RESTATED - SEE "INTRODUCTORY NOTE"
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------
FORM 10-K/A
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED: DECEMBER 31, 1994 COMMISSION FILE NUMBER: 0-20730
------------------
MICRO WAREHOUSE, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
------------------
DELAWARE 06-1192793
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
535 CONNECTICUT AVENUE, NORWALK, CONNECTICUT 06854
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
------------------
(203) 899-4000
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE
------------------
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
Common Stock, par value $.01 per share
(TITLE OF CLASS)
------------------
Page 1 of ____
<PAGE>
RESTATED - SEE "INTRODUCTORY NOTE"
Indicate by check mark whether 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 (or for such shorter period that the
Registrant was required to file such reports) and (2) has been subject of such
filing requirements for the past 90 days. Yes X No _.
Indicate by check mark if the disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of the Form 10-K or any
amendment to the Form 10-K. [ X ]
The aggregate market value of voting stock held by non-affiliates of the
Registrant computed by reference to the closing sales price as reported on the
Nasdaq National Market on March 15, 1995 was approximately $708,236,457.50. In
determining the market value of the voting stock held by non-affiliates, shares
of Common Stock beneficially owned by each executive officer, director and
holder of more than 10% of the outstanding shares of Common Stock have been
excluded. This determination of affiliate status is not necessarily a conclusive
determination for other purposes.
Common Stock outstanding as of March 15, 1995: 29,575,763
DOCUMENTS INCORPORATED BY REFERENCE:
Pursuant to General Instruction G(2) to this form, the information
required by Part II (Items 5, 6, 7 and 8) hereof is incorporated by reference
from the registrant's Annual Report to Stockholders for the Fiscal Year ended
December 31, 1994.
Pursuant to General Instruction G(3) to this form, the information required
by Part III (Items 10, 11, 12, and 13) hereof is incorporated by reference from
the registrant's definitive Proxy Statement for its Annual Meeting of
Stockholders scheduled to be held on June 1, 1995.
2
<PAGE>
INTRODUCTORY NOTE
THE INFORMATION CONTAINED HEREIN HAS BEEN RESTATED IN FEBRUARY 1997 TO REFLECT
ADJUSTMENTS RESULTING FROM THE DISCOVERY OF ERRORS IN THE COMPANY'S ACCOUNTING
PROCEDURES (SEE NOTE 2 OF NOTES TO CONSOLIDATED FINANCIAL STATEMENTS). UNLESS
OTHERWISE STATED, HOWEVER, INFORMATION CONTAINED HEREIN IS AS OF DECEMBER 31,
1994 AND IS SUBJECT TO UPDATING AND SUPPLEMENTING AS PROVIDED IN THE COMPANY'S
PERIODIC REPORTS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION SUBSEQUENT TO
SUCH DATE.
ITEM 6
Micro Warehouse, Inc.
1994 Financial Statements
SELECTED FINANCIAL INFORMATION
For the Years Ended December 31,
(In thousands, except
per share data and ratios)
<TABLE>
<CAPTION>
1994 1993 1992 1991 1990
(Restated) (Restated) (Restated)
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Income Statement Data:
Net sales $776,377 $450,385 $269,634 $163,603 $123,673
</TABLE>
RESTATED - SEE "INTRODUCTORY NOTE"
<TABLE>
<S> <C> <C> <C> <C> <C>
Gross profit 136,660 86,749 51,415 31,450 21,932
Income from operations 32,252 22,153 2,908 5,047 2,120
- ---------------------------------------------------------------------------------------------------------
Net income(A) $ 20,223 $ 13,009 $ 5,869 $ 3,803
- --------------------------------------------------------------------------------------------
Net income per share(A)(B) $ 0.73 $ 0.55 $ 0.33 $ 0.22
- --------------------------------------------------------------------------------------------
Weighted average number
of shares outstanding(B) 27,618 23,533 17,854 17,565
- --------------------------------------------------------------------------------------------
Operating Data:
Gross margin 17.6% 19.3% 19.1% 19.2% 17.7%
Operating margin
(before special incentive compensation) 4.2% 4.9% 4.3% 4.4% 2.3%
Current ratio 3.7:1 2.7:1 4.1:1 1.3:1 1.3:1
Balance Sheet Data (at December 31):
Working capital $184,925 $ 82,129 $ 54,413 $ 6,411 $ 3,800
Total assets 297,560 142,827 78,612 31,620 19,453
Long-term debt, excluding current portion 645 -- 1,362 6,754 3,186
Stockholders' equity $229,564 $ 94,820 $ 59,548 $ 2,667 $ 2,644
</TABLE>
(A) Pro forma for 1992 and 1991
(B) Years prior to 1994 are adjusted to reflect a two-for-one stock split
effective April 4, 1994
3
<PAGE>
RESTATED - SEE "INTRODUCTORY NOTE"
ITEM 7
Management's Discussion and Analysis of Financial Condition and Results of
Operations
Results of Operations
The table below sets forth certain items expressed as a percent of net sales,
for each of the years in the three-year period ended December 31, 1994.
Year Ended December 31,
1994 1993 1992
(Restated) (Restated) (Restated)
- --------------------------------------------------------------------------------
Net sales 100.0% 100.0% 100.0%
Cost of sales 82.4 80.7 80.9
- --------------------------------------------------------------------------------
Gross profit 17.6 19.3 19.1
- --------------------------------------------------------------------------------
Selling, general and
administrative expenses 13.4 14.4 14.7
Special incentive compensation -- -- 3.3
- --------------------------------------------------------------------------------
Income from operations 4.2 4.9 1.1
Interest income (expense) .2 .1 (.5)
- --------------------------------------------------------------------------------
Income before income taxes 4.4 5.0 .6
- --------------------------------------------------------------------------------
Year Ended December 31, 1994 Compared to Year Ended December 31, 1993
Net sales increased by $326.0 million or 72% to $776.4 million up from $450.4
million in 1993. The sales increase is attributable to strong growth in the core
domestic businesses: the Macintosh business was up 44% to $424.0 million, the
PC/Windows business which includes both the MicroWAREHOUSE and Micro
SystemsWAREHOUSE catalogs was up 57% to $156.1 million and specialty catalogs
contributed $72.0 million. With continued international expansion, international
sales were up 281% to $124.3 million.
The sales increase for the core businesses was due to increases in the active
customer base, up 45% for the Macintosh business and 55% for the PC/Windows
business coupled with increased catalog circulation in both business areas. The
increase in average order size to $306 from $247 due primarily to the increase
in hardware sales also contributed to the Company's sales performance. In
addition the Company's outbound sales programs to corporate customers increased
by 68% to $292.7 million.
International sales growth was attributable to a growth of 114% in the UK
operations as well as contributions from France, Germany and the Scandinavian
acquisitions. With the establishment of operations in additional countries, the
total European customer base increased by 286% and the number of catalogs
distributed grew by 180% to 4.2 million.
During 1994, the Company added two new specialty catalogs, Micro
SystemsWAREHOUSE and Home ComputerWAREHOUSE catalogs, to its existing specialty
catalogs comprising Data CommWAREHOUSE, CD-RomWAREHOUSE, Micro SuppliesWAREHOUSE
and Paper designWAREHOUSE, all of which contributed $72.0 million in sales in
1994.
Gross profit decreased to 17.6% of net sales from 19.3% in 1993. The decrease in
gross profit was due to reduced gross margins internationally, with
international becoming a greater proportion of total sales, coupled with a
higher proportion of hardware sales which are typically at lower margins than
software sales. Hardware as a percent of total sales increased from 35% in 1993
to 46% in 1994.
4
<PAGE>
RESTATED - SEE "INTRODUCTORY NOTE"
Selling, general and administrative ("S,G&A") expenses increased to $104.4
million from $64.6 million in 1993, but decreased as a percent of net sales to
13.4% from 14.4% in 1993. The decrease in S,G&A expenses as a percent of sales
was the result of cost controls coupled with increased sales and higher average
order size.
In 1994, the Company generated $1.6 million in interest income as compared to
$0.5 million in interest income in 1993. This change was due to the resources
provided by the public offerings in April and October of 1994. This is further
described below in the Liquidity and Capital Resources section.
Income before income taxes was $33.8 million or 4.4% of net sales as compared to
$22.6 million or 5.0% in 1993.
Net income increased to $20.2 million or $0.73 per share from $13.0 million in
1993, or $0.55 per share adjusted for a two-for-one stock split effective April
1994.
Year Ended December 31, 1993 Compared to Year Ended December 31, 1992
Net sales increased by $180.8 million or 67% to $450.4 million up from $269.6
million in 1992. The sales increase is attributable to strong growth in the core
domestic businesses: Macintosh business was up 37% to $300.3 million, and the
PC/Windows business was up 98% to $99.5 million; with continued international
expansion, international sales were up 258% to $32.6 million; and additional
specialty catalogs contributed $18.0 million.
The sales increase for the core businesses was due to increases in the active
customer base, up 25% for the Macintosh business and 78% for the PC/Windows
business coupled with increased catalog circulation in both business areas. Also
contributing to the sales increase were the outbound telemarketing programs for
both Macintosh and PC/Windows which increased by 106% .
International sales growth was attributable to a growth of 100% in the UK
operations and the start up of business in France and Germany. With the
establishment of operations in the new countries, the total European customer
base increased by 132% and the number of catalogs distributed grew by 165% to
1.5 million.
During 1993, the Company launched four new specialty catalogs: Data
CommWAREHOUSE, CD-Rom WAREHOUSE, Micro SuppliesWAREHOUSE and Paper
designWAREHOUSE, all of which contributed $18.0 million in 1993.
Gross profit increased to 19.3% of net sales from 19.1% in 1992. The increase in
gross profit reflects the impact of higher margins in the specialty catalogs,
reduced freight costs, and higher margins from international operations somewhat
offset by the increase in the PC/Windows business as a proportion of total sales
which has lower margins than the Macintosh and specialty businesses.
There was no special incentive compensation paid in 1993, compared to $8.8
million in 1992. In 1992, this item represented the value of shares of common
stock transferred to a consultant and issued to an officer of the Company in
consideration for the termination of the incentive portions of their agreements
with the Company. In order to determine the amount to be recorded as
compensation expense as of the termination date, the Company engaged an
independent appraiser to estimate the fair market value per share of its common
stock. For all other periods, this item represented amounts paid to the
consultant and co-founder under agreements which were based on profitability.
S,G&A expenses increased to $64.6 million from $39.7 million in 1992, but
decreased as a percent of net sales to 14.4% from 14.7% in 1992. The decrease in
S,G&A expenses as a percent was the result of consolidating the warehouse and
distribution facilities in Wilmington, Ohio and from productivity gains
attributable to the investment of over $3 million in computer equipment.
In 1993, the Company generated $0.5 million in interest income as compared to
$1.3 million in interest expense in 1992. This change was due to the resources
provided by the initial public offering in December of 1992 and from
5
<PAGE>
RESTATED - SEE "INTRODUCTORY NOTE"
the follow-on offering in August of 1993. This is further described below in the
Liquidity and Capital Resources section.
Income before income taxes was $22.6 million or 5.0% of net sales as compared to
$1.6 million or 0.6% of net sales in 1992. The income in 1992 included a charge
of $8.8 million for special incentive compensation which was discussed above. No
similar charge occurred in 1993. Higher domestic income was partially offset by
losses in Europe which totaled $1.8 million in 1993 compared to a loss of $0.2
million in 1992.
Net income increased to $13.0 million or $0.55 per share from $5.9 million or
$0.33 per share in 1992, on a pro forma basis.
Liquidity and Capital Resources
In December 1992, the Company completed an initial public offering of its common
stock resulting in net proceeds to the Company of $53.2 million. In August 1993,
the Company completed a secondary offering of its common stock resulting in net
proceeds to the Company of $22.6 million. In April and October 1994, the Company
completed follow-on offerings of its common stock resulting in net proceeds to
the Company of $102.1 million. As of December 31, 1994, the Company had cash and
short-term investments totaling $74.5 million.
As a result of increased sales, the Company's inventories increased to $78.7
million at December 31, 1994 from $45.0 million at December 31, 1993, an
increase of 75% which is in line with the sales increase of 72%. Accounts
receivable increased to $80.8 million at December 31, 1994 from $44.1 million at
December 31, 1993. Accounts receivable have increased due to an increase in open
account purchases by commercial customers and an increase in advertising
receivables resulting from increased promotional activity.
Capital expenditures for the 12 months of 1994 and 1993 were $13.6 million and
$4.8 million, respectively, primarily for computer systems and distribution
equipment both in the United States and in Europe. During 1994, the Company
expanded its telemarketing facilities and its warehousing operation by over
287,000 square feet. Additionally, the Company installed or upgraded computer
systems in six countries. Although the Company's primary capital needs will be
to fund its working capital requirements for expected sales growth, the Company
expects that future growth will also require continued expansion of its computer
systems and distribution capacity. At December 31, 1994, the Company had
existing credit facilities which provided for unsecured revolving credit lines
of up to $15 million and (pound)750,000 for working capital purposes. No
borrowings were outstanding under these facilities as of December 31, 1994.
The Company believes that its existing cash reserves, cash flow from operations
and existing credit facilities will be sufficient to satisfy its operating cash
needs for at least the next 12 months. Thereafter, the Company may require
additional cash reserves.
Impact of Inflation and Seasonality
The Company's results are subject to quarterly variations although, in the
opinion of management, these variations are not significant.
Sales growth tends to be stronger in the first and last quarters of the year
with the two middle quarters typically slower. The high growth quarters are
reflective of holiday buying as well as a customer receptiveness to prospecting.
The slower quarters are impacted by the summer months and a slowdown in buying
from schools and universities.
The cost associated with both paper and postage have risen significantly in the
past several months. The Company has taken a number of actions that have almost
completely offset these increases, such as to increase revenue yield per catalog
by using advertising space more efficiently and reducing expenses by improving
the publishing process using the latest digital color separation technology and
in some cases, by using thinner paper.
6
<PAGE>
RESTATED - SEE "INTRODUCTORY NOTE"
Outlook
The Company anticipates continued growth in the installed base of personal
computers both in business and in the home. This growth along with the Company's
strategy to expand internationally and to identify growth market opportunities
for specialty catalogs should increase the Company's sales in the future.
During 1994, international operations were expanded with the acquisition of
Macintosh catalogers in Finland, Holland, Belgium, Mexico and Canada; and
PC/Window catalogers in France, Norway and Sweden. Also, the Company launched a
new Macintosh catalog in Japan and added two new licensees in Chile and
Colombia. The Company's strategy is to further diversify its product offerings
and to start, acquire or license operations in other foreign markets in which
the Company currently does not operate, as well as to introduce additional
specialty catalogs.
7
<PAGE>
RESTATED - SEE "INTRODUCTORY NOTE"
ITEM 8
Responsibility for Financial Statements
The financial data in this report, including the audited financial
statements, have been prepared by management using the best available
information and applying judgement. Accounting principles used in preparing the
financial statements are those that are generally accepted in the United States.
In meeting our responsibility for the integrity of the financial
statements, we maintain a system of internal controls designed to provide
reasonable assurance that assets are safeguarded, that transactions are executed
in accordance with management's authorization and that the accounting records
provide a reliable basis for the preparation of the financial statements.
Management has also established a formal Business Code of Ethics which is
distributed throughout the Company. We acknowledge our responsibility to
establish and preserve an environment in which all employees properly understand
the fundamental importance of high ethical standards in the conduct of our
business.
Our independent auditors are engaged to audit and to render an opinion on
the fairness in all material respects of our consolidated financial statements
presented in conformity with generally accepted accounting principles. In
performing their audit in accordance with generally accepted auditing standards,
our independent auditors obtained a sufficient understanding of the Company's
internal accounting control structure to plan their audit and determine the
nature, timing and extent of tests to be performed.
The Audit Committee of the Board of Directors meets with management and
our independent auditors to review accounting, auditing and financial matters.
Our Audit Committee is composed of only outside directors. This committee and
the independent auditors have free access to each other with or without
management being present.
Linwood A. Lacy, Jr.
President, Chief Executive Officer,
Acting Chief Financial Officer and
Acting Chief Accounting Officer
8
<PAGE>
RESTATED - SEE "INTRODUCTORY NOTE"
Independent Auditors' Report
The Board of Directors and Stockholders of Micro Warehouse, Inc.:
We have audited the accompanying consolidated balance sheets of Micro Warehouse,
Inc. as of December 31, 1994 and 1993 and the related consolidated statements of
income, stockholders' equity, and cash flows for each of the years in the three
year period ended December 31, 1994 (all as restated, see note 2). These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Micro Warehouse,
Inc. as of December 31, 1994 and 1993, and the results of its operations and its
cash flows for each of the years in the three year period ended December 31,
1994, in conformity with generally accepted accounting principles.
KPMG Peat Marwick LLP
Stamford, CT
January 31, 1997
9
<PAGE>
RESTATED - SEE "INTRODUCTORY NOTE"
Micro Warehouse, Inc.
Consolidated Balance Sheets
- --------------------------------------------------------------------------------
December 31, 1994 and 1993
(In thousands) 1994 1993
(Restated) (Restated)
- --------------------------------------------------------------------------------
ASSETS
Current assets:
Cash and cash equivalents $ 30,268 $ 2,424
Marketable securities at market value 44,204 28,185
Accounts receivable, net of allowance for
doubtful accounts ($3,096 and $1,853 at
December 31,1994 and 1993, respectively) 80,828 44,099
Inventories 78,733 45,038
Prepaid expenses and other current assets 11,180 6,433
Due from stockholders 804 804
Due from affiliates, net - 385
Tax refund 2,704 857
Deferred taxes 3,555 1,911
- -------------------------------------------------------------------------------
Total current assets 252,276 130,136
- -------------------------------------------------------------------------------
Property, plant and equipment, net 19,676 9,312
Goodwill, net 24,041 2,200
Deposits and trademarks, net 1,567 1,179
- -------------------------------------------------------------------------------
Total assets $297,560 $142,827
===============================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable - trade $ 48,831 $ 34,117
Accrued expenses 13,791 10,334
Deferred revenue 4,534 3,556
Equipment obligations 195 --
- -------------------------------------------------------------------------------
Total current liabilities 67,351 48,007
Equipment obligations 645 --
- -------------------------------------------------------------------------------
Total liabilities 67,996 48,007
- -------------------------------------------------------------------------------
Stockholders' equity:
Preferred stock, $.01 par value:
Authorized - 100 shares; none issued -- --
Common stock, $.01 par value:
Authorized 50,000 shares; issued and
outstanding; 29,534 and 24,862 shares
at December 31, 1994 and 1993, respectively 295 249
Additional paid-in capital 192,937 78,485
Retained earnings 36,605 16,382
Cumulative translation adjustment 177 (296)
Valuation adjustment for marketable securities (450) --
- -------------------------------------------------------------------------------
Total stockholders' equity 229,564 94,820
- -------------------------------------------------------------------------------
Total liabilities and stockholders' equity $297,560 $142,827
===============================================================================
See accompanying notes to consolidated financial statements.
10
<PAGE>
RESTATED - SEE "INTRODUCTORY NOTE"
Micro Warehouse, Inc.
Consolidated Statements of Income
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------
Years Ended December 31, 1994, 1993 and 1992
(In thousands, except per share data) 1994 1993 1992
(Restated) (Restated) (Restated)
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net sales $ 776,377 $ 450,385 $ 269,634
Costs of goods sold 639,717 363,636 218,219
- -------------------------------------------------------------------------------------------
Gross profit 136,660 86,749 51,415
Selling, general and administrative expenses 104,408 64,596 39,732
Special incentive compensation -- -- 8,775
- -------------------------------------------------------------------------------------------
Income from operations before interest
and income taxes 32,252 22,153 2,908
Interest income (expense) 1,589 456 (1,264)
- -------------------------------------------------------------------------------------------
Income before income taxes 33,841 22,609 1,644
Income taxes 13,618 9,600 (1,512)
- -------------------------------------------------------------------------------------------
Net income $ 20,223 $ 13,009 $ 3,156
===========================================================================================
Pro forma data (unaudited):
Historical income before income taxes as above $ -- $ -- $ 1,644
Pro forma adjustment for special incentive compensation -- -- 8,775
- -------------------------------------------------------------------------------------------
Pro forma income before income taxes -- -- 10,419
- -------------------------------------------------------------------------------------------
Provision for income taxes:
Historical -- -- 1,512
Pro forma-incremental to historical taxes -- -- (6,062)
- -------------------------------------------------------------------------------------------
Total taxes -- -- (4,550)
- -------------------------------------------------------------------------------------------
Net income $ -- $ -- $ 5,869
- -------------------------------------------------------------------------------------------
Net income per share $ 0.73 $ 0.55 $ 0.33
- -------------------------------------------------------------------------------------------
Weighted average number of shares outstanding 27,618 23,533 17,854
===========================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
11
<PAGE>
RESTATED - SEE "INTRODUCTORY NOTE"
Micro Warehouse, Inc.
Consolidated Statements of Stockholders' Equity
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
Valuation
December 31, 1994, 1993 and 1992 Common Stock Additional Cumulative Adjustment
(In thousands) ---------------- Paid-in Retained Translation Marketable
Shares Amount Capital Earnings Adjustment Securities Total
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1991 15,600 $ 156 $ 2,026 $ 485 $ -- $ -- $ 2,667
Cumulative UK deficit at
December 31,1991 -- -- -- (296) -- -- (296)
Value of common stock issued as
incentive compensation 400 4 8,771 -- -- -- 8,775
Distribution of S corporation
earnings and paid-in capital -- -- (2,181) (5,883) -- -- (8,064)
Transfer to additional paid-in capital
of cumulative losses through date
of Subchapter S revocation -- -- (5,911) 5,911 -- -- --
Common stock offering 6,556 66 53,505 -- -- -- 53,571
Net income -- -- -- 3,156 -- -- 3,156
Foreign currency translation adjustment -- -- -- -- (261) -- (261)
- ---------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1992 (Restated) 22,556 226 56,210 3,373 (261) -- 59,548
Common stock offering 2,300 23 22,216 -- -- -- 22,239
Common stock issued pursuant
to stock options exercised 6 -- 59 -- -- -- 59
Net income -- -- -- 13,009 -- -- 13,009
Foreign currency translation adjustment -- -- -- -- (35) -- (35)
- ---------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1993 (Restated) 24,862 249 78,485 16,382 (296) -- 94,820
Common stock offerings 4,100 41 102,052 -- -- -- 102,093
Common stock issued pursuant
to stock options exercised 37 -- 353 -- -- -- 353
Common stock issued pursuant
to foreign acquisitions 535 5 12,047 -- -- -- 12,052
Net income -- -- -- 20,223 -- -- 20,223
Foreign currency translation adjustment -- -- -- -- 473 -- 473
Valuation adjustment for marketable securities -- -- -- -- -- (450) (450)
- ---------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1994 (Restated) 29,534 $ 295 $ 192,937 $ 36,605 $ 177 $ (450) $ 229,564
=================================================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
12
<PAGE>
RESTATED - SEE "INTRODUCTORY NOTE"
Micro Warehouse, Inc.
Consolidated Statements of Cash Flows
Representing Increases (Decreases) in Cash and Cash Equivalents
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------
Years Ended December 31, 1994, 1993 and 1992
(In thousands) 1994 1993 1992
(Restated) (Restated) (Restated)
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 20,223 $ 13,009 $ 3,156
- ----------------------------------------------------------------------------------------------
Adjustments to reconcile net income to net cash
(used) provided by operating activities:
Depreciation and amortization 5,313 2,528 1,941
Value of common stock issued as compensation expense -- -- 8,775
Deferred taxes (1,644) 101 (2,012)
Changes in assets and liabilities:
Accounts receivable, net (35,740) (20,531) (11,879)
Inventories (32,470) (22,427) (9,651)
Prepaid expenses and other current assets (3,670) (1,958) (2,088)
Due from affiliates 385 153 (174)
Tax refund (1,847) (857) --
Deposits and trademarks (632) (815) (475)
Accounts payable - trade 14,714 22,596 (1,635)
Accrued expenses 3,457 7,377 2,356
Deferred revenue 978 1,141 656
- ----------------------------------------------------------------------------------------------
Total adjustments (51,156) (12,692) (14,186)
- ----------------------------------------------------------------------------------------------
Net cash (used) provided by operating activities (30,933) 317 (11,030)
- ----------------------------------------------------------------------------------------------
Cash flows from investing activities:
Purchase of marketable securities, net (16,469) (25,179) (3,006)
Purchase of foreign entities, represented by:
Goodwill (10,042) (2,200) --
Other net assets (3,873) (512) --
Acquisition of property, plant and equipment (13,587) (4,831) (3,600)
- ----------------------------------------------------------------------------------------------
Net cash (used) by investing activities (43,971) (32,722) (6,606)
- ----------------------------------------------------------------------------------------------
Cash flows from financing activities:
Net line of credit borrowings (repayments) -- -- (4,707)
Net proceeds from issuance of common stock 102,446 22,298 53,571
Borrowings from (payments to) stockholders -- -- (13,248)
Payments of loan payable, consultant -- -- (3,298)
Principal payments of obligations under capital leases (171) (3,047) (530)
- ----------------------------------------------------------------------------------------------
Net cash provided by financing activities 102,275 19,251 31,788
- ----------------------------------------------------------------------------------------------
Effect of exchange rate changes on cash 473 (35) (261)
- ----------------------------------------------------------------------------------------------
Net change in cash 27,844 (13,189) 13,891
Cash and cash equivalents:
Beginning of period 2,424 15,613 1,722
- ----------------------------------------------------------------------------------------------
End of period $ 30,268 $ 2,424 $ 15,613
==============================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
13
<PAGE>
RESTATED - SEE "INTRODUCTORY NOTE"
Micro Warehouse, Inc.
Notes to the Consolidated Financial Statements
December 31, 1994 and 1993
(Dollar amounts in thousands, except per share data)
1 Summary of Significant Accounting Policies
Basis of Presentation
The consolidated financial statements include the Company and all subsidiaries.
All significant intercompany accounts and transactions are eliminated in
consolidation.
Years prior to 1994 are adjusted for a two-for-one stock split effective April
1994.
Certain reclassifications have been made to conform prior years to the 1994
presentation.
Cash Equivalents
All repurchase agreements and highly liquid investments with initial maturities
of three months or less are considered cash equivalents.
Marketable Securities
Marketable securities consist primarily of highly liquid tax exempt municipal
bonds.
The Company has adopted Statement of Financial Accounting Standards, "Accounting
for Certain Investments in Debt and Equity Securities," (SFAS 115) and in
accordance with the principles thereunder, has classified all of its investments
as available-for-sale securities and has reported them at fair value, with net
unrealized gains and losses included in equity. See note 11 for a discussion of
the classification and reporting of these securities at December 31, 1994. In
1993, marketable securities were reported at cost which approximated fair market
value. For all investment securities, unrealized losses that are other than
temporary are recognized in earnings.
Inventories
Inventories (all finished goods) consist of software packages and peripheral
equipment, and are stated at cost (determined under the first-in, first-out cost
method) or market, whichever is lower.
Prepaid Catalog Costs and Deferred Revenue
The costs of producing and distributing catalogs are deferred and charged to
expense over the period that each catalog remains the most current selling
vehicle (generally one to two months). Vendors have the ability to place
advertisements in the catalogs for which the Company receives advertising
allowances and incentives. These revenues are recognized on the same basis as
the catalog costs.
Property, Plant and Equipment
Property, plant and equipment (including equipment acquired under capital
leases) are stated at cost and are depreciated using accelerated and
straight-line methods over the estimated useful lives of the assets, as follows:
Computer equipment 5 years
Furniture and fixtures 7 years
Leasehold improvements Life of lease - 7 years
Machinery and equipment 5 years
14
<PAGE>
RESTATED - SEE "INTRODUCTORY NOTE"
Intangible Assets
Intangible assets are stated at cost and are amortized using the straight-line
method over the estimated useful lives of the assets, as follows:
Trademarks 5 years
Goodwill 40 years
Income Taxes
Through June 29,1992, the Company elected to be taxed as an S corporation for
federal (and certain states) income tax reporting purposes. Under this election,
the individual stockholders were deemed to have received a pro rata distribution
of the federal (or state) taxable income of the Company (whether or not an
actual cash distribution was made), which was included on their personal tax
returns. Accordingly, the provisions for income taxes prior to June 30, 1992 are
for state income taxes payable to states which do not recognize S corporation
status.
Effective June 30, 1992, the Company revoked its S corporation election and
adopted Statement of Financial Accounting Standards No. 109, "Accounting for
Income Taxes" (SFAS 109) to determine the components of the provisions for
income taxes as a result of the C corporation assuming the tax position of the
(terminated) S corporation (see note 10). SFAS 109 requires that deferred income
taxes be recognized for the tax consequences of "temporary differences" by
applying enacted statutory tax rates applicable to future years to differences
between the financial statement carrying amounts and the tax basis of existing
assets and liabilities.
Revenue Recognition
Revenue on product sales is recognized at the time of shipment. A reserve for
product returns is established based upon historical trends.
Net Income Per Share
Net income per share is usually based on the weighted average number of common
and common equivalent shares outstanding during each period, after retroactive
adjustment for stock splits. However, pursuant to certain rules of the
Securities and Exchange Commission, for periods prior to an initial public
offering of common stock (IPO), the calculation also includes (i) shares of
common stock issued within one year of the IPO and (ii) where repayment of
indebtedness to stockholders incurred as a result of S corporation distributions
is made from proceeds from the IPO, the number of shares required to be sold in
the offering to generate the proceeds for the repayment. Following is an
analysis of the components of the shares used to compute net income per share:
<TABLE>
<CAPTION>
1994 1993 1992
- -------------------------------------------------------------------------------------
<S> <C> <C> <C>
Shares outstanding as of December 31, 1991 15,600,000 15,600,000 15,600,000
Shares issued within one year of the IPO 400,000 400,000 400,000
Required number of shares to be sold (at the
IPO price of $9 a share) in the IPO to generate
proceeds for repayments of indebtedness to S
corporation shareholders and a consultant -- -- 1,474,958
Weighted average shares outstanding related to:
The IPO 6,555,000 6,555,000 377,136
Follow-on public offerings 4,110,959 845,480 --
Acquisitions of foreign subsidiaries 356,017 -- --
Incremental shares related to stock options 595,599 132,260 1,738
----------------------------------
27,617,575 23,532,740 17,853,832
==================================
</TABLE>
15
<PAGE>
RESTATED - SEE "INTRODUCTORY NOTE"
Foreign Currency Translation
Assets and liabilities of foreign subsidiaries are translated into U.S. dollars
at the exchange rate in effect at the balance sheet date or at historical rates,
as applicable. Revenue and expenses are translated at average rates in effect
during the period. The resultant translation adjustment is reflected as a
separate component of stockholders' equity on the balance sheet.
Unaudited Pro Forma and Condensed Quarterly Data
In the opinion of management, the unaudited pro forma and condensed quarterly
financial data (in note 15) reflect all adjustments consisting of recurring
accruals and pro forma adjustments (described in note 16) which are necessary to
a fair statement of the results of operations for the periods presented.
2 Restatement of Prior Period Results
The Company has restated previously issued financial results for each of the
quarters and for the full years ended December 31, 1994, 1993 and 1992. The
restated financial results reflect errors in its accounting procedures primarily
related to accrued inventory liabilities and trade payables. The following
summarizes the impact of the restatement.
1994 1993 1992
---- ---- ----
Costs of goods sold
As previously reported $626,684 $361,481 $217,078
As restated 639,717 363,636 218,219
Gross profit
As previously reported $149,693 $ 88,904 $ 52,556
As restated 136,660 86,749 51,415
Selling, general and administrative
expenses
As previously reported $104,341 $ 63,407 $ 39,021
As restated 104,408 64,596 39,732
Income from operations
As previously reported $ 45,352 $ 25,497 $ 4,760
As restated 32,252 22,153 2,908
Net income*
As previously reported $ 28,017 $ 14,999 $ 6,945
As restated 20,223 13,009 5,869
Net income per share*
As previously reported $ 1.01 $ 0.64 $ 0.39
As restated 0.73 0.55 0.33
Accounts payable - trade
As previously reported $ 30,535 $ 28,921 $ 9,669
As restated 48,831 34,117 11,521
Retained earnings
As previously reported $ 46,687 $ 18,670 $ 3,671
As restated 36,605 16,382 3,373
*Pro forma for 1992
16
<PAGE>
RESTATED - SEE "INTRODUCTORY NOTE"
3 Property, Plant and Equipment
Property, plant and equipment consists of:
1994 1993
- -------------------------------------------------------------------------
Computer equipment $18,816 $10,856
Furniture and fixtures 3,479 1,416
Leasehold improvements 4,143 1,525
Machinery and equipment 4,439 1,890
- -------------------------------------------------------------------------
30,877 15,687
- -------------------------------------------------------------------------
Less accumulated depreciation and amortization 11,201 6,375
- -------------------------------------------------------------------------
$19,676 $ 9,312
=========================================================================
4 Borrowing Arrangements
Line of Credit
At December 31, 1994 and 1993, the Company had a $15,000 unused line of credit
in the United States. The line of credit provides for unsecured borrowing with
interest at the bank's prime rate minus 0.75% or LIBOR plus 1.0%.
At December 31, 1994, the Company also had a (pound)750 unused line of credit in
the United Kingdom. The line also provides for unsecured borrowing with interest
at the bank's base rate plus 1.5%.
Equipment Obligations
The Company is obligated under notes for computer equipment expiring in the year
1999. Interest on these notes is at approximately 5%.
As of December 31, 1994, future minimum lease payments are as follows:
1995 $210
1996 230
1997 230
1998 230
1999 20
----------------------------------------------------------------
Total maximum lease payments 920
----------------------------------------------------------------
Less amounts representing interest 80
----------------------------------------------------------------
Present value of net minimum lease payments 840
----------------------------------------------------------------
Less current maturities 195
----------------------------------------------------------------
Long-term portion $645
================================================================
5 Goodwill, Deposits and Trademarks
Amounts consist of:
1994 1993
- --------------------------------------------------------------------------
Goodwill $ 24,155 $ 2,200
Less: amortization (114) --
- --------------------------------------------------------------------------
$ 24,041 $ 2,200
==========================================================================
Deposits $ 439 $ 483
Trademarks 1,538 862
- --------------------------------------------------------------------------
1,977 1,345
Less: amortization (410) (166)
- --------------------------------------------------------------------------
$ 1,567 $ 1,179
==========================================================================
6 Accrued Expenses
17
<PAGE>
RESTATED - SEE "INTRODUCTORY NOTE"
Accrued expenses at December 31, 1994 and 1993 include approximately $5,500 and
$2,900, respectively, of accrued catalog costs.
7 Stockholders' Equity
Initial and Follow-On Public Offerings
In December 1992, the Company issued 6,555,000 shares of common stock, which
included 855,000 shares issued pursuant to the underwriters over-allotment
option, at $9.00 a share in an IPO. The proceeds to the Company were $53,249 net
of the underwriting discount of $4,130 and other direct expenses of $1,616,
including $322 recorded in 1993. In August 1993, the Company issued 2,300,000
shares of common stock, which included 300,000 shares issued pursuant to the
underwriters over-allotment option, at $10.50 per share in a follow-on offering.
The proceeds to the Company were $22,562 net of the underwriting discount of
$1,207 and other direct expenses of $381. On April 18, 1994, the Company issued
2,000,000 shares of common stock at $21.25 per share in a follow-on offering.
The proceeds to the Company, net of the underwriting discount ($2,020) and other
direct expenses ($301), were $40,179. On October 21, 1994, the Company issued
2,100,000 shares of common stock at $31.00 per share in a follow-on offering.
The proceeds to the Company, net of the underwriting discount ($2,940) and other
direct expenses ($246), were $61,914.
1992 and 1994 Stock Option Plans
The 1992 and 1994 Stock Option Plans (the "Plans") provide for the grant of
stock options to officers, directors and key employees of, and consultants to,
the Company and its subsidiaries. Under the Plans, the Company may grant options
that are intended to qualify as incentive stock options ("Incentive Stock
Options") within the meaning of Section 422A of the Internal Revenue Code of
1986, as amended (the "Code"), or options not intended to qualify as Incentive
Stock Options ("Nonstatutory Stock Options"). A total of 1,500,000 shares of
common stock have been reserved for issuance upon the exercise of options
granted under the Plans.
The Plans are administered by the Compensation and Stock Option Committee of the
Board of Directors. Subject to the provisions of the Plans, the Committee has
the authority to select the employees, directors and consultants to whom options
are granted and determine the terms of each option, including (i) the number of
shares of common stock covered by the option, (ii) when the option becomes
exercisable, (iii) the option exercise price, which must be at least 100%, with
respect to Incentive Stock Options, and at least 85%, with respect to
Nonstatutory Stock Options, of the fair market value of the common stock as of
the date of grant, and (iv) the duration of the option (which may not exceed ten
years). All options are nontransferable other than by will or the laws of
descent and distribution.
Following is the activity under the Plans:
Number of Shares
1994 1993
- -------------------------------------------------------------------------------
Shares:
Outstanding at January 1 842,400 119,950
Granted at $9.00 to $31.00 a share 200,800 733,300
Exercised at $9.00 to $11.38 a share (36,891) (6,184)
Canceled or expired at $9.00 to $22.50 a share (45,901) (4,666)
- -------------------------------------------------------------------------------
Outstanding, December 31 at $9.00 to $31.00 a share 960,408 842,400
===============================================================================
Exercisable, December 31 at $9.00 to $15.94 a share 148,722
===============================================================================
Available for grant, December 31 496,517
===============================================================================
8 Commitments
18
<PAGE>
RESTATED - SEE "INTRODUCTORY NOTE"
Leases
The Company rents some of its office facilities from affiliates and also
occupies office and warehouse space under various operating leases with
independent parties which provide for minimum annual rentals and escalations
based on increases in real estate taxes and other operating expenses.
Minimum annual rentals at December 31, 1994 were as follows:
Related
Total Party
1995 $ 3,121 $ 312
1996 2,977 312
1997 3,037 312
1998 2,665 --
1999 1,914 --
2000 and after 3,731 --
- -----------------------------------------------------------------------
Total $17,445 $ 936
=======================================================================
Rent expense was as follows:
Rent Expense
Year Ended December 31, Total Related Party
- ----------------------------------------------------------------------------
1994 $3,492 $ 312
1993 1,357 312
1992 869 312
The Company has an agreement with a consultant through December 1996 for an
annual fee of $100.
401(k) Savings Plan
Effective July 1,1992, the Company adopted a 401(k) Savings Plan which covers
substantially all full-time employees who meet the plan's eligibility
requirements. Participants may make tax deferred contributions of up to 15% of
annual compensation (subject to other limitations specified by the Internal
Revenue Code) and the Company will make a 25% matching contribution for amounts
which do not exceed 6% of participant's annual compensation. The Company may
also make discretionary profit sharing contributions to the Plan. During 1994
and 1993, the Company incurred approximately $293 and $180, respectively, of
expense related to the 401(k) matching component of this Plan.
9 Special Incentive Compensation
Effective January 1,1989, the Company entered into an agreement for marketing
services with a consultant which required (in addition to a fixed annual fee) a
special incentive payment equal to one-third of the Company's profits before
taxes. The agreement had no specific term.
An employment agreement with an executive officer entered into in August 1991
required the Company to accrue as additional incentive compensation the vested
value of phantom stock up to a maximum of 2.5% of the common shares outstanding
based on a formula.
As of January 1, 1992, the foregoing incentive arrangements were terminated. As
of that date, the consultant received an irrevocable right to receive a 30%
interest in the Company through a transfer of shares by the existing
stockholders and the executive officer received a 2.5% equity interest through
the issuance of previously unissued shares of common stock. In order to
determine the amount to be recorded as compensation expense as of the
19
<PAGE>
RESTATED - SEE "INTRODUCTORY NOTE"
termination date, the Company engaged an independent appraiser to estimate the
fair market value per share of its common stock.
10 Income Taxes
Termination of S Corporation Status
As a result of the Company terminating its S corporation status on June 30,1992,
the C corporation assumed the tax bases of the assets and liabilities of the
(terminated) S corporation. Concurrently, the Company adopted SFAS 109 in order
to determine the components of the provision for income taxes.
Components of the net deferred tax asset relate to:
<TABLE>
<CAPTION>
Initial
December 31 June 30,
1994 1993 1992 1992
(Restated)
- --------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Deferred tax assets:
Value of additional incentive compensation $ -- $ -- $ 866 $ 3,402
Valuation reserves:
Accounts receivable 1,004 651 451 446
Inventory 850 280 178 113
Refunds payable 211 182 158 --
Investments 370 -- -- --
Medical insurance 338 249 -- --
Required capitalization of additional cost
into inventory for tax reporting purposes 473 273 283 68
Other 860 401 76 18
Foreign tax loss carryforwards 2,047 1,174 298 --
Valuation allowance for loss carryforwards (2,047) (1,174) (298) --
- --------------------------------------------------------------------------------------
Total deferred tax asset 4,106 2,036 2,012 4,047
- --------------------------------------------------------------------------------------
Deferred tax liability:
Property, plant and equipment (551) (125) -- --
- --------------------------------------------------------------------------------------
Net deferred tax asset $ 3,555 $ 1,911 $ 2,012 $ 4,047
======================================================================================
</TABLE>
Provision for Income Taxes
Income before income taxes for 1994 was comprised of: U.S. - $34,927 (Restated)
and Foreign - $(1,086). The provision for income taxes for the years ended
December 31, 1994, 1993 and 1992 were as follows:
<TABLE>
<CAPTION>
1994 (Restated) 1993 (Restated) 1992 (Restated)
Current Deferred Total Current Deferred Total Current Deferred Total
------- -------- ----- ------- -------- ----- ------- -------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Federal $13,090 $(1,472) $11,618 $7,657 $133 $7,790 $ -- $(1,439) $(1,439)
State 1,201 (131) 1,070 1,677 29 1,706 500 (573) (73)
Foreign 971 (41) 930 165 (61) 104 -- -- --
- ---------------------------------------------------------------------------------------------------------------------
Total $15,262 $(1,644) $13,618 $9,499 $101 $9,600 $ 500 $(2,012) $(1,512)
=====================================================================================================================
</TABLE>
The 1992 provision is a combination of taxes for the six months then ended
(period for which the Company was a C corporation) and the full year (state
taxes where S corporation status is not recognized).
20
<PAGE>
RESTATED - SEE "INTRODUCTORY NOTE"
The following table accounts for the difference between the actual tax provision
and the amounts obtained by applying the statutory U.S. Federal income tax of
35% in 1994 and 1993 and 34% in 1992 to income before taxes.
Effective tax rate reconciliation (percent):
1994 1993 1992*
(Restated) (Restated) (Restated)
- ------------------------------------------------------------------------------
Statutory federal tax rate 35.0 35.0 34.0
State income taxes net of
Federal benefit 2.0 4.6 7.9
Tax-exempt interest income (2.6) (1.0) --
Foreign income tax 1.3 2.6 1.4
Other, net 4.5 1.3 .4
- ------------------------------------------------------------------------------
Effective tax rate 40.2 42.5 43.7
==============================================================================
*Pro forma
11 Investment Securities
As discussed in note 1, the Company adopted SFAS 115 and, accordingly, has
classified its securities as available for sale. As of December 31, 1994, the
Company recognized a net unrealized loss of $450 as a direct charge to equity.
The following is a summary of securities at December 31, 1994:
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Securities available-for-sale
Governmental obligations $44,654 $ 3 $ 453 $44,204
</TABLE>
12 Supplemental Disclosures of Cash Flow Information
<TABLE>
<CAPTION>
1994 1993 1992
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash paid during the year for:
Interest $ 249 $ 122 $ 1,276
Income taxes 17,407 10,252 258
Noncash investing and financing activities:
Goodwill established through issuance
of common stock 11,913 -- --
Equipment acquired under capital lease obligations 1,021 876 1,649
</TABLE>
13 Acquisitions of Foreign Operations
During 1994, the Company acquired eight businesses with operations in Holland,
Belgium, Finland, Norway, Sweden, France, Mexico and Canada. The purchase price
composed of approximately $13,915 in cash and 335,000 common shares with an
average market value of approximately $22.50. The aggregate goodwill was
$17,580.
On December 1, 1993 the Company acquired through newly-formed foreign
subsidiaries, businesses with operations in Denmark, Norway and Sweden. The
purchase price included approximately $2,700 in cash and up to 200,000 common
shares, contingent upon the businesses achieving sales and earnings goals in
1994 and 1995. In an effort to synchronize its global operational and strategic
objectives, the Company waived the contingencies in
21
<PAGE>
RESTATED - SEE "INTRODUCTORY NOTE"
January 1994 and issued the full amount of the aforementioned common shares
(which are restricted as to sale). The value of these shares ($4,514) was added
to goodwill in 1994.
14 Operations by Geographic Areas
The Company operates primarily in one industry segment, the distribution of
computer hardware, software, supplies and accessories. Information about the
Company's operations in different geographic areas for the years ended December
31, 1994 and 1993 are presented below. European operations in 1992 were nominal.
North America Europe Consolidated
1994 (Restated) (Restated)
- -------------------------------------------------------------------------------
Net operating revenues $652,116 $124,261 $776,377
Income (loss) from operations 33,338 (1,086) 32,252
Identifiable operating assets 233,588 63,972 297,560
North America Europe Consolidated
1993 (Restated) (Restated)
- -------------------------------------------------------------------------------
Net operating revenues $417,804 $ 32,581 $450,385
Income (loss) from operations 23,955 (1,802) 22,153
Identifiable operating assets 128,086 14,741 142,827
15 Quarterly Financial Data (Unaudited)
Selected quarterly financial data for the years ended December 31, 1994, 1993
and 1992:
<TABLE>
<CAPTION>
First Second Third Fourth
Quarter Quarter Quarter Quarter
- ------------------------------------------------------------------------------------------------
<C> <C> <C> <C> <C>
1994 (Restated): Net sales $156,839 $166,967 $201,330 $251,241
Gross profit 30,592 29,558 $ 33,279 43,231
Net income 5,300 5,167 $ 3,809 5,947
Net income per share $0.21 $0.19 $0.14 $0.20
Weighted average number
of shares outstanding 25,488 27,246 27,846 29,606
1993 (Restated) Net sales $98,783 $101,527 $109,415 $140,660
Gross profit 19,039 19,936 21,251 26,523
Net income 2,093 2,820 3,419 4,677
Net income per share $0.09 $0.12 $0.14 $0.19
Weighted average number of
shares outstanding 22,624 22,626 23,692 25,190
1992 (Restated): Net sales $58,113 $61,592 $66,917 $83,012
Gross profit 10,883 11,432 $12,064 17,036
Pro forma net income 1,440 1,261 $ 1,275 1,893
Pro forma net income per share $0.08 $0.07 $0.07 $0.10
Weighted average number of
shares outstanding 17,565 17,565 17,565 18,710
</TABLE>
The four quarterly amounts of net income per share in each year do not equal
amounts for the full year due to rounding.
22
<PAGE>
RESTATED - SEE "INTRODUCTORY NOTE"
16 Pro Forma Adjustments (Unaudited)
The following pro forma adjustments have been made to the historical results of
1992 operations to make the presentations more meaningful in relation to future
periods:
(a) Elimination of amounts of special incentive compensation - see note 9. The
amount represents the value of common stock transferred to the consultant (by
the existing stockholders) and issued to an employee (by the Company) to
terminate the incentive portion (based on income before taxes) of their
respective agreements. The value was based on an independent appraisal of the
Company's common stock at January 1, 1992.
(b) Computation of income taxes which would have been recorded had the Company
been a C corporation for the entire year and after eliminating the compensation
in (a).
The 1992 combined historical and pro forma provisions for income tax expense
were as follows:
Federal State
Current Deferred Current Deferred Total
- -------------------------------------------------------------------------------
Historical (Restated) $ -- $(1,439) $ 500 $(573) $(1,512)
Pro forma adjustment
(Restated) 3,415 1,271 870 506 6,062
- -------------------------------------------------------------------------------
$4,550
- -------------------------------------------------------------------------------
17 Subsequent Events
Offerings of Common Stock
In October 1995, the Company sold 1,200,000 shares of common stock in its fourth
follow-on public offering which yielded net proceeds of $50,867. Funds were used
for acquisitions (see Acquisitions below) and working capital.
Acquisitions
During 1995 and 1996, the Company acquired ten businesses (seven foreign and
three domestic) in transactions accounted for as purchases. The aggregate
purchase price was $57,658, of which $56,514 was paid in cash and the balance
represented the fair value of 26,000 shares of common stock issued to the former
owners. Aggregate goodwill was $46,925. In 1996, the Company wrote off all the
remaining goodwill ($6,000) related to those Macintosh-only businesses acquired.
On January 25, 1996, the Company acquired Inmac Corp. through an exchange of
3,033,682 of its shares for all of Inmac's 10,816,836 shares in a transaction
accounted for as a pooling of interests. In connection therewith, the Company
recorded (i) $21,200 of restructuring charges, primarily for personnel and
facilities matters; (ii) $6,113 for merger costs; and (iii) an extraordinary
charge of $1,600 (net of tax benefit of $1,100) related to a mandatory
prepayment to extinguish certain Inmac indebtedness.
Under pooling of interest accounting, all of the Company's consolidated
financial statements as of and for periods prior to the acquisition of Inmac are
generally required to be restated as though the merger took place at the
beginning of the earliest period presented. Since the nature of this amendment
of the Company's Form 10-K relates to historical information, the consolidated
financial statements included herein have not been restated for the Inmac
acquisition.
23
<PAGE>
RESTATED - SEE "INTRODUCTORY NOTE"
Legal Proceedings
During October, November and December 1996, the Company and certain of its
directors and officers were named as defendants in eleven lawsuits brought in
the United States District Court for the District of Connecticut by parties
which seek to represent classes of stockholders who purchased shares of the
Company's common stock during different periods between January 1994 and
September 1996, or exchanged shares in a merger transaction completed in January
1996. These lawsuits advance claims under various provisions of the federal
securities laws and the common law and assert that various misleading
disclosures were made concerning the Company's financial performance and
condition and other related circumstances during the periods described and seek
unspecified monetary damages and, in certain instances, rescission. The lawsuits
followed and are predicated upon the Company's announcements in September and
October 1996 that it intended to restate certain prior financial statements. The
matters are all at an initial stage. Neither the Company nor the other
defendants have responded to any of them.
In December 1996 and January 1997, the Company and certain of its directors and
officers were named as defendants in two largely identical lawsuits brought in
the Superior Court of Santa Clara County, San Jose, California. The lawsuits
arise out of the stock merger between the Company and Inmac Corp. on January 25,
1996. The claims and defendants are generally similar to those being asserted in
the various class actions described above. Neither the Company nor the other
defendants have responded to either of them.
In November 1996, a shareholder derivative action was filed in the United States
District Court for the District of Connecticut, purportedly on behalf of, and
for recovery by, the Company, which is named as a nominal defendant. The
complaint charges certain directors and officers with violation of fiduciary
duties in selling Company stock while in possession of non-public information
and in causing or permitting the exposure of the Company to damage, such as
through the class litigation described above, attributable to the same
circumstances that are the subject of the class litigation. The Company and the
individual defendants have filed a Motion to Dismiss the Complaint which is
pending before the Court.
The plaintiffs in these lawsuits seek unspecified compensatory damages, other
relief, legal fees and litigation costs. The Company is unable to predict the
outcome or potential financial impact of this litigation, and accordingly has
made no provision therefor in the consolidated financial statements.
In addition, the staff of the Securities and Exchange Commission is conducting
an informal inquiry into the events that underlie the Company's announced
intention to restate certain prior period financial statements. The Company is
cooperating with the staff in its investigation.
24
<PAGE>
RESTATED - SEE "INTRODUCTORY NOTE"
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
MICRO WAREHOUSE, INC.
By /s/ Linwood A. Lacy, Jr.
-------------------------------------
Linwood A. Lacy, Jr.
President, Chief Executive Officer,
Acting Chief Financial Officer and
Acting Chief Accounting Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report on Form 10-K/A for the year ended December 31, 1994 has been signed below
by the following persons on behalf of the Registrant and in the capacities and
on the dates indicated.
Signature Title Date
--------- ----- ----
/s/ Peter Godfrey Chairman of the Board February 6, 1997
- --------------------------
Peter Godfrey
/s/ Linwood A. Lacy, Jr. President, Chief Executive Officer, February 6, 1997
- -------------------------- Acting Chief Financial Officer,
Linwood A. Lacy, Jr. Acting Chief Accounting Officer
and Director
(Principal Executive Officer and
Principal Financial Officer)
/s/ Felix Dennis Director February 6, 1997
- --------------------------
Felix Dennis
/s/ Frederick H. Fruitman Director February 6, 1997
- --------------------------
Frederick H. Fruitman
/s/ Melvin R. Seiler Executive Vice President, Chief February 6, 1997
- -------------------------- Operating Officer and Director
Melvin R. Seiler
/s/ Joseph M. Walsh Director February 6, 1997
- --------------------------
Joseph M. Walsh
25
