CompUSA 2013 Annual Report Download - page 23

In 2013, the Company opened a shared services center in Budapest, Hungary to facilitate the continued growth of its European Technology
Products business. This new facility provides certain administrative and back office services for the existing European business, will help drive
operational efficiencies and better serve the Company’s pan-
European operating strategy, and will serve as the sales location for future business
in Eastern Europe. Exit, severance and start up costs to implement the facility together with other cost reduction initiatives in Europe, aggregated
to $8.2 million in 2013.
Industrial Products
Our Industrial Products segment sells a wide array of MRO products which are marketed in North and Central 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 14%, 11% and
9% of our net sales in 2013, 2012 and 2011,
respectively. In both of these product groups, we offer our customers a broad selection of products, prompt order fulfillment and extensive
customer service.
Discontinued Operations
We exited the Software Solutions segment in June 2009. One customer remained being serviced by the Company until the second quarter of
2012. The termination of this customer has resulted in all current and prior period results for this business segment to be classified as
discontinued operations. See Note 12 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.
Operating Conditions
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 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 maintaining inventory, leasing warehouse space, 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 stock 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.
In the discussion of our results of operations we refer to B2B sales, B2C sales and period to period constant currency comparisons. B2B sales are
sales made direct to other businesses through managed business relationships, outbound call centers and extranets. B2C sales are sales from
retail stores, consumer websites, inbound call centers and television shopping channels. Sales in the Industrial Products segment and Corporate
and other are considered to be B2B sales. Constant currency refers to the adjustment of the results of our foreign operations to exclude the effects
of period to period fluctuations in 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 selecting the appropriate assumptions for
calculating financial estimates. By their nature, these judgments are subject to an inherent degree of uncertainty, and as a result, actual results
could differ materially from those estimates. These judgments are based on historical experience ,
observation of trends in the industry,
information provided by customers and information available from other outside sources, as appropriate. Management believes that full
consideration has been given to all relevant circumstances that we may be subject to, and the consolidated financial statements of the Company
accurately reflect management’
s best estimate of the consolidated results of operations, financial position and cash flows of the Company for the
years presented. We identify below a number of policies that entail significant judgments or estimates, the assumptions and or judgments used to
determine those estimates and the potential effects on reported financial results if actual results differ materially from these estimates.
Table of Contents
Accounting policy Assumptions and uncertainties
Quantification and analysis of effect on actual
results if estimates differ materially
Revenue Recognition.
We recognize product
sales when persuasive evidence of an order
arrangement exists, delivery has occurred, the
sales price is fixed or determinable and
collectibility is reasonably assured. Generally,
these criteria are met at the time of receipt by
customers when title and risk of loss both are
transferred, except in our Industrial Products
segment where title and risk pass at time of
shipment. Sales are presented net of returns
and allowances, rebates and sales incentives.
Reserves for estimated returns and allowances
are provided when sales are recorded, based
Our revenue recognition policy contains
assumptions and judgments made by
management related to the timing and
amounts of future sales returns. Sales returns
are estimated based upon historical
experience and current known trends.
We have not made any material changes to
our sales return reserve policy in the past
three years and we do not anticipate making
any material changes to this policy in the
future. However if our estimates are
materially different than our actual experience
we could have a material gain or loss
adjustment.