CarMax 1999 Annual Report Download - page 63

The initial term of most real property leases will expire
within the next 25 years; however, most of the leases have options
providing for additional lease terms of five years to 25 years at
terms similar to the initial terms.
Future minimum fixed lease obligations, excluding taxes,
insurance and other costs payable directly by the Circuit City
Group, as of February 28, 1999, were:
Operating Operating
(Amounts in thousands) Capital Lease Sublease
Fiscal Leases Commitments Income
2000........................................ $ 1,662 $ 265,709 $ (14,684)
2001........................................ 1,681 263,649 (12,817)
2002........................................ 1,725 260,494 (11,605)
2003........................................ 1,726 256,873 (10,624)
2004........................................ 1,768 254,586 (9,123)
After 2004............................... 16,464 2,837,569 (55,144)
Total minimum lease
payments............................ 25,026 $4,138,880 $(113,997)
Less amounts representing
interest............................... 12,298
Present value of net
minimum capital lease
payments [NOTE 5]............... $12,728
In fiscal 1999, the Company entered into sale-leaseback
transactions on behalf of the Circuit City Group with unrelated
parties at an aggregate selling price of $103,750,000
($120,670,000 in fiscal 1998 and $185,244,000 in fiscal 1997).
Neither the Company nor the Circuit City Group has continuing
involvement under the sale-leaseback transactions.
11. SUPPLEMENTARY FINANCIAL STATEMENT
INFORMATION
Advertising expense, which is included in selling, general and
administrative expenses in the accompanying statements of earn-
ings, amounted to $417,619,000 (4.5 percent of net sales and
operating revenues) in fiscal 1999, $370,725,000 (4.6 percent of
net sales and operating revenues) in fiscal 1998 and $342,777,000
(4.8 percent of net sales and operating revenues) in fiscal 1997.
12. SECURITIZATIONS
On behalf of the Circuit City Group, the Company enters into
securitization transactions, which allow for the sale of credit card
receivables to unrelated entities, to finance the consumer revolv-
ing credit receivables generated by its wholly owned finance oper-
ation. Proceeds from securitization transactions were $224.6
million for fiscal 1999, $331.4 million for fiscal 1998 and $551.1
million for fiscal 1997.
Receivables relating to the securitization facilities consist of
the following at February 28:
(Amounts in thousands) 1999 1998
Managed receivables ....................... $2,957,132 $2,749,793
Receivables/residual interests held
by the Circuit City Group:
For sale ....................................... (39,948) (44,622)
For investment............................ (161,996) (203,921)
Net receivables sold......................... $2,755,188 $2,501,250
Net receivables sold
with recourse.............................. $ 322,000 $ 726,000
Program capacity............................. $3,127,000 $3,075,000
Private-label credit card receivables are financed through
securitization programs employing a master trust structure. As of
February 28, 1999, this securitization program had a capacity of
$1.38 billion. The agreement has no recourse provisions.
During fiscal 1998, a bank card master trust securitization
facility was established and issued two series from the trust.
Provisions under the master trust agreement provide recourse to
the Company for any cash flow deficiencies on $322 million of
the receivables sold. The finance charges from the transferred
receivables are used to fund interest costs, charge-offs, servicing
fees and other related costs. The Company believes that as of
February 28, 1999, no liability existed under these recourse provi-
sions. The bank card securitization program has a total program
capacity of $1.75 billion.
The net gain on sales of receivables totaled $2.3 million for
fiscal 1999, $21.8 million for fiscal 1998 and $3.2 million for fiscal
1997. The finance operation’s servicing revenue, including gains on
sales of receivables, totaled $200.6 million for fiscal 1999, $195.7
million for fiscal 1998 and $197.0 million for fiscal 1997. Rights
recorded for future interest income from serviced assets that exceed
the contractually specified servicing fees are carried at fair value and
amounted to $27.3 million at February 28, 1999, $25.0 million at
February 28, 1998, and $3.2 million at February 28, 1997, and are
included in net accounts receivable. The servicing fees specified in
the credit card securitization agreements adequately compensate
the finance operation for servicing the accounts. Accordingly, no
servicing asset or liability has been recorded.
In determining the fair value of retained interests, the
Company estimates future cash flows from finance charge collec-
tions, reduced by net defaults, servicing cost, and interest cost.
The Company employs a risk-based pricing strategy that
increases the stated annual percentage rate for accounts that have
a higher predicted risk of default. Accounts with a lower risk pro-
file also may qualify for promotional financing.
The private-label card programs, excluding promotional bal-
ances, range from 21 percent to 24 percent APR, with default rates
varying based on portfolio composition, but generally aggregat-
ing from 6 percent to 10 percent. Principal payment rates vary
widely both seasonally and by credit terms but are in the range of
9 percent to 12 percent.
CIRCUIT CITY GROUP
CIRCUIT CITY STORES, INC. 1999 ANNUAL REPORT 61