SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
Quarterly Report Under Section 13 or 15(d)
of the Securities Exchange Act of 1934
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from __________________ to _____________________
Commission file number 000-21561
MIAMI COMPUTER SUPPLY CORPORATION
(Exact name of registrant as specified in its articles of incorporation)
Ohio 31-1001529
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
4750 Hempstead Station, Dayton, Ohio 45429
(Address of principal executive offices)
(937) 291-8282
(Registrant's telephone number, including area code)
Indicate by check whether 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 (or for such shorter period that the
registrant was required to file such reports), and (2) had been subject to such
filing requirements for the past 90 days.
Yes ____ No X
At December 18, 1996, 3,538,000 shares of common stock, no par value
per share, of the registrant were outstanding.
<PAGE>
MIAMI COMPUTER SUPPLY CORPORATION
FORM 10-Q
QUARTER ENDED SEPTEMBER 30, 1996
INDEX
Page
PART I-FINANCIAL INFORMATION
Item 1. Financial Statements:
Introduction to Consolidated Financial Statements.................. 2
Consolidated Statement of Operations............................... 3
Consolidated Balance Sheet......................................... 4
Consolidated Statement of Cash Flows............................... 5
Selected Notes to Consolidated Financial Statements................ 6
Item 2. Management's Discussion and Analysis of
Results of Operations and Financial Condition.......................... 7
PART II-OTHER INFORMATION
Item 1. Legal Proceedings.............................................. 11
Item 2. Changes in Securities.......................................... 11
Item 3. Default Upon Senior Securities................................. 11
Item 4. Submission of Matters to a Vote of Security Holders............ 11
Item 5. Other Information.............................................. 11
Item 6. Exhibits and Reports on Form 8-K............................... 11
Signatures.............................................................. 12
<PAGE>
PART I-FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
INTRODUCTION TO CONSOLIDATED FINANCIAL STATEMENTS
The consolidated financial statements included herein have been prepared by
Miami Computer Supply Corporation (the "Company"), without audit, pursuant to
the rules and regulations of the Securities and Exchange Commission. The
financial information presented reflects all adjustments, consisting only of
normal recurring adjustments, which are, in the opinion of management, necessary
for a fair statement of the results for the interim periods presented. The
results for the interim periods are not necessarily indicative of the results to
be expected for the year or any other period.
2
<PAGE>
MIAMI COMPUTER SUPPLY CORPORATION
CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
QUARTER ENDED NINE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30
------------- ------------
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net sales................................... $17,822,544 $10,442,436 $44,070,003 $32,177,698
Operating costs:
Cost of sales............................. 14,781,598 8,429,572 35,943,434 25,934,533
Selling, general and administrative
expenses............................ 2,307,844 1,649,687 6,341,282 5,180,968
--------- ---------- --------- ---------
Total operating costs............... 17,089,442 10,079,259 42,284,716 31,115,501
---------- ---------- ---------- ----------
Operating income............................. 733,102 363,177 1,785,287 1,062,197
Interest expense............................. (100,588) (74,884) (243,175) (216,686)
Other income................................. 6,884 10,305 17,998 15,791
----- ------ ------ ------
Income before income taxes................... 639,398 298,598 1,560,110 861,302
Provision for income taxes................... 265,352 116,752 647,431 336,769
--------- -------- --------- ---------
Net income................................... $ 347,046 $ 181,846 $ 912,679 $ 524,533
======= ======= ======= =======
Earnings per share of common stock........... $ 0.16 $ 0.08 $ 0.38 $ 0.22
==== ==== ==== ====
Weighted average number of common
shares outstanding..................... 2,388,000 2,388,000 2,388,000 2,388,000
=========== ========== ========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
3
<PAGE>
<TABLE>
<CAPTION>
MIAMI COMPUTER SUPPLY CORPORATION
CONSOLIDATED BALANCE SHEET
(UNAUDITED)
Assets SEPTEMBER 30 DECEMBER 31
1996 1995
-------------- -----------
<S> <C> <C>
Current assets
Cash...................................................... $ 282,016 $ 1,900
Accounts receivable....................................... 7,212,372 5,155,236
Inventories............................................... 5,520,300 2,943,504
Prepaid expenses.......................................... 611,442 37,155
Deferred tax assets....................................... 70,752 69,052
----------- ----------
Total current assets.................................. 13,696,882 8,206,847
----------- ----------
Property and equipment - net of accumulated
depreciation.............................................. 603,834 535,241
----------- ----------
Other assets:
Deposits................................................. 59,072 96,749
Cash surrender value officers' life insurance............ 562,920 419,779
Intangible assets........................................ 195,160 285,520
----------- ----------
817,152 802,048
----------- ----------
Total assets......................................... $15,117,868 $9,544,136
=========== ==========
Liabilities and Stockholders' Equity
Current Liabilities:
Line-of-credit (Note 5)................................. $ 6,624,799 $3,531,467
Accounts payable - trade................................ 3,719,362 2,132,480
Accrued expenses, payroll taxes and withholdings........ 988,253 805,796
Accrued income taxes................................... 98,436 221,414
Current portion of long-term debt...................... 4,882 5,413
----------- ----------
Total current liabilities.......................... 11,435,732 6,696,570
Long-term debt......................................... -- 477
Other long-term liabilities............................ 73,280 163,640
Deferred taxes......................................... 64,389 51,661
----------- ----------
Total liabilities................................. 11,573,401 6,912,348
Stockholders' equity (Note 6):
Preferred stock, no par value; 5,000,000 shares
authorized; no shares outstanding -- --
Common stock, no par value; 30,000,000 shares
authorized, 2,388,000 shares outstanding......... -- --
Additional paid-in capital.......................... 304,951 25,225
Retained earnings................................... 3,534,242 2,621,563
Unearned compensation (Note 6)...................... (279,726) --
----------- ----------
3,559,467 2,646,788
Less - Treasury common stock, at cost 1,200 shares.. 15,000 15,000
----------- ---------
Total stockholders' equity...................... 3,544,467 2,631,788
----------- ---------
Total liabilities and stockholders' equity...... $15,117,868 $9,544,136
=========== ==========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
4
<PAGE>
MIAMI COMPUTER SUPPLY CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30
-----------------
1996 1995
---- ----
<S> <C> <C>
Cash flows (used in) provided by operating activities:
Net income............................................................ $ 912,679 $ 524,533
Adjustments to reconcile net income to cash (used in)
provided by operating activities:
Depreciation and amortization.................................... 219,744 205,461
Provision for obsolete inventory................................. -- 11,791
Deferred income taxes............................................ -- (6,876)
Changes in assets and liabilities net of effects of acquisitions
of businesses:
Accounts receivable.............................................. (904,514) 258,027
Inventories...................................................... (1,249,195) (1,737,105)
Prepaid expenses................................................. (556,328) (15,333)
Deposits......................................................... 37,677 8,888
Accounts payable - trade......................................... 489,833 1,225,211
Accrued expenses................................................. 129,183 (151,840)
Accrued income taxes............................................. (122,978) (162,631)
--------- ---------
Cash (used in) provided by operating activities.................. (1,043,899) 160,126
----------- ---------
Cash flows from investing activities:
Capital expenditures................................................... (137,275) (132,297)
Investment in cash surrender value officers' life insurance........... (143,141) (169,175)
Cash included in the acquisition of Diversified Data
Products, Inc..................................................... 109,467 --
--------- ---------
Cash (used in) provided by investing activities................... (170,949) (301,472)
--------- ---------
Cash flows from financing activities:
Borrowings under line-of-credit...................................... 9,565,985 9,703,544
Payments under line-of-credit........................................ (7,972,653) (9,513,665)
Principal payments on long-term debt................................. (8,008) (53,354)
Payments under non-competition agreements............................ (90,360) (90,360)
--------- ---------
Cash provided by financing activities............................. 1,494,964 46,165
--------- ---------
Net increase (decrease) in cash.......................................... 280,116 (95,181)
Cash - Beginning of year................................................. 1,900 97,081
--------- ---------
Cash - End of year....................................................... $ 282,016 $ 1,900
========= =========
Supplemental cash flow information:
Cash paid for interest.............................................. $ 265,273 $ 214,582
Cash paid for income taxes.......................................... $ 839,765 $ 502,718
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
5
<PAGE>
MIAMI COMPUTER SUPPLY CORPORATION
Selected Notes to Consolidated Financial Statements
(Unaudited)
Note 1 - GENERAL
The consolidated financial statements include the accounts of Miami Computer
Supply Corporation (the "Company) and its majority owned subsidiaries. All
significant intercompany transactions are eliminated.
Note 2 - ORGANIZATION
The Company sells a wide variety of computer supplies to corporate customers,
governmental agencies, universities, hospitals and, to a lesser extent, computer
supply dealers. Its primary sales products include laser toner, ink jet
cartridges, printer ribbons, computer tape cartridges, diskettes, presentation
products, paper supplies and printer cartridges.
Effective May 30, 1996, Pittsburgh Investment Group (LLC) acquired 70 percent of
the outstanding shares of the Company for $4.0 million in cash and $4.0 million
in promissory notes. Concurrent with this acquisition, LLC also acquired from
third parties 100 percent of the outstanding common stock of Diversified Data
Products, Inc., a Michigan corporation (DDP) and contributed its stock in DDP to
the Company. As a result, DDP, a computer supply and office automation
distributor, became a wholly-owned subsidiary of the Company on May 30, 1996.
Note 3 - STOCK SPLIT
On September 25, 1996, the stockholders of the Company approved a
recapitalization of the Company's common equity and 200-for-1 stock split as of
that date. All applicable share and per share data have been adjusted to reflect
the stock split.
Note 4 - ACQUISITION OF DDP
Effective May 30, 1996, LLC contributed its stock in DDP to the Company. The
acquisition has been accounted for using the purchase method of accounting; and
accordingly, the purchase price has been allocated to the assets based upon the
fair value of the liabilities assumed as of May 30, 1996.
The purchase price was allocated as follows:
Cash......................... $ 109,467
Accounts receivable-net...... 1,152,626
Inventories.................. 1,327,685
Other assets................. 79,484
----------
Purchase Price.......... $ 2,669,262
===========
The operating results of DDP have been included in the statement of operations
from the date of acquisition. The following unaudited pro forma information has
been prepared assuming that this acquisition had taken place at the beginning of
the respective periods. This pro forma financial information is presented for
informational purposes only and may not be indicative of what the actual results
of operations might have been if the acquisition had been effective at the
beginning of 1995.
NINE MONTHS ENDED
SEPTEMBER 30
1996 1995
Net sales $ 49,433,272 $ 42,563,239
Net income $ 927,436 $ 609,725
Earnings per share $ 0.39 $ 0.26
6
<PAGE>
Note 5 - CREDIT FACILITY
On September 11, 1996 the Company increased its line-of-credit ("Credit
Facility") from $6,500,000 to $15,000,000. The Credit Facility matures on
September 11, 1998. The agreement provides for borrowings up to an amount
determined pursuant to a borrowing base formula which includes various
categories of collateral. The interest rate for the Credit Facility is variable
and based upon either the prime rate or LIBOR plus 2 percent. The facility
contains covenants to maintain a minimum tangible net worth (as defined by the
agreement) and certain interest coverage ratios.
Note 6 - COMMON STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Additional
Shares Unearned paid-in Retained Treasury
outstanding Compensation capital earnings stock
----------- ------------ ------- -------- -----
<S> <C> <C> <C> <C> <C>
Balance, December 31,
1994...................... 2,388,000 $ -- $ 25,225 $ 1,828,690 $(15,000)
Net income............... -- -- -- 792,873 --
--------- --------- -------- ------- ---------
Balance, December 31,
1995...................... 2,388,000 -- 25,225 2,621,563 (15,000)
Stock awards issued..... -- (279,726) 279,726 -- --
Net income............... -- -- -- 912,679 --
--------- --------- ------- -------- --------
Balance, September 30,
1996..................... 2,388,000 $(279,726) $304,951 $ 3,534,242 $(15,000)
========= ========== ======== =========== =========
</TABLE>
On December 1, 1995, the Articles of Incorporation of the Company were amended
and restated to provide for voting and nonvoting shares. As of the same date,
the Board of Directors approved a stock dividend of nine nonvoting shares for
each voting share outstanding as of that date. All applicable share and per
share data have been adjusted for the stock dividend.
In conjunction with the purchase of DDP by LLC, LLC agreed to provide the three
selling stockholders of DDP a stock incentive so long as such stockholders
remain employees of the Company. LCC agreed to transfer a total of 58,520 shares
of the Company's common stock owned by LLC to the employees over three year
period ending December 31, 1998. However, upon an initial public offering of the
Company's common stock, all such shares will become immediately vested. The
market value of the stock award is recognized as compensation expense over the
vesting period. The value of the awards not yet recognized as compensation
expense is reflected as unearned compensation in stockholders' equity. This
amount will be recognized in the fourth quarter of 1996 as a result of the
Company's Common Stock offering (See Note 7).
Note 7 - Subsequent Event
On November 15, 1996, the Company completed an initial public offering of
1,150,000 shares of common stock (including an underwriters' overallotment
option of 150,000 shares which closed on December 13, 1996) to the public at a
price of $8.50 per share. Net proceeds to the Company after deducting
underwriting fees and expenses amounted to $7.8 million. The proceeds were used
to repay all outstanding indebtedness under the Credit Facility and for other
corporate purposes.
ITEM 2. Management's Discussion and Analysis of Results of Operations and
Financial Condition
The following discussion should be read in conjunction with the information
contained in the Consolidated Financial Statements and Selected Notes to
Consolidated Financial Statements. The following information contains
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995, (the "Act") and are subject to the safe harbor
created by that Act. The words "estimate," "project," "anticipate," "expect,"
"intend," "believe," "plans" and similar expressions are intended to identify
forward-looking statements. Because such forward-looking statements involve
risks and uncertainties, there are important factors that could cause actual
results to differ materially from those expressed or implied by such
forward-looking statements. Factors that could cause actual results to differ
materially include, but are not limited to, changes in general economic and
business conditions, the availability of capital on acceptable terms, actions of
competitors, and changes in business strategies and other factors as discussed
in Exhibit 99.
The Company intends to implement an aggressive acquisition strategy of entering
new markets domestically and internationally on an opportunistic basis and to
acquire computer and office automation supply distribution companies. The
Company actively continues to evaluate other potential acquisitions and to
identify and have preliminary discussions and negotiations with potential
acquisition candidates. There can be no assurance that any acquisition can or
will be consummated or will be consummated on terms favorable to the Company.
7
<PAGE>
Three Months Ended September 30, 1996 Compared to Three Months Ended September
30, 1995
Net sales. Net sales for the three months ended September 30, 1996 increased by
$7.4 million, or 70.7%, to $17.8 million from $10.4 million for the three months
ended September 30, 1995. Approximately 78.4% of the increase resulted from the
acquisition of DDP on May 30, 1996. DDP sales for the three months ended
September 30, 1996 were higher than normal due to several sales transactions
that are not expected to recur in the fourth quarter. The remaining increase was
primarily a result of increased sales to the Company's current customer base.
Gross profit. Gross profit for the three months ended September 30, 1996
increased by $1.0 million, or 51.1% to $3.0 million from $2.0 million for the
three months ended September 30, 1995. Gross profit as a percentage of net sales
for the three months ended September 30, 1996 was 17.1% compared to 19.3% for
the three months ended September 30, 1995. The decrease in the gross profit
percentage was due primarily to the acquisition of DDP which had lower operating
gross margins primarily due to volume discounts associated with sales to other
computer supply dealers.
Selling, general and administrative expenses. Selling, general and
administrative expenses for the three months ended September 30, 1996 increased
by $0.7 million, or 39.9% to $2.3 million from $1.6 million for the three months
ended September 30, 1995. Approximately 30.0% of the increase resulted from
increased salary expenses while 11.6% was due to increased commission expense
resulting from the Company's increased sales volume. The remainder of the
increase relates primarily to the acquisition of DDP. As a percentage of net
sales, selling, general and administrative expenses was 12.9% for the three
months ended September 30, 1996 compared to 15.8% for the three months ended
September 30, 1995. This decrease as a percentage of sales reflects the
Company's ability to support increased sales volumes without a significant
increase in its overhead structure.
Operating income. Operating income for the three months ended September 30, 1996
increased by $0.4 million to $0.7 million from $0.4 million for the three months
ended September 30, 1995 for the reasons stated above.
Interest expense. Interest expense for the three months ended September 30, 1996
increased by $25,704 or 34.3% to $100,588 from $74,884 for the three months
ended September 30, 1995 due primarily to the increased level of indebtedness
during 1996.
Provision for income taxes. The provision for income taxes for the three months
ended September 30, 1996 increased $0.1 million to $0.3 million from $0.1
million for the three months ended September 30, 1995. The Company's effective
tax rate was 41.5% for the three months ended September 30, 1996 as compared to
39.1% for the corresponding period of the prior year due to an increase in
income before income taxes.
Nine Months Ended September 30, 1996 Compared to Nine Months Ended September 30,
1995
Net Sales. Net sales for the nine months ended September 30, 1996 increased by
$11.9 million, or 37.0% to $44.1 million from $32.2 million for the nine months
ended September 30, 1995. Approximately 59.7% of this increase resulted from the
acquisition of DDP and 7.2% of this increase was a result of increased sales of
presentation products. The remaining increase was primarily a result of
increased sales penetration and product offerings to existing customers.
Gross profit. Gross profit for the nine months ended September 30, 1996
increased by $1.9 million, or 30.2% to $8.1 million from $6.2 million for the
nine months ended September 30, 1995. Gross profit as a percentage of net sales
for the nine months ended September 30, 1996 was 18.4% compared to 19.4% for the
nine months ended September 30, 1995. The decrease in the gross profit
percentage was due primarily to increased sales of non-impact printer supplies
(laser and ink jet supplies) which have lower gross margins and the acquisition
of DDP which had lower operating gross margins primarily due to volume discounts
associated with sales to other computer supply dealers.
Selling, general and administrative expenses. Selling, general and
administrative expenses for the nine months ended September 30, 1996 increased
by $1.2 million, or 22.4% to $6.3 million from $5.2 million for the nine months
ended September 30, 1995. Approximately 25.8% of the increase resulted from
increased salary expense while 22.0% was due to increased commission expense
resulting from the Company's increased sales volume. Approximately 25.3% of the
increase resulted from the acquisition of DDP. As a percentage of net sales,
selling, general and administrative expenses was 14.4% for the nine months ended
September 30, 1996 compared to 16.1% for the nine months ended September 30,
1995. This decrease as a percentage of sales reflects the Company's ability to
support increased sales volumes without a significant increase in its overhead
structure.
Operating income. Operating income for the nine months ended September 30, 1996
increased by $0.7 million to $1.8 million from $1.1 million for the nine
months ended September 30, 1995 for the reasons stated above.
8
<PAGE>
Interest expense. Interest expense for the nine months ended September 30, 1996
increased by $26,489 or 12.2% to $243,175 from $216,686 for the nine months
ended September 30, 1995 due primarily to the increased level of indebtedness
during 1996.
Provision for income taxes. The provision for income taxes for the nine months
ended September 30, 1996 increased $0.3 million to $0.6 million from $0.3
million for the nine months ended September 30, 1995. The Company's effective
tax rate was 41.5% for the nine months ended September 30, 1996 as compared to
39.1% for the corresponding period of the prior year due to an increase in
income before income taxes.
Liquidity and Capital Resources
Net cash flows used in operating activities totaled $1.0 million for the first
nine months of 1996 compared to $0.2 million provided by operating activities
during the first nine months of 1995. The change in net cash flows from
operating activities in the first nine months of 1996, compared to the first
nine months of 1995, was due primarily to an increase in working capital as the
Company supports its expanded business activities. Working capital amounted to
$2.3 million at September 30, 1996 compared to $1.5 million at December 31,
1995. The increase in working capital resulted primarily from an increase in
accounts receivable and inventories, partially offset by an increase in accounts
payable.
Net cash used in investing activities totaled $0.2 million for the nine months
ended September 30, 1996 compared with $0.3 million for the nine months ended
September 30, 1995. Net cash provided by financing activities totaled $1.5
million for the nine months ended September 30, 1996 compared with $.05 million
for the nine months ended September 30, 1996. This increase was due primarily to
increased borrowing under the Credit Facility.
During the first nine months of 1996, the Company's cash flow requirements for
capital expenditures were funded primarily through external borrowings. The
Company anticipates capital expenditures in 1996 will be approximately $.5
million.
On November 15, 1996, the Company completed a Common Stock offering (the
"Offering") of 1,150,000 shares (including the underwriters' overallotment
option of 150,000 shares which closed on December 13, 1996) at a price of $8.50
per share. Net proceeds to the Company after deducting underwriting fees and
expenses amounted to $7.8 million. The proceeds were used to repay all
outstanding indebtedness under the bank credit facility and for other general
corporate purposes.
The Company believes that its cash on hand, borrowing capacity under the Credit
Facility, capital resources, cash flows and the proceeds from the Offering will
be sufficient to fund its ongoing operations and budgeted capital expenditures
for the remainder of 1996 and 1997, although actual capital needs may change,
particularly in connection with acquisitions which the Company may make in the
future. The Company's long-term requirements including capital expenditures and
acquisitions, are expected to be financed by a combination of internally
generated funds, additional borrowings and other sources of external financing
as needed.
Credit Facility
On September 11, 1996 the Company increased the amount of its line-of-credit
from $6,500,000 to $15,000,000 in order to facilitate the planned expansion of
the Company's business activities, including acquisitions. The amount of the
Credit Facility that will be available to the Company may not exceed the lesser
of $15.0 million or an amount equal to the sum of: (i) 85.0% of the net book
value of all eligible receivables (i.e., those receivables less than 90 days
old, except that all receivables from any particular customer will be
ineligible if more than 15.0% of the total due from such customer are aged
9
<PAGE>
90 days or more) plus (ii) an amount equal to the lesser of either 50.0% of the
then value of all inventory, not to exceed 45.0% of the aggregate unpaid
principal balance less the amount secured by inventory acquired by the Company
from Hewlett-Packard Company and not yet paid for, or if advances are made
against foreign accounting receivables, not to exceed $2.0 million (the
"Borrowing Base"). Under the Credit Facility the Company's borrowing
availability at September 30, 1996 approximated $9.4 million.
At September 30, 1996, $6.6 million was outstanding under the Credit Facility.
The Borrowing Base may be changed by the Bank, in its sole discretion, from time
to time. Borrowings under the Credit Facility bear interest, at the Company's
option, (i) on amounts in excess of $500,000, at the applicable London Interbank
Offered Rate ("LIBOR") per annum determined by the Bank plus 2.0%, adjustable at
the end of each contract period (one, two, three, four or six months), as
defined in the Credit Facility, or (ii) at the Bank's applicable prime rate (as
defined in the Credit Facility). Interest on the Credit Facility is payable in
arrears on the last day of each months and at maturity, except that interest on
loans bearing interest utilizing the LIBOR option is payable on the last day of
the contract period and at maturity, unless the contract period is longer than
90 days in which case interest is payable every three months.
The indebtedness under the Credit Facility is secured by substantially all of
the assets of the Company, including accounts receivable, equipment and
inventory. In addition, the Credit Facility requires that the Company maintain a
tangible net worth of $2.7 million until December 31, 1996, increasing to $3.2
million and thereafter increasing by an amount equal to 50.0% of the Company's
net income annually thereafter, maintain a debt to tangible net worth ratio of
450.0% and annual pre-tax interest coverage (net income plus interest expense
plus income tax) of 150.0% or more of the Company's annual interest expense. The
Company was, at September 30, 1996 and is as of the date hereof, in compliance
with these financial covenants.
10
.
<PAGE>
PART II-OTHER INFORMATION
ITEM 1. Legal Proceedings
The Company is not involved in any legal proceedings incidental to the
conduct of its business as of the date hereof. The Company maintains
general liability and business interruption insurance coverage in
amounts which it believes to be adequate.
ITEM 2. Changes In Securities
Not applicable.
ITEM 3. Defaults Upon Senior Securities
Not applicable.
ITEM 4. Submission of Matters to a Vote of Security Holders
Not applicable.
ITEM 5. Other Information
Not applicable.
ITEM 6. Exhibits and Reports on Form 8-K
(a) Exhibits
27 Financial Data Schedule
99 Safe Harbor Under the Private Securities Litigation Reform Act of 1995
(b) Reports on Form 8-K
There were no reports on Form 8-K filed for the quarter ended September
30, 1996.
11
<PAGE>
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.
MIAMI COMPUTER SUPPLY CORPORATION
(Registrant)
Date: December 23, 1996
By: /s/ MICHAEL E. PEPPEL
Michael E. Peppel
Vice President - Chief Financial Officer
12
EXHIBIT 99
SAFE HARBOR UNDER THE PRIVATE SECURITIES LITIGATION
REFORM ACT OF 1995
The Private Securities Litigation Reform Act of 1995 (the "Act") provides a
"safe harbor" for forward-looking statements to encourage companies to provide
prospective information about their companies, so long as those statements are
identified as forward-looking and are accompanied by meaningful cautionary
statements identifying important factors that could cause actual results to
differ materially from those discussed in the statement. The Company desires to
take advantage of the "safe harbor" provisions of the Act. Certain information,
particularly information regarding future economic performance and finances and
plans and objectives of management, contained, or incorporated by references, in
the Company's Quarterly Report on Form 10-Q for nine months ended September 30,
1996 is forward-looking. In some cases, information regarding certain important
factors that could cause actual results to differ materially from any such
forward-looking statement appear together with such statement. Also, the
following factors, in addition to other possible factors not listed, could
affect the Company's actual results and cause such results to differ materially
from those expressed in forward-looking statements.
Highly Competitive Industry. The computer and office automation product
supply industry is highly competitive. The Company competes with major
full-service office products distributors, other national and regional computer
supply distributors, office products superstores, direct mail order companies,
and, to a lesser extent, non-specialized retailers. Certain of the Company's
competitors, such as office products superstores and major full-service office
products distributors have substantially greater financial and other resources
and purchasing power than the Company. The Company believes that the computer
supply industry will become more consolidated in the future and consequently
more competitive. Increasing competition will result in greater price
discounting which will continue to have a negative impact on the industry's
gross margins. There can be no assurance that the Company will not encounter
increased competition in the future, which could have a material adverse effect
on the Company's business.
Dependence on Certain Key Suppliers. Although the Company regularly carries
products and accessories manufactured by approximately 500 original equipment
manufacturers, 58.6% of the Company's net sales in fiscal year 1995 were derived
from products supplied by the Company's ten largest suppliers, In addition, the
Company's business is dependent upon terms provided by its key suppliers,
including pricing and related provisions, product availability and dealer
authorizations. While the Company considers its relationships with its key
suppliers, including Hewlett-Packard Company ("Hewlett-Packard"), Lexmark
International, Inc. ("Lexmark") and Imation Corp. ("Imation") to be good, there
can be no assurance that these relationships will not be terminated or that such
relationships will continue as presently in effect. In addition, changes by one
or more of such
<PAGE>
Exhibit 99
Page 2
key suppliers of their policies regarding distributors or volume discount
schedules or other marketing programs applicable to the Company may have a
material adverse effect on the Company's business. Certain distribution
agreements require the Company to make minimum annual purchases. Under its
distribution agreements with Hewlett-Packard, Lexmark and Imation, the Company
is required to make minimum annual purchases of $5.0 million, $250,000 and
$50,000, respectively.
Restrictions Imposed by Debt Arrangements. The Company's outstanding
indebtedness consists primarily of borrowings under the $15.0 million secured
revolving credit facility (the "Credit Facility") provided by National City Bank
of Dayton (the "Bank"). The Credit Facility contains restrictive covenants which
may have an adverse effect on the Company's operations in the future. These
covenants include, among other restrictions: (i) the maintenance of certain
financial ratios; (ii) prior notice to the Bank with respect to (a) the purchase
or sale of assets; (b) any merger, sale or consolidation activity; (c) the
creation or acquisition of any subsidiary or the investment in any equity
securities; (d) the entering into any partnership or joint venture; or (e) the
issuance of any equity securities; and (iii) certain limitations on the
incurrence of other indebtedness. These provisions may constrain the Company's
acquisition strategy, may delay, deter, or prevent a takeover attempt that a
shareholder might consider in its best interests and may have an adverse effect
on the market price of the Company's Common Stock. In addition, the Credit
Facility restricts the payment of dividends to no more than 50.0% of the net
income of the Company in the year that the dividend is to be paid.
Ability to Manage Growth. The Company expects to experience rapid growth that
will likely result in new and increased responsibilities for management
personnel and which will challenge the Company's management, operating and
financial systems and resources. To compete effectively and manage future
growth, if any, the Company will be required to continue to implement and
improve its operational, financial and management information systems,
procedures and internal controls on a timely basis and to expand, train,
motivate and manage its work force. There can be no assurance that the Company's
personnel, systems, procedures and controls will be adequate to support the
Company's future operations. Any failure to implement and improve the Company's
operational, financial and management systems or to expand, train motivate or
manage employees could have a material adverse effect on the Company's operating
results and financial condition.
Dependence on Computer Systems. The Company's operations are generally dependent
on its proprietary software applications. Modifications to the Company's
computer systems and applications software will be necessary as the Company
executes its expansion plans and responds to customer needs, technological
developments, electronic commerce requirements and other factors. Such
modifications may cause disruptions in the operations of the Company, delay the
schedule for implementing the integration of newly acquired companies, or cost
more to design, implement or operate than currently budgeted. Such disruptions,
<PAGE>
Exhibit 99
Page 3
delays or costs could have a material adverse effect on the Company's operations
and financial performance.
The Company does not currently have redundant computer systems or redundant
dedicated communication lines linking its computers to its warehouses, although
all data is stored on two separate hard drives on a continual basis. The Company
has taken precautions to protect itself from events that could interrupt its
operations, including back-up power supplies that allow the Company's computer
system to function in the event of a power outage, off-site storage of back-up
data, fire protection, physical security systems and an early warning detection
and fire extinguishing system. The occurrence of any of these events could have
a material adverse effect on the Company's operations and financial performance.
Failure to Implement Acquisition Strategy. The Company's business strategy
includes the acquisition of other computer and office automation supply
companies in the U.S. and overseas. Competition for desirable new acquisitions
in attractive major metropolitan markets is expected to increase. No assurance
can be given that the Company will be able to find attractive acquisition
candidates or that such acquisitions can be effected at reasonable prices or in
a timely manner, or that once acquired, the Company will be able to profitably
manage such companies. The failure to complete acquisitions and continue the
Company's expansion could have a material adverse effect on its financial
performance.
Integration of Acquisitions. The Company has acquired four computer and office
automation supply businesses in the past five years and intends to actively
pursue additional acquisitions. No assurance can be given that the Company will
be able to successfully integrate its future acquisitions with the Company's
existing systems and operations. The integration of acquired businesses may also
lead to the resignation of key employees of the acquired companies and diversion
of management attention from other ongoing business concerns. The costs of
integration could have an adverse effect on short-term operating results. Any or
all of these factors could have a material adverse effect on the Company's
operations in the future.
Financing for Acquisitions; Leverage. If acquisitions are consummated for cash,
it is likely that the Company will borrow the necessary funds and, accordingly,
the Company may become highly leveraged as a result thereof. If it becomes
highly leveraged, the Company may be more vulnerable to extended economic
downturns and its flexibility in responding to changing economic and industry
conditions may be limited. The degree to which the Company is leveraged could
have important consequences to purchasers of the Common Stock, including the
impairment of the Company's ability to obtain additional financing for working
capital, capital expenditures, acquisitions and general corporate purposes. The
Company's ability to make principal and interest payments on its current and
future indebtedness and to repay its current and future indebtedness at maturity
will be dependent on the Company's future operating performance, which is itself
dependent on a number of
<PAGE>
Exhibit 99
Page 4
factors, many of which are beyond the Company's control, and may be dependent on
the availability of borrowings under the Credit Facility or other financings. A
substantial portion of the Company's current borrowing capacity under the Credit
Facility could be consumed by increased working capital needs, including future
acquisitions.
Possible Need for Additional Financing to Implement Acquisition Strategy. No
portion of the Company's working capital has been set aside for the specific
purpose of funding future acquisitions and, therefore, the Company may require
additional funds to implement its acquisition strategy. While the Company's
Credit Facility may be utilized to finance acquisitions, the amount which may be
drawn upon by the Company may be limited. Accordingly, the Company may require
additional debt or equity financing for future acquisitions. There can be no
assurance that the Company will be able to obtain additional debt or equity
financing on terms favorable to the Company, or at all, or if obtained, there
can be no assurance that such debt or equity financing will be sufficient for
the financing needs of the Company.
Risks Relating to International Acquisitions. Expansion into international
markets may involve additional risks relating to such things as currency
exchange rates, new and different legal and regulatory requirements, political
and economic risks relating to the stability of foreign governments and their
trading relationship with the United States, difficulties in staffing and
managing foreign operations, differences in financial reporting, differences in
the manner in which different cultures do business, operating difficulties and
other factors.
Exchange Rate Fluctuations. Although the Company's operations are not currently
subject to material operational risks associated with fluctuations in exchange
rates, because the Company intends to expand the size and scope of its
international operations, its exposure to fluctuations in exchange rates will be
increased. Accordingly, no assurance can be given that the Company's results of
operations will not be adversely affected in the future by fluctuations in
foreign currency exchange rates. The Company has, at times, entered into forward
foreign currency exchange contracts in order to hedge the Company's accounts
receivable and accounts payable. In the future, the Company may, from time to
time, consider entering into other forward foreign currency exchange contracts,
although no assurances can be given that the Company will do so, or will be able
to do so, or that such arrangements will adequately protect the Company from
fluctuations in foreign currency exchange rates.
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