Part I - FINANCIAL INFORMATION
Item 1. Financial Statements
Systemax Inc.
Condensed Consolidated Balance Sheets
(In Thousands)
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March 31, December 31,
2000 1999
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(Unaudited)
ASSETS
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CURRENT ASSETS:
Cash and cash equivalents $ 8,291 $ 17,470
Accounts receivable, net 227,349 200,082
Inventories 148,596 173,966
Prepaid expenses and other current assets 33,320 35,259
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Total current assets 417,556 426,777
PROPERTY, PLANT AND EQUIPMENT, net 61,273 46,839
GOODWILL, net 72,934 73,684
OTHER ASSETS 5,321 2,662
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TOTAL $ 557,084 $ 549,962
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LIABILITIES AND STOCKHOLDERS' EQUITY
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CURRENT LIABILITIES:
Notes payable to banks $ 34,000 $ 9,000
Current portion of long term debt 634
Accounts payable and accrued expenses 221,627 230,252
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Total current liabilities 255,627 239,886
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LONG-TERM DEBT 1,740
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STOCKHOLDERS' EQUITY:
Preferred stock
Common stock, par value $.01 per share, issued
38,231,990 shares,
outstanding 34,287,990 and 35,237,790 shares 382 382
Additional paid-in capital 176,743 176,743
Accumulated other comprehensive income (7,046) (4,598)
Retained earnings 178,502 174,468
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348,581 346,995
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Less: Common stock in treasury at cost - 3,449,000
and 2,499,200 shares 47,124 38,659
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Total stockholders' equity 301,457 308,336
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TOTAL $ 557,084 $ 549,962
========= ==========
See notes to condensed consolidated financial statements.
Systemax Inc.
Condensed Consolidated Statements of Income
(In Thousands, except per share amounts)
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Three Month
Periods ended
March 31,
-----------------------
2000 1999
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(Unaudited)
NET SALES $ 452,987 $421,651
COST OF SALES 375,430 342,339
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GROSS PROFIT 77,557 79,312
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 70,211 62,141
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INCOME FROM OPERATIONS 7,346 17,171
INTEREST AND OTHER INCOME (EXPENSE) - Net (564) 330
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INCOME BEFORE INCOME TAXES 6,782 17,501
PROVISION FOR INCOME TAXES 2,712 6,738
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NET INCOME $ 4,070 $ 10,763
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Net income per common share:
Basic $ .12 $ .30
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Diluted $ .12 $ .30
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Common and common equivalent shares outstanding:
Basic 35,021 36,064
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Diluted 35,124 36,117
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See notes to condensed consolidated financial statements
Systemax Inc.
Condensed Statement of Consolidated Stockholders' Equity
(In Thousands)
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Common Stock Accumulated
----------------------- Additional Other Treasury
Number of Paid-in Retained Comprehensive Stock
Shares Amount Capital Earnings Income at Cost
---------- -------- --------- -------- ---------- -------
Balances, December 31, 1999 35,238 $ 382 $ 176,743 $ 174,468 $ (4,598) $ (38,659)
Change in cumulative translation adjustment (2,448)
Purchase of treasury shares (950) ( 8,465)
Net income 4,070
Balances, March 31, 2000 34,288 $ 382 $ 176,743 $ 178,502 $ (7,046) $ (47,124)
======== ======== ========= ========= ========= ==========
See notes to consolidated financial statements.
Systemax Inc.
Condensed Statements of Consolidated Cash Flows
(In Thousands)
--------------
Three-Month Period
Ended March 31,
2000 1999
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(Unaudited)
CASH FLOWS PROVIDED BY (USED IN) OPERATING ACTIVITIES:
Net income $ 4,070 $ 10,763
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization, net 2,987 2,393
Provision for returns and doubtful accounts 2,194 1,820
Changes in certain assets and liabilities:
Accounts receivable (25,123) (19,506)
Inventories 24,530 (654)
Prepaid expenses and other current assets 1,776 (1,078)
Accounts payable and accrued expenses (14,785) 19,634
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Net cash (used in) provided by operating activities (4,351) 13,372
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CASH FLOWS PROVIDED BY (USED IN) INVESTING ACTIVITIES:
Investments in property, plant and equipment (17,269) (2,443)
Net change in short-term investments 4,252
Acquisitions, net of cash acquired (8,398)
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Net cash used in investing activities (17,269) (6,589)
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CASH FLOWS PROVIDED BY (USED IN) FINANCING ACTIVITIES:
Purchase of treasury shares (8,465) (4,089)
Proceeds from short-term borrowings from banks 25,000
Repayments of long-term borrowings (2,399) (160)
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Net cash provided by (used in) financing activities 14,136 (4,249)
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EFFECTS OF EXCHANGE RATES ON CASH (1,695) 1,104
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NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (9,179) 3,638
CASH AND CASH EQUIVALENTS - BEGINNING OF PERIOD 17,470 42,029
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CASH AND CASH EQUIVALENTS - END OF PERIOD $ 8,291 $ 45,667
========= ========
See notes to condensed consolidated financial statements.
Systemax Inc.
Notes to Condensed Consolidated Financial Statements
| 1. |
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Description of Business |
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The accompanying consolidated financial statements include the accounts of
Systemax Inc. and its wholly-owned subsidiaries (collectively, the
“Company” or “Systemax”). The Company is a corporate
supplier of personal computers (PCs), notebook computers, computer related
products and industrial products in North America and Europe. Systemax markets
these products through an integrated system of distinctively branded full-color
direct mail catalogs, proprietary “e-commerce” Internet sites and
personalized “relationship marketing” to business
customers. |
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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. |
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All intercompany accounts have been eliminated in consolidation. |
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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, 2000 and
the results of operations for the three month periods ended March 31, 2000 and
1999, cash flows for the three months ended March 31, 2000 and 1999 and changes
in stockholders’ equity for the three months ended March 31, 2000. The
December 31, 1999 condensed 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, 1999. |
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These condensed consolidated financial statements should be read in conjunction
with the Company’s audited consolidated financial statements as of December
31, 1999 and for the period then ended. The results for the three months ended
March 31, 2000 are not necessarily indicative of the results for an entire
year. |
| Item 2. |
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Management's Discussion and Analysis of
Financial Condition and Results of Operations. |
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Three Months Ended March 31, 2000 Compared to Three Months Ended March 31, 1999 |
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Net sales for the three months ended March 31, 2000 increased 7% to $453 million
compared to $422 million in the year-ago quarter. The increase of $31 million
resulted from quarterly record sales in the Company’s European operations
and an increase in PC sales. The number of orders shipped increased 8% to 1.2
million compared to the year-ago quarter, with an average order value unchanged
from the prior year’s. Sales during the quarter from North American
operations decreased 2% to $299 million compared to $304 million in the first
quarter of 1999. European sales increased 31% to $154 million compared to $118
million in the year-ago quarter. The effect of changes in exchange rates on
European sales for the three months was not material. |
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Gross profit was $77.6 million, or 17.1% of sales, compared to $79.3 million, or
18.8% of sales in the year-ago quarter, a decrease of $1.8 million. The decrease
in the gross profit percentage was primarily due to the continuing trend of
increased sales of PCs and brand name products, which generally have a lower
gross profit percentage than our other products. Increased relationship sales
and a relatively lower sales contribution from higher-margin industrial products
continue to affect the gross profit percentage unfavorably. |
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Selling, general and administrative expenses for the quarter increased by $8.1
million or 13% to $70.2 million compared to $62.1 million in the first quarter
of 1999. The increase resulted from continued expansion of our relationship
marketing sales organizations, investments in the Company’s
“e-commerce” Internet business and increased advertising costs. As a
percentage of sales, selling, general and administrative expenses increased to
15.5% compared to 14.7% in the year-ago quarter. |
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Income from operations for the quarter decreased to $7.3 million from $17.2
million in the year-ago quarter. Income from operations as a percentage of net
sales decreased to 1.6% from 4.1% in the prior year quarter. Operating income in
North America decreased 92% to $1.1 million from $13.2 million last year.
Operating income in Europe increased to $6.2 million from $4.0 million in the
year-ago quarter. |
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Interest and other income decreased as a result of higher interest expense in
the current year due to increased borrowings and less interest income from lower
invested cash balances. |
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The Company’s income tax rate was 40.0% for the first quarter of 2000 and
38.5% for the first quarter of 1999. The increase was due to a variety of
factors, including a change in the relative income earned in foreign locations. |
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As a result of the above, net income for the quarter was $4.0 million, or $.12
per basic and diluted share, compared to $10.8 million, or $.30 per basic and
diluted share, in the first quarter of 1999. |
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Liquidity and Capital Resources |
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The Company’s primary capital needs are to finance working capital for
sales growth, investments in property, equipment and information technology and
business acquisitions. Cash and cash equivalents totaled approximately $8
million at March 31, 2000. For the three months ended March 31, 2000, the
Company used cash in operating activities of $4.3 million compared to $13.4
million generated in the year ago period. The decrease resulted from lower net
income in 2000 and increased accounts receivable as a result of the increased
sales volume. These were partially offset by an decrease in inventories. Cash
was used in investing activities in 2000 for the purchase of capital equipment,
including a new distribution center in Georgia. Cash was used in financing
activities for the purchase of additional Company shares and repayment of
long-term debt. The Board of Directors of the Company has authorized the
repurchase by the Company of up to 6,350,000 outstanding shares of common stock.
Through March 31, 2000, the Company has purchased 3,944,000 shares, of which
949,800 were purchased in the first quarter of 2000. Cash outlays were financed
by additional short-term borrowings from banks. For the three months ended March
31, 2000, cash and cash equivalents decreased by $9.2 million. |
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The Company believes it has access to adequate funds for growth through its
available cash balances and funds generated by operations and secured and
unsecured lines of credit maintained with financial institutions. |
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Forward Looking Statements |
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This Quarterly Report on Form 10-Q 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. |
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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 and e-commerce 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
involved with e-commerce, including possible loss of business and customer
dissatisfaction if outages or other computer-related problems should preclude
customer access to the Company, (xi) risks associated with delivery of
merchandise to customers by utilizing common delivery services such as UPS,
including possible strikes, (xii) risks due to shifts in market demand and/or
price erosion of owned inventory, (xiii) borrowing costs, (xiv) changes in taxes
due to changes in the mix of U.S. and non-U.S. revenue, (xv) pending or
threatened litigation and investigations and (xvi) 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. |
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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. |
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Quantitative and Qualitative Disclosure About Market Risk. |
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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. Systemax may attempt to reduce
these risks by utilizing certain derivative financial instruments. |
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The value of the U.S. dollar affects the Company’s financial results.
Changes in exchange rates may positively or negatively affect Systemax’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, Systemax from time to time
hedges certain of its assets that may impact the Statement of Consolidated
Income when remeasured according to generally accepted accounting principles.
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 Systemax are for the
sole purpose of hedging an existing or anticipated currency exposure, not for
speculative or trading purposes. In spite of Systemax’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. |
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As of March 31, 2000, the Company had no outstanding forward exchange contracts. |
PART II - OTHER INFORMATION
| Item 5. |
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Other Information. |
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On May 12, 2000, the Company's subsidiary EZBid Inc. was merged
with a subsidiary of Bidhit.com (OTCBB:BHIT), pursuant to which Systemax received
5,391,522 shares of common stock of Bidhit.com, representing approximately 30%
of the outstanding shares. The closing price for Bidhit.com's common stock on
May 12, 2000 was $15/16. The parties waived conditions to the merger requiring
Bidhit.com to raise additional capital prior to the closing.
Bidhit.com is an Internet auction and e-commerce company for computers and
peripherals, camera equipment, sporting goods, household goods, home electronics
and sports memorabilia, EZBid Inc. is a consumer-based on-line auction company
for PC's, consumer electronics and other consumer products. |
| Item 6. |
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Exhibits and Reports on Form 8-K |
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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). |
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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). |
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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). |
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4.2 |
Specimen Stock Certificate. (Incorporated herein by reference to Exhibit 19.1 to
the Company's Annual Report on Form 10-K for the fiscal year ended December 31,
1999). |
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27 |
Financial Data Schedule. |
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No reports on Form 8-K were filed by the Company during the three months ended
March 31, 2000. |
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.
| Date: May 12, 2000 |
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By: /s/ RICHARD LEEDS |
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Chairman and Chief Executive Officer |
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By: /s/ STEVEN GOLDSCHEIN |
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Senior Vice President and Chief Financial Office4r |
