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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10-K
(Mark one)
/X/ Annual report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 For the fiscal year ended December 27, 1997 or
/ / Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
COMMISSION FILE NO. 0-16114
INACOM CORP.
(Exact name of registrant as specified in its charter)
DELAWARE 47-0681813
(State or other jurisdiction (I.R.S. Employer
incorporation or organization) Identification No.)
10810 FARNAM, OMAHA, NEBRASKA 68154
(Address of principal executive
offices) (Zip Code)
Registrant's phone number, including area code: (402) 392-3900
Securities registered pursuant to Section 12(b) of the Act:
NAME OF EXCHANGE
TITLE OF EACH ON WHICH
CLASS REGISTERED
- ---------------- ------------------
Common Stock, New York Stock
$.10 Par Value Exchange
Securities registered pursuant to Section 12(g) of the Act:
None
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Sections 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding twelve months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes /X/ No / /
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. / /
The aggregate market value of the voting stock held by non-affiliates of the
registrant, based upon the closing price of the Common Stock on March 25, 1998
as reported on New York Stock Exchange (NYSE), was approximately $432,000,000.
At March 25, 1998 there were outstanding 15,335,963 common shares of the
Company.
DOCUMENTS INCORPORATED BY REFERENCE
Parts of the Proxy Statement for Registrant's 1998 Annual Meeting of
Stockholders are incorporated by reference in Part III of this Form 10-K Report.
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PAGE 1 OF 42
INDEX TO EXHIBITS, PAGE 41
PART I
ITEM 1. BUSINESS.
GENERAL DESCRIPTION OF BUSINESS.
InaCom Corp., a Delaware corporation ("Inacom" or the "Company"), is a
leading single-source provider of information technology products and technology
management services designed to enhance the productivity of information systems
primarily for Fortune 1000 clients. The Company offers a comprehensive range of
integrated life cycle services to manage the entire technology life cycle
including: (1) technology planning, (2) technology procurement, (3) technology
integration, (4) technology support, and (5) technology management. Inacom's
expertise includes the integration of voice and data communications. Inacom
sells its products and services through a marketing network of 51 Company-owned
business centers (at December 27, 1997) throughout the United States that focus
on serving large corporations. The Company also has a network of approximately
1,000 value-added resellers (at December 27, 1997) that typically have a
regional, industry, or specific product focus. The Company has international
affiliations in Europe, Asia, Central and South America, the Caribbean, Middle
East, Africa, Canada, and Mexico to satisfy the technology management needs of
its multinational clients.
Inacom's expertise in procurement, configuration, and delivery of personal
computers, peripherals and software from a wide range of major vendors enables
the Company to customize information systems to meet specific client needs. In
addition, Inacom provides its clients with numerous benefits including in-depth
product knowledge and experience, competitive pricing from its purchasing
arrangements, and a wide array of services supporting client needs on an
on-going basis.
HISTORY AND STRATEGY
The Company has been providing information technology products and
technology management services since 1982, and communications products and
services since 1987. The Company was established as a division of Valmont
Industries, Inc. ("Valmont") in 1982 and became a wholly owned-subsidiary of
Valmont in 1985 under the name ValCom, Inc. The Company completed an initial
public offering of its common stock in 1987 and changed its name to Inacom Corp.
in 1991.
Inacom's strategy is to grow net earnings and increase economic value added
to enhance shareholder value. To achieve these goals, Inacom provides
comprehensive solutions to improve the productivity of its clients' information
systems. Key elements of the Company strategy are: (1) to leverage client
relationships to continue expanding higher-margin services revenues, (2) to
capitalize on the trend toward build-to-order/configure-to-order systems, (3) to
expand offerings and geographic coverage through strategic acquisitions, and (4)
to capitalize on the convergence of data and voice communications.
INTEGRATED LIFE CYCLE SERVICES
As a single-source provider of technology products and services, the Company
strives to help its clients optimize their information technology investments
and control ongoing costs throughout the life cycle of the clients' technology
systems. The Company combines a process improvement approach along with tools
and practices gained by experience and trained personnel to assist its clients
in managing the entire life cycle and costs of distributed technology.
TECHNOLOGY PLANNING. Technology planning services involve assisting clients
in designing and developing standardized technology platforms. The services
include determining standard hardware technology, application software,
operating system software, and networking platforms. The Company assists its
clients with the selection and standardization of manufacturer brands (such as
IBM, Compaq, Hewlett-Packard, Microsoft, Lotus, and others) and assists its
clients in studying the total cost, performance and capabilities of these brands
and products.
2
Technology planning services performed by the Company also include the
development of strategies for deployment of distributed technology systems
within its clients' businesses. The Company assists its clients in decisions to
lease or purchase, determining replacement cycles and centralizing acquisition
processes. To assist clients with technology planning, the Company has developed
specific products and programs such as Policy Based Management-TM-, Tactical
Enterprise Network Assessment-TM- and Enterprise Technology Blueprint-TM-.
TECHNOLOGY PROCUREMENT. Technology procurement services generally involve
coordinating the technology purchase process, requisitioning technology
products, processing, tracking and reporting on the status of orders,
customizing hardware and software configurations, direct shipment, and shipment
tracking. The demand for cost-effective customized technology systems has driven
a significant change in industry procurement methods including the trend toward
build-to-order programs. Compaq, IBM and Hewlett-Packard have chosen Inacom for
participation in their build-to-order programs. Inacom has invested over $42
million in its state-of-the-art assembly and delivery systems to provide
build-to-order capabilities. The facilities are strategically located in
Swedesboro, New Jersey, Omaha, Nebraska, and Ontario, California to provide
prompt and cost-effective delivery nationwide.
The Company also focuses its technology procurement services on shortening
the delivery time of technology products, improving compliance to standards in
its clients' organizations, assisting in negotiating hardware and software
agreements on behalf of its clients, and providing other services that minimize
its clients' costs. The Company provides certain clients with on-site technical
procurement specialists who assist and manage the technology procurement process
at client locations nationwide. These procurement specialists are technically
oriented and focus on process improvement and operational efficiencies in the
procurement process.
The Company's Inacommerce-TM- and Inacommerce Plus-TM- software provide an
easy to use internet-based procurement management system that allows a business
client to determine real-time product availability and order status along with a
custom configurator to assist the client in designing a technology solution from
its desktop computer. The Company's VISION-TM- 2000 software also allows a
business client to determine daily product availability, custom configure and
order its technology solution. The Company's Direct Express delivery program
reduces the number of steps in the procurement process by shipping products
directly to the location selected by the business client.
TECHNOLOGY INTEGRATION. The Company provides technology integration
services to its clients in an effort to assist clients in obtaining technology
that achieves the clients' business goals. The Company has products and services
available to assist, design and support clients' wide area networks (WANs) and
local area networks (LANs) and to manage software procurement and license
control.
The Company employs high-end technical systems engineers and systems
consultants who perform technology integration services at client locations.
These systems engineers and systems consultants, and the project managers who
coordinate their activities, are contracted to the client for hourly rates or
for fixed-price extended contracts.
TECHNOLOGY SUPPORT. The Company provides its clients ongoing support in
their distributed technology systems primarily in two major areas: "break/fix"
hardware maintenance and installation, moves, additions, and changes ("IMACs").
These functions are similar, but differ in the timing and level of service.
The Company's break/fix hardware maintenance capabilities are supported
directly by the Company's help desk operation, HelpCentral-TM-. Centralized
break/fix hardware maintenance provides coordination, problem solving, tracking
and control of the clients' hardware maintenance needs.
IMAC distributed support services are managed through various scheduling and
reporting tools that are interrelated with the Company's VISTA-TM-, VISION-TM-,
Inacommerce-TM-, and Inacommerce Plus-TM-
3
information systems. Additionally, the Company provides distributed support
services to its clients by providing on-site technical personnel that may be
involved in various support activities, including LAN administration, network
monitoring, general deskside support, and some end-user training.
The Company also offers convergence solutions centered around WAN's,
computer and telephone integration, desktop video conferencing, and wireless
data communications. These services include specialized support programs,
maintenance programs and specialized software. The Company provides
communication network services with advanced digital capabilities enabling
voice, data and video communications, utilizing AT&T, Frontier and Westinghouse
networks. The Company's communications services also include long distance,
inbound 800 service, calling cards, and teleconferencing featuring account codes
and enhanced billing and customized call reports which allow business clients to
restrict and track telecommunications activity.
TECHNOLOGY MANAGEMENT. The Company provides technology management services
that assess the current state and future needs of a client's distributed
technology network to maximize the value of the client's investment in its
networked systems. The technology management services provided through remote
management centers assist clients in the control and reliability of LAN/WAN
environments, provide a study of adequate network speed and responsive user
services, and monitor the infrastructure and system capabilities to satisfy
clients' current and future needs. The Company has developed specific products
and programs to assist its clients in the technology management function,
including Inacom Network Patrol-TM- and Inacom Network Baseline.-TM-
The Company has also developed a comprehensive program called Inacom Asset
Advantage-TM- that contains tools and process improvement techniques to assist
its clients' in the inventorying, tracking and controlling of distributed
technology assets. This program helps clients meet financial, risk management,
custodial, warranty, maintenance, service, and refreshment objectives. The
products, including Inacom Asset Roll-Call-TM-, can be integrated with
HelpCentral-TM- and also integrated with the other life cycle products and
programs to help lower the total ownership cost of clients' technology.
Additionally, the Company's Computer Resources International and Boston Computer
Exchange business units provide customized asset registry, asset tracking
services and disposal services to its clients.
PRODUCTS AND VENDORS
Computer products include microcomputers, workstations, servers, monitors,
printers, and operating systems software. The Company currently distributes
computer products from such leading vendors as Compaq, IBM, Hewlett-Packard,
Toshiba, Lexmark, Novell, Microsoft, Oracle, 3Com, SynOptics, Cisco, Intel, and
Network General. Compaq, IBM and Hewlett-Packard, collectively, represented
approximately 63% and 65% of the Company's net revenues in fiscal 1997 and 1996,
respectively.
Communications products and services include phone systems, voice mail,
voice processing, data network equipment, multiple small office-home office
offerings, and maintenance. The Company also offers network services including
long distance, 800 service, calling cards, wide area value-added data
networking, video conferencing, and cellular communications. The products of
Lucent Technologies and the services of AT&T constitute approximately 85% of the
voice and data systems sold by the Company.
The Company has negotiated purchase arrangements, including price, delivery,
training, and support, directly with most major vendors. The Company's
agreements with its vendors are generally on a non-exclusive basis and may be
terminated by the vendors on notice typically ranging from 30 to 90 days.
The agreements with vendors generally contain provisions with respect to
product cost, price protection, returns, and product allocations; the Company is
entitled to price protection with all major vendors on eligible products in the
Company's inventory in the event of vendor price reductions. Certain vendors
also sponsor payment programs with several financial service organizations to
facilitate product sales through the business centers. In addition, the
Company's primary vendors provide various incentives for
4
promoting and marketing their products which typically range from 1% to 5% of
purchases. The three major forms of vendor incentives received by the Company
are co-operative funds, market development funds and vendor rebates.
Co-operative funds are earned based upon the sale of the vendor's products and
generally must be utilized to offset the costs associated with advertising and
promotion pursuant to programs established by the respective vendor. Market
development funds are earned based upon the Company's purchases from the vendor
and generally must be used for market development activities approved by the
respective vendor. Vendor rebates are based upon the Company's attaining
purchase volume targets established with the vendor. Rebates generally can be
used at the Company's discretion.
MARKETING NETWORK
At December 27, 1997, computer products and services were sold through a
marketing network of approximately 1,000 business centers located throughout the
United States, of which 51 are Company-owned. Communications products and
services are provided through a network of 14 direct sales offices and
contractual relationships with approximately 240 dealers. The Company has
international affiliations in Europe, Asia, Central and South America, the
Caribbean, Middle East, Africa, Canada, and Mexico to satisfy the technology
management needs of its multinational clients.
The Company's direct sales force in the Company-owned business centers
enables the Company to establish relationships with major corporate clients for
purposes of marketing the Company's technology management services.
INTERNATIONAL CAPABILITIES AND FINANCIAL INFORMATION ABOUT FOREIGN OPERATIONS
AND EXPORT SALES
The Company has no foreign locations or material export sales. To satisfy
the technology management service needs of its multinational clients, InaCom
International, a subsidiary of the Company, has international affiliations in
Europe, Asia, Central and South America, the Caribbean, Middle East, Africa,
Canada, and Mexico. International Computer Group (ICG) Paris, an affiliation of
leading independent organizations in various countries, provides pc-related
products and services to international corporate clients. Inacom's capabilities
in international project management and local resources of the affiliated
members allow Inacom to serve the global needs of its multinational clients'
information technology projects. Inacom Latin America, an Inacom subsidiary,
provides international logistics and configuration services in Mexico, the
Caribbean, and Central and South America.
SEASONAL FACTORS IN BUSINESS
The fourth quarter of the Company's fiscal year generally produces higher
revenues, due principally to year-end purchases made by business customers.
CLIENTS
Inacom believes its client base of large and medium-sized businesses is most
likely to benefit from the cost savings obtainable through the technology
management services offered by the Company. Inacom is not dependent for a
material part of its business upon a single or a few clients and the loss of any
one client would not have a material adverse effect on the Company's business.
SERVICE MARK AND TRADEMARK
The Company holds United States service mark and trademark registrations for
the marks "Inacom", "ValCom" and "Inacomp". The Company also has certain state
registrations. The Company claims common law rights to the marks based on
adoption and use. To the Company's knowledge, there are no pending interference,
opposition or cancellation proceedings, or litigation threatened or claimed,
with respect to the marks in any jurisdiction.
5
GOVERNMENT REGULATION
The Company is subject to various federal, state and local laws and
regulations affecting businesses generally such as laws and regulations
concerning employment, workplace safety and protection of the environment. The
Company is also subject to federal and state laws regulating franchise
relationships which generally impose registration and/or disclosure requirements
on the Company in the offer and sale of franchises and also regulate related
advertisements. The Company believes it is in substantial compliance with all
such laws and regulations.
COMPETITION
All aspects of the technology management services industry are highly
competitive. The technology management industry continues to experience a
significant amount of consolidation. In the future Inacom may face fewer but
larger and better financed competitors as a consequence of such consolidation.
The Company's marketing network competes for potential clients, including
national accounts, with numerous resellers and distributors. Several computer
manufacturers have expanded their channels of distribution, pricing and product
positioning and compete with the Company's marketing network for potential
clients. Other competitors operate mail-order or discount stores offering clones
of major vendor products. The Company also competes with other computer
technology providers in the recruitment and retention of franchisees and
independently-owned resellers. The Company competes in the computer services
industry with a large number of service providers, including IBM through its
Global Services division, Andersen Consulting, CompuCom, EDS, ENTEX, GE Capital
Technology Management Service, IKON Offices Solutions, and Vanstar. Competition
in communication products and services is also intense, and includes entities
which are also significant vendors to the Company, such as Lucent Technologies
and AT&T. Certain competitors and manufacturers are substantially larger than
the Company and have greater financial, technical, service, and marketing
resources. The Company's marketing network competes primarily on the basis of
professionalism and client contact, quality of product line, availability of
products, service, after-sale support, price, and quality of end-user training.
EMPLOYEES
At December 27, 1997, the number of employees was approximately 4,200. None
of the employees is covered by a collective bargaining agreement. The Company
considers its relations with employees to be good.
BACKLOG
The backlog of orders for products distributed by the Company was $47.5
million at the close of the 1997 fiscal year compared to $59.3 million at the
close of the 1996 fiscal year and $35.5 million at the close of the 1995 fiscal
year. Such orders are not necessarily firm since large customers may place
orders with several computer resellers and accept products from the first
computer reseller to provide delivery.
6
CERTAIN BUSINESS FACTORS
THIS REPORT, INCLUDING DOCUMENTS INCORPORATED BY REFERENCE HEREIN, 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 RISK FACTORS
DESCRIBED IN THIS REPORT. SHOULD ONE OR MORE OF THESE RISKS OR UNCERTAINTIES
MATERIALIZE, OR SHOULD UNDERLYING ASSUMPTIONS PROVE INCORRECT, ACTUAL RESULTS
MAY VARY MATERIALLY FROM THOSE DESCRIBED HEREIN AS BELIEVED, ESTIMATED OR
EXPECTED.
DEPENDENCE UPON KEY VENDORS
Inacom's business is dependent in large measure upon its relationship with
key vendors. Inacom derives 63.6% of its computer products revenue from Compaq,
IBM and Hewlett-Packard products, and approximately 85% of its communications
products and services revenues from Lucent Technologies and AT&T. Inacom's
agreements with these vendors are on a non-exclusive basis and may be terminated
by the vendors on notice typically ranging from 30 to 90 days. Inacom's business
relationships with the key vendors are good but a material adverse effect on
Inacom's business would occur if a supply agreement with a key vendor is
materially revised, is not renewed or is terminated, key computer vendors
materially decreased marketing development funds paid to Inacom, or the supply
of products were insufficient or interrupted.
IMPACT OF VENDOR INCENTIVE FUNDS
The key vendors of Inacom provide various incentives for promoting and
marketing their product offerings. Funds or credits received by Inacom are based
either on the sales of the vendor's products through the independent reseller
and Inacom-owned channels, or on Inacom's purchases from the respective vendor.
The three major forms of vendor incentives received by Inacom are co-operative
funds, market development funds and vendor rebates. The funds or credits are
earned through performance of specific marketing programs or upon completion of
objectives outlined by the vendors. These funds or credits from Inacom's primary
vendors typically range from 1% to 5% of purchases by Inacom. A material
decrease in the level of vendor incentive funding or credits would have a
material adverse effect on Inacom's business.
INVENTORY MANAGEMENT RISKS
The personal computer industry is characterized by rapid product improvement
and technological change resulting in relatively short product life cycles and
rapid product obsolescence. These factors can place inventory at considerable
valuation risk. Inacom's information technology suppliers generally provide
price protection intended to reduce the risk of inventory devaluation. However,
many of these suppliers have announced plans to reduce the number of days for
which they will provide price protection. If the suppliers do not continue
current price protection policies or if there are unforeseen product
developments, Inacom's business could be materially adversely affected.
BUILD-TO-ORDER DELIVERY MODEL
Inacom is participating in "build-to-order" programs of Compaq, IBM and
Hewlett-Packard. Inacom performs the final assembly of computer products after a
customer order is received. The build-to-order program reduces Inacom's
inventory requirements, improves margins and increases market share. The
potential disadvantages of the build-to-order program include a decrease in the
number of days of price protection available from manufacturers; and meeting
manufacturers' strict qualification standards for final assembly of computer
products.
7
The failure of Inacom to meet the manufacturer qualification standards, or
the inability of Inacom to manage its inventory to levels to meet client demands
and within the manufacturer's price protection limits, could have a material
adverse effect on Inacom's business.
DEPENDENCE UPON KEY MANAGEMENT AND TECHNICAL PERSONNEL
Inacom depends heavily on its senior management team. Further, Inacom faces
intense competition in attracting and retaining qualified technical personnel,
including systems engineers and communications specialists. Inacom's strategy
for growth in the sale of computer services and communication services depends
on its ability to attract and retain qualified technical personnel, including
systems engineers and communications specialists. The failure to recruit and
retain senior management and technical personnel could have a material adverse
effect on Inacom's business.
MANAGEMENT OF EXPANDING OPERATIONS AND INCREASED SERVICE FOCUS
The Company's growth resulting from expanding operations and its increased
focus on the complete life cycle technological needs of its business clients
places significant demands on the Company's management, operational and
technical resources. Such growth and increased life cycle service focus are
expected to continue to challenge the Company's sales, marketing, technical, and
support personnel and senior management. The failure to effectively manage its
growth and the increased focus on life cycle services could have a material
adverse effect on Inacom's business.
FUNDING REQUIREMENTS; INTEREST RATE SENSITIVITY
Inacom borrows a significant amount of working capital to purchase inventory
and to finance accounts receivable. Inacom borrows working capital through an
inventory and working-capital financing agreement and a revolving credit
facility. Inacom has also raised capital through the public sale of debentures.
Inacom's working-capital financing is subject to: interest rate increases
because much of the borrowing bears a floating interest rate; and uncertainty
because there is no assurance that future borrowing will be available in amounts
and on terms acceptable to Inacom.
RISK OF FINANCIAL LEVERAGE
The Company's business requires significant working capital and the primary
sources of such working capital are provided through an inventory and
working-capital financing agreement, a revolving credit facility and the public
sale of debentures. Inacom's substantial level of debt may impair Inacom's
ability to obtain other financing in the future, requires a substantial portion
of Inacom's cash flow from operations to pay principal and interest on its
indebtedness, and may make Inacom more vulnerable to economic downturns and
limit its ability to withstand competitive pressures. Inacom's ability to meet
its debt service obligations or to refinance its indebtedness depends on its
financial and operating performance, which is subject to prevailing economic
conditions and to financial, business and other factors beyond its control.
COMPETITION
The technology management services industry is highly competitive and
continues to experience a significant amount of consolidation. In the future,
Inacom may face fewer but larger and better financed competitors as a
consequence of such consolidation. Inacom competes for potential clients,
including national accounts, with numerous resellers, distributors and service
providers. Several computer manufacturers have expanded their channels of
delivery, pricing and product positioning and compete with Inacom's marketing
network for potential clients. Other competitors operate mail-order or discount
stores offering clones of major vendor products. Inacom also competes with
computer technology providers in the recruitment and retention of franchisees
and independently-owned resellers. Inacom competes in the computer services
division with a large number of service providers, including IBM through its
Global
8
Services division, Andersen Consulting, EDS, CompuCom Systems, ENTEX, GE Capital
Technology Management Services, IKON Office Solutions, and Vanstar Corp. Inacom
faces intense competition in the communications products and services industry
including competition from its key vendors, Lucent Technologies and AT&T.
ACQUISITIONS
Inacom acquires businesses and enters into strategic relationships with
resellers in selected geographic markets and service areas. Acquisitions involve
a number of special risks, including integrating acquired businesses into
Inacom's operation, the potential loss of key employees of acquired businesses,
accurate valuation of acquired businesses, incurrence of additional debt to
finance acquisitions, and financial impact of goodwill amortization. Inacom
intends to issue common stock to consummate some acquisitions which will cause
dilution to current stockholders.
DEPENDENCE ON INFORMATION SYSTEMS
The Company depends on a variety of information systems to provide it with a
competitive advantage. A failure of Inacom's proprietary procurement and
delivery systems or any of its other information systems could prevent Inacom
from taking orders and/or shipping product and prevent clients from accessing
product availability information from Inacom. Such failure could also prevent
Inacom from determining appropriate product processing or the adequacy of
inventory levels, and prevent Inacom from reacting to rapidly changing market
conditions.
YEAR 2000 ISSUES
Many computer systems and software programs, including several used by the
Company require modification and conversion to allow date code fields to accept
dates beginning with the year 2000. Major system failures or erroneous
calculations can result if computer systems are not year 2000 compliant. The
Company began preparing its computer-based systems in 1996 and is in the final
stages of implementing the required changes to make the systems year 2000
compliant. All costs associated with year 2000 compliance that have been
incurred by the Company have been expensed and have not been capitalized. The
overall cost to the Company of modifications and conversion for year 2000
compliance with relation to the financial statements taken as a whole is not
material. The Company is advised by a substantial majority of its vendors and
suppliers that a majority of their products are year 2000 compliant, can be
upgraded to be year 2000 compliant, or will not be affected by the year 2000
problem. The Company's business could be materially adversely affected if the
Company's computer-based systems are not year 2000 compliant in a timely manner,
the Company incurs significant additional expenses pursuing year 2000
compliance, the Company's vendors do not timely provide year 2000 compliant
products, or the Company is subject to warranty or other claims by the Company's
clients related to product failures caused by the year 2000 problem.
GROSS MARGIN RISK
Gross margins on computer product sales declined over the past several years
because of computer product price reductions and intense competition. Gross
margins for computer services and communications services may also decline as
competition intensifies. Inacom has responded by reducing operating expenses as
a percentage of revenue and by focusing on sales of higher-margin computer
services and communication services. A material decrease in the gross margin for
computer services and communication services or a failure by Inacom to
successfully maintain reduction of operating expenses as a percentage of revenue
could have a material adverse effect on Inacom's business.
9
ITEM 2. PROPERTIES.
The Company leases its principal executive and administrative offices in
Omaha, Nebraska, including approximately 102,000 square feet under a lease
expiring in July 2012 and approximately an additional 115,000 square feet under
a lease expiring in March 2007.
The Company leases distribution and configuration facilities in Omaha,
Nebraska, including approximately 128,000 square feet under a lease expiring in
May 2003 and approximately an additional 65,000 square feet under a lease
expiring in March 2007; a distribution and configuration facility in Swedesboro,
New Jersey, with approximately 203,000 square feet under a lease expiring in
April 2007 and a distribution and configuration facility in Ontario, California,
with approximately 179,000 square feet under a lease expiring in July 2006.
These facilities serve as the distribution and configuration points for the
Company.
The land and buildings for all other Company-owned business centers and
warehouse facilities are also leased. Most of these leases are operating leases,
under which the Company pays maintenance, insurance, repairs, and utility costs.
Average terms of these leases are one to five years with options to renew or
terminate.
ITEM 3. PENDING LEGAL PROCEEDINGS.
The Company is involved in a limited number of legal actions arising in the
ordinary course of business, the result of none of which is expected to have a
material adverse effect on the consolidated financial statements of the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not Applicable.
EXECUTIVE OFFICERS OF THE COMPANY
The executive officers of the Company as of March 2, 1998 are listed below
in order of their length of service to the Company, together with their ages and
all Company positions and offices held by them.
NAME AGE POSITION
- ----------------------- --- ---------------------------------------------------------
Bill L. Fairfield...... 51 President, Chief Executive Officer and Director
David C. Guenthner..... 48 Executive Vice President and Chief Financial Officer
Michael A. Steffan..... 46 President, Distribution and Operations and Secretary
Cris Freiwald........ . 43 President and General Manager, International Division
Leon Kerkman........... 38 Vice President and Corporate Controller
Robert A. Schultz...... 55 Group Executive, Information Systems Group
Larry Fazzini.......... 50 Senior Vice President, Corporate Resources
George DeSola.......... 51 Group Executive, Technology Services Group and President,
Inacom Communications
Jeff Hartigan.......... 55 Chief Information Officer
Steven Ross............ 40 President, Reseller Division and Corporate Marketing
Paul Kellenberger...... 37 Vice President, Planning and Business Development
10
Except as set forth below, all of the officers have been associated with the
Company in their present position or other capacities for more than the past
five years.
BILL L. FAIRFIELD has been President, Chief Operating Officer and a Director
of the Company since March 1985. He was named Chief Executive Officer in
September 1987. Mr. Fairfield serves as a director of Buckle, Inc., Sitel
Corporation, and International Computer Group (ICG) Paris.
DAVID C. GUENTHNER was named Executive Vice President and Chief Financial
Officer in November 1991. Prior to November 1991, Mr. Guenthner was Senior Vice
President of Finance and Chief Financial Officer for the Company.
MICHAEL A. STEFFAN was named President of Distribution and Operations in
December 1995. Mr. Steffan was responsible for the Reseller Division from
December 1994 to December 1995 in addition to his position as President of
Distribution and Operations, a position he had held since May 1993. Prior to May
1993, Mr. Steffan was Vice President of Corporate Development and Secretary for
the Company.
CRIS FREIWALD was named President and General Manager of the International
Division in November 1994. Mr. Freiwald was Vice President of Corporate
Development from May 1993 to November 1994. Prior to May 1993, Mr. Freiwald was
Director of Business Development.
LEON KERKMAN was named Vice President and Corporate Controller in June 1993.
Prior to June 1993, Mr. Kerkman was Corporate Controller, a position he has held
since he joined the Company in 1989.
ROBERT A. SCHULTZ was named Group Executive of the Information Systems Group
in December 1996. Prior to December 1996, Mr. Schultz was the President and
General Manager of Direct Operations, a position he has held since April 1994,
and the President and General Manager of Client Service Division, a position he
had held from January 1993 to December 1996.
LARRY FAZZINI was named Senior Vice President of Corporate Resources in
September 1997. Prior to September 1997, Mr. Fazzini was the Vice President of
Corporate Resources, a position he has held since February 1993 when he joined
the Company. Prior to February 1993, Mr. Fazzini was the Director of Human
Resources for Sears Business Centers, Inc., a distributor of information
technology products and services.
GEORGE DESOLA was named Group Executive of the Technology Services Group in
December 1996 in addition to his position as President of Inacom Communications,
a position he has held since he joined the Company in March 1994. Mr. DeSola was
responsible for Corporate Marketing from December 1994 to December 1996 in
addition to his position as President of Inacom Communications. Prior to March
1994, Mr. DeSola was the Vice President of Marketing and Customer Service for
MCI Communications Corp., a telecommunications company.
JEFF HARTIGAN was named Chief Information Officer in May 1995 when he joined
the Company. Prior to May 1995, Mr. Hartigan was Vice President of Information
Services at Northern Telecommunications Inc. (NORTEL), a telecommunications
company.
STEVEN ROSS was named President of the Reseller Division and Corporate
Marketing in December 1996. Prior to December 1996, Mr. Ross was the President
of the Reseller Division, a position he has held since he joined the Company in
December 1995. Mr. Ross was Vice President of Sales and Business Development at
Intelligent Electronics Inc., a distributor of information technology products,
from September 1993 to November 1995. Prior to September 1993, Mr. Ross was the
Executive Vice President of Ultimate/Allerion Corp., an international systems
integrator company.
PAUL KELLENBERGER was named Vice President of Planning and Business
Development in March 1997 when he joined the Company. Mr. Kellenberger was the
Vice President of Worldwide Channels Computer Group from January 1995 to
February 1997 and the General Manager, Canada from February 1994 to December
1994 at Motorola Inc. Prior to February 1994, Mr. Kellenberger was the Director
of Marketing, Canada for Digital Equipment Company, an information technology
products company.
11
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS.
RECENT SALES OF UNREGISTERED SECURITIES
In December 1997, the Company acquired Computer Biz Inc., a California
corporation ("Computer Biz"), and issued 250,000 shares of Common Stock to the
shareholders of Computer Biz as part of the acquisition consideration. The sale
of the securities was exempt from registration under Section 4(2) of the
Securities Act of 1933 and Regulation D thereunder for transactions not
involving a public offering.
Additional information required for Item 5 is included with the information
set forth under Item 8 below.
12
ITEM 6. SELECTED FINANCIAL DATA.
DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA
--------------------------------------------------------------------
1997 1996 1995 1994 1993
------------ ------------ ------------ ------------ ------------
Income statement data:
Revenue..................................... $ 3,896,302 $ 3,102,055 $ 2,200,344 $ 1,800,539 $ 1,545,227
Earnings (loss) before income taxes......... 49,871 31,719 19,833 (3,749) 19,693
Net earnings (loss)......................... 29,456 18,733 11,707 (2,256) 11,975
Earnings (loss) per Share (1)
--basic................................... 2.48 1.80 1.17 (0.22) 1.27
--diluted................................. 2.17 1.66 1.16 (0.22) 1.25
Cash dividends per share.................... $ 0 $ 0 $ 0 $ 0 $ 0
Balance sheet data:
Working capital............................. $ 257,986 $ 100,303 $ 90,940 $ 78,759 $ 67,936
Total assets................................ 960,539 847,600 624,238 519,875 456,894
Long-term debt.............................. 141,500 55,250 23,667 30,333 20,000
Stockholders' equity........................ $ 325,216 $ 176,830 $ 148,775 $ 135,590 $ 136,491
Statistical information:
Revenue change versus prior year............ 25.6% 41.0% 22.2% 16.5% 52.3%
Earnings change versus prior year........... 57.2% 60.0% 618.9% (118.8)% 11.6%
Earnings (loss) as a percent of beginning
equity.................................... 16.7% 12.6% 8.6% (1.7)% 11.8%
Selling, general and administrative expenses
as a percent of gross margin.............. 80.3% 81.6% 83.1% 95.1% 83.3%
Revenue per dollar of assets employed....... $ 4.06 $ 3.66 $ 3.52 $ 3.46 $ 3.38
Current ratio............................... 1.53:1 1.16:1 1.20:1 1.22:1 1.23:1
Long-term debt as a percent of long-term
debt and equity........................... 30.3% 23.8% 13.7% 18.3% 12.8%
OTHER INFORMATION:
Book value per share $ 21.94 $ 16.30 $ 14.85 $ 13.75 $ 13.92
Common stock market prices:
High...................................... $ 40.13 $ 39.25 $ 15.25 $ 21.00 $ 25.50
Low....................................... $ 20.00 $ 13.25 $ 7.00 $ 6.87 $ 12.75
Approximate number of shareholders.......... 6,400 5,300 4,300 4,150 3,800
Weighted average shares outstanding
--basic................................... 11,900 10,400 10,000 10,000 9,500
--diluted................................. 14,600 11,900 10,100 10,000 9,600
Number of employees at end of year.......... 4,227 2,874 2,196 1,884 1,883
Revenue dollars per employee based on end of
year employment........................... $ 922 $ 1,080 $ 1,002 $ 956 $ 821
- ------------------------
(1) Net earnings per share and weighted average shares outstanding are
calculated pursant to Financial Accounting Standards Board (FASB) Statement
of Financial Accounting Standards (SFAS) No. 128 "Earnings Per Share" which
was issued in February 1997, accordingly, prior periods have been restated.
13
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
RESULTS OF OPERATIONS
The following tables set forth, for the indicated periods, revenues, gross
margins, and net earnings and the mix of revenues, gross margin, and net
earnings of the Company segmented by the three main classifications.
SUMMARY OF OPERATING RESULTS
FISCAL YEAR ENDED DECEMBER
-------------------------------------------------------------------------------
1997 1996(1) 1995 1997 1996(1) 1995
------------ ------------ ------------ ----------- ----------- -----------
(AMOUNTS IN THOUSANDS)
Revenues:
Computer products.................... $ 3,547,732 $ 2,885,019 $ 2,047,215 91.1% 93.0% 93.1%
Computer services.................... 247,243 136,888 95,476 6.3 4.4 4.3
Communication products and
services........................... 101,327 80,148 57,653 2.6 2.6 2.6
------------ ------------ ------------ ----- ----- -----
Total.............................. $ 3,896,302 $ 3,102,055 $ 2,200,344 100.0% 100.0% 100.0%
------------ ------------ ------------ ----- ----- -----
------------ ------------ ------------ ----- ----- -----
Gross Margin:
Computer products.................... $ 192,946 $ 162,651 $ 122,386 48.1% 57.4% 60.1%
Computer services.................... 185,932 103,228 67,599 46.4 36.4 33.2
Communication products and
services........................... 22,235 17,480 13,821 5.5 6.2 6.7
------------ ------------ ------------ ----- ----- -----
Total.............................. $ 401,113 $ 283,359 $ 203,806 100.0% 100.0% 100.0%
------------ ------------ ------------ ----- ----- -----
------------ ------------ ------------ ----- ----- -----
Net Earnings:
Computer products.................... $ 10,747 $ 9,703 $ 5,418 36.5% 51.8% 46.3%
Computer services.................... 15,506 7,381 5,272 52.6 39.4 45.0
Communication products and
services........................... 3,203 1,649 1,017 10.9 8.8 8.7
------------ ------------ ------------ ----- ----- -----
Total.............................. $ 29,456 $ 18,733 $ 11,707 100.0% 100.0% 100.0%
------------ ------------ ------------ ----- ----- -----
------------ ------------ ------------ ----- ----- -----
- ------------------------
(1) Net earnings include the impact of non-recurring charges of $991,000 in the
fourth quarter of 1996.
The following table sets forth, for the indicated periods, the gross margin
percentage of the three main classifications and the consolidated gross margin
percentage of the Company.
FISCAL YEAR ENDED DECEMBER
-------------------------------------
1997 1996 1995
----------- ----------- -----------
Gross Margin:
Computer products................................................... 5.4% 5.6% 6.0%
Computer services................................................... 75.2 75.4 70.8
Communication products and services................................. 21.9 21.8 24.0
Consolidated gross margin............................................. 10.3% 9.1% 9.3%
14
1997 COMPARED TO 1996
REVENUES
Revenues for 1997 increased $794.2 million or 25.6% to $3.9 billion when
comparing the fiscal year ended December 27, 1997 with the fiscal year ended
December 28, 1996. Revenue growth resulted from an increase in all revenue
components. Computer product sales increased $662.7 million or 23.0% over 1996,
revenues from computer services increased $110.4 million or 80.6% over 1996, and
revenues from communication products and services increased $21.2 million or
26.4% over 1996.
Computer product revenues increased primarily as a result of an increase in
products shipped directly to the end-user client, overall industry growth, and
the acquisitions completed by the Company-owned business centers. The increase
in computer product revenues related to the acquisitions was approximately $87.4
million for 1997. The increase in computer product sales resulted from an
increase in sales through the Company-owned business centers ($411.2 million or
33.0% over 1996) and through an increase in sales through the independent
reseller channel ($164.3 million or 9.8% over 1996).
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 ($65.2 million or
64.5% over 1996). The increase in computer services revenues related to
acquisitions was approximately $32.4 million for 1997. Revenues from
communication products and services increased as a result of broad based growth
from the communications product and service offerings.
GROSS MARGINS
The increase in the Company's gross margin percentage for 1997 was primarily
a result of the increase in the mix of higher-margin computer services versus
lower-margin computer products. The decrease in the 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 1997. The decrease in gross margin percentage
for computer services resulted primarily from an increase in the mix of services
to include more rapid growth in lower-margin technology procurement than
higher-margin support and systems integration services. The increase in gross
margin percentage for the communication products and services resulted from an
increase in mix of revenues which included more higher-margin long distance and
non-product services as compared to the lower-margin communications product
sales.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative (SG&A) expenses increased $90.9 million
or 39.4% in 1997. SG&A as a percent of revenue was 8.3% in 1997 versus 7.5% in
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 computer
services revenues. The Company also incurred additional costs during the year
related to integrating the current year's acquisitions. The increase in SG&A
related to acquisitions was approximately $23.9 million in 1997.
INTEREST EXPENSE
Interest expense for 1997 increased by $8.6 million to $29.0 million.
Interest expense increased primarily due to higher average daily borrowings.
Average daily borrowings for 1997 were $122.0 million more than the average
borrowings during 1996. The average daily borrowing interest rate decreased
approximately 26 basis points from 1996. The increase in the average daily
borrowings resulted primarily from financing additional accounts receivable
resulting from an increase in revenues, and an increase in
15
inventory levels. The decrease in the average daily borrowing interest rate
resulted from the Company selling an additional $100 million of accounts
receivable in January 1997 for a total of $200 million in accounts receivable
financing an asset securitization program, and the issuance of $86.25 million of
4.5% convertible subordinated debentures in November 1997 (see "Liquidity and
Capital Resources").
NET EARNINGS
Net earnings for 1997 increased 57.2% to $29.5 million compared with net
earnings of $18.7 million, which included non-recurring charges of $991,000, for
1996. Share earnings increased to $2.17 per diluted share from the $1.66 per
diluted share, which includes non-recurring charges of $0.07 per diluted share,
reported for 1996. The increase resulted from the factors discussed above.
1996 COMPARED TO 1995
REVENUE
Revenues for 1996 increased $901.7 million or 41.0% to $3.1 billion when
comparing the fiscal year ended December 28, 1996 with the fiscal year ended
December 30, 1995. Revenue growth resulted primarily from computer product sales
which increased $837.8 million or 40.9% during 1996. Revenues from computer
services increased $41.4 million or 43.4% over 1995. Revenues from communication
products and services increased $22.5 million or 39.0% in 1996.
Revenues increased primarily as a result of an increase in products shipped
directly to the end-user customer, overall industry growth, the sale of products
to new independent resellers and the acquisitions completed by the Company-owned
business centers. The increase in revenues related to the acquisitions was
approximately $49.4 million for 1996. The increase in computer product sales
resulted from an increase in sales through the independent reseller channel
($563.5 million or 50.9% over 1995) and through an increase in sales through the
Company-owned business centers ($291.7 million or 29.4% over 1995). Revenues
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. Revenues from communication products and services increased as a
result of broad based growth from the communications product and service
offerings.
GROSS MARGINS
The decrease in the Company's gross margin percentage for 1996 was primarily
a result of the decrease in the gross margin percentage on computer products,
which resulted primarily from a greater proportion of lower-margin independent
reseller channel sales in 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
decrease in gross margin percentage for the communication products and services
resulted from an increase in mix of revenues which included more lower-margin
communications product sales as compared to the higher-margin long distance and
non-product services.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
SG&A expenses increased $61.9 million or 36.6% in 1996. SG&A as a percent of
revenue was 7.5% in 1996 versus 7.7% in 1995. Excluding the impact of
non-recurring charges recognized in the fourth quarter of 1996, SG&A expenses
increased $60.2 million or 35.6% in 1996. SG&A as a percent of revenue,
excluding the impact of the non-recurring charges recognized in the fourth
quarter of 1996, was 7.4% in 1996 versus 7.7% in 1995.
16
The increase in spending resulted primarily from the costs of handling the
increased product, services and communications revenues. The Company also
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 year related
to integrating the current year's acquisitions. The decrease in SG&A as a
percent of revenue resulted from leverage achieved through operational
efficiencies resulting from current and prior period investments in distribution
center automation, information systems and computer service offerings.
INTEREST EXPENSE
Interest expense for 1996 increased by $5.8 million to $20.4 million.
Interest expense increased due to higher average daily borrowings. Average daily
borrowings for 1996 were $114.4 million more than the average borrowings during
1995. The average daily borrowing interest rate decreased approximately 0.8
percentage points from 1995. 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
as well as an increase in accounts receivable and inventory. The increase in
accounts receivable is a result of an increase in sales. The decrease in the
average daily borrowing interest rate resulted from the Company selling $100
million of accounts receivable in June 1995 and the issuance of $55.25 million
of 6% convertible subordinated debentures in June 1996 (see "Liquidity and
Capital Resources").
NET EARNINGS
Net earnings for 1996 increased 60% to $18.7 million, which includes
non-recurring charges of $991,000, compared with net earnings of $11.7 million
for 1995. Share earnings increased to $1.66 per diluted share, which includes
non-recurring charges of $0.07 per diluted share, from the $1.16 per diluted
share reported for 1995. The increase resulted from the factors discussed above.
BUSINESS COMBINATION AND NON-RECURRING CHARGES
In December 1996, the Company effected two business combinations accounted
for as poolings of interest transactions. The overall impact of the combinations
with relation to the financial statements taken as a whole are not material and
thus prior periods for the Company have not been restated to reflect the
business combinations. The Company recognized a non-recurring charge of $991
thousand to net earnings related to the business combinations during the fourth
quarter of 1996. The effect of the immaterial poolings was to increase
stockholders' equity by approximately $643,000.
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 $141.5
million, and a revolving credit facility of $40.0 million.
The $550.0 million facility provided by IBM Credit Corp. can be used by the
Company at its discretion, subject to a borrowing base, for its working-capital
needs and IBM Corp. inventory purchases. The inventory and working-capital
financing agreement expires June 29, 1998. On December 27, 1997, $167.6 million
was outstanding under the inventory and working-capital financing agreement, of
which the entire balance was related to non-interest bearing trade accounts
payable. There were no outstanding balances related to the interest-bearing
working-capital portion of the agreement, however, the interest rate would have
been 7.6% based on three-month LIBOR. This inventory and working-capital
financing agreement is secured by inventory and other assets.
The $141.5 million of convertible subordinated debentures consist of $86.25
million of 4.5% convertible subordinated debentures issued in November 1997 and
$55.25 million of 6% convertible subordinated debentures issued in June 1996.
The $86.25 million of 4.5% convertible subordinated debentures are due November
1, 2004 and are convertible into common stock of the Company at a conversion
rate of 25.235 shares per each $1,000 principal amount of debentures (equivalent
to a conversion price of $39.63 per
17
share), subject to adjustments under certain circumstances. The 1997 debentures
are not redeemable by the Company prior to November 1, 2001 and thereafter the
Company may redeem the debentures at various premiums to principal amount. The
1997 debentures may also be redeemed at the option of the holder 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 $55.25 million 6% convertible subordinated debentures are due June 15,
2006 and are convertible into common stock of the Company at a conversion price
of $24.00 per share, subject to adjustments under certain circumstances. The
1996 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 1996 debentures may also be redeemed at the option of the
holder 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
1999. On December 27, 1997, there were no outstanding balances under the
revolving credit facility, however, the interest rate would have been 7.0% based
on three-month LIBOR. The revolving credit facility is secured by inventory and
other assets.
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. Retained
earnings on December 27, 1997 would not be restricted as to payments of cash
dividends under the most restrictive covenants in such agreements. The Company
was in compliance with the covenants contained in the agreements on December 27,
1997.
Long-term debt was 30.3% of total long-term debt and equity at December 27,
1997 versus 23.8% at December 28, 1996. The increase was a result of the
issuance of $86.25 million of 4.5% convertible subordinated debentures in
November 1997.
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 December 27, 1997,
$46.8 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 December 27, 1997, the implicit interest rate on the receivable sale
transaction was 6.2%.
The Company occasionally uses derivative financial instruments to limit the
effect of increases in the interest rates on any floating-rate debt. The Company
does not hold or issue derivative financial instruments for trading purposes. In
January 1997 and October 1997, the Company entered into two separate one-year
interest rate swap agreements with an unrelated financial institution which
resulted in certain floating-rate interest payment obligations becoming
fixed-rate interest payment obligations at 5.8% and 5.7%, respectively, with an
aggregate notional amount of $100 million per each agreement. As a result of
these swap agreements, interest expense was increased by approximately $260
thousand in 1997. The January 1997 agreement expired in January 1998.
Operating activities used cash of $39.7 million in 1997 compared to cash
used by operating activities of $18.3 million in 1996. The primary factor
contributing to the change in cash used by operating activities was the net cash
used by inventory and accounts payable. In 1997, inventory increased $30.0
million over 1996 with a corresponding decrease in accounts payable of $27.9
million resulting in net cash used in inventory and accounts payable of $57.9
million. In 1996, inventory increased $31.8 million over 1995 with
18
an offsetting increase in accounts payable of $71.1 million resulting in net
cash provided from inventory and accounts payable of $39.3 million. The increase
in cash used by inventory and accounts payable was primarily a result of a
decrease in inventory turns in addition to the Company taking advantage of early
pay discounts with certain major manufacturers during 1997.
The increase in cash used by inventory and accounts payable in 1997 versus
1996 was partially offset by a decrease in the amount of cash used for financing
accounts receivable. In 1997, accounts receivable levels increased $29.0 million
over 1996 net of accounts receivable securitizations. In 1996, accounts
receivable levels increased $123.6 million over 1995 net of accounts receivable
securitizations. The decrease in cash used by accounts receivable was primarily
due to an increase in accounts receivable turns.
The Company used $79.0 million in cash for investing activities. Cash of
$50.7 million was used to purchase property and equipment and cash of $14.9
million was used for business combinations (See Notes to Consolidated Financial
Statements -- Business Combinations).
Net cash provided by financing for 1997 totaled $139.8 million, of which
$100.0 million was provided from the sale of accounts receivable, $93.0 million
was provided from the public sale of 3,000,000 shares of common stock in
November 1997, and $86.25 million was provided by the issuance of 4.5%
convertible subordinated debentures. The financing proceeds were partially
offset by $140.8 million in payments of notes payable.
The Company believes the funding expected to be generated from operations
and provided by the credit facilities at December 27, 1997 will be sufficient to
meet working capital and capital investment needs for the next twelve months.
19
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The Consolidated Financial Statements of the Company listed in the index
appearing under Items 14(a)(1) and (2) hereof are filed as part of this Annual
Report on Form 10-K and are incorporated by reference in this Item 8. See also
"Index to Financial Statements" on page 24 hereof. Certain quarterly financial
data is set forth below.
WEIGHTED
AVERAGE
SHARES
NET PER SHARE(2) OUTSTANDING
GROSS NET --------------------------- -------
REVENUES MARGIN EARNINGS BASIC DILUTED BASIC
---------- -------- -------- --------- --------- -------
DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS
1997
First........ $ 841,690 $ 83,243 $ 5,245 $0.48 $0.42 11,000
Second....... 972,214 98,874 6,709 0.59 0.51 11,400
Third........ 1,013,334 105,362 7,229 0.62 0.55 11,600
Fourth....... 1,069,064 113,634 10,273 0.76 0.64 13,500
---------- -------- -------- --------- --------- -------
Year......... $3,896,302 $401,113 $29,456 $2.48 $2.17 11,900
---------- -------- -------- --------- --------- -------
---------- -------- -------- --------- --------- -------
1996
First........ $ 642,081 $ 57,181 $ 2,990 $0.30 $0.29 10,000
Second....... 769,860 68,133 4,424 0.44 0.42 10,100
Third........ 769,452 73,127 5,041 0.49 0.43 10,300
Fourth....... 920,662 84,918 6,278(1) 0.58 0.51(1) 10,800
---------- -------- -------- --------- --------- -------
Year......... $3,102,055 $283,359 $18,733(1) $1.80 $1.66(1) 10,400
---------- -------- -------- --------- --------- -------
---------- -------- -------- --------- --------- -------
STOCK
MARKET PRICE
--------------------
DILUTED HIGH LOW
------- ------ ------
DOLLA
1997
First........ 13,600 $40.13 $20.63
Second....... 14,000 32.50 20.00
Third........ 14,100 37.63 31.13
Fourth....... 17,400 39.38 24.38
------- ------ ------
Year......... 14,600 $40.13 $20.00
------- ------ ------
------- ------ ------
1996
First........ 10,200 $18.50 $13.25
Second....... 10,600 24.25 16.75
Third........ 12,900 35.88 15.38
Fourth....... 13,400 39.25 28.88
------- ------ ------
Year......... 11,900 $39.25 $13.25
------- ------ ------
------- ------ ------
- --------------------------
(1) Includes a charge of $991,000 or $0.09 per basic share and $0.07 per diluted
share resulting from non-recurring charges.
(2) Net earnings per share is calculated pursuant to Financial Accounting
Standards Board (FASB) Statement of Financial Accounting Standards(SFAS) No.
128 "Earnings Per Share" which was issued in February 1997, accordingly,
prior periods have been restated.
The Company's Common Stock is listed on the New York Stock Exchange under
the ticker symbol "ICO". Prior to September 12, 1997, the Company's Common Stock
traded in the over-the-counter market and was quoted on the National Association
of Securities Dealers Automated Quotations ("NASDAQ") National Market System
under the symbol "INAC". As of March 2, 1998, the Company estimates there were
6,400 beneficial holders of the Company's Common Stock.
The Company has never declared or paid a cash dividend to stockholders. The
Board of Directors presently intends to retain all earnings to finance the
expansion of the Company's operations and does not expect to authorize cash
dividends in the foreseeable future. Any payment of cash dividends in the future
will depend upon the Company's earnings, capital requirements and other factors.
The Company's debt agreements restrict the amount of dividends which may be paid
by the Company.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None
20
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
ITEM 11. EXECUTIVE COMPENSATION.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Except for the information relating to the executive officers of the Company
set forth in Part I of this Report, the information called for by items 10, 11,
12 and 13 is incorporated herein by reference to the following sections of the
Company's Proxy Statement for its Annual Meeting of Stockholders to be held on
April 23, 1998: Certain Stockholders; Election of Directors; Directors Meetings
and Compensation; Summary Compensation Table; Option Grants in Fiscal Year 1997;
Option Exercises in Fiscal 1997 and Fiscal Year-End Values; and Employment,
Consulting and Other Agreements.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a) (1) (2) Financial Statements. See index to consolidated financial statements
and supporting schedules.
(a) (3) Exhibits. See exhibit index, which index is incorporated herein by
reference.
(b) The Company filed a report on Form 8-K dated November 4, 1997, reporting the
issuance and sale of 3,000,000 shares of Company common stock, par value
$.10 per share, and $75,000,000 of 4.5% Subordinated Convertible Debentures
due November 1, 2004 (the "Debentures") on November 4, 1997. The Company
filed a report on Form 8-K dated November 20, 1997 reporting the issuance
and sale of an additional $11,250,000 of Debentures on December 20, 1997,
following the exercise of an overallotment option by the underwriters.
21
INACOM CORP. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 27, 1997 AND DECEMBER 28, 1996
(WITH INDEPENDENT AUDITORS' REPORT THEREON)
22
INDEPENDENT AUDITORS' REPORT
The Board of Directors
InaCom Corp.:
We have audited the accompanying consolidated financial statements of InaCom
Corp. and subsidiaries as listed in the accompanying index. In connection with
our audits of the consolidated financial statements, we have also audited the
financial statement schedule as listed in the accompanying index. These
consolidated financial statements and financial statement schedule are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements and financial statement
schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of InaCom Corp.
and subsidiaries at December 27, 1997 and December 28, 1996, and the results of
their operations and their cash flows for each of the years in the three-year
period ended December 27, 1997, in conformity with generally accepted accounting
principles. Also in our opinion, the related financial statement schedule, when
considered in relation to the consolidated financial statements taken as a
whole, presents fairly, in all material respects, the information set forth
therein.
[/S/KPMG PEAT MARWICK LLP]
KPMG Peat Marwick LLP
Omaha, Nebraska
February 20, 1998
23
INACOM CORP. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
AND FINANCIAL STATEMENT SCHEDULE
PAGE(S)
---------
CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Statements of Operations -- Three-Year Period Ended December 27, 1997...................... 25
Consolidated Balance Sheets -- December 27, 1997 and December 28, 1996.................................. 26
Consolidated Statements of Stockholders' Equity -- Three-Year Period
Ended December 27, 1997................................................................................ 27
Consolidated Statements of Cash Flows -- Three-Year Period Ended December 27, 1997...................... 28
Notes to Consolidated Financial Statements -- Three-Year Period Ended December 27, 1997................. 29 - 38
FINANCIAL STATEMENT SCHEDULE SUPPORTING CONSOLIDATED FINANCIAL STATEMENTS
SCHEDULE -- Valuation and Qualifying Accounts........................................................... 39
All other schedules have been omitted as the required information is
inapplicable or the information is included in the consolidated financial
statements or related notes.
24
INACOM CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
THREE-YEAR PERIOD ENDED DECEMBER 27, 1997
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
1997 1996 1995
------------ ------------ ------------
Revenues:
Computer products..................................................... $ 3,547,732 2,885,019 2,047,215
Computer services..................................................... 247,243 136,888 95,476
Communications products and services.................................. 101,327 80,148 57,653
------------ ------------ ------------
3,896,302 3,102,055 2,200,344
------------ ------------ ------------
Direct costs:
Computer products..................................................... 3,354,786 2,722,368 1,924,829
Computer services..................................................... 61,311 33,660 27,877
Communications products and services.................................. 79,092 62,668 43,832
------------ ------------ ------------
3,495,189 2,818,696 1,996,538
------------ ------------ ------------
Gross margin............................................................ 401,113 283,359 203,806
Selling, general and administrative expenses............................ 322,218 231,235 169,338
------------ ------------ ------------
Operating income........................................................ 78,895 52,124 34,468
Interest expense........................................................ 29,024 20,405 14,635
------------ ------------ ------------
Earnings before income taxes............................................ 49,871 31,719 19,833
Income tax expense...................................................... 20,415 12,986 8,126
------------ ------------ ------------
Net earnings............................................................ $ 29,456 18,733 11,707
------------ ------------ ------------
------------ ------------ ------------
Earnings per share:
Basic................................................................. $ 2.48 1.80 1.17
Diluted............................................................... 2.17 1.66 1.16
------------ ------------ ------------
------------ ------------ ------------
Common shares and equivalents outstanding:
Basic................................................................. 11,900 10,400 10,000
Diluted............................................................... 14,600 11,900 10,100
------------ ------------ ------------
------------ ------------ ------------
See accompanying notes to consolidated financial statements.
25
INACOM CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 27, 1997 AND DECEMBER 28, 1996
(AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)
ASSETS
1997 1996
---------- ---------
Current assets:
Cash and cash equivalents................................................................ $ 52,592 31,410
Accounts receivable, less allowance for doubtful accounts of $5,941 in 1997
and $4,385 in 1996..................................................................... 252,067 288,407
Deferred income taxes.................................................................... 6,327 3,554
Inventories.............................................................................. 429,362 386,592
Other current assets..................................................................... 7,431 2,335
---------- ---------
Total current assets................................................................... 747,779 712,298
---------- ---------
Property and equipment, at cost............................................................ 175,117 116,970
Less accumulated depreciation.............................................................. 85,270 57,845
---------- ---------
Net property and equipment................................................................. 89,847 59,125
---------- ---------
Other assets, net of accumulated amortization of $17,410 in 1997 and
$13,771 in 1996........................................................................... 34,502 27,531
Cost in excess of net assets of business acquired, net of accumulated
amortization of $11,662 in 1997 and $7,736 in 1996........................................ 88,411 48,646
---------- ---------
$ 960,539 847,600
---------- ---------
---------- ---------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable......................................................................... $ 409,513 406,753
Notes payable............................................................................ -- 140,770
Income taxes payable..................................................................... 5,908 3,531
Other current liabilities................................................................ 74,372 60,941
---------- ---------
Total current liabilities.................................................................. 489,793 611,995
---------- ---------
Convertible subordinated debentures........................................................ 141,500 55,250
Other long-term liabilities................................................................ 226 73
Deferred income taxes...................................................................... 3,804 3,452
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 14,825,049 shares
in 1997 and 10,850,008 shares in 1996................................................ 1,482 1,085
Additional paid-in capital............................................................... 216,671 98,153
Retained earnings........................................................................ 107,063 77,607
---------- ---------
325,216 176,845
Less unearned restricted stock........................................................... -- (15)
---------- ---------
Total stockholders' equity................................................................. 325,216 176,830
---------- ---------
$ 960,539 847,600
---------- ---------
---------- ---------
See accompanying notes to consolidated financial statements.
26
INACOM CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
THREE-YEAR PERIOD ENDED DECEMBER 27, 1997
(AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)
ADDITIONAL UNEARNED TOTAL
COMMON PAID-IN RETAINED TREASURY RESTRICTED STOCKHOLDERS'
STOCK CAPITAL EARNINGS STOCK STOCK EQUITY
----------- ----------- --------- ----------- ------------- ------------
Balance at December 31, 1994................. $ 1,004 89,314 47,167 (1,533) (362) 135,590
Net earnings................................. -- -- 11,707 -- -- 11,707
Issuance of 4,400 treasury shares as director
compensation................................ -- (1) -- 39 -- 38
Issuance of 89,993 treasury shares under
stock option plans.......................... -- 240 -- 790 -- 1,030
Issuance of 61,800 treasury shares as stock
awards, net of forfeitures.................. -- (25) -- 543 (108) 410
----------- ----------- --------- ----------- --- ------------
Balance at December 30, 1995................. 1,004 89,528 58,874 (161) (470) 148,775
Net earnings................................. -- -- 18,733 -- -- 18,733
Issuance of 691,131 shares in connection with
business combinations....................... 69 6,581 -- -- -- 6,650
Issuance of 132,966 treasury and common
shares under stock option plans............. 12 1,956 -- 161 -- 2,129
Issuance of 3,400 shares as director
compensation................................ -- 60 -- -- -- 60
Issuance of 2,500 shares as stock awards, net
of forfeitures.............................. -- 28 -- -- 455 483
----------- ----------- --------- ----------- --- ------------
Balance at December 28, 1996................. 1,085 98,153 77,607 -- (15) 176,830
Net earnings................................. -- -- 29,456 -- -- 29,456
Issuance of 3,000,000 shares through public
offering, net of offering expenditures...... 300 92,650 -- -- -- 92,950
Issuance of 892,708 shares in connection with
business combinations....................... 89 24,394 -- -- -- 24,483
Issuance of 3,300 shares as director
compensation................................ -- 66 -- -- -- 66
Issuance of 79,029 shares under stock option
plans....................................... 8 1,408 -- -- -- 1,416
Amortization of unearned restricted stock.... -- -- -- -- 15 15
----------- ----------- --------- ----------- --- ------------
Balance at December 27, 1997................. $ 1,482 216,671 107,063 -- -- 325,216
----------- ----------- --------- ----------- --- ------------
----------- ----------- --------- ----------- --- ------------
See accompanying notes to consolidated financial statements.
27
INACOM CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE-YEAR PERIOD ENDED DECEMBER 27, 1997
(AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)
1997 1996 1995
------------ ---------- ----------
Cash flows from operating activities:
Net earnings.............................................................. $ 29,456 18,733 11,707
Adjustments to reconcile net earnings to net cash used by operating
activities:
Depreciation and amortization........................................... 31,274 21,814 19,059
Changes in assets and liabilities, net of effects from business
combinations:
Accounts receivable................................................... (29,028) (123,648) (75,333)
Inventories........................................................... (29,994) (31,794) (124,296)
Other current assets.................................................. (2,954) 97 (610)
Accounts payable...................................................... (27,943) 71,162 105,100
Other liabilities..................................................... (10,461) 20,896 5,444
Income taxes.......................................................... (44) 4,451 1,195
------------ ---------- ----------
Net cash used by operating activities............................... (39,694) (18,289) (57,734)
------------ ---------- ----------
Cash flows from investing activities:
Additions to property and equipment....................................... (50,656) (26,240) (10,346)
Business combinations..................................................... (14,850) (23,386) --
(Advances of) receipts from notes receivable.............................. (420) 446 (1,872)
Other, including advances to affiliates................................... (13,044) (11,950) (1,051)
------------ ---------- ----------
Net cash used in investing activities............................... (78,970) (61,130) (13,269)
------------ ---------- ----------
Cash flows from financing activities:
Principal payments on long-term debt...................................... -- (30,334) (6,667)
Proceeds from receivables sold............................................ 100,000 -- 100,000
Proceeds from offering of public stock.................................... 92,950 -- --
(Payments of) proceeds from notes payable................................. (140,770) 63,094 (13,184)
Proceeds from long-term debt.............................................. 86,250 55,250 --
Proceeds from the exercise of employee stock options...................... 1,416 2,129 1,030
------------ ---------- ----------
Net cash provided by financing activities........................... 139,846 90,139 81,179
------------ ---------- ----------
Net increase in cash and cash equivalents 21,182 10,720 10,176
Cash and cash equivalents, beginning of year 31,410 20,690 10,514
------------ ---------- ----------
Cash and cash equivalents, end of year $ 52,592 31,410 20,690
------------ ---------- ----------
------------ ---------- ----------
See accompanying notes to consolidated financial statements.
28
INACOM CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE-YEAR PERIOD ENDED DECEMBER 27, 1997
(COLUMNAR DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(A) ORGANIZATION
The consolidated financial statements include the accounts of InaCom Corp.
(Company) and its wholly-owned subsidiaries. The Company is a provider of
management technology services which include technology procurement and
distribution of microcomputer systems, workstations, networking and
telecommunications equipment, systems integration, and support services. All
significant intercompany balances and transactions have been eliminated in
consolidation.
(B) INVENTORIES
Inventories are stated at the lower of cost (first-in, first-out) or market
and consist of computer hardware, software, voice and data equipment, and
related materials.
(C) OTHER ASSETS
Other assets include vendor authorization rights and long-term notes
receivable. Vendor authorization rights are being amortized over their
contractual life of ten years.
(D) COST IN EXCESS OF NET ASSETS OF BUSINESS ACQUIRED
The excess of the cost over the fair value of assets of businesses acquired
is being amortized over twenty years. The Company assesses the recoverability of
intangible assets by determining whether the amortization of the asset balance
over its remaining life can be recovered through undiscounted future operating
cash flows of the acquired operation. The amount of goodwill impairment, if any,
is measured based on projected discounted future operating cash flows using a
discount rate reflecting the Company's average cost of funds.
(E) DEPRECIATION
Depreciation is provided over the estimated useful lives of the respective
assets ranging from three to thirty-one years using the straight-line method.
(F) INCOME TAXES
Deferred tax assets and liabilities are recognized for the estimated future
tax consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted tax rates
in effect for the year in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes the
enactment date.
(G) EARNINGS PER SHARE
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 and convertible
subordinated debentures. In February 1997, the Financial Accounting Standards
Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 128
"Earnings Per Share", which revised the calculation and presentation provisions
of Accounting Principles Board (APB) Opinion 15 and related interpretations.
SFAS No. 128, which is effective for periods ending after December 15, 1997,
requires companies to present, both currently and retroactively, basic earnings
per share and diluted earnings per share instead of primary and fully-diluted
earnings per share which was previously required under APB Opinion 15.
Accordingly, earnings per share for all periods presented have been restated to
apply the provisions of SFAS No. 128. Diluted earnings per share includes an
increase to
29
INACOM CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
THREE-YEAR PERIOD ENDED DECEMBER 27, 1997
(COLUMNAR DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
the numerator of $2.3 million in 1997 and $1.1 million in 1996 for interest
expense that would not have been incurred if the convertible subordinated
debentures were converted to common stock, and the denominator includes an
increase to common shares and equivalents outstanding of 2.7 million shares in
1997, 1.5 million shares in 1996, and 100 thousand shares in 1995, for
additional common shares that would have been outstanding if the convertible
subordinated debentures and certain stock options were exercised. Had the
Company reported earnings per share under the previous APB opinion 15, primary
and fully-diluted earnings per share for the years ending December 1997, 1996,
and 1995, would have been $2.40, $1.76, $1.14 and $2.13, $1.64, $1.14,
respectively.
(H) REVENUE AND EXPENSE RECOGNITION
The Company recognizes revenue from product sales upon shipment to the
customer. Revenues from consulting and other services are recognized as the
Company performs the services.
(I) 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 5% of purchases.
(J) RISKS AND UNCERTAINTIES
Financial instruments which potentially expose the Company to a
concentration of credit risk principally consist of accounts receivable. The
Company sells product to a large number of customers in many different
industries and geographies. To minimize credit concentration risk, the Company
utilizes several financial services organizations, which purchase accounts
receivable, and performs ongoing credit evaluations of its customers' financial
conditions.
The Company's business is dependent in large measure upon its relationship
with key vendors since a substantial portion of the Company's revenue is derived
from the sales of the products of such key vendors. Termination of, or a
material change to the Company's agreements with these vendors, or a material
decrease in the level of marketing development programs offered by
manufacturers, or an insufficient or interrupted supply of vendors' product
would have a material adverse effect on the Company's business.
Management of the Company has made a number of estimates and assumptions
relating to the reporting of assets and liabilities and the disclosure of
contingent assets and liabilities to prepare these consolidated financial
statements in conformity with generally accepted accounting principles. Actual
results could differ from those estimates.
(K) FINANCIAL INSTRUMENTS
The carrying amounts for cash and cash equivalents, accounts receivable,
accounts payable, and notes payable approximate fair value because of the short
maturity of these instruments. The fair values of the convertible subordinated
debentures are based on the amount of future cash flows associated with each
instrument discounted using the Company's current borrowing rate for similar
debt instruments of
30
INACOM CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
THREE-YEAR PERIOD ENDED DECEMBER 27, 1997
(COLUMNAR DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
comparable maturity. The estimated fair value of the Company's convertible
subordinated debentures at December 27, 1997 and December 28, 1996, approximates
book value.
The Company occasionally uses derivative financial instruments to limit the
effect of increases in the interest rates on any floating-rate debt. The Company
does not hold or issue derivative financial instruments for trading purposes. In
January 1997 and October 1997, the Company entered into two separate one-year
interest rate swap agreements with an unrelated financial institution which
resulted in certain floating-rate interest payment obligations becoming
fixed-rate interest payment obligations at 5.8% and 5.7%, respectively, with an
aggregate notional amount of $100 million per each agreement. As a result of
these swap agreements, interest expense was increased by approximately $260
thousand in 1997. The fair value of the swap agreements as of December 27, 1997
was $9.6 thousand. The January 1997 agreement expired in January 1998.
(L) CASH EQUIVALENTS
For purposes of the consolidated statements of cash flows, the Company
considers cash and temporary cash investments with a maturity of three months or
less to be cash equivalents.
(M) STOCK-BASED COMPENSATION
The Company accounts for stock options in accordance with the provisions of
APB Opinion No. 25, ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES, and related
interpretations. As such, compensation expense would be recorded on the date of
grant only if the current market price of the underlying stock exceeded the
exercise price. Accordingly, the Company has not recognized compensation expense
for its options granted in 1997, 1996 and 1995. In 1996, the Company adopted
FASB Statement No. 123, ACCOUNTING FOR STOCK-BASED COMPENSATION, which permits
entities to recognize as expense over the vesting period the fair value of all
stock-based awards on the date of grant. FASB Statement No. 123 also allows
entities to continue to apply the provisions of APB Opinion No. 25 and provide
pro forma net earnings and earnings per share disclosures for employee stock
option grants made in 1995 and future years as if the fair-value-based method
defined in FASB Statement No. 123 had been applied. The Company has elected to
continue to apply the provisions of APB Opinion No. 25 and provide the pro forma
disclosure provisions of FASB Statement No. 123.
(2) BUSINESS COMBINATIONS
During 1997 and 1996, the Company completed several acquisitions. The total
consideration given for the 1997 acquisitions was $39.4 million which included
$14.9 million in cash and 892,708 shares of common stock in transactions
accounted for as purchases. The total consideration given for the 1996
acquisitions was $30.5 million which included $23.4 million in cash and 327,495
shares of common stock in transactions accounted for as purchases. The excess
purchase price over the estimated fair value of the net assets acquired was
$40.0 million in 1997 and $24.2 million in 1996; the excess is being amortized
using the straight line method over twenty years.
Also during 1996, the Company acquired all the issued and outstanding shares
of two network consulting organizations for 272,726 and 90,910 shares of Common
Stock, respectively, in transactions accounted for as a pooling of interests.
The Company's consolidated financial statements for the year ended December 28,
1996, include the fourth fiscal quarter's activity for the acquired businesses.
Prior
31
INACOM CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
THREE-YEAR PERIOD ENDED DECEMBER 27, 1997
(COLUMNAR DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
(2) BUSINESS COMBINATIONS (CONTINUED)
period financial statements were not restated as the results of operations would
not have been materially different than those previously reported by the
Company. The effect of the immaterial poolings was to increase stockholders'
equity by approximately $643,000.
If the above business combinations had occurred on January 1, 1995, the pro
forma operations of the Company would not have been materially different than
that reported in the accompanying consolidated statements of operations.
(3) PROPERTY AND EQUIPMENT
A summary of property and equipment follows:
1997 1996
----------- ---------
Land, buildings and improvements...................................... $ 22,763 13,911
Furniture, fixtures and equipment..................................... 51,681 27,875
Computer equipment.................................................... 77,783 53,239
Computer parts held for repair and exchange........................... 22,890 21,945
----------- ---------
$ 175,117 116,970
----------- ---------
----------- ---------
(4) INCOME TAXES
Income tax expense (benefit) consists of the following:
1997 1996 1995
---------- --------- ---------
Current:
Federal....................................................... $ 19,867 10,195 6,151
State......................................................... 2,969 1,488 943
Deferred:
Federal....................................................... (2,251) 1,209 897
State......................................................... (170) 94 135
---------- --------- ---------
$ 20,415 12,986 8,126
---------- --------- ---------
---------- --------- ---------
The reconciliation of the statutory federal income tax rate and the
effective tax rate are as follows:
1997 1996 1995
----------- ----------- -----------
Statutory federal income tax rate................................ 35.0% 35.0% 35.0%
State income taxes, net of federal benefit....................... 3.6 3.2 3.6
Other............................................................ 2.4 2.8 2.4
--- --- ---
41.0% 41.0% 41.0%
--- --- ---
--- --- ---
32
INACOM CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
THREE-YEAR PERIOD ENDED DECEMBER 27, 1997
(COLUMNAR DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
(4) INCOME TAXES (CONTINUED)
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities are presented
below:
1997 1996
--------- ---------
Deferred tax assets:
Valuation reserves....................................................... $ 6,475 5,726
Accrued expenses not deducted until paid................................. 5,305 2,188
Other.................................................................... 163 --
--------- ---------
Total deferred tax assets.............................................. 11,943 7,914
--------- ---------
Deferred tax liabilities:
Vendor discounts......................................................... 2,374 2,766
Depreciation............................................................. 5,600 4,241
Other.................................................................... 1,446 805
--------- ---------
Total deferred tax liabilities......................................... 9,420 7,812
--------- ---------
Net deferred tax assets................................................ $ 2,523 102
--------- ---------
--------- ---------
There was no valuation allowance for deferred tax assets at December 27,
1997 or December 28, 1996.
(5) NOTES PAYABLE AND CONVERTIBLE SUBORDINATED DEBENTURES
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 $141.5
million, and a revolving credit facility of $40.0 million.
The $550.0 million facility provided by IBM Credit Corp. can be used by the
Company at its discretion, subject to a borrowing base, for its working-capital
needs and IBM Corp. inventory purchases. The inventory and working-capital
financing agreement expires June 29, 1998. On December 27, 1997, $167.6 million
was outstanding under the inventory and working-capital financing agreement, of
which the entire balance is included in the accompanying consolidated balance
sheet as non-interest bearing trade accounts payable. There were no outstanding
balances related to the interest-bearing working-capital portion of the
agreement, however, the interest rate would have been 7.6% based on three-month
LIBOR. This inventory and working-capital financing agreement is secured by
inventory and other assets.
The $40.0 million revolving credit facility agreement expires in February
1999. On December 27, 1997, there were no outstanding balances under the
revolving credit facility, however, the interest rate would have been 7.0% based
on three-month LIBOR. The revolving credit facility is secured by inventory and
other assets.
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. Retained earnings on December 27, 1997 would
not be restricted as to payments of cash dividends under the most restrictive
covenants in such agreements. The Company was in compliance with the covenants
contained in the agreements on December 27, 1997.
33
INACOM CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
THREE-YEAR PERIOD ENDED DECEMBER 27, 1997
(COLUMNAR DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
(5) NOTES PAYABLE AND CONVERTIBLE SUBORDINATED DEBENTURES (CONTINUED)
The $141.5 million of convertible subordinated debentures consist of $86.25
million of 4.5% convertible subordinated debentures and $55.25 million of 6.0%
convertible subordinated debentures. In November 1997, the Company issued $86.25
million of 4.5% convertible subordinated debentures due November 1, 2004. The
1997 debentures are convertible into common stock of the Company at a conversion
rate of 25.235 shares per each $1,000 principal amount of debentures (equivalent
to a conversion price of $39.63 per share), subject to adjustments under certain
circumstances. The 1997 debentures are not redeemable by the Company prior to
November 1, 2001 and thereafter the Company may redeem the debentures at various
premiums to principal amount. The 1997 debentures may also be redeemed at the
option of the holder 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 net proceeds from the sale of the 4.5%
debentures were used to repay, in part, indebtedness and fund other capital
requirements.
In June 1996, the Company issued $55.25 million of 6.0% convertible
subordinated debentures due June 15, 2006. The 1996 debentures are convertible
into common stock of the Company at a conversion price of $24.00 per share,
subject to adjustments under certain circumstances. The 1996 debentures are not
redeemable by the Company prior to June 16, 2000 and thereafter the Company may
redeem the debentures at various premiums to par. The 1996 debentures may also
be redeemed at the option of the holder 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 net proceeds from the sale of
the 6.0% debentures were used to reduce a portion of the outstanding balance of
the working-capital financing agreement which carried an interest rate at the
time of the debenture sale of 7.3%
34
INACOM CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
THREE-YEAR PERIOD ENDED DECEMBER 27, 1997
(COLUMNAR DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
(6) ACCOUNTS RECEIVABLE AND CREDIT ARRANGEMENTS
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 December 27, 1997,
$46.8 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 December 27, 1997, the implicit interest rate on the receivable sale
transaction was 6.2%.
The Company also has floor plan agreements to take advantage of vendor
financing programs. The Company has entered into dealer working-capital
financing agreements with several financial services organizations which
purchase, primarily, accounts receivable from the Company. The Company had
contingent liabilities of $2.4 million at December 27, 1997 and $1.8 million at
December 28, 1996 relating to these agreements.
(7) LEASES
The Company operates in leased premises which include the general offices,
warehouse facilities and Company-owned branches. Operating lease terms range
from monthly to ten years and generally provide for renewal options.
Rent expense for operating leases was approximately $17.9 million, $12.0
million and $9.8 million for the three years ended December 27, 1997,
respectively.
Future minimum operating lease obligations for the years 1998 through 2002
are $14.3 million, $13.2 million, $10.5 million, $8.1 million, and $6.3 million,
respectively. It is anticipated that leases will be renewed or replaced as they
expire such that future annual lease obligations will approximate rent expense
for 1997.
(8) EMPLOYEE BENEFIT PLAN
The Company maintains a qualified savings plan under Section 401(k) of the
Internal Revenue Code (IRC) which covers substantially all full-time employees.
Annual contributions to the qualified plan, based on participant's annual pay,
are made by the Company. Participants may also elect to make contributions to
the plan. Employee contributions are matched by the Company up to limits
prescribed by the IRC. Company contributions to the plan approximated $5.1
million in 1997, $3.3 million in 1996 and $2.4 million in 1995.
The Company maintains a nonqualified savings plan for employees whose
benefits under the qualified savings plans are reduced because of limitations
under Federal tax laws. Contributions made to this plan were not material.
35
INACOM CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
THREE-YEAR PERIOD ENDED DECEMBER 27, 1997
(COLUMNAR DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
(9) LITIGATION
The Company is involved in a limited number of legal actions. Management
believes that the ultimate resolution of all pending litigation will not have a
material adverse effect on the Company's consolidated financial statements.
(10) SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Interest and income taxes paid are summarized as follows:
1997 1996 1995
---------- --------- ---------
Interest paid........................................................... $ 29,537 19,611 14,054
Income taxes paid....................................................... 20,459 8,176 6,931
---------- --------- ---------
---------- --------- ---------
Components of cash used for acquisitions as reflected in the consolidated
statements of cash flows are summarized as follows:
1997 1996 1995
---------- --------- ---------
Fair value of assets acquired, including goodwill....................... $ 94,098 41,965 --
Liabilities assumed..................................................... (54,748) (11,436) --
Fair value of common stock issued....................................... (24,500) (7,143) --
---------- --------- ---------
Cash paid at closing, net of cash acquired.............................. $ 14,850 23,386 --
---------- --------- ---------
---------- --------- ---------
(11) STOCK OPTION AND AWARD PROGRAMS
The Company has three stock plans approved by the shareholders in 1997, 1994
and 1990, and a nonqualified stock options plan approved by shareholders in
1987. Options granted under the stock plans may be either nonqualified or
incentive stock options. The option price, vesting period and term under the
stock plans and the nonqualified stock option plan are set by the Compensation
Committee of the Board of Directors of the Company. The option price may not be
less than the fair market value per share at the time the option is granted. The
vesting period of options granted typically ranges from two to five years, and
the term of any option granted may not exceed ten years. The stock plans also
permit the issuance of restricted or bonus stock awards by the Compensation
Committee. At December 27, 1997, the Company had approximately 789,000 shares
available for issuance pursuant to subsequent grants under the plans.
In addition, the Company awarded 26,750 stock appreciation rights (SARs) to
certain employees in 1997. The SARs which were awarded and are currently
outstanding have a basis of $38.125 and are exercisable on June 30, 1998, and
June 30, 1999. On June 30, 1998 and June 30, 1999, the SARs allow the employees
to receive a cash payment equal to the fair market value on that date less the
basis or adjusted basis of the SARs. The Company recognizes compensation expense
over the term of the SARs based on changes in the fair market value of the
Company's stock.
36
INACOM CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
THREE-YEAR PERIOD ENDED DECEMBER 27, 1997
(COLUMNAR DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
(11) STOCK OPTION AND AWARD PROGRAMS (CONTINUED)
Additional information as to shares subject to options is as follows:
WEIGHTED
AVERAGE
NUMBER OF EXERCISE
OPTIONS PRICE
---------- -----------
Options outstanding at December 31, 1994......................................... 800,500 13.01
Granted........................................................................ 157,000 9.82
Exercised...................................................................... (90,000) 10.26
Canceled....................................................................... (68,500) 12.45
----------
Options outstanding at December 30, 1995......................................... 799,000 12.76
Granted........................................................................ 36,500 35.56
Exercised...................................................................... (133,000) 10.77
Canceled....................................................................... (21,000) 9.56
----------
Options outstanding at December 28, 1996......................................... 681,500 14.47
Granted........................................................................ 710,950 33.23
Exercised...................................................................... (78,100) 10.28
Canceled....................................................................... (25,200) 34.03
----------
Options outstanding at December 27, 1997......................................... 1,289,150 24.67
---------- -----
---------- -----
Exercisable at December 27, 1997............................................... 464,773 13.74
---------- -----
---------- -----
EXERCISABLE AT
OPTIONS OUTSTANDING AT DECEMBER 27, 1997 DECEMBER 27, 1997
----------------------------------------- --------------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
REMAINING EXERCISE EXERCISE
RANGE OF OPTION EXERCISE NUMBER OF CONTRACTUAL PRICE PER NUMBER OF PRICE PER
PRICE OPTIONS LIFE OPTION OPTIONS OPTION
- --------------------------- ---------- -------------- ------------- ----------- -------------
$8.00 to 12.00 286,330 5.97 years $ 10.21 252,733 $ 10.26
14.25 to 21.56 284,290 4.95 years 17.36 194,290 16.27
24.00 to 36.56 718,530 7.87 years 33.34 17,750 35.56
---------- -------------- ------ ----------- ------
$8.00 to 36.56 1,289,150 6.81 years $ 24.67 464,773 $ 13.74
---------- -------------- ------ ----------- ------
---------- -------------- ------ ----------- ------
37
INACOM CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
THREE-YEAR PERIOD ENDED DECEMBER 27, 1997
(COLUMNAR DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
(11) STOCK OPTION AND AWARD PROGRAMS (CONTINUED)
Pro-forma information regarding net income and earnings per share is
required by FASB Statement No. 123 and has been determined as if the Company had
accounted for its employee stock options under the fair value method of that
Statement. The following weighted-average fair values for these options were
estimated at the date of grant using a Black-Scholes option-pricing model with
these weighted-average assumptions for 1997, 1996, and 1995:
1997 1996 1995
---------- ---------- ----------
Fair value of options granted during the year................................ $ 21.51 $ 20.76 $ 6.77
Risk-free interest rate...................................................... 6.0% 6.1% 5.7%
Expected dividend yield...................................................... 0.0% 0.0% 0.0%
Expected volatility factor................................................... 96.9% 92.5% 94.7%
Expected life................................................................ 3.5 years 2.5 years 3.7 years
Since the Company applies APB Opinion No. 25 in accounting for its plans, no
compensation cost has been recognized for its stock options in the consolidated
financial statements. Had the Company recorded compensation cost based on the
fair value at the grant date for its stock options under FASB Statement No 123,
the Company's net earnings for 1997, 1996 and 1995 would have been reduced by
approximately 4.4%, 1.6% and 0.5%, respectively, and the Company's diluted
earnings per share for 1997, 1996 and 1995 would have been reduced by
approximately 4.1%, 1.3% and 0.6%, respectively.
Pro forma net income reflects only options granted in 1997, 1996 and 1995.
Therefore, the full impact of calculating compensation cost for stock options
under FASB Statement No. 123 is not reflected in the pro forma net earnings
amounts presented above, because compensation cost is reflected over the
options' vesting periods for the 1997, 1996 and 1995 options, respectively.
Compensation costs for options granted prior to January 1, 1995 are not
considered.
38
SCHEDULE
INACOM CORP. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
(AMOUNTS IN THOUSANDS)
BALANCE AT CHARGED TO
BEGINNING COSTS AND AMOUNTS WRITTEN BALANCE AT END
OF PERIOD EXPENSES OFF (1) OF PERIOD
---------- ------------- --------------- ---------------
Fiscal year ended December 27, 1997 --
Allowance for doubtful accounts........................... $ 4,385 3,444 1,888 5,941
---------- ----- ----- -----
---------- ----- ----- -----
Fiscal year ended December 28, 1996 --
Allowance for doubtful accounts........................... $ 3,537 1,626 778 4,385
---------- ----- ----- -----
---------- ----- ----- -----
Fiscal year ended December 30, 1995 --
Allowance for doubtful accounts........................... $ 2,626 2,308 1,397 3,537
---------- ----- ----- -----
---------- ----- ----- -----
- ------------------------
(1) The deductions from reserves are net of recoveries.
39
SIGNATURES
Pursuant to the requirements of Section 13 or Section 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Omaha, State of Nebraska, on the 26th day of March, 1998.
InaCom Corp.
By /s/ BILL L. FAIRFIELD
------------------------------------
Bill L. Fairfield, PRESIDENT
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of InaCom Corp.
and in the capacities indicated on the 26th day of March, 1998.
/s/ BILL L. FAIRFIELD President (Principal Executive Officer) and
- ------------------------------------------- Director
Bill L. Fairfield
/s/ DAVID C. GUENTHNER Executive Vice President and Chief Financial
- ------------------------------------------- Officer (Principal Financial and Accounting
David C. Guenthner Officer)
JOSEPH AUERBACH* Director
MOGENS C. BAY* Director
JAMES Q. CROWE* Director
W. GRANT GREGORY* Director
JOSEPH INATOME* Director
RICK INATOME* Director
GARY SCHWENDIMAN* Director
LINDA S. WILSON* Director
*Bill Fairfield, by signing his name hereto, signs this Annual Report on behalf of each of
the persons indicated. A power of attorney authorizing Bill L. Fairfield to sign the
Annual Report on Form 10-K on behalf of each of the indicated directors of Inacom Corp.
has been filed herein as Exhibit 24.
/s/ BILL L. FAIRFIELD
- -------------------------------------------
Bill L. Fairfield
ATTORNEY-IN-FACT
40
INDEX TO EXHIBITS
EXHIBIT NO. DESCRIPTION PAGE
- ----------- ------------------------------------------------------------------------------------------------- -----------
3.1 Restated Certificate of Incorporation of the Company, with amendments............................
3.2 Bylaws of the Company, as amended to date, incorporated herein by reference to the Company's
Quarterly Report on Form 10-Q for the quarter ended September 28, 1996.
4.1 Inventory Working Capital Financing Agreement dated June 29, 1995 between InaCom and IBM Credit
Corporation, incorporated herein by reference to the Company's Quarterly Report on Form 10-Q for
the quarter ended July 1, 1995.
4.2 Amendments to Inventory Working Capital Financing Agreement incorporated by reference to the
Company's Quarterly Report on Form 10-Q for the quarter ended June 28, 1997 and Annual Report on
Form 10-K for the fiscal year ended December 28, 1996.
4.3 Amended and Restated Receivable Purchase Agreement dated as of August 21, 1995 between InaCom,
InaCom Finance Corp. and certain financial institutions, incorporated herein by reference to the
Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1995.
4.4 Amendments to Amended and Restated Receivable Purchase Agreement incorporated by reference to the
Company's Annual Report on Form 10-K for the fiscal year ended December 28, 1996.
4.5 Amendments to Amended and Restated Receivable Purchase Agreement.................................
4.6 Subordinated Indenture dated June 14, 1996 between the Company and First National Bank of Omaha,
and related debenture, with respect to the Company's 6% convertible subordinated debentures due
June 15, 2000, incorporated herein by reference to the Company's Quarterly Report on Form 10-Q
for the quarter ended June 29, 1996.
4.7 Subordinated Indenture dated September 30, 1997 between the Company and Norwest Bank Minnesota,
National Association and First Supplemental Indenture thereto dated November 4, 1997
incorporated by reference to the Company's Current Report on Form 8-K dated November 4, 1997.
4.8 4.50% Subordinated Convertible Debenture, Due November 1, 2004 incorporated by reference to the
Company's Current Report on Form 8-K dated November 4, 1997.
4.9 4.50% Subordinated Convertible Debenture, Due November 1, 2004 incorporated by reference to the
Company's Current Report on Form 8-K dated November 20, 1997.
10.1 1987 Stock Option Plan of the Company............................................................
10.2 1990 Stock Plan of the Company, with amendments thereto, incorporated herein by reference to
Exhibit 10.5 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31,
1994.
10.3 1994 Stock Plan of the Company, incorporated herein by reference to the Company's Quarterly
Report on Form 10-Q for the quarter ended March 26, 1994.
10.4 1997 Stock Plan of the Company...................................................................
10.5 Executive Incentive Plan.........................................................................
41
EXHIBIT NO. DESCRIPTION PAGE
- ----------- ------------------------------------------------------------------------------------------------- -----------
10.6 Nonqualified Deferred Compensation Plan of the Company, incorporated herein by reference to
Exhibit 10.9 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31,
1994.
10.7 First Amendment to the Nonqualified Deferred Compensation Plan, incorporated herein by reference
to Exhibit 10.10 to the Company's Annual Report on Form 10-K for the fiscal year ended December
30, 1995.
10.8 Second Amendment to the Nonqualified Deferred Compensation Plan..................................
10.9 Rick Inatome Consulting Agreement, with amendment thereto, incorporated herein by reference to
Exhibit 10.11 to the Company's Annual Report on Form 10-K for the fiscal year ended December 30,
1995.
10.10 Executive Death Benefit Plan.....................................................................
10.11 Executive Disability Wage Continuation Plan......................................................
10.12 Form of Severance Benefit Agreement between the Company and seven of its officers, incorporated
herein by reference to Exhibit 10.15 to the Company's Annual Report on Form 10-K for the fiscal
year ended December 31, 1994.
10.13 Restricted Stock Agreements between the Company and Bill L. Fairfield, incorporated herein by
reference to Exhibit 10.16 to the Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1994.
10.14 Lease Agreement between the Company and Maple Avenue Limited Liability Company dated September 5,
1994, incorporated by reference to the Company's Quarterly Report on Form 10-Q for the quarter
ended September 24, 1994.
11 Statement re: Computation of Earnings Per Share..................................................
12 Statement re: Ratio of Earnings to Fixed Charges.................................................
21 Subsidiaries of the Company......................................................................
23 Consent of KPMG Peat Marwick LLP.................................................................
24 Powers of Attorney...............................................................................
27.1 Financial Data Schedule..........................................................................
27.2 Financial Data Schedule..........................................................................
Pursuant to Item 601(h)(4) of Regulation S-K, certain instruments with respect
to the Company's long-term debt are not filed with this Form 10-K. The Company
will furnish a copy of such long-term debt agreements to the Securities and
Exchange Commission upon request.
Management contracts and compensatory plans are set forth as Exhibits 10.1
through 10.14 above.
42