CompUSA 2008 Annual Report Download - page 49

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create or permit liens on assets
make capital expenditures or investments
pay dividends
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, which would adversely affect our cash position and adversely affect
the availability of financing to us, which could materially impact our operations.
We have experienced rapid growth in retail stores
The acquisition of CompUSA in 2008 added 16 retail stores, more than double the then existing
number of stores. The addition of these stores requires the Company to effectively manage its
cost structure in order to maintain profitability including the additional inventory needs, retail
point of sales IT systems, retail personnel and leased facilities. Future growth in retail will also
be dependent on the ability to attract customers and build brand loyalty. The retail computer
and consumer electronics business is highly competitive and has narrow gross margins. If we
fail to manage our growth and cost structure while maintaining high levels of service and
meeting competitive pressures adequately, our business plan may not be achieved and may
lead to reduced profitability.
Rebate Processing
Similiar to other companies in the technology products industry, we advertise manufacturers’
mail-in rebates on many products we sell and, in some cases, offer our own rebates. These
rebates are processed through third party vendors and in house. If these rebates are not
processed in a timely and satisfactory manner by either third party vendors or our in house
operations, our reputation in the marketplace could be negatively impacted. See Item 3, Legal
Proceedings.
Gross profit margins in Technology Products are narrow and variable
The computer and consumer electronics industry is highly price competitive and gross profit
margins are narrow and variable. The Company’ s ability to reduce prices in reaction to
competitive pressure may be limited. Additionally, gross profit margins and operating margins
are affected by changes in factors such as vendor pricing, vendor rebate and or price protection
programs, product return rights, and product mix. Pricing pressure was prevalent in the second
half of 2008 as a result of the significant decline in economic activity in the markets we serve
and we expect this to continue during this or any period of sustained economic decline. We
may not be able to mitigate these pricing pressures and resultant declines in sales and gross
profit margin with cost reductions in other areas or expansion into new product lines. If we are
unable to proportionately mitigate these conditions our operating results and financial condition
may suffer.
We may be liable for misuse, loss or theft of our customers’ personal information

In processing our sales orders we often collect personal information and credit card information
from our customers. The Company has comprehensive privacy and data security policies in
place which are designed to prevent security breaches, however, if a third party or a rogue
employee or employees are able to bypass our network security or otherwise compromise our
customers’ personal information or credit card information, we could be subject to liability.
This liability may include claims for identity theft, unauthorized purchases, claims alleging
misrepresentation of our privacy and data security practices or other related claims.