2020 ANNUAL REPORT
TO RECEIVE ADDITIONAL INFORMATION ON SYSTEMAX
PLEASE SEND A WRITTEN REQUEST TO:
CORPORATE HEADQUARTERS:
Systemax Inc.
11 Harbor Park Drive
Port Washington, NY 11050
516-608-7000
Email: investinfo@systemax.com
Web Site: http://www.systemax.com
INVESTOR RELATIONS:
Mike Smargiassi
The Plunkett Group
(212) 739-6740
Email: syx@theplunkettgroup.com
Website: www.theplunkettgroup.com
TRANSFER AGENT:
Broadridge Corporate Issuer Solutions, Inc.
P.O. Box 1342
Brentwood, NY 11717
(877) 830-4936
Email: shareholder@broadridge.com
Website: http://www.shareholder.broadridge.com
SEND CERTIFICATES FOR TRANSFER AND ADDRESS CHANGES TO:
Broadridge Corporate Issuer Solutions, Inc.
P.O. Box 1342
Brentwood, NY 11717
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 2020 Annual Report on Form 10-K, Proxy Statement for the 2021 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), through
is a provider of
industrial products in North America going to market through a system of branded e-Commerce
websites and relationship marketers. The primary brand is Global Industrial.
its operating subsidiaries,
Dear Fellow Stockholders,
The past year has been life-changing for all of us, and at times it was trying personally and professionally.
I’m proud of how Systemax responded to the COVID-19 pandemic and grateful to all of our associates, as
they stepped up to the challenge. Their commitment to our customers and our company was exceptional,
and as a result of their efforts, 2020 was a resounding success for Systemax.
In 2020, revenue increased more than 8% and exceeded one billion dollars, a significant milestone.
Profitability was strong as we generated operating income of $84 million, a 27% improvement, and had
healthy operating cash flow from continuing operations of $67 million. With this impressive financial
performance, we paid a special $2 per share dividend in December, and in February 2021 increased our
quarterly recuring dividend by 14%, to sixteen cents per share, the fifth increase in as many years.
These results reflect the strong execution of our ACE (Accelerating our Customer Experience) strategy,
and the deliberate and swift actions we took in an unprecedented business environment. We were there
for our customers helping them restore, return and rebound their businesses. In the year ahead, we will be
making further investments within the core pillars of our strategy. This includes investments in:
•
•
•
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automation and technology in our customer service stack;
e-commerce shopping experience to provide a seamless shopping journey filled with educational
content and solutions offerings;
distribution centers to increase timeliness, quality and accuracy in customer order fulfillment; and
sales force productivity and automation, which will continue to allow our managed sales force to
proactively provide customers the solutions they need.
These actions will enhance our end-to-end customer experience, drive the further evolution of our e-
commerce platform, and strengthen our overall competitive position. We will also continue to invest in our
Global Industrial branded products offering, which further differentiates our value proposition, and enhances
our margin profile.
We are always looking forward, adapting to the needs of our customers and moving the company to where
it needs to be tomorrow. To that end, we kicked off 2021 by providing Global Industrial with a new look and
brand promise. It’s an evolution of the brand identity that honors our 70-year history of service, and reflects
our core values and continuous improvement mindset.
We believe we are well positioned to continue to capitalize on the acceleration of B2B e-commerce
environments, and to capture additional market share in a highly fragmented industrial distribution
marketplace. Across the company we are driving operational excellence in everything we do. This is
resulting in a better customer experience and improved customer acquisition, retention and overall
satisfaction rates. With an exceptional platform and differentiated go to market strategy, we believe we
have a lot of opportunity ahead and are just getting started.
Sincerely,
Barry Litwin
Chief Executive Officer
11 Harbor Park Drive, Port Washington, NY 11050 • 516.608.7000 • investinfo@systemax.com
Notice of Annual Meeting of Stockholders
Date and time:
Monday, June 7, 2021, at 12:00 p.m., Eastern time
Virtual Location:
This year’s Annual Meeting will be a completely virtual meeting of stockholders, which will be
conducted via live webcast. You will be able to participate in this year’s Annual Meeting
online, vote your shares electronically and submit your questions during the meeting by
visiting www.virtualshareholdermeeting.com/SYX2021. Because the Annual Meeting is
virtual and being conducted via live webcast, stockholders will not be able to attend
the Annual Meeting in person. Details regarding how to participate in the meeting online
are more fully described in the proxy statement.
Purpose:
(1) To elect the 8 director nominees named in the proxy statement;
(2) To ratify the appointment of Ernst & Young LLP as our independent auditor for fiscal year
2021; and
(3) To transact such other business as may properly come before the meeting or any
adjournment or postponement.
Stockholders of record at the close of business on April 13, 2021 are entitled to notice of,
and to vote at, the meeting or any adjournment or postponement.
Who may vote:
Stockholders of record at the close of business on April 13, 2021 are entitled to notice of,
and to vote at, the meeting or any adjournment or postponement.
By order of the Board of Directors,
Eric Lerner
Senior Vice President and General Counsel
April 28, 2021
Important notice regarding the availability of proxy materials for the
Annual Meeting of Stockholders to be held on June 7, 2021:
This Notice of Annual Meeting of Stockholders, the accompanying proxy statement and our 2020 Annual Report to
Stockholders all are available at www.proxyvote.com.
Table of Contents
General Information....................................................................................................................................... 1
Frequently Asked Questions.......................................................................................................................... 5
Proposal No. 1 – Election Of Directors.......................................................................................................... 6
Corporate Governance.................................................................................................................................. 8
Board of Directors........................................................................................................................... 8
Board Leadership Structure............................................................................................................ 8
Director Independence.................................................................................................................... 10
Lead Independent Director.............................................................................................................. 11
Meetings of Non-Management Directors........................................................................................ 11
Communicating with the Board....................................................................................................... 12
Committees of the Board................................................................................................................ 13
Risk Oversight................................................................................................................................. 16
Proposal No. 2 – Ratification of Ernst & Young LLP as our Independent Auditor.......................................... 17
Report of the Audit Committee...................................................................................................................... 18
Security Ownership Information.................................................................................................................... 19
Security Ownership of Certain Beneficial Owners and Management............................................. 19
Section 16(a) Beneficial Ownership Reporting Compliance........................................................... 20
Equity Compensation Plans.......................................................................................................................... 21
Certain Relationships and Related Transactions........................................................................................... 22
Related Person Transaction Policy................................................................................................. 22
Transactions With Related Persons................................................................................................ 22
Executive Officers.......................................................................................................................................... 24
Compensation Discussion and Analysis........................................................................................................ 25
Executive Summary........................................................................................................................ 25
Central Objectives and Philosophy of Our Executive Compensation Programs............................. 25
Risk Management........................................................................................................................... 26
Elements of Our Executive Compensation Programs..................................................................... 27
Role of the Compensation Committee and CEO in Compensation Decisions................................ 29
Compensation Committee Report................................................................................................................. 40
Compensation Committee Interlocks and Insider Participation..................................................................... 40
Executive Compensation............................................................................................................................... 41
Summary Compensation Table....................................................................................................... 41
Grants of Plan-Based Awards......................................................................................................... 43
Outstanding Equity Awards at Fiscal Year-End for Fiscal 2020...................................................... 44
Option Exercises and Stock Vested For Fiscal 2020...................................................................... 45
Employment Arrangements of the Named Executive Officers........................................................ 46
Potential Payments Upon Termination of Employment or Change in Control................................. 47
Director Compensation.................................................................................................................................. 54
General Policy................................................................................................................................. 54
Non-Management Director Compensation in Fiscal 2020.............................................................. 54
CEO Pay Ratio Disclosure............................................................................................................................ 55
Additional Matters.......................................................................................................................................... 56
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PROXY STATEMENT
General Information
These proxy materials are being furnished to solicit proxies on behalf of the Board of Directors of Systemax Inc. for
use at our Annual Meeting of Stockholders to be held virtually on Monday, June 7, 2021 at 12:00 p.m., Eastern time,
or at any adjournments or postponements thereof.
The Annual Meeting can be accessed by visiting www.virtualshareholdermeeting.com/SYX2021, where you will be
able to listen to and participate in the meeting live, submit questions, and vote online.
These proxy materials include our Notice of Annual Meeting and Proxy Statement and our 2020 Annual Report to
Stockholders, which includes our Fiscal 2020 Form 10-K. In addition, these proxy materials may include a proxy card
for our Annual Meeting. These proxy materials are first being sent or made available to our stockholders commencing
on April 28, 2021.
Notice of Internet Availability of 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. As a result, beginning on or
about April 28, 2021, we mailed to most of our stockholders of record on April 13, 2021 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.
Record Date
We have fixed the close of business on April 13, 2021 as the record date for determining our stockholders entitled to
notice of and to vote at our Annual Meeting.
On that date, we had 37,719,099 shares of common stock outstanding. Stockholders as of the record date will have
one vote per share on each voting matter.
Quorum
The presence of the holders of a majority of the outstanding shares of common stock entitled to vote at our Annual
Meeting, present virtually or represented by proxy, is necessary to constitute a quorum.
Abstentions and “broker non-votes” (discussed below) will be counted as present for purposes of establishing a
quorum.
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How to Vote
Stockholders of record. If you are a “stockholder of record” (meaning your shares are registered in your name with
our transfer agent, Broadridge) you may vote either virtually at our Annual Meeting or by proxy.
If you decide to vote by proxy, you may do so in any one of the following three ways:
You may vote your shares 24 hours a day by
to a secure website,
www.proxyvote.com, and following the instructions provided. You will need to enter identifying
information that appears on your proxy card or the Notice. The internet voting system allows you
to confirm that your votes were properly recorded.
logging on
You may vote your shares 24 hours a day by calling the toll free number (800) 690-6903, and
following instructions provided by the recorded message. You will need to enter identifying
information that appears on your proxy card or the Notice. As with the internet voting system, you
will be able to confirm that your votes were properly recorded.
If you received a proxy card, you may mark, sign and date your proxy card and return it by mail in
the enclosed postage-paid envelope.
Internet and telephone voting is available through 11:59 PM Eastern time on Sunday, June 6, 2021.
If you vote by mail, your proxy card must be received before our Annual Meeting to assure that your vote is counted.
We encourage you to vote promptly.
Beneficial owners. If, like most stockholders, you are a beneficial owner of shares held in “street name” (meaning a
broker, trustee, bank or other nominee holds shares on your behalf), you may vote virtually at our Annual Meeting
only if you obtain a legal proxy from the nominee that holds your shares. Alternatively, you may vote by completing,
signing and returning the voting instruction form that the nominee provides to you or by following any telephone or
Internet voting instructions described on the voting instruction form, the Notice or other materials that the nominee
provides to you.
No matter in what form you own your shares – We encourage you to vote promptly.
Attending the Virtual Annual Meeting
The Annual Meeting will be a completely virtual meeting of stockholders conducted exclusively by a live audio
webcast.
If you are a stockholder of record as of the close of business on April 13, 2021, the record date for the Annual
Meeting, you will be able to virtually attend the Annual Meeting, vote your shares and submit your questions online
during the meeting by visiting www.virtualshareholdermeeting.com/SYX2021. You will need to enter the 16-digit
control number included on your notice, on your proxy card or on the instructions that accompanied your proxy
materials.
If you are a stockholder holding your shares in “street name” as of the close of business on April 13, 2021, you may
gain access to the meeting by following the instructions in the voting instruction card provided by your broker, bank or
other nominee. You may not vote your shares electronically at the Annual Meeting unless you receive a valid proxy
from your brokerage firm, bank, broker dealer or other nominee holder.
The online meeting will begin promptly at 12:00 p.m., Eastern time. We encourage you to access the meeting prior to
the start time. Online check-in will begin at 11:45 a.m., Eastern time, and you should allow approximately 15 minutes
for the online check-in procedures. If you wish to submit a question for the Annual Meeting, you may do so in advance
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at www.virtualshareholdermeeting.com/SYX2021, or you may type it into the dialog box provided at any point during
the virtual meeting (until the floor is closed to questions).
Votes Required to Adopt the Proposals
Ø Proposal 1 – The affirmative vote of a plurality of the outstanding shares of common stock entitled to vote
and present, virtually or by proxy, at a meeting at which a quorum is present will be required to elect the
nominated directors to the Board.
Ø Proposal 2 – The affirmative vote of a majority of the outstanding shares of common stock entitled to vote
and present, virtually or by proxy, at a meeting at which a quorum is present will be required to ratify the
appointment of Ernst & Young LLP as our independent auditors.
Messrs. Richard, Bruce and Robert Leeds (each a director and officer of Systemax), 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 outstanding, and they have each separately advised us
that they intend to vote all of such shares they each have the power to vote in accordance with the recommendations
of the Board on each of the Proposals identified above, which will be sufficient to constitute a quorum and to
determine the outcome of each Proposal.
How Shares Will Be Voted
Proxies will be voted as specified by the stockholders. Where specific choices are not indicated, proxies will be voted,
per the Board’s recommendations, FOR Proposals 1 and 2 If any other matters properly come before our Annual
Meeting, the persons named in the proxy will vote at their discretion.
List of Stockholders
A list of our stockholders satisfying the requirements of Section 219 of the Delaware General Corporation Law will be
available for inspection for any purpose germane to our Annual Meeting for the ten days prior to our Annual Meeting.
If you want to inspect the stockholder list, call email investinfo@systemax.com to schedule an appointment. In
addition, the list of stockholders will also be available during the annual meeting through the meeting website for
those stockholders who choose to attend.
Changing or Revoking Your Proxy
Your virtual attendance at our Annual Meeting will not automatically revoke your proxy.
Stockholders of record. If you are a stockholder of record, you may change or revoke your proxy at any time before
a vote is taken at our Annual Meeting by executing and forwarding to us a later-dated proxy or by voting a later proxy
over the telephone or the Internet or by virtually attending the Annual Meeting and voting.
Beneficial owners. If you are a beneficial owner of shares, you should check with the broker, trustee, bank or other
nominee that holds your shares to determine how to change or revoke your vote.
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Abstentions
Ø Proposal 1 – Abstentions will have no effect on the election of directors.
Ø Proposal 2 – Abstentions will have the same effect as a negative vote regarding the ratification of Ernst & Young
LLP as our independent auditors.
Broker Non-Votes
A “broker non-vote” occurs when a broker or other nominee holding shares for a beneficial owner does not vote on a
particular proposal because they do not have discretionary voting power for that proposal and have not received
instructions from the beneficial owner.
If you are a beneficial owner whose shares are held by a broker, as stated above you must instruct the broker how to
vote your shares. If you do not provide voting instructions, your broker is not permitted to vote your shares on
Proposal 1 (Election of Directors).
In the absence of voting instructions, the broker can only register your shares as being present at our Annual Meeting
for purposes of determining a quorum and may vote your shares on Proposal 2 only (Ratification of the Appointment
of our Auditor).
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Frequently Asked Questions
How can I access the proxy materials over the
Internet?
What is “householding”?
instructions on how
Your Notice of the Internet Availability of the proxy
materials, proxy card or voting instruction card will
contain
to view our proxy
materials for our Annual Meeting on the Internet. Our
proxy materials and Annual Report on Form 10-K for
fiscal 2020, as well as the means to vote by Internet,
are available at www.proxyvote.com.
SEC rules allow us to send a single copy of the proxy
materials or the Notice of Internet Availability of Proxy
Materials 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
to as
“householding” and we use this process to achieve
savings of paper and mailing costs.
is referred
How may I obtain a paper copy of the proxy
materials?
How can I find voting results of our Annual
Meeting?
The Notice of the Internet Availability of the proxy
materials, provides 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.
We will announce preliminary voting results at our
Annual Meeting and we will publicly disclose the
results on a Form 8-K within four business days of our
Annual Meeting, as required by SEC rules.
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Proposal No. 1 – Election of Directors
At our Annual Meeting, eight directors are to be elected to hold office until the 2022 annual meeting and until their
successors have been elected and qualified. All nominees are current Systemax Board members who were elected
by stockholders at the 2020 annual meeting.
There are no family relationships among any of our directors or executive officers or nominees for director or
executive officer, except that Messrs. Richard, Bruce and Robert Leeds are brothers. Except as disclosed herein,
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.
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 reduces the number of nominees, for such other person or persons as the Board may designate.
When 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.
Richard Leeds
Robert Leeds
Age: 61
Executive Chairman
Director Since: 1995
Richard Leeds joined Systemax in 1982 and served
as our Chairman and CEO from April 1995 until
becoming our Executive Chairman in March 2016. He
also served as President of our Industrial Products
Group until 2011. Mr. Leeds was selected to serve as
to his
Executive Chairman of our Board due
experience and depth of knowledge of Systemax and
the direct marketing, computer and industrial products
industries, his role in developing and managing our
business strategies and operations, as well as his
exceptional business
leadership
qualities.
judgment and
Age: 65
Vice Chairman
Director Since: 1995
Robert Leeds joined Systemax in 1977 and has
served as our Vice Chairman since April 1995. He
also served as President of our Domestic Operations
until 2005 and as Chief Executive of the North
American Technology Products Group from 2013 to
2015. Mr. Leeds has served as a director since April
1995. Mr. Leeds was selected to serve as a director
on our Board because of his experience and depth of
knowledge of Systemax and the direct marketing,
computer and industrial products industries, his role in
developing and managing our business strategies and
operations, his significant computer and technology
industry experience as well as his exceptional
business judgment.
Bruce Leeds
Barry Litwin
Age: 65
Vice Chairman
Director Since: 1995
Bruce Leeds joined Systemax in 1977 and has served
as our Vice Chairman since April 1995. He also
served as President of our International Operations
until 2005. Mr. Leeds was selected to serve as a
director on our Board due to his experience and depth
of knowledge of Systemax and the direct marketing,
computer and industrial products industries, his role in
developing and managing our business strategies and
operations, his experience in international business as
well as his exceptional business judgment.
Age: 54
Chef Executive Officer
Director Since: 2017
Mr. Litwin was appointed Chief Executive Officer of
Systemax in January 2019. Prior to joining Systemax,
he was the Chief Executive Officer of Adorama, Inc., a
leading multi-channel retailer of professional camera,
audio, and video equipment. Previous executive roles
included overseeing e-commerce and marketing for
Sears Holdings,
Inc, Office Depot, and Newark
Electronics, Inc, in addition to serving as an advisor to
several early stage digital and technology companies.
Mr. Litwin graduated from Indiana University with a BS
degree, and an MBA in Operations from Loyola
University, Quinlan School of Business in 1992.
Mr. Litwin was selected to serve as a director on our
Board due to his e-commerce and direct marketing
expertise.
6
Robert D. Rosenthal
Paul S. Pearlman
Age: 72
Independent Director
Director Since: 1995
Robert D. Rosenthal 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 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,
legal experience and
acumen.
investment and
Chad M. Lindbloom
Age: 56
Independent Director
Director Since: 2017
Mr. Lindbloom was employed by C.H. Robinson
Worldwide, Inc. – one of the world’s largest third-party
logistics providers – from June 1990 through March
2018 in various roles, including Chief Information
Officer, Chief Financial Officer and Controller. Mr.
Lindbloom holds BS and MBA degrees from the
Carlson School of Management at the University of
Minnesota. Mr. Lindbloom was selected to serve as a
director on our Board due to his supply chain and
logistics expertise, as well as his skills relating to
financial statement and accounting matters.
Age: 67
Independent Director
Director Since: 2019
Since March 2020, Mr. Pearlman has been a partner
in Zeughauser Group, LLC, a nationally prominent law
firm management consulting firm. From August 2000
through December 2019, Mr. Pearlman was the
Managing Partner of Kramer Levin Naftalis & Frankel
LLP, a New York City headquartered international law
firm, and Mr. Pearlman will continue to serve as
Counsel, Managing Partner Emeritus in the firm until
December 31, 2021. Prior thereto, he was a partner in
the firm practicing in the areas of private equity and
corporate restructuring. Mr. Pearlman is a 1978 cum
laude graduate of St. John’s University School of Law
and a 1975 graduate of George Washington
University. Mr. Pearlman was selected to serve as a
director on our Board due to his business and legal
experience and acumen as well as his management,
financial and leadership skills as the head of a
prominent international law firm.
Lawrence Reinhold
Age: 61
Director
Director Since: 2009
Lawrence Reinhold joined Systemax as its Chief
Financial Officer in January 2007 and served as
President and CEO from March 2016 through January
2019. In January 2019, Mr. Reinhold entered into a
two year consulting agreement with Systemax. Mr.
Reinhold was previously the CFO of several publicly
traded technology companies and a Partner with
PricewaterhouseCoopers. Mr. Reinhold is a Certified
Public Accountant. Mr. Reinhold was selected to serve
as a director on our Board due to his contributions
while working at Systemax and his extensive
experience and expertise
in business, strategy,
finance, accounting, SEC reporting, public company
management, mergers and acquisitions and financial
systems.
The Board Recommends That You Vote for the Election
of All the Director Nominees (Proposal No. 1)
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Corporate Governance
Board of Directors
Our Board currently consists of eight members, three of whom are independent under the rules of the SEC and New
York Stock Exchange, or NYSE. Our Board is led by Executive Chairman Mr. Richard Leeds and Vice Chairmen
Messrs. Bruce Leeds and Robert Leeds. Our independent directors have designated Mr. Rosenthal to be the Lead
Independent Director.
Our Board held ten meetings in fiscal 2020. All of the directors attended at least 75% of the meetings of the Board
and the respective committees of the Board on which they were members.
At last year’s annual meeting of stockholders held on June 1, 2020, two directors attended the meeting. We do not
have a policy with regards to directors’ attendance at our annual meeting of stockholders.
8
Board Leadership Structure
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 Systemax and our
stockholders.
Although the Board does not have an express policy on whether or not the roles of CEO and Executive Chairman of
the Board should be separate and if they are to be separate, whether the Executive Chairman of the Board should be
selected from the non-management 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 Systemax and our stockholders
at the time of such determination.
Our Board as well as our Board Committees 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 Systemax and our stockholders.
Our Board believes that the most effective Board leadership structure for Systemax at the present time is for the roles
of CEO and Executive Chairman of the Board to be separate. Further, the Board believes that our Executive
Chairman and two Vice Chairmen should also have management roles, so that our Executive Chairman and Vice
Chairmen remain in closer touch with the operations of our business and so that, together with our CEO, they can
focus their attention on different aspects of the strategic and operating challenges and opportunities ahead for
Systemax.
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 Executive Chairman regarding any specific feedback or issues, provides
the Executive Chairman with input regarding agenda items for Board and Committee meetings, and coordinates with
the Executive Chairman regarding information to be provided to the independent directors in performing their duties.
Our Corporate Governance Guidelines provide the flexibility for our Board to modify or continue our leadership
structure in the future, as it deems appropriate.
9
Director Independence
In connection with its annual review of director independence, the Board has determined that each of Messrs.
Rosenthal, Lindbloom and Pearlman has no material relationship with Systemax (directly or as a partner, stockholder,
or officer of an organization that has a relationship with Systemax) and meets the standards for independence
required by the NYSE and SEC rules. The Board has not adopted any other categorical standards of materiality for
independence purposes.
The Board made this determination based on
ü 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 NYSE, and
ü 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, and
ü information provided by the directors to Systemax, which 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-management directors.
In making its determination, the Board took into consideration that (i) certain Systemax directors and executive
officers have each invested funds with or through a private investment firm, of which Mr. Rosenthal is Chairman and
CEO (and which firm receives fees in respect of such investments), and may continue to do so in the future and (ii)
Mr. Rosenthal is on the board of directors or is a trustee of several entities that are part of the Northwell Health
complex of hospitals, clinics and healthcare providers, to which Systemax's Global Industrial business sells product
on an arm’s length basis, without Mr. Rosenthal’s involvement, and that Mr. Rosenthal has no financial or other
interest in any such transactions. The Board (in each case with Mr. Rosenthal and the investing directors being
recused) determined that neither such relationship was material to Mr. Rosenthal and does not affect his
independence.
As a “controlled company,” Systemax is exempt from the NYSE requirement that listed companies have a majority of
independent directors. A “controlled company” is defined by the NYSE 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. Systemax is a “controlled
company” in that more than 50% of the voting stock for the election of directors of Systemax, in the aggregate, is
owned by certain members of the Leeds family (including Messrs. Richard, Bruce and Robert Leeds, each of whom is
an officer and director of Systemax) and certain Leeds’ family trusts and other entities controlled by them (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 / page 22 of this proxy statement.
10
Lead Independent Director
The independent directors have designated Mr. Rosenthal to serve as our Lead Independent Director.
In addition to presiding at executive sessions of non-management directors, the Lead Independent Director has the
responsibility to coordinate the activities of the independent directors, and to perform the following functions:
Ø advise the Executive 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 Systemax’s operations;
Ø provide the Executive Chairman with input as to the preparation of agendas for the Board and committee
meetings;
Ø advise the Executive Chairman as to the quality, quantity, and timeliness of the flow of information from our
management that is necessary for the independent directors to effectively and responsibly perform their
duties, and although our management is responsible for the preparation of materials for the Board, the Lead
Independent Director may specifically request the inclusion of certain material;
Ø recommend to the Executive Chairman the retention of consultants who report directly to the Board;
Ø assist the Board and our officers in assuring compliance with and implementation of the corporate
governance policies; and be principally responsible for recommending revisions to the corporate governance
policies;
Ø 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 Executive Chairman on
sensitive issues; and
Ø recommend to the Executive Chairman the membership of the various Board committees.
Meetings of Non-Management Directors
The NYSE 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:
Ø 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
Ø 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 “Communicating with the Board”).
The Board’s non-management or independent directors meet separately in executive sessions, chaired by the Lead
Independent Director (currently Mr. Rosenthal), at least quarterly.
11
Communicating with the Board
Stockholders and other interested parties may communicate with the Board, any committee of the Board, any
individual director (including the Lead Independent Director) or the independent directors as a group, by directing
communication to:
investinfo@systemax.com
Office of the Corporate Secretary
Systemax Inc.
11 Harbor Park Drive
Port Washington, NY 11050
Communications from stockholders will be distributed to the entire Board unless addressed to a particular committee,
director or group of directors. The Corporate Secretary will not distribute communications that are unrelated to the
duties of the Board, such as spam, junk mail, mass mailings, business solicitations and advertisements.
12
Committees of the Board
The Board has a standing Audit Committee, Nominating/Corporate Governance Committee, and Compensation
Committee. In addition, the Board has an Executive Committee empowered to act for the Board in certain
circumstances, but the Executive Committee did not exercise its power in 2012. See Executive Committee / page 15
of this proxy statement.
Committee Composition
Robert D. Rosenthal
Chad M. Lindbloom
Paul S. Pearlman
I
I
I
Audit Committee
Nominating/Corporate
Governance
Committee
Compensation
Committee
I = Independent Director
= Chairman
= Member
Audit Committee
Number of Meetings Held in Fiscal 2020: Nine
The Audit Committee is appointed by the Board to assist the Board with oversight of:
•
•
•
•
the integrity of our financial statements;
our compliance with legal and regulatory requirements;
the independence and qualifications of our external auditors; and
the performance of our internal audit function and external auditors.
It is the Audit Committee’s responsibility to retain or terminate our independent registered public accountants, who
audit our financial statements, and to prepare the Audit Committee report that the SEC requires to be included in our
annual proxy statement. See Report of the Audit Committee / page 18 of this proxy statement.
As part of its activities, the Audit Committee meets with our auditors 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.
13
The Audit Committee is also responsible for establishing procedures for:
Ø the receipt, retention and treatment of complaints received by Systemax regarding accounting, internal
accounting controls and auditing matters, and
Ø the confidential, anonymous submission by employees of Systemax of concerns regarding questionable
accounting or auditing matters.
In addition, the Audit Committee is responsible for reviewing, and discussing with management and reporting to the
Board regularly, our risk assessment and risk management processes, although it is senior management’s
responsibility to assess and manage our exposure to risk under the oversight of the Board.
In addition, the Audit Committee works together with the Compensation Committee to ensure that our compensation
policies address and promote our risk management goals and objectives. The Audit Committee also discusses with
management our major financial risk exposures and the steps management has taken to monitor and control such
exposures.
The Board has determined that Messrs. Rosenthal, Lindbloom and Pearlman are “audit committee financial experts”
as defined under SEC regulations.
Systemax 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 our annual proxy statement. Currently no member of the
Audit Committee serves on the audit committee of more than two other publicly-owned companies.
Nominating/Corporate Governance Committee
Number of Meetings Held in Fiscal 2020: Seven
The Nominating/Corporate Governance Committee’s responsibilities include, among other things:
Ø identifying individuals qualified to become Board members and recommending to the Board nominees to
stand for election at any meeting of stockholders,
Ø identifying and recommending nominees to fill any vacancy, however created, in the Board, and
Ø 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.
In nominating candidates to become Board members, the Nominating/Corporate Governance Committee takes into
consideration such factors as it deems appropriate, including the experience, skill, integrity and background of the
candidates. The Nominating/Corporate Governance Committee may consider candidates proposed by management
or stockholders but is not required to do so. The Nominating/Corporate Governance Committee does not have any
formal policy with regard to the consideration of any director candidates recommended by stockholders 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. In addition, the Nominating/
Corporate Governance Committee and the Board may engage an independent search firm to assist in identifying
qualified board candidates.
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 Systemax. We believe that each of the director nominees bring these qualifications to our Board. Moreover,
they provide our Board with a diverse complement of specific business skills, experience and perspectives.
14
Compensation Committee
Number of Meetings Held in Fiscal 2020: Six
The Compensation Committee’s responsibility is to review and approve corporate goals relevant to the compensation
of the CEO and, after an evaluation of the CEO’s performance in light of such goals, to set the compensation of the
CEO.
The Compensation Committee also approves:
Ø the annual compensation of the other executive officers of Systemax,
Ø the annual compensation of certain select vice presidents and managers of Systemax's Global Industrial
business, and
Ø all individual stock-based incentive grants.
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 Systemax including our
incentive-based and equity-based compensation plans. The Compensation Committee also prepares an annual
report on executive compensation for inclusion in our annual proxy statement. See Compensation Committee
Report / page 40 of this proxy statement. The Compensation Committee also reviews and approves the performance
and compensation of our Executive Chairman and Vice Chairmen.
In addition, it is the Compensation Committee’s responsibility to consider, and work together with the Audit Committee
to ensure our compensation policies address and promote our risk management goals and objectives.
Executive Committee
Number of Meetings Held in Fiscal 2020: None
Among other duties as may be assigned by the Board from time to time, the Executive Committee is:
Ø authorized to oversee our operations,
Ø authorized to supervise our executive officers,
Ø authorized to review and make recommendations to the Board regarding our strategic direction, and
Ø authorized to review and make recommendations to the Board regarding possible acquisitions or other
significant business transactions.
The Executive Committee is also authorized to manage the affairs of Systemax between meetings of the Board; the
Executive Committee has all of the powers of the Board not inconsistent with any provisions of the Delaware General
Corporation Law, our Certificate of Incorporation or By-Laws or other resolutions adopted by the Board, but the
Executive Committee did not exercise its power in 2020. The current members of the Executive Committee are
Messrs. Richard Leeds, Bruce Leeds, Robert Leeds and Robert D. Rosenthal.
15
Risk Oversight
Board’s Role in Risk Oversight
Our Board as a whole is responsible for overseeing our risk management process. The Board focuses on our general
risk management strategy, the most significant risks facing Systemax, and seeks to ensure that appropriate risk
mitigation strategies are implemented by management.
Risk management is a recurring Board quarterly agenda item, and is considered part of business and operations
planning.
The Board is also apprised of particular risk management matters in connection with its general oversight and
approval of corporate matters and at least quarterly receives information relating to material risk from management
and from our Legal & Risk Management and Internal Audit Departments.
Delegation to Board Committees
The Board has delegated to each of its Committees oversight of certain aspects of our risk management process.
Among its duties, the Audit Committee reviews with management (a) processes with respect to risk assessment and
management of risks that may be material to Systemax, (b) our system of disclosure controls and system of internal
controls over financial reporting, and (c) our compliance with legal and regulatory requirements.
The Compensation Committee is responsible for considering and working together with the Audit Committee
regarding the compensation policies for all our employees in the context of how such policies affect and promote our
risk management goals and objectives.
The Nominating/Corporate Governance Committee is responsible for working with the Audit and Compensation
Committees to develop and recommend to the Board a set of risk management policies and procedures, including our
compensation policies for all our 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.
Day-to-Day Risk Management
Our 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
Systemax. 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 Audit Committee quarterly, and works closely with our CEO on matters that may impact our exposure to risk.
We believe the division of risk management responsibilities described above is an effective approach for addressing
the risks facing Systemax and that our Board leadership structure supports this approach.
16
Proposal No. 2 – Ratification of Ernst & Young LLP as our Independent
Auditor
The Audit Committee of the Board is directly responsible for the appointment, compensation, retention and oversight
of our independent auditor and approves the audit engagement letter with Ernst & Young LLP and its audit fees. The
Audit Committee has appointed Ernst & Young LLP as our independent auditor for fiscal 2021 and believes that the
continued retention of Ernst & Young LLP as our independent auditor is in the best interest of Systemax and our
stockholders.
While not required by law, we are asking our stockholders to ratify the appointment of Ernst & Young LLP as our
independent auditor for fiscal 2021 at the Annual Meeting as a matter of good corporate governance. If stockholders
do not ratify this appointment, the Audit Committee will consider whether it is appropriate to appoint another audit
firm. Even if the appointment is ratified, the Audit Committee in its discretion may appoint a different audit firm at any
time during the fiscal year if it determines that such a change would be in the best interest of Systemax and our
stockholders.
We expect representatives of Ernst & Young LLP to be present at the Annual Meeting. They will have an opportunity
to make a statement if they desire to do so and to respond to appropriate questions from stockholders.
Fees Paid to our Independent Auditor
The following table sets forth the fees billed to us by Ernst & Young LLP for services in fiscal 2020 and 2019, all of
which were pre-approved by the Audit Committee:
Fee Category
Audit fees (1)
Audit-related fees (2)
Tax fees (3)
All other fees (4)
Total
2020
($)
2019
($)
1,238,500
1,196,000
12,250
0
5,000
0
0
2,000
1,255,750
1,198,000
(1)
In accordance with the SEC’s definitions and rules, “audit fees” are fees that were billed to Systemax by Ernst & Young LLP for
the audit of our 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 our 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.
(2)
“Audit-related fees” are fees for assurance and related services that are reasonably related to the performance of the audit or
review of our financial statements and internal control over financial reporting, including services in connection with assisting
Systemax in our compliance with our obligations under Section 404 of the Sarbanes-Oxley Act and related regulations.
(3) Ernst & Young LLP did not provide any professional services for tax compliance, planning or advice in 2020 and 2019.
(4) Consists of fees billed for other professional services rendered to Systemax.
Audit Committee Pre-Approval Policy
The Audit Committee is responsible for approving every engagement of Systemax’s independent auditor to perform
audit or non-audit services on behalf of Systemax or any of its subsidiaries before such auditors can be engaged to
provide those services. The Audit Committee does not delegate its pre-approval authority. The Audit Committee is not
permitted to engage the independent auditor to perform any non-audit services proscribed by law or regulation. The
Audit Committee has reviewed the services provided to Systemax by Ernst & Young LLP and believes that the non-
audit/review services it has provided are compatible with maintaining the auditor’s independence.
The Board recommends that you vote for the proposal to ratify the appointment
of Ernst & Young LLP as our independent auditor for fiscal year 2021
(Proposal No. 2)
17
Report of the Audit Committee
The Audit Committee of the Board operates under its Charter, which was originally adopted by the Board in 2000, is
reviewed annually, and was most recently revised in March 2017. As set forth in its Charter, the Audit Committee’s job
is one of oversight. Management is responsible for Systemax’s financial statements, internal accounting and financial
controls, the financial reporting process, the internal audit function and compliance with our policies and legal
requirements. Our independent auditors are responsible for performing independent audits of our consolidated
financial statements and the effectiveness of our internal controls in accordance with standards of the Public
Company Accounting Oversight Board (United States) and for issuance of reports thereon; they also perform limited
reviews of our 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 our 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 Systemax management and by the independent registered public accountants, as well as by
other experts that the Audit Committee hires.
The Audit Committee met with our independent auditors to review and discuss the overall scope and plans for the
audit of our consolidated financial statements for the year ended December 31, 2020. 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 our internal controls and
the overall quality of our financial reporting.
Management represented to the Audit Committee that our consolidated financial statements for fiscal 2020 were
prepared in accordance with U.S. generally accepted accounting principles. In connection with these responsibilities,
the Audit Committee met with management and Ernst & Young LLP to review and discuss the December 31, 2020
audited consolidated financial statements. The Audit Committee also discussed with Ernst & Young LLP the matters
required to be discussed by the Public Company Accounting Oversight Board Auditing Standard No. 1301,
Communications with Audit Committees. The Audit Committee also received written disclosures and the letter from
Ernst & Young LLP required by Rule 3526 of the Public Company Accounting Oversight Board (Communications with
Audit Committees Concerning Independence), and the Audit Committee discussed with Ernst & Young LLP the firm’s
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
Systemax for fiscal 2020 as audited by Ernst & Young LLP be included in Systemax’s Annual Report on Form 10-K
filed with the SEC.
Submitted by the Audit Committee of the Board,
Chad M. Lindbloom (Chairman)
Robert D. Rosenthal
Paul S. Pearlman
18
Security Ownership Information
following
The
regarding
common stock as of April 13, 2021, by:
information
the beneficial ownership of Systemax
table provides certain
•
•
•
•
in
our directors;
the
our executive officers named
Summary Compensation Table / page 41 of
this proxy statement;
all current executive officers and directors as
a group; and
each person known by us to own beneficially
more than 5% of our outstanding common
stock
A person has beneficial ownership of shares if the
person has voting or investment power over the
shares or the right to acquire such power in 60 days.
Investment power means the power to direct the sale
or other disposition of the shares. Except as otherwise
described in the notes below, information on the
number of shares beneficially owned is as of April 13,
2021, and the listed beneficial owners have sole
voting and investment power. A total of 37,719,099
shares of our common stock were outstanding as of
April 13, 2021.
The address
for each beneficial owner, unless
otherwise noted is c/o Systemax Inc., 11 Harbor Park
Drive, Port Washington, NY 11050.
Security Ownership of Certain Beneficial Owners and Management
Name of Beneficial Owner
Shares of
Common Stock
(a)
Restricted Stock
Units vesting
within 60 days (1)
Stock Options
currently exercisable or becoming
exercisable within 60 days (1)
Percent of
Common Stock
Richard Leeds (2)
Bruce Leeds (3)
Robert Leeds (4)
Barry Litwin
Robert D. Rosenthal
Chad M. Lindbloom
Paul S. Pearlman
Lawrence Reinhold
Thomas Clark
Ritesh Chaturbedi
Eric Lerner
Robert Dooley (6)
14,269,922
13,529,196
13,070,886
16,810
70,660
680
-
27,849 (5)
23,169
8,831
19,940
86,198
-
-
-
-
1,839
1,839
1,839
1,839
-
-
-
-
-
-
20,000
10,000
-
-
-
42,436
5,576
35,850
42,109
38%
36%
35%
*
*
*
*
*
*
*
*
All of our current directors and executive
officers (16 persons)
25,100,345
7,356
192,731
67%
(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)
(2)
(3)
(4)
In computing the percentage of shares owned by each person and by the group, these restricted stock units and stock options, as applicable,
were added to the total number of outstanding shares of common stock for the percentage calculation.
Includes 167,221 shares owned by Mr. Richard Leeds directly, 2,082,687 shares owned by the Richard Leeds 2020 GRAT #2, 842,779 shares
owned by the Richard Leeds 2020 GRAT, 685,642 shares owned by the Richard Leeds 2019 GRAT and 62,398 shares owned by the Richard
Leeds 2020 Family Trust. Also, includes 1,838,583 shares owned by a limited partnership of which Mr. Richard Leeds is a general partner, 100
shares owned by the general partner of the aforementioned limited partnership, 235,850 shares owned by a limited partnership of which a limited
liability company controlled by Mr. Richard Leeds is the general partner, 50,000 shares owned by trusts for the benefit of his children for which Mr.
Richard Leeds acts as trustee, 7,774,862 shares owned by trusts for the benefit of his brothers’ children for which Mr. Richard Leeds acts as co-
trustee, 519,800 shares owned by a limited partnership in which Mr. Richard Leeds has an indirect pecuniary interest, and 10,000 shares owned
by trusts for the benefits of other family members for which Mr. Richard Leeds acts as co-trustee.
Includes 127,901 shares owned by Mr. Bruce Leeds, 1,834,671 shares owned by Bruce Leeds 2020 GRAT # 2, 882,099 shares owned by Bruce
Leeds 2020 GRAT, 690,133 shares owned by Bruce Leeds 2019 GRAT, and 54,490 shares owned by Bruce Leeds 2020 Family Trust. Also,
includes 1,838,583 shares owned by a limited partnership of which Mr. Bruce Leeds is a general partner, 100 shares owned by the general
partner of the aforementioned limited partnership, 50,000 shares owned by trusts for the benefit of his children for which Mr. Bruce Leeds acts as
trustee, 7,521,419 shares owned by trusts for the benefit of his brothers’ children for which Mr. Bruce Leeds acts as co-trustee, 519,800 shares
owned by a limited partnership in which Mr. Bruce Leeds has an indirect pecuniary interest, and 10,000 shares owned by trusts for the benefits of
other family members for which Mr. Bruce Leeds acts as co-trustee.
Includes 10,000 shares owned by Mr. Robert Leeds, 1,185,328, shares owned by the Robert Leeds 2020 GRAT # 2, 842,779 shares owned by
the Robert Leeds 2020 GRAT, 1,027,063 shares owned by the Robert Leeds 2019 GRAT, 35,855 shares owned by the Robert Leeds 2020 Family
Trust and 264,115 shares owned by the Robert Leeds Declaration of Trust. Also, includes 1,838,583 shares owned by a limited partnership of
which Mr. Robert Leeds is a general partner, 100 shares owned by the general partner of the aforementioned limited partnership, 50,000 shares
owned by trusts for the benefit of his children for which Mr. Robert Leeds acts as trustee, 7,297,263 shares owned by trusts for the benefit of his
brothers’ children for which Mr. Robert Leeds acts as co-trustee and 519,800 shares owned by a limited partnership in which Mr. Robert Leeds
has an indirect pecuniary interest.
Includes 1,000 shares held by Mr. Reinhold's spouse, of which Mr. Reinhold disclaims beneficial ownership.
(5)
(6) Mr. Dooley retired from Systemax effective April 3, 2021. Security ownership information is provided for Mr. Dooley as he is included in the
Summary Compensation Table / page 41 of this proxy statement.
19
Section 16(a) Beneficial Ownership Reporting Compliance
Based solely upon a review of Forms 3, 4 and 5 furnished to us and written representations from our officers and
directors, we believe that all of our officers and directors and all beneficial owners of 10% or more of any class of our
registered equity securities timely filed all reports required under Section 16(a) of the Exchange Act during fiscal
2020.
20
Equity Compensation Plans
Information for our equity compensation plans in effect as of the end of fiscal 2020 is as follows:
Number of securities to be
issued upon exercise of
outstanding options,
warrants and rights
(a)
Weighted-average
exercise price of
outstanding
options, warrants
and rights (1)
(b)
Number of securities
remaining available for
future issuance under
equity compensation plans
(excluding securities
reflected in column (a))
(c)
661,024
-
661,024
$19.78
-
$19.78
7,489,756
-
7,489,756
Plan Category
Equity compensation plans
approved by stockholders
Equity compensation plans not
approved by stockholders
Total
(1) The weighted-average exercise price does not take into account the shares issuable upon outstanding restricted stock units
vesting, which have no exercise price.
21
Certain Relationships and Related Transactions
Related Person Transaction Policy
Our written corporate approval policy requires transactions with related persons, to be reviewed and approved or
ratified by the following persons on an escalating basis:
ü our General Counsel,
ü our CFO,
ü our CEO, and
ü our Nominating/Corporate Governance Committee.
In this regard, all such transactions are first discussed with the CFO and are submitted to the General Counsel’s
office, including for an initial determination of whether such further related person transaction review is required.
We utilize the definition of related persons under applicable SEC rules, defined as any executive officer, director or
nominee for director of Systemax, any beneficial owner of more than 5% of the outstanding shares of our common
stock, or any immediate family member of any such person.
In reviewing these transactions, we strive to assure that the terms of any agreement between Systemax and a related
party is at arm’s length, fair and at least as beneficial to Systemax as could be obtained from third parties.
The Nominating/Corporate Governance Committee, in its discretion, may consult with third party appraisers, valuation
advisors or brokers to make such determination.
Transactions With Related Persons
Lease. On December 14, 2016, Global Equipment Company Inc., a wholly owned indirect subsidiary of Systemax
entered into an amended and restated lease (the “Lease”) for its Port Washington, NY headquarters (the
“Headquarters”). Systemax has leased the Headquarters since September 1988 from an entity owned by Messrs.
Richard, Bruce and Robert Leeds, directors and officers of, and together with their respective affiliated entities
majority stockholders of, Systemax (the “Landlord”). The Lease has an initial term of ten years, with two option
periods to extend the lease for additional periods of five years under each option and provides that it is intended to be
a “triple net” lease with Global Equipment Company Inc. to pay, or reimburse Landlord for paying, all costs and
operating expenses, including taxes, insurance and maintenance expenses, associated with the Lease and the
Headquarters. The Lease was reviewed and approved in accordance with the corporate approval policy noted above
for related party transactions. Lease payments totaled $998,700 for fiscal 2020.
Stockholders Agreement. Certain members of the Leeds family (including Messrs. Richard, Bruce and Robert
Leeds) and family trusts of Messrs. Richard, Bruce and Robert 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 our 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 2020, the
parties bound to the stockholders agreement beneficially owned 25,221,028 shares subject to such agreement
(constituting approximately 67.2% of the shares outstanding).
Pursuant to the stockholders agreement, Systemax 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
Systemax register under the Securities Act all or part of the shares held by such stockholders. Pursuant to the
incidental registration rights, Systemax 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. Systemax 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.
22
Vendor Agreement. In April 2020, due to the severely constrained supply of certain PPE product in the market due
to COVID-19, Global Industrial Distribution Inc. ("GID"), an indirect wholly owned subsidiary of Systemax, entered into
its standard form of vendor agreements with SoFi Paper Products LLC (“SoFi”) for the purchase of hand sanitizer,
and in July 2020 with SoFi’s affiliate Jokki Labs LLC ("Jokki"). SoFi and Jokki are each solely owned by Brandon and
Jordan Leeds, the sons of Executive Chairman Mr. Richard Leeds, and nephews of Vice Chairmen Messrs. Bruce
and Robert Leeds. The vendor agreements were negotiated on an arms-length basis on GID’s standard terms, and
within market pricing for such products at that time the agreements were entered into. The parameters required for
the entering into of these arrangements were reviewed and approved in advance by the Nominating/Corporate
Governance Committee in accordance with Systemax's corporate approval policy and related party transaction policy.
Total payments under the vendor agreements totaled $3,027,767.88 for fiscal 2020.
Retirement Agreement and Consulting Agreement. As previously disclosed on February 22, 2021, Systemax and
Mr. Dooley entered into a retirement agreement (the “Retirement Agreement”) under which he retired as the
President, Industrial Products Group effective as of April 3, 2021 (the "Retirement Date". At that time Mr. Dooley
entered into a four year consulting agreement with Systemax (the "Consulting Agreement") under which he receives
$285,000 per year and the option awards and performance restricted stock awards previously granted to Mr. Dooley
will continue to vest, terminate or remain exercisable in accordance with their terms during the ongoing consultancy
period.
23
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.
Messrs. Richard Leeds, Bruce Leeds, Robert Leeds and Barry Litwin biographical information is on page 6 of this
proxy statement.
Eric Lerner
Senior Vice President and General Counsel
Age: 63
Eric Lerner was appointed Senior Vice President and
General Counsel in May 2012. He was previously a
senior corporate partner at Kramer Levin Naftalis &
Frankel, a corporate partner, Co-Chair of the National
Corporate Department and member of the Board of
Directors of Katten Muchin Zavis Rosenman, and a
corporate partner and Chair of
the Corporate
Department of Rosenman & Colin.
Manoj Shetty
Senior Vice President and Chief Information Officer
Age: 60
Manoj Shetty was appointed Senior Vice President and
Chief Information Officer of Systemax in August 2014.
Mr. Shetty originally joined Systemax in 2000 and has
served in several Information Technology roles since
that time. Prior to joining Systemax, Mr. Shetty was
employed at Mercator (ultimately acquired by IBM) and
in the manufacturing sector.
Klaus Werner
Senior Vice President and Chief Marketing Officer
Age: 53
Klaus Werner joined Systemax in February 2020 as
Senior Vice President and Chief Marketing Officer.
Prior to joining Systemax, Mr. Werner worked in
various senior executive
in marketing, e-
commerce, technology, data and enterprise analytics.
During his career he has held leadership positions with
HD Supply, Alex Lee, Rosetta, Lowe’s and Bellsouth.
roles
Thomas Axmacher
Vice President and Controller
Age: 62
Thomas Axmacher was appointed Vice President and
Controller of Systemax in September 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.
Thomas Clark
Senior Vice President and Chief Financial Officer
Age: 39
Thomas Clark was appointed Vice President and CFO
of Systemax in October 2016. Mr. Clark originally
joined Systemax in 2007. Prior to being appointed Vice
President and CFO, Mr. Clark, served in a number of
senior financial positions at Systemax, most recently
Industrial Products Group.
as Controller of
Previously he held the positions of Director of Finance,
and Manager of Financial Planning & Analysis at
Systemax.
the
Ritesh Chaturbedi
Senior Vice President and Chief Operations Officer
Age: 43
Ritesh Chaturbedi joined Systemax in April 2019 as
Senior Vice President and Chief Operations Officer.
Prior to joining Systemax, Mr. Chaturbedi worked in
various senior leadership roles with broad responsibility
for operations, procurement, customer service,
technology and other key functions. He has led critical
growth
industry
environments and his recent experience includes:
Ditech Holding Corporation, Amazon.com, Sears and
Fareportal.
across multiple
operations
Donna Fielding
Senior Vice President and Chief Human Resources
Officer
Age: 50
Donna Fielding joined Systemax in 2018 as Senior
Vice President and Chief Human Resources Officer.
Prior to joining Systemax, Donna worked in various
human resource leadership roles in Fortune 500
organizations, including ADP, Credit Suisse, Pfizer and
JPMorgan Chase. Ms. Fielding has broad experience
in traditional human resources as well as cultural
transformation, differentiated and specialized talent
models, and integrated human capital solutions.
Claudia Hughes
Senior Vice President and Chief Sales Officer
Age: 53
Claudia Hughes joined Systemax in 2021 as Senior
Vice President and Chief Sales Officer. She was
previously Senior Vice President, US Field Sales for
Office Depot, where she held positions of increasing
responsibility during her 27-year tenure. Ms. Hughes
possesses exceptional business skills across B2B
Sales, Sales Leadership and Sales Operations, with
data driven results.
24
Compensation Discussion and Analysis
Executive Summary
In this section, we discuss the objectives of our compensation programs and policies, and the reasons why we pay
each material element of our executives’ compensation. Following this discussion, you will find a series of tables
containing more specific details about the compensation of our Named Executive Officers, (referred to as “NEOs”),
listed below. The following discussion relates to the NEOs and their titles as of the end of 2020.
Our NEOs* in 2020 were as follows:
Name
Richard Leeds
Bruce Leeds
Robert Leeds
Barry Litwin
Thomas Clark
Ritesh Chaturbedi
Eric Lerner
Robert Dooley
Title
Executive Chairman
Vice Chairman
Vice Chairman
Chief Executive Officer
Senior Vice President & Chief Financial Officer
Senior Vice President & Chief Operations Officer
Senior Vice President & General Counsel
Former President, Industrial Products Group
* We define our NEOs for 2020 as each person who served as chief executive officer or chief financial officer at any
time during 2020, and the three other most highly compensated persons serving as executive officers at year end,
and three additional executive officers. Mr. Dooley retired from Systemax effective April 3, 2021. Compensation
information for Mr. Dooley has been included, as he was a NEO as of December 31, 2020.
Central Objectives and Philosophy of Our Executive Compensation Programs
The Compensation Committee designs competitive compensation packages having the proper amount and mix of
short term, annual and long-term incentive programs to serve several important objectives:
•
•
•
attracting and retaining individuals of superior ability and managerial talent;
rewarding outstanding individual and team contributions to the achievement of our short and long-term
financial and business objectives, including our “ACE” programs (Accelerating the Customer Experience);
promoting integrity and good corporate governance;
• motivating our executive officers to manage for sustained growth and financial performance, and enhanced
stockholder value, for the long-term benefit of our stockholders, customers and employees; and
• mitigating risk and reducing risk taking behavior that might negatively affect financial results, without
diminishing the incentive nature of the compensation (as described below).
25
Risk Management
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
including the risk that an executive will take action that is detrimental to our long-term interests in order to increase
the executive’s short-term performance-based compensation:
•
•
Governance and Management Processes. Our Board is responsible for overseeing, and together with our
Audit Committee, monitors the risk management processes associated with our operations, and together
with our Audit Committee focuses on the most significant risks facing Systemax, and seeks to ensure that
appropriate general and specific risk mitigation considerations are implemented by management and
considered in our business and operations planning. Our Compensation Committee is responsible for
considering risk mitigation issues and for including strategies to mitigate risk in our compensation programs.
Regular Oversight. Risk management is regularly overseen by the Board and Audit Committee on a
quarterly basis, covering particular risk management matters in connection with general oversight and
approval of corporate matters, and through discussions relating to material risks affecting Systemax
presented by management and by our Finance, Legal, Risk Management/Insurance and Internal Audit
departments. The Compensation Committee members also receive these presentations and take risk
mitigation into account in designing 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 annual NEO Non-Equity Incentive Plans (“NEO Plans”) cap the maximum award payable
to any individual.
Clawback Provision. Our NEO Plans provide Systemax the ability to recapture cash awards from our
executive officers:
◦
◦
◦
to the extent a NEO Plan payment 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 payment or would have generated a lower payment; or
if misconduct by the executive officer contributed to Systemax having to restate all or a portion of
our financial statements; or
if the Board determines that the executive engaged in serious ethical misconduct.
Long-Term Equity Compensation. From time to time in the past, our executives and a limited number of
key business unit leaders and managers received stock options and/or restricted stock units in varying
amounts, in the discretion of the Compensation Committee. In 2020 we made significant changes to our
equity compensation philosophy and practices, as discussed below, and we have followed a more metrics
driven and goal-oriented benchmarked approach to providing annual grants of equity compensation. All
awards are subject to years long vesting periods, deferred distribution in the case of restricted stock unit
awards granted in 2020 and thereafter, and since 2019 include performance criteria in the vesting formula.
We believe the long-term vesting period for stock options and restricted stock unit grants causes our
executives to focus on long-term achievements and on building stockholder value. We anticipate continuing
to make such use of equity awards as an important component of our compensation programs in the future.
26
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 Compensation;
Special Bonus (in special circumstances);
Equity–Based Incentives; and
Benefits, Perquisites and Other Compensation
In 2020, the Compensation Committee developed general guidelines, policies and formulas for allocating
compensation among current and long-term compensation, mix of equity and non-equity compensation and fixed and
variable cash compensation. The Compensation Committee from time to time adjusts different elements of
compensation based upon its evaluation of our key business objectives and related compensation goals set forth
above. We do not have a formal policy regarding internal pay equity. In addition, we provide our stockholders,
pursuant to SEC regulation, with a non-binding “say on pay” advisory vote on our executive compensation every three
years. While the Compensation Committee considers the results of the stockholder “say on pay” vote, the voting
results are only one among many factors considered by the Compensation Committee in evaluating our
compensation principles. design and practices.
Base Salary. Historically, base salary levels were primarily determined based on individual and Systemax
performance as well as an objective assessment of the average prevailing salary levels for comparable companies in
our geographic regions (based on industry, revenues, number of employees, and similar factors), derived from widely
available published reports. Such reports do not identify the component companies. Beginning for 2020, the
Compensation Committee, assisted by the Compensation Committee’s compensation consultant, adopted a more
objective salary determination process primarily based on benchmarking our executive’s salaries against the salary
levels of similar executives via an extensive library of compensation surveys as well as against comparable
companies, principally based on industry, revenues, and number of employees. This peer set was further
supplemented by companies in our geographic regions as well as other public company competitors that may not
have otherwise been included. See discussion below of "Compensation Consultant” and “Peer Companies”.
Non-Equity Incentive Compensation. Incentive cash compensation of our NEOs under the 2018 and 2019 NEO
Plans (which operated under our 2010 LTIP) and under the 2020 NEO Plan (which operates under our 2020 LTIP) is
based primarily upon an evaluation of Systemax performance as it relates to three general business areas:
•
•
•
Operational and Financial Performance, 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, such as growth in the business (top line sales and margins), expansion of
product lines and introduction of new product categories, implementation of systems enhancements, new
processes and technology improvements, efficiency and productivity initiatives in our distribution center
network, marketing, advertising and sales initiatives, customer satisfaction and service enhancements, cost
management, and growth in the value of our assets, including through strategic acquisition transactions; and
Corporate Governance and Oversight, encompassing legal and regulatory compliance and adherence to
Systemax policies including the timely filing of periodic reports with the SEC, compliance with the Sarbanes-
Oxley Act, maintaining robust internal controls, OSHA compliance, environmental, employment and health/
safety laws and regulations compliance (including in connection with pandemic preparation and mitigation)
and enforcement of our corporate ethics policy.
The non-financial Strategic Accomplishments and Corporate Governance and Oversight goals are subjectively
approved by the Compensation Committee annually, based on Systemax’s changing needs from time to time, and are
intended to encourage cross functional efforts by our management team to support projects that benefit Systemax.
Detailed discussion of these goals can be found below in the discussion of the 2020 NEO Plan.
27
Our performance goals may be expressed (i) with respect to Systemax as a whole or with respect to one or more
divisions or business units, (ii) on a pre-tax or after-tax basis, and (iii) on an absolute and/or relative basis. The
performance goals may (i) employ comparisons with past performance of Systemax (including one or more divisions)
and/or (ii) 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 LTIP and in the 2020 LTIP are
determined in a manner consistent with the methods used in our SEC reporting on 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.
Pursuant to SEC rules, and except for disclosure of our actual performance relative to any actually achieved 2020
and future financial targets, Systemax is not disclosing the specific performance targets and actual performance
measures for the financial goals used in our NEO Plans because they represent confidential financial information that
Systemax does not disclose to the public, and Systemax believes that disclosure of this information would cause us
competitive harm. In addition, we do not disclose the specific subjective non-financial goals, since they may directly
relate to strategic initiatives, plans and tactics being undertaken by our business and may indicate where we intend to
devote our resources. We believe that our competitors having detailed knowledge of where we are devoting our
strategic resources and management emphasis could give our competitors an advantage and be harmful to our
competitive position.
Financial targets are set such that only exceptional performance will result in payouts above the target incentive and
poor performance will result in diminished or no incentive payment. We set the financial target performance goals at a
level for which there is a reasonably challenged chance of achievement based upon the range of assumptions used
to build our annual budget and forecasted performance. We did not perform specific analysis on the probability of the
achievement of the financial 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. We set the non-financial goals (which are established by the Compensation Committee and
measured by the management of Systemax and the assessment is approved by the Compensation Committee in four
incremental levels of achievement, as discussed below) to reflect a reasonable degree of difficulty to achieve
substantial performance.
Special Bonuses. From time to time, the Compensation Committee may make special awards to our executives, in
order to reward special achievement in the year that was not covered by the NEO Plan for that year. These awards
may take the form of cash bonuses or equity awards and were granted pursuant to the 2010 LTIP and predecessor
plans, and 2021 grants would be awarded under the 2020 LTIP.
Equity-Based Incentives. Equity based compensation provides an incentive for executives to manage Systemax
with a view to achieving results which would increase our stock price over the long-term and, therefore, the return to
our stockholders. Historically equity grants included only time based vesting conditions, but in 2019, 2020 and 2021
certain executives and other members of management received equity grants that included both time based and
performance based vesting conditions.
Outstanding equity-based incentives consist of:
•
•
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 our common stock on that date), subject to repricing as occurred in 2019; and
restricted stock units granted subject to vesting conditions including both time and / or performance criteria
(and beginning in 2020 subject to deferred delivery of vested restricted stock unit awards) constitute the
long-term incentive portion of our executive compensation package.
The Compensation Committee is cognizant of the timing of the grant of stock based compensation in relation to the
publication of Systemax earnings releases and other public announcements.
Benefits, Perquisites and Other Compensation. Systemax provides various employee benefit programs to our
employees, including NEOs such as:
• medical, dental, life and disability insurance benefits;
•
our 401(k) plan, which includes Systemax contributions;
28
•
•
automobile allowances and related reimbursements to all NEOs and certain other Systemax managers
which are not provided to all employees; and
severance payments, and/or change of control payments pursuant to negotiated employment agreements
they have with Systemax (described below).
Systemax does not provide any pension benefits or deferred compensation under any defined contribution or other
plan on a basis that is not tax-qualified.
Tax Deductibility Considerations. Section 162(m) of the Internal Revenue Code (the “Code”) limits to $1,000,000
the U.S. federal income tax deductibility of compensation paid in one year to a company's executive officers. While
the Code limits the deductibility of compensation paid to our named executive officers, our Compensation Committee
will-consistent with its past practice-continue to retain flexibility to design compensation programs that are in the best
long-term interests of Systemax and our stockholders, with deductibility of compensation being one of a variety of
considerations taken into account.
Role of the Compensation Committee and
CEO in Compensation Decisions
The Compensation Committee’s role and responsibility covers several distinct aspects of setting compensation:
•
•
•
review and approve the compensation of the Executive Chairman, Vice Chairmen and CEO;
approve, upon the recommendation of the CEO (following consultation with the Executive Chairman and
Vice Chairmen), (a) the annual total compensation of the other executive officers of Systemax, including
non-equity incentive and bonus compensation, (b) the annual compensation of certain subsidiary managers,
and (c) all individual equity incentive grants; and
together with the CEO, review and make periodic recommendations to the Board with respect to our general
compensation, benefits and perquisite policies and practices (including with respect to risk management),
including our stock-incentive based compensation plan.
Engagement of Compensation Consultant
The Compensation Committee is empowered to retain third party compensation consultants to provide assistance
with respect to compensation strategies, market practices, market research data and our compensation goals. The
Compensation Committee did not retain any such consultant in 2018. In March 2019, in coordination with and at the
recommendation of Systemax’s Chief Human Resources Officer, and with the approval of the Board, the
Compensation Committee directly retained a compensation consultant (EA Compensation Resources d/b/a
Compensation Resources, the “Compensation Consultant") to advise on and provide data as it relates to corporate
executive and senior management compensation for 2020, and the Board consulted with the Compensation
Consultant regarding compensation for non-employee directors and through a separate engagement approved by the
Board, the Chief Human Resources Officer and other members of executive management directly engaged a different
team within the Compensation Consultant to advise on compensation strategy for a broader employee population as
well as to review and advise upon the structure of our sales commission and compensation plans. In 2020, upon the
recommendation of the Chief Human Resources Officer, Systemax entered into a monthly retainer agreement with EA
Compensation Resources to provide position slotting and benchmarking for new roles and provide guidance on
overall compensation strategy.
In consultation with the Compensation Consultant, the Compensation Committee and management focused on the
following factors in redesigning our equity compensation philosophy and practices:
•
•
•
determining the market competitiveness and structure of Systemax’s executive salaries, as well as of other
salaried positions;
evaluating the appropriate mix of fixed and variable cash compensation;
evaluating the mix of equity and non-equity compensation;
29
•
•
developing a long-term equity incentive plan design and implementation strategy to align with the key
strategies of Systemax to attract, retain, and reward management for performance as well as to further align
management with our stockholders; and
creating a stronger link between incentive compensation and performance, for both equity and non-equity
incentive compensation.
In performing its work in 2019 the Compensation Committee made use of surveys and analyses prepared by the
Compensation Consultant to benchmark Systemax’s compensation arrangements against those of peer group
companies based on revenue, industry segment and geographic location (“core peers”). An additional set of peers
were identified from a "controlled company" and comparable talent pool perspective ("non-core peers"), in order to
gain best practice information from companies against whom we compete for talent. We did not use the non-core
peers as salary benchmark data. The Compensation Committee further analyzed compensation based on our
position descriptions and not historical compensation levels.
The peer group companies used by the Compensation Committee in its 2019 benchmarking analysis were as follows:
Peer Group Companies
2019 Revenue
1-800-Flowers.com, Inc.
Amazon.com Inc.
Bluelinx Holdings Inc.*
DXP Enterprises, Inc.*
Foundation Building Materials Inc.
GMS Inc.*
H&E Equipment Services Inc.*
HD Supply Holdings Inc.
Henry Schein Inc.
Honeywell International Inc.
Huttig Building Products Inc.*
Kaman Corp.*
Lifetime Brands Inc.
Lowe's Companies Inc.
MSC Industrial Direct Co Inc.
Office Depot, Inc.
Pool Corp.*
Siteone Landscape Supply Inc.*
The Hain Celestial Group Inc.
The TJX Companies, Inc.
Tyson Foods, Inc.
W.W. Grainger Inc.
Walmart Inc.
Watsco, Inc.
* core peers
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
1,248,623,000
280,522,000,000
2,637,268,000
1,300,000,000
2,200,000,000
3,116,032,000
1,300,000,000
6,146,000,000
9,985,803,000
36,709,000,000
812,000,000
761,608,000
734,900,000
72,148,000,000
3,363,800,000
10,600,000,000
3,199,517,000
2,360,000,000
2,302,468,000
41,700,000,000
42,405,000,000
11,500,000,000
524,000,000,000
4,770,362,000
The decisions made by the Compensation Committee following its work in respect of our NEOs are described below
under 2020 NEO Plan.
30
2010 and 2020 Long-Term Incentive Plan
Basic Features and Types of Awards
In 2010, the Board of Directors and our stockholders approved the 2010 Long-Term Incentive Plan (the “2010 LTIP”)
in order to promote the interests of Systemax and our stockholders. The 2010 LTIP expired on April 23, 2020 and
accordingly, it could not be used for future awards after that date. The grants made in 2020 and the prior years
described below were made under the 2010 LTIP before it expired and were the last grants to be made under the
2010 LTIP.
In March 2020 our Board adopted the Systemax Inc. 2020 Omnibus Long-Term Incentive Plan (the “2020 LTIP”),
which was approved by our stockholders in June 2020. Both the 2010 LTIP and the 2020 LTIP provide substantially
the same terms and conditions for the awarding of all forms of cash, equity and non-equity executive compensation,
the details of which are addressed in the annual NEO Plans, as described in this proxy statement.
Both the 2010 LTIP and the 2020 LTIP are intended to help us (i) attract and retain exceptional directors, including
non-employee directors, executive personnel and other key employees, including consultants and advisors to
Systemax and its affiliates; (ii) motivate such award recipients by means of performance-related incentives to achieve
longer-range performance goals; and (iii) enable such recipients to participate in the long-term growth and financial
success of Systemax.
Due to the timing, the salaries, non-equity compensation and equity grants paid or made in 2020 (including in respect
of 2019 performance) prior to March 2020 were originally awarded under the 2010 LTIP, and the salaries, non-equity
compensation and equity grants paid or made after March 2020 or in 2021 (including in respect of 2020 performance)
were awarded under the 2020 LTIP.
The following is a summary of the principal provisions of the 2010 LTIP and of the 2020 LTIP (the “LTIP Plans”).
The LTIP Plans set the basic parameters of our compensation policies and approach to executive compensation, and
the annual NEO Plans adopted by the Compensation Committee under the 2010 LTIP implement that approach by
linking compensation to achievement of Systemax’s goals as the needs of our business change over time. We
believe having consistent compensation policies that permit our compensation programs to adjust to address
constantly evolving market conditions allows us to readily address the business challenges we face and motivate our
employees to overcome them.
As explained below, certain basic features of the 2018, 2019 and 2020 NEO Plans historically are the same from year
to year/; however, in 2017 we implemented a compensation program that measured quarterly achievement and
provided for quarterly non-equity incentive compensation Awards for certain NEOs. While Systemax believed this
quarterly program had a beneficial effect in motivating our employees to achieve our and their 2018 and 2019 goals,
beginning in 2020 we replaced the quarterly feature with an annual measurement approach to better align our NEOs
with Systemax’s annual and multi-year initiatives and longer term interests.
The LTIP Plans provide for the granting of various equity or cash based awards (“Award”), subject to certain limits
including a maximum of 1,500,000 shares (or $10,000,000 in the case of cash performance awards) per individual
per year. An aggregate of 7,500,000 shares of common stock were authorized for stock based Awards, of which as of
April 6, 2020 Awards 5,676,016 shares remained available for future issuance. The 2010 LTIP expired in April 2020
without issuing additional awards.
Future awards under the 2020 LTIP may be:
•
•
•
•
•
incentive stock options;
non-qualified stock options;
stock appreciation rights;
restricted stock;
restricted stock units;
31
•
•
cash performance awards (which may take the form of non-equity incentive compensation under the NEO
Plans or may be in the form of special cash “bonuses”); or
other stock-based awards.
In the Summary Compensation Table, cash awards granted as NEO non-equity incentive compensation under the
NEO Plan for that year are reported as such in that column, and special cash bonuses awarded other than pursuant
to the parameters of the NEO Plan are reported as such in the “Bonus” column.
32
Administration
The Compensation Committee has the authority to administer, interpret and construe any provision of the LTIP Plans
(and the annual NEO Plans adopted under it) and to adopt such rules and regulations for administering the LTIP
Plans and the NEO Plans as it deems necessary or appropriate. All decisions and determinations of the
Compensation Committee are final, binding and conclusive on all parties.
Further, the Compensation Committee has sole discretion over the terms and conditions of any Award, including:
•
•
•
•
•
•
•
•
•
•
•
the persons who will receive Awards;
the type of Awards granted;
the number of shares subject to each Award;
exercise price of and Award;
expiration dates;
vesting schedules;
distribution and delivery schedules;
forfeiture provisions;
conditions on the achievement of specified performance goals for the granting or vesting of options,
restricted stock, restricted stock units or cash Awards; and
other material features of Awards.
The Compensation Committee or the Board may delegate to our officers or managers the authority to designate
Award recipients, but the Compensation Committee must grant all Awards to those individuals reasonably considered
to be subject to the insider trading provisions of federal securities law, including our officers and directors.
Individual Achievement and Systemax Performance
In determining the compensation of a particular executive, the Compensation Committee takes into account the ways
in which our executives most directly impact our business and seeks to correlate their compensation objectives to the
ways they can be effectively motivated, and their contribution objectively measured. Accordingly, the NEO Plans
adopted under the LTIP Plans give varied weights and consideration to the executive’s specific corporate
responsibilities, in some cases aside from specific Company metrics and achievements, as they relate to our
business and goals, and therefore the performance metrics, and the amount and mix of compensation elements, may
vary from year to year.
Beginning in 2019, all NEOs are aligned based upon the financial performance of the consolidated Systemax group,
and each of our NEOs, other than the CEO, has personal achievement targets that support one or more of the
Scorecards described below.
33
Common Elements of the 2018, 2019 and 2020 NEO Plans
Certain features of the 2018, 2019 and 2020 NEO Plans, such as performance categories, annual caps and partial
achievement adjustment mechanisms, are the same under each Plan, and are discussed here for ease of reference.
As explained below, in determining non-equity incentive compensation the financial goals are accorded a more
significant weighting factor than the non-financial goals, reflecting the Compensation Committee’s belief that the
financial goals are the most critical to enhancing stockholder value, maintaining long-term growth, and remaining
competitive, and furthermore provide the funding for implementing the strategic accomplishments and corporate
governance goals. Achievement and over-achievement of the financial goals results in incremental increases to the
available incentive compensation pool in which the participating executives share.
Certain new features and modifications to existing features of our NEO Plans were introduced for the 2020 year, such
as using annual rather than quarterly achievement measurement periods, expansion of the number of recipients of
equity incentive grants, changes to the relative weighting of Company and personal goals, tiered (by position)
allocation of non-equity and equity incentive compensation components, tiered (by position) standard equity award
grant levels and award ranges, minimum and maximum levels of non-equity award payouts, deferred delivery of
vested restricted stock units and benchmarking.
Systemax Consolidated Financial Goals for 2018, 2019 and 2020.
•
•
Adjusted Operating Income Performance. 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 Performance. The Compensation Committee believes sales performance is key to Systemax
achieving the scale necessary to remain competitive with larger companies. Sales are defined as sales
revenue net of returns on a constant currency basis. Sales are further adjusted for the impact of any
acquisition or disposition which is completed during the plan year.
Systemax Consolidated Non-Financial Goals for 2018 2019 and 2020.
•
•
Strategic Accomplishments. Prior to 2019, strategic goals were established surrounding accomplishments
within our Industrial Products Group, European Technology Products Group, and the Corporate and Other
Segment. In 2019, following the divestitures of our European Technology Group, Systemax combined its
Industrial Products Group Segment and its Corporate and Other Segment for purposes of setting and
measuring strategic accomplishments. For more information, see 2020 NEO Plan 2020--2020 Performance
against Objectives / page 38 of this proxy statement.
Corporate Governance Goals. 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, as evidenced by the absence of material weaknesses in internal controls
and financial reporting, prompt investigation and disposition of any ethical or governance issues that may
arise, and the absence of any serious OSHA matters. For more information, see 2020 NEO Plan 2020--2020
Performance against Objectives / page 38 of this proxy statement.
Business Unit or Individual Financial and Non-Financial Goal for 2018, 2019 and 2020. Business Unit and
Individual Goals were set for Messrs. Clark, Dooley and Lerner in 2018, and only individual goals were used in 2019.
These objectives are comprised of a variety of measurable strategic, financial and operational targets and initiatives
including sales growth and margin improvement, cost management, process improvement, corporate development,
and others as deemed appropriate by the CEO in consultation with the Compensation Committee. In each case, the
selected objectives are considered relevant to the scope of each executive’s functional areas of operation and are
designed to incentivize management to accomplish the businesses’ strategic plan. Starting in 2017 these goals were
administered on both a quarterly and full year basis, and beginning in 2020 the goals are administered on an annual
basis, as described below.
Targets, Caps and Adjustment Mechanisms. Achievement of each of the target financial goals generates a
variable non-equity incentive payment target (base case); reduced amounts are payable on a pro rata basis for each
financial goal component and on a partial basis on the non-financial goal components. The 2018, 2019 and 2020
34
NEO Plans impose a cap on the total non-equity incentive compensation that could be payable to each executive
based upon the relative weights of each component.
Systemax Consolidated Sales Target Financial Component for 2018 and 2019.
•
•
•
•
•
Sales target amount is payable starting at achievement of in excess of 80% of the sales target financial goal
component amount.
Sales target amount is capped at 140% (for 2018) and 102% (for 2019), of the sales target financial goal
component amount.
Each 1% variance in actual achievement below the 100% level will generate a 5% negative variance in the
target non-equity incentive amount.
Each 1% variance in actual achievement above the 100% level generates a 5% positive variance in the
target non-equity incentive amount.
No non-equity incentive compensation is payable in respect of the sales target if achievement is 80% or less
of the sales target while increased payments (up to 300% for 2018 and up to 110% for 2019 of the target
non-equity incentive compensation amount for this financial component) are payable on a pro rata basis for
over achievement of the sales target component.
Systemax Consolidated Adjusted Operating Income Financial Component for 2018 and 2019.
•
•
•
•
The adjusted operating income goal is payable at a level of 100% if the target is achieved.
Each $1,500,000 variance in actual achievement below the 100% level will generate a 5% negative variance
in the target non-equity incentive compensation amount.
Each $1,500,000 variance in actual achievement above the 100% level will generate a 5% positive variance
in the target non-equity incentive compensation amount up to 300% (for 2018) and 115% (for 2019) of the
target non-equity incentive compensation amount for this financial component.
Systemax Consolidated Non-Financial Goals. The non-financial goals are measured based on whether or
not the goal is either accomplished or not accomplished during the fiscal year. Accomplishment can be
measured at 0%, 25%, 50%, 75%, or 100% levels (as subjectively determined by the Compensation
Committee) with target non-equity incentive compensation paid out accordingly.
Business Unit or Individual Goals.
For 2018: Generally, the accomplishment can be measured at 0%, 25%, 50%, 75%, or 100% levels (as subjectively
determined by the CEO and approved by the Compensation Committee) with target non-equity incentive
compensation paid out accordingly. Adjusted Operating Income Performance of each business unit above or below
plan, would result in either higher potential or lower potential target non-equity incentive levels.
For 2019: Business Unit and Individual goals are subject to a double trigger mechanism in order to be earned. For
each quarterly period, or annual measurement, the performance of Adjusted Operating Income will fund the available
bonus eligible to be earned based upon the accomplishment of each objective. Each 5% variance below goal will
generate a 10% negative variance in the target non-equity incentive compensation amount and each 5% variance
above goal will generate a 5% positive variance in the target non-equity incentive compensation amount., Generally,
the Business Unit Goals can be measured between 0 and 100% accomplishment, while individual goal
accomplishment can be measured at 0%, 50%, 85%, or 100%, with target non-equity incentive compensation paid
out accordingly.
Compensation Committee Discretion. 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; exercises of such discretion are noted below. Targets and non-equity incentive
compensation are also subject to adjustment to prevent unreasonable results in the strict application of these
formulas. Executives must generally be employed with Systemax at the time the incentive compensation is paid out to
receive the payment, though the Compensation Committee has discretion to waive this requirement. The
Compensation Committee exercised its discretion in 2019.
35
2020 NEO Plan
In March 2020, pursuant to the 2010 LTIP, our Compensation Committee, with input from our CEO and in consultation
with the Compensation Consultant, established our 2020 NEO Incentive Plan (“2020 Plan”). The 2020 Plan pertains
specifically to the payment of non-equity incentive compensation to NEOs for 2020 and provides for equity
compensation as well. Certain new features and modifications to features of our 2018 and 2019 NEO Plans were
introduced for the 2020 year, such as using annual rather than quarterly achievement measurement periods for all
participants, expansion of the number of recipients of equity incentive grants, changes to the relative weighting of
Company and personal goals, tiered (by position) allocation of non-equity and equity incentive compensation
components, tiered (by position) standard equity award grant levels and award ranges, minimum and maximum levels
of non-equity award payouts, deferred delivery of vested restricted stock unit, and peer benchmarking. In addition,
performance metrics, caps, and measurement criteria were also modified for 2020. Many of these features are also
used in our 2021 NEO Plan, adopted in March 2021.
Our CEO does not participate in the NEO Plan on the same basis as our other executives. See a description of Mr.
Litwin’s employment and compensation arrangements at page 46 of this proxy statement.
2020 Plan Key Features
In adopting the 2020 Pan, the Compensation Committee changed the relative weightings of Company and personal
goals; previously such goals were weighted in varying degrees for different NEOs and other employees. In 2020, for
our NEOs (other than our CEO) we have assigned weights of 70% to achieving Company objectives and 30% to
achieving personal goals in order to earn incentive compensation awards, to better align our employees’ interests with
Systemax’ s objectives. As described below, the Compensation Committee has assigned measurable personal
objectives and business unit goals for each NEO, aligning them in supporting Systemax’s core business strategies
and 2020 Operating Plan. Other executives, business unit leaders and key contributors have varying tiered weighting
levels taking into account their positions and total compensation arrangements. These weightings and approach are
also used in our 2021 NEO Plan.
In addition, our senior executives, including our NEOs, have a greater percentage of their total compensation “at risk”
in the form of variable compensation (non-equity and equity incentive compensation) than do our other employees.
The Compensation Committee determined that increased use of equity compensation and regular, defined annual
equity grants would be in the best interests of Systemax and would enhance stockholder value by aligning the long-
term interests of a larger group of senior executives, business unit leaders and key managers with Systemax’s goals
and objectives. We anticipate following this approach under the 2021 NEO Plan and in the future.
The new or modified features adopted by the Compensation Committee under the 2020 Plan are as follows:
• Measurement Period: We measure financial, strategic, operational and other objectives on an annual
rather than quarterly basis, so that our employees will place greater focus on the long-term, cross-functional
initiatives we have undertaken as part of our Accelerate the Customer Experience (ACE) and Operational
Excellence Strategies.
•
•
•
•
Expanded pool of equity recipients: We have increased the number of recipients of equity incentive
grants to better align a larger group of senior executives, business unit leaders and key managers with
Systemax’s goals and objectives. The Compensation Committee also believes that providing equity awards
to key employees will assist Systemax in recruiting and retaining high quality members of management.
Annual awards of target non-equity incentive compensation: We will make annual awards of non-equity
compensation within ranges tiered by position. For NEOs (other than the CEO), the non-equity incentive
compensation award is targeted to range from 50% to 60% of annual base salary.
Annual awards of target equity incentive compensation: We will make annual awards of equity
compensation within ranges tiered by position. For NEOs (other than the CEO), equity awards generally can
range from 0 to 75% of target non-equity compensation (or more in exceptional circumstances). Awards will
be denominated as 50% stock options and 50% performance restricted stock units (number of shares based
on relative fair market value including applying Black-Scholes formula for options valuation).
Payout Limits: Minimum and maximum levels of non-equity award payouts continue to be features of the
2020 Plan, as modified; see discussion below.
36
•
•
•
•
•
Vesting of equity incentive compensation tied to performance: Other than the CEO, we have provided
that restricted stock unit awards will vest annually in amounts tied to achievement of financial targets for that
year (for 2020 awards, annual adjusted operating income growth plus 10 percentage points). Recipients will
have up to four years to earn the full grant based upon annual performance for each year.
Deferred delivery of vested restricted stock units: We have deferred delivery of any tranches of vested
restricted stock unit awards until the earlier of the grant’s expiration date or 45 days following termination of
employment.
Benchmarking: In order to set our compensation arrangements in line with market conditions and best
practices and to continue to attract and retain quality employees, we have benchmarked our compensation
practices against carefully chosen peer companies.
Alignment of all NEO’s, including the CEO, of performance against Systemax’s Balanced Scorecard
including the five key components of 1) Financial Performance, 2) Customer Experience, 3)
Operational Excellence, 4) Talent Management, and 5) Strategic Plan Implementation: As the CEO is
not measured against Individual Objectives, the allocation of weighting between each component is different
than the rest of the NEO Group.
Threshold Operating Income Performance to determine Eligible Bonus: Other than the CEO, Systemax
must achieve at least 80% of its targeted adjusted operating income dollars for year in order for any non-
equity incentive compensation to be earned. 80% Achievement will result in an eligible bonus pool of 50% of
the target bonus amount. 100% Achievement will result in an eligible bonus pool of 100% of the target bonus
amount. 150% Achievement will result in the maximum eligible bonus pool of 175% of target bonus amount.
The eligible bonus increases in a linear fashion between 80% and 100% Achievement and accelerates
between 100% and 150% Achievement. These thresholds determine the maximum amount of non-equity
incentive that could be earned. Actual earnings will be based upon the accomplishments of the Financial,
Non-Financial, and Individual Objectives Score Card.
The features of the 2020 NEO Plan are also used in the 2021 NEO Plan.
Systemax Financial Scorecard
For 2020, the Compensation Committee approved a Financial Scorecard comprised of targets for Revenue, Gross
Profit Dollars, Gross Margin Percent, SG&A, Adjusted Operating Income, and Adjusted Operating Margin. For our
CEO, 80% of his target non-equity compensation is tied to Financial Objectives (60% is tied to the achievement of
Adjusted Operating Income and 20% is tied to the achievement of sales objectives). For our other NEO’s, 42% of
their target non-equity compensation is tied to the achievement of the Financial Scorecard. For each of the metrics,
Revenue, Gross Profit Dollars, SG&A Budget, and Adjusted Operating Income are weighted at 8.4% each, while
Gross Margin % and Adjusted Operating Margin % are weighted at 4.2% each. These goals are all monitored for
achievement on a quarterly bases and final achievement is assessed on an annual basis.
Systemax Non-Financial Scorecards
For 2020, the Compensation Committee set the non-financial goals component to align with the accomplishment of
key strategic initiatives for Systemax. For each component of the Non-Financial Scorecard, 5% and 7% of target non-
equity incentive compensation is targeted for the CEO and other NEO’s respectively. The Non-Financial Scoreboard
percentages are set forth in the table below and the components are:
•
•
•
•
Customer Scorecard: measures achievement of new customer, customer retention, account growth, web
conversion and customer satisfaction targets.
Operational Scorecard: measures achievement of order handling, customer service response, shipment
costs, freight expense and safety targets.
People Scorecard: measures achievement of employee retention, sales compensation, salary efficiency,
talent management and employee satisfaction targets and projects.
Strategy and Operating Initiatives Scorecard: measures achievement of gross margin initiatives, new
product and private label growth, technology enhancements and our ACE initiative targets.
37
Individual NEO Objectives Scorecard
Each of our NEOs, other than the CEO, has personal achievement targets that support one or more of the
Scorecards described above. 30% of each of their target non-equity incentive compensation is based on achieving
these individual targets and 70% is based on the Scorecard achievements. In certain cases achievement is measured
objectively and in some cases is assessed subjectively by the Compensation Committee.
Mr. Litwin’s 2020 non-equity incentive compensation is set under his employment agreement (described at page 46 of
this proxy statement). In 2020, Mr. Litwin’s non-equity incentive compensation is based 20% on achieving sales
targets, 60% based on achieving operating income targets, and 20% based on the Non-Financial Scorecard
achievements.
Please see the discussion below regarding the individual goals set for each of our other NEOs: Messrs Clark,
Chaturbedi, Lerner and Dooley.
Under the 2020 Plan, the Compensation Committee set the following non-equity incentive target amounts, non-equity
incentive compensation cap percentages and relative percentages weights for each plan component for each of our
NEOs (other than our CEO, whose arrangements are set under his employment agreement) in 2020 who are
participating in our incentive compensation plans. Messrs Richard, Robert and Bruce Leeds no longer participate in
incentive compensation awards.
Name
Target
($)
Barry Litwin
1,169,438
Thomas Clark
240,750
Ritesh
Chaturbedi
Eric Lerner
296,400
301,900
Robert Dooley
615,000
Cap
(%)
111
175
175
175
175
Financial
Scorecard (%)
Customer
Scorecard
(%)
Operational
Scorecard (%)
Talent
Management
Scorecard (%)
Strategic Plan
Implementation
Scorecard (%)
Individual
Objectives
(%)
80
42
42
42
42
5
7
7
7
7
5
7
7
7
7
5
7
7
7
7
5
7
7
7
7
0
30
30
30
30
2020 Performance against Objectives.
The following table sets out the achievement level (presented as a percentage of target) for each plan component as
well as the relative payout ratio earned based on the mechanics of each plan component. The aggregate payouts,
expressed in dollars, appear in the Summary Compensation Table / page 41 of this proxy statement.
Net Sales
(%)
Adjusted
Operating
Income
(%)
Strategic
Objectives
(%)
Corporate
Governance
(%)
Business Unit/
Individual
Objectives
(%)
Name
Actual
Payout
Ratio
Actual
Payout
Ratio
Actual
Payout
Ratio
Actual
Payout
Ratio
Actual
Payout
Ratio
Weighted Average
Eligible Non-
Equity Incentive
Compensation
(%)
Barry Litwin
101
105
116
115
N/A
N/A
Thomas Clark
Ritesh Chaturbedi
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
104
104
123
123
Eric Lerner
N/A
N/A
N/A
N/A
104
123
Robert Dooley
N/A
N/A
N/A
N/A
104
123
94
94
94
94
94
94
N/A
N.A
115
115
100
100
123
123
115
100
123
115
100
123
109
120
120
120
120
38
In determining the compensation of our CEO for fiscal 2020 and approving the compensation of our other NEOs, the
Compensation Committee considered that management had performed well in addressing a unique national and
international business and economic environment as the Coronavirus exploded across the United States and the
world in the first quarter of 2020 and throughout the year. Business closings, lock down restrictions, unemployment,
quarantines, and product and supply chain disruptions presented unique challenges in 2020. The Compensation
Committee recognized that management had kept the business open, operating and growing throughout the
pandemic, had sourced difficult to find product, had introduced effective marketing and sales campaigns to position
the Company’s offerings for the pandemic, and had executed well on various work from home and return to work
initiatives. The Compensation Committee further considered that despite the pandemic, management had executed
well in onboarding and integrating additional senior executive and other management team leaders, training new
sales associates, continued to implement the next phase of our ACE (Accelerate the Customer Experience) strategy,
including new sales, customer service and marketing initiatives and in implementing the next phase of our
Operational Excellence program in our distribution centers, including new vendor and inventory programs, freight and
shipping process enhancements and distribution center efficiency and productivity initiatives. It was the view of the
Compensation Committee that management had executed these initiatives and had positioned Systemax for further
growth while managing risk in a difficult environment. Based on Systemax and individual performance, the
Compensation Committee believes that compensation levels for fiscal 2020 were consistent with the philosophy and
objectives of our compensation programs.
Systemax Consolidated Net Sales target for 2020 was set based upon Systemax’s continuing operations. The payout
ratio based upon 1% overachievement to plan was 105%.
Systemax Consolidated Adjusted Operating Income target for 2020 was set based upon Systemax’s continuing
operations. The payout ratio based upon overachievement to plan was 115%.
Systemax’s Non-Financial Score Card Goals included key objectives surroundings actions and KPIs related to four
key pillars: Customer, Operations, People, and Strategy. Within the Customer pillar, goals related to new customer
acquisition, customer retention, customer conversion, as well as overall customer satisfaction. Within the Operations
pillar, goals related to on time delivery, contact center efficiency, safety, and cost control. Within the People pillar, key
objectives included employee engagement scores, cost containment, and the launch of a new commission program
for its sales team. Finally, within the Strategy pillar, objectives included, new product launch targets, growth of private
label sales, and achievement of key segmentation projects within its customer base. Achievement of each metric
included payout ratios ranging from 50%, when 50% of the target was achieved, to 100% when at least 97% of the
target was achieved.
Each of the NEOs (other than our CEO) were responsible for five measurable initiatives linked to our 2020 Operating
Plan. Business Unit and individual objectives for Messrs. Clark, Chaturbedi, Lerner and Dooley, related to the full
year. Our CEO recommended and the Compensation Committee agreed to exercise discretion in the assessment of
these individual goals. Due to the extraordinary financial performance of Systemax, despite the macro challenges that
existed in 2020, and the constant changing priorities that came with operating during a global pandemic, it was
determined that Messrs. Clark, Chaturbedi, Lerner and Dooley should each be awarded based upon achieving 100%
of their objectives on a weighted average basis.
Mr. Clark’s objectives primarily were associated with leading finance initiatives, process improvement, risk mitigation
and internal audit activities, management of numerous finance department technology enhancements and assisting
the Company to achieve key financial targets.
Mr. Chaturbedi’s objectives were associated with reducing distribution center costs, achieving customer shipping
expectations, improving shipping quality control and damages, implementing inventory management and vendor
compliance and achieving customer experience and satisfaction targets.
Mr. Lerner’s objectives were primarily associated with oversight of loss prevention and security projects, product and
facility safety compliance, SEC public company and governance compliance, and reduction of legal expenses.
Mr. Dooley's objectives primarily were associated with achieving sales and gross profit targets and related initiatives,
sales and product growth initiatives, and human resources/staffing goals.
Based upon the performance of Adjusted Operating Income, each NEO other than the CEO, was eligible to earn
122.5% of their target bonus. As such and in the combination of the assessment of each component of non-equity
incentive compensation, Messrs. Clark, Chaturbedi, Lerner and Dooley each earned 120% of their original target
bonus. The 2020 threshold, target and maximum non-equity incentive amounts for each of our Named Executive
Officers are found in the Grants of Plan-Based Awards table / page 43 of this proxy statement.
39
Compensation Committee Report
The Compensation Committee has reviewed and discussed the above Compensation Discussion and Analysis with
management. Based on its review and discussions, the Compensation Committee recommended to the Board that
the Compensation Discussion and Analysis be included in the proxy statement and incorporated by reference into our
Annual Report on Form 10-K for the year ended December 31, 2020.
Submitted by the Compensation Committee of the Board,
Chad M. Lindbloom (Chairman)
Robert D. Rosenthal
Paul S. Pearlman
Compensation Committee Interlocks and Insider Participation
At the end of fiscal 2020, the members of Systemax’s Compensation Committee were Messrs. Lindbloom, Pearlman
and Rosenthal.
Mr. Litwin resigned from the Compensation Committee effective when he became CEO of Systemax on January 7,
2019 and Mr. Pearlman was appointed a member of the Compensation Committee effective as of such date.
Except as noted above with Mr. Litwin, Systemax does not employ any current (or former) member of the
Compensation Committee and no current (or former) member of the Compensation Committee has ever served as an
officer of Systemax.
In addition, none of our current (or former) directors serving on the Compensation Committee has any relationship
that requires disclosure under SEC regulations.
40
Executive Compensation
Summary Compensation Table
The following table sets forth the compensation earned by the Named Executive Officers for fiscal years 2020, 2019,
and 2018:
Name and Principal
Position
Year
Salary
($)
Bonus
($)
Stock
Awards
($)(1)
Option
Awards
($)(2)
Non-Equity
Incentive Plan
Compensation
($)(3)
All Other
Compensation
($)
Total
($)
980,000
980,000
990,900
980,000
980,000
984,700
980,000
980,000
986,200
30,000 (4)
30,000
30,000
30,000 (4)
30,000
30,000
30,000 (4)
30,000
30,000
2020
950,000
2019
950,000
2018
960,900
2020
950,000
2019
950,000
2018
954,700
2020
950,000
2019
950,000
2018
956,200
2020
866,300
Richard Leeds
Executive Chairman
Bruce Leeds
Vice Chairman
Robert Leeds
Vice Chairman
Barry Litwin (5)
Chief Executive Officer
Thomas Clark
Senior Vice President &
Chief Financial Officer
Ritesh Chaturbedi (8)
Senior Vice President &
Chief Operations
Officer
Eric Lerner (10)
Senior Vice President &
General Counsel
Robert Dooley
Former President,
Industrial Products
Group
700,000
1,271,800
205,400 (6)
3,043,500
2019
793,300
614,000
700,000
969,700
902,100
128,200
4,107,300
2018
2020
481,500
2019
450,000
2018
386,000
2020
494,000
2019
2018
2020
601,800
2019
601,800
2018
2020
615,000
2019
615,000
2018
615,000
90,300
90,100
241,300
303,500
204,500
204,100
289,600
171,300
193,300
356,500
39,800 (7)
991,300
72,700
55,500
1,238,800
634,800
51,300 (9)
1,310,400
67,700
67,500
295,000
320,100
361,900
229,000
44,800 (11)
1,143,700
76,300
1,522,200
138,400
138,100
307,500
412,000
739,700
423,900
623,600
71,100 (12)
1,702,300
159,300
1,917,700
88,400
1,327,000
(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 12 to our audited consolidated financial statements, included in our Annual Report
on Form 10-K for fiscal 2020.
(2) 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 12
to our audited consolidated financial statements, included in our Annual Report on Form 10-K for fiscal 2020.
(3) The 2017 figures in this column represent the amount earned in fiscal 2017 (although paid in fiscal 2018) pursuant to the 2017
NEO Plan; and the 2018 figures in this column represent the amount earned in fiscal 2018 (although paid in fiscal 2019)
pursuant to the 2018 NEO Plan; and the 2019 figures in this column represent the amount earned in fiscal 2019 (although paid
in fiscal 2020) pursuant to the 2019 NEO Plan. For more information, see Grants of Plan-Based Awards / page 43 of this proxy
statement. Because these payments were based on predetermined performance metrics, these amounts are reported in the
Non-Equity Incentive Plan column.
(4) Auto-allowance.
41
(5) Mr. Litwin was appointed as the Chief Executive Officer on January 7, 2019 and was not a Named Executive Officer in fiscal
year 2018 and therefore no amounts are reported for fiscal years 2018 in the Summary Compensation Table. The amount
presented for 2019 is Mr. Litwin’s $825,000 base salary pro-rated for 2019.
(6)
(7)
Includes auto-allowance ($30,000), transportation related expenses ($43,700), gross-up on transportation related expenses
($41,800), Systemax 401(k) contributions ($6,400) and dividend equivalent payments on unvested restricted stock ($83,500).
Includes auto-allowance ($14,400), Systemax 401(k) contributions ($6,400), and dividend equivalent payments on unvested
restricted stock ($19,000).
(8) Mr. Chaturbedi was not a Named Executive Officer in fiscal years 2018 and 2019, and therefore no amounts are reported for
fiscal years 2018 and 2019 in the Summary Compensation Table.
(9)
Includes auto-allowance ($18,000), Systemax 401(k) contributions ($6,400), and dividend equivalent payments on unvested
restricted stock ($26,900).
(10) Mr. Lerner was not a Named Executive Officer in fiscal years 2018, and therefore no amounts are reported for fiscal year 2018
in the Summary Compensation Table.
(11) Includes auto-allowance ($18,000), Systemax 401(k) contributions ($6,400), and dividend equivalent payments on unvested
restricted stock ($20,400).
(12) Includes auto-allowance ($18,000), Systemax 401(k) contributions ($6,100), and dividend equivalent payments on unvested
restricted stock ($47,000).
42
Grants of Plan-Based Awards
The following table sets forth the estimated possible payouts under the cash incentive awards granted to our Named
Executive Officers in respect of 2020 performance under the 2020 NEO Plan.
Name
Grant
Date
Estimated Future Payouts Under
Non-Equity Incentive Plan Awards
(1)
Target
($)
Threshold
($)
Maximum
($)
All Other
Stock
Awards:
Number of
Shares of
Stock or Units
(#)
All Other
Option
Awards:
Number of
Securities
Underlying
Options
(#)
Exercise or
Base Price
of Option
Awards
($/Sh)
Grant Date
Fair Value
of Stock
and Option
Awards
Barry Litwin
Thomas Clark
Ritesh Chaturbedi
Eric Lerner
Robert Dooley
-
-
-
-
-
110,512
1,169,438
1,299,375
60,188
240,750
421,313
74,100
296,400
518,700
75,225
300,900
526,575
153,750
615,000
1,076,250
(1) Amounts presented assume payment of threshold, target and maximum awards at the applicable level.
43
Outstanding Equity Awards at Fiscal Year-End for Fiscal 2020
The following table sets forth information regarding stock option and restricted stock awards previously granted to our
Named Executive Officers which were outstanding at the end of fiscal 2020.
The market value of the unvested stock award is based on the closing price of one share of our common stock as of
December 31, 2020, the last trading day of the fiscal 2020, which was $35.73.
Option Awards
Stock Awards
Name
Barry Litwin
Thomas Clark
Ritesh Chaturbedi
Eric Lerner
Robert Dooley
6.01 (5)
02/01/26
4,495 (6)
6.02 (5)
11/10/26
2,374 (7)
84,800
Number of
Securities
Underlying
Unexercised
Options
(#)
Exercisable
0
Number of
Securities
Underlying
Unexercised
Options
(#)
Un-exercisable
90,000 (1)
Option
Exercise
Price
($)
23.14
Option
Expiration
Date
01/07/29
Number of
Shares
or Units of
Stock That
Have Not
Vested
(#)
24,200 (2)
28,272 (3)
2,500
25,000
12,474
0
0
0
6,250
12,500
15,524
0
20,348
5,000
37,500
15,900
0
0 (4)
0 (4)
12,474 (8)
9,845 (4)
19,410 (4)
22,303(4)
0 (4)
0 (4)
23.72
23.65
22.71
23.65
8.32 (5)
6.01 (5)
01/17/29
02/10/30
04/22/29
02/10/30
05/02/25
02/01/26
4,623 (6)
5,379 (7)
5,497 (6)
1,721 (7)
15,253 (8)
23.72
01/17/29
7,383 (4)
0 (4)
0 (4)
0 (4)
23.65
16.43 (5)
02/10/30
03/01/22
10,000 (9)
6.01 (5)
04/03/22 (10)
5,730 (6)
6.65 (5)
04/03/22 (10)
3,639 (7)
15,899 (8)
23.72
04/03/25 (11)
15,090 (4)
23.65
04/03/25 (11)
Market Value
of Shares or
Units of Stock
That Have Not
Vested
($)
864,700
1,010,200
160,600
165,200
192,200
196,400
61,500
357,300
204,700
130,000
(1)
(2)
(3)
(4)
(5)
(6)
(7)
(8)
(9)
(10)
(11)
Options vest as follows: 20% of the stock options will vest on the first anniversary of the grant date, 20% will vest on the
2nd anniversary and 10% will vest on each subsequent anniversary of the grant date.
Restricted stock units vest as follows: 6,051 units on January 7, 2020; 6,050 units on January 7, 2021; 6,050 units on
January 7, 2022; 6,050 units on January 7, 2023; and 6,050 units on January 7, 2024.
Restricted stock units vest as follows: 7,068 units on January 7, 2021; 7,068 units on January 7, 2022; 7,068 units on
January 7, 2023; and 7,068 units on January 7, 2024.
Options vest 25% per year over four years from date of grant. The grant date for each option is ten years prior to the
option expiration date.
On January 17, 2019, the exercise price of each outstanding Employee Stock Option (right to buy) was amended to
reduce such exercise price by $2.30.
Performance stock units vest over four years through 2022 based upon year over year growth in Adjusted Operating
Income.
Performance stock units vest over four years through 2023 based upon year over year growth in Adjusted Operating
Income.
Options vest 25% per year over four years from December 31, 2018. The grant date for each option is January 17, 2019.
In accordance with the terms of the Retirement Agreement, any unvested shares shall vest on the Retirement Date.
In accordance with the terms of the Retirement Agreement, any unexercised options shall expire one year from the
Retirement Date.
In accordance with the terms of the Retirement Agreement, any unexercised options shall expire at the end of the term of
the Consulting Agreement.
44
Option Exercises and Stock Vested For Fiscal 2020
The table below shows stock options that were exercised, and restricted stock units that vested, during fiscal 2020 for
each of our Named Executive Officers:
Name
Barry Litwin
Thomas Clark
Ritesh Chaturbedi
Eric Lerner
Robert Dooley
Option Awards
Stock Awards
Number of Shares
Acquired on Exercise
(#)
10,000
Value Realized on
Exercise
($)
252,900
Number of Shares
Acquired on Vesting
(#)
1,259 (2)
6,051 (3)
Value Realized
on Vesting
($) (1)
26,800
150,800
3,499
4,001
10,000
3,479
3,000
-
3,502
1,498
5,000
2,313
7,687
104,900
144,600
361,300
24,100
45,200
-
85,400
36,500
129,000
69,700
231,300
3,845 (4)
1,443 (5)
3,953 (4)
3,269 (5)
4,701 (4)
1,082 (5)
4,900 (4)
2,212 (5)
5,000 (6)
169,800
-
174,600
-
207,600
-
216,400 (4)
-
104,300 (6)
(1)
(2)
(3)
(4)
(5)
(6)
Options vest as follows: 20% of the stock options will vest on the first anniversary of the grant date, 20% will vest on the
2nd anniversary and 10% will vest on each subsequent anniversary of the grant date.
Restricted stock units vest on June 1, 2020.
Restricted stock units vest as follows: 6,051 units on January 7, 2020; 6,050 units on January 7, 2021; 6,050 units on
January 7, 2022; 6,050 units on January 7, 2023; and 6,050 units on January 7, 2024.
Pursuant to a grant of performance-based restricted stock units on January 17, 2019.
Pursuant to a grant of performance-based restricted stock units on February 10, 2020. Value realized on vesting of this
award is deferred until the earlier of a four year vesting period or termination of employment.
Pursuant to a grant of restricted stock units on March 1, 2012, the restricted stock units vest in ten equal annual
installments of 5,000 units each, beginning on March 1, 2013.
45
Employment Arrangements of the Named Executive Officers
The 2021 salary levels discussed below reflect the Compensation Committee’s view that such levels are appropriate
in light of the current business performance and expected performance in 2021, and takes into account the other
compensation elements applicable to each employee.
Richard Leeds – Richard Leeds has no employment agreement and is an “at will” employee. Base salary accounted
for 97% of Mr. Leeds total cash compensation for 2020. Mr. Leeds’ base salary for 2021 is set at $950,000.
Bruce Leeds – Bruce Leeds has no employment agreement and is an “at will” employee. Base salary accounted for
97% of Mr. Leeds total cash compensation for 2020. Mr. Leeds’ base salary for 2021 is set at $950,000.
Robert Leeds – Robert Leeds has no employment agreement and is an “at will” employee. Base salary accounted
for 97% of Mr. Leeds total cash compensation for 2020. Mr. Leeds’ base salary for 2021 is set at $950,000.
Barry Litwin – Systemax entered into an employment agreement with Mr. Litwin to employ him as Chief Executive
Officer, commencing January 7, 2019. The agreement provides for a minimum annual base salary of $825,000 and
an annual cash bonus (the “Bonus”) in an amount to be determined by Systemax under its NEO Plan, which Bonus
generally will range from 0%-150% of Mr. Litwin’s annual base salary, with an on-target performance payout of 135%
of annual base salary, assuming Mr. Litwin meets the performance objectives (including the financial and other
performance objectives) established for him by Systemax. In addition, Mr. Litwin is entitled to a car allowance. Base
salary accounted for 38% of Mr. Litwin’s total cash compensation for 2020. Mr. Litwin's salary for 2021 is set at
$909,600. Compensation that may become payable following the termination of his employment or a change in
control of Systemax, are discussed below under Potential Payments Upon Termination of Employment or Change in
Control / page 47 of this proxy statement.
Thomas Clark – Mr. Clark has no employment agreement and is an “at will” employee. Base salary accounted for
59% of Mr. Clark’s total cash compensation for 2020. Mr. Clark’s non-equity incentive compensation for 2020 was
determined as described above under the heading 2020 NEO Plan. Mr. Clark’s base salary for 2021 is set at
$505,600. Compensation that may become payable following the termination of his employment or a change in
control of Systemax, are discussed below under Potential Payments Upon Termination of Employment or Change in
Control / page 47 of this proxy statement.
Ritesh Chaturbedi – Mr. Chaturbedi has no employment agreement and is an “at will” employee. Base salary
accounted for 55% of Mr. Chaturbedi’s total cash compensation for 2020. Mr. Chaturbedi’s non-equity incentive
compensation for 2020 was determined as described above under the heading 2020 NEO Plan. Mr. Chaturbedi’s
base salary for 2021 is set at $518,700. Compensation that may become payable following the termination of his
employment or a change in control of Systemax, are discussed below under Potential Payments Upon Termination of
Employment or Change in Control / page 47 of this proxy statement.
Eric Lerner – Systemax entered into an employment agreement with Mr. Lerner on April 12, 2012. The agreement
provides for a minimum base salary of $480,000 (which may be increased at the discretion of Systemax) and a bonus
(which the agreement states is expected to be at least equal to 50% of the base salary) assuming Mr. Lerner meets
certain performance objectives (under a 2020 amendment to the agreement, 70% of such bonus is based on the
performance objectives for Systemax under its NEO cash bonus plan for the applicable year and 30% of such bonus
is based on the achievement of performance objectives established for him by Systemax). He is entitled to receive a
car allowance. Base salary accounted for 58% of Mr. Lerner's total cash compensation for 2020. Mr. Lerner’s bonus
for 2020 was determined as described above under the heading 2020 NEO Plan. Mr. Lerner’s salary for 2021 is set at
$601,800. Compensation that may become payable following the termination of his employment or a change in
control of Systemax, are discussed below under Potential Payments Upon Termination of Employment or Change in
Control / page 47 of this proxy statement.
Robert Dooley – As previously disclosed, Mr. Dooley retired from Systemax effective April 3, 2021. Base salary
accounted for 43% of Mr. Dooley’s total cash compensation for 2020. Mr. Dooley’s non-equity incentive compensation
for 2020 was determined as described above under the heading 2020 NEO Plan.
46
Potential Payments Upon Termination of Employment or Change in Control
Barry Litwin. Mr. Litwin’s employment agreement is terminable upon death or total disability, by Systemax for “cause” (as
defined) or without cause, or by Mr. Litwin voluntarily for any reason or for “good reason” (as defined). In the event of
termination for death, total disability, cause or voluntary termination by Mr. Litwin Systemax will owe no further payments
other than as applicable under disability or medical plans and any accrued but unused vacation time (up to four weeks). In
the event of termination for death or total disability, Mr. Litwin would also receive the pro rata portion of any bonus which
would otherwise be paid to him if such termination had not occurred. If Mr. Litwin resigns for good reason or if Systemax
terminates him for any reason other than total disability, death or cause, he shall also receive in addition to the payments
described above for other terminations, severance payments equal to 12 months’ base salary, the target bonus which
would otherwise be paid for the year in which termination occurred, and a reimbursement of costs for COBRA insurance
coverage for twelve months.
Eric Lerner. Mr. Lerner’s employment agreement is terminable upon death or total disability, by Systemax for “cause” (as
defined) or without cause, or by Mr. Lerner voluntarily for any reason or for “good reason” (as defined). In the event of
termination for death, total disability, cause or voluntary termination by Mr. Lerner, Systemax will owe no further payments
other than as applicable under disability or medical plans and any accrued but unused vacation time (up to four weeks). In
the event of termination for total disability or death, Mr. Lerner 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. Lerner resigns for
good reason or if Systemax terminates him for any reason other than total disability, death or cause, he shall also receive
in addition to the payments described above for other terminations, severance payments equal to 12 months’ base salary,
one year’s bonus based on his average annual bonus for the prior two years, and a reimbursement of costs for COBRA
insurance coverage for twelve months.
Ritesh Chaturbedi – Mr. Chaturbedi's offer letter provides that if his employment is terminated by Systemax without
"cause" he would be entitled to receive (i) severance payments equal to six months base salary and (ii) payments by
Systemax of the costs of continued medical coverage under COBRA for six months following termination.
Barry Litwin, Thomas Clark, Ritesh Chaturbedi, Eric Lerner and Robert Dooley.
Pursuant to the restricted stock unit agreement with Mr. Litwin (dated January 7, 2019): (i) if Mr. Litwin is terminated for
cause, any unvested portion of his restricted stock units will terminate and be forfeited; (ii) if the named executive’s
employment is terminated without cause or for good reason within twelve months following a change in control, 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 Systemax that are represented by those vested restricted stock units; and (iii) if Mr. Litwin's
employment is terminated due to total disability or death, his estate or designated beneficiary(ies), whichever is
applicable, 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 Systemax that are represented by those vested restricted stock units. In
addition, in the event of termination without cause or by Mr. Litwin for good reason, the next immediate tranche of granted
restricted stock that would otherwise have vested if employment had not been so terminated shall accelerate and be
vested as of the date of termination.
Pursuant to the performance restricted stock unit agreements with Mr. Clark (dated January 17, 2019 and February 10,
2020), Mr. Chaturbedi (dated April 22, 2019 and February 10, 2020), Mr. Lerner (dated January 17, 2019 and February 10,
2020) and Mr. Dooley (dated January 17, 2019 and February 10, 2020): (i) if the named executive is terminated for cause,
any unvested portion of his performance restricted stock units will terminate and be forfeited; (ii) if the named executive’s
employment is terminated without cause or for good reason within six months following a change in control, 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 Systemax that are represented by those vested performance restricted stock units; and (iii) if
the applicable named executive’s employment is terminated due to total disability or death, his estate or designated
beneficiary(ies), whichever is applicable, 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 Systemax that are represented by those
vested performance restricted stock units.
Pursuant to our standard option agreements, in the event the employment of an above named executive is terminated for
any reason other than death, total 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 total 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.
47
Pursuant to the stock option agreements with Mr. Litwin (January 7, 2019), Mr. Clark (dated November 10, 2016, January
17, 2019 and February 10, 2020)), Mr. Dooley (dated February 1, 2016, December 14, 2016, January 17, 2019 and
February 10, 2020)), Mr. Lerner (dated May 2, 2015, February 1, 2016, January 17, 2019 and February 10, 2020), Mr.
Shetty (dated January 17, 2019), and Mr. Reinhold (dated February 1, 2016 and December 14, 2016), if the named
executive’s employment is terminated without cause or for good reason within six months (twelve months for Mr. Litwin)
following a “change in control”, such named executive will become immediately vested in all outstanding unvested stock
options, and all of the named executive’s outstanding options shall remain exercisable in accordance with their terms, but
in no event for less than 90 days after such termination. In addition, with respect to Mr. Litwin's agreement, in the event of
termination without cause or by Mr. Litwin for good reason, the next immediate tranche of granted options that would
otherwise have vested if employment had not been so terminated shall accelerate and be vested as of the date of
termination.
Robert Dooley. As noted herein, Mr. Dooley entered into a Retirement Agreement pursuant to which he received the
compensation described under Employment Arrangements of the Named Executive Officers / page 46 of this proxy
statement.
48
The tables below describe potential payments and benefits upon termination of employment or change in control as of
January 2, 2021, the last day of fiscal 2020, and using the closing price of our common stock on December 31, 2020, the
last trading day of fiscal 2020. These amounts are estimates and the actual amounts to be paid can only be determined at
the time of the termination of employment or the date of the change in control.
Barry Litwin
Termination by
Systemax without
“Cause” or
Resignation by
Employee for “good
reason”
($)
Termination Due to
Death or Total
Disability
($)
Change In Control
Only
($)
2,035,700 (1)
1,169,400 (2)
255,000 (3)
-
470,800 (5)
1,947,800 (6)
42,200 (7)
2,803,700
-
3,117,200
-
-
-
-
-
Type of Payment
Cash Compensation (Salary &
Non-Equity Incentive
Compensation)
Value of Accelerated Vesting of
Stock Option Awards
Value of Accelerated Vesting of
Restricted Stock Unit Awards
Medical and Other Benefits
Total
Termination by
Systemax without
“Cause” or
Resignation by
Employee for “good
reason”
within a certain
period of time
following a Change in
Control
($)
2,035,700 (1)
1,020,000 (4)
1,947,800 (6)
42,200 (7)
5,045,700
(1) Represents one year’s base salary ($866,300) and target bonus for fiscal year 2020 ($1,169,400).
(2) Represents target bonus for fiscal year 2020 ($1,169,400).
(3) Represents accelerated vesting of 20,000 stock options. Pursuant to Mr. Litwin’s stock option agreement (dated January 7, 2019), if
Mr. Litwin’s employment is terminated without cause or for good reason, the next immediate tranche of granted options that would
otherwise have vested if employment had not been so terminated shall accelerate and be vested as of the date of termination.
(4) Represents accelerated vesting of 80,000 stock options. Pursuant to Mr. Litwin’s stock option agreement (dated January 7, 2019), if
Mr. Litwin’s employment is terminated without cause or for good reason within twelve months following a “change in control”, he will
become immediately vested in all outstanding unvested stock options, and all of Mr. Litwin’s outstanding options shall remain
exercisable in accordance with their terms, but in no event for less than 90 days after such termination.
(5) Represents accelerated vesting of 13,118 . Pursuant to Mr. Litwin’s restricted stock unit agreements (dated January 7, 2019 and
January 7, 2020), if Mr. Litwin’s employment is terminated without cause or for good reason, the next immediate tranche of granted
restricted stock that would otherwise have vested if employment had not been so terminated shall accelerate and be vested as of
the date of termination.
(6) Represents accelerated vesting of 52,472 unvested restricted stock units. Pursuant to Mr. Litwin’s restricted stock unit agreement
(dated January 7, 2019 and January 7, 2020), if Mr. Litwin’s employment is terminated without cause or for good reason within
twelve months following a “change in control” or if Mr. Litwin's employment is terminated due to death or total disability, all non-
vested units shall accelerate and be vested as of the date of termination.
(7) Represents reimbursement of medical and dental insurance payments under COBRA for twelve months.
49
Thomas Clark
Termination by
Systemax without
“Cause” or
Resignation by
Employee for “good
reason”
($)
Termination Due to
Death or Total
Disability
($)
Change In Control
Only
($)
-
-
-
-
-
-
-
-
-
213,100 (2)
-
272,300
-
-
-
-
-
-
Type of Payment
Cash Compensation (Salary &
Non-Equity Incentive
Compensation)
Value of Accelerated Vesting of
Stock Option Awards
Value of Accelerated Vesting of
Restricted Stock Unit Awards
Value of Accelerated Vesting of
Performance Restricted Stock
Unit Awards
Medical and Other Benefits
Total
Termination by
Systemax without
“Cause” or
Resignation by
Employee for “good
reason”
within a certain
period of time
following a Change in
Control
($)
-
272,300 (1)
-
213,100 (2)
-
485,400
(1) Represents accelerated vesting of 22,319 stock options. Pursuant to Mr. Clark’s stock option agreements (dated January 17, 2019
and February 10, 2020), if Mr. Clark’s employment is terminated without cause or for good reason within six months following a
“change in control”, he will become immediately vested in all outstanding unvested stock options, and all of Mr. Clark’s outstanding
options shall remain exercisable in accordance with their terms, but in no event for less than 90 days after such termination.
(2) Represents accelerated vesting of 5,938 unvested performance restricted stock units. Pursuant to Mr. Clark’s performance restricted
stock unit agreement (dated January 17, 2019 and February 10, 2020), if Mr. Clark’s employment is terminated without cause or for
good reason within six months following a “change in control” or if Mr. Clark's employment is terminated due to death or total
disability, all non-vested units shall accelerate and be vested as of the date of termination.
50
Ritesh Chaturbedi
Termination by
Systemax without
“Cause” or
Resignation by
Employee for “good
reason”
($)
247,000 (1)
-
-
-
23,500 (4)
270,500
Type of Payment
Cash Compensation (Salary &
Non-Equity Incentive
Compensation)
Value of Accelerated Vesting of
Stock Option Awards
Value of Accelerated Vesting of
Restricted Stock Unit Awards
Value of Accelerated Vesting of
Performance Restricted Stock
Unit Awards
Medical and Other Benefits
Total
Termination Due to
Death or Total
Disability
($)
Change In Control
Only
($)
-
-
-
359,000 (3)
-
359,000
-
-
-
-
-
-
Termination by
Systemax without
“Cause” or
Resignation by
Employee for “good
reason”
within a certain
period of time
following a Change in
Control
($)
247,000 (1)
528,800 (2)
-
359,000 (3)
23,500 (4)
1,158,300
(1) Represents six months base salary ($247,000).
(2) Represents accelerated vesting of 41,713 stock options. Pursuant to Mr. Chaturbedi’s stock option agreements (dated April 22, 2019
and February 10, 2020), if Mr. Chaturbedi’s employment is terminated without cause or for good reason within six months following a
“change in control”, he will become immediately vested in all outstanding unvested stock options, and all of Mr. Chaturbedi’s
outstanding options shall remain exercisable in accordance with their terms, but in no event for less than 90 days after such
termination.
(3) Represents accelerated vesting of 10,002 unvested performance restricted stock units. Pursuant to Mr. Chaturbedi’s performance
restricted stock unit agreements (dated April 22, 2019 and February 10, 2020), if Mr. Chaturbedi’s employment is terminated without
cause or for good reason within six months following a “change in control” or if Mr. Chaturbedi’s employment is terminated due to
death or total disability, all non-vested units shall accelerate and be vested as of the date of termination.
(4) Represents reimbursement of medical and dental insurance payments under COBRA for six months.
51
Eric Lerner
Termination by
Systemax without
“Cause” or
Resignation by
Employee for “good
reason”
($)
Termination Due to
Death or Total
Disability
($)
Change In Control
Only
($)
1,011,800 (1)
410,000 (2)
-
-
-
33,800 (5)
1,045,600
-
-
261,200 (4)
-
671,200
-
-
-
-
-
Type of Payment
Cash Compensation (Salary &
Non-Equity Incentive
Compensation)
Value of Accelerated Vesting of
Stock Option Awards
Value of Accelerated Vesting of
Restricted Stock Unit Awards
Value of Accelerated Vesting of
Performance Restricted Stock
Unit Awards
Medical and Other Benefits
Total
Termination by
Systemax without
“Cause” or
Resignation by
Employee for “good
reason”
within a certain
period of time
following a Change in
Control
($)
1,011,800 (1)
276,000 (3)
-
261,200 (4)
33,800] (5)
1,582,800
(1) Represents one year’s base salary ($601,800) and the average annual non-equity incentive compensation paid to Mr. Lerner for
fiscal years 2019 and 2020 ($410,000).
(2) Represents the average annual non-equity incentive compensation paid to Mr. Lerner for fiscal years 2019 and 2020 ($410,000).
(3) Represents accelerated vesting of 22,636 stock options. Pursuant to Mr. Lerner’s stock option agreements (dated January 17, 2019
and February 10, 2020), if Mr. Lerner’s employment is terminated without cause or for good reason within six months following a
“change in control”, he will become immediately vested in all outstanding unvested stock options, and all of Mr. Lerner’s outstanding
options shall remain exercisable in accordance with their terms, but in no event for less than 90 days after such termination.
(4) Represents accelerated vesting of 7,278 unvested performance restricted stock units. Pursuant to Mr. Lerner's performance
restricted stock unit agreement (dated January 17, 2019 and February 10, 2020), if Mr. Lerner’s employment is terminated without
cause or for good reason within six months following a “change in control” or if Mr. Lerner's employment is terminated due to death
or total disability, all non-vested units shall accelerate and be vested as of the date of termination.
(5) Represents reimbursement of medical and dental insurance payments under COBRA for twelve months.
52
Robert Dooley
Termination by
Systemax without
“Cause” or
Resignation by
Employee for “good
reason”
($)
Termination Due to
Death or Total
Disability
($)
Change In Control
Only
($)
Termination by
Systemax without
“Cause” or
Resignation by
Employee for “good
reason”
within a certain
period of time
following a Change in
Control
($)
-
-
-
-
-
-
-
378,200 (1)
358,900 (2)
179,500 (3)
358,900 (2)
-
-
358,900
285,000 (4)
-
464,500
-
358,900
285,000 (4)
-
663,200
Type of Payment
Cash Compensation (Salary &
Non-Equity Incentive
Compensation)
Value of Accelerated Vesting of
Stock Option Awards
Value of Accelerated Vesting of
Restricted Stock Unit Awards
Value of Accelerated Vesting of
Performance Restricted Stock
Unit Awards
Medical and Other Benefits
Total
(1) Represents accelerated vesting of 30,989 stock options. Pursuant to Mr. Dooley’s stock option agreements (dated January 17, 2019
and February 10, 2020), if Mr. Dooley’s employment is terminated without cause or for good reason within six months following a
“change in control”, he will become immediately vested in all outstanding unvested stock options, and all of Mr. Dooley’s outstanding
options shall remain exercisable in accordance with their terms, but in no event for less than 90 days after such termination.
(2) Represents accelerated vesting of 10,000 unvested restricted stock units. Pursuant to Mr. Dooley’s restricted stock unit agreement
(dated March 1, 2012), upon a “change in control” all non-vested units shall accelerate and be vested as of the date of the “change
in control” and if Mr. Dooley’s employment is terminated without cause or for good reason, all non-vested units shall accelerate and
be vested as of the date of termination.
(3) Represents accelerated vesting of 5,000 unvested restricted stock units. Pursuant to Mr. Dooley’s restricted stock unit agreement
(dated March 1, 2012), on the event of Mr. Dooley’s death or total disability, 5,000 restricted stock units (50% of the unvested
restricted stock units granted under such agreement on January 2, 2021) would vest.
(4) Represents accelerated vesting of 7,942 unvested performance restricted stock units. Pursuant to Mr. Dooley's performance
restricted stock unit agreements (dated January 17, 2019 and February 10, 2020), if Mr. Dooley’s employment is terminated without
cause or for good reason within six months following a “change in control” or if Mr. Dooley's employment is terminated due to death
or total disability, all non-vested units shall accelerate and be vested as of the date of termination.
53
Director Compensation
General Policy
Our policy is not to pay compensation to directors who are also employees of Systemax or any of our subsidiaries.
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.
The table below shows the elements and amounts of compensation that we paid our non-management directors for
fiscal 2020.
Compensation Element
Retainers (1)
Restricted Stock Units (2)
Committee Chair Annual Retainers (1)
Audit Committee
Compensation Committee
Nominating/Corporate Governance Committee
Committee Member Annual Retainers (1)
Audit Committee
Compensation Committee
Nominating/Corporate Governance Committee
Lead Independent Director Retainer (1)
(1) Retainer amounts are paid in quarterly installments.
Amount
($)
70,000
50,000
20,000
10,000
10,000
10,000
5,000
5,000
20,000
(2) Each non-management director receives an annual grant of restricted stock units each year immediately following the annual
stockholders meeting in an amount equal to $50,000 divided by the closing price per share during the 20 trading days
preceding the date of the annual meeting (rounded up to the nearest whole number of shares). Such restricted stock units are
generally subject to forfeiture if the holder is not a director of Systemax on the date of the second annual meeting following
such grant, and cannot be sold while so restricted; such restrictions lapse if the holder dies or becomes disabled or there is a
change of control, as defined in the grant agreement. Cash dividend equivalents are paid on unvested restricted stock.
Non-Management Director Compensation in Fiscal 2020
The non-management directors received the following compensation during fiscal 2020:
Name
Robert D. Rosenthal
Chad M. Lindbloom
Paul S. Pearlman
Lawrence Reinhold
Fees Earned
or Paid in
Cash
($)
115,000
105,000
90,000
70,000
Stock Awards
($)(1)
Option Awards
($)
All Other
Compensation
($) (2)
50,000
50,000
50,000
50,000
-
-
-
-
14,000
14,000
13,500
13,500
Total
($)
179,000
169,000
153,500
133,500
(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 12 to
our audited consolidated financial statements, included in our Annual Report on Form 10-K for fiscal 2020.
(2) Dividend equivalent payments on unvested restricted stock.
54
CEO Pay Ratio Disclosure
As permitted under the SEC rules, in order to identify our “median employee” to compare to our CEO, we took into
account our entire employee population (other than our CEO) at December 31, 2020, located in the United States,
Canada, and India, including full, part-time employees and temporary/seasonal employees (1,480 Employees). We
used the compensation components utilized in the Summary Compensation Table / page 41 of this proxy statement
(“SCT”) for the period from January 1, 2020 to December 31, 2020 as the compensation measure to identify the
median employee, and the median employee’s compensation. We annualized total compensation for those
employees who commenced work during 2020 and excluded our cost of providing health and wellness benefits for all
employees.
The pay ratio specified below is a reasonable estimate calculated in a manner that is intended to be consistent with
Item 402(u) of Regulation S-K under the Exchange Act. In calculating Total Compensation for our median employee
and CEO, we included, among other things, base salary, overtime, incentive payments, and stock-based
compensation (based on the grant date fair value of awards granted during 2020); therefore, the CEO's Total
Compensation for purposes of this calculation matches the Total Compensation described in the Summary
Compensation Table / page 41 of this proxy statement.
The median team member's estimated Total Compensation for 2020 was $43,500. The ratio of CEO pay to median
team member pay is estimated to be 70 to 1.
55
Additional Matters
Solicitation of Proxies
The cost of soliciting proxies for the Annual Meeting will be borne by Systemax. 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 Systemax will reimburse them for expenses in so doing.
Consistent with our confidential voting procedure, directors, officers and other regular employees of Systemax, as yet
undesignated, may also request the return of proxies by telephone or fax, or in person.
Submitting Stockholder Proposals and Director Nominations for the Next Annual Meeting
Stockholder proposals intended to be presented at the 2021 annual meeting, including proposals for the nomination
of directors, must be received by December 29, 2021 to be considered for the 2022 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.
Any proposal for a director nominee shall contain at a minimum:
•
•
•
•
•
•
•
•
•
•
the name and address of the stockholder making the recommendation;
if the stockholder is not a stockholder of record, a representation and satisfactory proof of share ownership;
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;
whether the stockholder has been involved in any legal proceeding during the past 10 years;
the nominee’s name, age, address and other contact information;
any direct or indirect holdings, beneficially and/or of record, of our securities by the nominee;
any information regarding the nominee required to be disclosed about directors under applicable securities
laws and/or stock exchange requirements;
information regarding related party transactions with Systemax and/or the stockholder submitting the
nomination and/or the nominee;
any actual or potential conflicts of interest; and
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.
56
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 Annual Meeting. If other matters properly come before the Annual Meeting, the persons named as
proxies intend to vote the shares they represent in accordance with their judgment.
A COPY OF OUR FORM 10-K FOR FISCAL 2020 IS INCLUDED AS PART OF OUR ANNUAL REPORT ALONG
WITH THIS PROXY STATEMENT, WHICH ARE AVAILABLE AT www.proxyvote.com.
Available Information
We maintain a website at www.systemax.com. We file reports with the SEC and make available free of charge on or
through our 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 or any report we file with, or furnish to, the SEC is not part of this proxy statement.
The Board has adopted the following corporate governance documents:
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Charter for the Audit Committee of the Board (last amended March 2017).
Charter for the Compensation Committee of the Board (last amended May 2013).
Charter for the Nominating/Corporate Governance Committee of the Board (last amended January 2015).
Corporate Ethics Policy (last amended January 2019).
Applies to all of our directors, officers (including our Chief Executive Officer, Chief Financial Officer, Chief
Accounting Officer, Controller and any person performing similar functions) and employees.
Corporate Governance Guidelines and Principles (last amended March 2017).
Establishes our corporate governance principles and practices on a variety of topics, including the
responsibilities, composition and functioning of the Board.
In accordance with the corporate governance rules of the NYSE, each of these corporate governance documents is
available on our web site (www.systemax.com under “Investors—Corporate Governance—Corporate Governance
Documents”).
57
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(Mark One)
☒☒ ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FORM 10-K
For the fiscal year ended December 31, 2020
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
Trading Symbol(s)
SYX
Name of each exchange on which registered
New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: NONE
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 every Interactive Data File required to be submitted 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 such files). Yes ☒
No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company, or an
emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company, and "emerging growth company” in
Rule 12b-2 of the Exchange Act (Check one):
Large Accelerated Filer ☐
Non-Accelerated Filer ☐
Accelerated Filer ☒
Smaller reporting company ☐
Emerging growth company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or
revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management's assessment of the effectiveness of its internal control
over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its
audit report. ☒
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, 2020, which is the last business day of the registrant’s
most recently completed second fiscal quarter, was approximately $228,333,826. 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 March 8, 2021 was 37,657,151 shares.
Documents incorporated by reference: Portions of the Proxy Statement of Systemax Inc. relating to the Annual Meeting of Stockholders to be held in 2021 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
Item 5.
Item 6.
Item 7.
Item 7A.
Item 8.
Item 9.
Item 9A.
Item 9B.
Part III
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.
Part IV
Item 15.
Business
General
Products
Sales and Marketing
Customer Service, Order Fulfillment and Support
Suppliers
Competition and Other Market Factors
Human Capital Resources
Environment, Health and Safety: Government Regulations
Financial Information About Domestic and Foreign Operations
Available Information
Risk Factors
Unresolved Staff Comments
Properties
Legal Proceedings
Mine Safety Disclosures
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
Quantitative and Qualitative Disclosures About Market Risk
Financial Statements and Supplementary Data
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Controls and Procedures
Other Information
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
Exhibits and Financial Statement Schedules
Signatures
5
5
5
6
7
7
7
8
8
9
10
10
18
18
18
19
20
20
21
34
34
34
34
37
37
37
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40
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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. Any such statements 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 and are based on management’s estimates,
assumptions and projections and are not guarantees of future performance. Forward-looking statements may include, but are not limited to statements regarding:
i) projections or estimates of revenue, income or loss, exit costs, cash flow needs and capital expenditures; ii) fluctuations in general economic conditions; iii)
future operations, such as risks regarding strategic business initiatives, plans relating to new distribution facilities, plans for utilizing alternative sources of supply
in response to government tariff and trade actions and/or due to supply chain disruptions arising from the Coronavirus pandemic, and plans for new products or
services; iv) plans for acquisition or sale of businesses, including expansion or restructuring plans; v) financing needs, and compliance with financial covenants in
loan agreements; vi) assessments of materiality; vii) predictions of future events and the effects of pending and possible litigation; and viii) 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 relating to 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.
Forward-looking statements in this report are based on the Company’s beliefs and expectations as of the date of this report and are subject to risks and
uncertainties which may have a significant impact on the Company’s business, operating results or financial condition. Investors are cautioned that these forward-
looking statements are inherently uncertain and undue reliance should not be placed on them. 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.
Risk Factors Summary (see Item 1A. Risk Factors, below): 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, which we summarize below:
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general economic conditions, such as customer inventory levels, interest rates, borrowing ability and economic conditions in the manufacturing
and/or distribution industries generally, as well as government spending levels will continue to impact our business;
the temporary closing of many businesses, and reduced business activity, during the Coronavirus pandemic has negatively impacted the general
economy; and decreased customer purchasing volume of products not directly associated with home or workplace safety, hygiene, or other pandemic
related supplies negatively affected our business and may do so in future quarters until general business activity reaches pre-pandemic levels;
delays in the timely availability of products from our suppliers has in the past and could in the future delay receipt of needed product, resulting in
delayed or lost sales;
global supply chains and the timely availability of products, particularly products, or product components used in domestic manufacturing, imported
from China and other Asian nations as well as from other countries, have been, and in the future could continue to be adversely affected by allocation
restrictions of difficult to source products by our vendors;
quarantines, factory slowdowns or shutdowns, border closings and travel restrictions resulting from the Coronavirus pandemic have in the past and
could in the future adversely affect the timely availability of products, resulting in delayed or lost sales;
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government mandated shutdowns of and/or limitations on entities deemed to be non-essential businesses has negatively impacted sales of our
products to those businesses and will continue to impact our sales as long as these mandated closures and restrictions are in place; the extent to which
the Coronavirus pandemic continues to impact our operations and financial results will depend on numerous evolving factors including the duration
of the pandemic; our ability to keep our distribution centers operating productively and with minimal down time for Coronavirus safety and
remediation efforts and with limited absenteeism; the re-imposition of the early governmental response plans such as “stay at home” or “shelter in
place” regulations or guidelines taken in response to the pandemic; the impact, duration and severity of the pandemic on economic activity; how long
it will take to return to more historic levels of economic growth, and the effect of the economic downturn on our customers;
the imposition of tariffs and other trade barriers, as well as retaliatory trade measures, have caused us to raise the prices on certain of our products and
seek alternate sources of supply, which could negatively impact our sales or disrupt our operations if we are not able to mitigate these measures;
our use of alternate sources of supply, such as utilizing new vendors in additional countries, entails various risks, such as identifying, vetting and
managing new business relationships, reliance on new vendors and maintaining quality control over their products, and protecting our intellectual
property rights;
increases in freight and shipping costs, including fuel costs, could affect our margins to the extent the increases cannot be passed along to customers,
as has occurred in the past;
extreme weather conditions have delayed or disrupted global product supply chains and have affected our ability to timely receive and ship products,
which have and could adversely impact sales;
other critical factors affecting the shipping and distribution of products imported to the United States by us or our domestic vendors, such as the
current global shortage in availability of shipping containers, the current port congestion, and pandemic related labor shortages, have in the past and
could in the future adversely affect the timely availability of products, resulting in delayed or lost sales, as well as adversely affecting our margins;
our reliance on common carrier delivery services for shipping inventoried merchandise to customers;
our reliance on drop ship deliveries directly to customers by our product vendors for products we do not hold in inventory;
our ability to maintain available capacity in our distribution operations for stocked inventory and to enable on time shipment and deliveries, such as
by timely implementing additional temporary or permanent distribution resources, whether in the form of additional facilities we operate or by
outsourcing certain functions to third-party distribution and logistics partners;
we compete with other companies for recruiting, training, integrating and retaining talented and experienced employees, particularly in markets
where we and they have central distribution facilities; and this aspect of competition is aggravated by the current tight labor market in the U.S. for
such jobs and at a time this market is undergoing competitive changes due to the Coronavirus pandemic;
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 our products and services;
our information systems and other technology platforms supporting our sales, procurement and other operations are critical to our operations and
disruptions or delays have occurred and could occur in the future, and if not timely addressed could have a material adverse effect on us;
a data security breach due to our e-commerce, data storage or other information systems being hacked by those seeking to steal Company, vendor,
employee or customer information, or due to employee error, resulting in disruption to our operations, litigation and/or loss of reputation or business;
• managing various inventory risks, such as being unable to profitably resell excess or obsolete inventory and/or the loss of product return rights from
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our vendors;
• meeting credit card industry compliance standards in order to maintain our ability to accept credit cards;
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rising interest rates, increased borrowing costs or limited credit availability, including our own ability to maintain satisfactory credit agreements and
to renew credit facilities, could impact both our and our customers’ ability to fund purchases and conduct operations in the ordinary course;
pending or threatened litigation and investigations, and other government actions, such as anti-dumping, unclaimed property, or trade and customs
actions by U.S. or foreign governmental authorities, have occurred in the past and although had no material impact to our business, there can be no
assurance that future such events would not have such impact on our business and results of operation.
•
4 Item 1. Business.
General
Systemax Inc., through its operating subsidiaries, is primarily a direct marketer of brand name and private label industrial and business equipment and supplies in
North America going to market under the Global banner through a system of branded e-commerce websites and relationship marketers. The Company was
incorporated in Delaware in 1995. Certain predecessor businesses which now constitute the Company's operations have been in business since 1949. Our
headquarters office is located at 11 Harbor Park Drive, Port Washington, New York.
Current operations
The Company sells a wide array of industrial and general business hard goods and supplies and to a lesser extent products that would fall into the generally
recognizable category of maintenance, repair and operations (“MRO”) products, which are marketed in North America. Many of these products are manufactured
by other companies. Some products are manufactured for us and sold under our brand as a white label product, and some are manufactured to our own design and
marketed under the trademarks: Global™, GlobalIndustrial.com™, Nexel™ Paramount™ and Interion™.
See Note 5 to the consolidated financial statements included in Item 15 of this Form 10-K for additional financial information about our business as well as
information about our geographic operations.
Accelerating the Customer Experience
The Company's multi-year business strategy is focused on Accelerating our Customers Experience (“ACE”). The ACE initiative, which guides our actions across
the business, and specifically in our customer end-to-end purchase, service, and delivery experience, has at its core building of customer loyalty and trust by
addressing unique customer needs through a responsive and tailored sales, product, and service experience. We build customer loyalty and trust through
personalized and high touch customer interactions that often feature strong one to one relationships. The Company's digital and multi-channel sales model drives
customer acquisition and with rigorous vetting we are able to identify opportunities for product category expansion, particularly private label products. Category
expansion with our customers drives repeat orders and increases their annual and average spend. We maximize customer satisfaction and loyalty by coupling close
customer relationships with product expertise, efficient and competitive fulfillment and delivery and exceptional customer service.
WE CAN SUPPLY THAT™
Products
Our broad product offering and focus on responsiveness to our customers is captured in our promise “We Can Supply That”. We offer our customers a competitive
assortment of leading products and services and a sales force with deep product knowledge and expertise. Our go to market strategy also focuses on leveraging our
deep product knowledge and experience by seeking to expand our higher margin private label line of Global products by adding additional products and product
categories. We have over one million brand name and private label products available through our e-commerce sites and have access to over 1.7 million products in
our database. We endeavor to expand and keep current the breadth of our product offerings to fulfill the increasingly wide range of product needs of our customers,
and periodically remove certain products from our offering to improve efficiencies or to address vendor or market changes. Sourcing hard to find or non-standard
product helps to differentiate our business from our competitors and we believe provides us with a competitive advantage.
Historically the Company has focused on products within the following categories: storage and shelving; material handling; janitorial and maintenance; furniture
and office; and workbench and shop desks. We have become a destination and trusted supplier of these products by offering competitive pricing, high service
levels, broad and deep product offering, extensive product and sales expertise. Importantly, we have a well-developed and expanding private label product portfolio
offering both high quality and attractively priced alternatives to leading national brands. Other emerging or growing categories are becoming a larger portion of our
product portfolio; these include HVAC/R and fans, safety and security, outdoor and grounds maintenance, tools and instruments, office and school supplies,
plumbing and pumps, packaging and supplies, electrical and lighting, food service and appliances, raw materials and building supplies, motors and power
transmission, pneumatics and hydraulics, medical and laboratory equipment, metalworking and cutting tools, vehicle maintenance, and fasteners and
5 hardware. Within these categories we intend to use the go to market strategy that we successfully employed to grow our legacy core product categories, as
discussed below.
Sales and Marketing
We market our products primarily to business customers, which include for-profit businesses, state, local, and private educational organizations and government
entities including federal, state, and local municipalities. We have an established multi-faceted direct marketing system and customer life cycle marketing program
which tends to begin with customer acquisition via keyword or branding search, supported by strategic account managers, leading e-commerce and account
management tools, and deep pre and post sales product expertise which are intended to drive customer retention and penetration and to maximize sales. From time
to time we adjust or re-allocate our marketing and advertising spend to best take advantage of changes in market conditions, changes in product mix and/or to drive
special sales initiatives and product promotions and in 2020 we implemented various new strategies to further focus our online advertising spend to achieve
improved results in both customer acquisition rates as well as customer retention.
Relationship Marketers
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. 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 e-mail campaigns
and periodic catalog mailings, both of which are designed to generate inbound telephone sales, and visits to our interactive websites, which allow customers to
purchase products directly online. 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 email campaigns, and to a lesser extent catalog mailings, which feature our websites results in greater internet-related sales.
E-commerce
We currently operate multiple e-commerce sites, including:
www.globalindustrial.com
www.globalindustrial.ca
www.industrialsupplies.com
We are continually upgrading the capabilities and performance of these websites in our significant markets. In 2019, we launched a new version of our
globalindustrial.com website which provides advanced features and self-serve capabilities that increases ease of use, while supplying a premier customer
experience. The new website allows customers to conduct more of their order and service-related tasks such as returns, auto reorder, replacement parts and order
tracking online. In 2020 we enhanced our website for full ADA/508 compliance, expanded customer self service functions such as SMS notifications, added
proactive notifications through Global Assist (order tracking on the web) and added the ability to create quotes and product reviews. In addition we have upgraded
the look and functionality of our mobile site.
Our internet sites feature over one million MRO and industrial and general business supplies. Our customers have around-the-clock, online access to purchase
products and we have the ability to create targeted promotions for our customers’ interests.
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.
Signature Campaigns
We implemented periodic strategic marketing campaigns in 2020 including the Restore, Return and Rebound your business campaign addressing customer needs
for returning to operations post pandemic and the Ready, Set, Vaccinate campaign
6
introduced later in 2020 to assist hospitals and other health agency customers prepare for administering vaccines to the public. We expect to continue these periodic
campaigns in the future.
Catalogs
As the Company increased its focus on online and e-commerce advertising, marketing and sales activities over the years, its use of hard copy catalogs decreased as
compared to earlier periods, but over the last several years, it has distributed a stable number of regular and specialty catalogs, postcards, and other physical mail
and anticipates continuing to do so in the near term.
Customer Service, Order Fulfillment and Support
In 2019 we launched several initiatives with our vendors and freight partners, and in our own distribution centers, to improve our customer’s experience such as our
Voice of the Customer initiative, involving phone and online surveys to obtain our customer’s input on their experiences with us and our products to ensure we
deliver on the promise, to better focus our sales, service and marketing efforts on our customers' needs and to target areas of improvement to enhance the overall
customer experience. These efforts continued through 2020, and we further added additional improvements to the experience including offering 24x7 chat
supported by both AI chatbots and live chats with our associates.
A growing proportion of our orders are received electronically via internet, extranet, EDI, customer punch out catalog, online chat, or through broadly utilizing
vendor and customer portals such as Ariba or Coupa. These E-orders represented over 55% of our transaction count in the second half of 2020 and for the year
ended December 31, 2020 compared to over 48% for the year ended December 31, 2019. Manual orders are received by telephone to our inbound call center, direct
dial to our inside account management team, placement through one of our field sales representatives, and to a small extent via 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.
The Company utilizes a sourcing strategy encompassing sales of in stock items that are either national brands, private label, or white label products as well as
supplementing its stocking strategy with product fulfilled directly by our vendor partners via a drop ship relationship. In stock items tend to be higher in velocity,
higher in gross margin, and offer a higher service level to our customers. In stock items are distributed via a network of five large distribution centers in the U.S.
located in the Northeast, Midwest, West, Southeast and South Central regions and two additional smaller distribution facilities in Canada. Product deliveries to our
customers are made through a nationwide network of common carriers that we contract with directly in order to establish and maintain high service levels and
enhance operational efficiencies. We tend to stock items in our distribution center, and invest the requisite working capital in inventory position, after
demonstrating sales volume success in the drop ship sales of that item effected through our suppliers. Orders are generally shipped by third-party delivery services
and we maintain relationships with thousands of distributors and product vendors in the United States and Canada.
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 both large and small manufacturers as well as large wholesale distributors. No supplier
accounted for 10% or more of our product purchases related to continuing operations in 2020, 2019 and 2018. Most private label products are manufactured by
third parties to our specifications.
Competition and Other Market Factors
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 face competition from large diversified MRO distributors
such as Uline Inc, Grainger Inc., MSC Industrial Direct Inc., Fastenal Inc., and other large retailers, including Amazon. We also face competition from
manufacturers’ own sales representatives, who sell industrial equipment directly to customers, and from regional or local distributors. Many purchasers begin
sourcing products via search engine or mobile application on desktops, laptops, or mobile devices. In the industrial products market, customer purchasing decisions
are primarily based on price, product selection, product availability,
7 level of service, access to open account terms, and convenience. We believe that direct marketing via sales representatives, the internet and catalogs are effective
and convenient distribution methods to reach both our core small and mid-sized customer as well as large enterprises. Further we believe that our customer
engagement approach allows for high levels of service to accounts that may purchase high volume capital or durable goods infrequently or that place many small
orders for supplies and other consumables that require a wide selection of products. In addition, because the industrial products market is highly fragmented and
generally less brand oriented, we believe it is well suited to private label and white label products.
Human Capital Resources
As of December 31, 2020, we employed a total of approximately 1,480 associates, of whom 1,280 were in North America and 200 were in Asia. Approximately
41% of our associates are customer facing including customer service, quota bearing sales representatives, inbound call center representatives, and other pre and
post sales management and support. Approximately 37% of our team members are employed within distribution, logistics, and fulfillment areas, while 22% of our
associates base works within administrative functions including: IT, Marketing, Product Management, Human Resources, Accounting and Finance, Legal and Risk
Management and general administrative and management roles.
Our worldwide workforce is made up of a diverse group of associates. In our most recent U.S. EEO-1 data, the associate demographic breakdown for individuals
reporting was 43% female and 57% male and minorities constituted 52% of our workforce. We believe our diversity of associates is one of the Company’s
considerable strengths and that our demographics are consistent with or higher than our competitors in the sales and distribution space. Our employees are not
subject to collective bargaining agreements. The Company has not experienced work stoppages and we believe relationships with our employees are good.
Environment, Health and Safety: Government Regulation
Employee health and safety is a top priority for the Company, and was a key factor in our safely navigating the pandemic thus far. As an essential business our
distribution centers have remained open during the pandemic and our office facilities remained open in locations where social distancing and local regulations
permitted. Safety protocols we established to keep our employees safe include:
•
•
•
•
•
•
•
Implementing Covid-19 related controls to address social distancing, intense cleaning of common areas, and enhanced use of personal protective
equipment.
Providing face masks, gloves and sanitizing products for employees’ use.
Limiting all but essential travel for all employees.
Providing paid time off for employees with suspected and confirmed Covid-19 illness and for contact tracing.
Restricting access to our facilities to essential visitor personnel.
Closing Company provided gym spaces.
Implementing remote work and in office rotation policies to effect social distancing.
Our safety teams and local safety committees, led by our new Director of Environment, Health and Safety, provides oversight, training, education and compliance
guidance, as well as workers compensation remediation advice, to our management teams and directly to our workforce. Our EH&S group is also responsible for
overseeing product safety and compliance programs and initiative including compliance with various EPA, FDA and hazmat regulations that apply to certain of the
products we offer.
Under various national, state and local environmental laws and regulations in North America and Asia, 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 all 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 that escape into the environment. Although we have not been notified of, and are not otherwise aware of, any material
real property environmental liability, claims 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.
Seasonality
Seasonality does have some effect on the Company’s sales. Certain product lines are highly seasonal in nature, including HVAC products, snow removal products
and outdoor furniture and equipment. In addition, certain customer segment buying
8 cycles, including those of education and government, may tend to be more seasonal than others. Given these trends, financial results tend to vary quarter to quarter
with sales and operating margin in the second and third quarters moderately higher than those in the first and fourth quarters respectively.
Financial Information About Domestic and Foreign Operations
We currently sell substantially all of our products through established sales channels to our customers in North America (primarily the United States and Canada).
Approximately 5.9%, 4.8%, and 4.7% of our net sales from continuing operations during 2020, 2019 and 2018, respectively were made by our Canadian
subsidiary. The following sets forth selected information with respect to our continuing operations net sales and operating income (loss), in those two geographic
markets (in millions):
2020
Net sales
Operating income
Identifiable assets
2019
Net sales
Operating income
Identifiable assets
2018
Net sales
Operating income
Identifiable assets
North
America
Europe and
Asia
Total
$
$
$
$
$
$
$
$
$
1,029.0 $
83.8 $
372.0 $
946.9 $
64.8 $
393.8 $
896.9 $
61.5 $
526.6 $
0.0 $
0.3 $
2.9 $
0.0 $
1.3 $
3.1 $
0.0 $
0.2 $
3.4 $
1,029.0
84.1
374.9
946.9
66.1
396.9
896.9
61.7
530.0
See Item 7, “Management’s Discussions and Analysis of Financial Condition and Results of Operations”, for further information with respect to our operations.
9
Discontinued operations
For information regarding certain discontinued operations and former lines of business, see Item 7, "Management's Discussions and Analysis of Financial
Condition and Results of Operations" and Note 6 to the consolidated financial statements included in Item 15 of this Form 10-K.
Available Information
We maintain an internet website at www.systemax.com. We file reports with the Securities and Exchange Commission (“SEC”) 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, as well as other SEC Filings as appropriate. 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.
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, including those that can result in decreased customer confidence and spending, could result in our failure to achieve our
historical sales growth rates and profit levels. Pandemics, such as the global coronavirus outbreak have and threatens to continue to disrupt global supply
chains, including those we rely on in China, which could materially adversely affect our operations.
Both we and our customers are subject to global political, economic and market conditions, including trade and tariff uncertainties, customer inventory levels
in the marketplace, borrowing ability, economic conditions in the manufacturing and/or distribution industries, increases in inflation, interest rates, freight
costs and energy costs, as well as the impact of natural disasters, military action, the threat of terrorism, and global pandemic or other health crises. Our
consolidated results of operations are directly affected by economic conditions in North America, and our supply chain for imported product is affected by
conditions in Asia (particularly China).
In this regard, global supply chains and the timely availability of products, particularly products, or product components used in domestic manufacturing,
imported from China and other Asian nations have been and could again be materially disrupted by quarantines, factory slowdowns or shutdowns, border
closings, and travel restrictions resulting from the coronavirus outbreak. These events have and may continue to result in imported products not being timely
received and resultant delayed or lost sales. We depend to a significant extent on products imported from China for our private label lines, and on domestic
manufacturers who utilize components imported from Asia. While we have experienced insignificant lost sales due to the coronavirus and are making efforts
to secure satisfactory levels of inventory, certain of our vendors have indicated they continue to experience constrained supply and are deferring delivery dates,
and there can
10 be no assurance that our supply chain will not experience further disruptions significant enough to adversely affect our operations.
We may experience a decline in sales as a result of poor economic conditions and the lack of visibility relating to future orders (as well as due to the other risks
discussed below). 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 manage price increases, our ability to manage freight and shipping costs and maintain our margins, our ability to attract
new customers and increase our market share, 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 or that hampers their ability to pay for products 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, maintain or
grow our historical margins, and 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, including
workforce reductions. However, these actions 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 experienced in the past.
• Adverse weather events or natural disasters, as well as pandemics such as the coronavirus, could negatively affect or disrupt our operations. We may be
affected by global climate changes or by legal, regulatory or market responses to such potential change.
Certain areas in which we operate are susceptible to severe weather events, such as hurricanes, winter storms, tornadoes and floods which can impact any of
our locations as well as shipping ports and distribution centers. These events, as well as pandemics, have in the past and may in the future disrupt our locations
and the supply chains dependent on such shipping ports and distribution centers. In this regard, we experienced product delivery and shipping delays due to the
disrupted global product supply chains which affected our ability to timely receive and ship products, which could adversely impact sales.
Our ability to provide efficient distribution of core business products from our or third-party drop ship distribution centers is critical to our business strategy.
Disruptions at distribution centers or shipping ports, or the unavailability of employees needed by us or third parties to operate key functions at such locations,
has and in the future may affect our ability to both maintain core products in inventory and deliver products to our customers on a timely basis, which may in
turn adversely affect our results of operations. We cannot predict whether or to what extent damage caused by these events will affect our operations or the
economies in regions where we operate. These adverse events could result in disruption of our operations, our purchasing or distribution capabilities,
interruption of our business that exceeds our insurance coverage, our inability to collect from customers and increased operating costs. Our business or results
of operations may be adversely affected by these and other negative effects of these events.
• The imposition of tariffs and other trade barriers, as well as retaliatory trade measures, have caused us to raise the prices on certain of our products and seek
alternate sources of supply, which could negatively impact our sales or disrupt our operations.
Our industry is subject to risks associated with U.S. and foreign laws relating to importing products, including quotas, duties, tariffs or taxes, as well as other
charges or restrictions, which could adversely affect our ability to import products at desired cost or volume levels.
During 2018 the United States enacted three sets of tariffs on a variety of foreign sourced goods. While we experienced minimal impact from the first two
tariff lists during 2018, the third list, which went into effect at the end of the third quarter of 2018, imposed tariffs on a broader group of products and impacted
a number of the private label products we source directly from China as well as third-party branded products our U.S. suppliers source from China. We
strategically increase prices in an effort to offset the incremental costs on certain products and shift certain products to alternative sources where available. Our
use of alternate sources of supply, such as utilizing new vendors in additional countries, entails various risks, such as identifying, vetting and managing new
business relationships, reliance on new vendors, maintaining quality control over their products, and protecting our intellectual property rights.
These tariffs have increased and will continue to increase our costs of procurement. If the Company is able to adequately review its supply chain and monitor
sell prices in the market, and successfully work with suppliers to mitigate costs, the
11 Company does not expect any material impact on its business from the 2018 tariff actions and continues to believe that any impact from the tariffs currently in
effect will be gradual and not material to the business, although there can be no assurance.
Since 2018 the U.S. has been conducting an industry wide anti-dumping investigation of “steel racks” product imported from China. The investigation will
likely result in the assessment of anti-dumping duties and countervailing duties assessed against U.S. distributors of these products, such as the Company.
While the Company does not believe the outcome of the investigation or any resultant assessments will have a material adverse effect on the Company, there
can be no assurance that the fines and duties will not be significant in the period within which they occur.
There can be no assurance that we will be able to effectively or expeditiously mitigate these trade challenges, which could disrupt our operations, negatively
impact our sales and would have a material adverse effect on our financial results. However, we do not believe that we will be disproportionately impacted by
these costs as compared to our competitors, and we will continue to evaluate marketplace conditions and implement other actions or strategies as the need
arises.
Finally, we cannot predict whether additional U.S. and foreign customs quotas, duties (including anti-dumping or countervailing duties), tariffs, taxes or other
charges or restrictions, requirements as to where raw materials must be purchased, additional workplace regulations or other restrictions on our imports will be
imposed in the future and if so, what effect such actions would have on our costs of operations.
• There is a tight labor market for certain employees we hire, which can impact our growth plans.
Many of our competitors also compete with us for recruiting and retaining talented and experienced employees, particularly in markets where we and they
have significant distribution facilities. We have also experienced high levels of turnover in our warehouse/distribution operations, consistent with current
market conditions. This aspect of competition is aggravated by the current tight labor market in the U.S. for such jobs. There can be no assurance the Company
will be able to timely recruit, train and retain employees sufficient to support its growth strategies or will not have to incur increased compensation costs in
order to do so. Our results of operations have been and in the future could be adversely affected by increased costs due to increased competition for employees,
higher employee turnover or increased employee benefit costs. In the event of significant numbers of employees having to miss work due to a widespread
health situation or pandemic such as the coronavirus, we may not be able to quickly source replacement or temporary workers, which could adversely affect
our operations, particularly in our distribution centers.
• Our industry is evolving and consolidating, which could adversely affect our business and financial results.
The MRO and industrial equipment industry are consolidating as customers are increasingly aware of the total costs of fulfillment and of the need to have
consistent sources of supply at multiple locations. This consolidation has and will continue to cause the industry to become more competitive as greater
economies of scale are achieved by competitors, or as competitors with a new lower cost business models are able to operate with lower prices.
• Volatility in commodity prices may adversely affect gross margins.
Some of our products contain significant amounts of commodity-priced materials, such as steel, copper, petroleum derivatives or rare earth minerals, and are
subject to price changes based upon fluctuations in the commodities market. Fluctuations in the price of fuel could affect transportation costs. Our ability to
pass on such increases in costs in a timely manner depends on market conditions. The inability to pass along cost increases could result in lower gross margins.
In addition, higher prices could impact demand for these products, resulting in lower sales volumes.
• Events such as acts of war or terrorism, natural disasters, data security breaches, changes in law, or large losses could adversely affect our insurance
coverage and insurance expense, resulting in an adverse effect 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, data security breaches, judicial decisions, legislation, natural disasters and large losses could materially affect our
insurance obligations and future expense. Furthermore, the occurrence of an uninsured significant event could materially adversely affect our business and
results of operations.
12 • Environmental Matters
Under various national, state and local environmental laws and regulations in North America, 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 substance at such real property. Such laws and regulation often impose
liability without regard to fault. We lease all 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.
Risks Related to Our Company
• Distribution facilities
Our ability to maintain available capacity in our distribution operations for stocked inventory and to enable on time shipment and deliveries, such as by timely
implementing additional distribution resources, whether in the form of expanded or additional temporary and permanent facilities we operate or by outsourcing
certain functions to third-party distribution and logistics partners, is critical to our ability to service our growing business. If we do not accurately forecast our
future warehousing and distribution center needs, and then timely plan, fund on budget, launch and efficiently operate new distribution resources and facilities
when needed, our operations and financial results could be materially adversely impacted. In addition, expanding and/or enhancing our distribution network
would have an adverse impact on operating expenses as a percentage of sales, inventory turnover, and working capital requirements in the periods prior to and
for some time following the commencement of operations for each such expansion or enhancement.
• 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.
We purchase a portion of our products from major distributors and directly from large manufacturers who may deliver those products directly to our customers
(“drop ship”), as well as from smaller more regional vendors. These drop ship delivery 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 drop ship
suppliers could materially adversely affect our business.
We purchase a number of our products, particularly private label and white label products, from vendors located outside of the United States. Raw material
costs used in our vendors’ products (steel, tungsten, etc.) and energy costs may increase, which may result in increased production costs for our vendors, which
they may seek to pass along to us. 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. In this regard, in response to the tariffs imposed by the U.S. on goods imported from China, we
are seeking alternative sources of supply, such as utilizing new vendors in additional countries, which entails various risks, such as identifying, vetting and
managing new business relationships, reliance on these new vendors maintaining quality control over their products, and protecting our intellectual property
rights.
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 are beyond our control. These and other issues
affecting our vendors could materially adversely affect our revenue and gross profit.
See also the discussion above for information regarding the risks posed by the spread of the coronavirus on our supply chain and general economic activity.
• We rely on third-party suppliers for shipping and delivery services and managing the logistics of a distribution business can impact our results of operations
and margins.
We face certain risks due to our reliance on common carrier delivery services for shipping inventoried merchandise to customers and our reliance on drop ship
deliveries directly to customers by our product vendors for products we do not
13 hold in inventory (such as freight cost increases, timely delivery and customer service, delays due to work stoppages, etc.). We also must effectively manage
our ability to maintain available capacity in our distribution operations for stocked inventory and to enable on time shipment and deliveries, such as by timely
implementing additional or alternative distribution resources, whether in the form of additional facilities we operate or by outsourcing certain functions to
third-party distribution and logistics partners.
Increases in freight and shipping costs charged to us by third parties could adversely affect our margins to the extent the increases cannot be passed along to
customers, and factors affecting the shipping and distribution of products imported to the United States by us or our domestic vendors, such as the current
shortage in global availability of shipping containers, the current port congestion and global logistical delays and pandemic related labor shortages, have in the
past and could in the future adversely affect the timely availability of products, resulting in delayed or lost sales, as well as adversely affecting our margins.
The fuel costs of our independent freight companies have been volatile. Our vendors and independent freight carriers typically look to pass increased costs along
to us through price increases. When we are forced to accept these price increases, we may not be able to pass them along to our customers, resulting in lower
margins.
• Changes in customer, product, vendor, sourcing or channel sales mix, could cause the gross margin and ultimately operating margins to decline; failure to
mitigate these pressures could adversely affect our operating results and financial condition.
Our gross margins are dependent on the mix of products we sell, decisions to drop ship rather than stock products in our distribution centers, decisions to offer
private label alternatives or branded offerings, price changes by manufacturers, and pricing actions by competitors. In addition, we could be adversely affected
by a continuation of our customers’ shift to lower-priced products.
• 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 effect on our results
of operations.
We rely on a variety of information and telecommunications systems including internally developed software, third-party purchased software and third-party
cloud-based software in order to manage our business, including our customer, vendor, employee, facilities, finance, management and corporate operations.
Our success is dependent in large part on the accuracy and proper use of our information systems, including our telecommunications systems, which are
utilized in all aspects of our business. To manage our growth, we need to continually evaluate the effectiveness and adequacy of our existing systems and
procedures to ensure they are keeping pace with changes in our business. These systems, whether internally developed, purchased or cloud-based may need to
be modified, upgraded or replaced from time to time. System modifications, upgrades or replacements involve costs as well as the risk of implementation
delays and not operating as intended. We rely on third parties such as telecommunication carriers, internet service providers and our own employees to provide
the technology services and expertise on which we depend. There are risks that third parties may incur outages or circumstances where they cannot provide the
services we require as intended or that our employees do not have the expertise to remediate system outages or technical problems that may arise. We have
experienced some delays and operational problems in implementing new IT systems in the past. 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.
We have disaster recovery systems and system backups are routinely done for certain critical systems, but not for every system. The occurrence of a significant
system failure, electrical or telecommunications outages or our failure to ensure our IT employees are properly trained and technically proficient, or that our
systems are adequate, effective and beneficial to our business, or our failure to expand or successfully implement new systems could have a material adverse
effect on our results of operations.
• Use of Cloud-Based Systems and Infrastructure Provided by Third Parties Present Significant Risks to Our Business.
In 2018, we moved certain of our operating systems and management information systems resources and storage to a leading cloud-based platform operated
by a well-known third-party provider of technology services, and we no longer operate or maintain such systems or store related data on our own servers. This
managed cloud-based platform is operated on a “infrastructure as a service” (“IAAS”) model. Accordingly, exposure to third-party service outages and data
loss, or a failure of the network or loss of connectivity can adversely affect our business. In addition, since the data resides on the cloud, we and our customers
are forced to rely on the physical and information security of the vendor to protect their
14 valuable information. There can be no assurance that the cloud-based systems on which we rely will not experience such outages or failures or that data
privacy/information security will not be breached.
• Data and security breaches, and other disruptions in our information technology systems, could compromise confidential or private information and expose us
to liability, which could cause our business and reputation to suffer.
Our operations are dependent upon information technology that encompasses all of our major business functions. We use our information systems to, among
other things, monitor our supply chain, make purchasing decisions, manage and replenish inventories, coordinate our sales and marketing activities, fill and
ship customer orders on a timely basis and to monitor and record our financial transactions and results of operations. These systems also process, transmit and
store sensitive electronic data, including employee personal information, supplier and customer records, allow vendors and customers to register on our portals
and websites, as applicable, or otherwise allow third parties to communicate or interact with us. In addition, we depend on IT systems of third parties, to,
among other things, market and distribute products, to operate our websites, host and manage our services, store data, and process transactions. We may share
information with these third parties that participate in certain aspects of our business, and we obtain external auditor certification on the controls and security
of any significant outsourced service provider according to the SSAE 18 standard. However, there is always a risk that the confidentiality of data held or
accessed by them may be compromised.
In processing our sales orders, we often collect personal information and transmit credit card information of our customers. If there was a security breach
resulting in unauthorized access to or use of such information, we could be subject to 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 conforms to appropriate Payment Card
Industry (“PCI”) security standards, any breach involving the loss of credit card information may lead to PCI related fines in the millions of dollars. In the
event of a severe breach, credit card providers may prevent our accepting of credit cards.
We measure our data security effectiveness through industry accepted methods and remediate significant findings. We maintain and routinely test backup
systems and disaster recovery, along with external network security penetration testing by an independent third-party as part of our business continuity
preparedness. We also have processes in place to prevent disruptions resulting from the implementation of new software and systems of the latest technology.
We have implemented solutions, processes, and procedures to help mitigate the risk of cyber-attacks, such as conducting annual vulnerability testing, and in
2018 engaged consultants to assist us in implementing stronger security measures, identifying remediation initiatives and establishing emergency response
plans, but there can be no assurance these efforts will successfully deter future cyber-attacks. Our Board of Directors is responsible for oversight of the
activities of our IT department (which reports to our Chief Executive Officer) and receives periodic presentations from our Chief Information Officer that
cover, among other things, data security and cyber liability matters.
Although our IT systems are protected through various network security measures, our facilities and systems, and those of our third-party service providers
with which we do business, may nevertheless be vulnerable to security breaches, cyber-attacks (any adverse event that threatens the confidentiality, integrity or
availability of our information resources) vandalism, power outages, natural disasters, computer system failures, telecommunication or network failures,
computer viruses, malware, misplaced or lost data, programming and/or human errors or other similar events. From time to time, we have experienced efforts
by unknown persons, including “bots”, to access or breach our information systems, and these efforts can be expected to continue in the future. While we have
successfully defended against such efforts in the past, there can be no assurance we will be able to protect sensitive data and/or the integrity of the Company's
information systems and to defend against such efforts in the future.
Any security breach involving the misappropriation, loss or other unauthorized disclosure of our confidential information or confidential information of our
customers, employees, or suppliers, whether by us or by our third-party service providers, could disrupt our business, expose us to risks of litigation (such as
customer or third-party claims that their data has been compromised) and liability, result in a loss of assets or cause reputational damage, and otherwise have a
material adverse effect on our operations and financial condition. Any substantial disruption of our systems could impair our ability to process orders, maintain
proper levels of inventories, manage customer billings and collections, prepare and present accurate financial statements and related information, and
otherwise materially adversely affect our ability to manage our business.
We maintain cyber liability risk insurance, but this insurance may not be sufficient to cover all of our losses from any future breaches of our systems, or to
cover the cause of the future specific situation/loss at hand. In addition, as privacy and information security laws and standards evolve, we may need to incur
significant additional investment in technology and other processes to meet new legal requirements.
15 • Goodwill and intangible assets may become impaired resulting in a charge to earnings.
The Company has made acquisitions in the past of other businesses and these acquisitions 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. Although the carrying amounts of intangible assets and goodwill are relatively
small as of December 31, 2020, to the extent the Company makes acquisitions in the future there could again be material amounts of such assets recorded and
subject to future impairment testing.
• Our foreign product procurement operations are subject to risks such as foreign regulatory trade and customs requirements such as the tariffs and duties
matters discussed above, and the political and economic conditions of the jurisdictions from which we procure products.
Because we sell products all across North America and procure product from abroad, including from China, we operate internationally and as a result, we are
subject to risks associated with doing business globally, such as risks related to the differing legal, political and regulatory requirements and economic
conditions of many jurisdictions. Risks inherent to operating internationally include:
• Changes in a country’s economic or political conditions;
• Tariff and trade uncertainties;
• Changes in foreign currency exchange rates;
• Difficulties with staffing and managing international relationships;
• Unexpected changes in regulatory requirements;
• Changes in transportation and shipping costs; and
• Enforcement of intellectual property rights.
The functional currencies of our businesses outside of the U.S. are the local currencies. Changes in exchange rates between these foreign currencies and the
U.S. Dollar will affect the recorded levels of our assets, liabilities, net sales, cost of goods sold and operating margins and could result in exchange gains or
losses. The primary currencies to which we have exposure are the Canadian Dollar and the India Rupee. Our operating results and profitability may be affected
by any volatility in currency exchange rates and our ability to manage effectively our currency transaction and translation risks. For example, we currently
have operations located in countries outside the United States, and non-U.S. sales accounted for approximately 5.9% of our net sales from continuing
operations during 2020. To the extent the U.S. 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 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 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 purchases to certain suppliers. The elimination of purchase return privileges 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.
• Concentration of Ownership and Control Limits Stockholders Ability to Influence Corporate Actions.
Richard Leeds, Robert Leeds, and Bruce Leeds (each are brothers and directors and executive officers of the Company), together with trusts for the benefit of
certain members of their respective families and other entities controlled by them, control approximately 67.2% of the voting power of our outstanding
common stock. Due to such holdings, the Leeds brothers together with these trusts and entities are able to determine the outcome of virtually all matters
submitted to stockholders for approval, including the election of directors, the appointment of management, amendment of our articles of incorporation,
significant corporate transactions (such as a merger or other sale of our company or our assets), the payments of dividends on our common stock and the
entering into of extraordinary transactions. Further, as a "controlled
16 company" under NYSE rules, the Company has elected to opt-out of certain New York Stock Exchange listing standards that, among other things, require
listed companies to have a majority of independent directors on their board of directors; the Company does however currently have an independent Audit
Committee, Compensation Committee and Corporate Governance and Nominating Committee.
General Risk Factors
• We may encounter difficulties with acquisitions and other strategic transactions which could harm our business.
We expect to pursue acquisitions and other strategic transactions that we believe will either expand or complement our business in new or existing markets or
further enhance the value and offerings we are able to provide to our existing or future potential customers.
Acquisitions and other strategic transactions involve numerous risks and challenges, including the following:
• diversion of management’s attention from the normal operation of our business;
• potential loss of key associates and customers of the acquired companies;
• difficulties managing and integrating operations in geographically dispersed locations;
• the potential for deficiencies in internal controls at acquired companies;
• increases in our expenses and working capital requirements, which reduce our return on invested capital;
• lack of experience operating in the geographic market or industry sector of the acquired business; and
• exposure to unanticipated liabilities of acquired companies.
To integrate acquired businesses, we must implement our management information systems, operating systems and internal controls, and assimilate and
manage the personnel of the acquired operations. The difficulties of this integration may be further complicated by geographic distances. The integration of
acquired businesses may not be successful and could result in disruption to other parts of our business.
• Our business is dependent on certain key personnel, including the recent engagement of new senior executives.
Our business depends largely on the efforts and abilities of certain key senior management employees. The loss of the services of one or more of such key
personnel could have a material adverse effect on our business and financial results.
• 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.
From time to time, we are involved in lawsuits or other legal proceedings arising in the ordinary course of our business. These include patent, trademark or
other intellectual property matters, employment law matters, states sales tax claims on internet/e-commerce transactions, 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 effect on our business. See “Legal Proceedings”.
• Our profitability can be adversely affected by changes in our income tax exposure due to changes in tax rates or laws, changes in our effective tax rate due to
changes in the mix of earnings among different countries, restrictions on utilization of tax benefits 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
has been in the past and could be in the future adversely affected by changes in the mix of earnings in countries with differing statutory tax rates, restrictions
on utilization of tax benefits, 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 is dependent on our ability to generate future taxable income in those jurisdictions. In the case of where several
years of losses occur in a jurisdiction, there is a risk that the Company would need to reserve its deferred tax assets which would likely result in a material tax
expense being recorded in the period that such reserve is established. Similarly, in the case where a reserve against deferred tax assets has previously been
established, successive years of profitability would require the reversal of deferred tax asset reserves which would likely
17
result in a material tax benefit in the period that the reserve is deemed to be no longer necessary. In addition, the amount of income taxes we pay is subject to
audit in our various jurisdictions and a material assessment by a tax authority could affect our profitability.
• We exited our France business in 2018 and our NATG business in 2015 and could incur costs in excess of our estimated exit expenses.
The Company has completed the wind-down activities related to the sale of the France business, but may incur additional charges related to statutory tax and
other indemnities given at closing. The Company has substantially completed the wind-down activities related to the NATG business, although certain NATG
activities related to sublet facilities, settling accounts payable and other contingent liabilities continue. The Company expects that total additional NATG exit
costs incurred during 2021 or later may aggregate up to $0.5 million, which will be presented in discontinued operations. There can be no assurance the
Company will be able to timely exit its existing NATG lease commitments at currently recorded cost levels. Failure to achieve these expectations will result in
increased cash exit costs for the Company.
• 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.
• Risk of Thin Trading and Volatility of our Common Stock Could Impact Stockholder Value
Our common stock is currently listed on the NYSE and is thinly traded. Volatility of thinly traded stocks is typically higher than the volatility of more liquid
stocks with higher trading volumes. The trading of relatively small quantities of shares of common stock by our stockholders may disproportionately influence
the price of those shares in either direction. This may result in volatility in our stock price and could exacerbate the other volatility-inducing factors described
below. The market price of our common stock could be subject to significant fluctuations as a result of being thinly traded.
Item 1B. Unresolved Staff Comments.
None.
Item 2. Properties.
We operate our business from numerous facilities in North America and Asia. These facilities include our headquarters location, administrative offices, telephone
call centers and distribution centers. Certain facilities handle multiple functions. All of our facilities are leased.
North America
As of December 31, 2020, we have seven operational distribution centers in North America which aggregate approximately 2.5 million square feet.
Our headquarters, administrative offices and call centers aggregate approximately 192,000 square feet.
The Company has one B2B call center and one warehouse from its discontinued NATG business that are sublet. These properties aggregate to approximately 0.4
million square feet.
Asia
As of December 31, 2020, we leased two administrative offices in Asia aggregating approximately 9,100 square feet.
Please refer to Note 3 to the consolidated financial statements for additional information about leased properties.
18 Item 3. Legal Proceedings.
The Company and its subsidiaries are from time to time involved in various lawsuits, claims, investigations and proceedings which may include commercial,
employment, tax, customs and trade, customer, vendor, personal injury, creditors rights and health and safety law matters, which are handled and defended in the
ordinary course of business. In addition, the Company is from time to time subjected to various assertions, claims, proceedings and requests for damages and/or
indemnification concerning sales channel practices and intellectual property matters, including patent infringement suits involving technologies that are
incorporated in a broad spectrum of products the Company sells or that are incorporated in the Company’s e-commerce sales channels, as well as
trademark/copyright infringement claims. The Company is also audited by (or has initiated voluntary disclosure agreements with) various U.S. Federal and state
authorities, as well as Canadian authorities, concerning potential income tax, sales tax and/or "unclaimed property" liabilities. These matters are in various stages of
investigation, negotiation and/or litigation. The Company's former NATG subsidiaries are also being audited by an entity representing 28 states seeking recovery of
“unclaimed property” and has received separate demands from 20 states requesting payments of their claimed amounts. The Company has complied with the
unclaimed property audit, has provided requested information and has corresponded with the states regarding possible further discussions. The Company intends to
vigorously defend these matters and believes it has strong defenses.
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 position 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 regularly 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. In this regard, the Company establishes accrual estimates for its various lawsuits, claims, investigations
and proceedings when it is probable that an asset has been impaired or a liability incurred at the date of the financial statements and the loss can be reasonably
estimated. At December 31, 2020 the Company has established accruals for certain of its various lawsuits, claims, investigations and proceedings based upon
estimates of the most likely outcome in a range of loss or the minimum amounts in a range of loss if no amount within a range is a more likely estimate. The
Company does not believe that at December 31, 2020 any reasonably possible losses in excess of the amounts accrued would be material to the financial
statements.
Item 4. Mine Safety Disclosures.
Not applicable.
19 PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Systemax's common stock is traded on the New York Stock Exchange ("NYSE") under the symbol “SYX.” The following table sets forth the high and low closing
sales price for the common stock and the dividends declared per share for each quarter during 2020 and 2019.
2020
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
2019
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
High
Low
Dividends
$
$
25.62 $
21.87
23.44
37.20
25.19 $
24.04
23.12
26.37
14.82 $
15.82
18.82
22.94
20.23 $
20.01
18.71
21.40
1.14
0.14
0.14
2.14
0.12
0.12
0.12
0.12
On December 31, 2020, the last reported sale price of our common stock on the NYSE was $35.89 per share. As of December 31, 2020, we had 165 shareholders
of record.
In February 2021, the Company's Board of Directors declared a regular cash dividend of $0.16 per share to common stock shareholders of record at the close of
business on March 8, 2021, payable on March 15, 2021.
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 anticipate continuing a regular quarterly dividend 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 9 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 2021 Annual Meeting of Shareholders and is incorporated by reference herein.
Purchases of Equity Securities
In July 2018, the Company's Board of Director's approved a share repurchase program with a repurchase authorization of up to two million shares of the
Company's common stock. Under the share repurchase program, the Company is authorized to purchase shares from time to time through open market purchases,
tender offerings or negotiated purchases, subject to market conditions and other factors. During 2020, the Company repurchased 392,337 common shares for $7.2
million under its share repurchase authorization. The maximum number of shares that may yet be purchased under the program total approximately 1,375,000.
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, excluding discontinued operations, for fiscal years 2020, 2019 and 2018 and the selected balance sheet data as of December
31, 2020 and 2019 are derived from the audited consolidated financial statements which are included elsewhere in this report. The selected balance sheet data as of
December 31, 2018, 2017 and 2016 and the selected statement of operations data for fiscal years 2017 and 2016 are derived from the audited consolidated financial
statements of the Company which are not included in this report.
20
The results of operations shown here have been adjusted to reflect the presentation of the ETG and NATG discontinued operations (See Note 1 of the Notes to
Consolidated Financial Statements).
Statement of Operations Data:
Net sales
Gross profit
Operating income from continuing operations
Net income from continuing operations
Per Share Amounts:
Net income from continuing operations — diluted
Weighted average common shares — diluted
Cash dividends declared per common share
Balance Sheet Data:
Working capital
Total assets
Shareholders’ equity
2020
1,029.0 $
356.9 $
84.1 $
64.1 $
1.68 $
37.7
3.56 $
77.4 $
374.9 $
106.8 $
$
$
$
$
$
$
$
$
$
Years Ended December 31,
(In millions, except per share data)
2018
2017
2019
946.9 $
325.7 $
66.1 $
50.0 $
1.32 $
37.7
0.48 $
144.5 $
396.9 $
175.5 $
896.9 $
307.7 $
61.7 $
49.5 $
1.31 $
37.9
7.94 $
117.8 $
530.0 $
137.7 $
791.8 $
273.2 $
45.7 $
65.5 $
1.74 $
37.6
1.85 $
178.3 $
551.4 $
211.8 $
2016
753.1
238.2
8.0
3.9
0.10
37.2
0.10
186.2
566.1
214.4
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Overview
Systemax Inc., through its subsidiaries, is primarily a direct marketer of brand name and private label industrial and business equipment and supplies in North
America going to market through a system of branded e-commerce websites and relationship marketers.
As the coronavirus has become widespread in the United States, it has lead to health screenings, domestic quarantines, government mandated business, school and
government agency shutdowns and lower domestic economic activity and productivity. The resultant lower demand for certain of our core products and other
product lines was mitigated by stronger sales of pandemic and safety related supplies.
Continuing Operations
The Company sells a wide array of industrial and general business hard goods and supplies and to a lesser extent products that would fall into the generally
recognizable category of maintenance, repair and operational (“MRO”) products, which are marketed in North America. Many of these products are manufactured
by other companies. Some products are manufactured for us and sold under our brand as a white label product, and some are manufactured to our own design and
marketed under the trademarks: Global™, GlobalIndustrial.com™, Nexel™ Paramount™ and Interion™.
Discontinued Operations
The Company's discontinued operations include the results of the France business sold in August 2018, the SARL Businesses sold in March 2017 and the NATG
business sold in December 2015 (see Note 1 and Note 6).
Operating Conditions
The North American industrial products market is highly fragmented and we compete against numerous competitors in multiple distribution channels. Industrial
products distribution is working capital intensive, requiring us to incur significant costs associated with the warehousing of many products, including the costs of
maintaining inventory, leasing warehouse space, inventory management systems, and employing personnel to perform the associated tasks. We supplement our on-
hand product
21
availability by maintaining relationships with major distributors and manufacturers, utilizing a combination of stock 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 equity-based compensation, as well as marketing expenses, primarily comprised of digital marketing spend, and occupancy related charges
associated with our leased distribution and call center facilities. We continually assess our operations to ensure that they are efficient, aligned with market
conditions and responsive to customer needs.
In the discussion of our results of operations, 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.
The discussion of our results of operations and financial condition that follows will provide information that will assist in understanding our financial statements,
the factors that we believe may affect our future results and financial condition as well as information about how certain accounting policies and estimates affect
the consolidated financial statements.
The Company has elected to omit discussion of the earliest year presented, December 31, 2018, in MD&A. This discussion can be found in Item 7. Management’s
Discussion and Analysis of Financial Condition and Results of Operations in Form 10-K for the year ended December 31, 2019, filed on March 12, 2020.
Business Outlook
As we look to 2021, the Company is focused on the continued execution of our customer centric strategy, building on our financial performance and expanding our
higher margin private label line of Global products by adding additional products and product categories. The strategy guides our actions across the business and
specifically in our customer end-to-end purchase, service and delivery experience. In the year ahead, we will be making further investments in: automation and
technology in our customer service stack; our e-commerce shopping experience to provide a seamless shopping journey filled with educational content and
solutions offerings; our distribution centers to increase timeliness, quality and accuracy in customer order fulfillment, while driving labor productivity and sales
force productivity and automation, which will continue to allow our managed sales force to proactively provide our customers the solutions they need in order to
operate their businesses. These actions will enhance our end-to-end customer experience, drive the further evolution of our e-commerce platform and strengthen
our competitive position. Accordingly, we expect our capital expenditures in 2021 to be in the range of $5.0 to $7.0 million.
22 Highlights from 2020
The following discussion of our results of operations and financial condition 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.
•
•
•
•
Consolidated sales increased 8.7% to $1.0 billion compared to $946.9 million in the prior year.
On a Non-GAAP*, average daily sales, constant currency basis, sales increased 7.0% compared to prior year.
Consolidated operating income increased 27.2% to $84.1 million compared to $66.1 million last year.
Net income per diluted share from continuing operations increased 27.3% to $1.68 compared to $1.32 in the prior year.
*Non-GAAP, average daily sales, constant currency is calculated based upon the number of selling days in each period, with Canadian sales converted to US Dollars using the prior
year’s average exchange rate.
23 Key Performance Indicators (in millions):
Results of Operations
Results of continuing operations:
Consolidated net sales
Consolidated gross profit
Consolidated gross margin
Consolidated SD&A costs
Consolidated SD&A costs as % of sales
Consolidated operating income
Consolidated operating margin from continuing operations:
Effective income tax rate
Net income from continuing operations
Net margin from continuing operations
Net income (loss) from discontinued operations, net of tax
Years Ended December 31
Change
2020
2019
2020 vs. 2019
$
$
$
$
$
$
1,029.0
356.9
34.7 %
272.8
26.5 %
84.1
8.2 %
23.7 %
64.1
6.2 %
1.3
$
$
$
$
$
$
946.9
325.7
34.4 %
260.4
27.5 %
66.1
7.0 %
24.4 %
50.0
5.3 %
(1.5)
8.7 %
9.6 %
0.3 %
4.8 %
(1.0) %
27.2 %
1.2 %
(0.7) %
28.2 %
0.9 %
186.7 %
24
SYSTEMAX INC.
Consolidated Summary Results
(1)
- Unaudited
(In millions)
GAAP:
Net sales
Average daily sales*
Operating income
Operating margin %
Non-GAAP:
Average daily sales, constant currency**
Year Ended December 31,
2020
$1,029.0
$4.0
$84.1
8.2%
2019
$946.9
$3.7
$66.1
7.0%
Change
2020 vs. 2019
8.7 %
7.0 %
27.2 %
1.2 %
$4.0
$3.7
7.0 %
* Average daily sales is calculated based upon the number of selling days in each period, converted to US Dollars using the current year's average
exchange rate. There were 257 selling days in 2020 and 253 selling days in 2019.
** Non-GAAP, average daily sales, constant currency is calculated based upon the number of selling days in each period, with Canadian sales converted to
US Dollars using the prior year's average exchange rate.
1 Systemax manages its business and reports using a 52-53 week fiscal year that ends at midnight on the Saturday closest to December 31. For clarity of
presentation, fiscal years and quarters are described as if they ended on the last day of the respective calendar month. The actual fiscal quarter ended on
January 2, 2021 and December 28, 2019.. The year ended 2020 included 53 weeks and 2019 included 52 weeks.
25 Management’s discussion and analysis that follows will include current operations and discontinued operations.
NET SALES
The Company's net sales increased 8.7% to over $1.0 billion compared to $946.9 million as the Company's performance continued to benefit from investments in
our private label offerings, significant growth in pandemic related supplies and equipment and a return to growth from our core product offerings in the second half
of the year despite the challenging macro environment. Net sales from our Canada business grew 33.6%, 34.8% on a constant currency basis, compared to prior
year. U.S. revenue increased 7.4% compared to prior year. On a constant currency basis, average daily sales increased 7.0% compared to prior year. There were
257 selling days in 2020 compared to 253 selling days in 2019. The Company expects that there will be challenging impacts in early in 2021 associated with
disruptions in the supply chain, including container shortages, high levels of port congestion, and disruption to the domestic less-than-truckload ("LTL") carrier
network due to severe winter storms across much of the U.S.
GROSS MARGIN
Gross margin is dependent on variables such as product mix including sourcing and category, competition, pricing strategy, vendor volume rebates, free freight and
freight discounting arrangements, inventory valuation and obsolescence and other variables, any or all of which may result in fluctuations in gross margin. The
Company expects to see continued margin variability due to the current economic environment, freight pricing fluctuations, changes in mix as a result of our
customer's strong demand of personal protective equipment ("PPE") and other related products, significant price fluctuations of PPE based upon market availability
and historical seasonality.
Gross margin was 34.7% compared to 34.4% in the prior year primarily driven by improvements in price rationalization, as well as a product mix shift to in stock
and private label products and the higher margins these sourcing channels provide as compared to nationally branded products fulfilled through a drop ship model.
The Company did experience a number of margin pressures during the fourth quarter related to freight promotions, increased parcel shipping costs associated with
an extended peak season and ocean freight costs. We expect these costs to continue into the first quarter of 2021, and will also incur, what we believe to be
temporary additional freight costs as we transition to a new third party logistics partner in an effort to further improve service levels and our customers' experience.
SELLING, DISTRIBUTION AND ADMINISTRATIVE EXPENSES (“SD&A”), EXCLUDING SPECIAL GAINS AND CHARGES
Selling, distribution and administrative expenses totaled $272.8 million and $260.4 million for the years ended December 31, 2020 and 2019, respectively.
SD&A costs as a percentage of sales improved in 2020 compared to 2019 by 100 basis points. This improved SD&A leverage reflects our continued optimization
in marketing spend, as well as fixed cost leverage as sales volume grew. Significant cost savings were generated from lower net advertising spend of approximately
$7.7 million and lower net catalog and trade shows costs of approximately $1.8 million. Offsetting these decreased costs was increased salary and related costs of
approximately $13.9 million, of which $7.0 million related to variable bonus and commission expense, which is directly attributable to the Company's financial
performance in the current year. Additional increased costs related to consulting expenses of approximately $3.2 million primarily related to our customer centric
strategy initiatives, increased facility costs of approximately $2.2 million, and additional credit card fees of approximately $1.5 million.
CONTINUING OPERATIONS SPECIAL GAINS AND CHARGES
The Company did not incur any special charges within continuing operations during 2020. During the third quarter of 2019 and for the year ended December 31,
2019, the Company's former German branch recorded special gains of approximately $0.8 million related to a buyout for its outstanding lease obligation.
DISCONTINUED OPERATIONS SPECIAL GAINS AND CHARGES
The Company's discontinued operations include the results of the France business sold in August 2018, the SARL Businesses sold in March 2017 and the NATG
businesses sold in December 2015 (see Note 1 and Note 6).
Total special gains included in discontinued operations totaled $1.4 million and $0.0 million for the years ended December 31, 2020 and 2019, respectively. The
Company's NATG discontinued operations recorded approximately $1.9 million in restitution
26 receipts offset by $0.5 million of professional fees during 2020. There were no special charges (gains) recorded in discontinued operations in 2019.
OPERATING MARGIN
The Company's operating margin increase of 120 basis points in 2020 compared to 2019 was driven by improved gross margin that resulted from the product mix
shift to in stock and private label products, efficiencies in our marketing efforts, improved leverage within our fixed cost structure given our higher sales volume, as
well as the benefit of the reduction in force action implemented in April 2020.
Consolidated operating margin was impacted by special gains of $0.0 million and $0.8 million for the years ended December 31, 2020 and 2019, respectively.
INTEREST AND OTHER (INCOME) EXPENSE, NET
Interest and other (income) expense, net from continuing operations was $0.1 million for 2020 and $0.0 million in 2019.
INCOME TAXES
The Company recorded net tax expense in continuing operations for 2020 of $19.9 million, or 23.7%, and a net tax expense in discontinued operations of $0.5
million. Tax expense from continuing operations was primarily the result of pretax income in the U.S. and India operations, including tax expense for certain U.S.
states. The tax rate was benefited by pre-tax income in Canada of approximately $3.2 million as the Company has full valuation allowances against the deferred tax
assets, including net operating losses, of its Canadian subsidiary and taxable income is fully offset by these net operating losses. Tax expense from continuing
operations was also benefited by approximately $0.6 million of stock option exercises and dividend equivalent payments. Non-deductible expenses, including
executive compensation, was approximately $0.7 million. Tax expense in discontinued operations is attributed to pretax income recorded in the discontinued
NATG business.
The Company recorded net tax expense in continuing operations for 2019 of $16.1 million, or 24.4%, and a net tax benefit in discontinued operations of $0.6
million. Tax expense from continuing operations was primarily the result of pretax income in the U.S. and was benefited by approximately $0.5 million of stock
option exercises and approximately $0.2 million from dividend equivalent payments. Non-deductible expense, including executive compensation, was
approximately $0.8 million. Tax benefit in discontinued operations is primarily attributed to pretax losses incurred in the discontinued NATG business.
Financial Condition, Liquidity and Capital Resources
Selected liquidity data (in millions):
Cash and cash equivalents
Accounts receivable, net
Inventories
Prepaid expenses and other current assets
Accounts payable
Accrued expenses and other current liabilities
Operating lease liabilities
Working capital
December 31,
2020
2019
$ Change
$
$
$
$
$
$
$
$
22.4 $
102.3 $
132.3 $
6.8 $
125.4 $
50.7 $
10.3
77.4 $
97.2 $
88.2 $
112.5 $
6.4 $
115.9 $
34.0 $
9.9 $
144.5 $
(74.8)
14.1
19.8
0.4
9.5
16.7
0.4
(67.1)
27 Historical Cash Flows
Net cash provided by operating activities from continuing operations
Net cash provided by (used in) operating activities from discontinued operations
Net cash used in investing activities from continuing operations
Net cash used in financing activities from continuing operations
Effects of exchange rates on cash
Net decrease in cash and cash equivalents
Year Ended December 31,
2020
2019
$
$
$
$
$
$
67.3 $
0.9 $
(2.7) $
(138.8) $
0.1 $
(73.2) $
70.3
(1.9)
(6.9)
(259.6)
(0.1)
(198.2)
Our primary liquidity needs are to support working capital requirements in our business, funding recently declared and any future dividends, funding capital
expenditures, continuing investment in upgrading and expanding our technological capabilities and information technology infrastructure specifically related to our
e-commerce shopping experience, and sales force productivity and automation, continuing investment in upgrading and expanding our distribution footprint, and
funding acquisitions. We rely principally upon operating cash flows to meet these needs. We currently believe that current cash on hand and cash flow from
operations will be sufficient to fund our working capital and other cash requirements for at least the next twelve months. We believe our current capital structure
and cash resources are adequate for our internal growth initiatives. To the extent our growth initiatives expand, including major acquisitions, we would seek to raise
additional capital. We believe that, if needed, we can access public or private funding alternatives to raise additional capital.
Our working capital decreased $67.1 million primarily related to the $2.00 per share special dividend declared, totaling $75.5 million, of which $75.1 million was
paid in December 2020, increased accounts payable balances and accrued expenses and other current liabilities balances offset by increased accounts receivable
and inventory balances. Our inventory balance increase is primarily associated with strategic investment in personal protective equipment items in response to
continuing demand for Covid-19 related safety products, as well as increased stocking levels of certain core products which turned slower in 2020 given lower
demand due to business and government shutdowns, but has shown continued recovery in the last quarter of 2020. Accounts receivable days outstanding were 37.4
in 2020 compared to 35.9 in 2019. Inventory turns were 5.3 in 2020 compared to 5.9 in 2019 and accounts payable days outstanding were 68.3 in 2020 compared to
68.7 in 2019. We expect that future accounts receivable, inventory and accounts payable balances will fluctuate with net sales and the product mix of our net sales.
Operating Activities
Net cash provided by operating activities from continuing operations was $67.3 million attributable to cash generated from net income adjusted by other non-cash
items which provided $73.6 million in 2020 compared to $61.2 million provided by these items in 2019. This increase is primarily related to the higher net income
from continuing operations in 2020 compared to 2019. Partially offsetting this increase are the changes in our working capital accounts, which used $6.3 million in
cash compared to $9.1 million provided in 2019, primarily the result of changes in the inventory, accounts receivable, accounts payable and accrued expenses and
other current liabilities and non-current liabilities balances in 2020. Net cash provided by operating activities from discontinued operations was $0.9 million in
2020 and net cash used in discontinued operations in 2019 was $1.9 million.
Investing Activities
Net cash used in investing activities from continuing operations totaled $2.7 million and $6.9 million for 2020 and 2019, respectively. In 2020, investing activities
primarily related to leasehold improvements, warehouse machinery and equipment, molds and computer equipment. In 2019, investing activities were primarily
related to the new Texas distribution center other warehouse projects including wire decking, in-rack sprinkler systems, video security systems and warehouse
lighting. Net cash used in investing activities from discontinued operations was zero for 2020 and 2019.
Financing Activities
Net cash used in financing activities was $138.8 million and $259.6 million in 2020 and 2019, respectively. In 2020, net cash used in financing activities primarily
related to the special dividend of $2.00 per share declared in December 2020, the $1.00 per share special dividend declared in February 2020 and the regular
quarterly dividends of $0.14 per share, which totaled approximately $134.3 million. Also, during 2020, the Company purchased treasury shares totaling
approximately $7.2 million.
28
Proceeds from the issuance of common stock from stock option exercises, net of payments for payroll taxes through shares withheld, totaled $1.9 million and
proceeds from the issuance of common stock from our employee stock purchase plan totaled $0.8 million. In 2019, cash used in financing activities was primarily
related to the payment of the special dividend declared in December 2018 of $243.5 million and regularly quarterly dividends that totaled approximately $18.1
million. Proceeds from stock option exercises, net of payments for payroll taxes through shares withheld, totaled $1.2 million and proceeds from the issuance of
common stock from our employee stock purchase plan totaled $0.8 million.
The Company maintains a $75.0 million secured revolving credit facility with one financial institution which has a five-year term, maturing on October 28, 2021
and provides for borrowings in the United States. The Company expects to renew this facility before its expiration in 2021. The 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 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 borrowings under the agreement are
subject to borrowing base limitations of up to 85% of eligible accounts receivable and the inventory advance rate computed as the lesser of 60% or 85% of the net
orderly liquidation value (“NOLV”). Borrowings are secured by substantially all of the Borrower’s assets, as defined, including all accounts receivable, inventory
and certain other assets, subject to limited exceptions, including the exclusion of certain foreign assets from the collateral. The interest rate under the amended and
restated facility is computed at applicable market rates based on the London interbank offered rate (“LIBOR”), the Federal Reserve Bank of New York (“NYFRB”)
or the Prime Rate, plus an applicable margin. The applicable margin varies based on borrowing base availability. As of December 31, 2020, eligible collateral
under the credit agreement was $75.0 million, total availability and excess availability was $72.6 million and there were no outstanding borrowings. The Company
has restricted cash collateralizing letters of credit outstanding of $1.6 million at December 31, 2020 recorded within Other assets in the accompanying Consolidated
Balance Sheets. The Company was in compliance with all of the covenants of the credit agreement in place as of December 31, 2020.
Levels of earnings and cash flows are dependent on factors such as consolidated gross margin and selling, distribution and administrative costs, 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 business segments 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 minimal debt.
The expenses, capital expenditures and exit activities described above will require significant levels of liquidity, which we believe can be adequately funded from
our currently available cash resources and borrowing under our current credit facility. In 2021 we anticipate capital expenditures in the range of $5.0 to $7.0
million, though at this time we are not contractually committed to incur these expenditures.
In the past 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 business spending could adversely impact our cash resources and force us to either forego future acquisition
opportunities or to pay the purchase price using debt, which could have an adverse effect on our earnings. We believe that our cash balances and future cash flows
from operations 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 in money market funds or their equivalent that have maturities of less than three months and in non-interest bearing
accounts that partially offset banking fees. As of December 31, 2020, we had no investments with maturities of greater than three months. Accordingly, we do not
believe that our cash balances have significant exposure to interest rate risk. At December 31, 2020 cash balances held in foreign subsidiaries totaled approximately
$3.4 million. These balances are held in local country banks and are held primarily to support local working capital needs. The Company had in excess of $93
million of liquidity (cash, restricted cash and an undrawn line of credit) in the U.S. as of December 31, 2020. This facility expires in October 2021, however the
Company expects to renew this facility before its expiration in 2021.
We are obligated under non-cancelable operating leases for the rental of most of our facilities and certain of our equipment which expires at various dates through
2032. We have sublease agreements for unused space we lease in the United States. In the event the sub lessee is unable to fulfill its obligations, we would be
responsible for rents due under the leases.
29 Following is a summary of our contractual obligations for future principal payments on our non-cancelable operating leases and minimum payments on our other
purchase obligations as of December 31, 2020 (in millions):
Contractual Obligations:
Operating lease liabilities
Purchase & other obligations
Total contractual obligations
Total
Less than
1 year
1-3 years
3-5 years
More than
5 years
$
$
112.6 $
14.8 $
39.9 $
27.7 $
30.2
30.1
6.5
12.2
11.4
142.7 $
21.3 $
52.1 $
39.1 $
30.2
See Note 4 of Notes to Consolidated Financial Statements for further detail related to operating lease obligations.
Our purchase and other obligations consist primarily of product purchase commitments, certain employment agreements and service agreements.
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, 2020, the Company had no material uncertain tax positions.
Discontinued Operations
The Company's discontinued operations include the results of the France business sold in August 2018, the SARL Businesses sold in March 2017 and the NATG
business sold in December 2015 (see Note 1 and Note 6).
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.
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, forecasts of future economic conditions 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.
Leases
The Company has operating and finance leases for office and warehouse facilities, headquarters and call centers and certain computer, communications equipment
and machinery and equipment which provide the right to use the underlying assets in exchange for agreed upon lease payments, determined by the payment
schedule contained in each lease. The Company determines if an arrangement is an operating or finance lease at the inception of the lease. The Company has
elected not to
30
apply recognition requirements to leases with terms of one year or less. All other leases are recorded on the balance sheet, with Operating lease right-of-use
("ROU") assets representing the right to use the underlying asset for the lease term and Operating lease liabilities representing the obligation to make lease
payments arising from the lease. The Company’s lease portfolio consists primarily of operating leases which expire at various dates through 2032.
The ROU assets and corresponding lease liabilities are recorded based upon the net present value of the remaining lease payments, discounted using interest rates
determined by utilizing such factors as the Company's current credit facility terms, the length of the remaining term of the lease, the Company's expected debt
credit rating and comparable company term loan yields. Certain leases may include options to extend the lease, however the Company is not including any impact
of such options in the valuation of its ROU assets or liabilities as they are not currently probable of being extended. The Company’s lease agreements do not
contain residual value guarantees or restrictive covenants. The Company has sublease agreements for certain unused facilities.
Revenue Recognition
The Company recognizes revenue from contracts with its customers utilizing the following steps:
•
Identifying the contract with the customer
▪
▪
▪
▪
Identifying the performance obligations under the contract
Determine the transaction price
Allocate transaction price to performance obligations, if necessary
Recognizing revenue as performance obligations are satisfied
The Company's invoice, and the terms and conditions of sale contained therein, constitutes the evidence of an arrangement and is a contract with the customer. The
performance obligations are generally delivery of the products listed on the invoice and the transaction price for each product is listed. Allocation of transaction
price is generally not needed. Performance obligations are satisfied, and revenue is recognized upon the shipment of goods from one of the Company’s distribution
centers or drop shippers for most contracts or in certain cases revenue will be recognized upon delivery and acceptance by the customer. Customer acceptance
occurs when the customer accepts the shipment. The Company's standard terms, provided on its invoices as well as on its websites, are included in communications
with the customer and have standard payment terms of 30 days. Certain customers may have extended payment terms that have been pre-approved by the
Company's credit department, but generally none extend longer than 120 days.
Provisions for sales returns and allowances are estimated based on historical data and are recorded concurrently with the recognition of revenue. These provisions
are reviewed and adjusted periodically by the Company. Revenue is presented net of sales taxes collected from customers and remitted to government authorities.
Revenue is reduced for any early payment discounts or volume incentive rebates offered to customers.
The Company’s revenue is shown as “Net sales” in the accompanying Consolidated Statements of Operations and is measured as the determined transaction price,
net of any variable consideration consisting primarily of rights to return product. The Company has elected to treat shipping and handling revenues as activities to
fulfill its performance obligation. Billings for freight and shipping and handling are recorded in net sales and costs of freight and shipping and handling are
recorded in cost of sales in the accompanying Consolidated Statements of Operations.
The Company will record a contract liability in cases where customers pay in advance of the Company satisfying its performance obligation. The Company did not
have any material unsatisfied performance obligations or liabilities as of December 31, 2020.
The Company offers customers rights to return product within a certain time, usually 30 days. The Company estimates its sales returns liability quarterly based
upon its historical returns rates as a percentage of historical sales for the trailing twelve-month period. The total accrued sales returns liability was approximately
$1.9 million at December 31, 2020 and 2019, respectively, and was recorded as a refund liability in Accrued expenses and other current liabilities in the
accompanying Consolidated Balance Sheets.
31 Allowance for Credit Losses
On January 1, 2020 the Company adopted ASU 2016-13, Financial Instruments - Credit Losses: Measurement of Credit Losses on Financial Instruments (Topic
326). The Company's trade accounts receivable are subject to this standard. The adoption of this ASU did not have a material impact on the Company's financial
position or results of operations.
The Company’s trade accounts receivable is one portfolio comprised of commercial businesses operating in the U.S. and to a much lesser extent, Canada. The
Company develops its allowances for credit losses, which represent an estimate of expected losses over the remaining contractual life of its receivables, considering
customer financial condition, historical loss experience with its customers, current market economic conditions and forecasts of future economic conditions when
appropriate. When the Company becomes aware of a customer's inability to meet its financial obligation, a specific reserve is recorded to reduce the receivable to
the expected amount to be collected. For the balance of its trade receivables, the Company uses a loss rate method to estimate its credit loss reserve. Historical loss
experience rates are calculated using receivable write offs over a trailing twelve-month period and comparing that to the average receivable balances over the same
period. That rate is applied to the current accounts receivable portfolio, excluding accounts that have been specifically reserved. Any write offs incurred are
recorded against the established reserves.
The Company grants credit to commercial business customers using an electronic application process that evaluates the customer's detailed credit report, reference
responses, availability under credit facilities, existing liens, tenure of management and business history, among other factors. Credit terms are typically net 30 days
payment required with larger businesses eligible for up to net 90 day terms, if qualified.
Our estimates for the years ended December 31, 2020 and 2019 have not been materially different than our actual experience. While bad debt allowances have been
within expectations, there can be no assurance that we will continue to experience the same allowance rate we have in the past particularly if business or economic
conditions change or actual results deviate from historical trends.
Inventory Valuation
We value our inventories at the lower of cost or net realizable value; cost being determined on the first-in, first-out method. 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. The Company estimates the net realizable value of its inventory by considering factors such as inventory levels, historical write-off information, historical and
current demand trends, market conditions, estimated direct selling costs and physical condition of the inventory as well as credits that we may obtain for returned
merchandise.
Our inventory reserve estimates for the years ended December 31, 2020 and 2019 have not been materially different than our actual experience. However, if in the
future our estimates are materially different than our actual experience we could have a material loss adjustment.
Goodwill and Intangible Assets
Our business acquisition activity results in the recording of goodwill and intangible assets as part of the purchase price allocation process. 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 Company operates in one reporting unit and in the fourth quarter of each year performs a quantitative assessment of its goodwill by comparing the Company's
fair market value, or market capitalization, to the carrying value of the Company, including goodwill, to determine if impairment exists.
We have approximately, in aggregate, $7.0 million in goodwill and intangible assets at December 31, 2020. We do not believe it is reasonably likely that the
estimates or assumptions used to determine whether any of our remaining goodwill or intangible
32 assets are impaired will change materially in the future. However, there can be no assurances that we will not incur impairment charges that are material in the
future.
Long-lived Assets
Management exercises judgment in evaluating our long-lived assets for impairment and in their depreciation and amortization methods and lives including
evaluating undiscounted cash flows. 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 a 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. We have not made any material changes to our long-lived
assets policy in the past four 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.
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 several 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/or that exposures may be settled at amounts different than the amounts reserved. 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 our net deferred tax assets is significantly 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. We have not made any material changes to our income tax policy in the past four years and we do not anticipate making any material
changes to this policy in the near 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.
Recent Accounting Pronouncements
For information about recent accounting pronouncements, see Note 2, Summary of Significant Accounting Policies, in the Notes to the Consolidated Financial
Statements included in Part II, Item 8, Financial Statements and Supplemental Data, of this Annual Report on Form 10-K.
33 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 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 $6.1 million and pretax income would have fluctuated by approximately $0.4 million if
average foreign exchange rates changed by 10% in 2020. 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, 2020 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, 2020, 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.
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.
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, 2020.
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.
34 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 the 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 (2013 framework). 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, 2020.
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, 2020, a copy of which is included herein.
Changes in Internal Control Over Financial Reporting
There were no changes in the Company’s internal control over financial reporting that occurred during the quarter ending December 31, 2020 that have materially
affected, or are reasonably likely to materially affect, its internal control over financial reporting.
35
Report of Independent Registered Public Accounting Firm
To the Shareholders and the Board of Directors of Systemax Inc.
Opinion on Internal Control over Financial Reporting
We have audited Systemax Inc.’s internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control-Integrated
Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). In our opinion, Systemax
Inc. (the Company) maintained, in all material respects, effective internal control over financial reporting as of December 31, 2020, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the 2020 consolidated
financial statements of the Company and our report dated March 18, 2021 expressed an unqualified opinion thereon.
Basis for Opinion
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 on Internal Control Over Financial Reporting. Our responsibility is to express
an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are
required to be independent with respect to the Company in accordance with U.S. federal securities laws and the applicable rules and regulations of the Securities
and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. 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.
Definition and Limitations of Internal Control Over Financial Reporting
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.
/s/ Ernst & Young LLP
New York, New York
March 18, 2021
36
Item 9B. Other Information.
None.
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 2021 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.
Report of Ernst & Young LLP Independent Registered Public Accounting Firm
Consolidated Balance Sheets as of December 31, 2020 and 2019
Consolidated Statements of Operations for the years ended December 31, 2020, 2019 and 2018
Consolidated Statements of Comprehensive Income (Loss) for the years ended December 31, 2020, 2019 and 2018
Consolidated Statements of Cash Flows for the years ended December 31, 2020, 2019 and 2018
Consolidated Statements of Shareholders’ Equity for the Years ended December 31, 2020, 2019 and 2018
Notes to Consolidated Financial Statements
2 Financial Statement Schedule:
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.
Reference
41
43
44
45
46
47
48
68
37 Item 15. Exhibits and Financial Statement Schedules.
3 Exhibits.
Exhibit
No.
3.1
3.2
3.3
3.4
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*
10.15
Description
Certificate of Incorporation of the Company (incorporated by reference to the Company's registration statement on Form S-1)
(Registration No. 33-92052).
Certificate of Amendment of Certificate of Incorporation of the Company (incorporated by reference to the Company’s report on Form
8-K dated May 18, 1999).
Amended and Restated By-laws of the Company (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 Company (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).
Lease Agreement, dated December 8, 2005, between Hamilton Business Center, LLC (landlord) and Global Equipment Company Inc.
(tenant) (Buford, GA facility) (the “Buford Lease”) (incorporated by reference to the Company’s annual report on Form 10-K for the
year ended December 31, 2005).
First Amendment, to the Buford Lease, dated June 12, 2006, between Hamilton Business Center, LLC (landlord) and Global
Equipment Company Inc. (tenant) (Buford, GA facility) (incorporated by reference to the Company’s annual report on Form 10-K for
the year ended December 31, 2005).
Lease Agreement, dated February 27, 2012, between PR I Washington Township NJ, LLC (landlord) and Global Equipment Company
Inc. (tenant) (Robbinsville, NJ facility) (incorporated by reference to the Company’s quarterly report on Form 10-Q for the quarterly
period ended March 31, 2012).
Form of 2010 Long Term Incentive Plan (incorporated by reference to the Company’s Definitive Proxy Statement filed April 29,
2010).
Employment Agreement, dated April 12, 2012, between the Company and Eric Lerner (incorporated by reference to the Company’s
quarterly report on Form 10-Q for the quarterly period ended March 31, 2012).
Amendment No. 1, dated March 10, 2020 and effective as of January 1, 2020, to the Employment Agreement, between the Company
and Eric Lerner (incorporated by reference to the Company's annual report on Form 10-K for the year ended December 31, 2019).
Lease Agreement, dated December 10, 2014, between Prologis, L.P. (landlord) and Global Industrial Distribution Inc. (tenant) (Las
Vegas, NV facility) (incorporated by reference to the Company’s annual report on Form 10-K for the year ended December 31, 2014).
Amendment to the Term of the 2010 Long Term Incentive Plan (incorporated by reference to the Company’s Supplemental Proxy
Material filed May 18, 2015).
Third Amended and Restated Credit Agreement dated as of October 28, 2016, by and among Systemax Inc. and certain affiliates
thereof and JPMorgan Chase Bank, N.A., as Administrative Agent, 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 3, 2016).
Third Amended and Restated Pledge and Security Agreement dated as of October 28, 2016, by and among Systemax Inc. and certain
affiliates thereof and JPMorgan Chase Bank, N.A., in its capacity as administrative agent for the lenders party to the Third Amended
and Restated Credit Agreement (incorporated by reference to the Company’s report on Form 8-K dated November 3, 2016).
Amended and Restated Lease dated December 14, 2016, by and between Addwin Realty Associates, LLC (landlord) and Global
Equipment Company Inc. (tenant) (Port Washington, NY facility) (incorporated by reference to the Company’s report on Form 8-K
dated December 16, 2016).
Employment Agreement, dated October 5, 2018, between the Company and Barry Litwin (incorporated by reference to the Company’s
annual report on Form 10-K for the year ended December 31, 2018).
Amendment No. 1, dated January 7, 2020, to the Employment Agreement, between the Company and Barry Litwin (incorporated by
reference to the Company's annual report on Form 10-K for the year ended December 31, 2019).
Systemax Inc. Employee Stock Purchase Plan (incorporated by reference to the Company’s Definitive Proxy Statement filed
November 2, 2018).
Lease Agreement, dated April 18, 2019, by and between HLIT II CTC 3, L.P. (landlord) and Global Industrial Distribution Inc.
(tenant) (DeSoto, TX facility) (exhibits have been omitted pursuant to Item 601(a)(5) of Regulation S-K) (incorporated by reference to
the Company’s quarterly report on Form 10-Q for the quarterly period ended June 30, 2019).
38 10.16
10.17
10.18
10.19
10.20*
10.21*
14
21
23
31.1
31.2
32.1
32.2
101.INS
101.SCH
101.CAL
101.DEF
101.LAB
101.PRE
104
Lease Agreement, dated December 18, 2009, between Lakeview XII Ventures, LLC (landlord) and Global Industrial Distribution Inc.
(as successor in interest through merger to C&H Service, LLC) (tenant) (Pleasant Prairie, WI facility) (the "PP" Lease) (incorporated
by reference to the Company’s quarterly report on Form 10-Q for the quarterly period ended June 30, 2020).
First Amendment, to the PP Lease, dated April 14, 2020, between Lakeview XII Ventures, LLC (landlord) and Global Industrial
Distribution Inc.(as successor in interest through merger to C&H Service, LLC) (tenant) (incorporated by reference to the Company’s
quarterly report on Form 10-Q for the quarterly period ended June 30, 2020).
Second Amendment to the Buford Lease, dated November 20, 2006, between Teachers Insurance and Annuity Association of
America, for the benefit of its separate real estate account (as successor-in-interest to Hamilton Mill Business Center, LLC) (landlord)
and Global Equipment Company Inc. (tenant) (Buford, GA facility) (incorporated by reference to the Company’s quarterly report on
Form 10-Q for the quarterly period ended September 30, 2020).
Third Amendment to the Buford Lease Agreement, dated September 16, 2020 between Teachers Insurance and Annuity Association
of America, for the benefit of its separate real estate account (as successor-in-interest to Hamilton Mill Business Center, LLC)
(landlord) and Global Equipment Company Inc. (tenant) (Buford, GA facility) (incorporated by reference to the Company’s quarterly
report on Form 10-Q for the quarterly period ended September 30, 2020).
Form of 2020 Omnibus Long-Term Incentive Plan (incorporated by reference to the Company’s Definitive Proxy Statement filed
April 22, 2020).
Retirement Agreement and Release dated February 22, 2021 between the Company and Robert Dooley (filed herewith).
Corporate Ethics Policy for Officers, Directors and Employees (revised as of January 2019) (incorporated by reference to the
Company’s annual report on Form 10-K for the year ended December 31, 2018).
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).
XBRL Instance Document
XBRL Taxonomy Extension Schema Document
XBRL Taxonomy Extension Calculation Linkbase Document
XBRL Taxonomy Extension Definition Linkbase Document
XBRL Taxonomy Extension Label Linkbase Document
XBRL Taxonomy Extension Presentation Linkbase Document
Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)
*Exhibit is a management contract or compensatory plan or arrangement
39 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/ BARRY LITWIN
Barry Litwin
Chief Executive Officer
Date: March 18, 2021
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
Executive Chairman and Director
March 18, 2021
/s/ BRUCE LEEDS
Vice Chairman and Director
March 18, 2021
/s/ ROBERT LEEDS
/s/ BARRY LITWIN
Bruce Leeds
Robert Leeds
Barry Litwin
/s/ THOMAS CLARK
Thomas Clark
/s/ THOMAS AXMACHER
Thomas Axmacher
/s/ ROBERT ROSENTHAL
Robert Rosenthal
/s/ CHAD LINDBLOOM
Chad Lindbloom
/s/ LAWRENCE REINHOLD
Lawrence Reinhold
/s/ PAUL PEARLMAN
Paul Pearlman
Vice Chairman and Director
March 18, 2021
Chief Executive Officer
and Director
(Principal Executive Officer)
Vice President and Chief Financial Officer
(Principal Financial Officer)
Vice President and Controller
(Principal Accounting Officer)
Director
Director
Director
Director
March 18, 2021
March 18, 2021
March 18, 2021
March 18, 2021
March 18, 2021
March 18, 2021
March 18, 2021
40 Report of Independent Registered Public Accounting Firm
To the Shareholders and Board of Directors of Systemax Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Systemax Inc. (the Company) as of December 31, 2020 and 2019, the related consolidated
statements of operations, comprehensive income (loss), shareholders' equity and cash flows for each of the three years in the period ended December 31, 2020, and
the related notes and financial statement schedule listed in the Index at Item 15(a) (collectively referred to as the “consolidated financial statements”). In our
opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2020 and 2019, and the
results of its operations and its cash flows for each of the three years in the period ended December 31, 2020, in conformity with U.S. generally accepted
accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal
control over financial reporting as of December 31, 2020, based on criteria established in Internal Control-Integrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated March 18, 2021 expressed an unqualified opinion thereon.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements
based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance
with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to
assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such
procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the
accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe
that our audits provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be
communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially
challenging, subjective, or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial
statements, taken as a whole, and we are not, by communicating the critical audit matter below providing a separate opinion on the critical audit matter or on the
account or disclosure to which it relates.
41 Description of
the Matter
Measurement of Inventory Valuation Reserves
As of December 31, 2020, the Company’s net inventory balance was $132.3 million. As described in Note 2 to the consolidated
financial statements, management records inventory at the lower of its cost or net realizable value. The valuation of inventory
requires management to make assumptions and judgments about the recoverability of the inventory, which includes the
consideration of shrinkage and slow-moving or obsolete inventory. To establish the inventory valuation reserves the Company
considers factors such as historical demand trends, market conditions, inventory levels, historical write-off information and
assumptions regarding future demand and direct selling costs.
How We Addressed the Matter
in Our Audit
Auditing management’s inventory valuation reserves was complex as auditor judgment was necessary in evaluating the amounts
that should be reserved based on the assumptions described above.
We obtained an understanding, evaluated the design, and tested the operating effectiveness of controls over the inventory reserve
process, including controls over the inputs and assumptions described above, that are used in management’s calculation.
Our audit procedures to test the adequacy of the inventory valuation reserve included, among others, evaluating the appropriateness
of management’s inputs to the inventory valuation reserve calculation, including testing the completeness and accuracy of the data
used in management’s calculation such as historical write-off activity, direct selling costs, inventory levels and sales history for
each product. We compared actual write-off activity in recent years to the inventory valuation reserve estimated by the Company in
prior years. We also tested, the mathematical accuracy of the Company’s reserve calculation, performed inquiries of the
Company’s management and obtained documentation to evaluate the Company’s estimate.
/s/ Ernst & Young LLP
We have served as the Company's auditor since 2005.
New York, New York
March 18, 2021
42 SYSTEMAX INC.
CONSOLIDATED BALANCE SHEETS
(in millions, except for share data)
ASSETS:
Current assets:
Cash and cash equivalents
Accounts receivable, (net of allowance for credit losses of $1.7 and $6.8, respectively)
Inventories
Prepaid expenses and other current assets
Total current assets
Property, plant and equipment, net
Operating lease right-of-use assets
Deferred income taxes
Goodwill and intangibles
Other assets
Total assets
LIABILITIES AND SHAREHOLDERS’ EQUITY:
Current liabilities:
Accounts payable
Accrued expenses and other current liabilities
Operating lease liabilities
Total current liabilities
Operating lease liabilities
Other liabilities
Total liabilities
Commitments and contingencies
Shareholders’ equity:
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 38,955,848 and 38,906,221 shares;
outstanding 37,552,055 and 37,678,539 shares
Additional paid-in capital
Treasury stock at cost —1,403,793 and 1,227,682 shares
Retained (loss) earnings
Accumulated other comprehensive income
Total shareholders’ equity
Total liabilities and shareholders’ equity
See notes to consolidated financial statements.
December 31,
2020
2019
$
$
$
$
22.4 $
102.3
132.3
6.8
263.8
16.6
77.3
7.6
7.0
2.6
374.9 $
125.4 $
50.7
10.3
186.4
77.2
4.5
268.1
0.4
193.5
(24.0)
(66.5)
3.4
106.8
374.9 $
97.2
88.2
112.5
6.4
304.3
17.8
59.3
7.3
7.2
1.0
396.9
115.9
34.0
9.9
159.8
58.7
2.9
221.4
0.4
189.7
(20.4)
2.8
3.0
175.5
396.9
43 SYSTEMAX INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in millions, except per share data)
Net sales
Cost of sales
Gross profit
Selling, distribution and administrative expenses
Special (gains) charges, net
Operating income from continuing operations
Foreign currency exchange loss
Interest and other (income) expense, net
Income from continuing operations before income taxes
Provision for income taxes
Net income from continuing operations
Income (loss) from discontinued operations, net of tax
Net income
Net income per common share from continuing operations:
Basic
Diluted
Net income (loss) per common share from discontinued operations:
Basic
Diluted
Net income per common share:
Basic
Diluted
Weighted average common and common equivalent shares:
Basic
Diluted
Dividends declared
See notes to consolidated financial statements.
Year Ended December 31,
2019
2020
2018
$
$
$
$
$
$
$
$
1,029.0
672.1
356.9
272.8
0.0
84.1
0.0
0.1
84.0
19.9
64.1
1.3
65.4 $
1.69 $
1.68 $
0.03 $
0.03 $
1.72 $
1.71 $
37.5
37.7
3.56
946.9 $
621.2
325.7
260.4
(0.8)
66.1
0.0
0.0
66.1
16.1
50.0
(1.5)
48.5 $
1.33 $
1.32 $
(0.04) $
(0.04) $
1.29 $
1.28 $
37.5
37.7
0.48
896.9
589.2
307.7
245.2
0.8
61.7
0.4
(1.6)
62.9
13.4
49.5
175.2
224.7
1.34
1.31
4.69
4.62
6.03
5.93
37.2
37.9
7.94
44 SYSTEMAX INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(in millions)
Net income
Other comprehensive income (loss):
Foreign currency translation
Total comprehensive income
See notes to consolidated financial statements.
Year Ended December 31,
2019
2020
2018
65.4 $
48.5 $
224.7
0.4
65.8 $
0.0
48.5 $
(3.0)
221.7
$
$
45 SYSTEMAX INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in millions)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income from continuing operations
Adjustments to reconcile income from continuing operations to net cash provided by operating activities:
$
64.1 $
50.0 $
49.5
Year Ended December 31,
2019
2018
2020
Depreciation and amortization
Other non-cash (benefit) and asset impairment charges
(Benefit) provision for deferred income taxes
Provision for credit losses
Compensation expense related to equity compensation plans
Loss on dispositions and abandonment
Changes in operating assets and liabilities:
Accounts receivable
Inventories
Prepaid expenses and other assets
Income taxes payable (receivable)
Accounts payable
Accrued expenses, other current liabilities and other liabilities
Net cash provided by operating activities from continuing operations
Net cash provided by (used in) operating activities from discontinued operations
Net cash provided by (used in) operating activities
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and equipment
Net cash used in investing activities from continuing operations
Net cash provided by investing activities from discontinued operations
Net cash (used in) provided by investing activities
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayments of capital lease obligations
Dividends paid
Proceeds from issuance of common stock
Payment of payroll taxes on stock-based compensation through shares withheld
Proceeds from the issuance of common stock from employee stock purchase plans
Purchase of treasury shares
Net cash used in financing activities from continuing operations
EFFECTS OF EXCHANGE RATES ON CASH
NET (DECREASE) INCREASE IN CASH
CASH AND CASH EQUIVALENTS – BEGINNING OF YEAR
CASH, CASH EQUIVALENTS AND RESTRICTED CASH – END OF YEAR
Supplemental disclosures:
Interest paid
Income taxes paid
Supplemental disclosures of non-cash operating and investing activities:
Right-of-use assets obtained in exchange for lease obligations:
Operating leases
Supplemental disclosures:
Reconciliation of cash, cash equivalents and restricted cash:
Cash and cash equivalents
Restricted cash
Total cash, cash equivalents and restricted cash
See notes to consolidated financial statements.
46
4.1
0.0
(0.5)
1.2
4.7
0.0
(15.0)
(19.7)
(2.6)
3.1
10.1
17.8
67.3
0.9
68.2
(2.7)
(2.7)
0.0
(2.7)
0.0
(134.3)
3.3
(1.4)
0.8
(7.2)
(138.8)
0.1
(73.2)
97.2
4.1
(0.8)
1.4
1.0
5.4
0.1
(5.6)
(5.0)
(0.4)
3.7
14.6
1.8
70.3
(1.9)
68.4
(6.9)
(6.9)
0.0
(6.9)
0.0
(261.6)
2.1
(0.9)
0.8
0.0
(259.6)
(0.1)
(198.2)
295.4
24.0 $
97.2 $
4.5
1.9
8.4
0.7
0.9
0.0
(11.9)
(19.4)
(2.4)
(5.4)
(6.6)
(10.4)
9.8
(32.1)
(22.3)
(4.5)
(4.5)
249.6
245.1
(0.1)
(109.3)
5.4
(1.9)
0.0
(9.1)
(115.0)
3.1
110.9
184.5
295.4
0.2 $
17.7 $
0.3 $
11.3 $
0.2
36.6
28.7 $
16.5 $
0.0
2020
December 31,
2019
2018
22.4 $
1.6
24.0 $
97.2 $
0.0
97.2 $
295.4
0.0
295.4
$
$
$
$
$
$
SYSTEMAX INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(in millions, except share data in thousands)
Common Stock
Number
of Shares
Outstanding
Additional
Paid-in
Capital
Treasury
Stock,
At Cost
Retained
Earnings
Amount
Accumulated
Other
Comprehensive
Income (Loss)
(21.8) $
44.8 $
1.9
$
Balances, December 31, 2017
37,094
$
0.4
$
Stock-based compensation expense
Issuance of restricted stock
Stock withheld for employee taxes
Proceeds from issuance of common
stock
Dividends
Purchase of treasury shares
Discontinued France operations
entities cumulative translation
adjustment
Change in cumulative translation
adjustment
Net income
117
(62)
419
(233)
Balances, December 31, 2018
37,335
$
0.4
$
Stock-based compensation expense
Issuance of restricted stock
Stock withheld for employee taxes
Proceeds from issuance of common
stock
Dividends
Issuance of shares under employee
stock purchase plan
Net income
109
(39)
230
44
Balances, December 31, 2019
37,679
$
0.4
$
Stock-based compensation expense
Issuance of restricted stock
Stock withheld for employee taxes
Proceeds from issuance of common
stock
Dividends
Purchase of treasury shares
Issuance of shares under employee
stock purchase plan
Change in cumulative translation
adjustment
Net income
42
(47)
221
(392)
49
186.5 $
2.8
(1.7)
(0.6)
187.0 $
5.4
(1.8)
(1.7)
0.8
189.7 $
4.7
(0.7)
(1.0)
0.8
1.7
(1.9)
6.0
(9.1)
(297.1)
(25.1) $
224.7
(27.6) $
1.8
(0.9)
3.8
(20.4) $
0.7
(1.4)
4.3
(7.2)
(18.1)
48.5
2.8 $
(134.7)
65.4
(66.5) $
Balances, December 31, 2020
37,552
$
0.4
$
193.5 $
(24.0) $
See notes to consolidated financial statements.
Total
Equity
211.8
2.8
0.0
(1.9)
5.4
(297.1)
(9.1)
4.1
(3.0)
224.7
137.7
5.4
0.0
(0.9)
2.1
(18.1)
0.8
48.5
175.5
4.7
0.0
(1.4)
3.3
(134.7)
(7.2)
0.8
0.4
65.4
106.8
4.1
(3.0)
3.0
3.0
$
0.4
3.4
$
47 SYSTEMAX INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
Systemax Inc., through its operating subsidiaries, is primarily a direct marketer of brand name and private label industrial and business equipment and supplies in
North America going to market through a system of branded e-commerce websites and relationship marketers. As previously disclosed, in August 2018 the
Company sold its France-based IT business. With the completion of the sale, Systemax operates and is internally managed in one reportable business segment.
The Company sells a wide array of industrial and general business hard goods and supplies and to a lesser extent products that would fall into the generally
recognizable category of maintenance, repair and operations ("MRO"), markets the Company has served since 1949. Because of the large number of products
and product categories the Company offers, providing information on the amount of revenue derived from transactions with external customers for each product
or groupings of products is impractical.
Included in discontinued operations is the Company's former France-based IT value added reseller business sold in August 2018, the SARL Businesses sold in
March 2017 and the Company's former North American Products Group ("NATG) business sold in December 2015. The France business and SARL Businesses
were reported within the Company's former European Technology Products Group ("ETG") segment and the NATG business was reported within the Company's
former NATG segment.
The sale of these businesses met the “strategic shift with major impact” criteria as defined under Accounting Standards Update ("ASU") 2014-08, Reporting
Discontinued Operations and Disclosures of Disposals of Components of an Entity, which requires disclosures of both discontinued operations and certain other
disposals that do not meet the definition of a discontinued operation. Under ASU 2014-08, in order for a disposal to qualify for discontinued operations
presentation in the financial statements, the disposal must be a “strategic shift” with a major impact for the reporting entity. If the entity meets this threshold, and
other requirements, only the components that were in operation at the time of disposal are presented as discontinued operations. Therefore, the prior year results
of the France business, SARL Businesses and NATG are included in discontinued operations in the accompanying consolidated financial statements.
The Company sold its France business, in 2018, and recorded a pre-tax book gain of approximately $178.9 million. Net sales of the France business, included
within discontinued operations, totaled $352.0 million in 2018. Net gain from the sale of the France business and eight months of operating activity, included
within discontinued operations, totaled $175.8 million in 2018.
For the year ended December 31, 2018, net income included in discontinued operation from the discontinued SARL Businesses totaled $0.2 million.
For the year ended December 31, 2020, net income from the discontinued NATG business totaled $1.3 million and for the years ended December 31, 2019 and
2018, net losses from the discontinued NATG business totaled $1.5 million and $0.8 million, respectively.
During 2018 the Company's recorded a net gain of $3.1 million, in continuing operations, related to the settlement of state audits previously disclosed in its 2013
Form 10-K filing offset by an impairment charge resulting from the decision to impair the trade and domain names of C&H Distributors, which was recorded
within selling, distribution and administrative expenses.
Related Party Transactions
During 2020, the Company made inventory purchases of approximately $3.2 million from an entity owned by immediate family members of the Company's
Executive Chairman. Amounts outstanding at December 31, 2020 were de minimis and are recorded in Accounts payable in the accompanying Consolidated
Balance Sheets. These transactions were carried out on an arm's length basis and with prior approval of the Company's Nominating and Corporate Governance
Committee.
2. 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.
48 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 is divided into four fiscal quarters that each end at midnight on a Saturday. For clarity of
presentation herein, all fiscal quarters are referred to as if they ended on the traditional calendar month. The full year of 2020 included 53 weeks while 2019 and
2018 included 52 weeks.
Use of Estimates in Financial Statements — The preparation of financial statements in conformity with GAAP requires management to make estimates and
assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. The Company bases its estimates on historical
experience, current business factors, and various other assumptions that the Company believes are necessary to consider to form a basis for making judgments
about the carrying values of assets and liabilities, the recorded amounts of revenue and expenses, and the disclosure of contingent assets and liabilities. The
Company is subject to uncertainties such as the impact of future events, economic and political factors, and changes in the Company’s business environment,
therefore, actual results could differ from these estimates.
Changes in estimates are made when circumstances warrant. Such changes in estimates and refinements in estimation methodologies are reflected in reported
results of operations; if material, the effects of changes in estimates are disclosed in the notes to the consolidated financial statements. Significant estimates and
assumptions by management affect the allowance for credit losses, product returns liabilities, inventory reserves, allowances for cooperative advertising, the
carrying value of long‑lived assets (including goodwill and intangible assets), the provision for income taxes and related deferred tax accounts, certain accrued
liabilities, revenue recognition, contingencies, sublease income, litigation and related legal accruals and the value attributed to employee stock options and other
stock‑based awards.
Foreign Currency Translation — The Company has operations in 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, year to date 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 and cash equivalents — 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.
Restricted cash — The Company has restricted cash collateralizing letters of credit outstanding of $1.6 million, which are recorded in Other assets in the
accompanying Consolidated Balance Sheets. Amounts included in restricted cash represent those required to be set aside by a contractual agreement with an
insurer for the payment of workers' compensation claims.
Inventories — Inventories consist primarily of finished goods and are stated at the lower of cost or net realizable value. Cost is determined by using the first-in,
first-out method. The Company estimates the net realizable value of its inventory by considering factors such as inventory levels, historical write-off
information, historical and current demand trends, market conditions, estimated direct selling costs and physical condition of the inventory as well as credits that
we may obtain for returned merchandise.
Leases — The Company has operating and finance leases for office and warehouse facilities, headquarters and call centers and certain computer,
communications equipment and machinery and equipment which provide the right to use the underlying assets in exchange for agreed upon lease payments,
determined by the payment schedule contained in each lease. The Company determines if an arrangement is an operating or finance lease at the inception of the
lease. The Company has elected not to apply recognition requirements to leases with terms of one year or less. All other leases are recorded on the balance sheet,
with Operating lease right-of-use assets representing the right to use the underlying asset for the lease term and Operating lease liabilities representing the
obligation to make lease payments arising from the lease. The Company elected to adopt the available package of practical expedients. The ROU assets and
corresponding liabilities are recorded based upon the net present value of the lease payments, discounted using interest rates determined by utilizing such factors
as the Company's current credit facility terms, length of the lease term, the Company's expected debt credit rating and comparable company term loan yields.
Certain leases may include options to extend the lease, however, the Company is not including any impact of such options in the valuation of its ROU assets or
liabilities as they are not probable of being extended. The Company's lease agreements do not contain residual value guarantees or restrictive covenants. The
Company has sublease agreements for certain unused facilities. The Company’s lease portfolio consists primarily of operating leases which expire at various
dates through 2032. See Note 4 to the consolidated financial statements.
49
Property, Plant and Equipment — Property, plant and equipment is stated at cost. Furniture, fixtures and equipment are depreciated using the straight-line or
accelerated method over their estimated useful lives ranging from three years to fifteen years. Leasehold improvements are amortized over the shorter of the
useful lives or the term of the respective leases. During 2020, the Company disposed of property, plant and equipment of approximately $10.5 million and
accumulated depreciation of $10.5 million.
Maintenance and repairs are charged to expense as incurred, and improvements are capitalized. When assets are retired or otherwise disposed of, the cost and
accumulated depreciation are removed from the accounts, and any resulting gain or loss is reflected in the consolidated statement of operations in the period
realized.
Internal-Use Software — Internal‑use software is included in fixed assets and is amortized on a straight‑line basis over three years. The Company capitalizes
costs incurred during the application development stage. Costs related to minor upgrades, minor enhancements and maintenance activities are expensed as
incurred.
Evaluation of Long-lived Assets — Long-lived assets are assets used in the Company’s operations and include definite-lived intangible assets, leasehold
improvements, warehouse and similar property used to generate sales and cash flows. Long-lived assets are tested for impairment utilizing a recoverability test.
The recoverability test compares the carrying value of an asset group to the undiscounted cash flows directly attributable to the asset group over the life of the
primary asset. If the undiscounted cash flows of an asset group is less than the carrying value of the asset group, the fair value of the asset group is then
measured. If the fair value is also determined to be less than the carrying value of the asset group, the asset group is impaired.
Goodwill and Intangible Assets — Goodwill represents the excess of the cost of acquired assets over the fair value of assets acquired. The Company operates in
one reporting unit and in the fourth quarter of each year performs a quantitative assessment of its goodwill by comparing the Company's fair market value, or
market capitalization, to the carrying value of the Company, including goodwill, to determine if impairment exists. Any excess of the carrying amount over fair
value would be charged to impairment expense.
Income Taxes — The Company accounts for income taxes using the liability method, under which deferred tax assets and liabilities are determined based on the
future tax consequences attributable to differences between the financial reporting carrying amounts of existing assets and liabilities and their respective tax basis
and tax credit carry forwards and net operating loss carryforwards. Deferred tax assets and liabilities are measured using the enacted tax rates that are expected to
be in effect when the differences are expected to reverse.
The Company assesses the likelihood that deferred tax assets will be recovered from future taxable income, and a valuation allowance is established when
necessary to reduce deferred tax assets to the amounts more likely than not expected to be realized.
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.
Revenue Recognition and Accounts Receivable — The Company’s revenue is shown as “Net sales” in the accompanying Consolidated Statements of Operations
and is measured as the determined transaction price, net of any variable consideration consisting primarily of rights to return product. The Company has elected
to treat shipping and handling revenues as activities to fulfill its performance obligation. Billings for freight and shipping and handling are recorded in net sales
and costs of freight and shipping and handling are recorded in cost of sales in the accompanying Consolidated Statements of Operations.
The Company will record a contract liability in cases where customers pay in advance of the Company satisfying its performance obligation. The Company did
not have any material unsatisfied performance obligations or liabilities as of December 31, 2020.
The Company offers customers rights to return product within a certain time, usually 30 days. The Company estimates its sales returns liability quarterly based
upon its historical return rates as a percentage of historical sales for the trailing twelve-month period. The total accrued sales returns liability was approximately
$1.9 million at December 31, 2020 and 2019,
50 respectively, and was recorded as a refund liability in Accrued expenses and other current liabilities in the accompanying Consolidated Balance Sheets.
Allowance for Credit Losses - On January 1, 2020 the Company adopted ASU 2016-13, Financial Instruments - Credit Losses: Measurement of Credit Losses on
Financial Instruments (Topic 326). The Company's trade accounts receivable are subject to this standard. The adoption of this ASU did not have a material
impact on the Company's financial position or results of operations.
The Company’s trade accounts receivable is one portfolio comprised of commercial businesses operating in the U.S. and to a much lesser extent, Canada. The
Company develops its allowances for credit losses, which represent an estimate of expected losses over the remaining contractual life of its receivables,
considering customer financial condition, historical loss experience with its customers, current market economic conditions and forecasts of future economic
conditions when appropriate. When the Company becomes aware of a customer's inability to meet its financial obligation, a specific reserve is recorded to reduce
the receivable to the expected amount to be collected. For the balance of its trade receivables, the Company uses a loss rate method to estimate its credit loss
reserve. Historical loss experience rates are calculated using receivable write offs over a trailing twelve-month period and comparing that to the average
receivable balances over the same period. That rate is applied to the current accounts receivable portfolio, excluding accounts that have been specifically
reserved. Any write offs incurred are recorded against the established reserves.
The Company grants credit to commercial business customers using an electronic application process that evaluates the customer's detailed credit report,
reference responses, availability under credit facilities, existing liens, tenure of management and business history, among other factors. Credit terms are typically
net 30 days payment required with larger businesses eligible for up to net 90 day terms, if qualified.
Shipping and Handling Costs — The Company recognizes shipping and handling costs in cost of sales.
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 fiscal year during which the benefits are expected.
Net advertising expenses were $60.3 million, $69.8 million and $70.4 million during 2020, 2019 and 2018, respectively, and are included in the accompanying
consolidated statements of operations within continuing and discontinued operations. Of the previously mentioned amounts, the Company's discontinued
operations net advertising expenses totaled $0.0 million, $0.0 million and $1.1 million during 2020, 2019 and 2018, respectively.
The Company utilizes advertising programs to drive traffic to its websites, 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.
Stock Based Compensation — 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
calculated its dividend yield by dividing the annualized regular quarterly dividend by the current stock price at grant date. 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. Stock-based compensation expense includes an estimate for forfeitures and is
recognized over the expected term of the award.
The fair value of the restricted stock and performance restricted stock is the closing stock price on the NYSE of the Company's common stock on the date of
grant or the closing stock price of the Company's common stock on the last business day prior to the grant date. Upon delivery, a portion of the RSU award may
be withheld to satisfy the statutory withholding taxes. The remaining RSU's/PRSU's will be settled in shares of the Company's common stock after the vesting
period and on the prescribed delivery date. These RSUs/PRSU's have none of the rights as other shares of common stock, other than rights to cash dividends,
until common stock is distributed.
Net Income (Loss) Per Common Share — Net income per common share - basic is 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 restricted stock with rights to
51 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 and restricted stock 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.
For the calculation of net income per share-basic from continuing operations, net income available to common shareholders was $63.3 million, $49.7 million and
$49.8 million for the years ended December 31, 2020, 2019 and 2018, respectively. For the calculation of net income per share-diluted from continuing
operations, net income available to common shareholders was $63.3 million, $49.7 million and $49.5 million for the years ended December 31, 2020, 2019 and
2018, respectively. For the calculation of net income per share-basic from discontinued operations, net income (loss) available to common shareholders was
$1.3 million, $(1.5) million and $174.4 million for the years ended December 31, 2020, 2019 and 2018, respectively. For the calculation of net income per share-
diluted from discontinued operations, net income (loss) available to common shareholders was $1.3 million, $(1.5) million and $175.2 million for the years
ended December 31, 2020, 2019 and 2018, respectively. Basic shares outstanding were 37.5 million for the years ended December 31, 2020 and 2019, and
37.2 million for the year ended December 31, 2018. The weighted average number of stock options outstanding included in the computation of diluted earnings
per share was 0.2 million for the years ended December 31, 2020 and 2019. The weighted average number of stock options outstanding included in the
computation of diluted earnings per share was 0.5 million and the weighted average number of restricted stock awards included in the computation of diluted
earnings per share was 0.2 million for the year ended December 31, 2018. The weighted average number of stock options outstanding excluded from the
computation of diluted income per share was 0.5 million shares, 0.4 million shares and a de minimis number of shares for the years ended December 31, 2020,
2019 and 2018, respectively, due to their antidilutive effect.
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 the plan was approximately $1.4 million, $1.1 million and $1.2 million in 2020, 2019 and 2018, respectively.
Fair Value Measurements — On January 1, 2020, the Company adopted ASU 2018-13, Fair Value Measurements (Topic 820). The adoption of this ASU did not
have a material impact on the Company's financial position of results of operations.
Fair value accounting standards define fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction
between market participants at the measurement date. The fair value standards establish the fair value hierarchy to prioritize the inputs used in valuation
techniques. There are three levels to the fair value hierarchy (Level 1 is the highest priority and Level 3 is the lowest priority):
Level 1 - Observable inputs that reflect quoted prices (unadjusted) for identical assets or liabilities in active markets.
Level 2 - Inputs other than quoted prices included in Level 1 that are observable for the asset or liability either directly or indirectly.
Level 3 - Unobservable inputs which are supported by little or no market activity
Financial instruments consist primarily of investments in cash, trade accounts receivable, debt and accounts payable. The Company determines the fair value of
financial instruments based on interest rates available to the Company. At December 31, 2020 and 2019, 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. Cash is classified as Level 1 within the fair
value hierarchy.
The fair value of goodwill, non-amortizing intangibles and long-lived assets is measured in connection with the Company’s annual impairment testing as
discussed above.
The weighted average interest rate on short-term borrowings was 4.4% in 2020, 6.2% in 2019 and 5.7% in 2018.
Significant Concentrations — 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
52 geographic dispersion comprising the Company’s customer base. The Company also performs on-going credit evaluations and maintains allowances for
potential losses as warranted.
The Company purchases substantially all of its products and components directly from both large and small manufacturers as well as large wholesale
distributors. No supplier accounted for 10% or more of our product purchases for continuing operations in 2020, 2019 and 2018. Most private label products are
manufactured by third parties to our specifications.
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 December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. This ASU clarifies and simplifies
accounting for income taxes by eliminating certain exceptions for intraperiod tax allocation principles and the methodology for calculating income tax rates in an
interim period, among other updates. This ASU is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020,
with early adoption permitted. The Company will adopt this ASU effective January 1, 2021. The Company does not expect the adoption of this standard to have
a material impact on the Company's financial position or results of operations.
In October 2020, the FASB issued ASU 2020-10, Codification Improvements. This ASU amends a variety of topics in the Codification to improve consistency
and clarify the guidance. The effective date of this ASU is for fiscal years and interim periods beginning after December 15, 2020. The Company does not expect
the adoption of this standard to have a material impact on the Company's financial position or results of operations.
3. CREDIT LOSSES
On January 1, 2020 the Company adopted ASU 2016-13, Financial Instruments - Credit Losses: Measurement of Credit Losses on Financial Instruments
(Topic 326). The Company's trade accounts receivable and notes and other receivables are subject to this standard. The adoption of this ASU did not have a
material impact on the Company's financial position or results of operations.
The Company’s trade accounts receivable is one portfolio comprised of commercial businesses operating in the U.S. and to a much lesser extent, Canada. The
Company develops its allowances for credit losses, which represent an estimate of expected losses over the remaining contractual life of its receivables,
considering customer financial condition, historical loss experience with its customers, current market economic conditions and forecasts of future economic
conditions when appropriate. When the Company becomes aware of a customer's inability to meet its financial obligation, a specific reserve is recorded to
reduce the receivable to the expected amount to be collected. For the balance of its trade receivables, the Company uses a loss rate method to estimate its credit
loss reserve. Historical loss experience rates are calculated using receivable write offs over a trailing twelve-month period and comparing that to the average
receivable balances over the same period. That rate is applied to the current accounts receivable portfolio, excluding accounts that have been specifically
reserved. Any write offs incurred are recorded against the established reserves.
The Company grants credit to commercial business customers using an electronic application process that evaluates the customer's detailed credit report,
reference responses, availability under credit facilities, existing liens, tenure of management and business history, among other factors. Credit terms are
typically net 30 days payment required with larger businesses eligible for up to net 90 day terms, if qualified.
The following is a rollforward of the allowances for credit losses related to the Company's receivables for the year ended December 31, 2020:
53 Balance at beginning of period
Current period provision
Write-offs - trade accounts receivable
Write-offs - notes and other receivables*
Balance at end of period
December 31, 2020
6.8
1.2
(0.7)
(5.6)
1.7
$
$
*$5.6 million of reserves related to notes and other receivables originated in 2016 and this balance was written off in the second quarter of 2020.
4. LEASES
The Company has operating and finance leases for office and warehouse facilities, headquarters, call centers, machinery and certain computer and
communications equipment which provide the right to use the underlying assets in exchange for agreed upon lease payments, determined by the payment
schedule contained in each lease. The Company’s lease portfolio consists primarily of operating leases which expire at various dates through 2032.
The Company's operating lease costs, included in continuing operations, was $13.1 million, $12.0 million and $11.4 million, for the years ended December 31,
2020, 2019 and 2018, respectively.
Information relating to operating leases for continuing and discontinued operations as of December 31, 2020 and 2019:
Weighted Average Remaining Lease Term
Operating leases
Weighted Average Discount Rate
Operating leases
Year Ended December
31,
2020
Year Ended December
31,
2019
8.7 years
8.4 years
5.2 %
5.7 %
ROU assets obtained in exchange for operating lease obligations
$
28.7
$
16.5
Maturities of lease liabilities were as follows (in millions):
Year Ending December 31
2021
2022
2023
2024
2025
Thereafter
Total lease payments
Less: interest
Total present value of lease liabilities
$
$
Operating Leases
14.8
14.0
13.6
12.3
11.1
46.8
112.6
(25.1)
87.5
The Company currently leases its headquarters office facility from an entity owned by the Company’s principal shareholders. Total expense recorded to related
parties was $1.0 million in 2020, 2019 and 2018.
54
The Company has sublease agreements for certain unused facilities related to continuing and discontinued operations. These sublease agreements expire in
February 2022 and August 2023 with options to extend the terms of the lease included in one of the agreements. Total sublease income of $1.7 million,
$1.9 million and $0.2 million was recorded for the years ended December 31, 2020, 2019 and 2018, respectively. Future rent streams related to sublease
agreements of $1.3 million to be collected in less than one year and $0.5 million to be collected between one and three years,
5. REVENUE
Disaggregation of Revenues
The Company believes its presentation of revenue by geography most reasonably depicts how the nature, amount, timing and uncertainty of the Company's
revenue and cash flows are affected by economic and industry factors, including fluctuations in exchange rates between the U.S. and Canada. The following
table presents the Company's revenue, from continuing operations, by geography for the year ended December 31, 2020, 2019 and 2018 (in millions):
Net sales:
United States
Canada
Consolidated
Year Ended December 31,
2019
2020
2018
$
$
968.1 $
60.9
1,029.0 $
901.3 $
45.6
946.9 $
854.6
42.3
896.9
55
6. DISPOSITIONS AND SPECIAL GAINS AND CHARGES
The Company's discontinued operations include the results of the France business sold in August 2018, the SARL Businesses sold in March 2017 and the NATG
business sold in December 2015 (see Note 1).
For the years ended December 31, 2020, 2019 and 2018, special charges (gains) included in discontinued operations were $1.4 million income, $0.0 million and
$178.3 million income, respectively.
For the year ended December 31, 2020, the Company's NATG discontinued operations recorded approximately $1.9 million in restitution receipts offset by
approximately $0.5 million of professional fees.
On August 31, 2018, the Company closed on the sale of its France-based IT value added reseller business. The Company recorded a pre-tax book gain on the sale
of the France business, of approximately $178.9 million for the year ended December 31, 2018.
For the year ended December 31, 2018, the Company's NATG discontinued operations recorded special charges of approximately $0.6 million. The Company
recorded lease reserve adjustments related to its previously exited leased facilities for the discontinued NATG business of approximately $1.7 million and
additional legal and professional fees of $0.1 million for ongoing restitution proceedings. Offsetting these expenses were approximately $1.0 million in
restitution receipts and $0.2 million in vendor settlement receipts from the discontinued NATG business.
The Company has completed the wind-down activities related to the sale of the France business, but may incur additional charges related to statutory tax and
other indemnities given at closing. The Company has substantially completed the wind-down activities related to the NATG business, although certain NATG
activities related to sublet facilities, settling accounts payable and other contingent liabilities continue. The Company expects that total additional exit charges
related to discontinued operations after this quarter may aggregate up to $0.5 million.
Results of discontinued operations for the years ended December 31, 2020, 2019 and 2018 are as follows:
Net sales
Cost of sales
Gross profit
Selling, distribution and administrative expenses
Pre-tax book gain on sale of France business
Special (gains) charges, net
Operating income (loss) from discontinued operations
Foreign currency exchange income
Income (loss) of discontinued operations before income taxes
Provision (benefit) for income taxes
Net income (loss) from discontinued operations
Net income (loss) per share - basic
Net income (loss) per share - diluted
Year Ended December 31,
2019
2018
2020
0.0 $
0.0
0.0
(0.4)
0.0
(1.4)
1.8
0.0
1.8
0.5
1.3 $
0.03 $
0.03 $
0.0 $
0.0
0.0
2.1
0.0
0.0
(2.1)
0.0
(2.1)
(0.6)
(1.5) $
(0.04) $
(0.04) $
352.0
295.8
56.2
36.5
(178.9)
0.6
198.0
(0.2)
198.2
23.0
175.2
4.69
4.62
$
$
$
$
The Company has not incurred any special charges in 2020 in continuing operations. In the third quarter of 2019, within continuing operations, the Company's
former German branch recorded special gains of approximately $0.8 million related to a buyout for its outstanding lease obligation. The Company recorded
special charges of $0.8 million in 2018, within continuing operations, related to updating lease reserves adjustments related to its discontinued NATG
outstanding business lease obligations.
56 The following table details liabilities related to the exit costs of the sold businesses that remain for 2020 (in millions):
Balance January 1, 2020
Charged to expense
Paid or otherwise settled
Balance December 31, 2020
$
$
The following table details liabilities related to the exit costs of the sold businesses for 2019 (in millions):
Balance, January 1, 2019
Charged to expense
Paid or otherwise settled
Balance, December 31, 2019
$
$
Accrued exit costs
Accrued exit costs
2.8
0.4
(0.4)
2.8
2.8
0.7
(0.7)
2.8
7. GOODWILL AND INTANGIBLES
Goodwill and indefinite-lived intangible assets:
The following table provides information related to the carrying value of goodwill (in millions):
Balance, December 31
December 31,
2020
2019
$
5.5 $
5.5
The following table provides information related to the carrying value of indefinite lived intangibles as of December 31, 2020 and 2019, respectively (in
millions):
Balance, December 31
Definite-lived intangible assets:
December 31,
2020
2019
$
0.7 $
0.7
The following table summarizes information related to definite-lived intangible assets as of December 31, 2020 (in millions):
Client lists
Domain name
Total
December 31, 2020
Amortization
Period (Years)
5-10 yrs
5 yrs
Gross
Carrying
Amount
$
$
2.0
3.4
5.4
$
$
Accumulated
Amortization
Net Book
Value
Weighted avg
useful life
1.2
3.4
4.6
$
$
0.8
0.0
0.8
4.1
0.0
4.1
57
The following table summarizes information related to definite-lived intangible assets as of December 31, 2019 (in millions):
Client lists
Domain name
Total
December 31, 2019
Amortization
Period (Years)
5-10 yrs
5 yrs
Gross
Carrying
Amount
$
$
2.0
3.4
5.4
$
$
Accumulated
Amortization
Net Book
Value
Weighted avg
useful life
1.0
3.4
4.4
$
$
1.0
0.0
1.0
5.1
0.0
5.1
The aggregate amortization expense for these intangibles was approximately $0.2 million in 2020. The estimated amortization for future years ending December
31 is as follows (in millions):
2021
2022
2023
2024
Total
$
$
0.2
0.2
0.2
0.2
0.8
58 8. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment, net consist of the following (in millions):
Land improvements
Furniture and fixtures, office, computer and other equipment and software
Leasehold improvements
Less accumulated depreciation and amortization
Property, plant and equipment, net
December 31,
2020
2019
0.8 $
36.5
13.1
50.4
33.8
16.6 $
0.8
44.3
13.1
58.2
40.4
17.8
$
$
Depreciation charged to continuing operations for property, plant and equipment including capital leases in 2020, 2019, and 2018 was $3.9 million, $3.9 million
and $3.5 million, respectively and is reported within selling, distribution and administrative expenses. During 2020, the Company disposed of property, plant and
equipment of approximately $10.5 million and accumulated depreciation of $10.5 million.
9. CREDIT FACILITIES
The Company maintains a $75 million secured revolving credit facility with one financial institution, which has a five-year term, maturing on October 28, 2021
and provides for borrowings in the United States. The Company expects to renew this facility before its expiration in 2021. The 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 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 borrowings under the agreement
are subject to borrowing base limitations of up to 85% of eligible accounts receivable and the inventory advance rate computed as the lesser of 60% or 85% of
the net orderly liquidation value (“NOLV”). Borrowings are secured by substantially all of the borrower’s assets, as defined, including all accounts, accounts
receivable, inventory and certain other assets, subject to limited exceptions, including the exclusion of certain foreign assets from the collateral. The interest rate
under the amended and restated facility is computed at applicable market rates based on the London interbank offered rate (“LIBOR”), the Federal Reserve Bank
of New York (“NYFRB”) or the Prime Rate, plus an applicable margin. The applicable margin varies based on borrowing base availability. As of December 31,
2020, eligible collateral under the credit agreement was $75.0 million, total availability and excess availability was $72.6 million and there were no outstanding
borrowings. The Company has restricted cash collateralizing letters of credit outstanding of $1.6 million at December 31, 2020 recorded within Other assets on
the accompanying Consolidated Balance Sheets. The Company was in compliance with all of the covenants of the credit agreement in place as of December 31,
2020.
10. ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
Accrued expenses and other current liabilities consist of the following (in millions):
Payroll and employee benefits
Advertising
Sales and VAT tax payable
Freight
Reorganization costs
Income taxes payable
Product returns liability
Other
11. STOCK REPURCHASES
December 31,
2020
2019
26.4 $
4.8
3.8
7.4
0.4
0.9
1.9
5.1
50.7 $
11.3
4.9
2.6
6.8
0.4
0.0
1.9
6.1
34.0
$
$
In 2018, the Company's Board of Director's approved a share repurchase program with a repurchase authorization of up to two million shares of the Company's
common stock. Under the share repurchase program, the Company is authorized to purchase shares from time to time through open market purchases, tender
offerings or negotiated purchases, subject to market conditions and other factors. In 2020, the Company repurchased 392,337 common shares for approximately
$7.2 million. Also, in 2018, the Company repurchased 232,550 common shares for approximately $9.1 million. The maximum number of shares that may yet be
purchased under the Plan was approximately 1,375,000 at December 31, 2020.
59
12. SHAREHOLDERS’ EQUITY
Stock-Based Compensation Plans
The Company currently has two equity compensation plan which reserves 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 2010 Long-term Stock Incentive Plan (“2010 Plan”) - This plan was adopted in April 2010 and allows the Company to issue incentive stock options, non-
qualified stock options, stock appreciation rights, restricted stock and restricted stock units, performance awards and other stock based awards authorized by the
Compensation Committee of the Board of Directors. Options and awards issued under this plan expire ten years after the options and awards are granted. 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
661,024 options and 153,516 restricted stock units were outstanding under this plan as of December 31, 2020.
The 2020 Omnibus Stock Incentive Plan (“2020 Omnibus Plan”) - This plan was adopted in June 2020 and allows the Company to issue incentive stock options,
non-qualified stock options, stock appreciation rights, restricted stock, restricted stock units, performance awards and other stock based awards authorized by the
Compensation Committee of the Board of Directors. Options and awards issued under this plan expire ten years after the options and awards are granted. The
maximum number of shares granted per type of award to any individual may not exceed 1,500,000 in any calendar year (or $10.0 million in the case of cash
performance awards). 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 10,244 restricted stock units were outstanding under this plan as of December 31, 2020.
Shares issued under our share-based compensation plans are usually issued from shares of our common stock held in the treasury.
Compensation cost related to non-qualified stock options recognized in continuing operations (selling, distribution and administrative expenses) for 2020, 2019
and 2018 was $1.8 million, $3.3 million, and $0.3 million respectively. In the first quarter of 2019, the Company repriced approximately 0.6 million shares of
outstanding stock options and recorded approximately $0.6 million of related compensation expense and for the year ended December 31, 2019, the Company
recorded $0.7 million of related compensation expense. France discontinued operations compensation cost related to non-qualified stock options was $0.4
million in 2018, primarily related to the acceleration of stock options due to the sale of the France business of approximately $0.3 million. The related future
income tax benefits recognized for 2020, 2019 and 2018 were $0.4 million, $0.7 million and $0.1 million, respectively.
Stock Options
The following table presents the weighted-average assumptions used to estimate the fair value of options granted in 2020, 2019 and 2018:
Expected annual dividend yield
Risk-free interest rate
Expected volatility
Expected life in years
2020
2019
2018
2.0 %
1.38 %
51.1 %
5.2
1.9 %
2.65 %
50.4 %
5.0
1.4 %
2.94 %
48.0 %
5.2
60
The following table summarizes information concerning outstanding and exercisable options:
Outstanding at beginning of year
Granted
Exercised
Canceled or expired
Outstanding at end of year
Options exercisable at year end
Weighted average fair value per option granted
during the year
2020
Weighted
Avg. Exercise
Price
Shares
Weighted Average
2019
Shares
Weighted
Avg. Exercise
Price
Shares
2018
Weighted
Avg. Exercise
Price
764,784 $
111,872 $
(191,780) $
(23,852) $
661,024 $
302,283
17.31
23.60
11.68
23.71
19.78
596,148 $
1,038,536 $
(224,750) $
(645,150) $
764,784 $
11.64
15.76
8.92
12.50
17.31
1,001,300 $
17,550 $
(400,203) $
(22,499) $
596,148 $
11.58
31.66
12.18
15.24
11.64
227,598
341,515
$
9.12
$
9.16
$
12.87
The total intrinsic value of options exercised was $3.9 million in 2020 and $3.4 million in 2019 and $9.5 million in 2018.
The following table summarizes information about options vested and exercisable or non-vested that are expected to vest (non-vested outstanding less expected
forfeitures) at December 31, 2020:
Range of Exercise Prices
to
5.00
to
10.01
to
15.01
to
20.01
$
$
$
$
5.00
to
$
10.00
15.00
20.00
25.00
25.00
$
$
$
$
$
Options outstanding and
Exercisable
Weighted
Average
Exercise
Price
Weighted Average
Remaining
Contractual Life
Aggregate
Intrinsic
Value (in
millions)
123,000 $
0 $
57,304 $
480,720 $
661,024 $
6.29
0.00
17.03
23.55
19.78
5.53 $
0
2.43
8.30
7.27 $
3.6
0.0
1.1
5.9
10.6
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 2020 and the exercise price) that would have been received by the option holders had all options been exercised on December 31, 2020. This value will
change based on the fair market value of the Company’s common stock.
The following table reflects the activity for all unvested stock options during 2020:
Unvested at January 1, 2020
Granted
Vested
Forfeited
Unvested at December 31, 2020
Shares
Weighted
Average Grant-
Date Fair Value
9.38
9.12
9.19
9.61
9.63
537,186 $
111,872 $
(269,553) $
(20,764) $
358,741 $
At December 31, 2020, there was approximately $1.6 million of unrecognized compensation costs related to unvested stock options, which is expected to be
recognized over a weighted average period of 3.36 years. The total fair value of stock options vested during 2020, 2019 and 2018 was $2.5 million, $4.0 million
and $1.2 million, respectively.
61
Restricted Stock and Restricted Stock Units
The following table reflects the activity for restricted stock awards, excluding the restricted stock issued to Directors (in millions, except shares data):
Year Granted
Shares
Granted
Outstanding at
December 31, 2020
Rights to Cash
Dividend
Other Participation
Rights
Performance Award
Compensation Expense
Year Ended December 31,
2018
2019
2020
2010
2011
2012
2016
2017
2017
2018
2019
2019
2020
2020
175,000
100,000
50,000
100,000
53,288
49,600
5,117
30,251
149,412
28,272
43,330
—
—
10,000
—
—
—
—
24,200
57,242
28,272
26,446
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
None
None
None
None
None
None
None
None
None
None
None
No $
No
No
No
No
Yes
No
No
Yes
No
Yes
Total $
0.0 $
0.0
(1)
0
0.0
0.0
0.0
0.0
0.2
1.2
0.4
0.6
2.4 $
0.0 $
0.0
(1)
0
(1)
0
0.0
0.0
0.0
0.3
1.3
0.0
0.0
1.6 $
(2)
0.1
0.2
(1)
0
0.1
(1)
0
1.5
(1)
0
0.0
0.0
0.0
0.0
1.9
1
2
less than $0.1 million of expense recorded
As a result of the sale of the France business in August 2018 and terms of the performance award, compensation expense of $1.5 million was recorded in discontinued
operations for the year ended 2018.
Share-based compensation expense reported within continuing operations for restricted stock issued to Directors was $0.2 million in 2020 and 2019 and $0.1
million in 2018 and is recorded within selling, distribution and administrative expenses. A total of 17,600 restricted stock units, 10,244 from the 2020 Omnibus
Plan and 7,356 from the 2010 Plan, are outstanding to the Directors as of December 31, 2020.
At December 31, 2020, there was approximately $1.7 million of unrecognized compensation cost related to the unvested RSU's, which is expected to be
recognized over a weighted average period of 2.47 years.
Compensation expense related to RSU and performance RSU's reported within continuing operations was approximately $2.5 million, $1.8 million and $0.5
million for the years ended December 31, 2020, 2019 and 2018, respectively, and is recorded within selling, distribution and administrative expenses.
The following table reflects the activity for all unvested restricted stock during 2020:
Unvested at January 1, 2020
Granted
Vested
Forfeited
Unvested at December 31, 2020
Shares
Weighted
Average Grant-
Date Fair Value
23.14
23.49
23.58
23.71
23.06
172,595 $
81,846 $
(81,547) $
(9,134) $
163,760 $
62 Employee Stock Purchase Plan
The 2018 Employee Stock Purchase Plan - This plan was approved by the Company's stockholders in December 2018 and a reserve of 500,000 shares of
common stock has been established under this plan. The Company adopted this plan, the terms of which allow for eligible employees (as defined in the 2018
Employee Stock Purchase Plan) to participate in the purchase, during each six month purchase period, up to a maximum of 10,000 shares of the Company's
common stock at a purchase price equal to 85% of the closing price at either the start date or the end date of the stock purchase period, whichever is lower.
Compensation expense related to this plan of approximately $0.3 million for the years ended December 31, 2020 and 2019 and $0.1 million for the year ended
December 31, 2018 is recognized in selling, distribution and administrative expenses. As of December 31, 2020, approximately 406,144 shares remain reserved
for issuance under this plan. Employees purchased approximately 49,627 shares of common stock during fiscal year 2020 at an average per share price of $16.85.
During fiscal year 2019, employees purchased approximately 44,229 shares of common stock at an average per share price of $17.61.
13.
INCOME TAX
The following table summarizes our U.S. and foreign components of income from continuing operations before income taxes (in millions):
United States
Foreign
Total
Year Ended December 31,
2019
2018
2020
$
$
80.5 $
3.5
84.0 $
65.8 $
0.3
66.1 $
62.8
0.1
62.9
The following table summarizes the (benefit) provision for income taxes from continuing operations (in millions):
Current:
Federal
State
Foreign
Total current
Deferred:
Federal
State
Foreign
Total deferred
TOTAL
Year Ended December 31,
2019
2020
2018
$
$
$
$
$
17.0 $
3.3
0.1
20.4 $
(0.8) $
0.3
0.0
(0.5) $
19.9 $
12.5 $
2.1
0.1
14.7 $
1.1 $
0.3
0.0
1.4 $
16.1 $
2.6
2.4
0.0
5.0
7.7
0.6
0.1
8.4
13.4
Tax expense (benefit) from discontinued operations was $0.5 million, $(0.6) million and $23.0 million for the years ended December 31, 2020, 2019 and 2018,
respectively. Income taxes are accrued and paid by each foreign entity in accordance with applicable local regulations.
63 A reconciliation of the difference between the income tax expense and the computed income tax expense from continuing operations based on the Federal
statutory corporate rate is as follows (in millions):
2020
Year Ended December 31,
2019
2018
Income tax at Federal statutory rate
State and local income taxes, net of federal tax benefit
Impact of state rate changes
Reversal of valuation allowances
Stock based compensation
Non-deductible items
Other items, net
Income tax
$
$
17.6
3.0
0.0
(0.9)
(0.5)
0.8
(0.1)
19.9
21.0 % $
3.5 %
0.0 %
(1.0)%
(0.6)%
0.9 %
(0.1)%
23.7 % $
13.9
2.4
0.1
(0.3)
(0.5)
0.8
(0.3)
16.1
21.0 % $
3.7 %
0.1 %
(0.4)%
(0.8)%
1.2 %
(0.4)%
24.4 % $
13.2
2.6
(0.1)
(0.2)
(1.5)
0.1
(0.7)
13.4
21.0 %
4.1 %
(0.2)%
(0.3)%
(2.4)%
0.2 %
(1.1)%
21.3 %
The deferred tax assets and liabilities are comprised of the following (in millions):
Assets:
Accrued expenses and other liabilities
Inventory
Operating lease obligations
Intangible & other
Net operating loss and credit carryforwards
Valuation allowances
Total deferred tax assets
Liabilities:
Operating lease right-of-use assets
Other
Total deferred tax liabilities
December 31,
2020
2019
2.5 $
1.7
20.9
0.6
15.5
(15.2)
26.0 $
18.4 $
0.1
18.5 $
1.3
1.3
16.5
1.3
17.7
(16.8)
21.3
14.0
0.1
14.1
$
$
$
$
During 2020 the Company utilized approximately $4.1 million in state NOL carryforwards to reduce the current year tax expense. As of December 31, 2020, the
Company has foreign NOLs of $7.9 million which expire through 2033 and foreign tax credit carryforwards of $1.1 million expiring in years through 2028. The
Company has recorded valuation allowances of approximately $15.2 million, including valuations against state net operating loss carryforwards of $5.8 million,
foreign NOLs of $7.9 million, $0.4 million against the deductibility of foreign temporary tax differences and $1.1 million against foreign tax carryforwards.
Valuation allowances have been recorded against these assets as the Company believes it is more likely than not that these NOLs, temporary differences and
foreign tax credits will not be utilized in the near future.
The Company has not provided for federal income taxes applicable to the undistributed earnings of its foreign subsidiary in India and Canada of approximately
$3.7 million as of December 31, 2020, since these earnings are considered permanently reinvested in the subsidiaries. The Company's permanent reinvestment
assertion has not changed following the enactment of the TCJA. If the Company ceases to be permanently reinvested in its foreign subsidiaries, the Company
may be subject to foreign withholding and other taxes on undistributed earnings and may need to record a deferred tax liability for any outside basis difference in
its investments in its foreign subsidiaries.
Under the TCJA each U.S. shareholder of a controlled foreign corporation ("CFC") must include in its gross taxable income in any tax year the aggregate net
GILTI, or net income, of its CFCs. In 2020 the Company has included in taxable income the net income of its subsidiaries in the Netherlands, India, and Canada.
The Company has elected to treat GILTI expense as a period cost when incurred.
64
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 2013. The Company has not signed any consent to extend
the statute of limitations for any subsequent years. The Company’s significant state tax returns have been audited through 2009. The Company considers its
significant tax jurisdictions in foreign locations to be Canada and India.
As of December 31, 2020, the Company had no uncertain tax positions. Interest and penalties, if any, are recorded in income tax expense. There were no accrued
interest or penalty charges related to unrecognized tax benefits recorded in income tax expense in 2020, 2019 or 2018.
65 14. COMMITMENTS, CONTINGENCIES AND OTHER MATTERS
The Company and its subsidiaries are from time to time involved in various lawsuits, claims, investigations and proceedings which may include commercial,
employment, tax, customs and trade, customer, vendor, personal injury, creditors rights and health and safety law matters, which are handled and defended in the
ordinary course of business. In addition, the Company is from time to time subjected to various assertions, claims, proceedings and requests for damages and/or
indemnification concerning sales channel practices and intellectual property matters, including patent infringement suits involving technologies that are
incorporated in a broad spectrum of products the Company sells or that are incorporated in the Company’s e-commerce sales channels, as well as
trademark/copyright infringement claims. The Company is also audited by (or has initiated voluntary disclosure agreements with) various U.S. Federal and state
authorities, as well as Canadian authorities, concerning potential income tax, sales tax and/or "unclaimed property" liabilities. These matters are in various stages
of investigation, negotiation and/or litigation. The Company's NATG subsidiaries are being audited by an entity representing 28 states seeking recovery of
“unclaimed property” and has received separate demands from 20 states requesting payments of their claimed amounts. The Company has complied with the
unclaimed property audit, has provided requested information and has corresponded with the states regarding possible further discussions. The Company intends
to vigorously defend these matters and believes it has strong defenses.
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 position 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 regularly
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. In this regard, the Company establishes accrual estimates for its various lawsuits,
claims, investigations and proceedings when it is probable that an asset has been impaired or a liability incurred at the date of the financial statements and the
loss can be reasonably estimated. At December 31, 2020 the Company has established accruals for certain of its various lawsuits, claims, investigations and
proceedings based upon estimates of the most likely outcome in a range of loss or the minimum amounts in a range of loss if no amount within a range is a more
likely estimate. The Company does not believe that at December 31, 2020 any reasonably possible losses in excess of the amounts accrued would be material to
the financial statements.
66 15. SUBSEQUENT EVENT
In February 2021, the Company recorded approximately $15.0 million in restitution receipts and also recorded approximately $3.0 million of professional fees
related to the ongoing restitution proceedings. These items will be recorded in Discontinued Operations in the first quarter of 2021.
16. QUARTERLY FINANCIAL DATA (UNAUDITED)
Quarterly financial data, excluding discontinued operations, is as follows (in millions, except for per share amounts):
2020
Net sales
Gross profit
Net income from continuing operations
Net income per common share from continuing operations:
Basic
Diluted
2019
Net sales
Gross profit
Net income from continuing operations
Net income per common share from continuing operations:
Basic
Diluted
First Quarter
Second
Quarter
Third Quarter Fourth Quarter
$
$
$
$
$
$
227.3 $
76.7 $
8.3 $
0.21
0.21
232.2 $
80.3 $
10.0 $
0.27
0.26
242.1 $
84.8 $
15.3 $
0.41
0.40
248.6 $
86.0 $
14.9 $
0.40
0.39
285.7 $
102.3 $
24.1 $
0.64
0.64
243.9 $
84.4 $
13.7 $
0.36
0.36
273.9
93.1
16.4
0.42
0.42
222.2
75.0
11.4
0.30
0.30
67 SYSTEMAX INC.
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
For the years ended December:
(in millions)
Description
Allowance for credit losses
2020
2019
2018
Allowance for deferred tax assets
2020
2019
2018
Balance at
Beginning of
Period
Charged to
Expenses
Write-offs
Other
Balance at
End of
Period
$
$
$
$
$
$
6.8
6.6
6.7
16.8
18.3
18.3
$
$
$
$
$
$
1.2
1.0
0.7
(1.0)
(0.3)
(0.3)
$
$
$
$
$
$
(6.3) $
(0.8) $
(0.8) $
(0.6) $
0.0 $
0.0 $
0.0
0.0
0.0
0.0
(1.2)
0.3
$
$
$
$
$
$
1.7
6.8
6.6
15.2
16.8
18.3
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Stock Performance Graph
Financial Summary
(In millions except Diluted Net Income Per Share)
2016
2017
2018 2019
2020
Net sales from continuing operations
$ 753.1 $ 791.8 $ 896.9 $ 946.9 $1,029.0
Operating income (loss) from continuing operations $ 8.0 $ 45.7 $ 61.7 $ 66.1 $ 84.1
Net income from continuing operations
$ 3.9 $ 65.5 $ 49.5 $ 50.0 $ 64.1
Diluted net income (loss) per share
$ 0.10 $ 1.74 $ 1.31 $ 1.32 $ 1.68
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.
ANNUAL MEETING OF STOCKHOLDERS:
The 2021 Annual Meeting will be held on:
Monday, June 7, 2021 at 12:00 p.m. Eastern Time
online at:
www.virtualshareholdermeeting.com/SYX2021
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
Executive Chairman
Bruce Leeds
Vice Chairman
Robert Leeds
Vice Chairman
Barry Litwin
Chief Executive Officer
Robert D. Rosenthal
Independent Director
Chad M. Lindbloom
Independent Director
Paul S. Pearlman
Independent Director
Lawrence Reinhold
Director
EXECUTIVE OFFICERS
Richard Leeds
Executive Chairman
Bruce Leeds
Vice Chairman
Robert Leeds
Vice Chairman
Barry Litwin
Chief Executive Officer
Thomas Clark
Senior Vice President & Chief Financial Officer
Ritesh Chaturbedi
Senior Vice President & Chief Operations Officer
Donna Fielding
Senior Vice President &
Chief Human Resources Officer
Claudia Hughes
Senior Vice President &
Chief Sales Officer
Eric Lerner
Senior Vice President & General Counsel
Manoj Shetty
Senior Vice President & Chief Information Officer
Klaus Werner
Senior Vice President & Chief Marketing Officer
Thomas Axmacher
Vice President & Controller
Headquarters
11 Harbor Park Drive, Port Washington, NY 11050
2020 ANNUAL REPORT