Circuit City 2010 Annual Report Download - page 13

Risks Related to Our Company
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. In particular, our primary financial system is being replaced currently. The occurrence of a significant
system failure, electrical or telecommunications outages or our failure to expand or successfully implement new systems could have a
material adverse effect on our results of operations.
Our information systems networks, including our websites, and applications could be adversely affected by viruses or worms and
may be vulnerable to malicious acts such as hacking. The availability and efficiency of sales via our websites could also be adversely
affected by “denial of service” attacks and other unfair competitive practices. 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.
We purchase substantially all of our technology products from major distributors and directly from large manufacturers who may
deliver those products directly to our customers. These relationships enable us to make available to our customers a wide selection of
products without having to maintain large amounts of inventory. The termination or interruption of our relationships with any of these
suppliers could materially adversely affect our business.
We purchase a number of our products from vendors outside of the United States. Difficulties encountered by one or several of these
suppliers could halt or disrupt production and delay completion or cause the cancellation of our orders. Delays or interruptions in the
transportation network could result in loss or delay of timely receipt of product required to fulfill customer orders. Our ability to find
qualified vendors who meet our standards and supply products in a timely and efficient manner is a significant challenge, especially
with respect to goods sourced from outside the U.S. Political or financial instability, merchandise quality issues, product safety
concerns, trade restrictions, work stoppages, tariffs, foreign currency exchange rates, transportation capacity and costs, inflation, civil
unrest, outbreaks of pandemics and other factors relating to foreign trade are beyond our control. These and other issues affecting our
vendors could materially adversely affect our revenue and gross profit .
Our PC products contain electronic components, subassemblies and software that in some cases are supplied through sole or limited
source third-party suppliers, some of which are located outside of the U.S. Although we do not anticipate any problems procuring
supplies in the near-term, there is no assurance that parts and supplies will be available in a timely manner and at reasonable prices.
Any loss of, or interruption of, supply from key suppliers may require us to find new suppliers. This could result in production or
development delays while new suppliers are located, which could substantially impair operating results. If the availability of these or
other components used in the manufacture of our products was to decrease, or if the prices for these components were to increase
significantly, operating costs and expenses could be adversely affected.
Many product suppliers provide us with co-op advertising support in exchange for featuring 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.
We currently offer a wide variety of products manufactured in Japan or utilizing Japanese components. In this regard, the recent and
still unfolding events in Japan could adversely impact our ability to source products manufactured in Japan as well as products
manufactured elsewhere utilizing Japanese components, and such events are expected to result in higher prices for available products.
If we are unable to source such products, procure alternative product sources or pass along such price increases, our sales and margins
could be materially adversely affected.
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We rely to a great extent on our information and telecommunications systems, and significant system failures or outages, or our
failure to properly evaluate, upgrade or replace our systems, or the failure of our security/safety measures to protect our systems and
websites, could have an adverse affect on our results of operations.
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We rely on third party suppliers for most of our products and services. The loss or interruption of these relationships could impact
our sales volumes, the levels of inventory we must carry, and/or result in sales delays and/or higher inventory costs from new
suppliers. Coop advertising and other sales incentives provided by our suppliers could decrease in the future thereby increasing our
expenses and adversely affecting our results of operations and cash flows.
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