-----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, WSrzSzdoUb4ulTyr00OtQX16jqkHheBRaGgSBduG5NwS6V3HMnx+SFRX+Koq10u7 Kn/Rf2Xf9GqwKJgrqb0HXw== 0000950147-99-000061.txt : 19990129 0000950147-99-000061.hdr.sgml : 19990129 ACCESSION NUMBER: 0000950147-99-000061 CONFORMED SUBMISSION TYPE: 10-Q/A PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19980503 FILED AS OF DATE: 19990128 FILER: COMPANY DATA: COMPANY CONFORMED NAME: MICROAGE INC /DE/ CENTRAL INDEX KEY: 0000814249 STANDARD INDUSTRIAL CLASSIFICATION: WHOLESALE-COMPUTER & PERIPHERAL EQUIPMENT & SOFTWARE [5045] IRS NUMBER: 860321346 STATE OF INCORPORATION: DE FISCAL YEAR END: 1103 FILING VALUES: FORM TYPE: 10-Q/A SEC ACT: SEC FILE NUMBER: 000-15995 FILM NUMBER: 99514878 BUSINESS ADDRESS: STREET 1: 2400 S MICROAGE WY MS8 CITY: TEMPE STATE: AZ ZIP: 85282 BUSINESS PHONE: 6028042000 MAIL ADDRESS: STREET 1: 2400 SOUTH MICROAGE WAY MS8 CITY: TEMPE STATE: AZ ZIP: 85282 10-Q/A 1 AMENDMENT NO. 1 TO FORM 10-Q F.T.Q.E 5/3/98 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q/A No. 1 (Mark One) [X] Quarterly report pursuant to Section 13 or 15 (d) of the Securities Exchange Act of 1934, For the quarterly period ended May 3, 1998 or [ ] Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 Commission file number 0-15995 MICROAGE, INC. (Exact name of registrant as specified in its charter) Delaware 86-0321346 (State of incorporation) (I. R. S. Employer Identification No.) 2400 South MicroAge Way, Tempe, AZ 85282 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (602) 366-2000 The registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] The number of shares of the registrant's Common Stock (par value $.01 per share) outstanding at December 31, 1998 was 20,315,711. This Form 10Q/A No. 1 for MicroAge, Inc. (the "Company") is being filed pursuant to Regulation S-K Item 601(c)(2)(iii) to amend the Form 10Q for the quarterly period ended May 3, 1998 due to an aquisition in fiscal 1997 originally accounted for as a pooling of interests that has been restated under the purchase method of accounting (see Note A of Notes to Consolidated Financial Statements (Unaudited) for additional information). INDEX MICROAGE, INC. PART I. FINANCIAL INFORMATION Item 1. Financial Statements (Unaudited) Consolidated balance sheets -- May 3, 1998 and November 2, 1997. 2 Consolidated statements of operations -- Quarters ended May 3, 1998 and May 4, 1997; 26 weeks ended May 3, 1998 and May 4, 1997 3 Consolidated statements of cash flows -- 26 weeks ended May 3, 1998 and May 4, 1997. 4 Notes to consolidated financial statements. 5 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. 7 PART II. OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K 12 SIGNATURES 13 PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS (UNAUDITED) MICROAGE, INC. CONSOLIDATED BALANCE SHEETS (UNAUDITED) (in thousands, except share data) ASSETS May 3, November 2, 1998 1997 ------------ ----------- Current assets: Cash and cash equivalents $ 35,454 $ 22,279 Accounts and notes receivable, net 269,960 233,942 Inventory, net 518,259 479,332 Other 15,382 11,356 ---------- -------- Total current assets 839,055 746,909 Property and equipment, net 92,326 73,975 Intangible assets, net 110,032 85,903 Other 13,510 12,609 ---------- -------- Total assets $1,054,923 $919,396 ========== ======== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 729,347 $591,538 Accrued liabilities 24,906 22,527 Current portion of long-term obligations 3,035 2,744 Other 5,906 3,836 ---------- -------- Total current liabilities 763,194 620,645 Line of credit -- 30,650 Long-term obligations 5,474 4,537 Other long-term liabilities 8,993 1,239 Stockholders' equity: Preferred stock, par value $1.00 per share; Shares authorized: 5,000,000 Issued and outstanding: none -- -- Common stock, par value $.01 per share; Shares authorized: 40,000,000 Issued: May 3, 1998 - 19,620,539 November 2, 1997 - 18,451,653 196 184 Additional paid-in capital 197,305 170,829 Retained earnings 79,927 92,129 Treasury stock, at cost; Shares: May 3, 1998 - 16,378 November 2, 1997 - 80,378 (166) (817) ---------- -------- Total stockholders' equity 277,262 262,325 ---------- -------- Total liabilities and stockholders' equity $1,054,923 $919,396 ========== ======== The accompanying notes are an integral part of these financial statements. 2 MICROAGE, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) (in thousands, except per share data)
Quarter ended 26 weeks ended ----------------------- ----------------------- May 3, May 4, May 3, May 4, 1998 1997 1998 1997 ---------- ---------- ---------- ---------- Revenue $1,326,950 $1,058,304 $2,505,961 $1,943,062 Cost of sales 1,242,369 987,353 2,347,555 1,811,571 ---------- ---------- ---------- ---------- Gross profit 84,581 70,951 158,406 131,491 Operating and other expenses Operating expenses 79,652 52,566 152,713 99,436 Restructuring and other one-time charges 5,600 -- 5,600 -- ---------- ---------- ---------- ---------- Total 85,252 52,566 158,313 99,436 ---------- ---------- ---------- ---------- Operating income (loss) (671) 18,385 93 32,055 Other expenses - net 9,171 7,441 20,112 12,322 ---------- ---------- ---------- ---------- Income (loss) before income taxes (9,842) 10,944 (20,019) 19,733 Income tax provision (benefit) (3,885) 4,568 (7,946) 8,287 ---------- ---------- ---------- ---------- Net income (loss) $ (5,957) $ 6,376 $ (12,073) $ 11,446 ========== ========== ========== ========== Net income (loss) per common and common equivalent share: Basic $ (0.30) $ 0.39 $ (0.62) $ 0.70 ========== ========== ========== ========== Diluted $ (0.30) $ 0.38 $ (0.62) $ 0.67 ========== ========== ========== ========== Weighted average common and common equivalent shares outstanding: Basic 19,584 16,404 19,520 16,323 ========== ========== ========== ========== Diluted 19,584 16,944 19,520 17,129 ========== ========== ========== ==========
The accompanying notes are an integral part of these financial statements. 3 MICROAGE, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) Increase (Decrease) in Cash and Cash Equivalents (in thousands) 26 weeks ended ---------------------- May 3, May 4, 1998 1997 --------- --------- Cash flows from operating activities: Net income (loss) $ (12,073) $ 11,446 Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization 18,451 11,647 Provision for losses on accounts and notes receivable 6,630 3,250 Changes in assets and liabilities, net of business acquisitions: Accounts and notes receivable (15,466) 6,486 Inventory (29,338) (137,601) Other current assets (3,844) 209 Other assets (5,613) (4,399) Accounts payable 103,414 76,676 Accrued liabilities 630 1,196 Other liabilities 9,193 8,383 --------- --------- Net cash provided by (used in) operating activities 71,984 (22,707) Cash flows from investing activities: Purchases of property and equipment (28,232) (18,028) --------- --------- Net cash used in investing activities (28,232) (18,028) Cash flows from financing activities: Proceeds from issuance of stock - stock option and employee stock purchase plans 2,139 2,722 Net borrowings (payments) under line of credit (30,650) 46,500 Amounts received from ESOT -- 207 Shareholder distributions - pooled companies (129) -- Net change in long-term obligations (1,937) 230 --------- --------- Net cash provided by (used in) financing activities (30,577) 49,659 --------- --------- Net increase in cash and cash equivalents 13,175 8,924 Cash and cash equivalents at beginning of period 22,279 21,935 --------- --------- Cash and cash equivalents at end of period $ 35,454 $ 30,859 ========= ========= The accompanying notes are an integral part of these financial statements. 4 MICROAGE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) NOTE A - BASIS OF PRESENTATION The accompanying unaudited consolidated financial statements of MicroAge, Inc. (the "Company") do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair statement of results for the periods have been included. Certain prior year amounts have been reclassified to conform with current year financial statement presentation. Operating results for the 26 weeks ended May 3, 1998 are not necessarily indicative of the results that may be expected for the year ending November 1, 1998. For further information, refer to the consolidated financial statements and footnotes thereto included in the Company's Annual Report on Form 10-K for the year ended November 2, 1997. On November 14, 1997, the Company issued shares of its common stock in exchange for all of the outstanding shares of a reseller. The merger has been accounted for as a pooling of interests and, accordingly, the Company's consolidated financial statements have been restated to include the accounts and operations of the acquired company for all periods presented. In addition, the Company's consolidated financial statements have been restated for a fiscal 1997 acquisition. This acquisition was originally accounted for on a pooling of interests basis. Information came to light indicating that actions taken by the former owners of the acquired business rendered the pooling of interests accounting inappropriate. The Company has restated the fiscal 1997 and 1996 financial statements to reflect such acquisition using the purchase method of accounting. The Company has also restated the previously issued consolidated results for each of the first three fiscal quarters of 1998 to reflect such acquisition using the purchase method of accounting. The charge was $702,000 per quarter of additional goodwill amortization shown as other expense in the income statement. The results of operations previously reported by the separate enterprises and the combined amounts presented in the accompanying consolidated financial statements are summarized below (in thousands). Quarter ended May 4, 1997: Pooling Converted to MicroAge,Inc. Acquired Co. Purchase Combined ------------- ------------ -------- -------- Revenue $1,086,018 $15,089 $(42,803) $1,058,304 Net income $ 6,244 $ 323 $ (191) $ 6,376 26 weeks ended May 4, 1997: Pooling Converted to MicroAge,Inc. Acquired Co. Purchase Combined ------------- ------------ -------- -------- Revenue $1,976,766 $21,761 $(55,465) $1,943,062 Net income $ 11,101 $ 503 $ (158) $ 11,446 In addition, certain amounts receivable from vendors have been reclassified to accounts payable to conform with industry practice 5 NOTE B - OTHER EXPENSES - NET Other expenses - net consists of the following (in thousands): Quarters ended 26 weeks ended ----------------- ------------------- May 3, May 4, May 3, May 4, 1998 1997 1998 1997 ------ ------ ------- ------- Interest expense $ 988 $2,335 $ 3,333 $ 2,930 Expenses from sales of accounts receivable 4,993 4,737 10,570 9,001 Amortization expense 2,068 470 4,180 862 Other 1,122 (101) 2,029 (471) ------ ------ ------- ------- $9,171 $7,441 $20,112 $12,322 ====== ====== ======= ======= NOTE C - RESTRUCTURING AND OTHER ONE-TIME CHARGES In February, 1998, the Company initiated a plan to restructure the Company into two independent businesses - a distribution business operated through a wholly-owned subsidiary, Pinacor Inc., and an integration business operated through a wholly-owned subsidiary, MicroAge Integration Co. ("Integration"). In connection with this plan, the Company recorded $5.6 million of restructuring and other one-time charges ($3.2 million, or $0.16 per share, after taxes) during the second quarter of fiscal 1998. The restructuring and other one-time charges included $3.6 million for employee termination benefits, $1.1 million for the closing and consolidation of redundant locations, and $0.9 million for other costs related to the restructuring, primarily one-time costs incurred in establishing Pinacor and Integration as separate businesses. The charges associated with employee termination benefits consist primarily of severance pay for approximately 250 associates. The reductions occurred in virtually all areas of the Company and were completed by May 3, 1998. As of May 3, 1998, $1.9 million remained in accrued liabilities representing: $0.7 million related to employee termination benefits; $0.9 million related to facility closings; and $0.3 million primarily related to costs of establishing Pinacor and Integration as separate businesses. 6 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. Certain statements contained in this Item may be "forward-looking statements" within the meaning of The Private Securities Litigation Reform Act of 1995. These forward-looking statements may include projections of revenue and net income and issues that may affect revenue or net income; projections of capital expenditures; plans for future operations; financing needs or plans; plans relating to the Company's products and services; and assumptions relating to the foregoing. Forward looking statements are inherently subject to risks and uncertainties, some of which cannot be predicted or quantified. Future events and actual results could differ materially from those set forth in, contemplated by, or underlying the forward-looking information. Some of the important factors that could cause the Company's actual results to differ materially from those projected in forward-looking statements made by the Company include, but are not limited to, the following: intense competition; narrow margins; dependence on supplier incentive funds; product supply and dependence on key vendors; potential fluctuations in quarterly results; risks of declines in inventory values; no assurance of successful acquisitions or investments; the capital intensive nature of the Company's business; dependence on information systems; year 2000 issues; dependence on independent shipping companies; rapid technological change; and possible volatility of stock price. Reference is made to Exhibit 99.1 of the Company's Report on Form 10-K for the year ended November 2, 1997 for additional discussion of the foregoing factors. The Company undertakes no obligations to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. On November 14, 1997, the Company issued shares of its common stock in exchange for all of the outstanding shares of a reseller location. The merger has been accounted for as a pooling of interests and, accordingly, the Company's consolidated financial statements have been restated to include the accounts and operations of the acquired company for all periods presented. In addition, a 1997 acquisition originally accounted for as a pooling of interests has been restated under the purchase method of accounting. See Note A of Notes to Consolidated Financial Statements (Unaudited) for additional information. In February, 1998, the Company initiated a plan to restructure the Company into two independent businesses - a distribution business operated through a wholly-owned subsidiary, Pinacor, Inc. ("Pinacor") and an integration business operated through a wholly-owned subsidiary, MicroAge Integration Co. ("Integration"). These businesses now have separate management teams, operate autonomously in their respective marketplaces, and contract with headquarters for a limited number of services, such as payroll processing, employee benefits and information services. See "Restructuring and Other One-Time Charges" below. In May, 1998, the Company announced that it had retained an investment banking firm to help explore financial options for Pinacor designed to enhance shareholder value. 7 RESULTS OF OPERATIONS The following table sets forth, for the indicated periods, data as percentages of total revenue:
Quarter ended -------------------------------------------------------------- May 3, Feb. 1, Nov. 2, Aug. 3, May 4, 1998 1998 1997 1997 1997 ---------- ---------- ---------- ---------- ---------- Revenue (in thousands) $1,326,950 $1,179,011 $1,318,871 $1,117,275 $1,058,304 Cost of sales 93.6% 93.7% 93.2% 93.1% 93.3% ---------- ---------- ---------- ---------- ---------- Gross profit 6.4 6.3 6.8 6.9 6.7 Operating expenses 6.0 6.2 5.2 5.2 5.0 Restructuring and other one- time charges 0.4 0.0 0.0 0.0 0.0 ---------- ---------- ---------- ---------- ---------- Operating income 0.0 0.1 1.6 1.7 1.7 Other expenses - net 0.7 0.9 0.6 0.7 0.7 ---------- ---------- ---------- ---------- ---------- Income (loss) before income taxes (0.7) (0.8) 1.0 1.0 1.0 Income tax provision (benefit) (0.3) (0.3) 0.4 0.4 0.4 ---------- ---------- ---------- ---------- ---------- Net income (loss) (0.4)% (0.5)% 0.6% 0.6% 0.6% ========== ========== ========== ========== ==========
TOTAL REVENUE. Total revenue of $1.3 billion increased $269 million, or 25%, for the quarter ended May 3, 1998 as compared to the quarter ended May 4, 1997. This revenue increase (before intercompany eliminations) included a $176 million, or 17%, increase in Pinacor (distribution business) revenue and a $116 million, or 34%, increase in Integration revenue. The increase in revenue was attributable to sales to resellers added since May 4, 1997, increased demand for the Company's major suppliers' products, the Company's addition of new product offerings, the growth of the microcomputer products industry and acquisitions of reseller locations. Total revenue increased $563 million, or 29%, for the 26 weeks ended May 3, 1998 as compared to the 26 weeks ended May 4, 1997. This revenue increase (before intercompany eliminations) included a $423 million, or 23% increase in Pinacor revenue and a $248 million, or 37% increase in Integration revenue. GROSS PROFIT PERCENTAGE. The Company's gross profit percentage was 6.4% for the quarter ended May 3, 1998 and 6.7% for the quarter ended May 4, 1997. The gross profit percentage was 6.3% for the 26 weeks ended May 3, 1998 as compared to 6.8% for the 26 weeks ended May 4, 1997. The decrease in the Company's gross profit percentage was due to several factors. In Pinacor, the Company's distribution business, gross margins on sales to reseller customers decreased due to increased competitive pressures. In addition, supplier incentive funds were lower as a percentage of total Pinacor revenue and net freight expense increased as a percentage of revenue. The freight expense increase as a percentage of revenue was primarily due to a decrease in the average selling price per pound of product shipped. In Integration, margins on product sales to end-user customers decreased due to competitive pricing pressures. The decrease in Integration product margins was partially offset by an increase in service revenue, which has higher gross margins than product revenue. 8 OPERATING EXPENSES. As a percentage of revenue, operating expenses were 6.0% for the quarter ended May 3, 1998 compared to 5.0% for the quarter ended May 4, 1997. Operating expenses increased $27 million to $80 million for the quarter ended May 3, 1998, as compared to the quarter ended May 4, 1997. Operating expenses increased from $99 million, or 5.1% of revenue, for the 26 weeks ended May 4, 1997 to $153 million, or 6.1% of revenue, for the 26 weeks ended May 3, 1998. The increase in operating expenses was primarily in Integration, and was attributable to acquisitions of reseller locations (which generally have higher gross margin and operating expense percentages than the Company's other businesses), the costs associated with assimilating these acquisitions, start-up costs of several new locations, and the build-up of infrastructure associated with Integration's increasing levels of service revenue. RESTRUCTURING AND OTHER ONE-TIME CHARGES. In connection with the restructuring plan discussed above, the Company recorded a $5.6 million charge ($3.2 million, or $0.16 per share, after taxes) for the second quarter of fiscal 1998. The restructuring and other one-time charges included $3.6 million for employee termination benefits, $1.1 million for the closing and consolidation of redundant locations and $0.9 million for other costs related to the restructuring, primarily one-time costs incurred in establishing Pinacor and Integration as separate businesses. The charges associated with employee termination benefits consist primarily of severance pay for approximately 250 associates. The reductions occurred in virtually all areas of the Company and were substantially completed by May 3, 1998. OTHER EXPENSES - NET. Other expenses - net increased to $9.1 million for the quarter ended May 3, 1998 from $7.4 million for the quarter ended May 4, 1997. Other expenses - net increased to $20.1 million for the 26 weeks ended May 3, 1998 from $12.3 million for the 26 weeks ended May 4, 1997. This increase was primarily due to increases in average daily borrowings to support higher inventory and accounts receivable levels and to increased amortization expense associated with goodwill from acquisitions. SUPPLIER INCENTIVE FUNDS The Company receives funds from certain suppliers which are earned through marketing programs or meeting purchasing or other objectives established by the supplier. A large portion of the incentives are passed on to the Company's customers. However, a portion of the incentives positively impact the Company's income. There can be no assurance that these programs will be continued by the suppliers. A substantial reduction in the supplier funds available to the Company would have an adverse effect on the Company's results of operations. POTENTIAL FLUCTUATIONS IN QUARTERLY RESULTS The Company's operating results may vary significantly from quarter to quarter depending on certain factors, including, but not limited to, demand for the Company's information technology products and services, the amount of supplier incentive funds received by the Company, the results of acquired businesses, product availability, competitive conditions, new product introductions, changes in customer order patterns and general economic conditions. In particular, the Company's operating results are sensitive to changes in the mix of product and service revenues, product margins, inventory adjustments and interest rates. Although the Company attempts to control its expense levels, these levels are based, in part, on anticipated revenues. Therefore, the Company may not be able to control spending in a timely manner to compensate for any unexpected revenue shortfall. As a result, quarterly period-to-period comparisons of the Company's financial results are not necessarily meaningful and should not be relied upon as an indication of future performance. In addition, although the Company's 9 financial performance has not exhibited significant seasonality in the past, the Company and the computer industry in general tend to follow a sales pattern with peaks occurring near the end of the calendar year, due primarily to special supplier promotions and year-end business purchases. LIQUIDITY AND CAPITAL RESOURCES The Company has financed its growth and cash needs to date primarily through working capital financing facilities, bank credit lines, common stock offerings and cash generated from operations. The primary uses of cash have been to fund increases in inventory and accounts receivable resulting from increased sales. If the Company is successful in achieving continued revenue growth, its working capital requirements are likely to increase. The Company has acquired or invested in, and intends to acquire or invest in, resellers to increase core service competencies, expand the Company's geographic coverage in key market areas, and strengthen the Company's direct relationships with end-user customers. Acquisitions or investments may be made utilizing cash, stock, or a combination of cash and stock. Cash provided by operating activities was $72 million for the 26 weeks ended May 3, 1998 as compared to cash used of $23 million for the 26 weeks ended May 4, 1997. The increase was primarily due to a change in cash provided by inventory and accounts payable. During the 26 weeks ended May 3, 1998, $74 million was provided by changes in inventory and accounts payable compared to $61 million used by changes in inventory and accounts payable during the 26 weeks ended May 4, 1997. This was partially offset by a change in cash used by accounts receivable. During the 26 weeks ended May 3, 1998, $15 million of cash was used by changes in accounts receivable compared to $6 million provided by changes in accounts receivable during the 26 weeks ended May 4, 1997. The number of days cost of sales in ending inventory increased from 35 days at November 2, 1997 to 38 days at May 3, 1998. The number of days' cost of sales in ending accounts payable increased from 49 days at November 2, 1997 to 53 days at May 3, 1998. The number of days' sales in ending accounts receivable was 19 days at May 3, 1998 compared to 16 days at November 2, 1997. The receivables days adjusted for sold receivables were 34 days and 35 days at May 3, 1998 and November 2, 1997, respectively. Cash used in investing activities increased from $18 million during the 26 weeks ended May 4, 1997 to $28 million during the 26 weeks ended May 3, 1998 due to increased purchases of property and equipment as a result of increased spending for electronic commerce initiatives and capacity expansion in systems and facilities. Cash used in financing activities was $31 million during the 26 weeks ended May 3, 1998 compared to cash provided of $50 million during the 26 weeks ended May 3, 1997, primarily due to a change in net borrowings under the Company's line of credit between the periods. The Company maintains three financing agreements (the "Agreements") with financing facilities totaling $675 million. The Agreements include an accounts receivable facility (the "A/R Facility") and inventory financing facilities (the "Inventory Facilities"). Under the A/R Facility, the Company has the right to sell certain accounts receivable from time to time, on a limited recourse basis, up to an aggregate amount of $350 million sold at any given time. At May 3, 1998, the net amount of sold accounts receivable was $233 million. 10 The Inventory Facilities provide for borrowings up to $325 million. Within the Inventory Facilities, the Company has lines of credit for the purchase of inventory from selected product suppliers ("Inventory Lines of Credit") of $175 million and a line of credit for general working capital requirements ("Supplemental Line of Credit") of $150 million. Payments for products purchased under the Inventory Lines of Credit vary depending upon the product supplier, but generally are due between 45 and 60 days from the date of the advance. Amounts borrowed under the Supplemental Line of Credit may remain outstanding until the expiration date of the Agreements (August 2000). No interest or finance charges are payable on the Inventory Lines of Credit if payments are made when due. At May 3, 1998, the Company had $160 million outstanding under the Inventory Lines of Credit (included in accounts payable in the accompanying Balance Sheets), and nothing outstanding under the Supplemental Line of Credit. Of the $675 million of financing capacity represented by the Agreements, $282 million was unused as of May 3, 1998. Utilization of the unused portion is dependent upon the Company's collateral availability at the time the funds would be needed. There can be no assurance that the Company will be able to borrow adequate amounts on terms acceptable to the Company. Borrowings under the Agreements are secured by substantially all of the Company's assets, and the Agreements contain certain restrictive covenants, including tangible net worth requirements and ratios of debt to tangible net worth and current assets to current liabilities. At May 3, 1998, the Company was in compliance with these covenants. In addition to the financing facilities discussed above, the Company maintains an accounts receivable purchase agreement (the "Purchase Agreement") with a commercial credit corporation (the "Buyer") whereby the Buyer agrees to purchase, from time to time at its option, on a limited recourse basis, certain accounts receivable of the Company. Under the terms of the Purchase Agreement, no finance charges are assessed if the accounts are settled within forty days. At May 3, 1998, the net amount of sold accounts receivable under the Purchase Agreement was $13.4 million. The Company also maintains trade credit arrangements with its suppliers and other creditors to finance product purchases. A few major suppliers maintain security interests in their products sold to the Company. The unavailability of a significant portion of, or the loss of, the Agreements or trade credit from suppliers would have a material adverse effect on the Company. Although the Company has no material capital commitments, the Company expects to make capital expenditures of approximately $5 to $10 million during the third quarter of fiscal 1998. INFLATION The Company believes that inflation has generally not had a material impact on its operations. 11 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits 11 - Calculation of Net Income (Loss) Per Common Share 27 - Financial Data Schedule (b) Report on Form 8-K The Company did not file any Reports on Form 8-K during the quarter ended May 3, 1998. 12 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. MICROAGE, INC. (Registrant) Date: January 28, 1999 By: /s/ Jeffrey D. McKeever -------------------------------- Jeffrey D. McKeever Chairman of the Board and Chief Executive Officer Date: January 28, 1999 By: /s/ James R. Daniel -------------------------------- James R. Daniel Senior Vice President Chief Financial Officer and Treasurer 13 EX-11 2 CALCULATION OF NET INCOME (LOSS) PER SHARE EXHIBIT 11 - CALCULATION OF NET INCOME (LOSS) PER COMMON SHARE MICROAGE, INC NET INCOME (LOSS) PER COMMON SHARE CALCULATION (in thousands)
Quarter ended 26 weeks ended ------------------ ------------------- May 3, May 4, May 3, May 4, 1998 1997 1998 1997 ------- ------- -------- ------- BASIC Weighted average common shares 19,584 16,404 19,520 16,323 ------- ------- -------- ------- DILUTED Weighted average shares from primary calculation 19,584 16,404 19,520 16,323 Dilutive effect of stock options and warrants -- 540 -- 806 ------- ------- -------- ------- Weighted average common and common equivalent shares outstanding - diluted 19,584 16,944 19,520 17,129 ------- ------- -------- ------- NET INCOME (LOSS) $(5,957) $ 6,376 $(12,073) $11,446 Net income (loss) per common and common equivalent share: Basic $ (0.30) $ 0.39 $ (0.62) $ 0.70 ======= ======= ======== ======= Diluted $ (0.30) $ 0.38 $ (0.62) $ 0.67 ======= ======= ======== =======
EX-27 3 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED BALANCE SHEETS (UNAUDITED) AS OF MAY 3, 1998 AND NOVEMBER 2, 1997 AND THE CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) FOR THE QUARTERS ENDED MAY 3, 1998 AND MAY 4, 1997 1,000 U.S. DOLLARS 6-MOS NOV-01-1998 NOV-03-1997 MAY-03-1998 1 35,454 0 281,712 11,752 518,259 839,055 183,915 91,589 1,054,923 763,194 0 0 0 196 277,066 1,054,923 1,326,950 1,326,950 1,242,369 1,242,369 5,600 0 988 (9,842) (3,885) (5,957) 0 0 0 (5,957) (0.30) (0.30)
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