CompUSA 2012 Annual Report Download - page 29

The selling, general and administrative expenses increase in 2011 primarily resulted from the increased sales volume, increases in facility and
other operating costs related to the retail stores being opened a full year compared to 2010 and hiring of additional sales personnel. Significant
expense increases include approximately $21.4 million of increased payroll, and related costs due to additional sales personnel and additional
retail stores operating for the full year of 2011 compared to 2010, additional rent and related costs of approximately $2.8 million and $10.1
million of increased internet, store space ads advertising and reduced cooperative advertising funding on catalogs, offset by decreased spending
on catalogs compared to 2010. The Company incurred approximately $2.8 million of additional depreciation and amortization compared to 2010
due to significant additions to our second distribution center, expenditures in our retail stores and amortization of intangible assets.
SPECIAL CHARGES (GAINS), NET
The Company recorded net special charges of approximately $46.3 million primarily related to asset impairment charges of $39.9 million in the
North American Technology Products business which includes the write off of $35.3 million of intangible assets and goodwill of CompUSA and
Circuit City and $4.6 million related to the closing of the Company’s computer manufacturing location. The North American Technology
Products business also incurred $0.5 million of severance costs related to the exit from the computer manufacturing business as well as $1.8
million related to patent settlements with non-practicing entities (see Notes 2 and 7 of the Notes to Consolidated Financial Statements). These
charges were partially offset by net recoveries of $3.9 million for litigation costs and settlements related to a former officer and director of the
Company. There were also $8.0 million of severance related charges incurred in the Technology Products business and the Industrial Products
segment.
In 2011 the Company recorded a net special gain of approximately $5.6 million primarily related to the investigation and settlement with a
former officer and director of the Company (see Note 8 of the Notes to Consolidated Financial Statements). A special gain of approximately
$8.4 million related to the Settlement Agreement was recorded in the second quarter of 2011. This gain was partially offset by charges for
related investigative, legal and professional fees of approximately $2.8 million for the year.
OPERATING MARGIN
The decline in Technology products operating margin was primarily due to $39.9 million of asset impairment charges, $6.4 million of severance
and other reorganization related charges, $1.8 million of patent settlements with non-practicing entities offset by net recoveries of $3.9 million
for litigation costs and settlements related to a former officer and director of the Company. Excluding these net charges, Technology Products
operating margin would have declined compared to 2011 due to the soft demand for personal computers and consumer electronics, a decline in
vendor co-operative funding within the North America technology business, and lower sales and gross profit to cover fixed selling, general and
administrative expenses, partially offset by continued strength in business to business operations.
Technology products operating margin increased 10 basis points in 2011 versus 2010 due to the effect of a special gain recorded in 2011 related
to the investigation of the former officer and director of the Company and the special charges incurred in 2010 for the WStore integration.
Excluding these gains and charges, Technology products operating margin would have declined compared to 2010 due to continuing price
promotions offered and increased spending related to the retail stores, additional headcount and a full year of operation of the second distribution
center.
The decline in Industrial Products operating margin was due to a shift towards drop shipped products which tend to lower consolidated profit
margins, a decline in freight margins, costs incurred for the new distribution and call center which opened in the second quarter 2012, and sales
and other personnel costs as the segment continues to expand into newer product categories.
Industrial products operating margin increased 140 basis points in 2011 due to increased demand for the segment’s various products, the
availability of additional products on the Company’s websites and in its catalogs and additional sales personnel.
The increase in Corporate and other loss primarily resulted from increased overhead expenses. Corporate and other operating costs increased
13.2% during 2011 primarily as a result of increased personnel costs and increased tax and accounting fees offset by savings in general
consulting fees.
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