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 September 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 November
12, 1998 was 36,128,090.
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
GLOBAL DIRECTMAIL CORP
Condensed Consolidated Balance Sheets
(IN THOUSANDS)
September 30, December 31,
1998 1997
(Unaudited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 34,420 $ 43,432
Short-term investments 7,524 9,017
Accounts receivable - net 148,996 132,741
Inventories 111,878 102,599
Prepaid expenses and other current assets 37,606 25,541
--------- ----------
Total current assets 340,424 313,330
PROPERTY, PLANT AND EQUIPMENT - net 32,852 29,401
GOODWILL - net 58,225 53,258
OTHER ASSETS 4,680 3,756
--------- ----------
$ 436,181 $ 399,745
========= ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued expenses $ 154,883 $ 125,562
Current portion of long-term debt - 12
--------- ----------
Total current liabilities 154,883 125,574
--------- ----------
LONG-TERM DEBT 5,464 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 - 2,103,900 shares (28,604) -
Retained earnings 127,249 97,204
Cumulative translation adjustment 64 (2,130)
--------- ----------
Total shareholders' equity 275,834 272,199
--------- ----------
$ 436,181 $ 399,745
========= ===========
See notes to condensed consolidated financial statements.
GLOBAL DIRECTMAIL CORP
Condensed Consolidated Statements of Income
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Three Months Ended Nine Months Ended
SEPTEMBER 30, SEPTEMBER 30,
----------------------------------- ---------------------------------
1998 1997 1998 1997
---- ---- ---- ----
(Unaudited) (Unaudited)
NET SALES $ 359,771 $ 259,661 $1,048,581 $ 792,683
COST OF SALES 288,167 202,372 834,552 601,820
---------- ---------- ---------- ---------
GROSS PROFIT 71,604 57,289 214,029 190,863
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES 56,024 54,750 166,745 151,807
-------- ---------- ---------- -----------
INCOME FROM OPERATIONS 15,580 2,539 47,284 39,056
INTEREST AND OTHER INCOME 624 878 2,227 2,366
-------- ---------- ---------- -----------
INCOME BEFORE INCOME TAXES 16,204 3,417 49,511 41,422
PROVISION FOR INCOME TAXES 6,643 1,281 19,466 15,533
--------- ---------- ---------- -----------
NET INCOME $ 9,561 $ 2,136 $ 30,045 $ 25,889
========= ========== ========== ===========
Net income per common share:
Basic $ .26 $ .06 $ .80 $ .68
========= ========== ========== ===========
Diluted $ .26 $ .06 $ .80 $ . 68
========= ========== ========== ============
Common and common equivalent shares:
Basic 36,690 37,857 37,674 37,857
========= ========== ========== ===========
Diluted 36,690 38,121 37,678 38,181
========= ========== ========== ===========
See notes to condensed consolidated financial statements.
GLOBAL DIRECTMAIL CORP
Condensed Statement of Consolidated Shareholders' Equity
(IN THOUSANDS) (UNAUDITED)
Additional Cumulative Treasury
Common Paid-in Retained Translation Stock
SHARES CAPITAL EARNINGS ADJUSTMENT AT COST
BALANCES, DECEMBER 31, 1997 $ 382 $176,743 $ 97,204 $(2,130) -
Purchase of shares for treasury (28,604)
Difference arising from translation
of foreign statements 2,194
Net income 30,045
------ -------- -------- -------- -----------
BALANCES, SEPTEMBER 30, 1998 $ 382 $176,743 $127,249 $ 64 $ (28,604)
====== ======== ======== ========= ===========
See notes to condensed consolidated financial statements.
GLOBAL DIRECTMAIL CORP
Condensed Statements of Consolidated Cash Flows
(IN THOUSANDS)
NINE-MONTH PERIOD
ENDED SEPTEMBER 30,
1998 1997
------ -----
(UNAUDITED)
CASH FLOWS PROVIDED BY OPERATING ACTIVITIES:
Net income $ 30,045 $ 25,889
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization - net 5,669 3,769
Charges associated with the impairment of certain long lived assets - 8,773
Provision for returns and doubtful accounts 4,472 2,017
Changes in certain assets and liabilities:
Accounts receivable (17,435) (10,284)
Inventories (7,210) 10,431
Prepaid expenses and other current assets (12,203) (636)
Accounts payable and accrued expenses 25,518 (11,339)
--------- ---------
Net cash provided by operating activities 28,856 28,620
-------- --------
CASH FLOWS USED IN INVESTING ACTIVITIES:
Net change in short-term instruments 1,493 16,997
Acquisition of net assets of businesses acquired (5,942) (36,741)
Investment in property, plant and equipment (7,985) (7,021)
---------- ---------
Net cash (used in) provided by investing activities (12,434) (26,765)
---------- ---------
CASH FLOWS USED IN FINANCING ACTIVITIES:
Borrowings of long term debt 3,336
Net repayment of short term bank debt - (468)
Purchase of treasury shares (28,604)
Other - 2
--------- ---------
Net cash used in financing activities (25,268) (466)
--------- ----------
EFFECTS OF EXCHANGE RATES ON CASH (166) 618
--------- ----------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (9,012) 2,007
CASH AND CASH EQUIVALENTS - BEGINNING OF PERIOD 43,432 35,211
--------- ---------
CASH AND CASH EQUIVALENTS - END OF PERIOD $ 34,420 $ 37,218
========= =========
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 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 September 30, 1998 and the results of operations for the
three and nine months ended September 30, 1998 and 1997, cash flows for the
nine months ended September 30, 1998 and 1997 and changes in shareholders'
equity for the nine months ended September 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 nine months ended September 30, 1998 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 SEPTEMBER 30, 1998 COMPARED TO THREE MONTHS ENDED
SEPTEMBER 30, 1997
Net sales for the quarter increased by $100.1 million or 39% to $359.8
million compared to $259.7 in the year ago quarter. The increase was
attributable primarily to (i) net sales of $66 million 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 was responsible for a sales increase of 84% over the
year ago quarter and (iii) an increase in average order value. In
addition, prior year sales were negatively impacted by the UPS labor
action. Catalogs mailed increased by 15% to 43 million compared to 37
million in the year ago quarter. The total number of orders increased to
920,000 compared to 798,000 in the year ago quarter. Sales during the
quarter attributable to North American operations increased 43% to
$287.6 million compared to $200.8 million in the third quarter of 1997.
European sales increased 23% to $72.2 million compared to $58.9 million
in the year ago quarter. On a currency adjusted basis, European sales
for the quarter increased 19%.
Gross profit increased by $14.3 million or 25% to $71.6 million compared
to $57.3 million in the year ago quarter. Gross profit as a percentage
of net sales was 19.9% compared to 20.3% in the prior quarter and 22.1%
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 $1.3 million or 2.3% to $56.0 million compared to $54.8 million in
the third quarter of 1997. This increase was the result of the inclusion
of the Company's Midwest Micro subsidiary, acquired on September 30,
1997, 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, the implementation of cost containment measures and the
overall leveraging of selling, general and administrative expenses over
a larger sales base. Selling, general and administrative expenses for
the third quarter of 1997 included one time charges of $9.8 million
associated with the impairment of certain long lived assets. As a
result, selling, general and administrative expenses as a percentage of
sales declined to 15.6% from 21.1% in the year ago quarter.
Income from operations for the quarter increased by $13.1 million to
$15.6 million from $2.5 million in the year ago quarter, which includes
the negative effect of the one time charge noted above. Excluding this
charge, operating income increased 27%. Income from operations as a
percentage of net sales was 4.3% compared to 1.0% in the year ago
quarter (4.7% excluding the effect of the aforementioned charge).
The effective tax rate for the third quarter of 1998 increased to 41.0%
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 $9.6 million, or $.26 per basic and
diluted share, compared to $2.1 million, or $.06 per basic and diluted
share in the third quarter of 1997.
NINE MONTHS ENDED SEPTEMBER 30, 1998 COMPARED TO NINE MONTHS ENDED
SEPTEMBER 30, 1997
Net sales increased by $255.9 million or 32% in the first nine months of
1998 to over $1 billion compared to $793 million for the first nine
months of 1997. The increase was attributable primarily to (i)the
inclusion of $185 million of net sales from Midwest Micro (ii) increased
sales from the Company's major account relationship marketing sales
force which was responsible for a sales increase of 97% over last year
and now accounts for 33% of total sales compared to 22% last year and
(iii) an increase in average order value. Catalogs mailed increased by
10% to 134 million compared to 120 million in the first nine months of
1997. Total orders increased 10% to 2,856,000 compared to 2,593,000 in
first nine months of 1997. Sales for the first nine months of 1998
attributable to North American operations increased 39% to $828.2
million compared to $595.8 million in the first nine months of 1997.
European sales increased 12% to $220.4 million compared to $196.9
million in the first nine months of 1997. On a currency adjusted basis,
European sales for the first nine months of 1998 increased 14%.
Gross profit increased by $23.2 million or 12% to $214 million for the
first nine months of 1998 compared to $190.9 million for the first nine
months of 1997. Gross profit as a percentage of net sales was 20.4% for
the first nine months of 1998 compared to 24.1% in first nine 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 nine months
of 1998 increased by $14.9 million or 10% to $166.7 million compared to
$151.8 million for the first nine 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, the implementation of cost containment measures
and the overall leveraging of selling, general and administrative
expenses over a larger sales base. Selling, general and administrative
expenses for the first nine months of 1997 included one time charges of
$9.8 million associated with the impairment of certain long lived
assets. As a result, selling, general and administrative expenses as a
percentage of sales declined to 15.9% from 19.2% for the first nine
months of 1997.
Income from operations for the first nine months of 1998 increased by
$8.2 million or to $47.3 million from $39.1 million for the first nine
months of 1997, which includes the negative effect of the one time
charges noted above. Excluding this charge, operating income decreased
3%. Income from operations as a percentage of net sales was 4.5%
compared to 4.9% in the year ago period (6.2% excluding the effect of
the aforementioned charge).
The effective tax rate for the first nine months of 1998 increased to
39.3% compared to 37.5% for the first nine 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 nine months of 1998 was $30.0 million, or $.80
per basic and diluted share, compared to $25.9 million, or $.68 per
basic and diluted share for the first nine months of 1997.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary capital needs are to finance working capital for
sales growth and investments in property, equipment and information
technology. Strong cash flow continued to finance the Company's working
capital and capital expenditure needs. Cash provided by operations for
the nine months was $28.9 million, up 1% from the prior year, which was
the result of increased net income offset by higher working capital
required to support the Company's growth strategy. Excess funds
generated were used for acquisitions and for stock repurchases. The
Company also has access to adequate funds from short-term and long-term
borrowing capabilities.
YEAR 2000 COMPLIANCE
The Company is in the process of analyzing and addressing what is known
as the year 2000 (or "Y2K") issue. Based on current information, the
Company believes that it will be year 2000 compliant in a timely manner
and the cost of achieving such compliance will not have a materially
adverse effect on the Company's results of operations or financial
condition. As noted in the following discussion, however, there are
multiple variables in determining whether full Y2K compliance can be
achieved, many of which are dependent on efforts of third parties.
BACKGROUND.
This issue has arisen because many existing computer programs use only
two digits instead of four (E.G., "98" instead of "1998") to identify a
year in the data field. This is a holdover from the days when businesses
first started using computers and electronic memory was limited and
storage was expensive. These programs were designed and developed
without considering the impact of the upcoming change in the century.
Accordingly, some computers can not determine if the reference to the
year "02" means 2002 or 1902. The failure of such applications or
systems to properly recognize the dates beginning in the year 2000 could
result in miscalculations or even systems failures. The Company could be
affected by this problem both as a user of computers and as a direct
marketer and retail vendor of PCs and computer related products
(including private label PCs assembled by its Midwest Micro subsidiary).
In 1998 the Company established a Year 2000 Team to assess the Company's
Y2K compliance situation. This team consists of the Company's Chief
Financial Officer, Chief Information Officer, Controller, General
Counsel and a representative from the Company's management information
system (MIS) department.
INTERNAL SYSTEMS
The Company's Y2K Team has established a plan to have all of the
Company's computer and computer- dependent systems tested and, if
necessary, modified or replaced to ensure Y2K compliance. A target date
of July 1, 1999 has been fixed for such compliance. The Company believes
at this time that it should be able to meet such target date. Each of
the Company's computers and computer dependent systems has been or is
being analyzed to assess what would be the impact on the Company if the
system becomes materially impaired due to Y2K non-compliance. The
Company is nearing completion of this assessment phase.
While the Company utilizes numerous customized software programs, many
of them are similar to each other. Accordingly, if a fix is necessary
for one program, it is expected that the same or similar remedy can be
used on other similar programs. Each system is being placed in one of
three categories, based on the level of risk to the Company - Level I
(catastrophic risk), Level II (critical risk) and Level III (sustainable
risk). The Company is now in the process of doing live tests of the
Level I and Level II systems to ascertain anticipated Y2K compliance.
Based on its analysis to-date, the Company believes that all of its
internal computer systems (hardware, system software and applications
software) and computer-dependent systems, including technology embedded
in the Company's machinery and other equipment to the extent that it is
date sensitive, are currently Y2K compliant or will, through the
replacement or modification of existing hardware and software, be made
Y2K complaint in a timely manner. The Company has not retained any
outside service provider to conduct independent verification of the
Company's compliance status and does not at this time intend to hire any
such service provider but is utilizing a third-party software program to
test and assess anticipated compliance.
The Company is currently in the process of contacting its key vendors
and service providers to ascertain their Y2K compliance to the extent
that their problems could affect the Company's internal systems or other
aspects of the Company's business. The Company expects to have completed
that process by June 1999.
The Company at this time cannot make any prediction as to the degree of
compliance by such vendors and service providers or the consequence to
the Company of any noncompliance. As a direct marketer of products, the
Company is particularly dependent on the ability of telecommunications,
shipping and credit card companies to provide services and any
difficulties with such service providers could have a material adverse
impact on the Company.
Similar issues will be faced with the Company's banks and payroll
services, as well as other vendors. Any serious Y2K problems which
significant vendors and service providers encounter could materially
adversely impact the Company. Since the Company's customer base is
diverse and no one customer accounts for a significant portion of the
Company's business, the Company does not at this time believe that it is
necessary to query customers on their Y2K compliance status.
While the Company believes that the efforts which it has taken and plans
to take should be sufficient to identify and correct any Y2K problems
before December 31, 1999, there can be no assurance that the Company
will be fully Y2K complaint in a timely manner.
PRODUCTS SOLD
The Company began assembling its own private label PC hardware systems
following the acquisition of its Midwest Micro subsidiary on September
30, 1997. Prior to this time the Company only sold private label PC
systems assembled by contracted third party-manufacturers. The Company
believes that all of the private label PC hardware systems it sells,
including those it assembles itself, are Y2K complaint. All PC hardware
systems assembled by the Company on or after January 1, 1998 have been
certified to be Y2K compliant by the National Software Testing Lab
(NSTL), an independent testing lab.
The Company is in the process of questioning its vendors as to the Y2K
compliance status of the brand name (i.e. third party-manufactured)
hardware and software products it sells. Accordingly, the Company cannot
be certain at this time, and does not warrant to its customers, that the
brand name computer hardware and software it currently sells is Y2K
compliant. This includes the brand name software that is pre-loaded onto
the private label PCs the Company sells. While the Company believes that
the liability for any Y2K failure of any computer hardware or software
the Company sells rests with the manufacturer of such products or
components, and it understands that most of the major manufacturers have
"fixes" available for certain older products which have Y2K problems, it
is possible that purchasers from the Company may make claims against the
Company for alleged Y2K problems with respect to products sold by the
Company and there can be no assurance that the Company would be
successful in having any such liability be borne by its vendors.
FINANCIAL RAMIFICATION
The Company preliminarily estimates that the costs of achieving Y2K
compliance, including costs of personnel devoting significant effort on
Y2K matters, will be approximately $500,000. The costs associated with
any new computers or computer programs which are year 2000 compliant
have been and will be capitalized and amortized over the computer's
and/or software's expected useful life. Any system modification or
maintenance costs necessary to make the Company's existing computer
programs Y2K compliant have been and will be expensed as incurred. The
expenses incurred to-date to achieve year 2000 compliance have not had a
material impact on the Company's results of operations or financial
condition. Based on the Company's current status of internal Y2K
compliance review and other preliminary information, the Company does
not anticipate that expenses yet to be incurred to achieve year 2000
compliance will have a material impact on the Company's results of
operations or financial condition or that its business will be adversely
affected by the Y2K issue in any material respect.
Nevertheless, achieving Y2K compliance is dependent on multiple factors,
many of which are not within the Company's sole control. Should one or
more of the internal systems of the Company or the Company's key vendors
exhibit significant Y2K problems or if any of the products which the
Company sells which are stil under warranty are Y2K deficient, the
Company's business and its results of operations could be materially
adversely affected.
The Company may see an increase in warranty claims related to the Y2K
issue. The Company's standard limited warranty period for the PC systems
it assembles ranges from one to five years from the date of first
purchase, depending upon the system purchased and the particular
component part warranted. The Company does not make any separate
warranty on brand name products it sells, instead passing on the
manufacturer's warranty. The Company can not at this time assess the
level of Y2K-related warranty claims it may receive regarding its
products. A significant level of warranty claims relating to the Y2K
issue could have a materially adverse impact on the Company's future
results.
RISKS
Until it has completed its Y2K assessment, and attempted to fix any
problems which such assessment may disclose, the Company can not be in a
position to determine what would be its most reasonably likely worst
case Y2K scenario or any plan for handling such scenario. The Company
has not devised any back-up plans should it suffer any internal Y2K
problems or should any of its vendors' Y2K problems affect the Company.
After completion of its Y2K assessment, including a review of queries
sent to such vendors, the Company will assess the need for any
contingency plans.
The failure to correct a material Y2K problem could result in an
interruption of, or inability to perform in a timely fashion, a
necessary business activity or operation. Such failures could materially
adversely affect the Company's results of operations, liquidity and/or
financial condition. Because of the general uncertainty which companies
generally face regarding the Year 2000 issue, in part due to actions of
third- parties which could affect a company's compliance, it is not
possible to determine at this time whether any actual failures will have
a material adverse impact on the Company.
The foregoing discussion contains forward-looking statements which
should be read in conjunction with the discussion entitled FORWARD
LOOKING STATEMENTS set forth below.
IMPLICATIONS TO THE COMPANY FROM THE ADOPTION OF A EUROPEAN COMMON
CURRENCY
The Company has extensive operations in certain European countries,
including France, Germany, Italy, the Netherlands, Spain, Sweden and
United Kingdom. It also sells to additional countries in Europe. For the
most recently completed fiscal year, approximately 24% of the Company's
net sales were in Europe. With the exception of Sweden and the United
Kingdom, all of the countries in which the Company has operations have
confirmed their participation in a new 11-country European common
currency, the Euro. The adoption of such common currency will be phased
in over a three-year period starting in January 1999. During such
phase-in period, both the Euro and the historical currency of a country
will be valid, although new Euro-denominated currency will not be issued
until 2002. Each member-country will decide when its legacy currency
will cease to be legal tender, which will occur during the period
January 1 through June 30, 2002. Until the introduction of
Euro-denominated currency, the paying party will have the option to
decide whether to pay in the legacy currency or in Euros converted to
the legacy currency.
Among other possible economic implications, it is expected that the
adoption of a common currency will lead to greater price transparency
and thereby increased competition within the common currency zone. For
instance, with a single currency applicable to the entire region,
consumers may be able to more easily discern differences in price for
the Company's products between different countries and modify their
buying practices accordingly. This may require adjustments in the
Company's marketing and pricing strategies. The Company will still use
national catalogs, in the appropriate language, after the introduction
of the Euro. Whether any such price differentials will lead to
significant changes in purchasing practices by the Company's customers
depends on other factors as well, such as convenience, language-related
matters and other factors which may determine where a consumer will
purchase products. The Company is not able at this time to gauge whether
the likelihood of increased competition arising from the introduction of
the Euro would have any significant long-term adverse impact on the
pricing for the Company's products.
The adoption of a common currency may require a significant modification
to the Company's accounting systems. Among other things, it will be
necessary to operate in each country with dual currencies until the
three year phase-in-period has passed. Management believes, however,
that any necessary changes can be rapidly and inexpensively implemented
using "off-the-shelf" systems if the Company's internal systems are not
sufficient.
The Company does not believe that the adoption of a common currency will
give any parties to material contracts with the Company the right to
terminate or modify such contracts on the grounds of "frustration,"
"impossibility" or "impracticability."
Other risks associated with such currency conversion include possible
currency exchange and tax risks, neither of which the Company believes
will have a significant affect.
While the Company does not at this time anticipate that the adoption of
the Euro and any resulting changes in European economic and market
conditions will have any material adverse impact on the Company or its
European business, its analysis of this issue has only commenced
recently and the Company has not yet fully evaluated the implications of
the Euro's adoption. The Company has not adopted, nor is it at this time
contemplating the adoption of, any contingency plans regarding this
issue.
The foregoing discussion contains forward-looking statements which
should be read in conjunction with the discussion entitled FORWARD
LOOKING STATEMENTS set forth below.
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 and the adoption of the Euro, (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.
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 September 30, 1998, the Company did not have any material forward
exchange or option contracts outstanding.
PART II - OTHER INFORMATION
ITEM 5. OTHER INFORMATION.
On October 20, 1998 the Board of Directors authorized the Company to
purchase an additional 2,000,000 common shares of Company stock under
the Company's stock buyback plan, bringing the total number of shares
authorized for purchase under the plan to 4,350,000 common shares. The
Company has been periodically purchasing its shares in the open market.
As of November 12, 1998 a total of 2,103,900 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).
10.1 Lease Agreement dated September 17, 1998 between Tiger Direct,
Inc. and Keystone-Miami Property Holding Corp (New Miami
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 September 30, 1998.
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: November 12, 1998 By: /S/ RICHARD LEEDS
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Richard Leeds
Chairman and Chief Executive Officer
By: /S/ STEVEN GOLDSCHEIN
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Steven Goldschein
Senior Vice President and
Chief Financial Officer