<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 Quarter Ended June 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 the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
Class Outstanding at August 8, 1996
----- -----------------------------
Common Shares, without par value 4,226,342
Page 1 of 14 pages.
The exhibit index is located on page 13.
<PAGE>
WESTERN MICRO TECHNOLOGY, INC. AND SUBSIDIARY
INDEX
Page
----
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements 3
Consolidated Statements of Operations for the Three and Six
Months Ended June 30, 1996 and 1995 3
Consolidated Balance Sheets at June 30, 1996
and December 31, 1995 4
Consolidated Statements of Cash Flows for the Six Months
Ended June 30, 1996 and 1995 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 7
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders 10
Item 6. Exhibits and Reports on Form 8-K 11
Signatures 12
Index to Exhibits 14
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 of such
risks, see "Factors Affecting Future Results" on page 9. 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.
Page 2 of 14 pages
<PAGE>
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 SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
-------------------- ------------------
1996 1995 1996 1995
---------- -------- -------- --------
<S> <C> <C> <C> <C>
Net sales $ 32,365 $ 30,018 $ 59,981 $ 63,515
Cost of goods sold 28,459 26,421 52,495 55,875
-------- -------- -------- --------
Gross profit 3,906 3,597 7,486 7,640
-------- -------- -------- --------
Gross profit as % of sales 12.07% 11.98% 12.48% 12.03%
Selling, general and
administrative expenses 3,269 4,494 6,260 9,044
Restructuring costs -- 3,600 -- 3,600
-------- -------- -------- --------
Operating income (loss) 637 (4,497) 1,226 (5,004)
Interest expense 197 287 434 562
Other income 106 -- 159 31
-------- -------- -------- --------
Income (loss) before
income taxes 546 (4,784) 951 (5,535)
Provision for income taxes 60 -- 94 --
-------- -------- -------- --------
Net income (loss) $ 486 $ (4,784) $ 857 $ (5,535)
======== ======== ======== ========
Net income (loss) per
common share $ 0.11 $ (1.29) $ 0.19 $ (1.49)
======== ======== ======== ========
Number of shares used in
per share calculation 4,529 3,705 4,443 3,705
======== ======== ======== ========
The accompanying notes are an integral part of the financial statements.
</TABLE>
Page 3 of 14 pages
<PAGE>
<TABLE>
WESTERN MICRO TECHNOLOGY, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
(Unaudited)
<CAPTION>
ASSETS JUNE 30, DECEMBER 31,
1996 1995
-------- --------
<S> <C> <C>
Current Assets:
Cash $ 79 $ 546
Trade accounts receivable, net of allowance for doubtful
accounts of $332 at June 30, 1996 and $380 at
December 31, 1995 20,332 14,258
Inventories, net 14,478 15,251
Other current assets 1,007 1,705
-------- --------
Total current assets 35,896 31,760
Property and equipment, net 2,728 1,720
Goodwill, net of accumulated amortization 3,474 2,206
Other assets 206 213
-------- --------
$ 42,304 $ 35,899
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Notes payable $ 8,089 $ 7,040
Current portion of capital leases 75 86
Accounts payable 19,769 15,950
Accrued expenses 1,249 1,372
-------- --------
Total current liabilities 29,182 24,448
Capital lease obligations, less current portion 82 117
Other 281 330
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: 4,207,145 at
June 30, 1996 and 4,009,988 at December 31, 1995 16,485 15,587
Accumulated deficit (3,726) (4,583)
-------- --------
Total Shareholders' Equity 12,759 11,004
-------- --------
$ 42,304 $ 35,899
======== ========
The accompanying notes are an integral part of these financial statements.
</TABLE>
Page 4 of 14 pages
<PAGE>
<TABLE>
WESTERN MICRO TECHNOLOGY, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(Unaudited)
<CAPTION>
FOR THE SIX MONTHS
ENDED JUNE 30,
-----------------
1996 1995
------- --------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 857 $(5,535)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization 445 273
Gain on sale of equipment (22) --
Provision for doubtful accounts receivable -- 206
Provision for restructuring costs -- 3,600
Change in assets and liabilities:
Accounts receivable (5,265) 230
Inventories 888 (492)
Other current assets 698 154
Other assets 7 43
Accounts payable 2,847 2,714
Accrued expenses and other (127) (151)
------- -------
Net cash provided by operating activities 328 1,042
------- -------
Cash flows from investing activities:
Purchase of R&D, net of cash acquired (662) --
Proceeds from sale of equipment 22 --
Acquisition of property and equipment (1,331) (570)
------- -------
Net cash used in investing activities (1,971) (570)
------- -------
Cash flows from financing activities:
Net proceeds from (payments on) short-term borrowings 1,049 (483)
Payments on lease obligations (91) (58)
Proceeds from exercise of stock options 218 6
Proceeds from equipment loan -- 101
------- -------
Net cash provided by (used in) financing activities 1,176 (434)
Net (decrease) increase in cash (467) 38
Cash--beginning of period 546 138
------- -------
Cash--end of period $ 79 $ 176
======= =======
The accompanying notes are an integral part of these financial statements.
</TABLE>
Page 5 of 14 pages
<PAGE>
WESTERN MICRO TECHNOLOGY, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 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 six months ended June 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: 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 4: Supplemental Cash Flow Information: Cash paid for interest in the
six-month period ended June 30, 1996 and 1995 was $412,000 and
$536,000 respectively.
Note 5: 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.
Page 6 of 14 pages
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
---------------------------------------------------------------
Results of Operations.
---------------------
Recent Events
- -------------
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 June 30, 1996 Compared to Three Months Ended June 30, 1995
- -----------------------------------------------------------------------------
The Company's revenues and gross profits for the 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 June 30, 1996 of $32,365,000 were 8%
higher than the net sales of $30,018,000 for the corresponding period in 1995.
Prior period results include components distribution sales of approximately
$10,435,000 and computer systems sales of approximately $19,583,000; indicating
a 65% increase in computer systems sales for the first quarter of 1996 compared
to the first quarter of 1995. Computer systems sales increased due to the
expansion of the Company's computer systems distribution business 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
June 30, 1996 was 12.07% compared to 11.98% for the same period one year ago.
Selling, general, and administrative expenses decreased 27% in the three
months ended June 30, 1996 from the same period a year ago due to the sale of
the Company's components 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
additions to the Company's infrastructure and higher amortization expense as a
result of increased goodwill related to recent acquisitions.
Page 7 of 14 pages
<PAGE>
Interest expense decreased 31% in the three months ended June 30, 1996
versus June 30, 1995 due to a reduction in bank borrowings as a result of the
retirement of debt using 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 obtaining lease financing for purchased computer systems
and as a result of a gain recognized on the sale of equipment.
Six Months Ended June 30, 1996 Compared to Six Months Ended June 30, 1995
- -------------------------------------------------------------------------
Net sales from operations for the six months ended June 30, 1996 were
$59,981,000 as compared to $63,515,000 for the same period a year ago, a
decrease of 6%. Net sales for the six months ended June 30, 1995 included
semiconductor distribution sales of approximately $26,618,000 and computer
systems sales of approximately $36,897,000, resulting in a year-to-year 63%
increase in systems sales for the six months ended June 30, 1996. Gross profit
as a percentage of net sales for the six months ended June 30, 1996 was 12.48%,
compared to 12.03% 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 six months of
1995 before the eventual sale of the component assets in July 1995.
Selling, general and administrative expenses decreased 31% in the six
months ended June 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 23% in the six months ended June 30, 1996 versus
June 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
and as a result of a gain recognized on the sale of equipment.
Liquidity and Capital Resources
- -------------------------------
Net cash provided by operating activities during the six months ended June
30, 1996 totaled $328,000 compared to the net cash provided by operating
activities of $1,042,000 for the six months ended June 30, 1995.
The increase in the accounts receivable of $5,265,000 was primarily due to
increased sales volume and the purchase of assets from R&D. This was offset by a
decrease in inventory of $888,000 as a result of increased emphasis on inventory
management and higher drop
Page 8 of 14 pages
<PAGE>
shipment volume, and by an increase in accounts payable of $2,847,000 as a
result of the increased sales volume.
Net cash used in investing activities totaled $1,971,000 for the six months
ended June 30, 1996, compared to net cash used in investing activities of
$570,000 for the six months ended June 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 $8,089,000 at June 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. 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. There is intense competition for qualified personnel in
the areas of the Company's activities and there can be no assurance that the
Company will be able to continue to attract and retain qualified personnel
necessary for the development of its business. Loss of the services of, or
failure to recruit, key sales and management personnel could be significantly
detrimental to the Company.
Page 9 of 14 pages
<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. At the Annual
---------------------------------------------------
Meeting of Shareholders on May 16, 1996, the following proposals were
voted on and approved by the holders of 3,530,612 shares of common
stock, representing 83.9% of the outstanding shares on such date
(4,204,645):
<TABLE>
(1) To elect a Board of six (6) directors to hold office until the
next annual meeting of shareholders or until their respective
successors have been elected and qualified:
<CAPTION>
Director Votes For Withheld
----------------------------- --------- --------
<S> <C> <C>
James J. Heffernan........... 3,371,070 159,542
Jerome A. Martin............. 3,371,770 158,842
P. Scott Munro............... 3,372,770 157,842
K. William Sickler........... 3,372,770 157,842
J. Larry Smart............... 3,372,770 157,842
William H. Welling........... 3,342,470 188,142
</TABLE>
(2) To approve the amendment and restatement of the Company's 1994
Stock Option Plan:
Votes For Against Abstain Broker Non-Votes
--------- ------- ------- ----------------
2,816,075 316,573 30,168 367,796
(3) To ratify the designation of Coopers & Lybrand L.L.P. as
independent accountants for the period ending December 31, 1996:
Votes For Against Abstain Broker Non-Votes
--------- ------- ------- ----------------
3,503,902 14,842 11,868 0
Item 5. Other Information. None.
-----------------
Page 10 of 14 pages
<PAGE>
Item 6. Exhibits and Reports on Form 8-K.
--------------------------------
A. Exhibits.
--------
* Exhibit 10.1 1994 Stock Option Plan of Western Micro
Technology, Inc.
Exhibit 11.1. Computation of Net Income (Loss) Per Share
* Denotes management compensation plan or arrangement.
B. Reports on Form 8-K.
-------------------
None.
Page 11 of 14 pages
<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: August 9, 1996 By /s/ P. SCOTT MUNRO
----------------------------------
P. Scott Munro
Chief Executive Officer, President
Dated: August 9, 1996 By /s/ JAMES W. DORST
----------------------------------
James W. Dorst
Chief Financial Officer
Page 12 of 14 pages
<PAGE>
INDEX TO EXHIBITS
EXHIBIT PAGE
- ------- ----
*10.1 1994 Stock Option Plan of Western Micro Technology, Inc.,
filed as Exhibit 4.1 to the Company's Registration Statement
on Form S-8, filed with the Commission on July 26, 1996, is
hereby incorporated by reference.
11.1 Statement Regarding Computation of Net Income (Loss) 14
Per Share for the Three and Six Months Ended June 30,
1996 and 1995
* Denotes management compensation plan or arrangement.
Page 13 of 14 pages
<PAGE>
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 SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
-------------------- ------------------
1996 1995 1996 1995
--------- --------- -------- --------
<S> <C> <C> <C> <C>
Weighted average shares
outstanding for the period 4,205 3,705 4,193 3,705
Dilutive effect of stock options
at average market price 324 -- 250 --
Average shares for computing
primary net income (loss)
per share 4,529 3,705 4,443 3,705
Adjustment for dilutive effect
of stock options at ending
market price -- -- 42 --
Average shares for computing
fully diluted net income
(loss) per share 4,529 3,705 4,485 3,705
------- ------- ------- -------
Net income (loss) $ 486 $(4,784) $ 857 $(5,535)
======= ======= ======= =======
Net income (loss) per common share:
Net income (loss) per primary
share $ 0.11 $ (1.29) $ 0.19 $ (1.49)
======= ======= ======= =======
Net income (loss) per fully
diluted share $ 0.11 $ (1.29) $ 0.19 $ (1.49)
======= ======= ======= =======
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> APR-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 79
<SECURITIES> 0
<RECEIVABLES> 20,664
<ALLOWANCES> 332
<INVENTORY> 14,478
<CURRENT-ASSETS> 35,896
<PP&E> 6,204
<DEPRECIATION> 3,476
<TOTAL-ASSETS> 42,304
<CURRENT-LIABILITIES> 29,182
<BONDS> 0
0
0
<COMMON> 16,485
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 42,304
<SALES> 32,365
<TOTAL-REVENUES> 32,365
<CGS> 28,459
<TOTAL-COSTS> 3,269
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 197
<INCOME-PRETAX> 546
<INCOME-TAX> 60
<INCOME-CONTINUING> 486
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 486
<EPS-PRIMARY> .11
<EPS-DILUTED> .11
</TABLE>
