Business context and reporting period
This is Systemax Inc.’s Form 10-K for the fiscal year ended December 31, 2014, filed March 12, 2015. The request identifies Global Industrial Co, but the filing is for Systemax Inc.; Global Industrial is part of its Industrial Products business. Systemax sells technology and consumer electronics and industrial maintenance, repair and operations (MRO) products through two segments. The filing includes subsequent events announced in early 2015.
Key financial metrics
Amounts are in U.S. dollars. Annual results exclude discontinued operations unless stated otherwise.
| Metric | 2014 | 2013 | Change or context |
|---|---|---|---|
| Net sales | $3,442.8 million | $3,352.3 million | Up 2.7%; up 0.6% excluding currency effects and SCC acquisition |
| Gross profit / margin | $493.2 million / 14.3% | $482.9 million / 14.4% | Profit increased, margin declined 0.1 percentage point |
| Operating loss | $25.9 million | $20.6 million | Loss widened; operating margin was -0.8% versus -0.6% |
| Net loss from continuing operations | $37.5 million | $43.8 million | Loss narrowed; diluted loss per share was $1.01 versus $1.18 |
| Cash from continuing operating activities | Used $0.1 million | Provided $46.8 million | Substantial deterioration |
| Cash and working capital at year-end | $165.0 million; $312.1 million | $181.4 million; $345.8 million | Cash down $16.4 million; working capital down $33.7 million |
| Debt | $3.6 million total | $5.4 million total | No advances on $125 million U.S. revolving facility at year-end |
Performance and material changes
- Business-to-business (B2B) sales rose 8.9% to $2,551.8 million; consumer sales declined 11.7% to $891.0 million. Excluding currency and SCC, B2B sales grew 5.6%.
- Technology Products sales were $2,880.9 million, nearly flat year over year, while the segment’s operating loss widened to $51.3 million from $40.6 million. Industrial Products sales rose 17.3% to $556.0 million and operating income increased to $41.0 million from $40.0 million.
- Fourth-quarter sales were $912.9 million versus $874.2 million. Fourth-quarter net loss widened to $25.5 million from $19.8 million; gross profit was $124.5 million versus $128.2 million.
- Special charges were $24.4 million for 2014, including European restructuring and approximately $10.0 million of North American Technology Products asset impairment. The filing also records a $1.7 million non-cash U.K. deferred-tax valuation allowance.
- Foreign currency movements benefited European sales by about $24.0 million and reduced Canadian sales by about $13.8 million. Currency translation reduced comprehensive income by $11.1 million.
- Operating cash flow fell to approximately breakeven, with receivables using $55.0 million of cash; year-end accounts-receivable days increased to 37.5 from 32.6.
Outlook, risks and unusual items
- In March 2015, Systemax announced it would close substantially all Technology Products retail stores, close a distribution center, reduce its workforce, and refocus on B2B. It expected to complete these actions by the end of Q2 2015, affecting approximately 1,500 employees.
- Management estimated retail-exit charges of $50–$55 million, including about $39 million of lease exit costs and $4 million of severance, substantially all requiring cash. Payments were expected from Q1 2015 through 2017. Management anticipated a significant decline in retail revenue and an improvement in profitability of $18–$22 million; the filing does not clearly specify the period for that improvement.
- Management expected $9–$11 million of annual pre-tax cost reductions once the European shared-services center was fully implemented. It forecast approximately $15.2 million of 2015 capital expenditures and stated that cash, operating cash flows and credit availability should cover requirements for at least 12 months.
- After year-end, the Industrial Products Group completed its $25.9 million cash acquisition of Plant Equipment Group. In June 2014, it acquired Dutch B2B supplier SCC Services for approximately $7.3 million cash.
- The $125 million revolving credit facility was due to expire in October 2015; management expected renewal. At year-end, availability was $116.4 million, letters of credit were $5.5 million, there were no advances, and the company was covenant-compliant. Cash held in foreign subsidiaries was $64.4 million and was not readily available to the U.S. parent on a tax-efficient basis.
- Risks include continued technology-sector price and demand pressure, execution and cash costs of the retail exit, lease commitments, acquisition and systems integration, foreign exchange exposure, vendor concentration, and the revolving facility renewal. Two vendors represented 12.6% and 11.6% of 2014 purchases.
- Federal authorities were investigating allegations arising from former executives’ misconduct, including possible conflicts of interest and matters involving internal controls and books and records. The company said it could not predict the investigation’s scope or outcome. The former executives had pleaded guilty and were sentenced in March 2015; a restitution hearing was scheduled.
- Other contingencies include sales-tax and unclaimed-property audits and ordinary-course litigation. Management did not expect reasonably possible losses beyond recorded accruals to be material, but outcomes were described as inherently unpredictable. Management and the auditor reported effective internal controls at December 31, 2014; the financial-statement audit opinion was unqualified.
Important facts for investors to verify
- Confirm the issuer identity: this filing is Systemax Inc., not a company named Global Industrial Co.
- Track actual cash charges, lease exits, store closures, workforce reductions, and realized profitability after the retail-business exit.
- Assess whether B2B growth and Industrial Products performance can offset declining consumer sales and Technology Products losses.
- Monitor operating cash flow, receivables collection, liquidity, and renewal of the revolving credit facility.
- Follow the federal investigation and restitution process, tax and unclaimed-property matters, and any resulting financial or control disclosures.
- Check acquisition integration, European shared-services savings, and the effects of foreign exchange and vendor concentration.