<PAGE>
2ND QUARTER
FISCAL 1999
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------------------
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTER ENDED SEPTEMBER 26, 1998
Commission File Number: 0-16002
ADVANCED MARKETING SERVICES, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 95-3768341
-------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
5880 OBERLIN DRIVE, SUITE 400
SAN DIEGO, CALIFORNIA 92121
(Address of principal executive offices)
(Zip Code)
(619) 457-2500
(Registrant's telephone number, including area code)
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
---
The number of shares of the Registrant's Common Stock outstanding as of
September 30, 1998 was 5,632,939.
<PAGE>
ADVANCED MARKETING SERVICES, INC.
INDEX TO FORM 10-Q
September 26, 1998
Page
PART I. FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Balance Sheets (Unaudited)..............................3
Consolidated Statements of Income (Unaudited) .......................4
Consolidated Statements of Cash Flows (Unaudited)....................5
Notes to Consolidated Financial Statements...................... 6 - 8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.............................9 - 11
PART II. OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS ..................................................11
ITEM 2 - CHANGES IN SECURITIES ..............................................11
ITEM 3 - DEFAULTS UPON SENIOR SECURITIES ....................................11
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS ................11
ITEM 5 - OTHER INFORMATION...................................................11
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K....................................11
SIGNATURES...................................................................12
2
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (See Note 1 for Basis of Presentation)
<TABLE>
<CAPTION>
ADVANCED MARKETING SERVICES, INC.
CONSOLIDATED BALANCE SHEETS
(AMOUNTS IN THOUSANDS, EXCEPT FOR SHARE DATA)
SEPTEMBER 26, MARCH 31, SEPTEMBER 27,
1998 1998 1997
------- ------- -------
(UNAUDITED) (NOTE) (UNAUDITED)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash And Cash Equivalents $ 17,396 $ 28,982 $ 21,598
Investments, Available-For-Sale 7,218 8,068 7,874
Accounts Receivable - Trade, Net of Allowances for Uncollectible Accounts and
Sales Returns of $3,288 at September 26, 1998, $4,012 at March 31, 1998 and
$3,157 at September 27, 1997
70,749 61,665 56,412
Vendor and Other Receivables 4,610 2,408 2,080
Inventories, Net 126,462 99,429 92,623
Deferred Income Taxes 5,255 4,922 4,618
Prepaid Expenses 1,356 1,368 939
-------- -------- --------
TOTAL CURRENT ASSETS 233,046 206,842 186,144
-------- -------- --------
PROPERTY AND EQUIPMENT, AT COST 12,839 11,964 10,504
Less - Accumulated Depreciation and Amortization 7,238 7,043 6,035
-------- -------- --------
Net Property And Equipment 5,601 4,921 4,469
-------- -------- --------
Investments, Available-For-Sale 2,130 -- 3,708
Goodwill and Other Assets 6,913 6,709 784
-------- -------- --------
TOTAL ASSETS $247,690 $218,472 $195,105
-------- -------- --------
LIABILITIES
CURRENT LIABILITIES:
Accounts Payable $163,667 $142,203 $127,424
Accrued Liabilities 10,593 8,141 5,517
Income Taxes Payable 1,445 380 827
-------- -------- --------
TOTAL CURRENT LIABILITIES 175,705 150,724 133,768
-------- -------- --------
STOCKHOLDERS' EQUITY:
Common Stock, $.001 Par Value, Authorized 20,000,000 Shares, Issued 6,350,000
Shares at September 26, 1998, 6,328,000 Shares at March 31, 1998 and
6,277,000 Shares at September 27, 1997
6 6 6
Additional Paid In Capital 27,348 27,145 26,607
Retained Earnings 46,398 42,718 36,878
Unrealized Gain on Investments 83 8 51
Foreign Currency Translation Adjustment 270 (9) (85)
Less: Treasury Stock, 718,000 shares at Cost (2,120) (2,120) (2,120)
-------- -------- --------
TOTAL STOCKHOLDERS' EQUITY 71,985 67,748 61,337
-------- -------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $247,690 $218,472 $195,105
-------- -------- --------
-------- -------- --------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED BALANCE
SHEETS.
NOTE: THE BALANCE SHEET AT MARCH 31, 1998 HAS BEEN DERIVED FROM THE AUDITED
FINANCIAL STATEMENTS AT THAT DATE, BUT DOES NOT INCLUDE ALL OF THE INFORMATION
AND FOOTNOTES REQUIRED BY GENERALLY ACCEPTED ACCOUNTING PRINCIPLES FOR COMPLETE
FINANCIAL STATEMENTS.
3
<PAGE>
ADVANCED MARKETING SERVICES, INC.
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED - AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
SEPTEMBER 26, SEPTEMBER 27, SEPTEMBER 26, SEPTEMBER 27,
1998 1997 1998 1997
-------- -------- -------- --------
<S> <C> <C> <C>
NET SALES $116,054 $ 99,806 $212,864 $181,886
Cost Of Good Sold 102,804 89,709 187,733 162,087
-------- -------- -------- --------
GROSS PROFIT 13,250 10,097 25,131 19,799
Distribution and Administrative Expenses 9,652 7,351 19,140 15,166
-------- -------- -------- --------
INCOME FROM OPERATIONS 3,598 2,746 5,991 4,633
Interest and Dividend Income 147 307 461 660
-------- -------- -------- --------
INCOME BEFORE PROVISION FOR INCOME TAXES 3,745 3,053 6,452 5,293
Provision for Income Taxes 1,435 1,160 2,491 1,985
-------- -------- -------- --------
NET INCOME $ 2,310 $ 1,893 $ 3,961 $ 3,308
-------- -------- -------- --------
OTHER COMPREHENSIVE INCOME:
Foreign Currency Translation Adjustments 276 (5) 279 1
Unrealized Gain on Investments 30 4 75 42
-------- -------- -------- --------
COMPREHENSIVE INCOME: $ 2,616 $ 1,892 $ 4,315 $ 3,351
-------- -------- -------- --------
NET INCOME PER COMMON AND COMMON SHARE EQUIVALENT:
Basic $ .41 $ .34 $ .70 $ .60
-------- -------- -------- --------
Diluted $ .40 $ .33 $ .68 $ .59
-------- -------- -------- --------
NUMBER OF SHARES USED IN CALCULATION:
Basic 5,630 5,543 5,621 5,531
-------- -------- -------- --------
Diluted 5,787 5,672 5,789 5,652
-------- -------- -------- --------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED STATEMENTS.
4
<PAGE>
ADVANCED MARKETING SERVICES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED - AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
-----------------------------
SEPTEMBER 26, SEPTEMBER 27,
1998 1997
------- --------
<S> <C> <C>
OPERATING ACTIVITIES:
Net Income $ 3,961 $ 3,308
Adjustments to Reconcile Net Income to Net Cash Provided by
(Used In) Operating Activities:
Depreciation and Amortization 1,059 666
Provision for Uncollectible Accounts and Sales Returns (522) 865
Provision for Markdown of Inventory 2,708 1,819
Deferred Income Taxes (333) 864
Changes in Assets And Liabilities:
Increase in Accounts Receivable - Trade (6,458) (3,704)
(Increase) Decrease in Vendor and Other Receivables (2,254) 721
Increase in Inventories (31,539) (2,682)
Increase Prepaid Expenses And Other Assets (192) (407)
Increase in Accounts Payable 21,551 7,887
Increase in Accrued Liabilities 2,464 200
Increase (Decrease) in Income Taxes Payable 923 (62)
--------- ---------
Net Cash Provided by (Used In) Operating Activities (8,632) 9,475
--------- ---------
INVESTING ACTIVITIES:
Purchase/Disposal of Property and Equipment, Net (1,734) (1,374)
Purchase of Investments, Available-For-Sale (28,606) (5,533)
Sale and Redemption of Investments, Available for Sale 27,401 5,233
Net Cash Provided by (Used In) Investing Activities (2,939) (1,674)
--------- ---------
FINANCING ACTIVITIES:
Proceeds from Exercise of Options and Related Tax Benefits 203 288
Purchase of Treasury Stock -- (90)
Common Stock Dividend (281) --
--------- ---------
Net Cash Provided by (Used In) Financing Activities (78) 198
--------- ---------
EFFECT OF EXCHANGE RATE CHANGES ON CASH 63 7
--------- ---------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (11,586) 8,006
CASH AND CASH EQUIVALENTS, Beginning of Period 28,982 13,592
--------- ---------
CASH AND CASH EQUIVALENTS, End of Period $ 17,396 $ 21,598
--------- ---------
--------- ---------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED STATEMENTS.
5
<PAGE>
ADVANCED MARKETING SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION
The financial statements presented herein as of and for the three and six
months ended September 26, 1998 and September 27, 1997 have been prepared in
accordance with generally accepted accounting principles and with
instructions to Form 10-Q. These financial statements have not been examined
by independent public accountants, but include all adjustments (consisting of
normal recurring adjustments) which are, in the opinion of Management,
necessary for a fair presentation of the financial condition, results of
operations and cash flows for such periods.
The accompanying consolidated financial statements include the accounts of
the Company and its wholly-owned subsidiaries. All significant intercompany
accounts and transactions have been eliminated.
Certain information and footnote disclosures normally included in financial
statements in accordance with generally accepted accounting principles have
been omitted pursuant to requirements of the Securities and Exchange
Commission. Management believes that the disclosures included in the
accompanying interim financial statements and footnotes are adequate to make
the information not misleading. For further information, refer to the
consolidated financial statements and notes thereto included in the Company's
Annual Report on Form 10-K for the fiscal year ended March 31, 1998.
The results of operations for the three and six month periods ended September
26, 1998 are not necessarily indicative of the results to be expected for the
fiscal year ending March 31, 1999. Net sales in the Company's third fiscal
quarter have historically been, and are expected to be, significantly greater
than in any other quarter of the fiscal year due to increased demand during
the holiday season.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
2. INTERIM ACCOUNTING PERIODS
In accordance with wholesale distribution industry practice, net sales and
cost of goods sold for interim periods are cut off on the Saturday nearest to
the end of the calendar month. The cut-off for the fourth fiscal quarter is
March 31. This practice may result in differences in the number of business
days for which sales and cost of goods sold are recorded both as to
quarter-to-quarter comparisons, and as to comparisons of quarters between
years.
6
<PAGE>
3. INVESTMENTS, AVAILABLE-FOR-SALE
"Investments, available-for-sale" consist principally of highly rated
corporate and municipal bonds. The cost and estimated fair market value of
investments at September 26, 1998, March 31, 1998 and September 27, 1997 are
as follows (in thousands):
<TABLE>
<CAPTION>
September 26, 1998
---------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
Debt Securities Issued by States of The U.S.
And Political Subdivisions of The States $ 9,265 $ 83 $ -- $ 9,348
---------- ---------- ---------- ---------
---------- ---------- ---------- ---------
March 31, 1998
---------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---------- ---------- ---------- ---------
- -
Debt Securities Issued by States of The U.S.
And Political Subdivisions of The States $ 8,060 $ 8 $ -- $ 8,068
---------- ---------- ---------- ---------
---------- ---------- ---------- ---------
September 27, 1997
---------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---------- ---------- ---------- ---------
Debt Securities Issued by States of The U.S. And
Political Subdivisions of The States $ 11,531 $ 51 $ -- $ 11,582
---------- ---------- ---------- ---------
---------- ---------- ---------- ---------
</TABLE>
As of September 26, 1998, investments in debt securities issued by States of
the U.S. and political subdivisions of the States in the amount of $7,218,000
are scheduled to mature within one year and $2,130,000 is scheduled to mature
within two years.
Proceeds from the sale of investments aggregated $2,142,000 for the quarter
ended September 26, 1998. There was a loss of approximately $2,000 realized
on these sales. There were no sales of investments in the quarter ended
September 27, 1997. The Company uses the specific identification method in
determining cost on these investments. The net increase in unrealized gain on
investments was approximately $30,000 for the quarter ended September 26,
1998. The net increase in unrealized gain on investments for the quarter
ended September 27, 1997 was approximately $4,000.
4. SALES RETURNS
In accordance with industry practice, a significant portion of the Company's
products are sold to customers with the right of return. The Company has
provided allowances of $1,875,000 as of September 26, 1998, $2,334,000 as of
March 31, 1998 and $1,389,000 as of September 27, 1997 for the gross profit
effect of estimated future sales returns.
7
<PAGE>
5. INVENTORIES
Inventories consist primarily of books and prerecorded audio and video
cassettes purchased for resale and are stated at the lower of cost (first-in,
first-out) or market.
6. LINE OF CREDIT
The Company had available at September 26, 1998 an unsecured bank line of
credit with a maximum borrowing limit of $10 million. The interest rate on
bank borrowings is based on the prime rate and "Libor" rates. The line of
credit expires July 31, 2000. As of September 26, 1998, and September 27,
1997, there were no outstanding borrowings on the line of credit.
7. INCOME TAXES
The Company provides currently for taxes on income regardless of when such
taxes are payable. Deferred income taxes result from temporary differences in
the recognition of income and expense for tax and financial reporting
purposes. Income taxes paid in the six months ended September 26, 1998
totaled $ 1,666,000. Income taxes paid during the same period of the previous
year totaled $ 1,043,000.
8. PER SHARE INFORMATION
Basic earnings per share information is based on the weighted average number
of common shares and diluted earnings per share includes common share
equivalents outstanding during the periods. The effects of all anti-dilutive
common share equivalents are excluded from the calculation of earnings per
share. The Company's only potential dilutive common share equivalents are
stock options.
In February 1997, the Financial Accounting Standards Board issued SFAS No.
128 "Earnings Per Share", which has been adopted by the Company. The
statement specifies the computation, presentation and disclosure requirements
for earnings per share ("EPS"), and is effective for periods ending after
December 15, 1997. Prior year per share information is presented in
accordance with the statement.
9. EMPLOYEE STOCK OPTION PLAN
Nonqualified options to purchase an aggregate of 574,750 shares of common
stock were outstanding as of September 26, 1998. The outstanding options were
at prices ranging from $4.25 to $14.66 per share.
10. RECENT ACCOUNTING PRONOUNCEMENTS
SFAS No. 130, "Reporting Comprehensive Income," was issued in June 1997 and
establishes standards for reporting and display of comprehensive income and
its components (revenue, expenses, gains and losses) in a full set of
general-purpose financial statements. The Company adopted SFAS No. 130 in its
first quarter of fiscal year 1999.
SFAS No. 131, "Disclosure about Segments of an Enterprise and Related
Information," which, based on the management approach to segment reporting,
establishes requirements to report entity-wide disclosures about products and
services, major customers, and material countries in which the entity holds
assets and reports revenue. SFAS No. 131 requires limited segment data on a
quarterly basis. The Company will adopt SFAS No. 131 for its fiscal year
ended March 31,1999.
8
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
A. RESULTS OF OPERATIONS
THREE MONTH PERIODS ENDED SEPTEMBER 26, 1998 AND SEPTEMBER 27, 1997:
During the three months ended September 26, 1998, the Company reported net
income of $2,310,000, or $.40 per diluted share, compared with a net income
of $1,893,000, or $.33 per diluted share, for the corresponding quarter of
the previous fiscal year.
Net sales for the quarter ended September 26, 1998 increased 16 percent to
$116,054,000 compared to $99,806,000 in the previous fiscal year's second
quarter. The increase in quarterly net sales reflects the increases in gross
shipments to core customers primarily in the bestseller and computer book
categories as well as additional sales from the Company's U.K. subsidiary,
Aura Books, PLC, acquired in March 1998.
During the quarter ended September 26, 1998, gross profit increased 31
percent to $13,250,000 from $10,097,000 in the second quarter of the previous
fiscal year. Gross profit as a percentage of net sales increased to 11.4
percent from 10.1 percent in the same period last fiscal year. This increase
was due to higher income from publisher incentive programs and increased
sales from international subsidiaries of Advanced Marketing Services which
typically achieve higher gross margins while at significantly higher
distribution and administrative expense levels.
Distribution and administrative expenses for the quarter ended September 26,
1998 increased to $9,652,000 and represented 8.3 percent of net sales
compared to $7,351,000, or 7.4 percent of net sales, in the same quarter of
the previous fiscal year. This increase primarily reflects the addition of
Aura Books, PLC.
Interest and dividend income decreased to $147,000 in the second quarter of
fiscal 1999 from $307,000 in the corresponding period of the previous fiscal
year as a result of reduced investment balances to fund the Company's
acquisition of Aura Books, PLC.
SIX MONTH PERIODS ENDED SEPTEMBER 26, 1998 AND SEPTEMBER 27, 1997:
During the six months ended September 26, 1998, the Company reported net
income of $3,961,000, or $.68 per diluted share, compared with net income of
$3,308,000, or $.59 per diluted share, for the first six months of the prior
fiscal year.
Net sales for the first six months of fiscal 1999 increased 17 percent to
$212,864,000 from $181,886,000 in the same period of the prior fiscal year.
This increase was primarily due to increases in gross shipments within the
bestseller and computer book categories to core customers as well as
additional sales from the Company's U.K. subsidiary, Aura Books, PLC,
acquired in March 1998.
During the first six months of fiscal 1999, gross profit increased 27 percent
to $25,131,000 from $19,799,000 in the first six months of the previous
fiscal year. Gross profit as a percentage of net sales increased to 11.8
percent from 10.9 percent in the same period in the last fiscal year. This
increase was
9
<PAGE>
primarily due to higher income from publisher incentive programs and
increased sales from international subsidiaries of Advanced Marketing
Services, which typically achieve higher gross margins while at significantly
higher distribution and administrative expense levels.
Distribution and administrative expenses for the six months ended September
26, 1998 increased 26 percent to $19,140,000 and represented 9.0 percent of
net sales compared to $15,166,000, or 8.3 percent of net sales, in the same
period of the previous fiscal year. The increase primarily reflects the
addition of Aura Books, PLC.
Interest and dividend income decreased to $461,000 in the six month period
ended September 26, 1998 from $660,000 in the corresponding period of the
previous fiscal year as a result of reduced investment balances to fund the
Company's acquisition of Aura Books, PLC.
B. LIQUIDITY AND SOURCES OF CAPITAL
For the six months ended September 26, 1998, $8,632,000 of net cash was used
by operating activities, primarily as a result of an increased net investment
in inventory. Net cash provided by operating activities in the same period of
the prior year was $9,475,000. The Company's cash and investments at
September 26, 1998 decreased by $6,436,000 compared to September 27, 1997
primarily due to increases in accounts receivable and the acquisition of Aura
Books, PLC. Trade accounts receivable at September 26, 1998 increased
$14,337,000 compared to September 27, 1997 primarily due to increased sales
during the month of September 1998. Trade accounts receivable at September
26, 1998 increased $9,084,000 compared to March 31, 1998 primarily due to the
seasonal increase in sales. Inventories at September 26, 1998 increased
$33,839,000 compared to September 27, 1997 and increased $27,033,000 compared
to March 31, 1998 due, in part, to increased offerings from publishers in the
bestseller category and a broader base of customers domestically and
internationally. Accounts payable at September 26, 1998 increased $36,243,000
compared to September 27, 1997 due to increased purchases of inventory.
Accounts payable at September 26, 1998 increased $21,464,000 compared to
March 31, 1998 due to increased purchases to support expected seasonal
increases in third quarter sales.
Working capital was $57,341,000 as of September 26, 1998, which increased
from the September 27, 1997 balance of $52,376,000 and from the March 31,
1998 balance of $56,118,000. The increase compared to September 27, 1997 is
primarily a result of higher inventory levels in response to increased
publisher offerings in the bestseller category. The increase compared to
March 31, 1998 is primarily a result of higher inventory levels in
preparation for the Company's historically higher volume third quarter.
The Company had available at September 26, 1998 an unsecured bank line of
credit with a maximum borrowing limit of $10 million. The interest rate on
bank borrowings is based on the prime rate and "Libor" rates. The line of
credit expires July 31, 2000. As of September 26, 1998 and September 27,
1997, there were no outstanding borrowings on the line of credit.
The Company believes that its existing working capital, cash flows from
operations, trade credit traditionally available from its vendors and its $10
million line of credit will be sufficient to finance its current and
anticipated level of operations.
10
<PAGE>
C. IMPACT OF YEAR 2000
During fiscal 1998, the Company developed a plan to address anticipated Year
2000 issues in connection with its data processing and other activities,
including non-information technology based systems. It is currently estimated
that the net cost for review, analysis, modification and testing of existing
computer programs for both internal and external software will be
approximately $600,000. The Company has incurred approximately 75 percent of
such expenses through the quarter ended September 26, 1998 and it is
anticipated that the remaining portion of the estimated cost will be incurred
during fiscal 1999. The Company believes that the Year 2000 project will be
completed as planned and on budget. The Company budgeted for such Year 2000
compliance related work in its fiscal 1999 budget and has expensed these
costs as they were incurred. Due to the fact that the Company has primarily
employed outside consultants for Year 2000 related work, there has not been
any deferral of other information technology related projects nor has there
been a requirement to hire additional personnel solely for Year 2000
compliance issues. In contemplation of the possibility that the Company's
vendors and customers may experience Year 2000 related difficulties that may
effect the Company's operations, a committee of information technology and
other departmental managers has been formed to consider and develop a
contingency plan. Although, based on a review of its data processing,
operating, and other computer based systems, the Company does not currently
believe that it will experience any significant adverse effects or material
unbudgeted costs resulting therefrom, there can be no assurance in that
regard.
The failure to correct a material Year 2000 problem could result in an
interruption in or a failure of certain normal activities or operations. Such
interruptions or failures could materially and adversely affect the Company's
results of operations, liquidity and financial condition. Because there is
general uncertainty about the Year 2000 problem, including uncertainty about
the Year 2000 readiness of suppliers and customers, it is not possible to
predict whether Year 2000 problems will occur or what consequences such
problems will have on results of operations, liquidity or financial
condition. However, the Company's plan to address Year 2000 issues is
intended to minimize, to the extent feasible, the possibility of
interruptions of normal operations. There can, however, be no assurance that
the Company will be successful in doing so.
D. STATEMENT OF PURPOSE OF THE "SAFE HARBOR" PROVISIONS OF THE PRIVATE
SECURITITES LITIGATION REFORM ACT OF 1995
In December 1995, the Private Securities Litigation Reform Act of 1995 (the
"Act") was enacted. The Act contains amendments to the Securities Act of 1933
and the Securities Exchange Act of 1934 which provide protection from
liability in private lawsuits for "forward-looking" statements made by
persons specified in the Act. The Company desires to take advantage of the
"safe harbor" provisions of the Act.
The Company wishes to caution readers that, with the exception of historical
matters, the matters discussed in this Quarterly Report on Form 10-Q are
forward-looking statements that involve risks and uncertainties, including
but not limited to factors related to the highly competitive nature of the
publishing industry as well as the warehouse club and retail industries and
their sensitivity to changes in general economic conditions, the Company's
concentration of sales and credit risk with two customers, the Company's
ability to impact customer return rates, continued successful results from
the VMI program, currency and other risks related to foreign operations, the
Company's expansion plans, the results of financing efforts, risks and
uncertainties associated with the failure of the Company or its suppliers or
11
<PAGE>
customers to be Year 2000 compliant with regard to its computer and other
systems and other factors discussed in the Company's other filings with the
Securities and Exchange Commission. Such factors could affect the Company's
actual results during fiscal 1999 and beyond and cause such results to differ
materially from those expressed in any forward-looking statement made by or
on behalf of the Company.
PART II. OTHER INFORMATION
ITEMS 1-5.
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) The following exhibits are included herein or incorporate by reference:
(11.0) Statement re Computation of Per Share Earnings
(27.0) Financial Data Schedule
(b) No reports on Form 8-K were filed for the three months ended
September 26, 1998.
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.
ADVANCED MARKETING SERVICES, INC.
REGISTRANT
November 6, 1998 By: /s/ MICHAEL M. NICITA
- -------------------- ---------------------------------
Date Michael M. Nicita
Chief Executive Officer
(Principal Executive Officer,
Financial and Accounting Officer)
12
<PAGE>
EXHIBIT 11.0
ADVANCED MARKETING SERVICES, INC.
STATEMENT RE COMPUTATION OF PER SHARE EARNINGS
(UNAUDITED - AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
----------------------------- -----------------------------
SEPTEMBER 26, SEPTEMBER 27, SEPTEMBER 26, SEPTEMBER 27,
1998 1997 1998 1997
------- ------- ------- -------
<S> <C> <C> <C> <C>
Net Income $2,310 $1,893 $3,961 $3,308
------- ------- ------- -------
Weighted Average Common and Common Share
Equivalents:
Weighted Average Common Shares Outstanding 5,630 5,543 5,621 5,531
Weighted Average Common Share
Equivalents-Dilutive Stock Options:
Basic -- -- -- --
------- ------- ------- -------
Diluted 157 129 168 121
------- ------- ------- -------
Total Weighted Average Common and Common
Equivalent Shares:
Basic 5,630 5,543 5,621 5,531
------- ------- ------- -------
Diluted 5,787 5,672 5,789 5,652
------- ------- ------- -------
Net Income Per Common and Common Share Equivalent:
Basic $ .41 $ .34 $ .70 $ .60
------- ------- ------- -------
------- ------- ------- -------
Diluted $ .40 $ .33 $ .68 $ .59
------- ------- ------- -------
------- ------- ------- -------
</TABLE>
COMMON SHARE EQUIVALENTS (FOR AMS OUTSTANDING STOCK OPTIONS) ARE EXCLUDED FROM
EARNINGS PER SHARE CALCULATIONS WHEN ANTIDILUTIVE.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THE COMPANY'S CONSOLIDATED FINANCIAL STATEMENTS OF INCOME AND CONSOLIDATED
BALANCE SHEETS
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAR-31-1998
<PERIOD-START> APR-01-1998
<PERIOD-END> SEP-26-1998
<CASH> 17,396
<SECURITIES> 7,218
<RECEIVABLES> 70,749
<ALLOWANCES> 3,288
<INVENTORY> 126,462
<CURRENT-ASSETS> 233,046
<PP&E> 12,839
<DEPRECIATION> 7,238
<TOTAL-ASSETS> 247,690
<CURRENT-LIABILITIES> 175,705
<BONDS> 0
0
0
<COMMON> 6
<OTHER-SE> 71,979
<TOTAL-LIABILITY-AND-EQUITY> 247,690
<SALES> 212,864
<TOTAL-REVENUES> 212,864
<CGS> 187,733
<TOTAL-COSTS> 187,733
<OTHER-EXPENSES> 19,140
<LOSS-PROVISION> (1)
<INTEREST-EXPENSE> 131
<INCOME-PRETAX> 6,452
<INCOME-TAX> 2,491
<INCOME-CONTINUING> 3,961
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,961
<EPS-PRIMARY> .70
<EPS-DILUTED> .68
</TABLE>
