<PAGE>
Form 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(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, 1994.
---------------
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES ACT OF
1934
For the transition period from _______________ to ___________
Commission File Number
0-17156
MERISEL, INC.
(Exact name of registrant as specified in its charter)
Delaware 95-4172359
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
200 Continental Boulevard
El Segundo, CA 90245-0984
(Address and zip code of principal executive offices)
(310) 615-3080
(Registrant's telephone number, including area code)
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 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:
Number of Shares Outstanding
Class May 9, 1994
----- ----------------------------------
Common Stock, $.01 par value 29,681,199
<PAGE>
MERISEL, INC.
-------------
INDEX
-----
<TABLE>
<CAPTION>
Page Reference
---------------
<S> <C>
PART I FINANCIAL INFORMATION
Consolidated Balance Sheets
March 31, 1994 and December 31, 1993 1-2
Consolidated Statements of Income
Three Months Ended March 31, 1994 and 1993 3
Consolidated Statements of Cash Flows
Three Months Ended March 31, 1994 and 1993 4
Notes to Consolidated Financial Statements 5-8
Management's Discussion and Analysis of
Financial Condition and Results of Operations 9-14
PART II OTHER INFORMATION 15
SIGNATURES 16
</TABLE>
<PAGE>
PART 1. FINANCIAL INFORMATION
-----------------------------
MERISEL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In Thousands)
(Unaudited)
ASSETS
<TABLE>
<CAPTION>
March 31, December 31,
1994 1993
--------- ------------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $29 $14
Accounts receivable (net of allowance
for doubtful accounts of $17,605
and $16,543 for 1994 and 1993, respectively) 434,034 393,252
Inventories 465,908 442,392
Prepaid expenses and other current assets 12,832 15,443
Deferred income tax benefit 8,011 8,942
---------- --------
Total current assets 920,814 860,043
PROPERTY AND EQUIPMENT-NET 44,333 39,858
COST IN EXCESS OF NET ASSETS
ACQUIRED-NET 115,560 32,832
OTHER ASSETS 5,124 3,550
---------- --------
TOTAL ASSETS $1,085,831 $936,283
========== ========
</TABLE>
See accompanying notes to consolidated financial statements.
1
<PAGE>
MERISEL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In Thousands, Except Share Data)
(Unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
March 31, December 31,
1994 1993
---------- ------------
<S> <C> <C>
CURRENT LIABILITIES:
Accounts payable $470,645 $414,841
Accrued liabilities 40,135 26,811
Short-term bank debt 34,754 50,929
Income taxes payable 7,709 7,697
--------- -----------
553,243 500,278
Total current liabilities
Long-term debt 276,050 186,500
Subordinated debt 22,000 22,000
Deferred income tax liability 1,038 1,787
--------- ----------
TOTAL LIABILITIES 852,331 710,565
--------- ----------
MINORITY INTEREST 846 1,861
STOCKHOLDERS' EQUITY
Preferred stock, $.01 par value,
authorized 1,000,000 shares;
none issued or outstanding
Common stock, $.01 par value,
authorized 50,000,000 shares;
outstanding 29,629,100 and
29,604,300 for 1994 and
1993, respectively 296 296
Additional paid-in capital 140,883 140,775
Retained earnings 100,108 91,512
Cumulative translation adjustment (8,633) (8,726)
---------- --------
Total stockholders' equity 232,654 223,857
---------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $1,085,831 $936,283
========== ========
</TABLE>
See accompanying notes to consolidated financial statements.
2
<PAGE>
MERISEL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In Thousands, Except Per Share Data)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended March 31,
1994 1993
------------ ---------------
<S> <C> <C>
NET SALES $1,154,622 $692,458
COST OF SALES 1,072,316 633,035
---------- --------
GROSS PROFIT 82,306 59,423
SELLING, GENERAL &
ADMINISTRATIVE EXPENSES 61,216 43,354
---------- --------
OPERATING INCOME 21,090 16,069
INTEREST EXPENSE 6,204 4,789
OTHER EXPENSE 1,324 219
---------- --------
INCOME BEFORE INCOME TAXES 13,562 11,061
PROVISION FOR INCOME TAXES 4,966 4,708
---------- --------
NET INCOME $8,596 $6,353
========== ========
NET INCOME PER SHARE $0.28 $0.21
========== ========
WEIGHTED AVERAGE NUMBER
OF SHARES OUTSTANDING 30,865 30,300
========== ========
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE>
MERISEL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended March 31,
1994 1993
----------- --------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $8,596 $6,353
Adjustments to reconcile net income to net cash
provided by (used for) operating activities:
Depreciation and amortization 3,632 2,472
Provision for bad debts 4,142 3,198
Deferred income taxes 182 (1,314)
Changes in assets and liabilities:
Accounts receivable (77,508) (35,085)
Inventories (23,516) (30,064)
Prepaid expenses and other assets 2,620 (3,870)
Accounts payable 55,804 59,923
Accrued liabilities 8,636 1,285
Income taxes payable 12 269
--------- --------
Net cash (used for) provided by
operating activities (17,400) 3,167
--------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (6,833) (5,062)
Acquisition of ComputerLand Business (82,196)
--------- --------
Net cash used for investing activities (89,029) (5,062)
--------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings under revolving line of credit 536,200 188,050
Repayments under revolving line of credit (526,650) (179,150)
Repayments of local borrowings (1,175) (7,469)
Borrowings in connection with acquisition 65,000
Proceeds from sale of accounts receivable 32,500
Proceeds from issuance of common stock 108 537
--------- ---------
Net cash provided by financing activities 105,983 1,968
--------- ---------
EFFECT OF EXCHANGE RATE CHANGES ON CASH 461 (121)
--------- ---------
NET INCREASE (DECREASE) IN CASH &
CASH EQUIVALENTS 15 (48)
CASH & CASH EQUIVALENTS, BEGINNING OF PERIOD 14 133
--------- ---------
CASH & CASH EQUIVALENTS, END OF PERIOD $29 $85
========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE>
MERISEL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. General
Merisel, Inc. ("Merisel" or the "Company") is a worldwide wholesale distributor
of microcomputer hardware and software products. The consolidated financial
statements include the accounts of Merisel and its consolidated subsidiaries.
All significant intercompany balances and transactions have been eliminated in
consolidation.
The information for the three months ended March 31, 1994 and 1993 has not been
audited by independent accountants, but includes all adjustments (consisting of
normal recurring accruals) which are, in the opinion of management, necessary
for a fair presentation of the results for such periods.
Certain information and footnote disclosures normally included in consolidated
financial statements prepared in accordance with generally accepted accounting
principles have been omitted pursuant to the requirements of the Securities and
Exchange Commission, although the Company believes that the disclosures included
in these financial statements are adequate to make the information not
misleading. The consolidated financial statements as presented herein should be
read in conjunction with the consolidated financial statements and notes thereto
included in Merisel's Annual Report on Form 10-K for the fiscal year ended
December 31, 1993.
2. Public Stock Offering
On March 25, 1994, the Company filed a Registration Statement with the
Securities and Exchange Commission with respect to a proposed public offering of
5,250,000 shares of common stock (the "Offering"). On May 12, 1994, the Company
withdrew the Offering due to unfavorable market conditions.
3. Acquisitions
On January 31, 1994, the Company, through its wholly-owned subsidiary, Merisel
FAB, Inc. ("Merisel FAB"), acquired certain assets of the United States
Franchise and Distribution Division (the "F&D Division") of Vanstar Corporation
(formerly ComputerLand Corporation) (the "ComputerLand Acquisition"). The
Company paid $80.2 million in cash at closing and $2 million of direct
acquisition costs for the acquired assets. In addition, the Company has agreed
to make an additional payment in 1996 of up to $30 million. This payment will be
based upon the growth of the Company's and Merisel FAB's sales of products of
designated vendors to specified customers over the two-year period ending
January 31, 1996. The acquisition has been accounted for as a purchase. Under
the purchase method of accounting, an allocation of the purchase price to the
Merisel FAB assets and liabilities is required to reflect fair values. A final
allocation of the purchase price has not yet been performed.
Merisel FAB has also entered into a Distribution and Services Agreement with
Vanstar Corporation whereby Vanstar will provide products and distribution and
other support services to Merisel FAB for two years following the acquisition.
Under the Services
5
<PAGE>
MERISEL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
(UNAUDITED)
Agreement, Merisel has been granted $20 million in extended credit terms on its
product purchases from Vanstar Corporation (the "Vanstar Payable"). Vanstar
Corporation has agreed to use this $20 million account receivable from Merisel
to purchase 1,103,144 shares of Common Stock of the Company at a per share price
of $18.13, if and when a registration statement covering the resale of such
shares is declared effective by the Securities and Exchange Commission. Such
registration statement was filed by the Company on April 5, 1994. Vanstar
Corporation has agreed that, after it acquires the shares, it will remain a
holder of a least 1,103,144 shares of Common Stock of the Company until January
31, 1996; provided that Vanstar Corporation will have the right to sell any or
all shares of Common Stock owned by it in the event the last sale price reported
by the Nasdaq National Market immediately prior to the placing of a sell order
by Vanstar Corporation is below $12.14 or, under certain circumstances, $13.59.
Following is summarized pro forma operating results assuming that the Company
had acquired the F&D Division and issued the ComputerLand shares on January 1,
1993.
<TABLE>
<CAPTION>
Three Months Ended March 31,
1994 1993
------------ ------------
(in thousands)
<S> <C> <C>
Net sales $1,256,354 $ 933,002
Income before taxes 13,901 12,635
Net income 8,799 7,297
Net income per share 0.28 0.23
Weighted average share outstanding 31,968 31,403
</TABLE>
The summarized pro forma operating results are based, in part, on historical
income statement information obtained from the F&D Division's statement of
revenues and operating expenses for the month ended January 31, 1994 and the
quarter ended March 31, 1993. Such historical statements presents the revenues,
direct expenses and general and administrative expenses allocated from Vanstar.
The pro forma information for 1994 includes the actual operating results for the
period from February 1, 1994 to March 31, 1994. In addition, the summarized pro
forma information for the F&D Division, prior to its acquisition by the Company,
includes adjustments to reflect the allocation of general and administrative
expenses, such as, the costs of the distribution centers and general corporate
functions and administrative personnel. Such expenses have been allocated based
upon such factors as the ratio of shipments by the F&D Division to total
shipments by Vanstar Corporation and Vanstar's management's estimate of the time
spent by shared employees of Vanstar Corporation. The pro forma results also
include adjustments for interest expense on debt incurred in connection with the
acquisition, amortization of intangible assets and provision for income taxes
assuming a 40% effective tax rate. The summarized pro forma information may not
be indicative of the results that would have occurred if the acquisition and
issuance of common shares had been consummated on January 1, 1994 or 1993 or
which may be achieved in the future.
6
<PAGE>
MERISEL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
(UNAUDITED)
4. Sale of Accounts Receivable
Pursuant to a trade accounts receivable securitization agreement with a
securitization company, entered into in September 1993 and amended in March
1994, the securitization company may purchase on an ongoing basis up to $150
million of an undivided interest in designated accounts receivable. The
receivables are sold at face value and fees paid in connection with such sales
are recorded as other expense. This facility expires in November 1994. At March
31, 1994, $107.5 million of net accounts receivable were sold under this
agreement.
5. Net Income Per Share
Net income per share is computed by dividing net income by the weighted average
number of shares of common stock outstanding during the related period,
including common stock options when dilutive.
6. Fiscal Year
The Company's fiscal year is the 52 or 53 week period ending on the Saturday
nearest to December 31. The Company's first quarter is the 13 or 14 week period
ending on the Saturday nearest to March 31. The three month period ended March
31, 1994 and 1993 were each 13 week periods. For simplicity of presentation,
the Company has described the interim periods and year-end period as of March
31, and December 31, respectively.
7. Debt
The Company and its subsidiaries maintain a number of credit facilities,
including a $150 million unsecured revolving bank credit facility expiring on
May 31, 1997. At March 31, 1994, $111.1 million was outstanding under this
facility. In addition, the Company had $5 million in outstanding letters of
credit under this facility. On December 23, 1993, Merisel FAB entered into a
$10 million unsecured revolving credit agreement. This agreement expires on
January 29, 1995. At March 31 1994, no amount was outstanding under this
agreement. The Company and its subsidiaries also maintain various local lines
of credit, primarily to facilitate overnight and other short-term borrowings.
The total amount of outstanding borrowings under these lines as of March 31,
1994 was $34.8 million.
To finance the ComputerLand Acquisition, the Company borrowed $65 million under
an unsecured credit agreement with a bank. This agreement expires on January
29, 1995, but is subject to mandatory prepayment upon any debt or equity
issuance by the Company.
7
<PAGE>
MERISEL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
(UNAUDITED)
The Company also has outstanding $100 million of 8.58% senior notes due June 30,
1997, and $22 million of 11.28% subordinated notes due in five equal annual
principal installments, beginning in March 1996.
8. Supplemental Disclosure of Cash Flow Information
Cash paid in the quarter ended March 31 for interest and income taxes was as
follows:
<TABLE>
<CAPTION>
1994 1993
------ ------
(in thousands)
<S> <C> <C>
Interest $4,984 $7,849
Income Taxes $3,853 $5,648
</TABLE>
During the quarters ended March 31, 1994 and 1993, the Company accrued
$2,000,000 and $1,000,000, respectively, to reflect the acquisition of an
additional 20% and 10% interest in a Mexican distributor.
8
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
---------------------------------------------
GENERAL
- - -------
Merisel is the largest worldwide publicly-held wholesale distributor of
microcomputer hardware and software products. Merisel sells products to over
65,000 computer resellers, including VARs, large retail chains, franchising
operations, computer superstores and general consumer product retailers. The
Company currently maintains 20 distribution centers that serve North America,
Europe, Latin America and Australia.
On January 31, 1994, the Company acquired, through its wholly-owned subsidiary
Merisel FAB, Inc., ("Merisel FAB") certain assets of the United States Franchise
and Distribution Division of Vanstar Corporation (formerly ComputerLand
Corporation) (the "ComputerLand Acquisition"). The operating results for the
quarter ended March 31, 1994 include the results of operations for Merisel FAB
from February 1, 1994 to March 31, 1994.
The following table sets forth the percentage relationship that certain income
and expense items bear to net sales and is derived from the consolidated
statements of income for the Company for the three month periods ended March 31,
1994 and 1993:
<TABLE>
<CAPTION>
Percentage of Net Sales
-----------------------
Three Months Ended
March 31
1994 1993
---------- ----------
<S> <C> <C>
Net sales 100.0% 100.0%
Cost of sales 92.9 91.4
----- -----
Gross profit 7.1 8.6
Selling, genl. and admin. expenses 5.3 6.3
----- -----
Operating income 1.8 2.3
Interest expense 0.5 0.7
Other expense 0.1 0.0
----- -----
Income before income taxes 1.2 1.6
Provision for income taxes 0.5 0.7
----- -----
Net income 0.7% 0.9%
===== =====
</TABLE>
RESULTS OF OPERATIONS
- - ---------------------
Three Months Ended March 31, 1994 as Compared to the Three Months Ended
- - -----------------------------------------------------------------------
March 31, 1993
- - --------------
Net sales increased 66.7% from $692.5 million in 1993 to $1,154.6 million in
1994. The increase in net sales was due to sales growth in existing
distribution operations in all geographic regions, resulting from increased
demand for computer products, an increase in product offerings and additional
availability from manufacturers such as Apple, IBM and Hewlett Packard and the
impact of the ComputerLand Acquisition. Net sales for Merisel FAB were $186
million or 16.1% of consolidated net sales for the quarter ended March 31, 1994.
9
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
---------------------------------------------
(Continued)
Geographically, the Company's net sales for the quarter ended March 31, 1994
were generated as follows: United States, $751.8 million, or 65%; Canada, $142.7
million, or 12.4%; Europe, $194.8 million, or 16.9%; and other international
markets, $65.3 million, or 5.7%. From 1993 to 1994, these geographic regions
experienced sales growth rates of 79.4%, 40.8%, 58% and 34.4%, respectively. The
Company's higher sales growth rate in Europe has resulted in part from the
addition of new manufacturer relationships in various European markets. In the
United States, the Company's sales increase is due in part to new product
offerings from computer systems and other hardware manufacturers and the
increase in sales relating to the ComputerLand Acquisition.
In the United States, including Merisel FAB, hardware and accessories accounted
for 72% of net sales, and software accounted for 28% of net sales in 1994, as
compared to 55% and 45 % respectively, in 1993. The increase in hardware sales
is due primarily to the fact that Merisel FAB's revenues are predominantly
hardware related.
Gross profit increased 38.5% from $59.4 million in 1993 to $82.3 million in
1994. Gross profit as a percentage of sales, or gross margin, decreased from
8.6% in 1993 to 7.1% in 1994. The decrease in gross margin is principally
attributable to continued competitive pressures on pricing worldwide and the
effect of the ComputerLand Acquisition. In addition, Merisel FAB generates lower
gross margins than the Company's wholesale distribution business. However,
Merisel FAB's operating expenses are generally lower than the Company's
wholesale distribution business, which helps offset the lower gross margins. The
Company anticipates that it will continue to experience downward pressure on
gross margin due to industry price competition.
Selling, general and administrative expenses ("SG&A") increased 41.2% from $43.4
million in 1993 to $61.2 million in 1994. SG&A decreased as a percentage of net
sales from 6.3% in 1993 to 5.3% in 1994. The absolute dollar increase in SG&A
is primarily due to costs associated with the Company's 66.7% increase in net
sales, while the decrease in SG&A as a percentage of sales is due to economies
of scale resulting from the higher sales volume. In addition, Merisel FAB's
operating expenses, as a percentage of sales, are lower than Merisel's wholesale
distribution business.
Operating income increased 31.3% from $16.1 million in 1993 to $21.1 million in
1994. Operating income as a percentage of net sales was 2.3% in 1993 and 1.8% in
1994. Although the Company's European operations achieved an operating profit
before interest and taxes, they experienced a net loss for the quarter ended
March 31, 1994 as a result of continued competitive pressure on margin coupled
with a difficult economic environment in Europe. The Company's subsidiaries in
Switzerland, Germany and Austria achieved positive net results, while the
Company's subsidiaries in the U.K. and France experienced net losses.
10
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
---------------------------------------------
(Continued)
Interest expense increased 29.6% from $4.8 million in 1993 to $6.2 million in
1994, but decreased from 0.7% to 0.5% as a percentage of net sales in 1993
compared to 1994. The increase in interest expense is primarily attributable to
the Company's higher average borrowings in 1994. The Company's average month-end
bank borrowings increased 73.5% from $183.1 million in 1993 to $317.6 million in
1994. The increase in average borrowings in 1994 reflected the need to finance
higher levels of working capital to support increased sales and to finance the
ComputerLand Acquisition.
Other expenses increased from $0.2 million in 1993 to $1.3 million in 1994,
primarily due to asset securitization fees incurred in connection with accounts
receivable securitizations.
The Company's provision for income taxes increased 5.5% from $4.7 million in
1993 to $5.0 million in 1994, reflecting the Company's increased income before
income taxes. The Company's effective tax rate declined from 42.6% in 1993 to
36.6% in 1994. The lower effective tax rate reflects the fact that certain of
the Company's subsidiaries with tax loss carryovers achieved greater
profitability in 1994 as compared to 1993. The effective tax rate for 1994,
excluding the effect of the tax loss carryovers, would have been 39%.
Net income increased 35.3% from $6.4 million in 1993 to $8.6 million in 1994.
Net income per share increased from $0.21 in 1993 to $0.28 in 1994. The
Company's weighted average number of shares increased from 30,299,500 shares in
1993 to 30,864,900 shares in 1994.
VARIABILITY OF QUARTERLY RESULTS AND SEASONALITY
- - -------------------------------------------------
Historically, the Company has experienced variability in its net sales and
operating margins on a quarterly basis and expects these patterns to continue in
the future. Management believes that the factors influencing quarterly
variability include: (i) the overall growth in the microcomputer industry; (ii)
shifts in short-term demand for the Company's products resulting, in part, from
the introduction of new products or updates of existing products; and (iii) the
fact that virtually all sales in a given quarter result from orders booked in
that quarter. Due to the factors noted above, as well as the fact that the
Company participates in a highly dynamic industry, the Company's revenues and
earnings may be subject to material volatility, particularly on a quarterly
basis.
Additionally, the Company's net sales in the fourth quarter have been higher
than in its other three quarters. Management believes that the pattern of
higher fourth quarter sales is partially explained by customer buying patterns
relating to calendar year-end business purchases and holiday purchases.
11
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
---------------------------------------------
(Continued)
LIQUIDITY AND CAPITAL RESOURCES
- - -------------------------------
The Company has historically financed its growth and cash needs primarily
through borrowings, income from operations, the public and private sales of its
securities and securitizations of its accounts receivable. On March 25, 1994,
the Company filed a Registration Statement with the Securities and Exchange
Commission with respect to a proposed public offering of 5,250,000 shares of
common stock (the "Offering"). On May 12, 1994, the Company withdrew the
Offering due to unfavorable market conditions. However, depending upon market
conditions, the Company may consider the public sale of securities in the
future.
Net cash used in operating activities during the three months ended March 31,
1994 was $17.4 million. Sources of cash from operating activities included net
income of $8.6 million, noncash charges of $8.0 million and an increase in
accounts payable and accrued liabilities of $64.4 million. The primary uses of
cash during the period were a $77.5 million increase in accounts receivable and
a $23.5 million increase in inventories. The increase in accounts receivable was
due primarily to the increase in sales volume and the increase in inventory was
due to the current and anticipated sales growth as well as the addition of new
product lines.
Net cash used for investing activities in 1994 was $89 million, reflecting the
ComputerLand Acquisition and property and equipment expenditures. The
expenditures for property and equipment were primarily for the upgrading of
existing facilities, leasehold improvements, the upgrading of the Company's
computer systems, and expenditures for a new warehouse management system.
Net cash provided by financing activities was $106 million, comprised of
borrowings of $65 million in connection with the ComputerLand Acquisition, net
borrowings under domestic revolving lines of credit of $9.6 million and
proceeds from the sale of an interest in the Company's trade accounts
receivables of $32.5 million pursuant to a receivables securitization program.
To provide capital for the Company's operating and investing activities, the
Company and its subsidiaries maintain a number of credit facilities including a
$150 million unsecured revolving bank credit facility expiring on May 31, 1997.
At March 31, 1994, $111.1 million was outstanding under this facility as well as
$5 million in outstanding letters of credit. On December 23, 1993, Merisel FAB
entered into a $10 million unsecured revolving credit agreement. This agreement
expires on January 29, 1995. At March 31, 1994, no amount was outstanding under
this agreement. The Company and its subsidiaries also maintain various local
lines of credit, primarily to facilitate overnight and other short term
borrowings. The total amount of outstanding borrowings under these lines as of
March 31, 1994 was $34.8 million.
12
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
---------------------------------------------
(Continued)
The Company has also entered into a $150 million trade accounts receivable
securitization agreement pursuant to which it may sell on an ongoing basis an
undivided interest of up to $150 million in designated trade receivables to a
syndicate of purchasers. The receivables are sold at face value and fees paid
in connection with such sales are recorded as other expense. This facility
expires in November 1994. At March 31, 1994, $107.5 million of net accounts
receivable were sold under this agreement.
To finance the ComputerLand Acquisition, the Company borrowed $65 million under
an unsecured credit agreement with a bank. This agreement expires on January
19, 1995, but is subject to mandatory prepayment upon any debt or equity
issuance by the Company. The Company intends to refinance this debt when due.
Merisel FAB also borrowed $16 million, the balance of the ComputerLand
Acquisition purchase price, under a separate credit agreement, which was repaid
in full on February 15, 1994.
The Company also has outstanding $100 million of 8.58% senior notes, due June
30, 1997 and $22 million of 11.28% senior subordinated notes repayable in five
equal annual installments beginning in March 1996.
In connection with the ComputerLand Acquisition, Merisel FAB and Vanstar
Corporation entered into a Service Agreement pursuant to which Vanstar
Corporation will provide significant distribution and other support services to
Merisel FAB for up to two years. Under the Services Agreement, Merisel FAB has
been granted $20 million in extended credit terms on its product purchases from
Vanstar Corporation. Vanstar Corporation has agreed to use this $20 million
account receivable from Merisel FAB to purchase 1,103,144 shares of the
Company's Common Stock at a per share price of $18.13, if and when a
registration statement covering the resale of such shares is declared effective
by the Securities and Exchange Commission. The Company filed such registration
statement on April 5 1994.
The Company believes that its existing cash balances, together with income from
operations, proceeds from receivables securitization, borrowings under
existing lines of credit and proceeds from the anticipated refinancing of the
ComputerLand acquisition debt of $65 million will be sufficient to meet its
working capital needs through at least the next twelve months.
ASSET MANAGEMENT
- - ----------------
Merisel attempts to manage its inventory position to maintain levels sufficient
to achieve high product availability and same day order fill rates. Inventory
levels may vary from period to period, due in part to increases or decreases in
sales levels, Merisel's practice of making large purchases when it deems the
terms of such purchases to be attractive and the addition of new manufacturers
and products. The Company has negotiated agreements with many of its
manufacturers which contain stock balancing and price protection provisions
intended to reduce, in part, Merisel's risk of loss due to slow moving or
obsolete inventory or manufacturer price reductions. In the event of a
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<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
---------------------------------------------
(Continued)
manufacturer price reduction, the Company generally receives a credit for
products in inventory. In addition, the Company has the right to return a
certain percentage of purchases, subject to certain limitations. Historically,
price protection and stock return privileges as well as the Company's inventory
management procedures have helped to reduce the risk of loss of carrying
inventory.
The Company offers credit terms to qualifying customers and also sells on a
prepay, credit card and cash-on-delivery basis. With respect to credit sales,
the Company attempts to control its bad debt exposure through monitoring of
customers creditworthiness and, where practicable, through participation in
credit associations that provide credit rating information about its customers.
In certain foreign markets, the Company may elect to purchase credit insurance
for certain accounts.
14
<PAGE>
PART II - OTHER INFORMATION
----------------------------
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibits
10.1 Third Amendment, dated March 24, 1994, among Merisel
Americas, Inc. CIESCO L.P., CITIBANK, N.A. and
CITICORP North America, Inc. to Trade Receivables
Purchase and Sale Agreement, dated September 24, 1993.
(b) Reports on Form 8-K
- Current report on Form 8-K, filed on February 14, 1994,
concerning the acquisition of certain assets of the United
States Franchise and Distribution Division of ComputerLand
Corporation.
- Report on Form 8-K/A, filed on March 24, 1994, amending
the Current Report on Form 8-K of Merisel, Inc., filed on
February 14, 1994. This amendment contains the
unaudited pro forma condensed combined financial
statements of Merisel, Inc. for the year ended
December 31, 1993.
15
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Date: May 13, 1994
Merisel, Inc.
By /s/ James L. Brill
--------------------
James L. Brill
Senior Vice President, Finance,
(Duly Authorized Officer and
Chief Financial Officer)
16
<PAGE>
EXHIBIT 10.1
THIRD AMENDMENT
Dated as of March 24, 1994
This THIRD AMENDMENT, among MERISEL AMERICAS, INC., a Delaware corporation
(the "Seller"), CIESCO L.P. ("CIESCO"), CITIBANK, N.A. ("Citibank") and CITICORP
NORTH AMERICA, INC., a Delaware corporation, individually ("CNA") and as agent
(the "Agent").
PRELIMINARY STATEMENTS.
(1) The Seller, CIESCO and the Agent have entered into a Trade Receivables
Purchase and Sale Agreement dated as of September 24, 1993, as amended by the
Assumption and Second Amendment dated as of December 23, 1993 (said Agreement as
so amended being the "CIESCO Agreement"). The Seller, Citibank, CNA and the
Agent have entered into a Trade Receivables Purchase and Sale Agreement dated as
of September 24, 1993, as amended by the Amendment dated as of October 20, 1993
and the Assumption and Second Amendment dated as of December 23, 1993 (said
Agreement as so amended being the "Parallel Purchase Commitment" and, together
with the CIESCO Agreement, the "Agreements"; the terms defined therein being
used herein as therein defined unless otherwise defined herein).
(2) The Seller, CIESCO, Citibank, CNA and the Agent have agreed to amend
the Agreements to, among other things, provide for the increase of the Purchase
Limit under the CIESCO Agreement and the Commitment under the Parallel Purchase
Commitment, respectively, up to $150,000,000 and to extend the Facility
Termination Date under the CIESCO Agreement and the Commitment Termination Date
under the Parallel Purchase Commitment, respectively, to November 30, 1994.
NOW, THEREFORE, the parties agree as follows:
SECTION 1. Amendments to CIESCO Agreement. The CIESCO Agreement is,
------------------------------
effective as of the date hereof and subject to the satisfaction of the
conditions precedent set forth in Section 3 hereof, hereby amended as follows:
(a) The definition of the term "Facility Termination Date", contained
in Section 1.01 of the CIESCO Agreement, is amended by replacing the date
"September 22, 1994" contained therein with the date "November 30, 1994".
<PAGE>
(b) The definition of the term "Purchase Limit", contained in Section
1.01 of the CIESCO Agreement, is amended by replacing the figure
"$75,000,000" contained therein with the figure "$150,000,000".
SECTION 2. Amendments to Parallel Purchase Commitment. The Parallel
------------------------------------------
Purchase Commitment is, effective as of the date hereof and subject to the
satisfaction of the conditions precedent set forth in Section 3 hereof, hereby
amended as follows:
(a) The definition of the term "Commitment", contained in Section 1.01
of the Parallel Purchase Commitment, is amended in its entirety to read as
follows:
"'Commitment' means (i) with respect to the Original Bank,
----------
$37,500,000 (subject to any assignment thereof pursuant to Section
9.02), (ii) with respect to each Bank that became a Bank by executing
and delivering to the Agent, among other things, an Election to
Participate, the amount of its Commitment set forth in such Election to
Participate (subject to the proviso below), or (iii) with respect to
-------
each Bank that became a Bank by entering into an Assignment and
Acceptance, the amount set forth for such Bank in the Register
maintained by the Agent pursuant to Section 9.02(c), in each case as
such amount may be reduced pursuant to Section 2.03, and provided that
--------
the total of the Commitments of the Banks hereunder shall not at any
time exceed $150,000,000."
(b) The definition of the term "Commitment Termination Date", contained
in Section 1.01 of the Parallel Purchase Commitment, is amended by replacing
the date "September 22, 1994" contained therein with the date "November 30,
1994".
(c) The definition of the term "Liquidation Day", contained in Section
1.01 of the Parallel Purchase Commitment, is amended by deleting from the
end thereof clause (iii).
(d) The definition of the term "Settlement Period", contained in
Section 1.01 of the Parallel Purchase Commitment, is amended by deleting
therefrom the words "or on and after the occurrence of any Commitment
Reduction Date for such Eligible Asset until no additional Commitment
Reduction Date shall occur for such Eligible Asset,".
2
<PAGE>
(e) Section 1.01 of the Parallel Purchase Commitment is further amended
by deleting therefrom the definition of the term "Commitment Reduction
Date".
(f) Section 2.04(a) of the Parallel Purchase Commitment
is amended in its entirety to read as follows:
"(a) Each Eligible Asset shall be initially computed as of the
opening of business of the Collection Agent on the date of Purchase of
such Eligible Asset. Thereafter until the Termination Date for such
Eligible Asset, such Eligible Asset shall be automatically recomputed
as of the close of business of the Collection Agent on each day (other
than a Liquidation Day). Such Eligible Asset shall remain constant
from the time as of which any such computation or recomputation is made
until the time as of which the next such recomputation, if any, shall
be made. Any Eligible Asset, as computed as of the day immediately
preceding the Termination Date for such Eligible Asset, shall remain
constant at all times on and after such Termination Date. Such
Eligible Asset shall become zero at such time as the Owners of such
Eligible Asset shall have received the accrued Yield for such Eligible
Asset and shall have recovered the Capital of such Eligible Asset and
all amounts owed to the Owners by the Seller hereunder (other than
pursuant to indemnification obligations of the Seller under Article X
that shall have not become liquidated or fixed by such time), and the
Collection Agent shall have received the accrued Collection Agent Fee
for such Eligible Asset."
(g) Section 2.06 of the Parallel Purchase Commitment is amended by
deleting from the end of the fourth sentence thereof the following proviso:
-------
"; provided, however, that in the case of any such Liquidation Day
-------- -------
which occurs solely as a result of a Commitment Reduction Date, any
amount so deposited to the Agent's Account in respect of Capital shall
be distributed by the Agent only to any such Owner which is Citibank or
CNA."
(h) The first three sentences of Section 2.08 of the Parallel Purchase
Commitment are amended in their entirety to read as follows:
"(a) All amounts to be paid or deposited by the Seller or the
Collection Agent hereunder shall
3
<PAGE>
be paid or deposited in accordance with the terms hereof no later than
1:00 P.M. (New York City time) on the day when due in lawful money of
the United States of America in same day funds to the Agent's Account
for the account of the Owners or any other Indemnified Party, as
applicable. The Agent will promptly thereafter cause to be distributed
like funds relating to the payment of Yield, Liquidation Yield, Capital
or fees to the Banks or to the Banks (other than Citibank) and CNA, as
the case may be, ratably in accordance with their respective interests,
and like funds relating to the payment of any other amount payable to
any Indemnified Party to such Indemnified Party, in each case to be
applied in accordance with the terms of this Agreement. Upon the
Agent's acceptance of an Assignment and Acceptance and recording of the
information contained therein in the Register pursuant to Section
9.02(c), from and after the effective date specified in such Assignment
and Acceptance, the Agent shall make all payments hereunder in respect
of the interest assigned thereby to the assignee thereunder, and the
parties to such Assignment and Acceptance shall make all appropriate
adjustments in such payments for periods prior to such effective date
directly between themselves."
(i) Section 2.13 of the Parallel Purchase Commitment is amended by
deleting from the beginning of the first sentence thereof the words "Except
as otherwise provided in the proviso to the fourth sentence of Section
-------
2.06,".
(j) Clause (b)(ii) of Section 3.02 of the Parallel Purchase Commitment
is amended by deleting from the end thereof the words ", and such date does
not constitute a Commitment Reduction Date".
SECTION 3. Conditions of Effectiveness. This Third Amendment shall
---------------------------
become effective when, and only when, all of the following shall have occurred:
(a) The Agent shall have received counterparts of this Amendment
executed by the Seller, CIESCO, Citibank, CNA and the Agent;
(b) The Agent shall have additionally received all of the following
documents, each document (unless otherwise indicated) being dated the date
hereof, in form and substance satisfactory to the Agent:
4
<PAGE>
(i) A certified copy of the resolutions of the Board of Directors
of the Seller approving this Third Amendment and the matters
contemplated hereby;
(ii) A certificate of the Secretary or an Assistant Secretary of
the Seller certifying the names and true signatures of the officers
thereof authorized to sign this Third Amendment and the other documents
to be delivered by it hereunder;
(iii) A favorable opinion of Riordan & McKinzie, counsel for the
Seller, in form and substance reasonably acceptable to the Agent; and
(iv) A certificate signed by a duly authorized officer of the
Seller stating that:
(A) The representations and warranties contained in Section
4.01 of (i) the Trade Receivables Purchase and Sale Agreement
dated as of September 24, 1993, as amended by the Assumption and
Second Amendment thereto dated as of December 23, 1993 and the
Third Amendment thereto dated as of March 24, 1994, among Merisel
Americas, Inc., CIESCO L.P. and Citicorp North America, Inc., as
Agent, and (ii) the Trade Receivables Purchase and Sale Agreement
dated as of September 24, 1993, as amended by the Amendment
thereto dated as of October 20, 1993, the Assumption and Second
Amendment thereto dated as of December 23, 1993 and the Third
Amendment thereto dated as of March 24, 1994, among Merisel
Americas, Inc., Citibank, N.A. and Citicorp North America, Inc.,
individually and as Agent, are correct on and as of the date of
such certificate as though made on and as of such date, and
(B) No event has occurred and is continuing which constitutes
an Event of Investment Ineligibility or Event of Termination, as
applicable, under and as defined in such Agreements, or would
constitute an Event of Investment Ineligibility or Event of
Termination but for the requirement that notice be given or time
elapse or both; and
(c) The Agent shall have additionally received, in lawful money of
the United States in same day funds,
5
<PAGE>
payment of a fee for the account of CNA in the amount of $75,000.
SECTION 4. Reference to and Effect on the Agreements. (a) Upon the
-----------------------------------------
effectiveness of Sections 1 and 2 hereof, on and after the date of this Third
Amendment, each reference in either of the Agreements to "this Agreement",
"hereunder", "hereof", "herein" or words of like import referring to such
Agreement, and each reference to either of the Agreements in the Certificates or
any other document delivered in connection with either of the Agreements, shall
mean and be a reference to such Agreement as amended hereby.
(b) Except as specifically amended above, the Agreements, the
Certificates, the Fee Letter and the other documents delivered in connection
therewith are and shall continue to be in full force and effect and are hereby
ratified and confirmed.
SECTION 5. Costs and Expenses. The Seller agrees to pay on demand all
------------------
reasonable costs and expenses of the Agent in connection with the preparation,
execution and delivery of this Third Amendment and the other documents to be
delivered in connection herewith including, without limitation, the reasonable
fees and out-of-pocket expenses of counsel for the Agent with respect thereto
and with respect to advising the Agent as to its rights and responsibilities
hereunder and thereunder.
SECTION 6. Execution in Counterparts. This Third Amendment may be
-------------------------
executed in any number of counterparts and by different parties hereto in
separate counterparts, each of which when so executed and delivered shall be
deemed to be an original and all of which taken together shall constitute but
one and the same instrument. Delivery of an executed counterpart of a signature
page to this Third Amendment and any other document to be delivered hereunder by
telefacsimile shall be effective as delivery of a manually executed counterpart
of this Third Amendment or such document.
SECTION 7. Governing Law. This Third Amendment shall be governed by,
-------------
and construed in accordance with, the laws of the State of California.
IN WITNESS WHEREOF, the parties hereto have caused this Third Amendment
to be executed by their respective officers thereunto duly authorized, as of the
date first above written.
MERISEL AMERICAS, INC.
By: /s/ Timothy N. Jenson
--------------------------
Vice President and Treasurer
6
<PAGE>
CIESCO L.P.
By: CITICORP NORTH AMERICA, INC., its Attorney-in-
Fact
By: /s/ Eric D. Alsberg
---------------------------
Vice President
CITIBANK, N.A.
By: /s/ Eric D. Alsberg
---------------------------
Vice President
CITICORP NORTH AMERICA, INC.,
individually and as Agent
By: /s/ Eric D. Alsberg
---------------------------
Vice President
7
