CompUSA 2007 Annual Report Download

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Proxy Statement and
2007 Annual Report to Stockholders
Dear Fellow Stockholders,
It is with great pleasure that I present to you our Annual Report to Stockholders for 2007.
We experienced record growth during 2007 in all of our business segments. Consolidated net sales grew by 18.5% to $2.8
billion; gross margin improved to 15.3% and operating income increased 54.3% to $95.5 million. Operating margin
improved to 3.4% and net income increased 54.1% to $69.5 million, or $1.84 per diluted share. The sales, operating income
and net income amounts were all-time records for the Company.
In our Technology Products segment (computers, computer supplies and accessories and consumer electronics), sales grew
by 18.9% to $2.6 billion and operating income grew to $87 million. The growth was driven by increased internet and retail
store sales, private label product sales and expanded product offerings. Our European sales were driven by strong business-
to-business gains and by the effect of a weaker U.S. dollar.
In our Industrial Products segment (material handling equipment, storage equipment and consumable industrial items), sales
grew by 14.7% to $226 million and operating income grew to $20.6 million. The growth was driven by increased market
share through competitive pricing advantages and increased internet sales.
In our Hosted Software segment, our ProfitCenter Software business continues its product development and is poised to
bring several household name customers live in the coming months. We are very excited by the prospects for this business
as it enables multi-channel marketing companies to more effectively manage their businesses.
Our balance sheet continues to be very strong, with total working capital at December 31, 2007 of $273 million, cash and
equivalents of $128 million and operating cash flow of $93 million during 2007. This strong cash generation enabled our
first $1.00 per share special dividend for our stockholders during 2007 and our second special dividend of $1.00 per share
during 2008.
I am also pleased to report that we have invested heavily in improving our business operations and control environment and
we had no material weaknesses in our internal accounting controls as of December 31, 2007.
On the strategic front, we completed the CompUSA acquisition during the first quarter of 2008. We acquired the
CompUSA.com and related websites, the CompUSA trademarks and tradenames, and 16 former CompUSA retail outlets
in Florida, Texas and Puerto Rico. We are excited by the three strong brands that we now primarily operate under in our
Technology Products business – TigerDirect and CompUSA in North America and Misco in Europe – and by the strong
performance across our multiple sales channels – business to business, business to consumer, retail and television shopping.
Look for us to re-brand our existing TigerDirect retail outlets in the United States under the CompUSA name later this year.
I appreciate the support of our stockholders, the confidence of our customers and vendors, and the efforts of our employees
in helping to continually improve our business. As we enter 2008 we are well positioned in each of our business segments
to continue growing profitably.
Sincerely,
Richard Leeds
Chairman and Chief Executive Officer
April 29, 2008

Table of contents

  • Page 1
    ... us to re-brand our existing TigerDirect retail outlets in the United States under the CompUSA name later this year. I appreciate the support of our stockholders, the confidence of our customers and vendors, and the efforts of our employees in helping to continually improve our business. As we enter...

  • Page 2
    ... 2007, was submitted to the NYSE on such date. Systemax Inc. (www.systemax.com), a Fortune 1000 company, sells personal computers, computer supplies, consumer electronics and industrial products through a system of branded e-commerce web sites, direct mail catalogs, relationship marketers and retail...

  • Page 3
    ... invited to attend the 2008 Annual Meeting of Stockholders of Systemax Inc. (the "Company") which will be held at the Company's corporate offices, located at 11 Harbor Park Drive, Port Washington, New York at 2:00 p.m. on Thursday, June 12, 2008. Your Board of Directors looks forward to greeting...

  • Page 4

  • Page 5
    ... of Systemax Inc. (the "Company") will be held at the Company's offices, 11 Harbor Park Drive, Port Washington, New York, on Thursday, June 12, 2008 at 2:00 p.m. for the following purposes, as more fully described in the accompanying proxy statement: 1. 2. To elect the Company's Board of Directors...

  • Page 6
    ...11 Harbor Park Drive Port Washington, New York 11050 _____ PROXY STATEMENT _____ This proxy statement is furnished in connection with the solicitation of proxies on behalf of the Board of Directors (the "Board") of Systemax Inc., a Delaware corporation (the "Company"), for the 2008 Annual Meeting of...

  • Page 7
    A list of stockholders of the Company satisfying the requirements of Section 219 of the Delaware General Corporation Law shall be available for inspection for any purpose germane to the meeting during normal business hours at the offices of the Company at least ten days prior to the Annual Meeting. ...

  • Page 8
    ... Computer Applications Engineering and joined the Company in the same year. Gilbert Fiorentino, age 48, has served as a Director of the Company since May 25, 2004. Mr. Fiorentino is President of SYX Services Inc., a subsidiary of the Company, and General Manager of the Company's Technology Products...

  • Page 9
    ... Director, at the Company's principal executive office located at 11 Harbor Park Drive, Port Washington, NY 11050. All communications will be promptly relayed to the appropriate recipient(s). Corporate Ethics Policy The Company has adopted a Corporate Ethics Policy that applies to all employees...

  • Page 10
    .... A copy of the Audit Committee Charter is available on the Company's website, www.systemax.com, or can be obtained by writing to Systemax Inc., Attention: Board of Directors (Corporate Governance), 11 Harbor Park Drive, Port Washington, NY 11050. The members of the Audit Committee are Stacy S. Dick...

  • Page 11
    ...writing to Systemax Inc., Attention: Board of Directors (Corporate Governance), 11 Harbor Park Drive, Port Washington, NY 11050. Compensation Committee The Compensation Committee's responsibility is to review and approve corporate goals relevant to the compensation of the Chief Executive Officer and...

  • Page 12
    ...of Directors The Company's policy is not to pay compensation to Directors who are also employees of the Company or its subsidiaries. Each non-employee Director receives annual compensation as follows: $50,000 per year as base compensation, $5,000 per year for each committee of which such director is...

  • Page 13
    ..., this amount disregards the estimate of forfeitures on service-based awards. The following table presents the aggregate number of outstanding stock awards and stock option awards held by each of our non-employee Directors on December 31, 2007: Name: Ann R. Leven Robert D. Rosenthal Stacy S. Dick...

  • Page 14
    ... Public Accounting Firm, to the Committee, the Audit Committee recommended to the Board that the financial statements of the Company for the year ended December 31, 2007 as audited by Ernst & Young LLP be included in the Company's Annual Report on Form 10-K filed with the Securities and Exchange...

  • Page 15
    ...and Chief Financial Officer, the principal financial officer of the Company, effective January 17, 2007. Mr. Reinhold was a business, finance and accounting consultant in 2006. Previously he was Executive Vice President and Chief Financial Officer of Greatbatch, Inc., a publicly traded developer and...

  • Page 16
    ... of the Shares as of April 17, 2008, the record date for the Annual Meeting, by (i) each of the Directors and officers listed in the summary compensation table, (ii) all current Directors and officers as a group and (iii) each person known to the Company to be the beneficial owner of 5% or more of...

  • Page 17
    .... Mr. Leeds' mailing address is Robert Leeds, c/o Systemax Inc., 11 Harbor Park Drive, Port Washington, NY 11050. (5) Includes options to acquire 320,003 shares that are currently exercisable pursuant to the terms of the Company's 1995 and 1999 Long-Term Stock Incentive Plan. (6) Includes options...

  • Page 18
    ..., in some instances, similar to the type of products sold by the Company. The Company believes that the sales volume of competitive products sold by this wholesale business is not significant. In 2007 the Company subleased office space to this business at an annual rent of approximately $34,000. The...

  • Page 19
    ...an incentive for executives to manage the Company with a view to achieving results which would increase the Company's stock price and, therefore, the return to the Company's stockholders. The number and timing of stock option grants are decided in part based on the Company's subjective assessment of...

  • Page 20
    ...an opportunity to react to, material, potentially market-moving, information concerning the Company. In general, employee stock option grants will be made at fixed times each year. 2. 3. Tax Deductibility Considerations It is our policy generally to qualify compensation paid to executive officers...

  • Page 21
    ...From 10-K for the fiscal year ended December 31, 2007). Compensation Arrangements of Certain Executive Officers Richard Leeds Richard Leeds, Chairman and Chief Executive Officer of the Company, has no employment agreement. Mr. Leeds received an annual salary of $442,600 in 2007 and $420,000 in 2006...

  • Page 22
    ... 2003, at an exercise price of $1.95 per Share both now vest at 20% per year with the first 20% vesting on October 12, 2004 (the date of execution of the employment agreement). Mr. Fiorentino also was granted new options under the Company's 1999 Long Term Stock Incentive Plan for 166,667 shares, and...

  • Page 23
    ...380,385 in annual salary, a cash bonus of $325,000, a stock option grant of 100,000 shares of Company stock pursuant to his employment agreement and $20,921 in other compensation. Compensation Committee Report to Stockholdersâˆ- The Compensation Committee of the Board has reviewed and discussed the...

  • Page 24
    ... 2006 and 2007: Name and Principal Position (a) Richard Leeds Chairman and Chief Executive Officer (Principal Executive Officer) Lawrence P. Reinhold Executive Vice President and Chief Financial Officer (Principal Financial Officer) Bruce Leeds Vice Chairman Year (b) 2006 2007 Salary ($) (c) $420...

  • Page 25
    ... regarding grants of non-equity incentive plan awards and grants of equity awards that the Company made during the fiscal year ended December 31, 2007 to each of the Named Executive Officers receiving such awards: All Other Stock Awards: Number of Shares of Stock or Units (#) (i) All Other Option...

  • Page 26
    ..., to each of the Named Executive Officers holding such awards: Option Awards Stock Awards Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested ($) (j) Name (a) Lawrence P. Reinhold Gilbert Fiorentino Number of Securities Underlying...

  • Page 27
    ... exercise of options to purchase Systemax common stock and vesting of stock awards by each of the Named Executive Officers whose options were exercised or awards vested during the fiscal year ended December 31, 2007: Option Awards Name Number of Shares Acquired on Exercised (#) (b) Value Realized...

  • Page 28
    ... five years generally will not be subject to this deduction limit. So long as the Company complies with these and other requirements set forth in Section 162(m) of the Code, all amounts paid to executive officers under the plan will qualify for a federal tax deduction by the Company. The Systemax...

  • Page 29
    ... such as net sales, operating income, gross margin, earnings per share, working capital, stockholder equity and peer group comparisons); 2) Strategic Accomplishments (including growth in the business and in the value of the Company's assets); and 3) Corporate Governance and Oversight (encompassing...

  • Page 30
    .... APPROVAL OF AMENDMENTS TO THE COMPANY'S 1999 LONG-TERM STOCK INCENTIVE PLAN Item 3 on Proxy Card The Company's Board of Directors is recommending that the Company's 1999 Long Term Stock Incentive Plan (the "Plan") be amended to (a) increase the number of Shares with respect to which awards may...

  • Page 31
    ..., Vice Chm. and Pres. Executive Group Non-Executive Director Group Non-Executive Officer Employee Group NUMBER OF UNITS 0 0 0 977,917 0 448,870 On April 17, 2008, the closing price of the Shares, as reported on the New York Stock Exchange, was $13.30. If any option under the Plan shall expire or...

  • Page 32
    ... the holder consents to such amendment. Section 162(m) of the Code Under Section 162(m) of the Code, publicly-held companies generally may not deduct compensation that exceeds $1 million to any proxy-named executive officer with respect to the taxable year. Compensation which is 27 KL2 2553275.3

  • Page 33
    ... this issue. THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE TO APPROVE THE COMPANY'S 1999 LONG-TERM STOCK INCENTIVE PLAN AS AMENDED, WHICH IS DESIGNATED AS PROPOSAL NO. 3 ON THE ENCLOSED PROXY CARD. RATIFICATION OF INDEPENDENT REGISTERED PUBLIC ACCOUNTANTS Item 4 on Proxy Card Action is to be...

  • Page 34
    ... voting procedure, Directors, officers and other regular employees of the Company, as yet undesignated, may also request the return of proxies by telephone or fax, or in person. Annual Report The Annual Report of the Company for the year ended December 31, 2007 will be first mailed to all...

  • Page 35
    ... the Company's web site or any report the Company files with, or furnishes to, the SEC is not part of this proxy statement. The Board has adopted the following corporate governance documents (the "Corporate Governance Documents Corporate Ethics Policy for officers, Directors and employees; Charter...

  • Page 36
    ... of this Systemax Inc. 1999 Long Term Stock Incentive Plan are to promote the interests of Systemax Inc. and its stockholders by (i) attracting and retaining exceptional executive personnel and other key employees, including consultants and advisors to the Company and its Affiliates, as defined...

  • Page 37
    .... "Person" shall mean any individual, corporation, partnership, association, joint-stock company, trust, unincorporated organization, government or political subdivision thereof or other entity. "Plan" shall mean this Systemax 1999 Long-Term Stock Incentive Plan. "Restoration Option" shall mean an...

  • Page 38
    ... any officer or director of the Company, shall be eligible to be designated a participant. SECTION 6. Stock Options. (a) Grant. Subject to the provisions of the Plan, the Committee shall have sole and complete authority to determine the Employees to whom Options shall be granted, the number of...

  • Page 39
    ..., as provided in the plan or the applicable Award agreements. Certificates issues in respect of Shares of Restricted Stock shall be registered in the name of the Participant and deposited by such Participant, together with a stock power endorsed in the blank with the company. Upon the lapse of the...

  • Page 40
    ... within three months after the beginning of the applicable fiscal year and while the outcome of the performance goals are substantially uncertain. Such performance goals may incorporate provisions for disregarding (or adjusting for) changes in accounting methods, corporate transactions (including...

  • Page 41
    ...the Company, any Affiliate, or the financial statements of the Company or any Affiliate, or of the changes in applicable laws, regulations, or accounting principles, whenever the Committee determines that such adjustments are appropriate in order to prevent dilution or enlargement of the benefits or...

  • Page 42
    ...the plan or the rules, regulations, and other requirements of the Securities and Exchange Commission, and stock exchange upon which such Shares or other securities are then listed, and any applicable Federal or state laws, and the Committee may cause a legend or legends to be put on any certificates...

  • Page 43
    ... Plan nor any Award shall create or be construed to create a trust or separate fund of any kind or a fiduciary relationship between the Company or any Affiliate and a Participant or any other Person. To the extent that any person acquires a right to receive payments from the Company or any Affiliate...

  • Page 44
    ... charter) Delaware 11-3262067 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 11 Harbor Park Drive Port Washington, New York 11050 (Address of principal executive offices, including zip code) Registrant's telephone number, including area code: (516...

  • Page 45
    TABLE OF CONTENTS Part I Item 1. Business ...3 General ...3 Products ...4 Sales and Marketing ...5 Customer Service, Order Fulfillment and Support ...6 Suppliers ...7 Competition and Other Market Factors ...7 Employees ...8 Environmental Matters ...8 Financial Information About Foreign and Domestic ...

  • Page 46
    ... direct marketer of brand name and private label products. Our operations are organized in three reportable business segments - Technology Products, Industrial Products and Hosted Software. Our Technology Products segment sells computers, computer supplies and consumer electronics which are marketed...

  • Page 47
    .... Our headquarters office is located at 11 Harbor Park Drive, Port Washington, New York. Recent Developments On January 5, 2008 the Company entered into an asset purchase agreement with CompUSA Inc. Under the agreement the Company acquired CompUSA's e-commerce business and 16 of its retail leases...

  • Page 48
    ... attractive product pricing by making opportunistic bulk inventory purchases with the objective of turning them quickly into sales. We have also successfully increased our sales to individual consumers by using retail outlet stores. As of December 31, 2007 we had eleven such retail locations open in...

  • Page 49
    ... in phone service. In addition to telephone orders, we also receive orders by mail, fax, electronic data interchange and through the internet. A large number of our products are carried in stock, and orders for such products are fulfilled on a timely basis directly from our distribution centers...

  • Page 50
    ...computer and office supply superstores. Timely introduction of new products or product features are critical elements to remaining competitive. Other competitive factors include product performance, quality and reliability, technical support and customer service, marketing and distribution and price...

  • Page 51
    ..., single database to manage all sales channels (eCommerce, call center, catalog, mail order, retail) with web-based accessibility and faster implementation cycles will fuel continued penetration into the multi-channel software market space. Employees As of December 31, 2007, we employed a total of...

  • Page 52
    ... corporate governance rules of the New York Stock Exchange, each of the Corporate Governance Documents is available on our Company web site (www.systemax.com) or can be obtained by writing to Systemax Inc., Attention: Board of Directors (Corporate Governance), 11 Harbor Park Drive, Port Washington...

  • Page 53
    ... of our customers' shift to lower-priced products. As do most other companies in the technology products industry, we advertise manufacturers' mail-in rebates on many products we sell and, in some cases, offer our own rebates. We process these rebates through third party vendors and in house...

  • Page 54
    ... subsequently implemented by the Securities and Exchange Commission and listing requirements subsequently adopted by the New York Stock Exchange in response to SarbanesOxley, have required changes in corporate governance practices of public companies. These developments have substantially increased...

  • Page 55
    ... personnel from CompUSA and hiring new personnel while maintaining focus on providing high quality service to our customers. Maintaining and building upon CompUSA's existing customer base. Operating retail stores in new and unfamiliar locations. Complying with local laws and business practices. 12

  • Page 56
    ... If we fail to manage our inventory of older products we may have excess or obsolete inventory. We may have limited rights to return purchases to certain suppliers and we may not be able to obtain price protection on these items. The elimination of purchase return privileges and lack of availability...

  • Page 57
    ... receipt of product required to fulfill customer orders. Many product suppliers provide us with co-op advertising support in exchange for featuring their products in our catalogs and on our internet sites. Certain suppliers provide us with other incentives such as rebates, reimbursements, payment...

  • Page 58
    ... as follows: Facility Headquarters, Sales and Distribution Center (1) Sales and Distribution Center Sales and Distribution Center PC Assembly, Sales and Distribution Center Sales and Administrative Center Location Port Washington, NY Buford, GA Naperville, IL Fletcher, OH Miami, FL 15 Approximate...

  • Page 59
    ... unnecessarily the payment of other rebates that were paid. Vukson alleges claims arising under Florida's Unfair, Deceptive Trade Practice Act, the federal RICO statute, along with claims for breach of contract, conspiracy to commit fraud and unjust enrichment. Systemax, TigerDirect and OnRebate...

  • Page 60
    ...7.25 9.93 On December 29, 2007, the last reported sale price of our common stock on the New York Stock Exchange was $20.52 per share. As of December 29, 2007, we had 232 shareholders of record. On March 3, 2008, the Company's Board of Directors declared a special dividend of $1.00 per share payable...

  • Page 61
    ... selected statement of operations data for fiscal years 2004 and 2003 are derived from the audited consolidated financial statements of the Company which are not included in this report. Years Ended December 31, (In millions, except per share data) 2007 Statement of Operations Data: Net sales Gross...

  • Page 62
    ... Company's planned expansion into the retail market place for Technology Products and gives the Company 26 retail outlets in North America and Puerto Rico. Critical Accounting Policies and Estimates Our significant accounting policies are described in Note 1 to the consolidated financial statements...

  • Page 63
    ... exists, delivery has occurred, the sales price is fixed or determinable and collectibility is reasonably assured. Generally, these criteria are met at the time of receipt by customers when title and risk of loss both are transferred. Sales are shown net of returns and allowances, rebates and sales...

  • Page 64
    ...,000 for interest and penalties. The Company's continuing practice is to record interest and penalties related to tax positions in income tax expense in its consolidated statement of operations. During 2007, the Company resolved a state tax issue by paying an assessment of approximately $1,901,000...

  • Page 65
    Company's liability for unrecognized tax benefits was approximately $1,547,000 (including interest and penalties of approximately $632,000). In September 2006, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 157 "Fair Value ...

  • Page 66
    ... $11,441 .5% NET SALES Sales increased in all three reporting business segments and in both geographies during 2007 over 2006. The growth in Technology Products sales was driven by increased internet and retail store sales, private label product sales and expanded product offerings. The growth in...

  • Page 67
    ... basis points during 2007 over 2006, due primarily to decreased competitive pricing pressures in the Technology Products segment. Gross margin is dependent on variables such as product mix, vendor price protection and other sales incentives, competition, pricing strategy, rebates and other variables...

  • Page 68
    ... of lower business activity during those months. The following table sets forth the net sales, gross profit and income from operations for each of the quarters since January 1, 2005 (amounts in millions). March 31 2007 Net sales Percentage of year's net sales Gross profit Operating income 2006...

  • Page 69
    ...opening of additional retail outlets stores in North America. Net cash used in financing activities was $46.3 million during 2007, attributable to dividends paid of $36.6 million, repayment of short term debt of $12.9 million, offset by proceeds of stock option exercises, related excess tax benefits...

  • Page 70
    ... Company's Netherlands subsidiary maintains a â,¬5 million ($7.4 million as of December 2007 exchange rate) credit facility with a local financial institution. At December 2007 there was approximately â,¬2.6 million ($3.9 million) outstanding under this line. The facility carries interest at a rate...

  • Page 71
    ... the U.S. Dollar and each other. The translation of the financial statements of our operations located outside of the United States is impacted by movements in foreign currency exchange rates. Changes in currency exchange rates as measured against the U.S. dollar may positively or negatively affect...

  • Page 72
    ... participation of the Company's management, including the Company's Chief Executive Officer and Chief Financial Officer, the Company carried out an evaluation of the effectiveness of the design and operation of the Company's disclosure controls and procedures as of December 31, 2007. As part of this...

  • Page 73
    ...Under the supervision and with the participation of Company's management, including the Chief Executive Officer and Chief Financial Officer, the Company evaluated the effectiveness of the design and operation of its internal control over financial reporting based on the framework in Internal Control...

  • Page 74
    ... and Financial Statement Schedules. (a) 1. Consolidated Financial Statements of Systemax Inc. Reports of Ernst & Young LLP Independent Registered Public Accounting Firm Consolidated Balance Sheets as of December 31, 2007 and 2006 Consolidated Statements of Operations for the years ended December...

  • Page 75
    ... No. 33-92052) Amendment to Lease Agreement dated September 29, 1998 between the Company and Addwin Realty Associates (Port Washington facility) (incorporated by reference to the Company's annual report on Form 10K for the year ended December 31, 1998) Lease Agreement dated as of July 17, 1997...

  • Page 76
    ... Illinois Facility Lease between the Company and Ambassador Drive LLC (current landlord) (incorporated by reference to the Company's annual report on Form 10K for the year ended December 31, 2005) Agreement of Purchase and Sale, dated December 9, 2005, between the Company (as Seller) and Hewlett...

  • Page 77
    ... herewith). Amendment to Asset Purchase Agreement between the Company and CompUSA dated February 14, 2008 (filed herewith). Corporate Ethics Policy for Officers, Directors and Employees (revised as of March 30, 2005) (incorporated by reference to the Company's report on Form 8-K dated March 30, 2005...

  • Page 78
    ...Section 13 or 15(d) 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. SYSTEMAX INC. By: /s/ RICHARD LEEDS Richard Leeds Chairman and Chief Executive Officer Date: March 13, 2008 Pursuant to the...

  • Page 79
    .... adopted Statement of Financial Accounting Standards No. 123(R), "Share-Based Payment." We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), Systemax, Inc.'s internal control over financial reporting as of December 31, 2007, based...

  • Page 80
    ... the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of Systemax, Inc. as of December 31, 2007 and 2006, and the related consolidated statements of operations, shareholders' equity and cash flows for each of the three years in the period...

  • Page 81
    SYSTEMAX INC. CONSOLIDATED BALANCE SHEETS (in thousands, except for share data) December 31, 2007 ASSETS: Current assets: Cash and cash equivalents Accounts receivable, net of allowances of $11,817 and $11,370 Inventories, net Prepaid expenses and other current assets Deferred income tax assets, net...

  • Page 82
    SYSTEMAX INC. CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except per share amounts) Year Ended December 31, 2007 Net sales Cost of sales Gross profit Selling, general and administrative expenses Restructuring and other charges Operating income Interest and other income, net Interest ...

  • Page 83
    ... and abandonment Provision (benefit) for deferred income taxes Provision for returns and doubtful accounts Compensation expense related to equity compensation plans Tax benefit of employee stock plans Changes in operating assets and liabilities: Accounts receivable Inventories Prepaid expenses and...

  • Page 84
    SYSTEMAX INC. CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (in thousands) Common Stock Number of Shares OutStanding Balances, January 1, 2005 Change in cumulative translation adjustment Exercise of stock options Tax benefit of employee stock plans Grant of restricted stock units Amortization of ...

  • Page 85
    .... The financial statements of the Company's foreign entities are translated into U.S. dollars, the reporting currency, using year-end exchange rates for assets and liabilities, average exchange rates for the statement of operations items and historical rates for equity accounts. The translation...

  • Page 86
    ... shipments, sales returns and allowances, cooperative advertising and customer rebate reserves, and other vendor and employee related costs. Product Warranties - Provisions for estimated future expenses relating to product warranties for the Company's assembled PCs are recorded as cost of sales when...

  • Page 87
    ..." options) due to the limited history the Company currently has with option exercise activity. The risk-free interest rate is based on the U.S. Treasury yield curve. The Company receives an income tax deduction for stock options exercised by employees in the United States equal to the excess of the...

  • Page 88
    ... tax expense in its consolidated statement of operations. During 2007, the Company resolved a state tax issue by paying an assessment of approximately $1,901,000 (including $169,000 in interest) to a state taxing authority. As of December 2007 the Company's liability for unrecognized tax benefits...

  • Page 89
    ...up to 85% of eligible accounts receivable and up to 40% of qualified inventories. The interest on outstanding advances is payable monthly, at the Company's option, at the agent bank's base rate (at December 31, 2007) plus 0.25% or the bank's daily LIBOR rate (at December 31, 2007) plus 1.25% to 2.25...

  • Page 90
    ... offer directors of the Company who are not employees of the Company or of any entity in which the Company has more than a 50% equity interest ("independent directors") an opportunity to participate in the ownership of the Company by receiving options to purchase shares of common stock at a price...

  • Page 91
    ...of trading in the year December 31, 2007 and the exercise price) that would have been received by the option holders had all options been exercised on December 31, 2007. This value will change based on the fair market value of the Company's common stock. The following table reflects the activity for...

  • Page 92
    ...the plans been determined under a fair value alternative method as stated in SFAS 123, "Accounting for Stock-Based Compensation" (in thousands, except per share data): Net income - as reported Add: Stock-based employee compensation expense included in reported net income, net of related tax effects...

  • Page 93
    ... United States computer supplies business. The Company recorded $122,000 of additional severance costs in 2005 related to this plan. 2002 United Kingdom Consolidation Plan In 2002 the Company implemented a restructuring plan to consolidate the activities of three United Kingdom locations into a new...

  • Page 94
    ... by each foreign entity in accordance with applicable local regulations. A reconciliation of the difference between the income tax expense (benefit) and the computed income tax expense based on the Federal statutory corporate rate is as follows (in thousands): Year Ended December 31, 2006 2005 $24...

  • Page 95
    .... The Company records these benefits as assets to the extent that utilization of such assets is more likely than not; otherwise, a valuation allowance has been recorded. The Company has also provided valuation allowances for certain state deferred tax assets and net operating loss carryforwards...

  • Page 96
    ...Company's consolidated financial statements. The Company has not signed any consents to extend the statute of limitations for any subsequent years. The Company's significant state tax returns have been audited through 2005. The Company considers its significant tax jurisdictions in foreign locations...

  • Page 97
    ..., assist the Board of Directors in assuring compliance with and implementation of the Company's corporate governance policies and paid $300,000 of the legal fees of the plaintiffs. The Company has also been named as a defendant in other lawsuits in the normal course of its business, including those...

  • Page 98
    Financial information relating to the Company's operations by reportable segment was as follows (in thousands): Year Ended December 31, 2006 $2,148,104 196,860 201 $2,345,165 2007 Net Sales: Technology Products Industrial Products Hosted Software Consolidated Depreciation Expense: Technology ...

  • Page 99
    ...of the E-Commerce Business on January 10, 2008. Pursuant to the Purchase Agreement, the Company also agreed to acquire up to sixteen retail leases from CompUSA Inc. and certain fixtures located at these locations. The closing of the acquisition of each lease was subject to the receipt of the consent...

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    SYSTEMAX INC. SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS For the years ended December: (in thousands) Balance at Beginning of Period $11,370 $12,508 $11,318 Description Allowance for sales returns and doubtful accounts 2007 2006 2005 Allowance for deferred tax assets 2007 Current Noncurrent ...

  • Page 101
    ... EXECUTIVE OFFICER I, Richard Leeds, Chief Executive Officer of Systemax Inc., certify that: 1. I have reviewed this annual report on Form 10-K of Systemax Inc. (the "registrant"); 2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state...

  • Page 102
    ... OFFICER I, Lawrence P. Reinhold, Chief Financial Officer of Systemax Inc., certify that: 1. I have reviewed this annual report on Form 10-K of Systemax Inc. (the "registrant"); 2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state...

  • Page 103
    ... Exchange Act of 1934 (15 U.S.C. 78m or 78 (o)(d)) and that the information contained in such Form 10-K fairly presents, in all material respects, the financial condition and results of operations of Systemax Inc. Dated: March 13, 2008 /s/ RICHARD LEEDS _____ Richard Leeds, Chief Executive Officer...

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  • Page 105
    ... and Secretary SEGMENT EXECUTIVE MANAGEMENT Richard Leeds Industrial Products Gilbert Fiorentino Technology Products John Marrah Hosted Software Systemax Inc. Corporate Headquarters 11 Harbor Park Drive, Port Washington, NY 11050 Industrial Products Headquarters Global Equipment Company Inc. 11...

  • Page 106
    ... statements in this Annual Report constitute "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements include known and unknown risks, uncertainties and other factors as set forth within the Form 10K forming a part...

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    2007 Annual Report