Circuit City 2009 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 and related products that we assemble ourselves and sell on a private label basis, substantially all of our
products are manufactured by other companies. We also sell private label brands. Technology products accounted for 94%, 92% and 92% of
our net sales in 2009, 2008 and 2007, respectively.
Our Industrial Products segment sells a wide array of material handling equipment, storage equipment, and consumable industrial items which
are marketed in North America. Most 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 6 %, 8% and
8% , of our net sales in 2009, 2008 and 2007, respectively . In both of these product groups, we offer our customers a broad selection of
products, prompt order fulfillment and extensive customer service.
The Company announced plans to exit the Software Solutions segment during the second quarter of 2009 as a result of economic conditions and
difficulties in marketing the segment’s products successfully. (See Note 7 to the Consolidated Financial Statements included in Item 15 of this
Form 10-K ). As of December 31, 2009 substantially all of the third party business activities of the Software Solutions segments had been
ended . 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 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 third quarter of 2009, the Company acquired WStore Europe SA and its subsidiaries, (“WStore”), a European supplier of business IT
products and software solutions with operations in France and the United Kingdom for approximately $4.4 million in cash (see “Financial
Condition, Liquidity and Capital Resources” and Note 2 to the Consolidated Financial Statements included in Item 15 of this Form 10-K).
During the second quarter of 2009, the Company purchased certain intellectual property and ecommerce assets owned by Circuit City
Stores, Inc. and Circuit City Stores West Coast, Inc for $14.0 million in cash plus a sales-based royalty over 30 months (See Note 2 to the
Consolidated Financial Statements included in Item 15 of this Form 10-K).
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