Circuit City 2005 Annual Report Download - page 63

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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 $455,000 in 2005, $436,000 in 2004 and $408,000
in 2003.
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, 2005, 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 accounts receivable, 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, 2005 and 2004, the carrying amounts of cash and cash equivalents, accounts
receivable, income taxes receivable and payable 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 payable are considered to be representative of their respective fair values as their interest rates are
based on market rates. The estimated fair value of the Company’s mortgage loan payable was $8.8 million at
December 31, 2005 and $9.0 million at December 31, 2004.
Concentration of Credit Risk – Financial instruments that potentially subject the Company to concentrations of
credit risk consist of cash, cash equivalents and accounts receivable. The Company’s excess cash balances are
invested with high credit quality issuers. Concentrations of credit risk with respect to accounts receivable are
limited due to the large number of customers and their geographic dispersion comprising the Company’s
customer base. The Company also performs on-going credit evaluations and maintains allowances for potential
losses as warranted.
12.
SEGMENT AND RELATED INFORMATION
The Company operates in one primary business as a reseller of business products to commercial and consumer
users. The Company operates and is internally managed in two operating segments, Computer Products and
Industrial Products. The Company has also separately disclosed its costs associated with the development of the
Company’s new web-hosted software application, for which no revenues have been recognized. The Company’s
chief operating decision-maker is the Company’s Chief Executive Officer. The Company evaluates segment
performance based on income from operations before net interest, foreign exchange gains and losses,
restructuring and other charges and income taxes. Corporate costs not identified with the disclosed segments and
restructuring and other charges are grouped as “Corporate and other expenses.” The chief operating decision-
maker reviews assets and makes capital expenditure decisions for the Company on a consolidated basis only. The
accounting policies of the segments are the same as those of the Company described in Note 1.
Financial information relating to the Company
’
s operations by reportable segment was as follows (in thousands):
Year Ended December 31,
2005 2004 * 2003 *
Net Sales:
Computer products
$1,940,902
$1,776,517
$1,523,815
Industrial products
174,616
151,630
131,921
Consolidated
$2,115,518
$1,928,147
$1,655,736
Depreciation Expense:
Computer products
$7,341
$9,081
$12,118
Industrial products
1,995
1,789
1,555
Software application
403
178