Announces Consolidation of United States Consumer Brands; Exit from
the PC Manufacturing Business; New European Shared Services Center
PORT WASHINGTON, N.Y.--(BUSINESS WIRE)--
Systemax Inc. (NYSE: SYX) today announced financial results for
the third quarter and nine months ended September 30, 2012.
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|
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Performance Summary
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(U.S. dollars in millions, except per share data)
|
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Highlights
|
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Quarter Ended
|
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Nine Months Ended
|
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|
|
September 30,
|
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September 30,
|
|
|
|
2012
|
|
2011
|
|
2012
|
|
2011
|
|
Sales
|
|
$846.3
|
|
$900.2
|
|
$2,609.4
|
|
$2,702.2
|
|
Gross profit
|
|
$119.0
|
|
$131.3
|
|
$367.7
|
|
$390.7
|
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Gross margin
|
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14.1%
|
|
14.6%
|
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14.1%
|
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14.5%
|
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Special charges (gains), net
|
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$2.0
|
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$0.4
|
|
$6.1
|
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$(6.1)
|
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Operating income (loss) from continuing operations
|
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$(1.9)
|
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$19.3
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$6.9
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$59.8
|
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Operating margin from continuing operations
|
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(0.2)%
|
|
2.1%
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0.3%
|
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2.2%
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Diluted earnings per share
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$0.38
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$0.29
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$0.51
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$1.07
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Special charges (gains), net, per diluted share, after tax
|
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$0.03*
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$0.01
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$0.13*
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$(0.11)
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* Excludes the tax impact of valuation allowance reversals.
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Richard Leeds, Chairman and Chief Executive Officer, commented, “Our
third quarter results reflect a continuation of the trends we witnessed
in the first two quarters of this year. As in the second quarter, we
essentially broke even on a consolidated basis if you exclude special
charges. Our B2B operations continue to grow nicely, as we notched our 10th
straight quarter of 25% or better growth in Industrial Products and in
our European B2B business we recorded 11% growth on a constant currency
basis, despite the challenging regional economic environment. As good as
these results were, they were unfortunately more than offset by
continued weakness in our North American consumer business. The weakness
is largely driven by industry trends that include soft demand for PCs
and a number of consumer electronics products. We are taking steps to
improve our ability to navigate this environment by making significant
operational improvements with a focus on driving our long-term top and
bottom line results. Our business is supported by a very strong balance
sheet with a healthy cash position, providing us with ample liquidity as
we execute on our strategic plan.”
Operational Initiatives:
The Company is executing on a number of efforts to simplify its business
and improve its focus on optimizing its performance and competitive
position. This includes the following initiatives:
-
United States Technology Brands: In early Q4, the Company
conducted an evaluation of its multi-brand United States consumer
strategy and the intangible assets used in that strategy and on
October 31, 2012 its Board of Directors concluded that the Company’s
future North American consumer business would be optimized by
consolidating its United States consumer operations under TigerDirect,
its leading and largest brand. Accordingly, the Company will record
one-time, non-cash impairment charges related to the intangible assets
of CompUSA and Circuit City of approximately $34 million, pre-tax, in
the fourth quarter of 2012.
-
PC Manufacturing Business: In early Q4, the Company conducted
an evaluation of its PC manufacturing operations and on October 31,
2012 its Board of Directors concluded that the Company’s future North
American technology results will be enhanced by exiting the computer
manufacturing business. The Company will continue service and support
for its previously sold PCs. As a result of exiting this business, the
Company expects to incur aggregate one-time charges of approximately
$6 to $8 million, pre tax, in the fourth quarter of 2012 and during
2013 for asset impairment, exit and severance expenses. The Company
anticipates that the opportunity benefit of strengthening its
strategic relationships with vendor partners within the desktop PC
category should provide improved profitability of between $1 and $2
million, pre tax, on an annual basis.
-
European Shared Services Center: To facilitate the continued
growth of its European Technology business, the Company intends to
open a shared services center in Eastern Europe in 2013. This new
facility, approved by the Company’s Board of Directors on October 31,
2012, will provide certain administrative and back office services and
will help drive operational efficiencies and better serve the
Company’s pan-European operating strategy. The Company expects that
one-time exit, severance and startup costs in order to implement the
shared services center, as well as other cost reduction initiatives in
Europe anticipated to occur in the fourth quarter of 2012 and the
first quarter of 2013, will aggregate between $14 and $16 million, pre
tax, during the fourth quarter of 2012 and during 2013 and that it
will realize a reduction in its cost structure between $9 and $11
million, pre tax, on an annual basis after implementation of the
shared services center.
“We continue to review our business from a strategic level to ensure we
are optimizing our performance and enhancing our competitive position,”
added Leeds. “We harvested significant value from the CompUSA and
Circuit City acquisitions and are now moving forward with a single and
unified consumer platform in the United States that will drive
efficiencies in advertising and customer acquisition. In addition,
exiting the PC manufacturing business will allow us to focus resources
on our growth opportunities and other strategic initiatives, including
the continued investment in our growing European Technology business.
These actions, combined with ongoing efforts to improve efficiencies
throughout the Company will better position us to address our
challenges, strengthen our operations and drive our future performance.”
Third Quarter 2012 Financial Highlights:
-
Consolidated sales decreased 6.0% to $846.3 million in U.S. dollars.
On a constant currency basis, sales decreased 3.3%.
-
Business to business channel sales grew 3.8% to $526.8 million in U.S.
dollars. On a constant currency basis, sales grew 8.8%. On a “same
store” and constant currency basis, sales grew 9.0%.
-
Consumer channel sales declined 18.6% to $319.5 million in U.S.
dollars. On a constant currency basis, sales declined 19.2%. On a
“same store” and constant currency basis, sales declined 19.6%.
-
Special charges incurred were approximately $2.0 million, on a pre-tax
basis, or $0.03 per diluted share after tax, consisted of $1.7 million
in patent settlements with non-practicing entities and $0.3 million of
legal and professional fees related to the previously disclosed
investigation and settlement with a former officer and director and
severance charges recorded in the Technology Products segment.
-
Operating loss from continuing operations, which includes $2.0 million
of special charges, was $1.9 million, compared to operating income
from continuing operations of $19.3 million in the third quarter of
2011. The decline was primarily a result of the performance of the
Company’s North America technology consumer business and special
charges previously mentioned.
-
Valuation allowances of approximately $15.1 million were reversed in
the third quarter, positively impacting net income per diluted share
by $0.41. These valuation allowances were related to the deferred tax
assets of the Company’s subsidiary in France. Demonstrated and
projected profitable results in the subsidiary’s operations caused the
valuation allowances to be deemed no longer necessary.
-
Earnings per share (EPS) was $0.38.
Nine Months 2012 Financial Highlights:
-
Consolidated sales declined 3.4% to $2.6 billion in U.S. dollars. On a
constant currency basis, sales declined 1.3%.
-
Business to business channel sales increased 6.0% to $1.6 billion in
U.S. dollars. On a constant currency basis, sales grew 9.6%.
-
Consumer channel sales declined 14.7% to $1.0 billion in U.S. dollars.
On a constant currency basis, sales declined 14.5%.
-
Special charges incurred were approximately $6.1 million, on a pre-tax
basis, or $0.13 per diluted share after tax, consisted of $1.7 million
in patent settlements with non practicing entities and $4.4 million of
costs associated with senior staffing changes in our North America
technology business, legal and professional fees related to the
previously disclosed investigation and settlement with a former
officer and director, and costs related to the closing and relocation
of one of our smaller distribution centers to a new, significantly
larger distribution and call center for our Industrial Products
business.
-
Operating income from continuing operations, which includes $6.1
million of special charges, was $6.9 million, compared to operating
income from continuing operations of $59.8 million in the first nine
months of 2011. The decline related to the performance of the
Company’s North America technology consumer business and special
charges previously mentioned.
-
Valuation allowances of approximately $15.1 million were reversed in
the third quarter, positively impacting net income per diluted share
by $0.41. These valuation allowances were related to the deferred tax
assets of the Company’s subsidiary in France. Demonstrated and
projected profitable results in the subsidiary’s operations caused the
valuation allowances to be deemed no longer necessary.
-
Earnings per share (EPS) was $0.51.
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Supplemental Channel Sales Summary
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(in millions)
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Channel
|
|
Quarter Ended September 30,
|
|
Nine Months Ended September 30,
|
|
|
2012
|
|
% of
Sales
|
|
Change
y/y
|
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2011
|
|
% of
Sales
|
|
2012
|
|
% of
Sales
|
|
Change
y/y
|
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2011
|
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% of
Sales
|
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Business to Business1
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$526.8
|
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62%
|
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4%
|
|
$507.6
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56%
|
|
$1,559.1
|
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60%
|
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6%
|
|
$1,470.6
|
|
54%
|
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Consumer 2
|
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$319.5
|
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38%
|
|
-19%
|
|
$392.6
|
|
44%
|
|
$1,050.3
|
|
40%
|
|
-15%
|
|
$1,231.6
|
|
46%
|
|
Consolidated Sales
|
|
$846.3
|
|
100%
|
|
-6%
|
|
$900.2
|
|
100%
|
|
$2,609.4
|
|
100%
|
|
-3%
|
|
$2,702.2
|
|
100%
|
|
|
1
|
|
Includes sales from managed business relationships, including
outbound call centers and extranets, and the entire Industrial
Products and Corporate segments
|
|
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2
|
|
Includes sales from retail stores, consumer websites, inbound call
centers and television shopping
|
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|
|
Supplemental “Same Store” Channel Growth1
– Q3 2012 vs. Q3 2011
|
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Channel
|
|
Change
|
|
Business to Business
|
|
9%
|
|
Consumer
|
|
-20%
|
|
Consolidated Sales
|
|
-3%
|
|
1
|
|
Excludes revenue at retail stores, websites and call centers
operating for less than 14 full months as of the beginning of the
current comparison period and computed on a constant currency basis.
The method of calculating comparable store and channel sales varies
across the retail and direct marketing industry. As a result,
Systemax’s method of calculating comparable sales may not be the
same as other companies’ methods.
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|
|
Supplemental Product Category Sales Summary
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(in millions)
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Product Category
|
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Quarter Ended September 30,
|
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Nine Months Ended September 30,
|
|
|
2012
|
|
% of
Sales
|
|
Change
y/y
|
|
2011
|
|
% of
Sales
|
|
2012
|
|
% of
Sales
|
|
Change
y/y
|
|
2011
|
|
% of
Sales
|
|
Computers
|
|
$251.9
|
|
30%
|
|
-10%
|
|
$279.7
|
|
31%
|
|
$752.3
|
|
29%
|
|
1%
|
|
$741.5
|
|
28%
|
|
Computer Accessories & Software
|
|
$233.8
|
|
27%
|
|
-6%
|
|
$247.5
|
|
27%
|
|
$731.0
|
|
28%
|
|
-5%
|
|
$769.1
|
|
28%
|
|
Consumer Electronics
|
|
$132.7
|
|
16%
|
|
-21%
|
|
$167.0
|
|
19%
|
|
$447.3
|
|
17%
|
|
-18%
|
|
$543.4
|
|
20%
|
|
Industrial Products
|
|
$110.4
|
|
13%
|
|
27%
|
|
$87.0
|
|
10%
|
|
$303.6
|
|
12%
|
|
28%
|
|
$236.6
|
|
9%
|
|
Computer Components
|
|
$93.3
|
|
11%
|
|
-6%
|
|
$99.5
|
|
11%
|
|
$301.4
|
|
11%
|
|
-14%
|
|
$348.5
|
|
13%
|
|
Other
|
|
$24.2
|
|
3%
|
|
24%
|
|
$19.5
|
|
2%
|
|
$73.8
|
|
3%
|
|
17%
|
|
$63.1
|
|
2%
|
|
Consolidated Sales
|
|
$846.3
|
|
100%
|
|
-6%
|
|
$900.2
|
|
100%
|
|
$2,609.4
|
|
100%
|
|
-3%
|
|
$2,702.2
|
|
100%
|
|
|
|
Supplemental Business Unit Sales Summary
|
|
(in millions)
|
|
Business Unit
|
|
Quarter Ended September 30,
|
|
Nine Months Ended September 30,
|
|
|
2012
|
|
% of
Sales
|
|
Change
y/y
|
|
2011
|
|
% of
Sales
|
|
2012
|
|
% of
Sales
|
|
Change
y/y
|
|
2011
|
|
% of
Sales
|
|
Technology Products
|
|
$734.7
|
|
87%
|
|
-10%
|
|
$812.3
|
|
90%
|
|
$2,302.2
|
|
88%
|
|
-7%
|
|
$2,463.3
|
|
91%
|
|
Industrial Products
|
|
$110.4
|
|
13%
|
|
27%
|
|
$87.0
|
|
10%
|
|
$303.6
|
|
12%
|
|
28%
|
|
$236.6
|
|
9%
|
|
Corporate and Other
|
|
$1.2
|
|
-
|
|
33%
|
|
$0.9
|
|
-%
|
|
$3.6
|
|
-
|
|
57%
|
|
$2.3
|
|
-%
|
|
Consolidated Sales
|
|
$846.3
|
|
100%
|
|
-6%
|
|
$900.2
|
|
100%
|
|
$2,609.4
|
|
100%
|
|
-3%
|
|
$2,702.2
|
|
100%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Working capital increased by $13.6 million to $368.3 million and cash
and cash equivalents increased by $36.2 million to $133.5 million as of
September 30, 2012. The Company had availability under its credit
facility of approximately $113.6 million and total cash and available
liquidity of approximately $247.1 million as of September 30, 2012.
Short and long-term debt totaled approximately $8.8 million at September
30, 2012. The Company’s 2012 tax expense was reduced by the tax benefits
related to the reversal of approximately $15.1 million of valuation
allowances against deferred tax assets in the Company’s subsidiary in
France. Demonstrated and projected profitable results in the
subsidiary’s operations caused the valuation allowance to be deemed no
longer necessary.
Earnings Conference Call Details
Systemax Inc. will host a teleconference to discuss its third quarter
2012 results today, November 1, 2012 at 5:00 p.m. Eastern Time. A live
webcast of the teleconference will be available on the Company’s website
at www.systemax.com
in the investor relations section. The webcast will also be archived on www.systemax.com
for approximately 90 days.
About Systemax Inc.
Systemax Inc. (http://www.systemax.com),
a Fortune 1000 company, sells personal computers, computer components
and supplies, consumer electronics and industrial products through a
system of branded e-Commerce websites, retail stores, relationship
marketers and direct mail catalogs in North America and Europe. The
primary brands are TigerDirect, MISCO, WStore and Global Industrial.
Forward-Looking Statements
This press release contains forward-looking statements about the
Company’s performance. These statements are based on management’s
estimates, assumptions and projections and are not guarantees of future
performance. The Company assumes no obligation to update these
statements. Actual results may differ materially from results expressed
or implied in these statements as the result of risks, uncertainties and
other factors including, but not limited to: (a) unanticipated
variations in sales volume, (b) economic conditions and exchange rates,
(c) actions by competitors, (d) the continuation of key vendor
relationships, (e) the ability to maintain satisfactory loan agreements
with lenders, (f) risks associated with the delivery of merchandise to
customers utilizing common carriers, (g) the operation of the Company’s
management information systems, and (h) unanticipated legal and
administrative proceedings. Please refer to “Risk Factors” and the
Forward Looking Statements sections contained in the Company’s Form 10-K
for a more detailed explanation of the inherent limitations in such
forward-looking statements.
|
|
|
|
SYSTEMAX INC.
|
|
|
|
|
Condensed Consolidated Statements of Operations – Unaudited
|
|
(In thousands, except per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
Nine Months Ended
|
|
|
|
September 30*
|
|
September 30*
|
|
|
|
2012
|
|
2011
|
|
2012
|
|
2011
|
|
Net sales
|
|
$846,273
|
|
$900,218
|
|
$2,609,365
|
|
$2,702,240
|
|
Cost of sales
|
|
727,276
|
|
768,906
|
|
2,241,704
|
|
2,311,554
|
|
Gross profit
|
|
118,997
|
|
131,312
|
|
367,661
|
|
390,686
|
|
|
|
|
|
|
|
|
|
|
|
Gross margin
|
|
14.1%
|
|
14.6%
|
|
14.1%
|
|
14.5%
|
|
Selling, general and administrative expenses
|
|
118,914
|
|
111,610
|
|
354,651
|
|
337,019
|
|
Special charges (gains), net
|
|
2,019
|
|
443
|
|
6,117
|
|
(6,128)
|
|
Operating income (loss) from continuing operations
|
|
(1,936)
|
|
19,259
|
|
6,893
|
|
59,795
|
|
Operating margin
|
|
(0.2)%
|
|
2.1%
|
|
0.3%
|
|
2.2%
|
|
Interest and other (income) expense, net
|
|
181
|
|
1,972
|
|
1,828
|
|
511
|
|
Income (loss) from continuing operations before income taxes
|
|
(2,117)
|
|
17,287
|
|
5,065
|
|
59,284
|
|
Provision (benefit) for income taxes
|
|
(16,002)
|
|
6,510
|
|
(13,920)
|
|
19,292
|
|
Effective tax rate
|
|
755.9%
|
|
37.7%
|
|
274.8%
|
|
32.5%
|
|
Net income from continuing operations
|
|
13,885
|
|
10,777
|
|
18,985
|
|
39,992
|
|
Net margin from continuing operations
|
|
1.6%
|
|
1.2%
|
|
0.7%
|
|
1.5%
|
|
Net loss from discontinued operations**
|
|
40
|
|
(148)
|
|
(213)
|
|
(238)
|
|
Net income
|
|
$13,925
|
|
$10,629
|
|
$18,772
|
|
$39,754
|
|
Per share amounts
|
|
|
|
|
|
|
|
|
|
Earnings from continuing operations
|
|
|
|
|
|
|
|
|
|
Basic earnings per share
|
|
$0.38
|
|
$0.29
|
|
$0.51
|
|
$1.09
|
|
Diluted earnings per share
|
|
$0.38
|
|
$0.29
|
|
$0.51
|
|
$1.08
|
|
Net earnings
|
|
|
|
|
|
|
|
|
|
Basic earnings per share
|
|
$0.38
|
|
$0.29
|
|
$0.51
|
|
$1.08
|
|
Diluted earnings per share
|
|
$0.38
|
|
$0.29
|
|
$0.51
|
|
$1.07
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common and common equivalent shares:
|
|
|
Basic
|
|
36,973
|
|
36,547
|
|
36,908
|
|
36,840
|
|
Diluted
|
|
37,012
|
|
36,720
|
|
37,025
|
|
37,169
|
|
|
|
SYSTEMAX INC.
|
|
|
|
Condensed Consolidated Balance Sheets
|
|
(In thousands)
|
|
|
|
|
|
(Unaudited)
|
|
|
|
|
|
September 30
|
|
December 31
|
|
|
|
2012
|
|
2011
|
|
Current assets:
|
|
|
|
|
|
Cash and cash equivalents
|
|
$133,470
|
|
$97,254
|
|
Accounts receivable, net
|
|
269,504
|
|
268,980
|
|
Inventories
|
|
311,238
|
|
372,244
|
|
Prepaid expenses and other current assets
|
|
47,169
|
|
38,678
|
|
Total current assets
|
|
761,381
|
|
777,156
|
|
Property, plant and equipment, net
|
|
71,100
|
|
70,699
|
|
Goodwill, intangibles and other assets
|
|
80,715
|
|
66,695
|
|
Total assets
|
|
$913,196
|
|
$914,550
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
Short-term debt
|
|
$2,799
|
|
$2,552
|
|
Accounts payable and accrued expenses
|
|
390,314
|
|
419,900
|
|
Total current liabilities
|
|
393,113
|
|
422,452
|
|
Long-term debt
|
|
6,029
|
|
7,133
|
|
Other liabilities
|
|
33,155
|
|
30,673
|
|
Shareholders’ equity
|
|
480,899
|
|
454,292
|
|
Total liabilities and shareholders’ equity
|
|
$913,196
|
|
$914,550
|
|
|
|
* Systemax manages its business and reports using a 52-53 week
fiscal year that ends at midnight on the Saturday closest to
December 31. For clarity of presentation, fiscal years and quarters
are described as if they ended on the last day of the respective
calendar month. The actual fiscal quarter ended on September 29,
2012. The third quarters of both 2012 and 2011 included 13 weeks.
The nine months of both 2012 and 2011 included 39 weeks. Certain
prior period amounts have been reclassified to conform to current
year presentation.
|
|
** We announced plans to exit the Software Solutions segment during
the second quarter of 2009. The third party business activities of
Software Solutions ended during the second quarter of 2012 and all
current and prior year results for this segment are now included in
discontinued operations.
|
Investor/Media Contacts:
Brainerd Communicators, Inc.
Mike
Smargiassi / Nancy Zakhary
212-986-6667
[email protected]
[email protected]
Source: Systemax Inc.