Circuit City 2003 Annual Report Download

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SYSTEMAX INC
FORM 10-K
(Annual Report)
Filed 03/30/04 for the Period Ending 12/31/03
Address 11 HARBOR PARK DR
PORT WASHINGTON, NY 11050
Telephone 5166087000
CIK 0000945114
Symbol SYX
SIC Code 5961 - Catalog and Mail-Order Houses
Industry Retail (Catalog & Mail Order)
Sector Services
Fiscal Year 12/31
http://www.edgar-online.com
© Copyright 2008, EDGAR Online, Inc. All Rights Reserved.
Distribution and use of this document restricted under EDGAR Online, Inc. Terms of Use.

Table of contents

  • Page 1
    SYSTEMAX INC FORM 10-K (Annual Report) Filed 03/30/04 for the Period Ending 12/31/03 Address Telephone CIK Symbol SIC Code Industry Sector Fiscal Year 11 HARBOR PARK DR PORT WASHINGTON, NY 11050 5166087000 0000945114 SYX 5961 - Catalog and Mail-Order Houses Retail (Catalog & Mail Order) Services ...

  • Page 2
    ..., New York (Address of principal executive offices) 11-3262067 (I.R.S. Employer Identification No.) 11050 (Zip Code) Registrant's telephone number, including area code: (516) 608-7000 Securities registered pursuant to Section 12(b) of the Act: Title of each class Common Stock, par value $ .01...

  • Page 3
    ...the 2004 annual meeting of stockholders are incorporated by reference in Part III hereof. TABLE OF CONTENTS Part I Item 1. Business...1 General...1 Available Information ...1 Recent Developments...2 Products...3 Sales and Marketing...3 Customer Service and Support...5 Sales and Distribution Centers...

  • Page 4
    ... Company have been in business since 1955. Our headquarters office is located at 11 Harbor Park Drive, Port Washington, New York. Available Information We maintain an internet web site at www.systemax.com . We file reports with the Securities and Exchange Commission ("SEC") and make available free...

  • Page 5
    ... 2003 we formed a new subsidiary company, Profit Center Software Inc., to market for general commercial use a number of integrated computer software products we had created initially as a customized software solution for our own business. Offered as Profit Center Software â„¢, it is a suite of web...

  • Page 6
    ... company size, number of employees, industry, various demographic and geographic characteristics and purchasing history. We have established an integrated three-pronged system of direct marketing to business customers, consisting of relationship marketers, catalog mailings and propriety internet web...

  • Page 7
    ... than custom items, large furniture and large industrial items shipped directly by the vendor) within one or two business days of the order date as a result of the regional locations of our distribution centers. We provide extensive technical telephone support to our Systemax brand PC customers. We...

  • Page 8
    ...eight European countries and a central office in the United Kingdom to direct their activities. The central office is responsible for marketing support, financial reporting, logistics and computer website and programming support. The locations of our distribution centers in Europe have enabled us to...

  • Page 9
    ... based on price, product selection, product availability, level of service and convenience. We believe that direct marketing via catalog, the internet and sales representatives is an effective and convenient distribution method to reach mid-sized facilities that place many small orders and require...

  • Page 10
    ... of Security Holders. During the quarter ended December 31, 2003, there were no matters submitted to a vote of the Company's security holders. PART II Item 5. Market for Registrant's Common Equity and Related Stockholder Matters. Systemax common stock is traded on the New York Stock Exchange under...

  • Page 11
    ... from the audited financial statements of the Company which are not included in this report. Years Ended December 31 millions, except per common share data and number of catalog titles 2003 2002 2001 2000 1999 Statement of Operations Data Net sales Gross profit Selling, general & administrative...

  • Page 12
    ... Management's Discussion and Analysis of Financial Condition and Results of Operations. Overview We are a direct marketer of brand name and private label products, including personal desktop computers, notebook computers, computer related products and industrial products in North America and Europe...

  • Page 13
    ... sales for the three reported years at constant (2001) exchange rates (in millions): 2003 ---$631.5 $528.3 2002 ---$587.7 $563.2 2001 ---$564.4 $564.4 European sales as reported European sales at 2001 exchange rates GROSS PROFIT Gross profit, which consists of net sales less product cost, shipping...

  • Page 14
    ... and other operating expenses in the Company's European operations. RESTRUCTURING AND OTHER CHARGES In the fourth quarter of 2003 we implemented a plan to consolidate the warehousing facilities in our United States computer supplies business. We recorded $713,000 of costs related to this plan in the...

  • Page 15
    ... of $68 million ($51 million net of tax or a net loss per share of $1.50) as a cumulative effect of change in accounting principle in our statements of operations for the year ended December 31, 2002. NET INCOME (LOSS) As a result of the above, net income for 2003 was $5.6 million, or $.16 per basic...

  • Page 16
    ...shipped directly by our vendors. The increase in accounts receivable was less pronounced, as sales to consumers are generally paid by credit card, which have a 2-3 day shipment-to-cash cycle compared to the normal 30-day payment terms offered to our business customers. We expect that future accounts...

  • Page 17
    ...2003 exchange rate), 11½ year term loan agreement with a United Kingdom bank, to finance the construction of a new United Kingdom facility. The borrowings are secured by the land and building and are repayable in 40 quarterly installments of £165,000 ($295,000) through August 2012. The outstanding...

  • Page 18
    ... interest on outstanding debt. Our primary ongoing cash requirements will be to finance working capital, fund the payment of principal and interest on indebtedness and fund capital expenditures. We believe future cash flows from operations and availability of borrowings under our lines of credit (as...

  • Page 19
    ... suppliers provide us with co-op advertising support in exchange for featuring their products in our catalogs and on our internet sites. Certain suppliers provide us with other incentives such as rebates, reimbursements, payment discounts, price protection and other similar arrangements. These...

  • Page 20
    ... operations located in nine countries outside the United States, and non-U.S. sales accounted for 39.7% of our revenue during 2003. Our future results could be materially adversely affected by a variety of factors, including changes in foreign currency exchange rates, changes in a country's economic...

  • Page 21
    ...in the price of paper and periodic increases in postage rates, (ii) the operation of our management information systems, (iii) significant changes in the computer products retail industry, especially relating to the distribution and sale of such products, (iv) timely availability of existing and new...

  • Page 22
    ... results of operations, financial position and cash flows of the Company for the years presented. Actual results may differ from these estimates under different conditions or assumptions. Revenue Recognition. We recognize sales based on the terms of the customer purchase order, which indicates...

  • Page 23
    ... does not apply to product warranties or to guarantees accounted for as derivatives. Interpretation 45 also elaborates on the disclosures to be made by a guarantor in its interim and annual financial statements about its obligations under certain guarantees it has issued. The initial recognition and...

  • Page 24
    ... currency fluctuations, but as of December 31, 2003 we had no outstanding forward exchange contracts. Our exposure to market risk for changes in interest rates relates primarily to our variable rate debt. In connection with our United Kingdom term loan agreement, effective April 30, 2002 we entered...

  • Page 25
    ... and Robert Dooley, dated March 5, 2004* Employment Agreement dated as of December 12, 1997 between the Company and Steven M. Goldschein4* Loan and Security Agreement, dated June 13, 2001, between The Chase Manhattan Bank (as Lender and Agent) and TransAmerica Business Capital Corporation (as Lender...

  • Page 26
    ... Company in the original principal sum of $8,400,00010 Deed to Secure Debt, Assignment of Leases and Rents and Security Agreement, dated as of April 18, 2002 from Systemax Suwanee LLC to New York Life Insurance Company10 Corporate Ethics Policy for Officers, Directors and Employees Specimen stock...

  • Page 27
    ... behalf by the undersigned, thereunto duly authorized. SYSTEMAX INC. By: /s/ RICHARD LEEDS Richard Leeds Chairman and Chief Executive Officer Date: March 26, 2004 Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the following persons on behalf...

  • Page 28
    ... the Company and Robert Dooley, dated March 5, 2004 Amendment No. 6, dated as of September 22, 2003, to the Chase Loan Agreement Corporate Ethics Policy for Officers, Directors and Employees Subsidiaries of the Registrant Consent of experts and counsel: Consent of Independent Public Accountants...

  • Page 29
    ... of employment: 1. References to the Company when used in this Agreement and General Release shall include SYSTEMAX INC. , its parent, divisions, subsidiaries and affiliates, its and their predecessors, successors or assigns, and their respective trustees, directors, officers, employees, agents and...

  • Page 30
    ... Your right to terminate this Agreement within seven days of its execution. The Company shall make said payments by check mailed to You at Your home address on the employment records of the Company, or by direct deposit into a bank account you designate. No accrued vacation time shall be paid to You...

  • Page 31
    ...the public regarding the Company's methods, systems (including management information systems), trade secrets, customer information, supplies, pricing, business strategy or other private or confidential matters which You acquired during the course of Your employment. 19. During the severance payment...

  • Page 32
    BY: /s/ Steven Goldschein /s/ Robert Dooley ROBERT DOOLEY _____ Address Date: March 5, 2004 Date: March 5, 2004

  • Page 33
    ... AMERICA INC., a corporation organized under the laws of the State of Delaware ("Misco"), SYSTEMAX RETAIL SALES INC., a corporation organized under the laws of the State of Delaware ("SRS"), PAPIER CATALOGUES, INC., a corporation organized under the laws of the State of New York ("PCI"), CATALOG...

  • Page 34
    ... discharges each Lender and Agent and each Lender's and Agent's employees, agents, representatives, consultants, attorneys, fiduciaries, officers, directors, partners, predecessors, successors and assigns, subsidiary corporations, parent corporations, and related corporate divisions (all of the...

  • Page 35
    ...duly executed as of the day and year first written above. SYSTEMAX INC. By: /s/ Steven M. Goldschein Name: Steven M. Goldschein Title: Senior Vice President SYSTEMAX MANUFACTURING INC. GLOBAL COMPUTER SUPPLIES INC. GLOBAL EQUIPMENT COMPANY, INC. TIGER DIRECT, INC. DARTEK CORPORATION NEXEL INDUSTRIES...

  • Page 36
    ... AGREED: SYSTEMAX SUWANEE LLC BY: Systemax Inc., Member By: /s/ Steven M. Goldschein Name: Steven M. Goldschein Title: Senior Vice President THE MILLENNIUM GROUP LLC By: Millennium Falcon Corp., Member By: /s/ Steven M. Goldschein Name: Steven M. Goldschein Title: Vice President By: WRD Sales, Inc...

  • Page 37
    .... Corporate Ethics Policy was prepared to provide the shareholders, employees and customers of Systemax Inc. (the "Company") and the general public with a statement of the Company's commitment to ethical business conduct. This applies to the Company and all of its subsidiaries in North America and...

  • Page 38
    ...harassment, securities laws (which require fair disclosure of the Company's business and financial information to the public and prohibit any use of secret information about the Company in deciding to buy or sell stock of the Company), customs laws, including country of origin marking and value laws...

  • Page 39
    ... Computer Supplies Inc. (a New York corporation) Global Equipment Company Inc. (a New York corporation) Dartek Corporation (a Delaware corporation) Nexel Industries Inc. (a New York corporation) Tiger Direct Inc. (a Florida corporation) Systemax Manufacturing Inc. (a Delaware corporation) FOREIGN...

  • Page 40
    ... to the Company's change in method of accounting for goodwill and other intangible assets to conform to Financial Accounting Standards Board Statement No. 142, "Goodwill and Other Intangible Assets") appearing in this Annual Report on Form 10-K of Systemax Inc. for the year ended December 31, 2003...

  • Page 41
    ...Chief Executive Officer of Systemax Inc., certify that: 1. I have reviewed this annual report on Form 10-K of Systemax Inc. (the "registrant"); 2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the...

  • Page 42
    ...Chief Financial Officer of Systemax Inc., certify that: 1. I have reviewed this annual report on Form 10-K of Systemax Inc. (the "registrant"); 2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the...

  • Page 43
    ...OF 2002 The undersigned, the Chief Executive Officer of Systemax Inc., hereby certifies that to the best of his knowledge, Systemax Inc.'s Form 10-K for the Year Ended December 31, 2003 fully complies with the requirements of Section 13 (a) or Section 15(d) of the Securities Exchange Act of 1934 (15...

  • Page 44
    ...OF 2002 The undersigned, the Chief Financial Officer of Systemax Inc., hereby certifies that to the best of his knowledge, Systemax Inc.'s Form 10-K for the Year Ended December 31, 2003 fully complies with the requirements of Section 13 (a) or Section 15(d) of the Securities Exchange Act of 1934 (15...

  • Page 45
    ...of their operations and their cash flows for each of the three years in the period ended December 31, 2003, in conformity with accounting principles generally accepted in the United States of America. As discussed in Note 1 to the consolidated financial statements, the Company changed its method for...

  • Page 46
    ... 25 million shares, issued none Common stock, par value $.01 per share, authorized 150 million shares, issued 38,231,990 shares; outstanding 34,288,068 (2003) and 34,104,290 (2002) shares Additional paid-in capital Accumulated other comprehensive income (loss), net of tax Retained earnings 382 175...

  • Page 47
    ... change in accounting principle, net of tax Net income (loss) $.16 16 $(.23) (1.50 1.73 $.02 02 See notes to consolidated financial statements. SYSTEMAX INC. CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY FOR THE YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001 (IN THOUSANDS) Common Stock...

  • Page 48
    ... the Company in printing its catalogs. Use of Estimates In Financial Statements - The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amount...

  • Page 49
    ..., at the time of shipment. Allowances for estimated subsequent customer returns are provided when revenues are recorded. Costs incurred for the shipping and handling of its products are recorded as cost of sales. Revenue from extended warranty and support contracts on the Company's assembled PCs is...

  • Page 50
    ...the related expense category, such as advertising expense. EITF 02-16 applies to all agreements modified or entered into on or after January 1, 2003. The Company utilizes advertising programs to support vendors, including catalogs, internet and magazine advertising, and receives payments and credits...

  • Page 51
    ... cost is reflected in net income (loss), as all options granted under the plans have an exercise price equal to the market value of the underlying stock on the date of grant. The following table illustrates the effect on net income (loss) and earnings (loss) per share had compensation costs of the...

  • Page 52
    ...net of tax), was reported as a cumulative effect of a change in accounting principle, on a net of tax basis, in the Company's Consolidated Statements of Operations for the year ended December 31, 2002. The adoption of SFAS 142 had no cash flow impact on the Company. During the second quarter of 2003...

  • Page 53
    ... 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 interest on outstanding advances is payable monthly, at the Company's option, at the agent bank's base rate (4.25% at December 31, 2003) plus 0.25...

  • Page 54
    ...recorded as a liability. The changes in the fair value of this derivative for the years ended December 31, 2003 and 2002 have been recognized in the Consolidated Statement of Operations as this hedge was determined to be ineffective. The Company considers the credit risk related to the interest rate...

  • Page 55
    ... of retained earnings is restricted and not available for distribution to shareholders. Such amount at December 31, 2003 was not material. Stock Option Plans - The Company has three fixed option plans which reserve shares of common stock for issuance to key employees, directors, consultants and...

  • Page 56
    ...a ten year term from grant date and are immediately exercisable. A maximum of 100,000 shares may be granted for awards under this plan. This plan will terminate the day following the tenth annual shareholders meeting. A total of 46,000 options were outstanding under this plan as of December 31, 2003...

  • Page 57
    ... statutory rate State and local income taxes, net of federal tax benefit Non-deductible goodwill impairment Tax credits Foreign operating losses with no benefit provided Foreign income taxed at different rates Change in valuation allowances Prior year assessments Other items, net 2003 ---$ 3,827...

  • Page 58
    ... in New York from an entity owned by the Company's three principal shareholders and senior executive officers (see Note 4). At December 31, 2003, the future minimum annual lease payments for related and third-party leases were as follows (in thousands): Third Party Operating Leases ----------$6,666...

  • Page 59
    ... exchange rate movements on the Company's operating results. As of December 31, 2003, the Company had no outstanding forward exchange contracts. Fair Value of Financial Instruments - Financial instruments consist primarily of investments in cash, trade account receivables, accounts payable and...

  • Page 60
    ... through an integrated system of direct mail catalogs, a network of major account sales representatives and proprietary e-commerce Internet web-sites. Financial information relating to the Company's operations by geographic area was as follows (in thousands): Net Sales 2003 2002 2001 1,026,233...