<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
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FORM 10-Q
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(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 1, 1995
OR
( ) Transition report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Commission file number: 0-16114
INACOM CORP.
(Exact name of registrant as specified in its charter)
Delaware 47-0681813
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
10810 Farnam, Suite 200
Omaha, Nebraska 68154
(Address of principal executive offices)
Telephone number (402) 392-3900
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 twelve months, and (2) has been subject
to such filing requirements for the past ninety days:
Yes (X) No ( )
As of May 1, 1995 there were 9,918,818 common shares of the registrant
outstanding.
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<TABLE>
<CAPTION>
InaCom Corp. and Subsidiaries
Condensed and Consolidated Balance Sheets
(Unaudited)
(Amounts in Thousands)
April 1, December 31,
1995 1994
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ASSETS
Current assets:
<S> <C> <C>
Cash and cash equivalents $ 12,429 10,514
Accounts receivable, net 185,554 184,973
Inventories 262,582 228,652
Other current assets 6,350 6,097
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Total current assets 466,915 430,236
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Other assets, net 17,890 18,702
Cost in excess of net assets of business
acquired, net of accumulated amortization 25,700 26,081
Property and equipment, net 43,679 44,856
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$ 554,184 519,875
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 241,843 226,121
Notes payable and current portion of
long-term debt 111,681 96,710
Other current liabilities 30,047 28,646
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Total current liabilities 383,571 351,477
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Long-term debt 30,333 30,333
Other long-term liabilities 2,475 2,475
Stockholders' equity:
Capital stock:
Class A preferred stock of $1 par value.
Authorized 1,000,000 shares; none issued -- --
Common stock of $.10 par value. Authorized
30,000,000 shares; issued
10,040,000 shares 1,004 1,004
Additional paid-in capital 89,250 89,314
Retained earnings 49,281 47,167
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139,535 137,485
Less:
Cost of common shares in treasury of
121,182 in 1995 and 176,182 in 1994 1,050 1,533
Unearned restricted stock 680 362
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Total stockholders' equity 137,805 135,590
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$ 554,184 519,875
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<TABLE>
<CAPTION>
InaCom Corp. and Subsidiaries
Condensed and Consolidated Statement of Earnings
(Unaudited)
(Amounts in Thousands, Except Per Share Data)
THIRTEEN WEEKS ENDED
April 1, March 26,
1995 1994
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<S> <C> <C>
Revenues:
Independent reseller channel and
distribution facilities $ 241,364 214,054
Company-owned business centers 221,686 171,116
Other 20,906 14,124
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483,956 399,294
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Direct costs:
Independent reseller channel and
distribution facilities 233,253 200,630
Company-owned business centers 189,221 143,934
Other 15,566 10,107
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438,040 354,671
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Gross margin 45,916 44,623
Selling, general and administrative expenses 39,516 37,720
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Operating income 6,400 6,903
Interest expense 2,817 2,445
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Earnings before income tax 3,583 4,458
Income tax expense 1,469 1,828
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Net earnings $ 2,114 2,630
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Earnings per share $ .21 .26
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Weighted average shares outstanding 10,300 10,300
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</TABLE>
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<TABLE>
<CAPTION>
InaCom Corp. and Subsidiaries
Condensed and Consolidated Statement of Cash Flows
(Unaudited)
(Amounts in Thousands)
THIRTEEN WEEKS ENDED
April 1, March 26,
1995 1994
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<S> <C> <C>
Cash flows from operating activities:
Net earnings $ 2,114 2,630
Adjustments to reconcile net earnings to
net cash used in operating activities:
Depreciation and amortization 4,973 4,546
Increase in accounts receivable (581) (12,887)
Increase in inventories (33,930) (36,806)
Increase in other current assets (253) (246)
Increase in accounts payable 15,722 33,377
Increase (decrease) in other current
liabilities 1,401 (1,651)
Decrease in long-term liabilities -- (76)
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Net cash used in operating activities (10,554) (11,113)
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Cash flows from investing activities:
Additions to property and equipment (2,195) (4,923)
Proceeds from notes receivable 407 206
(Increase) decrease in other assets (714) 2,158
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Net cash used in investing activities (2,502) (2,559)
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Cash flows from financing activities:
Proceeds of long-term debt -- 17,000
Proceeds (payments) of short-term debt 14,971 (8,100)
Proceeds from exercise of stock options -- 414
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Net cash provided by financing activities 14,971 9,314
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Net increase (decrease) in cash and cash
equivalents 1,915 (4,358)
Cash and cash equivalents, beginning of the
period 10,514 9,672
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Cash and cash equivalents, end of the period $ 12,429 5,314
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</TABLE>
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InaCom Corp. and Subsidiaries
Notes to Condensed and Consolidated Financial Statements
(Unaudited)
1. Condensed and Consolidated Financial Statements
The condensed and consolidated financial statements are unaudited and
reflect all adjustments (consisting only of normal recurring
adjustments) which are, in the opinion of management, necessary for a
fair presentation of the financial position and operating results for
the interim periods. The condensed and consolidated financial
statements should be read in conjunction with the consolidated financial
statements and notes thereto contained in the Company's Annual Report to
Stockholders incorporated by reference in the Company's Annual Report on
Form 10-K for the fiscal year ended December 31, 1994. The results of
operations for the three months ended April 1, 1995 are not necessarily
indicative of the results for the entire fiscal year ending December 30,
1995.
2. Inventories
Inventories are stated at the lower of cost (first-in, first-out method)
or market and consist of computer hardware, software, voice and data
equipment and related materials.
3. Common Stock
Earnings per share of common stock have been computed on the basis of
the weighted average number of shares of common stock outstanding during
each period presented.
4. Supplemental Disclosures of Cash Flow Information
For purposes of the condensed and consolidated statement of cash flows,
the Company considers cash and cash investments with a maturity of three
months or less to be cash equivalents.
Interest and income taxes paid are summarized as follows (dollars in
thousands):
1995 1994
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Interest paid $ 2,648 1,820
Income taxes paid $ 1,063 2,048
===== =====
5. Marketing Development Funds
Primary vendors of the Company provide various incentives, in cash or
credit against obligations, for promoting and marketing their product
offerings. The funds or credits received are based on the purchases or
sales of the vendor's products and are earned through performance of
specific marketing programs or upon completion of objectives outlined by
the vendors. Funds or credits earned are applied to direct costs or
selling, general and administrative expenses depending on the objectives
of the program. Funds or credits from the Company's primary vendors
typically range from 1% to 3% of purchases from these vendors.
<PAGE>
Management's Discussion and Analysis
of
Financial Condition and Results of Operations
Results of Operations
Revenues for the first quarter of 1995 increased $84.7 million or 21.2%
over the first quarter of 1994. Revenue growth resulted primarily from
the Company-owned business centers where revenue increased $50.6 million
or 29.6% during the first quarter of 1995 compared to the same period in
1994. Revenue from the independent reseller channel increased $27.3
million or 12.8% during the first quarter of 1995 compared to the same
period in 1994. Revenue from other sources increased $6.8 million or
48.0% during the first quarter of 1995 compared to the same period in
1994.
Revenues from the Company-owned business centers increased as a result
of broad based revenue growth across all regional locations. Revenues
from the independent reseller channel increased as a result of industry
growth and an increase in products shipped directly to the end-user
customer on instruction from the reseller. Revenue from other sources
increased primarily as a result of the growth in voice and data
equipment sales.
The sales backlog at April 1, 1995 was $42.5 million compared to $93.0
million at the end of the same quarter of the previous year. The
decrease in backlog is the result of better product availability from
the manufacturers. Such backlog orders are not necessarily firm since
large end-user customers may place orders with several computer
resellers and accept products from the first computer reseller to
provide delivery.
Gross margin dollars for the first quarter of 1995 increased $1.3
million or 2.9% over the same quarter of 1994. The gross margin
percentage was 9.5% for the first quarter of 1995 compared to 11.2% for
the first quarter of 1994. The gross margin percentage for the
independent reseller channel was 3.4% in the first quarter of 1995 and
6.3% in the first quarter of 1994. The gross margin percentage for the
Company-owned business centers was 14.6% in the first quarter of 1995
compared to 15.9% in the first quarter of 1994. The gross margin
percentage from other sources was 25.5% in the first quarter of 1995 and
28.4% in the first quarter of 1994.
The decrease in gross margin percentage for the independent reseller
channel in the first quarter of 1995 resulted from market pricing
pressures. These market pricing pressures are primarily attributable to
open sourcing. Open sourcing, which began in the second quarter of
1994, resulted from certain manufacturers lessening or eliminating
requirements for independent resellers to purchase product from one
source. While gross margin percentages declined when comparing the
first quarter of 1995 with the same quarter in 1994, the gross margin
percentage in the independent reseller channel increased slightly from
3.3% in the fourth quarter of 1994.
The decrease in gross margin percentages for the Company-owned business
centers for the first quarter of 1995 also resulted from market pricing
pressures. While gross margin percentages declined when comparing the
first quarter of 1995 with the same quarter in 1994, the gross margin
percentages for the Company-owned business centers have increased by
approximately one-half percentage point from the fourth quarter of 1994.
Gross margin percentages from other sources decreased in 1995 as a
result of the mix of revenue between voice and data equipment and repair
and maintenance services.
<PAGE>
Management's Discussion and Analysis
of
Financial Condition and Results of Operations
(Continued)
Selling, general and administrative (SG&A) expenses for the quarter
ended April 1, 1995 were $39.5 million versus $37.7 million for the
corresponding period in 1994. SG&A as a percent of revenue was 8.2% in
the first quarter of 1995 versus 9.4% in the first quarter of 1994. The
increase in spending resulted primarily from the increased revenues
while the decrease in SG&A as a percent of revenue resulted from the
operational efficiencies achieved through investments in distribution
center automation and information systems.
Interest expense was $2.8 million in the first quarter of 1995 versus
$2.4 million in the first quarter of 1994. Interest expense increased
due to higher average borrowing rates. Average daily borrowings for the
first quarter of 1995 were $41.1 million less than the average
borrowings for the same period in the prior year while the average
borrowing rate increased approximately 2.4 percentage points from the
same period in the prior year.
The effective tax rate was 41.0% for the first quarter of 1995 and 1994.
Net earnings were $2.1 million or $.21 per share for the quarter ended
April 1, 1995 versus $2.6 million or $.26 per share for the
corresponding period in 1994. This decrease results from the factors
discussed above.
Liquidity and Capital Resources
The Company's primary sources of liquidity are provided through a
revolving credit facility of $150.0 million, short term lines of credit
and promissory notes of $40.0 million and $37.0 million in private
placement loans.
The $150.0 million revolving credit facility expires September 30, 1996
with interest based on the federal funds rate, LIBOR, secondary adjusted
CD rate or a mutually agreed negotiated rate at the Company's option.
At April 1, 1995, $105 million was outstanding on the revolving credit
facility and the interest rate was 7.09%.
The short-term lines of credit and promissory notes provide for
borrowings at negotiated interest rates and contain no facility fees.
At April 1, 1995 there were no outstanding balances under these
agreements.
The two private placement notes are held by unaffiliated insurance
companies. The principal amount of the first note, $20 million, is
payable in three annual installments of $6.7 million commencing on May
31, 1995 and bears interest at 10.31% payable quarterly. The principal
amount of the second note, $17 million, is payable in five annual
installments of $3.4 million commencing on February 28, 1997 and bears
interest at 6.83% payable quarterly.
The debt agreements contain certain restrictive covenants, including the
maintenance of minimum levels of working capital, tangible net worth,
fixed charge coverage, limitations on incurring additional indebtedness
and restrictions on the payment of dividends to an amount equal to
available net earnings. Available net earnings for dividend
distribution are the remaining earnings after one half of the net
earnings each year are added to the minimum level of working capital.
The Company was in compliance with the covenants contained in the debt
agreements at April 1, 1995.
Long-term debt was 18.0% of total long-term debt and equity at April 1,
1995 versus 20.9% at March 26, 1994.
<PAGE>
Management's Discussion and Analysis
of
Financial Condition and Results of Operations
(Continued)
During the first quarter of 1995 the Company used $10.6 million of cash
in operations. Inventory increased by $33.9 million during the first
quarter with a portion of the increase financed through an increase in
accounts payable of $15.7 million. Inventory increased during the
quarter as a result of inventory positions taken on new product lines of
several major manufacturers in March of 1995. Accounts payable
increased as a result of the increase in inventory as well as the
Company's continued focus on matching accounts payable and inventory
levels.
Cash used in investing activities for the first quarter of 1995 totaled
$2.5 million, of which $2.2 million resulted from additions to property
and equipment. Cash was also provided from financing activities through
proceeds from short-term borrowings of $15.0 million.
The Company believes the funding expected to be generated from
operations and provided by the credit facilities will be sufficient to
meet working capital and capital investment needs in 1995.
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InaCom Corp. and Subsidiaries
Part II - Other Information
Item 4. Submission of Matters to a Vote of Security Holders
The annual meeting of stockholders of the Company was held on April 20,
1995. Stockholders voted on the following two items:
(a) Election of Directors
<TABLE>
<CAPTION>
Director Vote For Vote Withheld
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<S> <C> <C>
Joseph Auerbach 8,663,135 109,291
Bill L. Fairfield 8,500,995 271,431
W. Grant Gregory 8,608,068 164,358
Joseph T. Inatome 8,523,271 249,155
Rick Inatome 8,522,349 250,077
Gary L. Schwendiman 8,665,545 106,881
Durward B. Varner 8,660,535 111,891
</TABLE>
(b) Approval of appointment of independent accountants KPMG Peat
Marwick for fiscal 1995. The stockholder vote on such proposal was:
8,700,543 for; 30,242 against; 41,641 abstain.
Item 6. Exhibits and Reports on Form 8-K.
a) Exhibit 27 - Financial Data Schedule
b) Reports on Form 8-K. No reports on Form 8-K were filed during the
quarter ended April 1, 1995.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf and by
the undersigned hereunto duly authorized.
INACOM CORP.
David C. Guenthner
Executive Vice President and
Chief Financial Officer
Dated this 11th day of May, 1995.
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-30-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> APR-01-1995
<CASH> 12,429
<SECURITIES> 0
<RECEIVABLES> 185,554
<ALLOWANCES> 2,715
<INVENTORY> 262,582
<CURRENT-ASSETS> 466,915
<PP&E> 43,679
<DEPRECIATION> 34,294
<TOTAL-ASSETS> 554,184
<CURRENT-LIABILITIES> 383,571
<BONDS> 0
<COMMON> 1,004
0
0
<OTHER-SE> 136,801
<TOTAL-LIABILITY-AND-EQUITY> 554,184
<SALES> 483,956
<TOTAL-REVENUES> 483,956
<CGS> 438,040
<TOTAL-COSTS> 438,040
<OTHER-EXPENSES> 39,516
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,817
<INCOME-PRETAX> 3,583
<INCOME-TAX> 1,469
<INCOME-CONTINUING> 2,114
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,114
<EPS-PRIMARY> .21
<EPS-DILUTED> 0
</TABLE>
