Circuit City 2002 Annual Report Download - page 33

2002 2001 2000
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Net income (loss) - as reported $(58,939) $653 $(40,771)
Stock-based employee compensation expense determined under 713 780 1,788
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fair value based method, net of related tax effects
Pro forma net loss $(59,652) $(127) $(42,559)
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Basic and diluted net income (loss) per common share:
Net income (loss) - as reported $(1.73) $.02 $(1.19)
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Net loss - pro forma $(1.75) - $(1.24)
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19,000 of equivalent common shares were included for the diluted calculation.
Comprehensive Income (Loss) - Comprehensive income (loss) consists of net income (loss) and foreign currency
translation adjustments and is included in the Consolidated Statements of Shareholders' Equity. Comprehensive
loss was $53,031,000 in 2002, $723,000 in 2001 and $44,685,000 in 2000, net of tax effects on foreign currency
translation adjustments of $3,483,000 in 2002, $1,338,000 in 2001 and $1,719,000 in 2000.
Stock-based Compensation – The Company has three stock-
based employee compensation plans, which are more
fully described in Note 8. The Company has elected to follow the accounting provisions of Accounting Principles
Board ("APB") Opinion 25, "Accounting for Stock Issued to Employees" for stock-based compensation and to
provide the pro forma disclosures required under SFAS 148, "Accounting for Stock-based Compensation –
Transition and Disclosure". No stock-
based employee compensation cost is reflected in net income, as all options
granted under the plans have an exercise price equal to the market value of the underlying stock on the date of
grant. The following table illustrates the effect on net income (loss) and earnings (loss) per share had
compensation costs of the plans been determined under a fair value alternative method as stated in SFAS 123,
"Accounting for Stock
-
Based Compensation" (in thousands, except per share data):
The Company arrived at the fair value of stock grant at the date of the grant by using the Black-Scholes pricing
option model with the following assumptions used for grants: risk-free interest rate of 5.6% (2002), 6.1% (2001)
and 6.0% (2000); expected dividend rate of 0% for 2002, 2001 and 2000; expected life of 2.52 years (2002), 3.17
years (2001) and 3.72 years (2000); and expected volatility of 71% (2002), 72% (2001) and 62% (2000). The
stock options outstanding at December 31, 2002, 2001 and 2000 have a weighted average contractual life of 7.8
years, 8.1 years and 6.7 years, respectively.
Use of Estimates In Financial Statements -
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America 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.
Recent Accounting Pronouncements
- In August 2001, the Financial Accounting Standards Board ("FASB")
issued SFAS 143, "Accounting for Asset Retirement Obligations". The 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 present valued 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