-----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, NgwmEqf03Sh2OpBMFAIRSxDTim8sbq88F9C/d3Z3YYiALda5RbFYh2LzlVbJ3vVu Da8YznZAFi75DryN13J2Rw== 0000950147-99-000062.txt : 19990129 0000950147-99-000062.hdr.sgml : 19990129 ACCESSION NUMBER: 0000950147-99-000062 CONFORMED SUBMISSION TYPE: 10-Q/A PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19980802 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: 99514891 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 8/2/98 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 August 2, 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 August 2, 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 -- August 2, 1998 and November 2, 1997. 2 Consolidated statements of operations -- Quarters ended August 2, 1998 and August 3, 1997; 39 weeks ended August 2, 1998 and August 3, 1997. 3 Consolidated statements of cash flows -- 39 weeks ended August 2, 1998 and August 3, 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 August 2, November 2, 1998 1997 ---------- -------- Current assets: Cash and cash equivalents $ 41,950 $ 22,279 Accounts and notes receivable, net 400,063 233,942 Inventory, net 432,855 479,332 Other 12,295 11,356 ---------- -------- Total current assets 887,163 746,909 Property and equipment, net 93,724 73,975 Intangible assets, net 119,300 85,903 Other 18,686 12,609 ---------- -------- Total assets $1,118,873 $919,396 ========== ======== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 793,691 $591,538 Accrued liabilities 16,426 22,527 Current portion of long-term obligations 3,140 2,744 Other 7,210 3,836 ---------- -------- Total current liabilities 820,467 620,645 Line of credit -- 30,650 Long-term obligations 5,751 4,537 Other long-term liabilities 9,098 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: August 2, 1998 - 20,004,336 November 2, 1997 - 18,451,653 200 184 Additional paid-in capital 203,586 170,829 Retained earnings 79,937 92,129 Treasury stock, at cost; Shares: August 2, 1998 - 16,378 November 2, 1997 - 80,378 (166) (817) ---------- -------- Total stockholders' equity 283,557 262,325 ---------- -------- Total liabilities and stockholders' equity $1,118,873 $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 39 weeks ended ----------------------- ----------------------- August 2, August 3, August 2, August 3, 1998 1997 1998 1997 ---------- ---------- ---------- ---------- Revenue $1,441,246 $1,117,275 $3,947,207 $3,060,337 Cost of sales 1,354,575 1,040,622 3,702,130 2,852,193 ---------- ---------- ---------- ---------- Gross profit 86,671 76,653 245,077 208,144 Operating and other expenses Operating expenses 77,787 58,055 230,500 157,491 Restructuring and other one-time charges -- -- 5,600 -- ---------- ---------- ---------- ---------- Total 77,787 58,055 236,100 157,491 ---------- ---------- ---------- ---------- Operating income 8,884 18,598 8,977 50,653 Other expenses - net 7,385 7,662 27,497 19,984 ---------- ---------- ---------- ---------- Income (loss) before income taxes 1,499 10,936 (18,520) 30,669 Income tax provision (benefit) 1,473 4,583 (6,473) 12,870 ---------- ---------- ---------- ---------- Net income (loss) $ 26 $ 6,353 $ (12,047) $ 17,799 ========== ========== ========== ========== Net income (loss) per common and common equivalent share: Basic $ 0.00 $ 0.39 $ (0.61) $ 1.09 ========== ========== ========== ========== Diluted $ 0.00 $ 0.37 $ (0.61) $ 1.04 ========== ========== ========== ========== Weighted average common and common equivalent shares outstanding: Basic 19,859 16,489 19,633 16,378 ========== ========== ========== ========== Diluted 20,305 17,266 19,633 17,161 ========== ========== ========== ==========
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) 39 weeks ended ----------------------- August 2, August 3, 1998 1997 --------- -------- Cash flows from operating activities: Net income (loss) $ (12,047) $ 17,799 Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization 29,861 17,493 Provision for losses on accounts and notes receivable 10,585 6,753 Changes in assets and liabilities, net of business acquisitions: Accounts and notes receivable (149,524) (2,218) Inventory 56,066 (95,045) Other current assets (757) 256 Other assets (18,024) (3,604) Accounts payable 167,758 62,677 Accrued liabilities (7,850) (5,979) Other liabilities 10,602 6,344 --------- -------- Net cash provided by operating activities 86,670 4,476 Cash flows from investing activities: Purchases of property and equipment (36,820) (19,409) --------- -------- Net cash used in investing activities (36,820) (19,409) Cash flows from financing activities: Proceeds from issuance of stock - stock option and employee stock purchase plans 3,424 4,020 Net borrowings (payments) under line of credit (30,650) 45,318 Amounts received from ESOT -- 207 Shareholder distributions - pooled companies (129) -- Net change in long-term obligations (2,824) (4,972) --------- -------- Net cash provided by (used in) financing activities (30,179) 44,573 --------- -------- Net increase in cash and cash equivalents 19,671 29,640 Cash and cash equivalents at beginning of period 22,279 21,935 --------- -------- Cash and cash equivalents at end of period $ 41,950 $ 51,575 ========= ======== 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 39 weeks ended August 2, 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 Aug. 3, 1997: Pooling Converted to MicroAge,Inc. Acquired Co. Purchase Combined ------------- ------------ -------- -------- Revenue $1,147,632 $14,207 $(44,564) $1,117,275 Net income $ 6,484 $ 122 $ (253) $ 6,353 39 weeks ended Aug. 3, 1997: Pooling Converted to MicroAge,Inc. Acquired Co. Purchase Combined ------------- ------------ -------- -------- Revenue $3,124,398 $35,968 $(100,029) $3,060,337 Net income $ 17,585 $ 625 $ (411) $ 17,799 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 39 weeks ended ------------------ ------------------- Aug. 2, Aug. 3, Aug. 2, Aug. 3, 1998 1997 1998 1997 ------ ------ ------- ------- Interest expense $ 457 $1,610 $ 3,791 $ 4,540 Expenses from sales of accounts receivable 3,855 5,070 14,425 14,071 Amortization expense 2,249 468 6,429 1,330 Other 824 514 2,852 43 ------ ------ ------- ------- $7,385 $7,662 $27,497 $19,984 ====== ====== ======= ======= 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 ("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 August 2, 1998, the remaining liability for restructuring activities was not material. 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 ("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 -------------------------------------------------------------- Aug. 2, May 3, Feb. 1, Nov. 2, Aug. 3, 1998 1998 1998 1997 1997 ---------- ---------- ---------- ---------- ---------- Revenue (in thousands) $1,441,246 $1,326,950 $1,179,011 $1,318,871 $1,117,275 Cost of sales 94.0% 93.6% 93.7% 93.2% 93.1% ---------- ---------- ---------- ---------- ---------- Gross profit 6.0 6.4 6.3 6.8 6.9 Operating and other expenses Operating expenses 5.4 6.0 6.2 5.2 5.2 Restructuring and other one-time charges 0.0 0.4 0.0 0.0 0.0 ---------- ---------- ---------- ---------- ---------- Operating income 0.6 0.0 0.1 1.6 1.7 Other expenses - net 0.5 0.7 0.9 0.6 0.7 ---------- ---------- ---------- ---------- ---------- Income (loss) before income taxes 0.1 (0.7) (0.8) 1.0 1.0 Income tax provision (benefit) 0.1 (0.3) (0.3) 0.4 0.4 ---------- ---------- ---------- ---------- ---------- Net income (loss) 0.0% (0.4)% (0.5)% 0.6% 0.6% ========== ========== ========== ========== ==========
TOTAL REVENUE. Total revenue of $1.4 billion increased $324 million, or 29%, for the quarter ended August 2, 1998 as compared to the quarter ended August 3, 1997. This revenue increase included a $258 million, or 24%, increase in Pinacor (distribution business) revenue, a $48 million, or 12%, increase in Integration revenue and a decrease in the elimination of intercompany revenue. The increase in revenue was attributable to sales to resellers added since August 3, 1997, increased demand for the Company's major suppliers' products, the Company's addition of new product offerings and the growth of the microcomputer products industry. Total revenue increased $887 million, or 29%, for the 39 weeks ended August 2, 1998 as compared to the 39 weeks ended August 3, 1997. This revenue increase included a $680 million, or 23%, increase in Pinacor revenue and a $286 million, or 27% increase in Integration revenue, partially offset by an increase in intercompany eliminations. GROSS PROFIT PERCENTAGE. The Company's gross profit percentage was 6.0% for the quarter ended August 2, 1998 and6.9% for the quarter ended August 3, 1997. The gross profit percentage was 6.2% for the 39 weeks ended August 2, 1998 as compared to 6.8% for the 39 weeks ended August 3, 1997. The decrease in the Company's gross profit percentage was due to lower margins in Pinacor combined with the fact that Integration revenues, which have higher gross margins, comprised a smaller percentage of total revenues. 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 as well as an increase in the cost per pound shipped. In Integration, margins increased due to an increase in service revenue, which has higher gross margins than product revenue margins. 8 This increase was partially offset by lower margins on Integration product sales to end-user customers due to competitive pricing pressures. OPERATING EXPENSES. As a percentage of revenue, operating expenses were 5.4% for the quarter ended August 2, 1998 compared to 5.2% for the quarter ended August 3, 1997. Operating expenses increased $20 million to $78 million for the quarter ended August 2, 1998, as compared to the quarter ended August 3, 1997. Operating expenses increased from $157 million, or 5.1% of revenue, for the 39 weeks ended August 3, 1997 to $231 million, or 5.8% of revenue, for the 39 weeks ended August 2, 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 have been completed. OTHER EXPENSES - NET. Other expenses - net decreased to $7.4 million for the quarter ended August 2, 1998 from $7.7 million for the quarter ended August 3, 1997 primarily due to lower average daily borrowings resulting from lower inventory balances during the quarter, partially offset by increased amortization expense associated with goodwill from acquisitions. Other expenses - - net increased to $27.5 million for the 39 weeks ended August 2, 1998 from $20.0 million for the 39 weeks ended August 3, 1997. This increase was due to higher average daily borrowings, primarily in the first two fiscal quarters of fiscal 1998, to support higher inventory and accounts receivable levels and to increased amortization expense associated with goodwill from acquisitions. SUPPLIER INCENTIVE FUNDS The key vendors of the Company provide various incentives for promoting and marketing their product offerings. 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. Beginning in May 1998, the major manufactures announced and/or instituted changes in their sales incentive programs and inventory management programs. Pursuant to these changes, the major manufactures will (i) provide price protection for periods ranging from 2 to 4 weeks rather than the unlimited protection previously available, (ii) allow product returns on average of 2% to 3% of product sales per quarter, rather than the 5% of sales per quarter previously available, and (iii) provide incentives based on sales of the manufacturers' products, rather than on purchases of the products from the manufacturers. Further changes in these incentives could have a material adverse effect on the Company's operating results. 9 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 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 $87 million for the 39 weeks ended August 2, 1998 as compared to cash used of $5 million for the 39 weeks ended August 3, 1997. The increase was primarily due to a change in cash provided or used by accounts receivable, inventory and accounts payable. During the 39 weeks ended August 2, 1998, $224 million was provided by changes in inventory and accounts payable compared to $32 million used by changes in inventory and accounts payable during the 39 weeks ended August 3, 1997. This was partially offset by a change in cash used by accounts receivable. During the 39 weeks ended August 2, 1998, $150 million of cash was used by changes in accounts receivable compared to $2 million used during the 39 weeks ended August 3, 1997. The number of days cost of sales in ending inventory decreased from 35 days at November 2, 1997 to 29 days at August 2, 1998. The number of days' cost of sales in ending accounts payable increased from 49 days at November 2, 1997 to 54 days at August 2, 1998. The number of days' sales in ending accounts receivable was 25 days at August 2, 1998 compared to 16 days at November 2, 1997. This increase in receivables days outstanding was due to a decrease in accounts receivable sold to a finance company. The receivables days adjusted for sold receivables were 32 days at August 2, 1998 and 35 days at November 2, 1997. Cash used in investing activities increased from $19 million during the 39 weeks ended August 3, 1997 to $37 million during the 39 weeks ended August 2, 1998 due 10 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 $30 million during the 39 weeks ended August 2, 1998 compared to cash provided of $45 million during the 39 weeks ended August 2, 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 $800 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 August 2, 1998, the net amount of sold accounts receivable was $112 million. The Inventory Facilities provide for borrowings up to $450 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 $300 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 August 2, 1998, the Company had $197 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 $800 million of financing capacity represented by the Agreements, $491 million was unused as of August 2, 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 August 2, 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 August 2, 1998, the net amount of sold accounts receivable under the Purchase Agreement was $25 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. 11 Although the Company has no material capital commitments, the Company expects to make capital expenditures of approximately $5 to $10 million during the fourth quarter of fiscal 1998. INFLATION The Company believes that inflation has generally not had a material impact on its operations. 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 During the quarter ended August 2, 1998, the Company did not file any Reports on Form 8-K. 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 39 weeks ended --------------------- -------------------- August 2, August 3, August 2, August 3, 1998 1997 1998 1997 ------- ------- -------- ------- BASIC Weighted average common shares 19,859 16,489 19,633 16,378 ------- ------- -------- ------- DILUTED Weighted average shares from basic calculation 19,859 16,489 19,633 16,378 Dilutive effect of stock options and warrants 446 777 -- 783 ------- ------- -------- ------- Weighted average common and common equivalent shares outstanding - diluted 20,305 17,266 19,633 17,161 ------- ------- -------- ------- NET INCOME (LOSS) $ 26 $ 6,353 $(12,047) $17,799 Net income (loss) per common and common equivalent share: Basic $ 0.00 $ 0.39 $ (0.61) $ 1.09 ======= ======= ======== ======= Diluted $ 0.00 $ 0.37 $ (0.61) $ 1.04 ======= ======= ======== =======
EX-27 3 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED BALANCE SHEETS (UNAUDITED) AS OF AUGUST 2, 1998 AND NOVEMBER 2, 1997 AND THE CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) FOR THE QUARTERS ENDED AUGUST 2, 1998 AND AUGUST 3, 1997 1,000 U.S. DOLLARS 9-MOS NOV-01-1998 NOV-03-1997 AUG-02-1998 1 41,950 0 417,731 17,688 432,855 887,163 193,760 100,036 1,118,873 820,467 0 0 0 200 283,357 1,118,873 3,947,207 3,947,207 3,702,130 3,720,130 5,600 0 3,791 (18,520) (6,473) (12,047) 0 0 0 (12,047) (0.61) (0.61)
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