Circuit City 2004 Annual Report Download - page 28

those situations with ongoing discussions, the amount of bad debt recognized is based on the status of the discussions.
While bad debt allowances have been within expectations and the provisions established, there can be no guarantee that
we will continue to experience the same allowance rate we have in the past.
Inventories
. We value our inventories at the lower of cost or market, cost being determined on the first-in, first-out
method. Reserves for excess and obsolete or unmarketable merchandise are provided based on historical experience,
assumptions about future product demand and market conditions. The adequacy of these reserves are evaluated
quarterly. If market conditions are less favorable than projected or if technological developments result in accelerated
obsolescence, additional write-downs may be required. While obsolescence and resultant markdowns have been within
expectations, there can be no guarantee that we will continue to experience the same level of markdowns we have in
the past.
Long
-lived Assets. Management exercises judgment in evaluating our long-lived assets for impairment. We believe we
will generate sufficient undiscounted cash flow to more than recover the investments made in property, plant and
equipment. Our estimates of future cash flows involve assumptions concerning future operating performance and
economic conditions. While we believe that our estimates of future cash flows are reasonable, different assumptions
regarding such cash flows could materially affect our evaluations
Income Taxes.
We are subject to taxation from federal, state and foreign jurisdictions and the determination of our tax
provision is complex and requires significant management judgment. Management judgment is also applied in the
determination of deferred tax assets and liabilities and any valuation allowances that might be required in connection
with our ability to realize deferred tax assets.
Since we conduct operations internationally, our effective tax rate has and will continue to depend upon the geographic
distribution of our pre-tax income or losses among locations with varying tax rates and rules. As the geographic mix of
our pre-tax results among various tax jurisdictions changes, the effective tax rate may vary from period to period. We
are also subject to periodic examination from domestic and foreign tax authorities regarding the amount of taxes due.
These examinations include questions regarding the timing and amount of deductions and the allocation of income
among various tax jurisdictions. We have established, and periodically reevaluate, an estimated income tax reserve on
our consolidated balance sheet to provide for the possibility of adverse outcomes in income tax proceedings. While
management believes that we have identified all reasonably identifiable exposures and that the reserve we have
established for identifiable exposures is appropriate under the circumstances, it is possible that additional exposures
exist and that exposures may be settled at amounts different than the amounts reserved.
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We account for income taxes in accordance with Statement of Financial Accounting Standards 109, "Accounting for
Income Taxes", which requires that deferred tax assets and liabilities be recognized for the effect of temporary
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
result in recognition of restructuring charges. These actions require management to make judgments and utilize
significant estimates regarding the nature, timing and amounts of costs associated with the activity. When we incur a
liability related to a restructuring action, we estimate and record all appropriate expenses, including expenses for
severance and other employee separation costs, facility consolidation costs (including estimates of sublease income),
lease cancellations, asset impairments and any 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.