CompUSA 2013 Annual Report Download - page 32

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES (“SG&A”), EXCLUDING SPECIAL CHARGES
The SG&A expenses increase in 2013 primarily resulted from the Industrial Products segment's continued sales growth, increased salary and
related costs of approximately $4.4 million and internet advertising spending of $10.5 million compared to 2012. The Industrial Products
segment is increasing its advertising spend, in particular internet advertising, as it continues to expand its online product offerings and sales. The
Technology Products segment had increased SG&A in Europe due to a temporary overlap in costs as we transition functions from individual
country operations to our new European shared services center. The significant expense increases for Europe includes approximately $12.7
million of salary and related costs due to additional sales personnel and additional headcount for the shared services center, $1.6 million of rent
and related expenses, and $0.9 million net advertising costs offset by a decrease in internet advertising expense of $0.6 million compared to
2012. The Technology Products segment’
s North America operations had reduced SG&A expenses compared to 2012 due to the closing of
underperforming retail stores. Significant expense decreases include: reduction of salary and related costs of approximately $11.1 million, $5.0
million of which is related to retail store headcount reductions, $1.4 million of reduced rent expense, decreased internet and net advertising
spending of approximately $5.4 million as a result of, a planned reduction in advertising spend and a reduction in vendor funding as a result of
our sales declines and fewer vendor programs, and a decrease of approximately $2.3 million in expenses related to sales tax and other regulatory
audits which were incurred in 2012, and decreased credit card fees of $3.6 million. Corporate & Other expenses segment recorded a benefit of
approximately $1.3 million in lower personnel costs and a decrease in professional fees of approximately $0.7 million.
The SG&A expenses increased in 2012 primarily resulted from the increased Industrial Products sales volume and increased facility and other
operating costs related to the Industrial Products segment compared to 2011. Significant expense increases included approximately $4.5 million
of increased payroll and related costs due to additional contract labor expenses, approximately $2.3 million in expenses related to ongoing sales
tax and other regulatory audits in our North American Technology business; additional rent and related costs of approximately $1.4 million due
to the opening of a new distribution center in the Industrial Products segment and new sales and administrative offices in the United Kingdom,
approximately $6.9 million of reduced vendor co-
operative funding partially offset by savings in catalog and store advertising costs, and
increased internet advertising of $11.4 million. The Company incurred approximately $0.6 million of additional depreciation and amortization
compared to 2011 due to the addition of our Industrial Products segment distribution center and extensive data storage upgrades and fabrication
materials acquired in this segment.
SPECIAL CHARGES (GAINS), NET
The Company’
s Technology Products segment, in both North America and Europe, incurred special charges of approximately $22.4 million
during 2013.
The charges in North America include: (i) approximately $5.5 million for lease termination costs (calculated using the net present
value of contractual gross lease payments net of estimated sublease rental income, or in the case of negotiated settlements, the buyout amount)
and (ii) $2.0 million for fixed asset write offs related to the closing of underperforming retail stores, (iii) $2.9 million of one-
time impairment
charges related to intangible assets of the CompUSA brand in Puerto Rico, (iv) $2.2 million of workforce reduction charges for senior
management changes in the North American operations, (v) $1.0 million for reserve adjustments related to the facility closing and exit from the
PC manufacturing business and (vi) $0.6 million of additional legal and professional fees
related to the previously disclosed completed
investigation and settlement with a former officer and director. The charges related to Europe include: (i)
$5.9 million in workforce reductions
and other exit costs related to the European shared services center implementation and other European workforce reductions, (ii) $1.8 million
related to start up costs of the European shared services center and (iii) $0.5 million
in continuing recruitment costs of the European shared
services center. The Company’
s Industrial Products segment incurred special charges of approximately $0.1 million for personnel costs and
benefited from an adjustment to lease termination costs of approximately $0.3 million related to the planned closing and relocation of one of our
smaller distribution centers to a new, significantly larger distribution and call center in the second quarter of 2012. In Technology Products
approximately $11.9 million of these charges incurred were non-
cash. Expected impact to future cash flows is considered immaterial for
Industrial Products and for the actions related to the Technology Products segment’
s European operations the Company expects to expend cash
of $7 to $9 million in the future to complete the implementation of the European shared services center. Expected impacts on Technology
Products future costs, when the shared service center is fully implemented, are expected to be a reduction in our cost structure in the $9 to $11
million range.
In 2012, the Company recorded net special charges of approximately $46.3 million primarily related to asset impairment charges of $39.9
million in the Technology Products segment’
s North America operations, 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.
Additionally, the Company 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 Technology Products approximately $39.9 million of these charges incurred were non-
cash. Expected impacts to future cash flows is
expected to be immaterial for Industrial Products and for the actions related to the Technology Products segment’
s European operations, the
Company expects to expend cash of $14 to $16 million to fully implement the shared services center. Expected impacts on Technology Products
future costs, when the shared service center is fully implemented, are expected to be a reduction in our cost structure in the $9 to $11 million
range.
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