Circuit City 2005 Annual Report Download - page 62

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operating leases were as follows (in thousands):
Capital
Leases
Third
Party
Operating
Leases
Related
Party
Operating
Lease Total
2006
$
387
$
8,474
$
612
$
9,473
2007
299
9,981
612
2008
126
9,119
9,245
2009
8,709
8,709
2010
6,614
6,614
2011
-
2015
2016
-
2020
Thereafter
Total minimum lease payments
812
1,224
100,825
Less: sublease rental income
3,222
3,222
Lease obligation net of subleases
812
$
$
1,224
$
Less amount representing interest
13
Present value of minimum capital lease
payments (including current portion of $387)
$
799
Annual rent expense aggregated approximately $10,272,000, including $612,000 to related parties, for 2005,
$7,887,000, including $612,000 to related parties, for 2004 and $7,693,000, including $612,000 to related parties,
for 2003. Rent expense for 2005 is net of sublease income of $848,000.
Litigation
– Beginning on May 24, 2005, three shareholder derivative lawsuits were filed, one in the United
States District Court for the Eastern District of New York and two in the Supreme Court of New York, County of
Nassau, against various officers and directors of the Company and naming the Company as a nominal defendant
in connection with the Company’s restatements of its fiscal year 2003 and 2004 financial statements. The
defendants and the Company denied all of the allegations of wrongdoing contained in the complaints. On May
16, 2006, the parties entered into a stipulation of settlement of this case. By order dated July 6, 2006 the United
States District Court for the Eastern District of New York approved the settlement and dismissed the federal
complaint with prejudice. Pursuant to the settlement the defendants are released from liability and the Company
will adopt certain corporate governance principles including the appointment of a lead independent director to,
among other things, assist the Board of Directors in assuring compliance with and implementation of the
Company's corporate governance policies and pay $300,000 of the legal fees of the plaintiffs. The plaintiffs were
directed by the U.S. District Court to move to dismiss the state court actions.
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 2005 domestic sales, 17% of the Company’s 2004 domestic sales
and 16% of the 2003 domestic sales were subject to sales tax. Changes in law could require the Company to