SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q/A - No. 2
| [X] | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended March 31, 2000
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
Systemax Inc.
(Exact name of registrant as specified in its charter)
| Delaware (State or other jurisdiction of incorporation or organization) | 11-3262067 (I.R.S. Employer Identification No.) |
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's Common Stock as of May 4, 2000 was 34,246,590.
Restatement of Financial Statements and Changes to Certain Information
This Form 10-Q/A is filed to amend the Form 10-Q for the period ended March 31, 2000 (the “Original Form 10-Q”) to restate the Financial Statements (Item 1) and make corresponding changes to Management’s Discussion and Analysis of Financial Condition and Results of Operations (Item 2). Subsequent to the issuance of the Company’s financial statements in the Original Form 10-Q, accounting irregularities, principally related to inventory, were discovered at the Company’s Midwest Micro subsidiary. The effects of the restatement are more fully described in Note 4 of the Notes to Condensed Consolidated Financial Statements.
This report continues to speak as of the date of the Original Form 10-Q and we have not updated the disclosures in this report to speak to any later date. While this report primarily relates to the historical period covered, events may have taken place since the date of the Original Form 10-Q that might have been reflected in this report if they had taken place prior to the filing of the Original Form 10-Q. All information contained in this report is subject to updating and supplementing as provided in our periodic reports filed with the Securities and Exchange Commission.
PART I - FINANCIAL INFORMATION
Item 1.Financial Statements
Systemax Inc.
Condensed Consolidated Balance Sheets
(In Thousands, except share data)
- ----------------------------------------------------------------------------------------------------------------
March 31, December 31,
2000 1999
-------------- ----------------
(Unaudited)
(As restated)
ASSETS
- ------
CURRENT ASSETS:
Cash and cash equivalents $ 8,291 $ 17,470
Accounts receivable, net 223,272 200,082
Inventories 143,544 173,966
Prepaid expenses and other current assets 33,039 35,259
--------- ----------
Total current assets 408,146 426,777
PROPERTY, PLANT AND EQUIPMENT, net 61,273 46,839
GOODWILL, net 72,934 73,684
OTHER ASSETS 5,321 2,662
--------- ----------
TOTAL $ 547,674 $ 549,962
========= ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
CURRENT LIABILITIES:
Notes payable to banks $ 34,000 $ 9,000
Current portion of long term debt 634
Accounts payable and accrued expenses 218,839 230,252
--------- ----------
Total current liabilities 252,839 239,886
--------- ----------
LONG-TERM DEBT 1,740
--------- ----------
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 as of March 31, 2000
and December 31, 1999, respectively 382 382
Additional paid-in capital 176,743 176,743
Accumulated other comprehensive loss (7,082) (4,598)
Retained earnings 171,916 174,468
--------- ----------
341,959 346,995
--------- ----------
Less: Common stock in treasury at cost - 3,944,000 and 2,994,200 shares 47,124 38,659
--------- ----------
Total stockholders' equity 294,835 308,336
--------- ----------
TOTAL $ 547,674 $ 549,962
========= ==========
See notes to condensed consolidated financial statements.
Systemax Inc.
Condensed Consolidated Statements of Income (Unaudited)
(In Thousands, except per share amounts)
- ------------------------------------------------------------------------------------
Three Month
Periods ended
March 31,
------------------------------
2000 1999
---- ----
(As restated)
NET SALES $ 448,870 $ 421,651
COST OF SALES 380,701 342,339
--------- -----------
GROSS PROFIT 68,169 79,312
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 71,472 62,141
---------- ----------
INCOME (LOSS) FROM OPERATIONS (3,303) 17,171
INTEREST AND OTHER INCOME (EXPENSE) - Net (564) 330
----------- ----------
INCOME (LOSS) BEFORE INCOME TAXES (3,867) 17,501
PROVISION (BENEFIT) FOR INCOME TAXES (1,315) 6,738
------------ -----------
NET INCOME (LOSS) $ (2,552) $ 10,763
============== ===========
Net income (loss) per common share:
Basic $ (.07) $ .30
============= ===========
Diluted $ (.07) $ .30
============= ===========
Common and common equivalent shares outstanding:
Basic 35,021 36,064
============= ============
Diluted 35,021 36,117
============= ============
See notes to condensed consolidated financial statements
Systemax Inc.
Condensed Statement of Consolidated Stockholders' Equity (Unaudited)
(In Thousands)
- --------------------------------------------------------------------------------------
Accumulated
Common Stock Additional Other Treasury
Number of Paid-in Retained Comprehensive Stock
Shares Amount Capital Earnings Loss at Cost
---------- ---------- --------- -------- ---------- -------
Balances, December 31, 1999 35,238 $ 382 $176,743 $ 174,468 $ (4,598) $ (38,659)
Change in cumulative
translation adjustment ( 2,484)
Purchase of treasury shares (950) ( 8,465)
Net loss (as restated) (2,552)
--------- ---------- --------- --------- ------------ -----------
Balances, March 31, 2000 34,288 $ 382 $176,743 $ 171,916 $ ( 7,082) $ (47,124)
========= ========= ========= ========= ============ ==========
See notes to condensed consolidated financial statements.
Systemax Inc.
Condensed Statements of Consolidated Cash Flows (Unaudited)
(In Thousands)
- ---------------------------------------------------------------------------------------------------------------------------
Three-Month Period
Ended March 31,
2000 1999
--------- -------
(As restated)
CASH FLOWS PROVIDED BY (USED IN) OPERATING ACTIVITIES:
Net income (loss) $ (2,552) $ 10,763
Adjustments to reconcile net income (loss) to net cash provided by
(used in) 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 (21,046) (19,506)
Inventories 29,582 (654)
Prepaid expenses and other current assets 2,057 (1,078)
Accounts payable and accrued expenses (17,573) 19,634
--------- -------
Net cash (used in) provided by operating activities (4,351) 13,372
--------- -------
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)
--------- --------
Net cash used in investing activities (17,269) (6,589)
---------- -------
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)
---------- ---------
Net cash provided by (used in) financing activities 14,136 (4,249)
--------- -----------
EFFECTS OF EXCHANGE RATES ON CASH (1,695) 1,104
--------- -----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (9,179) 3,638
CASH AND CASH EQUIVALENTS - BEGINNING OF PERIOD 17,470 42,029
---------- --------
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 (Unaudited)
| 1. | Description of Business 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. |
| 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. All intercompany accounts have been eliminated in consolidation. Comprehensive income (loss) – Comprehensive income (loss) consists of net income (loss) and foreign currency translation adjustments and is included in the Condensed Consolidated Statement of Shareholders’ Equity. For the three month periods, comprehensive income (loss) was ($4,187,000) in 2000 (as restated) and $9,146,000 in 1999 net of tax effects on foreign currency translation adjustments of $849,000 in 2000 and $950,000 in 1999. 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. 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. 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. The Company is required to adopt SAB 101 no later than the first quarter of fiscal 2001. Systemax is currently evaluating the impact of SAB 101 on the Company’s results of operations and financial position. |
| 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: |
Three Month
Periods ended
March 31
----------------------
2000 1999
---- ----
Net Sales (in thousands): (As restated)
North America $ 295,206 $ 303,942
Europe 153,664 117,709
---------- -----------
Consolidated $448,870 $ 421,651
======== ==========
| Revenues are attributed to countries based on location of selling subsidiary. |
| 4. | Restatement Subsequent to the issuance of the Company’s financial statements in its Form 10-Q for the three months ended March 31, 2000, the Company discovered accounting irregularities at a subsidiary company related principally to inventory and sales returns. These irregularities had the effect of overstating certain asset values as of March 31, 2000 and overstating income for the three months ended March 31, 2000. The restatement does not affect previously reported net cash flows for the period or future periods. As a result, the accompanying financial statements as of and for the three months ended March 31, 2000 have been restated from the amounts previously reported to properly reflect these items. A summary of the effects of the restatement is as follows (in thousands, except per share data): |
Previously
Reported As Restated
-------- -----------
As of March 31, 2000:
Accounts receivable, net $ 227,349 $ 223,272
Inventories 148,596 143,544
Prepaid expenses and other current assets 33,320 33,039
Accounts payable and accrued expenses (221,627) (218,839)
Retained earnings (178,538) (171,916)
Three months ended March 31, 2000:
Net sales $ 452,987 $ 448,870
Cost of sales 375,430 380,701
Selling, general and administrative expense 70,211 71,472
Income (loss) from operations 7,346 (3,303)
Income (loss) before income taxes 6,782 (3,867)
Income taxes 2,712 (1,315)
Net income (loss) 4,070 (2,552)
Net Income (loss) per common share:
Basic $ .12 $ (.07)
Diluted $ .12 $ (.07)
| Item 2. | Management's Discussion and Analysis of Financial Condition and Results of Operations. Three Months Ended March 31, 2000 Compared to Three Months Ended March 31, 1999 Net sales for the three months ended March 31, 2000 increased 6% to $449 million compared to $422 million in the year-ago quarter. The increase of $27 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. Sales during the quarter from North American operations decreased 3% to $295 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. Gross profit was $68.2 million, or 15.2% of sales, compared to $79.3 million, or 18.8% of sales in the year-ago quarter, a decrease of $11.1 million. The decrease in the gross profit percentage was primarily due to higher returns and losses on liquidation of excess inventory in the Company’s PC assembly operation 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 continue to affect the gross profit percentage unfavorably. Selling, general and administrative expenses for the quarter increased by $9.4 million or 15% to $71.5 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 15.9% compared to 14.7% in the year-ago quarter. The Company incurred a loss from operations for the quarter of $3.3 million compared to an operating profit of $17.2 million in the year-ago quarter. The Company’s North American operations incurred an operating loss in the current quarter compared to an operating profit last year. Operating income in Europe increased to $6.2 million from $4.0 million in the year-ago quarter. 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. Income taxes consist of foreign income taxes paid or payable reduced by an income tax benefit for U. S. operating loss carrybacks. As a result of the above, net loss for the quarter was $2.6 million, or $.07 per basic and diluted share, compared to net income of $10.8 million, or $.30 per basic and diluted share, in the first quarter of 1999. Liquidity and Capital Resources 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 $4.4 million compared to $13.4 million generated in the year ago period. The decrease resulted from the net loss in 2000 and increased accounts receivable as a result of the increased sales volume. These were partially offset by a 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 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 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. 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. 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) 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. 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. |
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: November 13, 2000 | By: /s/ RICHARD LEEDS Richard Leeds Chairman and Chief Executive Officer By: /s/ STEVEN GOLDSCHEIN Steven Goldschein Senior Vice President and Chief Financial Officer |