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, 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 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 1,
1997 was 37,857,284.
Part I - FINANCIAL INFORMATION
Item 1. Financial Statements
GLOBAL DIRECTMAIL CORP
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
March 31, December 31,
1997 1996
--------- ------------
(Unaudited)
ASSETS
- ------
CURRENT ASSETS:
Cash and cash equivalents $ 35,483 $ 35,211
Short term investments 36,324 31,031
Accounts receivable, net 123,091 111,709
Inventories 87,109 93,033
Prepaid expenses and current assets 22,178 22,998
-------- --------
Total current assets 304,185 293,982
PROPERTY AND EQUIPMENT, net 21,687 21,878
GOODWILL, net 13,855 13,545
OTHER ASSETS 1,783 2,034
-------- --------
TOTAL $341,510 $331,439
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued expenses $99,570 $ 99,053
Current portion of long term debt 15 495
-------- --------
Total current liabilities 99,585 99,548
-------- --------
LONG TERM DEBT 1,969 2,030
-------- --------
DEFERRED INCOME TAXES 1,219 1,224
-------- --------
STOCKHOLDERS' EQUITY:
Preferred stock - -
Common stock 379 379
Additional paid-in capital 168,356 168,356
Retained earnings 70,480 58,392
Cumulative translation adjustment (478) 1,510
-------- --------
Total stockholders' equity 238,737 228,637
-------- --------
TOTAL $ 341,510 $ 331,439
======== ========
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,
--------------
1997 1996
---- ----
(Unaudited)
NET SALES $273,537 $218,732
COST OF SALES 204,130 153,711
-------- --------
GROSS PROFIT 69,407 65,021
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 50,776 46,736
-------- --------
INCOME FROM OPERATIONS 18,631 18,285
INTEREST AND OTHER INCOME, net 710 238
-------- --------
INCOME BEFORE INCOME TAXES 19,341 18,523
PROVISION FOR INCOME TAXES 7,253 7,131
-------- --------
NET INCOME $ 12,088 $ 11,392
======== ========
Net income per common share $ .32 $ .31
======== ========
Common and common equivalent shares outstanding 38,188 37,279
======== ========
See notes to condensed consolidated financial statements
GLOBAL DIRECTMAIL CORP
CONDENSED STATEMENT OF CONSOLIDATED STOCKHOLDERS' EQUITY
(IN THOUSANDS)
Additional Cumulative
Common Paid-in Retained Translation
Stock Capital Earnings Adjustment
------ ---------- -------- -----------
Balances, December 31, 1996 $ 379 $ 168,356 $ 58,392 $ 1,510
Difference arising from translation
of foreign statements (Unaudited) (1,988)
Net income (Unaudited) 12,088
----- --------- -------- -------
Balances, March 31, 1997 (Unaudited) $ 379 $ 168,356 $ 70,480 $ (478)
===== ========= ======== =======
See notes to condensed consolidated financial statements.
GLOBAL DIRECTMAIL CORP
CONDENSED STATEMENTS OF CONSOLIDATED CASH FLOWS
(IN THOUSANDS)
Three-Month Period
Ended March 31,
1997 1996
---- ----
(Unaudited)
CASH FLOWS PROVIDED BY OPERATING ACTIVITIES:
Net income $ 12,088 $ 11,392
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization, net 1,081 1,030
Provision for returns and doubtful accounts (703) 1,317
Changes in assets and liabilities:
Accounts receivable (13,023) (21,493)
Inventories 4,704 (5,187)
Prepaid catalog expense and other prepaid
expenses and current assets 739 3,639
Accounts payable and accrued expenses 2,043 17,814
-------- --------
Net cash provided by operating activities 6,929 8,512
-------- --------
CASH FLOWS USED IN INVESTING ACTIVITIES:
Net change in investments in short term instruments (5,293) -
Additions to property and equipment (1,504) (2,768)
-------- --------
Net cash used in investing activities (6,797) (2,768)
-------- --------
CASH FLOWS PROVIDED BY (USED IN) FINANCING ACTIVITIES:
Net borrowing / repayments of short-term bank debt (467) -
Repayment of long-term debt - (180)
Net proceeds from sale of common stock - 30,176
Other - 16
-------- --------
Net cash provided by (used in) financing activities (467) 30,012
-------- --------
EFFECTS OF EXCHANGE RATES ON CASH 607 278
-------- --------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 272 36,034
CASH AND CASH EQUIVALENTS - BEGINNING OF PERIOD 35,211 28,477
-------- --------
CASH AND CASH EQUIVALENTS - END OF PERIOD $ 35,483 $ 64,511
======== ========
See notes to condensed consolidated financial statements.
GLOBAL DIRECTMAIL CORP
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND BASIS OF PRESENTATION
Global DirectMail Corp ("Global" or the "Company") was incorporated in
April 1995 and is the successor to several corporations owned by related
shareholders. In connection with the consummation of an initial public
offering in June 1995 (the "Initial Public Offering"), the shareholders of
these predecessor companies exchanged all of their outstanding capital stock
for 28,400,000 shares of common stock of the Company.
Pursuant to the Initial Public Offering, Global sold 8,308,750 shares and
in March 1996 the Company completed an additional public offering of 1,000,000
shares.
Net income per common share for the three months ended March 31, 1997 and
1996 were computed based on the weighted average number of common shares and
share equivalents outstanding for 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
31,1997 and the results of operations for the three months ended March 31,
1997 and 1996, cash flows for the three months ended March 31, 1997 and 1996
and changes in stockholders' equity for the three months ended March 31, 1997.
The December 31, 1996 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, 1996.
These condensed consolidated financial statements should be read in
conjunction with the Company's audited consolidated financial statements as of
December 31, 1996 and for the period then ended. The results for the three
months ended March 31, 1997 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, 1997 Compared to Three Months Ended March
31, 1996
Net sales increased by $54.8 million or 25% to $273.5 million in the
first quarter of 1997 from $218.7 million in the first quarter of 1996. The
increase was attributable to (i) an 18% increase in average order value to
$291 in the first quarter of 1997 from $246 in the first quarter of 1996, (ii)
a 6% increase in the number of orders to 939,000 in the first quarter of 1997
from 888,000 in the first quarter of 1996, and (iii) a 7% increase in catalog
response rates to 2.20% in the first quarter of 1997 from 2.05% in the first
quarter of 1996 on catalog mailings that were level with the year ago quarter.
Catalog response rates are calculated as the number of orders entered during
the period divided by the number of catalogs mailed during the period. Sales
attributable to the Company's North American operations increased 33% to
$203.2 million in the first quarter of 1997 from $152.2 million in the first
quarter of 1996 while European sales increased 6% to $70.3 million in the
first quarter 1997 from $66.5 million in the first quarter of 1996. Sales of
computer related products accounted for 78% of total net sales for the first
quarter of 1997, up from 73% of total net sales for the first quarter of 1996
while sales of office products and industrial products each accounted for 11%
of net sales for the first quarter of 1997 compared to 12% and 15%,
respectively, for the first quarter of 1996. The increase in the percentage
of total net sales of computer related products was attributable primarily to
an increase in sales to SOHO (small office / home office) customers which more
than doubled from the year ago quarter.
Gross profit, which consists of net sales less product and certain
shipping and distribution center costs, increased by $4.4 million or 7% to
$69.4 million in the first quarter of 1997 from $65.0 million in the first
quarter of 1996. Gross profit margin decreased to 25.4% of net sales in the
first quarter of 1997 from 29.7% in the first quarter of 1996. The decrease
in gross profit margin is due to increased sales to the SOHO market where
gross profit margins are significantly lower, and the Company's strategic
decision to increase the proportion of net sales attributable to brand name
products, particularly computer related products and hardware which typically
have lower gross profit margins than many of the Company's other products.
Selling, general and administrative expenses decreased as a percentage
of sales, to 18.6% in the first quarter of 1997 from 21.4% in the first
quarter of 1996. Selling, general and administrative expenses increased in
absolute terms by $4.1 million or 9% to $50.8 million in the first quarter of
1997 from $46.7 million in the first quarter of 1996. The dollar increase over
the year ago quarter includes approximately $1.0 million of catalog
prospecting expenses in the form of increased page counts and $0.6 million of
foreign exchange losses resulting from unfavorable exchange rates which were
attributable to the strong dollar. The decrease as a percentage of net sales
was primarily the result of (i) increased levels of vendor supported
advertising in North America, (ii) continued expense control, and (iii) the
leveraging of selling, general and administrative expenses over a larger sales
base.
Income from operations increased by $0.3 million or 2% to $18.6 million
from $18.3 million in the year ago quarter. Income from operations for the
first quarter of 1997 as a percentage of net sales decreased to 6.8% from 8.4%
in the year ago quarter. Income from operations in North America increased by
$3.3 million or 21% over the year ago quarter while income from operations in
Europe decreased by $2.9 million or 99% from the year ago quarter. The
decrease in European profits was due in part to the economic condition in
Germany. The Company's profits from its German operation declined by 90% from
the year ago quarter, in which it was a significant contributor to total
European profits. In addition, the reduction in the European gross profit
margin, which resulted from increased sales of brand name products, was only
partially offset by increases in vendor supported advertising, unlike North
America where the majority of the decline was offset.
Interest and other income, net, increased by $0.5 million to income of
$0.7 million in the first quarter of 1997 from income of $0.2 million in the
first quarter of 1996. Interest income increased as a result of higher
levels of short term investments and higher interest rates for the first
quarter of 1997 compared to the first quarter of 1996.
Net income increased $0.7 million to $12.1 million in the first quarter
of 1997 from $11.4 million in the first quarter of 1996. The effective tax
rate for the first quarter of 1997 was 37.5% compared to 38.5% for the first
quarter of 1996.
Liquidity and Capital Resources
The Company's primary capital needs are (i) to fund the working capital
requirements necessitated by its sales growth and, (ii) acquisitions. The
Company's primary sources of financing have been cash from operations, equity
offerings, and to a lesser extent, bank borrowings.
PART II - OTHER INFORMATION
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.
(b) Reports on Form 8-K.
No reports on Form 8-K were filed by the Company during the
three months ended March 31, 1997.
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 15, 1997 By: /s/ Richard Leeds
----------------------------------
Richard Leeds
Chairman and Chief Executive Officer
By: /s/ Bruce Leeds
----------------------------------
Bruce Leeds
Chief Financial Officer (Principal
Financial Officer)