-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, IoPOwzvowhPkEduMIolNtUym+5NgP0anLQKi5+uod6wHUFk2bPz9ygriycsGtCv/ +w4YXlAtWVP8wfWiJbOjcw== 0000814430-94-000011.txt : 19940425 0000814430-94-000011.hdr.sgml : 19940425 ACCESSION NUMBER: 0000814430-94-000011 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19940129 FILED AS OF DATE: 19940422 FILER: COMPANY DATA: COMPANY CONFORMED NAME: INTELLIGENT ELECTRONICS INC CENTRAL INDEX KEY: 0000814430 STANDARD INDUSTRIAL CLASSIFICATION: 5045 IRS NUMBER: 232208404 STATE OF INCORPORATION: PA FISCAL YEAR END: 0131 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-15991 FILM NUMBER: 94523861 BUSINESS ADDRESS: STREET 1: 411 EAGLEVIEW BLVD CITY: EXTON STATE: PA ZIP: 19341 BUSINESS PHONE: 2154585500 MAIL ADDRESS: STREET 1: 411 EAGLEVIEW BLVD CITY: EXTON STATE: PA ZIP: 19341 10-K 1 10-K TEXT PART I Item 1. BUSINESS Introduction Intelligent Electronics, Inc. (the "Company") provides information technology products, services and solutions to its network integrators (the "Network") and, in partnership with the Network, directly to large and small corporate customers, educational institutions and governmental agencies ("End Users"). The Company was founded in 1982 as a Pennsylvania corporation. In March 1984, the Company commenced the wholesale distribution of microcomputers to its Network. As a leading supplier of premium brand technology products in America, the Company provides business solutions to the Network and End Users through innovative product management, sales demand generation programs and logistics services. As of January 29, 1994, the Network comprised nearly 2,000 locations. The Company's principal executive offices are located at 411 Eagleview Boulevard, Exton, Pennsylvania, 19341, telephone (610)458-5500. As used herein and unless otherwise required by the context, the "Company" shall mean Intelligent Electronics, Inc. and its wholly-owned subsidiaries. Business Strategy The Company's revenues are derived principally from the wholesale distribution of microcomputer systems, workstations, networking and telecommunications equipment and software to its Network. The Company seeks to enhance its position as the leading delivery system of technology products and services by leveraging its strengths and maximizing cost efficiencies. The Company has developed a system to aggregate orders and provide purchasing economies, product availability, efficient distribution and technical and marketing support to its Network which offers vendors the ability to reach geographically-dispersed customers in a cost-effective manner. The Company also offers a full range of logistics services on a contract basis to third parties throughout the nation. OPERATING EFFICIENCIES AND ECONOMIES OF SCALE. The Company provides wholesale distribution of microcomputers and related equipment to its Network, which in turn, offers value-added systems solutions to End Users through an outbound, business-to-business approach. Additionally, the Company provides product selection, technical support, cost-efficient marketing programs and promotions, configuration and marketing opportunities for the Network. The Company's operations are structured to realize operating efficiencies and to benefit from economies of scale in product purchasing, financing and distribution, and product integration and configuration, and to provide to its Network a centralized distribution and logistics system focusing on ease of order placement, speed of delivery, facilitation of product returns and reduction of freight costs. The Company believes that it purchases the majority of the products distributed to the Network at the lowest published prices available and believes that its financial strength and purchasing power give it better access to constrained product lines. The Company consequently passes on to its Network a portion of the discount which it receives from vendors. This pricing, together with the Company's growing service offerings and ready access to expansive product inventories, generally enables the Network to purchase products from the Company at better terms than they could obtain directly from vendors and to effectively compete in the marketplace. Intelligent Distribution Services, Inc., a wholly-owned subsidiary of the Company ("InteLogistics") was formed to capitalize on the Company's distribution and logistics capabilities by expanding the logistics services currently performed for the Network and offering such services to unaffiliated third parties. Services provided by InteLogistics include inventory warehousing, distribution and management, freight consolidation, product configuration, order entry and processing, invoicing, credit and collection services, returns processing and customized information systems. The Company believes that InteLogistics will benefit from economies of scale which will result in greater efficiencies as the logistics customer base expands. ENHANCEMENT OF NETWORK COMPETITIVENESS. The Company sells products and provides certain services to the Network. Members of the Network are charged varying fees based on different levels of services which they select. The Company believes that its product pricing and its "services-for-fees" approach enhance the competitiveness of the Network and provide for an efficient allocation of support for the Network. In addition, the Company provides and is continuing to develop programs to enhance the competitiveness of the Network, such as marketing assistance, programs designed to enhance channel sales, product promotion, technical support and new product evaluation. Programs designed for specific members of the Network include a nationwide advanced systems program operated under the name "Intelligent Systems Group", which targets End Users with a regional or national presence, focusing particularly on high-end or technically advanced products, the ISG National Service Network which assists members of the Network in servicing multi-location, regional or national accounts, the Minority Business Alliance which assists certain Network members in obtaining business from End Users seeking to purchase from minority- owned businesses, the Multimedia Dealer Network, which is designed to help the Network sell multimedia solutions by providing a complete array of programs and services, and the Business Technology Centers program which assists members of the Network to position themselves in the small business market. The Company has introduced new financing programs, under which, for a fee, it extends up to thirty days credit to qualified End Users and certain Network members which purchase selected technology products. Under one such program, the Company, in partnership with the Network, provides products and extends credit directly to End Users who have been approved both by the Company and a member of the Network. This program frees up the existing credit line of the Network member and reduces the carrying cost of inventory by offering direct shipments to the End User and providing low cost configuration services. Also, certain members of the Network are receiving credit in order to facilitate their ability to purchase certain advanced technology products from the Company and to allow the Company to compete with competitors who offer such credit terms. As these programs are fully established and marketed, it is anticipated that they will facilitate incremental sales and profits, contribute gross margin, increase selling, general and administrative expenses, and increase accounts receivable. MARKET PRESENCE. In addition to recruiting members to the Network and expanding the business generated by the existing Network, the Company is focusing on various opportunities to enhance its market presence. To keep pace with changing technology and shifts in End User demands, the Company continues to assess and to update its product offerings to include more advanced computer products and to target specialized customers and channel markets. Additionally, the Company continues to expand its specialized services such as pre-shipment system configuration. The Company continues to explore new channels of distribution and to expand its distribution and logistics services. InteLogistics is enhancing its offering of logistics services to unaffiliated customers and pursuing additional opportunities to provide these services to companies seeking to outsource their logistics needs. Network Structure FRANCHISE AGREEMENTS. Certain of the relationships between the Company and its network integrators are governed by franchise agreements. The first franchise agreement was signed in August 1984, and provided for the operation of a business center pursuant to a system developed by the Company under the tradename Todays Computers Business Centers ("TCBC"). At October 31, 1988, there were 175 centers in operation under the TCBC name. In December 1988, the Company acquired Entre Computer Centers, Inc. ("Entre"), which consisted of 180 franchised customers and company-owned centers. In August 1989, the Company acquired Connecting Point of America, Inc. ("CPA") which consisted of a network of 246 franchised customers. The franchise agreements provide for the operation of a business center and the sale of microcomputer systems and related products and services as well as other advanced technology products under the Company's proprietary trademarks "Todays Computers Business Centers" and "TCBC," or "Entre Computer Centers" or "Connecting Point of America". These agreements generally have an initial term of 10 years which may be renewed for an additional 10 years and provide that the franchisee will have the right to operate a franchise at a specific location. The franchisees generally sell products approved for sale which may be purchased from the Company. Some franchisees have agreed to purchase certain manufacturers' products only from the Company. The Company may terminate the franchise agreement, subject to termination requirements under state franchise laws, either upon the occurrence of certain specified events or upon 30 days' notice of certain defaults by the franchisee. Certain franchisees may terminate the agreement with or without cause, at any time upon 60 days' prior written notice to the Company. Franchisees operating under TCBC or Entre marks are subject to certain restrictions against competition following termination. The Company also sells products to various members of the Network who do not sign franchise agreements. These Network members are not entitled to conduct business under any of the Company's trademarks but are permitted to purchase certain products from the Company at competitive prices and terms. In addition, members of the Network can participate in various supplemental programs offered by the Company and obtain the right to use other proprietary service marks of the Company including "Intelligent Systems Group" or "ISG," "Business Technology Centers" or "BTC," and "Intelligent Multimedia Dealer Network." During the fiscal year ended October 31, 1991 and the three-month transition period ended February 1, 1992, no individual member of the Network accounted for more than 10% of the Company's revenues from continuing operations. During the fiscal years ended January 29, 1994 and January 30, 1993, one Network member accounted for approximately 16% and 10%, respectively, of the Company's revenues from continuing operations. The Company holds an ownership interest in this member. See Note 3 to the Company's Consolidated Financial Statements for the year ended January 29, 1994. The Company is not dependent for a material part of its business upon any other member of the Network, and the loss of any other Network member would not have a material adverse effect on the Company's financial condition. Products The Company currently markets technology products consisting of microcomputer systems, workstations, networking and telecommunications equipment and software to the Network. The Company's product acquisition staff selects products on the basis of overall quality, product image, technological capability, and business applications, as well as the pricing, discount and rebate programs offered by the manufacturer which enable the Company, and in turn the Network, to benefit from quantity purchasing economies. The Company currently distributes products of approximately 40 vendors, principally COMPAQ, Hewlett-Packard, Apple, IBM, NEC, Toshiba, Microsoft, Epson, Novell, AST, Digital, AT&T and Lotus. The Company is in the process of broadening the selection of computer technology products stocked in its central warehouses. Management believes such a product line expansion will assist the Company in gaining market share. The Company has identified specific products which it plans to add to its existing assortment which include advanced technology central processing units, an expanded offering of peripheral devices and certain software packages. Inventory levels would increase in support of this enhanced product offering and anticipated higher sales volume. The Company has also identified additional measures to enhance its management of inventory as these lines typically require expanded inventory levels, shorter supplier payment terms and a longer sell through cycle. The Company's agreements with its major vendors permit it to purchase products from them for sale to Network members which are directly authorized by such vendors to sell products. In some cases, specific products from the major vendors may be sold to Network members which do not have specific authorization from the vendors. The vendor agreements are subject to termination by the vendors without cause on varying notice periods, and are subject to periodic renewals or re-authorization by the vendors. Under the agreements with the vendors, products may be returned to vendors at restocking fees ranging up to 5%. The agreements generally provide for price adjustments for specified periods which protect the Company in the event of price reductions by the vendor. The Company administers certain vendors' price adjustment programs for the benefit of the Network. In 1994, the Company instituted a policy allowing the Network to return certain manufacturers' products, without a restocking fee, within fifteen days of purchase. After fifteen days, the Company charges restocking fees to the Network ranging up to 5%. In addition, the Company has favorable volume purchase agreements with major industry distributors, under which the Network may purchase items not supplied by the Company directly from the distributors at advantageous prices and terms. Products from certain of these manufacturers comprised the following percentages of the Company's revenues during the years ended January 29, 1994 and January 30, 1993, the transition period ended February 1, 1992 and the year ended October 31, 1991: Transition period Year Year ended ended ended January 29, January 30, February 1, October 31, 1994 1993 1992 1991 ----------- ----------- ----------- ----------- IBM 15% 18% 24% 24% COMPAQ 25% 18% 12% 16% Apple 18% 22% 28% 24% HP 22% 20% 15% 14% The Company could be adversely affected should any of these vendors materially change the way in which they market, price or distribute their products. Competition Competition in the microcomputer products market is intense, principally in the areas of price, breadth of product line, product availability and End User technical support and service. The Company competes with chains of computer aggregators and distributors and computer retailers in the sale of its products. Additionally, several manufacturers have expanded their channels of distribution, pricing and product positioning and compete with the Company and its Network. The Company believes that the pricing and product availability offered to it by its vendors are at least as favorable as are offered to its competitors, which enables the Company and the Network to compete favorably with their competitors in terms of pricing and product availability. In addition, the Company develops customized value-add programs for its Network, including programs to develop channel markets, such as the market for advanced technology products, or to target certain End Users seeking to purchase products from minority-owned businesses, which enhance the competitiveness of the Network. The Company also provides technical support and service programs which it believes contribute favorably to the competitiveness of the Network. The Company is also subject to competition from other aggregators in recruiting and retaining Network members, as well as competition from distributors in its efforts to sell products to the Network. The Company believes that its pricing and value-add programs and services allow it to compete effectively. Certain competitors may have greater financial resources than the Company. InteLogistics competes with a variety of competitors who also provide contract logistics services to companies which rely on outside sources. Competitors in the logistics services business include nationwide trucking companies, overnight delivery companies, freight forwarders, public warehouses and customs brokers. Management believes that the breadth of services offered by InteLogistics and the prices charged should allow InteLogistics to compete effectively for customers. However, contract logistics services is an emerging industry and the Company may be subject to changing conditions within the industry, with services and prices subject to change as the industry matures. In addition, some competitors may have greater resources than the Company. Trademarks and Service Marks The service marks "Todays Computers Business Centers," "TCBC," "Entre," "Entre Computer Center," "Connecting Point," "Intelligent Systems Group," "Minority Business Alliance" and the design of the Entre Computer Center logo are in use and (except for the logo) are currently registered or are in the process of registration in the United States Patent and Trademark Office by the Company. Additionally, the service marks "InteLogistics," the Company's tradename for its contract logistics business, "BTC," denoting a program to help network integrators enter new markets and grow their service and training capabilities, and "Intelligent Multimedia Dealer Network," denoting a program to aid network integrators in the area of multimedia services, are in the process of being registered. Although the marks are not otherwise registered with any states, 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. The Company holds no patents. Management believes that the Company's marks are valuable; however, the loss of use of any of the marks would not have a material adverse effect on the Company's business. Discontinued Operation In June 1991, the Company acquired BizMart, Inc. ("BizMart"), a Texas-based retail chain of 57 high volume office products supercenters. On December 3, 1992, the Company entered into a Stock Purchase Agreement with OfficeMax, Inc. ("OfficeMax"), a majority-owned subsidiary of Kmart Corporation, for the sale of BizMart to OfficeMax. On March 4, 1993, the Company completed the sale of BizMart and accordingly, BizMart is reflected as a discontinued operation in the Company's Consolidated Financial Statements. See Note 2 to the Consolidated Financial Statements. Prior to the sale of BizMart, the Company's Consumer Retail Group operated the BizMart supercenters, providing a wide assortment of microcomputers, related equipment and traditional office products to the public utilizing a large-format retail storefront approach. The Company expanded the traditional product offering of the supercenters to include prominently featured name brand computer products. The Company's strategy included increasing the number of supercenters from the 57, at acquisition, to 105 as of January 30, 1993, and offering franchises for the operation of certain of the supercenters' computer departments, mainly to established franchisees in the Network in the general proximity of Bizmart supercenters. During fiscal 1992, various factors impacted the Company's ability to implement successfully its strategy for the Consumer Retail Group, including consolidation and increased competition in the superstore retailing industry, and increased price competition and changing distribution channels in the microcomputer industry. These and other factors demonstrated to the Company that the marketplace had changed substantially since the Company's acquisition of BizMart in June 1991 such that the concept of an office products superstore which included a separate and prominent franchised department selling name brand computer products was no longer unique or sufficiently profitable and, accordingly, not a viable strategy for the Company to pursue. Government Regulation The Company is subject to Federal Trade Commission regulations governing disclosure requirements in the sale of franchises. The Company is also subject to a substantial number of United States and state laws regulating franchise operations. For the most part, such laws impose registration and disclosure requirements on the Company in the offer and sale of franchises and also regulate related advertisements. In certain states, there are substantive laws or regulations affecting the relationship between the Company and the franchisees, especially in the area of termination of the franchise agreement. In addition, InteLogistics is subject to various regulations of the Interstate Commerce Commission. The Company believes it is currently and has been in the past in substantial compliance with all such regulations. Employees As of January 29, 1994, the Company had 809 full-time employees. No employee is represented by a labor union and the Company believes that its employee relations are good. Executive Officers of the Company The executive officers of the Company are as follows: Name Age Position ------------------ --- -------- Richard D. Sanford 50 Chairman of the Board and Chief Executive Officer Gregory A. Pratt 45 President and Chief Operating Officer Robert P. May 44 Senior Vice President Mark R. Briggs 37 Senior Vice President Edward A. Meltzer 45 Vice President and Chief Financial Officer Stephanie D. Cohen 32 Vice President, Secretary and Treasurer Richard D. Sanford has been the Company's Chairman and Chief Executive Officer since he founded the Company in May 1982. Gregory A. Pratt joined the Company in March 1992 as Executive Vice President and was appointed President and Chief Operating Officer of the Company shortly thereafter. Prior to joining the Company, Mr. Pratt served as President of Atari Computer Corporation and Vice President of Finance and Chief Financial Officer of Atari Corporation. He also served on the Board of Directors of Atari Corporation and was a member of the Board's Executive Committee. Robert P. May joined the Company in November 1993 as Senior Vice President. He is also Chief Executive Officer of Intelligent Distribution Services, Inc. Prior to joining the Company, Mr. May was a Senior Vice President of Federal Express Corporation and was President of Federal Express' Business Logistics Services Division. In his 20-year career with Federal Express, Mr May served in a number of executive operations and corporate management positions. Mark R. Briggs joined the Company as Vice President and Chief Financial Officer in March 1990 and became Vice President and Chief Operating Officer, Franchise Division (now the Reseller Network) in December 1991. In February 1994, Mr. Briggs was elected Senior Vice President of the Company and Chief Executive Officer of the Reseller Network. Prior to joining the Company, Mr. Briggs held various positions with Ingram-Micro D, Inc. (a distributor of microcomputer products), including Senior Vice President and Chief Financial Officer. Edward A. Meltzer became Chief Financial Officer in March 1992 and held the position of Treasurer of the Company from January 1989 to May 1993 and Vice President since August 1990. Mr. Meltzer served as Treasurer of Entre from January 1987 until its acquisition by the Company. Stephanie D. Cohen was elected Vice President, Secretary and Treasurer in May 1993 and held the position of Vice President, Investor Relations of the Company from March 1991 to May 1993. Ms. Cohen joined the Company in 1987 as Controller, and served as Director, Investor Relations from March 1989 until March 1991. Officers are elected at the first meeting of the Board of Directors held after each Annual Meeting of Shareholders of the Company. Item 2. PROPERTY The Company distributes products from five leased facilities in the United States. One distribution center is located in 121,400 square feet of leased warehouse space in Chantilly, Virginia, under a lease which expires in August 1994. The Company is currently in negotiations to replace this facility and move its East Coast distribution center. The remaining distribution centers are located in the Denver, Colorado area. These warehouses total approximately 643,000 square feet of leased warehouse space under leases which expire over the next three years. The Company leases approximately 31,000 square feet in Exton, Pennsylvania, for its principal executive offices and certain InteLogistics functions, the occupancy of which commenced in May 1989, for a term expiring in April 1996. In addition, the Company leases approximately 83,000 square feet in the Denver, Colorado area, primarily for offices of its Reseller Network, with terms expiring no later than March, 1995. The Company's facilities needs are not specialized. As such, should additional facilities be required, the Company believes such facilities could be leased at rates acceptable to the Company. Item 3. LEGAL PROCEEDINGS The Company is involved in various lawsuits in the ordinary course of business. Management of the Company does not expect resolution of these matters to have a material adverse effect on the Company's financial position. In March and April, 1992 various actions were filed against the Company and certain directors and officers of the Company and were ordered consolidated for consideration for class action treatment in the United States District Court for the Eastern District of Pennsylvania (In re Intelligent Electronics, Inc. Securities Litigation, No. 92-CV-1905). The consolidated complaint generally alleges that the Company and the other defendants caused or permitted a series of misleading public statements to be made about the Company's operations and that plaintiffs, relying on this information, purchased stock in the Company and subsequently suffered financial harm. The plaintiffs seek an unspecified amount of damages. The case is now proceeding in discovery. Management believes this complaint to be without merit and the Company intends to vigorously defend against these allegations. While management of the Company, based on its investigation of this matter and consultations with counsel, believes resolution of this matter will not have a material adverse effect on the Company's financial position, the ultimate outcome of this complaint cannot presently be determined. Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. PART II Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The Company's common stock is traded over-the-counter in the NASDAQ National Market (symbol INEL). As of March 11, 1994, there were 808 shareholders of record. Set forth below is the range of the high and low sale prices for the Company's common stock as reported by NASDAQ during each fiscal quarter within the two most recent fiscal years: Quarter ended High Low ------------- ----- ------- May 2, 1992 $ 30 3/8 $10 August 1, 1992 $ 12 1/2 $ 6 1/4 October 31, 1992 $ 12 1/2 $ 8 7/8 January 30, 1993 $ 15 1/8 $ 8 1/8 May 1, 1993 $ 15 3/8 $12 July 31, 1993 $ 16 1/4 $12 1/4 October 30, 1993 $ 24 3/8 $15 January 29, 1994 $ 28 $21 1/8 The Company instituted a quarterly dividend of $0.08 per share in the second quarter of fiscal 1993. On June 1, 1993, the Company paid a one-time special cash dividend of $2.00 per share.
Item 6. SELECTED FINANCIAL DATA STATEMENT OF OPERATIONS DATA (1) (in thousands, except per share data) Transition period Year ended ended January 29, January 30, February 1, Year ended October 31, 1994 1993 1992 1991 1990 1989 ----------- ----------- ----------- ---------- ---------- -------- Revenues $2,646,102 $2,016,686 $515,974 $1,753,574 $1,458,541 $711,671 Income from continuing operations 41,117 22,134 9,625 38,529 29,250 10,571 Earnings per common share from continuing operations $1.13 $0.58 $0.25 $1.12 $1.04 $0.50 Cash dividends declared per share of common stock $2.24 -- -- -- -- -- BALANCE SHEET DATA (in thousands) January 29, January 30, February 1, October 31, 1994 1993 1992 1991 1990 1989 ----------- ----------- ----------- -------- -------- -------- Total assets $577,011 $630,332 $670,415 $706,515 $442,043 $295,420 Long-term debt -- 97 29,690 29,756 29,496 47,085 Total shareholders' equity 218,850 280,527 289,279 274,477 119,552 78,345 (1) See Note 2 to Consolidated Financial Statements for the fiscal year ended January 29, 1994 for information regarding the acquisition of BizMart, Inc. on June 19, 1991 and its sale on March 4, 1993, resulting in BizMart's results of operations being classified as a discontinued operation.
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS INTRODUCTION - ------------ In December 1991, the Company changed its fiscal year-end from October 31 to a fifty-two, fifty-three week period ending on the Saturday nearest January 31, resulting in a three-month transition period from November 1, 1991 to February 1, 1992. Results of operations for the following periods are being compared: the fifty-two week period ended January 29, 1994 ("fiscal 1993") compared to the fifty-two week period ended January 30, 1993 ("fiscal 1992"), fiscal 1992 compared to the fiscal year ended October 31, 1991 ("fiscal 1991"), and the transition period ended February 1, 1992 (the "transition period") compared to the unaudited quarter ended January 31, 1991. RESULTS OF CONTINUING OPERATIONS Fiscal 1993 Compared to Fiscal 1992 - ----------------------------------- Revenues increased 31% to $2,646,102,000 in fiscal 1993 from $2,016,686,000 in fiscal 1992. The increase was due primarily to the addition of new network members and increased revenues from existing members led by continued strong demand for premium computers and peripherals, despite the inability of certain manufacturers to supply certain products, offset in part by the sale of the Company Center Division ("CCD") in May and July 1992 (See Note 3 to the financial statements). Gross profit as a percentage of revenues for fiscal 1993 was 4.4% compared to 5.1% for fiscal 1992. This decline was primarily attributable to the sale of CCD which realized higher gross margins than the Company realizes on wholesale revenues and continued competitive pressures throughout the microcomputer industry. The Company reported fourth quarter gross margin of 4.6% as gross margin percent increased throughout fiscal 1993 as a result of taking advantage of purchasing opportunities and the introduction of new services and programs. Selling, general and administrative expenses decreased and as a percentage of revenues declined from 2.6% in fiscal 1992 to 2.0% in fiscal 1993. The elimination of costs related to CCD (which had proportionately higher operating costs than those associated with wholesale operations) in July 1992 accounted for most of the reduction, offset by cost increases to service the larger network, higher volume of revenues and new programs. These increases were at a lower rate than the growth in revenues causing the decline in selling, general and administrative expenses as a percentage of revenues. Amortization of intangibles decreased in fiscal 1993 compared to fiscal 1992 due to the elimination of goodwill included in CCD's net assets sold to The Future Now, Inc. ("TFN"), a member of the IE network and a publicly traded company. Investment and other income was $5,144,000 in fiscal 1993 compared to $475,000 in fiscal 1992. This increase was due primarily to income earned on investing the proceeds from the sale of BizMart. Interest expense decreased primarily as a result of the early repayment of the Subordinated Notes in January and February 1993 and the reduced use of inventory financing. The Company's equity interest in earnings of its affiliate increased to $2,636,000 from $1,028,000. This increase was due to the inclusion of the Company's proportionate share of TFN's earnings for a full year and increased earnings by TFN in fiscal 1993. The effective tax rate for fiscal 1993 was 38.2% compared to 43.8% in fiscal 1992. Higher pre-tax earnings and tax-exempt investment income in fiscal 1993 and the impact of the incremental tax charge related to the sale of CCD in fiscal 1992, offset by a rise in the Company's effective state tax rate, were primarily responsible for the decrease. Income from continuing operations for fiscal 1993 was $41,117,000 compared to $22,134,000 for fiscal 1992 due to the factors described above. The Company established new financing programs under which, for a fee, it extends credit to qualified end-users and certain network members which purchase selected technology products. Also, the Company plans to broaden the selection of computer technology products stocked in its central warehouses. These programs are expected to facilitate incremental sales, contribute gross margin, increase selling, general and administrative expenses and increase accounts receivable and inventory. As discussed in Note 9 to the financial statements, products of four vendors comprise 80% of the Company's revenues. The Company could be adversely affected should these vendors materially change the way in which they market, price or distribute their products. Fiscal 1992 Compared to Fiscal 1991 - ----------------------------------- Revenues increased 15% in fiscal 1992 to $2,016,686,000, from $1,753,574,000 reported for fiscal 1991. Increased unit sales to existing customers and sales to new customers were primarily responsible for this increase. Partially offsetting this increase were substantial manufacturer price reductions which the Company generally passed on to its customers and the sale of CCD. During fiscal 1992, the Company added 77 new franchised locations. A total of 176 franchised locations were eliminated during the year, of which 55 related to the cessation of the Company's wholesale operations in Canada, and the remainder from either termination of agreements or consolidation of operations. None of these changes materially impacted revenues in fiscal 1992. Gross profit as a percentage of revenues was 5.1% in 1992 compared to 7.6% in 1991. This change reflected the sale of CCD which historically realized higher gross margins than those generated by the Company's wholesale revenues and higher freight costs in 1992. Additionally, during fiscal 1992, competitive pressures throughout the microcomputer industry impacted both vendor pricing and programs to the Company and the selling prices the Company charged its customers. Selling, general and administrative expenses declined to $53,047,000 or 2.6% of revenues in fiscal 1992 compared to $64,630,000 or 3.7% of revenues in fiscal 1991. Reduced corporate costs and the elimination of costs related to the CCD operation were primarily responsible for this change. These cost reductions were offset in part by increased costs to support the higher volume of wholesale sales. Amortization of intangibles in fiscal 1992 declined compared to fiscal 1991 following the sale of CCD and the elimination of approximately $7.8 million in goodwill included in CCD's net assets. Operating income totaled $45,325,000 in 1992 compared to $64,025,000 in 1991. This change is primarily due to lower gross margin percent but was partially mitigated by reduced selling, general and administrative expenses as discussed above. Investment and other income in 1992 totaled $475,000 compared to $5,206,000 in 1991. Interest expense did not change significantly from fiscal 1991 to fiscal 1992. The change in investment income resulted primarily from the decreased amount of invested cash following the June 1991 BizMart acquisition, lower interest rates in 1992 and increased expenditures for inventory and capital expenditures associated with the expansion of BizMart in 1992. As discussed in Note 3 to the financial statements, in May and July 1992, the Company sold the 10 stores comprising CCD in two transactions for a combination of cash and common stock of the purchasers. In the July transaction, in exchange for the common stock of the subsidiaries owning nine of the CCD locations, the Company received cash and a 31.1% equity interest in TFN. The sale of CCD resulted in a pre-tax gain of $43,000, and an incremental tax charge of approximately $1.7 million arising from differences between the tax bases of net assets sold and their amounts for financial reporting purposes. Following the sale of CCD, the Company recognized $1,028,000 in income as its equity in TFN's earnings. Income from continuing operations before income taxes was $39,408,000 for fiscal 1992 compared to $62,028,000 in fiscal 1991. The change resulted from the factors described above. The effective tax rate for fiscal 1992 was 43.8% compared to 37.9% in fiscal 1991. The primary causes of this change were the incremental tax charge associated with the sale of CCD and the impact of non-deductible goodwill amortization on lower pre-tax earnings during 1992. Income from continuing operations was $22,134,000 in 1992 compared to $38,529,000 in 1991, due to the factors outlined above. In January and February 1993, the Company repaid the $30 million in Subordinated Notes which bore interest at 13.25% per annum. As required by the Subordinated Notes, the Company paid accrued interest and a prepayment premium totaling $4,454,000. This premium and the related unamortized loan discount and deferred financing costs were charged to expense in 1992 as an extraordinary item. Transition Period Compared to Quarter Ended January 31, 1991 - ------------------------------------------------------------ Revenues increased 19.5% to $515,974,000 for the transition period, from $431,695,000 for the quarter ended January 31, 1991. Increased revenues from existing network members and the addition of new network members accounted for this increase. Gross profit as a percentage of revenues during the transition period decreased to 7.0% compared to 7.9% for the quarter ended January 31, 1991 in response to competitive pressure on pricing throughout the industry and increased freight and handling costs associated with the higher volume of sales. Selling, general and administrative expenses increased to $17,205,000 for the transition period from $15,525,000 for the quarter ended January 31, 1991. As a percentage of revenues, selling, general and administrative expenses declined to 3.3% from 3.6% as a result of increased revenues without proportionate cost increases. Interest expense, net of investment income, increased to $2,170,000 for the transition period from $602,000 during the quarter ended January 31, 1991, due to the decreased amount of invested cash following the acquisition of BizMart and greater inventory levels required to support increased sales. The Company's effective tax rate decreased from 38.5% for the quarter ended January 31, 1991, to 37.0% for the transition period, due principally to changes in the Company's effective state tax rate following the relocation of certain of the Company's operating activities. Income from continuing operations was $9,625,000 for the transition period, compared to $10,236,000 for the quarter ended January 31, 1991 for the reasons outlined above. RESULTS OF DISCONTINUED OPERATION AND SALE OF BIZMART As discussed more fully in Note 2 to the financial statements, on June 19, 1991, the Company acquired BizMart, a national chain of office products supercenters, which operated in a separate industry segment from the Company's other subsidiaries. On March 4, 1993, the Company completed the sale of BizMart to OfficeMax, Inc. Accordingly, results of BizMart's operations are classified as a discontinued operation. During fiscal 1993, BizMart operations resulted in pre-tax losses totaling $3,544,000 compared to pre-tax losses of $27,124,000 in fiscal 1992, a pre-tax profit of $910,000 for the period from June 19, 1991 to October 31, 1991 and a pre-tax profit of $2,695,000 for the transition period. Contributing to such losses were adjustments to the carrying value of certain assets, including inventory repurchased from franchisees. LIQUIDITY AND CAPITAL RESOURCES The Company has financed its growth to date from stock offerings, bank and subordinated borrowings, inventory financing and internally generated funds. The principal uses of its cash have been to fund its accounts receivable and inventory and to make acquisitions. On March 4, 1993, the Company completed the sale of BizMart and received a cash payment of $275,236,000. During fiscal 1993, cash generated from operating activities totaled $8,162,000 compared to $31,070,000 in fiscal 1992. At January 29, 1994, the Company had cash and cash equivalents and marketable securities totaling $183,379,000 ($52,498,000 at January 30, 1993) and had working capital of $105,293,000 ($177,380,000 at January 30, 1993). During fiscal 1993, the Company continued its strong management of assets as days sales in accounts receivable averaged 1.9 days (2.5 days in fiscal 1992) and inventory turnover averaged 11.8 times (10.3 times in fiscal 1992). The reduction in working capital from January 30, 1993, is due primarily to the payments for the special $2.00 per share and regular quarterly (instituted during the second quarter) common stock dividends and share repurchases made during fiscal 1993. With the new financing programs offered by the Company and the planned expanded selection of inventory stocked in its warehouses, working capital requirements are expected to increase in the future. The Company also has a $170,000,000 financing agreement with a finance company. At January 29, 1994, the Company had $146,800,000 outstanding on this facility which was included in accounts payable on the Consolidated Balance Sheet. On October 22, 1993, the Company executed a $20,000,000 guarantee to an inventory finance company on behalf of one of its network members. This guarantee remained in place at January 29, 1994. The Board of Directors has authorized the repurchase, in open-market transactions, of up to 7,000,000 shares of the Company's common stock. As of January 29, 1994, the Company had repurchased 4,196,200 shares at a cost of approximately $57,181,000. Based on the Company's current level of operations and expected requirements, management believes that the Company's cash and marketable securities, internally generated funds and available financing arrangements and opportunities will be sufficient to meet the Company's cash requirements for the foreseeable future. INFLATION AND SEASONALITY The Company believes that inflation has not had a material impact on its operations or liquidity to date. The Company's financial performance does not exhibit significant seasonality, although certain computer product lines follow a seasonal pattern with peaks occurring near the end of the calendar year. Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The Consolidated Financial Statements of Intelligent Electronics, Inc. and its subsidiaries, listed in the index appearing under Item 14(a)(1) are filed as part of this annual report on Form 10-K. REPORT OF INDEPENDENT ACCOUNTANTS --------------------------------- To the Board of Directors and Shareholders Intelligent Electronics, Inc. In our opinion, the consolidated financial statements listed in the index appearing under Item 14(a)(1) and (2) on page 29 present fairly, in all material respects, the financial position of Intelligent Electronics, Inc. and its subsidiaries at January 29, 1994 and January 30, 1993 and the results of their operations and their cash flows for each of the two years in the period ended January 29, 1994, for the transition period ended February 1, 1992, and for the year ended October 31, 1991, in conformity with generally accepted accounting principles. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with generally accepted auditing standards which 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, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement present- ation. We believe that our audits provide a reasonable basis for the opinion expressed above. PRICE WATERHOUSE Philadelphia, Pennsylvania March 7, 1994 INTELLIGENT ELECTRONICS, INC. and Subsidiaries Consolidated Balance Sheet (in thousands, except share-related data)
January 29, January 30, 1994 1993 ----------- ----------- Assets ------ Current assets: Cash and cash equivalents (including repurchase $ 122,249 $ 52,498 agreements of $14,381 in 1994 and $1,504 in 1993) Marketable securities 61,130 -- Accounts receivable (net of allowance for doubtful accounts of $398 in 1994 and $233 in 1993) 9,524 8,410 Inventory 251,044 196,857 Prepaid expenses and other current assets 8,872 3,576 Deferred income taxes 7,840 3,276 Net assets of discontinued operation -- 261,173 ---------- ----------- Total current assets 460,659 525,790 Property and equipment, net 11,371 8,527 Intangible assets, primarily goodwill (net of accumulated amortization of $21,124 in 1994 and $16,403 in 1993) 71,585 76,306 Investments in affiliates 30,096 18,174 Other assets 3,300 1,535 ----------- ----------- Total assets $ 577,011 $ 630,332 =========== =========== Liabilities and Shareholders' Equity ------------------------------------ Current liabilities: Current portion of long-term debt $ -- $ 17,619 Accounts payable 334,341 304,045 Accrued liabilities 21,025 26,746 ----------- ----------- Total current liabilities 355,366 348,410 ----------- ----------- Other liabilities 2,795 1,395 Commitments and contingencies (Notes 4, 5, 11 and 12) -- -- Shareholders' equity: Preferred stock $1.00 par value per share: Authorized 15,000,000 shares, none issued and outstanding -- -- Common stock $.01 par value per share: Authorized 100,000,000 shares; issued: 39,310,439 in 1994 and 36,961,154 in 1993 393 370 Additional paid-in capital 219,107 196,742 Treasury stock (4,196,200 shares in 1994 and 754,400 shares in 1993) (57,181) (10,896) Retained earnings 56,531 94,311 ----------- ----------- Total shareholders' equity 218,850 280,527 ----------- ----------- Total liabilities and shareholders' equity $ 577,011 $ 630,332 =========== =========== See accompanying notes to consolidated financial statements.
INTELLIGENT ELECTRONICS, INC. and Subsidiaries Consolidated Statement of Operations (in thousands, except per share data)
Transition period Year Year ended ended ended January 29, January 30, February 1, October 31, 1994 1993 1992 1991 ----------- ----------- ----------- ------------ Revenues $ 2,646,102 $ 2,016,686 $ 515,974 $ 1,753,574 Cost of goods sold 2,529,242 1,913,393 480,015 1,619,710 ----------- ----------- ----------- ------------ Gross profit 116,860 103,293 35,959 133,864 ----------- ----------- ----------- ------------ Operating expenses: Selling, general and administrative expenses 52,477 53,047 17,205 64,630 Amortization of intangibles, primarily goodwill 4,721 4,921 1,303 5,209 ----------- ----------- ----------- ------------ Total operating expenses 57,198 57,968 18,508 69,839 ----------- ----------- ----------- ------------ Income from operations 59,662 45,325 17,451 64,025 Other income (expense): Investment and other income, net 5,144 475 178 5,206 Interest expense (901) (7,420) (2,348) (7,203) Equity in earnings of affiliate 2,636 1,028 -- -- ----------- ----------- ----------- ------------ Income from continuing operations before provision for income taxes 66,541 39,408 15,281 62,028 Provision for income taxes 25,424 17,274 5,656 23,499 ----------- ----------- ----------- ------------ Income from continuing operations 41,117 22,134 9,625 38,529 Discontinued operation: Income (loss) from discontinued operation (net of tax expense (benefit) of $(1,076), $(6,964), $1,675 and $1,246) (2,468) (20,160) 1,020 (336) Gain on sale of BizMart (net of tax expense of $1,306) 4,276 -- -- -- ----------- ----------- ----------- ------------ Income before extraordinary item 42,925 1,974 10,645 38,193 Extraordinary item: Loss on early repayment of Subordinated debt (net of tax benefit of $1,799) -- (3,269) -- -- ----------- ----------- ----------- ------------ Net income (loss) $ 42,925 $ (1,295) $ 10,645 $ 38,193 =========== =========== =========== ============ Earnings (loss) per common share and share equivalents: Continuing operations $ 1.13 $ 0.58 $ 0.25 $ 1.12 Discontinued operation (0.07) (0.52) 0.03 (0.01) Sale of BizMart 0.12 -- -- -- Extraordinary item -- (0.09) -- -- ----------- ----------- ----------- ------------ Net income (loss) per share $ 1.18 $ (0.03) $ 0.28 $ 1.11 =========== =========== =========== ============ Weighted average number of common shares and share equivalents outstanding: 36,521 38,204 38,683 34,497 See accompanying notes to consolidated financial statements.
INTELLIGENT ELECTRONICS, INC. and Subsidiaries Consolidated Statement of Shareholders' Equity (in thousands)
Common Treasury Total Stock Additional Stock share- --------------- paid-in Retained --------------- holders' Shares Amount capital earnings Shares Amount equity ------ ------ ---------- -------- ------ ------ -------- Balance at October 31, 1990 26,330 $ 263 $ 72,521 $ 46,768 $119,552 Issuance of common stock net of offering costs 5,873 59 92,220 -- 92,279 Issuance of common stock under acquisition agreement 1,144 12 16,181 -- 16,193 Issuance of common stock on exercise of warrants 2,333 23 5,227 -- 5,250 Issuance of common stock on exercise of options and related tax benefit 424 4 2,635 -- 2,639 Issuance of common stock to employees 41 -- 365 -- 365 Amortization of deferred compensation on executive stock option outstanding -- -- 6 -- 6 Net income -- -- -- 38,193 38,193 ------ ------ ---------- -------- -------- Balance at October 31, 1991 36,145 361 189,155 84,961 274,477 Issuance of common stock on exercise of warrants 40 1 189 -- 190 Issuance of common stock on exercise of options and related tax benefit 407 4 3,963 -- 3,967 Net income -- -- -- 10,645 10,645 ------ ------ ---------- -------- -------- Balance at February 1, 1992 36,592 366 193,307 95,606 289,279 Issuance of common stock on exercise of warrants 40 1 189 -- 190 Issuance of common stock on exercise of options and related tax benefit 329 3 3,246 -- 3,249 Common stock repurchased -- -- -- -- 754 $(10,896) (10,896) Net loss -- -- -- (1,295) -- -- (1,295) ------ ------ ---------- -------- ------ -------- -------- Balance at January 30, 1993 36,961 370 196,742 94,311 754 (10,896) 280,527 Issuance of common stock on exercise of warrants 120 1 569 -- -- -- 570 Issuance of common stock on exercise of options and related tax benefit 2,230 22 21,796 -- -- -- 21,818 Common stock repurchased -- -- -- -- 3,442 (46,285) (46,285) Cash dividends ($2.24 per share) -- -- -- (80,705) -- -- (80,705) Net income -- -- -- 42,925 -- -- 42,925 ------ ------ ---------- -------- ------ -------- -------- Balance at January 29, 1994 39,311 $ 393 $ 219,107 $ 56,531 4,196 $(57,181) $218,850 ====== ====== ========== ======== ====== ======== ======== See accompanying notes to consolidated financial statements.
INTELLIGENT ELECTRONICS, INC. and Subsidiaries Consolidated Statement of Cash Flows (in thousands)
Transition period Year Year ended ended ended January 29, January 30, February 1, October 31, 1994 1993 1992 1991 ----------- ----------- ----------- ------------ CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss) $ 42,925 $ (1,295) $ 10,645 $ 38,193 Adjustments to reconcile net income (loss) to net cash provided by (used for) operating activities: Depreciation and amortization 9,279 9,196 2,503 9,088 Provision for deferred taxes (3,071) 1,146 (457) 1,624 Provision for losses on trade receivables 375 381 119 622 Provision for write-down of inventory 1,541 1,563 -- 302 (Income) loss from discontinued operation 2,468 20,160 (1,020) 336 Gain on sale of CCD -- (43) -- -- Gain on sale of BizMart (4,276) -- -- -- Equity in earnings of affiliate (2,636) (1,028) -- -- Extraordinary item, loss on early repayment of Subordinated debt -- 3,462 -- -- Changes in assets and liabilities excluding effects of business acquisitions and sales: Accounts receivable (1,489) (4,057) (3,286) 2,296 Inventory (57,047) (32,223) 11,783 (19,833) Other current assets (10,895) (1,454) (370) (196) Accounts payable 30,204 42,020 (38,389) 50,938 Accrued liabilities 784 (6,758) 4,450 (2,458) ----------- ---------- ----------- ------------ Net cash provided by (used for) operating activities 8,162 31,070 (14,022) 80,912 ----------- ---------- ----------- ------------ CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of marketable securities (154,400) -- -- -- Sales and maturities of marketable securities 93,270 -- -- -- Acquisition of property and equipment, net (7,402) (4,571) (499) (4,917) Payment of CPA contingent purchase price -- -- -- (1,652) Purchase of net assets of franchised centers -- -- -- (1,702) Purchase of net assets of BizMart, less cash acquired -- -- -- (179,533) Proceeds from sale of BizMart 275,236 -- -- -- Proceeds from sale of CCD -- 2,340 216 -- Repayment of note receivable from affiliate -- 27,850 -- -- Investments in and loans to affiliates (10,247) -- -- -- Tax benefit realized from acquired entities -- -- -- 1,666 Other (804) (804) 102 (314) ----------- ---------- ----------- ------------ Net cash provided by (used for) investing activities 195,653 24,815 (181) (186,452) ----------- ---------- ----------- ------------ CASH FLOWS FROM FINANCING ACTIVITIES: Repayments of Subordinated debt (17,500) (12,500) -- -- Net proceeds from public offering -- -- -- 92,279 Common stock repurchased (55,375) (1,806) -- -- Cash dividends paid (77,896) -- -- -- Proceeds from exercise of stock options 21,818 3,249 3,967 2,646 Proceeds from exercise of warrants 570 190 190 5,250 Reduction in capital lease obligations (119) (317) (97) (367) ----------- ---------- ----------- ------------ Net cash provided by (used for) financing activities (128,502) (11,184) 4,060 99,808 ----------- ---------- ----------- ------------ Net cash provided by (used for) continuing operations 75,313 44,701 (10,143) (5,732) Cash used for discontinued operation (5,562) (56,693) (18,536) (21,820) ----------- ---------- ----------- ------------ NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 69,751 (11,992) (28,679) (27,552) CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 52,498 64,490 93,169 120,721 ----------- ---------- ----------- ------------ CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 122,249 $ 52,498 $ 64,490 $ 93,169 =========== ========== =========== ============ See accompanying notes to consolidated financial statements.
INTELLIGENT ELECTRONICS, INC. and Subsidiaries Notes to Consolidated Financial Statements (1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Business - -------- Intelligent Electronics, Inc. (the "Company") provides information technology products, services and solutions to its network of nearly 2,000 integrators (the "IE Network" or the "Network") and, in partnership with the Network, directly to large and small corporate customers, educational institutions and governmental agencies ("End Users"). As a leading supplier of premium brand technology products in America, the Company provides business solutions to the Network and End Users through innovative product management, sales demand generation programs and logistics services. The principal products sold by the Company include microcomputer systems, workstations, networking and telecommunications equipment and software. On March 4, 1993, the Company sold BizMart, Inc. ("BizMart") and accordingly, BizMart is treated as a discontinued operation in the accompanying financial statements (see Note 2). Unless otherwise indicated, amounts and disclosures referred to herein relate to continuing operations. Principles of Consolidation - --------------------------- The consolidated financial statements include the accounts of the Company and its subsidiaries. All material intercompany accounts and transactions have been eliminated in consolidation. Definition of Fiscal Year - ------------------------- In December 1991, the Company changed its fiscal year-end to a fifty-two, fifty- three week period ending on the Saturday nearest January 31st. Accordingly, the Company reported a transition period, which began November 1, 1991 and ended on February 1, 1992 (referred to herein as the "transition period"). The fifty-two week periods ended January 29, 1994 and January 30, 1993 and the fiscal year ended October 31, 1991 are referred to herein as "fiscal 1993," "fiscal 1992," and "fiscal 1991," respectively. Cash, Cash Equivalents and Marketable Securities - ------------------------------------------------ Cash and cash equivalents comprise the Company's cash balances and short-term investments with an initial maturity of less than ninety days and include money- market funds, commercial paper and repurchase agreements. Short-term investments totaled $121,956,000 and $53,068,000 at January 29, 1994, and January 30, 1993, respectively. With respect to repurchase agreements, the Company requires specific assignment of securities as collateral for such investments, but does not take possession of the collateral. The carrying amount of cash, short-term investments and marketable securities approximates fair market value due to the short-term maturity of these instruments. In May 1993, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 115 ("FAS 115"), Accounting for Certain Investments in Debt and Equity Securities, effective for fiscal years beginning after December 15, 1993. The Company will adopt FAS 115 on January 30, 1994. The adoption of this statement is not expected to materially affect the financial position or results of operations of the Company. Inventory - --------- Inventory consists of microcomputers, related peripheral products and software, and is valued at the lower of cost (first-in, first-out) or market. Property and Equipment - ---------------------- Property and equipment are carried at cost. The cost of additions and improvements is capitalized, while maintenance and repairs are charged to operations when incurred. Depreciation is recorded using the straight-line method over the estimated useful lives of the assets (three to five years). Leasehold improvements are amortized over the shorter of their useful lives or the remaining lease term. Leases meeting the capitalization requirements of FAS 13 are capitalized and depreciated over the lease term. Depreciation expense totaled $4,558,000 ($783,000 included in cost of goods sold) and $3,680,000 for fiscal 1993 and 1992, respectively, $1,084,000 for the transition period, and $3,404,000 for fiscal 1991. Accumulated depreciation totaled $14,872,000 at January 29, 1994 and $10,517,000 at January 30, 1993. Goodwill - -------- Goodwill resulting from acquisitions accounted for under the purchase method is amortized using the straight-line method generally over a 20-year period. Revenue Recognition - ------------------- Revenue is recognized upon shipment of products or performance of services. Revenue from the granting of individual franchises is recognized when all significant obligations have been performed. Revenues and total operating costs related to company-owned centers were $86,223,000 and $85,212,000, respectively, for fiscal 1992 (see Note 3), $54,678,000 and $52,721,000, respectively, for the transition period, and $184,594,000 and $177,546,000, respectively, for fiscal 1991. Funds received from vendors for marketing programs and product rebates are accounted for as revenue, a reduction of selling, general and administrative expenses or product cost according to the nature of the program. Franchising Activities - ---------------------- The Company or its wholly-owned subsidiaries grant franchises, pursuant to the terms of standard agreements, for the operation of business centers. Franchisees are authorized to sell and lease personal computers, related peripherals, software, support services and training as well as other advanced technology under the Company's proprietary service marks "Todays Computers Business Centers" and "TCBC," "Entre," "Connecting Point," "Intelligent Systems Group," "BTC," and "Intelligent Multimedia Dealer Network". The Company's franchise agreements generally have initial terms of ten years and renewal options for an additional ten years. Certain agreements permit termination by the franchisee upon 60 days notice. In fiscal 1993, 40 franchised business centers were added and 88 were eliminated due to transferring to an affiliate agreement, closing or terminating their agreement, resulting in 840 franchised locations at January 29, 1994. Revenues from initial franchise fees were $0 and $217,000 for fiscal 1993 and 1992, respectively, $409,000 for the transition period and $761,000 for fiscal 1991. Investment and Other Income - --------------------------- Investment income includes interest and dividend income and realized gains and losses on marketable securities. Total interest and dividend income was $5,241,000, $1,086,000, $311,000, and $5,146,000 for fiscal 1993, fiscal 1992, the transition period, and fiscal 1991, respectively. Income Taxes - ------------ Until February 2, 1992, the Company utilized Statement of Financial Accounting Standards No. 96, Accounting for Income Taxes ("FAS 96"). In February 1992, FAS 96 was superseded by Statement of Financial Accounting Standards No. 109 ("FAS 109"). In accordance with FAS 109, deferred tax assets and liabilities are recorded for temporary differences which enter into the determination of taxable income in different periods for financial reporting and income tax purposes. The Company adopted this statement on a prospective basis in the first quarter of the fiscal year ended January 30, 1993. Adoption of this statement did not have a material effect on the Company. Earnings Per Share - ------------------ Primary earnings per share is computed using the weighted average number of common shares and dilutive common share equivalents outstanding based on the average market price during the period. The amount of dilution is computed by application of the treasury stock method. Fully diluted earnings per share is computed in substantially the same manner, but includes the dilutive effect of all issuable shares, based on the market price at the end of the period, whether or not they are common share equivalents. Treasury stock transactions are recorded on their trade date and reduce weighted average shares outstanding from that date. (2) DISCONTINUED OPERATION AND SALE OF BIZMART On June 19, 1991, the Company acquired BizMart, a national chain of office products supercenters, for an aggregate purchase price of $195,796,000, including transaction costs. Operations attributed to BizMart included the sale of microcomputers, related equipment and traditional office products. The Company accounted for the acquisition using the purchase method. On March 4, 1993, the Company sold BizMart to OfficeMax, Inc. ("OfficeMax"), a majority- owned subsidiary of Kmart Corporation and received a cash payment totaling $275,236,000, including the purchase price, as defined, of $269,770,000 and repayment of other amounts, consisting principally of intercompany advances after November 28, 1992. The aggregate sale proceeds less the carrying value of net assets sold and costs related to the sale resulted in a gain before tax of $5,582,000. The effective tax rate for the sale of BizMart varies from the effective tax rate for the discontinued operation due to differences between the tax bases of assets sold and their amounts for financial reporting purposes. Results of BizMart's operations have been reported separately as a discontinued operation in the accompanying Consolidated Statement of Operations. BizMart's operating results excluded from continuing operations are summarized as follows (in thousands):
Fiscal Fiscal Transition Fiscal 1993 1992 Period 1991 -------- --------- ---------- --------- Net sales $ 60,193 $ 634,962 $ 175,124 $ 160,355 Costs and expenses 63,737 662,086 172,429 159,445 -------- --------- -------- --------- Income (loss) before taxes (3,544) (27,124) 2,695 910 Income tax provision (benefit) (1,076) (6,964) 1,675 1,246 -------- --------- -------- --------- Income (loss) from discontinued operation $ (2,468) $ (20,160) $ 1,020 $ (336) ======== ========= ======== ========= BizMart's assets and liabilities were reclassified to a net current asset on the January 30, 1993 Consolidated Balance Sheet and consisted of the following: Cash $ 3,099,000 Accounts receivable 8,747,000 Inventory 141,938,000 Prepaid expenses and other current assets 11,615,000 Property and equipment, including leasehold improvements 49,190,000 Goodwill 120,863,000 Short-term portion of long-term debt (250,000) Accounts payable and accrued expenses (73,101,000) Long-term debt (928,000) ------------ Net assets of discontinued operation $261,173,000 ============ BizMart was included in the consolidated federal and certain state income tax returns of the Company. For financial reporting purposes, income tax expense (benefit) was provided on a separate return basis except that the benefit of net operating losses was measured on a consolidated basis. (3) SALE OF COMPANY CENTER DIVISION AND INVESTMENTS IN AFFILIATES On May 15, 1992, the Company sold certain assets of its Bellevue, WA center to Random Access, Inc. ("RA"), a network member and publicly traded company. The consideration received consisted of $400,000 cash and 92,500 (as adjusted for a reverse two-for-one stock split on June 28, 1993) newly issued unregistered shares representing approximately 1% of RA common stock. The Company accounts for its investment in RA common stock using the cost method. The RA common stock was valued at $294,000 or $3.18 per share. At January 29, 1994, the aggregate market value, based on RA's quoted market price, of the Company's investment in RA was approximately $526,000. On July 2, 1992, the Company sold substantially all of the remaining operations of its Company Center Division ("CCD") to The Future Now, Inc. ("TFN"), a network member and publicly traded company. The consideration received by the Company consisted of 1,638,377 newly issued unregistered shares of TFN valued at $16,589,000, or $10.12 per share, repayment of intercompany obligations ($27,850,000), warrants valued at $263,000 to purchase 184,498 shares of TFN common stock at an average exercise price of $10.06 per share, and a cash payment of $1,940,000. The aggregate sale proceeds from the above transactions less the carrying value of net assets sold and costs related to the sales resulted in a gain before tax of $43,000. An incremental tax charge of approximately $1,700,000, arising from differences between the tax bases of assets sold and their amounts for financial reporting purposes, is included in the Company's provision for income taxes for fiscal 1992. In March 1993, TFN completed a public offering which reduced the Company's equity interest in TFN to 24.3%. In October 1993, the Company purchased an additional 681,447 newly issued unregistered shares of TFN raising the Company's equity interest to 31.1%. The Company accounts for its investment in TFN using the equity method. In fiscal 1993, the Company recognized $2,636,000 as its equity interest in TFN's earnings. At January 29, 1994, the carrying value of the Company's investment in TFN was approximately $29,290,000 and the aggregate market value, based on TFN's quoted market price, was approximately $33,057,000. Summarized financial information for TFN is as follows (in thousands): Fiscal Fiscal 1993 1992 -------- -------- Current assets $223,850 $119,250 Noncurrent assets 66,709 26,400 Current liabilities 132,150 67,817 Noncurrent liabilities 80,649 34,994 Revenues 701,834 343,000 Gross profit 113,489 59,934 Net income 9,303 5,709 The Company sells products to TFN pursuant to a franchise agreement which expires in the year 2000. This agreement may be terminated by TFN upon 90 days notice and payment of certain amounts. During fiscal 1993 and fiscal 1992, sales to TFN approximated $427,000,000 and $212,000,000, respectively, representing approximately 16% and 10%, respectively, of the Company's consolidated revenues from continuing operations. (4) CREDIT FACILITIES On April 18, 1989, the Company issued to certain institutional investors Subordinated Notes in the aggregate principal amount of $30,000,000 and used net proceeds therefrom to reduce existing borrowings and for working capital purposes. Interest on the Subordinated Notes was payable quarterly at 13.25% per annum. On January 11, 1993, and February 24, 1993, the Company prepaid principal of $12,500,000 and $17,500,000, respectively, to retire the Subordinated Notes in full. Pursuant to terms outlined in the Subordinated Notes Agreement, the Company paid accrued interest and a prepayment premium totaling $4,454,000 in connection with the early repayment of the Subordinated Notes. The prepayment premium, together with unamortized deferred financing costs and loan discount are reflected as an extraordinary item, net of the related tax benefit, in the Consolidated Statement of Operations in fiscal 1992. The Company and its subsidiaries have agreements with various lenders and other creditors to finance product purchases from vendors. On January 25, 1994, the Company amended a financing agreement with a finance company to provide a credit line of $170,000,000 for inventory financing and for general working capital purposes. At January 29, 1994, the Company had $146,800,000 outstanding on this facility which was included in accounts payable on the Consolidated Balance Sheet. In connection with these arrangements, such creditors have a lien on all of the Company's assets at January 29, 1994. In addition, certain of these arrangements impose financial covenants relating to working capital, net worth, current ratio, liabilities to net worth and earnings. (5) LEASE OBLIGATIONS The Company has noncancelable operating leases for offices, warehouse facilities, and equipment that expire over the next three years. Most of the facilities' leases include renewal options and certain of the equipment leases have purchase options. Future minimum lease payments under noncancelable leases are as follows: 1994 - $3,441,000, 1995 - $1,814,000, and 1996 - $225,000. Rent expense recorded for fiscal 1993, fiscal 1992, the transition period and fiscal 1991 amounted to $3,836,000, $3,947,000, $1,216,000, and $4,977,000, respectively. The Company is guarantor of certain real estate leases of BizMart. OfficeMax has indemnified the Company against potential losses which may result pursuant to such guarantees. (6) CAPITAL STOCK On April 18, 1989, in connection with the issuance of the Subordinated Notes (see Note 4), the Company granted warrants for the purchase of 1,200,000 shares of common stock at an exercise price of $4.75 per share, exercisable until April 30, 1995, subject to adjustment under certain circumstances. The value of these warrants ($1,090,000) was credited to paid-in capital and was charged to interest expense over the term of the loan. Shares of the Company's common stock have been issued pursuant to the exercise of 120,000 warrants during fiscal 1993, 40,000 warrants during fiscal 1992, 40,000 warrants during the transition period and 1,000,000 warrants during fiscal 1991. In connection with the August 1989 acquisition of Connecting Point of America, Inc. ("CPA"), the Agreement and Plan of Merger (as amended) provided for the payment of contingent purchase consideration aggregating up to $29,852,000 based on achievement of certain operating results during the 12-month periods ended March 31, 1990 and 1991. On June 11, 1990, the Company paid the maximum 1990 contingent purchase consideration of $12,000,000 to the former CPA securityholders in cash of approximately $1,200,000 and 1,143,644 shares of the Company's common stock. On May 20, 1991, the Company paid the final additional purchase consideration amount of $17,845,000 comprising $1,652,000 in cash and 1,143,766 shares of common stock. On March 5, 1991, the Company completed a public offering of 5,873,000 shares of common stock. Proceeds to the Company, net of offering costs, totaled $96,079,000, including $3,800,000 from the contemporaneous exercise of 800,000 warrants issued in connection with the Subordinated Notes. Stock Options - ------------- The Company has a non-qualified stock option plan for employees and directors which permits the granting of options to purchase an aggregate of 8,000,000 shares of common stock to employees and directors of the Company. This plan is intended to provide an incentive for employees to maximize their efforts and enhance the success of the Company. Options are generally granted at option prices equivalent to fair market value on the date of grant. The options are generally exercisable commencing one year after the date of grant in five equal annual installments (unless otherwise provided in the grant) and expire six to ten years after the date of grant, subject to earlier termination and other rules relating to the cessation of employment. Changes in stock options are summarized as follows: Number of Option price shares Range per share --------- --------------- Balance outstanding October 31, 1990 3,704,200 $ 0.50-$ 9.31 Granted 1,492,400 $11.50-$14.13 Exercised (407,000) $ 0.50-$ 9.22 Canceled (52,400) $ 2.85-$11.50 --------- Balance outstanding October 31, 1991 4,737,200 $ 1.25-$14.13 Granted 1,079,400 $10.38-$15.50 Exercised (403,600) $ 1.25-$ 9.31 Canceled (456,600) $ 5.75-$11.50 --------- Balance outstanding February 1, 1992 4,956,400 $ 1.25-$15.50 Granted 450,000 $10.25-$24.25 Exercised (278,860) $ 1.25-$11.50 Canceled (891,240) $ 2.85-$24.25 --------- Balance outstanding January 30, 1993 4,236,300 $ 1.56-$15.50 Granted 1,014,100 $15.00-$24.88 Exercised (1,977,160) $ 1.56-$15.50 Canceled (666,300) $ 5.81-$17.00 --------- Balance outstanding January 29, 1994 2,606,940 $ 2.85-$24.88 ========= As of January 29, 1994, there were 318,220 options exercisable under the employee and director stock option plan at exercise prices ranging from $2.85 to $15.50 per share. The Company also has a non-qualified stock option plan which permits the granting of options to purchase an aggregate of 2,000,000 shares of common stock to franchisees of the Company. This plan is intended to reward franchisees' performance and commitment to the Company. Options are generally granted at option prices equivalent to fair market value on the date of grant. The options are generally exercisable commencing one year after the date of the grant in five equal annual installments. The options expire six years after the date of grant, subject to earlier termination and other rules relating to default under the terms of the franchise agreement. As of January 29, 1994, there were 145,155 options outstanding under this plan. Of this amount, 58,635 were exercisable at prices ranging from $5.81 to $14.75 per share. The Company granted 200,000 options (100,000 each in May 1990 and May 1989) to an outside advisor to the Board of Directors of the Company with the same general terms and conditions as those in the non-qualified stock option plan for employees and directors. At January 29, 1994, 100,000 of these options were outstanding. In addition, 200,000 options were granted to an officer of BizMart in connection with the June 1991 acquisition, of which 50,000 were exercised on March 17, 1992 and 150,000 were exercised during fiscal 1993. As of January 29, 1994, shares of common stock are reserved for issuance for the following purposes: Shares --------- Exercise of employee and director stock options 4,296,720 Exercise of franchisee stock options 1,934,875 Exercise of other stock options 100,000 --------- Total 6,331,595 ========= (7) INCOME TAXES The provision for income taxes consists of the following (in thousands):
Charge in lieu Current Deferred of taxes Total --------- -------- -------- --------- January 29, 1994 Federal $ 24,632 $ (1,780) $ 22,852 State 2,760 (188) 2,572 --------- -------- --------- Total $ 27,392 $ (1,968) $ 25,424 ========= ======== ========= January 30, 1993 Federal $ 15,159 $ 1,106 $ 16,265 State 969 40 1,009 --------- -------- --------- Total $ 16,128 $ 1,146 $ 17,274 ========= ======== ========= February 1, 1992 Federal $ 6,061 $ (433) $ 5,628 State 52 (24) 28 --------- -------- --------- Total $ 6,113 $ (457) $ 5,656 ========= ======== ========= October 31, 1991 Federal $ 19,444 $ 1,288 $ 1,583 $ 22,315 State 765 336 83 1,184 --------- -------- --------- --------- Total $ 20,209 $ 1,624 $ 1,666 $ 23,499 ========= ======== ========= =========
The charge in lieu of taxes reflects the tax benefit of cumulative temporary differences scheduled to reverse after the acquisition dates of Entre and CPA and the benefit of CPA's pre-acquisition net operating loss carryforward recognized during fiscal 1991. These amounts were credited to goodwill recorded in connection with the Entre and CPA acquisitions. Deferred income tax balances, and the deferred component of the provision for income taxes, relate to the following cumulative temporary differences (in thousands): January 29, January 30, 1994 1993 ----------- ----------- Inventory $ 1,879 $ 1,653 Accounts receivable reserves 490 83 Acquisition and sale accruals 3,378 972 Lease termination accruals -- 95 Employee benefits 834 169 Depreciation 537 -- Other accruals 722 304 ----------- ----------- Deferred tax asset $ 7,840 $ 3,276 =========== =========== Deferred gain on sale of CCD $ 989 $ 933 Equity in earnings of affiliate 1,372 364 Other 429 -- ----------- ----------- Non-current deferred tax liability $ 2,790 $ 1,297 =========== =========== A reconciliation of the federal statutory income tax rate to the effective income tax rate is as follows: Fiscal Fiscal Transition Fiscal 1993 1992 period 1991 ------ ------ ---------- ------ Federal statutory rate 35.0% 34.0% 34.0% 34.0% State income taxes, net of federal benefit 2.5 1.7 0.1 1.3 Amortization of intangibles 2.7 4.4 3.0 3.0 Basis difference from sale of CCD -- 4.5 -- -- Tax-exempt investment income (2.1) -- -- (0.6) Other 0.1 (0.8) (0.1) 0.2 ------ ------ ---------- ------ 38.2% 43.8% 37.0% 37.9% ====== ====== ========== ======
(8) SUPPLEMENTAL CASH FLOW INFORMATION The Company's non-cash investing and financing activities and cash payments for interest and income taxes were as follows (in thousands): Fiscal Fiscal Transition Fiscal 1993 1992 period 1991 ------- -------- ---------- -------- Details of acquisitions: Fair value of assets acquired -- -- -- $246,407 Liabilities assumed and acquisition-related accruals -- -- -- 48,909 Cash acquired -- -- -- 16,263 Payment of contingent purchase consideration with common stock -- -- -- 16,193 Details of other investing activities: Common stock and warrants received from sale of CCD -- $ 17,146 -- -- Details of other financing activities: Capital lease obligations entered into for equipment -- -- -- 422 Accrual for repurchase of common stock -- 9,090 -- -- Accrual of cash dividends declared $ 2,809 -- -- -- Cash paid during the year for: Interest 767 10,099 $ 2,033 6,970 Income taxes 22,833 11,559 2,824 19,117
(9) MAJOR SUPPLIERS The Company has authorized dealership or distributorship agreements with various manufacturers. Products from certain of these manufacturers comprised the following percentages of the Company's revenues during fiscal 1993, fiscal 1992, the transition period and fiscal 1991: Fiscal Fiscal Transition Fiscal 1993 1992 period 1991 ------ ------ ---------- ------ IBM 15% 18% 24% 24% Compaq Computer Corp. 25% 18% 12% 16% Apple Computer, Inc. 18% 22% 28% 24% Hewlett-Packard Company 22% 20% 15% 14% (10) EMPLOYEE BENEFIT PLAN The Company adopted a 401(K) Tax Deferred Savings Plan (the "Plan") in 1989. CPA had a separate plan covering eligible CPA employees with similar provisions. These two plans were merged in July 1991. Eligible employees may defer a portion of their total compensation through contributions to the Plan. Until February 1992, the Company matched $0.50 for each dollar contributed by participants subject to certain limitations. Employer matching contributions were temporarily suspended during fiscal 1992, and were reinstated on February 1, 1993. The Company's contributions under the Plan for fiscal 1993, fiscal 1992, the transition period and fiscal 1991 were $313,000, $162,000, $113,000 and $474,000, respectively. (11) COMMITMENTS The Company and its subsidiaries have arrangements with certain finance companies which provide inventory financing facilities for its Network. Five finance companies are currently approved by the Company for use by its Network. The Company monitors the financial stability of the finance companies and requires payment within two days of product shipment. If these arrangements are terminated, the Company would have to develop alternative financing arrangements. In conjunction with these arrangements, the Company has inventory repurchase agreements with the finance companies that would require it to repurchase certain inventory which might be repossessed from the Network by the finance companies. To date, such repurchases have been insignificant. On October 22, 1993, the Company executed a $20,000,000 guarantee to an inventory finance company on behalf of one of its network integrators, which remained outstanding at January 29, 1994. (12) CONTINGENCIES The Company is involved in various lawsuits in the ordinary course of business. Management of the Company does not expect resolution of these matters to have a material adverse effect on the Company's financial position, results of operations or cash flows. In March and April, 1992 various actions were filed against the Company and certain directors and officers of the Company and were ordered consolidated for consideration for class action treatment in the United States District Court for the Eastern District of Pennsylvania (In re Intelligent Electronics, Inc. Securities Litigation, No. 92-CV-1905). The consolidated complaint generally alleges that the Company and the other defendants caused or permitted a series of misleading public statements to be made about the Company's operations and that plaintiffs, relying on this information, purchased stock in the Company and subsequently suffered financial harm. The plaintiffs seek an unspecified amount of damages. The case is now proceeding in discovery. Management believes this complaint to be without merit and the Company intends to vigorously defend against these allegations. While management of the Company, based on its investigation of this matter and consultations with counsel, believes resolution of this matter will not have material adverse effect on the Company's financial position, the ultimate outcome of this complaint cannot presently be determined. (13) QUARTERLY FINANCIAL DATA (unaudited) Selected quarterly financial data for the years ended January 29, 1994 and January 30, 1993, is as follows (in thousands, except per share amounts):
First Second Third Fourth Fiscal January 29, 1994 Quarter Quarter Quarter Quarter Year - ---------------------------- -------- -------- -------- -------- ---------- Revenues $616,948 $613,245 $675,902 $740,007 $2,646,102 Gross profit 25,785 26,809 30,156 34,110 116,860 Loss from discontinued operation (2,468) -- -- -- (2,468) Sale of BizMart 6,298 -- -- (2,022) 4,276 Net income 12,151 9,194 10,851 10,729 42,925 Earnings (loss) per share: Continuing operations $ 0.23 $ 0.26 $ 0.30 $ 0.35 $ 1.13 Discontinued operation (0.07) -- -- -- (0.07) Sale of BizMart 0.17 -- -- (0.05) 0.12 -------- -------- -------- -------- ---------- Net income $ 0.33 $ 0.26 $ 0.30 $ 0.30 $ 1.18 ======== ======== ======== ======== ========== January 30, 1993 - ---------------------------- Revenues $495,809 $466,560 $484,076 $570,241 $2,016,686 Gross profit 32,960 24,278 22,252 23,803 103,293 Loss from discontinued operation (1,161) (6,106) (8,061) (4,832) (20,160) Income (loss) before extraordinary item 6,796 (4,295) (2,406) 1,879 1,974 Extraordinary item -- -- -- (3,269) (3,269) Net income (loss) 6,796 (4,295) (2,406) (1,390) (1,295) Earnings (loss) per share: Continuing operations $ 0.21 $ 0.05 $ 0.15 $ 0.18 $ 0.58 Discontinued operation (0.03) (0.16) (0.21) (0.13) (0.52) Extraordinary item -- -- -- (0.09) (0.09) -------- -------- -------- -------- ---------- Net income (loss) $ 0.18 $ (0.11) $ (0.06) $ (0.04) $ (0.03) ======== ======== ======== ======== ==========
The sum of the quarterly net earnings per share amounts does not equal the annual amount reported, as per share amounts are computed independently for each quarter and for the full year based on respective weighted average common shares and share equivalents outstanding. Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. PART III Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRANT The information contained in the sections titled "Election of Directors" and "Other Matters" in the Proxy Statement for the Annual Shareholders' Meeting to be held on or about May 24, 1994 (the "Proxy Statement"), with respect to directors of the Company, and the information contained in the section titled "Item 1. Business - Executive Officers of the Company" in Part I of this Form 10-K, with respect to executive officers of the Company, are incorporated herein by reference in response to this item. Item 11. EXECUTIVE COMPENSATION The information contained in the section titled "Executive Compensation" in the Proxy Statement (other than the portion thereof contained under the headings "Stock Performance Chart" and "Compensation and Stock Option Committee Report on Executive Compensation"), with respect to executive compensation and the information contained in the section titled "Director Compensation" in the Proxy Statement with respect to Director compensation are incorporated herein by reference in response to this item. Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information contained in the section titled "Principal Shareholders and Holdings of Officers and Directors" in the Proxy Statement, with respect to security ownership of certain beneficial owners and management, is incorporated herein by reference in response to this item. Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The information contained in the section titled "Certain Relationships and Related Transactions" in the Proxy Statement, with respect to certain relationships and related transactions, is incorporated herein by reference in response to this item. PART IV Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (a) The following documents are filed as part of this report : Page (1) Financial statements: Report of Independent Accountants 13 Consolidated Balance Sheet, January 29, 1994 and January 30, 1993 14 Consolidated Statement of Operations, Years ended January 29, 1994 and January 30, 1993, Transition Period ended February 1, 1992 and Year ended October 31, 1991 15 Consolidated Statement of Shareholders' Equity, Years ended January 29, 1994 and January 30, 1993, Transition Period ended February 1, 1992 and Year ended October 31, 1991 16 Consolidated Statement of Cash Flows, Years ended January 29, 1994 and January 30, 1993, Transition Period ended February 1, 1992 and Year ended October 31, 1991 17 Notes to Consolidated Financial Statements 18 (2) Financial Statement Schedules: Schedule I - Marketable Securities - Other Security Investments 33 Schedule II - Amounts Receivable from Related Parties and Underwriters, Promoters, and Employees other than Related Parties 34 Schedule VIII - Valuation and Qualifying Accounts and Reserves 35 Schedule IX - Short-term Borrowings 35 Schedule XIII - Other Investments 36 All other schedules are omitted because they are not applicable or the required information is shown in the financial statements or notes thereto. (a) (3) Exhibits: * 3.1 Articles of Incorporation of the Company, as amended. (Exhibit 3.1 of the Company's Registration Statement No. 33-14436 filed on May 20, 1987 [the "1987 Registration Statement"].) * 3.2 Amendment to the Articles of Incorporation of the Company effective June 22, 1987. (Exhibit 3.2 to the Company's Annual Report on Form 10-K for the fiscal year ended October 31, 1987 [the "1987 Form 10-K"].) * 3.3 By-Laws of the Company. (Exhibit 3.3 to the 1987 Registration Statement.) * 3.4 Specimen Certificate of Common Stock, $.01 par value. (Exhibit 3.4 to the 1987 Registration Statement.) * 3.5 Amendments to By-Laws of the Company effective June 2, 1987. (Exhibit 3.5 to the 1987 Form 10-K.) * 3.6 Amendments to By-Laws of the Company effective March 28, 1990. (Exhibit 3.6 to the Company's Annual Report on Form 10-K for the fiscal year ended October 31, 1990 [the "1990 Form 10-K"].) * 3.7 Amendments to By-Laws of the Company effective July 4, 1990. (Exhibit 3.7 to the 1990 Form 10-K.) * 3.8 Articles of Amendment to the Articles of Incorporation of the Company filed on April 9, 1990. (Exhibit 3.8 to the 1990 Form 10-K.) *10.1 Amended and Restated Non-Qualified Stock Option Plan for Employees and Directors. (Exhibit 10.1 to the 1990 Form 10-K.)** *10.2 Amended and Restated Non-Qualified Stock Option Plan for Franchisees. (Exhibit 10.2 to the 1990 Form 10-K.) *10.3 IBM Personal Computer Agreement between the Company and IBM, as amended. (Exhibit 10.5 to the 1987 Registration Statement.) *10.4 COMPAQ Computer Corporation United States Central Purchase Agreement among the Company, TCBC and COMPAQ. (Exhibit 10.5 to the Company's Registration Statement No. 33-27573 filed on March 16, 1989 [the "1989 Registration Statement"].) *10.5 Lease dated September 15, 1989 between the Company and Project 73, a Limited Partnership (Exhibit 10.6 to the Company's Annual Report on Form 10-K for the fiscal year ended October 31, 1989 [the "1989 Form 10-K"].) *10.6 Letter Agreement dated September 1, 1986 between the Company and ERT Associates. (Exhibit 10.9 to the 1987 Registration Statement.) *10.7 Loan and Security Agreement ("Loan and Security Agreement") dated as of December 16, 1988 among Intelligent Acquisition Corporation, the Company, Intelligent Investments, Inc. and TCBC and Continental Bank. (Exhibit (b)(3) to the Company's Schedule 14D-1 filed with the Securities and Exchange Commission ("SEC") on November 18, 1988, as amended ["1988 Schedule 14D-1"].) *10.8 Joinder to Loan and Security Agreement. (Exhibit 2.7 to the Company's Current Report on Form 8-K filed with the SEC on January 18, 1989.) *10.9 Lease Agreement dated January 20, 1989 between the Company and Hankin/Crow Associates. (Exhibit 10.13 to the 1989 Registration Statement.) *10.10 IBM Personal Computer Agreement between Entre and IBM. (Exhibit 10.14 to the 1989 Registration Statement.) *10.11 COMPAQ Computer Corporation Central Purchase Agreement between Entre and COMPAQ. (Exhibit 10.15 to the 1989 Registration Statement.) *10.12 Agreement of Lease dated November 25, 1986 between Entre and Tysons Dulles Associates Limited Partnership, as amended. (Exhibit 10.16 to the 1989 Registration Statement.) *10.13 Agreement of Lease dated May 2, 1984 among Entre, E.V.E. Joint Venture, Cecil Pruit, Jr., Trustee. (Exhibit 10.17 to the 1989 Registration Statement.) *10.14 Note Agreement dated as of March 15, 1989 among the Company, TCBC and Entre and Massachusetts Mutual Life Insurance Company, MassMutual Corporate Investors, MassMutual Participation Investors, Household Commercial Financial Services, Inc. and The Penn Mutual Life Insurance Company, with Schedules and Exhibits. (Exhibit 10.19 to the 1990 Form 10-K.) *10.15 Pledge and Security Agreement dated as of March 15, 1989 between the Company and Household Commercial Financial Services, Inc. (Exhibit 10.22 to the 1989 Form 10-K.) *10.16 Subordinated Guaranty Agreement dated as of March 15, 1989 of the Company, TCBC and Entre. (Exhibit 10.23 of the 1989 Form 10-K.) *10.17 Subordinated Guaranty Agreement of CPA. (Exhibit 10.34 of the 1989 Form 10-K.) *10.18 IBM Personal Computer Agreement between CPA and IBM. (Exhibit 10.24 to the 1989 Registration Statement.) *10.19 Dealer Sales Agreement between CPA and Apple. (Exhibit 10.25 to the 1989 Registration Statement.) *10.20 Addendum to Dealer Sales Agreement between CPA and IBM (and related documents). (Exhibit 10.29 to the 1989 Registration Statement.) *10.21 Lease Agreement dated as of March 1, 1989 between CPA and Travelers Insurance Company. (Exhibit 10.27 to the 1989 Registration Statement.) *10.22 Agreement and Plan of Merger dated as of November 11, 1988 among the Company, Intelligent Acquisition Corporation and Entre. (Exhibit (c)(1) to the 1988 Schedule 14D-1.) *10.23 Agreement and Plan of Merger dated as of May 16, 1989 among the Company, Condor Acquisition Corp. ("Condor") and CPA. (Exhibit 2.1 to the Company's Current Report on Form 8-K filed with the SEC on May 3, 1989.) *10.24 First Amendment to Agreement and Plan of Merger dated June 16, 1989 among the Company, Condor and CPA . (Exhibit 2.2 to the Company's Form 8-K filed with the SEC on December 7, 1990 [the "1990 Form 8-K"].) *10.25 Second Amendment to Agreement and Plan of Merger dated September 14, 1990 among the Company, Condor and CPA. (Exhibit 2.3 to the 1990 Form 8-K). *10.26 Agreement dated July 20, 1990 between the Company and Sun Microsystems, Inc. (Exhibit 10.33 to the 1990 Form 10-K.) *10.27 Lease Agreement between MYM Liquidating Trust and the Company dated December 17, 1990. (Exhibit 10.34 to the 1990 Form 10-K.) *10.28 Agreement and Plan of Merger dated as of May 10, 1991 among the Company, IEI Acquisition Corp. ("IEI") and BizMart. (Exhibit (c)(1) to the Company's Schedule 14D-1 filed with the SEC on May 17, 1991 [the "1991 Schedule 14D-1"].) *10.29 Stock Option Agreement dated as of May 10, 1991 among the Company, IEI and James E. Berk. (Exhibit (c)(3) to the 1991 Schedule 14D-1.) ** *10.30 Severance Agreement dated as of April 8, 1991 between BizMart and James E. Berk (Exhibit 8 to BizMart's Schedule 14D-9 dated May 17, 1991.) ** *10.31 Stock Purchase Agreement between Intelligent Electronics, Inc. and OfficeMax, Inc. dated December 3, 1992. (Exhibit 2 to the Company's Quarterly Report on Form 10-Q for the Quarter ended October 31, 1992.) 10.32 Amendment to Addendum to Agreement for Wholesale Financing (Security Agreement) and Addendum to Addendum to Agreement for Wholesale Financing - Flexible Payment Plan dated January 25, 1994. 11 Statement re: computation of per share earnings. 21 Subsidiaries of the Company. 23 Consent of Price Waterhouse. (b) Reports filed on Form 8-K during last fiscal quarter of 1993. None * Incorporated by reference ** Management contract or compensatory plan or arrangement INTELLIGENT ELECTRONICS, INC. and Subsidiaries Schedule I Marketable Securities - Other Security Investments At January 29, 1994
Amount at Which Carried Principal Market on Balance Description Amount Cost Value Sheet - ---------------------------------- ----------- ----------- ----------- -------------- Various tax-exempt mutual funds(1) $17,530,000 $17,528,205 $17,530,000 $17,530,000 Various tax-exempt variable rate demand notes(1) 43,600,000 43,612,713 43,600,000 43,600,000 ----------- $61,130,000 =========== (1) Securities of any one individual issuer do not exceed 2 percent of the total assets of the Company.
INTELLIGENT ELECTRONICS, INC. and Subsidiaries Schedule II Amounts Receivable from Related Parties and Underwriters, Promoters, and Employees other than Related Parties Year ended October 31, 1991, Transition Period ended February 1, 1992 and Years ended January 30, 1993 and January 29, 1994
Deductions -------------- Balance at Balance at Amounts end of period Beginning Amounts Written ---------------------- Name of Debtor of Period Additions Collected Off Current Non-current - ----------------------------------------- ----------- --------- --------- ------- ------- ----------- Year ended October 31, 1991: Michael R. Shabazian unsecured loan agreement bearing interest at 9.5% per annum, due on demand but no later than December 31, 1991 (1): $113,000 $10,000 ($50,000) -- $ 73,000 -- ======== ======== ========== ======= ======== ========== Transition Period ended February 1, 1992: Michael R. Shabazian unsecured loan agreement bearing interest at 9.5% per annum, due on demand but no later than December 31, 1991: $73,000 -- ($73,000) -- -- -- ======== ======== ========== ======= ======== ========== Year ended January 30, 1993: Gregory A. Pratt unsecured loan agreement bearing interest at 6.375% per annum, due on demand but no later than August 4, 1993: -- $250,000 -- -- $250,000 -- ======== ======== ========== ======= ======== ========== Year ended January 29, 1994: Gregory A. Pratt unsecured loan agreement bearing interest at 6.375% per annum, due on demand but no later than August 4, 1993: $250,000 -- ($250,000) -- -- -- ======== ======== ========== ======= ======== ========== (1) Interest rate was reduced to 9.5% in April 1991.
INTELLIGENT ELECTRONICS, INC. and Subsidiaries Schedule VIII Valuation and Qualifying Accounts and Reserves Year ended October 31, 1991, Transition Period ended February 1, 1992 and Years ended January 30, 1993 and January 29, 1994
Additions ------------------- Balance at Charged to Charged to Balance at beginning costs and other Deductions/ end Description of period expenses accounts write-offs of period - ---------------------------------------- ---------- ---------- ---------- ----------- ----------- Allowance for doubtful accounts: Year ended October 31, 1991 $1,750,000 $622,000 ($368,000) ($1,396,000) $608,000 ========== ======== ========== =========== ========== Transition Period ended February 1, 1992 $608,000 $119,000 -- ($125,000) $602,000 ========== ======== ========== =========== ========== Year ended January 30, 1993 $602,000 $381,000 -- ($750,000) $233,000 ========== ======== ========== =========== ========== Year ended January 29, 1994 $233,000 $375,000 -- ($210,000) $398,000 ========== ======== ========== =========== ==========
Short-term Borrowings Schedule IX Year ended October 31, 1991, Transition Period ended February 1, 1992 and Years ended January 30, 1993 and January 29, 1994
Maximum Average Weighted Weighted Amount Amount Average Balance Average Outstanding Outstanding Interest Rate Category of Aggregate at end Interest during the during the during the Short-term Borrowings of Period Rate Period (2) Period (3) Period (4) - ----------------------------------- --------- -------- ----------- ----------- ------------- Year ended October 31, 1991: Notes payable - Bank (1) -- -- $418,000 $958,000 8.5% Transition Period ended February 1, 1992: Notes payable - Bank (1) -- -- -- $498,000 7.6% Year ended January 30, 1993: Notes payable - Finance Company (1) -- -- $21,600,000 $2,795,000 7.2% Year ended January 29, 1994: Notes payable - Finance Company (1) -- -- -- $1,094,000 7.1% (1) Notes payable to bank and finance company represent borrowings classified as short-term obligations under line of credit borrowing arrangements. (2) Highest month-end balance during the period. (3) The average amount outstanding during the period was computed by dividing the total daily outstanding principal balances by 360. (4) The weighted average interest rate during the year was computed by dividing the actual interest expense during the period by average short-term debt outstanding.
INTELLIGENT ELECTRONICS, INC. and Subsidiaries Schedule XIII Other Investments At January 29, 1994
Amount at Which Carried Number of Market on Balance Description Shares Cost Value Sheet - ---------------------------------- --------- ----------- ----------- -------------- Investment in The Future Now, Inc. 2,319,824 $29,290,137 $33,057,492 $29,290,137 Investment in Random Access, Inc. 92,500 294,225 526,094 294,225 Other investments(1) 33,102 511,736 N/A 511,736 ------------- $30,096,098 ============= (1) The Company has an investment in a privately-held corporation. The market value of this corporation is not readily determinable.
Pursuant to the requirements of Section 13 or 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. INTELLIGENT ELECTRONICS, INC. Date: April 21, 1994 /s/Richard D. Sanford ------------------------------------- Richard D. Sanford, Chief Executive Officer and Chairman of the Board Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. Date: April 21, 1994 /s/ Richard D. Sanford ------------------------------------ Richard D. Sanford, Chief Executive Officer and Chairman of the Board Date: April 21, 1994 /s/ Gregory A. Pratt ------------------------------------- Gregory A. Pratt, President Chief Operating Officer Date: April 21, 1994 /s/ Edward A. Meltzer ------------------------------------- Edward A. Meltzer, Chief Financial Officer, Vice President, Principal Accounting Officer Date: April 21, 1994 /s/ Arnold S. Hoffman ------------------------------------- Arnold S. Hoffman, Director Date: April 21, 1994 /s/ William Rulon-Miller ------------------------------------- William Rulon-Miller, Director Date: April 21, 1994 /s/ Barry M. Abelson ------------------------------------- Barry M. Abelson, Director Date: April 21, 1994 /s/ Roger J. Fritz ------------------------------------- Roger J. Fritz, Director INDEX TO EXHIBITS Exhibit Sequential Page No. 10.32 Amendment to Addendum to Agreement for Wholesale Financing (Security Agreement) and Addendum to Addendum to Agreement for Wholesale Financing - Flexible Payment Plan dated January 25, 1994. 40 11 Statement re: computation of per share earnings. 52 21 Subsidiaries of the Company. 54 23 Consent of Price Waterhouse. 55 EX-10.32 2 EXHIBIT 10.32 January 25, 1994 Intelligent Electronics, Inc. ("IE") Today's Computer Business Centers, Inc ("TCBC") Entre Computer Centers, Inc. ("Entre") Entre Computer Centers International, Inc. ("Entre International") Connecting Point of America, Inc. ("Connecting Point") Re: Amendment to Addendum to Agreement for Wholesale Financing (Security Agreement) and Addendum to Addendum to Agreement for Wholesale Financing - Flexible Payment Plan Attention: Edward A. Meltzer Ladies and Gentlemen: Reference is made to the Addendum to Agreement for Wholesale Financing (Security Agreement) dated January 29, 1992 (as amended, supplemented or otherwise modified prior to the date hereof, the "Existing AWF") among IE, TCBC, Entre, Entre International, Connecting Point (each of IE, TCBC, Entre, Entre International and Connecting Point being referred to herein as a "Customer" and, collectively, the "Customers") and IBM Credit Corporation ("IBM Credit"), as amended and supplemented by the Addendum to Addendum to Agreement for Wholesale Financing Flexible Payment Plan dated January 29, 1992 (as such Addendum has been amended, supplemented or otherwise modified prior to the date hereof, the "Existing FPP") (the Existing AWF and the Existing FPP, collectively, the "Existing Agreement"). The Customers have requested IBM Credit to increase the credit line under the Existing Agreement to $170 million and to modify certain current collateral reporting requirements under the Existing Agreement. IBM Credit is willing to increase the credit line to $170 million and to modify the current collateral reporting requirements subject to the terms and conditions of this letter agreement. In connection with the foregoing, the parties hereto agree that the Existing AWF, the Existing FPP and the Existing Agreement shall be amended and supplemented by the terms and conditions set forth in this letter agreement. Unless otherwise specifically defined in this letter agreement, each term used herein which is defined in the Existing Agreement shall have the meaning assigned to such term in the Existing Agreement. A. Amendment of the Existing Agreement ----------------------------------- 1. Each reference to "hereof", "hereunder", "herein", and "hereby" and each other similar reference and each reference to "this Agreement" and each other similar reference contained in the Existing Agreement shall from and after the date of this letter agreement refer to the Existing Agreement as as amended by this letter agreement. Each reference to "the AWF" and each other similar reference contained in the Existing FPP shall from and after the Effective Date of this letter agreement refer to the Existing AWF as amended by this letter agreement. 2. Attached to this letter agreement is a revised Exhibit A which shall replace the Current Exhibit A to the Existing Agreement in its entirety (the attached Exhibit A shall hereinafter be referred to as "Exhibit A"). Each Customer hereby agrees to the terms, fees, rates and financial covenants set forth on Exhibit A. 3. The Existing AWF shall be amended to add the following provisions relating to the modification of the Customers' collateral reporting requirements. (a) In addition to the financial statements to be delivered to IBM Credit pursuant to Section 17(j), the Customers agree to furnish to IBM Credit, no later than the last day of each month, the consolidated balance sheet and statement of operations of the Customers as of the close of, and for, the "immediately preceding month (the "Monthly Financial Statements), all prepared in such detail, form and scope as is consistent with good business practice. Each delivery of the Monthly Financial Statements by the Customers to IBM Credit shall be deemed to be a representation and warranty by the Customers that such Monthly Financial Statements have been so prepared and that they fairly represent the Customers' financial position as of the close of, and for, the immediately preceding month. (b) Customers also agree to deliver the Compliance Certificate in the form attached hereto as Annex I and a schedule of the calculations used by the Customers to determine the financial covenants set forth therein together with their delivery of the financial statements required to be delivered to IBM Credit pursuant to Section 17(j). (c) The Customers shall not be required to deliver the reports described in Sections 22(a)(i), 22(a)(ii), 22(a)(iii), 22(a)(iv), 22(a)(v) and 22(a)(vi) (all such reports shall be referred to herein as the "Monthly Collateral Reports") to IBM Credit during any Tier I Period, provided, however, that the Customers shall deliver the reports referred to in Sections 22(a)(i), 22(a)(ii), 22(a)(iv) and 22(a)(vi) as IBM Credit may reasonably request from time to time no later than fifteen (15) days after IBM Credit makes any such request. During any Tier II Period or Tier III Period, the Customers shall be required to deliver the Monthly Collateral Reports together with the Monthly Financial Statements; provided, however, that if the immediately preceding period (as the term "period" is defined in Exhibit A) was a Tier I Period, then the Customers shall, within two (2) days of their delivery of the Monthly Financial Statements to IBM Credit, deliver to IBM Credit Monthly Collateral Reports which contain information as of a date no earlier than two (2) days prior to the date that such Monthly Collateral Reports are delivered to IBM Credit. 4. The collateral valuation methodology utilized to determine Collateral Value as described and defined in Section 22(a)(v) of the Existing AWF has been replaced by the valuation methodology described in the definition of "Qualifying Collateral" contained in the Existing FPP. Exhibit A specifically sets forth the valuation percentages applied to specified assets to determine Qualifying Collateral. As such, Sections 22(b) and 22(c) of the Existing AWF are not applicable so long as the Existing FPP is in effect. 5. The Existing FPP shall be amended to add the following provisions relating to the modification of the Customers' collateral reporting requirements. a. The fifth (5th) paragraph of Section 3.2 shall not apply during any Tier I Period or Tier II Period; provided, that such paragraph shall apply during any Tier III Period. b. The third (3rd) paragraph of Section 3.3 shall not apply during any Tier I Period or Tier II Period; provided, that such paragraph shall apply during any Tier III Period. c. If, on any date during any Tier III Period, the Dealer's Obligations exceed the value of Qualifying Collateral (such excess, the "Shortfall Amount"), then the Dealer shall pay to IBM Credit an amount equal to such Shortfall Amount within five (5) days of such date. d. The Dealer shall not be required to deliver the reports described in Section 6.1 during any Tier I Period; provided, however, that the Customers shall deliver the reports referred to in Sections 22(a)(i), 22(a)(ii), 22(a)(iv) and 22(a)(vi) of the Existing AWF as IBM Credit may reasonably request from time to time no later than fifteen (15) days after IBM Credit makes any such request. The Dealer shall be required to deliver the reports described in Section 6.1 during any Tier II Period or Tier III Period. 6. The Existing FPP shall also be amended to add the following provision: (a) Working Capital Option Provided that Dealer is not in default under the Agreement and has been approved for ACH wire transactions, IBM Credit will provide advances pursuant to the Working Capital Option ("WCO") (each such advance, a "WCO Advance") to the Dealer for the term and rate set forth in Exhibit A, respectively, as the "WCO Term" and the "WCO Interest Rate". Dealer acknowledges that, notwithstanding anything to the contrary contained in this Agreement, IBM Credit shall not be obligated to make more than one WCO Advance per month. Dealer shall provide IBM Credit with a written request for a WCO Advance in a form to be specified by IBM Credit. Provided that Dealer is not in default under the Agreement, each WCO Advance that remains outstanding at the end of the "WCO Term" shall automatically renew for an additional "WCO Term" unless IBM Credit notifies Dealer in writing at least thirty (30) days prior to the end of the applicable "WCO Term" that such WCO Advance shall not automatically renew. Dealer shall repay any WCO Advance for which it has received such a notice at the end of the "WCO Term" for such WCO Advance. Notwithstanding, and in addition to the conditions of, the foregoing, during any Tier III Period, IBM Credit shall not be required to make any WCO Advance nor shall any WCO Advance automatically renew if, either before or after giving effect to the making of a WCO Advance or the automatic renewal of a WCO Advance (as the case may be), a Shortfall Amount exists. Dealer may at any time prepay in whole or in part amounts owed under this Agreement. IBM Credit may apply payments made to it (whether by Dealer or otherwise) to pay finance charges and other amounts owing under this Agreement first and then to the principal amount owed by Dealer. B. Ratification and Effectiveness ------------------------------ Except as specifically amended or waived by this letter agreement, the Existing AWF, the Existing FPP and the Existing Agreement shall continue to be in full force and are hereby ratified and confirmed in all respects. Each of IE, TCBC, Entre, Entre International and Connecting Point represent that it has taken all corporate action necessary to authorize it to execute, deliver and perform this letter agreement and to perform the Existing AWF, the Existing FPP and the Existing Agreement as amended and supplemented by this letter agreement. This letter agreement and the Existing AWF, the Existing FPP and the Existing Agreement as amended and supplemented by this letter agreement are valid and binding obligations of IE, TCBC, Entre, Entre International and Connecting Point. The Existing AWF, the Existing FPP and the Existing Agreement, as amended by this letter agreement, shall remain in force until the earlier of (a) the date a continuing agreement amending and restating the Existing Agreement is executed between IBM Credit, the Customers (or any successors thereto) and any other entity within the IE corporate group which IBM Credit may become a party to the Existing Agreement, as amended by this letter agreement, (b) one year from the date set forth above (the "Anniversary Date"), (c) the date which is 45 days after receipt by IBM Credit of written notice by the Customers that they intend to terminate the Existing AWF, the Existing FPP and the Existing Agreement, as amended by this letter agreement, and (d) termination by IBM Credit upon the occurrence of an event of default under the Existing Agreement. Until the indefeasible payment in full of all of Customers' Obligations, no termination shall in any way affect or impair the Customers' Obligations to IBM Credit including, without limitation, any transaction or event occurring prior to such termination and IBM Credit's security interest in the Goods. IBM Credit will notify the Customers 90 days prior to the Anniversary Date of whether it desires to renew the Existing AWF, the Existing FPP and the Existing Agreement, as amended by this letter agreement, and if so, the terms and conditions of such renewal. This letter agreement shall be governed by and construed in accordance with the internal laws of the State of Illinois. This letter agreement may be signed in counterparts, each of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument. If this letter satisfactorily outlines our agreement, please have an authorized representative of each of IE, Entre, Entre International and Connecting Point execute and return this letter to IBM Credit at the address noted above. Very truly yours, Paul M. Leiba Credit Manager, Working Capital Financing Read and agreed as of the date set forth above Intelligent Electronics, Inc. By: /s/ Edward A. Meltzer ----------------------------------- Print Name: Edward A. Meltzer Title: Vice President & CFO Read and agreed as of the date set forth above Today's Computer Business Centers, Inc. By: /s/ Edward A. Meltzer ----------------------------------- Print Name: Edward A. Meltzer Title: Vice President & CFO Read and agreed as of the date set forth above Entre Computer Centers, Inc. By: /s/ Edward A. Meltzer ----------------------------------- Print Name: Edward A. Meltzer Title: Vice President & CFO Read and agreed as of the date set forth above Entre Computer Centers International, Inc. By: /s/ Edward A. Meltzer ----------------------------------- Print Name: Edward A. Meltzer Title: Vice President & CFO Read and agreed as of the date set forth above Connecting Point of America, Inc. By: /s/ Edward A. Meltzer ----------------------------------- Print Name: Edward A. Meltzer Title: Vice President & CFO ANNEX I COMPLIANCE CERTIFICATE ---------------------- To: IBM CREDIT CORPORATION 2707 West Butterfield Road, Suite 205 Oak Brook, IL 60521 The undersigned authorized officer of Intelligent Electronics, Inc. ("IE"), hereby certifies, on behalf of itself and each of TCBC, Entre, Entre International and Connecting Point (collectively, the "Customers") that (A) the Customers' actual compliance with its financial covenants for the period from - ________________ to __________________ (the "Period") is set forth below, (B) the Customers are in compliance with the financial covenants set forth in Exhibit A as of the end of the Period and, to the best of Customers' knowledge, after due inquiry, has been in compliance with such financial covenants during such Period, (C) no event of default has occurred and is continuing as of the date hereof and (D) each of the Monthly Financial Statements attached hereto were prepared in such detail, form and scope as is consistent with good business practice and fairly represent the Customers' financial position during the Period. All capitalized terms used herein and not otherwise defined shall have the meanings assigned to them in the Existing AWF, the Existing FPP, the Existing Agreement (each of which is defined in the letter agreement between the Customers and IBM Credit Corporation dated January 25, 1994) and such letter agreement. FINANCIAL COVENANT ACTUAL AS OF - ------------------ ------------ 1. Total Liabilities to Tangible Net Worth _______ 2. Current Assets to Current Liabilities _______ 3. Tangible Net Worth _______ 4. Net Profit After Tax to Revenue (in each case determined without regard to amount attributable to discontinued operations) for the immediately preceding four fiscal quarters _______ Submitted By: INTELLIGENT ELECTRONICS, INC. By:____________________________ Date: _____________________ Print Name:____________________ Title: ____________________ Addendum to Agreement for Wholesale Financing Flexible Payment Plan Exhibit A Commencement Date: January l, 1992 - Effective Date: January 25, 1994 1. FPP Fees, Rates and Repayment Terms FPP Credit Line: $170.0 Million Qualifying Collateral to the extent that IBM Credit has a perfected first position security interest ("IBM Credit Collateral") will be determined using the following Collateral Valuation Percentages for the type Collateral indicated with each such Percentage: - 100% on IBM Inventory - 80% on Eligible Accounts - 40% on approved Non-IBM Inventory Approved non-IBM inventory is new inventory which the Dealer and IBM Credit have agreed by specific classification to count as collateral. - 80% on Additional Collateral (the then-current outstanding unpaid balance of the Intercompany Payables Note ("Note") as long as (a) Note is in the possession of IBM Credit and (b) The Future Now, Inc. is current in its payment obligations under the Note). - 50% on Additional Collateral (the value of the stock ("Stock") of The Future Now, Inc. an Ohio corporation, owned by Dealer and pledged by Dealer to IBM Credit in a manner which gives IBM Credit the rights, in the event of default by Dealer and in IBM Credit's sole discretion, to (a) register the Stock and (b) liquidate the Stock with proceeds to IBM Credit to the extent of Dealer's obligations to IBM Credit. Stock will be valued at the lower of (a) cost or (b) the market price of the registered shares of stock of The Future Now, Inc. In the event that IBM Credit includes the Stock in Dealer's Qualifying Collateral and in the further event that the pledge of Stock is terminated, the Stock will no longer be included in Dealer's Qualifying Collateral.) Payment due dates: 5th, 15th, and 25th of each month Base Period (BP) Repayment Term: - 130 days from date of invoice for product invoices purchased by IBM Credit from the IBM Personal Computer Company and Lexmark International, Inc. BP Non-Fee Period: 45 Days Interest Rate after BP Non-Fee Period ("Base Rate"): Prime Rate Working Capital Loan Option (WCO) Terms: 180 Days - WCO Interest Rate: Base Rate Plus .25% Payment Reschedule Option (PRO) Term: 30 Days - PRO Interest Rate: Base Rate plus .500% Cash Advance Option (CAO) Term: 30 Days - CAO Interest Rate: Base Rate plus .750% Delinquency Fee Rate: Prime Rate plus 6.5% 2. Definitions The following terms shall have the following respective meanings in this FPP Exhibit. All amounts shall be determined in accordance with generally accepted accounting principles (GAAP). "Current Assets" means, as of any date of determination, the consolidated assets of Dealer that would be classified as current assets in accordance with GAAP. "Current Liabilities" means, as of any date of determination, the consolidated liabilities of the Dealer, that would be classified as current liabilities in accordance with GAAP, including, without limitation, all indebtedness of the Dealer payable on demand or maturing within one year of such date, or renewable at the option of the Dealer for a period of not more than one year from such date, and all serial maturity and periodic or installment payments (including, without limitation, sinking fund payments) on any indebtedness, to the extent such payments are required to be made within one year from such date. "Net Profit After Tax" means, for any period in respect of which the amount thereof shall be determined, the aggregate of the consolidated net income after taxes for such period (taken as a cumulative whole) of the Dealer all as determined in accordance with GAAP. "Revenue" means, for any period in respect of which the amount thereof shall be determined, the aggregate of the consolidated total or gross income or sales for such period (taken as a cumulative whole) of the Dealer as determined in accordance with GAAP. "Tangible Net Worth" means, as of any date of determination, Total Net Worth minus: (a) goodwill, organizational expenses, research and development expenses, software development costs, trademarks, names, trade names, copyrights, patents, patent applications, privileges, franchises, licenses and rights in any thereof, and other similar intangibles (but not including contract rights); (b) all deferred charges or unamortized debt discounts and expenses; and (c) all accounts receivable from officers, directors and stockholders; and (d) all callable/redeemable preferred stock "Total Liabilities" means, as of any date of determination, consolidated liabilities of the Dealer at such date, determined in accordance with GAAP. "Total Net Worth" means, as of any date of determination, the consolidated stockholders' equity of the Dealer as determined in accordance with GAAP. 3. Dealer's Financial Covenants Dealer agrees to maintain the following financial covenants at all times: (a) Total Liabilities to Tangible New Worth ratio equal to or less than 6.5 to 1, provided that Tangible Net Worth must be greater than zero at all times; (b) Current Assets to Current Liabilities ratio greater than or equal to 1.05 to 1; (c) Tangible New Worth greater than or equal to $60 million; (d) Net Profit After Tax to Revenue (in each case determined without regard to amounts attributable to discontinued operations) ratio for the immediately preceding four fiscal quarters greater than or equal to 0.5%. Dealer understands and agrees that its failure to maintain the preceding financial covenants shall be an event of Default. 4. Tier Periods As used in the definitions of "Tier I Period", "Tier II Period" and "Tier III Period" below, a "period" shall mean an interval of time commencing from the date Dealers deliver to IBM Credit financial statements with respect to a fiscal period and ending on the date Dealers deliver to IBM Credit financial statements with respect to the immediately succeeding fiscal period. As used in the preceding sentence, a "fiscal period" means (i) in the case of each of the first three fiscal quarters of a fiscal year, such fiscal quarter and (ii) in the case of the fourth fiscal quarter of a fiscal year, such fiscal year. Dealers' failure to deliver the above referenced financial reports within the number of days specified in the Agreement will constitute a default under the Agreement. "Tier I Period" means each period with respect to which (i) the ratio of Dealer's Total Liabilities to Tangible Net Worth (the "Leverage Ratio") during the immediately preceding fiscal period is greater than zero and is less than or equal to 5.5 to 1, (ii) the ratio of Dealer's Current Assets to Dealer's Current Liabilities (the "Current Ratio") during such fiscal period is greater than or equal to 1.15 to 1, (iii) Tangible Net Worth during such fiscal period is greater than or equal to $70 million and (iv) the ratio of Dealer's Net Profit After Tax to Dealers Revenue (in each case determined without regard to amounts attributable to discontinued operations) (the "NAT Ratio"), for the four consecutive fiscal quarters ending on the last day of such fiscal period is greater than or equal to 1.0%. "Tier II Period" means each period (x) with respect to which (i) the Leverage Ratio during the immediately preceding fiscal period is greater than zero and is less than or equal to 6.0 to 1, (ii) the Current Ratio during such fiscal period is greater than or equal to 1.10 to 1, (iii) Tangible Net Worth during such fiscal period is greater than or equal to $65 million and (iv) the NAT Ratio for the four consecutive fiscal quarters ending on the last day of such fiscal period is greater than or equal to 0.5% and (y) which is not a Tier I Period. "Tier III Period" means each period (x) with respect to which (i) the Leverage Ratio at all times during the immediately preceding fiscal period is greater than zero and is less than or equal to 6.5 to 1, (ii) the Current Ratio at all times during such fiscal period is greater than or equal to 1.05 to 1, (iii) Tangible Net Worth at all times during such fiscal period is greater than or equal to $60 million and (iv) the NAT Ratio for the four consecutive fiscal quarters ending on the last day of such fiscal period is greater than or equal to 0.5% and (y) which is not a Tier I Period or a Tier II Period. EX-11 3 EXHIBIT 11 INTELLIGENT ELECTRONICS, INC. and subsidiaries Exhibit 11 Primary Earnings Per Share Calculation Page 1 of 2
Year ended ------------------------------------------------- Transition period ended Year ended January 29, 1994 January 30, 1993 February 1, 1992 October 31, 1991 ----------------------- ----------------------- ----------------------- ----------------------- $ Per Share $ Per Share $ Per Share $ Per Share ----------- --------- ------------ --------- ------------ --------- ------------ --------- Continuing Operations 41,117,000 $1.14 22,134,000 $0.58 9,625,000 $0.25 38,529,000 $1.12 Discontinued operation (2,468,000) (0.07) (20,160,000) (0.52) 1,020,000 0.03 (336,000) (0.01) Sale of BizMart 4,276,000 0.12 -- -- -- -- -- -- Extraordinary item -- -- (3,269,000) (0.09) -- -- -- -- ------------ --------- ------------ --------- ----------- --------- ------------ --------- Net income (loss) 42,925,000 $1.19 (1,295,000) ($0.03) 10,645,000 $0.28 38,193,000 $1.11 ============ ========= ============ ========= ============ ========= ============ ========= Weighted average common shares and share equivalents 36,127,061 37,947,071 38,010,647 34,497,034 ========== ========== ========== ==========
Computation of Common Shares and Common Share Equivalents: Year ended ----------------------------------------------------- Transition period ended Year ended January 29, 1994 January 30, 1993 February 1, 1992 October 31, 1991 ------------------------- ----------------------- ----------------------- ------------------- End of Weighted End of Weighted End of Weighted End of Weighted Period Average Period Average Period Average Period Average ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- Common shares outstanding 39,310,439 35,028,207 36,961,154 36,807,833 36,592,294 36,313,918 36,144,694 32,810,864 Common share equivalents: Options 2,852,095 3,150,026 4,750,300 5,201,258 5,562,200 5,182,144 5,349,800 3,858,894 Assumed repurchased @ average price (2,114,506) (4,137,041) (3,612,133) (2,569,768) Warrants 0 86,374 120,000 120,000 160,000 183,556 200,000 605,000 Assumed repurchased @ average price (23,040) (44,979) (56,838) (207,956) ---------- ---------- ---------- ---------- Total common share equivalents 1,098,854 1,139,238 1,696,729 1,686,170 ---------- ---------- ---------- ---------- Total common shares and common share equivalents 36,127,061 37,947,071 38,010,647 34,497,034 ========== ========== ========== ==========
INTELLIGENT ELECTRONICS, INC. and subsidiaries Exhibit 11 Fully Diluted Earnings Per Share Calculation Page 2 of 2 Year ended ----------------------------------------------- Transition period ended Year ended January 29, 1994 January 30, 1993 February 1, 1992 October 31, 1991 ---------------------- ----------------------- ----------------------- --------------------- $ Per Share $ Per Share $ Per Share $ Per Share ----------- --------- ----------- --------- ---------- --------- ---------- --------- Continuing operations 41,117,000 $1.13 22,134,000 $0.58 9,625,000 $0.25 38,529,000 $1.12 Discontinued operations (2,468,000) (0.07) (20,160,000) (0.52) 1,020,000 0.03 (336,000) (0.01) Sale of BizMart 4,276,000 0.12 -- -- -- -- -- -- Extraordinary item -- -- (3,269,000) (0.09) -- -- -- -- ----------- --------- ----------- -------- ---------- --------- ---------- --------- Net income (loss) 42,925,000 $1.18 (1,295,000) ($0.03) 10,645,000 $0.28 38,193,000 $1.11 =========== ========= =========== ======== ========== ========= ========== ========= Weighted average common shares and share equivalents 36,520,787 38,204,419 38,683,015 34,497,034 ========== ========== ========== ==========
Computation of Common Shares and Common Share Equivalents: Year ended ------------------------------------------------- Transition period ended Year ended January 29, 1994 January 30, 1993 February 1, 1992 October 31, 1991 ---------------------- ----------------------- ------------------------ ----------------------- End of Weighted End of Weighted End of Weighted End of Weighted Period Average Period Average Period Average Period Average ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- Common shares outstanding 39,310,439 35,028,207 36,961,154 36,807,833 36,592,294 36,313,918 36,144,694 32,810,864 Common share equivalents: Options 2,852,095 3,150,026 4,750,300 5,201,258 5,562,200 5,670,680 5,349,800 3,858,894 Assumed repurchased @ ending price (1,728,625) (3,885,362) (3,443,372) (2,569,768) Warrants 0 86,374 120,000 120,000 160,000 183,556 200,000 605,000 Assumed repurchased @ ending price (15,195) (39,310) (41,767) (207,956) ---------- ---------- ---------- ---------- Total common share equivalents 1,492,580 1,396,586 2,369,097 1,686,170 ---------- ---------- ---------- ---------- Weighted average common shares and common share equivalents 36,520,787 38,204,419 38,683,015 34,497,034 ========== ========== ========== ========== (1) For 1991, fully diluted earnings per share is antidilutive because the average market price for the year exceeds the ending market price.
EX-21 4 EXHIBIT 21 Exhibit 21 SUBSIDIARIES OF INTELLIGENT ELECTRONICS, INC. The following is a list of the Company's subsidiaries. Omitted from the list are certain subsidiaries of the Company which, considered in the aggregate as a single subsidiary, would not constitute a significant subsidiary. Intelligent Advanced Systems, Inc., a Delaware corporation Intelligent Distribution Services, Inc., a Delaware corporation Intellinet, Ltd., a Pennsylvania corporation Intelligent Express, Inc., a Pennsylvania corporation Intelligent SP, Inc., a Colorado corporation RND, Inc., a Colorado corporation Missing Link Communications, Inc., a Colorado corporation Wireless Telecom, Inc., a Delaware corporation Intelligent Systems Group, Inc., a Colorado corporation Intelevest Holdings, Inc., a Delaware corporation Intelevest Business Trust, a Pennsylvania trust EX-23 5 EXHIBIT 23 Exhibit 23 CONSENT OF INDEPENDENT ACCOUNTANTS We hereby consent to the incorporation by reference in the Prospectuses constituting part of the Registration Statements on Form S-3 (File No. 33-39398) and Forms S-8 (File Nos. 33-14436, 33-35174, 33-42119, and 33-44655) of Intelligent Electronics, Inc. of our report dated March 7, 1994, appearing on page 13 of this Form 10-K. PRICE WATERHOUSE Philadelphia, Pennsylvania April 21, 1994 -----END PRIVACY-ENHANCED MESSAGE-----