Circuit City 2007 Annual Report Download - page 55

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were audited by the Internal Revenue Service. The outcome of the audit did not have a material impact on the Company’s consolidated
financial statements. The Company has not signed any consents to extend the statute of limitations for any subsequent years. The
Company’s significant state tax returns have been audited through 2005. The Company considers its significant tax jurisdictions in foreign
locations to be the United Kingdom, Canada, France, Italy and Germany. The Company remains subject to examination in the United
Kingdom for years after 2001, in Canada for years after 2000, in France for years after 2004, in Italy for years after 2002 and in Germany
for years after 2004.
Effective January 1, 2007, the Company adopted the provisions of FASB Interpretation 48, “Accounting for Uncertainty in Income
Taxes” (“FIN 48”). FIN 48 clarifies the accounting and reporting for uncertainties in income tax law. This interpretation prescribes a
comprehensive model for the financial statement recognition, measurement, presentation and disclosure of uncertain tax positions taken or
expected to be taken in income tax returns. For those benefits to be recognized, a tax position must be more-likely-than-not to be sustained
upon examination by taxing authorities. At January 1, 2007, the Company had a liability for unrecognized tax benefits of $3,379,000
(including interest and penalties of $731,000) of which $283,000 was charged to retained earnings at January 1, 2007. Of this total,
$2,586,000 (net of the federal benefit on state issues) represents the amount of unrecognized tax benefits that, if recognized, would
favorably affect the effective income tax rate in any future periods. At December 31, 2007 the Company had a liability for unrecognized tax
benefits of $1,547,000 (including interest and penalties of $631,000). Of this total, $1,467,000 (net of the federal benefit on state issues)
represents the amount of unrecognized tax benefits that, if recognized, would favorably affect the effective income tax rate in any future
periods. The following table details activity of the Company’s uncertain tax positions during 2007:
Interest and penalties of approximately $69,000 related to unrecognized tax benefits were expensed in 2007 and are included in income tax
expense. Within the next twelve months the Company believes it reasonably possible that certain tax positions may be reduced. The specific
positions that may be reduced are related to certain ongoing state and foreign tax audits. The Company estimates that the unrecognized
benefits may be reduced by $1.5 million .
10.
COMMITMENTS, CONTINGENCIES AND OTHER MATTERS
Leases - The Company is obligated under operating lease agreements for the rental of certain office and warehouse facilitiesand 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 3). The Company also acquires certain computer and
communications equipment pursuant to capital lease obligations.
At December 31, 2007, the future minimum annual lease payments for capital leases and related and third-party operating leases were as
follows (in thousands):
Annual rent expense aggregated approximately $14,760,000, including $612,000 to related parties, for 2007, $13,198,000, including
$612,000 to related parties, for 2006 and $10,272,000, including $612,000 to related parties, for 2005. Rent expense for 2007 is net of
sublease income of $853,000.
53
December 31,
2007
Opening balance January 1,2007
$
2,648
Decreases related to settlements with taxing authorities
(1,732
)
Closing balance December 31, 2007
$
916
Capital
Leases
Third Party
Operating
Leases
Related Party
Operating
Lease
Total
2008
$
471
$
13,589
$
860
$
14,920
2009
186
13,204
895
14,285
2010
73
10,699
932
11,704
2011
10
9,651
970
10,631
2012
9,089
1,010
10,099
2013
-
2017
32,269
5,706
37,975
2018
-
2022
17,644
17,644
Thereafter
4,823
4,823
Total minimum lease payments
740
110,968
10,373
122,081
Less: sublease rental income
1,775
1,775
Lease obligation net of subleases
740
$
109,193
$
10,373
$
120,306
Less amount representing interest
37
Present value of minimum capital lease payments (including
current portion of $449)
$
703