Circuit City 2003 Annual Report Download - page 52

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 adoption of the recognition and measurement provisions of FIN 45 did not have a material effect on the
Company's consolidated financial statements.
In December 2003, the FASB issued FIN 46 (Revised) ("FIN 46-R") to address certain FIN 46 implementation
issues. This interpretation clarifies the application of Accounting Research Bulletin ("ARB") 51, "Consolidated
Financial Statements", for companies that have interests in entities that are Variable Interest Entities (VIE) as
defined under FIN 46. According to this interpretation, if a company has an interest in a VIE and is at risk for a
majority of the VIE's expected losses or receives a majority of the VIE's expected gains it shall consolidate the
VIE. FIN 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 VIE'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. The
Company has adopted FIN 46R and is evaluating the impact of this interpretation on its consolidated financial
statements.
In April 2003, the FASB issued SFAS 149, "Amendment of Statement 133 on Derivative Instruments and
Hedging Activities." SFAS 149 amends and clarifies SFAS 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 SFAS 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 SFAS 149 did not
have a material impact on the Company's consolidated financial statements.
In May 2003, the FASB issued SFAS 150, "Accounting for Certain Financial Instruments with Characteristics of
both Liabilities and Equity." SFAS 150 establishes standards on the classification and measurement of certain
financial instruments with characteristics of both liabilities and equity. The provisions of SFAS 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 SFAS
150 did not have a material impact on the Company's consolidated financial statements.
2.
BUSINESS COMBINATIONS AND 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. With the
adoption of SFAS 142, management determined that the carrying value of the Company was impaired in an
amount greater than the carrying value of goodwill at the date of adoption. As required by SFAS 142, the entire
carrying value of goodwill was written off. This write-off, $68 million ($51 million or $1.50 per share, net of tax),
was reported as a cumulative effect of a change in accounting principle, on a net of tax basis, in the Company's
Consolidated Statements of Operations for the year ended December 31, 2002. The adoption of SFAS 142 had no
cash flow impact on the Company.
During the second quarter of 2003, the Company purchased the minority ownership of its Netherlands subsidiary
pursuant to the terms of the original purchase agreement for approximately $2.6 million. All of the purchase price
was attributable to goodwill and, as a result of an impairment analysis, was written off in accordance with SFAS
142.
Adoption of the non-amortization provisions of SFAS 142 as of January 1, 2001 would have increased net income
for the year ended December 31, 2001 by $1,126,000, or $.03 per diluted share.
3.
PROPERTY, PLANT AND EQUIPMENT