Circuit City 2003 Annual Report Download - page 20

presence or in which we believe other appropriate nexus to obligate such collection exists. Other states may,
from time to time, claim that we have state-related activities constituting a sufficient nexus to trigger such
collection. Additionally, many other states seek to impose sales tax collection obligations on companies that
sell goods to customers in their state even without a physical presence. Such efforts by states have increased
recently, as states seek to raise revenues without increasing the tax burden on residents. We rely, as do other
direct mail retailers, on United States Supreme Court decisions which hold that, without Congressional
authority, a state may not enforce a sales tax collection obligation on a company that has no physical
presence in the state and whose only contacts with the state are through the use of interstate commerce such
as the mailing of catalogs into the state and the delivery of goods by mail or common carrier. We cannot
predict whether the nature or level of contacts we have with a particular state will be deemed enough to
require us to collect sales tax in that state nor can we be assured that Congress or individual states will not
approve legislation authorizing states to impose tax collection obligations on all direct mail and/or e-
commerce transactions. A successful assertion by one or more states that we should collect sales tax on the
sale of merchandise could result in substantial tax liabilities for past sales and would result in considerable
administrative burdens and costs for us and may reduce demand for our products from customers in such
states when we charge customers for such taxes.
• We have substantial international operations and we are exposed to fluctuations in currency exchange rates
and political uncertainties.
We currently have operations located in nine countries outside the United States, and non-U.S. sales
accounted for 39.7% of our revenue during 2003. Our future results could be materially adversely affected
by a variety of factors, including changes in foreign currency exchange rates, changes in a country’s
economic or political conditions, unexpected changes in regulatory requirements and natural disasters.
• Our income tax rate and the value of our deferred tax assets are subject to change.
Changes in taxes due to changes in the mix of U.S. and non-U.S. revenues and profitability, changes in tax
rates or exposure to additional income tax liabilities could affect our profitability. We are subject to income
taxes in the United States and various foreign jurisdictions. Our effective tax rate could be adversely affected
by changes in the mix of earnings in countries with differing statutory tax rates, changes in the valuation of
deferred tax assets and liabilities, changes in tax laws or by material audit assessments. The carrying value
of our deferred tax assets, which are primarily in the United States, is dependent on our ability to generate
future taxable income in the United States. In addition, the amount of income taxes we pay is subject to
ongoing audits in various jurisdictions and a material assessment by a tax authority could affect our
profitability.
•
Business disruptions could adversely impact our revenue and financial condition.
It is our policy to insure for certain property and casualty risks consisting primarily of physical loss to
property, business interruptions resulting from property losses, workers' compensation, comprehensive
general liability, and auto liability. Insurance coverage is obtained for catastrophic property and casualty
exposures as well as those risks required to be insured by law or contract. Although we believe that our
insurance coverage is reasonable, significant events such as acts of war and terrorism, economic conditions,
judicial decisions, legislation and large losses could materially affect our insurance obligations and future
expense.
•
Reliance on technology
We rely on a variety of information and telecommunications systems in our operations. Our success is
dependent in large part on the accuracy and proper use of our information systems, including our
telecommunications systems. To manage our growth, we continually evaluate the adequacy of our existing
systems and procedures. We anticipate that we will regularly need to make capital expenditures to upgrade
and modify our management information systems, including software and hardware, as we grow and the
needs of our business change. The occurrence of a significant system failure or our failure to expand or
successfully implement our systems could have a material adverse effect on our results of operations.
Our information systems networks, including our web sites, and applications could be adversely affected by