Circuit City 2004 Annual Report Download

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SYSTEMAX INC
FORM 10-K/A
(Amended Annual Report)
Filed 11/22/05 for the Period Ending 12/31/04
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
    ...FORM 10-K/A (Amended Annual Report) Filed 11/22/05 for the Period Ending 12/31/04 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 12/31...

  • Page 2
    ... Drive Port Washington, 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: Name of each exchange on which...

  • Page 3
    ...in our periodic reports filed with the Securities and Exchange Commission. TABLE OF CONTENTS Part I Forward Looking Statement Item 1. Business General Available Information Recent Developments Products Sales and Marketing Customer Service and Support Sales and Distribution Centers Suppliers Research...

  • Page 4
    ... and Related Transactions Item 14. Principal Accounting Fees and Services Part IV Item 15. Exhibits, Financial Statement Schedules and Reports on Form 8-K Signatures 2 PART I Unless otherwise indicated, all references herein to Systemax Inc. (sometimes referred to as "Systemax", the "Company" or...

  • Page 5
    ... constitute part of the Company have been in business since 1955. Our headquarters office is located at 11 Harbor Park Drive, Port Washington, New York. 3 Available Information We maintain an internet web site at www.systemax.com . We file reports with the Securities and Exchange Commission ("SEC...

  • Page 6
    ... options were granted under the Company's 1999 Long-term Stock Incentive Plan (the "1999 Plan") for 166,667 shares, and the agreement obligates the Company to issue additional options of 166,667 shares in each of August 2005 and 2006, at the then fair market value. Options will vest in five annual...

  • Page 7
    ... 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 8
    ... billing services, customer savings reports and stocking of specialty items specifically requested by these customers. Our relationship marketers' efforts are supported by frequent catalog mailings and e-mail campaigns designed to generate inbound telephone sales, and our interactive websites, which...

  • Page 9
    ... orders (other 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 locations of our distribution centers. We provide extensive technical telephone support to our Systemax brand PC customers...

  • Page 10
    ... direct-mail distribution companies and internet-based resellers. With conditions in the market for computer related products remaining highly competitive, continued reductions in retail prices may adversely affect our revenues and profits. Additionally, we rely in part upon the introduction of new...

  • Page 11
    ... matters in the future. Financial Information About Foreign and Domestic Operations We conduct our business in North America (the United States and Canada) and Europe. The following sets forth our operations in those two geographic markets (in thousands): Europe 2004 ---Net sales Income (loss) from...

  • Page 12
    ...'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 the symbol "SYX". The following table sets forth the high and low closing sales price of our common stock as reported on...

  • Page 13
    ...share data and number of catalog titles 2003 2002 2001 2000 2004 Statement of Operations Data Net sales Gross profit Selling, general & administrative expenses Restructuring and other charges Income (loss) from operations Provision (benefit) for income taxes Income (loss) before cumulative effect...

  • Page 14
    ...2 to the consolidated financial statements. 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. We assemble our own PCs and sell them under...

  • Page 15
    ... products and continuously update our product offerings to address the needs of our customers, which include large, mid-sized and small businesses, educational and government entities as well as individual consumers. Computers and computer related products account for more than 90% of our net sales...

  • Page 16
    ... in 2004, however, European sales would have decreased 1.1% from the prior year. Continued weakness in demand for information technology products from business customers in Europe and the effect of exchange rate movements on product pricing in certain European markets for products whose cost...

  • Page 17
    ... of changes in foreign exchange rates and $4 million of higher credit card processing fees from the higher sales volume in 2004. The increase was partially offset through restructuring actions taken, reducing our employee count in the United States and lowering salary expense and related benefit...

  • Page 18
    ... consolidate the warehousing facilities in our United States computer business. We recorded $713,000 of costs related to this plan in the fourth quarter, including $233,000 of non-cash costs for impairment of the carrying value of fixed assets and $480,000 of charges for other exit costs. During the...

  • Page 19
    ... 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. 19 NET INCOME (LOSS) As a result of the above, net income for 2004 was $10.2 million, or $.30 per...

  • Page 20
    ... was attributable to Europe, as the accounts receivable stated in U.S. dollars increased as a result of changes in exchange rates. We expect that future accounts receivable and inventory balances will fluctuate with the mix of our net sales between consumer and business customers, as well as...

  • Page 21
    ...exercise of stock options. Cash of $33.8 million was provided by financing activities in 2002 from bank borrowings and the mortgaging of our Georgia distribution facility and new United Kingdom facility. 21 Under our $70 million secured revolving credit agreement in the United States, which expires...

  • Page 22
    ... our revenues and profits. Both we and our business customers are subject to global political, economic and market conditions, including military action and the threat of terrorism. Economic conditions in the United States have improved after several years of adverse conditions. Economic conditions...

  • Page 23
    ... compete effectively with current or future competitors. The market for our products and services is intensely competitive and subject to constant technological change. We expect this competition to further intensify in the future. Competitive factors include price, availability, service and support...

  • Page 24
    ... 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 25
    ...We require significant levels of capital in our business to finance accounts receivable and inventory. We maintain credit facilities in the United States and in Europe to finance increases in our working capital if available cash is insufficient. The amount of credit available to us at any point in...

  • Page 26
    ... by the New York Stock Exchange in response to Sarbanes-Oxley, have required changes in corporate governance practices of public companies. We expect these developments, especially the impact of Section 404 of the Sarbanes-Oxley Act, to increase our legal compliance and financial reporting costs and...

  • Page 27
    ... the effect on us of volatility 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...

  • Page 28
    ... rate we have in the past. Inventories . We value our inventories at the lower of cost or market, cost being determined on the first-in, first-out method. Reserves for excess and obsolete or unmarketable merchandise are provided based on historical experience, assumptions about future product...

  • Page 29
    ...Board Opinion 25, Accounting for Stock Issued to Employees. SFAS 123R will require the Company to expense share-based payments, including employee stock options, based on their fair value. The Company is required to adopt the provisions of SFAS 123R effective as of the beginning of its first quarter...

  • Page 30
    ... in a Current Report on Form 8-K, which we filed on February 21, 2005, we announced that we would restate previously filed consolidated financial statements for the year ended December 31, 2003 and the first three quarters of 2004 to correct errors in accounting for inventory at our United Kingdom...

  • Page 31
    ... addressing the latter of the items identified on an immediate and longer-term basis. On May 11, 2005 we announced that we would be restating our previously filed consolidated financial statements for the year ended December 31, 2004 to correct errors in accounting for inventory at our Tiger Direct...

  • Page 32
    ... of information security procedures, the need for security around user rights to certain application systems and the need to implement formal help desk procedures. We have identified internal control deficiencies related to subsidiary ledger postings and account reconciliation processes. These...

  • Page 33
    .... 35 PART IV Item 15. Exhibits, Financial Statements, Schedules and Reports on Form 8-K. (a) 1. The Consolidated Financial Statements of Systemax Inc. Report of Independent Registered Public Accounting Firm Consolidated Balance Sheets, as restated Consolidated Statements of Operations for the years...

  • Page 34
    ... of Shareholders' Equity, as restated Consolidated Statements of Cash Flows for the years ended December 31, 2004, 2003and 2002, as restated Notes to Consolidated Financial Statements 2. Financial Statement Schedules: The following financial statement schedule is filed as part of this report and...

  • Page 35
    ... Rents and Security Agreement, dated as of April 18, 2002 from Systemax Suwanee LLC to New York Life Insurance Company 10 Employment Agreement entered into on October 12, 2004 but effective as of June 1, 2004 between the Company and Gilbert Fiorentino 17* Restricted Stock Unit Agreement entered into...

  • Page 36
    ...12 Charter of the Nominating/Corporate Governance Committee of the Company's Board of Directors, as approved February 28, 2003 12 Annual CEO Certification to the New York Stock Exchange, dated March 26, 2004 14 Management contract or compensatory plan or arrangement Incorporated herein by reference...

  • Page 37
    ... an employment agreement and restricted stock unit agreement with Gilbert Fiorentino, the Chief Executive Officer of the Company's Tiger Direct, Inc. subsidiary and a director of the Company. A report on Form 8-K was filed by the Company on November 9, 2004 regarding the Company's financial results...

  • Page 38
    ...statement schedule based on our audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free...

  • Page 39
    ... CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002 (IN THOUSANDS, except per common share amounts) 2004 ---Net sales Cost of sales Gross profit Selling, general and administrative expenses Restructuring and other charges Goodwill impairment Income (loss) from...

  • Page 40
    ...financial statements. 43 SYSTEMAX INC. CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY FOR THE YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002 (IN THOUSANDS ) Common Stock Accumulated Number Other of Shares Additional Comprehensive Treasury Unearned Comprehensive Outstand Paid-in Retained Income (Loss...

  • Page 41
    ... translation adjustment Exercise of stock options Tax benefit of employee stock plans Grant of restricted stock units Amortization of unearned restricted stock compensation Net income, as restated, see Note 2 Total comprehensive income as restated, see Note 2 Balances, December 31, 2004, as...

  • Page 42
    ...-based compensation related to restricted unit stock granted $5,740 See notes to consolidated financial statements 46 SYSTEMAX INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Principles of...

  • Page 43
    ... expenses relating to product warranties for the Company's assembled PCs are recorded as cost of sales when revenue is recognized. Liability estimates are determined based on management judgment considering such factors as the number of units sold, historical and anticipated rates of warranty claims...

  • Page 44
    ...for estimated subsequent customer returns, rebates and sales incentives 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 deferred...

  • Page 45
    ...-based employee compensation 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...

  • Page 46
    ... Diluted net income (loss) per common share: Net income (loss) - as reported Net income (loss) - pro forma $.29 ==== $.28 ==== $ .09 ===== $ .08 ===== $(1.71) ====== $(1.73) ====== The fair value of options granted was estimated on the date of grant using the Black-Scholes option-pricing model...

  • Page 47
    ... the Company's consolidated financial statements in its Form 10-K for the year ended December 31, 2004, the Company discovered errors related to accounting for inventory at its Tiger Direct, Inc. subsidiary. These errors had the effect of misstating the value of inventory and certain vendor-related...

  • Page 48
    Reported -------As of December 31, 2003: Accounts receivable, net Inventories, net Deferred income tax assets, net Total current assets TOTAL ASSETS Retained earnings Total shareholders' equity TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY As of December 31, 2004: Accounts receivable, net Inventories, ...

  • Page 49
    ...a $70,000,000 revolving credit agreement with a group of financial institutions which provides 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 in its domestic subsidiaries. The...

  • Page 50
    ... line with interest payable at a rate of 5.85%. The Company's Netherlands subsidiary maintains a â,¬5 million ($6.7 million at the December 31, 2004 exchange rate) credit facility with a local financial institution. Borrowings under the facility are secured by the subsidiary's accounts receivable...

  • Page 51
    ... States Streamlining Plan In the first quarter of 2004, the Company implemented a plan to streamline the back office and warehousing operations in its United States computer businesses. The Company recorded $3.7 million of costs related to this plan, including $3.2 million for severance and benefits...

  • Page 52
    ... 2002 United Kingdom Consolidation Plan In 2002 the Company implemented a restructuring plan to consolidate the activities of three United Kingdom locations into a new facility constructed for the Company. In the third quarter of 2004, the Company recorded additional costs related to this plan. The...

  • Page 53
    ... employees of the Company or its affiliates. All options granted under this plan will have 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...

  • Page 54
    ... the year ended December 31, 2004, the Company granted 1,000,000 restricted stock units under the 1999 Plan to a key employee. A restricted stock unit represents the right to receive a share of the Company's common stock. The grant is conditioned upon shareholder approval at the next annual meeting...

  • Page 55
    ... between the income tax expense (benefit) and the computed income tax expense based on the Federal statutory corporate rate is as follows (in thousands): Years Ended December 31 Income tax (benefit) at Federal statutory rate State and local income taxes (benefits) and changes in valuation...

  • Page 56
    ... provided. The Company's federal income tax returns for fiscal years 2000 through 2002 are currently being audited by the Internal Revenue Service. Although proposed adjustments have not been received for these years and the outcome of tax audits is always uncertain, management believes the ultimate...

  • Page 57
    ... a material effect on the business or the consolidated financial statements of the Company. The Company has also been named as a defendant in other lawsuits in the normal course of its business, including those involving commercial, tax, employment and intellectual property related claims. Based on...

  • Page 58
    ... The accounting policies of the segments are the same as those of the Company described in Note 1. Financial information relating to the Company's operations by reportable segment was as follows (in thousands): Year Ended December 31 2003 2004 ------Net Sales: ---------Computer products Industrial...

  • Page 59
    ... of recording errors, which had the effect of overstating inventories and income for the three months and year to date periods ended March 31, 2004, June 30, 2004, September 30, 2004 and December 31, 2004. In addition, during its review of its consolidated financial statements for 2004, the Company...

  • Page 60
    ...$11,120 Additions Charged to Expenses -------$5,079 $3,906 $4,581 Description Allowance for sales returns and doubtful accounts 2004 2003 2002 Reserve for excess and obsolete inventory 2004 2003 2002 Allowance for deferred tax assets 2004 Current Noncurrent 2003 Current Write-offs ---------($3,761...

  • Page 61
    ... Officer of Systemax Inc., certify that: 1. I have reviewed this annual report on Form 10-K of Systemax Inc. (the "registrant") as amended by Amendment No. 1 on Form 10-K/A; 2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state...

  • Page 62
    ...'s board of directors: a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting known to me which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information...

  • Page 63
    ...'s board of directors: a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting known to me which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information...

  • Page 64
    ...as to the effects of the restatement discussed in Note 2), which expresses an unqualified opinion and includes explanatory paragraphs relating 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...