Circuit City 2001 Annual Report Download - page 4

PART I
UNLESS OTHERWISE INDICATED, ALL REFERENCES HEREIN TO SYSTEMAX INC.
(SOMETIMES REFERRED TO AS "SYSTEMAX" OR THE "COMPANY") INCLUDE ITS SUBSIDIARIES.
ITEM 1. BUSINESS.
GENERAL
Systemax is a direct marketer of brand name and private label products, including personal desktop computers ("PCs"), notebook computers,
computer related products and industrial products in North America and Europe. The Company assembles its own PCs and sells them under the
trademarks SYSTEMAX(TM), TIGER(R) and ULTRA(TM). In addition, the Company markets and sells computers manufactured by Compaq
Computer Corp., International Business Machines Corp., Gateway Inc. and other leading companies. The Company features a broad selection
of products, extensive customer service and prompt order fulfillment. Computers and computer related products accounted for 89% of the
Company's net sales in 2001.
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(TM), MISCO
(R), HCS MISCO(TM), GLOBALDIRECT(TM), ARROWSTAR(TM), DARTEK.COM(TM), TIGERDIRECT.COM(TM), 06(TM) and
INFOTEL(TM). The Company mailed approximately 126 million catalogs comprising 38 different titles in 2001. The Company currently has
twenty-four e-commerce web sites and in 2001 generated over $218 million in Internet sales (14% of net sales).
The Company operates in ten locations in North America. North American operations accounted for 63.5% of net sales in 2001. European
operations, which represented 36.5% of net sales for 2001, are generated from nine sales and/or 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 locations of the
Company's distribution centers 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
COMPANY OBTAINS CREDIT FACILITY
In June 2001, the Company and its domestic subsidiaries entered into a $70,000,000 revolving credit agreement with a group of financial
institutions including JP Morgan Chase (acting as lender and agent) to provide for borrowings in the United States. The borrowings are secured
by all of the domestic accounts receivable and inventories of the Company and the Company's shares of stock or membership interests in its
domestic subsidiaries. The credit facility expires and outstanding borrowings thereunder are due on June 15, 2004. The borrowings under the
agreement are subject to borrowing base limitations of up to 75% of eligible accounts receivable and up to 25% of qualified inventories. The
revolving credit agreement contains certain financial and other covenants, including restrictions on capital expenditures and payments of
dividends.
NEW DIRECTOR APPOINTED
On May 23, 2001 the Company announced the appointment of Ann R. Leven to the Company's Board of Directors. Ms. Leven's appointment
increased the size of the Board to seven directors, including three outside directors. Ms. Leven is also a member of the Board's Audit
Committee. Ms. Leven holds an MBA from Harvard University and most recently served as treasurer and chief fiscal officer of the National
Gallery of Art in Washington, DC.
PRODUCTS
The Company endeavors to expand the breadth of its product offerings in order to fulfill the increasingly wide range of product needs of its
customers. Systemax offers more than 40,000 brand name and private label products.
Computer sales include Systemax PCs complemented by offerings of other brand named PCs and notebook computers. The Company's
computer related products include supplies such as laser printer toner cartridges and ink jet printer cartridges; media such as recordable disks
and magnetic tape cartridges; peripherals such as hard disks, CD
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ROM and DVD drives, printers and scanners; memory upgrades; data