<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 MARCH 31, 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 May 10, 1999, 11,629,580 shares of common stock, no par value per
share, of the registrant were outstanding.
<PAGE>
MIAMI COMPUTER SUPPLY CORPORATION
FORM 10-Q
QUARTER ENDED MARCH 31, 1999
INDEX
PART I - FINANCIAL INFORMATION PAGE
Item 1. Financial Statements:
Consolidated Balance Sheet . . . . . . . . . . . . . . . . . . . . . . . . 3
Consolidated Statement of Operations . . . . . . . . . . . . . . . . . . . 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
Item 3. Quantitative and Qualitative Disclosures About Market Risk. . . . .10
PART II - OTHER INFORMATION
Item 1. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . .11
Item 2. Changes in Securities . . . . . . . . . . . . . . . . . . . . . . .11
Item 3. Default Upon Senior Securities. . . . . . . . . . . . . . . . . . .11
Item 4. Submission of Matters to a Vote of Security Holders . . . . . . . .11
Item 5. Other Information . . . . . . . . . . . . . . . . . . . . . . . . .11
Item 6. Exhibits and Reports on Form 8-K. . . . . . . . . . . . . . . . . .11
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .12
2
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
MIAMI COMPUTER SUPPLY CORPORATION
CONSOLIDATED BALANCE SHEET
(Dollars in thousands)
(UNAUDITED)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
ASSETS 1999 1998
---- ----
<S> <C> <C>
Current assets:
Cash and cash equivalents . . . . . . . . . . . . . . . . . $ 4,897 $ 4,115
Accounts receivable. . . . . . . . . . . . . . . . . . . . . 84,515 78,870
Inventories . . . . . . . . . . . . . . . . . . . . . . . . 53,802 40,109
Prepaid expenses and other current assets . . . . . . . . . 1,135 1,038
Deferred income taxes . . . . . . . . . . . . . . . . . . . 523 523
--------- ---------
Total current assets . . . . . . . . . . . . . . . . . 144,872 124,655
Property and equipment - net of accumulated
depreciation . . . . . . . . . . . . . . . . . . . . . . . . 21,537 19,298
Intangible assets - net of accumulated
amortization of $2,654 and $1,833 at March 31, 1999 and
December 31, 1998, respectively. . . . . . . . . . . . . . . 111,467 102,884
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . 1,857 3,143
--------- ---------
Total assets . . . . . . . . . . . . . . . . . . . . . $ 279,733 $ 249,980
--------- ---------
--------- ---------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable - trade . . . . . . . . . . . . . . . . . . $ 54,572 $ 37,889
Accrued expenses, payroll and income taxes . . . . . . . . . 8,493 6,447
Current portion of long-term debt . . . . . . . . . . . . . 307 298
--------- ---------
Total current liabilities . . . . . . . . . . . . . . . 63,372 44,634
Long-term debt . . . . . . . . . . . . . . . . . . . . . . . . 113,305 107,906
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . 246 246
--------- ---------
Total liabilities . . . . . . . . . . . . . . . . . . 176,923 152,786
--------- ---------
Commitments and contingencies . . . . . . . . . . . . . . . . . -- --
Stockholders' equity:
Preferred stock, no par value; 5,000,000 shares
authorized, none outstanding . . . . . . . . . . . . . . -- --
Common stock, no par value; 30,000,000 shares
authorized, 11,629,730 and 11,550,485 shares
outstanding at March 31, 1999 and
December 31, 1998, respectively. . . . . . . . . . . . . . -- --
Additional paid-in capital. . . . . . . . . . . . . . . . . . 88,574 86,154
Retained earnings . . . . . . . . . . . . . . . . . . . . . . 14,695 12,275
Cumulative other comprehensive income . . . . . . . . . . . . 238 97
Treasury stock, at cost (shares March 31, 1999-34,177;
December 31, 1998-79,414). . . . . . . . . . . . . . . . . (697) (1,332)
--------- ---------
Total stockholders' equity . . . . . . . . . . . . . . 102,810 97,194
--------- ---------
Total liabilities and stockholders' equity . . . . . . $ 279,733 $ 249,980
--------- ---------
--------- ---------
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
3
<PAGE>
MIAMI COMPUTER SUPPLY CORPORATION
CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
QUARTER ENDED
MARCH 31,
---------
1999 1998
---- ----
<S> <C> <C>
Net sales . . . . . . . . . . . . . . . . . . $ 153,869 $ 55,164
Cost of sales . . . . . . . . . . . . . . . . 124,842 42,653
------------ ------------
Gross profit. . . . . . . . . . . . . . . . . 29,027 12,511
Selling, general and administrative
expenses . . . . . . . . . . . . . . . . 22,490 10,263
------------ ------------
Operating income. . . . . . . . . . . . . . . 6,537 2,248
Interest expense. . . . . . . . . . . . . . . (2,130) (426)
Other income. . . . . . . . . . . . . . . . . 108 124
------------ ------------
Income before income taxes. . . . . . . . . . 4,515 1,946
Provision for income taxes. . . . . . . . . . 2,095 860
------------ ------------
Net income. . . . . . . . . . . . . . . . . . $ 2,420 $ 1,086
------------ ------------
------------ ------------
Earnings per share of common stock-
basic and diluted. . . . . . . . . . . . . $ 0.21 $ 0.14
------------ ------------
------------ ------------
Weighted average number of common
shares outstanding-basic. . . . . . . . . 11,491,697 7,779,377
------------ ------------
------------ ------------
Weighted average number of common
shares outstanding-diluted. . . . . . . . . 11,726,844 7,941,116
------------ ------------
------------ ------------
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
4
<PAGE>
MIAMI COMPUTER SUPPLY CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
---------
1999 1998
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,420 $ 1,086
Adjustments to reconcile net income to cash flows from
operating activities:
Depreciation and amortization . . . . . . . . . . . . . . . . . . . 1,448 537
Changes in assets and liabilities, net of effects of acquisitions
of businesses:
Accounts receivable . . . . . . . . . . . . . . . . . . . . . (3,431) (2,930)
Inventories. . . . . . . . . . . . . . . . . . . . . . . . . . (11,980) (1,279)
Prepaid expenses and deposits . . . . . . . . . . . . . . . . 1,174 (241)
Accounts payable - trade . . . . . . . . . . . . . . . . . . . 14,219 (2,500)
Accrued expenses, taxes and withholdings . . . . . . . . . . . 1,655 1,313
-------- --------
Cash provided by/(used in) operating activities . . . . . . . 5,505 (4,014)
-------- --------
Cash flows from investing activities:
Capital expenditures . . . . . . . . . . . . . . . . . . . . . (2,416) (625)
Investment in other assets . . . . . . . . . . . . . . . . . . 105 194
Business combinations. . . . . . . . . . . . . . . . . . . . . (5,451) (14,364)
Cash included in acquisitions. . . . . . . . . . . . . . . . . -- 259
-------- --------
Cash used in investing activities . . . . . . . . . . . . . . . . . (7,762) (14,536)
-------- --------
Cash flows from financing activities:
Net borrowings under line-of-credit. . . . . . . . . . . . . . 5,428 25,415
Net increase in long-term debt . . . . . . . . . . . . . . . . 338 350
Payment of debt acquired in business combinations. . . . . . . (1,742) (5,257)
Payment of notes payable . . . . . . . . . . . . . . . . . . . -- (2,791)
Treasury stock purchases . . . . . . . . . . . . . . . . . . . (763) --
-------- --------
Cash provided by financing activities . . . . . . . . . . . . . . . 3,261 17,717
-------- --------
Effects of exchange rates on cash . . . . . . . . . . . . . . . . . (222) --
-------- --------
Net increase/(decrease) in cash . . . . . . . . . . . . . . . . . . 782 (833)
Cash - beginning of period . . . . . . . . . . . . . . . . . . 4,115 1,662
-------- --------
Cash - end of period . . . . . . . . . . . . . . . . . . . . . $ 4,897 $ 829
-------- --------
-------- --------
Supplemental cash flow information:
Common stock issued in business combinations . . . . . . . . . $ 3,425 $ 14,194
</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)
(Dollars in thousands, except per share data)
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, 1998.
NOTE 2 - ACQUISITIONS
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 purchase
price totaled $6,850 and was comprised of cash, 161,224 shares of the Company's
common stock with a fair value of $3,425 and related out of pocket expenses. 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. 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 three
months ended March 31, 1999 include the impact of entities acquired during 1998
which are not included in the results of operations for the three months ended
March 31, 1998. The following pro forma information illustrates the effect of
these 1998 acquisitions assuming they had occurred on January 1, 1998.
<TABLE>
<CAPTION>
Three months ended
March 31, 1998
<S> <C>
Net sales. . . . . . . . . . . . . . . . . . . . . . . $ 127,122
Net income . . . . . . . . . . . . . . . . . . . . . . $ 1,167
Basic and diluted earnings per share . . . . . . . . . $ 0.13
</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
three month period ended March 31, 1999, or in future periods, had the
acquisitions actually occurred on January 1, 1998.
NOTE 3 - COMPREHENSIVE INCOME
Comprehensive income was $2,561 and $1,086, for the three months ended
March 31, 1999 and 1998, respectively.
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 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
6
<PAGE>
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 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 that the Company will
not need additional debt or equity financing to continue its acquisition
strategy.
MATERIAL CHANGES IN FINANCIAL CONDITION
During the three months ended March 31, 1999, there were no material
changes in the financial condition of the Company.
THREE MONTHS ENDED MARCH 31, 1999 COMPARED TO THREE MONTHS ENDED MARCH 31, 1998
NET SALES. Net sales for the three months ended March 31, 1999
increased by $98.7 million, or 178.8%, to $153.9 million from $55.2 million for
the three months ended March 31, 1998. Of the increase, sales to the Company's
core customer base increased 21.5%; the balance of the increase resulted from
acquired entities.
GROSS PROFIT. Gross profit for the three months ended March 31, 1999
increased by $ 16.5 million, or 132.0% to $29.0 million from $12.5 million for
the three months ended March 31, 1998. Gross profit as a percentage of net sales
for the three months ended March 31, 1999 was 18.9% compared to 22.7% for the
three months ended March 31, 1998. The decrease in the gross profit percentage
was due primarily to the increase in dealer sales, which have a lower gross
profit percentage, as compared to sales to end-users. The increase in the
Company's dealer sales resulted from the Company's acquisition of the Axidata
business.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses for the three months ended March 31, 1999 increased by
$12.2 million, to $22.5 million from $10.3 million for the three months ended
March 31, 1998. The majority of the increase resulted from acquired entities.
The selling, general and administrative expense was 14.6% and 18.6% of sales for
the three months ended March 31, 1999 and 1998, respectively. This decrease was
a result of the increased dealer sales which have a lower percentage expense
than end user sales.
OPERATING INCOME. Operating income for the three months ended March 31,
1999 increased by $4.3 million to $6.5 million from $2.2 million for the three
months ended March 31, 1998 for the reasons stated above. Operating margin
increased to 4.2% in 1999 compared to 4.1% in 1998.
INTEREST EXPENSE. Interest expense for the three months ended March 31,
1999 increased by $1.7 million to $2.1 million from $.4 million for the three
months ended March 31, 1998 due primarily to the increased level of indebtedness
during 1998, utilized to fund business combinations and the growth in working
capital requirements.
PROVISION FOR INCOME TAXES. The provision for income taxes for the
three months ended March 31, 1999 increased $1.2 million to $2.1 million from
$.9 million for the three months ended March 31, 1998. The Company's effective
tax rate was 46.4% for the three months ended March 31, 1999 and 44.2% for the
three months ended March 31, 1998. Increased amortization of goodwill, most of
which is not deductible for tax purposes, was the reason for the higher tax rate
during the 1999 three month period.
LIQUIDITY AND CAPITAL RESOURCES
Net cash flows from operating activities totaled $5.5 million for the
first three months of 1999 compared to $4.0 million used by operating activities
during the first three months of 1998. The change in net cash flows from
operating activities in the first three months of 1999, compared to the first
three months of 1998, was due primarily to increased net income and an increase
in trade accounts payable, offset by higher levels of accounts receivable and
inventory.
Net cash used in investing activities was $8.0 million for the three
months ended March 31, 1999 versus $14.5 million for the three months ended
March 31, 1998. The net cash used in investing activities primarily reflects the
acquisitions completed during the quarter and capital expenditures for the
quarter. Net cash provided by financing activities totaled $3.3 million for the
three months ended March 31, 1999 compared with $17.7 million for the three
months ended March 31, 1998.
Capital expenditures for the three months ended March 31, 1999 of
$2.4 million were used primarily to upgrade the Company's management
information systems.
7
<PAGE>
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.
YEAR 2000 ISSUES
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
implementing 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 year 2000 compliant. The J.D. Edwards Company
software package was installed on January 4, 1999 at the Company headquarters.
All of the Company's subsidiaries with critical Year 2000 issues will be
converted to this software package during the first nine months of 1999.
All other equipment is currently undergoing compliance testing. In
cases of non-compliance, equipment will be replaced. This equipment includes
PCs, networking equipment, telecommunication equipment, phone and alarm systems.
The Company has not completed an assessment of third party readiness.
The Company regularly carries products and accessories manufactured by over 500
original equipment manufacturers. Approximately 52% of the Company's net sales
for the year ended December 31, 1998, were provided by its suppliers. The
Company intends to obtain written assurance from these suppliers that they
expect to be Year 2000 compliant on a timely basis. Should a significant number
of the Company's suppliers not be Year 2000 compliant, the Company might not be
able to supply its customers with products on a timely basis, bill timely for
its products or collect its account receivable on a timely basis. Such a
disruption could have a material adverse affect on the Company's operation and
financial performance. The Company expects to complete its evaluation of third
party readiness during the second quarter of 1999.
2) THE COSTS TO ADDRESS THE COMPANY'S YEAR 2000 ISSUES:
The cost of year 2000 compliance and the J.D. Edwards software
conversion to date has approximated $5.0 million. The cost to bring the Company
into compliance and convert its financial and distribution systems to the J. D.
Edwards system is currently estimated to be approximately $6.3 million including
the amount spent to date.
3) THE COMPANY'S CONTINGENCY PLANS:
The Company is continuing to develop contingency plans as needed in the
future, including the determination of alternative service providers if the
Company's current third party service providers become incapable of performing
services for the Company and/or its customers as a result of the year 2000
problem.
CREDIT FACILITY
On December 10, 1998, the Company revised its then existing lending
arrangements with a consortium of banks. An amended and restated credit facility
of $125.0 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 (1.75% at March 31, 1999) or
the prime rate (7.75% at March 31, 1999). Subsequent to March 31, 1999, the
Company's credit facility was temporarily increased to $140.0 million, until
August 31, 1999.
8
<PAGE>
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
No significant market risk changes occurred in the three month period
ended March 31, 1999.
9
<PAGE>
PART II-OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Not applicable.
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
Form 8-K filed on January 15, 1999 to provide consents from certain
independent accountants with respect to the incorporation by reference
of certain of their reports into certain registration statements of the
Company.
Form 8-K/A filed on February 24, 1999 to amend Form 8-K originally
filed on December 16, 1998, regarding the Company's acquisition of
certain assets and liabilities of the computer supply business of
Axidata Inc. ("Axidata Business"), a wholly-owned subsidiary of Abitibi
Consolidated, Inc. The Form 8-K/A was filed to provide the audited
financial statements of the Axidata Business, as well as pro forma
data.
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: May 17, 1999
By: /s/ Ira H. Stanley
Ira H. Stanley
Vice President - Chief Financial Officer
11
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 4,897
<SECURITIES> 0
<RECEIVABLES> 84,880
<ALLOWANCES> 365
<INVENTORY> 53,802
<CURRENT-ASSETS> 144,872
<PP&E> 26,466
<DEPRECIATION> 4,929
<TOTAL-ASSETS> 279,733
<CURRENT-LIABILITIES> 63,372
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 102,810
<TOTAL-LIABILITY-AND-EQUITY> 279,733
<SALES> 153,869
<TOTAL-REVENUES> 153,869
<CGS> 124,842
<TOTAL-COSTS> 22,490
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,130
<INCOME-PRETAX> 4,515
<INCOME-TAX> 2,095
<INCOME-CONTINUING> 2,420
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,420
<EPS-PRIMARY> .21
<EPS-DILUTED> .21
</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 reference, in the Company's
Quarterly Report on Form 10-Q for the quarter ended March 31, 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, 52.4% and 47.2% of the Company's net sales in fiscal year 1998
and in the three months ended March 31, 1999, respectively, 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, 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 $140.0 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
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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 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 to be acquired in response to the Company's expansion and
acquisition program will be 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 seven 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 will be increased. Accordingly, no
assurance can be given that the
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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.
