UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION
The unaudited pro forma combined financial statements are based on the
historical consolidated financial statements of InaCom Corp. ("InaCom") and
Vanstar Corporation ("Vanstar") and give effect to the merger as a pooling of
interests. The unaudited pro forma combined statements of operations for the
first nine months of fiscal years 1998 and 1997 and for fiscal years ended
December 1997, 1996 and 1995 assume that the merger had been consummated as of
the beginning of the earliest period presented. The unaudited pro forma combined
balance sheet data assume that the merger, whereby Vanstar became a wholly-owned
subsidiary of InaCom, had been consummated on September 26, 1998, with respect
to InaCom and October 31, 1998 with respect to Vanstar. InaCom's fiscal years
ended on December 27, 1997, December 28, 1996 and December 30, 1995; Vanstar's
fiscal years ended on April 30, 1998, 1997 and 1996. InaCom's financial
reporting period will be adopted by the combined entity. For purposes of the
Unaudited Pro Forma Combined Statements of Operations, Vanstar's fiscal year end
has been adjusted to conform with Regulation S-X of the Securities and Exchange
Commission. For purposes of presenting unaudited pro forma combined financial
statements, Vanstar's fiscal year end has been adjusted to January 31 by
including the reported financial statements for the quarter ended January 31 and
the three previous quarters ended October 31, July 31 and April 30 . Vanstar's
nine month financial statements have been adjusted to include reported financial
data for quarters ended October 31, July 31 and April 30. The unaudited pro
forma adjustments described in the accompanying notes are based upon preliminary
estimates and certain assumptions that the managements of InaCom and Vanstar
believe are reasonable.
As a result of the merger, all amounts outstanding under InaCom's and
Vanstar's credit facilities and trade receivables financing facilities become
immediately due and payable. Prior to the consummation of the merger, Vanstar or
InaCom received written waivers from the parties to those agreements. Also as a
result of the merger, InaCom will be required to give a notice to the holders of
$141.5 million of convertible subordinated debentures that a holder can require
InaCom to repurchase such holder's debentures at 100% of the principal amount
plus accrued and unpaid interest. The holders may only exercise such repurchase
option during the 30-day period following the date of the notice.
The unaudited pro forma financial statements are not necessarily
indicative of actual or future financial position or results of operations that
would have or will occur upon consummation of the merger, and should be read in
conjunction with the audited and unaudited historical consolidated financial
statements, including the notes thereto, of InaCom and Vanstar.
INACOM CORP.
VANSTAR CORPORATION
PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
(UNAUDITED)
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
INACOM VANSTAR PRO FORMA
NINE MONTHS ENDED NINE MONTHS ENDED -------------------------
SEPTEMBER 26, 1998 OCTOBER 31, 1998 ADJUSTMENTS COMBINED
------------------ ------------------ ----------- ------------
Revenues:
Computer products........................ $ 2,850,513 $ 1,604,557 $ -- $ 4,455,070
Computer services........................ 254,840 367,055 -- 621,895
Communications products and services..... 96,057 -- -- 96,057
------------------ ------------------ ----------- ------------
3,201,410 1,971,612 -- 5,173,022
------------------ ------------------ ----------- ------------
Direct costs:
Computer products........................ 2,698,304 1,459,699 -- 4,158,003
Computer services........................ 151,985 221,218 -- 373,203
Communications products and services..... 78,291 -- -- 78,291
------------------ ------------------ ----------- ------------
2,928,580 1,680,917 -- 4,609,497
------------------ ------------------ ----------- ------------
Gross margin............................... 272,830 290,695 -- 563,525
Selling, general and administrative
expenses................................. 192,911 287,367 -- 480,278
Restructuring charges...................... -- 12,009 -- 12,009
------------------ ------------------ ----------- ------------
Operating income (loss).................... 79,919 (8,681) -- 71,238
Financing expense, net..................... 25,685 25,685 -- 51,370
------------------ ------------------ ----------- ------------
Earnings (loss) before income taxes........ 54,234 (34,366) -- 19,868
Income tax expense (benefit)............... 22,308 (2,370) -- 19,938
------------------ ------------------ ----------- ------------
Income (loss) before distributions on
preferred securities of Trust............ 31,926 (31,996) -- (70)
Distributions on convertible preferred
securities............................... -- 6,686 -- 6,686
------------------ ------------------ ----------- ------------
Net earnings (loss)........................ $ 31,926 $ (38,682) $ -- $ (6,756)
------------------ ------------------ ----------- ------------
------------------ ------------------ ----------- ------------
Earnings (loss) per share:
Basic.................................... $ 2.02 $ (0.89) $ -- $ (0.15)
Diluted.................................. $ 1.71 $ (0.89) $ -- $ (0.15)
------------------ ------------------ ----------- ------------
------------------ ------------------ ----------- ------------
Common shares and equivalents outstanding:
Basic.................................... 15,800 43,519 (15,619)(6) 43,700
Diluted.................................. 20,500 43,519 (20,319)(6) 43,700
------------------ ------------------ ----------- ------------
------------------ ------------------ ----------- ------------
See notes to unaudited pro forma combined financial statements on page 8.
2
INACOM CORP.
VANSTAR CORPORATION
PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
(UNAUDITED)
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
INACOM VANSTAR PRO FORMA
NINE MONTHS ENDED NINE MONTHS ENDED -------------------------
SEPTEMBER 27, 1997 OCTOBER 31, 1997 ADJUSTMENTS COMBINED
------------------ ------------------ ----------- ------------
Revenues:
Computer products........................ $ 2,579,066 $ 1,663,804 $ -- $ 4,242,870
Computer services........................ 173,872 306,780 -- 480,652
Communications products and services..... 74,300 -- -- 74,300
------------------ ------------------ ----------- ------------
2,827,238 1,970,584 -- 4,797,822
------------------ ------------------ ----------- ------------
Direct costs:
Computer products........................ 2,436,639 1,502,623 -- 3,939,262
Computer services........................ 96,783 191,836 -- 288,619
Communications products and services..... 57,819 -- -- 57,819
------------------ ------------------ ----------- ------------
2,591,241 1,694,459 -- 4,285,700
------------------ ------------------ ----------- ------------
Gross margin............................... 235,997 276,125 -- 512,122
Selling, general and administrative
expenses................................. 181,822 222,119 -- 403,941
------------------ ------------------ ----------- ------------
Operating income........................... 54,175 54,006 -- 108,181
Financing expense, net..................... 21,673 16,230 -- 37,903
------------------ ------------------ ----------- ------------
Earnings before income taxes............... 32,502 37,776 -- 70,278
Income tax expense......................... 13,319 13,600 -- 26,919
------------------ ------------------ ----------- ------------
Income before distributions on preferred
securities of Trust...................... 19,183 24,176 -- 43,359
Distribution on convertible preferred
securities............................... -- 6,684 -- 6,684
------------------ ------------------ ----------- ------------
Net earnings............................... $ 19,183 $ 17,492 $ -- $ 36,675
------------------ ------------------ ----------- ------------
------------------ ------------------ ----------- ------------
Earnings per share:
Basic.................................... $ 1.68 $ 0.41 $ -- $ 0.94
Diluted.................................. $ 1.49 $ 0.40 $ -- $ 0.90
------------------ ------------------ ----------- ------------
------------------ ------------------ ----------- ------------
Common shares and equivalents outstanding:
Basic.................................... 11,400 42,949 (15,449)(6) 38,900
Diluted.................................. 13,900 44,147 (15,847)(6) 42,200
------------------ ------------------ ----------- ------------
------------------ ------------------ ----------- ------------
See notes to unaudited pro forma combined financial statements on page 8.
3
INACOM CORP.
VANSTAR CORPORATION
PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
(UNAUDITED)
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
INACOM VANSTAR
YEAR ENDED YEAR ENDED PRO FORMA
DEC. 27, JAN. 31, -------------------------
1997 1998 ADJUSTMENTS COMBINED
------------ ------------ ----------- ------------
Revenues:
Computer products.................................... $3,547,732 $2,239,410 $ -- $ 5,787,142
Computer services.................................... 247,243 434,538 -- 681,781
Communications products and services................. 101,327 -- -- 101,327
------------ ------------ ----------- ------------
3,896,302 2,673,948 -- 6,570,250
------------ ------------ ----------- ------------
Direct costs:
Computer products.................................... 3,354,786 2,022,068 -- 5,376,854
Computer services.................................... 133,432 269,249 -- 402,681
Communications products and services................. 79,092 -- -- 79,092
------------ ------------ ----------- ------------
3,567,310 2,291,317 -- 5,858,627
------------ ------------ ----------- ------------
Gross margin........................................... 328,992 382,631 -- 711,623
Selling, general and administrative expenses........... 250,097 299,981 -- 550,078
------------ ------------ ----------- ------------
Operating income....................................... 78,895 82,650 -- 161,545
Financing expense, net................................. 29,024 25,053 -- 54,077
------------ ------------ ----------- ------------
Earnings before income taxes........................... 49,871 57,597 -- 107,468
Income tax expense..................................... 20,415 20,736 -- 41,151
------------ ------------ ----------- ------------
Income before distributions on preferred securities of
Trust................................................ 29,456 36,861 -- 66,317
Distributions on convertible preferred securities...... -- 8,912 -- 8,912
------------ ------------ ----------- ------------
Net earnings........................................... $ 29,456 $ 27,949 $ -- $ 57,405
------------ ------------ ----------- ------------
------------ ------------ ----------- ------------
Earnings per share:
Basic................................................ $ 2.48 $ 0.65 $ -- $ 1.46
Diluted.............................................. $ 2.17 $ 0.63 $ -- $ 1.39
------------ ------------ ----------- ------------
------------ ------------ ----------- ------------
Common shares and equivalents outstanding:
Basic................................................ 11,900 43,027 (15,527)(6) 39,400
Diluted.............................................. 14,600 44,240 (15,940)(6) 42,900
------------ ------------ ----------- ------------
------------ ------------ ----------- ------------
See notes to unaudited pro forma combined financial statements on page 8.
4
INACOM CORP.
VANSTAR CORPORATION
PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
(UNAUDITED)
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
INACOM VANSTAR
YEAR ENDED YEAR ENDED PRO FORMA
DEC. 28, JAN. 31, -------------------------
1996 1997 ADJUSTMENTS COMBINED
------------ ------------ ----------- ------------
Revenues:
Computer products................................... $2,885,019 $ 1,849,151 $ -- $ 4,734,170
Computer services................................... 136,888 329,426 -- 466,314
Communications products and services................ 80,148 -- -- 80,148
------------ ------------ ----------- ------------
3,102,055 2,178,577 -- 5,280,632
------------ ------------ ----------- ------------
Direct costs:
Computer products................................... 2,722,368 1,666,565 -- 4,388,933
Computer services................................... 76,243 196,606 -- 272,849
Communications products and services................ 62,668 -- -- 62,668
------------ ------------ ----------- ------------
2,861,279 1,863,171 -- 4,724,450
------------ ------------ ----------- ------------
Gross margin.......................................... 240,776 315,406 -- 556,182
Selling, general and administrative expenses.......... 188,652 223,807 -- 412,459
------------ ------------ ----------- ------------
Operating income...................................... 52,124 91,599 -- 143,723
Financing expense, net................................ 20,405 18,597 -- 39,002
------------ ------------ ----------- ------------
Earnings before income taxes.......................... 31,719 73,002 -- 104,721
Income tax expense.................................... 12,986 26,493 -- 39,479
------------ ------------ ----------- ------------
Income before distributions on preferred securities of
Trust............................................... 18,733 46,509 -- 65,242
Distributions on convertible preferred securities..... -- 2,916 -- 2,916
------------ ------------ ----------- ------------
Net earnings.......................................... $ 18,733 $ 43,593 $ -- $ 62,326
------------ ------------ ----------- ------------
------------ ------------ ----------- ------------
Earnings per share:
Basic............................................... $ 1.80 $ 1.06 $ -- $ 1.70
Diluted............................................. $ 1.66 $ 1.02 $ -- $ 1.62
------------ ------------ ----------- ------------
------------ ------------ ----------- ------------
Common shares and equivalents outstanding:
Basic............................................... 10,400 40,970 (14,770)(6) 36,600
Diluted............................................. 11,900 42,573 (15,373)(6) 39,100
------------ ------------ ----------- ------------
------------ ------------ ----------- ------------
See notes to unaudited pro forma combined financial statements on page 8.
5
INACOM CORP.
VANSTAR CORPORATION
PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
(UNAUDITED)
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
INACOM VANSTAR
YEAR ENDED YEAR ENDED PRO FORMA
DEC. 30, JAN. 31, -------------------------
1995 1996 ADJUSTMENTS COMBINED
------------ ------------ ----------- ------------
Revenues:
Computer products................................... $2,047,215 $ 1,541,241 $ -- $ 3,588,456
Computer services................................... 95,476 237,371 -- 332,847
Communications products and services................ 57,653 -- -- 57,653
------------ ------------ ----------- ------------
2,200,344 1,778,612 -- 3,978,956
------------ ------------ ----------- ------------
Direct costs:
Computer products................................... 1,924,829 1,397,095 -- 3,321,924
Computer services................................... 27,877 131,830 -- 159,707
Communications products and services................ 43,832 -- -- 43,832
------------ ------------ ----------- ------------
1,996,538 1,528,925 -- 3,525,463
------------ ------------ ----------- ------------
Gross margin.......................................... 203,806 249,687 -- 453,493
Selling, general and administrative expenses.......... 169,338 230,105 -- 399,443
------------ ------------ ----------- ------------
Operating income...................................... 34,468 19,582 -- 54,050
Financing expense, net................................ 14,635 32,592 -- 47,227
------------ ------------ ----------- ------------
Earnings (loss) before income taxes................... 19,833 (13,010) -- 6,823
Income tax expense (benefit).......................... 8,126 (4,872) -- 3,254
------------ ------------ ----------- ------------
Income (loss) from continuing operations.............. 11,707 (8,138) -- 3,569
Gain on disposal of discontinued businesses........... -- 9,194 -- 9,194
------------ ------------ ----------- ------------
Net earnings.......................................... $ 11,707 $ 1,056 $ -- $ 12,763
------------ ------------ ----------- ------------
------------ ------------ ----------- ------------
Earnings (loss) per share:
Basic
Continuing Operations............................. $ 1.17 $ (0.25) $ -- $ 0.12
Discontinued Operations........................... -- 0.28 -- 0.30
------------ ------------ ----------- ------------
Total........................................... $ 1.17 $ 0.03 $ -- $ 0.41
------------ ------------ ----------- ------------
------------ ------------ ----------- ------------
Diluted
Continuing Operations............................. $ 1.16 $ (0.25) $ -- $ 0.11
Discontinued Operations........................... -- 0.28 -- 0.30
------------ ------------ ----------- ------------
Total........................................... $ 1.16 $ 0.03 $ -- $ 0.41
------------ ------------ ----------- ------------
------------ ------------ ----------- ------------
Common shares and equivalents outstanding:
Basic............................................... 10,000 32,503 (11,703)(6) 30,800
Diluted............................................. 10,100 32,828 (11,828)(6) 31,100
------------ ------------ ----------- ------------
------------ ------------ ----------- ------------
See notes to unaudited pro forma combined financial statements on page 8.
6
INACOM CORP.
VANSTAR CORPORATION
PRO FORMA COMBINED CONDENSED BALANCE SHEET
(UNAUDITED)
(AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)
INACOM VANSTAR PRO FORMA
SEPT. 26, OCT. 31, -------------------------
1998 1998 ADJUSTMENTS COMBINED
------------- ------------ ----------- ------------
Current assets:
Cash and cash equivalents.......................... $ 30,271 $ 11,112 $ -- $ 41,383
Accounts receivable, net........................... 424,429 289,174 -- 713,603
Inventories........................................ 336,205 231,726 -- 567,931
Other current assets............................... 22,408 31,101 34,580(2) 88,089
------------- ------------ ----------- ------------
Total current assets............................. 813,313 563,113 34,580 1,411,006
------------- ------------ ----------- ------------
Other assets, net.................................... 36,492 63,010 (4,400)(2) 95,102
Cost in excess of net assets of businesses acquired,
net of accumulated amortization.................... 214,258 103,987 -- 318,245
Property and equipment, net.......................... 94,583 51,572 (8,000)(2) 138,155
------------- ------------ ----------- ------------
$ 1,158,646 $ 781,682 $ 22,180 $ 1,962,508
------------- ------------ ----------- ------------
------------- ------------ ----------- ------------
LIABILITIES AND
STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable................................... $ 399,809 $ 165,476 $ -- $ 565,285
Short-term borrowings and current maturities of
long-term debt................................... 105,000 168,701 141,500(4) 415,201
Deferred revenue................................... -- 41,032 -- 41,032
Other current liabilities.......................... 94,150 50,399 117,000(2) 261,549
------------- ------------ ----------- ------------
Total current liabilities........................ 598,959 425,608 258,500 1,283,067
------------- ------------ ----------- ------------
Convertible subordinated debentures and
long-term debt, less current maturities............ 141,500 581 (141,500)(4) 581
Other long-term liabilities.......................... 3,986 1,230 -- 5,216
Vanstar-obligated mandatorily redeemable convertible
preferred securities of subsidiary Trust holding
solely convertible subordinated debt securities of
Vanstar............................................ -- 194,915 -- 194,915
Stockholders' equity:
Capital stock:
Class A preferred stock of $1 par value, Authorized
1,000,000 shares; none issued.................... -- -- -- --
Common Stock......................................... 1,677 44 -- 1,721
Additional paid-in capital........................... 274,866 134,939 -- 409,805
Retained earnings.................................... 138,989 27,027 (94,820)(2) 71,196
Accumulated other comprehensive loss................. -- (2,662) -- (2,662)
------------- ------------ ----------- ------------
415,532 159,348 (94,820) 480,060
Less unearned restricted stock....................... (1,331) -- -- (1,331)
------------- ------------ ----------- ------------
Total stockholders' equity....................... 414,201 159,348 (94,820) 478,729
------------- ------------ ----------- ------------
$ 1,158,646 $ 781,682 $ 22,180 $ 1,962,508
------------- ------------ ----------- ------------
------------- ------------ ----------- ------------
See notes to unaudited pro forma combined financial statements on page 8.
7
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
NOTE 1 - BASIS OF PRESENTATION
On October 8, 1998, InaCom, Vanstar and a wholly owned subsidiary of
InaCom entered into the agreement providing for the merger which was consummated
on February 17, 1999 with the result that Vanstar became a wholly-owned
subsidiary of InaCom. As a result of the merger, each of the then outstanding
shares of Vanstar common stock was converted into the right to receive .64
shares of InaCom common stock.
The unaudited pro forma combined financial statements have been
prepared assuming that the merger will be accounted for under the "pooling of
interests" method of accounting. Under this method of accounting, the assets and
liabilities of InaCom and Vanstar will be combined based on the respective
carrying values of the accounts in the historical financial statements of each
entity. Results of operations of the combined company will include income of
InaCom and Vanstar for the entire fiscal period in which the combination occurs
and the historical results of operations of the separate companies for fiscal
years prior to the merger will be combined and reported as the results of
operations of the combined company.
InaCom's fiscal years ended on December 27, 1997, December 28, 1996 and
December 30, 1995; Vanstar's fiscal year ended on April 30, 1998, 1997 and 1996.
InaCom's financial reporting period will be adopted by the combined entity. For
purposes of the Unaudited Pro Forma Combined Condensed Statements of Operations,
Vanstar's fiscal year end has been adjusted to conform with Regulation S-X. For
purposes of presenting unaudited pro forma combined financial data, Vanstar's
fiscal year end has been adjusted to January 31 by including the reported
financial data for the quarter ending January 31 and the three previous quarters
ending October 31, July 31 and April 30. Vanstar's nine month financial data has
been adjusted to include reported financial data for quarters ending October 31,
July 31 and April 30. The Unaudited Pro Forma Combined Condensed Balance Sheet
assumes that the merger had been consummated as of September 26, 1998 with
respect to InaCom and October 31, 1998 with respect to Vanstar.
NOTE 2 - ADJUSTMENTS TO RECORD MERGER-RELATED CHARGES
InaCom expects to record a material pre-tax charge following
consummation of the merger to cover (1) the direct costs of the merger
(including the fees of financial advisors, legal counsel, and independent
auditors), (2) the cost of integrating certain aspects of the businesses of
InaCom and Vanstar, (3) the cost of canceling certain purchase commitments, (4)
the costs of employee terminations and facility expenses to eliminate
duplicative functions and locations, and (5) other merger related items. This
pre-tax charge is estimated to be in the range of $120 to $155 million. The
after-tax impact of this charge is estimated to be in the range of $83 to $107
million, and the midpoint of this range has been charged to Retained Earnings in
the foregoing Unaudited Pro Forma Combined Condensed Balance Sheet. The
estimated charges and nature of the costs included therein as well as the
periods in which these costs are recorded are subject to change as InaCom's
integration plan is more fully developed and more accurate estimates become
available.
NOTE 3 - COMBINED COMPANY ALIGNMENT AND RESTRUCTURING CHARGES
In connection with the implementation of the merger, InaCom expects to
continue an assessment and study of assets and resources required to carry out
business objectives and plans. In addition to the merger-related charges
described in Note 2, following the closing InaCom expects to incur costs to
align the combined company operations to meet the changing conditions of the
industry, principally the evolution of a "build-to-order" model. These actions
could lead to additional costs from the combined company's efforts to reduce
inventory levels due to changes in vendor and customer programs. The additional
costs related to the integration and alignment of the combined company are
preliminarily estimated to be from $40 to $80 million, on a pre-tax basis. These
amounts and the nature of the costs included therein as well as the period in
which these costs are recorded cannot be determined until InaCom's integration
plans are more fully developed and implemented and more accurate estimates
become available. These additional pre-tax charges are not reflected in the
unaudited pro forma financial statements included herein.
Not included in the merger-related charges described in Note 2 and the
preliminary estimate of costs related to the integration and alignment of the
combined company stated above, are the restructuring and unusual pre-tax charges
of $45.3 million that Vanstar included in its second quarter ended October 31,
1998. These additional pre-tax charges are included in the unaudited pro forma
financial statements included herein.
NOTE 4 - CHANGE IN CONTROL
Upon the consummation of the merger, InaCom underwent a change in
control, the impact of which is reflected in the foregoing Unaudited Pro Forma
Combined Condensed Balance Sheet. The item impacted by this change in control is
the convertible subordinated debentures.
InaCom has outstanding $55,250,000 in aggregate principal amount of its
6% convertible subordinated debentures due June 15, 2006 and $86,250,000 in
aggregate principal amount of its 4.5% convertible subordinated debentures due
November 1, 2004. Upon consummation of the merger, each holder of these
debentures can require InaCom to repurchase such holder's debentures at 100% of
the principal amount thereof, plus accrued and unpaid interest. Moreover, with
respect to the 4.5% debentures, unless InaCom has repaid all senior indebtedness
on or before the repurchase date, InaCom must pay the repurchase price in InaCom
common stock valued at 95% of the average of the closing prices of InaCom common
stock for the five consecutive trading days ending on the third trading day
preceding the repurchase date.
NOTE 5 - INCOME TAXES
Estimated provision for income taxes related to pro forma adjustments
are based on an assumed combined federal and state income tax rate of
approximately 38%, adjusted for certain nondeductible items.
NOTE 6 - EARNINGS (LOSS) PER COMMON SHARE
The pro forma combined per common share data has been computed based on
the combined historical income from operations and on the combined historical
weighted average common shares and equivalents outstanding. For purposes of this
calculation, Vanstar's weighted average common shares and common equivalents
outstanding were multiplied by .64, the exchange ratio.