CompUSA 2014 Annual Report Download - page 69

Annual rent expense aggregated approximately $31.5 million, $34.6 million and $33.4 million in 2014, 2013 and 2012, respectively.
Included in rent expense was $0.9 million in 2014, 2013 and 2012, to related parties. Rent expense is net of sublease income of $0.0 million
for 2014, $0.1 million for 2013, and $0.2 million for 2012, respectively.
Other Matters
The Company and its subsidiaries are involved in various lawsuits, claims, investigations and proceedings including commercial,
employment, consumer, personal injury and health and safety law matters, which are being handled and defended in the ordinary course of
business. In addition, the Company is subject to various assertions, claims, proceedings and requests for indemnification concerning
intellectual property, including patent infringement suits involving technologies that are incorporated in a broad spectrum of products the
Company sells. The Company is also audited by (or has initiated voluntary disclosure agreements with) numerous governmental agencies in
various countries, including U.S. Federal and state authorities, concerning potential income tax, sales tax and unclaimed property liabilities.
These matters are in various stages of investigation, negotiation and/or litigation, and are being vigorously defended. In this regard, the
State of New York has claimed that certain of the Company’s consumer electronics e-
commerce sales are subject to sales tax in those states.
The Company intends to vigorously defend these matters and believes it has strong defenses. The Company is also being audited by an
entity representing 45 states seeking recovery of “unclaimed property”.
The Company is complying with the audit and is providing
requested information.
Although the Company does not expect, based on currently available information, that the outcome in any of these matters, individually or
collectively, will have a material adverse effect on its financial position or results of operations, the ultimate outcome is inherently
unpredictable. Therefore, judgments could be rendered or settlements entered, that could adversely affect the Company’
s operating results
or cash flows in a particular period. The Company routinely assesses all of its litigation and threatened litigation as to the probability of
ultimately incurring a liability, and records its best estimate of the ultimate loss in situations where it assesses the likelihood of loss as
probable and estimable. In this regard, the Company establishes accrual estimates for its various lawsuits, claims, investigations and
proceedings when it is probable that an asset has been impaired or a liability incurred at the date of the financial statements and the loss can
be reasonably estimated. At December 31, 2014 the Company has established accruals for certain of its various lawsuits, claims,
investigations and proceedings based upon estimates of the most likely outcome in a range of loss or the minimum amounts in a range of
loss if no amount within a range is a more likely estimate. The Company does not believe that at December 31, 2014 any reasonably
possible losses in excess of the amounts accrued would be material to the financial statements.
Following the previously reported independent investigation of Gilbert Fiorentino and Carl Fiorentino by our Audit Committee in 2011 (in
response to a whistleblower report) for a variety of improper acts, the subsequent termination of their employment and the entering into by
Gilbert Fiorentino of a settlement agreement with the Securities and Exchange Commission, on November 20, 2014 the United States
Attorney’s Office (“USAO”)
for the Southern District of Florida announced that Gilbert Fiorentino and Carl Fiorentino had been charged
with mail fraud, wire fraud and money laundering in connection with a scheme to defraud TigerDirect and Systemax. Specifically, the
charges set forth a scheme to obtain kickbacks and other benefits, and to conceal this illicit income from the IRS, all while Gilbert
Fiorentino and Carl Fiorentino were employed as senior executives at the Company’
s North American Technology Products business. On
December 2, 2014, the United States Attorney’
s Office announced that Gilbert Fiorentino and Carl Fiorentino had pled guilty to various
charges, and on March 3, 2015, Gilbert Fiorentino and Carl Fiorentino were sentenced to sixty and eighty months’
imprisonment,
respectively. The Court also set a restitution hearing for April 10, 2015 to determine the amount of restitution Gilbert Fiorentino and Carl
Fiorentino are obligated to pay the Company.
On January 27, 2015, the senior financial officer of the Company's North American Technology Products segment testified before a federal
grand jury in the Southern District of Florida pursuant to a subpoena. The USAO has not advised the Company as to the nature or scope of
the grand jury proceeding. Further, the Company's Audit Committee, with the assistance of independent outside counsel, is cooperating
with a current investigation by the USAO into allegations arising from the Fiorentino investigation regarding possible executive officer
conflicts of interest and conduct related to internal controls and books and records. The Company does not currently believe these matters
have had or will have a material effect on the Company's previously reported consolidated financial statements. However, it is not possible
at this time to predict when the current investigation will be completed; what subject(s) will be investigated; what actions, if any, may be
taken by the government as a result of its investigation; or whether any of these matters will have a material adverse impact on the
Company.
12. SEGMENT AND RELATED INFORMATION
The Company operates and is internally managed in two reportable business segments, Technology Products and Industrial Products. The
Company’s chief operating decision-maker is the Company’s Chief Executive Officer (“CEO”).
The CEO, in his role as Chief Operating
Decision Maker (“CODM”), evaluates segment performance based on operating income (loss) from continuing operations
. The CODM
reviews assets and makes significant capital expenditure decisions for the Company on a consolidated basis only. The accounting policies
of the segments are the same as those of the Company. Corporate costs not identified with the disclosed segments are grouped as
“Corporate and other expenses.”
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