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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, 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
(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 6, 1996 was 37,856,990.
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Part I - FINANCIAL INFORMATION
Item 1. Financial Statements
GLOBAL DIRECTMAIL CORP
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
March 31, December 31,
1996 1995
-------- ------------
(Unaudited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $64,511 $28,477
Accounts receivable, net 104,214 84,390
Inventories 76,442 71,645
Prepaid expenses and other current assets 24,531 28,268
-------- --------
Total current assets 269,698 212,780
PROPERTY AND EQUIPMENT, net 18,987 17,255
GOODWILL, net 16,096 16,125
NOTES RECEIVABLE AND OTHER ASSETS 1,296 1,355
-------- --------
TOTAL $306,077 $247,515
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued expenses $102,637 $85,189
Current portion of long-term debt 5,285 5,395
-------- --------
Total current liabilities 107,922 90,584
-------- --------
LONG-TERM DEBT 2,683 2,924
-------- --------
SHAREHOLDERS' EQUITY:
Preferred stock - -
Common stock 379 369
Additional paid-in capital 168,636 138,470
Retained earnings 26,080 14,688
Cumulative translation adjustment 377 480
-------- --------
Total shareholders' equity 195,472 154,007
-------- --------
TOTAL $306,077 $247,515
======== ========
See notes to condensed consolidated financial statements.
GLOBAL DIRECTMAIL CORP
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Three Months and
Year to Date
March 31,
----------------
1996 1995
----- ----
(unaudited)
NET SALES $218,732 $160,685
COST OF SALES 153,711 109,751
-------- --------
GROSS PROFIT 65,021 50,934
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 46,736 36,284
-------- --------
INCOME FROM OPERATIONS 18,285 14,650
INTEREST AND OTHER (INCOME) EXPENSE, net (238) 321
INCOME TAXES 7,131 1,029
OFFICER/SHAREHOLDERS' COMPENSATION - 6,403
-------- --------
NET INCOME $ 11,392 $ 6,897
========= ========
Net income per common share $ .31
=========
Common and common equivalent shares outstanding 37,279
=========
Pro Forma Income Data
Historical income before income taxes $ 7,926
Pro forma adjustments other than income taxes 6,341
-------
Pro forma income before income taxes 14,267
Pro forma income taxes 5,564
-------
Pro forma net income $ 8,703
=======
Pro forma net income per common share<F1> $ .26
=======
Pro forma common shares outstanding<F1> 33,735
=======
<F1>
If the common shares outstanding after the Initial Public Offering in June 1995
were outstanding for the first quarter of 1995, then the pro forma net income
per share would have been $0.24.
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
Stock Capital Earnings Adjustment
------ ---------- -------- -----------
Balances, January 1, 1996 $369 $138,470 $14,688 $480
Difference arising from translation
of foreign statements (103)
Net proceeds from sale of common stock 10 30,166
Net income 11,392
------
Balances, March 31, 1996 $379 $168,636 $26,080 $377
==== ======== ======= ====
See notes to condensed consolidated financial statements.
GLOBAL DIRECTMAIL CORP
CONDENSED STATEMENTS OF CONSOLIDATED CASH FLOWS
(IN THOUSANDS)
Three-Month Period
Ended March 31,
1996 1995
--------- --------
(Unaudited)
CASH FLOWS PROVIDED BY OPERATING ACTIVITIES:
Net income $ 11,392 $ 6,897
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization, net 1,030 372
Provision for returns and doubtful accounts 1,317 2,841
Changes in assets and liabilities:
Accounts receivable (21,493) (17,879)
Inventories (5,187) (6,807)
Prepaid catalog expense and other prepaid expenses
and current assets 3,639 (6,385)
Accounts payable and accrued expenses 17,814 21,738
-------- -------
Net cash provided by operating activities 8,512 777
-------- -------
CASH FLOWS USED IN INVESTING ACTIVITIES:
Additions to property and equipment (2,768) (806)
Transactions with affiliated entities - 100
-------- -------
Net cash used in investing activities (2,768) (706)
-------- -------
CASH FLOWS PROVIDED BY (USED IN) FINANCING ACTIVITIES:
Net repayments of short-term borrowings from banks - (3,400)
Repayment of long-term debt (180) -
Advances to related parties - (393)
Net proceeds from sale of common stock 30,176 -
Dividends paid - (1,000)
Other 16 -
-------- -------
Net cash provided by (used in)
financing activities 30,012 (4,793)
-------- -------
EFFECTS OF EXCHANGE RATES ON CASH 278 57
-------- -------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 36,034 (4,665)
CASH AND CASH EQUIVALENTS - BEGINNING OF PERIOD 28,477 8,826
-------- -------
CASH AND CASH EQUIVALENTS - END OF PERIOD $ 64,511 $ 4,161
======== =======
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 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 stockholders 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 months ended March 31, 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 March 31,1996 and the results of
operations, cash flows, and changes in shareholders' equity for the three
months ended March 31, 1996 include Tiger Direct, Inc. 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 20 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 adjustments (consisting of
only normal and recurring accruals) necessary to present fairly the
financial position of the Company as of March 31,1996 and the results of
operations for the three months ended March 31, 1996 and 1995, cash flows
for the three months ended March 31, 1996 and 1995 and changes in
shareholders' equity for the three months ended March 31, 1996. The December
31, 1995 Balance Sheet has been extracted from the audited combined
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 months ended March 31, 1996 are not necessarily indicative of the
results for an entire year.
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 three month period ended March 31, 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 and (3) 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 $38,000 for the three month
period ended March 31, 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. 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.
Pro Forma Net Income Per Common Share
Pro forma earnings per share ("EPS") was calculated based upon the weighted
average number of common shares assumed outstanding for the three month
period ended March 31, 1995. Pro forma EPS for the three months ended March
31, 1995 using the number of shares actually outstanding after the Initial
Public Offering (36,708,750) would be $0.24.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
Results of Operations
Three Months Ended March 31, 1996 Compared to Three Months Ended March 31, 1995
Net sales increased by $58.0 million or 36.1% to $218.7 million in the first
quarter of 1996 from $160.7 million in the first quarter of 1995. The
increase was attributable to the inclusion of a full quarter of sales from
Tiger Direct Inc., an increase in revenue from the Company's outbound
telemarketing program, and an overall increase in the number of catalogs
mailed including the introduction of five new catalog titles in Europe
during the quarter. Primarily as a result of the introduction of these five
new catalog titles, four of which were cross border mailings into countries
in which the Company does not have an existing customer base, overall
catalog response rates declined slightly compared to the first 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 (AOV) increased slightly during the quarter. This
was due to the effects of continued increased sales of brand name products
and hardware being primarily offset by the blending of Tiger Direct sales
which have a lower AOV. Sales attributable to the Company's North American
operations increased 35.4% to $152.2 million in the first quarter of 1996 from
$112.4 million in the first quarter of 1995 while European sales increased
37.8% to $66.5 million in the first quarter 1996 from $48.3 million in the
first quarter of 1995. Sales in Europe benefited from deeper market
penetration in all existing markets, introduction of cross-border catalog
mailings into Switzerland, Portugal, Belgium and Ireland, and the
introduction of the first networking and datacom catalog into Germany.
Gross profit, which consists of net sales less product and certain shipping
and distribution center costs, increased by $14.1 million or 27.7% to $65.0
million in the first quarter of 1996 from $50.9 million in the first quarter
of 1995. Gross profit margin decreased to 29.7% of net sales in the first
quarter of 1996 from 31.7% in the first quarter of 1995. The decrease in
gross profit margin is due to the Company's continued 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 Tiger
Direct whose product mix has a lower profit margin. As described below, the
majority of this decline has been offset by a continued decline in selling,
general and administrative expenses.
Selling, general and administrative expenses increased by $10.5 million or
28.8% to $46.7 million in the first quarter of 1996 from $36.3 million in
the first quarter of 1995. Selling, general and administrative expenses
decreased as a percentage of sales, to 21.4% in the first quarter of 1996 from
22.6% in the first quarter of 1995. The decrease as a percentage of net
sales was primarily attributable to reduced costs as a result of (i) vendor
supported advertising, (ii) continued expense control and (iii) the leveraging
of selling, general and administrative expenses over a larger sales base.
Prior to the closing of the Company's Initial Public Offering on June 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 $3.6 million or 24.8% to $18.3 million
from $14.7 million in the year ago quarter. Income from operations for the
first quarter of 1996 as a percentage of net sales were negatively impacted
by the inclusion of Tiger Direct and decreased to 8.4% from 9.1%. For the
first quarter of 1995, income from operations, on a pro forma basis was
$14.6 million or 9.1% of net sales.
Interest and other (income) expense, net, increased by $0.5 million to income
of $0.2 million in the first quarter of 1996 from expense of $0.3 million in
the first quarter of 1995 primarily due to interest income on short term
investments.
Net income increased $4.5 million or 65.2% to $11.4 million in the first
quarter of 1996 from $6.9 million in the first quarter of 1995, principally
as a result of the increase in income from operations as described above.
Net income on a pro forma basis adjusted to give effect to (i) the reduced
levels of officer compensation described above, (ii) the elimination of the
consulting contract and royalty expense described above, and (iii) the
provision for income taxes at an assumed rate of 39%, would have been $8.7
million for the first quarter of 1995.
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 and loans from affiliates.
During the first three months of 1996 and 1995, net cash provided by operating
activities was $8.5 million and $0.8 million, respectively. The increase
resulted primarily from a decrease in prepaid expenses as a result of the
Company reducing the amount of its inventory of unprinted catalog paper in
response to stabilizing paper prices. During the first three months of 1996
and 1995, net cash used in investing activities was $2.8 million and $0.7
million, respectively. Net cash used in investing activities during both
periods was predominantly for the acquisition of property and equipment.
During the first three months of 1996 and 1995, net cash provided by (used
in) financing activities was $30.0 million and ($4.8) million, respectively.
Net cash provided by financing activities during the first three months of
1996 primarily reflects the net proceeds of $30.2 million (after estimated
fees and expenses) from the issuance and sale of 1,000,000 shares of common
stock by the Company at an offering price of $32.25 per share on March 26,
1996. The net proceeds from the offering will be used for general corporate
purposes.
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).
(b) Reports on Form 8-K.
On February 12, 1996, the Company filed a report on Form 8-K/A,
amending the Company's report on Form 8-K filed on December 15,
1995. Such report included the Company's Unaudited Pro Forma
Combined Balance Sheet as of September 30, 1995, giving effect to
the acquisition of Tiger Direct Inc. as though it had been
consummated on such date and the Company's Unaudited Pro Forma
Combined Statements of Income for the nine month period ended
September 30, 1995 and the year ended December 31, 1994, giving
effect to the acquisition as though it had occurred at the
beginning of each of the periods presented.
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, 1996 By: /s/ Richard Leeds
-----------------
Richard Leeds
Chairman and Chief Executive Officer
By: /s/ Kenneth J. Hall
-------------------
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 MARCH 31, 1996 (UNAUDITED) AND THE
CONDENSED CONSOLIDATED STATEMENTS OF INCOME FOR THE THREE MONTHS ENDED
MARCH 31, 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> MAR-31-1996
<CASH> 64,511
<SECURITIES> 0
<RECEIVABLES> 104,214
<ALLOWANCES> 0
<INVENTORY> 76,442
<CURRENT-ASSETS> 269,698
<PP&E> 18,987
<DEPRECIATION> 0
<TOTAL-ASSETS> 306,077
<CURRENT-LIABILITIES> 107,922
<BONDS> 2,683
<COMMON> 379
0
0
<OTHER-SE> 195,093
<TOTAL-LIABILITY-AND-EQUITY> 306,077
<SALES> 218,732
<TOTAL-REVENUES> 218,732
<CGS> 153,711
<TOTAL-COSTS> 153,711
<OTHER-EXPENSES> 46,736
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (238)
<INCOME-PRETAX> 18,523
<INCOME-TAX> 7,131
<INCOME-CONTINUING> 11,392
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 11,392
<EPS-PRIMARY> .31
<EPS-DILUTED> .31
<FN>
ALL AMOUNTS ARE PRESENTED IN THOUSANDS EXCEPT EARNINGS PER SHARE.
</TABLE>
