SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] | QUARTERLY REPORT PURSUANT TO SECTION 13 OR |
For the quarterly period ended September 30, 2000March 31, 2001
or
[ ] | TRANSITION REPORT PURSUANT TO SECTION 13 OR |
For the transition period from ____________ to _____________
COMMISSION FILE NUMBER 1-13792
Systemax Inc.
(Exact name of registrant as specified in its charter)
Delaware | 11-3262067 |
22 Harbor Park Drive
Port Washington, New York 11050
(Address of registrant's principal executive offices)
(516) 608-7000
(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'sregistrant’s Common Stock as of November 10, 2000May 11, 2001 was 34,104,290.
PART I - FINANCIAL INFORMATION
Item 1.Financial Statements
Systemax Inc.
SYSTEMAX INC. Condensed Consolidated Balance Sheets(In Thousands, except share data)September 30,(IN THOUSANDS, EXCEPT SHARE DATA) - ------------------------------------------------------------------------------------------------ March 31, December 31, 2001 20001999------------------------------------------- (Unaudited) ASSETS- ------CURRENT ASSETS: Cash and cash equivalents $12,2632,484 $17,47014,496 Accounts receivable, net181,411 200,082170,542 183,493 Inventories119,360 173,966107,042 127,271 Prepaid expenses and other current assets48,676 35,25927,135 38,290 Income taxes receivable 25,486 --------- ---------- Total current assets361,710 426,777307,203 389,036 PROPERTY, PLANT AND EQUIPMENT, net73,530 46,83976,257 74,749 GOODWILL, net70,650 73,68469,282 70,672 OTHER ASSETS3,375 2,6623,911 3,561 --------- ---------- TOTAL $509,265456,653 $549,962538,018 ========= ========== LIABILITIES AND STOCKHOLDERS' EQUITY - ------------------------------------ CURRENT LIABILITIES:AmountsNotes payable to banks $66,26019,475 $9,000 Current portion of long-term debt 63448,559 Accounts payable and accrued expenses183,990 230,252183,665 233,788 --------- ---------- Total current liabilities250,250 239,886203,140 282,347 ------------------- LONG-TERM DEBT 1,740---------- STOCKHOLDERS' EQUITY: Preferred stock, par value $.01 per share, authorized 25 million shares, issued none Common stock, par value $.01 per share, issued 38,231,990 shares, outstanding 34,104,290and 35,237,790sharesas of September 30, 2000 and December 31, 1999, respectively382 382 Additional paid-in capital 176,743 176,743 Accumulated other comprehensive loss(12,770) (4,598)(9,183) (6,662) Retained earnings143,149 174,468134,060 133,697 --------- ----------307,504 346,995302,002 304,160 --------- ---------- Less: Common stock in treasury at cost - 4,127,700and 2,994,200shares 48,48938,65948,489 --------- ---------- Total stockholders' equity259,015 308,336253,513 255,671 --------- ---------- TOTAL $509,265456,653 $549,962538,018 ============================== See notes to condensed consolidated financial statements.
Systemax Inc.SYSTEMAX INC.
Condensed Consolidated Statements of Operations (Unaudited)
(In Thousands, except per share amounts)
IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)Nine MonthThree Month Periods endedPeriods ended September 30, September 30, --------------------------- -------------------------MARCH 31, -------------- 2001 20001999 2000 1999 ---- ---------- ---- NET SALES$1,264,637 $1,276,109$409,795 $ 440,659405,898 $448,870 COST OF SALES1,104,343 1,042,880 32,018 362,962 ----------- ----------- ----------339,787 380,701 --------- ---------- GROSS PROFIT160,294 233,229 47,777 77,69766,111 68,169 SELLING, GENERAL AND ADMINISTRATIVE EXPENSES204,933 191,319 68,763 61,884 ----------- ----------- ----------64,784 71,472 --------- ---------- INCOME (LOSS) FROM OPERATIONS(44,639) 41,910 (20,986) 15,8131,327 (3,303) INTEREST AND OTHER INCOME (EXPENSE) -net (2,813) 625 (582) 271 ----------- ----------- ----------Net (763) (564) --------- ---------- INCOME (LOSS) BEFORE INCOME TAXES(47,452) 42,535 (21,568) 16,084564 (3,867) PROVISION (BENEFIT) FOR INCOME TAXES(16,133) 17,228 (7,332) 6,770 ----------- ----------- ----------201 (1,315) --------- ---------- NET INCOME (LOSS) $(31,319)363 $25,307 $ (14,236) $ 9,314 =========== =========== ===========(2,552) ========= ========== Net income (loss) per common share: Basic $(.91).01 $.71 $ (.42) $ .26 =========== =========== ===========( .07) ========= ========== Diluted $(.91).01 $.71 $ (.42) $ .26 =========== =========== ===========( 07) ========= ========== Common and common equivalent shares outstanding: Basic34,430 35,87034,10435,732 =========== =========== ===========35,021 ========= ========== Diluted34,430 35,88634,10435,732 =========== =========== ===========35,021 ========= ========== See notes to condensed consolidated financial statements
Systemax Inc.SYSTEMAX INC.
Condensed Consolidated Statement of Stockholders' Equity (Unaudited)
(In Thousands)
IN THOUSANDS)Common Stock ----------------------Accumulated Other COMMON STOCK Additional Comprehensive Treasury Number of Paid-inShares Amount CapitalRetained Loss Stock Comprehensive SHARES AMOUNT CAPITAL EARNINGS NET OF TAX AT COST INCOME (LOSS) --------------------------- --------- -------- ------------Balances, December--------- ------------- BALANCES, DECEMBER 31,1999 35,238 $ 382 $ 176,743 Change in cumulative translation adjustment Purchase of treasury shares (1,134) Net loss (31,319) --------- ----------- ------------ Balances, September 30,2000 34,104 $ 382 $ 176,743========= =========== ============ See notes to condensed consolidated financial statements. Accumulated Other Treasury Retained Comprehensive Stock Earnings Loss at Cost ---------- ---------------- ---------- Balances, December 31, 1999$174,468133,697 $(4,598) $ (38,659)(6,662) $(48,489) Change in cumulative translation adjustment(8,172) Purchase of treasury shares (9,830)(2,521) $ (2,521) Net income 363 363 ------ ------ --------- --------- --------- --------- ---------- Total comprehensive loss----------- ------------ ----------- Balances, September 30, 2000$143,149(2,158) ---------- BALANCES, MARCH 31, 2001 34,104 $(12,770)382 $( 48,489) =========== ============ ===========176,743 $ 134,060 $ (9,183) $(48,489) ====== ====== ========= ========= ========= ========= See notes to condensed consolidated financial statements.
Systemax Inc.SYSTEMAX INC.
Condensed Statements of Consolidated Cash Flows (Unaudited)
(In Thousands)
IN THOUSANDS)Nine-Month- --------------------------------------------------------------------------------------------------------------------------- Three-Month Periods EndedSeptember 30,March 31, 2001 20001999 ----------- ------------------------------------ CASH FLOWS PROVIDED BY (USED IN) OPERATING ACTIVITIES: Net income (loss) $(31,319)363 $25,307(2,552) Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization, net9,861 9,3483,750 2,987 Provision for returns and doubtful accounts10,123 4,7461,616 2,194 Changes in certain assets and liabilities: Accounts receivable5,803 (39,147)6,732 (21,046) Inventories50,279 (875)18,726 29,582 Prepaid expenses and other current assets(14,416) (10,178)8,831 2,057 Income taxes receivable 24,907 Accounts payable and accrued expenses(40,754) 36,532 ----------(45,623) (17,573) --------- -------- Net cash provided by (used in) operating activities(10,423) 25,733 ----------19,302 ( 4,351) -------- -------- CASH FLOWS PROVIDED BY (USED IN) INVESTING ACTIVITIES: Investments in property, plant and equipment(36,385) (13,509) Net change in short-term investments 5,050 Acquisitions, net of cash acquired (8,398)(5,551) (17,269) --------------------------- Net cash used in investing activities(36,385) (16,857)(5,551) (17,269) --------------------------- CASH FLOWS PROVIDED BY (USED IN) FINANCING ACTIVITIES: Purchase of treasury shares(9,830) (5,719)(8,465) Proceedsfrom(repayments) of short-term borrowings from banks57,260(28,656) 25,000 Repayments of long-term borrowings(2,286) (2,487) ---------- ---------(2,399) ----------- -------- Net cash provided by (used in) financing activities45,144 (8,206)(28,656) 14,136 --------------------------- 14,136 - -------- EFFECTS OF EXCHANGE RATES ON CASH(3,543) (38) ----------2,893 (1,695) --------- -------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS(5,207) 632(12,012) (9,179) CASH AND CASH EQUIVALENTS - BEGINNING OF PERIOD 14,496 17,47042,029 ---------- ----------------- ------- CASH AND CASH EQUIVALENTS - END OF PERIOD $12,263 $42,661 ========== ========2,484 $ 8,291 ========= ======= See notes to condensed consolidated financial statements.Systemax Inc.
Notes to Condensed Consolidated Financial
Statements(unaudited)
(Unaudited)
1. Description of Business
1.
Description of Business
The accompanying condensed consolidated financial statements include the accounts of Systemax Inc. and its wholly-owned subsidiaries (collectively, the “Company” or “Systemax”). The Company is a direct marketer of private label and brand name 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.
2. Basis of Presentation
2.
Basis of Presentation
Net income (loss) per common share - basic was calculated based upon the weighted average number of common shares outstanding during the respective periods presented. Net income (loss) 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 except in loss periods, where the effect is anti-dilutive.
All intercompany accounts and transactions have been eliminated in consolidation.2000.
Comprehensive income (loss) – Comprehensive income (loss) consists of net income (loss) and foreign currency translation adjustments and is included in the Condensed Consolidated Statement ofShareholders’Stockholders’ Equity.For the nine month periods comprehensive income (loss) was ($36,748,000) in 2000 and $23,879,000 in 1999 net of tax effects on currency translation adjustments of $2,743,000 in 2000 and $867,000 in 1999.For the three month periods, comprehensiveincome (loss)loss was($16,780,000)$2,158,000 in20002001 and$10,796,000$4,187,000 in19992000 net of tax effects on foreign currency translation adjustments of$1,314,000$1,093,000 in20002001 and($882,000)$849,000 in1999.2000.
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 ofSeptember 30, 2000March 31, 2001 and the results of operations for theninethree month periods endedSeptember 30,March 31, 2001 and 2000,and 1999,cash flows for theninethree months endedSeptember 30,March 31, 2001 and 2000and 1999and changes in stockholders’ equity for theninethree months endedSeptember 30, 2000.March 31, 2001. The December 31,19992000 condensed consolidated balance sheet has beenextractedderived from the audited consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31,1999.
These condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements as of December 31,19992000 and for the period then ended. The results for theninethree months endedSeptember 30, 2000March 31, 2001 are not necessarily indicative of the results for an entire year.
In June 1998, the Financial Accounting Standards Board (the FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 133,“AccountingAccounting for Derivative Instruments and HedgingActivities”, subsequently amended by SFAS No. 137 and SFAS No. 138, which the CompanyActivities, isrequired to adopt in the first quarter of 2001.effective for all fiscal years beginning after June 15, 2000. SFAS 133, as amended, establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts(collectively referred to as derivatives),and for hedging activities. Under SFAS 133, certain contracts that were not formerly considered derivatives may now meet the definition of a derivative. The Companyis continuing to takehas adopted SFAS 133 effective January 1, 2001. The Company currently does not make use of derivative instruments as defined by SFAS No. 133. If thenecessary steps to implement SFAS 133. TheCompany does notexpectincrease theadoptionutilization ofSFAS 133derivative instruments, the effect of this standard is not expected to have amaterial affectsignificant impact onits consolidatedthe financialstatements.position, results of operations, or cash flows of the Company.
3.
In December 1999, the Securities and Exchange Commission (“SEC”) issued Staff Accounting Bulletin No. 101 (“SAB 101”), “Revenue Recognition in Financial Statements.” SAB 101 summarizes certain SEC views in applying generally accepted accounting principles to revenue recognition in financial statements.Segment Information
The Company isrequiredengaged in a single reportable segment, the marketing and sales of various business products. Financial information relating toadopt SAB 101 no later than the first quarter of fiscal 2001. Systemax is currently evaluating the impact of SAB 101 onthe Company’sresults ofoperationsand financial position.by geographic area was as follows:
3. Segment Information
The Company is engaged in a single reportable segment, the marketing and sales of various business products. Financial information relating to the Company’s operations by geographic area was as follows:Nine MonthThree Month Periods endedPeriods ended September 30, September 30, ---------------------- --------------------March 31, ------------- 2001 20001999 2000 1999 ------ ------- ------- ------------ ---- Net Sales (in thousands): North America $857,813248,239 $925,570295,206 Europe 157,659 153,664 ---------- --------- Consolidated $283,373 $ 319,581 Europe 406,824 350,539 126,422 121,078 ----------- ----------- ---------- ---------- Consolidated $1,264,637 $1,276,109 $ 409,795 $ 440,659 =========== =========== ========== ==========405,898 $448,870 ========= ========= Revenues are attributed to countries based on location of selling subsidiary.
Item 2.Management's Discussion and Analysis of Financial Condition and Results of Operations.March 31, 2000
Item 2.
Management's Discussion and Analysis of Financial Condition and Results of Operations.
Three Months EndedSeptember 30, 2000March 31, 2001 Compared to Three Months EndedSeptember 30, 1999
Net sales for the three months endedSeptember 30, 2000March 31, 2001 decreased7%10% to$410$406 million compared to$441$449 million in the year-ago quarter. The decrease was attributable to lower North American computer related productsales. The total number of orders shipped decreased 22% compared tosales and weakness in theyear-ago quarter while the average order value increased 20% from the prior year.market for PC’s. European sales increased4%3% to$126$158 million (representing31%39% of worldwide sales) compared to$121$154 million in the year-ago quarter.The effect of changesMovements in foreign exchange ratesonnegatively impacted the European salesforcomparison by approximately $13 million in 2001. Excluding thethree months resultedmovements ina 13% unfavorable comparison.
foreign exchange rates, European sales would have increased 11% over the prior year.
Gross profit was$47.8$66.1 million, or11.7%16.3% of sales, compared to$77.7$68.2 million, or17.6%15.2% of sales, in the year-ago quarter, a decrease of$29.9$2.1 million. Thedecreaseimprovement in the gross profit percentage was due toincreased technical support and service costs andthe elimination of losses incurred in 2000 on liquidation of excess inventory in the Company’s PC assemblybusiness. Increased relationship marketing salesbusiness anda relatively lowerhigher sales contribution fromhigher-margin industrial products also affected the gross profit percentage unfavorably.
higher margin products.
Selling, general and administrative expenses for the quarterincreaseddecreased by$6.9$6.7 million or11.1%9.4% to$68.8$64.8 million compared to$61.9$71.5 million in thethirdfirst quarter of1999.2000. Thisincreasedecrease resulted froman increasea reduction inreserves for uncollectibles, continued expansion of our relationship marketing sales organizationsadvertising spending andan increase in net advertising costs.lower bad debt and telephone expenses. As a percentage of sales, selling, general and administrative expenses were16.8%16.0% compared to14.0%15.9% in the year-ago quarter.
The Companyincurred a losshad income from operations for the current quarter of$21$1.3 million compared to an operatingprofitloss of$15.8$3.3 million in the year-ago quarter. The Company incurred an operating loss of $4.5 million in its North American operations in the current quarter compared to an operatingprofitloss of $9.5 million last year. Operating income in Europeincreased to $2.6was $5.8 million, slightly decreased from$2.2$6.2 million in the year-ago quarter.
Other
Interest and other expense - net consists principally of interest expense. Interest expense increased in2000 while it also included interest income in 1999, resulting from increased borrowings and less cash available for investment.
Income taxes consist of foreign income taxes paid or payable reduced by an income tax benefit for U.S. operating loss carrybacks.
As2001 as a result ofthe above, the net loss for the quarter was $14.2 million, or $.42 per basic and diluted share, compared to net income of $9.3 million, or $.26 per basic and diluted share, in the third quarter of 1999.
Nine Months Ended September 30, 2000 Compared to Nine Months Ended September 30, 1999
Net sales for the nine months ended September 30, 2000 decreased 1% to $1.265 billion compared to $1.276 billion in the year-ago period. The net decrease of $11 million resulted from a decrease in the Company’s North American computer supplies business, offset by strong performance in the Company’s European operations. The number of orders shipped decreased 7% compared to the year-ago period, with the average order value up 7% from the prior year. Sales during the period from North American operations decreased 7% to $858 million compared to $926 million in the first nine months of 1999. European salesincreased16% to $407 million compared to $351 million a year ago. The effect of changes in exchange rates on European sales for the nine months resulted in a 9% unfavorable comparison.
Gross profit was $160 million, or 12.7% of sales, compared to $233 million, or 18.3% of sales, in the year-ago period, a decrease of $73 million. The decrease in the gross profit percentage was due to the aforementioned costs associated with the Company’s PC assembly business and 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 marketing sales and a relatively lower sales contribution from higher-margin industrial products affected the gross profit percentage unfavorably.
Selling, general and administrative expenses for the nine months increased by $14 million or 7.1% to $205 million compared to $191 million in 1999. The increase resulted from continued expansion of our relationship marketing sales organizations and an increase in reserves for uncollectibles, offset by decreased net advertising costs. As a percentage of sales, selling, general and administrative expenses increased to 16.2% compared to 15.0% in the year-ago period.
The Company incurred a loss from operations for the period of $45 million compared to an operating profit of $42 million in the year-ago period. The Company incurred an operating loss in its North American operations in the current quarter compared to an operating profit last year. Operating income in Europe increased to $12.1 million from $6.7 million a year ago. During the second quarter, the Company sold its internet auction subsidiary, EZBid Inc., and closed a small software sales subsidiary, which together will eliminate approximately $5 million in operating losses on an annualized basis.
Other - net consisted principally of interest expense in 2000 while it also included interest income in 1999, resulting from increased borrowings and less cash available for investment.
short-term borrowings.
Income taxes consist of foreign income taxes paid or payable reduced by an income tax benefit for U. S. operating loss carrybacks.No tax benefit was recorded for unrealized U. S. net operating loss carryforwards.2000.
As a result of the above,thenetlossincome for thenine monthsquarter was$31.3$0.4 million, or$.91$.01 per basic and diluted share, compared to a netincomeloss of$25.3$2.6 million, or$.71$.07 per basic and diluted share, in the firstnine monthsquarter of1999.
Liquidity and Capital Resources
The Company’sprimary capital needs are to financecash balance totaled approximately $2.5 million at March 31, 2001. The Company’s working capitalfor sales growth, investments in property, equipment and information technology and business acquisitions. Cash and cash equivalents totaled approximately $12at March 31, 2001 was $159 million, increased from $107 million atSeptember 30, 2000.the end of 2000, due principally to decreased inventories and repayments of outstanding short-term borrowings. For theninethree months endedSeptember 30, 2000,March 31, 2001, the Companyusedgenerated cashinfrom operating activities of$10$19.3 million compared to$26$4.4 milliongeneratedused in the year ago period.The decrease resulted fromAs a result of the net loss incurred in the year ended December 31, 2000, the Company applied for andreductionshas received a refund ofaccounts payable and accrued expenses, offset by reductions in accounts receivable and inventories.approximately $25 million from the Internal Revenue Service. The refund was used to reduce the Company’s short-term bank borrowings. Cash was used in investing activities in20002001 for the purchase of capital equipment,including a new distribution center in Georgia andprimarily investments in information technology. Cash was used in financing activitiesfor the purchaseto repay $29 million ofadditional treasury shares and repayment of long-term debt. The Board of Directors of the Company has authorized the repurchase of up to 6,350,000 shares of common stock. Through September 30, 2000, the Company purchased 4,127,700 shares, of which 1,133,500 were purchased during 2000 (none in the third quarter). Cash outlays were financed by additionalshort-term borrowings from banks. For theninethree months endedSeptember 30, 2000,March 31, 2001, cash and cash equivalents decreased by$5$12 million.
The Company maintains uncommitted credit lines with financial institutions totaling approximately$92$90 million in the United States and Europe, borrowings under which are available at the discretion of the lenders.As
The Company has a Revolving Credit Agreement with its domestic banks to provide an uncommitted credit facility ofOctober 16, 2000, the Company signed a security agreement with certain institutions collateralizing certain lines with substantially$70 million, secured by all ofits U.S.the Company’s domestic accounts receivable. The agreement, originally expiring on January 31, 2001, was later extended to May 31, 2001. This facility replaces previously uncommitted, unsecured lines of credit the Company maintained with these banks, and iscurrently negotiatingavailable forfuture financing withitsprincipal lenders. Borrowingsdomestic operations. The agreement provides, at the Company’s option, interest based on LIBOR or the prime rate and contains certain covenants and restrictions, including limitation on the payment of dividends and on business acquisitions. At March 31, 2001 there was $13.8 million outstanding underallthis agreement. Included in this agreement, the Company may have outstanding letters of credit equal to the amount of thelinestotal line less outstanding borrowings. At March 31, 2001 there were$66.3$2,000,000 of outstanding letters of credit.
The Company also has a £15,000,000 ($21,325,000 at the March 31, 2001 exchange rate) multi-currency credit facility with a financial institution in the United Kingdom. Drawings under the facility may be made by overdraft, trade acceptance or loan. The facility is secured by assets of certain of the Company’s United Kingdom subsidiaries and a guaranty from the Company. At March 31, 2001 there were £4.0 millionas($5.7 million) ofSeptember 30, 2000.borrowings outstanding under this line.
The Company has accepted a proposal from a financial institution for a three-year committed domestic borrowing facility to replace the existing Revolving Credit Agreement, secured principally by the Company’s eligible accounts receivable and inventory balances. The Company expects to close this transaction during the second quarter, subject to due diligence and negotiation of a definitive agreement. In the event the Company does not close this transaction by May 31, 2001, the Company believes that it will be able to obtain an additional extension of its existing credit facility. The Company believesthatit has access to adequate funds forcontinuecontinued operations and growth through its available cash balances and funds generated by operations and securedand unsecuredlines of credit maintained with financial institutions but there can be no assurance that the Company will reach a satisfactoryagreements with its lenders.
agreement for a new facility.
Forward Looking Statements
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, access to funds, 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, (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) ability to consummate satisfactory loan agreements with the Company’s lenders, (xiv) borrowing costs, (xv) changes in taxes due to changes in the mix of U.S. and non-U.S. revenue, (xvi) pending or threatened litigation and investigations and (xvii) 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 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.Quantitative and Qualitative Disclosure About Market Risk.
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. Systemax may attempt 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 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 may from time to timehedgeshedge 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.
As ofSeptember 30, 2000,March 31, 2001, the Company had no outstanding forward exchange contracts.PART II - OTHER INFORMATION
Item 5. Other Information
As reported in a Form 8-K filed on November 9, 2000, the Company announced it had restated its financial results for the first and second quarters of this year as a result of previously reported irregularities discovered in the financial records of its Midwest Micro subsidiary. The Company also reported in such Form 8-K that it had substantially concluded its investigation of these irregularities and that it anticipates filing Forms 10-Q/A during the week of November 13 amending its previously filed Forms 10-Q for the first and second quarters of 2000.Item 6. Exhibits
(a)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). |
3.3 | Certificate of Amendment of Certificate of Incorporation changing the |
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 19.1 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1999). |
|
|
|
|
(b) Reports on Form 8-K.
A report on Form 8-K was filed by the Company on |
|
|
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.
| SYSTEMAX INC. |
Date: May 11, 2001 | By:/s/ RICHARD LEEDS |