SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 1999 or [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ____________ to _____________ COMMISSION FILE NUMBER 1-13792 GLOBAL DIRECTMAIL CORP (Exact name of registrant as specified in its charter) Delaware 11-3262067 (State or other jurisdiction (I.R.S. Employer of incorporation or organization) Identification No.) 22 Harbor Park Drive Port Washington, New York 11050 (Address of registrant's principal executive offices) (516) 625-1555 (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. [X] Yes [ ] No The number of shares outstanding of the registrant's Common Stock as of May 10, 1999 was 35,856,790.
PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS <TABLE> <CAPTION> GLOBAL DIRECTMAIL CORP Condensed Consolidated Balance Sheets (IN THOUSANDS) March 31, December 31, 1999 1998 ---------- ----------- (Unaudited) ASSETS CURRENT ASSETS: <S> <C> <C> Cash and cash equivalents $ 45,667 $ 42,029 Short term investments 798 5,050 Accounts receivable, net 175,892 154,516 Inventories 133,694 129,966 Prepaid expenses and other current assets 29,823 28,382 ---------- ----------- Total current assets 387,292 359,943 PROPERTY, PLANT AND EQUIPMENT, net 34,753 33,988 GOODWILL, net 71,263 56,612 OTHER ASSETS 3,942 3,896 --------- ---------- TOTAL $ 495,832 $ 454,439 ========= ========== LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable and accrued expenses $ 200,214 $ 162,636 Current portion of long term debt 2,574 2,681 --------- ---------- Total current liabilities 202,788 165,317 --------- ---------- LONG TERM DEBT 2,308 2,493 --------- ---------- SHAREHOLDERS' EQUITY: Preferred stock -- -- Common stock, par value $.01 per share, issued 38,231,990 shares, outstanding 35,856,790 and 36,128,090 shares 382 382 Additional paid-in capital 176,743 176,743 Common stock in treasury at cost - 2,375,200 and 2,103,900 shares (32,693) (28,604) Accumulated other comprehensive income (2,915) (348) Retained earnings 149,219 138,456 --------- ---------- Total shareholders' equity 290,736 286,629 --------- ---------- TOTAL $ 495,832 $ 454,439 ========= ========== </TABLE> See notes to condensed consolidated financial statements.
<TABLE> <CAPTION> GLOBAL DIRECTMAIL CORP Condensed Consolidated Statements of Income (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) - ---------------------------------------------------------------------------------- Three Month Periods ended March 31, 1999 1998 (Unaudited) <S> <C> <C> NET SALES $ 421,651 $ 358,358 COST OF SALES 342,339 282,989 --------- --------- GROSS PROFIT 79,312 75,369 SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 62,141 55,291 --------- --------- INCOME FROM OPERATIONS 17,171 20,078 INTEREST AND OTHER INCOME 330 842 --------- --------- INCOME BEFORE INCOME TAXES 17,501 20,920 PROVISION FOR INCOME TAXES 6,738 8,055 --------- --------- NET INCOME $ 10,763 $ 12,865 ========= ========= Net income per common share: Basic $ .30 $ .34 ========= ========= Diluted $ .30 $ .34 ========= ========= Common and common equivalent shares outstanding: Basic 36,064 38,232 ========= ========= Diluted 36,117 38,351 ========= ========= </TABLE> See notes to condensed consolidated financial statements
<TABLE> <CAPTION> GLOBAL DIRECTMAIL CORP Condensed Statement of Consolidated Shareholders' Equity (IN THOUSANDS)__________________________________________________________________ Accumulated COMMON STOCK Additional Other Treasury Number of Paid-in Retained Comprehensive Stock SHARES AMOUNT CAPITAL EARNINGS INCOME AT COST <S> <C> <C> <C> <C> <C> <C> <C> BALANCES, JANUARY 1, 1998 36,128 $ 382 $ 176,743 $ 138,456 $ (348) (28,604) Change in cumulative translation adjustment (2,567) Purchase of treasury shares (271) (4,089) Net income 10,763 -------- ------- ---------- --------- -------- -------- BALANCES, MARCH 31, 1999 35,857 $ 382 $ 176,743 $149,219 $ (2,915) $ (32,693) ======== ======= ========== ========= ======== ======== </TABLE> See notes to consolidated financial statements.
<TABLE> <CAPTION> GLOBAL DIRECTMAIL CORP Condensed Statements of Consolidated Cash Flows (IN THOUSANDS) THREE-MONTH PERIOD ENDED MARCH 31, 1999 1998 ---------------------------- (UNAUDITED) CASH FLOWS PROVIDED BY OPERATING ACTIVITIES: <S> <C> <C> Net income $ 10,763 $ 12,865 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization, net 2,393 1,882 Provision for returns and doubtful accounts 1,820 1,943 Changes in certain assets and liabilities: Accounts receivable (19,506) (18,254) Inventories (654) (2,631) Prepaid catalog and other prepaid expenses (1,078) (3,499) Accounts payable and accrued expenses 19,634 22,867 ----------- ---------- Net cash provided by operating activities 13,372 15,173 ----------- ---------- CASH FLOWS PRIVIDED BY (USED IN) INVESTING ACTIVITIES: Net change in short-term investments 4,252 922 Investments in property, plant and equipment (2,443) (3,089) Acquisitions, net of cash acquired (8,398) (895) ---------- ------------ Net cash used in investing activities (6,589) (3,062) ---------- ------------ CASH FLOWS USED IN FINANCING ACTIVITIES: Repayments of long-term borrowings (160) Purchase of treasury shares (4,089) ----------- ----------- Net cash used in financing activities (4,249) ---------- ----------- EFFECTS OF EXCHANGE RATES ON CASH 1,104 418 ------------ ----------- NET INCREASE IN CASH AND CASH EQUIVALENTS 3,638 12,529 CASH AND CASH EQUIVALENTS - BEGINNING OF PERIOD 42,029 43,432 ---------- ------------ CASH AND CASH EQUIVALENTS - END OF PERIOD $ 45,667 $ 55,961 ========== ============= </TABLE> See notes to condensed consolidated financial statements.
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 a corporate supplier of personal computers (PCs), notebook computers, computer related products, industrial products and office products in North America and Europe. Global markets these products through an integrated system of direct mail catalogs, a network of major account sales representatives and proprietary "e-commerce" Internet sites. 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. All intercompany accounts have been eliminated in consolidation. In the opinion of the Company, the accompanying unaudited condensed consolidated financial statements contain all normal and recurring adjustments necessary to present fairly the financial position of the Company as of March 31,1999 and the results of operations for the three months ended March 31, 1999 and 1998, cash flows for the three months ended March 31, 1999 and 1998 and changes in stockholders' equity for the three months ended March 31, 1999. The December 31, 1998 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, 1998. These condensed consolidated financial statements should be read in conjunction with the Company's audited consolidated financial statements as of December 31, 1998 and for the period then ended. The results for the three months ended March 31, 1999 are not necessarily indicative of the results for an entire year. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. THREE MONTHS ENDED MARCH 31, 1999 COMPARED TO THREE MONTHS ENDED MARCH 31, 1998 Net sales for the three months increased 18% to $421.7 million compared to $358.4 million in the year ago quarter. The increase of $63.3 million was primarily attributable to the purchase of Simply Computers Ltd. ("Simply") in February 1999, increased demand for PCs and increased sales generated by the Company's Internet sites. The number of orders increased 8% to 1.1 million compared to the year ago quarter, with a 9% increase in the average order value to $380. Sales during the quarter from North American operations increased 9% to $303.9 million compared to $278.9 million in the first quarter of 1998. European sales increased 48% to $117.7 million (including approximately $21 million for Simply) compared to $79.4 million in the year ago quarter. There was negligible effect on European sales due to changes in exchange rates. Gross profit increased by $3.9 million or 5% to $79.3 million compared to $75.4 million in the year ago quarter, with gross profit as a percentage of net sales decreasing to 18.8% compared to 21.0% a year ago. The decrease in the gross profit percentage was primarily due to a shift in the Company's product mix, continuing the recent trend of large increases in the sales of PCs, notebook computers and brand name products, which generally have a lower gross profit percentage, and a relatively lower sales contribution from higher-margin industrial products. Selling, general and administrative expenses for the quarter increased by $6.9 million or 12% to $62.1 million compared to $55.3 million in the first quarter of 1998. This increase was primarily the result of continuing investments for expansion of the relationship marketing sales organizations, investments in the Company's "e- commerce" Internet business and the inclusion of Simply. This was partially offset by decreased catalog spending, increased vendor supported advertising and the overall leveraging of selling, general and administrative expenses over the larger sales base. Selling, general and administrative expenses as a percentage of sales improved to 14.7% compared to 15.4% in the year ago quarter. Income from operations for the quarter decreased by $2.9 million to $17.2 million from $20.1 million in the year ago quarter. Income from operations as a percentage of net sales decreased to 4.1% from 5.6% in the year ago quarter. Operating income in North America decreased by 19% to $13.2 million from $16.3 million in the year ago quarter. Income from operations in Europe increased to 5% to $4.0 million from $3.8 million in the year ago quarter. Net income for the quarter was $10.8 million, or $.30 per basic and diluted share, compared to $12.9 million, or $.34 per basic and diluted share in the first quarter of 1998. LIQUIDITY AND CAPITAL RESOURCES The Company's primary capital needs are to finance working capital for sales growth, investments in property, equipment and information technology and business acquisitions. Operating cash flow financed the Company's working capital, acquisition and capital expenditure needs. For the quarter ended March 31, 1999, the Company generated cash from operating activities of $13.4 million compared to $15.2 million for the year ago quarter. The decrease resulted from lower net income in 1999. Cash was used in investing activities, primarily for the purchase of Simply, and was also used in financing activities for the purchase of treasury shares. For the three months ended March 31, 1999, cash and cash equivalents increased by $3.6 million. The Company has access to adequate funds from short-term and long-term borrowing facilities. YEAR 2000 COMPLIANCE/EUROPEAN COMMON CURRENCY For information regarding the Company's Year 2000 compliance plans and the implications to the Company from the adoption of a European common currency, reference is made to the Company's Annual Report on Form 10-K for the year ended December 31, 1998, Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations. 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 in this report 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 in this report, 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. 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 may engage 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 an existing or anticipated currency exposure, 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 sales or costs could still be adversely affected by changes in those exchange rates. As of March 31,1999, the Company had no outstanding forward exchange contracts. PART II - OTHER INFORMATION ITEM 5. OTHER INFORMATION. The Board of Directors of the Company has adopted a resolution proposing to the Company's stockholders that the corporate name of the Company be changed to Systemax Inc. The Board of Directors has recommended the name change to better reflect the Company's current status as a marketer of computers and computer products and to enhance awareness of the Company and its Systemax(TM) brand of build-to-order PCs. Under Delaware law, a change in the corporate name requires an amendment to the Company's Certificate of Incorporation which can be effectuated only upon a resolution of the Board of Directors and a vote in favor of the amendment by the holders of a majority of the outstanding shares of the Common Stock entitled to vote thereon. Accordingly, a motion will be presented at the Company's annual meeting of stockholders on May 18, 1999 to amend Article FIRST of the Company's Certificate of Incorporation to read "The name of the corporation is "Systemax Inc."". ITEM 6. EXHIBITS (a) Exhibits. 3.1 Certificate of Incorporation. (Incorporated herein by reference to Exhibit 3.1 to the Company's Registration Statement on Form S-1, File No. 33-92052). 3.2 By-laws. (Incorporated herein by reference to Exhibit 3.2 to the Company's Registration Statement on Form S-1, File No. 33-92052). 4.1 Stockholders Agreement. (Incorporated herein by reference to the Company's quarterly report on Form 10-Q for the quarterly period ended June 30, 1995). 4.2 Specimen Stock Certificate. (Incorporated herein by reference to Exhibit 4.2 to the Company's Registration Statement on Form S-1, File No. 33-92052). 10.1 Lease Agreement dated as of April 20, 1999 between the Company and The Shawnee Ridge Joint Venture (new Georgia facility). 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 March 31, 1999.
SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. GLOBAL DIRECTMAIL CORP Date: May 14, 1999 By: /S/ RICHARD LEEDS ------------------------------------ Richard Leeds Chairman and Chief Executive Officer By: /S/ STEVEN GOLDSCHEIN ----------------------------------- Steven Goldschein Senior Vice President and Chief Financial Officer
EXHIBIT INDEX 10.1 Lease Agreement dated as of April 20, 1999 between the Company and The Shawnee Ridge Joint Venture (new Georgia facility) 27 Financial Data Schedule