<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO 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, 1999
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 October 25, 1999, 11,707,692 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, 1999
INDEX
<TABLE>
<S> <C>
PART I - FINANCIAL INFORMATION PAGE
Item 1. Financial Statements:
Consolidated Statements of Operations (Unaudited). . . . . . . . . . . . . . . 3
Consolidated Balance Sheets (Unaudited). . . . . . . . . . . . . . . . . . . . 4
Consolidated Statements of Cash Flows (Unaudited) . . . . . . . . . . . .. . . 5
Notes to Consolidated Financial Statements (Unaudited) . . . . . . . . . . . . 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations . . . . . . . . . . . . . . . . . 7-9
Item 3. Quantitative and Qualitative Disclosures About Market Risk . . . .. . . 10
PART II - OTHER INFORMATION
Item 1. Legal Proceedings. . . . . . . . . . . . . . . . . . . . . . . . .. . . 11
Item 2. Changes in Securities and Use of Proceeds. . . . . . . . . . . . .. . . 11
Item 3. Defaults 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
</TABLE>
2
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
MIAMI COMPUTER SUPPLY CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
QUARTER ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------- -------------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net sales . . . . . . . . . . . . . . . . . $ 181,781 $ 75,489 $ 494,166 $ 197,797
Cost of sales . . . . . . . . . . . . . . . 145,695 58,612 397,590 154,297
------------ ------------ ------------ ------------
Gross profit . . . . . . . . . . . . . . . . 36,086 16,877 96,576 43,500
Selling, general and administrative
expenses . . . . . . . . . . . . . . . . 28,705 13,395 75,736 34,660
------------ ------------ ------------ ------------
Operating income . . . . . . . . . . . . . . 7,381 3,482 20,840 8,840
Interest expense . . . . . . . . . . . . . . (2,649) (348) (7,173) (1,593)
Other income . . . . . . . . . . . . . . . . 91 39 352 117
------------ ------------ ------------ ------------
Income before income taxes . . . . . . . . . 4,823 3,173 14,019 7,364
Provision for income taxes . . . . . . . . . 2,055 1,388 6,307 3,259
------------ ------------ ------------ ------------
Net income . . . . . . . . . . . . . . . . . $ 2,768 $ 1,785 $ 7,712 $ 4,105
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
Earnings per share of common stock-
basic . . . . . . . . . . . . . . . . . . . $ 0.24 $ 0.17 0.67 $ 0.46
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
Earnings per share of common stock-
diluted . . . . . . . . . . . . . . . . . $ 0.24 $ 0.17 $ 0.66 $ 0.45
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
Weighted average number of common
shares outstanding-basic . . . . . . . . . 11,529,799 10,553,191 11,439,605 8,925,673
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
Weighted average number of common
shares outstanding-diluted . . . . . . . . . 11,688,185 10,788,005 11,644,718 9,129,690
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
3
<PAGE>
MIAMI COMPUTER SUPPLY CORPORATION
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
<TABLE>
<CAPTION>
(UNAUDITED)
SEPTEMBER 30, DECEMBER 31,
ASSETS 1999 1998
---- ----
<S> <C> <C>
Current assets:
Cash and cash equivalents . . . . . . . . . . . . . . . . . $ 6,667 $ 4,115
Accounts receivable . . . . . . . . . . . . . . . . . . . 98,180 78,870
Inventories . . . . . . . . . . . . . . . . . . . . . . . . 60,176 40,109
Prepaid expenses . . . . . . . . . . . . . . . . . . . . . 287 2,351
Deferred income taxes . . . . . . . . . . . . . . . . . . . 523 523
--------- ---------
Total current assets . . . . . . . . . . . . . . . . . 165,833 125,968
Property and equipment - net of accumulated
depreciation . . . . . . . . . . . . . . . . . . . . . . . 27,214 19,298
Intangible assets - net of accumulated
amortization of 3,473 and $1,833 at
June 30, 1999 and December 31, 1998, respectively . . . . . . 117,267 102,884
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . 2,032 1,830
--------- ---------
Total assets . . . . . . . . . . . . . . . . . . . . . $ 312,346 $ 249,980
--------- ---------
--------- ---------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable - trade .. . . . . . . . . . . . . . . . . . $ 51,619 $ 37,889
Accrued expenses, payroll and income taxes . . . . . . . . . 11,892 6,447
Current portion of long-term debt . . . . . . . . . . . . . . 492 298
--------- ---------
Total current liabilities . . . . . . . . . . . . . . . 64,003 44,634
Long-term debt . . . . . . . . . . . . . . . . . . . . . . . . 139,924 107,906
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . 246 246
--------- ---------
Total liabilities . . . . . . . . . . . . . . . . . . 204,173 152,786
--------- ---------
Stockholders' equity:
Preferred stock, no par value; 5,000,000 shares
authorized, none outstanding . . . . . . . . . . . . . . -- --
Common stock, no par value; 30,000,000 shares
authorized, 11,815,080 and 11,550,485 shares
outstanding at September 30, 1999 and
December 31, 1998, respectively . . . . . . . . . . . . . -- --
Additional paid-in capital . . . . . . . . . . . . . . . . 91,985 86,154
Retained earnings . . . . . . . . . . . . . . . . . . . . . 19,949 12,275
Cumulative translation adjustment . . . . . . . . . . . . . 689 310
Unrealized loss on marketable securities . . . . . . . . . . (278) (213)
Treasury stock, at cost (shares 231,998 at September 30, 1999;
79,414 at December 31, 1998) . . . . . . . . . . . . . . . (4,172) (1,332)
--------- ---------
Total stockholders' equity . . . . . . . . . . . . . . 108,173 97,194
--------- ---------
Total liabilities and stockholders' equity . . . . . . $ 312,346 $ 249,980
--------- ---------
--------- ---------
The accompanying notes are an integral part of these consolidated financial
statements.
</TABLE>
4
<PAGE>
MIAMI COMPUTER SUPPLY CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(Dollars in thousands)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
------------
1999 1998
---- ----
<S> <C> <C>
Cash flows from in operating activities:
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . $ 7,712 $ 4,105
Adjustments to reconcile net income to cash used in
operating activities:
Depreciation and amortization . . . . . . . . . . . . . . . . . . 4,686 1,557
Changes in assets and liabilities net of effects of acquisitions
of businesses:
Accounts receivable . . . . . . . . . . . . . . . . . . . . . (10,831) (10,430)
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . (15,450) (7,691)
Prepaid expenses and deposits . . . . . . . . . . . . . . . 2,219 (462)
Accounts payable - trade . . . . . . . . . . . . . . . . . . . 8,768 1,546
Accrued expenses, taxes and withholding . . . . . . . . . . . . 3,115 1,095
-------- --------
Cash provided by (used in) operating activities . . . . . . . 219 (10,280)
-------- --------
Cash flows from investing activities:
Capital expenditures . . . . . . . . . . . . . . . . . . . . . (7,975) (3,371)
Investment in other assets . . . . . . . . . . . . . . . . . . . 21 (482)
Business combinations . . . . . . . . . . . . . . . . . . . . (10,180) (28,303)
Cash included in acquisitions . . . . . . . . . . . . . . . . . . 42 529
-------- --------
Cash used in investing activities . . . . . . . . . . . . . . . . (18,092) (31,627)
-------- --------
Cash flows from financing activities:
Net proceeds from sale of common stock . . .. . . . . . . . . . . 18 35,929
Net borrowings under line-of-credit . . . . . . . . .. . . . . . 32,028 23,860
Principal payments on long-term debt . . . . . . . . . . . . . . 260 66
Purchase of treasury stock . . . . . . . . . . . . . . . . . . . (4,372) (3,274)
Payment of debt acquired in business combinations . . . . . . . . (7,164) (14,676)
-------- --------
Cash provided by financing activities . . . . . . . . . . . . . . 20,770 41,905
-------- --------
Effects of exchange rates on cash . . . . . . . . . . . . . . . . (345) --
-------- --------
Net decrease (increase) in cash . . . . . . . . . . . . . . . . . 2,552 (1)
Cash - beginning of period . . . . . . . . . . . . . . . . . . . 4,115 1,662
-------- --------
Cash - end of period . . . . . . . . . . . . . . . . . . . . . . $ 6,667 $ 1,661
-------- --------
-------- --------
Supplemental cash flow information:
Cash paid for interest . . . . . . . . . . . . . . . . . . . . . . $ 5,527 $ 1,452
-------- --------
-------- --------
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
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 September 30, 1999 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, 1998.
NOTE 2 - ACQUISITIONS
Effective August 13, 1999, the Company completed its acquisition of
Technical Industries, Inc ("TI") in a purchase business combination. TI is
engaged in the distribution and integration of audio-visual presentation
products. The acquisition of TI was not material to the consolidated
financial statements and pro forma data is not presented.
Effective June 15, 1999, the Company completed its acquisition of
Audio Visual Systems, Inc. ("AVS") in a purchase business combination. AVS
is engaged in the distribution and integration of audio-visual presentation
products. The acquisition of AVS was not material to the consolidated
financial statements and pro forma data is not presented.
Effective March 1, 1999, the Company completed its acquisition of
Central Audio Visual, Inc. ("CAV") in a purchase business combination. CAV
is engaged in the distribution of audio-visual presentation products. The
acquisition of CAV was not material to the consolidated financial statements
and pro forma data is not presented.
As disclosed in the Annual Report on Form 10-K, the Company has been
involved in an active acquisition program. Results of operations for the nine
months ended September 30, 1999 include the impact of entities acquired
during 1998 which are not included in the results of operations for the nine
months ended September 30, 1998. The following pro forma information
illustrates the effect of these 1998 acquisitions assuming they had occurred
on January 1, 1998.
<TABLE>
<CAPTION>
Nine months ended
September 30, 1998
------------------
<S> <C>
Net sales . . . . . . . . . . . . . . . . . . . . . . . $ 431,011
--------------
--------------
Net income. . . . . . . . . . . . . . . . . . . . . . . $ 4,501
--------------
--------------
Basic earnings per share . . . . . . . . . . . . . . . $ 0.45
--------------
--------------
Diluted earnings per share . . . . . . . . . . . . . . $ 0.44
--------------
--------------
</TABLE>
The pro forma statement of operations data reflect the effects of
the purchase price allocation and the resultant amortization and additional
interest expense associated with the cash used to fund the acquisitions,
along with other adjustments directly attributable to the transactions. The
pro forma data reflects adjustments directly related to the acquisitions and
does not include adjustments that may arise as a consequence of the
acquisitions, such as cost savings, improved efficiencies, etc. Therefore,
the pro forma data is not necessarily indicative of operating results that
would have occurred for the nine month period ended September 30, 1998, or in
future periods, had the acquisitions actually occurred on January 1, 1998.
NOTE 3 - COMPREHENSIVE INCOME
Comprehensive income was $8,026 and $4,105 for the nine months ended
September 30, 1999 and 1998, respectively and $2,907 and $1,785 for the
quarter ended September 30, 1999 and 1998, respectively.
6
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion should be read in conjunction with the
information contained in the unaudited consolidated financial statements and
Notes to unaudited 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 key suppliers, risks
inherent in acquiring, integrating and operating new businesses, exchange
rate fluctuations, the regulatory and trade environment (both domestic and
foreign), 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 audio-visual
presentation products distribution and integration 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 SEPTEMBER 30, 1999 COMPARED TO THREE MONTHS ENDED
SEPTEMBER 30, 1998
NET SALES. Net sales for the three months ended September 30, 1999
increased by $106.3 million, or 141%, to $181.8 million from $75.5 million
for the three months ended September 30, 1998.
GROSS PROFIT. Gross profit for the three months ended September 30,
1999 increased by $19.2 million or 114% to $36.1 million from $16.9 million
for the three months ended September 30, 1998. Gross profit as a percentage
of net sales for the three months ended September 30, 1999 was 20% compared
to 22% for the three months ended September 30, 1998. The decrease in gross
profit is due to the portion of Axidata's business, which was purchased in
December 1998, derived from wholesale sales, which has lower margins than the
Company as a whole.
SELLING GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses for the three months ended September 30, 1999
increased by $15.3 million, to $28.7 million from $13.4 million for the three
months ended September 30, 1998. The majority of the increase resulted from
the acquisitions the Company has completed since June 30, 1998. As a
percentage of net sales, selling, general and administrative expenses were
16% for the three months ended September 30, 1999 compared to 18% for the
three months ended September 30, 1998.
OPERATING INCOME. Operating income for the three months ended
September 30, 1999 increased by $3.9 million to $7.4 million from $3.5
million for the three months ended September 30, 1998 for the reasons stated
above. Operating margin decreased to 4% for the three months ended September
30, 1999 compared to 5% for the three months ended September 30, 1998.
INTEREST EXPENSE. Interest expense for the three months ended
September 30, 1999 increased by $2.3 million to $2.6 million from $348,000
for the three months ended September 30, 1998 due primarily to the increased
level of indebtedness during 1999, utilized to fund business combinations and
the growth in working capital.
PROVISION FOR INCOME TAXES. The provision for income taxes for the
three months ended September 30, 1999 increased $667,000 to $2.1 million from
$1.4 million for the three months ended September 30, 1998. The Company's
effective tax rate was 43% for the three months ended September 30, 1999 and
44% for the three months ended September 30, 1998.
7
<PAGE>
NINE MONTHS ENDED SEPTEMBER 30, 1999 COMPARED TO NINE MONTHS ENDED
SEPTEMBER 30, 1998
NET SALES. Net sales for the nine months ended September 30, 1999
increased by $296.4 million, or 150%, to $494.2 million from $197.7 million
for the nine months ended September 30, 1998.
GROSS PROFIT. Gross profit for the nine months ended September 30,
1999 increased by $53.1 million or 122% to $96.6 million from $43.5 million
for the nine months ended September 30, 1998. Gross profit as a percentage of
net sales for the nine months ended September 30, 1999 was 20% compared to
22% for the nine months ended September 30, 1998. The decrease in gross
profit is due to the portion of Axidata's business, which was purchased in
December 1998, derived from wholesale sales, which has lower margins than the
Company as a whole.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses for the nine months ended September 30, 1999
increased by $41.1 million, to $75.7 million from $34.7 million for the nine
months ended September 30, 1998. The majority of the increase resulted from
the acquisitions the Company has completed since June 30, 1998. As a
percentage of net sales, selling, general and administrative expenses were
15% for the nine months ended September 30, 1999 compared to 18% for the nine
months ended September 30, 1998.
OPERATING INCOME. Operating income for the nine months ended
September 30, 1999 increased by $12.0 million to $20.8 million from $8.8
million for the nine months ended September 30, 1998, for the reasons stated
above. Operating margins were 4% for the nine months ended September 30, 1999
compared to 5% for the nine months ended September 30, 1998.
INTEREST EXPENSE. Interest expense for the nine months ended
September 30, 1999 increased to $7.2 million from $1.6 million for the nine
months ended September 30, 1998 due primarily to the increased level of
indebtedness during 1999, which was used for business combinations and
working capital.
PROVISION FOR INCOME TAXES. The provision for income taxes for the
nine months ended September 30, 1999 increased $3.0 million to $6.3 million
from $3.3 million for the nine months ended September 30, 1998. The Company's
effective tax rate was 45% for the nine months ended September 30, 1999 as
compared to 44% for the corresponding period of the prior year.
LIQUIDITY AND CAPITAL RESOURCES
Net cash flows used in operating activities totaled $2.2 million for
the first nine months of 1999 compared to $10.3 million used by operating
activities during the first nine months of 1998. The change in net cash flows
from operating activities was due primarily to higher net income,
depreciation and amortization and an increase in accounts payable.
Net cash used in investing activities was $18.1 million for the nine
months ended September 30, 1999 versus $31.6 million for the nine months
ended September 30, 1998. The net cash used in investing activities primarily
reflects the acquisitions completed during the period. Net cash provided by
financing activities totaled $20.8 million for the nine months ended
September 30, 1999 compared with $41.9 million for the nine months ended
September 30, 1998.
Capital expenditures for the nine months ended September 30, 1999
totaled $7.9 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. There can be no guarantee that such
financing will be available to the Company on favorable terms or at all.
8
<PAGE>
YEAR 2000
Year 2000 problems may disrupt our business. We are aware of the
issues associated with the hardware, software and operating systems in
existing computer and telecommunication systems as the next 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. We are utilizing
internal and external resources to identify and correct, or reprogram, all of
our systems for Year 2000 compliance. Our AS/400hardware
9
<PAGE>
and operating system are already compliant. We recently have implemented a
corporate wide financial and distribution software package from J. D.
Edwards Company, at a cost of approximately $7.9 million, in response to
our expansion and acquisition program. We believe this software package is
already Year 2000 compliant. All subsidiaries with known Year 2000 problems
have been converted to the J. D. Edwards Company software package as of the
date hereof. All other equipment is currently undergoing compliance testing
which is expected to be completed by November 30, 1999. Equipment identified
as not Year 2000 compliant will be replaced. This equipment includes personal
computers, networking equipment, telecommunication equipment, phone and alarm
systems. Because most of our computer and telecommunications equipment is
relatively new, the cost to bring it into compliance is currently estimated to
be less than $250,000. We regularly carry products and accessories
manufactured by over 500 original equipment manufacturers.
Approximately 54.2% of our net
sales for the year ended December 31, 1998, were provided by our top ten
suppliers. We believe that our third party vendors and suppliers are
substantially Year 2000 compliant. Should a significant number of our
suppliers not be Year 2000 compliant, we might not be able to supply our
customers with product on a timely basis. Such a disruption could have a
material adverse effect on our operation and financial performance. No one
knows the extent of the potential impact of the Year 2000 problem generally
and we cannot predict the likelihood that Year 2000 problems will cause a
significant disruption in the economy as a whole. We will continue to examine
the Year 2000 issue as it potentially impacts us and will develop a
contingency plan if we believe one is necessary.
CREDIT FACILITY
On August 31, 1999, the Company revised its then existing lending
arrangements with a consortium of banks. An amended and restated credit facility
of $150.0 million was provided by PNC Bank, N.A. and four other banks and
matures on December 10, 2003. Borrowings under the credit facility are
classified as long term debt. The credit facility enables the Company to borrow
funds and repay funds during the term of the agreement and 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 and sale and
leaseback transactions, and ( e ) capital expenditures; and (iii) certain
limitations on the incurrence of other indebtedness. In addition, the credit
facility prohibits the payment of dividends and certain repurchases of the
Company's common stock. The Credit Facility is collateralized by substantially
all of the Company's assets. The interest rate for the credit facility is based
upon either the LIBOR rate plus a variable spread (2% at September 30, 1999) or
the prime rate (8 1/4% at September 30, 1999).
10
<PAGE>
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
No significant market risk changes occurred in the three-month period
ended September 30, 1999.
11
<PAGE>
PART II-OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Not applicable.
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
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
Not applicable.
12
<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 12, 1999
By:/s/ Ira H. Stanley
Ira H. Stanley
Vice President - Chief Financial Officer
13
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
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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 reference, in the Company's
Quarterly Report on Form 10-Q for the quarter ended September 30, 1999 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 supply and
audio-visual presentation products 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 audio-visual presentation products 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. 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, Sharp and Lexmark 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 $150.0 million
secured Credit Facility provided by PNC Bank, N.A. and four other banks (the
"Banks"). 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) restrictions on ( a ) the purchase or sale of assets, ( b ) any
merger, sale or consolidation activity, ( c ) loans, investments and
guaranties made by the Company, ( d ) lease and sale and leaseback
transactions, and ( e ) capital expenditures; and (iii) certain limitations
on the incurrence of other indebtedness. These provisions may constrain the
Company's acquisition strategy, or 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 prohibits the payment of dividends and certain
repurchases of the 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,
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 the "year 2000 problem,"
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
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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 is utilizing internal resources and outside consultants to
upgrade its software for year 2000 ("Year 2000") compliance. The Company's
computer hardware and operating system are already Year 2000 compliant. New
software has been acquired in response to the Company's expansion and
acquisition program is Year 2000 compliant.
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
audio-visual presentation product 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 ten computer and office
automation supply companies, and nine audio-visual presentation products
companies, since its initial public offering in November 1996 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 financing. 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. As a result of the purchase of Axidata Inc., a
Canadian computer supply wholesaler in December 1998, the Company's exposure
to fluctuations in exchange rates has 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
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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.
3
