Systemax Reports Second Quarter Results

Systemax Inc. (NYSE:SYX) today announced results for the second quarter and six months ended June 30, 2007. Net sales for the quarter increased 18% to $647 million compared to $547 million in the second quarter of 2006. Sales of technology products (computers, computer supplies and consumer electronics) grew by 19% and sales of industrial products grew by 12%. Gross margin improved to 15.3% from 14.1% in the second quarter of 2006 and operating income was $20.1 million compared to $10.6 million in the second quarter of 2006. Net income was $13.8 million, or $.37 per diluted share, compared to $7.1 million, or $.19 per diluted share, in the second quarter of 2006. For the six months ended June 30, 2007, net sales increased 18% to $ 1.3 billion from $1.1 billion during the same period last year. Net income increased 12% to $27.7 million or $.73 per diluted share compared to $24.7 million or $.67 per diluted share a year ago. Included in net income for the six months ended June 30, 2007 is an after tax gain of approximately $1.5 million or $.04 per diluted share related to a lawsuit settlement and included in net income for the six months ended June 30, 2006 is an after tax gain of $4.3 million, or $.12 per diluted share from the sale of a warehouse facility. Richard Leeds, Chairman and Chief Executive Officer, said "I am very pleased with second quarter 2007 consolidated results, highlighted by our 18% growth in sales, improved gross margin and 90% growth in operating income. Although we are still in an intensely competitive environment, we experienced less price discounting in the quarter and we are pleased that our consolidated gross margin has shown improvement in the last two consecutive quarters. Gross margin improved from 12.9% in the fourth quarter of 2006 to 14.3% in the first quarter of 2007 and 15.3% in the second quarter of 2007. We also maintained good control over our cost structure as selling, general and administrative expense as a percentage of sales in the quarter was flat at 12.2 % compared to the second quarter 2006, despite increased consulting and staffing costs associated with the requirements of Section 404 of the Sarbanes-Oxley Act.” Gilbert Fiorentino, Chief Executive Officer of TigerDirect.com and the technology products segment, noted, "the trend of strong sales growth in both the North American and European markets continued in the second quarter. North American technology product sales grew 15% in the quarter, driven by growth in all sales channels. European sales grew 26% overall, 17 % after taking into account exchange rate effects, in the second quarter 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 12 % in the second quarter compared to 2006, driven primarily by increased internet sales and continuing competitive advantages due to our worldwide sourcing and aggressive pricing strategies. Industrial product sales transacted via the internet grew 34% in the second quarter of 2007. ” Larry Reinhold, Chief Financial Officer, noted that the Company’s overall financial condition remains solid as evidenced by its working capital of $231 million, which included cash and equivalents of $82 million. Cash flow from operations for the quarter was approximately $27 million and for the first six months of 2007 was over $45 million. Operationally, days sales outstanding were 25 days at June 30, 2007 and inventory turned at an annual rate of approximately 9 times during the quarter. Our effective tax rate was 36.1% for the first six months of 2007, up slightly from the prior year. 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)   Three Months Ended Six Months Ended June 30, June 30,   2007   2006   2007   2006 Net sales $ 647,102 $ 547,242 $ 1,323,224 $ 1,122,150 Cost of sales   547,784   469,872   1,127,232   954,017 Gross profit 99,318 77,370 195,992 168,133 Gross margin 15.3% 14.1% 14.8% 15.0% Selling, general and administrative expenses   79,249   66,796   154,386   136,681 Operating income 20,069 10,574 41,606 31,452 Operating margin 3.1% 1.9% 3.1% 2.8% Interest and other (income) expense, net   (956)   (145)   (1,698)   (6,768) Income before income taxes 21,025 10,719 43,304 38,220 Provision for income taxes 7,263 3,613 15,647 13,557 Effective tax rate   34.5%   33.7%   36.1%   35.5% Net income $ 13,762 $ 7,106 $ 27,657 $ 24,663 Net margin 2.1% 1.3% 2.1% 2.2%   Net income per common share: Basic $ .38 $ .20 $ .77 $ .71 Diluted $ .37 $ .19 $ .73 $ .67   Weighted average common and common equivalent shares: Basic 36,006 35,229 35,863 34,802 Diluted 37,686 36,981 37,644 36,563 SYSTEMAX INC. Condensed Consolidated Balance Sheets (In thousands) (unaudited)     June 30, 2007 December 31, 2006 Current assets: Cash and cash equivalents $ 81,823 $ 86,964 Accounts receivable, net 174,966 164,615 Inventories 248,703 233,136 Prepaid expenses and other current assets   32,530   34,646 Total current assets 538,022 519,361 Property, plant and equipment, net 49,290 48,586 Deferred income taxes and other assets   15,001   16,214 Total assets $ 602,313 $ 584,161   Current liabilities: Short-term debt $ 571 $ 12,788 Accounts payable and accrued expenses   306,656   277,174 Total current liabilities 307,227 289,962 Long-term debt 367 483 Other liabilities 6,029 4,226   Shareholders’ equity   288,690   289,490 Total liabilities and shareholders’ equity $ 602,313 $ 584,161 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.