CompUSA 2014 Annual Report Download - page 16

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 quarter of 2014 and 2013, our North American Technology Products segment recorded impairment charges of
intangible assets of $0.5 million and $2.9 million, respectively, and in 2013 impairment charges were also recorded related to goodwill.
Although the carrying amounts of intangible assets and goodwill are relatively small as of December 31, 2014, 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 40.1% of our revenue
during 2014. 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.