Circuit City 2004 Annual Report Download - page 18

plan to consolidate the warehousing facilities in our United States computer business. We recorded $713,000 of costs
related to this plan in the fourth quarter, including $233,000 of non-cash costs for impairment of the carrying value of
fixed assets and $480,000 of charges for other exit costs. During the fourth quarter of fiscal 2003 we recorded $2.2
million of additional costs, net of reductions, as a charge to operations for our 2002 United Kingdom consolidation
plan. These charges consisted of $1.6 million of other restructuring activities as we adjusted the original estimates of
lease and contract termination costs and $600,000 of additional non-cash asset impairments, related to buildings
vacated. The restructuring costs incurred in 2003 were partially offset by a $1.3 million reversal of a previously
recorded liability which was no longer required as a result of our settlement of litigation with a software developer in
August 2003.
During the second quarter of 2003, we purchased the minority ownership of our Netherlands subsidiary for
approximately $2.6 million, pursuant to the terms of the original purchase agreement. All of the purchase price was
attributable to goodwill and, as a result of an impairment analysis, was written off in accordance with Statement of
Financial Accounting Standards 142, "Goodwill and Other Intangible Assets."
We recorded $17.3 million of restructuring and other charges during 2002. We implemented a plan to
consolidate the activities of our three United Kingdom locations into a new facility we had constructed. We incurred
$4.1 million of costs associated with the plan, including $1.9 million for recruitment, staff relocation and severance and
benefits for approximately 150 terminated employees, $1.7 million of charges for other exit costs, primarily facilities
closing and lease terminations, and $0.5 million of non-cash costs for impairment of the carrying value of fixed assets.
During the second quarter of 2002 we recorded a non-recurring write-off of $13.2 million resulting from our decision
to discontinue development of internal-use computer software.
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INCOME (LOSS) FROM OPERATIONS
We had income from operations of $19.0 million in 2004 and $9.2 million in 2003. We had a loss from
operations of $7.0 million in 2002. For the year ended December 31, 2004, restructuring charges of $7.4 million were
included in income from operations. Results in 2003 include restructuring and other charges of $1.7 million and a
goodwill impairment charge of $2.6 million. The loss from operations in 2002 includes $17.3 million of restructuring
and other charges.
We had losses from operations in Europe for the year ended December 31, 2004 of $12.4 million and in 2003 of
$5.3 million, compared to income from operations of $7.8 million in Europe in 2002. European results continued to
decline as a result of decreased gross profit and increased selling, general and administrative expenses. As a result of
the decline in our European profitability, in early 2005 we announced additional plans to reduce costs and increase
efficiency through the elimination of approximately 185 positions in Europe, which is expected to result in
approximately $8 million in annual savings, excluding severance and other restructuring costs to be recognized in fiscal
2005.
INTEREST AND OTHER INCOME AND INTEREST EXPENSE
Interest expense was $3.1 million in 2004, $2.3 million in 2003 and $1.7 million in 2002. Interest expense
increased in 2004 as a result of increased short-
term borrowings in the United Kingdom. The increased expense in 2003
resulted from increased short-
term borrowings under our United Kingdom facility and a full year of interest expense on
long-term obligations incurred in 2002. Interest and other income, net was $0.6 million in 2004, $0.8 million in 2003
and $0.4 million in 2002.
INCOME TAXES
Our income tax provision was $6.4 million in 2004 and $4.4 million in 2003 and we had an income tax benefit
of $0.8 million in 2002. The effective rates were 38.5% in 2004, 57.6% in 2003 and 9.8% in 2002. The tax rate in 2004
was higher than the United States statutory rate of 35% primarily due to losses in foreign jurisdictions for which we