CompUSA 2015 Annual Report Download - page 14

Table of Contents
·The establishment and integration of our shared service center in Hungary exposes us to various technology, regulatory and economic risks.
WeopenedoursharedservicescenterinBudapest,Hungaryduringthesecondquarterof2013tofacilitatethecontinuedgrowthofourEMEAbusiness
through operational efficiencies and enhanced internal processes. This facility provides administrative and back office services for the existing
Europeanbusiness.AsanincentivetolocateinHungary,theHungarianInvestmentandTradeAgency(“HITA”)agreedtoreimbursetheCompanyfor
approximately8%ofpayrollcosts,uptoamaximumofapproximately$3.1million,forthefirst505employeeshiredatthesharedservicecenter.The
reimbursementislimitedtothefirsttwentyfourmonthsofemploymentforemployeeshiredbyDecember2015(orsuchlowernumberofemployeesas
isnegotiatedwithHITA)withallsuchreimbursementsbeingcompletedbyDecember2017.Inreturnforthisincentive,theCompanyhascommitted
tomaintainingcertainemployment levels through 2020. Theongoing commitment is for less than 505 employees and accordingly the payroll cost
reimbursementwillbeproportionallyless.FailurebytheCompanytomaintaintheseemploymentlevelswillresultintherepaymentofaportionorall
oftherelatedreimbursementswemayreceivewithinterest.
Our efforts to operate our European business in a more centralized manner, rather than on an individual country by country basis, requires us to
implement changes in our business processes, eliminate redundancies, relocate and/or hire new personnel, transition our information management
systems, and integrate the new operation into our existing business seamlessly and without disruption to our operations, customers and vendors.
However,delaysoroperationalproblemsintransitioningourinformationmanagementsystems,alowerthanexpectedimpactofthefacilityonthe
Company’s European operations, costs and capital expenditures, the ability to timely hire and train new employees in Hungary, and delays,
impedimentsorotherproblemsassociatedwithitsestablishment couldhaveamaterialadverseeffectonourEuropeanoperationsandourresultsof
operations.
·We rely on third party suppliers for most of our products and services. The loss or interruption of these relationships could impact our sales volumes,
the levels of inventory we must carry, and/or result in sales delays and/or higher inventory costs from new suppliers. Co-operative advertising and
other sales incentives provided by our suppliers have decreased and could decrease further in the future thereby increasing our expenses and adversely
affecting our results of operations and cash flows.
We purchase a substantial portion of our products from major distributors and directly from large manufacturers who may deliver those products
directlytoourcustomers.Theserelationshipsenableustomakeavailabletoourcustomersawideselectionofproductswithouthavingtomaintain
large amounts of inventory.  The termination or interruption of our relationships with any of these suppliers could materially adversely affect our
business.
WepurchaseanumberofourproductsfromvendorsoutsideoftheUnitedStates.Difficultiesencounteredbyoneorseveralofthesesupplierscould
halt or disrupt production and delaycompletion or cause the cancellation of our orders. Delays orinterruptions in the transportation network could
resultinlossordelayoftimelyreceiptofproductrequiredtofulfillcustomerorders.Ourabilitytofindqualifiedvendorswhomeetourstandardsand
supplyproductsinatimelyandefficientmannerisasignificantchallenge,especiallywithrespecttogoodssourcedfromoutsidetheU.S.Politicalor
financialinstability,merchandisequality issues, product safetyconcerns,traderestrictions,workstoppages, tariffs, foreign currency exchangerates,
transportationcapacityandcosts,inflation,civilunrest,outbreaksofpandemicsandotherfactorsrelatingtoforeigntradearebeyondourcontrol.These
andotherissuesaffectingourvendorscouldmateriallyadverselyaffectourrevenueandgrossprofit.
Manyproductsuppliersprovideuswithco-operativeadvertisingsupportinexchangeforfeaturingtheirproductsinourcatalogsandonourinternet
sites. Certain suppliers provide us with other incentives such as rebates, reimbursements, payment discounts, price protection and other similar
arrangements.Theseincentives are offset againstcostofgoodssold or selling, general and administrativeexpenses,as applicable. The level ofco-
operativeadvertising support andotherincentivesreceivedfrom suppliers hasdeclinedandmay decline further inthefuture,increasing our costof
goodssoldorselling,generalandadministrativeexpensesandhaveanadverseeffectonresultsofoperationsandcashflows.
·Goodwill and intangible assets may become impaired resulting in a charge to earnings.
The Company has made acquisitions in the past of other businesses and these acquisitions resulted in the recording of significant intangible assets
and/orgoodwill.Wearerequiredtotestgoodwillandintangibleassetsannuallytodetermineifthecarryingvaluesoftheseassetsareimpairedorona
morefrequentbasisifindicatorsofimpairmentexist.Ifanyofourgoodwillorintangibleassetsaredeterminedtobeimpairedwemayberequiredto
record a significant charge to earnings in the period during which the impairment is discovered.  Previously, impairment charges on goodwill and
intangibleassetsoccurredin2014and2013fortheNATGbusiness.NoimpairmentchargeshaveoccurredinIPGandEMEA.Althoughthecarrying
amountsofintangibleassetsandgoodwillarerelatively smallasofDecember31,2015,totheextenttheCompanymakesacquisitionsinthefuture
therecouldagainbematerialamountsofsuchassetsrecordedandsubjecttofutureimpairmenttesting.
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