CarMax 2000 Annual Report Download - page 40

CIRCUIT CITY STORES, INC. 2000 ANNUAL REPORT
38
Based on the Company’s historical and current pretax earnings,management
believes the amount of gross deferred tax assets will be realized through
future taxable income;therefore,no valuation allowance is necessary.
7. ASSOCIATE BENEFIT AND STOCK
INCENTIVE PLANS
(A) 401(K) PLAN: Effective August 1,1999,the Company sponsors a 401(k)
Plan for all employees meeting certain eligibility criteria. Under the Plan,
eligible employees can contribute up to 15 percent of their salaries, and
the Company matches a portion of those associate contributions. The
Company’s contribution to this plan was $2,475,000 in fiscal 2000.
(B) PREFERRED STOCK: In conjunction with the Company’s Shareholders
Rights Plan as amended and restated,preferred stock purchase rights
were distributed as a dividend at the rate of one right for each share of
Circuit City Group Stock and CarMax Group Stock. The rights are exercis-
able only upon the attainment of,or the commencement of a tender offer
to attain,a specified ownership interest in the Company by a person or
group. When exercisable,each Circuit City right would entitle sharehold-
ers to buy one eight-hundredth of a share of Cumulative Participating
Preferred Stock,Series E,$20 par value,at an exercise price of $125 per
share subject to adjustment. Each CarMax right,when exercisable,would
entitle shareholders to buy one four-hundredth of a share of Cumulative
Participating Preferred Stock,Series F,$20 par value,at an exercise price
of $100 per share subject to adjustment. A total of 1,000,000 shares of
such preferred stock,which have preferential dividend and liquidation
rights,have been designated. No such shares are outstanding. In the event
that an acquiring person or group acquires the specified ownership per-
centage of the Company’s common stock (except pursuant to a cash ten-
der offer for all outstanding shares determined to be fair by the board of
directors) or engages in certain transactions with the Company after the
rights become exercisable,each right will be converted into a right to pur-
chase,for half the current market price at that time,shares of the related
Group stock valued at two times the exercise price.
The Company also has 1,000,000 shares of undesignated preferred stock
authorized of which no shares are outstanding.
(C) VOTING RIGHTS: The holders of both series of common stock and any
series of preferred stock outstanding and entitled to vote together with
the holders of common stock will vote together as a single voting group
on all matters on which common shareholders generally are entitled to
vote other than a matter on which the common stock or either series
thereof or any series of preferred stock would be entitled to vote as a sep-
arate voting group. On all matters on which both series of common stock
would vote together as a single voting group,(i) each outstanding share of
Circuit City Group Stock shall have one vote and (ii) each outstanding
share of CarMax Group Stock shall have a number of votes based on the
weighted average ratio of the market value of a share of CarMax Group
Stock to a share of Circuit City Group Stock. If shares of only one series of
common stock are outstanding,each share of that series shall be entitled
to one vote. If either series of common stock is entitled to vote as a sepa-
rate voting group with respect to any matter,each share of that series
shall,for purposes of such vote,be entitled to one vote on such matter.
(D) RESTRICTED STOCK: The Company has issued restricted stock under the
provisions of the 1994 Stock Incentive Plan whereby management and
key employees are granted restricted shares of Circuit City Group Stock or
CarMax Group Stock. Shares are awarded in the name of the employee,
who has all the rights of a shareholder, subject to certain restrictions or
forfeitures. Restrictions on the awards generally expire three to seven
years from the date of grant. Total restricted stock awards of 345,644
shares of Circuit City Group Stock and 30,000 shares of CarMax Group
Stock were granted to eligible employees in fiscal 2000. The market value
at the date of grant of these shares has been recorded as unearned com-
pensation and is a component of stockholders’ equity. Unearned compen-
sation is expensed over the restriction periods. In fiscal 2000,a total of
$12,095,900 was charged to operations ($9,167,700 in fiscal 1999 and
$5,073,100 in fiscal 1998). As of February 29,2000,1,559,966 restricted
shares of Circuit City Group Stock and 110,833 restricted shares of
CarMax Group Stock were outstanding.
(E) EMPLOYEE STOCK PURCHASE PLANS: The Company has Employee Stock
Purchase Plans for all employees meeting certain eligibility criteria.
Under the Circuit City Group Plan and the CarMax Group Plan,eligible
employees may purchase shares of Circuit City Group Stock or CarMax
Group Stock,subject to certain limitations. For each $1.00 contributed by
employees under the Plans,the Company matches $0.15. Purchases are
limited to 10 percent of an employee’s eligible compensation,up to a max-
imum of $7,500 per year. At February 29,2000,a total of 864,046 shares
remained available under the Circuit City Group Plan and 1,058,693
shares remained available under the CarMax Group Plan. During fiscal
2000,501,984 shares of Circuit City Group Stock were issued to or pur-
chased on the open market for employees (858,710 shares in fiscal 1999
and 901,396 shares in fiscal 1998), and 580,000 shares of CarMax Group
Stock were issued to or purchased on the open market on behalf of
employees (268,532 in fiscal 1999 and 92,775 in fiscal 1998). The average
price per share of Circuit City Group Stock purchased under the Plan was
$41.70 in fiscal 2000, $21.69 in fiscal 1999 and $18.39 in fiscal 1998. The
average price per share of CarMax Group Stock purchased under the Plan
was $3.68 in fiscal 2000,$7.56 in fiscal 1999 and $12.73 in fiscal 1998.
The Company match or purchase price discount charged to operations
totaled $2,903,800 in fiscal 2000,$2,984,500 in fiscal 1999 and $2,670,400
in fiscal 1998.
(F) STOCK INCENTIVE PLANS: Under the Company’s stock incentive plans,
incentive and nonqualified stock options may be granted to management,
key employees and outside directors to purchase shares of Circuit City
Group Stock or CarMax Group Stock. The exercise price for incentive
stock options for employees and nonqualified options for outside direc-
tors is equal to,or greater than,the market value at the date of grant; for
nonqualified options granted under the 1988 Plan for employees,it is at
least 85 percent of the market value at the date of grant (100 percent
under the 1994 Plan). Options generally are exercisable over a period of
from one to 10 years from the date of grant.
A summary of the status of the Company’s stock options and changes
during the years ended February 29, 2000, and February 28,1999 and
1998,are shown in Table 1. Table 2 summarizes information about stock
options outstanding as of February 29,2000.