Circuit City 2010 Annual Report Download - page 14

The acquisition of certain assets of CompUSA, CircuitCity and the purchase of the stock of WStore Europe SA resulted in the
recording of significant intangible assets and or goodwill. We are required to test goodwill and intangible assets annually to
determine if the carrying values of these assets are impaired 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 operate internationally and as a result, we are subject to risks associated with doing business globally. Risks inherent to operating
overseas include:
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 35.9% of our revenue during 2010. 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.
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.
Our United States/United Kingdom combined revolving credit agreement contains covenants restricting or limiting our ability to,
among other things:
If we fail to comply with the covenants and other requirements set forth in the credit agreement, we would be in default and would
need to negotiate a waiver agreement with the lenders. Failure to agree on such a waiver could result in the lenders terminating the
credit agreement and demanding repayment of any outstanding borrowings, which could adversely affect our cash position and
adversely affect the availability of financing to us, which could materially impact our operations.
• Goodwill and intangible assets may become impaired resulting in a charge to earnings.
• Our substantial international operations are subject to risks such as fluctuations in currency rates (which can adversely impact
foreign revenues and profits when translated to US Dollars), foreign regulatory requirements, political uncertainty and the
management of our growing international operations
.
•
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
•
We are exposed to various inventory risks, such as being unable to profitably resell excess or obsolete inventory and/or the loss of
product return rights and price protection from our vendors; such events could lower our gross margins or result in inventory write
-
downs that would reduce reported future earnings.
•
If we fail to observe certain restrictions and covenants under our credit facilities the lenders could refuse to waive such default,
terminate the credit facility and demand immediate repayment, which would adversely affect our cash position and materially
adversely affect our operations.
• incur additional debt
•
create or permit liens on assets
•
make capital expenditures or investments
•
pay dividends
• We depend on bank credit facilities to address our working capital and cash flow needs from time to time, and if we are unable to
renew or replace these facilities, or borrowing capacity were to be reduced our liquidity and capital resources may be adversely
affected.
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