Proxy Statement and
2011 Annual Report to Stockholders
Dear Fellow Stockholders,
The past year has been one of transition for Systemax, during which we made significant progress in positioning the
business for improved profitability and long-term growth. In 2011, we faced a highly competitive landscape and a
mixed macro-economic environment. There were internal challenges as well, resulting from the discovery of serious
ethical misconduct on the part of certain former leaders of our Technology Products Group. We moved swiftly to
address those issues to protect the Company and its stockholders. We also organized the Company into three major
business units and appointed experienced and proven professionals to manage them. We split the technology
leadership role and hired David Sprosty and Pim Dale as Chief Executives of our North American and European
Technology Products Groups, respectively. Bob Dooley, who has been instrumental in driving the success of our
Industrial Products Group (IPG) during the past several years, was promoted to President of Global Industrial. As a
result, we have significantly strengthened our executive team and are better positioned to meet the unique needs of
each market we serve and further improve our performance.
During 2011, Systemax’s balanced focus on both the top and bottom line resulted in improvements in gross margin,
operating margin and EPS for the full year. Our performance reflects our efforts to deliver profitable growth, the
continued execution of our strategic plan, prudent investments in our business and a strong performance from our
business-to-business (B2B) segment where sales grew 12%. Our efforts to improve operational and logistics
efficiencies across our businesses are gaining traction and will lead to continued success in the long-run. Additionally,
we continued to strengthen our balance sheet and ended the year with nearly $100 million in cash. This reflects our
ability to generate significant cash and efforts to proactively manage our balance sheet.
Our outstanding performance in B2B was led by our Industrial Products Group. IPG produced strong sales gains
every quarter during 2011. Full year sales grew 28% to $320 million, reflecting our expanded product line offerings,
improvements in all our core categories and great execution. We ended the year with 485,000 total industrial SKUs,
nearly double the amount for 2010, and our e-Commerce infrastructure remains highly scalable. During the year, we
expanded our operations in Canada and launched a new website to specifically address this market. Additionally, we
maintained our operating margins and produced strong double digit increases in profitability, while significantly
growing the business. In 2012, we will make additional investments to support our growth. In particular, we recently
signed a long-term lease for a new distribution center and sales office in New Jersey. We anticipate that this new
facility will be operational by this summer, and we will continue to expand our product offering as we anticipate
continued growth in this segment.
Similarly, the European B2B technology business delivered sales and profitable growth, an impressive performance,
specifically given the challenging macro-economic situation in southern Europe. We ended the year with a strong
revenue performance from our UK, Holland and Ireland operations and improved bottom line results driven by the UK
and France. During the year we benefited from our larger presence in the U.K. and France gained through our WStore
acquisition as well as opportunistic product purchases and the continued investment in our sales force. We are also
seeing efficiencies from our larger business footprint as we improve our operating structure and focus on cost
containment, which remain focus areas in 2012. Given the operating leverage we are building in our existing operations,
we continue to explore strategic growth opportunities in current and adjacent markets to expand our business.
In North America, our technology B2B operations had an excellent year, accounting for approximately one third of
our business in this geography. We continue to benefit from the IT upgrade trends as well as our investments in sales
agents. The strategic investments in our sales force resulted in increased productivity as the year progressed and
agents worked through the typical ramp-up period to build their account books. We have also seen improvements in
converting web sales into managed accounts, an effort we continue to focus on in 2012.
In contrast, our North American consumer operations faced a more challenging backdrop in 2011, from a soft
consumer electronics environment and a competitive marketplace, particularly concerning promotional freight trends
during the holiday season. The web, our largest channel, remains very competitive and price sensitive, while our
television home shopping networks, our smallest channel, was impacted by the macro-economic environment and
continued industry weakness in television product sales. However, our North American brick and mortar operations
fared better, producing a solid same store sales performance for the year, which we believe outpaced the industry. At
year end, our total store count was 42 and we recently opened our second store in Puerto Rico. We remain active in
the evaluation of potential new store locations to continue to expand our retail footprint. During 2012, we plan on
building a “store of the future” prototype that will expand on our established retail strengths, including Retail 2.0,
mobility and our optimal store size.
Additionally, mobile and tablet offerings were among our top category initiatives in the consumer segment last year.
We opened 29 Retail 2.0-powered mobility centers within our stores and results have been in-line with our plan. We
also dramatically expanded our tablet selection across our sales channels, establishing Systemax as a tablet
destination for consumers. During the year we began the restructuring process of our private label product program
in North American Technology, which is being modeled after our highly successful IPG private label business.
Upgrading and streamlining this business will allow us to significantly broaden our private label product offering and
substantially improve the profitability of this business over time.
Overall, 2011 was a solid year for Systemax. We delivered a sound financial performance, while making strategic and
operational improvements. Our balance sheet and cash position remain very strong and provide a stable foundation from
which we continue to grow the Company. Our efforts to optimize our operational structure, through internal IT
enhancements and other logistics and business execution efforts are ongoing. The diversity of our operations is a unique
advantage that continues to mitigate our dependency on a specific geographic region, customer segment or distribution
channel. Taking all of this into consideration, we are well positioned for future growth and success in the long-term.
Sincerely,
Richard Leeds
Chairman and Chief Financial Officer
April 27, 2012
TO RECEIVE ADDITIONAL INFORMATION ON THE COMPANY
PLEASE SEND A WRITTEN REQUEST TO:
CORPORATE HEADQUARTERS:
Systemax Inc.
11 Harbor Park Drive
Port Washington, NY 11050
516-608-7000 ext. 7181
Email: investinfo@systemax.com
Web Site: http://www.systemax.com
INVESTOR RELATIONS:
Brainerd Communicators, Inc.
521 Fifth Avenue, 8th Floor
New York, NY 10175
Attention: Dianne Pascarella
(212) 986-6667
Email: pascarella@braincomm.com
Website: http://www.braincomm.com
TRANSFER AGENT:
American Stock Transfer & Trust Company
59 Maiden Lane
New York, NY 10038
Phone: 212-936-5100
Email: info@amstock.com
Web Site: http://www.amstock.com
SEND CERTIFICATES FOR TRANSFER AND ADDRESS CHANGES TO:
American Stock Transfer & Trust Company
59 Maiden Lane
New York, NY 10038
STOCK EXCHANGE:
The Company’s shares are traded on the
New York Stock Exchange under the symbol SYX.
CORPORATE GOVERNANCE
Copies of the Company’s 2011 Annual Report on Form 10-K, Proxy Statement for the 2012 Annual Meeting,
Quarterly Reports on Form 10-Q and Current Reports on Form 8-K filed with the Securities and Exchange
Commission are available online at www.systemax.com or to stockholders without charge upon written request
to the Company’s address listed above, Attention: Investor Relations. In addition, on the Corporate Governance
page of the Company’s website, www.systemax.com, stockholders can view the Company’s Corporate Ethics
Policy, Audit Committee Charter, Compensation Committee Charter, Nominating/Corporate Governance
Committee Charter and Corporate Governance Guidelines and Principles.
Systemax Inc. (www.systemax.com), a Fortune 1000 company, sells personal computers, computer
supplies and accessories, consumer electronics and industrial products through branded e-commerce
web sites, direct mail catalogs, relationship marketers and retail stores in North America and Europe.
The primary brands are TigerDirect, CompUSA, Circuit City, MISCO, WStore and Global Industrial.
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
SCHEDULE 14A
(RULE 14a-101)
SCHEDULE 14A INFORMATION
Proxy Statement pursuant to Section 14(a) of the
Securities Exchange Act of 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] Preliminary Proxy Statement
[_] Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material under Rule 14a-12
Systemax Inc.
(Name of Registrant as Specified in Its Charter)
________________
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11
Title of each class of securities to which transaction applies
(1)
___________________________________________________________________________________________
Aggregate number of securities to which transaction applies:
(2)
___________________________________________________________________________________________
(3)
Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which
the filing fee is calculated and state how it was determined):
___________________________________________________________________________________________
Proposed maximum aggregate value of transaction:
(4)
___________________________________________________________________________________________
(5)
Total fee paid:
[_] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing.
Amount Previously Paid:
(1)
___________________________________________________________________________________________
(2)
Form, Schedule or Registration Statement No.:
___________________________________________________________________________________________
(3)
Filing Party:
___________________________________________________________________________________________
(4)
Date Filed:
Systemax Inc.
11 Harbor Park Drive
Port Washington, New York 11050
April 30, 2012
Dear Stockholders:
You are cordially invited to attend the 2012 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 Monday, June 11, 2012. I
look forward to greeting those stockholders who are able to attend. On the following pages you will find the formal Notice of Annual
Meeting and Proxy Statement.
For the Annual Meeting, we are pleased to use the ―Notice Only‖ rule adopted by the Securities and Exchange Commission to
furnish proxy materials to shareholders over the Internet. We believe this process will provide you with an efficient and quick way to access
your proxy materials and vote your shares, while allowing us to reduce the environmental impact and the costs of printing and distributing the
proxy materials. On or about April 30, 2012, we mailed to most stockholders only a Notice of Internet Availability of Proxy Materials that
tells them how to access and review information contained in the proxy materials and our annual report for Fiscal 2011 and vote
electronically over the Internet. If you received only the Notice in the mail, you will not receive a printed copy of the proxy materials in the
mail unless you request the materials by following the instructions included in the Notice.
At the Annual Meeting, you will be asked to: (1) elect seven Directors; and (2) ratify the appointment of Ernst & Young LLP as the
Company’s auditors for the fiscal year ending December 31, 2012. Your Board of Directors recommends that you vote your shares ―FOR‖
proposals (1) and (2). These proposals are more fully described in the accompanying proxy statement.
Whether or not you plan to attend the meeting in person, it is important that your shares be represented and voted at the Annual
Meeting. Accordingly, please vote your shares over the internet at www.proxyvote.com or by telephone at (800) 690-6903 until 11:59 PM
(EDT) on June 8, 2012, or if you received a paper proxy card, date, sign and return the proxy card as soon as possible in the envelope
provided or to the address set forth in the voting instructions therein. Your cooperation will ensure that your shares are voted.
If your shares are held in “street name” in a stock brokerage account or by a bank or other nominee, you must provide your
broker with instructions on how to vote your shares in order for your shares to be voted on important matters presented at the
Annual Meeting. If you do not instruct your broker on how to vote in the election of directors and on compensation matters, your
shares will not be voted on these matters.
I hope that you will attend the Annual Meeting, and I look forward to seeing you there.
Sincerely,
RICHARD LEEDS
Chairman and Chief Executive Officer
2
Systemax Inc.
11 Harbor Park Drive
Port Washington, New York 11050
____________
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
To Be Held On June 11, 2012
Dear Stockholders:
The 2012 Annual Meeting of the Stockholders of Systemax Inc. (the ―Company‖) will be held at the Company’s offices, 11 Harbor
Park Drive, Port Washington, New York, on Monday June 11, 2012 at 2:00 p.m. for the following purposes, as more fully described in the
accompanying proxy statement:
1. To elect the Company’s Board of Directors;
2. To consider and vote upon a proposal to ratify the appointment of Ernst &
Young LLP as the Company’s independent registered public accountants; and
3. To transact such other business as may properly come before the meeting and
any and all adjournments or postponements thereof.
The Board of Directors has fixed the close of business on April 16, 2012 as the record date for the determination of the stockholders
entitled to notice of and to vote at the meeting and at any adjournment or postponement thereof.
Stockholders are invited to attend the meeting. Whether or not you expect to attend, we urge you to vote your shares. YOU CAN
VOTE YOUR SHARES OVER THE INTERNET AT www.proxyvote.com OR BY TELEPHONE AT (800) 690-6903 UNTIL 11:59 PM
(EDT) ON JUNE 8, 2012. IF YOU RECEIVED A PAPER PROXY CARD BY MAIL, YOU MAY ALSO VOTE BY SIGNING, DATING,
AND RETURNING THE PROXY CARD IN THE ENVELOPE PROVIDED OR TO THE ADDRESS SET FORTH IN THE VOTING
INSTRUCTIONS CONTAINED THEREIN. If you attend the meeting, you may vote your shares in person, which will revoke any
previously executed proxy.
If your shares are held of record by a broker, bank or other nominee and you wish to attend the meeting you must obtain a letter
from the broker, bank or other nominee confirming your beneficial ownership of the shares and bring it to the meeting. In order to vote your
shares at the meeting, you must obtain from the record holder a proxy issued in your name.
Regardless of how many shares you own, your vote is very important. PLEASE VOTE YOUR SHARES OVER THE INTERNET
OR BY TELEPHONE OR IF YOU RECEIVED A PAPER PROXY CARD BY MAIL, SIGN, DATE, AND RETURN THE PROXY CARD
IN THE ENVELOPE PROVIDED TODAY.
Sincerely,
CURT RUSH
General Counsel and Secretary
Port Washington, New York
April 30, 2012
3
TABLE OF CONTENTS
IMPORTANT NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS FOR THE ANNUAL MEETING OF
STOCKHOLDERS TO BE HELD ON JUNE 11, 2012. .......................................................................................................................... 5
Voting Procedures ....................................................................................................................................................................... 6
PROPOSAL NO. 1 ELECTION OF DIRECTORS .................................................................................................................................. 9
CORPORATE GOVERNANCE ............................................................................................................................................................. 11
Independence of Directors ......................................................................................................................................................... 11
Meetings of Non-Management Directors .................................................................................................................................. 11
Corporate Governance Guidelines ............................................................................................................................................ 11
Corporate Ethics Policy ............................................................................................................................................................. 12
Communications with Directors ................................................................................................................................................ 12
Director Attendance at Annual Meetings .................................................................................................................................. 12
Board Meetings ......................................................................................................................................................................... 12
Committees of the Board ........................................................................................................................................................... 12
Board Leadership Structure ....................................................................................................................................................... 14
Risk Oversight ........................................................................................................................................................................... 15
REPORT OF THE AUDIT COMMITTEE* ........................................................................................................................................... 16
EXECUTIVE OFFICERS ....................................................................................................................................................................... 17
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT ............................................................ 18
Section 16(a) Beneficial Ownership Reporting Compliance ..................................................................................................... 19
TRANSACTIONS WITH RELATED PERSONS .................................................................................................................................. 20
EQUITY COMPENSATION PLAN INFORMATION .......................................................................................................................... 21
EXECUTIVE COMPENSATION ........................................................................................................................................................... 22
Compensation Discussion and Analysis .................................................................................................................................... 22
Compensation Committee Report to Stockholders*.................................................................................................................. 32
Compensation Committee Interlocks and Insider Participation ................................................................................................ 32
SUMMARY COMPENSATION TABLE ................................................................................................................................ 33
GRANTS OF PLAN-BASED AWARDS ................................................................................................................................. 34
OUTSTANDING EQUITY AWARDS AT FISCAL YEAR END 2011 ................................................................................. 35
OPTION EXERCISES AND STOCK VESTED ...................................................................................................................... 35
POTENTIAL PAYMENTS UPON TERMINATION OR CHANGE IN CONTROL ............................................................. 36
Termination of Employment Without Change In Control ......................................................................................................... 37
Change In Control Payments ..................................................................................................................................................... 37
DIRECTOR COMPENSATION ............................................................................................................................................................. 38
Director Compensation For Fiscal Year 2011 ........................................................................................................................... 38
PROPOSAL NO. 2 RATIFICATION OF INDEPENDENT REGISTERED PUBLIC ACCOUNTANTS ............................................ 39
ADDITIONAL MATTERS ..................................................................................................................................................................... 40
4
IMPORTANT NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS FOR THE
ANNUAL MEETING OF STOCKHOLDERS TO BE HELD ON JUNE 11, 2012.
Our Proxy Statement and Annual Report are available online at:
www.proxyvote.com
5
Systemax Inc.
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 2012 Annual Meeting of Stockholders of the Company to be held on June
11,2012 (the ―Annual Meeting‖). The Company has made the proxy materials available to stockholders of record as of the close of business
on April 16, 2012 at www.proxyvote.com beginning on April 30, 2012 and is first mailing such materials to stockholders that requested
printed copies of such materials on or about April 30, 2012.
You can ensure that your shares are voted at the meeting by voting your shares over the internet at www.proxyvote.com or by
telephone at (800) 690-6903 until 11:59 PM (EDT) on June 8, 2012 or by signing, dating and promptly returning a proxy, if you received a
proxy by mail, in the envelope provided or to the address contained in the voting instructions therein. Voting your shares over the internet, by
telephone or by sending in a signed proxy will not affect your right to attend the meeting and vote in person. Stockholders of record may
revoke their proxy at any time before it is voted by notifying the Company’s Transfer Agent, American Stock Transfer & Trust Company, 59
Maiden Lane, New York, NY 10038, Attention: Proxy Department, in writing, or by executing and delivering a subsequently dated proxy to
the address contained in the voting instructions in the proxy, which revokes your previously executed proxy. Beneficial holders whose shares
are held of record by a broker, bank or other nominee may revoke their proxy at any time before it is voted by following the instructions of
their broker, bank or other nominee.
The Company’s principal executive offices are located at 11 Harbor Park Drive, Port Washington, New York 11050.
Voting Procedures
Proxies will be voted as specified by the stockholders. Where specific choices are not indicated, proxies will be voted, per the Board
of Directors’ recommendations, FOR proposals 1 and 2. If any other matters properly come before the Annual Meeting, the persons named
in the proxy will vote at their discretion.
Under the Delaware General Corporation Law and the Company’s Amended and Restated Certificate of Incorporation and By-Laws,
(1) the affirmative vote of a plurality of the outstanding shares of common stock of the Company (the ―Shares‖) entitled to vote and present,
in person or by properly executed proxy, at a meeting at which a quorum is present will be required to elect the nominated directors of the
Board (Proposal 1); and (2) the affirmative vote of a majority of the outstanding Shares entitled to vote and present, in person or by properly
executed proxy, at a meeting at which a quorum is present will be required to ratify the appointment of Ernst & Young LLP as the
Company’s independent registered public accountants (Proposal 2).
Richard Leeds, Bruce Leeds and Robert Leeds (each a director and officer of the Company), together with trusts for the benefit of
certain members of their respective families and other entities controlled by them, as applicable, beneficially owned as of our record date
more than 50% of the shares of common stock, and they have each separately advised us that they intend to vote all of such shares of
common stock they each have the power to vote in accordance with the recommendations of the Board of Directors on each of the items of
business identified above, which will be sufficient to constitute a quorum and to determine the outcome of each item under consideration.
A quorum is representation in person or by proxy at the Annual Meeting of at least a majority of the outstanding Shares.
Abstentions will have no effect on the election of directors (Proposal 1). Abstentions on other matters will be treated as votes cast on
particular matters as well as shares present and represented for purposes of establishing a quorum, with the result that an abstention has the
same effect as a negative vote regarding such other matters. Where nominee record holders do not vote on specific issues because they did
not receive specific instructions on such issues from the beneficial owners, such broker non-votes will not be treated as votes cast on a
particular matter, and will therefore have no effect on the vote, but will be treated as shares present or represented for purposes of establishing
a quorum.
If your shares are held through a broker, bank or other nominee, you must provide voting instructions to such record holder in
accordance with such record holder’s requirements in order to ensure that your shares are properly voted. Please note that the rules regarding
how brokers may vote your shares have recently changed. Brokers may no longer vote your shares on the election of directors, or any other
non-routine matters, in the absence of your specific instructions as to how to vote. We encourage you to provide instructions to your broker
regarding the voting of your shares. If you do not provide your broker or other nominee with instructions on how to vote your ―street name‖
shares, your broker or nominee will not be permitted to vote them on such non-routine matters (a broker ―non-vote‖). Please note that Item 1
6
(Election of Directors) is a non-routine matter, and so Shares subject to a broker ―non-vote‖ will not be considered entitled to vote with
respect to Item 1 and will not affect the outcome of the vote on that Item.
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 Annual Meeting during normal business hours at the offices of the Company at least
ten days prior to the Annual Meeting.
Revocability of Proxies
Any person signing a proxy in the form accompanying this proxy statement has the power to revoke it prior to the Annual Meeting
or at the Annual Meeting prior to the vote pursuant to the proxy. A proxy may be revoked by any of the following methods:
by writing a letter delivered to Curt Rush, General Counsel of the Company, stating that the proxy is revoked;
by submitting another proxy with a later date (i.e., by signing and submitting a new proxy card or by re-voting by phone or by
Internet as instructed above); only your latest proxy card, phone or Internet vote will be counted; or
by attending the Annual Meeting and voting in person.
Please note, however, that if a stockholder’s shares are held of record by a broker, bank or other nominee and that stockholder
wishes to vote at the Annual Meeting, the stockholder must bring to the Annual Meeting a letter from the broker, bank or other nominee
confirming that stockholder’s beneficial ownership of the shares.
On April 16, 2012, the record date, there were outstanding and entitled to vote (excluding Company treasury shares) 36,470,056
Shares, entitled to one vote per Share. Only stockholders of record at the close of business on the record date will be entitled to vote at the
Annual Meeting and at any and all adjournments or postponements thereof. Stockholders will not be entitled to appraisal rights in connection
with any of the matters to be voted on at the Annual Meeting.
Internet Posting of Proxy Materials
Why did I receive a notice regarding the internet availability of proxy materials instead of paper copies of the proxy
materials?
We have implemented the Securities and Exchange Commission, or SEC, ―Notice Only‖ rule that allows us to furnish our proxy
materials over the Internet to our stockholders instead of mailing paper copies of those materials to each stockholder. As a result, beginning
on or about April 30, 2012, we sent to most of our stockholders by mail a ―Notice of Internet Availability of Proxy Materials‖ containing
instructions on how to access our proxy materials over the Internet and vote online. This notice is not a proxy card and cannot be used to vote
your shares. If you received a notice this year, you will not receive paper copies of the proxy materials unless you request the materials by
following the instructions on the notice or on the website referred to in the notice.
If you own shares of common stock in more than one account—for example, in a joint account with your spouse and in your
individual brokerage account—you may have received more than one notice. To vote all of your shares by proxy, please follow each of the
separate proxy voting instructions that you received for your shares of common stock held in each of your different accounts.
How can I access the proxy materials over the Internet?
Your Notice of the Internet Availability of the proxy materials, proxy card or voting instruction card will contain instructions on
how to view our proxy materials for the Annual Meeting on the Internet. Our proxy materials and annual report on Form 10-K for fiscal year
2011, as well as the means to vote by Internet, are available at www.proxyvote.com
How may I obtain a paper copy of the proxy materials?
If you receive a Notice of the Internet Availability of the proxy materials, you will find on your notice instructions about how to
obtain a paper copy of the proxy materials. If you did not receive the notice, you will receive a paper copy of the proxy materials by mail.
7
What is “householding”?
SEC rules allow a single copy of the proxy materials or the Notice of Internet Availability of proxy materials to be delivered to
multiple stockholders sharing the same address and last name, or who we reasonably believe are members of the same family in a manner
provided by such rules. This practice is referred to as ―householding‖ and can result in significant savings of paper and mailing costs. In
accordance with SEC rules, stockholders sharing the same address and last name, or who we reasonably believe are members of the same
family, will receive one copy of the proxy materials or notice of internet availability of proxy materials.
How can I find voting results of the Annual Meeting?
We will announce preliminary voting results at the Annual Meeting and we will publicly disclose the results on a Form 8-K within
four business days of the Annual Meeting, as required by Securities and Exchange Commission rules.
8
PROPOSAL NO. 1
ELECTION OF DIRECTORS
At the Annual Meeting, seven Directors are to be elected to serve until their successors have been elected and qualified. Information
regarding such nominees is set forth below.
The accompanying proxy will be voted for the election of the Board’s nominees unless contrary instructions are given. If any Board
nominee is unable to serve, which is not anticipated, the persons named as proxies intend to vote, unless the Board of Directors reduces the
number of nominees, for such other person or persons as the Board of Directors may designate.
Each of the nominees served as a director during fiscal year 2011. If voting by proxy with respect to the election of Directors,
stockholders may vote in favor of all nominees, withhold their votes as to all nominees or withhold their votes for specific nominees.
There were no arrangements or understandings between any Director or nominee for Director and any other person pursuant to
which such person was selected as a Director or nominee for Director. There are no family relationships among any of our Directors or
executive officers or nominees for Director or executive officer, except that Richard Leeds, Bruce Leeds and Robert Leeds are brothers.
Nominees
Name of Nominee
Richard Leeds
Bruce Leeds
Robert Leeds
Lawrence P. Reinhold
Robert D. Rosenthal
Stacy S. Dick
Marie Adler-Kravecas
Age
52
Principal Occupation
Chairman and Chief Executive Officer of the
Company
Vice Chairman of the Company
Vice Chairman of the Company
Executive Vice President and Chief Financial Officer
of the Company
Chairman and Chief Executive Officer of First Long
Island Investors LLC
Chief Financial Officer of Julian Robertson Holdings 55
52
Retired President of Myron Corporation
56
56
52
63
Director Since
April 1995
April 1995
April 1995
March 2009
July 1995
November 1995
June 2009
Richard Leeds joined the Company in 1982 and has served as Chairman and Chief Executive Officer of the Company since April
1995. Mr. Leeds graduated from New York University with a B.S. degree in Finance. Mr. Leeds, together with his brothers Bruce and Robert
Leeds, are the majority stockholders of the Company and the sons of one of the Company’s founders. Mr. Leeds was selected to serve as
Chairman of our Board due to his experience and depth of knowledge of the Company and the direct marketing, computer and industrial
products industries, his role in developing and managing the Company’s business strategies and operations, as well as his exceptional
business judgment and leadership qualities.
Bruce Leeds joined the Company in 1977 and has served as Vice Chairman of the Company since April 1995. Mr. Leeds graduated
from Tufts University with a B.A. degree in Economics. Mr. Leeds, together with his brothers Richard and Robert Leeds, are the majority
stockholders of the Company and the sons of one of the Company’s founders. Mr. Leeds was selected to serve as a director on our Board due
to his experience and depth of knowledge of the Company and the direct marketing, computer and industrial products industries, his role in
developing and managing the Company’s business strategies and operations, his experience in international business as well as his
exceptional business judgment.
Robert Leeds joined the Company in 1977 and has served as Vice Chairman of the Company since April 1995. From April 18, 2011
to October 2011, Mr. Leeds served as the Interim Chief Executive of the Company’s North American Technology Products Group. Mr.
Leeds graduated from Tufts University with a B.S. degree in Computer Applications Engineering. Mr. Leeds, together with his brothers
Richard and Bruce Leeds, are the majority stockholders of the Company and the sons of one of the Company’s founders. Mr. Leeds was
selected to serve as a director on our Board because of his experience and depth of knowledge of the Company and the direct marketing,
computer and industrial products industries, his role in developing and managing the Company’s business strategies and operations, his
significant computer and technology industry experience as well as his exceptional business judgment.
Lawrence P. Reinhold joined the Company in January 2007 and has served as Executive Vice President and Chief Financial Officer
since that date. Additionally, Mr. Reinhold has served as a Director since March 2009. Prior to joining the Company, Mr. Reinhold was the
Chief Financial Officer of a publicly traded developer and manufacturer of medical devices; the Chief Financial Officer of a publicly traded
communications software company; and a regional Managing Partner of a Big 4 International Public Accounting Firm. He received his
B.S.B.A. degree, summa cum laude, and M.B.A degree from San Diego State University. Mr. Reinhold is a Certified Public Accountant. He
also serves on the board of directors and audit committee of Pulse Electronics, a publicly traded electronics manufacturer. Mr. Reinhold was
selected to serve as a director on our Board due to his contributions since joining the Company and his extensive experience and expertise in
business, strategy, finance, accounting, SEC reporting, public company management, mergers and acquisitions and financial systems as well
as his serving as a CFO of other public technology companies and a partner with an international accounting firm.
9
Robert D. Rosenthal has served as an independent Director of the Company since July 1995. He has been the lead independent
director since October 2006. Mr. Rosenthal is Chairman and Chief Executive Officer of First Long Island Investors LLC, which he co-
founded in 1983. Mr. Rosenthal is a 1971 cum laude graduate of Boston University and a 1974 graduate of Hofstra University Law School.
Mr. Rosenthal is the chairman and CEO of a wealth management company that invests in numerous public companies and is also an attorney
and member of the bar of the State of New York. Mr. Rosenthal was selected to serve as a director on our Board due to his financial,
investment and legal experience and acumen.
Stacy S. Dick has served as an independent Director of the Company since November 1995. Mr. Dick has served as Chief Financial
Officer of Julian Robertson Holdings since November 2008. Mr. Dick was a Managing Director of Rothschild Inc. from 2001 to 2008 and
served as an executive of other entities controlled by Rothschild family interests. Mr. Dick graduated from Harvard University with an A.B.
degree magna cum laude and a Ph.D. in Business Economics. He has served as an adjunct professor of finance at the Stern School of
Business (NYU) since 2004. Mr. Dick was selected to serve as a director on our Board due to his exceptional knowledge and experience in
the areas of business, finance and economics.
Marie Adler-Kravecas has served as an independent Director of the Company since June 2009. Ms. Adler-Kravecas joined Myron
Corporation, an international, business-to-business direct marketing company, in 1984 and served as President from 1999 to 2004. In 2005,
Ms. Adler-Kravecas founded Wellconnected, LLC, a consumer direct marketing company which was sold in 2008. Ms. Adler-Kravecas is
currently retired. Ms. Adler-Kravecas received a B.S. degree in Marketing and Business Administration from George Washington
University. She has been a member of the Young President’s Organization since 2003 and The Executive Group from 2004 to 2008. Ms.
Adler-Kravecas has been on the Board of the Children’s Aid and Family Service since 2004. Ms. Adler-Kravecas was selected to serve as a
director on our Board due to her practical experience in direct marketing and international business.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR THE ELECTION OF ALL THE DIRECTOR
NOMINEES, WHICH IS DESIGNATED AS PROPOSAL NO. 1.
10
Independence of Directors
CORPORATE GOVERNANCE
In connection with its annual review of director independence, the Board has determined that each of the following Directors or
nominees of the Company meets the standards for independence required by the New York Stock Exchange and Securities and Exchange
Commission rules: Robert D. Rosenthal, Stacy S. Dick and Marie Adler-Kravecas. The Board made this determination based on (a) the
absence of any of the express disqualifying criteria relating to director independence set forth in Section 303A of the Corporate Governance
Rules of the New York Stock Exchange and (b) the criteria for independence required of audit committee directors by Section 10A(m)(3) of
the Securities Exchange Act of 1934, as amended, which we refer to as the Exchange Act.
Although the Board has not adopted categorical standards of materiality for independence purposes (other than those set forth in the
NYSE listing standards and the Exchange Act), information provided by the Directors to the Company did not indicate any relationships
(e.g., commercial, industrial, banking, consulting, legal, accounting, charitable, or familial) which would impair the independence of any of
the non-employee Directors. The Board has determined that there is no material relationship between the Company and each of Mr.
Rosenthal, Mr. Dick and Ms. Adler-Kravecas (directly or as a partner, stockholder, or officer of an organization that has a relationship with
the Company) and that each of them is independent pursuant to the NYSE listing standards. In making its determination, the Board took into
consideration that a private partnership, in which Messrs. Richard, Bruce and Robert Leeds are general partners, has invested funds with a
private investment firm, of which Robert D. Rosenthal is Chairman and CEO. The Board (in each case with Mr. Rosenthal and Messrs.
Richard, Bruce and Robert Leeds being recused) determined that such relationship was not material to Messrs. Richard, Bruce and Robert
Leeds individually or collectively or to Mr. Rosenthal.
As a ―controlled company,‖ the Company is exempt from the New York Stock Exchange requirement that listed companies have a
majority of independent directors. A ―controlled company‖ is defined by the New York Stock Exchange as a company of which more than
50% of the voting power for the election of directors is held by an individual, group or other company. The Company is a ―controlled
company‖ in that more than 50% of the voting stock for the election of directors of the Company, in the aggregate, is owned b y certain
members of the Leeds family (including Richard Leeds, Bruce Leeds and Robert Leeds, each of whom is an officer and Director of the
Company) and certain Leeds’ family trusts (collectively, the ―Leeds Group‖). The members of the Leeds Group have entered into a
Stockholders Agreement with respect to certain Shares they each own. See ―Transactions With Related Persons‖ below.
Meetings of Non-Management Directors
The New York Stock Exchange requires the ―non-management directors‖ or independent directors of a NYSE-listed company to
meet at regularly scheduled executive sessions without management and to disclose in their annual proxy statements (1) the name of the non-
management director who is chosen to preside at all regularly-scheduled executive sessions of the non-management members of the board of
directors and (2) a method for all interested parties to communicate directly with the presiding director or with the non-management directors
as a group (this method is described below under ―Communications with Directors‖). The Board’s non-management or independent directors
meet separately in executive sessions, chaired by the Lead Independent Director (currently Robert D. Rosenthal), at least quarterly.
Corporate Governance Guidelines
The Company has adopted Corporate Governance Guidelines, which are available on the Corporate Governance page of our website
at www.systemax.com. The Corporate Governance Guidelines were last amended in April 2010.
Our Corporate Governance Guidelines establish our corporate governance principles and practices on a variety of topics, including
the responsibilities, composition and functioning of the Board. The Nominating/Corporate Governance Committee assesses the Guidelines
annually and makes recommendations to the Board on any changes to implement. Our Guidelines address, among other things:
the role and functions of our Board of Directors and management;
director qualifications, including our director independence standards and director nomination and selection;
the requirement to hold separate executive sessions of the independent directors;
the conduct of Board meetings;
policies for setting director compensation;
director orientation and continuing education;
policies regarding director access to management, employees and independent advisors; and
11
the annual self-assessment of the Board to evaluate its own effectiveness.
Corporate Ethics Policy
The Company has adopted a Corporate Ethics Policy that applies to all employees of the Company, including the Company’s Chief
Executive Officer, Chief Financial Officer and Controller, its principal accounting officer. The Corporate Ethics Policy is designed to deter
wrongdoing and to promote honest and ethical conduct, compliance with applicable laws and regulations, full and accurate disclosure of
information requiring public disclosure and the prompt reporting of Policy violations. The Company’s Corporate Ethics Policy is available
on the Company’s website (www.systemax.com ). We intend to disclose on our website, in accordance with applicable laws and regulations,
amendments to, or waivers from, our Corporate Ethics Policy. Our Corporate Ethics Policy was last amended in August 2011.
Communications with Directors
Stockholders of the Company who wish to communicate with the Board or any individual Director can write to Systemax Inc.,
Attention: Investor Relations, 11 Harbor Park Drive, Port Washington, NY 11050 or send an email to investinfo@systemax.com. Your letter
or email should indicate that you are a stockholder of the Company. Depending on the subject matter of your inquiry, management will
forward the communication to the Director or Directors to whom it is addressed; attempt to handle the inquiry directly, as might be the case if
you request information about the Company or it is a stockholder related matter; or not forward the communication if it is primarily
commercial in nature or if it relates to an improper or irrelevant topic. Interested parties, including non-stockholders wishing to communicate
directly with the Lead Independent Director or the non-management members of the Board as a group should address their inquiries by mail
sent to the attention of Robert D. Rosenthal, Lead Independent 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).
Interested parties, including non-stockholders wishing to communicate directly with the Chairman of the Audit Committee or the
Audit Committee as a group should address their inquiries by mail to the attention of Stacy S. Dick, Audit Committee Chairman, 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).
Director Attendance at Annual Meetings
At last year’s annual meeting, held on June 10, 2011, three Directors attended the meeting, including the Chairman of the Board and
the Lead Independent Director. The Company does not have a policy with regards to Directors’ attendance at annual stockholder meetings.
Board Meetings
During fiscal year 2011, the Board of Directors held six meetings, the Audit Committee held twelve meetings, the Compensation
Committee held six meetings, the Nominating/Corporate Governance Committee held six meetings, and the Executive Committee held five
meetings. All of the Directors attended at least 75% of all of the meetings of the Board and the respective committees of the Board of which
they were members.
Committees of the Board
The Board of Directors has the following standing committees:
Audit Committee
The Audit Committee is appointed by the Board to assist the Board with oversight of (i) the integrity of the financial statements of
the Company, (ii) the Company’s compliance with legal and regulatory requirements, (iii) the independence and qualifications of the
Company’s external auditors, and (iv) the performance of the Company’s internal audit function and external auditors. It is the Audit
Committee’s responsibility to retain or terminate the Company’s independent registered public accountants, who audit the Company’s
financial statements, and to prepare the Audit Committee report that the Securities and Exchange Commission requires to be included in the
Company’s Annual Proxy Statement. (See ―Report of the Audit Committee‖ below.) As part of its activities, the Audit Committee meets
with the Company’s independent registered public accountants at least annually to review the scope and results of the annual audit and
quarterly to discuss the review of the quarterly financial results. In addition, the Audit Committee receives and considers the independent
registered public accountants’ comments and recommendations as to internal controls, accounting staff, management performance and
auditing procedures. The Audit Committee is also responsible for establishing procedures for (i) the receipt, retention and treatment of
complaints received by the Company regarding accounting, internal accounting controls and auditing matters and (ii) the confidential,
anonymous submission by employees of the Company of concerns regarding questionable accounting or auditing matters.
12
In addition, the Audit Committee is responsible for reviewing, and discussing with management and reporting to the Board
regularly, the Company’s risk assessment and risk management processes. While it is the job of senior management to assess and manage the
Company’s exposure to risk under the oversight of the Board of Directors, the Audit Committee reviews and discusses with management the
Company’s risk management process. In addition, the Audit Committee works together with the Compensation Committee regarding the
Company’s compensation policies for all of the Company’s employees as the policies relate to the Company’s risk management goals and
objectives. The Audit Committee also discusses with management the Company’s major financial risk exposures and the steps management
has taken to monitor and control such exposures.
The Audit Committee Charter was last amended in April 2010. A copy of the Audit Committee Charter is available on the
Company’s website, www.systemax.com.
The current members of the Audit Committee are Stacy S. Dick (chairman), Robert D. Rosenthal and Marie Adler-Kravecas. None
of the current members or nominees of the Audit Committee are officers or employees of the Company. The Committee meets regularly both
with and without management participation. As noted above, in the judgment of the Board, each of the members of the Audit Committee
meets the standards for independence required by the rules of the Securities and Exchange Commission and the New York Stock Exchange.
In addition, the Board has determined that Mr. Dick and Mr. Rosenthal are ―audit committee financial experts‖ as defined by regulations of
the Securities and Exchange Commission.
The Company does not have a standing policy on the maximum number of audit committees of other publicly owned companies on
which the members of the Audit Committee may serve. However, if a member of the Audit Committee simultaneously serves on the audit
committee of more than two other publicly-owned companies, the Board must determine whether such simultaneous service would impair the
ability of such member to effectively serve on the Audit Committee. Any such determination will be disclosed in the Company’s annual
proxy statement.
Nominating/Corporate Governance Committee
The Nominating/Corporate Governance Committee’s responsibilities include, among other things (i) identifying individuals
qualified to become Board members and recommending to the Board nominees to stand for election at any meeting of stockholders, (ii)
identifying and recommending nominees to fill any vacancy, however created, in the Board, and (iii) developing and recommending to the
Board a code of business conduct and ethics and a set of corporate governance principles (including director qualification standards,
responsibilities and compensation) and periodically reviewing the code and principles. The current members of the Nominating/Corporate
Governance Committee are Robert D. Rosenthal (Chairman), Stacy S. Dick and Marie Adler-Kravecas. In nominating candidates to become
Board members, the Committee shall take into consideration such factors as it deems appropriate, including the experience, skill, integrity
and background of the candidates. The Committee may consider candidates proposed by management or stockholders but is not required to
do so. The Committee does not have any formal policy with regard to the consideration of any Director candidates recommended by the
security holders or any minimum qualifications or specific procedure for identifying and evaluating nominees for Director as the Board does
not believe that such a formalistic approach is necessary or appropriate at this time.
The Nominating/Corporate Governance Committee is responsible for developing and recommending to the Board a set of risk
management policies and procedures, including the Company’s compensation policies for all its employees as they relate to risk management,
and to review these policies and procedures annually.
The Nominating/Corporate Governance Committee, in seeking qualified Board members, does not have a policy regarding utilizing
diversity, however defined, in its selection process. The Nominating/Corporate Governance Committee looks for individuals who have very
high integrity, significant business experience and a deep genuine interest in the Company. We believe that each of the director nominees
and other directors bring these qualifications to our Board of Directors. Moreover, they provide our board with a diverse complement of
specific business skills, experience and perspectives.
The Nominating/Corporate Governance Committee Charter was last amended in April 2010. The Nominating/Corporate
Governance Committee Charter is available on the Company’s website (www.systemax.com).
Stockholder Nominations for Director
Stockholders may propose candidates for Board membership by writing to Systemax Inc., Attention: Nominating/Corporate
Governance Committee, 11 Harbor Park Drive, Port Washington, NY 11050 so that the nomination is received by the Company by February
11, 2013 to be considered for the 2013 annual meeting. Any such proposal shall contain the name, Company security holdings (direct or
indirect; of record and/or beneficially) and contact information of the person making the nomination; a description of all direct and indirect
related party transactions, compensation and other material monetary arrangements, agreements or understandings during the past three years,
and any other material relationship, if any, between the stockholder and its respective affiliates or associates, or others with whom they are
acting in concert, on the one hand, and the nominee and his or her respective affiliates, associates and others with whom they are acting in
concert, on the other hand; the nominee’s name, age, address and other contact information; any direct or indirect holdings, beneficially
and/or of record, of the Company’s securities by the nominee; any information regarding the nominee required to be disclosed about directors
13
under applicable securities laws and/or stock exchange requirements; information regarding related party transactions with the Company
and/or the stockholder submitting the nomination and/or the nominee; any actual or potential conflicts of interest; the nominee’s biographical
data, current public and private company affiliations, employment history (including current principal employment) and qualifications and
status as ―independent‖ under applicable securities laws and stock exchange requirements. Nominees proposed by stockholders will receive
the same consideration as other nominees.
Compensation Committee
The Compensation Committee’s responsibility is to review and approve corporate goals relevant to the compensation of the Chief
Executive Officer and, after an evaluation of the Chief Executive Officer’s performance in light of such goals, to set the compensation of the
Chief Executive Officer. The Compensation Committee also approves (a) the annual compensation of the other executive officers of the
Company, (b) the annual compensation of certain subsidiary managers, and (c) all individual stock-based incentive grants. The Committee is
also responsible for reviewing and making periodic recommendations to the Board with respect to the general compensation, benefits and
perquisite policies and practices of the Company including the Company’s incentive-based and equity-based compensation plans. The
Compensation Committee also prepares an annual report on executive compensation for inclusion in the annual proxy statement. (See
―Compensation Committee Report to Stockholders‖ below.) The current members of the Compensation Committee are Robert D. Rosenthal
(Chairman), Stacy S. Dick and Marie Adler-Kravecas.
In addition, it is the Compensation Committee’s responsibility to consider, and work together with the Company’s Audit Committee
regarding, the Company’s compensation policies for all its employees in the context of how such policies affect and promote the Company’s
risk management goals and objectives.
The Compensation Committee Charter was last amended in April 2010. The Compensation Committee Charter is available on the
Company’s website (www.systemax.com).
Executive Committee
The Executive Committee consists of the Chairman of the Board and any Vice Chairman and such other Directors as may be named
thereto by the Board. The current members of the Executive Committee are Messrs. Richard Leeds, Bruce Leeds, Robert Leeds and Robert
D. Rosenthal, the Lead Independent Director. Among other duties as may be assigned by the Board from time to time, the Executive
Committee is authorized to oversee the operations of the Company, supervise the executive officers of the Company, review and make
recommendations to the Board regarding the strategic direction of the Company and review and make recommendations to the Board
regarding all possible acquisitions or other significant business transactions. The Executive Committee is also authorized to manage the
affairs of the Corporation between meetings of the Board; the Committee has all of the powers of the Board not inconsistent with any
provisions of the Delaware General Corporation Law, the Company’s Certificate of Incorporation or By-Laws or other resolutions adopted by
the Board, but does not generally exercise such authority.
Board Leadership Structure
As noted above, our Board currently includes three independent Directors. Richard Leeds has served as Chairman and Chief
Executive Officer since April 1995. Since May 2006 (in connection with adopting various corporate governance enhancements) our
independent directors have designated one of the independent directors as Lead Independent Director. We believe that the current mix of
employee directors and non-employee independent directors that make up our Board, along with the independent oversight of our Lead
Independent Director, benefits the Company and its stockholders.
Although the Board does not have an express policy on whether or not the roles of Chief Executive Officer and Chairman of the
Board should be separate and if they are to be separate, whether the Chairman of the Board should be selected from the non-employee
Directors or be an employee, the Board believes that it should have the flexibility to make a determination from time to time in a manner that
is in the best interests of the Company and its stockholders at the time of such determination. At this time, the Board of Directors believes
that Mr. Leeds’s service as both Chairman of the Board and CEO is in the best interest of the Company and its stockholders. Mr. Leeds
possesses in-depth knowledge of the issues, opportunities and challenges facing the Company and its businesses and is thus best positioned to
develop agendas that ensure that the Board’s time and attention are focused on the matters that are most critical to the Company and its
stockholders. His combined role has produced decisive leadership, ensures clear accountability, and enhances the Company’s ability to
communicate its message and strategy clearly and consistently to the Company’s stockholders, employees, customers and suppliers,
particularly during times of turbulent economic conditions.
The Board believes that the independent directors provide effective oversight of management. Moreover, in addition to feedback
provided during the course of Board meetings, the independent directors have regular executive sessions. Following an executive session of
independent directors, the Lead Independent Director acts as a liaison between the independent directors and the Chairman regarding any
specific feedback or issues, provides the Chairman with input regarding agenda items for Board and Committee meetings, and coordinates
with the Chairman regarding information to be provided to the independent directors in performing their duties. The Board believes that this
approach appropriately and effectively complements the combined CEO/Chairman structure.
14
We recognize that different board leadership structures may be appropriate for companies in different situations and believe that no
one structure is suitable for all companies. We believe our current Board leadership structure is optimal for us because it demonstrates to our
employees, suppliers, customers, and other stakeholders that the Company is under strong leadership, with a single person setting the tone
and having primary responsibility for managing our operations. Having a single leader for both the Company and the Board eliminates the
potential for confusion or duplication of efforts, and provides clear leadership for the Company. We believe the Company, like many U.S.
companies, has been well-served by this leadership structure.
Lead Independent Director
The independent Directors elect one independent Director to serve as a Lead Independent Director. In addition to presiding at
executive sessions of nonemployee Directors, the Lead Independent Director has the responsibility to coordinate the activities of the
independent Directors, and to perform the following functions: (a) advise the Chairman of the Board as to an appropriate schedule of Board
meetings, seeking to ensure that the independent Directors can perform their duties responsibly while not interfering with the flow of the
Company’s operations; (b) provide the Chairman with input as to the preparation of agendas for the Board and committee meetings; (c)
advise the Chairman as to the quality, quantity, and timeliness of the flow of information from the Company’s management that is necessary
for the independent directors to effectively and responsibly perform their duties, and although the Company’s management is responsible for
the preparation of materials for the Board, the Lead Independent Director may specifically request the inclusion of certain material; (d)
recommend to the Chairman the retention of consultants who report directly to the Board; (e) assist the Board and the Company’s officers in
assuring compliance with and implementation of the corporate governance policies; and be principally responsible for recommending
revisions to the corporate governance policies; (f) coordinate and develop the agenda for, and moderate executive sessions of, the
independent directors of the Board, and act as principal liaison between the independent directors and the Chairman on sensitive issues; and
(g) recommend to the Chairman the membership of the various Board committees.
Our Board conducts an annual evaluation in order to determine whether it and its committees are functioning effectively. As part of
this annual self-evaluation, the Board evaluates whether the current leadership structure continues to be optimal for the Company and its
stockholders. Our Corporate Governance Guidelines, as amended in April 2010, provide the flexibility for our Board to modify or continue
our leadership structure in the future, as it deems appropriate.
Risk Oversight
Our Board as a whole is responsible for overseeing the Company’s risk management process. The Board focuses on the Company’s
general risk management strategy, the most significant risks facing the Company, and seeks to ensure that appropriate risk mitigation
strategies are implemented by management. Risk management is a recurring Audit Committee and Board quarterly agenda item, and is
considered part of strategic planning. The Board is also apprised of particular risk management matters in connection with its general
oversight and approval of corporate matters and receives information relating to material Company risk from management and from the
Company’s Legal, Risk Management/Insurance and Internal Audit Departments.
The Board has delegated to each of its committees oversight of certain aspects of the Company’s risk management process. Among
its duties, the Audit Committee reviews with management (a) Company processes with respect to risk assessment and management of risks
that may be material to the Company, (b) the Company’s system of disclosure controls and system of internal controls over financial
reporting, and (c) the Company’s compliance with legal and regulatory requirements. The Compensation Committee is responsible for
considering and working together with the Audit Committee regarding the Company’s compensation policies for all its employees in the
context of how such policies affect and promote the Company’s risk management goals and objectives. The Nominating/Corporate
Governance Committee is responsible for developing and recommending to the Board a set of risk management policies and procedures,
including the Company’s compensation policies for all its employees as they relate to risk management, and to review these policies and
procedures annually. All committees report to the full Board as appropriate, including when a matter rises to the level of a material or
enterprise level risk.
The Company’s senior management is responsible for day-to-day risk management. Our Internal Audit Department serves as the
primary monitoring and testing function for company-wide policies and procedures, and manages the day-to-day oversight of the risk
management strategy for the ongoing business of the Company. This oversight includes identifying, evaluating, and addressing potential risks
that may exist at the enterprise, strategic, financial, operational, compliance and reporting levels. The Internal Auditor reports directly to our
Chief Financial Officer and Audit Committee quarterly, and the Audit Committee considers risk management issues as part of its quarterly
agenda.
We believe the division of risk management responsibilities described above is an effective approach for addressing the risks facing
the Company and that our Board leadership structure supports this approach.
15
REPORT OF THE AUDIT COMMITTEE*
The Audit Committee of the Board operates under its Charter, which was originally adopted by the Board in 2000 and was most
recently revised in April 2010. As set forth in its Charter, the Audit Committee’s job is one of oversight. Management is responsible for the
Company’s financial statements, internal accounting and financial controls, the financial reporting process, the internal audit function and
compliance with the Company’s policies and legal requirements. The Company’s independent registered public accountants are responsible
for performing an independent audit of the Company’s consolidated financial statements in accordance with standards of the Public Company
Accounting Oversight Board (United States) and for issuance of a report thereon, and for monitoring the effectiveness of the Company’s
internal controls; they also perform limited reviews of the Company’s unaudited quarterly financial statements.
The Audit Committee’s responsibility is to engage the independent registered public accountants, monitor and oversee these
accounting, financial and audit processes and report its findings to the full Board. It also investigates matters related to the Company’s
financial statements and controls as it deems appropriate. In the performance of these oversight functions, the members of the Audit
Committee rely upon the information, opinions, reports and statements presented to them by Company management and by the independent
registered public accountants, as well as by other experts that the Committee hires.
The Audit Committee met with the Company’s independent auditors to review and discuss the overall scope and plans for the audit
of the Company’s consolidated financial statements for the year ended December 31, 2011. The Audit Committee has considered and
discussed with management and the independent auditors (both alone and with management present) the audited financial statements as well
as the independent auditors’ evaluation of the Company’s internal controls and the overall quality of the Company’s financial reporting.
Management represented to the Audit Committee that the Company’s consolidated financial statements for fiscal 2011 were
prepared in accordance with U.S. generally accepted accounting principles. It discussed with Ernst & Young LLP, the Company’s
independent registered public accountants for fiscal 2011, those matters required to be reviewed pursuant to Statement of Accounting
Standards No. 61 (―Communication with Audit Committees‖), as amended by Statement of Accounting Standards No. 90 (Audit Committee
Communications). The Audit Committee has received from Ernst & Young LLP written independence disclosures and the letter required by
Independence Standards Board Standard No. 1 (―Independence Discussions with Audit Committees‖) and had a discussion with Ernst &
Young LLP regarding their independence.
Based on the review of the representations of management, the discussions with management and the independent registered public
accountants and the review of the Report of Ernst & Young LLP, Independent Registered Public Accounting Firm, to the Committee, the
Audit Committee recommended to the Board that the financial statements of the Company for fiscal year 2011 as audited by Ernst & Young
LLP be included in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission.
AUDIT COMMITTEE
Stacy S. Dick (Chairman)
Robert D. Rosenthal
Marie Adler-Kravecas
*
The information contained in this Audit Committee Report shall not be deemed to be ―soliciting material‖ or to be ―filed‖
with the SEC, nor shall such information be incorporated by reference into any filings under the Securities Act of 1933, as
amended, which we refer to as the Securities Act, or under the Exchange Act, except to the extent that we specifically
incorporate this information by reference into any such filing.
16
EXECUTIVE OFFICERS
There are no arrangements or understandings between any officer and any other person pursuant to which such person was selected
as an officer.
The following table sets forth certain information with respect to the executive officers of the Company as of April 16, 2012.
Name
Richard Leeds
Bruce Leeds
Robert Leeds
Lawrence Reinhold
David Sprosty
Perminder Dale
Robert Dooley
Thomas Axmacher
Curt Rush
Benjamin White
Age
Position
52
56
56
52
55
51
56
53
58
43
Chairman and Chief Executive Officer; Director
Vice Chairman; Director
Vice Chairman; Director
Executive Vice President and Chief Financial Officer; Director
Chief Executive of the Company’s North American Technology
Products Group
Chief Executive of the Company’s European Technology Products
Group
President of the Company’s subsidiaries comprising the Global
Industrial business
Vice President and Controller
General Counsel and Secretary
Vice President and Internal Auditor
For biographical information about Richard Leeds, Bruce Leeds, Robert Leeds and Lawrence Reinhold, see page 9 and 10 of this Proxy
Statement.
David Sprosty joined the Company in October, 2011 as Chief Executive of the Company’s North American Technology Products
Group. Mr. Sprosty has over 20 years of experience in the areas of emerging technology, consumer electronics, retail operations and wireless
telecommunications. From 2009 to 2011, Mr. Sprosty served as the Managing Partner of the ROIG Group, a management consulting agency
specializing in consumer electronics retail, product development services and mobility for early stage companies and Fortune 100 companies.
From 1998 to 2009, Mr. Sprosty held various significant executive positions at Best Buy Co., Inc. (―Best Buy‖), including Senior Vice
President of Emerging Devices Best Buy Connect (2008 to 2009), Chief Executive Officer of Best Buy Mobile Joint Venture (2006 to 2008),
Senior Vice President and Chief Operating Officer of Customer Centricity and Senior Vice President of Computing/Peripheral/Digital
Business Group Lead (2005). Prior to working at Best Buy, Mr. Sprosty worked for Pacific Mobile and Wireless (dba Mobil Works), a
leading retailer and reseller of wireless and mobile electronics in various positions, including Chief Executive Officer.
Perminder Dale joined the Company in January 2012 as Chief Executive of the Company’s European Technology Products Group.
Mr. Dale has over 20 years of experience in the information technology industry: from 1996 to 2010 Mr. Dale held various significant
executive positions with Dell Computer Corporation, including Director of Server Business for Europe, Middle East and Africa, Director of
UK Corporate Sales, Vice President and General Manager of Emerging Markets (2000 to 2008) and Vice President and General Manager of
Global Distribution Channels (2008 to 2010). Mr. Dale also held various management positions with other well-known technology
companies, including Sun Microsystems, Siemins NixDorf and Hewlett Packard. Mr. Dale earned his M.B.A. in international business and
marketing from University of Bradford Business School.
Robert Dooley was appointed President of the Company’s subsidiaries comprising the Global Industrial business in January 2012.
Mr. Dooley originally joined the Company in 1982 and served in numerous roles until March 2004, including Senior Vice President,
Worldwide Computer Sales and Marketing. He also was a Director of the Company from June 1995 through March 2004. Mr. Dooley left
the Company in 2004 but returned in December 2007 as Vice President, Internet Marketing for the Global Industrial business. Mr. Dooley
graduated from Rensselaer Polytechnic Institute with a B.S in Physics.
Thomas Axmacher was appointed Vice President and Controller of the Company in October 2006. He was previously Chief
Financial Officer of Curative Health Services, Inc., a publicly traded health care company, and Vice President and Controller of Tempo
Instrument Group, an electronics manufacturer. Mr. Axmacher received his B.S. degree in Accounting from Albany University and his
M.B.A. from Long Island University.
17
Curt Rush has been General Counsel and Secretary of the Company since October 1996. Prior to joining the Company, Mr. Rush
was Corporate Counsel for Globe Communications Corp. and Corporate Counsel for the Image Bank, Inc. Prior to that, he was a corporate
attorney with the law firms of Shereff, Friedman, Hoffman & Goodman and Schnader, Harrison, Segal & Lewis. Mr. Rush graduated from
Hunter College with a B.A. degree in Philosophy and graduated with honors from Brooklyn Law School where he was Second Circuit
Review Editor of the Law Review. He was admitted to the Bar of the State of New York in 1985.
Benjamin White was appointed Vice President and Internal Auditor in November 2009. He joined the Company in April 2007 from
Black & Decker, where he was Director of Internal Controls and Compliance from May 2004 to March 2007. Prior to that he was a Senior
Manager in the public accounting firm of Ernst & Young from December 1998 to April 2004 and a manager in the public accounting firm of
Arthur Andersen from August 1995 to December 1998. He received his B.S. degree from Illinois State University and his M.B.A. from
Thunderbird School of Global Management.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
The following table provides certain information regarding the beneficial ownership of the Shares as of April 16, 2012, by (i) each
of the Directors, (ii) each of the named executive officers listed in the summary compensation table, (iii) all current Directors and officers as
a group and (iv) each person known to the Company to be the beneficial owner of more than 5% of any class of the Company’s voting
securities.
As used in this table ―beneficial ownership‖ means the sole or shared power to vote or direct the voting or to dispose or direct the
disposition of any security. A person is deemed as of any date to have ―beneficial ownership‖ of any security that such person owns or has a
right to acquire within 60 days after such date. Any security that any person named above has the right to acquire within 60 days is deemed
to be outstanding for purposes of calculating the ownership percentage of such person, but is not deemed to be outstanding for purposes of
calculating the ownership percentage of any other person. Unless otherwise stated, each person owns the reported shares directly and has the
sole right to vote and determine whether to dispose of such shares.
A total of 36,470,056 Shares were outstanding as of April 16, 2012.
Richard Leeds (1)
Bruce Leeds (2)
Robert Leeds (3)
Lawrence Reinhold (4)
Robert D. Rosenthal (5)
Stacy Dick (6)
Marie Adler-Kravecas (7)
David Sprosty(8)
All current Directors and executive officers of the Company (13 persons)(9)
Amount and Nature
of Beneficial
Ownership(a)
12,754,958
9,267,777
9,977,333
266,000
58,341
33,341
14,113
0
25,775,023
Percent of
Class
35.0%
25.4%
27.4%
*
*
*
*
*
70.7 %
Other Beneficial Owners of 5% or More of the Company’s Voting Stock
Prescott General Partners LLC (10)
2,197,851
6.0%
(a)
Amounts listed in this column may include shares held in partnerships or trusts that are counted in more than one
individual’s total.
*
less than 1%
(1)
Includes 1,136,666 shares owned by Mr. Richard Leeds directly, 2,048,193 shares owned by the Richard Leeds 2011 GRAT,
2,167,217 shares owned by the Richard Leeds 2010 GRAT and 369,964 shares owned by the Richard Leeds 2009 GRAT.
Also includes 1,838,583 shares owned by a limited partnership of which Richard Leeds is the general partner, 235,850 shares
owned by a limited partnership of which a limited liability company controlled by Richard Leeds is the general partner,
4,438,685 shares owned by trusts for the benefit of his brothers’ children for which Richard Leeds acts as co-trustee and
519,800 shares owned by a limited partnership in which Richard Leeds has an indirect pecuniary interest. Richard Leeds’
mailing address is Richard Leeds, c/o Systemax Inc., 11 Harbor Park Drive, Port Washington, NY 11050.
18
(2)
(3)
(4)
(5)
(6)
(7)
(8)
(9)
Includes 2,137,166 shares owned by Mr. Bruce Leeds directly, 1,250,087 shares owned by the Bruce Leeds 2011 GRAT,
1,399,809 shares owned by the Bruce Leeds 2010 GRAT and 228,854 shares owned by the Bruce Leeds 2009 GRAT. Also
includes 3,732,061 shares owned by trusts for the benefit of his brothers’ children for which Bruce Leeds acts as co-trustee
and 519,800 shares owned by a limited partnership in which Bruce Leeds has an indirect pecuniary interest. Bruce Leeds’
mailing address is Bruce Leeds, c/o Systemax Inc., 11 Harbor Park Drive, Port Washington, NY 11050.
Includes 137,168 shares owned by Mr. Robert Leeds directly, 2,357,909 shares owned by the Robert Leeds 2011 GRAT,
2,845,636 shares owned by the Robert Leeds 2010 GRAT and 29,982 shares owned by the Robert Leeds 2009 GRAT. Also
includes 4,086,838 shares owned by trusts for the benefit of his brothers’ children for which Robert Leeds acts as co-trustee
and 519,800 shares owned by a limited partnership in which Robert Leeds has an indirect pecuniary interest. Robert Leeds’
mailing address is Robert Leeds, c/o Systemax Inc., 11 Harbor Park Drive, Port Washington, NY 11050.
Includes options to acquire a total of 225,000 shares that are currently exercisable or become exercisable within 60 days
pursuant to the terms of the Company’s 1999 Long-Term Stock Incentive Plan and 17,500 restricted stock units granted
pursuant to the Company’s 2010 Long Term Incentive Plan that will vest within 60 days.
Includes options to acquire a total of 9,000 shares that are currently exercisable or become exercisable within 60 days
pursuant to the terms of the Company’s 1995 and 2006 Stock Incentive Plans for Non-Employee Directors and 2,124
restricted stock units granted pursuant to the Company’s 2006 Stock Incentive Plan for Non-Employee Directors that will vest
within 60 days.
Includes options to acquire a total of 14,250 shares that are currently exercisable or become exercisable within 60 days
pursuant to the terms of the Company’s 1995 and 2006 Stock Incentive Plans for Non-Employee Directors and 2,124
restricted stock units granted pursuant to the Company’s 2006 Stock Incentive Plan for Non-Employee Directors that will vest
within 60 days.
Includes options to acquire a total of 5,000 shares that are currently exercisable or become exercisable within 60 days
pursuant to the terms of the Company’s 2006 Stock Incentive Plan for Non-Employee Directors and 2,124 restricted stock
units granted pursuant to the Company’s 2006 Stock Incentive Plan for Non-Employee Directors that will vest within 60 days.
Excludes options and restricted stock units granted on October 3, 2011 that are not currentlyexercisable nor exercisable within
the next 60 days.
Includes options to acquire a total of 333,250 shares that are currently exercisable or become exercisable within 60 days and
23,872 restricted stock units that will vest within 60 days pursuant to the Company’s stock incentive plans.
(10) Based on information supplied by Prescott General Partners LLC, Thomas W. Smith and Scott J. Vassalluzzo in a Schedule
13G/A filed with the SEC on January 5, 2012. The address of the parties is 323 Railroad Avenue, Greenwich CT 06830.
Prescott General Partners LLC and Messrs Smith and Vassalluzzo have the shared power to vote or dispose or to direct the
vote or the disposal of 2,197,851, 171,718 and 92,018, respectively. In addition, Prescott General Partners LLC has the sole
power to vote or to direct the vote of 0 shares and the sole power to dispose or to direct the disposition of 0 shares, Mr. Smith
has the sole power to vote or to direct the vote of 600,000 shares and the sole power to dispose or to direct the disposition of
600,000 shares, and Mr. Vassalluzo has the sole power to vote or to direct the vote of 0 shares and the sole power to dispose
or to direct the disposition of 0 shares. The 13G/A is Amendment No. 3 to the joint filing on Schedule 13G by Thomas W.
Smith, Scott J. Vassalluzzo and Steven M. Fischer originally filed with the SEC on July 13, 2009, as amended by Amendment
No. 1 filed with the SEC on February 16, 2010, and Amendment No. 2 filed with the SEC on February 14, 2011. The
Amendment No. 3 modifies the Schedule 13G to reflect, among other things, (i) the addition of Prescott General Partners LLC
as a reporting person and (ii) the removal of Mr. Fischer as a reporting person. Effective January 1, 2012, each of Messrs.
Smith, Vassalluzzo and Fischer assigned their general partnership interests in three private investment limited partnerships to
Prescott General Partners LLC.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Exchange Act requires the Company’s executive officers and Directors and persons who own more than ten
percent of a registered class of the Company’s equity securities to file reports of ownership and changes in ownership with the Securities and
Exchange Commission. Executive officers, Directors and ten-percent stockholders are required by SEC regulation to furnish the Company
with copies of all Section 16(a) forms they file. Based solely on its review of the copies of Section 16(a) forms received by it, or written
representations from certain reporting persons, the Company believes its executive officers, Directors and ten-percent stockholders complied
with all such filing requirements for fiscal year 2011, except for the following filings made on behalf of the named Directors that were
19
inadvertently filed late by the Company: a Form 4 filing for Stacy Dick made on May 3, 2011; Form 4 filings for Robert Rosenthal, Stacy
Dick and Marie Adler Kravecas made on June 23, 2011.
TRANSACTIONS WITH RELATED PERSONS
Under the Company’s Corporate Ethics Policy, all officers, Directors and employees (collectively the ―Company Representatives‖)
are required to avoid conflicts of interest, appearances of conflicts of interest and potential conflicts of interest. A ―conflict of interest‖
occurs when a Company Representative’s private interest interferes in any way with the interests of the Company. A conflict can arise when
a Company Representative takes actions or has interests that may make it difficult to perform his or her Company work objectively and
effectively. Conflicts of interest also arise when a Company Representative, or a member of his or her family, receives improper personal
benefits as a result of his or her position in the Company. Company Representatives cannot allow any consideration such as the receipt of
gifts or financial interests in other businesses or personal or family relationships to interfere with the independent exercise of his or her
business judgment and work activities to the benefit of the Company. Loans to, or guarantees of obligations of, Company Representatives are
prohibited unless permitted by law and authorized by the Board or a Committee designated by the Board. If a Company Representative
becomes aware of a potential conflict of interest he or she must communicate such potential conflict of interest to the Company.
The Company’s written corporate approval policy requires transactions with related persons, including but not limited to leases with
related persons and sales or purchases of Company assets by related persons, to be reviewed and approved or ratified by the Company’s
Audit Committee as well as by the Company’s Chief Executive Officer, Chief Financial Officer and General Counsel. In this regard, all such
transactions are first discussed with the Chief Financial Officer and are submitted to the General Counsel’s office, including for an initial
determination of whether such further related person transaction review is required. The Company utilizes the definition of related persons
under applicable SEC rules, defined as any executive officer, director or nominee for director of the Company, any beneficial owner of more
than 5% of the outstanding shares of the Company’s common stock, or any immediate family member of any such person. In reviewing these
transactions, the Company strives to assure that the terms of any agreement between the Company and a related party is at arm’s length, fair
and at least as beneficial to the Company as could be obtained from third parties. The Audit Committee, in its discretion, may consult with
third party appraisers, valuation advisors or brokers to make such determination.
Leases
The Company has leased its facility in Port Washington, NY since 1988 from an entity owned by Richard Leeds, Bruce Leeds and
Robert Leeds, Directors of the Company. Rent expense under this lease totaled approximately $905,000 for fiscal year 2011. The Company
believes that these payments were no higher than would be paid to an unrelated lessor for comparable space.
Stockholders Agreement
Certain members of the Leeds family (including Richard Leeds, Bruce Leeds and Robert Leeds) and family trusts of Messrs. Leeds
entered into a stockholders agreement pursuant to which the parties agreed to vote in favor of the nominees for the Board designated by the
holders of a majority of the Shares held by such stockholders at the time of the Company’s initial public offering of the Shares. In addition,
the agreement prohibits the sale of the Shares without the consent of the holders of a majority of the Shares held by all parties to the
agreement, subject to certain exceptions, including sales pursuant to an effective registration statement and sales made in accordance with
Rule 144. The agreement also grants certain drag-along rights in the event of the sale of all or a portion of the Shares held by holders of a
majority of the Shares. As of the end of fiscal year 2011, the parties to the stockholders agreement beneficially owned 25,286,700 Shares
subject to such agreement (constituting approximately 69% of the Shares outstanding).
Pursuant to the stockholders agreement, the Company granted to the parties demand and incidental, or ―piggy-back,‖ registration
rights with respect to the Shares. The demand registration rights generally provide that the holders of a majority of the Shares may require,
subject to certain restrictions regarding timing and number of Shares that the Company register under the Securities Act all or part of the
Shares held by such stockholders. Pursuant to the incidental registration rights, the Company is required to notify such stockholders of any
proposed registration of any Shares under the Securities Act and if requested by any such stockholder to include in such registration any
number of shares of Shares held by it subject to certain restrictions. The Company has agreed to pay all expenses and indemnify any selling
stockholders against certain liabilities, including under the Securities Act, in connection with the registration of Shares pursuant to such
agreement.
20
EQUITY COMPENSATION PLAN INFORMATION
Information for our equity compensation plans in effect as of the end of fiscal year 2011 is as follows:
(a)
(b)
Number of
securities to be
issued upon
exercise of
outstanding
options,
warrants and
rights
Weighted-
average exercise
price of
outstanding
options,
warrants and
rights
(c)
Number of
securities
remaining
available for
future issuance
under equity
compensation
plans (excluding
securities
reflected in
column (a))
Plan category
Equity compensation plans approved by security holders
Equity compensation plans not approved by security holders
Total.
1,285,115
—
1,285,115
$13.39
—
$13.39
7,026,000
—
7,026,000
21
EXECUTIVE COMPENSATION
Compensation Discussion and Analysis
In this section, we discuss the material elements of our compensation programs and policies, including the objectives of our
compensation programs and the reasons why we pay each element of our executives’ compensation. Following this discussion, you will find
a series of tables containing more specific details about the compensation earned by, or awarded to, the following individuals, whom we
refer to as the Named Executive Officers or NEOs. This discussion focuses on compensation practices relating to the NEO’s for our 2011
fiscal year.
Our NEO’s in 2011 (based on total 2011 compensation earned) were as follows:
Name of NEO
Richard Leeds
Title
Chairman and Chief Executive Officer
Bruce Leeds
Robert Leeds
Lawrence P. Reinhold
David Sprosty
Vice Chairman
Vice Chairman
Executive Vice President and Chief Financial
Officer
Chief Executive of the North American Technology
Products Group
Central Objectives and Philosophy of Our Executive Compensation Programs
The Company’s executive compensation programs are designed to achieve a number of important objectives, including attracting
and retaining individuals of superior ability and managerial talent, rewarding individual contributions to the achievement of the Company’s
short and long-term financial and business objectives, promoting integrity and good corporate governance, and motivating our executive
officers to manage the Company in a manner that will enhance its growth and financial performance for the benefit of our stockholders,
customers and employees. Accordingly, in determining the amount and mix of compensation, the Compensation Committee seeks both to
provide a competitive compensation package and to structure annual and long-term incentive programs that reward achievement of
performance goals that directly correlate to the enhancement of sustained, long-term stockholder value, as well as to promote executive
retention.
Our Compensation Committee seeks to design compensation programs with features that mitigate risk without diminishing the
incentive nature of the compensation. The Company’s variable pay programs are designed to reward outstanding individual and team
performance while mitigating risk taking behavior that might affect financial results. Risk taking behavior includes the risk that an executive
will take action that is detrimental to the Company’s long-term interest in order to increase the executive’s short-term performance-based
compensation. We believe our programs encourage and reward prudent business judgment and appropriate risk-taking over the long term.
We believe the following factors are effective in mitigating risk relating to our compensation programs:
Multiple Performance factors: We use multiple performance factors that encourage executives to focus on the overall health of the
business rather than a single financial measure.
Award Cap. Our 2010, 2011 and 2012 NEO Cash Bonus Plans each cap the maximum award payable to any individual.
Clawback Provision. Our NEO Cash Bonus Plans provide the Company the ability to recapture all or a portion of cash awards (i)
from our executive officers to the extent a bonus resulted from reported financial results that upon restatement of such results (other
than as a result of changes in accounting principles) would not have generated the bonus or would have generated a lower bonus or
(ii) from an executive officer if the Board learns of any misconduct by the executive officer that contributed to the Company having
to restate all or a portion of its financial statements. In addition, the Board may recapture cash bonus awards from an executive if
the Board determines that the executive engaged in serious ethical misconduct.
Management Processes. Board and management processes are in place to oversee risk associated with the Company’s operations.
Our Board as a whole is responsible for overseeing the Company’s risk management process. The Board focuses on the Company’s
general risk management strategy, the most significant risks facing the Company, and seeks to ensure that appropriate risk mitigation
strategies are implemented by management. The Company has enhanced its risk management processes, and risk management is
now a recurring Audit Committee and Board quarterly agenda item, and is considered part of strategic planning. The Board is also
apprised of particular risk management matters in connection with its general oversight and approval of corporate matters and
receives information relating to material risks affecting the Company from management and from our Legal, Risk
Management/Insurance and Internal Audit departments.
22
Long Term Equity Compensation. A number of factors mitigate risks inherent in long-term equity compensation, specifically the
vesting period for stock options and restricted stock unit grants, which we believe causes our executives to focus on long term
achievements and on building stockholder value.
We believe that our compensation policies for employees generally throughout our organization are not reasonably likely to have a
material adverse effect on our company. From time to time a limited number of key managers are eligible to receive stock options and/or
restricted stock units in varying amounts based on the judgment of the Compensation Committee. However, all awards are subject to years
long vesting periods.
Elements of Our Executive Compensation Programs
To promote the objectives described above, our executive compensation programs consist of the following principal elements:
Base salary;
Non-equity incentive cash compensation, referred to for discussion purposes as bonuses;
Stock–based incentives and
Benefits, perquisites and other compensation.
The Committee does not maintain formal policies for specifically allocating compensation among current and long-term
compensation or among cash and non-cash compensation elements. Instead, the Committee maintains flexibility and adjusts different
elements of compensation based upon its evaluation of the Company’s key compensation goals set forth above. The Company does not have
a formal policy regarding internal pay equity.
Base Salary - Salary levels are subjectively determined based on individual and Company performance as well as an objective
assessment of prevailing salary levels for comparable companies, derived from widely available published reports of the average of
prevailing salary levels for comparable companies (based on industry, revenues, number of employees, location and similar factors) in the
Company’s geographic regions. Such reports do not identify the component companies. Mr. Reinhold’s and Mr. Sprosty’s minimum salary
is set pursuant to their respective employment agreements.
Cash Bonuses - Incentive cash compensation of the Company’s NEO’s under the 2011 and 2012 NEO Cash Bonus Plans described
below (and implemented under our 2010 Long Term Incentive Plan, described below) are based primarily upon an evaluation of Company
performance as it relates to three general business areas:
Operational and Financial Performance (utilizing standard metrics such as net sales, operating income, consolidated net income,
earnings before interest and taxes (―EBIT‖), gross margin, operating margin, earnings per share, working capital, return on invested
capital, stockholder equity and peer group comparisons);
Strategic Accomplishments (including growth in the business, implementation of systems, process and technology improvements,
and growth in the value of the Company’s assets, including through strategic acquisition transactions); and
Corporate Governance and Oversight (encompassing legal and regulatory compliance and adherence to Company policies including
the timely filing of periodic reports with the SEC, the Sarbanes-Oxley Act, environmental, employment and safety laws and
regulations and the Company’s corporate ethics policy).
Pursuant to SEC rules, the Company is not disclosing the specific performance targets and actual performance measures for the
goals used in its 2011 and 2012 Bonus Plans because they represent confidential financial information that the Company does not disclose to
the public, and the Company believes that disclosure of this information would cause us competitive harm. The Company believes that these
performance goals were reasonably challenging to achieve. Targets are set such that only exceptional performance will result in payouts
above the target incentive and poor performance will result in no incentive payment. We set the target performance goals at a level for which
there is a reasonable chance of achievement based upon forecasted performance. Scenarios were developed based upon a range of
assumptions used to build our annual budget. We did not perform specific analysis on the probability of the achievement of the target
performance goals given that the market is difficult to predict. Rather, we relied upon our experience in setting the goals guided by our
objective of setting a reasonably attainable and motivationally meaningful goal.
In determining the compensation of a particular executive, consideration is given to the specific corporate responsibilities that such
executive is charged with as they relate to the foregoing business areas.
23
Historically, different approaches were used to pay cash bonus compensation, as described below. In 2009, the Company moved
towards a more uniform and target driven incentive compensation structure for its executives; see the discussion below of our 2010, 2011 and
2012 NEO Cash Bonus Plans.
Stock-Based Incentives - Stock-based incentives, at the present time consisting of (a) non-qualified stock options granted at 100% of
the stock’s fair market value on the grant date (based on the NYSE closing price of the Company’s common stock on that date) and/or (b)
restricted stock units granted subject to certain conditions, constitute the long-term portion of the Company’s executive compensation
package. Stock based compensation provides an incentive for executives to manage the Company with a view to achieving results which
would increase the Company’s stock price over the long term and, therefore, the return to the Company’s stockholders. Stock option,
restricted stock and restricted stock unit grants must be approved by the Compensation Committee; however, the Compensation Committee is
permitted to delegate this authority to officers of the Company regarding awards to employees who are not officers or directors of the
Company and who are not, and are not expected to become, ―covered employees‖ under Section 162(m) of the Internal Revenue Code of
1986, as amended (the ―Code‖). We do not use any specific allocation percentage or formula in determining the size of the cash and equity
based components of compensation in relation to each other.
The Compensation Committee is cognizant of the timing of the grant of stock based compensation in relation to the publication of
Company earnings releases and other public announcements. Stock based compensation grants will not be made, generally, until after the
Company has disclosed, and the market has had an opportunity to react to, material, potentially market-moving, information concerning the
Company.
Richard Leeds, Bruce Leeds and Robert Leeds have not historically received stock options or other stock-based incentives as part of
their compensation since the Company’s initial public offering, and did not receive any such compensation in 2009, 2010 or 2011. As
described below, Mr. Reinhold received stock options in 2009 and 2011 and restricted stock units in 2010 and 2011. As described below, Mr.
Sprosty received stock options and restricted stock units in 2011.
Benefits, Perquisites and Other Compensation - The Company provides various employee benefit programs to its employees,
including NEO’s. These benefits include medical, dental, life and disability insurance benefits and our 401(k) plan, which includes Company
contributions. The Company also provides Company-owned or leased cars or automobile allowances and related reimbursements to certain
NEO’s and certain other Company managers which are not provided to all employees. Certain Company executives also have or are entitled
to receive severance payments, and/or change of control payments pursuant to negotiated employment agreements they have with the
Company (see below). The Company does not provide to executive officers any (a) pension benefits or (b) deferred compensation under any
defined contribution or other plan on a basis that is not tax-qualified.
Tax Deductibility Considerations. It is our policy generally to qualify compensation paid to executive officers for deductibility
under section 162(m) of the Code. Section 162(m) generally prohibits deducting the compensation of executive officers that exceeds
$1,000,000 unless that compensation is based on the satisfaction of objective performance goals. Our long term incentive plans (the 1995
Long-term Stock Incentive Plan, the 1999 Long-term Stock Incentive Plan, as amended, the 1995 Stock Option Plan for Non-Employee
Directors, the 2006 Stock Incentive Plan for Non-Employee Directors, and the 2010 Long Term Incentive Plan) and the Systemax Executive
Incentive Plan are structured to permit awards under such plans to qualify as performance-based compensation and to maximize the tax
deductibility of such awards. However, we reserve the discretion to pay compensation to our executive officers that may not be deductible.
Role of the Compensation Committee and CEO in Compensation Decisions
The Compensation Committee’s responsibility is to review and approve corporate goals relevant to the compensation of the Chief
Executive Officer and, after an evaluation of the Chief Executive Officer’s performance in light of such goals, to set the compensation of the
Chief Executive Officer. The Compensation Committee also approves, upon the recommendation of the Chief Executive Officer (following
consultation with the two Vice Chairmen, the Chief Financial Officer, the Chief Executives of the North American and European
Technology Products Groups and the President of the subsidiaries comprising the Global Industrial business), (a) the annual compensation of
the other executive officers of the Company, (b) the annual compensation of certain subsidiary managers, and (c) all individual stock
incentive grants to other executive officers. The Compensation Committee is also responsible for reviewing and making periodic
recommendations to the Board with respect to the general compensation, benefits and perquisite policies and practices of the Company,
including the Company’s stock-incentive based compensation plans. The Compensation Committee has the authority to retain third party
compensation consultants to provide assistance with respect to compensation strategies, market practices, market research data and the
Company’s compensation goals.
2011 “Say on Pay” Advisory Vote on Executive Compensation
24
We provided stockholders a ―say on pay‖ advisory vote on executive compensation at our 2011 annual meeting of stockholders on
June 10, 2011, as required under the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (the ―Dodd-Frank Act‖). Our
2011 ―say on pay‖ proposal to approve the compensation of the Company’s NEO’s, as disclosed in the Company’s Proxy Statement for the
2011 Annual Meeting, received 87% approval from stockholders. We take this strong stockholder support as an assurance that our executive
pay program and practices are reasonable and well-aligned with stockholder expectations. The Compensation Committee and management
considered the results of that vote, and given the high approval level, our executive compensation program for fiscal 2012 will be consistent
with our 2011 program. Further, and in response to our stockholders vote on the frequency of say on pay advisory votes, we will hold an
advisory vote on executive compensation every three years. We are committed to being responsive to stockholder feedback, and the results of
our say on pay votes help inform the Committee’s discussions about the executive pay program.
2010 Long Term Incentive Plan
In 2010, the Board of Directors approved, and the stockholders of the Company approved at the 2010 Annual Meeting, the 2010
Long Term Incentive Plan in order to promote the interests of the Company 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; (ii) motivating such
employees, consultants and advisors by means of performance-related incentives to achieve longer-range performance goals; and (iii)
enabling such employees, consultants and advisors to participate in the long-term growth and financial success of the Company.
The 2010 Long Term Incentive Plan provides for the granting of incentive stock options, non-qualified stock options, stock
appreciation rights, restricted stock, restricted stock units, performance awards (which may be in the form of cash) or other stock-based
awards. Any of the foregoing is referred to as an ―Award.‖ Subject to adjustment in the case of certain corporate changes, Awards may be
granted under the 2010 Long Term Incentive Plan with respect to an aggregate of 7,500,000 shares of the Company’s Common Stock.
During a calendar year, Awards may be granted to any individual with respect to a maximum of 1,500,000 shares (or $10,000,000 in the case
of cash performance awards).
Any employee of the Company or of any affiliate and any individual providing consulting or advisory services to the Company or an
affiliate, is eligible to receive an award under the 2010 Long Term Incentive Plan. The Compensation Committee administers the Plan and
determines, in its sole discretion, the terms and conditions of any Award. The Compensation Committee or the Board of Directors may
delegate to one or more officers or managers of the Company the authority to designate the individuals who will receive Awards under the
Plan provided that the Compensation Committee shall itself grant all Awards to those individuals who could reasonably be considered to be
subject to the insider trading provisions of Section 16 of the 1934 Act or whose Awards could reasonably be expected to be subject to the
deduction limitations of Section 162(m) of the Code.
The Compensation Committee determines the persons who will receive Awards, the type of Awards granted, and the number of
shares subject to each Award. The Compensation Committee also determines the prices, expiration dates, vesting schedules, forfeiture
provisions and other material features of Awards. The Compensation Committee has the authority to interpret and construe any provision of
the Plan and to adopt such rules and regulations for administering the Plan as it deems necessary or appropriate. All decisions and
determinations of the Compensation Committee are final, binding and conclusive on all parties.
The 2010 Long Term Incentive Plan provides that granting or vesting of restricted stock, restricted stock units and performance
awards may be conditioned on the achievement of specified performance goals. These goals must be established by the Compensation
Committee within 90 days of the beginning of the year (or other period to which the performance goals relate) or, if shorter, within the first
25% of the performance period.
The performance goals may be based on one or more of: share price, revenues, earnings (including but not limited to EBITDA),
earnings per share, return on equity, expenses, and objective strategic and governance business goals. Each such performance goal may (1)
be expressed with respect to the Company as a whole or with respect to one or more divisions or business units, (2) be expressed on a pre-tax
or after-tax basis, (3) be expressed on an absolute and/or relative basis, (4) employ comparisons with past performance of the Company
(including one or more divisions) and/or (5) employ comparisons with the current or past performance of other companies, and in the case of
earnings-based measures, may employ comparisons to capital, stockholders’ equity and shares outstanding.
To the extent applicable, the measures used in performance goals set under the 2010 Long Term Incentive Plan are determined in a
manner consistent with the methods used in the Company’s Forms 10-K and 10-Q, except that adjustments will be made for certain items,
including special, unusual or non-recurring items, acquisitions and dispositions and changes in accounting principles.
2011 NEO Cash Bonus Plan
In March 2011, pursuant to the 2010 Long Term Incentive Plan previously adopted by the Board of Directors and by the
stockholders at the 2010 Annual Meeting, our Compensation Committee, with input from our Chief Executive Officer, established our 2011
NEO Cash Bonus Plan (―2011 Bonus Plan‖) providing for target cash bonuses for the NEOs based on the achievement of certain financial
and non-financial performance-based criteria in 2011. The 2011 Bonus Plan implemented for 2011 the 2010 Long Term Incentive Plan and
pertains specifically to the payment of non-equity incentive compensation to NEO’s for 2011.
25
For 2011, such financial and non-financial goals, the percentage of the executive’s entire cash bonus tied to such goals and the
weighting of each component under such goal, were as follows:
Financial Goals (80% of total cash bonus target)
– Adjusted Operating Income Growth (60%); the Compensation Committee believes this is the most important individual
component and aligns the interests of our executives with those of our stockholders, in addition to building long term value.
Adjusted Operating Income is defined as operating income adjusted for unusual or nonrecurring items as determined by our
Compensation Committee.
– Sales Growth (20%); the Compensation Committee believes topline sales growth is key to our Company achieving the scale
necessary to remain competitive with larger companies. Sales are defined as sales revenue net of returns on a constant currency
basis.
Non-Financial Goals for 2011 (20% of total cash bonus target)
– Strategic Accomplishments (seven specific goals weighted at an aggregated 70% of the total non-financial goal): These goals
relate to various strategic initiatives relating to enhancing our management and business information systems, and implementing
distribution/warehouse system improvements. The Compensation Committee believes these initiatives will enhance the
Company’s operational infrastructure and efficiency.
– Corporate Governance Goals for 2011 (three specific goals weighted at 30% of the total non-financial goal): These goals relate
to continuing improvements in our internal processes and procedures that the Compensation Committee believes will generally
benefit stockholders.
Under the 2011 Bonus Plan, the Compensation Committee set the following cash bonus target amounts for each of the following
NEO’s, assuming achievement of the 2011 financial and non-financial goals at 100% base case target levels:
Richard Leeds
Bruce Leeds
Robert Leeds
Lawrence Reinhold
$1,100,000
$ 750,000
$ 750,000
$ 825,000
The Compensation Committee believes these bonus levels are appropriate for each of our named executive officers; these bonus
levels are the same as those that were set for the named executive officers for 2010, and take into account the 2011 base salary increases. The
2011 salary increases reflect the Compensation Committee’s view that such increases were appropriate in light of 2011 NEO bonuses being
set at the same level as 2010 and 2010 NEO base salary having been held at the same level as 2009.
David Sprosty, currently a named executive officer, joined the Company in October, 2011. Under his employment agreement, he is
eligible for (i) an annual target cash bonus of $700,000 during each year of employment (and prorated for the first year) assuming Mr.
Sprosty meets certain performance objectives established for him by the Company; 75% of the bonus is based on the performance objectives
of the Company’s North American Technology Products Group and 25% of the bonus is based on certain Company financial performance
objectives under the Company’s Named Executive Officer Cash Bonus Plan for the applicable year; and (ii) a special one-time cash bonus of
$2,000,000 upon the North American Technology Products Group’s achievement of profitability targets, as determined pursuant to the
agreement, for two consecutive full fiscal years, with the first year being no later than the year ending December 31, 2014. See ―Employment
Arrangements with Named Executive Officers.‖
Under the 2011 Bonus Plan, achievement of each of the target financial goals generates a variable target bonus payment (base case);
reduced bonuses are payable on a pro rata basis for each financial goal component, starting at achievement of in excess of 80% of the target
financial goal component amount up to 140% of the target financial goal component amount. Each 1% variance in actual achievement from
the 100% level generates a 5% variance in the target bonus amount for that component, and no bonus is payable in respect of these
components if achievement is 80% or less of the target financial component goal amount. Increased bonuses (up to 300% of the target bonus
amount for each component) are payable on a pro rata basis for each financial goal component amount achieved. The non-financial goals are
measured based on whether or not the goal is either accomplished or not accomplished during the fiscal year.
The 2011 Bonus Plan imposed a cap on the total bonus that could be payable to any executive at 300% of the target base case bonus.
The Compensation Committee had the discretion to adjust financial targets based on such events as acquisitions or other one-time charges or
gains, or other unforeseen circumstances that can skew normal operating results. Targets and bonuses are also subject to adjustment to
prevent unreasonable results in the strict application of these formulas. Executives must generally be employed with the Company at the time
the bonuses are paid out to receive the bonus.
26
In addition, under the 2011 Bonus Plan, the Board can demand repayment to the Company of any cash bonuses paid in the event that
(i) the executive’s misconduct caused the Company to restate its reported financial results; (ii) the reported results created a bonus that would
not have been paid based on the restated results, or (ii) the executive engages in serious ethical misconduct.
2010 NEO Cash Bonus Plan
In March 2010, pursuant to the 2010 Long Term Incentive Plan, our Compensation Committee, with input from our Chief Executive
Officer, established our 2010 NEO Cash Bonus Plan (―2010 Bonus Plan‖) providing for target cash bonuses for the NEO’s based on the
achievement of certain financial and non-financial performance-based criteria in 2010. The 2010 Bonus Plan implemented for 2010 the 2010
Long Term Incentive Plan and pertains specifically to the payment of non-equity incentive compensation to NEO’s for 2010.
For 2010, such financial and non-financial goals, the percentage of the executive’s entire cash bonus tied to such goals and the
weighting of each component under such goal, were as follows:
Financial Goals (80% of total cash bonus target)
– Adjusted Operating Income Growth (50%); the Compensation Committee believes this is the most important individual
component and aligns the interests of our executives with those of our stockholders, in addition to building long term value.
Adjusted Operating Income is defined as operating income adjusted for unusual or nonrecurring items as determined by our
Compensation Committee.
– Sales Growth (20%); the Compensation Committee believes top line sales growth is key to our Company remaining competitive
with larger companies. Sales are defined as sales revenue net of returns on a constant currency basis.
– Return on Invested Capital Growth (10%); the Compensation Committee believes this will encourage management to pursue
operational efficiencies in establishing strategic goals and planning for growth. Return on Invested Capital is defined as
adjusted operating income divided by the sum of (i) the book value of stockholders’ equity plus the book value of interest-
bearing obligations minus total cash and cash equivalents.
Non-Financial Goals for 2010 (20% of total cash bonus target)
– Strategic Accomplishments (six specific goals weighted at an aggregated 80% of the total non-financial goal): These goals
relate to various strategic initiatives that the Compensation Committee believes will enhance the Company’s operational
infrastructure.
– Corporate Governance Goals for 2010 (two specific goals weighted at 20% of the total non-financial goal): These goals relate
to continuing improvements in our internal processes that the Compensation Committee believes will generally benefit
stockholders.
Under the 2010 Bonus Plan, the Compensation Committee set the following cash bonus target amounts for each of the following
NEO’s, assuming achievement of the 2010 financial and non-financial goals at 100% base case target levels:
Richard Leeds
Bruce Leeds
Robert Leeds
Lawrence Reinhold
$1,100,000
$ 750,000
$ 750,000
$ 825,000
Under the 2010 Bonus Plan, achievement of each of the target financial goals generates a variable target bonus payment (base case);
reduced bonuses are payable on a pro rata basis for each financial goal component, starting at achievement of in excess of 80% of the target
financial goal component amount up to 140% of the target financial goal component amount. Each 1% variance in actual achievement from
the 100% level generates a 5% variance in the target bonus amount for that component, and no bonus is payable in respect of these
components if achievement is 80% or less of the target financial component goal amount. Increased bonuses (up to 300% of the target bonus
amount for each component) are payable on a pro rata basis for each financial goal component amount achieved. The non-financial goals are
measured based on whether or not the goal is either accomplished or not accomplished during the fiscal year.
The 2010 Bonus Plan imposed a cap on the total bonus that could be payable to any executive at 300% of the target base case bonus.
The Compensation Committee had the discretion to adjust financial targets based on such events as acquisitions or other one- time charges or
gains, or other unforeseen circumstances that can skew normal operating results. Targets and bonuses are also subject to adjustment to
prevent unreasonable results in the strict application of these formulas. Executives must generally be employed with the Company at the time
the bonuses are paid out to receive the bonus.
27
In addition, under the 2010 Bonus Plan, the Board can demand repayment to the Company of any cash bonuses paid in the event that
(i) the executive’s misconduct caused the Company to restate its reported financial results; (ii) the reported results created a bonus that would
not have been paid based on the restated results, or (ii) the executive engages in serious ethical misconduct.
2009 NEO Cash Bonus Plan
Under the Company’s 2009 Executive Incentive Plan (approved by stockholders in March 2008 and first implemented for the
payment of non-equity compensation to NEO’s for 2009) executive officers of the Company were eligible to receive an annual cash bonus,
based on the Company’s achievement of certain performance-based goals established by the Compensation Committee relating to
Operational and Financial Performance, Strategic Accomplishments and Corporate Governance and Oversight. The amount of any annual
award would vary based on performance, and was determined for each participant as a multiple of the participant’s base salary for that year
relating to achieving one or more performance goals, up to an annual aggregate bonus per participant of $5 million. In the event that an
award contained more than one performance goal, participants in the plan were entitled to receive the portion of the target percentage
allocated to the performance goal achieved. In the event that the Company did not achieve at least the minimum performance goals
established, no award payment would be made.
In March 2009, pursuant to the Systemax Executive Incentive Plan, our Compensation Committee, with input from our Chief
Executive Officer, established our 2009 NEO Cash Bonus Plan (the ―2009 Bonus Plan‖) providing for target cash bonuses for the NEO’s
based on the achievement of certain performance-based criteria in 2009. The performance goals were based on the overall performance of
the Company, and recognized business unit, team and/or individual performance. The Compensation Committee had the discretion to reduce
the amount payable to, or to determine that no amount will be paid to, a participant. The 2009 Bonus Plan implemented for 2009 the
Executive Incentive Plan.
Awards for Messrs. Richard, Robert, and Bruce Leeds and Mr. Reinhold under the 2009 Bonus Plan had the following components:
70% for short-term financial accomplishments (tied 60% to Company consolidated earnings performance and 10% to peer group financial
comparisons) and 30% for long-term strategic accomplishments (tied 20% to strategic goals, such as acquisitions and process improvements,
and 10% to governance and compliance matters). Those percentages reflect the desire to reward executives for maximizing revenue while
controlling costs in a difficult economic environment, while recognizing that a number of strategic initiatives must be accomplished during
2009 to properly position the company for 2010 and beyond. The applicable base salary multiples for calculating base cash bonus awards
was 2 times annual salary for each of Messrs. Richard, Bruce and Robert Leeds and 1 times annual salary for Mr. Reinhold. In addition, each
of these executive officers would receive a special bonus equal to 50% of their respective base target bonus amount for successful
implementation of certain management financial reporting technology enhancements in 2009.
Achievement of the consolidated earnings, peer group and strategic goals was measured on a variable basis depending on the level
of accomplishment. Achievement of the governance and compliance and special financial reporting technology goals was measured on the
basis of whether or not the goals were effected in 2009.
For each of Messrs. Richard, Bruce, and Robert Leeds and Mr. Reinhold a specific target bonus payment (base case) was established
for the consolidated earnings goal as follows: reduced bonuses are payable on a pro rata basis starting at achievement in excess of 70% of the
financial target amount up to 100% of the financial target amount; 70% achievement of the financial target would guarantee a bonus of 50%
of the target bonus amount for this component; and no bonus is payable in respect of this component if achievement is 70% or less of the
financial target. Increased bonuses (up to 400% of target bonus amount for this component) are payable on a pro rata basis for achieving a
financial goal amount in excess of the financial target amount, up to 150% of the financial target amount.
In this regard, for each of Messrs. Richard, Robert and Bruce Leeds and Mr. Reinhold, the Compensation Committee set short term
financial targets based on comparing the Company’s performance in achieving organic sales growth, operating margin growth and return on
invested capital growth to the performance of a peer group comprised of the following public companies, including competitors of the
Company, based on publicly available information: Insight Enterprises Inc., PC Connection Inc., PC Mall Inc., Best Buy Co., Inc.,
Amazon.com, Inc., MSC Industrial Direct Co., Inc. and W.W. Grainger, Inc. These companies were selected because they have one or more
of the following attributes: business operations in the industries and markets in which the Company participates, similar revenue and market
capitalization, global scope of operations and/or diversified product lines. Bonuses in respect of the peer group companies were set on a
variable basis ranging from 50% of the targeted bonus for this component (for underperforming the peer group) to up to 200% of the targeted
bonus for this component (for significantly over performing the peer group). However, the Company does not utilize benchmarking to
establish bonus payment amounts for the Company’s NEO’s.
Under the 2009 Plan, the Compensation Committee had set the following cash bonus target amounts for each of the following
NEO’s, assuming achievement of the 2009 financial, non-financial and special information technology goals at 100% base case target levels.
Richard Leeds
Bruce Leeds
Robert Leeds
Lawrence Reinhold
$1,701,000
$1,410,000
$1,410,000
$ 696,000
28
However, following completion of the results for fiscal 2009, Richard Leeds requested that his actual bonus be reduced to $975,000
(a reduction of $787,000) and Bruce and Robert Leeds each requested that their actual bonuses be reduced to $670,000 (a reduction of
$787,000 each). The Compensation Committee approved these reductions.
Compensation of NEOs in 2011
In determining the compensation of the Company’s Chief Executive Officer for fiscal year 2011 and approving the compensation of
the Company’s other NEO’s, the Committee considered, among the other factors discussed above, the achievement of the performance based
criteria established under the 2011 Bonus Plan.
The Compensation Committee determined that the Company and management had performed well, particularly given trends in the
general economic environment that had affected the Company’s business throughout fiscal 2011, and that management had executed well on
strategic business initiatives to position the Company for growth while managing risk. Based on Company and individual performance, the
Compensation Committee believes that compensation levels for fiscal year 2011 were consistent with the philosophy and objectives of the
Company’s compensation programs. However, although the Company met its 2011 strategic and corporate governance non-financial goals
described, the Company did not achieve 100% of its 2011 minimum adjusted operating income and sales growth financial goals.
Accordingly, pursuant to the 2011 Bonus Plan formulas, 2011 non-equity incentive plan/bonus compensation for each named executive
officer (other than Mr. Sprosty) was paid at only 71% of the target level.
The 2011 threshold, target and maximum bonus amounts for each of our named executive officers are found in the ―Grant of Plan
Based Awards‖ table on page 36.
Employment Arrangements of the Named Executive Officers
Richard Leeds
Richard Leeds has no employment agreement and is an ―at will‖ employee. Base salary accounted for 43% and bonus accounted for
56% of Mr. Leeds total cash compensation for 2011. Mr. Leeds salary for 2012 is set at $626,000. See the discussion of our 2011 Bonus
Plan and 2012 Bonus Plan regarding Mr. Leeds non-equity incentive awards for 2011 and 2012.
Bruce Leeds
Bruce Leeds has no employment agreement and is an ―at will‖ employee. Base salary accounted for 47% and bonus accounted for
51% of Mr. Leeds total cash compensation for 2011. Mr. Leeds salary for 2012 is set at $518,000. See the discussion of our 2011 Bonus
Plan and 2012 Bonus Plan regarding Mr. Leeds non-equity incentive awards for 2011 and 2012.
Robert Leeds
Robert Leeds has no employment agreement and is an ―at will‖ employee. Base salary accounted for 47% and bonus accounted for
51% of Mr. Leeds total cash compensation for 2011. Mr. Leeds salary for 2012 is set at $518,000. See the discussion of our 2011 Bonus
Plan and 2012 Bonus Plan regarding Mr. Leeds non-equity incentive awards for 2011 and 2012.
Lawrence Reinhold
The Company entered into an employment agreement with Mr. Reinhold on January 17, 2007. The agreement provides for a
minimum base salary of $400,000 (which may be increased at the discretion of the Company) and a bonus (which the agreement states is
expected to be at least equal to 50% of the base salary) assuming Mr. Reinhold meets certain performance objectives (including the
Company’s financial performance objectives) established for him by the Company. He is entitled to receive a car allowance or a Company-
leased car.
Mr. Reinhold’s bonus for 2011 was determined as described above under the heading 2011 Named Executive Officer Cash Bonus
Plan. Mr. Reinhold received a grant of equity compensation in 2009 and 2011 in the form of stock options. The decision by the
Compensation Committee to award Mr. Reinhold stock options was based on Mr. Reinhold’s significant accomplishments in 2009 and 2011
as well as a desire to further align his interests with those of the Company’s stockholders. Base salary accounted for 45% and bonus
accounted for 53% of Mr. Reinhold’s total cash compensation for 2011. In 2010, Mr. Reinhold received a grant of 175,000 restricted stock
units under the 2010 Long Term Incentive Plan. The restricted stock units vest in ten equal annual installments of 17,500 units each,
beginning on May 15, 2011. In 2011, Mr. Reinhold received a grant of 100,000 restricted stock units that vest in ten equal installments
beginning on November 14, 2012. As in 2009, the Compensation Committee decided to make these equity awards in recognition of Mr.
Reinhold’s accomplishments in 2010 and 2011 and in order to further align his interests with those of our stockholders. His salary for 2012 is
set at $608,000.
29
Compensation that may become payable following the termination of his employment or a change in control of the company, and
other terms of the employment agreement related to such events, are discussed below under ―—Potential Payments Upon Termination or
Change in Control.‖
David Sprosty
The Company entered into an employment agreement with Mr. Sprosty on October 3, 2011. The agreement provides for a base
salary of $700,000 (which may be increased at the discretion of the Company) and cash bonuses. Under the employment agreement, Mr.
Sprosty is eligible for (i) a target cash bonus of $700,000 during each year of employment (prorated for the first year and based on assumed
achievement at target level) assuming Mr. Sprosty meets certain performance objectives established for him by the Company; 75% of the
bonus is based on performance objectives of the North American Technology Products Group for the applicable year and 25% of the bonus is
based on certain Company financial performance objectives under the Company’s Named Executive Officer Cash Bonus Plan for the
applicable year; and (ii) a special one-time cash bonus of $2,000,000 upon the North American Technology Products Group’s achievement of
profitability targets, as determined pursuant to the agreement, for two consecutive full fiscal years, with the first year being no later than
December 31, 2014. Of the 75% portion of Mr. Sprosty’s bonus that is based on performance objectives of the North American Technology
Products Group, 60% (45% of the total bonus) is based on achieving financial goals for increasing operating income and sales, and 40% (30%
of the total bonus) is based on non-financial goals involving implementing various information technology enhancements and retail store
improvements. Achievement of the target financial goals set for Mr. Sprosty generates a variable target bonus payment (base case); a reduced
bonus is payable for the financial goal component, starting at achievement of in excess of 70% of the target financial goal component amount
up to 150% of the target financial goal component amount. No bonus is payable in respect of these components if achievement is 70% or less
of the target financial component goal amount. An increased bonus (up to 200% of the target bonus amount for each component) is payable
for each financial goal component amount achieved. The non-financial goals are measured based on whether or not the goal is either
accomplished or not accomplished during the fiscal year.
Mr. Sprosty is also entitled to receive a one-time cash relocation bonus of $300,000 payable upon his relocation to Miami, Florida,
plus up to $250,000 of additional reimbursements for his relocation to Miami. Mr. Sprosty has also been granted an option to purchase
100,000 shares of common stock pursuant to the Company’s Long Term Stock Incentive Plan (vesting over a period of four years with 25%
of the options vesting on the first, second, third and fourth anniversary dates of the grant date), and a grant of 100,000 restricted stock units of
the Company’s common stock in accordance with the Company’s 2010 Long Term Incentive Plan (vesting over ten years in equal
installments on each of the first ten anniversaries of the grant date). He is also entitled to receive a car allowance or a Company-leased car.
Base salary accounted for 45% and bonus accounted for 54% of Mr. Sprosty’s total cash compensation for 2011. Mr. Sprosty was
not employed by the Company in 2010. His salary for 2012 is set at $700,000.
Compensation that may become payable following the termination of his employment or a change in control of the company, and
other terms of the employment agreement, as described below, related to such events, are discussed below under ―—Potential Payments Upon
Termination or Change in Control.‖
2012 NEO Cash Bonus Plan
In March 2012, pursuant to the 2010 Long Term Incentive Plan previously adopted by the Board of Directors and by the
stockholders at the 2010 Annual Meeting, our Compensation Committee, with input from our Chief Executive Officer, established our 2012
NEO Cash Bonus Plan (―2012 Bonus Plan‖) providing for target cash bonuses for the NEO’s based on the achievement of certain financial
and non-financial performance-based criteria in 2012. The 2012 Bonus Plan implemented for 2012 the 2010 Long Term Incentive Plan and
pertains specifically to the payment of non-equity incentive compensation to NEO’s for 2012. The following discussion applies to 100% of
the 2012 total non –equity incentive compensation for each of Mr. Richard Leeds, Mr. Bruce Leeds, Mr. Robert Leeds and Mr. Reinhold, and
to the 25% portion of Mr. Sprosty’s 2012 total non-equity incentive compensation that is based on the 2012 NEO Cash Bonus Plan, as
discussed above.
For 2012, such financial and non-financial goals, the percentage of the executive’s entire cash bonus tied to such goals and the
weighting of each component under such goal, were as follows:
Financial Goals (80% of total cash bonus target)
– Adjusted Operating Income Growth (60%); the Compensation Committee believes this is the most important individual
component and aligns the interests of our executives with those of our stockholders, in addition to building long term value.
Adjusted Operating Income is defined as operating income adjusted for unusual or nonrecurring items as determined by our
Compensation Committee.
30
– Sales Growth (20%); the Compensation Committee believes top line sales growth is key to our Company achieving the scale
necessary to remain competitive with larger companies. Sales are defined as sales revenue net of returns on a constant currency
basis.
Non-Financial Goals for 2012 (20% of total cash bonus target)
– Strategic Accomplishments (eight specific goals weighted at an aggregated 80% of the total non-financial goal): These goals
relate to various strategic initiatives including enhancing both the North American and European Technology Product Group’s
information technology systems, reducing our costs in Europe, expanding the Industrial business’s distribution capacity through
the operation of our new distribution center, the development of a new online revenue channel for the Industrial business and
the creation and implementation of a long-term incentive compensation program for the Company’s senior management . The
Compensation Committee believes these initiatives will enhance the Company’s operational infrastructure and efficiency.
– Corporate Governance Goals for 2012 (three specific goals weighted at 20% of the total non-financial goal): These goals relate
to continuing improvements in our internal control processes, ethics compliance procedures and safety protocols that the
Compensation Committee believes will generally benefit stockholders.
Achievement of each of the target financial goals generates a variable target bonus payment (base case); reduced bonuses are
payable on a pro rata basis for each financial goal component, starting at achievement of in excess of 80% of the target financial goal
component amount up to 140% of the target financial goal component amount. Each 1% variance in actual achievement from the 100% level
generates a 5% variance in the target bonus amount for that component, and no bonus is payable in respect of these components if
achievement is 80% or less of the target financial component goal amount. Increased bonuses (up to 300% of the target bonus amount for
each component) are payable on a pro rata basis for each financial goal component amount achieved. The non-financial goals are measured
based on whether or not the goal is either accomplished or not accomplished during the fiscal year.
Under the 2012 Bonus Plan, the Compensation Committee set the following cash bonus target amounts for each of Mr. Richard
Leeds, Mr. Bruce Leeds, Mr. Robert Leeds and Mr. Reinhold, assuming achievement of the 2012 NEO Cash Bonus Plan financial and non-
financial goals at 100% base case target levels, and in the case of Mr. Sprosty, achievement of such 2012 NEO Cash Bonus Plan goals at
100% base case target levels as well as achievement of the financial and non-financial goals of the North American Technology Products
Group at 100% base case target levels, as discussed above:
Richard Leeds
Bruce Leeds
Robert Leeds
Lawrence Reinhold
David Sprosty
$1,100,000
$ 750,000
$ 750,000
$ 825,000
$ 700,000
The Compensation Committee believes these bonus levels are appropriate for each of our named executive officers; these bonus
levels are the same as those that were set for the named executive officers in 2011. The 2012 salary increases reflect the Compensation
Committee’s view that such increases are appropriate in light of 2012 NEO bonuses being set at the same level as 2011 and 2011 NEO base
salary having been held at the same level as 2010.
The 2012 Bonus Plan imposes a cap on the total bonus that could be payable to any executive at 300% of the target base case bonus.
The Compensation Committee has the discretion to adjust financial targets based on such events as acquisitions or other one- time charges or
gains, or other unforeseen circumstances that can skew normal operating results. Targets and bonuses are also subject to adjustment to
prevent unreasonable results in the strict application of these formulas. Executives must generally be employed with the Company at the time
the bonuses are paid out to receive the bonus.
In addition, the Board can demand repayment to the Company of any cash bonuses paid in the event that (i) the executive’s
misconduct caused the Company to restate its reported financial results; (ii) the reported results created a bonus that would not have been paid
based on the restated results, or (ii) the executive engages in serious ethical misconduct.
31
Compensation Committee Report to Stockholders*
The Compensation Committee of the Board has reviewed and discussed the Compensation Discussion and Analysis required by
Item 402(b) of Regulation S-K, which appears in this proxy statement, with our management. Based on this review and discussion, the
Compensation Committee recommended to the Board that the Compensation Discussion and Analysis be included in this proxy statement on
Schedule 14A.
COMPENSATION COMMITTEE
Robert D. Rosenthal (Chairman)
Stacy S. Dick
Marie Adler-Kravecas
The information contained in this Compensation Committee Report shall not be deemed to be ―soliciting material‖ or to be ―filed‖
with the SEC, nor shall such information be incorporated by reference into any filings under the Securities Act of 1933, as amended, which
we refer to as the Securities Act, or under the Exchange Act, except to the extent that we specifically incorporate this information by
reference into any such filing.
Compensation Committee Interlocks and Insider Participation
The members of the Company’s Compensation Committee for fiscal year 2011 were Marie Adler-Kravecas, Robert D. Rosenthal
and Stacy S. Dick. The Company does not employ any member of the Compensation Committee and no member of the Compensation
Committee has ever served as an officer of the Company. In addition, none of our directors serving on the Compensation Committee has any
relationship that requires disclosure under SEC regulations.
32
SUMMARY COMPENSATION TABLE
The following table sets forth the compensation earned by the Chief Executive Officer (―CEO‖, our principal executive officer),
Chief Financial Officer (―CFO‖, our principal financial officer), and the three most highly compensated officers other than the CEO and CFO
(collectively the ―Named Executive Officers‖) for fiscal years 2009, 2010 and 2011:
Name and
Principal
Position
Richard Leeds
Chairman and
Chief Executive
Officer
Bruce Leeds
Vice Chairman
Robert Leeds
Vice Chairman
Year
Salary
($)
Bonus
($)
Stock
Awards
($)
Option
Awards
($) (1)
Non-Equity
Incentive Plan
Compensation
($) (2)
All Other
Compensation
($)
Total
($)
2011 596,000
2010 567,000
2009 567,000
2011 494,000
2010 470,000
2009 470,000
2011 494,000
2010 470,000
2009 470,000
-
-
-
1,430,000
2,168,250
-
489,025
1,013,170
781,000
462,000
975,000
533,000
315,000
670,000
533,000
315,000
670,000
586,000
346,500
719,200
18,958(3)
23,704
21,394
21,600(3)
20,349
18,321
21,600(3)
19,064
16,063
29,709(4)
23,776
26,531
1,395,958
1,052,704
1,563,394
1,048,600
798,291
1,158,321
1,048,600
797,006
1,156,063
3,031,996
3,010,438
2,230,526
-
-
-
-
Lawrence Reinhold 2011 500,000
2010 471,912
Executive Vice
President and
2009 471,625
Chief Financial
Officer
2011 145,385(5)
1,164,000
1,018,210
175,000
5,953(4)
2,517,522
David Sprosty
Chief Executive
– Technology
Products Group
(1) This column represents the fair value of the stock option on the grant date determined in accordance with the provisions of ASC 718.
As per SEC rules relating to executive compensation disclosure, the amounts shown exclude the impact of forfeitures related to service
based vesting conditions. These amounts were calculated using the Black-Scholes option-pricing model. For additional information
regarding assumptions made in calculating the amount reflected in this column, please refer to Note 9 to our audited consolidated
financial statements, included in our Annual Report on Form 10-K for fiscal year 2011.
(2) The 2010 figures in this column represent the amount earned in fiscal year 2010 (although paid in fiscal year 2011) pursuant to the
2010 Bonus Plan and the 2011 figures in this column represent the amount earned in fiscal year 2011 (although paid in fiscal year 2012)
pursuant to the 2011 Bonus Plan. For more information, see the Grants of Plan-Based Awards table below. Because these payments
were based on predetermined performance metrics, these amounts are reported in the Non-Equity Incentive Plan column.
(3) Auto-related expenses.
(4) Includes auto-related expenses and Company 401(k) contributions.
(5) Mr. Sprosty’s employment commenced in October 2011; the amount presented is his $700,000 base salary pro-rated for 2011.
33
The following table sets forth the estimated possible payouts under the cash incentive awards granted to our named executive
officers in respect of 2011 performance, and the restricted stock units and stock options granted to our named executive officers in 2011.
GRANTS OF PLAN-BASED AWARDS
Name
Grant
Date
Estimated Future Payouts Under Non-
Equity Incentive Plan Awards (1)
Exercise or
Base Price of
Option
Awards
Grant Date
Fair Value of
Stock Award
($/Sh)
All Other
Stock Awards:
Number of
Shares of
Stock or Units
(#)
All Other
Option
Awards:
Number of
Securities
Underlying
Options
(#)
Richard Leeds
Bruce Leeds
Robert Leeds
Threshold
($)
264,000
Target
($)
1,100,000
Maximum
($)
3,300,000
180,000
750,000
2,250,000
180,000
750,000
2,250,000
-
-
-
-
-
-
-
-
Lawrence P. Reinhold
11/14/11
198,000
825,000
2,475,000
100,000(2)
50,000(3)
$14.30
$14.30
David Sprosty
10/3/11
168,000
700,000
2,100,000
100,000(4)
100,000(5)
$11.64
$11.64
(1)
(2)
(3)
(4)
(5)
Amounts presented assume payment of threshold, target and maximum awards at the applicable level.
The restricted stock units granted to Mr. Reinhold in November 2011 vest in ten equal annual installments, commencing on
November 14, 2012, subject to certain restrictions and acceleration events.
The options awarded to Mr. Reinhold in November 2011 vest in equal portions on the first, second, third and fourth anniversaries
of the grant date, subject to certain restrictions and acceleration events.
The restricted stock units granted to Mr. Sprosty in October 2011 vest in ten equal annual installments, commencing on October 3,
2012, subject to certain restrictions and acceleration events.
The options awarded to Mr. Sprosty in October 2011 vest in equal portions on the first, second, third and fourth anniversaries of
the grant date, subject to certain restrictions and acceleration events.
34
OUTSTANDING EQUITY AWARDS AT FISCAL YEAR END 2011
The following table sets forth information regarding stock option and restricted stock awards previously granted which were
outstanding at the end of fiscal year 2011.
The market value of the stock award is based on the closing price of one share of our common stock as of December 30, 2011,
which was $16.41.
Option Awards
Number of
Securities
Underlying
Unexercised
Options
(#)
Exercisable
(b)
Number of
Securities
Underlying
Unexercised
Options
(#)
Unexercisable
(c)
100,000
37,500
50,000
-
-
12,500(1)
50,000(1)
50,000(1)
Stock Awards
Number of
Shares
or Units of
Stock That
Have Not
Vested
(#)
(g)
-
-
157,500(2)
100,000 (3)
Market Value
of Shares or
Units of Stock
That Have Not
Vested
($)
(h)
-
-
$2,584,575
$1,641,000
Option
Exercise
Price
($)
(e)
$20.15
$11.51
$13.19
$14.30
Option
Expiration
Date
(f)
1/17/17
3/13/18
5/18/19
11/14/21
Name
(a)
Lawrence Reinhold
David Sprosty
100,000(4)
$11.64
10/3/21
100,000(5)
$1,641,000
(1) Options vest 25% per year over four years from date of grant.
(2) Restricted stock units vest in ten equal annual installments of 17,500 beginning May 5, 2011.
(3) Restricted stock units vest in ten equal annual installments of 10,000 beginning November 14, 2012.
(4) Options vest 25% per year over four years from date of grant.
(5) Restricted stock units vest in ten equal annual installments of 10,000 commencing on October 3, 2012.
OPTION EXERCISES AND STOCK VESTED
The following table sets forth information regarding exercise of options to purchase shares of the Company’s common stock and
vesting of restricted stock units by the named executive officers that exercised options or whose restricted stock units vested during fiscal
year 2011:
Option Awards
Restricted Stock Units Awards
Name
(a)
Lawrence Reinhold
Number of Shares
Acquired on Exercise
(#)
(b)
-
Value Realized on
Exercise
($)
(c)
-
Number of Shares
Acquired on Vesting
(#)
(d)
17,500(2)
Value Realized
on Vesting
($) (1)
(e)
$253,575
(1) The amount in this column reflects the aggregate dollar amount realized upon the vesting of the restricted stock unit, determined by the
market value of the underlying shares of common stock on the vesting date.
(2) Pursuant to a grant of restricted stock units on August 25, 2010, the restricted stock units vest in ten equal annual installments of 17,500
units each, beginning on May 15, 2011.
35
POTENTIAL PAYMENTS UPON TERMINATION OR CHANGE IN CONTROL
Lawrence Reinhold
Mr. Reinhold’s employment agreement is terminable upon death or total disability, by the Company for ―cause‖ (as defined) or
without cause, or by Mr. Reinhold voluntarily for any reason or for ―good reason‖ (as defined). In the event of termination for death,
disability, cause or voluntary termination by Mr. Reinhold, the Company will owe no further payments other than accrued but unpaid base
salary as applicable under disability or medical plans and any accrued but unused vacation time (up to four weeks). In the event of
termination for disability or death, Mr. Reinhold would also receive the pro rata portion of any bonus which would otherwise be paid based
on the average annual bonus received for the prior two years. If Mr. Reinhold resigns for good reason or if the Company terminates him for
any reason other than disability, death or cause, he shall also receive in addition to the payments paid for other terminations, severance
payments equal to 12 months’ base salary (or 24 months’ base salary if termination is within 60 days prior to or one year following a ―change
of control,‖ as defined), one year’s bonus based on his average annual bonus for the prior two years and a reimbursement of costs for
COBRA insurance coverage. A ―Change in Control‖ means: (i) approval by the stockholders of the Company of (I) a reorganization, merger,
consolidation or other form of corporate transaction or series of transactions, in each case, with respect to which the Majority Stockholders
(as defined) cease to own, directly or indirectly, in the aggregate at least forty percent (40%) of the then outstanding shares of the Parent’s
common stock or the combined voting power entitled to vote generally in the election of directors of the reorganized, merged or consolidated
company’s then outstanding voting securities, in substantially the same proportions as their ownership immediately prior to such
reorganization, merger, consolidation or other transaction, or (II) the sale of all or substantially all of the assets of the Company; (ii) the
acquisition by any person, entity or ―group‖, within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act, of beneficial
ownership within the meaning of Rule 13-d promulgated under the Securities Exchange Act which would result in the Majority Stockholders
ceasing to own, directly or indirectly, in the aggregate, at least forty percent (40%) of the then outstanding shares of the Company’s common
stock; or (iii) The approval by the stockholders of the Company of the complete liquidation or dissolution of the Company.
If Mr. Reinhold is terminated for cause, any unvested portion of his restricted stock units will terminate and be forfeited. In the event
of a change in control, Mr. Reinhold will become immediately vested in all of the restricted stock units held by him as of the date of the
change in control. If Mr. Reinhold’s employment is terminated without cause or for good reason, he will become immediately vested in all
non-vested units and will become immediately entitled to a distribution of that number of shares of common stock of the Company that are
represented by those vested restricted stock units. If Mr. Reinhold’s employment is terminated due to disability or death, his estate or
designated beneficiary(ies), whichever is applicable, will become immediately vested in 50% of the non-vested restricted stock units.
Pursuant to the Company’s standard option agreements, in the event Mr. Reinhold’s employment is terminated for any reason other
than death, disability or cause, the vested portions of his options will be exercisable for up to three months, and the unvested portion will be
forfeited. In the event of death or disability, the vested portion of his option will be exercisable for up to one year, and the unvested portion
will be forfeited. In the event of termination for cause, all unexercised options (vested and unvested) will be forfeited.
David Sprosty
Mr. Sprosty’s employment agreement is terminable upon ―death‖ or ―total disability‖ (as defined), by the Company for ―cause‖ or
―without cause‖ (as defined), or by Mr. Sprosty voluntarily for any reason or for ―good reason‖ (as defined). In the event of termination for
any reason, the Company must pay Mr. Sprosty all accrued but unpaid base salary to the date of termination, any accrued but unused vacation
time (up to four weeks) and, in the event of termination for total disability or death, the pro rata portion of any bonus which would otherwise
be paid (or the pro rata portion of the average annual bonus paid for the two prior years of employment if Mr. Sprosty has been employed
two or more years). If Mr. Sprosty resigns for good reason or if the Company terminates him without cause, he shall also receive severance
payments (contingent upon and as express consideration for compliance with his non-compete, non-solicitation and other confidentiality
obligations) equal to (a) twelve (12) months’ base salary; (b) the average annual bonus earned by him based on his average annual bonus for
the prior two years (unless he was employed for less than two years in which case he will receive an amount equal to the annual target
amount of the annual bonus); and (c) a reimbursement of costs for COBRA insurance coverage.
If Mr. Sprosty is terminated for cause, any unvested portion of the restricted stock units will terminate and be forfeited. If
employment is terminated by the Company without cause or for good reason, then as of the date of termination, Mr. Sprosty will become
immediately vested in all non-vested restricted stock units and become immediately entitled to a distribution of that number of shares of
common stock of the Company that is represented by those vested restricted stock units. If Mr. Sprosty’s employment with the Company is
terminated due to his total disability or death, he or his estate or designated beneficiary(ies), whichever is applicable, will become
immediately vested in 50% of the non-vested restricted stock units.
In the event of termination for cause, any portion of Mr. Sprosty’s options not previously exercised (vested and unvested) will
terminate upon the date of his termination from employment. If Mr. Sprosty is terminated without cause or for good reason prior to the
exercise in full of his options, he may exercise (to the extent exercisable) his options in whole or in part at any time within three months after
the date of termination. If Mr. Sprosty’s employment is terminated due to death or total disabilityprior to the exercise in full of his options, in
the case of total disability, he or his personal representative or the person to whom the options are transferred by will or the laws of descent
and distribution, in the case of death, may exercise (to the extent then exercisable) his options in whole or in part at any time within one year
36
after the date of death or the date of total disability, as the case may be. Any unvested options at the time of such termination will be forfeited
unless otherwise determined by the Compensation Committee.
If employment is terminated by the Company (or its successor) without cause, or by Mr. Sprosty for good reason, in either case,
within six months following a ―change in control‖ (as defined), all of Mr. Sprosty’s outstanding unvested restricted stock units will
immediately vest, and all of his outstanding unvested stock options will immediately vest and remain exercisable for ninety (90) days after
such termination. A ―Change in Control‖ means: (i) the sale or other disposition of all or substantially all of the assets of the Company; (ii)
any sale or exchange of the capital stock of the Company by the stockholders of the Company in one transaction or series of related
transactions as a result of which more than fifty percent (50%) of the outstanding voting securities of the Company is acquired by a person or
entity or group of related persons or entities; (iii) any reorganization, consolidation or merger of the Company where the outstanding voting
securities of the Company immediately before the transaction represent or are converted into less than fifty percent (50%) of the outstanding
voting power of the surviving entity (or its parent corporation) immediately after the transaction; or (iv) the consummation of the acquisition
of fifty-one percent (51%) or more of the outstanding stock of the Company pursuant to a tender offer validly made under any federal or state
law (other than a tender offer by the Company).
Termination of Employment Without Change In Control
The table below sets forth the severance payments that would have been made had the employment of Mr. Reinhold or Mr. Sprosty
been terminated by the Company without cause or by them for ―good reason‖ in a situation not involving a change in control, based on a
hypothetical termination date of December 31, 2011, the last day of the Company’s fiscal year 2011, and using the closing price of our
common stock on January 3, 2012. These amounts are estimates and the actual amounts to be paid can only be determined at the time of the
termination of the officer’s employment.
Name
Lawrence P. Reinhold
David Sprosty
Cash Compensation
(Salary and Bonus)
($)
1,074,250 (1)
1,400,000(3)
Value of Accelerated
Vesting
of Stock Awards
($)
4,351,750 (2)
1,690,000(4)
Medical and
Other Benefits
($)
20,615 (5)
31,778 (5)
Total
($)
5,446,615
3,121,778
(1) Represents one year’s salary of $608,000 and an average yearly cash bonus of $466,250 paid to Mr. Reinhold for fiscal years 2010 and
2011. Mr. Reinhold would also receive the bonus amount in the event of his death or disability.
(2) Represents accelerated vesting of 257,500 unvested restricted stock units granted to Mr. Reinhold if terminated without cause or for good
reason. In the event of Mr. Reinhold’s death or disability, 128,500 restricted stock units (50% of the unvested restricted stock units at
December 31, 2011) would vest, having a value of $2,175,875, based on a termination date of December 31, 2011 and using a closing
price of our stock on January 3, 2012.
(3) Represents one year’s salary of $700,000 and a target cash bonus amount of $700,000 for the first year of his employment period
(October 4, 2011 to October 3, 2012). Mr. Sprosty was not employed by the Company in fiscal year 2010.
(4) Represents accelerated vesting of 100,000 unvested restricted stock units granted to Mr. Sprosty if he is terminated without cause or
resigns for good reason. In the event of Mr. Sprosty’s death or disability, 50,000 restricted stock units (50% of the unvested restricted
stock units at December 31, 2011) would vest, having a value of $845,000, based on a termination date of December 31, 2011 and using
a closing price of our stock on January 3, 2012.(5) Represents reimbursement of medical and dental insurance payments under COBRA
for one year.
The table below sets forth the change in control payments that would have been made based on a hypothetical change of control date
of December 31, 2011, the last day of the Company’s fiscal year 2011, and using the closing price of our common stock on January 3, 2012.
These amounts are estimates and the actual amounts to be paid can only be determined at the time of the change of control.
Change In Control Payments
Name
Lawrence P. Reinhold
David Sprosty
Cash Compensation
(Salary and Bonus)
($)
1,682,250 (1)(2)
1,400,000 (4)(5)
Value of
Accelerated Vesting
of Stock Awards
($)
4,351,750(3)
2,216,000(6)
37
Medical and
Other Benefits
($)
30,922(7)
47,667(7)
Total
($)
6,064,922
3,663,667
(1) Represents two years’ salary of $608,000 per year and an average yearly cash bonus of $466,250 paid to Mr. Reinhold for the fiscal
years 2010 and 2011.
(2) Payments are to Mr. Reinhold only if he is terminated without ―cause‖ or resigns for ―good reason‖ within 60 days prior to, or one year
following, a Change of Control.
(3) Represents accelerated vesting of 257,500 unvested restricted stock units.
(4) Represents one years’ salary of $700,000 and target cash bonus of $700,000 for the first year of his employment period (October 4, 2010
through October 3, 2011).
(5) Payments are to Mr. Sprosty only if terminated without ―cause‖ or resigns for ―good reason‖ within six months following a Change of
Control.
(6) Represents accelerated vesting of 100,000 unvested restricted stock units and accelerated vesting of 100,000 unvested stock options.
(7) Represents reimbursement of medical and dental insurance payments under COBRA for 18 months.
DIRECTOR COMPENSATION
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: $65,000 per year as base compensation, $10,000 per year for each
committee chair, except for the Audit Committee Chair who receives $20,000, and a grant each year of shares of Company stock (restricted
for sale for two years) in an amount equal to $40,000 divided by the fair market value of such stock on the date of grant. The Lead
Independent Director, currently Robert D. Rosenthal, also receives an additional $20,000 per year. The restricted stock grants are made
pursuant to the Company’s 2006 Stock Incentive Plan for Non-Employee Directors, which was approved by the Company’s stockholders at
the 2006 Annual Stockholders’ Meeting. Directors are reimbursed for reasonable travel and out-of-pocket expenses incurred for attending
Board and Committee meetings and are covered by our travel accident insurance policy for such travel.
Director Compensation For Fiscal Year 2011
The following table sets forth compensation information regarding payments in 2011 to our non-employee Directors:
Name
(a)
Fees Earned
or Paid in
Cash
($)
(b)
Stock Awards
($) (1)
(c)
Total
($)
(h)
Robert D. Rosenthal
Stacy S. Dick
Marie Adler-Kravecas
105,000
85,000
65,000
40,000
40,000
40,000
145,000
125,000
105,000
(1) This column represents the fair value of the stock award on the grant date determined in accordance with the provisions of ASC 718. As
per SEC rules relating to executive compensation disclosure, the amounts shown exclude the impact of forfeitures related to service based
vesting conditions. For additional information regarding assumptions made in calculating the amount reflected in this column, please refer to
Note 8 to our audited consolidated financial statements, included in our Annual Report on Form 10-K for fiscal year 2011.
The following table presents the aggregate number of outstanding stock awards and stock option awards held by each of our non-employee
Directors at the end of fiscal year 2011:
Name :
Marie Adler-Kravecas
Robert D. Rosenthal
Stacy S. Dick
Stock Awards
6,989
11,217
11,217
Option Awards
5,000
9,000
14,250
38
PROPOSAL NO. 2
RATIFICATION OF INDEPENDENT REGISTERED PUBLIC ACCOUNTANTS
Action is to be taken at the Annual Meeting to ratify the selection of Ernst & Young LLP as independent registered public
accountants for the Company for fiscal year 2012.
Representatives of Ernst & Young LLP are expected to be present at the Annual Meeting and to be available to respond to
appropriate questions. They will have an opportunity to make a statement if they so desire.
Principal Accounting Fees and Services
The following are the fees billed by Ernst & Young LLP for services rendered during fiscal years 2010 and 2011:
Audit and Audit-related Fees
Ernst & Young billed the Company $1,771,069 for professional services rendered for the audit of the Company’s annual
consolidated financial statements for fiscal year 2011 and its reviews of the interim financial statements included in the Company’s Forms
10-Q for that fiscal year and $1,731,000 for such services rendered for fiscal year 2010.
In accordance with the SEC’s definitions and rules, ―audit fees‖ are fees that were billed to the Company by Ernst & Young for the
audit of the Company’s annual financial statements, to be included in the Form 10-K, and review of financial statements included in the Form
10-Qs; for the audit of the Company’s internal control over financial reporting with the objective of obtaining reasonable assurance about
whether effective internal control over financial reporting was maintained in all material respects; for the attestation of management’s report
on the effectiveness of internal control over financial reporting; and for services that are normally provided by the auditor in connection with
statutory and regulatory filings or engagements. ―Audit-related fees‖ are fees for assurance and related services that are reasonably related to
the performance of the audit or review of the company’s financial statements and internal control over financial reporting, including services
in connection with assisting the company in its compliance with its obligations under Section 404 of the Sarbanes-Oxley Act and related
regulations.
Tax Fees
Tax fees included services for international tax compliance, planning and advice. Ernst & Young LLP billed the Company for
professional services rendered for tax compliance, planning and advice in 2010 and 2011 an aggregate of $0 and $0, respectively.
All Other Fees
Other fees (i.e., those that are not audit fees, audit related fees, or tax fees) of $1,995 and $2,665 were billed by Ernst & Young LLP
for fiscal years 2010 and 2011.
The Audit Committee is responsible for approving every engagement of the Company’s independent registered public accountants to
perform audit or non-audit services on behalf of the Company or any of its subsidiaries before such accountants can be engaged to provide
those services. The Audit Committee does not delegate its pre-approval authority. The Audit Committee has reviewed the services provided
to the Company by Ernst & Young LLP and believes that the non-audit/review services it has provided are compatible with maintaining the
auditor’s independence.
Stockholder ratification of the selection of Ernst & Young LLP as the Company’s independent registered public accountants is not
required by the Company’s By-Laws or other applicable legal requirement. However, the Board is submitting the selection of Ernst & Young
LLP to the stockholders for ratification as a matter of good corporate practice. If the stockholders fail to ratify the selection, the Audit
Committee will reconsider whether or not to continue to retain that firm. Even if the selection is ratified, the Audit Committee at its
discretion may direct the appointment of different independent registered public accountants at any time during the year or thereafter if it
determines that such a change would be in the best interests of the Company and its stockholders.
Vote Required for Approval
Ratification of the selection of Ernst & Young LLP as the Company’s independent registered public accountants will require the
affirmative vote of the holders of a majority of the Shares present in person or by proxy and entitled to vote on the issue. There are no rights
of appraisal or dissenter’s rights as a result of a vote on this issue.
39
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR THE RATIFICATION OF THE
APPOINTMENT OF ERNST & YOUNG AS THE COMPANY’S INDEPENDENT REGISTERED PUBLIC ACCOUNTANTS FOR
FISCAL 2012, WHICH IS DESIGNATED AS PROPOSAL NO. 2.
Solicitation of Proxies
ADDITIONAL MATTERS
We are using the Securities and Exchange Commission, or SEC, Notice and Access rule that allows us to furnish our proxy materials
over the internet to our stockholders instead of mailing paper copies of those materials to each stockholder. As a result, beginning on or
about April 30, 2012, we sent to most of our stockholders by mail a notice containing instructions on how to access our proxy materials over
the internet and vote online. This notice is not a proxy card and cannot be used to vote your shares. If you received only a notice this year,
you will not receive paper copies of the proxy materials unless you request the materials by following the instructions on the notice or on the
website referred to in the notice.
The proxy statement and annual report on Form 10-K for fiscal year 2011 are available at www.proxyvote.com.
The cost of soliciting proxies for the Annual Meeting will be borne by the Company. In addition to solicitation by mail and over the
internet, solicitations may also be made by personal interview, fax and telephone. Arrangements will be made with brokerage houses and
other custodians, nominees and fiduciaries to send proxies and proxy material to their principals, and the Company will reimburse them for
expenses in so doing. Consistent with the Company’s confidential 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.
Stockholder Proposals
Stockholder proposals intended to be presented at the Annual Meeting, including proposals for the nomination of Directors, must be
received by February 11, 2013, to be considered for the 2013 annual meeting pursuant to Rule 14a-8 under the Exchange Act. Stockholders
proposals should be mailed to Systemax Inc., Attention: Investor Relations, 11 Harbor Park Drive, Port Washington, NY 11050.
Other Matters
The Board does not know of any matter other than those described in this proxy statement that will be presented for action at the
meeting. If other matters properly come before the meeting, the persons named as proxies intend to vote the Shares they represent in
accordance with their judgment.
A COPY OF THE COMPANY’S FORM 10-K FOR FISCAL YEAR 2011 IS INCLUDED AS PART OF THE COMPANY’S
ANNUAL REPORT ALONG WITH THIS PROXY STATEMENT, WHICH ARE AVAILABLE AT www.proxyvote.com.
Available Information
The Company maintains an internet web site at www.systemax.com. The Company files reports with the Securities and Exchange
Commission and makes available free of charge on or through this web site its annual reports on Form 10-K, quarterly reports on Form 10-Q
and current reports on Form 8-K, including all amendments to those reports. These are available as soon as is reasonably practicable after
they are filed with the SEC. All reports mentioned above are also available from the SEC’s web site (www.sec.gov). The information on 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 for the Audit Committee of the Board;
Charter for the Compensation Committee of the Board;
Charter for the Nominating/Corporate Governance Committee of the Board; and
Corporate Governance Guidelines and Principles.
In accordance with the corporate governance rules of the New York Stock Exchange, each of the Corporate Governance Documents
is available on the Company’s Company web site (www.systemax.com).
40
SYSTEMAX INC.
11 HARBOR PARK DRIVE
PORT WASHINGTON, NY 11050
VOTE BY INTERNET -www.proxyvote.com
Use the Internet to transmit your voting instructions and for electronic
delivery of information up until 11:59 P.M. Eastern Time the day
before the cut-off date or meeting date. Have your proxy card in hand
when you access the web site and follow the instructions to obtain your
records and to create an electronic voting instruction form.
VOTE BY PHONE –1-800-690-6903
Use any touch-tone telephone to transmit your voting instructions up
until 11:59 P.M. Eastern Time the day before the cut-off date or
meeting date. Have your proxy card in hand when you call and then
follow the instructions.
VOTE BY MAIL
Mark, sign and date your proxy card and return it in the postage-paid
envelope we have provided or return it to Vote Processing, c/o
Broadridge, 51 Mercedes Way, Edgewood, NY 11717.
TO VOTE, MARK BLOCKS BELOW IN BLUE OR BLACK INK AS FOLLOWS:
KEEP THIS PORTION FOR YOUR RECORDS
DETACH AND RETURN THIS PORTION ONLY
THIS PROXY CARD IS VALID ONLY WHEN SIGNED AND DATED.
For
All
Withhold
All
For All
Except
To withhold authority to vote for any
individual nominee(s), mark ―For All
Except‖ and write the number(s) of the
nominee(s) in the line below
The Board of Directors recommends
that you vote FOR the following:
1. Election of Directors
Nominees
01 Richard Leeds
05 Stacy S. Dick
02 Bruce Leeds
06 Robert D. Rosenthal
03 Robert Leeds
07 Marie Adler-Kravecas
04 Lawrence P. Reinhold
The Board of Directors recommends you vote FOR the following proposal:
For
Against
Abstain
2. A Proposal to ratify the appointment of Ernst & Young LLP as the Company’s
Independent registered public accountants for fiscal year 2012
NOTE: The shares represented by this proxy when properly executed will be voted in the manner directed herein by the undersigned
Stockholder(s). If no direction is made, this proxy will be voted FOR items 1 and 2. If any other matters properly come before the meeting, or if
cumulative voting is required, the person named in this proxy will vote in their discretion. This proxy is solicited on behalf of the Board of
Directors and may be revoked.
For address change/comments, mark here. (see reverse for instructions
Please sign exactly as your name(s) appear(s) hereon. When signing as attorney,
executor, administrator, or other fiduciary, please give full title as such. Joint
owners should each sign personally. All holders must sign. If a corporation or
partnership, please sign in full corporate or partnership name, by authorized
officer.
_____________________________________
Signature [PLEASE SIGN WITHIN BOX]
_________
Date
______________________
Signature Joint Owners
__________
Date
KL2 2734515.9
Important Notice Regarding Internet Availability of Proxy Materials for the Annual Meeting: The Proxy Statement
& Annual Report is/are available at www.proxyvote.com
------------------------------------------------------------------------------------------------------------------------------------------------------------------
SYSTEMAX INC.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD
OF DIRECTORS
ANNUAL MEETING OF STOCKHOLDERS – JUNE 11, 2012
The stockholder(s) hereby appoint(s) Curt Rush and Thomas Axmacher, or either of them, as proxies, each with the power to appoint
his substitute, and hereby authorizes them to represent and to vote, as designated on the reverse side of this ballot, all of the shares of
Common Stock of SYSTEMAX INC. that the stockholder(s) is/are entitled to vote at the Annual meeting of Stockholder(s) to be held
at 2:00 PM, EDT on June 11, 2012, at the Company’s Corporate Offices 11 Harbor Park Drive, Port Washington, NY 11050,and any
adjournment or postponement thereof.
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED AS DIRECTED BY THE STOCKHOLDERS, IF NO
SUCH DIRECTIONS ARE MADE, THIS PROXY WILL BE VOTED FOR ITEMS 1 AND 2.
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY CARD PROMPLY USING THE ENCLOSED REPLY
ENVELOPE
Address change/comments:
____________________________________________________________________________________________________________
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(If you noted any Address Changes/Comments above, please mark corresponding box on the reverse side
(Continued, and to be marked, dated and signed, on the other side)
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(Mark One)
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2011
or
TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For the transition period from
to
Commission File Number: 1-13792
Systemax Inc.
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of
incorporation or organization)
11-3262067
(I.R.S. Employer
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) 608-7000
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Common Stock, par value $ .01 per share
Securities registered pursuant to Section 12(g) of the Act: NONE
Name of each exchange on which registered
New York Stock Exchange
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes No
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes No
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past
90 days. Yes No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant
was required to submit and post such files). Yes No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best
knowledge of the registrant, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment of this Form
10-K.
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the
definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act (Check one):
Large Accelerated Filer
Non-Accelerated Filer
Accelerated Filer
Smaller reporting company
Indicate by check mark whether the registrant is a shell company (as defined in Exchange Act Rule 12b-2). Yes No
The aggregate market value of the voting stock held by non-affiliates of the registrant as of June 30, 2011, which is the last business day of the registrant’s most
recently completed second fiscal quarter, was approximately $164,511,601. For purposes of this computation, all executive officers and directors of the Registrant and
all parties to the Stockholders Agreement dated as of June 15, 1995 have been deemed to be affiliates. Such determination should not be deemed to be an admission that
such persons are, in fact, affiliates of the Registrant.
The number of shares outstanding of the registrant’s common stock as of February 29, 2012 was 36,400,723 shares.
Documents incorporated by reference: Portions of the Proxy Statement of Systemax Inc. relating to the 2012 annual meeting of stockholders are incorporated by
reference in Part III hereof.
TABLE OF CONTENTS
Part I
Item 1.
Item 1A.
Item 1B.
Item 2.
Item 3.
Item 4.
Part II
Business
General
Products
Sales and Marketing
Customer Service, Order Fulfillment and Support
Suppliers
Competition and Other Market Factors
Employees
Environmental Matters
Financial Information About Foreign and Domestic Operations
Available Information
Risk Factors
Unresolved Staff Comments
Properties
Legal Proceedings
Submission of Matters to a Vote of Security Holders
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Selected Financial Data
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 5.
Item 6.
Item 7.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Financial Statements and Supplementary Data
Item 8.
Changes in and Disagreements With Accountants on Accounting and Financial Disclosure
Item 9.
Controls and Procedures
Item 9A.
Other Information
Item 9B.
Part III
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.
Part IV
Directors, Executive Officers and Corporate Governance
Executive Compensation
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Certain Relationships and Related Transactions, and Director Independence
Principal Accounting Fees and Services
Item 15.
Exhibits and Financial Statement Schedules
Signatures
4
4
4
4
6
6
6
7
7
7
7
8
13
13
14
15
16
17
17
29
30
30
30
31
32
32
32
32
32
32
36
2
PART I
Unless otherwise indicated, all references herein to Systemax Inc. (sometimes referred to as “Systemax,” the “Company” or “we”)
include its subsidiaries.
Forward Looking Statements
This report contains forward looking statements within the meaning of that term in the Private Securities Litigation Reform Act of
1995 (Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934). Additional written or oral
forward looking statements may be made by the Company from time to time in filings with the Securities and Exchange Commission
or otherwise. Statements contained in this report that are not historical facts are forward looking statements made pursuant to the
safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward looking statements may include, but are not
limited to, projections of revenue, income or loss and capital expenditures, statements regarding future operations, financing needs,
compliance with financial covenants in loan agreements, plans for acquisition or sale of assets or businesses and consolidation of
operations of newly acquired businesses, and plans relating to products or services of the Company, assessments of materiality,
predictions of future events and the effects of pending and possible litigation, as well as assumptions relating to the foregoing. In
addition, when used in this report, the words “anticipates,” “believes,” “estimates,” “expects,” “intends,” and “plans” and
variations thereof and similar expressions are intended to identify forward looking statements.
Forward looking statements are inherently subject to risks and uncertainties, some of which cannot be predicted or quantified based
on current expectations. Consequently, future events and results could differ materially from those set forth in, contemplated by, or
underlying the forward looking statements contained in this report. Statements in this report, particularly in “Item 1. Business,”
“Item 1A. Risk Factors,” “Item 3. Legal Proceedings,” “Item 7. Management’s Discussion and Analysis of Financial Condition and
Results of Operations,” and the Notes to Consolidated Financial Statements describe certain factors, among others, that could
contribute to or cause such differences.
Other factors that may affect our future results of operations and financial condition include, but are not limited to, unanticipated
developments in any one or more of the following areas, as well as other factors which may be detailed from time to time in our
Securities and Exchange Commission filings:
risks involved with e-commerce, including possible loss of business and customer dissatisfaction if outages or
other computer-related problems should preclude customer access to us
general economic conditions, such as decreased consumer confidence and spending, reductions in manufacturing
capacity, and inflation could result in our failure to achieve our historical sales growth rates and profit level
the markets for our products and services are extremely competitive and if we are unable to successfully respond
to our competitors’ strategies our sales and gross margins will be adversely affected
sales tax laws may be changed which could result in ecommerce and direct mail retailers having to collect sales
taxes in states where the current laws do not require us to do so
goodwill and intangible assets may become impaired resulting in a charge to earnings
our substantial international operations are subject to risks such as fluctuations in currency rates, foreign
regulatory requirements, political uncertainty and the management of our growing international operations
managing various inventory risks, such as being unable to profitably resell excess or obsolete inventory and/or the
loss of product return rights and price protection from our vendors
effective management of our rapid growth in retail stores in North America
meeting credit card industry compliance standards in order to maintain our ability to accept credit cards
significant changes in the computer products retail industry, especially relating to the distribution and sale of such
products
timely availability of existing and new products
risks associated with delivery of merchandise to customers by utilizing common delivery services
the effect on us of volatility in the price of paper and periodic increases in postage rates
borrowing costs or availability
pending or threatened litigation and investigations
the availability of key personnel
the continuation of key vendor relationships
the operation of the Company’s management information systems
the ability to maintain satisfactory credit arrangements
Readers are cautioned not to place undue reliance on any forward looking statements contained in this report, which speak only as of
the date of this report. We undertake no obligation to publicly release the result of any revisions to these forward looking statements
that may be made to reflect events or circumstances after the date hereof or to reflect the occurrence of unexpected events.
3
Item 1. Business.
General
Systemax is primarily a direct marketer of brand name and private label products. Our operations are organized in two reportable
business segments — Technology Products and Industrial Products.
Our Technology Products segment sells computers, computer supplies and consumer electronics which are marketed in North
America and Europe. Most of these products are manufactured by other companies; however, we do offer a selection of products that
are manufactured for us to our own design and marketed on a private label basis. Technology Products accounted for 91%, 93% and
94% of our net sales in 2011, 2010 and 2009, respectively.
Our Industrial Products segment sells a wide array of industrial products and supplies which are marketed in North America. Most of
these products are manufactured by other companies. Some products are manufactured for us to our own design and marketed on a
private label basis. Industrial products accounted for 9%, 7%, and 6% of our net sales in 2011, 2010 and 2009, respectively.
The Company announced plans to exit its Software Solutions segment in June 2009 as the result of economic conditions and
difficulties in marketing the segment’s products successfully. The Software Solutions segment participated in the emerging market
for on-demand, web-based business software applications through the marketing of its PCS ProfitCenter Software™ application.
Substantially all of the third party business activities of the Software Solutions segment have ended. Current and prior year results of
Software Solutions are now included in “Corporate and other”.
See Note 12 to the Consolidated Financial Statements included in Item 15 of this Form 10-K for additional financial information about
our business segments as well as information about our geographic operations.
The Company was incorporated in Delaware in 1995. Certain predecessor businesses which now constitute part of the Company have
been in business since 1949. Our headquarters office is located at 11 Harbor Park Drive, Port Washington, New York.
Products
We offer hundreds of thousands of brand name and private label products. We endeavor to expand and keep current the breadth of our
product offerings in order to fulfill the increasingly wide range of product needs of our customers.
Products offered by our Technology Products segment include individual technology products in the following categories: computers;
computer parts; TV and video; audio; cameras and surveillance; car and GPS; cell phones; software; video games and toys; home and
office; and other products.
We assemble our private label PCs in our ISO-9001:2008 certified facility in Fletcher, Ohio. We purchase components and
subassemblies from suppliers in the United States as well as overseas. Certain parts and components for our PCs are obtained from a
limited group of suppliers. We also utilize licensed technology and computer software in the assembly of our PCs. For a discussion of
risks associated with these licenses and suppliers, see Item 1A, Risk Factors.
Products offered by our Industrial Products segment include individual industrial products in the following categories: material
handling; storage and shelving; workbench & shop desks; packaging and supplies; furniture and office; foodservice and appliances;
janitorial and maintenance; tools and instruments; fasteners and hardware; motors and power transmission; HVAC/R and fans;
electrical and bulbs; plumbing supplies; and safety and medical items.
Sales and Marketing
We market our products to both individual consumers and business customers. Our business customers include for-profit businesses,
educational organizations and government entities. We have developed numerous proprietary customer and prospect databases.
To reach our individual consumer customers, we use online methods such as website campaigns, banner ads and e-mail campaigns.
We are able to monitor and evaluate the results of our various advertising campaigns to enable us to execute them in the most cost-
effective manner. We combine our use of e-commerce initiatives with catalog mailings, which generate online orders and calls to
inbound sales representatives. These sales representatives use our information and distribution systems to fulfill orders and explore
additional customer product needs. Sales to individual consumers are generally fulfilled from our own stock, requiring us to carry
more inventory than we would for our business customers. We also periodically take advantage of 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. Over the past several years, the Company has expanded its
brick and mortar retail operations through the CompUSA acquisition and by opening new stores.
4
We have established a multi-faceted direct marketing system to business customers, consisting primarily of our relationship marketers,
catalog mailings and proprietary internet websites, the combination of which is designed to maximize sales. Our relationship
marketers focus their efforts on our business customers by establishing a personal relationship between such customers and a
Systemax account manager. The goal of the relationship marketing sales force is to increase the purchasing productivity of current
customers and to actively solicit newly targeted prospects to become customers. With access to the records we maintain, our
relationship marketers are prompted with product suggestions to expand customer order values. In certain countries, we also have the
ability to provide such customers with electronic data interchange (“EDI”) ordering and customized billing services, customer savings
reports and stocking of specialty items specifically requested by these customers. Our relationship marketers’ efforts are supported by
frequent catalog mailings and e-mail campaigns, both of which are designed to generate inbound telephone sales, and our interactive
websites, which allow customers to purchase products directly over the internet. We believe that the integration of our multiple
marketing methods enables us to more thoroughly penetrate our business, educational and government customer base. We believe
increased internet exposure leads to more internet-related sales and also generates more inbound telephone sales; just as we believe
catalog mailings and email campaigns which feature our websites results in greater internet-related sales.
E-commerce
The worldwide growth in active internet users has made e-commerce a significant opportunity for sales growth.
The increase in our internet-related sales enables us to leverage our advertising spending. We currently operate multiple e-commerce
sites, including:
North America
www.tigerdirect.com
www.compusa.com
www.circuitcity.com
www.compusagoved.com
www.compusabusiness.com
www.tigerdirect.ca
www.infotelusa.com
www.globalcomputer.com
www.globalgoved.com
www.systemaxpc.com
www.globalindustrial.com
www.globalindustrial.ca
Europe
www.misco.co.uk
www.misco.de
www.misco.fr
www.misco.nl
www.misco.it
www.misco.es
www.misco.se
www.misco.at
www.misco.ch
www.misco.be
www.misco.ie
www.wstore.co.uk
www.inmac-wstore.com
www.dealopro.com
We are continually upgrading the capabilities and performance of these websites. Our internet sites feature on-line catalogs of
hundreds of thousands of products, allowing us to offer a wider variety of computer and industrial products than our printed catalogs.
Our customers have around-the-clock, on-line access to purchase products and we have the ability to create targeted promotions for
our customers’ interests. Many of our internet sites also permit customers to purchase “build to order” PCs configured to their own
specifications.
In addition to our own e-commerce websites, we have partnering agreements with several of the largest internet shopping and search
engine providers who feature our products on their websites or provide “click-throughs” from their sites directly to ours. These
arrangements allow us to expand our customer base at an economical cost.
Catalogs
We currently produce a total of 15 full-line or direct mail publications in North America and Europe under distinct titles. Our portfolio
of catalogs includes such established brand names as TigerDirect.com™, Global Computer Supplies™, TigerDirect.ca™, Misco®,
Global Industrial™, Nexel™ and Inmac WStore®. We mail catalogs to both businesses and individual consumers. In the case of
business mailings, we mail our catalogs to many individuals at a single business location, providing us with multiple points-of-contact.
Our in-house staff designs all of our catalogs, which reduces overall catalog expense and shortens catalog production time. Our
catalogs are printed by third parties under fixed pricing arrangements. The commonality of certain core pages of our catalogs also
allows for economies of scale in catalog production.
Continuing our focus on internet advertising, the distribution of our catalogs decreased to 30.7 million in 2011, which was 6.7% less
than in the prior year. In 2011, we mailed approximately 24.2 million catalogs in North America, a 6.4% decrease from last year and
approximately 6.5 million catalogs in Europe, or 7.5% fewer than mailed in 2010.
5
Customer Service, Order Fulfillment and Support
We receive orders through the internet, by telephone, electronic data interchange and by fax. We generally provide toll-free telephone
number access for our customers in countries where it is customary. Certain domestic call centers are linked to provide telephone
backup in the event of a disruption in phone service.
Certain of our products are carried in stock, and orders for such products are fulfilled on a timely basis directly from our distribution
centers, typically within one day of the order. We utilize numerous sales and distribution facilities in North America and Europe.
Orders are generally shipped by third-party delivery services. We maintain relationships with a number of large distributors in North
America and Europe that also deliver products directly to our customers.
We provide extensive technical telephone support to our private label PC customers. We maintain a database of commonly asked
questions for our technical support representatives, enabling them to respond quickly to similar questions. We conduct regular on-site
training seminars for our sales representatives to help ensure that they are well trained and informed regarding our latest product
offerings.
Suppliers
We purchase substantially all of our products and components directly from manufacturers and large wholesale distributors. In 2011,
one vendor accounted for 11.5% of our purchases. One vendor accounted for 10% of our purchases in 2010, and in 2009 one vendor
accounted for 12.0% and another vendor accounted for 11.3% of our purchases. The loss of these vendors, or any other key vendors,
could have a material adverse effect on us.
Most private label products are manufactured by third parties to our specifications.
Competition and Other Market Factors
Technology Products
The North American and European technology product markets are highly competitive, with many U.S., Asian and European
companies vying for market share. There are few barriers to entry, with these products being sold through multiple channels of
distribution, including direct marketers, local and national retail computer stores, computer resellers, mass merchants, over the internet
and by 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.
Some of our competitors have stronger brand-recognition, broader product lines and greater financial, marketing, manufacturing and
technological resources than us.
Conditions in the market for technology products remain highly competitive characterized by prevalent discounting of product sales
price as well as free or highly discounted freight offerings to our customers. These actions have and may continue to adversely affect
our revenues and profits. Additionally, we rely in part upon the introduction of new technologies and products by other manufacturers
in order to sustain long-term sales growth and profitability. There is no assurance that the rapid rate of such technological advances
and product development will continue.
Current economic conditions raise additional factors as the loss of consumer confidence in the Company’s markets could result in a
decrease of spending in the categories of products we sell. It is also possible that as manufacturers react to the marketplace they may
reduce manufacturing capacity and create shortages of product.
Industrial Products
The market for the sale of industrial products in North America is highly fragmented and is characterized by multiple distribution
channels such as small dealerships, direct mail distribution, internet-based resellers, large warehouse stores and retail outlets. We also
face competition from manufacturers’ own sales representatives, who sell industrial equipment directly to customers, and from
regional or local distributors. Many high volume purchasers, however, utilize catalog distributors as their first source of product. In the
industrial products market, customer purchasing decisions are primarily based on price, product selection, product availability, level of
service and convenience. We believe that direct marketing via sales representatives, catalog and the internet are effective and
convenient distribution methods to reach mid-sized facilities that place many small orders and require a wide selection of products. In
addition, because the industrial products market is highly fragmented and generally less brand oriented, it is well suited to private label
products.
6
Employees
As of December 31, 2011, we employed a total of approximately 5,500 employees, of whom 4,100 were in North America and 1,400
were in Europe and Asia.
Seasonality
As the Company’s consumer channel sales have grown significantly in the past few years, the fourth quarter has represented a greater
portion of annual sales than historically. Net sales have historically been modestly weaker during the second and third quarters as a
result of lower business activity during those months. See Item 7, “Management’s Discussions and Analysis of Financial Condition
and Results of Operations-Seasonality.”
Environmental Matters
Under various national, state and local environmental laws and regulations in North America and Western Europe, a current or
previous owner or operator (including the lessee) of real property may become liable for the costs of removal or remediation of
hazardous substances at such real property. Such laws and regulations often impose liability without regard to fault. We lease most of
our facilities. In connection with such leases, we could be held liable for the costs of removal or remedial actions with respect to
hazardous substances. Although we have not been notified of, and are not otherwise aware of, any material real property
environmental liability, claim or non-compliance, there can be no assurance that we will not be required to incur remediation or other
costs in connection with real property environmental matters in the future.
Financial Information About Foreign and Domestic Operations
We currently sell our products in North America (the United States, Puerto Rico and Canada) and Europe. Approximately 36.0%,
35.1%, and 32.7% of our net sales during 2011, 2010 and 2009, respectively were made by subsidiaries located outside of the United
States. For information pertaining to our international operations, see Note 12, “Segment and Related Information,” to the
Consolidated Financial Statements included in Item 15 of this Form 10-K. The following sets forth selected information with respect
to our operations in those two geographic markets (in thousands):
2011
Net sales
Operating income
Identifiable assets
2010
Net sales
Operating income
Identifiable assets
2009
Net sales
Operating income
Identifiable assets
North
America
Europe
and Asia
$
$
$
$
$
$
$
$
$
2,582,214
44,755
646,759
2,543,014
47,739
665,686
2,317,475
62,308
591,990
$
$
$
$
$
$
$
$
$
1,099,825
35,772
242,903
1,046,975
21,006
228,414
848,520
11,321
224,911
$
$
$
$
$
$
$
$
$
Total
3,682,039
80,527
889,662
3,589,989
68,745
894,100
3,165,995
73,629
816,901
See Item 7, “Management’s Discussions and Analysis of Financial Condition and Results of Operations”, for further information with
respect to our operations.
Available Information
We maintain an internet website at www.systemax.com. We file reports with the Securities and Exchange Commission and make
available free of charge on or through this website our annual reports on Form 10-K, quarterly reports on Form 10-Q and current
reports on Form 8-K, including all amendments to those reports. These are available as soon as is reasonably practicable after they are
filed with the SEC. All reports mentioned above are also available from the SEC’s website (www.sec.gov). The information on our
website is not part of this or any other report we file with, or furnish to, the SEC.
7
Our Board of Directors has adopted the following corporate governance documents with respect to the Company (the “Corporate
Governance Documents”):
Corporate Ethics Policy for officers, directors and employees
Charter for the Audit Committee of the Board of Directors
Charter for the Compensation Committee of the Board of Directors
Charter for the Nominating/Corporate Governance Committee of the Board of Directors
Corporate Governance Guidelines and Principles
In accordance with the listing standards of the New York Stock Exchange, each of the Corporate Governance Documents is available
on our Company website (www.systemax.com).
Item 1A. Risk Factors.
There are a number of factors and variables described below that may affect our future results of operations and financial condition.
Other factors of which we are currently not aware or that we currently deem immaterial may also affect our results of operations and
financial position.
Risks Related to the Economy and Our Industries
General economic conditions, such as decreased consumer confidence and spending, reductions in manufacturing
capacity, and inflation could result in our failure to achieve our historical sales growth rates and profit levels.
Current economic conditions may cause the loss of consumer confidence in the Company’s markets which may result in a
decrease of spending in the categories of products we sell. With conditions in the market for technology products
remaining highly competitive, reductions in our selling prices, as we have experienced in recent years, would adversely
affect our revenues and profits. It is also possible that as manufacturers react to the marketplace they may reduce
manufacturing capacity or allocations to their customers creating shortages of product. Both we and our customers are
subject to global political, economic and market conditions, including inflation, interest rates, energy costs, the impact of
natural disasters, military action and the threat of terrorism. Our consolidated results of operations are directly affected by
economic conditions in North America and Europe. We may experience a decline in sales as a result of poor economic
conditions and the lack of visibility relating to future orders. Our results of operations depend upon, among other things,
our ability to maintain and increase sales volumes with existing customers, our ability to limit price reductions and
maintain our margins, our ability to attract new customers and the financial condition of our customers. A decline in the
economy that adversely affects our customers, causing them to limit or defer their spending, would likely adversely affect
our sales, prices and profitability as well. We cannot predict with any certainty whether we will be able to maintain or
improve upon historical sales volumes with existing customers, or whether we will be able to attract new customers.
In response to economic and market conditions, from time to time we have undertaken initiatives to reduce our cost
structure where appropriate. These initiatives, as well as any future workforce and facilities reductions, may not be
sufficient to meet current and future changes in economic and market conditions and allow us to continue to achieve the
growth rates and levels of profitability we have recently experienced. In addition, costs actually incurred in connection
with our restructuring actions may be higher than our estimates of such costs and/or may not lead to the anticipated cost
savings.
The markets for our products and services are extremely competitive and if we are unable to successfully respond to our
competitors’ strategies our sales and gross margins will be adversely affected.
We may not be able to compete effectively with current or future competitors. The markets for our products and services
are intensely competitive and subject to constant technological change. We expect this competition to further intensify in
the future. Competitive factors include price, availability, service and support. We compete with a wide variety of other
resellers and retailers, including internet marketers, as well as manufacturers. Many of our competitors are larger
companies with greater financial, marketing and product development resources than ours. The market for the sale of
industrial products in North America is highly fragmented and is characterized by multiple distribution channels such as
small dealerships, direct mail distribution, internet-based resellers, large warehouse stores and retail outlets. We also face
competition from manufacturers’ own sales representatives, who sell industrial equipment directly to customers, and from
regional or local distributors. In addition, new competitors may enter our markets. This may place us at a disadvantage in
responding to competitors’ pricing strategies, technological advances and other initiatives, resulting in our inability to
increase our revenues or maintain our gross margins in the future.
8
In most cases our products compete directly with those offered by other manufacturers and distributors. If any of our
competitors were to develop products or services that are more cost-effective or technically superior, demand for our
product offerings could decrease.
Our gross margins are also dependent on the mix of products we sell and could be adversely affected by a continuation of
our customers’ shift to lower-priced products.
Sales tax laws may be changed which could result in ecommerce and direct mail retailers having to collect sales taxes in
states where the current laws do not require us to do so. This could reduce demand for our products in such states and
could result in us having substantial tax liabilities for past sales.
Our United States subsidiaries collect and remit sales tax in states in which the subsidiaries have physical presence or in
which we believe nexus exists which obligates us to collect sales tax. Other states may, from time to time, claim that we
have state-related activities constituting a sufficient nexus to require such collection. Additionally, many other states seek
to impose sales tax collection or reporting obligations on companies that sell goods to customers in their state, or directly
to the state and its political subdivisions, even without a physical presence. Such efforts by states have increased recently,
as states seek to raise revenues without increasing the tax burden on residents. We rely on United States Supreme Court
decisions which hold that, without Congressional authority, a state may not enforce a sales tax collection obligation on a
company that has no physical presence in the state and whose only contacts with the state are through the use of interstate
commerce such as the mailing of catalogs into the state and the delivery of goods by mail or common carrier. We cannot
predict whether the nature or level of contacts we have with a particular state will be deemed enough to require us to
collect sales tax in that state nor can we be assured that Congress or individual states will not approve legislation
authorizing states to impose tax collection or reporting obligations on all e-commerce and/or direct mail transactions. A
successful assertion by one or more states that we should collect sales tax on the sale of merchandise could result in
substantial tax liabilities related to past sales and would result in considerable administrative burdens and costs for us and
may reduce demand for our products from customers in such states when we charge customers for such taxes.
Events such as acts of war or terrorism, natural disasters, changes in law, or large losses could adversely affect our
insurance coverage and insurance expense, resulting in an adverse affect on our profitability and financial condition.
We insure for certain property and casualty risks consisting primarily of physical loss to property, business interruptions
resulting from property losses, worker’s compensation, comprehensive general liability, and auto liability. Insurance
coverage is obtained for catastrophic property and casualty exposures as well as those risks required to be insured by law
or contract. Although we believe that our insurance coverage is reasonable, significant events such as acts of war and
terrorism, economic conditions, judicial decisions, legislation, natural disasters and large losses could materially affect our
insurance obligations and future expense.
Changes in accounting standards or practices, as well as new accounting pronouncements or interpretations, may require
us to account for and report our financial results in a different manner in the future, which may be less favorable than the
manner used historically.
A change in accounting standards or practices can have a significant effect on our reported results of operations. New
accounting pronouncements and interpretations of existing accounting rules and practices have occurred and may occur in
the future. Changes to existing rules may adversely affect our reported financial results.
Risks Related to Our Company
We rely to a great extent on our information and telecommunications systems, and significant system failures or outages,
or our failure to properly evaluate, upgrade or replace our systems, or the failure of our security/safety measures to
protect our systems and websites, could have an adverse affect on our results of operations.
We rely on a variety of information and telecommunications systems in our operations. Our success is dependent in large
part on the accuracy and proper use of our information systems, including our telecommunications systems. To manage
our growth, we continually evaluate the adequacy of our existing systems and procedures. We anticipate that we will
regularly need to make capital expenditures to upgrade and modify our management information systems, including
software and hardware, as we grow and the needs of our business change. In particular, our primary financial system is
being replaced currently. The occurrence of a significant system failure, electrical or telecommunications outages or our
failure to expand or successfully implement new systems could have a material adverse effect on our results of operations.
Our information systems networks, including our websites, and applications could be adversely affected by viruses or
worms and may be vulnerable to malicious acts such as hacking. The availability and efficiency of sales via our websites
could also be adversely affected by “denial of service” attacks and other unfair competitive practices. Although we take
9
preventive measures, these procedures may not be sufficient to avoid harm to our operations, which could have an adverse
effect on our results of operations.
We rely on third party suppliers for most of our products and services. The loss or interruption of these relationships could
impact our sales volumes, the levels of inventory we must carry, and/or result in sales delays and/or higher inventory costs
from new suppliers. Coop advertising and other sales incentives provided by our suppliers could decrease in the future
thereby increasing our expenses and adversely affecting our results of operations and cash flows.
We purchase substantially all of our technology products from major distributors and directly from large manufacturers
who may deliver those products directly to our customers. These relationships enable us to make available to our
customers a wide selection of products without having to maintain large amounts of inventory. The termination or
interruption of our relationships with any of these suppliers could materially adversely affect our business.
We purchase a number of our products from vendors outside of the United States. Difficulties encountered by one or
several of these suppliers could halt or disrupt production and delay completion or cause the cancellation of our orders.
Delays or interruptions in the transportation network could result in loss or delay of timely receipt of product required to
fulfill customer orders. Our ability to find qualified vendors who meet our standards and supply products in a timely and
efficient manner is a significant challenge, especially with respect to goods sourced from outside the U.S. Political or
financial instability, merchandise quality issues, product safety concerns, trade restrictions, work stoppages, tariffs, foreign
currency exchange rates, transportation capacity and costs, inflation, civil unrest, outbreaks of pandemics and other factors
relating to foreign trade are beyond our control. These and other issues affecting our vendors could materially adversely
affect our revenue and gross profit.
Our PC products contain electronic components, subassemblies and software that in some cases are supplied through sole
or limited source third-party suppliers, some of which are located outside of the U.S. Although we do not anticipate any
problems procuring supplies in the near-term, there is no assurance that parts and supplies will be available in a timely
manner and at reasonable prices. Any loss of, or interruption of, supply from key suppliers may require us to find new
suppliers. This could result in production or development delays while new suppliers are located, which could
substantially impair operating results. If the availability of these or other components used in the manufacture of our
products was to decrease, or if the prices for these components were to increase significantly, operating costs and expenses
could be adversely affected.
Many product suppliers provide us with coop 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
discounts, price protection and other similar arrangements. These incentives are offset against cost of goods sold or selling,
general and administrative expenses, as applicable. The level of coop advertising support and other incentives received
from suppliers may decline in the future, which could increase our cost of goods sold or selling, general and administrative
expenses and have an adverse effect on results of operations and cash flows.
Goodwill and intangible assets may become impaired resulting in a charge to earnings.
The acquisition of certain assets of CompUSA, CircuitCity and the purchase of the stock of WStore Europe SA resulted in
the recording of significant intangible assets and or goodwill. We are required to test goodwill and intangible assets
annually to determine if the carrying values of these assets are impaired or on a more frequent basis if indicators of
impairment exist. If any of our goodwill or intangible assets are determined to be impaired we may be required to record a
significant charge to earnings in the period during which the impairment is discovered.
Our substantial international operations are subject to risks such as fluctuations in currency rates (which can adversely
impact foreign revenues and profits when translated to US Dollars), foreign regulatory requirements, political uncertainty
and the management of our growing international operations.
We operate internationally and as a result, we are subject to risks associated with doing business globally. Risks inherent
to operating overseas include:
Changes in a country’s economic or political conditions
Changes in foreign currency exchange rates
Difficulties with staffing and managing international operations
Unexpected changes in regulatory requirements
For example, we currently have operations located in numerous countries outside the United States, and non-U.S. sales
(Europe, Canada and Puerto Rico) accounted for approximately 36.0% of our revenue during 2011. To the extent the U.S.
10
dollar strengthens against foreign currencies, our foreign revenues and profits will be reduced when translated into U.S.
dollars.
We are exposed to various inventory risks, such as being unable to profitably resell excess or obsolete inventory and/or the
loss of product return rights and price protection from our vendors; such events could lower our gross margins or result in
inventory write-downs that would reduce reported future earnings.
Our inventory is subject to risk due to technological change and changes in market demand for particular products. If we
fail to manage our inventory of older products we may have excess or obsolete inventory. We may have limited rights to
return products to certain suppliers and we may not be able to obtain price protection on these items. The elimination of
product return privileges and lack of availability of price protection could lower our gross margin or result in inventory
write-downs.
We also take advantage of attractive product pricing by making opportunistic bulk inventory purchases; any resulting
excess and/or obsolete inventory that we are not able to re-sell could have an adverse impact on our results of operations.
Any inability to make such bulk inventory purchases may significantly impact our sales and profitability.
If we fail to observe certain restrictions and covenants under our credit facilities the lenders could refuse to waive such
default, terminate the credit facility and demand immediate repayment, which would adversely affect our cash position and
materially adversely affect our operations.
Our United States revolving credit agreement contains covenants restricting or limiting our ability to, among other things:
incur additional debt
create or permit liens on assets
make capital expenditures or investments
pay dividends
If we fail to comply with the covenants and other requirements set forth in the credit agreement, we would be in default
and would need to negotiate a waiver agreement with the lenders. Failure to agree on such a waiver could result in the
lenders terminating the credit agreement and demanding repayment of any outstanding borrowings, which could adversely
affect our cash position and adversely affect the availability of financing to us, which could materially impact our
operations.
We depend on bank credit facilities to address our working capital and cash flow needs from time to time, and if we are
unable to renew or replace these facilities, or borrowing capacity were to be reduced our liquidity and capital resources
may be adversely affected.
We require significant levels of capital in our business to finance accounts receivable and inventory. We maintain credit
facilities in the United States and in Europe to finance increases in our working capital if available cash is insufficient.
The amount of credit available to us at any point in time may be adversely affected by the quality or value of the assets
collateralizing these credit lines. In addition, in recent years global financial markets have experienced diminished
liquidity and lending constraints. Our ability to obtain future and/or increased financing to satisfy our requirements as our
business expands could be adversely affected by economic and market conditions, credit availability and lender perception
of our Company and industry. However, we currently have no reason to believe that we will not be able to renew or
replace our facilities when they reach maturity.
We have experienced rapid growth in retail stores in North America and to maintain their profitability we must effectively
manage our growth and cost structure, such as inventory needs, point of sales systems, personnel and lease expense.
We have 42 retail stores operating in North America at December 31, 2011 and one under construction. The Company
needs to effectively manage its cost structure in order to maintain profitability including the additional inventory needs,
retail point of sales IT systems, retail personnel and leased facilities. Future growth in retail will also be dependent on the
ability to attract customers and build brand loyalty. The retail computer and consumer electronics business is highly
competitive and has narrow gross margins. If we fail to manage our growth and cost structure while maintaining high
levels of service and meeting competitive pressures adequately, our business plan may not be achieved and may lead to
reduced profitability.
The failure to timely and satisfactorily process manufacturers’ and our own rebate programs could negatively impact our
customer satisfaction levels.
11
Similar to 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. These rebates are processed through third party vendors and in
house. If these rebates are not processed in a timely and satisfactory manner by either third party vendors or our in house
operations, our reputation in the marketplace could be negatively impacted.
We may be unable to reduce prices in reaction to competitive pressures, or implement cost reductions or new product line
expansion to address gross profit and operating margin pressures; failure to mitigate these pressures could adversely
affect our operating results and financial condition.
The computer and consumer electronics industry is highly price competitive and gross profit margins are narrow and
variable. The Company’s ability to further reduce prices in reaction to competitive pressure is limited. Timely introduction
of new products or product features are critical elements to remaining competitive. Additionally, gross margins and
operating margins are affected by changes in factors such as vendor pricing, vendor rebate and or price protection
programs, product return rights, and product mix. In 2011 pricing pressure continued to be prevalent in the markets we
serve and we expect this to continue. We may not be able to mitigate these pricing pressures and resultant declines in sales
and gross profit margin with cost reductions in other areas or expansion into new product lines. If we are unable to
proportionately mitigate these conditions our operating results and financial condition may suffer.
We would be exposed to liability, including substantial fines and penalties and, in extreme cases, loss of our ability to
accept credit cards, in the event our privacy and data security policies and procedures are inadequate to prevent security
breaches of our consumer personal information and credit card information records.
In processing our sales orders we often collect personal information and credit card information from our customers. The
Company has privacy and data security policies in place which are designed to prevent security breaches, however, if a
third party or a rogue employee or employees are able to bypass our network security or otherwise compromise our
customers’ personal information or credit card information, we could be subject to liability. This liability may include
claims for identity theft, unauthorized purchases and claims alleging misrepresentation of our privacy and data security
practices or other related claims. While the Company believes it is in compliance with appropriate Payment Card Industry
(“PCI”) security standards for its various businesses, any breach involving the loss of credit card information may lead to
PCI related fines of up to $500,000. In the event of a severe breach credit card providers may prevent the accepting of
credit cards. Any such liability related to the aforementioned risks could lead to reduced profitability and damage our
brand(s) and/or reputation.
Failure to protect the integrity, security and use of our customers’ information could expose us to litigation and materially
damage our standing with our customers
The use of individually identifiable consumer data is regulated at the state, federal and international levels and we incur
costs associated with information security – such as increased investment in technology and the costs of compliance with
consumer protection laws. Additionally, our internet operations and website sales depends upon the secure transmission of
confidential information over public networks, including the use of cashless payments. While we have taken significant
steps to protect customer and confidential information, there can be no assurance that advances in computer capabilities,
new discoveries in the field of cryptography or other developments will prevent the compromise of our customer
transaction processing capabilities and personal data. If any such compromise of our security were to occur, it could have a
material adverse effect on our reputation, operating results and financial condition and could subject us to litigation.
Sales to individual customers expose us to credit card fraud, which impacts our operations. If we fail to adequately
protect ourselves from credit card fraud, our operations could be adversely impacted.
Failure to adequately control fraudulent credit card transactions could increase our expenses. Increased sales to individual
consumers, which are more likely to be paid for using a credit card, increases our exposure to fraud. We employ
technology solutions to help us detect the fraudulent use of credit card information. However, if we are unable to detect or
control credit card fraud, we may suffer losses as a result of orders placed with fraudulent credit card data, which could
adversely affect our business.
Our business is dependent on certain key personnel.
Our business depends largely on the efforts and abilities of certain key senior management. The loss of the services of one
or more of such key personnel could have a material adverse affect on our business and financial results. We do not
currently maintain key man insurance policies on any of our executive officers.
We are subject to litigation risk due to the nature of our business, which may have a material adverse effect on our results
of operations and business.
12
From time to time, we are involved in lawsuits or other legal proceedings arising in the ordinary course of our business.
These may relate to, for example, patent, trademark or other intellectual property matters, employment law matters product
liability, commercial disputes, consumer sales practices, or other matters. In addition, as a public company we could from
time to time face claims relating to corporate or securities law matters. The defense and/or outcome of such lawsuits or
proceedings could have a material adverse affect on our business. See “Legal Proceedings”.
Our profitability can be adversely affected by increases in our income tax exposure due to, among other things, changes in
the mix of U.S. and non-U.S. revenues and earnings, changes in tax rates or laws, changes in our effective tax rate due to
changes in the mix of earnings among different countries and changes in valuation of our deferred tax assets and
liabilities.
Changes in our income tax expense due to changes in the mix of U.S. and non-U.S. revenues and profitability, changes in
tax rates or exposure to additional income tax liabilities could affect our profitability. We are subject to income taxes in the
United States and various foreign jurisdictions. Our effective tax rate could be adversely affected by changes in the mix of
earnings in countries with differing statutory tax rates, changes in the valuation of deferred tax assets and liabilities,
changes in tax laws or by material audit assessments. The carrying value of our deferred tax assets, which are primarily in
the United States and the United Kingdom, is dependent on our ability to generate future taxable income in those
jurisdictions. In addition, the amount of income taxes we pay is subject to ongoing audits in various jurisdictions and a
material assessment by a tax authority could affect our profitability.
Item 1B. Unresolved Staff Comments.
None.
Item 2. Properties.
We operate our business from numerous facilities in North America, Europe and Asia. These facilities include our headquarters
location, administrative offices, telephone call centers, distribution centers, computer assembly and retail stores. Certain facilities
handle multiple functions. Most of our facilities are leased; certain are owned by the Company.
North America
As of December 31, 2011 we have six distribution centers in North America which aggregate approximately 1.5 million square feet,
all of which are leased. Our headquarters, administrative offices and call centers aggregate approximately 358,000 square feet, all of
which are leased. Our computer assembly facility is approximately 300,000 square feet and is owned by the Company.
The following table summarizes the geographic location of our North America stores at the end of 2011:
Location
Delaware
Florida
Georgia
Illinois
North Carolina
Puerto Rico
Texas
Ontario, Canada
Stores Open – 12/31/10
2
18
1
4
2
1
7
6
41
Store Openings
1
Stores Open – 12/31/11
2
18
1
5
2
1
7
6
42
All of our retail stores are leased. The retail stores average 22,188 square feet.
Europe and Asia
As of December 31, 2011, we have seven distribution centers in Europe which aggregate approximately 287,000 square feet. Six of
these, aggregating approximately 214,000 square feet, are leased; one distribution center of approximately 73,000 square feet is owned
by the Company. Our administrative offices and call centers aggregate approximately 270,000 square feet, of which 193,000 square
feet are leased and 77,000 square feet are owned by the Company.
As of December 31, 2011, we leased administrative offices in Asia of approximately 4,400 square feet.
13
Please refer to Note 11 to the Consolidated Financial Statements for additional information about leased properties.
Item 3. Legal Proceedings.
The Company and its subsidiaries are involved in various lawsuits, claims, investigations and proceedings including commercial,
employment, consumer, personal injury and health and safety law matters, which are being handled and defended in the ordinary
course of business. In addition, the Company is subject to various assertions, claims, proceedings and requests for indemnification
concerning intellectual property, including patent infringement suits involving technologies that are incorporated in a broad spectrum
of products the Company sells. The Company is also audited by (or has initiated voluntary disclosure agreements with) numerous
governmental agencies in various countries, including U.S. Federal and state authorities, concerning potential income tax, sales tax
and unclaimed property liabilities. These matters are in various stages of investigation, negotiation and/or litigation, and are being
vigorously defended.
Although the Company does not expect, based on currently available information, that the outcome in any of these matters,
individually or collectively, will have a material adverse effect on its financial condition or results of operations, the ultimate outcome
is inherently unpredictable.
Therefore, judgments could be rendered or settlements entered, that could adversely affect the Company’s operating results or cash
flows in a particular period. The Company routinely assesses all of its litigation and threatened litigation as to the probability of
ultimately incurring a liability, and records its best estimate of the ultimate loss in situations where it assesses the likelihood of loss as
probable and estimable.
Audit Committee Investigation and Gilbert Fiorentino’s Resignation and Settlement and Related Matters.
In January and February 2011 the Company received anonymous whistleblower allegations concerning the Company’s Miami Florida
operations involving the actions of Mr. Gilbert Fiorentino, then the Chief Executive of the Company’s Technology Products Group. In
response to the allegations, the Company commenced an internal investigation of the whistleblower allegations, which was conducted
by the Company’s Audit Committee of the Board of Directors with the assistance of independent counsel.
On April 18, 2011, following the independent investigation, the Company delivered a Cause Notice to Mr. Fiorentino pursuant to the
terms of his Employment Agreement dated October 12, 2004. The Cause Notice advised Mr. Fiorentino that the Company intended to
terminate him for “Cause” (as defined in the Employment Agreement) at a meeting of its Executive Committee scheduled for May 3,
2011, at which meeting Mr. Fiorentino and his counsel could appear, and that Mr. Fiorentino was being placed on administrative leave
pending the outcome of that meeting. In the Cause Notice, the Company advised Mr. Fiorentino that the Audit Committee
investigation had identified grounds to terminate him for Cause under his Employment Agreement, and set forth the following
findings by the Audit Committee constituting such grounds:
i) Mr. Fiorentino personally removed or caused to be removed from the Company’s Miami premises product inventory,
and/or kept or caused others to receive at his direction such removed product inventory, without payment to the Company
and for his own personal gain;
ii) Mr. Fiorentino caused substantial amounts of Company inventory purchases to be effected through Company credit cards
in order to accrue and/or use “reward points” for his personal benefit and which he improperly converted to his own use;
iii) Mr. Fiorentino caused his mother to be identified as an employee of the Company in positions for which she had no bona
fide job responsibility or function, and caused the Company to pay her a salary and employee benefits, including extended
COBRA reimbursements; and
iv) Mr. Fiorentino engaged in fraudulent “kickback” arrangements with certain of the Company’s vendors, to the detriment of
the Company
The Company stated in the Cause Notice that the foregoing activities were in violation of Company policy, the Company’s Corporate
Ethics Policy, his fiduciary duties and applicable law. The amounts involved in the employment of Mr. Fiorentino’s mother are small
in absolute terms. The inventory removal constitutes a shortage that is not material for a Company the size of Systemax. The credit
card reward points scheme involved the creation, and conversion of non-monetary assets. The finding involving the vendor
overcharge/kickback allegations is not material when compared to the Company’s total inventory spend during the subject period. The
Audit Committee’s independent investigation determined that the matters described above did not have any material impact on our
previously reported financial results and were limited to the Company’s Miami operations.
On May 9, 2011, following several meetings of the Executive Committee and after extensive discussions with Mr. Fiorentino and his
counsel, the Company announced that it had accepted the resignation of Mr. Fiorentino, and that it had executed an agreement with
Mr. Fiorentino, effective May 6, 2011, under which Mr. Fiorentino surrendered certain assets to the Company valued at approximately
$11 million at May 9, 2011: these assets included the surrender of 1,130,001 shares of Systemax common stock and $480,000 in cash.
The shares surrendered consisted of 580,001 shares of fully vested unexercised stock options, 2) 100,000 shares of fully vested
14
restricted stock awards and 3) 450,000 shares directly owned by Mr. Fiorentino. The shares surrendered were valued at fair value on
May 6, 2011 in the case of the stock options and restricted stock awards and at fair value on May 12, 2011 in the case of the owned
shares. The agreement also required Mr. Fiorentino to disclose his and his immediate family’s personal assets; forfeit undisclosed
assets discovered by the Company; disclose information regarding certain matters that led to his being notified of the Company’s
intent to terminate him; and to fully cooperate with the Company in the future. Mr. Fiorentino and the Company also exchanged
mutual general releases and nondisparagement commitments, and Mr. Fiorentino agreed to a 5 year noncompetition obligation. The
$11 million settlement value included a financial statement benefit to the Company related to the surrender of shares and cash
payment of approximately $8.4 million which was recorded in the second quarter of 2011 under special (gains) charges, net of related
legal and professional fees of approximately $1.3 million for the quarter ended June 30, 2011 and $1.8 million for the first six months
of 2011. The remainder of the settlement value, approximately $2.6 million, was the intrinsic value of the fully vested unexercised
stock options on the date of the settlement agreement for which there is no financial statement impact. The amount of the settlement
with Mr. Fiorentino was based on negotiation with him, and was not based on any specific level or nature of damages incurred by the
Company, and does not constitute restitution.
On June 21, 2011 Systemax Inc. received notice that the Securities and Exchange Commission (“SEC”) has initiated a formal
investigation into the matters discovered by the Audit Committee’s internal investigation. The Company is fully cooperating with the
SEC in its formal investigation and does not expect to comment further on developments related to this matter and disclaims any
intention or obligation to update any of the information contained herein except as required by law.
For the third and fourth quarters of 2011, $0.4 million and $0.6 million, respectively, of additional legal and professional fees were
incurred related to follow up of the completed investigation and ancillary matters, and for the first nine months of 2011 and for fiscal
2011 related fees totaled $2.2 million and $2.8 million, respectively. The Company expects to incur additional expenses related to this
matter in future quarters in connection with the ongoing follow up to the completed investigation of matters related to Mr. Fiorentino’s
actions, providing cooperation to the SEC and in pursuing related matters.
In addition, in April 2011, the Company also terminated the employment of Carl Fiorentino and Patrick Fiorentino (employees of the
Company and Gilbert Fiorentino’s brothers), and Mr.Gerdy Carballos based on the determination that they had assisted in, participated
in and/or had knowledge of the improper activities. The Company also terminated the employment of Ms. Andrea Fongyee (assistant
to Mr. Gilbert Fiorentino) in May 2011. In January 2012, the Company commenced a lawsuit in Miami-Dade County Circuit Court in
Florida against, among others, Carl Fiorentino, Patrick Fiorentino, Andrea Fongyee and Gerdy Carballos, seeking recovery of
damages incurred by the Company due to their actions.
Item 4. Submission of Matters to a Vote of Security Holders.
None.
15
PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Systemax common stock is traded on the NYSE Euronext Exchange under the symbol “SYX.” The following table sets forth the high
and low closing sales price of our common stock as reported on the New York Stock Exchange for the periods indicated.
2011
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
2010
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
$
$
High
Low
$
$
14.80
15.18
17.01
16.97
21.90
23.85
16.97
14.31
12.25
12.37
11.90
11.64
15.80
15.07
11.77
12.09
On December 31, 2011, the last reported sale price of our common stock on the New York Stock Exchange was $16.41 per share. As
of December 31, 2011, we had 192 shareholders of record.
Depending in part upon profitability, the strength of our balance sheet, our cash position and the need to retain cash for the
development and expansion of our business, we may decide to declare special dividends in the future, subject to availability
limitations under our credit facilities. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations –
Financial Condition, Liquidity and Capital Resources” and Note 4 of Notes to Consolidated Financial Statements.
Information regarding securities authorized for issuance under equity compensation plans and a performance graph relating to the
Company’s common stock is set forth in the Company’s Proxy Statement relating to the 2012 annual meeting of shareholders and is
incorporated by reference herein.
16
Item 6. Selected Financial Data.
The following selected financial information is qualified by reference to, and should be read in conjunction with, the Company’s
Consolidated Financial Statements and the notes thereto, and “Management’s Discussion and Analysis of Financial Condition and
Results of Operations” contained elsewhere in this report. The selected statement of operations data for fiscal years 2011, 2010 and
2009 and the selected balance sheet data as of December 2011 and 2010 are derived from the audited consolidated financial statements
which are included elsewhere in this report. The selected balance sheet data as of December 2009, 2008 and 2007 and the selected
statement of operations data for fiscal years 2008 and 2007 are derived from the audited consolidated financial statements of the
Company which are not included in this report.
Statement of Operations Data:
Net sales
Gross profit
Operating income
Net income
Per Share Amounts:
Net income — diluted
Weighted average common shares — diluted
Cash dividends declared per common share
Balance Sheet Data:
Working capital
Total assets
Long-term debt, excluding current portion
Shareholders’ equity
2011
3,682.0
530.7
80.5
54.4
1.47
37.1
-
354.7
889.7
7.1
454.3
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
Years Ended December 31,
(In millions, except per share data)
2009
2008
2010
3,590.0
489.6
68.7
42.6
1.13
37.6
-
300.9
894.1
7.4
409.3
$
$
$
$
$
$
$
$
$
$
3,166.0
453.4
73.6
46.2
1.24
37.3
.75
250.1
816.9
1.2
364.7
$
$
$
$
$
$
$
$
$
$
3,033.0
451.2
83.6
52.8
1.40
37.7
1.00
253.1
702.5
1.4
334.0
$
$
$
$
$
$
$
$
$
$
2007
2,779.9
418.8
94.2
69.5
1.84
37.8
1.00
274.4
677.6
.3
335.8
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Overview
Systemax is primarily a direct marketer of brand name and private label products. Our operations are organized in two reportable
business segments — Technology Products and Industrial Products.
Our Technology Products segment sells computers, computer supplies and consumer electronics which are marketed in North
America, Puerto Rico and Europe. Most of these products are manufactured by other companies; however, we do offer a selection of
products that are manufactured for us to our own design and marketed on a private label basis. Technology products accounted for
91%, 93% and 94% of our net sales in 2011, 2010 and 2009, respectively.
Our Industrial Products segment sells a wide array of industrial products and supplies which are marketed in North America. Most of
these products are manufactured by other companies. Some products are manufactured for us to our own design and marketed under
the trademarks Global™, GlobalIndustrial.com™ and Nexel™. Industrial products accounted for 9%, 7% and 6% of our net sales in
2011, 2010 and 2009, respectively. In both of these product groups, we offer our customers a broad selection of products, prompt
order fulfillment and extensive customer service.
We announced plans to exit the Software Solutions segment during the second quarter of 2009. Substantially all of the third party
business activities of ProfitCenter Software have ended. Current and prior year results for Software Solutions are now included in
“Corporate and other”. See Note 12 to the Consolidated Financial Statements included in Item 15 of this Form 10-K for additional
financial information about our business segments as well as information about our geographic operations.
The market for computer products and consumer electronics is subject to intense price competition and is characterized by narrow
gross profit margins. The North American industrial products market is highly fragmented and we compete against companies
utilizing multiple distribution channels. Distribution is working capital intensive, requiring us to incur significant costs associated with
the warehousing of many products, including the costs of leasing warehouse space, maintaining inventory and inventory management
systems, and employing personnel to perform the associated tasks. We supplement our on-hand product availability by maintaining
relationships with major distributors and manufacturers, utilizing a combination of stocking and drop-shipment fulfillment.
The primary component of our operating expenses historically has been employee related costs, which includes items such as wages,
commissions, bonuses, employee benefits and stock option expenses. We continually assess our operations to ensure that they are
efficient, aligned with market conditions and responsive to customer needs.
17
In the discussion of our results of operations we refer to business to business sales, consumer channel sales and period to period
constant currency comparisons. Business to business sales are sales made direct to other businesses through managed business
relationships, outbound call centers and extranets. Sales in the Industrial Products segment and Corporate and other are considered to
be business to business sales. Consumer channel sales are sales from retail stores, consumer websites, inbound call centers and
television shopping channels. Constant currency refers to the adjustment of the results of our foreign operations to exclude the effects
of period to period fluctuations in currency exchange rates.
Critical Accounting Policies and Estimates
Our significant accounting policies are described in Note 1 to the Consolidated Financial Statements included in Item 15 of this
Form 10-K. Certain accounting policies require the application of significant judgment by management in selecting the appropriate
assumptions for calculating financial estimates. By their nature, these judgments are subject to an inherent degree of uncertainty, and
as a result, actual results could differ materially from those estimates. These judgments are based on historical experience, observation
of trends in the industry, information provided by customers and information available from other outside sources, as appropriate.
Management believes that full consideration has been given to all relevant circumstances that we may be subject to, and the
consolidated financial statements of the Company accurately reflect management’s best estimate of the consolidated results of
operations, financial position and cash flows of the Company for the years presented. We identify below a number of policies that
entail significant judgments or estimates, the assumptions and or judgments used to determine those estimates and the potential effects
on reported financial results if actual results differ materially from these estimates.
Quantification and analysis of effect on
actual results if estimates differ materially
We have not made any material changes to
our sales return reserve policy in the past
three years and we do not anticipate
making any material changes to this policy
in the future. However if our estimates are
materially different than our actual
experience we could have a material gain
or loss adjustment.
We have not made any material changes to
our allowance for doubtful accounts
receivable reserve policy in the past three
years and we do not anticipate making any
material changes to this policy in the
future. However if our estimates are
materially different than our actual
experience we could have a material gain
or loss adjustment.
A change of 10% in our allowance for
doubtful accounts reserve at December 31,
2011 would impact net income by
approximately $0.4 million.
Accounting policy
Assumptions and uncertainties
Revenue Recognition. We recognize
product sales when persuasive evidence of
an order arrangement 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 presented net of
returns and allowances, rebates and sales
incentives. Reserves for estimated returns
and allowances are provided when sales
are recorded, based on historical
experience and current trends.
Allowance for Doubtful Accounts
Receivable. We record an allowance for
doubtful accounts to reflect our estimate of
the collectibility of our trade accounts
receivable. While bad debt allowances
have been within expectations and the
provisions established, there can be no
guarantee that we will continue to
experience the same allowance rate we
have in the past.
Our revenue recognition policy contains
assumptions and judgments made by
management related to the timing and
amounts of future sales returns. Sales
returns are estimated based upon historical
experience and current known trends.
Our allowance for doubtful accounts
policy contains assumptions and
judgments made by management related to
collectibility of aged accounts receivable
and chargebacks from credit card sales.
We evaluate the collectibility of accounts
receivable based on a combination of
factors, including an analysis of the age of
customer accounts and our historical
experience with accounts receivable write-
offs. The analysis also includes the
financial condition of a specific customer
or industry, and general economic
conditions. In circumstances where we are
aware of customer credit card charge-
backs or a specific customer’s inability to
meet its financial obligations, a specific
reserve for bad debts applicable to
amounts due to reduce the net recognized
receivable to the amount management
reasonably believes will be collected is
recorded. In those situations with ongoing
discussions, the amount of bad debt
recognized is based on the status of the
discussions.
18
Quantification and analysis of effect on
actual results if estimates differ materially
We have not made any material changes to
our inventory reserve policy in the past
three years and we do not anticipate
making any material changes to this policy
in the future. However if our estimates are
materially different than our actual
experience we could have a material loss
adjustment.
A change of 10% in our inventory reserves
at December 31, 2011 would impact net
income by approximately $0.5 million.
We have not made any material changes to
our goodwill and intangible assets policy
in the past three years and we do not
anticipate making any material changes to
this policy in the future.
We do not believe it is reasonably likely
that the estimates or assumptions used to
determine whether any of our goodwill or
intangible assets are impaired will change
materially in the future. However if the
inputs used in our discounted cash flow
models or our forecasts are materially
different than actual experience we could
incur impairment charges that are material.
The Company has approximately $57.8
million in goodwill and intangible assets at
December 31, 2011. In 2011 no
impairment of the Company’s goodwill or
intangible assets were identified.
Accounting policy
Assumptions and uncertainties
Inventory valuation. We value our
inventories at the lower of cost or market,
cost being determined on the first-in, first-
out method except in Europe and retail
locations where an average cost is used.
Excess and obsolete or unmarketable
merchandise are written down based on
historical experience, assumptions about
future product demand and market
conditions. If market conditions are less
favorable than projected or if
technological developments result in
accelerated obsolescence, additional write-
downs may be required. While
obsolescence and resultant markdowns
have been within expectations, there can
be no guarantee that we will continue to
experience the same level of markdowns
we have in the past.
Goodwill and Intangible Assets. We apply
the provisions of relevant accounting
guidance in our valuation of goodwill,
trademarks, domain names, client lists and
other intangible assets. Relevant
accounting guidance requires that goodwill
and indefinite lived intangibles be
reviewed at least annually for impairment
or more frequently if indicators of
impairment exist. The amount of an
impairment loss would be recognized as
the excess of the asset’s carrying value
over its fair value.
Our inventory reserve policy contains
assumptions and judgments made by
management related to inventory aging,
obsolescence, credits that we may obtain
for returned merchandise, shrink and
consumer demand.
Our impairment testing involves
judgments and uncertainties, quantitative
and qualitative, related to the use of
discounted cash flow models and forecasts
of future results, both of which involve
significant judgment and may not be
reliable. Significant management judgment
is necessary to evaluate the operating
environment and economic conditions that
exist to develop a forecast for a reporting
unit. Assumptions related to the
discounted cash flow models we use
include the inputs used to determine the
Company’s weighted average cost of
capital including a market risk premium,
the beta of a reporting unit, reporting unit
specific risk premiums and terminal
growth values. Critical assumptions
related to the forecast inputs used in our
discounted cash flow models include
projected sales growth, same store sales
growth, gross margin percentages, new
business opportunities, working capital
requirements, capital expenditures and
growth in selling, general and
administrative expense. We also use our
company's market capitalization and
comparable company market data to
validate our reporting unit valuations.
19
Accounting policy
Assumptions and uncertainties
Long-lived Assets. Management exercises
judgment in evaluating our long-lived
assets for impairment and in their
depreciation and amortization methods and
lives. We believe we will generate
sufficient undiscounted cash flow to more
than recover the investments made in
property, plant and equipment.
Vendor Accruals. Our contractual
agreements with certain suppliers provide
us with funding or allowances for costs
such as price protection, markdowns and
advertising as well as funds or allowances
for purchasing volumes.
Generally, allowances received as a
reimbursement of identifiable costs are
recorded as an expense reduction when the
cost is incurred. Sales related allowances
are generally determined by our level of
purchases of product and are deferred and
recorded as a reduction of inventory
carrying value and are ultimately included
as a reduction of cost of goods when
inventory is sold.
The impairment analysis for long lived
assets requires management to make
judgments about useful lives and to
estimate fair values of long lived assets. It
may also require us to estimate future cash
flows of related assets using discounted
cash flow model Our estimates of future
cash flows involve assumptions
concerning future operating performance
and economic conditions. While we
believe that our estimates of future cash
flows are reasonable, different
assumptions regarding such cash flows
could materially affect our evaluations.
Management makes assumptions and
exercises judgment in estimating period
end funding and allowances earned under
our various agreements. Estimates are
developed based on the terms of our
vendor agreements and using existing
expenditures for which funding is
available, determining products whose
market price would indicate coverage for
markdown or price protection is available
and estimating the level of our
performance under agreements that
provide funds or allowances for
purchasing volumes. Estimates of funding
or allowances for purchasing volume will
include projections of annual purchases
which are developed using current actual
purchase data and historical purchase
trends. Accruals in interim periods could
be materially different if actual purchase
volumes differ from projections.
Quantification and analysis of effect on
actual results if estimates differ materially
We have not made any material changes to
our long lived assets policy in the past
three years and we do not anticipate
making any material changes to this policy
in the future.
We do not believe it is reasonably likely
that the estimates and assumptions used to
determine long lived asset impairment will
vary materially in the future. However if
our estimates are materially different than
our actual experience we could have a
material gain or loss adjustment.
An change of 10% in the carrying value of
our long lived assets would impact net
income by approximately $4.9 million.
We have not made any material changes to
our vendor accrual policy in the past three
years nor do we anticipate making any
material changes to this policy in the
future.
If actual results are different from the
projections used we could have a material
gain or loss adjustment.
A change of 10% in our vendor accruals at
December 31, 2011 would impact net
income by approximately $1.6 million.
20
Accounting policy
Assumptions and uncertainties
Income Taxes. We are subject to taxation
from federal, state and foreign
jurisdictions and the determination of our
tax provision is complex and requires
significant management judgment.
We conduct operations in numerous U.S.
states and foreign locations. Our effective
tax rate depends upon the geographic
distribution of our pre-tax income or losses
among locations with varying tax rates and
rules. As the geographic mix of our pre-tax
results among various tax jurisdictions
changes, the effective tax rate may vary
from period to period. We are also subject
to periodic examination from domestic and
foreign tax authorities regarding the
amount of taxes due. These examinations
include questions regarding the timing and
amount of deductions and the allocation of
income among various tax jurisdictions.
We establish as needed, and periodically
reevaluate, an estimated income tax
reserve on our consolidated balance sheet
to provide for the possibility of adverse
outcomes in income tax proceedings.
While management believes that we have
identified all reasonably identifiable
exposures and whether or not a reserve is
appropriate, it is possible that additional
exposures exist and that exposures may be
settled at amounts different than the
amounts reserved.
Reorganization and other charges. We
have recorded reorganization, restructuring
and other charges in the past and could in
the future commence further
reorganization, restructuring and other
activities which result in recognition of
charges to income.
Quantification and analysis of effect on
actual results if estimates differ materially
We have not made any material changes to
our income tax policy in the past three
years and we do not anticipate making any
material changes to this policy in the
future.
We do not believe it is reasonably likely
that the estimates or assumptions used to
determine our deferred tax assets and
liabilities and related valuation allowances
will change materially in the future.
However if our estimates are materially
different than our actual experience we
could have a material gain or loss
adjustment.
A change of 5% in our effective tax rate at
December 31, 2011 would impact net
income by approximately $1.2 million.
The determination of deferred tax assets
and liabilities and any valuation
allowances that might be necessary
requires management to make significant
judgments concerning the ability to realize
net deferred tax assets. The realization of
net deferred tax assets is dependent upon
the generation of future taxable income. In
estimating future taxable income there are
judgments and uncertainties related to the
development of forecasts of future results
that may not be reliable. Significant
management judgment is also necessary to
evaluate the operating environment and
economic conditions that exist to develop
a forecast for a reporting unit. Where
management has determined that it is more
likely than not that some portion or the
entire deferred tax asset will not be
realized, we have provided a valuation
allowance. If the realization of those
deferred tax assets in the future is
considered more likely than not, an
adjustment to the deferred tax assets would
increase net income in the period such
determination is made.
The recording of reorganization,
restructuring and other charges may
involve assumptions and judgments about
future costs and timing for amounts
related to personnel terminations, stay
bonuses, lease termination costs, lease
sublet revenues, outplacement services,
contract termination costs, asset
impairments and other exit costs.
Management may estimate these costs
using existing contractual and other data or
may rely on third party expert data.
When we incur a liability related to these
actions, we estimate and record all
appropriate expenses. We do not believe it
is reasonably likely that the estimates or
assumptions used to determine our
reorganization, restructuring and other
charges will change materially in the
future. However if our estimates are
materially different than our actual
experience we could have a material gain
or loss adjustment.
For the year ended December 31, 2011 the
Company did not have any amounts
accrued for reorganization, restructuring
and other charges.
21
Recently Adopted and Newly Issued Accounting Pronouncements
Public companies in the United States are subject to the accounting and reporting requirements of various
authorities, including the Financial Accounting Standards Board (“FASB”) and the Securities and Exchange
Commission (“SEC”). These authorities issue numerous pronouncements, most of which are not applicable to the
Company’s current or reasonably foreseeable operating structure. Below are the new authoritative pronouncements
that management believes are relevant to the Company’s current operations.
In 2011, the FASB issued guidance which provides companies with the option to perform a qualitative assessment to
determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If,
after assessing updated qualitative factors, a company determines it is more likely than not that the fair value of a
reporting unit is less than its carrying amount, it would not have to perform the current two-step goodwill
impairment test. The Company adopted this guidance in October 2011. The adoption of this guidance did not have a
material impact on the consolidated financial statements.
In June 2011, the FASB issued amended guidance related to comprehensive income. The amended guidance
requires the presentation of items of net income, items of other comprehensive income and total comprehensive
income in one continuous statement or in two separate but consecutive statements. Presentation of other
comprehensive income as part of the statement of stockholders’ equity is no longer allowed under the amended
guidance. The amended guidance is effective for fiscal years, and interim periods within those years, beginning after
December 15, 2011. The Company does not expect this guidance to have a material impact on its consolidated
financial statements.
In December 2010, the FASB issued authoritative guidance that updates existing disclosure requirements related to
supplementary pro forma information for business combinations. Under the updated guidance, a public entity that
presents comparative financial statements should disclose revenue and earnings of the combined entity as though the
business combination that occurred during the current year had occurred as of the beginning of the comparable prior
annual reporting period only. The guidance also expands the supplemental pro forma disclosures to include a
description of the nature and amount of material, nonrecurring pro forma adjustments directly attributable to the
business combination included in the reported pro forma revenue and earnings. This guidance became effective for
the Company on January 1, 2011 and will be applied prospectively to business combinations that have an acquisition
date on or after January 1, 2011.
Highlights from 2011
The discussion of our results of operations and financial condition that follows will provide information that will
assist in understanding our financial statements and information about how certain accounting principles and
estimates affect the consolidated financial statements. This discussion should be read in conjunction with the
consolidated financial statements included herein.
Sales grew 2.6%, 1% on a constant currency basis, to $3.7 billion in 2011 over 2010.
One new retail store opened.
Movements in exchange rates positively impacted European sales by approximately $45.6 million and
Canadian sales by approximately $9.0 million.
Gross margin benefited from changes in the segment mix, reflecting increased sales of industrial products.
Special gains, net of investigative and legal costs, of $5.6 million pre tax, approximately $0.10 per diluted
share, after tax, for settlement proceeds received from a former officer and director.
Diluted earnings per share increased to $1.47 from $1.13 in 2010.
22
Key Performance Indicators (in millions):
Results of Operations
2011
2010
Years Ended December 31,
%
Change
2010
2009
$
$
$
$
$
$
$
$
$
Net sales by segment:
Technology products
Industrial products
Corporate and other
Consolidated net sales
Net sales by geography:
North America
Europe
Consolidated net sales
Net sales by channel:
Business to business
Consumer
Consolidated net sales
Consolidated gross margin
Consolidated SG&A costs*
Consolidated SG&A costs* as
% of sales
Operating income (loss) by
segment:
Technology products
Industrial products
Corporate and other
Consolidated operating
income
Operating margin by
segment:
Technology products
Industrial products
Consolidated operating
margin
3,358.7
319.9
3.4
3,682.0
2,582.2
1,099.8
3,682.0
1,985.2
1,696.8
3,682.0
14.4%
450.1
12.2%
68.0
34.6
$
$
$
$
$
$
$
$
3,337.7
250.0
2.3
3,590.0
2,543.0
1,047.0
3,590.0
1,770.2
1,819.8
3,590.0
13.6%
420.9
0.6% $
28.0%
3,337.7
250.0
47.8%
2.6% $
2.3
3,590.0
1.5% $
5.0%
2.6% $
12.1% $
(6.8)%
2.6
$
2,543.0
1,047.0
3,590.0
1,770.2
1,819.8
3,590.0
0.8%
6.9% $
13.6%
420.9
11.7%
0.5%
11.7%
65.0
23.8
4.6% $
45.4%
65.0
23.8
$
$
$
$
$
$
$
%
Change
12.5%
27.5%
(28.1)
%
13.4%
9.7%
23.4%
13.4%
26.3%
3.1%
13.4%
2,966.7
196.1
3.2
3,166.0
2,317.5
848.5
3,166.0
1,401.5
1,764.5
3,166.0
14.3% (0.7)%
10.9%
379.7
12.0% (0.3)%
88.6
15.4
(26.6)
%
54.5%
(33.9)
%
(22.1)
(20.1)
10.0%
(20.1)
(30.4)
80.5
$
68.7
17.2% $
68.7
$
73.6
(6.7)%
2.0%
10.8%
1.9%
9.5%
0.1%
1.3%
1.9%
9.5%
3.0% (1.1)%
1.6%
7.9%
Effective income tax rate
Net income
Net margin
*includes special (gains) charges. See Note 8 of Notes to Consolidated Financial Statements.
$
$
$
0.3%
(4.7)%
27.7% $
0.3%
1.9%
35.6%
42.6
1.2%
1.9%
35.6%
42.6
1.2%
2.2%
30.9%
54.4
1.5%
2.3% (0.4)%
36.8% (1.2)%
46.2
(7.8)%
1.5% (0.3)%
NET SALES
SEGMENTS:
The Technology Products net sales increase is attributable to the effect of currency movements and improved
business to business sales offset by decreased consumer channel sales. On a constant currency basis, sales declined
1.0% or $33.5 million. This decline is due to lower sales in certain geographies, primarily North America and
certain channels, primarily consumer unassisted web and television shopping.
The Industrial Products net sales increase in 2011 is attributable to more products offered on the Company’s
websites and the addition of sales personnel.
23
GEOGRAPHIES:
The North American sales increase resulted primarily from the Industrial Products segment’s additional new product
lines, partially offset by declining consumer sales in the Technology Products segment. On a constant currency
basis, North American sales would have grown 1.2%. The movement in foreign exchange rates positively impacted
sales by approximately $9.0 million.
The European sales increase resulted primarily from an increase in business to business sales. On a constant
currency basis, European sales would have increased 0.7%. Movement in foreign exchange rates positively impacted
sales by approximately $45.6 million.
CHANNEL SALES:
The worldwide business to business channel sales increase resulted primarily from the Industrial Products segment’s
additional product lines and the addition of business to business sales personnel in both the Technology Products
and Industrial Products segments. On a constant currency basis, worldwide business to business channel sales grew
9.7%.
The worldwide consumer-channels, defined as revenues from retail stores, consumer websites, inbound call centers
and television shopping channels, decline resulted primarily from decreased European and North American
unassisted web and television shopping sales. On a constant currency basis, worldwide consumer channel sales
declined 7.4%.
2010 versus 2009:
The growth in Technology Products sales in 2010 compared to 2009 was driven by increased business to business
and consumer channel sales worldwide as a result of improved global economic conditions, the expansion of the
number of retail stores in the United States and Canada and the continued sales contribution from our Circuit City
and WStore Europe SA (“WStore”) acquisitions in 2009. On a constant currency basis, excluding the impact of the
WStore acquisition on results, Technology Product sales would have grown 7.9% or $230.6 million. North
American Technology Product sales increased 8.2% in 2010 compared to 2009 benefiting from increased retail and
internet sales in the consumer channel, the result of opening seven retail stores in 2010 and the Circuit City
acquisition in 2009. On a constant currency basis, North American sales would have grown 8.9%. The movement in
the exchange rates positively impacted sales by approximately $19.9 million. European sales grew primarily from an
increase in business to business sales. On a constant currency basis, European sales would have increased 29.6%.
Movement in foreign exchange rates negatively impacted sales by approximately $52.9 million. Industrial Products
sales increased 27.5% compared to 2009 because of improved economic conditions in North America in 2010
resulting in increased demand for the segment’s various products as well as an increase in the number of products
offered on its websites and in its catalogs. On a constant currency basis and excluding the WStore acquisition,
worldwide business to business channel sales increased 18.1% and worldwide consumer-channel sales increased
2.4% in 2010 compared to 2009. The Company announced plans to exit its Software solutions segment during the
second quarter of 2009. Substantially all of the third party business activities of ProfitCenter Software had ended as
of December 31, 2009. Current and prior year results for this segment are now included in Corporate and other.
GROSS MARGIN
The consolidated gross margin increase in 2011 is due to changes in the segment and channel mix, with Industrial
Products sales, which are typically higher margin than Technology Products, contributing a larger percentage to
gross profit dollars. Modest improvements in our freight margin in Technology Products contributed to the
improved margin from our ongoing freight and logistics initiatives. Gross margin is dependent on variables such as
product mix, vendor price protection and other sales incentives, competition, pricing strategy, cooperative
advertising funds required to be classified as a reduction to cost of sales, freight discounting and other variables, any
or all of which may result in fluctuations in gross margin.
The consolidated gross margin decrease in 2010 was due to lower product prices; freight discounts on the
Company’s North American websites and start up costs related to the new distribution center in North America,
partially offset by improvement in gross margin in Europe and in Industrial Products.
24
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
The selling, general and administrative expenses increase in 2011 primarily resulted from the increased sales
volume, increases in facility and other operating costs related to the retail stores being opened a full year compared
to 2010 and hiring of additional sales personnel. Selling, general and administrative costs as a percent of sales
increased 80 basis points compared to 2010. Significant expense increases include approximately $21.4 million of
increased payroll, and related costs due to additional sales personnel and additional retail stores operating for the full
year of 2011 compared to 2010, additional rent and related costs of approximately $2.8 million and $10.1 million of
increased internet, store space ads advertising and reduced cooperative advertising funding on catalogs, offset by
decreased spending on catalogs compared to 2010. The Company incurred approximately $2.8 million of additional
depreciation and amortization compared to 2010 due to significant additions to our second distribution center,
expenditures in our retail stores and amortization of intangible assets.
The selling, general and administrative expenses increase in 2010 primarily resulted from increased sales volume
and increased facility and other operating costs related to opening additional retail stores. Selling, general and
administrative costs as a percent of sales declined as sales grew at a faster rate than costs. Retail expansion in the
United States and the inclusion of WStore results for a full year were primary drivers of the cost increases in 2010.
Significant expense increases include approximately $24.1 million of increased payroll, $8.5 million of increased
internet advertising expenses, $5.6 million of increased rent and related expenses primarily related to retail stores,
$2.8 million of increased credit card fees, $2.5 million of additional depreciation and amortization expense offset by
approximately $9.7 million of increased vendor consideration related to advertising expenses. Also included in 2009
is a gain of approximately $1.8 million from a lawsuit that was settled favorably.
SPECIAL (GAINS) CHARGES
The Company recorded a net special gain of approximately $5.6 million primarily related to the investigation and
settlement with a former officer and director of the Company. A special gain of approximately $8.4 million related
to this settlement was recorded in the second quarter of 2011. This gain was partially offset by charges for related
investigative, legal and professional fees of approximately $2.8 million for the year (See Note 8 of Notes to
Consolidated Financial Statements).
The Company’s WStore France subsidiary incurred integration related charges of approximately $4.0 million for
severances and other costs related to the merger of its Misco and WStore operations and the Company incurred $0.3
million in contract termination costs related to the exit of its Software Solutions segment.
OPERATING MARGIN
Technology Products operating margin increased 10 basis points in 2011 versus 2010 due to the effect of a special
gain recorded in 2011 related to the investigation of the former officer and director of the Company and the special
charges incurred in 2010 for the WStore integration. Excluding these gains and charges, Technology Products
operating margin would have declined compared to 2010 due to continuing price promotions offered and increased
spending related to the retail stores, additional headcount and a full year of operation of the second distribution
center. Technology Products operating margin decreased in 2010 versus 2009 due to price promotions, freight
discounts offered during the year, start up costs related to the new distribution center in North America and
reorganization costs related to the WStore integration which could not be fully offset by cost reduction initiatives.
Industrial Products operating margin increased 130 basis points in 2011 due to increased demand for the segment’s
various products, the availability of additional products on the Company’s websites and in its catalogs and additional
sales personnel. Industrial Products operating margin increased in 2010 compared to 2009 due to prudent cost
management and improved economic conditions in North America, resulting in increased demand for the segment’s
various products.
Corporate and other operating costs increased 13.2% during 2011 primarily as a result of increased personnel costs
and increased tax and accounting fees offset by savings in general consulting fees. Corporate and other operating
costs decreased 29.6% during 2010 due to cost savings from winding down the ProfitCenter Software segment in
2009, reduced consulting and outside services for software implementation which began in 2009 and significantly
less legal and professional fees incurred in 2010 compared to 2009.
INTEREST EXPENSE
Interest expense was $2.2 million, $1.8 million, and $1.4 million in 2011, 2010 and 2009, respectively. The interest
25
expense increase in 2011 compared to 2010 is primarily the result of a full year of interest on the Recovery Zone
Bond entered into to finance the equipment for the second Technology Products distribution center opened in 2010.
The interest expense increase in 2010 compared to 2009 is primarily attributable to a full year of interest expense
related to the debt assumed in the WStore acquisition, higher average outstanding balances under the Company’s
revolving credit agreement and interest on the Recovery Zone Bond.
INCOME TAXES
The Company’s effective tax rate was 30.9% in 2011 as compared to 35.6% in 2010. The lower tax rate in 2011 is
primarily the result of the company’s France operations having sufficient income to partially utilize net operating
loss carryforwards that have a full valuation allowance applied.
The effective tax rate in 2010 was 35.6% compared to 36.8% in 2009. The lower tax rate in 2010 is primarily
attributed to reversals of valuation allowances of approximately $0.5 million. If excluded, the Company’s effective
tax rate would have been 36.3%. The lower tax rate in 2010 is primarily attributed to a higher percentage of taxable
income in countries that have lower corporate tax rates. The Company’s effective tax rate will vary as the mix of
pretax income from the countries the Company does business in varies.
Seasonality
As the Company’s consumer channel sales have grown significantly in the past few years, the fourth quarter has
represented a greater portion of annual sales than historically. Net sales have historically been modestly weaker
during the second and third quarters as a result of lower business activity during those months. The following table
sets forth the net sales seasonality for each of the quarters since January 1, 2009 (amounts in millions).
2011
Net sales
Percentage of year’s net sales
2010
Net sales
Percentage of year’s net sales
2009
Net sales
Percentage of year’s net sales
March 31
June 30
September 30
December 31
Quarter Ended
930 $
25.3%
$
872
23.7%
$
901
24.5%
979
26.5%
915 $
25.5%
$
806
22.5%
$
863
24.0%
1,006
28.0%
752 $
23.8%
$
722
22.8%
$
754
23.8%
938
29.6%
$
$
$
Financial Condition, Liquidity and Capital Resources
Selected liquidity data (in thousands):
Cash
Accounts receivable, net
Inventories
Prepaid expenses and other current assets
Accounts payable
Accrued expenses and other current liabilities
Current portion of long term debt
Working capital
December 31,
2011
2010
$ Change
97,254
268,980
372,244
18,198
336,550
72,410
2,552
354,704
$
$
$
$
$
$
$
$
92,077
276,344
370,375
19,308
377,030
84,680
2,655
300,872
$
$
$
$
$
$
$
$
5,177
(7,364)
1,869
(1,110)
(40,480)
(12,270)
(103)
53,832
$
$
$
$
$
$
$
$
Our primary liquidity needs are to support working capital requirements in our business, including working capital
for new retail stores, capital expenditures, payment of interest on outstanding debt, special dividends declared by our
Board of Directors and acquisitions. We rely principally upon operating cash flows to meet these needs. We believe
that cash flows from operations and our availability under credit facilities will be sufficient to fund our working
capital and other cash requirements for the next twelve months.
26
Our working capital increase in 2011 is primarily the result of lower accounts payable, accrued expenses and other
current liabilities balances in addition to increased cash and inventory balances compared to 2010. Accounts
receivable days outstanding were at 27 in 2011 up from 25 in 2010. We expect that future accounts receivable and
inventory balances will fluctuate with growth in net sales and the mix of our net sales between consumer and
business customers.
Net cash provided by operating activities was $18.2 million, $64.9 million, and $4.8 million during 2011, 2010, and
2009. The decrease in cash provided by operating activities in 2011 compared to 2010 resulted from a $3.6 million
increase in net income adjusted by other non-cash items, such as depreciation expense, and a decrease of $50.3
million in cash used in our working capital accounts. The increase in cash provided by operating activities in 2010
over 2009 resulted from a $5.0 million decrease in net income adjusted by other non-cash items, such as
depreciation expense, and an increase of $65.1 million in cash used for changes in our working capital accounts.
Net cash used in investing activities was $12.3 million and were for upgrades and enhancements to our information
and communications systems hardware and software and expenditures in retail stores in North America. In 2010, net
cash used in investing activities was $24.7 million, primarily for capital expenditures including expenditures for the
second North American distribution center for the Technology Products segment. Cash flows used in investing
activities during 2009 totaled $32.3 million primarily for the CircuitCity.com acquisition and for capital
expenditures. Capital expenditures in 2010 and 2009 also included upgrades and enhancements to our information
and communications systems hardware and software and expenditures in retail stores in North America.
Net cash used in financing activities was $0.7 million in 2011. We borrowed and repaid approximately $10.9 million
from revolving credit and short term debt facilities. We also repaid approximately $2.7 million in capital lease
obligations. Net proceeds and excess tax benefits from stock option exercises provided $0.5 million and we received
proceeds of approximately $1.5 million from the Recovery Zone Facility Bond. In 2010 net cash used in financing
activities was $4.7 million. We borrowed and repaid approximately $261.7 million against our credit facilities. We
repaid approximately $13.2 million in short term debt and approximately $1.5 million in capital lease obligations
and received proceeds of approximately $7.9 million from the Recovery Zone Facility Bond. Net proceeds and
excess tax benefits from stock option exercises provided approximately $2.1 million of cash. In 2009, net cash used
in financing activities was $31.5 million. We repaid approximately $3.6 million in short-term debt and
approximately $0.8 million in capital lease obligations, paid a special dividend of $27.6 million, and repurchased
Company stock of approximately $1.2 million. Net proceeds and excess tax benefits from stock option exercises
provided approximately $1.7 million of cash.
On December 15, 2011, the Company entered into an amendment of its second amended and restated credit
agreement. The amendment increased the maximum availability under the United States revolving loan component
of the facility by $25 million to a total of $125.0 million (which may be increased to $200.0 million, subject to
certain conditions), eliminated the Company’s unneeded $25 million United Kingdom revolving loan component of
the facility, released the related United Kingdom assets that were pledged to secure this component and removed the
Company’s United Kingdom subsidiary from the facility. The facility has a five year term expiring in October 2015.
The borrowings under the agreement are subject to borrowing base limitations of up to 85% of eligible accounts
receivable and up to 40% of qualified inventories. Borrowings are secured by substantially all of the Company’s
assets, including accounts receivable, inventory and certain other assets, subject to limited exceptions. The amended
and restated credit agreement contains certain operating, financial and other covenants, including limits on annual
levels of capital expenditures, availability tests related to payments of dividends and stock repurchases and fixed
charge coverage tests related to acquisitions. The revolving credit agreement requires that we maintain a minimum
level of availability. If such availability is not maintained, we will then be required to maintain a fixed charge
coverage ratio (as defined). As of December 31, 2011, the Company was in compliance with all of the covenants
under the credit facility. Eligible collateral under the facility was $119.5 million, total availability was $113.1
million, outstanding letters of credit were $6.4 million and there were no outstanding advances.
The Company’s Inmac WStore subsidiary maintains a secured revolving credit agreement with a financial institution
in France which is secured by WStore Europe SA accounts receivable balances. Available amounts for borrowing
under this facility includes all accounts receivable balances not over 60 days past due reduced by the greater of €4.0
million or 10% of the eligible accounts receivable. As of December 31, 2011, there was availability under this credit
facility of approximately €24.1 million ($31.2 million) and there were no outstanding borrowings. The credit facility
duration is indefinite; however either party may cancel the agreement with sixty days notice. Under this agreement
the Company is subject to certain non-financial covenants which it was in compliance with at December 31, 2011.
.
27
On September 23, 2010, the Company (through a subsidiary) completed tax exempt Recovery Zone Facility Bond
(the “Bonds”) financing for up to $15 million with the Development Authority of Jefferson, Georgia (the
“Authority”). The Bonds were issued by the Authority and initially purchased by GE Government Finance Inc., and
mature on October 1, 2018. Interest on the Bonds is calculated at the rate of 4.15% per annum and principal and
interest payments are due monthly. The proceeds of the Bonds are used to finance or repay the costs of capital
equipment purchased for the Company’s distribution facility located in Jefferson, Georgia. The purchase and
installation of all the equipment for the facility was completed by December 31, 2011. Pursuant to the transaction,
the Company will transfer to the Authority for consideration consisting of the Bond proceeds ownership of the
equipment to be used at the distribution facility and the Authority in turn will lease the equipment to the Company’s
subsidiary pursuant to a capital equipment lease expiring October 1, 2018. Under the capital equipment lease the
Company has the right to acquire ownership of the equipment at any time for a purchase price sufficient to pay off
all principal and interest on the Bonds, plus $1.00.
Our earnings and cash flows are seasonal in nature, with the fourth quarter of the fiscal year generating higher
earnings and cash flows than the other quarters. Levels of earnings and cash flows are dependent on factors such as
consolidated gross margin and selling, general and administrative costs as a percentage of sales, product mix and
relative levels of domestic and foreign sales. Unusual gains or expense items, such as special (gains) charges and
settlements, may impact earnings and are separately disclosed. We expect that past performance may not be
indicative of future performance due to the competitive nature of our Technology Products segment where the need
to adjust prices to gain or hold market share is prevalent.
Macroeconomic conditions, such as business and consumer sentiment, may affect our revenues, cash flows or
financial condition. However, we do not believe that there is a direct correlation between any specific
macroeconomic indicator and our revenues, cash flows or financial condition. We are not currently interest rate
sensitive, as we have significant cash balances and minimal debt.
We anticipate cash needs to support our growth and expansion plans, continued investment in upgrading and
expanding our technological capabilities and information technology infrastructure, opening of new retail stores, and
in building out and expanding our distribution center facilities and inventory systems.
These expenses and capital expenditures will require significant levels of liquidity, which we believe can be
adequately funded from our currently available cash resources. In 2012 we anticipate capital expenditures of
approximately $20 million, although at this time we are not contractually committed to incur these expenditures.
Over the past several years we have engaged in opportunistic acquisitions, choosing to pay the purchase price in
cash, and may do so in the future as favorable situations arise. However, a deep and prolonged period of reduced
consumer and/ or business to business spending could adversely impact our cash resources and force us to either
forego future acquisition opportunities or to pay the purchase price in shares of our common stock, which could
have a dilutive effect on our earnings per share. In addition we anticipate cash needs for implementation of the
financial systems. We believe that our cash balances, future cash flows from operations and our availability under
credit facilities will be sufficient to fund our working capital and other cash requirements for at least the next twelve
months.
We maintain our cash and cash equivalents primarily in money market funds or their equivalent. As of
December 31, 2011, all of our investments had maturities of less than three months. Accordingly, we do not believe
that our investments have significant exposure to interest rate risk.
We are obligated under non-cancelable operating leases for the rental of most of our facilities and certain of our
equipment which expire at various dates through 2030. We have sublease agreements for unused space we lease in
Uniondale, New York. In the event the sub lessee is unable to fulfill its obligations, we would be responsible for
rents due under the leases.
28
Following is a summary of our contractual obligations for future principal payments on our debt, minimum rental
payments on our non-cancelable operating leases and minimum payments on our other purchase obligations as of
December 31, 2011 (in thousands):
Contractual Obligations:
Total
Less than
1 year
1-3 years
3-5 years
More than
5 years
Capital lease obligations
$
11,796
$
3,147
$
7,902
$
747
-
Non-cancelable operating leases,
net of subleases
204,425
27,340
67,794
56,379
52,912
Purchase & other obligations
48,013
25,969
11,522
10,522
-
Total contractual obligations
$ 264,234
$
56,456
$
87, 218
$
67,648
$
52,912
Our purchase and other obligations consist primarily of certain employment agreements and service agreements.
In addition to the contractual obligations noted above, we had $6.4 million of standby letters of credit outstanding as
of December 31, 2011.
We are party to certain litigation, the outcome of which we believe, based on discussions with legal counsel, will not
have a material adverse effect on our consolidated financial statements.
Tax contingencies are related to uncertain tax positions taken on income tax returns that may result in additional tax,
interest and penalties being paid to taxing authorities. As of December 31, 2011, the Company had no uncertain tax
positions.
Off-Balance Sheet Arrangements
We have not created, and are not party to, any special-purpose or off-balance sheet entities for the purpose of raising
capital, incurring debt or operating our business. We do not have any arrangements or relationships with entities that
are not consolidated into the financial statements that are reasonably likely to materially affect our liquidity or the
availability of capital resources.
The Company currently leases its facility in Port Washington, NY from Addwin Realty Associates, an entity owned
by Richard Leeds, Bruce Leeds, and Robert Leeds, senior executives, Directors and controlling shareholders of the
Company.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
We are exposed to market risks, which include changes in U.S. and international interest rates as well as changes in
currency exchange rates (principally Pounds Sterling, Euros and Canadian Dollars) as measured against 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 income statement, balance sheet and cash flows as expressed in U.S.
dollars. Sales would have fluctuated by approximately $126.6 million and pretax income would have fluctuated by
approximately $3.0 million if average foreign exchange rates changed by 10% in 2011. We have limited
involvement with derivative financial instruments and do not use them for trading purposes. We may enter into
foreign currency options or forward exchange contracts aimed at limiting in part the impact of certain currency
fluctuations, but as of December 31, 2011 we had no outstanding forward exchange contracts.
Our exposure to market risk for changes in interest rates relates primarily to our variable rate debt. Our variable rate
debt consists of short-term borrowings under our credit facilities. As of December 31, 2011, there were no
outstanding balances under our variable rate credit facility. A hypothetical change in average interest rates of one
percentage point is not expected to have a material effect on our financial position, results of operations or cash
flows over the next fiscal year.
29
Item 8. Financial Statements and Supplementary Data.
The information required by Item 8 of Part II is incorporated herein by reference to the Consolidated Financial
Statements filed with this report; see Item 15 of Part IV of this Form 10-K.
Item 9. Changes In and Disagreements with Accountants on Accounting and Financial Disclosure.
None.
Item 9A. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
Under the supervision and with the 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, 2011. Based upon
this evaluation, the Company’s Chief Executive Officer and Chief Financial Officer have concluded that the
Company’s disclosure controls and procedures are effective.
Inherent Limitations of Internal Controls over Financial Reporting
The Company’s internal control over financial reporting is designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements for external purposes in accordance with
generally accepted accounting principles. The Company’s internal control over financial reporting includes those
policies and procedures that: (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the Company’s assets; (ii) provide reasonable assurance that transactions
are recorded as necessary to permit preparation of financial statements in accordance with generally accepted
accounting principles, and that the Company’s receipts and expenditures are being made only in accordance with
authorizations of the Company’s management and directors; and (iii) provide reasonable assurance regarding
prevention or timely detection of unauthorized acquisition, use, or disposition of the Company’s assets that could
have a material effect on the Company’s financial statements.
Management, including the Company’s Chief Executive Officer and Chief Financial Officer, does not expect that
the Company’s internal controls will prevent or detect all errors and all fraud. A control system, no matter how well
designed and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system
are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the
benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control
systems, no evaluation of internal controls can provide absolute assurance that all control issues and instances of
fraud, if any, have been detected. Also, any evaluation of the effectiveness of controls in future periods are subject to
the risk that those internal controls may become inadequate because of changes in business conditions, or that the
degree of compliance with the policies or procedures may deteriorate.
Management’s Report on Internal Control Over Financial Reporting
The Company’s management is responsible for establishing and maintaining adequate internal control over financial
reporting. 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 established in Internal Control - Integrated
Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on that
evaluation, the Company’s Chief Executive Officer and Chief Financial Officer concluded that the Company’s
internal control over financial reporting was effective as of December 31, 2011.
The Company’s independent registered public accounting firm, Ernst & Young LLP, has issued an attestation report
on the effectiveness of the Company’s internal control over financial reporting as of December 31, 2011, a copy of
which is included in this report.
30
Changes in Internal Control Over Financial Reporting
There have been no changes in the Company’s internal controls over financial reporting for the quarter ended
December 31, 2011 that have materially affected, or are reasonably likely to materially affect, the Company’s
internal control over financial reporting.
Item 9B. Other Information.
None.
31
PART III
Item 10. Directors, Executive Officers and Corporate Governance.
The information required by Item 10 of Part III is hereby incorporated by reference to the Company’s Proxy
Statement for the 2012 Annual Meeting of Stockholders. (the “Proxy Statement”).
Item 11. Executive Compensation.
The information required by Item 11 of Part III is hereby incorporated by reference to the Proxy Statement.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters.
The information required by item 12 of Part III is hereby incorporated by reference to the Proxy Statement.
Item 13. Certain Relationships and Related Transactions, and Director Independence
The information required by Item 13 of Part III is hereby incorporated by reference to the Proxy Statement.
Item 14. Principal Accounting Fees and Services.
The information required by Item 14 of Part III is hereby incorporated by reference to the Proxy Statement.
PART IV
Item 15. Exhibits and Financial Statement Schedules.
(a)1. Consolidated Financial Statements of Systemax Inc.
Reference
Reports of Ernst & Young LLP Independent Registered Public Accounting Firm
Consolidated Balance Sheets as of December 31, 2011 and 2010
Consolidated Statements of Operations for the years ended December 31, 2011, 2010
and 2009
Consolidated Statements of Cash Flows for the years ended December 31, 2011,
2010 and 2009
Consolidated Statements of Shareholders’ Equity for the Years ended December 31,
2011, 2010 and 2009
Notes to Consolidated Financial Statements
2. Financial Statement Schedules:
The following financial statement schedule is filed as part of this report and should
be read together with our consolidated financial statements:
Schedule II — Valuation and Qualifying Accounts
Schedules not included with this additional financial data have been omitted because
they are not applicable or the required information is shown in the consolidated
financial statements or notes thereto.
37
39
40
41
42
43
59
32
Item 15. Exhibits and Financial Statement Schedules.
3.
Exhibits.
Exhibit
No.
3.1
3.2
3.3
4.1
10.1
10.2
10.3
10.4
10.5
10.6
10.7
10.8
10.9
10.10
10.11
10.12
10.13
10.14
Description
Composite Certificate of Incorporation of Registrant, as amended (incorporated by
reference to the Company’s annual report on Form 10-K for the year ended
December 31, 2001)
Amended and Restated By-laws of Registrant (effective as of December 29, 2007,
incorporated by reference to the Company’s annual report on Form 10-K for the year
ended December 31, 2007)
Amendment to the Bylaws of the Registrant (incorporated by reference to the
Company’s report on Form 8-K dated March 3, 2008)
Stockholders Agreement (incorporated by reference to the Company’s quarterly report
on Form 10-Q for the quarterly period ended September 30, 1995)
Form of 1995 Long-Term Stock Incentive Plan* (incorporated by reference to the
Company’s registration statement on Form S-1) (Registration No. 333-1852)
Form of 1995 Stock Plan for Non-Employee Directors* (incorporated by reference to
the Company’s registration statement on Form S-1) (Registration No. 333-1852)
Form of 1999 Long-Term Stock Incentive Plan as amended* (incorporated by reference
to the Company’s report on Form 8-K dated May 20, 2003)
Form of 2006 Stock Incentive Plan for Non-Employee Directors* (incorporated by
reference to the Company’s annual report on Form 10-K for the year ended
December 31, 2006)
Form of 2005 Employee Stock Purchase Plan* (incorporated by reference to the
Company’s annual report on Form 10-K for the year ended December 31, 2006)
Lease Agreement dated September 20, 1988 between the Company and Addwin Realty
Associates (Port Washington facility) (incorporated by reference to the Company’s
registration statement on Form S-1) (Registration No. 33-92052)
First Amendment to Lease Agreement dated September 20, 1998 between the Company
and Addwin Realty Associates (Port Washington facility) (incorporated by reference to
the Company’s annual report on Form 10-K for the year ended December 31, 1998)
Second Amendment to Lease Agreement dated September 20, 1988 between the
Company and Addwin Realty Associates (Port Washington facility) (incorporated by
reference to the Company’s annual report on Form 10-K for the year ended
December 31, 2007)
Build-to-Suit Lease Agreement dated April, 1995 among the Company, American
National Bank and Trust Company of Chicago (Trustee for the original landlord) and
Walsh, Higgins
& Company (Contractor) (“Naperville Illinois Facility Lease”) (incorporated by
reference to the Company’s registration statement on Form S-1) (Registration No. 33-
92052)
First Amendment, dated as of February 1, 2006, to the Naperville Illinois Facility Lease
between the Company and Ambassador Drive LLC (current landlord) (incorporated by
reference to the Company’s annual report on Form 10-K for the year ended
December 31, 2005)
Lease Agreement dated September 17, 1998 between Tiger Direct, Inc. and Keystone
Miami Property Holding Corp. (Miami facility) (incorporated by reference to the
Company’s quarterly report on Form 10-Q for the quarterly period ended September 30,
1998)
First Amendment, dated as of September 5, 2003, to the Lease Agreement between
Tiger Direct, Inc. and Keystone Miami Property Holding Corp. (Miami facility)
(incorporated by reference to the Company’s annual report on Form 10-K for the year
ended December 31, 2009)
Second Amendment, dated March 22, 2007, to the Lease Agreement between Tiger
Direct, Inc. and Keystone Miami Property Holding Corp. (Miami facility) (incorporated
by reference to the Company’s annual report on Form 10-K for the year ended
December 31, 2009)
Third Amendment, dated as of June 26, 2009, to the Lease Agreement between Tiger
33
Direct, Inc. and Mota Associates Limited Partnership (successor in interest to landlord
Keystone Miami Property Holding Corp.) (Miami facility) (incorporated by reference to
the Company’s annual report on Form 10-K for the year ended December 31, 2009)
Lease agreement, dated December 8, 2005, between the Company and Hamilton
Business Center, LLC (Buford, Georgia facility) (incorporated by reference to the
Company’s annual report on Form 10-K for the year ended December 31, 2005)
First Amendment, dated as of June 12, 2006, to the Lease Agreement between the
Company and Hamilton Business Center, LLC (Buford, Georgia facility) (incorporated
by reference to the Company’s annual report on Form 10-K for the year ended
December 31, 2005)
Settlement Agreement, dated as of May 6, 2011, between the Company and Gilbert
Fiorentino (incorporated by reference to the Company’s report on Form 8-K dated May
9, 2011)
Employment Agreement, dated as of October 3, 2011, between Systemax Inc. and
David Sprotsy* (filed herewith)
Executive Directors Service Agreement, dated December 15, 2011, between Misco UK
Limited and Perminder Dale* (filed herewith)
Employment Agreement, dated as of January 17, 2007, between the Company and
Lawrence P. Reinhold*(incorporated by reference to the Company’s annual report on
Form 10-K for the year ended December 31, 2006)
Amendment No.1, dated December 30, 2009, to the Employment Agreement between
the Company and Lawrence P. Reinhold* (incorporated by reference to the Company’s
report on Form 8-K dated December 30, 2009)
Asset Purchase Agreement between the Company and CompUSA dated January 5, 2008
(incorporated by reference to the Company’s annual report on Form 10-K for the year
December 31, 2007)
Amendment to Asset Purchase Agreement between the Company and CompUSA dated
February 14, 2008 (incorporated by reference to the Company’s annual report on
Form 10-K for the year ended December 31, 2007)
Asset Purchase Agreement, as amended, dated as of April 5, 2009 and May 14, 2009, by
and among Systemax Inc., as Buyer and Circuit City Stores West Coast, Inc. and Circuit
City Stores, Inc, as Sellers (incorporated by reference to the Company’s report on
Form 8-K dated May 20, 2009)
Second Amended and Restated Credit Agreement, dated as of October 27, 2010, by and
among Systemax Inc. and certain affiliates thereof and JPMorgan Chase Bank, N.A., as
U.S. Administrative Agent, J.P. Morgan Europe Limited, as UK Administrative Agent,
J.P. Morgan Securities, Inc. as Sole Bookrunner and Sole Lead Arranger, and the
lenders from time to time party thereto (incorporated by reference to the Company’s
report on Form 8-K dated November 2, 2010)
Amendment No. 1 and Waiver, dated as of December 15, 2011, to the Second Amended
and Restated Credit Agreement by and among Systemax Inc. and certain affiliates
thereof and JPMorgan Chase Bank, N.A., as U.S. Administrative Agent, J.P. Morgan
Europe Limited, as UK Administrative Agent and the lenders from time to time party
thereto (filed herewith)
Lease Agreement, dated as of September 1, 2010, among Development Authority of
Jefferson, Georgia, GE Government Finance Inc. and SYX Distribution Inc.
(incorporated by reference to the Company’s report on Form 8-K dated September 24,
2010)
Corporate Guaranty and Negative Pledge Agreement, dated as of September 1, 2010,
among Systemax Inc., Development Authority of Jefferson, Georgia and GE
Government Finance Inc. (incorporated by reference to the Company’s report on
Form 8-K dated September 24, 2010).
Escrow Agreement, dated as of September 1, 2010, among Marshall & Ilsley Trust
Company, N.A. (as escrow agent), GE Government Finance Inc., Development
Authority of Jefferson, Georgia and SYX Distribution Inc. (incorporated by reference to
the Company’s report on Form 8-K dated September 24, 2010)
Form of 2010 Long Term Incentive Plan* (incorporated by reference to the Company’s
Definitive Proxy Statement filed April 29, 2010)
Corporate Ethics Policy for Officers, Directors and Employees (revised as of March,
2010)
10.15
10.16
10.17
10.18
10.19
10.20
10.21
10.22
10.23
10.24
10.25
10.26
10.27
10.28
10.29
10.30
14
34
21
23
31.1
31.2
32.1
32.2
Subsidiaries of the Registrant (filed herewith)
Consent of Independent Registered Public Accounting Firm (filed herewith)
Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-
Oxley Act of 2002 (filed herewith)
Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-
Oxley Act of 2002 (filed herewith)
Certification of the Chief Executive Officer pursuant to Section 906 of the Sarbanes-
Oxley Act of 2002 (filed herewith)
Certification of the Chief Financial Officer pursuant to Section 906 of the Sarbanes-
Oxley Act of 2002 (filed herewith)
101.INS
101.SCH
101.CAL
101.LAB
101.PRE
101.DEF
XBRL Instance Document
XBRL Taxonomy Extension Schema Document
XBRL Taxonomy Calculation Linkbase Document
XBRL Taxonomy Label Linkbase Document
XBRL Taxonomy Presentation Linkbase Document
XBRL Taxonomy Extension Definition Linkbase Document
* Management contract or compensatory plan or arrangement
35
SIGNATURES
Pursuant to the requirements of 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 8, 2012
Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the
following persons on behalf of the Registrant and in the capacities and on the dates indicated.
Signature
Title
Date
/s/ RICHARD LEEDS
Richard Leeds
/s/ BRUCE LEEDS
Bruce Leeds
/s/ ROBERT LEEDS
Robert Leeds
/s/ LAWRENCE P. REINHOLD
Lawrence P. Reinhold
/s/ THOMAS AXMACHER
Thomas Axmacher
/s/ ROBERT D. ROSENTHAL
Robert D. Rosenthal
/s/ STACY DICK
Stacy Dick
/s/ MARIE ADLER-KRAVECAS
Marie Adler-Kravecas
Chairman and Chief Executive Officer
(Principal Executive Officer)
March 8, 2012
Vice Chairman and Director
March 8, 2012
Vice Chairman and Director
March 8, 2012
Executive Vice President, Chief Financial
Officer
and Director
(Principal Financial Officer)
Vice President and Controller
(Principal Accounting Officer)
Director
Director
Director
March 8, 2012
March 8, 2012
March 8, 2012
March 8, 2012
March 8, 2012
36
Report of Independent Registered Public Accounting Firm
The Board of Directors and Shareholders of Systemax Inc.
We have audited the accompanying consolidated balance sheets of Systemax Inc. (the “Company”) as of December
31, 2011 and 2010, and the related consolidated statements of operations, shareholders’ equity, and cash flows for
each of the three years in the period ended December 31, 2011. These financial statements are the responsibility of
the Company’s management. Our responsibility is to express an opinion on these financial statements based on our
audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board
(United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated
financial position of Systemax Inc. at December 31, 2011 and 2010, and the consolidated results of its operations
and its cash flows for each of the three years in the period ended December 31, 2011, in conformity with U.S.
generally accepted accounting principles.
We have also 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, 2011, based on criteria
established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission and our report dated March 8, 2012 expressed an unqualified opinion thereon.
/s/ Ernst & Young LLP
New York, New York
March 8, 2012
37
Report of Independent Registered Public Accounting Firm
The Board of Directors and Shareholders of Systemax Inc.
We have audited Systemax Inc.’s (the “Company”) internal control over financial reporting as of December 31,
2011, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring
Organizations of Treadway Commission (the COSO criteria). The Company’s management is responsible for
maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal
control over financial reporting included in the accompanying Management’s Report. Our responsibility is to
express an opinion on the Company’s internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board
(United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about
whether effective internal control over financial reporting was maintained in all material respects. Our audit
included obtaining an understanding of internal control over financial reporting, assessing the risk that a material
weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the
assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe
that our audit provides a reasonable basis for our opinion.
A company’s internal control over financial reporting is a process designed to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for external purposes in
accordance with generally accepted accounting principles. A company’s internal control over financial reporting
includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail,
accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable
assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance
with generally accepted accounting principles, and that receipts and expenditures of the company are being made
only in accordance with authorizations of management and directors of the company; and (3) provide reasonable
assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the company’s
assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may
deteriorate.
In our opinion, Systemax Inc. maintained, in all material respects, effective internal control over financial reporting
as of December 31, 2011, based on the COSO criteria.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United
States), the consolidated balance sheets of Systemax Inc. as of December 31, 2011 and 2010 and the related
consolidated statements of operations, shareholders’ equity and cash flows for each of the three years in the period
ended December 31, 2011 of Systemax Inc. and our report dated March 8, 2012 expressed an unqualified opinion
thereon.
/s/ Ernst & Young LLP
New York, New York
March 8, 2012
38
SYSTEMAX INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except for share data)
ASSETS:
Current assets:
Cash
Accounts receivable, net of allowances of $14,646 and $17,881
Inventories
Prepaid expenses and other current assets
Deferred income taxes
Total current assets
Property, plant and equipment, net
Deferred income taxes
Goodwill and intangibles
Other assets
December 31,
2011
2010
$
$
97,254
268,980
372,244
18,198
9,540
766,216
70,699
-
47,838
4,909
92,077
276,344
370,375
19,308
7,133
765,237
73,765
2,313
49,473
3,312
Total assets
$
889,662
$
894,100
LIABILITIES AND SHAREHOLDERS’ EQUITY:
Current liabilities:
Accounts payable
Accrued expenses and other current liabilities
Current portion of long term debt
Total current liabilities
Long term debt
Deferred income taxes
Other liabilities
Total liabilities
Commitments and contingencies
Shareholders’ equity:
$
$
336,550
72,410
2,552
411,512
7,133
2,285
14,440
435,370
377,030
84,680
2,655
464,365
7,386
-
13,081
484,832
Preferred stock, par value $.01 per share, authorized 25 million shares;
issued none
Common stock, par value $.01 per share, authorized 150 million shares;
issued 38,862,019 and 38,862,019 shares; outstanding 36,398,523 and
36,754,700 shares
Additional paid-in capital
Treasury stock at cost — 2,463,496 and 2,107,319 shares
Retained earnings
Accumulated other comprehensive loss
Total shareholders’ equity
389
180,538
(30,520)
307,934
(4,049)
454,292
389
181,519
(24,947)
253,526
(1,219)
409,268
Total liabilities and shareholders’ equity
$
889,662
$
894,100
See notes to consolidated financial statements.
39
$
2011
$ 3,682,039
3,151,363
530,676
455,747
(5,598)
80,527
1,037
(1,376)
2,183
78,683
24,275
54,408
Year Ended December 31,
2010
3,589,989
3,100,385
489,604
416,570
4,289
68,745
1,750
(840)
1,802
66,033
23,482
42,551
2009
$ 3,165,995
2,712,621
453,374
371,995
7,750
73,629
187
(1,015)
1,372
73,085
26,900
46,185
$
$
$
$
$
1.48
1.47
$
$
1.15
1.13
$
$
1.26
1.24
36,805
37,096
-
36,996
37,601
-
36,706
37,343
$0.75
SYSTEMAX INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
Net sales
Cost of sales
Gross profit
Selling, general and administrative expenses
Special (gains) charges
Operating income
Foreign currency exchange loss
Interest and other income, net
Interest expense
Income before income taxes
Provision for income taxes
Net income
Net income per common share:
Basic
Diluted
Weighted average common and common equivalent shares:
Basic
Diluted
Dividends declared
See notes to consolidated financial statements.
40
SYSTEMAX INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization
Provision for deferred income taxes
Provision for returns and doubtful accounts
Compensation expense related to equity compensation plans
Return of common stock-special gain
Excess tax benefit from exercises of stock options
Loss on dispositions and abandonment
Changes in operating assets and liabilities:
Accounts receivable
Inventories
Prepaid expenses and other current assets
Income taxes payable (receivable)
Accounts payable, accrued expenses and other current
liabilities
Net cash provided by operating activities
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of Circuit City assets
Purchase of WStore Europe SA
Cash acquired WStore Europe SA
Purchases of property, plant and equipment
Proceeds from disposals of property, plant and equipment
Net cash used in investing activities
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings on credit facility and short term debt
Repayments of borrowings on credit facility and short term debt
10,861
(10,861)
261,708
(274,858)
Proceeds from recovery zone bond
Repayments of capital lease obligations
Dividends paid
Proceeds from issuance of common stock
Purchase of treasury stock
Excess tax benefit from exercises of stock options
Net cash used in financing activities
EFFECTS OF EXCHANGE RATES ON CASH
NET INCREASE (DECREASE) IN CASH
CASH – BEGINNING OF YEAR
CASH – END OF YEAR
Supplemental disclosures:
Interest paid
Income taxes paid
Supplemental disclosures of non-cash investing and financing
activities:
Acquisitions of equipment through capital leases
See notes to consolidated financial statements.
1,540
(2,709)
-
283
-
213
(673)
(97)
5,177
92,077
97,254
1,669
19,219
2,353
$
$
$
$
$
$
$
$
41
Year Ended December 31,
2010
2009
2011
$
54,408
$
42,551
$
46,185
17,457
1,025
3,202
1,915
(7,890)
(213)
82
(348)
(4,136)
(4,552)
3,884
(46,626)
18,208
-
-
-
(12,285)
24
(12,261)
14,480
4,572
3,268
2,496
-
(1,072)
83
(45,121)
(5,913)
6,403
(3,315)
46,451
64,883
-
-
-
(24,747)
23
(24,724)
12,353
5,704
4,698
2,867
-
(576)
154
(20,907)
(69,618)
(5,490)
3,983
25,414
4,767
(14,494)
(4,469)
5,438
(18,855)
84
(32,296)
-
(3,614)
-
(726)
(27,611)
1,082
(1,174)
576
(31,467)
1,338
(57,658)
115,967
58,309
994
13,909
7,949
(1,553)
-
1,017
-
1,072
(4,665)
(1,726)
33,768
58,309
92,077
1,346
21,749
$
$
$
9,371
$
765
SYSTEMAX INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(in thousands)
Common Stock
Number
of Shares
Outstanding Amount
Additional
Paid-in
Capital
Treasury
Stock,
At Cost
Retained
Earnings
Accumulated
Other
Comprehensiv
e
Loss
Comprehens
ive
Income
(Loss)
36,224
$389
105
221
(99)
$179,241
2,818
(754)
(10)
(1,537)
750
$(31,158)
$192,401
$(6,918)
1,183
(15)
2,619
(1,174)
(27,611)
46,185
8,276 $
8,276
46,185
54,461
$
(28,545)
210,975
1,358
1,259
(432)
2,771
42,551
(2,577) $
$
(2,577)
42,551
39,974
(24,947)
253,526
(1,219)
1,507
810
(7,890)
36,451
389
106
(36)
234
36,755
389
126
68
(550)
180,508
2,377
(420)
(367)
(1,754)
1,175
181,519
1,795
(1,371)
(527)
(1,115)
237
36,399 $
389 $
180,538 $ (30,520) $
307,934 $
(4,049)
54,408
(2,830) $
$
(2,830)
54,408
51,578
Balances, December 31, 2008
Stock-based compensation expense
Issuance of restricted stock
Retired restricted stock
Exercise of stock options
Repurchase of treasury stock
Income tax benefit on stock-based
compensation
Change in cumulative translation
adjustment
Dividends paid
Net income
Total comprehensive income
Balances, December 31, 2009
Stock-based compensation expense
Issuance of restricted stock
Restricted stock withheld for employee
taxes
Exercise of stock options
Income tax benefit on stock-based
compensation
Change in cumulative translation
adjustment
Net income
Total comprehensive income
Balances, December 31, 2010
Stock-based compensation expense
Issuance of restricted stock
Exercise of stock options
Return of common stock
Surrender of fully vested options
Income tax benefit on stock-based
compensation
Change in cumulative translation
adjustment
Net income
Total comprehensive income
Balances, December 31, 2011
See notes to consolidated financial statements.
42
SYSTEMAX INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation — The accompanying consolidated financial statements include the accounts of
Systemax Inc. and its wholly-owned subsidiaries (collectively, the “Company” or “Systemax”). All significant
intercompany accounts and transactions have been eliminated in consolidation.
Reclassifications — Certain prior year amounts were reclassified to conform to current year presentation.
Use of Estimates In Financial Statements — The preparation of financial statements in conformity with
accounting principles generally accepted in the United States of America requires management to make
estimates and assumptions that affect the amounts reported in the consolidated financial statements and
accompanying notes. Actual results could differ from those estimates.
Fiscal Year — The Company’s fiscal year ends at midnight on the Saturday closest to December 31. For clarity
of presentation herein, all fiscal years are referred to as if they ended on December 31. The fiscal year will be
divided into four fiscal quarters that each end at midnight on a Saturday. Fiscal quarters will typically include
13 weeks, but the fourth quarter will include 14 weeks in a 53 week fiscal year. For clarity of presentation
herein, all fiscal quarters are referred to as if they ended on the traditional calendar month. 2011, 2010 and 2009
each included 52 weeks.
Foreign Currency Translation — The Company has operations in numerous foreign countries. The functional
currency of each foreign country is the local currency. 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.
Translation gains or losses are recorded as a separate component of shareholders’ equity.
Cash — The Company considers amounts held in money market accounts and other short-term investments,
including overnight bank deposits, with an original maturity date of three months or less to be cash. Cash
overdrafts are classified in accounts payable.
Inventories — Inventories consist primarily of finished goods and are stated at the lower of cost or market
value. Cost is determined by using the first-in, first-out method except in Europe and retail locations where an
average cost is used.
Property, Plant and Equipment — Property, plant and equipment is stated at cost. Furniture, fixtures and
equipment, including equipment under capital leases, are depreciated using the straight-line or accelerated
method over their estimated useful lives ranging from three to ten years. Buildings are depreciated using the
straight-line method over estimated useful lives of 30 to 50 years. Leasehold improvements are amortized over
the shorter of the useful lives or the term of the respective leases.
Evaluation of Long-lived Assets — Long-lived assets are evaluated for recoverability whenever events or
changes in circumstances indicate that an asset may have been impaired. In evaluating an asset for
recoverability, the Company estimates the future cash flows expected to result from the use of the asset and
eventual disposition. If the sum of the expected future cash flows (undiscounted and without interest charges) is
less than the carrying amount of the asset, an impairment loss, equal to the excess of the carrying amount over
the fair market value of the asset is recognized.
Goodwill and intangible assets — Goodwill represents the excess of the cost of acquired assets over the fair
value of assets acquired. The Company tests goodwill and intangibles for impairment annually or more
frequently if indicators of impairment exist. The Company assesses the carrying value of its definite-lived
intangible assets if circumstances indicate that those values may not be recoverable. In addition, goodwill is
required to be tested for impairment after a portion of the goodwill is allocated to a business targeted for
disposal. The Company’s identifiable intangible assets consist of trademarks, trade and domain names,
technology, retail leases and customer lists (See Note 2).
43
Accruals — Management makes estimates and assumptions that affect amounts reported in the consolidated
financial statements and accompanying notes. These estimates are based upon various factors such as the
number of units sold, historical and anticipated results and data received from third party vendors. Actual
results could differ from these estimates. Our most significant estimates include those related to the costs of
vendor drop shipments, sales returns and allowances, cooperative advertising and customer rebate reserves, and
other vendor and employee related costs.
Income Taxes — Deferred tax assets and liabilities are recognized for the effect of temporary differences
between the book and tax bases of recorded assets and liabilities and for tax loss carry forwards. The realization
of net deferred tax assets is dependent upon our ability to generate sufficient future taxable income. Where it is
more likely than not that some portion or the entire deferred tax asset will not be realized, we have provided a
valuation allowance. If the realization of those deferred tax assets in the future is considered more likely than
not, an adjustment to the deferred tax assets would increase net income in the period such determination is
made.
The Company provides for uncertain tax positions and related interest and penalties based upon management’s
assessment of whether a tax benefit is more likely than not to be sustained upon examination by tax authorities.
To the extent the Company prevails in matters for which a liability for an unrecognized tax benefit is
established or is required to pay amounts in excess of the liability, the Company’s effective tax rate in a given
financial statement period may be affected.
Revenue Recognition and Accounts Receivable — The Company recognizes sales of products, including
shipping revenue, when persuasive evidence of an order arrangement exists, delivery has occurred, the sales
price is fixed or determinable and collectibility is reasonably assured. Generally, these criteria are met at the
time the product is received by the customers when title and risk of loss have transferred. Allowances for
estimated subsequent customer returns, rebates and sales incentives are provided when revenues are recorded.
Costs incurred for the shipping and handling of its products are recorded as cost of sales. Revenue from
extended warranty and support contracts on the Company’s assembled PCs is deferred and recognized over the
contract period. The Company evaluates collectibility of accounts receivable based on numerous factors,
including past transaction history with customers and their credit rating and provides a reserve for accounts that
are potentially uncollectible. Trade receivables are generally written off once all collection efforts have been
exhausted. Accounts receivable are shown in the consolidated balance sheets net of allowances for doubtful
collections and subsequent customer returns.
Advertising Costs — Expenditures for internet, television, local radio and newspaper advertising are expensed
in the period the advertising takes place. Catalog preparation, printing and postage expenditures are amortized
over the period of catalog distribution during which the benefits are expected, generally one to four months.
Net advertising expenses were $40.2 million, $31.7 million and $38.9 million during 2011, 2010 and 2009,
respectively, and are included in the accompanying consolidated statements of operations. The Company
utilizes advertising programs to support vendors, including catalogs, internet and magazine advertising, and
receives payments and credits from vendors, including consideration pursuant to volume incentive programs
and cooperative marketing programs. The Company accounts for consideration from vendors as a reduction of
cost of sales unless certain conditions are met showing that the funds are used for specific, incremental,
identifiable costs, in which case the consideration is accounted for as a reduction in the related expense
category, such as advertising expense. The amount of vendor consideration recorded as a reduction of selling,
general and administrative expenses totaled $59.4 million, $65.6 million and $55.9 million during 2011, 2010
and 2009, respectively.
Prepaid expenses as of December 2011 and 2010 include deferred advertising costs of $1.7 million and $2.1
million, respectively which are reflected as an expense during the periods benefited, typically the subsequent
fiscal quarter.
Stock based compensation — The Company recognizes the fair value of share based compensation in the
consolidated statement of operations over the requisite employee service period. Stock-based compensation
expense includes an estimate for forfeitures and is recognized over the expected term of the award.
Net Income Per Common Share – Net income per common share - basic was calculated based upon the
weighted average number of common shares outstanding during the respective periods presented using the two
class method of computing earnings per share. The two class method was used as the Company has outstanding
44
restricted stock with rights to dividend participation for unvested shares. Net income per common share -
diluted was calculated based upon the weighted average number of common shares outstanding and included
the equivalent shares for dilutive options outstanding during the respective periods, including unvested options.
The dilutive effect of outstanding options issued by the Company is reflected in net income per share - diluted
using the treasury stock method. Under the treasury stock method, options will only have a dilutive effect when
the average market price of common stock during the period exceeds the exercise price of the options. The
weighted average number of stock options outstanding included in the computation of diluted earnings per
share was 0.3 million for the year ended December 31, 2011 and 0.6 million for the years ended December 31,
2010 and 2009. The weighted average number of restricted stock awards included in the computation of diluted
earnings per share was 0.1 million for the year ended December 31, 2011, and 0.2 million for the years ended
December 31, 2010 and 2009. The weighted average number of stock options outstanding excluded from the
computation of diluted earnings per share was 0.8 million for the year ended December 31, 2011 and 0.7
million for the years ended December 31, 2010 and 2009, due to their antidilutive effect.
Comprehensive Income — Comprehensive income consists of net income and foreign currency translation
adjustments and is included in the consolidated statements of shareholders’ equity. Comprehensive income was
$51.6 million, $40.0 million and $54.5 million in 2011, 2010 and 2009, respectively.
Employee Benefit Plans - The Company’s U.S. subsidiaries participate in a defined contribution 401(k) plan
covering substantially all U.S. employees. Employees may invest 1% or more of their eligible compensation,
limited to maximum amounts as determined by the Internal Revenue Service. The Company provides a
matching contribution to the plan, determined as a percentage of the employees’ contributions. Aggregate
expense to the Company for contributions to such plans was approximately $1.0 million, $0.9 million and $0.9
million in 2011, 2010 and 2009, respectively.
Fair Value Measurements - Financial instruments consist primarily of investments in cash, trade accounts
receivable debt and accounts payable. The Company estimates the fair value of financial instruments based on
interest rates available to the Company and by comparison to quoted market prices. At December 31, 2011 and
2010, the carrying amounts of cash, accounts receivable and accounts payable are considered to be
representative of their respective fair values due to their short-term nature. The Company’s debt is considered
to representative of its fair value because of its variable interest rate.
The fair value of goodwill and non-amortizing intangibles is measured on a non-recurring basis in connection
with the Company’s annual impairment testing. For goodwill, the fair value of the reporting unit to which the
goodwill has been assigned is determined using a discounted cash flow model. A discounted cash flow model is
also used to determine fair value of indefinite-lived intangibles using projected cash flows of the intangible.
Unobservable inputs related to these discounted cash flow models include projected sales growth, same store
sales growth, gross margin percentages, new business opportunities, working capital requirements, capital
expenditures and growth in selling, general and administrative expense and are classified in accordance with
ASC 820, “Fair Value Measurements and Disclosures”, within Level 3 of the valuation hierarchy.
Concentration of Credit Risk — Financial instruments that potentially subject the Company to concentrations of
credit risk consist of cash, and accounts receivable. The Company’s excess cash balances are invested with
money center banks. Concentrations of credit risk with respect to accounts receivable are limited due to the
large number of customers and their geographic dispersion comprising the Company’s customer base. The
Company also performs on-going credit evaluations and maintains allowances for potential losses as warranted.
Recent Accounting Pronouncements
Public companies in the United States are subject to the accounting and reporting requirements of various
authorities, including the Financial Accounting Standards Board (“FASB”) and the Securities and Exchange
Commission (“SEC”). These authorities issue numerous pronouncements, most of which are not applicable to
the Company’s current or reasonably foreseeable operating structure. Below are the new authoritative
pronouncements that management believes are relevant to Company’s current operations.
In 2011, the FASB issued guidance which provides companies with the option to perform a qualitative
assessment to determine whether it is more likely than not that the fair value of a reporting unit is less than its
carrying amount. If, after assessing updated qualitative factors, a company determines it is more likely than not
that the fair value of a reporting unit is less than its carrying amount, it would not have to perform the current
45
two-step goodwill impairment test. The Company adopted this guidance in October 2011. The adoption of this
guidance did not have a material impact on the consolidated financial statements.
In June 2011, the FASB issued amended guidance related to comprehensive income. The amended guidance
requires the presentation of items of net income, items of other comprehensive income and total comprehensive
income in one continuous statement or in two separate but consecutive statements. Presentation of other
comprehensive income as part of the statement of stockholders’ equity is no longer allowed under the amended
guidance. The amended guidance is effective for fiscal years, and interim periods within those years, beginning
after December 15, 2011. The Company does not expect this guidance to have a material impact on its
consolidated financial statements.
In December 2010, the FASB issued authoritative guidance that updates existing disclosure requirements
related to supplementary pro forma information for business combinations. Under the updated guidance, a
public entity that presents comparative financial statements should disclose revenue and earnings of the
combined entity as though the business combination that occurred during the current year had occurred as of
the beginning of the comparable prior annual reporting period only. The guidance also expands the
supplemental pro forma disclosures to include a description of the nature and amount of material, nonrecurring
pro forma adjustments directly attributable to the business combination included in the reported pro forma
revenue and earnings. This guidance became effective for the Company on January 1, 2011 and will be applied
prospectively to business combinations that have an acquisition date on or after January 1, 2011.
2. GOODWILL AND INTANGIBLES
Goodwill:
The following table provides information related to the carrying value of goodwill (in thousands):
Balance January 1
Deferred tax adjustment
Adjustments to finalize purchase price allocation
Balance December 31
$
$
3,280
-
-
3,280
$
$
930
1,350
1,000
3,280
December 31,
2011
December 31,
2010
Indefinite-lived intangible assets:
The following table summarizes information related to indefinite-lived intangible assets (in thousands):
December 31,
2011
Gross
Carrying
Amount
$
$
24,082
14,739
38,821
December 31,
2010
Gross
Carrying
Amount
$
$
24,082
14,739
38,821
Trademarks
Domain names
Total
46
Definite-lived intangible assets:
The following table summarizes information related to definite-lived intangible assets (in thousands):
December 31,
2011
December 31,
2010
Gross
Carrying
Amount
$
$
3,410
5,938
1,000
10,348
Accumulated
Amortization
1,012
3,141
458
4,611
$
$
Gross
Carrying
Amount
$
$
3,410
5,938
1,000
10,348
Accumulated
Amortization
748
1,996
232
2,976
$
$
$
Retail store leases
Client lists
Technology
Total
The aggregate amortization expense for these intangibles was approximately $1.6 million in 2011. The
estimated amortization for future years ending December 31 is as follows (in thousands):
2012
2013
2014
2015 and after
Total
$
$
1,582
1,577
972
1,606
5,737
3. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment, net consist of the following (in thousands):
Land and buildings
Furniture and fixtures, office, computer and other equipment and
software
Leasehold improvements
Less accumulated depreciation and amortization
Property, plant and equipment, net
December 31,
2011
2010
$
27,691
$
27,844
131,635
27,175
186,501
115,802
70,699
$
130,022
23,944
181,810
108,045
73,765
$
Included in property, plant and equipment are assets under capital leases, as follows (in thousands):
Furniture and fixtures, office, computer and other equipment
Less: Accumulated amortization
2011
2010
$
$
17,244
7,791
9,453
$
$
14,896
4,994
9,902
Depreciation charged to operations for property, plant and equipment including capital leases in 2011, 2010,
and 2009 was $15.9 million, $12.9 million and $11.2 million, respectively.
4. CREDIT FACILITIES
On December 15, 2011, the Company entered into an amendment of its second amended and restated secured
revolving credit agreement. The amendment increased the maximum availability under the United States
revolving loan component of the facility by $25 million to a total of $125.0 million (which may be increased to
$200 million, subject to certain conditions), eliminated the Company’s $25 million United Kingdom revolving
loan component of the facility, released the related United Kingdom assets that were pledged to secure this
component and removed the Company’s United Kingdom subsidiary from the facility. Availability is subject
to a borrowing base formula that takes into account eligible receivables and eligible inventory. Borrowings are
secured by substantially all of the Company’s assets, including accounts receivable, inventory and certain other
assets, subject to limited exceptions. The amended and restated credit agreement contains certain operating,
financial and other covenants, including limits on annual levels of capital expenditures, availability tests related
47
to payments of dividends and stock repurchases and fixed charge coverage tests related to acquisitions. The
credit facility has a five year term and expires in October 2015. The borrowings under the agreement are
subject to borrowing base limitations of 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 prime
rate (3.25% at December 31, 2011) or the overnight daily LIBOR rate (0.15% at December 31, 2011) plus
1.00% to 2.50%. The facility also calls for a commitment fee payable quarterly in arrears of 0.375% of the
average daily unused portions of the facility. The revolving credit agreement requires that a minimum level of
availability be maintained. If such availability is not maintained, the Company will be required to maintain a
fixed charge coverage ratio (as defined). The agreement contains certain other covenants, including restrictions
on capital expenditure, acquisitions and payments of dividends. We were in compliance with all of the
covenants as of December 31, 2011. As of December 31, 2011, eligible collateral under the agreement was
$119.5 million and total availability was $113.1 million. There were outstanding letters of credit of $6.4 million
and there were no outstanding advances.
The Company’s Inmac WStore subsidiary maintains a secured revolving credit agreement with a financial
institution in France which is secured by WStore Europe SA accounts receivable balances. Available amounts
for borrowing under this facility include all accounts receivable balances not over 60 days past due reduced by
the greater of €4.0 million or 10% of the eligible accounts receivable. As of December 31, 2011 there was
availability under this credit facility of approximately €24.1 million ($31.2 million) and there were no
outstanding borrowings. The credit facility duration is indefinite; however either party may cancel the
agreement with sixty days notice. Under this agreement the Company is subject to certain non-financial
covenants which it was in compliance with at December 31, 2011.
The weighted average interest rate on short-term borrowings was 4.5%, 3.5%, and 3.3% in 2011, 2010 and
2009, respectively.
5. ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
Accrued expenses and other current liabilities consist of the following (in thousands):
Payroll and employee benefits
Freight
Advertising
Sales and VAT tax payable
Other
December 31,
2011
2010
$
$
32,471
3,146
7,594
5,300
23,899
72,410
$
$
30,166
17,142
8,033
8,613
20,726
84,680
6. LONG-TERM DEBT
On September 23, 2010, the Company (through a subsidiary) completed tax exempt Recovery Zone Facility
Bond (the “Bonds”) financing for up to $15 million with the Development Authority of Jefferson, Georgia (the
“Authority”). The Bonds were issued by the Authority and initially purchased by GE Government Finance Inc.,
and mature on October 1, 2018. Interest on the Bonds is calculated at the rate of 4.15% per annum and
principal and interest payments are due monthly. The proceeds of the Bonds are used to finance or repay the
costs of capital equipment purchased for the Company’s distribution facility located in Jefferson, Georgia. The
purchase and installation of all the equipment for the facility was completed by December 31, 2011. Pursuant to
the transaction, the Company will transfer to the Authority for consideration consisting of the Bond proceeds
ownership of the equipment to be used at the distribution facility and the Authority in turn will lease the
equipment to the Company’s subsidiary pursuant to a capital equipment lease expiring October 1, 2018. Under
the capital equipment lease the Company has the right to acquire ownership of the equipment at any time for a
purchase price sufficient to pay off all principal and interest on the Bonds, plus $1.00. As a result of the capital
lease treatment for this transaction, the leased equipment is included in property, plant and equipment in the
Company’s consolidated balance sheet. As of December 31, 2011 the Company had $7.6 million outstanding
against this facility.
48
Long-term debt consists of (in thousands):
Capitalized equipment lease
obligations
Less: current portion
December 31,
2011
2010
$
$
9,685
2,552
7,133
$
$
10,041
2,655
7,386
The aggregate maturities of long-term debt outstanding at December 31, 2011 are as follows (in thousands):
Maturities
$
2,552
$
2,524
$
2,229
$
1,997
$
383
2012
2013
2014
2015
2016
7. REORGANIZATION COSTS
In 2010 the Company’s WStore France subsidiary incurred integration related charges of approximately $3.7
million for severances and other costs related to the merger of its Misco and WStore operations. These costs
were recorded in selling, general and administrative expenses within the Technology Products segment. Other
costs totaling $0.3 million were recorded in selling, general and administrative expenses within the Corporate
and other segment.
The following table details the associated liabilities incurred related to this plan (in thousands):
Severance
and
Personnel
Costs
Balance January 1, 2010................. $
Charged to expense ........................
Paid or otherwise settled.................
Balance December 31, 2010........... $
Charged to expense ........................
Paid or otherwise settled.................
Balance December 31, 2011
$
-
2,975
(1,923
1,052
-
(1,052)
-
Other Exit Costs
$
1,030
(946
84
-
(84)
-
$
$
Total
-
4,005
(2,869
1,136
-
(1,136)
-
$
$
$
8. SETTLEMENT AGREEMENT
Audit Committee Investigation and Gilbert Fiorentino’s Resignation and Settlement and Related
Matters.
In January and February 2011 the Company received anonymous whistleblower allegations concerning the
Company’s Miami Florida operations involving the actions of Mr. Gilbert Fiorentino, then the Chief Executive
of the Company’s Technology Products Group. In response to the allegations, the Company commenced an
internal
investigation of the whistleblower allegations, which was conducted by the Company’s Audit
Committee of the Board of Directors with the assistance of independent counsel.
On April 18, 2011, following the independent investigation, the Company delivered a Cause Notice to Mr.
Fiorentino pursuant to the terms of his Employment Agreement dated October 12, 2004. The Cause Notice
advised Mr. Fiorentino that the Company intended to terminate him for “Cause” (as defined in the Employment
Agreement) at a meeting of its Executive Committee scheduled for May 3, 2011, at which meeting Mr.
Fiorentino and his counsel could appear, and that Mr. Fiorentino was being placed on administrative leave
pending the outcome of that meeting. In the Cause Notice, the Company advised Mr. Fiorentino that the Audit
Committee investigation had identified grounds to terminate him for Cause under his Employment Agreement,
and set forth the following findings by the Audit Committee constituting such grounds:
49
i) Mr. Fiorentino personally removed or caused to be removed from the Company’s Miami premises
product inventory, and/or kept or caused others to receive at his direction such removed product inventory,
without payment to the Company and for his own personal gain;
ii) Mr. Fiorentino caused substantial amounts of Company inventory purchases to be effected through
Company credit cards in order to accrue and/or use “reward points” for his personal benefit and which he
improperly converted to his own use;
iii) Mr. Fiorentino caused his mother to be identified as an employee of the Company in positions for which
she had no bona fide job responsibility or function, and caused the Company to pay her a salary and
employee benefits, including extended COBRA reimbursements; and
iv) Mr. Fiorentino engaged in fraudulent “kickback” arrangements with certain of the Company’s vendors,
to the detriment of the Company
The Company stated in the Cause Notice that the foregoing activities were in violation of Company policy, the
Company’s Corporate Ethics Policy, his fiduciary duties and applicable law. The amounts involved in the
employment of Mr. Fiorentino’s mother are small in absolute terms. The inventory removal constitutes a
shortage that is not material for a Company the size of Systemax. The credit card reward points scheme
involved the creation, and conversion of non-monetary assets. The finding involving the vendor
overcharge/kickback allegations is not material when compared to the Company’s total inventory spend during
the subject period. The Audit Committee’s independent investigation determined that the matters described
above did not have any material impact on our previously reported financial results and were limited to the
Company’s Miami operations.
On May 9, 2011, following several meetings of the Executive Committee and after extensive discussions with
Mr. Fiorentino and his counsel, the Company announced that it had accepted the resignation of Mr. Fiorentino,
and that it had executed an agreement with Mr. Fiorentino, effective May 6, 2011, under which Mr. Fiorentino
surrendered certain assets to the Company valued at approximately $11 million at May 9, 2011: these assets
included the surrender of 1,130,001 shares of Systemax common stock and $480,000 in cash. The shares
surrendered consisted of 580,001 shares of fully vested unexercised stock options, 2) 100,000 shares of fully
vested restricted stock awards and 3) 450,000 shares directly owned by Mr. Fiorentino. The shares surrendered
were valued at fair value on May 6, 2011 in the case of the stock options and restricted stock awards and at fair
value on May 12, 2011 in the case of the owned shares. The agreement also requires Mr. Fiorentino to disclose
his and his immediate family’s personal assets; forfeit undisclosed assets discovered by the Company; disclose
information regarding certain matters that led to his being notified of the Company’s intent to terminate him;
and to fully cooperate with the Company in the future. Mr. Fiorentino and the Company also exchanged mutual
general releases and nondisparagement commitments, and Mr. Fiorentino agreed to a 5 year noncompetition
obligation. The $11 million settlement value included a financial statement benefit to the Company related to
the surrender of shares and cash payment of approximately $8.4 million which was recorded in the second
quarter of 2011 under special (gains) charges, net of related legal and professional fees of approximately $1.3
million for the quarter ended June 30, 2011 and $1.8 million for the first six months of 2011. The remainder of
the settlement value, approximately $2.6 million, was the intrinsic value of the fully vested unexercised stock
options on the date of the settlement agreement for which there is no financial statement impact. The amount of
the settlement with Mr. Fiorentino was based on negotiation with him, and was not based on any specific level
or nature of damages incurred by the Company, and does not constitute restitution.
On June 21, 2011 Systemax Inc. received notice that the Securities and Exchange Commission (“SEC”) has
initiated a formal investigation into the matters discovered by the Audit Committee’s internal investigation. The
Company is fully cooperating with the SEC in its formal investigation and does not expect to comment further
on developments related to this matter and disclaims any intention or obligation to update any of the
information contained herein except as required by law.
For the third and fourth quarters of 2011, $0.4 million and $0.6 million, respectively, of additional legal and
professional fees were incurred related to follow up of the completed investigation and ancillary matters, and
for the first nine months of 2011 and for fiscal 2011 related fees totaled $2.2 million and $2.8 million,
respectively. The Company expects to incur additional expenses related to this matter in future quarters in
connection with the ongoing follow up to the completed investigation of matters related to Mr. Fiorentino’s
actions, providing cooperation to the SEC and in pursuing related matters.
In addition, in April 2011, the Company also terminated the employment of Carl Fiorentino and Patrick
Fiorentino (employees of the Company and Gilbert Fiorentino’s brothers), and Mr.Gerdy Carballos based on the
determination that they had assisted in, participated in and/or had knowledge of the improper activities. The
50
Company also terminated the employment of Ms. Andrea Fongyee (assistant to Mr. Gilbert Fiorentino) in May
2011.
In January 2012, the Company commenced a lawsuit in Miami-Dade County Circuit Court in Florida
against, among others, Carl Fiorentino, Patrick Fiorentino, Andrea Fongyee and Gerdy Carballos, seeking
recovery of damages incurred by the Company due to their actions.
9.
SHAREHOLDERS’ EQUITY
Stock based compensation plans
The Company currently has five equity compensation plans which reserve shares of common stock for issuance
to key employees, directors, consultants and advisors to the Company. The following is a description of these
plans:
The 1995 Long-term Stock Incentive Plan - This plan, adopted in 1995, allowed the Company to issue qualified,
non-qualified and deferred compensation stock options, stock appreciation rights, restricted stock and restricted
unit grants, performance unit grants and other stock based awards authorized by the Compensation Committee
of the Board of Directors. Options issued under this plan expire ten years after the options are granted.
The ability to grant new awards under this plan ended on December 31, 2005 but awards granted prior to such
date continue until their expiration. A total of 203,915 options were outstanding under this plan as of
December 31, 2011.
The 1995 Stock Option Plan for Non-Employee Directors - This plan, adopted in 1995, provides for automatic
awards of non-qualified options to directors of the Company who are not employees of the Company or its
affiliates. All options granted under this plan will have a ten year term from grant date and are immediately
exercisable. A maximum of 100,000 shares may be granted for awards under this plan. The ability to grant
new awards under this plan ended on October 12, 2006 but awards granted prior to such date continue until their
expiration. A total of 13,250 options were outstanding under this plan as of December 31, 2011.
The 1999 Long-term Stock Incentive Plan, as amended (“1999 Plan”) - This plan was adopted on October 25,
1999 with substantially the same terms and provisions as the 1995 Long-term Stock Incentive Plan. The
Company increased the number of shares that may be granted under this plan to a maximum of 7,500,000 from
5,000,000 shares. The maximum number of shares granted per type of award to any individual may not exceed
1,500,000 in any calendar year and 3,000,000 in total. The ability to grant new awards under this plan ended on
December 31, 2009 but awards granted prior to such date continue until their expiration. A total of 773,950
options were outstanding under this plan as of December 31, 2011.
The 2006 Stock Incentive Plan For Non-Employee Directors — This plan, adopted by the Company’s
stockholders on October 11, 2006, replaces the 1995 Stock Option Plan for Non-Employee Directors. The
Company adopted the plan so that it could 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 equal to the fair market value at the date of grant of the option and restricted stock
awards. Awards for a maximum of 200,000 shares may be granted under this plan. A total of 15,000 options
were outstanding under this plan as of December 31, 2011.
The 2010 Long-term Stock Incentive Plan (“2010 Plan”) - This plan was adopted on April 23, 2010 with
substantially the same terms and provisions as the 1999 Long-term Stock Incentive Plan. The maximum number
of shares granted per type of award to any individual may not exceed 1,500,000 in any calendar year. Restricted
stock grants and common stock awards reduce stock options otherwise available for future grant. Awards for a
maximum of 7,500,000 shares may be granted under this plan. A total of 279,000 options and 357,500 restricted
stock units were outstanding under this plan as of December 31, 2011.
Shares issued under our share-based compensation plans are usually issued from shares of our common stock
held in the treasury.
The fair value of employee share options is recognized in expense over the vesting period of the options, using
the graded attribution method. The fair value of employee share options is determined on the date of grant
using the Black-Scholes option pricing model. The Company has used historical volatility in its estimate of
expected volatility. The expected life represents the period of time (in years) for which the options granted are
expected to be outstanding. The risk-free interest rate is based on the U.S. Treasury yield curve.
51
Compensation cost related to non-qualified stock options recognized in operating results (selling, general and
administrative expense) for 2011, 2010 and 2009 was $1.0 million, $1.5 million, and $2.2 million respectively.
The related future income tax benefits recognized for 2011, 2010 and 2009 were $0.6 million, $0.6 million and
$0.9 million, respectively.
Stock options
The following table presents the weighted-average assumptions used to estimate the fair value of options
granted in 2011, 2010 and 2009:
2011
2010
2009
Expected annual dividend yield
Risk-free interest rate
Expected volatility
Expected life in years
0 %
2.02 %
59.8 %
8.0
0 %
1.37 %
61.1 %
4.8
0 %
2.64 %
66.9 %
7.7
The following table summarizes information concerning outstanding and exercisable options:
Outstanding at beginning of
year
Granted
Exercised
Cancelled or expired
Outstanding at end of year
Options exercisable at year
end
Weighted average fair value
per option granted during
the year
2011
Shares
Exercise
Price
Weighted Average
2010
2009
Shares
Exercise
Price
Shares
Exercise
Price
$
1,900,698
277,000
$
(67,758) $
(824,825) $
$
1,285,115
10.60
12.61
4.18
7.45
13.39
2,102,459 $
40,000 $
(234,011) $
(7,750) $
1,900,698 $
9.87
14.18
4.34
19.39
10.60
2,202,584 $
164,000 $
(221,225) $
(42,900) $
2,102,459 $
9.23
13.46
4.89
16.46
9.87
914,365
1,559,872
1,558,229
$
7.81
$
7.24
$
9.53
The total intrinsic value of options exercised was $0.7 million, $3.2 million and $2.0 million respectively, for
2011, 2010 and 2009.
The following table summarizes information about options vested and exercisable or nonvested that are
expected to vest (nonvested outstanding less expected forfeitures) at December 31, 2011:
Range of Exercise Prices
$ 1.76 to $ 5.00
$ 5.01 to $ 15.00
$15.01 to $ 20.00
$20.01 to $ 20.15
$ 1.76 to $ 20.15
Number
Exercisable
137,983
607,406
416,970
100,000
1,262,359
Weighted
Average
Exercise
Price
2.46
11.12
18.70
20.15
13.39
$
$
$
$
$
Weighted
Average
Remaining
Contractual
Life
.80
7.06
5.52
5.05
5.71
Aggregate
Intrinsic
Value (in
thousands)
1,925
3,215
67
-
5,207
$
$
The aggregate intrinsic value in the tables above represents the total pretax intrinsic value (the difference
between the closing stock price on the last day of trading in 2011 and the exercise price) that would have been
received by the option holders had all options been exercised on December 31, 2011. This value will change
based on the fair market value of the Company’s common stock.
52
The following table reflects the activity for all unvested stock options during 2011:
Unvested at January 1, 2011
Granted
Vested
Forfeited
Unvested at December 31, 2011
Weighted
Average Grant-
Date Fair Value
$
$
$
$
$
10.47
7.81
11.61
8.22
8.29
Shares
340,826
277,000
(185,250)
(61,826)
370,750
At December 31, 2011, there was approximately $1.9 million of unrecognized compensation costs related to
unvested stock options, which is expected to be recognized over a weighted average period of 1.64 years. The
total fair value of stock options vested during 2011, 2010 and 2009 was $2.2 million, $2.6 million and $2.5
million, respectively.
Restricted Stock and Restricted Stock Units
In October 2004, the Company granted 1,000,000 restricted stock units under the 1999 Plan to a former officer
and director (See Note 8 of Notes to Consolidated Financial Statements). A restricted stock unit represents the
right to receive a share of the Company’s common stock. The restricted stock units have none of the rights as
other shares of common stock, other than rights to cash dividends, until common stock is distributed. The
restricted stock unit award was a non-performance award which vested at the rate of 20% on May 31, 2005 and
10% per year on April 1, 2006 and each year thereafter. The share-based expense for restricted stock awards
was determined based on the market price of the Company’s stock at the date of the award. Compensation
expense related to the restricted stock award was approximately $0.1 million in 2011, and $0.6 million in each
of 2010 and 2009. As part of the settlement agreement (see Note 8 of Notes to Consolidated Financial
Statements), 300,000 shares or units of restricted stock were terminated and of no further force and effect.
Share-based compensation expense for restricted stock issued to Directors was $0.1 million in each of 2011,
2010 and 2009.
In August 2010, the Company granted 175,000 restricted stock units under the 2010 Plan to a key employee
who is also a Company director. A restricted stock unit represents the right to receive a share of the Company’s
common stock. The restricted stock units have none of the rights as other shares of common stock, other than
rights to cash dividends, until common stock is distributed. The restricted stock unit award was a non-
performance award which vests in ten equal annual installments of 17,500 units beginning May 15, 2011 and
each May 15, thereafter. The share-based expense for restricted stock awards was determined based on the
market price of the Company’s stock at the date of the award. Compensation expense related to the restricted
stock award was approximately $0.6 million for the year ended December 31, 2011.
In October 2011 and November 2011, the Company granted 100,000 restricted stock units under the 2010 Plan
to two key employees, one of whom is a Company director. A restricted stock unit represents the right to
receive a share of the Company’s common stock. The restricted stock units have none of the rights as other
shares of common stock, other than rights to cash dividends, until common stock is distributed. The restricted
stock unit award was a non-performance award which vests in ten equal annual installments of 10,000 units
beginning October 3, 2012 and November 14, 2012, respectively, and each October 3 and November 14,
respectively, thereafter. The share-based expense for restricted stock awards was determined based on the
market price of the Company’s stock at the date of the award. Compensation expense related to these restricted
stock awards was approximately $0.1 million for the year ended December 31, 2011.
53
10. INCOME TAXES
A reconciliation of the difference between the income tax expense and the computed income tax expense based
on the Federal statutory corporate rate is as follows (in thousands):
Income tax at Federal statutory rate
State and local income taxes and changes
in valuation allowances, net of federal
tax benefit
Foreign taxes at rates different from the
U.S. rate
Changes in valuation allowances
Decrease in tax reserves
Non-deductible items
Adjustment for prior year taxes
Other items, net
2011
$ 27,539
Year Ended December 31,
2010
2009
35.00% $ 23,112
35.00% $ 25,580
35.00%
1,680
2.14
1,381
2.09
2,402
3.29
(893)
(3,666)
(1.13)
(4.66)
75
.10
(460)
(.58)
(1,407)
(87)
-
680
(30)
(167)
(2.13)
(.13)
1.03
(.05)
(.25)
(991)
965
(1,195)
(1.36)
1.32
(1.64)
107
32
.15
.04
Income tax at Federal statutory rate
$ 24,275
30.85% $ 23,482
35.56% $ 26,900
36.81%
The components of income before income taxes are as follows (in thousands):
United States
Foreign
Total
2011
Year Ended December 31,
2010
2009
$
$
43,162
35,521
78,683
$
$
43,386
22,647
66,033
$
$
54,468
18,617
73,085
The provision for income taxes consists of the following (in thousands):
Current:
Federal
State
Foreign
Total current
Deferred:
Federal
State
Foreign
Total deferred
TOTAL
2011
Year Ended December 31,
2010
2009
$
$
13,472
2,158
8,436
24,066
456
426
(673 )
209
24,275
$
$
9,535
2,269
7,106
18,910
4,712
(193)
53
4,572
23,482
$
$
11,987
3,005
6,204
21,196
4,271
844
589
5,704
26,900
Income taxes are accrued and paid by each foreign entity in accordance with applicable local regulations.
The deferred tax assets and liabilities are comprised of the following (in thousands):
Assets:
Current:
Accrued expenses and other liabilities
$
13,575
$
12,720
December 31,
2011
2010
54
Inventory
Valuation allowances
Total current assets
Non-current:
Net operating loss and credit carryforwards
Depreciation
Other
Valuation allowances
Total non-current assets
Liabilities :
Current :
Deductible assets
Other
Total current liabilities
Non-current:
Amortization
Other
Total non-current liabilities
2,555
(1,471)
14,659
23,405
3,644
7,576
(28,443)
6,182
808
4,311
5,119
8,040
427
8,467
$
$
$
$
$
$
$
1,902
(1,605)
13,017
22,842
4,728
8,594
(27,671)
8,493
1,350
4,534
5,884
6,107
73
6,180
$
$
$
$
$
$
$
The Company has not provided for federal income taxes applicable to the undistributed earnings of its foreign
subsidiaries of approximately $73.8 million as of December 31, 2011, since these earnings are considered
indefinitely reinvested. The Company has foreign net operating loss carryforwards which expire through 2025.
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 where it is not likely they will be realized.
As of December 31, 2011, the Company has recorded valuation allowances of approximately $29.9 million
including valuations against the tax effected net operating loss carryforwards in foreign and state jurisdictions
of $20.0 million and $2.3 million, respectively, deductible temporary differences incurred in foreign
jurisdictions of $6.4 million, the majority of which relates to the WStore acquisition, and $1.2 million for state
and other deductible temporary differences.
The Company is routinely audited by federal, state and foreign tax authorities with respect to its income taxes.
The Company regularly reviews and evaluates the likelihood of audit assessments. The Company’s federal
income tax returns have been audited through 2006. 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 2006. The Company considers its significant tax jurisdictions in foreign locations to be the United
Kingdom, Canada, France, Italy and Germany. The Company remains subject to examination in the United
Kingdom for years after 2009, in Canada for years after 2007, in France for years after 2008, in Italy for years
after 2006, in Netherlands for years after 2006 and in Germany for years after 2007.
In accordance with the guidance for accounting for uncertainty in income taxes the Company recognizes the tax
benefits from an uncertain tax position only if it is more likely than not that the tax position will be sustained on
examination by the taxing authorities based on the technical merits of the position. The tax benefit of an
uncertain tax position that meets the more-likely-than-not recognition threshold is measured as the largest
amount that is greater than 50% likely to be realized upon settlement with the tax authority. To the extent we
prevail in matters for which accruals have been established or are required to pay amounts in excess of accruals,
our effective tax rate in a given financial statement period could be affected. There were no accrued interest or
penalty charges related to unrecognized tax benefits recorded in income tax expense in 2011 or 2010. As of
December 31, 2011 the Company had no uncertain tax positions.
11. COMMITMENTS, CONTINGENCIES AND OTHER MATTERS
Leases - The Company is obligated under operating lease agreements for the rental of certain office and
warehouse facilities and equipment which expire at various dates through July 2030. The Company currently
leases its headquarters office/warehouse facility in New York from an entity owned by the Company’s three
55
principal shareholders and senior executive officers. The Company believes that these payments were no higher
than would be paid to an unrelated lessor for comparable space. The Company also acquires certain computer,
communications equipment, and machinery and equipment pursuant to capital lease obligations.
At December 31, 2011, the future minimum annual lease payments for capital leases and related and third-party
operating leases were as follows (in thousands):
2012
2013
2014
2015
2016
2017-2021
2022-2026
Thereafter
Total minimum lease payments
Less: sublease rental income
Lease obligation net of subleases
Less amount representing interest
Present value of minimum capital lease
Capital
Leases
Operating
Leases
Total
$
3,147
3,007
2,609
2,286
590
157
11,796
11,796
2,111
$
27,395
24,976
21,821
20,996
20,250
65,154
16,194
7,694
204,480
55
$ 204,425
$
30,542
27,983
24,430
23,282
20,840
65,311
16,194
7,694
216,276
55
$ 216,221
payments (including current portion of
$2,552)
$
9,685
Annual rent expense aggregated approximately $30.8 million, $31.1 million and $27.1 million in 2011, 2010
and 2009, respectively. Included in rent expense was $0.9 million, $0.9 million and $0.9 million in 2011, 2010
and 2009, respectively, to related parties. Rent expense is net of sublease income of $0.2 million, $0.2 million
and $0.1 million for 2011, 2010 and 2009, respectively.
Other Matters
The Company and its subsidiaries are involved in various lawsuits, claims, investigations and proceedings
including commercial, employment, consumer, personal injury and health and safety law matters, which are
being handled and defended in the ordinary course of business. In addition, the Company is subject to various
assertions, claims, proceedings and requests for indemnification concerning intellectual property, including
patent infringement suits involving technologies that are incorporated in a broad spectrum of products the
Company sells. The Company is also audited by (or has initiated voluntary disclosure agreements with)
numerous governmental agencies in various countries, including U.S. Federal and state authorities, concerning
potential income tax, sales tax and unclaimed property liabilities. These matters are in various stages of
investigation, negotiation and/or litigation, and are being vigorously defended. Although the Company does not
expect, based on currently available information, that the outcome in any of these matters, individually or
collectively, will have a material adverse effect on its financial condition or results of operations, the ultimate
outcome is inherently unpredictable. Therefore, judgments could be rendered or settlements entered, that could
adversely affect the Company’s operating results or cash flows in a particular period. The Company routinely
assesses all of its litigation and threatened litigation as to the probability of ultimately incurring a liability, and
records its best estimate of the ultimate loss in situations where it assesses the likelihood of loss as probable and
estimable.
12. SEGMENT AND RELATED INFORMATION
The Company operates and is internally managed in two operating segments, Technology Products and
Industrial Products. The Company’s chief operating decision-maker is the Company’s Chief Executive Officer.
The Company evaluates segment performance based on income from operations before net interest, foreign
exchange gains and losses, special (gains) charges and income taxes. Corporate costs not identified with the
disclosed segments are grouped as “Corporate and other.” The chief operating decision-maker reviews assets
and makes significant capital expenditure decisions for the Company on a consolidated basis only. The
accounting policies of the segments are the same as those of the Company described in Note 1.
56
Financial information relating to the Company’s operations by reportable segment was as follows (in
thousands):
Net Sales:
Technology Products
Industrial Products
Corporate and other
Consolidated
Depreciation and Amortization Expense:
Technology Products
Industrial Products
Corporate and other
Consolidated
Operating Income (Loss):
Technology Products
Industrial Products
Corporate and other
Consolidated
Total Assets
Technology Products
Industrial Products
Corporate and other
Consolidated
Year Ended December 31,
2010
2009
2011
$ 3,358,754
319,919
3,366
$ 3,682,039
$ 3,337,635
250,036
2,318
$ 3,589,989
$ 2,966,657
196,129
3,209
$ 3,165,995
$
$
$
$
$
$
15,039
1,261
1,157
17,457
67,954
34,596
(22,023)
80,527
541,123
163,766
184,773
889,662
$
$
$
$
$
$
12,117
1,556
807
14,480
65,006
23,814
(20,075)
68,745
573,977
136,909
183,214
894,100
$
$
$
$
$
$
10,112
1,476
765
12,353
88,617
15,415
(30,403)
73,629
524,540
103,370
188,991
816,901
Financial information relating to the Company’s operations by geographic area was as follows (in thousands):
Net Sales:
United States
United Kingdom
Other Europe
Other North America
Consolidated
Long-lived Assets:
United States
United Kingdom
Other Europe and Asia
Other North America
Consolidated
2011
Year Ended December 31,
2010
2009
$
$
$
$
2,354,677
442,518
657,307
227,537
3,682,039
50,624
15,433
2,524
2,118
70,699
$
$
$
$
2,329,530
418,865
628,110
213,484
3,589,989
51,532
15,953
3,417
2,863
73,765
$
$
$
$
2,129,643
358,742
489,778
187,832
3,165,995
37,981
17,223
8,515
1,879
65,598
Net sales are attributed to countries based on location of selling subsidiary.
57
Financial information relating to the Company’s entity-wide product category sales was as follows (in
thousands):
Product Category:
Computers
Computer accessories &
software
Consumer electronics
Computer components
Industrial products
Other
Consolidated
2011
%
2010
%
2009
%
Year Ended December 31,
$
1,048.9
1,025.0
29% $
28%
879.2
982.8
25% $
27%
721.2
846.9
23%
27%
746.5
453.8
319.9
87.9
3,682.0
20%
12%
9%
2%
856.3
551.0
250.0
70.7
100.0% $ 3,590.0
$
24%
15%
7%
2%
791.8
550.4
196.1
59.6
100% $ 3,166.0
25%
17%
6%
2%
100.0%
13. QUARTERLY FINANCIAL DATA (UNAUDITED)
Quarterly financial data is as follows (in thousands, except for per share amounts):
2011:
Net sales
Gross profit
Net income
Net income per common share:
Basic
Diluted
2010:
Net sales
Gross profit
Net income
Net income per common share:
Basic
Diluted
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
$
$
$
$
$
$
$
$
$
$
929,867
130,498
13,566
.37
.36
915,237
124,601
11,751
.32
.31
$
$
$
$
$
$
$
$
$
$
872,222
128,943
15,559
.42
.42
805,875
113,401
9,450
.26
.25
$
$
$
$
$
$
$
$
$
$
901,180
131,338
10,629
.29
.29
862,705
115,255
8,622
.23
.23
$
$
$
$
$
$
$
$
$
$
978,770
139,897
14,654
.40
.40
1,006,172
136,347
12,728
.34
.34
58
SYSTEMAX INC.
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
For the years ended December:
(in thousands)
Description
Allowance for sales returns and doubtful
accounts
2011
2010
2009
Allowance for deferred tax assets
2011
Current
Noncurrent
2010
Current
Noncurrent
2009
Current (3)
Noncurrent (3) (4)
Balance at
Beginning of
Period
Charged to
Expenses Write-offs
Other
Balance at
End of Perio
d
$
$
$
$
$
$
$
$
$
17,881 $
22,532 $
17,523 $
3,202 $ (6,437) $
$
3,268 $ (6,816) $ (1,103)(1) $
4,804 (2) $
4,698 $ (4,493) $
-
14,646
17,881
22,532
1,605 $
27,671 $
73 $
588 $
1,507 $
28,326 $
81 $
27 $
(64) $
(54) $
(16) $
(65) $
(143)
238
33
(617)
- $
8,377 $
- $
1,507
- $ (2,125) $ 22,074
- $
$
$
$
$
$
$
1,471
28,443
1,605
27,671
1,507
28,326
(1)(2) WStore opening balance sheet adjustment.
(3) Included in other is allowances recorded for deferred tax assets and net operating losses acquired in the
WStore Europe SA acquisition.
(4) Charges to expense are net of reductions resulting from changes in deferred tax assets due to changes in tax
laws.
59
Exhibit 31.1
CERTIFICATION UNDER SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
I, Richard Leeds, certify that:
1. I have reviewed this annual report on Form 10-K of Systemax Inc. (the “registrant”);
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a
material fact necessary to make the statements made, in light of the circumstances under which such statements were
made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly
present in all material respects the financial condition, results of operations and cash flows of the registrant as of,
and for, the periods presented in this l report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls
and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial
reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be
designed under our supervision, to ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in
which this report is being prepared;
b) designed such internal control over financial reporting, or caused such internal control over financial reporting to
be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance with generally accepted accounting
principles;
c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by
this report based on such evaluation; and
d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during
the registrant’s most recent fiscal quarter( the registrant’s fourth fiscal quarter in the case of an annual report) that
has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial
reporting.
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal
control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of
directors (or persons performing the equivalent functions):
a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial
reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and
report financial information; and
b) any fraud, whether or not material, that involves management or other employees who have a significant role in
the registrant’s internal control over financial reporting.
Date: March 8, 2012
/s/ RICHARD LEEDS
Richard Leeds, Chief Executive Officer
60
Exhibit 31.2
CERTIFICATION UNDER SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
CERTIFICATION OF CHIEF FINANCIAL OFFICER
I, Lawrence P. Reinhold, certify that:
1. I have reviewed this annual report on Form 10-K of Systemax Inc. (the “registrant”);
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with
respect to the period covered by this l report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all
material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in
this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act
Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us
by others within those entities, particularly during the period in which this report is being prepared;
b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under
our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted accounting principles;
c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about
the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation;
and
d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s
most recent fiscal quarter ( the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is
reasonably likely to materially affect, the registrant’s internal control over financial reporting.
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial
reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing equivalent
functions):
a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s
internal control over financial reporting.
Date: March 8, 2012
/s/ LAWRENCE P. REINHOLD
Lawrence P. Reinhold, Chief Financial Officer
61
CERTIFICATION UNDER SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
The undersigned, the Chief Executive Officer of Systemax Inc., hereby certifies that Systemax Inc.’s Form 10-K for the Year Ended
December 31, 2011 fully complies with the requirements of Section 13(a) or Section 15(d) of the Securities 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.
Exhibit 32.1
Dated: March 8, 2012
/s/ RICHARD LEEDS
Richard Leeds, Chief Executive Officer
CERTIFICATION UNDER SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
The undersigned, the Chief Financial Officer of Systemax Inc., hereby certifies that Systemax Inc.’s Form 10-K for the Year Ended
December 31, 2011 fully complies with the requirements of Section 13(a) or Section 15(d) of the Securities 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.
Exhibit 32.2
Dated: March 8, 2012
/s/ LAWRENCE P. REINHOLD
Lawrence P. Reinhold, Chief Financial Officer
62
ANNUAL MEETING OF SHAREHOLDERS:
The 2012 Annual Meeting will be held on
Monday, June 11, 2012 at 2:00 p.m. at
Systemax Inc.
11 Harbor Park Drive
Port Washington, NY 11050
STOCK EXCHANGE:
The Company's shares are traded on the
New York Stock Exchange under the symbol SYX.
INDEPENDENT AUDITORS:
ERNST & YOUNG LLP
New York, NY
DIRECTORS
Richard Leeds
Chairman and Chief Executive Officer
Bruce Leeds
Vice Chairman
Robert Leeds
Vice Chairman
Lawrence Reinhold
Executive Vice President and
Chief Financial Officer
Robert Rosenthal
Chairman and Chief Executive Officer,
First Long Island Investors
Stacy Dick
Chief Financial Officer
Julian Robertson Holdings
Marie Adler-Kravecas
Retired President of Myron Corporation
CORPORATE EXECUTIVE OFFICERS
Richard Leeds
Chairman and Chief Executive Officer
Bruce Leeds
Vice Chairman
Robert Leeds
Vice Chairman
Lawrence Reinhold
Executive Vice President and
Chief Financial Officer
Thomas Axmacher
Vice President and Controller
Curt Rush
General Counsel and Secretary
Ben White
Vice President and Auditor
SEGMENT EXECUTIVE MANAGEMENT
David Sprosty
North American Technology Products Group
Chief Executive
Perminder Dale
European Technology Products Group
Chief Executive
Robert Dooley
Industrial Products Group
Chief Executive
Systemax Inc. Corporate Headquarters
11 Harbor Park Drive, Port Washington, NY 11050
Industrial Products Headquarters
Global Equipment Company Inc.
11 Harbor Park Drive, Port Washington, NY 11050
North American Technology Products Headquarters
SYX Services, Inc.
7795 West Flagler Street, Miami, FL 33144
European Technology Products Headquarters
Systemax Europe Limited
3000 Hillswood Business Park
Hillswood Drive
Chertsey
KT16 ORS
United Kingdom
Stock Performance Graph
Financial Summary
(In millions except Diluted Net Income Per Share)
Net Sales
Operating Income
Net Income
2007
2008
2009
2010
2011
$2,779.9
$ 94.2
$ 69.5
$3,032.9
$ 83.6
$ 52.8
$3,166.0
$ 73.6
$ 46.2
$3,590.0
$
68.7
$ 42.6
$3,682.0
80.5
$
54.4
$
Diluted Net Income Per Share
$ 1.84
$ 1.40
$ 1.24
$
1.13
$
1.47
Forward-Looking Statements: Certain 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 of this document.
2011 Annual Report