Circuit City 2006 Annual Report Download - page 47

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Related
Third Party Party
Capital Operating Operating
Leases Leases Lease Total
------- ----------- ---------- -----
2007 $573 $11,083 $612 $12,268
2008 402 10,369 10,771
2009 81 9,871 9,952
2010 11 7,662 7,673
2011 10 6,473 6,483
2012-2016 24,635
24,635
2017-2021 18,808 18,808
Thereafter 8,807 8,807
------ ------- ---- -------
Total minimum lease payments 1,077 97,708 612 99,397
Less: sublease rental income 2,605 2,605
------ ------- ---- -------
Lease obligation net of subleases 1,077 $95,103 $612 $96,792
======= ==== =======
Less amount representing interest 46
------
Present value of minimum capital lease
payments (including current portion of $548) $1,031
In the fourth quarter of 2005, the Company recorded a valuation allowance of $10.2 million related to carryforward
losses and deferred tax assets in the United Kingdom. The Company’s United Kingdom subsidiary had recorded losses
and has been affected by restructuring activities in recent years. These losses and the loss incurred for the year ended
December 31, 2005 represented evidence for management to estimate that a full valuation allowance for the net
deferred tax assets was necessary. In the fourth quarter of 2005, the Company also recorded an income tax benefit of
$2.7 million as a result of a favorable decision received in connection with a petition submitted in connection with
audit assessments made in 2002 and 2004 in a foreign jurisdiction.
As of December 31, 2006, the valuation allowances of $17.9 million included $11.4 million related to net operating
loss carryforwards and $3.2 million for other deductible temporary differences in foreign jurisdictions, $3.0 million for
state net operating loss carryforwards and $0.3 million for other state deductible temporary differences. During the year
ended December 31, 2006, valuation allowances increased $2.6 million as a result of additional losses incurred in
certain state jurisdictions and adjustments of prior years allowances in foreign jurisdictions. Valuation allowances
decreased $2.3 million in 2006 for carryforward losses utilized for which valuation allowances had been previously
provided. As of December 31, 2005, the valuation allowances of $15.3 million included $11.1 million related to net
operating loss carryforwards and $2.3 million for other deductible temporary differences in foreign jurisdictions and
$1.5 million for state net operating loss carryforwards and $0.4 million for other state deductible temporary differences.
During the year ended December 31, 2005, valuation allowances increased $5.6 million as a result of additional losses
incurred in foreign and state jurisdictions, net of reductions resulting from changes in deferred tax assets due to changes
in tax laws. Valuation allowances decreased $1,301,000 in 2005 for carryforward losses utilized for which valuation
allowances had been previously provided.
The Company is routinely audited by federal, state and foreign tax authorities with respect to its income taxes. The
Company regularly reviews and evaluates the likelihood of audit assessments and believes it has adequately accrued for
exposures for tax liabilities resulting from future tax audits. To the extent the Company would be required to pay
amounts in excess of reserves or prevail on matters for which accruals have been established, the Company’s effective
tax rate in a given period may be materially impacted. The Company’s federal income tax returns for fiscal years 2000
through 2004 are currently being audited by the Internal Revenue Service. Although proposed adjustments have not
been received for these years and the outcome of in-progress tax audits is always uncertain, management believes the
ultimate outcome of the audit will not have a material adverse impact on the Company’s consolidated financial
statements.
11.
COMMITMENTS, CONTINGENCIES AND OTHER MATTERS
Leases
—
The Company is obligated under operating lease agreements for the rental of certain office and warehouse
facilities and equipment which expire at various dates through September 2026. The Company currently leases one
facility in New York from an entity owned by the Company’
s three principal shareholders and senior executive officers
(see Note 4). The Company also acquires certain computer and communications equipment pursuant to capital lease
obligations.
At December 31, 2006, the future minimum annual lease payments for capital leases and related and third-party
operating leases were as follows (in thousands):