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 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 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 August
12, 1997 was 37,855,883.
Part I - FINANCIAL INFORMATION
Item 1. Financial Statements
GLOBAL DIRECTMAIL CORP
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CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
- ------------------------------------------------------------------------------
June 30, December 31,
1997 1996
-------- ------------
(Unaudited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 46,754 $ 35,211
Short term investments 24,630 31,031
Accounts receivable, net 119,418 111,709
Inventories 87,425 93,033
Prepaid expenses and current assets 22,739 22,998
-------- --------
Total current assets 300,966 293,982
PROPERTY AND EQUIPMENT, net 22,593 21,878
GOODWILL, net 14,608 13,545
OTHER ASSETS 1,668 2,034
-------- --------
TOTAL $339,835 $331,439
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued expenses $ 86,552 $ 99,053
Current portion of long term debt 4 495
-------- --------
Total current liabilities 86,556 99,548
-------- --------
LONG TERM DEBT 2,007 2,030
-------- --------
DEFERRED INCOME TAXES 1,522 1,224
-------- --------
MINORITY INTEREST IN CONSOLIDATED SUBS 228 -
-------- --------
STOCKHOLDERS' EQUITY:
Preferred stock - -
Common stock 379 379
Additional paid-in capital 168,356 168,356
Retained earnings 82,145 58,392
Cumulative translation adjustment (1,358) 1,510
-------- --------
Total stockholders' equity 249,522 228,637
-------- --------
TOTAL $339,835 $331,439
======== ========
See notes to condensed consolidated financial statements.
GLOBAL DIRECTMAIL CORP
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CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
- ------------------------------------------------------------------------------
Three Months Ended Six Months Ended
June 30, June 30,
------------------- -------------------
1997 1996 1997 1996
-------- -------- -------- --------
(unaudited) (unaudited)
NET SALES $259,485 $213,707 $533,022 $432,439
COST OF SALES 195,318 153,637 399,448 307,348
-------- -------- -------- --------
GROSS PROFIT 64,167 60,070 133,574 125,091
SELLING, GENERAL AND ADMINISTRATIVE 46,281 44,601 97,057 91,337
-------- -------- -------- --------
INCOME FROM OPERATIONS 17,886 15,469 36,517 33,754
INTEREST AND OTHER INCOME, net 778 445 1,488 683
-------- -------- -------- --------
INCOME BEFORE INCOME TAXES 18,664 15,914 38,005 34,437
PROVISION FOR INCOME TAXES 6,999 6,127 14,252 13,258
-------- -------- -------- --------
NET INCOME $ 11,665 $ 9,787 $ 23,753 $ 21,179
======== ======== ======== ========
Net income per common share $ .31 $ .26 $ .62 $ .56
======== ======== ======== ========
Common and common equivalent
shares outstanding 38,158 38,296 38,174 37,819
======== ======== ======== ========
See notes to condensed consolidated financial statements.
GLOBAL DIRECTMAIL CORP
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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) (2,868)
Net income (Unaudited) 11,665
---- -------- ------- -------
Balances, June 30, 1997 (Unaudited) $379 $168,356 $70,480 $(1,358)
==== ======== ======= =======
See notes to condensed consolidated financial statements.
GLOBAL DIRECTMAIL CORP
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CONDENSED STATEMENTS OF CONSOLIDATED CASH FLOWS
(IN THOUSANDS)
- ------------------------------------------------------------------------------
Six-Month Period
Ended June 30,
1997 1996
-------- --------
(Unaudited)
CASH FLOWS PROVIDED BY (USED IN) OPERATING ACTIVITIES:
Net income $ 23,753 $ 21,179
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization, net 2,357 2,051
Provision for returns and doubtful accounts 568 2,133
Changes in assets and liabilities:
Accounts receivable (8,897) (21,087)
Inventories 4,329 (6,751)
Prepaid catalog expense and other prepaid
expenses and current assets 863 4,452
Accounts payable and accrued expenses (12,969) (2,656)
-------- --------
Net cash provided by (used in) operating activities 10,004 (679)
-------- --------
CASH FLOWS PROVIDED BY (USED IN) INVESTING ACTIVITIES:
Net change in investments in short term instruments 6,401 -
Purchase of net assets of O6, including acquisition
costs, less cash acquired (1,295) -
Additions to property and equipment (3,661) (4,462)
-------- --------
Net cash provided by (used in) investing activities 1,445 (4,462)
-------- --------
CASH FLOWS PROVIDED BY (USED IN) FINANCING ACTIVITIES:
Repayment of long-term debt (468) (4,830)
Net proceeds from sale of common stock - 30,146
Other 16 -
-------- --------
Net cash provided by (used in) financing activities (452) 25,316
-------- --------
EFFECTS OF EXCHANGE RATES ON CASH 546 411
-------- --------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 11,543 20,586
CASH AND CASH EQUIVALENTS - BEGINNING OF PERIOD 35,211 28,477
-------- --------
CASH AND CASH EQUIVALENTS - END OF PERIOD $46,754 $ 49,063
======= ========
See notes to condensed consolidated financial statements.
GLOBAL DIRECTMAIL CORP
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
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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 and six months ended June 30,
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 June 30,1997 and the results of operations for the three
and six months ended June 30, 1997 and 1996, cash flows for the six
months ended June 30, 1997 and 1996 and changes in stockholders' equity
for the six months ended June 30, 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 and six months ended June 30, 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 June 30, 1997 Compared to Three Months Ended June 30,
1996
Net sales increased by $45.8 million or 21% to $259.5 million in the
second quarter of 1997 from $213.7 million in the second quarter of 1996. The
increase was attributable to (i) an increase in average order value to $303 in
the second quarter of 1997 from $262 in the second quarter of 1996, (ii) an
increase in the number of orders to 856,000 in the second quarter of 1997 from
816,000 in the second quarter of 1996, and (iii) an increase in catalog
response rates to 2.1% in the second quarter of 1997 from 2.0% in the second
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 20% to
$191.9 million in the second quarter of 1997 from $160.2 million in the second
quarter of 1996 while European sales increased 26% to $67.6 million in the
second quarter 1997 from $53.5 million in the second quarter of 1996.
Gross profit, which consists of net sales less product and certain
shipping and distribution center costs, increased by $4.1 million or 7% to
$64.2 million in the second quarter of 1997 from $60.1 million in the second
quarter of 1996. Gross profit margin decreased to 24.7% of net sales in the
second quarter of 1997 from 28.1% in the second quarter of 1996. The decrease
in gross profit margin was primarily due to the Company's strategic decision
to increase the proportion of net sales attributable to brand name products,
particularly computer related products and hardware which also 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 17.8% in the second quarter of 1997 from 20.9% in the second
quarter of 1996. Selling, general and administrative expenses increased in
absolute terms by $1.7 million or 4% to $46.3 million in the second quarter of
1997 from $44.6 million in the second quarter of 1996. The decrease as a
percentage of net sales was primarily the result of (i) increased levels of
vendor supported advertising, (ii) continued expense control, and (iii) the
leveraging of selling, general and administrative expenses over a larger sales
base.
Income from operations increased by $2.4 million or 16% to $17.9 million
from $15.5 million in the year ago quarter. Income from operations for the
second quarter of 1997 as a percentage of net sales decreased to 6.9% from 7.2%
in the year ago quarter. Income from operations in North America increased by
about 20% or $2.9 million over the year ago quarter. Income from operations
in Europe decreased by $0.5 million or 70% from the year ago quarter due to the
reduction in the European gross profit margin, which resulted from increased
sales of brand name products. The decrease in gross profit margin was only
partially offset by increases in vendor supported advertising.
Interest and other income, net, increased by $0.4 million to income of
$0.8 million in the second quarter of 1997 from income of $0.4 million in the
second quarter of 1996. Interest income increased as a result of higher
interest rates for the second quarter of 1997 compared to the second quarter
of 1996.
Net income increased $1.9 million to $11.7 million in the second quarter
of 1997 from $9.8 million in the second quarter of 1996. The effective tax
rate for the second quarter of 1997 was 37.5% compared to 38.5% for the second
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.
Six Months Ended June 30, 1997 Compared to Six Months Ended June 30, 1996
Net sales increased by $100.6 million or 23% to $533.0 million in the
first six months of 1997 from $432.4 million in the first six months of 1996.
The increase was attributable to (i) an increase in average order value to $297
in the first six months of 1997 from $254 in the first six months of 1996,
(ii) an increase in the number of orders to 1,795,000 in the first six months
of 1997 from 1,703,000 in the first six months of 1996, and (iii) an increase
in catalog response rates to 2.2% in the first six months of 1997 from 2.0% in
the first six months of 1996 on catalog mailings that were level with last
year. 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 26% to $395.0 million in the first six months of 1997 from $312.4
million in the first six months of 1996 while European sales increased 15%
to $138.0 million in the first six months 1997 from $120.0 million in the
first six months of 1996.
Gross profit, which consists of net sales less product and certain
shipping and distribution center costs, increased by $8.5 million or 7% to
$133.6 million in the first six months of 1997 from $125.1 million in the
first six months of 1996. Gross profit margin decreased to 25.1% of net sales
in the first six months of 1997 from 28.9% in the first six months of 1996.
The decrease in gross profit margin is due to 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 18.2% in the first six months of 1997 from 21.1% in the first six
months of 1996. Selling, general and administrative expenses increased in
absolute terms by $5.8 million or 6% to $97.1 million in the first six months
of 1997 from $91.3 million in the first six months of 1996. The decrease as a
percentage of net sales was primarily the result of (i) increased levels of
vendor supported advertising, (ii) continued expense control, and (iii) the
leveraging of selling, general and administrative expenses over a larger sales
base.
Income from operations increased by $2.7 million or 8% to $36.5 million
for the first six months of 1997 from $33.8 million for the first six months
of 1996. Income from operations for the first six months of 1997 as a
percentage of net sales decreased to 6.9% for the first six months of 1997
from 7.8% for the first six months of 1996. Income from operations in North
America increased by $6.2 million or 21% over the first six months of 1996.
Income from operations in Europe decreased by $3.4 million or 94% from the
first six months of due to the reduction in the European gross profit margin,
which resulted from increased sales of brand name products. The decrease in
gross profit margin was only partially offset by increases in vendor supported
advertising.
Interest and other income, net, increased by $0.8 million to income of
$1.5 million in the first six months of 1997 from income of $0.7 million in
the first six months of 1996. Interest income increased as a result of
higher levels of short term investments and higher interest rates for the
first six months of 1997 compared to the first six months of 1996.
Net income increased $2.6 million to $23.8 million in the first six
months of 1997 from $21.2 million in the first six months of 1996. The
effective tax rate for the first six months of 1997 was 37.5% compared to
38.5% for the first six months 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 4. Submission of Matters to a Vote of Security-Holders
The Company's Annual Meeting of Stockholders was held on May 19,
1997. At the meeting, (i) six persons were elected as directors of the
Company and (ii) the appointment of Deloitte & Touche LLP to serve as the
Company's independent auditors for the fiscal year ending December 31, 1997
was ratified.
The number of votes cast for, against or withheld and the number of
non-votes for each of the above-listed matters is as follows:
For Withheld Against Non-Vote
----------- --------- -------- ---------
Election of Directors
(by nominee):
Richard Leeds 36,206,418 115,895
Bruce Leeds 36,206,743 115,570
Robert Leeds 36,206,743 115,570
Robert Dooley 36,206,147 116,166
Robert Rosenthal 36,206,147 116,166
Stacy Dick 36,206,147 116,166
Ratification of
Appointment of
Auditors 36,312,286 4,396 5,631
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 June 30, 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: August 14, 1997 By: /s/ BRUCE LEEDS
--------------------
Bruce Leeds
Chief Financial Officer
(Principal Financial Officer)
By: /s/ HOWARD KOHOS
--------------------
Howard Kohos
Chief Accounting Officer
(Principal Accounting Officer)