Circuit City 2009 Annual Report Download - page 30

Table of Contents
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses increased in 2009 over 2008 primarily as a result of the increased sales volume, facility and other
operating costs related to opening additional retail stores, costs related to winding down the Software Solutions segment and costs related to the
WStore acquisition. Significant expense increases include approximately $7.8 million in charges for severance costs, litigation and contractual
lease terminations of which approximately $2.9 million of winding down costs related to Software Solutions segment, $4.3 million of increased
credit card fees, and $1.8 million of increased consulting services primarily incurred for new software implementation offset by savings in other
various expenses. Also included in 2009 is a gain of approximately $1.8 million from a lawsuit that was settled favorably.
Selling, general and administrative expenses increased in 2008 over 2007 primarily as a result of the increase in sales volume, added personnel,
facility and other operating costs associated with the CompUSA acquisition, as well as increased accounting, auditing, legal and professional
expenses and reorganization charges incurred in our Software segment. CompUSA operations accounted for $23.6 million of these cost
increases. Included in 2007 is a gain of approximately $2.4 million from a lawsuit that was settled favorably.
OPERATING MARGIN
Technology products operating margin decreased in 2009 compared to 2008 due to decline in business to business sales as the result of the
global economic slowdown, price promotions and freight discounts offered during the year and costs related to the WStore acquisition.
Industrial products operating margin decreased in 2009 compared to 2008 due to the slowdown in sales coupled with additional information
technology staffing and other costs for the support of new products added and the newly launched e-commerce website.
Software solutions segment operating margin increased due to revenue recognized from contract terminations. This segment has been winding
down operations since the second quarter of 2009.
Corporate and other expenses operating costs increased 16.5% in 2009 as compared to 2008 due to increased expenses for new software
implementation, acquisition related costs and additional staffing and overhead costs to support the growth in the Company’s business.
INTEREST AND OTHER INCOME
AND INTEREST EXPENSE
Interest expense was $.9 million, $.3 million, and $1.0 million in 2009, 2008 and 2007, respectively. The interest expense increase in 2009
compared to 2008 is primarily attributable to the WStore acquisition assumed short term debt and interest on capital lease obligations. Interest
expense decreased in 2008 and 2007 as a result of decreased short-term borrowings in the Company’s subsidiaries in the United Kingdom and
the Netherlands. Interest and other income, net was $.8 million, $2.0 million, and $5.5 million in 2009, 2008 and 2007, respectively.
INCOME TAXES
The Company’s effective tax rate was 36.8% in 2009 flat as compared to 36.9% in 2008. Included in the 2009 rate was a reversal of tax reserves
of approximately $0.9 million, as a result of statute expirations. If excluded, the Company’s effective tax rate would have been 38.4%. The
higher tax rate in 2009 is primarily attributed to a higher percentage of taxable income in countries that have higher corporate tax rates. The
Company’s effective tax rate will vary as the mix of pre tax income from the countries the Company does business in varies.
The higher tax rate in 2008 compared to 2007 is primarily attributable to a higher effective tax rate in the United Kingdom in 2008 as the result
of the reversal of the valuation allowance in 2007. The lower
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