Circuit City 2005 Annual Report Download - page 53

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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 consolidated financial position or results of operations.
2.
RESTATEMENT OF PREVIOUSLY FILED FINANCIAL STATEMENTS
Subsequent to the issuance of the Company’s consolidated financial statements in its Form 10-K for the year
ended December 31, 2004, the Company discovered errors related to accounting for inventory at its Tiger Direct,
Inc. subsidiary. These errors had the effect of misstating the value of inventory and certain vendor-related
liabilities as of December 31, 2004 and overstating net income for the year ended December 31, 2004. Such
errors did not have any impact on the consolidated financial statements for any previous years. For the year ended
December 31, 2004, an error was also corrected in the presentation of the Consolidated Statement of Cash Flows
related to activity in the allowances for doubtful accounts and subsequent customer returns. The restatement
affected cash flows provided by operations but did not affect previously reported net cash flows for the restated
period or future periods.
The Company restated its presentation of long-term debt to classify its entire United Kingdom term loan payable
as of December 31, 2004 as current, as it was not in compliance with the financial covenants.
The restated results also include changes resulting from a correction in the application of the Company’s revenue
recognition policy. The Company determined during its internal review of 2004 results that a change in its
revenue recognition policy for sales of product was required in order to comply with Staff Accounting Bulletin
No. 104
“Revenue Recognition” (SAB 104), as interpreted by the SEC Staff. Based on the Company’s practices
with respect to its terms of shipment, revenue that had been recognized at time of shipment based upon FOB
shipping point terms should have been recognized at time of receipt by customers, when title and risk of loss both
transferred. The effect of this change resulted in a restatement of the results of operations for the years ended
December 31, 2004 and 2003 and the balance sheet as of December 31, 2004.
As a result, the accompanying financial statements for the years ended December 31, 2004 and 2003 have been
restated from the amounts previously reported to properly reflect these items. A summary of the significant
effects of the restatement is as follows (in thousands, except per share data):
As of December 31, 2004:
As
Previously
Reported
As
Restated