CarMax 1999 Annual Report Download - page 64

The bank card APRs are based on the prime rate and generally
range from 7 percent to 22 percent, with default rates varying by
portfolio composition, but generally aggregating from 8 percent to
12 percent. Principal payment rates vary widely both seasonally
and by credit terms but are in the range of 5 percent to 8 percent.
Interest cost paid by the master trusts varies between series
and ranges from 5.0 percent to 6.3 percent.
13. OPERATING SEGMENT INFORMATION
The Circuit City Group conducts business in two operating segments:
Circuit City and Divx. These segments are identified and managed
by the Group 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 its finance operation.
This segment is engaged in the business of selling brand-name con-
sumer electronics, personal computers, major appliances and enter-
tainment software. Divx primarily is engaged in the business of selling
specially encrypted DVD at wholesale. Financial information for
these segments for fiscal 1999, 1998 and 1997 is shown in Table 3.
14. INTEREST RATE SWAPS
In October 1994, the Company entered into five-year interest rate
swap agreements with notional amounts totaling $300 million
relating to a public issuance of securities by the master trust. As
part of this issuance, $344 million of five-year, fixed-rate certifi-
cates were issued to fund consumer credit receivables. The finance
operation is servicer for the accounts, and as such, receives its
monthly cash portfolio yield after deducting interest, charge-offs
and other related costs. The underlying receivables are based on a
floating rate. The swaps were put in place to better match funding
costs to the receivables being securitized. As a result, the master
trust pays fixed-rate interest, and the Company utilizes the swaps
to convert the fixed-rate obligation to a floating-rate, LIBOR-based
obligation. These swaps were entered into as part of the sales of
receivables and are included in the gain on sales of receivables.
Concurrent with the funding of the $175 million term loan
facility in May 1995, the Company entered into five-year interest
rate swaps with notional amounts aggregating $175 million.
These swaps effectively converted the variable-rate obligation
into a fixed-rate obligation. The fair value of the swaps is the
amount at which they could be settled. This value is based on esti-
mates obtained from the counterparties, which are two banks
highly rated by several financial rating agencies. The swaps are
held for hedging purposes and are not recorded at fair value.
Recording the swaps at fair value at February 28, 1999, would
result in a loss of $2.2 million and at February 28, 1998, would
result in a loss of $1.9 million.
62 CIRCUIT CITY STORES, INC. 1999 ANNUAL REPORT
TABLE 3
1999 Total
(Amounts in thousands) Circuit City Divx Elimination Segments
Revenues from external customers...................................................................... $9,335,298 $ 2,851 $ – $9,338,149
Intersegment revenues ........................................................................................ 8,872 6,830 (15,702) –
Interest expense .................................................................................................. 21,926 – – 21,926
Depreciation and amortization........................................................................... 119,724 10,566 – 130,290
Earnings (loss) before income taxes .................................................................... 379,630 (110,558) – 269,072
Provision for income taxes (income tax benefit) ................................................. 144,646 (42,012) – 102,634
Net earnings (loss) .............................................................................................. 234,984 (68,546) – 166,438
Total assets.......................................................................................................... $2,813,635 $ 60,433 $ – $2,874,068
1998 Total
(Amounts in thousands) Circuit City Divx Elimination Segments
Revenues from external customers...................................................................... $7,996,591 $ – $ – $7,996,591
Interest expense .................................................................................................. 25,072 – – 25,072
Depreciation and amortization........................................................................... 110,282 1,467 – 111,749
Earnings (loss) before income taxes .................................................................... 257,632 (33,284) – 224,348
Provision for income taxes (income tax benefit) ................................................. 98,462 (12,648) – 85,814
Net earnings (loss).............................................................................................. 159,170 (20,636) – 138,534
Total assets.......................................................................................................... $2,752,402 $ 30,977 $ – $2,783,379
1997 Total
(Amounts in thousands) Circuit City Divx Elimination Segments
Revenues from external customers...................................................................... $7,153,562 $ – $ – $7,153,562
Interest expense .................................................................................................. 23,503 – – 23,503
Depreciation and amortization........................................................................... 97,006 307 – 97,313
Earnings (loss) before income taxes .................................................................... 248,567 (12,614) – 235,953
Provision for income taxes (income tax benefit) ................................................. 95,014 (4,793) – 90,221
Net earnings (loss).............................................................................................. 153,553 (7,821) – 145,732
Total assets.......................................................................................................... $2,699,907 $ 4,692 $ – $2,704,599
Net earnings (loss) and total assets for Circuit City exclude the Inter-Group Interest in the CarMax Group.