Circuit City 2010 Annual Report Download

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SYSTEMAX INC
FORM 10-K
(Annual Report)
Filed 03/17/11 for the Period Ending 12/31/10
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 2011, 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 03/17/11 for the Period Ending 12/31/10 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
    SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K (Mark One)  ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2010 or 1 TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT ...

  • Page 3
    ... market value of the voting stock held by non-affiliates of the registrant as of June 30, 2010, which is the last business day of the registrant's most recently completed second fiscal quarter, was approximately $158,673,326. For purposes of this computation, all executive officers and directors...

  • Page 4
    ... OF C ONTENTS 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
    ...to accept credit cards significant changes in the computer products retail industry, especially relating to the distribution and sale of such products timely availability of existing and new products risks associated with delivery of merchandise to customers by utilizing common delivery services the...

  • Page 6
    ...net sales in 2010, 2009 and 2008, respectively. The Company announced plans to exit its Software Solutions segment in June 2009 as the result of economic conditions and difficulties in marketing the segment's products successfully (See Note 7 to the Consolidated Financial Statements included in Item...

  • Page 7
    ... such customers with electronic data interchange ("EDI") ordering and customized billing services, customer savings reports and stocking of specialty items specifically requested by these customers. Our relationship marketers' efforts are supported by frequent catalog mailings and e-mail campaigns...

  • Page 8
    ...the event of a disruption in phone service. Certain of our products are carried in stock, and orders for such products are fulfilled on a timely basis directly from our distribution centers, typically within one day of the order. We utilize numerous sales and distribution facilities in North America...

  • Page 9
    ... environmental matters 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 35.9%, 33.5% and 37.9% of our net sales during 2010, 2009 and 2008, respectively were made...

  • Page 10
    ... of the New York Stock Exchange, each of the Corporate Governance Documents is available on our Company website (www.systemax.com). Item 1A. Risk Factors. There are a number of factors and variables described below that may affect our future results of operations and financial condition. Other...

  • Page 11

  • Page 12
    ... product offerings could decrease. Our gross margins are also dependent on the mix of products we sell and could be adversely affected by a continuation of our customers' shift to lower-priced products. • State sales tax laws may be changed which could result in ecommerce and direct mail retailers...

  • Page 13
    ... is no assurance that parts and supplies will be available in a timely manner and at reasonable prices. Any loss of, or interruption of, supply from key suppliers may require us to find new suppliers. This could result in production or development delays while new suppliers are located, which could...

  • Page 14
    ...currency exchange rates Difficulties with staffing 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...

  • Page 15
    ...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 16
    ... disputes, consumer sales practices or other matters. In addition, as a public company we could from time to time face claims relating to corporate or securities law matters. The defense and/or outcome of such lawsuits or proceedings could have a material adverse effect on our business. Item 1B...

  • Page 17
    Delaware Florida Georgia Illinois North Carolina Puerto Rico Texas Ontario, Canada 1 18 3 2 1 4 5 34 1 1 1 3 1 7 2 18 1 4 2 1 7 6 41 All of our retail stores are leased. The retail stores average 22,500 square feet. 13

  • Page 18
    ...and state authorities, concerning potential income tax, sales tax and unclaimed property liabilities. These matters are in various stages of investigation, negotiation and/or litigation, and are being vigorously defended. Although the Company does not expect, based on currently available information...

  • Page 19
    ... reported sale price of our common stock on the New York Stock Exchange was $14.10 per share. As of January 1, 2011, we had 207 shareholders of record. On November 16, 2009, the Company's Board of Directors declared a special dividend of $.75 per share payable on December 15, 2009 to shareholders...

  • Page 20
    ...groups, we offer our customers a broad selection of products, prompt order fulfillment and extensive customer service. We announced plans to exit the Software Solutions segment during the second quarter of 2009. (See Note 7 to the Consolidated Financial Statements included in Item 15 of this Form 10...

  • Page 21
    ...currency exchange rates. Critical Accounting Policies and Estimates Our significant accounting policies are described in Note 1 to the Consolidated Financial Statements included in Item 15 of this Form 10-K. Certain accounting policies require the application of significant judgment by management in...

  • Page 22
    ... in conjunction with the consolidated financial statements included herein Sales grew 13.4% to $3.6 billion in 2010 over 2009. Seven new retail stores were opened. One-time charges were $4.3 million, approximately $0.07 per diluted share, after tax, for costs related primarily to the integration of...

  • Page 23
    ..., the expansion of the number of retail stores in the United States and Canada and the continuing sales contribution from our Circuit City and WStore Europe SA ("WStore") acquisitions in 2009. On a constant currency basis, translating 2010 foreign results at 2009 exchange rates, and excluding the...

  • Page 24
    ... products sales increased 8.3% for the year. North American technology sales increased 14.3% in 2009 compared to 2008 benefiting from the opening of five retail stores and the Circuit City acquisition. On a constant currency basis, translating 2009 Other North America results at 2008 exchange rates...

  • Page 25
    .... OPERATING MARGIN Technology products operating margin decreased 100 basis points in 2010 versus 2009 due to price promotions, freight discounts offered during the year, start up costs related to the new distribution center in North America and reorganization costs related to the WStore integration...

  • Page 26
    ... and the WStore acquisition. Accounts receivable days outstanding were at 25 in 2010 up from 23 in 2009. 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. Net cash provided by...

  • Page 27
    ... and for capital expenditures. Capital expenditures in 2010, 2009 and 2008 included upgrades and enhancements to our information and communications systems hardware and software and expenditures in retail stores in North America. Net cash used in financing activities was $4.7 million during...

  • Page 28
    ... entities that are not consolidated into the financial statements that are reasonably likely to materially affect our liquidity or the availability of capital resources. The Company currently leases its facility in Port Washington, NY from Addwin Realty Associates, an entity owned by Richard Leeds...

  • Page 29
    ... operations located outside of the United States is impacted by movements in foreign currency exchange rates. Changes in currency exchange rates as measured against the U.S. dollar may positively or negatively affect income statement, balance sheet and cash flows as expressed in U.S. dollars. Sales...

  • Page 30
    ... Reporting There have been no changes in the Company's internal controls over financial reporting for the quarter ended December 31, 2010 that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting. Item 9B. Other Information...

  • Page 31
    ... Proxy Statement. PART IV Item 15. Exhibits and Financial Statement Schedules. (a) 1. Consolidated Financial Statements of Systemax Inc. Reports of Ernst & Young LLP Independent Registered Public Accounting Firm Consolidated Balance Sheets as of December 31, 2010 and 2009 Consolidated Statements of...

  • Page 32
    ... 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) Lease Agreement dated September 20, 1988 between the Company and Addwin Realty Associates (Port Washington facility) (incorporated...

  • Page 33
    ... May 14, 2009, by and among Systemax Inc., as Buyer and Circuit City Stores West Coast, Inc. and Circuit City Stores, Inc, as Sellers (incorporated by reference to the Company's report on Form 8-K dated May 20, 2009). Second Amended and Restated Credit Agreement, dated as of October 27, 2010, by and...

  • Page 34
    ... behalf by the undersigned, thereunto duly authorized. SYSTEMAX INC. By:/s/ RICHARD LEEDS Richard Leeds Chairman and Chief Executive Officer Date: March 17, 2011 Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the following persons on behalf...

  • Page 35
    ... Registered Public Accounting Firm The Board of Directors and Shareholders of Systemax Inc. We have audited the accompanying consolidated balance sheets of Systemax Inc. (the "Company") as of December 31, 2010 and 2009, and the related consolidated statements of operations, shareholders' equity...

  • Page 36
    ... audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of Systemax Inc. as of December 31, 2010 and 2009 and the related consolidated statements of operations, shareholders' equity, and cash flows for each of the...

  • Page 37
    SYSTEMAX INC. CONSOLIDATED BALANCE SHEETS (in thousands, except for share data) December 31, 2010 2009 ASSETS: Current assets: Cash Accounts receivable, net of allowances of $17,881 and $22,532 Inventories Prepaid expenses and other current assets Deferred income taxes Total current assets Property,...

  • Page 38
    ... currency exchange loss Interest and other income, net Interest expense Income before income taxes Provision for income taxes Net income Net income per common share: Basic Diluted Weighted average common and common equivalent shares: Basic Diluted See notes to consolidated financial statements. 34...

  • Page 39
    ...expense related to equity compensation plans Excess tax benefit from exercises of stock options Loss 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 40
    SYSTEMAX INC. CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (in thousands) Common Stock Number of Shares Outstanding Balances, January 1, 2008 Stock-based compensation expense Issuance of restricted stock Exercise of stock options Repurchase of Treasury Stock Income tax benefit on stock-based ...

  • Page 41
    ... 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 a separate component of shareholders' equity. Cash - The Company considers...

  • Page 42
    ... of loss have transferred. Allowances 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...

  • Page 43
    ...primarily of investments in cash, trade accounts receivable debt and accounts payable. The Company estimates the fair value of financial instruments based on interest rates available to the Company and by comparison to quoted market prices. At December 31, 2010 and 2009, the carrying amounts of cash...

  • Page 44
    ... AND INTANGIBLES Goodwill : The following table provides information related to the carrying value of goodwill (in thousands): 2010 Balance January 1 Deferred tax adjustment Adjustments to finalize purchase price allocation Balance December 31 Indefinite-lived intangible assets: The following...

  • Page 45
    ... subsidiary maintained a £2 million secured revolving credit agreement with a financial institution in the United Kingdom. The Company terminated this facility in July 2010. The weighted average interest rate on short-term borrowings was 3.5%, 3.3%, and 5.1% in 2010, 2009 and 2008, respectively. 41

  • Page 46
    ...REORGANIZATION COSTS The Company announced plans to exit its Software Solutions segment, in the second quarter of 2009, as the result of economic conditions and difficulties in marketing the segment's products successfully. Total charges incurred for the years ended December 31, 2010 and December 31...

  • Page 47
    ...Paid or otherwise settled Balance December 31, 2010 8. SHAREHOLDERS' EQUITY Stock based compensation plans The Company currently has five equity compensation plans which reserve shares of common stock for issuance to key employees, directors, consultants and advisors to the Company. The following is...

  • Page 48
    ... related future income tax benefits recognized for 2010, 2009 and 2008 were $0.6 million, $0.9 million and $1.2 million, respectively. Stock options The following table presents the weighted-average assumptions used to estimate the fair value of options granted in 2010, 2009 and 2008: 2010 Expected...

  • Page 49
    ...the market price of the Company's stock at the date of the award. Compensation expense related to the restricted stock award was approximately $0.6 million in each of 2010, 2009 and 2008. Share-based compensation expense for restricted stock issued to Directors was $0.1 million in each of 2010, 2009...

  • Page 50
    Total deferred TOTAL 45 $ 4,572 23,482 $ 5,704 26,900 $ 6,197 30,900

  • Page 51
    ... foreign entity in accordance with applicable local regulations. A reconciliation of the difference between the income tax expense and the computed income tax expense based on the Federal statutory corporate rate is as follows (in thousands): Year Ended December 31, 2010 2009 2008 23,112 $ 25,580...

  • Page 52
    ... to pay amounts in excess of accruals, our effective tax rate in a given financial statement period could be affected. There were no accrued interest or penalty charges related to unrecognized tax benefits recorded in income tax expense in 2010 or 2009. As of December 31, 2010 the Company had...

  • Page 53
    ... policies of the segments are the same as those of the Company described in Note 1. Financial information relating to the Company's operations by reportable segment was as follows (in thousands): Year Ended December 31, 2010 2009 2008 Net Sales: Technology Products Industrial Products Corporate...

  • Page 54
    Financial information relating to the Company's operations by geographic area was as follows (in thousands): Year Ended December 31, 2010 2009 2008 Net Sales: United States United Kingdom Other Consolidated Long-lived Assets: United States United Kingdom Other Consolidated Net sales are attributed ...

  • Page 55
    ... WStore opening balance sheet adjustment. (3) Included in other is allowances recorded for deferred tax assets and net operating losses acquired in the WStore Europe SA acquisition (4) Charges to expense are net of reductions resulting from changes in deferred tax assets due to changes in tax laws...

  • Page 56
    ...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) of Systemax Inc. for the year ended December 31, 2010. New York, New York March 17, 2011

  • Page 57
    ... 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 b) any fraud, whether or not material, that involves management or other employees who have a significant role...

  • Page 58
    ... 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 b) any fraud, whether or not material, that involves management or other employees who have a significant role...

  • Page 59
    ...-OXLEY ACT OF 2002 The undersigned, the Chief Executive Officer of Systemax Inc., hereby certifies that Systemax Inc.'s Form 10-K for the Year Ended December 31, 2010 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...

  • Page 60
    ...-OXLEY ACT OF 2002 The undersigned, the Chief Financial Officer of Systemax Inc., hereby certifies that Systemax Inc.'s Form 10-K for the Year Ended December 31, 2010 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...