Circuit City 1997 Annual Report Download - page 4

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.
ITEM 1. BUSINESS.
GENERAL
Global is a direct marketer of over 40,000 products including brand name and private label personal desktop computers ("PCs"), notebook
computers, computer related products, office products and industrial products in North America and Europe. In addition, the Company
assembles build-to-order PCs in North America, under the brand names MIDWEST MICRO(R), ULTRA(TM), TIGER(R) and SYSTEMAX
(TM). 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(TM), MISCO(R), HCS GLOBAL(TM), HCS MISCO(TM), ARROWSTAR(TM), DARTEK(R), POWER UP!(R),
TIGER(R), 06 (TM), MIDWEST MICRO(TM) and INFOTEL(TM). 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 31%
to $1.15 billion in 1997 from $393.6 million in 1993. During this same period, income from operations increased at a compound annual growth
rate of 19% from $29.8 million to $59.3 million.
The Company has positioned itself as a "corporate supplier" offering a broad spectrum of business products. The Company believes that direct
marketing is the most effective and convenient distribution method to reach business customers who place many small orders requiring a wide
selection of products. Computers and computer related products accounted for 80% of the Company's net sales in 1997.
The Company markets its products to businesses through mailings of its "full-line" and specialty catalogs and through outbound telemarketing.
The Company targets individuals at major account customers(more than 1,000 employees), mid-sized businesses (20 to 1,000 employees),
small office/home office customers ("SOHO") and value added resellers ("VARs"). VARs select, install and maintain PCs and networks for
business customers who do not have their own computer technicians. Catalog mailings increased from approximately 98 million catalogs
comprising 18 different titles in 1993 to approximately 162 million catalogs comprising 41 different titles in 1997. At December 31, 1997, the
Company had 1.8 million "active" customers (defined as individuals that have purchased from the Company within the proceeding 12 months)
and combined customer and prospect files of more than 40 million names.
The Company operates in eight locations in North America. The Company's North American operations contributed 76% of net sales in 1997.
For some of the Company's businesses, certain functions, such as merchandising, marketing, purchasing and information systems, are
performed centrally.
European operations, which represented 24% of net sales for 1997, are generated from seven sales and distribution centers located across
Europe: two in the United Kingdom, and one each in France, Germany, Italy, Spain and the Netherlands. 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. The strategic locations in Europe
have enabled the Company to market into four additional countries with limited incremental investment.
RECENT ACQUISITIONS
During 1997 the Company completed two strategic acquisitions. During the first quarter, the Company acquired the assets of 06 Software
Centre Europe B.V. ("06"), a direct marketer of computers and computer products in the Netherlands. Although 06 does not materially increase
the Company's European operations, it adds an additional market to that region, bringing to 10 the number of countries serviced there.
At the end of the third quarter the Company acquired the assets of Infotel, Inc. ("Midwest Micro"), an assembler and direct marketer of private
label build-to-order PCs and a direct marketer of brand name PCs, notebook computers and computer related products. See Footnote 3 to the
Consolidated Financial Statements.
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. In total, Global offers over 40,000 brand name and private label products.
The Company's computer related products include: supplies such as laser printer toner cartridges, ink jet printer cartridges, and paper; media
such as floppy disks and magnetic tape cartridges; peripherals such as hard disk drives and memory upgrades; data communication and