CompUSA 2013 Annual Report Download - page 13

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.
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. In the fourth quarters of 2012 and 2013, significant impairment charges of these intangible assets and
goodwill were recorded. Although the carrying amounts of intangible assets and goodwill are relatively small as of December 31,
2013, 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.
We operate internationally and as a result, we are subject to risks associated with doing business globally, such as risks related to
the differing legal, political and regulatory requirements and economic conditions of many jurisdictions. Risks inherent to operating
internationally include:
The functional currencies of our businesses outside of the U.S. are the local currencies. Changes in exchange rates between these
foreign currencies and the U.S. Dollar will affect the recorded levels of our assets, liabilities, net sales, cost of goods sold and
operating margins and could result in exchange gains or losses. The primary currencies to which we have exposure are the
European Union Euro, Canadian Dollar, British Pound Sterling, and the U.S. Dollar. Exchange rates between these currencies and
the U.S. Dollar in recent years have fluctuated significantly and may do so in the future. Our operating results and profitability may
be affected by any volatility in currency exchange rates and our ability to manage effectively our currency transaction and
translation risks. For example, we currently have operations located in numerous countries outside the United States, and non-
U.S.
sales accounted for approximately 38.8% of our revenue during 2013. To the extent the U.S. dollar strengthens against foreign
currencies, our foreign revenues and profits will be reduced when translated into U.S. dollars.
Our inventory is subject to risk due to technological change and changes in market demand for particular products. If we fail to
manage our inventory of older products we may have excess or obsolete inventory. We may have limited rights to return purchases
to certain suppliers and we may not be able to obtain price protection on these items. The elimination of purchase return privileges
and lack of availability of price protection could lower our gross margin or result in inventory write-downs.
We also take advantage of attractive product pricing by making opportunistic bulk inventory purchases; any resulting excess and/or
obsolete inventory that we are not able to re-
sell could have an adverse impact on our results of operations. Any inability to make
such bulk inventory purchases may significantly impact our sales and profitability.
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Table of Contents
• Goodwill and intangible assets may become impaired resulting in a charge to earnings.
•
Our substantial international operations are subject to risks such as fluctuations in currency rates (which can adversely impact
foreign revenues and profits when translated to US Dollars), foreign regulatory requirements, political uncertainty and the
management of our growing international operations
.
• Changes in a country’s economic or political conditions
• Changes in foreign currency exchange rates
• Difficulties with staffing and managing international operations
• Unexpected changes in regulatory requirements
• Changes in transportation and shipping costs
• Enforcement of intellectual property rights
•
We are exposed to various inventory risks, such as being unable to profitably resell excess or obsolete inventory and/or the loss of
product return rights and price protection from our vendors; such events could lower our gross margins or result in inventory
write
-
downs that would reduce reported future earnings.