Circuit City 2009 Annual Report Download - page 58

Table of Contents
The Company has not provided for federal income taxes applicable to the undistributed earnings of its foreign subsidiaries of approximately
$62.9 million as of December 31, 2009, since these earnings are considered indefinitely reinvested. The Company has foreign net operating
loss carryforwards which expire through 2024. The Company records these benefits as assets to the extent that utilization of such assets is
more likely than not; otherwise, a valuation allowance has been recorded. The Company has also provided valuation allowances for certain
state deferred tax assets and net operating loss carryforwards where it is not likely they will be realized.
As of December 31, 2009, the Company has recorded valuation allowances of approximately $29.8 million including valuations against net
operating loss carryforwards incurred in foreign and state jurisdictions of $15.9 million and $2.5 million, respectively, deductible temporary
differences incurred in foreign jurisdictions of $10.8 million, the majority of which relates to the WStore acquisition, $0.5 million in foreign
tax credit carryforwards, and $0.1 million for other state deductible temporary differences.
Valuation allowances increased in 2009 by $20.9 million as a result of the WStore acquisition and the valuation allowances recorded
against acquired deferred tax assets and net operating losses. Carryforward losses of $1 million were utilized in 2009 for which valuation
allowances had been previously provided.
The Company has foreign tax credit carryforwards in the amount of $0.5 million which begin to expire in 2017.
Valuation allowances decreased $.4 million in 2008 for carryforward losses utilized for which valuation allowances had been previously
provided. As of December 31, 2008, the valuation allowances of $8.4 million included $6.4 million related to net operating loss
carryforwards in foreign jurisdictions, $2.0 million for state net operating loss carryforwards and $0.2 million for other state deductible
temporary differences. During 2008, valuation allowances increased approximately $1.4 additional losses incurred in foreign and state
jurisdictions. Valuation allowances decreased $0.7 million in 2008 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 have been audited through 2006. 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 2002, in Canada for years after 2004, in France for years after 2007, in Italy for years
after 2005, in Netherlands for years after 2004 and in Germany for years after 2007.
In accordance with the guidance for accounting for uncertainty in income taxes the Company recognizes the tax benefits from an uncertain
tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities based on the
technical merits of the position. The tax benefit of an uncertain tax position that meets the more-likely-than-not recognition threshold is
measured as the largest amount that is greater than 50% likely to be realized upon settlement with the tax authority. To the extent we prevail
in matters for which accruals have been established or are required to pay amounts in excess of accruals, our effective tax rate in a given
financial statement period could be affected. Accrued interest and penalties related to unrecognized tax benefits are recorded in income tax
expense in the current year.
The following table details activity of the Company’s uncertain tax positions during 2009 and 2008:
54
December 31,
2009 2008
Balance beginning of year
$
916
$
916
Decreases related to settlements with taxing authorities
(916
)
—
Balance end of year
—
$
916