Circuit City 2000 Annual Report Download - page 27

2. ACQUISITIONS
Goodwill, net – Goodwill and negative goodwill are combined and presented net of accumulated amortization.
Goodwill represents the excess of acquisition costs over the fair market value of the net assets of acquired
businesses and is being amortized on a straight-line basis over their estimated useful lives, ranging from 10 to 40
years. In instances where the Company had acquired a business below the fair value of the assets acquired, the
Company recorded negative goodwill. Annual amortization of goodwill was an expense of $1,698,000 in 2000,
$2,323,000 in 1999 and $751,000 in 1998
Evaluation of Long
-lived Assets – Long-lived assets are assessed for recoverability whenever events or changes in
circumstances indicate that an asset may have been impaired. In evaluating an asset for recoverability, the
Company estimates the future cash flows expected to result from the use of the asset and eventual disposition. If
the sum of the expected future cash flows (undiscounted and without interest charges) is less than the carrying
amount of the asset, an impairment loss, equal to the excess of the carrying amount over the fair market value of
the asset is recognized. During the second quarter of 1999, the Company wrote off $1.9 million of goodwill
associated with a number of small acquisitions made during the previous few years.
Net Income (Loss) Per Common Share
– The Company accounts for net income (loss) per share in accordance
with Statement of Financial Accounting Standard No. 128, "Earnings Per Share". Net income (loss) per common
share-basic was calculated based upon the weighted average number of common shares outstanding during the
respective periods. Net income (loss) 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 except in loss periods, where the effect is anti
-
dilutive.
The weighted average common shares outstanding for the computation of basic earnings per common share for
2000, 1999 and 1998 were 34.3 million, 35.8 million and 37.3 million, respectively. Additionally 42,000 in 1999
and 16,000 in 1998 of equivalent common shares were included for the diluted calculation.
Comprehensive Income (Loss) - 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 (loss) consists of net income (loss) and foreign currency
translation adjustments and is included in the Consolidated Statements of Shareholders' Equity. Comprehensive
income (loss) was ($44,685,000) in 2000, $33,355,000 in 1999 and $42,335,000 in 1998, net of tax effects on
currency translation adjustments of $1,719,000 in 2000, $1,593,000 in 1999 and ($699,000) in 1998.
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.
Recent Accounting Pronouncements
- Statement of Financial Accounting Standards (SFAS) No. 133, Accounting
for Derivative Instruments and Hedging Activities, is effective for all fiscal years beginning after June 15, 2000.
SFAS 133, as amended, establishes accounting and reporting standards for derivative instruments, including
certain derivative instruments embedded in other contracts and for hedging activities. Under SFAS 133, certain
contracts that were not formerly considered derivatives may now meet the definition of a derivative. The Company
will adopt SFAS 133 effective January 1, 2001. The Company currently does not make use of derivative
instruments as defined by SFAS No. 133. If the Company does not increase the utilization of derivative
instruments, the adoption of this standard is not expected to have a significant impact on the financial position,
results of operations, or cash flows of the Company.
In December 1999, the Securities and Exchange Commission ("SEC") issued Staff Accounting Bulletin No. 101
("SAB 101"), "Revenue Recognition in Financial Statements." SAB 101 summarizes certain SEC views in
applying generally accepted accounting principles to revenue recognition in financial statements. The Company
adopted SAB 101 in the fourth quarter of 2000. The adoption did not have a significant effect on the consolidated
results of operations or financial position.