<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, 1995.
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 Identification No.)
incorporation or organization)
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, 1995
Common Stock, $.01 par value 29,764,924 Shares
<PAGE>
MERISEL, INC.
INDEX
Page Reference
PART I FINANCIAL INFORMATION
Consolidated Balance Sheets as of
March 31, 1995 and December 31, 1994 1-2
Consolidated Statements of Income for the
Three Months Ended March 31, 1995 and 1994 3
Consolidated Statements of Cash Flows for the
Three Months Ended March 31, 1995 and 1994 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
<PAGE>
PART 1. FINANCIAL INFORMATION
MERISEL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In Thousands)
(Unaudited)
ASSETS
<TABLE>
<CAPTION>
March 31, December 31,
1995 1994
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $1,668 $3,533
Accounts receivable (net of
allowance
for doubtful accounts of $23,609
and $21,815 for 1995 and 1994,
respectively) 472,675 451,246
Inventories 481,970 517,706
Prepaid expenses and other current
assets 14,010 13,256
Income tax receivable 2,962
Deferred income tax benefit 10,413 12,128
_________ _________
Total current assets 983,698 997,869
PROPERTY AND EQUIPMENT - NET 79,840 69,511
COST IN EXCESS OF NET ASSETS
ACQUIRED - NET 112,340 113,115
OTHER ASSETS 11,612 11,375
___________ ___________
TOTAL ASSETS $1,187,490 $1,191,870
__________ __________
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
MERISEL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In Thousands, Except Share Data)
(Unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
March 31, December 31,
1995 1994
<S> <C> <C>
CURRENT LIABILITIES:
Accounts payable $489,313 $509,226
Accrued liabilities 57,122 46,502
Short-term bank debt 56,602 37,871
Income taxes payable 4,422
_______ _________
Total current liabilities 603,037 598,021
Long-term debt 326,540 335,685
Subordinated debt 22,000 22,000
Deferred income tax liability 1,128
_______ ________
TOTAL LIABILITIES 952,705 955,706
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 29,716,600
for 1995 and 1994, respectively 297 297
Additional paid-in capital 141,249 141,249
Retained earnings 101,333 103,122
Cumulative translation adjustment (8,094) (8,504)
_______ ________
Total stockholders' equity 234,785 236,164
________ _________
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY $1,187,490 $1,191,870
__________ __________
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
MERISEL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In Thousands, Except Share Data)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1995 1994
_________ _________
<S> <C> <C>
NET SALES $1,454,894 $1,154,622
COST OF SALES 1,361,671 1,072,316
__________ _________
GROSS PROFIT 93,223 82,306
SELLING, GENERAL &
ADMINISTRATIVE EXPENSES 76,482 61,216
RESTRUCTURING CHARGE 5,061
___________ __________
OPERATING INCOME 11,680 21,090
INTEREST EXPENSE 10,458 6,204
OTHER EXPENSE 3,384 1,324
__________ __________
(LOSS) INCOME BEFORE INCOME TAXES (2,162) 13,562
INCOME TAX (BENEFIT) PROVISION (373) 4,966
__________ _________
NET (LOSS) INCOME $(1,789) $8,596
__________ _________
NET (LOSS) INCOME PER SHARE $(0.06) $0.28
__________ __________
WEIGHTED AVERAGE NUMBER
OF SHARES OUTSTANDING 29,714 30,865
___________ __________
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
MERISEL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended March 31,
1995 1994
<S> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net (loss) income ($1,789) $8,596
Adjustments to reconcile net (loss)
income to net cash provided by
(used for) operating activities:
Depreciation and amortization 4,442 3,632
Provision for bad debts 5,169 4,142
Deferred income taxes 2,843 182
Changes in assets and liabilities:
Accounts receivable (26,867) (77,508)
Inventories 35,736 (23,516)
Prepaid expenses and other assets (1,514) 2,620
Income taxes receivable (2,962)
Accounts payable (19,913) 55,804
Accrued liabilities 10,620 8,636
Income taxes payable (4,422) 12
_________ __________
Net cash provided by (used for)
operating activities 1,343 (17,400)
__________ __________
CASH FLOWS FROM INVESTING
ACTIVITIES:
Purchase of property and equipment (12,892) (6,833)
Acquisition of ComputerLand Business (82,196)
_________ __________
Net cash used for investing
activities (12,892) (89,029)
_________ __________
CASH FLOWS FROM FINANCING
ACTIVITIES:
Borrowings under revolving line of
credit 348,246 536,200
Repayments under revolving line of
credit (357,391) (526,650)
Borrowings(repayments) of local
borrowings 18,731 (1,175)
Borrowings in connection with
acquisition 65,000
Proceeds from sale of accounts
receivable 32,500
Proceeds from issuance of common
stock 108
__________ __________
Net cash provided by financing
activities 9,586 105,983
___________ __________
EFFECT OF EXCHANGE RATE CHANGES ON CASH 98 461
___________ __________
NET (DECREASE) INCREASE IN CASH &
CASH EQUIVALENTS (1,865) 15
CASH & CASH EQUIVALENTS, BEGINNING OF
PERIOD 3,533 14
___________ _________
CASH & CASH EQUIVALENTS, END OF PERIOD $1,668 $29
___________ _________
See accompanying notes to consolidated financial statements.
</TABLE>
<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 Company, through its wholly-owned subsidiary,
Merisel FAB, Inc. ("Merisel FAB"), is a leading aggregator, or
master reseller, of computer systems and related products from
major microcomputer manufacturers to ComputerLand franchisees and
Datago resellers. The consolidated financial statements include
the accounts of Merisel and its consolidated subsidiaries. All
significant intercompany balances and transactions have been
eliminated in consolidation. Results of operations for the three
month period ended March 31, 1995 may not be indicative of the
results of operations expected for the fiscal year ended December
31, 1995.
The information for the three months ended March 31, 1995 and
1994 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
reclassifications have been made to the 1994 amounts to conform
with 1995 presentations.
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, 1994.
2. 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 week period ending on the Saturday nearest to March 31.
For simplicity of presentation, the Company has described the
interim periods and year-end period as of March 31, and December
31, respectively.
3. Restructuring Charge
In the first quarter of 1995, the Company adopted a restructuring
plan resulting in a charge of $5,061,000. This amount includes
$3,000,000 of severance charges for the involuntary termination
of approximately 90 employees, $633,000 related to the closure of
a warehouse in North America and $1,428,000 for the consolidation
of certain other warehouses in Europe. As of March 31, 1995,
$4,352,000 of this amount remained in accrued liabilities.
<PAGE>
MERISEL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
(UNAUDITED)
4. 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 for the acquired
assets and $2.1 million of direct acquisition costs. In
addition, the Company has agreed to make an additional payment in
1996 of up to $30 million, 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. Based on an independent
valuation prepared for the Company, $82 million of the purchase
price has been allocated to intangible assets with an estimated
aggregate life of 25 years.
Merisel FAB has also entered into a Distribution and Services
Agreement (the "Services Agreement") with Vanstar whereby Vanstar
will provide products and distribution and other support services
to Merisel FAB until January 31, 1996. Under the Services
Agreement, Merisel has been granted $20 million in extended
credit terms on its product purchases from Vanstar (the "Vanstar
Payable"). The Vanstar Payable accrues interest at prime less
2%, per annum (7.0% at March 31, 1995), payable monthly, with the
principal balance due on February 1, 1996.
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, 1994.
Three Months Ended March 31,
1994
(in thousands)
Net Sales $1,256,354
Income before taxes 13,901
Net income 8,799
Net income per share $0.28
Weighted average share
outstanding 31,968
<PAGE>
MERISEL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
(UNAUDITED)
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. Such historical statement 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.
5. Sale of Accounts Receivable
The Company's wholly-owned subsidiary Merisel Americas, Inc.
("Merisel Americas") on an ongoing basis, sells its trade
receivables to its wholly-owned subsidiary, Merisel Capital
Funding, Inc. ("Merisel Capital Funding"). Pursuant to a trade
receivables purchase and sale agreement with a securitization
company, as amended and restated in November, 1994, Merisel
Capital Funding, in turn, sells to a syndicate of purchasers on
an ongoing basis for a one year period up to $150 million of an
undivided interest in such trade receivables. The receivables
are sold at face value and fees paid in connection with such
sales are recorded as other expense. This facility expires in
October 1995. At March 31, 1995, $150 million of net accounts
receivable were sold to the securitization company. Fees of
$822,000 and $2,569,000 were incurred in connection with the sale
of accounts receivable for 1994 and 1995, respectively.
6. 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, 1995,
$101.5 million was outstanding under this facility. 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, 1995 was $56.6 million.
The Company and its subsidiaries also have outstanding $125
million of 12 1/2% senior notes due December 31, 2004, $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.
<PAGE>
MERISEL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
(UNAUDITED)
7. 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.
8. Supplemental Disclosure of Cash Flow Information
Cash paid in the quarter ended March 31 for interest and income
taxes was as follows:
1995 1994
(in thousands)
Interest $13,459 $4,984
Income Taxes $ 5,248 $3,853
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
Merisel, Inc. (together with its subsidiaries, "Merisel" or the
"Company") is the largest worldwide publicly-held wholesale
distributor of microcomputer hardware and software products.
Through its full-line, channel-specialized distribution business,
Merisel combines the comprehensive product selection and
operational efficiency of a full-line distributor with the
customer support of a specialty distributor offering dedicated
sales organizations to each of its customer groups. On January
31, 1994, the Company completed the acquisition (the
"ComputerLand Acquisition") of certain assets of Vanstar
Corporation's (formerly ComputerLand Corporation) United States
Franchise and Distribution Division (the "ComputerLand Franchise
and Aggregation Business"). The ComputerLand Franchise and
Aggregation Business is a leading aggregator, or master reseller,
of computer systems and related products from major microcomputer
manufacturers, including Apple, Compaq, Hewlett-Packard and IBM,
to a network of approximately 750 independently-owned computer
product resellers in the United States.
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, 1995 and 1994:
<TABLE>
<CAPTION>
Percentage of Net
Sales
Three Months Ended
March 31
1995 1994
<S> <C> <C>
Net Sales 100.0% 100.0%
Cost of sales 93.6 92.9
______ ______
Gross profit 6.4 7.1
Selling, gen'l. and admin.
expenses 5.3 5.3
Restructuring charges 0.3
_______ _______
Operating income 0.8 1.8
Interest expense 0.7 0.5
Other expense 0.2 0.1
________ _______
(Loss) income before income taxes (0.1) 1.2
Income taxes 0.5
_______ ________
Net (loss) income (0.1)% 0.7%
_______ ________
</TABLE>
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
RESULTS OF OPERATIONS
Three Months Ended March 31, 1995 as Compared to the Three Months
Ended March 31, 1994
Net sales increased 26% from $1,155 million in 1994 to $1,455
million in 1995. The increase in net sales was due to sales
growth in existing distribution operations in all geographic
regions resulting from the growth of the overall market for
hardware and software products and an increase in the number of
products certain vendors are selling through distribution. The
Company also increased its market share of certain vendor
products in various geographic markets and experienced the impact
of an additional month of revenue from the ComputerLand Franchise
and Aggregation Business. Net sales for the ComputerLand
Franchise and Aggregation Business were $283 million or 19% of
consolidated net sales for the quarter ended March 31, 1995
compared to $186 million or 16% in 1994.
Geographically, the Company's net sales for the quarter ended
March 31, 1995, were as follows: United States, $937 million, or
64%; Canada, $168 million, or 12%; Europe, $273 million or
19%; and other international markets, $77 million, or 5%. From
1994 to 1995, these geographic regions experienced sales growth
rates of 25% (16% without the ComputerLand Franchise and
Aggregation Business), 18%, 40%, and 17%, respectively. The
Company's higher sales growth rate in Europe was partially the
result of the strengthening of the European currencies against
the dollar in 1995 compared to 1994. In periods when the U.S.
dollar is weakening, the effect of the translation of the
financial statements of the consolidated foreign subsidiaries
into U.S. dollars is that of higher sales, costs and net income.
In periods when the U.S. dollar is strengthening, the effect of
the translation of the financial statements of consolidated
foreign subsidiaries into U.S. dollars is that of lower sales,
costs and net income. The effect of a weaker U.S. dollar when
compared to European currencies represents approximately 16% of
the sales growth rate in European sales. The fluctuation of the
U.S. dollar when compared to other world currencies did not have
a material impact upon sales.
In the United States, including Merisel FAB, hardware and
accessories accounted for 76% of net sales, and software
accounted for 24% of net sales in 1995, as compared to 72% and
28%, respectively, in 1994. The increase in hardware sales was
due to the Company obtaining additional rights to distribute
hardware products throughout the world from various vendors and
that Merisel FAB's revenues are predominantly hardware related.
Gross profit increased 13% from $82.3 million in 1994 to $93.2
million in 1995. Gross profit as a percentage of sales, or gross
margin, decreased from 7.1% in 1994 to 6.4% in 1995. In 1994,
the gross margin as a percentage of sales for the ComputerLand
Franchise and Aggregation Business and the Company's core
distribution business was 5.2% and 7.5%, respectively, compared
to 4.1% and 7.0%, respectively, in 1995. The Company's core
distribution business continued to experience competitive
pressures on pricing worldwide. The decrease in the ComputerLand
Franchise and Aggregation Business gross margin is the result of
intense price competition and the effect of a revised pricing
structure offered to new and existing franchisees to deal with
this competition. The Company anticipates that it will continue
to experience downward pressure on gross margin due to industry
price competition.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
Selling, general and administrative expenses ("SG&A") increased
25% from $61.2 million in 1994 to $76.5 million in 1995. SG&A as
a percentage of net sales remained consistent at 5.3% in both
1994 and 1995. In 1994, SG&A as a percentage of sales for the
ComputerLand Franchise and Aggregation Business and the Company's
core distribution business was 3.7% and 5.6%, respectively,
compared to 3.6% and 5.7%, respectively, in 1995. The absolute
dollar increase in SG&A is primarily due to the costs associated
with the Company's 26% increase in net sales.
In the quarter ended March 31, 1995, the Company announced its
intent to adopt a restructuring plan to assess its current cost
structure in response to pricing and gross margin pressures. The
Company anticipates recording a total restructuring charge of
approximately $10 million. As of March 31, 1995, the Company
adopted elements of this plan resulting in a restructuring charge
of $5,061,000. The restructuring charge as a percentage of net
sales was 0.3%. The restructuring charge represents costs
incurred associated with reductions in personnel and the
closure and consolidation of warehouses. See Note 3 of Notes to
Consolidated Financial Statements. The Company anticipates
recording the additional $5 million restructuring charge in the
quarter ended June 30, 1995.
Operating income decreased 45% from $21.1 million in 1994 to
$11.7 million in 1995. Operating income as a percentage of net
sales was 1.8% in 1994 and 0.8% in 1995. In 1994, operating
income as a percentage of sales for the ComputerLand Franchise
and Aggregation Business and the Company's core distribution
business was 1.5% and 1.9%, respectively, compared to .5% and
.9%, respectively, in 1995. The decrease in operating income is
the result of lower gross margins in both the ComputerLand
Franchise and Aggregation Business and the core distribution
business and the restructuring charges.
Interest expense increased 69% from $6.2 million in 1994 to $10.5
million in 1995, and increased from 0.5% to 0.7% as a percentage
of net sales in 1994 compared to 1995. The increase in interest
expense is attributable to both the Company's higher average
borrowings and an increase in interest rates in 1995. The
Company's average month-end bank borrowings increased 25% from
$317.6 million in 1994 to $395.5 million in 1995. The increase
in average borrowings in 1994 reflected the need to finance
higher levels of working capital to support increased sales. The
increase in interest rates is primarily the result of the
issuance of $125 million principal amount of 12 1/2% senior notes
in October 1994, which was used to repay indebtedness under
outstanding credit lines having an average interest rate of
approximately 6% at March 31, 1994.
Other expenses increased from $1.3 million in 1994 to $3.4
million in 1995. The increase was primarily due to fees
incurred in connection with trade receivables securitizations,
which increased from $0.8 million in 1994 to $2.6 million in
1995. The increase in fees is attributable to both an increase
in the amount of net receivables sold and an increase in the
securitization yield. The weighted average amount of accounts
receivable sold to the securitization company increased from $78
million in 1994 to $150 million in 1995. The securitization
yield increased from 4.5% at March 31, 1994 to 7.8% at March 31,
1995.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
The Company's effective tax rate was a benefit of 17.3%. This
rate was the result of certain foreign subsidiaries deriving no
tax benefit for losses under local tax laws and income from
certain foreign subsidiaries having a higher effective tax rate
than those experienced at the Company's domestic subsidiaries
that experienced losses. The losses reported by the Company's
domestic subsidiaries were primarily the result of the $5.1
million restructuring charge recognized in 1995. The Company's
effective tax rate for the period ended March 31, 1994 was 36.6%.
Net income decreased from $8.6 million in 1994 to a loss of $1.8
million in 1995. Net income per share decreased from $0.28 in
1994 to a loss of $0.06 in 1995.
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 historically 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.
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
trade receivables.
Net cash provided by operating activities during the three months
ended March 31, 1995 was $1.3 million. Sources of cash from
operating activities included adjustments for non-cash items of
$12.5 million, a decrease in inventory of $35.7 million and an
increase in accrued liabilities of $10.6 million. The primary
uses of cash during the period were a $26.9 million increase in
accounts receivable, a decrease in accounts payable of $19.9
million, a decrease in income taxes payable of $4.4 million and
an increase in income taxes receivable of $3.0 million. The
increase in accounts receivable was due primarily to the increase
in sales volume. The decrease in inventory is the result of
improved inventory management, as inventory turns increased from
9.2 times in 1994 to 11.3 times in 1995. The decrease in
accounts payable is related to the decrease in inventory. The
increase in accrued liabilities is primarily the result of
accrued restructuring costs and interest expense for the $125
million of 12 1/2% senior notes.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
Net cash used for investing activities in 1995 was $12.9 million,
reflecting property and equipment expenditures. The expenditures
for property and equipment were primarily for the upgrading of
the Company's computer systems, expenditures for a new warehouse
management system, the upgrading of existing facilities and
leasehold improvements.
Net cash provided by financing activities was $9.6 million,
comprised of net borrowings under foreign bank facilities of
$18.7 million partially offset by net repayments under domestic
revolving lines of credit of $9.1 million.
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 May 5, 1995,
$105.0 million was outstanding under this facility. 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, 1995 was $56.6 million.
The Company's wholly-owned subsidiary Merisel Americas, Inc.
("Merisel Americas") on an ongoing basis, sells its trade
receivables to its wholly-owned subsidiary, Merisel Capital
Funding, Inc. ("Merisel Capital Funding"). Pursuant to a trade
receivables purchase and sale agreement with a securitization
company, as amended and restated in November, 1994, Merisel
Capital Funding, in turn, sells to a syndicate of purchasers on
an ongoing basis for a one year period up to $150 million of an
undivided interest in such trade receivables. The receivables
are sold at face value and fees paid in connection with such
sales are recorded as other expense. This facility expires in
October 1995.
The Company and its subsidiaries also have outstanding $125
million of 12 1/2% Senior Notes due December 31, 2004, $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 entered into the Services Agreement pursuant to which
Vanstar will provide significant distribution and other support
services until January 31, 1996 to the ComputerLand Franchise and
Aggregation Business for a contractually agreed upon fee. Under
the Services Agreement, the ComputerLand Franchise and
Aggregation Business has been granted $20 million in extended
credit terms on its product purchases from Vanstar. The Vanstar
payable currently accrues interest at the prime rate, less 2% per
annum (7% at March 31, 1995), with the principal balance due on
February 1, 1996.
Merisel continues to monitor its working capital requirements.
Assuming the Company can obtain a renewal of its accounts
receivable securitization facility, the Company believes that its
existing cash balances, its ability to borrow under existing
lines of credit and obtain additional credit will be sufficient
to meet its working capital and capital investment needs through
at least the next twelve months.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
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. The Company is not
assured that these agreements will succeed in reducing this risk.
In the event of a 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. The
Company also offers financing for its sales to certain of its
customers through various floor plan financing companies. 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.
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
In June 1994, Merisel, Inc. and certain of its officers and/or
directors were named in putative securities class actions filed
in the United States District Court for the Central District of
California, consolidated as In re Merisel, Inc. Securities
Litigation. Plaintiffs who are seeking damages in an unspecified
amount, purport to represent a class of all persons who purchased
Merisel common stock between November 8, 1993 and June 7, 1994
(the "Class Period"). The complaint, as amended and
consolidated, alleges that the defendants inflated the market
price of Merisel's common stock with material misrepresentations
and omissions during the Class Period. Plaintiffs contend that
such alleged misrepresentations are actionable under Section
10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule
10b-5 promulgated thereunder. Following the granting of
defendant's first motion to dismiss on December 5, 1994,
plaintiffs filed a second consolidated and amended complaint on
December 22, 1994. On April 3, 1995, Federal District Judge Real
dismissed the complaint with prejudice. Plaintiffs filed a
Notice of Appeal on April 26, 1995.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
- None
(b) Reports on Form 8-K
- There were no reports on Form8-K filed by the Company during
this quarter ended March 31, 1995.
<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 12, 1995
Merisel, Inc.
By: /s/ James L. Brill
-----------------------
James L. Brill
Senior Vice President,
Finance,
(Duly Authorized Officer and
Chief Financial Officer)
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
1. This schedule contains summary financial information extracted from
Consolidated Financial Statements for Merisel, Inc. for the quarterly period
ended March 31, 1995 and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> QTR-1
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> MAR-31-1995
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<TOTAL-ASSETS> 1,187,490
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