Circuit City 2008 Annual Report Download - page 24

Table of Contents
Revenue Recognition.
We recognize product sales when persuasive evidence of an order arrangement exists, delivery has occurred, the sales
price is fixed or determinable and collectibility is reasonably assured. Generally, these criteria are met at the time of receipt by customers when
title and risk of loss both are transferred. Sales are shown net of returns and allowances, rebates and sales incentives. Reserves for estimated
returns and allowances are provided when sales are recorded, based on historical experience and current trends.
Accounts Receivable and Allowance for Doubtful Accounts
. We record an allowance for doubtful accounts to reflect our estimate of the
collectibility of our trade accounts receivable. We evaluate the collectibility of accounts receivable based on a combination of factors, including
an analysis of the age of customer accounts and our historical experience with accounts receivable write-offs. The analysis also includes the
financial condition of a specific customer or industry, and general economic conditions. In circumstances where we are aware of customer
charge-backs or a specific customer’s inability to meet its financial obligations, a specific reserve for bad debts applicable to amounts due to
reduce the net recognized receivable to the amount management reasonably believes will be collected is recorded. In those situations with
ongoing discussions, the amount of bad debt recognized is based on the status of the discussions. While bad debt allowances have been within
expectations and the provisions established, there can be no guarantee that we will continue to experience the same allowance rate we have in the
past.
Inventories
. We value our inventories at the lower of cost or market, cost being determined on the first-in, first-out method except in Europe
and retail locations where an average cost is used. Excess and obsolete or unmarketable merchandise are written down based on historical
experience, assumptions about future product demand and market conditions. If market conditions are less favorable than projected or if
technological developments result in accelerated obsolescence, additional write-downs may be required. While obsolescence and resultant
markdowns have been within expectations, there can be no guarantee that we will continue to experience the same level of markdowns we have
in the past.
Goodwill and, Intangible Assets — We apply the provisions of Statement of Financial Accounting Standards No. 142 (“FAS 142”), “Goodwill
and Other Intangible Assets,” in our valuation of goodwill and other intangible assets. FAS 142 requires that goodwill be reviewed at least
annually for potential impairment. The amount of an impairment loss would be recognized as the excess of the asset’
s carrying value over its fair
value.
Long
-lived Assets. Management exercises judgment in evaluating our long-lived assets for impairment. We believe we will generate sufficient
undiscounted cash flow to more than recover the investments made in property, plant and equipment. Our estimates of future cash flows involve
assumptions concerning future operating performance and economic conditions. While we believe that our estimates of future cash flows are
reasonable, different assumptions regarding such cash flows could materially affect our evaluations.
Accruals.
Management exercises judgment in estimating various period end liabilities such as costs related to vendor drop shipments, sales
returns and allowances, cooperative advertising and customer rebate reserves, and other vendor and employee related costs. While we believe
that these estimates are reasonable, any significant deviation of actual costs as compared to these estimates could have a material impact on the
Company’s consolidated financial statements.
Income Taxes.
We are subject to taxation from federal, state and foreign jurisdictions and the determination of our tax provision is complex and
requires significant management judgment. Management judgment is also applied in the determination of deferred tax assets and liabilities and
any valuation allowances that might be required in connection with our ability to realize deferred tax assets.
Since we conduct operations in numerous US states and internationally, our effective tax rate has and will continue to depend upon the
geographic distribution of our pre-tax income or losses among locations with varying tax rates and rules. As the geographic mix of our pre-tax
results among various tax jurisdictions changes, the effective tax rate may vary from period to period. We are also subject to periodic
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