Circuit City 2000 Annual Report Download - page 4

General
Systemax is a direct marketer of private label and brand name personal desktop computers ("PCs"), notebook
computers, computer related products and industrial products in North America and Europe. The Company assembles
its own PCs, primarily on a "build to order" basis, and sells them under the trademarks Systemax ™, Tiger ® and Ultra
™. The Company features a broad selection of products, extensive customer service and prompt order fulfillment.
Computers and computer related products accounted for 88% of the Company's net sales in 2000.
Systemax markets its products through an integrated system of distinctively branded, full-color direct mail
catalogs, proprietary "e-commerce" Internet sites and personalized "relationship marketing" to business customers. The
Company targets individuals at major accounts (customers with more than 1,000 employees), mid-sized accounts
(customers with 20 to 1,000 employees), small office/home office ("SOHO") customers and resellers. The Company's
portfolio of catalogs includes such established brand names as Global Computer Supplies ™, Misco ®, HCS Misco ™,
GlobalDirect ™, ArrowStar ™, Dartek.com ™, TigerDirect.com ™, 06 ™, Midwest Micro ™and Infotel ™. The
Company mailed approximately 157 million catalogs comprising 37 different titles in 2000. The Company currently
has twenty-four e-commerce web sites and in 2000 generated over $103 million (6% of net sales) in unassisted Internet
sales. At December 31, 2000, the Company had approximately 1.5 million active customers (defined as customers who
have purchased from the Company within the preceding 12 months) and combined customer and prospect files of more
than 50 million names.
The Company operates in ten locations in North America. The Company's North American operations accounted
for 67.5% of net sales in 2000. Certain functions, such as merchandising, marketing, purchasing and information
systems, are performed centrally in North America.
European operations, which represented 32.5% of net sales for 2000, are generated from nine sales and
distribution centers located across Europe: two in England and one each in Scotland, France, Germany, Italy, Spain, the
Netherlands and Sweden.
A large number of the Company's products are carried in stock, and orders for such products are fulfilled directly
from the Company's distribution centers, typically on the day the order is received. The strategic locations of the
Company's distribution centers allow next day or second day delivery via low cost ground carriers throughout most of
the United States, Canada and Western Europe. The strategic locations in Europe have enabled the Company to market
into four additional countries with limited incremental investment. The Company maintains relationships with a
number of distributors in the United States and Europe that deliver products directly to the Company's customers.
Recent Developments
Discovery and Investigation of Financial Irregularities at Midwest Micro Subsidiary
On September 7, 2000 the Company announced that it had discovered certain irregularities in the financial
records of its Midwest Micro subsidiary based in Fletcher, Ohio. Midwest Micro (now Systemax Manufacturing Inc.) is
a manufacturer of PCs and a direct mail provider of personal computers and related supplies. The irregularities totaled
$19.1 million (net of tax benefit) and related principally to inventory. Following the Company's internal investigation
the matter was referred to local law enforcement officials to investigate possible criminal misconduct. As a result of
these irregularities the Company restated its financial results for the first and second quarters of 2000.
Installation of New Management Team at Systemax Manufacturing
On December 4, 2000 the Company announced the appointment of Robert H. Rose as vice president and general
manager of Systemax Manufacturing Inc. Mr. Rose has more than 23 years experience in the computer sector, having
held senior positions in manufacturing, engineering and service management. Most recently, he was vice president and
general manager of operations at Wyle Systems, an industrial distributor and contract manufacturer. Earlier in his
career, Mr. Rose was senior director of the newly created manufacturing division at CompUSA. He played a critical
role in the division's launch, with responsibilities ranging from the design of its business model and execution of its
operating strategy to managing negotiations with outsource partners and development of its first manufacturing facility.
He has also held executive positions with Tandy Corporation, Toshiba, and NEC. Mr. Rose heads a new management