Circuit City 2004 Annual Report Download - page 46

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49
Basic net income (loss) per common share:
Net income (loss) - as reported $.30 $ .09 $(1.71)
==== ===== ======
Net income (loss) - pro forma $.28 $ .08 $(1.73)
==== ===== ======
Diluted net income (loss) per common share:
Net income (loss) - as reported $.29 $ .09 $(1.71)
==== ===== ======
Net income (loss) - pro forma $.28 $ .08 $(1.73)
==== ===== ======
2004 2003 2002
---- ---- ----
Expected dividend yield 0% 0% 0%
Risk-free interest rate 5.5% 5.9% 5.6%
Expected volatility 46.0% 76.0% 71.0%
Expected life in years 2.36 2.41 2.52
The fair value of options granted was estimated on the date of grant using the Black-Scholes option-pricing
model with the following assumptions:
The weighted average contractual life of the stock options outstanding was 7.4 years at December 31, 2004, 7.7
years at December 31, 2003 and 7.8 years at December 31, 2002.
Recent Accounting Pronouncements
In January 2003, the Financial Accounting Standards Board ("FASB") issued Interpretation 46 ("FIN 46"),
"Consolidation of Variable Interest Entities," which requires the consolidation of variable interest entities
("VIE"), as defined, by their primary beneficiaries if the entities do not effectively disperse risks among parties
involved. In December 2003, the FASB issued FIN 46-R to address certain FIN 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 VIEs 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. The Company has adopted FIN 46R
and began consolidating a 50%-
owned joint venture in the first quarter of 2004. This consolidation did not have a
material impact on the Company's consolidated financial position, results of operations or cash flows.
In November 2004, the FASB issued SFAS 151, "Inventory Costs, an amendment of ARB No. 43, Chapter 4."
SFAS 151 clarifies that abnormal inventory costs such as costs of idle facilities, excess freight and handling
costs, and wasted materials (spoilage) are required to be recognized as current period charges. SFAS 151 also
requires that the allocation of fixed production overheads to the costs of conversion be based on the normal
capacity of the production facility. The provisions of SFAS 151 will be effective for fiscal years beginning after
June 15, 2005. The Company is currently evaluating the provisions of SFAS 151 and does not expect that the
adoption will have a material impact on the Company's consolidated financial position or results of operations.
In December 2004, the FASB issued SFAS 123 (revised 2004) (SFAS 123R), "Share-Based Payment." SFAS
123R replaced SFAS 123 and superseded APB 25. SFAS 123R will require the Company to expense share-based
payments, including employee stock options, based on their fair value. The Company is required to adopt the