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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 April 29, 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
May 19, 1995 was 10,206,032.
__________________________
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
<S> <C>
PART I -- FINANCIAL INFORMATION
- -------------------------------
1. Condensed Consolidated Financial Statements
a) Condensed Consolidated Balance Sheets as of April 29,
1995 and July 30, 1994 . . . . . . . . . . . . . . . . . . . . . 3
b) Condensed Consolidated Statements of Income for the Three
and Nine Months Ended April 29, 1995 and
April 30, 1994 . . . . . . . . . . . . . . . . . . . . . . . . . 4
c) Condensed Consolidated Statements of Cash Flows
for the Nine Months Ended April 29, 1995 and
April 30, 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
Future Results . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
PART II -- OTHER INFORMATION
- ----------------------------
1 - 5. Not applicable with respect to the current reporting period.
6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . . . . . . 9
SIGNATURE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
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</TABLE>
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Part l
Item 1a
PART I -- FINANCIAL INFORMATION
INMAC CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS AS OF
APRIL 29, 1995 AND JULY 30, 1994
(IN THOUSANDS)
<TABLE>
<CAPTION>
April 29, July 30,
1995 1994
------------- ------------
<S> <C> <C>
ASSETS
- ------
Current assets:
Cash and cash equivalents $ 8,039 $ 2,992
Receivables, net of allowances 54,454 47,395
Inventories 30,899 29,979
Prepaid expenses and other current assets 9,307 8,828
------------- ------------
Total current assets 102,699 89,194
Property, plant and equipment, net 9,057 10,412
Other assets 1,033 1,265
------------ ------------
Total assets $ 112,789 $ 100,871
============ ============
LIABILITIES & STOCKHOLDERS' EQUITY
- ----------------------------------
Current liabilities:
Accounts payable $ 24,163 $ 20,472
Accrued liabilities 20,305 14,018
Bank debt and other liabilities 24,135 29,988
Income taxes 2,611 1,713
------------- ------------
Total current liabilities 71,214 66,191
Long-term debt and other liabilities 853 1,127
Stockholders' equity:
Common stock 15,359 14,978
Retained earnings 26,658 22,653
Cumulative translation adjustments (1,295) (4,078)
------------- ------------
Total stockholders' equity 40,722 33,553
Total liabilities and stockholders'
equity $ 112,789 $ 100,871
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</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 AND NINE MONTHS ENDED
APRIL 29, 1995 AND APRIL 30, 1994
(IN THOUSANDS, EXCEPT NET INCOME PER SHARE DATA)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
----------------------------------- ---------------------------
April 29, April 30, April 29, April 30,
1995 1994 1995 1994
----------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
Sales $ 101,326 $ 98,592 $ 274,914 $ 266,644
Cost of sales 68,554 66,584 182,226 174,035
------------- ------------ ------------ -------------
Gross profit 32,772 32,008 92,688 92,609
Selling, general, and
administrative expenses 29,274 29,777 84,271 87,578
------------- ------------ ------------ -------------
Operating income 3,498 2,231 8,417 5,031
Interest expense, net 380 579 1,085 1,167
------------- ------------ ------------ -------------
Income before income taxes 3,118 1,652 7,332 3,864
Income taxes 1,197 612 3,327 1,464
------------- ------------ ------------ -------------
Net income $ 1,921 $ 1,040 $ 4,005 $ 2,400
============= ============ ============ =============
Net income per common and
common equivalent share $ .18 $ .10 $ .37 $ .22
Weighted average common and
common equivalent shares
outstanding 10,801 10,839 10,762 10,927
</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 NINE MONTHS ENDED
APRIL 29, 1995 AND APRIL 30, 1994
(IN THOUSANDS)
<TABLE>
<CAPTION>
Nine Months Ended
---------------------------------------
April 29, April 30,
1995 1994
--------------- --------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 4,005 $ 2,400
Adjustments to reconcile net income to net cash
provided (used) by operating activities:
Allowance for returns and doubtful receivables (245) (779)
Depreciation and amortization 2,529 2,594
Loss on disposal of fixed assets 153 142
Translation adjustment 2,306 1,241
Change in operating assets and liabilities:
Receivables (6,814) (13,190)
Inventories (920) ( 7,757)
Prepaid expenses and other current assets (479) ( 4,523)
Accounts payable and accrued liabilities 9,978 4,366
Income taxes 898 ( 793)
Other assets 232 139
----------------------------------------------------------------------------------------------------------------
Net cash provided (used) by operating activities 11,643 (16,160)
- -------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Purchases of property, plant, and equipment (1,468) ( 4,817)
Proceeds from sales of property and equipment 183 60
----------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (1,285) ( 4,757)
- -------------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Short -term bank borrowings and repayments (5,815) 10,822
Principal payments under capital lease
obligations (354) ( 225)
Proceeds from sale of common stock 381 1,780
----------------------------------------------------------------------------------------------------------------
Net cash provided (used) by financing activities (5,788) 12,377
- -------------------------------------------------------------------------------------------------------------------
Effect of exchange rate changes on cash 477 (92)
- -------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents 5,047 ( 8,632)
Cash and cash equivalents at beginning of year 2,992 10,786
- -------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at year-to-date $ 8,039 $ 2,154
===================================================================================================================
Supplemental disclosures of cash flow information:
Cash paid year-to-date for:
Interest $ 1,156 $ 1,333
===================================================================================================================
Income taxes $ 1,875 $ 1,095
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Supplemental schedule of non-cash investing and financing activities:
Capital lease obligations incurred on leases
for new equipment $ 42 $ 199
</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. General
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 30, 1994.
Results of operations for the nine months ended April 29, 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>
April 29, 1995 July 30, 1994
--------------- -------------
<S> <C> <C>
Raw materials and manufacturing supplies $ 1,716 $ 2,868
Finished goods 29,183 27,111
------ ------
$ 30,899 $ 29,979
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</TABLE>
3. Net 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 increased by $5.0 million since July 30, 1994
and are $5.9 million greater than the same quarter-end last year. Operating
activities since July 30, 1994 provided $11.6 million in cash, of which $5.8
million was used by financing activities (primarily for reduction of bank
borrowings) and $1.3 million was used in investing activities (primarily for
purchase of fixed assets).
Receivables, net of allowances, increased by $7.1 million since July 30, 1994
and are $2.5 million less than the same quarter-end last year. This increase
since last fiscal year-end is due to seasonally higher sales this quarter-end
relative to the quarter-ended July 30, 1994 and increases in European currency
rates as compared to the U.S. dollar. Accounts receivable days of sales
outstanding at April 29, 1995 improved from July 30, 1994 by 3.8 days, and
improved from the third quarter of last year by 4.0 days.
Inventories increased by $0.9 million since fiscal year-end, reflecting the
seasonality of the business. Inventories are $3.6 million lower than at the
third quarter-end last year, reflecting improved inventory turns due to the new
inventory management software installed in all countries during last fiscal
year, the consolidation of U.S. distribution and better return to vendor
privileges for slower moving products.
Prepaid expenses and other current assets have increased by $0.5 million since
fiscal year-end and have nominally decreased since the third quarter-end last
year. The increase since year-end principally relates to amounts receivable
from vendors for catalog vendor funding activity.
Property, plant and equipment, net decreased from fiscal 1994 year-end by $1.4
million as depreciation recorded on existing fixed assets exceeded new fixed
asset investment activity.
Accounts payable and accrued liabilities increased by $3.7 million and $6.3
million, respectively, since July 30, 1994 (total increase of $10 million),
however on a combined basis they decreased from the third quarter-end last year
by $2.6 million. The increase since fiscal 1994 year-end results from more
appropriate utilization of vendor trade payables to fund related operating
purchases and efficiently reduce bank debt net of cash. The reduction from the
balance at third quarter-end last year relates to lower inventory purchasing
activity than in the third quarter of fiscal 1994.
Bank debt and other liabilities at the end of the quarter decreased by $5.9
million from July 30, 1994, and $7.7 million from the third quarter-end last
year. The decrease since year-end results from cash generated by operating
activities being effectively used to reduce bank borrowings.
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. From fiscal
1994 year-end through the end of the third quarter of fiscal 1995, the change
in the translation adjustment increased net equity by $2.8 million as a result
of increases in European currencies against the U.S. dollar. The translation
adjustment is $(1.3) million as of April 29, 1995.
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RESULTS OF OPERATIONS
Sales for the quarter increased by $2.7 million or 2.8% to $101.3 million
compared to $98.6 million for the third quarter last year. Sales for the first
nine months increased by $8.3 million or 3.1% to $274.9 million compared to
$266.6 million for the first nine months of last year. North American sales
decreased by 19.6% for the quarter and 14.2% year to date, reflecting the
planned strategic downsizing of the U.S. business initiated in May 1994 to
improve U.S. profitability.
Sales for the Desktop Hardware/Software Division increased by 13.4% over the
same quarter last year. Sales for the Systems and Networking Products Division
decreased 2.7% and sales from the Consumable and Complementary Products Division
decreased 1.6%, both primarily due to the intentional reduction of catalog
mailings into low average order customer sites in the United States.
Gross margin for the quarter decreased to 32.3% from 32.5% in the same quarter
a year ago. This margin decrease is primarily due to the product mix. This
quarter's gross margin percentage is also down from the fourth quarter of
fiscal 1994, which was 32.8%. The Company expects the increasingly competitive
nature of the Company's business in each of its markets as well as the rapid
growth of its lower gross margin computer hardware, peripherals and software
business to gradually erode gross profit margins over time.
The Company produced a further reduction in selling, general and administrative
expenses both as a percentage of sales and in absolute values. Selling,
general and administrative expenses were cut by $0.5 million compared to the
third quarter last year to 28.9% of sales for the third quarter of fiscal 1995
compared to 30.2% for the third quarter last year. Similarly, selling, general
and administrative expenses were cut by $3.3 million compared to the first nine
months of last year to 30.7% of sales for the first nine months of fiscal
1995 compared to 32.8% for the first nine months of last year. The savings
reflect the continued effect of the Company's restructuring efforts and cost
reduction programs including the U.S. restructuring initiated in May 1994.
Net interest expense was $0.4 million for the third quarter of this fiscal year
and $0.6 million for the third quarter of last fiscal year. Net interest
expense for the first nine months of this fiscal year was $1.1 million compared
to $1.2 million for the first nine months of last fiscal year. The reduction
in year-to-date interest expense reflects lower average bank debt balances.
LIQUIDITY AND CAPITAL RESOURCES
As of April 29, 1995, the Company had $22 million in unused lines of credit and
$8.0 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 1995.
In order to fund continued growth, the Company is seeking to raise additional
working capital through expansion of its existing credit lines and alternative
financing options, including debt financing.
FUTURE RESULTS
The fourth quarter has historically been a seasonally weak quarter for Inmac
and for the industry in general, in large part due to the traditional European
and North American vacation months. During the fourth quarter, the Company
plans to increase substantially its mailings in the U.S. in order to expand the
U.S. revenue base. Depending on the timing and level of response to these
incremental mailings, the U.S. profitability may be reduced; however, the
overall size of the active customer base should be positively effected. The
Company expects downward pressure on prices and continued growth rates in the
lower margin Desktop Products Division to erode overall gross margin
percentages over time. The
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restructuring efforts have resulted in more cost efficient operations. The
Company will continue its efforts to further reduce expenses, especially in the
area of facilities costs by looking to consolidate space as efficiencies
improve and as the related market demand for space becomes more robust.
The Company's operating results for the rest of fiscal 1995 will also be
affected by worldwide economic conditions including the economic conditions in
its markets. Although the Company seeks to protect itself from exchange rate
fluctuations, as international sales account for more than 70% of the Company's
sales, operating results may be affected by exchange rates 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 low price strategy.
Operating results in fiscal 1995 may not be comparable to the same quarters in
fiscal 1994.
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: June 9, 1995 By: /s/ Michael J. Waide
Michael J. Waide
(Vice President, Finance and Chief
Financial Officer)
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EXHIBIT INDEX
Exhibit Page No.
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11 Computation of Net Income per Share
27 Financial Data Schedule
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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 Nine Months Ended
----------------------------------- -------------------------
April 29, April 30, April 29, April 30
1995 1994 1995 1994
--------------- ----------------- --------- -----------
<S> <C> <C> <C> <C>
Net Income $ 1,921 $ 1,040 $ 4,005 $ 2,400
------------ ----------- ----------- ------------
Weighted average number
of common shares
outstanding 10,178 10,056 10,143 9,913
Weighted average common
equivalent shares - stock
options 623 783 619 1,014
------------- ------------ ------------ ----------
Weighted average common and
common equivalent shares
outstanding 10,801 10,839 10,762 10,927
------------- ------------ ------------ ---------
Net income per common and
common equivalent share $ 0.18 $ 0.10 $ 0.37 $ 0.22
============ =========== ============ ========
</TABLE>
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<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<CURRENCY> US DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUL-29-1995
<PERIOD-START> JUL-31-1994
<PERIOD-END> APR-29-1995
<EXCHANGE-RATE> 1
<CASH> 8,039
<SECURITIES> 0
<RECEIVABLES> 56,706
<ALLOWANCES> 2,252
<INVENTORY> 30,899
<CURRENT-ASSETS> 102,699
<PP&E> 22,917
<DEPRECIATION> 13,860
<TOTAL-ASSETS> 112,789
<CURRENT-LIABILITIES> 71,214
<BONDS> 0
<COMMON> 104
0
0
<OTHER-SE> 40,618
<TOTAL-LIABILITY-AND-EQUITY> 112,789
<SALES> 274,914
<TOTAL-REVENUES> 274,914
<CGS> 182,226
<TOTAL-COSTS> 182,226
<OTHER-EXPENSES> 84,271
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,085
<INCOME-PRETAX> 7,332
<INCOME-TAX> 3,327
<INCOME-CONTINUING> 4,005
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,005
<EPS-PRIMARY> .37
<EPS-DILUTED> .37
</TABLE>
