Circuit City 2005 Annual Report Download - page 11

cannot predict with any certainty whether we will be able to maintain or improve upon historical sales
volumes with existing customers, or whether we will be able to attract new customers.
In response to economic and market conditions, from time to time we have undertaken initiatives to reduce
our cost structure where appropriate. The initiatives already implemented as well as any future workforce
and facilities reductions undertaken may not be sufficient to meet the changes in economic and market
conditions and to achieve future profitability. In addition, costs actually incurred in connection with our
restructuring actions may be higher than our estimates of such costs and/or may not lead to the anticipated
cost savings.
•
Increased costs associated with corporate governance compliance may impact our results of operations.
As a public company, we incur significant legal, accounting and other expenses that we would not incur as
a private company. In addition, the Sarbanes-
Oxley Act of 2002, as well as rules subsequently implemented
by the Securities and Exchange Commission and listing requirements subsequently adopted by the New
York Stock Exchange in response to Sarbanes-Oxley, have required changes in corporate governance
practices of public companies. These developments have already substantially increased our legal
compliance, auditing and financial reporting costs and made them more time consuming. We anticipate that
the impact of Section 404 of the Sarbanes-
Oxley Act, if and when it fully applies to us, will further increase
these costs and make some activities more time consuming. These developments may make it more
difficult and more expensive for us to obtain directors’ and officers’ liability insurance and we may be
required to accept reduced coverage or incur substantially higher costs to obtain coverage, possibly making
it more difficult for us to attract and retain qualified members of our board of directors, particularly to serve
on our audit committee. We presently cannot estimate the timing or magnitude of additional costs we may
incur as a result of the implementation of Section 404 of the Sarbanes-Oxley Act; however, to the extent
these costs are significant, our general and administrative expenses are likely to increase as a percentage of
revenue and our results of operations will be negatively impacted.
• Competitive pressures could harm our revenue and gross margin.
We may not be able to compete effectively with current or future competitors. The markets for our products
and services are intensely competitive and subject to constant technological change. We expect this
competition to further intensify in the future. Competitive factors include price, availability, service and
support. We compete with a wide variety of other resellers and retailers, as well as manufacturers. Some of
our competitors are larger companies with greater financial, marketing and product development resources
than ours. In addition, new competitors may enter our markets. This may place us at a disadvantage in
responding to competitors’ pricing strategies, technological advances and other initiatives, resulting in our
inability to increase our revenues or maintain our gross margins in the future.
In many cases our products compete directly with those offered by other manufacturers and distributors. If
any of our competitors were to develop products or services that are more cost-effective or technically
superior, demand for our product offerings could decrease.
Our margins are also dependent on the mix of products we sell and could be adversely affected by a
continuation of our customers
’
shift to lower
-
priced products.
• State and local sales tax collection may affect demand for our products.
Our United States subsidiaries collect and remit sales tax in states in which the subsidiaries have physical
presence or in which we believe nexus exists which obligates us to collect sales tax. Other states may, from
time to time, claim that we have state-related activities constituting a sufficient nexus to require such
collection. Additionally, many other states seek to impose sales tax collection obligations on companies
that sell goods to customers in their state, or directly to the state and its political subdivisions, 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