<PAGE>
January 13, 1997
CIRCUIT CITY STORES, INC.
9950 Mayland Drive
Richmond, Virginia 23233
(804) 527-4000
SUPPLEMENT TO PROXY STATEMENT FOR
SPECIAL MEETING OF SHAREHOLDERS TO BE HELD
ON JANUARY 24, 1997
This Supplement is being furnished to the shareholders of Circuit City
Stores, Inc. (the "Company") in connection with the solicitation of proxies by
the Company's Board of Directors for use at a Special Meeting of Shareholders of
the Company to be held at 8:00 a.m., Eastern Time, on January 24, 1997 at the
offices of McGuire, Woods, Battle & Boothe, L.L.P., One James Center, Richmond,
Virginia, and at any adjournments thereof (the "Special Meeting"). It
supplements, and should be read in conjunction with, the Company's Proxy
Statement dated December 24, 1996 (the "Proxy Statement").
As more fully discussed in the Proxy Statement, the Company's shareholders
will be asked at the Special Meeting to consider and approve, among other
things, a proposal (the "CarMax Stock Proposal") to authorize certain amendments
to the Company's Amended and Restated Articles of Incorporation in order to
effect a comprehensive plan that will result in a restructuring of the Company's
Common Stock into two new series of Common Stock intended to reflect separately
the performance of the Company's two main businesses -- its consumer electronics
and appliances retail business, including the Circuit City Group's interest in
the CarMax Group (the "Circuit City Group"), and the Company's used- and new-car
retail business (the "CarMax Group").
The key elements of this plan are (i) the redesignation (the
"Redesignation") of each share of the Company's existing Common Stock as one
share of a new series of Common Stock to be called Circuit City Stores,
Inc. -- Circuit City Group Common Stock (the "Circuit City Stock"), which is
intended to reflect separately the performance of the Circuit City Group, (ii)
the creation of another new series of Common Stock to be called Circuit City
Stores, Inc. -- CarMax Group Common Stock (the "CarMax Stock"), which is
intended to reflect separately the performance of the CarMax Group, and (iii)
subject to the prevailing market conditions, the offering of shares of CarMax
Stock to the public for cash (the "CarMax Stock Offering"), the proceeds of
which are expected to be used to finance part of the Company's expansion plans
for the CarMax Group and to repay the CarMax Group's allocated portion of
Company indebtedness.
The purpose of this Supplement is to provide the following additional
information relating to the CarMax Stock Offering which was not yet available at
the time the Proxy Statement was mailed. The Company currently anticipates
selling 18,860,000 shares of CarMax Stock in the CarMax Stock Offering, which
will initially represent 20% of the equity value of the CarMax Group without
giving effect to outstanding CarMax Stock options (21,689,000 shares, or 22.3%
of such equity value, if the over-allotment option expected to be granted to the
underwriters is exercised in full), at an initial public offering price per
share of between $15 and $17. Among the factors to be considered in determining
the initial public offering price of the CarMax Stock, in addition to prevailing
market conditions, will be the CarMax Group's historical performance, estimates
of the business potential and earnings prospects of the CarMax Group, an
assessment of the CarMax Group's management and the consideration of these
factors in relation to market valuation of companies in related businesses. Upon
completion of the CarMax Stock Offering, the Circuit City Group would hold the
balance of the equity value of the CarMax Group. The amount of net proceeds
expected to be raised in the CarMax Stock Offering (assuming an initial public
offering price per share of $16 and before deducting various expenses payable by
the Company) is $285.9 million ($328.8 million if the over-allotment option
expected to be granted to the underwriters is exercised in full).
The foregoing information reflects the Company's current intentions and
expectations with regard to the CarMax Stock Offering and is subject to change
as a result of prevailing market conditions and other factors. In particular,
the Company retains the ability to sell more or fewer than the number of shares
set forth above and at prices above or below the range set forth above. The
CarMax Stock Offering will be made only by prospectus and after a Registration
Statement filed with respect thereto by the Company under the Securities Act of
1933 has become effective.
Provided below is certain summary pro forma and historical financial data
for the Company, the Circuit City Group and the CarMax Group which give effect
to the foregoing transactions.
1
<PAGE>
SUMMARY PRO FORMA AND HISTORICAL FINANCIAL DATA
The summary historical financial data presented below as of and for the
nine months ended November 30, 1996, were derived from the respective unaudited
interim balance sheets and statements of earnings (the "Interim Financial
Statements") of the Company, the Circuit City Group and the CarMax Group
contained in certain news releases issued contemporaneously with this Supplement
(the "Releases"), copies of which are attached hereto and incorporated herein by
reference. The Interim Financial Statements include all adjustments, consisting
of normal recurring accruals, that the Company considers necessary to present
fairly such data for an interim period. Interim operating results are not
necessarily indicative of the results that may be expected for a full year. The
summary historical financial data presented below for the year ended February
29, 1996, were derived from the Financial Statements of the Company, the Circuit
City Group and the CarMax Group set forth in Annexes V, VI and VII,
respectively, of the Proxy Statement. The unaudited pro forma results of
operations presented below for the nine months ended November 30, 1996, and the
fiscal year ended February 29, 1996, give effect to the (i) Redesignation and
(ii) the CarMax Stock Offering at an assumed public offering price of $16 per
share (and assuming that the underwriters do not exercise any over-allotment
option) and the application of a portion of the net proceeds to repay the CarMax
Group's allocated portion of Company indebtedness, in each case as if they had
occurred on March 1, 1995. The unaudited balance sheets, as adjusted, presented
below as of November 30, 1996 give effect to the pro forma transactions and
events described in clauses (i) and (ii) above, as if they had occurred on
November 30, 1996. The summary financial data for the Company and each of the
Circuit City Group and the CarMax Group should be read in conjunction with the
Interim Financial Statements and the other information contained in the Releases
and with the Company's and such Group's Financial Statements and the information
contained in the Company's and such Group's "Management's Discussion and
Analysis of Results of Operations and Financial Condition" set forth in Annexes
V, VI and VII, respectively, of the Proxy Statement.
The Company
<TABLE>
<CAPTION>
Nine Months Ended Year Ended
November 30, 1996 February 29, 1996
------------------------- -------------------------
As Adjusted (a) Actual As Adjusted (a) Actual
--------------- ------ --------------- ------
<S> <C>
(Amounts in millions, except per share data)
RESULTS OF OPERATIONS
Interest expense............................................... $ 16 $ 20 $ 21 $ 25
------- ------ ------- ------
Total expenses................................................. 1,067 1,071 1,344 1,348
------- ------ ------- ------
Earnings before income taxes................................ 114 110 291 287
Provision for income taxes..................................... 43 42 109 108
------- ------ ------- ------
Net earnings................................................ $ 71 $ 68 $ 182 $ 179
------- ------ ------- ------
------- ------ ------- ------
Weighted average shares outstanding......................... (b) 99 (b) 99
------ ------
------ ------
Net earnings per share...................................... (b) $ .69 (b) $ 1.82
------ ------
------ ------
</TABLE>
<TABLE>
<CAPTION>
As of
November 30, 1996
-------------------------
As Adjusted (a) Actual
--------------- ------
<S> <C>
BALANCE SHEET DATA
Working capital........................................................ $ 1,050 $ 836
Total assets........................................................... 3,448 3,334
Total debt............................................................. 853 1,025
Total stockholders' equity............................................. 1,418 1,132
</TABLE>
- ---------------
(a) Reflects the consummation of the CarMax Stock Offering and the application
of a portion of the net proceeds to repay the CarMax Group's allocated
portion of Company indebtedness.
(b) Following the CarMax Stock Offering, the existing Common Stock will no
longer be outstanding and the Company will no longer report net earnings per
share for the Company on a consolidated basis, but instead will report net
earnings/loss per share for the Circuit City Stock and the CarMax Stock.
2
<PAGE>
Circuit City Group
<TABLE>
<CAPTION>
Year Ended
Nine Months Ended February 29,
November 30, 1996 1996
------------------------- ---------------------------
As Adjusted (a) Actual As Adjusted (a) Actual
--------------- ------ --------------- ------
<S> <C>
(Amounts in millions, except per share data)
RESULTS OF OPERATIONS
Earnings before Inter-Group
Interest in the CarMax Group............... $ 73 $ 73 $ 184 $ 184
Net loss related to Inter-Group
Interest in the CarMax Group (b)........... 2 5 2 5
----- ------ ------ ------
Net earnings............................... $ 71 $ 68 $ 182 $ 179
----- ------ ------ ------
----- ------ ------ ------
Weighted average shares outstanding........ 99 99(c) 99 99 (c)
----- ------ ------ ------
----- ------ ------ ------
Net earnings per share..................... $ .71 $.69(d) $1.85 $1.82 (d)
----- ------ ------ ------
----- ------ ------ ------
</TABLE>
<TABLE>
<CAPTION>
As of
November 30, 1996
-------------------------
As Adjusted (a) Actual
--------------- ------
<S> <C>
BALANCE SHEET DATA
Inter-Group Interest in the CarMax Group (asset)....................... $ 216 $ --
Total assets........................................................... 3,370 3,154
Inter-Group Interest in the
CarMax Group (liability)............................................ -- 16
Total liabilities...................................................... 2,006 2,022
Group equity........................................................... 1,364 1,132
</TABLE>
- ---------------
(a) Reflects the effect on the Circuit City Group of the consummation of the
CarMax Stock Offering.
(b) The net loss related to the Inter-Group Interest in the CarMax Group is
equal to the product of (i) the net loss of the CarMax Group and (ii) the
Inter-Group Interest Fraction (as such term is defined in the Proxy
Statement which, based on the assumed sale of 18,860,000 shares of CarMax
Stock, is 80% without giving effect to outstanding options covering
4,781,808 shares of CarMax Stock at an average weighted exercise price of
$.51 per share).
(c) The weighted average shares outstanding gives effect to the Redesignation.
(d) Giving effect only to the Redesignation, net earnings per share for these
periods were equal to net earnings per share of the existing Common Stock
reported by the Company for these periods.
3
<PAGE>
CarMax Group
<TABLE>
<CAPTION>
Year Ended
Nine Months Ended February 29,
November 30, 1996 1996
------------------------- --------------------------
As Adjusted (a) Actual As Adjusted (a) Actual
--------------- ------ --------------- ------
<S> <C>
(Amounts in millions, except per share data)
RESULTS OF OPERATIONS
Interest expense......................................... $ -- $ 4 $ -- $ 4
----- ------ ----- ------
Total expenses........................................... 35 39 29 33
----- ------ ----- ------
Loss before income tax benefit........................ 4 8 5 9
Income tax benefit....................................... 2 3 2 4
----- ------ ----- ------
Net loss.............................................. $ 2 $ 5 $ 3 $ 5
----- ------ ----- ------
----- ------ ----- ------
Net loss attributable to CarMax Stock (b)............. $ .4 $ .6
----- -----
----- -----
Weighted average shares outstanding (c)............... 19 19
----- -----
----- -----
Net loss per share (b)................................ $ .02 $ .03
----- -----
----- -----
</TABLE>
<TABLE>
<CAPTION>
As of
November 30, 1996
-------------------------
As Adjusted (a) Actual
--------------- ------
<S> <C>
BALANCE SHEET DATA
Working capital........................................................ $ 196 $ (18)
Total assets........................................................... 298 184
Total debt............................................................. -- 172
Accumulated group equity (deficit)..................................... 270 (16)
</TABLE>
- ---------------
(a) Reflects the consummation of the CarMax Stock Offering and the application
of a portion of the net proceeds to repay the CarMax Group's allocated
portion of Company indebtedness. Proceeds not used to repay such
indebtedness may be invested temporarily in an interest-bearing loan to the
Circuit City Group.
(b) The net loss attributable to CarMax Stock is equal to the product of (i) the
net loss and (ii) the Outstanding CarMax Fraction (as such term is defined
in the Proxy Statement which, based on the assumed sale of 18,860,000 shares
of CarMax Stock, is 20% without giving effect to outstanding options
covering 4,781,808 shares of CarMax Stock at an average weighted exercise
price of $.51 per share). Net loss per share is computed by dividing the net
loss attributable to CarMax Stock by the weighted average shares outstanding
of CarMax Stock.
(c) The weighted average shares outstanding assumes that 18,860,000 shares of
CarMax Stock have been outstanding for the period presented.
4
<PAGE>
CIRCUIT CITY STORES, INC. REPORTS THIRD QUARTER RESULTS
Richmond, Va., December 16, 1996 -- Circuit City Stores, Inc. (NYSE:CC)
today reported net earnings for the third quarter and nine months ended November
30, 1996.
Net earnings were $19.8 million, or 20 cents per share, compared with $31.5
million, or 32 cents per share, in the same period last year. Total sales rose 5
percent for the quarter to $1.86 billion from $1.78 billion in last year's third
quarter. Comparable store sales declined 10 percent.
Net earnings for the nine months were $68.2 million, or 69 cents per share,
versus $97.3 million, or 99 cents per share, in the first nine months of last
year. Total sales rose 10 percent for the period to $5.25 billion from $4.78
billion in the first nine months of last year. Comparable store sales declined 7
percent.
"During the third quarter, sales of personal computers weakened
dramatically while sales of most consumer electronic products remained soft, as
they have throughout the year," said Richard L. Sharp, Circuit City's chairman
and chief executive officer. "Our inventory control systems have enabled us to
closely manage product supply, placing us in an excellent quarter-end position
despite lower-than-anticipated sales."
"For Circuit City, a more profitable merchandise mix, including comparable
store sales growth in major appliances, digital satellite systems and big-screen
televisions, offset lower gross margins produced by an intense promotional
climate and increased sales from CarMax," Sharp said. "As a result, the gross
profit margin remained unchanged at 22.7 percent of sales in the third quarter
of both fiscal years 1997 and 1996.
"The lower comparable store sales did result in a higher expense ratio of
20.5 percent of sales this year compared with 19.4 percent in the same period
last year," Sharp said. "The expense pressure in the Circuit City business was
partially offset by an increased contribution from the credit card bank
subsidiary and the lower cost structure for CarMax."
For the company's Circuit City operations, gross dollar sales from all
extended warranty programs were 6.1 percent of sales in the third quarter of
both fiscal years 1997 and 1996. Third-party warranty revenue was 3.7 percent of
sales in this year's third quarter versus 3.1 percent in the same period last
year. The total extended warranty revenue that is reported in total sales was
5.2 percent of sales in this year's third quarter versus 5.1 percent in the
third quarter of last year.
The third-quarter performance resulted in a pre-tax profit margin of 1.7
percent versus 2.8 percent in the same period last year. The effective tax rate
was 38.0 percent versus 37.5 percent in last year's third quarter, and the net
profit margin was 1.1 percent in this year's third quarter compared with 1.8
percent in the same period last year.
For the nine-month period, the gross profit margin was 22.5 percent this
year versus 22.9 percent last year, and the expense ratio was 20.0 percent
versus 19.3 percent. The resulting pre-tax profit margin of 2.1 percent versus
3.3 percent and an effective tax rate of 38.0 percent versus 37.5 percent led to
a net profit margin of 1.3 percent this year compared with 2.0 percent in the
first nine months of last year.
"Although the industry climate remains challenging, we are pleased that the
Circuit City Superstores are effectively selling a more profitable merchandise
mix," Sharp said. "Although our earnings are down on a year-over-year basis, our
company is solidly profitable, allowing us to continue an expansion program that
we believe will position us to benefit from the industry consolidation that has
already begun. In addition, we continue to invest in future growth through
development of the CarMax Auto Superstore business."
During the third quarter, Circuit City opened 36 Circuit City Superstores
and began the first phase in the nationwide roll out of CarMax with the opening
of its Orlando, Fla., location. The Circuit City Superstore openings include the
company's first three stores in Pittsburgh, Penn.; entries into numerous smaller
markets and additions in existing markets throughout the country. The company
also replaced or expanded eight Superstores and opened six mall-based Circuit
City Express locations.
In addition to third quarter earnings, Circuit City announced today the
declaration of a quarterly dividend of 3.5 cents per share on the company's
common stock. Such dividends are payable January 15, 1997, to shareholders of
record at the close of business on December 31, 1996.
Circuit City Stores, Inc. is the nation's largest retailer of brand-name
consumer electronics and major appliances and a leading retailer of personal
computers and music software. With headquarters in Richmond, Va., it operates
429 Superstores, five consumer electronics-only stores, 47 mall-based Circuit
City Express Stores and six CarMax Superstores throughout the United States.
This release contains forward-looking statements, which are subject to
risks and uncertainties, including, but not limited to, risks associated with
the development of a new retail concept. Additional discussion of factors that
could cause actual results to differ materially from management's projections,
forecasts, estimates and expectations is contained in the company's SEC filings.
1
<PAGE>
CIRCUIT CITY STORES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS (Unaudited)
PERIODS ENDING NOVEMBER 30
<TABLE>
<CAPTION>
Three Months Nine Months
------------------------ ------------------------
1996 1995 1996 1995
---------- ---------- ---------- ----------
<S> <C>
(Amounts in thousands except per share data)
NET SALES AND OPERATING REVENUES..................................... $1,863,947 $1,783,446 $5,246,256 $4,775,909
Cost of sales, buying and warehousing................................ 1,441,088 1,378,312 4,064,799 3,682,597
---------- ---------- ---------- ----------
GROSS PROFIT......................................................... 422,859 405,134 1,181,457 1,093,312
Selling, general and administrative expenses......................... 381,804 346,264 1,051,190 921,072
Interest expense..................................................... 9,122 8,582 20,348 16,599
---------- ---------- ---------- ----------
EARNINGS BEFORE INCOME TAXES......................................... 31,933 50,288 109,919 155,641
Provision for income taxes........................................... 12,146 18,837 41,766 58,326
---------- ---------- ---------- ----------
NET EARNINGS......................................................... $ 19,787 $ 31,451 $ 68,153 $ 97,315
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Net earnings per share............................................... $ 0.20 $ 0.32 $ 0.69 $ 0.99
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Weighted average common shares and
common share equivalents........................................... 99,489 98,750 99,335 98,549
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
</TABLE>
2
<PAGE>
<PAGE>
CIRCUIT CITY STORES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (Unaudited)
<TABLE>
<CAPTION>
November 30
------------------------
1996 1995
---------- ----------
<S> <C>
(Amounts in Thousands)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents.............................................. $ 41,310 $ 45,961
Net accounts and notes receivable...................................... 437,514 327,547
Merchandise inventory.................................................. 1,886,911 1,966,352
Deferred income taxes.................................................. 12,926 24,128
Prepaid expenses and other current assets.............................. 36,112 19,607
---------- ----------
TOTAL CURRENT ASSETS................................................ 2,414,773 2,383,595
Property and equipment, net............................................ 900,305 747,616
Deferred income taxes.................................................. -- 2,304
Other assets........................................................... 18,452 16,815
---------- ----------
TOTAL ASSETS........................................................ $3,333,530 $3,150,330
---------- ----------
---------- ----------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current installments of long-term debt................................. $ 1,466 $ 1,206
Accounts payable....................................................... 904,398 1,016,085
Short-term debt........................................................ 593,188 435,000
Accrued expenses and other current liabilities......................... 75,296 99,126
Accrued income taxes................................................... 4,255 7,528
---------- ----------
TOTAL CURRENT LIABILITIES........................................... 1,578,603 1,558,945
Long-term debt, excluding current installments........................... 430,030 399,619
Deferred revenue and other liabilities................................... 174,043 213,896
Deferred income taxes.................................................... 18,389 --
---------- ----------
TOTAL LIABILITIES................................................... 2,201,065 2,172,460
STOCKHOLDERS' EQUITY..................................................... 1,132,465 977,870
---------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY.......................... $3,333,530 $3,150,330
---------- ----------
---------- ----------
</TABLE>
3
<PAGE>
CIRCUIT CITY STORES, INC. REPORTS THIRD QUARTER RESULTS
FOR THE PROPOSED CARMAX GROUP AND CIRCUIT CITY GROUP
Richmond, Va., January 13, 1997 -- Circuit City Stores, Inc. (NYSE:CC)
today released the third quarter and nine-month results for the proposed CarMax
Group and Circuit City Group tracking stocks that will be created pending the
approval of the CarMax Stock Proposal at the special meeting of shareholders on
January 24, 1997.
The Proposed CarMax Group
Total sales for the CarMax Group rose 57 percent for the quarter ended
November 30, 1996, to $118.4 million from $75.5 million in last year's third
quarter. Comparable store sales increased 22 percent. Net losses were $3.9
million compared with $1.8 million in the same period last year.
Total sales rose 85 percent for the nine months ended November 30, 1996, to
$375.3 million from $203.1 million in the first nine months of last year.
Comparable store sales increased 21 percent. Net losses for the period were $4.5
million versus $3.9 million in the first nine months of last year.
The gross profit margin decreased to 7.0 percent of sales in the third
quarter of fiscal 1997 from 7.6 percent for the same period of fiscal 1996. The
decrease reflected the addition to the sales mix of new-car sales generated by
the Chrysler franchise. Due to the seasonal nature of the business, gross
margins are typically lower in the third quarter.
Additional overhead to support the first phase in the CarMax Group's
national roll out increased the expense ratio for the third quarter to 11.0
percent of sales this year from 10.3 percent in the same period last year.
Interest expense was 1.6 percent of sales for the third quarter of fiscal
1997 compared with 1.4 percent for the third quarter of fiscal 1996.
Gross dollar sales from all service policy programs were 3.5 percent of
sales in the third quarter of fiscal 1997 compared with 3.9 percent in the third
quarter of fiscal 1996. The decline in service policy revenues reflects the
addition of the Chrysler new-car franchise, where manufacturer's warranty
coverage results in lower penetration. Third-party service policy revenue was
1.1 percent of sales in the third quarter of fiscal 1997 and 1.4 percent in the
third quarter of fiscal 1996. The total service policy revenue that is reported
in total sales was 1.2 percent of sales in this year's third quarter versus 1.6
percent in the third quarter of last year.
The third quarter performance resulted in a pre-tax loss of 5.6 percent
versus 4.1 percent in the same period last year. The effective tax rate was 41.5
percent versus 41.9 percent in last year's third quarter, and the net loss was
3.3 percent of sales in this year's third quarter compared with 2.4 percent in
the same period last year.
For the nine-month period, the gross profit margin was 8.4 percent this
year versus 8.5 percent last year, and the expense ratio was 9.3 percent versus
10.3 percent. The decrease in the gross profit margin resulted from the Chrysler
new-car franchise added in March 1996. The lower expense ratio primarily
resulted from an increase in servicing revenue from the CarMax Group's financing
unit, comparable store sales growth and increased sales from new stores and the
addition of the Chrysler franchise.
Interest expense was 1.1 percent of sales in the first nine months of
fiscal 1997 compared with 1.5 percent in the first nine months of fiscal 1996.
The decrease reflects the securitization of the installment receivables
generated by the CarMax Group's financing unit and the improved level of
inventory per store.
The resulting pre-tax loss of 2.0 percent of sales versus 3.3 percent and
an effective tax rate of 41.5 percent for both fiscal 1997 and 1996 led to a net
loss of 1.2 percent this year compared with 1.9 percent in the first nine months
of last year.
Total assets at November 30, 1996, were $183.9 million, up $81.2 million or
79 percent since February 29, 1996. The largest contributor to the asset
increase was a $53.8 million increase in property and equipment, reflecting
planned and completed store openings. The CarMax Group anticipates funding new
stores through sale-leaseback transactions. Increased sales volume produced a
$9.6 million increase in net accounts receivable. Inventory increased $7.6
million to support new store openings and the addition of the Chrysler new-car
franchise. Accounts payable increased $6.7 million, and net allocated debt
increased $75.8 million from the end of fiscal 1996 to support new store
expansion and the purchase of inventory.
During the third quarter, the CarMax Group began the first phase in its
nationwide roll out with the opening of the Orlando, Fla., location. The CarMax
Group currently operates six Superstores and plans to open its seventh location
in Tampa, Fla., during February 1997.
4
<PAGE>
The foregoing discussion and analysis contains forward-looking statements
regarding the CarMax Group. Factors that could cause actual results to differ
materially include, but are not limited to, those discussed in the company's SEC
filings including the 1996 Annual Report on Form 10-K and the "Risk Factors"
section of the company's Registration Statement on Form S-3 filed on November
13, 1996, relating to the company's proposed CarMax stock offering.
5
<PAGE>
CARMAX GROUP
STATEMENTS OF OPERATIONS (Unaudited)
Periods Ending November 30
<TABLE>
<CAPTION>
Three Months Nine Months
------------------- --------------------
1996 1995 1996 1995
-------- ------- -------- --------
<S> <C>
(Amounts in Thousands)
NET SALES AND OPERATING REVENUES........................ $118,409 $75,515 $375,319 $203,149
Cost of sales........................................... 110,154 69,757 343,998 185,980
-------- ------- -------- --------
GROSS PROFIT............................................ 8,255 5,758 31,321 17,169
Selling, general and administrative expenses............ 13,007 7,774 34,842 20,857
Interest expense........................................ 1,937 1,082 4,211 2,994
-------- ------- -------- --------
LOSS BEFORE INCOME TAX BENEFIT.......................... 6,689 3,098 7,732 6,682
Income tax benefit...................................... 2,776 1,298 3,209 2,773
-------- ------- -------- --------
NET LOSS................................................ $ 3,913 $ 1,800 $ 4,523 $ 3,909
-------- ------- -------- --------
-------- ------- -------- --------
</TABLE>
6
<PAGE>
CARMAX GROUP
BALANCE SHEETS
<TABLE>
<CAPTION>
November 30, February 29,
1996 1996
------------ ------------
<S> <C>
(Amounts in Thousands) (Unaudited)
ASSETS
CURRENT ASSETS:
Cash................................................................. $ 8,821 $ 2,219
Net accounts receivable.............................................. 26,205 16,562
Inventory............................................................ 69,234 61,672
Prepaid expenses and other current assets............................ 2,544 772
------------ ------------
TOTAL CURRENT ASSETS.............................................. 106,804 81,225
Property and equipment, net.......................................... 73,622 19,860
Deferred income taxes................................................ 1,263 1,560
Other assets......................................................... 2,188 --
------------ ------------
TOTAL ASSETS...................................................... $183,877 $102,645
------------ ------------
------------ ------------
LIABILITIES AND ACCUMULATED GROUP DEFICIT
CURRENT LIABILITIES:
Accounts payable..................................................... $ 19,125 $ 12,399
Short-term debt...................................................... 99,758 18,050
Deferred income taxes................................................ 3,443 2,276
Accrued expenses and other current liabilities....................... 2,421 1,164
------------ ------------
TOTAL CURRENT LIABILITIES......................................... 124,747 33,889
Long-term debt....................................................... 72,566 78,519
Deferred revenue and other liabilities............................... 2,288 1,438
------------ ------------
TOTAL LIABILITIES................................................. 199,601 113,846
ACCUMULATED GROUP DEFICIT......................................... (15,724) (11,201)
------------ ------------
TOTAL LIABILITIES AND ACCUMULATED GROUP DEFICIT................... $183,877 $102,645
------------ ------------
------------ ------------
</TABLE>
7
<PAGE>
CARMAX GROUP
STATEMENTS OF CASH FLOWS (Unaudited)
Periods Ending November 30
<TABLE>
<CAPTION>
Nine Months
---------------------
1996 1995
-------- --------
<S> <C>
(Amounts in Thousands)
OPERATING ACTIVITIES:
Net loss.................................................................................... $ (4,523) $ (3,909)
Adjustments to reconcile net loss to net cash (used in) provided by operating activities:
Depreciation............................................................................. 1,307 600
Provision for deferred income taxes...................................................... 1,464 835
Increase in deferred revenue and other liabilities....................................... 850 592
(Increase) decrease in net accounts receivable........................................... (9,643) 27,420
(Increase) decrease in inventory, prepaid expenses and other current assets.............. (9,334) 5,317
Increase in other assets................................................................. (2,188) --
Increase in accounts payable, accrued expenses and other current liabilities............. 7,983 1,588
-------- --------
Net cash (used in) provided by operating activities......................................... (14,084) 32,443
-------- --------
INVESTING ACTIVITIES:
Purchases of property and equipment......................................................... (60,505) (18,719)
Proceeds from sales of property and equipment............................................... 5,436 15,800
-------- --------
Net cash used in investing activities....................................................... (55,069) (2,919)
-------- --------
FINANCING ACTIVITIES:
Proceeds from issuance of short-term debt, net.............................................. 81,708 42,957
Principal payments on long-term debt, net................................................... (5,953) (72,166)
-------- --------
Net cash provided by (used in) financing activities......................................... 75,755 (29,209)
-------- --------
Increase in cash.............................................................................. 6,602 315
Cash at beginning of year..................................................................... 2,219 2,159
-------- --------
Cash at end of period......................................................................... $ 8,821 $ 2,474
-------- --------
-------- --------
</TABLE>
8
<PAGE>
The Proposed Circuit City Group
Total sales for the Circuit City Group rose 2 percent for the quarter ended
November 30, 1996, to $1.75 billion from $1.71 billion in last year's third
quarter. Comparable store sales declined 10 percent. Net earnings before
inter-group interest in the CarMax Group were $23.7 million compared with $33.3
million in the same period last year.
Total sales rose 7 percent for the nine months ended November 30, 1996, to
$4.87 billion from $4.57 billion in the first nine months of last year.
Comparable store sales declined 7 percent. Net earnings before inter-group
interest in the CarMax Group were $72.7 million versus $101.2 million in the
first nine months of last year.
The gross profit margin rose to 23.8 percent of sales for the third quarter
of fiscal 1997 from 23.4 percent for the same period of 1996. The increase
primarily reflects a more profitable merchandise mix, including comparable store
sales growth in major appliances, digital satellite systems and big-screen
televisions, offset by lower gross margins produced by an intense promotional
climate.
The expense ratio increased to 21.1 percent of sales for the third quarter
from 19.8 percent in the same period last year and reflects the impact of lower
comparable store sales partially offset by an increased contribution from the
credit card bank subsidiary.
Gross dollar sales from all extended warranty programs were 6.1 percent of
sales in the third quarter of both fiscal years 1997 and 1996. Third-party
warranty revenue was 3.7 percent of sales in this year's third quarter versus
3.1 percent in the same period last year. The total extended warranty revenue
that is reported in total sales was 5.2 percent of sales in this year's third
quarter versus 5.1 percent in the third quarter of last year.
The third quarter performance resulted in a pre-tax profit margin before
inter-group interest in the CarMax Group of 2.2 percent versus 3.1 percent in
the same period last year. The effective tax rate was 38.6 percent versus 37.7
percent in last year's third quarter, and the net profit margin before
inter-group interest in the CarMax Group was 1.3 percent in this year's third
quarter compared with 2.0 percent in the same period last year.
For the nine-month period, the gross profit margin was 23.6 percent this
year versus 23.5 percent last year, and the expense ratio was 20.9 percent
versus 19.7 percent. The resulting pre-tax profit margin before inter-group
interest in the CarMax Group of 2.4 percent versus 3.5 percent and an effective
tax rate of 38.2 percent versus 37.6 percent led to a net profit margin before
inter-group interest in the CarMax Group of 1.5 percent this year compared with
2.2 percent in the first nine months of last year.
Total assets at November 30, 1996, were $3.2 billion, up $727.1 million or
30 percent since February 29, 1996. The largest contributor to the asset
increase was a $556.2 million increase in inventory to support new store
openings and the holiday sales volume. Net accounts and notes receivable
increased by $103.5 million, primarily reflecting an increase in credit card
accounts generated by the credit card bank subsidiary. Property and equipment
increased $72.3 million, largely because of planned and completed store
openings. Accounts payable increased $293.2 million and short-term debt
increased $419.4 million from the end of fiscal 1996 to support new store
expansion and the purchase of inventory.
During the third quarter, the Circuit City Group opened 36 Superstores. The
Superstore openings include the first three stores in Pittsburgh, Penn; entries
into numerous smaller markets and additions in existing markets throughout the
country. The Circuit City Group also replaced or expanded eight Superstores and
opened six mall-based Circuit City Express locations. The Circuit City Group
operates 429 Superstores, five consumer electronics-only stores and 47
mall-based Circuit City Express stores throughout the United States.
The foregoing discussion and analysis contains forward-looking statements
regarding the Circuit City Group. Factors that could cause actual results to
differ materially include, but are not limited to, those discussed in the
company's SEC filings including the 1996 Annual Report on Form 10-K and the
"Risk Factors" section of the company's Registration Statement on Form S-3 filed
on November 13, 1996, relating to the company's proposed CarMax stock offering.
9
<PAGE>
CIRCUIT CITY GROUP
STATEMENTS OF EARNINGS (Unaudited)
Periods Ending November 30
<TABLE>
<CAPTION>
Three Months Nine Months
------------------------ ------------------------
1996 1995 1996 1995
---------- ---------- ---------- ----------
<S> <C>
(Amounts in Thousands)
NET SALES AND OPERATING REVENUES.................................... $1,745,538 $1,707,931 $4,870,937 $4,572,760
Cost of sales, buying and warehousing............................... 1,330,934 1,308,555 3,720,801 3,496,617
---------- ---------- ---------- ----------
GROSS PROFIT........................................................ 414,604 399,376 1,150,136 1,076,143
Selling, general and administrative expenses........................ 368,797 338,490 1,016,348 900,215
Interest expense.................................................... 7,185 7,500 16,137 13,605
---------- ---------- ---------- ----------
EARNINGS BEFORE INCOME TAXES AND INTER-GROUP INTEREST
IN THE CARMAX GROUP............................................... 38,622 53,386 117,651 162,323
Provision for income taxes.......................................... 14,922 20,135 44,975 61,099
---------- ---------- ---------- ----------
EARNINGS BEFORE INTER-GROUP INTEREST IN THE
CARMAX GROUP...................................................... 23,700 33,251 72,676 101,224
Net loss related to the inter-group interest in the CarMax Group.... 3,913 1,800 4,523 3,909
---------- ---------- ---------- ----------
NET EARNINGS........................................................ $ 19,787 $ 31,451 $ 68,153 $ 97,315
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
</TABLE>
10
<PAGE>
CIRCUIT CITY GROUP
BALANCE SHEETS
<TABLE>
<CAPTION>
November 30, February 29,
1996 1996
------------ ------------
<S> <C>
(Amounts in Thousands) (Unaudited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents...................................................................... $ 32,489 $ 41,485
Net accounts and notes receivable.............................................................. 411,309 307,833
Merchandise inventory.......................................................................... 1,817,677 1,261,511
Deferred income taxes.......................................................................... 16,369 29,272
Prepaid expenses and other current assets...................................................... 33,568 16,627
------------ ------------
TOTAL CURRENT ASSETS........................................................................ 2,311,412 1,656,728
Property and equipment, net.................................................................... 826,683 754,405
Other assets................................................................................... 16,264 16,080
------------ ------------
TOTAL ASSETS................................................................................ $3,154,359 $2,427,213
------------ ------------
------------ ------------
LIABILITIES AND GROUP EQUITY
CURRENT LIABILITIES:
Current installments of long-term debt......................................................... $ 1,466 $ 1,436
Accounts payable............................................................................... 885,273 592,089
Short-term debt................................................................................ 493,430 74,037
Accrued expenses and other current liabilities................................................. 72,875 122,625
Accrued income taxes........................................................................... 4,255 9,375
------------ ------------
TOTAL CURRENT LIABILITIES................................................................... 1,457,299 799,562
Long-term debt, excluding current installments................................................. 357,464 320,642
Deferred revenue and other liabilities......................................................... 171,755 212,563
Inter-group interest in the CarMax Group....................................................... 15,724 11,201
Deferred income taxes.......................................................................... 19,652 19,324
------------ ------------
TOTAL LIABILITIES........................................................................... 2,021,894 1,363,292
GROUP EQUITY................................................................................ 1,132,465 1,063,921
------------ ------------
TOTAL LIABILITIES AND GROUP EQUITY.......................................................... $3,154,359 $2,427,213
------------ ------------
------------ ------------
</TABLE>
11
<PAGE>
CIRCUIT CITY GROUP
STATEMENTS OF CASH FLOWS (UNAUDITED)
Periods Ending November 30
<TABLE>
<CAPTION>
Nine Months
------------------------
1996 1995
---------- ----------
<S> <C>
(Amounts in Thousands)
OPERATING ACTIVITIES:
Net earnings............................................................ $ 68,153 $ 97,315
Adjustments to reconcile net earnings to net cash used in operating
activities:
Net loss related to inter-group interest in the CarMax Group......... 4,523 3,909
Depreciation and amortization........................................ 73,307 59,677
(Gain) loss on sales of property and equipment....................... (1,117) 3,856
Provision for deferred income taxes.................................. 13,231 4,376
Decrease in deferred revenue and other liabilities................... (40,808) (28,562)
Increase in net accounts and notes receivable........................ (103,476) (90,402)
Increase in merchandise inventory, prepaid expenses and other current
assets............................................................. (573,107) (941,338)
(Increase) decrease in other assets.................................. (184) 1,176
Increase in accounts payable, accrued expenses, other current
liabilities and accrued income taxes............................... 238,314 417,409
---------- ----------
Net cash used in operating activities................................... (321,164) (472,584)
---------- ----------
INVESTING ACTIVITIES:
Purchases of property and equipment..................................... (339,903) (378,281)
Proceeds from sales of property and equipment........................... 195,435 162,407
---------- ----------
Net cash used in investing activities................................... (144,468) (215,874)
---------- ----------
FINANCING ACTIVITIES:
Proceeds from issuance of short-term debt, net.......................... 419,393 392,043
Proceeds from issuance of long-term debt, net........................... 36,852 292,008
Equity issuances, net................................................... 10,161 11,335
Dividends paid.......................................................... (9,770) (8,244)
---------- ----------
Net cash provided by financing activities............................... 456,636 687,142
---------- ----------
Decrease in cash and cash equivalents..................................... (8,996) (1,316)
Cash and cash equivalents at beginning of year............................ 41,485 44,803
---------- ----------
Cash and cash equivalents at end of period................................ $ 32,489 $ 43,487
---------- ----------
---------- ----------
</TABLE>
12
