CarMax 2000 Annual Report Download - page 46

CIRCUIT CITY STORES, INC. 2000 ANNUAL REPORT
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14. COMMITMENTS AND CONTINGENT LIABILITIES
In the normal course of business,the Company is involved in various
legal proceedings. Based upon the Company’s evaluation of the informa-
tion presently available,management believes that the ultimate resolution
of any such proceedings will not have a material adverse effect on the
Company’s financial position,liquidity or results of operations.
15. DISCONTINUED OPERATIONS
On June 16, 1999,Digital Video Express announced that it would cease mar-
keting the Divx home video system and discontinue operations,but exist-
ing,registered customers would be able to view discs during a two-year
phase-out period. The operating results of Divx and the loss on disposal of
the Divx business have been segregated from continuing operations and
reported as separate line items,after tax,on the consolidated statements of
earnings for the periods presented. Discontinued operations also have been
segregated on the consolidated statements of cash flows for the periods pre-
sented. The consolidated balance sheets,however,include Divx.
The loss from the discontinued Divx operations totaled $16.2 million after
an income tax benefit of $9.9 million in fiscal 2000, $68.5 million after an
income tax benefit of $42.0 million in fiscal 1999 and $20.6 million after
an income tax benefit of $12.6 million in fiscal 1998. The loss on the dis-
posal of the Divx business totaled $114.0 million after an income tax bene-
fit of $69.9 million in fiscal 2000. 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. At February 29,2000,the provision for
operating losses during the phase-out period increased to $6.2 million
from the original estimate of $3.0 million because of higher than expected
operating costs during the early stages of discontinuing the business. This
increase was offset by reductions in the provisions for non-operating costs.
The net liabilities or assets of the discontinued Divx operations reflected
in the accompanying consolidated balance sheets at February 29 or 28 are
comprised of the following:
(Amounts in thousands) 2000 1999
Current assets......................................................... $ 612 $ 25,630
Property and equipment,net ................................. 513 23,589
Other assets............................................................ – 7,895
Current liabilities ................................................... (32,650) (23,126)
Other liabilities....................................................... (35,291) (3,397)
Net (liabilities) assets of discontinued operations... $(66,816) $ 30,591
16. OPERATING SEGMENT INFORMATION
The Company conducts business in two operating segments: the Circuit
City Group and the CarMax Group. These segments are identified and
managed by the Company based on the different products and services
offered by each. The Circuit City Group refers to the retail operations bear-
ing 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
consumer electronics,personal computers,major appliances and enter-
tainment software. The CarMax Group refers to the used- and new-car
retail locations bearing the CarMax name and to all related operations,
such as its finance operation. Divx is no longer included as an operating
segment because it was discontinued on June 16,1999. Prior year financial
information has been adjusted to reflect this change. Financial informa-
tion for these segments for fiscal 2000,1999 and 1998 are shown in Table 3.
TABLE 3
2000 Total
(Amounts in thousands) Circuit City Group CarMax Group Segments
Revenues from external customers ............................................................ $10,599,406 $2,014,984 $12,614,390
Interest expense.......................................................................................... 13,844 10,362 24,206
Depreciation and amortization .................................................................. 132,923 15,241 148,164
Earnings from continuing operations before income taxes ....................... 526,955 1,803 528,758
Income tax provision.................................................................................. 200,243 685 200,928
Earnings from continuing operations........................................................ 326,712 1,118 327,830
Total assets ................................................................................................. $ 3,278,728 $ 675,495 $ 3,954,223
1999 Total
(Amounts in thousands) Circuit City Group CarMax Group Segments
Revenues from external customers ............................................................ $ 9,344,170 $1,466,298 $10,810,468
Interest expense.......................................................................................... 21,926 6,393 28,319
Depreciation and amortization .................................................................. 119,724 10,003 129,727
Earnings (loss) from continuing operations before income taxes ............ 379,630 (38,549) 341,081
Income tax provision (benefit)................................................................... 144,646 (15,035) 129,611
Earnings (loss) from continuing operations.............................................. 234,984 (23,514) 211,470
Total assets ................................................................................................. $ 2,816,954 $ 571,198 $ 3,388,152