CompUSA 2008 Annual Report Download - page 79

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SYSTEMAX INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation – The accompanying consolidated financial statements include the accounts of Systemax Inc.
and its wholly-owned subsidiaries (collectively, the “Company” or “Systemax”). All significant intercompany accounts and
transactions have been eliminated in consolidation.
Reclassifications – Certain balances have been reclassified among current assets and current liabilities in prior year to
conform to current year presentation on the consolidated balance sheets. Foreign exchange loss (gain) has been reclassified
from selling, general and administrative expense to its own separate income statement account in prior years to conform to
current year presentation on the consolidated statements of operations.
Use of Estimates In Financial Statements – The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make estimates and assumptions that affect the
amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from those
estimates.
Fiscal Year – Effective the fourth quarter of 2007, the Company changed its fiscal year end from a calendar year ending on
December 31 to a fiscal year ending at midnight on the Saturday closest to December 31. Fiscal years will typically include
52 weeks, but every few years will include 53 weeks which was the case in 2008. For clarity of presentation herein, all
fiscal years are referred to as if they ended on December 31. The fiscal year will be divided into four fiscal quarters that
each end at midnight on a Saturday. Fiscal quarters will typically include 13 weeks, but the fourth quarter will include 14
weeks in a 53 week fiscal year. For clarity of presentation herein, all fiscal quarters are referred to as if they ended on the
traditional calendar month.
Foreign Currency Translation – The Company has operations in numerous foreign countries. The functional currency of
each foreign country is the local currency. The financial statements 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 a separate
component of shareholders' equity.
Cash and Cash Equivalents – The Company considers amounts held in money market accounts and other short-term
investments, including overnight bank deposits, with an original maturity date of three months or less to be cash
equivalents.
Inventories – Inventories consist primarily of finished goods and are stated at the lower of cost or market value. Cost is
determined by using the first-in, first-out method except in Europe and retail locations where an average cost is used.
Allowances are maintained for obsolete, slow-moving and non-saleable inventory.
Property, Plant and Equipment – Property, plant and equipment is stated at cost. Depreciation of furniture, fixtures and
equipment, including equipment under capital leases, are depreciated using the straight-line or accelerated method over their
estimated useful lives ranging from three to ten years. Depreciation of buildings is on the straight-line method over
estimated useful lives of 30 to 50 years. Leasehold improvements are amortized over the lesser of the useful lives or the
term of the respective leases.
Evaluation of Long-lived Assets – Long-lived assets are evaluated for recoverability whenever events or changes in
circumstances indicate that an asset may have been impaired. In evaluating an asset for recoverability, the Company
estimates the future cash flows expected to result from the use of the asset and eventual disposition. If the sum of the
expected future cash flows (undiscounted and without interest charges) is less than the carrying amount of the asset, an
impairment loss, equal to the excess of the carrying amount over the fair market value of the asset is recognized.
Goodwill and intangible assets – Goodwill represents the excess of the cost of acquired assets over the fair value of assets
acquired. The Company tests goodwill and indefinite lived intangibles for impairment annually or more frequently if
indicators of impairment exist. In addition, goodwill is required to be tested for impairment after a portion of the goodwill is
allocated to a business targeted for disposal. The Company’ s identifiable intangible assets consist of trademarks, trade and
domain names, retail leases and customer lists (See Note 2).
Accruals – Management makes estimates and assumptions that affect amounts reported in the consolidated financial
statements and accompanying notes. These estimates are based upon various factors such as the number of units sold,
historical and anticipated results and data received from third party vendors. Actual results could differ from these
estimates. Our most significant estimates include those related to the costs of vendor drop shipments, sales returns and
allowances, cooperative advertising and customer rebate reserves, and other vendor and employee related costs.