-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, ONYZcK9x+Xu7UxdT3SZwBliDiKGTyRXAgbs7TFEnU3dZ1S/OdHiDvzqHjIzWLYhm gvfgmSQbAY3zmqUDX1YZ+g== 0000912057-96-005201.txt : 19960327 0000912057-96-005201.hdr.sgml : 19960327 ACCESSION NUMBER: 0000912057-96-005201 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 9 CONFORMED PERIOD OF REPORT: 19951230 FILED AS OF DATE: 19960326 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: INACOM CORP CENTRAL INDEX KEY: 0000818815 STANDARD INDUSTRIAL CLASSIFICATION: PATENT OWNERS & LESSORS [6794] IRS NUMBER: 470681813 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-16114 FILM NUMBER: 96538772 BUSINESS ADDRESS: STREET 1: 200 FARNAM EXECUTIVE CNTR STREET 2: 10810 FARNAM DR CITY: OMAHA STATE: NE ZIP: 68154 BUSINESS PHONE: 4023923900 MAIL ADDRESS: STREET 1: 10810 FARNAM DRIVE STREET 2: SUITE 200 CITY: OMAHA STATE: NE ZIP: 68154 FORMER COMPANY: FORMER CONFORMED NAME: VALCOM INC DATE OF NAME CHANGE: 19910812 10-K 1 10-K - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------ FORM 10-K (Mark one) /X/ Annual report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the fiscal year ended December 30, 1995 or / / Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 COMMISSION FILE NO. 0-16114 INACOM CORP. (Exact name of registrant as specified in its charter) DELAWARE 47-0681813 (State or other jurisdiction (I.R.S. Employer incorporation or organization) Identification No.) 10810 FARNAM, OMAHA, NEBRASKA 68154 (Address of principal executive offices) (Zip Code)
Registrant's phone number, including area code: (402) 392-3900 Securities registered pursuant to Section 12(b) of the Act:
NAME OF EXCHANGE TITLE OF EACH ON WHICH CLASS REGISTERED - ---------------- ------------------ None None
Securities registered pursuant to Section 12(g) of the Act: InaCom Corp. Common Stock $.10 Par Value-Traded OTC (Symbol INAC) (Title of Class) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Sections 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding twelve months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes /X/ No / / Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. / / The aggregate market value of the voting stock held by non-affiliates of the registrant, based upon the closing price of the Common Stock on March 1, 1996 as reported on NASDAQ National Market System, was approximately $171,865,000. At March 1, 1996 there were outstanding 10,024,211 common shares of the Company. DOCUMENTS INCORPORATED BY REFERENCE Parts of the Proxy Statement for Registrant's 1996 Annual Meeting of Stockholders are incorporated by reference in Part III of this Form 10-K Report. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- PAGE 1 OF 62 INDEX TO EXHIBITS, PAGE 35 PART I ITEM 1. BUSINESS GENERAL DESCRIPTION OF BUSINESS InaCom Corp., a Delaware corporation ("Inacom" or the "Company") is a leading provider of technology management services which includes technology procurement services such as distribution of information technology products, including microcomputer systems, workstations, networking and telecommunications equipment; system support services; and systems integration services. The Company distributes such products and services through a network of 1,017 business centers located throughout the United States. At December 30, 1995, the business centers included 45 business centers owned and operated by the Company and 972 reseller channel locations comprised of independently owned business centers. Through Inacom Communications the Company delivers voice, data and video convergence equipment. The Company emphasizes tailored solutions to computer and tele-communications needs of business and professional customers and provides its customers with comprehensive consulting, training, technical support and service. The Company currently distributes products for leading manufacturers such as IBM, COMPAQ, Hewlett-Packard, Toshiba, Apple, NEC, Epson, Okidata, Lexmark, AT&T, NCR, Novell, Banyan, Microsoft, Oracle, 3Com, SynOptics, SCO and Network General. The Company has been engaged in the distribution of microcomputer products and services since October 1982. The Company was established as a division of Valmont Industries, Inc. ("Valmont") in 1982 and became a wholly-owned subsidiary of Valmont in March 1985 under the name ValCom, Inc. The Company completed an initial public offering of its common stock in 1987 and changed its name to InaCom Corp. in 1991. The Company has effected two significant acquisitions in the past five years. The Company acquired Inacomp Computer Centers, Inc. in a 1991 merger for $53.9 million in cash and stock; Inacomp had revenues of $516.0 million in its fiscal year preceding the merger from 322 business center locations. In 1993, the Company purchased certain assets of Sears Business Centers ("SBC") from Sears, Roebuck and Co. ("Sears"). The cost of the acquired assets was approximately $5.8 million for 35 former SBC locations which generated approximately $456 million of revenue for Sears in 1992. The Company has traditionally reported operating results based on revenues and earnings from Company-owned and independent reseller channels. In 1995 the Company began a process of evaluating its revenues and earnings from the services provided through the life cycle of the products it sells. The Company offers technology management services to all of the customers it serves. Technology management services consist of technology procurement, support services and system integration. PRODUCTS AND SERVICES The Company provides a variety of services ranging from procurement of product; support services such as help desk, training and maintenance; and system integration services such as consulting, design, implementation and monitoring. As a result of its quantity purchasing capability, the Company generally obtains volume discounts from its vendors, thus enabling it to sell products to independently owned or Company-owned business centers on a more favorable basis than such business centers could attain on their own. Independently owned business centers are not contractually obligated to the Company to purchase their full product requirements from the Company. The Company's program of hardware maintenance service and support enables business centers to provide customers with on-site support and service coverage at multiple locations. The program is supported by central service dispatch and service call tracking. The Company uses Logistics Management Inc., an unaffiliated entity, based in Memphis, Tennessee, for the distribution and management of its repair parts. 2 The Company offers its distribution channel a direct interactive communications on-line system through the use of a series of IBM AS400's utilizing multiple local-area and wide-area communications networks. The on-line system provides access to a complete range of services and data including product availability, price lists, automatic quotes, order entry, order status and electronic mail. The system saves both the Company and the business centers time and money through lower cost communication and more effective utilization of personnel. The Company believes that the on-line communication services provide a competitive advantage in recruiting new business centers. The Company offers the business centers toll-free hotline support to professionals that manage computer networks operating on a variety of network environments, including Novell, Banyan, Microsoft, IBM, Apple and SCO. The hotline support program has a wide range of telephone support options. The design of the central telephone support center gives the business center and the customers a single point of contact on all technical issues. Customers have access to the Company's on-line data base and technical support information and the Company's Communications Research Center. Customers may choose from a wide variety of technical support options, depending upon which is most effective for their business. In its configuration centers, the Company assembles or modifies independently produced products to meet the customers' needs. Through its "Direct Express" program the Company ships the configured product directly to the ultimate customer rather than to a reseller location. The Direct Express program provides independently owned business centers benefits in the form of lower freight costs, reduced working capital requirements, and reduced support staff required to handle and configure products at local levels. Customers benefit from improved delivery times and standardized quality configuration. All configuration is performed by the Company at three configuration centers located in California, New Jersey and Nebraska. To assist business centers and the customers with the purchase of products and services, the Company provides several types of finance programs that offer a wide range of services. The most traditional method of financing for qualified business centers is 30 day interest free financing from the date that the product is shipped; after this period, the business center has the option to roll over the outstanding amounts into financing through various financial institutions. Other programs and promotions are designed to meet business centers and customer needs as market and business conditions change. DISTRIBUTION NETWORK At December 30, 1995, the Company's network of business centers consisted of business centers owned and operated by the Company and the reseller channel comprised of independently owned business centers. The following table sets forth information with respect to the number of business centers participating in the Company's distribution network:
FISCAL YEAR ENDED DECEMBER ----------------------------------------------------- BUSINESS CENTERS 1995 1994 1993 1992 1991 - ------------------------------------------------------------- --------- --------- --------- --------- --------- Company-owned................................................ 45 46 53 50 52 Independent reseller channel................................. 972 1,316 1,417 1,152 780 --------- --------- --------- --------- --- Total.................................................... 1,017 1,362 1,470 1,202 832 --------- --------- --------- --------- --- --------- --------- --------- --------- ---
The decrease in the number of independent resellers in 1995 and 1994 resulted from actions taken by the Company to tier the independent reseller channel into various categories due to the varying cost levels associated with conducting business with different size resellers. As a result of this process some of the smaller dealers in the independent reseller channel chose other sources for product procurement due to the decreased service levels and subsequent increased pricing. The loss of these independent resellers did not have a material negative impact on revenue during 1995 nor 1994. 3 The Company-owned business centers provide a variety of computer products and technology management services which include technology procurement services, systems integration services and support services. The Company's independent reseller channel consists of franchisees, systems integrators and value added resellers. Franchisees operate computer stores and typically pay the Company (i) a base monthly royalty and/or (ii) the purchase price plus markup of the product and services acquired from the Company. Contracts for franchisees are for a period of up to 10 years with certain options for renewal. System integrators and value added resellers operate businesses that focus on higher service levels providing customers with installation and support of networks, business applications and program design. The term of agreements within these groups range from 1 month to 5 years and the agreements specify the products that may be purchased. Products are typically purchased at a cost plus a volume based fee with varying levels of support services provided by the Company on a fee basis. The Company's communications division, which operates through Company-owned business centers and independent resellers, provides a variety of voice, data and telephony products and related services. VENDORS The Company has negotiated purchase arrangements, including price, delivery, training and support, directly with certain vendors. During the fiscal year ended December 30, 1995, sales of IBM, COMPAQ and Hewlett-Packard products accounted for approximately 22%, 20% and 15%, respectively, of the Company's revenues. The IBM supply agreement is in effect for an indefinite period; however, IBM may terminate the agreement on 90 days' written notice to the Company, or immediately upon notice in the event of a breach. The distributor agreements with other suppliers, including COMPAQ and Hewlett-Packard, may be terminated by the supplier upon prior written notice, which generally ranges from 30 to 60 days. The Company believes that the terms and provisions offered by the vendors are standard in the computer reseller industry. The agreements with vendors generally contain provisions with respect to product cost, price protection, returns and product allocations. The Company is entitled to price protection with all major vendors on eligible product in the Company's inventory in the event of price reductions made by a vendor. Additionally, contracts with most vendors provide for the return for credit of slower moving product or overstock product. Certain vendors sponsor payment programs with several financial service organizations to facilitate product sales through the business centers. These programs provide the business centers with extended credit terms and interest free financing for a period of time. Under these programs the Company receives payments for product sales within three days, which reduces the working capital requirements of the Company. The primary vendors of the Company provide various incentives for promoting and marketing their product offerings. Funds received by the Company are based either on the sales of the vendor's products through the independent reseller and Company-owned channels, or on the Company's purchases from the respective vendor. These funds from the Company's primary vendors typically range from 1% to 3% of purchases. The funds are earned through performance of specific marketing programs or upon completion of objectives outlined by the vendors. The three major forms of vendor incentives received by the Company are coop funds, market development funds and vendor rebates. Coop funds are earned based upon the sale of the vendor's products and generally must be utilized to offset the costs associated with advertising and promotion pursuant to programs established by the respective vendor. Market development funds are earned based upon the Company's purchases from the vendor and generally must be used for market development activities approved by the respective vendor. Vendor rebates are based upon the Company attaining purchase volume targets established with the vendor. Rebates generally can be used at the Company's discretion. 4 The Company's business is dependent in large measure upon its relationship with key vendors since a substantial portion of the Company's revenue is derived from the sales of the products of such key vendors, including IBM, COMPAQ, and Hewlett-Packard. Although the Company considers its relationships with its key vendors to be good, there can be no assurance that these relationships will continue as presently in effect or that changes in marketing by one or more such key vendors and the volume discount schedules or other programs applicable to the Company and other purchasers would not adversely affect the Company. Termination of, or a material change to, or a nonrenewal of the Company's agreements with IBM, COMPAQ and Hewlett-Packard, or a material decrease in the level of marketing development programs offered by manufacturers, or an insufficient or interrupted supply of vendors' product would have a material adverse effect on the Company's business. SERVICE MARK AND TRADEMARK The Company holds United States service mark and trademark registrations for the marks "Inacom", "ValCom" and "Inacomp". The Company also has certain state registrations. The Company claims common law rights to the marks based on adoption and use. To the Company's knowledge, there are no pending interference, opposition or cancellation proceedings, or litigation threatened or claimed, with respect to the marks in any jurisdiction. GOVERNMENT REGULATION The Company is subject to a substantial number of state laws regulating franchise relationships. The Company is also subject to Federal Trade Commission rules governing disclosure requirements in the granting of franchises. Such laws generally impose registration and/or disclosure requirements on the Company in the offer and sale of franchises and also regulate related advertisements. The Company believes it is in substantial compliance with all such regulations. SEASONAL FACTORS IN BUSINESS The fourth quarter of the Company's fiscal year generally produces higher revenues, due principally to year-end purchases made by business customers. CUSTOMERS The Company is not dependent for a material part of its business upon a single or a few customers and loss of any one customer would not have a material adverse effect on the Company's financial condition. BACKLOG The backlog of orders for products distributed by the Company was $35.5 million at the close of the 1995 fiscal year compared to $43.8 million at year end 1994 and $98.4 million at year end 1993. The decrease in backlog of orders is primarily due to the increase in availability of products from the Company's major vendors. Such orders are not necessarily firm since large customers may place orders with several computer resellers and accept products from the first computer reseller to provide delivery. COMPETITION All aspects of the information technology industry are highly competitive. The Company's distribution network competes for potential customers, including national accounts, with numerous other master resellers and distributors. Several manufacturers have expanded their channels of distribution, pricing and product positioning and compete with the Company's distribution network for potential customers. Additionally, several manufacturers during 1994 lessened or eliminated requirements upon independent resellers to purchase products from a single source resulting in "open sourcing" of their products; previously, manufacturers had typically required independent resellers having contractual relationships with the Company to purchase their products from the Company. Certain competitors and manufacturers are substantially larger than the Company and may have greater financial, technical, service and marketing resources. Other competitors operate mail-order or 5 discount stores offering clones of major vendor products. The Company's distribution network competes primarily on the basis of professionalism and customer contact, quality of product line, availability of products, service, after-sale support, price, and quality of end-user training. The Company also competes with other information technology sellers in the recruitment and retention of franchisees and independently-owned resellers. The computer manufacturers' expansion of their channels of distribution including direct distribution, open sourcing, employment of selective resellers, pricing and product positioning has put pressure on hardware gross margins. The Company believes its ability to deliver technology management services which consist of technology procurement services, systems integration services and support services provides its customer base with value added services that will differentiate the Company from alternative distribution channels and will mitigate the impact of added competitive pressures caused by economic conditions and manufacturers' continuing expansion of their channels of distribution, pricing and product positioning. The level of future sales and earnings achieved by the Company in any period may be adversely affected by a number of competitive factors, including an increase in direct sales by manufacturers to independent resellers and/or customers, increased customer preference for mail-order or discount store purchases of clones of major vendor products, and reduction in the benefits realizable by the Company from vendor marketing incentive programs. NUMBER OF EMPLOYEES At December 30, 1995, the number of employees was 2,196. None of the employees are covered by a collective bargaining agreement. The Company considers its relations with employees to be good. FINANCIAL INFORMATION ABOUT FOREIGN OPERATIONS AND EXPORT SALES The Company has no foreign locations or material export sales. The Company has access to international logistics and configuration services through affiliations with the International Computer Group (Europe and Asia); GE Hamilton Technology Services, Inc. (Canada) and InaCom Latin America (Mexico, the Caribbean, Central and South America). ITEM 2. PROPERTIES The Company's principal executive and administrative operations are located in approximately 63,000 square feet of commercial office space in Omaha, Nebraska, which is under a lease expiring in July 1998. The lease contains a renewal option. The Company leases a distribution and configuration facility in Omaha, Nebraska, with approximately 128,000 square feet under a lease expiring in May 2003; a distribution and configuration facility in Swedesboro, New Jersey, with approximately 121,700 square feet expiring in October 2002 and a distribution and configuration facility in Fontana, California, with approximately 71,800 square feet expiring in July 1996. Upon expiration of the lease on the Fontana, California facility, the Company will lease a 178,000 square foot distribution and configuration facility in Ontario, California for a term expiring in April 2006. These facilities serve as the distribution and configuration points for the Company. The land and buildings for all other Company-owned business centers and warehouse facilities are leased. Most of these leases are operating leases, under which the Company pays maintenance, insurance, repairs and utility costs. Average terms of these leases are one to five years with options to renew or terminate. ITEM 3. PENDING LEGAL PROCEEDINGS The Company is involved in a limited number of legal actions arising in the ordinary course of business, none of which is expected to have a material adverse effect on the consolidated financial statements of the Company. 6 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS Not Applicable. EXECUTIVE OFFICERS OF THE COMPANY The executive officers of the Company as of March 1, 1996 are listed below, together with their ages and all Company positions and offices held by them.
NAME AGE POSITION - ------------------------ --- ----------------------------------------------------- Bill L. Fairfield 49 President and Chief Executive Officer Robert A. Schultz 53 President and General Manager of Direct Operations and Client Service Division George DeSola 49 Group President of Communications and Corporate Marketing Michael A. Steffan 44 President and General Manager, Distribution and Operations, and Secretary David C. Guenthner 46 Executive Vice President and Chief Financial Officer Larry Fazzini 48 Vice President of Corporate Resources Cris Freiwald 41 President and General Manager, International Division Steven Ross 38 President and General Manager, Reseller Division Gary Goldsberry 47 Vice President and Corporate Treasurer
Except as set forth below, all of the officers have been associated with the Company in their present position or other capacities for more than the past five years. BILL L. FAIRFIELD has been President, Chief Operating Officer and a Director of the Company since March 1985. He was named Chief Executive Officer in September 1987. ROBERT A. SCHULTZ was named President and General Manager of Direct Operations in April 1994 in addition to his position as President and General Manager of Client Service Division which he has held since January 1993. Mr. Schultz was responsible for Direct Operations and the Advanced Systems and Services Group for the Company from August 1991 to January 1993. GEORGE DESOLA was named Group President of Communications and Corporate Marketing in December 1994. Prior to December 1994, Mr. DeSola was President and General Manager of Communications, a position he has held since he joined the Company in March 1994. Prior to March 1994, Mr. DeSola was the Vice President of Marketing and Customer Service for MCI Communications Corp, a telecommunications company. MICHAEL A. STEFFAN was named President and General Manager of the Distribution and Operations in December 1995. Mr. Steffan was responsible for the Reseller Division from December 1994 to December 1995 in addition to his position as President and General Manager of Distribution and Operations, a position he had held since May 1993. Prior to May 1993, Mr. Steffan was Vice President of Corporate Development and Secretary for the Company. DAVID C. GUENTHNER was named Executive Vice President and Chief Financial Officer in November 1991. Prior to November 1991, Mr. Guenthner was Senior Vice President of Finance and Chief Financial Officer for the Company. LARRY FAZZINI was named Vice President of Corporate Resources in February 1993 when he joined the Company. Prior to February 1993, Mr. Fazzini was the Director of Human Resources for Sears Business Centers, Inc., a distributor of information technology products and services. 7 STEVEN ROSS joined the Company in December 1995 as President and General Manager of the Reseller Division. Mr. Ross was Vice President of Sales and Business Development at Intelligent Electronics Inc., a distributor of information technology products, from September 1993 to November 1995. Prior to September 1993, Mr. Ross was the Executive Vice President of Ultimate/Allerion Corp., an international systems integrator company. CRIS FREIWALD was named President and General Manager of the International Division in November 1994. Mr. Freiwald was Vice President of Corporate Development from May 1993 to November 1994. Prior to May 1993, Mr. Freiwald was Director of Business Development. GARY GOLDSBERRY was named Vice President in May 1993. Mr. Goldsberry has been Corporate Treasurer since December 1990. 8 PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS This information is included with the information set forth under Item 8 below. ITEM 6. SELECTED FINANCIAL DATA
DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA ---------------------------------------------------------------------------- 1995 1994 1993 1992 1991 -------------- -------------- -------------- -------------- ------------ Income statement data: Revenue.................................... $ 2,200,344 $ 1,800,539 $ 1,545,227 $ 1,014,466 $ 680,421 Earnings (loss) before income taxes........ 19,833 (3,749) 19,693 17,959 5,700 Net earnings (loss)........................ 11,707 (2,256) 11,975 10,734 3,404 Earnings (loss) per share.................. 1.14 (0.22) 1.26 1.25 0.56 Cash dividends per share................... $ 0 $ 0 $ 0 $ 0 $ 0 Balance sheet data: Working capital............................ $ 90,940 $ 78,759 $ 67,936 $ 65,901 $ 76,968 Total assets............................... 624,238 519,875 456,894 288,365 307,802 Long-term debt............................. 23,667 30,333 20,000 36,800 59,242 Stockholders' equity....................... $ 148,775 $ 135,590 $ 136,491 $ 101,275 $ 89,533 Statistical information: Revenue change versus prior year........... 22.2% 16.5% 52.3% 49.1% 59.0% Earnings change versus prior year.......... 618.9% (118.8)% 11.6 % 215.3 % (51.1) % Earnings (loss) as a percent of beginning equity.................................... 8.6 % (1.7) % 11.8 % 12.0 % 8.7 % Selling, general and administrative expenses as a percent of gross margin..... 83.1 % 95.1 % 83.3 % 78.3 % 87.5 % Revenue per dollar of assets employed...... $ 3.52 $ 3.46 $ 3.38 $ 3.52 $ 2.21 Current ratio.............................. 1.20:1 1.22:1 1.23:1 1.45:1 1.51:1 Long-term debt as a percent of long-term debt and equity........................... 13.7 % 18.3 % 12.8 % 26.7 % 39.8 % Other Information: Book value per share....................... $ 14.85 $ 13.75 $ 13.92 $ 12.24 $ 11.07 Common stock market prices: High..................................... $ 15.25 $ 21.00 $ 25.50 $ 14.75 $ 18.50 Low...................................... $ 7.00 $ 6.87 $ 12.75 $ 9.25 $ 7.00 Approximate number of shareholders......... 4,300 4,150 3,800 640 690 Weighted average shares outstanding........ 10,300 10,300 9,500 8,566 6,119 Number of employees at end of year......... 2,196 1,884 1,883 1,309 1,380 Revenue dollars per employee based on end of year employment........................ $ 1,002 $ 956 $ 821 $ 775 $ 493
9 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS The following table sets forth, for the indicated periods, certain data as percentages of total revenue, together with the percentage change in the line items for the periods indicated.
PERCENTAGE INCREASE (DECREASE) PERCENTAGE OF REVENUE ------------------------ YEARS ENDED DECEMBER 1995 1994 ------------------------------------- VS VS 1995 1994 1993 1994 1993 ----------- ----------- ----------- ----------- ----------- Revenue....................................... 100.0% 100.0% 100.0% 22.2% 16.5% Direct costs.................................. 90.7 90.6 89.0 22.4 18.6 ----- ----- ----- ----- ----------- Gross margin.................................. 9.3 9.4 11.0 20.8 (0.4) Selling, general and administrative expense... 7.7 8.9 9.1 5.6 13.7 ----- ----- ----- ----- ----------- Operating income.............................. 1.6 0.5 1.9 316.2 (70.7) Interest expense, net......................... 0.7 0.7 0.6 21.6 40.0 ----- ----- ----- ----- ----------- Earnings (loss) before income tax............. 0.9 (0.2) 1.3 629.0 (119.0) Income tax expense (benefit).................. 0.4 (0.1) 0.5 644.3 (118.8) ----- ----- ----- ----- ----------- Net earnings (loss)........................... 0.5% (0.1)% 0.8% 618.9% (118.8)% ----- ----- ----- ----- ----------- ----- ----- ----- ----- -----------
1995 COMPARED TO 1994 Customer expectations of computer resellers have evolved from requests for delivery of computer products in a cost effective manner to requests for providing services beyond the sale of products. The Company has therefore increased its focus on providing services to customers throughout the entire life cycle of the products it sells. The Company generates revenue, gross margin and earnings throughout the life cycle of the products. These revenues, gross margin and earnings are comprised of three main classifications; (i) computer product sales, (ii) technology management services and (iii) communication products and services. Computer product sales are derived from the sale of microcomputer systems, workstations and related products through the Company's independent reseller channel, Company-owned business centers and other distribution facilities. Technology management services are derived from the sale of technology procurement services, systems integration services and systems support services through the Company's independent reseller channel, Company-owned business centers and other distribution facilities. Communication products and services are derived from the sale of voice and data equipment, long distance services and convergence technology through the Company's communications division. The discussion that follows provides information on the business in terms of services provided throughout the life cycle of the products sold by the Company (results by classification) and an analysis in terms of operations as historically reported (results by channel). 10 REVENUES BY CLASSIFICATION The following table sets forth, for the indicated periods, revenue by classification and mix of revenue.
INCREASE ------------------------ TOTAL REVENUES (IN THOUSANDS) 1995 1994 DOLLARS PERCENT - --------------------------------------------------- ------------- ------------- ----------- ----------- Computer products.................................. $ 2,047,215 $ 1,680,397 $ 366,818 21.8% Technology management services..................... 95,476 85,406 10,070 11.8% Communication products and services................ 57,653 34,736 22,917 66.0% ------------- ------------- ----------- --- Total.......................................... $ 2,200,344 $ 1,800,539 $ 399,805 22.2% ------------- ------------- ----------- --- ------------- ------------- ----------- ---
1995 1994 ----------- ----------- Revenue: Computer products............................................................ 93.0% 93.3% Technology management services............................................... 4.3 4.7 Communication products and services.......................................... 2.7 2.0 ----- ----- Total revenue.............................................................. 100.0% 100.0% ----- ----- ----- -----
Computer product sales increased $366.8 million or 21.8% to $2.0 billion during 1995. Computer services increased $10.1 million or 11.8% to $95.5 million during 1995. Communications products and services revenue increased $22.9 million or 66% to $57.7 million during 1995. Revenues from computer product sales increased as a result of broad based growth within both the independent reseller channel and the Company-owned business centers. Technology management services revenue increased as a result of the increase in computer product sales. Revenues from communication products and services increased as a result of broad based growth within the Company's communications division. REVENUES BY CHANNEL The following table sets forth, for the indicated periods, revenue by channel and the mix of revenue.
INCREASE ------------------------ TOTAL REVENUES (IN THOUSANDS) 1995 1994 DOLLARS PERCENT - --------------------------------------------------- ------------- ------------- ----------- ----------- Independent reseller channel and distribution facilities........................................ $ 1,106,571 $ 920,409 $ 186,162 20.2% Company-owned business centers..................... 994,134 807,592 186,542 23.1% Other.............................................. 99,639 72,538 27,101 37.4% ------------- ------------- ----------- --- Total.......................................... $ 2,200,344 $ 1,800,539 $ 399,805 22.2% ------------- ------------- ----------- --- ------------- ------------- ----------- ---
1995 1994 ----------- ----------- Revenue: Independent reseller channel and distribution facilities..................... 50.3% 51.1% Company-owned business centers............................................... 45.2 44.9 Other........................................................................ 4.5 4.0 ----- ----- Total revenue.............................................................. 100.0% 100.0% ----- ----- ----- -----
Revenues for 1995 increased $399.8 million or 22.2% to $2.2 billion when comparing the fiscal year ended December 30, 1995 with the fiscal year ended December 31, 1994. Revenue generated from the independent reseller channel (which includes franchises, system integrators and other value added resellers) was approximately $1.1 billion, or 50.3% of 1995 total revenue, compared to $920.4 million or 51.1% of total revenue in 1994. Company-owned business centers generated $994.1 million 11 or 45.2% of total revenue for 1995, compared to $807.6 million or 44.9% of total revenue in 1994. Revenue from other sources was $99.6 million or 4.5% of total revenue in 1995, compared to $72.5 million or 4.0% of total revenue in 1994. Revenues from the independent reseller channel increased as a result of growth within the Company's existing reseller channel, an increase in products shipped directly to the end-user customer on instruction from the reseller and an increase in second source revenue. Second source revenue is generated from sales to independent resellers who are not Inacom resellers by contract. These revenues are primarily a result of open sourcing which resulted from certain manufacturers, beginning in 1994, lessening or eliminating requirements from independent resellers to purchase product from one source. Revenues from the Company-owned business centers increased as a result of broad based growth across all regional locations. Revenue from other sources increased primarily as a result of the growth in voice and data equipment sales as well as growth in product liquidation sales. GROSS MARGINS BY CLASSIFICATION The following table sets forth, for the indicated periods, gross margin and gross margin percentages by classification.
AS % OF TOTAL PERCENT ------------------------ TOTAL GROSS MARGIN (IN THOUSANDS) 1995 1994 (1) INCREASE 1995 1994 - ------------------------------------------------- ----------- ----------- ------------ ----------- ----------- Computer products................................ $ 122,386 $ 113,797 7.5% 60.1% 65.5% Technology management services................... 67,599 52,506 28.7% 33.2% 30.2% Communication products and services.............. 13,821 7,516 83.9% 6.7% 4.3% ----------- ----------- --- ----- ----- Total........................................ $ 203,806 $ 173,819 17.3% 100.0% 100.0% ----------- ----------- --- ----- ----- ----------- ----------- --- ----- -----
1995 1994 (1) ----------- ------------ Computer products................................................................ 6.0% 6.8% Technology management services................................................... 70.8% 61.5% Communication products and services.............................................. 24.0% 21.6% --- --- Company gross margin percentage.............................................. 9.3% 9.7% --- --- --- ---
- ------------------------ (1) The amounts for 1994 exclude the impact of the non-recurring charges recognized in the second quarter of 1994. See 1994 compared to 1993 -- Nonrecurring Charges below. Computer product margins increased $8.3 million or 7.5% to $122.4 million during 1995 and the gross margin percentage, exclusive of non-recurring charges recognized in the second quarter of 1994, decreased 0.8 percentage points to 6.0% in 1995. Technology management services margin increased $15.1 million or 28.7% to $67.6 million during 1995 and the gross margin percentage, exclusive of non-recurring charges recognized in the second quarter of 1994, increased 9.3 percentage points to 70.8% in 1995. Communications product and services margin increased $6.3 million or 83.9% to $13.8 million during 1995 and the gross margin percentage increased 2.4 percentage points to 24.0% in 1995. Computer products margin was 60.1% of total 1995 gross margin versus 65.5% of total 1994 gross margin. Technology management services gross margin was 33.2% of total 1995 gross margin versus 30.2% of total 1994 gross margin. Communications products and services gross margin was 6.7% of total 1995 gross margin versus 4.3% of total 1994 gross margin. The increase in gross margin dollars for computer products was a result of the increase in revenues. The decline in gross margin percentage for computer products was a result of market pricing pressures related to open sourcing, which began in the independent reseller channel during the second quarter of 1994, and an overall decline in hardware margins realized on end user sales. The increase in gross margin dollars and gross margin percentage for technology management services resulted from the increased revenues and an increase in mix of services revenues to include more higher margin systems integration services versus the support and technology procurement services. 12 The increase in gross margin dollars and gross margin percentage for the communication products and services was a result of the increased revenues and the increase in the mix of revenues to include more higher margin long distance and services. GROSS MARGINS BY CHANNEL The following table sets forth, for the indicated periods, gross margin and gross margin percentage by channel.
PERCENT AS % OF TOTAL INCREASE ------------------------ TOTAL GROSS MARGIN (IN THOUSANDS) 1995 1994 (1) (DECREASE) 1995 1994 - ----------------------------------------------- ----------- ----------- ------------- ----------- ----------- Independent reseller channel and distribution facilities.................................... $ 35,889 $ 38,964 (7.9)% 17.6% 22.4% Company-owned business centers................. 143,069 116,797 22.5% 70.2% 67.2% Other.......................................... 24,848 18,058 37.6% 12.2% 10.4% ----------- ----------- --- ----- ----- Total...................................... $ 203,806 $ 173,819 17.3% 100.0% 100.0% ----------- ----------- --- ----- ----- ----------- ----------- --- ----- -----
1995 1994 (1) ----------- ------------ Independent reseller channel and distribution facilities.......................... 3.2% 4.2% Company-owned business centers.................................................... 14.4% 14.5% Other............................................................................. 24.9% 24.9% --- --- Company gross margin percentage............................................... 9.3% 9.7% --- --- --- ---
- ------------------------ (1) Excludes the impact of non-recurring charges recognized in the second quarter of 1994. Including the effect of the 1994 non-recurring charges, gross margin dollars increased $35.1 million or 20.8% to $203.8 million during 1995. Gross margin dollars from the independent reseller channel decreased $775 thousand or 2.1% during 1995. Gross margin dollars from Company-owned business centers increased $29.1 million or 25.5% during 1995. Gross margin dollars from other sources increased $6.8 million or 37.6% during 1995. Including the effect of the 1994 non-recurring charges, gross margin for the Company as a percentage of sales was 9.3% for the year ended December 30, 1995 compared to 9.4% for the year ended December 31, 1994. The gross margin percentage from the independent reseller channel was approximately 3.2% in 1995 compared to 4.0% in 1994. The gross margin percentage for Company-owned business centers was 14.4% in 1995 and 14.1% in 1994. The gross margin percentage from other sources was 24.9% in both 1995 and 1994. Excluding the impact of the non-recurring charges recognized in the second quarter of 1994, gross margin dollars increased $30.0 million or 17.3% during 1995 and the gross margin percentage decreased 0.4 percentage points during 1995. Excluding the 1994 non-recurring charges, the gross margin dollars for the independent reseller channel decreased $3.1 million or 7.9% during 1995 and the gross margin percentage decreased 1.0 percentage point during 1995. Excluding the 1994 non-recurring charges, the gross margin dollars for the Company-owned business centers increased $26.3 million or 22.5% during 1995 and the gross margin percentage decreased 0.1 percentage point during 1995. The decrease in gross margin dollars for the independent reseller channel resulted from the decrease in gross margin percentage. The decrease in gross margin percentage was a result of market pricing pressures. These market pricing pressures were primarily attributable to open sourcing which began in the second quarter of 1994. The increase in gross margin dollars from the Company-owned business centers resulted from the increased revenues during 1995. The decrease in gross margin percentages resulted from the mix of revenues. While hardware margin percentages decreased during 1995, the increase in the mix of 13 revenues to include more training, technical and support services offset the negative impact of declining hardware margins. The increase in gross margin dollars from other sources was primarily due to the increased revenues. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES Selling, general and administrative (SG&A) expenses increased $8.9 million or 5.6% to $169.3 million in 1995. As a percentage of gross margin, these expenses decreased 12.0 percentage points from to 95.1% in 1994 to 83.1% in 1995. Excluding the impact of 1994 non-recurring charges, SG&A expenses increased $10.9 million or 6.9% during 1995. SG&A as a percent of gross margin, excluding the impact of non-recurring charges recognized in the second quarter of 1994, decreased 8.1 percentage points during 1995. The increase in SG&A during 1995 resulted primarily from increased spending partially offset by an increase in market development funds earned from various vendors and credited against SG&A. The increase in spending was primarily a result of employee increases and contract labor expenses to support the increasing service revenue component of the Company-owned business centers. The increase in vendor funds earned resulted from attainment of program objectives outlined by vendors primarily driven by higher revenues in 1995. The decrease in SG&A as a percent of margin during 1995 resulted from operational efficiencies achieved through investments in distribution center automation and information systems. INTEREST EXPENSE Net interest expense for 1995 increased by $2.6 million to $14.6 million. The increase was due primarily to the increase in borrowing rates. The Company's short-term borrowing rates for 1995 increased approximately 1.3 percentage points during the year while the average daily borrowings decreased to $178.8 million in 1995 from $201.9 million in 1994. PRE-TAX EARNINGS
AS % OF TOTAL PERCENT ------------------------ TOTAL PRE-TAX EARNINGS (IN THOUSANDS) 1995 1994 (1) INCREASE 1995 1994 - ------------------------------------------------- --------- --------- ----------- ----------- ----------- Computer products................................ $ 9,179 $ (1,141) 904.5% 46.3% (33.9)% Technology management services................... 8,932 4,378 104.0% 45.0% 129.9% Communication products and services.............. 1,722 134 1,185.1% 8.7% 4.0% --------- --------- ----------- ----- ----- Total........................................ $ 19,833 $ 3,371 488.3% 100.0% 100.0% --------- --------- ----------- ----- ----- --------- --------- ----------- ----- -----
- ------------------------ (1) Excludes the impact of non-recurring charges recognized in the second quarter of 1994. The effective income tax rate was approximately 41% in 1995 and 40% in 1994. NET EARNINGS For the reasons described above, the net earnings for 1995 were $11.7 million compared to a net loss of $2.3 million in 1994 which includes 1994 non-recurring charges of $4.2 million; an increase of $14.0 million. Earnings per share for 1995 were $1.14 compared to a loss per share of $0.22 in 1994 which includes 1994 non-recurring charges of $.41 per share. 14 1994 COMPARED TO 1993 NON-RECURRING CHARGES During the second quarter of 1994 the Company reported a loss due in part to non-recurring charges relating to (i) a Department of Defense contract, (ii) settlement of certain warranty claims, (iii) a receivable from a supplier that filed bankruptcy and (iv) severance costs for corporate staff reductions. The Company incurred a second quarter non-recurring charge of $3.5 million relating to a contract with the Department of Defense. The contract, which was assumed by the Company in the Sears Business Center (SBC) acquisition in 1993, expired in December 1994. While the contract was marginally profitable in the fourth quarter of 1993 and first quarter of 1994, the Defense Department began ordering lower-margin product for the remainder of the contract. The Company was unable to deliver profitably the product specified by the government under the terms of the contract and therefore accrued in the second quarter losses expected to be realized through the remainder of the year. The non-recurring charge for anticipated future losses at the end of the second quarter increased cost of sales by approximately $2.2 million and selling, general and administrative (SG&A) expenses by approximately $1.3 million. In addition to the charge taken at the end of the quarter, the second quarter operations impact of the contract reflected in cost of sales an additional charge of approximately $600,000 and SG&A reflected an additional charge of approximately $400,000. The warranty claims resulted from a contract relating to specialized software applications and involved claims against the Company and the hardware suppliers. The Company agreed to settle for $1.0 million payable over two years. The non-recurring charge increased cost of sales by approximately $700,000 at the end of the second quarter and increased the reserves to the level required for the settlement. In addition to the charge taken at the end of the quarter, cost of sales reflected an additional charge of approximately $300,000 during the second quarter to increase the reserve position to the amount required to cover the potential loss. The Company had a receivable and an inventory return judgment against a California-based supplier of hardware that filed bankruptcy in the second quarter. As a result, payment of the judgment amount outstanding appeared doubtful and the Company increased its reserve position to $1.3 million to cover the potential loss. The non-recurring charge at the end of the second quarter increased cost of sales by approximately $500,000. In addition to the charge taken at the end of the quarter, cost of sales reflected an additional charge of approximately $800,000 during the second quarter to increase the reserve position to the amount required to cover the potential loss. The Company also instituted staff reductions in the second quarter and accrued $320,000 relating to severance costs for the reductions. REVENUES Revenues for 1994 increased $255.3 million or 16.5% to $1.8 billion when comparing the fiscal year ended December 31, 1994 with the fiscal year ended December 25, 1993. Revenue generated from the independent reseller channel was approximately $920.4 million, or 51.1% of 1994 total revenue, compared to $742.4 million or 48.0% of total revenue in 1993. Company-owned business centers generated $807.6 million or 44.9% of total revenue for 1994, compared to $750.8 million or 48.6% of total revenue in 1993. Revenue from other sources was $72.5 million or 4.0% of total revenue in 1994, compared to $52.0 million or 3.4% of total revenue in 1993. Revenue from the independent reseller channel increased as a result of industry growth and an increase in products shipped to the end-user customer rather than the reseller location under the Company's Direct Express Program. The revenue growth from the Company-owned business centers was primarily in the last six months of the year due to an increase in large corporate sales and educational institution sales in the Northeast (New York, New Jersey and Pennsylvania); revenue in the first six months of the year was lower than expected in the West (California) and Northeast due to the departure of sales representatives, an earthquake in California and severe winter weather in the 15 Northeast. Revenue from other sources increased as a result of growth in both voice and data equipment sales and from services such as extended warranty contracts, consulting and network design. GROSS MARGIN Gross margin dollars decreased $0.7 million or 0.4% to $168.7 million during 1994. Gross margin dollars from the independent reseller channel decreased $12.0 million or 24.7% during 1994. Gross margin dollars from Company-owned business centers increased $7.3 million or 6.8% during 1994. Gross margin dollars from other sources increased $4.0 million or 28.7% during 1994. The decrease in gross margin dollars from the independent reseller channel is primarily due to market pricing pressures, open sourcing, freight costs incurred that were in excess of freight collected from customers, and non-recurring charges that occurred in the second quarter (described above). Freight costs incurred in excess of freight charged to customers resulted primarily from shipments through the Company's Direct Express program. The increase in Direct Express shipments resulted in higher freight costs as the average value per shipment to customers decreased causing a difference between freight paid to carriers and freight billed to customers. Beginning in August the Company changed its freight program to bill actual freight cost on all shipments under Direct Express, which significantly reduced the negative impact of freight charges on gross margins in the second half of the year. The increase in gross margin dollars from the Company-owned business centers occurred in the last six months of the year as a result of the increased revenue and the result of the mix of revenues to include more higher margin products, and the sale of more technical and support services. Gross margins were negatively impacted by the non-recurring charges (described above) in the second quarter relating to the Department of Defense contract. The increase in gross margin dollars from other sources was primarily due to the increased revenue. Gross margin for the Company as a percentage of sales was 9.4% for the year ended December 31, 1994 compared to 11.0% for the year ended December 25, 1993. The gross margin percentage from the independent reseller channel was approximately 4.0% in 1994 compared to 6.6% in 1993. The gross margin percentage for Company-owned business centers was 14.1% in 1994 and 14.2% in 1993. The gross margin percentage from other sources was 24.9% in 1994 compared to 27.0% in 1993. The decrease in gross margin percentage from the independent reseller channel was primarily due to market pricing pressures resulting from open sourcing, non-recurring charges incurred in the second quarter (described above), and freight costs. The decrease in gross margin percentages for company- owned business centers in 1994 resulted from the non-recurring charges. The decrease in gross margin percentage from other sources was attributable to the mix of revenue between voice and data equipment, repair and maintenance contracts and extended warranty contracts. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES Selling, general and administrative (SG&A) expenses increased $19.3 million or 13.7% to $160.4 million in 1994. As a percentage of gross margin, these expenses increased to 95.1% in 1994 from 83.3% in 1993. The increase in SG&A dollars and SG&A to gross margin dollars was primarily due to increased advertising and promotional spending by the Company in both the independent reseller channel and the Company-owned business centers, reduced vendor marketing reimbursements to offset such promotional costs, and increased spending in relation to operating the service division of the Company as a result of the SBC acquisition. The Company-owned business centers' SG&A expenses also increased over 1993 due to higher revenues and gross margins as well as realizing a full year's expense of operating the SBC locations which were purchased in March 1993. Operating income decreased $20 million or 70.7% to $8.3 million in 1994 when compared to 1993. The decrease resulted primarily from the reduction in gross margin dollars and the increase in SG&A expenses as discussed above. 16 INTEREST EXPENSE Net interest expense for 1994 increased by $3.4 million to $12 million. The increase was due primarily to the increase in average daily borrowings and an increase in the borrowing rates. Average daily borrowings for the year ended December 31, 1994 were $201.9 million compared to $148.3 million for the year ended December 25, 1993. The increase in borrowings resulted from higher working capital needs as a result of carrying high levels of inventory and also higher levels of accounts receivable due to increased revenues, and taking advantage of early pay discounts from the manufacturers. The Company's short-term borrowing rates for 1994 increased approximately two percentage points during the year. The effective income tax rate was approximately 40% in 1994 and 1993. NET EARNINGS (LOSS) For the reasons described above, the net loss for 1994 was $2.3 million, which includes non-recurring charges of $4.2 million, compared to net earnings of $12.0 million in 1993; a decrease of $14.3 million. Loss per share for 1994 was $.22, which includes non-recurring charges of $.41 per share, compared to earnings per share of $1.26 in 1993. FINANCIAL CONDITION AND LIQUIDITY The Company's primary sources of liquidity are provided through a working capital financing agreement for $350.0 million and $30.3 million in two private placement notes. The Company entered into a working capital financing agreement in June 1995 with a financial services organization and terminated previous revolving credit facilities. The $350.0 million working capital financing agreement expires June 29, 1998. At December 30, 1995, $76.9 million was outstanding under the working capital line and the interest rate was 7.68% based on LIBOR. The working capital financing agreement is secured by accounts receivable and inventory. The two private placement notes are held by unaffiliated insurance companies. The principal amount of the first note, $13.3 million, is payable in two annual installments of $6.7 million commencing on May 31, 1996 and bears interest at 10.31% payable quarterly. The principal amount of the second note, $17 million, is payable in five annual installments of $3.4 million commencing on February 28, 1997 and bears interest at 6.83% payable quarterly. The notes are secured by accounts receivable and inventory. The working capital and debt agreements contain certain restrictive covenants, including the maintenance of minimum levels of working capital, tangible net worth, fixed charge coverage, limitations on incurring additional indebtedness and restrictions on the amount of net loss that the Company can incur. The Company was in compliance with the covenants contained in the agreements at December 30, 1995. Long-term debt was 13.7% of total long-term debt and equity at December 30, 1995 versus 18.3% at December 31, 1994. The decrease was primarily a result of the reduction in long term debt due to the scheduled payment of $6.7 million on one of the private placement notes. The Company entered into an agreement in June 1995 (which agreement was amended and restated in August 1995) to sell $100 million of accounts receivable, with limited recourse, to an unrelated financial institution. New qualifying receivables are sold to the financial institution as collections reduce previously sold receivables in order to maintain a balance of $100 million sold receivables. On December 30, 1995, $21.4 million of additional accounts receivable were designated to offset potential obligations under limited recourse provisions; however, historical losses on Company receivables have been substantially less than such additional amount. At December 30, 1995, the implicit interest rate on the receivables sale transaction was 6.31%. Operating activities used cash of $57.7 million in 1995 compared to cash provided by operating activities of $80.4 million in 1994. The primary factor contributing to the change in cash used by 17 operating activities was a $75.3 million increase in accounts receivable and a $124.3 million increase in inventory, with a portion of these increases financed through a $105.1 million increase in accounts payable. Accounts receivable levels increased due to the increased revenues. The increase in inventory levels was primarily a result of the Company's focus on increasing the availability of products to its customers and the related increase in accounts payable was primarily a result of the Company's efforts to match accounts payable terms better with inventory turns. The Company used $10.3 million in cash to purchase fixtures and equipment and advanced, net of collections, $1.9 million of notes receivable through investing activities in 1995. Net cash provided by financing for 1995 totaled $81.2 million, of which $100 million was provided from the sale of accounts receivable. The expended proceeds were used, in part, to reduce long term and short term borrowings by $6.7 million and $13.2 million, respectively. The Company believes the funding expected to be generated from operations and provided by the revolving credit facility will be sufficient to meet working capital and capital investment needs in 1996. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The Consolidated Financial Statements of the Company listed in the index appearing under Item 14(a)(1) and (2) hereof are filed as part of this Annual Report on Form 10-K and are incorporated by reference in this Item 8. See also "Index to Financial Statements" on page 21 hereof. Certain quarterly financial data is set forth below. Dollars in thousands except per share amounts.
STOCK NET MARKET PRICE GROSS EARNINGS NET PER -------------------- REVENUES MARGIN (LOSS) SHARE SHARES HIGH LOW ------------- ----------- ------------- ------------- --------- --------- --------- 1995 First......... $ 483,956 $ 45,916 $ 2,114 $ 0.21 10,300 $ 9.38 $ 7.00 Second........ 526,909 48,388 2,575 0.25 10,300 14.25 8.25 Third......... 533,254 50,819 2,577 0.25 10,300 15.25 12.25 Fourth........ 656,225 58,683 4,441 0.43 10,300 15.12 9.50 ------------- ----------- ------------- ------ --------- --------- --------- Year.......... $ 2,200,344 $ 203,806 $ 11,707 $ 1.14 10,300 $ 15.25 $ 7.00 ------------- ----------- ------------- ------ --------- --------- --------- ------------- ----------- ------------- ------ --------- --------- --------- 1994 First......... $ 399,294 $ 44,623 $ 2,630 $ 0.26 10,300 $ 21.00 $ 13.50 Second........ 408,643 32,778 (7,898)(1) (0.77)(1) 10,300 16.50 7.50 Third......... 459,170 41,780 514 0.05 10,300 10.25 7.25 Fourth........ 533,432 49,538 2,498 0.24 10,300 10.37 6.87 ------------- ----------- ------------- ------ --------- --------- --------- Year.......... $ 1,800,539 $ 168,719 $ (2,256)(1) $ (0.22)(1) 10,300 $ 21.00 $ 6.87 ------------- ----------- ------------- ------ --------- --------- --------- ------------- ----------- ------------- ------ --------- --------- ---------
- ------------------------ (1) Includes a charge of $4.2 million or $0.41 per share resulting from non-recurring items. The Company's Common Stock is traded in the over-the-counter market and is quoted on the National Association of Securities Dealers Automated Quotations ("NASDAQ") National Market System under the symbol INAC. As of March 1, 1996, the Company estimates there were 4,300 beneficial holders of the Company's Common Stock. The Company has never declared or paid a cash dividend to stockholders. The Board of Directors presently intends to retain all earnings to finance the expansion of the Company's operations and does not expect to authorize cash dividends in the foreseeable future. Any payment of cash dividends in the future will depend upon the Company's earnings, capital requirements and other factors. 18 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT ITEM 11. EXECUTIVE COMPENSATION ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Except for the information relating to the executive officers of the Company set forth in Part I of this Report, the information called for by items 10, 11, 12 and 13 is incorporated herein by reference to the following sections of the Company's Proxy Statement for its Annual Meeting of Stockholders to be held on April 18, 1996: Certain Stockholders; Election of Directors; Directors Meetings and Compensation; Summary Compensation Table; Option Grants in Fiscal Year 1995; Option Exercises in Fiscal 1995 and Fiscal Year-End Values; and Employment, Consulting and Other Agreements. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a) (1) (2) FINANCIAL STATEMENTS. See index to consolidated financial statements and supporting schedules. (a) (3) EXHIBITS. See exhibit index, which index is incorporated herein by reference. (b) The Company did not file a report on Form 8-K during the last quarter of the period covered by this report. 19 INDEPENDENT AUDITORS' REPORT The Board of Directors InaCom Corp.: We have audited the accompanying consolidated financial statements of InaCom Corp. and subsidiaries as listed in the accompanying index. In connection with our audits of the consolidated financial statements, we have also audited the financial statement schedule as listed in the accompanying index. These consolidated financial statements and financial statement schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements and financial statement schedule based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of InaCom Corp. and subsidiaries at December 30, 1995 and December 31, 1994, and the results of their operations and their cash flows for each of the years in the three-year period ended December 30, 1995, in conformity with generally accepted accounting principles. Also in our opinion, the related financial statement schedule, when considered in relation to the consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein. As discussed in Note 4 to the consolidated financial statements, the Company adopted the provisions of Financial Accounting Standards Board's Statement of Financial Accounting Standards No. 109, ACCOUNTING FOR INCOME TAXES, IN 1993. KPMG PEAT MARWICK LLP /s/ KPMG Peat Marwick LLP Omaha, Nebraska February 16, 1996 20 INACOM CORP. AND SUBSIDIARIES INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE
PAGE(S) --------- CONSOLIDATED FINANCIAL STATEMENTS Consolidated Statements of Operations -- Three-Year Period Ended December 30, 1995..................................................................................... 22 Consolidated Balance Sheets -- December 30, 1995 and December 31, 1994................................. 23 Consolidated Statements of Stockholders' Equity -- Three-Year Period Ended December 30, 1995........... 24 Consolidated Statements of Cash Flows -- Three-Year Period Ended December 30, 1995..................................................................................... 25 Notes to Consolidated Financial Statements -- Three-Year Period Ended December 30, 1995................ 26 - 32 FINANCIAL STATEMENT SCHEDULE SUPPORTING CONSOLIDATED FINANCIAL STATEMENTS SCHEDULE II -- Valuation and Qualifying Accounts....................................................... 33
All other schedules have been omitted as the required information is inapplicable or the information is included in the consolidated financial statements or related notes. 21 INACOM CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS THREE-YEAR PERIOD ENDED DECEMBER 30, 1995 (AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
1995 1994 1993 ------------- ------------- ------------- Revenues: Independent reseller channel and distribution facilities........... $ 1,106,571 $ 920,409 $ 742,406 Company-owned business centers..................................... 994,134 807,592 750,803 Other.............................................................. 99,639 72,538 52,018 ------------- ------------- ------------- 2,200,344 1,800,539 1,545,227 ------------- ------------- ------------- Direct costs: Independent reseller channel and distribution facilities........... 1,070,682 883,745 693,723 Company-owned business centers..................................... 851,065 693,595 644,083 Other.............................................................. 74,791 54,480 37,990 ------------- ------------- ------------- 1,996,538 1,631,820 1,375,796 ------------- ------------- ------------- Gross margin..................................................... 203,806 168,719 169,431 Selling, general and administrative expenses......................... 169,338 160,437 141,142 ------------- ------------- ------------- Operating income................................................. 34,468 8,282 28,289 Interest expense..................................................... 14,635 12,031 8,596 ------------- ------------- ------------- Earnings (loss) before income taxes and cumulative effect of change in accounting for income taxes........................... 19,833 (3,749) 19,693 Income tax expense (benefit)......................................... 8,126 (1,493) 7,947 ------------- ------------- ------------- Earnings (loss) before cumulative effect of change in accounting for income taxes................................................ 11,707 (2,256) 11,746 Cumulative effect of change in accounting for income taxes........... -- -- 229 ------------- ------------- ------------- Net earnings (loss).............................................. $ 11,707 $ (2,256) $ 11,975 ------------- ------------- ------------- ------------- ------------- ------------- Earnings (loss) per share............................................ $1.14 $(.22) $1.26 Weighted average shares outstanding.................................. 10,300 10,300 9,500 ------------- ------------- ------------- ------------- ------------- -------------
See accompanying notes to consolidated financial statements. 22 INACOM CORP. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS DECEMBER 30, 1995 AND DECEMBER 31, 1994 (AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA) ASSETS
1995 1994 ----------- ----------- Current assets: Cash and cash equivalents.......................................................... $ 20,690 $ 10,514 Accounts receivable, less allowance for doubtful accounts of $3,537 in 1995 and $2,626 in 1994.................................................................... 160,306 184,973 Deferred income taxes.............................................................. 4,202 4,913 Inventories........................................................................ 352,948 228,652 Other current assets............................................................... 1,794 1,184 ----------- ----------- Total current assets........................................................... 539,940 430,236 ----------- ----------- Property and equipment, at cost...................................................... 85,922 75,778 Less accumulated depreciation...................................................... 44,421 30,922 ----------- ----------- Net property and equipment..................................................... 41,501 44,856 ----------- ----------- Other assets, net of accumulated amortization........................................ 17,831 18,702 Cost in excess of net assets of business acquired, net of accumulated amortization... 24,966 26,081 ----------- ----------- $ 624,238 $ 519,875 ----------- ----------- ----------- ----------- LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable................................................................... $ 331,221 $ 226,121 Notes payable and current installments of long-term debt........................... 83,526 96,710 Income taxes payable............................................................... 384 221 Other current liabilities.......................................................... 33,869 28,425 ----------- ----------- Total current liabilities...................................................... 449,000 351,477 ----------- ----------- Long-term debt, excluding current installments....................................... 23,667 30,333 Deferred income taxes................................................................ 2,796 2,475 Stockholders' equity: Capital stock: Class A preferred stock of $1 par value. Authorized 1,000,000 shares; none issued.......................................................................... -- -- Common stock of $.10 par value. Authorized 30,000,000 shares; issued 10,040,000 shares.......................................................................... 1,004 1,004 Additional paid-in capital......................................................... 89,528 89,314 Retained earnings.................................................................. 58,874 47,167 ----------- ----------- 149,406 137,485 Less: Cost of common shares in treasury of 19,989 in 1995 and 176,182 in 1994.......... (161) (1,533) Unearned restricted stock........................................................ (470) (362) ----------- ----------- Total stockholders' equity..................................................... 148,775 135,590 ----------- ----------- Commitments and contingent liabilities ----------- ----------- $ 624,238 $ 519,875 ----------- ----------- ----------- -----------
See accompanying notes to consolidated financial statements. 23 INACOM CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY THREE-YEAR PERIOD ENDED DECEMBER 30, 1995 (AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)
ADDITIONAL UNEARNED TOTAL COMMON PAID-IN RETAINED TREASURY RESTRICTED STOCKHOLDERS' STOCK CAPITAL EARNINGS STOCK STOCK EQUITY ----------- ----------- --------- --------- ----------- ------------ Balance at December 26, 1992.................... $ 864 $ 67,086 $ 37,448 $ (3,202) $ (921) $ 101,275 Net earnings.................................... -- -- 11,975 -- -- 11,975 Issuance of 1,400,000 shares through public offering....................................... 140 21,048 -- -- -- 21,188 Issuance of 2,900 treasury shares as director compensation................................... -- 26 -- 25 -- 51 Issuance of 110,779 treasury shares under stock option plans................................... -- 540 -- 975 -- 1,515 Issuance of 19,155 treasury shares as stock awards, net of forfeitures..................... -- 228 -- 168 91 487 ----------- ----------- --------- --------- ----------- ------------ Balance at December 25, 1993.................... 1,004 88,928 49,423 (2,034) (830) 136,491 Net loss........................................ -- -- (2,256) -- -- (2,256) Issuance of 3,400 treasury shares as director compensation................................... -- 11 -- 30 -- 41 Issuance of 35,253 treasury shares under stock option plans................................... -- 209 -- 310 -- 519 Issuance of 16,800 treasury shares as stock awards, net of forfeitures..................... -- 166 -- 161 468 795 ----------- ----------- --------- --------- ----------- ------------ Balance at December 31, 1994.................... 1,004 89,314 47,167 (1,533) (362) 135,590 Net earnings.................................... -- -- 11,707 -- -- 11,707 Issuance of 4,400 treasury shares as director compensation................................... -- (1) -- 39 -- 38 Issuance of 89,993 treasury shares under stock option plans................................... -- 240 -- 790 -- 1,030 Issuance of 61,800 treasury shares as stock awards, net of forfeitures..................... -- (25) -- 543 (108) 410 ----------- ----------- --------- --------- ----------- ------------ Balance at December 30, 1995.................... $ 1,004 $ 89,528 $ 58,874 $ (161) $ (470) $ 148,775 ----------- ----------- --------- --------- ----------- ------------ ----------- ----------- --------- --------- ----------- ------------
See accompanying notes to consolidated financial statements. 24 INACOM CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS THREE-YEAR PERIOD ENDED DECEMBER 30, 1995 (AMOUNTS IN THOUSANDS)
1995 1994 1993 ------------ ------------ ------------ Cash flows from operating activities: Net earnings (loss)................................................... $ 11,707 $ (2,256) $ 11,975 Adjustments to reconcile net earnings (loss) to net cash provided (used) by operating activities: Depreciation and amortization....................................... 19,059 19,766 13,254 Changes in assets and liabilities, net of effects from business combinations: Accounts receivable............................................... (75,333) (22,496) (63,902) Inventories....................................................... (124,296) (41,783) (92,941) Other current assets.............................................. (610) 463 3,316 Accounts payable.................................................. 105,100 122,961 15,144 Other liabilities................................................. 5,444 5,983 (1,995) Income taxes...................................................... 1,195 (2,192) (1,701) ------------ ------------ ------------ Net cash provided (used) by operating activities................ (57,734) 80,446 (116,850) ------------ ------------ ------------ Cash flows from investing activities: Additions to property and equipment................................... (10,346) (14,910) (14,230) Business combinations................................................. -- -- (3,806) (Advances of) payments from notes receivable.......................... (1,872) 917 909 Other................................................................. (1,051) (1,816) 570 ------------ ------------ ------------ Net cash used in investing activities........................... (13,269) (15,809) (16,557) ------------ ------------ ------------ Cash flows from financing activities: Principal payments on long-term debt.................................. (6,667) -- (18,500) Proceeds from receivables sold........................................ 100,000 -- -- (Payments of) proceeds from notes payable............................. (13,184) (81,314) 127,041 Proceeds from long-term debt.......................................... -- 17,000 -- Proceeds from offering of public stock................................ -- -- 21,188 Proceeds from the exercise of employee stock options.................. 1,030 519 1,515 ------------ ------------ ------------ Net cash provided by (used in) financing activities............. 81,179 (63,795) 131,244 ------------ ------------ ------------ Net increase (decrease) in cash and cash equivalents.................... 10,176 842 (2,163) Cash and cash equivalents, beginning of year............................ 10,514 9,672 11,835 ------------ ------------ ------------ Cash and cash equivalents, end of year.................................. $ 20,690 $ 10,514 $ 9,672 ------------ ------------ ------------ ------------ ------------ ------------
See accompanying notes to consolidated financial statements. 25 INACOM CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS THREE-YEAR PERIOD ENDED DECEMBER 30, 1995 (COLUMNAR DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA) (1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (A) ORGANIZATION The consolidated financial statements include the accounts of InaCom Corp. (Company) and its wholly-owned subsidiaries. The Company is a leading provider of management technology services which include technology procurement and distribution of microcomputer systems, workstations, networking and telecommunications equipment, systems integration and support services. All significant intercompany balances and transactions have been eliminated in consolidation. (B) ACCOUNTS RECEIVABLE The Company entered into an agreement in June 1995 (which agreement was amended and restated in August 1995) to sell $100 million of accounts receivable, with limited recourse, to an unrelated financial institution. New qualifying receivables are sold to the financial institution as collections reduce previously sold receivables in order to maintain a balance of $100 million sold receivables. On December 30, 1995, $21.4 million of additional accounts receivable were designated to offset potential obligations under limited recourse provisions; however, historical losses on Company receivables have been substantially less than such additional amount. At December 30, 1995, the interest rate was 6.31%. (C) INVENTORIES Inventories are stated at the lower of cost (first-in, first-out) or market and consist of computer hardware, software, voice and data equipment and related materials. (D) OTHER ASSETS Other assets include vendor authorization rights and long-term notes receivable. Vendor authorization rights are being amortized over 10 years. (E) COST IN EXCESS OF NET ASSETS OF BUSINESS ACQUIRED The excess of the cost over the carrying value of assets of business acquired is being amortized over 20 years. The Company assesses the recoverability of intangible assets by determining whether the amortization of the asset balance over its remaining life can be recovered through undiscounted future operating cash flows of the acquired operation. The amount of goodwill impairment, if any, is measured based on projected discounted future operating cash flows using a discount rate reflecting the Company's average cost of funds. (F) DEPRECIATION Depreciation is provided over the estimated useful lives of the respective assets ranging from 3 to 31 years using the straight-line method. (G) INCOME TAXES Deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates in effect for the year in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. 26 INACOM CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) THREE-YEAR PERIOD ENDED DECEMBER 30, 1995 (COLUMNAR DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA) (1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) (H) EARNINGS/(LOSS) PER COMMON SHARE Earnings/(loss) per share of common stock have been computed on the basis of the weighted average number of shares of common stock outstanding after giving effect to equivalent common shares from dilutive stock options. (I) REVENUE AND EXPENSE RECOGNITION The Company recognizes revenue from product sales upon shipment to the customer. Revenues from consulting and other services are recognized as the Company performs the services. Revenues from maintenance and extended warranty agreements are recognized ratably over the term of the agreement. Extended warranty costs are accounted for on an accrual basis and are recognized under the sales method. (J) MARKETING DEVELOPMENT FUNDS Primary vendors of the Company provide various incentives for promoting and marketing their product offerings. The funds received are based on the purchases or sales of the vendor's products and are earned through performance of specific marketing programs or upon completion of objectives outlined by the vendors. Funds earned are applied to direct costs or selling, general and administrative expenses depending on the objectives of the program. Funds from the Company's primary vendors typically range from 1% to 3% of purchases. (K) RISKS AND UNCERTAINTIES Financial instruments which potentially expose the Company to a concentration of credit risk principally consist of accounts receivable. The Company sells product to a large number of customers in many different industries and geographies. To minimize credit concentration risk, the Company utilizes several financial services organizations which purchase accounts receivable and perform ongoing credit evaluations of its customers' financial conditions. The Company's business is dependent in large measure upon its relationship with key vendors since a substantial portion of the Company's revenue is derived from the sales of the products of such key vendors. Termination of, or a material change to the Company's agreements with these vendors, or a material decrease in the level of marketing development programs offered by manufacturers, or an insufficient or interrupted supply of vendors' product would have a material adverse effect on the Company's business. Management of the Company has made a number of estimates and assumptions relating to the reporting of assets and liabilities and the disclosure of contingent assets and liabilities to prepare these consolidated financial statements in conformity with generally accepted accounting principles. Actual results could differ from those estimates. (L) DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL STATEMENTS The carrying amounts for cash and cash equivalents, accounts receivable, accounts payable and notes payable approximates fair value because of the short maturity of these instruments. The fair values of each of the Company's long-term debt instruments are based on the amount of future cash flows associated with each instrument discounted using the Company's current borrowing rate for similar debt instruments of comparable maturity. The estimated fair value of the Company's long-term debt at December 30, 1995 approximate book value. 27 INACOM CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) THREE-YEAR PERIOD ENDED DECEMBER 30, 1995 (COLUMNAR DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA) (1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) (M) CASH EQUIVALENTS For purposes of the consolidated statements of cash flows, the Company considers cash and temporary cash investments with a maturity of three months or less to be cash equivalents. (2) BUSINESS COMBINATION In February 1993, the Company completed the acquisition of certain assets and operations of the Sears Business Centers (the SBC Acquisition) division from Sears, Roebuck and Co. (Sears). The Company acquired certain fixed assets, inventory and other assets for approximately $3.8 million, and assumed certain liabilities, in a transaction accounted for as a purchase. Certain noncompetition payments are scheduled to Sears for each of the first two years following the closing date. The minimum payment is $1.0 million annually and the Company made the first of the two payments in 1994. The 1995 payment was not made based on offsets claimed by the Company against Sears in pending litigation. Additional payments were also required based on net revenues (as defined in the agreement) and gross margins of the acquired SBC operations, ranging from 1/2% of such net revenues for gross margins of more than 17.5% up to 1% of such net revenues for gross margins over 20%. The Company was not required to make such payments in either 1995 or 1994 since the required revenue and gross margin targets were not achieved. The excess purchase price over the estimated fair value of the assets was $7.8 million and is being amortized using the straight-line method over 20 years. (3) PROPERTY AND EQUIPMENT A summary of property and equipment follows:
1995 1994 --------- --------- Land, buildings and improvements.............................................. $ 10,541 $ 10,310 Furniture, fixtures and equipment............................................. 18,392 14,884 Computer equipment............................................................ 35,340 28,201 Computer parts held for repair and exchange................................... 21,649 22,383 --------- --------- $ 85,922 $ 75,778 --------- --------- --------- ---------
(4) INCOME TAXES Income tax expense (benefit) consists of the following:
1995 1994 1993 --------- --------- --------- Current: Federal............................................................... $ 6,151 $ 487 $ 4,269 State................................................................. 943 92 488 Deferred: Federal............................................................... 897 (1,789) 2,811 State................................................................. 135 (283) 379 --------- --------- --------- $ 8,126 $ (1,493) $ 7,947 --------- --------- --------- --------- --------- ---------
28 INACOM CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) THREE-YEAR PERIOD ENDED DECEMBER 30, 1995 (COLUMNAR DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA) (4) INCOME TAXES (CONTINUED) The reconciliation of the statutory Federal income tax rate and the effective tax rate are as follows:
1995 1994 1993 ----------- ----------- ----------- Statutory Federal income tax rate.......................................... 35.0% 34.0% 35.0% State income taxes, net of Federal benefit................................. 3.6 4.7 1.6 Other...................................................................... 2.4 1.1 3.8 --- --- --- 41.0% 39.8% 40.4% --- --- --- --- --- ---
The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities are presented below:
1995 1994 --------- --------- Deferred tax assets: Valuation reserves............................................................ $ 3,324 $ 3,024 Accrued expenses not deducted until paid...................................... 1,275 1,892 Other......................................................................... 2 635 --------- --------- Total deferred tax assets................................................... 4,601 5,551 --------- --------- Deferred tax liabilities: Depreciation.................................................................. 2,725 2,524 Other......................................................................... 470 589 --------- --------- Total deferred tax liabilities.............................................. 3,195 3,113 --------- --------- Net deferred tax assets..................................................... $ 1,406 $ 2,438 --------- --------- --------- ---------
In 1993, the Company adopted Statement of Financial Accounting Standards No. 109, ACCOUNTING FOR INCOME TAXES, and has reported the cumulative effect of that change in the method of accounting for income taxes in the 1993 consolidated statement of operations. There was no valuation allowance for deferred tax assets at December 30, 1995 or December 31, 1994. (5) NOTES PAYABLE AND LONG-TERM DEBT The Company's primary sources of liquidity are provided through a working capital financing agreement for $350.0 million and $30.3 million in two private placement notes. The Company entered into a working capital financing agreement in June 1995 with a financial services organization and terminated previous revolving credit facilities. The $350.0 million working capital financing agreement expires June 29, 1998. At December 30, 1995, $76.9 million was outstanding under the working capital line and the interest rate based on LIBOR was 7.68%. The working capital financing agreement is secured by accounts receivable and inventory. 29 INACOM CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) THREE-YEAR PERIOD ENDED DECEMBER 30, 1995 (COLUMNAR DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA) (5) NOTES PAYABLE AND LONG-TERM DEBT (CONTINUED) A summary of long-term debt follows:
1995 1994 --------- --------- Private placement notes (a)................................................... $ 30,334 $ 37,000 Capital lease obligations..................................................... -- 43 --------- --------- Total long-term debt...................................................... 30,334 37,043 Less current installments..................................................... 6,667 6,710 --------- --------- Long-term debt, excluding current installments............................ $ 23,667 $ 30,333 --------- --------- --------- ---------
- ------------------------ (a) The two private placement notes are held by unaffiliated insurance companies. The remaining principal amount of the first note, $13.3 million, is payable in two annual installments of $6.7 million commencing on May 31, 1996 and bears interest at 10.31% payable quarterly. The principal amount of the second note, $17.0 million, is payable in five annual installments of $3.4 million commencing on February 28, 1997 and bears interest at 6.83% payable quarterly. The notes are secured by accounts receivable and inventory. The working capital and debt agreements contain certain restrictive covenants, including the maintenance of minimum levels of working capital, tangible net worth, fixed charge coverage, limitations on incurring additional indebtedness and restrictions on the amount of net loss that the Company can incur. The Company was in compliance with the covenants contained in the agreements at December 30, 1995. The minimum aggregate maturities of long-term debt are $6.7 million in 1996, $10.0 million in 1997 and $3.4 million in 1998 through 2001. (6) COMMON STOCK In May 1993, the Company completed the sale of 1.4 million shares of newly issued common stock in an underwritten public offering at $16.00 per share. The net proceeds to the Company from the sale were approximately $21.2 million. (7) CREDIT ARRANGEMENTS The Company has floor plan agreements to take advantage of vendor financing programs. The agreements were secured by $111.9 million of the Company's inventory at December 30, 1995 and $86.0 million at December 31, 1994. The Company has entered into dealer working capital financing agreements with several financial services organizations which purchase, primarily, accounts receivable from the Company. The Company had contingent liabilities of $7.9 million at December 30, 1995 and $3.2 million at December 31, 1994 relating to these agreements. (8) LEASES The Company operates in leased premises which include the general offices, warehouse facilities and Company-owned branches. Operating lease terms range from monthly to ten years and generally provide for renewal options. Rent expense for operating leases was approximately $9.8 million, $8.6 million and $7.0 million for the three years ended December 30, 1995, respectively. 30 INACOM CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) THREE-YEAR PERIOD ENDED DECEMBER 30, 1995 (COLUMNAR DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA) (8) LEASES (CONTINUED) Future minimum operating lease obligations for the years 1996 through 2000 are $7.8 million, $6.6 million, $4.7 million, $3.2 million and $1.8 million, respectively. It is anticipated that leases will be renewed or replaced as they expire such that future lease obligations will approximate rent expense for 1995. (9) EMPLOYEE RETIREMENT BENEFIT PLAN The Company maintains a qualified savings plan under Section 401(k) of the Internal Revenue Code which covers substantially all full-time employees. Annual contributions to the qualified plan, based on participant's annual pay, are made by the Company. Participants may also elect to make contributions to the plan. Employee contributions are matched by the Company up to limits prescribed by the Internal Revenue Code. Company contributions to the plan approximated $2.4 million in 1995, $1.8 million in 1994 and $2.0 million in 1993. The Company maintains a nonqualified savings plan for employees whose benefits under the qualified savings plans are reduced because of limitations under Federal tax laws. Contributions made to this plan were not significant. (10) LITIGATION The Company is involved in a limited number of legal actions. Management believes that the ultimate resolution of all pending litigation will not have a material adverse effect on the Company's consolidated financial statements. (11) SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION Interest and income taxes paid are summarized as follows:
1995 1994 1993 --------- --------- --------- Interest paid......................................................... $ 14,054 $ 12,599 $ 7,668 Income taxes paid..................................................... 6,931 890 7,130
Components of cash used for acquisitions as reflected in the consolidated statements of cash flows are summarized as follows:
1993 ---------- Fair value of assets acquired............................................................... $ 14,331 Liabilities assumed......................................................................... (10,525) ---------- Cash paid at closing, net of cash acquired.............................................. $ 3,806 ---------- ----------
(12) STOCK OPTION AND AWARD PROGRAMS The Company has two stock plans approved by the shareholders in 1994 and 1990, and a nonqualified stock option plan approved by shareholders in 1987. Options granted under the stock plans may be either nonqualified or incentive stock options. The option price is set by the Compensation Committee of the Board of Directors of the Company but may not be less than the fair market value per share at the time the option is granted, and the term of any option granted may not exceed ten years. The stock plans also permit the issuance of restricted or bonus stock awards by the Compensation Committee. Options granted under the nonqualified stock option plan are for a term not to exceed ten years at a price set by the Compensation Committee but may not be less than the fair market value per share at the time the option is granted. At December 30, 1995, the Company had approximately 132,000 shares available for issuance pursuant to subsequent grants under the plans. 31 INACOM CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) THREE-YEAR PERIOD ENDED DECEMBER 30, 1995 (COLUMNAR DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA) (12) STOCK OPTION AND AWARD PROGRAMS (CONTINUED) Additional information as to shares subject to options is as follows:
NUMBER EXERCISE PRICE OF OPTIONS PER OPTION ---------- ----------------- Options outstanding at December 26, 1992............................. 673,000 $ 3.90 to 14.62 Granted............................................................ 150,000 19.75 Exercised.......................................................... (111,000) 5.85 to 14.62 Canceled........................................................... (28,000) 3.90 to 14.62 ---------- Options outstanding at December 25, 1993............................. 684,000 5.85 to 19.75 Granted............................................................ 193,500 8.00 to 12.00 Exercised.......................................................... (35,000) 7.25 to 14.62 Canceled........................................................... (42,000) 7.02 to 14.50 ---------- Options outstanding at December 31, 1994............................. 800,500 5.85 to 19.75 Granted............................................................ 157,000 9.56 to 14.69 Exercised.......................................................... (90,000) 7.25 to 12.00 Canceled........................................................... (68,500) 5.85 to 14.63 ---------- Options outstanding at December 30, 1995............................. 799,000 $ 5.85 to 19.75 ---------- ----------------- ---------- ----------------- Exercisable at December 30, 1995..................................... 384,200 $ 5.85 to 19.75 ---------- ----------------- ---------- -----------------
32 SCHEDULE II INACOM CORP. AND SUBSIDIARIES VALUATION AND QUALIFYING ACCOUNTS (AMOUNTS IN THOUSANDS)
BALANCE AT CHARGED TO AMOUNTS BALANCE AT BEGINNING COSTS AND WRITTEN END OF OF PERIOD EXPENSES OFF (1) PERIOD ----------- ----------- ----------- ----------- Fiscal year ended December 30, 1995 -- Allowance for doubtful accounts........................................................... $ 2,626 $ 2,308 $ 1,397 $ 3,537 ----------- ----------- ----------- ----------- Fiscal year ended December 31, 1994 -- Allowance for doubtful accounts........................................................... $ 2,784 $ 1,691 $ 1,849 $ 2,626 ----------- ----------- ----------- ----------- Fiscal year ended December 25, 1993 -- Allowance for doubtful accounts........................................................... $ 3,162 $ 1,081 $ 1,459 $ 2,784 ----------- ----------- ----------- -----------
- ------------------------ (1) The deductions from reserves are net of recoveries. 33 SIGNATURES Pursuant to the requirements of Section 13 or Section 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Omaha, State of Nebraska, on the 22nd day of March, 1996. InaCom Corp. By _______/S/_BILL L. FAIRFIELD_______ Bill L. Fairfield, PRESIDENT Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of InaCom Corp. and in the capacities indicated on the 22nd day of March, 1996. /S/ BILL L. FAIRFIELD President (Principal Executive Officer) and - ------------------------------------------- Director Bill L. Fairfield /S/ DAVID C. GUENTHNER Executive Vice President and Chief Financial - ------------------------------------------- Officer (Principal Financial and Accounting David C. Guenthner Officer) JOSEPH AUERBACH* Director W. GRANT GREGORY* Director JOSEPH INATOME* Director RICK INATOME* Director GARY SCHWENDIMAN* Director DURWARD B. VARNER* Director *Bill Fairfield, by signing his name hereto, signs this Annual Report on behalf of each of the persons indicated. A power of attorney authorizing Bill L. Fairfield to sign the Annual Report on Form 10-K on behalf of each of the indicated directors of Inacom Corp. has been filed herein as Exhibit 24. /S/ BILL L. FAIRFIELD - ------------------------------------------- Bill L. Fairfield ATTORNEY-IN-FACT
34 INDEX TO EXHIBITS
EXHIBIT NO. DESCRIPTION PAGE - ----------- ------------------------------------------------------------------------------------------------- --------- 3.1 Restated Certificate of Incorporation of the Company, with amendments, incorporated by reference to the Company's Current Report on Form 8-K dated March 30, 1993. 3.2 Bylaws of the Company, as amended to date, incorporated herein by reference to the Company's Quarterly Report on Form 10-Q for the quarter ended September 24, 1994. 4.1 Inventory Working Capital Financing Agreement dated June 29, 1995 between InaCom and IBM Credit Corporation, incorporated herein by reference to the Company's quarterly report on Form 10-Q for the quarter ended July 1, 1995. 4.2 Amended and Restated Receivable Purchase Agreement dated as of August 21, 1995 between InaCom, InaCom Finance Corp. and certain financial institutions, incorporated herein by reference to the Company's quarterly report on Form 10-Q for the quarter ended September 30, 1995. 10.1 IBM Business Partner Agreement for IBM Products, dated May 24, 1993 between International Business Machines Corporation, incorporated herein by reference to the Company's Annual Report on Form 10-K for the fiscal year ended December 25, 1993. 10.2 COMPAQ Computer Corporation United States Central Purchase Agreement, dated June 9, 1992, between COMPAQ Computer Corporation and the Company, incorporated herein by reference to the Company's Annual Report on Form 10-K for the fiscal year ended December 26, 1992. 10.3 Hewlett-Packard Company U.S. Agreement for Authorized Resellers, dated March 1, 1993, between Hewlett-Packard Company and the Company, incorporated by reference to the Company's Annual Report on Form 10-K for the fiscal year ended December 26, 1992. 10.4 1987 Stock Option Plan of the Company, incorporated herein by reference to Exhibit 10.4 to the Company's Annual Report on Form 10-K for the fiscal year ended December 26, 1992. 10.5 1990 Stock Plan of the Company, with amendments thereto, incorporated herein by reference to Exhibit 10.5 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1994. 10.6 1994 Stock Plan of the Company, incorporated herein by reference to Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the quarter ended March 26, 1994. 10.7 Executive Incentive Bonus Plan of the Company.................................................... 37 10.8 Form of Long-Term Incentive Agreement of the Company, incorporated herein by reference to Exhibit 10.8 to the Company's Annual Report on Form 10-K for the fiscal year ended December 26, 1992. 10.9 Nonqualified Deferred Compensation Plan of the Company, incorporated herein by reference to Exhibit 10.9 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1994.
35
EXHIBIT NO. DESCRIPTION PAGE - ----------- ------------------------------------------------------------------------------------------------- --------- 10.10 First Amendment to the Nonqualified Deferred Compensation Plan................................... 45 10.11 Rick Inatome Consulting Agreement, with amendment thereto........................................ 46 10.12 Executive Death Benefit Plan, incorporated herein by reference to Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the quarter ended September 25, 1993. 10.13 Executive Disability Wage Continuation Plan, incorporated herein by reference to Exhibit 10.2 to the Company's Quarterly Report on Form 10-Q for the quarter ended September 25, 1993. 10.14 Form of Severance Agreement between the Company and seven of its officers, incorporated herein by reference to Exhibit 10.15 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1994. 10.15 Restricted Stock Agreements between the Company and Bill L. Fairfield, incorporated herein by reference to Exhibit 10.16 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1994. 10.16 Lease Agreement between the Company and Maple Avenue Limited Liability Company dated September 5, 1994, incorporated by reference to the Company's Quarterly Report on Form 10-Q for the quarter ended September 24, 1994. 11 Statement re: Computation of Earnings per share.................................................. 54 21 Subsidiaries of the Company...................................................................... 55 23 Consent of KPMG Peat Marwick LLP................................................................. 56 24 Powers of Attorney............................................................................... 57
Pursuant to Item 601(h)(4) of Regulation S-K, certain instruments with respect to the Company's long-term debt are not filed with this Form 10-K. The Company will furnish a copy of such long-term debt agreements to the Securities and Exchange Commission upon request. Management contracts and compensatory plans are set forth as Exhibits 10.4 through 10.15 above. 36 EX-10.7 2 EXHIBIT 10.7 EXHIBIT 10.7 INACOM CORP. EXECUTIVE INCENTIVE BONUS PLAN (BASED UPON ECONOMIC VALUE ADDED) ARTICLE I STATEMENT OF PURPOSE AND PLAN SUMMARY SECTION 1.1 The purpose of this Plan is to reward members of the Company's senior management for their successful productivity and achievement in the maximization of stockholder value over the long term. In order to accomplish this purpose, rewards under the Plan are based upon a concept of Economic Value Added ("EVA") to the business of the Company. SECTION 1.2 EVA is the performance measure of the creation of economic value. EVA reflects the benefits and costs of capital employment. EVA is the operating profit remaining after taxes have been paid and a minimum return has been earned on the capital employed. EVA is determined by the following formula: EVA = Net Operating Profits After Taxes (NOPAT) - Capital Charge. The Capital Charge is equal to the Capital employed by the Company multiplied by the Cost of Capital percentage. SECTION 1.3 The Plan is designed to operate in such a manner as to encourage consistent improvement in EVA over the long term. The Plan consists of four elements: first, a base current bonus may be earned if Company EVA exceeds the Prior Year EVA up to the Company Target EVA (a "Target Award"); second, a discretionary bonus may be earned for achievement of specific management objectives not related to EVA (an "MBO Award"); third, if Company EVA exceeds Company Target EVA, an "EVA Improvement Award" may be earned (consisting of an additional current bonus and a deferred bonus contingent on future EVA results); and fourth, if Company EVA is less than Company Target EVA, a penalty reduction of EVA-based bonus payments may be incurred. ARTICLE II DEFINITIONS The definition of certain terms used in the Plan are contained in Article III and Article IV. In addition, unless the context provides a different meaning, the following terms shall have the following meanings: SECTION 2.1 -- "Average Risk Premium" means the premium over the risk free rate, or long-term government rate that investors require for the added risk of well-diversified portfolio invested in equities. The Average Risk Premium shall initially be 6%. The Average Risk Premium for each Fiscal Year shall be established annually by the Committee. SECTION 2.2 -- "Bank Balance" means, with respect to each Participant, a bookkeeping record of the net balance of the amounts credited to and debited against such Participant's Bonus Bank. A Participant's Bank Balance shall initially be equal to zero. SECTION 2.3 -- "Board" means Board of Directors of InaCom Corp. 37 SECTION 2.4 -- "Bonus Bank" means, with respect to each participant, a bookkeeping record of an account to which 100% of a Participant's EVA Improvement Award is credited, or debited in the case of a negative EVA, from time to time under the Plan. SECTION 2.5 -- "Business Unit" means a business unit or combination of business units which are separately identified for the purpose of calculating EVA and EVA based bonus awards. SECTION 2.6 -- "Committee" means the Compensation Committee of the Board. A member of the Committee may not be a Participant under the Plan. SECTION 2.7 -- "Company" means InaCom Corp. SECTION 2.8 -- "EVA Improvement Awards" are awards earned in any given year for EVA results exceeding Target EVA as described in Section 4.8. SECTION 2.9 -- "Fiscal Year" means the fiscal year of the Company. SECTION 2.10 -- "Market Risk Index" or "Beta". The Index which measures the business and financial risk of a company as compared with an average risk profile for all other publicly rated U.S. corporations. The Company's Market Risk Index is initially established at 1.20. The Market Risk Index for each Fiscal Year shall be established annually by the Committee. SECTION 2.11 -- "Participants" means the members of senior management eligible for awards under the Plan pursuant to Section 5.1. SECTION 2.12 -- "Plan" means this Executive Incentive Bonus Plan. SECTION 2.13 -- "Risk-Free Rate" means the current yield on 30-year government Treasury Bonds. SECTION 2.14 -- Pronouns. The masculine pronoun includes the feminine and neuter and the singular includes the plural, where the context so indicates. ARTICLE III COMPONENTS OF EVA AND BASIS OF CALCULATIONS SECTION 3.1 -- "Economic Value Added" or "EVA" means the NOPAT that remains after subtracting the Capital Charge, expressed as follows: EVA = NOPAT minus Capital Charge. EVA may be positive or negative. SECTION 3.2 -- "Net Operating Profit After Tax" or "NOPAT" "NOPAT" means the net income attributable to the capital employed in the Company or the separate Business Unit for the Fiscal Year. NOPAT shall equal net income available to common stockholders determined in accordance with generally accepted accounting principles with the following adjustments: (i) all tax provisions shall be converted to the cash basis, (ii) changes from the prior year in accounts receivable reserves and inventory reserves shall be eliminated, (iii) amortization expense for goodwill and vendor authorizations shall be added back, and (iv) the after-tax effect of interest expense and imputed interest expense on non-capital leases shall be added back. The Committee may in its discretion adjust NOPAT in the event of unusual charges or credits during a Fiscal Year. SECTION 3.3 -- "Capital Charge" means the deemed opportunity cost of employing Capital in the Company and in the business of each Business Unit. The Capital Charge shall be equal to the Capital employed by the Company or the Business Unit, multiplied by the Cost of Capital (expressed as a percentage). SECTION 3.4 -- "Capital" means the net investment utilized in the operation of the Company and each Business Unit as determined annually by the Company's Chief Financial Officer. Each component of Capital will be measured by computing an average balance based on the year beginning and year ending balances for the Fiscal Year. 38 SECTION 3.5 -- "Cost of Capital" means the weighted average of the cost of debt and equity for the Fiscal Year. The Cost of Capital will be updated annually at the beginning of each Fiscal Year using the methodology described in this Section 3.5. Calculations will be carried to one decimal point. The Cost of Equity Capital equals Risk-Free Rate plus Market Risk Index multiplied by Average Risk Premium. The Risk-Free Rate will be updated annually. Cost of Debt Capital equals the Marginal Income Tax Rate multiplied by the Marginal Long-Term Borrowing Rate. The Marginal Income Tax Rate shall be the Company's income tax rate for the Fiscal Year. The Marginal Long-Term Borrowing Rate shall be the medium quality corporate 10-year bond rate. The percentage of the Company's Capital consisting of debt and equity shall be based on the average of the year-beginning and year-end stockholders' equity together with year-beginning and year-end debt for borrowed money (both short-term and long-term). ARTICLE IV DEFINITION AND COMPUTATION OF EVA PERFORMANCE AWARD SECTION 4.1 -- "Actual EVA" means the EVA as calculated based on the financial results for the Company and each participating Business Unit for each Fiscal Year. SECTION 4.2 -- "Prior Year EVA" means the measure of the actual EVA for the Company and each participating Business Unit as determined by the Committee for the year prior to the Fiscal Year. Prior Year EVA may be adjusted by the Committee as provided in Section 4.9. SECTION 4.3 -- "Target EVA" means the measure of the EVA for the Fiscal Year for the Company and each participating Business Unit against which the Target Award and the EVA Improvement Award is calculated. Target EVA is determined for each Fiscal Year by the Committee. SECTION 4.4 -- "Base Award" means the sum of the Target Award and the MBO Award. The maximum Base Award shall be a percentage of the Participant's salary range mid-point as determined by the Committee for each Fiscal Year. Such percentage shall be expressed as a dollar amount. SECTION 4.5 -- "Target Award" means the percentage of the Base Award that may be earned by a Participant for Fiscal Year EVA performance up to Target EVA. If the Fiscal year EVA performance is greater than Prior Year EVA, the EVA Target Award is a positive amount. If the Fiscal Year EVA performance is less than Prior Year EVA, the EVA Target Award is a negative amount. A negative Target Award is charged against a Participant's Bank Balance. SECTION 4.6 -- "MBO Award" or "Management By Objectives Award" means the percentage of the Base Award that may be earned by a Participant for the Fiscal Year based on individual performance objectives and independent of EVA performance. The applicable percentage shall not exceed 20%. The MBO Award objectives shall be established by the Chief Executive Officer and the satisfaction of such objectives shall be determined by the Chief Executive Officer subject to approval by the Committee. SECTION 4.7 -- "EVA Improvement Award Pool" means the potential cash awards which may be earned under the Plan for EVA performance above Target EVA. The EVA Improvement Award Pool shall be a percentage of the improvement in Company EVA over Company Target EVA for the Fiscal Year. The percentage is initially established at 48% and any changes are subject to review and approval by the Committee on an annual basis. If Company EVA is below Company Target EVA, no EVA Improvement Award shall be earned for the Fiscal Year. SECTION 4.8 -- "EVA Improvement Award" means a Participant's potential cash award represented by a percentage of the EVA Improvement Award Pool designated by the Committee. A Participant's EVA Improvement Award may be based on Company EVA and/or Business Unit EVA as determined by the Committee. Any EVA Improvement Award is added to a Participant's Bonus Bank. SECTION 4.9 -- Adjustments to EVA. In order that the calculation of EVA will be fair during each separate year of the Plan, adjustments may be made in the calculation of EVA to the extent provided in Section 8.9. Any such adjustments shall be approved by the Committee. 39 ARTICLE V INDIVIDUAL AWARDS SECTION 5.1 -- PARTICIPATION The members of senior management participating in the Plan in a Fiscal Year ("Participants") shall be recommended by the Chief Executive Officer and approved by the Committee. SECTION 5.2 -- BASIS OF PARTICIPATION The Committee shall establish at the beginning of each Fiscal Year: (a) The Participants for the Fiscal Year pursuant to Section 5.1. (b) The percentage of salary range mid-point of each Participant which may be earned as a Base Award as described in Section 4.4, the prorata portion of the Base Award which may be earned for performance levels up to Target EVA, and the percentage of such award which is based on Company EVA and/or Business Unit EVA. (c) Any MBO Award which may be earned by a Participant and the percentage of the Base Award which may be earned as an MBO Award. (d) The determination of Prior Year EVA and Target EVA for the Company and each participating Business Unit for the Fiscal Year. (e) The Average Risk Premium and the Market Risk Index for the Fiscal Year. (f) The percentage of the EVA Improvement Award which may be earned by each Participant, and the percentage of such award which is based on Company EVA and/or Business Unit EVA. Up to 70% of each Participant's (other than the Chief Executive Officer) potential award may be based on Business Unit EVA performance. A Participant's EVA Improvement Award may be based on Company performance and/or Business Unit performance. However, if Company EVA for a Fiscal Year is below Company Target EVA, no Participant shall earn an EVA Improvement Award for such Fiscal Year even if such Participant's Business Unit may have exceeded its Target EVA. SECTION 5.3 -- PAYMENT OF AWARDS The calculation of Awards for each Fiscal Year shall be made in the manner provided in Section 8.1. Following approval of Awards by the Committee, any earned MBO Award and Target Award for each Participant shall be paid in cash. Any EVA Improvement Award earned by a Participant shall be credited to the Participant's Bonus Bank. A Participant shall not be entitled to receive any MBO Award, Target Award or EVA Improvement Award for a Fiscal Year unless the Participant is employed by the Company on the date the Committee approves payment of the Awards as provided in this Section 5.3. EVA Improvement Awards shall be payable in three equal annual installments (beginning with the then current Fiscal Year) in accordance with Section 6.3 (but only to the extent of positive Bonus Bank balances). EVA below Target EVA reduces the Target Award. A negative Target Award may create a deficit balance in the Bonus Bank as described in Section 4.5. Amounts credited to the Bonus Bank became payable in accordance with Section 6.3. ARTICLE VI DESCRIPTION OF BONUS BANKS SECTION 6.1 -- BONUS BANKS The Bonus Banks are the Company accounting records created to reflect the unpaid portion of EVA Improvement Awards. Bonus Banks are intended to encourage focus on long-term performance by placing a portion of prior bonuses at risk. The deferred bonus related to prior EVA years can be adversely impacted by negative EVA performance in subsequent years. 40 SECTION 6.2 -- INCREASES AND DECREASES IN BONUS BANKS Each Participant shall begin the Plan with a zero balance in his Bonus Bank. Any unpaid EVA Improvement Awards beginning with Fiscal Year 1995 EVA performance will be credited to the Bonus Bank at the time the EVA awards are determined. In a similar manner, any EVA below Target EVA will reduce the Target Award, and any negative Target Award will be deducted from amounts in the Bonus Bank. Amounts in the Bonus Bank are paid to eligible Participants on an annual basis pursuant to Section 6.3 and deducted from the Bank Balance. SECTION 6.3 -- PAYMENTS FROM BONUS BANKS Bonus Banks are not an obligation secured by the Company, are fully at risk, and are not a debt claim against the Company except as provided in the Plan. The Bank Balance increases in the event of an unpaid EVA Improvement Award and decreases to the extent of a negative Target Award. Subject to Article VII, each Participant shall receive annually (beginning with the then current Fiscal Year) a distribution (payable at the same time as the Awards under Section 5.3) of 33 % of the amounts initially credited to the Participant's Bonus Bank in the then current Fiscal Year and in each of the prior two Fiscal Years, but only to the extent of any positive Bonus Bank balance. Any negative EVA in the current Fiscal Year shall reduce payouts from the Bonus Bank on a first dollar basis, i.e., the entire amount of the reduction shall be first applied to the next scheduled Bonus Bank payout. Although a Bonus Bank may, as a result of a negative Target Award, have a deficit, no Plan Participant shall be required to reimburse his Bonus Bank in cash. ARTICLE VII TRANSFERS AND TERMINATION SECTION 7.1 -- TRANSFERS A Participant who transfers his employment from one Business Unit of the Company to another shall have his Bonus Bank transferred to such new unit or retained at the old unit as determined by the Committee. At the time of transfer, the Participant and the Committee shall determine the manner of prorating any award with respect to the year in which the transfer occurs. SECTION 7.2 -- DEATH OR DISABILITY A Participant who dies or suffers a "permanent incapacitating disability" while in the employ of the Company shall receive full payment of his Bank Balance. Such payment(s) shall be made at the time such payments would have been made if the death or disability had not occurred. A Participant shall be deemed to suffer a "permanent incapacitating disability" if, because of physical or mental condition, the Participant is unable for a period of at least six months to perform the principal duties of his occupation as determined by a physician selected by the Company. SECTION 7.3 -- RETIREMENT A Participant who retires from the Company at the age of 60 (or early retires at age 55 or older with the approval of the Committee) or older with three or more years of service shall be entitled to full payment of his Bank Balance. Such payment(s) shall be made at all time such payments would have been made if the retirement had not occurred. SECTION 7.4 -- VOLUNTARY TERMINATION OR INVOLUNTARY TERMINATION FOR CAUSE A Participant who voluntarily terminates employment with the Company (except as provided in Sections 7.2 and 7.3) shall forfeit the balance in his Bonus Bank, except as the Committee may otherwise determine. A Participant's Bank Balance shall also be forfeited in the event of termination of employment for cause. "Cause" shall mean: (i) any act or acts of the Participant constituting a felony under the laws of the United States, any state thereof or any foreign jurisdiction; 41 (ii) any material breach by the Participant of any employment agreement with the Company or the policies of the Company or the willful and persistent (after written notice to the Participant) failure or refusal of the Participant to comply with any lawful directives of the Chief Executive Office or Board; (iii) a course of conduct amounting to gross neglect, willful misconduct or dishonesty; or (iv) any misappropriation of material property of the Company by the Participant or any misappropriation of a corporate or business opportunity of the Company by the Participant. SECTION 7.5 -- BREACH OF AGREEMENT Notwithstanding any other provision of the Plan or any related agreement, in the event that a Participant shall breach any non-competition agreement with the Company or breach any agreement with respect to the post-employment conduct of such Participant, the Bank Balance in such Participant's Bonus Bank shall be forfeited. SECTION 7.6 -- CHANGE-OF-CONTROL Upon the occurrence of a Change-of-Control of the Company, all Participants shall have a vested right to the immediate distribution of the entire amount in their Bonus Banks. For purposes of this Plan, Change-of-Control of the Company shall mean: (a) the acquisition (other than from the Company) by any person, entity or "group", within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934 (the "Exchange Act"), (excluding, for this purpose, the Company or its subsidiaries, or any employee benefit plan of the Company or its subsidiaries which acquires beneficial ownership of voting securities of the Company) of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 30% or more of either the then outstanding shares of common stock or the combined voting power of the Company's then outstanding voting securities entitled to vote generally in the election of directors; or (b) individuals who, as of the date hereof, constitute the Board (as of the date hereof the "Incumbent Board") cease for any reason to constitute at least a majority of the Board, provided that any person becoming a director subsequent to the date hereof whose election, or nomination for election by the Company's stockholders, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board shall be, for purposes of this Agreement, considered as though such person were a member of the Incumbent Board; or (c) approval by the stockholders of the Company of a reorganization, merger or consolidation, in each case, with respect to which persons who were the stockholders of the Company immediately prior to such reorganization, merger or consolidation do not, immediately thereafter, own more than 50% of the combined voting power entitled to vote generally in the election of directors of the reorganized, merged or consolidated company's then outstanding voting securities, or a liquidation or dissolution of the Company or of the sale of all or substantially all of the assets of the Company. ARTICLE VIII GENERAL PROVISIONS SECTION 8.1 -- ANNUAL REVIEW Prior to the payment of Awards in any Plan year, the calculation of such Awards shall be prepared by corporate management and, if directed by the Committee, reviewed by an independent party. Once prepared, these calculations and an independent report, if applicable, will be delivered to the Committee for approval as soon as possible after determination of final financial results for the Fiscal Year. 42 SECTION 8.2 -- WITHHOLDING OF TAXES The Company shall have the right to withhold the amount of taxes which in the determination of the Company are required to be withheld under law with respect to any amount due or paid under the Plan. SECTION 8.3 -- EXPENSES All expenses and costs in connection with the adoption and administration of the Plan shall be borne by the Company. SECTION 8.4 -- NO PRIOR RIGHT OR OFFER Nothing in the Plan shall be deemed to give any employee any contractual or other right to participate in the Plan or to continue employment with the Company. SECTION 8.5 -- CLAIMS FOR BENEFITS In the event a Participant (a "claimant") desires to make a claim with respect to any of the benefits provided hereunder, the claimant shall submit satisfactory evidence to the Committee of facts establishing his entitlement to a payment under the Plan. Any claim with respect to any of the benefits provided under the Plan shall be made in writing within sixty days of the event which the claimant asserts entitles the claimant to benefits. Failure by the claimant to submit his claim within such sixty day period shall bar the claimant from any claim for benefits under the Plan. SECTION 8.6 -- DENIAL OF CLAIMS In the event that a claim which is made by a claimant is wholly or partially denied, the claimant will receive from the Committee a written explanation of the reason for denial and the claimant or his duly authorized representative may appeal the denial of the claim to the Committee at any time within sixty days after the receipt by the claimant of written notice from the Committee of the denial of the claim. In connection therewith, the claimant or his duly authorized representative may request a review of the denied claim; may review pertinent documents; and may submit issues and comments in writing. Upon receipt of an appeal, the Committee shall make a decision with respect to the appeal and, not later than sixty days after receipt of a request for review, shall furnish the claimant with a decision on review in writing, including the specific reasons for the decision written in a manner calculated to be understood by the claimant, as well as specific reference to the pertinent provisions of the Plan upon which the decision is based. In reaching its decision, the Committee shall have complete discretionary authority to determine all questions arising in the interpretation and administration of the Plan, to construe the terms of the Plan, including any doubtful or disputed terms and the eligibility of a Participant for benefits. SECTION 8.7 -- BINDING ACTIONS The Committee may employ attorneys, consultants, accountants or other persons and the Company's directors and officers shall be entitled to rely upon the advice, opinions or valuations of any such persons. All actions taken and all interpretations and determinations made by the Committee in good faith shall be final and binding upon all employees who have received awards, as well as the Company and all other interested parties. SECTION 8.8 -- RIGHTS PERSONAL TO EMPLOYEE Any rights to an employee under the Plan shall be personal to such employee, shall not be transferable (except by will or pursuant to the laws of descent or distribution), and shall be exercisable, during his lifetime, only by such employee. SECTION 8.9 -- ACCOUNTING TERMS AND ADJUSTMENTS Accounting terms and other measures related to the Company's performance as provided in the Plan shall be determined in accordance with U.S. generally accepted accounting principles consistently applied. The Committee, in its sole discretion, may make reasonable adjustments to accounting terms or other performance measures for purposes of the Plan, so that a change in accounting principles, extraordinary or unusual charge of credit, acquisition, merger, consolidation, recapitalization, stock dividend, stock split, stock repurchase, exchange of shares, sale by the Company of all or a 43 material portion of its assets, or such other circumstances as the Committee may determine, do not distort the operation of the Plan or the realization of the Company's objectives in a manner inconsistent with the purposes of the Plan. SECTION 8.10 -- DISCRETION OF THE COMMITTEE All actions, calculations and decisions to be made regarding this Plan will be made in the sole discretion of the Committee. ARTICLE IX LIMITATIONS SECTION 9.1 -- NO CONTINUED EMPLOYMENT Nothing contained herein shall provide any employee with any right to continued employment or in any way abridge the rights of the Company to determine the terms and conditions of employment and whether to terminate employment of any employee. SECTION 9.2 -- NO VESTED RIGHTS Except as otherwise provided herein, no employee or other person shall have any claim of right (legal, equitable, or otherwise) to any award, allocation, or distribution or any right, title or vested interest in any amounts in his Bonus Bank and no officer or employee of the Company or any other person shall have any authority to make representations or agreements to the contrary. No interest conferred herein to a Participant shall be assignable or subject to claim by a Participant's creditors. SECTION 9.3 -- NOT PART OF OTHER BENEFITS The benefits provided in this Plan shall not be deemed a part of any other benefit provided by the Company to its employees. The Company assumes no obligation to Plan Participants except as specified herein. ARTICLE X AUTHORITY SECTION 10.1 -- COMMITTEE AUTHORITY Full power and authority to interpret and administer this Plan shall be vested in the Committee. The Committee may from time to time make such decisions and adopt such rules and regulations for implementing the Plan as it deems appropriate for any Participant under the Plan. Any decision taken by the Committee arising out of or in connection with the construction, administration, interpretation and effect of the Plan shall be final, conclusive and binding upon all Participants and any person claiming under or through them. ARTICLE XI AMENDMENTS SECTION 11.1 This Plan may be amended, suspended or terminated at any time by the Board upon the recommendation of the Committee; provided, however, that no such change in the Plan shall be effective to eliminate or diminish the distribution of any Award that has been allocated to the Bonus Bank of a Participant prior to the date of such amendment, suspension or termination. Notice of any such amendment, suspension or termination shall be given promptly to each Participant. 44 EX-10.10 3 EXHIBIT 10.10 EXHIBIT 10.10 FIRST AMENDMENT TO THE INACOM NONQUALIFIED DEFERRED COMPENSATION PLAN Effective January 1, 1996, the InaCom Nonqualified Deferred Compensation Plan ("Plan") is hereby amended as follows: ARTICLE I Section 4 of the Plan is amended to read as follows: "4. ELIGIBILITY AND PARTICIPATION. Employees eligible to participate in this Plan shall be those Employees selected by, and at the sole and absolute discretion of, the Compensation Committee of the Board of Directors of InaCom ("Compensation Committee"). Each Participant shall continue to participate in the Plan until the earlier of the Compensation Committee determining the Employee shall no longer participate or the Participant is no longer employed by InaCom." ARTICLE II Section 5.1 of the Plan is amended to read as follows: "5.1 EMPLOYEE DEPOSITS. Prior to the beginning of each Plan Year, a Participant may elect to have a portion of his Pay deposited in this Plan. The maximum deposit shall be twenty percent (20%) of the Participant's Pay." 45 EX-10.11 4 EXHIBIT 10.11 EXHIBIT 10.11 CONSULTING AND NONCOMPETITION AGREEMENT THIS CONSULTING AND NONCOMPETITION AGREEMENT, effective as of May 1, 1990, between Inacomp Computer Centers, Inc. ("Corporation") and Rick Inatome ("Consultant"). W I T N E S S E T H: WHEREAS, the Consultant has been Chairman, President and Chief Executive Officer of the Corporation; and WHEREAS, the Consultant has been instrumental in the development and success of the Corporation; and WHEREAS, The Consultant has been employed by the Corporation pursuant to an Employment Agreement effective as of May 1, 1990 ("Employment Agreement"); and WHEREAS, following the termination of the Employment Agreement for any reason except the death of the Consultant or "Cause," as defined in Section 7 of the Employment Agreement, the Corporation wishes to obtain consulting services from the Consultant, and the Consultant is willing to provide consulting services to the Corporation and its affiliates, pursuant to the terms and conditions of this Agreement; NOW THEREFORE, in consideration of the premises and the mutual covenants and obligations hereinafter set forth, the parties hereto hereby agree as follows: 1. ENGAGEMENT AND TERM: (a) CONSULTANT STATUS. Commencing on the termination of the Employment Agreement for any reason except the death of the Consultant or "Cause" as defined in Section 7 of the Employment Agreement, ("Consulting Commencement Date"), the Corporation agrees to engage Consultant as an independent contractor for a period of five years ("Consulting Term"), During the Consulting Term and under the provisions of this Agreement, the Consultant shall not be considered as having "employee" status with the Corporation or its affiliates for any purpose. The Consultant shall not have, by virtue of this Agreement, any authority to enter into any contract or agreement on behalf of the Corporation or its affiliates or to bind or commit the Corporation or its affiliates orally, or in writing, in any manner whatsoever. The Consultant shall not represent himself or hold himself out as having any such authority or as being an employee of the Corporation or its affiliates. (b) TERMINATION EVENTS. Notwithstanding Section 1(a) hereof, the Consulting Term shall terminate ("Date of Termination") prior to the fifth anniversary of the Consulting Commencement Date ("Scheduled Termination Date") upon the occurrence of any of the following events: (i) DEATH. The Consulting Term shall terminate upon the death of the Executive. (ii) DISABILITY. The Consulting Term shall terminate as a result of the Consultant's Permanent Disability. Permanent Disability shall mean that by reason of a physical or mental disability or infirmity which has continued for a period of any 12 months during the term of this Agreement, the Consultant is unable to perform the duties contemplated by this Agreement. The Consultant agrees to submit such medical evidence regarding such disability or infirmity as is reasonably requested by the Corporation. The Consultant shall be deemed to be under a Permanent Disability if the Consultant has been determined to be disabled under Section 223(d) of the Social Security Act and is eligible for a disability benefit under such Act. 46 (iii) TERMINATION WITHOUT CAUSE. The Consulting Term shall terminate upon the Consultant's Termination Without Cause. Termination Without Cause shall mean the termination by the Corporation of the Consultant's services other than by the Consultant's Voluntary Termination, Termination For Cause or upon the Consultant's death or Permanent Disability. (iv) VOLUNTARY TERMINATION. The Consulting Term shall terminate upon the Consultant's Voluntary Termination. Voluntary Termination shall mean any voluntary termination of consulting services by the Consultant. (v) TERMINATION FOR CAUSE. The Consulting Term shall terminate upon the Consultant's Termination For Cause. Termination For Cause shall mean the Consultant's termination by the Corporation for "Cause." For purposes of this Agreement, the Consultant's termination shall be deemed to have been for Cause only if the termination of his services is the result of the Consultant's willful engaging in dishonest or fraudulent actions or omissions resulting or intended to result directly or indirectly in any demonstrable material financial or economic harm to the Corporation. For purposes of this subparagraph (v), no act or failure to act on the Consultant's part shall be considered "willful" unless done or omitted to be done by him not in good faith and without reasonable belief that his action or omission was in the best interests of the Corporation. (c) NOTICE OF TERMINATION. Any termination of the Consultant's services by the Corporation or by the Consultant (other than termination pursuant to Section 1(b)(i)) shall be communicated by written "Notice of Termination" to the other party hereto. For purposes of this Agreement, a "Notice of Termination" shall mean a notice which indicates the specific termination provision relied upon in this Agreement and shall set forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Consultant's Services under the provision so indicated. (d) DATE OF TERMINATION. "Date of Termination" shall mean (i) if the Consultant is terminated by his death, the date of his death, (ii) if the Consultant is terminated due to a Permanent Disability, 30 days after Notice of Termination is given, (iii) if the Consultant is terminated pursuant to a Termination For Cause, the date specified in the Notice of Termination, and (iv) if the Consultant is terminated for any other reason, the date 30 days after termination as provided by the Notice of Termination, unless otherwise agreed to by the Consultant and Corporation, or as otherwise provided in this Agreement. 2. SERVICES: The Consultant shall perform the following described services as are requested of him from time to time by the Corporation or its affiliates, consistent with his schedule and other commitments, and Consultant shall have such powers and duties over the affairs and operations of the Corporation and its affiliates as may be delegated to him during the Consulting Term: (a) CONSULTING SERVICES. During the Consulting Term, the Consultant shall, upon the Corporation's or its affiliates' reasonable request and with reasonable notice, provide consulting services to the Corporation and its affiliates relating to the sale, manufacture and development of computers and related products, including customer relations, management and other activities in which the Corporation and its affiliates may be engaged and with respect to which Consultant has expertise. Such consulting services shall be provided at such times and in such locations as the Corporation and the Consultant shall agree. The Consultant shall perform the services required under this Agreement with reasonable care and in a manner which the Consultant reasonably believes is in, or not opposed to, the best interests of the Corporation and its affiliates. 47 (b) GOODWILL. Should the occasion arise, the Consultant shall promote the business interests of the Corporation and its affiliates, including speaking favorably of the granting of contracts to the Corporation and its affiliates. (c) PAYMENT FOR SERVICES. During the Consulting Term, the Consultant shall be paid an annual consulting fee ("Consulting Fee") in equal monthly installments, based on multiples of his last Base Salary under the Employment Agreement: First Year -- 110%; Second Year -- 120%; Third Year -- 130%; Fourth Year -- 140%; Fifth Year -- 150%. (d) REIMBURSEMENT OF EXPENSES. In addition to the Consulting Fee provided under Section 2(c) hereof, upon submission of proper vouchers and in accordance with the policies and procedures established by the Corporation in effect from time to time, the Corporation shall pay or reimburse the Consultant for all normal and reasonable expenses, including travel expense, incurred by the Consultant during the Consulting Term in connection with the Consultant's services under this Agreement. 3. TERMINATION BENEFITS. (a) DEATH. If the Consultant's services are terminated by his death, the Corporation shall pay his surviving spouse, or if he leaves no spouse, to his estate, any Consulting Fee earned by the Consultant under Section 2 hereof through the Consultant's Date of Termination. (b) PERMANENT DISABILITY. If the Consultant's services are terminated by his Permanent Disability, the Corporation shall pay the Consultant any Consulting Fee earned by the Consultant under Section 2 hereof through the Consultant's Date of Termination. (c) TERMINATION FOR CAUSE OR VOLUNTARY TERMINATION. In the case of the Consultant's Termination for Cause (as defined in Section 1(b)(v)), or Voluntary Termination (as defined in Section 1(b)(iv)), the Corporation's obligations to the Consultant shall cease after the Consultant's Date of Termination, and the Corporation shall pay the Consultant any Consulting Fee earned by the Consultant under Section 2 hereof through the Consultant's Date of Termination. (d) TERMINATION WITHOUT CAUSE. If, during the Consulting Term, the Consultant's services shall be terminated based on a Termination Without Cause (as defined in Section 1(b)(iii)), without 10 business days following the Consultant's Date of Termination, the Consultant shall be entitled to receive a single cash payment of the remaining Consulting Fees that would have been paid to him from the Date of Termination through the Scheduled Termination Date, as though the Consultant had not terminated his services on the Date of Termination. 4. CONFIDENTIAL INFORMATION. The Executive agrees that for and during the Consulting Term, any data, figures, projections, estimates, customer lists, tax records, personnel histories and records, information regarding manufacturing processes or techniques, information regarding sales, information regarding properties and any other information regarding the business, operations, properties or personnel of the Corporation (collectively referred to herein as "Confidential Information") disclosed to or learned by the Consultant shall be held in confidence and treated as proprietary to the Corporation, and the Consultant agrees not to use or disclose any Confidential Information except to promote and advance the business interests of the Corporation. Further, the Consultant agrees that upon termination of the Consulting Term he shall continue to treat such Confidential Information as private and privileged and shall not use for his own benefit or for the benefit of any other person or entity, any Confidential Information except upon the written authorization of the Chief Executive Officer of the Corporation, and he shall immediately return to the Corporation and refrain from taking or copying any documents containing Confidential Information. The Consultant agrees that the Corporation shall be entitled to immediate (i.e., without prior notice) preliminary and final injunctive relief to enjoin and restrain the unauthorized disclosure or use of Confidential Information, to enjoin and restrain him from the unauthorized taking or copying of documents containing Confidential Information or to compel him to return any such documents to the Corporation. 48 5. COVENANT NOT TO COMPETE. The Consultant agrees that for a period of one year following the termination of his consulting services with the Corporation, he shall not, directly or indirectly, either as an equity owner, an executive employee, or in any other capacity, engage in or be interested in any business that is in competition with the Corporation or any affiliate of the Corporation. The Consultant further agrees that the Corporation shall be entitled to immediate (i.e., without prior notice) preliminary and final injunctive relief to enjoin and restrain him from performing any or all of the actions specified in this Section 5. The parties agree that if this Section 5 is held by a court to be invalid or unenforceable because it is too broad in any respect, it shall be narrowed by the court to the extent required to be enforceable. 6. LATE PAYMENTS. Any payment made later than the time provided for in this Agreement for whatever reason, shall include interest at the prime rate plus 3 percent, which shall begin to accrue on the 10th business day following the Consultant's Date of Termination. For purposes of this Section 6, "prime rate" shall be determined by reference to the prime rate established by National Bank of Detroit or its successor, in effect from time to time commencing on the 10th day following the Consultant's Date of Termination. 7. NOTICES. Any notice required or permitted by this Agreement shall be in writing, sent by registered or certified mail, return receipt requested, addressed to the Board and the Corporation at the Corporation's then principal office, or to the Consultant at the most recent address on record with the Corporation, as the case may be, or to such other address or addresses as any party hereto may from time to time specify in writing for the purpose in a notice given to the other parties in compliance with this Section 7. Notices shall be deemed given when received. 8. DISPUTES. Except as expressly set forth elsewhere in this Agreement, it is mutually agreed between the parties that arbitration shall be the sole and exclusive remedy to redress any dispute, claim or controversy (hereinafter referred to as "grievance") involving the interpretation of this Agreement or the terms, conditions or termination of this Agreement or the terms, conditions, or termination of the Consultant's Services with the Corporation. It is the intention of the parties that the arbitration award shall be final and binding and that a judgment on the award may be entered in any court of competent jurisdiction and enforcement may be had according to its terms. Any and all grievances shall be disposed of as follows: (a) Any and all grievances must be submitted in writing by the aggrieved party. Within 30 days following the submission of the written grievance, the party to whom the grievance is submitted shall respond in writing. If no written response is submitted within 30 days, the grievance shall be deemed denied. (b) If the grievance is denied, either party may, within 30 days of the denial, refer the grievance to arbitration in Detroit, Michigan. Any grievance shall be deemed waived unless presented within the time limits specified herein. The arbitrator shall be chosen in accordance with the Voluntary Labor Arbitration Rules of the American Arbitration Association, then in effect. If the Consultant prevails under the grievance, the Corporation shall bear the expenses of the arbitration (including the reasonable attorneys' fees of the Consultant); provided, further, that in the event the Corporation prevails, each party shall bear its own expenses of the arbitration, and any expenses not properly allocable to one party shall be borne jointly in equal parts. (c) The arbitrator shall not have jurisdiction or authority to change any of the provisions of this Agreement by alterations of, additions to or subtractions from the terms hereof. The arbitrator's sole authority shall be to interpret or apply any clause or clauses of this Agreement. (d) Except as provided in Sections 4 and 5 hereof, the parties stipulate that the provisions hereof, and the decision of the arbitrator with respect to any grievance, shall be the sole and exclusive remedy for any alleged breach of the consulting relationship. The parties 49 hereby acknowledge that since arbitration is the exclusive remedy, neither party has the right to resort to any federal, state or local court or administrative agency concerning breaches of this Agreement (except as provided in Sections 4 and 5 hereof) and that the decision of the arbitrator shall be a complete defense to any suit, action or proceeding instituted in any federal, state or local court before any administrative agency with respect to any grievance which is arbitrable as herein set forth. The arbitration provisions hereof shall, with respect to any grievance, survive the termination or expiration of this Agreement. 9. LEGAL FEES AND EXPENSES. To the extent that the Consultant prevails under a grievance filed by either party pursuant to Section 8, the Corporation shall reimburse all reasonable legal fees and expenses which the Consultant may incur as a result of contesting the validity, enforceability, or interpretation of, provisions in this Agreement. The Corporation shall reimburse the Consultant within 10 business days following written demand therefor by the Consultant. The Corporation's late reimbursement of legal fees or expenses incurred by the Consultant under this Section 9 shall accrue interest in accordance with the provisions of Section 6. 10. SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and inure to the benefit of Corporation and its affiliates, successors and assigns, and shall be binding upon and inure to the benefit of the Consultant and his respective legal representatives and assigns, provided that in no event shall the Consultant's obligations to perform future services for the Corporation and its affiliates be delegated or transferred by the Consultant. 11. MODIFICATION OR WAIVER. No amendment, modification or waiver of this Agreement shall be binding or effective for any purpose unless it is made in a writing signed by the party against whom enforcement of such amendment, modification or waiver is sought. No course of dealing between the parties to this Agreement shall be deemed to affect or to modify, amend or discharge any provision or term of this Agreement. No delay on the part of the Corporation or the Consultant in the exercise of any of their respective rights or remedies shall operate as a waiver thereof, and no single or partial exercise by the Corporation or Consultant of any such right or remedy shall preclude other or future exercise thereof. A waiver of right or remedy on any one occasion shall not be construed as a bar to or waiver of any such right or remedy on any other occasion. 12. SEVERABILITY. Whenever possible each provision and term of this Agreement shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision or term of this Agreement shall be held to be prohibited by or invalid under such applicable law, then such provision or term shall be ineffective only to the extent of such prohibition or invalidity, without invalidating or affecting in any manner whatsoever the remainder of such provision or term or the remaining provisions or terms of this Agreement. 13. COUNTERPARTS. This Agreement may be executed in separate counterparts each of which is deemed to be an original and all of which taken together constitute one and the same Agreement. 14. HEADINGS. The headings of the paragraphs of this Agreement are inserted for convenience only and shall not affect the construction or interpretation of this Agreement. 15. NO STRICT CONSTRUCTION. The language used in this Agreement shall be deemed to be the language chosen by the parties hereto to express their mutual intent, and no rule of strict construction shall be applied against any person. 16. GOVERNING LAW. This Agreement and all rights, remedies and obligations hereunder, including, but not limited to, matters of construction, validity and performance shall be governed by the laws of the State of Michigan. 50 IN WITNESS WHEREOF, the undersigned have executed this Agreement this 31st day of August, 1990. INACOMP COMPUTER CENTERS, INC. By: ________/s/_JOHN P. HARTWIG_______ John P. Hartwig CHAIRMAN, COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS ___________/s/_RICK INATOME___________ Rick Inatome, CONSULTANT 51 AMENDMENT TO CONSULTING AND NON-COMPETITION AGREEMENT (THE "CONSULTING AGREEMENT") DATED AUGUST 31, 1990, EFFECTIVE MAY 1, 1990 BETWEEN INACOMP COMPUTER CENTERS, INC. ("INACOMP") AND RICK INATOME ("CONSULTANT") RECITALS A. Inacomp has entered into an Agreement and Plan of Merger (the "Merger Agreement") dated April 17, 1991 with ValCom, Inc. ("ValCom") and Proval, Inc. ("Proval") whereby Proval will be merged into Inacomp, Inacomp will become a wholly owned subsidiary of ValCom and ValCom will change its name to InaCom Corp. ("InaCom") at the Effective Time. References to InaCom in this Amendment shall also refer to ValCom prior to the Effective Time. B. In connection with the Merger Agreement, the Consultant executed an Employment Agreement with ValCom (the "InaCom Employment Agreement"), to become effective upon the consummation of the merger contemplated in the Merger Agreement (the "Effective Time"). C. The Employment Agreement between the Consultant and Inacomp, effective as of May 1, 1990 (the "Inacomp Employment Agreement"), will terminate at the Effective Time pursuant to the InaCom Employment Agreement. D. Inacomp, the Consultant and ValCom desire that the Consulting Agreement be amended in accordance with Section 6 of the InaCom Employment Agreement and that InaCom become a party to the Consulting Agreement. In consideration of the premises and mutual covenants and obligations hereinafter set forth, the parties hereto agree as follows: 1. All references in the Consulting Agreement (other than in the Recitals) to the "Corporation" are hereby amended to refer to InaCom Corp., a Delaware corporation, all references in the Consulting Agreement to the "Employment Agreement" are hereby amended to refer to the "InaCom Employment Agreement" and all references in the Consulting Agreement to the "Executive" are hereby amended to refer to the "Consultant." 2. The reference to "Section 7 of the Employment Agreement" in the first sentence of Section 1(a) is hereby amended to refer to "Section 4(g) of the InaCom Employment Agreement." 3. The second, third and fourth sentences of Section 1(b)(v) of the Consulting Agreement are hereby amended to read in their entirety as follows: "For purposes of this Agreement, "Cause" shall have the same meaning as defined in Section 4(g) of the InaCom Employment Agreement." 4. The reference to a period of "12 months" in the second sentence of Section 1(b)(ii) is hereby amended to refer to a period of "6 months." 5. The reference to "the Corporation" in the third sentence of Section 1(b)(ii) is amended to refer to "the Corporation's Board of Directors." 6. This Amendment shall be effective as of the Effective Time and, except as set forth herein, the Consulting Agreement shall be otherwise unaffected hereby. It is affirmed that the term of the Consulting Agreement, as amended, shall commence on the termination of the InaCom Employment Agreement for any reason except the death of the Consultant or "Cause" as defined in Section 4(g) of the InaCom Employment Agreement. 7. This Amendment may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. 52 The undersigned have caused this Amendment to be duly executed as of the 5th day of August, 1991. INACOMP COMPUTER CENTERS, INC. By: _________/s/_RICK INATOME_________ Rick Inatome Its: PRESIDENT VALCOM, INC. By: _______/s/_BILL L. FAIRFIELD______ Bill L. Fairfield Its: CHIEF EXECUTIVE OFFICER ___________/S/_RICK INATOME___________ Rick Inatome 53 EX-11 5 EXHIBIT 11 EXHIBIT 11 INACOM CORP. AND SUBSIDIARIES COMPUTATION OF EARNINGS PER SHARE OF COMMON STOCK
FOR THE YEARS ENDED ---------------------------------------------- DECEMBER 30, DECEMBER 31, DECEMBER 25, 1995 1994 1993 -------------- -------------- -------------- Weighted average common shares outstanding....................... 10,300,000 10,300,000 9,500,000 -------------- -------------- -------------- -------------- -------------- -------------- Earnings (loss) applicable to common stock....................... $ 11,707,000 $ (2,256,000) $ 11,975,000 -------------- -------------- -------------- -------------- -------------- -------------- Earnings (loss) per share........................................ $1.14 $(0.22) $1.26
54 EX-21 6 EXHIBIT 21 EXHIBIT 21 SUBSIDIARIES OF INACOM CORP.
STATE OF NAME INCORPORATION - --------------------------------------------------------------------------------------------------- ------------- Inacom Communications, Inc......................................................................... Nebraska Inacom Business Centers, Inc....................................................................... Georgia Inacomp Financial Services, Inc.................................................................... Michigan Inacom Services, Inc............................................................................... Nebraska Inacom International, Inc.......................................................................... Delaware Inacom Finance Corp................................................................................ Delaware
55 EX-23 7 EXHIBIT 23 EXHIBIT 23 ACCOUNTANTS' CONSENT The Board of Directors InaCom Corp.: We consent to incorporation by reference in Registration Statement Nos. 33-21438 and 33-38385 on Form S-8 of InaCom Corp. of our report dated February 16, 1996 relating to the consolidated balance sheets of InaCom Corp. and subsidiaries as of December 30, 1995 and December 31, 1994, and the related consolidated statements of operations, stockholders' equity and cash flows and related financial statement schedules for each of the years in the three-year period ended December 30, 1995, which report appears in the December 30, 1995 Annual Report on Form 10-K of InaCom Corp. KPMG PEAT MARWICK LLP /s/ KPMG Peat Marwick LLP Omaha, Nebraska March 15, 1996 56 EX-24 8 EXHIBIT 24 EXHIBIT 24 POWER OF ATTORNEY The undersigned Director of InaCom Corp., a Delaware corporation, hereby constitutes and appoints Bill L. Fairfield as Attorney-in-Fact in his name, place and stead to execute InaCom's Annual Report on Form 10-K for the fiscal year ended December 30, 1995, together with any and all subsequent amendments thereof, in his capacity as a director and hereby ratifies all that said Attorney-in-Fact may do by virtue thereof. In WITNESS WHEREOF, the undersigned has hereunto signed this power of attorney this 22nd day of February, 1996. __________/S/_JOSEPH AUERBACH_________ Joseph Auerbach 57 POWER OF ATTORNEY The undersigned Director of InaCom Corp., a Delaware corporation, hereby constitutes and appoints Bill L. Fairfield as Attorney-in-Fact in his name, place and stead to execute InaCom's Annual Report on Form 10-K for the fiscal year ended December 30, 1995, together with any and all subsequent amendments thereof, in his capacity as a director and hereby ratifies all that said Attorney-in-Fact may do by virtue thereof. In WITNESS WHEREOF, the undersigned has hereunto signed this power of attorney this 23rd day of February, 1996. _________/S/_W. GRANT GREGORY_________ W. Grant Gregory 58 POWER OF ATTORNEY The undersigned Director of InaCom Corp., a Delaware corporation, hereby constitutes and appoints Bill L. Fairfield as Attorney-in-Fact in his name, place and stead to execute InaCom's Annual Report on Form 10-K for the fiscal year ended December 30, 1995, together with any and all subsequent amendments thereof, in his capacity as a director and hereby ratifies all that said Attorney-in-Fact may do by virtue thereof. In WITNESS WHEREOF, the undersigned has hereunto signed this power of attorney this 22nd day of February, 1996. __________/S/_JOSEPH INATOME__________ Joseph Inatome 59 POWER OF ATTORNEY The undersigned Director of InaCom Corp., a Delaware corporation, hereby constitutes and appoints Bill L. Fairfield as Attorney-in-Fact in his name, place and stead to execute InaCom's Annual Report on Form 10-K for the fiscal year ended December 30, 1995, together with any and all subsequent amendments thereof, in his capacity as a director and hereby ratifies all that said Attorney-in-Fact may do by virtue thereof. In WITNESS WHEREOF, the undersigned has hereunto signed this power of attorney this 22nd day of February, 1996. ___________/S/_RICK INATOME___________ Rick Inatome 60 POWER OF ATTORNEY The undersigned Director of InaCom Corp., a Delaware corporation, hereby constitutes and appoints Bill L. Fairfield as Attorney-in-Fact in his name, place and stead to execute InaCom's Annual Report on Form 10-K for the fiscal year ended December 30, 1995, together with any and all subsequent amendments thereof, in his capacity as a director and hereby ratifies all that said Attorney-in-Fact may do by virtue thereof. In WITNESS WHEREOF, the undersigned has hereunto signed this power of attorney this 22nd day of February, 1996. _________/S/_GARY SCHWENDIMAN_________ Gary Schwendiman 61 POWER OF ATTORNEY The undersigned Director of InaCom Corp., a Delaware corporation, hereby constitutes and appoints Bill L. Fairfield as Attorney-in-Fact in his name, place and stead to execute InaCom's Annual Report on Form 10-K for the fiscal year ended December 30, 1995, together with any and all subsequent amendments thereof, in his capacity as a director and hereby ratifies all that said Attorney-in-Fact may do by virtue thereof. In WITNESS WHEREOF, the undersigned has hereunto signed this power of attorney this 22nd day of February, 1996. _________/S/_DURWARD B. VARNER________ Durward B. Varner 62 EX-27 9 EXHIBIT 27
5 1,000 12-MOS DEC-30-1995 JAN-01-1995 DEC-30-1995 20,690 0 160,306 3,537 352,948 539,940 41,501 44,421 624,238 449,000 0 0 0 1,004 147,771 624,238 2,200,344 2,200,344 1,996,538 1,996,538 169,338 0 14,635 19,833 8,126 11,707 0 0 0 11,707 1.14 1.14
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