Circuit City 2005 Annual Report Download - page 25

partially offset by a $3.0 million increase in industrial products inventories resulting from increased sourcing of these
products from Asia for which we have to compensate for longer lead times. Our computer products inventories in
North America remained even with the prior year
’s level. Inventory turnover declined slightly from 10 to 9.3 times, as
improvement in Europe resulting from decreased inventory was not enough to offset higher average inventories during
the year in North America. The increase in accounts receivable occurred in North America, resulting from our
increased sales. This also increased our North American days of sales outstanding from 13 days to 14 days. Accounts
receivable in Europe decreased as a result of limited sales growth and changes in exchange rates. We expect that future
accounts receivable and inventory balances will fluctuate with the mix of our net sales between consumer and business
customers, as well as geographic regions.
We maintain our cash and cash equivalents primarily in money market funds or their equivalent. As of December
31, 2005, all of our investments mature in less than three months. Accordingly, we do not believe that our investments
have significant exposure to interest rate risk.
Our cash balance increased $34.7 million to $70.9 million during the year ended December 31, 2005. Net cash
provided by operating activities was $35.0 million for the year ended December 31, 2005 and $12.8 million for the year
ended December 31, 2004 and net cash used in operating activities was $6.6 million in 2003. The increase in cash
provided by operating activities in 2005 of $22.2 million resulted from a $10.4 million increase in net income adjusted
by other non-cash items, such as depreciation expense, and a decrease of $11.9 million in cash used for changes in our
working capital accounts. The $19.4 million increase in cash provided by operating activities in 2004 resulted from an
increase in cash provided by net income adjusted by other non-
cash items, such as depreciation expense, and a decrease
in cash used for changes in our working capital accounts. Cash provided by net income and other non-cash items was
$27.2 million in 2004, an increase of $5.5 million, compared to $21.7 million in 2003, and was primarily attributable to
the $7.0 million increase in net income. The cash used for changes in our working capital accounts, which were
discussed in the working capital comments above, was $14.5 million in 2004 compared to $28.3 million in 2003.
We used cash of $5.8 million during 2005 and $8.3 million during 2004 in investing activities, principally for the
purchase of property, plant and equipment. Capital expenditures in both 2005 and 2004 included upgrades and
enhancements to our information and communications systems hardware and facilities costs for the opening of
additional retail outlet stores in North America. During 2003, $9.7 million of cash was used in investing activities,
principally $7.1 million for the purchase of property, plant and equipment and $2.6 million for the acquisition of the
minority interest in our Netherlands subsidiary. The capital expenditures in 2003 included upgrades and enhancements
to our information and communications systems hardware and facilities costs for the opening of several retail outlet
stores. We anticipate no major capital expenditures in 2006 and will fund any capital expenditures out of cash from
operations and borrowings under our credit lines.
Net cash of $4.7 million was provided by financing activities for the year ended December 31, 2005, primarily as
a result of an increase in our short-term borrowings in Europe. Net cash of $6.8 million was used in financing activities
in 2004, primarily for the repayment of short and long-
term borrowings. Net cash of $3.8 million was used in financing
activities in 2003, primarily to repay short and long-term obligations.
We amended our $70 million secured United States revolving credit agreement in October 2005 to increase the
amount available to $120 million (which may be increased by up to an additional $30 million, subject to certain
conditions), increase the number of lenders participating and to provide for borrowings by both our United States and
United Kingdom businesses. The upgraded facility expires in October 2010. Borrowings under the agreement are
subject to borrowing base limitations of up to 85% of eligible accounts receivable and 40% of qualified inventories and
are secured by accounts receivable, inventories and certain other assets. The undrawn availability under the facility may
not be less than $15 million until the last day of any month in which the availability net of outstanding borrowings is at
least $70 million. The revolving credit agreement requires that we maintain a minimum level of availability. If such
availability is not maintained, we will then be required to maintain a fixed charge coverage ratio (as defined). The
agreement contains certain other covenants, including restrictions on capital expenditures and payments of dividends.
We were in compliance with all of the covenants as of December 31, 2005. We were not in compliance with the
financial reporting requirements regarding timely filing of our financial statements under the agreement for periods
subsequent to December 31, 2005 for which the lenders have approved a waiver. As of December 31, 2005, availability
under the facility was $97.6 million. There were outstanding advances of $21.8 million (all in the United Kingdom) and
outstanding letters of credit of $14.6 million as of December 31, 2005.