<PAGE>
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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 MARCH 30, 1996
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)
<TABLE>
<S> <C>
DELAWARE 47-0681813
(State or other jurisdiction (I.R.S. Employer
of Identification Number)
incorporation or organization)
</TABLE>
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, 1996 there were 10,051,176 common shares of the registrant
outstanding.
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<PAGE>
INACOM CORP. AND SUBSIDIARIES
CONDENSED AND CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
MARCH 30, DECEMBER 30,
1996 1995
----------- ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents........................................................... $ 47,629 20,690
Accounts receivable, net............................................................ 171,524 160,306
Inventories......................................................................... 320,197 352,948
Other current assets................................................................ 6,115 5,996
----------- ------------
Total current assets.............................................................. 545,465 539,940
----------- ------------
Other assets, net..................................................................... 19,060 17,831
Cost in excess of net assets of business acquired, net of accumulated amortization.... 24,579 24,966
Property and equipment, net........................................................... 41,292 41,501
----------- ------------
$ 630,396 624,238
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----------- ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.................................................................... $ 287,336 331,221
Notes payable and current portion of long-term debt................................. 126,667 83,526
Other current liabilities........................................................... 37,636 34,253
----------- ------------
Total current liabilities......................................................... 451,639 449,000
----------- ------------
Long-term debt........................................................................ 23,667 23,667
Other long-term liabilities........................................................... 2,796 2,796
Stockholders' equity:
Capital stock:
Class A preferred stock of $1 par value. Authorized 1,000,000 shares; none
issued........................................................................... -- --
Common stock of $.10 par value. Authorized 30,000,000 shares; issued 10,051,176
shares........................................................................... 1,005 1,004
Additional paid-in capital........................................................ 89,781 89,528
Retained earnings................................................................. 61,864 58,874
----------- ------------
152,650 149,406
Less:
Cost of common shares in treasury of 19,989 in 1995................................. -- 161
Unearned restricted stock........................................................... 356 470
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Total stockholders' equity........................................................ 152,294 148,775
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$ 630,396 624,238
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</TABLE>
1
<PAGE>
INACOM CORP. AND SUBSIDIARIES
CONDENSED AND CONSOLIDATED STATEMENT OF EARNINGS
(UNAUDITED)
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THIRTEEN WEEKS ENDED
----------------------
MARCH 30, APRIL 1,
1996 1995
----------- ---------
<S> <C> <C>
Revenues:
Computer products...................................................................... $ 597,722 449,770
Computer services...................................................................... 28,139 22,801
Communication products and services.................................................... 16,220 11,385
----------- ---------
642,081 483,956
----------- ---------
Direct costs:
Computer products...................................................................... 564,231 421,868
Computer services...................................................................... 8,203 7,313
Communication products and services.................................................... 12,466 8,859
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584,900 438,040
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Gross margin............................................................................. 57,181 45,916
Selling, general and administrative expenses............................................. 47,241 39,516
----------- ---------
Operating income......................................................................... 9,940 6,400
Interest expense......................................................................... 4,873 2,817
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Earnings before income tax............................................................... 5,067 3,583
Income tax expense....................................................................... 2,077 1,469
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Net earnings............................................................................. $ 2,990 2,114
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----------- ---------
Earnings per share....................................................................... $.29 .21
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----------- ---------
Weighted average shares outstanding...................................................... 10,300 10,300
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</TABLE>
2
<PAGE>
INACOM CORP. AND SUBSIDIARIES
CONDENSED AND CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
THIRTEEN WEEKS ENDED
---------------------
MARCH 30, APRIL 1,
1996 1995
---------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net earnings............................................................................ $ 2,990 2,114
Adjustments to reconcile net earnings to net cash used in operating activities:
Depreciation and amortization......................................................... 5,329 4,973
Increase in accounts receivable....................................................... (11,218) (581)
Decrease (increase) in inventories.................................................... 32,751 (33,930)
Increase in other current assets...................................................... (119) (253)
(Decrease) increase in accounts payable............................................... (43,885) 15,722
Increase in other current liabilities................................................. 3,383 1,401
---------- ---------
Net cash used in operating activities............................................... (10,769) (10,554)
---------- ---------
Cash flows from investing activities:
Additions to property and equipment..................................................... (3,318) (2,195)
Proceeds from notes receivable.......................................................... 168 407
Increase in other assets................................................................ (2,698) (714)
---------- ---------
Net cash used in investing activities............................................... (5,848) (2,502)
---------- ---------
Cash flows from financing activities:
Proceeds from short-term debt........................................................... 43,141 14,971
Proceeds from exercise of stock options................................................. 415 --
---------- ---------
Net cash provided by financing activities........................................... 43,556 14,971
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Net increase in cash and cash equivalents................................................. 26,939 1,915
Cash and cash equivalents, beginning of the period........................................ 20,690 10,514
---------- ---------
Cash and cash equivalents, end of the period.............................................. $ 47,629 12,429
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</TABLE>
3
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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 30, 1995. The results of
operations for the three months ended March 30, 1996 are not necessarily
indicative of the results for the entire fiscal year ending December 28, 1996.
2. ACCOUNTS RECEIVABLE
The Company entered into an agreement in June 1995 (which agreement was
amended and restated in August 1995) to sell $100 million of accounts
receivable, with limited recourse, to an unrelated financial institution. New
qualifying receivables are sold to the financial institution as collections
reduce previously sold receivables in order to maintain a balance of $100
million sold receivables. On March 30, 1996, $21.4 million of additional
accounts receivable were designated to offset potential obligations under
limited recourse provisions; however, historical losses on Company receivables
have been substantially less than such additional amount. At March 30, 1996, the
interest rate was 5.83%.
3. 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.
4. 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.
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.
6. 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):
<TABLE>
<CAPTION>
1996 1995
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<S> <C> <C>
Interest paid.............................................................. $ 4,453 2,648
Income taxes paid.......................................................... $ 238 1,063
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</TABLE>
4
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The following tables set forth, for the indicated periods, revenue by
classification and the mix of revenue.
<TABLE>
<CAPTION>
THIRTEEN WEEKS ENDED
---------------------- INCREASE
MARCH 30, APRIL 1, ----------------------
TOTAL REVENUES (IN THOUSANDS) 1996 1995 DOLLARS PERCENT
- -------------------------------------------------------------------- ----------- --------- --------- -----------
<S> <C> <C> <C> <C>
Computer products................................................... $ 597,722 449,770 147,952 32.9%
Computer services................................................... 28,139 22,801 5,338 23.4%
Communication products and services................................. 16,220 11,385 4,835 42.5%
----------- --------- --------- ---
Total............................................................. $ 642,081 483,956 158,125 32.7%
----------- --------- --------- ---
----------- --------- --------- ---
<CAPTION>
THIRTEEN WEEKS ENDED
----------------------
MARCH 30, APRIL 1,
1996 1995
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<S> <C> <C> <C> <C>
Revenue:
Computer products........................................................................ 93.1% 92.9%
Computer services........................................................................ 4.4 4.7
Communication products and services...................................................... 2.5 2.4
----- -----
Total revenue.......................................................................... 100.0% 100.0%
----- -----
----- -----
</TABLE>
Revenues for the first quarter of 1996 increased $158.1 million or 32.7%
over the first quarter of 1995. Revenue growth resulted primarily from computer
product sales which increased $148.0 million or 32.9% during the first quarter
of 1996 compared to the same period in 1995. Revenue from computer services
increased $5.3 million or 23.4% during the first quarter of 1996 compared to the
same period in 1995. Revenue from communication products and services increased
$4.8 million or 42.5% during the first quarter of 1996 compared to the same
period in 1995.
Revenues increased as a result of overall industry growth, an increase in
sales through the existing company owned locations and independent resellers,
and the sale of products to new independent resellers. The increase in computer
product sales resulted from an increase in sales through the independent
reseller channel ($87.3 million or 38.1% over the first quarter of 1995) and
through an increase in sales through the Company-owned business centers ($57.5
million or 28.0% over the first quarter of 1995). Revenue from computer services
increased as a result of increased sales efforts for such service offerings and
the inclusion of these services with increasing computer product sales. Revenue
from communication products and services has increased as a result of broad
based growth from the communications product offerings.
5
<PAGE>
The following tables set forth, for the indicated periods, gross margin and
gross margin percentages by classification.
<TABLE>
<CAPTION>
THIRTEEN WEEKS ENDED
---------------------- AS % OF TOTAL
MARCH 30, APRIL 1, PERCENT ------------------------
TOTAL GROSS MARGIN (IN THOUSANDS) 1996 1995 INCREASE 1996 1995
- ---------------------------------------------------------- ----------- --------- -------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Computer products......................................... $ 33,491 27,902 20.0% 58.6% 60.8%
Computer services......................................... 19,936 15,488 28.7% 34.9% 33.7%
Communication products and services....................... 3,754 2,526 48.6% 6.5% 5.5%
----------- --------- --- ----- -----
Total................................................... $ 57,181 45,916 24.5% 100.0% 100.0%
----------- --------- --- ----- -----
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</TABLE>
<TABLE>
<CAPTION>
THIRTEEN WEEKS ENDED
---------------------
MARCH 30, APRIL 1,
TOTAL GROSS MARGIN (PERCENTAGE) 1996 1995
- ---------------------------------------------------------- --------- ---------
<S> <C> <C>
Computer products......................................... 5.6% 6.2%
Computer services......................................... 70.8% 67.9%
Communication products and services....................... 23.1% 22.2%
--- ---
Company gross margin percentage........................... 8.9% 9.5%
--- ---
--- ---
</TABLE>
While gross margin percentages declined from the 1995 first quarter to the
1996 first quarter, the gross margin percentage in computer product sales was
the same in the 1996 first quarter as the 5.6% in the fourth quarter of 1995.
The decrease in gross margin percentage for the computer products resulted from
a greater proportion of lower margin independent reseller channel sales in the
first quarter of 1996 versus higher margin computer product sales in the
Company-owned business centers. The increase in gross margin percentage for
computer services resulted from an increase in the mix of services to include
more higher margin systems integration services versus the support and
technology procurement services. The increase in gross margin percentage for the
communication products and services resulted from an increase in mix of revenues
to include more higher margin long distance and non-product services.
Selling, general and administrative (SG&A) expenses for the quarter ended
March 30, 1996 were $47.2 million versus $39.5 million for the corresponding
period in 1995. SG&A as a percent of revenue was 7.4% in the first quarter of
1996 versus 8.2% in the first quarter of 1995. The increase in spending resulted
primarily from the costs of handling the increased revenues and an increase in
investment for computer service offerings. The decrease in SG&A as a percent of
revenue resulted from leverage achieved through operational efficiencies
resulting from investments in distribution center automation and information
systems.
Interest expense was $4.9 million in the first quarter of 1996 versus $2.8
million in the first quarter of 1995. Interest expense increased due to higher
average daily borrowings. Average daily borrowings for the first quarter of 1996
were $123.5 million more than the average borrowings for the same period in the
prior year while the average borrowing rate decreased approximately 0.6 of a
percentage point from the same period in the prior year. The increase in the
average daily borrowings resulted from the Company's decision in the first
quarter of 1996 to take advantage of early pay discounts offered by some of the
Company's major vendors and an increase in accounts receivable resulting from
the increase in revenues.
The effective tax rate was 41.0% for the first quarter of 1996 and 1995.
6
<PAGE>
The following tables set forth, for the indicated periods, net earnings by
classification.
<TABLE>
<CAPTION>
THIRTEEN WEEKS ENDED
------------------------ AS % OF TOTAL
MARCH 30, APRIL 1, PERCENT ------------------------
TOTAL NET EARNINGS (IN THOUSANDS) 1996 1995 INCREASE 1996 1995
- ---------------------------------------------------------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Computer products......................................... $ 1,557 973 60.0% 52.1% 46.0%
Computer services......................................... 1,127 1,008 11.8% 37.7% 47.7%
Communication products and services....................... 306 133 130.1% 10.2% 6.3%
----------- ----- ----- ----- -----
Total................................................... $ 2,990 2,114 41.4% 100.0% 100.0%
----------- ----- ----- ----- -----
----------- ----- ----- ----- -----
</TABLE>
Net earnings were $3.0 million or $.29 per share for the quarter ended March
30, 1996 versus $2.1 million or $.21 per share for the corresponding period in
1995. This increase resulted from the factors discussed above.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary sources of liquidity are provided through a working
capital financing agreement for $350.0 million, a revolving credit facility for
$40.0 million and $30.3 million in two private placement notes.
The Company entered into a working capital financing agreement in June 1995
with a financial services organization and terminated previous revolving credit
facilities. The $350.0 million working capital financing agreement expires June
29, 1998. At March 30, 1996, $80.0 million was outstanding under the working
capital line and the interest rate was 7.3% based on LIBOR. The working capital
financing agreement is secured by accounts receivable and inventory.
The Company entered into a revolving credit facility agreement in February
1996 with a financial institution. The $40.0 million revolving credit facility
agreement expires in February 1997. At March 30, 1996, $40.0 million was
outstanding under the revolving credit facility and the interest rate was 6.7%
based on LIBOR. The revolving credit facility is secured by accounts receivable
and inventory.
The two private placement notes are held by unaffiliated insurance
companies. The principal amount of the first note, $13.3 million, is payable in
two annual installments of $6.7 million commencing on May 31, 1996 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 notes
are secured by accounts receivable and inventory.
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 amount of net loss that the Company can incur. The Company
was in compliance with the covenants contained in the agreements at March 30,
1996.
Long-term debt was 13.5% of total long-term debt and equity at March 30,
1996 versus 18.0% at April 1, 1995. The decrease is primarily a result of the
increase in equity and a reduction in long-term debt due to the scheduled
payment of $6.7 million of the private placement notes.
The Company entered into an agreement in June 1995 (which agreement was
amended and restated in August 1995) to sell $100 million of accounts
receivable, with limited recourse, to an unrelated financial institution. New
qualifying receivables are sold to the financial institution as collections
reduce previously sold receivables in order to maintain a balance of $100
million sold receivables. On March 30, 1996, $21.4 million of additional
accounts receivable were designated to offset potential obligations under
limited recourse provisions; however, historical losses on Company receivables
have been substantially less than such additional amount. At March 30, 1996, the
implicit interest rate on the receivables sale transaction was 5.83%
7
<PAGE>
During the first quarter of 1996 the Company used $10.8 million of cash in
operations. Inventory decreased by $32.8 million during the first quarter with
the decrease offset by a reduction in accounts payable of $43.9 million.
Accounts receivable also increased $11.2 million during the first quarter.
Inventory decreased during the quarter as a result of increased sales and
accounts payable decreased as a result of the Company taking advantage of early
pay discounts offered by some of the Company's major vendors. Accounts
receivable increased during the quarter as a result of the increase in revenues.
Cash used in investing activities for the first quarter of 1996 totaled $5.8
million, of which $3.3 million resulted from additions to property and
equipment. Cash was also provided from financing activities through proceeds
from short-term borrowings of $43.1 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 1996.
8
<PAGE>
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 18,
1996. Stockholders voted on the following two items:
(a) Election of Directors
<TABLE>
<CAPTION>
DIRECTOR VOTE FOR VOTE WITHHELD
- -------------------------------------------------------------- ----------- -------------
<S> <C> <C>
Joseph Auerbach............................................... 9,022,695 27,186
Bill L. Fairfield............................................. 8,828,747 221,134
W. Grant Gregory.............................................. 9,025,147 24,734
Joseph T. Inatome............................................. 8,828,647 221,234
Rick Inatome.................................................. 8,823,747 226,134
Gary L. Schwendiman........................................... 9,026,047 23,834
Durward B. Varner............................................. 9,018,907 30,974
</TABLE>
(b) Approval of appointment of independent accountants KPMG Peat Marwick for
fiscal 1996. The stockholder vote on such proposal was: 9,036,678 for; 6,674
against; 6,529 abstain.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits. None
(b) Reports on Form 8-K. No reports on Form 8-K were filed during the
quarter ended March 30, 1996.
9
<PAGE>
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.
By /s/ DAVID C. GUENTHNER
-----------------------------------
David C. Guenthner
EXECUTIVE VICE PRESIDENT AND
CHIEF FINANCIAL OFFICER
Dated this 13th day of May, 1996.
10
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-28-1996
<PERIOD-START> DEC-31-1995
<PERIOD-END> MAR-30-1996
<CASH> 47,629
<SECURITIES> 0
<RECEIVABLES> 171,524
<ALLOWANCES> 2,708
<INVENTORY> 320,197
<CURRENT-ASSETS> 545,465
<PP&E> 41,292
<DEPRECIATION> 47,948
<TOTAL-ASSETS> 630,396
<CURRENT-LIABILITIES> 451,639
<BONDS> 0
0
0
<COMMON> 1,005
<OTHER-SE> 151,289
<TOTAL-LIABILITY-AND-EQUITY> 630,396
<SALES> 642,081
<TOTAL-REVENUES> 642,081
<CGS> 584,900
<TOTAL-COSTS> 584,900
<OTHER-EXPENSES> 47,241
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,873
<INCOME-PRETAX> 5,067
<INCOME-TAX> 2,077
<INCOME-CONTINUING> 2,990
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,990
<EPS-PRIMARY> .29
<EPS-DILUTED> .29
</TABLE>
