Circuit City 2002 Annual Report Download - page 21

expense has been recognized for stock options as options are granted at fair market value. SFAS 123, "Accounting for
Stock-Based Compensation" provides an alternative method of accounting for stock options based on an option-pricing
model, such as Black-Scholes. The Company has adopted the disclosure requirements of SFAS 123. Information and
assumptions regarding compensation expense under the alternative method is provided in Note 1 to the Consolidated
Financial Statements.
Recent Accounting Developments
In August 2001, the FASB issued SFAS 143, "Accounting for Asset Retirement Obligations". This standard
requires entities to record the fair value of a liability for an asset retirement obligation in the period in which it is
incurred. When the liability is initially recorded, the entity capitalizes the cost associated with the asset retirement
obligation by increasing the carrying amount of the related long-lived asset. Over time, the liability is adjusted to its
present value each period, and the capitalized cost is depreciated over the useful life of the related asset. Upon
settlement of the liability, an entity either settles the obligation for its recorded amount or incurs a gain or loss upon
settlement. The standard is effective for fiscal years beginning after June 15, 2002. The adoption of SFAS 143 is not
expected to have a material impact on the Company's consolidated financial position or results of operations.
In July 2002, the FASB issued SFAS 146, "Accounting for Costs Associated with Exit or Disposal Activities".
SFAS 146 requires companies to recognize the costs associated with exit or disposal activities when they are incurred.
Currently these types of costs are recognized at the time management commits the Company to the exit/disposal plan in
accordance with Emerging Issues Task Force ("EITF") Issue 94-3, "Liability Recognition for Certain Employee
Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring)". SFAS
146 is effective for exit or disposal activities that are initiated subsequent to December 31, 2002. The Company expects
that adoption of this statement will not have a significant impact on the Company's consolidated financial statements.
In November 2002, the FASB issued Interpretation 45 ("FIN 45") "Guarantor's Accounting and Disclosure
Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others", which requires that a
guarantor recognize, at the inception of a guarantee, a liability for the fair value of the obligation undertaken in issuing
the guarantee. However, the provisions related to recognizing a liability at inception of the guarantee for the fair value
of the guarantor's obligations does not apply to product warranties or to guarantees accounted for as derivatives. FIN 45
also elaborates on the disclosures to be made by a guarantor in its interim and annual financial statements about its
obligations under certain guarantees it has issued. The initial recognition and initial measurement provisions of this
Interpretation are applicable on a prospective basis to guarantees issued or modified after December 31, 2002 and the
disclosure requirements in this Interpretation are effective for financial statements of interim or annual periods ending
after December 15, 2002. The Company has made the required disclosures in the consolidated financial statements as
of December 31, 2002 and does not expect the recognition and measurement provisions of FIN 45 to have a material
effect on its consolidated financial statements.
In December 2002, the FASB issued SFAS 148, "Accounting for Stock-Based Compensation — Transition and
Disclosure, an amendment of FASB Statement 123". SFAS 148 amends SFAS 123 "Accounting for Stock-Based
Compensation," to provide alternative methods of transition for an entity that voluntarily changes to the fair value
based method of accounting for stock-based employee compensation. In addition, SFAS 148 amends the disclosure
requirements of SFAS 123 to require prominent disclosures in annual financial statements about the method of
accounting for stock-based employee compensation and the effect of the method used on reported results. Finally, this
Statement amends APB Opinion 28, "Interim Financial Reporting", to require disclosure about those effects in interim
financial information. SFAS 148 is effective for fiscal years ending after December 15, 2002. The interim disclosure
provisions are effective for financial reports containing financial statements for interim periods beginning after
December 15, 2002. The Company will continue to account for stock-based compensation using the intrinsic value
method of APB Opinion 25. The Company has adopted the disclosures provision of SFAS 148 (see Note 1 to the
Consolidated Financial Statements) as of December 31, 2002 and will be required to disclose these effects in its interim
financial statements as well.
In January 2003, the FASB issued Interpretation 46 ("FIN 46"), "Consolidation of Variable Interest Entities",
which requires the consolidation of variable interest entities, as defined. FIN 46 requires existing unconsolidated
variable interest entities to be consolidated by their primary beneficiaries if the entities do not effectively disperse risks
among parties involved. FIN 46 applies immediately to variable interest entities created after January 31, 2003, and to