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, 1996
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
(Sate 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 1, 1996 was 37,857,284.
<PAGE>
Part I - FINANCIAL INFORMATION
Item 1. Financial Statements
GLOBAL DIRECTMAIL CORP
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
September 30, December 31,
1996 1995
------------- ------------
(Unaudited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 61,908 $ 28,477
Accounts receivable, net 104,049 84,390
Inventories 77,550 71,645
Prepaid expenses and current assets 24,427 28,268
--------- ----------
Total current assets 267,934 212,780
PROPERTY AND EQUIPMENT, net 19,809 17,255
GOODWILL, net 16,222 16,125
OTHER ASSETS 1,025 1,355
--------- ----------
TOTAL $ 304,990 $ 247,515
========= ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued expenses $ 84,381 $ 85,189
Short term bank debt 1,772 -
Current portion of long term debt 783 5,395
--------- ----------
Total current liabilities 86,936 90,584
--------- ----------
LONG TERM DEBT 2,572 2,924
--------- ----------
STOCKHOLDERS' EQUITY:
Preferred stock - -
Common stock 379 369
Additional paid-in capital 168,356 138,470
Retained earnings 46,550 14,688
Cumulative translation adjustment 197 480
--------- ----------
Total stockholders' equity 215,482 154,007
--------- ----------
TOTAL $ 304,990 $ 247,515
========= ==========
See notes to condensed consolidated financial statements.
<PAGE>
<TABLE>
GLOBAL DIRECTMAIL CORP
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
-------------------- --------------------
1996 1995 1996 1995
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
NET SALES $225,868 $ 152,949 $ 658,307 $ 463,077
COST OF SALES 165,555 105,451 472,903 319,055
-------- ---------- ---------- -----------
GROSS PROFIT 60,313 47,498 185,404 144,022
SELLING, GENERAL AND ADMINISTRATIVE 43,476 34,729 134,813 104,458
-------- ---------- ---------- -----------
INCOME FROM OPERATIONS 16,837 12,769 50,591 39,564
INTEREST AND OTHER (INCOME) EXPENSE, net (534) (247) (1,217) 1,469
INCOME TAXES 6,688 5,076 19,946 6,885
OFFICER/SHAREHOLDERS' COMPENSATION - - - 4,707
-------- ---------- ---------- -----------
NET INCOME $ 10,683 $ 7,940 $ 31,862 $ 26,503
======== ========== ========== ===========
Net income per common share $ .28 $ .22 $ .84
======== ========== ==========
Common and common equivalent shares outstanding 38,378 36,874 38,068
======== ========== ==========
Pro Forma Income Data
Historical income before income taxes $ 33,388
Pro forma adjustments other than income taxes 5,684
Pro forma income before income taxes 39,072
Pro forma income taxes 15,238
Pro forma net income $ 23,834
Pro forma net income per common share (1) $ .68
Pro forma common shares outstanding (1) 34,863
<FN>
- --------------
(1) If the common shares outstanding after the Initial Public Offering in
June 1995 were outstanding for the nine month period ended September 30,
1995, then the pro forma net income per share for the nine month period
ended September 30, 1995 would have been $0.65.
</TABLE>
See notes to condensed consolidated financial statements.
<TABLE>
GLOBAL DIRECTMAIL CORP
CONDENSED STATEMENT OF CONSOLIDATED STOCKHOLDERS' EQUITY
(IN THOUSANDS)
<CAPTION>
Additional Cumulative
Common Paid-in Retained Translation
Stock Capital Earnings Adjustment
------- ---------- -------- -----------
<S> <C> <C> <C> <C>
Balances, December 31, 1995 $ 369 $138,470 $ 14,688 $ 480
Difference arising from translation
of foreign statements (283)
Net proceeds from sale of common stock 10 29,886
Net income 31,862
-------- -------- --------- --------
Balances, September 30, 1996 $ 379 $168,356 $ 46,550 $ 197
======== ======== ========= ======
See notes to condensed consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
GLOBAL DIRECTMAIL CORP
CONDENSED STATEMENTS OF CONSOLIDATED CASH FLOWS
(IN THOUSANDS)
<CAPTION>
Nine-Month Period
Ended September 30,
1996 1995
--------- -------
(Unaudited)
<S> <C> <C>
CASH FLOWS PROVIDED BY OPERATING ACTIVITIES:
Net income $ 31,862 $ 26,503
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization, net 2,829 1,314
Provision for returns and doubtful accounts 2,512 3,814
Changes in assets and liabilities:
Accounts receivable (22,278) (15,660)
Inventories (6,127) (9,395)
Prepaid catalog expense and other prepaid expenses and current assets 4,426 (8,730)
Accounts payable and accrued expenses (649) 12,720
---------- ---------
Net cash provided by operating activities 12,575 10,566
--------- ---------
CASH FLOWS USED IN INVESTING ACTIVITIES:
Additions to property and equipment (5,884) (3,929)
Transactions with affiliated entities - 993
Advances to Tiger Direct, Inc. - (5,793)
Net cash used in investing activities (5,884) (8,729)
--------- ---------
CASH FLOWS PROVIDED BY FINANCING ACTIVITIES:
Net borrowing / (repayments) of short-term bank debt 1,772 (19,100)
Repayment of long-term debt (4,981) -
Repayment of notes payable to related parties and advances to related parties - 4,702
Net proceeds from sale of common stock 29,896 134,512
Dividends paid - (2,000)
Payment of notes payable to shareholders - (97,800)
--------- ----------
Net cash provided by financing activities 26,687 20,314
--------- ---------
EFFECTS OF EXCHANGE RATES ON CASH 53 92
--------- ---------
NET INCREASE IN CASH AND CASH EQUIVALENTS 33,431 22,243
CASH AND CASH EQUIVALENTS - BEGINNING OF PERIOD 28,477 8,826
--------- ---------
CASH AND CASH EQUIVALENTS - END OF PERIOD $ 61,908 $ 31,069
========= =========
</TABLE>
See notes to condensed consolidated financial statements.
<PAGE>
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 agreed to exchange all
of the outstanding capital stock for 28,400,000 shares of common stock
of the Company and the predecessor companies terminated their
elections to be treated as S Corporations.
In addition to this exchange, notes aggregating $97.8 million which
were issued by certain of the predecessor companies to the
shareholders, representing S Corporation earnings and tax basis
through the date of the closing of the Initial Public Offering, were
paid. Such payment was made net of $10.6 million of notes receivable
from officers'/shareholders' and loans made to officers/shareholders
of $1.2 million. In addition, all affiliated indebtedness which
existed at that time was satisfied.
Pursuant to the Initial Public Offering, Global sold 8,308,750 shares
at $17.50 per share. In March 1996 the Company completed an
additional public offering of 1,000,000 shares at $32.25 per share.
Net income per common share for the three and nine months ended
September 30, 1996 was computed based on the weighted average number
of common shares and share equivalents outstanding for the period.
The financial position of the Company as of September 30, 1996, the
results of operations for the three and nine months ended September
30, 1996, and cash flows and changes in stockholders' equity for the
nine months ended September 30, 1996 include Tiger Direct, Inc.
("Tiger Direct") which was acquired in November 1995 and has been
accounted for as a purchase. Goodwill which resulted from this
transaction was approximately $21.9 million and is being amortized
over a 35 year life.
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 30,1996 and the results of operations for the
three and nine months ended September 30, 1996 and 1995, cash flows
for the nine months ended September 30, 1996 and 1995 and changes in
stockholders' equity for the nine months ended September 30, 1996.
The December 31, 1995 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, 1995.
These condensed consolidated financial statements should be read in
conjunction with the Company's audited consolidated financial
statements as of December 31, 1995 and for the period then ended. The
results for the three and nine months ended September 30, 1996 are not
necessarily indicative of the results for an entire year.
<PAGE>
GLOBAL DIRECTMAIL CORP
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
2. PRO FORMA INFORMATION
Pro Forma Income Adjustments
The pro forma income data for the nine month period ended September 30,
1995 present the effects on the historical combined financial statements of
certain transactions as if they occurred as of the beginning of that
period, including (1) reduced levels of compensation and royalty payments
to officers/shareholders, (2) the elimination of $500,000 per year of
compensation paid to a shareholder pursuant to a consulting agreement
entered into in 1992 which terminated in connection with the Initial Public
Offering, (3) the elimination of $1.1 million of interest expense on
certain notes issued to certain shareholders of the predecessor companies,
and (4) provision for income taxes to eliminate the benefit, for income tax
purposes, of the predecessor companies with S Corporation status.
Payments to Executive Officers / Shareholders - An adjustment has been made
to eliminate (1) compensation paid to the Company's three principal
executive officers/shareholders in excess of $300,000 each per annum and
(2) royalty expenses paid under a royalty agreement to the Company's three
principal officers/shareholders aggregating approximately $85,000 for the
nine month period ended September 30, 1995. In connection with the Initial
Public Offering, the amount of salary and bonus to be paid to each of the
three executive officers/shareholders was reduced to $300,000 per year, the
patents were assigned to Global and the royalty agreement was terminated.
Income Taxes - The pro forma adjustment reflects increased provisions for
income taxes to an effective rate of 39 percent for and nine month period
ended September 30, 1995. While this effective rate represents the
Company's pro forma tax rate based on historic earnings trends in the
respective tax jurisdictions, this rate may change in the future in
accordance with such trends and as tax credits currently available are
fully utilized.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
Three Months Ended September 30, 1996 Compared to Three Months
Ended September 30, 1995
Net sales increased by $73.0 million or 47.8% to $225.9 million in
the third quarter of 1996 from $152.9 million in the third quarter of 1995.
The increase was attributable to (i) the inclusion of a full quarter of
sales from Tiger Direct, (ii) an increase in the number of catalogs mailed,
including certain new catalog titles introduced in the first quarter in
Europe, (iii) increased revenues from the Company's outbound telemarketing
program and (iv) increased catalog response rates compared to the third
quarter of 1995. Catalog response rates are calculated as the number of
orders entered during the period divided by the number of catalogs mailed
during the period. Average order value increased by 6.2% compared to the
year ago quarter as a result of the continued increases in sales of brand
name products and hardware. Sales attributable to the Company's North
American operations increased 59.2% to $174.5 million in the third quarter
of 1996 from $109.6 million in the third quarter of 1995 while European
sales increased 18.5% to $51.3 million in the third quarter 1996 from $43.3
million in the third quarter of 1995. Sales growth attributable to the
Company's operations in the UK, France, and Spain remained strong while
sales growth attributable to the Company's operations in Germany and Italy
grew more modestly.
Gross profit, which consists of net sales less product and certain
shipping and distribution center costs, increased by $12.8 million or 26.9%
to $60.3 million in the third quarter of 1996 from $47.5 million in the
third quarter of 1995. Gross profit margin decreased to 26.7% of net sales
in the third quarter of 1996 from 31.1% in the third quarter of 1995. The
decrease in gross profit margin is due to the inclusion of a full quarter
of sales from Tiger Direct whose product mix has a lower profit margin, 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 profit margins than many of the
Company's other products. As described below, the significant portion of
this decline has been offset by a continued decline in selling, general and
administrative expenses as a percentage of net sales. Tiger Direct was
acquired in November of 1995 and is being accounted for under the purchase
method of accounting. The Company's 1995 third quarter results do not
include the pre-acquisition losses from Tiger Direct, Inc. that were
reported in Tiger Direct's third quarter 1995 report on Form 10-Q.
Selling, general and administrative expenses increased by $8.8
million or 25.4% to $43.5 million in the third quarter of 1996 from $34.7
million in the third quarter of 1995. Selling, general and administrative
expenses decreased as a percentage of sales, to 19.2% in the third quarter
of 1996 from 22.7% in the third quarter of 1995. 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 $4.0 million or 31.3% to $16.8
million from $12.8 million in the year ago quarter. Income from operations
for the third quarter of 1996 as a percentage of net sales decreased to
7.5% from 8.3% in the year ago quarter. This decrease was the result of
including, in the 1996 quarter, the results of Tiger Direct, which operated
at lower levels of profit than the Company's other divisions, and a profit
level in Europe of 0.3% in the 1996 quarter compared with 4.2% in the year
ago quarter.
Interest and other (income) expense, net, increased by $0.3
million to income of $0.5 million in the third quarter of 1996 from income
of $0.2 million in the third quarter of 1995. Interest income increased as
a result of higher levels of short term investments for the third quarter
of 1996 compared to the third quarter of 1995.
Net income increased $2.8 million to $10.7 million in the third
quarter of 1996 from $7.9 million in the third quarter of 1995.
Nine months Ended September 30, 1996 Compared to Nine months Ended
September 30, 1995
Net sales increased by $195.2 million or 42.2% to $658.3 million
in the first nine months of 1996 from $463.1 million in the first nine
months of 1995. The increase was attributable to (i) the inclusion of nine
months of sales in North America from Tiger Direct, (ii) an increase in the
number of catalogs mailed including certain new catalog titles introduced
in the first quarter in Europe, and (iii) increased revenues from the
Company's outbound telemarketing program. As a result of the new catalog
introductions which included cross border mailings into countries in which
the Company does not have an existing customer base, response rates
compared to the first nine months of 1995 decreased slightly. Catalog
response rates are calculated as the number of orders entered during the
period divided by the number of catalogs mailed during the period. Average
order value increased by 5.7% compared to the year ago period as a result
of the continued increases in sales of brand name products and hardware.
Sales attributable to the Company's North American operations increased
48.4% to $487.0 million in the first nine months of 1996 from $328.2
million in the first nine months of 1995 while European sales increased
27.0% to $171.3 million in the first nine months 1996 from $134.9 million
in the first nine months of 1995. Sales growth attributable to the
Company's operations in the UK, France, and Spain remained strong while
sales growth attributable to the Company's operations in Germany and Italy
grew more modestly.
Gross profit, which consists of net sales less product and certain
shipping and distribution center costs, increased by $41.4 million or 28.7%
to $185.4 million in the first nine months of 1996 from $144.0 million in
the first nine months of 1995. Gross profit margin decreased to 28.2% of
net sales in the first nine months of 1996 from 31.1% in the first nine
months of 1995. 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
which typically have lower profit margins than many of the Company's other
products, and the inclusion of nine months sales of Tiger Direct whose
product mix has a lower profit margin. As described below, the significant
portion of this decline has been offset by a continued decline in selling,
general and administrative expenses as a percentage of net sales.
Selling, general and administrative expenses increased by $30.3
million or 28.9% to $134.8 million in the first nine months of 1996 from
$104.5 million in the first nine months of 1995. Selling, general and
administrative expenses decreased as a percentage of sales, to 20.5% in the
first nine months of 1996 from 22.6% in the first nine months of 1995. 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. On a pro forma basis for the first nine
months of 1995, selling, general and administrative expenses were $104.6
million or 22.6% of net sales.
Prior to the closing of the Company's Initial Public Offering on
September 29, 1995, selling, general and administrative expenses excluded
executive officer compensation paid to the Company's three principal
stockholders who also serve as the Company's three principal executive
officers. Effective as of June 29, 1995, a base salary of $300,000 per
year was established for each of such executive officers. None of such
executive officers is eligible for any increase in salary or any
discretionary bonus until June 29, 1997. The increase in selling, general
and administrative expenses attributable to such salaries was partially
offset by the termination on June 29, 1995 of a $500,000 per year
consulting agreement entered into in 1992 with a stockholder.
Income from operations increased by $11.0 million or 27.9% to
$50.6 million in the first nine months of 1996 from $39.6 million in the
first nine months of 1995. Income from operations for the first nine
months of 1996 as a percentage of net sales decreased to 7.7% from 8.5% in
the first nine months of 1995. The decrease was primarily the result of
the inclusion of Tiger Direct in the first nine months of 1996, which did
not reach profitability until the third quarter. On a pro forma basis for
the first nine months of 1995, income from operations was $39.4 million or
8.5% of net sales.
Tiger Direct was acquired in November of 1995 and is being
accounted for under the purchase method of accounting. The Company's 1995
first nine months results do not include the pre-acquisition losses from
Tiger Direct, Inc. that were reported for the first nine months of 1995 in
Tiger Direct's third quarter report on Form 10-Q.
Interest and other (income) expense, net, increased by $2.7
million to income of $1.2 million in the first nine months of 1996 from
expense of $1.5 million in the first nine months of 1995. Interest expense
decreased as a result of the repayment of certain notes to the certain
shareholders of the predecessor companies at the end of the first six
months of 1995. Interest income increased as a result of short term
investments for the first nine months of 1996. For the first nine months
of 1995, interest and other (income) expense, net, on a pro forma basis was
an expense of $0.3 million after the elimination of interest expense on
certain notes issued to certain shareholders of the predecessor companies.
Net income increased $5.4 million to $31.9 million in the first
nine months of 1996 from $26.5 million in the first nine months of 1995.
Net income increased by $8.1 million in the first nine months of 1996 from
pro forma net income of $23.8 million in the first nine months of 1995.
Pro forma net income for the first nine months of 1995 reflects adjustments
to give effect to (i) reduced levels of officer compensation described
above, (ii) elimination of the consulting contract and royalty expense
described above, (iii) elimination of interest expense on certain notes
issued to certain shareholders of the predecessor companies described above
and (iv) the provision for income taxes at an assumed rate of 39%.
Liquidity and Capital Resources
The Company's primary capital needs have been to fund (i) the
working capital requirements necessitated by its sales growth, (ii)
acquisitions, and (iii) prior to its Initial Public Offering, distributions
to its stockholders to satisfy their tax liabilities resulting from the S
Corporation status of certain of the Company's predecessor companies. The
Company's primary sources of financing have been cash from operations, two
equity offerings, and to a lesser extent, bank borrowings.
During the first nine months of 1996 the Company received $29.9
million (net of estimated fees and expenses) from the sale of 1,000,000
shares of common and had net repayments of $2.8 million of bank debt.
<PAGE>
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 September 30, 1996.
<PAGE>
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, 1996 By:___________________________________
Richard Leeds
Chairman and Chief Executive Officer
By:___________________________________
Kenneth J. Hall
Chief Financial Officer
(Principal Financial Officer)
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED CONSOLIDATED BALANCE SHEETS AT SEPTEMBER 30, 1996 (UNAUDITED)
AND THE CONDENSED CONSOLIDATED STATEMENTS OF INCOME FOR THE NINE MONTHS
ENDED SEPTEMBER 30, 1996 (UNAUDITED) OF GLOBAL DIRECTMAIL CORP AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 61908
<SECURITIES> 0
<RECEIVABLES> 104049
<ALLOWANCES> 0
<INVENTORY> 77550
<CURRENT-ASSETS> 267934
<PP&E> 19809
<DEPRECIATION> 0
<TOTAL-ASSETS> 304990
<CURRENT-LIABILITIES> 86936
<BONDS> 2572
0
0
<COMMON> 379
<OTHER-SE> 215,103
<TOTAL-LIABILITY-AND-EQUITY> 304,990
<SALES> 658,307
<TOTAL-REVENUES> 658,307
<CGS> 472,903
<TOTAL-COSTS> 472,903
<OTHER-EXPENSES> 134,813
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (1217)
<INCOME-PRETAX> 51,808
<INCOME-TAX> 19,946
<INCOME-CONTINUING> 31,862
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 31,862
<EPS-PRIMARY> .84
<EPS-DILUTED> .84
<FN>
ALL AMOUNTS ARE PRESENTED IN THOUSANDS EXCEPT EARNINGS PER SHARE.
</FN>
</TABLE>
