Circuit City 1998 Annual Report Download - page 28

Accounting Standard No. 128, "Earnings Per Share". Net income per common share-basic was calculated based upon the weighted average
number of common shares outstanding during the respective periods. Net income per common share-diluted was calculated based upon the
weighted average number of common shares outstanding and included the equivalent shares for dilutive options outstanding during the
respective periods.
The weighted average common shares outstanding for the computation of basic earnings per common share for 1998, 1997 and 1996 were 37.3
million, 38.0 million and 37.6 million, respectively. Additionally 16,000 (1998), 262,000
(1997) and 505,000 (1996) of equivalent common shares were included for the diluted calculation.
COMPREHENSIVE INCOME - In 1998, the Company adopted Statement of Financial Accounting Standard No. 130 "Reporting
Comprehensive Income". This statement establishes rules for the reporting of comprehensive income and its components. Comprehensive
income consists of net income and foreign currency translation adjustments and is included in the Consolidated Statements of Shareholders'
Equity. Comprehensive income was $42,335,000
(1998), $36,641,000 (1997) and $44,348,000 (1996), net of effects on currency translation adjustments of ($699,000) (1998), $1,469,000
(1997) and ($386,000) (1996).
USE OF ESTIMATES IN FINANCIAL STATEMENTS - The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that affect the reported amount of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates.
2. ACQUISITIONS
The Company acquired two businesses in 1998 for $5.9 million in cash and three businesses in 1997 for $50.8 million in cash and stock. These
acquisitions were accounted for as purchases, and accordingly, the assets and liabilities of the acquired entities have been recorded at their
estimated fair values at the dates of acquisition. The excess of purchase price over the estimated fair values of net assets acquired, in the
amount of $5.2 million in 1998 and $15.9 million in 1997 has been recorded as goodwill and is being amortized over the estimated useful lives.
The largest acquisition in 1997, Infotel Inc., included a provision for payment of additional consideration to the former shareholders if the
acquired entity's results of operations exceeded certain targeted levels. Additional consideration of $9 million was earned in 1998 (payable in
1999) and was recorded as an increase to the purchase price. The maximum amount of remaining contingent consideration is $3 million
(payable in 2000). During 1998 the estimated fair values of the net assets recorded at the date of acquisition for Infotel, Inc. were further
evaluated by the Company and, in accordance with Statement of Financial Accounting Standard No. 38, "Accounting for Pre Acquisition
Contingencies of Purchased Enterprises", goodwill was reduced by approximately $10.7 million.
The pro forma results for 1998, 1997 and 1996, assuming these acquisitions had been made at the beginning of the period, would not have been
materially different from the reported results.
3. PROPERTY, PLANT AND EQUIPMENT
During 1997 the Company recorded a charge relating to the impairment of certain long-lived fixed assets of approximately $2.9 million.
4. RELATED PARTY TRANSACTIONS
The Company leases several warehouse and office facilities from affiliates (see Note 8). Rent expense under those leases aggregated
approximately $1,584,000, $1,901,000 and $2,130,000 for the years ended December 31, 1998, 1997 and 1996, respectively.
5. LONG-TERM DEBT
Long-term debt consists of the following (in thousands):
Property, plant and equipment, net consists of the following (in
thousands):
1998 1997
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Land and buildings.............................................................$ 8,324 $ 8,085
Furniture and fixtures, office and warehouse equipment 42,471 32,857
Leasehold improvements.......................................................... 7,871 6,096
Transportation equipment........................................................ 2,111 1,817
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60,777 48,855
Less accumulated depreciation and amortization 26,789 19,454
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Property, plant and equipment, net..............................................$ 33,988 $ 29,401
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