UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(Mark One)
(X) QUARTERLY REPORT PURSUANT OT SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1998
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transitions period from _____ to _____
Commission File Number 333-8925
AMERICOMM DIRECT MARKETING, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<CAPTION>
<S> <C>
DELAWARE 23-2574778
(State or other jurisdiction of incorporation (I.R.S. Employer Identification No.)
or organization)
5775 Peachtree Dunwoody Road 30342
Suite C-150 (Zip code)
Atlanta, GA
(Address of principal executive offices)
</TABLE>
Registrant's telephone number, including area code: (404) 256-1123
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 to such filing
requirements for the past 90 days. Yes (X) No ( )
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Outstanding as of
Class May 13, 1998
----- ------------
Common Stock, $.01 par value 283,807 shares
<PAGE>
AMERICOMM DIRECT MARKETING, INC.
FORM 10 - Q
QUARTERLY PERIOD ENDED MARCH 31, 1998
INDEX
PART I. FINANCIAL INFORMATION Page Numbers
------------
Item 1. Financial Statements
Condensed Balance Sheets as of March 31, 1998 and
December 31, 1997 1
Condensed Statements of Operations for the three
months ended March 31, 1998 and 1997 2
Condensed Statements of Cash Flows for the three
months ended March 31, 1998 and 1997 3
Notes to Condensed Financial Statements
as of March 31, 1998 4-6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 7-9
PART II. OTHER INFORMATION
Item 5. Other Information 10
Item 6. Exhibits and Reports on Form 8 - K 10
SIGNATURES 11
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
<TABLE>
AMERICOMM DIRECT MARKETING, INC.
CONDENSED BALANCE SHEET
(in thousands, except share data)
<CAPTION>
March 31, 1998 December 31, 1997
------------------------ ------------------------
<S> <C> <C>
Assets
Current assets -
Cash $1,392 $1,314
Accounts receivable, net 24,984 27,943
Inventories 13,548 13,331
Other 3,594 4,043
------------------------ ------------------------
Total Current Assets 43,518 46,631
------------------------ ------------------------
Property, plant and equipment, at cost 70,857 68,078
Less: Accumulated depreciation (19,054) (16,884)
------------------------ ------------------------
51,803 51,194
------------------------ ------------------------
Other assets -
Goodwill, net of accumulated amortization 49,694 46,173
Other intangibles, net of accumulated 28,234 28,869
amortization
Other 4,735 4,818
------------------------ ------------------------
82,663 79,860
------------------------ ------------------------
$177,984 $177,685
======================== ========================
Liabilities and Stockholder's Equity
Current liabilities -
Current portion of long-term debt $917 $864
Bank overdraft 3,252 4,624
Accounts payable 6,389 4,899
Accrued expenses and other 9,810 9,624
------------------------ ------------------------
20,368 20,011
------------------------ ------------------------
Noncurrent liabilities 7,461 7,777
------------------------ ------------------------
Long-term debt 116,621 115,245
------------------------ ------------------------
Stockholder's equity -
Common stock, $.01 par value 3 3
Additional paid-in capital 46,175 46,175
Accumulated deficit (12,644) (11,526)
------------------------ ------------------------
33,534 34,652
======================== ========================
$177,984 $177,685
======================== ========================
Common Shares Outstanding 283,807 283,807
======================== ========================
See notes to condensed financial statements
</TABLE>
<PAGE>
AMERICOMM DIRECT MARKETING, INC.
CONDENSED STATEMENTS OF OPERATIONS
(in thousands, except share data)
Three months ended March 31,
1998 1997
---------- ----------
Net sales $46,374 $38,858
Operating costs and expenses -
Cost of sales 33,454 27,592
Selling and 11,309 9,832
administrative
---------- ----------
Total operating costs 44,763 37,424
and expenses
---------- ----------
Operating income 1,611 1,434
Interest, net 3,509 3,329
---------- ----------
Loss before income taxes (1,898) (1,895)
Income tax benefit (781) (548)
--------- ----------
Net loss $(1,117) $(1,347)
========= ==========
OTHER DATA:
Consistent with the Form S-4 filed with the Securities and Exchange
Commission on October 17, 1996, the following financial data has been
disclosed.
EBITDA is provided because it is a measure of an issuer's ability to
service its indebtedness commonly used by certain investors. EBITDA is not
a measure of financial performance under generally accepted accounting
principles and should not be considered an alternative to net income or
loss as a measure of performance or to cash flow as a measure of liquidity.
EBITDA is defined as operating income, plus depreciation and amortization
and reflects the elimination of certain non-cash charges related to pension
and deferred financing costs and the elimination of gain on disposal of
equipment, among others.
EBITDA $4,941 $4,118
============ =============
See notes to condensed financial statements
<PAGE>
AMERICOMM DIRECT MARKETING, INC.
CONDENSED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
Three months ended March 31,
----------------------------------------------------
1998 1997
----------------------- -------------------------
<S> <C> <C>
Cash flows from operating activities -
Net loss $(1,117) $(1,347)
Adjustments to reconcile net loss to net cash
provided
by operating activities -
Depreciation and amortization 3,708 2,703
Loss on disposal 24 194
Deferred income tax benefit (781) (548)
Amortization of prepaid pension asset 68 56
Change in assets, liabilities 5,235 1,208
----------------------- -------------------------
Net cash provided by operating activities 7,137 2,266
----------------------- -------------------------
Cash flows from investing activities -
Cash paid for Label America, Inc., net of cash 0 (9,402)
acquired
Cash paid for Cardinal Marketing, Inc. and Cardinal
Marketing of New Jersey, Inc., net of cash (4,680) 0
acquired
Proceeds from sale of assets 0 90
Purchases of property and equipment (2,286) (943)
----------------------- -------------------------
Net cash used in investing activities (6,966) (10,255)
----------------------- -------------------------
Cash flows from financing activities -
Net borrowings on revolving line of credit 1,656 9,300
Decrease in bank overdraft, net (1,372) (829)
Payments on capital leases (228) (120)
Due from parent (149) 0
----------------------- -------------------------
Net cash provided by (used in) financing activities (93) 8,351
----------------------- -------------------------
Net increase in cash 78 362
Cash, beginning of period 1,314 1,979
----------------------- -------------------------
Cash, end of period $1,392 $2,341
======================= =========================
</TABLE>
See notes to condensed financial statements
<PAGE>
NOTES TO CONDENSED FINANCIAL STATEMENTS
NOTE 1: BASIS OF PRESENTATION
The accompanying unaudited condensed financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information and with the instructions to Form 10-Q and Article 10 of Regulation
S-X. Accordingly, they do not include all the information and footnotes required
by generally accepted accounting principles for complete financial statements.
In the opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been included.
Operating results for AmeriComm Direct Marketing, Inc. (the "Company") for the
three month period ended March 31, 1998, are not necessarily indicative of the
results that may be expected for the year ending December 31, 1998.
NOTE 2: INVENTORIES
The major classes of inventories were as follows (in thousands):
<TABLE>
<CAPTION>
March 31, 1998 December 31, 1997
----------------------- ------------------------
<S> <C> <C>
Raw materials $6,948 $7,351
Work-in-process 1,464 1,585
Finished goods and customized stock 5,136 4,395
======================= ========================
$13,548 $13,331
======================= ========================
</TABLE>
NOTE 3: ACQUISITIONS
Purchase of Label America, Inc.
On February 21, 1997, the Company acquired all of the issued and outstanding
capital stock of Label America, Inc. ("LAI") for $8,500,000, less outstanding
indebtedness plus transaction costs, which was funded through borrowings on its
revolving loan facility. Additional consideration of $700,000 was paid to the
principal stockholder for a noncompete agreement which amount was also funded
through borrowings on the Company's revolving loan facility. Upon consummation
of the acquisition, LAI was merged into the Company. The LAI acquisition has
been accounted for using the purchase method of accounting and, accordingly, the
results of operations of LAI have been included in the results of operations of
the Company since February 22, 1997. The excess of the consideration paid over
the estimated fair value of net assets acquired of approximately $6,636,000 has
been recorded as goodwill and is being amortized on a straight-line basis over
40 years.
AmeriComm Direct Marketing, Inc.
On April 24, 1997, the Company acquired all of the issued and outstanding
capital stock of AmeriComm Direct Marketing, Inc. (ADMI) for $23,635,000 plus
transaction costs. Additional consideration of $1,000,000 was paid to the
principal stockholder for a noncompete agreement. Upon consummation of the
acquisition, ADMI was merged into the Company. The ADMI acquisition has been
accounted for using the purchase method of accounting and, accordingly, the
results of operations of ADMI have been included in the results of operations of
the Company since April 25, 1997. The excess of consideration paid over the
estimated fair value of net assets acquired of $15,273,000 has been recorded as
goodwill and is being amortized on the straight-line basis over 40 years.
The acquisition of ADMI was financed by a capital contribution by AmeriComm
Holdings, Inc. ("AHI"), the Company's parent, of $23,879,000. To provide funds
for the capital contribution, AHI issued $35,000,000 aggregate principal amount
of 12.5% Notes (the "Notes") due April 24, 2003. A portion of the Notes were
used to redeem AHI redeemable cumulative preferred stock. The Notes place
certain restrictions on the Company's ability to incur additional indebtedness
or make future acquisitions. In addition, future interest and principal payments
by AHI are dependent primarily on the operations of the Company through payments
to AHI as permitted under the Senior Notes of the Company. Interest is due
quarterly commencing June 30, 1997. AHI may pay a portion or all of any six
quarterly interest installments prior to April 24, 1999 by issuing additional
notes ("PIK Notes") with interest ranging from 12.5% to 13.0%. The initial
interest installments due June 30, 1997, September 30, 1997, December 31, 1997
and March 31, 1998 were paid by the issuance by AHI of PIK Notes at 12.5%
interest. The PIK Notes must be redeemed prior to April 24, 2003.
Purchase of Cardinal Marketing, Inc. and Cardinal Marketing, of New Jersey, Inc.
On March 16, 1998, the Company acquired all of the issued and outstanding
capital stock of Cardinal Marketing, Inc. and Cardinal Marketing of New Jersey,
Inc. (collectively "Cardinal") for approximately $4,000,000 plus transaction
costs, which was funded through borrowings on the Company's revolving loan
facility and from operations. Additional consideration of $600,000 will be paid
to the stockholders of Cardinal for noncompete agreements, of which $200,000 was
paid on March 16, 1998 and the remaining $400,000 will be paid in two equal
annual installments commencing March 16, 1999. Subsequent to the acquisition,
Cardinal was merged into the Company. The Cardinal acquisition has been
accounted for using the purchase method of accounting and, accordingly, the
results of operations of Cardinal have been included in the results of
operations of the Company since March 17, 1998. The excess of the consideration
paid over the estimated fair value of net assets acquired of approximately
$3,800,000 has been recorded as goodwill and is being amortized on the
straight-line basis over 40 years.
NOTE 4: COMPREHENSIVE INCOME
Effective January 1, 1998, the Company adopted SFAS No. 130, "Reporting
Comprehensive Income," which requires additional disclosure of amounts
comprising comprehensive income. The Company has no other comprehensive income
and as a result had no impact from adoption.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
RESULTS OF OPERATIONS
On February 21, 1997, the Company acquired all of the issued and outstanding
capital stock of Label America, Inc. ("LAI") for approximately $8.5 million,
less outstanding indebtedness plus transaction costs. Subsequent to the
acquisition, LAI was merged into the Company. The results of operations of LAI
have been included in the statements of operations of the Company since February
22, 1997.
On April 24, 1997, the Company acquired all of the issued and outstanding
capital stock of AmeriComm Direct Marketing, Inc. (ADMI) for $23.6 million plus
transaction costs. Subsequent to the acquisition, ADMI was merged into the
Company. The results of operations of ADMI have been included in the statements
of operations of the Company since April 25, 1997.
On March 16, 1998, the Company acquired all of the issued and outstanding
capital stock of Cardinal Marketing, Inc. and Cardinal Marketing of New Jersey,
Inc. (collectively "Cardinal") for $4.0 million plus transaction costs.
Subsequent to the acquisition, Cardinal was merged into the Company. The results
of operations of Cardinal have been included in the statements of operations of
the Company since March 17, 1998.
The Company has four principal product lines: Direct mail products, mailer
systems, custom pressure sensitive labels and custom envelopes. The following
table summarizes the net sales by product line (in thousands).
Three Months Ended March 31,
1998 1997
------------------ ----------------
Direct mail products $12,505 $5,827
Mailer systems 10,647 9,936
Custom pressure sensitive labels 11,943 10,861
Custom envelopes 11,279 12,234
================== ================
$46,374 $38,858
================== ================
FIRST QUARTER OF 1998 COMPARED WITH THE FIRST QUARTER OF 1997:
Net sales for the three month period ended March 31, 1998 increased $7.5 million
to $46.4 million, or 19.3%, from the comparable 1997 period. The overall
increase in sales was mostly due to the acquisitions of ADMI, LAI and Cardinal.
Specifically, the increase in net sales for direct mail products and custom
pressure sensitive labels was due to the above mentioned acquisitions. Net sales
for custom envelopes decreased $1.0 million to $11.3 million or 7.8% from the
comparable 1997 period. While the number of units shipped has remained
consistent with prior year, the decrease in net sales for custom envelopes has
been impacted by a reduction in the average unit sales price. The reduction in
the average unit sales price is mainly due to the lower average paper prices in
the underlying paper market. Net sales for mailer systems increased $.7 million
to $10.6 million or 7.2% from the comparable 1997 period. This increase in sales
is mostly due to the increase in revenues from the self label product line.
Gross profit for the three month period ended March 31, 1998 increased $1.7
million to $12.9 million or 14.7% from the comparable 1997 period. The increase
in gross profit is due to the acquisitions discussed above. Gross profit, as a
percentage of net sales, decreased to 27.9% for the three month period ended
March 31, 1998 from 29.0% for the comparable 1997 period. The decrease in gross
profit as a percentage of sales is mostly attributable to competitive price
pressures in the mailer systems business unit.
Selling and administrative expenses for the three month period ended March 31,
1998 increased $1.5 million to $11.3 million, or 15.0%, from the comparable 1997
period. The increase in selling and administrative expenses is due to the above
mentioned acquisitions. Selling and administrative expenses, as a percentage of
net sales, decreased to 24.4% for the three month period ended March 31, 1998
from 25.3% for the comparable 1997 period. The decrease in selling and
administrative expenses, as a percent of net sales, is mostly due to certain
synergistic savings achieved by the Company from the acquisitions and Company
initiated restructuring activities.
Operating income for the three month period ended March 31, 1998 was $1.6
million as compared to $1.4 million for the comparable 1997 period. The increase
in operating income is mostly due to the above mentioned acquisitions.
Interest expense for the three month period ended March 31, 1998 was $3.5
million or 7.6% of net sales as compared to $3.3 million or 8.6% of net sales
for the comparable 1997 period. The increase in interest expense is due to the
increase in borrowings on the revolving loan facility to fund acquisitions. The
weighted average interest rate for the three month period ended March 31, 1998
was 12.2% as compared to 12.6% for the comparable 1997 period.
Income tax benefit for the three month period ended March 31, 1998 was $.8
million as compared to $.5 million for the comparable 1997 period, resulting in
an effective tax rate of 41% and 29%, respectively.
EBITDA for the three month period ended March 31, 1998 was $4.9 million or 10.7%
of net sales as compared to $4.1 million or 10.6% of net sales for the
comparable 1997 period. The increase in EBITDA is mostly attributable to the
above mentioned acquisitions.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities was $7.1 million and $2.3 million for
the three month periods ended March 31, 1998 and 1997, respectively. The
increase in net cash provided by operating activities is due to the increase in
EBITDA discussed above and the improvement in cash provided by working capital.
Net cash used in investing activities was $7.0 million and $10.3 million for the
three month periods ended March 31, 1998 and 1997, respectively. Cash used in
investing activities for the three month period ended March 31, 1998 was
comprised of $4.7 million for the acquisition of Cardinal and $2.3 million for
purchases of property and equipment. Cash used in investing activities for the
comparable 1997 period was comprised of $9.4 million for the acquisition of LAI
and $.9 million for the purchases of property and equipment.
Net cash provided by (used in) financing activities was $(.1) million and $8.4
million for the three months ended March 31, 1998 and 1997, respectively. Cash
provided by financing activities for the three month period ended March 31, 1997
was primarily attributable to the $9.3 million borrowed on the Company's
revolving credit facility used to acquire LAI.
The Company has up to $25 million of available borrowings from its revolving
credit facility (the "Revolver"). Borrowings on the Revolver are limited to
certain levels of receivables and inventories. As of March 31, 1998, the
outstanding balance on the Revolver was $12.4 million.
Management believes, based on current financial performance of the Company and
anticipated growth, that the cash provided by operations and the availability
under the Company's current revolving credit facility will provide sufficient
funds to support planned capital expenditures, working capital requirements,
debt service requirements and potential acquisitions. The Company and AHI
anticipate that they will be required to refinance the Senior Notes and the AHI
Notes at maturity. No assurance can be given that the Company and AHI will be
able to refinance the Senior Notes and Notes on terms acceptable to them, if at
all. The ability of the Company and AHI to meet their debt service obligations
and reduce their debt will be dependent, however, upon the future performance of
the Company which, in turn, will be subject to general economic conditions and
to financial, business and other factors, including factors beyond the Company's
control.
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
No reportable developments occurred in Legal Proceedings during the
quarter ended March 31, 1998.
Item 2. Changes in Securities - None.
Item 3. Defaults upon Senior Securities - None.
Item 4. Submission of matters to a vote of Security Holders - None.
Item 5. Other Information - None.
Item 6. Exhibits and Reports on Form 8-K -
a) Exhibits
27 - Financial Data Schedule
b) Form 8-K Reports
The report dated March 16, 1998 and filed March 31, 1998 announcing
Registrant's purchase of the outstanding capital stock of Cardinal
Marketing, Inc. and Cardinal Marketing of New Jersey, Inc. on March
16, 1998.
c) Form 8-K/A Reports
The report dated March 16, 1998 and filed April 22, 1998 amending the
above Form 8-K filed March 31, 1998.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
AMERICOMM DIRECT MARKETING, INC.
Date: May 13, 1998 /s/ Robert M. Miklas
--------------------- --------------------
Robert M. Miklas
President and Chief Executive Officer
(Principal Executive Officer)
Date: May 13, 1998 /s/ Robert B. Webster
--------------------- ---------------------
Robert B. Webster
Executive Vice President and
Chief Financial Officer
(Principal Financial Officer)
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1998
<CASH> 1,391,837
<SECURITIES> 0
<RECEIVABLES> 25,797,217
<ALLOWANCES> (813,469)
<INVENTORY> 13,548,393
<CURRENT-ASSETS> 43,518,427
<PP&E> 70,857,494
<DEPRECIATION> (19,054,162)
<TOTAL-ASSETS> 177,984,060
<CURRENT-LIABILITIES> 20,367,547
<BONDS> 116,621,366
0
0
<COMMON> 2,838
<OTHER-SE> 33,531,415
<TOTAL-LIABILITY-AND-EQUITY> 177,984,060
<SALES> 46,373,435
<TOTAL-REVENUES> 46,373,435
<CGS> 33,455,007
<TOTAL-COSTS> 33,455,007
<OTHER-EXPENSES> 11,307,291
<LOSS-PROVISION> 578
<INTEREST-EXPENSE> 3,508,905
<INCOME-PRETAX> (1,897,768)
<INCOME-TAX> (781,823)
<INCOME-CONTINUING> (1,115,945)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,115,945)
<EPS-PRIMARY> (3.93)
<EPS-DILUTED> (3.93)
</TABLE>
