SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended February 29, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 [NO FEE REQUIRED]
For the transition period from to
Commission File No.: 1-5767
CIRCUIT CITY STORES, INC.
(Exact name of Registrant as specified in its charter)
VIRGINIA 54-0493875
(State or other jurisdiction of (I.R.S. Employer
Incorporation or organization) Identification No.)
9950 Mayland Drive
Richmond, VA 23233
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (804) 527-4000
Securities registered pursuant to Section 12(b) of the Act:
Name of Each Exchange
Title of Each Class on Which Registered
Common Stock, Par Value $0.50 New York Stock Exchange
Rights to Purchase Preferred Stock,
Series E, Par Value $20.00 New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
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 by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K [ ].
On May 3, 1996, the Company had 97,576,474 common shares outstanding.
The aggregate market value of the common shares held by non-affiliates (without
admitting that any person whose shares are not included in determining such
value is an affiliate) was $2,924,887,420 based upon the closing price of these
shares as reported by the New York Stock Exchange on May 3, 1996.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the following documents are incorporated by reference in
Parts I, II, III, and IV of this Form 10-K Report: (1) Pages 17 through 33 of
the Company's Annual Report to Shareholders for the fiscal year ended February
29, 1996 (Parts I, II and IV) and (2) "Election of Directors," "Beneficial
Ownership of Securities," "Executive Compensation," "Employment Agreements and
Change-in-Control Arrangements," "Compensation of Directors" and "Section 16(a)
Compliance" in the May 10, 1996 Proxy Statement, furnished to shareholders of
the Company in connection with the 1996 Annual Meeting of such shareholders
(Part III).
Page 1 of 14
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Item Page
PART I
<S> <C>
1. Business 3
2. Properties 7
3. Legal Proceedings 9
4. Submission of Matters to a Vote of Security Holders 9
PART II
5. Market for the Company's Common Equity and Related Stockholder Matters 10
6. Selected Financial Data 10
7. Management's Discussion and Analysis of Results of Operations and Financial Condition 10
8. Financial Statements and Supplementary Data 11
9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 11
PART III
10. Directors and Executive Officers of the Company 11
11. Executive Compensation 11
12. Security Ownership of Certain Beneficial Owners and Management 11
13. Certain Relationships and Related Transactions 11
PART IV
14. Exhibits, Financial Statement Schedule, and Reports on Form 8-K 12
</TABLE>
Page 2 of 14
PART I
Item 1. Business.
Circuit City Stores, Inc. (the Company) was incorporated under the laws of
Virginia in 1949. Its corporate headquarters is located at 9950 Mayland Drive,
Richmond, Va. The Company's retail operations consist of Circuit City
Superstores, Circuit City electronics-only stores and mall-based Circuit City
Express stores. The Company has a wholly owned credit card bank subsidiary,
First North American National Bank, that extends consumer credit. In addition,
the Company operates CarMax, a retail Superstore format selling late-model used
cars.
General. The Company is the nation's largest retailer of brand-name
consumer electronics and major appliances and a leading retailer of personal
computers and music software. It sells video equipment, including televisions,
digital satellite systems, video cassette recorders and camcorders; audio
equipment, including home stereo systems, compact disc players, tape recorders
and tape players; mobile electronics, including car stereo systems and security
systems; home office products, including personal computers, peripheral
equipment and facsimile machines; other consumer electronics products, including
cellular phones, telephones and portable audio and video products; entertainment
software; and major appliances, including washers, dryers, refrigerators,
microwave ovens and ranges. Music software, including compact discs and audio
tapes, was available in approximately three-quarters of the Superstores at April
30, 1996.
Each of the Company's store locations follows detailed operating
procedures and merchandising programs. Included are procedures for inventory
maintenance, advertising, customer relations, store administration, merchandise
display, store security and the demonstration and sale of products. Each store
carries a standard line of products selected at the corporate level and supplied
directly to the stores by the Company's regional warehouse distribution
facilities.
Expansion. The Company's goal is to maximize profitability in each market
it serves by capturing large market shares that produce high sales volumes
across a broad merchandise mix.
Merchandising. Because the Company believes that local markets have
individual characteristics which vary greatly by the advertising, merchandising
and pricing strategies of competitors, it has organized its marketing function
to focus on markets with similar competitive conditions. The Company's operating
regions benefit from a centralized buying organization. The central buying staff
reduces costs by purchasing in large volumes, structures a sound basic
merchandising program and is supported by advanced management information and
distribution systems.
The Company's merchandising strategy emphasizes a broad selection of
products, including introductory products, and a wide range of prices.
Merchandise mix and displays are controlled centrally in an effort to ensure a
high level of consistency from store to store. Merchandise pricing and selling
strategies vary by market to reflect competitive conditions.
Although suggested retail prices are established by the Company's central
merchandising department, each store manager is responsible for shopping the
local competition on a regular basis and has the authority to adjust retail
prices to meet market conditions. As part of its competitive strategy, the
Company advertises low prices and provides each customer with a low-price
guarantee. The Company will beat any legitimate price from a local competitor
stocking the same new item in a factory-sealed box. If a customer finds a lower
price, including the Company's own sale price, within 30 days, the Company will
refund 110 percent of the difference to the customer.
Suppliers. During fiscal 1996, the Company's 10 largest suppliers
accounted for approximately 52 percent of merchandise purchased by the Company.
The Company's major suppliers include Sony, Packard Bell, Thomson, Panasonic,
Hitachi, NEC, Whirlpool, Hewlett Packard, Zenith, and JVC. Brand-name advertised
products are sold by all of the Company's retail locations. The Company has no
significant long-term contracts for the purchase of merchandise.
In the past, the Company has not experienced any continued or ongoing
difficulty obtaining satisfactory sources of supply and believes that adequate
sources of supply exist for the types of merchandise sold in its stores.
Page 3 of 14
Advertising. The Company relies on considerable amounts of advertising to
stimulate Superstore and electronicsonly store sales. Expenditures for these
items were 4.6 percent of sales in fiscal 1996 (4.7 percent and 5.1 percent in
fiscal 1995 and 1994, respectively). The reduction in advertising as a percent
of sales was primarily due to comparable store sales growth. Also, as the
Company adds new stores in existing markets, the increased sales volume improves
the efficiency of existing advertising expenditures. The Company primarily uses
print advertising, including multi-page vehicles and run-of-press newspaper ads,
for Superstore and electronics-only store advertising. The Company emphasizes
the use of multi-page vehicles to allow a more extensive presentation of the
broad selection of products and price ranges it carries. These multi-page
vehicles are generally distributed in newspapers but are, in some cases, mailed
directly to residences outside the newspapers' area of circulation. With a
presence in most major metropolitan markets, the Company has begun, on a limited
basis, to take advantage of national broadcast and print advertising
opportunities. Television campaigns include merchandise assortment, price and
customer service messages.
Competition. The brand-name consumer electronics and major appliance
business engaged in by the Company is highly competitive. The Company's
competitors include other full-service retailers, self-service retailers,
specialty retailers with differing product selections and services, general
merchandise retailers and local independent operators. Over the past three
years, the Company's competition has shifted to include more self-service
retailers that often offer a more limited product selection but at highly
competitive prices.
The Company uses pricing, selection and service to differentiate itself
from the competition. As part of its competitive strategy, the Company strives
to maintain highly competitive prices and offers every customer the low-price
guarantee previously described. The Company's Superstores offer a broad product
selection that includes 3,200 to 4,000 name-brand items (excluding music
software), depending on the selling square footage of the Superstore.
Professionally trained sales counselors, convenient credit options,
factory-authorized product repair, home delivery, installation centers for
automotive electronics, a toll-free product support line and a 30-day return
policy reflect the Company's strong commitment to customer service.
Customer Satisfaction. Extensive market research is conducted to measure
the Company's customer service record and to refine the Company's consumer
offer. More than 300,000 random telephone surveys are conducted each year to
track satisfaction among the Company's existing customer base. These surveys,
conducted from customer transaction records, measure satisfaction with all
points of customer interaction, including sales counselors, cashiers, the
warehouse staff, the Roadshop installers and home delivery and product service
representatives. Quick feedback allows the Company to immediately address
individual performance issues. Customer Service Index scores for each store
recognize strong overall performance and quickly pinpoint management issues that
require attention.
Training. The Company staffs its stores with commissioned sales
counselors, support personnel (cashiers and stockpersons), a store manager, one
or more sales managers and, in larger stores, an operations manager. New sales
counselors complete a minimum two-week training program focused on product
knowledge, customer service and store operations. Seven regional training
facilities are utilized for classroom sessions taught by more than 40
professional trainers, and a state-of-the-art video facility produces audio,
video and computer-based training materials. Formalized training for store,
sales and operations managers focuses on human resource management, sales
management and critical operating procedures. Individual development plans
address personal training needs, giving Associates advancement opportunity.
Consumer Credit. Because consumer electronics, personal computers and
major appliances represent relatively large purchases for the average consumer,
the Company's business is affected by consumer credit availability, which varies
with the state of the economy and the location of a particular store. In fiscal
1996, approximately 18 percent of the Company's total sales were made through
its private-label credit card and 44 percent through third-party credit sources.
Page 4 of 14
The Company established a subsidiary, First North American National Bank
(FNANB), in fiscal 1991 to handle its private-label credit card business. The
credit card bank subsidiary is located in Marietta, Ga. Interfacing FNANB with
the Company's point-of-sale (POS) system has produced a rapid customer credit
approval process. A customer's application can be electronically scored, and
qualified customers can generally receive approval in under one minute. In
addition to increased credit availability, the private-label credit card program
provides the Company with additional marketing opportunities, including direct
mail campaigns to credit card customers and special financing programs for
promotions. FNANB's credit extension, customer service and collection operations
are fully automated with state-ofthe-art technology to maintain the highest
possible level of customer service. This technology aids FNANB's aggressive
collection philosophy, which is comprised of early and frequent contact with
delinquent customers.
FNANB also manages a growing bankcard portfolio. Receivables generated by
both the private-label credit card and bankcard programs are sold to
non-affiliated entities under asset securitization programs.
In fiscal 1995, the Company partnered with American General Finance, Inc.
(AGF) to provide automated credit evaluation for customers who need an
installment credit option.
Systems. The Company's in-store POS system maintains an on-line record of
all transactions and allows performance to be tracked by region, store and
individual sales counselor. The information gathered by the system supports
automatic replenishment of in-store inventory from the regional distribution
centers and is incorporated into the Company's product buying decisions. The POS
system is interfaced with the credit approval systems of both FNANB and AGF. In
the stores, electronic signature capture for all credit card purchases, bar code
scanning for product returns and repairs, automatic price tag printing for price
changes and computerized home delivery scheduling all enhance the Company's
customer service, eliminating time-consuming administrative tasks for store
Associates and reducing costs through smoother store-level execution.
The Company's proprietary Customer Service Information System maintains an
on-line history of customer purchases and enables the Company to better assist
individuals with future purchases by ensuring that new products can be
integrated with existing products in the home. It also facilitates product
returns and product repair. In addition, this system supports our toll-free
product support line. The product support line provides the Company's customers
with access to skilled product specialists. From their homes, customers can
receive immediate answers to basic questions regarding product usage and
installation. This service is available only for products purchased at Circuit
City.
Distribution. At April 30, 1996, the Company operated nine automated
electronics distribution centers. These centers are designed to serve stores
within a 500-mile range. They utilize conveyor systems with laser bar code
scanners to reduce labor requirements, prevent inventory damage and maintain
inventory control. The Company also operates smaller distribution centers
handling primarily appliances and larger electronics products. The Company
believes that the use of the distribution centers enables it to efficiently
distribute a broad selection of merchandise to its stores, reduce inventory
requirements at individual stores, benefit from volume purchasing and maintain
accounting control. In addition, the Company operates an automated, centralized
distribution center for music software. Virtually all of the Company's
Superstore and electronics-only store merchandise is distributed through its
distribution centers.
Service. The Company offers service and repair for nearly all the products
it sells. Customers also are able to purchase extended warranty plans on most of
the merchandise the Company sells.
At April 30, 1996, the Company had 34 regional, factory-authorized repair
facilities. To meet customer needs, merchandise needing service or repair
usually is moved by truck from the stores to the Company's nearest regional
service facility and is returned to the customer at the store after repair. The
Company also has in-home technicians who service large items not conveniently
carried to a store.
Extended warranty plans extend coverage beyond the normal manufacturer's
warranty period, usually with terms of coverage (including the manufacturer's
warranty period) between 12 and 60 months. Late in fiscal 1994, the Company
began selling two new extended warranty programs on behalf of unrelated third
parties that issue these plans for merchandise sold by the Company and other
retailers. One of these programs is sold in most major markets and features
in-home service for personal computer products. The second program covers
consumer electronics and major appliances and was offered by approximately
two-thirds of the Company's Superstores at April 30, 1996. The Company sells its
own extended warranty contracts in markets where the third-party programs are
not available.
Page 5 of 14
Seasonality. Like other retail businesses, the Company's sales are greater
in the fourth quarter of the fiscal year than in other periods of the fiscal
year because of holiday buying patterns. A corresponding pre-seasonal inventory
build-up is associated with this sales volume. This increased sales volume
results in a lower ratio of fixed costs to sales and produces a higher ratio of
operating income to sales in the fourth fiscal quarter. The Company's sales for
the fourth fiscal quarter (which includes the Christmas season) were
$2,253,214,000 in fiscal 1996, $1,910,235,000 in fiscal 1995, and $1,406,736,000
in fiscal 1994 and represented approximately 32 percent of sales in fiscal 1996
and approximately 34 percent of sales in fiscal years 1995 and 1994.
CarMax. In 1993, the Company began to test CarMax: The Auto Superstore(R),
a retail concept selling used cars. In fiscal 1996, the Company announced the
national rollout of this concept.
CarMax's used cars are priced an average of $500 to $1,500 below the NADA
average book value. All customers receive the same low price with no negotiating
required. Competitive financing and extended warranty rates also are offered.
The CarMax selection includes foreign and domestic vehicles that are one to five
years old and have less than 70,000 miles. Mileage generally averages about
30,000. CarMax vehicles pass a quality inspection covering major mechanical and
electrical systems, power accessories and appearance. Vehicles are backed with a
five-day or 250- mile money-back guarantee and a 30-day comprehensive warranty
that covers all systems checked during inspection. In addition, the Company has
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.
CarMax utilizes AutoMation(R), a computerized inventory and point-of-sale
system. Using a touch screen, customers can electronically search the inventory
for cars that meet their feature requirements and price range. AutoMation(R)
displays a color picture of the car and generates a vehicle information sheet
for customer reference. After the selection process is complete, financing
applications and purchase and title forms are submitted electronically, reducing
customer wait time. In less than 10 minutes, qualified applicants can receive
approval and payment options from two sources - First North American Credit, a
division of the Company, and NationsBank. The inventory management system
includes bar codes on each vehicle and each on-site parking place. Daily
scanning tracks movement of vehicles on the lot. An electronic gate helps track
test drives for vehicles and sales consultants. This combination of systems
allows close monitoring and addressing of inventory and sales performance
issues.
Employees. On April 30, 1996, the Company had 22,852 hourly and salaried
employees and 13,578 sales employees working on a commission basis. Additional
personnel are employed during peak selling seasons. Management of the Company
considers its relationship with its employees to be good. None of the Company's
employees is subject to a collective bargaining agreement.
Information Regarding Forward-Looking Statements. The provisions of the
Private Securities Litigation Reform Act of 1995 (the "Act"), which became law
in late December 1995, provide companies with a "safe harbor" when making
forward-looking statements. This "safe harbor" encourages companies to provide
prospective information about their companies without fear of litigation. The
Company wishes to take advantage of the new "safe harbor" provisions of the Act
and is including this section in its Annual Report on Form 10-K in order to do
so. Company statements that are not historical facts, including statements about
management's expectations for fiscal year 1997 and beyond, are forward-looking
statements and involve various risks and uncertainties. Factors that could cause
the Company's actual results to differ materially from management's projections,
forecasts, estimates and expectations include, but are not limited to, the
following:
(a)changes in the amount and degree of promotional intensity exerted by
current competitors and potential new competition from both retail
stores and alternative methods or channels of distribution such as
electronic and telephone shopping services and mail order;
(b)changes in general U.S. economic conditions including, but not limited
to, consumer credit availability, interest rates, inflation, and
consumer sentiment about the economy in general;
(c)the presence or absence of new products or product features in the
merchandise categories the Company sells and changes in the Company's
actual merchandise sales mix;
(d)lack of availability/access to sources of supply for appropriate
Circuit City or CarMax inventory;
Page 6 of 14
(e)the ability to maintain an effective leadership team in a dynamic
environment or changes in the cost or availability of a suitable work
force to manage and support the Company's service-driven operating
strategy;
(f)changes in availability of capital expenditure and working capital
financing, including the availability of long-term financing to support
development of retail stores and distribution facilities and the
availability of securitization financing for credit card and auto
installment sales receivables;
(g)changes in production or distribution cost or cost of materials for the
Company's advertising;
(h)availability of appropriate real estate locations for expansion;
(i)the imposition of new restrictions or regulations regarding the sale
of products and or services the Company sells or changes in tax rules
and regulations applicable to the Company;
(j) adverse results in significant litigation matters;
(k)changes in levels of competition in the car business from either
traditional competitors and/or new competitors utilizing auto
superstore formats.
The United States retail industry and the specialty retail industry in
particular are dynamic by nature and have undergone significant changes over the
past several years. The Company's ability to anticipate and successfully respond
to continuing challenges is key to achieving its expectations.
Item 2. Properties.
At April 30, 1996, the Company's Circuit City retail operations were
conducted in 426 locations. The Company operates four Circuit City Superstore
formats with square footage and merchandise assortments tailored to population
and volume expectations for specific trade areas. The "D" format was developed
in fiscal 1995 to serve the most populous trade areas. Selling space in the "D"
format averages approximately 23,000 square feet with total square footage
averaging approximately 42,000. The "D" stores offer the largest merchandise
assortment of all the formats. The "C" format is designed to serve moderately
smaller trade areas and provides a highly competitive merchandise assortment.
New "C" stores typically have about 17,000 square feet of selling space; total
square footage for all "C" stores averages approximately 34,000. The "B" format
is often located in smaller markets or in trade areas that are on the fringes of
larger metropolitan markets. Selling space in these stores averages
approximately 11,000 square feet with an average total square footage of
approximately 25,000. The "B" stores offer a broad merchandise assortment that
maximizes return on investment in these lower volume areas. The "A" format
serves the least populated trade areas. Selling space in these stores averages
approximately 9,000 square feet, and total square footage averages approximately
18,000. The "A" stores feature a layout, staffing levels and merchandise
assortment that creates high productivity in the smallest markets.
The five electronics-only stores offer the Company's full line of consumer
electronics and a limited selection of major appliances. Selling space in these
stores averages approximately 4,000 square feet with an average total square
footage of approximately 8,000. The Company's 38 mall-based Circuit City Express
stores are located in regional malls, average approximately 2,000 to 3,000
square feet in size and sell small, gift-oriented items.
Page 7 of 14
The following table summarizes the Company's Circuit City stores as of
April 30, 1996:
<TABLE>
<S> <C>
Superstores Electronics- Mall
D C B A Only Stores Total
--- --- --- --- ---- ------ -----
Alabama - 5 - - - 1 6
Arizona 2 6 1 - - 1 10
Arkansas - 2 - - - - 2
California 7 56 9 2 - 1 75
Colorado 4 - - - - - 4
Connecticut 2 2 - - - - 4
Delaware - 1 - - - 1 2
District of Columbia - - - - - 1 1
Florida 3 23 7 - - 1 34
Georgia 2 9 3 - - 2 16
Illinois 6 18 4 - - 2 30
Indiana - 1 2 - - - 3
Kansas 1 - - - - - 1
Kentucky - 5 - - - - 5
Louisiana - 5 - - - - 5
Maryland 1 11 1 - 2 4 19
Massachusetts 1 7 3 - - 5 16
Michigan 5 - - - - - 5
Minnesota 1 7 - - - 3 11
Missouri 1 8 - - - 1 10
Nevada - 4 - - - - 4
New Hampshire - 4 - - - 1 5
New Jersey - 4 - - - - 4
New York 4 1 - - - 4 9
North Carolina 2 7 4 - - 2 15
Ohio 5 5 - - - 1 11
Oklahoma - 2 1 - - - 3
Oregon 2 3 - - - - 5
Pennsylvania - 7 1 1 - 2 11
Rhode Island - 1 - - - - 1
South Carolina 2 4 - - - 1 7
Tennessee 2 7 - - 1 - 10
Texas 3 27 4 5 - - 39
Utah 4 - - - - - 4
Virginia 1 12 5 4 - 4 26
Washington 3 3 1 - - - 7
West Virginia - - - - 2 - 2
Wisconsin 3 1 - - - - 4
--- --- --- --- --- --- ---
67 258 46 12 5 38 426
=== === === === === === ===
</TABLE>
Of the stores open at April 30, 1996, the Company owns 25 stores and
leases the remaining 401 stores. The Company anticipates entering into
sale-leaseback transactions for 10 of the owned stores during fiscal 1997. Of
the remaining 15 owned stores, 10 have land leases and three are financed by
Industrial Development Revenue Bonds that are collateralized by the applicable
land, building and equipment.
For information with respect to obligations for leases, see note 7 of the
Notes to Consolidated Financial Statements on page 30 of the Company's 1996
Annual Report to Stockholders, which is incorporated herein by reference.
Page 8 of 14
The Company owns a 388,000-square-foot consumer electronics/appliance
distribution center in Doswell, Va., and a 387,000 square-foot consumer
electronics/appliance distribution center in Atlanta, Ga. These distribution
centers have been financed with Industrial Development Revenue Bonds.
The Company owns the land but leases the two buildings in which its
corporate headquarters is located. The Company leases space for all warehouse,
service and office facilities except for the aforementioned properties.
As of April 30, 1996, CarMax operated five Superstores, including two in
Georgia, two in North Carolina, and one in Virginia. All of these properties are
leased. In addition, CarMax owns a reconditioning facility in Florida that will
be sold in a sale-leaseback transaction during fiscal 1997.
Item 3. Legal Proceedings.
In the normal course of business, the Company is involved in various legal
proceedings. Based upon the Company's evaluation of the information presently
available, management believes that the ultimate resolution of any such
proceedings will not have a material adverse effect on the Company's financial
position, liquidity or results of operations.
Item 4. Submission of Matters to a Vote of Security Holders.
No matter was submitted to a vote of security holders during the fourth
quarter of the fiscal year ended February 29, 1996.
Executive Officers of the Company.
The following table identifies the present executive officers of the
Company. The Company is not aware of any family relationship between any
executive officers of the Company or any executive officer and any director of
the Company. All executive officers are generally elected annually and serve for
one year or until their successors are elected and qualify. The next general
election of officers will occur in June 1996.
Name Age Office
---- --- ------
Richard L. Sharp 49 Chairman of the Board,
President and Chief
Executive Officer
Richard S. Birnbaum 43 Executive Vice President
- Operations
W. Stephen Cannon 44 Senior Vice President and
General Counsel
Michael T. Chalifoux 49 Senior Vice President,
Chief Financial Officer and
Corporate Secretary
John A. Fitzsimmons 53 Senior Vice President
- Administration
W. Austin Ligon 45 Senior Vice President
- Automotive
W. Alan McCollough 46 Senior Vice President
- Merchandising
William E. Zierden 57 Senior Vice President
- Human Resources
Page 9 of 14
Mr. Sharp is a director and a member of the Company's executive committee.
He joined the Company in 1982 as executive vice president and was elected
president in 1984, chief executive officer in 1986, and chairman of the board in
1994.
Mr. Birnbaum joined the Company in 1972. He was elected vice president in
1985, Central Division president in 1986, senior vice president - marketing in
1991, and executive vice president - operations in 1994.
Mr. Cannon joined the Company in April 1994 as senior vice president and
general counsel. Prior to joining the Company, he had been since 1986 a partner
in Wunder, Diefenderfer, Ryan, Cannon & Thelen, a Washington, D.C., law firm.
Mr. Chalifoux is a director and a member of the Company's executive
committee. He joined the Company in 1983 as corporate controller and was elected
vice president and chief financial officer in 1988. He was elected senior vice
president in 1991 and became corporate secretary in 1993.
Mr. Fitzsimmons joined the Company in 1987 as senior vice president -
administration.
Mr. Ligon joined the Company in 1990 as vice president - corporate
planning and communications. He was elected senior vice president - corporate
planning and communications in 1991, senior vice president - corporate planning
and automotive in 1994, and senior vice president-automotive and CarMax
president in 1996.
Mr. McCollough joined the Company in 1987 as general manager of corporate
operations. He was elected assistant vice president in 1989, vice president and
Central Division president in 1991, and senior vice president merchandising in
1994.
Mr. Zierden joined the Company in 1984 as vice president - human
resources. He was elected senior vice president - human resources in 1989.
Part II
With the exception of the information incorporated by reference from the
1996 Annual Report to Stockholders in Item 2 of Part I and Items 5, 6, 7, and 8
of Part II and Item 14 of Part IV of this Form 10-K, the Company's 1996 Annual
Report to Stockholders is not to be deemed filed as a part of this Report.
Item 5. Market for the Company's Common Equity and Related Stockholder Matters.
Incorporated herein by reference is the information appearing under the
heading "Common Stock" on page 21 of the Company's 1996 Annual Report to
Stockholders.
As of May 3, 1996, there were 8,111 shareholders of record of the
Company's common stock.
Item 6. Selected Financial Data.
Incorporated herein by reference is the information appearing under the
heading "Reported Historical Information" on page 17 of the Company's 1996
Annual Report to Stockholders.
Item 7. Management's Discussion and Analysis of Results of Operations and
Financial Condition.
Incorporated herein by reference is the information appearing under the
heading "Management's Discussion and Analysis of Results of Operations and
Financial Condition" on pages 17 through 21 of the Company's 1996 Annual Report
to Stockholders, except for the information appearing on page 21 of such Annual
Report under the heading "Common Stock."
Page 10 of 14
Item 8. Financial Statements and Supplementary Data.
Incorporated herein by reference is the information appearing under the
headings "Consolidated Statements of Earnings," "Consolidated Balance Sheets,"
"Consolidated Statements of Cash Flows," "Consolidated Statements of
Stockholders' Equity," "Notes to Consolidated Financial Statements," and
"Independent Auditors' Report," on pages 22 through 33 of the Company's 1996
Annual Report to Stockholders. Incorporated herein by reference is the
information appearing under the heading "Note 12. Quarterly Financial Data
(Unaudited)" on page 32 of the Company's 1996 Annual Report to Stockholders.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
None.
Part III
With the exception of the information incorporated by reference from the
Company's Proxy Statement in Items 10, 11, and 12 of Part III of this Form 10-K,
the Company's Proxy Statement dated May 10, 1996, is not to be deemed filed as a
part of this Report.
Item 10. Directors and Executive Officers of the Company.
The information concerning the Company's directors required by this Item
is incorporated by reference to the section entitled "Election of Directors"
appearing on pages 2 through 4 of the Company's Proxy Statement dated May 10,
1996.
The information concerning the Company's executive officers required by
this Item is incorporated by reference to the section in Part I hereof entitled
"Executive Officers of the Company" appearing on page 8.
The information concerning compliance with section 16(a) of the Securities
Exchange Act of 1934 required by this Item is incorporated by reference to the
section entitled "Section 16(a) Compliance" appearing on pages 14 and 15 of the
Company's Proxy Statement dated May 10, 1996.
Item 11. Executive Compensation.
The information required by this Item is incorporated by reference to the
sections entitled "Executive Compensation," "Employment Agreements and
Change-In-Control Arrangements," and "Compensation of Directors," appearing on
pages 7 through 9 and pages 13 and 14 of the Company's Proxy Statement dated May
10, 1996.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
The information required by this Item is incorporated by reference to the
section entitled "Beneficial Ownership of Securities" appearing on pages 5 and 6
of the Company's Proxy Statement dated May 10, 1996.
Item 13. Certain Relationships and Related Transactions.
None.
Page 11 of 14
Part IV
Item 14. Exhibits, Financial Statement Schedule and Reports on Form 8-K.
(a) The following documents are filed as part of this Report:
1. Financial Statements. The following Consolidated Financial
Statements of Circuit City Stores, Inc. and subsidiaries and the
related Independent Auditors' Report are incorporated by
reference to pages 22 through 33 of the Company's 1996 Annual
Report to Shareholders:
Consolidated Statements of Earnings for the fiscal years ended
February 29, 1996, and February 28, 1995 and 1994.
Consolidated Balance Sheets at February 29, 1996, and February
28, 1995.
Consolidated Statements of Cash Flows for the fiscal years ended
February 29, 1996, and February 28, 1995 and 1994.
Consolidated Statements of Stockholders' Equity for the fiscal
years ended February 29, 1996, and February 28, 1995 and 1994.
Notes to Consolidated Financial Statements.
Independent Auditors' Report.
2. Financial Statement Schedule. The following financial statement
schedule of Circuit City Stores, Inc. for the fiscal years ended
February 29, 1996, and February 28, 1995 and 1994 is filed as
part of this Report and should be read in conjunction with the
Consolidated Financial Statements of Circuit City Stores, Inc.:
II Valuation and Qualifying Accounts and
Reserves S-1
Independent Auditors' Report on Financial
Statement Schedule S-2
Schedules not listed above have been omitted because they are not
applicable or are not required or the information required to be
set forth therein is included in the Consolidated Financial
Statements or Notes thereto.
3. Exhibits. The Exhibits listed on the accompanying Index to
Exhibits immediately following the financial statement schedules
are filed as part of, or incorporated by reference into, this
Report.
(b) Reports on Form 8-K.
The Company did not file any reports on Form 8-K during the last
fiscal quarter covered by this Report.
Page 12 of 14
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
CIRCUIT CITY STORES, INC.
(Registrant)
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
May 20, 1996
Page 13 of 14
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed by the following persons on behalf of the Registrant and in the
capacities and on the dates indicated:
Signature Title Date
--------- ----- ----
Michael T. Chalifoux* Director May 20, 1996
Michael T. Chalifoux
Richard N. Cooper* Director May 20, 1996
Richard N. Cooper
Barbara S. Feigin* Director May 20, 1996
Barbara S. Feigin
Theodore D. Nierenberg* Director May 20, 1996
Theodore D. Nierenberg
Hugh G. Robinson* Director May 20, 1996
Hugh G. Robinson
Walter J. Salmon* Director May 20, 1996
Walter J. Salmon
Mikael Salovaara* Director May 20, 1996
Mikael Salovaara
s/ Richard L. Sharp, Director May 20, 1996
Richard L. Sharp
Edward Villanueva* Director May 20, 1996
Edward Villanueva
Alan L. Wurtzel* Director May 20, 1996
Alan L. Wurtzel
*By: s/ Richard L. Sharp,
Richard L. Sharp,
Attorney-In-Fact
The original powers of attorney authorizing Richard L. Sharp and Michael T.
Chalifoux, or either of them, to sign this annual report on behalf of certain
directors and officers of the Company are included as exhibit 24.
Page 14 of 14
<PAGE>
Schedule II
CIRCUIT CITY STORES, INC. AND SUBSIDIARIES
Valuation and Qualifying Accounts and Reserves
(Amounts in thousands)
<TABLE>
<CAPTION>
Balance at Charged Charge-offs Balance at
Beginning to less End of
Description of Year Income Recoveries Year
----------- ------- ------ ---------- ----
<S> <C>
Reserves deducted from assets to which they apply:
Year ended February 28, 1994:
Allowance for doubtful accounts $5,249 $4,604 $(3,002) $ 6,851
====== ====== ======== ========
Year ended February 28, 1995:
Allowance for doubtful accounts $6,851 $1,292 $(1,406) $ 6,737
====== ====== ======== ========
Year ended February 29, 1996:
Allowance for doubtful accounts $6,737 $5,078 $(1,790) $ 10,025
====== ====== ======== ========
</TABLE>
<PAGE>
Independent Auditors' Report on Financial Statement Schedule
The Board of Directors
Circuit City Stores, Inc.:
Under date of April 3, 1996, we reported on the consolidated balance sheets of
Circuit City Stores, Inc. and subsidiaries (the Company) as of February 29, 1996
and February 28, 1995, and the related consolidated statements of earnings,
stockholders' equity and cash flows for each of the fiscal years in the
three-year period ended February 29, 1996, as contained in the February 29, 1996
annual report to stockholders. These consolidated financial statements and our
report thereon are incorporated by reference in the annual report on Form 10-K
for the year ended February 29, 1996. In connection with our audits of the
aforementioned consolidated financial statements, we also have audited the
related financial statement schedule as listed in Item 14(a)2 of this Form 10-K.
This financial statement schedule is the responsibility of the Company's
management. Our responsibility is to express an opinion on this financial
statement schedule based on our audits.
In our opinion, such schedule, when considered in relation to the basic
consolidated financial statements taken as a whole, presents fairly, in all
material respects, the information set forth therein.
s/ KPMG Peat Marwick LLP
Richmond, Virginia
April 3, 1996
<PAGE>
Circuit City Stores, Inc.
Annual Report on Form 10-K
INDEX TO EXHIBITS
(3) Articles of Incorporation and Bylaws
(a) Amended and Restated Articles of Incorporation of the Company,
effective January 26, 1990, filed as Exhibit 3(a) to the
Company's Annual Report on Form 10-K for the fiscal year ended
February 28, 1993, (File No. 1-5767) are expressly
incorporated herein by this reference.
(b) Articles of Amendment to the Amended and Restated Articles of
Incorporation of the Company effective February 26, 1993,
filed as Exhibit 3(b) to the Company's Annual Report on Form
10-K for the fiscal year ended February 28, 1993, (File No.
1-5767) are expressly incorporated herein by this reference.
(c) Bylaws of the Company, as amended and restated February 15,
1996, filed as Exhibit 4(b) to the Company's Current Report on
Form 8-K dated March 5, 1996, (File No. 1-5767) are expressly
incorporated herein by this reference.
(4) Instruments Defining the Rights of Security Holders, Including Indentures
(a) Amended and Restated Rights Agreement dated March 5, 1996,
between the Company and Norwest Bank Minnesota, N.A., as
Rights Agent, filed as Exhibit 4(a) to the Company's Current
Report on Form 8-K dated March 5, 1996, (File No. 1-5767) is
expressly incorporated herein by this reference.
(b) $100,000,000 Amended and Restated Credit Agreement dated June
30, 1995, between the Company; Signet Bank/Virginia; Crestar
Bank; NationsBank, N.A. and; Bank of America, N.T. & S.A.
Pursuant to Item 601(b)(4)(iii) of Regulation S-K, in lieu of
filing a copy of such agreement, the Company agrees to furnish
a copy of such agreement to the Commission upon request.
(c) $100,000,000 term loan agreement dated July 28, 1994, between
the Company and the Long-Term Credit Bank of Japan, Limited,
as agent. Pursuant to Item 601(b)(4)(iii) of Regulation S-K,
in lieu of filing a copy of such agreement, the Company agrees
to furnish a copy of such agreement to the Commission upon
request.
(d) First Amendment to Term Loan Agreement dated October 24, 1995,
to the $100,000,000 term loan agreement dated July 28, 1994,
between the Company and the Long-Term Credit Bank of Japan,
Limited, as agent. Pursuant to Item 601(b)(4)(iii) of
Regulation S-K, in lieu of filing a copy of such agreement,
the Company agrees to furnish a copy of such agreement to the
Commission upon request.
(e) $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, the Company agrees to furnish a copy of such
agreement to the Commission upon request.
(f) First Amendment to Term Loan Agreement dated October 24, 1995,
to the $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, the Company agrees to furnish a copy
of such agreement to the Commission upon request.
(10) Material Contracts*
(a) Company's 1988 Stock Incentive Plan, filed as Exhibit 10(c) to
the Company's Annual Report on Form 10-K for the fiscal year
ended February 28, 1993, (File No. 1-5767) is expressly
incorporated herein by this reference.
(b) Amendments to the Company's 1988 Stock Incentive Plan filed as
Exhibit 10(k) to the Company's Annual Report on Form 10-K for
the fiscal year ended February 29, 1990, (File No. 1-5767) are
expressly incorporated herein by this reference.
(c) Amendment to the Company's 1988 Stock Incentive Plan filed as
Exhibit 4(h) to the Company's Registration Statement on Form
S-8 (Registration No. 33-50144) filed on July 28, 1992, is
expressly incorporated herein by this reference.
(d) Company's Amended and Restated 1989 Non-Employee Directors'
Stock Option Plan, filed as Exhibit A to the Company's
Definitive Proxy Statement dated May 12, 1995, for the Annual
Meeting of Stockholders held on June 13, 1995, is expressly
incorporated herein by this reference.
(e) Company's 1994 Stock Incentive Plan filed as Exhibit 99 to the
Company's Registration Statement on Form S-8 (Registration No.
033-56697) filed on December 1, 1994, is expressly
incorporated herein by this reference.
(f) Amendment adopted February 10, 1995, to the Company's 1994
Stock Incentive Plan filed as Exhibit 10(f) to the Company's
Annual Report on Form 10-K for the fiscal year ended February
28, 1995, (File No. 1-5767) is expressly incorporated herein
by this reference.
(g) Letter agreement and non-compete agreement dated January 30,
1996, (revised February 12, 1996), between the Company and
Alan L. Wurtzel is filed herewith.
(h) Employment agreement between the Company and Richard L. Sharp
dated October 17, 1986, and amendment dated August 1, 1989, to
the employment agreement, filed as Exhibit 10(m) to the
Company's Annual Report on Form 10-K for the fiscal year ended
February 28, 1993, (File No. 1-5767) is expressly incorporated
herein by this reference.
(i) Employment agreement dated June 1, 1988, between the Company
and John A. Fitzsimmons, filed as Exhibit 10(n) to the
Company's Annual Report on Form 10-K for the fiscal year ended
February 28, 1989, (File No. 1- 5767) is expressly
incorporated herein by this reference.
(j) Amendment dated August 1, 1989, to employment agreement dated
June 1, 1988, between the Company and John A. Fitzsimmons,
filed as Exhibit 10(o) to the Company's Annual Report on Form
10-K for the fiscal year ended February 28, 1993, (File No.
1-5767) is expressly incorporated herein by this reference.
(k) Employment agreement dated May 25, 1989, between the Company
and Michael T. Chalifoux, filed as Exhibit 10(x) to the
Company's Annual Report on Form 10-K for the fiscal year ended
February 28, 1991, (File No. 1- 5767) is expressly
incorporated herein by this reference.
(l) Employment agreement dated April 24, 1995, between the Company
and W. Alan McCollough is filed herewith.
(m) Amended and restated employment agreement dated May 12, 1995,
between the Company and Richard S. Birnbaum filed as Exhibit
10(s) to the Company's Annual Report on Form 10-K for the
fiscal year ended February 28, 1995, (File No. 1-5767) is
expressly incorporated herein by this reference.
(n) Company's Annual Performance-Based Bonus Plan filed as Exhibit
B to the Company's Definitive Proxy Statement dated May 13,
1994, for the Annual Meeting of Stockholders held on June 14,
1994, (File No. 1-5767) is expressly incorporated herein by
this reference.
(o) Program for deferral of director compensation implemented
October 1995 filed as Exhibit 10(i) to the Company's Quarterly
Report on Form 10-Q for the quarter ended November 30, 1995,
(File No. 1-5767) is expressly incorporated herein by this
reference.
(13) Annual Report to Stockholders
(21) Subsidiaries of the Company
(23) Consents of Experts and Counsel
Consent of KPMG Peat Marwick LLP to Incorporation by Reference of
Independent Auditors' Reports into the Company's Registration
Statements on Form S-8.
(24) Powers of Attorney
(27) Financial Data Schedule
* All contracts listed under Exhibit 10 are management contracts,
compensatory plans or arrangements of the Company required to be filed
as an exhibit.
THIS AGREEMENT (hereinafter called the "Non-Compete Agreement" ) is
made as of January 30, 1996 (revised February 12, 1996), by and between CIRCUIT
CITY STORES, INC., (the "Company"), a Virginia Corporation, and Alan L. Wurtzel.
The parties agree as follows:
ARTICLE I
Commitments
(1) Non-competition. You agree that you will not, without the prior
written consent of the Company, engage in competition with the Company or its
subsidiaries by being associated with any Competing Business (as hereinafter
defined) during the term of this Non- Compete Agreement. For purposes of this
Article, you will be deemed to have associated with a Competing Business if you:
(1) directly or indirectly, alone or as a member of a partnership, own greater
than a 5% interest in; or (2) manage, operate, control, or act as a consultant
to; or (3) serve as an officer or director or in any managerial or executive
position; with any Competing Business.
A "Competing Business" is any business entity which engages in the
Business of the Company and engages in Substantial Competition with the Company
or its subsidiaries in one or more Metropolitan Statistical Areas ("MSA"), in
which the Company or its subsidiaries have their operation, or in which, as of
January 31, 1996, the Company or its subsidiaries are engaged in real estate
site selection or have taken further steps toward the commencement of operation
in the future, either alone or in association with another entity ("Future
Statistical Areas"), and in which the Company and its subsidiaries collectively
produced, or, in the case of Future Statistical Areas, are projected to produce
in the first year of operations, more than $5 million of gross sales. A business
will not be considered to be in "Substantial Competition" with the Company or
its subsidiaries if: (1) the business or the operating unit of the business in
which you are employed or with which you are associated (the "Business Unit") is
not engaged in the Business of the Company; or (2) if sales of the Business
Unit's products or services in the Business of the Company constitute less than
10% of such Business Unit's sales; or (3) if the sales of the Business Unit in
the Business of the Company do constitute more than 10% of the sales of the
Business Unit, but there is not significant geographic overlap between such
Business Unit and the Company's business locations. For the purposes of this
provision, there will not be a significant geographic overlap if less than 10%
of the sales of such Business Unit and less than 10% of the Company's and/or the
relevant subsidiaries' sales (i) are in the same MSA or (ii) are projected to be
in the same MSA within the first year of operations in the case of Future
Statistical Areas. The term "Business of the Company" is defined as: (a) retail
sales and service of consumer electronics or appliances (with or without
after-sale service) or (b) the purchase or sale of motor vehicles (with or
without providing after-sale service) or (c) any other line of business in which
the Company or its subsidiaries become engaged before the termination of this
agreement (September 30, 1998). In every case, the good faith judgement of the
Board of Directors shall be conclusive as to whether you are associated with a
Competing Business.
initials
Alan L. Wurtzel
Non-Compete Agreement
January 30, 1996 (revised February 12, 1996)
Page 2
(2) Non-solicitation. You agree that during the term of this
Non-Compete Agreement and for a period of two years following its termination,
you will not, without the prior written consent of the Company, directly or
indirectly engage in efforts to induce the Company's or its subsidiaries'
employees to terminate their employment for the purpose of being employed by
another business entity.
(3) Confidential Information. You recognize that by virtue of your
previous position and tenure with the Company in an executive capacity, you have
and will continue to have access to trade secrets and other confidential
information of the Company and its subsidiaries in whatever form as documents,
software, C.D. Rom, firmware, brochures, data, materials, knowledge, graphs,
pictures and the like including, but not limited to, the Company's business
methods, expansion strategies, expansion plans, merchandising and marketing
techniques or policies, training techniques, internal operations, supplier
information, pricing information, internal corporate planning methods, systems
and operating procedures and other business matters (the "Confidential
Information").
You recognize and acknowledge that such Confidential Information, as
may exist from time to time, is a valuable, special and unique asset of the
Company and its subsidiaries, and that this Confidential Information and its use
have been responsible for the rapid growth and nationwide expansion of the
Company and its subsidiaries, and if known by an entity engaged in the "Business
of the Company," would cause irreparable harm to the Company and its
subsidiaries.
Therefore, you will not:
(A) Disclose in any manner that might adversely affect the
Company or its subsidiaries any Confidential Information belonging to or in the
possession of the Company or its subsidiaries; or
(B) Except in your capacity as a Director, remove any
Confidential Information from the premises of the Company or its subsidiaries
or, in any case fail or refuse to surrender the same to the Company or its
subsidiaries immediately upon their request; or
(C) Disclose to or use for the benefit or purposes of anyone
engaged in the Business of the Company or its subsidiaries, any trade secrets or
other Confidential Information, whether you learned the information before or
after signing this Agreement.
initials
Alan L. Wurtzel
Non-Compete Agreement
January 30, 1996 (revised February 12, 1996)
Page 3
ARTICLE II
Term
The term of this Non-Compete Agreement is from February 1, 1996 through
September 30, 1998.
ARTICLE III
Compensation
In consideration of your executing this Non-Compete Agreement and
agreeing to be bound by its terms, the Company will:
(1) Pay you $258,750.00 during the period February 1, 1996 through
September 30, 1998. This amount will be paid in equal monthly
payments of $8,085.93.
(2) Pay you an additional monthly payment during the term of this
Non-Compete Agreement. This amount is described in detail in
paragraph 3.a. through 3.g. (and on Exhibit 1) of the
Retirement Status Letter to you dated January 30, 1996
(revised February 12, 1996) ("the Letter"). The current amount
of this additional payment is $3,1892.45 per month, but it is
subject to adjustment under certain conditions which are
described in the Letter.
(3) Make available to you coverage under a health care plan as an
alternative to COBRA. This plan is described in the Letter and
in the Plan description.
ARTICLE IV
Death
In the event that you die prior to September 30, 1998, your designated
beneficiary will receive one-half of the remaining monthly payments mentioned in
Article III(1) for the period of time between your death and September 30, 1998.
initials
Alan L. Wurtzel
Non-Compete Agreement
January 30, 1996 (revised February 12, 1996)
Page 4
ARTICLE V
Notices
Any notice or other communication ("Notice") required under this
Non-Compete Agreement shall be in writing and shall be deemed to have been given
or made when personally delivered, or when mailed by registered or certified
mail, postage prepaid, return receipt requested, to the other party. In the case
of the Company, any Notice shall be delivered or mailed to its principal office
to the attention of the senior Human Resources officer. Any notices shall be
delivered or mailed to your last known address as reflected in the records of
the Company.
ARTICLE VI
Assignment
This Non-Compete Agreement shall not be assignable by you. However, the
Company may assign it to an entity under common control with the Company or to
an entity which succeeds to the portion of the Company's business in which you
were previously employed.
ARTICLE VII
Entire Agreement; Amendments
This Non-Compete Agreement and the Retirement Status Letter constitute
the entire agreement and supersede all other prior agreements and
understandings, both written and oral, express or implied, related to the
subject matter contained herein, between you and Circuit City Stores, Inc. The
Employment Agreement dated June 21, 1983, as amended by letter agreement dated
September 8, 1983; December 2, 1986; May 24, 1989; and June 16, 1992 (the
"Employment Agreement"), between you and Circuit City Stores, Inc., is
specifically terminated as of January 31, 1996. In addition, your employment is
also terminated effective that date. This Non-Compete Agreement may be amended
or terminated only by a writing executed by both parties.
initials
Alan L. Wurtzel
Non-Compete Agreement
January 30, 1996 (revised February 12, 1996)
Page 5
ARTICLE VIII
Governing Law
This Non-Compete Agreement shall be governed by and construed and
enforced in accordance with the laws of the Commonwealth of Virginia.
ARTICLE IX
Penalties for Breach
In the event that the Company gives written notice to you that you have
breached your obligations under Article I, the Company shall be entitled to
suspend its obligation to make the payments provided for under Article III(1)
and (2) of this Non-Compete Agreement. These obligations shall remain suspended
pending a judicial determination (or other resolution agreed to by the Company
and you) of the issue. In the event that it is determined that you have not
breached your obligations, the Company shall immediately pay you the suspended
payments and shall resume making any remaining payments due to you under Article
III(1) and (2) on the schedule described therein. In the event that it is
determined that you have breached your obligations, in addition to any other
remedies which may be available to it, the Company shall be entitled to elect
one of the following alternatives:
1. The Company may terminate this Non-Compete Agreement, retain
the suspended payments and provide no further payments or
other benefits to you under Article III. The Company's
election of this alternative shall not reduce its rights to
recover any damages to which it is determined to be entitled
as a result of your breach of your obligations under this
Non-Compete Agreement.
or
2. The Company may continue this Non-Compete Agreement in effect.
If the Company elects this alternative, you shall comply with
your obligations under this Non-Compete Agreement until its
expiration and, subject to the Company's set-off rights
described below, the Company shall pay you the
initials
Alan L. Wurtzel
Non-Compete Agreement
January 30, 1996 (revised February 12, 1996)
Page 6
suspended payments and shall resume making any remaining
payments under Article III(1) and (2) on the schedule
described therein. The Company shall be entitled to set-off
any damages to which it is determined to be entitled as a
result of your breach of your obligations under this
Non-Compete Agreement against the suspended payments and any
remaining payments due to you during the remainder of the term
of this Non-Compete Agreement.
ARTICLE X
Waiver
Failure to insist upon strict compliance with any term or condition of
this Non- Compete Agreement shall not constitute a waiver of the term or
condition, nor shall any waiver or relinquishment of any right or power under
this Non-Compete Agreement at any one or more times be deemed a waiver or
relinquishment of such right or power at any other time.
ARTICLE XI
Severability
If any Article, paragraph, sentence, or clause hereof, including,
without limitation, Article I, is deemed invalid or unenforceable in whole or in
part in any jurisdiction, all the other Provisions in this Non-Compete Agreement
including the affected Provision, to the extent it is not deemed invalid or
unenforceable, shall remain in full force and effect in that, and any other,
jurisdiction and shall be liberally construed in order to effectuate the purpose
and intent of this Non-Compete Agreement. The invalidity or unenforceability of
any Provision of this Non-Compete Agreement in any jurisdiction shall not affect
the validity or enforceability of that Provision in any other jurisdiction.
The offer contained herein remains open until 5 p.m. on February 16,
1996. To confirm that this Non-Compete Agreement states our agreement, please
sign the enclosed copy on the line above your name, date it, initial each page
in the space provided for that purpose, and return the copy to Wanda Moser,
Personnel Operations Manager, in the enclosed envelope by February 16, 1996.
This Non-Compete Agreement is not effective until received by Wanda Moser, who
will sign it to verify receipt and will send you a fully executed copy for your
records.
Alan L. Wurtzel
Non-Compete Agreement
January 30, 1996 (revised February 12, 1996)
Page 7
IN WITNESS WHEREOF, the parties have executed this Non-Compete
Agreement on the day and the year first written below.
CIRCUIT CITY STORES, INC.
By: s/Richard L. Sharp 2/12/96
Richard L. Sharp Date
President and Chief Executive Officer
AGREED: s/Alan L. Wurtzel 2/13/96
Alan L. Wurtzel SS# ###-##-#### Date
RECEIVED: s/Wanda Moser 2/21/96
Wanda Moser Date
initials
<PAGE>
January 30, 1996
Revised February 12, 1996
Alan L. Wurtzel
2134 R Street NW
Washington, DC 20008
Dear Alan,
As Bill Zierden and I have discussed with you, we are proposing to
change the agreement which currently exists between you and Circuit City Stores,
Inc. (the "Company"). The following summarizes what we have proposed:
A. Your active employment with the Company will end as of January 31,
1996. Your current Employment Agreement, which is dated June 21, 1983,
as amended by letter agreement dated September 8, 1983; December 2,
1986; May 24, 1989; and June 16, 1992 (the "Employment Agreement") will
remain in effect through January 31, 1996 (subject to the provisions of
paragraph F below), at which time it will terminate and will be
succeeded by a new agreement as described in C below.
B. You may remain on the Board of Directors through the end of your
current term, subject to the removal rights of the Company's
shareholders. You may be renominated for subsequent terms at the
discretion of the nominating committee and the Board. As long as your
Non-Compete Agreement is in effect, you will not be entitled to the
annual retainer paid to the Directors or the committee service or
attendance fees. You will be entitled to reimbursement of expenses paid
to Directors for attendance at meetings. As long as you remain on the
Board of Directors and such plan remains in effect, you will be
eligible to participate in the 1989 Non-Employee Directors' Stock
Option Plan.
C. In exchange for your execution of a non-compete, confidentiality and
nonsolicitation agreement (the "Non-Compete Agreement") which is dated
January 30, 1996 (revised February 12, 1996), we have agreed, subject
to the terms of the Non-Compete Agreement:
1. to pay you a total of $258,750.00 during the period February
1, 1996
initials
Alan L. Wurtzel
Retirement Status Letter
January 30, 1996 (Revised February 12, 1996)
Page 2
through September 30, 1998. Payments will be made in 32 equal
monthly payments of $8,085.93;
2. to offer you the option to join a small-group medical plan
with Blue Cross/Blue Shield of Virginia (Trigon). This option
is available to you as an alternative to medical coverage
under COBRA (described in paragraph D.1).
If you enroll in the BC/BS plan on February 1, 1996, you may
remain in it until you reach age 65. The Company will pay 25%
of the cost for you and your present spouse until each of you
reach age 65. (In the event that you die prior to the
expiration of the Non-Compete Agreement, Circuit City will
continue to pay 25% of the premium for your present spouse
until she reaches age 65.) However, in no event will coverage
for either of you continue beyond age 65. Based on the rates
currently in effect, your cost (75% of the total premium) to
cover you and your spouse would be $458.19 per month. This
monthly contribution amount will change if there is a change
in the total cost of the premium. Coverage for eligible family
members will continue as long as they meet the definition for
eligible family members as defined by the BC/BS Plan.
You have received a booklet describing the Plan, its benefits
and requirements, and an Enrollment Application. Although the
Company expects our relationship with BC/BS to be a long one,
as always, the Company reserves the right to change insurance
carriers and/or amend benefits. If you secure other employment
and are eligible to be covered under the medical plan of a new
employer, coverage and payments under this provision will
cease;
3. to pay you an additional monthly payment of $3,189.45 during
the term of the Non-Compete Agreement. This amount was derived
by adding the amounts listed in 3.a. through 3.g. below and is
subject to change if any of the items which comprise the
monthly payments change. In addition to the explanations
below, Exhibit 1 details how these monthly payments were
calculated. These amounts are:
a) $319.16 per month to reimburse you the cost of
coverage for you and your current spouse in the
above-mentioned BC/BS Plan. This amount has been
calculated by taking the cost of your participation
in this Plan (which is currently $458.19/month or 25%
of the total) less the amount of the current
associate contribution of $139.00/month. This monthly
amount is subject
initials
Alan L. Wurtzel
Retirement Status Letter
January 30, 1996 (Revised February 12, 1996)
Page 3
to change if: 1) the total cost of the BC/BS premium
changes as a result of premium increases and/or an
increase or decrease due to a change in coverage (an
example of this would be if you were to stop covering
your current spouse) or 2) the amount of the
associate contribution changes.
b) $146.00 per month to replace the benefits you would have
received under the Dental Plan had you continued to be
employed and had you continued to be covered under that Plan.
The maximum benefit you are currently eligible to receive
under the Dental Plan is $1000 per year for each of you and
your current spouse ($2000/year or $167 per month [less
$21/month which you are currently paying for your dental
premium]). We do not have a dental plan similar to the BC/BS
medical plan to offer you. However, you do have the option to
remain in the current Dental Plan through COBRA for up to a
legally-specified period of time following the termination of
your employment, at your expense, by paying the full cost of
the COBRA premium. If you elect to continue coverage under
COBRA, the monthly payments of $146.00 will not begin until
your coverage under COBRA ends.
c) $250 per month to replace your current life insurance
coverage. This has been calculated by taking the average of
your consultant compensation during the period of the
Non-Compete Agreement ($95,000/year) x three x the cost of
replacement coverage, less the amount of your current
contribution.
d) $330.67 per month to cover the employer side of your federal
FICA taxes, which were previously paid by the Company. Using
an average wage base of $64,000 for the term of the Agreement
x 6.2%, this comes to $330.67 per month.
e) $181.25 per month to cover the employer side of your
FICA Medicare taxes, which were previously paid by
the Company. Using an average wage base of $150,000
for the term of the Agreement (this amount includes
your secretaries' salary) x 1.45%.
f) $1,104.37 per month to cover the "gross up" for
federal and state income taxes at the maximum rate
for the amounts you are receiving under 3.a., 3.b.,
3.c., 3.d., and 3.e. above. This amount is subject to
change if the monthly amounts paid to you
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Alan L. Wurtzel
Retirement Status Letter
January 30, 1996 (Revised February 12, 1996)
Page 4
for Medical or Dental insurance changes. (This amount
was calculated by taking the total of the monthly
payments in 3.a., 3.b., 3.c., 3.d. and 3.e. ($319.16
+ $250 + $146 + $330.67 + $181.25 = $1,227.08) x
90%).
g) $858 per month, which is in lieu of the car allowance
which you presently receive as a senior executive of
the Company. While this benefit is currently
$858/month, it is subject to change if the amount
allotted for senior executives in the Company
changes;
4. pay you a lump sum of $56,565.00, which is the net present
value of the difference between the benefit you would have
earned if you remained full time until age 65 and your actual
earned benefit under the Retirement Plan. This amount will be
paid to you within ten working days of our receipt of the
executed Non-Compete Agreement.
5. for the Company to continue to provide you with secretarial
support. This support will be on the same basis as it
currently exists, that is, the Company will employ secretarial
support for you and provide you with the appropriate computer
equipment (hardware, software, etc.) for that person to use.
Upon the termination of the Non-Compete Agreement, you will
need to make arrangements to return or purchase the
aforementioned computer equipment.
6. for the Company to continue to provide you with tax
preparation advice, up to $10,000 per year. This amount is
subject to adjustment if is the amount approved by the
Compensation Committee of the Board of Directors changes for
any associates at the senior executive level.
7. for you to continue your participation in the O.E.P. program
during the term of your Non-Compete Agreement. At the
termination of the Non- Compete Agreement, you may purchase
the merchandise which you have on loan for cost less 10%.
D. A recap of the status of your participation in our benefit plans upon
the termination of your employment (January 31, 1996) is as follows:
1. Medical - If you do not choose to join the BC/BS Plan, you may
elect to remain in the Company's medical plan, under a federal
law known as COBRA (Consolidated Omnibus Reconciliation Act of
1985). Under COBRA, your coverage can continue for up to a
legally specified period of time. You will be responsible for
paying the entire cost of COBRA
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Alan L. Wurtzel
Retirement Status Letter
January 30, 1996 (Revised February 12, 1996)
Page 5
coverage. Information regarding COBRA coverage will be sent to
your home shortly after February 1, 1996.
2. Dental - You may also elect to continue your dental coverage
under COBRA. There is no additional option (similar to the
BC/BS Plan described in B.3. above) available for dental
coverage. You will be responsible for paying the entire cost
of COBRA coverage. Again, information will be mailed to your
home shortly after February 1, 1996.
3. Group Life Insurance - Your group life insurance (basic and
supplemental) will end January 31, 1996. You have 31 days to
convert to an individual policy with our carrier. Individual
policy rates will be different from our group rate. (Contact
Mary Gill on ext. 4475 for conversion forms.)
4. Long Term Disability - Your Long Term Disability coverage will
end on your termination date of January 31, 1996. Our plan
does not allow conversion to an individual plan. You have
acknowledged that you will not be specifically compensated for
the termination of this benefit.
5. Retirement Plan - Your participation as an active participant
in the Retirement Plan ends as of the date of your termination
of employment. However, the termination of your employment
does not effect any retirement benefits vested prior to your
termination date.
E. A recap of the status of your participation in other Company programs
upon the termination of your employment is as follows:
1. Car Allowance - Your monthly car allowance as an active
associate will end as of January 31, 1996.
2. O.E.P. - You may continue to remain in this program until your
Non- Compete Agreement terminates. At the termination of your
Non- Compete Agreement you will need to make arrangements to
either return or purchase any merchandise which you have.
3. Associate Discount - As a retiree with at least 20 years of
service, you may continue to purchase product at Circuit City
stores at the Associate Discount price.
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Alan L. Wurtzel
Retirement Status Letter
January 30, 1996 (Revised February 12, 1996)
Page 6
4. Secretarial Support - You can continue to receive secretarial
support until the end of the month in which your Non-Compete
Agreement ends. This will continue to be reported as income to
you, on the same basis that it is currently calculated.
5. Tax Advice - You will continue to participate in this program
until your Non-Compete Agreement terminates. You are currently
eligible for up to $10,000 per year, however this amount is
subject to change as referenced in paragraph C.6.. As with the
secretarial support, this will be reported as income to you.
F. The above-mentioned agreements and understandings are based on the
assumption that you remain an active, part-time employee of the Company
between today and January 31, 1996. The Company's obligations under
these agreements will terminate immediately in the event that your
employment is terminated for "cause" prior to February 1, 1996.
("Cause" is defined in paragraph F of your Employment Agreement.) In
the event that you die prior to the start date of the Non-Compete
Agreement, the terms of your relationship with the Company will be
defined solely by the terms of your Employment Agreement, and the
Company's obligations under the agreements dated January 30, 1996 will
terminate as of the date of your death.
G. Assuming you accept the Non-Compete Agreement, any income received by
you under this Agreement (explained in paragraph C above) will be
reported as income to you on a 1099.
Please sign below to indicate your acknowledgement and acceptance of
these agreements. Also, please indicate your choice regarding medical plan
election. Attached to this letter are two copies of the Non-Compete Agreement,
and an extra copy of this letter. To execute these, please initial each page,
sign each in the space provided, and return one copy of each (with your original
signature) to Wanda Moser, in the enclosed envelope.
Sincerely,
s/Richard L. Sharp
Richard L. Sharp
President and Chief Executive Officer
Alan L. Wurtzel
Retirement Status Letter
January 30, 1996 (Revised February 12, 1996)
Page 7
attachment: Exhibit 1 - Calculations of Amounts for the Non-Compete Agreement
ACKNOWLEDGED AND ACCEPTED:
2/13/96 s/Alan L. Wurtzel
Date Alan L. Wurtzel SS# ###-##-####
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<PAGE>
Alan L. Wurtzel
Retirement Status Letter
January 30, 1996 (Revised February 12, 1996)
Page 8
MEDICAL PLAN ELECTION
___X___ I elect to participate in the the Blue Cross/Blue Shield
medical plan as outlined in C.2. above.
_______ I elect to not participate in the above-mentioned Blue
Cross/Blue Shield Plan
2/13/96 s/ Alan L. Wurtzel
Date Alan L. Wurtzel SS# ###-##-####
initials
EMPLOYMENT AGREEMENT
THIS AGREEMENT is made as of April 24, 1995, by and between CIRCUIT
CITY STORES, INC., (the "Company"), a Virginia Corporation, and Warren A.
McCollough, (the "Employee").
The parties agree as follows:
ARTICLE I
Services
The Company agrees to employ the Employee as Senior Vice President
during the term of this Agreement. The Employee agrees to devote his full time
and attention to the business of the Company and to the faithful performance of
his duties as Senior Vice President and to the performance of such additional
duties as may be assigned to him from time to time by the Company's Board of
Directors (the "Board") or Chief Executive Officer.
At any time and from time to time while this agreement is in force, the
Employee may be appointed to such other executive positions and be given such
other titles and executive responsibilities as the Board may determine.
ARTICLE II
Term
The Company agrees to employ the Employee and the Employee agrees to
serve the Company for a term beginning as of April 24, 1995 and continuing
through April 23, 1997. The term of this Agreement shall be automatically
extended for additional one-year periods unless either party notifies the other
in writing at least one year before the end of the then-current term that it
does not wish to extend the term. For example, if such a notice is not given by
April 24, 1996, the term of this Agreement shall extend through April 23, 1998.
However, in order for the contract to expire on that date, notice must be given
by April 24, 1997. If no such notice is given, the term shall extend through
April 23, 1999. This Agreement may be terminated prior to its expiration by
either the Company or the Employee. The consequences of such a termination are
described in other provisions of this Agreement.
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Warren A. McCollough
Employment Agreement
April 24, 1995
ARTICLE III
Compensation
The Employee's compensation shall include:
(1) Base salary, as determined by the Board or the
Compensation and Personnel Committee of the Board (the "Committee")
following an annual review of the Employee's compensation. Until June
1, 1996, such base salary will be $380,000.00/annually.
(2) Cash bonuses in accordance with the Company's annual bonus
program established by the Board or the Committee and on a basis no
less favorable than that applicable to other senior management
employees and such other cash bonuses as the Board or the Committee, in
their discretion, may determine from time to time.
(3) Participation in the Company's stock incentive programs to
the extent the Board or the Committee, in their discretion determines
is appropriate for senior management employees.
(4) Participation in the Company's pension and other benefit
plans and all of the Company's fringe benefit and executive
compensation programs for senior management employees not otherwise
provided for in this Agreement in accordance with the terms and
provisions of those plans and programs, as they may be in effect from
time to time.
In addition, the Company shall reimburse the Employee for all
reasonable and necessary expenses incurred by the Employee in connection with
the performance of his duties hereunder in accordance with corporate policies
and procedures covering travel and business expense reimbursement, as they may
be in effect from time to time.
The Employee may elect to defer all or any part of his salary or bonus
by filing a written election (the "Election") to that effect with the Secretary
of the Company. As to salary, the Election shall be effective only with respect
to compensation for services performed after the Employee files the Election. As
to bonuses, the Election shall be effective only with respect to bonuses
determined and awarded to the Employee after the Employee files the Election.
Any amounts deferred by the Employee will be credited to an account established
for him on the books of the Company. This account will also be credited as of
the end of each fiscal year, until such time as no balance remains in the
account, with
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Warren A. McCollough
Employment Agreement
April 24, 1995
an additional amount equal to the product of (a) the average balance credited to
the account during that fiscal year and (b) a percentage which shall be the time
weighted average of the prime rate announced by Signet Bank from time to time
during such fiscal year. The total amount credited to this account will become
payable to the Employee after his termination of employment upon such payment
schedule as he may specify in the Election. If termination of employment occurs
by reason of death, or if the Employee dies after payments have commenced, any
remaining payments will be made to one or more beneficiaries designated by the
Employee in a writing filed with the Secretary of the Company. If the Employee
fails to designate a beneficiary, or if all the designated beneficiaries
predecease him, payment of the remaining unpaid balance in the account will be
made to the Employee'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 made and actions taken by the Company under this Article shall be
binding upon the beneficiaries and the Employee's estate. The Employee's rights,
or the rights of any beneficiary, are those of a general creditor of the
Company.
ARTICLE IV
Confidential Information
The Employee recognizes that by virtue of his present position and his
tenure with the Company in an executive capacity, he has and will continue to
have access to Company trade secrets and other confidential information in
whatever form as documents, software, C.D. Rom, firmware, brochures, data,
materials, knowledge, graphs, pictures and the like including, but not limited
to, the Company's business methods, expansion strategies, expansion plans,
merchandising and marketing techniques or policies, training techniques,
internal operations, supplier information, pricing information, internal
corporate planning methods, systems and operating procedures and other business
matters (the "Confidential Information").
The Employee recognizes and acknowledges that such Confidential
Information, as may exist from time to time, is a valuable, special and unique
asset of the Company, and that this Confidential Information and its use have
been responsible for the rapid growth and nationwide expansion of the Company,
and if known by an entity engaged in the "Business of the Company," would cause
irreparable harm to the Company. The "Business of the Company", shall be defined
as: (a) retail sales and service of consumer electronics or appliances (with or
without after-sale service) or (b) the purchase or sale of motor vehicles (with
or without providing after-sale service) or c) any other line of business in
which the Company becomes engaged before the date the Employee's employment
terminates.
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Warren A. McCollough
Employment Agreement
April 24, 1995
Therefore, except in performing his duties as an employee of the
Company, the Employee shall not:
(1) Make or cause to be made any reproductions of any
Confidential Information belonging to or in the possession of the Company; or
(2) Remove any Confidential Information from the premises of
the Company or fail or refuse to surrender the same to the Company immediately
upon the termination of his employment or at any prior time upon the Company's
request; or
(3) Use for his own benefit or purposes or disclose to or use
for the benefit or purposes of anyone other than the Company, both during his
employment and after the termination of his employment, any trade secrets or
other Confidential Information, whether he learned the information before or
after signing this Agreement.
ARTICLE V
Non-competition and Non-solicitation
(1) Non-competition. Except as hereinafter provided, the Employee
agrees that he will not, without the prior written consent of the Company,
engage in competition with the Company by being associated with any Competing
Business (as hereinafter defined) during the term of this Agreement and for a
period of one year following its termination or expiration. For purposes of this
Article, the Employee will be deemed to have associated with a Competing
Business if he: (1) directly or indirectly, alone or as a member of a
partnership, owns greater that a 5% interest in; or (2) manages, operates,
controls, or acts as a consultant to; or (3) serves as an officer or director or
in any managerial or executive position; with any Competing Business.
A "Competing Business" is any business entity which engages in the
Business of the Company and engages in Substantial Competition with the Company
in one or more Metropolitan Statistical Areas ("MSA"), in which the Company has
its operation, or in which, at the date the Employee's employment terminates,
the Company is engaged in real estate site selection or has taken further steps
toward the commencement of operation in the future, either alone or in
association with another entity ("Future Statistical Areas"), and in which the
Company collectively produced, or, in the case of Future Statistical Areas, is
projected to produce in the first year of operations, more than $5 million of
gross sales. A business will not be considered to be in "Substantial
Competition" with the Company if: (1) the business or the operating unit of the
business in which the Employee is employed or with
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Page 4
Warren A. McCollough
Employment Agreement
April 24, 1995
which the Employee is associated (the "Business Unit") is not engaged in the
Business of the Company; or (2) if sales of the Business Unit's products or
services in the Business of the Company constitute less than 10% of such
Business Unit's sales; or (3) if the sales of the Business Unit in the Business
of the Company do not constitute more than 10% of the sales of the Business
Unit, but there is not significant geographic overlap between such Business Unit
and the Company's business locations. For the purposes of this provision, there
will not be a significant geographic overlap if less than 10% of the sales of
such Business Unit and less than 10% of the Company's sales (i) are in the same
MSA or (ii) are projected to be in the same MSA within the first year of
operations in the case of Future Statistical Areas. The term "Business of the
Company" is defined in Article IV. In every case, the good faith judgement of
the Committee shall be conclusive as to whether the Employee is associated with
a Competing Business.
(2) Non-solicitation. The Employee agrees that during the term of this
Agreement and for a period of two years following its termination, he will not,
without the prior written consent of the Company, directly or indirectly engage
in efforts to induce the Company's employees to terminate their employment for
the purpose of being employed by another business entity.
(3) Change of Control. In the event that the Employee's employment is
terminated within two years following a Change of Control (Change of Control
being defined in Article VII) under circumstances described in Article VI(2),
the Employee shall not be bound by the provisions of this Article.
ARTICLE VI
Termination by the Company
(1) For Cause. The Company may immediately terminate the Employee's
employment at any time prior to the expiration of this Agreement for "cause".
For purposes of this Agreement, the following shall be "cause" for termination.
(a) continued and deliberate neglect by the Employee of
his employment duties; or
(b) criminal misconduct of the Employee in connection
with the performance of any of his duties, including,
by way of example but not limitation,
misappropriation of funds or property of the Company
or accepting bribes or kickbacks in connection with
any transaction entered into on behalf of the
Company; or
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Warren A. McCollough
Employment Agreement
April 24, 1995
(c) failure of the Employee to disclose to the Board a
conflict of interest, of which he knew or, with
reasonable diligence, would have known, in connection
with any transaction entered into on behalf of the
Company; or
(d) conduct by the Employee that would result in material
injury to the reputation of the Company if he were
retained in his position with the Company; or
(e) the Employee's conviction of a felony; or
(f) a preliminary or permanent injunction or similar
remedy is entered against the Employee, the Company
or both preventing the Employee or the Company from
performing all or part of this Agreement; or
(g) breach by the Employee of the provisions of Articles
IV or V of this Agreement; or
(h) deliberate actions by the Employee which are contrary
to the best interests of the Company.
In every case, the good faith judgement of the Committee shall be
conclusive as to whether cause for termination exists. In the event of a
termination for cause, which shall include resignation by the Employee at the
Company's request at a time when cause for termination exists, the Employee
shall forfeit the right to any compensation (other than deferred compensation)
under this Agreement after the date of termination, except to the extent that
the terms of any plans or programs referred to in Article III (4) or any
applicable law require otherwise.
(2) Without Cause. The Company may terminate the Employee's employment
agreement at any time prior to the expiration of this Agreement without cause
("cause" being defined in Article VI(1)). In the event: (a) the Employee's
employment is terminated by the Company without cause; (b) the Employee resigns
at the Company's request at a time when no cause for termination exists; or (c)
the Employee voluntarily terminates his employment as a result of a reduction in
compensation or benefits (which is not part of a prorata reduction in executive
compensation or benefits for the Company's senior executives) or as a result of
a significant reduction in the Employee's responsibilities, and the voluntary
termination occurs within 60 days after such reduction, the Employee shall
forfeit the right to any compensation (other than deferred compensation) under
this Agreement after the date of termination except:
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Warren A. McCollough
Employment Agreement
April 24, 1995
(i) 12 months of base salary, payable in biweekly installments
over the following 12 months; and, in the event that the
termination of employment occurs within two years following a
Change of Control (Change of Control being defined in Article
VII), an additional 12 months of base salary, payable in
biweekly installments over the second 12-month period
immediately following such termination; and
(ii) a pro-rated bonus for the fiscal year in which the Employee's
employment is terminated, if the termination occurs on or
after September 1st of that fiscal year. The proration will be
based on the number of complete months the Employee worked in
that fiscal year, will be in accordance with the bonus program
for such fiscal year, and will be payable within two weeks of
when bonuses are distributed, and
(iii) a prorated bonus for the prior fiscal year, if the Employee
worked six or more months in the prior fiscal year, and if the
Employee's termination date is between March 1st and the date
bonuses are distributed for the prior fiscal year (if bonuses
are awarded for the prior fiscal year). In this event, the
bonus will be prorated for the number of complete months the
Employee worked in the prior fiscal year, and
(iv) Continued participation, as if still employed, in the
Company's medical and dental insurance plans through the end
of the month in which the Employee's severance payments end to
the extent permitted by the provisions of such plans;
provided, however, the Company's obligation to continue
participation in these plans, ends on the last day of the
month in which the Employee becomes eligible to participate in
such benefits at his new place of employment. However, the
Company will continue to provide benefit continuation to the
extent required by federal law.
Notwithstanding the foregoing, the Employee shall have the obligation
to seek alternative employment following a termination of employment under
Article VI(2). Any remuneration the Employee receives for the performance of
personal services during the year following termination of his employment
pursuant to this Article VI(2) will be an offset to the Company's obligations to
pay the amounts referred to in subparagraph (i) above; provided, however, that
such an offset will not reduce below one-half the remaining biweekly payments
the Company is obligated to pay under subparagraph (i) above; and provided,
further, that the Employee shall not have any obligation to seek other
employment and no such offset will be allowed the Company if such a termination
of employment occurs within
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Warren A. McCollough
Employment Agreement
April 24, 1995
two years following a Change of Control (Change of Control being defined in
Article VII).
(3) Death or Disability. If the Employee dies or becomes disabled
during the term of this Agreement, the Employee's employment will terminate as
of the date of the Employee's death or the determination of the Employee's
disability. In such event, neither of Article VI (1) or (2) shall be applicable.
The determination as to whether the employee has suffered a disability and the
date on which the disability commenced shall be made by the Committee, in its
sole discretion, on the basis of competent evidence; provided, however, that the
inability of the Employee to perform each of the material duties of his
employment for 6 consecutive months because of a medically determined physical
or mental condition shall be conclusive evidence of disability unless the
Company is provided with competent medical evidence that the condition will not
continue to prevent the Employee from performing his duties for more than six
additional months. Two consecutive weeks of full ability to perform each of the
material duties of the position shall be required to interrupt the running of
the six-month period.
In the event of termination because of disability, the Employee shall
receive his base salary (pursuant to Article III (1)) for the first 12 months
after the first date on which the Employee was unable to perform, after which he
shall be entitled only to such amounts, if any, as may be available any
employment-related benefit plans or programs in which the Employee may be a
participant (except those which are totally paid for by the Employee through a
private company). Any amounts the Employee receives under such plans or programs
during the 12 months referred to above shall be an offset to amounts which he
would otherwise receive under Article VI (3).
In the event of the Employee's death, the designated beneficiary of the
Employee shall continue to receive the Employee's base salary for a period of 3
months following his death.
ARTICLE VII
Termination by Employee
(1) General Rule. The Employee may voluntarily terminate his employment
prior to the expiration of this Agreement upon 60 days written notice to the
Company. If the Employee does so for reasons other than those set forth in
provision (c) of Article VI (2) or for such reasons, but after the time period
set forth in such provision has expired, he shall forfeit the right to any
compensation (other than deferred compensation) under this Agreement after the
date of termination.
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Warren A. McCollough
Employment Agreement
April 24, 1995
(2) Voluntary Termination Following a Change of Control. The provision
of Article VII (1) notwithstanding, in the event that a Change of Control (as
hereinafter defined) occurs and within one year thereafter the Employee
voluntarily terminates his employment (other than pursuant to provision (c) of
Article VI (2)), the Employee shall be entitled to receive, in addition to any
other amounts he may be entitled to receive under this Agreement and subject to
any applicable payroll or other taxes required to be withheld, an amount equal
to one year's base salary, in addition to the continuation of his medical and
dental benefits (as if still employed) during the pay-out period. This severance
amount shall be payable in biweekly installments over the 12 months immediately
following termination.
In such event, fiscal year-end bonuses will be handled in the following manner:
(i) If the Employee's termination date is on or after September
1st: any bonus awarded for that year will be prorated for the
number of complete months the Employee worked in the fiscal
year.
(ii) If the termination occurs prior to September 1st, no bonus
will be due.
(iii) If the Employee's termination date is between March 1 and May
15: the Employee shall also be entitled to a bonus for the
prior fiscal year, prorated for the number of complete months
the Employee worked in the prior fiscal year, provided the
number of months employed in that year was equal to or greater
than six.
(3) Change of Control Definition. In this Agreement, "Change of Control"
shall mean:
(i) a third person, including a "group" as defined in Section
13(d)(3) of the Securities Exchange Act of 1934, becomes, or
obtains the right to become, the beneficial owner of Company
securities having 20% or more of the combined voting power of
the then outstanding securities of the Company that may be
cast for the election of directors of the Company (other than
as a result of an issuance of securities initiated by the
Company in the ordinary course of business); or
(ii) as the result of, or in connection with, any cash tender or
exchange offer, merger or other business combination, sale of
assets or contested election, or any combination of the
foregoing transactions, the persons who were directors of the
Company before such transactions shall cease to constitute a
majority
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Warren A. McCollough
Employment Agreement
April 24, 1995
of the Board of Directors of the Company or any successor to
the Company.
ARTICLE VIII
Benefits Upon Termination
Upon termination of employment, benefits are terminated as described
below:
1) Medical and Dental Plans: The Employee's participation in the
Medical and/or Dental plans terminates as of the last day of the month in which
the Employee's employment ends, unless specifically continued during a severance
payment period as noted in Article VI or Article VII(2) above. Continuation of
coverage other than as provided in Article VI or Article VII(2) above, will be
available in accordance with federal law and each plan's provisions.
2) Retirement Plan: The Employee's termination of employment will not
affect Retirement Plan benefits earned as of the date of termination.
3) Other Benefit Programs: Participation in all other benefit programs
ends as of the date of termination, except as noted below. Benefit programs
include, but are not limited to, Group Life Insurance, Long Term Disability,
Employee Discount Program, car allowance or company car program, the Restricted
Stock and Stock Option Plans, the Officer Merchandise Evaluation Program, and
the tax preparation and financial counseling programs. The ability to exercise
options ends on the date of termination of employment. Participation in the
fiscal year-end bonus program ends as of the date of termination unless the
termination of employment is without cause as defined in Article VI (2) above.
If the Employee is released, without cause, under the terms of this
agreement, and the Employee has vested but unexercised stock options, or has
stock options or restricted stock which are due to vest within one month of the
date of termination, the Employee shall have the option to delay the termination
for up to one month, to allow for any restricted stock or stock options to vest,
or for the Employee to have time to exercise options. If the Employee
initials
Page 10
Warren A. McCollough
Employment Agreement
April 24, 1995
elects this option, the severance pay-out period would be reduced by a like
period of time (e.g., if the Employee delays his termination for one month in
order for stock to vest, the Employee would receive 11 months of severance
payments and medical and dental plan continuation, instead of 12 months). If
termination is for "cause," participation in all benefits, including stock
options and restricted stock ends either on the date of termination or the end
of the month in which the termination occurred, according to the provisions of
each benefit program. If termination of employment is due to death, the right to
exercise vested but unexercised stock options is in accordance with the terms of
the stock option plans. All of the above is subject to the laws, regulations and
plan provisions in effect at the time of the Employee's termination.
ARTICLE IX
Monies Owed
To the extent that the Employee owes the Company any monies at the time
of termination of employment, or to the extent that taxes are due on any Circuit
City benefits, the Employee authorizes the Company to withhold such amounts from
his final paycheck or severance payment(s), or from reimbursements or any other
monies due to the Employee.
ARTICLE X
Notices
Any notice or other communication ("Notice") required under this
Agreement shall be in writing and shall be deemed to have been given or made
when personally delivered, or when mailed by registered or certified mail,
postage prepaid, return receipt requested, to the other party. In the case of
the Company, any Notice shall be delivered or mailed to its principal office to
the attention of the Secretary. In the case of the Employee, any Notice shall be
delivered or mailed to his last known address as reflected in the records of the
Company.
initials
Page 11
Warren A. McCollough
Employment Agreement
April 24, 1995
ARTICLE XI
Assignment
This agreement is one for personal service and shall not be assignable
by Employee. However, Company may assign this agreement to an entity under
common control with Company or to an entity which succeeds to the portion of the
Company's business in which the Employee is employed.
ARTICLE XII
Survival of Covenants
Except to the extent expressly provided otherwise in this Agreement,
the covenants and agreements of the Employee and the Company, including but not
limited to those set forth in Articles IV and V, shall survive the termination
or expiration of this Agreement.
ARTICLE XIII
Entire Agreement; Amendments
This Agreement constitutes the entire agreement and supersedes all
other prior agreements and understandings, both written and oral, express or
implied, with respect to the subject matter of this Agreement. This Agreement
may be amended only by a writing executed by the parties.
ARTICLE XIV
Governing Law
This Agreement shall be governed by and construed and enforced in
accordance with the laws of the Commonwealth of Virginia.
initials
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Warren A. McCollough
Employment Agreement
April 24, 1995
ARTICLE XV
Waiver
Failure to insist upon strict compliance with any term or condition of
this Agreement shall not constitute a waiver of the term or condition, nor shall
any waiver or relinquishment of any right or power under this Agreement at any
one or more times be deemed a waiver or relinquishment of such right or power at
any other time.
ARTICLE XVI
Severability
If any Article, paragraph, sentence, or clause hereof, including,
without limitation, Article IV and V ("Provision"), is deemed invalid or
unenforceable in whole or in part in any jurisdiction, all the other Provisions
in this Agreement including the affected Provision, to the extent it is not
deemed invalid or unenforceable, shall remain in full force and effect in that,
and any other, jurisdiction and shall be liberally construed in order to
effectuate the purpose and intent of the Agreement. The invalidity or
unenforceability of any Provision of this agreement in any jurisdiction shall
not affect the validity or enforceability of that Provision in any other
jurisdiction.
ARTICLE XVII
Arbitration
(1) Any disagreement or controversy between the parties concerning this
Agreement (other than disagreements or controversies concerning Articles IV and
V of this Agreement) shall be settled by arbitration in accordance with
Commercial Arbitration Rules of the American Arbitration Association ("AAA") and
this Article. In the event of any inconsistency between such Rules and this
Agreement, this Agreement shall control. The decision in writing of the sole
arbitrator or of a majority of the arbitrators, as the case may be, designated
or selected in accordance with this Article shall be final and binding on both
parties and may be enforced in a court of law or equity. The parties recognize
that they wish to use arbitration to settle disagreements or controversies
concerning this Agreement other than those excluded above and both parties waive
their right to appeal the arbitrators'
initials
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Warren A. McCollough
Employment Agreement
April 24, 1995
decision to any court. The cost of arbitration, including arbitrators' fees and
expenses of hearings and conferences, shall be shared equally by the parties.
Each party shall pay its own attorney's and experts' fees and related expenses.
(2) Notice of intent to arbitrate must be given within six months after
the aggrieved party knows or, with reasonable diligence, would have known of the
existence of the disagreement or controversy, unless the parties agree in
writing to extend such six months period.
(3) Disagreements and controversies submitted to arbitration hereunder
shall be decided by a sole arbitrator appointed by the AAA; provided, however,
that each party shall have the right, but not the obligation, to designate one
additional arbitrator. If a party wishes to avail himself of such right, such
party shall give written notice naming such additional arbitrator to the other
party within 30 days after the notice of intent to arbitrate is given.
(4) If the Employee breaches the provisions of Articles IV or V, he
shall not be entitled to receive any amounts due under this Agreement that have
not been previously paid to him.
(5) The Employee recognizes and acknowledges that in the event of any
default in or breach of any of the terms, conditions, and provisions of Articles
IV or V of this Agreement (either actual or threatened) by the Employee, the
Company will suffer irreparable harm and its remedies at law will be inadequate.
Accordingly, the Employee agrees that, in such event, the Company shall have the
right to specific performance and injunctive relief in addition to any and all
other remedies and rights available to the Company under this Agreement, or at
law or in equity, and all rights and remedies shall be cumulative.
(6) Disagreements or controversies concerning Articles IV or V of this
Agreement may be settled by arbitration in accordance with this Article if both
parties so agree in writing.
The offer contained herein remains open until 5 p.m. on May 24, 1995.
To confirm that this letter states our agreement, please sign the enclosed copy
on the line above your name, date it, initial each page in the space provided
for that purpose, and return the copy to Wanda Moser, Personnel Operations
Manager, in the enclosed envelope by May 10, 1995. This agreement is not
effective until received by Wanda Moser, who will sign it to verify receipt and
will send you a fully executed copy for your records,
Page 14
Warren A. McCollough
Employment Agreement
April 24, 1995
IN WITNESS WHEREOF, the parties have executed this Agreement on the day
and the year first written below.
CIRCUIT CITY STORES, INC.
By: s/Richard L. Sharp 5/25/95
Richard L. Sharp, Date
President and Chief Executive Officer
AGREED: s/Warren A. McCollough 5/22/95
Warren A. McCollough SS# ###-##-#### Date
RECEIVED: s/Wanda Moser 5/25/95
Wanda Moser Date
Page 15
REPORTED HISTORICAL INFORMATION
<TABLE>
<CAPTION>
(AMOUNTS IN THOUSANDS EXCEPT PER SHARE DATA) 1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C>
Net sales and operating revenues...................... $7,029,123 $ 5,582,947 $ 4,130,415 $3,269,769 $ 2,790,232
Net earnings.......................................... $ 179,375 $ 167,875 $ 132,400 $ 110,250 $ 78,223
Net earnings per share................................ $ 1.82 $ 1.72 $ 1.36 $ 1.15 $ 0.82
Total assets.......................................... $2,526,022 $ 2,004,055 $ 1,554,664 $1,262,930 $ 999,582
Long-term debt, excluding current installments........ $ 399,161 $ 178,605 $ 29,648 $ 82,387 $ 85,415
Deferred revenue and other liabilities................ $ 214,001 $ 241,866 $ 268,360 $ 232,054 $ 187,158
Cash dividends per share paid on
common stock....................................... $ 0.12 $ 0.10 $ 0.08 $ 0.06 $ 0.05
</TABLE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS
OF OPERATIONS AND FINANCIAL CONDITION
Our objective is to manage Circuit City's resources to create maximum long-term
value for the Company's shareholders. We achieve this objective by adhering to
the following policies:
1) We manage our existing business, primarily the current Superstore
markets, to produce the highest possible long-term returns.
2) We make new investments that we believe will increase our earnings and
produce returns above our cost of capital.
The results generated by current operations and by the Company's fiscal 1996
investments are reviewed below.
RESULTS OF OPERATIONS
SALES GROWTH
Total sales increased 26 percent in fiscal 1996, to $7.03 billion. In fiscal
1995, total sales were $5.58 billion, a 35 percent increase from $4.13 billion
in fiscal 1994.
Percentage Sales Change From Prior Year
Circuit City
All Comparable Industry
Fiscal Stores Stores Sales*
1996......................... 26% 5% 6%
1995......................... 35% 15% 11%
1994......................... 26% 8% 7%
1993......................... 17% 7% 7%
1992......................... 18% 1% 0%
* The industry sales rates are derived from Electronic Industries Association,
Association of Home Appliance Manufacturers, Recording Industry Association of
America and Company estimates of audio, video, home office, telecommunications,
appliance and music software sales. Music software is not included in industry
sales prior to fiscal 1995. In those years, Circuit City was not a significant
participant in this category.
Circuit City Operations. Circuit City's total sales growth primarily reflects
continued expansion of the Superstore base and strong comparable store sales
growth from Circuit City operations during most of the last three years. In
fiscal 1996, the Company opened a net of 66 Superstores compared with 59
Superstores in the previous fiscal year. Twelve of the fiscal 1996 stores opened
in the last month of the year. The Company entered the following major
metropolitan markets: Buffalo, N.Y.; Denver, Colo.; Hartford, Conn.; Milwaukee,
Wisc.; Rochester, N.Y.; Salt Lake City, Utah; and Springfield, Mass. The Company
also opened stores in smaller markets, added stores to existing markets and
replaced or expanded 15 stores.
The Company operates four Circuit City Superstore formats with square
footage and merchandise assortments tailored to population and volume
expectations for specific trade areas. With these formats, the Company can
penetrate virtually every market in the U.S. The "D" format was developed in
fiscal 1995 to serve the most populous trade areas. Selling space in the "D"
format averages about 23,000 square feet with total square footage averaging
42,242. The "D" stores offer the largest merchandise assortment of all the
formats. The "C" format constitutes the largest percent of the store base.
Selling square footage in this format has been increased during the last several
years, and new "C" stores typically have about 17,000 square feet of selling
space. Total square footage for all "C" stores averages 33,828. The "B" format
often is located in smaller markets or in trade areas that are on the fringes of
larger metropolitan markets. Selling space in these stores averages
approximately 11,000 square feet with an average total square footage of 24,685.
The "B" stores offer a broad merchandise assortment that maximizes return on
investment in these lower volume areas. The "A" format serves the least
populated trade areas. Selling space averages approximately 9,000 square feet,
and total square footage averages 18,026. The "A" stores feature a layout,
staffing levels and merchandise assortment that creates high productivity in the
smallest markets.
The Company also operates 36 mall-based Circuit City Express stores. These
stores are located in regional malls, are approximately 2,000 to 3,000 square
feet in size and sell small, gift-oriented items. During fiscal 1996, the
Company opened five Circuit City Express stores and closed four stores located
in underperforming malls.
Store Mix
Retail Units at Year End
Fiscal 1996 1995 1994 1993 1992
Superstore
"D" Superstore..... 61 12 - - -
"C" Superstore..... 259 257 219 188 170
"B" Superstore..... 46 37 30 24 11
"A" Superstore..... 12 6 4 2 2
Electronics-Only...... 5 5 7 7 11
Circuit City Express.. 36 35 34 39 34
TOTAL................. 419 352 294 260 228
Over the past three years, industry growth in personal computers has driven
strong comparable store sales increases for the Company. During the first half
of fiscal 1996, rapid PC sales growth and relatively strong demand for consumer
electronics and major appliances contributed to a 10 percent comparable store
sales increase. Challenging prior year sales comparisons and softer industry
sales in all categories led to a more modest increase of 1 percent for the
second half and 5 percent for the full year. Based on market research and sales
performance, the Company believes that it continues to maintain substantial
shares in existing markets and to build significant shares in new markets.
For the Company's core retail business, gross dollar sales from all
extended warranty programs were 5.9 percent of sales in fiscal year 1996,
compared with 5.8 percent in both fiscal 1995 and 1994. Total extended warranty
revenue, which is reported in total sales, was 5.1 percent of sales in fiscal
year 1996, 5.4 percent in fiscal year 1995 and 4.8 percent in fiscal year 1994.
The gross profit margins on products sold with extended warranties are higher
than the gross profit margins on products sold without extended warranties. Late
in fiscal 1994, the Company began selling two new extended warranty programs on
behalf of unrelated third parties that issue these plans for merchandise sold by
the Company and other retailers. One of these programs is sold in most major
markets and features in-home service for personal computer products. The second
program covers electronics and major appliances and at year-end was offered by
approximately two-thirds of the Superstores. The remaining stores sell a Circuit
City extended warranty. Under the third-party programs, Circuit City acts as
seller for the unrelated third parties and has no contractual liability to the
customer under the extended warranty plans. Commission revenue from the
third-party extended warranty plans is recognized immediately while revenue from
Circuit City extended warranties is deferred and amortized on a straight-line
basis over the life of the contracts. In fiscal 1996, the increase in
third-party revenue was more than offset by a decrease in revenue recognized
from Circuit City contracts sold in prior periods. The increase in third-party
warranty sales contributed to the growth in total extended warranty revenue from
fiscal 1994 to fiscal 1995. Third-party extended warranty revenue was 3.0
percent of total sales in fiscal 1996, 2.3 percent in fiscal 1995 and 0.7
percent in fiscal 1994. The Company expects third-party extended warranty
revenue to continue increasing in fiscal 1997.
Superstore Sales Per Total Square Foot
Fiscal
1996................................................. $577
1995................................................. $584
1994................................................. $523
1993................................................. $487
1992................................................. $460
Superstore Sales Per Total Square Foot. Over the last five years, the Company
has significantly increased the percentage of store square footage devoted to
selling space. Expanded merchandise assortments and additional product
categories such as personal computers and music software contribute to higher
sales per total square foot in some stores. In fiscal 1995, the total square
footage of new stores began to increase. The larger stores generate high sales
volumes in specific trade areas but have lower sales per total square foot than
smaller Superstores. As a result, the Company's Superstore sales per total
square foot declined in fiscal 1996.
Sales By Merchandise Categories*
Fiscal 1996 1995 1994 1993 1992
TV................... 17% 19% 20% 23% 23%
VCR/Camcorders....... 13% 14% 17% 19% 20%
Audio................ 19% 22% 23% 23% 26%
Home Office.......... 26% 20% 12% 7% 5%
Appliances........... 14% 15% 18% 19% 19%
Other................ 11% 10% 10% 9% 7%
TOTAL................ 100% 100% 100% 100% 100%
*In fiscal 1996, the Company moved cellular phones from the "Audio" category to
the "Other" category and moved certain audio products from the "Other" category
to the "Audio" category. Sales of these products have been reclassified for
prior years.
Sales by Merchandise Categories. Home office products, primarily personal
computers, have increased dramatically as a percentage of the Company's sales
during the past five years. This growth reflects a rapid increase in household
penetration of this product and the strength of Circuit City's consumer offer in
the category. Within the consumer electronics categories, the greatest sales
growth has occurred among the fully featured products such as large-screen
televisions and SurroundSound audio systems. A lack of new product features and
declining retail prices for small-screen televisions and video cassette
recorders have limited sales growth in the video categories. A proliferation of
retail outlets and increased household penetration have reduced cellular phone
sales, which are included in "Other."
Impact of Inflation. Inflation has not been a significant contributor to
industry growth or to Circuit City's sales growth during the last five years.
The Company expects no significant change in this trend. Because the Company
purchases substantially all products, including consumer electronics, in U.S.
dollars, prices are not directly impacted by the value of the dollar in relation
to other foreign currencies, including the Japanese yen.
CarMax. During the second half of fiscal 1994, the Company began testing
CarMax: The Auto Superstore, a retail concept that sells used automobiles. The
Company expanded the test to a second location in fiscal 1995 and added two more
locations in fiscal 1996. In January 1996, the Company announced plans to begin
a national rollout of CarMax. CarMax sales totaled $304.5 million in fiscal
1996. CarMax is not included in the reported comparable store sales growth.
COST OF SALES, BUYING AND WAREHOUSING
The gross profit margin declined to 23.3 percent of sales in fiscal 1996
compared with 24.8 percent in fiscal 1995 and 26.8 percent in fiscal 1994. The
gross profit margin trend reflects growth in personal computer sales, which
produce gross profit margins lower than the Company's average; increased
competition; and a highly promotional climate. The trend also reflects the
addition of CarMax, which generates lower gross margins than the Circuit City
operations, to the sales mix.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
The Company's lower gross profit margin has been partly offset by improvements
in selling, general and administrative expenses as a percent of sales. The
expense ratio was 18.8 percent of sales in fiscal 1996, 19.8 percent in fiscal
1995 and 21.6 percent in fiscal 1994. The improvement in the expense ratio
primarily reflects total and comparable store sales growth achieved throughout
the three-year period, an ongoing focus on maximizing store productivity and
productivity of corporate overhead expenditures, a net contribution from the
credit card bank subsidiary and a lower expense structure for CarMax.
Operating profits generated by the Company's credit card bank subsidiary
are recorded as a reduction to SG&A expenses. Throughout the three-year period,
the subsidiary has benefited from a generally low interest rate environment,
which lowers the bank's cost of funds.
INTEREST EXPENSE
Interest expense increased to 0.4 percent of sales in fiscal 1996, from 0.2
percent in fiscal 1995 and 0.1 percent in fiscal 1994. The increase reflects
higher interest rates, the net addition of $369 million of long-term debt since
fiscal 1994 and higher short-term borrowings resulting from the Company's
growth.
INCOME TAXES
The Company's effective income tax rate was 37.5 percent in both fiscal 1996 and
fiscal 1995 and 36.7 percent in fiscal 1994. An increase in the federal
statutory income tax rate in fiscal 1994 required a revaluation of the Company's
deferred tax asset. That revaluation had a favorable impact on the fiscal 1994
provision for income taxes and resulted in the lower effective tax rate for that
fiscal year. The higher federal statutory income tax rate increased the
Company's effective tax rate for the latter half of fiscal 1994 and throughout
fiscal years 1995 and 1996.
NET EARNINGS
Net earnings rose 7 percent to $179.4 million in fiscal 1996. In fiscal 1995,
net earnings were $167.9 million, a 27 percent increase from $132.4 million in
fiscal 1994. Net earnings per share rose 6 percent in fiscal 1996, to $1.82, and
26 percent in fiscal 1995, to $1.72 from $1.36 in fiscal 1994. The Company's
investment in the CarMax concept reduced fiscal 1996 net earnings per share by 7
cents.
RETURN ON SALES
Return on sales was 2.6 percent in fiscal 1996 compared with 3.0 percent in
fiscal 1995 and 3.2 percent in fiscal 1994.
OPERATIONS OUTLOOK
Looking forward, management believes that continued investment in Superstore
expansion will maximize long-term shareholder value. Management estimates that
in fiscal 1997 the remaining markets suitable for Superstore expansion will
represent $37 billion of the consumer electronics, home office, major appliance
and music software industry's total retail sales potential of $95 billion. By
the year 2000, Circuit City expects to expand the Superstore base into most of
these markets. In fiscal 1997, the Company expects to open an estimated 60 to 65
Superstores, including approximately 20 "D" stores, 32 "C" stores, 10 "B" stores
and three "A" stores. Approximately 35 of the new Superstores will open in new
markets. The Company also plans to replace approximately 15 to 20 "B" and "C"
stores with larger format stores, to open additional Circuit City Express stores
and to open at least three more CarMax locations.
Given the slower sales trends during the second half of fiscal 1996,
management expects that comparable store sales growth in the first half of
fiscal 1997 will be lower than the fiscal 1996 results. The Company expects an
improving rate of growth in the second half. A continuation of the industry's
promotional intensity, a higher percentage of personal computers in the sales
mix and additional sales from CarMax are expected to reduce the gross profit
margin. Management anticipates that comparable store sales growth, improvements
in store operating efficiency, increased leverage of overhead expenses, a
growing contribution from the credit card bank subsidiary and the lower CarMax
expense structure will reduce the expense ratio and partially offset the lower
gross profit margin. Although the Company expects lower pre-tax and net profit
margins in fiscal 1997, management believes that the Company's financial
performance and market research indicate that the Company is well-positioned
competitively and financially to produce strong long-term returns and that its
expansion plans will further increase long-term earnings potential. The Company
anticipates that investment in the CarMax concept will have a negative impact on
net earnings and net earnings per share at least through fiscal 1997 and fiscal
1998.
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 Company does not intend to adopt the optional 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. The disclosure
requirements of the standard are effective for fiscal years beginning after
December 15, 1995.
FINANCIAL CONDITION
LIQUIDITY AND CAPITAL RESOURCES
Cash Flow. In fiscal 1996, net cash used in operating activities was $55.3
million compared with $47.0 million provided by operating activities in fiscal
1995 and $108.3 million provided by operating activities in fiscal 1994. The
fiscal 1996 decrease principally reflects the limited earnings growth and lower
increases in the provision for deferred income taxes and in accounts payable.
These changes were partly offset by less rapid growth in merchandise inventory,
reflecting lower sales growth expectations at the end of the fiscal year, and in
accounts receivable, which reflects securitization transactions during the year.
The Company funded capital expenditures of $518.2 million in fiscal 1996
primarily with $251.5 million in proceeds from sales of property and equipment
and proceeds from a five-year, $175 million unsecured bank term loan. The
proceeds from sales of property and equipment include $183.9 million from
sale-leaseback transactions, $49.0 million related to landlord reimbursements
for improvements on leased land and $18.6 million from other sources. Capital
expenditures in fiscal 1996 principally reflect Superstores opened during the
year and a portion of the Superstores opening in fiscal 1997. The sale-leaseback
transactions completed in fiscal 1996 are largely related to real estate
purchased in fiscal years 1996 and 1995. The Company expects to complete
additional sale-leaseback transactions in fiscal 1997. Capital expenditures of
$375.4 million in fiscal 1995 and $252.3 million in fiscal 1994 largely were
incurred in connection with the Superstore expansion program. The expenditures
were funded primarily with net cash provided by operating activities,
sale-leaseback arrangements, and landlord reimbursements. In fiscal 1995, the
Company also utilized proceeds from a seven-year, $100 million unsecured bank
term loan.
The Company's credit card bank subsidiary primarily funds its credit card
programs through securitization transactions, which allow the subsidiary to sell
the receivables while retaining a small interest in the receivables. 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 $1.06
billion in receivables through both private placement and the public market. A
second securitization program allowed, at February 29, 1996, for the transfer of
up to $850 million in receivables related to the subsidiary's bankcard programs.
In fiscal 1996, automobile receivables generated by the Company's installment
lending division were financed with proceeds of $87 million from a
securitization transaction. The Company expects that all securitization programs
can be expanded to accommodate future receivables growth.
As explained in Note 10 to the Consolidated Financial Statements, the
Company has entered into interest rate swap agreements related to the public
issuance of securities by the master trust and the securitization of auto loan
receivables. The interest rate swaps enable the Company to better match funding
costs to the underlying finance charges of the receivables.
Capital Structure. Total assets at February 29, 1996, were $2.53 billion, up
$522.0 million, or 26 percent since February 28, 1995. The rise in assets
includes increases of $287.4 million in inventory, $181.3 million in net
property and equipment and $59.8 million in net receivables.
The Company has funded expansion with internally generated funds,
sale-leaseback transactions, operating leases and long-term debt. The Company
has funded consumer receivables through securitization transactions. In fiscal
1996, the Company entered into a five-year, $175 million unsecured bank term
loan agreement. As explained in Note 10 to the Consolidated Financial
Statements, the Company has entered into interest rate swap agreements that
effectively convert the loan facility's variable-rate obligation to a fixed-rate
obligation. At February 28, 1995, the Company classified $53 million of
short-term debt as long-term in anticipation of the $175 million loan agreement.
Average short-term debt rose in fiscal 1996 as the Company utilized seasonal
borrowing lines primarily to finance higher inventory needs resulting from more
rapid Superstore expansion and the growth of the CarMax concept. At February 29,
1996, the Company classified $100 million of short-term debt as long-term. The
Company expects to refinance this debt in fiscal 1997 by entering into a
multi-year term loan agreement with a group of banks.
During the period from fiscal 1992 to 1996, stockholders' equity grew
substantially. From fiscal 1995 to 1996, stockholders' equity increased 21
percent to $1.06 billion. Capitalization for the past five years is illustrated
in the "Capitalization" table. Slower earnings growth produced a return on
equity of 18.5 percent in fiscal 1996 compared with 21.1 percent in fiscal 1995.
The fiscal 1996 return was below the Company's long-term objective of 20
percent.
The Company expects to maintain its existing long-term capitalization
strategy in fiscal 1997. Management anticipates that capital expenditures of
approximately $575 million will be funded through a combination of internally
generated funds, sale-leaseback transactions and operating leases and that
securitization transactions will finance the increase in credit card and CarMax
receivables. At the end of fiscal 1996, the Company maintained a multi-year,
$100 million unsecured revolving credit agreement and $255 million in seasonal
lines that are renewed annually with various banks.
Capitalization
<TABLE>
<CAPTION>
Fiscal 1996 1995 1994 1993 1992
(DOLLAR AMOUNTS IN MILLIONS) $ % $ % $ % $ % $ %
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Long-term debt, excluding current installments......... 399.2 23 178.6 14 29.6 3 82.4 9 85.4 12
Other long-term liabilities............................ 231.8 14 241.9 19 268.4 27 232.1 26 187.1 26
Total stockholders' equity............................. 1,063.9 63 877.4 67 710.4 70 575.5 65 448.0 62
TOTAL CAPITALIZATION................................... 1,694.9 100 1,297.9 100 1,008.4 100 890.0 100 720.5 100
</TABLE>
COMMON STOCK
The Company's common stock is traded on the New York Stock Exchange. Quarterly
market price and dividend data are shown below:
<TABLE>
<CAPTION>
Market Price of Common Stock Dividends
Fiscal 1996 1995 1996 1995
HIGH LOW HIGH LOW
<S> <C>
1st........................................................ $29.13 $21.50 $23.00 $17.25 $.025 $.020
2nd........................................................ $37.13 $26.25 $24.63 $19.50 $.030 $.025
3rd........................................................ $38.00 $28.13 $27.50 $23.13 $.030 $.025
4th........................................................ $31.25 $25.00 $25.13 $21.00 $.030 $.025
TOTAL $.115 $.095
</TABLE>
CONSOLIDATED STATEMENTS OF EARNINGS
<TABLE>
<CAPTION>
Years Ended February 29 or 28
(AMOUNTS IN THOUSANDS EXCEPT PER SHARE DATA) 1996 % 1995 % 1994 %
<S> <C> <C> <C> <C> <C> <C>
NET SALES AND OPERATING REVENUES.................. $ 7,029,123 100.0 $5,582,947 100.0 $4,130,415 100.0
Cost of sales, buying and warehousing............. 5,394,293 76.7 4,197,947 75.2 3,024,759 73.2
GROSS PROFIT...................................... 1,634,830 23.3 1,385,000 24.8 1,105,656 26.8
Selling, general and administrative
expenses [NOTE 8].............................. 1,322,430 18.8 1,106,370 19.8 891,865 21.6
Interest expense [NOTE 3]......................... 25,400 0.4 10,030 0.2 4,791 0.1
TOTAL EXPENSES.................................... 1,347,830 19.2 1,116,400 20.0 896,656 21.7
Earnings before income taxes...................... 287,000 4.1 268,600 4.8 209,000 5.1
Provision for income taxes [NOTE 4]............... 107,625 1.5 100,725 1.8 76,600 1.9
NET EARNINGS...................................... $ 179,375 2.6 $ 167,875 3.0 $ 132,400 3.2
Weighted average common shares
and common share equivalents................... 98,546 97,369 97,391
NET EARNINGS PER SHARE............................ $ 1.82 $ 1.72 $ 1.36
See accompanying notes to consolidated financial statements.
</TABLE>
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
At February 29 or 28
(AMOUNTS IN THOUSANDS EXCEPT SHARE DATA) 1996 1995
<S> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents............................................................. $ 43,704 $ 46,962
Net accounts and notes receivable [NOTE 9]............................................ 324,395 264,565
Merchandise inventory................................................................. 1,323,183 1,035,776
Deferred income taxes [NOTE 4]........................................................ 26,996 25,696
Prepaid expenses and other current assets............................................. 17,399 14,162
TOTAL CURRENT ASSETS.................................................................. 1,735,677 1,387,161
Property and equipment, net [NOTES 2 AND 3]........................................... 774,265 592,956
Deferred income taxes [NOTE 4]........................................................ - 5,947
Other assets.......................................................................... 16,080 17,991
TOTAL ASSETS.......................................................................... $2,526,022 $2,004,055
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current installments of long-term debt [NOTES 3 AND 7]................................ $ 1,436 $ 2,378
Accounts payable...................................................................... 604,488 576,578
Short-term debt....................................................................... 92,087 -
Accrued expenses and other current liabilities........................................ 123,789 113,631
Accrued income taxes.................................................................. 9,375 13,533
TOTAL CURRENT LIABILITIES............................................................. 831,175 706,120
Long-term debt, excluding current installments [NOTES 3 AND 7]........................ 399,161 178,605
Deferred revenue and other liabilities................................................ 214,001 241,866
Deferred income taxes [NOTE 4]........................................................ 17,764 -
TOTAL LIABILITIES..................................................................... 1,462,101 1,126,591
STOCKHOLDERS' EQUITY [NOTE 5]:
Common stock, $0.50 par value; 150,000,000 shares authorized;
97,380,000 shares issued and outstanding (96,476,000 in 1995)......................... 48,690 48,238
Capital in excess of par value........................................................ 90,432 72,639
Retained earnings..................................................................... 924,799 756,587
TOTAL STOCKHOLDERS' EQUITY............................................................ 1,063,921 877,464
Commitments and contingent liabilities [NOTES 6, 7, 9, 10 AND 11]
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY............................................ $2,526,022 $2,004,055
See accompanying notes to consolidated financial statements.
</TABLE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Years Ended February 29 or 28
(AMOUNTS IN THOUSANDS) 1996 1995 1994
<S> <C>
OPERATING ACTIVITIES:
Net earnings..................................................... $ 179,375 $ 167,875 $ 132,400
Adjustments to reconcile net earnings to net cash (used in)
provided by operating activities:
Depreciation and amortization................................. 79,812 66,866 55,012
Loss on sales of property and equipment....................... 5,600 2,199 1,910
Provision for deferred income taxes........................... 22,411 73,745 (17,800)
(Decrease) increase in deferred revenue and other liabilities. (27,865) (26,494) 36,306
Increase in net accounts and notes receivable................. (59,830) (75,575) (68,542)
Increase in merchandise inventory, prepaid
expenses and other current assets.......................... (290,644) (317,114) (203,783)
Decrease (increase) in other assets........................... 1,911 (3,819) (522)
Increase in accounts payable, accrued expenses and
other current liabilities, and accrued income taxes........ 33,910 159,297 173,300
NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES.............. (55,320) 46,980 108,281
INVESTING ACTIVITIES:
Purchases of property and equipment.............................. (518,175) (375,406) (252,256)
Proceeds from sales of property and equipment.................... 251,454 151,481 128,029
NET CASH USED IN INVESTING ACTIVITIES............................ (266,721) (223,925) (124,227)
FINANCING ACTIVITIES:
Proceeds from issuance of short-term debt........................ 92,087 - -
Proceeds from issuance of long-term debt......................... 222,000 153,000 -
Principal payments on long-term debt............................. (2,386) (3,484) (52,748)
Proceeds from issuance of common stock, net...................... 18,245 8,352 10,150
Dividends paid................................................... (11,163) (9,155) (7,674)
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES.............. 318,783 148,713 (50,272)
Decrease in cash and cash equivalents............................... (3,258) (28,232) (66,218)
Cash and cash equivalents at beginning of year...................... 46,962 75,194 141,412
Cash and cash equivalents at end of year............................ $ 43,704 $ 46,962 $ 75,194
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the year for:
Interest......................................................... $ 22,905 $ 8,150 $ 5,297
Income taxes..................................................... $ 88,477 $ 98,894 $ 81,773
</TABLE>
See accompanying notes to consolidated financial statements.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Common Capital In
Shares Common Excess Of Retained
(AMOUNTS IN THOUSANDS EXCEPT PER SHARE DATA) Outstanding Stock Par Value Earnings Total
<S> <C>
BALANCE AT MARCH 1, 1993............................. 95,670 $ 47,835 $ 54,540 $ 473,141 $ 575,516
Net earnings...................................... - - - 132,400 132,400
Exercise of common stock options [NOTE 5]......... 316 158 2,994 - 3,152
Shares issued under Employee
Stock Purchase Plan [NOTE 5]................... 76 38 1,895 - 1,933
Shares issued under the 1988 Stock
Incentive Plan [NOTE 5]........................ 146 73 3,589 - 3,662
Tax benefit from stock issued..................... - - 3,367 - 3,367
Shares cancelled upon reacquisition by Company.... (128) (64) (2,014) - (2,078)
Unearned compensation-restricted stock [NOTE 5]... - - 114 - 114
Cash dividends-common stock ($0.08 per share)..... - - - (7,674) (7,674)
BALANCE AT FEBRUARY 28, 1994......................... 96,080 48,040 64,485 597,867 710,392
Net earnings...................................... - - - 167,875 167,875
Exercise of common stock options [NOTE 5]......... 260 130 2,519 - 2,649
Shares issued under Employee
Stock Purchase Plan [NOTE 5]................... 87 43 1,868 - 1,911
Shares issued under the 1994 Stock
Incentive Plan [NOTE 5]........................ 211 106 3,740 - 3,846
Tax benefit from stock issued..................... - - 3,272 - 3,272
Shares cancelled upon reacquisition by Company.... (162) (81) (3,089) - (3,170)
Unearned compensation-restricted stock [NOTE 5]... - - (156) - (156)
Cash dividends-common stock ($0.10 per share)..... - - - (9,155) (9,155)
BALANCE AT FEBRUARY 28, 1995......................... 96,476 48,238 72,639 756,587 877,464
Net earnings...................................... - - - 179,375 179,375
Exercise of common stock options [NOTE 5]......... 645 322 7,831 - 8,153
Shares issued under Employee
Stock Purchase Plan [NOTE 5]................... 75 38 2,174 - 2,212
Shares issued under the 1994 Stock
Incentive Plan [NOTE 5]........................ 259 129 5,745 - 5,874
Tax benefit from stock issued..................... - - 4,746 - 4,746
Shares cancelled upon reacquisition by Company.... (75) (37) (1,631) - (1,668)
Unearned compensation-restricted stock [NOTE 5]... - - (1,072) - (1,072)
Cash dividends-common stock ($0.12 per share)..... - - - (11,163) (11,163)
BALANCE AT FEBRUARY 29, 1996......................... 97,380 $ 48,690 $ 90,432 $ 924,799 $1,063,921
</TABLE>
See accompanying notes to consolidated financial statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(A) Principles of Consolidation: The consolidated financial statements include
the accounts of Circuit City Stores, Inc. and its subsidiaries (the Company),
all of which are wholly owned. All significant intercompany balances and
transactions have been eliminated in consolidation.
(B) Cash and Cash Equivalents: Cash equivalents of $10,113,000 and $18,719,000
at February 29, 1996, and February 28, 1995, respectively, consist of highly
liquid debt securities with original maturities of three months or less.
(C) Fair Value of Financial Instruments: The carrying value of the Company's
financial instruments, excluding interest rate swap agreements ("swaps"),
approximates fair value due to variable interest rates on long-term debt and the
short-term maturities of the assets and other liabilities. Credit risk is the
exposure created by the potential nonperformance of another material party to an
agreement due to changes in economic, industry or geographic factors. The
Company mitigates credit risk by dealing only with counterparties that are
highly rated by several financial rating agencies. Accordingly, the Company does
not anticipate loss for nonperformance. The Company broadly diversifies all
financial instruments along industry, product and geographic areas. As discussed
in Note 10, swaps are not held for trading purposes and, therefore, are not
carried at fair value.
(D) Merchandise Inventory: Inventory is stated at the lower of cost or market.
Cost is determined by the average cost method.
(E) Property and Equipment: Property and equipment is stated at cost less
accumulated depreciation and amortization. Depreciation and amortization are
calculated using the straight-line method over the assets' estimated useful
lives, which range from three to 25 years.
Property held under capital leases is stated at the lower of the present
value of the minimum lease payments at the inception of the lease or market
value and is amortized straight-line over the lease term or the estimated useful
life of the asset, whichever is shorter.
(F) Pre-opening Expenses: Expenses associated with the opening of new stores are
deferred and amortized ratably over the period from the date of the store
opening to the end of the fiscal year.
(G) Income Taxes: The Company accounts for income taxes in accordance with
Statement of Financial Accounting Standards (SFAS) No. 109, "Accounting for
Income Taxes." Deferred income taxes reflect the impact of temporary differences
between the amounts of assets and liabilities recognized for financial reporting
purposes and the amounts recognized for income tax purposes, measured by
applying currently enacted tax laws. The Company recognizes deferred tax assets
if it is more likely than not that a benefit will be realized.
(H) Deferred Revenue: The Company sells its own extended warranty contracts and
extended warranty contracts on behalf of unrelated third parties. The contracts
extend beyond the normal manufacturer's warranty period, usually with terms of
coverage (including the manufacturer's warranty period) between 12 and 60
months.
All revenue from the sale of the Company's own extended warranty contracts
is deferred and amortized on a straight-line basis over the life of the
contracts. Incremental direct contract costs related to the sale of contracts
are deferred and charged to expense in proportion to the revenue recognized. All
other costs are charged to expense as incurred. Commission revenue for the
unrelated third-party extended warranty plans is recognized at the time of sale.
(I) Selling, General and Administrative Expenses: Operating profits generated by
the Company's credit card bank subsidiary are recorded as a reduction to
selling, general and administrative expenses.
(J) Advertising Expenses: All advertising costs are expensed as incurred.
(K) Earnings Per Share: Earnings per share is computed using the weighted
average number of shares of common stock and common stock equivalents
outstanding during the year.
(L) Risks and Uncertainties: The Company is the nation's largest retailer of
brand-name consumer electronics and major appliances and a leading retailer of
personal computers and music software. The diversity of the Company's products,
customers, suppliers and geographic operations significantly reduces the risk
that a severe impact will occur in the near term as a result of changes in its
customer base, competition, sources of supply or markets. It is unlikely that
any one event would have a severe impact on the Company's operating results.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets, liabilities, revenues
and expenses. Actual results could differ from those estimates.
(M) Reclassifications: Certain amounts in prior years have been reclassified to
conform to classifications adopted in fiscal 1996.
2. PROPERTY AND EQUIPMENT
Property and equipment, at cost, at February 29 or 28 is summarized as follows:
(AMOUNTS IN THOUSANDS) 1996 1995
Land and buildings (20 to 25 years).. $ 89,089 $ 83,109
Construction in progress............. 197,980 122,446
Furniture, fixtures and equipment
(3 to 8 years).................... 389,845 344,923
Leasehold improvements
(10 to 15 years).................. 353,157 286,610
Capital leases, primarily buildings
(20 years)........................ 13,140 13,679
1,043,211 850,767
Less accumulated depreciation and
amortization...................... 268,946 257,811
Property and equipment, net.......... $ 774,265 $592,956
3. DEBT
Long-term debt at February 29 or 28 is summarized as follows:
(AMOUNTS IN THOUSANDS) 1996 1995
Term loans............................. $275,000 $100,000
Short-term debt expected to be
refinanced.......................... 100,000 53,000
Industrial Development Revenue
Bonds due through 2006 at various
prime-based rates of interest
ranging from 5.4% to 6.7%........... 12,393 14,698
Obligations under capital leases
[NOTE 7]............................ 13,204 13,285
Total long-term debt................... 400,597 180,983
Less current installments.............. 1,436 2,378
Long-term debt, excluding
current installments................ $399,161 $178,605
In July 1994, the Company entered into a seven-year, $100,000,000,
unsecured bank term loan. Principal is due in full at maturity with interest
payable periodically at LIBOR plus 0.50 percent. At February 29, 1996, the
interest rate on the term loan was 5.88 percent.
In May 1995, the Company entered into a five-year, $175,000,000, unsecured
bank term loan. Principal is due in full at maturity with interest payable
periodically at LIBOR plus 0.35 percent. At February 29, 1996, the interest rate
on the term loan was 5.65 percent.
The Company has the intent and ability to refinance the $100,000,000 of
short-term committed and uncommitted bank borrowings on a long-term basis by
entering into a multi-year term loan with a group of banks. Consequently, the
Company has classified the short-term debt as long-term for financial reporting
purposes. The existing revolving credit agreement could be used for this
purpose, although the Company does not currently intend to do so.
The Company maintains a multi-year, $100,000,000, unsecured revolving
credit agreement with four banks. The agreement calls for interest based on
certain money market rates and a commitment fee of 0.13 percent per annum. The
agreement was entered into as of June 30, 1992, was amended and restated as of
June 30, 1995, and terminates June 30, 2000. The agreement provides for annual
one-year extensions of the final maturity beginning on or before June 30, 1996,
and each June 30 thereafter. No amounts were outstanding under the revolving
credit agreement at February 29, 1996, or February 28, 1995.
The Industrial Development Revenue Bonds are collateralized by land,
buildings and equipment with an aggregate carrying value of approximately
$13,073,000 at February 29, 1996, and $15,400,000 at February 28, 1995.
The scheduled aggregate annual principal payments on long-term obligations
for the next five years are as follows: 1997 - $1,436,000; 1998 - $1,489,000;
1999 - $1,586,000; 2000 - $1,743,000; 2001 - $176,380,000.
Under certain of the debt agreements, the Company must meet financial
covenants relating to minimum tangible net worth, current ratios and
debt-to-capital ratios. The Company was in compliance with all such covenants at
February 29, 1996, and February 28, 1995.
Short-term debt includes committed lines of credit and informal credit
arrangements. Amounts outstanding and committed lines of credit available are as
follows:
Years Ended February 29 or 28
(AMOUNTS IN THOUSANDS) 1996 1995 1994
Average short-term debt
outstanding............. $185,789 $134,022 $ 77,392
Maximum short-term debt
outstanding............. $479,000 $465,000 $355,000
Aggregate committed lines
of credit............... $255,000 $285,000 $145,000
The weighted average interest rate on the outstanding short-term debt was
5.9 percent during fiscal 1996, 5.3 percent during fiscal 1995 and 3.3 percent
during fiscal 1994.
The Company capitalizes interest in connection with the construction of
certain facilities. In fiscal 1996, interest capitalized amounted to $6,780,000
($3,846,000 and $2,626,000 in fiscal 1995 and 1994, respectively).
4. INCOME TAXES
The Company files a consolidated federal income tax return. The components of
the provision for income taxes on earnings before income taxes follow:
Years Ended February 29 or 28
(AMOUNTS IN THOUSANDS) 1996 1995 1994
Current:
Federal........................ $ 80,678 $ 21,250 $ 85,680
State.......................... 4,536 5,730 8,720
85,214 26,980 94,400
Deferred:
Federal........................ 18,891 69,035 (14,790)
State.......................... 3,520 4,710 (3,010)
22,411 73,745 (17,800)
Provision for income taxes........ $107,625 $100,725 $ 76,600
The enactment of the Omnibus Tax Reconciliation Act of 1993 on August 10,
1993, increased the federal statutory income tax rate for corporations from 34
percent to 35 percent effective January 1, 1993. This change in the federal tax
rate and the resulting revaluation of the Company's deferred tax asset had a
favorable impact on the fiscal 1994 provision for income taxes. The effective
income tax rate differed from the Federal statutory income tax rate as follows:
1996 1995 1994
Federal statutory income
tax rate.................. 35.0% 35.0% 35.0%
State and local income taxes,
net of Federal benefit.... 2.5 2.5 1.8
Other, net................... - - (0.1)
Effective income tax rate.... 37.5% 37.5% 36.7%
In accordance with SFAS No. 109, the tax effects of temporary differences
that give rise to a significant portion of the deferred tax assets and
liabilities at February 29, 1996, and February 28, 1995, are as follows:
(AMOUNTS IN THOUSANDS) 1996 1995
Deferred Tax Assets:
Deferred revenue................... $24,475 $32,049
Inventory capitalization........... 3,784 6,482
Accrued expenses................... 34,190 31,815
Other.............................. 3,182 5,114
Total gross deferred tax assets. 65,631 75,460
Deferred Tax Liabilities:
Depreciation and amortization...... 39,800 30,510
Prepaid benefit programs........... 886 2,892
Other prepaid expenses............. 9,376 5,347
Other.............................. 6,337 5,068
Total gross deferred tax
liabilities.................. 56,399 43,817
Net Deferred Tax Asset................ $ 9,232 $31,643
Of the gross deferred tax assets at February 29, 1996, and February 28,
1995, approximately $61 million and $66 million, respectively, can be realized
by carrybacks or offsetting of deferred tax liabilities. Based on the Company's
historical and current pre-tax earnings, management believes the remaining
amount will be realized through future taxable income; therefore, no valuation
allowance is necessary.
5. CAPITAL STOCK AND STOCK INCENTIVE PLANS
(A) Preferred Stock: In conjunction with the Company's Shareholders Rights Plan,
preferred stock purchase rights were distributed as a dividend at the rate of
one right for each share of the Company's common stock. The rights are
exercisable only upon the attainment of, or the commencement of a tender offer
to attain, a specified ownership interest in the Company by a person or group.
When exercisable, each right would entitle shareholders to buy one
four-hundredth of a newly issued share of Cumulative Participating Preferred
Stock, Series E, $20 par value, at an exercise price of $140 per share. A total
of 500,000 shares of such preferred stock, which have preferential dividend and
liquidation rights, have been authorized; 300,000 shares have been reserved. No
such shares are outstanding. In the event that an acquiring person or group
acquires the specified ownership percentage of the Company's common stock
(except pursuant to a cash tender offer for all outstanding shares determined to
be fair by continuing directors) or engages in certain transactions with the
Company after the rights become exercisable, each right will be converted into a
right to purchase, for half the current market price at that time, shares of the
Company's common stock valued at two times the exercise price.
The Company also has 1,500,000 shares of undesignated Preferred Stock
authorized of which no shares are outstanding.
(B) Restricted Stock: The Company has issued restricted stock under the
provisions of the 1994 and 1988 Stock Incentive Plans whereby key employees are
granted restricted shares of the Company's common stock. Shares are awarded in
the name of the employee, who has all the rights of a stockholder, subject to
certain restrictions or forfeitures. Restrictions on the awards generally expire
three years from the date of grant. In fiscal 1996, restricted stock awards for
258,775 shares were granted to eligible employees. The market value of these
shares has been recorded as unearned compensation and is a component of
stockholders' equity. Unearned compensation is expensed over the restriction
periods. In fiscal 1996, a total of $3,362,500 was charged to operations
($2,552,500 in 1995 and $2,955,400 in 1994). As of February 29, 1996, 499,279
restricted shares were outstanding.
(C) Employee Stock Purchase Plan: The Company has an Employee Stock Purchase
Plan for all employees meeting certain eligibility criteria. Under the Plan,
eligible employees may purchase shares of the Company's common stock, subject to
certain limitations, at 85 percent of its market value. Purchases are limited to
10 percent of an employee's eligible compensation, up to a maximum of $7,500 per
year. At February 29, 1996, a total of 62,406 shares remained available under
the Plan. During fiscal 1996, 474,889 shares were issued to or purchased on the
open market for employees (537,467 and 436,400 in fiscal 1995 and 1994,
respectively). The average price per share was $29.97, $22.23 and $26.20 in
fiscal 1996, 1995 and 1994, respectively. The purchase price discount is charged
to operations and totaled $2,030,000, $1,760,200 and $1,653,700 in fiscal 1996,
1995 and 1994, respectively.
(D) Stock Incentive Plans: Under the Company's stock incentive plans, incentive
and non-qualified stock options may be granted to management, key employees and
outside directors to purchase shares of the Company's common stock. The exercise
price for incentive stock options for employees and non-qualified options for
outside directors is the market value at the date of grant; for non-qualified
options granted under the 1988 Plan for employees, it is at least 85 percent of
the market value at the date of grant (100 percent under the 1994 Plan). Options
are generally exercisable over a period of from one to 10 years from the date of
grant.
Changes in stock options outstanding (and option exercise prices for such
options) are as follows:
Years Ended February 29 or 28
1996 1995 1994
Options outstanding at
beginning of year
($5.94 to $33.00)............. 3,709,271 3,593,745 3,494,626
Granted
($18.19 to $34.63)............ 762,384 750,500 562,425
Exercised
($6.25 to $25.13)............. (644,806) (260,234) (316,243)
Cancelled
($6.25 to $33.00)............. (264,143) (374,740) (147,063)
Options outstanding at end
of year ($5.94 to $34.63)..... 3,562,706 3,709,271 3,593,745
Options exercisable at end
of year ($5.94 to $33.00)..... 1,847,169 2,070,319 1,662,032
Shares available for grant at
end of year (options and
restricted stock)............. 2,147,207 2,759,698 1,010,488
The stock incentive plans provide for the granting of stock appreciation
rights (SARs) in tandem with non-qualified stock option grants at the discretion
of the board of directors' compensation and personnel committee. The SARs
granted to date become fully exercisable only upon a change of control, as
defined, of the Company, notwithstanding other conditions of exercisability of
the options. The SARs permit the optionee to surrender an exercisable SAR for an
amount equal to the excess of the market price of the common stock over the
option price when the right is exercised. Market value is defined as the greater
of the highest closing price of the Company's stock during the 90 days preceding
the change of control or the closing price on the date preceding the exercises.
As of February 29, 1996, 5,895,967 non-qualified options with related SARs had
been granted with such terms (5,417,163 in 1995 and 4,888,333 in 1994).
6. PENSION PLAN
The Company has a non-contributory defined benefit pension plan covering the
majority of full-time employees who are at least age 21 and have completed one
year of service. The cost of this program is being funded currently. Plan
benefits are generally based on years of service and average compensation. Plan
assets consist primarily of equity securities and included 80,000 shares of the
Company's common stock at February 29, 1996, and February 28, 1995.
The components of net pension expense are as follows:
Years Ended February 29 or 28
(AMOUNTS IN THOUSANDS) 1996 1995 1994
Service cost of benefits earned
during the year............ $5,896 $ 4,485 $3,916
Interest cost on projected
benefit obligation......... 3,632 2,715 2,351
Actual return on plan assets.. (9,277) (102) (3,632)
Net amortization.............. 6,314 (3,452) 1,212
Net pension expense........... $6,565 $ 3,646 $3,847
Contributions of $1,160,000, $3,710,000 and $4,503,000 were required in
fiscal 1996, 1995 and 1994, respectively.
The following table sets forth the Plan's financial status and amounts
recognized in the consolidated balance sheets as of February 29 or 28:
(AMOUNTS IN THOUSANDS) 1996 1995
Actuarial present value of benefit obligation:
Accumulated benefit obligation
Vested.............................. $ 39,505 $25,983
Non-vested.......................... 5,136 3,720
Total benefits......................... 44,641 29,703
Additional amounts related to projected
salary increases.................... 22,747 15,910
Projected benefit obligation for services
rendered to date.................... 67,388 45,613
Plan assets at fair value.............. (47,093) (37,046)
Projected benefit obligation in excess of
plan assets......................... 20,295 8,567
Unrecognized loss from past experience. (14,117) (8,102)
Unrecognized prior service cost........ 875 981
Unrecognized net obligation being
recognized over 15 years............ 1,212 1,414
Accrued pension cost................... $ 8,265 $ 2,860
Assumptions used in the accounting for the pension plan were:
Years Ended February 29 or 28
1996 1995 1994
Weighted average discount rate.. 7.0% 8.0% 7.5%
Rate of increase
in compensation levels....... 6.0% 6.5% 6.0%
Rate of return on plan assets... 9.0% 8.0% 9.0%
7. LEASE COMMITMENTS
The Company conducts a substantial portion of its business in leased premises.
The Company's lease obligations are based upon contractual minimum rates. For
certain locations, amounts in excess of these minimum rates are payable based
upon specified percentages of sales. Rental expense and sublease income for all
operating leases are summarized as follows:
Years Ended February 29 or 28
(AMOUNTS IN THOUSANDS) 1996 1995 1994
Minimum rentals................ $148,082 $ 118,042 $96,110
Rentals based on sales volume.. 2,871 2,513 1,910
Sublease income................ (9,996) (8,875) (8,441)
Net............................ $140,957 $ 111,680 $89,579
The Company computes rent based on a percentage of sales volumes in excess
of defined amounts in certain store locations. Most of the Company's other
leases are fixed dollar rental commitments, many with rent escalations based on
the Consumer Price Index. Most provide that the Company pay taxes, maintenance,
insurance and certain other operating expenses applicable to the premises.
The initial term of real property leases will expire within the next 25
years; however, most of the leases have options providing for additional lease
terms of from five to 25 years at terms substantially the same as the initial
terms.
Future minimum fixed lease obligations, excluding taxes, insurance and
other costs payable directly by the Company, as of February 29, 1996, were:
Operating Operating
Fiscal Capital Lease Sublease
(AMOUNTS IN THOUSANDS) Leases Commitments Income
1997....................... $ 1,541 $ 163,577 $(10,618)
1998....................... 1,541 163,964 (9,316)
1999....................... 1,579 161,498 (7,759)
2000....................... 1,662 159,327 (6,980)
2001....................... 1,681 158,105 (5,987)
After 2001................. 21,683 1,791,524 (35,165)
Total minimum lease
payments................ 29,687 $2,597,995 $(75,825)
Less amounts representing
interest................ 16,483
Present value of net
minimum capital lease
payments [NOTE 3]....... $13,204
In fiscal 1996, the Company entered into sale-leaseback transactions with
unrelated parties at an aggregate selling price of $183,900,000 ($85,970,000 in
fiscal 1995 and $87,980,000 in fiscal 1994). The Company does not have
continuing involvement under the sale-leaseback transactions.
8. SUPPLEMENTARY INCOME STATEMENT INFORMATION
Advertising expense, which is included in selling, general and administrative
expenses in the accompanying consolidated statements of earnings, amounted to
$324,335,000, $262,969,000 and $211,022,000 (4.6 percent, 4.7 percent and 5.1
percent of net sales and operating revenues) in fiscal years 1996, 1995 and
1994, respectively.
9. SECURITIZATIONS
(A) Credit Card Securitizations: The Company uses securitization transactions,
which allow for the sale of credit card receivables to unrelated entities, to
finance the consumer revolving credit receivables generated by First North
American National Bank, its wholly owned credit card bank subsidiary (the "Bank
Subsidiary"). No gain or loss has been recorded on these sales. Proceeds from
securitization transactions were $692.3 million, $428.4 million and $214.6
million for fiscal 1996, 1995 and 1994, respectively. At February 29 or 28, the
following amounts were outstanding:
(AMOUNTS IN THOUSANDS) 1996 1995
Securitized receivables......... $1,860,459 $1,181,954
Interest retained by Company.... (110,459) (124,206)
Net receivables transferred..... $1,750,000 $1,057,748
Net receivables transferred with
recourse..................... $ 760,000 $1,057,748
Program capacity................ $1,910,000 $1,060,000
The Bank Subsidiary finances its private-label credit card program through
a single master trust, through both private placement and the public market.
During fiscal 1996, the Bank Subsidiary placed an additional $300 million in the
public market for a total program capacity of $1,060 million. The master trust
vehicle permits further expansion of the securitization programs to meet future
receivables growth. The recourse provisions under the private-label
securitization programs were eliminated during fiscal 1996.
In addition, the Bank Subsidiary has an asset securitization program in
place for its bankcard receivables that allows the transfer of up to $850
million in receivables as of February 29, 1996. The bankcard securitization
agreements provide recourse to the Company for any cash flow deficiencies if the
monthly credit card cash flows from finance charges are inadequate to cover such
expenses. The Company believes that as of February 29, 1996, no liability
existed under these recourse provisions. The finance charges from the
transferred receivables are used to fund interest costs, charge-offs, servicing
fees and other related costs. The Bank Subsidiary's servicing revenue totaled
$142.9 million, $77.8 million and $54.5 million for fiscal 1996, 1995 and 1994,
respectively.
(B) Auto Loan Securitization: In fiscal 1996, the Company entered into a
securitization transaction to finance the consumer installment credit
receivables generated by First North American Credit Corporation, an installment
lending division of the Company. No gain or loss has been recorded on this sale.
Proceeds from the auto loan securitization transaction were $87 million during
fiscal 1996. At February 29, 1996, the following amounts were outstanding:
(AMOUNTS IN THOUSANDS) 1996
Securitized receivables......................... $ 93,065
Interest retained by Company.................... (6,065)
Net receivables transferred with recourse....... $ 87,000
Program capacity................................ $100,000
The finance charges from the transferred receivables are used to fund
interest costs, charge-offs and servicing fees. The securitization agreement
provides recourse to the Company for any cash flow deficiencies if the monthly
auto loan installment cash flows from finance charges are inadequate to cover
such expenses. The Company believes that as of February 29, 1996, no liability
existed under the recourse provision. As of April 1, 1996, the program capacity
increased to $125 million.
10. INTEREST RATE SWAPS
In October 1994, the Company entered into five-year swaps with notional amounts
totaling $300 million relating to the public issuance of securities by the
master trust. As part of this issuance, $344 million of five-year, fixed-rate
certificates were issued to fund consumer credit receivables. The Bank
Subsidiary is servicer for the accounts, and as such, receives its monthly cash
portfolio yield after deducting interest, charge-offs and other related costs.
The underlying receivables are based on a floating rate. The swaps were put in
place to better match funding costs to the receivables being securitized. As a
result, the master trust pays fixed-rate interest while the Company utilizes the
swaps to convert the fixed-rate obligation to a floating-rate, LIBOR-based
obligation. The fair value of the swaps is the amount at which they could be
settled based on estimates obtained from the counterparties, which are two banks
highly rated by several financial rating agencies. Recording the swaps at fair
value at February 29, 1996, and February 28, 1995, would result in gains of
$19.4 million and $6.3 million, respectively.
Concurrent with the funding of the $175 million term loan facility in May
1995, the Company entered into five-year swaps with notional amounts aggregating
$175 million. These swaps effectively converted the variable-rate obligation
into a fixed-rate obligation. The fair value of the swaps is the amount at which
they could be settled. This value is based on estimates obtained from the
counterparties, which are two banks highly rated by several financial rating
agencies. Recording the swaps at fair value at February 29, 1996, would result
in a loss of $2.5 million.
In November 1995, the Company entered into a 50-month amortizing swap in
the notional amount of $75 million relating to the auto loan receivable
securitization to convert variable-rate financing costs to a fixed-rate
obligation. The underlying receivables are issued with a fixed-rate finance
charge. The swap was put in place to better match the variable funding costs to
the receivables being securitized and to preserve net portfolio yield. Recording
the swap at fair value at February 29, 1996, would result in a loss of $0.3
million.
The market and credit risks associated with these swaps are similar to
those relating to other types of financial instruments. Market risk is the
exposure created by potential fluctuations in interest rates and is directly
related to the product type, agreement terms and transaction volume. The Company
does not anticipate significant market risk from swaps, since their use is to
more closely match funding costs to the use of the funding. Credit risk is the
exposure created by potential nonperformance of another party to an agreement.
The Company mitigates credit risk by dealing with highly rated counterparties.
11. CONTINGENT LIABILITIES
In the normal course of business, the Company is involved in various legal
proceedings. Based upon the Company's evaluation of the information presently
available, management believes that the ultimate resolution of any such
proceedings will not have a material adverse effect on the Company's financial
position, liquidity or results of operations.
12. QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
(AMOUNTS IN THOUSANDS First Quarter Second Quarter Third Quarter Fourth Quarter Year
EXCEPT PER SHARE DATA) 1996 1995 1996 1995 1996 1995 1996 1995 1996 1995
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales and
operating revenues..$1,391,658 $1,048,695 $1,600,805 $1,218,572 $1,783,446 $1,405,445 $2,253,214 $1,910,235 $7,029,123 $5,582,947
Gross profit.........$ 319,886 $ 263,677 $ 368,292 $ 309,617 $ 405,134 $ 336,049 $ 541,518 $ 475,657 $1,634,830 $1,385,000
Net earnings.........$ 24,618 $ 19,688 $ 41,246 $ 36,055 $ 31,451 $ 28,442 $ 82,060 $ 83,690 $ 179,375 $ 167,875
Net earnings
per share..........$ 0.25 $ 0.20 $ 0.42 $ 0.37 $ 0.32 $ 0.29 $ 0.83 $ 0.86 $ 1.82 $ 1.72
</TABLE>
INDEPENDENT AUDITORS' REPORT
- -------------------------------------------------------------------------------
The Board of Directors and Stockholders of Circuit City Stores, Inc.:
We have audited the accompanying consolidated balance sheets of Circuit City
Stores, Inc. and subsidiaries as of February 29, 1996 and February 28, 1995 and
the related consolidated statements of earnings, stockholders' equity and cash
flows for each of the fiscal years in the three-year period ended February 29,
1996. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Circuit City
Stores, Inc. and subsidiaries as of February 29, 1996 and February 28, 1995 and
the results of their operations and their cash flows for each of the fiscal
years in the three-year period ended February 29, 1996 in conformity with
generally accepted accounting principles.
s/KPMG Peat Marwick LLP
Richmond, Virginia
April 3, 1996
- -------------------------------------------------------------------------------
MANAGEMENT'S REPORT
The Board of Directors and Stockholders of Circuit City Stores, Inc.:
The consolidated financial statements of Circuit City Stores, Inc. and
subsidiaries have been prepared under the direction of management, which is
responsible for their integrity and objectivity. The consolidated financial
statements have been prepared in conformity with generally accepted accounting
principles and, as such, include amounts that are the best estimates and
judgments of management with consideration given to materiality.
Management is responsible for maintaining an internal control structure
designed to provide reasonable assurance that the books and records reflect the
transactions of the Company and that its established policies and procedures are
carefully followed. Because of inherent limitations in any system, there can be
no absolute assurance that errors or irregularities will not occur.
Nevertheless, management believes that the internal control structure provides
reasonable assurance that assets are safeguarded and that financial information
is objective and reliable.
The Company's consolidated financial statements have been audited by KPMG
Peat Marwick LLP, independent auditors. Their Independent Auditors' Report,
which is based on audits made in accordance with generally accepted auditing
standards, expresses an opinion as to the fair presentation in conformity with
generally accepted accounting principles of the consolidated financial
statements. In performing its audit, KPMG Peat Marwick LLP considers the
Company's internal control structure to the extent it deems necessary in order
to issue its opinion on the consolidated financial statements.
The audit committee of the board of directors is composed solely of outside
directors. The committee meets periodically with management, the internal
auditors and the independent auditors to assure each is properly discharging its
responsibilities. KPMG Peat Marwick LLP and the internal auditors have full and
free access to meet privately with the audit committee to discuss accounting
controls, audit findings and financial reporting matters.
s/ Richard L. Sharp
Richard L. Sharp
Chairman and Chief Executive Officer
s/ Michael T. Chalifoux
Michael T. Chalifoux
Senior Vice President, Chief Financial Officer and Corporate Secretary
April 3, 1996
EXHIBIT 21
CIRCUIT CITY STORES, INC.
Subsidiaries of the Company
Jurisdiction of
Incorporation
Subsidiary or Organization
---------- ---------------
Acme Commercial Corporation Virginia
CC Distribution Company of Virginia, Inc. Virginia
Circuit City Stores West Coast, Inc. California
First North American National Bank National Bank
Located in Georgia
Northern National Insurance Ltd. Bermuda
Patapsco Designs, Inc. Maryland
EXHIBIT 23
Consent of Independent Auditors
The Board of Directors
Circuit City Stores, Inc.:
We consent to incorporation by reference in the registration statements (Numbers
33-56697, 33- 50144, 33-36650, 33-22874, 33-64757 and 333-02971) on Form S-8 of
Circuit City Stores, Inc. of our report dated April 3, 1996, relating to the
consolidated balance sheets of Circuit City Stores, Inc. and subsidiaries (the
Company) as of February 29, 1996 and February 28, 1995, and the related
consolidated statements of earnings, stockholders' equity and cash flows for
each of the fiscal years in the three-year period ended February 29, 1996, which
report is incorporated by reference from the annual report to stockholders in
the February 29, 1996 annual report on Form 10-K of Circuit City Stores, Inc. We
also consent to the incorporation by reference in the foregoing registration
statements of our report dated April 3, 1996, relating to the financial
statement schedule of Circuit City Stores, Inc., which report appears as listed
in Item 14(a)2 of this Form 10-K.
s/ KPMG Peat Marwick LLP
Richmond, Virginia
May 17, 1996
POWER OF ATTORNEY
I hereby appoint Richard L. Sharp my true and lawful attorney-in-fact
to sign on my behalf, as an individual and in the capacity stated below, the
Annual Report on Form 10-K of Circuit City Stores, Inc. for its fiscal year
ended February 29, 1996 and any amendment with such attorney-in-fact may deem
appropriate or necessary.
s/ Michael T. Chalifoux
Michael T. Chalifoux
Sr. Vice President
Chief Financial Officer
<PAGE>
POWER OF ATTORNEY
I hereby appoint Michael T. Chalifoux or Richard L. Sharp my true and
lawful attorney-in-fact to sign on my behalf, as an individual and in the
capacity stated below, the Annual Report on Form 10-K of Circuit City Stores,
Inc. for its fiscal year ended February 29, 1996 and any amendment with such
attorney-in-fact may deem appropriate or necessary.
Signature: s/Richard N. Cooper
Print Name: Richard N. Cooper
Title: Director
<PAGE>
POWER OF ATTORNEY
I hereby appoint Michael T. Chalifoux or Richard L. Sharp my true and
lawful attorney-in-fact to sign on my behalf, as an individual and in the
capacity stated below, the Annual Report on Form 10-K of Circuit City Stores,
Inc. for its fiscal year ended February 29, 1996 and any amendment with such
attorney-in-fact may deem appropriate or necessary.
Signature: s/Barbara S. Feigin
Print Name: Barbara S. Feigin
Title: Director
<PAGE>
POWER OF ATTORNEY
I hereby appoint Michael T. Chalifoux or Richard L. Sharp my true and
lawful attorney-in-fact to sign on my behalf, as an individual and in the
capacity stated below, the Annual Report on Form 10-K of Circuit City Stores,
Inc. for its fiscal year ended February 29, 1996 and any amendment with such
attorney-in-fact may deem appropriate or necessary.
Signature: s/Theodore D. Nierenberg
Print Name: Theodore D. Nierenberg
Title: Director
<PAGE>
POWER OF ATTORNEY
I hereby appoint Michael T. Chalifoux or Richard L. Sharp my true and
lawful attorney-in-fact to sign on my behalf, as an individual and in the
capacity stated below, the Annual Report on Form 10-K of Circuit City Stores,
Inc. for its fiscal year ended February 29, 1996 and any amendment with such
attorney-in-fact may deem appropriate or necessary.
Signature: s/Hugh G. Robinson
Print Name: Hugh G. Robinson
Title: Director
<PAGE>
POWER OF ATTORNEY
I hereby appoint Michael T. Chalifoux or Richard L. Sharp my true and
lawful attorney-in-fact to sign on my behalf, as an individual and in the
capacity stated below, the Annual Report on Form 10-K of Circuit City Stores,
Inc. for its fiscal year ended February 29, 1996 and any amendment with such
attorney-in-fact may deem appropriate or necessary.
Signature: s/Walter J. Salmon
Print Name: Walter J. Salmon
Title: Director
<PAGE>
POWER OF ATTORNEY
I hereby appoint Michael T. Chalifoux or Richard L. Sharp my true and
lawful attorney-in-fact to sign on my behalf, as an individual and in the
capacity stated below, the Annual Report on Form 10-K of Circuit City Stores,
Inc. for its fiscal year ended February 29, 1996 and any amendment with such
attorney-in-fact may deem appropriate or necessary.
Signature: s/Mikael Salovaara
Print Name: Mikael Salovaara
Title: Director
<PAGE>
POWER OF ATTORNEY
I hereby appoint Michael T. Chalifoux my true and lawful
attorney-in-fact to sign on my behalf, as an individual and in the capacity
stated below, the Annual Report on Form 10-K of Circuit City Stores, Inc. for
its fiscal year ended February 29, 1996 and any amendment with such
attorney-in-fact may deem appropriate or necessary.
s/Richard L. Sharp
Richard L. Sharp, Chairman,
President and Chief
Executive Officer
<PAGE>
POWER OF ATTORNEY
I hereby appoint Michael T. Chalifoux or Richard L. Sharp my true and
lawful attorney-in-fact to sign on my behalf, as an individual and in the
capacity stated below, the Annual Report on Form 10-K of Circuit City Stores,
Inc. for its fiscal year ended February 29, 1996 and any amendment with such
attorney-in-fact may deem appropriate or necessary.
Signature: s/Edward Villanueva
Print Name: Edward Villanueva
Title: Director
<PAGE>
POWER OF ATTORNEY
I hereby appoint Michael T. Chalifoux or Richard L. Sharp my true and
lawful attorney-in-fact to sign on my behalf, as an individual and in the
capacity stated below, the Annual Report on Form 10-K of Circuit City Stores,
Inc. for its fiscal year ended February 29, 1996 and any amendment with such
attorney-in-fact may deem appropriate or necessary.
Signature: s/Alan Wurtzel
Print Name: Alan Wurtzel
Title: Vice-Chairman and Director
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> FEB-29-1996
<PERIOD-END> FEB-29-1996
<CASH> 43,704
<SECURITIES> 0
<RECEIVABLES> 324,395
<ALLOWANCES> 0
<INVENTORY> 1,323,183
<CURRENT-ASSETS> 1,735,677
<PP&E> 1,043,211
<DEPRECIATION> 268,946
<TOTAL-ASSETS> 2,526,022
<CURRENT-LIABILITIES> 831,175
<BONDS> 399,161
0
0
<COMMON> 48,690
<OTHER-SE> 1,015,231
<TOTAL-LIABILITY-AND-EQUITY> 2,526,022
<SALES> 7,029,123
<TOTAL-REVENUES> 7,029,123
<CGS> 5,394,293
<TOTAL-COSTS> 5,394,293
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 25,400
<INCOME-PRETAX> 287,000
<INCOME-TAX> 107,625
<INCOME-CONTINUING> 179,375
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 179,375
<EPS-PRIMARY> 1.82
<EPS-DILUTED> 1.82
</TABLE>
