<PAGE>
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 JUNE 30, 1998
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.)
4750HEMPSTEAD 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 August 11, 1998, 10,708,254 shares of common stock, no par value per
share, of the registrant were outstanding.
<PAGE>
MIAMI COMPUTER SUPPLY CORPORATION
FORM 10-Q
QUARTER ENDED JUNE 30, 1998
INDEX
<TABLE>
<CAPTION>
PART I - FINANCIAL INFORMATION PAGE
------
<S> <C>
Item 1. Financial Statements:
Consolidated Statement of Operations . . . . . . . . . . . . . . . . . . . 3
Consolidated Balance Sheet . . . . . . . . . . . . . . . . . . . . . . . . 4
Consolidated Statement of Cash Flows . . . . . . . . . . . . . . . . . . . 5
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . 6-7
Item 2. Management's Discussion and Analysis of
Results of Operations and Financial Condition . . . . . . . . . . . . . . 7-9
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
</TABLE>
2
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
MIAMI COMPUTER SUPPLY CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
QUARTER ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
--------- ---------
1998 1997 1998 1997
<S> <C> <C> <C> <C>
Net sales. . . . . . . . . . . . . $ 67,109,494 $ 22,123,739 $ 122,307,445 $ 42,349,759
Cost of sales. . . . . . . . . . . 53,085,011 18,262,704 95,684,425 35,008,008
------------- -------------- -------------- -------------
Gross profit . . . . . . . . . . . 14,024,483 3,861,035 26,623,020 7,341,751
Selling, general and administrative
expenses. . . . . . . . . . . . 11,002,217 3,040,238 21,265,434 5,757,311
------------- -------------- -------------- -------------
Operating income . . . . . . . . . 3,022,266 820,797 5,357,586 1,584,440
Interest expense . . . . . . . . . (818,195) (23,713) (1,244,475) (24,584)
Other income . . . . . . . . . . . 41,938 14,472 78,827 26,593
------------- -------------- -------------- -------------
Income before income taxes . . . . 2,246,009 811,556 4,191,938 1,586,449
Provision for income taxes . . . . 1,011,796 328,680 1,871,796 642,512
------------- -------------- -------------- -------------
Net income . . . . . . . . . . . . $ 1,234,213 $ 482,876 $ 2,320,142 $ 943,937
------------- -------------- -------------- -------------
------------- -------------- -------------- -------------
Earnings per share of common stock-
basic . . . . . . . . . . . . . $ 0.15 $ 0.09 $ 0.29 $ 0.18
------------- -------------- -------------- -------------
------------- -------------- -------------- -------------
Earnings per share of common stock-
diluted . . . . . . . . . . . . $ 0.15 $ 0.09 $ 0.28 $ 0.18
------------- -------------- -------------- -------------
------------- -------------- -------------- -------------
Weighted average number of common.
shares outstanding-basic. . . . 8,190,752 5,413,968 8,098,788 5,360,780
------------- -------------- -------------- -------------
------------- -------------- -------------- -------------
Weighted average number of common
shares outstanding-diluted. . . 8,336,968 5,413,968 8,230,461 5,360,780
------------- -------------- -------------- -------------
------------- -------------- -------------- -------------
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
3
<PAGE>
MIAMI COMPUTER SUPPLY CORPORATION
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1998 1997
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<S> <C> <C>
Assets
Current assets:
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,610,268 $ 1,662,420
Accounts receivable . . . . . . . . . . . . . . . . . . . . . 34,504,136 21,490,282
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . 19,617,856 9,111,620
Prepaid expenses. . . . . . . . . . . . . . . . . . . . . . . 794,324 314,060
Deferred income tax assets . . . . . . . . . . . . . . . . . . . 244,159 275,206
------------ -------------
Total current assets . . . . . . . . . . . . . . . . . . . 56,770,743 32,853,588
Property and equipment - net of accumulated
depreciation. . . . . . . . . . . . . . . . . . . . . . . . . 4,679,856 1,885,131
Other assets:
Deposits. . . . . . . . . . . . . . . . . . . . . . . . . . . 237,857 44,442
Cash surrender value officers' life insurance . . . . . . . . 533,851 729,303
Intangible assets . . . . . . . . . . . . . . . . . . . . . . 42,742,205 14,408,481
------------ -------------
Total assets . . . . . . . . . . . . . . . . . . . . . . . $ 104,964,512 $ 49,920,945
------------ -------------
------------ -------------
Liabilities and Stockholders' Equity
Current liabilities:
Line-of-credit. . . . . . . . . . . . . . . . . . . . . . . . $ -- $ 8,040,313
Notes payable relating to business combinations . . . . . . . -- 2,791,000
Accounts payable - trade . . . . . . . . . . . . . . . . . . 16,068,556 11,338,272
Accrued expenses, taxes and withholdings . . . . . . . . . . 4,977,472 2,440,737
Current portion of long-term debt . . . . . . . . . . . . . . 302,823 55,467
Total current liabilities. . . . . . . . . . . . . . . . . 21,348,851 24,665,789
Long-term debt. . . . . . . . . . . . . . . . . . . . . . . . 7,852,023 112,615
Deferred income taxes . . . . . . . . . . . . . . . . . . . . 83,218 111,644
------------ -------------
Total liabilities. . . . . . . . . . . . . . . . . . . . . 29,284,092 24,890,048
------------ -------------
Stockholders' equity:
Preferred stock, no par value, 5,000,000 shares
authorized; none outstanding at June 30, 1998
and December 31, 1997. . . . . . . . . . . . . . . . . . . -- --
Common stock, no par value; 30,000,000 shares
authorized, 10,369,742 shares outstanding at
June 30, 1998; 6,621,164 shares outstanding at
December 31, 1997. . . . . . . . . . . . . . . . . . . . . -- --
Additional paid-in capital. . . . . . . . . . . . . . . . . . 67,428,770 19,095,494
Retained earnings . . . . . . . . . . . . . . . . . . . . . . 8,270,545 5,950,403
Less - Treasury stock, at cost. . . . . . . . . . . . . . . . (18,895) (15,000)
------------ -------------
Total stockholders' equity . . . . . . . . . . . . . . . . 75,680,420 25,030,897
------------ -------------
Total liabilities and stockholders' equity . . . . . . . . $ 104,964,512 $ 49,920,945
------------ -------------
------------ -------------
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
4
<PAGE>
MIAMI COMPUTER SUPPLY CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
----------
1998 1997
------ -------
<S> <C> <C>
Cash flows used in operating activities:
Net income. . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,320,142 $ 943,937
Adjustments to reconcile net income to cash used
in operating activities:
Depreciation and amortization. . . . . . . . . . . . . . . . . . 1,004,812 168,455
Changes in assets and liabilities net of effects of
acquisitions of businesses:
Accounts receivable . . . . . . . . . . . . . . . . . . . . . (5,519,427) (1,273,313)
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . (2,656,543) 403,058
Prepaid expenses. . . . . . . . . . . . . . . . . . . . . . . (424,834) 279,758
Deposits. . . . . . . . . . . . . . . . . . . . . . . . . . . (42,206) (7,732)
Accounts payable - trade. . . . . . . . . . . . . . . . . . . (746,387) (1,310,291)
Accrued expenses, taxes and withholding . . . . . . . . . . . 997,849 157,165
----------- ------------
Cash used in operating activities . . . . . . . . . . . . . . (5,066,594) (638,963)
----------- ------------
Cash flows from investing activities:
Capital expenditures. . . . . . . . . . . . . . . . . . . . . (1,167,584) (166,015)
Investment in cash surrender value officers'
life insurance . . . . . . . . . . . . . . . . . . . . . . 195,452 --
Business combinations . . . . . . . . . . . . . . . . . . . . (17,272,511) (1,000,000)
Cash included in acquisitions . . . . . . . . . . . . . . . . 266,277 8,626
----------- ------------
Cash used in investing activities. . . . . . . . . . . . . . . . (17,978,366) (1,157,389)
----------- ------------
Cash flows from financing activities:
Net proceeds from offering of common stock. . . . . . . . . . 31,702,474 --
Net borrowings (payments) under line-of-credit. . . . . . . . (442,787) 1,188,779
Increase in long-term debt. . . . . . . . . . . . . . . . . . 459,397 --
Principal payments on long-term debt. . . . . . . . . . . . . (70,159) (18,243)
Payment of debt acquired in business combinations . . . . . . (8,649,147) --
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . (6,970) (60,240)
----------- ------------
Cash provided by financing activities. . . . . . . . . . . . . . 22,992,808 1,110,296
----------- ------------
Net decrease in cash . . . . . . . . . . . . . . . . . . . . . . (52,152) (686,056)
Cash - beginning of period. . . . . . . . . . . . . . . . . . 1,662,420 780,875
----------- ------------
Cash - end of period. . . . . . . . . . . . . . . . . . . . . $ 1,610,268 $ 94,819
----------- ------------
----------- ------------
Supplemental cash flow information:
Cash paid for interest. . . . . . . . . . . . . . . . . . . . $ 754,598 $ 25,066
Cash paid for income taxes. . . . . . . . . . . . . . . . . . $ 2,092,742 $ 593,941
Common stock issued in business combinations. . . . . . . . . $ 16,493,876 $ 1,000,000
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
5
<PAGE>
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 the instructions and requirements of Form 10-Q.
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. The results of operations for the
period ended June 30, 1998 are not necessarily indicative of the results that
may be expected for the entire fiscal year or any other interim period. 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, 1997.
NOTE 2 - COMMON STOCK
On March 26, 1998, the Company declared a three for two stock split on its
common stock, which was payable on April 24, 1998. All share and per share data
contained herein has been restated to reflect the stock split.
On June 30, 1998, the Company completed a public stock offering
("Offering") for 2,100,000 shares of its common stock. Proceeds from the
offering were $16.00 per share less the underwriting discount and related
offering expenses. The Offering closed on July 6, 1998.
NOTE 3 - ACQUISITIONS
The Company is engaged in an active acquisition program. From April 1997
through December 1997, the Company acquired the stock or assets of six (6)
separate entities: Imperial Data Supply Corporation ("IDS"), Data Associates,
Inc. ("DA"), Force 4 Data Products, Inc. ("Force 4"), NTI Data Products, Inc.
("NTI"), Britco, Inc. ("Britco"), and TBS Printware, Inc. ("TBS"), all in
purchase business combinations. None of the acquired entities, each of which is
engaged in providing computer supply products, were individually significant to
the Company's consolidated financial statements. Earnings of each of the
acquired entities, have been recorded by the Company beginning with the
respective acquisition dates. The aggregate purchase price of the acquired
entities which totaled $17,821,903, was comprised of cash, 1,314,164 shares of
the Company's common stock with a fair value of $10,746,245, notes payable due
to sellers aggregating $2,791,000 due in January, 1998, and related out of
pocket expenses totaling $787,158. One acquisition calls for contingent
consideration of up to $2,200,000 if certain operating results occur within the
thirty-three month period following the acquisition. The acquisition price has
been allocated to the estimated fair value of the assets acquired and the
liabilities assumed, with the residual being allocated to intangible assets
(goodwill) which is being amortized over a forty year life.
Effective January 1, 1998, the Company completed its acquisition of
Minnesota Western/Creative Office Products, Inc. ("MW") in a purchase business
combination. MW is engaged in designing, selling and distributing audio visual
equipment and supplies. The purchase price totaled $24,664,311 and was comprised
of cash, 1,322,555 shares of the Company's common stock with a fair value of
$12,343,842 and related out of pocket expenses totaling $320,469. The purchase
price was allocated to the estimated fair values of the assets acquired and
liabilities assumed with the residual being allocated to intangible assets
(goodwill) which is being amortized over a forty year life.
In as much as the result of operations of each of these acquired entities
is included in the results of operations for the six months ended June 30, 1998,
but none of them are included in the results of operations for the six months
ended June 30, 1997, the following pro forma information reflects the impact of
these transactions assuming they had occurred on January 1, 1997:
<TABLE>
<CAPTION>
Six Months Ended
June 30, 1997
-------------
<S> <C>
Net sales $ 107,151,791
Net income 1,745,000
Earnings per share of common
stock basic and diluted 0.27
</TABLE>
6
<PAGE>
Effective March 1, 1998, the Company completed its acquisition of Computer
Showcase, Inc. ("CS") in a purchase business combination. CS is a distributor of
visual presentation systems and products. This acquisition was not significant
to the Company's consolidated financial statements.
Effective June 1, 1998, the Company completed its acquisition of Electronic
Image Systems, Inc. ("EIS") in a purchase business combination. EIS is a
distributor and integrator of presentation systems. This acquisition was not
significant to the Company's consolidated financial statements.
NOTE 4 - LONG TERM DEBT
As disclosed in the Company's consolidated financial statements included in
its Annual Report on Form 10-K, for the year ended December 31, 1997, in January
1998, the Company entered into a new $50 million borrowing arrangement
permitting the Company to borrow funds for a three year period. Accordingly,
borrowings under the arrangement at June 30, 1998 have been classified as
long-term debt.
NOTE 5 - DEFINITIVE AGREEMENT CONSOLIDATED MEDIA SYSTEMS
On July 17, 1998, the Company announced that it had entered into a
definitive agreement to acquire 100% of the stock of Consolidated Media Systems,
Inc. ("CMS"). CMS is one of the largest distributors of professional audio and
video products with 23 offices throughout the country, with $70 million in
annual revenue, headquartered in Nashville Tennessee.
Financial results of CMS are not included in the financial statements
herein.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
General
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 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 continue its aggressive acquisition strategy of
entering new markets domestically and internationally on an opportunistic basis,
to acquire computer and office automation supply and presentation products
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 (or at all), or that the
Company will not need additional debt or equity financing to continue its
acquisition strategy.
THREE MONTHS ENDED JUNE 30, 1998 COMPARED TO THREE MONTHS ENDED JUNE 30, 1997
NET SALES. Net sales for the three months ended June 30, 1998 increased by
$45.0 million, or 203.3%, to $67.1 million from $22.1 million for the three
months ended June 30, 1997. Of the increase, sales to the Company's core
customer base increased 22.2%; the balance of the increase resulted from the
acquisitions.
GROSS PROFIT. Gross profit for the three months ended June 30, 1998
increased by $10.1 million, or 263.2% to $14.0 million from $3.9 million for the
three months ended June 30, 1997. Gross profit as a percentage of net sales for
the three months ended June 30, 1998 was 20.9% compared to17.5% for the three
months ended June 30, 1997. The increase in the gross profit percentage was due
primarily to the result of the higher margins of MW, which was acquired
effective January 1, 1998.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses for the three months ended June 30, 1998 increased by
$8.0 million, to $11.0 million from $3.0 million for the three months ended June
30, 1997. The majority of the increase resulted from the acquisitions the
Company has completed since June 30, 1997. As a percentage of net sales,
selling, general and administrative expenses were 16.4% for the three months
ended June 30, 1998 compared to 13.7% for the three months ended June
7
<PAGE>
30, 1997. This increase as a percentage of sales is due primarily from the
results of MW, which has a higher selling, general and administrative expense
percentage, while maintaining a higher gross profit percentage.
OPERATING INCOME. Operating income for the three months ended June 30, 1998
increased by $2.2 million to $3.0 million from $0.8 million for the three months
ended June 30, 1997 for the reasons stated above. Operating margin increased to
4.5% for the three months ended June 30, 1998 compared to 3.7% for the three
months ended June 30, 1997.
INTEREST EXPENSE. Interest expense for the three months ended June 30, 1998
increased by $794,482 to $818,195 from $23,713 for the three months ended June
30, 1997 due primarily to the increased level of indebtedness during 1998,
utilized to fund business combinations and the growth in working capital.
Proceeds from the June 30, 1998 stock offering were used to reduce the
outstanding debt.
PROVISION FOR INCOME TAXES. The provision for income taxes for the three
months ended June 30, 1998 increased $683,116 to $1.0 million from $328,680 for
the three months ended June 30, 1997. The Company's effective tax rate was 45.0%
for the three months ended June 30, 1998 and 40.5% for the three months ended
June 30, 1997. Increased amortization of goodwill, most of which was not
deductible for tax purposes, was the reason for the higher tax rate during the
1998 three month period.
SIX MONTHS ENDED JUNE 30, 1998 COMPARED TO SIX MONTHS ENDED JUNE 30, 1997
NET SALES. Net sales for the six months ended June 30, 1998 increased by $80.0
million, or 188.8%, to $122.3 million from $42.3 million for the six months
ended June 30, 1997. Of the increase, sales to the Company's core customer base
increased 18.2%; the balance of the increase resulted from the acquisitions.
GROSS PROFIT. Gross profit for the six months ended June 30, 1998 increased by
$19.3 million, or 262.6% to $26.6 million from $7.3 million for the six months
ended June 30, 1997. Gross profit as a percentage of net sales for the six
months ended June 30, 1998 was 21.8% compared to 17.3% for the six months ended
June 30, 1997. The increase in the gross profit percentage was due primarily to
the result of the higher margins of MW, which was acquired effective January 1,
1998.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses for the six months ended June 30, 1998 increased by
$15.5 million, to $21.3 million from $5.8 million for the six months ended June
30, 1997. The majority of the increase resulted from the acquisitions the
Company has completed since June 30, 1997. As a percentage of net sales,
selling, general and administrative expenses were 17.4% for the six months ended
June 30, 1998 compared to 13.6% for the six months ended June 30, 1997. This
increase as a percentage of sales is due primarily from the results of MW, which
has a higher selling, general and administrative expense percentage, while
maintaining a higher gross profit percentage.
OPERATING INCOME. Operating income for the six months ended June 30, 1998
increased by $3.8 million to $5.4 million from $1.6 million for the six months
ended June 30, 1997, for the reasons stated above. Operating margins were 4.4%
for the six months ended June 30, 1998 compared to 3.7% for the six months
ended June 30, 1997.
INTEREST EXPENSE. Interest expense for the six months ended June 30, 1998
increased to $1,244,475 from $24,584 for the six months ended June 30, 1997 due
primarily to the increased level of indebtedness during 1998, which was used for
business combinations and working capital.
PROVISION FOR INCOME TAXES. The provision for income taxes for the six months
ended June 30, 1998 increased $1.2 million to $1.9 million from $642,512 for the
six months ended June 30, 1997. The Company's effective tax rate was 44.7% for
the six months ended June 30, 1998 as compared to 40.5% for the corresponding
period of the prior year. Increased amortization of goodwill, most of which was
not deductible for tax purposes, was the reason for the higher tax rate during
the 1998 six month period.
LIQUIDITY AND CAPITAL RESOURCES
Net cash flows used in operating activities totaled $5.1 million for the
first six months of 1998 compared to $638,963 used by operating activities
during the first six months of 1997. The change in net cash flows from operating
activities, was due primarily to an increase in accounts receivable and
inventory and to support business growth.
Net cash used in investing activities was $18.0 million for the six months
ended June 30, 1998 versus $1.2 million for the six months ended June 30, 1997.
The net cash used in investing activities primarily reflects the acquisitions
completed during the period. Net cash provided by financing activities totaled
$23.0 million for the six months ended June 30, 1998 compared with $1.1 million
for the six months ended June 30, 1997. This increase was due primarily to the
June 30 stock offering, the proceeds of which were used to repay borrowings (in
the third quarter).
8
<PAGE>
Capital expenditures for the six months ended June 30, 1998 totaled $1.2
million and were used primarily to upgrade the Company's management information
systems.
The Company believes that its cash on hand and borrowing capacity under the
Credit Facility (see below) will be sufficient to fund its ongoing operations
and budgeted capital expenditures for the next twelve months, 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 additional borrowings and other sources of external financing as
needed.
CREDIT FACILITY
On January 8, 1998, the Company revised its Credit Facility. The new Credit
Facility is a $50.0 million secured revolving credit facility provided by
National City Bank, Dayton, Ohio (the "Bank") and two other banks. The Credit
Facility contains restrictive covenants which include, among other restrictions:
(i) the maintenance of certain financial ratios; (ii) restrictions on ( a ) the
purchase or sale of assets, ( b ) any merger, sale or consolidation activity, (
c ) loans, investments and guarantees made by the Company, ( d ) lease, sale and
leaseback transactions, and ( e ) capital expenditures; and (iii) certain
limitations on the incurrence of other indebtedness; and (iv) the prohibition of
the payment of cash dividends and the repurchase of the Company's stock. In
addition, the Credit Facility is collateralized by substantially all of the
Company's assets.
Loans may be made at the Bank's prime rate (the "Prime Rate") or at the
defined published eurodollar rate plus a "eurodollar margin" which ranges from
150 to 225 basis points ("Applicable Eurodollar Margin") based on the Company's
ratio of consolidated total indebtedness to consolidated earnings before
interest, taxes, depreciation and amortization (the "Debt/EBITDA Ratio") ranging
from greater than 2.75:1 (for which the Applicable Eurodollar Margin would be
the highest) to less than 2.0:1 (for which the Applicable Eurodollar Margin
would be the lowest). In addition, the Company has agreed to pay a commitment
fee ranging from 20.0 to 37.5 basis points per annum, depending upon the
Company's EBITDA Ratio and a letter of credit fee equal to the Applicable
Eurodollar Margin then in effect, plus a facing fee of 1/8 of 1% per annum on
the credit amount.
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
as of June 30, 1998 a net worth of $17.7 million and thereafter increasing by an
amount equal to 50.0% of the Company's net income and 90% of stock issued
beginning with the fourth quarter of 1997, maintain the ratio of total
indebtedness to earnings before interest, taxes, depreciation and amoritzation
below 3.75, and maintain a fixed change coverage ratio of at least 1.40. The
Credit Facility also contains certain other covenants. The Company was, at June
30, 1998 and is, as of the date hereof, in compliance with all covenants.
Loans under the Credit Facility have a maturity date of December 29, 2000.
All borrowings under the Credit Facility are classified as long-term debt.
Year 2000
1) THE RISKS AND THE COMPANY'S STATE OF READINESS:
The Company is aware of the issues associated with the hardware, software
and operating systems in existing computer and telecommunication systems as the
millennium approaches. The "year 2000" problem is pervasive and complex as
virtually every computer operation will be affected in some way by the rollover
of the two digit year value to 00. The issue is whether computer and other
computer operated systems will properly recognize date-sensitive information
when the year changes to 2000. Systems that do not properly recognize such
information could generate erroneous data or cause a system to fail.
The Company is utilizing internal and external resources to identify and
correct, or reprogram, all systems for year 2000 compliance. The Company's
AS/400 hardware and operating system are already compliant. The Company is in
the process of a corporate wide financial and distribution software package from
J. D. Edwards Company in response to the Company's expansion and acquisition
program. This software package is already year 2000 compliant, and installation
is expected to be complete January 1, 1999.
All other equipment is currently undergoing compliance testing. In cases of
non-compliance, equipment will be replaced by January 1, 1999. This equipment
includes PCs, networking equipment and telecommunication equipment.
2) THE COSTS TO ADDRESS THE COMPANY'S YEAR 2000 ISSUES:
The cost of year 2000 compliance to date, primarily due to the
investigation of the company's year 2000 issues, has approximated $15,000. Due
to the fact that most of the Company's computer and telecommunications equipment
is relatively new, the cost to bring it into compliance is currently estimated
to be less than $250,000.
9
<PAGE>
3) THE COMPANY'S CONTINGENCY PLANS:
The Company believes its Year 2000 plans are sufficient, but will develop
contingency plans as needed in the future.
10
<PAGE>
PART II-OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is, from time to time, involved in litigation in the
ordinary course of its business. As of the date of this Form 10-Q, management
does not believe that such litigation is material.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
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
Important Dates Relating to Stockholders Proposals for the 1999 Annual
Meeting of Stockholders
As noted in the Company's definitive Proxy Statement for the Annual Meeting
of Stockholders to be held April 29, 1998 under the caption "Stockholder
Proposals," any proposal which a stockholder of the Company wishes to have
included in the Company's proxy solicitation materials to be used in connection
with the Company's 1999 Annual Meeting of Stockholders, must be received at the
principal executive offices of the Company, 4750 Hempstead Station Drive,
Dayton, Ohio 45429, Attention: Thomas C. Winstel, Secretary, no later than
November 25, 1998.
If the notice of such proposal is received after November 25, 1998, it will
not be considered timely pursuant to Proxy Rule 14a-8 and such proposal will not
be included in the Company's proxy soliciting materials.
Stockholder proposals which are not submitted in inclusion in the Company's
proxy materials pursuant to Rule 14a-8 under the Securities Exchange Act of 1934
may be brought before an annual meeting pursuant to Article IX.C. of the
Company's Amended and Restated Articles of Incorporation ("Articles"), which
provide that business must be properly brought before the meeting by or at the
direction of the Board of Directors, or otherwise properly brought before the
meeting by a stockholder. For business to be properly brought before an annual
meeting by a stockholder, the stockholder must have given timely notice thereof
in writing to the Secretary of the Company. To be timely, a stockholder's
notice must be delivered to, or mailed and received at, the principal executive
offices of the Company on or before January 23, 1998. A stockholder's notice
shall set forth as to each matter the stockholder proposes to bring before the
annual meeting such information required by the Company's Articles. If the
proposal is not made in accordance with the terms of the Articles, such proposal
will not be acted upon at the 1999 Annual Meeting.
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
Report on Form 8-K regarding 3 for 2 Stock Split filed with the
Securities and Exchange Commission on April 28, 1998.
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: August 14, 1998
By: /s/ Ira H. Stanley
Ira H. Stanley
Vice President - Finance
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<PAGE>
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<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> APR-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 1,610,268
<SECURITIES> 0
<RECEIVABLES> 34,816,380
<ALLOWANCES> 312,244
<INVENTORY> 19,617,856
<CURRENT-ASSETS> 56,770,743
<PP&E> 7,743,023
<DEPRECIATION> 3,063,167
<TOTAL-ASSETS> 104,964,512
<CURRENT-LIABILITIES> 21,348,851
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 75,680,420
<TOTAL-LIABILITY-AND-EQUITY> 104,964,512
<SALES> 67,109,494
<TOTAL-REVENUES> 67,109,494
<CGS> 53,085,011
<TOTAL-COSTS> 64,087,228
<OTHER-EXPENSES> 776,257
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 818,195
<INCOME-PRETAX> 2,246,009
<INCOME-TAX> 1,011,796
<INCOME-CONTINUING> 1,234,213
<DISCONTINUED> 0
<EXTRAORDINARY> 0
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<NET-INCOME> 1,234,213
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<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 three months ended June 30, 1998 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 and
projection presentation 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 and projection presentation 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, approximately 55.4% of the Company's net sales for the six
months ended June 30, 1998 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"), Canon Corporation ("Canon") 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 $10.0 million, $250,000 and $180,000, respectively.
Restrictions Imposed by Debt Arrangements. The Company's outstanding
indebtedness consists primarily of borrowings under the $50.0 million secured
revolving credit facility (the "Credit Facility") provided by National City
Bank, PNC Bank and Key Corporate Capital, Inc. (the "Bank"). The Credit
Facility also requires that the Company submit certain reports to the Bank,
maintain proper books and records and insurance coverage, and comply with
applicable laws and regulations. The Company has further agreed that it will
not; (i) change the nature of its business; (ii) liquidate or dissolve its
affairs, merge, consolidate or acquire the property or assets of any person
(provided that such acquisitions comply with the financial covenants of the
Credit Agreement), certain intercompany mergers, permitted investments,
permitted dispositions, capital expenditures and losses; (iii) permit the
issuance of any lien on the Company's property and assets secure the
repayment of the Credit Agreement; (iv) incur other indebtedness except for
certain capital leases up to $3.0 million, certain guaranties, and existing
indebtedness; (v) lend money or buy the securities of, or make an investment
in any person, hold any subsidiary, or become a party to any partnership or
joint venture except for cash, receivables, certain loans, investments in
wholly-owned subsidiaries, loans by subsidiaries, permitted acquisitions,
certain subordinated indebtedness or certain investments up to $1.0 million;
(vi) pay cash dividends or repurchase its capital stock; (vii) violate
certain financial covenants relating to debt coverage or; (viii) engage in
certain other transactions. 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.
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,
<PAGE>
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 relies on its computer systems
for financial accounting, order processing and inventory control.
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, 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 and
projection presentation products 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 nine computer and
office automation supply and two projection presentation products 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.
<PAGE>
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.
