SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1998
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ____________ to _____________
COMMISSION FILE NUMBER 1-13792
GLOBAL DIRECTMAIL CORP
(Exact name of registrant as specified in its charter)
Delaware 11-3262067
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
22 Harbor Park Drive
Port Washington, New York 11050
(Address of registrant's principal executive offices)
(516) 625-1555
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
[X] Yes [ ] No
The number of shares outstanding of the registrant's Common Stock as of August
12, 1997 was 36,797,890.
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
GLOBAL DIRECTMAIL CORP
Condensed Consolidated Balance Sheets
(IN THOUSANDS)
<TABLE>
<CAPTION>
June 30, December 31,
1998 1997
------------ ------------
(Unaudited)
ASSETS
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 56,381 $ 43,432
Short-term investments 9,604 9,017
Accounts receivable - net 134,966 132,741
Inventories 105,922 102,599
Prepaid expenses and other current assets 31,245 25,541
---------- ----------
Total current assets 338,118 313,330
PROPERTY, PLANT AND EQUIPMENT - net 31,770 29,401
GOODWILL - net 53,740 53,258
OTHER ASSETS 3,760 3,756
--------- ----------
$ 427,388 $ 399,745
========= ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued expenses $ 143,855 $ 125,562
Current portion of long-term debt 12 12
--------- ----------
Total current liabilities 143,867 125,574
--------- ----------
LONG-TERM DEBT 1,999 1,972
--------- ----------
SHAREHOLDERS' EQUITY:
Preferred shares - -
Common shares - par value $0.01:
38,231,990 shares issued 382 382
Additional paid-in capital 176,743 176,743
Treasury stock - 835,600 shares (11,383) -
Retained earnings 117,688 97,204
Cumulative translation adjustment (1,908) (2,130)
---------- -----------
Total shareholders' equity 281,522 272,199
--------- ----------
$ 427,388 $ 399,745
========= ==========
</TABLE>
See notes to condensed consolidated financial statements.
<PAGE>
GLOBAL DIRECTMAIL CORP
Condensed Consolidated Statements of Income
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
1998 1997 1998 1997
---- ---- ---- ----
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
NET SALES $330,452 $ 259,485 $ 688,810 $ 533,022
COST OF SALES 263,396 195,318 546,385 399,448
-------- ---------- ---------- -----------
GROSS PROFIT 67,056 64,167 142,425 133,574
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES 55,430 46,281 110,721 97,057
-------- ---------- ---------- -----------
INCOME FROM OPERATIONS 11,626 17,886 31,704 36,517
INTEREST AND OTHER INCOME - net 761 778 1,603 1,488
-------- ---------- ---------- -----------
INCOME BEFORE INCOME TAXES 12,387 18,664 33,307 38,005
PROVISION FOR INCOME TAXES 4,768 6,999 12,823 14,252
--------- ----------- ----------- ------------
NET INCOME $ 7,619 $ 11,665 $ 20,484 $ 23,753
======== =========== =========== ===========
Net income per common share:
Basic $ .20 $ .31 $ .54 $ .63
========= =========== =========== ===========
Diluted $ .20 $ .31 $ .54 $ .62
========= =========== =========== ===========
Common and common equivalent shares:
Basic 38,117 37,857 38,174 37,857
======== =========== ========== ===========
Diluted 38,125 38,158 38,231 38,174
======== =========== ========== ===========
</TABLE>
See notes to condensed consolidated financial statements.
<PAGE>
GLOBAL DIRECTMAIL CORP
Condensed Statement of Consolidated Shareholders' Equity
(IN THOUSANDS) (UNAUDITED)
<TABLE>
<CAPTION>
Additional Cumulative Treasury
Common Paid-in Retained Translation Stock
Shares Capital Earnings Adjustment At Cost
<S> <C> <C> <C> <C> <C>
BALANCES, DECEMBER 31, 1997 $ 382 $ 176,743 $97,204 $ (2,130) -
Purchase of shares for treasury (11,383)
Difference arising from translation
of foreign statements 222
Net income 20,484
-------- --------- ---------- -------- --------
BALANCES, JUNE 30, 1998 $ 382 $ 176,743 $117,688 $(1,908) $(11.383)
======== ========= ========== ======== =========
</TABLE>
See notes to condensed consolidated financial statements.
<PAGE>
GLOBAL DIRECTMAIL CORP
Condensed Statements of Consolidated Cash Flows
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX-MONTH PERIOD
ENDED JUNE 30,
1998 1997
---------- -------
(UNAUDITED)
CASH FLOWS PROVIDED BY OPERATING ACTIVITIES:
<S> <C> <C>
Net income $ 20,484 $ 23,753
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization - net 3,815 2,357
Provision for returns and doubtful accounts 2,889 568
Changes in certain assets and liabilities:
Accounts receivable (5,112) (8,897)
Inventories (2,926) 4,329
Prepaid expenses and other current assets (5,575) 863
Accounts payable and accrued expenses 17,530 (12,969)
--------- ----------
Net cash provided by operating activities 31,105 10,004
--------- ---------
CASH FLOWS (USED IN) PROVIDED BY INVESTING ACTIVITIES:
Net change in short-term instruments (587) 6,401
Acquisition of net assets of business acquired (895) (1,295)
Investment in property, plant and equipment (5,542) (3,661)
---------- ----------
Net cash (used in) provided by investing activities (7,024) 1,445
---------- ----------
CASH FLOWS USED IN FINANCING ACTIVITIES:
Net repayment of short term bank debt - (468)
Purchase of treasury shares (11,383)
Other - 16
--------- ---------
Net cash used in financing activities (11,383) (452)
---------- ---------
EFFECTS OF EXCHANGE RATES ON CASH 251 546
--------- ---------
NET INCREASE IN CASH AND CASH EQUIVALENTS 12,949 11,543
CASH AND CASH EQUIVALENTS - BEGINNING OF PERIOD 43,432 35,211
--------- ---------
CASH AND CASH EQUIVALENTS - END OF PERIOD $ 56,381 $ 46,754
========= =========
</TABLE>
See notes to condensed consolidated financial statements.
<PAGE>
GLOBAL DIRECTMAIL CORP
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. DESCRIPTION OF BUSINESS
The accompanying consolidated financial statements include the accounts of
Global DirectMail Corp and its wholly- owned subsidiaries (collectively,
the "Company" or "Global"). The Company is involved in the marketing and
sale of personal computers (PCs), notebook computers, computer related
products, office products and industrial products in North America and
Europe. Global markets these products through the distribution of mail
order catalogs, a network of major account sales relationship marketing
representatives and the Internet.
2. BASIS OF PRESENTATION
Net income per common share - basic was calculated based upon the weighted
average number of common shares outstanding during the respective periods
presented. Net income per common share - diluted was calculated based upon
the weighted average number of common shares outstanding and included the
equivalent shares for dilutive options outstanding during the respective
periods.
In the opinion of the Company, the accompanying unaudited condensed
consolidated financial statements contain all normal and recurring
adjustments necessary to present fairly the financial position of the
Company as of June 30, 1998 and the results of operations for the three and
six months ended June 30, 1998 and 1997, cash flows for the six months
ended June 30, 1998 and 1997 and changes in shareholders' equity for the
six months ended June 30, 1998. The December 31, 1997 consolidated balance
sheet has been extracted from the audited consolidated financial statements
included in the Company's Annual Report on Form 10-K for the year ended
December 31, 1997.
These condensed consolidated financial statements should be read in
conjunction with the Company's audited consolidated financial statements as
of December 31, 1997 and for the period then ended. The results for the
three and six months ended June 30, 1998 are not necessarily indicative of
the results for an entire year.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
THREE MONTHS ENDED JUNE 30, 1998 COMPARED TO THREE MONTHS ENDED JUNE 30,
1997
Net sales for the quarter increased by $71.0 million or 27% to $330.5
million compared to $259.5 in the year ago quarter. The increase was
attributable primarily to (i) the inclusion of $57 million of net sales
from the Company's Midwest Micro subsidiary, acquired on September 30,
1997, (ii) increased sales from the Company's major account relationship
marketing sales force which experienced close to a 100% sales increase over
the year ago quarter and now accounts for 35% of total sales compared to
22% in the year ago quarter and (iii)an increase in average order value.
Total orders increased to 907,000 compared to 856,000 in the year ago
quarter. Catalogs mailed increased by 11% to 44 million compared to 40
million in the year ago quarter. Sales during the quarter attributable to
North American operations increased 36% to $261.6 million compared to
$191.9 million in the second quarter of 1997. European sales increased 2%
to $68.8 million compared to $67.6 million in the year ago quarter. On a
currency adjusted basis, European sales for the quarter increased 4%.
Gross profit, which consists of net sales less product and certain shipping
and distribution center costs, increased by $2.9 million or 5% to $67.1
million compared to $64.2 million in the year ago quarter. Gross profit as
a percentage of net sales was 20.3% compared to 21.0% in the prior quarter
and 24.7% in the year ago quarter. The change in the gross profit
percentage from the year ago quarter was primarily due to the shift in the
Company's overall product mix. This shift was attributable to significant
increases in the sales of PCs, notebook computers and brand name products
which generally have a lower gross profit percentage.
Selling, general and administrative expenses for the quarter increased by
$9.1 million or 20% to $55.4 million compared to $46.3 million in the
second quarter of 1997. This increase was the result of the inclusion of
Midwest Micro and the Company's continuing investment in its major account
relationship marketing sales force principally in North America. This was
partially offset by an increased level of vendor supported advertising and
the overall leveraging of selling, general and administrative expenses over
a larger sales base. As a result, selling, general and administrative
expenses as a percentage of sales was 16.8% compared to 17.8% in the year
ago quarter.
Income from operations for the quarter decreased by $6.3 million or 35% to
$11.6 million from $17.9 million in the year ago quarter. Income from
operations as a percentage of net sales decreased to 3.5% from 6.9% in the
year ago quarter. Income from North American operations decreased by 47% to
$9.5 million from $17.7 million in the year ago quarter. Income from
European operations increased to $2.2 million from a small profit in the
year ago quarter.
The effective tax rate for the second quarter of 1998 increased to 38.5%
compared to 37.5% for the second quarter of 1997. The increase in the rate
was due primarily to a higher anticipated proportion of U.S. income
compared to the prior year.
Net income for the quarter was $7.6 million, or $.20 per basic and diluted
share, compared to $11.7 million, or $.31 per basic and diluted share in
the second quarter of 1997.
<PAGE>
SIX MONTHS ENDED JUNE 30, 1998 COMPARED TO SIX MONTHS ENDED JUNE 30, 1997
Net sales increased by $155.8 million or 29% in the first six months of
1998 to $688.8 million compared to $533.0 for the first six months of 1997.
The increase was attributable primarily to (i)the inclusion of $119 million
of net sales from Midwest Micro (ii) increased sales from the Company's
major account relationship marketing sales force which experienced over a
100% sales increase over last year and now accounts for 32% of total sales
compared to 21% last year and (iii)an increase in average order value.
Total orders increased 8% to 1,936,000 compared to 1,795,000 in first six
months of 1997. Catalogs mailed increased by 10% to 91 million compared to
83 million in the first six months of 1997. Sales for the first six months
of 1998 attributable to North American operations increased 37% to $540.6
million compared to $395.0 million in the first six months of 1997.
European sales increased 7% to $148.2 million compared to $138.0 million in
the first six months of 1997. On a currency adjusted basis, European sales
for the first six months of 1998 increased 12%.
Gross profit, which consists of net sales less product and certain shipping
and distribution center costs, increased by $8.9 million or 7% to $142.4
million for the first six months of 1998 compared to $133.6 million for the
first six months of 1997. Gross profit as a percentage of net sales was
20.7% for the first six months of 1998 compared to 25.1% in first six
months of 1997. The change in the gross profit percentage from last year
was primarily due to the shift in the Company's overall product mix. This
shift was attributable to large increases in the sales of PCs, notebook
computers and brand name products which generally have a lower gross profit
percentage.
Selling, general and administrative expenses for the first six months of
1998 increased by $13.7 million or 14% to $110.7 million compared to $97.1
million for the first six months of 1997. This increase was the result of
the inclusion of Midwest Micro and the Company's continuing investment in
its major account sales force principally in North America. This was
partially offset by an increased level of vendor supported advertising and
the overall leveraging of selling, general and administrative expenses over
a larger sales base. As a result, selling, general and administrative
expenses as a percentage of sales was 16.1% compared to 18.2% for the first
six months of 1997.
Income from operations for the first six months of 1998 decreased by $4.8
million or 13% to $31.7 million from $36.5 million for the first six months
of 1997. Income from operations as a percentage of net sales decreased to
4.6% from 6.9% for the first six months of 1997. Income from North American
operations decreased by 29% to $25.8 million from $36.3 million for the
first six months of 1997. Income from European operations increased to $5.9
million from a small profit for the first six months of 1997.
The effective tax rate for the first six months of 1998 increased to 38.5%
compared to 37.5% for the first six months of 1997. The increase in the
rate was due primarily to a higher anticipated proportion of U.S. income
compared to the prior year.
Net income for the first six months of 1998 was $20.5 million, or $.54 per
basic and diluted share, compared to $23.8 million, or $.63 per basic share
and $.62 per diluted share for the first six months of 1997.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary capital needs are to fund the working capital
requirements necessitated by its sales growth, investments in property,
equipment and information technology, purchase of the Company's stock and
acquisitions. The Company's primary sources of financing have been cash
from operations, equity offerings, and, to a lesser extent, bank
borrowings. For the quarter ended June 30, 1998, the Company generated free
cash flow of $13.5 million compared to $0.9 million for the year ago
quarter, which was a result of improved inventory and other asset
management. Free cash flow is defined as cash generated from operating
activities net of additions to property and equipment.
<PAGE>
FORWARD LOOKING STATEMENTS
This report contains forward looking statements within the meaning of that
term in the Private Securities Litigation Reform Act of 1995 (Section 27A
of the Securities Act of 1933 and Section 21E of the Securities Exchange
Act of 1934). Additional written or oral forward looking statements may be
made by the Company from time to time, in filings with the Securities
Exchange Commission or otherwise. Statements contained herein that are not
historical facts are forward looking statements made pursuant to the safe
harbor provisions referenced above. Forward looking statements may include,
but are not limited to, projections of revenue, income or loss and capital
expenditures, statements regarding future operations, financing needs,
compliance with financial covenants in loan agreements, plans for
acquisition or sale of assets or businesses and consolidation of operations
of newly acquired businesses, and plans relating to products or services of
the Company, assessments of materiality, predictions of future events and
the effects of pending and possible litigation, as well as assumptions
relating to the foregoing. In addition, when used in this discussion, the
words "anticipates", "believes", "estimates", "expects", "intends", "plans"
and variations thereof and similar expressions are intended to identify
forward looking statements.
Forward looking statements are inherently subject to risks and
uncertainties, some of which cannot be predicted or quantified based on
current expectations. Consequently, future events and actual results could
differ materially from those set forth in, contemplated by, or underlying
the forward looking statements contained in this report. Statements in this
report, particularly in "Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations", and the Notes to
Consolidated Financial Statements describe certain factors, among others,
that could contribute to or cause such differences. Other factors that
could contribute to or cause such differences include, but are not limited
to, unanticipated developments in any one or more of the following areas:
(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
including the costs and effects associated with the year 2000 date change
problem, (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 PC, notebook computer,
computer related products, office products and industrial products markets
from superstores, direct response (mail order) distributors, mass
merchants, value added resellers, the Internet and other retailers, (vii)
the potential for expanded imposition of state sales taxes, use taxes, or
other taxes on direct marketing 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, (x) risks due to shifts in market demand and/or price erosion of
owned inventory, (xi) borrowing costs, (xii) changes in taxes due to
changes in the mix of U.S. and non-U.S. revenue, (xiii) pending or
threatened litigation and investigations and (xiv) the availability of key
personnel, as well as other risk factors which may be detailed from time to
time in the Company's Securities and Exchange Commission filings.
Readers are cautioned not to place undue reliance on any forward looking
statements contained herein, which speak only as of the date hereof. The
Company undertakes no obligation to publicly release the result of any
revisions to these forward looking statements that may be made to reflect
events or circumstances after the date hereof or to reflect the occurrence
of unexpected events.
<PAGE>
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK.
The Company is exposed to market risks, which include changes in U.S. and
international interest rates as well as changes in currency exchange rates
as measured against the U.S. dollar and each other. Global attempts to
reduce these risks by utilizing certain derivative financial instruments.
The value of the U.S. dollar affects the Company's financial results.
Changes in exchange rates may positively or negatively affect Global's
sales (as expressed in U.S. dollars), gross margins, operating expenses and
retained earnings. The Company engages in hedging programs aimed at
limiting in part the impact of certain currency fluctuations. Using
primarily forward exchange and foreign currency option contracts, Global,
from time to time, hedges certain of its assets that, when remeasured
according to generally accepted accounting principles, may impact the
Statement of Consolidated Income. These hedging activities provide only
limited protection against currency exchange risks. Factors that could
impact the effectiveness of the Company's hedging programs include accuracy
of sales forecasts, volatility of the currency markets, availability of
hedging instruments and the credit-worthiness of the parties which have
entered into such contracts with the Company. All currency contracts that
are entered into by Global are for the sole purpose of hedging currency
exposures, not for speculative or trading purposes. In spite of Global's
hedging efforts to reduce the effect of changes in exchange rates against
the U.S. dollar, the Company's sales or costs could still be adversely
affected by changes in those exchange rates.
As of June 30, 1998, the Company did not have any material forward exchange
or option contracts outstanding.
<PAGE>
PART II - OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS.
The Company's Annual Meeting of Stockholders was held on May 12, 1998. At
the meeting, (i) six persons were elected as directors of the Company and
(ii) the appointment of Deloitte & Touche LLP to serve as the Company's
independent auditors for the fiscal year ending December 31, 1998 was
ratified.
The number of votes cast for, against or withheld and the number of
non-votes for each of the above-listed matters is as follows:
FOR WITHHELD AGAINST NON-VOTE
Election of Directors
(by nominee):
Richard Leeds 35,779.351 268,050
Bruce Leeds 35,779,349 268,052
Robert Leeds 35,779,349 268,052
Robert Dooley 33,778,398 269,003
Robert Rosenthal 35,758,898 268,503
Stacy Dick 35,758,998 288,403
Ratification of Auditors
Appointment 36,312,286 4,396 5,631
ITEM 5. OTHER INFORMATION.
On July 22, 1998 the Board of Directors authorized the Company to purchase
an additional 1,000,000 common shares of stock under the Company's stock
buyback plan, bringing the total number of shares authorized for purchase
under the plan to 2,350,000 common shares. The Company has been
periodically purchasing its shares in the open market. As of August 11,
1998 a total of 1,348,700 shares have been purchased.
ITEM 6. EXHIBITS.
(a) Exhibits.
3.1 Certificate of Incorporation. (Incorporated herein by
reference to Exhibit 3.1 to the Company's Registration
Statement on Form S-1, File No. 33-92052).
3.2 By-Laws. (Incorporated herein by reference to Exhibit 3.2
to the Company's Registration Statement on Form S-1, File
No. 33-92052).
4.1 Stockholders Agreement. (Incorporated herein by reference
to the Company's quarterly report on Form 10-Q for the
quarterly period ended June 30, 1995).
4.2 Specimen Stock Certificate. (Incorporated herein by
reference to Exhibit 4.2 to the Company's Registration
Statement on Form S-1, File No. 33-92052).
27 Financial Data Schedule.
(b) Reports on Form 8-K.
No reports on Form 8-K were filed by the Company during
the three months ended June 30, 1998.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
GLOBAL DIRECTMAIL CORP
Date: August 12, 1998 By: /S/ RICHARD LEEDS
Richard Leeds
Chairman and Chief Executive Officer
By: /S/ STEVEN GOLDSCHEIN
Steven Goldschein
Senior Vice President and
Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED CONSOLIDATED BALANCE SHEETS AT JUNE 30, 1998 (UNAUDITED) AND THE
CONDENSED CONSOLIDATED STATEMENTS OF INCOME FOR THE SIX MONTHS ENDED JUNE 30,
1998 (UNAUDITED) OF GLOBAL DIRECTMAIL CORP AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 56,381
<SECURITIES> 9,604
<RECEIVABLES> 134,966
<ALLOWANCES> 0
<INVENTORY> 105,922
<CURRENT-ASSETS> 338,118
<PP&E> 31,770
<DEPRECIATION> 0
<TOTAL-ASSETS> 427,388
<CURRENT-LIABILITIES> 143,867
<BONDS> 1,999
0
0
<COMMON> 382
<OTHER-SE> 281,140
<TOTAL-LIABILITY-AND-EQUITY> 427,388
<SALES> 688,810
<TOTAL-REVENUES> 688,810
<CGS> 546,385
<TOTAL-COSTS> 546,385
<OTHER-EXPENSES> 110,721
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (1,603)
<INCOME-PRETAX> 33,307
<INCOME-TAX> 12,823
<INCOME-CONTINUING> 20,484
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 20,484
<EPS-PRIMARY> .54
<EPS-DILUTED> .54
</TABLE>
