e10vq
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
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þ |
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended June 28, 2008
OR
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o |
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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)
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Delaware
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62-1644402 |
(State or other jurisdiction of
incorporation or organization)
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(I.R.S. Employer
Identification No.) |
1600 E. St. Andrew Place, Santa Ana, California 92705-4931
(Address, including zip code, of principal executive offices)
(714) 566-1000
(Registrants 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 þ No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer,
a non-accelerated filer, or a smaller reporting company.
See the definitions of large
accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act. (Check one):
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Large accelerated filer þ |
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Accelerated filer o |
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Non-accelerated filer o
(Do not check if a smaller reporting company) |
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Smaller Reporting Company o |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act). Yes o No þ
The Registrant had 165,878,975 shares of Class A Common Stock, par value $0.01 per share,
outstanding at June 28, 2008.
INGRAM MICRO INC.
INDEX
2
Part I. Financial Information
Item 1. Financial Statements
INGRAM MICRO INC.
CONSOLIDATED BALANCE SHEET
(Dollars in 000s, except per share data)
(Unaudited)
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June 28, |
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December 29, |
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2008 |
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2007 |
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ASSETS |
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Current assets: |
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Cash and cash equivalents |
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$ |
747,796 |
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$ |
579,626 |
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Trade accounts receivable (less allowances of $85,108 and $83,155) |
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3,626,746 |
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4,054,824 |
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Inventories |
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2,584,291 |
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2,766,148 |
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Other current assets |
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457,104 |
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520,069 |
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Total current assets |
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7,415,937 |
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7,920,667 |
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Property and equipment, net |
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185,601 |
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181,416 |
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Goodwill |
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758,323 |
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733,481 |
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Other assets |
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135,677 |
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139,437 |
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Total assets |
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$ |
8,495,538 |
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$ |
8,975,001 |
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LIABILITIES AND STOCKHOLDERS EQUITY |
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Current liabilities: |
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Accounts payable |
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$ |
3,902,429 |
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$ |
4,349,700 |
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Accrued expenses |
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526,900 |
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602,295 |
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Current maturities of long-term debt |
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186,671 |
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135,616 |
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Total current liabilities |
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4,616,000 |
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5,087,611 |
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Long-term debt, less current maturities |
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293,500 |
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387,500 |
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Other liabilities |
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71,173 |
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72,948 |
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Total liabilities |
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4,980,673 |
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5,548,059 |
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Commitments and contingencies (Note 12) |
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Stockholders equity: |
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Preferred Stock, $0.01 par value, 25,000,000 shares
authorized; no shares issued and outstanding |
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Class A Common Stock, $0.01 par value, 500,000,000 shares
authorized; 175,267,766 and 174,243,838 shares issued and
165,878,975 and 172,942,347 shares outstanding
in 2008 and 2007, respectively |
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1,753 |
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1,742 |
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Class B Common Stock, $0.01 par value, 135,000,000 shares
authorized; no shares issued and outstanding |
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Additional paid-in capital |
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1,136,179 |
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1,114,031 |
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Treasury stock, 9,388,791 and 1,301,491 shares
in 2008 and 2007, respectively |
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(159,385 |
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(25,061 |
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Retained earnings |
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2,198,468 |
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2,075,478 |
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Accumulated other comprehensive income |
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337,850 |
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260,752 |
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Total stockholders equity |
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3,514,865 |
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3,426,942 |
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Total liabilities and stockholders equity |
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$ |
8,495,538 |
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$ |
8,975,001 |
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See accompanying notes to these consolidated financial statements.
3
INGRAM MICRO INC.
CONSOLIDATED STATEMENT OF INCOME
(Dollars in 000s, except per share data)
(Unaudited)
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Thirteen Weeks Ended |
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Twenty-six Weeks Ended |
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June 28, |
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June 30, |
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June 28, |
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June 30, |
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2008 |
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2007 |
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2008 |
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2007 |
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Net sales |
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$ |
8,816,615 |
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$ |
8,186,071 |
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$ |
17,393,932 |
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$ |
16,431,775 |
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Cost of sales |
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8,329,193 |
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7,743,256 |
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16,421,003 |
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15,580,188 |
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Gross profit |
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487,422 |
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442,815 |
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972,929 |
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851,587 |
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Operating expenses: |
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Selling, general and administrative |
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387,578 |
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357,354 |
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773,801 |
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693,096 |
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Reorganization costs (credits) |
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6,613 |
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(231 |
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6,613 |
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(915 |
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394,191 |
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357,123 |
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780,414 |
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692,181 |
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Income from operations |
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93,231 |
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85,692 |
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192,515 |
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159,406 |
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Other expense (income): |
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Interest income |
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(3,717 |
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(5,088 |
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(7,730 |
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(8,420 |
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Interest expense |
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16,236 |
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18,770 |
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33,241 |
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34,862 |
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Net foreign currency exchange loss
(gain) |
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(2,692 |
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156 |
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(3,803 |
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105 |
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Other |
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928 |
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1,309 |
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1,770 |
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3,995 |
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10,755 |
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15,147 |
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23,478 |
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30,542 |
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Income before income taxes |
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82,476 |
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70,545 |
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169,037 |
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128,864 |
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Provision for income taxes |
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23,541 |
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18,145 |
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46,047 |
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39,484 |
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Net income |
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$ |
58,935 |
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$ |
52,400 |
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$ |
122,990 |
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$ |
89,380 |
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Basic earnings per share |
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$ |
0.35 |
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$ |
0.31 |
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$ |
0.73 |
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$ |
0.52 |
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Diluted earnings per share |
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$ |
0.35 |
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$ |
0.30 |
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$ |
0.71 |
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$ |
0.51 |
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See accompanying notes to these consolidated financial statements.
4
INGRAM MICRO INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(Dollars in 000s)
(Unaudited)
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Twenty-six Weeks Ended |
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June 28, |
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June 30, |
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2008 |
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2007 |
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Cash flows from operating activities: |
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Net income |
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$ |
122,990 |
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$ |
89,380 |
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Adjustments to reconcile net income to cash provided
by operating activities: |
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Depreciation and amortization |
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34,893 |
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30,785 |
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Stock-based compensation |
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15,197 |
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19,897 |
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Excess tax benefit from stock-based compensation |
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(295 |
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(2,886 |
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Noncash charges for interest and other compensation |
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153 |
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212 |
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Deferred income taxes |
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12,376 |
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(16,648 |
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Changes in operating assets and liabilities, net of effects
of acquisitions: |
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Changes in amounts sold under accounts receivable programs |
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(68,505 |
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Trade accounts receivable |
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456,222 |
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(2,666 |
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Inventories |
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199,481 |
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377,882 |
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Other current assets |
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20,620 |
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(69,240 |
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Accounts payable |
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(460,202 |
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(287,237 |
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Change in book overdrafts |
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(12,842 |
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29,119 |
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Accrued expenses |
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(69,594 |
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164,257 |
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Cash provided by operating activities |
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318,999 |
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264,350 |
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Cash flows from investing activities: |
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Purchases of property and equipment |
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(26,018 |
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(23,376 |
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Investments in available-for-sale marketable securities |
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(456 |
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Collection of short term collateral deposits on financing arrangements |
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35,000 |
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Acquisitions, net of cash acquired |
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(4,249 |
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(127,078 |
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Cash provided (used) by investing activities |
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4,277 |
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(150,454 |
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Cash flows from financing activities: |
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Proceeds from exercise of stock options |
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9,605 |
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34,038 |
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Repurchase of Class A Common Stock |
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(134,324 |
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Excess tax benefit from stock-based compensation |
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295 |
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2,886 |
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Net proceeds (repayments) of debt |
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(41,587 |
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72,797 |
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Cash provided (used) by financing activities |
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(166,011 |
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109,721 |
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Effect of exchange rate changes on cash and cash equivalents |
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10,905 |
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1,372 |
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Increase in cash and cash equivalents |
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168,170 |
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224,989 |
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Cash and cash equivalents, beginning of period |
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579,626 |
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333,339 |
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Cash and cash equivalents, end of period |
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$ |
747,796 |
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$ |
558,328 |
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See accompanying notes to these consolidated financial statements.
5
INGRAM MICRO INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in 000s, except per share data)
(Unaudited)
Note 1 Organization and Basis of Presentation
Ingram Micro Inc. (Ingram Micro) and its subsidiaries are primarily engaged in the
distribution of information technology (IT) products and supply chain solutions worldwide.
Ingram Micro operates in North America, Europe, Middle East and Africa (EMEA), Asia-Pacific and
Latin America.
The consolidated financial statements include the accounts of Ingram Micro and its
subsidiaries (collectively referred to herein as the Company). These consolidated financial
statements have been prepared by the Company, without audit, pursuant to the rules and regulations
of the United States Securities and Exchange Commission (the SEC). In the opinion of management,
the accompanying unaudited consolidated financial statements contain all material adjustments
(consisting of only normal, recurring adjustments) necessary to fairly state the consolidated
financial position of the Company as of June 28, 2008, and its consolidated results of operations
for the thirteen and twenty-six weeks ended June 28, 2008 and June 30, 2007, and consolidated cash
flows for the twenty-six weeks ended June 28, 2008 and June 30, 2007. All significant intercompany
accounts and transactions have been eliminated in consolidation. As permitted under the applicable
rules and regulations of the SEC, these consolidated financial statements do not include all
disclosures and footnotes normally included with annual consolidated financial statements and,
accordingly, should be read in conjunction with the consolidated financial statements and the notes
thereto, included in the Companys Annual Report on Form 10-K filed with the SEC for the year ended
December 29, 2007. The consolidated results of operations for the thirteen and twenty-six weeks
ended June 28, 2008 may not be indicative of the consolidated results of operations that can be
expected for the full year.
Reclassification of Book Overdrafts
Book overdrafts of $313,185 and $326,027 as of June 28, 2008 and December 29, 2007,
respectively, represent checks issued that had not been presented for
payment to the banks and are
classified as accounts payable in the Companys consolidated balance sheet. The Company typically
funds these overdrafts through normal collections of funds or transfers from other bank balances.
Under the terms of the Companys facilities with its banks, the respective financial institutions
are not legally obligated to honor the book overdraft balances as of June 28, 2008 and December 29,
2007, or any balance on any given date.
For the twenty-six weeks ended June 28, 2008, the Company revised the presentation of changes
in book overdrafts from a financing activity to an operating activity in its consolidated statement
of cash flows with a conforming change to the prior period presentation. The effect of this change
increased the cash provided by operating activities for the twenty-six weeks ended June 30, 2007 from
$235,231 as previously disclosed in the prior year Quarterly Report on Form 10-Q to $264,350 with a
corresponding decrease in the cash flows provided by financing activities for the twenty-six weeks
ended June 30, 2007 from $138,840 to $109,721.
Note 2 Share Repurchases
In November 2007, the Companys Board of Directors authorized a share repurchase program,
through which the Company may purchase up to $300,000 of its outstanding shares of common stock,
over a three-year period. Under the program, the Company may repurchase shares in the open market
and through privately negotiated transactions. The repurchases will be funded with available
borrowing capacity and cash. The timing and amount of specific repurchase transactions will depend
upon market conditions, corporate considerations and applicable legal and regulatory requirements.
6
INGRAM MICRO INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in 000s, except per share data)
(Unaudited)
The Company accounts for repurchased shares of common stock as treasury stock. Treasury
shares are recorded at cost and are included as a component of stockholders equity in the
Companys consolidated balance sheet. The stock repurchase activity during the twenty-six weeks
ended June 28, 2008 is summarized as follows:
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Weighted |
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Shares |
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Average |
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Amount |
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Repurchased |
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Price Per Share |
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Repurchased |
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Cumulative balance at December 29, 2007 |
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1,301,491 |
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$ |
19.26 |
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$ |
25,061 |
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Repurchase of shares of common stock |
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8,087,300 |
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16.61 |
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134,324 |
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Cumulative balance at June 28, 2008 |
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9,388,791 |
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|
16.98 |
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$ |
159,385 |
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Note 3 Earnings Per Share
The Company reports a 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 uses the treasury stock method or the if-converted method, where applicable, to compute
the potential dilution that would occur if stock-based awards and other commitments to issue common
stock were exercised.
The computation of Basic EPS and Diluted EPS is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Thirteen Weeks Ended |
|
|
Twenty-six Weeks Ended |
|
|
|
June 28, |
|
|
June 30, |
|
|
June 28, |
|
|
June 30, |
|
|
|
2008 |
|
|
2007 |
|
|
2008 |
|
|
2007 |
|
Net income |
|
$ |
58,935 |
|
|
$ |
52,400 |
|
|
$ |
122,990 |
|
|
$ |
89,380 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares |
|
|
166,711,820 |
|
|
|
171,097,451 |
|
|
|
168,976,344 |
|
|
|
170,511,116 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic EPS |
|
$ |
0.35 |
|
|
$ |
0.31 |
|
|
$ |
0.73 |
|
|
$ |
0.52 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares, including the
dilutive effect of stock-based awards
(3,527,883 and 5,486,287 for the
thirteen weeks ended June 28, 2008
and June 30, 2007, respectively, and
3,367,603 and 5,397,684 for the
twenty-six weeks ended June 28, 2008
and June 30, 2007, respectively) |
|
|
170,239,703 |
|
|
|
176,583,738 |
|
|
|
172,343,947 |
|
|
|
175,908,800 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted EPS |
|
$ |
0.35 |
|
|
$ |
0.30 |
|
|
$ |
0.71 |
|
|
$ |
0.51 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
There were approximately 6,564,000 and 1,431,000 stock-based awards for the thirteen weeks
ended June 28, 2008 and June 30, 2007, respectively, and 7,549,000 and 1,433,000 stock-based awards
for the twenty-six weeks ended June 28, 2008 and June 30, 2007, 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 during the respective periods, thereby resulting in an
antidilutive effect.
7
INGRAM MICRO INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in 000s, except per share data)
(Unaudited)
Note 4 Stock-Based Compensation
The Company has a single equity incentive plan approved by its shareholders, the 2003 Amended
and Restated Equity Incentive Plan, for the granting of stock-based incentive awards including
incentive stock options, non-qualified stock options, restricted stock, restricted stock units and
stock appreciation rights, among others, to key employees and members of the Companys Board of
Directors. Options granted generally vest over a period of three years and have expiration dates
not longer than 10 years from the dates of grant. A portion of the restricted stock and restricted
stock units vests over a time period of one to three years. The remainder of the restricted stock
and restricted stock units vests upon achievement of certain performance measures based on earnings
growth and return on invested capital over a three-year period. Restricted stock and restricted
stock units granted were 31,000 and 53,000 during the thirteen weeks ended June 28, 2008 and June
30, 2007, respectively and 663,000 and 1,518,000 during the twenty-six weeks ended June 28, 2008
and June 30, 2007, respectively. No stock options were granted during the thirteen weeks ended
June 28, 2008 and June 30, 2007. Stock options granted during the twenty-six weeks ended June 28,
2008 and June 30, 2007 were 1,318,000 and 1,256,000, respectively. As of June 28, 2008,
approximately 12,292,000 shares were available for grant. Stock-based compensation expense for the
thirteen weeks ended June 28, 2008 and June 30, 2007 was $6,749 and $10,313, respectively, and the
related income tax benefit was approximately $1,900 and $2,600, respectively. Stock-based
compensation expense for the twenty-six weeks ended June 28, 2008 and June 30, 2007 was $15,197 and
$19,897, respectively, and the related income tax benefit was approximately $4,100 and $5,100,
respectively.
During the thirteen weeks ended June 28, 2008 and June 30, 2007, a total of 346,000 and
1,659,000 stock options, respectively, were exercised, and 23,000 and 15,000 restricted stock and
restricted stock units vested, respectively. During the twenty-six weeks ended June 28, 2008 and
June 30, 2007, a total of 646,000 and 2,363,000 stock options, respectively, were exercised, and
496,000 and 179,000 restricted stock and restricted stock units vested, respectively.
Note 5 Comprehensive Income
Comprehensive income consists of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Thirteen Weeks Ended |
|
|
Twenty-six Weeks Ended |
|
|
|
June 28, |
|
|
June 30, |
|
|
June 28, |
|
|
June 30, |
|
|
|
2008 |
|
|
2007 |
|
|
2008 |
|
|
2007 |
|
Net income |
|
$ |
58,935 |
|
|
$ |
52,400 |
|
|
$ |
122,990 |
|
|
$ |
89,380 |
|
Changes in other comprehensive income |
|
|
561 |
|
|
|
40,479 |
|
|
|
77,098 |
|
|
|
55,662 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income |
|
$ |
59,496 |
|
|
$ |
92,879 |
|
|
$ |
200,088 |
|
|
$ |
145,042 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated other comprehensive income included in stockholders equity totaled $337,850 and
$260,752 at June 28, 2008 and December 29, 2007, respectively, and consisted primarily of
cumulative foreign currency translation adjustments.
Note 6 Fair Value Measurements
Effective December 30, 2007, the Company adopted the provisions of Statement of Financial
Accounting Standards No. 157, Fair Value Measurements (FAS 157). FAS 157 defines fair value,
establishes a framework for measuring fair value in accordance with generally accepted accounting
principles and expands disclosures about fair value measurements. In February 2008, the Financial
Accounting Standards Board issued Staff Position Nos. 157-1 and 157-2, which partially deferred the
effective date of FAS 157 for one year for certain nonfinancial assets and liabilities and removed
certain leasing transactions from its scope.
8
INGRAM MICRO INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in 000s, except per share data)
(Unaudited)
FAS 157 requires that assets and liabilities carried at fair value be classified and disclosed
in one of the following three categories: Level 1 quoted market prices in active markets for
identical assets and liabilities; Level 2 observable market-based inputs or unobservable inputs
that are corroborated by market data and Level 3 unobservable inputs that are not corroborated by
market data.
At June 28, 2008, the Companys assets and liabilities measured at fair value on a recurring
basis included available-for-sale securities of $42,785 determined based on Level 1 criteria, as
defined above, and a net derivative liability of $41,020 determined based on Level 2 criteria. The
change in the fair value of derivative instruments for the thirteen weeks ended June 28, 2008 was a
loss of $28,155, which is essentially offset by the change in fair value of the underlying hedged
assets or liabilities. The change in the fair value of available-for-sale marketable securities
was not material during the period.
Note 7 Goodwill and Acquisitions
The changes in the carrying amount of goodwill for the twenty-six weeks ended June 28, 2008
and June 30, 2007 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North |
|
|
|
|
|
|
Asia- |
|
|
Latin |
|
|
|
|
|
|
America |
|
|
EMEA |
|
|
Pacific |
|
|
America |
|
|
Total |
|
Balance at December 29, 2007 |
|
$ |
235,493 |
|
|
$ |
15,759 |
|
|
$ |
482,229 |
|
|
$ |
|
|
|
$ |
733,481 |
|
Acquisitions |
|
|
6,873 |
|
|
|
94 |
|
|
|
1,584 |
|
|
|
|
|
|
|
8,551 |
|
Foreign currency translation |
|
|
(27 |
) |
|
|
1,144 |
|
|
|
15,174 |
|
|
|
|
|
|
|
16,291 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at June 28, 2008 |
|
$ |
242,339 |
|
|
$ |
16,997 |
|
|
$ |
498,987 |
|
|
$ |
|
|
|
$ |
758,323 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 30, 2006 |
|
$ |
156,732 |
|
|
$ |
14,168 |
|
|
$ |
472,814 |
|
|
$ |
|
|
|
$ |
643,714 |
|
Acquisitions |
|
|
71,891 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
71,891 |
|
Foreign currency translation |
|
|
75 |
|
|
|
338 |
|
|
|
8,412 |
|
|
|
|
|
|
|
8,825 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at June 30, 2007 |
|
$ |
228,698 |
|
|
$ |
14,506 |
|
|
$ |
481,226 |
|
|
$ |
|
|
|
$ |
724,430 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In June 2008, the Company acquired the distribution business of the Cantechs Group, one of
Chinas largest providers of auto-identification and data capture/point of sale (DC/POS) products
and services. The acquisition expanded the Companys value-added distribution in the Asian
enterprise mobility market. The distribution business of Cantechs Group was acquired for a cash
price of $1,584, including related acquisition costs. The entire purchase price has been
preliminarily allocated to goodwill as no operating assets or liabilities were acquired and the
Company is currently evaluating the valuation of the other identifiable intangible assets acquired
as part of this acquisition.
In January 2008, the Company acquired the assets of privately held Paradigm Distribution Ltd.
(Paradigm), a key distributor in the United Kingdom of mobile data and automatic identification
and DC/POS technologies to solution providers and system integrators. The acquisition expanded the
Companys value-added distribution of mobile data and DC/POS solutions in EMEA. Paradigm was
acquired for a purchase price of $2,665, which has been preliminarily allocated to the assets
acquired and liabilities assumed based on their estimated fair values on the transaction date,
resulting in goodwill of $94 and intangible assets of $1,968, primarily related to vendor and
customer relationships with estimated useful lives of 10 years.
9
INGRAM MICRO INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in 000s, except per share data)
(Unaudited)
In June 2007, the Company acquired certain assets and liabilities of DBL Distributing Inc.
(DBL). DBL was acquired for $102,174, which includes an initial cash price of $96,502, including
related acquisition costs, plus an estimated working capital adjustment of $5,672, which is subject
to a final true-up to be agreed to by the two parties. In the second quarter of 2007, the purchase
price was allocated to the assets acquired and liabilities assumed based on their estimated fair
values on the transaction date, resulting in goodwill of $59,720, trade names of $11,600 with
estimated useful lives of 20 years and other intangible assets of $12,800 primarily related to
customer relationships and non-compete agreements with estimated useful lives of up to eight years.
In the first and second quarters of 2008, the Company made adjustments to the purchase price
allocation above, primarily resulting from an increase in the balance of certain preacquisition
liabilities, by $6,930. These adjustments yielded an increase of goodwill for the same amount.
Under the terms of the purchase agreement, the parties agreed that $10,000 of the purchase price
would be held in an escrow account to cover indemnification of any claims arising from
pre-acquisition contingent liabilities until the later of June 2008 or the final resolution of any
such claims. In March 2008, the Company served a notice of claim with the seller for
indemnification for certain pre-acquisition liabilities in accordance with the terms of the
purchase agreement, and also notified the seller and the escrow agent, Union Bank of California,
that it was extending the term of the escrow for an additional year. In June 2008, at the request
of the seller, the escrow funds were disbursed to the seller by the escrow agent without any notice
to the Company. The Company has obtained a temporary restraining order preventing the seller from
utilizing these funds and is considering action against the escrow agent to the extent the Company
is unable to recover indemnification from the seller. At this time, the Company believes it will
be able to fully recover the escrow funds from either the seller or the escrow agent.
In March 2007, the Company acquired all the outstanding shares of VPN Dynamics and a minority
interest of 49% in a related company, Securematics. The Companys interests in these related
entities were acquired for an initial aggregate purchase price of $24,991, including related
acquisition costs. The Company has an option to acquire the remaining 51% interest held by the
shareholders of Securematics at a purchase price of $1,000, which has been recorded in accrued
expenses in the Companys consolidated balance sheet at June 28, 2008 and December 29, 2007. The
holders of the remaining 51% interests in Securematics also have the option to require the Company
to purchase their interests for the same amount, after two years from the transaction date. The
results of Securematics have been consolidated in accordance with Financial Accounting Standards
Board Interpretation No. 46 Consolidation of Variable Interest Entities.
The purchase price was allocated to the assets acquired and liabilities assumed based on their
estimated fair values on the transaction date, resulting in goodwill of $18,891, trade names of
$3,800 with estimated useful lives of 20 years, other intangible assets of $4,000, primarily
related to customer relationships and non-compete agreements with estimated useful lives of up to
five years, and a deferred tax liability of $3,178 related to the intangible assets, none of which
are deductible for tax purposes. In accordance with the purchase agreement, in the third quarter
of 2007, the Company paid the sellers $1,800 in contingent consideration for the achievement of a
milestone, which was an adjustment to the initial purchase price above. In the first quarter of
2008, the Company made an adjustment to the purchase price allocation associated with these
acquisitions to reflect a reduction in tax-related liabilities at the date of purchase totaling $57
and a decrease of goodwill for the same amount. In connection with the Companys acquisition of
VPN Dynamics and Securematics, the parties agreed that $4,100 of the purchase price shall be held
in an escrow account to cover any contingent liabilities under the purchase agreement. The funds
held in escrow are scheduled to be released to the sellers in three installments over a period of
two years following the transaction date, if no claims are made. The purchase agreement also
provides for the Company to pay the sellers additional contingent consideration of up to $3,200, if
certain performance levels are achieved, over the two-year period following the date of
acquisition. Such payment, if any, will be recorded as additional adjustments to the initial
purchase price.
10
INGRAM MICRO INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in 000s, except per share data)
(Unaudited)
The aggregate gross carrying amounts of finite-lived identifiable intangible assets of
$153,916 and $151,069 at June 28, 2008 and December 29, 2007, respectively, are amortized over
their estimated lives ranging from 3 to 20 years. The net carrying amount was $98,587 and $104,125
at June 30, 2008 and December 29, 2007, respectively. Amortization expense was $4,008 and $3,188
for the thirteen weeks ended June 28, 2008 and June 30, 2007, respectively, and $8,049 and $6,144
for the twenty-six weeks ended June 28, 2008 and June 30, 2007, respectively. The net identifiable
intangible assets are recorded in other assets in the accompanying consolidated balance sheet.
All acquisitions for the periods presented above were not material, individually or in
aggregate, to the Company as a whole and therefore, pro-forma financial information has not been
presented.
Note 8 Reorganization and Expense-Reduction Program Costs
During the second quarter of 2008, the Company announced cost-reduction programs, resulting in
the rationalization and re-engineering of certain roles and processes primarily at the regional
headquarters in EMEA and targeted reductions of primarily administrative and back-office positions
in North America. Total costs of the actions incurred in EMEA for the thirteen weeks ended June
28, 2008 were $6,830, comprised of $5,736 of reorganization costs, primarily related to employee
termination benefits for workforce reductions of approximately 80 employees, as well as $1,094 of
other costs charged to selling, general and administrative expenses, primarily comprised of
consulting, legal and other expenses associated with implementing the reduction in workforce. In
North America, the total costs of the actions for the thirteen weeks ended June 28, 2008 were
$1,407, all of which were reorganization costs, primarily related to employee termination benefits
for workforce reductions of approximately 110 employees. Remaining costs associated with these
announced action plans are estimated to be approximately $7,000, the majority of which is expected
to be incurred in the third quarter of 2008.
The reorganization costs, related payment activities and adjustments for the thirteen weeks
ended June 28, 2008 and the remaining liability related to these detailed actions are summarized as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts Paid |
|
|
|
|
|
|
Remaining |
|
|
|
|
|
|
|
and Charged |
|
|
|
|
|
|
Liability at |
|
|
|
Reorganization |
|
|
Against the |
|
|
|
|
|
|
June 28, |
|
|
|
Costs |
|
|
Liability |
|
|
Adjustments |
|
|
2008 |
|
Employee termination benefits |
|
$ |
7,143 |
|
|
$ |
(2,319 |
) |
|
$ |
|
|
|
$ |
4,824 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company expects the remaining liability for these employee termination benefits to be
fully utilized before the end of 2008.
Prior to 2006, the Company had launched an outsourcing and optimization plan to improve
operating efficiencies within its North American region. The plan included an outsourcing
arrangement that moved transaction-oriented service and support functions including certain
North America positions in finance and shared services, customer service, vendor management and
certain U.S. positions in technical support and inside sales (excluding field sales and management
positions) to a leading global business process outsource provider. As part of the plan, the
Company also had restructured and consolidated other job functions within the North American
region. The Company had also implemented a detailed plan to integrate with the Company the
operations of Techpac Holdings Limited, which was acquired in November 2004.
Also, prior to 2006, the Company implemented other actions designed to improve operating
income through reductions of selling, general and administrative expenses and enhancements in gross
margins. Key components of those initiatives included workforce reductions and facility
consolidations worldwide as well as outsourcing of certain IT infrastructure functions. Facility
consolidations primarily included consolidation, closing or downsizing of office facilities,
distribution centers, returns processing centers and configuration centers throughout North
America, consolidation and/or exit of warehouse and office facilities in EMEA, Latin America and
Asia-Pacific, and other costs primarily comprised of contract termination expenses associated with
outsourcing certain IT infrastructure functions as well as other costs associated with the
reorganization activities.
11
INGRAM MICRO INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in 000s, except per share data)
(Unaudited)
The above reorganization actions are complete; however, future cash outlays are required
primarily for future lease payments related to exited facilities. The remaining liabilities and
payment activities in 2008 are summarized in the table below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding |
|
|
Amounts Paid |
|
|
|
|
|
|
Remaining |
|
|
|
Liability at |
|
|
and Charged |
|
|
|
|
|
|
Liability at |
|
|
|
December 29, |
|
|
Against the |
|
|
|
|
|
|
June 30, |
|
|
|
2007 |
|
|
Liability |
|
|
Adjustments |
|
|
2008 |
|
Facility costs |
|
$ |
3,911 |
|
|
$ |
(274 |
) |
|
$ |
(530 |
) |
|
$ |
3,107 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company expects the remaining liability for these facility costs to be fully utilized by
the end of 2015.
The credit adjustment to reorganization costs of $530 for the thirteen and twenty-six
weeks ended June 28, 2008 primarily represents lower than expected costs to settle lease
obligations related to previous actions in North America. The total credit adjustment to
reorganization costs of $915 for the twenty-six weeks and $231 for the thirteen weeks ended June
30, 2007 consisted of $890 in North America ($206 in the thirteen weeks ended June 30, 2007) for
lower than expected costs associated with employee termination benefits and facility consolidations
related to actions taken in prior years and $25 in Europe for lower than expected costs associated
with employee termination benefits related to actions taken in prior years.
Note 9 Long-Term Debt
The Companys debt consists of the following:
|
|
|
|
|
|
|
|
|
|
|
June 28, |
|
|
December 29, |
|
|
|
2008 |
|
|
2007 |
|
North American revolving trade accounts receivable-backed
financing facilities |
|
$ |
293,500 |
|
|
$ |
387,500 |
|
Asia-Pacific revolving trade accounts receivable-backed
financing facilities |
|
|
51,217 |
|
|
|
|
|
Revolving unsecured credit facilities and other debt |
|
|
135,454 |
|
|
|
135,616 |
|
|
|
|
|
|
|
|
|
|
|
480,171 |
|
|
|
523,116 |
|
Current maturities of long-term debt |
|
|
(186,671 |
) |
|
|
(135,616 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
293,500 |
|
|
$ |
387,500 |
|
|
|
|
|
|
|
|
In July 2008, the Company entered into a $250,000 senior unsecured term loan facility in North
America with a bank syndicate. The facility matures in August 2012. The interest rate on this
facility is based on one-month LIBOR, plus a variable margin that is based on the Companys debt
ratings and leverage ratio. Interest is payable monthly. Under the terms of the agreement, the
Company is also required to pay quarterly a minimum of $3,125 of principal on the loan beginning in
November 2009 through the end of the loan term. The agreement also contains certain negative
covenants, including restrictions on funded debt and interest coverage, as well as customary
representations and warranties, affirmative covenants and events of default. The proceeds of the
term loan will be used for general corporate purposes, including refinancing existing indebtedness
and funding working capital. Subject to certain conditions, the Company may increase the amount of
the facility up to $350,000.
In connection with the senior unsecured term loan facility above, the Company entered into an
interest rate swap agreement with a financial institution for $200,000 of the term loan, the effect
of which was to swap the LIBOR portion of the floating-rate obligation for a fixed-rate obligation.
The fixed rate including the variable margin is approximately 5%. The notional amount on the
interest rate swap agreement reduces by $3,125 quarterly, beginning in November 2009 through the
maturity of the agreement.
12
INGRAM MICRO INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in 000s, except per share data)
(Unaudited)
Note 10 Income Tax
At June 28, 2008, the Company had gross unrecognized tax benefits of $22,476 compared to
$20,168 at December 29, 2007, representing an increase of $2,308 during first half of 2008
primarily related to exposure on transfer pricing. Substantially all of the gross unrecognized tax
benefits, if recognized, would impact the Companys effective tax rate in the period of
recognition. The Company recognizes interest and penalties related to unrecognized tax benefits in
income tax expense. In addition to gross unrecognized tax benefits identified above, the interest
and penalties recorded by the Company totaled $1,152 in the second quarter of 2008 and a reversal
of $418 in the second quarter 2007. Interest and penalties recorded in the first half of 2008 and
2007 totaled $4,905 and $2,701, respectively.
The Company conducts business globally and, as a result, the Company and/or one or more of its
subsidiaries file income tax returns in the U.S. federal jurisdiction and various state and foreign
jurisdictions. During 2007, the IRS concluded its audit of the Companys federal income tax return
for the tax years 2001 through 2003. In addition, the IRS initiated an examination of the
Companys federal income tax return for the tax years 2004 and 2005. This examination is still
ongoing. Additionally, a number of state and foreign examinations are also currently ongoing. It
is possible that these examinations may be resolved within 12 months. However, the Company does
not expect its unrecognized tax benefits to change materially over the next 12 months.
Note 11 Segment Information
The Company operates predominantly in a single industry segment as a distributor of IT
products and solutions. The Companys operating segments are based on geographic location, and the
measure of segment profit is income from operations. The Company does not allocate stock-based
compensation (see Note 4 to consolidated financial statements) to its operating units; therefore,
the Company is reporting this as an amount separate from its geographic segments.
Geographic areas in which the Company operates currently include North America (United States
and Canada), EMEA (Austria, Belgium, Denmark, Finland, France, Germany, Hungary, Italy, The
Netherlands, Norway, South Africa, Spain, Sweden, Switzerland, and the United Kingdom),
Asia-Pacific (Australia, The Peoples Republic of China including Hong Kong, India, Malaysia, New
Zealand, Singapore, Sri Lanka, and Thailand), and Latin America (Argentina, Brazil, Chile, Mexico,
and the Companys Latin American export operations in Miami). Intergeographic sales primarily
represent intercompany sales that are accounted for based on established sales prices between the
related companies and are eliminated in consolidation.
Financial information by geographic segment is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Thirteen Weeks Ended |
|
|
Twenty-six Weeks Ended |
|
|
|
June 28, |
|
|
June 30, |
|
|
June 28, |
|
|
June 30, |
|
|
|
2008 |
|
|
2007 |
|
|
2008 |
|
|
2007 |
|
Net sales: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North America: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales to unaffiliated customers |
|
$ |
3,518,983 |
|
|
$ |
3,301,497 |
|
|
$ |
6,809,164 |
|
|
$ |
6,584,936 |
|
Intergeographic sales |
|
|
55,959 |
|
|
|
58,290 |
|
|
|
122,987 |
|
|
|
115,985 |
|
EMEA |
|
|
2,955,209 |
|
|
|
2,776,867 |
|
|
|
6,021,578 |
|
|
|
5,824,163 |
|
Asia-Pacific |
|
|
1,904,144 |
|
|
|
1,764,125 |
|
|
|
3,717,573 |
|
|
|
3,333,290 |
|
Latin America |
|
|
438,279 |
|
|
|
343,582 |
|
|
|
845,617 |
|
|
|
689,386 |
|
Elimination of intergeographic sales |
|
|
(55,959 |
) |
|
|
(58,290 |
) |
|
|
(122,987 |
) |
|
|
(115,985 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
8,816,615 |
|
|
$ |
8,186,071 |
|
|
$ |
17,393,932 |
|
|
$ |
16,431,775 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13
INGRAM MICRO INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in 000s, except per share data)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Thirteen Weeks Ended |
|
|
Twenty-six Weeks Ended |
|
|
|
June 28, |
|
|
June 30, |
|
|
June 28, |
|
|
June 30, |
|
|
|
2008 |
|
|
2007 |
|
|
2008 |
|
|
2007 |
|
Income (loss) from operations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North America |
|
$ |
44,380 |
|
|
$ |
38,545 |
|
|
$ |
84,969 |
|
|
$ |
95,559 |
|
EMEA |
|
|
15,669 |
|
|
|
22,924 |
|
|
|
42,448 |
|
|
|
57,878 |
|
Asia-Pacific |
|
|
32,699 |
|
|
|
31,042 |
|
|
|
65,240 |
|
|
|
50,730 |
|
Latin America |
|
|
7,232 |
|
|
|
3,494 |
|
|
|
15,055 |
|
|
|
(24,864 |
) |
Stock-based compensation expense |
|
|
(6,749 |
) |
|
|
(10,313 |
) |
|
|
(15,197 |
) |
|
|
(19,897 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
93,231 |
|
|
$ |
85,692 |
|
|
$ |
192,515 |
|
|
$ |
159,406 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North America |
|
$ |
11,776 |
|
|
$ |
4,310 |
|
|
$ |
19,090 |
|
|
$ |
18,088 |
|
EMEA |
|
|
1,939 |
|
|
|
1,264 |
|
|
|
4,185 |
|
|
|
2,645 |
|
Asia-Pacific |
|
|
1,202 |
|
|
|
1,099 |
|
|
|
2,515 |
|
|
|
2,225 |
|
Latin America |
|
|
178 |
|
|
|
348 |
|
|
|
228 |
|
|
|
418 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
15,095 |
|
|
$ |
7,021 |
|
|
$ |
26,018 |
|
|
$ |
23,376 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North America |
|
$ |
9,395 |
|
|
$ |
8,005 |
|
|
$ |
18,144 |
|
|
$ |
15,829 |
|
EMEA |
|
|
4,321 |
|
|
|
3,772 |
|
|
|
8,532 |
|
|
|
7,480 |
|
Asia-Pacific |
|
|
3,782 |
|
|
|
3,237 |
|
|
|
7,159 |
|
|
|
6,342 |
|
Latin America |
|
|
505 |
|
|
|
571 |
|
|
|
1,058 |
|
|
|
1,134 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
18,003 |
|
|
$ |
15,585 |
|
|
$ |
34,893 |
|
|
$ |
30,785 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of |
|
|
|
June 28, |
|
|
December 29, |
|
|
|
2008 |
|
|
2007 |
|
Identifiable assets: |
|
|
|
|
|
|
|
|
North America |
|
$ |
4,685,826 |
|
|
$ |
4,867,383 |
|
EMEA |
|
|
2,425,711 |
|
|
|
2,691,046 |
|
Asia-Pacific |
|
|
940,275 |
|
|
|
947,873 |
|
Latin America |
|
|
443,726 |
|
|
|
468,699 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
8,495,538 |
|
|
$ |
8,975,001 |
|
|
|
|
|
|
|
|
Included in the income (loss) from operations for the thirteen and twenty-six weeks ended June
28, 2008 are the reorganization and cost-reduction actions totaling $7,707, as discussed in Note 8.
The North America and EMEA results for the 2008 periods include $877 and $6,830, respectively, in cost
associated with these actions.
The income from operations recorded in North America for the thirteen and twenty-six weeks
ended June 30, 2007 included the $15,000 charge for estimated losses related to the SEC matter
discussed in Note 12. The loss from operations in Latin America included a commercial tax charge
of $33,754 for the twenty-six weeks ended June 30, 2007, also discussed in Note 12.
14
INGRAM MICRO INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in 000s, except per share data)
(Unaudited)
Note 12 Commitments and Contingencies
As is customary in the IT distribution industry, the Company has arrangements with certain
finance companies that provide inventory-financing facilities for its customers. In conjunction
with certain of these arrangements, the Company has agreements with the finance companies that
would require it to repurchase certain inventory, which might be repossessed from the customers by
the finance companies. Due to various reasons, including among other items, the lack of
information regarding the amount of saleable inventory purchased from the Company still on hand
with the customer at any point in time, the Companys repurchase obligations relating to inventory
cannot be reasonably estimated. Repurchases of inventory by the Company under these arrangements
have been insignificant to date.
In 2003, the Companys Brazilian subsidiary was assessed for commercial taxes on its purchases
of imported software for the period January to September 2002. The principal amount of the tax
assessed for this period was 12.7 million Brazilian reais. Prior to February 28, 2007, and after
consultation with counsel, it had been the Companys opinion that it had valid defenses to the
payment of these taxes and it was not probable that any amounts would be due for the 2002 assessed
period, as well as any subsequent periods. Accordingly, no reserve had been established previously
for such potential losses. However, on February 28, 2007 changes to the Brazilian tax law were
enacted. As a result of these changes, and after further consultation with counsel, it is now the
Companys opinion that it has a probable risk of loss and may be required to pay all or some of
these taxes. Accordingly, in the first quarter of 2007, the Company recorded a charge to cost of
sales of $33,754, consisting of $6,077 for commercial taxes assessed for the period January 2002 to
September 2002, and $27,677 for such taxes that could be assessed for the period October 2002 to
December 2005. The subject legislation provides that such taxes are not assessable on software
imports after January 1, 2006. The sums expressed are based on an exchange rate of 2.092 Brazilian
reais to the U.S. dollar, which was applicable when the charge was recorded. In the fourth quarter
of 2007, the Company released a portion of the commercial tax reserve recorded in the first quarter
of 2007 amounting to $3,620 (6.5 million Brazilian reais at a December 2007 exchange rate of 1.792
Brazilian reais to the U.S. dollar). The partial reserve release was related to the unassessed
period from October through December 2002, for which it is the Companys opinion that the statute
of limitations for an assessment from Brazilian tax authorities has expired.
While the tax authorities may seek to impose interest and penalties in addition to the tax as
discussed above, the Company continues to believe that it has valid defenses to the assessment of
interest and penalties, which as of June 28, 2008 potentially amount to approximately $26,300 and
$30,200, respectively, based on the exchange rate prevailing on that date of 1.608 Brazilian reais
to the U.S. dollar. Therefore, the Company currently does not anticipate establishing an
additional reserve for interest and penalties. The Company will continue to vigorously pursue
administrative and judicial action to challenge the current, and any subsequent assessments.
However, the Company can make no assurances that it will ultimately be successful in defending any
such assessments, if made.
In December 2007, the Sao Paulo Municipal Tax Authorities assessed the Companys Brazilian
subsidiary a commercial service tax based upon its sales and licensing of software. The assessment
covers the years 2002 through 2006 and totaled 57.2 million Brazilian reais ($35,583 based upon a
June 28, 2008 exchange rate of 1.608 Brazilian reais to the U.S. dollar). The assessment included
taxes claimed to be due as well as penalties for the years in question. The authorities could make
adjustments to the initial assessment including assessments for the period after 2006, as well as
additional penalties and interest, which may be material. It is managements opinion, after
consulting with counsel, that the Companys subsidiary has valid defenses against the assessment of
these taxes and penalties, or any subsequent adjustments or additional assessments related to this
matter. Although the Company intends to vigorously pursue administrative and judicial action to
challenge the current assessment and any subsequent adjustments or assessments, the Company can
make no assurances that it will ultimately be successful in its defense of this matter.
15
INGRAM MICRO INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in 000s, except per share data)
(Unaudited)
In May 2007, the Company received a Wells Notice from the SEC, which indicated that the SEC
staff intends to recommend an administrative proceeding against the Company seeking disgorgement
and prejudgment interest, though no dollar amounts were specified in the notice. The staff
contends that the Company failed to maintain adequate books and records relating to certain of its
transactions with McAfee Inc. (formerly Network Associates, Inc.), and was a cause of McAfees own
securities-laws violations relating to the filing of reports and maintenance of books and records.
During the second quarter of 2007, the Company recorded a reserve of $15,000 for the current best
estimate of the probable loss associated with this matter based on discussions with the SEC staff
concerning the issues raised in the Wells Notice. No resolution with the SEC has been reached at
this point, however, and there can be no assurance that such discussions will result in a
resolution of these issues. When the matter is resolved, the final disposition and the related
cash payment may exceed the current accrual for the best estimate of probable loss. At this time,
it is also not possible to accurately predict the timing of a resolution. The Company has
responded to the Wells Notice and continues to cooperate fully with the SEC on this matter, which
was first disclosed during the third quarter of 2004.
There are various other claims, lawsuits and pending actions against the Company incidental to
its operations. It is the opinion of management that the ultimate resolution of these matters will
not have a material adverse effect on the Companys consolidated financial position, results of
operations or cash flows.
Note 13 New Accounting Standards
In March 2008, the Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 161, Disclosures about Derivative Instruments and Hedging Activities an
amendment of FASB Statement No. 133 (FAS 161). FAS 161 requires enhanced disclosures about an
entitys derivative and hedging activities. Under FAS 161, entities are required to provide
enhanced disclosures about (a) how and why an entity uses derivative instruments, (b) how
derivative instruments and related hedged items are accounted for under Statement 133 and its
related interpretations, and (c) how derivative instruments and related hedged items affect an
entitys financial position, financial performance, and cash flows. FAS 161 will be effective for
the Company beginning January 4, 2009 (the first day of fiscal 2009). Early adoption is
encouraged. FAS 161 also encourages, but does not require, comparative disclosures for earlier
periods at initial adoption. The Company is currently in the process of evaluating what impact FAS
161 may have on the disclosures in its consolidated financial statements.
In December 2007, the Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 141(R), Business Combinations (FAS 141R). FAS 141R supercedes
Statement of Financial Accounting Standards No. 141, Business Combinations, and establishes
principles and requirements as to how an acquirer in a business combination recognizes and measures
in its financial statements: the identifiable assets acquired, the liabilities assumed and any
controlling interest; goodwill acquired in the business combination; or a gain from a bargain
purchase. FAS 141R requires the acquirer to record contingent consideration at the estimated fair
value at the time of purchase and establishes principles for treating subsequent changes in such
estimates which could affect earnings in those periods. This statement also calls for additional
disclosure regarding the nature and financial effects of the business combination. FAS 141R is to
be applied prospectively by the Company to business combinations beginning January 4, 2009 (the
first day of fiscal 2009). Early adoption is prohibited. The Company will assess the impact of
FAS 141R if and when a future acquisition occurs.
16
INGRAM MICRO INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in 000s, except per share data)
(Unaudited)
In December 2007, the Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 160, Noncontrolling Interests in Consolidated Financial Statements an
amendment of ARB No. 51 (FAS 160). FAS 160 establishes new accounting and reporting standards
for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. FAS
160 also clarifies that changes in a parents ownership interest in a subsidiary that do not result
in deconsolidation are equity transactions if the parent retains its controlling financial interest
and requires that a parent recognize a gain or loss in net income when a subsidiary is
deconsolidated. The gain or loss will be measured using the fair value of the noncontrolling
equity investment on the deconsolidation date. Moreover, FAS 160 includes expanded disclosure
requirements regarding the interests of the parent and its noncontrolling interest. FAS 160 is
effective for the Company beginning January 4, 2009 (the first day of fiscal 2009). Early adoption
is prohibited, but upon adoption FAS 160 requires the retroactive presentation and disclosure
related to existing minority interests. The Company is currently in the process of assessing what
impact FAS 160 may have on its consolidated financial position, results of operations or cash
flows.
In February 2007, the Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 159, The Fair Value Option for Financial Assets and Liabilities (FAS
159). FAS 159 permits companies to make an election to carry certain eligible financial assets
and liabilities at fair value, even if fair value measurement has not historically been required
for such assets and liabilities under U.S. GAAP. FAS 159 became effective for the Company
beginning December 30, 2007 (the first day of fiscal 2008). The Company did not elect the fair
value option to measure certain financial instruments. The adoption of the provisions of FAS159
did not have a material impact on the Companys consolidated financial position, results of
operations or cash flows.
In November 2007, the Emerging Issues Task Force released Issue No. 07-01 Accounting for
Collaborative Arrangements (EITF 07-01). EITF 07-01 requires collaborators to present the
results of activities for which they act as the principal on a gross basis and report any payments
received from (made to) other collaborators based on other applicable GAAP or, in the absence of
other applicable GAAP, based on analogy to authoritative accounting literature or a reasonable,
rational, and consistently applied accounting policy election. EITF 07-01 also clarified the
determination of whether transactions within a collaborative arrangement are part of a
vendor-customer (or analogous) relationship that are subject to EITF Issue No. 01-9 Accounting for
Consideration Given by a Vendor to a Customer. EITF 07-01 is effective for the Company beginning
January 4, 2009 (the first day of fiscal 2009). The Company is currently in the process of
evaluating what impact EITF No. 07-01 may have on its consolidated financial position, results of
operations or cash flows.
17
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
The following discussion includes forward-looking statements, including but not limited to,
managements expectations for: competition; revenues, margin, expenses and other operating results
or ratios; operating efficiencies; economic conditions; effective income tax rates; capital
expenditures; liquidity; capital requirements; acquisitions; contingencies; operating models; and
exchange rate fluctuations. In evaluating our business, readers should carefully consider the
important factors included in Item 1A Risk Factors of our Annual Report on Form 10-K for the
fiscal year ended December 29, 2007, as filed with the SEC. We disclaim any duty to update any
forward-looking statements.
Overview of Our Business
We are the largest distributor of information technology, or IT, products and supply chain
solutions worldwide based on revenues. We offer a broad range of IT products and supply chain
solutions and help generate demand and create efficiencies for our customers and suppliers around
the world. The IT distribution industry in which we operate is characterized by narrow gross
profit as a percentage of net sales, or gross margin, and narrow income from operations as a
percentage of net sales, or operating margin. Historically, our margins have been impacted by
pressures from price competition and declining average selling prices, as well as changes in vendor
terms and conditions, including, but not limited to, variations in vendor rebates and incentives,
our ability to return inventory to vendors, and time periods qualifying for price protection. We
expect these competitive pricing pressures and restrictive vendor terms and conditions to continue
in the foreseeable future. To mitigate these factors, we have implemented changes to and continue
to refine our pricing strategies, inventory management processes and vendor program processes. In
addition, we continuously monitor and change, as appropriate, certain terms and conditions offered
to our customers to reflect those being imposed by our vendors. We have also strived to improve
our profitability through our diversification of product offerings, including our entry into
adjacent product segments such as consumer electronics and automatic identification/data capture
and point-of-sale, or DC/POS. Our business also requires significant levels of working capital
primarily to finance accounts receivable. We have historically relied on, and continue to rely
heavily on available cash, debt and trade credit from vendors for our working capital needs.
We have complemented our internal growth initiatives with strategic business acquisitions,
including our recent acquisitions of the distribution business of the Cantechs Group in
Asia-Pacific, Paradigm Distribution Ltd. and Symtech Nordic AS in EMEA, and Nimax in North America,
each of which expanded our value-added distribution of mobile data and DC/POS solutions; AVAD, the
leading distributor for solution providers and custom installers serving the home automation and
entertainment market in the U.S.; DBL, a leading distributor of consumer electronics accessories in
the U.S.; and VPN Dynamics and Securematics, which expanded our networking product and services
offerings in the U.S.
Results of Operations
The following tables set forth our net sales by geographic region (excluding intercompany
sales) and the percentage of total net sales represented thereby, as well as operating income
(loss) and operating margin (loss) by geographic region for each of the thirteen and twenty-six
week periods indicated (in millions).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Thirteen Weeks Ended |
|
Twenty-six Weeks Ended |
|
|
June 28, |
|
June 30, |
|
June 28, |
|
June 30, |
|
|
2008 |
|
2007 |
|
2008 |
|
2007 |
|
|
|
|
|
Net sales by
geographic region: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North America |
|
$ |
3,519 |
|
|
|
39.9 |
% |
|
$ |
3,301 |
|
|
|
40.3 |
% |
|
$ |
6,809 |
|
|
|
39.1 |
% |
|
$ |
6,585 |
|
|
|
40.1 |
% |
EMEA |
|
|
2,955 |
|
|
|
33.5 |
|
|
|
2,777 |
|
|
|
33.9 |
|
|
|
6,022 |
|
|
|
34.6 |
|
|
|
5,824 |
|
|
|
35.4 |
|
Asia-Pacific |
|
|
1,904 |
|
|
|
21.6 |
|
|
|
1,764 |
|
|
|
21.6 |
|
|
|
3,717 |
|
|
|
21.4 |
|
|
|
3,333 |
|
|
|
20.3 |
|
Latin America |
|
|
439 |
|
|
|
5.0 |
|
|
|
344 |
|
|
|
4.2 |
|
|
|
846 |
|
|
|
4.9 |
|
|
|
690 |
|
|
|
4.2 |
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
8,817 |
|
|
|
100.0 |
% |
|
$ |
8,186 |
|
|
|
100.0 |
% |
|
$ |
17,394 |
|
|
|
100.0 |
% |
|
$ |
16,432 |
|
|
|
100.0 |
% |
|
|
|
|
|
|
|
|
|
18
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Thirteen Weeks Ended |
|
|
Twenty-six Weeks Ended |
|
|
|
June 28, |
|
|
June 30, |
|
|
June 28, |
|
|
June 30, |
|
|
|
2008 |
|
|
2007 |
|
|
2008 |
|
|
2007 |
|
Operating income (loss)
and operating margin
(loss) by geographic
region: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North America |
|
$ |
44.4 |
|
|
|
1.3 |
% |
|
$ |
38.6 |
|
|
|
1.2 |
% |
|
$ |
85.0 |
|
|
|
1.2 |
% |
|
$ |
95.6 |
|
|
|
1.5 |
% |
EMEA |
|
|
15.7 |
|
|
|
0.5 |
|
|
|
22.9 |
|
|
|
0.8 |
|
|
|
42.4 |
|
|
|
0.7 |
|
|
|
57.9 |
|
|
|
1.0 |
|
Asia-Pacific |
|
|
32.7 |
|
|
|
1.7 |
|
|
|
31.0 |
|
|
|
1.8 |
|
|
|
65.2 |
|
|
|
1.8 |
|
|
|
50.7 |
|
|
|
1.5 |
|
Latin America |
|
|
7.2 |
|
|
|
1.6 |
|
|
|
3.5 |
|
|
|
1.0 |
|
|
|
15.1 |
|
|
|
1.8 |
|
|
|
(24.9 |
) |
|
|
(3.6 |
) |
Stock-based compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
expense |
|
|
(6.8 |
) |
|
|
|
|
|
|
(10.3 |
) |
|
|
|
|
|
|
(15.2 |
) |
|
|
|
|
|
|
(19.9 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
93.2 |
|
|
|
1.1 |
% |
|
$ |
85.7 |
|
|
|
1.0 |
% |
|
$ |
192.5 |
|
|
|
1.1 |
% |
|
$ |
159.4 |
|
|
|
1.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Our income from operations for the 2008 periods presented above include $0.9 million of net
charges in North America and $6.8 million of charges in EMEA related to our reorganization and
expense reduction programs as discussed in Note 8 to our consolidated financial statements. Our
income from operations in North America for the 2007 periods presented above includes the $15.0
million charge related to the SEC matter as discussed in Note 12 to our consolidated financial
statements. In addition, our loss from operations in Latin America for the twenty-six weeks ended
June 30, 2007 includes the commercial tax charge of $33.8 million in Brazil, also discussed in Note
12.
We sell products purchased from many vendors, but generated approximately 25% and 21% of our
net sales for the twenty-six weeks ended June 28, 2008 and June 30, 2007, respectively, from
products purchased from Hewlett-Packard Company. There were no other vendors that represented 10%
or more of our net sales in the periods presented.
The following table sets forth certain items from our consolidated statement of income as a
percentage of net sales, for each of the periods indicated.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Thirteen Weeks Ended |
|
Twenty-six Weeks Ended |
|
|
June 28, |
|
June 30, |
|
June 28, |
|
June 30, |
|
|
2008 |
|
2007 |
|
2008 |
|
2007 |
Net sales |
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
100.0 |
% |
Cost of sales |
|
|
94.5 |
|
|
|
94.6 |
|
|
|
94.4 |
|
|
|
94.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit |
|
|
5.5 |
|
|
|
5.4 |
|
|
|
5.6 |
|
|
|
5.2 |
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative |
|
|
4.4 |
|
|
|
4.4 |
|
|
|
4.5 |
|
|
|
4.2 |
|
Reorganization costs (credits) |
|
|
0.0 |
|
|
|
(0.0 |
) |
|
|
0.0 |
|
|
|
(0.0 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations |
|
|
1.1 |
|
|
|
1.0 |
|
|
|
1.1 |
|
|
|
1.0 |
|
Other expense, net |
|
|
0.1 |
|
|
|
0.2 |
|
|
|
0.1 |
|
|
|
0.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes |
|
|
1.0 |
|
|
|
0.8 |
|
|
|
1.0 |
|
|
|
0.8 |
|
Provision for income taxes |
|
|
0.3 |
|
|
|
0.2 |
|
|
|
0.3 |
|
|
|
0.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
0.7 |
% |
|
|
0.6 |
% |
|
|
0.7 |
% |
|
|
0.5 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
19
Results of Operations for the Thirteen Weeks Ended June 28, 2008 Compared to
Thirteen Weeks Ended June 30, 2007
Our consolidated net sales increased 7.7% to $8.82 billion for the thirteen weeks ended June
28, 2008, or second quarter of 2008, from $8.19 billion for the thirteen weeks ended June 30, 2007,
or second quarter of 2007. The increase in net sales was primarily attributable to the translation
impact of the strengthening foreign currencies compared to the U.S. dollar, which contributed
approximately six percentage-points of the worldwide growth, additional revenue arising from our
acquisition of DBL in late June 2007 and continued strong growth in our Latin American region.
These positive trends were partially offset by the reduced demand for IT products and services in
EMEA as a result of the softness in the economic environment, as well as our deliberate efforts to
walk away from unfavorable business in the region. North America and certain of the larger
economies in Asia-Pacific also experienced economic softness, which tempered revenue growth from
recent levels in those regions. Net sales from our North American operations increased 6.6% to
$3.52 billion in the second quarter of 2008 from $3.30 billion in the second quarter of 2007,
primarily reflecting higher demand for IT products and services in the region during the second
quarter of 2008, particularly in Canada, and DBLs revenue contribution of approximately two
percentage-points of North Americas year-over-year net sales growth. Net sales from our EMEA
operations increased 6.4% to $2.96 billion in the second quarter of 2008 from $2.78 billion in the
second quarter of 2007. However, the appreciation of European currencies compared to the U.S.
dollar contributed approximately 13 percentage-points of the EMEA sales growth, which was offset in
part by the weak IT demand environment in the region. Net sales from our Asia-Pacific operations
increased 7.9% to $1.90 billion in the second quarter of 2008 from $1.76 billion in the second
quarter of 2007, primarily reflecting the appreciation of local currencies compared to the U.S.
dollar, which contributed six percentage-points of growth in the quarter. The regions growth has
been dampened by the global economic environment, particularly in the regions larger economies,
while many of the smaller countries continue to exhibit reasonably strong growth. To a lesser
extent, the May earthquake in China also negatively impacted year-over-year sales growth. Net
sales from our Latin American operations increased 27.6% to $438 million in the second quarter of
2008 from $344 million in the second quarter of 2007, primarily reflecting continued strong demand
for IT products and services throughout the region.
Gross margin increased to 5.5% in the second quarter of 2008 from 5.4% in the second quarter
of 2007, driven primarily by the impact of growth in our higher-margin business segments and
general business improvements across the regions. We continuously evaluate and modify our pricing
policies and certain terms and conditions offered to our customers to reflect those being imposed
by our vendors and general market conditions. In light of rising fuel costs, we are introducing
incremental freight charges across most of our account base. This initiative commenced in July
2008 and is expected to be fully implemented worldwide by the end of the third quarter of 2008. As we
continue to evaluate our existing pricing policies and make future changes, if any, we may
experience moderated or negative sales growth in the near term. In addition, increased competition
and any retractions or softness in economies throughout the world may hinder our ability to
maintain and/or improve gross margins from the levels realized in recent quarters.
Total SG&A expenses increased 8.5% to $387.6 million in the second quarter of 2008 from $357.4
million in the second quarter of 2007, but remained flat at 4.4% as a percentage of net sales in
the second quarters of 2008 and 2007. The prior year included a charge of $15 million or 0.2% of
net sales related to the SEC matter. The year-over-year increase was primarily attributable to
labor costs related to higher volumes in our fee-for-service business; incremental expenses related
to our strategic investments, such as the ongoing development of our systems and processes, ramp-up
of our services and infrastructure solutions businesses; and a full
quarter of operating expenses with the addition of DBL in June 2007.
The strengthening of foreign currencies also contributed to the growth in SG&A dollars by
approximately $18 million, or approximately five percentage-points.
For the second quarter of 2008, the net charge to reorganization costs of $6.6 million,
consisted of $7.1 million of employee termination benefits for workforce reductions associated with
our targeted reduction of administrative and back-office positions in North America and the
restructuring of the regional headquarters in EMEA, partially offset by a credit adjustment of $0.5
million for lower than expected costs to settle lease obligations for previous actions in North
America. For the second quarter of 2007, the credit to reorganization costs of $0.2 million
primarily related to actions taken in prior years for which we incurred lower than expected costs
associated with restructured facilities in North America. We expect to incur additional
reorganization and related costs of approximately $7 million in the third quarter of 2008 on the
above-mentioned action plans. Once completed, we expect these actions will yield approximately $18
million to $24 million of annualized cost savings, most of which should take effect by the fourth
quarter of 2008.
20
Operating margin slightly increased to 1.1% in the second quarter of 2008 compared to 1.0% in
the second quarter of 2007. The improvement primarily reflects the higher gross margin discussed
above and the prior year charge related to the SEC matter, partially offset by the incremental
costs associated with our expense-reduction programs. Our North American operating margins
increased to 1.3% in the second quarter of 2008 compared to 1.2% in the second quarter of 2007.
The increase primarily reflects the prior year charge related to the SEC matter while the current
year experienced more competitive pricing and incremental expenses related to our strategic
initiatives. Our EMEA operating margin decreased to 0.5% in the second quarter of 2008 compared to
0.8% in the second quarter of 2007. The soft economic environment had a negative impact on this
region, with sales declining at a quicker pace than operating expenses. In addition, the
expense-reduction program costs in EMEA negatively impacted the regions operating margin by 0.2%.
Our Asia-Pacific operating margin was down slightly at 1.7% in the second quarter of 2008 as the
region has effectively managed competitive pricing with ongoing cost containment efforts. Our
Latin American operating margin increased to 1.6% in the second quarter of 2008 compared to 1.0% in
the second quarter of 2007, primarily due to an increase in gross margin driven by product mix
changes and ongoing cost containment efforts, partially offset by our investments in the start-up
of operations in Argentina. We continue to implement process improvements and other changes to
improve profitability without sacrificing customer service over the long-term, including the
previously discussed imposition of freight charges and reorganization actions expected to occur in
the third quarter of 2008. As a result, operating margins and/or sales may fluctuate significantly
from quarter to quarter.
Other expense, net, consisted primarily of interest expense and income, foreign currency
exchange gains and losses and other non-operating gains and losses. We incurred net other expense
of $10.8 million in the second quarter of 2008 compared to $15.1 million in the second quarter of
2007, primarily reflecting lower debt levels and interest rates as well as higher foreign currency
gains in the current year.
The provision for income taxes was $23.5 million, or an effective tax rate of 28.5%, in the
second quarter of 2008 compared to $18.1 million, or an effective tax rate of 25.7%, in the second
quarter of 2007. The increase in the effective tax rate in the second quarter of 2008 is primarily
a function of shifts in the profit mix across geographies. We currently expect our effective tax
rate for the remainder of 2008 to be approximately 28%.
Results of Operations for the Twenty-six Weeks Ended June 28, 2008 Compared to
Twenty-six Weeks Ended June 30, 2007
Our consolidated net sales increased 5.9% to $17.39 billion for the twenty-six weeks ended
June 28, 2008, or the first six months of 2008, from $16.43 billion for the twenty-six weeks ended
June 30, 2007, or the first six months of 2007. The increase in net sales was primarily
attributable to the translation impact of the strengthening foreign currencies compared to the U.S.
dollar. Net sales from our North American operations increased 3.4% to $6.81 billion in the first
six months of 2008 from $6.58 billion in the first six months of 2007, primarily reflecting the
moderate overall demand for IT products and services in the region, as well as a full six months
activity from DBL in the current year. Net sales from our EMEA operations increased 3.4% to $6.02
billion in the first six months of 2008 from $5.82 billion in the first six months of 2007. The
appreciation of European currencies compared to the U.S. dollar contributed approximately 12
percentage-points to the EMEA sales growth. The softening demand for IT products and services in
most markets in Europe continues to impact the results in this region. Net sales from our
Asia-Pacific operations increased 11.5% to $3.72 billion in the first six months of 2008 from $3.33
billion in the first six months of 2007, primarily reflecting the appreciation of regional
currencies compared to the U.S. dollar, which had an approximate eight percentage-point positive
impact compared to the prior year period, and the overall demand for IT products and services
across the region. Demand levels in the smaller Asia-Pacific countries remained strong but some
macro-economic softness began to take effect in the regions larger economies during the second
quarter of 2008. Net sales from our Latin American operations increased 22.7% to $845 million in
the first six months of 2008 from $689 million in the first six months of 2007, primarily
reflecting the continued strong demand for IT products and services in the region.
Gross margin was 5.6% in the first six months of 2008 compared to 5.2% in the first six months
of 2007. The improvement reflects the impact of growth in our higher-margin business segments and
general business improvements, including product mix and stronger customer loyalty program in every
region. In addition, in the first six months of 2007, a charge of $33.8 million related to
Brazilian commercial taxes adversely affected the prior-year period gross margin by approximately
0.2% of net sales.
21
Total SG&A expenses increased 11.6% to $773.8 million in the first six months of 2008 from
$693.1 million in the first six months of 2007. Total SG&A expense as a percentage of net sales
was 4.5% in the first six months of 2008 as compared with 4.2% in the first six months of 2007.
The increasing trend is a result of the labor costs related to higher volumes in our
fee-for-service business; incremental expenses related to our strategic investments, such as the
ongoing development of our systems and processes, ramp-up of our services and infrastructure
solutions businesses; and a full six months of operating expenses with the addition of DBL in June
2007. The strengthening of foreign
currencies also contributed to the growth in SG&A dollars by approximately $36 million, or six
percentage-points. These factors were partially offset by continued cost control measures
throughout our business.
The first half of 2008 included the second quarter $6.6 million net charge to reorganization
costs discussed previously. For the first half of 2007, the credit to reorganization costs of $0.9
million primarily related to actions taken in prior years for which we incurred lower than expected
costs associated with restructured facilities in North America.
Operating margin increased to 1.1% in the first six months of 2008 from 1.0% in the first six
months of 2007, reflecting the gross margin improvement, partially offset by the higher SG&A
expenses and reorganization costs, as discussed above. Our North American operating margin
decreased to 1.2% in the first six months of 2008 compared to 1.5% in the first six months of 2007,
primarily reflecting competitive pricing pressures in our core distribution business resulting from
the soft economic environment and the investments in strategic initiatives and infrastructure. The
prior year also included the previously discussed charge related to the SEC matter, which was 0.2%
of sales in the first half of 2007. Our EMEA operating margin decreased to 0.7% in the first six
months of 2008 compared to 1.0% in the first six months of 2007. The reorganization charges and
the softening demand for IT products and services in most markets in Europe had a negative impact
on this region with sales declining at a quicker pace than operating expenses. Our Asia-Pacific
operating margin increased to 1.8% in the first six months of 2008 from 1.5% in the first six
months of 2007, reflecting improvements in gross margin and ongoing cost containment efforts in the
region. Our Latin American operating margin was a profit of 1.8% in the first six months of 2008
compared to a loss of 3.6% in the first six months of 2007, which included the commercial tax
charge in Brazil, which was approximately 4.9% of Latin American revenues in the first six months
of 2007. The improvement in Latin America also reflected enhanced gross margins and the economies
of scale associated with the higher volume of business and ongoing cost containment efforts.
Other expense, net, consisted primarily of interest expense and income, foreign currency
exchange gains and losses and other non-operating gains and losses. We incurred net other expense
of $23.5 million in the first six months of 2008 compared to $30.5 million in the first six months
of 2007. The decrease in net other expense is primarily attributable to the same factors discussed
above for the second quarters of 2008 and 2007.
The provision for income taxes was $46.0 million, or an effective tax rate of 27.2%, in the
first six months of 2008, which includes a net favorable discrete impact resulting from a tax-rate
change in China, partially offset by several discrete items. In the first six months of 2007, the
provision for income taxes was $39.5 million, or an effective tax rate of 30.6%, which was
negatively impacted by the $33.8 million Brazilian commercial tax charge, for which we did not
recognize an income tax benefit, partially offset by the positive impact resulting from our
reversal of certain income tax reserves following the resolution of a U.S. tax audit.
Quarterly Data; Seasonality
Our quarterly operating results have fluctuated significantly in the past and will likely
continue to do so in the future as a result of:
|
|
general deterioration in economic or geopolitical conditions, including changes in
legislation or regulatory environments in which we operate; |
|
|
competitive conditions in our industry, which may impact the prices charged and terms and
conditions imposed by our suppliers and/or competitors and the prices we charge our customers,
which in turn may negatively impact our revenues and/or gross margins; |
22
|
|
seasonal variations in the demand for our products and services, such as lower demand in Europe
during the summer months, worldwide pre-holiday stocking in the retail channel during the
September-to-December period and the seasonal increase in demand for our North American
fee-based logistics related services in the fourth quarter, which affects our operating expenses
and margins; |
|
|
changes in product mix, including impacts of targeted expansion in certain adjacent
markets; |
|
|
currency fluctuations in countries in which we operate; |
|
|
variations in our levels of excess inventory and doubtful accounts, and changes in the
terms of vendor-sponsored programs such as price protection and return rights; |
|
|
changes in the level of our operating expenses; |
|
|
the impact of acquisitions we may make; |
|
|
the impact of and possible disruption caused by reorganization actions and efforts to
improve our IT capabilities, as well as the related expenses and/or charges; |
|
|
the loss or consolidation of one or more of our major suppliers or customers; |
|
|
product supply constraints; and |
|
|
interest rate fluctuations, which may increase our borrowing costs and may influence the
willingness of customers and end-users to purchase products and services. |
These historical variations may not be indicative of future trends in the near term. Our
narrow operating margins may magnify the impact of the foregoing factors on our operating results.
Liquidity and Capital Resources
Cash Flows
We have financed working capital needs largely through income from operations, available cash,
borrowings under revolving accounts receivable-backed financing programs, revolving credit and
other facilities and trade, and supplier credit. The following is a detailed discussion of our
cash flows for the first six months of 2008 and 2007.
Our cash and cash equivalents totaled $747.8 million and $579.6 million at June 28, 2008 and
December 29, 2007, respectively.
Net cash provided by operating activities was $319.0 million for the first six months of 2008
compared to $264.4 million for the first six months of 2007. The net cash provided by operating
activities for the first six months of 2008 principally reflects our net income and decreases in
accounts receivable and inventories, partially offset by a decrease in accounts payable. The
decreases in accounts receivable, inventories and accounts payable largely reflect the seasonally
lower volume of business. The net cash provided by operating activities for the first six months
of 2007 principally reflects our net income, as well as reductions in inventory and increases in
accrued expenses, partially offset by decreases in accounts payable and amounts sold under accounts
receivable programs. The reductions in inventory and accounts payable largely reflects the
seasonal decline in sales during the first half of the year, while the increase in accrued expenses
primarily relates to timing of payments for value added taxes in certain countries, the reserve for
the previously discussed commercial tax liability in Brazil and a reserve for the previously
discussed estimated losses related to the SEC matter. As discussed in Note 1 to our consolidated
financial statements, we revised the prior period presentation of book overdrafts from a financing
activity to an operating activity to conform with the current period presentation.
Net cash provided by investing activities was $4.3 million for the first six months of 2008
compared to net cash used by financing activities of $150.5 million for the first six months of
2007. The net cash provided by investing activities for the first six months of 2008 was primarily
due to the collection of the short-term collateral deposits on financing activities, partially
offset by capital expenditures. The net cash used by investing activities for the first six months
of 2007 was primarily due to the DBL, VPN Dynamics and Securematics acquisitions and capital
expenditures.
Net cash used by financing activities was $166.0 million for the first six months of 2008
compared to net cash provided by financing activities of $109.7 million for the first six months of
2007. The net cash used by financing activities for the first six months of 2008 primarily reflects our
repurchase of Class A common stock of $134.3 million under our $300 million stock repurchase
program and the net repayments of $41.6 million on our debt facilities, partially offset by $9.6
million in proceeds from the exercise of stock options. The net cash provided by
financing activities for the first six months of 2007 primarily reflects the net proceeds of
$72.8 million from our debt facilities and proceeds of $34.0 million from the exercise of stock
options.
23
Our debt level is highly influenced by our working capital needs. As such, our borrowings
fluctuate from period-to-period and may also fluctuate significantly within a quarter. The
fluctuation is the result of the concentration of payments received from customers toward the end
of each month, as well as the timing of payments made to our vendors. Accordingly, our period-end
debt balance may not be reflective of our average debt level or maximum debt level during the
periods presented or at any point in time.
Capital Resources
We believe that our existing sources of liquidity, including cash resources and cash provided
by operating activities, supplemented as necessary with funds available under our credit
arrangements, will provide sufficient resources to meet our present and future working capital and
cash requirements for at least the next twelve months.
In July 2008, we entered into a $250 million senior
unsecured term loan facility in North America with a bank syndicate. The facility matures in
August 2012. The interest rate on this facility is based on one-month LIBOR, plus a variable
margin that is based on our debt ratings and leverage ratio. Interest is payable monthly. Under
the terms of the agreement, we are also required to pay quarterly a minimum of $3.1 million of
principal on the loan beginning in November 2009 through the end
of the loan term. The agreement also contains certain negative
covenants, including restrictions on funded debt and interest coverage, as well as customary
representations and warranties, affirmative covenants and events of default. The proceeds of the
term loan will be used for general corporate purposes, including refinancing existing indebtedness
and funding working capital. Subject to certain conditions, we may increase the amount of the
facility up to $350 million.
In connection with the senior unsecured term loan facility above, we entered into an interest
rate swap agreement for $200 million of the term loan, the effect of which was to swap the LIBOR portion of the floating-rate
obligation for a fixed-rate obligation. The fixed rate including the variable margin is
approximately 5%. The notional amount on the interest rate swap agreement reduces by $3.1 million
quarterly, beginning in November 2009 through the maturity of the agreement.
We have a revolving accounts receivable-backed financing program in the U.S., which provides
for up to $600 million in borrowing capacity secured by substantially all U.S.-based receivables.
At our option, the program may be increased to as much as $650 million at any time prior to its
maturity in July 2010. The interest rate on this facility is dependent on the designated
commercial paper rates plus a predetermined margin. At June 28, 2008 and December 29, 2007, we had
borrowings of $293.5 million and $387.5 million, respectively, under this U.S. revolving accounts
receivable-backed financing program.
We also have a revolving accounts receivable-backed financing program in Canada, which matures
in August 2008, and provides for borrowing capacity of up to 150 million Canadian dollars, or
approximately $148 million at June 28, 2008. The interest rate on this facility is dependent on
the designated commercial paper rates plus a predetermined margin at the drawdown date. At June
28, 2008 and December 29, 2007, we had no borrowings under this Canadian revolving accounts
receivable-backed financing program.
We have two revolving accounts receivable-backed financing facilities in Europe, which
individually provide for borrowing capacity of up to Euro 107 million, or approximately $169
million, and Euro 230 million, or approximately $362 million, at June 28, 2008. These facilities
mature in July 2010 and January 2009, respectively. Both facilities are with a financial
institution that has an arrangement with a related issuer of third-party commercial paper. These
European facilities require certain commitment fees, and borrowings under both facilities incur
financing costs at rates indexed to EURIBOR. At June 28, 2008 and December 29, 2007, we had no
borrowings under these European revolving accounts receivable-backed financing facilities.
We also have two revolving accounts receivable factoring facilities in Europe maturing in
March 2010, which individually provide for a maximum borrowing capacity of 60 million British pound
sterling, or approximately $119 million, and Euro 90 million, or approximately $142 million,
respectively, at June 28, 2008. Actual capacity will depend upon the level of trade accounts
receivable eligible to be transferred or sold into the accounts receivable financing programs. At
June 28, 2008 and December 29, 2007, we had no borrowings outstanding under these European
factoring facilities.
24
We have a multi-currency revolving trade accounts receivable-backed financing facility in
Asia-Pacific, which provides for up to 250 million Australian dollars of borrowing capacity, or
approximately $240 million at June 28, 2008, with a financial institution that has an arrangement
with a related issuer of third-party commercial paper. This facility expires in September 2008.
The interest rate is dependent upon the currency in which the drawing is made and is related to the
local short-term bank indicator rate for such currency. At June 28, 2008 and December 29, 2007, we
had borrowings of $51.2 million and $0, respectively, under this Asia-Pacific multi-currency
revolving accounts receivable-backed financing facility.
Our ability to access financing under our North American, EMEA and Asia-Pacific facilities, as
discussed above, is dependent upon the level of eligible trade accounts receivable, the level of
market demand for commercial paper and covenant compliance discussed below. At June 28, 2008, our
actual aggregate available capacity under these programs was approximately $1.5 billion based on
eligible trade accounts receivable available, of which approximately $344.7 million of such
borrowing capacity was used. We could, however, lose access to all or part of our financing under
these facilities under certain circumstances, including: (a) a reduction in credit ratings of the
third-party issuer of commercial paper or the back-up liquidity providers, if not replaced, or (b)
failure to meet certain defined eligibility criteria for the trade accounts receivable, such as
receivables remaining assignable and free of liens and dispute or set-off rights. In addition, in
certain situations, we could lose access to all or part of our financing with respect to the
European facility that matures in January 2009 as a result of the rescission of our authorization
to collect the receivables by the relevant supplier under applicable local law. Based on our
assessment of the duration of these programs, the history and strength of the financial partners
involved, other historical data, various remedies available to us under these programs, and the
remoteness of such contingencies, we believe that it is unlikely that any of these risks will
materialize in the near term.
We have a $275 million revolving senior unsecured credit facility with a bank syndicate in
North America that matures in August 2012. Subject to certain conditions, this facility may be
increased up to $450 million at any time prior to its maturity date. The interest rate on the
revolving senior unsecured credit facility is based on LIBOR, plus a predetermined margin that is
based on our debt ratings and our leverage ratio. At June 28, 2008 and December 29, 2007, we had
no borrowings under this North American revolving senior unsecured credit facility. This credit
facility may also be used to support letters of credit. At June 28, 2008 and December 29, 2007,
letters of credit of $10.3 million and $41.2 million, respectively, were issued to certain vendors
and financial institutions to support purchases by our subsidiaries, payment of insurance premiums
and flooring arrangements. Our available capacity under the agreement is reduced by the amount of
any issued and outstanding letters of credit.
We have a 100 million Australian dollar, or approximately $96 million at June 28, 2008, senior
unsecured credit facility with a bank syndicate that matures in December 2008. The interest rate
on this credit facility is based on Australian or New Zealand short-term bank indicator rates,
depending on the funding currency, plus a predetermined margin that is based on our debt ratings
and our leverage ratio. At June 28, 2008, we had no borrowings, while at December 29, 2007, we had
borrowings of $0.9 million under this senior unsecured credit facility. This credit facility may
also be used to support letters of credit. Our available capacity under the agreement is reduced
by the amount of any issued and outstanding letters of credit. At June 28, 2008 and December 29,
2007, no letters of credit were issued.
We also have additional lines of credit, short-term overdraft facilities and other credit
facilities with various financial institutions worldwide, which provide for borrowing capacity
aggregating approximately $925 million at June 28, 2008. Most of these arrangements are on an
uncommitted basis and are reviewed periodically for renewal. At June 28, 2008 and December 29,
2007, we had approximately $135.5 million and $134.7 million, respectively, outstanding under these
facilities. At June 28, 2008 and December 29, 2007, letters of credit totaling approximately $37.0
million and $30.2 million, respectively, were issued principally to certain vendors to support
purchases by our subsidiaries. The issuance of these letters of credit reduces our available
capacity under these agreements by the same amount. The weighted average interest rate on the
outstanding borrowings under these facilities, which may fluctuate depending on geographic mix, was
6.4% per annum at June 28, 2008 and December 29, 2007.
There has been no significant change in our contractual obligations during the first half of
2008 from those disclosed in our Annual Report on Form 10-K for the year ended December 29, 2007.
However, as discussed above, we subsequently entered into a new credit agreement that provides for
a $250 million senior unsecured term loan facility in North America in July 2008.
25
Covenant Compliance
We are required to comply with certain financial covenants under some of our financing
facilities, including restrictions on funded debt and interest coverage and trade accounts
receivable portfolio performance covenants, including metrics related to receivables and payables.
We are also restricted in the amount of additional indebtedness we can incur, dividends we can pay,
and the amount of common stock that we can repurchase annually. At June 28, 2008, we were in
compliance with all material covenants or other material requirements set forth in our accounts
receivable financing programs and credit agreements or other agreements with our creditors as
discussed above.
Other Matters
See Note 12 to our consolidated financial statements and Item 1. Legal Proceedings under
Part II Other Information for discussion of other matters.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
There were no material changes in our quantitative and qualitative disclosures about market
risk for the second quarter ended June 28, 2008 from those disclosed in our Annual Report on Form
10-K for the year ended December 29, 2007. For further discussion of quantitative and qualitative
disclosures about market risk, reference is made to our Annual Report on Form 10-K for the year
ended December 29, 2007.
Item 4. Controls and Procedures
The Companys management evaluated, with the participation of the Chief Executive Officer and
Chief Financial Officer, the effectiveness of the Companys disclosure controls and procedures as
of the end of the period covered by this report. Based on that evaluation, the Chief Executive
Officer and Chief Financial Officer have concluded that the Companys disclosure controls and
procedures were effective as of the end of the period covered by this report. There has been no
change in the Companys internal control over financial reporting that occurred during the last
fiscal quarter covered by this report materially affected, or is reasonably likely to materially
affect, the Companys internal control over financial reporting.
Part II. Other Information
Item 1. Legal Proceedings
In 2003, our Brazilian subsidiary was assessed for commercial taxes on its purchases of
imported software for the period January to September 2002. The principal amount of the tax
assessed for this period was 12.7 million Brazilian reais. Prior to February 28, 2007, and after
consultation with counsel, it had been our opinion that we had valid defenses to the payment of
these taxes and it was not probable that any amounts would be due for the 2002 assessed period, as
well as any subsequent periods. Accordingly, no reserve had been established previously for such
potential losses. However, on February 28, 2007 changes to the Brazilian tax law were enacted. As
a result of these changes, and after further consultation with counsel, it is now our opinion that
we have a probable risk of loss and may be required to pay all or some of these taxes.
Accordingly, in the first quarter of 2007, we recorded a charge to cost of sales of $33.8 million,
consisting of $6.1 million for commercial taxes assessed for the period January 2002 to September
2002, and $27.7 million for such taxes that could be assessed for the period October 2002 to
December 2005. The subject legislation provides that such taxes are not assessable on software
imports after January 1, 2006. The sums expressed are based on an exchange rate of 2.092 Brazilian
reais to the U.S. dollar which was applicable when the charge was recorded. In the fourth quarter
of 2007, we released a portion of the commercial tax reserve recorded in the first quarter of 2007
amounting to $3.6 million (6.5 million Brazilian reais at a December 2007 exchange rate of 1.792
Brazilian reais to the U.S. dollar). The partial reserve release was related to the unassessed
period from October through December 2002, for which it is managements opinion that the statute of
limitations for an assessment from Brazilian tax authorities has expired.
While the tax authorities may seek to impose interest and penalties in addition to the tax as
discussed above, we continue to believe that we have valid defenses to the assessment of interest
and penalties, which as of June 28, 2008 potentially amount to approximately $26.3 million and
$30.2 million, respectively, based on the exchange rate prevailing on that date of 1.608 Brazilian
reais to the U.S. dollar. Therefore, we currently do not anticipate establishing an additional
reserve for interest and penalties. We will continue to vigorously pursue administrative
and judicial action to challenge the current, and any subsequent assessments. However, we can
make no assurances that we will ultimately be successful in defending any such assessments, if
made.
26
In December 2007, the Sao Paulo Municipal Tax Authorities assessed our Brazilian subsidiary a
commercial service tax based upon our sales and licensing of software. The assessment covers the
years 2002 through 2006 and totaled 57.2 million Brazilian reais ($35.6 million based upon a June
28, 2008 exchange rate of 1.608 Brazilian reais to the U.S. dollar). The assessment included taxes
claimed to be due as well as penalties for the years in question. The authorities could make
adjustments to the initial assessment including assessments for the period after 2006, as well as
additional penalties and interest, which may be material. It is our opinion, after consulting with
counsel, that our subsidiary has valid defenses against the assessment of these taxes and
penalties, or any subsequent adjustments or additional assessments related to this matter.
Although we intend to vigorously pursue administrative and judicial action to challenge the current
assessment and any subsequent adjustments or assessments, we can make no assurances that we will
ultimately be successful in our defense of this matter.
In May 2007, we received a Wells Notice from the SEC, which indicated that the SEC staff
intends to recommend an administrative proceeding against the company seeking disgorgement and
prejudgment interest, though no dollar amounts were specified in the notice. The staff contends
that the company failed to maintain adequate books and records relating to certain of our
transactions with McAfee Inc. (formerly Network Associates, Inc.), and was a cause of McAfees own
securities-laws violations relating to the filing of reports and maintenance of books and records.
During the second quarter of 2007, we recorded a reserve of $15.0 million for the current best
estimate of the probable loss associated with this matter based on discussions with the SEC staff
concerning the issues raised in the Wells Notice. No resolution with the SEC has been reached at
this point, however, and there can be no assurance that such discussions will result in a
resolution of these issues. When the matter is resolved, the final disposition and the related
cash payment may exceed the current accrual for the best estimate of probable loss. At this time,
it is also not possible to accurately predict the timing of a resolution. We have responded to the
Wells Notice and continue to cooperate fully with the SEC on this matter, which was first disclosed
during the third quarter of 2004.
We and one of our subsidiaries are defendants in two separate lawsuits arising out of the
bankruptcy of Refco, Inc., and its subsidiaries and affiliates (collectively, Refco). Both
actions are currently pending in the U.S. District Court for the Southern District of New York.
The trustee of the Refco Litigation Trust has filed suit against Grant Thornton LLP, Mayer Brown
Rowe & Maw, LLP, Phillip Bennett, and numerous other individuals and entities (the Kirschner
action), claiming damage to the bankrupt Refco entities in the amount of $2 billion. Of its
forty-four claims for relief, the Kirschner action contains a single claim against us and our
subsidiary, alleging that loan transactions between the subsidiary and Refco in early 2000 and
early 2001 aided and abetted the common law fraud of Bennett and other defendants, resulting in
damage to Refco in August 2004 when it effected a leveraged buyout in which it incurred substantial
new debt while distributing assets to Refco insiders. The liquidators of numerous Cayman
Island-based hedge funds filed suit in New York state court (the Krys action) against many of the
same defendants named in the Kirschner action, as well as others. The Krys action alleges that we
and our subsidiary conspired with and aided and abetted the fraud of Refco insiders and others by
participating in the above loan transactions, causing damage to the hedge funds in an unspecified
amount. We intend to vigorously defend these cases and do not expect the final disposition of
either to have a material adverse effect on our consolidated financial position, results of
operations, or cash flows.
Item 1A. Risk Factors
In addition to the other information set forth in this report, you should carefully consider
the factors discussed in Part I, Item 1A. Risk Factors in our Annual Report on Form 10-K for the
year ended December 29, 2007, which could materially affect our business, financial condition or
future operating results. The risks described in our Annual Report on Form 10-K are not the only
risks facing our Company. Additional risks and uncertainties not currently known to us or that we
currently deem to be immaterial also may materially and adversely affect our business, financial
condition or operating results.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Not applicable.
Item 3. Defaults Upon Senior Securities
Not applicable.
27
Item 4. Submission of Matters to a Vote of Security Holders
|
a) |
|
The Annual Meeting of the Shareholders was held on June 4, 2008. |
|
|
b) |
|
The election of four directors was submitted for a vote at the Annual Meeting. The
following table lists the individuals and the number of votes cast for, against or
withheld, as well as the number of abstentions and broker non-votes, for four such
individuals elected to the Board of Directors for a term of three years set to expire at
the annual meeting of shareholders in 2011 (Mr. Atkins and Mss. Heisz, Ingram and
Levinson). |
|
|
|
|
|
|
|
Nominee |
|
|
|
Number of Votes |
|
|
Howard I. Atkins |
|
For |
|
|
143,591,094 |
|
|
|
Withheld/Against |
|
|
16,667,108 |
|
|
|
Abstentions and Broker Non-Votes |
|
|
N/A |
|
|
|
|
|
|
|
|
Leslie S. Heisz |
|
For |
|
|
151,088,398 |
|
|
|
Withheld/Against |
|
|
9,169,804 |
|
|
|
Abstentions and Broker Non-Votes |
|
|
N/A |
|
|
|
|
|
|
|
|
Martha R. Ingram |
|
For |
|
|
156,677,677 |
|
|
|
Withheld/Against |
|
|
3,580,525 |
|
|
|
Abstentions and Broker Non-Votes |
|
|
N/A |
|
|
|
|
|
|
|
|
Linda Fayne Levinson |
|
For |
|
|
144,668,100 |
|
|
|
Withheld/Against |
|
|
15,590,102 |
|
|
|
Abstentions and Broker Non-Votes |
|
|
N/A |
|
|
|
|
John R. Ingram, Dale R. Laurance and Gerhard Schulmeyer are continuing directors whose terms
of office expire at the annual meeting of shareholders in 2009. Orrin H. Ingram II, Michael
T. Smith, Gregory M.E. Spierkel, Joe B. Wyatt are continuing directors whose terms of office
expire at the annual meeting of shareholders in 2010. |
|
|
c) |
|
At the Annual Meeting, the proposal on amendment and restatement of the Ingram Micro Inc.
2003 Equity Incentive Plan was approved and received the following votes: |
For:
120,384,100 Against: 31,519,289 Abstain: 962,316
Broker Non-Votes: 7,392,497
|
|
|
At the Annual Meeting, the proposal on amendment and restatement of the Executive Incentive
Plan was approved and received the following votes: |
For:
154,999,358 Against: 4,239,701 Abstain: 1,019,143
Broker Non-Votes: N/A
|
|
|
At the Annual Meeting, the proposal on ratification of selection of PricewaterhouseCoopers
LLP as Ingram Micros independent registered public accounting firm for the current year was
approved and received the following votes: |
For:
159,569,534 Against: 407,269 Abstain: 281,399 Broker Non-Votes: N/A
Item 5. Other Information
Not applicable.
Item 6. Exhibits
|
|
|
No. |
|
Description |
10.1
|
|
Amended and Restated 2003 Equity Incentive Plan |
|
|
|
10.2
|
|
2008 Executive Incentive Plan |
|
|
|
31.1
|
|
Certification by Principal Executive Officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002 (SOX) |
|
|
|
31.2
|
|
Certification by Principal Financial Officer pursuant to Section 302 of SOX |
|
|
|
32.1
|
|
Certification by Principal Executive Officer pursuant to Section 906 of SOX |
|
|
|
32.2
|
|
Certification by Principal Financial Officer pursuant to Section 906 of SOX |
28
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:
Name:
|
|
/s/ William D. Humes
William D. Humes
|
|
|
|
|
Title:
|
|
Executive Vice President and |
|
|
|
|
|
|
Chief Financial Officer |
|
|
|
|
|
|
(Principal Financial Officer and |
|
|
|
|
|
|
Principal Accounting Officer) |
|
|
August 7, 2008
29
EXHIBIT INDEX
|
|
|
No. |
|
Description |
10.1
|
|
Amended and Restated 2003 Equity Incentive Plan |
|
|
|
10.2
|
|
2008 Executive Incentive Plan |
|
|
|
31.1
|
|
Certification by Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002 (SOX) |
|
|
|
31.2
|
|
Certification by Principal Financial Officer pursuant to Section 302 of SOX |
|
|
|
32.1
|
|
Certification by Principal Executive Officer pursuant to Section 906 of SOX |
|
|
|
32.2
|
|
Certification by Principal Financial Officer pursuant to Section 906 of SOX |
30
exv10w1
EXHIBIT 10.1
INGRAM
MICRO INC.
AMENDED AND RESTATED 2003 EQUITY INCENTIVE PLAN
Section
1. Purpose. The purposes of the
Ingram Micro Inc. Amended and Restated 2003 Equity Incentive
Plan are to promote the interests of Ingram Micro Inc. and its
shareholders by (i) attracting and retaining exceptional
members of the Board, executive personnel and other key
employees of Ingram Micro and its Affiliates, as defined below;
(ii) motivating such employees and Board members by means
of performance-related incentives to achieve longer-range
performance goals; and (iii) enabling such employees and
Board members to participate in the long-term growth and
financial success of Ingram Micro.
Section
2. Definitions. As used in the
Plan, the following terms shall have the meanings set forth
below:
Affiliate means (i) any entity that
is, directly or indirectly, controlled by Ingram Micro and
(ii) any other entity in which Ingram Micro has a
significant equity interest or which has a significant equity
interest in Ingram Micro, in either case as determined by the
Committee.
Award means any Option, Stock
Appreciation Right, award of Restricted Stock, Performance
Award, Restricted Stock Unit or Other Stock-Based Award.
Award Agreement means any written
agreement, contract, or other instrument or document evidencing
any Award, which may, but need not, be executed or acknowledged
by a Participant.
Board means the Board of Directors of
Ingram Micro.
Cause means any of: (i) any willful
act or omission by a Participant constituting dishonesty, fraud
or other malfeasance, which in any such case is demonstrably
injurious to the financial condition or business reputation of
Ingram Micro or any of its Affiliates; (ii) a
Participants commission of a felony or crime of moral
turpitude under the laws of the United States or any state
thereof or any other jurisdiction in which Ingram Micro or any
of its Affiliates conducts business; and (iii) any willful
violation by a Participant of any of Ingram Micros
policies of which such Participant has been given prior notice
and which violation is demonstrably detrimental to the best
interests of Ingram Micro or any of its Affiliates.
For purposes of this definition, no act or failure to act will
be deemed willful unless effected by a Participant
not in good faith and without a reasonable belief that such
action or failure to act was in or not opposed to the best
interests of Ingram Micro and its Affiliates.
Code means the United States Internal
Revenue Code of 1986, as amended from time to time and the rules
and regulations promulgated thereunder.
Committee means a committee of the Board
designated by the Board to administer the Plan and composed of
not less than the minimum number of persons from time to time
required by
Rule 16b-3,
each of whom, to the extent necessary to comply with
Rule 16b-3,
Section 162(m) of the Code, and the rules of the New York
Stock Exchange, is a Non-Employee Director within
the meaning of
Rule 16b-3,
an Outside Director as determined under
Section 162(m) of the Code, and an independent
director under the rules of the New York Stock Exchange.
Until otherwise determined by the Board, the Human Resources
Committee or any successor or replacement thereof designated by
the Board shall be the Committee under the Plan.
Covered Employee shall mean any Employee
who is, or could be, a covered employee within the
meaning of Section 162(m) of the Code.
Disability shall have the meaning
determined from time to time by the Committee.
Eligible Individual means any Employee,
including any officer or
employee-director
of Ingram Micro or any Affiliate, and any member of the Board.
Employee means an employee of Ingram
Micro or any Affiliate.
Exchange Act means the United States
Securities Exchange Act of 1934, as amended.
A-1
Executive Officer means, at any time, an
individual who is an executive officer of Ingram Micro within
the meaning of Exchange Act
Rule 3b-7
or who is an officer of Ingram Micro within the meaning of
Exchange Act
Rule 16a-1(f).
Fair Market Value means with respect to
the Shares, as of any given date or dates, the reported closing
price of a share of such class of common stock on such exchange
or market as is the principal trading market for such class of
common stock as reported in the Wall Street Journal or such
other publication selected by the Committee. If such class of
common stock is not traded on an exchange or principal trading
market on such date, the fair market value of a Share shall be
determined by the Committee in good faith taking into account as
appropriate recent sales of the Shares, recent valuations of the
Shares, the lack of liquidity of the Shares, the fact that the
Shares may represent a minority interest and such other factors
as the Committee shall in its discretion deem relevant or
appropriate.
Greater Than 10% Stockholder means an
individual then owning (within the meaning of
Section 424(d) of the Code) more than 10% of the total
combined voting power of all classes of stock of the company or
any subsidiary corporation (as defined in Section 424(f) of
the Code) or parent corporation thereof (as defined in
Section 424(e) of the Code.
Incentive Stock Option means a right to
purchase Shares from Ingram Micro that is granted under
Section 6 of the Plan and that is intended to meet the
requirements of Section 422 of the Code or any successor
provision thereto.
Ingram Micro means Ingram Micro Inc., a
Delaware corporation, together with any successor thereto.
Non-Qualified Stock Option means a right
to purchase Shares from Ingram Micro that is granted under
Section 6 of the Plan and that is not intended to be an
Incentive Stock Option.
Option means an Incentive Stock Option
or a Non-Qualified Stock Option.
Other Stock-Based Award means any right
granted under Section 10 of the Plan.
Participant means any Eligible
Individual selected by the Committee to receive an Award under
the Plan (and to the extent applicable, any heirs or legal
representatives thereof).
Performance Award means any right
granted under Section 9 of the Plan.
Person means any individual,
corporation, limited liability company, partnership,
association, joint-stock company, trust, unincorporated
organization, government or political subdivision thereof or
other entity.
Plan means this Ingram Micro Inc.
Amended and Restated 2003 Equity Incentive Plan.
Prior Plans means the Ingram Micro Inc.
2000 Equity Incentive Plan, the Ingram Micro Inc. 1998 Equity
Incentive Plan, and the Ingram Micro Inc. 1996 Equity Incentive
Plan.
Qualified Performance-Based
Compensation shall have the meaning set forth in
Section 9(c) of the Plan.
Restricted Stock means any Shares
granted under Section 8 of the Plan.
Restricted Stock Unit means any unit
granted under Section 8 of the Plan.
Retirement shall have the meaning
determined from time to time by the Committee and shall mean
initially termination of employment of Participants residing in
a non-European Union country at the time of termination of
employment other than by reason of death, Disability or Cause if
on the termination date the Participant is at least either
(1) 65 years of age and has at least 5 years of
service with Ingram Micro and its Affiliates or
(2) 55 years of age and has at least 10 years of
service with Ingram Micro and its Affiliates.
Rule 16b-3 means
Rule 16b-3
as promulgated and interpreted by the SEC under the Exchange
Act, or any successor rule or regulation thereto as in effect
from time to time.
SEC means the United States Securities
and Exchange Commission or any successor thereto.
A-2
Shares means shares of Class A
common stock, $.01 par value, of Ingram Micro or such other
securities as may be designated by the Committee from time to
time.
Stock Appreciation Right means any right
granted under Section 7 of the Plan.
Sub-Plan means
any sub-plan
or sub-plans
adopted by the Committee under Section 14(q) of the Plan.
Substitute Awards means Awards granted
in assumption of, or in substitution for, outstanding awards
previously granted by a company acquired by Ingram Micro or with
which Ingram Micro combines.
Section
3. Administration.
(a) Authority of Committee. The Plan
shall be administered by the Committee. Subject to the terms of
the Plan, applicable law and contractual restrictions affecting
Ingram Micro, and in addition to other express powers and
authorizations conferred on the Committee by the Plan, the
Committee shall have full power and authority to: designate
Participants; determine the type or types of Awards to be
granted to an Eligible Individual; determine the number of
Shares to be covered by, or with respect to which payments,
rights, or other matters are to be calculated in connection
with, Awards; determine the terms and conditions of any Award
and Award Agreement; determine whether, to what extent, and
under what circumstances Awards may be settled or exercised in
cash, Shares, other securities, other Awards or other property,
or canceled, forfeited, or suspended and the method or methods
by which Awards may be settled, exercised, canceled, forfeited,
or suspended; determine whether, to what extent, and under what
circumstances cash, Shares, other securities, other Awards,
other property, and other amounts payable with respect to an
Award shall be deferred either automatically or at the election
of the holder thereof or of the Committee; interpret and
administer the Plan and any instrument or agreement relating to,
or Award made under, the Plan; establish, amend, suspend, or
waive such rules and regulations and appoint such agents as it
shall deem appropriate for the proper administration of the
Plan; make any other determination and take any other action
that the Committee deems necessary or desirable for the
administration of the Plan; and adopt and administer one or more
Sub-Plans.
The Committee may, in its sole discretion, delegate to one or
more Executive Officers the power to make Awards under the plan
provided that at the time of such grant no recipient of such
Awards shall be an Executive Officer. Without limiting the
foregoing, the Committee may impose such conditions with respect
to the exercise
and/or
settlement of any Awards, including without limitation, any
relating to the application of federal or state securities laws
or the laws, rules or regulations of any jurisdiction outside
the United States, as it may deem necessary or advisable.
(b) Committee Discretion Binding. Unless
otherwise expressly provided in the Plan, all designations,
determinations, interpretations, and other decisions under or
with respect to the Plan or any Award shall be within the sole
discretion of the Committee, may be made at any time and shall
be final, conclusive and binding upon all Persons, including
Ingram Micro, any Affiliate, any Participant, any holder or
beneficiary of any Award, any shareholder and any Eligible
Individual.
(c) Prohibitions. Subject to
Section 4(c) and Section 12, the Committee may not,
without the approval of Ingram Micros shareholders,
(i) lower the price per share of an Option or Stock
Appreciation Right after it is granted, (ii) cancel an
Option or Stock Appreciation Right in exchange for cash or
another Award (other than in connection with a Substitute Award)
when the Option or Stock Appreciation Right price per share
exceeds the Fair Market Value of the underlying Shares, or
(iii) take any other action with respect to an Option or
Stock Appreciation Right that would be treated as a repricing
under the rules and regulations of the principal securities
exchange on which the Shares are traded.
Section
4. Shares Available for Awards.
(a) Number of Shares. Subject to
adjustment as provided in Section 4(c) and 4(d), a total of
11,734,000 Shares shall be authorized for grant under the
Plan, less one (1) Share for every one (1) Share that
was subject to an option or stock appreciation right granted
after January 26, 2008 from any of the Prior Plans and
1.9 Shares for every one (1) Share that was subject to
an award other than an option or stock appreciation right
granted after January 26, 2008 under the Prior Plans. Any
Shares that are subject to Awards of Options or Stock
Appreciation Rights shall be counted against this limit as one
(1) Share for every one (1) Share granted. Any Shares
that are subject to Awards granted under the Plan other than
Options or Stock Appreciation Rights shall be counted against
this limit as 1.9 Shares for every one (1) Share
granted. After the effective date of the Plan (as provided in
Section 15(a)), no awards may be granted under any Prior
Plan. In addition, subject to adjustment under
Section 4(c),
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no more than 11,734,000 Shares may be subject to Incentive
Stock Options granted under the Plan and no Eligible Individual
may receive Awards under the Plan in any calendar year that
relate to more than 2,000,000 Shares.
(b) Forfeited or Expired Shares; Settled
Awards. If (i) any Shares subject to an
Award are forfeited or expire or an Award is settled for cash
(in whole or in part), or (ii) after January 26, 2008
any Shares subject to an award under the Prior Plans are
forfeited or expire or an award under the Prior Plans is settled
for cash (in whole or in part), the Shares subject to such Award
or award under the Prior Plans shall, to the extent of such
forfeiture, expiration or cash settlement, again be available
for Awards under the Plan, in accordance with Section 4(e)
below. Notwithstanding anything to the contrary contained
herein, the following Shares shall not be added to the Shares
authorized for grant under paragraph (a) of this Section:
(i) Shares tendered by a Participant or withheld by Ingram
Micro in payment of the exercise price of an Option,
(ii) Shares tendered by a Participant or withheld by Ingram
Micro to satisfy any tax withholding obligation with respect to
an Award, and (iii) Shares subject to a Stock Appreciation
Right that are not issued in connection with the stock
settlement of the Stock Appreciation Right on exercise thereof.
(c) Adjustments. In the event that the
Committee determines that any dividend or other distribution
(whether in the form of cash, Shares, other securities or other
property), recapitalization, stock split, reverse stock split,
reorganization, reclassification, merger, consolidation,
split-up,
spin-off, combination, repurchase, or exchange of Shares or
other securities of Ingram Micro, issuance of warrants or other
rights to purchase Shares or other securities of Ingram Micro,
or other similar corporate transaction or event affects the
Shares such that an adjustment is determined by the Committee to
be appropriate in order to prevent dilution or enlargement of
the benefits or potential benefits intended to be made available
under the Plan, then the Committee shall, in such manner as it
may deem equitable, adjust any or all of the number of Shares of
Ingram Micro (or number and kind of other securities or
property) with respect to which Awards may thereafter be
granted, the number of Shares or other securities of Ingram
Micro (or number and kind of other securities or property)
subject to outstanding Awards, and the grant or exercise price
with respect to any Award, or, if deemed appropriate, make
provision for a cash payment to the holder of an outstanding
Award; provided, in each case, that except to the extent deemed
desirable by the Committee, no such adjustment of Awards
(i) of Incentive Stock Options shall be authorized to the
extent that such authority would cause the Plan to violate
Section 422(b)(1) of the Code, as from time to time
amended, or (ii) with respect to any Award would be
inconsistent with the Plans meeting the requirements of
Section 162(m) of the Code, as from time to time amended.
(d) Substitute Awards. Substitute Awards
shall not reduce the Shares authorized for grant under the Plan
or authorized for grant to a Participant. Additionally, in the
event that a company acquired by Ingram Micro or any subsidiary
of Ingram Micro or with which Ingram Micro or any subsidiary of
Ingram Micro combines has shares available under a pre-existing
plan approved by stockholders and not adopted in contemplation
of such acquisition or combination, the shares available for
grant pursuant to the terms of such pre-existing plan (as
adjusted, to the extent appropriate, using the exchange ratio or
other adjustment or valuation ratio or formula used in such
acquisition or combination to determine the consideration
payable to the holders of common stock of the entities party to
such acquisition or combination) may be used for Awards under
the Plan and shall not reduce the Shares authorized for grant
under the Plan; provided that Awards using such available shares
shall not be made after the date awards or grants could have
been made under the terms of the pre-existing plan, absent the
acquisition or combination, and shall only be made to
individuals who were not employed immediately before the
transaction by Ingram Micro or any of its subsidiaries.
(e) Shares Again Available for
Awards. Any Shares that again become available
for grant pursuant to this Section 4 shall be added back as
(i) one (1) Share if such Shares were subject to
Options or Stock Appreciation Rights granted under the Plan or
options or stock appreciation rights granted under the Prior
Plans, and (ii) as 1.9 Shares if such Shares were
subject to Awards other than Options or Stock Appreciation
Rights granted under the Plan or awards other than options or
stock appreciation rights granted under the Prior Plans.
(f) Sources of Shares Deliverable Under
Awards. Any Shares delivered pursuant to an Award
may consist, in whole or in part, of authorized and unissued
Shares or of treasury Shares.
Section
5. Eligibility. Any Eligible
Individual shall be eligible to be designated a Participant.
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Section
6. Stock Options.
(a) Grant. Subject to the provisions of
the Plan and contractual restrictions affecting Ingram Micro,
the Committee shall have sole and complete authority to
determine the Eligible Individuals to whom Options shall be
granted, the number of Shares to be covered by each Option, the
option price therefore and the conditions and limitations
applicable to the exercise of the Option. The Committee shall
have the authority to grant Incentive Stock Options, or to grant
Non-Qualified Stock Options, or to grant both types of Options.
In the case of Incentive Stock Options, the terms and conditions
of such grants shall be subject to and comply with such rules as
may be prescribed by Section 422 of the Code, as from time
to time amended, and any regulations implementing such statute.
(b) Exercise Price. The Committee in its
sole discretion shall establish the exercise price at the time
each Option is granted; provided, however, that except in
connection with (i) Substitute Awards and
(ii) adjustment of outstanding Options pursuant to
Section 4(c), the per share exercise price of an Option
shall not be less than the Fair Market Value of a Share on the
date of grant (or, as to Incentive Stock Options, on the date
the Option is modified, extended or renewed for purposes of
Section 424(h) of the Code). In addition, in the case of
Incentive Stock Options granted to a Greater Than 10%
Stockholder, such price shall not be less than 110% of the Fair
Market Value of a Share on the date the Option is granted (or
the date the Option is modified, extended or renewed for
purposes of Section 424(h) of the Code).
(c) Vesting. The period during which the
right to exercise, in whole or in part, an Option vests in the
Participant shall be set by the Committee and the Committee may
determine that an Option may not be exercised in whole or in
part for a specified period after it is granted. Such vesting
may be based on service with Ingram Micro or any Ingram Micro
subsidiary, or any other criteria selected by the Committee. At
any time after grant of an Option, the Committee may, in its
sole discretion and subject to whatever terms and conditions it
selects, accelerate the period during which an Option vests.
(d) Term. The maximum term of an Option
shall be ten (10) years.
(e) Exercise. Each Option shall be
exercisable at such times and subject to such terms and
conditions as the Committee may, in its sole discretion, specify
in the applicable Award Agreement or thereafter.
(f) Payment. No Shares shall be delivered
pursuant to any exercise of an Option until payment in full of
the option price therefore is received by Ingram Micro. Such
payment may be made: in cash; in Shares (the value of such
Shares shall be their Fair Market Value on the date of
exercise); by a combination of cash and such Shares; if approved
by the Committee, in accordance with a cashless exercise program
under which either, if so instructed by a Participant, Shares
may be issued directly to such Participants broker or
dealer upon receipt of the purchase price in cash from the
broker or dealer, or Shares may be issued by Ingram Micro to
such Participants broker or dealer in consideration of
such brokers or dealers irrevocable commitment to
pay to Ingram Micro that portion of the proceeds from the sale
of such Shares that is equal to the exercise price of the
Option(s) relating to such Shares; or in such other manner as
permitted by the Committee at the time of grant or thereafter.
Section
7. Stock Appreciation Rights.
(a) Grant. Subject to the provisions of
the Plan and contractual restrictions affecting Ingram Micro,
the Committee shall have sole and complete authority to
determine the Eligible Individuals to whom Stock Appreciation
Rights shall be granted, the number of Shares to be covered by
each Stock Appreciation Right Award, the grant price thereof and
the conditions and limitations applicable to the exercise
thereof; provided, however, that except in connection with
(i) Substitute Awards and (ii) adjustment of
outstanding Stock Appreciation Rights pursuant to
Section 4(c), the per share grant price of a Stock
Appreciation Right shall not be less than the Fair Market Value
of a Share on the date of grant. Stock Appreciation Rights may
be granted in tandem with another Award, in addition to another
Award, or freestanding and unrelated to another Award. Stock
Appreciation Rights granted in tandem with or in addition to an
Award may be granted either at the same time as the Award or at
a later time. Stock Appreciation Rights shall have a grant price
as determined by the Committee on the date of grant.
(b) Vesting. The period during which the
right to exercise, in whole or in part, a Stock Appreciation
Right vests in the Participant shall be set by the Committee and
the Committee may determine that a Stock Appreciation Right may
not be exercised in whole or in part for a specified period
after it is granted. Such vesting may be based on
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service with Ingram Micro or any Ingram Micro subsidiary, or any
other criteria selected by the Committee. At any time after
grant of a Stock Appreciation Right, the Committee may, in its
sole discretion and subject to whatever terms and conditions it
selects, accelerate the period during which a Stock Appreciation
Right vests.
(c) Term. The maximum term of a Stock
Appreciation Right shall be ten (10) years.
(d) Exercise and Payment. A Stock
Appreciation Right shall entitle a Participant to receive an
amount equal to the excess of the Fair Market Value of a Share
on the date of exercise of the Stock Appreciation Right over the
grant price thereof. The Committee shall determine whether a
Stock Appreciation Right shall be settled in cash, Shares or a
combination of cash and Shares.
(e) Other Terms and Conditions. Subject
to the terms of the Plan and any applicable Award Agreement, the
Committee shall determine, at or after the grant of a Stock
Appreciation Right, the term, methods of exercise, methods and
form of settlement, and any other terms and conditions of any
Stock Appreciation Right. Any such determination by the
Committee may be changed by the Committee from time to time and
may govern the exercise of Stock Appreciation Rights granted or
exercised prior to such determination as well as Stock
Appreciation Rights granted or exercised thereafter. The
Committee may impose such conditions or restrictions on the
exercise of any Stock Appreciation Right as it shall deem
appropriate.
Section
8. Restricted Stock and Restricted Stock Units.
(a) Grant. Subject to the provisions of
the Plan and contractual provisions affecting Ingram Micro, the
Committee shall have sole and complete authority to determine
the Eligible Individuals to whom Shares of Restricted Stock and
Restricted Stock Units shall be granted, the number of Shares of
Restricted Stock
and/or
the number of Restricted Stock Units to be granted to each
Participant, the duration of the period during which, and the
conditions under which, the Restricted Stock and Restricted
Stock Units may be forfeited to Ingram Micro, and the other
terms and conditions of such Awards.
(b) Vesting. The Committee shall
determine and specify the date or dates on which the Shares of
Restricted Stock and the Restricted Stock Units shall become
fully vested and nonforfeitable, and may specify such conditions
to vesting as it deems appropriate, including conditions based
on one or more specific criteria, including service to Ingram
Micro or any Ingram Micro subsidiary, in each case on a
specified date or dates or over any period or periods, as the
Committee determines.
(c) Payment. Each Restricted Stock Unit
shall have a value equal to the Fair Market Value of a Share.
Restricted Stock Units shall be paid in cash, Shares, other
securities, or other property, as determined in the sole
discretion of the Committee, upon the lapse of the restrictions
applicable thereto, or otherwise in accordance with the
applicable Award Agreement.
(d) Dividends and
Distributions. Dividends and other distributions
paid on or in respect of any Shares of Restricted Stock and
dividend equivalents with respect to Restricted Stock Units may
be paid directly to a Participant, or may be reinvested in
additional Shares of Restricted Stock or in additional
Restricted Stock Units, as determined by the Committee in its
sole discretion.
Section
9. Performance Awards.
(a) Grant. Subject to the provisions of
the Plan and contractual provisions affecting Ingram Micro, the
Committee shall have sole and complete authority to determine
the Eligible Individuals who shall receive a Performance
Award, which shall consist of a right which is denominated
in cash or Shares, valued, as determined by the Committee, in
accordance with the achievement of such performance goals during
such performance periods as the Committee shall establish, and
payable at such time and in such form as the Committee shall
determine.
(b) Terms and Conditions. Subject to the
terms of the Plan, any contractual provisions affecting Ingram
Micro and any applicable Award Agreement, the Committee shall
determine the performance goals to be achieved during any
performance period, the length of any performance period, the
amount of any Performance Award and the amount and kind of any
payment or transfer to be made pursuant to any Performance Award.
(c) Qualified Performance-Based
Compensation. The Committee, in its sole
discretion, may determine whether an Award is to constitute
qualified performance-based compensation within the
meaning of
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Section 162(m) of the Code (Qualified Stock-Based
Compensation). If the Committee, in its sole discretion,
decides to grant such an Award to a Covered Employee that is
intended to constitute Qualified Performance-Based Compensation,
then the provisions of this Section 9(c) shall control over
any contrary provision contained in the Plan. The Committee may
in its sole discretion grant Awards to other Eligible
Individuals that are based on performance criteria but that do
not satisfy the requirements of this Section 9(c) and that
are not intended to constitute Qualified Performance-Based
Compensation. Unless otherwise specified by the Committee at the
time of grant, the performance criteria, the objectively
determinable adjustments and the achievement of each performance
goal with respect to an Award intended to constitute Qualified
Performance-Based Compensation shall be determined on the basis
of United States generally accepted accounting principles
(GAAP).
(i) Performance Goals with Respect to Qualified
Performance-Based Compensation. Any performance
goals established by the Committee for any Award which is
intended to constitute Qualified Performance-Based Compensation
shall satisfy the following requirements:
(A) Such goals shall be based on any one or more of the
following performance criteria: asset turn-over, customer
satisfaction, market penetration, associate satisfaction or
similar indices, price of Ingram Micros Class A
common stock, stockholder return, return on assets, return on
equity, return on investment, return on capital, return on
invested capital, return on working capital, return on sales,
other return measures, sales productivity, sales growth, total
new sales, productivity ratios, expense targets, economic
profit, economic value added, net earnings (either before or
after one or more of the following: interest, taxes,
depreciation and amortization), income (either before or after
taxes), operating earnings or profit, gross or net profit or
operating margin, gross margin, gross or net sales or revenue,
cash flow (including, but not limited to, operating cash flow
and free cash flow), net worth, earnings per share, earnings per
share growth, operating unit contribution, achievement of annual
or multiple year operating profit plans, earnings from
continuing operations, costs, expenses, working capital,
implementation or completion of critical projects or processes,
performance achievements on certain designated projects, debt
levels, market share or similar financial performance measures
as may be determined by the Committee, any of which may be
measured either in absolute terms or as compared to any
incremental increase or decrease or as compared to results of a
peer group or to market performance indicators or indices.
(B) The Committee may, in its sole discretion, provide that
one or more of the following objectively determinable
adjustments shall be made to one or more of such goals: items
related to a change in accounting principle; items relating to
financing activities; expenses for restructuring or productivity
initiatives; other non-operating items; items related to
acquisitions; items attributable to the business operations of
any entity acquired by Ingram Micro during the performance
period; items related to the disposal of a business or segment
of a business; items related to discontinued operations; items
attributable to any stock dividend, stock split, combination or
exchange of shares occurring during the performance period; or
any other items of significant income or expense which are
determined to be appropriate adjustments; items relating to
unusual or extraordinary corporate transactions, events or
developments, items related to amortization of acquired
intangible assets; items that are outside the scope of Ingram
Micros core, on-going business activities; or items
relating to any other unusual or nonrecurring events or changes
in applicable laws, accounting principles or business
conditions. Such determinations shall be made within the time
prescribed by, and otherwise in compliance with,
Section 162(m) of the Code.
(C) Such goals may be established on a cumulative basis or
in the alternative, and may be established on a stand-alone
basis with respect to Ingram Micro, any of its operating units,
or an individual, or on a relative basis with respect to any
peer companies or index selected by the Committee.
(D) Such goals may be based on an analysis of historical
performance and growth expectations for the business, financial
results of other comparable businesses, and progress towards
achieving the long-range strategic plan for the business.
(E) Such goals shall be established in such a manner that a
third party having knowledge of the relevant facts could
determine whether the goals have been met.
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(ii) Procedures with Respect to Qualified
Performance-Based Compensation. To the extent
necessary to comply with the requirements of
Section 162(m)(4)(C) of the Code, with respect to any Award
granted to one or more Covered Employees and which is intended
to constitute Qualified Performance-Based Compensation no later
than 90 days following the commencement of any performance
period or any designated fiscal period or period of service (or
such earlier time as may be required under Section 162(m)
of the Code), the Committee shall, in writing,
(a) designate one or more Participants, (b) select the
performance criteria and adjustments applicable to the
performance period (as provided in Section 9(c)(i) above),
(c) establish the performance goals, and amounts of such
Awards, as applicable, which may be earned for such performance
period based on the performance criteria, (d) specify the
relationship between performance criteria and the performance
goals and the amounts of such Awards, as applicable, to be
earned by each Participant for such performance period, and
(e) establish, in terms of an objective formula or
standard, the method for computing the amount of compensation
payable upon attainment of the performance goals, such that a
third party having knowledge of the relevant facts could
calculate the amount to be paid. Following the completion of
each performance period, the Committee shall determine whether
and the extent to which the applicable performance goals have
been achieved for such performance period and approve any bonus
payments, which determination and approvals shall be recorded in
the minutes of the Committee. In determining the amount earned
under such Awards, with respect to any Award granted to one or
more Covered Employees and which is intended to constitute
Qualified Performance-Based Compensation, the Committee shall
have the right to reduce or eliminate (but not to increase) the
amount payable at a given level of performance to take into
account additional factors that the Committee may deem relevant
to the assessment of individual or corporate performance for the
performance period.
(iii) Payment of Qualified Performance-Based
Compensation. Unless otherwise provided in the
applicable Award Agreement and only to the extent otherwise
permitted by Section 162(m)(4)(C) of the Code, as to an
Award that is intended to constitute Qualified Performance-Based
Compensation, the Participant must be employed by Ingram Micro
or any of its Affiliates throughout the performance period.
Furthermore, a Participant shall be eligible to receive payment
pursuant to such Awards for a performance period only if and to
the extent the performance goals for such period are achieved,
and only after the Committee has certified in writing that such
goals have been achieved.
(iv) Additional
Limitations. Notwithstanding any other provision
of the Plan, any Award which is granted to an Covered Employee
and is intended to constitute Qualified Performance-Based
Compensation shall be subject to any additional limitations set
forth in Section 162(m) of the Code or any regulations or
rulings issued thereunder that are requirements for Qualified
Performance-Based Compensation, and the Plan and the Award
Agreement shall be deemed amended to the extent necessary to
conform to such requirements.
(d) Payment of Performance
Awards. Performance Awards may be paid in a lump
sum or in installments following the close of the performance
period or, in accordance with procedures established by the
Committee, on a deferred basis.
(e) Applicability. The grant of an Award
to an Eligible Individual for a particular performance period
shall not require the grant of an Award to such Eligible
Individual in any subsequent performance period and the grant of
an Award to any one Eligible Individual shall not require the
grant of an Award to any other Eligible Individual in such
period or in any other period.
Section
10. Other Stock-Based Awards. The
Committee shall have authority to grant to Eligible Individuals
an Other Stock-Based Award, which shall consist of any right
which is not an Award described in Sections 6 through 9
above and which is an Award of Shares or an Award denominated or
payable in, valued in whole or in part by reference to, or
otherwise based on or related to, Shares (including, without
limitation, securities convertible into Shares), as deemed by
the Committee to be consistent with the purposes of the Plan;
provided that any such rights must comply with applicable law,
and to the extent deemed desirable by the Committee, with
Rule 16b-3
and the requirements of Section 162(m) of the Code. Subject
to the terms of the Plan, any contractual provisions affecting
Ingram Micro and any applicable Award Agreement, the Committee
shall determine the terms and conditions of any such Other
Stock-Based Award.
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Section
11. Termination or Suspension of Employment or
Service. The Committee shall have sole discretion
to determine a Participants rights with respect to any
Award in the event of a Participants termination of
employment or service, including if a Participants
employment or service with Ingram Micro or its Affiliates is
terminated by reason of death, Disability, or Retirement.
Section
12. Merger and other Corporate Transactions.
(a) In the event of a merger of Ingram Micro with or into
another corporation, each outstanding Award may be assumed or an
equivalent award may be substituted by such successor
corporation or a parent or subsidiary of such successor
corporation. If, in such event, an Award is not assumed or
substituted the Committee may cause the Award to become fully
exercisable immediately prior to the date of the closing of the
merger and all forfeiture restrictions on any or all of such
Awards to lapse. If an Award is exercisable in lieu of
assumption or substitution in the event of a merger, the
Committee shall notify the Participant that the Award shall be
fully exercisable for a period of fifteen (15) days from
the date of such notice, contingent upon the occurrence of the
merger, and the Award shall terminate upon the expiration of
such period. For the purposes of this paragraph, the Award shall
be considered assumed if, following the merger, the Award
confers the right to purchase or receive, for each Share subject
to the Award immediately prior to the merger, the consideration
(whether stock, cash, or other securities or property) received
in the merger by holders of Shares for each Share held on the
effective date of the transaction (and if the holders are
offered a choice of consideration, the type of consideration
chosen by the holders of a majority of the outstanding Shares).
If such consideration received in the merger is not solely
common stock of the successor corporation or its parent, the
Committee may, with the consent of the successor corporation,
provide for the consideration to be received upon the exercise
of the Award, for each Share subject to the Award, to be solely
common stock of the successor corporation or its parent equal in
fair market value to the per share consideration received by
holders of Shares in the merger.
(b) In the event of any transaction or event described in
Section 12(a) or any unusual or nonrecurring transactions
or events affecting Ingram Micro, any Affiliate, or the
financial statements of Ingram Micro or any Affiliate, or of
changes in applicable laws, regulations or accounting
principles, the Committee, in its sole discretion, and on such
terms and conditions as it deems appropriate, either by the
terms of the Award or by action taken prior to the occurrence of
such transaction or event and either automatically or upon the
Participants request, is hereby authorized to take any one
or more of the following actions whenever the Committee
determines that such action is appropriate in order to prevent
dilution or enlargement of the benefits or potential benefits
intended to be made available under the Plan or with respect to
any Award under the Plan, to facilitate such transactions or
events or to give effect to such changes in laws, regulations or
principles: (i) to provide for either (A) termination
of any such Award in exchange for an amount of cash, if any,
equal to the amount that would have been attained upon the
exercise of such Award or realization of the Participants
rights (and, for the avoidance of doubt, if as of the date of
the occurrence of the transaction or event described in this
section the Committee determines in good faith that no amount
would have been attained upon the exercise of such Award or
realization of the Participants rights, then such Award
may be terminated by Ingram Micro without payment) or
(B) the replacement of such Award with other rights or
property selected by the Committee in its sole discretion having
an aggregate value not exceeding the amount that could have been
attained upon the exercise of such Award or realization of the
Participants rights had such Award been currently
exercisable or payable or fully vested, (ii) to provide
that such Award be assumed by the successor or survivor
corporation, or a parent or subsidiary thereof, or shall be
substituted for by similar options, rights or awards covering
the stock of the successor or survivor corporation, or a parent
or subsidiary thereof, with appropriate adjustments as to the
number and kind of shares and prices, (iii) to make
adjustments in the number and type of shares of Ingram
Micros stock (or other securities or property) subject to
outstanding Awards
and/or in
the terms and conditions of (including the grant or exercise
price), and the criteria included in, outstanding Awards and
Awards which may be granted in the future, (iv) to provide
that such Award shall be exercisable or payable or fully vested
with respect to all shares covered thereby, notwithstanding
anything to the contrary in the Plan or the applicable Award
Agreement and (v) to provide that the Award cannot vest, be
exercised or become payable after such event.
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Section
13. Amendment and Termination.
(a) Amendments to the Plan. The Board may
terminate or discontinue the Plan at any time and the Board or
the Committee may amend or alter the Plan or any portion thereof
at any time; provided that no such amendment, alteration,
discontinuation or termination shall be made without shareholder
approval if such approval is necessary to comply with any tax or
regulatory requirement or to comply with the listing or other
requirements of any relevant exchange, including for these
purposes any approval requirement which is a prerequisite for
exemptive relief from Section 16(b) of the Exchange Act or
Section 162(m) of the Code, for which or with which the
Board or the Committee deems it necessary or desirable to
qualify or comply; provided, however, that any amendment to the
Plan shall be submitted to Ingram Micros shareholders for
approval not later than the earliest annual meeting for which
the record date is after the date of such Board action if such
amendment would:
(i) materially increase the number of Shares reserved for
issuance and delivery under Section 4(a) of the Plan;
(ii) increase the per-person annual limits under
Section 4(a) of the Plan;
(iii) increase the number of Shares that may be issued and
delivered under the Plan in connection with awards other than
Options and Stock Appreciation Rights under Section 4(a) of
the Plan;
(iv) except to the extent provided in Section 4(c),
increase the number of Shares which may be issued in connection
with Awards described in Section 4(a) of the Plan; or
(v) amend any of the terms and conditions of this
Section 13(a).
(b) Amendments to Awards. Subject to the
terms of the Plan and applicable law, the Committee may waive
any conditions or rights under, amend any terms of, or alter,
suspend, discontinue, cancel or terminate, any Award theretofore
granted, prospectively or retroactively; provided that any such
waiver, amendment, alteration, suspension, discontinuance,
cancellation or termination that would adversely affect the
rights of any Participant or any holder or beneficiary of any
Award theretofore granted shall not to that extent be effective
without the consent of the affected Participant, holder or
beneficiary.
(c) Cancellation. Any provision of this
Plan or any Award Agreement to the contrary notwithstanding, the
Committee may cause any Award granted hereunder to be canceled
in consideration of a cash payment or alternative Award made to
the holder of such canceled Award equal in value to the Fair
Market Value of such canceled Award.
(d) Prohibition on Repricing. Subject to
Section 4(c) and Section 12, the Committee shall not,
without the approval of the stockholders of Ingram Micro,
(i) lower the price per share of an Option or Stock
Appreciation Right after it is granted, (ii) cancel an
Option or Stock Appreciation Right in exchange for cash or
another Award (other than in connection with a Substitute Award)
when the Option or Stock Appreciation Right price per share
exceeds the Fair Market Value of the underlying Shares, or
(iii) take any other action with respect to an Option or
Stock Appreciation Right that would be treated as a repricing
under the rules and regulations of the principal securities
exchange on which the Shares are traded.
Section
14. General Provisions.
(a) Dividend Equivalents. In the sole and
complete discretion of the Committee, an Award, whether made as
an Other Stock-Based Award under Section 10 or as an Award
granted pursuant to Sections 8 or 9 hereof, may provide a
Participant with dividends or dividend equivalents, payable in
cash, Shares, other securities or other property on a current or
deferred basis.
(b) Nontransferability.
(i) Except as provided in subsection (ii) below, no
Award shall be assigned, alienated, pledged, attached, sold or
otherwise transferred or encumbered by a Participant, except by
will or the laws of descent and distribution.
(ii) Notwithstanding subsection (i) above, the
Committee may determine that an Award may be transferred by a
Participant to one or more members of a Participants
immediate family, to a partnership of which the only partners
are members of a Participants immediate family, or to a
trust established by a
A-10
Participant for the benefit of one or more members of a
Participants immediate family. For this purpose, immediate
family means a Participants spouse, parents, children,
grandchildren and the spouses of such parents, children and
grandchildren. A transferee described in this
subsection (ii) may not further transfer an Award. A trust
described in this subsection (ii) may not be amended to
benefit any Person other than a member of a Participants
immediate family. An Award transferred pursuant to this
subsection shall remain subject to the provisions of the Plan,
including, but not limited to, the provisions of Section 11
relating to the effect on the Award of the death, Retirement or
termination of employment of a Participant, and shall be subject
to such other rules as the Committee shall determine.
(c) No Rights to Awards. No Eligible
Individual, Participant or other Person shall have any claim to
be granted any Award, and there is no obligation for uniformity
of treatment of Eligible Individuals, Participants, or holders
or beneficiaries of Awards. The terms and conditions of Awards
need not be the same with respect to each recipient.
(d) Share Certificates. All certificates
for Shares or other securities of Ingram Micro or any Affiliate
delivered under the Plan pursuant to any Award or the exercise
thereof shall be subject to such stop transfer orders and other
restrictions as the Committee may deem advisable under the Plan
or the rules, regulations and other requirements of the SEC or
any stock exchange upon which such Shares or other securities
are then listed and any applicable federal, state or foreign
laws or rules or regulations, and the Committee may cause a
legend or legends to be put on any such certificates to make
appropriate reference to such restrictions.
(e) Withholding. A Participant may be
required to pay to Ingram Micro or any Affiliate, and Ingram
Micro or any Affiliate shall have the right and is hereby
authorized to withhold from any Award, from any payment due or
transfer made under any Award or under the Plan or from any
compensation or other amount owing to a Participant the amount
(in cash, Shares, other securities, other Awards or other
property) of any applicable withholding taxes in respect of an
Award, its exercise, or any payment or transfer under an Award
or under the Plan and to take such other action as may be
necessary in the opinion of Ingram Micro or such Affiliate to
satisfy all obligations for the payment of such taxes. The
number of Shares which may be so withheld shall be limited to
the number of Shares which have a Fair Market Value on the date
of withholding or repurchase equal to the aggregate amount of
such liabilities based on the minimum statutory withholding
rates for federal, state, local and foreign income tax and
payroll tax purposes that are applicable to such supplemental
taxable income. The Committee may provide for additional cash
payments to holders of Awards to defray or offset any tax
arising from any such grant, lapse, vesting, or exercise of any
Award. The Committee shall determine the fair market value of
the Shares, consistent with applicable provisions of the Code,
for tax withholding obligations due in connection with any tax
withholding obligation.
(f) Award Agreements. Each Award
hereunder shall be evidenced by an Award Agreement which shall
be delivered to a Participant and shall specify the terms and
conditions of the Award and any rules applicable thereto.
(g) No Limit on Other Compensation
Arrangements. Nothing contained in the Plan shall
prevent Ingram Micro or any Affiliate from adopting or
continuing in effect other compensation arrangements, which may,
but need not, provide for the grant of options, restricted
stock, Shares and other types of Awards provided for hereunder
(subject to shareholder approval if such approval is required),
and such arrangements may be either generally applicable or
applicable only in specific cases.
(h) No Right to Employment. The grant of
an Award shall not be construed as giving a Participant the
right to be retained in the employ or service of Ingram Micro or
any Affiliate. Further, Ingram Micro or an Affiliate may at any
time dismiss a Participant from employment or service, free from
any liability or any claim under the Plan, unless otherwise
expressly provided in the Plan or in any Award Agreement.
(i) Rights as a Shareholder. Subject to
the provisions of the applicable Award, no Participant or holder
or beneficiary of any Award shall have any rights as a
shareholder with respect to any Shares to be issued under the
Plan until he or she has become the registered holder of such
Shares. Notwithstanding the foregoing, in connection with each
grant of Restricted Stock hereunder, the applicable Award shall
specify if and to what extent a Participant shall not be
entitled to the rights of a shareholder in respect of such
Restricted Stock.
(j) Governing Law. The validity,
construction, and effect of the Plan and any rules and
regulations relating to the Plan and any Award Agreement shall
be determined in accordance with the laws of the State of
Delaware.
A-11
(k) Severability. If any provision of the
Plan or any Award is or becomes or is deemed to be invalid,
illegal, or unenforceable in any jurisdiction or as to any
Person or Award, or would disqualify the Plan or any Award under
any law deemed applicable by the Committee, such provision shall
be construed or deemed amended to conform to the applicable
laws, or if it cannot be construed or deemed amended without, in
the determination of the Committee, materially altering the
intent of the Plan or the Award, such provision shall be
stricken as to such jurisdiction, Person or Award and the
remainder of the Plan and any such Award shall remain in full
force and effect.
(l) Other Laws. The Committee may refuse
to issue or transfer any Shares or other consideration under an
Award if, acting in its sole discretion, it determines that the
issuance or transfer of such Shares or such other consideration
might violate any applicable law or regulation, whether domestic
or foreign, or entitle Ingram Micro to recover any amounts under
Section 16(b) of the Exchange Act, and any payment tendered
to Ingram Micro by a Participant in connection therewith shall
be promptly refunded to the relevant Participant, holder or
beneficiary. Without limiting the generality of the foregoing,
no Award granted hereunder shall be construed as an offer to
sell securities of Ingram Micro, and no such offer shall be
outstanding, unless and until the Committee in its sole
discretion has determined that any such offer, if made, would be
in compliance with all applicable requirements of the federal
securities laws and any other laws, whether domestic or foreign,
to which such offer, if made, would be subject.
(m) No Trust or
Fund Created. Neither the Plan nor any Award
shall create or be construed to create a trust or separate fund
of any kind or a fiduciary relationship between Ingram Micro or
any Affiliate and a Participant or any other Person. To the
extent that any Person acquires a right to receive payments from
Ingram Micro or any Affiliate pursuant to an Award, such right
shall be no greater than the right of any unsecured general
creditor of Ingram Micro or any Affiliate.
(n) No Fractional Shares. No fractional
Shares shall be issued or delivered pursuant to the Plan or any
Award, and the Committee shall determine whether cash or other
securities or other property shall be paid or transferred in
lieu of any fractional Shares or whether such fractional Shares
or any rights thereto shall be canceled, terminated, or
otherwise eliminated.
(o) Transfer Restrictions. Shares
acquired hereunder may not be sold, assigned, transferred,
pledged or otherwise disposed of, except as provided in the Plan
or the applicable Award Agreement.
(p) Headings. Headings are given to the
Sections and subsections of the Plan solely as a convenience to
facilitate reference. Such headings shall not be deemed in any
way material or relevant to the construction or interpretation
of the Plan or any provision thereof.
(q) Sub-Plans. Subject
to the terms hereof, the Committee may from time to time adopt
one or more
Sub-Plans
and grant Awards thereunder as it shall deem necessary or
appropriate in its sole discretion in order that Awards may
comply with the laws, rules or regulations of any jurisdiction;
provided, however, that neither the terms of any
Sub-Plan nor
Awards thereunder shall be inconsistent with the Plan.
(r) Section 409A. To the extent that
the Committee determines that any Award granted under the Plan
is subject to Section 409A of the Code, the Award Agreement
evidencing such Award shall incorporate the terms and conditions
required by Section 409A of the Code. To the extent
applicable, the Plan and Award Agreements shall be interpreted
in accordance with Section 409A of the Code and Department
of Treasury regulations and other interpretive guidance issued
thereunder, including without limitation any such regulations or
other guidance that may be issued after the date on which the
Plan becomes effective. Notwithstanding any provision of the
Plan to the contrary, in the event that following the date on
which the Plan becomes effective the Committee determines that
any Award may be subject to Section 409A of the Code and
related Department of Treasury Guidance (including such
Department of Treasury guidance as may be issued after the date
on which the Plan becomes effective), the Committee may adopt
such amendments to the Plan and the applicable Award Agreement
or adopt other policies and procedures (including amendments,
policies and procedures with retroactive effect), or take any
other actions, that the Committee determines are necessary or
appropriate to (a) exempt the Award from Section 409A
of the Code
and/or
preserve the intended tax treatment of the benefits provided
with respect to the Award, or (b) comply with the
requirements of Section 409A of the Code and related
Department of Treasury guidance and thereby avoid the
application of any penalty taxes under such Section.
A-12
Section
15. Term of the Plan.
(a) Effective Date. The Plan shall be
effective as of June 4, 2008, subject to approval by the
shareholders of Ingram Micro. Awards may be granted hereunder
prior to such shareholder approval subject in all cases,
however, to such approval. If the Board determines in its sole
discretion that Awards issued under Section 9 of the Plan
should continue to be eligible to constitute Qualified
Performance-Based Compensation, the Plan shall be resubmitted
for approval by the shareholders in the fifth year after it
shall have been last approved by the shareholders.
(b) Expiration Date. No Award shall be
granted under the Plan after May 6, 2013. Unless otherwise
expressly provided in the Plan or in an applicable Award
Agreement, any Award granted hereunder may, and the authority of
the Board or the Committee to amend, alter, adjust, suspend,
discontinue, or terminate any such Award or to waive any
conditions or rights under any such Award shall, continue after
the authority for grant of new Awards hereunder has been
exhausted.
A-13
exv10w2
EXHIBIT 10.2
INGRAM
MICRO INC.
2008 EXECUTIVE INCENTIVE PLAN
This Ingram Micro Inc. 2008 Executive Incentive Plan (the
Plan) constitutes an amendment and
restatement of the Ingram Micro Inc. Executive Incentive Plan,
which was adopted effective as of February 12, 2002,
subject to approval by the shareholders of Ingram Micro Inc.
(the Company), which approval was obtained on
May 30, 2002. This Plan shall be effective as of
June 6, 2007, subject to approval by the Companys
shareholders.
1. Purpose. The principal purpose of the
Ingram Micro Inc. Executive Incentive Plan (the
Plan) is to provide incentives to executive
officers of Ingram Micro Inc. (the Company)
who have significant responsibility for the success and growth
of the Company and to assist the Company in attracting,
motivating and retaining executive officers on a competitive
basis.
2. Administration of the Plan. The Plan
shall be administered by the Human Resources Committee of the
Board of Directors (the Committee). The
Committee shall have the sole discretion to interpret the Plan;
establish performance periods from time to time, approve a
pre-established objective performance measure or measures from
time to time; certify the level to which each performance
measure was attained prior to any payment under the Plan;
approve the amount of awards made under the Plan; and determine
who shall receive any payment under the Plan.
The Committee shall have full power and authority to administer
and interpret the Plan and to adopt such rules, regulations and
guidelines for the administration of the Plan and for the
conduct of its business as the Committee deems necessary or
advisable. The Committees interpretations of the Plan, and
all actions taken and determinations made by the Committee
pursuant to the powers vested in it hereunder, shall be
conclusive and binding on all parties concerned, including the
Company, its shareholders and any person receiving an award
under the Plan.
3. Eligibility. Executive officers and
other key management personnel of the Company and its affiliates
(each an Eligible Individual) shall be
eligible to receive awards under the Plan. The Committee shall
designate the executive officers and other key management
personnel who will participate in the Plan from time to time.
4. Awards.
(a) Grant. Subject to the provisions of
the Plan, the terms of any applicable equity plan and the
contractual provisions affecting the Company, the Committee
shall have sole and complete authority to determine the Eligible
Individuals who shall receive an award, which shall consist of a
right which is denominated in cash or shares of the
Companys Class A common stock, valued, as determined
by the Committee, in accordance with the achievement of such
performance goals during such performance periods as the
Committee shall establish, and payable at such time and in such
form as the Committee shall determine. If an individual becomes
an executive officer during the year, such individual may be
granted eligibility for an award for that year upon such
individual becoming an executive officer.
(b) Terms and Conditions. Subject to the
terms of the Plan, the terms of any applicable equity plan any
contractual provisions affecting the Company and any applicable
award agreement, the Committee shall determine the performance
periods (which may be short or long-term, and which may
overlap), the performance goals to be achieved during any
performance period, the incentive award targets for
participants, the amount of any award and the amount and kind of
any payment or transfer to be made pursuant to any award, and
whether such awards are intended to constitute qualified
performance-based compensation within the meaning of
Section 162(m) of the Internal Revenue Code of 1986, as
amended (the Code, and such
compensation Qualified Performance-Based
Compensation).
(c) Performance Goals with Respect to Qualified
Performance-Based Compensation. Any awards under
the Plan that are intended to constitute Qualified
Performance-Based Compensation shall be interpreted, construed
and administered in a manner that satisfies the requirements of
Section 162(m) of the Code and the Treasury Regulations
thereunder. Any performance goals established by the Committee
for any award granted under the
B-1
Plan that is intended to constitute Qualified Performance-Based
Compensation shall satisfy the following requirements:
(i) Such goals shall be based on any one or more of the
following performance criteria: asset turn-over, customer
satisfaction, market penetration, associate satisfaction or
similar indices, price of the Companys Class A common
stock, stockholder return, return on assets, return on equity,
return on investment, return on capital, return on invested
capital, return on working capital, return on sales, other
return measures, sales productivity, sales growth, total new
sales, productivity ratios, expense targets, economic profit,
economic value added, net earnings (either before or after one
or more of the following: interest, taxes, depreciation and
amortization), income (either before or after taxes), operating
earnings or profit, gross or net profit or operating margin,
gross margin, gross or net sales or revenue, cash flow
(including, but not limited to, operating cash flow and free
cash flow), net worth, earnings per share, earnings per share
growth, operating unit contribution, achievement of annual or
multiple year operating profit plans, earnings from continuing
operations, costs, expenses, working capital, implementation or
completion of critical projects or processes, performance
achievements on certain designated projects, debt levels, market
share or similar financial performance measures as may be
determined by the Committee, any of which may be measured either
in absolute terms or as compared to any incremental increase or
decrease or as compared to results of a peer group or to market
performance indicators or indices.
(ii) The Committee may, in its sole discretion, provide
that one or more of the following objectively determinable
adjustments shall be made to one or more of such goals: items
related to a change in accounting principle; items relating to
financing activities; expenses for restructuring or productivity
initiatives; other non-operating items; items related to
acquisitions; items attributable to the business operations of
any entity acquired by the Company during the performance
period; items related to the disposal of a business or segment
of a business; items related to discontinued operations; items
attributable to any stock dividend, stock split, combination or
exchange of shares occurring during the performance period; or
any other items of significant income or expense which are
determined to be appropriate adjustments; items relating to
unusual or extraordinary corporate transactions, events or
developments, items related to amortization of acquired
intangible assets; items that are outside the scope of the
Companys core, on-going business activities; or items
relating to any other unusual or nonrecurring events or changes
in applicable laws, accounting principles or business
conditions. Such determinations shall be made within the time
prescribed by, and otherwise in compliance with,
Section 162(m) of the Code.
(iii) Such goals may be established on a cumulative basis
or in the alternative, and may be established on a stand-alone
basis with respect to the Company, any of its operating units,
or an individual, or on a relative basis with respect to any
peer companies or index selected by the Committee.
(iv) Such goals may be based on an analysis of historical
performance and growth expectations for the business, financial
results of other comparable businesses, and progress towards
achieving the long-range strategic plan for the business.
(v) Such goals shall be established in such a manner that a
third party having knowledge of the relevant facts could
determine whether the goals have been met.
(d) Procedures with Respect to Awards. To
the extent necessary to comply with the requirements of
Section 162(m)(4)(C) of the Code, with respect to any award
that is intended to constitute Qualified Performance-Based
Compensation, no later than 90 days following the
commencement of any performance period or any designated fiscal
period or period of service (or such earlier time as may be
required under Section 162(m) of the Code), the Committee
shall, in writing, (a) designate one or more participants,
(b) select the performance criteria and adjustments
applicable to the performance period (as provided in
Section 4(c) above), (c) establish the performance
goals, and amounts of such awards, as applicable, which may be
earned for such performance period based on the performance
criteria, (d) specify the relationship between performance
criteria and the performance goals and the amounts of such
awards, as applicable, to be earned by each participant for such
performance period, and (e) establish, in terms of an
objective formula or standard, the method for computing the
amount of compensation payable upon attainment of the
performance goals, such that a third party having knowledge of
the relevant facts could calculate the amount to be paid.
Following the completion of each performance period, the
B-2
Committee shall determine whether and the extent to which the
applicable performance goals have been achieved for such
performance period and approve any payments, which determination
and approvals shall be recorded in the minutes of the Committee.
In determining the amount earned under such awards, with respect
to any award granted to one or more Eligible Individuals, the
Committee shall have the right to reduce or eliminate (but not
to increase) the amount payable at a given level of performance
to take into account additional factors that the Committee may
deem relevant to the assessment of individual or corporate
performance for the performance period.
(e) Payment of Awards. Awards may be paid
in a lump sum or in installments following the close of the
performance period or, in accordance with procedures established
by the Committee, on a deferred basis. With respect to any award
that is intended to constitute Qualified Performance-Base
Compensation, a participant shall be eligible to receive payment
pursuant to such awards for a performance period only if and to
the extent the performance goals for such period are achieved,
and only after the Committee has certified in writing that such
goals have been achieved. In no event may any participant be
paid more than $7,500,000 under any one or more awards under the
Plan in any fiscal year of the Company.
(f) Applicability. The grant of an award
to an Eligible Individual for a particular performance period
shall not require the grant of an award to such Eligible
Individual in any subsequent performance period and the grant of
an award to any one Eligible Individual shall not require the
grant of an award to any other Eligible Individual in such
period or in any other period.
(g) Additional
Limitations. Notwithstanding any other provision
of the Plan, any award that is intended to constitute Qualified
Performance-Based Compensation shall be subject to any
additional limitations set forth in Section 162(m) of the
Code or any regulations or rulings issued thereunder that are
requirements for Qualified Performance-Based Compensation, and
the Plan and the award agreement shall be deemed amended to the
extent necessary to conform to such requirements.
5. Miscellaneous Provisions. The Company
shall have the right to deduct from all awards hereunder paid in
cash any federal, state, local or foreign taxes required by law
to be withheld with respect to such awards. Neither the Plan nor
any action taken hereunder shall be construed as giving any
employee any right to be retained in the employ of the Company.
The costs and expenses of administering the Plan shall be borne
by the Company and shall not be charged to any award or to any
participant receiving an award.
The Plan is not the exclusive method pursuant to which the
Company may establish or otherwise make available bonus or
incentive payments to its executive officers and other key
employees.
The validity, construction, and effect of the Plan and any rules
and regulations relating to the Plan and any award shall be
determined in accordance with the laws of the State of Delaware.
6. Effective Date, Amendments and Termination.
The Plan shall become effective as of
June 6, 2007 subject to approval by the shareholders of the
Company at its 2008 Annual Meeting of Shareholders. The
Committee may at any time terminate or from time to time amend
the Plan in whole or in part, but no such action shall adversely
affect any rights or obligations with respect to any awards
theretofore made under the Plan.
However, unless the shareholders of the Company shall have first
approved thereof, no amendment of the Plan shall be effective
which would increase the maximum amount which can be paid to any
one executive officer under the Plan in any fiscal year, which
would change the specified performance goals for payment of
awards, or which would modify the requirement as to eligibility
for participation in the Plan.
Unless it is sooner terminated, or materially modified and
approved by the shareholders of the Company, the Plan shall be
resubmitted for approval by the shareholders in the fifth year
after it shall have been last approved by the shareholders.
B-3
exv31w1
Exhibit 31.1
Certification by Principal Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
I, Gregory M.E. Spierkel, certify that:
1. |
|
I have reviewed this quarterly report on Form 10-Q of Ingram Micro Inc.; |
2. |
|
Based on my knowledge, this report does not contain any untrue statement of a material fact
or omit to state a material fact necessary to make the statements made, in light of the
circumstances under which such statements were made, not misleading with respect to the period
covered by this report; |
3. |
|
Based on my knowledge, the financial statements, and other financial information included in
this report, fairly present in all material respects the financial condition, results of
operations and cash flows of the registrant as of, and for, the periods presented in this
report; |
4. |
|
The registrants other certifying officer and I are responsible for establishing and
maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and
15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules
13a-15(f) and 15d-15(f)) for the registrant and have: |
|
(a) |
|
Designed such disclosure controls and procedures, or caused such disclosure controls and
procedures to be designed under our supervision, to ensure that material information
relating to the registrant, including its consolidated subsidiaries, is made known to us by
others within those entities, particularly during the period in which this report is being
prepared; |
|
|
(b) |
|
Designed such internal control over financial reporting, or caused such internal control
over financial reporting to be designed under our supervision, to provide reasonable
assurance regarding the reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted accounting
principles; |
|
|
(c) |
|
Evaluated the effectiveness of the registrants disclosure controls and procedures and
presented in this report our conclusions about the effectiveness of the disclosure controls
and procedures, as of the end of the period covered by this report based on such evaluation;
and |
|
|
(d) |
|
Disclosed in this report any change in the registrants internal control over financial
reporting that occurred during the registrants most recent fiscal quarter (the registrants
fourth fiscal quarter in the case of an annual report) that has materially affected, or is
reasonably likely to materially affect, the registrants internal control over financial
reporting; and |
5. |
|
The registrants other certifying officer and I have disclosed, based on our most recent
evaluation of internal control over financial reporting, to the registrants auditors and the
audit committee of the registrants board of directors (or persons performing the equivalent
functions): |
|
(a) |
|
All significant deficiencies and material weaknesses in the design or operation of
internal control over financial reporting which are reasonably likely to adversely affect
the registrants ability to record, process, summarize and report financial information; and |
|
|
(b) |
|
Any fraud, whether or not material, that involves management or other employees who have
a significant role in the registrants internal control over financial reporting. |
Date: August 7, 2008
|
|
|
|
|
|
|
|
|
/s/ Gregory M.E. Speirkel
|
|
|
Name: |
Gregory M.E. Spierkel |
|
|
Title: |
Chief Executive Officer
(Principal Executive Officer) |
|
exv31w2
Exhibit 31.2
Certification by Principal Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
I, William D. Humes, certify that:
1. |
|
I have reviewed this quarterly report on Form 10-Q of Ingram Micro Inc.; |
2. |
|
Based on my knowledge, this report does not contain any untrue statement of a material fact
or omit to state a material fact necessary to make the statements made, in light of the
circumstances under which such statements were made, not misleading with respect to the period
covered by this report; |
3. |
|
Based on my knowledge, the financial statements, and other financial information included in
this report, fairly present in all material respects the financial condition, results of
operations and cash flows of the registrant as of, and for, the periods presented in this
report; |
4. |
|
The registrants other certifying officer and I are responsible for establishing and
maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and
15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules
13a-15(f) and 15d-15(f)) for the registrant and have: |
|
(a) |
|
Designed such disclosure controls and procedures, or caused such disclosure controls and
procedures to be designed under our supervision, to ensure that material information
relating to the registrant, including its consolidated subsidiaries, is made known to us by
others within those entities, particularly during the period in which this report is being
prepared; |
|
|
(b) |
|
Designed such internal control over financial reporting, or caused such internal control
over financial reporting to be designed under our supervision, to provide reasonable
assurance regarding the reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted accounting
principles; |
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(c) |
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Evaluated the effectiveness of the registrants disclosure controls and procedures and
presented in this report our conclusions about the effectiveness of the disclosure controls
and procedures, as of the end of the period covered by this report based on such evaluation;
and |
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(d) |
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Disclosed in this report any change in the registrants internal control over financial
reporting that occurred during the registrants most recent fiscal quarter (the registrants
fourth fiscal quarter in the case of an annual report) that has materially affected, or is
reasonably likely to materially affect, the registrants internal control over financial
reporting; and |
5. |
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The registrants other certifying officer and I have disclosed, based on our most recent
evaluation of internal control over financial reporting, to the registrants auditors and the
audit committee of the registrants board of directors (or persons performing the equivalent
functions): |
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(a) |
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All significant deficiencies and material weaknesses in the design or operation of
internal control over financial reporting which are reasonably likely to adversely affect
the registrants ability to record, process, summarize and report financial information; and |
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(b) |
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Any fraud, whether or not material, that involves management or other employees who have
a significant role in the registrants internal control over financial reporting. |
Date: August 7, 2008
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/s/ William D. Humes
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Name: |
William D. Humes |
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Title: |
Executive Vice President and Chief Financial Officer
(Principal Financial Officer) |
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exv32w1
Exhibit 32.1
Certification by Principal Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
The certification below is being submitted to the Securities and Exchange Commission solely for the
purpose of complying with Section 1350 of Chapter 63 of Title 18 of the United States Code.
In my capacity as chief executive officer of Ingram Micro Inc., I hereby certify that, to the best
of my knowledge, Ingram Micro Inc.s quarterly report on Form 10-Q for the fiscal period ended June
28, 2008 as filed with the Securities and Exchange Commission on the date hereof fully complies
with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and the
information contained in such report fairly presents, in all material respects, the financial
condition and results of operations of Ingram Micro Inc.
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/s/ Gregory M.E. Spierkel
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Name: |
Gregory M.E. Spierkel |
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Title: |
Chief Executive Officer |
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Date: August 7, 2008
exv32w2
Exhibit 32.2
Certification by Principal Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
The certification below is being submitted to the Securities and Exchange Commission solely for the
purpose of complying with Section 1350 of Chapter 63 of Title 18 of the United States Code.
In my capacity as chief financial officer of Ingram Micro Inc., I hereby certify that, to the best
of my knowledge, Ingram Micro Inc.s quarterly report on Form 10-Q for the fiscal period ended June
28, 2008 as filed with the Securities and Exchange Commission on the date hereof fully complies
with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and the
information contained in such report fairly presents, in all material respects, the financial
condition and results of operations of Ingram Micro Inc.
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/s/ William D. Humes
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Name: |
William D. Humes |
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Title: |
Executive Vice President and Chief Financial Officer |
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Date: August 7, 2008