CompUSA 2014 Annual Report Download - page 35

SG&A expense increases for the year ended December 31, 2013 are primarily attributable to our Industrial and European Technology Products
BTB business, partially offset by expense decreases in North America Technology Products compared to the year ended December 31, 2012.
Significant expense increases related to the Industrial Products segment include increased salary and related costs of approximately $4.4 million,
and increased internet advertising spending of approximately $10.5 million compared to 2012. In Europe, the Technology Products segment
also had increased SG&A expenses due to a temporary overlap in costs as we transitioned functions from individual country operations to our
new European shared services center. The significant expense increase 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 in North America had reduced SG&A expenses compared to 2012 due to the closing of underperforming retail stores.
Significant expense decreases include reduced salary and related costs of approximately $11.1 million, reduced rent and related costs of $1.4
million, decreased internet and net advertising spending of approximately $5.4 million, 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.
SPECIAL CHARGES, NET
The Company’s Technology Products segment incurred special charges of approximately
$24.3 million in special charges. These charges,
estimates of which were previously disclosed, included approximately $11.7 million in estimated workforce reductions related to the
restructuring of our European operations, $0.5 million in continued recruitment costs to staff the European shared services center, $0.3 million in
other costs related to the retail stores that were closed in 2013, $0.2 million in charges related to the final sale of the facility which had been used
in connection with our previously exited PC manufacturing business, $0.1 million for changes in the estimate of lease valuation accruals and the
buyout of the two retail store leases that were exited in 2013 prior to lease expiration (other exit costs) and $1.5 million for additional legal and
professional fees related to the previously disclosed investigation and settlement with former officers and employees. In addition, as a result of
negative cash flows in its operations in the United States and Canada in 2014 and a forecast for continued cash use, the Company conducted an
evaluation of the long-
lived and intangible assets in those operations and concluded that those assets were impaired. Consequently an
impairment charge of approximately $10.0 million, pre-tax, was recorded in the fourth quarter of 2014.
The Company incurred special charges in 2014 related to the restructure of certain small market operations in 2014.
The Company does not
expect to incur any additional material charges in the future related to these restructurings or to complete the implementation of the European
shared services center, but will expend cash of approximately $4.7 million, to settle costs accrued at December 31, 2014. Expected impacts on
future costs, when the shared services center is fully implemented, are expected to be a reduction in our annual cost structure in the $9 to $11
million range, pre-tax.
Corporate and other segment incurred $0.1 million of special charges related to severance costs in 2014.
The Company expects to incur special charges related to the closing of its retail stores of between $50 and $55 million (including approximately
$4 million of severance expenses, and $39 million in lease exit costs) substantially all of which will require cash expenditures during the first
two quarters of 2015. The Company expects these costs to be paid out beginning in the first quarter of 2015 through the end of 2017.
After
completion of these actions the Company expects to realize improved profitability of between $18 and $22 million.
The Company’
s Technology Products segment, in both North America and Europe, incurred special charges of approximately $22.4 million
during 2013.
These 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, in 2013, 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.
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