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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 January 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 January
28, 1995 was 10,146,557.
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This document consists of 12 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 January 28,
1995 and July 30, 1994......................................... 3
b) Condensed Consolidated Statements of Income for the Three
and Six Months Ended January 28, 1995 and
January 29, 1994............................................... 4
c) Condensed Consolidated Statements of Cash Flows
for the Six Months Ended January 28, 1995 and
January 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
Future Results....................................................... 8
PART II -- OTHER INFORMATION
1 - 3. Not applicable with respect to the current reporting period.
4. Submission of matters to a vote of security holders.................. 9
5. Not applicable with respect to the current reporting period.
6. Exhibits and Reports on Form 8-K..................................... 10
SIGNATURE................................................................... 11
</TABLE>
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Part I
Item 1a
PART I -- FINANCIAL INFORMATION
INMAC CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS AS OF
JANUARY 28, 1995 AND JULY 30, 1994
(IN THOUSANDS)
<TABLE>
<CAPTION>
January 28, July 30,
1995 1994
----------- ---------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 4,348 $ 2,992
Receivables, net of allowances 52,412 47,395
Inventories 31,392 29,979
Prepaid expenses and other current assets 11,738 8,828
-------- --------
Total current assets 99,890 89,194
Property, plant and equipment, net 9,511 10,412
Other assets 1,022 1,265
Total assets $110,423 $100,871
======== ========
LIABILITIES & STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 23,627 $ 20,472
Accrued liabilities 20,000 14,018
Bank debt and other liabilities 26,655 29,988
Income taxes 2,492 1,713
-------- --------
Total current liabilities 72,774 66,191
Long-term debt and other liabilities 977 1,127
Stockholders' equity:
Common stock 15,174 14,978
Retained earnings 24,737 22,653
Cumulative translation adjustments (3,239) (4,078)
-------- --------
Total stockholders' equity 36,672 33,553
Total liabilities and stockholders' equity $110,423 $100,871
======== ========
</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 SIX MONTHS ENDED
JANUARY 28, 1995 AND JANUARY 29, 1994
(IN THOUSANDS, EXCEPT NET INCOME PER SHARE DATA)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
------------------------ -------------------------
January 28, January 29, January 28, January 29,
1995 1994 1995 1994
------- ------- --------- --------
<S> <C> <C> <C> <C>
Sales $89,713 $88,926 $173,588 $168,052
Cost of sales 58,402 58,215 113,672 107,451
------- ------- -------- --------
Gross profit 31,311 30,711 59,916 60,601
Selling, general, and
administrative expenses 28,934 29,458 54,997 57,801
------- ------- -------- --------
Operating income 2,377 1,253 4,919 2,800
Interest expense, net 341 320 705 588
------- ------- -------- --------
Income before income
taxes 2,036 933 4,214 2,212
Income taxes 1,003 215 2,130 852
------- ------- -------- --------
Net income $ 1,033 $ 718 $ 2,084 $ 1,360
======= ======= ======== ========
Net income per common and
common equivalent share $ 0.10 $ 0.07 $ 0.20 $ 0.12
======= ======= ======== ========
Weighted average common and
common equivalent shares
outstanding 10,643 10,939 10,613 10,958
======= ======= ======== ========
</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 SIX MONTHS ENDED
JANUARY 28, 1995 AND JANUARY 29, 1994
(IN THOUSANDS)
<TABLE>
<CAPTION>
Six Months Ended
-------------------------------
January 28, January 29,
1995 1994
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 2,084 $ 1,360
Adjustments to reconcile net income to net cash
provided by operating activities:
Allowance for returns and doubtful receivable 150 85
Depreciation and amortization 1,951 1,542
(Gain) loss on disposal of fixed assets (71) 85
Translation adjustment 622 460
Change in assets and liabilities:
Receivables (5,167) (10,999)
Inventories (1,413) (9,592)
Prepaid expenses and other current assets (2,910) (4,194)
Accounts payable and accrued liabilities 9,137 2,827
Income taxes 779 (254)
Other assets 243 268
- - -----------------------------------------------------------------------------------------------------------
Net cash provided (used) by operating activities 5,405 (18,412)
- - -----------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Purchases of property, plant, and equipment (1,117) (3,129)
Proceeds from sales of property and equipment 180 11
- - -----------------------------------------------------------------------------------------------------------
Net cash used in investing activities (937) (3,118)
- - -----------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Short-term bank borrowings and repayments (3,322) 11,940
Repayment of long-term debt (203) (203)
Proceeds from sale of common stock 196 1,459
- - -----------------------------------------------------------------------------------------------------------
Net cash provided (used) by financing activities (3,329) 13,196
- - -----------------------------------------------------------------------------------------------------------
Effect of exchange rate changes on cash 217 (124)
- - -----------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents 1,356 (8,458)
Cash and cash equivalents at beginning of year 2,992 10,786
- - -----------------------------------------------------------------------------------------------------------
Cash and cash equivalents at year-to-date $ 4,348 $ 2,328
===========================================================================================================
Supplemental disclosures of cash flow information:
Cash paid year to date for:
Interest $ 612 $ 841
===========================================================================================================
Income taxes $ 919 $ 1,208
===========================================================================================================
Supplemental schedule of non-cash investing and financing activities:
Capital lease obligations incurred on leases for new equipment $ 42 $ 194
</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 30, 1994.
Results of operations for the six months ended January 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>
January 28, 1995 July 30, 1994
----------------- -------------
<S> <C> <C>
Raw materials and manufacturing supplies $ 1,918 $ 2,868
Finished goods 29,474 27,111
------- -------
$31,392 $29,979
======= =======
</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 $1.4 million since July 30, 1994
and are $2.0 million greater than the same quarter-end last year. Operating
activities since July 30, 1994 provided $5.4 million in cash, of which $3.3
million was used by financing activities (primarily for reduction of bank
borrowings) and $0.9 million was used in investing activities (primarily for
purchase of fixed assets).
Receivables, net of allowances, increased by $5.0 million since July 30, 1994
and are $1.5 million less than the same quarter-end last year. This increase
since last fiscal year-end is due to 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
January 28, 1995 are slightly higher than at July 30, 1994, but down from the
second quarter of last year.
Inventories increased by $1.4 million since fiscal year-end, reflecting the
seasonality of the business. Inventories are $4.9 million lower than at the
second 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, which was completed in the first
quarter this year and better return to vendor privileges for slower moving
products.
Prepaid expenses and other current assets have increased by $2.9 million since
fiscal year-end and by $2.7 million since the second quarter-end last year. The
increase principally relates to amounts receivable from vendors for increased
catalog vendor funding activity.
Property, plant and equipment, net decreased from fiscal 1994 year-end by $0.9
million as depreciation recorded on existing fixed assets exceeded new fixed
asset investment activity.
Accounts payable and accrued liabilities increased by $3.2 million and $6.0
million, respectively, since July 30, 1994 (total increase of $9.2 million),
however on a combined basis they decreased from the second quarter-end last year
by $1.9 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 second quarter-end last year relates to lower inventory purchasing
activity than in the second quarter of fiscal 1994.
Bank debt and other liabilities at the end of the quarter decreased by $3.3
million from July 30, 1994, and $6.3 million from the second 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 second quarter of fiscal 1995, the change in the
translation adjustment increased net equity by $0.8 million as a result of
increases in European currencies against the U.S. dollar. The translation
adjustment is $3.2 million as of January 28, 1995.
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RESULTS OF OPERATIONS
Sales for the quarter increased by $0.8 million or 0.9% to $89.7 million
compared to $88.9 million for the second quarter last year. Sales for the first
six months increased by $5.5 million or 3.3% to $173.6 million compared to
$168.1 million for the first six months of last year. On a comparable currency
basis, second quarter sales were down 5.5%, and year-to-date sales were down
2.1% as North American sales decreased by 17.4% for the quarter, reflecting the
strategic downsizing of the U.S. business initiated in May 1994. European sales
were up 9.7% for the quarter and 10.2% year-to-date. Currency translation
favorably affected the quarter's consolidated reported sales by 6.3% and
year-to-date consolidated reported sales by 5.4%.
Sales for The Desktop Hardware/Software Division increased by 10.8% over the
same quarter last year. Sales for the Networking Products Division decreased
4.1% and sales from the Consumable and Complementary Products Division decreased
2.9%, both due to the intentional reduction of catalog mailings into low average
order customer sites in the United States.
Gross margin for the quarter increased to 34.9% from 34.5% in the same quarter a
year ago. This margin increase is primarily due to a better mix of higher margin
product. This quarter's gross margin percentage is up from the fourth quarter of
fiscal 1994 and first quarter of fiscal 1995 which were 32.8% and 34.1%,
respectively. However, 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 second
quarter last year to 32.3% of sales for the second quarter of fiscal 1995
compared to 33.1% for the second quarter last year. Similarly, selling, general
and administrative expenses were cut by $2.8 million compared to the first six
months of last year to 31.7% of sales for the first six months of fiscal 1995
compared to 34.4% for the first six 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 $0.3 million for both the second quarter of this fiscal
year and the second quarter of last fiscal year. Net interest expense for the
first six months of this fiscal year was $0.7 million compared to $0.6 million
for the first six months of last fiscal year. The higher interest expense
reflects higher effective interest rates this fiscal year.
LIQUIDITY AND CAPITAL RESOURCES
As of January 28, 1995, the Company had $19.8 million in unused lines of credit
and $4.3 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 either through expansion of its existing credit lines or
alternative financing options, which may include additional debt or equity
financing.
FUTURE RESULTS
The third quarter has historically been a seasonally strong quarter for Inmac
and for the industry in general. The Company's new catalogs, new products, and
ongoing low price strategy may generate increased sales for Inmac, compared to
the third quarter of fiscal 1994. The Company expects
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downward pressure on prices and continued growth rates in the lower margin
Desktop Products Division to erode overall gross margin percentages over time.
The 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 3 and Item 5 are not applicable with respect to the current
reporting period.
Item 4. - Submission of matters to a vote of security holders. At the Annual
Meeting of Stockholders of Inmac Corp. held on December 1, 1994, the
Stockholders approved the following proposals:
Proposal #1 Election of Directors
For all nominees: 9,592,807
Authority withheld from all nominees: 16,929
The breakdown of votes cast for each nominee is as follows:
<TABLE>
<CAPTION>
Total Vote for Total Vote Withheld
Each Director From Each Director
-------------- -------------------
<S> <C> <C>
William P. Doolittle 9,593,007 16,929
Kenneth A. Eldred 9,593,007 16,929
John R. Emrick 9,592,807 17,129
Jeffrey A. Heimbuck 9,592,807 17,129
Robert L. Katz 9,592,807 17,129
John B. Mumford 9,592,807 17,129
</TABLE>
Proposal #2 Ratification of Appointment of KPMG Peat Marwick LLP as the
Company's Independent Auditors
The Stockholders ratified the election by the Company's Board of Directors of
KPMG Peat Marwick LLP, as auditors for the Company's financial statements for
the year ending July 29, 1995. KPMG Peat Marwick LLP has been the Company's
independent auditors since 1980. The Stockholders voted as follows:
For: 9,579,555
Against 14,084
Abstain: 16,297
Non-Votes: 0
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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 12.
(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: March 10, 1995 By: /s/ MICHAEL J. WAIDE
----------------------------
Michael J. Waide
(Vice President, Finance and
Chief Financial Officer)
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EXHIBIT INDEX
Exhibit Number Exhibit
- - -------------- -------
11.0 Statement of Computation of Net Income Per Share
27 Financial Data Schedule
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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 Six Months Ended
------------------------- -------------------------
January 28, January 29, January 28, January 29,
1995 1994 1995 1994
----------- ------------ ----------- -----------
<S> <C> <C> <C> <C>
Net Income $ 1,033 $ 718 $ 2,084 $ 1,360
------- ------- ------- -------
Weighted average number
of common shares
outstanding 10,140 9,948 10,125 9,842
Weighted average common
equivalent shares - stock
options 503 991 488 1,116
------- ------- ------- -------
Weighted average common and
common equivalent shares
outstanding 10,643 10,939 10,613 10,958
------- ------- ------- -------
Net income per common and
common equivalent share $ 0.10 $ 0.07 $ 0.20 $ 0.12
======= ======= ======= =======
</TABLE>
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<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000801121
<NAME> INMAC CORP.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUL-29-1995
<PERIOD-START> JUL-31-1994
<PERIOD-END> JAN-28-1995
<CASH> 4,348
<SECURITIES> 0
<RECEIVABLES> 55,060
<ALLOWANCES> 2,648
<INVENTORY> 31,392
<CURRENT-ASSETS> 99,890
<PP&E> 23,242
<DEPRECIATION> 13,731
<TOTAL-ASSETS> 110,423
<CURRENT-LIABILITIES> 72,774
<BONDS> 0
<COMMON> 103
0
0
<OTHER-SE> 36,569
<TOTAL-LIABILITY-AND-EQUITY> 110,423
<SALES> 173,588
<TOTAL-REVENUES> 173,588
<CGS> 113,672
<TOTAL-COSTS> 113,672
<OTHER-EXPENSES> 54,997
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 705
<INCOME-PRETAX> 4,214
<INCOME-TAX> 2,130
<INCOME-CONTINUING> 2,084
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<NET-INCOME> 2,084
<EPS-PRIMARY> .20
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</TABLE>
