Circuit City 1997 Annual Report Download - page 23

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.
NET INCOME PER COMMON SHARE
- In December 1997 the Company adopted Statement of Financial Accounting Standards No. 128,
"Earnings Per Share" and restated net income per common share for all periods presented. Net income per common share-basic was calculated
based upon the weighted average number of common shares outstanding during 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 1997 and 1996 were 38.0
million and 37.6 million, respectively. Additionally 262,000 and 505,000 of equivalent common shares were included in 1997 and 1996,
respectively, for the diluted calculation.
2. PRO FORMA INFORMATION (UNAUDITED)
PRO FORMA INCOME ADJUSTMENTS
The pro forma income data for the year ended December 31, 1995 present the effects on the historical consolidated financial statements of
certain transactions related to the June 1995 IPO as if they occurred as of the beginning of the year, including (1) reduced levels of
compensation and royalty payments to officers, (2) the elimination of $500,000 per year of compensation paid to a shareholder pursuant to a
consulting agreement entered into in 1992 which terminated in connection with the IPO, (3) the elimination of interest paid on officers notes in
1995, and (4) the provision for income taxes to eliminate the benefit, for income tax purposes, of the predecessor companies with S
Corporation status.
PRO FORMA NET INCOME PER COMMON SHARE
Pro forma net income per common share-basic was based on the weighted average number of shares of common stock outstanding prior to and
after the IPO. Pro forma net income per common share-diluted was calculated based on the weighted average number of shares outstanding
plus the effect of approximately 201,000 options assumed outstanding after the IPO.
3. ACQUISITIONS
During 1997 the Company acquired the net assets of three businesses for a total of $50.8 million in cash, stock and purchase related costs with
additional contingent cash consideration possible. These acquisitions are being accounted for as purchase transactions. The Company recorded
the fair market value of the net assets acquired at $15.9 million and the excess of the purchase price over that amount as goodwill.
The unaudited pro forma results of operations of the Company, including the pro forma effect as if those companies had been acquired as of
January 1, 1995, are as follows (in thousands, except earnings per common share):
In November 1995, Global acquired TigerDirect, Inc. ("Tiger") and recorded, at that time the purchase price in excess of the fair value of the
net assets acquired as goodwill. The estimated fair values were further evaluated by the Company during 1996 and, as a result, goodwill was
reduced by approximately $3.1 million. During 1997 the Company had determined that, as a result of its decision to exit certain lines of Tiger's
business acquired as part of the original purchase, an impairment of the goodwill associated with those exited business lines had occurred. As
such, the Company recorded a write down in the value of the goodwill of approximately $6.3 million.
4. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment, net consists of the following (in thousands):
YEAR ENDED DECEMBER 31 1997 1996 1995
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Net sales $ 1,334,183 $1,207,625 $ 975,946
Net income $ 39,286 $ 42,251 $ 29,839
Earnings per common share - basic and diluted $ 1.02 $ 1.10 $ .83
DECEMBER 31 1997 1996
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Land and buildings...............................................................$ 8,085 $ 5,226
Furniture and fixtures, office and warehouse equipment........................... 32,857 27,273
Leasehold improvements........................................................... 6,096 3,990
Transportation equipment......................................................... 1,817 1,555
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48,855 38,044