==============================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended December 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 of (I.R.S. Employer
incorporation or organization) Identification No.)
22 Harbor Park Drive
Port Washington, New York 11050
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (516) 625-1555
________________________
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange on
Title of each class which registered
------------------- ------------------------
Common Stock, par value
$0.01 per share New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: NONE
________________________
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. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best knowledge of the registrant, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment of this Form 10-K. Yes [X] No [ ]
The aggregate market value of the voting stock held by non-affiliates of
the registrant as of March 25, 1997 was approximately $259,507,676. For
purposes of this computation, all executive officers and directors of the
Registrant and all parties to the Stockholders Agreement dated as of June 15,
1995 have been deemed to be affiliates. Such determination should not be
deemed to be an admission that such persons are, in fact, affiliates of the
Registrant.
The number of shares outstanding of the registrant's common stock, as of
March 27, 1997, was 37,856,990 shares.
Documents incorporated by reference: The definitive Proxy Statement of
Global DirectMail Corp relating to the 1997 Annual Meeting of Stockholders
is incorporated by reference in Part III hereof.
==============================================================================
TABLE OF CONTENTS
Part I
Item 1. Business................................................... 1
General.... ............................................... 1
Products................................................... 2
Catalogs and Marketing...................................... 3
Sales and Customer Service
and Support............................................ 4
Distribution Centers....................................... 6
Suppliers.................................................. 6
Management Information Systems............................. 7
Research and Development................................... 7
Competition................................................ 7
Employees.................................................. 9
Environmental Matters...................................... 9
Item 2. Properties................................................. 10
Item 3. Legal Proceedings.......................................... 10
Item 4. Submission of Matters to a Vote
of Security Holders....................................... 10
Part II
Item 5. Market for the Company's
Common Equity and Related
Stockholder Matters....................................... 11
Item 6. Selected Financial Data.................................... 12
Item 7. Management's Discussion and
Analysis of Financial Condition
and Results of Operations................................. 14
Item 8. Financial Statements and
Supplementary Data........................................ 20
Item 9. Changes in and Disagreements
with Accountants on Accounting
and Financial Disclosure.................................. 20
Part III
Items 10, 11,12
& 13. Directors and Executive Officers of the
Registrant, Executive Compensation
Security Ownership of Certain Beneficial
Owners and Management and Certain
Relationships and Related Transactions................... 20
Part IV
Item 14. Exhibits, Financial Statement Schedules
and Reports on Form 8-K................................. 21
Signatures..................................................... 23
PART I
Unless otherwise indicated, all references herein to "Global DirectMail
Corp" ("Global" or the "Company") include its subsidiaries and
predecessors. Global is the successor to a number of corporations (the
"Predecessor Companies") that operated with related ownership. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--General--Termination of S Corporation Status."
Item 1. Business.
General
Global is a direct marketer of over 40,000 products including brand name
and private label computer related products, office products and industrial
products in North America and Europe. The Company emphasizes a broad selection
of in-stock products, frequent mailings of a variety of distinctively branded
full color catalogs, extensive customer service and prompt, complete order
fulfillment. The Company's portfolio of catalogs includes such established
brand names as Global, Misco, HCS Global, HCS Misco, Dartek, Power Up! and
Tiger for computer related products and office products and Global and
ArrowStar for industrial products. Global has grown rapidly as a result of
internal growth and strategic acquisitions while maintaining a high level of
profitability. The Company's net sales have increased at a compound annual
growth rate of 40% from $238.8 million in 1992 to $911.9 million in 1996.
During this same period, income from operations increased at a compound annual
growth rate of 35% from $21.2 million to $69.5 million.
The Company has positioned itself as a "corporate supplier" offering a
broad spectrum of business products principally to mid-sized facilities (20
to 1,000 employees). The Company believes that direct mail is one of the most
effective and convenient distribution methods to reach mid-sized facilities
which place many small orders and require a wide selection of products. The
Company's products consist of computer, office and industrial products, which
accounted for 75%, 13% and 12%, respectively, of the Company's net sales in
1996.
The Company primarily targets individuals at mid-sized facilities through
demographically directed mailings of its "full-line" and specialty catalogs.
Most of the Company's various catalog titles are mailed monthly, although
certain specialty catalogs are mailed less frequently. Catalog mailings
increased from approximately 71 million catalogs comprising 11 different
titles in 1992 to approximately 160 million catalogs comprising 40 different
titles in 1996. At December 31, 1996, the Company had 1.7 million "active"
customers (defined as individuals that have purchased from the Company within
the preceding 12 months) and combined customer and prospect files of more
than 40 million names.
The Company operates in the United States, Canada and Europe through a
network of regional distribution centers. The Company's North American
operations contributed 74% of net sales in 1996 and consist of eight branch
locations in seven states and in Canada. Certain corporate functions, such as
merchandising, marketing, purchasing and information systems, are centralized
at the Company's corporate headquarters for efficiency, while other functions,
such as sales, order entry and fulfillment, are decentralized at each of the
Company's branches in order to provide superior customer service. Each branch
consists of a regional distribution center as well as telemarketing and
administrative functions which address local customer needs. European
operations which began in June 1990 represented 26% of net sales in 1996 and
consist of six sales and distribution centers located across Europe: two in
the United Kingdom and one in each of France, Germany, Italy and Spain. Each
country branch performs the same functions as each North American branch in
addition to local marketing. For a more detailed geographic breakdown of the
Company's operations, see Note 10 to the Consolidated Financial Statements.
Most of the Company's products are carried in stock, and orders for such
products are fulfilled directly from the Company's distribution centers,
typically on the day on which the order was received. The strategic location
of the Company's distribution centers allows next day or second day delivery
via low cost ground carriers throughout the United States, Canada and Western
Europe. In Europe, the location of branches also enables the Company to expand
into new markets with limited incremental investment through cross border
shipping.
Products
In positioning itself as a "corporate supplier", the Company has
consistently expanded the breadth of its product offerings in order to fulfill
an increasingly wide range of business product needs of mid-sized facilities.
In total, Global offers over 40,000 brand name and private label products.
The Company's computer related products include: supplies, media such as
floppy disks and magnetic tape cartridges, peripherals such as hard disk
drives and memory upgrades, data communication and networking equipment,
ergonomic accessories, such as adjustable monitor support arms and antiglare
screens, packaged software and hardware. Sales of office products include
furniture, chairs, small office machines and related supplies. The Company's
industrial product lines focus primarily on storage equipment such as metal
shelving, bins and lockers, and light material handling equipment such as hand
carts and hand trucks. In addition, Global has expanded into consumable
industrial products such as first aid items, safety items, protective clothing
and OSHA compliance items. The table below summarizes the Company's mix of
sales by product category:
Year Ended
December 31,
-----------------------------
Product Type 1994 1995 1996
------ ------ ------
(% of total sales)
Computer Related Products................ 65% 66% 75%
Office Products ........................ 18 16 13
Industrial Products .................... 17 18 12
___ ___ ___
Total ............................. 100% 100% 100%
=== === ===
Historically, the Company focused primarily on non-branded or private
label products. Although the Company continues to experience strong growth in
its private label products, in recent years, the Company made the strategic
decision to leverage its distribution and marketing strengths into the market
for high volume brand name products which the Company believes offer
significant opportunities to increase sales. In 1993 the Company expanded its
offerings of brand name computer related products, including peripherals,
data communications and networking equipment, software and supplies. In
addition, in 1995 the Company further expanded its offering of brand name
products to include notebooks, desktops and servers. This strategy has
impacted gross profit margins, as such products typically have lower gross
profit margins than many of the Company's other products. The majority of such
decrease in gross profit margin, however, has been offset by decreased catalog
production costs as a result of vendor supported advertising and increased
efficiencies from (i) increased average order values, particularly with
respect to order fulfillment and (ii) increased response rates for the
Company's catalogs. Management believes that the market for brand name
products represents a significant growth opportunity and will become an
increasingly important part of its business.
Merchandising is managed by product category and each product manager is
responsible for product selection and purchasing and is evaluated based on
product line growth and profitability. Product managers also determine which
products to list in each catalog.
Catalogs and Marketing
The Company produces a total of 40 "full-line" and targeted specialty
catalogs under distinct titles. Most of the Company's various catalog titles
are mailed monthly although certain of its specialty catalogs are mailed less
frequently. "Full-line" computer related products catalogs offer products such
as computer supplies and magnetic media, peripherals, data communication,
networking and power protection equipment, ergonomic accessories, furniture,
software and hardware. "Full-line" industrial products catalogs offer products
such as material handling products and industrial supplies. Specialty catalogs
contain more focused product offerings and are targeted to individuals most
likely to purchase from such catalogs. It is Global's policy to mail multiple
catalogs to many individuals at each location, providing the Company with
multiple points-of-entry into a business location. Once a prospect purchases
a particular product, however, the Company's customers have exhibited strong
brand loyalty resulting in limited customer overlap among the Company's
various catalog brands. This multiple brand strategy, and the accompanying
customer exposure to the Company's products, is a crucial factor in the
Company's strategy to increase sales volume through broader market coverage
and improve the productivity of its customer file through more focused
marketing.
Specialty catalogs permit the Company to offer a more extensive selection
of focused products at a reduced catalog cost. The Company's database permits
it to target each catalog to customers whose purchasing history suggest that
they are most likely to purchase from it. For example, a data communications
specialty catalog can be mailed exclusively to individuals who had purchased
complementary products in the past. Introductions of specialty catalogs have
included a safety products catalog, a hardware and software catalog, a data
communications and networking catalog, an ergonomics catalog and a shelving
catalog.
Global has invested consistently and aggressively in developing a
proprietary customer and prospect database. This database, which includes more
than 40 million names, represents a major asset of the Company. The Company
considers its customers to be the various individuals that work within an
organization rather than the business location itself. The customer and
prospect database includes detailed information, including company size,
number of employees, industry of operation, various demographic and geographic
characteristics and personal purchase history (catalog preference, product
preference, order value). Management believes that this variety and depth of
information on its customers offers Global a significant competitive advantage.
Using its database, the Company primarily targets individuals at
mid-sized facilities (20 to 1,000 employees) through demographically directed
mailings of its "full-line" and targeted specialty catalogs. During 1996, the
Company distributed approximately 160 million catalogs of which approximately
120 million catalogs were mailed in North America and approximately 40 million
catalogs were distributed in Europe. At December 31, 1996, the Company had 1.7
million "active" customers (defined as individuals that have purchased from
the Company within the preceding 12 months).
In its mailings, the Company seeks to maximize the response rates of its
catalogs. The following table shows the approximate number of catalogs
distributed by the Company and the catalog response rates:
Catalogs Distributed
Year Ended
December 31,
-----------------------------
Product Type 1994 1995 1996
- ------------ ------ ------ ------
(in millions, except response rates)
North America......................... 87 90 120
Europe................................ 27 32 40
___ ___ ___
Total............................ 114 122 160
=== === ===
Response rates........................ 1.94% 2.08% 2.12%
Catalogs distributed in 1996 include a full year catalog mailings for
Tiger Direct versus one month for 1995. The Company's in-house staff designs
all of the Company's catalogs. Catalog paper is purchased from various
sources and has historically been subject to price fluctuations. The printing
of the catalogs is done from several sources under fixed pricing arrangements.
Each catalog is printed with full-color photographs, contains detailed product
descriptions and generally bears a toll-free telephone number to be used by
customers to place a product order. In-house catalog production helps reduce
overall catalog expense and shortens catalog production time, allowing the
Company the flexibility to alter its product offerings and pricing and refine
its catalog formats more quickly.
In addition to its catalogs and telemarketing sales force, the Company
uses targeted fax campaigns and special single-product "solo" mailings to
generate incremental sales from key customer segments.
Sales and Customer Service and Support
In responding to orders generated by its catalogs, soliciting new
customers through outbound telemarketing and responding to service and
technical support requirements of its customers, the Company relies heavily on
its proprietary systems. See "--Management Information Systems." The principal
components of its sales and support functions are as follows.
Order Entry and Fulfillment
Global makes purchasing its products as convenient as possible. Because a
majority of customer orders are placed by telephone, the efficient handling of
calls is an extremely important aspect of Global's business. Order entry and
fulfillment occurs at each of the Company's 13 branches. Global generally
provides a toll-free telephone number which automatically directs calls to the
branch closest to the customer. Department managers are trained to monitor and
coordinate automatic call distribution activity which allows them to shift
staff from other departments to cover periods of the day with heavy calling
activity. Calls are received by well trained inbound telemarketing
representatives who utilize on-line terminals to enter customer orders into
computerized order processing systems. The integration of the Company's call
centers also provide each domestic branch with telephone backup in the event
of a disruption in phone service. In addition to telephone orders, Global also
receives orders by mail, by fax, via EDI, and via the Internet.
When an order is entered into the system, a credit check is performed,
and, if the credit is approved, the order is electronically transmitted to the
warehouse and a packing slip is printed for order fulfillment. Approximately
75% of the Company's 1996 sales were on open account and the Company's bad debt
experience has traditionally been approximately 1/2 of 1% of sales. Orders
generally are shipped by United Parcel Service in the United States and by
similar national small package delivery services in Europe, as well as by
various freight lines and local carriers. Air freight is also available. As a
result of the regional locations of the Company's branches, Global estimates
that most customers receive their orders (other than custom items, large
furniture and large industrial items shipped directly by the vendor) within
one or two business days of the order date. Customers are invoiced for
merchandise, shipping and handling promptly after shipment.
Inbound Telemarketing
The Company's catalogs generate calls to the in-bound telemarketing group
which is supported by proprietary software applications. Inbound telemarketing
representatives use the capabilities of the Company's systems to effectively
fulfill orders and explore additional customer product needs. Using
proprietary applications, each member of the telemarketing group has immediate
access to customer files, including usage and billing information, and
real-time inventory levels by distribution center. Using this data, inbound
telemarketing personnel are also prompted by their computer screen to
cross-sell selected products and obtain specific information relating to
customer-specific purchasing habits and product needs. For example, one
program prompts the sales representative to suggest the purchase of an
additional product which may be used with the products just ordered by the
customer. In addition, the Company frequently runs sales incentive programs to
improve productivity and enhance employee motivation. The Company also
conducts regular on-site training seminars for its sales representatives and
regularly reviews performance to monitor productivity.
Outbound Telemarketing
In 1988, the Company began to utilize outbound telemarketing to increase
the overall level of sales. Each of the Company's 13 branches has its own
telephone sales center. The telemarketing sales force's goal is to increase
the purchasing productivity of current customers and to actively solicit newly
targeted prospects to become customers. As part of its outbound telemarketing
effort, the Company established a national accounts program focused on
expanding penetration of larger facilities. In the United States, Global has
the ability to provide such customers with EDI ordering and customized billing
services, customer savings reports, bulk discounts and stocking of specialty
items specifically requested by customers. Global can also provide monthly
reports illustrating customer savings from utilizing Global.
Customer Service and Support
The Company conducts regular on-site training seminars for its sales
representatives and operates a separate customer service department which
responds to customer concerns and generally offers a 30 day return policy.
Sales representatives receive technical training regarding various products
from vendors and in-house training specialists. The Company also maintains a
separate technical support group dedicated to answering customer inquiries and
assisting customers with the operation of their products. Technical support
questions are logged into the computer, thus forming a database of commonly
asked questions for each product. This database helps sales representatives
respond quickly to similar questions from future customers and also allows
product managers to monitor the effectiveness of the information provided in
the catalogs. The Company also employs a fax-back system that allows customers
to call directly into a computer system that automatically faxes the requested
information to the customer.
Distribution Centers
North American
The Company operates a network of seven branch locations in North
America. Each sales and distribution center has a general manager in charge of
sales and supervising on-site operations and handles its own telemarketing,
credit review, product fulfillment and collection functions.
Each location is linked by a sophisticated wide area network management
information system and in the event of adverse delivery conditions (such as
weather problems or other delivery issues), the Company can easily shift
inbound calls and/or order fulfillment and shipping to an alternative branch.
Management believes this provides Global with important operating flexibility
and protection from possible sales interruptions. See "Management Information
Systems."
A large number of the Company's products are carried in stock, and
consequently orders for such products are fulfilled from the distribution
center. Certain products (such as selected computer hardware and large
furniture and industrial items) are shipped directly by the supplier. The
layout of the Company's distribution centers is managed via a computer-based
tracking system which dictates the location of specific stock items.
Individual product types are consistently stocked in the same physical picking
location, allowing ease of picking and minimizing picking errors. Picking of
products at the distribution centers is done continuously throughout the day.
Customer orders are packed and shipped as they are received.
European
The Company has six branch locations in five European countries, the
operations of which are all directed from a central office outside London,
England. The central office in Uxbridge is responsible for marketing support,
catalog production, financial reporting, logistics, auditing and MIS
programming support. Each of the Company's six separate European operations is
run by a country manager with profit and loss responsibility. Management
believes that its practice of operating each country's operations as a more
autonomous entity fosters a highly entrepreneurial culture and increases
management accountability. Each country (except the United Kingdom which has
two) has a full service sales and distribution center to process orders.
Suppliers
In North America, the Company purchases substantially all of its products
directly from manufacturers, except for certain peripherals, software and
hardware products which are purchased through wholesale distributors. In
Europe, products are sourced from a combination of local manufacturers,
wholesalers and import suppliers of private label products. Substantially all
of the European catalog product content is sourced in Europe. No single
supplier accounted for more than 10% of Global's total purchases in 1996.
Private label products are manufactured by third parties to the Company's
specifications. Many of these private label products have been designed or
developed by the Company's in-house research and development team. See
"Research and Development." As certain private label products require assembly,
the Company also maintains a small assembly operation.
Management Information Systems
In North America, the Company has installed and operates a sophisticated,
proprietary system that allows centralized management of key management
functions, including communication links between distribution centers,
inventory and accounts receivable management, purchasing, pricing, sales and
distribution, and the preparation of daily operating control reports which
provide concise and timely information regarding key aspects of its business.
This proprietary management information system enables the Company to enhance
its flexibility by shipping customer orders on a same-day basis, responding
quickly to order changes and providing a high level of customer service. The
Company maintains a database of over 40 million customer and prospect names
and keeps records of historical purchasing patterns in order to prompt sales
personnel with product suggestions to expand customer order values. In
addition, the Company has developed a state-of-the-art customer prospecting
function based upon geographic, economic and demographic data which enables
Global to utilize its information systems to maintain and expand its customer
data file. These applications enable the Company to achieve cost savings,
deliver extensive customer service and centrally manage its operations.
In the United States, the Company's management information systems are
networked, real-time information systems that allow each distribution center
to share information and monitor daily progress relating to sales activity,
credit approval, inventory levels, stock balancing, vendor returns, order
fulfillment and other measures of performance.
The Company believes that its management information systems and planned
enhancements are sufficient to sustain its present operations and to
accommodate the Company's internal growth strategy.
Research and Development
The Company's research and development team designs and develops products
for Global's private label program. Management believes this engineering and
design capability, which Global has had for more than 10 years, is unique in
the direct marketing industry. The individuals responsible for research and
development have backgrounds in engineering and industrial design.
This in-house capability provides important support to the private label
program. Many of the Company's private label products were designed or
developed by the in-house research and development team. Examples of products
designed in-house include: furniture, ergonomic monitor support arms, printer
and monitor stands, wrist rests and other durable computer related products,
storage racks and shelving systems, various stock and storage carts, work
benches, plastic bins and shop furniture. The Company owns the tooling for
many of these products, including plastic bins, computer accessories,
furniture, and metal alloy monitor arms. See "Research and Development Costs"
in Footnote 1 to the financial statements.
Competition
Computer Related Products
The North American computer related products market is highly fragmented
and characterized by multiple channels of distribution, including
direct-response (mail-order) distributors, local and national retail computer
stores that carry computer supplies, computer resellers (OEMs), and computer
"superstores". The tremendous growth in the computer related products market
during the past 10 years has been accompanied by substantial changes in the
nature of product distribution and sales. The decentralization of computers
throughout factory, business, engineering and office environments has made it
increasingly difficult and expensive for many suppliers to use traditional
direct sales methods to locate users, initiate sales contacts and effectively
provide service to customers. Average order values also tend to be smaller
than in the past, reflecting individual requirements rather than the greater
needs traditionally associated with centralized data processing departments.
These changes in the structure of the computer related products market have
placed traditional distributors with direct sales forces at a competitive
disadvantage due to their cost structures and established selling methods. As
a result, direct marketers have been able to increase sales to the larger
businesses that have traditionally been served by contract stationers as well
as capturing sales volume and market share from the numerous, small retail
computer stores. The Company believes that the relative inability of the
traditional distribution channels to respond to changing industry dynamics
together with the key customer purchase criteria of selection, price and
service has created an opportunity for the growth of direct marketing
organizations such as Global. In addition, the growing number of non-technical
users has increased the need for a knowledgeable source for quality products.
Global addresses these needs through its direct-response marketing strategy,
broad product offering, same day shipping and a commitment to customer service
and support.
In Europe, the Company's major competitors are regional or
country-specific retail and direct-mail distribution companies. The Company's
presence in five major European countries provides Global with the flexibility
to purchase large volumes centrally from its European headquarters in the
United Kingdom or locally at each branch. In addition, the commonality of
certain core pages of the European catalogs provides for economies in catalog
production. The Company believes that these factors allow it to take advantage
of cost savings not available to many of its competitors in Europe.
Office Products
The distribution of office products in the United States is highly
fragmented, with no one participant having more than a 10% market share.
Sourcing of products from vendors and distributors also has been through a
highly-fragmented supplier base without volume discounts or central purchasing
efficiencies. Office products are typically sold through one of three
channels: retail outlets, contract stationers and direct mail. However, due to
the rapid growth of the office products market, competition and consolidation
in this market are increasing, particularly with respect to the SOHO and large
corporate (companies with over 1,000 employees) segments. Large contract
stationers, direct mail distributors and office products superstores have
grown at the expense of small independent retail dealers. The companies
leading this consolidation have not, however, captured a large market position
with the mid-sized facilities which the Company targets. The Company believes
that this lack of penetration results from the fact that office products
superstores and direct mail marketers have focused on serving the SOHO segment
while contract stationers have focused on serving the large corporate sector.
The Company believes that direct mail will continue to be a growing channel of
distribution for office products and that price, breadth of product line and
customer service will be key factors in the success of direct mail
distribution of office products.
Industrial Products
The market for the sale of industrial products in the United States is
highly fragmented and is characterized by multiple distribution channels such
as retail outlets, small dealerships, direct mail distribution and large
warehouse stores. Global also faces competition from manufacturers' own sales
representatives who sell industrial equipment directly to customers, and from
regional or local distributors. Many high volume purchasers, however, utilize
catalog distributors as their first source of product specifications. In the
industrial products market, customer purchasing decisions are, primarily,
based on price, product selection, product availability, level of service and
convenience. As in the office products industry, the Company believes that
direct mail is one of the most effective and convenient distribution methods
to reach mid-sized facilities which place many small orders and require a wide
selection of products. In addition, because the industrial product market is
highly fragmented and generally less brand-oriented, it is well-suited to
private label products. The majority of the Company's industrial products are
high gross profit margin, private label products.
Competition in the United Kingdom is similar to competition in the U.S.
with the exception that most direct mail companies in the United Kingdom drop
ship the majority of their products from the manufacturer resulting in long
delivery lead times. As Global intends to stock the majority of its products,
management believes it will have a significant advantage over most of its
direct mail competitors in the United Kingdom.
Employees
As of December 31, 1996, the Company employed a total of 2,166 employees,
geincluding 1,957 full-time and 209 part-time employees, of whom 1,613 were
in North America and 553 were in Europe.
None of the Company's North American employees is represented by a labor
union, except for approximately 80 warehouse and assembly employees at the
Port Washington distribution center who are covered by an "open-shop"
agreement with the Company, which expires at the end of 1998. The Port
Washington employees are not required to join the union. In Europe, union
membership and affiliations vary by country. In general, the European unions
tend to be national, rather than local, in scope and industry specific.
The Company considers its relationships with employees to be good and has
experienced no work stoppages since 1976.
Environmental Matters
Under various Federal, state and local environmental laws and
regulations, a current or previous owner or operator (including the lessee) of
real property may become liable for the costs of removal or remediation of
hazardous substances at such real property. Such laws and regulations often
impose liability without regard to fault. The Company leases all of its U.S.
facilities. In connection with such leases, the Company could be held liable
for the costs of removal or remedial actions with respect to hazardous
substances. Although the Company has not been notified of, and is not
otherwise aware of, any material environmental liability, claim or
non-compliance, there can be no assurance that the Company will not be
required to incur remediation or other costs in connection with environmental
matters in the future.
Financial Information About Foreign and Domestic Operations
See "Geographic Information" contained in Footnote 10 to the financial
statements.
Item 2. Properties.
The Company's primary facilities, which are leased except where otherwise
indicated, are as follows:
Expira-
tion
Approx of
Facility Location Sq. Ft. Lease
-------- -------- ------- ------
Headquarters, Sales and
Distribution Center, Catalog
Operations(1)......................Port Washington, NY 178,000 2007
Sales and Distribution Center(1).....Suwanee, GA 110,000 1999
Sales and Distribution Center(1).....Compton, CA 60,000 1998
Sales and Distribution Center........Naperville, IL 241,000 2010
Sales and Distribution Center........Holmdel, NJ 51,000 1999
Sales and Distribution Center........Markham, Ontario 45,000 2005
Sales and Distribution Center........Verrieres le Buisson
France 19,500 2000
Sales and Distribution Center........Dreieich, Germany 55,000 2000
Sales and Distribution Center........Madrid, Spain 35,000 2 months
notice
Sales and Distribution Center........Milan, Italy 44,600 1999
Sales and Distribution Center........Greenock, Scotland 78,000 owned
Sales and Distribution Center........Wellingborough,
England 38,000 2013
Sales Center and Catalog Operations..Miami, FL 32,000 2000
Sales Center.........................Raleigh-Durham, NC 12,000 1998
___________
(1) Facility leased from related party. See "Certain Relationships and Related
Transactions--Agreements--Leases and Related Guarantees."
The Company believes that its facilities are adequate for its current
needs and that suitable additional space would be available as needed.
Item 3. Legal Proceedings.
There are no material legal proceedings pending against the Company.
Item 4. Submission of Matters to a Vote of Security Holders.
During the quarter ended December 31, 1996, there were no matters
submitted to a vote of the Company's security holders.
PART II
Item 5. Market for the Company's Common Equity and Related Stockholder
Matters.
The Company's Common Stock has been traded on the New York Stock Exchange
under the symbol "GML" since its initial public offering on June 26, 1995 (the
"IPO"). The following table sets forth the high and low sales price of the
Company's Common Stock as reported on the New York Stock Exchange for the
periods indicated.
1995 High Low
- ---- ---- ---
Second quarter (from June 27, 1995)................ $20 1/4 $19
Third quarter...................................... 28 7/8 19 1/4
Fourth quarter..................................... 30 3/8 23 1/4
1996
- ----
First quarter...................................... 35 24 1/4
Second quarter..................................... 47 32 1/8
Third quarter...................................... 47 1/4 36 1/4
Fourth quarter..................................... 52 1/4 39 1/4
On March 25, 1997, the last reported sale price of the Company's Common
Stock on the New York Stock Exchange was $19 (7/8) per share. As of March 25,
1997, the Company had 258 stockholders of record.
The Company has not paid any dividends since the IPO and anticipates that
all of its income in the foreseeable future will be retained for the
development and expansion of its business, and therefore does not anticipate
paying dividends on its Common Stock in the foreseeable future. See "Certain
Relationships and Related Transactions" for a description of the Company's
historical distributions.
Item 6. Selected Financial Data.
The following selected financial information is qualified by reference
to, and should be read in conjunction with, the Company's Consolidated
Financial Statements and the notes thereto, and "Management's Discussion and
Analysis of Financial Condition and Results of Operations" contained elsewhere
in this report. The selected income statement data for the years ended
December 31, 1994, 1995 and 1996 and the selected balance sheet data as of
December 31, 1995 and 1996 is derived from the audited consolidated financial
statements which are included elsewhere herein. The selected balance sheet
data as of December 31, 1992, 1993, and 1994 and the selected income statement
data for the years ended December 31, 1992 and 1993 are derived from the
audited financial statements of the Predecessor Companies which are not
included herein.
Year Ended December 31,
___________________________________________
1992 1993(1) 1994 1995 1996
------- ------- ------ ------ ------
(in millions, except per share data, number
of catalog titles and number of countries)
Income Statement Data:
Net sales...................... $ 238.8 $ 393.6 $ 484.2 $ 634.5 $ 911.9
Cost of sales................... 147.0 244.5 318.5 437.2 662.3
------- ------- ------- ------- -------
Gross profit.................... 91.8 149.1 165.7 197.3 249.6
Selling, general and
administrative expenses...... 70.6 119.0 129.2 143.0 180.1
------- ------- ------- ------- -------
Income from operations......... 21.2 30.1 36.5 54.3 69.5
Interest income................ 0.2 1.1 1.1 1.2 2.5
Interest expense............... 1.5 2.1 1.8 2.4 .5
Income taxes(2)................ 0.0 0.7 0.9 12.7 27.7
Officer compensation(3)........ 14.9 16.8 18.1 4.7 0.0
Net income..................... 5.1 11.2 17.1 35.7 43.7
Net income per share .......... $ 1.15
Common and common equivalent
shares outstanding........... 38.1
Selected Operating Data:
Active customers(4)............ 0.5 0.9 1.1 1.7 1.7
Orders entered................. 1.0 1.9 2.2 2.5 3.4
Number of catalogs distributed. 71 98 114 122 160
Number of catalog titles....... 11 18 24 32 40
Number of countries
receiving catalogs........... 7 7 7 10 12
(Footnotes on following page)
Year Ended December 31,
___________________________________________
1992 1993(1) 1994 1995 1996
------- ------- ------ ------ ------
(in millions)
Balance Sheet Data
(at period end):
Working capital(5)...... $ 62.8 $ 65.8 $ 84.6 $ 99.1 $128.7
Total assets............ 114.5 127.1 164.2 247.5 331.4
Short-term debt......... 5.0 4.8 19.2 5.4 0.5
Long-term debt, excluding
current portion....... 23.8 13.9 11.5 2.9 2.0
Stockholders' equity.... 42.4 58.1 69.1 154.0 228.6
___________
(1) In December 1992, the Company acquired a computer related
products catalog business located in North America and Europe
operating under the Misco brand name. This business contributed
$107.6 million in net sales in 1993.
(2) From 1992 through the closing of the IPO, the Predecessor Companies
operated as a series of corporations with related ownership, most of
which elected to be treated as S Corporations and therefore were
subject to minimal federal and state income taxes.
(3) Following the IPO, the aggregate amount of salary paid to each of the
Company's three senior executive officers was reduced to $300,000
per year and included in selling, general and administrative expenses.
Prior to the IPO, distributions to officers/shareholders were made
primarily to satisfy their tax liabilities resulting from the S
Corporation status of certain of the Predecessor Companies. Officer
compensation for 1995 was based on distributions made to such officers
of $4.7 million through the closing of the IPO and $0.5 million for
the period after the closing of the IPO (which represents an annual
rate of $0.9 million for such period).
(4) An "active customer" is defined as a customer who has purchased from
the Company within the preceding 12 months.
(5) Working capital excludes cash and cash equivalents and short term debt.
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
General
Global is a direct marketer of brand name and private label computer
related products, office products and industrial products in North America and
Europe. The Company emphasizes a broad selection of in-stock products,
frequent mailings of a variety of distinctively branded, full color catalogs,
extensive customer service and prompt, complete order fulfillment. Global has
grown rapidly as a result of internal growth and strategic acquisitions with
net sales increasing from $238.8 million in 1992 to $911.9 million in 1996.
Global was started over 45 years ago and existed as a direct sales
organization prior to entering the direct mail business in 1972 with an
industrial products catalog published under the Global name. Since then, the
Company has added 39 catalog titles to its portfolio, the majority of which
are specifically targeted at mid-sized facilities (20 to 1,000 employees). As
a "corporate supplier" offering a broad spectrum of business products
principally to mid-sized facilities, the Company has consistently emphasized
serving the needs of its customers rather than selling particular products.
This strategy has resulted in a product offering which has expanded over time
to include computer related products and a selection of office products.
In June 1990, the Company made a strategic entry into the European market
with the purchase of Heathrow Computer Supplies, a direct marketing company in
the United Kingdom. In October 1991, the Company expanded its sales of
computer related products to France and in December 1992, the Company acquired
Misco, a computer related products catalog business located in North America
and Europe operating under the Misco brand name. The Misco acquisition
provided the Company with new bases of operations in the United Kingdom and
United States and further expanded its international operations into Germany,
Italy, Spain and Canada. The Company's European operations represented 26% of
net sales in 1996, substantially all of which were attributable to the sale of
computer related products. The Company does not hedge any of its sales
denominated in foreign currencies.
Prior to its acquisition by the Company in December 1992, Misco was owned
and operated by a substantially larger multinational corporation and had an
established and respected brand name but had experienced substantial losses
from operations. Following the acquisition, the Company promptly implemented a
number of strategic initiatives designed to convert Misco to the Global
business model including (i) redesigning Misco catalogs to increase the
overall breadth and depth of the product offerings, (ii) repositioning Misco's
products at lower price points in order to increase sales, (iii) reducing
overhead expenses and (iv) applying the Company's distribution and marketing
expertise.
In November 1995, the Company acquired Tiger Direct, a company engaged
primarily in the direct marketing of personal computer software and peripheral
hardware products, in exchange for 148,240 shares of Global Common Stock and
$1.1 million in cash. At the time of acquisition, Tiger had a mailing list of
almost 3.5 million names, including approximately 400,000 active customers.
Since the acquisition, the Company has implemented several measures designed
to improve Tiger's operations, including the elimination of unprofitable
catalogs and reducing overhead expenses. See Note 3 to the Consolidated
Financial Statements.
Impact of Expansion into Brand Name Products
Historically the Company focused primarily on non-brand name or private
label products. Although the Company has continued to experience strong growth
in its private label products, in recent years the Company made the strategic
decision to leverage its distribution and marketing strengths into the market
for higher volume brand name products which the Company believes offer
significant opportunities to increase sales. In particular, in 1993 the
Company expanded its offerings of brand name computer related products.
Although brand name computer related products typically have lower gross
profit margins than many of the Company's other products, the majority of such
decrease has been offset by vendor supported advertising and increased
efficiencies from (i) larger average order values and (ii) increased response
rates for the Company's catalogs.
Geographic Segments
The Company operates in two geographic segments, North America and
Europe. (See Footnote 10 to the financial statements) Sales and income from
operations in North America grew from 1992 through 1996 at compound
annual growth rates of 32% and 34% respectively.
The Company's growth in sales and income from operations in Europe grew
rapidly since its entry into Europe in 1990 through 1995. Sales and income
from operations from 1992 through 1995 grew at compound annual growth rates of
32% and 115% respectively. In 1996 sales in Europe increased by 24% and income
from operations decreased by 48%. At the end of 1996 the Company had
operations in five European countries (United Kingdom, France, Germany, Italy
and Spain) and sold cross border into an additional five countries (Austria,
Switzerland, Belgium, Portugal and Ireland). Sales growth was affected by the
weak economies in those countries, particularly Germany and Italy. Income from
operations was impacted by the expenses associated with the first quarter
launching of four new catalogs into those "cross border" countries in which
the Company did not have an existing customer base.
Termination of S Corporation Status
Immediately prior to the consummation of the IPO, Global became a
successor to the Predecessor Companies. The Predecessor Companies operated as
a series of corporations with related ownership, most of which elected to be
treated as S Corporations under Subchapter S of the Internal Revenue Code and
therefore were subject to minimal Federal and state income taxes. In
connection with the consummation of the IPO, the stockholders of the
Predecessor Companies exchanged all of the outstanding capital stock of the
Predecessor Companies for 28,400,000 shares of Global Common Stock (the
"Formation"). Upon the Formation, the Company terminated the S Corporation
elections of the Predecessor Companies and accordingly became subject to
Federal income taxes on its total earnings. See Note 2 to the Consolidated
Financial Statements.
Results of Operations
The following table represents the Company's statement of income data
expressed as a percentage of net sales for the three most recent fiscal years:
Year Ended
December 31,
-----------------------------
1994 1995 1996
------ ------ ------
(dollars in millions)
Net sales................................ $484.2 $634.5 $ 911.9
Net sales................................ 100.0% 100.0% 100.0%
Gross profit............................. 34.2 31.1 27.4
Selling, general and administrative
expenses...... 26.7 22.5 19.8
Income from operations................... 7.5 8.6 7.6
Interest income.......................... 0.2 0.2 0.3
Interest expense......................... 0.4 0.4 0.1
Income taxes............................. 0.2 2.0 3.0
Officer compensation..................... 3.7 0.7 0.0
Net income............................... 3.5 5.6 4.8
Year Ended December 31, 1996 Compared to Year Ended December 31, 1995
Net sales increased by $277.4 million or 43.7% to $911.9 million in 1996
from $634.5 million in 1995. The increase was attributable to (i) internal
growth fueled by an increase in the number of catalogs mailed (including 8
new catalog titles), an increase in revenue from the Company's outbound
telemarketing program and an increased average order value resulting from
increased offerings and sales of brand name products and (ii) the inclusion of
a full year of sales from Tiger Direct verses one month in 1995. Sales
attributable to the Company's North American operations increased 52.1% to
$677.8 million in 1996 from $445.7 in 1995 as compared with a 24.0% increase
in European sales to $234.1 million in 1996 from $188.8 million in 1995.
Gross profit, which consists of net sales less product and certain
shipping and distribution center costs, increased by $52.3 million or 26.5% to
$249.6 million in 1996 from $197.3 million in 1995. Gross profit margin
decreased to 27.4% in 1996 from 31.1% in 1995. The decrease in gross profit
margin was due in part to the inclusion of a full year of sales from Tiger
Direct whose product mix has a lower gross 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 gross profit margins than many of the Company's other
products.
A significant portion of this decline in gross profit margin has been
offset by the continued decline in selling, general and administrative
expenses as a percentage of net sales. While selling, general and
administrative expenses increased by $37.1 million or 25.9% to $180.1 million
in 1996 from $143.0 million in 1995, as a percentage of net sales they
decreased to 19.8% in 1996 from 22.5% in 1995. The decrease as a percentage
of net sales was primarily attributable to reduced catalog costs in North
America as a result of the increased efficiencies described above under
"--Impact of Expansion into Brand Name Products", vendor supported
advertising, continued expense control and the leveraging of selling, general
and administrative expenses over a larger sales base. As a result of expenses
associated with the Company's launching of four new cross border catalogs in
the first quarter in Europe, selling, general and administrative expenses as a
percentage of net sales for Europe did not decrease significantly. These
European cross border catalogs were mailed into countries where the Company
did not have an existing customer base and accordingly yielded lower catalog
response rates than the Company's other catalogs.
Income from operations increased by $15.2 million or 28.0% to $69.5
million in 1996 from $54.3 million in 1995. Income from operations as a
percentage of net sales decreased to 7.6% from 8.6% in 1995 as a result of a
$4.6 million decrease in operating profits for Europe and the inclusion of a
full year of Tiger which had a lower operating profit margin than the rest of
North America.
Interest income increased $1.3 million to $2.5 million in 1996 from $1.2
million in 1995 primarily due to investment in short-term securities.
Interest expense decreased $1.9 million to $0.5 million in 1996 from
$2.4 million in 1995 primarily as a result of the repayments of
officers/shareholders' notes issued during 1995.
Net income increased $8.0 million or 22.4% to $43.7 million in 1996 as a
result of the increase in income from operations described above and a $4.7
million decrease in Officer Compensation and an increase of $15.0 million in
income taxes as described in "--Termination of S Corporation Status". Net
income increased $10.6 million or 32.0% compared to 1995 pro forma net income
of $33.1 million, as described below.
Year Ended December 31, 1995 Compared to Year Ended December 31, 1994
Net sales increased by $150.3 million or 31.0% to $634.5 million in 1995
from $484.2 million in 1994. The increase was attributable to a 7.3% increase
in the number of catalogs mailed (including 8 new catalog titles), an increase
in revenue from the Company's outbound telemarketing program, a 7.2% increase
in catalog response rates and a 13.6% increase in average order value. The
Company attributes the increase in catalog response rates (calculated as the
number of orders entered during a period divided by the number of catalogs
distributed during such period) and the increase in the average order value
primarily to increased offerings and sales of brand name products. Sales
attributable to the Company's North American operations increased 25.6% to
$445.7 million in 1995 from $354.8 in 1994 as compared with a 45.9% increase
in European sales to $188.8 million in 1995 from $129.4 million in 1994.
Gross profit, which consists of net sales less product and certain
shipping and distribution center costs, increased by $31.6 million or 19.0% to
$197.3 million in 1995 from $165.7 million in 1994. Gross profit margin
decreased to 31.1% in 1995 from 34.2% in 1994. The decrease in gross profit
margin was primarily due to an increase in the proportion of net sales
attributable to brand name products, particularly computer related products,
which typically have lower gross profit margins than many of the Company's
other products. The majority of this decline, however, was offset by the
increased efficiencies discussed above under "--Impact of Expansion into Brand
Name Products" and vendor supported advertising.
Selling, general and administrative expenses increased by $13.8 million
or 10.7% to $143.0 million in 1995 from $129.2 million in 1994. Selling,
general and administrative expenses decreased as a percentage of net sales,
however, to 22.5% in 1995 from 26.7% in 1994. The decrease as a percentage of
net sales was primarily attributable to reduced catalog costs as a result of
the increased efficiencies described above under "--Impact of Expansion into
Brand Name Products," vendor supported advertising, continued expense control
and the leveraging of selling, general and administrative expenses over a
larger sales base.
Prior to the closing of the IPO on June 29, 1995, selling, general and
administrative expenses excluded officer compensation paid to the Company's
three principal stockholders who also serve as the Company's three principal
executive officers. Effective upon the closing of the IPO, each of such
officers was paid a base salary of $300,000 per year and is not eligible for
any increase in salary, any discretionary bonus or any stock options for the
two year period following the closing of the IPO. All compensation paid to
such officers after the closing of the IPO was included in selling, general
and administrative expenses. The increase in selling, general and
administrative expenses attributable to such salaries was partially offset,
however, by (i) the termination in connection with the IPO of a $500,000
per year consulting agreement entered into in 1992 with a stockholder and
(ii) the assignment to the Company in connection with the IPO of certain
patents subject to a royalty agreement with the Company's three senior
executive officers and principal stockholders pursuant to which the Company
recorded $85,000 in royalty expenses during 1995. After giving effect to
such adjustments, pro forma selling, general and administrative expenses
would have been $143.2 million or 22.6% of net sales in 1995.
Income from operations increased by $17.7 million or 48.6% to $54.3
million in 1995 from $36.5 million in 1994. Income from operations as a
percentage of net sales increased from 7.5% to 8.6% for the reasons discussed
above. Income from operations on a pro forma basis as described above would
have been $54.1 million or 8.5% of net sales in 1995.
Interest income increased to $1.2 million in 1995 from $1.1 million in
1994 primarily due to investment in short-term securities.
Interest expense increased to $2.4 million in 1995 from $1.8 million in
1994 primarily as a result of the interest paid on officers/shareholders'
notes issued during 1995.
Net income increased $18.6 million or 108.5% to $35.7 million in 1995
principally as a result of the increase in income from operations described
above. Net income on a pro forma basis as described above would have been
$33.1 million. The decrease in pro forma net income compared to historical net
income primarily reflects the imposition of a higher provision for income
taxes resulting from the termination of the S Corporation status of certain
Predecessor Companies in connection with the IPO. See "--Termination of S
Corporation Status."
Seasonality
The operations of the Company are somewhat seasonal. In particular, net
sales have historically been modestly weaker during the second and third
quarter as a result of lower business activity during the summer months. The
following table sets forth net sales, gross profit and income from operations
for each of the quarters since January 1, 1994.
Three Months Ended
-----------------------------------------------------
March 31, June 30, September 30, December 31,
1994 1994 1994 1994
-------- -------- ------------- ------------
(dollars in millions)
Net sales................ $114.2 $114.3 $120.7 $135.0
Gross profit............. 40.4 39.8 41.2 44.3
Income from operations... 10.3 7.9 9.4 8.9
Three Months Ended
-----------------------------------------------------
March 31, June 30, September 30, December 31,
1995 1995 1995 1995
-------- -------- ------------- ------------
Net sales................ $160.7 $149.4 $153.0 $171.4
Gross profit............. 50.9 45.6 47.5 53.3
Income from operations... 14.7 12.1 12.8 14.7
Three Months Ended
-----------------------------------------------------
March 31, June 30, September 30, December 31,
1996 1996 1996 1996
-------- -------- ------------- ------------
Net sales................ $218.7 $213.7 $225.9 $253.6
Gross profit............. 65.0 60.1 60.3 64.2
Income from operations... 18.3 15.5 16.8 18.9
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 the IPO, distributions to its existing stockholders primarily
to satisfy their tax liabilities resulting from the S Corporation status of
certain of the Predecessor Companies. The Company's primary sources of
financing have been cash from operations and to a lesser extent, bank
borrowings and loans from affiliates. The Company believes that its cash flows
from operations and available lines of credit will be adequate to support its
current operations.
Net cash provided by operating activities was $5.7 million, $11.0 million
and $19.6 million in 1994, 1995 and 1996, respectively. The increase from
1994 to 1995 was primarily due to increased working capital as a result of
increased sales. The increase from 1995 to 1996 was due to increased working
capital as a result of increased sales, improved management of inventory and
accounts receivable and reduced levels of unprinted catalog paper in response
to stabilizing paper prices.
Net cash used in investing activities in 1994 of $5.5 million was a
result of additional capital expenditures of $5.4 million for the acquisition
of a distribution center in Scotland, computer equipment and additional
furniture and fixtures to accommodate increased staff levels.
Net cash used in investing activities in 1995 of $11.7 million was
primarily as a result of the acquisition of Tiger, property and equipment
purchases and the repayment of amounts due to affiliates. Net cash used in
investing activities in 1996 of $39.8 million was the result of the
investment of surplus cash and the acquisition of computer equipment and
additional furniture and fixtures at the new Naperville, Illinois facility to
accommodate increased staff levels.
Net cash provided by (used in) financing activities was ($1.4) million,
$20.2 million and $27.0 in 1994, 1995 and 1996, respectively. The use of
funds in 1994 was primarily due to additional bank borrowings to fund
stockholder loans to pay taxes.
The source of funds in 1995 was due mainly to the net proceeds of the IPO
net of the repayment of officers' notes payable and repayment of bank debt.
For 1996 net cash provided by financing activities resulted from the net
proceeds from the sale and issuance of 1,000,000 shares of common stock by the
Company on March 26, 1996, the repayment of long term bank debt in Europe, the
settlement of long term capital leases assumed and the write down of the
goodwill resulting from the acquisition of Tiger Direct.
The Company maintains unsecured lines of credit with various financial
institutions under which the maximum aggregate amount available is $52.0
million. As of December 31, 1996, the Company had no outstanding borrowings
under the lines of credit. The lines of credit bear interest at either the
prime rate, LIBOR, plus 0.63% or at the bank's base rate and expire on various
dates through December 1997. In addition, the Company may have outstanding
letters of credit equal to an amount of the total line less outstanding
borrowings. At December 31, 1996 there were no outstanding letters of
credit.
The Company also maintains a secured line of credit with a bank with a
maximum amount available of Pound Sterling1,000,000. Borrowings, of which
there were none as of December 31, 1996, bear interest at the bank's base rate
(6 % at December 31, 1996) plus 2% and are secured by substantially all of the
assets of the Global's United Kingdom subsidiaries. This line expires in
December 1997 and is renewable at Global's option.
The Company anticipates capital expenditures in 1997 of approximately
$15 million, which the Company expects to fund out of cash from operations and
existing cash and cash equivalents . These capital expenditures are primarily
for (i) the relocation and expansion of the Company's sales and distribution
centers and (ii) the purchase of computers and other fixed assets.
Recent Pronouncements of the Financial Accounting Standards Board
Recent pronouncements of the Financial Accounting Standards Board
("FASB") include Statement of Financial Accounting Standards ("SFAS") No. 123,
"Accounting for Stock-Based Compensation" ("SFAS 123") and SFAS No. 121,
"Accounting for Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed Of" ("SFAS 121"), which are effective for the fiscal year ended
December 31, 1996. The adoption of SFAS 123 and SFAS 121 did not have a
material impact on the Company's consolidated financial position or results of
operations.
Forward Looking Statements
The Company has made in this report, and from time to time may otherwise
make, forward looking statements concerning the Company's operations, economic
performance and financial condition. Such forward looking statements are
subject to various risks and uncertainties. Actual results could differ
materially from those currently anticipated due to a number of factors,
including but not limited to (i) the Company's ability to manage rapid growth
as a result of internal expansion and strategic acquisitions, (ii) the effect
on the Company of volatility in the price of paper and periodic increases in
postage rates, (iii) the operation of the Company's management information
systems, (iv) the general risks attendant to the conduct of business in
foreign countries, including currency fluctuations associated with sales not
denominated in United States dollars (v) significant changes in the computer
products retail industry, especially relating to the distribution and sale of
such products, (vi) competition in the computer related products, office
products and industrial products markets from superstores, direct marketers,
the Internet and other retailers, (vii) the potential for expanded
imposition of state sales taxes or use taxes, or other taxes on mail order
companies, (viii) the continuation of key vendor relationships including
the ability to continue to receive vendor supported advertising, (ix)
timely availability of existing and new products, and (x) risks due to
shifts in market demand and/or price erosion of owned inventory.
Item 8. Financial Statements and Supplementary Data.
The information required by Item 8 of Part II is incorporated herein by
reference to the Consolidated Financial Statements filed with this report; see
Item 14 of Part IV.
Item 9. Changes In and Disagreements with Accountants on Accounting and
Financial Disclosure.
None.
PART III
Item 10. Directors and Executive Officers of the Registrant.
The information required by Item 10 of Part III is hereby incorporated by
reference from the Company's Proxy Statement for the 1997 Annual Meeting of
Stockholders (the "Proxy Statement").
Item 11. Executive Compensation.
The information required by Item 11 of Part III is hereby incorporated by
reference from the Company's Proxy Statement.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
The information required by Item 12 of Part III is hereby incorporated by
reference from the Company's Proxy Statement.
Item 13. Certain Relationships and Related Transactions.
The information required by Item 13 of Part III is hereby incorporated by
reference from the Company's Proxy Statement.
PART IV
Item 14. Exhibits, Financial Statements, Schedules and Reports on Form 8-K.
(a) 1. The Consolidated Financial Statements of Global DirectMail Corp
(see index to financial statements at F-1).
2. Financial Statement Schedules:
Schedules not included with this additional financial data have been
omitted because they are not applicable or the required
information is shown in the Consolidated Financial Statements or
Notes thereto.
3. Exhibits.
EXHIBIT INDEX
Exhibit
No. Description
_______ ____________________________________________________________________
3.1 Certificate of Incorporation of Registrant*
3.2 By-laws of Registrant*
4.1 Stockholders Agreement**
4.2 Specimen Stock Certificate of Registrant*
10.1 Form of 1995 Stock Option Plan***
10.2 Exchange Agreement dated as of May 8, 1995 between certain
stockholders of the Predecessor Companies and the Company*
10.3 Lease Agreement dated October 14, 1992 between the Company
and 2 RB Associates Co. (Port Washington facility)*
10.4 Lease Agreement dated September 20, 1988 between the
Company and Addwin Realty Associates (Port Washington facility)*
10.5 Lease Agreement dated May 25, 1989 between the Company and
Addwin Realty Associates (Suwanee facility)*
10.6 Lease Agreements dated February 1, 1988 between the Company
and Addwin Realty Associates (Addison facility)*
10.7 Lease Agreements dated November 1, 1993 between the Company
and Delcomp Realty Company (Compton facility)*
10.8 Build-to-Suit Lease Agreement dated April, 1995 among the Company,
American National Bank and Trust Company of Chicago and Walsh,
Higgins & Company (Naperville facility)*
10.9 Rent Guaranty dated as of October 14, 1992 by the Company
to the Bank of New York*
10.10 Royalty Agreement dated June 30, 1986 between the Company and Richard
Leeds, Bruce Leeds and Robert Leeds, and Addendum thereto*
10.11 Consulting Agreement dated as of December 22, 1992 between
the Company and Paul Leeds*
10.12 Form of 1995 Stock Plan for Non-Employee Directors***
10.13 Consulting Agreement dated as of January 1, 1996 between
the Company and Gilbert Rothenberg***
21.1 Subsidiaries of the Registrant***
23.1 Consent of Independent Public Accountants
23.2 Consent of Independent Public Accountants
27 Financial Data Schedule
__________
* Incorporated herein by reference to the Company's
registration statement on Form S-1 (Registration No. 33-92052).
** Incorporated herein by reference to the Company's quarterly report on Form
10-Q for the quarterly period ended September 30, 1995.
*** Incorporated herein by reference to the Company's
registration statement on Form S-1 (Registration No. 333-1852).
(b) Reports on Form 8-K.
No reports on Form 8-K have been filed during the quarterly period ended
December 31, 1996.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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 in the City of New
York, State of New York, on the 28th day of March, 1997.
GLOBAL DIRECTMAIL CORP
By: /s/ RICHARD LEEDS
.....................................
Richard Leeds
Chairman and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
/s/ RICHARD LEEDS Chairman and Chief Executive Officer March 28, 1997
- --------------------- Principal Executive Officer)
Richard Leeds
/s/ BRUCE LEEDS Vice Chairman and President of March 28, 1997
- --------------------- International Operations
Bruce Leeds
/s/ ROBERT LEEDS Vice Chairman and President of March 28, 1997
- ---------------------- Domestic Operations
Robert Leeds
/s/ ROBERT DOOLEY Director and Senior Vice President-- March 28, 1997
- ---------------------- Worldwide Computer Sales and
Robert Dooley Marketing
/s/ KENNETH J. HALL Chief Financial Officer March 28, 1997
- ---------------------- (Principal Financial Officer)
Kenneth J. Hall
/s/ HOWARD KOHOS Corporate Controller March 28, 1997
- ---------------------- (Principal Accounting Officer)
Howard Kohos
/s/ ROBERT D. ROSENTHAL Director March 28, 1997
- -----------------------
Robert D. Rosenthal
/s/ STACY DICK Director March 28, 1997
- -----------------------
Stacy Dick
GLOBAL DIRECTMAIL CORP
INDEX TO FINANCIAL STATEMENTS
Page
Global DirectMail Corp ----
Independent Auditors' Report..............................................F-2
Consolidated Balance Sheets--
December 31, 1995 and 1996.............................................F-3
Statements of Consolidated Income--
Years ended December 31, 1994, 1995 and 1996...........................F-4
Statements of Consolidated Shareholders' Equity--
Years ended December 31, 1994, 1995 and 1996...........................F-5
Statements of Consolidated Cash Flows--
Years ended December 31, 1994, 1995 and 1996...........................F-6
Notes to Consolidated Financial Statements.................. F-7 through F-17
INDEPENDENT AUDITORS' REPORT
The Shareholders and Board of Directors of
THE GLOBAL DIRECTMAIL CORP:
We have audited the accompanying consolidated balance sheets of Global
DirectMail Corp, the successor corporation to the Global Group of Companies
(collectively, the "Company"), as of December 31, 1995 and 1996 and the
related consolidated statements of income, shareholders' equity and cash flows
for each of the three years in the period ended December 31, 1996. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the consolidated financial position of the Company at
December 31, 1995 and 1996, and the consolidated results of their operations
and their cash flows for each of the three years ended December 31, 1996 in
conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
New York, New York
February 5, 1997
GLOBAL DIRECTMAIL CORP
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1995 AND 1996
(IN THOUSANDS)
Notes 1995 1996
ASSETS ----- -------- --------
- ------
CURRENT ASSETS:
Cash and cash equivalents $ 28,477 $ 35,211
Short term investments - 31,031
Accounts receivable, net 1 84,390 111,709
Inventories 71,645 93,033
Prepaid catalog expense 20,467 12,305
Other prepaid expenses and
current assets 6,331 7,427
Deferred income tax benefit 8 1,470 3,266
-------- --------
Total current assets 212,780 293,982
PROPERTY AND EQUIPMENT, net 4 17,255 21,878
GOODWILL, net 3 16,125 13,545
DEFERRED INCOME TAX BENEFIT 8 300 -
OTHER ASSETS 1,055 2,034
-------- --------
TOTAL $247,515 $331,439
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued expenses $ 85,189 $ 99,053
Current portion of long-term debt 6 5,395 495
-------- --------
Total current liabilities 90,584 99,548
-------- --------
LONG-TERM DEBT 6 2,924 2,030
-------- --------
DEFERRED INCOME TAXES 8 - 1,224
-------- --------
COMMITMENTS AND CONTINGENCIES 9
SHAREHOLDERS' EQUITY: 7
Preferred shares - -
Common shares 369 379
Additional paid-in capital 138,470 168,356
Retained earnings 14,688 58,392
Cumulative translation adjustment 480 1,510
-------- --------
Total shareholders' equity 154,007 228,637
-------- --------
TOTAL $247,515 $331,439
======== ========
See notes to consolidated financial statements.
GLOBAL DIRECTMAIL CORP
STATEMENTS OF CONSOLIDATED INCOME
FOR THE YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
1994 1995 1996
-------- -------- --------
NET SALES $484,165 $634,484 $911,893
COST OF SALES 318,429 437,179 662,277
-------- -------- --------
GROSS PROFIT 165,736 197,305 249,616
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES 129,204 143,034 180,142
-------- -------- --------
INCOME FROM OPERATIONS 36,532 54,271 69,474
OTHER INCOME (EXPENSE), net 313 (41) (39)
INTEREST INCOME 1,075 1,246 2,470
INTEREST EXPENSE (1,759) (2,394) (521)
PROVISION FOR INCOME TAXES (909) (12,655) (27,680)
OFFICERS'/SHAREHOLDERS' COMPENSATION (18,124) (4,707) -
-------- -------- --------
NET INCOME $ 17,128 $ 35,720 $ 43,704
======== ======== ========
NET INCOME PER COMMON SHARE$ 1.15
========
Weighted average common and common
equivalent shares outstanding 38,129
========
Pro Forma Income Data (unaudited)
Historical income before income taxes $ 18,037 $ 48,375
Pro forma other adjustments 17,833 5,684
-------- --------
Pro forma income before income taxes 35,870 54,059
Pro forma income taxes 13,989 21,008
-------- --------
Pro forma net income $ 21,881 $ 33,051
======== ========
Pro forma net income per common share $ 0.65 $ 0.93(1)
======== ========
Pro forma weighted average common and
common equivalent shares
outstanding 33,807 35,499(1)
======== ========
(1) If the common shares outstanding after the initial public offering in
June 1995 were outstanding for the entire 1995 year, then pro forma
net income per share for 1995 would have been $0.90 (see Note 2).
See notes to consolidated financial statements.
GLOBAL DIRECTMAIL CORP
STATEMENTS OF CONSOLIDATED SHAREHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
(IN THOUSANDS)
[CAPTION]
<TABLE>
Notes
Receivable
Additional Cumulative from
Common Shares Paid-in Retained Translation Related
Notes (See Note 2) Capital Earnings Adjustment Parties
----- ------------- ---------- --------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Balances, January 1, 1994 $18,922 $ 14,539 $25,087 $ (482) $ (5)
Difference arising from translation of
foreign statements - - - 797 -
Dividends paid - - (2,486) - -
Increase in notes receivable from
related parties, net 5 - - - - (10,268)
Compensation to officers' paid
in common shares 7 6,000 - - - -
Other 12 - (138) - -
Net Income - - 17,128 - -
------- -------- ------- ------ ---------
Balances, December 31, 1994 24,934 14,539 39,591 315 (10,273)
Differences arising from translation of
foreign statements - - - 165 -
Dividends paid - - (2,000) - -
Other (30) - 30 - -
Effect of exchange of common
shares, issuance of notes and
collection of notes receivable 1 (24,620) (14,528) (58,653) - 10,273
Initial public offering of common shares 1 83 134,329 - - -
Issuance of common shares for the
acquisition of Tiger Direct, Inc. 3 2 4,130 - - -
Net income - - 35,720 - -
------- -------- ------- ------ ---------
Balances, December 31, 1995 369 138,470 14,688 480 -
Differences arising from translation of
foreign statements - - - 1,030 -
Net proceeds from sale of common
shares 1 10 29,886 - - -
Net income - - 43,704 - -
------- -------- ------- ------ ---------
Balances, December 31, 1996 $ 379 $168,356 $58,392 $1,510 $ -
======= ======== ======= ====== =========
</TABLE>
See notes to consolidated financial statements.
GLOBAL DIRECTMAIL CORP
STATEMENTS OF CONSOLIDATED CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
(IN THOUSANDS)
[CAPTION]
<TABLE>
1994 1995 1996
-------- -------- --------
<S> <C> <C> <C>
CASH FLOWS PROVIDED BY OPERATING ACTIVITIES:
Net income $ 17,128 $ 35,720 $ 43,704
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization, net 1,808 2,098 3,813
Provision (benefit) for deferred income taxes 211 (1,959) (330)
Provision for returns and doubtful accounts 3,330 4,178 2,745
Officers' non-cash compensation (see Note 7) 6,000 - -
Changes in assets and liabilities:
Accounts receivable (21,380) (15,261) (29,242)
Inventories (9,355) (12,155) (20,748)
Prepaid catalog expense and other prepaid expenses and
current assets (4,217) (8,500) 7,028
Accounts payable and accrued expenses 12,179 6,921 12,647
-------- -------- --------
Net cash provided by operating activities 5,704 11,042 19,617
-------- -------- --------
CASH FLOWS USED IN INVESTING ACTIVITIES:
Investments in short term instruments - - (31,031)
Additions to property and equipment (5,406) (4,859) (8,805)
Due from affiliated entities (51) (5,631) -
Acquisition of business (see Note 3) - (1,185) -
-------- -------- --------
Net cash used in investing activities (5,457) (11,675) (39,836)
-------- -------- --------
CASH FLOWS PROVIDED BY (USED IN) FINANCING
ACTIVITIES:
Net cash provided by short term borrowings from banks - - 478
Borrowings of long term debt 20,080 8,392 -
Repayment of long term debt (8,700) (27,550) (6,442)
Increase in notes payable to related parties 317 - -
Repayment from (advances to) related parties (10,453) 4,702 -
Proceeds from sale and issuance of common shares 12 134,412 29,896
Dividends paid (2,486) (2,000) -
Payment of notes payable to shareholders - (97,800) -
Adjustment of goodwill (see Note 3) - - 3,113
Payment to minority shareholders for dissolution of
a company
(138) - -
-------- -------- --------
Net cash provided by (used in) financing activities (1,368) 20,156 27,045
-------- -------- --------
EFFECTS OF EXCHANGE RATES ON CASH 307 128 (92)
-------- -------- --------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (814) 19,651 6,734
-------- -------- --------
CASH AND CASH EQUIVALENTS - BEGINNING OF PERIOD 9,640 8,826 28,477
-------- -------- --------
CASH AND CASH EQUIVALENTS - END OF PERIOD$ $ 8,826 $ 28,477 $ 35,211
======== ======== ========
SUPPLEMENTAL DISCLOSURES:
Interest paid $ 1,937 $ 2,548 $ 1,194
======== ======== ========
Income taxes paid $ 1,179 $ 14,957 $ 26,606
======== ======== ========
</TABLE>
See notes to consolidated financial statements.
GLOBAL DIRECTMAIL CORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
1. BASIS OF PRESENTATION, DESCRIPTION OF BUSINESS AND SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation - The accompanying consolidated financial
statements include the accounts of Global DirectMail Corp and its wholly-owned
subsidiaries (collectively, the "Company" or "Global").
Global DirectMail Corp is the successor to several corporations,
previously referred to as the Global Group, which were owned by related
shareholders. In connection with the consummation of an initial public
offering in June 1995 (the "IPO"), the stockholders of these predecessor
companies exchanged all of the outstanding capital stock for 28,400,000 common
shares of Global DirectMail Corp and the predecessor companies terminated
their elections to be treated as S Corporations. This transaction was
accounted for as if it were a pooling of interests.
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 IPO discussed below, 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. On June 29, 1995,
Global completed the IPO of 8,308,750 shares at $17.50 per share. On March
26, 1996 the Company sold 1,000,000 shares of common stock at $32.25 per
share.
Description of Businesses - The Company is involved in the marketing and
sale of computer related products, office products and industrial products,
through the distribution of mail order catalogs and a network of outbound
telemarketers.
Principles of Consolidation - All significant intercompany accounts and
transactions have been eliminated in consolidation. The foreign subsidiaries'
financial statements have been adjusted, when necessary, to conform to
accounting principles generally accepted in the United States of America.
Cash and Cash Equivalents - The Company considers amounts held in money
market accounts and other short-term investments with an original maturity
date of approximately three months or less to be cash equivalents.
Accounts Receivable - The amounts shown in the consolidated balance
sheets are shown net of allowances for doubtful collections and subsequent
customer returns of approximately $7,731,000 and $7,724,000 at December 31,
1995 and 1996, respectively. The changes in these reserve accounts are
summarized as follows (in thousands):
Years ended December 31,
---------------------------------
1994 1995 1996
-------- -------- --------
Balance, beginning of year......... $ 5,367 $ 4,598 $ 7,731
Charged to expense................. 3,330 4,178 2,745
Reductions, principally write-offs. (4,099) (1,045) (2,752)
Balance, end of year............... $ 4,598 $ 7,731 $ 7,724
Inventories - Inventories consist of finished goods and are stated at
the lower of cost or market value. Cost is determined by using the first-in,
first-out method.
Prepaid Catalog Expense - Prepaid catalog expense includes unused paper
and reflects the costs of producing and distributing catalogs which are
deferred and charged to expense over the period that each catalog remains the
most current selling vehicle (generally three months). Vendors place
advertisements in the catalogs for which the Company receives advertising
allowances and incentives. These revenues are recognized on the same basis as
catalog costs.
Property and Equipment - Property and equipment is stated at cost.
Depreciation of furniture, fixtures and equipment is on the straight line or
accelerated method over their estimated useful lives ranging from three to
eight years. Depreciation of the building is on the straight line method over
its estimated useful life of 50 years. Leasehold improvements are amortized
over the lessor of their useful lives or the term of the lease.
Income Taxes - Under the provisions of the Internal Revenue Code,
several of the predecessor companies had elected to be treated as S
Corporations. Accordingly, Federal and, where applicable, certain state
income taxes were included in the respective shareholders' individual tax
returns until such time as the predecessor companies completed the IPO.
Income taxes for the predecessor companies were recorded where appropriate.
Since that time, the predecessor companies have all become taxable entities
(see Note 8).
Foreign Currency Translation - The financial statements of the foreign
entities are translated into U.S. dollars, the reporting currency, using
year-end exchange rates for consolidated balance sheet items and average
exchange rates for the consolidated statements of income items. The
translation differences are recorded directly in the consolidated statement of
shareholders' equity.
Foreign Currency Transactions - Transactions in foreign currencies are
recorded at the exchange rate in effect at the transaction date. Realized and
unrealized exchange gains and losses during the year are included in the
respective year's consolidated statements of income.
Sales Recognition - Sales of products are recognized at the time of
shipment. A reserve is recorded for returns based upon historic trends.
Research and Development Costs - Costs incurred in connection with
research and development are expensed as incurred. Such expenses for each of
the three years ended December 31, 1994, 1995 and 1996 aggregated
approximately $515,000, $443,000 and $573,000, respectively.
Goodwill and Negative Goodwill - Goodwill of $19.4 million at December
31, 1996 arose from the 1995 acquisition of Tiger Direct, Inc. (see Note 3)
and is shown net of negative goodwill which arose as a result of acquisitions
made in prior years. Goodwill and negative goodwill are being amortized over
35-year and 10-year periods, respectively.
Use of Estimates In Financial Statements - The preparation of financial
statements in conformity with generally accepted accounting principles
requires management to make estimates and assumptions that affect the reported
amount of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could
differ from those estimates.
Net Income Per Share - Net income per share in 1996 was calculated based
upon the weighted average number of common shares outstanding and include the
equivalent shares for dilutive options outstanding during 1996.
Reclassifications - Certain amounts in prior years have been
reclassified to conform to the 1996 presentation.
2. PRO FORMA INFORMATION (UNAUDITED)
Pro Forma Income Adjustments
The pro forma income data for the years ended December 31, 1994 and 1995
present the effects on the historical consolidated financial statements of
certain transactions related to the IPO as if they occurred as of the
beginning of such periods, 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 IPO, (3) the
elimination of interest paid on officers/shareholders notes in 1995, and (4)
the provision for income taxes to eliminate the benefit, for income tax
purposes, of the predecessor companies with S Corporation status.
Payments to Officers/Shareholders - An adjustment has been made to
eliminate (1) compensation paid to the Company's three principal
officers/shareholders in excess of $300,000 each per annum, (2) interest paid
to officers/shareholders on notes in 1995, and (3) royalty expenses paid to
the Company's three principal officers/shareholders aggregating approximately
$109,000 and $85,000 for the years ended December 31, 1994 and 1995,
respectively, under a royalty agreement. Such patents were assigned to Global
DirectMail Corp and the royalty agreement was terminated in connection with
the IPO.
Income Taxes - Immediately prior to the closing of the IPO, each of the
predecessor companies with S Corporation status terminated such status. The
pro forma adjustment reflects increased provisions for income taxes to an
effective rate of approximately 39 percent. While this effective rate
represents the pro forma tax rate based on historic earnings trends in the
respective tax jurisdictions and results through December 31, 1995, this rate
will change in the future in accordance with such trends as tax credits
currently available are fully utilized.
Pro Forma Net Income Per Common Share
Pro forma net income per common share prior to the completion of the IPO
was based on the number of shares of common stock to be outstanding after the
exchange and additionally includes only the number of shares (calculated at
the assumed initial public offering price) that were used in the IPO to repay
the various notes and related party payments (see Note 5).
Pro forma net income per share for the year ended December 31, 1995 was
calculated based on the weighted average number of shares outstanding plus the
effect of 201,400 options assumed outstanding. Pro forma net income per share
for the year ended December 31, 1994 was calculated based on 33,807,000 shares
outstanding during the entire year.
3. ACQUISITIONS
On November 30, 1995, Global acquired Tiger Direct, Inc. ("Tiger") from
unrelated third party sellers. Tiger was purchased for aggregate
consideration of $5.8 million, representing cash of $1.1 million, the issuance
of approximately 148,000 Global common shares, and purchase related expenses
of $0.6 million. The acquisition has been accounted for under the purchase
method of accounting. As required by the purchase method, assets were
recorded at their fair market value, which approximated cost, and liabilities
of $21.5 million were assumed at fair value. At December 31, 1995, the
Company recorded the purchase price in excess of the fair value of the net
assets acquired as goodwill. The estimated fair values were further evaluated
by the Company during 1996 and, as a result, goodwill from this transaction
was reduced by approximately $3.1 million. The Company will periodically
evaluate the carrying value of goodwill using undiscounted cash flows. While
the Company intends to make all efforts to effectively assign a value to other
intangibles no value has been attributed to intangible assets other than
goodwill.
The unaudited pro forma results of operations of the Company, including
the pro forma effect as if Tiger had been acquired as of January 1, 1994 are
as follows (in thousands, except earnings per share):
Years ended December 31,
---------------------------
1994 1995
-------- --------
Net Sales.............................. $ 574,402 $ 721,816
Net income from continuing operations.. $ 15,590 $ 20,491
Earnings per share..................... $ 0.46 $ 0.58
The pro forma financial information presented above is not necessarily
indicative of either the results of operations that would have occurred had
the acquisition taken place at the beginning of the periods presented or
future operating results of the Company.
During 1994, the Company acquired the assets of two separate businesses,
Power UP! and SN Option PC S.A.R.L. for aggregate consideration of
approximately $800,000. The effect of such acquisitions on the Company's
operating results, actual or pro forma for 1994 or 1995, were not material.
4. PROPERTY AND EQUIPMENT, net
Property and equipment, net consists of the following (in thousands):
December 31,
---------------------------
1995 1996
-------- --------
Land and building...................... $ 3,932 $ 5,226
Furniture and fixtures, office and
warehouse equipment.................. 21,485 27,273
Leasehold improvements................. 2,929 3,990
Transportation equipment............... 1,271 1,555
------- -------
29,617 38,044
Less accumulated depreciation and
amortization......................... 12,362 16,166
------- -------
Net Property and Equipment... $17,255 $21,878
======= =======
5. RELATED PARTY TRANSACTIONS
All amounts receivable from and/or payable to related parties and
affiliates at December 31, 1994, net of activity through June 29, 1995, were
satisfied from the proceeds of the IPO (see Note 1).
The Company leases several warehouse and office facilities from
affiliates (see Note 9). Rent expense under those leases aggregated
$2,497,000, $2,366,000 and $2,130,000 for the years ended December 31, 1994,
1995 and 1996, respectively.
6. LONG-TERM DEBT
Long-term debt consist of the following (in thousands):
December 31,
---------------------------
1995 1996
-------- --------
Unsecured lines of credit (a).......... $ - $ -
Secured lines of credit (b)............ - -
Foreign denominated term loan
subsequently repaid 4,647 -
Foreign denominated secured loan (c)... 1,860 2,030
Capitalized lease obligations.......... 1,812 17
------- -------
Total.................................. 8,319 2,047
Less: current maturities............... 5,395 17
------- -------
Long-Term Debt......................... $ 2,924 $ 2,030
======= =======
At December 31, 1996, the aggregate maturities of notes payable are as
follows (in thousands):
Year Ending December 31, Amount
------------------------ ------
1997........................................... $ 17
1998........................................... -
1999........................................... 2,030
------
Total Notes Payable............................ $2,047
======
(a) The Company maintains lines of credit with various financial
institutions. The maximum aggregate amounts available under these
lines of credit were $32 million and $52 million at December 31, 1995
and 1996. No amounts were outstanding under these lines at December
31, 1996. These lines accrue interest at variable rates of either the
prime rate or LIBOR plus 63 basis points. The prime rate and LIBOR
were 8.25 percent and 5.5 percent, respectively, at December 31, 1996.
These lines expire on various dates through December 1997.
Associated with the lines of credit, the Company may have outstanding
letters of credit equal to the amount of the total line less outstanding
borrowings. At December 31, 1996 there were no outstanding letters of
credit.
(b) The Company maintains a secured line of credit with a bank
with a maximum amount available of Pound Sterling1,000,000.
Borrowings, of which there were none as of December 31, 1995 and 1996,
bear interest at the bank's base rate (6 % at December 31, 1996) plus
2% and are secured by substantially all of the assets of the Global's
United Kingdom subsidiaries. This line expires in December 1997 and
is renewable at Global's option.
(c) In May 1994, a subsidiary of the Company entered into a mortgage
agreement ("Mortgage") in the amount of Pound Sterling1,200,000 due in
its entirety in June 1999, with interest payable semi-annually at a
rate of 9.6 percent per annum. The Mortgage is secured by land and
building with an aggregate net book value of Pound Sterling2,479,000
at December 31, 1996. The Mortgage contains certain covenants calling
for timely reporting of financial information, restrictions on changes
in ownership and employment levels by such subsidiary.
7. SHAREHOLDERS' EQUITY
At December 31, 1996, there were 25,000,000 shares of preferred stock,
$0.01 par value, of which none were issued. Common stock at such date
consisted of 150,000,000 shares authorized, par value of $0.01 per share, of
which 37,856,990 were issued and outstanding.
Prior to the IPO, the consolidated common stock and additional paid-in
capital on a company-by-company basis at December 31, 1994 were as follows (in
thousands):
Additional
Paid- In
Common Stock Capital
------------ ----------
Continental Dynamics Corp. ("Continental") -
9,000 non-voting shares and 1,000 voting
shares authorized, 6,116 and 998
outstanding, respectively..................... $ 19,703 $ -
Systemax Incorporated - 200 shares authorized,
174 outstanding............................... 87 9,634
Dartek Corporation - 300 shares authorized
and outstanding - 4,891
Misco America, Inc. - 99 shares authorized,
3 outstanding - 3
HCS Global, Ltd. - 869,000 shares authorized,
793,333 outstanding........................... 1,201 11
Misco Germany, Inc. - 99 shares authorized,
3 outstanding................................. 18 -
Misco Italy Computer Supplies, S.p.A.
-6 million shares authorized and outstanding.. 3,715 -
Other entities - 5,401 shares authorized,
3,117 outstanding............................. 210 -
-------- --------
$ 24,934 $ 14,539
======== ========
As required by law, certain foreign subsidiaries must retain a
percentage of shareholders' capital in the respective company. Accordingly, a
portion of retained earnings is restricted and not available for distribution
to shareholders. Such amount at December 31, 1996 was not material.
Continental issued 1,523 shares of non-voting shares of common stock
during 1994. Such issuance was made as compensation to the Company's three
principal officers/shareholders. Continental determined the fair value of the
shares issued to be $6,000,000.
Stock Option Plans - The Company has two fixed option plans which
reserve shares of common stock for issuance to key employees, directors,
consultants and advisors to the company. The following is a description of
these plans:
The 1995 Long-Term Stock Incentive Plan - This plan empowers the Company
to award or grant from time to time non qualified and deferred compensation
stock options, stock appreciation rights ( SAR's), restricted stock and
restricted unit grants, performance unit grants and other stock based awards
authorized by the Compensation Committee of the Board of Directors. Options
issued under this plan expire ten years after the options are granted and
generally become exercisable ratably on the third, fourth, and fifth
anniversary of the grant date. A maximum total number of 2,000,000 shares may
be granted under this plan of which a maximum of 800,000 shares may be of
restricted stock and restricted stock units. No award shall be granted under
this plan after December 31, 2005. A total of 1,192,500 options were
outstanding under this plan as of December 31, 1996.
The 1995 Stock Option Plan for Non-Employee Directors - This plan
provides for awards of non qualified options to directors of the company who
are not employees of the Company or its affiliates. All options granted under
this plan will have a ten-year term from grant date and are immediately
exercisable. A maximum of 100,000 shares may be granted for awards under this
plan. This plan will terminate the day following the tenth annual
stockholders meeting. A total of 14,000 options were outstanding under this
plan as of December 31, 1996.
The Company accounts for these plans in accordance with Accounting
Principles Board Opinion No. 25, under which no compensation costs have been
recognized for stock options. Had compensation costs of the plans been
determined under a fair value alternative method as stated in Statement of
Financial Accounting Standards No. 123, "accounting for stock-based
compensations," the company would have prepared a fair value model for such
options and recorded such amount in the accompanying Financial Statements as
compensation expense. On a pro forma basis, net income for 1996 and 1995
would have been $42.3 million and $32.6 million respectively and earnings
per share for 1996 and 1995 would have been $1.11 and $0.92 respectively.
The Company arrived at the fair value of stock grant at the date of the
grant by using the Black-Scholes pricing option model with the following
assumptions used for grants: risk-free interest rate of 6.1%;w expected
dividend rate of 0%; expected level of 4 years; and expected volatility of
35%. The weighted average stock options at December 31, 1996 have a
weighted average contractual level of 8.82 years.
The following reflects activity for 1996 in these plans:
Options
For Shares Option Prices
---------- -----------------
Outstanding, January 1, 1996............ 865,500 -
Granted during 1996..................... 365,150 $27.19 to $49.13
Terminated during 1996.................. (24,150) $17.50 to $39.50
Exercised during 1996................... - -
--------- ----------------
Outstanding, December 31, 1996.......... 1,206,500 $17.50 to $49.13
=========
The following table summarizes information as of December 31, 1996
concerning currently outstanding and exercisable options:
1995 1996
------------------------ --------------------------
Weighted- Weighted
Average Average
Fixed Options Shares Exercise Price Shares Exercise Price
- ------------- ------- -------------- -------- ---------------
Outstanding at
beginning of year - - 865,500 $ 20.49
Granted............ 876,900 $ 20.45 365,150 $ 36.80
Exercised.......... - - - -
Forfeited.......... (11,400) $ 17.50 (24,150) $ 19.39
------- ---------
Outstanding at end
of year.......... 865,500 $ 20.49 1,206,500 $ 25.45
======= =========
Options exercisable
at year end...... 10,000 139,000
Weighted average
fair value per
option granted
during the year.. $ 7.05 $ 13.57
Weighted
Number Average Weighted Weighted
Range of Outstanding Remaining Average Number Average
Exercise at Contractual Exercise Exercisable Exercise
Price 12/31/96 Life Price at 12/31/96 Price
-------- ----------- ----------- -------- ----------- --------
$17.50 to $22.50 555,150 8.48 $17.54 5,000 $21.56
$22.51 to $30.00 347,750 8.74 $26.73 130,000 $26.87
$30.01 to $40.00 294,600 9.52 $38.13 4,000 $39.06
$40.01 to $49.13 9,000 9.83 $49.13 - -
--------- -------
$17.50 to $49.13 1,206,500 8.82 $25.45 139,000 $27.03
========= =======
8. INCOME TAXES
The provision for income taxes consists of the following (in thousands):
Years Ended December 31,
-------------------------------
1994 1995 1996
------ ------ ------
Current:
Federal........................... $ - $10,400 $23,140
State............................. 855 1,895 3,787
Foreign........................... (157) 2,319 1,038
Deferred.......................... (837) (369) (865)
Change in valuation allowance..... 1,048 (1,590) 580
------ ------- -------
Total............................. $ 909 $12,655 $27,680
====== ======= =======
Prior to the IPO, a number of the predecessor companies were S
Corporations and accordingly their income was not taxable for Federal and
certain state tax purposes. Subsequent to the IPO, all of the former S
Corporations terminated such status and accordingly became taxable entities
thereafter. Income taxes are accrued and paid by each foreign entity in
accordance with applicable local regulations. The difference between the
income tax expense and the computed income tax based on the Federal statutory
corporate rate is as follows (in thousands):
Year Ended December 31,
-------------------------------
1994 1995 1996
------ ------ ------
Federal statutory rate...................... $ 6,313 $16,931 $24,984
State and local income taxes, net of
Federal tax benefit........................ 855 1,001 2,456
Foreign tax.................................. 1,040 2,778 (175)
Foreign source income........................ (3,065) (2,685) (573)
Increase (reduction) in valuation allowance.. 1,048 (923) 580
Net operating loss utilized.................. - - 335
Other items, net............................. - - 73
Federal, state and local tax benefit of S
Corporation status......................... (5,282) (4,447) -
------- ------- -------
$ 909 $12,655 $27,680
======= ======= =======
The deferred tax assets (liabilities) at December 31, 1995 and 1996 are
comprised of the following:
Years Ended December 31,
-------------------------
1995 1996
------ ------
Current:
Deductible assets......................... $ (3,580) $(2,542)
Non-deductible accruals and reserves...... 3,870 4,244
Non-deductible assets..................... 780 826
Foreign net operating loss carryforwards.. 140 1,027
Other..................................... 260 (289)
-------- -------
Current................................. 1,470 3,266
-------- -------
Non-Current:
Foreign net operating loss carryforwards.. 1,320 1,712
Accelerated depreciation.................. (920) (1,441)
Basis differences from acquisitions....... 440 356
Other assets.............................. 50 (332)
Valuation allowances...................... (590) (1,519)
-------- -------
Non-Current............................. 300 (1,224)
-------- -------
Total................................. $ 1,770 $ 2,042
======== =======
The foreign net operating loss carryforwards generally expire at dates
through 2003. The Company maintains valuation allowances against its foreign
net operating loss carryforwards since, at the this time, the realizability of
the related deferred tax benefits can not be reasonably assured.
9. COMMITMENTS AND CONTINGENCIES
Leases - The Company is obligated under operating lease agreements for
the rental of certain office and warehouse facilities and equipment which
expire at various dates through October 2013.
At December 31, 1996 future minimum annual lease payments for related
and third-party leases were as follows (in thousands):
Year Ending December 31, Related Party Third Party Total
------------------------ ------------- ----------- -------
1997.......................... $ 1,920 $ 3,309 $ 5,229
1998.......................... 1,872 3,131 5,003
1999.......................... 1,122 2,889 4,011
2000.......................... 612 1,706 2,318
2001.......................... 612 1,339 1,951
2002-2006..................... 3,060 6,493 9,553
2007-2011..................... 510 4,796 5,306
Thereafter.................... - 352 352
------- ------- -------
$ 9,708 $24,015 $33,723
======= ======= =======
Rent expense for the years ended December 31, 1994, 1995 and 1996
aggregated approximately $4,869,000, $5,235,000 and $7,406,000, respectively.
Guarantees - The Company has guaranteed a mortgage obtained by an
affiliate ($2.5 million at December 31, 1996) relating to property which the
Company leases from the affiliate. Additionally the Company's U.K.
subsidiaries have granted a security interest for substantially all of their
assets to secure a line of credit with a U.K. financial institution.
Litigation - The Company has been named defendant in lawsuits incidental
to their businesses. Management of the Company, based on discussions with
legal counsel, believes the ultimate resolution of these lawsuits will not
have a material effect on the Company's consolidated financial position or
results of operations.
Contingency - The Company is required to collect sales tax on certain of
its out-of-state sales. In accordance with current law, 20% of the Company's
1996 domestic sales were subject to sales tax. A change in this law could
require the Company to collect sales tax in additional states.
Sales by the Company to government agencies are subject to certain
government regulations. Inadvertent failure to comply with such regulations
can result in significant penalties. While the Company has never paid any
such penalties to date, there can be no assurances that penalties will not be
levied in the future.
10. GEOGRAPHIC INFORMATION
The Company conducts its business in North America (the United States
and Canada) and Europe. The following sets forth the Company's operations in
their two geographic markets (in thousands):
Year ended December 31, 1994
----------------------------------------
Europe North America TOTAL
---------- ------------- --------
Net Sales....................... $ 129,390 $354,775 $484,165
Income from operations.......... 4,341 32,191 36,532
Identifiable assets............. 50,589 113,578 164,167
Year ended December 31, 1995
----------------------------------------
Europe North America TOTAL
---------- ------------- --------
Net Sales....................... $ 188,765 $445,719 $634,484
Income from operations.......... 8,846 45,425 54,271
Identifiable assets............. 66,369 181,146 247,515
Year ended December 31, 1996
----------------------------------------
Europe North America TOTAL
---------- ------------- --------
Net Sales....................... $ 234,078 $677,815 $911,893
Income from operations.......... 4,224 65,250 69,474
Identifiable assets............. 78,490 252,949 331,439
11. OTHER MATTERS
Employee Benefit Plans - Certain of the U.S. subsidiaries participate in
defined contribution compensatory 401(k)/profit sharing benefit plans covering
such eligible employees as defined by the plan document. Contributions to the
plan by the Company is determined as a percentage of the employees'
contributions. Aggregate expense to the Company for contributions to such
plans was approximately $274,000, $211,000 and $267,000 in the years ended
December 31, 1994, 1995 and 1996, respectively.
Certain foreign entities require amounts to be accrued for each
employee's retirement, determined in accordance with labor laws and labor
agreements in effect in the respective country. Liabilities relative to such
termination indemnities were not material.
Foreign Exchange Risk Management - The Company has limited involvement
with derivative financial instruments and does not use them for trading
purposes. The Company enters into foreign currency options or forward
exchange contracts to hedge certain foreign currency transactions. The intent
of this practice is to minimize the impact of foreign exchange rate movements
on the Company's operating results. As of December 31,1996, the Company had
outstanding options in the amount of Pound Sterling 1.0 million.
Fair Value of Financial Instruments - Financial instruments consist
primarily of investments in cash, trade account receivables, accounts payable
and debt obligations. The Company estimates the fair value of financial
instruments based on interest rates available to the Company and by comparison
to quoted market prices. At December 31, 1995 and 1996, the fair value of the
Company's financial instruments approximated their carrying values.
Concentration of Credit Risk - Concentrations of credit risk with
respect to trade account receivables are limited due to the large number of
customers comprising the Company's customer base. Ongoing credit evaluations
of customer's financial condition are performed.
12. QUARTERLY FINANCIAL DATA (UNAUDITED)
Quarterly financial data for the years ended December 31, 1995 and 1996
is as follows:
First Second Third Fourth
1995: Quarter Quarter Quarter Quarter
- ---- --------- --------- --------- ---------
Net Sales.................. $160,685 $149,443 $152,949 $171,407
Gross Profit............... $ 50,934 $ 45,590 $ 47,498 $ 53,283
Net Income:
Pro forma................ $ 8,703 $ 7,191
Actual................... $ 7,940 $ 9,217
Net Income Per Share:
Pro forma................ $ 0.26 $ 0.20
Actual................... $ 0.22 $ 0.25
First Second Third Fourth
1996: Quarter Quarter Quarter Quarter
- ---- --------- --------- --------- ---------
Net Sales.................. $ 218,732 $213,707 $225,868 $253,586
Gross Profit............... $ 65,021 $ 60,070 $ 60,313 $ 64,212
Net Income................. $ 11,392 $ 9,787 $ 10,683 $ 11,842
Net Income Per Share....... $ 0.31 $ 0.26 $ 0.28 $ 0.31
Prior to the third quarter of 1995, the Company had disclosed net income
and net income per share on a pro forma basis, the latter having been
determined based on the weighted average number of shares and share
equivalents outstanding.
* * * * * *
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in the Registration Statement
for the 1995 Long-Term Stock Incentive Plan of Global DirectMail Corp on
Form S-8 of our report dated March 5, 1997 appearing in this Annual Report
on Form 10-K of Global DirectMail Corp for the year ended December 31, 1996.
/s/ DELOITTE & TOUCHE LLP
---------------------
DELOITTE & TOUCHE LLP
New York, New York
March 28, 1997
EXHIBIT 23.2
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in the Registration Statement
for the 1995 Stock Plan for Non-Employee Directors of Global DirectMail
Corp on Form S-8 of our report dated March 5, 1997 appearing in this Annual
Report on Form 10-K of Global DirectMail Corp for the year ended December
31, 1996.
/s/ DELOITTE & TOUCHE LLP
---------------------
DELOITTE & TOUCHE LLP
New York, New York
March 28, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The schedule contains summary financial information extracted from the
consolidated balance sheets and consolidated statements of operations and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 35,211
<SECURITIES> 31,031
<RECEIVABLES> 111,709
<ALLOWANCES> 0
<INVENTORY> 93,033
<CURRENT-ASSETS> 293,982
<PP&E> 21,878
<DEPRECIATION> 0
<TOTAL-ASSETS> 331,439
<CURRENT-LIABILITIES> 99,548
<BONDS> 2,030
0
0
<COMMON> 379
<OTHER-SE> 228,258
<TOTAL-LIABILITY-AND-EQUITY> 331,439
<SALES> 911,893
<TOTAL-REVENUES> 911,893
<CGS> 662,277
<TOTAL-COSTS> 662,277
<OTHER-EXPENSES> 180,181
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (1,949)
<INCOME-PRETAX> 71,384
<INCOME-TAX> 27,680
<INCOME-CONTINUING> 43,704
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 43,704
<EPS-PRIMARY> 1.15
<EPS-DILUTED> 1.15
<FN>
* All amounts are presented in thousands except earnings per share.
</TABLE>
