Walk through this MALL!!!!!!!!!!!!!!
YEAR ENDED DECEMBER 31,
---------------------------------------------------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
1993 1994 1995 1996 1997
---- ---- ---- ---- ----
Net sales..................................... $70,406 $163,706 $420,877 $444,971 $546,131
Cost of goods sold............................ 59,235 140,229 361,803 395,000 476,061
------- -------- -------- -------- --------
Gross profit.................................. 11,171 23,477 59,074 49,971 70,070
Selling, general and administrative expenses.. 11,389 19,384 48,455 60,585 61,255
Expenses associated with the relocation of the
Company's distribution center............... -- -- 1,389 -- --
Relocation expenses related to corporate
headquarters................................ -- -- -- -- 815
Expenses related to acquisition of Elek-Tek... -- -- -- -- 1,470
------- -------- -------- -------- --------
Income (loss) from operations before interest
and income taxes............................ (218) 4,093 9,230 (10,614) 6,530
Interest income (expense)..................... (501) (759) 371 593 118
------- -------- -------- -------- --------
Income (loss) before income taxes............. (719) 3,334 9,601 (10,021) 6,648
Income taxes (benefit)........................ (294) 1,328 3,754 (3,972) 2,523
------- -------- -------- -------- --------
Net income (loss)............................. $ (425) $ 2,006 $ 5,847 $ (6,049) $ 4,125
======= ======== ======== ======== ========
Basic earnings (loss) per share(1)............ $ (0.09) $ 0.41 $ 0.71 $ (0.62) $ 0.42
======= ======== ======== ======== ========
Diluted earnings (loss) per share(1).......... $ (0.09) $ 0.39 $ 0.66 $ (0.62) $ 0.41
======= ======== ======== ======== ========
Basic weighted average number of shares
outstanding(1).............................. 4,900 4,900 8,291 9,767 9,895
======= ======== ======== ======== ========
Diluted weighted average number of shares
outstanding(1).............................. 4,900 5,160 8,890 9,767 10,030
======= ======== ======== ======== ========
Selected Operating Data (in thousands, except
average order size):
Mail order/catalog net sales.............. $37,837 $117,863 $353,324 $387,103 $478,300
Retail net sales.......................... $32,569 $ 45,843 $ 67,553 $ 57,868 $ 67,831
Number of catalogs distributed............ 190 7,700 38,398 48,800 62,200
Orders filled (mail order/catalog)........ 50 194 784 931 1,026
Average order size (mail order/catalog)... $ 757 $ 608 $ 451 $ 416 $ 466
Mailing list size......................... 151 397 1,300 2,518 4,177
(1) Earnings (loss) per share and weighted average shares outstanding have been
restated for all periods presented to reflect the adoption of SFAS 128,
"Earnings per Share". See Note 1 in the Notes to Consolidated Financial
Statements.
22
Year Ended December 31,
---------------------------------------------------------------
Balance Sheet Data (at period end) 1993 1994 1995 1996 1997
---------- -------- -------- -------- ----------
(in thousands):
Working capital (deficit) $(4,122) $ 161 $ 46,307 $ 42,600 $ 31,624
Total assets $20,907 $42,942 $112,569 $113,431 $131,154
Short-term debt $ 3,285 $ 4,190 $ 281 $ 283 $ 10,186
Long-term debt, excluding current portion $ 1,342 $ 1,878 $ 589 $ 325 $ 496
Subordinated debt $ -- $ 2,950 $ -- $ -- $ --
Stockholders' equity (deficit) $(1,166) $ 890 $ 56,560 $ 52,805 $ 59,770
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion and analysis of the Company's financial condition
and results of operations should be read in conjunction with the Company's
consolidated financial statements and notes thereto included elsewhere herein.
OVERVIEW
The Company began operations in May 1987 as a mail-order company and then
opened its first retail computer showroom in August 1987 and a second showroom
in 1988. These showrooms and mail-order operations primarily offered Commodore
Amiga personal computers and related products. After opening its first retail
store, the Company conducted mail order operations from one of its retail
showroom locations. The Company became an authorized Apple dealer in 1991,
opened two additional retail computer showrooms in the second quarter of 1993
and relocated and expanded an existing showroom in the fourth quarter of 1993.
Net sales from the Company's retail computer showrooms as a percentage of net
sales were 16.0%, 13.0% and 12.4% in 1995, 1996 and 1997, respectively. During
1997, the Company completed two acquisitions. On August 29,1997, the Company
acquired the assets and assumed the liabilities of Milwaukee-based ComputAbility
Limited, a privately owned direct reseller of PC/WINTEL hardware, peripheral and
software products, for $8.0 million. On October 15, 1997, the Company acquired
substantially all the assets of Elek-Tek, Inc., a marketer of PC/WINTEL
hardware, peripheral and software products located in the Midwest for
$29.4 million plus direct costs of the acquisition.
In late 1997, the Company formed a wholly-owned subsidiary named uBid to sell
computers, computer related products and consumer electronics through an online
auction site on the Internet and plans to make significant investments in 1998
to grow this business.
Subsequent to year end, the Company closed seven of its eight retail
showrooms to focus its efforts on its catalog, corporate and Internet channels
of distribution.
In the fourth quarter of 1993, the Company shifted its principal distribution
and marketing focus from retail showrooms to direct mail marketing distribution
and relocated its mail order/catalog operations to a central location. In March
1994, the Company received authorization from Apple to offer the full retail
line of Apple products via direct mail and the Company distributed the first
edition of its MacMall catalog in April 1994. During 1994, the Company mailed
five editions of its MacMall catalog with a total circulation of approximately
7.7 million to previous and potential customers. During 1995, the Company
distributed ten editions of its MacMall catalog with a total MacMall circulation
of approximately 27.3 million. In 1996, total MacMall circulation increased to
30.3 million with thirteen editions. In 1997, total MacMall circulation
increased to 36.0 million with fourteen editions.
In May 1995, the Company distributed its first PC Mall catalog focusing on
the WINTEL personal computer market. During 1995, the Company distributed seven
PC Mall catalogs to approximately 11.1 million previous and prospective
customers. In 1996, the Company distributed thirteen PC Mall catalogs with a
total circulation of 15.3 million. In 1997, total PC Mall circulation was 21.9
million with fourteen editions. In 1997, total DataCom Mall circulation was 2.9
million with eight editions. In September 1997, the Company distributed its
first ComputAbility catalog. During 1997, the Company distributed three
ComputAbility catalogs to approximately 1.4 million previous and prospective
customers.
23
All catalogs feature new products and contain detailed information about
product capabilities, specifications, key features and system requirements.
Net sales from mail order/catalog operations, as a percentage of net sales,
were 84.0%, 87.0% and 87.6% in 1995, 1996 and 1997, respectively, with average
order size being $451, $416 and $466 for those same respective years.
Net sales of the Company are derived primarily from the sale of personal
computer hardware, software, peripherals and accessories to individual
consumers, home offices, small businesses and large corporations through direct
response catalogs, dedicated inbound and outbound telemarketing sales
executives, a direct sales force, retail showrooms and advertising on the
Internet. Gross profit consists of net sales less product and shipping costs.
The Company receives marketing development funds ("MDF") from manufacturers of
products included in the Company's catalogs, as well as co-operative advertising
funds ("Co-Op") on products purchased from manufacturers and vendors.
The Company is dependent on sales of Apple computers and software and
peripheral products used with Apple computers. Products manufactured by Apple
represented approximately 45.9%, 30.1% and 21.4% of the Company's net sales in
1995, 1996 and 1997, respectively.
RESULTS OF OPERATIONS
The following table sets forth for the years indicated information derived
from the Company's consolidated statement of operations expressed as a
percentage of net sales. There can be no assurance that trends in sales growth
or operating results will continue in the future.
Percentage of Net Sales
------------------------
Year Ended December 31
------------------------
1995 1996 1997
----- ----- -----
Net sales 100.0% 100.0% 100.0%
Cost of goods sold 86.0 88.8 87.2
----- ----- -----
Gross profit 14.0 11.2 12.8
Selling, general and administrative expenses 11.5 13.6 11.2
Expenses associated with the relocation of the
Company's distribution center 0.3 --- ---
Expenses associated with the relocation of the
Company's headquarters --- --- 0.1
Expenses associated with the acquisition of
Elek-Tek --- --- 0.3
----- ----- -----
Income (loss) from operations 2.2 (2.4) 1.2
Interest income 0.1 0.1 0.1
----- ----- -----
Income (loss) before income taxes 2.3 (2.3) 1.3
Income taxes (benefit) 0.9 (0.9) 0.5
----- ----- -----
Net income (loss) 1.4% (1.4)% 0.8%
===== ===== =====
The Company markets its products through the distribution of catalogs,
outbound telemarketing, a direct sales force, retail showrooms and the Internet.
Net sales from the Company's mail order/catalog operations were $353.3 million,
$387.1 million and $478.3 million for the years ended December 31, 1995, 1996
and 1997, representing 84.0%, 87.0% and 87.6% of net sales, respectively. Net
sales from the Company's |
