UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended November 30, 1999
Commission File Number 1-5767
CIRCUIT CITY STORES, INC.
(Exact Name of Registrant as Specified in its Charter)
VIRGINIA 54-0493875
(State of Incorporation) (I.R.S. Employer
Identification No.)
9950 MAYLAND DRIVE, RICHMOND, VIRGINIA 23233
(Address of Principal Executive Offices and Zip Code)
(804) 527-4000
(Registrant's Telephone Number, Including Area Code)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
Indicate the number of shares outstanding of each of the Registrant's classes of
common stock, as of the latest practicable date.
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Class Outstanding at December 31, 1999
Circuit City Stores, Inc. - Circuit City Group Common Stock, par value $0.50 203,555,653
Circuit City Stores, Inc. - CarMax Group Common Stock, par value $0.50 24,141,509
</TABLE>
An Index is included on Page 2 and a separate Index for Exhibits is included on
Page 38.
<PAGE>
CIRCUIT CITY STORES, INC. AND SUBSIDIARIES
INDEX
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Page
No.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Financial Statements:
Consolidated Balance Sheets -
November 30, 1999, and February 28, 1999 4
Consolidated Statements of Earnings -
Three Months and Nine Months Ended November 30, 1999, and 1998 5
Consolidated Statements of Cash Flows -
Nine Months Ended November 30, 1999, and 1998 6
Notes to Consolidated Financial Statements 7
Circuit City Group Financial Statements:
Circuit City Group Balance Sheets -
November 30, 1999, and February 28, 1999 18
Circuit City Group Statements of Earnings -
Three Months and Nine Months Ended November 30, 1999, and 1998 19
Circuit City Group Statements of Cash Flows -
Nine Months Ended November 30, 1999, and 1998 20
Notes to Circuit City Group Financial Statements 21
CarMax Group Financial Statements:
CarMax Group Balance Sheets -
November 30, 1999, and February 28, 1999 29
CarMax Group Statements of Operations -
Three Months and Nine Months Ended November 30, 1999, and 1998 30
CarMax Group Statements of Cash Flows -
Nine Months Ended November 30, 1999, and 1998 31
Notes to CarMax Group Financial Statements 32
Item 2. Management's Discussion and Analysis:
Circuit City Stores, Inc. Management's Discussion and Analysis
of Financial Condition and Results of Operations 12
Circuit City Group Management's Discussion and Analysis
of Financial Condition and Results of Operations 24
CarMax Group Management's Discussion and Analysis
of Financial Condition and Results of Operations 34
Page 2 of 39
PART II. OTHER INFORMATION
Item 5. Other Information 38
Item 6. Exhibits and Reports on Form 8-K 38
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Page 3 of 39
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CIRCUIT CITY STORES, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(Amounts in thousands except share data)
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Nov. 30, 1999 Feb. 28, 1999
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 75,845 $ 265,880
Net accounts receivable 648,661 574,316
Inventory 2,385,820 1,517,675
Prepaid expenses and other current assets 82,960 36,644
-------------- -------------
Total current assets 3,193,286 2,394,515
Property and equipment, net 1,007,121 1,005,773
Other assets 47,228 44,978
-------------- -------------
TOTAL ASSETS $ 4,247,635 $ 3,445,266
============== =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current installments of long-term debt $ 177,785 $ 2,707
Accounts payable 1,209,817 799,733
Short-term debt 288,392 8,016
Accrued expenses and other current liabilities 141,638 143,585
Deferred income taxes 46,280 9,764
-------------- -------------
Total current liabilities 1,863,912 963,805
Long-term debt, excluding current installments 250,309 426,585
Deferred revenue and other liabilities 120,466 112,085
Deferred income taxes 31,089 37,661
-------------- -------------
TOTAL LIABILITIES 2,265,776 1,540,136
-------------- -------------
Stockholders' equity:
Circuit City Group common stock, $0.50 par value;
350,000,000 shares authorized; 203,494,000 shares
issued and outstanding as of November 30, 1999 101,747 50,410
CarMax Group common stock, $0.50 par value;
175,000,000 shares authorized; 24,066,000 shares
issued and outstanding as of November 30, 1999 12,033 11,558
Capital in excess of par value 573,400 575,686
Retained earnings 1,294,679 1,267,476
-------------- -------------
TOTAL STOCKHOLDERS' EQUITY 1,981,859 1,905,130
-------------- -------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 4,247,635 $ 3,445,266
============== =============
See accompanying notes to consolidated financial statements.
Page 4 of 39
<PAGE>
CIRCUIT CITY STORES, INC. AND SUBSIDIARIES
Consolidated Statements of Earnings (Unaudited)
(Amounts in thousands except per share data)
Three Months Ended Nine Months Ended
November 30, November 30,
1999 1998 1999 1998
-------------- ------------- ------------- ------------
Net sales and operating revenues $ 2,984,607 $ 2,618,198 $ 8,633,983 $ 7,407,086
Cost of sales, buying and warehousing 2,313,697 2,025,050 6,692,063 5,736,206
-------------- -------------- ------------- ------------
Gross profit 670,910 593,148 1,941,920 1,670,880
-------------- -------------- ------------- ------------
Selling, general and administrative expenses 581,216 535,419 1,653,710 1,496,777
Interest expense 6,504 7,714 17,098 21,359
-------------- -------------- ------------- ------------
Total expenses 587,720 543,133 1,670,808 1,518,136
-------------- -------------- ------------- ------------
Earnings from continuing operations
before income taxes 83,190 50,015 271,112 152,744
Provision for income taxes 31,612 19,006 103,023 58,044
-------------- -------------- ------------- ------------
Earnings from continuing operations 51,578 31,009 168,089 94,700
-------------- -------------- ------------- ------------
Discontinued operations:
Loss from discontinued operations of Divx,
less income tax benefit -- (16,765) (16,215) (36,461)
Loss on disposal of Divx, including
provision for losses during phase-out
period, less income tax benefit -- -- (114,025) --
-------------- -------------- ------------- ------------
Loss from discontinued operations -- (16,765) (130,240) (36,461)
-------------- -------------- ------------- ------------
Net earnings $ 51,578 $ 14,244 $ 37,849 $ 58,239
============== ============== ============= ============
Net earnings (loss) attributed to:
Circuit City Group common stock:
Continuing operations $ 52,335 $ 32,710 $ 167,425 $ 97,822
Discontinued operations -- (16,765) (130,240) (36,461)
CarMax Group common stock (757) (1,701) 664 (3,122)
-------------- -------------- ------------- ------------
$ 51,578 $ 14,244 $ 37,849 $ 58,239
============== ============== ============= ============
Weighted average common shares:
Circuit City Group:
Basic 201,610 198,616 201,128 198,060
============== ============== ============= ============
Diluted 204,525 200,721 204,180 200,486
============== ============== ============= ============
CarMax Group:
Basic 23,836 22,692 23,502 22,537
============== ============= ============= ============
Diluted 23,836 22,692 25,658 22,537
============== ============= ============= ============
Net earnings (loss) per share:
Circuit City Group:
Basic:
Continuing operations $ 0.26 $ 0.16 $ 0.83 $ 0.49
============== ============ ============= ============
Discontinued operations $ -- $ (0.08) $ (0.65) $ (0.18)
============== ============ ============= ============
Net earnings $ 0.26 $ 0.08 $ 0.18 $ 0.31
============== ============ ============= ============
Diluted:
Continuing operations $ 0.26 $ 0.16 $ 0.82 $ 0.49
============== ============ ============= ============
Discontinued operations $ -- $ (0.08) $ (0.64) $ (0.18)
============== ============ ============= ============
Net earnings $ 0.26 $ 0.08 $ 0.18 $ 0.31
============== ============ ============= ============
CarMax Group:
Basic $ (0.03) $ (0.07) $ 0.03 $ (0.14)
============== ============ ============= ============
Diluted $ (0.03) $ (0.07) $ 0.03 $ (0.14)
============== ============ ============= ============
Dividends paid per common share:
Circuit City Group common stock $ 0.0175 $ 0.0175 $ 0.0525 $ 0.0525
============== ============ ============= ============
CarMax Group common stock $ -- $ -- $ -- $ --
============== ============ ============= ============
See accompanying notes to consolidated financial statements.
Page 5 of 39
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CIRCUIT CITY STORES, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows (Unaudited)
(Amounts in thousands)
Nine Months Ended
November 30,
1999 1998
-------------- -------------
Operating Activities:
Net earnings $ 37,849 $ 58,239
Adjustments to reconcile net earnings to net cash
used in operating activities of continuing operations:
Loss from discontinued operations 16,215 36,461
Loss on disposal of discontinued operations 114,025 --
Depreciation and amortization 106,594 97,574
(Gain) loss on sales of property and equipment (238) 1,412
Provision for deferred income taxes 33,734 13,978
Changes in operating assets and liabilities, net of effects from business
acquisitions:
Decrease in deferred revenue and other liabilities (25,119) (11,174)
Increase in net accounts receivable (74,316) (33,219)
Increase in inventory (881,178) (785,932)
Decrease (increase) in prepaid expenses and other current assets 13,095 (25,666)
Decrease (increase) in other assets 5,481 (430)
Increase in accounts payable, accrued expenses and
other current liabilities 391,241 355,365
-------------- -------------
Net cash used in operating activities of continuing operations (262,617) (293,392)
-------------- -------------
Investing Activities:
Cash used in business acquisitions (34,849) (7,557)
Purchases of property and equipment (184,219) (286,968)
Proceeds from sales of property and equipment 61,116 159,429
-------------- -------------
Net cash used in investing activities of continuing operations (157,952) (135,096)
-------------- -------------
Financing Activities:
Proceeds from issuance of short-term debt, net 280,376 456,502
Principal payments on long-term debt (1,198) (1,043)
Issuances of Circuit City Group common stock, net 46,070 31,916
Issuances of CarMax Group common stock, net 3,456 2,327
Dividends paid on Circuit City Group common stock (10,646) (10,467)
-------------- -------------
Net cash provided by financing activities of continuing operations 318,058 479,235
-------------- -------------
Cash used in discontinued operations (87,524) (49,354)
-------------- -------------
(Decrease) increase in cash and cash equivalents (190,035) 1,393
Cash and cash equivalents at beginning of year 265,880 116,612
-------------- -------------
Cash and cash equivalents at end of period $ 75,845 $ 118,005
============== =============
</TABLE>
See accompanying notes to consolidated financial statements.
Page 6 of 39
<PAGE>
CIRCUIT CITY STORES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
1. Basis of Presentation
The Company, which is comprised of Circuit City Stores, Inc. and its
subsidiaries, has two series of common stock - the Circuit City Group Stock
and the CarMax Group Stock. The Circuit City Group Common Stock is intended
to track the performance of the Circuit City store-related operations, the
Group's retained interest in the CarMax Group and the Company's investment
in Digital Video Express, which is discontinued (see Note 9). The CarMax
Group Common Stock is intended to track the performance of the CarMax
operations. The Circuit City Group held a 75.8 percent interest in the
CarMax Group at November 30, 1999, a 76.6 percent interest at February 28,
1999, and a 76.8 percent interest at November 30, 1998.
Notwithstanding the attribution of the Company's assets and liabilities,
including contingent liabilities, and stockholders' equity between the
Circuit City Group and the CarMax Group for the purposes of preparing their
financial statements, holders of Circuit City Stock and holders of CarMax
Stock are shareholders of the Company and are subject to all of the risks
associated with an investment in the Company and all of its businesses,
assets and liabilities. Such attribution does not affect title to the
assets or responsibility for the liabilities of the Company or any of its
subsidiaries. The results of operations or financial condition of one Group
could affect the results of operations or financial condition of the other
Group. Accordingly, the Company's consolidated financial statements
included herein should be read in conjunction with the financial statements
of each Group and with the notes to the consolidated and Group financial
statements included herein and in the Company's 1999 annual report to
shareholders.
2. Accounting Policies
The consolidated financial statements of the Company conform to generally
accepted accounting principles. The interim period financial statements are
unaudited; however, in the opinion of management, all adjustments necessary
for a fair presentation of the interim consolidated financial statements
have been included. The fiscal year-end balance sheet data was derived from
audited financial statements.
3. Accounting for the Costs of Start-Up Activities
Effective March 1, 1999, the Company adopted the American Institute of
Certified Public Accountants Statement of Position 98-5 "Reporting on the
Costs of Start-Up Activities." SOP 98-5 requires costs of start-up
activities, including organization and pre-opening costs, to be expensed as
incurred. Prior to fiscal 2000, the Company capitalized pre-opening costs
for new store locations. Beginning in the month after the store opened for
business, the pre-opening costs were amortized over the remainder of the
fiscal year. Management has determined that SOP 98-5 does not have a
material impact on the Company's financial position, annual results of
operations or cash flows.
4. Prepaid Expenses and Other Current Assets
Income taxes receivable, which are included in prepaid expenses and other
current assets in the accompanying consolidated balance sheets, were
$56,390,000 at November 30, 1999, and $7,143,000 at February 28, 1999.
Page 7 of 39
<PAGE>
5. Net Earnings (Loss) per Share
Reconciliations of the numerator and denominator of basic and diluted net
earnings (loss) per share are presented below:
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Three Months Ended Nine Months Ended
(Amounts in thousands November 30, November 30,
except per share data) 1999 1998 1999 1998
------------------------------------------------------------------------------------------------------------------
Circuit City Group:
Weighted average common shares..................... 201,610 198,616 201,128 198,060
Dilutive potential common shares:
Options......................................... 2,092 994 2,216 1,632
Restricted stock................................ 823 1,111 836 794
-------------------------- ---------------------------
Weighted average common shares and
dilutive potential common shares................ 204,525 200,721 204,180 200,486
========================== ===========================
Income from continuing operations.................. $ 52,335 $ 32,710 $ 167,425 $ 97,822
Loss from discontinued operations.................. -- (16,765) (130,240) (36,461)
-------------------------- ---------------------------
Income available to common shareholders............ $ 52,335 $ 15,945 $ 37,185 $ 61,361
========================== ===========================
Basic net earnings (loss) per share:
Continuing operations........................... $ 0.26 $ 0.16 $ 0.83 $ 0.49
Discontinued operations......................... -- (0.08) (0.65) (0.18)
-------------------------- --------------------------
Net earnings per share.......................... $ 0.26 $ 0.08 $ 0.18 $ 0.31
========================== ==========================
Diluted net earnings (loss) per share:
Continuing operations........................... $ 0.26 $ 0.16 $ 0.82 $ 0.49
Discontinued operations......................... -- (0.08) (0.64) (0.18)
-------------------------- --------------------------
Net earnings per share.......................... $ 0.26 $ 0.08 $ 0.18 $ 0.31
========================== ==========================
CarMax Group:
Weighted average common shares..................... 23,836 22,692 23,502 22,537
Dilutive potential common shares:
Options......................................... -- -- 1,981 --
Restricted stock................................ -- -- 175 --
-------------------------- ---------------------------
Weighted average common shares and
dilutive potential common shares................ 23,836 22,692 25,658 22,537
========================== ===========================
(Loss) income available to common shareholders..... $ (757) $ (1,701) $ 664 $ (3,122)
Basic net (loss) earnings per share................ $ (0.03) $ (0.07) $ 0.03 $ (0.14)
Diluted net (loss) earnings per share.............. $ (0.03) $ (0.07) $ 0.03 $ (0.14)
</TABLE>
Certain options were not included in the computation of diluted net
earnings per share because the options' exercise prices were greater than
the average market price of the common shares. For the three-month and
nine-month periods ended November 30, 1998, options to purchase 2,000,000
shares of Circuit City Group Stock at $29.50 per share were outstanding and
not included in the calculation.
For the nine-month period ended November 30, 1999, options to purchase
1,721,391 shares of CarMax Group Stock at prices ranging from $3.91 to
$16.31 per share were outstanding and not included in the calculation.
Page 8 of 39
6. Gain or Loss on Securitizations
For transfers that qualify as sales, the Company recognizes gains or losses
as a component of the Company's finance operations. Amortization of
prior-period gains on securitizations for the Circuit City Group's finance
operation exceeded current-period gains in the third quarter by $100,000
compared with a net gain of $1.2 million for the same period last fiscal
year. Amortization of prior-period gains on securitizations for the Circuit
City Group's finance operation exceeded current-period gains by $2.0
million for the nine-month period ended November 30, 1999, compared with a
net gain of $700,000 for the nine-month period ended November 30, 1998.
Amortization of prior-period gains on receivables for the CarMax Group's
finance operation exceeded current-period gains by $2.6 million for the
third quarter of this fiscal year compared with a net gain of $2.7 million
for the same period last fiscal year. The net gain on sales of receivables
for the CarMax Group's finance operation totaled $94,000 for the nine-month
period ended November 30, 1999, compared with $7.5 million for the
nine-month period ended November 30, 1998.
7. Interest Rate Swaps
In October 1994, the Company entered into five-year interest rate swap
agreements with notional amounts totaling $300 million relating to a public
issuance of securities by the master trust. These swaps terminated in
November 1999 as the related securities in the master trust matured.
Concurrent with the funding of the $175 million term loan in May 1995, the
Company entered into five-year interest rate swaps with notional amounts
aggregating $175 million. Recording the swaps at fair value would result in
a loss of $471,000 at November 30, 1999, compared with a loss of $2.2
million at February 28, 1999.
On behalf of the CarMax Group, during the quarter the Company entered into
two 40-month amortizing swaps with notional amounts totaling approximately
$160 million related to the auto loan receivable securitization. The total
notional amount of the CarMax swaps was $153 million at November 30, 1999,
and $500 million at February 28, 1999. The reduction in the total notional
amount of the CarMax interest rate swaps relates to the replacement of
floating rate securitizations with a $644 million fixed-rate securitization
during the quarter. These swaps were entered into as part of the sales of
receivables and are, therefore, included in the gain or loss on sales of
receivables.
8. Operating Segment Information
The Company conducts business in two operating segments: Circuit City and
CarMax. These segments are identified and managed by the Company based on
the different products and services offered by each. Circuit City refers to
the retail operations bearing the Circuit City name and to all related
operations such as the Circuit City Group's finance operation. This segment
is engaged in the business of selling brand-name consumer electronics,
personal computers, major appliances and entertainment software. CarMax
refers to the used- and new-car retail locations bearing the CarMax name
and to all related operations such as the CarMax Group's finance operation.
Divx is no longer included as an operating segment because it was
discontinued on June 16, 1999. Prior year financial information has been
adjusted to reflect this change. Financial information for these segments
for the three- and nine-month periods ended November 30, 1999, and 1998, is
presented on the following page.
Page 9 of 39
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Three Months Ended November 30, 1999
Total Operating
(Amounts in thousands) Circuit City CarMax Segments
-----------------------------------------------------------------------------------------------------
Revenues from external customers.................. $ 2,495,649 $ 488,958 $ 2,984,607
Interest expense.................................. 3,696 2,808 6,504
Depreciation and amortization..................... 34,530 4,358 38,888
Earnings (loss) from continuing operations
before income taxes.......................... 88,249 (5,059) 83,190
Provision (benefit) for income taxes.............. 33,535 (1,923) 31,612
Earnings (loss) from continuing operations........ 54,714 (3,136) 51,578
Total assets...................................... $ 3,562,213 $ 684,304 $ 4,246,517
Three Months Ended November 30, 1998
Total Operating
(Amounts in thousands) Circuit City CarMax Segments
-----------------------------------------------------------------------------------------------------
Revenues from external customers.................. $ 2,272,258 $ 345,940 $ 2,618,198
Interest expense.................................. 5,925 1,789 7,714
Depreciation and amortization..................... 28,040 2,353 30,393
Earnings (loss) from continuing operations
before income taxes.......................... 62,033 (12,018) 50,015
Provision (benefit) for income taxes.............. 23,693 (4,687) 19,006
Earnings (loss) from continuing operations........ 38,340 (7,331) 31,009
Total assets...................................... $ 3,538,073 $ 550,530 $ 4,088,603
<PAGE>
Nine Months Ended November 30, 1999
Total Operating
(Amounts in thousands) Circuit City CarMax Segments
-----------------------------------------------------------------------------------------------------
Revenues from external customers.................. $ 7,123,235 $ 1,510,748 $ 8,633,983
Interest expense.................................. 9,960 7,138 17,098
Depreciation and amortization..................... 95,429 11,165 106,594
Earnings from continuing operations
before income taxes.......................... 266,547 4,565 271,112
Provision for income taxes........................ 101,288 1,735 103,023
Earnings from continuing operations............... 165,259 2,830 168,089
Total assets...................................... $ 3,562,213 $ 684,304 $ 4,246,517
Nine Months Ended November 30, 1998
Total Operating
(Amounts in thousands) Circuit City CarMax Segments
-----------------------------------------------------------------------------------------------------
Revenues from external customers.................. $ 6,314,752 $ 1,092,334 $ 7,407,086
Interest expense.................................. 18,005 3,354 21,359
Depreciation and amortization..................... 90,900 6,674 97,574
Earnings (loss) from continuing operations
before income taxes.......................... 174,893 (22,149) 152,744
Provision (benefit) for income taxes.............. 66,682 (8,638) 58,044
Earnings (loss) from continuing operations........ 108,211 (13,511) 94,700
Total assets...................................... $ 3,538,073 $ 550,530 $ 4,088,603
</TABLE>
Earnings from continuing operations and total assets for Circuit City
exclude: (1) the Inter-Group Interest in the CarMax Group and (2) the
discontinued Divx operations discussed in Note 9.
Page 10 of 39
9. Loss from Discontinued Operations
On June 16, 1999, Digital Video Express announced that it would cease
marketing the Divx home video system and discontinue operations, but
existing, registered customers would be able to view discs during a
two-year phase-out period. The operating results of Divx and the loss on
disposal of the Divx business have been segregated from continuing
operations and reported as separate line items, after tax, on the
consolidated and the Circuit City Group statements of operations for the
periods presented.
For the quarter ended November 30, 1999, the discontinued Divx operations
had no impact on the earnings of Circuit City Stores, Inc. Results for the
third quarter of last year include a loss of $16.8 million after an income
tax benefit of $10.3 million related to the Divx operations. For the nine
months ended November 30, 1999, the loss from the discontinued Divx
operations totaled $16.2 million after an income tax benefit of $9.9
million, compared with $36.5 million after an income tax benefit of $22.5
million in the prior year. In the nine-month period ended November 30,
1999, the loss on the disposal of the Divx business totaled $114.0 million
after an income tax benefit of $69.9 million. The loss on the disposal
includes a provision of $3.0 million, after tax, for operating losses to be
incurred during the phase-out period. It also includes provisions for
commitments under licensing agreements with motion picture distributors,
the write-down of assets to net realizable value, lease termination cost,
employee severance and benefit costs and other contractual commitments.
The net liabilities or assets of the discontinued Divx operations reflected
in the accompanying consolidated balance sheet as of November 30, 1999, and
February 28, 1999, are comprised of the following:
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(Amounts in thousands) Nov. 30, 1999 Feb. 28, 1999
-------------------------------------------------------------------------------------------
Other current assets...................................... $ 275 $ 25,630
Property and equipment, net............................... 449 23,589
Noncurrent deferred tax asset............................. 394 --
Other assets.............................................. -- 7,895
Current liabilities....................................... (40,023) (23,126)
Noncurrent deferred tax liability......................... -- (3,397)
Other liabilities......................................... (33,500) --
--------------------------------
Net (liabilities) assets of discontinued operations....... $ (72,405) $ 30,591
================================
</TABLE>
<PAGE>
10. Stock Split
On June 15, 1999, following the approval by the Company's shareholders of
an increase in the authorized Circuit City Group Common Stock, the board of
directors declared a two-for-one split of the outstanding Circuit City
Group Common Stock. Circuit City Group stockholders of record at the close
of business on June 30, 1999, were entitled to participate in the stock
split, which was payable in the form of a 100 percent stock dividend. The
distribution date was July 15, 1999. The share, earnings per share and
dividends per share calculations included in the accompanying consolidated
financial statements reflect the Circuit City Group two-for-one stock
split.
11. Reclassifications
The Company has reclassified its prior-year financial statements to present
the operating results of Divx as a discontinued operation.
Page 11 of 39
ITEM 2.
CIRCUIT CITY STORES, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Net Sales and Operating Revenues and General Comments
Sales for the third quarter of fiscal 2000 were $2.98 billion, an increase of 14
percent from $2.62 billion for the same period last year. For the nine months
ended November 30, 1999, total sales were $8.63 billion, a 17 percent increase
from $7.41 billion for the same period last year. Throughout the fiscal year,
the Circuit City Group has seen strong demand for better-featured products and
newer technologies, especially in big-screen televisions, including digital;
DIRECTV; DVD; and wireless. In addition to the strong product demand, the
Circuit City Group's total sales growth includes continued expansion of its
Superstore in new and existing markets. The CarMax Group produced positive
comparable store sales increases throughout the quarter and its integrated
new-car franchises continued to generate market-leading results for their
brands. The addition of 12 store locations since the third quarter of last
fiscal year and additional new-car franchises produced the majority of the
CarMax Group total sales increase.
For Circuit City, home office was the fastest growing of the major product
categories in the third quarter, although, growth in that category moderated
late in the quarter. Management believes that the lack of an instant, in-store
rebate offer on Internet Service Provider sign ups contributed to the moderation
in home office sales. However, sales of better-featured products and newer
technologies exceeded management's expectations as they have throughout much of
the year. As a result, overall comparable store sales growth was consistent with
expectations for the quarter and earnings growth exceeded expectations.
In December, Circuit City introduced a CompuServe 2000 Premier Internet offer.
With this offer, Circuit City customers immediately receive a $400 Circuit City
Merchandise Card when they sign a three-year contract for CompuServe service. As
a result, home office sales were again in line with management's expectations in
December.
Early in the fourth quarter, Circuit City announced several significant
marketing initiatives. These initiatives include a strategic alliance with
America Online, Inc. to provide in-store promotion of AOL products and services
and to increase Circuit City's presence on the Internet by featuring the company
as an anchor tenant on key Shop@ online destinations on several America Online,
Inc. brands. In addition, Circuit City and Sony Electronics announced plans to
co-promote Memory Stick(R) media and hardware. Memory Stick is an ultra-small,
high-capacity durable media designed to link a family of digital products by
capturing and sharing digital content, including images, text or music files. In
January, Circuit City announced that it will increase in-store access to its web
site. Full access will be available through the AOL displays and access to web
store inventory will be available through every point-of-sale terminal in the
store. Circuit City expects all three of these initiatives to be available in
stores by June 2000.
<PAGE>
Comparable store sales changes for the third quarter and first nine months of
fiscal years 2000 and 1999 were as follows:
<TABLE>
<S> <C>
=================================================================================================================
FY 00 3rd Quarter Nine Months
- -----------------------------------------------------------------------------------------------------------------
SEPT OCT NOV FY 00 FY 99 FY 00 FY 99
- --------------------- ------------- ------------ ------------ ------------ ------------ ------------ ------------
Circuit City Group 6% 8% 2% 5% 9% 8% 6%
- --------------------- ------------- ------------ ------------ ------------ ------------ ------------ ------------
CarMax Group 2% 4% 3% 3% (4%) (2%) (2%)
=================================================================================================================
</TABLE>
During the quarter, Circuit City opened 20 Superstores, including replacements
of two consumer electronics-only stores in the Charleston/Huntington, W. Va.,
market, and one Superstore in the Washington, D.C., market. The Company entered
Bangor, Me., and added four Superstores in the New York metropolitan market and
one store in each of the following markets: Abilene, Texas;
Texarkana/Shreveport, La.; Tupelo, Miss.; Erie, Pa.; Tuscaloosa, Ala.; Los
Angeles, Calif.; Orlando, Fla.; Wheeling, W. Va.; Fort Myers, Fla.;
Page 12 of 39
Paducah, Ky.; Raleigh, N.C.; and Denver, Colo. Circuit City plans to open an
additional Superstore in the Rochester, N.Y., market during the remainder of the
fiscal year.
During the quarter, CarMax opened one used-car superstore in Duarte, Calif. In
addition, Mitsubishi Motor Sales of America, Inc. granted CarMax a new franchise
point, giving CarMax five Mitsubishi franchises. The new franchise is located in
Los Angeles, contiguous to CarMax's existing Chrysler-Plymouth-Jeep and
Dodge-Dodge Truck dealerships. During the remainder of the fiscal year, the
CarMax Group anticipates opening an additional satellite location in each of the
Houston and Dallas markets as well as a new facility for its Laurel Toyota
franchise adjacent to the Laurel, Md., superstore.
For the Circuit City Group, gross dollar sales from all extended warranty
programs were 5.5 percent of sales in the third quarter of fiscal 2000 and 5.4
percent of sales in the third quarter of fiscal 1999. Third-party warranty
revenue increased to 4.3 percent of sales in this year's third quarter from 4.2
percent in the same period last year. The total extended warranty revenue that
is reported in total sales was 4.5 percent of sales in this year's third quarter
versus 4.7 percent in the third quarter of last fiscal year.
For the CarMax Group, gross dollar sales from all extended warranty programs
were 3.5 percent of sales in the third quarter of fiscal 2000 compared with 4.5
percent in the same period last year. The increase in sales of new vehicles,
which already include manufacturer-provided warranties and thus carry lower
warranty penetration rates, contributed to the decline. Third-party warranty
revenue decreased to 1.5 percent of sales in this year's third quarter from 2.0
percent in the same period last year. The total extended warranty revenue that
is reported in total sales was 1.5 percent of sales in this year's third quarter
versus 2.1 percent in last year's third quarter.
The Company's operations, in common with other retailers in general, are subject
to seasonal influences. Historically, the Circuit City Group has realized more
of its net sales and net earnings in the final fiscal quarter, which includes
the December holiday selling season, than in any other fiscal quarter. CarMax
stores, however, have experienced more of their net sales in the first two
quarters of the fiscal year. The net earnings of any interim quarter are
seasonally disproportionate to net sales since administrative and certain
operating expenses remain relatively constant during the year. Therefore,
interim results should not be relied upon as necessarily indicative of results
for the entire fiscal year.
Cost of Sales, Buying and Warehousing
The gross profit margin was 22.5 percent of sales in the third quarter of fiscal
2000 compared with 22.7 percent in the same period last year. For the nine
months ended November 30, 1999, the gross profit margin was 22.5 percent
compared with 22.6 for the same period last year.
For the Circuit City Group, the gross profit margin increased to 24.8 percent of
sales in the third quarter from 24.4 percent in the same period last year. For
the nine months ended November 30, 1999, the gross profit margin was 24.8
percent compared with 24.5 percent for the same period last year. Growing sales
of better-featured products and newer technologies helped generate the improved
margin.
For the CarMax Group, the gross profit margin decreased to 10.8 percent of sales
in the third quarter of fiscal 2000 from 11.5 percent for the same period last
year. The decrease primarily reflects the significant increase in new vehicles,
which yield lower margins, as a percentage of total vehicle sales. For the nine
months ended November 30, 1999, the gross profit margin was 11.8 percent
compared with 11.5 percent for the same period last year.
Selling, General and Administrative Expenses
The Company's selling, general and administrative expense ratio was 19.5 percent
in the third quarter of fiscal 2000 compared with 20.5 percent for the same
period last year. For the nine-month period ended November 30, 1999, the
Company's selling, general, and administrative expense ratio was 19.2 percent
compared with 20.2 percent for the same period last year.
Page 13 of 39
For the Circuit City Group, the selling, general and administrative expense
ratio was 21.1 percent of sales in the third quarter of fiscal 2000 compared
with 21.4 percent for the same period last year. For the nine-month period ended
November 30, 1999, the expense ratio was 20.9 percent compared with 21.4 percent
for the same period last year. The leverage resulting from comparable store
sales growth produced the improvement in the expense ratio.
The CarMax Group's selling, general and administrative expense ratio improved to
11.2 percent of sales in the third quarter of fiscal 2000 compared with 14.5
percent of sales for the same period last year. For the nine-month period ended
November 30, 1999, the expense ratio was 11.0 percent compared with 13.2 percent
for the same period last year. Expense leverage generated by the total sales
increase and effective cost controls resulted in the year-over-year improvements
in the expense ratio.
Interest Expense
Interest expense was 0.2 percent of sales in the third quarter of fiscal 2000,
compared with 0.3 percent for the same period last year. For the nine-month
period ended November 30, 1999, interest expense decreased to 0.2 percent of
sales compared with 0.3 percent of sales for the same period last year.
For the Circuit City Group, interest expense decreased to 0.2 percent of sales
in the third quarter of fiscal 2000 compared with 0.3 percent of sales for the
same period last year. For the nine-month period ended November 30, 1999,
interest expense decreased to 0.2 percent of sales compared with 0.3 percent of
sales for the same period last year.
For the CarMax Group, interest expense increased to 0.6 percent of sales in the
third quarter of fiscal 2000 compared with 0.5 percent of sales for the same
period last year. For the nine-month period ended November 30, 1999, interest
expense increased to 0.5 percent of sales compared with 0.3 percent of sales for
the same period last year. The increase is a result of the rise in CarMax's
allocation of pooled debt to fund business expansion and working capital.
Earnings from Continuing Operations
Earnings from continuing operations for Circuit City Stores, Inc. were $51.6
million in this year's third quarter compared with $31.0 million in last year's
third quarter. For the nine-month period ended November 30, 1999, earnings from
continuing operations for Circuit City Stores, Inc. were $168.1 million compared
with $94.7 million for the same period last year.
For the Circuit City Group, earnings from continuing operations for the quarter
ended November 30, 1999, increased 60 percent to $52.3 million from $32.7
million in the same period last year. Earnings from continuing operations for
the nine months ended November 30, 1999, increased 71 percent to $167.4 million
from $97.8 million in the same period last year. Management expects full-year
earnings growth for the Circuit City business of at least 30 percent.
For the third quarter, the CarMax Group reported a loss from continuing
operations of $3.1 million versus $7.3 million for the same period last year.
The net earnings for the nine-month period ended November 30, 1999, were $2.8
million compared with a loss of $13.5 million for the same period last year. For
the third quarter, the net loss attributed to the CarMax Group stock was
$757,000, compared with $1.7 million for the same period last year. For the
nine-month period ended November 30, 1999, the earnings attributed to the CarMax
Group stock were $664,000, compared with a loss attributed to the CarMax Group
stock of $3.1 million for the same period last year. CarMax's year-to-date
performance reinforces management's expectation for an improved full-year
performance in the modest loss to break-even range.
Loss from Discontinued Operations
On June 16, 1999, Digital Video Express announced that it would cease marketing
the Divx home video system and discontinue operations, but existing, registered
customers would be able to view discs during a two-year phase-out period. The
operating results of Divx and the loss on disposal of the Divx business have
Page 14 of 39
<PAGE>
been segregated from continuing operations and reported as separate line items,
after tax, on the consolidated and the Circuit City Group statements of
operations for the periods presented.
For the quarter ended November 30, 1999, the discontinued Divx operations had no
impact on the earnings of Circuit City Stores, Inc. Results for the third
quarter of last year include a loss of $16.8 million after an income tax benefit
of $10.3 million related to the Divx operations. For the nine months ended
November 30, 1999, the loss from the discontinued Divx operations totaled $16.2
million after an income tax benefit of $9.9 million, compared with $36.5 million
after an income tax benefit of $22.5 million in the prior year. In the
nine-month period ended November 30, 1999, the loss on the disposal of the Divx
business totaled $114.0 million after an income tax benefit of $69.9 million.
The loss on the disposal includes a provision of $3.0 million, after tax, for
operating losses to be incurred during the phase-out period. It also includes
provisions for commitments under licensing agreements with motion picture
distributors, the write-down of assets to net realizable value, lease
termination cost, employee severance and benefit costs and other contractual
commitments.
Net Earnings
Net earnings for Circuit City Stores, Inc. were $51.6 million in this year's
third quarter compared with $14.2 million in last year's third quarter. For the
nine-month period ended November 30, 1999, the net earnings for Circuit City
Stores, Inc. were $37.8 million compared with $58.2 million for the same period
last year.
Liquidity and Capital Resources
Total assets at November 30, 1999, were $4.25 billion, an increase of $802.4
million, or 23 percent, from $3.45 billion at February 28, 1999. Inventory
increased $868.1 million from the end of fiscal 1999 to support anticipated
sales growth and new stores for both the Circuit City Group and the CarMax
Group. To support store construction and the purchase of inventory, accounts
payable have increased $410.1 million from the end of fiscal 1999.
During the first nine months of the fiscal year, $175 million of long-term debt
due in May 2000 was reclassified to short-term debt. While the Company has the
ability to refinance this amount, the current intention is to pay the debt using
existing working capital.
The Circuit City Group's finance operation has a master trust securitization
facility for its private-label card that allows the transfer of receivables
through private placement and the public market. The master trust vehicle
permits further expansion of the securitization program to meet future needs. As
of November 30, 1999, the master trust program had a total program capacity of
$1.44 billion. The Circuit City Group's finance operation also has a master
trust securitization facility related to its bankcard program. This master trust
vehicle permits further expansion of the securitization program in both the
public and private markets. As of November 30, 1999, the bankcard master trust
program had a total program capacity of $1.75 billion. As of November 30, 1999,
the Company's asset securitization program, operated through a special purpose
subsidiary on behalf of the CarMax Group, allowed for the transfer of up to $500
million in auto loan receivables. During the quarter, the Company formed an
owner trust securitization facility which allowed for a $644.0 million
securitization of auto loan receivables in the public market. To meet future
needs, the Company anticipates that it will be able to continue to expand its
securitization programs through private placement and the public market.
The Company expects to continue its existing long-term capitalization strategy
for the balance of the current fiscal year. Management anticipates that capital
expenditures will be funded through a combination of internally generated funds,
sale-leaseback transactions, operating leases and proceeds of equity issuances.
Securitization transactions will be used to finance growth in credit card and
auto loan receivables. In late fiscal 1999, management established a CarMax
inventory financing program that is renewable annually; however, as of November
30, 1999, CarMax had not yet used this program.
At November 30, 1999, the Company maintained $365 million in seasonal lines that
are renewed annually with various banks, as well as a $150 million revolving
credit facility.
Page 15 of 39
Market Risk
The Company manages the private-label and bankcard revolving loan portfolios of
the Circuit City Group's finance operation and the installment loan portfolio of
the CarMax Group's finance operation. Portions of these portfolios are
securitized and, therefore, are not presented on the Company's balance sheet.
Interest rate exposure relating to these receivables represents a market risk
exposure that the Company has managed with matched funding and interest rate
swaps.
As of November 30, 1999, the Circuit City Group's private-label and bankcard
portfolios had not changed significantly since February 28, 1999. However, as a
result of CarMax's growth, that Group's auto installment loan portfolio had
increased.
Total principal outstanding for fixed-rate automobile loans at November 30 and
February 28, 1999, was as follows:
(Amounts in millions) November 30 February 28
- ----------------------------------------------------------------------------
Fixed APR.............................. $ 849 $ 592
Financing for these receivables is achieved through bank conduit securitizations
that, in turn, issue floating-rate securities. Interest rate exposure is hedged
through the use of interest rate swaps matched to projected payoffs. Receivables
held by the Company for investment or sale are financed with working capital.
Financings at November 30 and February 28, 1999, were as follows:
(Amounts in millions) November 30 February 28
- ----------------------------------------------------------------------------
Fixed-rate securitizations............. $ 600 $ --
Floating-rate securitizations
synthetically altered to fixed...... 153 500
Floating-rate securitizations.......... 55 39
Held by the Company:
For investment...................... 14 38
For sale............................ 27 15
-------------------------------
Total ................................ $ 849 $ 592
===============================
Because the Company has programs in place to manage interest rate exposure
relating to the consumer loan portfolios, the Company expects to experience
relatively little impact as interest rates fluctuate in the future.
Year 2000
The following disclosure is a Year 2000 readiness disclosure statement pursuant
to the Year 2000 Readiness Disclosure Act. The Year 2000 issue arises because
many computer programs use two digits rather than four to define the applicable
year. Using two digits to define dates on or after January 1, 2000, could result
in system failures or miscalculations that could cause disruption of operations
including, among other things, a temporary inability to process transactions,
send invoices or engage in similar normal business activities. In addition to
computer systems, any equipment with embedded systems that involved
date-sensitive functions was at risk if two digits were used rather than four.
Embedded systems are specialized microchips used to control, monitor or assist
the operation of electrical equipment.
In fiscal 1997, the Company began a Year 2000 date conversion project to address
necessary code changes, testing and implementation for its systems. This project
included internally developed information technology systems, purchased and
leased software and hardware, embedded systems and electronic data interchange
transaction processing. The Company employed both internal and external
resources to reprogram or replace and test the software for Year 2000
modifications. As of January 13, 2000, the Company has not experienced any
material adverse consequences associated with the Year 2000 date change. The
Company will continue to monitor its systems and operations until it is
reasonably assured that no significant business interruptions will occur as a
result of the Year 2000 date change.
Page 16 of 39
As part of its Year 2000 project, the Company also identified its key
third-party operational business partners and has coordinated with them to
address potential Year 2000 issues. Year 2000 questionnaires were sent to these
entities to monitor their progress and to minimize any adverse consequences that
might result to the operation of Circuit City's business if such an entity were
not Year 2000 functional. Responses were received from virtually all of these
partners with no major potential problems identified. In addition, risks and
business impacts were assigned to the vendor products and services believed to
be significant to the Company's operations. Contingency plans were developed by
the business areas for products and services believed to be at high or medium
Year 2000 risk. As of January 13, 2000, the Company has not experienced any
material adverse consequences related to its key third-party business partners
due to the Year 2000 date change. The Company will continue to monitor the
operations of these business partners until it is reasonably assured that no
significant business interruptions will occur as a result of the Year 2000 date
change.
<PAGE>
Since the project began, the Company has expensed $16.4 million in project
costs, including $3.2 million in fiscal 2000. These costs are in addition to the
normal budget for information systems and are being funded through operating
cash flows. The CarMax computer systems were developed in recent years, and have
not required significant remediation. Therefore, the CarMax Group did not incur
any material costs related to the Year 2000 issue.
If the Company's remediation efforts or the remediation efforts of third parties
fail, possible consequences include, but are not limited to, delays in receipt
of inventory, inability to process transactions, send purchase orders or engage
in similar normal business activities. The Company's contingency plans include
performing certain processes manually while working to assess and correct any
errors in the current systems and possibly changing suppliers. These plans are
intended to enable the Company to continue to operate even if a degree of
business interruption occurs due to the Year 2000 date change. However, the
Company believes that due to the widespread nature of potential Year 2000
issues, the contingency planning process is an ongoing one that may require
further modifications as the Company obtains additional information.
Year 2000 issues presented a number of risks that were beyond the Company's
reasonable control, such as the failure of utility companies to deliver
electricity, the failure of telecommunications companies to provide voice and
data services, the failure of financial institutions to process transactions and
transfer funds, and the collateral effects on the Company of the effects of Year
2000 issues on the economy in general or on the Company's business partners and
customers. Thus far, the Company has not identified any material adverse
consequences associated with the Year 2000 date change. The Company believes
that its Year 2000 program was designed to appropriately identify and address
those Year 2000 issues that are subject to the Company's reasonable control;
however, the Company can make no assurance that its efforts will be fully
effective or that the Year 2000 issues will not have a material adverse effect
on the Company's business, financial condition or results of operations.
Regarding products sold by the Circuit City stores, the Company believes that
the vendors who supply products to Circuit City for resale are solely
responsible for the Year 2000 functionality of those products. Circuit City
encouraged its merchandise vendors to disclose any potential effect that the
Year 2000 change might have on their products. Circuit City also encouraged, and
continues to encourage, its customers by way of in-store notices and its Y2K
discussion on its Internet site to contact the manufacturers directly for
specific, up-to-date information on individual products. To the extent that the
Company becomes involved in any consumer initiated Y2K-related litigation, it
may benefit from the "Y2K Act" signed into law by the President of the United
States in July 1999. The Act contains several provisions that should reduce the
potential exposure of retailers to costs associated with involvement in any such
litigation.
Forward-Looking Statements
This report contains forward-looking statements, which are subject to risks and
uncertainties, including, but not limited to, risks associated with the
development of new businesses and risks associated with Year 2000 issues.
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, including the Company's report on
Form 10-K for the year ended February 28, 1999.
Page 17 of 39
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CIRCUIT CITY STORES, INC. - CIRCUIT CITY GROUP
Balance Sheets
(Amounts in thousands)
<TABLE>
<S> <C>
Nov. 30, 1999 Feb. 28, 1999
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 68,858 $ 248,201
Net accounts receivable 520,577 476,952
Merchandise inventory 2,105,660 1,292,215
Prepaid expenses and other current assets 79,883 36,024
-------------- -------------
Total current assets 2,774,978 2,053,392
Property and equipment, net 779,965 801,827
Inter-Group Interest in the CarMax Group 262,834 260,758
Other assets 8,388 18,849
-------------- -------------
TOTAL ASSETS $ 3,826,165 $ 3,134,826
============== =============
LIABILITIES AND GROUP EQUITY
Current liabilities:
Current installments of long-term debt $ 118,035 $ 1,457
Accounts payable 1,148,063 739,895
Short-term debt 189,998 3,411
Accrued expenses and other current liabilities 124,284 135,029
Deferred income taxes 38,650 2,090
-------------- -------------
Total current liabilities 1,619,030 881,882
Long-term debt, excluding current installments 169,673 286,865
Deferred revenue and other liabilities 113,977 107,070
Deferred income taxes 25,493 33,536
-------------- -------------
TOTAL LIABILITIES 1,928,173 1,309,353
GROUP EQUITY 1,897,992 1,825,473
-------------- -------------
TOTAL LIABILITIES AND GROUP EQUITY $ 3,826,165 $ 3,134,826
============== =============
See accompanying notes to Group financial statements.
Page 18 of 39
<PAGE>
CIRCUIT CITY STORES, INC. - CIRCUIT CITY GROUP
Statements of Earnings (Unaudited)
(Amounts in thousands except per share data)
Three Months Ended Nine Months Ended
November 30, November 30,
1999 1998 1999 1998
----------- ----------- ----------- -----------
Net sales and operating revenues $ 2,495,649 $ 2,272,258 $ 7,123,235 $ 6,314,752
Cost of sales, buying and warehousing 1,877,467 1,718,870 5,359,819 4,769,730
----------- ----------- ----------- -----------
Gross profit 618,182 553,388 1,763,416 1,545,022
----------- ----------- ----------- -----------
Selling, general and administrative expenses 526,237 485,430 1,486,909 1,352,124
Interest expense 3,696 5,925 9,960 18,005
----------- ----------- ----------- -----------
Total expenses 529,933 491,355 1,496,869 1,370,129
----------- ----------- ----------- -----------
Earnings from continuing operations before
income taxes and the Inter-Group
Interest in the CarMax Group 88,249 62,033 266,547 174,893
Provision for income taxes 33,535 23,693 101,288 66,682
----------- ----------- ----------- -----------
Earnings from continuing operations
before Inter-Group Interest in the
CarMax Group 54,714 38,340 165,259 108,211
Net (loss) earnings related to the Inter-
Group Interest in the CarMax Group (2,379) (5,630) 2,166 (10,389)
----------- ------------ ----------- -----------
Earnings from continuing operations 52,335 32,710 167,425 97,822
----------- ----------- ----------- -----------
Discontinued operations:
Loss from discontinued operations of Divx,
less income tax benefit -- (16,765) (16,215) (36,461)
Loss on disposal of Divx, including
provision for losses during phase-out
period, less income tax benefit -- -- (114,025) --
----------- ----------- ----------- -----------
Loss from discontinued operations -- (16,765) (130,240) (36,461)
----------- ----------- ----------- -----------
Net earnings $ 52,335 $ 15,945 $ 37,185 $ 61,361
=========== =========== =========== ===========
Weighted average common shares:
Basic: 201,610 198,616 201,128 198,060
=========== =========== =========== ===========
Diluted: 204,525 200,721 204,180 200,486
=========== =========== =========== ===========
Net earnings (loss) per share:
Basic:
Continuing operations $ 0.26 $ 0.16 $ 0.83 $ 0.49
=========== =========== =========== ==========
Discontinued operations $ -- $ (0.08) $ (0.65) $ (0.18)
=========== =========== =========== ==========
Net earnings $ 0.26 $ 0.08 $ 0.18 $ 0.31
=========== =========== =========== ==========
Diluted:
Continuing operations $ 0.26 $ 0.16 $ 0.82 $ 0.49
=========== =========== =========== ==========
Discontinued operations $ -- $ (0.08) $ (0.64) $ (0.18)
=========== =========== =========== ==========
Net earnings $ 0.26 $ 0.08 $ 0.18 $ 0.31
=========== =========== =========== ==========
Dividends paid per common share $ 0.0175 $ 0.0175 $ 0.0525 $ 0.0525
=========== =========== =========== ==========
See accompanying notes to Group financial statements.
Page 19 of 39
<PAGE>
CIRCUIT CITY STORES, INC. - CIRCUIT CITY GROUP
Statements of Cash Flows (Unaudited)
(Amounts in thousands)
Nine Months Ended
November 30,
1999 1998
-------------- -------------
Operating Activities:
Net earnings $ 37,185 $ 61,361
Adjustments to reconcile net earnings to net cash
used in operating activities of continuing operations:
Loss from discontinued operations 16,215 36,461
Loss on disposal of discontinued operations 114,025 --
Net (earnings) loss related to Inter-Group Interest
in the CarMax Group (2,166) 10,389
Depreciation and amortization 95,429 90,900
(Gain) loss on sales of property and equipment (157) 1,412
Provision for deferred income taxes 32,307 8,991
Decrease in deferred revenue and other liabilities (26,593) (12,375)
(Increase) decrease in net accounts receivable (43,596) 4,957
Increase in merchandise inventory (844,701) (755,592)
Decrease (increase) in prepaid expenses and other current assets 15,552 (25,321)
Decrease in other assets 4,226 1,859
Increase in accounts payable, accrued expenses
and other current liabilities 380,527 348,373
-------------- -------------
Net cash used in operating activities of continuing operations (221,747) (228,585)
-------------- -------------
Investing Activities:
Purchases of property and equipment (144,227) (162,537)
Proceeds from sales of property and equipment 52,758 80,958
-------------- -------------
Net cash used in investing activities of continuing operations (91,469) (81,579)
-------------- -------------
Financing Activities:
Increase in allocated short-term debt, net 186,587 391,287
Decrease in allocated long-term debt, net (614) (31,040)
Equity issuances, net 46,070 31,916
Dividends paid (10,646) (10,467)
-------------- -------------
Net cash provided by financing activities of continuing operations 221,397 381,696
-------------- -------------
Cash used in discontinued operations (87,524) (49,354)
-------------- -------------
(Decrease) increase in cash and cash equivalents (179,343) 22,178
Cash and cash equivalents at beginning of year 248,201 90,200
-------------- -------------
Cash and cash equivalents at end of period $ 68,858 $ 112,378
============== =============
</TABLE>
See accompanying notes to Group financial statements.
Page 20 of 39
<PAGE>
CIRCUIT CITY STORES, INC. - CIRCUIT CITY GROUP
Notes to Group Financial Statements
1. Basis of Presentation
The Company, which is comprised of Circuit City Stores, Inc. and its
subsidiaries, has two series of common stock - the Circuit City Group Stock
and the CarMax Group Stock. The Circuit City Group Common Stock is intended
to track the performance of the Circuit City store-related operations, the
Group's retained interest in the CarMax Group, and the Company's investment
in Digital Video Express, which is discontinued (see Note 8). The CarMax
Group Common Stock is intended to track the performance of the CarMax
operations. The Circuit City Group held a 75.8 percent interest in the
CarMax Group at November 30, 1999, a 76.6 percent interest at February 28,
1999, and a 76.8 percent interest at November 30, 1998.
Notwithstanding the attribution of the Company's assets and liabilities,
including contingent liabilities, and stockholders' equity between the
Circuit City Group and the CarMax Group for the purposes of preparing their
financial statements, holders of Circuit City Stock and holders of CarMax
Stock are shareholders of the Company and are subject to all of the risks
associated with an investment in the Company and all of its businesses,
assets and liabilities. Such attribution does not affect title to the
assets or responsibility for the liabilities of the Company or any of its
subsidiaries. The results of operations or financial condition of one Group
could affect the results of operations or financial condition of the other
Group. Accordingly, the Company's consolidated financial statements
included herein should be read in conjunction with the financial statements
of each Group and with the notes to the consolidated and Group financial
statements included herein and in the Company's 1999 annual report to
shareholders.
2. Accounting Policies
The Circuit City Group has accounted for its interest in the CarMax Group
in a manner similar to the equity method of accounting. Generally accepted
accounting principles reuire that the CarMax Group be consolidated with the
Circuit City Group. Except for the effects of not consolidating the Circuit
City Group and the CarMax Group, the financial statements of the Circuit
City Group conform to generally accepted accounting principles. The interim
period financial statements are unaudited; however, in the opinion of
management, all adjustments necessary for a fair presentation of the
interim consolidated financial statements have been included. The fiscal
year-end balance sheet data was derived from audited financial statements.
3. Accounting for the Costs of Start-Up Activities
Effective March 1, 1999, the Circuit City Group adopted the American
Institute of Certified Public Accountants Statement of Position 98-5
"Reporting on the Costs of Start-Up Activities." SOP 98-5 requires costs of
start-up activities, including organization and pre-opening costs, to be
expensed as incurred. Prior to fiscal 2000, Circuit City capitalized
pre-opening costs for new store locations. Beginning in the month after the
store opened for business, the pre-opening costs were amortized over the
remainder of the fiscal year. Management has determined that SOP 98-5 does
not have a material impact on the Group's financial position, annual
results of operations or cash flows.
4. Prepaid Expenses and Other Current Assets
Income taxes receivable, which are included in prepaid expenses and other
current assets in the accompanying Group balance sheets, were $56,390,000
at November 30, 1999, and $7,143,000 at February 28, 1999.
Page 21 of 39
<PAGE>
5. Net Earnings (Loss) per Share
Reconciliations of the numerator and denominator of basic and diluted net
earnings (loss) per share are presented below:
<TABLE>
<S> <C>
Three Months Ended Nine Months Ended
(Amounts in thousands November 30, November 30,
except per share data) 1999 1998 1999 1998
----------------------------------------------------------------------------------------------------------------
Weighted average common shares................... 201,610 198,616 201,128 198,060
Dilutive potential common shares:
Options....................................... 2,092 994 2,216 1,632
Restricted stock.............................. 823 1,111 836 794
--------------------------- ---------------------------
Weighted average common shares and
dilutive potential common shares.............. 204,525 200,721 204,180 200,486
=========================== ===========================
Income from continuing operations................ $ 52,335 $ 32,710 $ 167,425 $ 97,822
Loss from discontinued operations................ -- (16,765) (130,240) (36,461)
--------------------------- ---------------------------
Income available to common shareholders.......... $ 52,335 $ 15,945 $ 37,185 $ 61,361
=========================== ===========================
Basic net earnings (loss) per share:
Continuing operations......................... $ 0.26 $ 0.16 $ 0.83 $ 0.49
Discontinued operations....................... -- (0.08) (0.65) (0.18)
--------------------------- --------------------------
Net earnings per share........................ $ 0.26 $ 0.08 $ 0.18 $ 0.31
=========================== ==========================
Diluted net earnings (loss) per share:
Continuing operations......................... $ 0.26 $ 0.16 $ 0.82 $ 0.49
Discontinued operations....................... -- (0.08) (0.64) (0.18)
--------------------------- --------------------------
Net earnings per share........................ $ 0.26 $ 0.08 $ 0.18 $ 0.31
=========================== ==========================
</TABLE>
Certain options were not included in the computation of diluted net
earnings per share because the options' exercise prices were greater than
the average market price of the common shares. For the three-month and
nine-month periods ended November 30, 1998, options to purchase 2,000,000
shares of Circuit City Group Stock at $29.50 per share were outstanding and
not included in the calculation.
6. Gain or Loss on Securitizations
For transfers that qualify as sales, the Group recognizes gains or losses
as a component of the Group's finance operations. Amortization of
prior-period gains on securitizations for the Circuit City Group's finance
operation exceeded current-period gains by $100,000 for the third quarter
compared with a net gain of $1.2 million for the same period last fiscal
year. Amortization of prior-period gains on securitizations for the Circuit
City Group's finance operation exceeded current-period gains by $2.0
million for the nine-month period ended November 30, 1999, compared with a
net gain of $700,000 for the nine-month period ended November 30, 1998.
7. Interest Rate Swaps
In October 1994, the Company entered into five-year interest rate swap
agreements with notional amounts totaling $300 million relating to a public
issuance of securities by the master trust. These swaps terminated in
November 1999 as the related securities in the master trust matured.
Concurrent with the funding of the $175 million term loan in May 1995, the
Company entered into five-year interest rate swaps with notional amounts
aggregating $175 million. Recording the swaps at fair value would result in
a loss of $471,000 million at November 30, 1999, compared with a loss of
$2.2 million at February 28, 1999.
Page 22 of 39
8. Loss from Discontinued Operations
On June 16, 1999, Digital Video Express announced that it would cease
marketing the Divx home video system and discontinue operations, but
existing, registered customers would be able to view discs during a
two-year phase-out period. The operating results of Divx and the loss on
disposal of the Divx business have been segregated from continuing
operations and reported as separate line items, after tax, on the
consolidated and the Circuit City Group statements of operations for the
periods presented.
For the quarter ended November 30, 1999, the discontinued Divx operations
had no impact on the earnings of the Circuit City Group. Results for the
third quarter of last year include a loss of $16.8 million after an income
tax benefit of $10.3 million related to the Divx operations. For the nine
months ended November 30, 1999, the loss from the discontinued Divx
operations totaled $16.2 million after an income tax benefit of $9.9
million, compared with $36.5 million after an income tax benefit of $22.5
million in the prior year. In the nine-month period ended November 30,
1999, the loss on the disposal of the Divx business totaled $114.0 million
after an income tax benefit of $69.9 million. The loss on the disposal
includes a provision of $3.0 million, after tax, for operating losses to be
incurred during the phase-out period. It also includes provisions for
commitments under licensing agreements with motion picture distributors,
the write-down of assets to net realizable value, lease termination cost,
employee severance and benefit costs and other contractual commitments.
The net liabilities or assets of the discontinued Divx operations reflected
in the accompanying Group balance sheet as of November 30, 1999, and
February 28, 1999, are comprised of the following:
<TABLE>
<S> <C>
(Amounts in thousands) Nov. 30, 1999 Feb. 28, 1999
-------------------------------------------------------------------------------------------------
Other current assets....................................... $ 275 $ 25,630
Property and equipment, net................................ 449 23,589
Noncurrent deferred tax asset.............................. 394 --
Other assets............................................... -- 7,895
Current liabilities........................................ (40,023) (23,126)
Noncurrent deferred tax liability.......................... -- (3,397)
Other liabilities.......................................... (33,500) --
-------------------------------------
Net (liabilities) assets of discontinued operations........ $ (72,405) $ 30,591
=====================================
</TABLE>
9. Stock Split
On June 15, 1999, following the approval by the Company's shareholders of
an increase in the authorized Circuit City Group Common Stock, the board of
directors declared a two-for-one split of the outstanding Circuit City
Group Common Stock. Circuit City Group stockholders of record at the close
of business on June 30, 1999, were entitled to participate in the stock
split, which was payable in the form of a 100 percent stock dividend. The
distribution date was July 15, 1999. The share, earnings per share and
dividends per share calculations included in the accompanying consolidated
financial statements reflect the Circuit City Group two-for-one stock
split.
10. Reclassifications
The Company has reclassified its prior year financial statements to present
the operating results of Divx as a discontinued operation.
Page 23 of 39
ITEM 2.
CIRCUIT CITY GROUP MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Net Sales and Operating Revenues and General Comments
Sales for the third quarter of fiscal 2000 were $2.50 billion, an increase of 10
percent from $2.27 billion for the same period last year. For the nine months
ended November 30, 1999, total sales were $7.12 billion, an increase of 13
percent from $6.31 billion in the same period last year. Throughout the fiscal
year, the Circuit City Group has seen strong demand for better-featured products
and newer technologies, especially in big-screen televisions, including digital;
DIRECTV; DVD; and wireless. In addition to the strong product demand, Circuit
City's total sales growth includes continued expansion of its Superstore in new
and existing markets.
For Circuit City, home office was the fastest growing of the major product
categories in the third quarter, although, growth in that category moderated
late in the quarter. Management believes that the lack of an instant, in-store
rebate offer on Internet Service Provider sign ups contributed to the moderation
in home office sales. However, sales of better-featured products and newer
technologies exceeded management's expectations as they have throughout much of
the year. As a result, overall comparable store sales growth was consistent with
expectations for the quarter and earnings growth exceeded expectations.
<PAGE>
In December, Circuit City introduced a CompuServe 2000 Premier Internet offer.
With this offer, Circuit City customers immediately receive a $400 Circuit City
Merchandise Card when they sign a three-year contract for CompuServe service. As
a result, home office sales were again in line with management's expectations in
December.
Early in the fourth quarter, Circuit City announced several significant
marketing initiatives. These initiatives include a strategic alliance with
America Online, Inc. to provide in-store promotion of AOL products and services
and to increase Circuit City's presence on the Internet by featuring the company
as an anchor tenant on key Shop@ online destinations on several America Online,
Inc. brands. In addition, Circuit City and Sony Electronics announced plans to
co-promote Memory Stick(R) media and hardware. Memory Stick is an ultra-small,
high-capacity durable media designed to link a family of digital products by
capturing and sharing digital content, including images, text or music files. In
January, Circuit City announced that it will increase in-store access to its web
site. Full access will be available through the AOL displays and access to web
store inventory will be available through every point-of-sale terminal in the
store. Circuit City expects all three of these initiatives to be available in
stores by June 2000.
Circuit City's comparable store sales changes for the third quarter and first
nine months of fiscal years 2000 and 1999 were as follows:
<TABLE>
<S> <C>
=============================================================================================
FY 00 3rd Quarter Nine Months
---------------------------------------------------------------------------------------------
SEPT OCT NOV FY 00 FY 99 FY 00 FY 99
-------------- ------------ ------------- ------------ ------------ ------------ ------------
6% 8% 2% 5% 9% 8% 6%
=============================================================================================
</TABLE>
During the quarter, the Circuit City Group opened 20 Superstores, including
replacements of two consumer electronics-only stores in the
Charleston/Huntington, W. Va., market, and one Superstore in the Washington,
D.C., market. The company entered Bangor, Me., and added four Superstores in the
New York metropolitan market and one store in each of the following markets:
Abilene, Texas; Texarkana/Shreveport, La.; Tupelo, Miss.; Erie, Pa.; Tuscaloosa,
Ala.; Los Angeles, Calif.; Orlando, Fla.; Wheeling, W. Va.; Fort Myers, Fla.;
Paducah, Ky.; Raleigh, N.C.; and Denver, Colo. The Circuit City Group plans to
open an additional Superstores in the Rochester, N.Y., market during the
remainder of the fiscal year.
Page 24 of 39
The table below details Circuit City retail units:
<TABLE>
<S> <C>
=====================================================================================================
Stores Open At End of Quarter Estimate
-----------------------------------------
Nov. 30, 1999 Nov. 30, 1998 Feb. 29, 2000 Feb. 28, 1999
-----------------------------------------------------------------------------------------------------
Superstore
-----------------------------------------------------------------------------------------------------
"D" Superstore 118 118 118 118
-----------------------------------------------------------------------------------------------------
"C" Superstore 295 294 295 294
-----------------------------------------------------------------------------------------------------
"B" Superstore 101 78 102 82
-----------------------------------------------------------------------------------------------------
"A" Superstore 56 43 56 43
-----------------------------------------------------------------------------------------------------
Electronics-Only 0 4 0 2
-----------------------------------------------------------------------------------------------------
Circuit City Express 45 50 45 48
-----------------------------------------------------------------------------------------------------
TOTAL 615 587 616 587
=====================================================================================================
For the Circuit City Group, gross dollar sales from all extended warranty
programs were 5.5 percent of sales in the third quarter of fiscal 2000 and 5.4
percent of sales in the third quarter of fiscal 1999. Third-party warranty
revenue increased to 4.3 percent of sales in this year's third quarter from 4.2
percent in the same period last year. The total extended warranty revenue that
is reported in total sales was 4.5 percent of sales in this year's third quarter
versus 4.7 percent in the third quarter of last fiscal year.
<PAGE>
The percentage of merchandise sales represented by each category is listed
below:
==================================================================================================
3rd Quarter Nine Months
------------------------------------------------------------------------
Fiscal 2000 Fiscal 1999 Fiscal 2000 Fiscal 1999
--------------------------------------------------------------------------------------------------
TV 19 % 19 % 18 % 17 %
--------------------------------------------------------------------------------------------------
VCR/Camcorders 12 12 13 13
--------------------------------------------------------------------------------------------------
Audio 15 15 15 15
--------------------------------------------------------------------------------------------------
Home Office 29 28 27 27
--------------------------------------------------------------------------------------------------
Appliances 14 15 16 17
--------------------------------------------------------------------------------------------------
Other 11 11 11 11
--------------------------------------------------------------------------------------------------
TOTAL 100 % 100 % 100 % 100 %
==================================================================================================
</TABLE>
Circuit City's operations, in common with other retailers in general, are
subject to seasonal influences. Historically, the Circuit City business has
realized more of its net sales and net earnings in the final fiscal quarter,
which includes the December holiday selling season, than in any other fiscal
quarter. The net earnings of any interim quarter are seasonally disproportionate
to net sales since administrative and certain operating expenses remain
relatively constant during the year. Therefore, interim results should not be
relied upon as necessarily indicative of results for the entire fiscal year.
Cost of Sales, Buying and Warehousing
For the quarter ended November 30, 1999, the gross profit margin increased to
24.8 percent of sales from 24.4 percent in the same period last year. The gross
profit margin was 24.8 percent of sales for the first nine months of fiscal 2000
compared with 24.5 percent for the same period last year. Growing sales of new
technologies helped generate the better margin.
Selling, General and Administrative Expenses
The Group's selling, general and administrative expense ratio improved to 21.1
percent of sales in the third quarter of fiscal 2000 from 21.4 percent in the
third quarter of fiscal 1999. For the first nine months of fiscal
Page 25 of 39
2000, the expense ratio was 20.9 percent compared with 21.4 percent for the same
period last year. The leverage resulting from comparable store sales growth
contributed to the improvement in the expense ratio.
Interest Expense
Interest expense decreased to 0.2 percent of sales in the third quarter of
fiscal 2000 compared with 0.3 percent of sales for the same period last year.
For the nine months ended November 30, 1999, interest expense decreased to 0.2
percent of sales compared with 0.3 percent for the same period last year.
Earnings Before Inter-Group Interest in the CarMax Group
Excluding the retained interest in the CarMax Group, earnings from continuing
operations for the Circuit City Group for the third quarter increased 43 percent
to $54.7 million from $38.3 million for the same period last year. For the
nine-month period, earnings before the Inter-Group Interest in the CarMax Group
were $165.3 million, an increase of 53 percent from $108.2 million for the same
period last year. Excluding CarMax, the earnings per share from continuing
operations of the Circuit City Group rose 42 percent to 27 cents in the third
quarter this year compared with 19 cents for the same period last year. For the
nine-month period ended November 30, 1999, the earnings per share from
continuing operations of the Circuit City Group before the Inter-Group Interest
in the CarMax Group rose 50 percent to 81 cents compared with 54 cents for the
same period last year. Management expects full-year earnings growth for the
Circuit City business of at least 30 percent.
Net (Loss) Earnings Related to Inter-Group Interest in the CarMax Group
During the third quarter, the net loss attributed to the Circuit City Group's
Inter-Group Interest in the CarMax Group was $2.4 million compared with $5.6
million for the same period last year. For the first nine months of fiscal 2000,
net earnings attributed to the Circuit City Group's Inter-Group Interest in the
CarMax Group were $2.2 million compared with a net loss of $10.4 million for the
same period last year.
Earnings from Continuing Operations
Earnings from continuing operations for the quarter ended November 30, 1999,
increased 60 percent to $52.3 million from $32.7 million in the same period last
year. Earnings from continuing operations for the nine months ended November 30,
1999, increased 71 percent to $167.4 million from $97.8 million in the same
period last year. Earnings per share from continuing operations in the third
quarter of fiscal 2000 increased 63 percent to 26 cents from 16 cents for the
same period last year. Earnings per share from continuing operations in the
first nine months of fiscal 2000 increased 67 percent to 82 cents from 49 cents
for the same period last year.
Loss from Discontinued Operations
On June 16, 1999, Digital Video Express announced that it would cease marketing
the Divx home video system and discontinue operations, but existing, registered
customers would be able to view discs during a two-year phase-out period. The
operating results of Divx and the loss on disposal of the Divx business have
been segregated from continuing operations and reported as separate line items,
after tax, on the consolidated and the Circuit City Group statements of
operations for the periods presented.
For the quarter ended November 30, 1999, the discontinued Divx operations had no
impact on the earnings of the Circuit City Group. Results for the third quarter
of last year include a loss of $16.8 million after an income tax benefit of
$10.3 million related to the Divx operations. For the nine months ended November
30, 1999, the loss from the discontinued Divx operations totaled $16.2 million
after an income tax benefit of $9.9 million, compared with $36.5 million after
an income tax benefit of $22.5 million in the prior year. In the nine-month
period ended November 30, 1999, the loss on the disposal of the Divx business
totaled $114.0 million after an income tax benefit of $69.9 million. The loss on
the disposal includes a provision of $3.0 million, after tax, for operating
losses to be incurred during the phase-out period. It also includes provisions
for commitments
Page 26 of 39
under licensing agreements with motion picture distributors, the write-down of
assets to net realizable value, lease termination cost, employee severance and
benefit costs and other contractual commitments.
Net Earnings
Net earnings for the Circuit City Group were $52.3 million, or 26 cents per
share, in this year's third quarter compared with $15.9 million, or eight cents
per share, in last year's third quarter. For the nine-month period ended
November 30, 1999, the net earnings for the Circuit City Group were $37.2
million, or 18 cents per share, compared with $61.4 million, or 31 cents per
share, for the same period last year.
Liquidity and Capital Resources
Total assets at November 30, 1999, were $3.83 billion, an increase of $691.3
million, or 22 percent, from $3.13 billion at February 28, 1999. Merchandise
inventory increased $813.4 million from the end of fiscal 1999 to support
anticipated sales and new stores. Accounts payable have increased $408.2 million
since the end of fiscal 1999.
During the first nine months of the fiscal year, $175 million of long-term debt
due in May 2000 was reclassified to short-term debt. While the Company has the
ability to refinance this amount, the current intention is to pay the debt using
existing working capital. At November 30, 1999, $116.5 million of the debt was
allocated to the Circuit City Group.
The Circuit City Group's finance operation has a master trust securitization
facility for its private-label card that allows the transfer of receivables
through private placement and the public market. The master trust vehicle
permits further expansion of the securitization program to meet future needs. As
of November 30, 1999, the master trust program had a total program capacity of
$1.44 billion. The Circuit City Group's finance operation also has a master
trust securitization facility related to its bankcard program. This master trust
vehicle permits further expansion of the securitization program in both the
public and private markets. As of November 30, 1999, the bankcard master trust
program had a total program capacity of $1.75 billion. The Company anticipates
that it will be able to expand its securitization programs to meet future needs.
The Group relies on the Company's external debt allocated to the Circuit City
Group to provide working capital needed to fund net assets not otherwise
financed through sale-leasebacks or receivable securitizations. All significant
financial activities of the Group are managed on a centralized basis and are
dependent on the financial condition of the Company as a whole. Such financial
activities include the investment of surplus cash, issuance and repayment of
debt, securitization of receivables and sale-leasebacks of real estate. At
November 30, 1999, the Company also maintained $365 million in seasonal lines
that are renewed annually with various banks, as well as a $150 million
revolving credit facility.
Management believes that proceeds from sales of property and equipment and
receivables, future increases in the Company's debt allocated to the Circuit
City Group, proceeds of equity issuances and cash generated by operations will
be sufficient to fund the Circuit City Group's capital expenditures and
operations.
Market Risk
The Company manages the private-label and bankcard revolving loan portfolios of
the Circuit City Group's finance operation. Portions of these portfolios are
securitized and, therefore, are not presented on the Circuit City Group's
balance sheet. Interest rate exposure relating to these receivables represents a
market risk exposure that the Company has managed with matched funding and
interest rate swaps.
As of November 30, 1999, the Circuit City Group's private-label and bankcard
portfolios had not changed significantly since February 28, 1999.
Page 27 of 39
Year 2000
Refer to the "Circuit City Stores, Inc. Management's Discussion and Analysis of
Financial Condition and Results of Operations" for a discussion of the Year 2000
issue and its impact on the Circuit City Group's financial statements.
Forward-Looking Statements
This report contains forward-looking statements, which are subject to risks and
uncertainties, including, but not limited to, risks associated with the
development of new businesses and risks associated with Year 2000 issues.
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, including the Company's report on
Form 10-K for the year ended February 28, 1999.
Page 28 of 39
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CIRCUIT CITY STORES, INC. - CARMAX GROUP
Balance Sheets
(Amounts in thousands)
<TABLE>
<S> <C>
Nov. 30, 1999 Feb. 28, 1999
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 6,987 $ 17,679
Net accounts receivable 128,084 97,364
Inventory 280,160 225,460
Prepaid expenses and other current assets 3,077 620
------------ -----------
Total current assets 418,308 341,123
Property and equipment, net 227,156 203,946
Other assets 38,840 26,129
------------ -----------
TOTAL ASSETS $ 684,304 $ 571,198
============ ===========
LIABILITIES AND GROUP EQUITY
Current liabilities:
Current installments of long-term debt $ 59,750 $ 1,250
Accounts payable 61,754 59,838
Short-term debt 98,394 4,605
Accrued expenses and other current liabilities 17,354 8,556
Deferred income taxes 7,630 7,674
------------ -----------
Total current liabilities 244,882 81,923
Long-term debt, excluding current installments 80,636 139,720
Deferred revenue and other liabilities 6,489 5,015
Deferred income taxes 5,596 4,125
------------ -----------
TOTAL LIABILITIES 337,603 230,783
GROUP EQUITY 346,701 340,415
------------ -----------
TOTAL LIABILITIES AND GROUP EQUITY $ 684,304 $ 571,198
============ ===========
See accompanying notes to Group financial statements.
Page 29 of 39
<PAGE>
CIRCUIT CITY STORES, INC. - CARMAX GROUP
Statements of Operations (Unaudited)
(Amounts in thousands except per share data)
Three Months Ended Nine Months Ended
November 30, November 30,
1999 1998 1999 1998
------------ ----------- ----------- ------------
Net sales and operating revenues $ 488,958 $ 345,940 $ 1,510,748 $ 1,092,334
Cost of sales 436,230 306,180 1,332,244 966,476
------------ ----------- ------------- ------------
Gross profit 52,728 39,760 178,504 125,858
------------ ----------- ----------- ------------
Selling, general and administrative expenses 54,979 49,989 166,801 144,653
Interest expense 2,808 1,789 7,138 3,354
------------ ----------- ----------- ------------
Total expenses 57,787 51,778 173,939 148,007
------------ ----------- ----------- ------------
(Loss) earnings before income taxes (5,059) (12,018) 4,565 (22,149)
Income tax (benefit) provision (1,923) (4,687) 1,735 (8,638)
------------ ----------- ----------- ------------
Net (loss) earnings $ (3,136) $ (7,331) $ 2,830 $ (13,511)
============ =========== =========== ============
Net (loss) earnings attributed to:
Circuit City Group common stock $ (2,379) $ (5,630) $ 2,166 $ (10,389)
CarMax Group common stock (757) (1,701) 664 (3,122)
------------ ----------- ----------- ------------
$ (3,136) $ (7,331) $ 2,830 $ (13,511)
============ =========== =========== ============
Weighted average common shares:
Basic 23,836 22,692 23,502 22,537
============ =========== =========== ============
Diluted 23,836 22,692 25,658 22,537
============ =========== =========== ============
Net (loss) earnings per share:
Basic $ (0.03) $ (0.07) $ 0.03 $ (0.14)
============ =========== =========== ============
Diluted $ (0.03) $ (0.07) $ 0.03 $ (0.14)
============ =========== =========== ============
Dividends paid per common share $ -- $ -- $ -- $ --
============ =========== =========== ============
See accompanying notes to Group financial statements.
Page 30 of 39
<PAGE>
CIRCUIT CITY STORES, INC. - CARMAX GROUP
Statements of Cash Flows (Unaudited)
(Amounts in thousands)
Nine Months Ended
November 30,
1999 1998
--------- ----------
Operating Activities:
Net earnings (loss) $ 2,830 $ (13,511)
Adjustments to reconcile net earnings (loss) to net
cash used in operating activities:
Depreciation and amortization 11,165 6,674
Gain on sales of property and equipment (81) --
Provision for deferred income taxes 1,427 4,987
Changes in operating assets and liabilities, net of effects
from business acquisitions:
Increase in deferred revenue and other liabilities 1,474 1,201
Increase in net accounts receivable (30,720) (38,176)
Increase in inventory (36,477) (30,340)
Increase in prepaid expenses and other current assets (2,457) (345)
Decrease (increase) in other assets 1,255 (2,289)
Increase in accounts payable, accrued expenses and other
current liabilities 10,714 6,992
----------- -------------
Net cash used in operating activities (40,870) (64,807)
----------- -------------
Investing Activities:
Cash used in business acquisitions (34,849) (7,557)
Purchases of property and equipment (40,005) (124,431)
Proceeds from sales of property and equipment 8,371 78,471
----------- -------------
Net cash used in investing activities (66,483) (53,517)
----------- -------------
Financing Activities:
Increase in allocated short-term debt, net 93,789 65,215
(Decrease) increase in allocated long-term debt, net (584) 29,997
Equity issuances, net 3,456 2,327
----------- -------------
Net cash provided by financing activities 96,661 97,539
----------- -------------
Decrease in cash and cash equivalents (10,692) (20,785)
Cash and cash equivalents at beginning of year 17,679 26,412
----------- -------------
Cash and cash equivalents at end of period $ 6,987 $ 5,627
=========== =============
</TABLE>
See accompanying notes to Group financial statements.
Page 31 of 39
<PAGE>
CIRCUIT CITY STORES, INC. - CARMAX GROUP
Notes to Group Financial Statements
1. Basis of Presentation
The Company, which is comprised of Circuit City Stores, Inc. and its
subsidiaries, has two series of common stock - the Circuit City Group Stock
and the CarMax Group Stock. The Circuit City Group Common Stock is intended
to track the performance of the Circuit City store-related operations, the
Group's retained interest in the CarMax Group and the Company's investment
in Digital Video Express, which is discontinued. The CarMax Group Common
Stock is intended to track the performance of the CarMax operations. The
Circuit City Group held a 75.8 percent interest in the CarMax Group at
November 30, 1999, a 76.6 percent interest at February 28, 1999, and a 76.8
percent interest at November 30, 1998.
Notwithstanding the attribution of the Company's assets and liabilities,
including contingent liabilities, and stockholders' equity between the
Circuit City Group and the CarMax Group for the purposes of preparing their
financial statements, holders of Circuit City Stock and holders of CarMax
Stock are shareholders of the Company and are subject to all of the risks
associated with an investment in the Company and all of its businesses,
assets and liabilities. Such attribution does not affect title to the
assets or responsibility for the liabilities of the Company or any of its
subsidiaries. The results of operations or financial condition of one Group
could affect the results of operations or financial condition of the other
Group. Accordingly, the Company's consolidated financial statements
included herein should be read in conjunction with the financial statements
of each Group and with the notes to the consolidated and Group financial
statements included herein and in the Company's 1999 annual report to
shareholders.
2. Accounting Policies
The financial statements of the CarMax Group conform to generally accepted
accounting principles. The interim period financial statements are
unaudited; however, in the opinion of management, all adjustments necessary
for a fair presentation of the interim group financial statements have been
included. The fiscal year-end balance sheet data was derived from audited
financial statements.
3. Accounting for the Costs of Start-Up Activities
Effective March 1, 1999, the Company adopted the American Institute of
Certified Public Accountants Statement of Position 98-5 "Reporting on the
Costs of Start-Up Activities." SOP 98-5 requires costs of start-up
activities, including organization and pre-opening costs, to be expensed as
incurred. Prior to fiscal 2000, CarMax capitalized pre-opening costs for
new store locations. Beginning in the month after the store opened for
business, the pre-opening costs were amortized over the remainder of the
fiscal year. Management has determined that SOP 98-5 does not have a
material impact on the Group's financial position, annual results of
operations or cash flows.
Page 32 of 39
4. Net (Loss) Earnings per Share
The calculation of net (loss) earnings per share is presented below:
<TABLE>
<S> <C>
Three Months Ended Nine Months Ended
(Amounts in thousands November 30, November 30,
except per share data) 1999 1998 1999 1998
--------------------------------------------------------------------------------------------------------------------
Weighted average common shares....................... 23,836 22,692 23,502 22,537
Dilutive potential common shares:
Options........................................... -- -- 1,981 --
Restricted stock.................................. -- -- 175 --
--------------------------- ---------------------------
Weighted average common shares and
dilutive potential common shares.................. 23,836 22,692 25,658 22,537
=========================== ===========================
(Loss) income available to common shareholders....... $ (757) $ (1,701) $ 664 $ (3,122)
Basic net (loss) earnings per share.................. $ (0.03) $ (0.07) $ 0.03 $ (0.14)
Diluted net (loss) earnings per share................ $ (0.03) $ (0.07) $ 0.03 $ (0.14)
</TABLE>
Certain options were not included in the computation of diluted net
earnings per share because the options' exercise prices were greater than
the average market price of the common shares. For the nine-month period
ended November 30, 1999, options to purchase 1,721,391 shares of CarMax
Group Stock at prices ranging from $3.91 to $16.31 per share were
outstanding and not included in the calculation.
5. Gain or Loss on Securitizations
For transfers that qualify as sales, the Group recognizes gains or losses
as a component of the Group's finance operations. Amortization of
prior-period gains on securitizations for the CarMax Group's finance
operation exceeded current-period gains by $2.6 million for the third
quarter compared with a net gain of $2.7 million for the same period last
fiscal year. The net gain on sales of receivables for the CarMax Group's
finance operation totaled $94,000 for the nine-month period ended November
30, 1999, compared with $7.5 million for the nine-month period ended
November 30, 1998.
6. Interest Rate Swaps
Concurrent with the funding of the $175 million term loan in May 1995, the
Company entered into five-year interest rate swaps with notional amounts
aggregating $175 million. Recording the swaps at fair value would result in
a loss of $471,000 at November 30, 1999, compared with a loss of $2.2
million at February 28, 1999.
On behalf of the CarMax Group, during the quarter the Company entered into
two 40-month amortizing swaps with notional amounts totaling $160 million
related to the auto loan receivable securitization. The total notional
amount of the CarMax swaps was $153 million at November 30, 1999, and $500
million at February 28, 1999. The reduction in the total notional amount of
the CarMax interest rate swaps relates to the replacement of floating rate
securitizations with a $644 million fixed-rate securitization during the
quarter. These swaps were entered into as part of the sales of receivables
and are, therefore, included in the gain or loss on sales of receivables.
Page 33 of 39
ITEM 2.
CARMAX GROUP MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Net Sales and Operating Revenues and General Comments
Total sales for the CarMax Group rose 41 percent for the quarter ended November
30, 1999, to $489.0 million from $345.9 million in last year's third quarter.
For the nine months ended November 30, 1999, total sales were $1.51 billion, an
increase of 39 percent from $1.09 billion in the same period last year. The
CarMax Group produced positive comparable store sales increases throughout the
quarter and their integrated new-car franchises continued to generate
market-leading results for their brands. The addition of 12 store locations
since the third quarter of last fiscal year and additional new-car franchises
produced the bulk of the CarMax Group total sales increase.
CarMax's comparable store sales changes for the third quarter and first nine
months of fiscal years 2000 and 1999 were as follows:
<TABLE>
<S> <C>
============================================================================================
FY 00 3rd Quarter Nine Months
--------------------------------------------------------------------------------------------
SEPT OCT NOV FY 00 FY 99 FY 00 FY 99
--------------------------------------------------------------------------------------------
2% 4% 3% 3% (4%) (2%) (2%)
--------------------------------------------------------------------------------------------
</TABLE>
During the quarter, CarMax opened one used-car superstore in Duarte, Calif. In
addition, Mitsubishi Motor Sales of America, Inc. granted CarMax a new franchise
point, giving CarMax five Mitsubishi franchises. The new franchise is located in
Los Angeles, contiguous to CarMax's existing Chrysler-Plymouth-Jeep and
Dodge-Dodge Truck dealerships. During the remainder of the fiscal year, the
CarMax Group anticipates opening an additional satellite location in each of the
Houston and Dallas markets as well as a new facility for its Laurel Toyota
franchise adjacent to the Laurel, Md., superstore.
<TABLE>
<S> <C>
<PAGE>
The table below details CarMax retail units:
===============================================================================================================================
Stores Open At End of Quarter Estimate
Nov. 30, 1999 Nov. 30, 1998 Feb. 29, 2000 Feb. 28, 1999
============================================================================================================================
"C" and "B" Stores 13 12 13 12
- ----------------------------------------------------------------------------------------------------------------------------
"A" Stores 16 13 16 15
- ----------------------------------------------------------------------------------------------------------------------------
Prototype Satellite Stores 3 0 5 2
- ----------------------------------------------------------------------------------------------------------------------------
Stand-Alone New-Car Stores 6 1 6 2
- ----------------------------------------------------------------------------------------------------------------------------
TOTAL 38 26 40 31
============================================================================================================================
The table below details CarMax franchises:
============================================================================================================================
Franchises Open At End of Quarter Estimate
Nov. 30, 1999 Nov. 30, 1998 Feb. 29, 2000 Feb. 28, 1999
============================================================================================================================
Integrated New-Car Franchises 8 2 8 6
- ----------------------------------------------------------------------------------------------------------------------------
Stand-Alone New-Car Franchises 12 1 12 10
- ----------------------------------------------------------------------------------------------------------------------------
TOTAL 20 3 20 16
============================================================================================================================
</TABLE>
For the CarMax Group, gross dollar sales from all extended warranty programs
were 3.5 percent of sales in the third quarter of fiscal 2000 compared with 4.5
percent in the same period last year. The increase in sales of new vehicles,
which already include manufacturer-provided warranties and thus carry lower
warranty penetration rates, contributed to the decline. Third-party warranty
revenue decreased to 1.5 percent of sales in
Page 34 of 39
this year's third quarter from 2.0 percent in the same period last year. The
total extended warranty revenue that is reported in total sales was 1.5 percent
of sales in this year's third quarter versus 2.1 percent in last year's third
quarter.
The percentage of vehicle sales that were used versus new vehicles was as
follows:
<TABLE>
<S> <C>
==================================================================================================
3rd Quarter Nine Months
==================================================================================================
Fiscal 2000 Fiscal 1999 Fiscal 2000 Fiscal 1999
- --------------------------------------------------------------------------------------------------
Used Vehicles 78 % 92 % 80 % 91 %
- --------------------------------------------------------------------------------------------------
New Vehicles 22 8 20 9
- --------------------------------------------------------------------------------------------------
TOTAL 100 % 100 % 100 % 100 %
==================================================================================================
</TABLE>
CarMax's operations, in common with other retailers in general, are subject to
seasonal influences. Historically, CarMax stores have experienced more of their
net sales in the first two quarters of the fiscal year. The net earnings of any
interim quarter are seasonally disproportionate to net sales since
administrative and certain operating expenses remain relatively constant during
the year. Therefore, interim results should not be relied upon as necessarily
indicative of results for the entire fiscal year.
Cost of Sales
The CarMax Group's gross profit margin decreased to 10.8 percent of sales in the
third quarter of fiscal 2000 from 11.5 percent for the same period last year.
The decrease in the margin primarily reflects the significant increase in new
vehicles as a percentage of total vehicle sales. For the nine months ended
November 30, 1999, the gross profit margin was 11.8 percent compared with 11.5
percent for the same period last year.
<PAGE>
Selling, General and Administrative Expenses
The CarMax Group's selling, general and administrative expense ratio was 11.2
percent of sales in the third quarter of fiscal 2000 compared with 14.5 percent
of sales for the same period last year. For the nine-month period ended November
30, 1999, the expense ratio was 11.0 percent of sales compared with 13.2 percent
in the same period last year. Expense leverage generated by the total sales
increase and effective cost controls resulted in the year-over-year improvements
in the expense ratio.
Interest Expense
Interest expense increased to 0.6 percent of sales in the third quarter of
fiscal 2000 compared with 0.5 percent of sales for the same period last year.
For the nine-month period ended November 30, 1999, interest expense was 0.5
percent compared with 0.3 percent for the same period last year. The increase
reflects a rise in CarMax's allocation of pooled debt to fund business expansion
and working capital.
Net (Loss) Earnings
Consistent with expectations, the CarMax Group reported a net loss of $3.1
million in this year's third quarter versus $7.3 million for the same period
last year. For the third quarter, the net loss attributed to the CarMax Group
stock was $757,000, compared with $1.7 million for the same period last year.
The net loss per share attributed to the CarMax Group Common Stock was three
cents for the third quarter of fiscal 2000 compared with seven cents for the
same period last year.
The net earnings for the nine-month period ended November 30, 1999, were $2.8
million compared with a net loss of $13.5 million for the same period last year.
For the nine-month period ended November 30, 1999, the net earnings attributed
to the CarMax Group stock were $664,000, compared with a net loss attributed to
the CarMax Group stock of $3.1 million for the same period last year. The net
earnings per share attributed to the CarMax Group were three cents for the first
nine months of fiscal 2000 compared with a net loss per share of
Page 35 of 39
14 cents for the same period last year. CarMax's year-to-date performance
reinforces management's expectation for an improved full-year performance in the
modest loss to break-even range.
Liquidity and Capital Resources
Total assets at November 30, 1999, were $684.3 million, an increase of $113.1
million, or 20 percent, from $571.2 million at February 28, 1999. Inventory
increased $54.7 million from the end of the fiscal year to support new stores
and new franchises. Net accounts receivable increased by $30.7 million since the
end of fiscal 1999, reflecting an increase in auto loans.
During the first nine months of the fiscal year, $175.0 million of long-term
debt due in May 2000 was reclassified to short-term debt. While the Company has
the ability to refinance this amount, the current intention is to pay the debt
using existing working capital. Payment of corporate debt will not necessarily
result in a reduction of CarMax Group allocated debt (see Note 1). At November
30, 1999, $58.5 million of the debt was allocated to the CarMax Group.
As of November 30, 1999, the Company's asset securitization program, operated
through a special purpose subsidiary on behalf of the CarMax Group, allowed for
the transfer of up to $500 million in auto loan receivables. During the quarter,
the Company formed an owner trust securitization facility which allowed for a
$644.0 million securitization of auto loan receivables in the public market. The
Company anticipates that it will be able to continue to expand its
securitization programs to meet future needs through private placement and the
public market.
The Group relies on the Company's external debt allocated to the CarMax Group to
fund operating deficits and to provide working capital needed to fund net assets
not otherwise financed through sale-leasebacks or receivable securitizations.
All significant financial activities of the Group are managed on a centralized
basis and are dependent on the financial condition of the Company as a whole.
Such financial activities include the investment of surplus cash, issuance and
repayment of debt, securitization of receivables, proceeds of equity offerings
and sale-leasebacks of real estate. At November 30, 1999, the Company also
maintained $365 million in seasonal lines that are renewed annually with various
banks, as well as a $150 million revolving credit facility.
In late fiscal 1999, management established a CarMax inventory financing program
that is renewable annually; however, as of November 30, 1999, CarMax had not yet
used this program. Management believes that proceeds from the sales of property
and equipment and receivables, proceeds of equity issuances, future increases in
the Company's debt allocated to the CarMax Group and cash generated by
operations will be sufficient to fund the CarMax Group's capital expenditures
and operations.
Market Risk
The Company manages the installment loan portfolio of the CarMax Group's finance
operation. Portions of this portfolio are securitized and, therefore, are not
presented on the Group's balance sheet. Interest rate exposure relating to these
receivables represents a market risk exposure that the Company has managed with
matched funding and interest rate swaps.
Total principal outstanding for fixed-rate automobile loans at November 30 and
February 28, 1999, was as follows:
(Amounts in millions) November 30 February 28
- -------------------------------------------------------------------------
Fixed APR............................. $ 849 $ 592
Financing for these receivables is achieved through bank conduit securitizations
that, in turn, issue floating-rate securities. Interest rate exposure is hedged
through the use of interest rate swaps matched to projected payoffs. Receivables
held by the Company for investment or sale are financed with working capital.
Financings at November 30 and February 28, 1999, were as follows:
Page 36 of 39
(Amounts in millions) November 30 February 28
- ------------------------------------------------------------------------
Fixed-rate securitizations............ $ 600 $ --
Floating-rate securitizations
synthetically altered to fixed..... 153 500
Floating-rate securitizations......... 55 39
Held by the Company:
For investment..................... 14 38
For sale........................... 27 15
------------------------------
Total ................................ $ 849 $ 592
==============================
Because the Company has programs in place to manage interest rate exposure
relating to its installment loan portfolio, the Company expects to experience
relatively little impact as interest rates fluctuate in the future.
Year 2000
Refer to the "Circuit City Stores, Inc. Management's Discussion and Analysis of
Financial Condition and Results of Operations" for a discussion of the Year 2000
issue and its impact on the CarMax Group's financial statements.
Forward-Looking Statements
This report contains forward-looking statements, which are subject to risks and
uncertainties, including, but not limited to, risks associated with the
development of new businesses and risks associated with Year 2000 issues.
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, including the Company's report on
Form 10-K for the year ended February 28, 1999.
Page 37 of 39
PART II. OTHER INFORMATION
Item 5. Other Information.
On December 17, 1999, Circuit City Stores, Inc. announced that W.
Alan McCollough, President and Chief Operating Officer, had been
elected to the Company's Board of Directors and will add the title
of Chief Executive Officer in June 2000, succeeding Richard L.
Sharp, who will remain Chairman of the Company's Board of
Directors.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
(3)(ii) Bylaws of the Company, as amended and restated
December 14, 1999 (filed herewith).
(27) Financial Data Schedule (filed herewith).
(b) Reports on Form 8-K
None.
Page 38 of 39
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Company
has duly caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
CIRCUIT CITY STORES, INC.
By: s/Michael T. Chalifoux
Michael T. Chalifoux
Executive Vice President,
Chief Financial Officer and
Corporate Secretary
By: s/Philip J. Dunn
Philip J. Dunn
Senior Vice President, Treasurer,
Corporate Controller and
Chief Accounting Officer
January 14, 2000
Page 39 of 39
Exhibit 3.(II)
CIRCUIT CITY STORES, INC.
BYLAWS
AS AMENDED AND RESTATED
December 14, 1999
TABLE OF CONTENTS
ARTICLE I
MEETINGS OF SHAREHOLDERS
1.1 Place and Time of Meetings...................................3
1.2 Organization and Order of Business...........................3
1.3 Annual Meeting...............................................3
1.4 Special Meetings.............................................5
1.5 Record Dates.................................................5
1.6 Notice of Meetings...........................................5
1.7 Waiver of Notice; Attendance at Meeting......................6
1.8 Quorum and Voting Requirements...............................6
1.9 Proxies......................................................7
1.10 Voting List..................................................7
ARTICLE II
DIRECTORS
2.1 General Powers...............................................8
2.2 Number and Term..............................................8
2.3 Nomination of Directors......................................8
2.4 Election.....................................................9
2.5 Removal; Vacancies...........................................9
2.6 Annual and Regular Meetings.................................10
2.7 Special Meetings............................................10
2.8 Notice of Meetings..........................................10
2.9 Waiver of Notice; Attendance at Meeting.....................10
2.10 Quorum; Voting..............................................11
2.11 Telephonic Meetings.........................................11
2.12 Action Without Meeting......................................11
2.13 Compensation................................................11
2.14 Director Emeritus...........................................12
2.15 Chairman and Vice Chairman..................................12
ARTICLE III
COMMITTEES OF DIRECTORS
3.1 Committees..................................................12
3.2 Authority of Committees.....................................12
1
3.3 Executive Committee.........................................13
3.4 Audit Committee.............................................13
3.5 Nominating and Structure Committee..........................13
3.6 Compensation and Personnel Committee........................14
3.7 Committee Meetings; Miscellaneous...........................14
ARTICLE IV
OFFICERS
4.1 Officers....................................................15
4.2 Election; Term..............................................15
4.3 Removal of Officers.........................................15
4.4 Duties of the President.....................................15
4.5 Duties of the Vice President................................15
4.6 Duties of the Secretary.....................................16
4.7 Duties of the Chief Financial Officer.......................16
4.8 Duties of the Assistant Secretary...........................16
4.9 Duties of Other Officers....................................16
4.10 Voting Securities of Other Corporations.....................16
4.11 Compensation................................................17
4.12 Bonds.......................................................17
ARTICLE V
EVIDENCE OF SHARES
5.1 Form........................................................17
5.2 Transfer....................................................18
5.3 Restrictions on Transfer....................................18
5.4 Lost or Destroyed Share Certificates........................18
5.5 Registered Shareholders.....................................18
<PAGE>
ARTICLE VI
MISCELLANEOUS PROVISIONS
6.1 Certain Definitions.........................................18
6.2 Corporate Seal..............................................19
6.3 Fiscal Year.................................................19
6.4 Amendments..................................................19
6.5 General.....................................................19
2
CIRCUIT CITY STORES, INC.
BYLAWS
ARTICLE I
MEETINGS OF SHAREHOLDERS
1.1 Place and Time of Meetings. Meetings of shareholders shall be held at
the principal office of the Corporation or at such place, either within or
without the Commonwealth of Virginia, and at such time as may be provided in the
notice of the meeting and approved by the Board of Directors.
1.2 Organization and Order of Business. The Chairman or, in the Chairman's
absence, the President shall serve as chairman at all meetings of the
shareholders. In the absence of both of the foregoing persons or if both of them
decline to serve, a majority of the shares entitled to vote at a meeting may
appoint any person entitled to vote at the meeting to act as chairman. The
Secretary or, in the Secretary's absence, an Assistant Secretary shall act as
secretary at all meetings of the shareholders. In the event that neither the
Secretary nor an Assistant Secretary is present, the chairman of the meeting may
appoint any person to act as secretary of the meeting.
The Chairman shall have the authority to make such rules and
regulations, to establish such procedures and to take such steps as he or she
may deem necessary or desirable for the proper conduct of each meeting of the
shareholders, including, without limitation, the authority to make the agenda
and to establish procedures for (i) dismissing of business not properly
presented, (ii) maintaining of order and safety, (iii) placing limitations on
the time allotted to questions or comments on the affairs of the Corporation,
(iv) placing restrictions on attendance at a meeting by persons or classes of
persons who are not shareholders or their proxies, (v) restricting entry to a
meeting after the time prescribed for the commencement thereof and (vi)
commencing, conducting and closing voting on any matter.
Any business which might properly have been conducted on an original
meeting date may come before an adjourned meeting when reconvened.
1.3 Annual Meeting. The annual meeting of shareholders shall be held on the
Tuesday in June of each year which is closest to June 16. If such day is a legal
holiday, then the annual meeting of shareholders shall be held on the next
succeeding business day. Alternatively, the annual meeting
3
may be held at such other time as may be provided in the notice of the meeting
and approved by the Board of Directors.
At each annual meeting of shareholders, only such business shall be
conducted as is proper to consider and has been brought before the meeting (i)
pursuant to the Corporation's notice of the meeting, (ii) by or at the direction
of the Board of Directors or (iii) by a shareholder who is a shareholder of
record of a class of shares entitled to vote on the business such shareholder is
proposing and who is such a shareholder of record, both at the time of the
giving of the shareholder's notice hereinafter described in this Section 1.3 and
on the record date for such annual meeting, and who complies with the notice
procedures set forth in this Section 1.3.
In order to bring before an annual meeting of shareholders any business
which may properly be considered and which a shareholder has not sought to have
included in the Corporation's proxy statement for the meeting, a shareholder who
meets the requirements set forth in the preceding paragraph must give the
Corporation timely written notice. To be timely, a shareholder's notice must be
given, either by personal delivery to the Secretary or an Assistant Secretary at
the principal office of the Corporation or by first class United States mail,
with postage thereon prepaid, addressed to the Secretary at the principal office
of the Corporation. Any such notice must be received (i) on or after February
1st and before March 1st of the year in which the meeting will be held, if
clause (ii) is not applicable, or (ii) not less than 90 days before the date of
the meeting if the date of such meeting, as prescribed in these bylaws, has been
changed by more than 30 days.
Each such shareholder's notice shall set forth as to each matter the
shareholder proposes to bring before the annual meeting (i) the name and
address, as they appear on the Corporation's stock transfer books, of the
shareholder proposing business, (ii) the class and number of shares of stock of
the Corporation beneficially owned by such shareholder, (iii) a representation
that such shareholder is a shareholder of record at the time of the giving of
the notice and intends to appear in person or by proxy at the meeting to present
the business specified in the notice, (iv) a brief description of the business
desired to be brought before the meeting, including the complete text of any
resolutions to be presented and the reasons for wanting to conduct such business
and (v) any interest which the shareholder may have in such business.
The Secretary or Assistant Secretary shall deliver each shareholder's
notice that has been timely received to the Chairman for review.
4
Notwithstanding the foregoing provisions of this Section 1.3, a shareholder
seeking to have a proposal included in the Corporation's proxy statement for an
annual meeting of shareholders shall comply with the requirements of Regulation
14A under the Securities Exchange Act of 1934, as amended from time to time, or
with any successor regulation.
1.4 Special Meetings. Special meetings of the shareholders may be called
only by the Chairman, the President or the Board of Directors. Only business
within the purpose or purposes described in the notice for a special meeting of
shareholders may be conducted at the meeting.
1.5 Record Dates. The Board of Directors shall fix, in advance, a record
date to make a determination of shareholders entitled to notice of or to vote at
any meeting of shareholders or to receive any dividend or for any purpose, such
date to be not more than 70 days before the meeting or action requiring a
determination of shareholders.
When a determination of shareholders entitled to notice of or to vote at
any meeting of shareholders has been made, such determination shall be effective
for any adjournment of the meeting unless the Board of Directors fixes a new
record date, which it shall do if the meeting is adjourned to a date more than
120 days after the date fixed for the original meeting.
1.6 Notice of Meetings. Written notice stating the place, day and hour of
each meeting of shareholders and, in the case of a special meeting, the purpose
or purposes for which the meeting is called, shall be given by mail not less
than 10 nor more than 60 days before the date of the meeting (except when a
different time is required in these Bylaws or by law) to each shareholder of
record entitled to vote at such meeting. Such notice shall be deemed to be
effective when deposited in first class United States mail with postage thereon
prepaid and addressed to the shareholder at his or her address as it appears on
the share transfer books of the Corporation.
Notice of a shareholder's meeting to act on (i) an amendment of the
Articles of Incorporation, (ii) a plan of merger or share exchange, (iii) the
sale, lease, exchange or other disposition of all or substantially all the
property of the Corporation otherwise than in the usual and regular course of
business or (iv) the dissolution of the Corporation, shall be given, in the
manner provided above, not less than 25 nor more than 60 days before the date of
the meeting. Any notice given pursuant to this section shall state that the
purpose, or one of the purposes, of the meeting is to consider such action and
shall be accompanied by (x) a copy of the proposed amendment, (y) a copy of the
proposed plan of merger or share exchange or (z) a summary of the agreement
pursuant to which the proposed transaction
5
will be effected. If only a summary of the agreement is sent to the
shareholders, the Corporation shall also send a copy of the agreement to any
shareholder who requests it.
If a meeting is adjourned to a different date, time or place, notice need
not be given if the new date, time or place is announced at the meeting before
adjournment. However, if a new record date for an adjourned meeting is fixed,
notice of the adjourned meeting shall be given to shareholders as of the new
record date unless a court provides otherwise.
Notwithstanding the foregoing, no notice of a meeting of shareholders need
be given to a shareholder if (i) an annual report and proxy statements for two
consecutive annual meetings of shareholders or (ii) all, and at least two,
checks in payment of dividends or interest on securities during a 12-month
period, have been sent by first-class United States mail, with postage thereon
prepaid, addressed to the shareholder at his or her address as it appears on the
share transfer books of the Corporation, and returned undeliverable. The
obligation of the Corporation to give notice of meetings of shareholders to any
such shareholder shall be reinstated once the Corporation has received a new
address for such shareholder for entry on its share transfer books.
1.7 Waiver of Notice; Attendance at Meeting. A shareholder may waive any
notice required by law, the Articles of Incorporation or these Bylaws before or
after the date and time of the meeting that is the subject of such notice. The
waiver shall be in writing, be signed by the shareholder entitled to the notice
and be delivered to the Secretary for inclusion in the minutes or filing with
the corporate records.
A shareholder's attendance at a meeting (i) waives objection to lack of
notice or defective notice of the meeting unless the shareholder, at the
beginning of the meeting, objects to holding the meeting or transacting business
at the meeting and (ii) waives objection to consideration of a particular matter
at the meeting that is not within the purpose or purposes described in the
meeting notice unless the shareholder objects to considering the matter when it
is presented.
1.8 Quorum and Voting Requirements. Unless otherwise required by law, a
majority of the votes entitled to be cast on a matter constitutes a quorum for
action on that matter. Once a share is represented for any purpose at a meeting,
it is deemed present for quorum purposes for the remainder of the meeting and
for any adjournment of that meeting unless a new record date is or shall be set
for that adjourned meeting. If a quorum exists, action on a matter, other than
the election of directors, is approved if the votes cast favoring the action
exceed the votes cast opposing the action unless a greater number of affirmative
6
votes is required by law. Directors shall be elected by a plurality of the votes
cast by the shares entitled to vote in the election at a meeting at which a
quorum is present. Less than a quorum may adjourn a meeting.
1.9 Proxies. A shareholder may vote his or her shares in person or by
proxy. A shareholder may appoint a proxy to vote or otherwise act for such
shareholder by signing an appointment form, either personally or by his or her
attorney-in-fact. An appointment of a proxy is effective when received by the
Secretary or other officer or agent authorized to tabulate votes and is valid
for eleven (11) months unless a longer period is expressly provided in the
appointment form. An appointment of a proxy is revocable by the shareholder
unless the appointment form conspicuously states that it is irrevocable and the
appointment is coupled with an interest.
The death or incapacity of the shareholder appointing a proxy does not
affect the right of the Corporation to accept the proxy's authority unless
notice of the death or incapacity is received by the Secretary or other officer
or agent authorized to tabulate votes before the proxy exercises his or her
authority under the appointment. An irrevocable appointment is revoked when the
interest with which it is coupled is extinguished. A transferee for value of
shares subject to an irrevocable appointment may revoke the appointment if the
transferee did not know of its existence when the shares were acquired and the
existence of the irrevocable appointment was not noted conspicuously on the
certificate representing the shares or on the information statement for shares
without certificates. Subject to any legal limitations on the right of the
Corporation to accept the vote or other action of a proxy and to any express
limitation on the proxy's authority appearing on the face of the appointment
form, the Corporation is entitled to accept the proxy's vote or other action as
that of the shareholder making the appointment. Any fiduciary who is entitled to
vote any shares may vote such shares by proxy.
1.10 Voting List. The officer or agent having charge of the share transfer
books of the Corporation shall make, at least ten days before each meeting of
shareholders, a complete list of the shareholders entitled to vote at such
meeting or any adjournment thereof, with the address of and the number of shares
held by each. For a period of ten days prior to the meeting, such list shall be
kept on file at the registered office of the Corporation or at its principal
office or at the office of its transfer agent or registrar and shall be subject
to inspection by any shareholder at any time during usual business hours. Such
list shall also be produced and kept open at the time and place of the meeting
and shall be subject to the inspection of any shareholder during the whole time
of the meeting for the purpose thereof. The original share transfer books shall
be prima facie evidence
7
as to which shareholders are entitled to examine such list or transfer books or
to vote at any meeting of the shareholders. The right of a shareholder to
inspect such list prior to the meeting shall be subject to the conditions and
limitations set forth by law. If the requirements of this section have not been
substantially complied with, the meeting shall, on the demand of any shareholder
in person or by proxy, be adjourned until such requirements are met. Refusal or
failure to prepare or make available the shareholders' list does not affect the
validity of action taken at the meeting prior to the making of any such demand,
but any action taken by the shareholders after the making of any such demand
shall be invalid and of no effect.
ARTICLE II
DIRECTORS
2.1 General Powers. The Corporation shall have a Board of Directors. All
corporate powers shall be exercised by or under the authority of, and the
business and affairs of the Corporation managed under the direction of, its
Board of Directors, and such officers and agents as the Board of Directors may
elect to employ, subject to any limitation set forth in the Articles of
Incorporation.
2.2 Number and Term. The number of directors shall be thirteen (13). This
number may be increased or decreased from time to time by amendment to these
Bylaws to the extent permitted by law and by the Corporation's Articles of
Incorporation. Except as provided in Section 2.5, directors shall be elected for
terms of three (3) years in the manner set forth in the Articles of
Incorporation and shall serve until the election of their successors. No
decrease in the number of directors shall have the effect of changing the term
of any incumbent director. Unless a director resigns or is removed by the
majority vote of the shareholders, every director shall hold office for the term
elected or until a successor to such director shall have been elected.
2.3 Nominations of Directors. Nominations for the election of directors may
be made by the Board of Directors or by any shareholder entitled to vote in the
election of directors generally. However, any shareholder entitled to vote in
the election of directors generally may nominate one or more persons for
election as directors at a meeting only if written notice of such shareholder's
intent to make such nomination or nominations has been given, either by personal
delivery or by United States mail, postage prepaid, to the Secretary of the
Corporation not later than (i) with respect to an election to be held at an
annual meeting of shareholders 120 days in advance of such meeting or (ii) with
respect to a special meeting of shareholders
8
for the election of directors, the close of business on the seventh day
following the date on which notice of such meeting is first given to
shareholders.
Each such notice shall set forth: (a) the name and address of the
shareholder who intends to make the nomination and of the person or persons to
be nominated; (b) a representation that the shareholder is a holder of record of
stock of the Corporation entitled to vote at such meeting and intends to appear
in person or by proxy at the meeting to nominate the person or persons specified
in the notice; (c) a description of all arrangements or understandings between
the shareholder and each nominee and any other person or persons (naming such
person or persons) pursuant to which the nomination or nominations are to be
made by the shareholder; (d) such other information regarding each nominee
proposed by such shareholder as would be required to be included in a proxy
statement filed pursuant to the proxy rules of the Securities and Exchange
Commission, had the nominee been nominated, or intended to be nominated, by the
Board of Directors; and (e) the consent of each nominee to serve as a director
of the Corporation if so elected. The Chairman may refuse to acknowledge the
nomination of any person not made in compliance with the foregoing procedure.
2.4 Election. Except as provided in Section 2.5, the directors shall be
elected by the holders of the common shares at each annual meeting of
shareholders or at a special meeting called for such purpose. Those persons who
receive the greatest number of votes shall be deemed elected even though they do
not receive a majority of the votes cast. No individual shall be named or
elected as a director without such individual's prior consent.
2.5 Removal; Vacancies. The shareholders may remove one or more directors
with or without cause. If a director is elected by a voting group, only the
shareholders of that voting group may elect to remove the director. Unless the
Articles of Incorporation require a greater vote, a director may be removed if
the number of votes cast to remove the director constitutes a majority of the
votes entitled to be cast at an election of directors of the voting group or
voting groups by which such director was elected. A director may be removed by
the shareholders only at a meeting called for the purpose of removing such
director and the meeting notice must state that the purpose, or one of the
purposes of the meeting, is removal of the director.
A vacancy on the Board of Directors, including a vacancy resulting from the
removal of a director or an increase in the number of directors, may be filled
by (i) the shareholders, (ii) the Board of Directors or (iii) the affirmative
vote of a majority of the remaining directors though less than a quorum of
9
the Board of Directors and may, in the case of a resignation that will become
effective at a specified later date, be filled before the vacancy occurs but the
new director may not take office until the vacancy occurs. The foregoing
notwithstanding, the aggregate number of vacancies resulting from increases in
the number of directors which may be created and filled by action of the Board
of Directors between annual meetings of shareholders shall be limited to two.
Any director elected by the Board of Directors shall serve until the next annual
meeting of shareholders or until the election of a successor to such director.
2.6 Annual and Regular Meetings. An annual meeting of the Board of
Directors, which shall be considered a regular meeting, shall be held
immediately following each annual meeting of shareholders for the purpose of
electing officers and carrying on such other business as may properly come
before the meeting. The Board of Directors may also adopt a schedule of
additional meetings which shall be considered regular meetings. Regular meetings
shall be held at such times and at such places, within or without the
Commonwealth of Virginia, as the Chairman, the President or the Board of
Directors shall designate from time to time. If no place is designated, regular
meetings shall be held at the principal office of the Corporation.
2.7 Special Meetings. Special meetings of the Board of Directors may be
called by the President, the Board of Directors or any two Directors of the
Corporation and shall be held at such times and at such places, within or
without the Commonwealth of Virginia, as the person or persons calling the
meetings shall designate. If no such place is designated in the notice of a
meeting, it shall be held at the principal office of the Corporation.
2.8 Notice of Meetings. No notice need be given of regular meetings of the
Board of Directors.
Notices of special meetings of the Board of Directors shall be given to
each director in person or delivered to his or her residence or business address
(or such other place as the director may have directed in writing) not less than
twenty-four (24) hours before the meeting by mail, messenger, telecopy,
telegraph or other means of written communication or by telephoning such notice
to the director. Any such notice shall set forth the time and place of the
meeting.
2.9 Waiver of Notice; Attendance at Meeting. A director may waive any
notice required by law, the Articles of Incorporation or these Bylaws before or
after the date and time stated in the notice and such waiver shall be equivalent
to the giving of such notice. Except as provided in the next paragraph of this
section, the waiver shall be in writing, signed by the
10
director entitled to the notice and filed with the minutes or corporate records.
A director's attendance at or participation in a meeting waives any
required notice to such director of the meeting unless the director, at the
beginning of the meeting or promptly upon arrival, objects to holding the
meeting or transacting business at the meeting and does not thereafter vote for
or assent to action taken at the meeting.
2.10 Quorum; Voting. A majority of the number of directors fixed in these
Bylaws shall constitute a quorum for the transaction of business at a meeting of
the Board of Directors. If a quorum is present when a vote is taken, the
affirmative vote of a majority of the directors present is the act of the Board
of Directors. A director who is present at a meeting of the Board of Directors
or a committee of the Board of Directors when corporate action is taken is
deemed to have assented to the action taken unless (i) the director objects, at
the beginning of the meeting or promptly upon arrival, to holding it or
transacting specified business at the meeting or (ii) the director votes against
or abstains from the action taken.
2.11 Telephonic Meetings. The Board of Directors may permit any or all
directors to participate in a regular or special meeting by, or conduct the
meeting through the use of, any means of communication by which all directors
participating may simultaneously hear each other during the meeting. A director
participating in a meeting by this means is deemed to be present in person at
the meeting.
2.12 Action Without Meeting. Action required or permitted to be taken at a
meeting of the Board of Directors may be taken without a meeting if the action
is taken by all members of the Board. The action shall be evidenced by one or
more written consents stating the action taken, signed by each director either
before or after the action is taken and included in the minutes or filed with
the corporate records. Action taken under this section shall be effective when
the last director signs the consent unless the consent specifies a different
effective date in which event the action taken is effective as of the date
specified therein provided the consent states the date of execution by each
director.
2.13 Compensation. Directors shall not receive a stated salary for their
services, but directors may be paid a fixed sum and expenses for attendance at
any regular or special meeting of the Board of Directors or any meeting of any
Committee and such other compensation as the Board of Directors shall determine.
A director may serve or be employed by the Corporation in any other capacity and
receive compensation thereafter.
11
2.14 Director Emeritus. The Board may appoint to the position of Director
Emeritus any retiring director who has served not less than three years as a
director of the Corporation. Such person so appointed shall have the title of
"Director Emeritus" and shall be entitled to receive notice of, and to attend
all meetings of the Board, but shall not in fact be a director, shall not be
entitled to vote, shall not be counted in determining a quorum of the Board and
shall not have any of the duties or liabilities of a director under law.
2.15 Chairman and Vice Chairman. The Chairman of the Board, if one is
designated by the Board of Directors, shall preside at all meetings of the Board
and of shareholders and perform such other duties as the Board shall assign from
time to time. The Vice Chairman of the Board, if one is designated by the Board
of Directors, shall at the request of or in the absence of the Chairman of the
Board, preside at meetings of the Board and of shareholders and, when requested
to do so by the Board, shall perform all of the functions of the Chairman of the
Board during the absence or incapacity of the latter.
ARTICLE III
COMMITTEES OF DIRECTORS
3.1 Committees. The Board of Directors may create one or more committees
and appoint members of the Board of Directors to serve on them. Unless otherwise
provided in these Bylaws, each committee shall have two or more members who
serve at the pleasure of the Board of Directors. The creation of a committee and
appointment of members to it shall be approved by a majority of all of the
directors in office when the action is taken.
3.2 Authority of Committees. To the extent specified by the Board of
Directors, each committee may exercise the authority of the Board of Directors,
except that a committee may not (i) approve or recommend to shareholders action
that is required by law to be approved by shareholders, (ii) fill vacancies on
the Board of Directors or on any of its committees, (iii) amend the Articles of
Incorporation, (iv) adopt, amend, or repeal these Bylaws, (v) approve a plan of
merger not requiring shareholder approval, (vi) authorize or approve a
distribution, except according to a general formula or method prescribed by the
Board of Directors or (vii) authorize or approve the issuance or sale or
contract for sale of shares, or determine the designation and relative rights,
preferences, and limitations of a class or series of shares; provided, however,
that the Board of Directors may authorize a committee, or a senior executive
officer of the Corporation, to do so within limits specifically prescribed by
the Board of Directors.
12
3.3 Executive Committee. The Board of Directors may appoint an Executive
Committee consisting of not less than two directors which committee shall have
all of the authority of the Board of Directors except to the extent such
authority is limited by the provisions of Section 3.2.
3.4 Audit Committee. The Board of Directors shall appoint each year an
Audit Committee, all of whose members shall be independent directors (as defined
in Section 6.1) and which shall perform such duties as its members consider
necessary and desirable properly to evaluate and generally to supervise the
Corporation's accounting procedures including but not limited to the following:
1. Recommend independent public accountants for the Corporation to the
Board.
2. Determine that the scope of the audit is adequate and approve the
audit fee.
3. Review audit results with the Corporation's independent public
accountants.
4. Review and approve the retention of the outside auditors to perform
non-audit services and approve the fee therefor.
5. Recommend policy for the scope, frequency, and method of internal
audit reports and review the results thereof. Develop a direct line of
communication with internal auditors, if and when such are employed.
6. Review pending lawsuits.
7. Review insurance coverage.
The Audit Committee shall have complete access to the Corporation's
independent public accountants, internal auditors, if any, and inside and
outside general counsel.
3.5 Nominating and Structure Committee. The Board of Directors shall
appoint each year a Nominating and Structure Committee, which shall be composed
of at least three members of the Board, a majority of whom shall be independent
directors (as defined in Section 6.1). The functions of this Committee shall
include the following:
1. Review the performance and contributions of existing directors for the
purpose of recommending whether they be nominated for a successive
term.
13
2. Recommend policies with regard to the size, composition and function
of the Board.
3. Suggest persons to fill vacancies on the Board and maintain files on
names submitted.
4. Assist the Chairman of the Board in carrying out an orientation
program for new directors.
5. Review and recommend to the Board changes and improvements in the
functioning of the Board.
6. Review and recommend compensation levels for non-management directors.
3.6 Compensation and Personnel Committee. The Board of Directors shall
appoint each year a Compensation and Personnel Committee, which shall be
composed of at least three members of the Board, all of whom shall be
independent directors (as defined in Section 6.1), and which shall have the
following duties:
1. Review and recommend to the Board current management compensation
programs including salaries, bonuses and fringe benefits and the
creation of new officerships.
2. Review and report to the Board on the funding and adequacy of existing
retirement programs, and recommend new programs, if appropriate. (This
responsibility does not include investment policy and other
responsibilities of the Trustees of the Retirement Plan.)
3. Award and administer pursuant to existing authority, the Corporation's
stock incentive programs and review and recommend similar future
programs, if any.
4. Review top management organization, assist the CEO in determining that
the Corporation has adequate depth and breadth of management to carry
out its expansion programs and to provide for succession in the event
of retirement or the unanticipated departure of a key executive.
5. Review the Corporation's programs for attracting, developing and
compensating management personnel at lower and middle levels.
3.7 Committee Meetings; Miscellaneous. The provisions of these Bylaws which
govern meetings, action without meetings, notice and waiver of notice, and
quorum and voting requirements of the Board of Directors shall apply to
committees of directors and their members as well.
14
ARTICLE IV
OFFICERS
4.1 Officers. The officers of the Corporation shall be a President, a
Secretary, a Chief Financial Officer, and, in the discretion of the Board of
Directors or the President, one or more Vice-Presidents and such other officers
as may be deemed necessary or advisable to carry on the business of the
Corporation. Any two or more offices may be held by the same person.
4.2 Election; Term. Officers shall be elected by the Board of Directors.
The President may, from time to time, appoint other officers. Officers elected
by the Board of Directors shall hold office, unless sooner removed, until the
next annual meeting of the Board of Directors or until their successors are
elected. Officers appointed by the President shall hold office, unless sooner
removed, until their successors are appointed. The action of the President in
appointing officers shall be reported to the next regular meeting of the Board
of Directors after it is taken. Any officer may resign at any time upon written
notice to the Board of Directors or the President and such resignation shall be
effective when notice is delivered unless the notice specifies a later effective
date.
4.3 Removal of Officers. The Board of Directors may remove any officer at
any time, with or without cause. The President may remove any officer he
appointed by the President at any time, with or without cause. Such action shall
be reported to the next regular meeting of the Board of Directors after it is
taken.
4.4 Duties of the President. The President shall be the Chief Executive
Officer of the Corporation and a member of the Board of Directors. The
President, in the absence of the Chairman of the Board and the Vice Chairman of
the Board, shall preside at all meetings of the Board of Directors and
shareholders, shall have power to call special meetings of the shareholders and
directors for any purpose; may hire, appoint and discharge employees and agents
of the Corporation and fix their compensation; may make and sign deeds,
mortgages, deeds of trust, notes, leases, powers of attorney, contracts and
agreements in the name and on behalf of the Corporation; shall have power to
carry into effect all directions of the Board of Directors; and shall have
general supervision of the business of the Corporation, except as may be limited
by the Board of Directors, the Articles of Incorporation, or these bylaws.
4.5 Duties of the Vice President. Such Vice Presidents, in the order
designated by the Board of Directors from time to time, shall exercise all of
the functions of the President during the absence or incapacity of the latter
and shall perform such other
15
duties as may be assigned to them by the Board of Directors or the President.
4.6 Duties of the Secretary. The Secretary shall be the ex-officio clerk of
the Board of Directors and shall give, or cause to be given, notices of all
meetings of shareholders and directors, and all other notices required by law or
by these Bylaws. The Secretary shall record the proceedings of the meetings of
the shareholders, Board of Directors and committees of the Board of Directors,
in books kept for that purpose and shall keep the seal of the Corporation and
attach it to all documents requiring such impression unless some other officer
is designated to do so by the Board of Directors. The Secretary shall also
perform such other duties as may be assigned by the Board of Directors or the
President.
4.7 Duties of the Chief Financial Officer. The Chief Financial Officer
shall keep or cause to be kept full and accurate books of account, and may make
and sign deeds, mortgages, deeds of trust, notes, leases, contracts and
agreements in the name and on behalf of the Corporation. Whenever required by
the Board of Directors or the President, the Chief Financial Officer shall
render a financial statement showing all transactions of the Corporation and the
financial condition of the Corporation.
4.8 Duties of the Assistant Secretary. There may be one or more Assistant
Secretaries who shall exercise all of the functions of the Secretary during the
absence or incapacity of the latter and such other duties as may be assigned
from time to time by the Board of Directors or the President.
4.9 Duties of Other Officers. The other officers of the Corporation, which
may include Assistant Vice Presidents, a Treasurer, Assistant Treasurers, a
Controller or Assistant Controllers, shall have such authority and perform such
duties as shall be prescribed by the Board of Directors or by officers
authorized by the Board of Directors to appoint them to their respective
offices. To the extent that such duties are not so stated, such officers shall
have such authority and perform the duties which generally pertain to their
respective offices, subject to the control of the President or the Board of
Directors.
4.10 Voting Securities of Other Corporations. Unless otherwise provided by
the Board of Directors, each of the President or the Chief Financial Officer, in
the name and on behalf of the Corporation, may appoint from time to time himself
or herself or any other person (or persons) proxy, attorney or agent for the
Corporation to cast the votes which the Corporation may be entitled to cast as a
shareholder, member or otherwise in any other corporation, partnership or other
legal entity,
16
domestic or foreign, whose stock, interests or other securities are held by the
Corporation, or to consent in writing to any action by such other entity, or to
exercise any or all other powers of this Corporation as the holder of the stock,
interests or other securities of such other entity. Each of the President or the
Chief Financial Officer may instruct the person or persons so appointed as to
the manner of casting such votes or giving such consent and may execute or cause
to be executed on behalf of the Corporation and under its corporate seal such
written proxies, consents, waivers, or other instruments as may be deemed
necessary or proper. Each of the President or the Chief Financial Officer may
attend any meeting of the holders of stock, interests or other securities of any
such other entity and vote or exercise any or all other powers of this
Corporation as the holder of the stock, interest or other securities of such
other entity.
4.11 Compensation. The compensation of all officers of the Corporation
shall be fixed by the Board of Directors or the Compensation and Personnel
Committee.
4.12 Bonds. The Board of Directors may require that any or all officers,
employees and agents of the Corporation give bond to the Corporation, with
sufficient sureties, conditioned upon the faithful performance of the duties of
their respective offices or positions.
ARTICLE V
EVIDENCE OF SHARES
5.1 Form. Shares of the Corporation shall, when fully paid, be evidenced by
certificates containing such information as is required by law and approved by
the Board of Directors. Alternatively, the Board of Directors may authorize the
issuance of some or all shares without certificates. In such event, within a
reasonable time after issuance, the Corporation shall mail to the shareholder a
written confirmation of its records with respect to such shares containing the
information required by law. When issued, certificates shall be signed by the
Chairman of the Board, the President or a Vice President designated by the Board
and the Secretary or an Assistant Secretary and may (but need not) be sealed
with the seal of the Corporation. The seal of the Corporation and any or all of
the signatures on a share certificate may be facsimile. If any officer, transfer
agent or registrar who has signed or whose facsimile signature has been placed
upon a certificate shall have ceased to be such officer, transfer agent or
registrar before such certificate is issued, it may be issued by the Corporation
with the same effect as if such individual were such officer, transfer agent or
registrar on the date of issue.
17
5.2 Transfer. The Board of Directors may make rules and regulations
concerning the issue, registration and transfer of shares and/or certificates
representing the shares of the Corporation. Transfers of shares and/or of the
certificates representing such shares shall be made upon the books of the
Corporation by surrender of the certificates representing such shares, if any,
accompanied by written assignments given by the record owners thereof or their
attorneys-in-fact.
5.3 Restrictions on Transfer. A lawful restriction on the transfer or
registration of transfer of shares is valid and enforceable against the holder
or a transferee of the holder if the restriction complies with the requirements
of law and its existence is noted conspicuously on the front or back of any
certificate representing the shares or has been otherwise communicated in
accordance with the requirements of law. Unless so noted or communicated, a
restriction is not enforceable against a person without knowledge of the
restriction.
5.4 Lost or Destroyed Share Certificates. The Corporation may issue a new
share certificate or a written confirmation of its records with respect to
shares in the place of any certificate theretofore issued which is alleged to
have been lost or destroyed and may require the owner of such certificate, or
such owner's legal representative, to give the Corporation a bond, with or
without surety, or such other agreement, undertaking or security as the Board of
Directors shall determine is appropriate, to indemnify the Corporation against
any claim that may be made against it on account of the alleged loss or
destruction or the issuance of any such new certificate.
5.5 Registered Shareholders. The Corporation shall be entitled to treat the
holder of record of any share or shares of stock as the owner thereof and,
accordingly, shall not be bound to recognize any equitable or other claim to or
interest in such share or shares on the part of any other person. The
Corporation shall not be liable for registering any transfer of shares which are
registered in the name of a fiduciary unless done with actual knowledge of facts
which would cause the Corporation's action in registering the transfer to amount
to bad faith.
ARTICLE VI
MISCELLANEOUS PROVISIONS
6.1 Certain Definitions. As used in these Bylaws, the term "independent"
has the following meaning: A director is considered to be independent if the
individual (i) is not currently a member of management, (ii) has not been a
member of management for at least five years, (iii) is not employed on a
18
part time or consulting basis by the Company, (iv) has no direct, personal
transaction in excess of $60,000 with the Company and (v) is not an owner of
more than 10% of an entity engaged in transactions with the Company exceeding 5%
of the lesser of the entity's or the Company's revenues.
6.2 Corporate Seal. The corporate seal of the Corporation shall be circular
and shall have inscribed thereon, within and around the circumference, the name
of the Corporation. In the center shall be the word "SEAL".
6.3 Fiscal Year. The fiscal year of the Corporation shall begin on the
first day of March of each year and end on the last day of February in the next
succeeding year.
6.4 Amendments. The power to alter, amend or repeal the Bylaws or adopt new
bylaws shall be vested in the Board of Directors unless otherwise provided in
the Articles of Incorporation. Bylaws adopted by the Board of Directors may be
repealed or changed or new bylaws adopted by the shareholders, and the
shareholders may prescribe that any bylaw adopted by them may not be altered,
amended or repealed by the Board of Directors.
6.5 General. Any matters not specifically covered by these Bylaws shall be
governed by the applicable provisions of the Code of Virginia in force at the
time.
19
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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