Intelligent Electronics, Inc. and Subsidiaries
INDEX
Page No.
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheet
April 30, 1994 and January 29, 1994 3
Consolidated Statement of Operations
Three Months Ended April 30, 1994
and May 1, 1993 4
Consolidated Statement of Cash Flows
Three Months Ended April 30, 1994
and May 1, 1993 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 8
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 10
SIGNATURES 13
<PAGE>
<TABLE>
PART I - FINANCIAL INFORMATION FORM 10-Q
<CAPTION>
INTELLIGENT ELECTRONICS, INC. and Subsidiaries
Consolidated Balance Sheet
(in thousands, except share-related data)
April 30, January 29,
1994 1994
-------------- --------------
(unaudited)
Assets
Current assets:
<S> <C> <C> <C> <C>
Cash and cash equivalents $ 135,606 $ 122,249
Marketable securities available for sale 44,799 61,130
Accounts receivable, net 22,353 9,524
Inventory 306,400 251,044
Prepaid expenses and other current assets 12,048 8,872
Deferred income taxes 7,241 7,840
------------- --------------
Total current assets 528,447 460,659
Property and equipment 13,177 11,371
Intangible assets, primarily goodwill, net 70,405 71,585
Investments in affiliates 30,857 30,096
Other assets 3,300 3,300
------------- --------------
Total assets $ 646,186 $ 577,011
============= ==============
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable $ 386,265 $ 334,341
Accrued liabilities 27,214 21,025
------------- --------------
Total current liabilities 413,479 355,366
------------- --------------
Other liabilities 3,114 2,795
Commitments and contingencies -- --
Shareholders' equity:
Common stock $.01 par value per share:
Authorized 100,000,000 shares,
issued and outstanding:
39,364,859 and 39,310,439 shares 394 393
Additional paid-in capital 219,738 219,107
Treasury stock (57,181) (57,181)
Retained earnings 66,509 56,531
Unrealized holding gain on securities and investments 133 --
------------- --------------
Total shareholders' equity 229,593 218,850
------------- --------------
Total liabilities and shareholders' equity $ 646,186 $ 577,011
============= ==============
See accompanying notes to consolidated financial statements.
</TABLE>
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<TABLE>
INTELLIGENT ELECTRONICS, INC. and Subsidiaries FORM 10-Q
Consolidated Statement of Operations
(in thousands, except per-share data)
(unaudited)
<CAPTION>
Three months ended
----------------------
April 30, May 1,
1994 1993
-------------- -------------
<S> <C> <C> <C> <C>
Revenues $ 762,314 $ 616,948
Cost of goods sold 726,847 591,163
-------------- -------------
Gross profit 35,467 25,785
-------------- -------------
Operating expenses:
Selling, general and administrative expenses 15,248 12,325
Amortization of intangibles, primarily goodwill 1,180 1,180
Total operating expenses 16,428 13,505
Income from operations 19,039 12,280
Other income (expense):
Investment and other income, net 1,096 1,138
Interest expense (164) (355)
Equity in earnings of affiliate 626 719
-------------- -------------
Income from continuing operations before
provision for income taxes 20,597 13,782
Provision for income taxes 7,804 5,461
-------------- -------------
Discontinued operation:
Loss from discontinued operation (net of tax
benefit of $1,076) -- (2,468)
Gain on sale of BizMart (net of tax expense of $2,284) -- 6,298
-------------- -------------
Net income $ 12,793 $ 12,151
============== =============
Income (loss) per common share and share equivalent:
Continuing operations $ 0.36 $ 0.23
Discontinued operation -- (0.07)
Sale of BizMart -- 0.17
-------------- -------------
Net income per share $ 0.36 $ 0.33
============== =============
Dividends declared per share $ 0.08 $ --
============== =============
Weighted average number of common shares and share
equivalents outstanding:
Primary and fully diluted 36,034 36,774
See accompanying notes to consolidated financial statements.
</TABLE>
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<TABLE>
INTELLIGENT ELECTRONICS, INC. and Subsidiaries FORM 10-Q
Consolidated Statement of Cash Flows
(in thousands)
(unaudited)
<CAPTION>
Three months ended
--------------------
April 30, May 1,
1994 1993
-------------- --------------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C> <C> <C>
Net income $ 12,793 $ 12,151
Adjustments to reconcile net income to net cash
provided by (used for) operating activities:
Depreciation and amortization 2,223 2,255
Provision for deferred taxes 796 (2,071)
Provision for losses on trade receivables 27 12
Provision for write-down of inventory 88 200
Loss from discontinued operation -- 2,468
Gain on sale of BizMart -- (6,298)
Equity in earnings of affiliate (626) (719)
Changes in assets and liabilities, net of effects
from acquisitions and sales:
Accounts receivable (12,856) (3,965)
Inventory (55,444) 14,167
Other current assets (3,176) (943)
Accounts payable 51,901 (54,592)
Accrued liabilities 6,183 2,011
-------------- --------------
Net cash provided by (used for) operating activities 1,909 (35,324)
-------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of property and equipment, net of disposals (2,670) (1,165)
Sales and maturities of marketable securities 35,000 --
Purchases of marketable securities (18,669) --
Proceeds from sale of BizMart -- 275,236
-------------- --------------
Net cash provided by investing activities 13,661 274,071
-------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of Subordinated Debt -- (17,500)
Common stock repurchased -- (33,920)
Cash dividends paid (2,809) --
Proceeds from exercise of stock options 632 8,212
Reduction in capital lease obligations (36) (29)
-------------- --------------
Net cash used for financing activities (2,213) (43,237)
-------------- --------------
Net cash provided by continuing operations and sale of BizMart 13,357 195,510
Cash used for discontinued operation -- (5,562)
-------------- --------------
NET INCREASE IN CASH AND CASH EQUIVALENTS 13,357 189,948
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 122,249 52,498
-------------- --------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 135,606 $ 242,446
============== ==============
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
Intelligent Electronics, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(unaudited)
(1) Basis of Presentation
---------------------
The consolidated financial statement information included herein is
unaudited but, in the opinion of management, reflects all adjustments
necessary for a fair statement of the results for the interim periods
presented. Such adjustments are of a normal, recurring nature. These
financial statements should be read in conjunction with the audited
financial statements included in the Company's Annual Report on Form 10-K
for the year ended January 29, 1994.
(2) New Accounting Pronouncement
----------------------------
On January 30, 1994, the Company adopted Statement of Financial Accounting
Standards No. 115 ("FAS 115"), Accounting for Certain Investments in Debt
and Equity Securities. FAS 115 requires that certain investments in debt
and equity securities be classified into one of three categories: held-to-
maturity, available-for-sale, or trading. Adoption of this statement did
not have a material effect on the Company's financial position or results
of operations; however, certain amounts in the January 29, 1994, Consolidated
Balance Sheet have been reclassified for comparative purposes.
(3) Discontinued Operation and Sale of BizMart
------------------------------------------
On March 4, 1993, the Company sold Bizmart, Inc. ("BizMart") to OfficeMax,
Inc. Accordingly, results of BizMart's operations have been reported
separately as a discontinued operation in the accompanying Consolidated
Statement of Operations. BizMart's operating results for the period from
January 31, 1993 to March 4, 1993 have been excluded from continuing
operations and are summarized as follows:
Revenues $ 60,193
Costs and expenses 63,736
-----------
Loss before income taxes (3,543)
Income tax expense (benefit) (1,075)
-----------
Loss from discontinued operation $ (2,468)
===========
(4) Investments in Affiliates
-------------------------
The Company has an investment in The Future Now, Inc. ("TFN"), a network
member and publicly-traded company. The Company accounts for this
investment using the equity method. For the quarter ended April 30, 1994,
the Company recognized $626,000 in income as its proportionate share of
TFN's net income. As of April 30, 1994, the carrying value of the TFN
common stock was approximately $29,916,000 and the aggregate market price,
based on TFN's quoted market price, was approximately $32,478,000.
The Company also has an investment in Random Access, Inc. ("RA"), a network
member and publicly-traded company. The Company accounts for this
investment as available-for-sale in accordance with FAS 115. The carrying
value of the RA common stock was increased to fair market value with the
corresponding credit to shareholders' equity. At April 30, 1994, based on
RA's quoted market price, the fair market value of the Company's investment
in RA was approximately $428,000.
(5) Common Stock Dividends
----------------------
On March 1, 1994, the Company paid the fourth quarter cash dividend of
$0.08 per share which was declared on February 1, 1994 for shareholders of
record on February 15, 1994.
On May 4, 1994, the Board of Directors declared the first quarter cash
dividend of $0.08 per share to shareholders of record on May 18, 1994,
which was paid on June 1, 1994.
On May 24, 1994, the Board of Directors increased the subsequent quarterly
dividend rate from $0.08 per share to $0.10 per share.
(6) Supplemental Cash Flow Information
----------------------------------
Cash payments during the three-month periods ended April 30, 1994 and
May 1, 1993 included interest of $377,000 and $509,000, respectively, and
income taxes of $1,810,000 and $2,778,000, respectively.
In February 1994, the Company entered into a capital lease obligation for
computer equipment totaling $181,000.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Introduction
- - ------------
On March 4, 1993, the Company sold BizMart, a national chain of office
products supercenters, to OfficeMax. Accordingly, BizMart is reflected as
a discontinued operation in the accompanying consolidated financial
statements. Unless otherwise specified, amounts and disclosures referred
to herein relate to the Company's continuing operations.
Results of Continuing Operations
- - --------------------------------
Revenues increased 24% to $762,314,000 for the quarter ended April 30, 1994
compared to $616,948,000 for the quarter ended May 1, 1993. The increase
was due primarily to increased revenues from existing network integrators
resulting from continued strong business demand for premium, brand name
computers and peripherals and the addition of new members to the network.
Gross profit as a percentage of revenues for the quarter ended April 30,
1994 was 4.7% compared to 4.2% for the quarter ended May 1, 1993. The
increase in gross margin percent was due to the larger volume of revenue
generated from higher margin, advanced technology products and taking
advantage of purchasing opportunities.
Selling, general and administrative expenses increased from $12,325,000 for
the quarter ended May 1, 1993 to $15,248,000 for the quarter ended April 30,
1994. As a percentage of revenue, selling, general and administrative
expenses remained constant at 2.0%. Costs increased to service the higher
volume of revenues and the larger network and to support new programs.
Investment and other income declined slightly for the quarter ended April 30,
1994 when compared to the quarter ended May 1, 1993. Interest expense
also declined for the quarter ended April 30, 1994. These decreases can
be primarily attributable to the use of available cash to pay off interest-
bearing inventory financing and the payments for cash dividends and share
repurchases throughout the prior year.
For the quarter ended April 30, 1994, the Company recognized $626,000 as
its proportionate share of TFN's net income. For the quarter ended May 1,
1993, the Company recognized $473,000 as its proportionate share of TFN's
net income and, also, recognized a gain of $246,000 as a result of a
public offering of common stock by TFN.
The Company's effective tax rate decreased from 39.6% for the quarter ended
May 1, 1993 to 37.9% for the quarter ended April 30, 1994. Factors
primarily responsible for this decrease during the quarter ended April 30,
1994 were higher pre-tax earnings, increased tax-exempt investment income
and a change in the Company's effective state tax rate, offset by a rise
in the federal statutory rate.
Income from continuing operations increased to $12,793,000 for the quarter
ended April 30, 1994 from $8,321,000 for the quarter ended May 1, 1993, for
the reasons outlined above.
The new financing programs established by the Company and the planned
expanded selection of computer technology products stocked in inventory did
not have a material effect on the Company's operations during the quarter
ended April 30, 1994. In the future, these programs and products are
expected to facilitate incremental sales, contribute gross margin, increase
selling, general and administrative expenses and increase accounts
receivable and inventory.
Liquidity and Capital Resources
- - -------------------------------
The Company has financed its growth to date from stock offerings, bank and
subordinated borrowings, inventory financing and internally generated
funds. The principal uses of its cash have been to fund its accounts
receivable and inventory, make acquisitions, repurchase common stock and
pay cash dividends.
During the quarter ended April 30, 1994, the Company's operating activities
generated $1,909,000 in cash. At April 30, 1994, the Company had cash,
cash equivalents and marketable securities totaling $180,405,000
($183,379,000 at January 29, 1994). Working capital totaled $114,968,000
at April 30, 1994 compared to $105,293,000 at January 29, 1994. With the
new financing programs offered by the Company and the planned expanded
selection of inventory, working capital requirements are expected to
increase in the future. The Company also has a $170,000,000 financing
agreement with a finance company. At April 30, 1994, the Company had
approximately $86,754,000 outstanding on this facility, which was included
in accounts payable on the Consolidated Balance Sheet. The Company's
$20,000,000 guarantee to an inventory finance company on behalf of a member
of its network remained in place at April 30, 1994.
During the quarter ended April 30, 1994, the Company paid the quarterly
dividend of $0.08 per share which was declared on February 1, 1994. On May
4, 1994, the Company's Board of Directors declared a dividend of $0.08 per
share to shareholders of record on May 18, 1994, which was paid on June 1,
1994. On May 24, 1994, the Board of Directors increased the subsequent
quarterly dividend rate from $0.08 per share to $0.10 per share.
Based on the Company's current level of operations and expected
requirements, management believes that the Company's cash and marketable
securities, internally-generated funds, and available financing
arrangements and opportunities will be sufficient to meet the Company's
cash requirements for the foreseeable future.
Inflation and Seasonality
- - -------------------------
The Company believes that inflation has not had a material impact on its
operations or liquidity to date. The Company's financial performance does
not exhibit significant seasonality, although certain computer product
lines have displayed a seasonal pattern with peaks occurring near the end
of the calendar year.
<PAGE>
Intelligent Electronics, Inc. and Subsidiaries
Part II - Other Information
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit 11. Statement re: Computation of Per Share Earnings
(b) Reports on Form 8-K.
None.
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INTELLIGENT ELECTRONICS, INC. and Subsidiaries Exhibit 11
Primary Income Per Share Calculation Page 1 of 2
<CAPTION>
Three months ended
-----------------------------------------------------------
April 30, 1994 May 1, 1993
-------------------------- --------------------------
$ Per Share $ Per Share
------------ ----------- ------------ -----------
<S> <C> <C> <C> <C>
Continuing operations 12,793,000 $0.36 8,321,000 $0.23
Discontinued operation -- -- (2,468,000) (0.07)
Sale of BizMart -- -- 6,298,000 0.17
------------ ----------- ------------ ----------
Net income 12,793,000 $0.36 12,151,000 $0.33
============ =========== ============ ===========
Weighted average common shares
outstanding, common share equivalents
& other dilutive securities 36,033,562 36,762,920
=========== ===========
Computation of Common Shares, Common Share Equivalents
& Other Dilutive Securities
Three months ended
----------------------------------------------------------
April 30, 1994 May 1, 1993
-------------------------- --------------------------
End of Weighted End of Weighted
Period Average Period Average
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Common shares outstanding 39,364,859 35,130,428 37,688,944 35,573,439
Common share equivalents:
Options 2,764,725 2,819,425 3,642,800 4,396,150
Assumed repurchased @ average price (1,916,291) (3,284,380)
Warrants 0 0 120,000 120,000
Assumed repurchased @ average price 0 (42,289)
----------- -----------
Weighted average common share equivalents 903,134 1,189,481
----------- -----------
Weighted average common shares
outstanding, common share equivalents
& other dilutive securities 36,033,562 36,762,920
=========== ===========
</TABLE>
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<TABLE>
INTELLIGENT ELECTRONICS, INC. and Subsidiaries Exhibit 11
Fully Diluted Income Per Share Calculation Page 2 of 2
<CAPTION>
Three months ended
------------------------------------------------------------
April 30, 1994(1) May 1, 1993
-------------------------- --------------------------
$ Per Share $ Per Share
------------ ----------- ------------ -----------
<S> <C> <C> <C> <C>
Continuing operations 12,793,000 $0.36 8,321,000 $0.23
Discontinued operation -- -- (2,468,000) (0.07)
Sale of BizMart -- -- 6,298,000 0.17
------------ ----------- ------------ -----------
Net income 12,793,000 $0.36 12,151,000 $0.33
============ =========== ============ ===========
Weighted average common shares outstanding,
common share equivalents & other
dilutive securities 36,033,562 36,773,919
=========== ===========
Computation of Common Shares, Common Share Equivalents
& Other Dilutive Securities
Three months ended
-----------------------------------------------------------
April 30, 1994(1) May 1, 1993
--------------------------- ---------------------------
End of Weighted End of Weighted
Period Average Period Average
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Common shares outstanding 39,364,859 35,130,428 37,688,944 35,573,439
Common share equivalents:
Options 2,764,725 2,819,425 3,642,800 4,396,150
Assumed repurchased @ ending price (1,916,291) (3,273,448)
Warrants 0 0 120,000 120,000
Assumed repurchased @ ending price 0 (42,222)
----------- -----------
Weighted average common share equivalents 903,134 1,200,480
----------- -----------
Weighted average common shares outstanding,
common share equivalents & other
dilutive securities 36,033,562 36,773,919
=========== ===========
(1) For the three months ended April 30, 1994, the average market price for the period exceeded
the ending market price. As such, fully diluted earnings per share was antidilutive.
</TABLE>
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Company has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Intelligent Electronics, Inc.
/s/ Edward A. Meltzer
------------------------------------
Edward A. Meltzer
Vice President, Chief
Financial Officer and
Chief Accounting Officer
Date: June 9, 1994
