Circuit City 2003 Annual Report Download - page 21

Other factors that could contribute to or cause such differences include, but are not limited to, unanticipated
developments in any one or more of the following areas: (i) the effect on us of volatility in the price of paper and
periodic increases in postage rates, (ii) the operation of our management information systems, (iii) significant changes in
the computer products retail industry, especially relating to the distribution and sale of such products, (iv) timely
availability of existing and new products, (v) risks involved with e-commerce, including possible loss of business and
customer dissatisfaction if outages or other computer-related problems should preclude customer access to us, (vi) risks
associated with delivery of merchandise to customers by utilizing common delivery services such as the United States
Postal Service and United Parcel Service, including possible strikes and contamination, (vii) borrowing costs or
availability, (viii) pending or threatened litigation and investigations and (ix) the availability of key personnel, as well as
other risk factors which may be detailed from time to time in our Securities and Exchange Commission filings.
Readers are cautioned not to place undue reliance on any forward looking statements contained in this report,
which speak only as of the date of this report. We undertake no obligation to publicly release the result of any revisions
to these forward looking statements that may be made to reflect events or circumstances after the date hereof or to reflect
the occurrence of unexpected events.
Critical Accounting Policies and Estimates
Our significant accounting policies are described in Note 1 to the consolidated financial statements. The policies
below have been identified as critical to our business operations and understanding the results of operations. Certain
viruses or worms and may be vulnerable to malicious acts such as hacking. 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.
•
Availability of credit and financing.
We require significant levels of capital in our business to finance accounts receivable and inventory. We
maintain credit facilities in the United States and in Europe to finance increases in our working capital if
cash available is insufficient. The amount of credit available to us at any point in time may be adversely
affected by the quality or value of the assets collateralizing these credit lines. In addition, if we are unable to
renew or replace these facilities at maturity, our liquidity and capital resources may be adversely affected.
However, we have no reason to believe that we will not be able to renew our facilities.
• Sales to individual consumers exposes us to credit card fraud, which could adversely affect our business.
Failure to adequately control fraudulent credit card transactions could increase our expenses. Increased sales
to individual consumers, which are more likely to be paid for using a credit card, increases our exposure to
fraud. We employ technology solutions to help us detect the fraudulent use of credit card information.
However, if we are unable to detect or control credit card fraud, we may in the future suffer losses as a result
of orders placed with fraudulent credit card data, which could adversely affect our business.
•
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 new rules subsequently
implemented by the Securities and Exchange Commission and new 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. We expect these developments to increase our legal
compliance and financial reporting costs and make some activities more costly and 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; 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.