Systemax Reports Record Sales in Fourth Quarter and Full Year 2006; Announces Special $1.00 Per Share Dividend

  
    
  
  
    
      Systemax Inc. (NYSE:SYX) today announced results for the fourth 
      quarter and full year of 2006.
    
    
      2006 Fourth Quarter Results
    
    
      Net sales increased 11% to $648 million compared to $583 million in the 
      fourth quarter of 2005. Sales of computers, computer supplies and 
      consumer electronics grew by 11%, and sales of industrial products grew 
      by 15%. Sales transacted via the internet grew 16% to $235 million 
      compared to $203 million in the fourth quarter of 2005. Gross margin was 
      12.9% compared to 14.7% in the fourth quarter of 2005. The decrease in 
      gross margin was primarily attributable to price discounting for 
      computer and consumer electronics products. Operating income was $11.3 
      million compared to $18.5 million in the fourth quarter of 2005. The 
      decrease was primarily attributable to the gross margin effect of the 
      price discounting. Net income was $8 million, or $.22 per diluted share, 
      compared to $3.4 million, or $.09 per diluted share in the fourth 
      quarter of 2005. The fourth quarter of 2005 was adversely affected by an 
      unusually high effective tax rate resulting from the establishment of a 
      valuation allowance of approximately $10.2 million for deferred tax 
      assets in the United Kingdom.
    
    
      2006 Full Year Results
    
    
      Net sales increased 11% to $2.3 billion compared to $2.1 billion in 
      2005. Sales of computers, computer supplies and consumer electronics 
      grew by 11%, and sales of industrial products grew by 13%. Sales 
      transacted via the internet increased 26% to $819 million compared to 
      $650 million in 2005. Gross margin was 14.6% compared to 14.5% in 2005. 
      Operating income was $61.9 million compared to $34.8 million in 2005. 
      Net income was $45.1 million, or $1.22 per diluted share, compared to 
      $11.4 million, or $.31 per diluted share in 2005. The prior year’s 
      net income was adversely affected by the aforementioned deferred tax 
      asset valuation allowance.
    
    
      Richard Leeds, Chairman and Chief Executive Officer said, “I 
      am very pleased with our full year 2006 consolidated results, 
      highlighted by our 11% growth in sales, 26% growth in internet sales, 
      78% growth in operating income and 294% growth in diluted earnings per 
      share. The strong results evidence the continuing success of the 
      reorganization that we undertook several years ago, the soundness of our 
      business model and the robust growth in the markets in which we 
      participate. Although gross margin dipped during the fourth quarter, our 
      objective is to manage the business from a longer-term perspective and 
      we are pleased that we maintained our gross margin for the full year of 
      2006 comparable to 2005 and that we lowered selling, general and 
      administrative expense as a percentage of sales from 12.7% in 2005 to 
      12.0% in 2006. Our long-term goal is to closely manage our product 
      pricing to balance sales growth, gross margin and overall profitability. 
      As a result of our strong 2006 financial performance and our strong 
      balance sheet, I am pleased to announce that our Board of Directors has 
      declared a special dividend for our shareholders. This dividend was 
      declared on March 14, 2007 by our Board to be $1.00 per share and will 
      be paid on April 12, 2007 to shareholders of record on April 2, 2007.”
    
    
      Gilbert Fiorentino, Chief Executive Officer of TigerDirect.com and the 
      computer, computer supplies and consumer electronics segment noted, “2006 
      saw sales growth both in North American and European computer and 
      consumer electronic products. North American computer product sales grew 
      7 % in the fourth quarter and 13 % for the full year compared to 2005, 
      driven primarily by growth in internet sales and our private label 
      products. European sales grew 18% in the fourth quarter and 7% for the 
      full year compared to 2005, also driven primarily by growth in internet 
      sales and public sector customers.”
    
    
      Richard Leeds, commenting on other operations, noted “in 
      the industrial products segment, sales grew 15% in the fourth quarter 
      and 13% for the full year compared to 2005, driven primarily by new 
      customers who procure from us via the internet, competitive advantages 
      due to our worldwide sourcing strategy, and aggressive pricing. 
      Industrial product sales transacted via the internet grew 47 % in the 
      fourth quarter and 48% for the full year compared to 2005. Our 
      ProfitCenter Software subsidiary continued the successful development of 
      its software as a service platform and signed 22 customer implementation 
      and hosting contracts during 2006. As a hosted software service, 
      revenues from both hosting and implementation are recognized over the 
      contractual hosting period and for 2006 were not significant.
    
    
      Larry Reinhold, Chief Financial Officer, noted that the Company’s 
      overall financial condition remains solid as evidenced by its working 
      capital of $229 million, which included cash and equivalents of $87 
      million, and over $84 million in available borrowing capacity under its 
      credit facilities in place. Operationally, days sales outstanding were 
      23 days at December 31, 2006 and inventory turned over 10 times during 
      2006. Mr. Reinhold added, “I have been 
      impressed during my early tenure by the company and its platform for 
      profitable sales growth.”
    
    
      Systemax Inc. (www.systemax.com), 
      a Fortune 1000 company, utilizes an integrated system of branded 
      e-commerce web sites, direct mail catalogs and relationship marketers to 
      sell personal computers, computer supplies, consumer electronics and 
      industrial products in North America and Europe. It also manufactures 
      and sells personal computers under the Systemax and Ultra brands.
    
    
      
        
          
            SYSTEMAX INC.
          
        
      
      
        
          Condensed Consolidated Statements of Operations – 
          Unaudited
        
      
      
        
          (In thousands, except per share amounts)
        
      
      
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
           
        
      
      
        
        
        
        
        
          Year Ended
        
        
        
        
          Quarter Ended
        
      
      
        
        
        
        
        
          December 31,
        
        
        
        
          December 31,
        
      
      
        
        
        
        
        
          2006 
        
        
        
        
          2005 
        
        
        
        
          2006 
        
        
        
        
          2005 
        
      
      
        
          Net sales
        
        
        
        
          2,345,165 
        
        
        
        
          $2,115,518 
        
        
        
        
          $647,974 
        
        
        
        
          $582,966 
        
      
      
        
          Cost of sales
        
        
        
        
          2,002,246 
        
        
        
        
          1,808,231 
        
        
        
        
          564,702 
        
        
        
        
          497,299 
        
      
      
        
          Gross profit
        
        
        
        
          342,919 
        
        
        
        
          307,287 
        
        
        
        
          83,272 
        
        
        
        
          85,667 
        
      
      
        
          Gross margin
        
        
        
        
          14.6%
        
        
        
        
          14.5%
        
        
        
        
          12.9%
        
        
        
        
          14.7%
        
      
      
        
          Selling, general and administrative expenses
        
        
        
        
          281,015 
        
        
        
        
          268,327 
        
        
        
        
          71,985 
        
        
        
        
          66,521 
        
      
      
        
          Restructuring and other charges
        
        
        
        
           
        
        
        
        
          4,151 
        
        
        
        
          - 
        
        
        
        
          657 
        
      
      
        
          Operating income
        
        
        
        
          61,904 
        
        
        
        
          34,809 
        
        
        
        
          11,287 
        
        
        
        
          18,489 
        
      
      
        
          Operating margin
        
        
        
        
          2.6%
        
        
        
        
          1.6%
        
        
        
        
          1.7%
        
        
        
        
          3.2%
        
      
      
        
          Interest and other (income) expense, net
        
        
        
        
          (7,791)
        
        
        
        
          1,935 
        
        
        
        
          (680)
        
        
        
        
          (417)
        
      
      
        
          Income before income taxes
        
        
        
        
          69,695 
        
        
        
        
          32,874 
        
        
        
        
          11,967 
        
        
        
        
          18,906 
        
      
      
        
          Provision for income taxes
        
        
        
        
          24,548 
        
        
        
        
          21,433 
        
        
        
        
          3,934 
        
        
        
        
          15,500 
        
      
      
        
          Net income
        
        
        
        
          $45,147 
        
        
        
        
          $11,441 
        
        
        
        
          $8,033 
        
        
        
        
          $3,406 
        
      
      
        
          Net margin
        
        
        
        
          1.9%
        
        
        
        
          0.5%
        
        
        
        
          1.2%
        
        
        
        
          0.6%
        
      
      
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
           
        
      
      
        
          Net income per common share:
        
        
        
        
        
        
        
        
        
        
        
        
        
      
      
        
          Basic
        
        
        
        
          $1.29 
        
        
        
        
          $.33 
        
        
        
        
          $.23 
        
        
        
        
          $.10 
        
      
      
        
          Diluted
        
        
        
        
          $1.22 
        
        
        
        
          $.31 
        
        
        
        
          $.22 
        
        
        
        
          $.09 
        
      
      
        
           
        
      
      
        
          Weighted average common and common equivalent shares:
        
      
      
        
          Basic
        
        
        
        
          34,960 
        
        
        
        
          34,646 
        
        
        
        
          35,177 
        
        
        
        
          34,726 
        
      
      
        
          Diluted
        
        
        
        
          36,881 
        
        
        
        
          36,488 
        
        
        
        
          37,258 
        
        
        
        
          36,510 
        
      
    
    
      
        
          
          
        
      
      
        
          SYSTEMAX INC.
        
      
      
        
          Condensed Consolidated Balance Sheets
        
      
      
        
          (In thousands)
        
      
      
        
        
        
        
        
        
        
        
        
           
        
      
      
        
        
        
        
        
          December 31,
        
      
      
        
        
        
        
        
          2006 
        
        
        
        
          2005 
        
      
      
        
          Current assets:
        
        
        
        
        
        
        
        
        
      
      
        
          Cash and cash equivalents
        
        
        
        
          $86,964 
        
        
        
        
          $63,291 
        
      
      
        
          Accounts receivable, net
        
        
        
        
          164,615 
        
        
        
        
          150,635 
        
      
      
        
          Inventories
        
        
        
        
          233,136 
        
        
        
        
          
            192,102 
          
        
      
      
        
          Prepaid expenses and other current assets
        
        
        
        
          34,004 
        
        
        
        
          25,104 
        
      
      
        
          Total current assets
        
        
        
        
          518,719 
        
        
        
        
          431,132 
        
      
      
        
          Property, plant and equipment, net
        
        
        
        
          48,586 
        
        
        
        
          57,259 
        
      
      
        
          Deferred income taxes and other assets
        
        
        
        
          16,214 
        
        
        
        
          16,153 
        
      
      
        
          Total assets
        
        
        
        
          $583,519 
        
        
        
        
          $504,544 
        
      
      
        
        
        
        
        
        
        
        
        
           
        
      
      
        
          Current liabilities:
        
        
        
        
        
        
        
        
        
      
      
        
          Short-term debt
        
        
        
        
          $12,788 
        
        
        
        
          $26,773 
        
      
      
        
          Accounts payable and accrued expenses
        
        
        
        
          277,174 
        
        
        
        
          234,555 
        
      
      
        
          Total current liabilities
        
        
        
        
          289,962 
        
        
        
        
          261,328 
        
      
      
        
          Long-term debt
        
        
        
        
          483 
        
        
        
        
          8,028 
        
      
      
        
          Other liabilities
        
        
        
        
          4,226 
        
        
        
        
          2,346 
        
      
      
        
        
        
        
        
        
        
        
        
           
        
      
      
        
          Shareholders’ equity
        
        
        
        
          288,848 
        
        
        
        
          232,842 
        
      
      
        
          Total liabilities and shareholders’ equity
        
        
        
        
          $583,519 
        
        
        
        
          $504,544 
        
      
    
    
      Forward-Looking Statements
    
    
      This press release contains forward-looking statements about the Company’s 
      performance. These statements are based on management’s 
      estimates, assumptions and projections and are not guarantees of future 
      performance. The Company assumes no obligation to update these 
      statements. Actual results may differ materially from results expressed 
      or implied in these statements as the result of risks, uncertainties and 
      other factors including, but not limited to: (a) unanticipated 
      variations in sales volume, (b) economic conditions and exchange rates, 
      (c) actions by competitors, (d) the continuation of key vendor 
      relationships, (e) the ability to maintain satisfactory loan agreements 
      with lenders, (f) risks associated with the delivery of merchandise to 
      customers utilizing common carriers, (g) the operation of the Company’s 
      management information systems, and (h) unanticipated legal and 
      administrative proceedings. Please refer to “Risk 
      Factors” and the Forward Looking Statements 
      sections contained in the Company’s Form 10-K 
      for a more detailed explanation of the inherent limitations in such 
      forward-looking statements.