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 March 31, 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 4,808,198 outstanding shares of Common
Stock, par value $.01 per share, as of May 12, 1997.
Page1
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 March 31, 1997 and December 31, 1996 3
Condensed Consolidated Statements of Income
for the Three Months Ended March 31, 1997
and 1996 4
Condensed Consolidated Statements of Cash
Flows for the Three Months Ended
March 31, 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 6. Exhibits and Reports on Form 8-K
(a) Exhibit 27 - Financial Data Schedule 15
Page 2
<PAGE>
PART I - FINANCIAL INFORMATION
<TABLE>
PROGRAMMER'S PARADISE, INC.
CONDENSED CONSOLIDATED BALANCE SHEET
(In thousands)
ASSETS
<CAPTION>
March 31, December 31,
1997 1996
(Unaudited) *
<S> <C> <C>
Current Assets
Cash and cash equivalents $21,117 $16,281
Accounts receivable 18,606 26,826
Inventory 4,711 4,464
Prepaid expenses and other current assets 2,624 2,946
Deferred income taxes 1,111 1,097
Total current assets 48,169 51,614
Equipment and leasehold improvements 1,625 1,695
Goodwill 12,571 12,768
Other assets 968 912
Deferred income taxes 2,220 2,220
$65,553 $69,209
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Notes payable to banks $ 725 $ 1,135
Accounts payable and accrued expenses 32,255 35,760
Other current liabilities 2,050 2,303
Total current liabilities 35,030 39,198
Other liabilities 108 116
Notes payable to banks - long term 975 1,050
Stockholders' equity
Common stock 48 48
Additional paid-in capital 33,510 33,510
Accumulated deficit (3,335) (4,220)
Treasury stock (376) (376)
Cumulative foreign currency adjustment (407) (117)
Total stockholders' equity 29,440 28,845
$65,553 $69,209
* Condensed from audited financial statements.
The accompanying notes are an integral part of these condensed
consolidated financial statements.
</TABLE>
Page 3
<PAGE>
PROGRAMMER'S PARADISE INC.
<TABLE>
CONDENSED CONSOLIDATED STATEMENT OF INCOME
(Unaudited)
(In thousands, except per share data)
<CAPTION>
Three months ended
March 31,
1997 1996
<S> <C> <C>
Net sales $38,940 $25,961
Cost of sales 33,037 21,913
Gross profit 5,903 4,048
Selling, general and administrative
expenses 4,183 3,955
Amortization expense 226 28
Income from operations 1,494 65
Interest income, net (35) (193)
Unrealized foreign exchange loss 78 -
Income before income taxes 1,451 258
Income tax expense 566 106
Minority interest - 89
Net income $ 885 $ 241
Weighted average common shares
outstanding 5,271 5,196
Net income per common share $ 0.17 $ 0.05
The accompanying notes are an integral part of these condensed
consolidated financial statements.
</TABLE>
Page 4
<PAGE>
PROGRAMMER'S PARADISE, INC.
<TABLE>
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
(In thousands)
<CAPTION>
Three Months Ended
March 31,
1997 1996
<S> <C> <C>
Cash provided by (used for)
Operations:
Net income $ 885 $ 241
Adjustments for non cash charges 413 378
Changes in assets and liabilities 4,140 (1,915)
Net cash provided by (used for) operations 5,438 (1,296)
Investing:
Capital expenditures (85) (98)
Capitalized software costs (32) (4)
Acquisitions, net of cash acquired - (273)
Net cash (used for) investing (117) (375)
Financing:
Purchase of treasury stock - (88)
Net proceeds from sale of common stock 1 -
Borrowings under lines of credit 1,465 2,950
Repayments under lines of credit (1,950) (3,169)
Net cash (used for) financing activities (484) (307)
Net change in cash 4,837 (1,978)
Cash at beginning of year 16,281 27,702
Cash at end of period $21,117 $25,724
The accompanying notes are an integral part of these condensed
consolidated financial statements.
</TABLE>
Page 5
<PAGE>
PROGRAMMER'S PARADISE, INC.
NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
March 31, 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 three month period ended
March 31, 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 rquirements 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 first quarter ended
March 31, 1997 and March 31, 1996 of $0.01 and $0.00 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 Aus
trian 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>
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>
Three months ended
March 31,
1997 1996
<S> <C> <C>
Net Sales 100.0% 100.0%
Cost of Sales 84.8 84.4
Gross Profit 15.2 15.6
Selling, general and administrative
expenses 10.8 15.2
Amortization expense 0.6 0.1
Income from operations 3.8 0.3
Interest income, net (0.1) (0.7)
Unrealized foreign exchange loss 0.2 -
Income before income taxes 3.7 1.0
Income taxes (1.4) (0.4)
Minority interest - 0.3
Net income 2.3% 0.9%
</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 March 31, 1997 increased
by $12,980,000, to $38,940,000, or 50.0%, over the quarter ended
March 31, 1996.
The increase in net sales for the three months ended
March 31, 1997 as compared to the same period in 1996 primarily
reflects the growth of the Company's catalog and corporate
reseller core businesses, in addition to the growth in revenues
realized through the acquisition of the TPS business.
Domestically, total sales increased by 71.7% for the three month
period ended March 31, 1997 over the same period in 1996, of
which approximately 54% related to revenues realized through the
acquired TPS business. Catalog revenues increased by 75.0% for
the first quarter of 1997 as compared to the same period in 1996,
reflecting increased catalog mailings during the quarter in
addition to an improved outbound telemarketing effort. Domestic
catalog mailings totaled approximately 1.5 million for the three
months ended March 31, 1997, compared to approximately 1.1
million for the same period in 1996. Total sales in Europe
increased by 33.4% for the three months ended March 31, 1997 as
compared to the same period in 1996. The growth in European
sales can be primarily attributed to significantly higher
corporate reseller sales in Germany, which increased by 68.0%
during the first quarter of 1997 compared to the same prior year
period.
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 period
ended March 31, 1997, gross profit increased by $1,855,000 over
the previous year, primarily attributable to the higher revenues
in the U.S. which was aided, in part, by the acquired TPS
business. As a percentage of sales, gross profit decreased by
0.4% for the three month period ended March 31, 1997 in
comparison to the same period in 1996. This is due principally
to a shift in channel mix during the quarter as Germany posted
higher revenues within the lower margin corporate reseller
business.
Selling, General and Administrative Expenses
SG&A expenses increased by $228,000 for the three
months ended March 31, 1997, compared to the same period in 1996,
primarily reflecting the additional overhead associated with the
TPS operations in the U.S. Offsetting this increase was the
savings impact realized through the reduction of the abnormally
high cost structure that was associated with the French
subsidiary during the first quarter of 1996. As a percentage of
net sales, SG&A decreased by 4.5% for the three months ended
March 31, 1997, compared to the same prior year period. This
improvement reflects stronger cost controls as well as operating
efficiencies realized from the addition of the TPS business.
Amortization Expense
Amortization expense increased by $198,000 for the
three months ended March 31, 1997, compared to the same periods
in 1996, reflecting the amortization of the excess of the
purchase price over the fair value of the SDC net assets acquired
during 1996. The acquisition of substantially all of the net
assets of SDC 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
ended March 31, 1997 by $158,000 compared to the same period in
the previous year, primarily reflecting the use of the Company's
funds to acquire substantially all of the assets of SDC. These
funds had been invested in high grade, short term interest
bearing securities during the first quarter of 1996. At March
31, 1997, interest income on short term investments was $39,000
for the three months then ended, compared to interest income of
$203,000 earned during the three months ended March 31, 1996.
Income Taxes
Income tax expense was $566,000 for the three months
ended March 31, 1997, compared to $106,000 in the same period in
1996. This primarily reflects higher tax provisions in the U.S.
and in Germany resulting from increased earnings at those
operations during the first quarter of 1997 in comparison to the
same period in the prior year.
Minority Interest
Minority interest represents the share of the operating
loss 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 and adjustment in minority ownership to 28%.
Operating losses for ISP*F are offset against minority interest.
Because the cumulative operating losses for ISP*F have exceeded
minority interest, there was no minority interest benefit
recognized during the first quarter of 1997.
Page 9
<PAGE>
Net Income
Net income was $885,000 or $.17 per share on
approximately 5,271,000 weighted average common shares
outstanding for the quarter ended March 31, 1997 compared to
$241,000 or $.05 per share on approximately 5,196,000 weighted
average common shares outstanding for the same period of 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 $21.1 million at March 31, 1997.
Net cash provided from operations was approximately
$5,438,000 for the three months ended March 31, 1997 compared
with $1,296,000 of cash used for operating activities in the same
period of the previous year. For the first quarter of 1997, cash
was provided from net earnings as well as net collections of
accounts receivable, primarily in Germany and France, of which a
significant portion related to Microsoft Select License billing.
Offsetting this was a net reduction in accounts payable, as the
Company chose to take advantage of vendor discounts through
prepayments of new Microsoft product releases in the first
quarter. For 1996, cash flow was primarily used to reduce
accounts payable, specifically amounts due to Microsoft by ISP*D
under the Microsoft Select License program, offset by decreases
in accounts receivable and inventory.
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 has utilized
approximately $1,275,000 under the line of credit which was
converted to a five year term loan bearing interest at LIBOR (
6.62% at March 31, 1997) plus 2%, of which $300,000 is classified
as a current liability.
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 1,000,000 ( the equivalent of
approximately $598,000 at March 31, 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 $179,000 at March 31, 1997). At
March 31, 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 March 31, 1997 was Lit 3,200,000,000 (the
equivalent of approximately $1.9 million). At March 31, 1997,
there was approximately Lit 239,000,000 (the equivalent of
approximately $144,000) outstanding under such credit facilities,
bearing interest at rates ranging from 7.0% to 8.0%.
Page 10
<PAGE>
The Company's subsidiary in France, ISP*F, maintains a
demand revolving line of credit pursuant to which it may borrow
up to FRF 2,000,000 (the equivalent of approximately $355,000 at
March 31, 1997), and is secured by its accounts receivable and
inventory and a FRF 3,000,000 letter of credit. At March 31,
1997, approximately FRF 1,584,000 ( the equivalent of
approximately $281,000) of the line of credit was utilized,
bearing interest at 6.78%.
Page 11
<PAGE>
PART II - OTHER INFORMATION
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.
May 15, 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
<LEGEND>
This schedule contains summary financial information extracted from SEC-Form
10-Q and is qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1997
<CASH> $21,117
<SECURITIES> 0
<RECEIVABLES> 19,592
<ALLOWANCES> (986)
<INVENTORY> 4,711
<CURRENT-ASSETS> 48,169
<PP&E> 3,279
<DEPRECIATION> (1,654)
<TOTAL-ASSETS> $65,553
<CURRENT-LIABILITIES> 35,030
<BONDS> 0
0
0
<COMMON> 48
<OTHER-SE> 29,392
<TOTAL-LIABILITY-AND-EQUITY> $65,553
<SALES> $38,940
<TOTAL-REVENUES> 38,940
<CGS> 33,037
<TOTAL-COSTS> 37,446
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 3
<INTEREST-EXPENSE> (35)
<INCOME-PRETAX> 1,451
<INCOME-TAX> 566
<INCOME-CONTINUING> 885
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 885
<EPS-PRIMARY> $0.17
<EPS-DILUTED> $0.17
</TABLE>
