Circuit City 2003 Annual Report Download - page 23

differences between the book and tax bases of recorded assets and liabilities. The realization of net deferred tax assets is
dependent upon our ability to generate sufficient future taxable income. Where it is more likely than not that some
portion or all of the deferred tax asset will not be realized, we have provided a valuation allowance. If the realization of
those deferred tax assets in the future is considered more likely than not, an adjustment to the deferred tax assets would
increase net income in the period such determination is made. In the event that actual results differ from these estimates
or we adjust these estimates in future periods, an adjustment to the valuation allowance may be required, which could
materially affect our consolidated financial position and results of operations.
Restructuring charges.
We have taken restructuring actions, and may commence further restructuring activities which
requires management to utilize significant estimates related to expenses for severance and other employee separation
costs, lease cancellations, asset impairments and other exit costs. Should the actual amounts differ from our estimates,
the amount of the restructuring charges could be impacted, which could materially affect our consolidated financial
position and results of operations.
Recent Accounting Developments
In November 2002, the Financial Accounting Standards Board issued Interpretation 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.
Interpretation 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 adoption of the recognition and measurement provisions of
Interpretation 45 did not have a material effect on our consolidated financial statements.
In December 2003, the Financial Accounting Standards Board issued Interpretation 46 (Revised) to address
certain Interpretation 46 implementation issues. This interpretation clarifies the application of Accounting Research
Bulletin 51, “Consolidated Financial Statements”, for companies that have interests in entities that are Variable Interest
Entities as defined under Interpretation 46. According to this interpretation, if a company has an interest in a Variable
Interest Entity and is at risk for a majority of the Variable Interest Entity’s expected losses or receives a majority of the
Variable Interest Entity’s expected gains it shall consolidate the Variable Interest Entity. Interpretation 46-R also
requires additional disclosures by primary beneficiaries and other significant variable interest holders. For entities
acquired or created before February 1, 2003, this interpretation is effective no later than the end of the first interim or
reporting period ending after March 15, 2004, except for those Variable Interest Entity's that are considered to be special
purpose entities, for which the effective date is no later than the end of the first interim or annual reporting period ending
after December 15, 2003. For all entities that were acquired subsequent to January 31, 2003, this interpretation is
effective as of the first interim or annual period ending after December 31, 2003. We have adopted Interpretation 46-R
and are evaluating the impact of this interpretation on our consolidated financial statements.
In April 2003, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards
149, “Amendment of Statement 133 on Derivative Instruments and Hedging Activities.” Statement of Financial
Accounting Standards 149 amends and clarifies Statement of Financial Accounting Standards 133 for the financial
accounting and reporting of derivative instruments and hedging activities and requires that contracts with similar
characteristics be accounted for on a comparable basis. The provisions of Statement of Financial Accounting Standards
149 are effective for contracts entered into or modified after June 30, 2003, and for hedging relationships designated
after June 30, 2003. The adoption of Statement of Financial Accounting Standards 149 did not have a material impact on
our consolidated financial statements.
In May 2003, the Financial Accounting Standards Board issued SFAS 150, “Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and Equity.” Statement of Financial Accounting Standards 150
establishes standards on the classification and measurement of certain financial instruments with characteristics of both
liabilities and equity. The provisions of Statement of Financial Accounting Standards 150 are effective for financial
instruments entered into or modified after May 31, 2003 and to all other instruments that exist as of the beginning of the
first interim financial reporting period beginning after June 15, 2003. The adoption of Statement of Financial