UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the quarterly period ended June 30, 1997
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the transition period from __________ to __________
Commission File No. 33-92810
Programmer's Paradise, Inc.
(Name of issuer in its charter)
Delaware 13-3136104
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
1163 Shrewsbury Avenue, Shrewsbury, New Jersey 07702
(Address of principal executive offices) (Zip Code)
Issuer's Telephone Number (908) 389-8950
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Securities and Exchange Act of 1934 during the past
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.
There were 4,809,098 outstanding shares of Common Stock, par value $.01
per share, as of August 7, 1997.
Page 1
Exhibit index is on page 14.
<PAGE>
PROGRAMMER'S PARADISE, INC.
Index to Form 10-Q
Page No.
--------
PART I -- FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheet as of June 30, 1997
and December 31, 1996 3
Condensed Consolidated Statements of Income for the Six
Months and Three Months Ended June 30, 1997 and 1996 4
Condensed Consolidated Statements of Cash Flows for the
Six Months Ended June 30, 1997 and 1996 5
Notes to Condensed Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations. 7
PART II -- OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders 12
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibit 27 - Financial Data Schedule 15
Page 2
<PAGE>
PART I - FINANCIAL INFORMATION
PROGRAMMER'S PARADISE, INC.
CONDENSED CONSOLIDATED BALANCE SHEET
(In thousands)
ASSETS
June 30, December 31,
1997 1996
---- ----
(Unaudited) *
Current Assets
Cash and cash equivalents $ 9,904 $ 16,281
Accounts receivable 22,452 26,826
Inventory 4,807 4,464
Prepaid expenses and other current assets 2,734 2,946
Deferred income taxes 1,142 1,097
-------- --------
Total current assets 41,039 51,614
Equipment and leasehold improvements 1,683 1,695
Goodwill 12,350 12,768
Other assets 1,031 912
Deferred income taxes 2,220 2,220
-------- --------
$ 58,323 $ 69,209
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Notes payable to banks $ 710 $ 1,135
Accounts payable and accrued expenses 24,802 35,760
Other current liabilities 2,476 2,303
-------- --------
Total current liabilities 27,988 39,198
Other liabilities 103 116
Notes payable to banks - long term -- 1,050
Stockholders' equity
Common stock 48 48
Additional paid-in capital 33,544 33,510
Accumulated deficit (2,399) (4,220)
Treasury stock (376) (376)
Cumulative foreign currency adjustment (585) (117)
-------- --------
Total stockholders' equity 30,232 28,845
-------- --------
$ 58,323 $ 69,209
======== ========
* Condensed from audited financial statements.
The accompanying notes are an integral part of these consolidated financial
statements.
Page 3
<PAGE>
PROGRAMMER'S PARADISE INC.
CONDENSED CONSOLIDATED STATEMENT OF INCOME
(Unaudited)
(In thousands, except per share data)
<TABLE>
<CAPTION>
Six months ended Three months ended
June 30, June 30,
-------- --------
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net sales $ 78,039 $ 51,143 $ 39,099 $ 25,118
Cost of sales 65,934 42,721 32,897 20,744
-------- -------- -------- ---------
Gross profit 12,105 8,422 6,202 4,374
Selling, general and administrative expenses 8,656 7,733 4,473 3,778
Amortization expense 452 57 226 29
-------- -------- -------- ---------
Income from operations 2,997 632 1,503 567
Interest income, net 103 287 68 94
Unrealized foreign exchange loss (101) -- (23) --
-------- -------- -------- ---------
Income before income taxes 2,999 919 1,548 661
Income tax expense 1,178 383 612 276
Minority interest -- 233 -- 143
-------- -------- -------- ---------
Net income $ 1,821 $ 769 $ 936 $ 528
======== ======== ======== =========
Weighted average common shares outstanding 5,281 5,173 5,314 5,144
Net income per common share $ .34 $ .15 $ .18 $ .10
-------- -------- -------- ---------
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
Page 4
<PAGE>
PROGRAMMER'S PARADISE, INC.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
(In thousands)
Six Months Ended
June 30
1997 1996
---------- --------
Cash provided by (used for)
Operations:
Net income $ 1,821 $ 769
Adjustments for non cash charges 920 547
Changes in assets and liabilities (7,310) (10,434)
--------- --------
Net cash provided by (used for) operations (4,569) (9,118)
--------- --------
Investing:
Capital expenditures (305) (276)
Capitalized software costs (28) (14)
Acquisitions, net of cash acquired (34) (9,360)
--------- --------
Net cash (used for) investing (367) (9,650)
Financing:
Purchase of treasury stock -- (376)
Net proceeds from sale of common stock 34 --
Borrowings under lines of credit 3,406 5,478
Repayments under lines of credit (4,881) (5,433)
---------- --------
Net cash (used for) financing activities (1,441) (331)
Net change in cash (6,377) (19,099)
Cash at beginning of year 16,281 27,702
---------- --------
Cash at end of period $ 9,904 $ 8,603
========== ========
The accompanying notes are an integral part of these condensed consolidated
financial statements.
Page 5
<PAGE>
PROGRAMMER'S PARADISE, INC.
NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
June 30, 1997
1. The financial information included herein is unaudited; however, such
information has been prepared in accordance with generally accepted
accounting principles and reflects all adjustments, consisting solely of
normal recurring adjustments which are, in the opinion of management,
necessary for a fair statement of results for the interim periods.
Operating results for the six month period ended June 30, 1997, are not
necessarily indicative of the results that may be expected for the year
ended December 31, 1997. For further information, refer to the consolidated
financial statements and notes thereto included in the Company's 1996 10-K
filing dated March 28, 1997.
2. Assets and liabilities of the foreign subsidiaries, all of which are
located in Europe, have been translated at current exchange rates, and
related revenues and expenses have been translated at average rates of
exchange in effect during the year. Resulting cumulative translation
adjustments have been recorded as a separate component of stockholders'
equity.
3. In February 1997, the Financial Accounting Standards Board issued Statement
No. 128, Earnings per Share, which is required to be adopted on December
31, 1997. At that time, the Company will be required to change the method
currently used to compute earnings per share and to restate all prior
periods. Under the new requirements for calculating primary earnings per
share, the dilutive effect of stock options will be excluded. The impact is
expected to result in an increase in primary earnings per share for the
quarters ended June 30, 1997 and June 30, 1996 of $0.02 and $0.01 per
share, respectively. For the six months ended June 30, 1997 and June 30,
1996, the impact is expected to result in an increase in primary earnings
per share of $0.04 and $0.01 per share, respectively. The impact of
Statement 128 on the calculation of fully diluted earnings per share for
these quarters is not expected to be material.
Page 6
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
OVERVIEW
The Company is a distributor of software, operating through
three distribution channels-cataloging, corporate reseller and wholesale
operations. Catalog operations include worldwide catalog sales, advertising and
publishing. Corporate reseller operations include Corsoft, Inc. in the U.S. and
ISP*D International Software Partners Gmbh ("ISP*D") in Munich, Germany, wholly
owned subsidiaries of the Company, and ISP*F International Software Partners
France ("ISP*F"), a majority-owned company located in Paris, France. Wholesale
operations include distribution to dealers and large resellers through Lifeboat
Distribution Inc. in the U.S. and Lifeboat Associates Italia Srl ("Lifeboat
Italy") in Milan, Italy, also subsidiaries of the Company.
The Company began European-based operations in the first
quarter of 1993, when it acquired a controlling interest in Lifeboat Italy, a
long-standing software distributor in Italy. In January and April 1994, the
Company purchased the remaining ownership interest in Lifeboat Italy. In June
1994, the Company acquired a 90% controlling interest in ISP*D, a large
software-only dealer and a leading independent supplier of Microsoft Select
licenses and other software to many large German and Austrian companies. In
January 1995, the remaining 10% interest in ISP*D was purchased by the Company.
In late 1994, the Company organized a subsidiary in the United Kingdom to engage
in catalog operations, and in December 1995 the Company acquired Systematika
Limited ("System Science"), a leading reseller of technical software in the
United Kingdom and the publisher of the popular System Science catalog. In
January 1996, the Company formed ISP*F International Software Partners France SA
("ISP*F"), as a full service corporate reseller of PC software, based in Paris
and majority-owned by Programmers' Paradise France SARL. The Company is using
its European-based operations as a platform for pan-European business
development, including the distribution of local versions of its catalogs.
In June, 1996, the Company acquired substantially all of the
assets and business of The Software Developer's Company, Inc. ("SDC") related to
The Programmer's Supershop ("TPS") catalog, inbound and outbound telemarketing,
reseller operations, web site, and all of the operations of its German
subsidiary. SDC had been the Company's largest direct mail competitor, offering
a similar array of technical software.
Page 7
<PAGE>
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth for the periods indicated
certain financial information derived from the Company's consolidated statement
of operations expressed as a percentage of net sales.
<TABLE>
<CAPTION>
Six months ended Three months ended
June 30, June 30,
-------- --------
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net Sales 100.0% 100.0% 100.0% 100.0%
Cost of Sales 84.5 83.5 84.1 82.6
------ ------ ------ --------
Gross Profit 15.5 16.5 15.9 17.4
Selling, general and administrative expenses 11.1 15.2 11.4 15.0
Amortization expense 0.6 0.1 0.6 0.1
------ ------ ------ --------
Income from operations 3.8 1.2 3.9 2.3
Interest income, net 0.1 0.5 0.2 0.4
Unrealized foreign exchange loss (0.1) - (0.1) -
------ ------ ------ --------
Income before income taxes 3.8 1.7 4.0 2.7
Income taxes (1.5) (0.7) (1.6) (1.2)
Minority interest - 0.5 - 0.6
------ ------ ------ --------
Net income 2.3% 1.5% 2.4% 2.1%
------ ------ ------ --------
</TABLE>
NET SALES
Net sales of the Company represents the gross consolidated
revenue of the Company less returns. Although net sales consist primarily of
sales of software, revenue from marketing services and advertising is also
included within net sales. Net sales for the quarter ended June 30, 1997
increased by $13,981,000, or 56.0%, to $39,099,000, over the quarter ended June
30, 1996. Net sales for the six months ended June 30, 1997 increased by
$26,896,000, or 53.0%, to $78,039,000, over the same period in 1996.
The increase in net sales for the three months and six months
ended June 30, 1997 as compared to the same period in 1996 primarily reflects
the growth of the Company's catalog and corporate reseller businesses, as well
as growth through acquisitions. Consolidated catalog revenues increased by 62.0%
or $7.1 million for the second quarter of 1997, primarily as a result of the
acquisition of The Programmer's Supershop in June 1996. Consolidated catalog
mailings totaled approximately 1.5 million for the three months ended June 30,
1997, compared to approximately 1.3 million on a pro-forma basis for the same
period in 1996. Catalog revenues for the six months ended June 30, 1997
increased approximately 63% or $14.6 million primarily due to increased catalog
drops and the impact of the acquisition of The Programmer's Supershop. Revenues
within the reseller channel increased 54% or $5.5 million for the second quarter
of 1997 reflecting market share gains in both France and Germany. Revenues
within the distribution channel were up approximately 29% or $1.0 million in the
quarter ended June 30, 1997 which is also primarily the result of the
acquisition of The Programmer's Supershop.
Geographically, approximately 52% of the revenues for both the
quarter ended June 30, 1997 and the six months ended June 30, 1997 were derived
from the European operations.
Page 8
<PAGE>
GROSS PROFIT
Gross profit represents the difference between net sales and
costs of sales. Cost of sales is composed primarily of amounts paid by the
Company to publishers and vendors plus catalog printing and mailing costs.
Publisher and vendor rebates are credited against cost of sales. For the
three-month and six-month periods ended June 30, 1997, gross profit as a
percentage of sales decreased by 1% and 1.6% respectively over the same periods
in 1996 reflecting a shift in the mix of sales through the Company's
distribution channels as well the impact of one time commissions earned as a
result of managing the operations of The Programmer's Supershop prior to
consummation of the acquisition in June, 1996. Gross profit in absolute dollars
increased by $1,828,000 and $3,683,000, respectively, over the previous year,
primarily attributable to the higher revenues across all distribution channels
and the impact of the acquisition of The Programmer's Supershop business.
Gross margins have been affected by the mix of products sold
and the mix of distribution channels. Historically, the gross margins attained
in the catalog channel have been higher than either the corporate reseller or
distribution channels. Margins within the corporate reseller channel are also
subject to mix variations as Microsoft Select License sales typically produce
lower gross margin results.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative ("SG&A") expenses include
all corporate personnel costs (including salaries and health benefits),
depreciation, non-personnel-related marketing and administrative costs and a
provision for doubtful accounts. Depreciation consists primarily of equipment
depreciation. SG&A expenses as a percentage of revenues have decreased to 11.4%
for the quarter and to 11.1% for the six months ended June 30, 1997. The decline
in SG&A as a percentage of revenues reflect the economies of scale associated
with the increase in revenues from The Programmer's Supershop acquisition, as
well as the shift in revenue mix toward corporate reseller. In absolute dollars,
SG&A expenses increased by $695,000 for the three months ended June 30, 1997,
and by $923,000 for the six months then ended when compared to the same period
in 1996, reflecting the additional overhead associated with The Programmer's
Supershop operations in the U.S., offset by the savings realized by the
reorganization of the abnormally high cost structure that was associated with
the French subsidiary in 1996.
AMORTIZATION EXPENSE
Amortization expense includes the systematic write-off of
intangible assets, primarily goodwill. Amortization expense increased by
$197,000 and $395,000 for the three and six months ended June 30, 1997, compared
to the same periods in 1996, reflecting the amortization of the excess of the
purchase price over the fair value of the net assets acquired during 1996. The
acquisition of substantially all of the net assets of The Programmer's Supershop
resulted in goodwill of approximately $10.0 million which is being amortized
over a period of 15 years.
INTEREST INCOME AND EXPENSE
Net interest income decreased for the three months and six
months ended June 30, 1997 by $26,000 and $184,000, respectively, as compared to
the same period in 1996, primarily reflecting the use of the Company's funds to
acquire substantially all of the assets of The Programmer's Supershop. The
Company paid approximately $11.0 million for the assets of The Programmer's
Supershop and in return received approximately $1.5 million in net assets
comprised principally of receivables, inventory, and fixed assets offset by
accounts payable. In addition, during the quarter ended June 30, 1997, the
Company liquidated its remaining long-term debt of approximately $1.3 million
associated with the acquisition of Systematika Ltd.
Page 9
<PAGE>
INCOME TAXES
Income tax expense was $1,178,000 for the six months ended
June 30, 1997, compared to $383,000 in the same period in 1996. This primarily
reflects higher tax provisions in the U.S., Germany and in the U.K. resulting
from increased earnings at those operations during the six months ended June 30,
1997 in comparison to the same period in the prior year.
MINORITY INTEREST
Minority interest represents the share of the operating losses
of ISP*F related to the 49% stock ownership, which was not owned by the Company
at March 31, 1996. An additional equity contribution was subsequently funded in
October 1996 as part of a reorganization, which resulted in an adjustment in
minority ownership to 28%. Because the operating losses for ISP*F have exceeded
minority interest, the Company recognized substantially all of the operating
losses through September 30, 1996. For the six months ended June 30, 1997, the
cumulative operating losses for ISP*F have exceeded minority interest, thus no
minority interest benefit has been recognized.
NET INCOME
Net income was $936,000 or $.18 per share on approximately
5,314,000 weighted average common shares outstanding for the quarter ended June
30, 1997 compared to $528,000 or $.10 per share on approximately 5,144,000
weighted average common shares outstanding for the same period of the previous
year. Net income for the six months ended June 30, 1997 was $1,821,000 or $.34
per share on approximately 5,281,000 weighted average common shares outstanding
versus $769,000 or $.15 per share on approximately 5,173,000 weighted average
shares outstanding for the six months ended June 30, 1996.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary capital needs have been to fund the
working capital requirements created by its sales growth and to make
acquisitions. The Company had cash and cash equivalents of approximately $9.9
million at June 30, 1997.
Net cash used for operations was approximately $4,569,000 for
the six months ended June 30, 1997 compared with $9,118,000 of cash used for
operating activities in the same period of the previous year. For the first six
months of 1997, cash flow was primarily used to reduce accounts payable
(approximately $10.5 million), specifically amounts due to Microsoft by ISP*D
under the Microsoft Select License program, offset by a decrease in accounts
receivable (approximately $4.5 million) as well as an increase in net earnings
for the current year period as compared to the same period in the prior year.
For 1996, cash flow was primarily used to reduce accounts payable (approximately
$12.9 million), specifically amounts due to Microsoft by ISP*D under the
Microsoft Select License program, offset by decreases in accounts receivable and
inventory (approximately $2.1 million and $1.0 million, respectively).
Domestically, the Company has a secured, demand revolving line
of credit, pursuant to which the Company may borrow up to $4.0 million, based
upon 80% of its eligible accounts receivable plus 50% of its eligible inventory,
at a rate of interest of prime plus .50%. The credit facility is secured by all
of the domestic assets of the Company and contains certain covenants which
require the Company to maintain a minimum level of tangible net worth and
working capital. In connection with the System Science acquisition, the Company
had utilized approximately $1.3 million under the line of credit which was
converted to a five-year term loan bearing interest at LIBOR plus 2%. During
April 1997, the Company liquidated this entire indebtedness.
Page 10
<PAGE>
The Company maintains a secured, demand revolving line of
credit for its German subsidiary, pursuant to which it may borrow in
deutschmarks up to DM 1,500,000 (the equivalent of approximately $859,000 at
June 30, 1997), based upon its eligible accounts receivable and eligible
inventory. Such credit facility is secured by ISP*D's accounts receivable and
inventory, and the creditor is entitled to the benefit of a limited guarantee by
the Company of up to DM 300,000 (the equivalent of approximately $172,000 at
June 30, 1997). At June 30, 1997, there were no amounts outstanding under such
line of credit.
The Company's Italian subsidiary, Lifeboat Italy, maintains
banking arrangements with several Italian banks, pursuant to which it may borrow
in lire on an unsecured, demand basis to finance its working capital
requirements, through credit and overdrafting privileges, as well as
receivables-based advances. The aggregate credit and overdraft limits of such
arrangements at June 30, 1997 was Lit 3,200,000,000 (the equivalent of
approximately $1.9 million at June 30, 1997). At June 30, 1997, there was
approximately Lit 148,000,000 (the equivalent of approximately $87,000)
outstanding under such credit facilities, bearing interest at rates ranging from
7.5% to 9.0%.
The Company's subsidiary in France, ISP*F, maintains a demand
revolving line of credit pursuant to which it may borrow up to FRF 5,000,000
(the equivalent of approximately $850,000 at June 30, 1997), and is secured by
its accounts receivable and inventory and a FRF 3,000,000 letter of credit. At
June 30, 1997, approximately FRF 3,660,000 (the equivalent of approximately
$622,000) of the line of credit was utilized, bearing interest at 6.69%.
Page 11
<PAGE>
PART II - OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company held its Annual Meeting of Stockholders ( the
"Meeting") during the fiscal quarter ended June 30, 1997.
(a) The date of the Meeting was June 23, 1997
(b) At the Meeting, the following persons were
elected as directors of the Company, each receiving the number of votes set
forth opposite their names below:
For Against Abstain
--- ------- -------
Roger Paradis 4,373,261 6,450 -
Edwin H. Morgens 4,375,361 4,350 -
Daniel S. Bricklin " " -
Alan D. Weingarten " " -
F. Duffield Meyercord " " -
William Willett " " -
(c) At the Meeting, the Stockholders approved
and amendment to the Company's 1995 Stock Plan to limit the number of
shares available for issuance thereunder to 200,000 shares. The results of the
voting was as follows:
For Against Abstain Unvoted
--- ------- ------- -------
4,352,181 15,085 670 11,775
(d) The Stockholders also ratified the selection
Of Ernst & Young LLP as the independent auditors of the Company. Such
ratification was approved as follows:
For Against Abstain
--- ------- -------
4,374,511 5,000 200
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibit 27 - Financial Data Schedule
Page 12
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
PROGRAMMER'S PARADISE, INC.
August 14, 1997 By: /s/ John P. Broderick
- ------------------------ -------------------------------------------
Date John P. Broderick, Chief Financial Officer,
Vice President of Finance and duly
authorized officer
Page 13
<PAGE>
EXHIBIT INDEX
Exhibit
Number Description of Exhibits Page No.
------- ----------------------- --------
27 Financial Data Schedule 15
Page 14
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<CURRENCY> US DOLLARS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<EXCHANGE-RATE> 1
<CASH> 9,904
<SECURITIES> 0
<RECEIVABLES> 23,555
<ALLOWANCES> 1,102
<INVENTORY> 4,807
<CURRENT-ASSETS> 41,039
<PP&E> 3,419
<DEPRECIATION> 1,736
<TOTAL-ASSETS> 58,323
<CURRENT-LIABILITIES> 27,988
<BONDS> 0
0
0
<COMMON> 48
<OTHER-SE> 30,184
<TOTAL-LIABILITY-AND-EQUITY> 58,323
<SALES> 78,039
<TOTAL-REVENUES> 78,039
<CGS> 65,934
<TOTAL-COSTS> 75,042
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 118
<INTEREST-EXPENSE> 103
<INCOME-PRETAX> 2,999
<INCOME-TAX> 1,178
<INCOME-CONTINUING> 1,821
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,821
<EPS-PRIMARY> 0.34
<EPS-DILUTED> 0.34
</TABLE>
