CarMax 2000 Annual Report Download - page 62

CIRCUIT CITY STORES, INC. 2000 ANNUAL REPORT
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For the purpose of computing the pro forma amounts indicated,the fair
value of each option on the date of grant is estimated using the Black-
Scholes option-pricing model. The weighted average assumptions used
in the model are as follows:
2000 1999 1998
Expected dividend yield ............................ 0.2% 0.4% 0.4%
Expected stock volatility............................ 38% 33% 33%
Risk-free interest rates............................... 6% 6% 6%
Expected lives (in years)............................ 5 5 4
Using these assumptions in the Black-Scholes model,the weighted aver-
age fair value of options granted for the Circuit City Group is $17 in fiscal
2000,$8 in fiscal 1999 and $7 in fiscal 1998.
8. EARNINGS PER SHARE
Reconciliations of the numerator and denominator of basic and diluted
earnings per share from continuing operations are presented below.
(Amounts in thousands Years Ended February 29 or 28
except per share data) 2000 1999 1998
Weighted average common shares.... 201,345 198,304 196,054
Dilutive potential common shares:
Options........................................ 2,145 1,700 1,684
Restricted stock........................... 831 808 670
Weighted average common shares
and dilutive potential
common shares ........................... 204,321 200,812 198,408
Earnings from continuing operations
available to common
shareholders................................ $327,574 $216,927 $132,710
Basic earnings per share from
from continuing operations ........ $ 1.63 $ 1.09 $ 0.68
Diluted earnings per share from
continuing operations................. $ 1.60 $ 1.08 $ 0.67
Certain options were not included in the computation of diluted earnings
per share because the options’exercise prices were greater than the average
market price of the common shares. Options to purchase 2,900 shares of
Circuit City Group Stock ranging from $43.03 to $47.53 per share were
outstanding and not included in the calculation at the end of fiscal 2000;
2,000,000 shares at $29.50 per share at the end of fiscal 1999; and 3,020,000
shares ranging from $17.74 to $29.50 per share at the end of fiscal 1998.
9. PENSION PLAN
The Company has a noncontributory defined benefit pension plan covering
the majority of full-time employees who are at least age 21 and have com-
pleted one year of service. The cost of the program is being funded
currently. Plan benefits generally are based on years of service and average
compensation. Plan assets consist primarily of equity securities and
included 160,000 shares of Circuit City Stock at February 29,2000,and
February 28,1999.
Eligible employees of the Circuit City Group participate in the Company’s
plan. Pension costs for these employees have been allocated to the Circuit
City Group based on its proportionate share of the projected benefit obli-
gation. The following tables set forth the Circuit City Group’s share of the
Plan’s financial status and amounts recognized in the balance sheets as of
February 29 or 28:
(Amounts in thousands) 2000 1999
Change in benefit obligation:
Benefit obligation at beginning of year................. $110,001 $ 88,166
Service cost............................................................ 13,428 10,479
Interest cost........................................................... 7,384 6,135
Actuarial (gain) loss.............................................. (17,325) 8,511
Benefits paid.......................................................... (4,151) (3,290)
Benefit obligation at end of year............................ $109,337 $110,001
Change in plan assets:
Fair value of plan assets at beginning of year ....... $ 94,125 $ 83,009
Actual return on plan assets.................................. 13,568 4,342
Employer contributions......................................... 11,498 10,064
Benefits paid.......................................................... (4,151) (3,290)
Fair value of plan assets at end of year.................. $115,040 $ 94,125
Reconciliation of funded status:
Funded status........................................................ $ 5,703 $(15,876)
Unrecognized actuarial (gain) loss ....................... (13,326) 8,657
Unrecognized transition asset............................... (398) (598)
Unrecognized prior service benefit....................... (421) (552)
Net amount recognized ......................................... $ (8,442) $ (8,369)
The components of net pension expense are as follows:
Years Ended February 29 or 28
(Amounts in thousands) 2000 1999 1998
Service cost ............................................. $13,428 $10,479 $ 8,365
Interest cost............................................. 7,384 6,135 5,221
Expected return on plan assets............... (8,919) (7,675) (5,060)
Amortization of prior service cost.......... (199) (104) (104)
Amortization of transitional asset.......... (132) (199) (199)
Recognized actuarial loss........................ 10 – –
Net pension expense ............................... $11,572 $ 8,636 $ 8,223
Assumptions used in the accounting for the pension plan were:
Years Ended February 29 or 28
2000 1999 1998
Weighted average discount rate ................. 8.0% 6.8% 7.0%
Rate of increase in compensation levels .... 6.0% 5.0% 5.0%
Expected rate of return on plan assets ...... 9.0% 9.0% 9.0%