SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] Quarterly report pursuant to Section 13 or 15 (d) of the Securities
Exchange Act of 1934,
For the quarterly period ended May 4, 1997 or
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
Commission file number 0-15995
MICROAGE, INC.
(Exact name of registrant as specified in its charter)
Delaware 86-0321346
(State of incorporation) (I. R. S. Employer
Identification No.)
2400 South MicroAge Way
Tempe, AZ 85282
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (602) 804-2000
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 and
(2) has been subject to such filing requirements for the past 90 days.
Yes [ x ] No [ ]
---
The number of shares of the registrant's Common Stock (par value $.01 per share)
outstanding at June 11, 1997 was 15,490,822.
<PAGE>
INDEX
MICROAGE, INC.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Consolidated balance sheets -- May 4, 1997 and November 3, 1996.
Consolidated statements of income -- Quarters ended May 4, 1997
and April 28, 1996; 26 weeks ended May 4, 1997 and April 28,
1996.
Consolidated statements of cash flows -- 26 weeks ended May 4,
1997 and April 28, 1996.
Notes to consolidated financial statements.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Item 4. Submission of Matter to a Vote of Security Holders
Item 6. Exhibits and Reports on Form 8-K
SIGNATURES
1
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
MICROAGE, INC.
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(in thousands, except share data)
Assets
May 4, November 3,
1997 1996
------------ ------------
Current assets:
Cash and cash equivalents $ 30,653 $ 21,331
Accounts and notes receivable, net 245,759 257,637
Inventory, net 461,328 325,313
Other 10,561 11,135
------------ ------------
Total current assets 748,301 615,416
Property and equipment, net 60,637 53,361
Intangible assets, net 20,318 17,499
Other 9,452 9,126
------------ ------------
Total assets $ 838,708 $ 695,402
============ ============
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 554,568 $ 474,516
Accrued liabilities 25,127 23,497
Current portion of long-term obligations 2,329 2,121
Line of credit 46,500 -
Other 4,879 3,617
------------ ------------
Total current liabilities 633,403 503,751
Long-term obligations 3,946 3,892
Stockholders' equity:
Preferred stock, par value $1.00 per share;
Shares authorized: 5,000,000
Issued and outstanding: none
Common stock, par value $.01 per share; - -
Shares authorized: 40,000,000
Issued: May 4, 1997 - 15,552,965
November 3, 1996 - 15,320,133 156 153
Additional paid-in capital 126,898 124,308
Retained earnings 74,900 64,229
Loan to ESOT - (207)
Treasury stock, at cost;
Shares: May 4, 1997 - 71,836
November 3, 1996 - 97,028 (595) (724)
------------ ------------
Total stockholders' equity 201,359 187,759
------------ ------------
Total liabilities and stockholders' equity $ 838,708 $ 695,402
============ ============
The accompanying notes are an integral part of these financial statements.
2
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MICROAGE, INC.
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(in thousands, except per share data)
Quarter ended 26 weeks ended
----------------------- -----------------------
May 4, April 28, May 4, April 28,
1997 1996 1997 1996
---------- ---------- ---------- ----------
Revenue $1,035,719 $ 866,705 $1,896,038 $1,650,456
Cost of sales 968,711 820,165 1,773,078 1,562,071
---------- ---------- ---------- ----------
Gross profit 67,008 46,540 122,960 88,385
Operating expenses 49,333 36,688 92,397 72,370
---------- ---------- ---------- ----------
Operating income 17,675 9,852 30,563 16,015
Other expenses - net 7,166 4,419 11,926 7,662
---------- ---------- ---------- ----------
Income before income taxes 10,509 5,433 18,637 8,353
Provision for income taxes 4,506 2,331 7,966 3,608
---------- ---------- ---------- ----------
Net income $ 6,003 $ 3,102 $ 10,671 $ 4,745
========== ========== ========== ==========
Net income per common share $ 0.37 $ 0.20 $ 0.66 $ 0.31
========== ========== ========== ==========
Weighted average common and
common equivalent
shares outstanding 16,016 15,294 16,201 15,148
The accompanying notes are an integral part of these financial statements.
3
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MICROAGE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Increase (Decrease) in Cash and Cash Equivalents
(in thousands)
<TABLE>
<CAPTION>
26 weeks ended
----------------------
May 4, April 28,
1997 1996
--------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 10,671 $ 4,745
Adjustments to reconcile net income to
net cash provided by (used in) operating activities:
Depreciation and amortization 11,590 9,205
Provision for losses on accounts and notes receivable 3,245 3,113
Changes in assets and liabilities, net of business acquisitions:
Accounts and notes receivable 10,367 (40,767)
Inventory (135,378) 7,720
Other current assets 588 (188)
Other assets 101 (1,108)
Accounts payable 74,822 16,485
Accrued liabilities 1,562 4,932
Other liabilities 847 107
--------- ---------
Net cash provided by (used in) operating activities (21,585) 4,244
Cash flows from investing activities:
Purchases of property and equipment (16,508) (9,239)
Purchases of businesses and investments
in unconsolidated companies (989) -
--------- ---------
Net cash used in investing activities (17,497) (9,239)
Cash flows from financing activities:
Amounts received from ESOT 207 321
Proceeds from issuance of stock - stock option and
employee stock purchase plans 2,722 541
Net borrowings under line of credit 46,500 880
Principal payments on long-term obligations (1,025) (2,216)
--------- ---------
Net cash provided by (used in) financing activities 48,404 (474)
--------- ---------
Net increase (decrease) in cash and cash equivalents 9,322 (5,469)
Cash and cash equivalents at beginning of period 21,331 14,016
--------- ---------
Cash and cash equivalents at end of period $ 30,653 $ 8,547
========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE>
MICROAGE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE A - BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements of MicroAge, Inc.
(the "Company") do not include all of the information and footnotes required by
generally accepted accounting principles for complete financial statements. In
the opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair statement of results for the periods
have been included. Operating results for the 26 weeks ended May 4, 1997 are not
necessarily indicative of the results that may be expected for the year ending
November 2, 1997. For further information, refer to the consolidated financial
statements and footnotes thereto included in the Company's Annual Report on Form
10-K for the year ended November 3, 1996.
On January 15, 1997, the Company issued shares of its common stock in exchange
for all of the outstanding shares of a previously franchised reseller location.
The merger has been accounted for as a pooling of interests and, accordingly,
the Company's consolidated financial statements have been restated to include
the accounts and operations of the acquired company for all periods presented.
The results of operations previously reported by the separate enterprises and
the combined amounts presented in the accompanying consolidated financial
statements are summarized below (in thousands).
Quarter ended April 28, 1996:
MicroAge, Inc. Acquired Co. Combined
-------------- ------------ ----------
Revenue $863,648 $ 3,057 $ 866,705
Net income $ 2,938 $ 164 $ 3,102
26 weeks ended April 28, 1996:
MicroAge, Inc. Acquired Co. Combined
-------------- ------------ ----------
Revenue $1,643,966 $ 6,490 $1,650,456
Net income $ 4,495 $ 250 $ 4,745
5
<PAGE>
NOTE B - OTHER EXPENSES - NET
Other expenses - net consists of the following (in thousands):
Quarters ended 26 weeks ended
------------------ -----------------
May 4, Apr. 28, May 4, Apr. 28,
1997 1996 1997 1996
------- ------- ------- -------
Interest expense $ 2,060 $ 853 $ 2,534 $ 1,181
Expenses from sales of
accounts receivable 4,737 3,202 9,001 6,001
Other 369 364 391 480
------- ------- ------- -------
$ 7,166 $ 4,419 $11,926 $ 7,662
======= ======= ======= =======
NOTE C - FINANCING ARRANGEMENTS
The Company maintains three financing agreements (the "Agreements") with
financing facilities totaling $675 million. The agreements were amended during
the quarter ended May 4, 1997 to increase the facilities from $500 million to
$675 million and to extend the expiration date of the Agreements from August
1997 to August 1998. The line of credit in the accompanying balance sheet
represents borrowings under a line of credit option in the Agreements.
NOTE D - LITIGATION
On July 14 through July 19, 1994, seven class action complaints were filed in
the United States District Court for the District of Arizona against the
Company, certain of its officers and directors, and, in three of the lawsuits,
one of the underwriters of the Company's June 16, 1994 public offering of common
stock. On December 5, 1994, the Court consolidated the seven actions into a
single action. On February 16, 1995, plaintiffs filed and served an amended,
consolidated complaint against the Company, certain officers and directors of
the Company, and three of the underwriters of the Company's June 16, 1994 public
offering of common stock ("the Complaint"). The Complaint purports to be brought
on behalf of a class of purchasers of the Company's common stock during the
period April 13, 1994 through July 14, 1994. The Complaint alleges, among other
things, that the Company violated federal securities laws by making misleading
public statements and omitting material facts regarding the Company's operations
and financial results, which the plaintiffs contend to have artificially
inflated the price of the Company's common stock during the alleged class
period. The Complaint seeks unspecified compensatory damages as well as fees and
costs. On April 28, 1995, the Company filed a motion to dismiss the Complaint in
its entirety. On March 25, 1996, the Court dismissed the majority of the
allegations contained in the Complaint. An agreement in principle has since been
reached to settle the litigation, subject to obtaining final court approval
thereof. On May 29, 1997, the Court granted its preliminary approval of the
proposed settlement and notice to class members. A final hearing on the
settlement has been scheduled for August 1, 1997. The Company's contribution to
the proposed settlement, after the contributions of the Company's directors and
officers insurers, constitutes amounts immaterial to the Company's financial
statements.
6
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
This Item contains forward-looking statements, which may include plans for
future operations, financing needs or plans, the impact of inflation and plans
relating to products or services of the Company, as well as assumptions relating
to the foregoing. Forward-looking statements are inherently subject to risks and
uncertainties, some of which cannot be predicted or quantified. Future events
and actual results could differ materially from those set forth in, contemplated
by or underlying the forward-looking statements. Please refer to "Factors That
May Affect Future Results and Financial Condition of the Company" below, which
identifies some important factors that could cause the Company's actual results
to differ materially from those projected in forward-looking statements made by
the Company.
On January 15, 1997, the Company issued shares of its common stock in exchange
for all of the outstanding shares of a previously franchised reseller location.
The merger has been accounted for as a pooling of interests and, accordingly,
the Company's consolidated financial statements have been restated to include
the accounts and operations of the acquired company for all periods presented.
Results of Operations
The following table sets forth, for the indicated periods, data as percentages
of total revenue:
<TABLE>
<CAPTION>
Quarter ended
------------------------------------------------------------------------------
May 4, Feb. 2, Nov. 3, July 28, April 28,
1997 1997 1996 1996 1996
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Revenue (in thousands) $1,035,719 $ 860,319 $1,033,998 $ 847,716 $ 866,705
Cost of sales 93.5 % 93.5 % 94.3 % 94.4 % 94.6 %
------------ ------------ ------------- ----------- ------------
Gross profit 6.5 6.5 5.7 5.6 5.4
Operating expenses 4.8 5.0 4.4 4.5 4.2
------------ ------------ ------------- ----------- ------------
Operating income 1.7 1.5 1.2 1.1 1.1
Other expenses - net 0.7 0.6 0.3 0.3 0.5
------------ ------------ ------------- ----------- ------------
Income before income taxes 1.0 0.9 0.9 0.8 0.6
Provision for income taxes 0.4 0.4 0.4 0.3 0.3
------------ ------------ ------------- ----------- ------------
Net income 0.6 % 0.5 % 0.5 % 0.5 % 0.4 %
============ ============ ============= =========== ============
</TABLE>
Total Revenue. Total revenue of $1.0 billion increased $169 million, or 20%, for
the quarter ended May 4, 1997 as compared to the quarter ended April 28, 1996.
This revenue increase included a $170 million, or 33%, increase in distribution
business revenue and a $5 million, or 1%, decrease in systems integration
business revenue. Although systems integration business revenues for the second
quarter of fiscal 1997 were lower than the record levels recorded in the second
quarter of fiscal 1996, they increased 7% over the first quarter of fiscal 1997.
Total revenue of $1.9 billion increased $246 million, or 15% for the 26 weeks
ended May 4, 1997 as compared to the 26 weeks ended April 28, 1996. This revenue
increase included a $233 million, or 24% increase in distribution business
revenue and a $6 million, or 1% increase in systems integration business
revenue.
7
<PAGE>
The revenue increases were attributable to sales to resellers added since April
28, 1996, increased demand for the Company's major suppliers' products, improved
product availability and the growth of the microcomputer products industry.
Gross Profit Percentage. The Company's gross profit percentage was 6.5% for the
quarter ended May 4, 1997 and 5.4% for the quarter ended April 28, 1996. The
gross profit percentage was 6.5% for the 26 weeks ended May 4, 1997 as compared
to 5.4% for the 26 weeks ended April 28, 1996.
The increase in the Company's gross profit percentage results primarily from a
higher service content in revenues, which generate higher margins, the
increasing profitability of the Company's integration business and increasing
supplier incentives in the Company's distribution business.
Operating Expenses. As a percentage of revenue, operating expenses were 4.8% for
the quarter ended May 4, 1997 compared to 4.2% for the quarter ended April 28,
1996. Operating expenses increased $12.6 million to $49.3 million for the
quarter ended May 4, 1997, as compared to $36.7 million for the quarter ended
April 28, 1996. Operating expenses increased from $72.4 million, or 4.4% of
revenue, for the 26 weeks ended April 28, 1996 to $92.4 million, or 4.9% of
revenue, for the 26 weeks ended May 4, 1997. The increases in operating expenses
were primarily attributable to costs associated with increased revenue and
capacity expansion in personnel, systems and facilities.
Other Expenses - Net. Other expenses - net increased to $7.2 million for the
quarter ended May 4, 1997 from $4.4 million for the quarter ended April 28,
1996. Other expenses - net increased to $11.9 million for the 26 weeks ended May
4, 1997 from $7.7 million for the 26 weeks ended April 28, 1996. These increases
were primarily due to increases in net financing costs as a result of higher
inventory levels.
See "Factors That May Affect Future Results and Financial Condition of the
Company" for a discussion of potential risks and uncertainties that could affect
the Company's future operating results and financial condition.
Liquidity and Capital Resources
The Company has financed its growth and cash needs to date primarily through
working capital financing facilities, bank credit lines, common stock offerings
and cash generated from operations. The primary uses of cash have been to fund
increases in inventory and accounts receivable resulting from increased sales.
If the Company is successful in achieving continued revenue growth, its working
capital requirements are likely to increase.
In order to establish or solidify its presence in strategic markets or in
response to competitive pressures, the Company may make acquisitions of, or
investments in, certain companies. These acquisitions or investments may be made
utilizing cash, stock or a combination of cash and stock.
For the 26 weeks ended May 4, 1997, $21.6 million of cash was used in operating
activities. Net cash used in operating activities included an increase in
inventory of $135.4 million, offset by an increase in accounts payable of $74.8
million, a decrease in accounts receivable of $10.4 million and net income,
before certain non-cash items, of $25.5 million.
The number of days cost of sales in ending inventory increased from 33 days at
November 3, 1996 to 43 days at May 4, 1997, but was down from 52 days at the
end of the first fiscal quarter. Inventory is
8
<PAGE>
purchased in anticipation of sales. Revenue for the Company's first fiscal
quarter of 1997 was below the Company's expectations, resulting in higher than
anticipated inventory levels at the end of the first fiscal quarter. The number
of days' cost of sales in ending accounts payable increased from 47 days at
November 3, 1996 to 52 days at May 4, 1997. The number of days' sales in ending
accounts receivable decreased from 24 days at November 3, 1996 to 21 days at May
4, 1997, primarily due to accounts receivable that were sold under a financing
facility (see discussion below). The receivables days adjusted for sold
receivables were 43 days at May 4, 1997 and November 3, 1996.
For the 26 weeks ended May 4, 1997, $17.5 million was used in investing
activities, of which $16.5 million was used for the purchase of property and
equipment, and $1 million was used for purchases of businesses and investments
in unconsolidated companies. Net cash of $48.4 million was provided by financing
activities during the 26 weeks ended May 4, 1997, which consisted primarily of
borrowings under the Company's financing facility.
The Company maintains three financing agreements (the "Agreements") with
financing facilities totaling $675 million. The Agreements were amended during
the quarter ended May 4, 1997 to increase the facilities from $500 million to
$675 million and to extend the expiration date of the Agreements from August
1997 to August 1998. The Agreements include an accounts receivable facility (the
"A/R Facility") and inventory financing facilities (the "Inventory Facilities").
Under the A/R Facility, the Company has the right to sell certain accounts
receivable from time to time, on a limited recourse basis, up to an aggregate
amount of $350 million sold at any given time. At May 4, 1997, the net amount of
sold accounts receivable was $250 million and the effective funding rate was
LIBOR plus 1.85%.
The Inventory Facilities provide for borrowings up to $325 million. Within the
Inventory Facilities, the Company has lines of credit for the purchase of
inventory from selected product suppliers ("Inventory Lines of Credit") of $175
million and a line of credit for general working capital requirements
("Supplemental Line of Credit") of $150 million. Payments for products purchased
under the Inventory Lines of Credit vary depending upon the product supplier,
but generally are due between 45 and 60 days from the date of the advance. No
interest or finance charges are payable on the Inventory Lines of Credit if
payments are made when due. At May 4, 1997, the Company had $70 million
outstanding under the Inventory Lines of Credit (included in accounts payable in
the accompanying Balance Sheets), and $47 million outstanding under the
Supplemental Line of Credit. As of May 4, 1997, the interest rate on the
Supplemental Line of Credit was LIBOR plus 2%.
Of the $675 million of financing capacity represented by the Agreements, $308
million was unused as of May 4 , 1997. Utilization of the unused portion is
dependent upon the Company's collateral availability at the time the funds would
be needed. There can be no assurance that the Company will be able to borrow
adequate amounts on terms acceptable to the Company.
Borrowings under the Agreements are secured by substantially all of the
Company's assets, and the Agreements contain certain restrictive covenants,
including working capital and tangible net worth requirements, and ratios of
debt to tangible net worth and current assets to current liabilities. At May 4,
1997, the Company was in compliance with these covenants.
The Company also maintains trade credit arrangements with its suppliers and
other creditors to finance product purchases. A few major suppliers maintain
security interests in their products sold to the Company.
9
<PAGE>
The unavailability of a significant portion of, or the loss of, the Agreements
or trade credit from suppliers would have a material adverse effect on the
Company.
Although the Company has no material capital commitments, the Company expects to
make capital expenditures of approximately $15 to $20 million during the
remaining quarters of fiscal 1997.
Inflation
The Company believes that inflation has generally not had a material impact on
its operations.
Recent Accounting Pronouncements
In February 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128 "Earnings Per Share" ("SFAS 128"). SFAS
128 is effective for financial statements for both interim and annual periods
ending after December 15, 1997. SFAS 128 replaces the current presentation of
earnings per share with a dual presentation of Basic Earnings per Share and
Diluted Earnings per Share.
Factors That May Affect Future Results and Financial Condition of the Company
The Company's future operating results and financial condition are subject to
certain risks. Potential risks and uncertainties that could affect the Company's
future operating results and financial condition include, without limitation,
the factors discussed below.
Intense Competition
- -------------------
The computer reseller industry is characterized by intense competition, based
primarily on product availability, price, speed of delivery, credit
availability, ability to tailor specific solutions to customer needs, quality
and breadth of product lines, service and post-sale support and quality of
customer training. In addition, the Company faces competition in the recruitment
and retention of franchised and non-franchised resellers. The Company and its
reseller locations compete for sales with numerous other computer resellers,
including (i) master resellers; (ii) direct resellers; (iii) wholesalers
(resellers that do not sell to end-users); (iv) suppliers that sell directly to
large purchasers; and (v) parties that implement other sales methods, such as
direct mail, computer "superstores" and mass merchandisers. There can be no
assurance that the Company will not lose market share, or that it will not be
forced in the future to reduce its prices in response to the actions of its
competitors and thereby experience a reduction in its gross margins.
Narrow Margins
- --------------
The Company has experienced low operating and gross profit margins caused by
intense price competition within its industry. The Company has partially offset
the effect of the low margins by achieving increased revenue and reduced
operating expenses as a percentage of revenue; however, there can be no
assurance that the Company will maintain or increase revenue or further reduce
expenses (as a percentage of revenue) in the future. Future operating and gross
profit margins may be adversely affected by market pressures, the introduction
of new Company initiatives, changes in revenue mix, the Company's utilization of
early payment discount opportunities, supplier pricing actions and other
competitive and economic pressures.
10
<PAGE>
Dependence on Supplier Incentive Funds
- --------------------------------------
The Company receives funds from certain suppliers which are earned through
marketing programs, meeting established purchasing objectives or meeting other
objectives determined by the supplier. There can be no assurance that these
programs will be continued by the suppliers. A substantial reduction in the
supplier funds available to the Company would have an adverse effect on the
Company's results of operations.
Product Supply; Dependence on Key Suppliers
- -------------------------------------------
The computer reseller industry continues to experience product supply shortages
and customer order backlogs due to the inability of certain manufacturers to
supply certain products. In addition, certain suppliers have initiated new
channels of distribution that increase competition for the available product
supply. There can be no assurance that suppliers will be able to maintain an
adequate supply of products to fulfill all of the Company's customer orders on a
timely basis. Although the Company has not historically encountered such
conditions, the failure to obtain adequate product supplies, if competitors were
able to obtain them, could have a material adverse effect on the Company's
results of operations.
Three suppliers of the Company each represented more than 10% of total product
sales for the year ended November 3, 1996. They were COMPAQ Computer Corporation
("COMPAQ"), Hewlett-Packard Company ("Hewlett-Packard"), and International
Business Machines Corporation ("IBM"). During fiscal 1996, sales of products
from COMPAQ, Hewlett-Packard, and IBM represented 22%, 20%, and 14%,
respectively, of the Company's total product sales. Sales of these three
manufacturers' products represented approximately 56% of the Company's revenue
from product sales during fiscal 1995, fiscal 1996 and the second quarter of
fiscal 1997.
The Company's agreements with these suppliers generally are renewed periodically
and permit termination by the supplier without cause, generally upon 30 to 90
days' notice, depending on the supplier. In addition, the Company's business is
dependent upon price and related terms and product availability provided by its
key suppliers. Although the Company considers its relationships with COMPAQ,
Hewlett-Packard, and IBM to be good, there can be no assurance that these
relationships will continue as presently in effect or that changes by one or
more of these key suppliers in their volume discount schedules or other
marketing programs would not adversely affect the Company. Termination or
nonrenewal of the Company's agreements with COMPAQ, Hewlett-Packard, or IBM
would have a material adverse effect on the Company's business.
Open Sourcing
- -------------
In the past, certain of the Company's suppliers required resellers to purchase
their products and services exclusively from one source. Suppliers have
generally removed this requirement, resulting in "open sourcing" of their
products. To date, open sourcing has significantly contributed to the rapid
growth of the Company's sales to value-added resellers. However, competitive
pricing pressures throughout the industry have intensified; these competitive
pressures have been particularly evident in the Company's distribution business.
During fiscal 1996, 61% of total sales were attributable to the Company's
distribution business and 39% of total sales were attributable to its systems
integration business. While the Company believes that it can effectively compete
for sales of those products available under open sourcing, there can be no
assurance that open sourcing will not adversely affect the Company's business.
11
<PAGE>
Potential Fluctuations in Quarterly Results
- -------------------------------------------
The Company's operating results may vary significantly from quarter to quarter
depending on certain factors, including, but not limited to, demand for the
Company's information technology products and services, product availability,
competitive conditions, new product introductions and general economic
conditions. In particular, the Company's operating results are sensitive to
changes in the mix of product and service revenues, product margins, inventory
adjustments and interest rates. Although the Company attempts to control its
expense levels, these levels are based, in part, on anticipated revenues.
Therefore, the Company may not be able to control spending in a timely manner to
compensate for any unexpected revenue shortfall. As a result, quarterly
period-to-period comparisons of the Company's financial results are not
necessarily meaningful and should not be relied upon as an indication of future
performance. In addition, although the Company's financial performance has not
exhibited significant seasonality in the past, the Company and the computer
industry in general tend to follow a sales pattern with peaks occurring near the
end of the calendar year, due primarily to special supplier promotions and
year-end business purchases.
Risk of Declines in Inventory Value
- -----------------------------------
The Company's business is subject to the risk that the value of its inventory
will be adversely affected by price reductions by suppliers or by technological
changes affecting the usefulness or desirability of the products comprising the
inventory. It is the policy of most suppliers of the Company's products to
protect distributors such as the Company, who purchase directly from such
suppliers, from the loss in value of inventory due to technological change or
the supplier's price reductions. Under the terms of many of the Company's
distribution agreements, suppliers will credit the Company for inventory losses
resulting from the supplier's price reductions if the Company complies with
certain conditions. In addition, under many of the Company's agreements, the
Company has the right to return for credit or exchange for other products a
portion of the inventory items purchased, within a designated period of time.
Since the Company can only return a portion of its inventory, the Company could
be forced to liquidate nonreturnable aged inventory at prices below the
Company's cost. A supplier who elects to terminate a distribution agreement may
repurchase from the distributor the supplier's products carried in the
distributor's inventory. The industry practices discussed above are sometimes
not embodied in written agreements and do not protect the Company in all cases
from declines in inventory value. No assurance can be given that such practices
will continue, that unforeseen new product developments will not materially
adversely affect the Company, or that the Company will be able to successfully
manage its existing and future inventories. The Company establishes reserves for
estimated losses due to obsolete inventory in the normal course of business.
Historically, the Company has not experienced losses due to obsolete inventory
materially in excess of established inventory reserves. However, significant
declines in inventory value in excess of established inventory reserves could
materially adversely affect the Company's business, financial condition, or
results of operations.
No Assurance of Successful Acquisitions
- ---------------------------------------
In order to establish or solidify its presence in strategic markets or in
response to competitive pressures, the Company has made, and in the future may
make, acquisitions of or investments in additional reseller locations. Any
acquisitions by the Company may result in potentially dilutive issuances of
equity securities, the incurrence of additional debt and amortization of
expenses related to goodwill and intangible assets, all of which could adversely
effect the Company's profitability. Acquisitions involve numerous risks, such as
the diversion of the attention of the Company's management from other business
concerns, the entrance of the Company into markets in which it has had no or
only limited experience, the integration of the acquired companies' management
information systems with those of the Company and the potential loss of key
employees of the acquired companies, all of which could have a material adverse
effect on the Company's business, financial condition or results of operations.
12
<PAGE>
Capital Intensive Nature of Business
- ------------------------------------
The Company's business requires significant levels of capital to finance
accounts receivable and product inventory that is not financed by trade
creditors. The Company has financed its growth and cash needs to date primarily
through working capital financing facilities, bank credit lines, common stock
offerings, and cash generated from operations. The primary uses of cash have
been to fund increases in inventory and accounts receivable resulting from
increased sales. If the Company is successful in achieving continued revenue
growth, its working capital requirements will continue to increase.
The Company maintains three primary financing agreements, as discussed
previously in "Liquidity and Capital Resources", with an aggregate borrowing
capacity of $675 million. The Agreements expire in August 1998, but any of the
Agreements may be terminated 90 days after either party gives the other party
notice of termination. At May 4, 1997, the Company had approximately $367
million outstanding under the Agreements. Of the $675 million of borrowing
capacity represented by the Agreements, $308 million was unused as of May 4,
1997. Utilization of the unused $308 million is dependent upon, among other
things, the Company's collateral availability at the time the funds would be
needed.
The unavailability of a significant portion of, or the loss of, the Financing
Agreements or trade credit from suppliers would have a material adverse effect
on the Company. There can be no assurance that the Company will be able to
borrow adequate amounts on terms acceptable to the Company.
Dependence on Information Systems.
- ----------------------------------
The Company depends on a variety of information systems for its operations,
particularly its centralized information processing system which supports, among
other things, inventory management, order processing, shipping, receiving and
accounting. Although the Company has not in the past experienced significant
failures or down time of its centralized information processing system or any of
its other information systems, any such failure or significant down time could
prevent the Company from taking customer orders, printing product pick-lists,
and/or shipping product and could prevent customers from accessing price and
product availability information from the Company. In such event, the Company
could be at a severe disadvantage in determining appropriate product pricing or
the adequacy of inventory levels or in reacting to rapidly changing market
conditions. A failure of the Company's information systems which impacts any of
these functions could have a material adverse effect on the Company's business,
financial condition or results of operations. In addition, the inability of the
Company to attract and retain the highly-skilled personnel required to
implement, maintain and operate its centralized information processing system
and the Company's other information systems could have a material adverse effect
on the Company's business, financial condition or results of operations. In
order to react to changing market conditions, the Company must continuously
expand and improve its centralized information processing system and its other
information systems. There can be no assurance that the Company's information
systems will not fail, that the Company will be able to attract and retain
qualified personnel necessary for the operation of such systems or that the
Company will be able to expand and improve its information systems.
Dependence on Independent Shipping Companies
- --------------------------------------------
The Company relies almost entirely on arrangements with independent shipping
companies for the delivery of its products. Products are shipped from suppliers
to the Company through a variety of independent common carriers. Currently,
United Parcel Service ("UPS") delivers the substantial majority
13
<PAGE>
of the Company's products to its reseller customers. The termination of the
Company's arrangements with UPS or other independent shipping companies, or the
failure or inability of one or more of these independent shipping companies to
deliver products from suppliers to the Company, or products from the Company to
its reseller customers or their end-user customers could have a material adverse
effect on the Company's business, financial condition or results of operations.
For instance, an employee work stoppage or slow-down at one or more of these
independent shipping companies could materially impair that shipping company's
ability to perform the services required by the Company. There can be no
assurance that the services of any of these independent shipping companies will
continue to be available to the Company on terms as favorable as those currently
available or that these companies will choose or be able to perform their
required shipping services for the Company.
Rapid Technological Change
- --------------------------
The Company's industry is subject to rapid technological change, new and
enhanced product specification requirements and evolving industry standards.
These changes may cause inventory and stock to decline substantially in value or
to become obsolete. In addition, suppliers may give the Company limited or no
access to new products being introduced. Although the Company believes that it
has adequate price protection and other arrangements with its suppliers to avoid
bearing the costs associated with these changes, no assurance can be made that
future technological or other changes will not have a material adverse effect on
the business, financial condition or results of operations of the Company. See
"Risk of Declines in Inventory Value."
14
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
See Note D of Notes to Consolidated Financial Statements (Unaudited)
for information regarding a consolidated class action lawsuit against the
Company, its directors, certain of its officers, and three of the underwriters
of the Company's June 16, 1994 public offering of Common Stock.
Item 4. Submission of Matter to a Vote of Security Holders.
(a) The Annual Meeting of Stockholders was held on April 2, 1997.
(b)(1) The following individuals were elected to the Board of
Directors as Class II Directors for three-year terms expiring
at the Company's Annual Meeting in 2000: Jeffrey D.
McKeever and Steven G. Mihaylo.
(b)(2) The following individuals' terms continued after the Annual
Meeting as Class III Directors. Their terms will expire at the
Company's Annual Meeting in 1998: Fred Israel and Roy A.
Herberger, Jr.
(b)(3) The following individuals' terms continued after the Annual
Meeting as Class I Directors. Their terms will expire at the
Company's Annual Meeting in 1999: William H. Mallender and
Lynda M. Applegate.
(c) The only matter submitted for vote at the Annual Meeting was
the election of two Class II Directors for three-year terms
expiring at the Company's Annual Meeting in 2000. See Item
4(b)(1) above. The shares were voted as follows:
Nominee No. of Shares
Jeffrey D. McKeever For 13,235,240
Against 66,751
Abstentions 0
Broker Non-votes 0
Steven G. Mihaylo For 13,235,005
Against 66,817
Abstentions 0
Broker Non-votes 0
(d) None
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
10.1 Amendment to Restated and Amended Purchase Agreement
dated as of March 3, 1997, by and between MicroAge
Computer Centers, Inc. et al and Deutsche Financial
Services Corporation
10.2 Amendment to Second Restated Agreement for Wholesale
Financing dated as of March 3, 1997, by and between
MicroAge Computer Centers, Inc. et al and Deutsche
Financial Services Corporation
11 EPS Detail Calculation
27 Financial Data Schedule
(b) The Company did not file any Reports on Form 8-K during the
quarter ended May 4, 1997.
<PAGE>
EXHIBIT INDEX
Exhibit No. Description
- ----------- -----------
10.1 Amendment to Restated and Amended Purchase
Agreement dated as of March 3, 1997, by and between
MicroAge Computer Centers, Inc. et al and Deutsche
Financial Services Corporation
10.2 Amendment to Second Restated Agreement for
Wholesale Financing dated as of March 3, 1997, by
and between MicroAge Computer Centers, Inc. et al
and Deutsche Financial Services Corporation
11 EPS Detail Calculation
27 Financial Data Schedule
<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.
MICROAGE, INC.
(Registrant)
Date: June 13, 1997 By: /s/ Jeffrey D. McKeever
-----------------------------------
Jeffrey D. McKeever
Chairman of the Board and
Chief Executive Officer
Date: June 13, 1997 By: /s/ James R. Daniel
-----------------------------------
James R. Daniel
Senior Vice President, Chief
Financial Officer and Treasurer
AMENDMENT TO RESTATED AND AMENDED PURCHASE AGREEMENT
This Amendment to Restated and Amended Purchase Agreement ("Amendment")
is made by and between MICROAGE COMPUTER CENTERS, INC., MICROAGE SOLUTIONS,
INC., MCSA, INC., MCSZ, INC. (formerly known as MCSB, INC.), MCSJ, INC., MCSP,
INC., MCSQ, INC., KELLY MICRO SYSTEMS, INC. and MCST, INC. (individually and
collectively, "Seller"), MCSR, INC., MCSS, INC., MICROAGE LOGISTICS SERVICES,
INC. ("MLS"), COMPLETE DISTRIBUTION, INC. ("CDI"), MICROAGE INFOSYSTEMS
SERVICES, INC. ("MIS"), ADVANCED SYSTEMS CONSULTANTS, INC. ("ASC"), PCCLEARANCE,
INC. ("PCI"), IMAGE CHOICE, INC. ("ICI"), MCSY, INC. and DEUTSCHE FINANCIAL
SERVICES CORPORATION ("Purchaser") as of the 31st day of March, 1997.
WHEREAS, Purchaser and Seller entered into that certain Restated and
Amended Purchase Agreement dated as of August 3, 1995 (the "Purchase
Agreement");
WHEREAS, MCSR, Inc., MCSS, Inc., MLS, CDI, MIS, ASC, PCI, ICI and MCSY,
Inc. are affiliates of Seller and will be creating accounts receivable which
they desire to sell to Purchaser;
WHEREAS, Seller, Purchaser, MCSR, Inc., MCSS, Inc., MLS, CDI, MIS, ASC,
PCI, ICI and MCSY, Inc. believe it is in their best interests to make MCSR,
Inc., MCSS, Inc., MLS, CDI, MIS, ASC, PCI, ICI and MCSY, Inc. parties to the
Purchase Agreement as additional Sellers thereunder; and
WHEREAS, Kelly Micro Systems, Inc. is in the process of being dissolved
and is not generating accounts receivable;
WHEREAS, Purchaser is willing to release Kelly Micro Systems, Inc. from
its obligations under the Purchase Agreement; and
WHEREAS, Purchaser and Seller desire to amend the Purchase Agreement as
provided herein.
NOW, THEREFORE, for and in consideration of the premises, and for other
good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, Purchaser, Seller, MCSR, Inc., MCSS, Inc., MLS, CDI, MIS, ASC,
PCI, ICI and MCSY, Inc. agree as follows (except as otherwise defined herein,
all capitalized terms will have the same meanings set forth in the Purchase
Agreement):
1. Kelly Micro Systems, Inc. is hereby released from all obligations
under the Purchase Agreement.
2. MCSR, Inc., MCSS, Inc., MLS, CDI, MIS, ASC, PCI, ICI and MCSY, Inc.
are hereby made parties to the Purchase Agreement, and all references
to "Seller" in the Purchase Agreement shall be deemed to be references
to MicroAge Computer Centers, Inc., MicroAge Solutions, Inc., MCSA,
Inc., MCSZ, Inc., MCSJ, Inc., MCSP, Inc., MCSQ, Inc., MCST, Inc.
(collectively, the "Original Seller"), MCSR, Inc., MCSS, Inc., MLS,
CDI, MIS, ASC, PCI, ICI and MCSY, Inc., acting jointly and severally.
MCSR, Inc., MCSS, Inc., MLS, CDI, MIS, ASC, PCI, ICI and MCSY, Inc.
hereby expressly assume, on a joint and several basis, all obligations
of Original Seller under the Purchase Agreement, including without
limitation all obligations regarding fees and other amounts payable to
Purchaser under letter agreements executed by Original Seller and
Purchaser in connection with the Purchase Agreement. Nothing herein
shall be deemed to release any Original Seller from any such
obligations. Original Seller, MCSR, Inc., MCSS, Inc., MLS, CDI, MIS,
ASC, PCI, ICI and MCSY, Inc. hereby affirm all representations,
warranties and repurchase obligations of Original Seller in the
Purchase Agreement, in connection with Accounts sold by Original Seller
and agree that they make identical representations, warranties and
agreements with respect to Accounts to be sold by MCSR, Inc., MCSS,
Inc., MLS, CDI, MIS, ASC, PCI, ICI and MCSY, Inc. thereunder. Original
Seller, MCSR, Inc., MCSS, Inc., MLS, CDI, MIS, ASC, PCI, ICI and MCSY,
Inc. agree that they shall be jointly and severally responsible and
liable for all obligations, representations and warranties of Original
Seller, MCSR, Inc.,
1
<PAGE>
MCSS, Inc., MLS, CDI, MIS, ASC, PCI, ICI and MCSY, Inc. under the
Purchase Agreement, as amended hereby.
In furtherance of the foregoing and not as a limitation, to secure all
of their respective current and future debts to Purchaser, whether
under the Purchase Agreement or any current or future guaranty or other
agreement, including without limitation all obligations of Seller
arising in connection with the Purchase Agreement, whether now or
hereafter existing, due or to become due, direct or indirect, or
absolute or contingent, including Repurchase obligations pursuant to
Section 2.1.D, indemnification obligations pursuant to Section 10.1 and
payments on account of Collections received, MCSR, Inc., MCSS, Inc.,
MLS, CDI, MIS, ASC, PCI, ICI and MCSY, Inc. hereby assign and grant to
Purchaser a security interest in all of their respective right, title
and interest now or hereafter existing in, to and under all inventory,
equipment, fixtures, accounts (including without limitation all Sold
Receivables), contract rights, chattel paper, instruments, documents of
title, deposit accounts, reserves and general intangibles, now owned or
hereafter acquired, and all attachments, accessions, parts,
accessories, substitutions and replacements thereto, and all proceeds
thereof, and to the extent related to the property described above, all
books, correspondence, credit files, records, invoices and other papers
and documents, including without limitation, to the extent so related,
all tapes, cards, computer runs, computer programs and other papers and
documents in their respective possession or control or any computer
bureau from time to time acting for each of them, and to the extent so
related, all rights in, to and under all policies of insurance,
including claims of rights to payments thereunder and proceeds
therefrom, including any credit insurance, and all proceeds thereof.
MCSR, Inc., MCSS, Inc., MLS, CDI, MIS, ASC, PCI, ICI and MCSY, Inc.
each hereby appoint MicroAge Computer Centers, Inc. as its duly
authorized agent for purposes of executing each Assignment of
Receivables, and each such Assignment of Receivables duly executed by
MicroAge Computer Centers, Inc. and delivered to Purchaser shall for
all purposes be deemed executed and delivered by each of them.
2. Schedules A and B, and Exhibit I, to the Purchase Agreement, are
hereby restated in their entirety and replaced by Schedules A and B,
and Exhibit I, attached hereto and incorporated herein by this
reference.
3. Except as expressly modified or amended herein, all other terms and
provisions of the Purchase Agreement, including without limitation all
letter agreements regarding fees and other amounts payable to Purchaser
in connection with the Purchase Agreement, to the extent consistent
with the foregoing, will remain unmodified and in full force and effect
and the Purchase Agreement, as hereby amended, is ratified and
confirmed by Purchaser, Seller, MCSR, Inc., MCSS, Inc., MLS, CDI, MIS,
ASC, PCI, ICI and MCSY, Inc.
IN WITNESS WHEREOF, Purchaser, Seller, MCSR, Inc., MCSS, Inc., MLS,
CDI, MIS, ASC, PCI, ICI and MCSY, Inc. have executed this Amendment as of the
date and year first above written.
SELLER MICROAGE COMPUTER CENTERS, INC.
By:
----------------------------
Title:
-------------------------
MICROAGE SOLUTIONS, INC.
By:
----------------------------
Title:
-------------------------
MCSA, INC.
By:
----------------------------
Title:
-------------------------
2
<PAGE>
MCSZ, INC.
By:
----------------------------
Title:
-------------------------
MCSJ, INC.
By:
----------------------------
Title:
-------------------------
MCSP, INC.
By:
----------------------------
Title:
-------------------------
MCSQ, INC.
By:
----------------------------
Title:
-------------------------
KELLY MICRO SYSTEMS, INC.
By:
----------------------------
Title:
-------------------------
MCST, INC.
By:
----------------------------
Title:
-------------------------
MCSR, INC.
By:
----------------------------
Title:
-------------------------
MCSS, INC.
By:
----------------------------
Title:
-------------------------
MICROAGE LOGISTICS SERVICES, INC.
By:
----------------------------
Title:
-------------------------
COMPLETE DISTRIBUTION, INC.
By:
----------------------------
Title:
-------------------------
MICROAGE INFOSYSTEMS SERVICES, INC.
By:
----------------------------
Title:
-------------------------
ADVANCED SYSTEMS CONSULTANTS, INC.
By:
----------------------------
Title:
-------------------------
PCCLEARANCE, INC.
By:
----------------------------
Title:
-------------------------
3
<PAGE>
IMAGE CHOICE, INC.
By:
----------------------------
Title:
-------------------------
MCSY, INC.
By:
----------------------------
Title:
-------------------------
PURCHASER DEUTSCHE FINANCIAL SERVICES CORPORATION
By:
----------------------------
Title:
-------------------------
4
AMENDMENT TO SECOND RESTATED AGREEMENT FOR WHOLESALE FINANCING
This Amendment to Second Restated Agreement for Wholesale Financing
("Amendment") is made by and between MICROAGE COMPUTER CENTERS, INC. ("MCCI"),
MICROAGE LOGISTICS SERVICES, INC. ("MLS") and DEUTSCHE FINANCIAL SERVICES
CORPORATION ("DFS") as of the 31st day of March, 1997.
WHEREAS, DFS, MCCI and MLS entered into that certain Second Restated
Agreement for Wholesale Financing dated as of August 3, 1995, as amended (the
"AWF");
WHEREAS, DFS, MCCI and MLS desire to amend the AWF as provided herein.
NOW, THEREFORE, for and in consideration of the premises, and for other
good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, DFS, MCCI and MLS agree as follows (except as otherwise defined
herein, all capitalized terms will have the same meanings set forth in the AWF):
1. The definition of "Supplemental Inventory Limit" as set forth in
Section 1 of the AWF is hereby amended to mean One Hundred Fifty
Million Dollars ($150,000,000.00).
2. The definition of "Aggregate A/R and Supplemental Inventory Limit"
as set forth in Section 1 of the AWF is hereby amended to mean Five
Hundred Million Dollars ($500,000,000.00).
3. Section 10(c) of the AWF is hereby amended and restated in its
entirety to read as follows:
"(c) The Consolidated Group shall at all times maintain, on a
consolidated basis, a ratio of (i) the sum of (A) total
liabilities plus (B) that portion of the Outstanding Balance
(as defined in the Purchase Agreement) of all Sold Receivables
(as defined in the Purchase Agreement) which MCCI and its
affiliates have elected to receive if MCCI and its affiliates
have received any or all of the amount due prior to Collection
(as defined in the Purchase Agreement) of such Sold
Receivables by DFS) pursuant to the third sentence of Section
2.1.B of the Purchase Agreement, to (ii) Tangible Net Worth,
of less than 6.5 to 1 (the 'Leverage Ratio')."
4. The reference to Two Hundred Million Dollars ($200,000,000.00) at
the end of the second to last sentence of Section 21 of the AWF is
hereby amended to mean Three Hundred Million Dollars ($300,000,000.00).
5. Except as expressly modified or amended herein, all other terms and
provisions of the AWF, including without limitation all letter
agreements regarding interest charges, fees and other amounts payable
to DFS in connection with the AWF, to the extent consistent with the
foregoing, will remain unmodified and in full force and effect and the
AWF, as hereby amended, is ratified and confirmed by DFS, MCCI and MLS.
1
<PAGE>
IN WITNESS WHEREOF, DFS, MCCI and MLS have executed this Amendment as
of the date and year first above written.
MICROAGE COMPUTER CENTERS, INC.
By:
----------------------------
Title:
-------------------------
MICROAGE LOGISTICS SERVICES, INC.
By:
----------------------------
Title:
-------------------------
DEUTSCHE FINANCIAL SERVICES CORPORATION
By:
----------------------------
Title:
-------------------------
2
EXHIBIT 11 - CALCULATION OF NET INCOME PER COMMON SHARE
MICROAGE, INC
NET INCOME PER COMMON SHARE CALCULATION
(in thousands)
<TABLE>
<CAPTION>
Quarter ended 26 weeks ended
-------------------------------------------------------------------
May 4, April 28, May 4, April 28,
1997 1996 1997 1996
-------------- -------------- -------------- ---------------
<S> <C> <C> <C> <C>
Primary
Weighted average common shares 15,476 15,025 15,395 14,982
Dilutive effect of stock options and warrants 540 269 806 166
Weighted average common and common -------------- -------------- -------------- ---------------
equivalent shares outstanding - primary 16,016 15,294 16,201 15,148
Fully Diluted (1)
Weighted average shares from primary
calculation 16,016 15,294 16,201 15,148
Additional dilutive effect of stock options
and warrants 54 59 - 149
Weighted average common and common -------------- -------------- -------------- ---------------
equivalent shares outstanding - fully diluted 16,070 15,353 16,201 15,297
Net income $6,003 $3,102 $10,671 $4,745
Net income per common and common equivalent share:
Primary $ 0.37 $ 0.20 $ 0.66 $ 0.31
Fully Diluted $ 0.37 $ 0.20 $ 0.66 $ 0.31
</TABLE>
(1) Fully diluted share information is presented in accordance with Regulation
S-K of the Securities Exchange Act of 1934. The amounts of per share
earnings on the fully diluted basis are not required to be presented in the
consolidated statements of income under the provisions of APB No. 15 since
the additional dilution is less than 3%.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial
information extracted from the Consolidated
Balance Sheets (Unaudited) as of May 4, 1997
and November 3, 1996 and the Consolidated
Statements of Income (Unaudited) for the
quarters ended May 4, 1997 and April 28, 1996
contained in the Form 10-Q for the quarter
ended May 4, 1997, and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> NOV-02-1997
<PERIOD-START> FEB-03-1996
<PERIOD-END> MAY-04-1997
<EXCHANGE-RATE> 1
<CASH> 30,653
<SECURITIES> 0
<RECEIVABLES> 258,024
<ALLOWANCES> (12,265)
<INVENTORY> 461,328
<CURRENT-ASSETS> 748,301
<PP&E> 124,033
<DEPRECIATION> (63,396)
<TOTAL-ASSETS> 838,708
<CURRENT-LIABILITIES> 633,403
<BONDS> 0
0
0
<COMMON> 156
<OTHER-SE> 201,203
<TOTAL-LIABILITY-AND-EQUITY> 838,708
<SALES> 1,035,719
<TOTAL-REVENUES> 1,035,719
<CGS> 968,711
<TOTAL-COSTS> 968,711
<OTHER-EXPENSES> 49,333
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,060
<INCOME-PRETAX> 10,509
<INCOME-TAX> 4,506
<INCOME-CONTINUING> 6,003
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,003
<EPS-PRIMARY> 0.37
<EPS-DILUTED> 0.37
</TABLE>
