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 February 2, 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 March 14, 1997 was 15,480,054.
<PAGE>
INDEX
MICROAGE, INC.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Consolidated balance sheets -- February 2, 1997 and November 3, 1996.
Consolidated statements of income -- Quarters ended February 2, 1997
and January 28, 1996.
Consolidated statements of cash flows -- Quarters ended February 2,
1997 and January 28, 1996.
Notes to consolidated financial statements -- February 2, 1997.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Item 2. Changes in Securities
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
February 2, November 3,
1997 1996
----------- -----------
Current assets:
Cash and cash equivalents $ 12,346 $ 21,331
Accounts and notes receivable, net 182,386 257,637
Inventory, net 465,042 325,313
Other 9,902 11,135
--------- ---------
Total current assets 669,676 615,416
Property and equipment, net 53,579 53,361
Intangible assets, net 17,152 17,499
Other 9,676 9,126
--------- ---------
Total assets $ 750,083 $ 695,402
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 466,755 $ 474,516
Accrued liabilities 17,804 23,497
Current portion of long-term obligations 2,114 2,121
Line of credit 62,735 --
Other 1,843 3,617
--------- ---------
Total current liabilities 551,251 503,751
Long-term obligations 3,654 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: February 2, 1997 -- 15,540,140
November 3, 1996 -- 15,320,133 155 153
Additional paid-in capital 126,805 124,308
Retained earnings 68,897 64,229
Loan to ESOT (84) (207)
Treasury stock, at cost;
Shares: February 2, 1997 -- 71,836
November 3, 1996 -- 97,028 (595) (724)
--------- ---------
Total stockholders' equity 195,178 187,759
--------- ---------
Total liabilities and stockholders' equity $ 750,083 $ 695,402
========= =========
The accompanying notes are an integral part of these financial statements.
2
<PAGE>
MICROAGE, INC.
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(in thousands, except per share data)
Quarters ended
----------------------------
February 2, January 28,
1997 1996
---------- ---------
Revenue $ 860,319 $ 783,751
Cost of sales 804,367 741,906
--------- ----------
Gross profit 55,952 41,845
Operating expenses 43,064 35,682
--------- ---------
Operating income 12,888 6,163
Other expenses - net 4,760 3,243
--------- ---------
Income before income taxes 8,128 2,920
Provision for income taxes 3,460 1,277
--------- ---------
Net income $ 4,668 $ 1,643
========= =========
Net income per common share $ 0.29 $ 0.11
========= =========
Weighted average common and
common equivalent
shares outstanding 16,300 15,026
The accompanying notes are an integral part of these financial statements.
3
<PAGE>
MICROAGE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Increase (Decrease) in Cash and Cash Equivalents
(in thousands)
<TABLE>
<CAPTION>
Quarter ended
------------------------
February 2, January 28,
1997 1996
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 4,668 $ 1,643
Adjustments to reconcile net income to net cash
used in operating activities:
Depreciation and amortization 5,661 4,520
Provision for losses on accounts and notes receivable 1,629 1,782
Changes in assets and liabilities:
Accounts and notes receivable 73,622 52,035
Inventory (139,729) (69,393)
Other current assets 1,233 661
Other assets (594) 175
Accounts payable (7,761) (2,190)
Accrued liabilities (5,693) 1,373
Other liabilities (1,774) (463)
--------- --------
Net cash used in operating activities (68,738) (9,857)
Cash flows from investing activities:
Purchases of property and equipment (5,347) (3,508)
--------- --------
Net cash used in investing activities (5,347) (3,508)
Cash flows from financing activities:
Amounts received from ESOT 123 168
Proceeds from issuance of stock - stock option and
employee stock purchase plans 2,628 452
Net borrowings under line of credit 62,735 10,223
Principal payments on long-term obligations (386) (592)
--------- --------
Net cash provided by financing activities 65,100 10,251
--------- --------
Net decrease in cash and cash equivalents (8,985) (3,114)
Cash and cash equivalents at beginning of period 21,331 14,016
--------- --------
Cash and cash equivalents at end of period $ 12,346 $ 10,902
========= ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE>
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 quarter ended February 2, 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 January 28, 1996:
MicroAge, Inc. Acquired Co. Combined
-------------- ------------ --------
Revenue $ 780,318 $ 3,433 $ 783,751
Net income $ 1,557 $ 86 $ 1,643
NOTE B - OTHER EXPENSES - NET
Other expenses - net consists of the following (in thousands):
Quarters ended
------- --------
Feb. 2, Jan. 28,
1997 1996
------- --------
Interest expense $ 474 $ 327
Expenses from sales of
accounts receivable 4,264 2,799
Other 22 117
------- -------
$ 4,760 $ 3,243
======= =======
5
<PAGE>
NOTE C - FINANCING ARRANGEMENTS
The Company maintains a financing agreement (the "Agreement") which contains a
financing facility of $400 million. The line of credit in the accompanying
balance sheet represents borrowings under a line of credit option in the
Agreement.
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. The parties to the litigation have
entered into a written settlement agreement, subject to obtaining court approval
thereof. The Company's contribution to the proposed settlement, after the
contributions of the Company's directors and officers liability insurance
carrier, 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 may contain "forward-looking statements" within the meaning of Section
27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act
of 1934. Such forward looking statements involve risks and uncertainties which
could cause actual results or outcomes to differ materially from those expressed
in such forward-looking statements.
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
-----------------------------------------------------------
Feb. 2, Nov. 3, July 28, April 28, Jan. 28,
1997 1996 1996 1996 1996
-------- ---------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Revenue (in thousands) $860,319 $1,033,998 $847,716 $866,705 $783,751
Cost of sales 93.5% 94.3% 94.4% 94.6% 94.7%
-------- ---------- -------- -------- --------
Gross profit 6.5 5.7 5.6 5.4 5.3
Operating expenses 5.0 4.4 4.5 4.2 4.6
-------- ---------- -------- -------- --------
Operating income 1.5 1.2 1.1 1.1 0.8
Other expenses - net 0.6 0.3 0.3 0.5 0.4
-------- ---------- -------- -------- --------
Income before income taxes 0.9 0.9 0.8 0.6 0.4
Provision for income taxes 0.4 0.4 0.3 0.3 0.2
-------- ---------- -------- -------- --------
Net income 0.5% 0.5% 0.5% 0.4% 0.2%
======== ========== ======== ======== ========
</TABLE>
TOTAL REVENUE. Total revenue of $860 million increased $77 million, or 10%, for
the quarter ended February 2, 1997 as compared to the quarter ended January 28,
1996. This revenue increase included a $63 million, or 14%, increase in
distribution business revenue and an $11 million, or 4%, increase in systems
integration business revenue.
The revenue increase was primarily due to sales to resellers added since January
28, 1996, the Company's focus on large account sales, increased demand for the
Company's major vendors' products and increased service revenues.
Revenue decreased from $1.0 billion for the quarter ended November 3, 1996 to
$860 million for the quarter ended February 2, 1997. This decrease was primarily
due to fewer shipping days in the first quarter of fiscal 1997 as compared to
the fourth quarter of fiscal 1996 and, to a lesser extent, to lower average
daily shipments in the first quarter. The fourth quarter of fiscal 1996
represented the highest average daily sales in the Company's history. The
7
<PAGE>
decrease in the number of shipping days between the two periods was due to a 14
week quarterly period in the fourth quarter compared to a 13 week period in the
first quarter of 1997.
GROSS PROFIT PERCENTAGE. The Company's gross profit percentage was 6.5% for the
quarter ended February 2, 1997 and 5.3% for the quarter ended January 28, 1996.
The increase in the Company's gross profit percentage was driven by higher
service content in revenues, increased supplier participation in the form of
rebates and increased early pay discounts and increasing profitability of the
Company's large account business.
Future gross profit percentages may be affected by market pressures, the
introduction of new Company programs, changes in revenue mix, the Company's
utilization of early payment discount opportunities, supplier pricing actions
and other competitive and economic factors. See also "Potential Fluctuations in
Operating Results" below.
OPERATING EXPENSES. As a percentage of revenue, operating expenses were 5.0% for
the quarter ended February 2, 1997 compared to 4.6% for the quarter ended
January 28, 1996. Operating expenses increased $7.4 million to $43.1 million for
the quarter ended February 2, 1997, as compared to the quarter ended January 28,
1996. The increase in operating expenses was primarily attributable to costs
associated with increased revenue and capacity expansion in personnel, systems
and facilities.
OTHER EXPENSES - NET. Other expenses - net increased from $3.2 million for the
quarter ended January 28, 1996 to $4.8 million for the quarter ended February 2,
1997. This increase was primarily due to an increase in net financing costs as a
result of higher inventory levels.
If the Company is successful in achieving continued revenue growth, its working
capital requirements and related financing costs are likely to increase.
SUPPLIER INCENTIVE FUNDS. The Company receives funds from certain suppliers
which are earned through marketing programs, meeting established purchasing or
sales 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.
POTENTIAL FLUCTUATIONS IN OPERATING 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, 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.
8
<PAGE>
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 quarter ended February 2, 1997, $68.7 million of cash was used in
operating activities. Net cash used in operating activities included an increase
in inventory of $139.7 million, a decrease in accounts payable of $7.8 million
and a decrease in accrued liabilities of $5.7 million, offset by a decrease in
accounts receivable of $73.6 million and net income, before certain non-cash
items, of $12.0 million.
The number of days cost of sales in ending inventory increased from 33 days at
November 3, 1996 to 52 days at February 2, 1997. Inventory is purchased in
anticipation of sales. Revenue for the quarter ended February 2, 1997 was below
the Company's expectations, resulting in higher than anticipated inventory
levels. The Company expects inventory days on hand to decrease to historical
levels by the end of the second 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 February 2, 1997. The number of days' sales in ending accounts
receivable decreased from 24 days at November 3, 1996 to 19 days at February 2,
1997, primarily due to accounts receivable that were sold under a financing
facility (see discussion below). The receivables days adjusted for sold
receivables were 45 days at February 2, 1997 compared to 43 days at November 3,
1996.
For the quarter ended February 2, 1997, $5.3 million was used in investing
activities for the purchase of property and equipment, and net cash of $65.1
million was provided by financing activities which consisted primarily of
borrowings under the Company's financing facility.
The Company maintains a primary financing agreement (the "Agreement") with a
financing facility of $400 million. The Company is currently in negotiations to
increase the total amount of the financing facility to $550 million and expects
the increase to be finalized during the second quarter of fiscal year 1997.
There can be no assurances that the financing facility will be increased. The
Agreement includes two major components: an accounts receivable facility (the
"A/R Facility") and an inventory facility (the "Inventory Facility"). The
Agreement expires in August 1997.
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 $250 million sold at any given time. At February 2, 1997, the net
amount of sold accounts receivable was $241 million and the effective funding
rate was LIBOR plus 2.1%.
The Inventory Facility provides for borrowings up to $150 million. Within the
Inventory Facility, the Company has a line of credit for the purchase of
inventory from selected product suppliers ("Inventory Line of Credit") of $50
million and a line of credit for general working capital requirements
("Supplemental Line of Credit") of $100 million. Payments for products purchased
9
<PAGE>
under the Inventory Line 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 Line of Credit if
payments are made when due. At February 2, 1997, the Company had $7 million
outstanding under the Inventory Line of Credit (included in accounts payable in
the accompanying Balance Sheets), and $63 million outstanding under the
Supplemental Line of Credit. As of February 2, 1997, the interest rate on the
Supplemental Line of Credit was LIBOR plus 2%.
Of the $400 million of financing capacity represented by the Agreement, $89
million was unused as of February 2, 1997. Utilization of the unused portion is
dependent upon the Company's collateral availability at the time the funds would
be needed.
Borrowings under the Agreement are secured by substantially all of the Company's
assets, and the Agreement contains 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 February 2,
1997, the Company was in compliance with these covenants.
The Company also maintains trade credit arrangements with its vendors and other
creditors to finance product purchases. Several major vendors maintain security
interests in their products sold to the Company.
The unavailability of a significant portion of, or the loss of, the Agreement or
trade credit from vendors 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.
10
<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 2. Changes in Securities
(a) None
(b) None
(c) On January 15, 1997, the Company acquired a previously franchised
reseller. In connection with the merger, the Company issued shares of common
stock, $0.01 par value per share, to the previously franchised reseller which
became a subsidiary of the Company. Exemption from registration for the issuance
of the Common Stock is claimed pursuant to Section 4(2) of the Securities Act of
1933, as amended, regarding transactions by an issuer not involving any public
offering.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
10.1 Fifth Amendment dated January 1, 1997 to the Amended and Restated
MicroAge, Inc. Retirement Savings and Employee Stock Ownership
Plan
10.2 First Amendment dated January 1, 1997 to the MicroAge, Inc.
Executive Supplemental Savings Plan
11 EPS Detail Calculation
27 Financial Data Schedule
(b) The Company did not file any Reports on Form 8-K during the quarter
ended February 2, 1997.
11
<PAGE>
EXHIBIT INDEX
Exhibit No. Description
- ----------- -----------
10.1 Fifth Amendment dated January 1, 1997 to the Amended and Restated
MicroAge, Inc. Retirement Savings and Employee Stock Ownership
Plan
10.2 First Amendment dated January 1, 1997 to the MicroAge, Inc.
Executive Supplemental Savings Plan
11 EPS Detail Calculation
27 Financial Data Schedule
12
<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: March ___, 1997 By: /s/ Jeffrey D. McKeever
----------------------------------------
Jeffrey D. McKeever
Chairman of the Board and
Chief Executive Officer
Date: March ___, 1997 By: /s/ James R. Daniel
---------------------------------------
James R. Daniel
Senior Vice President, Chief
Financial Officer and Treasurer
13
EXHIBIT 10.1
FIFTH AMENDMENT
TO THE
MICROAGE, INC.
RETIREMENT SAVINGS AND
EMPLOYEE STOCK OWNERSHIP PLAN AND TRUST
The MicroAge, Inc. Retirement Savings and Employee Stock Ownership
Plan and Trust (the "Plan"), as amended and restated by a document effective as
of January 1, 1995 and amended by the First Amendment dated May 10, 1995, the
Second Amendment dated March 14, 1996, the Third Amendment dated November 4,
1996 and the Fourth Amendment dated December 4, 1996, is hereby further amended
as follows:
1. All of the changes made to the Plan by this Fifth Amendment are
effective as of January 1, 1997.
2. A new definitional Section 2.26B is hereby added to the Plan and
shall read as follows:
2.26B ESSP Participant. The term "ESSP Participant" means any
individual employed by the Employer or a Related Employer who is
eligible to participate in the Executive Supplemental Savings Plan
(the "ESSP") and who has been notified by the ESSP Plan Administrator
of the effective date of his participation.
3. Section 2.37A, the definition of "Leadership Team", is hereby
deleted from the Plan.
4. Section 4.02(e) of the Plan is hereby amended and restated in its
entirety to read as follows:
(e) Special Rules for ESSP Participants. No Participant who is an
ESSP Participant shall be allowed to make Elective Deferrals directly
to this Plan. Following the end of each Plan Year, however, Elective
Deferrals may be made on behalf of such Participants by a direct
transfer to the Trustee from the trustee of the ESSP. The amount of
Elective Deferrals transferred to this Plan from the ESSP on behalf of
each such Participant shall not exceed the lesser of (i) the dollar
limitation imposed by Section 402(g) of the Code for such year or (ii)
the maximum amount that may be transferred to this Plan without
causing this Plan to violate the ADP limitations described in Section
4.02(c) for the Plan Year.
<PAGE>
(i) For purposes of determining the amount referred to in
clause (ii) of the preceding sentence, the Advisory
Committee shall first calculate the ADP test referred
to in Section 4.02(c) on the assumption that each ESSP
Participant who also is a Participant in this Plan
elected to make no Elective Deferrals other than any
Elective Deferrals that such Participant made prior to
the effective date of his participation in the ESSP.
(ii) If, but only if, the calculation made pursuant to the
preceding subparagraph (i) reveals that the Elective
Deferrals considered pursuant to subparagraph (i) are
less than the maximum amount of Elective Deferrals that
could be made by all Highly Compensated Employees
(including ESSP Participants who are Participants in
this Plan), Elective Deferrals shall then be
transferred to this Plan from the ESSP on behalf of
each ESSP Participant who is a Participant and who has
elected to have such transfer made.
(iii)The amount transferred to this Plan from the ESSP on
behalf of each electing Participant who also is an ESSP
Participant shall equal the lesser of (A) the amount
available for transfer pursuant to the ESSP for the
relevant Plan Year or (B) an amount equal to the
Participant's Compensation for the Plan Year multiplied
by the "maximum ADP" for the group consisting of ESSP
Participants who also are Participants in this Plan
(calculated in accordance with the principles set forth
in Section 4.02(c)(iii)(B)). For purposes of the
preceding sentence, the "maximum ADP" is the highest
ADP that could be contributed by ESSP Participants who
also are Participants in the Plan without requiring the
return of any Excess Contributions pursuant to Section
4.02(d). In making this determination, the Advisory
Committee may increase the maximum ADP of the remaining
ESSP Participants if others will not be transferring
the maximum amount permitted. Appropriate adjustments
will be made to take into account any Elective
Deferrals made by an ESSP Participant during a Plan
Year but prior to the effective date of his
participation in the ESSP, with the manner of
adjustment to be determined by the Advisory Committee
in accordance with rules and procedures of uniform
application.
2
<PAGE>
(iv) Prior to the first day of each Plan Year or, if later,
the effective date of a Participant's eligibility to
participate in the ESSP, each Participant who also is
an ESSP Participant shall file an irrevocable, written
election with the Advisory Committee and the Plan
Administrator of the ESSP to either (a) transfer the
amount calculated pursuant to subparagraph (iii) to
this Plan or (b) to receive a cash distribution of said
amount from the ESSP. Such election shall continue to
apply from year to year unless and until the
Participant changes the election by filing a new
election. A new election shall only be effective with
respect to Plan Years beginning after the day on which
such election is received by the Advisory Committee and
the Plan Administrator of the ESSP. In the case of a
Participant who becomes an ESSP Participant during a
Plan Year, the election shall be effective with respect
to the portion of the Plan Year beginning on the
effective date of such Participant's eligibility to
participate in the ESSP. If such new ESSP Participant
does not file such an election prior to the effective
date of such individual=s participation in the ESSP (or
such later date specified by the Advisory Committee)
such individual's later election shall be effective
only for Plan Years beginning after the date on which
such election is filed.
(v) As soon as possible following the end of each Plan
Year, the Advisory Committee will calculate the amount
that may be transferred to this Plan from the ESSP and
shall notify the Plan Administrator of the ESSP. Such
transfers shall be accomplished no later that two and
one-half (22) months following the end of the Plan Year
and the amounts transferred shall be treated as
Elective Deferrals for the preceding Plan Year for all
purposes (including, but not limited to, Section 4.03).
5. Except as otherwise amended above, the Plan, as previously amended,
shall continue in full force and effect.
To signify its adoption of this Fifth Amendment, MicroAge, Inc. has
caused this Fifth Amendment to be executed by its duly authorized officer on
this 31st day of January, 1997.
MicroAge, Inc.
By: /s/ Jeffrey D. McKeever
---------------------------------------
Jeffrey D. McKeever
Chairman of the Board of Directors
and Chief Executive Officer
3
EXHIBIT 10.2
FIRST AMENDMENT TO THE
MICROAGE, INC.
EXECUTIVE SUPPLEMENTAL SAVINGS PLAN
The MicroAge, Inc. Executive Supplemental Savings Plan (the "Plan"),
as amended and restated effective November 1, 1996, is hereby amended as
follows:
1. Section 3.1 of the Plan is hereby amended and restated in its
entirety to read as follows:
3.1 GENERAL. Participation in the Plan shall be limited to those
individuals who are members of one of the following categories:
(1) Leadership Team members;
(2) Individuals employed by the Company or by an Affiliate as a
General Manager of any Company-owned reseller location (or
any equivalent employment position);
(3) Individuals employed by the Company or by an Affiliate as a
Service Manager of any Company-owned reseller location (or
any equivalent employment position) who is selected by the
Chairman of the Board of Directors for participation in the
Plan; or
(4) Other individuals providing services to Plan Sponsors who
are selected by the Compensation Committee of the Board of
Directors for participation in the Plan.
The Company has determined that all individuals designated in
subparagraphs (1) and (2) above hold a key position of management and
responsibility and that those individuals presently constitute a
select group of management or highly compensated employees for
purposes of Title I of ERISA. Neither the Chairman of the Board of
Directors nor the Compensation Committee of the Board of Directors
shall select any individual for participation in the Plan pursuant to
subparagraph (3) or (4) above who does not hold a key position of
management and responsibility with a Plan Sponsor or who does not fit
within the select group of management or highly compensated employees
covered by this Plan. The Compensation Committee of the Board of
Directors shall have the full discretion and authority to exclude an
individual from participation in the Plan if it concludes that such
individual does not hold a key position of management and
responsibility or is not properly included in the select group of
management or highly compensated employees covered by the Plan. The
Compensation Committee's decision shall be made in its discretion and
shall be final and binding for all purposes under this Plan. The Plan
Administrator shall have the full discretion and authority to
determine the effective date of participation for any individual who
is designated for participation in the Plan pursuant to the terms of
this Section 3.1. The exercise of such discretion by the Plan
Administrator shall be evidenced by a written notification of
eligibility delivered to the individual designated for participation
and shall constitute a final and binding decision.
<PAGE>
3. The first sentence of Section 3.3 of the Plan is hereby amended and
restated in its entirety as follows:
Once an individual is designated as a Participant, he will continue
as such for all future Plan Years unless and until the individual is
no longer categorized as an individual entitled to participate in the
Plan pursuant to Section 3.1 above, or the Compensation Committee of
the Board of Directors specifically acts to discontinue the
individual's participation, or the Participant's participation is
suspended pursuant to Section 5.3(c) hereof.
4. Section 4.1 of the Plan is hereby amended and restated in its
entirety to read as follows:
4.1 PARTICIPANT CONTRIBUTIONS. For any Plan Year, a Participant
may elect to defer a portion of the Base Salary and/or the Bonuses
otherwise payable to him. Any such deferrals shall be made in
accordance with such rules and procedures regarding Participant
deferrals promulgated by the Plan Administrator from time to time.
Participants shall designate their elective deferrals on the
appropriate form prescribed by the Plan Administrator. All Participant
elections are subject to the Plan Administrator's authority to limit
the amount of a Participant's Deferral Contributions in accordance
with such uniform rules as it may adopt from time to time. All
Deferral Contributions shall be made by the Plan Sponsor directly to
the Trust.
5. The final sentence of Section 11.2(b) of the Plan is hereby amended
and restated in its entirety as follows:
The Compensation Committee of the Board of Directors shall have the
discretion to exclude an individual from participation in the Plan
pursuant to Section 3.1 above and to discontinue a Participant's
participation in the Plan pursuant to Section 3.3 above.
6. The provisions of this Amendment shall be effective as of January
1, 1997.
7. Except as otherwise amended above, the Plan shall continue in full
force and effect.
To signify the adoption of this First Amendment, MicroAge, Inc. has
caused this First Amendment to be executed by its duly authorized officer on
this 31st day of January, 1997.
MicroAge, Inc.
By /s/ Jeffrey D. McKeever
-----------------------------------------
Jeffrey D. McKeever
Chairman of the Board of Directors
and Chief Executive Officer
2
EXHIBIT 11 - CALCULATION OF NET INCOME PER COMMON SHARE
MICROAGE, INC
NET INCOME PER COMMON SHARE CALCULATION
(in thousands)
Quarter ended
-----------------------------
February 2, January 28,
1997 1996
----------- -----------
PRIMARY
Weighted average common shares 15,313 14,933
Dilutive effect of stock options and warrants 987 93
------- -------
Weighted average common and common
equivalent shares outstanding - primary 16,300 15,026
FULLY DILUTED (1)
Weighted average shares from primary
calculation 16,300 15,026
Additional dilutive effect of stock options
and warrants 1 3
------- -------
Weighted average common and common
equivalent shares outstanding - fully diluted 16,301 15,029
Net income $ 4,668 $ 1,643
Net income per common and common equivalent share:
Primary $ 0.29 $ 0.11
Fully Diluted $ 0.29 $ 0.11
(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 February 2, 1997 and November 3,
1996 and the Consolidated Statements of Income (Unaudited) for the quarters
ended February 2, 1997 and January 28, 1996 contained in the Form 10-Q for the
quarter ended February 2, 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> NOV-04-1996
<PERIOD-END> FEB-02-1997
<EXCHANGE-RATE> 1
<CASH> 12,346
<SECURITIES> 0
<RECEIVABLES> 195,443
<ALLOWANCES> (13,057)
<INVENTORY> 465,042
<CURRENT-ASSETS> 669,676
<PP&E> 118,477
<DEPRECIATION> (64,898)
<TOTAL-ASSETS> 750,083
<CURRENT-LIABILITIES> 551,251
<BONDS> 0
0
0
<COMMON> 155
<OTHER-SE> 195,023
<TOTAL-LIABILITY-AND-EQUITY> 750,083
<SALES> 860,319
<TOTAL-REVENUES> 860,319
<CGS> 804,367
<TOTAL-COSTS> 804,367
<OTHER-EXPENSES> 43,064
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 474
<INCOME-PRETAX> 8,128
<INCOME-TAX> 3,460
<INCOME-CONTINUING> 4,668
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,668
<EPS-PRIMARY> 0.29
<EPS-DILUTED> 0.29
</TABLE>
