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 May 3, 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 May 3, 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 -- May 3, 1998 and
November 2, 1997. 2
Consolidated statements of operations -- Quarters
ended May 3, 1998 and May 4, 1997; 26 weeks ended
May 3, 1998 and May 4, 1997 3
Consolidated statements of cash flows -- 26 weeks
ended May 3, 1998 and May 4, 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
May 3, November 2,
1998 1997
------------ -----------
Current assets:
Cash and cash equivalents $ 35,454 $ 22,279
Accounts and notes receivable, net 269,960 233,942
Inventory, net 518,259 479,332
Other 15,382 11,356
---------- --------
Total current assets 839,055 746,909
Property and equipment, net 92,326 73,975
Intangible assets, net 110,032 85,903
Other 13,510 12,609
---------- --------
Total assets $1,054,923 $919,396
========== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 729,347 $591,538
Accrued liabilities 24,906 22,527
Current portion of long-term obligations 3,035 2,744
Other 5,906 3,836
---------- --------
Total current liabilities 763,194 620,645
Line of credit -- 30,650
Long-term obligations 5,474 4,537
Other long-term liabilities 8,993 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: May 3, 1998 - 19,620,539
November 2, 1997 - 18,451,653 196 184
Additional paid-in capital 197,305 170,829
Retained earnings 79,927 92,129
Treasury stock, at cost;
Shares: May 3, 1998 - 16,378
November 2, 1997 - 80,378 (166) (817)
---------- --------
Total stockholders' equity 277,262 262,325
---------- --------
Total liabilities and stockholders' equity $1,054,923 $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 26 weeks ended
----------------------- -----------------------
May 3, May 4, May 3, May 4,
1998 1997 1998 1997
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Revenue $1,326,950 $1,058,304 $2,505,961 $1,943,062
Cost of sales 1,242,369 987,353 2,347,555 1,811,571
---------- ---------- ---------- ----------
Gross profit 84,581 70,951 158,406 131,491
Operating and other expenses
Operating expenses 79,652 52,566 152,713 99,436
Restructuring and other one-time
charges 5,600 -- 5,600 --
---------- ---------- ---------- ----------
Total 85,252 52,566 158,313 99,436
---------- ---------- ---------- ----------
Operating income (loss) (671) 18,385 93 32,055
Other expenses - net 9,171 7,441 20,112 12,322
---------- ---------- ---------- ----------
Income (loss) before income taxes (9,842) 10,944 (20,019) 19,733
Income tax provision (benefit) (3,885) 4,568 (7,946) 8,287
---------- ---------- ---------- ----------
Net income (loss) $ (5,957) $ 6,376 $ (12,073) $ 11,446
========== ========== ========== ==========
Net income (loss) per common and
common equivalent share:
Basic $ (0.30) $ 0.39 $ (0.62) $ 0.70
========== ========== ========== ==========
Diluted $ (0.30) $ 0.38 $ (0.62) $ 0.67
========== ========== ========== ==========
Weighted average common and common
equivalent shares outstanding:
Basic 19,584 16,404 19,520 16,323
========== ========== ========== ==========
Diluted 19,584 16,944 19,520 17,129
========== ========== ========== ==========
</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)
26 weeks ended
----------------------
May 3, May 4,
1998 1997
--------- ---------
Cash flows from operating activities:
Net income (loss) $ (12,073) $ 11,446
Adjustments to reconcile net income (loss)
to net cash provided by (used in)
operating activities:
Depreciation and amortization 18,451 11,647
Provision for losses on accounts and
notes receivable 6,630 3,250
Changes in assets and liabilities, net
of business acquisitions:
Accounts and notes receivable (15,466) 6,486
Inventory (29,338) (137,601)
Other current assets (3,844) 209
Other assets (5,613) (4,399)
Accounts payable 103,414 76,676
Accrued liabilities 630 1,196
Other liabilities 9,193 8,383
--------- ---------
Net cash provided by (used in) operating activities 71,984 (22,707)
Cash flows from investing activities:
Purchases of property and equipment (28,232) (18,028)
--------- ---------
Net cash used in investing activities (28,232) (18,028)
Cash flows from financing activities:
Proceeds from issuance of stock - stock option
and employee stock purchase plans 2,139 2,722
Net borrowings (payments) under line of credit (30,650) 46,500
Amounts received from ESOT -- 207
Shareholder distributions - pooled companies (129) --
Net change in long-term obligations (1,937) 230
--------- ---------
Net cash provided by (used in) financing activities (30,577) 49,659
--------- ---------
Net increase in cash and cash equivalents 13,175 8,924
Cash and cash equivalents at beginning of period 22,279 21,935
--------- ---------
Cash and cash equivalents at end of period $ 35,454 $ 30,859
========= =========
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 26
weeks ended May 3, 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 May 4, 1997: Pooling
Converted to
MicroAge,Inc. Acquired Co. Purchase Combined
------------- ------------ -------- --------
Revenue $1,086,018 $15,089 $(42,803) $1,058,304
Net income $ 6,244 $ 323 $ (191) $ 6,376
26 weeks ended May 4, 1997: Pooling
Converted to
MicroAge,Inc. Acquired Co. Purchase Combined
------------- ------------ -------- --------
Revenue $1,976,766 $21,761 $(55,465) $1,943,062
Net income $ 11,101 $ 503 $ (158) $ 11,446
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 26 weeks ended
----------------- -------------------
May 3, May 4, May 3, May 4,
1998 1997 1998 1997
------ ------ ------- -------
Interest expense $ 988 $2,335 $ 3,333 $ 2,930
Expenses from sales of
accounts receivable 4,993 4,737 10,570 9,001
Amortization expense 2,068 470 4,180 862
Other 1,122 (101) 2,029 (471)
------ ------ ------- -------
$9,171 $7,441 $20,112 $12,322
====== ====== ======= =======
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 operated
through a wholly-owned subsidiary, MicroAge Integration Co. ("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 May 3, 1998, $1.9 million remained in
accrued liabilities representing: $0.7 million related to employee termination
benefits; $0.9 million related to facility closings; and $0.3 million primarily
related to costs of establishing Pinacor and Integration as separate businesses.
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
operated through a wholly-owned subsidiary, MicroAge Integration Co.
("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
--------------------------------------------------------------
May 3, Feb. 1, Nov. 2, Aug. 3, May 4,
1998 1998 1997 1997 1997
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Revenue (in thousands) $1,326,950 $1,179,011 $1,318,871 $1,117,275 $1,058,304
Cost of sales 93.6% 93.7% 93.2% 93.1% 93.3%
---------- ---------- ---------- ---------- ----------
Gross profit 6.4 6.3 6.8 6.9 6.7
Operating expenses 6.0 6.2 5.2 5.2 5.0
Restructuring and other one-
time charges 0.4 0.0 0.0 0.0 0.0
---------- ---------- ---------- ---------- ----------
Operating income 0.0 0.1 1.6 1.7 1.7
Other expenses - net 0.7 0.9 0.6 0.7 0.7
---------- ---------- ---------- ---------- ----------
Income (loss) before income
taxes (0.7) (0.8) 1.0 1.0 1.0
Income tax provision (benefit) (0.3) (0.3) 0.4 0.4 0.4
---------- ---------- ---------- ---------- ----------
Net income (loss) (0.4)% (0.5)% 0.6% 0.6% 0.6%
========== ========== ========== ========== ==========
</TABLE>
TOTAL REVENUE. Total revenue of $1.3 billion increased $269 million, or 25%, for
the quarter ended May 3, 1998 as compared to the quarter ended May 4, 1997. This
revenue increase (before intercompany eliminations) included a $176 million, or
17%, increase in Pinacor (distribution business) revenue and a $116 million, or
34%, increase in Integration revenue. The increase in revenue was attributable
to sales to resellers added since May 4, 1997, increased demand for the
Company's major suppliers' products, the Company's addition of new product
offerings, the growth of the microcomputer products industry and acquisitions of
reseller locations.
Total revenue increased $563 million, or 29%, for the 26 weeks ended May 3, 1998
as compared to the 26 weeks ended May 4, 1997. This revenue increase (before
intercompany eliminations) included a $423 million, or 23% increase in Pinacor
revenue and a $248 million, or 37% increase in Integration revenue.
GROSS PROFIT PERCENTAGE. The Company's gross profit percentage was 6.4% for the
quarter ended May 3, 1998 and 6.7% for the quarter ended May 4, 1997. The gross
profit percentage was 6.3% for the 26 weeks ended May 3, 1998 as compared to
6.8% for the 26 weeks ended May 4, 1997.
The decrease in the Company's gross profit percentage was due to several
factors. 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. In
Integration, margins on product sales to end-user customers decreased due to
competitive pricing pressures. The decrease in Integration product margins was
partially offset by an increase in service revenue, which has higher gross
margins than product revenue.
8
<PAGE>
OPERATING EXPENSES. As a percentage of revenue, operating expenses were 6.0% for
the quarter ended May 3, 1998 compared to 5.0% for the quarter ended May 4,
1997. Operating expenses increased $27 million to $80 million for the quarter
ended May 3, 1998, as compared to the quarter ended May 4, 1997. Operating
expenses increased from $99 million, or 5.1% of revenue, for the 26 weeks ended
May 4, 1997 to $153 million, or 6.1% of revenue, for the 26 weeks ended May 3,
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
were substantially completed by May 3, 1998.
OTHER EXPENSES - NET. Other expenses - net increased to $9.1 million for the
quarter ended May 3, 1998 from $7.4 million for the quarter ended May 4, 1997.
Other expenses - net increased to $20.1 million for the 26 weeks ended May 3,
1998 from $12.3 million for the 26 weeks ended May 4, 1997. This increase was
primarily due to increases in average daily borrowings to support higher
inventory and accounts receivable levels and to increased amortization expense
associated with goodwill from acquisitions.
SUPPLIER INCENTIVE FUNDS
The Company receives funds from certain suppliers which are earned through
marketing programs or meeting purchasing or other objectives established by the
supplier. 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. 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 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
9
<PAGE>
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 $72 million for the 26 weeks ended May
3, 1998 as compared to cash used of $23 million for the 26 weeks ended May 4,
1997. The increase was primarily due to a change in cash provided by inventory
and accounts payable. During the 26 weeks ended May 3, 1998, $74 million was
provided by changes in inventory and accounts payable compared to $61 million
used by changes in inventory and accounts payable during the 26 weeks ended May
4, 1997. This was partially offset by a change in cash used by accounts
receivable. During the 26 weeks ended May 3, 1998, $15 million of cash was used
by changes in accounts receivable compared to $6 million provided by changes in
accounts receivable during the 26 weeks ended May 4, 1997.
The number of days cost of sales in ending inventory increased from 35 days at
November 2, 1997 to 38 days at May 3, 1998. The number of days' cost of sales in
ending accounts payable increased from 49 days at November 2, 1997 to 53 days at
May 3, 1998. The number of days' sales in ending accounts receivable was 19 days
at May 3, 1998 compared to 16 days at November 2, 1997. The receivables days
adjusted for sold receivables were 34 days and 35 days at May 3, 1998 and
November 2, 1997, respectively.
Cash used in investing activities increased from $18 million during the 26 weeks
ended May 4, 1997 to $28 million during the 26 weeks ended May 3, 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 $31 million during the 26 weeks ended May
3, 1998 compared to cash provided of $50 million during the 26 weeks ended May
3, 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 $675 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 May 3, 1998, the net amount of
sold accounts receivable was $233 million.
10
<PAGE>
The Inventory Facilities provide for borrowings up to $325 million. Within the
Inventory Facilities, the Company has lines of credit for the purchase of
inventory from selected product suppliers ("Inventory Lines of Credit") of $175
million and a line of credit for general working capital requirements
("Supplemental Line of Credit") of $150 million. Payments for products purchased
under the Inventory Lines of Credit vary depending upon the product supplier,
but generally are due between 45 and 60 days from the date of the advance.
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 May 3, 1998, the Company had $160 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 $675 million of financing capacity represented by the Agreements, $282
million was unused as of May 3, 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 May 3, 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 May 3, 1998, the net amount of sold accounts receivable under the Purchase
Agreement was $13.4 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.
Although the Company has no material capital commitments, the Company expects to
make capital expenditures of approximately $5 to $10 million during the third
quarter of fiscal 1998.
INFLATION
The Company believes that inflation has generally not had a material impact on
its operations.
11
<PAGE>
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
The Company did not file any Reports on Form 8-K
during the quarter ended May 3, 1998.
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 26 weeks ended
------------------ -------------------
May 3, May 4, May 3, May 4,
1998 1997 1998 1997
------- ------- -------- -------
<S> <C> <C> <C> <C>
BASIC
Weighted average common shares 19,584 16,404 19,520 16,323
------- ------- -------- -------
DILUTED
Weighted average shares from
primary calculation 19,584 16,404 19,520 16,323
Dilutive effect of stock options
and warrants -- 540 -- 806
------- ------- -------- -------
Weighted average common and common
equivalent shares outstanding - diluted 19,584 16,944 19,520 17,129
------- ------- -------- -------
NET INCOME (LOSS) $(5,957) $ 6,376 $(12,073) $11,446
Net income (loss) per common and
common equivalent share:
Basic $ (0.30) $ 0.39 $ (0.62) $ 0.70
======= ======= ======== =======
Diluted $ (0.30) $ 0.38 $ (0.62) $ 0.67
======= ======= ======== =======
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEETS (UNAUDITED) AS OF MAY 3, 1998 AND NOVEMBER 2, 1997
AND THE CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) FOR THE QUARTERS ENDED
MAY 3, 1998 AND MAY 4, 1997
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> NOV-01-1998
<PERIOD-START> NOV-03-1997
<PERIOD-END> MAY-03-1998
<EXCHANGE-RATE> 1
<CASH> 35,454
<SECURITIES> 0
<RECEIVABLES> 281,712
<ALLOWANCES> 11,752
<INVENTORY> 518,259
<CURRENT-ASSETS> 839,055
<PP&E> 183,915
<DEPRECIATION> 91,589
<TOTAL-ASSETS> 1,054,923
<CURRENT-LIABILITIES> 763,194
<BONDS> 0
0
0
<COMMON> 196
<OTHER-SE> 277,066
<TOTAL-LIABILITY-AND-EQUITY> 1,054,923
<SALES> 1,326,950
<TOTAL-REVENUES> 1,326,950
<CGS> 1,242,369
<TOTAL-COSTS> 1,242,369
<OTHER-EXPENSES> 5,600
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 988
<INCOME-PRETAX> (9,842)
<INCOME-TAX> (3,885)
<INCOME-CONTINUING> (5,957)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (5,957)
<EPS-PRIMARY> (0.30)
<EPS-DILUTED> (0.30)
</TABLE>
