Forward Looking Statements

This report contains forward looking statements within the meaning of that term in the Private Securities Litigation Reform Act of 1995 (Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934). Additional written or oral forward looking statements may be made by the Company from time to time, in filings with the Securities and Exchange Commission or otherwise. Statements contained in this report that are not historical facts are forward looking statements made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward looking statements may include, but are not limited to, projections of revenue, income or loss and capital expenditures, statements regarding future operations, financing needs, compliance with financial covenants in loan agreements, plans for acquisition or sale of assets or businesses and consolidation of operations of newly acquired businesses, and plans relating to products or services of the Company, assessments of materiality, predictions of future events and the effects of pending and possible litigation, as well as assumptions relating to the foregoing. In addition, when used in this discussion, the words "anticipates," "believes," "estimates," "expects," "intends," "plans" and variations thereof and similar expressions are intended to identify forward looking statements.

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. Should one or more of the risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results or outcomes may vary materially from those described herein. Statements in this report, particularly in "Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations" and the Notes to Condensed Consolidated Financial Statements, describe certain factors, among others, that could contribute to or cause such differences.

Readers are cautioned not to place undue reliance on any forward looking statements contained in this report, which speak only as of the date of this report. We undertake no obligation to publicly release the result of any revisions to these forward looking statements that may be made to reflect events or circumstances after the date hereof or to reflect the occurrence of unexpected events.

Overview

Systemax is primarily a direct marketer of brand name and private label products. Our operations are organized in three reportable business segments - Technology Products, Industrial Products and Software Solutions. Our Technology Products segment sells computers, computer supplies and consumer electronics which are marketed in North America and Europe. Except for certain personal computer ("PC") products that we assemble ourselves and sell under the trademarks Systemax™ and Ultra™, substantially all of our products are manufactured by other companies. We also sell certain computer-related products manufactured for us to our own design under the trademark Systemax™ and Ultra™. For the six months ended June 30, 2009, Technology products accounted for 94% of our net sales.

Our Industrial Products segment sells a wide array of material handling equipment, storage equipment and consumable industrial items which are marketed in North America. Substantially all of these products are manufactured by other companies. Some products are manufactured for us to our own design and marketed under the trademarks Global™, GlobalIndustrial.com™ and Nexel™. Industrial products accounted for 6% of our net sales for the six months ended June 30, 2009. In both of our Technology Products and Industrial Products segments, we offer our customers a broad selection of products, prompt order fulfillment and extensive customer service.

The Company announced plans to exit the Software Solutions segment during the second quarter of 2009. The Company is in the process of winding down operations and anticipates completing this process by the end of 2009. Software Solutions accounted for approximately $1.1 million in sales for the six months ended June 30, 2009. See Note 8 to the consolidated financial statements included in Item 1 of this Form 10-Q for additional financial information about our business segments as well as information about our geographic operations.

The market for computer products and consumer electronics is subject to intense price competition and is characterized by narrow gross profit margins. The North American industrial products market is highly fragmented and we compete against multiple distribution channels. Distribution is working capital intensive, requiring us to incur significant costs associated with the warehousing of many products, including the costs of maintaining inventory, leasing warehouse space, inventory management systems, and employing personnel to perform the associated tasks. We supplement our on-hand product availability by maintaining relationships with major distributors and manufacturers, utilizing a combination of stocking and drop-shipment fulfillment.

The primary component of our operating expenses historically has been employee related costs, which includes items such as wages, commissions, bonuses, employee benefits and stock option expenses. We continually assess our operations to ensure that they are efficient, aligned with market conditions and responsive to customer needs.

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 principles and estimates affect the consolidated financial statements. This discussion should be read in conjunction with the condensed consolidated financial statements included herein and in conjunction with the audited financial statements as of December 31, 2008 and the other information provided in our Annual Report on Form 10-K for the fiscal year ended December 31, 2008.

Critical Accounting Policies and Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements, and revenues and expenses during the period. Significant accounting policies employed by the Company, including the use of estimates, were presented in the Notes to Consolidated Financial Statements of the Company's 2008 Annual Report on Form 10-K.

Critical accounting policies are those that are most important to the presentation of our financial condition and results of operations, require management's most difficult, subjective and complex judgments, and involve uncertainties. The accounting policies that have been identified as critical to our business operations and understanding the results of operations pertain to revenue recognition, accounts receivable and allowance for doubtful accounts, inventories, goodwill and intangible assets, long-lived assets, accruals, income taxes and restructuring charges. The application of each of these critical accounting policies and estimates was discussed in Item 7 of the Company's Annual Report on Form 10-K for the year ended December 31, 2008. There have been no significant changes in the application of critical accounting policies or estimates during 2009. Management believes that full consideration has been given to all relevant circumstances that we may be subject to, and the condensed 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 periods presented. Because of the uncertainty in these estimates, actual results could differ from estimates used in applying the critical accounting policies. We are not aware of any reasonably likely events or circumstances which would result in different amounts being reported that would materially affect its financial condition or results of operations.

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.

Effective January 1, 2009 the Company adopted Statement on Financial Accounting Standards ("SFAS") No. 141R, "Business Combinations," which replaces FASB Statement 141. SFAS No. 141R retains the requirement that the acquisition method of accounting be used for business combinations. The objective of SFAS No. 141R is to improve the relevance, representational faithfulness and comparability that reporting entities provide in their financial reports about business combinations and their effects. SFAS 141R establishes principles and requirements for how an acquirer 1) recognizes and measures identifiable assets acquired, the liabilities assumed and any noncontrolling interest in the acquiree, 2) recognizes and measures the goodwill acquired in the combination or a gain from a bargain purchase and 3) determines what information to disclose to enable users of the financial statements to evaluate the nature and financial effects of the business combination. SFAS No. 141R is applied prospectively for all business combinations entered into after the date of adoption. There were no business combinations during the six months period ending June 30, 2009.

In May 2009, the FASB issued SFAS No. 165, "Subsequent Events" was issued which establishes general standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued or available to be issued. SFAS No. 165 should not result in significant changes in the subsequent events that are reported, but rather requires disclosure of the date through which the Company evaluates whether subsequent events have occurred. This pronouncement was effective for the period ended June 30, 2009 and did not have a significant impact on the Company's consolidated financial statements.

In June 2008, the FASB issued FASB Staff Position No. EITF 03-6-1 "Determining Whether Instruments Granted in Share-Based Payment Transactions Are Participating Securities" (EITF 03-6-1). This FSP was issued to clarify that instruments granted in share-based payment transactions can be participating securities prior to the requisite service having been rendered. The guidance in this FSP applies to the calculation of Earnings Per Share ("EPS") under Statement 128 for share-based payment awards with rights to dividends or dividend equivalents. Unvested share-based payment awards that contain non-forfeitable rights to dividends or dividend equivalents (whether paid or unpaid) are participating securities and shall be included in the computation of EPS pursuant to the two-class method. This FSP is effective for financial statements issued for fiscal years beginning after December 15, 2008, and interim periods within those years. All prior-period EPS data presented shall be adjusted retrospectively (including interim financial statements, summaries of earnings, and selected financial data) to conform with the provisions of this FSP. The Company adopted EITF 03-6-1 in January 2009. The Company's adoption of EITF 03-6-1 did not have a material impact on its consolidated financial statements.

Results of Operations

Three and Six Months Ended June 30, 2009 compared to the Three and Six Months Ended June 30, 2008

Key Performance Indicators (in thousands):



                         Three Months Ended                      Six Months Ended
                              June 30,              %                June 30,
                          2009         2008      Change         2009           2008       % Change
Net sales by
segment:
Technology products    $  672,004   $  694,350      (3.2 )% $  1,378,276   $  1,361,647        1.2 %
Industrial products        48,848       61,617     (20.7 )%       94,504        118,979      (20.6 )%
Hosted software               747           68     998.5 %         1,087            146      644.5 %
Total net sales        $  721,599      756,035      (4.6 )% $  1,473,867   $  1,480,772        (.5 )%
Net sales by
geography:
North America          $  547,940   $  511,918       7.0 %  $  1,096,332   $    984,274       11.4 %
Europe                    173,659      244,117     (28.9 )%      377,535        496,498      (24.0 )%
Total net sales        $  721,599   $  756,035      (4.6 )% $  1,473,867   $  1,480,772        (.5 )%
Gross margin                 14.8 %       15.2 %     (.4 )%         14.6 %         15.4 %      (.8 )%
Selling, general and
administrative costs   $   98,385   $   93,639       5.1 %  $    190,915   $    181,352        5.3 %
Selling, general and
administrative costs
as a % of net sales          13.6 %       12.4 %     1.2 %          13.0 %         12.2 %       .8 %
Operating income       $    8,669   $   21,115     (58.9 )% $     23,689   $     47,151      (49.8 )%
Operating margin              1.2 %        2.8 %    (1.6 )%          1.6 %          3.2 %     (1.6 )%
Effective income tax
rate                         27.6 %       37.1 %    (9.5 )%         34.9 %         36.5 %     (1.6 )%
Net income             $    6,491       13,541     (52.1 )% $     15,189   $     31,602      (51.9 )%
Net margin                     .9 %        1.8 %     (.9 )%          1.0 %          2.1 %     (1.1 )%

The Technology Products net sales decrease during the second quarter of 2009 was attributable to significant declines in business to business revenues in Europe resulting from the global slowdown in economic activity. On a constant currency basis European sales declined 13.5% in the second quarter of 2009 and 6.2% for the first six months of 2009 compared to the same periods in 2008. The movements in foreign exchange rates accounted for $37.6 million and $87.9 million, respectively, of the revenue decline in the second quarter and first six months of 2009. The trend of declining sales in Europe is expected to continue until global economic conditions improve. In North America, Technology Products sales increased 10.7% in the second quarter of 2009 and 15.7% in the first six months of 2009 compared to the same periods in 2008. Growth in North

America during the second quarter and first six months of 2009 is attributable to increased retail and internet sales in the consumer channels. Retail sales benefited from the acquisition of 16 retail stores from CompUSA in 2008. Ecommerce sales were up in substantially all of the Company's U.S. based sites in 2009. As in Europe, North America business to business sales declined in both the second quarter and first six months of 2009. On a constant currency basis, North America Technology Products sales grew 12.3% in the second quarter of 2009 and 17.7% in the first six months of 2009 compared to the same periods in 2008. Movements in foreign exchange rates negatively impacted the North American sales comparison by approximately $7.3 million and $17.4 million, respectively, in the second quarter and first six months of 2009.

For the second quarter of 2009, worldwide retail and other revenues, defined as revenues from retail stores, consumer websites, catalogs, shopping channels and freight, were $412.5 million compared to $349.6 million in the same period in 2008, an increase of 18.0%. Retail and other sales growth in the second quarter of 2009 was driven primarily by growth in computers, including laptops and netbooks. For the first six months of 2009 worldwide retail and other revenues were $844.1 million compared to $710.4 million in the same period in 2008, an increase of 18.8%. Retail and other sales growth in the first six months of 2009 was driven primarily by growth in computers, including laptops and netbooks, and consumer electronics. Worldwide business to business sales were $309.1 million in the second quarter of 2009 compared to $406.4 million in the same period in 2008, a 23.9% decrease, and for the first six months of 2009 worldwide business to business sales were $629.8 million compared to $770.4 million in the same period in 2008, an 18.3% decrease. Worldwide business to business sales declined as the result of the global economic slowdown.

Industrial Products sales are primarily business to business and declined in the second quarter and first six months of 2009 as compared to the same periods in 2008. The sales decline is largely attributable to the slowdown in economic activity which started in the second half of 2008 and continued through the second quarter of 2009. The Company has implemented strategies such as adding additional products to its catalogs and website and closely monitoring its cost structure to mitigate some of the effects of the decline in sales.

The Company announced plans to exit the Software Solutions segment during the second quarter of 2009. The Company is in the process of winding down operations and anticipates completing this process by the end of 2009. Software Solutions accounted for approximately $1.1 million in sales for the six months ended June 30, 2009.

Consolidated gross margin declined in the second quarter and first six months of 2009 by 40 and 80 basis points, respectively, compared to the same period in 2008. The Company has lowered certain product prices and offered freight incentives in order to both maintain and grow market share and to respond to competitive pricing pressures that started during 2008. The Company has continued to offer such selective incentives to maintain and grow market share in anticipation of future gross margin expansion. Additionally, consolidated gross margin has been impacted by a shift in mix, as higher margin Industrial Products accounted for a smaller portion of consolidated revenues than in prior quarters. Gross margin is dependent on variables such as product mix, vendor price protection and other sales incentives, competition, pricing strategy, cooperative advertising funds required to be classified as a reduction to cost of sales, freight discounting and other variables, any or all of which may result in fluctuations in gross margin.

The increase in selling, general and administrative expenses for the second quarter of 2009 compared to the second quarter of 2008 was primarily the result of a $6.2 million charge for severance costs, litigation and contractual lease terminations, of which $2.3 million resulting from the winding down of our Software Solutions segment, offset by savings in other selling, general and administrative expenses due to favorable movements in exchange rates.

The increase in selling, general and administrative expenses for the first six months of 2009 as compared to the first six months of 2008 was primarily the result of a $6.2 million charge for severance costs, litigation and contractual lease terminations, mentioned above, a $1.6 million increase in bad debt expense, and $2.3 million of increased credit card fees.

The Company's effective tax rate for the second quarter of 2009 was 27.6% compared to 37.1% in the second quarter of 2008. Included in the 2009 rate is a reversal of tax reserves of approximately $1.0 million as the result of statute expirations, and included in the 2008 rate is a reversal of a tax reserve of approximately $0.4 million. The effective tax rate for the six months ended June 30, 2009 was 34.9% compared to 36.5% in 2008, taking into account the reversal of tax reserves. Excluding the tax reserve reversal the Company's effective tax rate was 39.3% in 2009. The higher rate in 2009 is primarily the result of a higher percentage of taxable income in the U.S. where corporate income taxes are typically higher.

Net income in the second quarter of 2009 declined 52.1% to $6.5 million compared to $13.5 million in the second quarter of 2008. Net income for the six months ended June 30, 2009 declined 51.9% to $15.2 million compared to $31.6 million for the six months ended June 30, 2008. The decline in net income is the result of a slowdown in economic activity in all of the Company's segments and geographies and the charges incurred, including the costs of winding down our Software Solutions segment. The Company has adjusted its cost structure and reduced headcount during the first six months of 2009 and has implemented selected hiring freezes in certain business units as the result of general economic uncertainty worldwide. The Company will continue to monitor economic conditions and make further adjustments if necessary.

Financial Condition, Liquidity and Capital Resources

Our primary liquidity needs are to support working capital requirements in our business, fund capital expenditures, repurchase Company stock, fund special dividends declared by our Board of Directors and fund acquisitions. We rely principally upon operating cash flow to meet these needs. We believe that cash flow available from these sources will be sufficient to fund our working capital and other cash requirements for the next twelve months and thereafter.

Selected liquidity data (in thousands):

                                                              December 31,
                                           June 30, 2009          2008          $ Change
Cash and cash equivalents                 $        87,923    $      115,967    $   (28,044 )
Accounts receivable, net                  $       173,629    $      182,532    $    (8,903 )
Inventories, net                          $       310,014    $      290,594    $    19,420
Prepaid expenses and other current
assets                                    $        12,891    $       12,667    $       224
Accounts payable                          $       269,714    $      284,378    $   (14,664 )
Accrued expenses and other current
liabilities                               $        65,746    $       73,075    $    (7,329 )
Current portion of capitalized lease
obligations                               $           832    $          773    $        59
Working capital                           $       258,888    $      253,092    $     5,796

Our working capital increased in the first six months of 2009 primarily as the result of the cash generated from net income for the period adjusted for non cash charges of approximately $24.0 million offset by the purchase of certain CircuitCity.com assets, fixed asset purchases, and stock repurchases. The increase in inventory is primarily the result of strategic quarter end purchases. Our inventory turnover decreased from 9.0 times to 8.0 times on an annual basis. Future accounts receivable and inventory balances will continue to fluctuate with changes in sales volume and the mix of our net sales between consumer and business customers.

The decrease in cash provided by operations in the first six months of 2009 compared to the first six months of 2008 resulted from changes in our working capital accounts, which used $31.7 million in cash compared to $21.6 million generated in 2008, primarily the result of an increase in inventories and a decrease in accounts payable, accrued expenses and other current liabilities. Cash generated from net income adjusted by other non-cash items provided $24.0 million for the six months ended June 30, 2009 compared to $40.1 million provided by these items for the six months ended June 30, 2008, primarily as a result of a lower net income in the first six months of 2009.

Cash flows used in investing activities during the first six months of 2009 were primarily for the CircuitCity.com acquisition and for capital expenditures relating to our information and communications systems hardware. Cash flows used in investing activities during 2008 consisted primarily of funds used for the CompUSA acquisition and for expenditures in retail stores and information technology.

Net cash of $1.3 million was used in financing activities for the first six months of 2009. We repurchased $1.2 million of common stock and repaid $0.3 million of capital lease obligations. Proceeds and excess tax benefits from stock option exercises provided approximately $0.2 million of cash. In the first six months of 2008, we repaid $3.0 million in short-term loans and paid $37.1 million for a special dividend. Proceeds from stock option exercises, net of repurchases and excess tax benefits, provided approximately $2.1 million of cash.

Under our $120.0 million (which may be increased up to $150.0 million, subject to certain conditions) secured revolving credit agreement for borrowings in the United States and United Kingdom, as of June 30, 2009, eligible collateral was $114.0 million and total availability was $101.9 million. There were outstanding letters of credit of $12.1 million and there were no outstanding advances as of June 30, 2009. The borrowings are secured by all of the domestic and United Kingdom accounts receivable, the domestic inventories of the Company; the Company's shares of stock in its domestic subsidiaries and the Company's United Kingdom headquarters building. The credit facility expires and the outstanding borrowings thereunder are due on October 26, 2010. The revolving credit agreement contains certain financial and other covenants, including maintaining a minimum level of availability and restrictions on capital expenditures and payments of dividends. We were in compliance with all of the covenants under this facility as of June 30, 2009.

We also have certain obligations with various parties that include commitments to make future payments. Our principal commitments at June 30, 2009 consisted of payments under operating leases for certain of our real property and equipment, payments under capital leases for equipment, and payments under employment and other service agreements.

Our current and anticipated needs for cash include funding growth in working capital, capital expenditures necessary for future growth in sales, implementation of financial and retail point of sale systems, repurchase of Company stock and potential expansion through acquisitions. We believe that our cash balances and our availability under credit facilities will be sufficient to fund our working capital and other cash requirements for the next twelve months.

We maintain our cash and cash equivalents primarily in money market funds or their equivalent. As of June 30, 2009, all of our

investments had maturities of less than three months. Accordingly, we do not believe that our investments have significant exposure to interest rate risk.

Off-balance Sheet Arrangements

The Company has not created, and is not party to, any special-purpose or off-balance sheet entities for the purpose of raising capital, incurring debt or operating the Company's business. The Company does not have any arrangements or . . .