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 4, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _____________ to ______________
Commission file number: 1-12203
INGRAM MICRO INC.
(Exact name of Registrant as specified in its charter)
DELAWARE 62-1644402
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
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 40,331,321 shares of Class A Common Stock, par value $.01 per
share, and 99,281,252 shares of Class B Common Stock, par value $.01 per share,
outstanding at July 4, 1998.
2
INGRAM MICRO INC.
INDEX
PART I. FINANCIAL INFORMATION
Pages
-----
Item 1. Financial Statements
Consolidated Balance Sheet at July 4, 1998 and January 3, 1998 3
Consolidated Statement of Income for the thirteen weeks and twenty-six
weeks ended July 4, 1998 and June 28, 1997 4
Consolidated Statement of Cash Flows for the twenty-six weeks ended
July 4, 1998 and June 28, 1997 5
Notes to Consolidated Financial Statements 6-7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 8-12
Item 3. Quantitative and Qualitative Disclosures About Market Risk 12
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 13
Item 2. Changes in Securities and Use of Proceeds 13
Item 3. Defaults Upon Senior Securities 13
Item 4. Submission of Matters to a Vote of Security Holders 13-14
Item 5. Other Information 14
Item 6. Exhibits and Reports on Form 8-K 14
Signatures 14
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
INGRAM MICRO INC.
CONSOLIDATED BALANCE SHEET
(Dollars in 000s, except per share data)
JULY 4, JANUARY 3,
1998 1998
----------- ----------
(UNAUDITED)
ASSETS
Current assets:
Cash $ 113,401 $ 92,212
Trade accounts receivable (less allowances of $54,643
and $48,541 at July 4, 1998 and January 3, 1998,
respectively) 1,842,512 1,635,728
Inventories 1,965,551 2,492,646
Other current assets 215,173 225,408
---------- ----------
Total current assets 4,136,637 4,445,994
Property and equipment, net 256,617 215,148
Goodwill, net 139,610 142,478
Other 139,586 128,531
---------- ----------
Total assets $4,672,450 $4,932,151
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $2,141,369 $2,415,001
Accrued expenses 257,138 292,515
Current maturities of long-term debt 14,825 21,869
---------- ----------
Total current liabilities 2,413,332 2,729,385
Long-term debt 1,018,498 1,119,262
Other 29,082 23,843
---------- ----------
Total liabilities 3,460,912 3,9872,490
Minority interest 5,234 4,862
Commitments and contingencies
Redeemable Class B Common Stock 8,129 16,593
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; 40,331,321 and 37,366,389 shares issued and
outstanding at July 4, 1998 and January 3, 1998,
respectively 403 374
Class B Common Stock, $0.01 par value, 135,000,000 shares
authorized; 99,281,252 and 99,714,672 shares issued and
outstanding (including 1,161,250 and 2,370,400
redeemable shares) at July 4, 1998 and January 3, 1998,
respectively) 981 973
Additional paid in capital 534,884 484,912
Retained earnings 678,602 566,441
Cumulative translation adjustment (16,522) (14,236)
Unearned compensation (173) (258)
---------- ----------
Total stockholder's equity 1,198,175 1,038,206
---------- ----------
Total liabilities and stockholders' equity $4,672,450 $4,932,151
========== ==========
See accompanying notes to these consolidated financial statements.
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INGRAM MICRO INC.
CONSOLIDATED STATEMENT OF INCOME
(Dollars in 000s, except per share data)
(Unaudited)
THIRTEEN WEEKS ENDED TWENTY-SIX WEEKS ENDED
------------------------ -------------------------
JULY 4, JUNE 28, JULY 4, JUNE 28,
1998 1997 1998 1997
---------- ---------- ----------- ----------
Net sales $4,956,121 $3,716,827 $10,106,209 $7,366,805
Cost of sales 4,640,639 3,474,702 9,460,817 6,889,972
---------- ---------- ----------- ----------
Gross profit 315,482 242,125 645,392 476,833
Expenses:
Selling, general and administrative 203,533 161,221 416,144 315,366
Noncash compensation charge 1,146 1,734 2,294 3,547
---------- ---------- ----------- ----------
204,679 162,955 418,438 318,913
---------- ---------- ----------- ----------
Income from operations 110,803 79,170 226,954 157,920
Other (income) expense:
Interest income (1,393) (1,238) (2,806) (2,052)
Interest expense 15,896 9,096 35,136 16,404
Net foreign currency exchange loss 1,219 91 2,794 154
Other 2,259 3,266 4,971 6,414
---------- ---------- ----------- ----------
17,981 11,215 40,095 20,920
---------- ---------- ----------- ----------
Income before income taxes and minority interest 92,822 67,955 186,859 137,000
Provision for income taxes 36,992 27,575 74,466 56,028
---------- ---------- ----------- ----------
Income before minority interest 55,830 40,380 112,393 80,972
Minority interest 205 412 232 627
---------- ---------- ----------- ----------
Net income $ 55,625 $ 39,968 $ 112,161 $ 80,345
========== ========== =========== ==========
Basic earnings per share $ 0.40 $ 0.30 $ 0.81 $ 0.60
========== ========== =========== ==========
Diluted earnings per share $ 0.37 $ 0.27 $ 0.75 $ 0.55
========== ========== =========== ==========
See accompanying notes to these consolidated financial statements.
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INGRAM MICRO INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(Dollars in 000s)
(Unaudited)
TWENTY-SIX WEEKS
ENDED
----------------------
JULY 4, JUNE 28,
1998 1997
--------- ---------
CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES:
Net income $ 112,161 $ 80,345
Adjustments to reconcile net income to cash provided by
operating activities:
Depreciation and amortization 30,283 21,207
Deferred income taxes 89 (1,329)
Minority interest 232 627
Noncash compensation charge 2,294 3,547
Changes in operating assets and liabilities:
Trade accounts receivable (216,068) (83,506)
Inventories 519,422 (35,060)
Other current assets 18,252 1,674
Accounts payable (266,536) (214,959)
Accrued expenses (45,989) 40,316
--------- ---------
Cash provided by (used in) operating activities 154,140 (187,138)
CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES:
Purchase of property and equipment (59,967) (40,061)
Proceeds from sale of property and equipment -- 10,249
Acquisitions, net of cash acquired (8,085) --
Other (4,403) (1,565)
--------- ---------
Cash used by investing activities (72,455) (31,377)
CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES:
Redemption of Redeemable Class B Stock (335) (350)
Exercise of stock options including tax benefits 39,673 8,830
Proceeds from issuance of convertible debenture 449,604 0
Proceeds of debt 10,816 44,259
Net borrowings under revolving credit facility (559,976) 190,639
--------- ---------
Cash provided (used) by financing activities (60,218) 243,378
Effect of exchange rate changes on cash (278) (1,826)
--------- ---------
Increase in cash 21,189 23,037
Cash, beginning of period 92,212 48,279
--------- ---------
Cash, end of period $ 113,401 $ 71,316
========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash payments during the period:
Interest $ 35,489 $ 15,702
Income taxes 69,539 67,533
See accompanying notes to these consolidated financial statements.
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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, and Latin America. In November 1996, the Company's former
parent, Ingram Industries Inc. ("Ingram Industries"), consummated a split-off of
the Company in a tax-free reorganization (the "Split-Off"). In connection with
the Split-Off, certain stockholders of Ingram Industries exchanged all or some
of their shares of Ingram Industries Common Stock for 107,251,362 shares of
Class B Common Stock of the Company in specified ratios.
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, consisting of only normal recurring adjustments, necessary to
present fairly the financial position of the Company and its wholly-owned and
majority-owned subsidiaries as of July 4, 1998, their results of operations for
the thirteen and twenty-six weeks ended July 4, 1998 and June 28, 1997 and their
cash flows for the twenty-six weeks ended July 4, 1998 and June 28, 1997. All
significant intercompany accounts and transactions have been eliminated in
consolidation. The results of operations for the twenty-six week period may not
be indicative of the results of operations that can be expected for the full
year.
NOTE 2 - EARNINGS PER SHARE
Effective in the fourth quarter of fiscal year 1997, the Company
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. Earnings per share for all prior
periods have been restated to reflect the adoption of FAS 128.
THE COMPOSITION OF BASIC EPS AND DILUTED EPS IS AS FOLLOWS:
THIRTEEN WEEKS ENDED TWENTY-SIX WEEKS ENDED
------------------------------ ----------------------------
JULY 4, JUNE 28, JULY 4, JUNE 28,
1998 1997 1998 1997
----------- ----------- ----------- -----------
Net income $ 55,625 $ 39,968 $ 112,161 $ 80,345
=========== =========== =========== ===========
Weighted average shares 138,898,854 134,999,003 138,154,012 134,886,284
=========== =========== =========== ===========
Basic earnings per share $ 0.40 $ 0.30 $ 0.81 $ 0.60
=========== =========== =========== ===========
Weighted average shares
including the dilutive
effect of stock options
(11,021,954 and 10,714,550
for the 13 weeks ended
July 4, 1998 and June 28,
1997, respectively, and
10,902,854 and 10,620,417
for the 26 weeks ended
July 4, 1998 and June 28,
1997, respectively) 149,920,808 145,713,553 149,056,866 145,506,701
=========== =========== =========== ===========
Diluted earnings per share $ 0.37 $ 0.27 $ 0.75 $ 0.55
=========== =========== =========== ===========
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INGRAM MICRO INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(DOLLARS IN 000S, EXCEPT PER SHARE DATA)
NOTE 3 - COMMON STOCK
The Company has two classes of Common Stock, consisting of 265,000,000
authorized shares of $0.01 par value Class A Common Stock and 135,000,000
authorized shares of $0.01 par value Class B Common Stock, and 1,000,000
authorized shares of $0.01 par value Preferred Stock. Class A stockholders are
entitled to one vote on each matter to be voted on by the stockholders whereas
Class B stockholders are entitled to ten votes on each matter to be voted on by
the stockholders. The two classes of stock have the same rights in all other
respects. Each share of Class B Common Stock may at any time be converted to a
share of Class A Common Stock; however, conversion will occur automatically on
the earliest to occur of (i) November 6, 2001; (ii) the sale or transfer of such
share of Class B Common Stock to any person not specifically authorized to hold
such shares by the Company's Certificate of Incorporation; or (iii) the date on
which the number of shares of Class B Common Stock then outstanding represents
less than 25% of the aggregate number of shares of Class A Common Stock and
Class B Common Stock then outstanding.
NOTE 4 - COMPREHENSIVE INCOME
Effective in the first quarter of fiscal 1998, the Company 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. Total comprehensive income
was $55,698 and $38,539 for the thirteen weeks ended July 4, 1998 and June 28,
1997, respectively, and $110,785 and $73,910 for the twenty-six weeks ended July
4, 1998 and June 28, 1997, respectively. The primary difference from net income
as reported is the tax effected change in cumulative translation adjustment.
NOTE 5 - LONG-TERM DEBT
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. 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. The debentures are currently convertible into
approximately 7.3 million shares of the Company's Class A Common Stock. The
debentures are redeemable at the option 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 or 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 redemption. In the event of a repurchase at the option
of a holder (other than upon a Fundamental Change) the Company may, at its
option, pay 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 payment of cash or Class A Common Stock, to satisfy the redemption in new
Zero Coupon Convertible Senior Debentures due 2018.
NOTE 6 - NEW ACCOUNTING STANDARDS
In June 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 131, "Disclosure about Segments of an
Enterprise and Related Information" ("FAS 131"), which will become effective for
the Company's full year fiscal 1998 reporting. FAS 131 establishes standards for
the way publicly-held companies report information about operating segments as
well as disclosures about products and services, geographic areas and major
customers. However, the Company does not expect the adoption of FAS 131 to have
a material impact on its reported consolidated financial condition or results of
operations.
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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.
THIRTEEN WEEKS ENDED TWENTY-SIX WEEKS ENDED
-------------------------------- ---------------------------------
JULY 4, JUNE 28, JULY 4, JUNE 28,
1998 1997 1998 1997
-------------- -------------- --------------- --------------
NET SALES BY GEOGRAPHIC REGION:
United States $3,479 70.2% $2,629 70.7% $6,935 68.6% $5,107 69.3%
Europe 1,011 20.4% 711 19.1% 2,186 21.6% 1,469 20.0%
Other international 466 9.4% 377 10.2% 985 9.8% 791 10.7%
-------------- -------------- --------------- --------------
Total $4,956 100.0% $3,717 100.0% $10,106 100.0% $7,367 100.0%
============== ============== =============== ==============
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.
PERCENTAGE OF NET SALES
---------------------------------------------------------
THIRTEEN WEEKS ENDED TWENTY-SIX WEEKS ENDED
------------------------ ------------------------
JULY 4, JUNE 28, JULY 4, JUNE 28,
1998 1997 1998 1997
-------- -------- ------- --------
Net sales 100.0% 100.0% 100.0% 100.0%
Cost of sales 93.6% 93.5% 93.6% 93.5%
----- ------ ----- -----
Gross profit 6.4% 6.5% 6.4% 6.5%
Expenses:
SG&A expenses 4.1% 4.3% 4.1% 4.3%
Noncash compensation charge 0.0% 0.1% 0.0% 0.0%
Income from operations 2.3% 2.1% 2.3% 2.2%
----- ------ ----- -----
Other expense, net 0.4% 0.3% 0.4% 0.3%
----- ------ ----- -----
Income before income taxes and
minority interest 1.9% 1.8% 1.9% 1.9%
Provision for income taxes 0.8% 0.7% 0.8% 0.8%
Minority interest 0.0% 0.0% 0.0% 0.0%
----- ------ ----- -----
Net income 1.1% 1.1% 1.1% 1.1%
===== ====== ===== =====
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Continued)
THIRTEEN WEEKS ENDED JULY 4, 1998 COMPARED TO THIRTEEN WEEKS ENDED JUNE 28, 1997
Consolidated net sales increased 33.3% to $4.96 billion in the second
quarter of 1998 from $3.72 billion in the second quarter of 1997. The increase
in worldwide net sales was primarily attributable to growth in the microcomputer
products industry in general, the addition of new customers, increased sales to
the existing customer base, improved product availability, and expansion of the
Company's product offerings.
Net sales from U.S. operations increased 32.3% to $3.48 billion in the
second quarter of 1998 from $2.63 billion in the second quarter of 1997. Net
sales from European operations increased 42.2% to $1.01 billion in the second
quarter of 1998 from $711.1 million in the second quarter of 1997. Other
international net sales increased 23.7% to $466.0 million in the second quarter
of 1998 from $376.6 million in the second quarter of 1997, due to growth in net
sales of the Company's Latin American, Canadian and Export Division operations.
Cost of sales as a percentage of net sales increased to 93.6% in the
second quarter of 1998 compared to 93.5% in the second quarter of 1997. The
increase was largely attributable to the reduced margins in the U.S. and Canada.
Total SG&A expenses increased 26.2% to $203.5 million in the second
quarter of 1998 from $161.2 million in the second quarter of 1997, but decreased
as a percentage of net sales to 4.1% in the second quarter of 1998 from 4.3% in
the second quarter of 1997. The increased level of spending was attributable to
expenses required to support expansion of the Company's business, consisting
primarily of incremental personnel and support costs, lease payments relating to
new operating facilities, and expenses associated with the development and
maintenance of information systems.
Noncash compensation charges decreased 33.9% to $1.1 million in the
second quarter of 1998 from $1.7 million in the second quarter of 1997. The
amount of noncash compensation charges decreases from year to year due to the
impact of vesting and forfeitures related to the underlying stock options. The
Company expects to record additional noncash compensation charges of $1.1
million in each of the third and fourth quarters of 1998.
Income from operations increased 40.0% to $110.8 million in the second
quarter of 1998 from $79.2 million in the second quarter of 1997, and, as a
percentage of net sales, increased to 2.2% in the second quarter of 1998 from
2.1% in the second quarter of 1997. Income from operations in the United States
remained constant as a percentage of net sales at 2.7% in the second quarter of
1998 and the second quarter of 1997. Income from operations in Europe increased
as a percentage of European net sales to 1.1% in the second quarter of 1998 from
0.5% in the second quarter of 1997 due to sales increasing at a faster rate than
operating expenses. Income from operations for other international regions
decreased as a percentage of net sales to 1.6% in the second quarter of 1998
from 2.1% in the second quarter of 1997 due to the impact of higher cost of
sales as a percentage of other international net sales.
Other expense, net, which consists primarily of interest expense,
foreign currency exchange losses, and miscellaneous non-operating expenses,
increased 60.3% to $18.0 million in the second quarter of 1998 from $11.2
million in the second quarter of 1997, and increased as a percentage of net
sales to 0.4% in the second quarter of 1998 from 0.3% in the second quarter of
1997. The increase in other expense, net, is primarily attributable to increased
interest expense in the second quarter of 1998 as a result of increased
borrowings to finance acquisitions and the expansion of the Company's business.
The provision for income taxes increased 34.2% to $37.0 million in the
second quarter of 1998 from $27.6 million in the second quarter of 1997,
reflecting the 36.6% increase in the Company's income before income taxes and
minority interest. The Company's effective tax rate was 39.9% in the second
quarter of 1998 compared to 40.6% in the second quarter of 1997. The decrease in
the effective tax rate was primarily due to the reduction in the noncash
compensation charge, much of which is not deductible for tax purposes, as well
as certain international taxes in 1998.
Excluding noncash compensation charges, net of tax, net income
increased 36.5% to $56.5 million in the second quarter of 1998 from $41.4
million in the second quarter of 1997 and, as a percentage of net sales,
remained constant at 1.1% for the second quarter of 1998 and the second quarter
of 1997. Pro forma diluted earnings per share, excluding noncash compensation
charges, increased 35.7% to $0.38 in the second quarter of 1998 from $0.28 in
the second quarter of 1997. Net income, including noncash compensation charges,
increased 39.2% to $55.6 million in the second quarter of 1998 from $40.0
million in the second quarter of 1997. Diluted earnings per share, including the
noncash compensation charge, increased 37.0% to $0.37 in the second quarter of
1998 from $0.27 in the second quarter of 1997.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Continued)
TWENTY-SIX WEEKS ENDED JULY 4, 1998 COMPARED TO TWENTY-SIX WEEKS ENDED JUNE 28,
1997
Consolidated net sales for the first half of 1998 increased 37.2% to
$10.11 billion from $7.37 billion in the first half of 1997. The increase in
worldwide net sales was attributable to the same factors summarized in the
discussion of net sales for the thirteen weeks ended July 4, 1998 and June 28,
1997.
Net sales from U.S. operations increased 35.8% to $6.94 billion in the
first half of 1998 from $5.11 billion in the first half of 1997. Net sales from
European operations increased 48.9% to $2.19 billion in the first half of 1998
from $1.47 billion in the first half of 1997. Other international net sales
increased 24.5% to $985.0 million in the first half of 1998 from $791.0 million
in the first half of 1997, due to growth in net sales of the Company's Latin
American, Canadian and Export Division operations.
Cost of sales as a percentage of net sales increased to 93.6% in the
first half of 1998 from 93.5% in the first half of 1997. The increase was
largely attributable to the same factors summarized in the discussion of cost of
sales for the thirteen weeks ended July 4, 1998 and June 28, 1997.
Total SG&A expenses increased 32.0% to $416.1 million in the first half
of 1998 from $315.4 million in the first half of 1997, but decreased as a
percentage of net sales to 4.1% in the first half of 1998 from 4.3% in the first
half of 1997. The increased level of spending was largely attributable to the
same factors summarized in the discussion of SG&A expenses for the thirteen
weeks ended July 4, 1998 and June 28, 1997.
Noncash compensation charges decreased 35.3% to $2.3 million in the
first half of 1998 from $3.5 million in the first half of 1997. The amount of
noncash compensation charges decreases from year to year due to the impact of
vesting and forfeitures related to the underlying stock options.
Income from operations increased 43.7% to $227.0 million in the first
half of 1998 from $157.9 million in the first half of 1997, and, as a percentage
of net sales, increased to 2.3% in the first half of 1998 from 2.2% in the first
half of 1997. Income from operations in the U.S. remained constant as a
percentage of net sales at 2.7% in the first half of 1998 and the first half of
1997. Income from operations in Europe increased as a percentage of European net
sales to 1.4% in the first half of 1998 from 0.7% in the first half of 1997 due
to sales increasing at a faster rate than operating expenses. Income from
operations for other international regions decreased as a percentage of net
sales to 1.3% in the first half of 1998 from 1.9% in the first half of 1997 due
to the impact of higher cost of sales as a percentage of other international net
sales.
Other expense, net, which consists primarily of interest expense,
foreign currency exchange losses, and miscellaneous non-operating expenses,
increased 91.7% to $40.1 million in the first half of 1998 from $20.9 million in
the first half of 1997, and increased as a percentage of net sales to 0.4% in
the first half of 1998 from 0.3% in the first half of 1997. The increase in
other expense, net, is primarily attributable to the same factors summarized in
the discussion of other expense, net for the thirteen weeks ended July 4, 1998
and June 28, 1997.
The provision for income taxes increased 32.9% to $74.5 million in the
first half of 1998 from $56.0 million in the first half of 1997, reflecting the
36.4% increase in the Company's income before income taxes and minority
interest. The Company's effective tax rate was 39.9% in the first half of 1998
compared to 40.9% in the first half of 1997. The decrease in the effective tax
rate was primarily due to the reduction in the noncash compensation charge, much
of which is not deductible for tax purposes, as well as certain international
taxes in 1998.
Excluding noncash compensation charges, net income increased 37.0% to
$114.0 million in the first half of 1998 from $83.2 million in the first half of
1997 and, as a percentage of net sales, remained constant at 1.1% for the first
half of 1998 and the first half of 1997. Pro forma diluted earnings per share,
excluding noncash compensation charges, increased 35.0% to $0.77 in the first
half of 1998 from $0.57 in the first half of 1997. Net income, including noncash
compensation charges, increased 39.6% to $112.2 million in the first half of
1998 from $80.3 million in the first half of 1997. Diluted earnings per share,
including the noncash compensation charge, increased 36.4% to $0.75 in the first
half of 1998 from $0.55 in the first half of 1997.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Continued)
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
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 IPO
completed in November 1996, and the issuance of zero coupon convertible senior
debentures in June 1998 which yielded $449.6 million in net proceeds.
Cash provided by operating activities was $154.1 million in the first
half of 1998 as compared to cash used by operating activities of $187.1 million
in the first half of 1997. The significant increase in cash provided by
operating activities in the first half of 1998 compared to the first half of
1997 was largely attributable to a greater decrease in inventories during the
first half of 1998 than in the first half of 1997, as well as the increase in
net income, partially offset by a greater decrease in accounts payable and a
greater increase in accounts receivable in the first half of 1998 than in the
first half of 1997.
Net cash used by investing activities was $72.5 million in the first
half of 1998 compared to $31.4 million in the first half of 1997. The increase
was due to the Company's expansion of warehouse and other facilities as well as
the acquisition of an assembly facility in The Netherlands.
Net cash used by financing activities was $60.2 million in the first
half of 1998 compared to net cash provided of $243.4 million in the first half
of 1997. The change was primarily a result of net repayments on the Company's
long-term indebtedness in the first half of 1998. In each of the first half of
1998 and the first half of 1997, the Company borrowed to finance the expansion
of its business, but in the first half of 1998, the cash provided by operating
activities (as discussed above) allowed the Company to repay borrowings under
the Company's revolving credit facilities. The issuance of the debentures in
June 1998 did not have a material impact on cash provided (used) by financing
activities, as the proceeds from the sale of the debentures were used to repay
outstanding indebtedness under the Company's revolving credit facilities.
The Company has three syndicated bank credit facilities with 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, current ratio 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 4, 1998, the Company had
$380.0 million in outstanding borrowings under the credit facilities.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Continued)
The Company has an arrangement with a trust pursuant to which certain
U.S. trade accounts receivable of the Company are transferred to the trust,
which in turn has sold certificates representing undivided interests in the
total pool of trade receivables without recourse. The trust has issued $160
million of fixed-rate medium-term certificates and a variable rate certificate,
which supports a commercial paper program. The Company believes that there are
sufficient trade accounts receivables to support the outstanding medium-term
certificates as well as the commercial paper program. At July 4, 1998, the
amount of medium-term certificates outstanding totaled $100 million and the
amount of commercial paper outstanding totaled $150 million.
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. 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. The debentures are currently convertible into
approximately 7.3 million shares of the Company's Class A Common Stock. The
debentures are redeemable at the option 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 or 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 redemption. In the event of a repurchase at the option
of a holder (other than upon a Fundamental Change) the Company may, at its
option, pay 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
payment of cash or Class A Common Stock, to satisfy the redemption in new Zero
Coupon Convertible Senior Debentures due 2018.
NEW ACCOUNTING STANDARDS
In June 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 131, "Disclosure about Segments of an
Enterprise and Related Information" ("FAS 131"), which will become effective for
the Company's full year fiscal 1998 reporting. FAS 131 establishes standards for
the way publicly-held companies report information about operating segments as
well as disclosures about products and services, geographic areas and major
customers. However, the Company does not expect the adoption of FAS 131 to have
a material impact on its reported consolidated financial condition or results of
operations.
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 in
fiscal 1999. 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. However, 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
In connection with the "safe-harbor" provisions of the Private
Securities Litigation Reform Act of 1995, the Company, in its Annual Report on
Form 10-K for the year ended January 3, 1998, outlined cautionary statements
identifying important factors that could cause the Company's actual results to
differ materially from those projected in forward-looking statements made by, or
on behalf of, the Company. Such forward-looking statements, as made within this
Form 10-Q, should be considered in conjunction with the information included in
the Company's Annual Report on Form 10-K for the year ended January 3, 1998,
including Exhibit 99.01 attached thereto; other risks or uncertainties may be
detailed from time to time in the Company's future Securities and Exchange
Commission filings.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
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PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Not applicable.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
On June 9, 1998, the Company sold $1.33 billion aggregate principal
amount at maturity of its Zero Coupon Convertible Senior Debentures due 2018 to
qualified institutional buyers pursuant to the exemption from registration
provided by Rule 144A under the Securities Act of 1933. Morgan Stanley & Co.
Incorporated ("Morgan Stanley") acted as initial purchaser in connection with
the offering. Gross proceeds from the offering were $460.4 million. The Company
paid Morgan Stanley a fee of approximately 2.5% of the gross proceeds. The issue
price of $346.18 per $1,000 principal represented a yield to maturity of 5.375%
per annum. The debentures 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. The debentures are subject to
redemption or repurchase at the option of the holders or the Company under
certain circumstances.
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, 1998.
(b) One matter submitted for a vote at the Annual Meeting was the
election of eight directors (constituting the entire Board of
Directors). The following table lists the individuals and the
number of votes cast for, against or withheld for each such
individual elected to the Board of Directors for a term to expire
at the 1999 Annual Meeting of Shareowners.
Nominee No. of Votes
------- ------------
Don H. Davis Jr. For 977,922,304
Against 0
Abstentions 6,292,617
David B. Ingram For 984,078,545
Against 0
Abstentions 136,376
John R. Ingram For 948,076,846
Against 0
Abstentions 138,075
Martha R. Ingram For 948,072,266
Against 0
Abstentions 142,655
Philip M. Pfeiffer For 984,077,212
Against 0
Abstentions 137,709
J. Phillip Samper For 984,083,433
Against 0
Abstentions 134,488
Jerre L. Stead For 984,079,169
Against 0
Abstentions 135,752
Joe B. Wyatt For 984,082,428
Against 0
Abstentions 132,493
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Also, at the 1998 Annual Meeting of Shareowners, shareowners approved
the adoption of (i) the Ingram Micro Inc. 1998 Equity Incentive Plan and (ii)
the Ingram Micro Inc. 1998 Employee Stock Purchase Plan.
ITEM 5. OTHER INFORMATION
The Company announced on July 28, 1998 that it had completed the
acquisition of Tech Data Corporation's majority interest in Munich,
Germany-based Macrotron AG for approximately $100 million in cash. The Company
believes that the acquisition will increase Ingram Micro's market position
within Europe. However, as discussed in Exhibit 99.01 to the Company's 1997
Annual Report on Form 10-K, acquisitions involve a number of risks and
difficulties for the Company. The inability to successfully integrate Macrotrons
operations into the Company's existing operations could have a material adverse
effect on the Company's financial condition and results of operations.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit
No. Description
------- -----------
10.39 Retirement Agreement between the Company and
David P. Dukes
27 Financial Data Schedule
(b) Reports on Form 8-K
No reports on Form 8-K were filed by the Company during the thirteen
weeks ended July 4, 1998.
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 18, 1998
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EXHIBIT 10.39
RETIREMENT AGREEMENT
THIS RETIREMENT AGREEMENT is entered into between David R. Dukes ("Associate")
and Ingram Micro Inc., a Delaware corporation ("Ingram"), in recognition of
Associate's service to Ingram and in order to establish the basis for certain
payments and benefits to be provided to Associate in connection with his planned
retirement as an officer of Ingram. 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. Retirement. Associate will serve in the position of Vice Chairman, Ingram
Micro Inc. and Chief Executive Officer, Ingram Alliance, through the date of
Ingram's 1998 annual meeting of shareowners, which is expected to be held on May
6, 1998 (the "Retirement Date"), at which time he will retire as an executive
officer of Ingram, but will continue as an employee of Ingram seconded to the
Global Technology Distribution Council (including any successor or replacement
organization). Associate will continue in such role through December 31, 1999,
at which time he will retire as an employee of Ingram. Upon his retirement as an
officer of Ingram, Associate understands and agrees that he will no longer be an
agent of Ingram or any of its Affiliates, and he will have no authority to bind
Ingram or any such Affiliate or act on behalf of Ingram or any such Affiliate.
Subject to Paragraph 7 hereof, the parties will seek to agree on the form of a
public announcement to be made at the time of Associate's retirement.
2. Salary Continuation. Subject to Paragraph 15 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 the
continuing obligations of Associate under this Agreement, Ingram will continue
to pay Associate his current base salary from the Retirement Date through
December 31, 1999; provided, however, that beginning January 1, 1999, such
salary shall be reduced by any cash compensation received by Associate in 1999
with respect to his services on behalf of the Global Technology Distribution
Council or any successor or replacement organization. Such amount shall be
payable from the Retirement Date until December 31, 1999 through Ingram's normal
payroll procedures and will be subject to applicable withholding requirements.
Associate will continue to be provided the tax consulting services which Ingram
provides to its executive officers from the Retirement Date through December 31,
1999. Associate will cease contributing, to the Ingram Micro Profit Plan
beginning on the Retirement Date.
3. Medical and Dental Insurance. Subject to Paragraph 15 hereof, from the
Retirement Date through December 31, 1999, Associate will decline participation
in Ingram's medical and dental insurance plans and, instead, Ingram will pay
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directly or reimburse Associate for the amount by which the monthly premium
attributable to (a) family medical insurance coverage through a PPO plan
provided by Cal Farm Insurance Company and (b) family dental insurance coverage
through a Delta Dental policy exceeds, in each case, the monthly cost for family
coverage which Ingram charges its employees for medical and dental insurance,
respectively.
4. 1998 Incentive Bonus. Subject to Paragraph 15 hereof in March 1999, Associate
will receive an incentive payment per the 1998 Executive Incentive Plan
calculated on the terms of Associate's award letter dated March 31, 1998 and the
assumption of 100% achievement of the individual goals and objectives portion of
the award. Associate will not participate in the 1999 Executive Incentive Plan.
5. Stock Options. Subject to Paragraph 15 hereof, Associate's currently existing
stock options and grants will continue to vest as scheduled through December 31,
1999. Associate shall have the right to exercise all such vested stock options
and grants through February 28, 2001, unless such options or grants expire at an
earlier date per the terms of the underlying agreements for such options and
grants. In addition, in the event that the remainder of Associate's November 1,
1996 Non-qualified Performance Option grant has not vested by December 31, 1999,
it shall continue in effect after such date and may be exercised for a period of
three months after such grant vests in accordance with its terms. A list of all
of Associate's current stock options is attached as Exhibit A hereto.
6. Key Employee Stock Purchase Plan. Subject to Paragraph 15 hereof and
notwithstanding the provisions of Section 6(b)(i) of the Acquisition Agreement
dated June 24, 1996 between Ingram and Associate relating to Associate's
purchase of 65,000 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 any of the Shares (as such term is defined in
the Acquisition Agreement) for so long as Ingram is obligated to make payments
to Associate pursuant to Paragraph 2 of 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 Ingram's obligations under Paragraph 2 shall terminate; provided,
however, that if Ingram's obligations pursuant to Paragraph 2 of this Agreement
continue through December 31, 1999, Ingram may not repurchase any of the Shares
(including the Shares scheduled to become Unrestricted Shares (as such term is
defined in the Acquisition Agreement) on April 1, 2000). Except as modified
hereby, the Acquisition Agreement shall continue in full force and effect in
accordance with its terms.
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7. 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 7. 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, shareowners or lenders of Ingram, its Affiliates or any third party.
8. 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 Retirement Date, or
earlier if Ingram so requests it; provided, however, Associate will be permitted
to retain the Ingram supplied personal computer in his possession on the
Retirement Date. Associate will delete from the memory of such computer all
files containing information described in Paragraph 7 hereof.
9. Associate's Obligations. In consideration of the payments to be made to, and
the benefits, stock option continuation rights 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 prior to December 31, 1999, 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
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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 December 31, 1999, Associate will not (i) knowingly solicit, entice,
or persuade any associates of Ingram or any of its Affiliates ("Ingram
Associates") to leave the services of Ingram or any of its Associates for any
reason, or (ii) solicit for employment, hire, or engage any Ingram Associate as
an employee, independent contractor or consultant; provided, however, that
Associate shall not be prohibited hereby from hiring, either himself or on
behalf of his employer, an Ingram Associate who independently initiates contact
with Associate for the purpose of seeking new employment.
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
December 31, 1999, he will not be employed or hired as an employee or consultant
by, or otherwise provide services for, any of Tech Data, Merisel, Inacom,
Computer 2000, MicroAge, Ameriquest, Globelle, Gates Arrow, CHS Electronics,
Trilogy, PC Order, Marshall, Hallmark, Hamilton Avnet, Daisytek, Azerti, Azlan,
Northamber, Tech Pacific, Synnex, GE Capital Information Technology Solutions
and/or Softbank, and any subsidiary or affiliate of these entities; provided,
however, that nothing herein shall prevent Associate from serving in a position
with the Global Technology Distribution Council or any successor or replacement
organization. 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 prior to December
31, 1999, he shall not be deemed to be in breach of the provisions of this
Paragraph 9.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
such competitive distributor or aggregator; provided, 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 through December 31, 1999, 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
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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, such assistance
shall be provided at no cost to Ingram; provided, however, 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
December 31, 1999, 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 monthly base salary.
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.
10. Waiver. Each of Ingram and Associate hereby expressly waives and
relinquishes all rights and benefits under Section 1542 of the California Civil
Code which provides;
"Section 1542. General Release--Claim extinguished. A general release does not
extend to claims which the creditor does not know or suspect to exist in his
favor at the time of executing the release, which if known by him must have
materially affected his settlement with the debtor."
Each of Ingram and Associate understands and acknowledges that the significance
and consequence of this waiver of Section 1542 of the Civil Code is that even if
Ingram or Associate, as the case may be, should eventually suffer damages
arising out of Associate's employment relationship with Ingram and its
Affiliates, or termination of such employment, such party will not be permitted
to make any claim for those damages except as expressly permitted by this
Agreement. Furthermore, each of Ingram and Associate acknowledges that such
party intends these consequences even as to claims for injuries and/or damages
that may exist as of the date of this Agreement but which Associate or Ingram,
as the case may be, does not know exist, and which, if known, would materially
affect such party's decision to execute this Agreement.
11. 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 9.c or 9.d such breach
shall have continued for 15 days after the sooner of Associate's discovery
thereof or receipt of notice from Ingram thereof, Ingram shall have no
obligation to make
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any further payments hereunder or permit any stock options to continue to vest
or any vested stock options to be exercised, and may purchase any remaining
Restricted Shares under the Acquisition Agreement.
12. 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.
13. 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.
14. Release by Associate. Effective immediately, Associate hereby fully, finally
and irrevocably discharges Ingram and each of its Affiliates, and each present,
former and future director, officer and employee of Ingram and its Affiliates
and any parent, subsidiary, affiliate or shareholder thereof (the "Ingram
Released Parties") from all manner of claims, actions, causes of action or
suits, in law or in equity, which Associate has or may have, known or unknown,
against the Ingram Released Parties, or any of them, by reason of any matter,
cause or thing whatsoever, including any action arising from or during his
employment with Ingram and any of its Affiliates, resulting from or relating to
his employment or the termination thereof or relating to his status as an
officer, director, employee or participant in any employee benefit plan of
Ingram or any of its Affiliates; provided, however, that the foregoing (a) is
not intended to be, and shall not constitute, a release of any right of
Associate to obtain indemnification and reimbursement of expenses from Ingram or
any of its Affiliates with respect to claims based upon or arising from alleged
or actual acts or omissions of Associate as an officer, director or employee of
Ingram or any of its Affiliates to the fullest extent provided by law or in any
applicable certificate of incorporation, bylaw or contract, and (b) shall not
release Ingram from liability for violations of this Agreement after the date
hereof. From and after the date hereof, Associate agrees and covenants not to
sue, or threaten suit against, or make any claim against, any Ingram Released
Party for or alleging any of the claims, actions, causes of action or suits as
discussed above. Associate acknowledges that this release includes, but is not
limited to, all claims arising under federal, state, local or foreign laws
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prohibiting employer discrimination and all claims growing out of any legal
restrictions on the right of Ingram or any of its Affiliates to terminate its
employees. Associate also specifically waives and releases all claims of
employment discrimination and all rights available to him under Title VII of the
Civil Rights Act of 1964, as amended, the Age Discrimination in Employment Act
(ADEA), as well as all claims or rights under the California Fair Employment and
Housing Act, or any similar law of any jurisdiction. Associate specifically
agrees that he will not institute litigation in any forum, including any filing
with any regulatory commission or agency against any Ingram Released Party based
on any allegations or circumstances that are in any way connected with his
employment with or retirement from Ingram and its Affiliates.
15. Reaffirmation as of Retirement Date. As a condition to Ingram's obligations
pursuant to Paragraphs 2, 3, 4, 5 and 6, Associate shall deliver an executed
release and waiver as of the Retirement Date in the form of Exhibit B hereto.
16. Release by Ingram. Effective immediately, Ingram, on behalf of itself and
its Affiliates, releases and discharges Associate, his heirs, personal
representatives, successors and assigns from all manner of claims, actions,
causes of action or suit, in law or in equity, which any of them has or
hereafter can, shall or may have against Associate by reason of any matter,
cause or thing whatsoever, including any action arising from or during his
employment with Ingram or any of its Affiliates, resulting from the retirement
from such employment, or related to his status as an optionholder, officer,
director, employee or participant in any employee benefit plan of Ingram or any
of its Affiliates; provided, however, that the foregoing shall not include a
release of Associate for his violations of law, for violations of this Agreement
or violations of his duty of loyalty to Ingram and its Associates. From and
after the date hereof, Ingram agrees and covenants not to sue, or threaten suit
against, or make any claim against Associate for or alleging any of the claims,
actions, causes of action or suits as discussed above. From and after the date
hereof, Ingram shall not take any action to limit the coverage to which
Associate would otherwise be entitled under any directors and officers liability
insurance policy which Ingram shall elect to maintain; provided, however, that
nothing herein shall require Ingram to maintain any such policy.
17. Right to Revoke. Associate acknowledges that he has the right to seek legal
counsel, and was advised to seek such counsel, before entering into this
Agreement. Associate shall have 21 days from the date on which this Agreement
was delivered to him in which to execute and return this Agreement to Ingram. In
the event that Associate does not execute and return this Agreement within such
21 day period, the offer contained in this Agreement shall be revoked and Ingram
shall not be bound by any terms or conditions contained herein. Associate
further understands he has the right to revoke this Agreement at any time within
seven
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days of execution of this Agreement by written notice sent by certified mail and
received by Ingram prior to expiration of the seventh day, whereupon this
Agreement shall be null and void as of its inception.
18. 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 5 or 6 hereof, at Associate's election, recovery of any provable
damages as a result of such breach.
19. 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.
20. 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.
21. 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.
22. 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. This Agreement may not be modified except in writing signed
by the parties.
23. Governing Law. This Agreement shall be governed by California law, without
regard to the choice or conflict of law provisions thereof.
24. Paragraph Titles. The paragraph titles used in this Agreement are for
convenience only and do not define or Emit the contents of any paragraph.
25. 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. In the event of Associate's death or disability, Ingram thereafter
shall pay all amounts due under this Agreement to Associate's estate or legal
guardian unless otherwise directed by Associate prior to his death or
disability.
8
9
Executed and delivered to Associate by Ingram on May 6, 1998 and executed by
Associate on the date set out below.
"Ingram"
INGRAM MICRO INC.
By: /s/ Jerre L. Stead
-----------------------------
Jerre L. Stead
Chairman and Chief
Executive Officer
"Associate"
May 6, 1998 /s/ David R. Dukes
- ------------- ------------------------
Date David R. Dukes
9
10
EXHIBIT B
RELEASE AND WAIVER
The undersigned, David R. Dukes, in consideration of the payments and benefits
to be received from Ingram Micro Inc., a Delaware corporation ("Ingram")
pursuant to the terms of that certain Retirement Agreement dated as of May _,
1998, by and between the undersigned and Ingram (the "Retirement Agreement")
after the Retirement Date, as such term is defined in the Retirement Agreement,
does hereby covenant and agree with Ingram as follows:
1 . Release. The undersigned hereby fully, finally and irrevocably discharges
Ingram and each of its Affiliates, and each present, former and future director,
officer and employee of Ingram and its Affiliates and any parent, subsidiary,
affiliate or shareholder thereof (the "Ingram Released Parties") from all manner
of claims, actions, causes of action or suits, in law or in equity, which the
undersigned has or may have, known or unknown, against the Ingram Released
Parties, or any of them, by reason of any matter, cause or thing whatsoever,
including any action arising from or during his employment with Ingram and any
of its Affiliates, resulting from or relating to his employment or the
termination thereof, or relating to his status as an officer, director, employee
or participant in any employee benefit plan of Ingram or any of its Affiliates;
provided, however, that the foregoing (a) is not intended to be, and shall not
constitute, a release of any right of the undersigned to obtain indemnification
and reimbursement of expenses from Ingram or any of its Affiliates with respect
to claims based upon or arising from alleged or actual acts or omissions of the
undersigned as an officer, director or employee of Ingram or any of its
Affiliates to the fullest extent provided by law or in any applicable
certificate of incorporation, bylaw or contract, and (b) shall not release
Ingram from liability for violations of the Retirement Agreement after the date
hereof. From and after the date hereof, the undersigned agrees and covenants not
to sue, or threaten suit against, or make any claim against, any Ingram Released
Party for or alleging any of the claims, actions, causes of action or suits as
discussed above. The undersigned acknowledges that this release includes, but is
not limited to, all claims arising under federal, state, local or foreign laws
prohibiting employer discrimination and all claims growing out of any legal
restrictions on the right of Ingram or any of its Affiliates to terminate its
employees. The undersigned also specifically waives and releases all claims of
employment discrimination and all rights available to him under Title VII of the
Civil Rights Act of 1964, as amended, the Age Discrimination in Employment Act
(ADEA), as well as all claims or rights under the California Fair Employment and
Housing Act, or any similar law of any jurisdiction. The undersigned
specifically agrees that he will not institute litigation in any forum,
including any filing with any regulatory commission or agency,
11
against any Ingram Released Party based on any allegations or circumstances that
are in any way connected with his employment with or retirement from Ingram and
its Affiliates.
2. Waiver. The undersigned hereby expressly waives and relinquishes all rights
and benefits under Section 1542 of the California Civil Code which provides:
"Section 1542. General Release--Claim extinguished. A general release does not
extend to claims which the creditor does not know or suspect to exist in his
favor at the time of executing the release, which if known by him must have
materially affected his settlement with the debtor."
The undersigned understands and acknowledges that the significance and
consequence of this waiver of Section 1542 of the Civil Code is that even if the
undersigned should eventually suffer damages arising out of his employment
relationship with Ingram and its Affiliates, or termination of such employment,
the undersigned will not be permitted to make any claim for those damages except
as expressly permitted by this Release and Waiver. Furthermore, the undersigned
acknowledges that he intends these consequences even as to claims for injuries
and/or damages that may exist as of the date of this Release and Waiver but
which the undersigned does not know exist, and which, if known, would materially
affect his decision to execute this Release and Waiver.
3. An "Affiliate" of Ingram for purposes of this Release and Waiver shall
include any corporation or business entity in which Ingram owns, directly or
indirectly, at least 15% of the outstanding equity interest.
IN WITNESS WHEREOF, the undersigned has signed and delivered to Ingram this
Release and Waiver this 6th day of May, 1998.
/s/ David R. Dukes
------------------------------
David R. Dukes
2
5
1,000
6-MOS
JAN-02-1999
JAN-04-1998
JUL-04-1998
113,401
0
1,897,155
54,643
1,965,551
4,136,637
410,291
153,674
4,672,450
2,413,332
0
0
0
1,384
1,196,791
4,672,450
10,106,209
10,106,209
9,460,817
9,879,255
7,765
0
35,136
186,859
74,466
112,161
0
0
0
112,161
0.81
0.75
