Circuit City 2011 Annual Report Download - page 23

Table of Contents
Accounting policy
Assumptions and uncertainties
Quantification and analysis of effect on actual
results if estimates differ materially
Income Taxes. We are subject to taxation from
federal, state and foreign jurisdictions and the
determination of our tax provision is complex
and requires significant management judgment.
We conduct operations in numerous U.S. states
and foreign locations. Our effective tax rate
depends upon the geographic distribution of our
pre-tax income or losses among locations with
varying tax rates and rules. As the geographic
mix of our pre-tax results among various tax
jurisdictions changes, the effective tax rate may
vary from period to period. We are also subject
to periodic examination from domestic and
foreign tax authorities regarding the amount of
taxes due. These examinations include
questions regarding the timing and amount of
deductions and the allocation of income among
various tax jurisdictions. We establish as
needed, and periodically reevaluate, an
estimated income tax reserve on our
consolidated balance sheet to provide for the
possibility of adverse outcomes in income tax
proceedings. While management believes that
we have identified all reasonably identifiable
exposures and whether or not a reserve is
appropriate, it is possible that additional
exposures exist and that exposures may be
settled at amounts different than the amounts
reserved.
The determination of deferred tax assets and
liabilities and any valuation allowances that
might be necessary requires management to
make significant judgments concerning the
ability to realize net deferred tax assets. The
realization of net deferred tax assets is
dependent upon the generation of future taxable
income. In estimating future taxable income
there are judgments and uncertainties related to
the development of forecasts of future results
that may not be reliable. Significant
management judgment is also necessary to
evaluate the operating environment and
economic conditions that exist to develop a
forecast for a reporting unit. Where
management has determined that it is more
likely than not that some portion or the entire
deferred tax asset will not be realized, we have
provided a valuation allowance. If the
realization of those deferred tax assets in the
future is considered more likely than not, an
adjustment to the deferred tax assets would
increase net income in the period such
determination is made.
We have not made any material changes to our
income tax policy in the past three years and we
do not anticipate making any material changes
to this policy in the future.
We do not believe it is reasonably likely that the
estimates or assumptions used to determine our
deferred tax assets and liabilities and related
valuation allowances will change materially in
the future. However if our estimates are
materially different than our actual experience
we could have a material gain or loss
adjustment.
A change of 5% in our effective tax rate at
December 31, 2011 would impact net income
by approximately $1.2 million.
Reorganization and other charges.
We have
recorded reorganization, restructuring and other
charges in the past and could in the future
commence further reorganization, restructuring
and other activities which result in recognition
of charges to income.
The recording of reorganization, restructuring
and other charges may involve assumptions
and judgments about future costs and timing
for amounts related to personnel terminations,
stay bonuses, lease termination costs, lease
sublet revenues, outplacement services, contract
termination costs, asset impairments and other
exit costs. Management may estimate these
costs using existing contractual and other data
or may rely on third party expert data.
When we incur a liability related to these
actions, we estimate and record all appropriate
expenses. We do not believe it is reasonably
likely that the estimates or assumptions used to
determine our reorganization, restructuring and
other charges will change materially in the
future. However if our estimates are materially
different than our actual experience we could
have a material gain or loss adjustment.
For the year ended December 31, 2011 the
Company did not have any amounts accrued for
reorganization, restructuring and other charges.
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