| Three Months Ended September 30, 2001 Compared to Three Months Ended September 30, 2000
Net sales for the three months ended September 30, 2001 decreased 9.6% to $371 million compared to $410 million in the year-ago quarter. The decrease was attributable to the continuing economic slowdown in the United States, heightened by the events of September 11, 2001 and the extremely competitive environment in the PC marketplace. European sales increased 1.7% to $129 million (representing 35% of worldwide sales) compared to $126 million in the year-ago quarter. Movements in foreign exchange rates negatively impacted the European sales comparison by approximately $3.8 million in 2001. Excluding the movements in foreign exchange rates, European sales would have increased 5% over the prior year.
Gross profit was $69.3 million, or 18.7% of net sales, compared to $47.8 million, or 11.7% of net sales, in the year-ago quarter, an increase of $21.5 million. The improvement in the gross profit percentage was due to a more favorable product mix, cost reductions implemented in the Company's PC assembly business and the absence of inventory liquidation costs in the PC assembly business which adversely affected 2000.
Selling, general and administrative expenses for the quarter were $68.6 million, unchanged in comparison to the third quarter of 2000. Increased spending in Europe for sales staff expansion was offset by decreased operating expenses in the United States. As a percentage of sales, selling, general and administrative expenses were 18.5% compared to 16.8% in the year-ago quarter, due to the lower sales volume.
The Company had income from operations for the current quarter of $0.7 million compared to an operating loss of $21.0 million in the year-ago quarter. The Company incurred an operating loss of $2.7 million in its North American operations in the current quarter compared to an operating loss of $23.6 million last year. Operating income in Europe was $3.4 million, a 33% increase from $2.6 million in the year-ago quarter.
Interest and other expense - net consists principally of interest expense. Interest expense decreased in 2001 as a result of decreased short-term borrowings and lower interest rates.
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 income for the quarter was $0.3 million, or $.01 per basic and diluted share, compared to a net loss of $14.2 million, or $.42 per basic and diluted share, in the third quarter of 2000.
Nine Months Ended September 30, 2001 Compared to Nine Months Ended September 30, 2000
Net sales for the nine months ended September 30, 2001 decreased 9.9% to $1.14 billion compared to $1.26 billion in the year-ago period. The decrease was attributable to the continuing difficult business climate in the United States and the extremely competitive environment in the PC marketplace. European sales increased 2.0% to $415 million (representing 36% of worldwide sales) compared to $407 million in the year-ago period. Movements in foreign exchange rates negatively impacted the European sales comparison by approximately $26 million in 2001. Excluding the movements in foreign exchange rates, European sales would have increased 8.3% over the prior year.
Gross profit was $196.5 million, or 17.2% of net sales, compared to $160.3 million, or 12.7% of net sales, in the year-ago period, an increase of $36.2 million. The gross profit in 2000 was adversely affected by losses incurred on liquidation of excess inventory in the Company's PC assembly business.
Selling, general and administrative expenses for the nine months decreased by $7.1 million or 3.4% to $197.9 million compared to $204.9 million in the first nine months of 2000. This decrease resulted from a reduction in advertising expenses and lower bad debt and telephone expenses. As a percentage of sales, selling, general and administrative expenses were 17.4% compared to 16.2% in the year-ago period due to the lower sales volume.
The Company had a loss from operations for the current nine month period of $1.4 million compared to an operating loss of $44.6 million in the year-ago period. The Company incurred an operating loss of $14.3 million in its North American operations in the current nine month period compared to an operating loss of $56.7 million last year. Operating income in Europe was increased 6.2% to $12.9 million from $12.1 million in the year-ago period.
Interest and other expense - net consists principally of interest expense. Interest expense decreased in 2001 as a result of decreased short-term borrowings and lower interest rates.
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, the net loss for the nine months was $2.0 million, or $.06 per basic and diluted share, compared to a net loss of $31.3 million, or $.91 per basic and diluted share, in the year ago period.
Liquidity and Capital Resources
The Company's cash balance totaled approximately $21 million at September 30, 2001. For the nine months ended September 30, 2001, the Company generated cash from operating activities of $58.6 million compared to using cash in operations of $10.4 million in the year ago period. This was due principally to a reduction in inventories and accounts receivable, the collection of a $25 million tax refund receivable from the Internal Revenue Service, partially offset by a reduction in accounts payable and accrued expenses. Cash was used in investing activities in 2001 for the purchase of capital equipment, primarily investments in information technology. Cash was used in financing activities to repay $35.9 million of short-term borrowings from banks. For the nine months ended September 30, 2001, cash and cash equivalents increased by $6.5 million.
The Company maintains credit lines with financial institutions totaling approximately $90 million in the United States and Europe. The Company has a $70,000,000 revolving credit line which provides for borrowings in the United States. As of September 30, 2001, availability under the agreement was $51,522,000, against which there were outstanding advances of $6,556,000 and outstanding letters of credit of $2,400,000. The Company also has an uncommitted £15,000,000 ($22,046,000 at the September 30, 2001 exchange rate) multi-currency credit facility with a financial institution in the United Kingdom. At September 30, 2001 there were £4.4 million ($6.4 million) of borrowings outstanding under this line.
The Company believes it has access to adequate funds for continued operations and growth through its available cash balances and funds generated by operations and lines of credit.
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) general economic conditions, (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, especially following the recent expiration of certain federal tax moratoriums, (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 the United States Postal Service and UPS, including possible strikes and contamination, (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. |
