Circuit City 2008 Annual Report Download

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SYSTEMAX INC
FORM 10-K
(Annual Report)
Filed 03/18/09 for the Period Ending 12/31/08
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 2009, 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 03/18/09 for the Period Ending 12/31/08 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
    ... executive offices, including 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 Name of each exchange on which registered Common Stock, par value $ .01 per share New York Stock Exchange...

  • Page 3
    ... market value of the voting stock held by non-affiliates of the registrant as of June 30, 2008, which is the last business day of the registrant's most recently completed second fiscal quarter, was approximately $148,811,545. For purposes of this computation, all executive officers and directors...

  • Page 4
    ... OF CONTENT S Part I Item 1. Business General Products Sales and Marketing Customer Service, Order Fulfillment and Support Suppliers Competition and Other Market Factors Employees Environmental Matters Financial Information About Foreign and Domestic Operations Available Information Risk Factors...

  • Page 5
    ... distribution and sale of such products timely availability of existing and new products risks involved with e-commerce, including possible loss of business and customer dissatisfaction if outages or other computer-related problems should preclude customer access to us risks associated with delivery...

  • Page 6
    ...'s e-commerce business and 16 of its retail leases and related fixtures for consideration of approximately $30.6 million. This acquisition accelerated the Company's planned expansion into the retail market place in North America and Puerto Rico. Products We offer more than 100,000 brand name and...

  • Page 7
    ... of business applications in 2004. PCS ProfitCenter Software â„¢ is a web-based application which is delivered as an on-demand service over the internet. The product helps companies automate and manage their entire customer life-cycle across multiple sales channels (internet, call centers, outside...

  • Page 8
    ... capabilities and performance of these web sites. Our internet sites feature on-line catalogs of thousands of products, allowing us to offer a wider variety of computer and industrial products than our printed catalogs. Our customers have around-the-clock, on-line access to purchase products and we...

  • Page 9
    ... of multiple sales and distribution facilities in North America and Europe. The locations of our distribution centers enable us to provide our customers next day or second day delivery. Orders are generally shipped by thirdparty delivery services in the United States and in Europe. The locations of...

  • Page 10
    ... retail and direct-mail distribution companies and internet-based resellers. Timely introduction of new products or product features are critical elements to remaining competitive. Other competitive factors include product performance, quality and reliability, technical support and customer service...

  • Page 11
    ...in the future. Financial Information About Foreign and Domestic Operations We conduct our business in North America (the United States, Puerto Rico and Canada) and Europe. Approximately 37.9% of our net sales during 2008 were made by subsidiaries located outside of the United States. For information...

  • Page 12
    ...of Contents Available Information We maintain an internet website at www.systemax.com. We file reports with the Securities and Exchange Commission and make available free of charge on or through this web site our annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form...

  • Page 13
    ... include price, availability, service and support. We compete with a wide variety of other resellers and retailers, as well as manufacturers. Many of our competitors are larger companies with greater financial, marketing and product development resources than ours. In addition, new competitors...

  • Page 14
    ... of existing accounting rules and practices have occurred and may occur in the future. Changes to existing rules may adversely affect our reported financial results. Risks Related to Our Company • Our reliance on information and communications technology requires significant expenditures...

  • Page 15
    ...and managing international operations Unexpected changes in regulatory requirements For example, we currently have operations located in numerous countries outside the United States, and non-U.S. sales (Europe, Canada and Puerto Rico) accounted for approximately 37.9% of our revenue during 2008. To...

  • Page 16
    ...maintain profitability including the additional inventory needs, retail point of sales IT systems, retail personnel and leased facilities. Future growth in retail will also be dependent on the ability to attract customers and build brand loyalty. The retail computer and consumer electronics business...

  • Page 17
    ... adopted by the New York Stock Exchange in response to Sarbanes-Oxley, have required changes in corporate governance practices of public companies. These developments have substantially increased our legal compliance, auditing and financial reporting costs and made them more time consuming. These...

  • Page 18
    ...this type of product offering and may encounter risks inherent in the software industry, including but not limited to failure to implement effective general and application controls errors or security flaws in our product technical difficulties which we can not resolve on a timely or cost-effective...

  • Page 19
    ... Owned 2012 2009 2012 For information about this facility, leased from related parties, see Item 13 -Certain Relationships and Related Transactions and Director Independence. We also lease space for other smaller offices and retail stores in the United States, Canada, Puerto Rico and Europe and...

  • Page 20
    ... ordered by the Court. The Company will continue 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...

  • Page 21
    ...of $1.00 per share payable on April 2, 2008 to shareholders of record on March 21, 2008. This special dividend is the second dividend we have paid since our initial public offering. Depending in part upon profitability, the strength of our balance sheet, our cash position and the need to retain cash...

  • Page 22
    ... consolidated financial statements of the Company which are not included in this report. Years Ended December 31, (In millions, except per share data) 2007 2006 2005 2008 2004 Statement of Operations Data: Net sales Gross profit Operating income Net income Per Share Amounts: Net income - diluted...

  • Page 23
    ...commerce business and 16 of its retail leases and related fixtures for direct consideration of approximately $30.6 million. This acquisition accelerated the Company's planned expansion into the retail market place for Technology Products in North America and Puerto Rico. Critical Accounting Policies...

  • Page 24
    ... and customer rebate reserves, and other vendor and employee related costs. While we believe that these estimates are reasonable, any significant deviation of actual costs as compared to these estimates could have a material impact on the Company's consolidated financial statements. Income Taxes. We...

  • Page 25
    ... this FSP may have on the Company's consolidated financial statements. In June 2008, the FASB issued FASB Staff Position No. EITF 03-6-1 "Determining Whether Instruments Granted in Share-Based Payment Transactions Are Participating Securities". This FSP was issued to clarify that instruments granted...

  • Page 26
    ... consolidated financial statements included herein Sales increase of 9% in 2008 over 2007 CompUSA.com and CompUSA retail contributed $226.3 million in sales Movements in exchange rates positively impacted European and Canadian sales by approximately $13 million and $5 million, respectively Revenue...

  • Page 27
    ... exchange rate benefits, European sales would have been flat. Sales increased in all three reporting business segments and in both geographies during 2008 over 2007. The Technology Products sales increase was driven by increased internet and retail store sales as the result of the acquisition...

  • Page 28
    ... growth in Technology Products sales was driven primarily by increased internet and retail store sales, private label product sales and expanded product offerings. The growth in Industrial Products sales resulted from the Company increasing its market share through competitive pricing advantages and...

  • Page 29
    ... state deferred tax assets in the United States and certain benefits on losses in foreign tax jurisdictions due to our inability to carry such credits and losses back to prior years and our determination that it was more likely than not that we would not generate sufficient future taxable income...

  • Page 30
    ...9 times during 2008 and 10 times at 2007. Our accounts receivable days outstanding was at 21 in 2008 down from 24 in 2007. We expect that future accounts receivable and inventory balances will fluctuate with growth in net sales and the mix of our net sales between consumer and business customers. We...

  • Page 31
    ... are secured by accounts receivable, inventories and certain other assets. The undrawn availability under the facility may not be less than $15.0 million until the last day of any month in which the availability net of outstanding borrowings is at least $70.0 million. The revolving credit agreement...

  • Page 32
    ... balance sheet and cash flows as expressed in U.S. dollars. Sales would have fluctuated by approximately $112 million and pre tax income would have fluctuated by approximately $2.3 million if average foreign exchange rates changed by 10% in 2008. We have limited involvement with derivative financial...

  • Page 33
    ... in future periods are subject to the risk that those internal controls may become inadequate because of changes in business conditions, or that the degree of compliance with the policies or procedures may deteriorate. Management's Report on Internal Control Over Financial Reporting The Company...

  • Page 34
    ... have been no changes in the Company's internal controls over financial reporting during the quarter ended December 31, 2008 that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting. Item 9B. Other Information. None. 32

  • Page 35
    ...Item 10. Directors, Executive Officers and Corporate Governance. The information required by Item 10 of Part III is hereby incorporated by reference to the Company's Proxy Statement for the 2009 Annual Meeting of Stockholders. (the "Proxy Statement"). Item 11. Executive Compensation. The information...

  • Page 36
    ... report on Form 8-K dated March 3, 2008) Stockholders Agreement (incorporated by reference to the Company's quarterly report on Form 10-Q for the quarterly period ended September 30, 1995) Form of 1995 Long-Term Stock Incentive Plan* (incorporated by reference to the Company's registration statement...

  • Page 37
    ... 31, 2006). Form of 2005 Employee Stock Purchase Plan* (incorporated by reference to the Company's annual report on Form 10-K for the year ended December 31, 2006). Second Amendment to Lease Agreement dated September 20, 1988 between the Company and Addwin Realty Associates (Port Washington facility...

  • Page 38
    ... 99.2 99.3 Amendment to Asset Purchase Agreement between the Company and CompUSA dated February 14, 2008 (incorporated by reference to the Company's annual report on Form 10-K for the year ended December 31, 2007). Corporate Ethics Policy for Officers, Directors and Employees (revised as of March 30...

  • Page 39
    ..., the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. SYSTEMAX INC. By: /s/ RICHARD LEEDS Richard Leeds Chairman and Chief Executive Officer Date: March 18, 2009 Pursuant to the requirements of the Securities Exchange Act of 1934, this...

  • Page 40
    ... 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 of material misstatement. An audit includes examining, on a test basis, evidence supporting the...

  • Page 41
    ... standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of Systemax Inc. as of December 31, 2008 and 2007 and the related consolidated statements of operations, shareholders' equity, and cash flows for each of the three years in the period ended...

  • Page 42
    ... share, authorized 150 million shares; issued 38,855,989 and 38,332,990 shares; outstanding 36,223,747 and 36,092,067 shares Additional paid-in capital Common stock in treasury at cost - 2,632,242 and 2,240,923 shares Retained earnings Accumulated other comprehensive (loss) income, net of tax Total...

  • Page 43
    Table of Contents SYSTEMAX INC. CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except per share data) 2008 Year Ended December 31, 2007 2006 Net sales Cost of sales Gross profit Selling, general and administrative expenses Operating income Foreign currency exchange loss (gain) Interest and ...

  • Page 44
    ... related to equity compensation plans Excess tax benefit from exercises of stock options Loss (gain) on dispositions and abandonment Changes in operating assets and liabilities: Accounts receivable Inventories Prepaid expenses and other current assets Income taxes payable/receivable Accounts payable...

  • Page 45
    ... of stock options Repurchase of treasury stock Income tax benefit on stock-based compensation Change in cumulative translation adjustment net Dividends paid Net income Total comprehensive income Balances, December 31, 2008 34,761 $ 382 Accumulated Other Comprehensive Income (Loss), Net of Tax $ 893...

  • Page 46
    ... 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. Translation gains or losses are recorded as...

  • Page 47
    ...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 48

  • Page 49
    ... the fair value of financial instruments based on interest rates available to the Company and by comparison to quoted market prices. At December 31, 2008 and 2007, the carrying amounts of cash and cash equivalents, accounts receivable, income taxes receivable and payable and accounts payable are...

  • Page 50

  • Page 51
    ...North America and Puerto Rico. A final purchase price allocation based on the fair market value of acquired assets has been completed and the Company has recorded assets of approximately $17.0 million for Trademarks and Trade Names, $8.0 million for Domain Names, $3.4 million for Retail Store Leases...

  • Page 52
    ... are secured by all of the domestic and United Kingdom accounts receivable, the domestic inventories of the Company, the Company's United Kingdom headquarters building and the Company's shares of stock in its domestic and United Kingdom subsidiaries. The credit facility expires and outstanding...

  • Page 53
    ..., restricted stock and restricted unit grants, performance unit grants and other stock based awards authorized by the Compensation Committee of the Board of Directors. Options issued under this plan expire ten years after the options are granted. The ability to grant new awards under this plan ended...

  • Page 54
    ... (the difference between the closing stock price on the last day of trading in 2008 and the exercise price) that would have been received by the option holders had all options been exercised on December 31, 2008. This value will change based on the fair market value of the Company's common stock. 50

  • Page 55
    ... $12.25 per share. Theses shares are included in Common stock in treasury at cost in the Company's consolidated balance sheet. 8. INCOME TAXES The components of income before income taxes are as follows (in thousands): 2008 Year Ended December 31, 2007 2006 United States Foreign Total The provision...

  • Page 56
    ... computed income tax expense based on the Federal statutory corporate rate is as follows (in thousands): 2008 Year Ended December 31, 2007 2006 Income tax at Federal statutory rate $ State and local income taxes and changes in valuation allowances, net of federal tax benefit Foreign taxes at rates...

  • Page 57

  • Page 58
    ...statements. The Company has not signed any consents to extend the statute of limitations for any subsequent years. The Company's significant state tax returns have been audited through 2005. The Company considers its significant tax jurisdictions in foreign locations to be the United Kingdom, Canada...

  • Page 59
    ...and Software Solutions. 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...

  • Page 60
    ... information relating to the Company's operations by geographic area was as follows (in thousands): 2008 Year Ended December 31, 2007 2006 Net Sales: United States: Technology Products Industrial Products Software Solutions United States total Other North America (Technology Products) Europe...

  • Page 61
    ... Quarterly financial data is as follows (in thousands, except for per share amounts): First Quarter Second Quarter Third Quarter Fourth Quarter (1 ) 2008: Net sales Gross profit Net income Net income per common share: Basic Diluted 2007: Net sales Gross profit Net income Net income per common share...

  • Page 62
    Table of Contents SYSTEMAX INC. SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS For the years ended December: (in thousands) Balance at Beginning of Period Charged to Expenses Balance at End of Period Description Write-offs Other Allowance for sales returns and doubtful accounts 2008 2007 2006 ...

  • Page 63
    ... Computer Supplies Inc. (a New York corporation) Global Equipment Company Inc. (a New York corporation) Tiger Direct Inc. (a Florida corporation) Nexel Industries Inc. (a New York corporation) Systemax Manufacturing Inc. (a Delaware corporation) ProfitCenter Software Inc. (a New York corporation...

  • Page 64
    ... 16, 2009, with respect to the consolidated financial statements and schedule of Systemax Inc. and the effectiveness of internal control over financial reporting of Systemax Inc. included in this Annual Report (Form 10-K) for the year ended December 31, 2008. /s/ Ernst & Young LLP New York, New York...

  • Page 65
    ...'s board of directors: a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and...

  • Page 66
    ...'s board of directors: a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and...

  • Page 67
    ...Chief Executive Officer of Systemax Inc., hereby certifies that Systemax Inc.'s Form 10-K for the Year Ended December 31, 2008 fully complies with the requirements of Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m or 78 (o)(d)) and that the information contained...

  • Page 68
    ...Chief Financial Officer of Systemax Inc., hereby certifies that Systemax Inc.'s Form 10-K for the Year Ended December 31, 2008 fully complies with the requirements of Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m or 78 (o)(d)) and that the information contained...

  • Page 69
    ...'s financial statements or to guarantee the report of the independent auditor. The Company's management is responsible for the (i) preparation, presentation and integrity of the Company's financial statements, (ii) maintenance of appropriate accounting and financial reporting principles and policies...

  • Page 70
    ... auditor to the full Board; Review and discuss the annual audited financial statements and quarterly financial statements with management and the independent auditor, including the Company's disclosures under "Management's Discussion and Analysis of Financial Condition and Results of Operations...

  • Page 71
    ... of the Company's internal audit function; the Company's critical accounting policies and practices; alternative treatments of financial information within generally accepted accounting principles related to material items the independent auditors have discussed with management, ramifications of...

  • Page 72
    ... and accounting initiatives, as well as off-balance sheet structures, on the financial statements of the Company. 10. The Committee shall review disclosures made to the Committee by the Company's Chief Executive Officer and Chief Financial Officer during their certification process for the Form 10...

  • Page 73
    ... in the business judgment of the Board, "independent" under Section 10A(m)(3) of the Securities Exchange Act of 1934, as amended, the rules of the New York Stock Exchange and any other securities exchange on which the Company's securities are listed. Each member of the Committee shall be financially...

  • Page 74
    ...GAAP, information), as well as financial information and earnings guidance provided to analysts and rating agencies. Resources and Authority of the Committee In discharging its oversight responsibilities, the Committee shall have unrestricted access to the Company's management, books and records and...

  • Page 75
    ... return, the value of similar incentive awards for chief executive officers at comparable companies and the awards given to the Chief Executive Officer in past years; Review, and make periodic recommendations to the Board with respect to, the general compensation, benefits and perquisites policies...

  • Page 76
    ... pertinent information as the Committee may request. The Committee shall report to the Board at least once a year. Performance Evaluation The Committee shall annually compare its performance with the requirements of this charter, set forth its objectives for the next year and recommend changes in...

  • Page 77
    ... in the evaluation of director, chief executive officer or senior executive compensation, the Committee shall have the sole authority to retain and terminate ... the Committee except to the extent otherwise provided under applicable Delaware law which shall continue to set the legal standard for the conduct ...

  • Page 78
    ...deems appropriate; Develop and recommend to the Board a code of business conduct and ethics applicable to the Company, and to review the code at least once a year; Develop and recommend to the Board a set of corporate governance principles applicable to the Company, and to review those principles at...

  • Page 79
    ... of management or others whose advice and counsel are relevant to the issues then being considered by the Committee to attend any meetings and to provide such pertinent information as the Committee may request. The Committee shall report to the Board at least once a year. Performance Evaluation...

  • Page 80
    provided under applicable Delaware law which shall continue to set the legal standard for the conduct of the members of the Committee. 3