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 August 2, 1998 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) 366-2000
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 August 31, 1998 was 20,162,233.
<PAGE>
INDEX
MICROAGE, INC.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Consolidated balance sheets -- August 2, 1998 and November 2,
1997.
Consolidated statements of operations -- Quarters ended August 2,
1998 and August 3, 1997; 39 weeks ended August 2, 1998 and August
3, 1997.
Consolidated statements of cash flows -- 39 weeks ended August 2,
1998 and August 3, 1997.
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 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)
<TABLE>
<CAPTION>
Assets
August 2, November 2,
1998 1997
----------- -----------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 43,700 $ 24,029
Accounts and notes receivable, net 543,849 341,124
Inventory, net 432,055 478,532
Other 12,601 11,662
----------- ---------
Total current assets 1,032,205 855,347
Property and equipment, net 93,724 73,975
Intangible assets, net 79,269 43,766
Other 18,903 12,826
----------- ---------
Total assets $ 1,224,101 $ 985,914
=========== =========
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 919,405 $ 680,648
Accrued liabilities 16,426 22,527
Current portion of long-term obligations 3,140 2,744
Other 7,325 3,951
----------- ---------
Total current liabilities 946,296 709,870
Line of credit -- 30,650
Long-term obligations 5,751 4,537
Other long-term liabilities 9,098 1,239
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: August 2, 1998 -- 20,004,336
November 2, 1997 -- 18,451,653 200 184
Additional paid-in capital 181,086 148,329
Retained earnings 81,836 91,922
Treasury stock, at cost;
Shares: August 2, 1998 -- 16,378
November 2, 1997 -- 80,378 (166) (817)
----------- ---------
Total stockholders' equity 262,956 239,618
----------- ---------
Total liabilities and stockholders' equity $ 1,224,101 $ 985,914
=========== =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
2
<PAGE>
MICROAGE, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(in thousands, except per share data)
<TABLE>
<CAPTION>
Quarter ended 39 weeks ended
----------------------------- ------------------------------
August 2, August 3, August 2, August 3,
1998 1997 1998 1997
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Revenue $ 1,441,246 $ 1,161,839 $ 3,947,207 $ 3,160,366
Cost of sales 1,354,575 1,077,468 3,702,130 2,934,916
------------- ------------- ------------- -------------
Gross profit 86,671 84,371 245,077 225,450
Operating and other expenses
Operating expenses 77,787 65,445 230,500 174,330
Restructuring and other one-time charges - - 5,600 -
------------- ------------- ------------- -------------
Total 77,787 65,445 236,100 174,330
------------- ------------- ------------- -------------
Operating income 8,884 18,926 8,977 51,120
Other expenses - net 6,683 7,650 25,391 19,953
------------- ------------- ------------- -------------
Income (loss) before income taxes 2,201 11,276 (16,414) 31,167
Income tax provision (benefit) 1,473 4,670 (6,473) 12,957
------------- ------------- ------------- -------------
Net income (loss) $ 728 $ 6,606 $ (9,941) $ 18,210
============= ============= ============= =============
Net income (loss) per common and common
equivalent share:
Basic $ 0.04 $ 0.38 $ (0.51) $ 1.05
============= ============= ============= =============
Diluted $ 0.04 $ 0.36 $ (0.51) $ 1.01
============= ============= ============== =============
Weighted average common and common
equivalent shares outstanding:
Basic 19,859 17,421 19,633 17,310
============= ============= ============= =============
Diluted 20,305 18,198 19,633 18,093
============= ============= ============= =============
</TABLE>
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>
39 weeks ended
------------------------
August 2, August 3,
1998 1997
--------- --------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (9,941) $ 18,210
Adjustments to reconcile net income (loss) to
net cash provided by (used in) operating activities:
Depreciation and amortization 27,755 17,621
Provision for losses on accounts and notes receivable 10,585 6,933
Changes in assets and liabilities, net of business acquisitions:
Accounts and notes receivable (186,128) 50
Inventory 56,066 (95,345)
Other current assets (757) (121)
Other assets (18,024) (3,603)
Accounts payable 204,362 55,039
Accrued liabilities (7,850) (10,069)
Other liabilities 10,602 6,314
--------- --------
Net cash provided by (used in) operating activities 86,670 (4,971)
Cash flows from investing activities:
Purchases of property and equipment (36,820) (20,120)
--------- --------
Net cash used in investing activities (36,820) (20,120)
Cash flows from financing activities:
Proceeds from issuance of stock - stock option and
employee stock purchase plans 3,424 4,020
Net borrowings (payments) under line of credit (30,650) 45,318
Amounts received from ESOT -- 207
Shareholder distributions - pooled companies (129) --
Net change in long-term obligations (2,824) (1,213)
--------- --------
Net cash provided by (used in) financing activities (30,179) 48,332
--------- --------
Net increase in cash and cash equivalents 19,671 23,241
Cash and cash equivalents at beginning of period 24,029 22,261
--------- --------
Cash and cash equivalents at end of period $ 43,700 $ 45,502
========= ========
</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. Certain prior year amounts have been reclassified to conform
with current year financial statement presentation. Operating results for the 39
weeks ended August 2, 1998 are not necessarily indicative of the results that
may be expected for the year ending November 1, 1998. 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 2, 1997.
On November 14, 1997, the Company issued shares of its common stock in exchange
for all of the outstanding shares of a reseller. 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).
<TABLE>
<CAPTION>
Quarter ended Aug. 3, 1997:
MicroAge, Inc. Acquired Co. Combined
-------------- ------------ ----------
<S> <C> <C> <C>
Revenue $1,147,632 $14,207 $1,161,839
Net income $ 6,484 $ 122 $ 6,606
39 weeks ended Aug. 3, 1997:
MicroAge, Inc. Acquired Co. Combined
-------------- ------------ ----------
Revenue $3,124,398 $35,968 $3,160,366
Net income $ 17,585 $ 625 $ 18,210
</TABLE>
5
<PAGE>
NOTE B - OTHER EXPENSES - NET
Other expenses - net consists of the following (in thousands):
<TABLE>
<CAPTION>
Quarters ended 39 weeks ended
------------------- -------------------
Aug. 2, Aug. 3, Aug. 2, Aug. 3,
1998 1997 1998 1997
------- ------- ------- -------
<S> <C> <C> <C> <C>
Interest expense $ 457 $ 1,598 $ 3,791 $ 4,509
Expenses from sales of
accounts receivable 3,855 5,070 14,425 14,071
Amortization expense 1,547 468 4,323 1,330
Other 824 514 2,852 43
------- ------- ------- -------
$ 6,683 $ 7,650 $25,391 $19,953
======= ======= ======= =======
</TABLE>
NOTE C - RESTRUCTURING AND OTHER ONE-TIME CHARGES
In February 1998, the Company initiated a plan to restructure the Company into
two independent businesses - a distribution business operated through a
wholly-owned subsidiary, Pinacor Inc., and an integration business
("Integration"). In connection with this plan, the Company recorded $5.6 million
of restructuring and other one-time charges ($3.2 million, or $0.16 per share,
after taxes) during the second quarter of fiscal 1998.
The restructuring and other one-time charges included $3.6 million for employee
termination benefits, $1.1 million for the closing and consolidation of
redundant locations, and $0.9 million for other costs related to the
restructuring, primarily one-time costs incurred in establishing Pinacor and
Integration as separate businesses. The charges associated with employee
termination benefits consist primarily of severance pay for approximately 250
associates. The reductions occurred in virtually all areas of the Company and
were completed by May 3, 1998. As of August 2, 1998, the remaining liability for
restructuring activities was not material.
6
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
Certain statements contained in this Item may be "forward-looking statements"
within the meaning of The Private Securities Litigation Reform Act of 1995.
These forward-looking statements may include projections of revenue and net
income and issues that may affect revenue or net income; projections of capital
expenditures; plans for future operations; financing needs or plans; plans
relating to the Company's products and services; and 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 information. Some of the important factors
that could cause the Company's actual results to differ materially from those
projected in forward-looking statements made by the Company include, but are not
limited to, the following: intense competition; narrow margins; dependence on
supplier incentive funds; product supply and dependence on key vendors;
potential fluctuations in quarterly results; risks of declines in inventory
values; no assurance of successful acquisitions or investments; the capital
intensive nature of the Company's business; dependence on information systems;
year 2000 issues; dependence on independent shipping companies; rapid
technological change; and possible volatility of stock price. Reference is made
to Exhibit 99.1 of the Company's Report on Form 10-K for the year ended November
2, 1997 for additional discussion of the foregoing factors. The Company
undertakes no obligations to publicly update or revise any forward-looking
statements, whether as a result of new information, future events or otherwise.
On November 14, 1997, the Company issued shares of its common stock in exchange
for all of the outstanding shares of a 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. See Note A of
Notes to Consolidated Financial Statements (Unaudited) for additional
information.
In February 1998, the Company initiated a plan to restructure the Company into
two independent businesses - a distribution business operated through a
wholly-owned subsidiary, Pinacor, Inc. ("Pinacor") and an integration business
("Integration"). These businesses now have separate management teams, operate
autonomously in their respective marketplaces, and contract with headquarters
for a limited number of services, such as payroll processing, employee benefits
and information services. See "Restructuring and Other One-Time Charges" below.
In May 1998, the Company announced that it had retained an investment banking
firm to help explore financial options for Pinacor designed to enhance
shareholder value.
7
<PAGE>
Results of Operations
The following table sets forth, for the indicated periods, data as percentages
of total revenue:
<TABLE>
<CAPTION>
Quarter ended
---------------------------------------------------------------
Aug. 2, May 3, Feb. 1, Nov. 2, Aug. 3,
1998 1998 1998 1997 1997
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Revenue (in thousands) $1,441,246 $1,326,950 $1,179,011 $1,331,502 $1,161,839
Cost of sales 94.0% 93.6% 93.7% 93.1% 92.7%
---------- ---------- ---------- ---------- ----------
Gross profit 6.0 6.4 6.3 6.9 7.3
Operating and other expenses
Operating expenses 5.4 6.0 6.2 5.3 5.6
Restructuring and other one- 0.0 0.4 0.0 0.0 0.0
time charges
---------- ---------- ---------- ---------- ----------
Operating income 0.6 (0.1) 0.1 1.6 1.6
Other expenses - net 0.4 0.6 0.9 0.6 0.6
---------- ---------- ---------- ---------- ----------
Income (loss) before income taxes 0.2 (0.7) (0.8) 1.0 1.0
Income tax provision (benefit) 0.1 (0.3) (0.3) 0.4 0.4
---------- ---------- ---------- ---------- ----------
Net income (loss) 0.1% (0.4)% (0.5)% 0.6% 0.6%
========== ========== ========== ========== ==========
</TABLE>
TOTAL REVENUE. Total revenue of $1.4 billion increased $279 million, or 24%, for
the quarter ended August 2, 1998 as compared to the quarter ended August 3,
1997. This revenue increase included a $258 million, or 24%, increase in Pinacor
(distribution business) revenue, a $3 million, or 1%, increase in Integration
revenue and a decrease in the elimination of intercompany revenue. The increase
in revenue was attributable to sales to resellers added since August 3, 1997,
increased demand for the Company's major suppliers' products, the Company's
addition of new product offerings and the growth of the microcomputer products
industry.
Total revenue increased $787 million, or 25%, for the 39 weeks ended August 2,
1998 as compared to the 39 weeks ended August 3, 1997. This revenue increase
included a $680 million, or 23%, increase in Pinacor revenue and a $186 million,
or 16% increase in Integration revenue, partially offset by an increase in
intercompany eliminations.
GROSS PROFIT PERCENTAGE. The Company's gross profit percentage was 6.0% for the
quarter ended August 2, 1998 and 7.3% for the quarter ended August 3, 1997. The
gross profit percentage was 6.2% for the 39 weeks ended August 2, 1998 as
compared to 7.1% for the 39 weeks ended August 3, 1997.
The decrease in the Company's gross profit percentage was due to lower margins
in Pinacor combined with the fact that Integration revenues, which have higher
gross margins, comprised a smaller percentage of total revenues. In Pinacor, the
Company's distribution business, gross margins on sales to reseller customers
decreased due to increased competitive pressures. In addition, supplier
incentive funds were lower as a percentage of total Pinacor revenue and net
freight expense increased as a percentage of revenue. The freight expense
increase as a percentage of revenue was primarily due to a decrease in the
average selling price per pound of product shipped as well as an increase in the
cost per pound shipped. In Integration, margins increased due to an increase in
service revenue, which has higher gross margins
8
<PAGE>
than product revenue margins. This increase was partially offset by lower
margins on Integration product sales to end-user customers due to competitive
pricing pressures.
Operating Expenses. As a percentage of revenue, operating expenses were 5.4% for
the quarter ended August 2, 1998 compared to 5.6% for the quarter ended August
3, 1997. Operating expenses increased $12 million to $78 million for the quarter
ended August 2, 1998, as compared to the quarter ended August 3, 1997. Operating
expenses increased from $174 million, or 5.5% of revenue, for the 39 weeks ended
August 3, 1997 to $231 million, or 5.8% of revenue, for the 39 weeks ended
August 2, 1998. The increase in operating expenses was primarily attributable to
increased business volume, acquisitions of reseller locations (which generally
have higher gross margin and operating expense percentages than the Company's
other businesses), the costs associated with assimilating these acquisitions,
start-up costs of several new locations, and the build-up of infrastructure
associated with Integration's increasing levels of service revenue.
Restructuring and Other One-Time Charges.
In connection with the restructuring plan discussed above, the Company recorded
a $5.6 million charge ($3.2 million, or $0.16 per share, after taxes) for the
second quarter of fiscal 1998. The restructuring and other one-time charges
included $3.6 million for employee termination benefits, $1.1 million for the
closing and consolidation of redundant locations and $0.9 million for other
costs related to the restructuring, primarily one-time costs incurred in
establishing Pinacor and Integration as separate businesses. The charges
associated with employee termination benefits consist primarily of severance pay
for approximately 250 associates. The reductions occurred in virtually all areas
of the Company and have been completed.
Other Expenses - Net. Other expenses - net decreased to $6.7 million for the
quarter ended August 2, 1998 from $7.7 million for the quarter ended August 3,
1997 primarily due to lower average daily borrowings resulting from lower
inventory balances during the quarter. Other expenses - net increased to $25.4
million for the 39 weeks ended August 2, 1998 from $20.0 million for the 39
weeks ended August 3, 1997. This increase was due to higher average daily
borrowings, primarily in the first two fiscal quarters of fiscal 1998, to
support higher inventory and accounts receivable levels and to increased
amortization expense associated with goodwill from acquisitions.
Supplier Incentive and Inventory Management Programs
The key suppliers of the Company provide various incentives for promoting and
marketing their product offerings. A large portion of the incentives are passed
on to the Company's customers. However, a portion of the incentives positively
impact the Company's income. Beginning in May 1998, the major suppliers
announced and/or instituted changes in their sales incentive programs and
inventory management programs. Pursuant to these changes, the major suppliers
will (i) provide price protection for periods ranging from 2 to 4 weeks rather
than the longer periods previously available, (ii) allow product returns on
average of 2% to 3% of product sales per quarter, rather than the average of 5%
of sales per quarter previously available, and (iii) provide incentives based on
sales of the suppliers' products, rather than on purchases of the products from
the suppliers. In response to the suppliers' changes, the Company has reduced
the amount of inventory on hand; however, there can be no assurance that the
suppliers' changes will not adversely impact the Company over time or that
further changes in suppliers' incentive or inventory management policies will
not have a material adverse effect on the Company's operating results.
9
<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, the amount of supplier
incentive funds received by the Company, the results of acquired businesses,
product availability, competitive conditions, new product introductions, changes
in customer order patterns 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.
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.
The Company has acquired or invested in, and intends to acquire or invest in,
resellers to increase core service competencies, expand the Company's geographic
coverage in key market areas, and strengthen the Company's direct relationships
with end-user customers. Acquisitions or investments may be made utilizing cash,
stock, or a combination of cash and stock.
Cash provided by operating activities was $87 million for the 39 weeks ended
August 2, 1998 as compared to cash used of $5 million for the 39 weeks ended
August 3, 1997. The increase was primarily due to a change in cash provided or
used by accounts receivable, inventory and accounts payable. During the 39 weeks
ended August 2, 1998, $260 million was provided by changes in inventory and
accounts payable compared to $40 million used by changes in inventory and
accounts payable during the 39 weeks ended August 3, 1997. This was partially
offset by a change in cash used by accounts receivable. During the 39 weeks
ended August 2, 1998, $186 million of cash was used by changes in accounts
receivable compared to $50,000 provided by changes in accounts receivable during
the 39 weeks ended August 3, 1997.
The number of days cost of sales in ending inventory decreased from 35 days at
November 2, 1997 to 29 days at August 2, 1998. The number of days' cost of sales
in ending accounts payable increased from 49 days at November 2, 1997 to 61 days
at August 2, 1998. The number of days' sales in ending accounts receivable was
35 days at August 2, 1998 compared to 22 days at November 2, 1997. This increase
in receivables days outstanding was due to a decrease in accounts receivable
sold to a finance company. The receivables days adjusted for sold receivables
were 41 days at August 2, 1998 and November 2, 1997.
10
<PAGE>
Cash used in investing activities increased from $20 million during the 39 weeks
ended August 3, 1997 to $37 million during the 39 weeks ended August 2, 1998 due
to increased purchases of property and equipment as a result of increased
spending for electronic commerce initiatives and capacity expansion in systems
and facilities.
Cash used in financing activities was $30 million during the 39 weeks ended
August 2, 1998 compared to cash provided of $48 million during the 39 weeks
ended August 2, 1997, primarily due to a change in net borrowings under the
Company's line of credit between the periods.
The Company maintains three financing agreements (the "Agreements") with
financing facilities totaling $800 million. 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 August 2, 1998, the net amount
of sold accounts receivable was $112 million.
The Inventory Facilities provide for borrowings up to $450 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 $300
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.
Amounts borrowed under the Supplemental Line of Credit may remain outstanding
until the expiration date of the Agreements (August 2000). No interest or
finance charges are payable on the Inventory Lines of Credit if payments are
made when due. At August 2, 1998, the Company had $197 million outstanding under
the Inventory Lines of Credit (included in accounts payable in the accompanying
Balance Sheets), and nothing outstanding under the Supplemental Line of Credit.
Of the $800 million of financing capacity represented by the Agreements, $491
million was unused as of August 2, 1998. 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 tangible net worth requirements and ratios of debt to tangible net
worth and current assets to current liabilities. At August 2, 1998, the Company
was in compliance with these covenants.
In addition to the financing facilities discussed above, the Company maintains
an accounts receivable purchase agreement (the "Purchase Agreement") with a
commercial credit corporation (the "Buyer") whereby the Buyer agrees to
purchase, from time to time at its option, on a limited recourse basis, certain
accounts receivable of the Company. Under the terms of the Purchase Agreement,
no finance charges are assessed if the accounts are settled within forty days.
At August 2, 1998, the net amount of sold accounts receivable under the Purchase
Agreement was $25 million.
11
<PAGE>
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.
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 $5 to $10 million during the fourth
quarter of fiscal 1998.
Inflation
The Company believes that inflation has generally not had a material impact on
its operations.
12
<PAGE>
PART II. OTHER INFORMATION
Item 2. Changes in Securities.
(a) None
(b) None
(c) On November 5, 1997, the Company issued 814,458 shares of the
Company's Common Stock, $.01 par value ("Common Stock"), in connection
with the Company's acquisition of a previously franchised corporate
reseller (the "Acquired Company"). The Company reported this
transaction in Part II, Item 2(c) of the Company's Report on Form 10-Q
for the quarter ended February 1, 1998. On June 15, 1998, the Company
issued 379,597 shares of Common Stock to two individuals, who together
owned all of the issued and outstanding voting capital stock of the
Acquired Company. The sale of the 379,597 shares of Common Stock was
exempt from the registration provisions of the Securities Act of 1933,
as amended (the "Act"), pursuant to section 4(2) of the Act for
transactions not involving a public offering, based on the fact that
the Common Stock was offered and sold to a limited number of investors
who had access to financial and other relevant data concerning the
Company, its financial condition, business, and assets.
(d) None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
10.1 Restated Certificate of Incorporation of MicroAge,
Inc. (incorporated by reference to Exhibit 3.1 to the
Annual Report on Form 10-K for MicroAge, Inc. for the
year ended November 2, 1997).
10.2 Bylaws of MicroAge, Inc. amended and restated as of
July 16, 1998 (incorporated by reference to Exhibit
4.2 to Registration Statement No. 333-62763, filed on
September 2, 1998).
11. EPS Detail Calculation
(Statement re: Computation of Per Share Earnings)
27. Financial Data Schedule
(b) During the quarter ended August 2, 1998, the Company did not
file any Reports on Form 8-K.
13
<PAGE>
EXHIBIT INDEX
Exhibit No. Description
- ----------- -----------
10.1 Restated Certificate of Incorporation of MicroAge, Inc.
(incorporated by reference to Exhibit 3.1 to the Annual
Report on Form 10-K for MicroAge, Inc. for the year ended
November 2, 1997).
10.2 Bylaws of MicroAge, Inc. amended and restated as of July 16,
1998 (incorporated by reference to Exhibit 4.2 to
Registration Statement No. 333-62763, filed on September 2,
1998).
11. EPS Detail Calculation
(Statement re: Computation of Per Share Earnings)
27. Financial Data Schedule
14
<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: September 16, 1998 By: /s/ Jeffrey D. McKeever
--------------------------------
Jeffrey D. McKeever
Chairman of the Board and
Chief Executive Officer
Date: September 16, 1998 By: /s/ James R. Daniel
--------------------------------
James R. Daniel
Executive Vice President
Chief Financial Officer and Treasurer
15
EXHIBIT 11 - CALCULATION OF NET INCOME (LOSS) PER COMMON SHARE
MICROAGE, INC.
NET INCOME (LOSS) PER COMMON SHARE CALCULATION
(in thousands)
<TABLE>
<CAPTION>
Quarter ended 39 weeks ended
----------------------- ------------------------
August 2, August 3, August 2, August 3,
1998 1997 1998 1997
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Basic
Weighted average common shares 19,859 17,421 19,633 17,310
-------- -------- -------- --------
Diluted
Weighted average shares from basic
calculation 19,859 17,421 19,633 17,310
Dilutive effect of stock options and warrants 446 777 -- 783
-------- -------- -------- --------
Weighted average common and common
equivalent shares outstanding - diluted 20,305 18,198 19,633 18,093
-------- -------- -------- --------
Net income (loss) $ 728 $ 6,606 $ (9,941) $ 18,210
Net income (loss) per common and common
equivalent share:
Basic $ 0.04 $ 0.38 $ (0.51) $ 1.05
======== ======== ======== ========
Diluted $ 0.04 $ 0.36 $ (0.51) $ 1.01
======== ======== ======== ========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial
information extracted from the Consolidated Balance
Sheets (Unaudited) as of August 2, 1998 and
November 2, 1997 and the Consolidated Statements of
Operations (Unaudited) for the quarters ended
August 2, 1998 and August 3, 1997
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> NOV-01-1998
<PERIOD-START> NOV-03-1997
<PERIOD-END> AUG-02-1998
<EXCHANGE-RATE> 1
<CASH> 43,700
<SECURITIES> 0
<RECEIVABLES> 561,517
<ALLOWANCES> 17,668
<INVENTORY> 432,055
<CURRENT-ASSETS> 1,032,205
<PP&E> 193,760
<DEPRECIATION> 100,036
<TOTAL-ASSETS> 1,224,101
<CURRENT-LIABILITIES> 946,296
<BONDS> 0
0
0
<COMMON> 200
<OTHER-SE> 262,756
<TOTAL-LIABILITY-AND-EQUITY> 1,224,101
<SALES> 3,947,207
<TOTAL-REVENUES> 3,947,207
<CGS> 3,702,130
<TOTAL-COSTS> 3,702,130
<OTHER-EXPENSES> 5,600
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,791
<INCOME-PRETAX> (16,414)
<INCOME-TAX> (6,473)
<INCOME-CONTINUING> (9,941)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (9,941)
<EPS-PRIMARY> (0.51)
<EPS-DILUTED> (0.51)
</TABLE>
