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, 2000
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.
<TABLE>
<S> <C>
Class Outstanding at December 31, 2000
----------------------------------------------------------------------------- --------------------------------
Circuit City Stores, Inc. - Circuit City Group Common Stock, par value $0.50 205,756,655
Circuit City Stores, Inc. - CarMax Group Common Stock, par value $0.50 25,646,766
An Index is included on Page 2 and a separate Index for Exhibits is included on
Page 38.
CIRCUIT CITY STORES, INC. AND SUBSIDIARIES
INDEX
Page
No.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements:
---------------------
Consolidated Financial Statements:
Consolidated Balance Sheets -
November 30, 2000, and February 29, 2000 4
Consolidated Statements of Operations-
Three Months and Nine Months Ended November 30, 2000, and 1999 5
Consolidated Statements of Cash Flows -
Nine Months Ended November 30, 2000, and 1999 6
Notes to Consolidated Financial Statements 7
Circuit City Group Financial Statements:
Circuit City Group Balance Sheets -
November 30, 2000, and February 29, 2000 18
Circuit City Group Statements of Operations-
Three Months and Nine Months Ended November 30, 2000, and 1999 19
Circuit City Group Statements of Cash Flows -
Nine Months Ended November 30, 2000, and 1999 20
Notes to Circuit City Group Financial Statements 21
CarMax Group Financial Statements:
CarMax Group Balance Sheets -
November 30, 2000, and February 29, 2000 30
CarMax Group Statements of Operations -
Three Months and Nine Months Ended November 30, 2000, and 1999 31
CarMax Group Statements of Cash Flows -
Nine Months Ended November 30, 2000, and 1999 32
Notes to CarMax Group Financial Statements 33
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 35
Page 2 of 39
Item 3. Quantitative and Qualitative Disclosures about Market Risk:
----------------------------------------------------------
Circuit City Stores, Inc. Quantitative and Qualitative Disclosures
About Market Risk 17
Circuit City Group Quantitative and Qualitative Disclosures
About Market Risk 29
CarMax Group Quantitative and Qualitative Disclosures
About Market Risk 37
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 38
</TABLE>
Page 3 of 39
<PAGE>
<TABLE>
<S> <C>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CIRCUIT CITY STORES, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(Amounts in thousands except share data)
Nov. 30, 2000 Feb. 29, 2000
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 121,868 $ 643,933
Net accounts receivable 564,832 593,276
Inventory 2,653,440 1,689,209
Prepaid expenses and other current assets 102,493 16,197
-------------- -------------
Total current assets 3,442,633 2,942,615
Property and equipment, net 1,021,973 965,181
Other assets 44,510 47,552
-------------- -------------
TOTAL ASSETS $ 4,509,116 $ 3,955,348
============== =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current installments of long-term debt $ 132,354 $ 177,344
Accounts payable 1,504,541 960,131
Short-term debt 151,386 3,005
Accrued expenses and other current liabilities 157,333 204,561
Deferred income taxes 65,468 61,118
-------------- -------------
Total current liabilities 2,011,082 1,406,159
Long-term debt, excluding current installments 118,105 249,241
Deferred revenue and other liabilities 106,336 130,020
Deferred income taxes 23,586 27,754
-------------- -------------
TOTAL LIABILITIES 2,259,109 1,813,174
-------------- -------------
Stockholders' equity:
Circuit City Group common stock, $0.50 par value;
350,000,000 shares authorized; 205,638,000 shares
issued and outstanding as of November 30, 2000 102,819 101,934
CarMax Group common stock, $0.50 par value;
175,000,000 shares authorized; 25,646,000 shares
issued and outstanding as of November 30, 2000 12,823 12,807
Capital in excess of par value 636,618 576,574
Retained earnings 1,497,747 1,450,859
-------------- -------------
TOTAL STOCKHOLDERS' EQUITY 2,250,007 2,142,174
-------------- -------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 4,509,116 $ 3,955,348
============== =============
See accompanying notes to consolidated financial statements.
</TABLE>
Page 4 of 39
<PAGE>
CIRCUIT CITY STORES, INC. AND SUBSIDIARIES
Consolidated Statements of Operations (Unaudited)
(Amounts in thousands except per share data)
<TABLE>
<S> <C>
Three Months Ended Nine Months Ended
November 30, November 30,
2000 1999 2000 1999
-------------- -------------- ------------ --------------
Net sales and operating revenues $ 2,887,269 $ 2,984,607 $ 9,141,901 $ 8,633,983
Cost of sales, buying and warehousing 2,305,141 2,313,697 7,174,720 6,692,063
Appliance exit costs - - 28,326 -
-------------- -------------- ------------- --------------
Gross profit 582,128 670,910 1,938,855 1,941,920
-------------- -------------- ------------- --------------
Selling, general and administrative expenses 677,853 581,216 1,829,357 1,653,710
Appliance exit costs - - 1,670 -
Interest expense 5,061 6,504 14,865 17,098
-------------- -------------- ------------- --------------
Total expenses 682,914 587,720 1,845,892 1,670,808
-------------- -------------- ------------- --------------
(Loss) earnings from continuing operations
before income taxes (100,786) 83,190 92,963 271,112
Income tax (benefit) provision (38,299) 31,612 35,325 103,023
-------------- -------------- ------------- --------------
(Loss) earnings from continuing operations (62,487) 51,578 57,638 168,089
-------------- -------------- ------------- --------------
Discontinued operations:
Loss from discontinued operations of
Divx, less income tax benefit - - - (16,215)
Loss on disposal of Divx, less
income tax benefit - - - (114,025)
-------------- -------------- ------------- --------------
Loss from discontinued operations - - - (130,240)
-------------- -------------- ------------- --------------
Net (loss) earnings $ (62,487) $ 51,578 $ 57,638 $ 37,849
============== ============== ============= ==============
Net (loss) earnings attributed to:
Circuit City Group common stock:
Continuing operations $ (64,407) $ 52,335 $ 48,057 $ 167,425
Discontinued operations - - - (130,240)
CarMax Group common stock 1,920 (757) 9,581 664
-------------- -------------- ------------- --------------
$ (62,487) $ 51,578 $ 57,638 $ 37,849
============== ============== ============= ==============
Weighted average common shares:
Circuit City Group basic 204,079 201,610 203,569 201,128
============== ============== ============= ==============
Circuit City Group diluted 204,079 204,525 205,651 204,180
============== ============== ============= ==============
CarMax Group basic 25,570 23,836 25,546 23,502
============== ============== ============= ==============
CarMax Group diluted 27,020 23,836 26,965 25,658
============== ============== ============= ==============
Net (loss) earnings per share:
Circuit City Group basic:
Continuing operations $ (0.32) $ 0.26 $ 0.24 $ 0.83
============== ============= ============ ==============
Discontinued operations $ - $ - $ - $ (0.65)
============== ============= ============ ==============
Net (loss) earnings $ (0.32) $ 0.26 $ 0.24 $ 0.18
============== ============= ============ ==============
Circuit City Group diluted:
Continuing operations $ (0.32) $ 0.26 $ 0.23 $ 0.82
============== ============== ============= ==============
Discontinued operations $ - $ - $ - $ (0.64)
============== ============== ============= ==============
Net (loss) earnings $ (0.32) $ 0.26 $ 0.23 $ 0.18
============== ============== ============= ==============
CarMax Group basic $ 0.08 $ (0.03) $ 0.38 $ 0.03
============== ============== ============= ==============
CarMax Group diluted $ 0.07 $ (0.03) $ 0.36 $ 0.03
============== ============== ============= ==============
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
</TABLE>
<PAGE>
<TABLE>
<S> <C>
CIRCUIT CITY STORES, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows (Unaudited)
(Amounts in thousands)
Nine Months Ended
November 30,
2000 1999
-------------- -------------
Operating Activities:
Net earnings $ 57,638 $ 37,849
Adjustments to reconcile net earnings to net cash
used in operating activities of continuing operations:
Loss from discontinued operations - 16,215
Loss on disposal of discontinued operations - 114,025
Depreciation and amortization 105,648 106,594
Gain on sales of property and equipment (2,630) (238)
Provision for deferred income taxes 182 33,734
Changes in operating assets and liabilities, net of effects
from business acquisitions:
Decrease in deferred revenue and other liabilities (3,684) (25,119)
Decrease (increase) in net accounts receivable 28,464 (74,316)
Increase in inventory (963,431) (881,178)
(Increase) decrease in prepaid expenses and other current assets (86,293) 13,095
Decrease in other assets 1,286 5,481
Increase in accounts payable, accrued expenses and
other current liabilities 529,290 427,229
-------------- -------------
Net cash used in operating activities of continuing operations (333,530) (226,629)
-------------- -------------
Investing Activities:
Cash used in business acquisitions (1,325) (34,849)
Purchases of property and equipment (244,027) (184,219)
Proceeds from sales of property and equipment 86,327 61,116
-------------- -------------
Net cash used in investing activities of continuing operations (159,025) (157,952)
-------------- -------------
Financing Activities:
Proceeds from issuances of short-term debt, net 148,381 280,376
Principal payments on long-term debt (176,126) (1,198)
Issuances of Circuit City Group common stock, net 32,497 11,724
Issuances of CarMax Group common stock, net 129 1,814
Dividends paid on Circuit City Group common stock (10,750) (10,646)
-------------- -------------
Net cash (used in) provided by financing activities of
continuing operations (5,869) 282,070
-------------- -------------
Cash used in discontinued operations (23,641) (87,524)
-------------- -------------
Decrease in cash and cash equivalents (522,065) (190,035)
Cash and cash equivalents at beginning of year 643,933 265,880
-------------- -------------
Cash and cash equivalents at end of period $ 121,868 $ 75,845
============== =============
See accompanying notes to consolidated financial statements.
</TABLE>
Page 6 of 39
<PAGE>
CIRCUIT CITY STORES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
1. Basis of Presentation
---------------------
The common stock of Circuit City Stores, Inc. consists of two series, which
are intended to reflect the performance of the Company's two businesses.
The Circuit City Group Common Stock is intended to track the performance of
the Circuit City store-related operations, the Circuit City Group's
retained interest in the CarMax Group and the Company's investment in
Digital Video Express, which has been discontinued (see Note 8). The CarMax
Group Common Stock is intended to track the performance of the CarMax
Group's operations. The Circuit City Group held a 74.6 percent interest in
the CarMax Group at November 30, 2000, a 74.7 percent interest at February
29, 2000, and a 75.8 percent interest at November 30, 1999.
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 each
Group's financial statements, holders of Circuit City Group Common Stock
and holders of CarMax Group Common 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 SEC filings, including its annual report on Form 10-K and its
registration statement on Form 8-A.
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
(consisting only of normal, recurring 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.
Page 7 of 39
<TABLE>
<S> <C>
3. (Loss) Earnings per Share
-------------------------
Reconciliations of the numerator and denominator of basic and diluted
(loss) earnings per share are presented below:
Three Months Ended Nine Months Ended
(Amounts in thousands November 30, November 30,
except per share data) 2000 1999 2000 1999
--------------------------------------------------------------------------------------------------------------------------
Circuit City Group:
Weighted average common shares............................. 204,079 201,610 203,569 201,128
Dilutive potential common shares:
Options................................................. - 2,092 1,167 2,216
Restricted stock........................................ - 823 915 836
--------------------------- ---------------------------
Weighted average common shares and
dilutive potential common shares........................ 204,079 204,525 205,651 204,180
=========================== ===========================
(Loss) earnings from continuing operations
available to common shareholders........................ $ (64,407) $ 52,335 $ 48,057 $ 167,425
Basic (loss) earnings per share from continuing
operations............................................. $ (0.32) $ 0.26 $ 0.24 $ 0.83
Diluted (loss) earnings per share from continuing
operations.............................................. $ (0.32) $ 0.26 $ 0.23 $ 0.82
CarMax Group:
Weighted average common shares............................. 25,570 23,836 25,546 23,502
Dilutive potential common shares:
Options................................................. 1,386 - 1,314 1,981
Restricted stock........................................ 64 - 105 175
--------------------------- ---------------------------
Weighted average common shares and
dilutive potential common shares........................ 27,020 23,836 26,965 25,658
=========================== ===========================
Net earnings (loss) available to
common shareholders..................................... $ 1,920 $ (757) $ 9,581 $ 664
Basic net earnings (loss) per share........................ $ 0.08 $ (0.03) $ 0.38 $ 0.03
Diluted net earnings (loss) per share...................... $ 0.07 $ (0.03) $ 0.36 $ 0.03
</TABLE>
For the three-month period ended November 30, 2000, options to purchase
9,922,445 shares of Circuit City Group Common Stock at prices ranging from
$9.09 to $47.53 per share were outstanding and not included in the
calculation of diluted loss per share because they would have had an
antidilutive effect as a result of a loss from continuing operations. For
the three-month period ended November 30, 1999, options to purchase 2,000
shares of Circuit City Group Common Stock at $43.03 per share were
outstanding and not included in the calculation of diluted earnings per
share because the options' exercise prices were greater than the average
market price of the common shares.
For the three-month period ended November 30, 2000, options to purchase
1,365,025 shares of CarMax Group Common Stock at prices ranging from $6.06
to $16.31 per share were outstanding and not included in the calculation 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 period ended November 30, 1999, options to purchase 4,824,235
shares of CarMax Group Common Stock at prices ranging from $0.22 to $16.31
per share were outstanding and not included in the calculation of diluted
net loss per share because they would have had an antidilutive effect as a
result of a net loss.
Page 8 of 39
4. Gain or Loss on Securitizations
-------------------------------
For transfers of receivables that qualify as sales, the Company recognizes
gains or losses as a component of the Company's finance operations. For the
three-month period ended November 30, 2000, the change in the Circuit City
Group's retained interests of credit card securitizations consisted of
originated interests of $11.2 million, less amortization of $11.2 million.
For the same period last fiscal year, the change in the retained interests
consisted of originated interests of $9.7 million, less amortization of
$9.8 million. For the nine-month period ended November 30, 2000, the change
in the retained interests consisted of originated interests of $34.3
million, less amortization of $36.5 million. For the same period last
fiscal year, the change in retained interests consisted of originated
interests of $27.5 million, less amortization of $29.5 million.
For the three-month period ended November 30, 2000, the change in retained
interests of automobile loan securitizations for the CarMax Group consisted
of originated interests of $6.9 million, less amortization of $4.6 million.
For the same period last fiscal year, the change in the retained interests
consisted of originated interests of $0.6 million, less amortization of
$3.3 million. For the nine-month period ended November 30, 2000, the change
in retained interests consisted of originated interests of $19.9 million,
less amortization of $11.9 million. For the same period last fiscal year,
the change consisted of originated interests of $9.4 million, less
amortization of $9.3 million.
5. Interest Rate Swaps
-------------------
On behalf of the CarMax Group, during the quarter the Company entered into
two 40-month amortizing swaps with a total notional amount of approximately
$171 million related to automobile loan receivable securitizations. The
total notional amount of the CarMax swaps was $773 million at November 30,
2000, and $327 million at February 29, 2000. 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.
6. Appliance Exit Costs
--------------------
On July 25, 2000, the Company announced plans to exit the major appliance
category in all Circuit City stores. This decision reflects significant
sales weakness and increased competition in the major appliance category
and management's sales and earnings expectations for its new store design.
To exit the appliance business, the Company will close six distribution
centers by December 31, 2000, and expects to close two more by July 31,
2001. The Company also expects to close seven service operations by the end
of the fiscal year, and one more by June 30, 2001. The majority of these
properties are leased. The Company is in the process of marketing these
properties to be subleased. Circuit City will maintain control over its
in-home major appliance repair business, although repairs will be
subcontracted to an unrelated third party. In the second quarter of fiscal
2001, the Company recorded appliance exit costs of $30 million. The
majority of these expenses are included in cost of sales, buying and
warehousing on the statements of operations.
Of the total exit costs, $4.4 million relates to employee termination
benefits. As of November 30, 2000, approximately 350 employees had been
terminated and approximately 650 additional employees will be terminated as
locations close or consolidate. These reductions will take place mainly in
the service, distribution and merchandising functions. Because severance is
being paid to employees on a bi-weekly schedule subsequent to their
termination, cash payments lag job eliminations. The exit costs also
include $17.8 million for lease termination costs and $5.0 million, net of
salvage value, for the write-down of fixed assets.
<TABLE>
<S> <C>
Expenses Liability at
Original Adjustments Paid or Assets November 30,
(Amounts in millions) Estimate to Estimate Written Off 2000
-----------------------------------------------------------------------------------------------------------------------------
Lease Termination Costs................... $ 17.8 $ - $ 0.1 $ 17.7
Fixed Asset Write-Downs................... 5.0 - 5.0 -
Employee Termination Benefits............. 4.4 - 0.4 4.0
Other..................................... 2.8 - 2.8 -
--------------------------------------------------------------------------------
Appliance Exit Costs...................... $ 30.0 $ - $ 8.3 $ 21.7
================================================================================
</TABLE>
Page 9 of 39
7. 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 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.
Financial information for these segments for the three- and nine-month
periods ended November 30, 2000, and 1999, is presented below.
Earnings from continuing operations and total assets for Circuit City
presented below exclude the Inter-Group Interest in the CarMax Group and
the discontinued Divx operations discussed in Note 8.
<TABLE>
<S> <C>
Three Months Ended November 30, 2000
Total Operating
(Amounts in thousands) Circuit City CarMax Segments
--------------------------------------------------------------------------------------------------------------------------
Revenues from external customers.......................... $2,325,576 $561,693 $2,887,269
Interest expense.......................................... 2,397 2,664 5,061
Depreciation and amortization............................ 33,787 4,904 38,691
(Loss) earnings from continuing operations
before income taxes................................... (112,992) 12,206 (100,786)
Income tax (benefit) provision............................ (42,937) 4,638 (38,299)
(Loss) earnings from continuing operations................ (70,055) 7,568 (62,487)
Total assets.............................................. $3,839,627 $668,993 $4,508,620
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
Income tax provision (benefit)............................ 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
Nine Months Ended November 30, 2000
Total Operating
(Amounts in thousands) Circuit City CarMax Segments
--------------------------------------------------------------------------------------------------------------------------
Revenues from external customers.......................... $7,280,906 $1,860,995 $9,141,901
Interest expense.......................................... 5,715 9,150 14,865
Depreciation and amortization............................ 91,598 14,050 105,648
Earnings from continuing operations
before income taxes................................... 32,024 60,939 92,963
Provision for income taxes................................ 12,169 23,156 35,325
Earnings from continuing operations....................... 19,855 37,783 57,638
Total assets.............................................. $3,839,627 $ 668,993 $4,508,620
Page 10 of 39
<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
</TABLE>
8. Discontinued Operations
-----------------------
On June 16, 1999, Digital Video Express announced that it would cease
marketing the Divx home video system and discontinue operations, but that
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 taxes, on the
consolidated statements of operations. Discontinued operations also have
been segregated on the consolidated statements of cash flows. However, Divx
is not segregated on the consolidated balance sheets.
The loss on the disposal includes a provision 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 costs,
employee severance and benefit costs and other contractual commitments. For
the quarters ended November 30, 2000, and 1999, and nine-month period ended
November 30, 2000, the discontinued Divx operations had no impact on the
earnings of Circuit City Stores, Inc. 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. The loss on the
disposal of the Divx business totaled $114.0 million after an income tax
benefit of $69.9 million in that same period.
The net liabilities of the discontinued Divx operations, reflected in the
accompanying consolidated balance sheets as of November 30, 2000, and
February 29, 2000, are comprised of the following:
<TABLE>
<S> <C>
(Amounts in thousands) Nov. 30, 2000 Feb. 29, 2000
--------------------------------------------------------------------------------------------------
Current assets............................................ $ 154 $ 612
Property and equipment, net............................... - 513
Other assets.............................................. 342 -
Current liabilities....................................... (28,861) (32,650)
Noncurrent liabilities.................................... (15,291) (35,291)
-------------------------------------
Net liabilities of discontinued operations................ $ (43,656) $ (66,816)
=====================================
</TABLE>
9. Reclassifications
-----------------
Certain amounts in prior years have been reclassified to conform to
classifications adopted in fiscal year 2001.
Page 11 of 39
<PAGE>
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
-----------------------------------------------------
For the quarter ended November 30, 2000, Circuit City Stores, Inc. total sales
declined 3 percent to $2.89 billion from $2.98 billion in the same period last
year. For the nine months ended November 30, 2000, total sales rose 6 percent to
$9.14 billion from $8.63 billion in the first nine months of last year. Sales
for the Circuit City business declined 7 percent for the quarter because of an
overall softening of sales in virtually all product categories, including those
not affected by the partial or full remodeling of virtually all stores,
promotional pricing over the Thanksgiving holiday weekend and continued declines
in average retail prices for traditional analog products. Although sales for the
Circuit City business were soft for the quarter, sales of better-featured
products, new technologies and the new and expanded categories that were added
to stores during the quarter grew rapidly. CarMax continued its strong sales
trend in the third quarter, with a 15 percent increase over the prior year.
Management believes the strong CarMax sales reflect improved execution in the
stores, increased consumer traffic generated by an enhanced Web site, strong
used-car sales and effective inventory management during this year's fall
model-year changeover.
Comparable store sales changes for the third quarter and first nine months of
fiscal years 2001 and 2000 were as follows:
<TABLE>
<S> <C>
=========================== ================================= ================================
3rd Quarter Nine Months
--------------------------------- --------------------------------
FY 01 FY 00 FY 01 FY 00
--------------------------- ---------------- ---------------- --------------- ----------------
Circuit City Group (10%) 5% (1%) 8%
--------------------------- ---------------- ---------------- --------------- ----------------
CarMax Group 11% 3% 15% (2%)
=========================== ================ ================ =============== ================
</TABLE>
The comparable store sales performance shown above for the Circuit City Group
includes all merchandise sales categories in all comparable stores. Excluding
stores in central and south Florida, where full remodels were completed late in
the third quarter, comparable store sales declined 9 percent for the quarter and
remained unchanged for the nine-month period ended November 30, 2000. Comparable
store sales in the major appliance category declined 84 percent for the third
quarter of this year and 36 percent for the nine-month period ended November 30,
2000. Excluding the appliance category, from which the company completed its
exit in the third quarter, comparable store sales rose 3 percent for the quarter
and 6 percent for the nine months ended November 30, 2000.
During the first quarter of fiscal 2001, Circuit City removed the major
appliance category from stores primarily in central and south Florida in advance
of a full remodel of those stores to focus solely on the consumer electronics
and home office categories. Circuit City completed full remodels of these 26
stores the weekend prior to Thanksgiving and has now grand-opened 18 new stores
that follow the new consumer electronics and home office-only design. This
design includes a more contemporary look, expanded merchandise selections and
more flexible ways for the consumer to shop.
In late July 2000, the Company announced a plan to strategically reposition
itself exclusively as a retailer of consumer electronics and home office
products. The Company discontinued the sale of major appliances in all stores
and undertook partial remodels to expand the selection of computer software,
peripherals and accessories; video game hardware and software; movie titles; and
digital cameras, and to add 35mm cameras and accessories. During the third
quarter, Circuit City completed the exit from the appliance category and the
partial remodel of 547 stores.
Page 12 of 39
Management believes that it has achieved key consumer objectives in the store
design introduced in the new and fully remodeled stores and expects to continue
to follow this design for all new Circuit City store construction in the coming
fiscal year. Circuit City expects to open 15 to 20 new stores and to relocate 10
to 15 stores in the upcoming fiscal year. However, the success of the new
categories in the partial remodels suggests that the Company can strengthen
Circuit City's brand identity and return on investment with a full remodel that
is less costly and less disruptive than the full remodels completed this fiscal
year. Therefore, in the coming fiscal year, Circuit City expects to test a
remodel with an average cost of approximately $1.5 million per store. This
remodel will achieve similar product adjacencies, product availability, lighting
and signage benefits as in this year's full remodels, while eliminating costly
changes that management believes have little short-term impact on sales volumes.
Management expects completion time for these remodels to be approximately 60
days. Circuit City expects to remodel 20 to 25 stores to reflect this new design
in the upcoming fiscal year.
For the Circuit City Group, gross dollar sales from all extended warranty
programs were 5.1 percent of sales in the third quarter of fiscal 2001 compared
with 5.5 percent of sales in the third quarter of fiscal 2000. Third-party
warranty revenue decreased to 3.9 percent of sales in this year's third quarter
from 4.3 percent in the same period last year. The total extended warranty
revenue that is reported in total sales was 4.0 percent of sales in this year's
third quarter versus 4.5 percent in the third quarter of last fiscal year. The
decline reflects the impact of lower average retail prices on consumer demand
for the related warranties in many categories, increased sales of products on
which the Company does not offer extended warranty programs and the shift in
extended warranty sales from Circuit City extended warranties to third-party
extended warranties over the past five years. The gross profit margins on
products sold with extended warranties are higher than the gross profit margins
on products sold without extended warranties.
CarMax has restarted its expansion plans and expects to open two superstores in
late fiscal 2002. In addition, CarMax continues to seek prototype satellite
stores for its existing multi-store markets.
For the CarMax Group, gross dollar sales from all extended warranty programs
were 4.1 percent of sales in the third quarter of fiscal 2001 compared with 3.5
percent in the same period last year. Third-party warranty revenue increased to
1.8 percent of sales in this year's third quarter from 1.5 percent in the same
period last year. The total extended warranty revenue that is reported in total
sales was 1.8 percent of sales in this year's third quarter versus 1.5 percent
in last year's third quarter. The increase is a result of enhanced
manufacturers' programs and improved warranty penetration.
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
-------------------------------------
For Circuit City Stores, Inc., the gross profit margin was 20.2 percent of sales
in the third quarter of fiscal 2001 compared with 22.5 percent in the same
period last year. For the nine months ended November 30, 2000, the gross profit
margin was 21.2 percent compared with 22.5 percent for the same period last
year.
For the Circuit City Group, the gross profit margin was 22.0 percent of sales in
the third quarter compared with 24.8 percent in the same period last year. For
the nine months ended November 30, 2000, the gross profit margin was 23.2
percent of sales compared with 24.8 percent for the same period last year.
Excluding the appliance category, Circuit City's gross profit margin was 24.1
percent in this year's third quarter compared with 25.9 percent in the same
period last year and 24.8 percent for the nine-month period ended November 30,
2000, compared with 25.4 percent for the same period last year. Thanksgiving
weekend was highly promotional and sales of traditional products with lower
year-over-year average retail prices remained high. As a result, the third
quarter gross profit margin, excluding appliances, was significantly lower than
anticipated.
Page 13 of 39
In addition, appliance merchandise markdowns associated with the exit from the
appliance business reduced the gross margin by $21.0 million in this year's
third quarter and $28.0 million for the nine months ended November 30, 2000. The
gross profit margin for the nine months ended November 30, 2000, was also
reduced by $28.3 million of one-time appliance exit costs incurred in the second
fiscal quarter. The one-time costs included lease terminations and related fixed
asset write-downs, employee severance and other related costs. Excluding the
impact of the appliance merchandise markdowns and the one-time appliance exit
costs, the gross margin was 22.9 percent of sales in this year's third quarter
and 24.0 percent for the nine months ended November 30, 2000.
For the CarMax Group, the gross profit margin increased to 12.8 percent of sales
in the third quarter of fiscal 2001 from 10.8 percent for the same period last
year. For the nine months ended November 30, 2000, the gross profit margin
increased to 13.3 percent compared with 11.8 percent for the same period last
year. By effectively managing its inventory through the fall model-year
changeover, CarMax significantly reduced the gross profit margin erosion that
occurred in prior years during this period. The improved gross profit margin is
a result of that inventory management combined with an increase in sales of used
cars, which carry higher profit margins than new cars.
Selling, General and Administrative Expenses
--------------------------------------------
The Company's selling, general and administrative expense ratio was 23.5 percent
in the third quarter of fiscal 2001 compared with 19.5 percent for the same
period last year. For the nine-month period ended November 30, 2000, the
Company's selling, general, and administrative expense ratio was 20.0 percent
compared with 19.2 percent for the same period last year.
For the Circuit City Group, the selling, general and administrative expense
ratio for this year's third quarter was 26.7 percent of sales compared with 21.1
percent for the same period last year. This ratio includes $33.6 million in
costs associated with fully remodeling the stores primarily in central and south
Florida and $30.0 million in costs related to the partial remodels to exit the
appliance business. Excluding these costs, this year's expense ratio would have
been 24.0 percent. Excluding remodeling costs and the estimated sales disruption
during the seven to 10 days of partial remodels, the third quarter expense ratio
would have been 23.6 percent. The third quarter ratio, excluding the remodel
costs and the sales disruption, reflects lower-than-anticipated sales through
much of the quarter. The full remodel costs exceeded management's expectations
and reflect changes made to the design during the remodeling process, the
complexity of completing this first group of remodels and the desire to complete
them prior to Thanksgiving.
For the nine-month period ended November 30, 2000, the Circuit City Group
expense ratio was 22.7 percent compared with 20.9 percent for the same period
last year. This ratio includes $41.9 million in remodeling costs for the Florida
stores and $30.0 million in costs related to the partial remodels. Excluding
these costs, this year's expense ratio would have been 21.7 percent. Excluding
the remodeling costs and the sales disruption, the expense ratio was 21.6
percent for the nine-month period ended November 30, 2000.
The CarMax Group's selling, general and administrative expense ratio improved to
10.1 percent of sales in the third quarter of fiscal 2001 compared with 11.2
percent of sales for the same period last year. For the nine-month period ended
November 30, 2000, the expense ratio was 9.5 percent of sales compared with 11.0
percent for the same period last year. Leverage from sales growth and more
efficient advertising expenditures led to the better expense ratio.
(Loss) Earnings from Continuing Operations
------------------------------------------
The loss from continuing operations for Circuit City Stores, Inc. was $62.5
million in this year's third quarter compared with earnings of $51.6 million in
the same period last year. Earnings from continuing operations were $57.6
million in the first nine months of this year compared with $168.1 million in
the same period last year.
Excluding the Inter-Group Interest in the CarMax Group, the loss from continuing
operations for the Circuit City Group was $70.1 million in this year's third
quarter compared with earnings from continuing operations of $54.7 million last
year. The loss per share from continuing operations was 34 cents this year
Page 14 of 39
compared with earnings per share from continuing operations of 27 cents last
year. For the first nine months of this fiscal year, earnings from continuing
operations for the Circuit City Group excluding the Inter-Group Interest in the
CarMax Group were $19.9 million, or 10 cents per share, compared with $165.3
million, or 81 cents per share, in the same period last fiscal year.
Reconciliation of the Circuit City Group's (loss) earnings per share from
continuing operations is presented below:
<TABLE>
<S> <C>
Three Months Ended Nine Months Ended
November 30, November 30,
2000 1999 2000 1999
----------------------------------------------------------
Circuit City Store Business........................ $ (0.06) $ 0.27 $ 0.52 $ 0.81
Impact of Merchandise Markdowns*................... (0.06) - (0.08) -
Impact of Appliance Exit........................... - - (0.09) -
Impact of Florida Remodeling Costs**............... (0.10) - (0.13) -
Impact of Partial Remodeling Costs**............... (0.09) - (0.09) -
Impact of Sales Disruption......................... (0.03) - (0.03) -
Inter-Group Interest in CarMax..................... 0.02 (0.01) 0.13 0.01
----------------------------------------------------------
Circuit City Group................................. $ (0.32) $ 0.26 $ 0.23 $ 0.82
==========================================================
* Reflected as a reduction in gross profit margins.
** Reflected as an increase in selling, general and administrative expenses.
</TABLE>
The CarMax Group's net earnings were $7.6 million in this year's third quarter
compared with a net loss of $3.1 million in the third quarter of last fiscal
year. The net earnings attributed to the CarMax Group Common Stock were $1.9
million this year compared with a net loss of $757,000 in last year's third
quarter. Net earnings per share of CarMax Group Common Stock were 7 cents in
this year's third quarter compared with a net loss per share of 3 cents in the
same period last year. Net earnings for the CarMax Group rose to $37.8 million
in the first nine months of this fiscal year from $2.8 million in the same
period last year. The net earnings attributed to the CarMax Group Common Stock
increased to $9.6 million from $664,000 in the first nine months of last year.
Net earnings per share of CarMax Group Common Stock rose to 36 cents from 3
cents in the first nine months of last year.
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 taxes, on the consolidated statements of operations for the periods
presented. Discontinued operations also have been segregated on the consolidated
statements of cash flows. However, Divx is not segregated on the consolidated
balance sheets.
For the third quarter and nine-month period ended November 30, 2000, and the
quarter ended November 30, 1999, the discontinued Divx operations had no impact
on the earnings of Circuit City Stores, Inc. 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. The loss on the disposal of the
Divx business totaled $114.0 million after an income tax benefit of $69.9
million in that same period. The loss on the disposal includes a provision 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 costs, employee severance and benefit costs and other contractual
commitments.
Page 15 of 39
Net (Loss) Earnings
-------------------
The net loss for Circuit City Stores, Inc. was $62.5 million in this year's
third quarter compared with net earnings of $51.6 million in the same period
last year. Net earnings were $57.6 million in the first nine months of this year
compared with $37.8 million in the same period last year.
Recent Accounting Pronouncements
--------------------------------
In June 1998, the Financial Accounting Standards Board issued statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities." SFAS No. 133, as amended by SFAS No. 137 and No. 138,
is effective for quarters for fiscal years beginning after June 15, 2000. SFAS
No. 133 standardizes the accounting for derivative instruments and requires that
an entity recognize those items as either assets or liabilities and measure them
at fair value. The Company does not expect the adoption of SFAS No. 133 to have
a material impact on its financial position, results of operations or cash
flows.
Liquidity and Capital Resources
-------------------------------
At November 30, 2000, total assets were $4.51 billion. The inventory increase of
$964.2 million from the end of fiscal 2000 reflects seasonal inventory
increases, the building of inventory for category expansion associated with the
partial remodels and the comparable store sales decline in the Circuit City
business. Store construction, including the Circuit City store remodels, and the
purchase of inventory contributed to a $544.4 million increase in accounts
payable from the end of fiscal 2000. In June 2000, a term loan totaling $130
million was classified as a current liability because it becomes due in June
2001. Although the Company has the ability to refinance this loan, it intends to
repay 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.
During the quarter, a $300 million, five-year public securitization related to
the private-label card matured and was paid off. The Company also entered into a
$275 million, three-year public securitization related to its private-label card
during the quarter. As of November 30, 2000, the master trust program had a
total program capacity of $1.11 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, 2000, the bankcard master trust program had a total program capacity of
$1.64 billion. The Company anticipates that it will be able to expand its
securitization programs to meet future needs.
The Company also has an asset securitization program, operated through a special
purpose subsidiary on behalf of the CarMax Group. This program had a capacity of
$850 million as of November 30, 2000. The Company, on behalf of the CarMax
Group, also has a public program with a capacity of $378 million as of November
30, 2000. The Company anticipates that it will be able to expand its
securitization programs to meet future needs.
The Company generally 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 and operating leases.
Securitization transactions will be used to finance growth in credit card and
automobile loan receivables, and the Company anticipates that it will be able to
expand its securitization programs to meet future needs.
At November 30, 2000, the Company maintained $401 million in seasonal lines that
are renewed annually with various banks, as well as a $150 million revolving
credit facility.
Page 16 of 39
ITEM 3.
CIRCUIT CITY STORES, INC. QUANTITATIVE AND QUALITATIVE
DISCLOSURES ABOUT MARKET RISK
The Company centrally 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, 2000, the private-label and bankcard portfolios of the
Circuit City Group had not changed significantly since February 29, 2000.
However, as a result of its growth, the CarMax Group's automobile installment
loan portfolio had increased.
Total principal outstanding for fixed-rate automobile loans at November 30 and
February 29, 2000, was as follows:
(Amounts in millions) November 30 February 29
--------------------------------------------------------------------------------
Fixed APR................................... $ 1,179 $ 932
Financing for these receivables is achieved through asset securitization
programs which, in turn, issue both fixed- and 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 29, 2000,
were as follows:
(Amounts in millions) November 30 February 29
--------------------------------------------------------------------------------
Fixed-rate securitizations.................. $ 378 $ 559
Floating-rate securitizations
synthetically altered to fixed........... 773 327
Floating-rate securitizations............... 3 1
Held by the Company:
For investment*.......................... 22 22
For sale................................. 3 23
--------------------------------
Total ..................................... $ 1,179 $ 932
=================================
* Held by a bankruptcy remote special purpose company
Because programs are 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.
FORWARD-LOOKING STATEMENTS
This report on Form 10-Q contains forward-looking statements, which are subject
to risks and uncertainties. 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 29, 2000.
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, 2000 Feb. 29, 2000
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 114,359 $ 633,952
Net accounts receivable 456,952 464,023
Merchandise inventory 2,331,287 1,405,617
Prepaid expenses and other current assets 99,680 13,353
-------------- -------------
Total current assets 3,002,278 2,516,945
Property and equipment, net 829,207 753,325
Inter-Group Interest in the CarMax Group 286,580 257,535
Other assets 8,638 9,583
-------------- -------------
TOTAL ASSETS $ 4,126,703 $ 3,537,388
============== =============
LIABILITIES AND GROUP EQUITY
Current liabilities:
Current installments of long-term debt $ 78,797 $ 85,735
Accounts payable 1,424,552 884,172
Short-term debt 90,474 1,453
Accrued expenses and other current liabilities 136,229 184,705
Deferred income taxes 53,228 53,971
-------------- -------------
Total current liabilities 1,783,280 1,210,036
Long-term debt, excluding current installments 75,369 127,984
Deferred revenue and other liabilities 99,402 122,771
Deferred income taxes 16,067 21,877
-------------- -------------
TOTAL LIABILITIES 1,974,118 1,482,668
GROUP EQUITY 2,152,585 2,054,720
-------------- -------------
TOTAL LIABILITIES AND GROUP EQUITY $ 4,126,703 $ 3,537,388
============== =============
See accompanying notes to group financial statements.
</TABLE>
Page 18 of 39
<PAGE>
<TABLE>
<S> <C>
CIRCUIT CITY STORES, INC. - CIRCUIT CITY GROUP
Statements of Operations (Unaudited)
(Amounts in thousands except per share data)
Three Months Ended Nine Months Ended
November 30, November 30,
2000 1999 2000 1999
-------------- -------------- ------------- --------------
Net sales and operating revenues $ 2,325,576 $ 2,495,649 $ 7,280,906 $ 7,123,235
Cost of sales, buying and warehousing 1,815,127 1,877,467 5,561,415 5,359,819
Appliance exit costs - - 28,326 -
-------------- -------------- ------------- --------------
Gross profit 510,449 618,182 1,691,165 1,763,416
-------------- -------------- ------------- --------------
Selling, general and administrative expenses 621,044 526,237 1,651,756 1,486,909
Appliance exit costs - - 1,670 -
Interest expense 2,397 3,696 5,715 9,960
-------------- -------------- ------------- --------------
Total expenses 623,441 529,933 1,659,141 1,496,869
-------------- -------------- ------------- --------------
(Loss) earnings from continuing operations
before income taxes and Inter-Group
Interest in the CarMax Group (112,992) 88,249 32,024 266,547
Income tax (benefit) provision (42,937) 33,535 12,169 101,288
-------------- -------------- ------------- --------------
(Loss) earnings from continuing operations
before Inter-Group Interest in the
CarMax Group (70,055) 54,714 19,855 165,259
Net earnings (loss) related to Inter-Group
Interest in the CarMax Group 5,648 (2,379) 28,202 2,166
-------------- -------------- ------------- --------------
(Loss) earnings from continuing operations (64,407) 52,335 48,057 167,425
-------------- -------------- ------------- --------------
Discontinued operations:
Loss from discontinued operations of
Divx, less income tax benefit - - - (16,215)
Loss on disposal of Divx, less income
tax benefit - - - (114,025)
-------------- -------------- ------------- --------------
Loss from discontinued operations - - - (130,240)
-------------- -------------- ------------- --------------
Net (loss) earnings $ (64,407) $ 52,335 $ 48,057 $ 37,185
============== ============== ============= ==============
Weighted average common shares:
Basic: 204,079 201,610 203,569 201,128
============== ============== ============= ==============
Diluted: 204,079 204,525 205,651 204,180
============== ============== ============= ==============
Net (loss) earnings per share:
Basic:
Continuing operations $ (0.32) $ 0.26 $ 0.24 $ 0.83
============== ============== ============= =============
Discontinued operations $ - $ - $ - $ (0.65)
============== ============== ============= =============
Net (loss) earnings $ (0.32) $ 0.26 $ 0.24 $ 0.18
============== ============== ============= =============
Diluted:
Continuing operations $ (0.32) $ 0.26 $ 0.23 $ 0.82
============== ============== ============= =============
Discontinued operations $ - $ - $ - $ (0.64)
============== ============== ============= =============
Net (loss) earnings $ (0.32) $ 0.26 $ 0.23 $ 0.18
============== ============== ============= =============
Dividends paid per common share $ 0.0175 $ 0.0175 $ 0.0525 $ 0.0525
============== ============== ============= =============
</TABLE>
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)
<TABLE>
<S> <C>
Nine Months Ended
November 30,
2000 1999
-------------- -------------
Operating Activities:
Net earnings $ 48,057 $ 37,185
Adjustments to reconcile net earnings to net cash
used in operating activities of continuing operations:
Loss from discontinued operations - 16,215
Loss on disposal of discontinued operations - 114,025
Net earnings related to Inter-Group Interest
in the CarMax Group (28,202) (2,166)
Depreciation and amortization 91,598 95,429
Gain on sales of property and equipment (2,935) (157)
Provision for deferred income taxes (6,553) 32,307
Decrease in deferred revenue and other liabilities (3,369) (26,593)
Decrease (increase) in net accounts receivable 7,091 (43,596)
Increase in merchandise inventory (925,670) (844,701)
(Increase) decrease in prepaid expenses and other current assets (86,324) 15,552
Decrease in other assets 1,287 4,226
Increase in accounts payable, accrued expenses
and other current liabilities 522,909 414,873
-------------- -------------
Net cash used in operating activities of continuing operations (382,111) (187,401)
-------------- -------------
Investing Activities:
Purchases of property and equipment (235,875) (144,227)
Proceeds from sales of property and equipment 70,819 52,758
-------------- -------------
Net cash used in investing activities of continuing operations (165,056) (91,469)
-------------- -------------
Financing Activities:
Increase in allocated short-term debt, net 89,021 186,587
Decrease in allocated long-term debt, net (59,553) (614)
Equity issuances, net 32,497 11,724
Dividends paid (10,750) (10,646)
-------------- -------------
Net cash provided by financing activities of continuing operations 51,215 187,051
-------------- -------------
Cash used in discontinued operations (23,641) (87,524)
-------------- -------------
Decrease in cash and cash equivalents (519,593) (179,343)
Cash and cash equivalents at beginning of year 633,952 248,201
-------------- -------------
Cash and cash equivalents at end of period $ 114,359 $ 68,858
============== =============
See accompanying notes to group financial statements.
</TABLE>
Page 20 of 39
<PAGE>
CIRCUIT CITY STORES, INC. - CIRCUIT CITY GROUP
Notes to Group Financial Statements
1. Basis of Presentation
---------------------
The common stock of Circuit City Stores, Inc. consists of two series, which
are intended to reflect the performance of the Company's two businesses.
The Circuit City Group Common Stock is intended to track the performance of
the Circuit City store-related operations, the Circuit City Group's
retained interest in the CarMax Group and the Company's investment in
Digital Video Express, which has been discontinued (see Note 6). The CarMax
Group Common Stock is intended to track the performance of the CarMax
Group's operations. The Circuit City Group held a 74.6 percent interest in
the CarMax Group at November 30, 2000, a 74.7 percent interest at February
29, 2000, and a 75.8 percent interest at November 30, 1999.
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 each
Group's financial statements, holders of Circuit City Group Common Stock
and holders of CarMax Group Common 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 SEC filings, including its annual report on Form 10-K and its
registration statement on Form 8-A.
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 require that the CarMax Group be consolidated with
the Circuit City Group. Except for the effects of not consolidating the
CarMax Group with the Circuit City 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 (consisting only of normal, recurring
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.
Page 21 of 39
3. (Loss) Earnings per Share
-------------------------
Reconciliations of the numerator and denominator of basic and diluted
(loss) earnings per share from continuing operations are presented below:
<TABLE>
<S> <C>
Three Months Ended Nine Months Ended
(Amounts in thousands November 30, November 30,
except per share data) 2000 1999 2000 1999
--------------------------------------------------------------------------------------------------------------------------
Weighted average common shares............................. 204,079 201,610 203,569 201,128
Dilutive potential common shares:
Options................................................. - 2,092 1,167 2,216
Restricted stock........................................ - 823 915 836
--------------------------- ---------------------------
Weighted average common shares and
dilutive potential common shares........................ 204,079 204,525 205,651 204,180
=========================== ===========================
(Loss) earnings from continuing operations
available to common shareholders........................ $ (64,407) $ 52,335 $ 48,057 $ 167,425
Basic (loss) earnings per share from continuing
operations.............................................. $ (0.32) $ 0.26 $ 0.24 $ 0.83
Diluted (loss) earnings per share from continuing
operations.............................................. $ (0.32) $ 0.26 $ 0.23 $ 0.82
</TABLE>
For the three-month period ended November 30, 2000, options to purchase
9,922,445 shares of Circuit City Group Common Stock at prices ranging from
$9.09 to $47.53 per share were outstanding and not included in the
calculation of diluted loss per share because they would have had an
antidilutive effect as a result of a loss from continuing operations. For
the three-month period ended November 30, 1999, options to purchase 2,000
shares of Circuit City Group Common Stock at $43.03 per share were
outstanding and not included in the calculation of diluted earnings per
share because the options' exercise prices were greater than the average
market price of the common shares.
4. Gain or Loss on Securitizations
-------------------------------
For transfers of receivables that qualify as sales, the Group recognizes
gains or losses as a component of the Group's finance operations. For the
three-month period ended November 30, 2000, the change in the Circuit City
Group's retained interests of credit card securitizations consisted of
originated interests of $11.2 million, less amortization of $11.2 million.
For the same period last fiscal year, the change in the retained interests
consisted of originated interests of $9.7 million, less amortization of
$9.8 million. For the nine-month period ended November 30, 2000, the change
in the retained interests consisted of originated interests of $34.3
million, less amortization of $36.5 million. For the same period last
fiscal year, the change in retained interests consisted of originated
interests of $27.5 million, less amortization of $29.5 million.
5. Appliance Exit Costs
--------------------
On July 25, 2000, the Company announced plans to exit the major appliance
category in all Circuit City stores. This decision reflects significant
sales weakness and increased competition in the major appliance category
and management's sales and earnings expectations for its new store design.
To exit the appliance business, the Company will close six distribution
centers by December 31, 2000, and expects to close two more by July 31,
2001. The Company also expects to close seven service operations by the end
of the fiscal year and one more by June 30, 2001. The majority of these
properties are leased. The Company is in the process of marketing these
properties to be subleased. Circuit City will maintain control over its
in-home major appliance repair business, although repairs will be
subcontracted to an unrelated third party.
Page 22 of 39
In the second quarter of fiscal 2001, the Company recorded appliance exit
costs of $30 million. The majority of these expenses are included in cost
of sales, buying and warehousing on the statements of operations.
Of the total exit costs, $4.4 million relates to employee termination
benefits. As of November 30, 2000, approximately 350 employees had been
terminated and approximately 650 additional employees will be terminated as
locations close or consolidate. These reductions will take place mainly in
the service, distribution and merchandising functions. Because severance is
being paid to employees on a bi-weekly schedule subsequent to their
termination, cash payments lag job eliminations. The exit costs also
include $17.8 million for lease termination costs and $5.0 million, net of
salvage value, for the write-down of fixed assets.
<TABLE>
<S> <C>
Expenses Liability at
Original Adjustments Paid or Assets November 30,
(Amounts in millions) Estimate to Estimate Written Off 2000
-------------------------------------------------------------------------------------------------------------------------------
Lease Termination Costs................... $ 17.8 $ - $ 0.1 $ 17.7
Fixed Asset Write-Downs................... 5.0 - 5.0 -
Employee Termination Benefits............. 4.4 - 0.4 4.0
Other..................................... 2.8 - 2.8 -
----------------------------------------------------------------------------------
Appliance Exit Costs...................... $ 30.0 $ - $ 8.3 $ 21.7
==================================================================================
</TABLE>
6. Discontinued Operations
-----------------------
On June 16, 1999, Digital Video Express announced that it would cease
marketing the Divx home video system and discontinue operations, but that
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 taxes, on the Circuit
City Group statements of operations. Discontinued operations also have been
segregated on the Circuit City Group statements of cash flows. However,
Divx is not segregated on the Circuit City Group balance sheets.
The loss on the disposal includes a provision 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 costs,
employee severance and benefit costs and other contractual commitments. For
the quarters ended November 30, 2000, and 1999, and nine-month period ended
November 30, 2000, the discontinued Divx operations had no impact on the
earnings of the Circuit City Group. 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. The loss on the disposal of
the Divx business totaled $114.0 million after an income tax benefit of
$69.9 million in that same period.
The net liabilities of the discontinued Divx operations, reflected in the
accompanying Circuit City Group balance sheets as of November 30, 2000, and
February 29, 2000, are comprised of the following:
<TABLE>
<S> <C>
(Amounts in thousands) Nov. 30, 2000 Feb. 29, 2000
---------------------------------------------------------------------------------------------
Current assets.......................................... $ 154 $ 612
Property and equipment, net............................. - 513
Other assets............................................ 342 -
Current liabilities..................................... (28,861) (32,650)
Noncurrent liabilities.................................. (15,291) (35,291)
-------------------------------------
Net liabilities of discontinued operations.............. $ (43,656) $ (66,816)
=====================================
</TABLE>
7. Reclassifications
Certain amounts in prior years have been reclassified to conform to
classifications adopted in fiscal year 2001.
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
-----------------------------------------------------
For the quarter ended November 30, 2000, the Circuit City Group's total sales
declined 7 percent to $2.33 billion from $2.50 billion in the same period last
year. For the nine months ended November 30, 2000, total sales rose 2 percent to
$7.28 billion from $7.12 billion in the first nine months of last year. Sales
declined for the quarter because of an overall softening of sales in virtually
all product categories, including those not affected by the partial or full
remodeling of virtually all stores, promotional pricing over the Thanksgiving
holiday weekend and continued declines in average retail prices for traditional
analog products. Although sales for the Circuit City business were soft for the
quarter, sales of better-featured products, new technologies and the new and
expanded categories that were added to stores during the quarter grew rapidly.
Circuit City's comparable store sales changes for the third quarter and first
nine months of fiscal years 2001 and 2000 were as follows:
<TABLE>
<S> <C>
========================== ============================= =============================
3rd Quarter Nine Months
----------------------------- -----------------------------
FY 01 FY 00 FY 01 FY 00
-------------------------- -------------- -------------- -------------- --------------
Circuit City Group (10%) 5% (1%) 8%
========================== ============== ============== ============== ==============
</TABLE>
The comparable store sales performance shown above for the Circuit City Group
includes all merchandise sales categories in all comparable stores. Excluding
stores in central and south Florida, where full remodels were completed late in
the third quarter, comparable store sales declined 9 percent for the quarter and
remained unchanged for the nine-month period ended November 30, 2000. Comparable
store sales in the major appliance category declined 84 percent for the third
quarter of this year and 36 percent for the nine-month period ended November 30,
2000. Excluding the appliance category, from which the company completed its
exit in the third quarter, comparable store sales rose 3 percent for the quarter
and 6 percent for the nine months ended November 30, 2000.
During the first quarter of fiscal 2001, Circuit City removed the major
appliance category from stores primarily in central and south Florida in advance
of a full remodel of those stores to focus solely on the consumer electronics
and home office categories. Circuit City completed full remodels of these 26
stores the weekend prior to Thanksgiving and has now grand-opened 18 new stores
that follow the new consumer electronics and home office-only design. This
design includes a more contemporary look, expanded merchandise selections and
more flexible ways for the consumer to shop.
In late July 2000, the Company announced a plan to strategically reposition
itself exclusively as a retailer of consumer electronics and home office
products. The Company discontinued the sale of major appliances in all stores
and undertook partial remodels to expand the selection of computer software,
peripherals and accessories; video game hardware and software; movie titles; and
digital cameras, and to add 35mm cameras and accessories. During the third
quarter, Circuit City completed the exit from the appliance category and the
partial remodel of 547 stores.
Management believes that it has achieved key consumer objectives in the store
design introduced in the new and fully remodeled stores and expects to continue
to follow this design for all new Circuit City store construction in the coming
fiscal year. Circuit City expects to open 15 to 20 new stores and to relocate 10
to 15 stores in the upcoming fiscal year. However, the success of the new
categories in the partial remodels suggests that the Company can strengthen
Circuit City's brand identity and return on investment with a full remodel that
is less costly and less disruptive than the full remodels completed this fiscal
year. Therefore, in the coming fiscal year, Circuit City expects to test a
remodel with an average cost of approximately $1.5 million per store. This
remodel will achieve similar product adjacencies, product availability, lighting
Page 24 of 39
and signage benefits as in this year's full remodels, while eliminating costly
changes that management believes have little short-term impact on sales volumes.
Management expects completion time for these remodels to be approximately 60
days. Circuit City expects to remodel 20 to 25 stores to reflect this new design
in the upcoming fiscal year.
<TABLE>
<S> <C>
The table below details Circuit City retail units:
=================================================================================================
Retail Units At End of Quarter Estimate
-------------------------------
Nov. 30, 2000 Nov. 30, 1999 Feb. 28, 2001 Feb. 29, 2000
-------------------------------------------------------------------------------------------------
Superstore
-------------------------------------------------------------------------------------------------
"D" Superstore 118 118 118 118
-------------------------------------------------------------------------------------------------
"C" Superstore 309 295 314 295
-------------------------------------------------------------------------------------------------
"B" Superstore 107 101 107 102
-------------------------------------------------------------------------------------------------
"A" Superstore 56 56 56 56
-------------------------------------------------------------------------------------------------
Circuit City Express 39 45 39 45
-------------------------------------------------------------------------------------------------
TOTAL 629 615 634 616
=================================================================================================
</TABLE>
For the Circuit City Group, gross dollar sales from all extended warranty
programs were 5.1 percent of sales in the third quarter of fiscal 2001 compared
with 5.5 percent of sales in the third quarter of fiscal 2000. Third-party
warranty revenue decreased to 3.9 percent of sales in this year's third quarter
from 4.3 percent in the same period last year. The total extended warranty
revenue that is reported in total sales was 4.0 percent of sales in this year's
third quarter versus 4.5 percent in the third quarter of last fiscal year. The
decline reflects the impact of lower average retail prices on consumer demand
for the related warranties in many categories, increased sales of products on
which the Company does not offer extended warranty programs and the shift in
extended warranty sales from Circuit City extended warranties to third-party
extended warranties over the past five years. The gross profit margins on
products sold with extended warranties are higher than the gross profit margins
on products sold without extended warranties.
Circuit City has updated its product category breakdowns to reflect the changes
in its product selections that have occurred in recent years and are expected to
continue occurring during the current decade. Prior years and quarters are being
restated for comparability. The percentage of merchandise sales represented by
each category is listed below:
<TABLE>
<S> <C>
====================================================================================================================
1st Quarter ended 2nd Quarter ended 3rd Quarter ended Nine Months ended
May 31 August 31 November 30 November 30
-----------------------------------------------------------------------------------------
2000 1999 2000 1999 2000 1999 2000 1999
-------------------------- ----------- ---------- ----------- ---------- ----------- ---------- ---------- ---------
Video 32% 32% 32% 29% 37% 32% 34% 31%
-------------------------- ----------- ---------- ----------- ---------- ----------- ---------- ---------- ---------
Audio 15 16 15 15 16 15 15 15
-------------------------- ----------- ---------- ----------- ---------- ----------- ---------- ---------- ---------
Information Technology 34 31 34 33 37 34 35 33
-------------------------- ----------- ---------- ----------- ---------- ----------- ---------- ---------- ---------
Entertainment 5 5 5 5 8 5 6 5
-------------------------- ----------- ---------- ----------- ---------- ----------- ---------- ---------- ---------
Appliances 14 16 14 18 2 14 10 16
-------------------------- ----------- ---------- ----------- ---------- ----------- ---------- ---------- ---------
Total 100% 100% 100% 100% 100% 100% 100% 100%
========================== =========== ========== =========== ========== =========== ========== ========== =========
</TABLE>
The Circuit City Group'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. The net earnings of any interim quarter are seasonally disproportionate
to net sales since administrative and certain operating expenses remain
Page 25 of 39
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 22.0 percent of sales in the third quarter of fiscal
2001 compared with 24.8 percent in the same period last year. For the nine
months ended November 30, 2000, the gross profit margin was 23.2 percent of
sales compared with 24.8 percent for the same period last year. Excluding the
appliance category, Circuit City's gross profit margin was 24.1 percent in this
year's third quarter compared with 25.9 percent in the same period last year and
24.8 percent for the nine-month period ended November 30, 2000, compared with
25.4 percent for the same period last year. Thanksgiving weekend was highly
promotional and sales of traditional products with lower year-over-year average
retail prices remained high. As a result, the third quarter gross profit margin,
excluding appliances, was significantly lower than anticipated. In addition,
appliance merchandise markdowns associated with the exit from the appliance
business reduced the gross margin by $21.0 million in this year's third quarter
and $28.0 million for the nine months ended November 30, 2000. The gross profit
margin for the nine months ended November 30, 2000, was also reduced by $28.3
million of one-time appliance exit costs incurred in the second fiscal quarter.
The one-time costs included lease terminations and related fixed asset
write-downs, employee severance and other related costs. Excluding the impact of
the appliance merchandise markdowns and the one-time appliance exit costs, the
gross margin was 22.9 percent of sales in this year's third quarter and 24.0
percent for the nine months ended November 30, 2000.
Selling, General and Administrative Expenses
--------------------------------------------
The selling, general and administrative expense ratio for this year's third
quarter was 26.7 percent of sales compared with 21.1 percent for the same period
last year. This ratio includes $33.6 million in costs associated with fully
remodeling the stores primarily in central and south Florida and $30.0 million
in costs related to the partial remodels to exit the appliance business.
Excluding these costs, this year's expense ratio would have been 24.0 percent.
Excluding remodeling costs and the estimated sales disruption during the seven
to 10 days of partial remodels, the third quarter expense ratio would have been
23.6 percent. The third quarter ratio, excluding the remodel costs and the sales
disruption, reflects lower-than-anticipated sales through much of the quarter.
The full remodel costs exceeded management's expectations and reflect changes
made to the design during the remodeling process, the complexity of completing
this first group of remodels and the desire to complete them prior to
Thanksgiving.
For the nine-month period ended November 30, 2000, the Circuit City expense
ratio was 22.7 percent compared with 20.9 percent for the same period last year.
This ratio includes $41.9 million in remodeling costs for the Florida stores and
$30.0 million in costs related to the partial remodels. Excluding these costs,
this year's expense ratio would have been 21.7 percent. Excluding the remodeling
costs and the sales disruption, the expense ratio was 21.6 percent for the
nine-month period ended November 30, 2000.
(Loss) Earnings Before Inter-Group Interest in the CarMax Group
---------------------------------------------------------------
Excluding the Inter-Group Interest in the CarMax Group, the loss from continuing
operations for the Circuit City Group was $70.1 million in this year's third
quarter compared with earnings from continuing operations of $54.7 million last
year. The loss per share from continuing operations was 34 cents this year
compared with earnings per share from continuing operations of 27 cents last
year. Excluding the Inter-group Interest in the CarMax Group, earnings from
continuing operations for the nine-month period ended November 30, 2000, were
$19.9 million, or 10 cents per share, this year, compared with $165.3 million,
or 81 cents per share, in the first nine months of last fiscal year.
Appliance merchandise markdowns associated with the exit from the appliance
business reduced this year's third quarter earnings per share for the Circuit
City business by 6 cents. The costs associated with fully remodeling the central
and south Florida stores reduced third quarter earnings per share by another 10
cents, and the costs associated with the partial remodels reduced third quarter
earnings per share by another 9 cents. The sales disruption caused by the
Page 26 of 39
absence of any product in the former appliance space during the seven to 10 days
of partial remodeling reduced earnings per share by an estimated 3 cents.
Excluding the markdowns remodeling costs, sales disruption and the interest in
CarMax, the loss per share for the Circuit City business would have been 6 cents
for the third quarter ended November 30, 2000.
Appliance merchandise markdowns had an 8-cent per share impact and one-time
costs associated with the exit from the appliance business had a 9-cent per
share impact on Circuit City business earnings for the nine months ended
November 30, 2000. Costs associated with fully remodeling the central and south
Florida stores reduced earnings for the first nine months of this fiscal year by
13 cents, and the costs associated with partial remodels, largely incurred in
the third fiscal quarter, reduced earnings per share for the nine months by 9
cents. The sales disruption, which also was largely incurred in the third
quarter, reduced earnings per share by an estimated 3 cents. Excluding the
appliance merchandise markdowns, exit costs and remodel expenses and excluding
the retained interest in CarMax for the nine-month period, earnings per share
for the Circuit City business would have been 52 cents in the first nine months
of this year.
Net Earnings (Loss) Related to Inter-Group Interest in the CarMax Group
-----------------------------------------------------------------------
During the third quarter, the net earnings attributed to the Circuit City
Group's Inter-Group Interest in the CarMax Group was $5.6 million, or 2 cents
per share, compared with a net loss of $2.4 million, or 1 cent per share, for
the same period last year. For the first nine months of fiscal 2001, net
earnings attributed to the Circuit City Group's Inter-Group Interest in the
CarMax Group were $28.2 million, or 13 cents per share, compared with $2.2
million, or 1 cent per share, for the same period last year.
(Loss) Earnings from Continuing Operations
------------------------------------------
The loss from continuing operations for the Circuit City Group was $64.4 million
in this year's third quarter compared with earnings of $52.3 million in the same
period last year. The loss per share from continuing operations was 32 cents
this year compared with earnings per share from continuing operations of 26
cents last year. Earnings from continuing operations for the Circuit City Group
were $48.1 million, or 23 cents per share, for the first nine months of this
fiscal year, compared with $167.4 million, or 82 cents per share, in the same
period last fiscal year.
Reconciliation of earnings per share from continuing operations is presented
below:
<TABLE>
<S> <C>
Three Months Ended Nine Months Ended
November 30, November 30,
2000 1999 2000 1999
-------------------------------------------------------
Circuit City Store Business................... $ (0.06) $ 0.27 $ 0.52 $ 0.81
Impact of Merchandise Markdowns*.............. (0.06) - (0.08) -
Impact of Appliance Exit...................... - - (0.09) -
Impact of Florida Remodeling Costs**.......... (0.10) - (0.13) -
Impact of Partial Remodeling Costs**.......... (0.09) - (0.09) -
Impact of Sales Disruption.................... (0.03) - (0.03) -
Inter-Group Interest in CarMax................ 0.02 (0.01) 0.13 0.01
-------------------------------------------------------
Circuit City Group............................ $ (0.32) $ 0.26 $ 0.23 $ 0.82
=======================================================
* Reflected as a reduction in gross profit margins.
** Reflected as an increase in selling, general and administrative expenses.
</TABLE>
Discontinued Operations
-----------------------
On June 16, 1999, Digital Video Express announced that it would cease marketing
the Divx home video system and discontinue operations, but that 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 taxes, on the Circuit City Group statements of
operations for the periods presented. Discontinued operations also have been
Page 27 of 39
segregated on the Circuit City Group statements of cash flows. However, Divx is
not segregated on the Circuit City Group balance sheets.
For the third quarter and nine-month period ended November 30, 2000, and for the
quarter ended November 30, 1999, the discontinued Divx operations had no impact
on the earnings of the Circuit City Group. 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. The loss on the disposal of the
Divx business totaled $114.0 million after an income tax benefit of $69.9
million in that same period. The loss on the disposal includes a provision 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 costs, employee severance and benefit costs and other contractual
commitments.
Net (Loss) Earnings
-------------------
The net loss for the Circuit City Group was $64.4 million, or 32 cents per
share, in this year's third quarter compared with net earnings of $52.3 million,
or 26 cents per share, in the same period last year. Net earnings were $48.1
million, or 23 cents per share, in the first nine months of this year compared
with $37.2 million, or 18 cents per share, in the same period last year.
Recent Accounting Pronouncements
--------------------------------
In June 1998, the Financial Accounting Standards Board issued statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities." SFAS No. 133, as amended by SFAS No. 137 and No. 138,
is effective for quarters for fiscal years beginning after June 15, 2000. SFAS
No. 133 standardizes the accounting for derivative instruments and requires that
an entity recognize those items as either assets or liabilities and measure them
at fair value. The Company does not expect the adoption of SFAS No. 133 to have
a material impact on its financial position, results of operations or cash
flows.
Liquidity and Capital Resources
-------------------------------
At November 30, 2000, total assets were $4.13 billion. The inventory increase of
$925.7 million from the end of fiscal 2000 reflects seasonal inventory
increases, the building of inventory for category expansion associated with the
partial remodels and the comparable store sales decline. Store construction,
including the remodels, and the purchase of inventory contributed to a $540.4
million increase in accounts payable from the end of fiscal 2000. In June 2000,
a term loan totaling $130 million was classified as a current liability because
it becomes due in June 2001. While the Company has the ability to refinance this
loan, it intends to repay the debt using existing working capital. Payment of
corporate debt will not necessarily reduce Circuit City Group allocated debt.
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.
During the quarter, a $300 million, five-year public securitization related to
the private-label card matured and was paid off. The Company also entered into a
$275 million, three-year public securitization related to its private-label card
during the quarter. As of November 30, 2000, the master trust program had a
total program capacity of $1.11 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, 2000, the bankcard master trust program had a total program capacity of
$1.64 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
Page 28 of 39
November 30, 2000, the Company also maintained $401 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, and cash generated by operations will be sufficient to fund the
Circuit City Group's capital expenditures and operations.
ITEM 3.
CIRCUIT CITY GROUP QUANTITATIVE AND QUALITATIVE
DISCLOSURES ABOUT MARKET RISK
The Company centrally 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.
As of November 30, 2000, the Circuit City Group's private-label and bankcard
portfolios had not changed significantly since February 29, 2000.
FORWARD-LOOKING STATEMENTS
This report on Form 10-Q contains forward-looking statements, which are subject
to risks and uncertainties. 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 29, 2000.
Page 29 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, 2000 Feb. 29, 2000
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 7,509 $ 9,981
Net accounts receivable 107,880 129,253
Inventory 322,153 283,592
Prepaid expenses and other current assets 2,813 2,844
------------ -----------
Total current assets 440,355 425,670
Property and equipment, net 192,766 211,856
Other assets 35,872 37,969
------------ -----------
TOTAL ASSETS $ 668,993 $ 675,495
============ ===========
LIABILITIES AND GROUP EQUITY
Current liabilities:
Current installments of long-term debt $ 53,557 $ 91,609
Accounts payable 79,989 75,959
Short-term debt 60,912 1,552
Accrued expenses and other current liabilities 21,104 19,856
Deferred income taxes 12,240 7,147
------------ -----------
Total current liabilities 227,802 196,123
Long-term debt, excluding current installments 42,736 121,257
Deferred revenue and other liabilities 6,934 7,249
Deferred income taxes 7,519 5,877
------------ -----------
TOTAL LIABILITIES 284,991 330,506
GROUP EQUITY 384,002 344,989
------------ -----------
TOTAL LIABILITIES AND GROUP EQUITY $ 668,993 $ 675,495
============ ===========
See accompanying notes to group financial statements.
</TABLE>
Page 30 of 39
<PAGE>
<TABLE>
<S> <C>
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,
2000 1999 2000 1999
------------ ----------- ----------- ------------
Net sales and operating revenues $ 561,693 $ 488,958 $ 1,860,995 $ 1,510,748
Cost of sales 490,014 436,230 1,613,305 1,332,244
------------ ----------- ----------- ------------
Gross profit 71,679 52,728 247,690 178,504
------------ ----------- ----------- ------------
Selling, general and administrative expenses 56,809 54,979 177,601 166,801
Interest expense 2,664 2,808 9,150 7,138
------------ ----------- ----------- ------------
Total expenses 59,473 57,787 186,751 173,939
------------ ----------- ----------- ------------
Earnings (loss) before income taxes 12,206 (5,059) 60,939 4,565
Income tax provision (benefit) 4,638 (1,923) 23,156 1,735
------------ ----------- ----------- ------------
Net earnings (loss) $ 7,568 $ (3,136) $ 37,783 $ 2,830
============ =========== =========== ============
Net earnings (loss) attributed to:
Circuit City Group common stock $ 5,648 $ (2,379) $ 28,202 $ 2,166
CarMax Group common stock 1,920 (757) 9,581 664
------------ ----------- ----------- ------------
$ 7,568 $ (3,136) $ 37,783 $ 2,830
============ =========== =========== ============
Weighted average common shares:
Basic 25,570 23,836 25,546 23,502
============ =========== =========== ============
Diluted 27,020 23,836 26,965 25,658
============ =========== =========== ============
Net earnings (loss) per share:
Basic $ 0.08 $ (0.03) $ 0.38 $ 0.03
============ =========== =========== ============
Diluted $ 0.07 $ (0.03) $ 0.36 $ 0.03
============ =========== =========== ============
Dividends paid per common share $ - $ - $ - $ -
============ =========== =========== ============
See accompanying notes to group financial statements.
</TABLE>
Page 31 of 39
<PAGE>
CIRCUIT CITY STORES, INC. - CARMAX GROUP
Statements of Cash Flows (Unaudited)
(Amounts in thousands)
<TABLE>
<S> <C>
Nine Months Ended
November 30,
2000 1999
----------- -----------
Operating Activities:
Net earnings $ 37,783 $ 2,830
Adjustments to reconcile net earnings to net
cash provided by (used in) operating activities:
Depreciation and amortization 14,050 11,165
Loss (gain) on sales of property and equipment 305 (81)
Provision for deferred income taxes 6,735 1,427
Changes in operating assets and liabilities, net of effects
from business acquisitions:
(Decrease) increase in deferred revenue and other liabilities (315) 1,474
Decrease (increase) in net accounts receivable 21,373 (30,720)
Increase in inventory (37,761) (36,477)
Decrease (increase) in prepaid expenses, other current assets
and other assets 30 (1,202)
Increase in accounts payable, accrued expenses and other
current liabilities 6,381 12,356
----------- -----------
Net cash provided by (used in) operating activities 48,581 (39,228)
----------- -----------
Investing Activities:
Cash used in business acquisitions (1,325) (34,849)
Purchases of property and equipment (8,152) (40,005)
Proceeds from sales of property and equipment 15,508 8,371
----------- -----------
Net cash provided by (used in) investing activities 6,031 (66,483)
----------- -----------
Financing Activities:
Increase in allocated short-term debt, net 59,360 93,789
Decrease in allocated long-term debt, net (116,573) (584)
Equity issuances, net 129 1,814
----------- -----------
Net cash (used in) provided by financing activities (57,084) 95,019
----------- -----------
Decrease in cash and cash equivalents (2,472) (10,692)
Cash and cash equivalents at beginning of year 9,981 17,679
----------- -----------
Cash and cash equivalents at end of period $ 7,509 $ 6,987
=========== ===========
See accompanying notes to group financial statements.
</TABLE>
Page 32 of 39
<PAGE>
CIRCUIT CITY STORES, INC. - CARMAX GROUP
Notes to Group Financial Statements
1. Basis of Presentation
---------------------
The common stock of Circuit City Stores, Inc. consists of two series, which
are intended to reflect the performance of the Company's two businesses.
The Circuit City Group Common Stock is intended to track the performance of
the Circuit City store-related operations, the Circuit City Group's
retained interest in the CarMax Group and the Company's investment in
Digital Video Express, which has been discontinued. The CarMax Group Common
Stock is intended to track the performance of the CarMax Group's
operations. The Circuit City Group held a 74.6 percent interest in the
CarMax Group at November 30, 2000, a 74.7 percent interest at February 29,
2000, and a 75.8 percent interest at November 30, 1999.
Notwithstanding the attribution of the Company's assets and liabilities,
including contingent liabilities, and stockholders' equity between the
CarMax Group and the Circuit City Group for the purposes of preparing each
Group's financial statements, holders of CarMax Group Common Stock and
holders of Circuit City Group Common 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 the
Company's SEC filings, including its annual report on Form 10-K and its
registration statement on Form 8-A.
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
(consisting only of normal, recurring 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.
Page 33 of 39
3. 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) 2000 1999 2000 1999
-------------------------------------------------------------------------------------------------------------------
Weighted average common shares...................... 25,570 23,836 25,546 23,502
Dilutive potential common shares:
Options.......................................... 1,386 - 1,314 1,981
Restricted stock................................. 64 - 105 175
--------------------------- ---------------------------
Weighted average common shares and
dilutive potential common shares................. 27,020 23,836 26,965 25,658
=========================== ===========================
Net earnings (loss) available to common
shareholders..................................... $ 1,920 $ (757) $ 9,581 $ 664
Basic net earnings (loss) per share................. $ 0.08 $ (0.03) $ 0.38 $ 0.03
Diluted net earnings (loss) per share............... $ 0.07 $ (0.03) $ 0.36 $ 0.03
</TABLE>
For the three-month period ended November 30, 2000, options to purchase
1,365,025 shares of CarMax Group Common Stock at prices ranging from $6.06
to $16.31 per share were outstanding and not included in the calculation 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 period ended November 30, 1999, options to purchase 4,824,235
shares of CarMax Group Common Stock at prices ranging from $0.22 to $16.31
per share were outstanding and not included in the calculation of diluted
net loss per share because they would have had an antidilutive effect as a
result of a net loss.
<PAGE>
4. Gain or Loss on Securitizations
-------------------------------
For transfers of receivables that qualify as sales, the Group recognizes
gains or losses as a component of the Group's finance operations. For the
three-month period ended November 30, 2000, the change in retained
interests of automobile loan securitizations for the CarMax Group consisted
of originated interests of $6.9 million, less amortization of $4.6 million.
For the same period last fiscal year, the change in the retained interests
consisted of originated interests of $0.6 million, less amortization of
$3.3 million. For the nine-month period ended November 30, 2000, the change
in retained interests consisted of originated interests of $19.9 million,
less amortization of $11.9 million. For the same period last fiscal year,
the change consisted of originated interests of $9.4 million, less
amortization of $9.3 million.
5. Interest Rate Swaps
-------------------
On behalf of the CarMax Group, during the quarter the Company entered into
two 40-month amortizing swaps with a total notional amount of approximately
$171 million related to the automobile loan receivable securitizations. The
total notional amount of the CarMax swaps was $773 million at November 30,
2000, and $327 million at February 29, 2000. 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.
6. Reclassifications
-----------------
Certain amounts in prior years have been reclassified to conform to
classifications adopted in fiscal year 2001.
Page 34 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
-----------------------------------------------------
For the quarter ended November 30, 2000, total sales rose 15 percent to $561.7
million from $489.0 million in the same period last year. For the nine months
ended November 30, 2000, total sales rose 23 percent to $1.86 billion from $1.51
billion in the first nine months of last year. Management believes the strong
CarMax sales reflect improved execution in the stores, increased consumer
traffic generated by an enhanced Web site, strong used-car sales and effective
inventory management during this year's fall model-year changeover.
CarMax's comparable store sales changes for the third quarter and first nine
months of fiscal years 2001 and 2000 were as follows:
=========================== =========================
3rd Quarter Nine Months
--------------------------- -------------------------
FY 01 FY 00 FY 01 FY 00
------------- ------------- ------------- -----------
11% 3% 15% (2%)
============= ============= ============= ===========
CarMax has restarted its expansion plans and expects to open two superstores in
late fiscal 2002. In addition, CarMax continues to seek prototype satellite
stores for its existing multi-store markets.
<TABLE>
<S> <C>
The table below details CarMax retail units:
=============================================================================================================
Retail Units At End of Quarter Estimate
--------------------------------
Nov. 30, 2000 Nov. 30, 1999 Feb. 28, 2001 Feb. 29, 2000
-------------------------------------------------------------------------------------------------------------
"C" and "B" Stores 14 14 14 14
-------------------------------------------------------------------------------------------------------------
"A" Stores 17 17 17 17
-------------------------------------------------------------------------------------------------------------
Satellite Prototype Stores 4 2 4 4
-------------------------------------------------------------------------------------------------------------
Stand-Alone New-Car Stores 5 5 5 5
=============================================================================================================
TOTAL 40 38 40 40
=============================================================================================================
<PAGE>
The table below details CarMax's new-car franchises:
=============================================================================================================
Franchises Open At End
of Quarter Estimate
-------------------------------
Nov. 30, 2000 Nov. 30, 1999 Feb. 28, 2001 Feb. 29, 2000
-------------------------------------------------------------------------------------------------------------
Integrated/Co-Located New-Car 17 15 17 15
Franchises
-------------------------------------------------------------------------------------------------------------
Stand-Alone New-Car Franchises 5 5 5 5
-------------------------------------------------------------------------------------------------------------
TOTAL 22 20 22 20
=============================================================================================================
</TABLE>
For the CarMax Group, gross dollar sales from all extended warranty programs
were 4.1 percent of sales in the third quarter of fiscal 2001 compared with 3.5
percent in the same period last year. Third-party warranty revenue increased to
1.8 percent of sales in this year's third quarter from 1.5 percent in the same
period last year. The total extended warranty revenue that is reported in total
sales was 1.8 percent of sales in this year's third quarter versus 1.5 percent
in last year's third quarter. The increase is a result of enhanced
manufacturers' programs and improved warranty penetration.
Page 35 of 39
The percentage of vehicle sales represented by each category for the third
quarter and the nine months is as follows:
<TABLE>
<S> <C>
===============================================================================================
Three Months Ended Nine Months Ended
November 30 November 30
--------------------------------------------------------
2000 1999 2000 1999
-----------------------------------------------------------------------------------------------
Vehicle Dollars:
-----------------------------------------------------------------------------------------------
Used Vehicles 81% 78% 80% 79%
-----------------------------------------------------------------------------------------------
New Vehicles 19% 22% 20% 21%
-----------------------------------------------------------------------------------------------
Vehicle Units:
-----------------------------------------------------------------------------------------------
Used Vehicles 87% 86% 86% 86%
-----------------------------------------------------------------------------------------------
New Vehicles 13% 14% 14% 14%
===============================================================================================
</TABLE>
The CarMax Group'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 increased to 12.8 percent of sales in the
third quarter of fiscal 2001 from 10.8 percent for the same period last year.
For the nine months ended November 30, 2000, the gross profit margin increased
to 13.3 percent compared with 11.8 percent for the same period last year. By
effectively managing its inventory through the fall model-year changeover,
CarMax significantly reduced the gross profit margin erosion that occurred in
prior years during this period. The improved gross profit margin is a result of
that inventory management combined with an increase in sales of used cars, which
carry higher profit margins than new cars.
Selling, General and Administrative Expenses
--------------------------------------------
The selling, general and administrative expense ratio improved to 10.1 percent
of sales in the third quarter of fiscal 2001 compared with 11.2 percent of sales
for the same period last year. For the nine-month period ended November 30,
2000, the expense ratio was 9.5 percent of sales compared with 11.0 percent for
the same period last year. Leverage from the sales growth and more efficient
advertising expenditures led to the better expense ratio.
Net Earnings
------------
The CarMax Group's net earnings were $7.6 million in this year's third quarter
compared with a net loss of $3.1 million in the third quarter of last fiscal
year. The net earnings attributed to the CarMax Group Common Stock were $1.9
million this year compared with a net loss of $757,000 in last year's third
quarter. Net earnings per share of CarMax Group Common Stock were 7 cents in
this year's third quarter compared with a net loss per share of 3 cents in the
same period last year.
Net earnings for the CarMax Group rose to $37.8 million in the first nine months
of this fiscal year from $2.8 million in the same period last year. The net
earnings attributed to the CarMax Group Common Stock increased to $9.6 million
from $664,000 in the first nine months of last year. Net earnings per share of
CarMax Group Common Stock rose to 36 cents from 3 cents in the first nine months
of last year.
Page 36 of 39
Recent Accounting Pronouncements
--------------------------------
In June 1998, the Financial Accounting Standards Board issued statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities." SFAS No. 133, as amended by SFAS No. 137 and No. 138,
is effective for quarters for fiscal years beginning after June 15, 2000. SFAS
No. 133 standardizes the accounting for derivative instruments and requires that
an entity recognize those items as either assets or liabilities and measure them
at fair value. The Company does not expect the adoption of SFAS No. 133 to have
a material impact on its financial position, results of operations or cash
flows.
Liquidity and Capital Resources
-------------------------------
At November 30, 2000, total assets were $669.0 million. Inventory increased
$38.6 million from the end of fiscal 2000 because of the addition of new
franchises during the current year and the general industry-wide slowdown in new
car sales. In June 2000, a term loan totaling $130 million was classified as a
current liability because it becomes due in June 2001. While the Company has the
ability to refinance this loan, it intends to repay the debt using existing
working capital. Payment of corporate debt will not necessarily reduce CarMax
Group allocated debt.
The Company has an asset securitization program operated through a special
purpose subsidiary on behalf of the CarMax Group. This program had a capacity of
$850 million as of November 30, 2000. The Company, on behalf of the CarMax
Group, also has a public program with a capacity of $378 million as of November
30, 2000. 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 CarMax 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, 2000, the Company also maintained $401 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 the sales of property and equipment and
receivables, 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.
ITEM 3.
CARMAX GROUP QUANTITATIVE AND QUALITATIVE
DISCLOSURES ABOUT MARKET RISK
The Company centrally 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 29, 2000, was as follows:
(Amounts in millions) November 30 February 29
-----------------------------------------------------------------
Fixed APR....................... $ 1,179 $ 932
Page 37 of 39
Financing for these receivables is achieved through asset securitization
programs which, in turn, issue both fixed-and 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 29, 2000,
were as follows:
(Amounts in millions) November 30 February 29
---------------------------------------------------------------------------
Fixed-rate securitizations.......... $ 378 $ 559
Floating-rate securitizations
synthetically altered to fixed... 773 327
Floating-rate securitizations....... 3 1
Held by the Company:
For investment*.................. 22 22
For sale......................... 3 23
-----------------------------------
Total .............................. $ 1,179 $ 932
===================================
* Held by a bankruptcy remote special purpose company
Because programs are 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.
FORWARD-LOOKING STATEMENTS
This report on Form 10-Q contains forward-looking statements, which are subject
to risks and uncertainties. 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 29, 2000.
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
None.
(b) Reports on Form 8-K
None.
Page 38 of 39
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Company
has duly caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
CIRCUIT CITY STORES, INC.
By: s/W. Alan McCollough
--------------------------------------
W. Alan McCollough
President and
Chief Executive Officer
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 12, 2001
Page 39 of 39