-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, RJ78bt0qYOAwlHZo3bN+tSjhhtdVlB1Gtkp76oCtYhzW1MEJ7lPKGBrcX4+OzQm3 z+KIEBqx0QLBQmOGoVorkw== 0000912057-97-027615.txt : 19970814 0000912057-97-027615.hdr.sgml : 19970814 ACCESSION NUMBER: 0000912057-97-027615 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19970628 FILED AS OF DATE: 19970813 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: DAMARK INTERNATIONAL INC CENTRAL INDEX KEY: 0000883324 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-CATALOG & MAIL-ORDER HOUSES [5961] IRS NUMBER: 411551116 STATE OF INCORPORATION: MN FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-19902 FILM NUMBER: 97659141 BUSINESS ADDRESS: STREET 1: 7101 WINNETKA AVENUE NORTH CITY: MINNEAPOLIS STATE: MN ZIP: 55428 BUSINESS PHONE: 6125310066 MAIL ADDRESS: STREET 1: 7101 WINNETKA AVE N CITY: BROOKLYN STATE: MN ZIP: 55428 10-Q 1 10-Q 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 June 28, 1997 [ ] 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: 0-19902 DAMARK INTERNATIONAL, INC. (Exact name of Registrant as specified in its charter) Minnesota 41-1551116 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 7101 Winnetka Avenue North Minneapolis, Minnesota 55428 (Address of principal executive offices) (Zip code) (612) 531-0066 (Registrant's telephone number, including area code) Not Applicable (Former name, former address and former fiscal year, if changed since last report) 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 Act of 1934 during the preceding 12 months, and (2) has been subject to such filing requirements for the past 90 days. Yes X No ------ ------ On August 11, 1997, there were 8,015,815 shares of Class A Common Stock, $.01 par value, of Damark International, Inc. outstanding. DAMARK INTERNATIONAL, INC. INDEX ----- PART I. FINANCIAL INFORMATION PAGE ---- Item 1: Financial Statements. Consolidated Statements of Operations For the Quarter and First Half ended June 28, 1997 and June 29, 1996 1 Consolidated Balance Sheets As of June 28, 1997 and December 31, 1996 2 Consolidated Statements of Cash Flows For the First Half ended June 28, 1997 and June 29, 1996 3 Notes to Consolidated Financial Statements 4 Item 2: Management's Discussion and Analysis of Financial Condition and Results of Operations 6 PART II. OTHER INFORMATION Item 4: Submission of Matters to a Vote of Security Holders 10 Item 6: Exhibits and Reports on Form 8-K 10 DAMARK INTERNATIONAL, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) (UNAUDITED)
Quarter Ended First Half Ended ----------------------- ----------------------- June 28, June 29, June 28, June 29, 1997 1996 1997 1996 ---------- ---------- ---------- ---------- Net revenues . . . . . . . . . . . . . . . . . . . . . . . $147,494 $124,133 $276,116 $241,030 Cost of products and services . . . . . . . . . . . . . . . 105,738 89,203 198,962 174,655 ---------- ---------- ---------- ---------- Gross profit . . . . . . . . . . . . . . . . . . . . . . 41,756 34,930 77,154 66,375 Marketing and administrative expenses . . . . . . . . . . . 38,172 32,695 72,800 64,414 ---------- ---------- ---------- ---------- Operating income . . . . . . . . . . . . . . . . . . . . 3,584 2,235 4,354 1,961 Interest income (expense), net . . . . . . . . . . . . . . (278) 89 (455) 74 Other income (expense), net . . . . . . . . . . . . . . . . (66) 8 (52) 13 ---------- ---------- ---------- ---------- Income before income taxes . . . . . . . . . . . . . . . 3,240 2,332 3,847 2,048 Income tax provision . . . . . . . . . . . . . . . . . . . (1,101) (816) (1,307) (717) ---------- ---------- ---------- ---------- Net income . . . . . . . . . . . . . . . . . . . . . . . $ 2,139 $ 1,516 $ 2,540 $ 1,331 ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- Earnings Per Share: Net income per common share . . . . . . . . . . . . $ .25 $ .17 $ .30 $ .15 Weighted average number of common and dilutive common equivalent shares outstanding . . . . . . . . 8,595 8,930 8,502 8,815 ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
See accompanying notes to consolidated financial statements. 1 DAMARK INTERNATIONAL, INC. CONSOLIDATED BALANCE SHEETS (DOLLAR AMOUNTS IN THOUSANDS) (UNAUDITED) ASSETS
June 28, December 31, 1997 1996 ---------- ---------- Current Assets: Cash and cash equivalents . . . . . . . . . . . . . $ 36 $ 2 Trade accounts receivable, net. . . . . . . . . . . 46,605 30,985 Due from vendors and other, net . . . . . . . . . . 5,799 6,602 Merchandise inventories . . . . . . . . . . . . . . 74,060 53,016 Deferred catalog costs. . . . . . . . . . . . . . . 10,528 6,613 Other . . . . . . . . . . . . . . . . . . . . . . . 1,404 1,257 ---------- ---------- Total current assets. . . . . . . . . . . . . . . 138,432 98,475 Property and Equipment, net . . . . . . . . . . . . . 35,950 35,904 Intangible and Other Assets, net. . . . . . . . . . . 8,029 8,411 ---------- ---------- $182,411 $142,790 ---------- ---------- ---------- ---------- LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities: Accounts payable. . . . . . . . . . . . . . . . . . $ 68,628 $ 41,880 Accrued liabilities . . . . . . . . . . . . . . . . 14,965 15,226 Deferred membership income, net . . . . . . . . . . 16,661 16,292 Deferred income taxes . . . . . . . . . . . . . . . 2,413 2,413 Borrowings under revolving credit facility. . . . . 13,600 3,000 ---------- ---------- Total current liabilities . . . . . . . . . . . . 116,267 78,811 Deferred Income Taxes . . . . . . . . . . . . . . . . 1,435 1,435 ---------- ---------- Shareholders' Equity: Class A Common Stock, $.01 par, 20 million shares authorized; 8,015,815 and 8,052,147 shares issued and outstanding at June 28, 1997 and December 31, 1996, respectively. . . . . . . . . . . . . . . . 81 81 Class B Common Stock, $.01 par, 2 million shares authorized; none issued and outstanding . . . . . -- -- Paid-in capital . . . . . . . . . . . . . . . . . . 75,262 75,637 Accumulated deficit . . . . . . . . . . . . . . . . (10,634) (13,174) ---------- ---------- Total shareholders' equity . . . . . . . . . . . 64,709 62,544 ---------- ---------- $182,411 $142,790 ---------- ---------- ---------- ----------
See accompanying notes to consolidated financial statements. 2 DAMARK INTERNATIONAL, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (DOLLAR AMOUNTS IN THOUSANDS) (UNAUDITED)
First Half Ended ------------------------- June 28, June 29, 1997 1996 ----------- ---------- OPERATING ACTIVITIES: Net income . . . . . . . . . . . . . . . . . . . . . . . . $ 2,540 $ 1,331 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation and amortization . . . . . . . . . . . . . 3,898 3,467 Gain on sale of land . . . . . . . . . . . . . . . . . (152) -- Changes in working capital items - Receivables . . . . . . . . . . . . . . . . . . . . (14,817) 4,241 Merchandise inventories . . . . . . . . . . . . . . (21,044) (2,831) Deferred catalog costs and other current assets . . (4,062) (1,213) Accounts payable and accrued liabilities . . . . . . 26,487 (1,375) Deferred membership income . . . . . . . . . . . . . 369 1,323 ----------- ---------- Net cash provided by (used in) operating activities. (6,781) 4,943 ----------- ---------- INVESTING ACTIVITIES: Property and equipment additions, net . . . . . . . . . . . (3,340) (2,844) Other, net . . . . . . . . . . . . . . . . . . . . . . . . . (70) (671) ----------- ---------- Net cash used in investing activities . . . . . . . (3,410) (3,515) ----------- ---------- FINANCING ACTIVITIES: Borrowings under revolving credit facility, net . . . . . . 10,600 -- Payments on long term debt . . . . . . . . . . . . . . . . . -- (250) Repurchase and retirement of common stock . . . . . . . . . (454) (3,757) Net proceeds from employee exercise of stock options . . . . 79 131 ----------- ---------- Net cash provided by (used in) financing activities. 10,225 (3,876) ----------- ---------- Increase (decrease) in cash and cash equivalents . . 34 (2,448) Cash and cash equivalents, beginning of period . . . . . . . 2 8,670 ----------- ---------- Cash and cash equivalents, end of period . . . . . . . . . . $ 36 $ 6,222 ----------- ---------- ----------- ---------- SUPPLEMENTAL CASH FLOW INFORMATION: Interest paid during the period . . . . . . . . . . . . . . $ 240 $ 50 Income taxes paid during the period . . . . . . . . . . . . 630 875 ----------- ---------- ----------- ----------
See accompanying notes to consolidated financial statements. 3 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1) BASIS OF PRESENTATION The consolidated financial statements included herein have been prepared by Damark International, Inc. (the "Company") without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. The information furnished in these financial statements includes normal recurring adjustments and reflects all adjustments which, in the opinion of management, are necessary for a fair presentation of such financial statements. 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 such rules and regulations. Although the Company believes that the disclosures are adequate to make the information presented not misleading, it is suggested that these financial statements be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company's 1996 Annual Report to Shareholders and the Form 10-K filed with the Securities and Exchange Commission. Due to the seasonality of the Company's business, net revenues and operating results for the quarter and first half ended June 28, 1997 are not necessarily indicative of the results to be expected for the full year. The Company's fiscal year ends on December 31; however, each quarter ends on the last Saturday of a thirteen week period. As a result, the operating results for the first half of 1997 and 1996 included 179 and 181 days, respectively. In the Company's opinion, this difference in days does not materially affect the comparability of the financial results for the periods presented. (2) EARNINGS PER COMMON SHARE Primary and fully diluted earnings per common share are based on the weighted average number of common and common equivalent shares outstanding during each period. Common equivalent shares include, among others, the dilutive effect of stock options which are assumed to be exercised or converted into common shares as of the beginning of the applicable period. Fully diluted earnings per share did not differ significantly from primary earnings per share for any period presented. On March 3, 1997, the Financial Accounting Standards Board released Statement of Financial Accounting Standards No. 128, "Earnings Per Share" ("FASB No. 128"). FASB No. 128 establishes standards for computing and presenting earnings per share ("EPS") and is effective December 15, 1997. Under FASB No. 128, the presentation of primary EPS is replaced with a presentation of basic EPS and fully diluted EPS is replaced with diluted EPS. Although early adoption of FASB No. 128 is not permitted, FASB No. 128 requires the restatement of prior years' earnings per share amounts. Earnings per share, determined in accordance with FASB No. 128, would have been as follows for the second quarter and first half of 1997 and 1996: Basic Diluted Quarter Ended EPS EPS ------------------------------ --------- ---------- June 28, 1997. . . . . . . . . $.27 $.25 June 29, 1996. . . . . . . . . .18 .17 --------- ---------- --------- ---------- First Half Ended ------------------------------ June 28, 1997. . . . . . . . . $.32 $.30 June 29, 1996. . . . . . . . . .15 .15 --------- ---------- --------- ---------- 4 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (3) FINANCING ARRANGEMENTS In June 1997, the Company amended its bank credit facility. The Company currently has a $50 million credit facility, consisting of a revolving line of credit and letter of credit facility available through March 1999. The credit facility includes a $45 million sublimit available for working capital and stand-by letter of credit requirements with the entire facility available for documentary letters of credit, in each case subject to a defined borrowing base. Borrowings outstanding under the line of credit bear interest, at the Company's option, at the prime rate of interest or LIBOR plus 1.75% and are collateralized by receivables, inventories, intangible assets and property and equipment other than buildings, land and vehicles. At June 28, 1997, the Company had borrowings outstanding of $13.6 million under its revolving line of credit and letters of credit outstanding of $5.9 million. The agreement with respect to the credit facility includes covenants which, among other matters, require the Company to satisfy certain financial tests and ratios and places certain limitations on the incurrence of additional indebtedness and the level of capital expenditures. The Company is in compliance with all covenants of its credit facility at June 28, 1997. (4) COMMITMENTS AND CONTINGENCIES During first half 1997, stock option transactions were as follows:
Weighted Average Shares Exercise Price ----------- ----------------- Options outstanding, January 1, 1997 . . 1,188,672 $ 8.31 Options granted. . . . . . . . . . . . 64,000 13.15 Options canceled . . . . . . . . . . . (8,335) 8.11 Options exercised. . . . . . . . . . . (11,168) 7.11 ----------- ---------- Options outstanding, June 28, 1997 . . . 1,233,169 $ 8.56 ----------- ---------- ----------- ---------- Options exercisable, June 28, 1997 . . . 768,185 $ 8.19 ----------- ---------- ----------- ----------
(5) COMMON STOCK During the first half of 1997 and 1996, the Company repurchased 47,500 and 508,000 shares, respectively, of its Class A Common Stock in open market transactions. 5 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS The selected financial data presented below under the caption "Statements of Operations Data" for each of the periods presented are derived from the Company's consolidated financial statements and express the specific item noted as a percentage of the Company's net revenues for the applicable period.
Second Quarter First Half ------------------ ------------------- 1997 1996 1997 1996 -------- -------- -------- --------- STATEMENTS OF OPERATIONS DATA: Net revenues . . . . . . . . . . . . . 100.0% 100.0% 100.0% 100.0% Gross profit . . . . . . . . . . . . . 28.3 28.1 27.9 27.5 Marketing and administrative expenses. 25.9 26.3 26.4 26.7 Operating income . . . . . . . . . . . 2.4 1.8 1.6 0.8 Net income . . . . . . . . . . . . . . 1.5 1.2 0.9 0.6 -------- -------- -------- --------- -------- -------- -------- ---------
Net revenues for second quarter 1997 of $147.5 million increased $ 23.4 million, or 18.8%, as compared with net revenues for second quarter 1996. This increase in net revenues was primarily the result of an increase in overall circulation from 34.1 million catalogs mailed during second quarter 1996 to 40.4 million catalogs mailed during second quarter 1997 and an increase in sales per catalog mailed to $3.76, as compared with sales productivity per catalog mailed of $3.71 in second quarter 1996. The sales productivity, on a per catalog basis, in second quarter 1997 reflects the increased mix of product sales to members of the Company's club, members generally have the highest sales productivity rate, to 49% of product sales, as compared with 46% of product sales in second quarter 1996 and the availability of more flexible installment billing plans being offered to its customers. During first half 1997, net revenues of $276.1 million increased by $35.1 million or 14.6%, as compared to $241.0 million in first half 1996. This increase in net revenues was primarily the result of the increase in catalogs mailed in first half 1997, as compared to first half 1996 and an increase in sales per catalog mailed to $3.88 in first half 1997, as compared to $3.69 per catalog mailed in first half 1996
Second Quarter First Half ------------------ ------------------- 1997 1996 1997 1996 -------- -------- -------- --------- CATALOG STATISTICS: Number of catalogs mailed (in thousands) . . 40,400 34,100 75,000 67,800 Average order - total company. . . . . . . . $ 180 $ 168 $ 176 $ 168 Response rate - total company. . . . . . . . 2.09% 2.21% 2.21% 2.19% Sales per catalog: Front-end (new) customers . . . . . . . . $1.86 $2.06 $1.93 $2.07 Non-club (back-end) customers . . . . . . $3.57 $3.24 $3.57 $3.40 Club (back-end) customers . . . . . . . . $9.71 $8.51 $9.01 $8.02 Total company . . . . . . . . . . . . . . $3.76 $3.71 $3.88 $3.69 -------- -------- -------- --------- -------- -------- -------- ---------
Product returns from customers decreased to 14.3% of gross product sales in second quarter 1997, as compared with 15.4% in second quarter 1996, due primarily to reduced product returns in the computer and electronic categories. During second quarter, the Company implemented a revised product return policy which, among other things, generally shortened the overall period for which customers were allowed to return products . Product returns for first half 1997 were 15.0%, consistent with the overall product return rate for first half 1996. 6 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) In addition to product shipments, net revenues include membership fees earned from the Company's clubs. These fees increased from $12.4 million in second quarter 1996 to $15.7 million in second quarter 1997. Approximately 185,000 new club members were added during second quarter 1997, as compared with 134,000 new members in second quarter 1996. The increase in new members added during second quarter 1997 was primarily the result of the success of the Vacation Passport and Insiders' clubs which were introduced during the last half of 1996. During second quarter 1997, the number of members renewing their membership for an additional year continued to increase as 195,000 members renewed during second quarter 1997, as compared with 177,000 members in second quarter 1996. Total club membership was 1,134,000 at June 28, 1997, as compared with 1,015,000 members at June 29, 1996.
Second Quarter First Half ---------------------- ----------------------- 1997 1996 1997 1996 ---------- ---------- ---------- ----------- MEMBERSHIP STATISTICS: Members, at period end . . . . . . . . . . . 1,134,000 1,015,000 1,134,000 1,015,000 Number of new members. . . . . . . . . . . . 185,000 134,000 364,000 244,000 Number of members renewed. . . . . . . . . . 195,000 177,000 392,000 361,000 ---------- ---------- ---------- ----------- ---------- ---------- ---------- -----------
The Company's overall product profit margin is affected by the mix of sales of the six primary product categories which the Company sells, the mix of sales to Preferred Buyers' Club and Insiders' Club members who receive a 10% discount, and shipping and handling revenue. Products with higher price points, such as computers, consumer electronics and home office products, generally have lower percentage profit margins but provide higher actual dollar margin contribution per unit. Conversely, products with lower price points, such as home decor, home improvement and sports/fitness products, generally have higher percentage profit margins but provide less actual dollar margin contribution per unit.
Second Quarter First Half ------------------ ------------------- 1997 1996 1997 1996 -------- -------- -------- --------- PERCENT OF SALES BY CUSTOMER SEGMENT: Front-end customers . . . . . . . . . . . . . 28% 28% 26% 30% Non-club customers. . . . . . . . . . . . . . 23 26 24 24 Club customers. . . . . . . . . . . . . . . . 49 46 50 46 -------- -------- -------- --------- 100% 100% 100.0% 100.0% -------- -------- -------- --------- -------- -------- -------- --------- PERCENT OF SALES BY PRODUCT SEGMENT: Computers . . . . . . . . . . . . . . . . . . 31.7% 29.1% 32.1% 30.6% Home Office . . . . . . . . . . . . . . . . . 13.7 15.7 14.9 17.2 Consumer Electronics. . . . . . . . . . . . . 17.9 16.8 17.8 16.8 Home Decor. . . . . . . . . . . . . . . . . . 13.2 13.1 13.6 12.5 Home Improvements . . . . . . . . . . . . . . 16.8 16.0 15.2 14.3 Sports/Fitness. . . . . . . . . . . . . . . . 6.7 9.3 6.4 8.6 -------- -------- -------- --------- 100.0% 100.0% 100.0% 100.0% -------- -------- -------- --------- -------- -------- -------- ---------
The overall gross profit margin, as a percentage of net revenues, increased to 28.3% in second quarter 1997, as compared with 28.1% for second quarter 1996 and increased to 27.9% in first half 1997, as compared to 27.5% in first half 1996, primarily as a result of the increase in new club members and increased membership fees received from the larger number of renewing club members. The increased product margins realized during the second quarter and first half of 1997, as compared with comparable periods in 1996, were partially offset by a higher mix of product sales to Preferred Buyers' Club and Insiders' members and the increased sales mix of lower margin computer and other electronics products. 7 Marketing and administrative expenses totaled $38.2 million, or 25.9% of net revenues, in second quarter 1997, as compared with $32.7 million, or 26.3% of net revenues, in second quarter 1996. This decrease in selling and administrative expenses, as a percent of net revenue is the result of greater advertising leverage during second quarter 1997 due to an increase in average order and sales productivity rates which resulted from increased installment plan sales and increased sales mix to club customers. On a year to date basis, marketing and administrative expenses decreased, as a percent of net revenues, from 26.7% in first half 1996 to 26.3% in first half 1997. The Company is continuing to incur additional administrative and other costs in connection with the expansion of its infrastructure capabilities and information technology resources. The Company reported net interest expense of $278,000 in second quarter 1997, resulting from interest costs associated with increased borrowings under the Company's bank credit facility. Currently, the Company is experiencing increased working capital requirements as a result of its increased receivable and inventory levels. In second quarter 1996, the Company reported net interest income of $89,000, primarily as a result of income earned from short term investment of its excess cash. The Company's effective tax rate was 34.0% and 35.0% for second quarter 1997 and 1996, respectively. As a result of the above factors, the Company reported net income of $2.1 million, or $.25 per share, for second quarter 1997, as compared with net income of $1.5 million, or $.17 per share, for second quarter 1996. For first half 1997, the Company reported net income of $2.5 million or $0.30 per share, as compared to $1.3 million or $0.15 per share in first half 1996. The weighted average number of common shares outstanding during second quarter 1997 decreased to 8.6 million shares, as compared with 8.9 million shares outstanding during second quarter 1996, primarily as a result of the Company's ongoing stock repurchase program. LIQUIDITY AND CAPITAL RESOURCES The Company's liquidity, as measured by its net working capital, was $22.2 million at June 28, 1997, as compared with $19.7 million at December 31, 1996. The Company's current ratio was 1.2 to 1.0 at June 28, 1997, as compared with 1.3 to 1.0 at December 31, 1996. Net cash used in operating activities totaled $6.8 million for first half 1997, as compared with cash provided by operating activities of $4.9 million during the same period in 1996. During 1997, the Company's net working capital requirements increased primarily due to its introduction of six and ten pay installment payment billing plans offered to its customers and increased inventory levels required to meet increased customer demand. Deferred club membership revenue, recorded net of initial direct acquisition-related costs, totaled $16.7 million at June 28, 1997. During first half 1997, the Company made capital expenditures of approximately $4.6 million, as compared with approximately $2.8 million during first half 1996. The expenditures during first half 1997 consisted primarily of computer hardware and software enhancements to enable the Company to provide improved customer service levels and higher operational efficiency standards in an anticipated future growth period. In addition, the Company will open an additional teleservices center during third quarter 1997. The Company continues to evaluate its needs for additional investment to further improve customer satisfaction and enhance information technologies and infrastructure capabilities. Management currently anticipates that the Company will spend between $9 and $11 million for capital expenditures during the year ended December 31, 1997. In June 1997, the Company amended its bank credit facility. The Company currently has a $50 million credit facility consisting of a revolving line of credit and letter of credit facility available through March 1999. The credit facility includes a $45 million sublimit available for working capital and stand-by letter of credit requirements with the entire facility available for documentary letters of credit, in each case subject to a defined borrowing base. Borrowings outstanding under the line of credit bear interest, at the Company's option, at the prime rate of interest or LIBOR plus 1.75% and are collateralized by receivables, inventories, intangible assets and property and equipment other than buildings, land and vehicles. At June 28, 1997, the Company had letters of credit of $5.9 million and borrowings of $13.6 million outstanding under its credit facility. 8 The Company offers its customers varying installment billing plans with no finance charges payable to the Company. As a result, the Company supported installment plan receivables aggregating $35.9 million and $24.3 million at June 28, 1997 and December 31, 1996, respectively. The Company's receivable balance at any time is generally reflective of sales volume fluctuations as approximately 30% to 35% of its net revenues are financed by customers on one of the Company's installment plans. With the recent offering of six pay and ten pay installment plans to its customers, the Company anticipates that its overall receivable balance will continue to increase. As a result, the Company is currently exploring alternative methods to finance these receivables over the longer term. In the shorter term, the Company expects to fund its receivables from internal operations and from availability under its revolving credit facility. In December 1996, the Company's Board of Directors authorized the Company to repurchase up to 400,000 shares of its common stock. During the first half of 1997, the Company repurchased 47,500 shares of its common stock under this program. The Company currently anticipates that cash generated from operations and available borrowing capacity under its current credit facility will be sufficient to fund the Company's operations, expected working capital requirements and capital expenditures for the remainder of 1997. Because the Company anticipates the expansion of its offerings of extended payment plans to customers, it is currently exploring alternative methods of financing these receivables over the longer term. Of course, there can be no assurance that the Company will be able to, among other things, consummate any such alternative methods of financing. SEASONALITY The Company's business is subject to significant seasonal variations in consumer demand which the Company believes are generally associated with the direct marketing and retail industries. Historically, the Company's net revenues are the largest during the fourth calendar quarter and a significant portion of its earnings have been realized during that period. The Company's operating results during this period may be affected by holiday spending patterns, as well as the timing and effectiveness of catalog mailings and general economic and other conditions. In anticipation of its peak selling season, the Company hires additional flex-time employees in its teleservices, order processing and distribution areas, increases its merchandise inventories, and incurs significant catalog production and mailing costs. The Company's annual operating results could be adversely affected if, among other factors, the Company's revenues were to be substantially below seasonal expectations during the October through December period or if a sufficient number of qualified employees would not be available on a flex-time or other non-permanent basis. INFLATION Excluding increases in postage and paper costs, inflation has not had and is not expected to have a material impact on the Company's operating results but there can be no assurance that the Company's business will not be affected by inflation in the future. The Company did experience significant increases in the cost of paper and postage during 1995. While the increases in these areas have subsided, continued cost increases in these areas could have a material impact on advertising and other promotional costs in future periods. FORWARD-LOOKING INFORMATION Forward-looking statements contained herein are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Certain important factors exist that could cause results to differ materially from those anticipated by some of the statements made above. Investors are cautioned that all forward-looking statements involve risks and uncertainty. The factors, among others, that could cause actual results to differ materially include: consumer spending and debt levels, interest rates, continuity of relationships with or purchases from major vendors, product mix, competitive pressure on sales and pricing, increases in catalog production and other costs which cannot be recovered through improved pricing of products and services, and the Company's ability to design, develop, and successfully introduce and market new and existing club concepts. 9 PART II. OTHER INFORMATION ITEM 4. Submission of Matters to a Vote of Security Holders. The Company held its annual meeting of shareholders on April 17, 1997. Pursuant to Regulation 14 of the Securities Exchange Act of 1934, proxies for such meeting were solicited. The following matters were voted on at the meeting:
Withhold Votes For Authority ------------ ------------- 1) To elect the following individuals to serve as members of the Company's Board of Directors until the Annual Meeting of Shareholders in the year 2000: Jack W. Eugster 7,209,784 396,662 Harold Roitenberg 7,209,625 396,821 Votes Votes Broker Votes For Abstained Non-Votes Against ------------ ------------- ------------ ------------- 2) To approve the amendment increasing to 1,200,000 the shares authorized under the DAMARK International, Inc. 1991 Stock Option Plan. 6,066,192 20,903 -- 1,519,350 3) To ratify the appointment of Arthur Andersen LLP as independent auditors of the Company for 1997. 7,588,584 7,753 -- 10,107
ITEM 6. Exhibits and Reports on Form 8-K a. Exhibits: Exhibit 10.1 - Third Amendment to Credit Agreement, dated as of June 23, 1997, by and between the Registrant, the Banks named therein and First Bank National Association, as Agent for the Banks. Exhibit 10.2 - Nonqualified Stock Option Agreement for Stephen J. Hemsley (Filed as Exhibit 4.3 to the Company's Registration Statement on Form S-8 (no. 333-31773)). Exhibit 11 - Computation of Earnings per Share. Exhibit 27 - Financial Data Schedule b. No Form 8-K's were filed during the quarter ended June 28, 1997. 10 SIGNATURE 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. DAMARK INTERNATIONAL, INC. Date: August 11, 1997 By: /s/ Arlyn J. Lomen ----------------------------------- Arlyn J. Lomen Senior Vice President - Finance & Administration Group and Chief Financial Officer 11 EX-10.1 2 EXHIBIT 10.1 THIRD AMENDMENT TO CREDIT AGREEMENT THIS THIRD AMENDMENT TO CREDIT AGREEMENT dated as of June23, 1997 ("this Amendment") by and between DAMARK INTERNATIONAL, INC., a Minnesota corporation (the "Borrower"), the banks which are signatories hereto (individually, a "Bank" and, collectively, the "Banks") and FIRST BANK NATIONAL ASSOCIATION, a national banking association, one of the Banks, as agent for the Banks (in such capacity, the "Agent"). RECITALS A. The Borrower, the Banks and the Agent are parties to a Credit Agreement dated as of March 22, 1996, as amended by a First Amendment dated as of October 18, 1996 and a Second Amendment dated as of February 10, 1997 (as so amended, the "Credit Agreement"). B. The obligations of the Borrower to the Banks under the Credit Agreement are evidenced by three separate Promissory Notes of the Borrower in favor of the Banks each dated March 22, 1996 (collectively, the "Existing Notes"). C. The parties hereto desire to amend the Credit Agreement in the respects hereinafter set forth and to cause the Existing Notes to be amended and restated in their entireties. NOW, THEREFORE, in consideration of the premises and for other good and valuable consideration the receipt and adequacy of which are hereby acknowledged, the parties hereto hereby agree as follows: Section 1. DEFINITIONS. Capitalized terms used herein and not otherwise defined herein, but which are defined in the Credit Agreement, shall have the meanings ascribed to such terms in the Credit Agreement unless the context otherwise requires. Section 2. AMENDMENTS TO CREDIT AGREEMENT. Subject to Section 4 hereof, the Credit Agreement is hereby amended as follows: (a) The definition of the term "Commitment Amount" set forth in Section 1.1 thereof is amended to read as follows: "COMMITMENT AMOUNT": With respect to a Bank, the amount set opposite such Bank's name on Exhibit 1.1-E hereto as its Commitment Amount, but as the same may be reduced from time to time pursuant to Section 2.14. (b) The definition of the term "Loan/Standby Letter of Credit Sublimit" set forth in Section 1.1 thereof is amended to read as follows: "LOAN/STANDBY LETTER OF CREDIT SUBLIMIT": With respect to a Bank, the amount set opposite such Bank's name on Exhibit 1.1-E hereto as its Loan/Standby Letter of Credit Sublimit, but as the same may be reduced from time to time pursuant to Section 2.14. (c) Section 6.9 thereof is amended to read as follows: Section 6.9 CAPITAL EXPENDITURES. The Borrower will not, and will not permit any Subsidiary to, make Capital Expenditures in an amount exceeding, on a consolidated basis, (a) $11,500,000 in its fiscal year ending December31, 1997 or (b) $10,000,000 in its fiscal year ending December 31, 1998 or in any fiscal year thereafter; provided, however, that Capital Expenditures made, with the prior written consent of the Majority Banks, from equity capital specifically raised by the Borrower for the purpose of making such Capital Expenditures shall not be subject to the foregoing limitations. (d) Section 6.19 thereof is amended to read as follows: Section 6.19 EBITDA. The Borrower will not permit EBITDA as of any date set forth below, for the period of four consecutive fiscal quarters ending on such date, to be less than the minimum amount set opposite that date: Four-Quarter Minimum Period Ending EBITDA ------------- ------- 6/30/97 $11,400,000 9/30/97 $11,700,000 12/31/97 and on the last day of any fiscal quarter thereafter $11,900,000 -2- (e) Section 6.21 thereof is amended to read as follows: Section 6.21 CLEAN-DOWN. The Borrower shall cause the sum of (a) the aggregate principal balance of all Loans outstanding, plus (b) the remainder of (i) the aggregate maximum amount available to be drawn under outstanding Standby Letters of Credit plus the aggregate amount of Unpaid Drawings relating to Standby Letters of Credit, minus (ii) the average daily amount of funds on deposit in accounts maintained by the Borrower with the Agent during the calculation period, plus (c) the sum of the aggregate maximum amount available to be drawn under outstanding Documentary Letters of Credit having expiration dates more than 180 days later than the date of determination plus the aggregate amount of Unpaid Drawings relating to Documentary Letters of Credit not to exceed $4,000,000 for at least 60 consecutive days during the period of twelve consecutive months beginning on September1, 1997 and during each period of twelve consecutive months beginning on the first day of each month thereafter occurring. (f) Exhibit 1.1-A thereto is amended and restated to be in the form of Exhibit 1.1-A attached to this Amendment. (g) Exhibit 1.1-B thereto is amended and restated to be in the form of Exhibit 1.1-B attached to this Amendment. (h) A new Exhibit 1.1-E is added thereto, which new Exhibit 1.1-E shall be in the form of Exhibit 1.1-E attached to this Amendment. Section 3. REPRESENTATIONS AND WARRANTIES OF THE BORROWER. To induce the Banks and the Agent to execute and deliver this Amendment (which representations and warranties shall survive the execution and delivery of this Amendment), the Borrower represents and warrants to the Agent and the Banks that: (a) this Amendment and the Amended Notes (as hereinafter defined) have been duly authorized, executed and delivered by it and this Amendment and the Amended Notes constitute the legal, valid and binding obligations of the Borrower enforceable against the Borrower in accordance with their respective terms, subject to limitations as to enforceability which -3- might result from bankruptcy, insolvency, reorganization, moratorium or similar laws or equitable principles relating to or limiting creditors' rights generally; (b) the Credit Agreement, as amended by this Amendment, constitutes the legal, valid and binding obligation of the Borrower enforceable against the Borrower in accordance with its terms, subject to limitations as to enforceability which might result from bankruptcy, insolvency, reorganization, moratorium or similar laws or equitable principles relating to or limiting creditors' rights generally; (c) the execution, delivery and performance by the Borrower of this Amendment and the Amended Notes (i) have been duly authorized by all requisite corporate action and, if required, shareholder action, (ii) do not require the consent or approval of any governmental or regulatory body or agency, and (iii) will not (A) violate (1) any provision of law, statute, rule or regulation or its certificate of incorporation or bylaws, (2) any order of any court or any rule, regulation or order of any other agency or government binding upon it, or (3) any provision of any material indenture, agreement or other instrument to which it is a party or by which any of its properties or assets are or may be bound, or (B) result in a breach of or constitute (alone or with due notice or lapse of time or both) a default under any indenture, agreement or other instrument referred to in clause (iii)(A)(3) of this Section 3(c); (d) as of the date hereof, no Default or Event of Default has occurred which is continuing; and (e) all the representations and warranties contained in Article IV of the Credit Agreement are true and correct in all material respects with the same force and effect as if made by the Borrower on and as of the date hereof. Section 4. CONDITIONS TO EFFECTIVENESS OF THIS AMENDMENT. This Amendment shall not become effective until, and shall become effective when, each and every one of the following conditions shall have been satisfied: (a) executed counterparts of this Amendment, duly executed by the Borrower and each of the Banks, shall have been delivered to the Agent; (b) each Bank shall have received a new promissory note substantially in the form attached as Exhibit 1.1-C to the Credit Agreement, payable to such Bank and in a maximum amount equal to such Bank's Commitment Amount as amended by this Amendment, duly executed by the Borrower (as to such Bank, its "Amended Note"), which Amended Note shall constitute an amendment and restatement of the Existing Note payable to such Bank; -4- (c) the Agent shall have received from each Subsidiary a Consent and Agreement of Subsidiary in the form of Attachment 1 hereto (the "Subsidiary Agreements") duly completed and executed by such Subsidiary; (d) the Agent shall have received a copy of the resolutions of the Board of Directors of the Borrower authorizing the execution, delivery and performance by the Borrower of this Amendment, certified by an officer thereof, together with a certificate of an officer of the Borrower certifying as to the incumbency and the true signatures of the officers authorized to execute this Amendment on behalf of the Borrower; and (e) the Agent shall have received the favorable opinion of counsel to Borrower, covering the matters set forth in Sections 3(a), 3(b) and 3(c). Upon receipt of all of the foregoing, (i) the Agent shall notify the Borrower and the Banks that this Amendment has become effective, but the failure of the Agent to give such notice shall not affect the validity of this Amendment or prevent it from becoming effective, (ii) each Bank shall surrender to the Borrower such Bank's Existing Note, marked "renewed but not paid" or words to similar effect; and (iii) the unpaid principal balance outstanding under each Bank's Existing Note, and the interest accrued but unpaid thereon, shall be outstanding under such Bank's Amended Note. Section 5. UCC FILINGS. The Borrower agrees that it will, by not later than September 1, 1997, deliver to the Agent Uniform Commercial Code financing statements prepared for filing with the appropriate filing offices in the State of North Carolina with respect to collateral located at the Borrower's facility in Fayetteville, North Carolina, duly executed by the Borrower. The Borrower further agrees that failure on its part to comply with the foregoing requirement shall constitute an Event of Default under the Credit Agreement. Section 6. COUNTERPARTS AND EFFECTIVENESS. This Amendment may be executed in any number of counterparts, and by different parties hereto in separate counterparts, each of which when so executed and delivered shall be deemed an original, but all such counterparts together shall constitute but one of the same instrument. Section 7. LEGAL EXPENSES. The Borrower agrees to reimburse the Agent for all reasonable out-of-pocket expenses (including attorneys' fees and legal expenses of Dorsey & Whitney LLP, counsel for the Agent) incurred in connection with the negotiation, preparation, execution and delivery of this Amendment. Section 8. AFFIRMATION. Each party hereto affirms and acknowledges that (a) the Credit Agreement as amended by this Amendment remains in full force and effect in accordance with its terms, (b) all references to the "Credit Agreement" -5- or any similar term contained in any other Loan Document shall be deemed to be references to the Credit Agreement as amended hereby and (c) all references to the "Notes" or any similar term contained in the Credit Agreement or any other Loan Document shall be deemed to be references to the Amended Notes. Section 9. CHOICE OF LAW. THIS AMENDMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE INTERNAL LAW, AND NOT THE LAW OF CONFLICTS, OF THE STATE OF MINNESOTA, BUT GIVING EFFECT TO FEDERAL LAWS APPLICABLE TO NATIONAL BANKS. Section 10. SUCCESSORS AND ASSIGNS. This Amendment shall be binding upon the Borrower, the Banks, the Agent and their respective successors and assigns, and shall inure to the benefit of the Borrower, the Bank and the successors and assigns of the Banks and the Agent. [THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK] -6- IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed as of the day and year first above written. DAMARK INTERNATIONAL, INC. By ------------------------------------ Its --------------------------------- FIRST BANK NATIONAL ASSOCIATION, as a Bank and as Agent By ------------------------------------ Title --------------------------------- THE SUMITOMO BANK, LIMITED, CHICAGO BRANCH By ------------------------------------ Title --------------------------------- By ------------------------------------ Title --------------------------------- BANK ONE, MILWAUKEE, NATIONAL ASSOCIATION By ------------------------------------ Title ------------------------------- [Signature Page to Third Amendment to Credit Agreement] S-1 EXHIBIT 1.1-A TO CREDIT AGREEMENT FORMULA FOR BORROWING BASE 1. BORROWING BASE. The "Borrowing Base" as of any date of determination shall be the sum of the following: (a) the product of (i) the aggregate face amount of Eligible Accounts (provided, that the aggregate face amount of Eligible Accounts attributable to installments payable under the Ten Pay Installment Plan that can be taken into account for purposes of this clause 1(a)(i) shall not exceed 30% of the aggregate face amount of all Eligible Accounts), MULTIPLIED BY (ii) 50%; and (b) an amount equal to the lesser of (i) 40% of the lower of cost (determined on a first-in, first-out basis) or market value of Eligible Inventory or (ii) $30,000,000. 2. DEFINITIONS. Capitalized terms used herein which are defined in the Credit Agreement are used herein with the respective meanings attributed thereto in the Credit Agreement. In addition, for the purposes of this Exhibit and for determining the Borrowing Base, the following terms shall have the following respective meanings: "ELIGIBLE ACCOUNTS": the right of the Borrower to receive payment of installments owed to the Borrower on account of sales of inventory (including related shipping and handling fees), membership and other services in the ordinary course of the Borrower's business on the Borrower's installment plans, provided such right to payment: (a) has arisen out of the sale of goods and services by the Borrower within the United States, or, if such goods and services are sold outside the United States, is backed by a letter of credit issued or confirmed by a bank chartered under the laws of the United States or of any State; (b) is the valid, binding and legally enforceable obligation of the obligor and such right to payment has not been subordinated by the Borrower to any other claim against the obligor and such obligor is not (i) the Borrower or an Affiliate of the Borrower, (ii) the United States or any department, agency or instrumentality thereof unless the Borrower shall have complied with the Assignment of Claims Act to the satisfaction of the Agent, (iii) a debtor under any proceeding under the Bankruptcy Code or comparable provision of state or foreign law, (iv) an assignor for the benefit of creditors, or (v) a customer for whom the Borrower has tried, but has been refused, an authorization by the applicable credit card processor in whole or in part; (c) is assignable; (d) is subject to a perfected first security interest in favor of the Agent and is free and clear of any other Lien; (e) is not subject to any claimed offset, counterclaim or other defense with respect thereto (except for return rights and warranty claims not yet asserted); (f) is not unpaid for more than 30 days from the date that payment thereof is due or for more than (i) 300 days from the date of the relevant invoice, in the case of installments payable on sales made under the Ten Pay Installment Plan, (ii) 180 days from the date of the relevant invoice, in the case of installments payable on sales made under the Six Pay Installment Plan, or (iii) 120 days from the date of the relevant invoice, in the case of installments payable under the Four Pay Installment Plan; (g) is not owed by an obligor who is obligated on accounts owed to the Borrower more than 10% of the aggregate unpaid balance of which remains unpaid for longer than the relevant periods specified in clause (f) above; and (h) is not, as reasonably determined by the Agent in its discretion, uncollectible or otherwise disqualified; PROVIDED, that the Agent shall, notwithstanding the foregoing, have the right, in the reasonable exercise of its discretion, to establish reserves against the aggregate amount of Eligible Accounts. "ELIGIBLE INVENTORY": all inventory held by the Borrower for sale in the ordinary course of business, less any reserves maintained by the Borrower, and which: (a) is subject to a perfected, first priority security interest in favor of the Agent free and clear of all other Liens; (b) is located at one of the locations set forth in the Security Agreement or in any schedule delivered pursuant thereto as a location at which inventory is kept, and is not in transit (other than inventory in transit to a location set forth in the Security Agreement or in any schedule delivered pursuant thereto as a location at which inventory is kept and which has been shipped pursuant to a Documentary Letter of Credit); (c) is not so identified to a contract to sell that it is evidenced by an account; (d) is of good and merchantable quality free from any defects which would affect the market value thereof; (e) is not inventory that the Borrower has returned or is in the process of returning, including, but not limited to, inventory classified by the Borrower as "C-Goods"; (f) is insured against loss or damage in accordance with the provisions of the Security Agreement; (g) is not subject to or covered by a negotiable document of title, including, without limitation, negotiable warehouse receipts and negotiable bills of lading; (h) is not stored in a public warehouse or held by any Person as bailee, unless the terms of such storage or bailment are satisfactory to the Agent; and (i) does not consist of packaging supplies; PROVIDED, that the Agent shall, notwithstanding the foregoing, have the right, in the reasonable exercise of its discretion, to establish reserves against the aggregate amount of Eligible Inventory. "FOUR PAY INSTALLMENT PLAN": an installment payment plan of the Borrower which requires the customer to make payment in four consecutive monthly installments, the first installment of which is to be paid at or before shipment of the item sold. "SIX PAY INSTALLMENT PLAN": an installment payment plan of the Borrower which requires the customer to make payment in six consecutive monthly installments, the first installment of which is to be paid at or before shipment of the item sold. "TEN PAY INSTALLMENT PLAN": an installment payment plan of the Borrower which requires the customer to make payment in ten consecutive monthly installments, the first installment of which is to be paid at or before shipment of the item sold. EXHIBIT 1.1-B TO CREDIT AGREEMENT BORROWING BASE CERTIFICATE Borrowing Base as of ______________________, 199___ To: First Bank National Association: The undersigned hereby certifies to First Bank National Association that as of the date above, the Borrowing Base for DAMARK INTERNATIONAL, INC. was as follows: 1. Total Accounts $__________ 2. LESS Ineligible Accounts ($_________ ) 3. Eligible Accounts (Line 1 - Line 2) $__________ 4. Total "Ten Pay" Eligible Accounts $__________ 5. 30% of Line 3 $__________ 6. Line 4 LESS Line 5 (but not less than zero) $__________ 7. Line 3 LESS Line 6 $__________ 8. TIMES Availability Rate x 50% 9. Borrowing Base Amount (Line 7 x Line 8) $__________ 10. Total Inventory $__________ 11. LESS Ineligible Inventory ($__________) 12. Eligible Inventory (Line 10 - Line 11) $__________ 13. TIMES Availability Rate x 40% 14. Borrowing Base Amount (Line 12 x Line 13 but not more than $30,000,000) $__________ 15. Total Borrowing Base (Line 9 + Line 14 but not to exceed $50,000,000) $__________ 16. Loans Outstanding $__________ 17. Standby Letters of Credit Outstanding $__________ 18. Documentary Letters of Credit Outstanding $__________ 19. Total Outstandings (Line 16 + Line 17 + Line 18) $__________ 20. Additional Availability or (Deficiency) (Line 15 - Line 19) $__________ Capitalized terms are used herein as defined in the Credit Agreement dated as of March 22, 1996 and the Exhibits thereto, as the same may be from time to time amended, modified, supplemented or extended. Date of Certificate:__________ , ____ -------------------------------------- Title --------------------------------- For DAMARK INTERNATIONAL, INC. EXHIBIT 1.1-E TO CREDIT AGREEMENT BANK COMMITMENTS Loan/Standby Commitment Letter of Credit Bank Amount Sublimit - ---- ------------ ----------------- First Bank National Association $23,333,334 $21,000,000 The Sumitomo Bank, Limited Chicago Branch 13,333,333 12,000,000 Bank One, Wisconsin 13,333,333 12,000,000 ----------- ----------- Total $50,000,000 $45,000,000 ATTACHMENT 1 TO THIRD AMENDMENT TO CREDIT AGREEMENT CONSENT AND AGREEMENT OF SUBSIDIARY _________________________, a Minnesota corporation (the "Subsidiary"), hereby acknowledges and consents to that certain Third Amendment to Credit Agreement dated as of June __, 1997 (the "Amendment") between Damark International, Inc., a Minnesota corporation (the "Borrower"), the Banks which are signatories thereto (the "Banks") and First Bank National Association as Agent for the Banks. The Subsidiary further acknowledges and agrees as follows: (a) All references to the "Credit Agreement" contained in the Guaranty dated as of _____________ (the "Guaranty"), executed by the Subsidiary in favor of the Banks and the Agent, shall hereafter mean and refer to the Credit Agreement dated as of March 22, 1996 between the Borrower, the Banks and the Agent, as heretofore amended, as amended by the Amendment and as the same may hereafter be further amended, supplemented, restated, extended or renewed from time to time. (b) The Guaranty is hereby reaffirmed and shall remain in full force and effect with respect to the Obligations (as defined in the Guaranty). Dated: June __, 1997 SUBSIDIARY: -------------------------------------- By ------------------------------------ Title --------------------------------- EX-11 3 EXHIBIT 11 EXHIBIT 11 DAMARK INTERNATIONAL, INC. COMPUTATION OF EARNINGS PER SHARE (DOLLAR AND SHARE AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) (UNAUDITED)
Quarter Ended First Half Ended ---------------------- ----------------------- June 28, June 29, June 28, June 29, 1997 1996 1997 1996 ---------- ---------- ---------- ----------- PRIMARY EARNINGS PER SHARE - -------------------------- Income applicable to common stock . . . . . . . . . $2,139 $1,516 $2,540 $1,331 ------- ------- -------- -------- ------- ------- -------- -------- Weighted average number of common and common equivalent shares outstanding: Weighted average common shares outstanding . 8,026 8,461 8,040 8,581 Dilutive effect of stock options after application of treasury stock method . . . . 417 402 386 201 ------- ------- -------- -------- 8,443 8,863 8,426 8,782 ------- ------- -------- -------- ------- ------- -------- -------- Income per common and common equivalent share . . . . . . . . . . . . . . . . . . . . . $ .25 $ .17 $ .30 $ .15 ------- ------- -------- -------- ------- ------- -------- -------- FULLY DILUTED EARNINGS PER SHARE - -------------------------------- Income applicable to common stock . . . . . . . . . $2,139 $1,516 $2,540 $1,331 ------- ------- -------- -------- ------- ------- -------- -------- Weighted average number of common and common equivalent shares outstanding: Weighted average common shares outstanding . 8,026 8,461 8,040 8,581 Dilutive effect of stock options after application of treasury stock method . . . . 569 469 462 234 ------- ------- -------- -------- 8,595 8,930 8,502 8,815 ------- ------- -------- -------- ------- ------- -------- -------- Income per common and common equivalent share . . . $ .25 $ .17 $ .30 $ .15 ------- ------- -------- -------- ------- ------- -------- --------
12 EX-27 4 EXHIBIT 27
5 1,000 6-MOS DEC-31-1997 JAN-01-1997 JUN-28-1997 36 0 52,404 0 74,060 138,432 35,950 19,904 182,411 116,267 0 0 0 81 64,628 182,411 276,116 276,116 198,962 271,762 507 0 455 3,847 1,307 3,847 0 0 0 2,540 .30 .30
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