SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended March 31, 1998
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 1-13792
GLOBAL DIRECTMAIL CORP
(Exact name of registrant as specified in its charter)
Delaware 11-3262067
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
22 Harbor Park Drive
Port Washington, New York 11050
(Address of registrant's principal executive offices)
(516) 625-1555
(Registrant's telephone number, including area code)
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.
[X] Yes [ ] No
The number of shares outstanding of the registrant's Common Stock as of May 14,
1998 was 38,231,990.
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
GLOBAL DIRECTMAIL CORP
Condensed Consolidated Balance Sheets
(IN THOUSANDS)
March 31, December 31,
1998 1997
(Unaudited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 55,961 $ 43,432
Short term investments 8,095 9,017
Accounts receivable, net 148,693 132,741
Inventories 105,382 102,599
Prepaid expenses and current assets 28,953 25,541
--------- ----------
Total current assets 347,084 313,330
PROPERTY, PLANT AND EQUIPMENT, net 30,999 29,401
GOODWILL, net 53,959 53,258
OTHER ASSETS 3,759 3,756
--------- ----------
TOTAL $ 435,801 $ 399,745
========= ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued expenses $ 148,787 $ 125,562
Current portion of long term debt 12 12
--------- ----------
Total current liabilities 148,799 125,574
--------- ----------
LONG TERM DEBT 2,006 1,972
--------- ----------
SHAREHOLDERS' EQUITY:
Preferred shares - -
Common shares 382 382
Additional paid-in capital 176,743 176,743
Retained earnings 110,069 97,204
Cumulative translation adjustment (2,198) (2,130)
---------- -----------
Total shareholders' equity 284,996 272,199
--------- ----------
TOTAL $ 435,801 $ 399,745
========= ==========
See notes to condensed consolidated financial statements.
GLOBAL DIRECTMAIL CORP
Condensed Consolidated Statements of Income
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
THREE MONTH
PERIODS ENDED
MARCH 31,
1998 1997
(Unaudited)
NET SALES $ 358,358 $ 273,537
COST OF SALES 282,989 204,130
--------- ----------
GROSS PROFIT 75,369 69,407
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 55,291 50,776
---------- ----------
INCOME FROM OPERATIONS 20,078 18,631
INTEREST AND OTHER INCOME, net 842 710
---------- ----------
INCOME BEFORE INCOME TAXES 20,920 19,341
PROVISION FOR INCOME TAXES 8,055 7,253
----------- ----------
NET INCOME $ 12,865 $ 12,088
=========== ==========
Net income per common share:
Basic and Diluted $ .34 $ .32
=========== ==========
Common and common equivalent shares outstanding:
Basic 38,232 37,857
========== ==========
Diluted 38,351 38,188
========== ==========
See notes to condensed consolidated financial statements
GLOBAL DIRECTMAIL CORP
Condensed Statement of Consolidated Shareholders' Equity
(IN THOUSANDS)
Additional Cumulative
Common Paid-in Retained Translation
SHARES CAPITAL EARNINGS ADJUSTMENT
BALANCES, DECEMBER 31, 1997 $ 382 $ 176,743 $ 97,204 $ (2,130)
Difference arising from translation
of foreign statements (68)
Net income 12,865
-------- ---------- --------- --------
BALANCES, MARCH 31, 1998 $ 382 $ 176,743 $110,069 $(2,198)
======== ========== ========= ========
See notes to condensed consolidated financial statements.
GLOBAL DIRECTMAIL CORP
Condensed Statements of Consolidated Cash Flows
(IN THOUSANDS)
THREE-MONTH PERIOD
ENDED MARCH 31,
1998 1997
-----------------------
(UNAUDITED)
CASH FLOWS PROVIDED BY OPERATING ACTIVITIES:
Net income $ 12,865 $ 12,088
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization, net 1,882 1,081
Provision for returns and doubtful accounts 1,943 (703)
Changes in certain assets and liabilities:
Accounts receivable (18,254) (13,023)
Inventories (2,631) 4,704
Prepaid expenses and current assets (3,499) 739
Accounts payable and accrued expenses 22,867 2,043
--------- ---------
Net cash provided by operating activities 15,173 6,929
--------- ---------
CASH FLOWS USED IN INVESTING ACTIVITIES:
Net change in short term instruments 922 (5,293)
Investments in property, plant and equipment (3,089) (1,504)
Acquisition of net assets of business acquired (895) -
---------- ----------
Net cash used in investing activities (3,062) (6,797)
---------- ----------
CASH FLOWS USED IN FINANCING ACTIVITIES:
Net repayments of short-term bank debt - (467)
--------- ----------
Net cash used in financing activities - (467)
--------- ----------
EFFECTS OF EXCHANGE RATES ON CASH 418 607
--------- ---------
NET INCREASE IN CASH AND CASH EQUIVALENTS 12,529 272
CASH AND CASH EQUIVALENTS - BEGINNING OF PERIOD 43,432 35,211
--------- ---------
CASH AND CASH EQUIVALENTS - END OF PERIOD $ 55,961 $ 35,483
========= =========
See notes to condensed consolidated financial statements.
GLOBAL DIRECTMAIL CORP
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. DESCRIPTION OF BUSINESS
The accompanying consolidated financial statements include the accounts of
Global DirectMail Corp and its wholly-owned subsidiaries (collectively, the
"Company" or "Global"). The Company is involved in the marketing and sale
of personal computers (PCs), notebook computers, computer related products,
office products and industrial products in North America and Europe. Global
markets those products through the distribution of mail order catalogs, a
network of major account sales representatives and the Internet.
2. BASIS OF PRESENTATION
Net income per common share - basic was calculated based upon the weighted
average number of common shares outstanding during the respective periods
presented. Net income per common share - diluted was calculated based upon
the weighted average number of common shares outstanding and included the
equivalent shares for dilutive options outstanding during the respective
periods.
All intercompany accounts have been eliminated in consolidation.
In the opinion of the Company, the accompanying unaudited condensed
consolidated financial statements contain all normal and recurring
adjustments necessary to present fairly the financial position of the
Company as of March 31,1998 and the results of operations for the three
months ended March 31, 1998 and 1997, cash flows for the three months ended
March 31, 1998 and 1997 and changes in stockholders' equity for the three
months ended March 31, 1998. The December 31, 1997 consolidated balance
sheet has been extracted from the audited consolidated financial statements
included in the Company's Annual Report on Form 10-K for the year ended
December 31, 1997.
These condensed consolidated financial statements should be read in
conjunction with the Company's audited consolidated financial statements as
of December 31, 1997 and for the period then ended. The results for the
three months ended March 31, 1998 are not necessarily indicative of the
results for an entire year.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
THREE MONTHS ENDED MARCH 31, 1998 COMPARED TO THREE MONTHS ENDED MARCH
31, 1997
Net sales for the quarter increased by $84.8 million or 31% to $358.4
million compared to $273.5 in the year ago quarter. The increase was
attributable primarily to the inclusion of Midwest Micro, which had net
sales of $63 million in the quarter, and an increase in average order
value. Total orders increased to 1,029,000 compared to 939,000 in the
year ago quarter. Catalogs mailed increased by 9% to 46 million
compared to 43 million in the year ago quarter. Sales during the
quarter attributable to North American operations increased 37% to
$279.0 million compared to $203.2 million in the first quarter of 1997.
European sales increased 13% to $79.4 million compared to $70.4 million
in the year ago quarter. On a currency adjusted basis, European sales
for the quarter increased 20%.
Gross profit, which consists of net sales less product and certain
shipping and distribution center costs, increased by $6.0 million or 9%
to $75.4 million compared to $69.4 million in the year ago quarter.
Gross profit as a percentage of net sales was 21.0% compared to 21.2%
in the prior quarter and 25.4% in year ago quarter. The change in the
gross profit percentage from the year ago quarter was primarily due to
the shift in the Company's overall product mix. This shift was
attributable to large increases in the sales of PCs, notebook computers
and brand name products which generally have a lower gross profit
percentage. These sales increases were obtained principally through the
efforts of the Company's major account sales force which experienced
over a 100% sales increase over the year ago quarter and now accounts
for 30% of total sales compared to 19% in the year ago quarter
Selling, general and administrative expenses for the quarter increased
by $4.5 million or 9% to $55.3 million compared to $50.8 million in the
first quarter of 1997. This increase was the result of the inclusion of
Midwest Micro and the Company's continuing investment in its major
account sales force principally in North America. This was partially
offset by an increased level of vendor supported advertising, continued
expense control primarily in Europe, and the overall leveraging of
selling, general and administrative expenses over a larger sales base.
As a result, selling, general and administrative expenses as a
percentage of sales was 15.4% compared to 18.6% in the year ago
quarter.
Income from operations for the quarter increased by $1.4 million or 8%
to $20.1 million from $18.6 million in the year ago quarter. Income
from operations as a percentage of net sales decreased to 5.6% from
6.8% in the year ago quarter. Income from North American operations
decreased by 12% to $16.3 million from $18.6 million in the year ago
quarter. Income from European operations increased to $3.8 million from
a small profit in the year ago quarter.
The effective tax rate for the first quarter of 1998 increased to 38.5%
compared to 37.5% for the first quarter of 1997. The increase in the
rate was due primarily to a higher anticipated proportion of U.S.
income compared to the prior year.
Net income for the quarter was $12.9 million, or $.34 per basic and
diluted share, compared to $12.1 million, or $.32 per basic and diluted
share in the first quarter of 1997.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary capital needs are to fund the working capital
requirements necessitated by its sales growth, investments in property,
equipment and information technology, acquisition of the Company's
stock and acquisitions. The Company's primary sources of financing have
been cash from operations, equity offerings, and, to a lesser extent,
bank borrowings. For the quarter ended March 31, 1998, the Company
generated free cash flow of $12.1 million compared to $5.4 million for
the year ago quarter, which was a result of improved inventory and
other asset management. Free cash flow is defined as cash generated
from operating activities net of additions to property and equipment.
FORWARD LOOKING STATEMENTS
This report contains forward looking statements within the meaning of
that term in the Private Securities Litigation Reform Act of 1995
(Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934). Additional written or oral forward
looking statements may be made by the Company from time to time, in
filings with the Securities Exchange Commission or otherwise.
Statements contained herein that are not historical facts are forward
looking statements made pursuant to the safe harbor provisions
referenced above. Forward looking statements may include, but are not
limited to, projections of revenue, income or loss and capital
expenditures, statements regarding future operations, financing needs,
compliance with financial covenants in loan agreements, plans for
acquisition or sale of assets or businesses and consolidation of
operations of newly acquired businesses, and plans relating to products
or services of the Company, assessments of materiality, predictions of
future events and the effects of pending and possible litigation, as
well as assumptions relating to the foregoing. In addition, when used
in this discussion, the words "anticipates", "believes", "estimates",
"expects", "intends", "plans" and variations thereof and similar
expressions are intended to identify forward looking statements.
Forward looking statements are inherently subject to risks and
uncertainties, some of which cannot be predicted or quantified based on
current expectations. Consequently, future events and actual results
could differ materially from those set forth in, contemplated by, or
underlying the forward looking statements contained in this report.
Statements in this report, particularly in "Item 2. Management's
Discussion and Analysis of Financial Condition and Results of
Operations", and the Notes to Consolidated Financial Statements
describe certain factors, among others, that could contribute to or
cause such differences. Other factors that could contribute to or cause
such differences include, but are not limited to, unanticipated
developments in any one or more of the following areas: (i) the
Company's ability to manage rapid growth as a result of internal
expansion and strategic acquisitions, (ii) the effect on the Company of
volatility in the price of paper and periodic increases in postage
rates, (iii) the operation of the Company's management information
systems including the costs and effects associated with the year 2000
date change problem, (iv) the general risks attendant to the conduct of
business in foreign countries, including currency fluctuations
associated with sales not denominated in United States dollars, (v)
significant changes in the computer products retail industry,
especially relating to the distribution and sale of such products, (vi)
competition in the PC, notebook computer, computer related products,
office products and industrial products markets from superstores,
direct response (mail order) distributors, mass merchants, value added
resellers, the Internet and other retailers, (vii) the potential for
expanded imposition of state sales taxes, use taxes, or other taxes on
direct marketing companies, (viii) the continuation of key vendor
relationships including the ability to continue to receive vendor
supported advertising, (ix) timely availability of existing and new
products, (x) risks due to shifts in market demand and/or price erosion
of owned inventory, (xi) borrowing costs, (xii) changes in taxes due to
changes in the mix of U.S. and non-U.S. revenue, (xiii)pending or
threatened litigation and investigations and (xiv) the availability of
key personnel, as well as other risk factors which may be detailed from
time to time in the Company's Securities and Exchange Commission
filings.
Readers are cautioned not to place undue reliance on any forward
looking statements contained herein, which speak only as of the date
hereof. The Company undertakes no obligation to publicly release the
result of any revisions to these forward looking statements that may be
made to reflect events or circumstances after the date hereof or to
reflect the occurrence of unexpected events.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK.
The Company is exposed to market risks, which include changes in U.S.
and international interest rates as well as changes in currency
exchange rates as measured against the U.S. dollar and each other.
Global attempts to reduce these risks by utilizing certain derivative
financial instruments.
The value of the U.S. dollar affects the Company's financial results.
Changes in exchange rates may positively or negatively affect Global's
sales (as expressed in U.S. dollars), gross margins, operating expenses
and retained earnings. The Company engages in hedging programs aimed at
limiting in part the impact of certain currency fluctuations. Using
primarily forward exchange and foreign currency option contracts,
Global, from time to time, hedges certain of its assets that, when
remeasured according to generally accepted accounting principles, may
impact the Statement of Consolidated Income. These hedging activities
provide only limited protection against currency exchange risks.
Factors that could impact the effectiveness of the Company's hedging
programs include accuracy of sales forecasts, volatility of the
currency markets, availability of hedging instruments and the
credit-worthiness of the parties which have entered into such contracts
with the Company. All currency contracts that are entered into by
Global are for the sole purpose of hedging an existing or anticipated
currency exposure, not for speculative or trading purposes. In spite of
Global's hedging efforts to reduce the effect of changes in exchange
rates against the U.S. dollar, the Company sales or costs could still
be adversely affected by changes in those exchange rates.
As of March 31,1998, the Company had outstanding forward exchange
contracts in the amount of 2.0 million Pounds Sterling, 41.0 million
French Francs and 700.0 million Italian Lire.
PART II - OTHER INFORMATION
ITEM 5. OTHER INFORMATION.
On May 12, 1998 the Company announced that its Board of Directors
approved a stock buyback plan for up to 1,350,000 shares of the
Company's common stock. The shares will be purchased periodically in
the open market and will be used to meet requirements relating to the
Company's stock option plans.
Item 6. EXHIBITS
(a) Exhibits.
3.1 Certificate of Incorporation. (Incorporated herein by
reference to Exhibit 3.1 to the Company's Registration
Statement on Form S-1, File No. 33-92052).
3.2 By-Laws. (Incorporated herein by reference to Exhibit 3.2 to
the Company's Registration Statement on Form S-1, File No.
33-92052).
4.1 Stockholders Agreement. (Incorporated herein by reference
to the Company's quarterly report on Form 10-Q for the
quarterly period ended June 30, 1995).
4.2 Specimen Stock Certificate. (Incorporated herein by reference to
Exhibit 4.2 to the Company's Registration Statement on Form S-1,
File No. 33-92052).
27 Financial Data Schedule.
Reports on Form 8-K.
No reports on Form 8-K were filed by the Company during the
three months ended March 31, 1998.
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.
GLOBAL DIRECTMAIL CORP
Date: May 14, 1998 By: /S/ RICHARD LEEDS
------------------------------------
Richard Leeds
Chairman and Chief Executive Officer
By: /S/ STEVEN GOLDSCHEIN
Steven Goldschein
Senior Vice President and Chief Financial
Officer