Circuit City 2004 Annual Report Download - page 16

Provision (benefit) for income taxes 0.3%
0.3% (0.1
Income (loss) before cumulative effect of change in accounting
principle, net of tax 0.5%
0.2% (0.5
Cumulative effect of change in accounting principle, net of tax (3.3
Net income (loss) 0.5%
0.2% (3.8
NET SALES
Net sales were $1.93 billion for the year ended December 31, 2004, an increase of 16.5% from $1.66 billion for
the year ended December 31, 2003. Net sales in 2004 included approximately $515 million of internet-related sales, an
increase of $131 million, or 34%, from 2003. North American sales increased to $1.23 billion, a 20.3% increase from
last year's $1.02 billion. The increase in North American sales resulted primarily from growth in both our computer and
computer-related products and our industrial products. Sales of computer and computer-related products increased
21.1% to $1.08 billion from $893 million in 2003. This increase was largely a result of our successful internet-based
marketing initiatives directed primarily at our consumer customers and reflected by an increase in our internet-related
sales of approximately $109 million. Although our internet-related sales are not exclusively made to consumers, we
believe that a large majority of these sales are made to consumers. With the United States economy improving after
several years of softness, we also had strong growth in our industrial product sales in 2004. Sales of industrial products
increased 14.9% to $151.6 million from $131.9 million last year, representing 9% of the overall increase in North
American sales. European sales, stated in US dollars, increased 10.2% to $695.7 million for 2004 (representing 36.1%
of worldwide sales) compared to $631.0 million (representing 38.1% of worldwide sales) in the year-ago period.
Movements in foreign exchange rates positively impacted European sales for 2004 by approximately $70.0 million. If
currency exchange rates for 2003 had prevailed in 2004, however, European sales would have decreased 1.1% from the
prior year. Continued weakness in demand for information technology products from business customers in Europe and
the effect of exchange rate movements on product pricing in certain European markets for products whose cost is U.S.
dollar based, resulted in decreased local currency denominated sales.
As European economies continued to weaken during 2004, our sales as measured in local currencies declined.
The table below reflects European sales for the three years as reported in this report at then-current exchange rates and
at constant (2002) exchange rates (in millions):
16
2004 2003 2002
---- ---- ----
European sales as reported $695.7 $631.0 $587.7
European sales at 2002 exchange rates $545.1 $550.2 $587.7
Net sales for the year ended December 31, 2003 were $1.66 billion, an increase of 6.7% from $1.55 billion for
the year ended December 31, 2002. North American sales were $1.02 billion, a 6.3% increase from last year's $964.3
million. The increase in North American sales was a result of growth in sales of computer and computer-related
products to $893 million for the year ended December 31, 2003 from $827 million in 2002. The increase is attributable
to successful internet-based marketing initiatives, which resulted in increased internet-related sales of approximately
$113 million. We believe that the increase in internet sales comes primarily from consumer customers' increased use of
the internet for e-commerce, and that continued weakness in demand for information technology products from
business customers resulted in lower sales to those customers. Sales of industrial products decreased 4.0% in 2003 to
$131.9 million from $137.5 million in the prior year. European sales, in US dollars, increased 7.4% to $631.0 million
for 2003 (representing 38.1% of worldwide sales) compared to $587.7 million (representing 37.9% of worldwide sales)
in the year-ago period. Movements in foreign exchange rates positively impacted European sales for 2003 by
approximately $81.0 million. If currency exchange rates for 2002 had prevailed in 2003, however, European sales
would have decreased 6.3% from the prior year. Lower demand and the effect of exchange rate movements on product
pricing in certain European markets for products whose cost is U.S. dollar based, resulted in decreased local currency
denominated sales.