Circuit City 2008 Annual Report Download - page 13

Table of Contents
with our restructuring actions may be higher than our estimates of such costs and/or may not lead to the anticipated cost savings.
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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. Many 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 gross 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.
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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 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 related to 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.
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Business disruptions could adversely impact our revenue and financial condition.
We insure for certain property and casualty risks consisting primarily of physical loss to property, business interruptions resulting
from property losses, worker’s 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, natural disasters and large losses could materially affect our insurance obligations and future expense.
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