SYX Systemax Inc

Systemax Inc. (NYSE:SYX) today announced results for the first quarter of 2007. Net sales increased 18% to $676 million compared to $575 million in the first quarter of 2006. Sales of technology products (computers, computer supplies and consumer electronics) grew by 18% and sales of industrial products grew by 16%. Sales transacted via the internet grew 19% to $238 million compared to $200 million in the first quarter of 2006. Gross margin was 14.3% compared to 15.8% in the first quarter of 2006 and increased 140 basis points compared to the fourth quarter of 2006. As in the fourth quarter, gross margin was impacted by competitive pricing pressures for technology products. Operating income was $21.5 million compared to $20.9 million in the first quarter of 2006. Net income was $13.9 million, or $.37 per diluted share, compared to $17.6 million, or $.48 per diluted share, in the first quarter of 2006. Included in net income in the first quarter of 2007 is a gain of approximately $1.5 million or $.04 per diluted share, after tax, related to a lawsuit settled during the quarter. Included in net income in the first quarter of 2006 is a gain of $4.3 million, or $.12 per diluted share, after tax, from the sale of a warehouse facility. Richard Leeds, Chairman and Chief Executive Officer, said �I am pleased with first quarter 2007 consolidated results, highlighted by our 18% growth in sales, 19% growth in internet sales and 3% growth in operating income. The strong results evidence the continuing success of our business model and our ability to gain share in the markets in which we participate. We continued to see some competitive pricing pressures in our technology products business compared to last year; however, we were pleased that our consolidated gross margin improved significantly compared to last quarter. We also saw increased leverage in our cost structure as we lowered selling, general and administrative expense as a percentage of sales to 11.5% from 12.2% in 2006, excluding the aforementioned lawsuit settlement.� Gilbert Fiorentino, Chief Executive Officer of TigerDirect.com and the technology products segment, noted, �we again experienced strong sales growth in both the North American and European markets. North American technology product sales grew 12 % in the first quarter, driven primarily by growth in internet sales and our private label products. European sales grew 28% overall, 15% after taking into account exchange rate effects, in the first 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 16% in the first quarter compared to 2006, driven primarily by increased internet sales and competitive advantages due to our worldwide sourcing and aggressive pricing strategies. Industrial product sales transacted via the internet grew 39% in the first quarter of 2007. Our ProfitCenter Software subsidiary signed two new customer implementation and hosting contracts during the quarter and also went live with two customers. As a hosted software service, revenues from both hosting and implementation are recognized over the contractual hosting period and for the first quarter 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 $215 million, which included cash and equivalents of $106 million, and over $100 million in available borrowing capacity under its credit facilities in place. Our financial strength allowed us to pay a special dividend of $36.6 million on April 12, 2007. Operationally, days sales outstanding were 25 days at March 31, 2007 and inventory turned at an annual rate of over 10 times during the quarter. Our effective tax rate increased by 1.4% in the first quarter of 2007, primarily due to higher income in locations that have higher tax rates.� 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 Income (In thousands, except per share amounts) (Unaudited) � Quarter Ended March 31, 2007� 2006� Net sales $676,122� $574,908� Cost of sales 579,448� 484,145� Gross profit 96,674� 90,763� Gross margin 14.3% 15.8% Selling, general and administrative expenses 75,137� 69,885� Operating income 21,537� 20,878� Operating margin 3.2% 3.6% Other non-operating expense (income) 70� (6,638) Interest (income) expense, net (812) 15� Income before income taxes 22,279� 27,501� Provision for income taxes 8,384� 9,944� Net income $13,895� $17,557� Net margin 2.1% 3.1% � Net income per common share: Basic $.39� $.51� Diluted $.37� $.48� Weighted average shares outstanding Basic 35,718� 34,762� Diluted 37,701� 36,553� SYSTEMAX INC. Condensed Consolidated Balance Sheets (In thousands) (unaudited) March 31, December 31, 2007� 2006� Current assets: Cash and cash equivalents $105,946� $86,964� Accounts receivable, net 182,075� 164,615� Inventories 247,007� 233,136� Prepaid expenses and other current assets 27,144� 34,646� Total current assets 562,172� 519,361� Property, plant and equipment, net 47,831� 48,586� Deferred income taxes and other assets 15,181� 16,214� Total assets $625,184� $584,161� � Current liabilities: Short-term debt $12,086� $12,788� Accounts payable and accrued expenses 335,195� 277,174� Total current liabilities 347,281� 289,962� Long-term debt 341� 483� Other liabilities 5,729� 4,226� � Shareholders� equity 271,833� 289,490� Total liabilities and shareholders� equity $625,184� $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.