Circuit City 2004 Annual Report Download - page 25

26
• Our income tax rate and the value of our deferred tax assets are subject to change.
Changes in our income tax expense due to changes in the mix of U.S. and non-U.S. revenues and
profitability, changes in tax rates or exposure to additional income tax liabilities could affect our
profitability. We are subject to income taxes in the United States and various foreign jurisdictions. Our
effective tax rate could be adversely affected by changes in the mix of earnings in countries with differing
statutory tax rates, changes in the valuation of deferred tax assets and liabilities, changes in tax laws or by
material audit assessments. The carrying value of our deferred tax assets, which are primarily in the United
States and the United Kingdom, is dependent on our ability to generate future taxable income in those
jurisdictions. In addition, the amount of income taxes we pay is subject to ongoing audits in various
jurisdictions and a material assessment by a tax authority could affect our profitability.
•
Business disruptions could adversely impact our revenue and financial condition.
It is our policy to insure for certain property and casualty risks consisting primarily of physical loss to
property, business interruptions resulting from property losses, workers' 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.
• Our reliance on technology requires significant expenditures and entails risk.
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. The occurrence of a significant system failure or our failure to expand or
successfully implement our systems could have a material adverse effect on our results of operations.
Our information systems networks, including our web sites, and applications could be adversely affected by
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.
•
Our success is dependent upon the 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
available cash 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. Such agreements require that
we satisfy certain financial and other covenants. In addition, if we are unable to renew or replace these
facilities at maturity, or if we are in breach of covenants, our liquidity and capital resources may be
adversely affected. However, we have no reason to believe that we will not be able to renew or replace our
facilities when they reach maturity.
• 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