Business context and reporting period
This is Systemax Inc.’s Form 10-Q for the quarter ended September 30, 2013; the filing says the actual fiscal quarter ended September 28, 2013. Systemax operated Technology Products and Industrial Products segments. The request identifies GLOBAL INDUSTRIAL Co, but the filing names Systemax Inc. as the registrant; verify that this is the intended filing.
Financial performance and liquidity
Amounts are in millions of dollars except per-share data and percentages.
| Metric | Three months ended Sep. 30, 2013 | Prior-year quarter | Nine months ended Sep. 30, 2013 | Prior-year period |
|---|---|---|---|---|
| Net sales | $791.8 | $847.0 | $2,478.3 | $2,609.4 |
| Gross profit / margin | $117.7 / 14.9% | $119.0 / 14.0% | $357.4 / 14.4% | $367.7 / 14.1% |
| Operating income (loss) | $(3.8) | $(1.9) | $(19.3) | $6.9 |
| Net income (loss) | $(11.6) | $14.0 | $(24.0) | $18.8 |
| Diluted EPS | $(0.31) | $0.38 | $(0.65) | $0.51 |
- For the first nine months, continuing-operations cash from operations was $36.0, compared with $47.2 in 2012. Investing activities used $9.9 and financing activities used $1.9. Cash rose by $22.6 to $173.3.
- At September 30, working capital was $345.3, down from $360.8 at year-end 2012. Current assets were $787.8 and current liabilities $442.5.
- Total current and long-term debt was $6.0, versus $8.1 at December 31, 2012. The revolving facility had no borrowings, $105.6 of availability and $4.9 of outstanding letters of credit; the company reported covenant compliance.
Material changes versus the prior comparable period
- Quarterly sales fell 6.5%; nine-month sales fell 5.0%. Technology Products sales declined 9.6% for the quarter and 7.7% year to date, while Industrial Products sales grew 13.9% and 15.3%, respectively.
- Consumer-channel sales fell 17.5% in the quarter and 14.4% year to date; business-to-business sales were broadly flat to modestly higher. Management attributed weakness to consumer internet and retail sales and pressure in Technology Products markets.
- Gross margin improved, reflecting a larger contribution from higher-margin Industrial Products and distribution and freight efficiencies. However, operating results deteriorated, including from higher special charges.
- Special charges were $5.8 in the quarter and $16.5 for the first nine months, versus $2.0 and $6.1, respectively, in 2012. Nine-month results also reflect operating losses in Technology Products, compared with a small operating profit in the prior-year period.
- The 2013 quarter had an $8.4 income-tax provision, compared with a $16.1 benefit in 2012. The prior-year benefit primarily reflected reversal of foreign-subsidiary deferred-tax valuation allowances; the company said $8.7 of 2013 pretax losses received no tax benefit because of valuation allowances.
Outlook, commentary, risks and unusual items
- No specific revenue or earnings guidance is provided. Management expected cash flows and available credit to cover working-capital and other cash needs for at least the next twelve months, while cautioning that past performance may not indicate future results.
- Expansion of the European shared-services center was expected to generate approximately $11.0 of workforce-reduction, exit and related costs in the fourth quarter of 2013 through the end of 2014, including about $9.0 of workforce-reduction costs. Management said timing and total costs could change; the costs were expected to require cash.
- Other special charges included retail-store lease termination costs and asset write-offs, restructuring and shared-services costs, management changes, and legal and professional fees related to a previously completed investigation and settlement with a former officer and director. Management did not anticipate additional material costs for the Industrial Products distribution-center relocation.
- Risks cited include intense price competition and narrow margins in technology products, weak consumer demand, foreign-currency movements, working-capital requirements, and the possibility that litigation or settlements could adversely affect a particular period. The filing discusses Pennsylvania sales-tax claims, a multistate unclaimed-property audit, and other legal and intellectual-property matters; outcomes are uncertain.
- Systemax reported effective disclosure controls and no material changes in internal control over financial reporting during the quarter.
Most important facts for investors to verify
- Confirm the issuer and period: the supplied request says GLOBAL INDUSTRIAL Co, while this filing is for Systemax Inc.; the filing also identifies September 28 as the actual fiscal quarter-end.
- Assess whether Technology Products sales and consumer-channel demand recover, and whether Industrial Products growth can continue.
- Track the amount, timing, cash impact and expected benefits of European shared-services restructuring and store closures.
- Review the drivers of continued losses, including special charges and tax expense, and the assumptions behind any future tax benefits.
- Monitor revolving-credit availability, covenant requirements, legal and tax contingencies, and cash generation as working-capital balances fluctuate.