Circuit City 2008 Annual Report Download - page 15

Table of Contents
their products in our catalogs and on our internet sites. Certain suppliers provide us with other incentives such as rebates,
reimbursements, payment discounts, price protection and other similar arrangements. These incentives are offset against cost of
goods sold or selling, general and administrative expenses, as applicable. The level of co-op advertising support and other incentives
received from suppliers may decline in the future, which could increase our cost of goods sold or selling, general and administrative
expenses and have an adverse effect on results of operations and cash flows.
•
Goodwill and intangible assets may become impaired resulting in a charge to earnings.
The acquisition of certain assets of CompUSA resulted in the recording of significant intangible assets and goodwill. We are required
to test goodwill and intangible assets to determine if the carrying values of these assets are impaired annually or on a more frequent
basis if indicators of impairment exist. If any of our goodwill or intangible assets are determined to be impaired we may be required
to record a significant charge to earnings in the period during which the impairment is discovered.
•
We have substantial international operations and we are exposed to fluctuations in currency exchange rates and political
uncertainties.
We operate internationally and as a result, we are subject to risks associated with doing business globally. Risks inherent to operating
overseas include:
•
Changes in a country’s economic or political conditions
•
Changes in foreign currency exchange rates
•
Difficulties with staffing and managing international operations
•
Unexpected changes in regulatory requirements
For example, we currently have operations located in numerous countries outside the United States, and non-U.S. sales (Europe,
Canada and Puerto Rico) accounted for approximately 37.9% of our revenue during 2008. To the extent the U.S. dollar strengthens
against foreign currencies, our foreign revenues and profits will be reduced when translated into U.S. dollars.
• We are exposed to inventory risks.
A substantial portion of our inventory is subject to risk due to technological change and changes in market demand for particular
products. If we fail to manage our inventory of older products we may have excess or obsolete inventory. We may have limited rights
to return purchases to certain suppliers and we may not be able to obtain price protection on these items. The elimination of purchase
return privileges and lack of availability of price protection could lower our gross margin or result in inventory write-downs.
We also take advantage of attractive product pricing by making opportunistic bulk inventory purchases; any resulting excess and/or
obsolete inventory that we are not able to re-sell could have an adverse impact on our results of operations. Any inability to make
such bulk inventory purchases may significantly impact our sales and profitability.
•
Restrictions and covenants in our credit facility may limit our ability to enter into certain transactions.
Our United States/United Kingdom combined revolving credit agreement contains covenants restricting or limiting our ability to,
among other things:
•
incur additional debt
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