SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q/A No. 1
(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 December 31, 1998 was 20,315,711.
<PAGE>
This Form 10Q/A No. 1 for MicroAge, Inc. (the "Company") is being filed pursuant
to Regulation S-K Item 601(c)(2)(iii) to amend the Form 10Q for the quarterly
period ended August 2, 1998 due to an aquisition in fiscal 1997 originally
accounted for as a pooling of interests that has been restated under the
purchase method of accounting (see Note A of Notes to Consolidated Financial
Statements (Unaudited) for additional information).
INDEX
MICROAGE, INC.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Consolidated balance sheets -- August 2, 1998 and
November 2, 1997. 2
Consolidated statements of operations -- Quarters
ended August 2, 1998 and August 3, 1997; 39 weeks
ended August 2, 1998 and August 3, 1997. 3
Consolidated statements of cash flows -- 39 weeks
ended August 2, 1998 and August 3, 1997. 4
Notes to consolidated financial statements. 5
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations. 7
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 12
SIGNATURES 13
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)
MICROAGE, INC.
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(in thousands, except share data)
ASSETS
August 2, November 2,
1998 1997
---------- --------
Current assets:
Cash and cash equivalents $ 41,950 $ 22,279
Accounts and notes receivable, net 400,063 233,942
Inventory, net 432,855 479,332
Other 12,295 11,356
---------- --------
Total current assets 887,163 746,909
Property and equipment, net 93,724 73,975
Intangible assets, net 119,300 85,903
Other 18,686 12,609
---------- --------
Total assets $1,118,873 $919,396
========== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 793,691 $591,538
Accrued liabilities 16,426 22,527
Current portion of long-term obligations 3,140 2,744
Other 7,210 3,836
---------- --------
Total current liabilities 820,467 620,645
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 203,586 170,829
Retained earnings 79,937 92,129
Treasury stock, at cost;
Shares: August 2, 1998 - 16,378
November 2, 1997 - 80,378 (166) (817)
---------- --------
Total stockholders' equity 283,557 262,325
---------- --------
Total liabilities and stockholders' equity $1,118,873 $919,396
========== ========
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 $1,117,275 $3,947,207 $3,060,337
Cost of sales 1,354,575 1,040,622 3,702,130 2,852,193
---------- ---------- ---------- ----------
Gross profit 86,671 76,653 245,077 208,144
Operating and other expenses
Operating expenses 77,787 58,055 230,500 157,491
Restructuring and other one-time
charges -- -- 5,600 --
---------- ---------- ---------- ----------
Total 77,787 58,055 236,100 157,491
---------- ---------- ---------- ----------
Operating income 8,884 18,598 8,977 50,653
Other expenses - net 7,385 7,662 27,497 19,984
---------- ---------- ---------- ----------
Income (loss) before income taxes 1,499 10,936 (18,520) 30,669
Income tax provision (benefit) 1,473 4,583 (6,473) 12,870
---------- ---------- ---------- ----------
Net income (loss) $ 26 $ 6,353 $ (12,047) $ 17,799
========== ========== ========== ==========
Net income (loss) per common and
common equivalent share:
Basic $ 0.00 $ 0.39 $ (0.61) $ 1.09
========== ========== ========== ==========
Diluted $ 0.00 $ 0.37 $ (0.61) $ 1.04
========== ========== ========== ==========
Weighted average common and common
equivalent shares outstanding:
Basic 19,859 16,489 19,633 16,378
========== ========== ========== ==========
Diluted 20,305 17,266 19,633 17,161
========== ========== ========== ==========
</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)
39 weeks ended
-----------------------
August 2, August 3,
1998 1997
--------- --------
Cash flows from operating activities:
Net income (loss) $ (12,047) $ 17,799
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Depreciation and amortization 29,861 17,493
Provision for losses on accounts and notes
receivable 10,585 6,753
Changes in assets and liabilities, net of
business acquisitions:
Accounts and notes receivable (149,524) (2,218)
Inventory 56,066 (95,045)
Other current assets (757) 256
Other assets (18,024) (3,604)
Accounts payable 167,758 62,677
Accrued liabilities (7,850) (5,979)
Other liabilities 10,602 6,344
--------- --------
Net cash provided by operating activities 86,670 4,476
Cash flows from investing activities:
Purchases of property and equipment (36,820) (19,409)
--------- --------
Net cash used in investing activities (36,820) (19,409)
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) (4,972)
--------- --------
Net cash provided by (used in) financing activities (30,179) 44,573
--------- --------
Net increase in cash and cash equivalents 19,671 29,640
Cash and cash equivalents at beginning of period 22,279 21,935
--------- --------
Cash and cash equivalents at end of period $ 41,950 $ 51,575
========= ========
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.
In addition, the Company's consolidated financial statements have been restated
for a fiscal 1997 acquisition. This acquisition was originally accounted for on
a pooling of interests basis. Information came to light indicating that actions
taken by the former owners of the acquired business rendered the pooling of
interests accounting inappropriate. The Company has restated the fiscal 1997 and
1996 financial statements to reflect such acquisition using the purchase method
of accounting. The Company has also restated the previously issued consolidated
results for each of the first three fiscal quarters of 1998 to reflect such
acquisition using the purchase method of accounting. The charge was $702,000 per
quarter of additional goodwill amortization shown as other expense in the income
statement.
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 Aug. 3, 1997: Pooling
Converted to
MicroAge,Inc. Acquired Co. Purchase Combined
------------- ------------ -------- --------
Revenue $1,147,632 $14,207 $(44,564) $1,117,275
Net income $ 6,484 $ 122 $ (253) $ 6,353
39 weeks ended Aug. 3, 1997: Pooling
Converted to
MicroAge,Inc. Acquired Co. Purchase Combined
------------- ------------ -------- --------
Revenue $3,124,398 $35,968 $(100,029) $3,060,337
Net income $ 17,585 $ 625 $ (411) $ 17,799
In addition, certain amounts receivable from vendors have been reclassified to
accounts payable to conform with industry practice
5
<PAGE>
NOTE B - OTHER EXPENSES - NET
Other expenses - net consists of the following (in thousands):
Quarters ended 39 weeks ended
------------------ -------------------
Aug. 2, Aug. 3, Aug. 2, Aug. 3,
1998 1997 1998 1997
------ ------ ------- -------
Interest expense $ 457 $1,610 $ 3,791 $ 4,540
Expenses from sales of
accounts receivable 3,855 5,070 14,425 14,071
Amortization expense 2,249 468 6,429 1,330
Other 824 514 2,852 43
------ ------ ------- -------
$7,385 $7,662 $27,497 $19,984
====== ====== ======= =======
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. In addition, a
1997 acquisition originally accounted for as a pooling of interests has been
restated under the purchase method of accounting. 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 $1,318,871 $1,117,275
Cost of sales 94.0% 93.6% 93.7% 93.2% 93.1%
---------- ---------- ---------- ---------- ----------
Gross profit 6.0 6.4 6.3 6.8 6.9
Operating and other expenses
Operating expenses 5.4 6.0 6.2 5.2 5.2
Restructuring and other
one-time charges 0.0 0.4 0.0 0.0 0.0
---------- ---------- ---------- ---------- ----------
Operating income 0.6 0.0 0.1 1.6 1.7
Other expenses - net 0.5 0.7 0.9 0.6 0.7
---------- ---------- ---------- ---------- ----------
Income (loss) before income
taxes 0.1 (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) 0.0% (0.4)% (0.5)% 0.6% 0.6%
========== ========== ========== ========== ==========
</TABLE>
TOTAL REVENUE. Total revenue of $1.4 billion increased $324 million, or 29%, 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 $48 million, or 12%, 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 $887 million, or 29%, 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 $286 million,
or 27% 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 and6.9% 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 6.8% 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 than product revenue margins.
8
<PAGE>
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 5.2% for the quarter ended August
3, 1997. Operating expenses increased $20 million to $78 million for the quarter
ended August 2, 1998, as compared to the quarter ended August 3, 1997. Operating
expenses increased from $157 million, or 5.1% 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 in Integration,
and was attributable to 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 $7.4 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, partially offset by increased
amortization expense associated with goodwill from acquisitions. Other expenses
- - net increased to $27.5 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 FUNDS
The key vendors 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 manufactures
announced and/or instituted changes in their sales incentive programs and
inventory management programs. Pursuant to these changes, the major manufactures
will (i) provide price protection for periods ranging from 2 to 4 weeks rather
than the unlimited protection previously available, (ii) allow product returns
on average of 2% to 3% of product sales per quarter, rather than the 5% of sales
per quarter previously available, and (iii) provide incentives based on sales of
the manufacturers' products, rather than on purchases of the products from the
manufacturers. Further changes in these incentives could 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, $224 million was provided by changes in inventory and
accounts payable compared to $32 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, $150 million of cash was used by changes in accounts
receivable compared to $2 million used 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 54 days
at August 2, 1998. The number of days' sales in ending accounts receivable was
25 days at August 2, 1998 compared to 16 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 32 days at August 2, 1998 and 35 days at November 2, 1997.
Cash used in investing activities increased from $19 million during the 39 weeks
ended August 3, 1997 to $37 million during the 39 weeks ended August 2, 1998 due
10
<PAGE>
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 $45 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.
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.
11
<PAGE>
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.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
11 - Calculation of Net Income (Loss) Per Common Share
27 - Financial Data Schedule
(b) Report on Form 8-K
During the quarter ended August 2, 1998, the
Company did not file any Reports on Form 8-K.
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: January 28, 1999 By: /s/ Jeffrey D. McKeever
--------------------------------
Jeffrey D. McKeever
Chairman of the Board and
Chief Executive Officer
Date: January 28, 1999 By: /s/ James R. Daniel
--------------------------------
James R. Daniel
Senior Vice President
Chief Financial Officer and Treasurer
13
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 16,489 19,633 16,378
------- ------- -------- -------
DILUTED
Weighted average shares from
basic calculation 19,859 16,489 19,633 16,378
Dilutive effect of stock options
and warrants 446 777 -- 783
------- ------- -------- -------
Weighted average common and common
equivalent shares outstanding - diluted 20,305 17,266 19,633 17,161
------- ------- -------- -------
NET INCOME (LOSS) $ 26 $ 6,353 $(12,047) $17,799
Net income (loss) per common and
common equivalent share:
Basic $ 0.00 $ 0.39 $ (0.61) $ 1.09
======= ======= ======== =======
Diluted $ 0.00 $ 0.37 $ (0.61) $ 1.04
======= ======= ======== =======
</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> 41,950
<SECURITIES> 0
<RECEIVABLES> 417,731
<ALLOWANCES> 17,688
<INVENTORY> 432,855
<CURRENT-ASSETS> 887,163
<PP&E> 193,760
<DEPRECIATION> 100,036
<TOTAL-ASSETS> 1,118,873
<CURRENT-LIABILITIES> 820,467
<BONDS> 0
0
0
<COMMON> 200
<OTHER-SE> 283,357
<TOTAL-LIABILITY-AND-EQUITY> 1,118,873
<SALES> 3,947,207
<TOTAL-REVENUES> 3,947,207
<CGS> 3,702,130
<TOTAL-COSTS> 3,720,130
<OTHER-EXPENSES> 5,600
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,791
<INCOME-PRETAX> (18,520)
<INCOME-TAX> (6,473)
<INCOME-CONTINUING> (12,047)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (12,047)
<EPS-PRIMARY> (0.61)
<EPS-DILUTED> (0.61)
</TABLE>
