CompUSA 2007 Annual Report Download - page 56

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• Sales to individual consumers exposes us to credit card fraud, which could adversely affect our
business.
Failure to adequately control fraudulent credit card transactions could increase our expenses.
Increased sales to individual consumers, which are more likely to be paid for using a credit
card, increases our exposure to fraud. We employ technology solutions to help us detect the
fraudulent use of credit card information. However, if we are unable to detect or control credit
card fraud, we may suffer losses as a result of orders placed with fraudulent credit card data,
which could adversely affect our business.
• 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.
• Our income tax rate and the value of our deferred tax assets are subject to change.
Changes in our income tax expense due to changes in the mix of U.S. and non-U.S. revenues
and profitability, changes in tax rates or exposure to additional income tax liabilities could
affect our profitability. We are subject to income taxes in the United States and various foreign
jurisdictions. Our effective tax rate could be adversely affected by changes in the mix of
earnings in countries with differing statutory tax rates, changes in the valuation of deferred tax
assets and liabilities, changes in tax laws or by material audit assessments. The carrying value
of our deferred tax assets, which are primarily in the United States and the United Kingdom, is
dependent on our ability to generate future taxable income in those jurisdictions. In addition,
the amount of income taxes we pay is subject to ongoing audits in various jurisdictions and a
material assessment by a tax authority could affect our profitability.
• Our reliance on information and communications technology requires significant expenditures
and entails risk.
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 financial systems are disparate and will likely be replaced during the coming
years. 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 web sites, and applications could be
adversely affected by viruses or worms and may be vulnerable to malicious acts such as
hacking. 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.