<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
/X/ Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended OCTOBER 28, 1995 , or
/ / Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from _______________ to _______________.
Commission File Number 0-16394
INMAC CORP.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 94-2358985
------------------------------- --------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2465 AUGUSTINE DRIVE
SANTA CLARA, CA 95052-8031
(Address of principal executive offices)
Registrant's telephone number, including area code: (408) 727-1970
--------------------------
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 and 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
YES X NO
----- -----
The number of shares outstanding of the Registrant's Common Stock on
November 30, 1995 was 10,578,873.
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This document consists of 11 pages of which this is Page 1.
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INMAC CORP.
FORM 10-Q QUARTERLY REPORT
TABLE OF CONTENTS
<TABLE>
<CAPTION>
ITEM DESCRIPTION PAGE
PART I -- FINANCIAL INFORMATION
<S> <C>
1. Condensed Consolidated Financial Statements
a) Condensed Consolidated Balance Sheets as of October 28,
1995 and July 29, 1995....................................... 3
b) Condensed Consolidated Statements of Income for
the Three Months Ended October 28, 1995 and
October 29, 1994 ............................................ 4
c) Condensed Consolidated Statements of Cash Flows
for the Three Months Ended October 28, 1995 and
October 29, 1994 ............................................ 5
d) Notes to Condensed Consolidated Financial Statements............ 6
2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Financial Condition ............................................... 7
Results of Operations ............................................ 8
Liquidity and Capital Resources ................................... 8
Recent Developments................................................ 9
Future Results..................................................... 9
PART II -- OTHER INFORMATION
Items 1 through 5 are not applicable with respect to the current reporting
period.
Item 6. - Exhibits and Reports on Form 8-K.................................... 9
SIGNATURE..................................................................... 10
</TABLE>
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Part I
Item 1a
PART I -- FINANCIAL INFORMATION
INMAC CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS AS OF
OCTOBER 28, 1995 AND JULY 29, 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
October 28, July 29,
1995 1995
----------- ---------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 10,548 $ 21,165
Receivables, net of allowances 54,974 48,745
Inventories 28,321 27,924
Prepaid expenses and other current assets 8,569 8,055
--------- ---------
Total current assets 102,412 105,889
Property, plant and equipment, net 7,791 8,402
Other assets 1,797 2,058
--------- ---------
Total assets $ 112,000 $ 116,349
========= =========
LIABILITIES & STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 24,379 $ 19,528
Accrued liabilities 20,464 17,554
Bank debt and other liabilities 334 11,643
Income taxes 2,878 3,902
--------- ---------
Total current liabilities 48,055 52,627
Long-term debt and other liabilities 20,520 20,883
Stockholders' equity:
Common stock 16,669 16,292
Retained earnings 28,286 27,184
Cumulative translation adjustments (1,530) (637)
--------- ---------
Total stockholders' equity 43,425 42,839
Total liabilities and stockholders' equity $ 112,000 $ 116,349
========= =========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
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Part I
Item 1b
INMAC CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE MONTHS ENDED
OCTOBER 28, 1995 AND OCTOBER 29, 1994
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
Three Months Ended
----------------------------
October 28, October 29,
1995 1994
----------- -----------
<S> <C> <C>
Sales $90,404 $83,875
Cost of sales 60,900 55,270
------- -------
Gross profit 29,504 28,605
Selling, general, and administrative expenses 27,028 26,063
------- -------
Operating income 2,476 2,542
Interest expense, net 510 364
------- -------
Income before income taxes 1,966 2,178
Income taxes 864 1,127
------- -------
Net income $ 1,102 $ 1,051
======= =======
Net income per common and common equivalent share $ 0.10 $ 0.10
======= =======
Weighted average common and common equivalent
shares outstanding 11,143 10,671
======= =======
</TABLE>
See accompanying notes to condensed consolidated financial statements.
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Part I
Item 1c
INMAC CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED
OCTOBER 28, 1995 AND OCTOBER 29, 1994
(IN THOUSANDS)
<TABLE>
<CAPTION>
Three Months Ended
----------- -----------
October 28, October 29,
1995 1994
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 1,102 $ 1,051
Adjustments to reconcile net income to net cash provided by operating
activities:
Allowance for returns and doubtful receivables 57 154
Depreciation and amortization 750 1,250
(Gain) / Loss on disposal of property, plant and equipment (11) 53
Translation adjustment (732) 1,375
Change in operating assets and liabilities:
Receivables (6,286) (5,622)
Inventories (397) 920
Prepaid expenses and other current assets (514) (2,402)
Accounts payable and accrued liabilities 7,761 11,035
Income taxes (1,142) 371
Other assets 261 60
-------- --------
Net cash provided by operating activities 849 8,245
-------- --------
Cash flows from investing activities:
Purchases of property, plant, and equipment (145) (835)
Proceeds from sales of property and equipment 17 67
-------- --------
Net cash used in investing activities (128) (768)
-------- --------
Cash flows from financing activities:
Short -term bank borrowings and repayments (11,268) (6,151)
Principal payments under capital lease obligations (118) (35)
Proceeds from sale of common stock 377 124
-------- --------
Net cash used by financing activities (11,009) (6,062)
-------- --------
Effect of exchange rate changes on cash (329) 237
-------- --------
Net increase (decrease) in cash and cash equivalents (10,617) 1,652
Cash and cash equivalents at beginning of year 21,165 2,992
-------- --------
Cash and cash equivalents year-to-date $ 10,548 $ 4,644
======== ========
Supplemental disclosures of cash flow information:
Cash paid year-to-date for:
Interest $ 592 $ 263
======== ========
Income taxes $ 2,498 $ 689
======== ========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
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Part I
Item 1d
INMAC CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. The condensed consolidated financial statements include the accounts of
Inmac Corp. and its wholly owned subsidiaries (the "Company"). All
significant intercompany balances and transactions have been eliminated in
consolidation.
The condensed consolidated financial statements reflect all adjustments
(which include only normal, recurring adjustments) which, in the opinion of
management, are necessary for the fair presentation of the results of the
Company at the dates of the respective balance sheets.
The condensed consolidated financial statements have been prepared by the
Company without audit and are subject to year-end adjustment. Certain
information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to the rules and
regulations of the Securities and Exchange Commission.
It is suggested that these interim statements be read in conjunction with
the audited financial statements and notes thereto included in the
registrant's Annual Report (Commission File Number 0-16394) filed on Form
10-K for the fiscal year ended July 29, 1995.
Results of operations for the first quarter ended October 28, 1995 are not
necessarily indicative of results to be achieved for the full fiscal year.
2. Inventories
Inventories are stated at the lower of cost (first-in, first-out) or market
(net realizable value).
Inventories are summarized as follows (in thousands):
<TABLE>
<CAPTION>
October 28, July 29,
1995 1995
---- ----
<S> <C> <C>
Raw materials and manufacturing supplies $ 1,472 $ 1,621
Finished goods 26,849 26,303
------- -------
$28,321 $27,924
======= =======
</TABLE>
3. Income Per Share
Net income per share has been computed using the weighted average number of
common and common equivalent shares outstanding when dilutive.
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Part I
Item 2
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FINANCIAL CONDITION
Cash and cash equivalent balances decreased by $10.6 million since July 29, 1995
reflecting the reduction in short term bank borrowings of $11.3 million.
Operating activities in the first quarter of fiscal 1996 provided $0.8 million
in cash and $0.1 million was used in investing activities. In addition, exchange
rates had a $0.3 million unfavorable effect on cash balances.
Receivables, net of allowances, increased by $6.2 million since July 29, 1995
and are $2.1 million higher than the same quarter-end last year. This increase
is due to greater sales volume this year, particularly at quarter-end. Accounts
receivable days of sales outstanding at October 28, 1995 are higher than at July
29, 1995, due to the fiscal 1996 first quarter sales increase and lower than the
first quarter of last year.
Inventories increased by $0.4 million since fiscal year-end. Inventories are
$0.7 million lower than at the first quarter-end last year, reflecting improved
inventory turns due to the continued focus on inventory management.
Prepaid expenses and other current assets have increased by $0.5 million since
fiscal year-end but were down $2.7 million compared to the first quarter-end
last year. The change from the first quarter of last fiscal year results from a
reduction of income taxes receivable and a more refined process for billing and
collection of catalog vendor funding.
Property, plant and equipment, net decreased from fiscal 1995 year-end by $0.6
million as depreciation recorded on existing fixed assets exceeded new fixed
asset investment activity.
Accounts payable increased by $4.9 million and accrued liabilities by $2.9
million since July 29, 1995 (total increase of $7.8 million), however on a
combined basis they decreased from the first quarter-end last year by $0.7
million. The increase since fiscal 1995 year-end results from normal inventory
purchases to support sales growth and utilization of vendor trade payables to
fund related operating purchases.
Bank debt and other liabilities at the end of the quarter decreased $11.3
million and $23.5 million from July 29, 1995, and October 29, 1994,
respectively. The decrease since year-end reflects the utilization of cash
received in the private placement of debt consummated late in the fourth quarter
of fiscal 1995. The decrease since the first quarter of fiscal 1995 represents
the substitution of long-term financing for short-term financing as reflected by
the $19.5 million increase in long-term debt and other liabilities.
Assets and liabilities of foreign subsidiaries are translated at the rates of
exchange at balance sheet dates. Gains and losses resulting from translation are
accumulated as a separate component of stockholders' equity. As of fiscal 1995
year-end, the translation adjustment had resulted in a cumulative decrease in
net equity of $0.6 million. A general strengthening of the US dollar to the
European currencies since year-end resulted in an cumulative decrease in net
equity of $1.5 million as of October 28, 1995.
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RESULTS OF OPERATIONS
Sales for the quarter increased by $6.5 million or 7.8% to $90.4 million
compared to $83.9 million for the first quarter last year. On a comparable
currency basis, first quarter sales were up 4.3%, as North American sales
increased by 5.6% reflecting the increased catalog mailings in the US. European
sales were up 8.7%. Currency translation favorably affected the quarter's
reported sales by 3.5%.
Sales for the Desktop Hardware/Software Division increased by 26.6% over the
same quarter last year. This increase was led by the strong performance of the
US Desktop Hardware/Software Division with sales up 41.3%. Sales for the
Networking Products Division increased 6.7%. Sales from the Consumable and
Complementary Products Division decreased 5.1%.
Gross margin for the quarter declined to 32.6% from 34.1% in the same quarter a
year ago. This margin reduction is primarily due to the promotional pricing
strategy and shift in mix of business with faster growing but lower margin
desktop hardware and software products becoming a higher percentage of total
sales. The gross margin percentage, however, reflected a better mix of higher
margin products this quarter than in the third and fourth quarters of fiscal
1995, which were 32.3% and 31.8%, respectively. The decrease from first quarter
last year also reflects the increasingly competitive nature of the Company's
business in each of its markets. The Company expects these factors to result in
a gradual decline in gross profit margins over time.
The decline in gross profit margins were offset by a continued reduction in
selling, general and administrative expenses as a percentage of net sales.
Selling, general and administrative expenses increased $1.0 million compared to
the first quarter last year, but declined to 29.9% of sales for the first
quarter of fiscal 1996 compared to 31.1% for the first quarter last year. This
reduction of selling, general and administrative expenses as a percentage of
sales reflects the continuing efforts of the Company to reduce and minimize
overhead expenses.
Net interest expense was $0.5 million for the first quarter compared to $0.4
million for the same quarter last year. The higher interest expense reflects the
higher interest rate and related deferred finance cost amortization on term debt
obtained in a private placement in the fourth quarter of fiscal 1995.
Income tax expense was $0.9 million for the first quarter compared to $1.1
million for the first quarter last year. The reduction in income taxes reflects
the stronger profitability of the US and Canadian operations. Both the US and
Canadian operations have net operating loss carryovers that have not been tax
effected for financial reporting purposes. Accordingly, profits in these
counties should result in a lower effective tax rate for the Company.
LIQUIDITY AND CAPITAL RESOURCES
As of October 28, 1995, the Company had $35.0 million in unused lines of credit
and $10.5 million in cash and cash equivalents. The Company believes that its
existing cash balances, cash generated from future operations, borrowings under
existing lines of credit, and its ability to obtain additional credit will be
sufficient to meet its working capital needs through the end of fiscal 1996.
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RECENT DEVELOPMENTS
On November 30, 1995, Inmac announced it had entered into a definitive
agreement, approved by the Board of Directors' providing for a stock-for-stock
merger pursuant to which Inmac would become a subsidiary of Micro Warehouse,
Inc. It is anticipated that the merger will close in March of 1996, conditioned
on all customary regulatory approvals in the United States and overseas, a
variety of business matters appropriate to the transaction and approval by
Inmac's stockholders. Under the terms of the agreement, each of Inmac's
outstanding shares will be converted into Micro Warehouse common stock based
upon a floating exchange rate, the numerator of which will be $12 and the
denominator of which will be the average closing price of Micro Warehouse's
common stock for the twenty trading days ending on the fifth business day prior
to the closing of the transaction. The exchange rate will be a minimum of .225
and a maximum of .276.
FUTURE RESULTS
The second quarter has historically been a seasonally weak quarter for Inmac and
for the industry in general. These factors resulted in losses for the Company in
fiscal 1992 and 1993, however, the Company was profitable in the second quarter
of fiscal 1994 and 1995. The Company's new catalogs, new products, and ongoing
low price strategy may generate increased sales for Inmac, compared to the
second quarter of fiscal 1995. The Company expects downward pressure on prices
and faster growth in the lower margin Desktop Hardware/Software Division to
continue to erode overall gross margin percentages. Although past restructuring
efforts have resulted in more cost efficient operations, Inmac will continue to
seek ways to reduce costs and to improve operating performance and return on
assets.
The Company's operating results for the rest of fiscal 1996 will also be
affected by worldwide economic conditions including the economic conditions in
its markets. In addition, operating results will be affected by fluctuations in
exchange rates among the countries in which Inmac operates. International sales
account for over 70% of the Company's sales. Accordingly, since currency
fluctuations are unpredictable, and even though the Company seeks to protect
itself from excessive fluctuations, operating results may be affected from
quarter to quarter. Other factors which impact sales and operating results from
quarter to quarter include ongoing competitive pressures, sales seasonality, the
timing of catalog mailings, and the effectiveness of the Company's promotional
pricing strategy. Operating results in fiscal 1996 may not be comparable to the
same quarters in fiscal 1995.
The impact of the proposed merger on the operations of Inmac is not known. The
anticipated closing date of the merger in March 1996 will take place after
Inmac's second quarter end of January 27, 1996.
PART II -- OTHER INFORMATION
Items 1 through 5 are not applicable with respect to the current reporting
period.
Item 6. Exhibits and Reports on Form 8-K:
(a) The following exhibits are filed as part of this report:
Exhibit 11.0 Statement of Computation of Net Income Per Share is
attached as page 11.
(b) No reports on Form 8-K were filed during the quarter for which
this report is filed.
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SIGNATURE
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.
INMAC CORP.
Dated December 8, 1995 By: /s/ Raymond E. Nystrom
---------------- ----------------------------
Raymond E. Nystrom
(Vice President, Finance and
Chief Financial Officer)
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Exhibit 11.0
INMAC CORP. AND SUBSIDIARIES
STATEMENT OF COMPUTATION OF NET INCOME PER SHARE
(IN THOUSANDS, EXCEPT NET INCOME PER SHARE DATA)
<TABLE>
<CAPTION>
Three Months Ended
----------------------------
October 28, October 29,
1995 1994
----------- -----------
<S> <C> <C>
Net Income $ 1,102 $ 1,051
------- -------
Weighted average number of common shares outstanding 10,516 10,111
Weighted average common equivalent shares - stock options
and stock purchase warrant 627 560
------- -------
Weighted average common and common equivalent shares
outstanding 11,143 10,671
------- -------
Net income per common and common equivalent share $ 0.10 $ 0.10
======= =======
</TABLE>
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<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUL-27-1996
<PERIOD-START> JUL-30-1995
<PERIOD-END> OCT-28-1995
<CASH> 10,548
<SECURITIES> 0
<RECEIVABLES> 56,958
<ALLOWANCES> 1,984
<INVENTORY> 28,321
<CURRENT-ASSETS> 102,412
<PP&E> 21,962
<DEPRECIATION> 14,171
<TOTAL-ASSETS> 112,000
<CURRENT-LIABILITIES> 48,055
<BONDS> 0
<COMMON> 107
0
0
<OTHER-SE> 43,318
<TOTAL-LIABILITY-AND-EQUITY> 112,000
<SALES> 90,404
<TOTAL-REVENUES> 90,404
<CGS> 60,900
<TOTAL-COSTS> 60,900
<OTHER-EXPENSES> 27,028
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 510
<INCOME-PRETAX> 1,966
<INCOME-TAX> 864
<INCOME-CONTINUING> 1,102
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,102
<EPS-PRIMARY> .10
<EPS-DILUTED> .10
</TABLE>
