<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
------------------------
FORM 10-Q
---------------
(MARK ONE)
<TABLE>
<S> <C>
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934 FOR THE QUARTERLY PERIOD ENDED JUNE 28, 1997
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
</TABLE>
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 of (I.R.S. Employer
incorporation or organization) Identification Number)
</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 August 1, 1997 there were 11,537,315 common shares of the registrant
outstanding.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
INACOM CORP. AND SUBSIDIARIES
CONDENSED AND CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
JUNE 28, DECEMBER 28,
1997 1996
---------- ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............................................................ $ 30,720 31,410
Accounts receivable, net............................................................. 257,358 288,407
Inventories.......................................................................... 464,145 386,592
Other current assets................................................................. 8,843 5,889
---------- ------------
Total current assets............................................................... 761,066 712,298
---------- ------------
Other assets, net...................................................................... 45,513 27,531
Cost in excess of net assets of business acquired, net of accumulated amortization..... 68,659 48,646
Property and equipment, net............................................................ 69,674 59,125
---------- ------------
$ 944,912 847,600
---------- ------------
---------- ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable..................................................................... $ 479,746 406,753
Notes payable........................................................................ 120,000 140,770
Other current liabilities............................................................ 79,451 64,472
---------- ------------
Total current liabilities.......................................................... 679,197 611,995
---------- ------------
Long-term debt......................................................................... 55,250 55,250
Other long-term liabilities............................................................ 3,453 3,525
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 11,537,315 in
1997 and 10,850,008 shares in 1996............................................... 1,153 1,085
Additional paid-in capital......................................................... 116,298 98,153
Retained earnings.................................................................. 89,561 77,607
---------- ------------
207,012 176,845
Less:
Unearned restricted stock.......................................................... -- (15)
---------- ------------
Total stockholders' equity......................................................... 207,012 176,830
---------- ------------
$ 944,912 847,600
---------- ------------
---------- ------------
</TABLE>
2
<PAGE>
INACOM CORP. AND SUBSIDIARIES
CONDENSED AND CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THIRTEEN WEEKS TWENTY-SIX WEEKS
ENDED ENDED
--------------------- ----------------------
JUNE 28, JUNE 29, JUNE 28, JUNE 29,
1997 1996 1997 1996
---------- --------- ---------- ----------
<S> <C> <C> <C> <C>
Revenues:
Computer products.............................................. $ 884,952 718,585 1,657,705 1,316,307
Computer services.............................................. 60,607 30,201 108,238 58,340
Communications products and services........................... 26,655 21,074 47,961 37,294
---------- --------- ---------- ----------
972,214 769,860 1,813,904 1,411,941
---------- --------- ---------- ----------
Direct costs:
Computer products.............................................. 836,876 677,760 1,565,625 1,241,991
Computer services.............................................. 14,881 7,347 28,380 15,550
Communications products and services........................... 21,583 16,620 37,782 29,086
---------- --------- ---------- ----------
873,340 701,727 1,631,787 1,286,627
---------- --------- ---------- ----------
Gross margin..................................................... 98,874 68,133 182,117 125,314
Selling, general and administrative expenses..................... 80,354 55,588 147,671 102,829
---------- --------- ---------- ----------
Operating income................................................. 18,520 12,545 34,446 22,485
Interest expense................................................. 7,148 5,046 14,184 9,919
---------- --------- ---------- ----------
Earnings before income tax....................................... 11,372 7,499 20,262 12,566
Income tax expense............................................... 4,663 3,075 8,308 5,152
---------- --------- ---------- ----------
Net earnings..................................................... $ 6,709 4,424 11,954 7,414
---------- --------- ---------- ----------
---------- --------- ---------- ----------
Earnings per share
Primary........................................................ $ .58 .43 1.04 .72
Fully diluted.................................................. $ .52 .42 .94 .71
---------- --------- ---------- ----------
---------- --------- ---------- ----------
Common shares and equivalents outstanding
Primary...................................................... 11,600 10,300 11,500 10,300
Fully diluted................................................ 13,900 10,700 13,800 10,500
---------- --------- ---------- ----------
---------- --------- ---------- ----------
</TABLE>
3
<PAGE>
INACOM CORP. AND SUBSIDIARIES
CONDENSED AND CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
TWENTY-SIX WEEKS
ENDED
---------------------
JUNE 28, JUNE 29,
1997 1996
---------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net earnings.............................................................................. $ 11,954 7,414
Adjustments to reconcile net earnings to net cash used in operating activities:
Depreciation and amortization........................................................... 14,256 9,720
Increase in accounts receivable......................................................... (55,200) (41,182)
(Increase) decrease in inventories...................................................... (74,070) 48,585
Increase in other current assets........................................................ (2,599) (395)
Increase (decrease) in accounts payable................................................. 68,840 (69,691)
(Decrease) increase in other long-term liabilities...................................... (83) 226
(Decrease) increase in other current liabilities........................................ (7,107) 13,219
---------- ---------
Net cash used in operating activities................................................. (44,009) (32,104)
---------- ---------
Cash flows from investing activities:
Additions to property and equipment....................................................... (19,836) (10,016)
Proceeds from notes receivable............................................................ 100 1,605
Business combinations..................................................................... (4,100) --
Increase in other assets.................................................................. (12,085) (10,472)
---------- ---------
Net cash used in investing activities................................................. (35,921) (18,883)
---------- ---------
Cash flows from financing activities:
Proceeds from receivables sold............................................................ 100,000 --
(Payments of)proceeds from short-term debt................................................ (20,770) 5,741
Payments of long-term debt................................................................ (6,667)
Proceeds from sale of convertible subordinated debentures................................. -- 55,250
Proceeds from exercise of stock options................................................... 10 808
---------- ---------
Net cash provided by financing activities............................................. 79,240 55,132
---------- ---------
Net (decrease) increase in cash and cash equivalents........................................ (690) 4,145
Cash and cash equivalents, beginning of the period.......................................... 31,410 20,690
---------- ---------
---------- ---------
Cash and cash equivalents, end of the period................................................ $ 30,720 24,835
---------- ---------
---------- ---------
</TABLE>
4
<PAGE>
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 28, 1996. The results of
operations for the six months ended June 28, 1997 are not necessarily indicative
of the results for the entire fiscal year ending December 27, 1997.
2. ACCOUNTS RECEIVABLE
The Company has entered into an agreement to sell $200 million of accounts
receivable, with limited recourse, to an unrelated financial institution. The
agreement was initially entered into in June 1995 with respect to $100 million
of accounts receivable and was amended in January 1997 to sell an additional
$100 million of accounts receivable. New qualifying receivables are sold to the
financial institution as collections reduce previously sold receivables in order
to maintain a balance of $200 million sold receivables. On June 28, 1997, $46.6
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. On
June 28, 1997, the interest rate was 6.09%.
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. EARNINGS PER COMMON SHARE
Primary earnings per share of common stock have been computed on the basis
of the weighted average number of shares of common stock outstanding after
giving effect to equivalent common shares from dilutive stock options. Fully
diluted earnings per share further assumes the conversion of the Company's
convertible subordinated debentures for the period they were outstanding.
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.
5
<PAGE>
INACOM CORP. AND SUBSIDIARIES
NOTES TO CONDENSED AND CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
6. SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION (CONTINUED)
Interest and income taxes paid are summarized as follows (dollars in
thousands):
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
Interest paid.............................................................. $ 14,310 9,924
Income taxes paid.......................................................... $ 7,574 1,126
--------- ---------
--------- ---------
</TABLE>
6
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This 10-Q report contains certain forward-looking statements and information
relating to InaCom that are based on the beliefs of InaCom management as well as
assumptions made by and information currently available to InaCom management.
Such statements reflect the current view of InaCom with respect to future events
and are subject to certain risks, uncertainties and assumptions, including the
business factors described in InaCom's annual report on Form 10-K for the year
ended December 28, 1996. Should one or more of such risks or uncertainties
materialize, or should underlying assumptions prove incorrect, actual results
may vary materially from those described herein as believed, estimated or
expected.
RESULTS OF OPERATIONS
REVENUE
The following tables set forth, for the indicated periods, revenue by
classification and the mix of revenue:
<TABLE>
<CAPTION>
THIRTEEN WEEKS THIRTEEN WEEKS
ENDED ENDED
--------------------- ------------------------
JUNE 28, JUNE 29, JUNE 28, JUNE 29,
1997 1996 1997 1996
---------- --------- ----------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Computer products................................. $ 884,952 718,585 91.1% 93.4%
Computer services................................. 60,607 30,201 6.2 3.9
Communication products and services............... 26,655 21,074 2.7 2.7
---------- --------- ----- -----
Total........................................... $ 972,214 769,860 100.0% 100.0%
---------- --------- ----- -----
---------- --------- ----- -----
</TABLE>
<TABLE>
<CAPTION>
TWENTY-SIX WEEKS TWENTY-SIX WEEKS
ENDED ENDED
------------------------ ------------------------
JUNE 28, JUNE 29, JUNE 28, JUNE 29,
1997 1996 1997 1996
------------ ---------- ----------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Computer products.............................. $ 1,657,705 1,316,307 91.4% 93.3%
Computer services.............................. 108,238 58,340 6.0 4.1
Communication products and services............ 47,961 37,294 2.6 2.6
------------ ---------- ----- -----
Total........................................ $ 1,813,904 1,411,941 100.0% 100.0%
------------ ---------- ----- -----
------------ ---------- ----- -----
</TABLE>
Revenues for the second quarter and first six months of 1997 increased
$202.4 million or 26.3% and $402.0 million or 28.5% over the second quarter and
first six months of 1996, respectively. Revenue growth resulted primarily from
computer product sales which increased $166.4 million or 23.2% and $341.4
million or 25.9% over the second quarter and first six months of 1996,
respectively. Revenues from computer services increased $30.4 million or 100.7%
and $49.9 million or 85.5% over the second quarter and first six months of 1996,
respectively. Revenues from communication products and services increased $5.6
million or 26.5% and $10.7 or 28.6% over the second quarter and first six months
of 1996, respectively.
Revenues increased primarily as a result of an increase in products shipped
directly to the end-user customer, overall industry growth and the acquisitions
completed by the Company during 1996 and 1997. The increase in revenues related
to the acquisitions was approximately $20.8 million and $45.6 million over the
second quarter and first six months of 1996, respectively. The increase in
computer product sales resulted primarily from an increase in sales through the
Company-owned business centers ($129.1 million
7
<PAGE>
or 39.2% and $222.2 million or 35.9% over the second quarter and first six
months of 1996, respectively) and through an increase in sales through the
independent reseller channel ($49.0 million or 12.0% and $136.1 million or 18.7%
over the second quarter and first six months of 1996, respectively).
Revenues from computer services increased as a result of increased sales
efforts for such service offerings, the inclusion of these services with
increasing computer product sales and the recent acquisitions completed by the
Company. The increase in computer services sales resulted primarily from an
increase in sales through the Company-owned business centers ($15.0 million or
65.4% and $24.8 million or 55.9% over the second quarter and first six months of
1996, respectively). The increase in computer services revenues related to
acquisitions was approximately $9.4 million and $13.4 million over the second
quarter and first six months of 1996, respectively. Revenues from communication
products and services increased as a result of broad based growth from the
communications product offerings.
GROSS MARGINS
The following tables set forth, for the indicated periods, gross margin and
gross margin percentages by classification:
<TABLE>
<CAPTION>
THIRTEEN WEEKS THIRTEEN WEEKS
ENDED ENDED
---------------------- ------------------------
JUNE 28, JUNE 29, JUNE 28, JUNE 29,
1997 1996 1997 1996
--------- ----------- ----------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Computer products................................... $ 48,076 40,825 5.4% 5.7%
Computer services................................... 45,726 22,854 75.5 75.7
Communication products and services................. 5,072 4,454 19.0 21.1
--------- ----------- --- ---
Total............................................. $ 98,874 68,133 10.2% 8.9%
--------- ----------- --- ---
--------- ----------- --- ---
</TABLE>
<TABLE>
<CAPTION>
TWENTY-SIX WEEKS TWENTY-SIX WEEKS
ENDED ENDED
--------------------- ------------------------
JUNE 28, JUNE 29, JUNE 28, JUNE 29,
1997 1996 1997 1996
---------- --------- ----------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Computer products................................. $ 92,080 74,316 5.6% 5.7%
Computer services................................. 79,858 42,790 73.8 73.4
Communication products and services............... 10,179 8,208 21.2 22.0
---------- --------- --- ---
Total........................................... $ 182,117 125,314 10.0% 8.9%
---------- --------- --- ---
---------- --------- --- ---
</TABLE>
The increase in the Company's gross margin percentages for the first six
months of 1997 versus the same period in 1996 was primarily a result of the
increase in mix of higher-margin computer services and communications products
and services versus lower-margin computer products. The decrease in gross margin
percentage for computer products resulted primarily from a decrease in the
margin percentage on computer product sales through the Company-owned business
centers and the independent reseller channel in the first six months of 1997
versus the same period in 1996. 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 support and technology
procurement services. The decrease in gross margin percentage for the
communication products and services resulted from an increase in mix of revenues
to include more lower-margin communications product sales as compared to
higher-margin long distance and non-product services.
8
<PAGE>
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative (SG&A) expenses for the second quarter
and first six months of 1997 increased $24.8 million or 44.6% and $44.8 million
or 43.6% over the second quarter and first six months of 1996, respectively.
SG&A as a percent of revenue was 8.3% in the second quarter of 1997 versus 7.2%
in the second quarter of 1996, and 8.1% for the first six months of 1997 versus
7.3% for the first six months of 1996. The increase in spending and the related
increase in SG&A as a percent of revenues resulted primarily from the costs of
handling the increased product, services and communications revenues. The
Company continued to invest in the infrastructure by opening a technology
convergence distribution and configuration center in Ontario, California, during
the third quarter of 1996. The Company incurred additional costs during the
second quarter and first six months of 1997 related to integrating the
acquisitions completed in the fourth quarter of 1996 and acquisitions completed
in the first and second quarters of 1997. The increase in SG&A related to
acquisitions was approximately $6.1 million and $7.5 million over the second
quarter and first six months of 1996, respectively.
INTEREST EXPENSE
Interest expense for the second quarter and first six months of 1997 was
$7.1 million and $14.2 million, respectively, versus interest expense for the
second quarter and first six months of 1996 of $5.0 million and $9.9 million,
respectively. Interest expense increased primarily due to higher average daily
borrowings. Average daily borrowings for the second quarter and first six months
of 1997 were $124.1 million and $118.3 million more than the average borrowings
for the second quarter and first six months of 1996, respectively. The weighted
average borrowing rate for the second quarter of 1997 increased approximately 6
basis points over the second quarter of 1996 and decreased 15 basis points for
the first six months of 1997 versus the first six months of 1996. The increase
in the average daily borrowings resulted primarily from financing an increase in
accounts receivable resulting from the increase in revenues, and an increase in
inventory levels. The weighted average daily borrowing interest rate increased
for the second quarter of 1997 primarily due to an increase in LIBOR rates in
1997 versus 1996. The average daily borrowing interest rate decreased for the
first six months of 1997 versus the same period in 1996 primarily because the
Company sold an additional $100 million of accounts receivable in January 1997,
which as of June 28, 1997 had an interest rate of 6.09%, and issued $55.25
million of 6% convertible subordinated debentures in June 1996 (see "Liquidity
and Capital Resources"). The funding from the sale of $100 million in accounts
receivable and the issuance of $55.25 million of convertible bonds was used to
decrease the borrowings outstanding on the inventory and working capital credit
line which on June 28, 1997 had an interest rate of 7.5%.
NET EARNINGS
The following tables set forth, for the indicated periods, net earnings by
classification and mix of net earnings:
<TABLE>
<CAPTION>
THIRTEEN WEEKS THIRTEEN WEEKS
ENDED ENDED
------------------------ ------------------------
JUNE 28, JUNE 29, JUNE 28, JUNE 29,
1997 1996 1997 1996
----------- ----------- ----------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Computer products.................................... $ 2,550 2,545 38.0% 57.5%
Computer services.................................... 3,464 1,669 51.6 37.7
Communication products and services.................. 695 210 10.4 4.8
----------- ----- ----- -----
Total.............................................. $ 6,709 4,424 100.0% 100.0%
----------- ----- ----- -----
----------- ----- ----- -----
</TABLE>
9
<PAGE>
<TABLE>
<CAPTION>
TWENTY-SIX WEEKS TWENTY-SIX WEEKS
ENDED ENDED
---------------------- ------------------------
JUNE 28, JUNE 29, JUNE 28, JUNE 29,
1997 1996 1997 1996
--------- ----------- ----------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Computer products................................... $ 4,883 4,102 40.8% 55.3%
Computer services................................... 5,691 2,796 47.7 37.7
Communication products and services................. 1,380 516 11.5 7.0
--------- ----- ----- -----
Total............................................. $ 11,954 7,414 100.0% 100.0%
--------- ----- ----- -----
--------- ----- ----- -----
</TABLE>
Net earnings for the quarter ending June 28, 1997 increased 51.7% to $6.7
million compared with net earnings of $4.4 million for the second quarter of
1996. Share earnings increased to $.52 per fully diluted share from the $.42 per
fully diluted share reported for the same period in 1996. Net earnings for the
first six months of 1997 increased 61.2% to $12.0 million compared with net
earnings of $7.4 million for the first six months of 1996. Share earnings
increased to $.94 per fully diluted share from the $.71 per fully diluted share
reported for the same period in 1996. This increase resulted from the factors
discussed above.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary sources of liquidity are provided through an inventory
and working capital financing agreement of $550.0 million (increased from $350.0
million as of June 27, 1997), convertible subordinated debentures of $55.25
million, and a revolving credit facility of $40.0 million.
The $550.0 million inventory and working capital financing agreement, which
is provided by an unrelated financial services organization, was amended in 1997
and expires June 29, 1998. On June 28, 1997, $338.8 million was outstanding
under the inventory and working capital financing agreement including $258.8
million for inventory and $80.0 million for working capital and the interest
rate was 7.5% based on LIBOR. This inventory and working capital financing
agreement is secured by inventory and accounts receivable.
The $55.25 million 6% convertible subordinated debentures were issued in
June 1996 and are due June 15, 2006. The debentures are convertible into common
stock of the Company at a conversion price of $24.00 per share, subject to
adjustments under certain circumstances, beginning on September 19, 1996. The
debentures are not redeemable by the Company prior to June 16, 2000 and,
thereafter, the Company may redeem the debentures at various premiums to
principal amount. The debentures may also be redeemed at the option of the
holder at any time prior to June 16, 2000 if there is a Change in Control (as
defined in the indenture) at a price equal to 100% of the principal amount plus
accrued interest at the date of redemption.
The $40.0 million revolving credit facility agreement expires in February
1998. On June 28, 1997, $40.0 million was outstanding under the revolving credit
facility and the interest rate was 7.0% based on LIBOR. The revolving credit
facility is secured by inventory and accounts receivable.
The debt agreements contain certain restrictive covenants, including the
maintenance of minimum levels of working capital, tangible net worth,
limitations on incurring additional indebtedness and restrictions on the amount
of net loss the Company can incur. Certain covenants effectively limit the
amount of dividends which the Company may pay to the stockholders. The amount of
retained earnings on March 29, 1997 not restricted as to payments of cash
dividends under the most restrictive covenants in such agreements was
approximately $78.8 million. The Company was in compliance with the covenants
contained in the agreements on June 28, 1997.
Long-term debt was 21.1% of total long-term debt and equity at June 28, 1997
versus 30.3% at June 29, 1996. The decrease was primarily a result of the
payment of $13.6 million of private placement
10
<PAGE>
notes previously held by unaffiliated insurance companies and an increase in
equity due to earnings and the issuance of additional shares of common stock.
The Company has entered into an agreement to sell $200 million of accounts
receivable, with limited recourse, to an unrelated financial institution. The
agreement was initially entered into in June 1995 with respect to $100 million
of accounts receivable and was amended in January 1997 to sell an additional
$100 million of accounts receivable. New qualifying receivables are sold to the
financial institution as collections reduce previously sold receivables in order
to maintain a balance of $200 million sold receivables. On June 28, 1997, $46.6
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. On
June 28, 1997, the interest rate was 6.09%.
The Company occasionally uses derivative financial instruments to reduce
interest rate risk. The Company does not hold or issue derivative financial
instruments for trading purposes. On January 17, 1997 the Company entered into a
one-year interest rate swap agreement with an unrelated financial institution
which resulted in certain floating rate interest payment obligations becoming
fixed rate interest payment obligations at 5.82%. The principal amount of the
swap agreement was $100 million.
During the first six months of 1997, the Company used $44.0 million of cash
in operations. Inventory increased by $74.1 million during the first six months
with a portion of the increase offset by an increase in accounts payable of
$68.8 million. Accounts receivable also increased $55.2 million during the first
six months of 1997. Inventory increased during the first six months of 1997 as a
result of the Company taking advantage of certain major manufacturers inventory
incentive programs. Accounts payable increased as a result of the increase in
inventory levels. Accounts receivable increased during the first six months
primarily as a result of the increase in revenues for the first six months of
1997.
The Company used $35.9 million in cash for investing activities in the first
six months of 1997. Cash of $19.8 million was used to purchase fixtures and
equipment and cash of $4.1 million was used for business combinations.
Net cash provided from financing activities for the first six months of 1997
totaled $79.2 million, of which $100.0 million was provided from the sale of
accounts receivable. The financing proceeds were used to reduce short term
borrowings of $20.8 million.
The Company believes the funding expected to be generated from operations
and provided by the existing credit facilities will be sufficient to meet
working capital and capital investment needs in 1997.
11
<PAGE>
INACOM CORP. AND SUBSIDIARIES
PART II--OTHER INFORMATION
ITEM 2. SALES OF UNREGISTERED SECURITIES
The Company acquired Bethco Inc. in May 1997 for consideration including
approximately $2.6 million in cash and 257,198 shares of Common Stock; the
business provides computer sales and services in the Atlanta, Georgia; Orlando,
Florida; and Birmingham, Alabama markets. The sales of securities were exempt
from registration under Section 4(2) of the Securities Act of 1933 and
Regulation D thereunder for transactions not involving a public offering.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
a) Exhibit
<TABLE>
<C> <S>
10.1 Amendments to Inventory and Working Capital Financing Agreement between
Inacom and IBM Credit Corporation.
</TABLE>
b) Reports on Form 8-K. No reports on Form 8-K were filed during the quarter
ended June 28, 1997.
12
<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.
<TABLE>
<S> <C> <C>
INACOM CORP.
By: /s/ DAVID C. GUENTHNER
-----------------------------------------
David C. Guenthner
EXECUTIVE VICE PRESIDENT AND CHIEF
FINANCIAL OFFICER
</TABLE>
Dated this 12th day of August, 1997.
13
<PAGE>
THE THIRD AMENDMENT TO THE
INVENTORY AND WORKING CAPITAL AGREEMENT
[ * CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY WITH THE SECURITIES
AND EXCHANGE COMMISSION ]
This third Amendment to the Inventory and Working Capital Financing Agreement
(this "Amendment") is made as of April 1, 1997 by and between InaCom Corp., a
Delaware corporation ("Customer") and IBM Credit Corporation, a Delaware
corporation ("IBM Credit").
RECITALS
A. Customer and IBM Credit have entered into that certain Inventory
and Working Capital Financing Agreement dated June 29, 1995, (as amended,
supplemented or otherwise modified from time to time, the "Agreement").
B. Customer has requested certain modifications to the Agreement.
C. IBM Credit agrees to make such modifications to the Agreement
subject to the terms and conditions as set forth herein.
NOW THEREFORE, in consideration of the premises set forth above and
the mutual agreements contained herein
and other valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereby agree as
follows:
AGREEMENT
Section 1. Definitions. All capitalized terms not otherwise defined
herein shall have the respective meanings set forth in the Agreement.
Section 2. Modifications to Agreement. The following modifications are
made to the Agreement, effective on the date first set forth above,
unless specified otherwise:
(A) Section 1.1 of the Agreement is hereby amended by deleting the
definitions of (i) FRO Advance and (ii) FRO Advance Term in their
entirety and substituting in their respective places, in lieu thereof,
the following:
"FRO Advance": an A/R Advance, with any one of four fixed rate
options ("FRO") and corresponding FRO Advance Terms, for which the
LIBOR portion of the rate of interest paid by Customer is fixed for
the duration of the FRO Advance Term.
"FRO Advance Term": for a certain FRO Advance, a thirty (30), sixty
(60), ninety (90), or one hundred eighty (180) day period, as the
case may be, depending on which LIBOR the Customer requested for
that certain FRO Advance. See Section 2.3 for further
clarification.
(B) The Agreement is amended by deleting the definitions of (i) A/R
Advance, (ii) A/R Advance Term and (iii) Collateral, Agency and
Intercreditor Agreement in their entirety and substituting in their
respective places, in lieu thereof, the following (such amended
definitions effective as of June 29, 1995):
"A/R Advance": any loan or advance of funds made by IBM Credit to
Customer pursuant to Section 2.3 of this Agreement, including, as
<PAGE>
the context may require, a FRO Advance, an OVN Advance and a PAE
Advance.
"A/R Advance Term": shall be the collective or individual
reference, as the context may require, to a FRO Advance Term, an
OVN Advance Term and a PAE Advance Term.
"Collateral, Agency and Intercreditor Agreement": that certain
Collateral, Agency and Intercreditor Agreement dated June 28, 1995
by and among InaCom Corp, InaCom Business Centers, Inc., Inacomp
Financial Services, Inc., InaCom Communications, Inc., InaCom
Service, Inc., Boston Computer Exchange Corporation, Principal
Mutual Life Insurance Company, TMG Life Insurance Company (by The
Mutual Group, its agent), and IBM Credit (as a Lender and as
Collateral Agent), as amended and modified from time to time.
(C) The Agreement shall be amended by inserting the following Section 1.3
immediately following Section 1.2, such amendment
effective as of June 29, 1995:
"Section 1.3 Attachments. All attachments, exhibits, schedules and
other addenda hereto, including, but not limited to, Attachment A,
Attachment B and Exhibit A to Attachment A, are specifically
incorporated herein by reference and made a part of this
Agreement."
Section 3. Amendment to Attachment A. Customer hereby agrees that
Attachment A to the Agreement is hereby amended by deleting such
Attachment A in its entirety and substituting, in lieu thereof, the
Attachment A attached hereto (the "Revised Attachment A"). Such
Revised Attachment A contains, among other changes, (1) a permantent
increase to the Credit Line contained in Section I(A) to $395,000,000;
(2) a reformatted and revised definition of Borrowing Base contained in
Section I(B); (3) an increase in the Collateral Insurance Amount
contained in Section I(D) to $387,000,000; (4) a change to the Maximum
OVN Advance Total in Section I(K); (5) deletion of the Back-up Liquidity
Adjustment Fee in Section I(J)(iii); and (6) deletion of Section V.
Additional Conditions Precedent Pursuant to Seciton 4.1(M) of the
Agreement, since all the such conditions contained in Section V have
been met.
Section 4. Representations and Warranties. Customer makes 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.
4.1 Accuracy and Completeness of Warranties and Representations. All
representations made by Customer in the Agreement were true, accurate and
complete in every respect as of the date made, and, as amended by this
Amendment, all representations made by Customer in the Agreement are true,
accurate and complete in every material respect as of the date hereof, and
do not fail to disclose any material fact necessary to make the representations
not misleading.
4.2 Violation of Other Agreements. The execution and delivery of
this Amendment does not violate or cause Customer not to be in
compliance with the terms of any agreement to which Customer is a party.
<PAGE>
4.3 Litigation. Except as has been disclosed by Customer to IBM
Credit in writing, there is no litigation, proceeding, investigation or
labor dispute pending or threatened against Customer, which if adversely
determined, would materially adversely affect the ability of Customer
to perform its obligations under the Agreement, and the other documents,
instruments and agreements executed in connection therewith or pursuant
hereto.
4.4 Enforceability of Amendment. This Amendment has been duly
authorized, executed and delivered by Customer and is enforceable against
Customer in accordance with its terms.
Section 5. Ratification of Agreement. Except as specifically amended
hereby, all the provisions of the Agreement shall remain in full force
and effect. Customer hereby ratifies, confirms and agrees that the
Agreement, as amended hereby, represents a valid and enforceable
obligation of Customer, and is not subject to any claims, offsets or
defenses.
Section 6. Governing Law. This Amendment shall be governed by and
interpreted in accordance with the laws which govern the Agreement.
Section 7. 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.
INACOM CORP. IBM CREDIT CORPORATION
By:/s/ Richard Oshlo By:/s/ Donald E Diedo
----------------- ------------------
Name: Richard Oshlo Name: Donald E Diedo
---------------- ------------------
Title: Asst. Treasurer Title: Remarketer Finance Center
----------------- ----------------------------------
Manager
-------
INVENTORY AND WORKING CAPITAL
FINANCING AGREEMENT
Dated June 29, 1995
ATTACHMENT A
Effective Date of Attachment A: April 1, 1997
Customer: InaCom Corp.
I. Fees, Rates and Repayment Terms:
(A) Credit Line: $395,000,000.
(B) Borrowing Base: The sum of the following:
<PAGE>
(i) 80% of the amount of the Customer's Retained Eligible
Accounts as of the date of determination as reflected in the
Customer's most recent Collateral Management Report.
(ii) 80% of the amount of the Customer's Eligible Accounts
as of the date of determination that have been sold to IFC as
reflected in the Customer's most recent Collateral Management
Report.
(iii) 100% of the Customer's inventory in the Customer's
possession as of the date of determination as reflected in the
Customer's most recent Collateral Management Report constituting
Products (other than service parts) financed through a Product
Advance by IBM Credit. The value to be assigned to such inventory
shall be based upon the Authorized Supplier's invoice price to Customer
for Financed Products net of all applicable price reduction credits.
(iv) [*]
(v) [*]
Less, the sum of the following:
(a) the amount of Clipper Outstandings.
(b) the amount required to be set aside by IFC as the
"Servicer's Fee" and the "Administrator Fee", both as
defined in the Receivables Purchase Agreement.
(c) the amount of the Private Placement Debt.
(See Exhibit A to this Attachment A for example as to
how to calculate.)
(C) Base Rate: [*] during a Tier 1 Period, as
defined in Section IV of this Attachment A. During the
first consecutive Tier 2 Period, as defined in Section IV
of this Attachment A, the Base Rate will be increased to
[*]. During the second or greater than second
consecutive Tier 2 Period, the Base Rate will be increased to
[*]. The adjustments described in the previous
two sentences are defined as "Tier 2 Period Adjustments".
If any of the financial covenants specified in Section III of
this Attachment A are not met, or any other event of
default has occurred and is continuing, pricing and other
terms are subject to change at IBM Credit's reasonable
discretion including all remedies available to IBM
Credit under the Agreement.
(D) Collateral Insurance Amount: [*]
(F) A/R Finance Charge:
(i) PAE Financing Charge: Base Rate
(ii) OVN Advance Charge: Base Rate
(iii) FRO Advance Charge: [*] (plus any Tier 2 Period adjustments if
applicable) [*]
(G) Delinquency Fee Rate: (1) for the first 30 days immediately following
the payment date - [*] and (2) from the 31st day after the payment date
until the delinquent payment is made [*]
<PAGE>
(H) Letter of Credit Fee Rate: [*]
(I) Letter of Credit Maximum: $6,000,000
(J) Other Charges:
(i) Monthly Service Fee: [*]
(ii) Unused line Fee: [*]
(K) Maximum OVN Advance Total: $60,000,000
(L) Maximum Guaranty Amount: $10,000,000
II. Bank Account
(A) Customer's Lockbox(es) and Special Account(s) will be
maintained at the following Bank(s):
Name:
Address:
Phone: Not applicable to this Agreement
as of the date of this Attachment A
Lockbox Account #:
Special Account #:
III. Financial Covenants:
Definitions: The following terms shall have the following
respective meanings in this Attachment A. All amounts shall
be determined in accordance with GAAP.
Current Assets shall mean, as of any date, all assets which,
in accordance with GAAP, should be classified as current
assets on a balance sheet.
Current Liabilities shall mean, as of any date, all
liabilities which, in accordance with GAAP, should be
classified as current liabilities on a balance sheet;
provided however, that all indebtedness to IBM Credit shall
be considered current liabilities.
Current Ratio shall mean Current Assets divided by Current
Liabilities.
Net Profit After Tax shall mean Revenue plus all other
income, minus all costs, including applicable taxes.
Non-Competes shall mean the amount Customer has to pay
another Person for that Person's agreement to not compete
with Customer.
Revenue shall mean the monetary expression of the aggregate
of products or services transferred by an enterprise to its
customers for which said customers have paid or are obligated
to pay, plus other income as allowed.
Subordinated Debt shall mean the Customer's indebtedness to
<PAGE>
officers or owners as evidenced by an executed notes payable
subordination agreement in favor of IBM Credit.
Tangible Net Worth ("TNW") shall mean stockholders equity
minus goodwill and Non-Competes.
Total Assets shall mean, as of any date, all assets which,
in accordance with GAAP, should be classified as assets on a
balance sheet.
Total Liabilities shall mean, as of any date, all obligations
which, in accordance with GAAP, should be classified as
liabilities on a balance sheet less Subordinated Debt resulting
from past or current transactions that require settlement in
the future.
Total Net Worth (the amount of owner's or stockholder's
ownership in an enterprise) is equal to Total Assets minus
Total Liabilities.
Working Capital shall mean Current Assets minus Current
Liabilities.
The Customer will be required to maintain the following financial
covenants:
(a) Total Liabilities to TNW ratio of less than 6.50:1.0 at
all times;
(b) Current Ratio of greater than 1.00:1.0 at all times;
(c) TNW of greater than $90,000,000 at all times;
(d) Net Profit after Tax of (1) no loss greater than 10% of
TNW in any fiscal quarter and (2) no losses for three
consecutive fiscal quarters.
IV. Tier Periods
As used in the definitions of "Tier 1 Period" and "Tier 2 Period"
below, a "period" shall mean an interval of time commencing from
the first day of the calendar month following the date Customer
delivers to IBM Credit or the date when due, whichever is
earliest, the balance sheet and income statement for the fiscal
year or fiscal quarter, as applicable, with respect to a fiscal
period and ending on the last day of the calendar month which
contains the date Customer delivers to IBM Credit or the date
when due, whichever is earliest, the balance sheet and income
statement for the next succeeding fiscal period.
"Tier 1 Period" means each period with respect to which (i) the
ratio of Customer's Total Liabilities to TNW (the "Leverage
Ratio") during the immediately preceding fiscal period is less
than 4.75 to 1, (ii) the Customer's Current Ratio during such
fiscal period is greater than 1.05 to 1, (iii) Customer's TNW
during such fiscal period is greater than $105,000,000 and (iv)
the Customer's Net Profit after Tax ("Profitability") during such
fiscal period is such that (a) there is no loss greater than 5%,
(b) if there is a loss in that fiscal period, it is not the
second or more consecutive fiscal quarter with a loss and (c) on
<PAGE>
an on-going basis beginning with October 1, 1995, there is no
cumulative loss for four consecutive fiscal quarters.
"Tier 2 Period" means each period (x) with respect to which (i)
the Customer's Leverage Ratio during the immediately preceding
fiscal period is less than 6.5 to 1, (ii) the Customer's Current
Ratio during such fiscal period is greater than 1.00 to 1,
(iii) Customer's TNW during such fiscal period is greater than
$90,000,000 and (iv) the Customer's Profitability is such that
(a) there is no loss greater than 10% and (b) if there is a loss
in that fiscal period, it is not the third or more consecutive
fiscal quarter with a loss and (y) which is not a Tier 1 Period.
<PAGE>
[ * CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY WITH THE SECURITIES
AND EXCHANGE COMMISSION ]
THE FOURTH AMENDMENT TO THE
INVENTORY AND WORKING CAPITAL FINANCING AGREEMENT
This Fourth Amendment to the Inventory and Working Capital Agreement
(this "Amendment") is made as of June 27, 1997 by and between InaCom
Corp., a Delaware corporation ("Customer") and IBM Credit Corporation, a
Delaware corporation ("IBM Credit").
RECITALS:
A. Customer and IBM Credit have entered into that certain Inventory
And Working Capital Financing Agreement dated as of June 29, 1995
(as amended, supplemented or otherwise modified from time to time, the
"Agreement").
B. The parties have agreed to modify the Agreement as more
specifically set forth below, upon and subject to the terms and
conditions set forth herein.
C. IBM Credit is willing to accommodate Customer's request
subject to the conditions set forth below.
AGREEMENT
NOW THEREFORE, in consideration of the premises and other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, Customer and IBM Credit hereby agree as follows:
Section 1. Definitions. All capitalized terms not otherwise defined
herein shall have the respective meanings set forth in the Agreement.
Section 2. Amendment. The Agreement is hereby amended as follows:
(A) Attachment A to the Inventory and Working Capital Agreement
is hereby amended by deleting such Attachment A in its entirety and
substituting, in lieu thereof, the Attachment A attached hereto. Such
new Attachment A shall be effective as of the date specified in the new
Attachment A. The changes contained in the new Attachment A
include, without limitation, that the Credit Line is increased from Three
Hundred Ninety-Five Million Dollars ($395,000,000) to Five Hundred Fifty
Million Dollars ($550,000,000).
(B) Section 1.1 of the Agreement is hereby amended by replacing the
definition of "Seasonal Credit Line Uplift" with the following:
""Seasonal Credit Line Uplift": a temporary increease in the Credit
Line sometime during the second half of a calendar year which may be
granted by IBM Credit at its sole discretion and by written
notification by IBM Credit to Customer. Such notification will
include the amount of the increase and the schedule for the return
to the Credit Line that existed prior to such temporary increase."
Section 3. Representations and Warranties. Customer makes 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.
Section 3.1 Accuracy and Completeness of Warranties and Representations.
All representations made by Customer in the Agreement were true and
accurate and complete in every respect as of the date made, and, as
amended by this Amendment, all representations made by Customer in the
Agreement are true, accurate and complete in every material respect as
of the date hereof, and do not fail to disclose any material fact
necessary to make representations not misleading.
Section 3.2 Violation of Other Agreements. The execution and delivery
of this Amendment and the performance and observance of the covenants
to be performed and observed hereunder do not violate or cause Customer
not to be in compliance with the terms of any agreement to which
<PAGE>
Customer is a party.
Section 3.3 Litigation. Except as has been disclosed by Customer to IBM
Credit in writing, there is no litigation, proceeding, investigation or
labor dispute pending or threatened against Customer, which if adversely
determined, would materially adversely affect Customer's ability to
perform Customer's obligations under the Agreement and the other
documents, instruments and agreements executed in connection therewith
or pursuant hereto.
Section 3.4 Enforceability of Amendment. This Amendment has been duly
authorized, executed and delivered by Customer and is enforceable
against Customer in accordance with its terms.
Section 4. Ratification of Agreement. Except as specifically amended
hereby, all of the provisions of the Agreement shall remain unamended
and in full force and effect. Customer hereby, ratifies, confirms and
agrees that the Agreement, as amended hereby, represents a valid and
enforceable obligation of Customer, and is not subject to any claims,
offsets or defenses.
Section 5. Governing Law. This Amendment shall be governed by and
interpreted in accordance with the laws which govern the Agreement.
Section 6. 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 duly
authorized officers of the undersigned as of the day and year first
above written.
..fo off
INACOM CORP. IBM CREDIT CORPORATION
By:/s/ Dave Guenthner By: /s/ Philip Morse
--------------------------------- ----------------
Name: Dave Guenthner Name: Philip N. Morse
------------------------------
Title: Chief Financial Officer Title: Director of Global Credit,
----------------------------- Remarketer Financing
ATTEST: ATTEST:
/s/ Richard C. Oshlo /s/ Michael Burdian
- ----------------------------------- -------------------
Print Name: Richard Oshlo Print Name: Michael Burdian
INVENTORY AND WORKING CAPITAL
FINANCING AGREEMENT
Dated June 29, 1995
ATTACHMENT A
Effective Date of Attachment A: June 27, 1997
Customer: InaCom Corp.
I. Fees, Rates and Repayment Terms:
(A) Credit Line: $550,000,000.
(B) Borrowing Base: The sum of the following:
<PAGE>
(i) 80% of the amount of the Customer's Retained Eligible
Accounts as of the date of determination as reflected in the
Customer's most recent Collateral Management Report.
(ii) 80% of the amount of the Customer's Eligible Accounts
as of the date of determination that have been sold to IFC as
reflected in the Customer's most recent Collateral Management
Report.
(iii) 100% of the Customer's inventory in the Customer's
possession as of the date of determination as reflected in the
Customer's most recent Collateral Management Report constituting
Products (other than service parts) financed through a Product
Advance by IBM Credit. The value to be assigned to such inventory
shall be based upon the Authorized Supplier's invoice price to Customer
for Financed Products net of all applicable price reduction credits.
(iv) [*]
(v) [*]
Less, the sum of the following:
(a) the amount of Clipper Outstandings.
(b) the amount required to be set aside by IFC as the
"Servicer's Fee" and the "Administrator Fee", both as
defined in the Receivables Purchase Agreement.
(c) the amount of the Private Placement Debt.
(See Exhibit A to this Attachment A for example as to
how to calculate.)
(C) Base Rate: [*] during a Tier 1 Period, as
defined in Section IV of this Attachment A. During the
first consecutive Tier 2 Period, as defined in Section IV
of this Attachment A, the Base Rate will be increased to
[*]. During the second or greater than second
consecutive Tier 2 Period, the Base Rate will be increased to
[*]. The adjustments described in the previous
two sentences are defined as "Tier 2 Period Adjustments".
If any of the financial covenants specified in Section III of
this Attachment A are not met, or any other event of
default has occurred and is continuing, pricing and other
terms are subject to change at IBM Credit's reasonable
discretion including all remedies available to IBM
Credit under the Agreement.
(D) Collateral Insurance Amount: [*]
(F) A/R Finance Charge:
(i) PAE Financing Charge: Base Rate
(ii) OVN Advance Charge: Base Rate
(iii) FRO Advance Charge: [*] (plus any Tier 2 Period adjustments if
applicable) [*]
<PAGE>
(G) Delinquency Fee Rate: (1) for the first 30 days immediately following
the payment date [*] (2) from the 31st day after the payment date until
the delinquent payment is made [*]
(H) Letter of Credit Fee Rate: [*]
(I) Letter of Credit Maximum: $6,000,000
(J) Other Charges:
(i) Monthly Service Fee: [*]
(ii) Unused line Fee: [*]
(K) Maximum OVN Advance Total: $60,000,000
(L) Maximum Guaranty Amount: $10,000,000
II. Bank Account
(A) Customer's Lockbox(es) and Special Account(s) will be
maintained at the following Bank(s):
Name:
Address:
Phone: Not applicable to this Agreement
as of the date of this Attachment A
Lockbox Account #:
Special Account #:
III. Financial Covenants:
Definitions: The following terms shall have the following
respective meanings in this Attachment A. All amounts shall
be determined in accordance with GAAP.
Current Assets shall mean, as of any date, all assets which,
in accordance with GAAP, should be classified as current
assets on a balance sheet.
Current Liabilities shall mean, as of any date, all
liabilities which, in accordance with GAAP, should be
classified as current liabilities on a balance sheet;
provided however, that all indebtedness to IBM Credit shall
be considered current liabilities.
Current Ratio shall mean Current Assets divided by Current
Liabilities.
Net Profit After Tax shall mean Revenue plus all other
income, minus all costs, including applicable taxes.
Non-Competes shall mean the amount Customer has to pay
another Person for that Person's agreement to not compete
with Customer.
Revenue shall mean the monetary expression of the aggregate
of products or services transferred by an enterprise to its
customers for which said customers have paid or are obligated
to pay, plus other income as allowed.
<PAGE>
Subordinated Debt shall mean the Customer's indebtedness to
officers or owners as evidenced by an executed notes payable
subordination agreement in favor of IBM Credit.
Tangible Net Worth ("TNW") shall mean stockholders equity
minus goodwill and Non-Competes.
Total Assets shall mean, as of any date, all assets which,
in accordance with GAAP, should be classified as assets on a
balance sheet.
Total Liabilities shall mean, as of any date, all obligations
which, in accordance with GAAP, should be classified as
liabilities on a balance sheet less Subordinated Debt resulting
from past or current transactions that require settlement in
the future.
Total Net Worth (the amount of owner's or stockholder's
ownership in an enterprise) is equal to Total Assets minus
Total Liabilities.
Working Capital shall mean Current Assets minus Current
Liabilities.
The Customer will be required to maintain the following financial
covenants:
(a) Total Liabilities to TNW ratio of less than 6.50:1.0 at
all times;
(b) Current Ratio of greater than 1.00:1.0 at all times;
(c) TNW of greater than $90,000,000 at all times;
(d) Net Profit after Tax of (1) no loss greater than 10% of
TNW in any fiscal quarter and (2) no losses for three
consecutive fiscal quarters.
IV. Tier Periods
As used in the definitions of "Tier 1 Period" and "Tier 2 Period"
below, a "period" shall mean an interval of time commencing from
the first day of the calendar month following the date Customer
delivers to IBM Credit or the date when due, whichever is
earliest, the balance sheet and income statement for the fiscal
year or fiscal quarter, as applicable, with respect to a fiscal
period and ending on the last day of the calendar month which
contains the date Customer delivers to IBM Credit or the date
when due, whichever is earliest, the balance sheet and income
statement for the next succeeding fiscal period.
"Tier 1 Period" means each period with respect to which (i) the
ratio of Customer's Total Liabilities to TNW (the "Leverage
Ratio") during the immediately preceding fiscal period is less
than 4.75 to 1, (ii) the Customer's Current Ratio during such
fiscal period is greater than 1.05 to 1, (iii) Customer's TNW
during such fiscal period is greater than $105,000,000 and (iv)
the Customer's Net Profit after Tax ("Profitability") during such
fiscal period is such that (a) there is no loss greater than 5%,
(b) if there is a loss in that fiscal period, it is not the
<PAGE>
second or more consecutive fiscal quarter with a loss and (c) on
an on-going basis beginning with October 1, 1995, there is no
cumulative loss for four consecutive fiscal quarters.
"Tier 2 Period" means each period (x) with respect to which (i)
the Customer's Leverage Ratio during the immediately preceding
fiscal period is less than 6.5 to 1, (ii) the Customer's Current
Ratio during such fiscal period is greater than 1.00 to 1,
(iii) Customer's TNW during such fiscal period is greater than
$90,000,000 and (iv) the Customer's Profitability is such that
(a) there is no loss greater than 10% and (b) if there is a loss
in that fiscal period, it is not the third or more consecutive
fiscal quarter with a loss and (y) which is not a Tier 1 Period.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-27-1997
<PERIOD-START> DEC-29-1996
<PERIOD-END> JUN-28-1997
<CASH> 30,720
<SECURITIES> 0
<RECEIVABLES> 257,358
<ALLOWANCES> 3,970
<INVENTORY> 464,145
<CURRENT-ASSETS> 761,066
<PP&E> 69,674
<DEPRECIATION> 68,515
<TOTAL-ASSETS> 944,912
<CURRENT-LIABILITIES> 679,197
<BONDS> 55,250
0
0
<COMMON> 1,153
<OTHER-SE> 205,859
<TOTAL-LIABILITY-AND-EQUITY> 944,912
<SALES> 1,813,904
<TOTAL-REVENUES> 1,813,904
<CGS> 1,631,787
<TOTAL-COSTS> 1,631,787
<OTHER-EXPENSES> 147,671
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 14,184
<INCOME-PRETAX> 20,262
<INCOME-TAX> 8,308
<INCOME-CONTINUING> 11,954
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 11,954
<EPS-PRIMARY> 1.04
<EPS-DILUTED> .94
</TABLE>
