Circuit City 2006 Annual Report Download - page 24

In addition to the contractual obligations noted above, we had $11.0 million of standby letters of credit outstanding as
of December 31, 2006.
Our operating results have generated cash flow which, together with borrowings under our debt agreements, has
provided sufficient capital resources to finance working capital and cash operating requirements, fund capital expenditures,
and fund the payment of interest on outstanding debt. Our primary ongoing cash requirements will be to finance working
capital, provide payment of the special shareholder dividend of approximately $35 million declared in the first quarter of
2007, fund the payment of principal and interest on indebtedness, fund capital expenditures, fund minimal acquisitions and
fund any future special shareholder dividends that may be declared. We believe future cash flows from operations and
availability of borrowings under our lines of credit will be sufficient to fund ongoing cash requirements for at least the next
twelve months.
We are party to certain litigation, the outcome of which we believe, based on discussions with legal counsel, will not
have a material adverse effect on our consolidated financial statements.
Off-Balance Sheet Arrangements
We have not created, and are not party to, any special-purpose or off-balance sheet entities for the purpose of raising
capital, incurring debt or operating our business. We do not have any arrangements or relationships with entities that are not
consolidated into the financial statements that are reasonably likely to materially affect our liquidity or the availability of
capital resources.
Item 7A. Quantitative and Qualitative Disclosure About Market Risk.
We are exposed to market risks, which include changes in U.S. and international interest rates as well as changes in
currency exchange rates (principally Pounds Sterling, Euros and Canadian Dollars) as measured against the U.S. Dollar and
each other.
The translation of the financial statements of our operations located outside of the United States is impacted by
movements in foreign currency exchange rates. Changes in currency exchange rates as measured against the U.S. dollar may
positively or negatively affect sales, gross margins, operating expenses and retained earnings as expressed in U.S. dollars.
Sales would have fluctuated by approximately $80 million and income from operations would have fluctuated by
approximately $1.4 million if average foreign exchange rates changed by 10% in 2006. We have limited involvement with
derivative financial instruments and do not use them for trading purposes. We may enter into foreign currency options or
forward exchange contracts aimed at limiting in part the impact of certain currency fluctuations, but as of December 31, 2006
we had no outstanding forward exchange contracts.
Our exposure to market risk for changes in interest rates relates primarily to our variable rate debt. Our variable rate
debt consists of short-term borrowings under our credit facilities. As of December 31, 2006, the balance outstanding on our
variable rate debt was approximately $12.3 million. A hypothetical change in average interest rates of one percentage point is
not expected to have a material effect on our financial position, results of operations or cash flows over the next fiscal year.
Item 8. Financial Statements and Supplementary Data.
The information required by Item 8 of Part II is incorporated herein by reference to the Consolidated Financial
Statements filed with this report; see Item 15 of Part IV.
Item 9. Changes In and Disagreements with Accountants on Accounting and Financial Disclosure.
None.
Item 9A. Controls and Procedures.
Disclosure Controls and Procedures
The Company establishes and maintains disclosure controls and procedures that are designed to provide reasonable