device which is able to store and report date-related information, such as
access control systems, elevators, escalators, conveyors and sensors; building
systems; and other items containing a microprocessor or an internal clock such
as hand-held computers used to assist with inventory control, electric power
distribution systems and vaults. The Company has completed a global inventory
and assessment of its Non-IT Systems. All Non-IT Systems that are deemed
business-critical either (a) have written certifications that they are Y2K ready
(e.g., confirmations from manufacturers that the product is not impacted by the
Y2K date transition or will continue to operate on and after January 1, 2000
just as it did prior to such date) or (b) have been replaced and/or modified to
be Y2K ready by the end of the second quarter of 1999.
Y2K Interfaces with Material Third Parties. The Company has completed an
inventory of third parties (including, among other things, domestic and
international suppliers and vendors, financial service providers and
transportation and other logistics providers) whose Y2K noncompliance could have
a material adverse effect on the Company's business, financial condition or
results of operations. In addition, the Company has sent questionnaires to all
such third parties in order to determine their current Y2K status, tracking
responses to these questionnaires and using such responses towards contingency
plan development. The Company has completed such assessment and inquiry. Follow
up inquiries, where appropriate, are planned throughout the remainder of 1999.
Costs to Address Y2K Readiness. The Company has incurred approximately
$6.5 million to date on Y2K readiness efforts (excluding compensation and
benefit costs for associates who do not work full time on the Y2K project and
costs of systems upgrades that would normally have been made on a similar
timetable) with respect to IT Systems and anticipates that its total
expenditures will not exceed $10 million. However, such amount does not reflect
costs for upgrades to servers, personal computers, communications equipment and
Non-IT Systems on a global basis as a result of potential new acquisitions
and/or business relationships throughout the remainder of 1999 as the scope of
this cost will not be known until the Company has completed technical assessment
of all of these areas. Although there are opportunity costs and some diversion
of human resources to the Company's Y2K
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MANAGEMENT'S DISCUSSION AND ANALYSIS CONTINUED
readiness efforts, management believes that no significant IT projects have been
deferred or accelerated due to this effort.
Contingency Planning and Risks. The Y2K Global Project Team is responsible
for the development of a global contingency plan to address the Company's
at-risk business functions as a result of Y2K issues. The Company completed its
global contingency plan in the second quarter of 1999. In the normal course of
business, the Company maintains and deploys contingency plans designed to
address various other potential business interruptions. For example, the Company
has the capability in the United States to automatically reroute incoming
telephone calls, such as from its Santa Ana (West Coast sales) facility to its
Buffalo (East Coast sales) facility, and the ability to reroute warehouse
shipping from one U.S. location to another location. Although these plans are
not Y2K-specific, they may be applicable to address limited Y2K failures or
interruption of support provided by some third parties resulting from their
failure to be Y2K ready.
The Company's global IT and Non-IT operations are highly centralized in
the United States. The Company's strategy with respect to Y2K readiness is to
resolve its Y2K issues from a global perspective first through its U.S.
operations. For example, the Company's core enterprise system, IMpulse, is based
in the U.S. but operates globally. Remediation of this system is effective
across the Company's entire operations. However, the Company may continue to
experience risks with respect to new acquisitions where new management may not
be as familiar with the Company's computer systems (although the Company strives
to convert newly acquired operations to IMpulse as soon as possible), or the
existing associates may not be familiar with the Company's Y2K plan. For
example, the Company completed an unconditional tender offer for ERL's shares
and warrants on February 19, 1999. The Company currently believes that it will
complete the various stages with respect to IT Systems, Non-IT Systems and Y2K
interfaces with material third parties in the ERL organization approximately two
months later than the target dates set forth above. A similar extension of
approximately two months of the target dates for the remediation and unit
testing or upgrading/replacement of IT Systems for the Company's recently
acquired Macrotron organization in Germany is anticipated.
The failure to correct a material Y2K problem could result in an
interruption in, or a failure of, certain normal business activities or
operations. Such failure could materially and adversely affect the Company's
results of operations, liquidity and financial condition. In addition, the
Company's operating results could be materially adversely affected if it were to
be held responsible for the failure of any products sold by the Company to be
Y2K ready despite the Company's disclaimer of product warranties and the
limitation of liability contained in its sales terms and conditions.
NEW ACCOUNTING STANDARDS
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities" ("FAS 133"), which will become effective for the Company
in fiscal year 2001. FAS 133 establishes accounting and reporting standards for
derivative instruments, including certain derivative instruments embedded in
other contracts, (collectively referred to as derivatives) and for hedging
activities. The Company does not expect the adoption of FAS 133 to have a
material impact on its reported consolidated financial condition or results of
operations.
CAUTIONARY STATEMENTS FOR THE PURPOSE OF THE SAFE HARBOR PROVISIONS OF THE
PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
The matters in this Form 10-Q that are forward-looking statements are
based on current management expectations that involve certain risks, including
without limitation: the potential decline as well as seasonal variations in
demand for the Company's products; the potential termination of a supply
agreement with a major supplier; continued pricing and margin pressures; product
supply shortages; rapid product improvement and technological changes, and
resulting obsolescence risks; unavailability of adequate capital; the impact on
management of growth and acquisitions; foreign currency fluctuations; the
failure to achieve substantial Year 2000 readiness; and reliability of
information systems. For further discussion of these and other significant
factors to consider in connection with forward-looking statements concerning the
Company, reference is made to Exhibit 99.01 of the Company's Annual Report on
Form 10-K for fiscal year ended January 2, 1999; other risks or
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MANAGEMENT'S DISCUSSION AND ANALYSIS CONTINUED
uncertainties may be detailed from time to time in the
Company's future SEC filings.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
19
<PAGE> 20
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Not applicable.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
Not applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a) The Annual Meeting of Shareowners was held on May 6, 1999.
(b) The one matter submitted for a vote at the Annual Meeting was the
election of seven directors (constituting the entire Board of
Directors). The following table lists the individuals and the number
of votes cast for, against or withheld and abstention for each such
individual elected to the Board of Directors for a term to expire at
the 2000 Annual Meeting of Shareowners. There were no broker
non-votes.
<TABLE>
<CAPTION>
Nominee No. of Votes
------- ------------
<S> <C> <C>
Don H. Davis, Jr. For 739,217,594
Withheld/Against 2,139,400
Abstention 48,840
John R. Ingram For 741,339,519
Withheld/Against 17,475
Abstention 48,840
Martha R. Ingram For 741,341,462
Withheld/Against 15,532
Abstention 48,840
Philip M. Pfeffer For 741,226,318
Withheld/Against 130,676
Abstention 48,840
J. Phillip Samper For 741,356,494
Withheld/Against 500
Abstention 48,840
</TABLE>
20
<PAGE> 21
<TABLE>
<CAPTION>
Nominee (continued) No. of Votes
------------------- ------------
<S> <C> <C>
Jerre L. Stead For 741,344,631
Withheld/Against 12,363
Abstention 48,840
Joe B. Wyatt For 741,236,423
Withheld/Against 120,571
Abstention 48,840
</TABLE>
ITEM 5. OTHER INFORMATION
Not applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
<TABLE>
<CAPTION>
No. Description
--- -----------
<S> <C>
10.44 Agreement with Douglas A. Antone dated June 23, 1999
10.45 Ingram Micro Supplemental Investment Savings Plan
27 Financial Data Schedule
</TABLE>
(b) Reports on Form 8-K
No reports on Form 8-K were filed by the Company during the thirteen weeks
ended July 3, 1999.
SIGNATURES
Pursuant to the requirements 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/ Michael J. Grainger
-----------------------------------
Name: Michael J. Grainger
Title: Executive Vice President and
Worldwide Chief Financial
Officer (Principal Financial
Officer and Principal
Accounting Officer)
August 17, 1999
21
<PAGE> 1
EXHIBIT 10.44
SEPARATION AGREEMENT
THIS SEPARATION AGREEMENT is entered into between Douglas R. Antone
("Associate") and Ingram Micro Inc., a Delaware corporation ("Ingram"), in
recognition of Associate's service to Ingram and in order to induce Associate to
continue to provide limited services to Ingram after his resignation. In
consideration of the mutual promises and agreements contained in this document,
intending to be legally bound, Associate and Ingram contract and agree as
follows:
1. Resignation. Associate has informed Ingram that he intends to resign as an
officer and employee of Ingram on July 16, 1999 (the "Separation Date").
2. Salary Continuation. Subject to Paragraph 11 hereof, as compensation for all
sums and benefits owed to and/or earned by Associate based on his employment
with Ingram and any and all of its Affiliates, and in consideration of
Associate's continuing obligations under this Agreement, Ingram will
continue to pay Associate his current base salary for a period of 20 weeks
after the Separation Date (the "Salary Continuation Period"). Such amount
shall be payable through Ingram's normal payroll procedures, and will be
subject to applicable withholding requirements.
3. COBRA Coverage. Associate acknowledges that, effective as of the Separation
Date, he will cease to be qualified to participate in the employee benefit
plans to which he was entitled as an associate or employee of Ingram.
Associate will, however, have the rights of a terminated employee to convert
and/or continue certain benefit coverages as provided in the respective
benefit plans, including COBRA continuation rights for medical and dental
coverages. Ingram will provide under separate cover further information to
Associate regarding COBRA continuation coverage and other conversion and/or
continuation rights. Notwithstanding the foregoing, but subject to Paragraph
11 hereof, during the Salary Continuation Period, Ingram will pay directly
or reimburse Associate for the amount by which the premiums for COBRA
continuation coverage exceeds the cost for the equivalent coverage which
Ingram charges its employees at that time.
4. Key Employee Stock Purchase Plan. Subject to Paragraph 11 hereof and
notwithstanding the provisions of Section 6(b)(i) of the Acquisition
Agreement dated June 27, 1996 between Ingram and Associate relating to
Associate's purchase of 60,000 shares of Ingram Class B Common Stock under
the Ingram Key Employee Stock Purchase Plan (the "Acquisition Agreement"),
Ingram shall not exercise its right to repurchase the Shares (as such term
is defined in the Acquisition Agreement) for so long as Associate performs
his obligations under this Agreement and will be permitted to exercise its
repurchase rights only with respect to the Restricted Shares (as such term
is defined in the Acquisition Agreement), owned by Associate, if any, as of
the date of any failure by Associate to perform his obligations. Except as
modified hereby, the Acquisition Agreement shall continue in full force and
effect in accordance with its terms.
1
<PAGE> 2
5. Non-disclosure. Associate acknowledges his obligation not to disclose,
during or after employment, any trade secrets or proprietary and/or
confidential data or records of Ingram or its Affiliates or to utilize any
such information for private profit. Each of the parties hereto agrees that
such party will not release, publish, announce or otherwise make available
to the public in any manner whatsoever any information or announcement
regarding this Agreement or the transactions contemplated hereby without the
prior written consent of the other party hereto, except as required by law
or legal process, including, in the case of Ingram, filings with the
Securities and Exchange Commission. Associate agrees not to communicate
with, including responding to questions or inquiries presented by, the
media, employees or investors of Ingram, its Affiliates or any third party
relating to the terms of this Agreement, without first obtaining the prior
written consent of Ingram. Notwithstanding the foregoing, Associate may make
disclosure to his spouse, attorneys and financial advisors of the existence
and terms of this Agreement provided that they agree to be bound by the
provisions of this Paragraph 5. Each party agrees not to make statements or
take any action to disparage, dissipate or negatively affect the reputation
of the other with employees, customers, suppliers, competitors, vendors,
stockholders or lenders of Ingram, its Affiliates or any third party.
6. Return of Property. Associate acknowledges his obligation to promptly return
to Ingram all property of Ingram and its Affiliates in his possession,
including without limitation all keys, credit cards, computers, office
equipment, documents, files and instruction manuals, on or before the
Separation Date, or earlier if Ingram so requests it.
7. Associate's Obligations. In consideration of the benefits and stock
ownership rights to be received by Associate hereunder, Associate and Ingram
have further agreed as follows:
a. Associate will not directly or indirectly make known to any person,
firm, corporation, partnership or other entity any list, listing or
other compilation, whether prepared or maintained by Associate, Ingram
or any of Ingram's Affiliates, which contains information that is
confidential to Ingram or any of its Affiliates about their customers
("Ingram Customers"), including but not limited to names and addresses,
or, at any time on or before April 1, 2000, call on or solicit, or
attempt to call on or solicit, in either case with the intent to divert
business or potential business from Ingram or any of its Affiliates, any
of the Ingram Customers with whom he has become acquainted during his
employment with Ingram or any of its Affiliates, either for his own
benefit or for the benefit of any other person, firm, corporation,
partnership or other entity.
b. Through April 1, 2000, Associate will not, and will not permit any
person, firm, corporation, partnership or other entity of which he is an
officer or control person to, (i) knowingly solicit, entice, or persuade
any individual who is an associate of Ingram or any of its Affiliates at
any time during the period from the date of this Agreement through April
1, 2000 (each such individual, an "Ingram Associate") to leave the
2
<PAGE> 3
services of Ingram or any of its Associates for any reason, or (ii)
solicit for employment, hire, or engage any present or future Ingram
Associate as an employee, independent contractor or consultant.
c. Associate acknowledges that he has unique knowledge of Ingram and its
Affiliates and unique knowledge of the computer and software sales and
distribution industry. Based on his unique status, he agrees that
through April 1, 2000, he will not be employed or hired as an employee
or consultant by, or otherwise directly or indirectly provide services
for, any of Tech Data, Merisel, Inacom, Pinacor, Ameriquest, Gates
Arrow, CHS Electronics, Trilogy, PC Order, Marshall, Hallmark, Hamilton
Avnet, Daisytek, Azerti, Azlan, Northamber, Tech Pacific, Synnex, and/or
GE Capital Information Technology Solutions-North America, Inc., and any
subsidiary or affiliate of these entities in a business or line of
business conducted by any such entity which competes with any line of
business conducted by Ingram or any of its Affiliates. Notwithstanding
the foregoing, should Associate be employed by an entity that is not a
subsidiary or affiliate of one of these entities at the time he
commences such employment, but subsequently becomes a subsidiary or
affiliate of, or becomes merged into, one of these entities on or before
April 1, 2000, he shall not be deemed to be in breach of the provisions
of this Paragraph 7.c due to such employment provided that at the time
he commenced his employment there had been no public announcement of an
agreement pursuant to which his employer would become a subsidiary or
affiliate of, or merged into, one of these entities or discussions that
could lead to such an agreement and Associate had no knowledge of the
existence of any such agreement or discussions. Associate further agrees
that he will not own any interest in, provide financing to, be connected
with, or be a principal, partner or agent of any such competitive
distributor or aggregator; provided, however, he may own less than 1% of
the outstanding shares of any such entity whose shares are traded in the
public market.
d. Subject to Associate's other commitments, upon request of Ingram or any
of its Affiliates from the Separation Date through April 1, 2000,
Associate will make himself available to provide reasonable assistance
to Ingram or any such Affiliate up to a maximum of 15 hours per month
and will use reasonable efforts to arrange his commitments so as to make
himself available for such assistance on a basis which is consistent
with the requests of Ingram or any of its Affiliates. Such assistance
may include telephone conversations, correspondence, attendance and
participation in meetings, transfer of knowledge or information
regarding operational or other issues, litigation preparation and
trials. During such period, Ingram shall reimburse Associate for any
out-of-pocket expenses he may incur in connection with such assistance
in accordance with Ingram's reimbursement policies. After April 1, 2000,
Associate shall continue to provide such assistance as requested by
Ingram and, in such event, shall be compensated at a rate per day
(minimum charge, one half day) commensurate with the daily rate he was
earning based on his current base salary immediately prior to the
Separation Date.
3
<PAGE> 4
The running of the periods prescribed in this Paragraph shall be tolled
and suspended by the length of time Associate works in circumstances
that a court of competent jurisdiction subsequently finds to violate
the terms of this partial restraint.
8. Rights in Event of Breach. In the event of Associate's breach of this
Agreement (excluding breach of this Agreement due to death or total
disability and provided that in the event of a breach of Paragraph 7.c or
7.d, such breach shall have continued for 15 days after the sooner of
Associate's discovery thereof or receipt of notice from Ingram thereof), in
addition to all other rights and remedies to which Ingram may be entitled by
law or in equity, Ingram shall have no obligation to make any further
payments hereunder and may purchase any remaining Restricted Shares under
the Acquisition Agreement. If Ingram exercises such right, Associate's
obligations under Paragraph 7.c and 7.d will terminate.
9. Confidential Information. This Agreement will in no way void or diminish
Associate's obligation to protect and keep confidential any and all
proprietary and/or confidential information of Ingram and its Affiliates
which Associate may have or acquire in the future.
10. Injunctive Relief. Irreparable harm will be presumed if Associate breaches
any covenant in this Agreement and damages may be very difficult to
ascertain. In light of these facts, Associate agrees that any court of
competent jurisdiction should immediately enjoin any breach of this
Agreement upon the request of Ingram, and Associate specifically releases
Ingram from the requirement of posting any bond in connection with temporary
or interlocutory injunctive relief, to the extent permitted by law. The
granting of injunctive relief by any court shall not limit Ingram's right to
recover any amounts previously paid to Associate under this Agreement or any
damages incurred by it due to a breach of this Agreement by Associate.
11 Release by Associate. As a condition to Ingram's obligations pursuant to
Paragraphs 2, 3 and 4, Associate shall deliver an executed release and
waiver as of the Separation Date in the form of Exhibit A hereto.
12. Sole Remedy. Associate agrees that, in the event Ingram breaches any
provision of this Agreement, his sole remedy for such breach shall be
enforcement of the terms of this Agreement or, in the case of a breach of
Paragraph 4 hereof, at Associate's election, recovery of any provable
damages as a result of such breach.
13. Attorney Fees. In the event that either party hereto files suit to enforce
or interpret the provisions of this Agreement, the prevailing party shall be
entitled to reasonable attorney's fees and costs incurred therewith.
14. Definition of Affiliate. An "Affiliate" of Ingram for purposes of this
Agreement shall include any corporation or business entity in which Ingram
owns, directly or indirectly, at least 15% of the outstanding equity
interest.
4
<PAGE> 5
15. Enforceability. If any provision of this Agreement shall be held invalid or
unenforceable, the remainder of this Agreement shall nevertheless remain in
full force and effect. If any provision is held invalid or unenforceable
with respect to a particular circumstance, it shall nevertheless remain in
full force and effect in all other circumstances.
16. Notices. Any notices, requests, demands and other communications required or
permitted to be given or made hereunder shall be in writing and shall be
deemed to have been duly given (a) on the date delivered if personally
delivered, (b) on the third day after deposit in the U.S. mail or with a
reputable air courier service, properly addressed with postage or charges
prepaid, or (c) on the date transmitted by telefax if the sender receives
electronic confirmation of receipt of such telefax, to the address or
telefax number of Ingram or Associate, as the case may be, set forth on the
signature page of this Agreement.
17. Entire Agreement. This instrument contains and accurately recites the
complete and entire agreement among the parties, and it expressly
terminates, cancels, and supersedes any and all prior agreements or
understandings, if any, among the parties, including without limitation the
Separation Agreement executed by Ingram effective May 1, 1998 and by
Associate effective May 18, 1998, as subsequently amended. This Agreement
may not be modified except in writing signed by the parties.
18. Governing Law. This Agreement shall be governed by California law, without
regard to the choice or conflict of law provisions thereof.
19. Paragraph Titles. The paragraph titles used in this Agreement are for
convenience only and do not define or limit the contents of any paragraph.
20. Successors and Assigns. This Agreement shall be binding upon, and shall
inure to the benefit of, the heirs of Associate and the successors and
assigns of Ingram.
5
<PAGE> 6
Executed and delivered to Associate by Ingram on June 17, 1999 and executed
by Associate on the date set out below.
Notice Information: "Ingram"
Ingram Micro Inc. INGRAM MICRO INC.
1600 E. St. Andrew Place
Santa Ana, California 92705
Attention: Cyndy McGuire
Telephone: (714) 566-1000, ext. 22500
Facsimile: (714) 566-7733 By: /s/ JERRE L. STEAD
-----------------------------
Title: Chairman and Chief
Executive Officer
"Associate"
6/23/99 /s/ DOUGLAS A. ANTONE
- ---------------------------- ---------------------------------
Date Douglas A. Antone
Address:_________________________
_________________________________
_________________________________
Facsimile:_______________________
6
<PAGE> 1
EXHIBIT 10.45
INGRAM MICRO
SUPPLEMENTAL INVESTMENT SAVINGS PLAN
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
INTRODUCTION.............................................................................................1
1.01 ESTABLISHMENT AND NAME OF PLAN...............................................................1
1.02 INTENT AND STATUS OF PLAN....................................................................1
1.03 PRIOR PLAN BENEFITS..........................................................................1
DEFINITIONS..............................................................................................2
ELIGIBILITY AND PARTICIPATION............................................................................5
3.01 ELIGIBILITY..................................................................................5
3.02 PARTICIPATION................................................................................5
3.03 TERMINATION OF PARTICIPATION FOR PURPOSES OF MAKING DEFERRALS................................5
DEFERRED COMPENSATION ACCOUNTS...........................................................................6
4.01 DEFERRED COMPENSATION ACCOUNT................................................................6
4.02 ELECTIVE DEFERRAL AMOUNTS....................................................................6
4.03 MATCHING EMPLOYER AMOUNTS....................................................................8
4.04 DEEMED INVESTMENT AMOUNTS CREDITED TO DEFERRED COMPENSATION ACCOUNTS.........................9
4.05 ALLOCATION OF ACCRUED EARNINGS AND LOSSES OF DEEMED INVESTMENTS..............................9
DISTRIBUTION OF DEFERRED COMPENSATION BENEFITS..........................................................10
5.01 IN GENERAL..................................................................................10
5.03 HARDSHIP DISTRIBUTIONS......................................................................10
5.04 VESTING.....................................................................................11
5.05 AMOUNT AND METHOD OF DISTRIBUTION OF BENEFITS...............................................12
5.06 COMMITTEE DECISION..........................................................................13
5.07 PAYMENTS AFTER PARTICIPANT'S DEATH..........................................................14
5.08 DESIGNATION OF BENEFICIARIES................................................................14
5.09 LOANS.......................................................................................14
FINANCING AND UNFUNDED STATUS...........................................................................15
6.01 COSTS BORNE BY THE PARTICIPATING COMPANIES..................................................15
6.02 SOURCE OF BENEFIT PAYMENTS AND MEDIUM OF FINANCING THE PLAN.................................15
6.03 UNFUNDED STATUS.............................................................................15
FORFEITURE..............................................................................................16
7.01 FORFEITURES.................................................................................16
7.02 CERTAIN FORFEITURE CONDITIONS...............................................................16
7.03 TREATMENT OF FORFEITURES....................................................................16
ADMINISTRATION..........................................................................................17
8.01 GENERAL ADMINISTRATION......................................................................17
8.02 COMMITTEE PROCEDURES........................................................................17
8.03 FACILITY OF PAYMENT.........................................................................17
8.04 INDEMNIFICATION OF COMMITTEE MEMBERS........................................................18
AMENDMENT AND TERMINATION OF PLAN.......................................................................19
9.01 AMENDMENT AND TERMINATION...................................................................19
GENERAL PROVISIONS......................................................................................20
10.01 LIMITATION OF RIGHTS........................................................................20
10.02 NO ASSIGNMENT OR ALIENATION OF BENEFITS.....................................................20
10.03 SUCCESSORS..................................................................................20
10.04 GOVERNING LAW...............................................................................21
</TABLE>
<PAGE> 3
ARTICLE 1
INTRODUCTION
1.01 ESTABLISHMENT AND NAME OF PLAN
Effective November 6, 1996, Ingram Micro Inc. established an unfunded,
deferred compensation plan primarily for the purpose of providing
deferred compensation for a select group of management or highly
compensated employees of the Participating Companies, entitled the
"Ingram Micro Inc. Supplemental Executive Deferred compensation Plan".
Except as otherwise specifically stated, the plan is hereby, amended,
restated and re-named the Ingram Micro supplemental Investment Savings
Plan generally effective July 1, 1999.
1.02 INTENT AND STATUS OF PLAN
The Plan is intended to be unfunded plan maintained by the Corporation
with the Participating Companies primarily for the purpose of providing
deferred compensation for a select group of management or highly
compensated employees (and intended to be within the exemptions
therefore in, without limitation, Sections 201(2), 301(a)(3), 401(a)(1)
and 4021(b)(6) o ERISA and section 220.104-23 of the Labor
Regulations). The Plan is intended to be "unfunded"" for purposes of
both ERISA and the Code. The Plan is not intended to be qualified as a
qualified plan under Section 401(a) of the Code; rather, the Plan is
intended to be a "nonqualified" plan.
1.03 PRIOR PLAN BENEFITS
Notwithstanding anything in the Plan to the contrary, this plan is
intended to include the Benefits and liabilities that Ingram Micro Inc.
had under the Ingram Industries, Inc. Supplemental Executive Deferred
Compensation Plan (the "Prior Plan"). As a result, any of the remaining
benefits earned by employees of Ingram Micro Inc. Under the Prior Plan
prior to the Effective Date shall become benefits under this plan and
shall be provided only by this plan.
1
<PAGE> 4
ARTICLE 2
DEFINITIONS
Each following word, term and phrase shall have the following
respective meanings whenever such word, term or phrase is capitalized
and used in any Article of this Plan unless the context clearly
indicates otherwise:
2.02 "ASSOCIATE" has the same meaning as such term is defined in the Savings
Plan.
2.03 "BOARD" means the board of Directors of the Corporation.
2.04 "COMMITTEE" means the Committee appointed by the Board to administer
the Plan pursuant to Article 8 hereof. If no such Committee has been
appointed, then the term Committee shall mean the Corporation.
2.05 "CODE" means the Internal Revenue Code of 1986, as amended from time to
time.
2.06 "COMPENSATION" means the same as "Compensation" as defined under the
amended, restated and renamed Ingram Micro 401(k) Investment Savings
Plan, effective January 1, 1999, (as defined in Section 2.13 of the
Savings Plan), but without the Code section 401(a)(17) dollar limit.
2.07 "COMPENSATION DEFERRAL AGREEMENT" means the written agreement to defer
Compensation contemplated y articles 3 and 4 hereof executed by the
Participant and the Participating Company.
2.08 "COMPENSATION DEFERRAL DATE" means the Effective Date in the initial
plan year, and January 1, in each calendar year thereafter.
Notwithstanding the foregoing, the Committee may declare a special
Compensation Deferral date each year, so that a participant may elect
prior to such special Compensation Deferral Date to make a supplemental
deferral as described in Section 4.02(a)(iv) hereof.
2.09 "COMPENSATION DEFERRAL PERIOD" means the period beginning on the
Effective date and ending on December 31 (the calendar year).
Notwithstanding the foregoing, there shall be a special Compensation
Deferral Period for purposes of supplemental deferrals, as described in
Section 4.02(a)(iv), which shall begin on the special Compensation
Deferral Date declared by the Committee and shall end on the following
December 31.
2.10 "CORPORATION" means Ingram Micro Inc., a Delaware Corporation and any
business organization or corporation into which Ingram Micro Inc. may
be merged or consolidated or by which it may be succeeded.
2.11 "DEFERRED COMPENSATION ACCOUNT" means the separate book reserve account
established y the Participating Companies pursuant to Article 4 of this
Plan for each Participant to which shall be credited (added) the
Participant's share of any
2
<PAGE> 5
elective Deferral amounts and Matching Employer Amounts; and from which
any distributions, any hardship withdrawal distributions, and any
Forfeitures shall be subtracted; and which shall be adjusted for
allocation of accrued earnings and losses thereon as descried in
Sections 4.04 or 4.05 hereof and for allocation of any Forfeitures
(which arises pursuant to Section 5.04)) pursuant to Section 7.03
hereof. All amounts which are credited to such Deferred Compensation
Account are credited solely for computation purposes and are at all
times general assets of the Participating Companies and subject to the
claims of the general creditors of the Participating companies. A
Participant's Deferred Compensation Account shall be utilized solely as
a device for the determination and measurement of the amounts (subject
to vesting provisions in this Plan) to e paid as deferred compensation
benefits to the Participant or his beneficiary pursuant to the Plan.
Any Associate or Participant shall not have at any time any interest in
or to such Deferred Compensation Account or in any deemed investment
thereof. A Participant's Deferred Compensation Account shall not
constitute or be treated as a trust or trust fund of any kind. For
purposes of administrative convenience and for purposes of certain
provisions of this Plan, each Participant's deferred Compensation
Account shall be divided into the following subaccounts or parts:
"PART I" attributable to Elective Deferral Amounts pursuant to
Section 4.02 hereof; and
"PART II" attributable to Matching Employer Amounts pursuant
to Section 4.03 hereof.
Notwithstanding anything in the Plan to the contrary, the Deferred
Compensation Account shall include the amounts allocated under the
Prior Plan pursuant to Section 1.03 hereof.
2.12 "DISABILITY" shall mean the inability to engage in any substantially
gainful activity by reason of any medically determinable physical or
mental impairment that can be expected to result in death or to be of
continued and indefinite duration, as determined by the Committee on
the basis of medical evidence by a licensed physician designated by the
Committee.
2.13 "DISTRIBUTION DATE" means either the (a) March 31 in the Plan Year
following the Plan Year in which the participant terminates employment
with the Participating Companies and subsidiaries or (b) such earlier
date as the Committee may, in its sole discretion determine, which
immediately follows the termination of employment of the Participant,
as provided in Section 5.02 of the Plan.
2.14 "EFFECTIVE DATE" of the amended, restated and renamed Plan means July
1, 1999, except as otherwise specifically stated.
3
<PAGE> 6
2.15 "ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time.
2.16 "FORFEITURE" means the portion of a Participant's Deferred Compensation
Account (or parts thereof) which is forfeited before full vesting
occurs pursuant to Section 5.04(c) or which is forfeited under section
7.02 hereof.
2.17 "PARTICIPANT" mans an eligible Associate participating in the Plan
pursuant to the provisions of Article 3 hereof.
2.18 "PARTICIPATING COMPANY" means any "Employer" as defined in the Savings
Plan.
2.19 "PLAN" means this Ingram Micro Supplemental Investment Savings Plan as
established and set forth herein (together with any and all supplements
hereto), and as amended from time to time.
2.20 "PLAN YEAR" means the twelve (12) consecutive month period beginning on
each January 1 and ending on each following December 31 thereafter (the
calendar year).
2.21 "SAVINGS PLAN" means the Ingram Micro Thrift Plan (which was
established effective October 1, 1996, as amended from time to time,
and as in effect on the relevant date to be interpreted hereunder and
the amended, restated and re-named the Ingram Micro 401(k) Investment
Savings Plan effective January 1, 1999. References in this Plan to the
Savings Plan (including references to provisions, articles, and
sections of the Savings Plan) include references to the Savings Plan as
it may be amended from time to time (and references to provisions,
articles, and sections of the Savings Plan include references to
corresponding or succeeding provisions in the Savings Plan as it may be
amended from time to time).
2.22 "SUBSIDIARY": shall mean any corporation that is a member of a
controlled group of corporations of which a Participating Company is a
member, or any unincorporated trade or business that is under common
control of or with any Participating Subsidiary as determined under
Code section 414(b). For purposes of this definition, a "controlled
group of corporations" shall mean a controlled group of corporations as
defined in Code Section 1563(a)(4) and (e)(3)(C).
4
<PAGE> 7
ARTICLE 3
ELIGIBILITY AND PARTICIPATION
3.01 ELIGIBILITY.
Eligibility to participate in the Plan shall be limited to Associates
of the Participating companies who are in a select group of management
or highly compensated Associates and who are designated, from time to
time, by the committee as eligible to participate in the Plan.
3.02 PARTICIPATION.
An Associate eligible to participate in the Plan as provided in Section
3.01 hereof may elect to become a participant in the Plan by electing
to defer Compensation with respect to any Compensation Deferral Period
under Article 4 hereof by completing and delivering to the Committee a
duly executed Compensation Deferral Agreement as provided in Section
4.02.
3.03 TERMINATION OF PARTICIPATION FOR PURPOSES OF MAKING DEFERRALS.
Participation in the Plan for purposes of being able to make Elective
deferral amounts pursuant to section 4.02 hereof under this Plan shall
terminate when a Participant's employment with the Participating
companies as an Associate terminates (even though he may be employed by
a Subsidiary which is not a Participating Company), when such
Participant is no longer designated by the committee as an Associate
eligible to participate in the Plan, or at such time as the Participant
delivers to the Committee a written notice suspending future deferrals.
5
<PAGE> 8
ARTICLE 4
DEFERRED COMPENSATION ACCOUNTS
4.01 DEFERRED COMPENSATION ACCOUNT.
On behalf of Participating Companies the Committee shall establish and
maintain for each Participant or former Participant under the Plan (or
the Prior Plan as described in Section 1.03) a book reserve account
(the Deferred Compensation Account as defined in Section 2.10 hereof)
for the purpose of determining deferred compensation payable to the
Participant. Separate subaccounts shall be maintained as provided in
Section 2.1 consisting of Part I (attributable to Elective Deferral
Amounts pursuant to Section 4.02 hereof) and Part II (attributable to
Matching Employer Amounts pursuant to Section 4.03 hereof). Such
Deferred compensation Accounts (and subaccounts or parts thereof) shall
be governed by the provisions of this Article 4.
4.02 ELECTIVE DEFERRAL AMOUNTS.
Elective Deferral of Compensation by Participants under the Plan is
governed by the provisions of this Section. Amounts deferred by a
Participant pursuant to this Section shall constitute "Elective
Deferral Amounts" for purposes of this plan.
(a) Compensation Elective Deferrals. The following provisions apply to
elective deferral of Compensation by Participants under the Plan.
(i) Compensation Deferral Elections by Participants. With respect
to a Compensation deferral Period, a Participant may make an
election prior to the Compensation Deferral Date on which
such Compensation deferral Period begins to defer a specified
percentage of the Compensation which would otherwise be
payable by the Participating company to the Participant
during the Compensation Deferral Period beginning on such
Compensation Deferral Date. Any such election shall be made
on a Compensation Deferral Agreement which is duly executed
by the Participant and which is delivered by such Participant
to the Committee before such Compensation Deferral Date and
may not be revoked, changed or modified for and during the
applicable Compensation Deferral Period, except as otherwise
provided in Section 4.02. In addition, a Participant electing
to make Compensation Election Deferrals to this Plan under a
Compensation Deferral Agreement is also electing to defer any
amounts that would have been deferred under the Savings Plan
but were stopped due to the limits imposed under the terms of
the plan.
6
<PAGE> 9
(ii) Compensation Deferral Elections by Certain New Participants.
In the case of an Associate who first becomes eligible to
participate in the Plan during Compensation Deferral Period,
such an Associate may make an election no later than thirty
(30) days following the date such employee first becomes
eligible to participate in the Plan to defer a specified
percentage of the Compensation which would otherwise be
earned by such employee and be payable by the participating
Employer after the later of (i) the date the Associate first
becomes eligible to participate in the Plan or (ii) the date
such Compensation Deferral Agreement is received by the
committee and during the remainder of the Compensation
Deferral Period. Any such election shall be made on a
Compensation Deferral Agreement which is duly executed by the
associate and which is delivered by such Associate to the
Committee no later than thirty (30) days following the date
the Associate first becomes eligible to participate in the
Plan, and may not be revoked, changed or modified for and
during the applicable Compensation Deferral Period, and the
provisions of Subsection 4.02(a)(iii) shall apply to any such
election. If such Associate does not make any such election,
such Associate may make an election under section 4.02(a)
with respect to the next Compensation Deferral Period (or
later Compensation Deferral Periods) pursuant to the
applicable provisions.
(iii) Continuation and Irrevocability of Election. Any election by
a Participant pursuant to Subsection 4.02(a)(ii)(and any
subsequent election) will continue (and may not be modified,
altered, or changed in any way) until the earliest of:
(A) the Compensation Deferral Period commencing after the
date the Participant delivers to the Committee a written
notice to suspend future deferrals of Compensation under
the Plan,
(B) the Compensation Deferral Period commencing after the
date on which the Participant delivers a new Compensation
Deferral Agreement modifying his previous election to the
Committee,
(C) the Participant is no longer designated as eligible to
participate in the Plan,
(D) the Participant terminates employment with the
Participating companies, or
(E) the Plan is amended or terminated such that the Plan no
longer permits deferrals of Compensation. A Participant
must make a new election each year prior to the next
Compensation Deferral Period to continue participating in
the Plan. The failure to make an election prior to any
Compensation Deferral Period shall be deemed an election
not to participate for that period.
7
<PAGE> 10
(i) Limitations on Percentage Amounts. A Participant who elects
to make the maximum elective deferral to the Savings Plan for
a calendar year may elect to make a "basic deferral" of up to
fifteen percent (15%) of the Participant's annual
compensation otherwise payable to him, minus the maximum
amount that could have been contributed by the Participant in
the Savings Plan. In addition, such a participant may also
make a "supplemental deferral election" of the Participant's
compensation otherwise payable to him in an amount not to
exceed the amount of compensation that such participant
contributed to the Savings Plan in the preceding calendar
year which is refunded to such participant in the current
calendar year as a result of the special nondiscrimination
testing applicable to the Savings Plan. This election shall
be made at the same time prior to the Compensation deferral
Period as the "basic deferral" elections.
(b) Withholding and Crediting of Elective Deferral Amounts. The
Participating Company shall withhold the specified percentage
amounts deferred by the Participant hereunder from the Compensation
which is otherwise payable to the Participant. The committee shall
credit amounts equal to such withheld amounts to Part I of the
Participant's Deferred Compensation Account.
4.03 MATCHING EMPLOYER AMOUNTS.
With respect to each Compensation Deferral Period, an amount equal to
the matching percentage of the Participants elective deferral Amounts
(not in excess of 5% of his annual compensation) shall be credited to
Part II of the Participant's Deferred Compensation Account. Provided
however that the amount matched shall not exceed an amount equal to 5%
of the Participant's annual compensation reduced, not below zero (0),
by the maximum amount that could have been contributed by the
Participant in the Savings Plan. If at any time it is determined by the
Committee that the Savings Plan does not pass the applicable
nondiscrimination tests, any such excess employer matching
contributions shall be deposited into this Plan, rather than the
Savings Plan, subject to the limits set forth in this Section 4.03. For
purposes of calculating the employer matching contribution, the
Participant's annual compensation shall be the definition as set forth
in Section 2.05, excluding the annual bonus. The matching percentage
shall be determined under the following table based on the
Participant's "Years of Matching Service" under the Savings Plan as of
the first day of the Plan Year which includes the related Compensation
Deferral Period.
8
<PAGE> 11
Savings Plan Matching Percentage
Years of Applied to
Vesting Service Elective Deferral Amounts
---------------------------- -------------------------
Less than 5 50%
At least 5 but less than 10 75%
10 or more 100%
Such matching amount shall be credited to Part II of the Participant's
Deferred Compensation Account at such time as the Committee in its sole
discretion may determine, but within a reasonable time after the end of
the Plan Year to which such amount relates. Any such amounts shall
constitute "Matching Employer Amounts" for purposes of this plan.
4.04 DEEMED INVESTMENT AMOUNTS CREDITED TO DEFERRED COMPENSATION ACCOUNTS.
Solely as a device to measure amounts of deferred compensation payable
hereunder, the Committee shall establish uniform and nondiscriminatory
rules consistent with this Section for the treatment of amounts
credited to a Participant's Deferred compensation Account as if such
amounts were invested in the investment funds offered under the Savings
Plan. No investment of such amounts is required. Such rules shall be
similar to those under the Savings Plan, but shall be established in
the sole discretion of the committee. Such rules shall permit
Participants to designate deemed investment of amounts credited to a
Participant's deferred compensation Account among such funds and to
make transfers among such funds in a manner similar to those under the
Savings Plan.
4.05 ALLOCATION OF ACCRUED EARNINGS AND LOSSES OF DEEMED INVESTMENTS.
Solely as a device to measure amounts of deferred compensation payable
to Participants, former Participants, or beneficiaries hereunder, the
Committee shall establish uniform and nondiscriminatory rules
consistent with this Section to determine accrued income, gains and
losses from the investments of Deferred Compensation Accounts deemed to
be made pursuant to Section 4.04 hereof to be allocated among credit
balances of Deferred compensation Accounts. Any accrued earnings and
losses shall be allocated and credited to a Participant's Deferred
Compensation Account on a daily basis.
9
<PAGE> 12
ARTICLE 5
DISTRIBUTION OF DEFERRED COMPENSATION BENEFITS
5.01 IN GENERAL.
The benefits to be paid as deferred compensation are governed by the
provisions of this Article 5. A Participant whose employment with the
Participating Companies or Subsidiaries terminates for any reason shall
be entitled to distribution of benefits pursuant to this Article,
subject to the provisions of Article 7.
5.02 TIME OF DISTRIBUTION.
The Corporation on behalf of the Participating Company or Companies
shall commence distribution of benefits beginning with the Distribution
Date immediately following the Participant's termination of employment
with the Participating Companies and Subsidiaries for any reason
(including retirement at or after age 65, death or Disability).
Provided, however benefits shall be valued and made pursuant to the
provisions of Section 5.05 hereof.
5.03 HARDSHIP DISTRIBUTIONS.
Notwithstanding the foregoing, the Committee may, in its sole
discretion, commence distribution of benefits from Part I and Part II
of a Participant's Deferred Compensation Account as defined in Section
2.10, at any date earlier than that provided in Section 5.02 based on a
determination of an unforeseeable financial emergency. A hardship
distribution under this Section is only permitted after a Participant
has obtained any hardship distribution available under the Savings
Plan. A Participant may withdraw in cash the portion of the balance of
his deferral account needed to satisfy the unforeseeable financial
emergency, to the extent that the unforeseeable financial emergency may
not be relieved:
(a) Through reimbursement or compensation by insurance or otherwise; or
(b) By liquidation of the Participant's assets, to the extent the
liquidation of such assets would not itself cause severe financial
hardship.
An "unforeseeable financial emergency" is a severe financial hardship
to the Participant resulting from:
(i) A sudden and unexpected illness or accident of the
participant or of a dependent of the Participant;
(ii) Loss of the Participant's property due to casualty; or
10
<PAGE> 13
(iii) Such other similar extraordinary and unforeseeable
circumstances arising as a result of events beyond the
control of the Participant as determined by the Committee.
A withdrawal on account of an unforeseeable financial emergency shall be paid as
soon as possible following the date on which the Committee approves the
withdrawal.
5.04 VESTING
In connection with distribution of benefits to a former Participant due
to termination of employment with the participating Companies or
Subsidiaries for any reason pursuant to this Article 5 but subject in
all events to the provisions of Article 7 hereof, the Vested Percentage
of the Participant's Deferred compensation Account (and Parts therein)
shall be determined as of the date the event giving rise to
distribution under Section 5.02 hereof as follows:
(a) Death or Disability. If the distribution is due to the death or
Disability of the Participant, then the Vested Percentage of the
Participant in parts I and II of his Deferred compensation account
shall be 100%.
(b) Retirement At or After Age 65. If the distribution is due to the
termination of the Participant by all of the Participating
Companies and Subsidiaries by reason of his retirement at or after
attaining age 64, then the Vested percentage of the participant in
Parts I and II of his Deferred Compensation Account shall be 100%.
(c) Other Termination. If the distribution is due to the termination of
employment of the Participant by all of the participating Companies
and subsidiaries for any reason other than his death, Disability or
retirement at or after age 65, then the Vested Percentage of Part I
of the Participants Deferred Compensation Account shall be 100% and
the Vested Percentage of Part II of the Participant's Deferred
compensation Account shall be the same as his vested percentage
under the Savings Plan in company contributions. The portion of
Part II of a Participants Deferred Compensation Account in which he
is not vested as of the date of the termination of employment
giving rise to distribution under Section 5.02 hereof shall be
treated as a Forfeiture and the nonvested portion of a
Participant's balance deemed invested as described in the Savings
Plan, if any, shall be forfeited as of the Distribution Date. Such
Forfeitures shall be treated as provided in Article 7 hereof.
These vesting provisions are provided merely for purposes of
determining amounts of deferred compensation benefits payable
hereunder.
11
<PAGE> 14
5.05 AMOUNT AND METHOD OF DISTRIBUTION OF BENEFITS.
A Participant whose employment with the Participating companies or
subsidiaries terminates shall be entitled to the Participant's
respective Vested Percentage (determined under Section 5.04 hereof)
portions of the balances credited to Part I and Part II, respectively,
of his Deferred Compensation Account as of the Distribution Date as
determined by the Committee subject to the distribution method
determined by the Committee. Distribution of such deferred compensation
benefits to a former Participant under this Plan shall be made by the
Corporation on behalf of the Participating Companies as directed by the
Committee in its sole discretion as follows:
(a) Termination of Employment.
(i) In the event a Participant's employment terminates for any
reason, including (without limitation) death, retirement or
disability, then the vested percentage of the Participant's
Deferred Compensation Account shall be paid to the
Participant (and after the Participant's death to his
beneficiary). Payment shall be made in the form of quarterly
installments over a 10-year period commencing in the quarter
following the quarter in which the Participant terminates
employment. A Participant may elect to have distribution made
in one of the optional forms of payment as set forth below:
(A) Quarterly installment payments over a
(1) 15-year period; or
(2) 5-year period
(B) Single lump sum payment within 60 days following
termination of employment or on January 31st of the
following calendar year, as elected by the Participant.
(i) A Participant may make such distribution election by
completing a form approved by and filed with the Committee
within (30) days of the date the eligible Associate first
becomes a Participant. A Participant may change his form of
distribution under this section provided that he files the
change with the Committee at least one (1) year prior to his
Distribution Date. Once distribution begins, a Participant
may elect another form of distribution, however, such change
shall be subject to a 10% penalty which amount shall be
deducted and forfeited by the Participant.
12
<PAGE> 15
(ii) Notwithstanding the foregoing, if the Participant's vested
Deferred Compensation Account balance is Twenty-Five Thousand
Dollars ($25,000) or less, the balance in his account shall
be automatically distributed in the form of a cash lump sum
on the Participant's Distribution Date; or such earlier date
as the Committee may, at its sole discretion, determine which
immediately follows the date of termination.
(iii) If the Participant's vested Deferred Compensation Account
balance is paid in installments, the Participant's account
shall continue to be credited with earnings and losses
pursuant to Section 4.05 and the installment amount shall be
adjusted as well to reflect gains and losses until all
amounts credited to his account under the Plan have been
distributed.
(iv) Amounts payable pursuant to this Section shall be subject to
the limitation on payout under Section 5.05(d) herein.
(b) Death While Receiving Benefits. If a Participant is in pay status
at the time of death, his or her beneficiary shall be paid any
remaining amount due the Participant in the same form as elected by
the Participant pursuant to Section (a)(i).
(c) The Committee may, in its sole discretion, direct that the
Participating Company accelerate distributions under any option in
effect or pay any amounts in larger or more frequent installments,
as determined by it to be in the best interests of the former
Participant after consultation with the former Participant.
(d) Notwithstanding the foregoing, any hardship distributions which are
made as provided in Section 5.03 above from Part I or Part II of a
Participant's Deferred Compensation Account, as defined in Section
2.10, shall be made in such amounts and for such periods of time as
may be considered necessary by the Committee to meet the conditions
of such financial hardship. However, in no event will amounts in
excess of the remaining value of Part I or Part II of Participant's
Deferred Compensation Account, as defined in Section 2.10 become
payable to the Participant.
5.06 COMMITTEE DECISION.
Any decision to be made by the Committee under this Article 5 with
respect to the distribution of benefits with respect to a Participant
or former Participant under this Plan shall be made by the committee,
but such Participant shall exclude himself therefrom for purposes of
those decisions if such participant is a member of the Committee.
13
<PAGE> 16
5.07 PAYMENTS AFTER PARTICIPANT'S DEATH.
If the Participant's employment with the Participating Companies or
Subsidiaries is terminated because of his death, then the deferred
compensation benefits otherwise payable with respect to the Participant
under the Plan shall be paid in a lump sum or installments in a manner
similar to that provided in Section 8.2 of the Savings Plan as
determined by the Committee in its sole discretion. However, the
written election described in Section 8.2 of the Savings Plan for
installment payments shall not be available to a Participant under this
Plan, but the Committee may direct such installment payments in its
sole discretion.
If a former Participant dies after the date payment of benefits has
commenced under this Plan, then the beneficiary or beneficiaries
designated by that Participant shall be entitled to payment of any
remaining installments of deferred compensation benefits over the
remaining period; provided, however,
that the Committee may direct the acceleration of payment of benefits
hereunder in its sole discretion after consultation with the
beneficiary or beneficiaries.
5.08 DESIGNATION OF BENEFICIARIES.
The Participant may designate in writing (on a form provided by the
Committee and delivered to the Committee before his death) primary and
contingent beneficiaries to receive any deferred compensation benefit
payments which may be payable hereunder following the Participant's
death and the proportions in which such beneficiaries are to receive
such payments. The Participant may change such designation from time to
time and the last written designation delivered to the Committee prior
to the Participant's death will control. If the Participant fails to
specifically designate such a beneficiary, or if not designated
beneficiary survives the Participant, or if all designated
beneficiaries who survive the Participant die before all payments are
made, then the remaining payments shall be made to the Participant's
surviving spouse if such spouse is then living; if such spouse is not
living, then to such person or persons as would be entitled to take the
estate of the Participant under the intestacy laws of the state of
which such a Participant was a resident at the time of his death; and
if there are no such persons, then to the executors or administrators
of the estate of the Participant. The Committee may determine the
identity of such persons and shall incur no responsibility by reason of
the payment of such interest in accordance with any such determination
made in good faith.
5.09 LOANS.
Loans to Participants are not permitted from this Plan.
14
<PAGE> 17
ARTICLE 6
FINANCING AND UNFUNDED STATUS
6.01 COSTS BORNE BY THE PARTICIPATING COMPANIES.
The costs of the Plan shall be borne by the Participating Companies.
6.02 SOURCE OF BENEFIT PAYMENTS AND MEDIUM OF FINANCING THE PLAN.
All payments under this Plan shall be paid in cash by the Corporation
from the general funds of the Participating Companies and no special or
separate fund shall be established and no other segregation of assets
shall be made to assure the payment of benefits hereunder. Nothing
contained in this Plan, and no action taken pursuant to its provisions,
shall create or be construed to create a trust of any kind, or a
fiduciary relationship, between any Participating Company and any
Participant, any beneficiary or beneficiaries of a Participant, or any
other person. To the extent that any person acquires a right to receive
payments from any Participating Company, such right shall be no greater
than the right of an unsecured creditor of such Participating Company.
6.03 UNFUNDED STATUS.
This Plan is intended to be unfunded for purposes of both ERISA and the
Code.
15
<PAGE> 18
ARTICLE 7
FORFEITURE
7.01 FORFEITURES.
Forfeitures may arise pursuant to Section 5.04(C) or Section 7.02
hereof.
7.02 CERTAIN FORFEITURE CONDITIONS.
Notwithstanding anything contained to the contrary (including any
provisions of Article 5 hereof concerning "vesting"), no payment of any
then unpaid installments of deferred compensation in Part II of a
Participant's deferred Compensation Account shall be made and al rights
under this Plan of the Participant, his designated beneficiary or
beneficiaries, executors, administrators, legal representatives, or any
other person, to receive payments thereof from Part II of a
Participant's Deferred Compensation Account shall be forfeited and the
entire balance of Part II of a Participant's Deferred Compensation
Account forfeited and treated as a forfeiture if the Participant shall
engage in any activity or conduct which in the opinion of the Committee
is substantially detrimental to the best interests of the Participating
Companies.
7.03 TREATMENT OF FORFEITURES.
Forfeitures which arise pursuant to Section 5.04(c) shall be subtracted
(deleted) from the credit balance of Part II of a Participant's
Deferred Compensation Account. Such Forfeitures from Part II of a
Participant's Deferred Compensation Account deemed to be invested as
described in the Savings Plan shall be used either to offset future
Matching Employer amounts as described in Section 4.03 or to offset the
reasonable expenses of the Plan.
Amounts forfeited due to the operation of Section 7.02 shall be
subtracted (deleted) from the credit balance of Part II of a
participant's Deferred Compensation Account. Such amounts forfeited
pursuant to Section 7.02 shall not be treated as Forfeitures pursuant
to Section 5.04(C) but instead shall be treated as deleted from Part II
of a Participant's Deferred Compensation Account and no longer an
obligation of any Participating Company in any way.
16
<PAGE> 19
ARTICLE 8
ADMINISTRATION
8.01 GENERAL ADMINISTRATION.
The Board shall appoint a Committee consisting of not less than three
(3) persons to administer the Plan. Any member of the Committee may at
any time be removed, with or without cause, and his successor appointed
by the Board, and any vacancy caused by death, resignation or other
reason shall be filled by the Board. The Committee shall be the plan
administrator of the Plan and in general shall be responsible for the
management and administration of the Plan. The Committee shall have
full power to administer the Plan in all of its details (including
establishing claims procedures and other rules), subject to applicable
requirements of law. No member of the Committee who is an employee of
the Participating Companies or Subsidiaries shall receive compensation
for his services to the Plan. The Committee shall have such duties and
powers as may be necessary to discharge its duties under this Plan.
The fiscal records of the Plan shall be maintained on the basis of the
Plan Year.
8.02 COMMITTEE PROCEDURES.
The Committee may act at a meeting or in writing without a meeting. The
Committee may adopt such by-laws and regulations as it deems desirable
for the conduct of its affairs. All decisions shall be made by majority
vote. No member of the Committee who is at any time a participant in
this Plan shall vote in a decision of the Committee (whether in a
meeting or by written action) made specifically and uniquely with
respect to such member of the Committee or amount, payment, timing,
form or other aspect of the benefits of such Committee member under
this Plan.
8.03 FACILITY OF PAYMENT.
Whenever, in the Committee's opinion, a person entitled to receive any
payment of a benefit or installment thereof hereunder is under a legal
disability or is incapacitated in any way so as to be unable to manage
his financial affairs, the Committee may direct payments to such person
or to his legal representative or to a relative or friend of such
person for his benefit, or the Committee may direct the payment for the
benefit of such person in such manner as the Committee considers
advisable. Any payment of a benefit or installment thereof in
accordance with the provisions of this Section shall be a complete
discharge to the Committee and the Participating Companies of any
liability for the making of such payment under the provisions of the
Plan.
17
<PAGE> 20
8.04 INDEMNIFICATION OF COMMITTEE MEMBERS.
The Participating Companies shall indemnify and hold harmless each
member of the Committee against any and all liability, claims, damages
and expense (including all expenses reasonably incurred in his defense
in the event that the Participating Companies fail to provide such
defense upon his written request) which the Committee member may incur
while acting in good faith in the administration of the Plan.
18
<PAGE> 21
ARTICLE 9
AMENDMENT AND TERMINATION OF PLAN
9.01 AMENDMENT AND TERMINATION.
The Board may amend or terminate the Plan (without the consent of any
Participant, former Participant or beneficiary) at any time, provided
that such amendment does not decrease or divest any then Participant or
former Participant of the amounts in Part I of this deferred
Compensation Account as of the date of amendment and does not reduce
the Vested Percentage of any then Participant or former Participant in
any subaccount (Part) of his Deferred Compensation Account as of the
date of amendment.
19
<PAGE> 22
ARTICLE 10
GENERAL PROVISIONS
10.01 LIMITATION OF RIGHTS.
Neither the establishment of this Plan nor any amendment thereof, nor
the payment of any benefits, will be construed as giving to any
Associate, Participant, beneficiary, or other person any legal or
equitable right against the Participating Companies, except as provided
herein. Neither the establishment of this Plan nor any amendment
thereof, nor the payment of benefits, nor any action taken with respect
to this Plan shall confer upon any person the right to be continued in
the employment of the Participating Companies or Subsidiaries.
10.02 NO ASSIGNMENT OR ALIENATION OF BENEFITS.
The rights of a Participant, former Participant, beneficiary or any
other person to payment of benefits under this Plan shall not be
assigned, transferred, anticipated, conveyed, pledged or encumbered
except by will or the laws of descent or distribution; nor shall any
such right be in any manner subject to levy, attachment, execution,
garnishment or any other seizure under legal, equitable or other
process for payment of any debts, judgments, alimony, or separate
maintenance, or reached or transferred by operation of law in the event
of bankruptcy, insolvency or otherwise. Provided, however, that a
Participant shall have the right to designate in writing and in
accordance with the provisions of Section 5.08 hereof primary and
contingent beneficiaries to receive benefit payments subsequent to the
death of the Participant.
10.03 SUCCESSORS.
The provisions of this Plan shall be binding upon and inure to the
benefit of the Corporation, its successors, and assigns, and each
participant and his heirs, executors, administrators and legal
representatives. The term successors as used herein shall include any
corporate or other business entity which shall, whether by merger,
consolidation, purchase or otherwise, acquire all or substantially all
of the assets of the Corporation, and successors of any such
corporation or other business entity.
20
<PAGE> 23
10.04 GOVERNING LAW.
Except to the extent Federal law is controlling, the provisions of this
Plan shall be interpreted and construed according to the laws of the
State of California to the extent not preempted by applicable law.
IN WITNESS WHEREOF, the Corporation has caused this Plan to be duly
executed for and on behalf of the Corporation by its duly authorized
officers on this the ________ day of __________, 1999.
INGRAM MICRO INC.
By: ______________________________
Title: _____________________________
ATTEST:
_________________________
21
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<ARTICLE> 5
<MULTIPLIER> 1,000
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<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JAN-01-2000
<PERIOD-START> JAN-03-1999
<PERIOD-END> JUL-03-1999
<CASH> 142,500
<SECURITIES> 0
<RECEIVABLES> 2,729,478
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<INVENTORY> 2,848,583
<CURRENT-ASSETS> 5,965,154
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<DEPRECIATION> 201,698
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0
0
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<SALES> 13,530,088
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<TOTAL-COSTS> 13,336,974
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<INCOME-TAX> 51,950
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