Circuit City 2004 Annual Report Download - page 43

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Fiscal Year
- The Company's fiscal year ends on December 31. The Company's North American computer
business has a 52 or 53 week fiscal year that ends on the last Saturday of the calendar year. Fiscal years 2004,
2003 and 2002 consisted of 52 weeks for this business.
Foreign Currency Translation
- The financial statements of the Company's foreign entities are translated into
U.S. dollars, the reporting currency, using year-end exchange rates for balance sheet items and average exchange
rates for the statement of operations items. The translation differences are recorded as a separate component of
shareholders' equity.
Cash and Cash Equivalents - The Company considers amounts held in money market accounts and other short-
term investments, including overnight bank deposits, with an original maturity date of three months or less to be
cash equivalents.
Inventories
- Inventories consist primarily of finished goods and are stated at the lower of cost or market value.
Cost is determined by using the first
-
in, first
-
out method.
Property, Plant and Equipment
- Property, plant and equipment is stated at cost. Depreciation of furniture,
fixtures and equipment is on the straight-
line or accelerated method over their estimated useful lives ranging from
three to ten years. Depreciation of buildings is on the straight-line method over estimated useful lives of 30 to 50
years. Leasehold improvements are amortized over the lesser of the useful lives or the term of the respective
leases.
Capitalized Software Costs - The Company capitalizes purchased software ready for service and capitalizes
software development costs incurred on significant projects from the time that the preliminary project stage is
completed and management commits to funding a project until the project is substantially complete and the
software is ready for its intended use. Capitalized costs include materials and service costs and payroll and
payroll-related costs. Capitalized software costs are amortized using the straight-line method over the estimated
useful life of the underlying system, generally five years.
Goodwill - The cost in excess of fair value of net assets of businesses acquired is recorded in the consolidated
balance sheets as "Goodwill." In accordance with Statement of Financial Accounting Standards ("SFAS") No.
142, "Goodwill and Other Intangible Assets", the Company ceased amortization of goodwill effective January 1,
2002. The Company completed the transitional impairment analysis required under SFAS 142 during 2002,
which resulted in an implied fair value of goodwill of zero. See Note 3 for the impact of the adoption of SFAS
142 on the consolidated financial statements
Evaluation of Long
-lived Assets - Long-lived assets are evaluated for recoverability in accordance with SFAS
144, "Accounting for the Impairment or Disposal of Long-lived Assets", whenever events or changes in
circumstances indicate that an asset may have been impaired. In evaluating an asset for recoverability, the
Company estimates the future cash flows expected to result from the use of the asset and eventual disposition. If
the sum of the expected future cash flows (undiscounted and without interest charges) is less than the carrying
amount of the asset, an impairment loss, equal to the excess of the carrying amount over the fair market value of
the asset is recognized.
Product Warranties
- Provisions for estimated future expenses relating to product warranties for the Company's
assembled PCs are recorded as cost of sales when revenue is recognized. Liability estimates are determined based
on management judgment considering such factors as the number of units sold, historical and anticipated rates of
warranty claims and the likely current cost of corrective action.
Income Taxes
- Deferred tax assets and liabilities are recognized for the expected tax consequences of temporary
differences between financial reporting and tax bases of assets and liabilities and are measured using enacted tax
laws and rates. Valuation allowances are provided for deferred tax assets to the extent it is more likely than not
that deferred tax assets will not be recoverable against future taxable income.
Revenue Recognition and Accounts Receivable
- The Company recognizes sales of products, including shipping