Circuit City 2001 Annual Report Download - page 30

The Company has also provided valuation allowances for certain state net operating loss carryforwards where it is not likely they will be
realized.
8. COMMITMENTS, CONTINGENCIES AND OTHER MATTERS
LEASES - The Company is obligated under operating lease agreements for the rental of certain office and warehouse facilities and equipment
which expire at various dates through September 2013. The Company currently leases two facilities in New York from entities owned by the
Company's three principal stockholders/senior executives.
At December 31, 2001 future minimum annual lease payments for related and third-party leases were as follows (in thousands):
Annual rent expense aggregated approximately $7,869,000, including $1,224,000 to related parties, for 2001, $8,580,000, including $1,314,000
to related parties, for 2000 and $8,223,000, including $1,584,000 to related parties, for 1999.
GUARANTEES - The Company has issued a guarantee to a U. K. financial institution to secure a line of credit for the Company's United
Kingdom subsidiaries.
LITIGATION -
In December 1999 the Company settled its lawsuit with a bankrupt former supplier and its lenders. After the payment of a cash
settlement, the Company's results of operations were positively impacted ($3.0 million net of tax) by the reversal of amounts previously
reserved for in connection with this lawsuit.
The Company has been named as a defendant in other lawsuits incidental to its business. Management of the Company, based on discussions
with legal counsel, believes the ultimate resolution of these lawsuits will not have a material effect on the Company's consolidated financial
position or results of operations.
CONTINGENCY - The Company is required to collect sales tax on certain of its sales. In accordance with current laws, approximately 16% of
the Company's 2001 domestic sales were subject to sales tax. Changes in law could require the Company to collect sales tax in additional
states.
EMPLOYEE BENEFIT PLANS - The Company's U.S. subsidiaries participate in defined contribution 401(k) plans covering eligible
employees as defined by the plan document. Contributions to the plans by the Company are determined as a percentage of the employees'
contributions. Aggregate expense to the Company for contributions to such plans was approximately $482,000 in 2001, $514,000 in 2000 and
$437,000 in 1999.
Liabilities accrued by certain foreign entities for employee termination indemnities, determined in accordance with labor laws and labor
agreements in effect in the respective country, were not material.
FOREIGN EXCHANGE RISK MANAGEMENT - The Company has no involvement with derivative financial instruments and does not use
them for trading purposes. The Company may enter into foreign currency options or forward exchange contracts to hedge certain foreign
currency transactions. The intent of this practice would be to minimize the impact of foreign exchange rate movements on the Company's
operating results. As of December 31, 2001, the Company had no outstanding forward exchange contracts.
FAIR VALUE OF FINANCIAL INSTRUMENTS - Financial instruments consist primarily of investments in cash, trade account receivables,
accounts payable and debt obligations. The Company estimates the fair value of financial instruments based on interest rates available to the
Company and by comparison to quoted market prices. At December 31, 2001 and 2000, the carrying amounts of cash and cash equivalents,
accounts receivable, income taxes receivable and accounts payable are considered to be representative of their respective fair values due to
their short-term nature. The carrying amounts of the notes payable to banks are considered to be representative of their respective fair values as
their interest rates are based on market rates.
CONCENTRATION OF CREDIT RISK -
Financial instruments that potentially subject the Company to concentrations of credit risk consist of
cash, cash equivalents and accounts receivable. Concentrations of credit risk with respect to accounts receivable are limited due to the large
number of customers and their geographic dispersion comprising the Company's customer base.
Related Party Third Party Total
------------- ----------- --------
2002..................... $ 1,224 $ 5,008 $ 6,232
2003..................... 1,224 4,656 5,880
2004..................... 1,224 3,781 5,005
2005..................... 1,224 3,781 5,005
2006..................... 1,224 3,531 4,755
2007-2011................ 1,148 10,358 11,506
2012-2015................ 357 357
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$ 7,268 $ 31,472 $ 38,740
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