<PAGE>
Securities and Exchange Commission
Washington, D.C. 20549
Form 10-Q
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended September 30, 1996 Commission File Number 0-11560
---------------------------------------- ------------------------------
WESTERN MICRO TECHNOLOGY, INC.
(Exact name of registrant as specified in its charter)
California 94-2414428
--------------------------------- ------------------------------------
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
254 E. Hacienda Avenue, Campbell, CA 95008
- ---------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
(408) 379-0177 N/A
------------------------------- ---------------------------------------
(Registrant's telephone number, (Former name, former address and former
including area code) fiscal year, if changed since last
report)
Indicate by check mark 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) has been subject to such
filing requirements for at least the past 90 days.
YES |X| NO |_|
Indicate by number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at October 31, 1996
----- -------------------------------
Common Shares, without par value 4,256,277
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WESTERN MICRO TECHNOLOGY, INC. AND SUBSIDIARIES
INDEX
Page
----
PART I - FINANCIAL INFORMATION
Consolidated Statements of Operations for the Three and
Nine Months Ended September 30, 1996 and 1995 3
Consolidated Balance Sheets at September 30, 1996 and
December 31, 1995 4
Consolidated Statements of Cash Flows for the Nine Months
Ended September 30, 1996 and 1995 5
Notes to Consolidated Financial Statements 6
Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
PART II - OTHER INFORMATION
Other Information 11
Signatures 12
Index to Exhibits 13
When used in this Report, the words "estimate," "project," "intend" and
"expect" and similar expressions are intended to identify forward-looking
statements. Such statements are subject to risks and uncertainties that could
cause actual results to differ materially. For a discussion of certain such
risks, see "Factors Affecting Future Results" on page 10. Readers are cautioned
not to place undue reliance on these forward-looking statements, which speak
only as of the date hereof. The Company undertakes no obligation to publicly
release updates or revisions to these statements.
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
--------------------
<TABLE>
WESTERN MICRO TECHNOLOGY, INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
(Unaudited)
<CAPTION>
For the Three Months For the Nine Months
Ended September 30, Ended September 30,
------------------------------------ ------------------------------------
1996 1995 1996 1995
---------------- ---------------- --------------- ----------------
<S> <C> <C> <C> <C>
Net sales $ 33,940 $ 21,292 $ 93,921 $ 84,807
Cost of goods sold 29,443 18,659 81,938 74,534
---------------- ---------------- --------------- ----------------
Gross profit 4,497 2,633 11,983 10,273
---------------- ---------------- --------------- ----------------
Gross profit as % of sales 13.25% 12.37% 12.76% 12.11%
Selling, general and
administrative expenses 3,654 2,366 9,914 11,410
Restructuring costs -- -- -- 3,600
---------------- ---------------- --------------- ----------------
Operating income (loss) 843 267 2,069 (4,737)
Interest expense 242 139 676 702
Other income 103 2 262 34
---------------- ---------------- --------------- ----------------
Income (loss) before
income taxes 704 130 1,655 (5,405)
Provision for income taxes 61 -- 155 --
---------------- ---------------- --------------- ----------------
Net income (loss) $ 643 $ 130 $ 1,500 $ (5,405)
================ ================ =============== ================
Net income (loss) per
common share $ 0.14 $ 0.03 $ 0.33 $ (1.46)
================ ================ =============== ================
Number of shares used in
per share calculation 4,529 3,792 4,503 3,706
================ ================ =============== ================
The accompanying notes are an integral part of these financial statements.
</TABLE>
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<TABLE>
WESTERN MICRO TECHNOLOGY, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(In thousands)
<CAPTION>
ASSETS September 30,
1996 December 31,
(Unaudited) 1995
-------------- -------------
<S> <C> <C>
Current Assets:
Cash $ 407 $ 546
Trade accounts receivable, net of allowance for doubtful
accounts of $187 at September 30, 1996 and $380 at
December 31, 1995 24,580 14,258
Inventories, net 16,179 15,251
Other current assets 1,625 1,705
-------------- -------------
Total current assets 42,791 31,760
Property and equipment, net 3,057 1,720
Goodwill, net of accumulated amortization 3,602 2,206
Other assets 206 213
-------------- -------------
$ 49,656 $ 35,899
============== =============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Notes payable $ 9,813 $ 7,040
Current portion of capital leases 66 86
Accounts payable 24,355 15,950
Accrued expenses 1,510 1,372
-------------- -------------
Total current liabilities 35,744 24,448
Capital lease obligations, less current portion 68 117
Other 257 330
Shareholders' Equity:
Preferred Stock, without par value, 10,000,000 shares
authorized; none issued and outstanding -- --
Common Stock, without par value, 10,000,000 shares
authorized; issued and outstanding: 4,240,027 at
September 30, 1996 and 4,009,988 at December 31, 1995 16,670 15,587
Accumulated deficit (3,083) (4,583)
-------------- -------------
Total Shareholders' Equity 13,587 11,004
-------------- -------------
$ 49,656 $ 35,899
============== =============
The accompanying notes are an integral part of these financial statements.
</TABLE>
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<TABLE>
WESTERN MICRO TECHNOLOGY, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
<CAPTION>
For the Nine Months
Ended September 30,
1996 1995
-------------- -------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 1,500 $ (5,405)
Adjustments to reconcile net income (loss) to net
cash (used in) provided by operating activities:
Depreciation and amortization 699 404
Gain on sale of equipment (22) (87)
Provision for doubtful accounts receivable 20 291
Provision for restructuring costs -- 1,325
Change in assets and liabilities:
Accounts receivable (9,533) 3,712
Inventories (925) 8,044
Other current assets 80 335
Other assets 7 43
Accounts payable 7,433 (1,551)
Accrued expenses and other 133 (224)
-------------- -------------
Net cash (used in) provided by operating activities (608) 6,887
-------------- -------------
Cash flows from investing activities:
Purchase of R&D, net of cash acquired (662) --
Proceeds from sale of equipment 22 168
Acquisition of property and equipment (1,842) (917)
-------------- -------------
Net cash used in investing activities (2,482) (749)
-------------- -------------
Cash flows from financing activities:
Net proceeds from (payments on) short-term borrowings 2,773 (6,216)
Payments on lease obligations (137) (91)
Proceeds from exercise of stock options 315 6
Proceeds from equipment loan -- 101
-------------- -------------
Net cash provided by (used in) financing activities 2,951 (6,200)
Net decrease in cash (139) (62)
Cash--beginning of period 546 138
-------------- -------------
Cash--end of period $ 407 $ 76
============== =============
The accompanying notes are an integral part of these financial statements.
</TABLE>
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WESTERN MICRO TECHNOLOGY, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1996
(Unaudited)
Note 1: The unaudited consolidated financial statements which include the
accounts of Western Micro Technology, Inc. and its subsidiary have
been prepared in accordance with the instructions to Form 10-Q and do
not include all information and footnotes necessary to comply with
generally accepted accounting principles. In the opinion of
management, all normal recurring adjustments considered necessary for
a fair presentation have been included. The consolidated statements of
operations for the three and nine months ended September 30, 1996 are
not necessarily indicative of the results to be expected for a full
year or for any other period. These financial statements should be
read in conjunction with the financial statements and the notes
thereto included in the Company's latest audited financial statements
for the year ended December 31, 1995.
Note 2: The December 31, 1995 balance sheet was derived from audited
financial statements, but does not include all disclosures required by
generally accepted accounting principles.
Note 3: Revenue Recognition and Accounts Receivable: The Company records
revenue, net of allowances for estimated returns, at the time of
product shipment. To protect against potential collection losses, the
Company has obtained insurance coverage on its outstanding receivable
balance. The insurance covers substantially all outstanding and future
receivables and is renewable on an annual basis.
Note 4: Inventories, consisting primarily of purchased product held for
resale, are stated at the lower of cost (first-in, first-out) or net
realizable value.
Note 5: Supplemental Cash Flow Information: Cash paid for interest in the
nine-month period ended September 30, 1996 and 1995 was $634,000 and
$728,000 respectively.
Note 6: On January 2, 1996, the Company acquired the assets of R&D Hardware
Systems Company of Colorado ("R&D"), a privately held company, for
$1,000,000 and 125,000 shares of the Company's common stock. The
agreement between the Company and R&D (the "Agreement") also contains
an earn-out provision which allows R&D to earn up to an additional
142,500 shares of the Company's common stock based on attainment of
gross profit targets for certain fiscal year 1996 and 1997 sales (as
defined in the Agreement) up to a cumulative value not to exceed
$292,500. The assets purchased primarily consisted of certain
inventories and trade accounts receivable of R&D. The acquisition has
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been accounted for as a purchase with the future results of R&D to be
included in the Company's financial statements from the date of
purchase. In connection with the acquisition, the Company recorded
approximately $1,380,000 of goodwill and other intangible assets. For
the year ended December 31, 1995, R&D had revenues of $9,557,000 with
net income of $446,000.
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Item 2. Management's Discussion and Analysis of Financial Condition and
---------------------------------------------------------------
Results of Operations.
---------------------
Recent Events
- -------------
On November 7 1996, the Company acquired the net assets of Star
Technologies, Inc., a privately held company, for $950,000, which was paid in
113,263 shares of the Company's Common Stock at an average price of
$8.387. Ten percent of the shares were placed in escrow as security for Star's
indemnification obligations. The agreement also contains an earn-out
through December 31, 1998, which allows Star to earn up to an additional
$2,400,000. The earn-out is payable in shares of Common Stock and is based
upon the attainment of certain gross profit dollars. For the year ended
June 30, 1996, Star had revenues of approximately $7,500,000 with net income
of approximately $40,000.
On January 2, 1996, the Company acquired the assets of R&D Hardware Systems
Company of Colorado ("R&D"), a privately held company, for $1,000,000 and
125,000 shares of the Company's common stock. The agreement between the Company
and R&D (the "Agreement") also contains an earn-out provision which allows R&D
to earn up to an additional 142,500 shares of the Company's common stock based
on attainment of gross profit targets for certain fiscal year 1996 and 1997
sales (as defined in the Agreement) up to a cumulative value not to exceed
$292,500. The assets purchased primarily consisted of certain inventories and
trade accounts receivable of R&D. The acquisition has been accounted for as a
purchase with the future results of R&D to be included in the Company's
financial statements from the date of purchase. In connection with the
acquisition, the Company recorded approximately $1,380,000 of goodwill and other
intangible assets. For the year ended December 31, 1995, R&D had revenues of
$9,557,000 with net income of $446,000.
Three Months Ended September 30, 1996 Compared to Three Months Ended
- --------------------------------------------------------------------
September 30, 1995
- ------------------
The Company's revenues and gross profits for the current quarter were
generated entirely from the computer systems distribution business, as the
Company sold its components distribution business in July 1995.
Net sales for the three months ended September 30, 1996 of $33,940,000 were
59% higher than the net sales of $21,292,000 for the corresponding period in
1995. Prior period results include components distribution sales of
approximately $1,631,000 and computer systems sales of approximately
$19,661,000; indicating a 73% increase in computer systems sales for the third
quarter of 1996 compared to the third quarter of 1995. Computer systems sales
increased due to the expansion of the Company's computer systems distribution
business, general market demand for mid-range computer systems, and the
acquisitions of International Parts, Inc. ("IPI") in November 1995 and R&D in
January 1996. Gross profit as a percentage of sales for the three months ended
September 30, 1996 was 13.25% compared to 12.76% for the same period one year
ago. The gross profit percentage increased primarily due to the fact the Company
has been able to secure increased purchase discounts from its vendors as a
result of higher sales volume.
Selling, general, and administrative expenses increased 54% in the three
months ended September 30, 1996 from the same period a year ago due to necessary
personnel increases as a result of higher systems sales, higher depreciation
expense as a result of additions to the Company's infrastructure and higher
amortization expense as a result of increased goodwill related to the recent
acquisitions.
Interest expense increased 74% in the three months ended September 30, 1996
versus September 30, 1995 due to an increase in bank borrowings as a result of
the Company having
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to finance higher accounts receivable and inventory levels due to the
substantial increase in sales.
The increase in other income is primarily due to commissions generated from
assisting customers in obtaining lease financing for purchased computer systems
as well as a gain recognized on the sale of equipment.
Nine Months Ended September 30, 1996 Compared to Nine Months Ended
- ------------------------------------------------------------------
September 30, 1995
- ------------------
Net sales from operations for the nine months ended September 30, 1996 were
$93,921,000 as compared to $84,807,000 for the same period a year ago, an
increase of 11%. Net sales for the nine months ended September 30, 1995 included
semiconductor distribution sales of approximately $28,248,000 and computer
systems sales of approximately $56,559,000, resulting in a year-to-year 66%
increase in systems sales for the nine months ended September 30, 1996. Gross
profit as a percentage of net sales for the nine months ended September 30, 1996
was 12.37%, compared to 12.11% for the same period one year ago. The increase is
due to the fact that component gross profit margins, which are typically higher
than computer system margins, were rapidly declining in the first seven months
of 1995 before the eventual sale of the component assets in July 1995.
Selling, general and administrative expenses decreased 13% in the nine
months ended September 30, 1996 from the same period a year ago due to the sale
of the Company's component distribution assets, the corresponding transfer of
the components-related employees and infrastructure to the buyer and continued
management emphasis on reducing costs. In relation to the ongoing computer
systems distribution business, the expenses saved as a result of the sale of the
components business have been partially offset by necessary personnel increases
as a result of higher systems sales, higher depreciation expense as a result of
infrastructure additions and higher amortization expense as a result of
increased goodwill related to recent acquisitions.
Interest expense decreased 4% in the nine months ended September 30, 1996
versus September 30, 1995 due to a reduction in bank borrowings as a result of
the retirement of debt from the proceeds received from the sale of the Company's
components distribution assets.
The increase in other income is primarily due to commissions generated from
assisting customers in finding lease financing for purchased computer systems
as well as a gain recognized on the sale of equipment.
Liquidity and Capital Resources
- -------------------------------
Net cash used by operating activities during the nine months ended
September 30, 1996 totaled $608,000 compared to the net cash provided by
operating activities of $6,887,000 for the nine months ended September 30, 1995.
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The increase in the accounts receivable of $9,533,000 was primarily due to
increased sales volume and the purchase of assets from R&D. This was offset by
an increase in accounts payable of $7,433,000, which was also a result of the
increased sales volume.
Net cash used in investing activities totaled $2,482,000 for the nine
months ended September 30, 1996, compared to net cash used in investing
activities of $749,000 for the nine months ended September 30, 1995. The
significant investing activities for 1996 consist of the R&D asset purchase as
well as continuing leasehold and computer hardware and software investments made
at the Company's headquarters and sales office sites.
The Company has a $15,000,000 line of credit with a bank which expires in
April 1998. Borrowings under this line of credit are limited to 80% of eligible
accounts receivable (up to a maximum of $11,000,000) and 40% of eligible
inventories (up to a maximum of $4,000,000), as defined in the agreement, and
are collateralized by substantially all of the Company's assets. Borrowings
under this line were $9,813,000 at September 30, 1996.
The Company has required substantial working capital to finance
inventories, accounts receivable, capital expenditures and has financed its
working capital requirements, software upgrades and equipment requirements
primarily through bank borrowings. The Company believes it has the ability to
obtain sufficient resources to fund its operations through calendar 1996.
Factors Affecting Future Results
- --------------------------------
The Company's past operating results have been, and its future operating
results will be, subject to a variety of uncertainties. The Company's quarterly
operating results may be subject to fluctuations as a result of a number of
factors, including the addition or loss of key suppliers or customers, price
competition and changes in the supply and demand for computer products. During
the current fiscal year, approximately 50% of the Company's revenues have been
derived from the sale of systems products manufactured by the Company's largest
supplier, International Business Machines. Price competition in the industries
in which the Company competes is intense and could result in gross margin
declines, which could have a material adverse impact on the Company's
profitability. The Company's future success depends in part on the continued
service of its key personnel, and its ability to identify and hire additional
personnel. Loss of the services of, or failure to recruit, key sales and
management personnel could be significantly detrimental to the Company.
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<PAGE>
PART II - OTHER INFORMATION
Item 1 Legal Proceedings. None.
-----------------
Item 2 Changes in Securities. None.
---------------------
Item 3 Defaults on Senior Securities. None.
-----------------------------
Item 4 Submission of Matters to a Vote of Security Holders. None.
---------------------------------------------------
Item 5 Other Information. None.
-----------------
Item 6 Exhibits and Reports on Form 8-K.
--------------------------------
A. Exhibits.
--------
Exhibit 11.1. Computation of Net Income (Loss) Per Share
B. Reports on Form 8-K.
-------------------
None.
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<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.
Registrant:
WESTERN MICRO TECHNOLOGY, INC.
Dated: November 13, 1996 By /s/ P. SCOTT MUNRO
------------------------------------
P. Scott Munro
Chief Executive Officer and
President
Dated: November 13, 1996 By /s/ JAMES W. DORST
------------------------------------
James W. Dorst
Chief Financial Officer
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<PAGE>
INDEX TO EXHIBITS
Exhibit Page
11.1 Statement Regarding Computation of Net Income (Loss)
Per Share for the Three and Nine Months Ended
September 30, 1996 and 1995
13 of 13
EXHIBIT 11.1
<TABLE>
WESTERN MICRO TECHNOLOGY, INC. AND SUBSIDIARY
COMPUTATION OF NET INCOME (LOSS) PER SHARE
(In thousands, except per share amounts)
(Unaudited)
<CAPTION>
For the Three Months For the Nine Months
Ended September 30, Ended September 30,
------------------------------------ -------------------------------------
1996 1995 1996 1995
---------------- ---------------- --------------- ----------------
<S> <C> <C> <C> <C>
Weighted average shares
outstanding for the period 4,231 3,706 4,206 3,706
Dilutive effect of stock options
at average market price 245 42 249 --
---------------- ---------------- --------------- ----------------
Average shares for computing
primary net income (loss)
per share 4,476 3,748 4,455 3,706
Adjustment for dilutive effect
of stock options at ending
market price 53 44 48 --
---------------- ---------------- --------------- ----------------
Average shares for computing
fully diluted net income
(loss) per share 4,529 3,792 4,503 3,706
---------------- ---------------- --------------- ----------------
Net income (loss) $ 643 $ 130 $ 1,500 $ (5,405)
================ ================ =============== ================
Net income (loss) per common share:
Net income (loss) per primary
share $ 0.14 $ 0.03 $ 0.34 $ (1.46)
================ ================ =============== ===============
Net income (loss) per fully
diluted share $ 0.14 $ 0.03 $ 0.33 $ (1.46)
================ ================ =============== ===============
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JUL-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 407
<SECURITIES> 0
<RECEIVABLES> 24,767
<ALLOWANCES> 187
<INVENTORY> 16,179
<CURRENT-ASSETS> 42,791
<PP&E> 6,725
<DEPRECIATION> 3,668
<TOTAL-ASSETS> 49,656
<CURRENT-LIABILITIES> 35,744
<BONDS> 0
0
0
<COMMON> 16,670
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 49,656
<SALES> 33,940
<TOTAL-REVENUES> 33,940
<CGS> 29,443
<TOTAL-COSTS> 3,654
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 242
<INCOME-PRETAX> 704
<INCOME-TAX> 61
<INCOME-CONTINUING> 643
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 643
<EPS-PRIMARY> .14
<EPS-DILUTED> .14
</TABLE>
