-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, KiuFfpCK+PMICexxRwo2kBSVfFPWDQIhxUlgSR9urH83lQfbxVyKAc5W8eoukziV 2sKQnyK6wmkNZAyOFCIY6A== 0001005477-97-000188.txt : 19970221 0001005477-97-000188.hdr.sgml : 19970221 ACCESSION NUMBER: 0001005477-97-000188 CONFORMED SUBMISSION TYPE: 10-K/A PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19941231 FILED AS OF DATE: 19970210 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: MICRO WAREHOUSE INC CENTRAL INDEX KEY: 0000892872 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-CATALOG & MAIL-ORDER HOUSES [5961] IRS NUMBER: 061192793 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K/A SEC ACT: 1934 Act SEC FILE NUMBER: 000-20730 FILM NUMBER: 97523088 BUSINESS ADDRESS: STREET 1: 535 CONNECTICUT AVE CITY: NORWALK STATE: CT ZIP: 06854 BUSINESS PHONE: 2038994000 MAIL ADDRESS: STREET 1: 535 CONNECTICUT AVE CITY: NORWALK STATE: CT ZIP: 06854 10-K/A 1 FORM 10-K/A 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 ____ 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 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)
1994 1993 1992 1991 1990 (Restated) (Restated) (Restated) - --------------------------------------------------------------------------------------------------------- Income Statement Data: Net sales $776,377 $450,385 $269,634 $163,603 $123,673
RESTATED - SEE "INTRODUCTORY NOTE" 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
(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 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 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 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 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 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 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 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 RESTATED - SEE "INTRODUCTORY NOTE" Micro Warehouse, Inc. Consolidated Statements of Income
- ------------------------------------------------------------------------------------------- Years Ended December 31, 1994, 1993 and 1992 (In thousands, except per share data) 1994 1993 1992 (Restated) (Restated) (Restated) - ------------------------------------------------------------------------------------------- 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 ===========================================================================================
See accompanying notes to consolidated financial statements. 11 RESTATED - SEE "INTRODUCTORY NOTE" Micro Warehouse, Inc. Consolidated Statements of Stockholders' Equity
- --------------------------------------------------------------------------------------------------------------------------------- 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 - --------------------------------------------------------------------------------------------------------------------------------- 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 =================================================================================================================================
See accompanying notes to consolidated financial statements. 12 RESTATED - SEE "INTRODUCTORY NOTE" Micro Warehouse, Inc. Consolidated Statements of Cash Flows Representing Increases (Decreases) in Cash and Cash Equivalents
- ---------------------------------------------------------------------------------------------- Years Ended December 31, 1994, 1993 and 1992 (In thousands) 1994 1993 1992 (Restated) (Restated) (Restated) - ---------------------------------------------------------------------------------------------- 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 ==============================================================================================
See accompanying notes to consolidated financial statements. 13 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 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:
1994 1993 1992 - ------------------------------------------------------------------------------------- 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 ==================================
15 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 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 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 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 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:
Initial December 31 June 30, 1994 1993 1992 1992 (Restated) - -------------------------------------------------------------------------------------- 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 ======================================================================================
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:
1994 (Restated) 1993 (Restated) 1992 (Restated) Current Deferred Total Current Deferred Total Current Deferred Total ------- -------- ----- ------- -------- ----- ------- -------- ----- 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) =====================================================================================================================
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 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:
Gross Gross Amortized Unrealized Unrealized Fair Cost Gains Losses Value - ------------------------------------------------------------------------------------------- Securities available-for-sale Governmental obligations $44,654 $ 3 $ 453 $44,204
12 Supplemental Disclosures of Cash Flow Information
1994 1993 1992 - ------------------------------------------------------------------------------------------- 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
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 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:
First Second Third Fourth Quarter Quarter Quarter Quarter - ------------------------------------------------------------------------------------------------ 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
The four quarterly amounts of net income per share in each year do not equal amounts for the full year due to rounding. 22 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 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 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 -----END PRIVACY-ENHANCED MESSAGE-----