Circuit City 2007 Annual Report Download - page 12

Item 1A. Risk Factors.
There are a number of factors and variables described below that may affect our future results of operations and financial condition. Other
factors of which we are currently not aware or that we currently deem immaterial may also affect our results of operations and financial position.
Risks Related to Our Industry
• Economic conditions have affected and could continue to adversely affect our revenues and profits.
Both we and our customers are subject to global political, economic and market conditions, including inflation, interest rates, energy
costs, the impact of natural disasters, military action and the threat of terrorism. Our consolidated results of operations are directly
affected by economic conditions in North America and Europe. We may experience a decline in sales as a result of poor economic
conditions and the lack of visibility relating to future orders. Our results of operations depend upon, among other things, our ability to
maintain and increase sales volumes with existing customers, our ability to attract new customers and the financial condition of our
customers. A decline in the economy that adversely affects our customers, causing them to limit or defer their spending, would likely
adversely affect us as well. We cannot predict with any certainty whether we will be able to maintain or improve upon historical sales
volumes with existing customers, or whether we will be able to attract new customers.
In response to economic and market conditions, from time to time we have undertaken initiatives to reduce our cost structure where
appropriate. The initiatives already implemented as well as any future workforce and facilities reductions undertaken may not be
sufficient to meet the changes in economic and market conditions and to achieve future profitability. In addition, costs actually
incurred in connection with our restructuring actions may be higher than our estimates of such costs and/or may not lead to the
anticipated cost savings.
• Competitive pressures could harm our revenue and gross margin.
We may not be able to compete effectively with current or future competitors. The markets for our products and services are intensely
competitive and subject to constant technological change. We expect this competition to further intensify in the future. Competitive
factors include price, availability, service and support. We compete with a wide variety of other resellers and retailers, as well as
manufacturers. Some of our competitors are larger companies with greater financial, marketing and product development resources
than ours. In addition, new competitors may enter our markets. This may place us at a disadvantage in responding to competitors’
pricing strategies, technological advances and other initiatives, resulting in our inability to increase our revenues or maintain our
gross margins in the future.
In many cases our products compete directly with those offered by other manufacturers and distributors. If any of our competitors
were to develop products or services that are more cost-effective or technically superior, demand for our product offerings could
decrease.
Our gross margins are also dependent on the mix of products we sell and could be adversely affected by a continuation of our
customers’ shift to lower-priced products. As do most other companies in the technology products industry, we advertise
manufacturers’ mail-in rebates on many products we sell and, in some cases, offer our own rebates. We process these rebates through
third party vendors and in house. If we are unable to fulfill these rebates in a timely and satisfactory manner, our reputation in the
marketplace could be negatively impacted.
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