SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (date of earliest event reported) MARCH 22, 1999
CHS ELECTRONICS, INC.
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(Exact name of registrant as specified in its charter)
FLORIDA
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(State or other jurisdiction of incorporation)
0-24244 65-0263022
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(Commission File Number) (IRS Employer Identification No.)
2000 N.W. 84TH AVENUE
MIAMI, FLORIDA 33122
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(Address of principal executive offices, including Zip Code)
Registrant's telephone number, including area code (305) 716-8273
N/A
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(Former name or former address, if changed since last report)
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ITEM 5. OTHER EVENTS
On March 22, 1999, CHS Electronics, Inc. ("Registrant") issued a press
release announcing the Registrant's financial results for the fourth quarter and
year ended December 31, 1998.
Reference is made to the press release filed as Exhibit 99 hereto. The
information set forth in Exhibit 99 is hereby incorporated by reference herein.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS
(c) Exhibits
EXHIBIT
NUMBER DESCRIPTION
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99 Press release, dated March 22, 1999, announcing the Registrant's
financial results for the fourth quarter and year ended December 31,
1998.
2
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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.
CHS ELECTRONICS, INC.
Dated: March 25, 1999 By: /s/ CRAIG TOLL
-------------------------------------
Craig Toll, Vice President-Finance,
Treasurer and Chief Financial Officer
3
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INDEX TO EXHIBITS
EXHIBIT
NUMBER EXHIBIT DESCRIPTION PAGE
- ------- ------------------- ----
99 Press release, dated March 22, 1999, announcing the
Registrant's financial results for the fourth quarter
and year ended December 31, 1998.
4
EXHIBIT 99
[CHS LOGO]
Contact: CHS ELECTRONICS, INC.
Craig Toll
Chief Financial Officer
(305) 908-7200
FOR IMMEDIATE RELEASE
MORGEN-WALKE ASSOCIATES:
Ed Bisno/Theresa Schillero
Media Contact: Brian Maddox/Estelle Bieber
(212) 850-5600
CHS ELECTRONICS REPORTS FINAL FOURTH QUARTER
AND 1998 YEAR END RESULTS
- ANNOUNCES STRATEGIC PLAN TO REDUCE OPERATING EXPENSES -
Miami, FL - March 22,1999 - CHS Electronics, Inc. (NYSE:HS), a leading
international distributor of microcomputer products, reported today financial
results for the fourth quarter and year ended December 31,1998. These results
are lower than those announced on February 24,1999. Following an analysis
performed together with its independent auditors and an investigation by outside
attorneys, the Company found that vendor rebates were overstated in the second,
third and fourth quarters of 1998. Some of the fourth quarter rebates were
supported with invalid documentation and all of the overstated rebates have been
reversed. As a consequence, a senior executive of the Company's European
headquarters office has resigned from the Company. The Company also announced a
strategic plan which includes initiatives designed to reduce operating expenses.
Net income for the fourth quarter was $13.0 million, or $0.23 per diluted
share, compared to $23.8 million, or $0.45 per diluted share, in the same
quarter last year. Gross profit was $184.2 million compared to $129.1 million in
the fourth quarter in 1997. Operating income was $38.3 million, compared to the
$35.3 million reported last year.
For the year ended December 31,1998, the Company generated net income of
$45.7 million, or $0.82 per diluted share, from net income of $48.4 million, or
$1.32 per diluted share, in 1997. Gross profit was $562.0 million in 1998
compared to the $346.7 million reported in the same period last year, and
operating income was $128.5 million in 1998 compared to $89.2 million in 1997.
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As previously reported, CHS generated net sales of $2.9 billion and $8.5
billion for the fourth quarter and year ended December 31,1998, respectively.
CHS Electronics' fourth quarter net earnings, operating income before
goodwill amortization, and gross profit margins were 0.45%,1.65% and 6.44%,
respectively, compared with 1.30%,2.16% and 7.04% a year earlier. In 1998, net
earnings, operating income before goodwill amortization, and gross profit
margins were 0.53%,1.81% and 6.58%, respectively, compared with 1.02%,2.06% and
7.29% in 1997.
As of December 31,1998, shareholders' equity increased to $838.0 million
from $667.8 million. Earnings before interest expense, taxes, depreciation and
amortization (EBITDA) were $187.5 million in 1998 compared to $119.8 million in
1997.
Claudio Osorio, Chairman and Chief Executive Officer, commented, "On
February 24,1999, we announced the discovery of discrepancies related to the
amount of vendor incentives recorded in the fourth quarter of 1998. An
investigation concluded that the resulting discrepancies were limited to the
head office of our European operations and did not affect those rebates recorded
at the subsidiary level."
Mr. Osorio added, "We are taking the appropriate steps to ensure that this
situation does not recur, including a number of management changes and
appointments. Burt Emmer, a senior executive of CHS and a former partner at an
international accounting firm, will oversee and assume responsibility for the
vendor rebate program. Jean Pierre Robinot, former European head of a major IT
vendor, will become Chief Operating Officer of the European Region. Anthony
Shalom, founder and managing director of a regional, multi-country wholesale
distributor and CHS subsidiary, has been appointed Chief Operating Officer of
the Latin America Region. In addition, I will resume direct responsibility for
CHS' operations worldwide."
Mr. Osorio concluded, "The overstatement of rebates necessitated a
restatement for the two previous quarters. The first quarter of 1998,1997 and
prior years were not affected. The restatement shows a reduced level of
profitability of which we had not been previously aware. As a result, we are
implementing various strategies to realign our business in order to improve
efficiency and reduce costs while also increasing service levels to our
customers. The goal of this plan is to reduce operating expenses by $40 million
and increase cash flow by $50 million in 1999. The more significant initiatives
being undertaken include:
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- Streamline global operations to six from the current ten. The six remaining
regions will be Central Europe, Southern East-Africa, Nordic-British Isles,
Eastern Europe, Asia, and Latin America;
- - Review the possible closure of 25 to 30 redundant local warehouses across
all regions;
- - Freeze hiring worldwide and reduce total employee headcount by approximately
600, about a 10% reduction;
- - Reduce capital expenditures in 1999 by $15 million;
- - Consider consolidating, closing, or restructuring all local operations with
unsatisfactory levels of profitability within six months; and
- - Initiate a comprehensive cost cutting program that will immediately reduce
selling, general, and administrative expenses.
These initiatives will go into effect immediately and we expect to realize
significant benefits in the third quarter of 1999."
The Company stated that based on current business conditions, it expects
net sales in the first quarter of 1999 to be in the range of $2.35 and $2.45
billion.
Miami-based CHS Electronics, ranked number 320 on the latest Fortune 500
list of the largest U.S.-based industrial corporations is a leading
international distributor of microcomputers, peripherals, and software to
approximately 150,000 resellers in 46 countries in Europe, Latin America, Asia,
the Middle East and Africa. Unlike other computer wholesalers, CHS Electronics
distributes a limited product line for a limited number of leading computer
manufacturers and does so only outside the United States. The company believes
that its "focused distribution" enables it to respond more quickly to customers,
provide better service, and reduce inventory and working capital requirements.
CHS believes it is the largest microcomputer distributor in Europe and Latin
America. information regarding CHS Electronics can be found on the Company's
website at www.chse.com.
FORWARD-LOOKING STATEMENTS MADE BY CHS ELECTRONICS AS TO EXPECTED SALES IN
THE FIRST QUARTER OF 1999 AND THE SUCCESS OF ITS COST REDUCTION PROGRAM ARE
BASED ON CURRENT EXPECTATIONS AND MAY DIFFER MATERIALLY FROM ACTUAL RESULTS.
AMONG THE FACTORS THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY ARE
CHANGES IN BUSINESS CONDITIONS, GROWTH IN THE PERSONAL COMPUTER INDUSTRY AND THE
GENERAL ECONOMY; COMPETITION; CHANGES IN THE PRODUCT MIX; AND THE RISK FACTORS
LISTED BY CHS ELECTRONICS' REPORTS FILED WITH THE SECURITIES EXCHANGE
COMMISSION.
(Tables to Follow)
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<TABLE>
<CAPTION>
CHS ELECTRONICS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(in thousands, except share data)
THREE MONTHS ENDED TWELVE MONTHS ENDED
DECEMBER 31, DECEMBER 31,
1998 1997 1998 1997
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<S> <C> <C> <C> <C>
Net sales $ 2,857,998 $ 1,834,757 $ 8,545,773 $ 4,756,383
Cost of goods sold 2,673,816 1,705,668 7,983,736 4,409,714
----------- ----------- ----------- -----------
Gross profit 184,182 129,089 562,037 346,669
Operating expenses, excluding
goodwill amortization 137,039 89,482 407,748 248,644
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Operating income, before
goodwill amortization 47,143 39,607 154,289 98,025
Goodwill amortization 8,854 4,302 25,819 8,864
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Operating income 38,289 35,305 128,470 89,161
Other (income) expenses:
Interest income (5,616) (4,661) (16,581) (11,470)
Interest expense 23,560 12,451 71,373 35,618
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17,944 7,790 54,792 24,148
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Earnings before income taxes and
minority interest in subsidiaries 20,345 27,515 73,678 65,013
Income taxes 5,899 2,413 23,871 13,988
Minority interest in subsidiaries 1,486 1,259 4,129 2,634
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Net earnings $ 12,960 $ 23,843 $ 45,678 $ 48,391
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Net earnings per common share:
Basic $ 0.24 $ 0.49 $ 0.88 $ 1.44
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Diluted $ 0.23 $ 0.45 $ 0.82 $ 1.32
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Weighted average shares outstanding:
Basic 53,044,089 48,910,999 51,616,109 33,527,256
=========== =========== =========== ===========
Diluted 56,259,136 53,389,326 55,917,007 36,592,368
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</TABLE>
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<TABLE>
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CHS ELECTRONICS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
DECEMBER 31,
1998 1997
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<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash $ 176,991 $ 68,806
Accounts receivable:
Trade, less allowance for doubtful accounts
of $34,486 in 1998 and $18,347 in 1997 1,342,126 659,757
Affiliates 35,546 24,604
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1,377,672 684,361
Inventories 1,025,690 693,503
Prepaid expenses and other current assets 101,698 65,255
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TOTAL CURRENT ASSETS 2,682,051 1,511,925
PROPERTY AND EQUIPMENT, NET 12O,201 61,468
GOODWILL, NET 737,719 381,830
OTHER ASSETS 32,172 13,599
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TOTAL ASSETS $ 3,572,143 $1,968,822
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LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes payable $ 677,994 $ 309,510
Accounts payable, trade 1,345,059 771,535
Accrued liabilities 125,076 83,309
Amounts due to sellers under acquisition agreements 185,853 54,866
Income taxes payable 13,997 13,934
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TOTAL CURRENT LIABILITIES 2,347,979 1,233,154
LONG TERM DEBT 375,655 61,556
MINORITY INTEREST 1O,466 6,348
SHAREHOLDERS' EQUITY:
Preferred stock, authorized 5,000,000 shares;
0 shares outstanding -- --
Common stock, authorized 100,000,000 shares at $0.001
per value; 55,619,475 and 48,910,999 shares outstanding at
December 31, 1998 and December 31, 1997, respectively 56 49
Additional paid-in capital 732,035 621,021
Retained earnings 11O,793 65,115
Accumulated other comprehensive income (4,841) (18,421)
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TOTAL SHAREHOLDERS' EQUITY 838,043 667,764
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LIABILITIES AND SHAREHOLDERS' EQUITY $ 3,572,143 $1,968,822
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</TABLE>
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<TABLE>
<CAPTION>
CHS ELECTRONICS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(in thousands, except share data)
THREE MONTHS ENDED THREE MONTHS ENDED
SEPTEMBER 30, JUNE 30,
1998 1997 1998 1997
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(as restated) (as restated)
<S> <C> <C> <C> <C>
Net sales $ 2,166,943 $ 1,097,567 $ 1,769,494 $ 946,955
Cost of goods sold 2,025,606 1,012,623 1,655,570 876,783
----------- ----------- ----------- -----------
Gross profit 141,337 84,944 113,924 7O,172
Operating expenses, excluding
goodwill amortization 105,579 59,507 84,764 51,824
----------- ----------- ----------- -----------
Operating income, before
goodwill amortization 35,758 25,437 29,160 18,348
Goodwill amortization 6,548 2,378 5,069 1,022
----------- ----------- ----------- -----------
Operating income 29,210 23,O59 24,091 17,326
Other (income) expenses:
Interest income (3,966) (3,243) (4,360) (1,799)
Interest expense 20,346 8,533 16,904 8,018
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16,380 6,446 12,544 6,219
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Earnings before income taxes and
minority interest in subsidiaries 12,830 16,613 11,547 11,107
Income taxes 5,361 4,785 4,832 4,147
Minority interest in subsidiaries 826 392 1,207 559
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Net earnings $ 6,643 $ 11,436 $ 5,508 $ 6,401
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Net earnings per common share:
Basic $ 0.13 $ 0.28 $ 0.11 $ 0.29
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Diluted $ 0.12 $ 0.26 $ 0.10 $ 0.28
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Weighted average shares outstanding:
Basic 52,439,O25 40,691,980 51,181,897 22,090,518
=========== =========== =========== ===========
Diluted 55,848,719 43,639,984 57,018,660 23,200,139
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</TABLE>
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