Circuit City 1999 Annual Report Download - page 23

SYSTEMAX INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION - The accompanying consolidated financial statements include the accounts of Systemax Inc. and its
wholly-owned subsidiaries (collectively, the "Company" or "Systemax"). All significant intercompany accounts and transactions have been
eliminated in consolidation.
CASH, CASH EQUIVALENTS AND SHORTTTERM INVESTMENTS - The Company considers amounts held in money market accounts
and other short-term investments with an original maturity date of approximately three months or less to be cash equivalents. The Company's
investments in cash equivalents and short-term investments are classified as debt securities available-for-sale. These equivalents are stated at
fair market value. Unrealized holding gains and losses are not significant for any of the years presented.
REVENUE RECOGNITION AND ACCOUNTS RECEIVABLE - The Company recognizes sales of products, including shipping revenue, at
the time of shipment. Accounts receivable are shown in the consolidated balance sheets net of allowances for doubtful collections and
subsequent customer returns of approximately $13,963,000 and $8,664,000 at December 31, 1999 and 1998, respectively. The changes in these
allowance accounts are summarized as follows (in thousands):
INVENTORIES - Inventories consist primarily of finished goods and are stated at the lower of cost or market value. Cost is determined by
using the first-in, first-out method.
PROPERTY, PLANT AND EQUIPMENT - Property, plant and equipment is stated at cost. Depreciation of furniture, fixtures and equipment
is on the straight-
line or accelerated method over their estimated useful lives ranging from three to ten years. Depreciation of buildings is on the
straight-line method over estimated useful lives of 30 to 50 years. Leasehold improvements are amortized over the term of the respective
leases.
FOREIGN CURRENCY TRANSLATION - The financial statements of the foreign entities are translated into U.S. dollars, the reporting
currency, using year-end exchange rates for consolidated balance sheet items and average exchange rates for the consolidated statements of net
income items. The translation differences are made directly to a separate component of shareholders' equity.
FOREIGN CURRENCY TRANSACTIONS - Transactions in foreign currencies are recorded at the exchange rate in effect at the transaction
date. Realized and unrealized exchange gains and losses during the year are included in the respective year's consolidated statement of net
income.
RESEARCH AND DEVELOPMENT COSTS - Costs incurred in connection with research and development are expensed as incurred. Such
expenses for the years ended December 31, 1999, 1998 and 1997 aggregated approximately $2,256,000, $1,352,000 and $674,000,
respectively.
GOODWILL, NET - Goodwill and negative goodwill are combined and presented net of accumulated amortization. Goodwill represents the
excess of acquisition costs over the fair market value of the net assets of acquired businesses and is being amortized on a straight- line basis
over their estimated useful lives, ranging from 10 to 40 years. In instances where the Company had acquired a business below the fair value of
the assets acquired, the Company recorded negative goodwill. Annual amortization of goodwill was an expense of $2,323,000 in 1999,
$751,000 in 1998 and $76,000 in 1997.
The Company continually evaluates whether events or circumstances warrant revision of the amortization periods. Additionally, the Company
considers whether the carrying value of goodwill should be adjusted based on its expected future benefit. During the second quarter of 1999,
the Company wrote off $1.9 million of goodwill associated with a number of small acquisitions made during the last few years. During 1997,
the Company determined that, as a result of its' decision to exit certain lines of its' TigerDirect Inc. subsidiary's business, an impairment of the
goodwill associated with those business lines had occurred. The Company recorded a write down in the value of the goodwill of approximately
$6.3 million.
YEAR ENDED DECEMBER 31 1999 1998 1997
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Balance, beginning of year............................ $ 8,664 $7,338 $ 7,724
Charged to expense.................................... 8,832 5,264 3,283
Acquisitions.......................................... 1,614
Reductions, principally write-offs.................... (5,147) (3,938) (3,669)
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Balance, end of year................................. $13,963 $8,664 $ 7,338
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