<PAGE>
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 JANUARY 1, 2000
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
SAN DIEGO, CALIFORNIA 92121
(Address of principal executive offices)
(Zip Code)
(858) 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 December
31, 1999 was 12,809,495.
<PAGE>
ADVANCED MARKETING SERVICES, INC.
INDEX TO FORM 10-Q
January 1, 2000
<TABLE>
<CAPTION>
Page
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<S> <C>
PART I. FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Balance Sheets (Unaudited).................................................................3
Consolidated Statements of Income and Comprehensive Income (Unaudited)..................................4
Consolidated Statements of Cash Flows (Unaudited).......................................................5
Notes to Consolidated Financial Statements (Unaudited)..............................................6 - 9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS...............................................................10 - 12
PART II. OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS .....................................................................................13
ITEM 2 - CHANGES IN SECURITIES .................................................................................13
ITEM 3 - DEFAULTS UPON SENIOR SECURITIES .......................................................................13
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS ...................................................13
ITEM 5 - OTHER INFORMATION .....................................................................................13
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K ......................................................................13
SIGNATURES......................................................................................................13
</TABLE>
2
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (See Note 1 for Basis of Presentation)
ADVANCED MARKETING SERVICES, INC.
CONSOLIDATED BALANCE SHEETS
(AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
JANUARY 1, MARCH 31, DECEMBER 26,
2000 1999 1998
--------- --------- --------
(UNAUDITED) (NOTE) (UNAUDITED)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash And Cash Equivalents $ 55,761 $ 27,189 $ 35,080
Investments, Available-For-Sale 4,654 4,653 3,509
Accounts Receivable - Trade, Net of Allowances for Uncollectible Accounts and
Sales Returns of $4,587 at January 1, 2000, $3,674 at March 31, 1999 and
$3,872 at December 26, 1998 123,858 74,179 103,770
Vendor and Other Receivables 2,188 3,739 4,665
Inventories, Net 126,175 106,060 105,691
Deferred Income Taxes 6,418 5,997 5,874
Prepaid Expenses 1,796 1,459 1,798
--------- --------- ---------
TOTAL CURRENT ASSETS 320,850 223,276 260,387
--------- --------- ---------
PROPERTY AND EQUIPMENT, AT COST 18,077 15,311 15,314
Less: Accumulated Depreciation and Amortization 9,608 8,721 9,191
--------- --------- ---------
Net Property And Equipment 8,469 6,590 6,123
--------- --------- ---------
Investments, Available-For-Sale 17 1,214 --
Goodwill, Net and Other Assets 9,224 7,316 6,748
--------- --------- ---------
TOTAL ASSETS $ 338,560 $ 238,396 $ 273,258
========= ========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts Payable $ 228,925 $ 146,972 $ 179,029
Accrued Liabilities 10,788 10,033 11,379
Income Taxes Payable 5,072 989 4,111
--------- --------- ---------
TOTAL CURRENT LIABILITIES 244,785 157,994 194,519
--------- --------- ---------
STOCKHOLDERS' EQUITY:
Common Stock, $.001 Par Value, Authorized 20,000,000 Shares, Issued
14,606,000 Shares at January 1, 2000, 14,358,000 Shares at March 31, 1999
and 14,320,000 Shares at December 26, 1998 13 13 13
Additional Paid In Capital 29,174 27,760 27,553
Retained Earnings 68,819 54,664 53,100
Cumulative Other Comprehensive Income 39 85 193
Less: Treasury Stock, 1,797,000 shares at January 1, 2000,
1,614,000 shares at March 31, 1999 and December 26, 1998, at Cost (4,270) (2,120) (2,120)
--------- --------- ---------
TOTAL STOCKHOLDERS' EQUITY 93,775 80,402 78,739
--------- --------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 338,560 $ 238,396 $ 273,258
========= ========= =========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED BALANCE
SHEETS.
NOTE: THE BALANCE SHEET AT MARCH 31, 1999 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 AND COMPREHENSIVE INCOME
(UNAUDITED - AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
---------------------------- ---------------------------
JANUARY 1, DECEMBER 26, JANUARY 1, DECEMBER 26,
2000 1998 2000 1998
--------- ----------- --------- -----------
<S> <C> <C> <C> <C>
NET SALES $ 223,622 $ 168,183 $ 499,642 $ 381,047
Cost Of Goods Sold 193,319 145,749 437,080 333,482
--------- ----------- --------- -----------
GROSS PROFIT 30,303 22,434 62,562 47,565
Distribution and Administrative Expenses 16,185 11,519 40,070 30,659
--------- ----------- --------- -----------
INCOME FROM OPERATIONS 14,118 10,915 22,492 16,906
Interest and Dividend Income, Net 756 345 1,453 806
INCOME BEFORE PROVISION FOR INCOME TAXES AND MINORITY
INTEREST INCOME 14,874 11,260 23,945 17,712
--------- ----------- --------- -----------
Provision for Income Taxes 5,875 4,417 9,458 6,908
--------- ----------- --------- -----------
NET INCOME BEFORE MINORITY INTEREST INCOME 8,999 6,843 14,487 10,804
Minority Interest Income, Net 181 -- 181 --
--------- ----------- --------- -----------
NET INCOME $ 9,180 $ 6,843 $ 14,668 $ 10,804
========= =========== ========= ===========
COMPONENTS OF COMPREHENSIVE INCOME:
Foreign Currency Translation Adjustments 1 (82) (40) 197
Unrealized Gain (Loss) on Investments 3 (78) (6) (3)
--------- ----------- --------- -----------
COMPREHENSIVE INCOME $ 9,184 $ 6,683 $ 14,622 $ 10,998
========= =========== ========= ===========
NET INCOME PER SHARE:
Basic $ .72 $ .54 $ 1.14 $ .85
========= =========== ========= ===========
Diluted $ .69 $ .53 $ 1.10 $ .83
========= =========== ========= ===========
WEIGHTED AVERAGE SHARES USED IN
CALCULATION:
Basic 12,836 12,690 12,830 12,662
========= =========== ========= ===========
Diluted 13,324 13,035 13,300 13,016
========= =========== ========= ===========
</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>
NINE MONTHS ENDED
------------------------------
JANUARY 1, DECEMBER 26,
2000 1998
---------- ------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net Income $ 14,668 $ 10,804
Adjustments to Reconcile Net Income to Net Cash Provided by
Operating Activities:
Minority Interest Income, Net (181) --
Depreciation and Amortization 1,997 1,619
Provision for Uncollectible Accounts and Sales Returns 1,235 341
Provision for Markdown of Inventory 2,087 4,308
Deferred Income Taxes (421) (952)
Changes in Assets And Liabilities:
(Increase) in Accounts Receivable - Trade (51,352) (45,435)
(Increase) Decrease in Vendor and Other Receivables 1,472 (2,407)
(Increase) in Inventories (22,804) (9,334)
(Increase) Other Assets (2,064) (469)
Increase in Accounts Payable 82,997 38,744
Increase in Accrued Liabilities 791 3,253
Increase in Income Taxes Payable 4,076 3,963
---------- ------------
Net Cash Provided by Operating Activities 32,501 4,435
---------- ------------
INVESTING ACTIVITIES:
Purchase of Property and Equipment, Net (3,879) (2,809)
Purchase of Investments, Available-For-Sale (57,140) (32,006)
Sale and Redemption of Investments, Available-For-Sale 58,330 36,562
---------- ------------
Net Cash Provided by (Used In) Investing Activities (2,689) 1,747
---------- ------------
FINANCING ACTIVITIES:
Proceeds from Exercise of Options and Related Tax Benefits 1,414 415
Purchase of Treasury Stock (2,150) --
Dividends Paid (513) (422)
---------- ------------
Net Cash Used In Financing Activities (1,249) (7)
---------- ------------
EFFECT OF EXCHANGE RATE CHANGES ON CASH 9 (77)
---------- ------------
INCREASE IN CASH AND CASH EQUIVALENTS 28,572 6,098
CASH AND CASH EQUIVALENTS, Beginning of Period 27,189 28,982
---------- ------------
CASH AND CASH EQUIVALENTS, End of Period $ 55,761 $ 35,080
========== ============
</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 consolidated financial statements presented herein as of and for the three
and nine months ended January 1, 2000 and December 26, 1998 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 financial statements and notes
thereto included in the Company's Annual Report on Form 10-K for the fiscal year
ended March 31, 1999.
The results of operations for the three and nine month periods ended January 1,
2000 are not necessarily indicative of the results to be expected for the fiscal
year ending March 31, 2000. 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.
The first quarter of the current fiscal year included an additional four days of
net sales compared to the first quarter of the prior fiscal year (See
Management's Discussion and Analysis of Financial Condition in Item 2 of this
Form 10-Q).
6
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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
January 1, 2000, March 31, 1999 and December 26, 1998 are as follows (in
thousands):
<TABLE>
<CAPTION>
January 1, 2000
------------------------------------------------------------
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 $ 4,670 $ 2 $ 1 $ 4,671
========= ========== ========== =========
</TABLE>
<TABLE>
<CAPTION>
March 31, 1999
------------------------------------------------------------
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 $ 5,860 $ 10 $ 3 $ 5,867
========= ========== ========== =========
</TABLE>
<TABLE>
<CAPTION>
December 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 $ 3,504 $ 8 $ 3 $ 3,509
========= ========== ========== =========
</TABLE>
As of January 1, 2000, investments in debt securities issued by States of the
U.S. and political subdivisions of the States in the amount of $4,654,000 are
scheduled to mature within one year.
There were no proceeds from the sale of investments for the quarter ended
January 1, 2000. Proceeds from the sale of investments totaled $8,152,000 for
the quarter ended December 26, 1998. There was a net gain of approximately
$91,000 realized on these sales. The Company uses the specific identification
method in determining cost on these investments. The net increase in unrealized
gain on investments was approximately $3,000 for the quarter ended January 1,
2000. The net decrease in unrealized gain on investments for the quarter ended
December 26, 1998 was approximately $78,000.
7
<PAGE>
4. SALES RETURNS
In accordance with industry practice, a significant portion of the Company's
product is sold to customers with the right of return. The Company has provided
allowances of $2,953,000 as of January 1, 2000, $2,302,000 as of March 31, 1999
and $2,734,000 as of December 26, 1998 for the gross profit effect of estimated
future sales returns.
5. INVENTORIES
Inventories consist primarily of books and, to a lesser extent, music CD's,
CD-ROMs and prerecorded audio 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 January 1, 2000 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 January 1, 2000, March 31, 1999 and December 26,
1998, 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 in accordance with SFAS No, 109 "Accounting for Income Taxes".
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 nine months ended January 1, 2000 totaled $5,229,000. Income taxes paid
during the same period of the previous year totaled $3,859,000.
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 potentially dilutive
securities outstanding during the periods. The Company's only potentially
dilutive securities are stock options.
On February 15, 1999, the Company effected a three for two stock split to
stockholders of record on February 1, 1999. On January 17, 2000, the Company
effected an additional three for two stock split to stockholders of record on
January 3, 2000. Accordingly, all references to shares and earnings per share
amounts have been restated to reflect the stock splits.
The following financial data summarizes information relating to the per share
computations (in thousands, except per share data):
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
---------------------------------------------------------------
Jan. 1, Dec. 26, Jan. 1, Dec. 26,
2000 1998 2000 1998
<S> <C> <C> <C> <C>
Net Income $ 9,180 $ 6,843 $ 14,668 $ 10,804
======= ======= ======== ========
Weighted Average Common Shares Outstanding 12,836 12,690 12,830 12,662
Basic Earnings Per Share $ .72 $ .54 $ 1.14 $ .85
======= ======= ======== ========
Weighted Average Common Shares Outstanding 12,836 12,690 12,830 12,662
Dilutive Common Stock Options 488 345 470 354
------- ------- -------- --------
Diluted Weighted Average Common Shares 13,324 13,035 13,300 13,016
------- ------- -------- --------
Diluted Earnings Per Share $ .69 $ .53 $ 1.10 $ .83
======= ======= ======== ========
</TABLE>
8
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9. INDUSTRY SEGMENT AND GEOGRAPHICAL DATA
In June 1997, SFAS No. 131, "Disclosure about Segments of an Enterprise and
Related Information," was issued, 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. The Company adopted SFAS No. 131 for
its fiscal year ended March 31, 1999. The Company operates in one industry
segment and in several geographic regions.
Net sales by geographic region are as follows (in thousands):
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
------------------------------------------ --------------------------------------
Jan. 1, 2000 Dec. 26, 1998 Jan. 1, 2000 Dec. 26, 1998
<S> <C> <C> <C> <C>
United States $ 209,451 $ 154,457 $ 467,363 $ 353,494
United Kingdom 13,405 12,717 29,418 25,257
Mexico 766 1,009 2,861 2,296
--------- --------- --------- ---------
$ 223,622 $ 168,183 $ 499,642 $ 381,047
========= ========= ========= =========
</TABLE>
Net identifiable assets of the Company's operations in different geographic
areas are as follows (in thousands):
<TABLE>
<CAPTION>
As of
-----------------------------------------------------------------------
Jan. 1, 2000 March 31, 1999 Dec. 26, 1998
<S> <C> <C> <C>
United States $ 310,341 $ 217,584 $ 247,977
United Kingdom 25,293 19,066 22,826
Mexico 2,926 1,746 2,455
----------- ---------- ----------
$ 338,560 $ 238,396 $ 273,258
=========== ========== ==========
</TABLE>
10. MINORITY INTEREST
On September 17, 1999 the Company purchased 25% of the outstanding stock of
Raincoast Book Distribution Limited, a Canadian book distributor, for
approximately $848,000. In conjunction with the purchase, certain officers of
Raincoast were granted 10-year warrants for the purchase of an aggregate of
31,500 shares of the Company's common stock at $14 per share; provided, however,
that upon exercise of any warrants, the Company will not issue shares of common
stock but rather will pay in cash an amount equal to the excess of the closing
price for the common stock on the day prior to exercise over the exercise price.
These rights expire after ten years from the transaction date. The minority
interest purchased has been accounted for under the equity method and is
included in Other Assets in the Company's consolidated financial statements.
Consistent with the Company's current procedures in accounting for its
international subsidiaries, the Company's share of net income or losses are
recorded one month in arrears.
9
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
A. RESULTS OF OPERATIONS
THREE MONTH PERIODS ENDED JANUARY 1, 2000 AND DECEMBER 26, 1998:
During the three month period ended January 1, 2000, our net income was
$9,180,000, or $0.69 per diluted share, compared with a net income of
$6,843,000, or $0.53 per diluted share, for the corresponding period of the
previous fiscal year.
Net sales for the quarter ended January 1, 2000 increased 33 percent to
$223,622,000 compared to $168,183,000 in the third quarter of the previous
fiscal year. The growth in net sales was primarily due to strong increases in
product shipments within the juvenile and bestseller categories to core
customers, as well as sales to new customers. Customer return rates for the
quarter ended January 1, 2000 decreased to 17 percent compared to 19 percent in
the corresponding quarter of the previous fiscal year. This decrease can be
attributed to the broadening of our customer base, significant increases in
gross product shipments, and our proprietary Vendor Managed Inventory (VMI)
software system.
During the quarter ended January 1, 2000, gross profit increased 35 percent to
$30,303,000 from $22,434,000 in the third quarter of the previous fiscal year.
Gross profit as a percentage of net sales increased to 13.6 percent from 13.3
percent in the same period of the previous fiscal year. This increase was
primarily due to lower markdown expense associated with non-returnable books
purchased by the Company and higher income from publisher incentive programs
offset, in part, by lower margins in the juvenile book category.
Distribution and administrative expenses for the quarter ended January 1, 2000
increased to $16,185,000 and represented 7.2 percent of net sales compared to
$11,519,000, or 6.8 percent of net sales, in the same quarter of the previous
fiscal year. The increase in distribution and administrative expenses is due
primarily to our continuing strategic goal to diversify our customer base and
our commitment to build the infrastructure required to address higher business
levels.
Interest and dividend income increased to $756,000 in the third quarter ended
January 1, 2000 from $345,000 in the same quarter of the previous fiscal year
due primarily to higher cash and investment balances resulting from increased
sales, improved collection of receivables and the timing of certain vendor
payments.
NINE MONTH PERIODS ENDED JANUARY 1, 2000 AND DECEMBER 26, 1998:
During the nine months ended January 1, 2000, our net income was $14,668,000, or
$1.10 per diluted share, compared with net income of $10,804,000 or $0.83 per
diluted share, for the corresponding nine months of the prior fiscal year.
10
<PAGE>
Net sales for the first nine months of fiscal 2000 increased 31 percent to
$499,642,000 from $381,047,000 in the same period of the prior fiscal year. The
first quarter of fiscal 2000 included an additional four days of net sales as
compared to fiscal 1999, which accounted for approximately $7.5 million of net
sales. If the additional four days were excluded, the increase in net sales
would have been 29 percent from the comparable period last year. This increase
was primarily due to increases in gross shipments to core customers, and to a
lesser extent, sales to new customers and increased sales from our international
subsidiaries.
During the first nine months of fiscal 2000, gross profit increased 32 percent
to $62,562,000 from $47,565,000 in the first nine months of the previous fiscal
year. Gross profit as a percentage of net sales was 12.5 percent which was
unchanged from the corresponding period of the previous fiscal year. Lower
markdown expense and higher income from publisher incentive programs were offset
by lower margins in several book categories.
Distribution and administrative expenses for the nine months ended January 1,
2000 increased to $40,070,000 compared to $30,659,000 for the corresponding nine
months of the prior fiscal year. Distribution and administrative expenses for
the first nine months of fiscal 2000 were 8.0 percent of net sales, consistent
with the same period of the previous fiscal year. While distribution and
administrative expenses as a percent of sales remained consistent, increases in
absolute dollar amounts were primarily due to our continuing strategic goal to
diversify our customer base and our commitment to build the infrastructure
required to address higher business levels.
Interest and dividend income increased to $1,453,000 in the nine months ended
January 1, 2000 from $806,000 in the corresponding period of the previous fiscal
year, primarily as a result of higher cash and investment balances resulting
from increased sales, improved collection of receivables and the timing of
certain vendor payments.
B. LIQUIDITY AND SOURCES OF CAPITAL
For the nine months ended January 1, 2000, $32,501,000 of net cash was provided
by operating activities, primarily due to net income, as well as increases in
net working capital components. Net cash provided by operating activities in the
same period of the prior year was $4,435,000. Our cash and investments at
January 1, 2000 increased by $21,843,000 compared to December 26, 1998 primarily
due to net income, improved collection of receivables and the timing of vendor
payments for merchandise for the holiday season. Trade accounts receivable at
January 1, 2000 increased $20,088,000 compared to December 26, 1998 and
increased $49,679,000 compared to March 31, 1999 primarily due to the seasonal
increase in sales to core customers, and to a lesser extent, sales to new
customers. Inventories at January 1, 2000 increased $20,484,000 compared to
December 26, 1998 and $20,115,000 compared to March 31, 1999 due primarily to
increased sales growth and a broader customer base. Accounts payable at January
1, 2000 increased $49,896,000 compared to December 26, 1998 and $81,953,000
compared to March 31, 1999 due to increased purchases to support seasonal
increases in third quarter sales.
Our working capital was $76,065,000 as of January 1, 2000, which increased from
the December 26, 1998 balance of $65,868,000 and from the March 31, 1999 balance
of $65,282,000. These increases are primarily the result of net operating income
for the respective periods offset, in part, by seasonal variations in the
components of working capital as discussed in the preceding paragraph.
11
<PAGE>
At January 1, 2000, we had available 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 January 1, 2000, March 31, 1999, and December 26, 1998, there were
no outstanding borrowings on the line of credit.
We believe that our existing working capital, cash flows from operations, trade
credit traditionally available from our vendors and our $10 million line of
credit will be sufficient to finance our current and anticipated level of
operations. Although we have no commitments to do so at the present time, we may
consider additional strategic acquisitions where deemed appropriate. Such
acquisitions, if any, could affect our liquidity and capital resources.
C. COMPUTER OPERATIONS AND THE YEAR 2000
During fiscal 1998 and fiscal 1999, we developed a plan to address anticipated
Year 2000 issues in connection with our data processing and other activities,
including non-information technology based systems. The cost for review,
analysis, modification and testing of existing computer programs for both
internal and external software approximated $650,000 and was expensed as
incurred. Due to the fact that we primarily employed outside consultants for
Year 2000 remediation related work, there has not been any deferral of other
information technology related projects, nor was there a requirement to hire
additional personnel solely for Year 2000 compliance issues. We have not
experienced any significant Year 2000 problems.
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. We desire to take advantage of the "safe harbor" provisions of the
Act.
We wish to caution readers that, with the exception of historical matters, the
matters discussed in this Quarterly Report 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, our concentration of sales and credit risk with two
customers, our ability to impact customer return rates, continued successful
results from the VMI program, currency and other risks related to foreign
operations, expansion plans, the results of financing efforts, risks and
uncertainties associated with the our failure or our suppliers or customers to
be Year 2000 compliant with regard to computer and other systems, and other
factors discussed in our other filings with the Securities and Exchange
Commission. Such factors could affect our actual results during fiscal 2000 and
beyond and cause such results to differ materially from those expressed in any
forward-looking statement.
12
<PAGE>
PART II. OTHER INFORMATION
ITEMS 1-4.
None
ITEM 5. - OTHER INFORMATION
On October 12, 1999, we announced a stock repurchase program pursuant to which
we may repurchase up to 300,000 shares of common stock. As of the date of this
report on Form 10-Q, we have repurchased 32,250 shares of common stock under the
stock repurchase program. In addition, on October 26, 1999, we also repurchased
150,000 shares of our common stock in a privately negotiated transaction.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) The following exhibits are included herein or incorporate by reference:
(27.0) Financial Data Schedule
(b) None
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
February 14, 2000 By: /s/ Michael M. Nicita
- ----------------- --------------------------------------
Date Michael M. Nicita
Chief Executive Officer and Director
(Principal Executive Officer)
February 14, 2000 By: /s/ Edward J. Leonard
- ------------------ --------------------------------------
Date Edward J. Leonard
Chief Financial Officer
Executive Vice President-Finance
(Principal Financial and Accounting Officer)
13
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S CONSOLIDATED FINANCIAL STATEMENTS OF INCOME AND CONSOLIDATED BALANCE
SHEETS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAR-31-2000
<PERIOD-START> APR-01-1999
<PERIOD-END> JAN-01-2000
<CASH> 55,761
<SECURITIES> 4,654
<RECEIVABLES> 123,858
<ALLOWANCES> 4,587
<INVENTORY> 126,175
<CURRENT-ASSETS> 320,850
<PP&E> 18,077
<DEPRECIATION> 9,608
<TOTAL-ASSETS> 338,560
<CURRENT-LIABILITIES> 244,785
<BONDS> 0
0
0
<COMMON> 10
<OTHER-SE> 93,765
<TOTAL-LIABILITY-AND-EQUITY> 338,560
<SALES> 499,642
<TOTAL-REVENUES> 499,642
<CGS> 437,080
<TOTAL-COSTS> 437,080
<OTHER-EXPENSES> 40,070
<LOSS-PROVISION> 624
<INTEREST-EXPENSE> 109
<INCOME-PRETAX> 24,244
<INCOME-TAX> 9,576
<INCOME-CONTINUING> 14,668
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 14,668
<EPS-BASIC> 1.14
<EPS-DILUTED> 1.10
</TABLE>
