SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
[ 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 0-15991
Intelligent Electronics, Inc.
(Exact name of registrant as specified in its charter)
Pennsylvania 23-2208404
------------------------------- ------------------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
411 Eagleview Boulevard, Exton, PA 19341
---------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
(610) 458-5500
--------------
(Registrant's 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 __X__ No ____
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date: 34,536,731 shares of Common
Stock, par value $0.01 per share were outstanding at December 1, 1995.
<PAGE>
Intelligent Electronics, Inc. and Subsidiaries
INDEX
Page No.
--------
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets
October 28, 1995 and January 28, 1995 3
Consolidated Statements of Operations
Three and Nine Months Ended October 28, 1995
and October 29, 1994 4
Consolidated Statements of Cash Flows
Nine Months Ended October 28, 1995 5
and October 29, 1994
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 9
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 11
SIGNATURES 12
<PAGE>
PART I - FINANCIAL INFORMATION FORM 10-Q
[CAPTION]
<TABLE>
INTELLIGENT ELECTRONICS, INC. and Subsidiaries
Consolidated Balance Sheets
(in thousands, except share-related data)
October 28, January 28,
1995 1995
----------- -----------
(unaudited)
Assets
Current assets:
<S> <C> <C>
Cash and cash equivalents $ 28,076 $ 69,027
Marketable securities available for sale 4,520 8,398
Accounts receivable, net 197,931 77,890
Inventory 408,964 364,606
Prepaid expenses and other current assets 5,551 3,973
Deferred income taxes 17,840 11,256
---------- ----------
Total current assets 662,882 535,150
Property and equipment, net 61,005 36,463
Intangible assets, primarily goodwill, net 156,219 71,693
Investments in affiliates 551 18,692
Other assets 13,527 8,776
---------- ----------
Total assets $ 894,184 $ 670,774
========== ==========
Liabilities and Shareholders' Equity
Current liabilities:
Short-term debt $ 515 $ --
Accounts payable 572,929 467,109
Accrued liabilities 59,458 36,181
---------- ----------
Total current liabilities 632,902 503,290
---------- ----------
Long-term debt 75,244 --
Other long-term liabilities 2,728 --
Commitments and contingencies -- --
Shareholders' equity:
Common stock $.01 par value per share:
Authorized 100,000,000 shares,
issued and outstanding:
39,910,649 and 39,519,949 shares 399 395
Additional paid-in capital 224,298 221,312
Treasury stock (69,143) (105,677)
Retained earnings 27,433 51,758
Unrealized holding gain (loss) on securities and investments 323 (304)
---------- ----------
Total shareholders' equity 183,310 167,484
---------- ----------
Total liabilities and shareholders' equity $ 894,184 $ 670,774
========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
[CAPTION]
<TABLE>
INTELLIGENT ELECTRONICS, INC. and Subsidiaries FORM 10-Q
Consolidated Statements of Operations
(in thousands, except per-share data)
(unaudited)
Three months ended Nine months ended
October 28, October 29, October 28, October 29,
1995 1994 1995 1994
---------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues $ 944,223 $ 831,122 $ 2,653,276 $ 2,386,710
Cost of goods sold 895,796 805,808 2,540,136 2,287,955
---------- ---------- ----------- -----------
Gross profit 48,427 25,314 113,140 98,755
---------- ---------- ----------- -----------
Operating expenses:
Selling, general and administrative expenses 55,432 29,274 112,483 63,132
Amortization of intangibles, primarily goodwill 2,132 1,180 4,718 3,540
---------- ---------- ----------- -----------
Total operating expenses 57,564 30,454 117,201 66,672
---------- ---------- ----------- -----------
Income (loss) from operations (9,137) (5,140) (4,061) 32,083
Other income (expense):
Investment and other income (expense), net (27) 1,394 1,654 3,704
Interest expense (2,502) (225) (3,882) (848)
---------- ---------- ----------- -----------
Income (loss) before provision (benefit) for
income taxes and equity in loss of affiliate (11,666) (3,971) (6,289) 34,939
Provision (benefit) for income taxes (3,814) (1,199) (790) 13,618
---------- ---------- ----------- -----------
Income (loss) before equity in loss of affiliate (7,852) (2,772) (5,499) 21,321
Equity in loss of affiliate (net of tax benefit
of $0, $145, $0, and $5,198) (5,681) (248) (9,078) (8,853)
---------- ---------- ----------- -----------
Net income (loss) $ (13,533) $ (3,020) $ (14,577) $ 12,468
========== ========== =========== ===========
Income (loss) per common share $ (0.40) $ (0.09) $ (0.45) $ 0.35
========== ========== =========== ===========
Dividends declared per share $ 0.10 $ 0.10 $ 0.30 $ 0.28
========== ========== =========== ===========
Weighted average number of common shares
and share equivalents outstanding: 33,947 34,936 32,213 35,628
</TABLE>
See accompanying notes to consolidated financial statements. <PAGE>
[CAPTION]
<TABLE>
INTELLIGENT ELECTRONICS, INC. and Subsidiaries FORM 10-Q
Consolidated Statements of Cash Flows
(in thousands)
(unaudited)
Nine months ended
-----------------
October 28, October 29,
1995 1994
------------ -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net income (loss) $ (14,577) $ 12,468
Adjustments to reconcile net income (loss) to net cash
provided by (used for) operating activities:
Depreciation and amortization 13,193 7,204
Loss on disposal of fixed assets 7,978 --
Provision for deferred taxes (3,544) (12,990)
Provision for losses on trade receivables 1,717 143
Provision for write-down of inventory 5,615 6,185
Equity in loss of affiliate 9,078 14,051
Changes in assets and liabilities excluding effect
of business acquisition:
Accounts receivable (25,184) (25,841)
Inventory (13,608) (217,402)
Other current assets 2,456 (5,348)
Accounts payable (20,738) 223,873
Accrued liabilities 3,758 9,133
------------ -----------
Net cash provided by (used for) operating activities (33,856) 11,476
------------ -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of marketable securities -- (31,709)
Sales and maturities of marketable securities 4,500 80,714
Acquisition of property and equipment (29,726) (8,646)
Investment in and loan to affiliates -- (1,102)
Other (351) (764)
------------ -----------
Net cash provided by (used for) investing activities (25,577) 38,493
------------ -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Common stock repurchased -- (14,941)
Cash dividends paid (9,417) (9,094)
Proceeds from exercise of stock options 2,990 2,118
Proceeds from long-term debt 75,000 --
Repayment of FNOW's bank debt (50,009) --
Reduction in capital lease obligations (82) (128)
------------ -----------
Net cash provided by (used for) financing activities 18,482 (22,045)
------------ -----------
NET INCREASE IN CASH AND CASH EQUIVALENTS (40,951) 27,924
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 69,027 122,249
------------ -----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 28,076 $ 150,173
============ ===========
</TABLE>
See accompanying notes to consolidated financial statements.<PAGE>
Intelligent Electronics, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Dollars in thousands, except share-related data)
(unaudited)
(1) Basis of Presentation
---------------------
The consolidated financial statement information included herein is unaudited
but, in the opinion of management, reflects all adjustments, consisting of
normal recurring adjustments and changes in accounting estimates, necessary for
a fair statement of the results for the interim periods presented. 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 28, 1995.
(2) Acquisition of Business
-----------------------
On August 17, 1995, the Company acquired The Future Now, Inc. ("FNOW"). The
Company issued 2,952,282 shares of its Common Stock in exchange for all of
the remaining shares (approximately 69%) of FNOW Common Stock not previously
owned by the Company. The aggregate purchase price including acquisition-
related costs approximated $36.5 million. The acquisition was accounted for
using the purchase method and, accordingly, the operating results of FNOW
have been included in the consolidated operating results since the
date of acquisition. The preliminary allocation of the purchase price
to assets acquired and liabilities assumed is as follows:
Accounts receivable $ 95,599
Inventory 36,365
Other current assets 3,800
Property and equipment 11,268
Intangible assets, primarily goodwill 89,440
Other long-term assets 8,742
Short-term debt (50,564)
Accounts payable (126,558)
Accrued liabilities, including acquisition-related
accruals (29,898)
Long-term debt (286)
Other long-term liabilities (1,374)
-----------
$ 36,534
===========
Unaudited pro forma results of operations of the Company for the three and nine
months ended October 28, 1995 and October 29, 1994, assuming the FNOW
acquisition was consummated on January 30, 1994, are as follows:
[CAPTION]
<TABLE>
Three months ended Nine months ended
October 28, October 29, October 28, October 29,
1995 1994 1995 1994
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenues $ 949,775 $ 912,655 $ 2,769,567 $ 2,585,695
Net loss (16,941) (3,911) (23,369) (13,427)
Loss per share $ (0.46) $ (0.10) $ (0.66) $ (0.35)
</TABLE>
<PAGE>
Pro forma financial information presented above is not necessarily indicative
of the results of operations that would have occurred had the acquisition taken
place at the beginning of the period presented or of future results of
operations of the combined companies.
(3) Credit Facilities
-----------------
In September 1995, the Company's $170 million financing agreement with a finance
company was increased to $270 million. In October 1995, this financing
agreement was amended to reclassify $75 million as a term loan with an
expiration date of February 3, 1997 and an interest rate of prime plus 1.875%.
This term loan is reflected on the Consolidated Balance Sheet as long-term debt.
As of October 28, 1995, the Company was not in compliance with certain financial
ratio covenants under two of its inventory financing agreements. The Company
has obtained waivers of such non-compliance.
(4) Common Stock Dividends
----------------------
On October 26, 1995, the Board of Directors of the Company declared a $0.10 per
share cash dividend to shareholders of record on November 15, 1995, which was
paid on December 1, 1995.
On September 1, 1995, the Company paid the $0.10 per share cash dividend which
was declared on July 27, 1995.
On October 27, 1994, the Board of Directors of the Company declared a $0.10 per
share cash dividend to shareholders of record on November 15, 1994, which was
paid on December 1, 1994.
On September 1, 1994, the Company paid the $0.10 per share cash dividend which
was declared on July 28, 1994.
(5) Supplemental Cash Flow Information
----------------------------------
During the quarter ended October 28, 1885, the Company issued 2,952,282 shares
of its Common Stock aggregating approximately $36,534 for the acquisition of
FNOW.
Cash payments during the nine-month periods ended October 28, 1995 and October
29, 1994 included interest of $2,046 and $1,019, respectively, and income taxes
of $2,633 and $19,910, respectively.
(6) Contingencies
-------------
In December 1994, several purported class action lawsuits were filed in the
United States District Court for the Eastern District of Pennsylvania (Civil
Action Nos. 94-3753, 94-CV-7410, 94-CV-7388 and 94-CV-7405) against the Company
and certain directors and officers; these lawsuits have been consolidated with
a class action lawsuit filed several years ago against the Company, certain
directors and officers, and the Company's auditors in the United States District
Court for the Eastern District of Pennsylvania (Civil Action No. 92-CV-1905).
A purported derivative lawsuit was also filed in December 1994 in the Court of
Common Pleas of Philadelphia County (No. 803) against the Company and certain
of its directors and officers. These lawsuits allege violations of certain
disclosure and related provisions of the federal securities laws and breach of
fiduciary duties, including allegations relating to the Company's practices
regarding vendor marketing funds, and seeks damages in unspecified amounts as
well as other monetary and equitable relief. In addition, the Company is
subject to a Securities and Exchange Commission investigation. The Company
believes that all such allegations and lawsuits are without merit and intends
to defend against them vigorously. While management of the Company, based on
its investigation of these matters and consultations with counsel, believes
resolution of these matters will not have a material adverse effect on the
Company's financial position, the ultimate outcome of these matters cannot
presently be determined.
In addition, the Company is involved in various litigation and arbitration
matters in the ordinary course of business. The Company believes that it has
meritorious defenses in and is vigorously defending against all such matters.
During fiscal 1994, based in part of the advice of legal counsel, the Company
established a reserve of $9 million in respect of all litigation and arbitration
matters, some of which has been used to pay legal fees and settle various claims
and suits during fiscal 1995. Although the aggregate amount of the claims may
exceed the amount of the reserve, management believes that the resolution of
these matters will not have a material adverse effect on the Company's financial
position or results of operations in any subsequent period.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Results of Operations
- ---------------------
Revenues increased 14% to $944 million for the quarter ended October 28, 1995
compared to $831 million for the quarter ended October 29, 1994. For the nine
months ended October 28, 1995, revenues increased to $2.7 billion compared to
$2.4 billion for the nine months ended October 29, 1994. These increases were
primarily due to the revenues generated by the Company's branch locations which
were acquired in December 1994 and the acquisition of FNOW in August 1995, the
addition of new members to the network and industry growth.
Gross profit as a percentage of revenues for the quarter ended October 28, 1995
increased to 5.1% compared to 3.1% for the quarter ended October 29, 1994. This
increase was due primarily to the higher gross margin percent realized by the
FNOW locations which sell directly to end-users and a $5 million inventory-
related charge taken in the quarter ended October 29, 1994 compared to a $2
million inventory-related charge in the quarter ended October 28, 1995, offset
in part by competitive pricing pressures. For the nine months ended October 29,
1995, gross margin increased to 4.3% from 4.1% when compared to the same period
last year. During the nine months ended October 28, 1995, the Company recorded
inventory-related charges totaling approximately $12 million. These charges
reflected current estimates of inventory obsolescence, damaged merchandise and
inventory losses.
Management has taken and continues to take actions which it believes will
minimize the inventory-related charges in the future, including consolidating
warehouses and upgrading existing and implementing new management information
systems. These actions have mitigated and are expected to continue to mitigate
the systems stresses and outages and their impact on gross margins that the
Company experienced during the last half of fiscal 1994. Competitive pressures
and their impact on margins are expected to continue in the future.
Selling, general and administrative expenses increased to $55.4 million and
$112.5 million for the quarter and nine months ended October 28, 1995,
respectively, from $29.3 million and $63.1 million, respectively, for the
comparable periods last year. During the quarter ended October 28, 1995, the
Company incurred charges of approximately $15 million consisting primarily of
severance costs in connection with a reduction in the Company's workforce and
a charge related to certain management information systems projects reevaluated
and realigned following its acquisition of FNOW. Other causes of the increase
in selling, general and administrative expenses include: operating costs for the
FNOW locations; costs to service the higher volume of revenues, larger network,
new programs and expanded vendor and SKU base; and expenses and depreciation
relative to the enhancement of existing and implementation of new management
information systems. These increases were offset in part by savings following
the elimination of certain peripheral ventures in the quarter ended October 29,
1994.
It is anticipated that the workforce reductions and other cost cutting measures
implemented by the Company will somewhat mitigate the higher selling, general
and administrative costs required to support the activities of FNOW.
Investment and other income (expense) decreased for both the quarter and nine
months ended October 28, 1995 compared to the same periods last year. These
decreases can be primarily attributable to the use of available cash for the
payment of cash dividends and share repurchases, the acquisition of certain
assets of branch locations from FNOW in December 1994, capital expenditures and
the repayment of FNOW's bank and finance company debt following the acquisition
in August 1995. Interest expense increased for the quarter and nine months
ended October 28, 1995 compared to the comparable periods last year primarily
as a result of the Company's more frequent use of its available financing
arrangements for working capital purposes.
The Company's effective tax rate increased to 32.7% for the quarter ended
October 28, 1995 compared to 30.2% for the quarter ended October 29, 1994. This
increase is primarily due to a change in the Company's effective state tax rate.
For the nine months ended October 28, 1995, the effective tax rate decreased to
12.6% compared to 39.0%. This decrease resulted primarily from the effect of
non-deductible goodwill on the pre-tax loss, offset by a change in the Company's
effective state tax rate.
For the quarter and nine months ended October 28, 1995, the Company recognized
losses of $5.7 million and $9.1 million, respectively, as its proportionate
share of FNOW's net loss, compared to losses of $0.3 million and $8.9 million
for the comparable periods last year.
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 nine months ended October 28, 1995, the Company's operating
activities used $34 million in cash primarily resulting from the repayment of
vendor financing related to FNOW's operations. At October 28, 1995, the Company
had cash, cash equivalents and marketable securities totaling $32.6 million
($77.3 million at January 28, 1995). Working capital totaled $30.0 million at
October 28, 1995 compared to $31.9 million at January 28, 1995. The increase
in accounts receivable from January 28, 1995 is primarily due to the acquisition
of FNOW in August 1995. The Company expects accounts receivable to continue to
increase as it extends credit to its network and end-users and as a result of
the acquisition of FNOW. The Company may outsource some of its financing
programs, which could slow the growth or reduce the level of accounts
receivable. The Company has a $270 million ($75 million of which is a term loan
due on February 3, 1997) financing agreement with a finance company. At October
28, 1995, the Company had approximately $56 million available under this
facility after considering the borrowing base formula and trade payables
outstanding to a vendor related to the finance company.
During the quarter ended October 28, 1995, the Company paid the quarterly
dividend of $0.10 per share which was declared on July 27, 1995. On October 26,
1995, the Company's Board of Directors declared a dividend of $0.10 per share
to shareholders of record on November 15, 1995, which was paid on December 1,
1995.
The Company's Board of Directors has authorized the repurchase, in open-market
transactions, of up to 13.6 million shares of its Common Stock. As of October
28, 1995, the Company had repurchased approximately 8.3 million shares at a cost
of approximately $105.7 million. Approximately 3 million of the repurchased
shares were issued as part of the acquisition of FNOW.
IE 2000, a strategy designed to transform the Company to a process-driven model,
is expected to be completed by the end of fiscal 1996 and is estimated to
cost up to $40 million, primarily due to upgrades in its management information
systems, of which approximately $26 million was expended through October 28,
1995, including capitalized costs of approximately $15 million.
Based on the Company's current level of operations, capital expenditure
requirements and the integration of FNOW's operations following the acquisition,
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
current fiscal year and at least through the end of fiscal 1996.
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
10 Amendment to Addendum to Agreement for Wholesale
Financing and Addendum to Addendum to Agreement for
Wholesale Financing - Flexible Payment Plan dated
October 27, 1995.
(b) Reports on Form 8-K.
The Company's Report on Form 8-K dated August 17, 1995 relating
to the acquisition of The Future Now, Inc.
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/ Thomas J. Coffey
-----------------------------------
Thomas J. Coffey
Vice President, Chief
Financial Officer and
Chief Accounting Officer
Date: December 12, 1995
Exhibit 10
"TERM LOAN AMENDMENT"
to
ADDENDUM TO AGREEMENT TO WHOLESALE FINANCING
This Amendment ("Amendment") to the Addendum to Agreement for Wholesale
Financing ("AWF") and the Addendum to Addendum to Agreement for Wholesale
Financing - Flexible Payment Plan ("FPP") is made as of October 27, 1995 by
and between Intelligent Electronics, Inc. ("IE"), CS Computers, Inc., CS
Computers of California, Inc., Intelevest Holdings, Inc., Intellicom
Solutions, Inc., Intelligent Advanced Systems, Inc., Intelligent Distribution
Services, Inc., Intelligent SP, Inc., Intelligent Systems Group, Inc.,
Intellinet, Ltd., Missing Link Communications, Inc., RND, Inc. and The Future
Now, Inc. (each a "Dealer" and collectively, the "Dealers") and IBM Credit
Corporation ("IBM Credit").
RECITALS:
A. Dealers and IBM Credit have entered into that certain Addendum to
Agreement for Wholesale Financing dated as of January 29, 1992, and the
Addendum to Addendum to Agreement for Wholesale Financing - Flexible Payment
Plan dated January 29, 1992 (both as amended, supplemented or otherwise
modified from time to time, the "Existing Agreement").
B. Dealers have requested that IBM Credit extend a term loan of
seventy-five million dollars ($75,000,000.00) to Dealers to expire as set
forth below.
C. The parties have agreed to modify the Existing Agreement as more
specifically set forth below, upon and subject to the terms and conditions
set forth herein.
AGREEMENT
NOW THEREFORE, in consideration of the mutual agreements provided for
below and for other valuable consideration, the receipt and sufficiency of
which is hereby acknowledged, the parties hereby agree as follows:
Section 1. Definitions. All capitalized terms not otherwise defined herein
shall have the respective meanings set forth in the Existing Agreement.
Section 2. Modifications to the Existing Agreement. The following
modifications are made to the Existing Agreement, and shall be effective as
of the date of the Term Loan (as defined herein) unless specified otherwise.
The date of the Term Loan shall be the date of this Amendment ( the "Loan
Date").
Page 1 of 5
(A) The FPP is hereby amended by deleting the Exhibit A thereto in its
entirety and substituting, in lieu thereof, the Exhibit A attached hereto.
(B) Paragraph 6 of the Letter Agreement dated January 25, 1994 between
IBM Credit, IE, et. al. (the "Letter Agreement"), which Letter Agreement
amended the then current Addendum to Agreement for Wholesale Financing and
the then current Addendum to Addendum to Agreement for Wholesale Financing -
Flexible Payment Plan, is hereby amended by inserting immediately following
subparagraph (a) of such paragraph the following new subparagraphs (b) and
(c):
"(b) Term Loan.
An advance shall be made hereunder to Dealers on the Loan Date in
the principal amount of $75,000,000.00 (the "Term Loan") the
proceeds of which shall be used to repay $75,000,000.00 of WCO
Advances owed to IBM Credit hereunder. The Term Loan shall
constitute a single advance and shall be in the form of a WCO
Advance. Except as set forth in this subparagraph, the Term Loan
shall be subject to all of the terms and provisions applicable to
other WCO Advances. Notwithstanding any other term or provision of
this Agreement applicable to WCO Advances, provided no Event of
Default has occurred and is continuing: (i) the Term Loan shall
accrue a finance charge each month equal to the product of the Term
Loan Rate, as defined herein, multiplied by the average daily
balance of the outstanding Term Loan for the applicable period,
(ii) the principal amount of the Term Loan shall be due and payable
the earlier of (x) the date that the Existing Agreement is
terminated and (y) February 3, 1997 (the "Loan End Date"), (iii)
subject to the following sentence, in the event that Dealers repay
any portion of the principal amount of the Term Loan before the
Loan End Date, Dealers shall pay to IBM Credit along with such
repayment a pre-payment fee of $50,000 ("Pre-Payment Fee"), (iv) if
on any date the principal balance of the Term Loan exceeds the Term
Loan Maximum Amount, the Term Loan shall be prepaid on such date in
an amount equal to such excess, and (v) repayments of the Term Loan
may not be reborrowed. Provided, however, if Dealers repay such
Term Loan pursuant to subsection (c) below, such Pre-Payment Fee
shall be waived by IBM Credit. For purposes of this subparagraph,
"Term Loan Rate" shall be the greater of (x) Prime Rate plus 1.875%
and (y) the Base Rate plus 1.0%." For purposes of this
subparagraph Term Loan Maximum Amount shall mean 80% of Eligible
Accounts."
"(c) Capital Infusions.
At any time prior to the Loan End Date, if Dealers receive proceeds
from an equity investment, debt issue or a capital infusion from
any source, 100% of such proceeds shall be immediately paid to IBM
Credit. Such proceeds shall be applied to reduce the principal
outstanding on the Term Loan."
Page 2 of 5
(C) Notwithstanding anything in the Existing Agreement, Dealers' total
outstanding indebtedness to IBM Credit shall not exceed the Qualifying
Collateral.
Section 3. Loan Fee. Dealers agree to pay to IBM Credit a fee of $25,000
promptly after the Loan Date.
Section 4. Conditions Precedent. The effectiveness of this Amendment is
subject to the prior or simultaneous satisfaction by Dealers of the following
conditions:
(A) IBM Credit shall have received counterparts of this Amendment
executed by a duly authorized officer of each Dealer;
(B) IBM Credit shall have delivered to Dealers counterparts of this
Amendment executed by a duly authorized officer of IBM Credit;
Section 5. Representations and Warranties. Dealers make to IBM Credit the
following representations and warranties all of which are material and are
made to induce IBM Credit to enter into this Amendment.
5.1 Violation of Other Agreements. The execution and delivery of this
Amendment does not violate or cause Dealers not to be in compliance with the
terms of any agreement to which Dealers are a party.
5.2 Litigation. Except as has been disclosed by Dealers to IBM Credit
in writing, there is no litigation, proceeding, investigation or labor
dispute pending or threatened against Dealers, which if adversely determined,
would materially adversely affect the ability of Dealers to perform their
obligations under the Existing Agreement, and the other documents,
instruments and agreements executed in connection therewith or pursuant
hereto.
5.3 Enforceability of Amendment. This Amendment has been duly
authorized, executed and delivered by Dealers and is enforceable against
Dealers in accordance with its terms.
Section 6. Rights and Remedies. IBM Credit reserves any and all rights and
remedies that IBM Credit now has or may have in the future with respect to
Dealers including any and all rights and remedies which it may have as a
result of Dealers failure to comply with its financial covenants to IBM
Credit. Except to the extent specifically waived herein neither this
Amendment, any of IBM Credit's actions or IBM Credit's failure to act shall
be deemed to be a waiver of any such rights or remedies.
Section 7. Ratification of Agreement. Except as specifically amended
hereby, all the provisions of the Existing Agreement shall remain in full
force and effect. Dealers hereby ratify, confirm and agree that the Existing
Agreement, as amended hereby, represents a valid and enforceable obligation
of Dealers, and is not subject to any claims, offsets or defenses.
Page 3 of 5
Section 8. Governing Law. This Amendment shall be governed by and
interpreted in accordance with the laws of the State of Illinois, without
reference to the conflict of laws principles thereof.
Section 9. Counterparts. This Amendment may be executed in any number of
counterparts, each of which shall be an original and all of which shall
constitute one agreement.
IN WITNESS WHEREOF, this Amendment has been executed by the duly
authorized officers of the undersigned as of the day and year first above
written.
Acknowledged and agreed as of the
date set forth above
IBM Credit Corporation Intelligent Electronics, Inc.
By: /s/ C.E. Cordulack By: /s/ Richard D. Sanford
-------------------------------- --------------------------------
Name: C. E. Cordulack NAME: Richard D. Sanford
Title: Director, Remarketer Financing Title: Chairman of the Board
Support Chief Executive Officer
Acknowledged and agreed as of the Acknowledged and agreed as of the
date set forth above date set forth above
CS Computers, Inc. CS Computers of California, Inc.
By: /s/ T.J. Coffey By: /s/ T.J. Coffey
-------------------------------- --------------------------------
Print Name: T. J. Coffey Print Name: T. J. Coffey
Title: V.P., CFO & Assistant Title: V.P., CFO & Assistant
Secretary Secretary
Acknowledged and agreed as of the Acknowledged and agreed as of the
date set forth above date set forth above
Intelevest Holdings, Inc. IntelliCom Solutions, Inc.
By: /s/ Alan Resneck By: /s/ T.J. Coffey
-------------------------------- --------------------------------
Print Name: Alan Resneck Print Name: T. J. Coffey
Title: V.P., Treasurer Title: V.P., CFO & Assistant
Secretary
Page 4 of 5
Acknowledged and agreed as of the Acknowledged and agreed as of the
date set forth above date set forth above
Intelligent Advanced Systems, Inc. Intelligent Distribution
Systems, Inc.
By: /s/ T.J. Coffey By: /s/ T.J. Coffey
-------------------------------- --------------------------------
Print Name: T. J. Coffey Print Name: T. J. Coffey
Title: V.P., CFO & Assistant Title: V.P., CFO & Assistant
Secretary Secretary
Acknowledged and agreed as of the Acknowledged and agreed as of the
date set forth above date set forth above
Intelligent SP, Inc. Intelligent Systems Group, Inc.
By: /s/ T.J. Coffey By: /s/ T.J. Coffey
-------------------------------- --------------------------------
Print Name: T. J. Coffey Print Name: T. J. Coffey
Title: V.P., CFO & Assistant Title: V.P., CFO & Assistant
Secretary Secretary
Acknowledged and agreed as of the Acknowledged and agreed as of the
date set forth above date set forth above
Intellinet, Ltd. Missing Link Communications, Inc.
By: /s/ T.J. Coffey By: /s/ Stephanie Cohen
-------------------------------- --------------------------------
Print Name: T. J. Coffey Print Name: Stephanie Cohen
Title: V.P., CFO & Assistant Title: V.P., Secretary & Treasurer
Secretary
Acknowledged and agreed as of the Acknowledged and agreed as of the
date set forth above date set forth above
RND, Inc. The Future Now, Inc.
By: /s/ T.J. Coffey By: /s/ Stephanie Cohen
-------------------------------- --------------------------------
Print Name: T. J. Coffey Print Name: Stephanie Cohen
Title: V.P., CFO & Assistant Title: V.P., Secretary & Treasurer
Secretary
Page 5 of 5
Addendum to Agreement for Wholesale Financing Flexible Payment Plan
Exhibit A
CUSTOMER: Intelligent Electronics, Inc.
Commencement Date: January 1, 1992 Effective Date: October 27, 1995
1. FPP Fees, Rates and Repayment and Terms
(a) FPP Credit Line: $180.0 Million, plus a $90.0 Million seasonal uplift
(i) 100% on IBM Inventory
(ii) 80% on Eligible Accounts except for Accounts generated by
The Future Now, Inc.
(iii) 60% on Eligible Accounts generated by The Future Now, Inc. sales
Note: The above calculations for Qualifying Collateral will be reduced by
40% of the Total Amount Financed by IBM Credit Corporation under the Term
Lease Master Agreement between Customer and IBM Credit Corporation.
(b) Payment due dates: 5th, 15th, and 25th of each month
(c) Monthly Service Fee: $4,000.00
(d) Base Period (BP) Repayment Term:
- 130 days from date of invoice for product invoices purchased by IBM
Credit from the IBM Personal Computer Company and Lexmark
International, Inc.
(e) BP Non-Fee Period: 45 Days
(f) Interest Rate after BP Non-Fee Period ("Base Rate"):
- Prime Rate plus 0.875%
(g) Working Capital Loan Option (WCO) Terms: 180 Days
- WCO Interest Rate: Base Rate
(h) Payment Reschedule Option (PRO) Term: 30 Days
- PRO Interest Rate: Base Rate
(i) Cash Advance Option (CAO) Term: N/A
- CAO Interest Rate: N/A
(j) Delinquency Fee Rate: Prime Rate Plus 6.5%
2. Definitions
The following terms shall have the following respective meanings in this FPP
Exhibit. All amounts shall be determined in accordance with generally
accepted accounting principles (GAAP).
"Current Assets" means, as of any date of determination, the consolidated
assets of Dealer that would be classified as current assets in accordance
with GAAP.
"Current Liabilities" means, as of any date of determination, the
consolidated liabilities of the Dealer, that would be classified as current
liabilities in accordance with GAAP, including, without limitation, all
indebtedness of the Dealer payable on demand or maturing within one year of
such date, or renewable at the option of the Dealer for a period of not more
than one year from such date, and all serial maturity and periodic or
installment payments (including, without limitation, sinking fund payments)
on any indebtedness, to the extent such payments are required to be made
within one year from such date.
"Net Profit After Tax" means, for any period in respect of which the amount
thereof shall be determined, the aggregate of the consolidated net income
after taxes for such period (taken as a cumulative whole) of the Dealer all
as determined in accordance with GAAP.
"Revenue" means, for any period in respect of which the amount thereof shall
be determined, the aggregate of the consolidated total or gross income or
sales for such period (taken as a cumulative whole) of the Dealer as
determined in accordance with GAAP.
Page 2 of 4
"Tangible Net Worth" means, as of any date of determination, Total Net Worth
minus:
(a) goodwill, organizational expenses, research and development
expenses, software development costs, trademarks, names, trade
names, copyrights, patents, patent applications, privileges,
franchises, licenses and rights in any thereof, and other similar
intangibles (but not including contract rights);
(b) all deferred charges or unamortized debt discounts and expenses;
and
(c) all accounts receivable from officers, directors and stockholders;
and
(d) all callable/redeemable preferred stock
"Total Liabilities" means, as of any date of determination, consolidated
liabilities of the Dealer at such date, determined in accordance with GAAP.
"Total Net Worth" means, as of any date of determination, the consolidated
stockholders' equity of the Dealer as determined in accordance with GAAP.
3. Dealer's Financial Covenants
(a) Dealer agrees to maintain the following financial covenants at all times:
(i) Total Liabilities to Tangible Net Worth ratio equal to or less than
6.5 to 1, provided that Tangible Net Worth must be greater than
zero;
(ii) Current Assets to Current Liabilities ratio greater than or equal
to 1.05 to 1;
(iii) Tangible Net Worth greater than or equal to $60 million;
(b) Dealer agrees to maintain the Net Profit After Tax to Revenue (in each
case without regard to amounts attributable to discontinued operations)
ratio greater than or equal to 0.5%, for each fiscal quarter commencing
with the fiscal quarter ending October 28, 1995 and thereafter.
Dealer understands and agrees that its failure to maintain the preceding
financial covenants shall be an event of Default.
Page 3 of 4
4. Tier Periods
As used in the definitions of "Tier I Period", "Tier II Period" and "Tier III
Period" below, a "period" shall mean an interval of time commencing from the
date Dealers deliver to IBM Credit financial statements with respect to a
fiscal period and ending on the date Dealers deliver to IBM Credit financial
statements with respect to the immediately succeeding fiscal period. As used
in the preceding sentence, a "fiscal period" means (i) in the case of each of
the first three fiscal quarters of a fiscal year, such fiscal quarter and
(ii) in the case of the fourth fiscal quarter of a fiscal year, such fiscal
year. Dealers' failure to deliver the above referenced financial reports
within the number of days specified in the Agreement will constitute a
default under the Agreement.
"Tier I Period" means each period with respect to which (i) the ratio of
Dealer's Total Liabilities to Tangible Net Worth (the "Leverage Ratio")
during the immediately preceding fiscal period is greater than zero and is
less than or equal to 5.5 to 1, (ii) the ratio of Dealer's Current Assets to
Dealer's Current Liabilities (the "Current Ratio") during such fiscal period
is greater than or equal to 1.15 to 1, (iii) Tangible Net Worth during such
fiscal period is greater than or equal to $70 million and (iv) the ratio of
Dealer's Net Profit After Tax to Dealers Revenue (in each case determined
without regard to amounts attributable to discontinued operations) (the "NAT
Ratio") as of such fiscal quarter is greater than or equal to 1.0%.
"Tier II Period" means each period (x) with respect to which (i) the Leverage
Ratio during the immediately preceding fiscal period is greater than zero and
is less than or equal to 6.0 to 1, (ii) the Current Ratio during such fiscal
period is greater than or equal to 1.10 to 1, (iii) Tangible Net Worth during
such fiscal period is greater than or equal to $65 million and (iv) the NAT
Ratio as of such fiscal quarter is greater than or equal to 0.5% and (y)
which is not a Tier I Period.
"Tier III Period" means each period which is not a Tier I Period or a Tier II
Period.
Page 4 of 4
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> FEB-3-1996
<PERIOD-START> JAN-30-1995
<PERIOD-END> OCT-28-1995
<CASH> 28,076
<SECURITIES> 4,520
<RECEIVABLES> 206,368
<ALLOWANCES> 8,437
<INVENTORY> 408,964
<CURRENT-ASSETS> 662,882
<PP&E> 87,047
<DEPRECIATION> 26,042
<TOTAL-ASSETS> 894,184
<CURRENT-LIABILITIES> 632,902
<BONDS> 0
<COMMON> 399
0
0
<OTHER-SE> 182,911
<TOTAL-LIABILITY-AND-EQUITY> 894,184
<SALES> 2,653,276
<TOTAL-REVENUES> 2,653,276
<CGS> 2,540,136
<TOTAL-COSTS> 2,540,136
<OTHER-EXPENSES> 115,484
<LOSS-PROVISION> 1,717
<INTEREST-EXPENSE> 3,882
<INCOME-PRETAX> (6,289)
<INCOME-TAX> (790)
<INCOME-CONTINUING> (14,577)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (14,577)
<EPS-PRIMARY> (0.45)
<EPS-DILUTED> (0.45)
</TABLE>
