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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, 1997
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 DRIVE, 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 X No_____
At September 30, 1997, 3,929,109 shares of common stock, no par
value per share, of the registrant were outstanding.
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MIAMI COMPUTER SUPPLY CORPORATION
FORM 10-Q
QUARTER ENDED SEPTEMBER 30, 1997
INDEX
PART I - FINANCIAL INFORMATION PAGE
Item 1. Financial Statements:
Consolidated Statement of Operations . . . . . . . . . . . . 3
Consolidated Balance Sheet . . . . . . . . . . . . . . . . . 4
Consolidated Statement of Cash Flows . . . . . . . . . . . . 5
Notes to Consolidated Financial Statements . . . . . . . . . 6
Item 2. Management's Discussion and Analysis of
Results of Operations and Financial Condition . . . . . . . . 6-9
PART II - OTHER INFORMATION
Item 1. Legal Proceedings . . . . . . . . . . . . . . . . . . 10
Item 2. Changes in Securities . . . . . . . . . . . . . . . . 10
Item 3. Default Upon Senior Securities. . . . . . . . . . . . 10
Item 4. Submission of Matters to a Vote of Security Holders . 10
Item 5. Other Information . . . . . . . . . . . . . . . . . . 10
Item 6. Exhibits and Reports on Form 8-K. . . . . . . . . . . 10
Signatures. . . . . . . . . . . . . . . . . . . . . . . . . . . 11
2
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
MIAMI COMPUTER SUPPLY CORPORATION
CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
QUARTER ENDED NINE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30,
------------ -------------
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 29,001,730 $ 17,822,544 $ 71,351,489 $ 44,070,003
Operating costs:
Cost of sales . . . . . . . . . . . . . . . . . . . . . . . . . . 23,608,006 14,781,598 58,616,014 35,943,434
Selling, general and administrative
expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . 4,364,419 2,307,844 10,121,730 6,341,282
-------------- ------------ ------------ ------------
Total operating costs. . . . . . . . . . . . . . . . . . . . 27,972,425 17,089,442 68,737,744 42,284,716
-------------- ------------ ------------ ------------
Operating income. . . . . . . . . . . . . . . . . . . . . . . . . 1,029,305 733,102 2,613,745 1,785,287
Interest expense. . . . . . . . . . . . . . . . . . . . . . . . . (51,385) (100,588) (75,969) (243,175)
Other income. . . . . . . . . . . . . . . . . . . . . . . . . . . 2,328 6,884 28,921 17,998
-------------- ------------ ------------ ------------
Income before income taxes. . . . . . . . . . . . . . . . . . . . 980,248 639,398 2,566,697 1,560,110
Provision for income taxes. . . . . . . . . . . . . . . . . . . . 406,803 265,352 1,049,315 647,431
-------------- ------------ ------------ ------------
Net income. . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 573,445 $ 374,046 $ 1,517,382 $ 912,679
-------------- ------------ ------------ ------------
-------------- ------------ ------------ ------------
Earnings per share of common stock. . . . . . . . . . . . . . . . $ 0.15 $ 0.16 $ 0.41 $ 0.38
-------------- ------------ ------------ ------------
-------------- ------------ ------------ ------------
Weighted average number of common
shares outstanding. . . . . . . . . . . . . . . . . . . . . . . 3,928,718 2,388,000 3,693,573 2,388,000
-------------- ------------ ------------ ------------
-------------- ------------ ------------ ------------
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
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MIAMI COMPUTER SUPPLY CORPORATION
CONSOLIDATED BALANCE SHEET
(UNAUDITED)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1997 1996
---- ----
<S> <C> <C>
Assets
Current assets:
Cash. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 166,971 $ 780,875
Accounts receivable . . . . . . . . . . . . . . . . . . . . . . . 14,679,440 8,636,657
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,210,256 5,894,838
Prepaid expenses. . . . . . . . . . . . . . . . . . . . . . . . . 182,037 431,946
---------- ----------
Total current assets . . . . . . . . . . . . . . . . . . . . . 23,238,704 15,744,316
---------- ----------
Property and equipment - net of accumulated
depreciation. . . . . . . . . . . . . . . . . . . . . . . . . . . 1,495,076 1,016,164
---------- ----------
Other assets:
Deposits. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53,972 28,302
Cash surrender value officers' life insurance. . . . . . . . . . 711,986 571,986
Intangible assets . . . . . . . . . . . . . . . . . . . . . . . . 5,733,128 414,440
---------- ----------
Total other assets . . . . . . . . . . . . . . . . . . . . . . . . 6,499,086 1,014,728
---------- ----------
Total assets. . . . . . . . . . . . . . . . . . . . . . . . . $31,232,866 $17,775,208
---------- ----------
---------- ----------
Liabilities and Stockholders' Equity
Current Liabilities:
Line-of-credit . . . . . . . . . . . . . . . . . . . . . . . . . $ 3,553,440 $ 0
Accounts payable - trade . . . . . . . . . . . . . . . . . . . . 8,372,827 4,308,785
Accrued expenses, taxes and withholdings . . . . . . . . . . . . 1,382,693 1,188,708
Current portion of long-term debt. . . . . . . . . . . . . . . . 58,684 35,567
---------- ----------
Total current liabilities . . . . . . . . . . . . . . . . . . 13,367,644 5,533,060
Other long-term liabilities. . . . . . . . . . . . . . . . . . . 171,165 169,105
---------- ----------
Total liabilities . . . . . . . . . . . . . . . . . . . . . . 13,538,809 5,702,165
---------- ----------
Stockholders' equity:
Preferred Stock, no par value, 5,000,000 shares
authorized; none outstanding at September 30, 1997
and December 31, 1996 . . . . . . . . . . . . . . . . . . . 0 0
Common stock, no par value; 30,000,000 shares
authorized, 3,929,109 shares outstanding at
September 30, 1997; 3,538,000 shares outstanding at
December 31, 1996 . . . . . . . . . . . . . . . . . . . . 0 0
Additional paid-in capital. . . . . . . . . . . . . . . . . 12,452,881 8,349,249
Retained earnings . . . . . . . . . . . . . . . . . . . . . 5,256,176 3,738,794
---------- ---------
17,709,057 12,088,043
Less - Treasury common stock, at cost 1,200 shares . . . . . 15,000 15,000
---------- ----------
Total stockholders' equity . . . . . . . . . . . . . . . . 17,694,057 12,073,043
---------- ----------
Total liabilities and stockholders' equity . . . . . . . . $31,232,866 $17,775,208
---------- ----------
---------- ----------
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
4
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MIAMI COMPUTER SUPPLY CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
-------------
1997 1996
---- ----
<S> <C> <C>
Cash flows (used in) provided by operating activities:
Net income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,517,382 $ 912,679
Adjustments to reconcile net income to cash (used in)
provided by operating activities:
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . 278,739 219,744
Changes in assets and liabilities net of effects of acquisitions
of businesses:
Accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . (3,813,480) (904,514)
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,548,632) (1,249,195)
Prepaid expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 265,809 (556,328)
Deposits. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (14,449) 37,677
Accounts payable - trade . . . . . . . . . . . . . . . . . . . . . . . . 2,384,705 489,833
Accrued expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . (261,157) 129,183
Accrued income taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . 102,760 (122,978)
---------- ----------
Cash used in operating activities . . . . . . . . . . . . . . . . . . . . (1,088,323) (1,043,899)
---------- ----------
Cash flows from investing activities:
Capital expenditures. . . . . . . . . . . . . . . . . . . . . . . . . . . . (427,541) (137,275)
Investment in cash surrender value officers' life insurance . . . . . . . . (140,000) (143,141)
Business combinations . . . . . . . . . . . . . . . . . . . . . . . . . . . (2,485,000) 0
Cash included in acquisitions . . . . . . . . . . . . . . . . . . . . . . . 83,657 109,467
---------- ----------
Cash (used in) provided by investing activities. . . . . . . . . . . . . . . (2,968,884) (170,949)
---------- ----------
Cash flows from financing activities:
Borrowings under line-of-credit . . . . . . . . . . . . . . . . . . . . . . 9,870,260 9,565,985
Payments under line-of-credit . . . . . . . . . . . . . . . . . . . . . . . (6,316,820) (7,972,653)
Principal payments on long-term debt. . . . . . . . . . . . . . . . . . . . (27,238) (8,008)
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (82,899) (90,360)
---------- ----------
Cash provided by financing activities . . . . . . . . . . . . . . . . . . 3,443,303 1,494,964
---------- ----------
Net (decrease) increase in cash . . . . . . . . . . . . . . . . . . . . . . . (613,904) 280,116
Cash - Beginning of period. . . . . . . . . . . . . . . . . . . . . . . . . 780,875 1,900
---------- ----------
Cash - End of period. . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 166,971 $ 282,016
---------- ----------
---------- ----------
Supplemental cash flow information:
Cash paid for interest. . . . . . . . . . . . . . . . . . . . . . . . . . . $ 76,456 $ 265,273
Cash paid for income taxes. . . . . . . . . . . . . . . . . . . . . . . . . $ 935,358 $ 839,765
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
5
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MIAMI COMPUTER SUPPLY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 - GENERAL
The accompanying unaudited consolidated financial statements have been
prepared in accordance with Rule 10-01 of SEC Regulation S-X. Consequently,
they do not include all the disclosures required under generally accepted
accounting principles for complete financial statements. However, in the
opinion of the management of Miami Computer Supply Corporation (the
"Company"), the consolidated financial statements presented herein contain
all adjustments (consisting only of normal recurring adjustments) necessary
to present fairly the financial position, results of operations and cash
flows of the Company and its consolidated subsidiaries. For further
information regarding the Company's accounting policies and the basis of
presentation of the financial statements, refer to the consolidated financial
statements and notes included in the Company's Annual Report on Form 10-K for
the year ended December 31, 1996.
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.
NOTE 3 - ACQUISITIONS
Effective May 30, 1996, Pittsburgh Investment Group, LLC ("LLC") contributed
its stock in Diversified Data Products, Inc. ("DDP") to the Company. The
acquisition has been accounted for using the purchase method of accounting,
and accordingly, the purchase price has been allocated based upon the
estimated fair values of the assets acquired and the liabilities assumed as
of May 30, 1996.
In connection with the acquisition of DDP, LLC issued a loan to certain
former stockholders in an amount of $250,000. This amount was subject to
repayment based upon DDP generating specified income levels for the period
May 30, 1996 to December 31, 1996. DDP generated such income levels for this
period, and accordingly the loan was forgiven. The value of the net assets
acquired has been adjusted to reflect this additional consideration.
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 period ended January 1, 1996). 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 1996.
Nine Months Ended
September 30, 1996
------------------
Net sales . . . . . . . . . . . . $ 49,433,272
Net income. . . . . . . . . . . . $ 927,436
Earnings per share. . . . . . . . $ 0.39
On April 30, 1997 the Company acquired Imperial Data Supply Corporation
("IDS") headquartered in Spokane, Washington with offices in Idaho and
Montana. On July 1, 1997 the Company acquired Data Associates, Inc. ("DA")
headquartered in Roswell, Georgia with offices in Florida, North Carolina and
South Carolina. On July 15, 1997 the Company acquired Force 4 D.P. Supplies,
Inc. ("Force 4") headquartered in Portland, Oregon with offices in Illinois,
Washington and Utah. On October 7, 1997 the Company acquired NTI Data
Products ("NTI") headquartered in Manchester, New Hampshire and one sales
office in Portsmouth, New Hampshire. The impact of these acquisitions are
not material to the Company's financial statements.
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 unaudited Consolidated Financial Statements and 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 is 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
6
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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 has completed four acquisitions the ("Acquisitions") of computer
supply and office automation dealers in 1997 as follows:
1. On April 30, 1997 the Company acquired IDS headquartered in Spokane,
Washington with offices in Idaho and Montana. IDS's approximated annualized
revenues as of the closing date were $7 million.
2. On July 1, 1997 the Company acquired DA headquartered in Roswell,
Georgia with offices in Florida, North Carolina and South Carolina. DA's
approximate annualized revenues as of the closing date were $9 million.
3. On July 15, 1997 the Company acquired Force 4 headquartered in
Portland, Oregon with offices in Illinois, Washington and Utah. Force 4's
approximate annualized revenues as of the closing date were $14 million.
4. On October 7, 1997 the Company acquired NTI headquartered in
Manchester, New Hampshire with one sales office in Portsmouth, New Hampshire.
NTI's approximate annualized revenues as of the closing date were $6 million.
The Company intends to continue its aggressive acquisition strategy of
entering new markets domestically and internationally on an opportunistic
basis, to acquire computer and office automation supply distribution
companies and to hire certain experienced sales representatives in and
outside of the Company's current market areas, some of whom may be
constrained from working in their present locations for a period of time.
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 on terms favorable to the Company.
THREE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED TO THREE MONTHS ENDED
SEPTEMBER 30, 1996
NET SALES. Net sales for the three months ended September 30, 1997 increased
by $11.2 million, or 62.7%, to $29.0 million from $17.8 million for the three
months ended September 30, 1996. Of the increase 24.3% was primarily a
result of increased sales to the Company's current customer base and 38.4% of
the increase resulted from the Acquisitions.
GROSS PROFIT. Gross profit for the three months ended September 30, 1997
increased by $2.4 million, or 77.4% to $5.4 million from $3.0 million for the
three months ended September 30, 1996. Gross profit as a percentage of net
sales for the three months ended September 30, 1997 was 18.6% compared to
17.1% for the three months ended September 30, 1996. The increase in the
gross profit percentage was due primarily to the results of the companies
acquired in the Acquisitions, which historically have had higher operating
gross margins.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses for the three months ended September 30, 1997
increased by $2.1 million, or 89.1% to $4.4 million from $2.3 million for the
three months ended September 30, 1996. Approximately 14.7% of the increase
resulted from increased salary expenses, while 15.2% was due to increased
commission expense resulting from the Company's increased sales volume. The
remainder of the increase in selling, general and administrative expenses
resulted primarily from the acquisition of IDS, Force 4 and DA. As a
percentage of net sales, selling, general and administrative expenses were
15.0% for the three months ended September 30, 1997 compared to 12.9% for the
three months ended September 30, 1996. This increase as a percentage of sales
relates primarily from the results of the companies acquired in the
Acquisitions, which historically have had a higher selling, general and
administrative expense percentage, although maintaining a higher gross profit
percentage.
OPERATING INCOME. Operating income for the three months ended September 30,
1997 increased by $.3 million to $1.0 million from $.7 million for the three
months ended September 30, 1996 for the reasons stated above.
INTEREST EXPENSE. Interest expense for the three months ended September 30,
1997 decreased by $49,203 or 48.9% to $51,385 from $100,588 for the three
months ended September 30, 1996 due primarily to the decreased level of
average indebtedness during 1997.
PROVISION FOR INCOME TAXES. The provision for income taxes for the three
months ended September 30, 1997 increased $141,451 to $406,803 from $265,352
for the three months ended September 30, 1996. The Company's effective tax
rate was 41.5% for the three months ended September 30, 1997 and for the
corresponding period of the prior year.
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NINE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED TO NINE MONTHS ENDED SEPTEMBER
30, 1996
NET SALES. Net sales for the nine months ended September 30, 1997 increased
by $27.3 million, or 61.9%, to $71.4 million from $44.1 million for the nine
months ended September 30, 1996. Approximately 51.5% of the increase
resulted from the acquisition of DDP on May 30, 1996 and 28.7% of such
increase was due to the acquisition of IDS on April 30, 1997, the acquisition
of DA on July 1, 1997 and the acquisition of Force 4 on July 15, 1997. The
remaining increase was primarily a result of increased sales to the Company's
current customer base.
GROSS PROFIT. Gross profit for the nine months ended September 30, 1997
increased by $4.6 million, or 56.7% to $12.7 million from $8.1 million for the
nine months ended September 30, 1996. Gross profit as a percentage of net
sales for the nine months ended September 30, 1997 was 17.8% compared to
18.4% for the nine months ended September 30, 1996. The decrease in the gross
profit percentage was due primarily to the acquisition of DDP which has 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, 1997
increased by $3.8 million, or 59.6% to $10.1 million from $6.3 million for the
nine months ended September 30, 1996. Approximately 53.7% of the increase
resulted from increased salary expenses, while 10.8% was due to increased
commission expense resulting from the Company's increased sales volume. The
remainder of the increase in selling, general and administrative expenses
resulted primarily from the acquisitions of DDP, IDS, Force 4 and DA. As a
percentage of net sales, selling, general and administrative expenses were
14.2% for the nine months ended September 30, 1997 compared to 14.4% for the
nine months ended September 30, 1996.
OPERATING INCOME. Operating income for the nine months ended September 30,
1997 increased by $.8 million to $2.6 million from $1.8 million for the nine
months ended September 30, 1996 for the reasons stated above.
INTEREST EXPENSE. Interest expense for the nine months ended September 30,
1997 decreased by $167,206 or 68.8% to $75,969 from $243,175 for the nine
months ended September 30, 1996 due primarily to the decreased level of
average indebtedness during 1997.
PROVISION FOR INCOME TAXES. The provision for income taxes for the nine
months ended September 30, 1997 increased $.4 million to $1.0 million from
$.6 million for the nine months ended September 30, 1996. The Company's
effective tax rate was 40.9% for the nine months ended September 30, 1997 as
compared to 41.5% for the corresponding period of the prior year.
LIQUIDITY AND CAPITAL RESOURCES
Net cash flows used in operating activities totaled $1.1 million for the
first nine months of 1997 compared to $1.0 million used by operating
activities during the first nine months of 1996. The change in net cash flows
from operating activities in the first nine months of 1997, compared to the
first nine months of 1996, was due primarily to an increase in accounts
payable offset by an increase in inventories and an increase in accounts
receivable. Working capital approximated $9.9 million at September 30, 1997
and $10.2 million at December 31, 1996.
Net cash used in investing activities was $3.0 million for the nine months
ended September 30, 1997 versus $.2 million cash used by investing activities
for the nine months ended September 30, 1996. The net cash used in investing
activities primarily reflects the acquisitions of IDS, DA and Force 4. Net
cash used by financing activities totaled $3.4 million for the nine months
ended September 30, 1997 compared with $1.5 million for the nine months ended
September 30, 1996. This increase was due primarily to increased borrowing
levels under the Credit Facility.
Capital expenditures for the nine months ended September 30, 1997 of $427,541
were used primarily to integrate the Acquisitions into the Company's
management information systems.
The Company believes that its cash on hand, borrowing capacity under the
Credit Facility, capital resources and cash flows will be sufficient to fund
its ongoing operations and budgeted capital expenditures for the remainder of
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.
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CREDIT FACILITY
On September 11, 1996, the Company increased the amount of its line-of-credit
with National City Bank of Dayton, Ohio (the "Bank") 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 90
days or more) plus (ii) an amount equal to the lesser of either 50.0% of the
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 accounts receivables, not to exceed $2.0 million (the "Borrowing
Base"). Under the Credit Facility, the Company's borrowing availability at
September 30, 1997 approximated $11.4 million. At September 30, 1997, $3.6
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 month 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 $3.2 million in 1997 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, 1997 and is as of the date hereof, in compliance with these
financial covenants.
9
<PAGE>
PART II-OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On August 26, 1997, Corporate Express of the South, Inc ("CES")
filed suit in the Superior Court for Guilford County, North Carolina, against
the Company and two of its salespersons alleging, among other things, that
the salespersons breached their agreements not to compete with CES and that
the Company intentionally induced the salespersons not to honor their
covenants not to compete. The Company believes that resolution of the suit,
which seeks injunctive relief against the salespersons and unspecified
damages from the Company, will not have a material adverse impact on the
financial condition of the Company. The Company intends to vigorously defend
itself against the suit.
Other than the proceeding described above the Company was 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, 1997.
10
<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: November 14, 1997
By:/s/ Michael E. Peppel
Michael E. Peppel
Vice President - Chief Financial Officer
11
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 166,971
<SECURITIES> 0
<RECEIVABLES> 14,725,951
<ALLOWANCES> 46,511
<INVENTORY> 8,210,256
<CURRENT-ASSETS> 23,238,704
<PP&E> 3,538,263
<DEPRECIATION> 2,043,187
<TOTAL-ASSETS> 31,232,866
<CURRENT-LIABILITIES> 13,367,644
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 31,232,866
<SALES> 71,351,489
<TOTAL-REVENUES> 71,351,489
<CGS> 58,616,014
<TOTAL-COSTS> 68,737,744
<OTHER-EXPENSES> 47,048
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 75,969
<INCOME-PRETAX> 2,566,697
<INCOME-TAX> 1,049,315
<INCOME-CONTINUING> 1,517,382
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,517,382
<EPS-PRIMARY> 0.41
<EPS-DILUTED> 0.41
</TABLE>
<PAGE>
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, 1997 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, 50.6% of the Company's net sales in fiscal year 1996 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 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
12
<PAGE>
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,
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 six 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 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.
13
