Circuit City 2007 Annual Report Download - page 44

SYSTEMAX INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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. Certain prior year balance sheet amounts have been reclassified to conform to current year presentation.
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 of assets
and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ from those estimates.
Fiscal Year — Effective the fourth quarter of 2007, the Company changed its fiscal year end from a calendar year ending on December 31
to a fiscal year ending at midnight on the Saturday closest to December 31. Fiscal years will typically include 52 weeks, but every few years
will include 53 weeks which was the case in 2005. For clarity of presentation herein, all fiscal years are referred to as if they ended on
December 31. The fiscal year will be divided into four fiscal quarters that each end at midnight on a Saturday. Fiscal quarters will typically
include 13 weeks, but the fourth quarter will include 14 weeks in a 53 week fiscal year. For clarity of presentation herein, all fiscal quarters
are referred to as if they ended on the traditional calendar month. The effect of the change in year end in 2007 was de minimis.
Foreign Currency Translation — The Company has operations in numerous foreign countries. The functional currency of in each foreign
country is the local currency. The financial statements of the Company’s foreign entities are translated into U.S. dollars, the reporting
currency, using year-
end exchange rates for assets and liabilities, average exchange rates for the statement of operations items and historical
rates for equity accounts. The translation differences are recorded as a separate component of shareholders’ equity.
Cash and Cash Equivalents — The Company considers amounts held in money market accounts and other short-term investments,
including overnight bank deposits, with an original maturity date of three months or less to be cash equivalents.
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. Allowances are maintained for obsolete, slow-moving and non-saleable inventory.
Property, Plant and Equipment — Property, plant and equipment is stated at cost. Depreciation of furniture, fixtures and equipment,
including equipment under capital leases, 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 lesser of the useful lives or 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.
Evaluation of Long-lived Assets — Long-lived assets are evaluated for recoverability whenever events or changes in circumstances indicate
that an asset may have been impaired. In evaluating an asset for recoverability, the Company estimates the future cash flows expected to
result from the use of the asset and eventual disposition. If the sum of the expected future cash flows (undiscounted and without interest
charges) is less than the carrying amount of the asset, an impairment loss, equal to the excess of the carrying amount over the fair market
value of the asset is recognized.
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