Circuit City 2010 Annual Report Download - page 27

Net cash used in investing activities was $24.7 million during 2010, primarily for capital expenditures including expenditures for the second
North American distribution center for the Technology Products segment. Cash flows used in investing activities during 2009 totaled $32.3
million primarily for the CircuitCity.com acquisition and for capital expenditures. Net cash used in investing activities was $45.5 million during
2008, primarily for the CompUSA acquisition and for capital expenditures. Capital expenditures in 2010, 2009 and 2008 included upgrades and
enhancements to our information and communications systems hardware and software and expenditures in retail stores in North America.
Net cash used in financing activities was $4.7 million during 2010. We borrowed and repaid approximately $261.7 million against our credit
facilities. We repaid approximately $13.2 million in short term debt and approximately $1.5 million in capital lease obligations and received
proceeds of approximately $7.9 million from the Recovery Zone Facility Bond. Proceeds and excess tax benefits from stock option exercises
provided approximately $2.1 million of cash. Net cash used in financing activities was $31.5 million during 2009. We repaid approximately $3.6
million in short-term debt and approximately $0.8 million in capital lease obligations, paid a special dividend of $27.6 million, and repurchased
Company stock of approximately $1.2 million. Proceeds and excess tax benefits from stock option exercises provided approximately $1.7
million of cash. Net cash used in financing activities was $45.0 million during 2008, attributable to dividends paid of $37.1 million, repayment
of short term debt of $3.9 million, repayment of $0.7 million in capital lease obligations, repurchase of common stock of approximately $5.8
million, offset by proceeds of stock option exercises and related excess tax benefits of $2.5 million.
We have a $125.0 million secured revolving credit agreement (which may be increased to $200.0 million, subject to certain conditions). The
facility has a five year term expiring in October 2015. The borrowings under the agreement are subject to borrowing base limitations of up to
85% of eligible accounts receivable and up to 40% of qualified inventories. Borrowings are secured by substantially all of the Company’
s assets,
including accounts receivable, inventory and certain other assets, subject to limited exceptions, including the exclusion of certain foreign assets
from the collateral. The amended and restated credit agreement contains certain operating, financial and other covenants, including limits on
annual levels of capital expenditures, availability tests related to payments of dividends and stock repurchases and fixed charge coverage tests
related to acquisitions. The revolving credit agreement requires that we maintain a minimum level of availability. If such availability is not
maintained, we will then be required to maintain a fixed charge coverage ratio (as defined). As of December 31, 2010, the Company was in
compliance with all of the covenants under the credit facility. Eligible collateral under the facility was $125.0 million, total availability was
$115.9 million, outstanding letters of credit of were $9.1 million and there were no outstanding advances.
The Company’s Inmac WStore subsidiary maintains a secured revolving credit agreement with a financial institution in France which is secured
by WStore Europe SA accounts receivable balances. Available amounts for borrowing under this facility includes all accounts receivable
balances not over 60 days past due reduced by the greater of €4.0 million or 10% of the eligible accounts receivable. As of December 31, 2010,
there was availability under this credit facility of approximately €15.6 million ($20.9 million) and there were no outstanding borrowings. The
credit facility duration is indefinite; however either party may cancel the agreement with ninety days notice. Under this agreement the Company
is subject to certain non-financial covenants which it was in compliance with at December 31, 2010.
The Company’s WStore UK subsidiary maintained a £
2 million secured revolving credit agreement with a financial institution in the United
Kingdom. The Company terminated this facility in July 2010.
On September 23, 2010, the Company (through a subsidiary) completed tax exempt Recovery Zone Facility Bond (the “Bonds”)
financing for up
to $15 million with the Development Authority of Jefferson, Georgia (the “Authority”).
The Bonds were issued by the Authority and initially
purchased by GE Government Finance Inc., and mature on October 1, 2018. Interest on the Bonds is calculated at the rate of 4.15% per annum
and principal and interest payments are due monthly. The proceeds of the Bonds are used to finance or repay the costs of capital equipment
purchased for the Company’
s distribution facility located in Jefferson, Georgia. The purchase and installation of all the equipment for the
facility is expected to be completed by December 31, 2011. Pursuant to the transaction, the Company will transfer to the Authority for
consideration consisting of the Bond proceeds ownership of the equipment to be used at the distribution facility and the Authority in turn will
lease the equipment to the Company’
s subsidiary pursuant to a capital equipment lease expiring October 1, 2018. Under the capital equipment
lease the Company has the right to acquire ownership of the equipment at any time for a purchase price sufficient to pay off all principal and
interest on the Bonds, plus $1.00.
Our earnings and cash flows are seasonal in nature, with the fourth quarter of the fiscal year generating higher earnings and cash flows than the
other quarters. Levels of earnings and cash flows are dependent on factors such as consolidated gross margin and selling, general and
administrative costs as a percentage of sales, product mix and relative levels of domestic and foreign sales. Unusual expense items, such as one
time charges and settlements, may impact earnings and are separately disclosed. We expect that past performance may not be indicative of future
performance due to the competitive nature of our Technology Products segment where the need to adjust prices to gain or hold market share is
prevalent.
Macroeconomic conditions, such as business and consumer sentiment, may affect our revenues, cash flows or financial condition. However, we
do not believe that there is a direct correlation between any specific macroeconomic indicator and our revenues, cash flows or financial
condition. We are not currently interest rate sensitive, as we have significant cash balances and minimal debt.
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