Circuit City 2002 Annual Report Download - page 34

2. GOODWILL
Certain Employee Termination Benefits and Other Costs to Exit an Activity (Including Certain Costs Incurred in
a Restructuring)". SFAS 146 is effective for exit or disposal activities that are initiated subsequent to December
31, 2002. The Company expects that adoption of this statement will not have a significant impact on the
Company's consolidated financial statements.
In November 2002, the FASB issued Interpretation 45 ("FIN 45") "Guarantor's Accounting and Disclosure
Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others", which requires that a
guarantor recognize, at the inception of a guarantee, a liability for the fair value of the obligation undertaken in
issuing the guarantee. However, the provisions related to recognizing a liability at inception of the guarantee for
the fair value of the guarantor's obligations does not apply to product warranties or to guarantees accounted for as
derivatives. FIN 45 also elaborates on the disclosures to be made by a guarantor in its interim and annual
financial statements about its obligations under certain guarantees it has issued. The initial recognition and initial
measurement provisions of this Interpretation are applicable on a prospective basis to guarantees issued or
modified after December 31, 2002 and the disclosure requirements in this Interpretation are effective for financial
statements of interim or annual periods ending after December 15, 2002. The Company has made the required
disclosures as of December 31, 2002 and does not expect the recognition and measurement provisions of FIN 45
to have a material effect on its consolidated financial statements.
In December 2002, the FASB issued SFAS 148, "Accounting for Stock-Based Compensation — Transition and
Disclosure, an amendment of FASB Statement No. 123". SFAS 148 amends SFAS 123 "Accounting for Stock-
Based Compensation," to provide alternative methods of transition for an entity that voluntarily changes to the
fair value based method of accounting for stock-based employee compensation. In addition, SFAS 148 amends
the disclosure requirements of SFAS 123 to require prominent disclosures in annual financial statements about
the method of accounting for stock-based employee compensation and the effect of the method used on reported
results. Finally, this Statement amends APB Opinion 28, "Interim Financial Reporting", to require disclosure
about those effects in interim financial information. SFAS 148 is effective for fiscal years ending after December
15, 2002. The interim disclosure provisions are effective for financial reports containing financial statements for
interim periods beginning after December 15, 2002. The Company will continue to account for stock-based
compensation using the intrinsic value method of APB Opinion 25. The Company has adopted the disclosures
provision of SFAS 148 as of December 31, 2002 and will be required to disclose these effects in its interim
financial statements as well.
In January 2003, the FASB issued Interpretation 46 ("FIN 46"), "Consolidation of Variable Interest Entities",
which requires the consolidation of variable interest entities, as defined. FIN 46 requires existing unconsolidated
variable interest entities to be consolidated by their primary beneficiaries if the entities do not effectively disperse
risks among parties involved. FIN 46 applies immediately to variable interest entities created after January 31,
2003, and to variable interest entities in which an enterprise obtains an interest after that date. The Interpretation
applies in the first fiscal year or interim period beginning after June 15, 2003, to variable interest entities in which
an enterprise holds a variable interest that it acquired before February 1, 2003. The only variable interest entity of
the Company is its 50%-owned joint venture disclosed in Note 1. The Company is evaluating the impact of this
interpretation on its consolidated financial results.
In July 2001, the FASB issued SFAS 141, "Business Combinations," which requires all business combinations
initiated after June 30, 2001 to be accounted for under the purchase method. SFAS 141 also sets forth guidelines
for applying the purchase method of accounting in the determination of intangible assets, including goodwill
acquired in a business combination, and expands financial disclosures concerning business combinations
consummated after June 30, 2001. The application of SFAS 141 did not affect any previously reported amounts
included in goodwill.
Effective January 1, 2002, the Company adopted SFAS 142, "Goodwill and Other Intangible Assets," which
established new accounting and reporting requirements for goodwill and other intangible assets. SFAS 142
requires that goodwill amortization be discontinued and replaced with periodic tests of impairment. The
Company's goodwill was tested for impairment during the second quarter of 2002 as required by the transitional
provisions of SFAS 142, utilizing a combination of valuation techniques including the market capitalization of
the Company, the expected present value of future cash flows and a market multiple approach. The result of this