Circuit City 2011 Annual Report Download - page 11

In most 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.
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 or reporting
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 or reporting obligations on all e-commerce and/or direct mail 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.
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.
A change in accounting standards or practices can have a significant effect on our reported results of operations. New accounting
pronouncements and interpretations of existing accounting rules and practices have occurred and may occur in the future. Changes to
existing rules may adversely affect our reported financial results.
Risks Related to Our Company
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. In particular, our primary financial system is being replaced currently. The occurrence of a significant system failure, electrical or
telecommunications outages or our failure to expand or successfully implement new systems could have a material adverse effect on our
results of operations.
Our information systems networks, including our websites, and applications could be adversely affected by viruses or worms and may be
vulnerable to malicious acts such as hacking. The availability and efficiency of sales via our websites could also be adversely affected by
“denial of service” attacks and other unfair competitive practices. Although we take preventive measures, these procedures may not be
sufficient to avoid harm to our operations, which could have an adverse effect on our results of operations.
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Sales tax laws may be changed which could result in ecommerce and direct mail retailers having to collect sales taxes in states where the
current laws do not require us to do so. This could reduce demand for our products in such states and could result in us having substantial
tax liabilities for past sales.
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Events such as acts of war or terrorism, natural disasters, changes in law, or large losses could adversely affect our insurance coverage
and insurance expense, resulting in an adverse affect on our profitability and financial condition.
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Changes in accounting standards or practices, as well as new accounting pronouncements or interpretations, may require us to account
for and report our financial results in a different manner in the future, which may be less favorable than the manner used historically.
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We rely to a great extent on our information and telecommunications systems, and significant system failures or outages, or our failure to
properly evaluate, upgrade or replace our systems, or the failure of our security/safety measures to protect our systems and websites, could
have an adverse affect on our results of operations.
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