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Systemax(GIC) - 2019 Q3 - Quarterly Report

PART I - FINANCIAL INFORMATION This section presents unaudited consolidated financial statements, notes, management's discussion, market risk, and internal controls Item 1. Financial Statements This section presents the unaudited condensed consolidated financial statements, including balance sheets, income, comprehensive income, cash flows, and shareholders' equity, with detailed explanatory notes Condensed Consolidated Balance Sheets (Unaudited) This balance sheet outlines the company's financial position as of September 30, 2019, and December 31, 2018, showing changes in assets, liabilities, and shareholders' equity Condensed Consolidated Balance Sheets (Unaudited) | Metric | Sep 30, 2019 (Millions) | Dec 31, 2018 (Millions) | | :-------------------------------- | :---------------------- | :---------------------- | | Total Assets | $399.6 | $530.0 | | Total Liabilities | $233.7 | $392.3 | | Total Shareholders' Equity | $165.9 | $137.7 | | Cash | $97.6 | $295.4 | | Accounts receivable, net | $96.1 | $84.1 | | Inventories | $102.3 | $107.3 | | Total current assets | $302.7 | $497.4 | | Accounts payable | $119.9 | $101.1 | | Dividend payable | $0.0 | $243.5 | | Total current liabilities | $171.2 | $379.6 | Condensed Consolidated Statements of Operations (Unaudited) These statements detail net sales and income for the three and nine months ended September 30, 2019, noting increased sales but a significant quarterly net income decrease due to prior year discontinued operations gains Consolidated Statements of Operations (Three Months Ended September 30) | Metric | 2019 (Millions) | 2018 (Millions) | | :------------------------------------------ | :-------------- | :-------------- | | Net sales | $243.9 | $235.8 | | Gross profit | $84.4 | $82.2 | | Operating income from continuing operations | $18.5 | $18.4 | | Net income from continuing operations | $13.7 | $15.1 | | Net income (loss) from discontinued operations | $(1.0) | $163.7 | | Net income | $12.7 | $178.8 | | Basic EPS from continuing operations | $0.36 | $0.41 | | Diluted EPS from continuing operations | $0.36 | $0.40 | | Basic EPS from discontinued operations | $(0.03) | $4.40 | | Diluted EPS from discontinued operations | $(0.03) | $4.32 | | Basic Net income per common share | $0.33 | $4.81 | | Diluted Net income per common share | $0.33 | $4.72 | Consolidated Statements of Operations (Nine Months Ended September 30) | Metric | 2019 (Millions) | 2018 (Millions) | | :------------------------------------------ | :-------------- | :-------------- | | Net sales | $724.7 | $679.2 | | Gross profit | $250.7 | $234.7 | | Operating income from continuing operations | $51.7 | $47.8 | | Net income from continuing operations | $38.6 | $37.2 | | Net income (loss) from discontinued operations | $(1.6) | $174.4 | | Net income | $37.0 | $211.6 | | Basic EPS from continuing operations | $1.03 | $1.00 | | Diluted EPS from continuing operations | $1.02 | $0.98 | | Basic EPS from discontinued operations | $(0.04) | $4.69 | | Diluted EPS from discontinued operations | $(0.04) | $4.59 | | Basic Net income per common share | $0.99 | $5.69 | | Diluted Net income per common share | $0.98 | $5.57 | Condensed Consolidated Statements of Comprehensive Income (Unaudited) Total comprehensive income significantly decreased for both periods ended September 30, 2019, primarily due to the absence of substantial net income from prior year discontinued operations Consolidated Statements of Comprehensive Income (Three Months Ended September 30) | Metric | 2019 (Millions) | 2018 (Millions) | | :-------------------------- | :-------------- | :-------------- | | Net income | $12.7 | $178.8 | | Foreign currency translation | $0.0 | $(0.5) | | Total comprehensive income | $12.7 | $178.3 | Consolidated Statements of Comprehensive Income (Nine Months Ended September 30) | Metric | 2019 (Millions) | 2018 (Millions) | | :-------------------------- | :-------------- | :-------------- | | Net income | $37.0 | $211.6 | | Foreign currency translation | $0.1 | $(2.8) | | Total comprehensive income | $37.1 | $208.8 | Condensed Consolidated Statements of Cash Flows (Unaudited) Cash flow statements show a net decrease in cash for the nine months ended September 30, 2019, primarily due to financing activities, contrasting with a prior year increase from discontinued operations Consolidated Statements of Cash Flows (Nine Months Ended September 30) | Metric | 2019 (Millions) | 2018 (Millions) | | :---------------------------------------------------- | :-------------- | :-------------- | | Net cash provided by operating activities from continuing operations | $64.9 | $15.2 | | Net cash used in operating activities from discontinued operations | $0.0 | $(35.1) | | Net cash provided by (used in) operating activities | $64.9 | $(19.9) | | Net cash used in investing activities from continuing operations | $(6.2) | $(2.9) | | Net cash provided by investing activities from discontinued operations | $0.0 | $249.6 | | Net cash provided by (used in) investing activities | $(6.2) | $246.7 | | Net cash used in financing activities | $(256.4) | $(111.5) | | Net (decrease) increase in cash | $(197.8) | $118.3 | | Cash – end of period | $97.6 | $302.8 | Condensed Consolidated Statement of Shareholders' Equity (Unaudited) This statement details changes in shareholders' equity for the nine months ended September 30, 2019 and 2018, reflecting impacts from compensation, stock, dividends, and net income Shareholders' Equity Changes (January 1, 2019 to September 30, 2019) | Metric | Jan 1, 2019 (Millions) | Sep 30, 2019 (Millions) | | :-------------------------- | :--------------------- | :--------------------- | | Common Stock Amount | $0.4 | $0.4 | | Additional Paid-in Capital | $187.0 | $189.5 | | Treasury Stock | $(25.1) | $(22.9) | | Retained Earnings | $(27.6) | $(4.2) | | Accumulated Other Comprehensive Income | $3.0 | $3.1 | | Total Equity | $137.7 | $165.9 | Shareholders' Equity Changes (January 1, 2018 to September 30, 2018) | Metric | Jan 1, 2018 (Millions) | Sep 30, 2018 (Millions) | | :-------------------------- | :--------------------- | :--------------------- | | Common Stock Amount | $0.4 | $0.4 | | Additional Paid-in Capital | $186.5 | $186.5 | | Treasury Stock | $(21.8) | $(25.7) | | Retained Earnings | $44.8 | $206.9 | | Accumulated Other Comprehensive Income | $1.9 | $3.2 | | Total Equity | $211.8 | $371.3 | Notes to Condensed Consolidated Financial Statements (Unaudited) These notes provide essential context and detailed breakdowns for the financial statements, covering accounting policies, lease accounting, revenue, discontinued operations, EPS, credit, fair value, and legal matters 1. Basis of Presentation This note explains the GAAP basis for interim financial statements, detailing the reclassification of prior year results for sold businesses into discontinued operations due to strategic shifts - Systemax operates as one reportable business segment, the Industrial Products Group (IPG), after selling its France-based IT business in August 2018. IPG sells industrial and general business hard goods and MRO products17 - The sale of the France-based IT business resulted in a pre-tax book gain of approximately $178.2 million in 201818 - Net sales from the France business in discontinued operations were $0 for Q3 and 9M 2019, compared to $77.1 million (Q3 2018) and $352.0 million (9M 2018)18 - Net loss from the NATG business (discontinued operations) was $1.0 million (Q3 2019) and $1.6 million (9M 2019)20 2. Leases This note details the Company's adoption of ASU 2016-02 on January 1, 2019, which led to recording approximately $54 million in ROU assets and $64 million in lease liabilities - Adoption of ASU 2016-02 on January 1, 2019, led to recording ROU assets of approximately $54 million and lease liabilities of approximately $64 million31 - The Company entered into a new lease for a Texas distribution facility in April 2019, adding approximately $14.7 million in ROU assets and related lease liability32 - Operating lease cost for continuing operations was $3.2 million for Q3 2019 and $8.9 million for 9M 201934 Maturities of Lease Liabilities (in millions) | Year Ending December 31 | Operating Leases | | :---------------------- | :--------------- | | 2019 (remaining 3 months) | $2.0 | | 2020 | $13.8 | | 2021 | $10.6 | | 2022 | $9.7 | | 2023 | $9.7 | | Thereafter | $45.1 | | Total lease payments | $90.9 | | Less: interest | $(19.8) | | Total present value of lease liabilities | $71.1 | 3. Revenue This note explains the Company's revenue recognition policy, primarily from North American industrial and MRO product sales, with performance obligations satisfied upon product transfer - Revenue is primarily from sales of industrial and MRO products in North America by the IPG segment37 - Performance obligations are satisfied when products are transferred to a customer; service revenue is less than 1% of total revenue39 Disaggregation of Revenues by Geography (in millions) | Net sales: | Three Months Ended Sep 30, 2019 | Three Months Ended Sep 30, 2018 | Nine Months Ended Sep 30, 2019 | Nine Months Ended Sep 30, 2018 | | :------------------------------------------ | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | MRO products and industrial supplies-United States | $232.8 | $225.1 | $690.3 | $647.5 | | MRO products and industrial supplies-Canada | $11.1 | $10.7 | $34.4 | $31.7 | | Consolidated | $243.9 | $235.8 | $724.7 | $679.2 | 4. Discontinued Operations and Special Charges (Gains) This note details the financial impact of discontinued operations, including the France, SARL, and NATG businesses, highlighting the 2018 France business sale gain and ongoing NATG wind-down charges - Discontinued operations include the France business (sold Aug 2018), SARL Businesses (sold Mar 2017), and NATG business (sold Dec 2015)45 - Pre-tax book gain on the sale of the France business in Q3 2018 was approximately $178.2 million48 - NATG discontinued operations incurred a net loss of $1.0 million for Q3 2019 and $1.6 million for 9M 201954 Pretax Income (Loss) of Discontinued Operations (in millions) | Metric | Three Months Ended Sep 30, 2019 | Three Months Ended Sep 30, 2018 | Nine Months Ended Sep 30, 2019 | Nine Months Ended Sep 30, 2018 | | :------------------------------------------ | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Net sales | $0.0 | $77.1 | $0.0 | $352.0 | | Operating (loss) income from discontinued operations | $(1.1) | $181.0 | $(1.8) | $197.7 | | Net income (loss) from discontinued operations | $(1.0) | $163.7 | $(1.6) | $174.4 | | Net income (loss) per share – basic | $(0.03) | $4.40 | $(0.04) | $4.69 | | Net income (loss) per share – diluted | $(0.03) | $4.32 | $(0.04) | $4.59 | 5. Net Income per Common Share This note explains the calculation of basic and diluted net income per common share using the two-class and treasury stock methods, providing weighted average shares outstanding - Basic EPS is calculated using the two-class method due to restricted stock with dividend participation rights56 - Diluted EPS includes equivalent shares for dilutive options and restricted stock using the treasury stock method56 Weighted Average Common and Common Equivalent Shares (in millions) | Metric | Three Months Ended Sep 30, 2019 | Three Months Ended Sep 30, 2018 | Nine Months Ended Sep 30, 2019 | Nine Months Ended Sep 30, 2018 | | :------------------------------------------ | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Basic | 37.5 | 37.2 | 37.4 | 37.2 | | Diluted | 38.0 | 37.9 | 37.9 | 38.0 | 6. Credit Facilities This note describes the Company's $75 million secured revolving credit facility, maturing October 2021, with no outstanding borrowings and full covenant compliance as of September 30, 2019 - The Company maintains a $75 million secured revolving credit facility, maturing October 28, 202158 - As of September 30, 2019, eligible collateral was $75.0 million, total availability was $73.0 million, and excess availability was $71.7 million, with no outstanding borrowings58 - The Company was in compliance with all credit agreement covenants as of September 30, 201958 7. Fair Value Measurements This note discusses fair value measurement for financial instruments, goodwill, and intangibles, noting short-term assets and liabilities are at fair value, and annual impairment tests for goodwill - Cash, accounts receivable, and accounts payable carrying amounts are representative of their fair values due to their short-term nature59 - Cash is classified as Level 1 within the fair value hierarchy59 - Goodwill and non-amortizing intangibles are tested annually for impairment using qualitative and, if necessary, quantitative assessments (discounted cash flow models)6061 8. Legal Proceedings This note outlines the Company's involvement in various lawsuits and investigations, with management not expecting a material adverse effect and having established accruals for probable losses - The Company is involved in various lawsuits, claims, and investigations, including commercial, employment, tax, and intellectual property matters63 - A lawsuit against former NATG subsidiaries for breach of contract and trademark/copyright infringement is scheduled for trial in December 2019; Systemax Inc. has been dismissed from the case63 - Management does not expect a material adverse effect on financial position or results from these matters, individually or collectively, and accruals are established for probable and estimable losses64 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on financial performance, condition, and outlook, analyzing GAAP and non-GAAP results, liquidity, and capital resources Forward-Looking Statements This section cautions that the report contains forward-looking statements based on management's estimates, subject to risks and uncertainties that could cause actual results to differ materially - Statements in the report that are not historical facts are forward-looking, based on management's estimates, assumptions, and projections65 - Forward-looking statements are subject to risks and uncertainties, including general economic conditions, tariffs, freight costs, e-commerce risks, data security, and litigation66 - Readers are cautioned not to place undue reliance on forward-looking statements, and the Company undertakes no obligation to update them69 Overview Systemax Inc. primarily operates its Industrial Products Group (IPG) in North America, selling industrial and MRO products, with former France-based IT, SARL, and NATG businesses reclassified as discontinued operations - Systemax operates as one reportable business segment, Industrial Products Group (IPG), selling industrial and MRO products in North America under brands like Global™, Nexel™, Paramount™, and Interion™7076 - The France-based IT business was sold in August 2018, and the SARL Businesses in March 2017; both are classified as discontinued operations717273 - The NATG business was sold in December 2015, and its wind-down operations are also classified as discontinued operations74 Operating Conditions This section describes the highly fragmented North American industrial products market, highlighting the working capital intensive nature of the business and key operating expenses - The North American industrial products market is highly fragmented with numerous competitors across multiple distribution channels79 - The business is working capital intensive, requiring significant costs for warehousing, inventory, and personnel79 - Primary operating expenses include employee-related costs (wages, commissions, benefits, equity compensation), digital marketing, and occupancy charges80 Critical Accounting Policies and Estimates This section reaffirms that critical accounting policies and estimates, including revenue recognition, inventory, ROU assets, goodwill, and income taxes, remain consistent with the 2018 Annual Report, with no significant 2019 changes - Critical accounting policies include revenue recognition, accounts receivable, inventory valuation, right of use assets, goodwill and intangible assets, long-lived assets, income taxes, and special charges (gains)84 - No significant changes in the application of critical accounting policies or estimates occurred during 201985 - Management believes the financial statements accurately reflect its best estimates, but actual results could differ due to inherent uncertainties85 Highlights from Q3 2019 and Year to Date Q3 2019 This section presents key financial highlights for Q3 and nine months ended September 30, 2019, showing increased sales and operating income but a quarterly decrease in diluted EPS from continuing operations - Consolidated sales increased 3.4% to $243.9 million for Q3 2019 and 6.7% to $724.7 million for 9M 201988 - Consolidated operating income from continuing operations increased 0.5% to $18.5 million for Q3 2019 and 8.2% to $51.7 million for 9M 201988 - Net income per diluted share from continuing operations decreased 10.0% to $0.36 for Q3 2019 but grew 4.1% to $1.02 for 9M 201988 - Operating income for Q3 2019 included $1.7 million in costs for the new Texas distribution center88 GAAP Results of Operations This section analyzes the Company's GAAP financial performance for the three and nine months ended September 30, 2019, covering net sales, gross profit, operating income, and net income, including discontinued operations and new facility costs Key Performance Indicators (Continuing Operations, in millions, except percentages) | Metric | Q3 2019 | Q3 2018 | % Change (Q3) | 9M 2019 | 9M 2018 | % Change (9M) | | :------------------------------------------ | :------ | :------ | :------------ | :------ | :------ | :------------ | | Consolidated net sales | $243.9 | $235.8 | 3.4% | $724.7 | $679.2 | 6.7% | | Consolidated gross profit | $84.4 | $82.2 | 2.7% | $250.7 | $234.7 | 6.8% | | Consolidated gross margin | 34.6% | 34.9% | (0.3)% | 34.6% | 34.6% | 0.0% | | Consolidated SD&A costs | $65.9 | $63.8 | 3.3% | $199.0 | $186.9 | 6.5% | | Consolidated SD&A costs as a % of net sales | 27.0% | 27.1% | (0.1)% | 27.5% | 27.5% | 0.0% | | Consolidated operating income | $18.5 | $18.4 | 0.5% | $51.7 | $47.8 | 8.2% | | Consolidated operating margin from continuing operations | 7.6% | 7.8% | (0.2)% | 7.1% | 7.0% | 0.1% | | Effective income tax rate | 25.5% | 19.3% | 6.2% | 25.3% | 22.5% | 2.8% | | Net income from continuing operations | $13.7 | $15.1 | (9.3)% | $38.6 | $37.2 | 3.8% | | Net margin from continuing operations | 5.6% | 6.4% | (0.8)% | 5.3% | 5.5% | (0.2)% | | Net income (loss) from discontinued operations | $(1.0) | $163.7 | (100.6)% | $(1.6) | $174.4 | (100.9)% | Reconciliation of Consolidated GAAP Operating Income to Non-GAAP Operating Income (in millions) | Metric | Q3 2019 | Q3 2018 | Change (Q3) | 9M 2019 | 9M 2018 | Change (9M) | | :------------------------------------------ | :------ | :------ | :---------- | :------ | :------ | :---------- | | GAAP Operating income | $18.5 | $18.4 | 0.5% | $51.7 | $47.8 | 8.2% | | Non-GAAP adjustments: | | | | | | | | Executive separation & transition costs | $0.2 | $0.0 | | $1.2 | $0.0 | | | Stock based compensation | $0.9 | $0.0 | | $3.3 | $0.5 | | | Intangible amortization | $0.0 | $0.3 | | $0.1 | $0.8 | | | Reverse results of Germany and NATG included in GAAP operating income continuing operations | $(0.8) | $0.9 | | $(0.7) | $0.9 | | | Total Non-GAAP Adjustments | $0.3 | $1.2 | | $3.9 | $2.2 | | | Non-GAAP operating income | $18.8 | $19.6 | (4.1)% | $55.6 | $50.0 | 11.2% | | Non-GAAP Operating Margin % | 7.7% | 8.3% | | 7.7% | 7.4% | | Net Sales Consolidated net sales increased 3.4% in Q3 2019 and 6.7% for 9M 2019, driven by growth in both U.S. and Canadian businesses despite a soft market and prior year project order impact - Consolidated net sales increased 3.4% in Q3 2019 and 6.7% for 9M 201997 - Canada net sales were up approximately 5.3% in local currency (Q3) and 12.2% (9M). U.S. revenue was up 3.4% (Q3) and 6.6% (9M)97 - On a constant currency basis, average daily sales increased 3.5% for Q3 2019 and 6.9% for 9M 201997 Gross Margin Gross margin remained stable at 34.6% in Q3 and 9M 2019, reflecting proactive management of inventory, purchasing, and pricing to mitigate U.S. tariffs - Gross margin was 34.6% in Q3 2019, down 30 basis points from 34.9% in Q3 201899 - Gross margin for 9M 2019 was consistent at 34.6%99 - Stable gross margin performance is attributed to proactive management of inventory, purchasing, and pricing in response to U.S. tariffs on Chinese imports99 Selling, Distribution and Administrative Expenses ("SD&A"), Excluding Special Charges (Gains) SD&A costs as a percentage of sales increased in Q3 and 9M 2019, primarily due to new Texas distribution facility costs and increases in salary, stock-based compensation, and advertising - SD&A costs as a percentage of sales increased to 27.3% in Q3 2019 (from 26.7% in Q3 2018) and to 27.6% for 9M 2019 (from 27.4% in 9M 2018)100101 - The increase in Q3 2019 was primarily due to $1.5 million in operating expenses for the new Texas distribution facility and $0.9 million in ongoing stock-based compensation100 - For 9M 2019, significant cost increases included $9.6 million in salary and related costs (including $4.5 million for executive separation/stock-based compensation and $0.5 million for Texas facility), $2.4 million in internet advertising, and $1.4 million in other Texas facility operating costs101 Discontinued Operations and Special Charges (Gains) Discontinued operations reported zero special charges/gains in Q3 2019 and a $0.1 million gain for 9M 2019, contrasting with significant prior year gains from the France business sale - Special charges and gains in discontinued operations were zero for Q3 2019 and a $0.1 million gain for 9M 2019103 - In Q3 and 9M 2018, the Company recorded a $178.2 million pre-tax book gain on the sale of the France business103 - Q3 and 9M 2018 also included $1.4 million and $0.7 million, respectively, in special charges for discontinued NATG and SARL Businesses103 Continuing Operations Special Charges (Gains) The former German branch recorded a $0.8 million special gain in Q3 and 9M 2019 due to a lease obligation estimate change, contrasting with prior year special charges - A $0.8 million special gain was recorded in Q3 and 9M 2019 related to a change in estimate of the former German branch's lease obligation104 - In Q3 and 9M 2018, special charges of approximately $0.8 million and $0.1 million, respectively, were recorded for lease reserve adjustments from former NATG and German operations104 Operating Margin Operating margin for continuing operations decreased in Q3 2019 but increased for 9M 2019, with the quarterly decrease primarily due to new Texas distribution center costs - Operating margin for continuing operations decreased to 7.6% in Q3 2019 (from 7.8% in Q3 2018)105 - Operating margin for continuing operations increased to 7.1% for 9M 2019 (from 7.0% in 9M 2018)105 - The Q3 decrease was mainly due to costs from the new Texas distribution center, an investment aimed at increasing service levels and future operational leverage105 Interest and Other (Income) Expense, Net Interest and other (income) expense, net from continuing operations, shifted to a $0.1 million expense in Q3 2019, contrasting with prior year income from short-term investments after the France business sale - Interest and other (income) expense, net from continuing operations was $0.1 million expense in Q3 2019 and zero for 9M 2019106 - This compares to $0.3 million income in Q3 2018 and $0.2 million income in 9M 2018, primarily from interest on short-term investments after the France business sale106 Income Taxes The effective income tax rate for continuing operations increased in Q3 and 9M 2019, with lower rates in 2018 attributed to higher tax benefits from stock-based compensation - Effective tax rate for continuing operations was 25.5% in Q3 2019 (vs. 19.3% in Q3 2018) and 25.3% for 9M 2019 (vs. 22.5% in 9M 2018)107 - The lower 2018 rates were favorably impacted by higher tax benefits related to stock-based compensation ($1.1 million in Q3 2018, $1.7 million in 9M 2018)107 - The Company maintains a full valuation allowance against deferred tax assets in Canada108 Financial Condition, Liquidity and Capital Resources Working capital increased by $13.7 million, with cash decreasing due to a special dividend, but the Company believes its liquidity and credit facility are sufficient for the next twelve months - Working capital increased by $13.7 million, driven by net income, increased accounts receivable, and the recording of current operating lease liabilities, offset by dividend payments112 - Net cash provided by continuing operations was $64.9 million for 9M 2019, compared to $15.2 million in 9M 2018113 - Net cash used in financing activities totaled $256.4 million for 9M 2019, primarily due to a $243.5 million special dividend declared in December 2018 and regular quarterly dividends115 - The Company has over $165 million of liquidity (cash and undrawn credit line) in the U.S. as of September 30, 2019, deemed sufficient for U.S. operations and capital needs123 Selected Liquidity Data (in millions) | Metric | Sep 30, 2019 | Dec 31, 2018 | $ Change | | :-------------------------------- | :----------- | :----------- | :------- | | Cash | $97.6 | $295.4 | $(197.8) | | Accounts receivable, net | $96.1 | $84.1 | $12.0 | | Inventories | $102.3 | $107.3 | $(5.0) | | Prepaid expenses and other current assets | $6.7 | $10.6 | $(3.9) | | Accounts payable | $119.9 | $101.1 | $18.8 | | Dividend payable | $0.0 | $243.5 | $(243.5) | | Accrued expenses and other current liabilities | $40.1 | $35.0 | $5.1 | | Operating lease liabilities | $11.2 | $0.0 | $11.2 | | Working capital | $131.5 | $117.8 | $13.7 | Historical Cash Flows (Nine Months Ended September 30, in millions) | Metric | 2019 | 2018 | | :---------------------------------------------------- | :--- | :--- | | Net cash provided by operating activities from continuing operations | $64.9 | $15.2 | | Net cash used in operating activities from discontinued operations | $0.0 | $(35.1) | | Net cash used in investing activities from continuing operations | $(6.2) | $(2.9) | | Net cash provided by investing activities from discontinued operations | $0.0 | $249.6 | | Net cash used in financing activities from continuing operations | $(256.4) | $(111.5) | | Effects of exchange rates on cash | $(0.1) | $3.0 | | Net increase (decrease) in cash and cash equivalents | $(197.8) | $118.3 | Off-balance Sheet Arrangements The Company confirms no special-purpose or off-balance sheet entities for capital raising or debt, nor arrangements with unconsolidated entities materially affecting liquidity - The Company has not created and is not party to any special-purpose or off-balance sheet entities for capital raising or debt124 - No arrangements with unconsolidated entities are reasonably likely to materially affect liquidity or capital resources124 Item 3. Quantitative and Qualitative Disclosures About Market Risk The Company is exposed to market risks from interest and foreign currency exchange rates, with limited derivative involvement and no outstanding option or forward exchange contracts as of September 30, 2019 - Market risks include changes in U.S. and international interest rates and foreign currency exchange rates (principally Canadian dollars)125 - The Company has limited involvement with derivative financial instruments and no outstanding option or forward exchange contracts as of September 30, 2019126 - A hypothetical one percentage point change in average interest rates is not expected to materially affect financial position, results, or cash flows, as there were no outstanding variable rate debt balances127 Item 4. Controls and Procedures Management concluded the Company's disclosure controls and procedures were effective as of September 30, 2019, with no material changes in internal control over financial reporting during the quarter Evaluation of Disclosure Controls and Procedures Management, including the CEO and CFO, evaluated and concluded the Company's disclosure controls and procedures were effective as of September 30, 2019 - Disclosure controls and procedures were evaluated and deemed effective as of September 30, 2019128 - Internal control over financial reporting is designed to provide reasonable assurance regarding reliability of financial reporting129 - Management acknowledges that control systems provide reasonable, not absolute, assurance and are subject to inherent limitations130 Changes in Internal Control Over Financial Reporting No material changes in the Company's internal controls over financial reporting occurred during the quarter ended September 30, 2019 - No material changes in internal controls over financial reporting occurred during Q3 2019131 PART II - OTHER INFORMATION This section provides information on legal proceedings, exhibits filed, and official signatures for the report Item 1. Legal Proceedings The Company is involved in various lawsuits and investigations, with management not expecting a material adverse effect and having established accruals for probable and estimable losses - The Company is involved in various lawsuits, claims, investigations, and proceedings in the ordinary course of business132 - These include commercial, employment, tax, customs and trade, customer, vendor, personal injury, creditors rights, health and safety law matters, and intellectual property matters132 - Management does not expect a material adverse effect on its financial position or results of operations from these matters, individually or collectively, and accruals are established for probable and estimable losses133 Item 6. Exhibits This section lists the exhibits filed as part of this Form 10-Q, including CEO and CFO certifications under Sarbanes-Oxley Act sections 302 and 906, and various XBRL documents List of Exhibits | Exhibit Number | Description | | :------------- | :--------------------------------------------------------------------------------- | | 31.1 | Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | | 31.2 | Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | | 32.1 | Certification of the Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | | 32.2 | Certification of the Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | | 101.INS | XBRL Instance Document | | 101.SCH | XBRL Taxonomy Extension Schema Document | | 101.CAL | XBRL Taxonomy Extension Calculation Linkbase Document | | 101.DEF | XBRL Taxonomy Extension Definition Linkbase Document | | 101.LAB | XBRL Taxonomy Extension Label Linkbase Document | | 101.PRE | XBRL Taxonomy Extension Presentation Linkbase Document | Signatures This section confirms the due authorization and signing of the report on behalf of Systemax Inc. by its President and CEO, Barry Litwin, and VP and CFO, Thomas Clark, on November 1, 2019 - The report was signed by Barry Litwin, President and Chief Executive Officer, and Thomas Clark, Vice President and Chief Financial Officer, on November 1, 2019139142