Circuit City 2005 Annual Report Download - page 29

adopt the provisions of SFAS 123R effective as of the beginning of its first quarter in 2006. The Company is evaluating
the available alternatives of adoption of SFAS 123R. The Company currently accounts for share-based payments using
APB Opinion 25‘s intrinsic value method and recognizes no compensation expense for employee stock options as
permitted under SFAS 123. See “Stock-based Compensation,” above, for the effect on reported net income if we had
accounted for our stock-based compensation plans using the fair value recognition provisions of SFAS 123. The actual
effects of adopting SFAS 123R will depend on numerous factors, including the amounts of share-based payments
granted in the future, the valuation model we use and estimated forfeiture rates. The Company has not made any
modifications to its stock-based compensation plans as a result of the issuance of SFAS 123R. The Company believes
the adoption of SFAS 123R will not have a material effect on its consolidated financial statements.
In March 2005, the Securities and Exchange Commission (“SEC”) released SEC Staff Accounting Bulletin
(“SAB”) 107, “Share-Based Payment.” SAB 107 provides the SEC staff’s position regarding the application of SFAS
No. 123R and certain SEC rules and regulations, and also provides the staff
’s views regarding the valuation of share-
based payments for public companies. The Company will adopt SAB 107 in connection with its adoption of SFAS
123R. The Company is currently reviewing the effects, if any, that the application of SAB 107 will have on the
Company’s consolidated financial position and results of operations.
In May 2005, the FASB issued SFAS No. 154, “Accounting Changes and Error Corrections” (“SFAS 154”)
which replaces Accounting Principles Board Opinion No. 20 “Accounting Changes” and SFAS No. 3, “Reporting
Accounting Changes in Interim Financial Statements-An Amendment of APB Opinion No. 28.” SFAS 154 changes the
requirements for the accounting for and reporting of a change in accounting principle. Previously, most voluntary
changes in accounting principles required recognition of a cumulative effect adjustment within net income of the period
of the change. SFAS 154 requires retrospective application to prior periods’ financial statements, unless it is
impracticable to determine either the period-specific effects or the cumulative effect of the change. SFAS 154 also
applies to changes required by an accounting pronouncement in the rare case that the pronouncement does not contain
specific transition provisions. This statement also carries forward the guidance from APB No. 20 regarding the
correction of an error and changes in accounting estimates. SFAS 154 is effective for accounting changes and
corrections of errors made in fiscal years beginning after December 15, 2005. The Company does not believe the
adoption of SFAS 154 will have a material effect on its consolidated financial position, results of operations or cash
flows.
In June 2005, the FASB issued FSP FAS 143-1, “Accounting for Electronic Equipment Waste
Obligations” (“FSP FAS 143-1”) to address the accounting for obligations associated with a European Union’s
Directive on Waste Electrical and Electronic Equipment (the “Directive”). The Directive, enacted in 2003, requires EU-
member countries to adopt legislation to regulate the collection, treatment, recovery and environmentally sound
disposal of electrical and electronic waste equipment. The Directive distinguishes between products put on the market
after August 13, 2005 (“new waste”) and products put on the market on or before that date (“historical waste”). FSP
FAS 143-1 addresses the accounting for historical waste only and will be applied the later of the first reporting period
ending after June 8, 2005 or the date of the adoption of the law by the applicable EU-member country. The adoption of
FSP FAS 143-1 did not have a material impact on the Company’s consolidated financial position or results of
operations for the EU-member countries which have adopted the law.
In October 2005, the FASB issued FSP FAS 13-1, “Accounting for Rental Costs Incurred During a Construction
Period,” (“FSP FAS 13-1”) which requires the expensing of rental costs associated with ground or building operating
leases that are incurred during the construction period. FSP FAS 13-
1 is effective in the first reporting period beginning
after December 15, 2005. The Company does not expect that this pronouncement will have a material effect on its
financial position or results of operations.
Item 7A. Quantitative and Qualitative Disclosure About Market Risk.
We are exposed to market risks, which include changes in U.S. and international interest rates as well as changes
in currency exchange rates (principally Pounds Sterling, Euros and Canadian Dollars) as measured against the U.S.
Dollar and each other.
The translation of the financial statements of our operations located outside of the United States is impacted by
movements in foreign currency exchange rates. Changes in currency exchange rates as measured against the U.S. dollar