<HTML> <HEAD> <TITLE> FORM 10-Q </TITLE> </HEAD> <BODY> <P ALIGN=CENTER><FONT SIZE=3><B>SECURITIES AND EXCHANGE COMMISSION<BR> WASHINGTON, D.C. 20549<BR> <BR> FORM 10-Q</B></FONT></P> <TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0> <TR VALIGN=TOP> <TD WIDTH=5%><FONT SIZE=2>|X|</FONT></TD> <TD WIDTH=2%><FONT SIZE=2> </FONT></TD> <TD WIDTH=93%><FONT SIZE=2><B>QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934</B></FONT></TD> </TR> </TABLE> <P><FONT SIZE=2>For the quarterly period ended March 31, 2000</FONT></P> <P ALIGN=CENTER><FONT SIZE=1>or</FONT></P> <TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0> <TR VALIGN=TOP> <TD WIDTH=5%><FONT SIZE=2>| |</FONT></TD> <TD WIDTH=2%><FONT SIZE=2> </FONT></TD> <TD WIDTH=93%><FONT SIZE=2><B>QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934</B></FONT></TD> </TR> </TABLE> <P>For the transition period from ____________ to _____________</P> <P ALIGN=CENTER>COMMISSION FILE NUMBER 1-13792<BR> <BR> <B>Systemax Inc.</B><BR> (Exact name of registrant as specified in its charter)</P> <TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0> <TR VALIGN=TOP> <TD WIDTH=15%><FONT SIZE=2> </FONT></TD> <TD WIDTH=30%><P ALIGN=CENTER><FONT SIZE=2>Delaware<BR> (State or other jurisdiction<BR> of incorporation or organization)</FONT></P></TD> <TD WIDTH=15%><FONT SIZE=2> </FONT></TD> <TD WIDTH=25%><P ALIGN=CENTER><FONT SIZE=2>11-3262067<BR> (I.R.S. Employer<BR> Identification No.)</FONT></TD> <TD WIDTH=15%><FONT SIZE=2> </FONT></TD> </TR> </TABLE> <P ALIGN=CENTER><FONT SIZE=2>22 Harbor Park Drive<BR> Port Washington, New York 11050<BR> (Address of registrant's principal executive offices)<BR> (516) 608-7000<BR> (Registrant's telephone number, including area code)</FONT></P> <P><FONT SIZE=3>Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. </FONT></P> <P ALIGN=CENTER>[X] Yes [ ] No</P> <P><FONT SIZE=3>The number of shares outstanding of the registrant’s Common Stock as of May 4, 2000 was 34,246,590. </FONT></P>
<P ALIGN=CENTER><FONT SIZE=3><B>Part I - FINANCIAL INFORMATION</B></FONT></P> <P><FONT SIZE=2><B>Item 1. Financial Statements</B></FONT></P> <PRE> <FONT SIZE=1> <B>Systemax Inc.</B> Condensed Consolidated Balance Sheets (In Thousands) - ---------------------------------------------------------------------------------------------------------------- March 31, December 31, 2000 1999 --------- ----------- (Unaudited) ASSETS - ------ CURRENT ASSETS: Cash and cash equivalents $ 8,291 $ 17,470 Accounts receivable, net 227,349 200,082 Inventories 148,596 173,966 Prepaid expenses and other current assets 33,320 35,259 --------- ---------- Total current assets 417,556 426,777 PROPERTY, PLANT AND EQUIPMENT, net 61,273 46,839 GOODWILL, net 72,934 73,684 OTHER ASSETS 5,321 2,662 --------- ---------- TOTAL $ 557,084 $ 549,962 ========= ========== LIABILITIES AND STOCKHOLDERS' EQUITY - ------------------------------------ CURRENT LIABILITIES: Notes payable to banks $ 34,000 $ 9,000 Current portion of long term debt 634 Accounts payable and accrued expenses 221,627 230,252 --------- ---------- Total current liabilities 255,627 239,886 --------- ---------- LONG-TERM DEBT 1,740 --------- ---------- STOCKHOLDERS' EQUITY: Preferred stock Common stock, par value $.01 per share, issued 38,231,990 shares, outstanding 34,287,990 and 35,237,790 shares 382 382 Additional paid-in capital 176,743 176,743 Accumulated other comprehensive income (7,046) (4,598) Retained earnings 178,502 174,468 --------- ---------- 348,581 346,995 --------- ---------- Less: Common stock in treasury at cost - 3,449,000 and 2,499,200 shares 47,124 38,659 --------- ---------- Total stockholders' equity 301,457 308,336 --------- ---------- TOTAL $ 557,084 $ 549,962 ========= ========== See notes to condensed consolidated financial statements. </FONT> </PRE>
<PRE> <FONT SIZE=1> <B>Systemax Inc.</B> Condensed Consolidated Statements of Income (In Thousands, except per share amounts) - ------------------------------------------------------------------------------------ Three Month Periods ended March 31, ----------------------- 2000 1999 ---- ---- (Unaudited) NET SALES $ 452,987 $421,651 COST OF SALES 375,430 342,339 -------- -------- GROSS PROFIT 77,557 79,312 SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 70,211 62,141 -------- -------- INCOME FROM OPERATIONS 7,346 17,171 INTEREST AND OTHER INCOME (EXPENSE) - Net (564) 330 -------- -------- INCOME BEFORE INCOME TAXES 6,782 17,501 PROVISION FOR INCOME TAXES 2,712 6,738 -------- -------- NET INCOME $ 4,070 $ 10,763 ========== ======== Net income per common share: Basic $ .12 $ .30 ========== ======== Diluted $ .12 $ .30 ========== ======== Common and common equivalent shares outstanding: Basic 35,021 36,064 ========== ======== Diluted 35,124 36,117 ========== ======== </FONT> </PRE> See notes to condensed consolidated financial statements
<PRE> <FONT SIZE=1> <B>Systemax Inc.</B> Condensed Statement of Consolidated Stockholders' Equity (In Thousands) - -------------------------------------------------------------------------------------- Common Stock Accumulated ----------------------- Additional Other Treasury Number of Paid-in Retained Comprehensive Stock Shares Amount Capital Earnings Income at Cost ---------- -------- --------- -------- ---------- ------- Balances, December 31, 1999 35,238 $ 382 $ 176,743 $ 174,468 $ (4,598) $ (38,659) Change in cumulative translation adjustment (2,448) Purchase of treasury shares (950) ( 8,465) Net income 4,070 <B>Balances, March 31, 2000 34,288 $ 382 $ 176,743 $ 178,502 $ (7,046) $ (47,124)</B> ======== ======== ========= ========= ========= ========== See notes to consolidated financial statements. </FONT> </PRE>
<PRE> <FONT SIZE=1> Systemax Inc. Condensed Statements of Consolidated Cash Flows (In Thousands) - -------------- <B> Three-Month Period Ended March 31, 2000 1999 --------- -------- (Unaudited)</B> CASH FLOWS PROVIDED BY (USED IN) OPERATING ACTIVITIES: Net income $ 4,070 $ 10,763 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization, net 2,987 2,393 Provision for returns and doubtful accounts 2,194 1,820 Changes in certain assets and liabilities: Accounts receivable (25,123) (19,506) Inventories 24,530 (654) Prepaid expenses and other current assets 1,776 (1,078) Accounts payable and accrued expenses (14,785) 19,634 --------- ------- Net cash (used in) provided by operating activities (4,351) 13,372 --------- ------- CASH FLOWS PROVIDED BY (USED IN) INVESTING ACTIVITIES: Investments in property, plant and equipment (17,269) (2,443) Net change in short-term investments 4,252 Acquisitions, net of cash acquired (8,398) --------- -------- Net cash used in investing activities (17,269) (6,589) --------- ------ CASH FLOWS PROVIDED BY (USED IN) FINANCING ACTIVITIES: Purchase of treasury shares (8,465) (4,089) Proceeds from short-term borrowings from banks 25,000 Repayments of long-term borrowings (2,399) (160) --------- ----- Net cash provided by (used in) financing activities 14,136 (4,249) --------- --------- EFFECTS OF EXCHANGE RATES ON CASH (1,695) 1,104 --------- -------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (9,179) 3,638 CASH AND CASH EQUIVALENTS - BEGINNING OF PERIOD 17,470 42,029 --------- ------- CASH AND CASH EQUIVALENTS - END OF PERIOD $ 8,291 $ 45,667 ========= ======== </FONT> </PRE> See notes to condensed consolidated financial statements.
<P><FONT SIZE=3><B>Systemax Inc.</B><BR> <U>Notes to Condensed Consolidated Financial Statements </U></FONT></P> <TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0> <TR VALIGN=TOP> <TD WIDTH=10%><FONT SIZE=3><B>1.</B></FONT></TD> <TD WIDTH=5%><FONT SIZE=3> </FONT></TD> <TD WIDTH=85%><FONT SIZE=3><B>Description of Business</B></FONT></TD> </TR> </TABLE> <BR> <TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0> <TR VALIGN=TOP> <TD WIDTH=10%><FONT SIZE=3> </FONT></TD> <TD WIDTH=5%><FONT SIZE=3> </FONT></TD> <TD WIDTH=85%><FONT SIZE=3>The accompanying consolidated financial statements include the accounts of Systemax Inc. and its wholly-owned subsidiaries (collectively, the “Company” or “Systemax”). The Company is a corporate supplier of personal computers (PCs), notebook computers, computer related products and industrial products in North America and Europe. Systemax markets these products through an integrated system of distinctively branded full-color direct mail catalogs, proprietary “e-commerce” Internet sites and personalized “relationship marketing” to business customers.</FONT></TD> </TR> </TABLE> <BR> <TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0> <TR VALIGN=TOP> <TD WIDTH=10%><FONT SIZE=3><B>2.</B></FONT></TD> <TD WIDTH=5%><FONT SIZE=3> </FONT></TD> <TD WIDTH=85%><FONT SIZE=3><B>Basis of Presentation</B></FONT></TD> </TR> </TABLE> <BR> <TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0> <TR VALIGN=TOP> <TD WIDTH=10%><FONT SIZE=3> </FONT></TD> <TD WIDTH=5%><FONT SIZE=3> </FONT></TD> <TD WIDTH=85%><FONT SIZE=3>Net income per common share - basic was calculated based upon the weighted average number of common shares outstanding during the respective periods presented. Net income per common share – diluted was calculated based upon the weighted average number of common shares outstanding and included the equivalent shares for dilutive options outstanding during the respective periods.</FONT></TD> </TR> </TABLE> <BR> <TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0> <TR VALIGN=TOP> <TD WIDTH=10%><FONT SIZE=3> </FONT></TD> <TD WIDTH=5%><FONT SIZE=3> </FONT></TD> <TD WIDTH=85%><FONT SIZE=3>All intercompany accounts have been eliminated in consolidation.</FONT></TD> </TR> </TABLE> <BR> <TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0> <TR VALIGN=TOP> <TD WIDTH=10%><FONT SIZE=3> </FONT></TD> <TD WIDTH=5%><FONT SIZE=3> </FONT></TD> <TD WIDTH=85%><FONT SIZE=3>In the opinion of the Company, the accompanying unaudited condensed consolidated financial statements contain all normal and recurring adjustments necessary to present fairly the financial position of the Company as of March 31, 2000 and the results of operations for the three month periods ended March 31, 2000 and 1999, cash flows for the three months ended March 31, 2000 and 1999 and changes in stockholders’ equity for the three months ended March 31, 2000. The December 31, 1999 condensed consolidated balance sheet has been extracted from the audited consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 1999.</FONT></TD> </TR> </TABLE> <BR> <TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0> <TR VALIGN=TOP> <TD WIDTH=10%><FONT SIZE=3> </FONT></TD> <TD WIDTH=5%><FONT SIZE=3> </FONT></TD> <TD WIDTH=85%><FONT SIZE=3>These condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements as of December 31, 1999 and for the period then ended. The results for the three months ended March 31, 2000 are not necessarily indicative of the results for an entire year.</FONT></TD> </TR> </TABLE>
<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0> <TR VALIGN=TOP> <TD WIDTH=10%><FONT SIZE=3><B>Item 2.</B></FONT></TD> <TD WIDTH=5%><FONT SIZE=3> </FONT></TD> <TD WIDTH=85%><FONT SIZE=3><B><U>Management's Discussion and Analysis of Financial Condition and Results of Operations.</U></B></FONT></TD> </TR> </TABLE> <BR> <TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0> <TR VALIGN=TOP> <TD WIDTH=10%><FONT SIZE=3> </FONT></TD> <TD WIDTH=5%><FONT SIZE=3> </FONT></TD> <TD WIDTH=85%><FONT SIZE=3><B>Three Months Ended March 31, 2000 Compared to Three Months Ended March 31, 1999</B></FONT></TD> </TR> </TABLE> <BR> <TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0> <TR VALIGN=TOP> <TD WIDTH=10%><FONT SIZE=3> </FONT></TD> <TD WIDTH=5%><FONT SIZE=3> </FONT></TD> <TD WIDTH=85%><FONT SIZE=3>Net sales for the three months ended March 31, 2000 increased 7% to $453 million compared to $422 million in the year-ago quarter. The increase of $31 million resulted from quarterly record sales in the Company’s European operations and an increase in PC sales. The number of orders shipped increased 8% to 1.2 million compared to the year-ago quarter, with an average order value unchanged from the prior year’s. Sales during the quarter from North American operations decreased 2% to $299 million compared to $304 million in the first quarter of 1999. European sales increased 31% to $154 million compared to $118 million in the year-ago quarter. The effect of changes in exchange rates on European sales for the three months was not material.</FONT></TD> </TR> </TABLE> <BR> <TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0> <TR VALIGN=TOP> <TD WIDTH=10%><FONT SIZE=3> </FONT></TD> <TD WIDTH=5%><FONT SIZE=3> </FONT></TD> <TD WIDTH=85%><FONT SIZE=3>Gross profit was $77.6 million, or 17.1% of sales, compared to $79.3 million, or 18.8% of sales in the year-ago quarter, a decrease of $1.8 million. The decrease in the gross profit percentage was primarily due to the continuing trend of increased sales of PCs and brand name products, which generally have a lower gross profit percentage than our other products. Increased relationship sales and a relatively lower sales contribution from higher-margin industrial products continue to affect the gross profit percentage unfavorably.</FONT></TD> </TR> </TABLE> <BR> <TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0> <TR VALIGN=TOP> <TD WIDTH=10%><FONT SIZE=3> </FONT></TD> <TD WIDTH=5%><FONT SIZE=3> </FONT></TD> <TD WIDTH=85%><FONT SIZE=3>Selling, general and administrative expenses for the quarter increased by $8.1 million or 13% to $70.2 million compared to $62.1 million in the first quarter of 1999. The increase resulted from continued expansion of our relationship marketing sales organizations, investments in the Company’s “e-commerce” Internet business and increased advertising costs. As a percentage of sales, selling, general and administrative expenses increased to 15.5% compared to 14.7% in the year-ago quarter.</FONT></TD> </TR> </TABLE> <BR> <TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0> <TR VALIGN=TOP> <TD WIDTH=10%><FONT SIZE=3> </FONT></TD> <TD WIDTH=5%><FONT SIZE=3> </FONT></TD> <TD WIDTH=85%><FONT SIZE=3>Income from operations for the quarter decreased to $7.3 million from $17.2 million in the year-ago quarter. Income from operations as a percentage of net sales decreased to 1.6% from 4.1% in the prior year quarter. Operating income in North America decreased 92% to $1.1 million from $13.2 million last year. Operating income in Europe increased to $6.2 million from $4.0 million in the year-ago quarter.</FONT></TD> </TR> </TABLE> <BR> <TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0> <TR VALIGN=TOP> <TD WIDTH=10%><FONT SIZE=3> </FONT></TD> <TD WIDTH=5%><FONT SIZE=3> </FONT></TD> <TD WIDTH=85%><FONT SIZE=3>Interest and other income decreased as a result of higher interest expense in the current year due to increased borrowings and less interest income from lower invested cash balances.</FONT></TD> </TR> </TABLE> <BR> <TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0> <TR VALIGN=TOP> <TD WIDTH=10%><FONT SIZE=3> </FONT></TD> <TD WIDTH=5%><FONT SIZE=3> </FONT></TD> <TD WIDTH=85%><FONT SIZE=3>The Company’s income tax rate was 40.0% for the first quarter of 2000 and 38.5% for the first quarter of 1999. The increase was due to a variety of factors, including a change in the relative income earned in foreign locations.</FONT></TD> </TR> </TABLE> <BR> <TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0> <TR VALIGN=TOP> <TD WIDTH=10%><FONT SIZE=3> </FONT></TD> <TD WIDTH=5%><FONT SIZE=3> </FONT></TD> <TD WIDTH=85%><FONT SIZE=3>As a result of the above, net income for the quarter was $4.0 million, or $.12 per basic and diluted share, compared to $10.8 million, or $.30 per basic and diluted share, in the first quarter of 1999.</FONT></TD> </TR> </TABLE> <BR> <BR> <TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0> <TR VALIGN=TOP> <TD WIDTH=10%><FONT SIZE=3> </FONT></TD> <TD WIDTH=5%><FONT SIZE=3> </FONT></TD> <TD WIDTH=85%><FONT SIZE=3><B>Liquidity and Capital Resources</B></FONT></TD> </TR> </TABLE> <BR> <TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0> <TR VALIGN=TOP> <TD WIDTH=10%><FONT SIZE=3> </FONT></TD> <TD WIDTH=5%><FONT SIZE=3> </FONT></TD> <TD WIDTH=85%><FONT SIZE=3>The Company’s primary capital needs are to finance working capital for sales growth, investments in property, equipment and information technology and business acquisitions. Cash and cash equivalents totaled approximately $8 million at March 31, 2000. For the three months ended March 31, 2000, the Company used cash in operating activities of $4.3 million compared to $13.4 million generated in the year ago period. The decrease resulted from lower net income in 2000 and increased accounts receivable as a result of the increased sales volume. These were partially offset by an decrease in inventories. Cash was used in investing activities in 2000 for the purchase of capital equipment, including a new distribution center in Georgia. Cash was used in financing activities for the purchase of additional Company shares and repayment of long-term debt. The Board of Directors of the Company has authorized the repurchase by the Company of up to 6,350,000 outstanding shares of common stock. Through March 31, 2000, the Company has purchased 3,944,000 shares, of which 949,800 were purchased in the first quarter of 2000. Cash outlays were financed by additional short-term borrowings from banks. For the three months ended March 31, 2000, cash and cash equivalents decreased by $9.2 million.</FONT></TD> </TR> </TABLE> <BR> <TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0> <TR VALIGN=TOP> <TD WIDTH=10%><FONT SIZE=3> </FONT></TD> <TD WIDTH=5%><FONT SIZE=3> </FONT></TD> <TD WIDTH=85%><FONT SIZE=3>The Company believes it has access to adequate funds for growth through its available cash balances and funds generated by operations and secured and unsecured lines of credit maintained with financial institutions.</FONT></TD> </TR> </TABLE> <BR> <TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0> <TR VALIGN=TOP> <TD WIDTH=10%><FONT SIZE=3> </FONT></TD> <TD WIDTH=5%><FONT SIZE=3> </FONT></TD> <TD WIDTH=85%><FONT SIZE=3><B>Forward Looking Statements</B></FONT></TD> </TR> </TABLE> <BR> <TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0> <TR VALIGN=TOP> <TD WIDTH=10%><FONT SIZE=3> </FONT></TD> <TD WIDTH=5%><FONT SIZE=3> </FONT></TD> <TD WIDTH=85%><FONT SIZE=3>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, 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.</FONT></TD> </TR> </TABLE> <BR> <TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0> <TR VALIGN=TOP> <TD WIDTH=10%><FONT SIZE=3> </FONT></TD> <TD WIDTH=5%><FONT SIZE=3> </FONT></TD> <TD WIDTH=85%><FONT SIZE=3>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) the Company’s ability to manage rapid growth as a result of internal expansion and strategic acquisitions, (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 including the costs and effects associated with the year 2000 date change problem, (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, (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 UPS, including possible strikes, (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.</FONT></TD> </TR> </TABLE> <BR> <TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0> <TR VALIGN=TOP> <TD WIDTH=10%><FONT SIZE=3> </FONT></TD> <TD WIDTH=5%><FONT SIZE=3> </FONT></TD> <TD WIDTH=85%><FONT SIZE=3>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.</FONT></TD> </TR> </TABLE> <BR> <TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0> <TR VALIGN=TOP> <TD WIDTH=10%><FONT SIZE=3><B>Item 3.</B></FONT></TD> <TD WIDTH=5%><FONT SIZE=3> </FONT></TD> <TD WIDTH=85%><FONT SIZE=3><B><U>Quantitative and Qualitative Disclosure About Market Risk.</U></B></FONT></TD> </TR> </TABLE> <BR> <TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0> <TR VALIGN=TOP> <TD WIDTH=10%><FONT SIZE=3> </FONT></TD> <TD WIDTH=5%><FONT SIZE=3> </FONT></TD> <TD WIDTH=85%><FONT SIZE=3>The Company is exposed to market risks, which include changes in U.S. and international interest rates as well as changes in currency exchange rates as measured against the U.S. dollar and each other. Systemax may attempt to reduce these risks by utilizing certain derivative financial instruments.</FONT></TD> </TR> </TABLE> <BR> <TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0> <TR VALIGN=TOP> <TD WIDTH=10%><FONT SIZE=3> </FONT></TD> <TD WIDTH=5%><FONT SIZE=3> </FONT></TD> <TD WIDTH=85%><FONT SIZE=3>The value of the U.S. dollar affects the Company’s financial results. Changes in exchange rates may positively or negatively affect Systemax’s sales (as expressed in U.S. dollars), gross margins, operating expenses and retained earnings. The Company may engage in hedging programs aimed at limiting in part the impact of certain currency fluctuations. Using primarily forward exchange and foreign currency option contracts, Systemax from time to time hedges certain of its assets that may impact the Statement of Consolidated Income when remeasured according to generally accepted accounting principles. These hedging activities provide only limited protection against currency exchange risks. Factors that could impact the effectiveness of the Company’s hedging programs include accuracy of sales forecasts, volatility of the currency markets, availability of hedging instruments and the credit-worthiness of the parties which have entered into such contracts with the Company. All currency contracts that are entered into by Systemax are for the sole purpose of hedging an existing or anticipated currency exposure, not for speculative or trading purposes. In spite of Systemax’s hedging efforts to reduce the effect of changes in exchange rates against the U.S. dollar, the Company sales or costs could still be adversely affected by changes in those exchange rates.</FONT></TD> </TR> </TABLE> <BR> <TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0> <TR VALIGN=TOP> <TD WIDTH=10%><FONT SIZE=3> </FONT></TD> <TD WIDTH=5%><FONT SIZE=3> </FONT></TD> <TD WIDTH=85%><FONT SIZE=3>As of March 31, 2000, the Company had no outstanding forward exchange contracts.</FONT></TD> </TR> </TABLE> <BR> <BR> <BR> <BR> <BR> <P><FONT SIZE=3><B>PART II - OTHER INFORMATION</B></FONT></P> <TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0> <TR VALIGN=TOP> <TD WIDTH=10%><B><U>Item 5.</U></B></TD> <TD WIDTH=5%><FONT SIZE=3> </FONT></TD> <TD WIDTH=85%><B><U>Other Information.</U></B></TD> </TR> </TABLE> <BR> <TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0> <TR VALIGN=TOP> <TD WIDTH=10%><P> </P></TD> <TD WIDTH=5%><FONT SIZE=3> </FONT></TD> <TD WIDTH=85%><P>On May 12, 2000, the Company's subsidiary EZBid Inc. was merged with a subsidiary of Bidhit.com (OTCBB:BHIT), pursuant to which Systemax received 5,391,522 shares of common stock of Bidhit.com, representing approximately 30% of the outstanding shares. The closing price for Bidhit.com's common stock on May 12, 2000 was $15/16. The parties waived conditions to the merger requiring Bidhit.com to raise additional capital prior to the closing.</P> <P>Bidhit.com is an Internet auction and e-commerce company for computers and peripherals, camera equipment, sporting goods, household goods, home electronics and sports memorabilia, EZBid Inc. is a consumer-based on-line auction company for PC's, consumer electronics and other consumer products.</P></TD> </TR> </TABLE> <BR> <TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0> <TR VALIGN=TOP> <TD WIDTH=10%><B><U>Item 6.</U></B></TD> <TD WIDTH=5%><FONT SIZE=3> </FONT></TD> <TD WIDTH=85%><B><U>Exhibits and Reports on Form 8-K</U></B></TD> </TR> </TABLE> <BR> <TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0> <TR VALIGN=TOP> <TD WIDTH=5%><FONT SIZE=3> </FONT></TD> <TD WIDTH=5%><FONT SIZE=3>(a)</FONT></TD> <TD WIDTH=5%><FONT SIZE=3> </FONT></TD> <TD WIDTH=85%><FONT SIZE=3>Exhibits</FONT></TD> </TR> </TABLE> <BR> <TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0> <TR VALIGN=TOP> <TD WIDTH=15%><FONT SIZE=3> </FONT></TD> <TD WIDTH=5%><FONT SIZE=3>3.1</FONT></TD> <TD WIDTH=80%><FONT SIZE=3>Certificate of Incorporation. (Incorporated herein by reference to Exhibit 3.1 to the Company's Registration Statement on Form S-1, File No. 33-92052).</FONT></TD> </TR> </TABLE> <BR> <TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0> <TR VALIGN=TOP> <TD WIDTH=15%><FONT SIZE=3> </FONT></TD> <TD WIDTH=5%><FONT SIZE=3>3.2</FONT></TD> <TD WIDTH=80%><FONT SIZE=3>By-laws. (Incorporated herein by reference to Exhibit 3.2 to the Company's Registration Statement on Form S-1, File No. 33-92052).</FONT></TD> </TR> </TABLE> <BR> <TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0> <TR VALIGN=TOP> <TD WIDTH=15%><FONT SIZE=3> </FONT></TD> <TD WIDTH=5%><FONT SIZE=3>4.1</FONT></TD> <TD WIDTH=80%><FONT SIZE=3>Stockholders Agreement. (Incorporated herein by reference to the Company's quarterly report on Form 10-Q for the quarterly period ended June 30, 1995).</FONT></TD> </TR> </TABLE> <BR> <TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0> <TR VALIGN=TOP> <TD WIDTH=15%><FONT SIZE=3> </FONT></TD> <TD WIDTH=5%><FONT SIZE=3>4.2</FONT></TD> <TD WIDTH=80%><FONT SIZE=3>Specimen Stock Certificate. (Incorporated herein by reference to Exhibit 19.1 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1999).</FONT></TD> </TR> </TABLE> <BR> <TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0> <TR VALIGN=TOP> <TD WIDTH=15%><FONT SIZE=3> </FONT></TD> <TD WIDTH=5%><FONT SIZE=3>27</FONT></TD> <TD WIDTH=80%><FONT SIZE=3>Financial Data Schedule.</FONT></TD> </TR> </TABLE> <BR> <TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0> <TR VALIGN=TOP> <TD WIDTH=5%><FONT SIZE=3> </FONT></TD> <TD WIDTH=5%><FONT SIZE=3>(b)</FONT></TD> <TD WIDTH=5%><FONT SIZE=3> </FONT></TD> <TD WIDTH=85%><FONT SIZE=3>Reports on Form 8-K.</FONT></TD> </TR> </TABLE> <BR> <TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0> <TR VALIGN=TOP> <TD WIDTH=5%><FONT SIZE=3> </FONT></TD> <TD WIDTH=5%><FONT SIZE=3> </FONT></TD> <TD WIDTH=5%><FONT SIZE=3> </FONT></TD> <TD WIDTH=85%><FONT SIZE=3>No reports on Form 8-K were filed by the Company during the three months ended March 31, 2000.</FONT></TD> </TR> </TABLE>
<P ALIGN=CENTER><FONT SIZE=3><B><U>SIGNATURES</U></B></FONT></P> <P>Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.</P> <TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0> <TR VALIGN=TOP> <TD WIDTH=30%><FONT SIZE=3> </FONT></TD> <TD WIDTH=25%><FONT SIZE=3> </FONT></TD> <TD WIDTH=45%><FONT SIZE=3>SYSTEMAX INC.</FONT></TD> </TR> </TABLE> <BR> <BR> <BR> <BR> <TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0> <TR VALIGN=TOP> <TD WIDTH=30%><FONT SIZE=3>Date: May 12, 2000</FONT></TD> <TD WIDTH=25%><FONT SIZE=3> </FONT></TD> <TD WIDTH=45%><FONT SIZE=3>By:<U> /s/ RICHARD LEEDS</U></FONT></TD> </TR> </TABLE> <TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0> <TR VALIGN=TOP> <TD WIDTH=30%><FONT SIZE=3> </FONT></TD> <TD WIDTH=25%><FONT SIZE=3> </FONT></TD> <TD WIDTH=45%><FONT SIZE=3>Richard Leeds</FONT></TD> </TR> </TABLE> <TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0> <TR VALIGN=TOP> <TD WIDTH=30%><FONT SIZE=3> </FONT></TD> <TD WIDTH=25%><FONT SIZE=3> </FONT></TD> <TD WIDTH=45%><FONT SIZE=3>Chairman and Chief Executive Officer</FONT></TD> </TR> </TABLE> <BR> <BR> <BR> <TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0> <TR VALIGN=TOP> <TD WIDTH=30%><FONT SIZE=3> </FONT></TD> <TD WIDTH=25%><FONT SIZE=3> </FONT></TD> <TD WIDTH=45%><FONT SIZE=3>By:<U> /s/ STEVEN GOLDSCHEIN</U></FONT></TD> </TR> </TABLE> <TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0> <TR VALIGN=TOP> <TD WIDTH=30%><FONT SIZE=3> </FONT></TD> <TD WIDTH=25%><FONT SIZE=3> </FONT></TD> <TD WIDTH=45%><FONT SIZE=3>Steven Goldschein</FONT></TD> </TR> </TABLE> <TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0> <TR VALIGN=TOP> <TD WIDTH=30%><FONT SIZE=3> </FONT></TD> <TD WIDTH=25%><FONT SIZE=3> </FONT></TD> <TD WIDTH=45%><FONT SIZE=3>Senior Vice President and Chief Financial Office4r</FONT></TD> </TR> </TABLE> </BODY> </HTML>