Circuit City 2007 Annual Report Download - page 56

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Litigation —
Kevin Vukson v. TigerDirect, Inc., OnRebate.com Inc. and Systemax Inc.
On October 18, 2007, Kevin Vukson filed a class action complaint in U.S. District Court (E.D.N.Y.) against TigerDirect, Inc.,
OnRebate.com Inc. and Systemax Inc. on behalf of himself and all OnRebate customers whose rebates were denied or delayed .
(OnRebate.com Inc. is a rebate processing company owned by Systemax.) Vukson’s Complaint alleges that since 2004 Systemax,
TigerDirect and OnRebate have conducted a deceptive and unlawful enterprise by failing to pay rebates that should have been paid and
delaying unnecessarily the payment of other rebates that were paid. Vukson alleges claims arising under Florida’s Unfair, Deceptive Trade
Practice Act, the federal RICO statute, along with claims for breach of contract, conspiracy to commit fraud and unjust enrichment.
Systemax, TigerDirect and OnRebate have moved to dismiss the Complaint and to transfer the matter to the Southern District of Florida.
The Court has not yet ruled on these motions and has not yet certified a class. The Company intends to vigorously defend this case.
State of Florida, Office of the Attorney General Subpoena
On January 2, 2008 the Company received a subpoena for documents from the Florida Attorney General’s Office relating to the payment
and processing of rebates by the Company. On January 30, 2008 the Company received a second subpoena for additional documents. The
Company is cooperating with the Florida Attorney General’s Office to provide the requested documents.
Other matters
Beginning on May 24, 2005, three shareholder derivative lawsuits were filed against various officers and directors of the Company and
naming the Company as a nominal defendant in connection with the Company’s restatements of its fiscal year 2003 and 2004 financial
statements. The defendants and the Company denied all of the allegations of wrongdoing contained in the complaints. During 2006, the
lawsuits were settled or dismissed. Pursuant to the settlement the defendants are released from liability and the Company adopted certain
corporate governance principles including the appointment of a lead independent director to, among other things, assist the Board of
Directors in assuring compliance with and implementation of the Company’s corporate governance policies and paid $300,000 of the legal
fees of the plaintiffs.
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 discussions with legal counsel, management believes the
ultimate resolution of these lawsuits will not have a material effect on the Company’s consolidated financial statements.
Contingency - The Company is required to collect sales tax on certain of its sales. In accordance with current laws, approximately 17.3%,
17.9%, 17% of the Company’
s domestic sales in 2007, 2006 and 2005 were subject to sales tax. Changes in law could require the Company
to collect sales tax in additional states and subject the Company to liabilities related to past sales.
11.
SEGMENT AND RELATED INFORMATION
The Company operates in one primary business as a reseller of business products to commercial and consumer users. The Company
operates and is internally managed in three operating segments, Technology Products, Industrial Products and Hosted Software. The
Company’s chief operating decision-maker is the Company’s Chief Executive Officer. The Company evaluates segment performance based
on income from operations before net interest, foreign exchange gains and losses, restructuring and other charges and income taxes.
Corporate costs not identified with the disclosed segments and restructuring and other charges are grouped as “Corporate and other
expenses.” The chief operating decision-maker reviews assets and makes significant capital expenditure decisions for the Company on a
consolidated basis only. The accounting policies of the segments are the same as those of the Company described in Note 1.
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