UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 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 333-8925
AMERICOMM DIRECT MARKETING, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 23-2574778
(State or other jurisdiction (I.R.S. Employer
of incorporation Identification No.)
or organization)
5775 Peachtree Dunwoody Road 30342
Suite C-150 (Zip code)
Atlanta, GA
(Address of principal
executive offices)
Registrant's telephone number, including area code: (404) 256-1123
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 as of
Class November 14, 1997
Common Stock, $.01 par value 283,807 shares
AMERICOMM DIRECT MARKETING, INC.
FORM 10 - Q
QUARTERLY PERIOD ENDED SEPTEMBER 30, 1997
INDEX
PART I. FINANCIAL INFORMATION Page Numbers
Item 1. Financial Statements
Condensed Balance Sheets as of
September 30, 1997 and
December 31, 1996 3
Condensed Statements of Operations
for the three and nine month periods
ended September 30, 1997 and 1996 4
Condensed Statements of Cash Flows
for the nine month periods ended
September 30, 1997 and 1996 5
Notes to Condensed Financial Statements
as of September 30, 1997 6-7
Item 2. Management's Discussion and Analysis
of Financial Condition and Results
of Operations 8-11
PART II. OTHER INFORMATION
Item 5. Other Information 12
Item 6. Exhibits and Reports on Form 8 - K 12
SIGNATURES 13
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
AMERICOMM DIRECT MARKETING, INC.
CONDENSED BALANCE SHEET
(in thousands, except share data)
September 30, 1997 December 31, 1996
Assets
Current Assets -
Cash $1,995 $1,979
Accounts receivable, net 27,847 17,384
Income tax receivable 737 548
Inventories 13,282 11,261
Deferred income taxes 830 305
Other 3,181 1,836
47,872 33,313
Property, plant and equipment, at cost 66,901 56,858
Less: Accumulated depreciation (14,900) (9,491)
Property, plant and equipment, net 52,001 47,367
Other Assets -
Goodwill, net of accumulated amortization 45,854 25,079
Patents, net of accumulated amortization 16,845 18,405
Customer lists, net of accumulated 6,676 0
amortization
Deferred financing costs, net of
accumulated amortization 4,672 5,260
Covenants not to compete, net of
accumulated amortization 1,952 487
Due from parent 1,156 876
Other 2,326 2,587
79,481 52,694
$179,354 $133,374
Liabilities and Stockholder's Equity
Current Liabilities -
Current portion of long-term debt $458 $446
Revolving line of credit 12,311 0
Bank overdraft 2,407 1,506
Accounts payable 7,100 4,337
Accrued expenses and other 13,429 8,184
35,705 14,473
Noncurrent Liabilities -
Deferred income taxes 5,650 2,762
Other 1,364 1,665
7,014 4,427
Long-term Debt 101,997 102,353
Stockholder's Equity -
Common stock, $.01 par value 3 3
Addition paid-in capital 45,571 22,296
Accumulated deficit (10,936) (10,178)
34,638 12,121
$179,354 $133,374
Common Shares Outstanding 283,807 283,807
See notes to condensed financial statements.
AMERICOMM DIRECT MARKETING, INC.
CONDENSED STATEMENTS OF OPERATIONS
(in thousands)
Three months ended Nine months ended,
September 30, September 30,
1997 1996 1997 1996
Net sales $51,767 $39,951 $138,388 $71,701
Operating costs and expenses -
Cost of sales 36,267 26,956 97,029 52,225
Selling and administrative 11,258 9,744 32,390 16,273
Total operating costs and 47,524 36,700 129,419 68,498
expenses
Operating income 4,243 3,251 8,969 3,203
Other expense
Interest, net 3,528 3,273 10,085 4,673
Income (loss) before income taxes 715 (22) (1,116) (1,470)
Income tax expense (benefit) 126 (8) (357) (555)
Net income (loss) before 589 (14) (759) (915)
extraordinary item
Extraordinary loss on early - - - (798)
retirement of debt, net
of tax benefit of $461
Net income (loss) $589 ($14) ($759) ($1,713)
OTHER DATA:
Consistent with the Form S-4 filed with the Securities and Exchange
Commission on October 17, 1996, the following financial data has been
disclosed.
EBITDA is provided because it is a measure of an issuer's ability to
service its indebtedness commonly used by certain investors. EBITDA is
not a measure of financial performance under generally accepted
accounting principles and should not be considered an alternative to net
income as a measure of performance or to cash flow as a measure of
liquidity.
EBITDA is defined as operating income, plus depreciation and amortization
and reflects the elimination of non-cash charges related to pension and
deferred financing costs and the elimination of gain on disposal of
equipment.
EBITDA $7,386 $5,475 $18,042 $7,628
See notes to condensed financial statements.
AMERICOMM DIRECT MARKETING INC.
CONDENSED STATEMENTS OF CASH FLOWS
(in thousands)
Nine months ended September
30,
1997 1996
Cash flows from operating activities
Net loss ($759) ($1,713)
Adjustments to reconcile net loss to net cash provided
by operating activities -
Extraordinary loss on early retirement of 0 798
debt, net of tax
Depreciation and amortization 9,324 4,718
(Gain) loss on disposal 327 (238)
Imputed interest 0 61
Deferred income tax benefit (357) (555)
Amortization of prepaid pension asset 2 (119)
Change in assets and liabilities, net (3,779) 6,185
Net cash provided by operating activities 4,758 9,137
Cash flows from investing activities
Cash paid for Label America, Inc., net of cash acquired (9,469) 0
Cash paid for Transkrit Corporation, net of cash 0 (79,391)
acquired
Cash paid for AmeriComm Direct Marketing, Inc., net of (25,202) 0
cash acquired
Proceeds from sale of assets 99 422
Purchases of property and equipment (6,021) (1,957)
Net cash used in investing activities (40,593) (80,926)
Cash flows from financing activities
Net borrowings (repayments) on revolving line of credit 12,311 (7,050)
Payments on long term debt 0 (16,900)
Increase (decrease) in bank overdraft, net 901 (2,354)
Payments on capital leases (355) (100)
Capital contributions from parent 23,274 7,765
Due from parent (280) 0
Increase in deferred financing costs 0 (5,739)
Proceeds from issuance of long-term debt 0 100,000
Net cash provided by financing activities 35,851 75,622
Net increase in cash 16 3,833
Cash, beginning of period 1,979 444
Cash, end of period $1,995 $4,277
See notes to condensed financial statements.
NOTES TO CONDENSED FINANCIAL STATEMENTS
NOTE 1: BASIS OF PRESENTATION
The accompanying unaudited condensed financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments
(consisting of normal recurring accruals) considered necessary for a fair
presentation have been included.
Operating results for AmeriComm Direct Marketing, Inc. (the "Company") for the
three and nine month periods ended September 30, 1997 are not necessarily
indicative of the results that may be expected for the year ending December
31, 1997.
NOTE 2: INVENTORIES
The major classes of inventories were as follows (in thousands):
September 30, 1997 December 31, 1996
Raw materials $6,944 $5,838
Work-in-process 1,706 1,289
Finished goods and 4,632 4,134
customized stock
$13,282 $11,261
NOTE 3: ACQUISITIONS
Purchase of Transkrit Corporation
On June 28, 1996, pursuant to a Stock Purchase Agreement, the Company acquired
all of the issued and outstanding capital stock of Transkrit Corporation and
subsidiaries ("Transkrit") for approximately $86.5 million plus transaction
costs. The acquisition has been accounted for using the purchase method of
accounting and, accordingly, the results of operations of Transkrit have been
included in the statements of operations of the Company since June 29, 1996.
The excess of the consideration paid over the estimated fair value of net
assets acquired of approximately $17,393,000 has been recorded as goodwill and
is being amortized on the straight-line basis over 40 years. Subsequent to
the acquisition, Transkrit and all of its subsidiaries were merged into the
Company.
Concurrent with the consummation of the acquisition, the Company issued
$100,000,000 aggregate principal amount of unsecured 11 5/8% Senior Notes due
June 15, 2002 (the "Senior Notes"). Interest is payable semiannually on June
15 and December 15. In addition, AmeriComm Holdings, Inc. ("AHI"), the
Company's parent, made a capital contribution to the Company of $7,765,000.
The Company used the proceeds from the Senior Notes and AHI's capital
contribution to acquire the outstanding capital stock of Transkrit and to
repay $23,200,000 of existing long-term debt.
Purchase of Label America, Inc.
On February 21, 1997, pursuant to a stock purchase agreement, the Company
acquired all of the issued and outstanding capital stock of Label America,
Inc. ("LAI") for $8,500,000, less outstanding indebtedness and certain
capitalized lease obligations plus transaction costs, which was funded through
borrowings on its revolving loan facility. Additional consideration of
$700,000 was paid to the principal stockholder for a noncompete agreement
which amount was also funded through borrowings on the Company's revolving
loan facility. The excess of the consideration paid over the estimated fair
value of net assets acquired of approximately $6,523,000 has been recorded as
goodwill and is being amortized on a straight-line basis over 40 years. Upon
consummation of the acquisition, LAI was merged into the Company.
Purchase of AmeriComm Direct Marketing, Inc.
On April 24, 1997, pursuant to a stock purchase agreement, the Company
acquired all of the issued and outstanding capital stock of AmeriComm Direct
Marketing, Inc. ("ADMI") for $24,622,000 plus transaction costs. Additional
consideration of $1,000,000 was paid to the principal stockholder for a
noncompete agreement. The excess consideration paid over the estimated fair
value of net assets acquired of approximately $14,429,000 has been recorded as
goodwill and is being amortized on a straight-line basis over 40 years. Upon
consummation of the acquisition, ADMI was merged into the Company.
This acquisition was financed by a capital contribution by AHI. To fund the
acquisition of ADMI, AHI issued $35,000,000 of aggregate 12.5% notes due
April 2003. A portion of the notes was used to redeem AHI preferred stock. The
notes place certain restrictions on the Company's ability to incur additional
indebtedness or make future acquisitions. In addition, future interest and
principal payments by AHI are dependent primarily upon the operations of the
Company through payments permitted under the Senior Notes to AHI. Interest is
due quarterly commencing June 30, 1997. Under certain circumstances, AHI will
pay a portion or all of any six quarterly interest installments prior to April
24, 1999 by issuing additional notes ("PIK Notes") with interest ranging from
12.5% to 13.0%. The initial interest installments due June 30, 1997 and
September 30, 1997 were paid by the issuance of PIK notes at 12.5% interest.
The PIK Notes must be redeemed prior to April 24, 1999.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
RESULTS OF OPERATIONS
On June 28, 1996, pursuant to a stock purchase agreement, the Company acquired
all of the issued and outstanding capital stock of Transkrit Corporation and
subsidiaries ("Transkrit") for approximately $86.5 million plus transaction
costs. The acquisition has been accounted for using the purchase method of
accounting and accordingly, the results of operations of Transkrit have been
included in the statements of operations of the Company since June 29, 1996.
On February 21, 1997, pursuant to a stock purchase agreement, the Company
acquired all of the issued and outstanding capital stock of Label America,
Inc. ("LAI") for approximately $8.5 million, less outstanding indebtedness,
plus transaction costs. Additional consideration of $700,000 was paid to the
principal stockholder for a noncompete agreement. The acquisition has been
accounted for using the purchase method of accounting and accordingly, the
results of operations of LAI have been included in the statements of
operations of the Company since February 22, 1997.
On April 24, 1997, pursuant to a stock purchase agreement, the Company
acquired all of the issued and outstanding capital stock of AmeriComm Direct
Marketing, Inc. ("ADMI") for approximately $24.6 million plus transaction
costs. Additional consideration of $1.0 million was paid to the principal
stockholder for a noncompete agreement. The acquisition has been accounted for
using the purchase method of accounting and accordingly, the results of
operations of ADMI have been included in the statement of operations of the
Company since April 25, 1997.
The Company has four principal business units: direct mail products and
services, mailer systems, custom pressure sensitive labels and custom
envelopes. The following table summarizes the net sales by business unit.
Three Months Ended September 30, Nine Months Ended September 30,
1997 1996 1997 1996
Direct mail products and services $12,977 $6,020 $26,375 $10,637
Mailer systems 12,773 12,152 36,827 12,152
Custom pressure sensitive labels 13,287 9,718 37,703 11,303
Custom envelopes 13,213 12,061 38,188 37,609
Intra company sales (483) - (705) -
$51,767 $39,951 $138,388 $71,701
THIRD QUARTER OF 1997 COMPARED WITH THE THIRD QUARTER OF 1996:
Net sales for the three month period ended September 30, 1997 increased $11.8
million to $51.8 million, or 29.6% from the comparable 1996 period. The
overall increase in net sales was primarily due to the acquisitions of LAI and
ADMI. Specifically, the increase in net sales for custom pressure sensitive
labels was primarily due to the above mentioned acquisition of LAI. Net sales
for direct mail products and services increased by 115.6% due to the above-
mentioned acquisition of ADMI as well as an increase in the direct mail
products and services base business of 29.1%. Net sales increased 5.1% for
mailer systems from the comparable period in 1996. Net sales increased 9.6%
for custom envelopes from the comparable 1996 period. The custom envelope
increase in net sales was due to an increase in units shipped partially
reduced by a reduction in the average unit selling price.
Gross profit for the three month period ended September 30, 1997 increased
$2.5 million to $15.5 million, or 19.2%, from the comparable 1996 period.
This increase is mostly attributable to the increase in net sales of $11.8
million. Gross profit, as a percentage of net sales, decreased to 29.9% for
the three month period ended September 30, 1997 from 32.5% for the comparable
1996 period.
Selling and administrative expenses for the three month period ended September
30, 1997 increased $1.6 million to $11.3 million, or 16.5%, from the
comparable 1996 period. The increase in these costs is attributable primarily
to the amortization of certain intangible assets recorded in conjunction with
the above mentioned acquisitions and the increase of certain variable costs
due to the increase in net sales discussed above. Also, selling and
administrative expenses, as a percentage of net sales, decreased to 21.8% for
the three month period ended September 30, 1997 from 24.3% for the comparable
1996 period.
Operating income for the three month period ended September 30, 1997 was $4.2
million or 8.2% of net sales as compared to $3.3 million or 8.1% of net sales
for the comparable 1996 period. The increase in operating income is due to
the increase in gross profit partially offset by the increase in selling and
administrative expenses.
Net interest expense for the three month period ended September 30, 1997 was
$3.5 million or 6.8% of net sales as compared to $3.3 million or 8.2% of net
sales for the comparable 1996 period. The increase in net interest expense is
due primarily to the increased borrowing on the line-of-credit to fund the
acquisition of LAI. The weighted average interest rate for the three months
ended September 30, 1997 was 11.6% as compared to 12.7% for the comparable
1996 period.
Income tax expense for the three month period ended September 30, 1997 was
$126,000 as compared to an income tax benefit of $8,000 for the comparable
1996 period, resulting in an effective tax rate of 17.6% and 36.4%,
respectively.
EBITDA for the three month period ended September 30, 1997 was $7.4 million or
14.3% of net sales, as compared to $5.5 million or 13.7% of net sales for the
comparable 1996 period. The increase in EBITDA is due to the increase in
operating income and the increase in non-cash depreciation and amortization.
NINE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED WITH NINE MONTHS ENDED SEPTEMBER
30, 1996.
Net sales for the nine month period ended September 30, 1997 increased $66.7
million to $138.4 million, or 93.0%, from the comparable 1996 period. The
overall increase in sales was due to the acquisitions of Transkrit, LAI and
ADMI. Net sales for direct mail products and services increased 148.0% due to
the above-mentioned acquisitions of ADMI and Transkrit as well as an increase
in the direct mail products and services base business of 15.6%. Net sales
for custom envelopes increased $.6 million to $38.2 million or 1.5% from the
comparable 1996 period. The increase in net sales for custom envelopes has
been impacted by an increase in units shipped partially offset by a reduction
in the average unit sales price. The custom envelope increase reflects a
focus on contract volume business.
Gross profit for the nine month period ended September 30, 1997 increased
$21.9 million to $41.4 million, or 112.3%, from the comparable 1996 period.
Gross profit, as a percentage of net sales, increased to 29.9% for the nine
month period ended September 30, 1997 from 27.2% for the comparable 1996
period. The increase in gross profit is due to additional variable margin
contributed as the result of the $66.7 million increase in net sales discussed
above.
Selling and administrative expenses for the nine month period ended September
30, 1997 increased $16.1 million to $32.4 million, or 98.8%, from the
comparable 1996 period. Selling and administrative expenses, as a percentage
of net sales, increased to 23.4% for the nine month period ended September 30,
1997 from 22.7% for the comparable 1996 period. The increase in these costs
is attributable to the amortization of certain intangible assets recorded in
conjunction with the above mentioned acquisitions and the increase of certain
variable costs due to the increase in net sales discussed above.
Operating income for the nine month period ended September 30, 1997 was $9.0
million or 6.5% of net sales, as compared to $3.2 million or 4.5% for the
comparable 1996 period. The increase in operating income is due primarily to
the increase in gross profit partially reduced by the increase in selling and
administrative expenses.
Interest expense for the nine month period ended September 30, 1997 was $10.1
million or 7.3% of net sales, as compared to $4.7 million or 6.5% of net sales
for the comparable 1996 period. The increase in interest expense is due to
the issuance of the Senior Notes to fund the acquisition of Transkrit and the
increased borrowing on the line-of-credit to fund the acquisition of LAI. The
weighted average interest rate for the nine month period ended September 30,
1997 was 12.1% as compared to 13.0% for the comparable 1996 period.
Income tax benefit for the nine month periods ended September 30, 1997 and
1996 was $.4 million and $.3 million, respectively, resulting in effective tax
rates of 32.0% and 37.8%, respectively. As of December 31, 1996, the Company's
tax net operating loss carryforward was $8.6 million.
EBITDA for the nine month period ended September 30, 1997 was $18.0 million or
13.0% of net sales as compared to $7.6 million or 10.6% of net sales for the
comparable 1996 period. The increase in EBITDA is due to the increase in
operating income and the increase in non-cash depreciation and amortization.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities was $4.8 million and $9.1 million
for the nine month periods ended September 30, 1997 and 1996, respectively.
The decrease in the net cash provided by operating activities is mostly due to
the $10.0 million increase in working capital partially offset by the $5.6
million increase in operating income before non-cash charges and realized gain
on disposals. The increase in working capital is due primarily to the
acquisitions of LAI and ADMI, and to a lesser extent, seasonality.
Net cash used in investing activities was $40.6 million and $81.0 million for
the nine month periods ended September 30, 1997 and 1996, respectively,
primarily related to the purchase of LAI and ADMI in 1997 and Transkrit in
1996.
Capital expenditures, excluding acquisitions (but including payments under
capital leases), were $6.4 million and $2.1 million for the nine months ended
September 30, 1997 and 1996, respectively.
Net cash provided by financing activities was $35.9 million and $75.6 million
for the nine months ended September 30, 1997 and 1996, respectively. The net
cash provided by financing activities for the nine month period ended
September 30, 1997 is primarily attributable to the $12.3 million borrowed on
the Company's revolving loan facility used to acquire LAI and to fund working
capital requirements and the $23.3 million capital contribution from AHI used
to purchase ADMI. The net cash provided by financing activities for the nine
month period ended September 30, 1996 is primarily attributable to the $100
million of Senior Notes raised to retire certain long-term and subordinated
debt instruments and to acquire Transkrit.
The Company has up to $25 million of available borrowings from its senior
secured revolving loan facility (the "Revolving Loan"), as amended.
Borrowings on the Revolving Loan are limited to certain levels of receivables
and inventories. As of September 30, 1997, the outstanding balance and
availability on the Revolving Loan was $12.3 million and $12.7 million,
respectively.
Management believes, based on current financial performance of the Company and
anticipated growth, that the cash provided by operations and the availability
under the Company's current revolving credit facility will provide sufficient
funds to support planned capital expenditures, working capital requirements,
debt service requirements, including payments made to AHI for servicing its
debt, and potential acquisitions. The Company anticipates that it will be
required to refinance the Senior Notes at maturity in 2002. No assurance can
be given that the Company will be able to refinance the Senior Notes on terms
acceptable to it, if at all. The ability of the Company to meet its debt
service obligations and reduce its total debt will be dependent, however, upon
the future performance of the Company which, in turn, will be subject to
general economic conditions and to financial, business and other factors,
including factors beyond the Company's control.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
No reportable developments occurred in Legal Proceedings during the quarter
ended September 30, 1997.
Item 2. Changes in Securities - None.
Item 3. Defaults upon Senior Securities - None.
Item 4. Submission of matters to a vote of Security Holders - None.
Item 5. Other Information - None.
Item 6. Exhibits and Reports on Form 8-K -
a) Exhibits
27 - Financial Data Schedule
b) Form 8-K/A Reports
The report dated May 9, 1997 and filed July 8, 1997 presenting the audited
historical financial statements of AmeriComm Direct Marketing, Inc. and the
unaudited combined pro forma financial data of the Company.
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.
AMERICOMM DIRECT MARKETING, INC.
Date: November 14, 1997 /s/ Robert M. Miklas
Robert M. Miklas
President and Chief Executive Officer
(Principal Executive Officer)
Date: November 14, 1997 /s/ Robert B. Webster
Robert B. Webster
Executive Vice President and Chief Financial Officer
(Principal Financial Officer)