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 September 30, 1997
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ____________ to _____________
COMMISSION FILE NUMBER 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 November
10, 1997 was 38,230,965.
1
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
GLOBAL DIRECTMAIL CORP
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
- --------------------------------------------------------------------------------
September 30, December 31,
1997 1996
------------- -----------
(Unaudited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 37,218 $ 35,211
Short term investments 14,034 31,031
Accounts receivable, net 125,886 111,709
Inventories 95,746 93,033
Prepaid expenses and current assets 25,949 22,998
-------- --------
Total current assets 298,833 293,982
PROPERTY AND EQUIPMENT, net 28,444 21,878
GOODWILL, net 53,264 13,545
OTHER ASSETS 1,704 2,034
-------- --------
TOTAL $382,245 $331,439
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued expenses $120,802 $ 99,053
Current portion of long term debt 2 495
-------- --------
Total current liabilities 120,804 99,548
-------- --------
LONG TERM DEBT 1,946 2,030
-------- --------
DEFERRED INCOME TAXES -- 1,224
-------- --------
MINORITY INTEREST IN CONSOLIDATED SUBS 208 --
-------- --------
STOCKHOLDERS' EQUITY:
Preferred stock - -
Common stock 382 379
Additional paid-in capital 176,743 168,356
Retained earnings 84,281 58,392
Cumulative translation adjustment (2,119) 1,510
--------- --------
Total stockholders' equity 259,287 228,637
-------- --------
TOTAL $382,245 $331,439
======== ========
See notes to condensed consolidated financial statements.
2
GLOBAL DIRECTMAIL CORP
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
- --------------------------------------------------------------------------------
Three Months Ended Nine Months Ended
September 30, September 30,
------------------- -------------------
1997 1996 1997 1996
---- ---- ---- ----
(unaudited) (unaudited)
NET SALES $259,661 $225,868 $792,683 $ 658,307
COST OF SALES 202,372 165,555 601,820 472,903
------- -------- -------- ---------
GROSS PROFIT 57,289 60,313 190,863 185,404
SELLING, GENERAL AND ADMINISTRATIVE 54,750 43,476 151,807 134,813
------- -------- -------- ---------
INCOME FROM OPERATIONS 2,539 16,837 39,056 50,591
INTEREST AND OTHER INCOME, net 878 534 2,366 1,217
------- -------- -------- ---------
INCOME BEFORE INCOME TAXES 3,417 17,371 41,422 51,808
PROVISION FOR INCOME TAXES 1,281 6,688 15,533 19,946
------- -------- -------- ---------
NET INCOME $ 2,136 $ 10,683 $ 25,889 $ 31,862
======= ======== ======== =========
Net income per common share $ .06 $ .28 $ .68 $ .84
======= ======== ======== =========
Common and common equivalent shares
outstanding 38,121 38,378 38,181 38,068
======= ======== ======== =========
See notes to condensed consolidated financial statements.
3
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 (3,629)
Issuance of common shares related
to acquisitions 3 8,387
Net income 25,889
------ -------- ------- -------
BALANCES, SEPTEMBER 30, 1997 $ 382 $176,743 $84,281 $(2,119)
====== ======== ======= =======
See notes to condensed consolidated financial statements.
4
GLOBAL DIRECTMAIL CORP
CONDENSED STATEMENTS OF CONSOLIDATED CASH FLOWS
(IN THOUSANDS)
- --------------------------------------------------------------------------------
NINE-MONTH PERIOD
ENDED SEPTEMBER 30,
1997 1996
---- ----
(UNAUDITED)
CASH FLOWS PROVIDED BY (USED IN) OPERATING ACTIVITIES:
Net income $25,889 $31,862
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization, net 3,769 2,829
Charges associated with the impairment of certain long lived assets 8,773 -
Provision for returns and doubtful accounts 2,017 2,512
Changes in assets and liabilities:
Accounts receivable (10,284) (22,278)
Inventories 10,431 (6,127)
Prepaid catalog expense and other prepaid expenses and current assets (636) 4,426
Accounts payable and accrued expenses (11,339) (649)
--------- --------
Net cash provided by operating activities 28,620 12,575
-------- -------
CASH FLOWS PROVIDED BY (USED IN) INVESTING ACTIVITIES:
Net change in short term investments 16,997 -
Purchase of net assets of O6, including acquisition costs, less cash
acquired (1,295) -
Purchase of net assets of Infotel, Inc., including acquisition costs,
less cash acquired (35,446) -
Additions to property and equipment (7,021) (5,884)
-------- -------
Net cash used in investing activities (26,765) (5,884)
-------- -------
CASH FLOWS PROVIDED BY (USED IN) FINANCING ACTIVITIES:
Net borrowing of short term bank debt 1,772
Repayment of long-term debt (468) (4,981)
Net proceeds from sale of common stock - 29,896
Other 2 -
-------- -------
Net cash (used in) provided by financing activities (466) 26,687
-------- --------
EFFECTS OF EXCHANGE RATES ON CASH 618 53
-------- -------
NET INCREASE IN CASH AND CASH EQUIVALENTS 2,007 33,431
CASH AND CASH EQUIVALENTS - BEGINNING OF PERIOD 35,211 28,477
-------- -------
CASH AND CASH EQUIVALENTS - END OF PERIOD $ 37,218 $61,908
======== =======
See notes to condensed consolidated financial statements.
5
GLOBAL DIRECTMAIL CORP
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1. ORGANIZATION AND BASIS OF PRESENTATION
Global DirectMail Corp ("Global" or the "Company") is a direct marketer of
brand name and private label computer related products, office products and
industrial products in North America and Europe.
For the basis of presentation, the balance sheet for the period ended
September 30, 1997 includes the assets acquired and the liabilities assumed
in conjunction with the acquisition of Infotel, Inc., which was completed on
September 30, 1997. The acquisition had no effect on operations for the
quarter and year to date. Pro forma information relative to the acquisition
of Infotel, Inc. is not presently available.
Net income per common share for the three and nine months ended September
30, 1997 and 1996 were computed based on the weighted average number of
common shares and equivalent shares 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 September 30,1997 and the results of operations for the three
and nine months ended September 30, 1997 and 1996, cash flows for the nine
months ended September 30, 1997 and 1996 and changes in stockholders' equity
for the nine months ended September 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 nine months ended September 30, 1997 are not necessarily
indicative of the results for an entire year.
6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
THREE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED TO THREE MONTHS ENDED
SEPTEMBER 30, 1996
Net sales for the quarter increased by $33.8 million or 15% to $259.7
million compared to $225.9 in the year ago quarter. The increase was
attributable due primarily to an increase in average order value to $325 from
$275 in the third quarter of 1996. Total orders for the quarter were 798,000
compared to 821,000 in the year ago quarter. For the quarter, catalogs mailed of
37 million and catalog response rates of 2.2% were consistent 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 during the quarter attributable to the Company's North American operations
increased 15% to $200.8 million compared to $174.5 million in the third quarter
of 1996. North American sales were adversely impacted by the effect of the UPS
labor action in August by an estimated amount of $21 million. European sales for
the quarter increased 15% to $58.9 million compared to $51.3 million in the year
ago quarter. On a currency adjusted basis, European sales for the quarter
increased 24%.
Gross profit for the quarter, which consists of net sales less product
and certain shipping and distribution center costs, decreased by $3.0 million or
5% to $57.3 compared to $60.3 million in the year ago quarter. Gross profit for
the quarter was 22.1% of net sales compared to 26.7% in the third quarter of
1996. The decrease in gross profit as a percent of net sales was attributed to
(i) the effect of the UPS labor action mentioned above resulting in increased
transportation costs and increases in other variable costs associated with the
re-routing of orders via more expensive carriers, and (ii) 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 for the quarter increased
by $11.3 million or 26% to $54.8 million compared to $43.5 million in the third
quarter of 1996. Selling, general and administrative expenses as a percentage of
sales was 21.1% compared to 19.2% in the year ago quarter. Selling, general
and administrative expenses for the third quarter of 1997 included one time
charges of $9.8 million associated with the impairment of certain long lived
assets. Prior to the effect of these charges, selling, general and
administrative expenses for the quarter were $45.0 million or 17.3% of net sales
which represents a decrease of 1.9% compared to the year ago quarter. This
decrease 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 for the quarter decreased by $14.3 million or 85%
to $2.5 million from $16.8 million in the year ago quarter. Income from
operations as a percentage of net sales decreased to 1.0% from 7.5% in the year
ago quarter. Income from North American operations decreased by $15.1 million or
90% from the year ago quarter primarily as a result of the one time charge
related to the impairment of certain long lived assets and the effect of the UPS
labor action in August mentioned above. Income from European operations
increased by $0.8 million or 550% to $0.9 million from $0.1 million in the year
ago quarter resulting primarily from reduced catalog production costs in Europe.
Interest and other income, net, increased by $0.4 million to income of
$0.9 million in the third quarter of 1997 from income of $0.5 million in the
third quarter of 1996. Interest income increased as a result of a higher average
level of investments during the quarter compared to the year ago quarter.
The effective tax rate for the third quarter of 1997 was 37.5%
compared to 38.5% for the third quarter of 1996.
Net income for the quarter was $2.1 million compared to $10.7 million in
the third quarter of 1996 as a result of those items discussed above.
7
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. For the quarter ended
September 30, 1997, the company generated free cash flow of $15.4 million
compared to $11.8 million for the year ago quarter which was a result of
improved asset management, primarily inventory level control. Free cash flow is
defined as cash generated from operating activities net of additions to property
and equipment.
On September 30, 1997, the Company completed the acquisition of Infotel,
Inc. ("Infotel"), a privately held direct mail marketer and reseller, for
aggregate consideration of $49.1 million representing an initial cash payment of
$40 million, 375,000 shares of Global Common Stock, and purchase related
expenses of $0.8 million, with additional contingent cash consideration for
continuing management.
NINE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED TO NINE MONTHS ENDED
SEPTEMBER 30, 1996
Net sales increased by $134.4 million or 20% to $792.7 million in the
first nine months of 1997 from $658.3 million in the first nine months of 1996.
The increase was attributable to (i) an increase in average order value to $306
from $261 in the year ago period, (ii) increased orders of 2,593,000 compared to
2,524,000 in the first nine months of 1996, and (iii) an increase in catalog
response rates to 2.2% compared to 2.1% in the year ago period. Catalog response
rates are calculated as the number of orders entered during the period divided
by the number of catalogs mailed during the period. Catalog mailings were level
with the year ago period. Sales attributable to the Company's North American
operations increased 22% to $595.8 million compared to $487.0 million in the
first nine months of 1996. European sales increased 15% to $196.9 million in the
first nine months of 1997 compared to $171.3 million in the first nine months of
1996.
Gross profit, which consists of net sales less product and certain
shipping and distribution center costs, increased by $5.5 million or 3% to
$190.9 million from $185.4 million in the first nine months of 1996. Gross
profit as a percentage of net sales was 24.1% compared to 28.2% in the year ago
period. The decrease in gross profit as a percentage of net sales is due mainly
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 increased by $17.0 million
or 13% to $151.8 million in the first nine months of 1997 from $134.8 million in
the first nine months of 1996. Selling, general and administrative expenses as a
percentage of sales was 19.2% compared to 20.5% in the first nine months of
1996. Selling, general and administrative expenses were adversely effected for
the first nine months of 1997 by a one time charge of $9.8 million related to
the impairment of certain long lived assets. Prior to the effect of these
charges, selling, general and administrative expenses for the first nine months
of 1997 were $142.0 million or 17.9% which represents a decrease of 2.6%
compared to the first nine months of 1996. This decrease 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 decreased by $11.5 million or 23% to $39.1
million for the first nine months of 1997 from $50.6 million for the first nine
months of 1996. Income from operations as a percentage of net sales was 4.9%
compared to 7.7% for the first nine months of 1996. Income from North American
operations decreased $8.9 million or 19% from the year ago period primarily as a
result of the one time charge related to the impairment of certain long lived
assets and the effect of the UPS labor action in August. Income from European
operations decreased by $2.6 million or 70% compared to the year ago period. The
decrease was primarily the result of decreased levels of gross profit margin
that were only partially offset by vendor supported advertising.
8
Interest and other income, net, increased by $1.2 million to income of
$2.4 million in the first nine months of 1997 from income of $1.2 million in the
first nine months of 1996. Interest income increased as a result of higher
levels of investments during the period and slightly higher interest rates
compared to the year ago period.
The effective tax rate for the first nine months of 1997 was 37.5%
compared to 38.5% for the the first nine months of 1996.
Net income decreased $6.0 million to $25.9 million in the first nine
months of 1997 from $31.9 million in the first nine months of 1996 as a result
of those items discussed above.
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. For the nine month period
ended September 30, 1997, the company generated $21.6 million of free cash flow
compared to $6.7 million for nine month period ended September 30, 1996 which
was a result of improved asset management, primarily inventory level control.
Free cash flow is defined as cash generated from operating activities net of
additions to property and equipment.
On September 30, 1997, the Company completed the acquisition of Infotel,
Inc. ("Infotel"), a privately held direct mail marketer and reseller, for
aggregate consideration of $49.1 million representing an initial cash payment of
$40 million, 375,000 shares of Global Common Stock, and purchase related
expenses of $0.8 million, with additional contingent cash consideration for
continuing management.
9
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).
10.1 Asset Purchase Agreement dated September 12, 1997 among
Infotel, Inc., Mark L. Runkle, Midwest Micro Corp. and the
Company (Incorporated herein by reference to Exhibit 10.1 to
the Company's report on Form 8-K filed on October 15, 1997).
27 Financial Data Schedule.
(b) Reports on Form 8-K.
1. On September 26, 1997, the Company filed a report on Form 8-K
regarding its agreement, dated September 12,1997, to acquire
substantially all the assets of Infotel, Inc., a privately held
Ohio corporation.
2. On October 15, 1997, the Company filed a report on Form 8-K
regarding its September 30, 1997 acquisition of substantially
all the assets of Infotel, Inc..
10
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: November 13, 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)