Circuit City 2001 Annual Report Download - page 25

SYSTEMAX INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999
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. The equity method of accounting is used for the Company's investment in a 50%-owned joint venture, over which
the Company exercises significant influence. The results of operations of this investee are not material to the results of operations of the
Company. The joint venture brokers paper, a significant portion of which is used by the Company in printing its catalogs.
CASH AND CASH EQUIVALENTS - 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 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 $11,120,000 and $15,329,000 at December 31, 2001 and 2000, 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.
CAPITALIZED SOFTWARE COSTS - The Company capitalizes purchased software ready for service and capitalizes software development
costs incurred on significant projects from the time that the preliminary project stage is completed and management commits to funding a
project until the project is substantially complete and the software is ready for its intended use. Capitalized costs include materials and service
costs and payroll and payroll-related costs. Capitalized software costs are amortized using the straight-line method over the estimated useful
life of the underlying system, generally five years.
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
operations 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
operations.
ADVERTISING COSTS -
Direct response advertising costs, consisting primarily of catalog preparation, printing and postage expenditures, are
amortized over the period of catalog distribution during which the benefits are expected. Advertising expenditures relating to the Company's
national advertising campaign and other television advertising costs are expensed in the period the advertising takes place. Advertising costs,
net of rebates from vendors, of $53.0 million in 2001, $54.1 million in 2000 and $57.1 million in 1999 are included in the accompanying
Consolidated Statements of Operations. Prepaid expenses at December 31, 2001 and 2000 include deferred advertising costs of $6.3 million
and $14.8 million, respectively, which are reflected as an expense during the period benefited.
RESEARCH AND DEVELOPMENT COSTS - Costs incurred in connection with research and development are expensed as incurred. Such
expenses for the years ended December 31, 2001, 2000 and 1999 aggregated approximately $1,539,000, $1,868,000 and $2,256,000,
respectively.
YEAR ENDED DECEMBER 31 2001 2000 1999
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Balance, beginning of year............... $ 15,329 $ 13,963 $ 8,664
Charged to expense....................... 3,696 12,721 8,832
Acquisitions............................. 1,614
Reductions, principally write-offs....... (7,905) (11,355) (5,147)
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Balance, end of year..................... $ 11,120 $ 15,329 $ 13,963
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