Circuit City 2008 Annual Report Download - page 23

Table of Contents
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Overview
Systemax is primarily a direct marketer of brand name and private label products. Our operations are organized in three reportable business
segments — Technology Products, Industrial Products and Software Solutions. Our Technology Products segment sells computers, computer
supplies and consumer electronics which are marketed in North America, Puerto Rico and Europe. Except for certain PC products that we
assemble ourselves and sell under the trademarks Systemax™ and Ultra™ , substantially all of our products are manufactured by other
companies. We also sell certain computer-related products manufactured for us to our own design under the trademark
Systemax™ and Ultra™.
Technology products accounted for 92% of our net sales in 2008. Our Industrial Products segment sells a wide array of material handling
equipment, storage equipment and consumable industrial items which are marketed in North America. Substantially all of these products are
manufactured by other companies. Some products are manufactured for us to our own design and marketed under the trademarks Global™ ,
GlobalIndustrial.com™ and Nexel™. Industrial products accounted for 8% of our net sales in 2008. In both of these product groups, we offer
our customers a broad selection of products, prompt order fulfillment and extensive customer service. Our Software Solutions segment, which
became a reportable segment in 2006, participates in the emerging market for on-demand, web-based business software applications through the
marketing of our PCS ProfitCenter Software ™ application. See Note 10 to the Consolidated Financial Statements included in Item 15 of this
Form 10-K for additional financial information about our business segments as well as information about our geographic operations.
The market for computer products and consumer electronics is subject to intense price competition and is characterized by narrow gross profit
margins. The North American industrial products market is highly fragmented and we compete against companies utilizing multiple distribution
channels. Distribution of our technology products and industrial products is working capital intensive, requiring us to incur significant costs
associated with the warehousing of many products, including the costs of leasing warehouse space, maintaining inventory and inventory
management systems, and employing personnel to perform the associated tasks. We supplement our on-hand product availability by maintaining
relationships with major distributors and manufacturers, utilizing a combination of stocking and drop-shipment fulfillment.
The primary component of our operating expenses historically has been employee related costs, which includes items such as wages,
commissions, bonuses, employee benefits and stock option expenses. We continually assess our operations to ensure that they are efficient,
aligned with market conditions and responsive to customer needs.
During the first quarter of 2008 the Company acquired CompUSA’s e-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 and Estimates
Our significant accounting policies are described in Note 1 to the consolidated financial statements. Certain accounting policies require the
application of significant judgment by management in selecting the appropriate assumptions for calculating financial estimates. By their nature,
these judgments are subject to an inherent degree of uncertainty, and as a result, actual results could differ from those estimates. These
judgments are based on historical experience
, observation of trends in the industry, information provided by customers and information
available from other outside sources, as appropriate. Management believes that full consideration has been given to all relevant circumstances
that we may be subject to, and the consolidated financial statements of the Company accurately reflect management’s best estimate of the
consolidated results of operations, financial position and cash flows of the Company for the years presented. We identify below a number of
policies that entail significant judgments or estimates. Actual results may differ from these estimates under different conditions or assumptions.
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