Circuit City 2009 Annual Report Download - page 50

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Table of Contents
Fair Value of Financial Instruments - Financial instruments consist primarily of investments in cash, 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, 2009 and 2008, the carrying amounts of cash, accounts receivable,
debt and accounts payable are considered to be representative of their respective fair values due to their short-term nature.
Concentration of Credit Risk — Financial instruments that potentially subject the Company to concentrations of credit risk consist of cash,
and accounts receivable. The Company’s excess cash balances are invested with money center banks. 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.
Recent Accounting Pronouncements
Public companies in the United States are subject to the accounting and reporting requirements of various authorities, including the
Financial Accounting Standards Board (“FASB”) and the Securities and Exchange Commission (“SEC”). These authorities issue numerous
pronouncements, most of which are not applicable to the Company’s current or reasonably foreseeable operating structure. Below are the
new authoritative pronouncements that management believes are relevant to Company’s current operations.
In October 2009, the FASB issued amended guidance related to revenue recognition in multiple-deliverable revenue arrangements and
certain arrangements that include software elements. This standard eliminates the residual method of revenue allocation by requiring entities
to allocate revenue in an arrangement to all of the deliverables based upon the relative selling prices of the delivered goods and services.
The FASB also issued a new accounting standard in October 2009, which changes revenue recognition for tangible products containing
software and hardware elements. Under this standard, tangible products containing software and hardware that function together to deliver
the tangible products’ essential functionality are scoped out of the existing software revenue recognition guidance and will be accounted for
under the multiple-element arrangements revenue recognition guidance discussed above. Both standards are effective for fiscal years
beginning on or after June 15, 2010. The Company is currently evaluating the impact, if any, of the adoption of this standard on our
consolidated financial position and results of operations.
Effective January 1, 2009 the Company adopted authoritative guidance that establishes principles and requirements for how an acquirer in a
business combination (i) recognizes and measures in its financial statements the identifiable assets acquired, liabilities assumed, and any
non-controlling interest in the acquiree, (ii) recognizes and measures goodwill acquired in a business combination or a gain from a bargain
purchase, and (iii) determines what information to disclose to enable users of financial statements to evaluate the nature and financial effects
of the business combination. This guidance is applied prospectively for all business combinations entered into after the date of adoption. In
the third quarter of 2009 the Company expensed approximately $0.8 million of costs that would have been capitalized under previous
guidance.
In June 2008, FASB issued authoritative guidance to clarify that instruments granted in share-based payment transactions can be
participating securities prior to the requisite service having been rendered. The guidance applies to the calculation of Earnings Per Share
(“EPS”) for share-based payment awards with rights to dividends or dividend equivalents. Unvested share-based payment awards that
contain non-
forfeitable rights to dividends or dividend equivalents (whether paid or unpaid) are participating securities and shall be included
in the computation of EPS pursuant to the two-class method. This guidance became effective for financial statements issued for fiscal years
beginning after December 15, 2008, and interim periods within those years. All prior-period EPS data presented is adjusted retrospectively
(including interim financial statements, summaries of earnings, and selected financial data). The Company adopted this authoritative
guidance in January 2009 and it did not have a material impact on its condensed consolidated financial statements.
2.
ACQUISITIONS
On September 18, 2009, the Company acquired all of the outstanding stock of WStore Europe SA and its subsidiaries, (“WStore”), a
European supplier of business IT products and software solutions with operations in France and the United Kingdom. The purchase price
(after giving effect to the conversion of Euros to U.S. dollars) was approximately $4.4 million in cash, $2.2 million of which was placed
into an escrow account for one year to secure the sellers’ indemnification obligations under the purchase agreement. The Company
completed a preliminary allocation of the purchase price as of the acquisition date and recorded assets of approximately $3.4 million for
Client Lists, $1.4 million for Trademarks, $1.0 million for Technology acquired and $0.1 million of residual goodwill. These assets were
recorded in the Company’s Technology Products business segment. The Company expects to amortize its Client Lists and Technology over
a weighted average 5 year period. All other assets have indefinite lives. A final purchase price allocation will be done in 2010. The
operating results of WStore are included in the accompanying condensed consolidated statements of operations from the date of acquisition.
WStore is included in the Company’s Technology Products business segment. The Company has determined that this was not a material
acquisition.
On April 5, 2009, the Company entered into an Asset Purchase Agreement with Circuit City Stores, Inc. and Circuit City Stores West
Coast, Inc. (the “Sellers”). Pursuant to the Asset Purchase Agreement, on May 19, 2009 the Company acquired certain intellectual property
and ecommerce assets owned by the Sellers for $14.0 million in cash. In addition, the Company
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