Circuit City 2008 Annual Report Download - page 29

Download and view the complete annual report

Please find page 29 of the 2008 Circuit City annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 80

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80

Table of Contents
INCOME TAXES
The Company’s effective tax rate was 36.9% in 2008 as compared to 30.5% in 2007. The higher tax rate in 2008 is primarily attributed to a
higher effective tax rate in the United Kingdom in 2008 as the result of the reversal of the valuation allowance in 2007. The lower effective tax
rate in 2007 resulted primarily from the reversal of a valuation allowance of approximately $5.9 million against deferred tax assets in the United
Kingdom partially offset by the recording of a valuation allowance of approximately $1.7 million against the deferred tax assets of Germany.
The United Kingdom valuation allowance, originally recorded at $10.2 million, had been established in 2005 as the result of a cumulative loss
position in the United Kingdom.
During 2008, 2007 and 2006, we did not recognize certain foreign tax credits, certain state deferred tax assets in the United States and certain
benefits on losses in foreign tax jurisdictions due to our inability to carry such credits and losses back to prior years and our determination that it
was more likely than not that we would not generate sufficient future taxable income in those tax jurisdictions to realize these assets.
Accordingly, valuation allowances were recorded against the deferred tax assets associated with those items. If we are able to realize all or part
of these deferred tax assets in future periods, it will reduce our provision for income taxes by a release of the corresponding valuation allowance.
Seasonality
Net sales have historically been modestly weaker during the second and third quarters as a result of lower business activity during those months.
The 2008 amounts were impacted by the CompUSA acquisition. The following table sets forth the net sales, gross profit and income from
operations for each of the quarters since January 1, 2006 (amounts in millions) .
27
Three Months Ended
March 31
June 30
September 30
December 31
2008
Net sales
$
725
$
756
$
739
$
813
Percentage of year
’
s net sales
23.9
%
24.9
%
24.4
%
26.8
%
Gross profit
$
115
$
116
$
116
$
117
Operating income
$
26
$
21
$
20
$
16
2007
Net sales
$
676
$
647
$
687
$
769
Percentage of year
’
s net sales
24.3
%
23.3
%
24.7
%
27.7
%
Gross profit
$
97
$
99
$
111
$
120
Operating income
$
22
$
20
$
24
$
28
2006
Net sales
$
575
$
547
$
575
$
648
Percentage of year
’
s net sales
24.5
%
23.3
%
24.5
%
27.6
%
Gross profit
$
90
$
77
$
92
$
83
Operating income
$
21
$
10
$
19
$
11