CompUSA 2008 Annual Report Download - page 56

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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Overview
Systemax is primarily a direct marketer of brand name and private label products. Our operations are
organized in 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, Puerto Rico and Europe. Except for certain 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™.Technology
products accounted for 92% of our net sales in 2008. 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 8% of our net sales in 2008. In
both of these product groups, we offer our customers a broad selection of products, prompt order
fulfillment and extensive customer service. Our Software Solutions segment, which became a reportable
segment in 2006, participates in the emerging market for on-demand, web-based business software
applications through the marketing of our PCS ProfitCenter Software™application. See Note 10 to the
Consolidated Financial Statements included in Item 15 of this Form 10-K for additional financial
information about our business segments as well as information about our geographic operations.
The market for computer products and consumer electronics is subject to intense price competition and is
characterized by narrow gross profit margins. The North American industrial products market is highly
fragmented and we compete against companies utilizing multiple distribution channels. Distribution of
our technology products and industrial products is working capital intensive, requiring us to incur
significant costs associated with the warehousing of many products, including the costs of leasing
warehouse space, maintaining inventory and inventory management systems, and employing personnel to
perform the associated tasks. We supplement our on-hand product availability by maintaining
relationships with major distributors and manufacturers, utilizing a combination of stocking and drop-
shipment fulfillment.
The primary component of our operating expenses historically has been employee related costs, which
includes items such as wages, commissions, bonuses, employee benefits and stock option expenses. We
continually assess our operations to ensure that they are efficient, aligned with market conditions and
responsive to customer needs.
During the first quarter of 2008 the Company acquired CompUSA’ s e-commerce business and 16 of its
retail leases and related fixtures for direct consideration of approximately $30.6 million. This acquisition
accelerated the Company’ s planned expansion into the retail market place for Technology Products in
North America and Puerto Rico.
Critical Accounting Policies and Estimates
Our significant accounting policies are described in Note 1 to the consolidated financial statements.
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 from those
estimates. These judgments are based on historical experience,observation of trends in the industry,
information provided by customers and information available from other outside sources, as appropriate.
Management believes that full consideration has been given to all relevant circumstances that we may be
subject to, and the consolidated financial statements of the Company accurately reflect management's best
estimate of the consolidated results of operations, financial position and cash flows of the Company for
the years presented. We identify below a number of policies that entail significant judgments or estimates.
Actual results may differ from these estimates under different conditions or assumptions.