Circuit City 2004 Annual Report Download - page 57

--
Present value of minimum capitalized lease
payments (including current portion of $387) $1,185
======
December 31,
2004 2003
---- ----
Furniture and fixtures, office, computer
and other equipment $1,680 $1,680
Less: Accumulated amortization 503 123
--- ---
$1,177 $ 1,557
====== =======
Assets recorded under capital leases are included in Property, Plant and Equipment as follows (in thousands):
Annual rent expense aggregated approximately $7,887,000, including $612,000 to related parties, for 2004,
$7,693,000, including $612,000 to related parties, for 2003 and $8,164,000, including $1,071,000 to related
parties, for 2002.
Litigation
-
In August 2003 the Company entered into a settlement agreement with a software developer of a new
customer order management software system that was being written for the Company's internal use. The specific
terms of the settlement agreement are confidential; however, none of the terms had a material effect on the
business or the consolidated financial statements of the Company.
The Company has also been named as a defendant in other lawsuits in the normal course of its business,
including those involving commercial, tax, employment and intellectual property related claims. Based on
discussions with legal counsel, management believes the ultimate resolution of these lawsuits will not have a
material effect on the Company's consolidated financial statements.
Contingency - The Company is required to collect sales tax on certain of its sales. In accordance with current
laws, approximately 17% of the Company's 2004 domestic sales and 16% of the 2003 and 2002 domestic sales
were subject to sales tax. Changes in law could require the Company to collect sales tax in additional states and
subject the Company to liabilities related to past sales.
Employee Benefit Plans
- The Company's U.S. subsidiaries participate in a defined contribution 401(k) plan
covering substantially all U.S. employees. Employees may invest 1% or more of their eligible compensation,
limited to maximum amounts as determined by the Internal Revenue Service. The Company provides a matching
contribution to the plan, determined as a percentage of the employees' contributions. Aggregate expense to the
Company for contributions to such plans was approximately $436,000 in 2004, $408,000 in 2003 and $442,000
in 2002.
Liabilities accrued by certain foreign entities for employee termination indemnities, determined in accordance
with labor laws and labor agreements in effect in the respective country, were not material.
Foreign Exchange Risk Management
- The Company has no involvement with derivative financial instruments
and does not use them for trading purposes. The Company may enter into foreign currency options or forward
exchange contracts to hedge certain foreign currency transactions. The intent of this practice would be to
minimize the impact of foreign exchange rate movements on the Company's operating results. As of December
31, 2004, the Company had no outstanding forward exchange contracts.
Fair Value of Financial Instruments
- Financial instruments consist primarily of investments in cash and cash
equivalents, trade account receivables, accounts payable and debt obligations. The Company estimates the fair
value of financial instruments based on interest rates available to the Company and by comparison to quoted
market prices. At December 31, 2004 and 2003, the carrying amounts of cash and cash equivalents, accounts
receivable, income taxes receivable and accounts payable are considered to be representative of their respective
fair values due to their short-term nature. The carrying amounts of the notes payable to banks and the term loan