<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, 2000
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 8, 2000, 12,118,699 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, 2000
INDEX
<TABLE>
<CAPTION>
PART I - FINANCIAL INFORMATION PAGE
<S> <C>
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
</TABLE>
2
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
MIAMI COMPUTER SUPPLY CORPORATION
CONSOLIDATED BALANCE SHEET
(UNAUDITED)
(Dollars in thousands)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
ASSETS 2000 1999
---- ----
<S> <C> <C>
Current assets:
Cash and cash equivalents .................................. $ 5,922 $ 5,135
Accounts receivable ....................................... 124,240 104,219
Inventories ................................................ 76,613 76,923
Prepaid expenses .......................................... 1,485 998
Deferred income taxes ...................................... 621 621
--------------- ---------------
Total current assets .................................. 208,881 187,896
Property and equipment - net of accumulated
depreciation ................................................ 32,680 30,384
Intangible assets - net of accumulated
amortization of $5,572 and $4,686 at
March 31, 2000 and December 31, 1999, respectively ........ 132,792 132,379
Other assets .................................................. 1,762 3,619
--------------- ---------------
Total assets ........................................... $ 376,115 $ 354,278
=============== ===============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable - trade ...................................... $ 74,938 $ 59,781
Accrued expenses, payroll and income taxes .................... 7,732 9,104
Notes payable in connection with business
combinations .................................................. -- 8,206
Current portion of long-term debt .............................. 596 596
--------------- ---------------
Total current liabilities ............................. 83,266 77,687
Long-term debt ................................................. 163,079 149,461
Deferred income taxes .......................................... 974 974
--------------- ---------------
Total liabilities ..................................... 247,319 228,122
--------------- ---------------
Commitments and contingencies ................................. -- --
Redeemable minority interest in subsidiary ..................... 3,981 3,977
--------------- ---------------
Stockholders' equity:
Preferred stock, no par value; 5,000,000 shares
authorized, none outstanding ............................ -- --
Common stock, no par value; 30,000,000 shares
authorized, 12,116,624 and 12,084,604 shares
outstanding at March 31, 2000 and
December 31, 1999, respectively ...................... -- --
Additional paid-in capital .................................... 100,265 100,041
Retained earnings ............................................. 26,919 23,413
Cumulative other comprehensive income ......................... 396 802
Treasury stock, at cost (2000-86,386;
1999-84,944, shares, respectively) ........................... (2,765) (2,077)
--------------- ---------------
Total stockholders' equity ............................ 124,815 122,179
--------------- ---------------
Total liabilities and stockholders' equity ............ $ 376,115 $ 354,278
=============== ===============
</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,
---------
2000 1999
---- ----
<S> <C> <C>
Net sales .......................................... $ 205,938 $ 153,869
Cost of sales ...................................... 157,988 124,842
--------------- ---------------
Gross profit ....................................... 47,950 29,027
Selling, general and administrative
expenses ......................................... 38,392 22,490
--------------- ---------------
Operating income ................................... 9,558 6,537
Interest expense ................................... (3,419) (2,130)
Other income ....................................... 138 108
--------------- ---------------
Income before income taxes ......................... 6,277 4,515
Provision for income taxes ......................... 2,771 2,095
--------------- ---------------
Net income ......................................... $ 3,506 $ 2,420
=============== ===============
Earnings per share of common stock-
basic ............................................ $ 0.28 $ 0.21
=============== ===============
Earnings per share of common stock-
diluted .......................................... $ 0.28 $ 0.21
=============== ===============
Weighted average number of common
shares outstanding - basic ....................... 11,996,069 11,491,697
=============== ===============
Weighted average number of common
shares outstanding - diluted ..................... 12,319,516 11,726,844
=============== ===============
</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)
<TABLE>
<CAPTION>
QUARTER ENDED
MARCH 31,
---------
2000 1999
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income ............................................................... $ 3,506 $ 2,240
Adjustments to reconcile net income to cash flows from operating activities:
Depreciation and amortization ............................................ 1,893 1,448
Other non-cash items ..................................................... (244) --
Changes in assets and liabilities, net of effects of acquisitions of
businesses:
Accounts receivable ..................................................... (20,021) (3,431)
Inventories ............................................................. 310 (11,980)
Prepaid expenses and other assets ....................................... 428 1,174
Accounts payable - trade ................................................ 15,157 14,219
Accrued expenses, payroll and income taxes............................... (1,372) 1,655
--------------- ---------------
Cash (used in) provided by operating activities .............................. (343) 5,505
--------------- ---------------
Cash flows from investing activities:
Capital expenditures ..................................................... (1,942) (2,416)
Investment in other assets ............................................... -- 105
Business combinations .................................................... (744) (5,451)
--------------- ---------------
Cash used in investing activities ............................................ (2,686) (7,762)
--------------- ---------------
Cash flows from financing activities:
Net borrowings under line-of-credit ........................................ 14,330 5,428
Net (decrease) increase in long-term debt .................................. (712) 338
Payment of debt acquired in business combinations .......................... (8,206) (1,742)
Proceeds from the exercise of stock options ................................ 346 --
Treasury stock purchases ................................................... (1,567) (763)
--------------- ---------------
Cash provided by financing activities ........................................ 4,191 3,261
--------------- ---------------
Effects of exchange rates .................................................... (375) (222)
--------------- ---------------
Net increase in cash ....................................................... 787 782
Cash and cash equivalents - beginning of period ............................ 5,135 4,115
--------------- ---------------
Cash and cash equivalents - end of period .................................. $ 5,922 $ 4,897
=============== ===============
Supplemental cash flow information:
Common stock issued in business combinations ............................... $ 334 $ 3,425
=============== ===============
</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, 1999.
NOTE 2 - ACQUISITIONS
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, 2000 include the impact of entities acquired during 1999
which are not included in the results of operations for the three months ended
March 31, 1999. The following pro forma information illustrates the effect of
these 1999 acquisitions assuming they had occurred on January 1, 1999.
<TABLE>
<CAPTION>
Quarter ended
March 31, 1999
--------------
<S> <C>
Net sales ............................................ $183,081
========
Net income ........................................... $ 2,377
========
Basic and diluted earnings per share ................. $ 0.19
========
</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, 1999.
There were no acquisitions in the first quarter 2000 and activity during
that period shown in these financial statements relates to final settlement
and third party professional fees related to prior acquisitions.
NOTE 3 - COMPREHENSIVE INCOME
Comprehensive income was $3,100 and $2,561 for the three months ended
March 31, 2000 and 1999, respectively.
NOTE 4 - BASIC AND DILUTED EARNINGS PER COMMON SHARE
The only dilutive securities of the Company relate to stock options. The
computation of basic and diluted earnings per common share is shown below:
6
<PAGE>
<TABLE>
<CAPTION>
Quarter Ended
March 31, 2000
--------------
Income Shares
(Numerator) (Denominator)
----------- -------------
<S> <C> <C>
Net income as reported ........... $ 3,506
Effect of accretion of
redeemable stock .............. (104)
---------------
Income available to
common stockholders ........... $ 3,402 11,996,069
===============
Effect of dilutive securities .... 323,447
---------------
Income available to common
stockholders plus assumed
exercise ................... $ 3,402 12,319,516
=============== ===============
Basic earnings per common
share ......................... $ 0.28
===============
Diluted earnings per common
share ......................... $ 0.28
===============
</TABLE>
All stock options outstanding at March 31, 2000 and March 31, 1999 were
included in the computation of diluted earnings per common share for the three
months ended March 31, 2000 and 1999, 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
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 technology products, supplies and services and visual
communications products, technologies and services 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.
THREE MONTHS ENDED MARCH 31, 2000 COMPARED TO THREE MONTHS ENDED MARCH 31, 1999
NET SALES. Net sales for the three months ended March 31, 2000 increased by
$52.0 million, or 33.8%, to $205.9 million from $153.9 million for the three
months ended March 31, 1999. Of the net sales increase, 78.4% was attributable
to the impact of acquisitions made during 1999. The remaining 21.6% of the
increase was primarily a result of increased sales penetration, increased
product offerings to existing customers and expanding the sales force.
GROSS PROFIT. Gross profit for the three months ended March 31, 2000
increased by $19.0 million, or 65.2% to $48.0 million from $29.0 million for the
three months ended March 31, 1999. Gross profit as a percentage of net sales for
the three months ended March 31, 2000 was 23.3% compared to 18.9% for the three
months ended March 31, 1999. The increase in the gross profit
7
<PAGE>
percentage was due primarily to the increase in visual communications product
sales, which have a higher gross profit percentage, as compared to computer
supply sales.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses for the three months ended March 31, 2000 increased
by $15.9 million, to $38.4 million from $22.5 million for the three months
ended March 31, 1999. Of that increase, 80.6% was due to the impact of the
1999 acquisitions. Selling, general and administrative expenses were 18.6%
and 14.6% of sales for the three months ended March 31, 2000 and 1999,
respectively. The 4.0% increase was due primarily to increased visual
communications product sales, which have a higher percentage expense than
computer supply sales.
OPERATING INCOME. Operating income for the three months ended March 31,
2000 increased by $3.0 million to $9.6 million from $6.6 million for the three
months ended March 31, 1999. This increase was primarily due to increased sales
volume and acquisitions of visual communications products companies that the
Company completed in 1999.
INTEREST EXPENSE. Interest expense for the three months ended March 31,
2000 increased by $1.3 million to $3.4 million from $2.1 million for the three
months ended March 31, 1999 due primarily to the increased level of indebtedness
during 2000, resulting from the Company's acquisition program.
PROVISION FOR INCOME TAXES. The provision for income taxes for the three
months ended March 31, 2000 increased $0.7 million to $2.8 million from $2.1
million for the three months ended March 31, 1999. The Company's effective tax
rate was 44.1% for the three months ended March 31, 2000 and 46.4% for the three
months ended March 31, 1999. The decrease was primarily due to reduced state and
local taxes.
LIQUIDITY AND CAPITAL RESOURCES
Net cash flows used in operating activities totaled $0.3 million for the
first three months of 2000 compared to $5.5 million provided from operating
activities during the first three months of 1999. The change in net cash
flows from operating activities in the first three months of 2000, was due
primarily to increases in net income, depreciation and amortization and trade
accounts payable, offset by higher levels of accounts receivable.
Net cash used in investing activities was $2.7 million for the three months
ended March 31, 2000 versus $7.8 million for the three months ended March 31,
1999. 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 $4.2 million for the
three months ended March 31, 2000 compared with $3.3 million for the three
months ended March 31, 1999. The primary source of cash provided by financing
activities was borrowings under the Company's line of credit.
Capital expenditures for the three months ended March 31, 2000 of $1.9
million were used primarily for the Company's management information systems and
distribution facilities.
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.
IMPACT OF YEAR 2000
As a result of the Company's assessment, preparation, systematic
conversion to the J. D. Edwards ERP and the remediation of its internal
information technology ("IT") and non-IT systems in preparation of the Year
2000, the Company has not experienced any interruptions in operations or its
financial or non-financial activities resulting from the Year 2000 issue. All
system remediation was completed in 1999 using both internal resources and
external consultants. The cost of Year 2000 compliance and the related J. D.
Edwards software conversion to date has totaled $9.3 million. As the Year
2000 continues, the Company will continue to monitor its systems for
potential Year 2000 issues.
To date the Company has not been adversely affected by any impact the Year
2000 issue may have had on third parties with whom the Company has dealings.
Additionally, the Company has not had to implement its contingency plans
established to address the failure of its or the third parties' systems.
However, in the event that this becomes necessary, it is management's current
belief that these contingency plans would satisfactorily address the risk
associated with any absence of readiness experienced by these programs and/or
systems. There can be no assurance that implementation of such plans will
mitigate in whole or in part such risk.
8
<PAGE>
CREDIT FACILITY
Since January 1998, the Company has maintained its credit facility with PNC
Bank, N.A. (the "Bank"), Key Corporate Capital, Inc. and National City Bank,
under a secured general revolving line of credit of $50.0 million. In December
1998, the Company increased the line of credit to $125.0 million by amendment to
the credit facility adding Firstar Bank and Bank One as facility participants.
During August 1999, the Company increased the line of credit to $150.0 million
by amendment to the credit facility adding Huntington Bank as a facility
participant. In January 2000, the Company increased the line of credit facility
to $175.0 million by an amendment to the credit facility adding Provident Bank
as a facility participant. Loans under the Credit Facility may be incurred by
the Company from time to time to finance "permitted acquisitions" and may be
made at the Bank's prime rate (as defined) or at the defined published
eurodollar rate plus a "eurodollar margin" that ranges from 100 to 200 basis
points based on certain indebtedness ratios of the Company. Borrowings over $160
million have margins that are higher by 50 basis points. Borrowings under the
Credit Facility are secured by substantially all of the assets and property of
the Company and its subsidiaries, including accounts receivable, equipment and
inventory. The loan commitment terminates on the maturity date (December 10,
2003), unless terminated earlier. The Company may voluntarily prepay any advance
without penalty or premium at any time or from time to time.
The Credit Facility contains restrictive covenants which may have an
adverse effect on the Company's operations in the future. The Company has
covenanted that, among other things, 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, other than permitted acquisitions that
comply with the financial covenants of the Credit Facility, certain intercompany
mergers, permitted investments, permitted dispositions, certain capital
expenditures and leases; (iii) permit the incurrence of any lien on the
Company's property and assets; (iv) incur other indebtedness, except for up to
$7.0 million of indebtedness incurred by foreign subsidiaries and for certain
capital leases up to $10.0 million, certain guaranties and existing
indebtedness; (v) pay cash dividends or repurchase more than a certain amount of
its capital stock; (vi) violate certain financial covenants; or (vii) engage in
certain other transactions.
9
<PAGE>
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
No significant market risk changes occurred in the three-month period ended
March 31, 2000. Refer to the Company's Annual Report on Form 10-K for further
information.
10
<PAGE>
PART II-OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The company is involved in routine legal proceedings occurring in the
ordinary course of business, which, in the aggregate, are believed by management
to be immaterial.
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 February 18, 2000 concerning the change of the Company's
trading symbol on the Nasdaq National Market from "MCSC" to "MCSI".
Form 8-K filed on February 14, 2000 concerning the resignation of Anthony
W. Liberati as Chairman of the Board of Directors and the election of Michael E.
Peppel as Chairman of the Board.
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: May 15, 2000
By: /s/ Ira H. Stanley
Ira H. Stanley
Vice President - Chief Financial Officer
12
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 5,922
<SECURITIES> 0
<RECEIVABLES> 124,965
<ALLOWANCES> 725
<INVENTORY> 76,613
<CURRENT-ASSETS> 208,882
<PP&E> 47,987
<DEPRECIATION> 15,307
<TOTAL-ASSETS> 376,116
<CURRENT-LIABILITIES> 83,266
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 124,815
<TOTAL-LIABILITY-AND-EQUITY> 376,116
<SALES> 205,938
<TOTAL-REVENUES> 205,938
<CGS> 157,988
<TOTAL-COSTS> 38,392
<OTHER-EXPENSES> (138)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,419
<INCOME-PRETAX> 6,277
<INCOME-TAX> 2,771
<INCOME-CONTINUING> 3,506
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,506
<EPS-BASIC> .28
<EPS-DILUTED> .28
</TABLE>
<PAGE>
EXHIBIT 99
SAFE HARBOR UNDER THE PRIVATE SECURITIES LITIGATION
REFORM ACT OF 1995
The Private Securities Litigation Reform Act of 1995 (the "Act") provides a
"safe harbor" for forward-looking statements to encourage companies to provide
prospective information about their companies, so long as those statements are
identified as forward-looking and are accompanied by meaningful cautionary
statements identifying important factors that could cause actual results to
differ materially from those discussed in the statement. The Company desires to
take advantage of the "safe harbor" provisions of the Act. Certain information,
particularly information regarding future economic performance and finances and
plans and objectives of management, contained, or incorporated by references, in
the Company's Quarterly Report on Form 10-Q for the three months ended March 31,
2000 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 technology product and supply and
visual communications 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 technology product and supply and visual
communications 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, 44% of the Company's net sales in the three months ended March
31, 2000 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.
Restrictions Imposed by Debt Arrangements. The Company's outstanding
indebtedness consists primarily of borrowings under the $175.0 million
secured Credit Facility provided by PNC Bank, N.A. and six 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 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 have been 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
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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 utilized internal resources and outside consultants to upgrade its
software for year 2000 ("Year 2000") compliance. The Company's computer hardware
and operating system are Year 2000 compliant, and the Company continues to
monitor potential Year 2000 effects.
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 technology and supply and visual
communications product companies in the U.S., Canada 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 technology
supply companies, and twelve visual communications 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 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
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receivable and accounts payable. In the future, the Company may, from time to
time, consider entering into other forward foreign currency exchange contracts,
although no assurances can be given that the Company will do so, or will be able
to do so, or that such arrangements will adequately protect the Company from
fluctuations in foreign currency exchange rates.
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