FORM 10-Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended May 31, 1995
OR
[ ]TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Transition Period from to
Commission File Number 1-5767
CIRCUIT CITY STORES, INC.
(Exact Name of Registrant as Specified in its Charter)
VIRGINIA 54-0493875
(State of Incorporation) (I.R.S. Employer
Identification No.)
9950 MAYLAND DRIVE, RICHMOND, VIRGINIA 23233
(Address of Principal Executive Offices and Zip Code)
(804) 527-4000
(Registrant's Telephone Number, Including Area Code)
Indicate by check mark whether the Registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the Registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
Indicate the number of shares outstanding of each of the
Registrant's classes of common stock, as of the latest
practicable date.
Class Outstanding at June 30, 1995
Common Stock, par value $0.50 97,044,091 Shares
An Index is included on Page 2 and a separate Index for Exhibits
is included on Page 12.
<PAGE>
CIRCUIT CITY STORES, INC. AND SUBSIDIARIES
INDEX
Page
No.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets -
May 31, 1995 and February 28, 1995 3
Consolidated Statements of Earnings -
Three Months Ended May 31, 1995 and 1994 4
Consolidated Statements of Cash Flows -
Three Months Ended May 31, 1995 and 1994 5
Note to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations 7-10
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of
Security Holders 11
Item 6. Exhibits and Reports on Form 8-K 12
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CIRCUIT CITY STORES, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(Amounts in thousands except share data)
May 31, 1995 Feb. 28, 1995
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 66,614 $ 46,962
Net accounts and notes receivable 315,540 264,565
Merchandise inventory 1,141,290 1,035,776
Deferred income taxes 22,580 25,696
Prepaid expenses and other current assets 25,404 14,162
Total current assets 1,571,428 1,387,161
Property and equipment, net 662,191 592,956
Deferred income taxes 2,876 5,947
Other assets 20,273 17,991
TOTAL ASSETS $2,256,768 $2,004,055
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current installments of long-term debt $ 2,358 $ 2,378
Accounts payable 639,994 576,578
Short-term debt 85,000 -
Accrued expenses and other current liabilities 94,071 113,631
Accrued income taxes 10,125 13,533
Total current liabilities 831,548 706,120
Long-term debt, excluding current installments 299,904 178,605
Deferred revenue and other liabilities 222,873 241,866
TOTAL LIABILITIES 1,354,325 1,126,591
Stockholders' equity:
Common stock, $0.50 par value 48,430 48,238
Capital in excess of par value 75,225 72,639
Retained earnings 778,788 756,587
TOTAL STOCKHOLDERS' EQUITY 902,443 877,464
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY $2,256,768 $2,004,055
See accompanying note to consolidated financial statements.
<PAGE>
CIRCUIT CITY STORES, INC. AND SUBSIDIARIES
Consolidated Statements of Earnings (Unaudited)
(Amounts in thousands except per share data)
Three Months Ended
May 31,
1995 1994
Net sales and operating revenues $1,391,658 $1,048,695
Cost of sales, buying and warehousing 1,071,772 785,018
Gross profit 319,886 263,677
Selling, general and administrative expenses 276,650 231,826
Interest expense 3,843 353
Total expenses 280,493 232,179
Earnings before income taxes 39,393 31,498
Provision for income taxes 14,775 11,810
Net earnings $ 24,618 $ 19,688
Weighted average common shares and common
share equivalents 98,216 96,994
Net earnings per share $ 0.25 $ 0.20
Dividends paid per common share $ 0.025 $ 0.02
See accompanying note to consolidated financial statements.
<PAGE>
CIRCUIT CITY STORES, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows (Unaudited)
(Amounts in thousands)
Three Months Ended
May 31,
1995 1994
Operating Activities:
Net earnings $ 24,618 $ 19,688
Adjustments to reconcile net earnings to net
cash used in operating activities:
Depreciation and amortization 18,845 15,975
Loss on sales of property and equipment 1,830 797
Provision for deferred income taxes 6,187 (3,146)
Decrease in deferred revenue and other
liabilities (18,993) (9,180)
(Increase) decrease in net accounts and
notes receivable (50,975) 15,321
Increase in merchandise inventory, prepaid
expenses and other current assets (116,756) (110,493)
(Increase) decrease in other assets (2,282) 989
Increase (decrease) in accounts payable,
accrued expenses and other current
liabilities, and accrued income taxes 40,448 (28,353)
Net cash used in operating activities 97,078) (98,402)
Investing Activities:
Purchases of property and equipment (110,514) (53,019)
Proceeds from sales of property and equipment 20,604 13,991
Net cash used in investing activities (89,910) (39,028)
Financing Activities:
Proceeds from issuance of short-term debt 85,000 128,000
Proceeds from issuance of long-term debt 122,000 -
Principal payments on long-term debt (721) (821)
Proceeds from issuance of common stock, net 2,778 1,297
Dividends paid (2,417) (1,924)
Net cash provided by financing activities 206,640 126,552
Increase (decrease) in cash and cash equivalents 19,652 (10,878)
Cash and cash equivalents at beginning of year 46,962 75,194
Cash and cash equivalents at end of period $ 66,614 $ 64,316
See accompanying note to consolidated financial statements.
<PAGE>
CIRCUIT CITY STORES, INC. AND SUBSIDIARIES
Note to Consolidated Financial Statements
1. The consolidated financial statements conform to generally
accepted accounting principles. The interim period
financial statements are unaudited; however, in the opinion
of management, all adjustments (consisting of normal
recurring adjustments) necessary for a fair presentation of
the consolidated financial statements have been included.
The consolidated financial statements included herein should
be read in conjunction with the notes to consolidated
financial statements included in the Company's 1995 annual
report to stockholders.
<PAGE>
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Net Sales and Operating Revenues and General Comments
Sales for the first quarter of fiscal 1996 were $1.39 billion,
an increase of 33 percent over the same period last year. The
total sales growth includes the sales from a net of 59
Superstores opened during the past year and a comparable store
sales increase of 10 percent. The first quarter sales results
slightly exceeded management's expectations and reflect a strong
performance throughout the country and under varying competitive
conditions.
Comparable store sales increases for the first quarter ended May
31, 1995, were as follows:
FY'96 1st Quarter
MAR APR MAY FY'96 FY'95
5% 12% 13% 10% 12%
The Company opened nine new Superstores during the quarter and
replaced two stores with larger locations. The Company entered
Salt Lake City, Utah, with four stores; and opened its first
stores in Rockford and Champaign, Ill.; Springfield, Mass.; and
Hartford, Conn. A fifth store was added in Cincinnati, Ohio,
and stores were replaced in Atlanta, Ga., and Spartanburg, S.C.
The Company's expansion program includes four Superstore
formats designed to maximize volume and profitability in
specific trade areas. The Company plans to open an estimated 60
Superstores in fiscal 1996 in new and existing markets.
Approximately 35 of the new stores will reflect the Company's
newest and largest format, which has approximately 41,000
square feet and is classified below as the "D" format. The
Company also plans to replace approximately 15 stores with this
design in the current fiscal year.
The table below details Circuit City retail units:
Stores Open At End Of Quarter Estimate
May 31, 1995 May 31, 1994 Feb. 29, 1996 Feb. 28, 1995
Superstore
"D" Superstore 20 - 60 12
"C" Superstore 260 225 255 257
"B" Superstore 35 32 44 37
"A" Superstore 5 4 14 6
Electronics-Only 5 6 5 5
Mall Store 32 32 36 35
TOTAL 357 299 414 352
<PAGE>
The Company also expanded the test of CarMax, a retail
Superstore format selling late-model used cars, to three
Superstores with the addition of an Atlanta, Ga., location.
For the Company's Circuit City business, gross dollar sales
from all extended warranty programs rose to 6.0 percent of
sales in the first quarter of fiscal year 1996 from 5.9 percent
in the same period last year. Third-party warranty revenue
rose to 3.1 percent of sales in this year's first quarter from
1.9 percent in the same period last year. The total extended
warranty revenue that is reported in total sales was 6.0
percent of sales in this year's first quarter versus 6.1
percent in the first quarter of last year.
Total sales by merchandise categories are listed below:
1st Quarter
Fiscal 1996 Fiscal 1995
TV 17 % 19 %
VCR/Camcorders 15 16
Audio 19 21
Home Office 23 15
Appliances 15 18
Other * 11 11
TOTAL 100 % 100 %
* Includes such products as telephones, portable radios,
portable tape players and entertainment software.
Home office continues to be the strongest growing product
category, reflecting the Company's increased emphasis and the
industry growth in this area.
The Company's operations, in common with other retailers in
general, are subject to seasonal influences. Historically, the
Company has realized more of its net sales and net earnings in
the final fiscal quarter, which includes the Christmas season,
than in any other fiscal quarter. The net earnings of any
interim quarter are seasonally disproportionate to net sales
since administrative and certain operating expenses remain
relatively constant during the year. Therefore, interim results
should not be relied upon as necessarily indicative of results
for the entire fiscal year.
Cost of Sales, Buying and Warehousing
As anticipated, the gross profit margin decreased from 25.1
percent in the first quarter of last year to 23.0 percent in the
first quarter of fiscal 1996.
The lower margin reflects the highly competitive climate, rapid
personal computer and music software sales growth and additional
CarMax sales. Management expects that these factors will
continue to lower margins on a year-over-year basis.
<PAGE>
Selling, General and Administrative Expenses
The Company's selling, general and administrative expense ratio
improved from 22.1 percent in the first quarter of last year to
19.9 percent for the same period this year and more than offset
the decrease in the gross profit margin for the same period.
Continued improvement in the ratio reflects the comparable and
total sales growth, the Company's ongoing focus on maximizing
productivity and the lower expense structure for CarMax.
The Company expects continued improvements in the SG&A ratio due
to sales growth and leverage from store additions in existing
markets.
Interest Expense
Interest expense for the first quarter of fiscal 1996 increased
to 0.3 percent of sales from 0.0 percent for the first quarter of
last year. The increase reflects higher interest rates and
borrowing levels resulting from the Company's growth.
Income Taxes
The effective income tax rate remained at 37.5 percent in the
first quarter of both fiscal year 1996 and 1995. The Company
does not expect a change in the effective income tax rate for the
remainder of fiscal 1996.
Net Earnings
Net earnings for the quarter ended May 31, 1995, increased 25
percent to $24.6 million from $19.7 million in the same period
last year. Net earnings per share rose 25 percent to 25 cents
from 20 cents.
The Company expects to continue its trend of earnings growth in
fiscal 1996.
Liquidity and Capital Resources
Total assets at May 31, 1995, were $2,256.8 million, up $252.7
million or 13 percent since February 28, 1995. The largest
contributor to the asset increase was a $105.5 million inventory
increase to support expected higher sales volume and new store
openings. Property and equipment has increased $69.2 million
since the end of fiscal 1995. This net increase is due largely
to planned and completed store openings. Net accounts and notes
receivable have increased $51.0 million since February 25, 1995,
primarily due to an increase in credit card accounts generated by
the Company's credit card bank subsidiary.
Accounts payable has increased $63.4 million and short-term debt
has increased $85.0 million since the end of fiscal 1995 to
support new store expansion and the purchase of inventory.
<PAGE>
On May 26, 1995, the Company completed a five-year $175 million
senior unsecured term loan agreement with a group of banks.
Principal is due at maturity with interest payable periodically
at a variable rate based on LIBOR. LTCB Trust Company is agent
for the banks in the agreement. The proceeds will be used for
general corporate purposes. At February 28, 1995, the Company
classified $53 million in short-term debt as long term in
anticipation of this transaction.
The Company's credit card bank subsidiary has a master trust
securitization facility for its private-label credit card that
allows the transfer of up to $760 million in receivables through
private placement and the public market. The master trust
vehicle permits further expansion of the securitization program
to meet future needs. In addition, the Company's credit card
bank subsidiary has an asset securitization program that allows
the transfer of up to $400 million in receivables related to its
other bank card programs. In the first quarter of fiscal 1996,
the Company entered into an additional asset securitization
program that allows the transfer of up to $75 million in
receivables related to its used car business.
The Company expects to continue its existing long-term
capitalization strategy during fiscal 1996. Management
anticipates that capital expenditures will be funded through a
combination of internally generated funds, sale-leaseback
transactions, operating leases and proceeds of the recent long-
term debt agreement and that securitization transactions will be
used to finance the growth in credit card and auto loan
receivables. At May 31, 1995, the Company maintained a multi-
year, $100 million unsecured revolving bank credit facility and
$300 million in seasonal lines that are renewed annually with
various banks.
<PAGE>
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
(a) The annual meeting of the Company's shareholders
was held on June 13, 1995.
(c) (i) At such annual meeting, the shareholders of the
Company elected Richard N. Cooper, Richard L.
Sharp and Alan L. Wurtzel as directors for
three-year terms and Mikael Salovaara for a
one-year term. The elections were approved
by the following votes:
Directors For Withheld
Richard N. Cooper 79,464,208 209,861
Richard L. Sharp 79,381,041 293,028
Alan L. Wurtzel 79,378,568 295,501
Mikael Salovaara 79,397,148 276,921
(ii) At such annual meeting, the shareholders of
the Company approved the amendment and
restatement of the 1989 Non-Employee
Directors Stock Option Plan (the "1989
Plan"). The amendments extended the
expiration date of the 1989 Plan, increased the
number of shares reserved for issuance under the
1989 Plan, changed the vesting schedule for
options granted under the 1989 Plan, increased
the number of shares covered by each annual
option grant, and effected certain changes of a
housekeeping nature. The 1989 Plan amendment
and restatement was approved by the following
vote:
Broker
For Against Abstain Non-Votes
1989 Plan 59,139,753 20,004,698 529,618 0
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Index to Exhibits:
(4) $175,000,000 term loan agreement dated May 26, 1995,
between the Company and LTCB Trust Company as
agent. Pursuant to Item 601(b)(4)(iii) of Regulation
S-K, in lieu of filing a copy of such
agreement, Registrant agrees to furnish a copy of
such agreement to the Commission upon request.
(27) Financial Data Schedule
(b) Reports on Form 8-K
The Company did not file any reports on Form 8-K
during the quarter ended May 31, 1995.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the Company has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
CIRCUIT CITY STORES, INC.
(Company)
By: s/Richard L. Sharp
Richard L. Sharp
Chairman of the Board,
President and
Chief Executive Officer
By: s/Michael T. Chalifoux
Michael T. Chalifoux
Senior Vice President,
Chief Financial Officer and
Corporate Secretary
By: s/Keith D. Browning
Keith D. Browning
Vice President,
Corporate Controller and
Chief Accounting Officer
July 13, 1995
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