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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1997
or
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _________________ to _________________
COMMISSION FILE NUMBER 0-25524
HELLO DIRECT, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 94-3043208
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
5893 RUE FERRARI 95138-1858
SAN JOSE, CALIFORNIA (Zip Code)
(Address of principal executive offices)
Registrant's telephone number, including area code: (408) 972-1990
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 at
Class April 30, 1997
----- --------------
Common Stock, Par Value $.001 5,030,531
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HELLO DIRECT, INC.
FORM 10-Q QUARTERLY REPORT
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION
Item 1. -- Financial Statements
<TABLE>
<CAPTION>
<S> <C>
Condensed Balance Sheets as of March 31, 1997 and December 31, 1996... 3
Condensed Statements of Operations for the Three Months Ended
March 31, 1997 and 1996............................................... 4
Condensed Statements of Cash Flows for the Three Months Ended
March 31, 1997 and 1996............................................... 5
Notes to Condensed Financial Statements............................... 6
Item 2. -- Management's Discussion and Analysis of Financial
Condition and Results of Operations
Results of Operations................................................. 7
Liquidity and Capital Resources....................................... 8
Additional Factors affecting Future Performance....................... 9
PART II - OTHER INFORMATION
Items 1 through 5 are not applicable with respect to the current reporting
period.
Item 6. - Exhibits and Reports on Form 8-K....................................... 12
Signatures....................................................................... 13
</TABLE>
2
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Item 1. -- Financial Statements
HELLO DIRECT, INC.
Condensed Balance Sheets
March 31, December 31,
1997 1996
----------- -----------
ASSETS
Current assets:
Cash and cash equivalents $ 1,538,000 $ 2,492,000
Short-term investments 4,107,000 6,007,000
Trade accounts receivable, less allowance
for returns and doubtful accounts. 6,013,000 4,852,000
Inventories 5,948,000 5,287,000
Deferred tax assets 531,000 628,000
Other current assets 1,183,000 1,339,000
----------- -----------
Total current assets 19,320,000 20,605,000
Notes receivable 4,784,000 3,497,000
Property and equipment, net 4,848,000 3,792,000
Long-term deferred tax assets 968,000 1,072,000
----------- -----------
Total assets $29,920,000 $28,966,000
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Capital lease obligation $ 10,000 $ 20,000
Accounts payable 4,171,000 3,839,000
Accrued expenses 701,000 464,000
----------- -----------
Total current liabilities 4,882,000 4,323,000
Stockholders' equity:
Common stock 5,000 5,000
Additional paid-in capital 27,902,000 27,807,000
Accumulated deficit (2,424,000) (2,724,000)
Less treasury stock, at cost (445,000) (445,000)
----------- -----------
Total stockholders' equity 25,038,000 24,643,000
----------- -----------
Total liabilities and stockholders' equity $29,920,000 $28,966,000
=========== ===========
See accompanying notes to condensed financial statements.
3
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HELLO DIRECT, INC.
Condensed Statements of Operations
For the Three Months Ended
March 31, 1997 and 1996
Three Months Ended
----------------------------------
March 31,
----------------------------------
1997 1996
------------ ------------
Net sales $ 15,936,000 $ 12,073,000
Cost of goods sold 7,853,000 5,723,000
------------ ------------
Gross profit 8,083,000 6,350,000
Selling, general and administrative
expenses 7,341,000 5,583,000
Product development expenses 410,000 535,000
------------ ------------
Operating income 332,000 232,000
Other income - net 169,000 193,000
------------ ------------
Income before income taxes 501,000 425,000
Income taxes 201,000 170,000
------------ ------------
Net income $ 300,000 $ 255,000
============ ============
Net income per share $ 0.06 $ 0.05
============ ============
Weighted average shares outstanding 5,073,000 5,013 ,000
============ ============
See accompanying notes to condensed financial statement.
4
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HELLO DIRECT, INC.
Condensed Statements of Cash Flows
For the Three Months Ended
March 31, 1997 and 1996
Three Months Ended
March 31,
------------------------
1997 1996
----------- ----------
Cash flows from operating activities:
Net income $ 300,000 $ 255,000
Adjustments to reconcile net income to net cash
used in operating activities:
Depreciation and amortization 258,000 78,000
Deferred income taxes 201,000 171,000
Allowance for returns and doubtful accounts 151,000 22,000
Changes in items affecting operations:
Trade accounts receivable (1,312,000) (935,000)
Inventories (661,000) (424,000)
Other current assets 156,000 (437,000)
Accounts payable and accrued expense 569,000 1,060,000
----------- ----------
Net cash used in operating activities (338,000) (210,000)
----------- ----------
Cash flows from investing activities:
Purchases of property and equipment (1,314,000) (298,000)
Decrease in investments 1,900,000 9,000
Increase in notes receivable (1,287,000) -
----------- ----------
Net cash used in investing activities (701,000) (289,000)
----------- ----------
Cash flows from financing activities:
Payments on capital lease obligations (10,000) (2,000)
Sale of common stock, net 95,000 85,000
----------- ----------
Net cash provided by financing activities 85,000 83,000
----------- ----------
Net decrease in cash and cash equivalents (954,000) (416,000)
Cash and cash equivalents at beginning of period 2,492,000 3,487,000
----------- ----------
Cash and cash equivalents at end of period $ 1,538,000 $3,071,000
=========== ==========
See accompanying notes to condensed financial statements.
5
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HELLO DIRECT, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
1. Interim Financial Statements
In the opinion of the management of Hello Direct, Inc. (the "Company"), the
accompanying unaudited financial statements include all adjustments, consisting
only of normal recurring adjustments necessary to present fairly the financial
information set forth therein.
The condensed financial statements have been prepared by the Company without
audit and are subject to year-end adjustment. Certain information and footnote
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have been condensed or omitted
pursuant to the rules and regulations of the Securities and Exchange Commission.
It is suggested that these interim statements be read in conjunction with the
audited financial statements and notes thereto included in the Company's annual
report (Commission File Number 0-25524) filed on Form 10-K for the fiscal year
ended December 31, 1996.
Results of operations for the three-month period ended March 31, 1997 are not
necessarily indicative of future financial results.
2. Net Income Per Share
Net income per share has been computed using the weighted average number of
common and common equivalent shares outstanding when dilutive.
3. Recent Accounting Pronouncements
The Financial Accounting Standards Board recently issued Statement of Financial
Accounting Standards No. 128, "Earnings Per Share" ("SFAS 128"). SFAS 128
requires the presentation of basic earnings per share ("EPS") and, for companies
with complex capital structures, diluted EPS. SFAS 128 is effective for annual
and interim periods ending after December 15, 1997. The Company has not studied
the potential impact of SFAS 128, thus the effect of implementing this new
standard is not known.
6
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ITEM 2. -- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
This Management's Discussion and Analysis section contains forward-looking
statements that involve risks and uncertainties. The Company's actual results
may differ significantly from the results discussed in the forward-looking
statements. Factors that might cause such a difference include, but are not
limited to, those discussed below and in the Company's reports filed with the
Securities and Exchange Commission including the Company's Annual Report on Form
10-K for the year ended December 31, 1996 (the "Form 10-K"). Readers are
cautioned not to place undue reliance on these forward-looking statements, which
speak only as of the date hereof. Forward-looking statements are identified
with an asterisk (*).
RESULTS OF OPERATIONS
FIRST QUARTER 1997 COMPARED TO FIRST QUARTER 1996
Net Sales. Net sales reflect total sales less a provision for returns. Net
- ---------
sales increased $3,863,000 or 32% to $15,936,000 in the three-month period ended
March 31, 1997, from $12,073,000 for the comparable period in 1996. This
increase was primarily attributable to a 30% increase in the number of catalogs
mailed, to 7.3 million from 5.6 million, and a 5% increase in the average order
size, to $224 from $213. During the quarter, the Company continued to use a 60
page prospecting catalog (introduced Spring 1996) in addition to the full line
catalog of 88 pages which is mailed to the house list.
Gross Profit. Gross profit increased $1,733,000 or 27.3% to $8,083,000 in the
- ------------
three-month period ended March 31, 1997, from the comparable period in 1996.
The gross margin percentage for the three-month period was 50.7% for 1997 versus
52.6% for 1996. This decrease in gross margin was the result of a shift in
product mix toward a larger percentage of branded and private label products
which carry lower gross margins.
Selling, General and Administrative Expenses. Selling, general and
- --------------------------------------------
administrative expenses increased $1,758,000 or 31.5% to $7,341,000 in the
three-month period ended March 31, 1997, from the comparable period in 1996.
The dollar increase for the three month period in 1997 expense compared to 1996
was the result of planned headcount additions to the Company's administrative
management group, product management team, and customer care activities coupled
with the Company's move into its new facility. However, as a percentage of net
sales, these expenses for the three-month period declined to 46.1% in 1997 as
compared to 46.2% for the same three-month period in 1996. A significant portion
of the Company's selling, general and administrative expenses are related to the
production, printing and distribution of its catalog. Recent savings in catalog
production and printing costs contributed to the lower selling, general and
administrative expenses as a percentage of net sales. Any significant increases
in the cost of paper or postage, or deterioration in the response rates to
mailings, would have a material adverse effect on the Company's operating
results.
Product Development Expenses. Product development expenses decreased $125,000
- ----------------------------
or 23.4% to $410,000 for the three month period ended March 31, 1997, from the
comparable period in 1996. As a percentage of net sales, these expenses for the
three-month period were
7
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2.6% for 1997 versus 4.4% for the same three-month period in 1996. The decline
was due to the completion of development of two new products that were
introduced in the October 1996 catalog. It is anticipated these expenses will
fluctuate from time to time based upon the number and character of the products
being developed, however, the Company believes these expenses, as a percentage
of net sales, will be approximately the same for the year ending December 31,
1997, as they were for the year ended December 31, 1996.*
Other Income-net. Other income includes interest income of $168,000 for the
- ----------------
three-month period ended March 31, 1997 versus $197,000 for the comparable
period in 1996. The interest income relates to interest earned on the remaining
proceeds from the Company's initial public offering in April 1995.
Net Income. Net income increased $45,000 or 17.6% to $300,000 in the three-
- ----------
month period ended March 31, 1997, from the comparable period in 1996. This
increase was due to the reasons discussed above.
Quarterly and Seasonal Fluctuations. The Company has experienced in the past
- -----------------------------------
and will experience in the future quarterly variations in net sales and net
income as a result of many factors, including the timing of catalog mailings;
catalog response rates; product mix; the level of selling, general and
administrative expenses; the timing and level of product development expenses;
and the timing and success of new product introductions by the Company or its
competitors./*/ The Company's planned operating expenditures are
based on sales forecasts. If net sales are below expectations in any given
quarter, operating results would be materially adversely affected. Due to the
foregoing factors, it is possible that in some future quarter the Company's
operating results will be below the expectations of public market analysts and
investors. In such event, the price of the Company's Common Stock would likely
be materially adversely affected.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary sources of liquidity have been cash flow from operations,
proceeds from its initial public offering, venture capital equity and debt
financing, and borrowings under its revolving bank line of credit.
Cash used by operating activities during the three-month period ended March 31,
1997, was $338,000. This was the result of $910,000 provided by operations
including net income, depreciation and amortization and other non-cash charges
offset by $1,248,000 of changes in operating assets and liabilities. Cash used
by investing activities for the three month period ended March 31, 1997 was
$701,000, due primarily to purchases of property and equipment of $1,314,000 and
funding of $1,287,000 for the financing of the Company's new facility discussed
below, offset by a decrease of $1,900,000 in short-term investments. Cash
provided by financing
- --------------
* This statement is a forward-looking statement reflecting
current expectations. There can be no assurance that the Company's actual
future performance will meet the Company's current expectations due to factors
described in "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and "Additional Factors Affecting Future Performance"
herein and in the Form 10-K.
8
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activities during the three-month period ended March 31, 1997, was $85,000,
relating primarily to the issuance of common stock pursuant to the Company's
employee stock purchase plan.
Additions to equipment during the three-month period ended March 31, 1997 were
$1,314,000 compared to $298,000 for same period in the prior year. This
increase was anticipated and reflects the Company's investment in its new
facility, a new automated call distribution phone system to support the growth
in sales activity and the tooling requirements for new product introductions.
The Company plans to expend between $2,000,000 and $2,500,000 for capital
equipment for the year ending December 31, 1997./*/
In July 1996, the Company entered into a customized financing arrangement for
the construction of a new corporate headquarters building, call center and
distribution facility intended to serve the Company's long-term expansion needs.
Under the arrangement, the Company committed $5,000,000 in financing for the
construction of a new facility at a fixed interest rate of 7.5% for a period of
12 years. Effective January 1, 1997, the Company entered into a 15-year lease
agreement for the facility. As of March 31, 1997, the Company had advanced
$4,724,000 of the financing commitment. The remaining $276,000 of the financing
commitment was advanced in April 1997. The financing commitment is reflected in
the financial statements as a part of notes receivable.
The Company believes funds generated from operations, together with available
funds remaining from the net proceeds of its initial public offering, will be
sufficient to finance its working capital needs for the foreseeable future./*/
This statement is a forward-looking statement reflecting current expectations.
There can be no assurance that the Company's actual future performance will meet
the Company's current expectations due to factors described in "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
"Additional Factors Affecting Future Performance" herein and in the Form 10-K.
Should the Company require additional funds, it has available though a major
financial institution a $5,000,000 unsecured revolving line of credit at that
institution's prime lending rate. During the three-month period ended March 31,
1997, the Company did not directly borrow against this credit facility.
ADDITIONAL FACTORS AFFECTING FUTURE PERFORMANCE
Approximately 53% of the Company's sales for the three months ended March 31,
1997 were derived from sales of the Company's proprietary products (mainly
telephone headset products) which have a higher gross margin than its other
products. The Company anticipates that these headset products will continue to
account for a significant portion of its net sales and profits in the
foreseeable future./*/ If net sales of the Company's proprietary products were
to decline significantly for any reason, or gross margins on such products were
to decrease significantly for any reason, including competitive pressures or
technological obsolescence, the Company's operating results would be materially
adversely affected.
- -------------
* This statement is a forward-looking statement reflecting current
expectations. There can be no assurance that the Company's actual future
performance will meet the Company's current expectations due to factors
described in "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and "Additional Factors Affecting Future Performance"
herein and in the Form 10-K.
9
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A substantial portion of the Company's purchases of brand name and private label
products are concentrated with a relatively small number of manufacturers.
However, the Company believes that alternate sources of supply are available for
virtually every third-party product it carries. Sales of brand name products
represented approximately 47% of sales in the first quarter of 1997. The
failure of an existing significant supplier to provide products would materially
adversely affect the Company's operating results until it could develop an
alternate source of supply or an alternate product.
All of the Company's proprietary products are manufactured by independent
contractors according to specifications and conditions set by the Company. Each
independent contractor must meet the Company's specifications relating to the
manufacturing process and quality assurance before such contractor is selected
by the Company to manufacture Hello Direct products. The Company's strategy is
to continue using independent contractors to meet manufacturing
requirements./*/ This statement is a forward-looking statement reflecting
current expectations. There can be no assurance that the Company's actual
future performance will meet the Company's current expectations due to factors
described in "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and "Additional Factors Affecting Future Performance"
herein and in the Form 10-K. A substantial portion of the Company's private
label and proprietary products are manufactured by a relatively small number of
manufacturers and most of such products, including all proprietary headset
products, are manufactured by only three sources. To date, the Company has been
able to obtain adequate supplies of these products, although on occasion the
Company has incurred additional delivery costs to air ship products to obtain
inventory in a timely manner. The Company's inability in the future to obtain
sufficient quantities of sole or limited source products, or to develop
alternate sources, would result in shortages of such products, which would have
a material adverse effect on the Company's net sales and operating results.
Substantially all of Hello Direct's proprietary products are manufactured to its
specifications by Seo Won K-Tec, Inc, located in South Korea, Sinoca Enterprises
Co., Ltd., located in Taiwan, and Sinoca Electronics Group, headquartered in
Singapore (plant located in Batam, Indonesia). Each of these manufacturers is a
substantial supplier to the Company and products manufactured by these
manufacturers represented approximately 49% of the Company's sales in the first
quarter of 1997. The Company has no long-term contracts with these manufacturing
sources and competes with other companies for production facilities and import
quota capacity. The Sinoca Electronics Group is currently experiencing financial
difficulties. Accordingly, the Company is in the process of selecting an
alternate contract manufacturing partner for the products manufactured at the
Batam plant./*/
Although the Company believes that it has established close relationships with
its foreign manufacturing sources, the Company's future success will depend in
large measure upon its ability to maintain such relationships. The Company's
business is subject to the risks generally associated with doing business
abroad, such as foreign governmental regulations, political unrest, disruptions
or delays in shipments and changes in economic conditions in countries in which
the Company's manufacturing sources are located. The Company cannot predict the
effect that such factors will have on its business arrangements with foreign
manufacturing sources. If any such
- -------------
* This statement is a forward-looking statement reflecting current
expectations. There can be no assurance that the Company's actual future
performance will meet the Company's current expectations due to factors
described in "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and "Additional Factors Affecting Future Performance"
herein and in the Form 10-K.
10
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factors were to render the conduct of business in a particular country
undesirable or impractical, or if the Company's current foreign manufacturing
sources were to cease doing business with the Company for any reason, the
Company's business and operating results could be adversely affected. Further,
the Company cannot predict whether additional United States quotas, duties,
taxes or other charges or restrictions will be imposed upon the importation of
its products in the future, or what effect any such actions would have on its
business, financial condition and results of operations.
Catalog production, printing and distribution costs represent a significant
portion of the Company's selling, general and administrative costs. Increases
in postal rates, paper and printing costs increase the cost of the Company's
catalog mailings. An increase in postal rates or higher than anticipated paper
costs would have a material adverse effect on the Company's financial position
and results of operations to the extent that the Company is unable to pass such
increase directly on to customers by raising prices or to offset such increase
by implementing more efficient mailing, and delivery systems.
The Company's sales volume is highly dependent on the quantity of catalogs
mailed and timing of those mailings. In the event the Company is unable to
timely obtain and distribute printed catalogs in appropriate quantities, the
Company's financial position and results of operations would be materially
adversely affected.
11
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PART II -- OTHER INFORMATION
Items 1 through 5 are not applicable with respect to the current reporting
period.
Item 6. -- Exhibits and Reports on Form 8-K:
a. Exhibits
10.1+ Contract between Hello Direct, Inc. and R. R. Donnelley & Sons
Company for printing services through spring 2000
11.1 Computation of net income per share.
27.1 Financial Data Schedule
b. Reports on Form 8-K.
No reports on Form 8-K were filed with the Securities and Exchange
Commission during the quarter ended March 31, 1997.
+ Confidential treatment requested for portions of this document.
12
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
as amended, the Registrant has duly caused this report to be signed by on its
behalf by the undersigned thereunto duly authorized.
HELLO DIRECT, INC.
(Registrant)
May 12, 1997 /s/ Raymond E. Nystrom
- ------------ ------------------------------
Date Raymond E. Nystrom
Chief Financial Officer
13
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EXHIBIT INDEX
Exhibit
Number Description of Document
- ------ -----------------------
10.1+ Contract between Hello Direct, Inc. and R. R. Donnelley & Sons
Company for printing services through spring 2000
11.1 Computation of net income per share.
27.1 Financial Data Schedule
+ Confidential treatment requested for portions of this document.
14
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EXHIBIT 10.1
Hello Direct, Inc.
5884 Eden Park Place
San Jose, CA 95138
PROPOSAL FOR CATALOG November 19, 1996
DESCRIPTION
This proposal covers the production of your Catalog Program commencing with
your 1997 Spring Catalog and continuing through completion of all work on your
2000 Spring Catalog. Thereafter, this agreement shall continue from year to
year unless written notice of termination is given by one party to the other
prior to October 1 of any year, such termination to become effective upon
completion of the Spring Catalog of the following year.
Subject to the provisions set forth herein, you engage us, and we shall be
obligated and entitled to do or arrange for all preliminary work, cylinder
making and/or plate making, printing, binding, loading and mailing required for
the production of the catalogs. We agree to perform the work as provided herein
and to furnish all necessary materials and supplies therefor except such as you,
pursuant to the terms hereof, agree to furnish.
Should you decide to publish any additional events during the term of
this agreement, we shall have the right to produce such additional work provided
that our prices are competitive at the time such work becomes available, subject
to the availability of materials and productive capacity.
TRIM SIZE
8" x 10-1/2"
QUANTITY, TRIM SIZE, AND NUMBER OF PAGES
BODY COVER
TITLE PAGES PAGES QUANTITY
971 Cycle Full Line [
Prospect
972 Cycle Full Line
Prospect
*
973 Cycle Full Line
Prospect
974 Cycle Full Line
Prospect ]
- -----------------------
[*] Certain information on this page has been omitted and filed separately
with the Commission. Confidential treatment has been requested with
respect to the omitted portions.
<PAGE>
Hello Direct, Inc. Page 2
Catalog Program November 19, 1996
SPECIFICATIONS AND PRODUCTION SCHEDULE
All work to be performed hereunder shall be in accordance with the
specifications set forth herein, and completed in accordance with a production
schedule which shall be submitted for your approval.
If at any time you desire to make changes in the specifications (including
pages and count) set forth herein or in the production schedule, we will
cooperate with you in putting such changes into effect within a reasonable
period of time, provided such changes do not have a materially adverse effect on
our operations. In the event any such change results in an increase or decrease
in the cost of performing the work, the prices for the work shall be adjusted to
fairly reflect such increase or decrease. In addition, should such change
result in our inability to use any materials on hand or ordered for you in the
production of your work, you will pay us reasonable costs associated with such
materials and their disposition.
OVERTIME
If overtime is required to meet your delivery or quantity requirements, or
if you should change the delivery date, quantity requirements, or any other
specification that necessitates overtime after a production schedule is agreed
upon, we will use our best efforts to make any necessary overtime available and
will charge for such overtime at our then current rates. If overtime is worked
due to our internal scheduling problems arising after a production schedule is
agreed upon, and not caused by your failure to comply with the production
schedule, overtime charges will not be made. No chargeable overtime will be
worked without your prior approval, and in the absence of such approval,
delivery of the work will be made as promptly as practicable consistent with our
then available capacity.
To assist us in providing for your requirements, you shall submit a
forecast by July 1 of each year showing your total requirements for the
subsequent calendar year for work hereunder, during the term of this Agreement,
including the count, number of pages, colors, copies to be bound and delivery
dates for each issue. We shall, within 30 days of receipt of such forecasts,
develop manufacturing schedules for the production of the work based on the
forecasts you furnish. You shall notify us as promptly as practicable of any
significant change in the forecasted requirements. We will make every effort to
schedule and produce all the work described in each forecast; however, our
obligation to produce the work requested shall be limited to the volume we
produced in the previous calendar year period in like page size, configuration,
quantity and timing. Any increases in requirements will be subject to our
ability to obtain materials and schedule the increased work.
PRELIMINARY OPERATIONS
HELLO DIRECT will provide to the Elgin Center color transparencies or
digitally-supplied images for all continuous tone illustrations and Native Quark
Express files for page geometry, black and color type, and all lineart
illustrations (EPS files), rules, etc.
The Elgin Center will produce electronic catalog pages with images derived
from a color image database to be created and maintained by the Elgin Center
according to methods and prices detailed below. Elgin will provide a (one)
digital contract scatter Kodak Approval proof of all images to be digitized in
high resolution. Elgin will also provide one non-contract Canon page Proof
(Iris) with all previously approved continuous tone color images cropped and in
position along with all Quark type and lineart elements in place. Elgin will
provide revisions to color proofs and alterations to Quark files as directed by
HELLO DIRECT additional charges.
PRELIMINARY OPERATIONS(Continued)
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Hello Direct, Inc. Page 3
Catalog Program November 19, 1996
Following final approval of all pages, the Elgin Center will prepare
production press guidance proofs and send digital page files to the printing
plant for cylinder engraving. Any and all late changes/corrections will be made
by the Elgin Center and transmitted to the printing plant as complete revised
pages with related press guidance proofs.
Transparencies will be sent to Elgin with exact or approximate sizing two
weeks prior to the receipt of Quark files to permit separation, approval and
database inclusion. Elgin will maintain and update the image database according
to normally accepted data process industry standards. A low resolution TIFF
file of all stored images will be maintained by Elgin and will be available to
HELLO DIRECT. Detailed schedules will be determined prior to acceptance of
order.
We will store final reproduction medium (film or electronic data file) made
by us and used in the production of your work until the completion of the
initial binding run, (or the sale date if a press-delivered product) after which
film will be destroyed and data files erased unless otherwise agreed to and at
prices to be separately quoted.
Plates and cylinders will not be held after completion of printing unless
confirmed by letter from us. Storage of copy and/or film furnished by you
beyond completion of the work will be additional.
All furnished material will be returned immediately after completion of
production of the event for which such material was used. All packing and
handling of such material will be billed as an extra charge. Such material will
be returned f.o.b. our plant of manufacture.
OWNERSHIP OF FILM, COPY, PLATES, CYLINDERS, ETC.
Copy, electronic data files, and any film furnished by you will be used
solely for your work and will remain your property. Film, prints, reproduction
mediums, plates and cylinders made by us will be used solely for your work but
will remain our property.
PRESSWORK
Your cover pages will be carefully made ready and printed by the web offset
process in our standard four-color process inks. Your body pages will be
carefully made ready and printed by the gravure process in our standard four-
color process inks.
PAPER
We shall supply the following paper(s) or equivalent(s):
Basis 25 x 38 - # Electra Cal 65 which is included in our price at
$[***]/cwt.
Basis 25 x 38 - # Coated Grade #5 which is included in our price at
$[***]/cwt.
We shall notify you of the cost of paper for an event seven (7) days prior
to the last date of change for the paper order for that event.
If before completion of the work hereunder the cost of performance is
increased or decreased as the result of changes in the cost of paper, the prices
stated herein will be adjusted to fairly reflect any such increase or decrease.
- -----------------------
[*] Certain information on this page has been omitted and filed separately
with the Commission. Confidential treatment has been requested with
respect to the omitted portions.
<PAGE>
Hello Direct, Inc. Page 4
Catalog Program November 19, 1996
PAPER(Continued)
Normal delivery of paper is 30 days prior to the "to press date" in the
production schedule. If, in order to insure an adequate supply of paper for the
production of the work, our paper suppliers require earlier than normal delivery
of paper and you consent to such early delivery, an additional [**] percent
([**]%) of the paper price will be charged for each month or fraction thereof
the paper is delivered early. We will make an additional charge reflecting
additional storage costs at our plant or other location(s) and additional
shipping and handling costs associated with such early delivery.
BINDING
We will gather press delivered signatures, along with your furnished
inserts, saddlewire stitch and trim flush three sides for delivery upon
completion f.o.b. our plant of manufacture.
We will mail bound copies with an address label pasted in the position you
request subject to (1) the limitations of the mailing machines to be used for
this work and (2) the mailing specifications of our plant performing the mail
operation.
All address labels and mail sack labels or magnetic tapes for preparation
of mail sack labels as required by our binding plant shall be furnished by you
in compliance with current Donnelley Label Specifications and Graphic
Communications Association Specifications.
Our price is based on mailing from lists of labels or more. Additional
charges will be applied for lists of less than these minimums and/or the use of
peel off labels.
We will address your catalog (and order blank), using our SELECTRONIC(R)
addressing service (with one address up to six lines) to our specifications
which we will submit, bag copies and mail.
You are to furnish ink-jet formatted magnetic tapes that are compatible
with our equipment, in PASS sequence and in accordance with specifications we
will furnish. Any reformatting, coding, combining of lists or other required
work necessary for our use of your furnished tapes, will be charged additional
after your agreement has been obtained for such work. Any double stroking (two
hits of ink) to create bold face type will be additional.
The mailing prices set forth herein are based upon postal regulations and
procedures in effect as of the date hereof which require mandatory Zip-code
sortation. If postal regulations or procedures change so as to affect our cost
for mailing the catalogs, the prices herein shall be revised to fairly reflect
any increase or decrease in such costs. The cost of postage and permits will be
paid by you and you shall be responsible, if necessary, for establishing an
account at the U.S. Post Office with sufficient funds to cover mailing.
Nothing contained herein shall require us to do anything in violation of
United States Postal laws, regulations or procedures.
Any other required labels shall be furnished by you to our specifications.
All copies are for delivery upon completion f.o.b. our plant of
manufacture.
- -----------------------
[*] Certain information on this page has been omitted and filed
separately with the Commission. Confidential treatment has been
requested with respect to the omitted portions.
<PAGE>
Hello Direct, Inc. Page 5
Catalog Program November 19, 1996
FREIGHT
Unless you request otherwise, we will arrange for shipment of your finished
materials from our plant of manufacture. In such event, you shall pay all
distribution charges, and we shall be entitled to retain any brokerage
commissions or other service charges earned by us or our wholly-owned
subsidiaries.
TERMS OF PAYMENT
Net cash [**] days from date of invoice. We shall have the right to
change terms of payment should there be a substantial adverse change in your
credit standing or in the event you do not comply with the terms of these
provisions and our obligation to perform future work will be subject to
reaching mutual agreement on revised terms.
If you delay completion of manufacture beyond the period contemplated by
the production schedule or if partial shipment is made prior to the completion
of the entire quantity, interim billing may be made.
INTEREST AND COLLECTION COSTS
Our obligation to perform work hereunder is subject to prompt payment of
all invoices pursuant to the terms of this and other agreements we may have
with you. Should any invoice issued hereunder become past due, you agree to
pay interest at the rate of [****] percent ([**]%) per month, or the lawful
limit if less, on all amounts past due. Progress billing of interest due or
failure to bill for interest due shall not constitute a waiver of our right to
charge interest on all amounts past due to the date payment is received.
If you fail to pay our invoice in accord with these terms, you agree to
pay all costs of collection, including but not limited to, reasonable
attorneys' fees.
DISPUTES
Should any portion of an invoice become disputed, you agree to pay the
undisputed portion according to its terms and you will notify us promptly of the
dispute. Both parties agree to use their best efforts to resolve the disputed
portion of such invoice within thirty (30) days of learning of the dispute.
CREDIT REVIEW
The above provisions may be reviewed by us and should there be a
substantial adverse change in your credit standing or in the event that you do
not comply with terms of these provisions, we will have the right to change
terms of payment, and our obligation to perform further work will be subject
to reaching mutual agreement on revised terms.
SUBMISSION OF COPY
Submission of copy or film for commencement of production hereunder shall
constitute acceptance by you of the prices and other terms and conditions
contained herein.
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[*] Certain information on this page has been omitted and filed separately
with the Commission. Confidential treatment has been requested with
respect to the omitted portions.
<PAGE>
Hello Direct, Inc. Page 6
Catalog Program November 19, 1996
LIEN ON PROPERTY
As security for payments of any sum due or to become due us under the
terms of this Agreement, we shall have the right, if necessary, to retain
possession of, and shall have a lien on all property owned by you and in our
possession, and all work in process and undelivered work.
BANKRUPTCY
If either party shall be adjudicated a bankrupt, institute voluntary
proceedings for bankruptcy or reorganization, make an assignment for the
benefit of its creditors, apply for or consent to the appointment of a
receiver for it or its property, or admit in writing its inability to pay its
debts as they become due, the other party may terminate this Agreement by
written notice. Any such termination shall not relieve either party from any
accrued obligations hereunder.
OVERRUNS AND UNDERRUNS
Variations in quantity of two (2%) percent more or less than quantities
ordered will constitute acceptable delivery, and the price will be adjusted at
the over/under delivery per thousand copy price. If the work involves more
than one version, the over/under percent for each version shall depend upon
ordered quantity of that version, as separately quoted.
PRICE ADJUSTMENTS
The direct material prices stated in this Agreement are based upon the
costs of materials (except pool paper) as of the date hereof, and will be
adjusted based upon actual changes in these costs. Should any change become
effective after part of the work has been performed, such adjustments shall
apply only to that work produced after such change. Should any volume or trade
discounts be earned on materials, they shall be retained by Donnelley.
The manufacturing prices stated in this Agreement shall be adjusted on
September 1 of each year during the term ("the date of adjustment") as
follows: In August of each year during the term of this Agreement, Donnelley
will calculate the percentage of change in the Consumers Price Index ("the
CPI") from the fifteenth month preceding the date of adjustment to the third
month preceding the date of adjustment. Should this calculation show that
there has been an increase in the CPI, then effective on the date of
adjustment, all of the manufacturing prices shall be increased by [****] percent
([**%]) of the percentage of increase in the CPI. Should this calculation show
that there has been no change in the CPI, or that the CPI has decreased, then
no change shall be made in the manufacturing prices for the next twelve
months. In such event, at the next date of adjustment at which the foregoing
calculation indicates an increase in the CPI, the percentage of change in the
CPI for the purpose of determining the price adjustment hereunder, if any,
will be calculated from the CPI upon which the last adjustment of
manufacturing prices was based. For purposes of this paragraph, the CPI means
the Consumers Price Index (1982(C)84=100), All Urban Wage Earners and Clerical
Workers, U.S. City Average, published monthly by the Bureau of Labor
Statistics, U.S. Department of Labor. If the CPI as defined is revised,
discontinued, or replaced, the calculation described herein shall be made
using the price index with which the Bureau of Labor Statistics replaces it.
- -----------------------
[*] Certain information on this page has been omitted and filed separately
with the Commission. Confidential treatment has been requested with
respect to the omitted portions.
<PAGE>
Hello Direct, Inc. Page 7
Catalog Program November 19, 1996
Any sales, retailers occupation, service occupation, value added or use tax
imposed on account of this transaction will be added as an extra charge.
GOVERNMENTAL, SAFETY OR ENERGY CHANGES
During the term of this Agreement it may become necessary to make changes
in the methods of production or in the equipment used to produce the work
herein in order to: (i) comply with laws or regulations of any governmental
authority, (ii) provide for safe operation, or (iii) provide substitute energy
sources during an energy or utility shortage. In addition, a governmental
authority may impose a monetary charge on the operation of such equipment in
connection with an environmental or energy law or regulation, or a utility
company may drastically increase its rates due to such shortages. Should,
after the date of this Agreement, any such change become necessary and/or such
charge be imposed, the current prices herein shall be adjusted to fairly
reflect any resulting cost.
MATERIALS AND PURCHASED SERVICES
Unless otherwise provided, we will supply the materials (paper, ink,
binding materials, etc.) or purchased services specified herein or their
equivalents. It is understood and agreed that should we be unable to obtain
such materials or services or their equivalents in necessary quantities, the
parties shall select mutually agreeable substitute materials or services.
Should the use of such substitute materials or services increase or decrease
the cost of performing the work, the prices will be adjusted to fairly reflect
any such increase or decrease in cost. The unavailability of materials or
services will not be considered a breach of this Agreement. Should any volume
or trade discounts be earned on materials or services, they will be retained
by us. All scrap and by-products will become our property.
STORAGE
Unless otherwise specified, the prices in this Agreement contain no
storage of paper, other materials, work in process or finished goods beyond
the production schedule span. If you delay completion of the work or postpone
delivery of finished goods beyond the date specified in the production
schedule, or if your furnished materials arrive prior to the dates specified
in the production schedule, storage will be charged at the prevailing rates
for each month up to twelve months the finished goods, work in process or
furnished materials remain in our possession. Such rate will be doubled for
each month after the first twelve months of storage. If, following the
eighteenth month of storage we receive no direction from you as to the
disposition of the stored items, such items will be destroyed.
EDITING OF COPY
The price quoted does not, unless otherwise stated, include the editing
of copy.
GUARANTEE AND LIMITATION OF LIABILITY
We will perform the work in a good and workmanlike manner and in
accordance with the specifications and production schedule. In the event the
work is defective or delayed due to our fault (including negligence), we shall
not be liable for special or consequential damages, including, but not limited
to, lost profits or business.
<PAGE>
Hello Direct, Inc. Page 8
Catalog Program November 19, 1996
WORK STOPPAGES
We shall not be liable for delays or non-performance of this Agreement
occasioned by strikes, fires, accidents, or by causes beyond our control
including, but not limited to, the unavailability of materials, purchased
services, utilities or fuel. In the event of a stoppage or delay resulting from
any such cause, we shall perform such parts of the work as we are capable of
performing, and in the event you place any other part of the work elsewhere, we
shall be entitled to resume the same as promptly as practicable.
CHANGE IN MEDIUM
In the event that you change the medium used for your products, we shall be
entitled, but not obligated, to produce the work for you in the new medium
during the remaining term of this Agreement provided that our prices are
competitive with the market for the new medium at the time you make such change.
DISCONTINUANCE OF PUBLICATION
Should you decide to discontinue the publication of the program in any
medium without publishing a successor, whether titled the same or not, you
shall use your best efforts to give us 90 days advance written notice of such
decision. Without limiting the foregoing, you shall be obligated to pay for
work done or in process. In addition, you shall reimburse us for costs which
we cannot avoid through reasonable effort.
SALE OF PUBLICATION
If you shall propose to sell the catalogs or any successors, whether
titled the same or not, you shall give us written notice not less than 90 days
prior to any contemplated sale, stating the name of the prospective purchaser
and the proposed date of sale. Thereafter and whether or not we shall consent
to an assignment as hereinafter provided, you shall keep us fully advised of
the progress of any such proposed sale and we shall keep such information
confidential. Within 60 days after receipt of such notice, we shall advise you
in writing as to whether we will consent to an assignment of your rights and
obligations under this Agreement to the prospective purchaser. If we shall
consent, you shall require the purchaser concurrently with the consummation of
such sale, to assume all your obligations under this Agreement by an
instrument in writing satisfactory to us.
If we shall not consent to the assignment by you to such prospective
purchaser, this Agreement shall terminate upon the first to occur of the
following events: (i) the consummation of such sale, or (ii) the expiration of
180 days after we advise you that we will not consent to the proposed
assignment, unless within such 180 days period you notify us that you do not
propose to consummate such sale.
ASSIGNMENT
Neither party to this Agreement shall assign any right or rights hereunder
without the prior written consent of the other party, except that we may assign
payments due us to our wholly-owned subsidiaries without consent. Subject to
this consent, this Agreement shall inure to the benefit of and shall bind the
successors and assigns of the parties hereto.
<PAGE>
Hello Direct, Inc. Page 9
Catalog Program November 19, 1996
INSURANCE
We will carry at our expense fire, sprinkler leakage, and extended coverage
insurance, subject to the usual exclusions, limitations, and conditions of such
policies, on the actual cash value of all our materials, work in process, and
all production completed and not shipped, and on the actual cash value of all
positives, copy, artwork, paper and other materials furnished by you, while in
our care, custody and control. If your property is damaged as a result of an
insured peril under the applicable insurance policy, then, at our option, we
will either replace your damaged property or reimburse you for the actual cash
value of the damaged property. If we elect to reimburse you for the damaged
property's actual cash value, the amount payable to you shall be limited to the
proceeds of such policy plus any related deductible, if any, applied to the
claim for damage to your property. For positives and other media our insurance
coverage and our liability shall be limited to the cost of blank film or other
media and the cost of duplication from an original or other copy.
RESPONSIBILITY FOR SUBJECT MATTER
In furnishing us matter to reproduce or to have incorporated in the
completed product, you represent and warrant that none of such matter (either
as furnished to us by you or as altered by us at your direction) infringes any
copyright, is libelous, or otherwise violates the rights of or will cause
damage or injury to other persons, and you agree to indemnify and save us
harmless from all losses, damages and expenses, including attorneys' fees,
which we may suffer as the result of any claim of such violation, damage or
injury.
PASSING OF TITLE
Title and possession shall pass to you upon delivery or upon the date of
final invoicing, whichever is earlier, f.o.b. our final plant of manufacture.
GOVERNING LAW
This Agreement shall be governed by the laws of the State of Illinois.
EXHIBITS
This Agreement includes the following Exhibit(s) which are attached
hereto and made a part hereof:
EXHIBIT A - PRICE SCHEDULE
<PAGE>
Hello Direct, Inc. Page 10
Catalog Program November 19, 1996
If this proposal meets with your approval, kindly sign below. This proposal
shall remain in effect for a period of thirty days from the date hereof and is
subject to the availability of equipment at the time the approved proposal is
submitted to us for confirmation. Following your approval and upon confirmation
by an officer of R. R. Donnelley & Sons Company, the approved proposal will then
constitute a contract between us.
Respectfully submitted,
R. R. DONNELLEY & SONS COMPANY
By: /s/ Gary Kohl
-----------------------------------
Sales Representative
Approved:
HELLO DIRECT, INC.
By: /s/ Denny Waldera
---------------------------------------
Authorized officer, partner, owner, etc.
Date: November 21, 1996
<PAGE>
Hello Direct, Inc. Page A-1
Catalog Program November 19, 1996
ASSUMPTIONS:
- -------------
Base quantity: [****] copies, 4-color throughout
Trim Size: 8" x 10-1/2"
Cover stock: Coated Grade 5 (Printed offset) @ $[***]/cwt.
Body Stock: Electra Cal or equivalent (Printed Rotogravure) @ $[***]/cwt.
INSTRUCTIONS:
- -------------
For each of the page counts listed below, please indicate:
1) Number and size of forms (i.e.: 64 pg 1-on; 56 + 16; 84 pg 1-on;etc.)
2) Base manufacturing cost including plates or cylinders, make-ready and
bindery. Do not include paper and ink.
3) Base paper cost
4) Base ink cost
5) Total base cost at [****] copies
6) $/M Manufacturing cost including bindery. Do not include paper and ink.
7) $/M paper cost
8) $/M ink cost
9) Total $/M cost
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------------------
PAGE COUNT 4 PG 8 PG 56 PG 60 PG 64 PG 68 PG 72 PG 76 PG 80 PG
FORM TYPE COVER COVER BODY BODY BODY BODY BODY BODY BODY
- -------------------------------------------------------------------------------------------------------------------------
1) FORMS: 4pg 4-on 8 pg 4-on 56 pg 1-on 48 pg 1-on 64 pg 1-on 56 pg 1-on 72 pg 1-on 64 pg 1-on 64 pg 1-on
12 pg 4-on 12 pg 4-on 12 pg 4-on 16 pg 4-on
- -------------------------------------------------------------------------------------------------------------------------
2) BASE MFG: [
- ---------------
3) BASE PAPER:
- ---------------
4) BASE INK:
- ---------------
5) TOTAL BASE:
- ---------------
- ---------------
6) $/M MFG: ***
- ---------------
7) $/M PAPER:
- ---------------
8) $/M INK:
- ---------------
9) TOTAL $/M:
- ---------------
- ---------------
PAPER LBS.
- ---------------
LBS./M ]
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<S> <C> <C> <C> <C>
- ---------------------------------------------------------------
PAGE COUNT 84 PG 88 PG 96 PG 100 PG
FORM TYPE BODY BODY BODY BODY
- ---------------------------------------------------------------
1) FORMS: 84 pg 1-on 72 pg 1-on 72 pg 1-on 84 pg 1-on
16 pg 4-on 24 pg 3-on 16 pg 4-on
- ---------------------------------------------------------------
2) BASE MFG: [
- ---------------
3) BASE PAPER:
- ---------------
4) BASE INK:
- ---------------
5) TOTAL BASE:
- ---------------
- ---------------
6) $/M MFG:
- --------------- ***
7) $/M PAPER:
- ---------------
8) $/M INK:
- ---------------
9) TOTAL $/M:
- ---------------
- ---------------
PAPER LBS.
- ---------------
LBS./M ]
- ---------------------------------------------------------------
</TABLE>
[*] Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to
the omitted portions.
<PAGE>
Hello Direct, Inc. Page A-2
Catalog Program November 19, 1996
ASSUMPTIONS:
- ------------
Base quantity: [****]copies, 4-color throughout
Trim Size: 8" x 10-1/2"
Cover stock: Coated Grade 5 (Printed offset) @ $[***]/cwt.
Body Stock: Electra Cal or equivalent (Printed Rotogravure) @ $[***]/cwt.
INSTRUCTIONS:
- -------------
For each of the page counts listed below, please indicate:
1) Number and size of forms (i.e.: 64 pg 1-on; 56 + 16; 84 pg 1-on;etc.)
2) Base manufacturing cost including plates or cylinders, make-ready and
bindery. Do not include paper and ink.
3) Base paper cost
4) Base ink cost
5) Total base cost at [****] copies
6) $/M Manufacturing cost including bindery. Do not include paper and ink.
7) $/M paper cost
8) $/M ink cost
9) Total $/M cost
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------------------------------
PAGE COUNT 104 PG 112 PG 116 PG 120 PG 124 PG 128 PG 132 PG 136 PG 140 PG
FORM TYPE BODY BODY BODY BODY BODY BODY BODY BODY BODY
- ----------------------------------------------------------------------------------------------------------------------------------
1) FORMS: 72 pg 1-on 72 pg 1-on 108 pg 1-on 108 pg 1-on 108 pg 1-on 72 pg 1-on 108 pg 1-on 72 pg 1-on 108 pg 1-on
32 pg 2-on 40 pg 2-on 8 pg 4-on 12 pg 4-on 16 pg 4-on 56 pg 1-on 24 pg 4-on 64 pg 1-on 32 pg 3-on
- ----------------------------------------------------------------------------------------------------------------------------------
2) BASE MFG: [
- ---------------
3) BASE PAPER:
- ---------------
4) BASE INK:
- ---------------
5) TOTAL BASE:
- ---------------
- ---------------
6) $/M MFG: ***
- ---------------
7) $/M PAPER:
- ---------------
8) $/M INK:
- ---------------
9) TOTAL $/M:
- ---------------
- ---------------
PAPER LBS.
- ---------------
LBS./M ]
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<S> <C> <C> <C>
- -----------------------------------------------------
PAGE COUNT 144 PG 148 PG 152 PG
FORM TYPE BODY BODY BODY
- -----------------------------------------------------
1) FORMS: 72 pg 1-on 108 pg 1-on 96 pg 1-on
72 pg 1-on 40 pg 1-on 56 pg 1-on
- -----------------------------------------------------
2) BASE MFG: [
- ---------------
3) BASE PAPER:
- ---------------
4) BASE INK:
- ---------------
5) TOTAL BASE:
- ---------------
- ---------------
6) $/M MFG: ***
- ---------------
7) $/M PAPER:
- ---------------
8) $/M INK:
- ---------------
9) TOTAL $/M:
- ---------------
- ---------------
PAPER LBS.
- ---------------
LBS./M ]
- -----------------------------------------------------
</TABLE>
[*] Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to
the omitted portions.
<PAGE>
Hello Direct, Inc. Page A-3
Catalog Program November 19, 1996
ASSUMPTIONS:
- ------------
Base quantity: [****] copies, 4-color throughout
Trim Size: 8" x 10-1/2"
Cover stock: Coated Grade 5 (Printed offset) @ $[***]/cwt.
Body Stock: Electra Cal or equivalent (Printed Rotogravure) @ $[***]/cwt.
INSTRUCTIONS:
- -------------
For each of the page counts listed below, please indicate:
1) Number and size of forms (i.e.: 64 pg 1-on; 56 + 16; 84 pg 1-on;etc.)
2) Base manufacturing cost including plates or cylinders, make-ready and
bindery. Do not include paper and ink.
3) Base paper cost
4) Base ink cost
5) Total base cost at [****] copies
6) $/M Manufacturing cost including bindery. Do not include paper and ink.
7) $/M paper cost
8) $/M ink cost
9) Total $/M cost
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
----------------------------------------------------------------------------------------------------------------------
PAGE COUNT 156 PG 160 PG 164 PG 168 PG 172 PG 176 PG 180 PG 184 PG
FORM TYPE BODY BODY BODY BODY BODY BODY BODY BODY
- -----------------------------------------------------------------------------------------------------------------------
1) FORMS: 108 pg 1-on 96 pg 1-on 72 pg 1-on 96 pg 1-on 108 pg 1-on 72 pg 1-on 108 pg 1-on 96 pg 1-on
48 pg 2-on 64 pg 1-on 72 pg 1-on 72 pg 1-on 64 pg 1-on 72 pg 1-on 72 pg 1-on 72 pg 1-on
20 pg 2-on 32 pg 2-on 16 pg 4-on
- -----------------------------------------------------------------------------------------------------------------------
2) BASE MFG: [
- ---------------
3) BASE PAPER:
- ---------------
4) BASE INK:
- ---------------
5) TOTAL BASE:
- ---------------
- ---------------
6) $/M MFG: ***
- ---------------
7) $/M PAPER:
- ---------------
8) $/M INK:
- ---------------
9) TOTAL $/M:
- ---------------
- ---------------
PAPER LBS.
- ---------------
LBS./M ]
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<S> <C> <C> <C> <C>
- ----------------------------------------------------------------------
PAGE COUNT 188 PG 192 PG 196 PG 200 PG
FORM TYPE BODY BODY BODY BODY
- ----------------------------------------------------------------------
1) FORMS: 108 pg 1-on 96 pg 1-on 108 pg 1-on 72 pg 1-on
72 pg 1-on 96 pg 1-on 72 pg 1-on 72 pg 1-on
8 pg 4-on 16 pg 4-on 56 pg 1-on
- ----------------------------------------------------------------------
2) BASE MFG: [
- ---------------
3) BASE PAPER:
- ---------------
4) BASE INK:
- ---------------
5) TOTAL BASE:
- ---------------
- ---------------
6) $/M MFG:
- ---------------
7) $/M PAPER: ***
- ---------------
8) $/M INK:
- ---------------
9) TOTAL $/M:
- ---------------
- ---------------
PAPER LBS.
- ---------------
LBS./M ]
- ----------------------------------------------------------------------
</TABLE>
[*] Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to
the omitted portions.
<PAGE>
Hello Direct, Inc. Page A-4
Catalog Program November 19, 1996
ASSUMPTIONS:
- ------------
Base quantity: [****]copies, 4-color throughout
Trim Size: 8" x 10-1/2"
Cover stock: Coated grade five @ $[***]/cwt.
Body Stock: Coated grade five @ $[***]/cwt.
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------------------
PAGE COUNT 4 PG COVER 8 PG COVER 4 PG BODY 8 PG BODY 16 PG BODY 32 PG BODY 64 PG BODY 68 PG BODY
- ------------------------------------------------------------------------------------------------------------------------------------
1) BASE MFG: [
- ---------------
2) BASE PAPER:
- ---------------
3) BASE INK:
- ---------------
4) TOTAL BASE:
- ---------------
- ---------------
5) $/M MFG:
- ---------------
6) $/M PAPER: ***
- ---------------
7) $/M INK:
- ---------------
8) TOTAL $/M:
- ---------------
- ---------------
PAPER LBS.
- ---------------
LBS./M ]
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
[*] Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to
the omitted portions.
<PAGE>
Hello Direct, Inc. Page A-5
Catalog Program November 19, 1996
MISCELLANEOUS SERVICES
<TABLE>
<S> <C> <C>
Preliminary:
- ------------
Conventional Scan, each [***]
Shadow, each [***]
Silo, each [***]
Digital Image, each [***]
System Time, per hour [***]
Computer Time, per hour [***]
Kodak Approval, per page [***]
Type Correction, per page, per occurrence [***]
Rotogravure Printing:
- ---------------------
Cost of Black cylinder change (per side, single form) for price testing, etc. [***] (includes paper and cost of cylinder)
Cost of 4-color cylinder change (per side, single form) for catalog versioning [***]
Offset Printing:
- ----------------
Cost of black plate change (single form) for price testing, etc. [***]
Cost of 4-color plate change (single form) for catalog versioning [***]
Bindery:
- --------
Cost of bindery makeready for each scheduled mail drop [***] (one bindery makeready charged for all
bindings if tapes available)
Bindery cost ($/M) including 2 blow-in cards [***] (Blow-ins only @ $[***]/each less
bindery per M included in mfg.)
Makeready for Blow-in cards [***]
Selectronic gathering makeready ($/pocket) [***] (includes up to 5 boxes;
over 5 boxes = $[***]/box)
Selectronic gathering run charges ($/M per standard box) [***] (plus $[***]/M run per box)
Selective Dot whacking (sticker application) ($/M) [***]
Ink jet messaging set-up fee (back cover) [***]
Ink Jet messaging run fee ($/M) [***]
</TABLE>
[*] Certain information on this page has been omitted and filed separately
with the Commission. Confidential treatment has been requested with
respect to the omitted portions.
<PAGE>
Hello Direct, Inc. Page A-6
Catalog Program November 19, 1996
Miscellaneous Services (Continued)
<TABLE>
<S> <C> <C>
Mailing:
- --------
Ink jet makeready (includes pre-processing of magnetic tape) [***]
Ink jet addressing, including bar coding (back cover only) $/M [***] (Bar code only)
Mailing costs ($/M): [***]
Drop shipment freight to regional USPS offices (average $/cwt) [***]
Bulk Shipments:
- ---------------
Cost per carton: [***]
Cost per carton packing ($/M) [***] (included in cost of carton)
Skid (cartons placed on skids) [***]
Storage Fees:
- -------------
Blow-in cards [***]
Unbound signatures held for future mailings [***]
</TABLE>
[*] Certain information on this page has been omitted and filed separately
with the Commission. Confidential treatment has been requested with
respect to the omitted portions.
<PAGE>
EXHIBIT 11.1
HELLO DIRECT, INC.
COMPUTATION OF NET INCOME PER SHARE
FOR THE QUARTERS ENDED MARCH 31, 1997 AND 1996
1997 1996
---- ----
Net income $ 300,000 $ 255,000
========== ==========
Weighted average common shares outstanding 5,015,000 4,955,000
Common stock equivalents:
Common stock options, utilizing treasury
stock method when dilutive 58,000 58,000
---------- ----------
Weighted average shares outstanding 5,073,000 5,013,000
========== ==========
Net income per share $ 0.06 $ 0.05
========== ==========
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 1,538
<SECURITIES> 4,107
<RECEIVABLES> 6,672
<ALLOWANCES> 659
<INVENTORY> 5,948
<CURRENT-ASSETS> 19,320
<PP&E> 6,422
<DEPRECIATION> 1,574
<TOTAL-ASSETS> 29,920
<CURRENT-LIABILITIES> 4,882
<BONDS> 0
0
0
<COMMON> 5
<OTHER-SE> 25,033
<TOTAL-LIABILITY-AND-EQUITY> 29,920
<SALES> 15,936
<TOTAL-REVENUES> 15,936
<CGS> 7,853
<TOTAL-COSTS> 7,751
<OTHER-EXPENSES> (169)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4
<INCOME-PRETAX> 501
<INCOME-TAX> 201
<INCOME-CONTINUING> 300
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 300
<EPS-PRIMARY> .06
<EPS-DILUTED> .06
</TABLE>
