CarMax 2000 Annual Report Download - page 58

CIRCUIT CITY STORES, INC. 2000 ANNUAL REPORT
56
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets,liabilities,
revenues and expenses and the disclosure of contingent assets and liabili-
ties. Actual results could differ from those estimates.
(Q) RECLASSIFICATIONS: Certain amounts in prior years have been reclassi-
fied to conform to classifications adopted in fiscal 2000.
3. CORPORATE ACTIVITIES
The Circuit City Group’s financial statements reflect the application of the
management and allocation policies adopted by the board of directors to
various corporate activities, as described below:
(A) FINANCIAL ACTIVITIES: Most financial activities are managed by the
Company on a centralized basis. Such financial activities include the
investment of surplus cash and the issuance and repayment of short-term
and long-term debt. Allocated invested surplus cash of the Circuit City
Group consists of (i) Company cash equivalents,if any, that have been
allocated in their entirety to the Circuit City Group and (ii) a portion of
the Company’s cash equivalents that are allocated between the Groups.
Allocated debt of the Circuit City Group consists of (i) Company debt,if
any,that has been allocated in its entirety to the Circuit City Group and (ii) a
portion of the Company’s pooled debt,which is debt allocated between
the Groups. The pooled debt bears interest at a rate based on the average
pooled debt balance. Expenses related to increases in pooled debt are
reflected in the weighted average interest rate of such pooled debt as a whole.
(B) CORPORATE GENERAL AND ADMINISTRATIVE COSTS: Corporate general
and administrative costs and other shared services generally have been
allocated to the Circuit City Group based upon utilization of such services
by the Group. Where determinations based on utilization alone have been
impractical, other methods and criteria were used that management
believes are equitable and provide a reasonable estimate of the costs
attributable to the Group.
(C) INCOME TAXES: The Circuit City Group is included in the consolidated
federal income tax return and certain state tax returns filed by the Com-
pany. Accordingly, the provision for federal income taxes and related pay-
ments of tax are determined on a consolidated basis. The financial
statement provision and the related tax payments or refunds are reflected
in each Group’s financial statements in accordance with the Company’s
tax allocation policy for such Groups. In general,this policy provides that
the consolidated tax provision and related tax payments or refunds will
be allocated between the Groups based principally upon the financial
income,taxable income,credits and other amounts directly related to
each Group. Tax benefits that cannot be used by the Group generating
such attributes,but can be utilized on a consolidated basis,are allocated
to the Group that generated such benefits. As a result,the allocated Group
amounts of taxes payable or refundable are not necessarily comparable to
those that would have resulted if the Groups had filed separate tax returns.
4. PROPERTY AND EQUIPMENT
Property and equipment, at cost,at February 29 or 28 is summarized as
follows:
(Amounts in thousands) 2000 1999
Land and buildings (20 to 25 years)............ $ 98,537 $ 59,823
Construction in progress............................. 51,378 103,309
Furniture, fixtures and equipment
(3 to 8 years).......................................... 690,512 654,156
Leasehold improvements
(10 to 15 years)...................................... 566,103 534,015
Capital leases,primarily buildings
(20 years)............................................... 12,471 12,471
1,419,001 1,363,774
Less accumulated depreciation and
amortization.......................................... 665,676 561,947
Property and equipment,net ...................... $ 753,325 $ 801,827
5. DEBT
Long-term debt of the Company at February 29 or 28 is summarized as
follows:
(Amounts in thousands) 2000 1999
Term loans...................................................... $405,000 $405,000
Industrial Development Revenue
Bonds due through 2006 at various
prime-based rates of interest ranging
from 5.0% to 7.0%.................................... 5,419 6,564
Obligations under capital
leases [NOTE 10].......................................... 12,416 12,728
Note payable................................................... 3,750 5,000
Total long-term debt....................................... 426,585 429,292
Less current installments............................... 177,344 2,707
Long-term debt,excluding
current installments ................................. 249,241 426,585
Portion of long-term debt allocated
to the Circuit City Group........................... $213,719 $288,322
In July 1994,the Company entered into a seven-year,$100,000,000,unse-
cured bank term loan. The loan was restructured in August 1996 as a
$100,000,000,six-year unsecured bank term loan. Principal is due in full
at maturity with interest payable periodically at LIBOR plus 0.40 percent.
At February 29, 2000, the interest rate on the term loan was 6.29 percent.
In May 1995,the Company entered into a five-year,$175,000,000,unse-
cured bank term loan. Principal is due in full at maturity with interest
payable periodically at LIBOR plus 0.35 percent. At February 29, 2000, the
interest rate on the term loan was 6.23 percent. This term loan is due in
May 2000 and has been classified as a current liability as of February 29,