Systemax Inc. Form 10-K Summary
Entity note: The filing is for Systemax Inc., whose businesses include Global Industrial; it is not a standalone Global Industrial Co. filing. It reports the fiscal year ended December 31, 2013. Fourth-quarter data are also provided.
Business context and reporting period
Systemax markets technology and industrial products through business-to-business (B2B) and consumer (B2C) channels in North America and Europe. Technology Products generated 86% of 2013 sales; Industrial Products generated 14%. The company reported two segments: Technology Products and Industrial Products.
Key financial metrics
| Metric | FY 2013 | FY 2012 |
|---|---|---|
| Net sales | $3,352.3 million | $3,544.3 million |
| Gross profit / margin | $486.7 million / 14.5% | $488.1 million / 13.8% |
| Operating income (loss) | $(20.6) million | $(39.9) million |
| Net income (loss) | $(43.8) million | $(8.3) million |
| Diluted loss per share | $(1.18) | $(0.22) |
| Cash from continuing operations | $46.8 million | $75.4 million |
| Cash at year-end | $181.4 million | $150.7 million |
| Working capital | $345.8 million | $360.8 million |
- Sales fell 5.4% year over year (5.6% at constant currency). B2B sales grew 2.3% to $2,158.4 million, while B2C sales declined 16.8% to $1,193.9 million.
- Technology Products sales fell 8.4% to $2,873.3 million; the segment reported a $40.6 million operating loss. Industrial Products sales rose 17.9% to $473.8 million and operating income increased to $40.0 million.
- Gross margin improved 0.7 percentage points, supported by industrial sales mix, freight performance, and distribution-center utilization. Reported SG&A was $485.1 million, versus $481.7 million in 2012; special charges were a further $22.2 million.
- Cash from operations declined by $28.6 million. Investing activities used $13.4 million, principally for facilities, distribution and technology; financing activities used $2.6 million. Inventory fell to $321.8 million, while receivables rose to $333.3 million.
- Year-end total debt was approximately $5.4 million, primarily capital-lease obligations; no advances were outstanding on the U.S. revolver. The $125 million facility had $105.5 million available, after borrowing-base limits and letters of credit. The company reported covenant compliance.
Material changes and unusual items
- Net loss widened despite improved operating loss, chiefly because the company recorded $22.0 million of income-tax expense on a pretax loss. This included $28.9 million in non-cash valuation allowances against deferred tax assets, primarily reflecting recent losses.
- Special charges were $22.2 million in 2013, down from $46.3 million in 2012. Items included retail-store closures and lease costs, European restructuring and shared-services-center costs, workforce reductions, the CompUSA brand write-off, and PC-manufacturing exit-related adjustments. Five retail stores closed.
- Fourth-quarter 2013 sales were $874.2 million and net loss was $19.8 million, compared with sales of $935.1 million and net loss of $27.0 million in fourth-quarter 2012.
- The company opened a Budapest shared-services center. It estimated future cost reductions of $9 million to $11 million when fully implemented and expected $7 million to $9 million of additional cash outlays for the European implementation. Management separately anticipated approximately $8.5 million of workforce-reduction, exit, tax, legal and recruiting costs through 2014.
Outlook, risks and contingencies
- Management expected cash, operating cash flows and credit availability to cover working-capital and other requirements for at least 12 months. Planned 2014 capital expenditures were approximately $14 million; these were not contractually committed at filing.
- Management warned that competitive pricing, declining demand for PCs and consumer electronics, channel shifts to online sellers, product obsolescence, supplier concentration, and execution of the European restructuring could pressure sales, margins and cash flow. One vendor represented 13.9% of 2013 purchases.
- Foreign currency movements, cyber and systems interruptions, sales-tax claims, credit-facility covenants, and the availability of vendor incentives were also identified as risks. Approximately $89.4 million of cash was held by foreign subsidiaries and was not readily available to the U.S. parent on a tax-efficient basis.
- The company disclosed ordinary-course litigation and tax, sales-tax and unclaimed-property audits, including a Pennsylvania sales-tax claim and a multistate unclaimed-property audit. Management did not expect currently known matters to have a material overall effect, but noted outcomes are uncertain.
- Management and the auditor concluded that disclosure controls and internal control over financial reporting were effective as of year-end; the auditor issued unqualified opinions on the financial statements and internal controls.
Most important facts for investors to verify
- Whether B2C and Technology Products sales declines continued, and whether Industrial Products growth and margin gains persisted.
- Actual restructuring cash costs, timing of the Budapest center transition, and realization of the projected $9 million to $11 million annual cost reduction.
- Recoverability of deferred tax assets and the implications of the $28.9 million valuation allowance for future reported earnings.
- Cash generation, working-capital trends, foreign cash accessibility, and continued availability and covenant compliance under the revolving credit facility.
- Developments in sales-tax, unclaimed-property and other legal matters, and any further impairment or store-closure charges.