FORM 10-Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended November 30, 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) (IRS 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 December 29, 1995
Common Stock, par value $0.50 97,330,083 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 -
November 30, 1995 and February 28, 1995 3
Consolidated Statements of Earnings -
Three Months and Nine Months Ended
November 30, 1995 and 1994 4
Consolidated Statements of Cash Flows -
Nine Months Ended November 30, 1995 and 1994 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations 7-11
PART II. OTHER INFORMATION
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)
Nov. 30, 1995 Feb. 28, 1995
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 45,961 $ 46,962
Net accounts and notes receivable 327,547 264,565
Merchandise inventory 1,966,352 1,035,776
Deferred income taxes 24,128 25,696
Prepaid expenses and other current assets 19,607 14,162
Total current assets 2,383,595 1,387,161
Property and equipment, net 747,616 592,956
Deferred income taxes 2,304 5,947
Other assets 16,815 17,991
TOTAL ASSETS $3,150,330 $2,004,055
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current installments of long-term debt $ 1,206 $ 2,378
Accounts payable 1,016,085 576,578
Short-term debt 435,000 0
Accrued expenses and other current liabilities 99,126 113,631
Accrued income taxes 7,528 13,533
Total current liabilities 1,558,945 706,120
Long-term debt, excluding current installments 399,619 178,605
Deferred revenue and other liabilities 213,896 241,866
TOTAL LIABILITIES 2,172,460 1,126,591
Stockholders' equity:
Common stock, $0.50 par value 48,658 48,238
Capital in excess of par value 83,554 72,639
Retained earnings 845,658 756,587
TOTAL STOCKHOLDERS' EQUITY 977,870 877,464
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY $3,150,330 $2,004,055
See accompanying notes 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 Nine Months Ended
November 30, November 30,
1995 1994 1995 1994
Net sales and operating
revenues $1,783,446 $1,405,445 $4,775,909 $3,672,712
Cost of sales, buying
and warehousing 1,378,312 1,069,396 3,682,597 2,763,369
Gross profit 405,134 336,049 1,093,312 909,343
Selling, general and
administrative expenses 346,264 286,164 921,072 768,975
Interest expense 8,582 4,378 16,599 5,673
Total expenses 354,846 290,542 937,671 774,648
Earnings before income taxes 50,288 45,507 155,641 134,695
Provision for income taxes 18,837 17,065 58,326 50,510
Net earnings $ 31,451 $ 28,442 $ 97,315 $ 84,185
Weighted average common
shares and common share
equivalents 98,750 97,620 98,549 97,531
Net earnings per share $ 0.32 $ 0.29 $ 0.99 $ 0.86
Dividends paid per common
share $ 0.030 $ 0.025 $ 0.085 $ 0.070
See accompanying notes to consolidated financial statements.
<PAGE>
CIRCUIT CITY STORES, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows (Unaudited)
(Amounts in thousands)
Nine Months Ended
November 30,
1995 1994
Operating Activities:
Net earnings $ 97,315 $ 84,185
Adjustments to reconcile net earnings to net
cash used in operating activities:
Depreciation and amortization 60,277 49,551
Loss on sales of property and equipment 3,856 1,792
Provision for deferred income taxes 5,211 17,572
Decrease in deferred revenue and other liabilities (27,970) (30,459)
Increase in net accounts and notes receivable (62,982) (78,539)
Increase in merchandise inventory, prepaid expenses
and other current assets (936,021) (665,582)
Decrease (increase) in other assets 1,176 (4,534)
Increase in accounts payable, accrued expenses
and other current liabilities, and accrued
income taxes 418,997 324,144
Net cash used in operating activities (440,141) (301,870)
Investing Activities:
Purchases of property and equipment (397,000) (277,753)
Proceeds from sales of property and equipment 178,207 73,941
Net cash used in investing activities (218,793) (203,812)
Financing Activities:
Proceeds from issuance of short-term debt 435,000 384,000
Proceeds from issuance of long-term debt 222,000 100,000
Principal payments on long-term debt (2,158) (2,157)
Proceeds from issuance of common stock, net 11,335 3,437
Dividends paid (8,244) (6,741)
Net cash provided by financing activities 657,933 478,539
Decrease in cash and cash equivalents (1,001) (27,143)
Cash and cash equivalents at beginning of year 46,962 75,194
Cash and cash equivalents at end of period $ 45,961 $ 48,051
See accompanying notes to consolidated financial statements.
<PAGE>
CIRCUIT CITY STORES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
1. Consolidated Financial Statements
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.
2. Debt
At November 30, 1995, the Company classified $100 million of short-term
unsecured bank borrowings as long-term for financial reporting purposes.
The Company has the intent to refinance this debt on a long-term basis
and has the ability to do so utilizing a revolving loan under its
existing $100 million unsecured revolving credit agreement with four
banks. Revolving loans under this agreement become due and payable on
June 30, 2000. The weighted average interest rate per annum on this
short-term debt at November 30, 1995, was 5.94 percent.
<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 third quarter of fiscal 1996 were $1.78 billion, a 27 percent
increase from $1.41 billion in the same period last year. The total
sales growth reflects the net addition of 61 Superstores since last year
and a comparable store sales increase of 3 percent for the third
quarter.
For the nine months ended November 30, 1995, total sales grew 30 percent to
$4.78 billion from $3.67 billion in the same period last year.
Comparable store sales for the third quarter and the first nine
months of fiscal years 1996 and 1995 were as follows:
<TABLE>
FY '96 3rd Quarter Nine Months
SEPT OCT NOV FY '96 FY '95 FY '96 FY '95
<S> <C> <C> <C> <C> <C> <C>
8% (1)% 1% 3% 19% 7% 15%
</TABLE>
Management believes that moderating comparable store sales reflect a softer
retail climate, slower industry growth, more difficult comparisons
versus the prior year and the Company's effort to balance sales growth
against the aggressive pricing and financing programs offered by some
competitors. The recent trend of comparable store sales moderation
could continue in the fourth quarter.
During the third quarter, the Company opened 31 new Superstores, including its
first two in Rochester, N.Y.; Buffalo, N.Y.; and Milwaukee, Wisc. The
Company opened one Superstore in each of the following new markets:
Colorado Springs, Colo.; Salisbury, Md.; and Wilmington, N.C. The
Company added three Superstores in Hartford, Conn.; two in Chicago,
Ill.; two in Cleveland, Ohio; and two in Waco, Texas. One additional
store opened in each of the following markets: Phoenix, Ariz.; Los
Angeles, Fresno, Santa Barbara and San Diego, Calif.; Denver, Colo.;
Atlanta, Ga.; Baltimore, Md.; Minneapolis, Minn.; Nashville, Tenn.;
Tyler, Texas; Cincinnati, Ohio; and Seattle, Wash. The Company expanded
three stores in Los Angeles, Calif., and one in Baltimore, Md.; and
replaced existing stores with larger-square-footage sites in Greenville,
S.C., and in Winston-Salem and Charlotte, N.C. The Company also opened
five mall-based Circuit City Express stores including two openings in
Atlanta, Ga.; and one per market in Greenville, S.C., and in Raleigh and
Winston-Salem, N.C. In the final quarter, the Company plans to open
five new Superstores and replace one existing store.
In fiscal 1997, the Company plans to open 60 to 65 Superstores and replace 15
to 20 existing Superstores with larger-square-footage locations. The
major new markets will include Detroit, Mich., and Pittsburgh, Penn. The
Company also will enter a number of smaller markets and add stores in
existing markets.
<PAGE>
The table below details Circuit City retail units:
<TABLE>
Stores Open at End of Quarter Estimate
Nov. 30, 1995 Nov. 30, 1994 Feb. 29, 1996 Feb. 28, 1995
<S> <C> <C> <C> <C>
Superstore
"D" Superstore 52 10 55 12
"C" Superstore 260 253 261 257
"B" Superstore 43 36 44 37
"A" Superstore 11 6 11 6
Electronics-Only 5 5 5 5
Mall Store 37 36 37 35
TOTAL 408 346 413 352
</TABLE>
In addition, the Company operates four CarMax Superstores, a retail Superstore
format selling late-model used cars, with two locations in the Atlanta,
Ga., area and one location each in Richmond, Va., and Raleigh, N.C.
In early January, the Company announced the first phase of its national
expansion plans for CarMax. In calendar 1996, the Company expects to
open CarMax sites in Charlotte, N.C., and in Tampa and Orlando, Fla.
Other markets in the first phase of expansion will include South
Florida, Dallas-Fort Worth, Houston and Washington-Baltimore. In
addition, the Company recently signed a franchise agreement that allows
CarMax to sell new Chrysler, Plymouth, Jeep(R) and Eagle products at its
Norcross, Ga., location. This agreement will allow CarMax to explore
opportunities in new-car retailing.
For the Company's Circuit City operations, gross dollar sales from all extended
warranty programs rose to 6.1 percent of sales in the third quarter of
fiscal year 1996 from 6.0 percent in the same period last year.
Third-party warranty revenue was 3.1 percent of sales in this year's
third quarter versus 2.4 percent in the same period last year. The
total extended warranty revenue that is reported in total sales was 5.1
percent of sales in this year's third quarter versus 5.4 percent in the
third quarter of last year.
Total sales by merchandise categories are listed below:
<TABLE>
3rd Quarter Nine Months
Fiscal 1996 Fiscal 1995 Fiscal 1996 Fiscal 1995
<S> <C> <C> <C> <C>
TV 19% 19% 17% 18%
VCR/Camcorders 13 14 14 15
Audio 16 19 17 20
Home Office 28 22 25 18
Appliances 13 15 16 18
Other * 11 11 11 11
TOTAL 100% 100% 100% 100%
</TABLE>
*Includes such products as telephones, portable radios, portable tape players
and entertainment software.
<PAGE>
Home office continues to be the strongest growing product category, reflecting
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 23.9 percent in the
third quarter of last year to 22.7 percent in the third quarter of
fiscal 1996. The gross margins for the nine-month periods ended
November 30, 1995 and 1994, were 22.9 and 24.8 percent, respectively.
The lower margins reflect a higher percentage of personal computer and
music software sales, promotional pricing and additional CarMax sales.
Management expects that during the last quarter of fiscal 1996 these
factors will continue to lower margins on a year-over-year basis.
Selling, General and Administrative Expenses
The Company's selling, general and administrative expense ratio improved
from 20.4 percent in the third quarter of last year to 19.4 percent for
the same period this year. For the nine-month period ended November 30,
1995, the expense ratio was 19.3 percent versus 20.9 percent in the same
period last year.
The better ratio reflects the contribution from the Company's credit card
bank subsidiary, effective operating expense control and the lower expense
structure for CarMax. The Company expects that improvements in the SG&A
ratio will continue in the fourth quarter as a result of the continued
contribution from its credit card bank subsidiary, sales growth,
leverage from store additions in existing markets and the lower expense
structure for CarMax.
Interest Expense
Interest expense increased to 0.5 percent of sales in this year's third
quarter from 0.3 percent last year. For the nine months ended November
30, 1995, interest expense was 0.3 percent of sales compared to 0.2
percent of sales in the same period last year. The increases for both
the third quarter and nine-month period reflect higher borrowing levels
resulting from the Company's growth.
<PAGE>
Income Taxes
The effective income tax rate remained at 37.5 percent in the third quarter
and first nine months of both fiscal years 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 November 30, 1995, were $31.5 million,
an increase of 11 percent from $28.4 million in the same period last
year. Net earnings per share rose 10 percent to 32 cents from 29 cents.
Net earnings for the nine months ended November 30, 1995, were $97.3 million,
an increase of 16 percent from $84.2 million in the same period last
year. Net earnings per share rose 15 percent to 99 cents from 86 cents.
The Company expects that earnings may moderate in the fourth quarter resulting
from declining industry sales and an intense promotional environment.
Liquidity and Capital Resources
Total assets at November 30, 1995, were $3,150.3 million, up $1,146.3 million
or 57 percent since February 28, 1995. The largest contributor to the
asset growth was a $930.6 million inventory increase to support the
holiday season sales volume and new store openings. Property and
equipment has increased $154.7 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 $63.0
million since February 28, 1995, primarily due to an increase in credit
card accounts generated by the Company's credit card bank subsidiary.
Accounts payable has increased $439.5 million and short-term debt has
increased $435.0 million since the end of fiscal 1995 to support the
purchase of inventory, the increase in credit card receivables and new
store expansion.
Long-term debt has increased $219.8 million since the end of fiscal 1995
due primarily to the $175 million senior unsecured term loan agreement
entered into in the first quarter of fiscal year 1996. At February 28,
1995, the Company classified $53 million in short-term debt as long-term
in anticipation of this transaction. In addition, the Company
classified $100 million of short-term debt as long-term for financial
reporting purposes at November 30, 1995. The Company has the intent and
ability to refinance the short-term unsecured bank borrowings on a
long-term basis.
<PAGE>
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 $1,060 million in receivables through private placement and the
public market. In addition, the Company's credit card bank subsidiary
has an asset securitization program that allows the transfer of up to
$950 million in receivables related to its other bank card programs. The
Company also has an asset securitization program which allows the
transfer of up to $100 million in auto loan receivables. The Company
anticipates that it will be able to expand its securitization programs
to meet future needs.
The Company expects to continue its existing long-term capitalization strategy
during the last quarter of fiscal 1996. Management anticipates that
capital expenditures will be funded through a combination of internally
generated funds, long-term debt agreements, sale leaseback transactions
and operating leases and that securitization transactions will be used
to finance the growth in credit card and auto loan receivables. At
November 30, 1995, the Company maintained a multi-year, $100 million
unsecured revolving bank credit facility and $260 million in seasonal
lines that are renewed annually with various banks.
Impact of Recent Accounting Pronouncements
In March 1995, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 121, "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be
Disposed Of." The standard is effective for fiscal years beginning
after December 15, 1995. The Company does not expect the standard to
have a material impact on the Company's financial position or results of
operations. This SFAS will be implemented for the fiscal year ending
February 28, 1997.
In October 1995, the FASB issued SFAS No. 123, "Accounting for Stock-Based
Compensation." The standard is effective for fiscal years beginning
after December 15, 1995. The Company does not intend to adopt the new
accounting method of the standard; however, the additional disclosures
required by this SFAS will be made for the fiscal year ending February
28, 1997.
<PAGE>
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Index to Exhibits:
(10) Material Contracts
(i) Program for deferral of director compensation
implemented October 1995.
(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 November 30, 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
January 11, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> FEB-28-1996
<PERIOD-END> NOV-30-1995
<CASH> 45,961
<SECURITIES> 0
<RECEIVABLES> 327,547
<ALLOWANCES> 0
<INVENTORY> 1,966,352
<CURRENT-ASSETS> 2,383,595
<PP&E> 1,057,737
<DEPRECIATION> 310,121
<TOTAL-ASSETS> 3,150,330
<CURRENT-LIABILITIES> 1,558,945
<BONDS> 399,619
<COMMON> 48,658
0
0
<OTHER-SE> 929,212
<TOTAL-LIABILITY-AND-EQUITY> 3,150,330
<SALES> 4,775,909
<TOTAL-REVENUES> 4,775,909
<CGS> 3,682,597
<TOTAL-COSTS> 3,682,597
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 16,599
<INCOME-PRETAX> 155,641
<INCOME-TAX> 58,326
<INCOME-CONTINUING> 97,315
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 97,315
<EPS-PRIMARY> .99
<EPS-DILUTED> .99
</TABLE>
CIRCUIT CITY STORES, INC.
BOARD OF DIRECTORS
DEFERRAL OF DIRECTOR COMPENSATION
Deferral Program: The Company offers members of the Board of Directors the
alternative of deferring all or any part of their directors' fees,
subject to the following terms and conditions.
A Director may elect to defer all or any part of his or her directors'
fees (including, without limitation, meeting fees and fees paid to
committee members and committee chairmen) by filing a written election
(the "Election") to that effect with the Secretary of the Company. The
Election shall be effective only with respect to fees relating to
meetings or periods of time after the Director files the Election. Any
amounts deferred by a Director will be credited to an account
established for the Director on the books of the Company (the "Deferral
Account"). The Deferral Account will also be credited, as of the end of
each fiscal year of the Company, until such time as no balance remains
in the Deferral Account, with an additional amount equal to the product
of (1) the average daily balance credited to the Deferral Account during
that fiscal year and (2) a percentage which shall be the average of the
five year Treasury Bill rates in effect on the first business day of
each fiscal quarter during such fiscal year plus 30 basis points. The
total amount credited to the Deferral Account will become payable to the
Director when such Director ceases to serve as a director of the Company
upon such payment schedule as the Director specifies in the Election. A
Director may elect a new payment schedule if the new Election is filed
with the Secretary of the Company at least one year before the payments
would otherwise have begun. If the Director ceases to serve as a
director by reason of death, or if the Director dies after payments of
the amounts in the Director's Deferral Account have commenced, any
remaining payments will be made to one or more beneficiaries designated
by the Director in a writing filed with the Secretary of the Company. If
the Director fails to designate a beneficiary, or if all the designated
beneficiaries predeceased the Director, payment of the remaining unpaid
balance in the Deferral Account will be made to the Director's estate.
The Company reserves the right to accelerate payments or to make payment
of the amounts remaining unpaid in a lump sum. All determinations and
actions taken by the Company with respect to directors' fee deferrals
under this program shall be binding upon the beneficiaries of the
Director and the Director's estate. The Director's rights, and the
rights of any beneficiary or the Director's estate, are those of a
general creditor of the Company.
Adoption by Board: The foregoing deferral program became effective on August
15, 1995, upon approval by the Board of Directors. Any Director wishing
to make an Election may do so at any time, until such time, if any, as
the Board determines to discontinue the program.
