CarMax 2000 Annual Report Download - page 63

CIRCUIT CITY STORES, INC. 2000 ANNUAL REPORT 61
CIRCUIT CITY GROUP
10. LEASE COMMITMENTS
The Circuit City Group conducts a substantial portion of its business in
leased premises. The Circuit City Group’s lease obligations are based
upon contractual minimum rates. For certain locations,amounts in
excess of these minimum rates are payable based upon specified percent-
ages of sales. Rental expense and sublease income for all operating leases
are summarized as follows:
Years Ended February 29 or 28
(Amounts in thousands) 2000 1999 1998
Minimum rentals.............................. $288,037 $273,185 $236,962
Rentals based on sales volume.......... 1,327 1,247 730
Sublease income................................ (16,425) (14,857) (12,879)
Net..................................................... $272,939 $259,575 $224,813
The Circuit City Group computes rent based on a percentage of sales vol-
umes in excess of defined amounts in certain store locations. Most of the
Circuit City Group’s other leases are fixed-dollar rental commitments,
with many containing rent escalations based on the Consumer Price
Index. Most provide that the Circuit City Group pay taxes, maintenance,
insurance and certain other operating expenses applicable to the premises.
The initial term of most real property leases will expire within the next 22
years; however, most of the leases have options providing for additional
lease terms of five years to 25 years at terms similar to the initial terms.
Future minimum fixed lease obligations,excluding taxes,insurance and other
costs payable directly by the Circuit City Group,as of February 29,2000,were:
Operating Operating
(Amounts in thousands) Capital Lease Sublease
Fiscal Leases Commitments Income
2001.................................................. $ 1,681 $ 279,204 $(13,042)
2002.................................................. 1,725 276,428 (11,791)
2003.................................................. 1,726 272,626 (10,801)
2004.................................................. 1,768 271,123 (9,238)
2005.................................................. 1,798 269,236 (8,664)
After 2005......................................... 14,666 2,845,835 (44,935)
Total minimum lease payments....... $23,364 $4,214,452 $(98,471)
Less amounts representing interest... 10,948
Present value of net minimum capital
lease payments [NOTE 5] .............. $12,416
In fiscal 2000,the Company entered into sale-leaseback transactions with
unrelated parties on behalf of the Circuit City Group at an aggregate sell-
ing price of $24,295,000 ($103,750,000 in fiscal 1999 and $120,670,000 in
fiscal 1998). Neither the Company nor the Circuit City Group has continu-
ing involvement under the sale-leaseback transactions.
11. SUPPLEMENTARY FINANCIAL STATEMENT
INFORMATION
Advertising expense from continuing operations,which is included in
selling,general and administrative expenses in the accompanying state-
ments of earnings, amounted to $390,144,000 (3.7 percent of net sales
and operating revenues) in fiscal 2000, $376,316,000 (4.0 percent of net
sales and operating revenues) in fiscal 1999 and $369,998,000 (4.6 per-
cent of net sales and operating revenues) in fiscal 1998.
12. SECURITIZATIONS
On behalf of the Circuit City Group,the Company enters into securitiza-
tion transactions,which allow for the sale of credit card receivables to
unrelated entities,to finance the consumer revolving credit receivables
generated by its wholly owned finance operation. The reduction in the
aggregate securitized amount was $63.8 million for fiscal 2000,and pro-
ceeds from securitization transactions were $224.6 million for fiscal 1999
and $331.4 million for fiscal 1998.
Receivables relating to the securitization facilities consist of the following
at February 29 or 28:
(Amounts in thousands) 2000 1999
Managed receivables ....................................... $2,844,377 $2,957,132
Receivables/residual interests held
by the Circuit City Group:
For sale....................................................... (18,288) (39,948)
For investment........................................... (144,806) (161,996)
Net receivables sold ......................................... $2,681,283 $2,755,188
Net receivables sold with recourse .................. $ 229,000 $ 322,000
Program capacity ............................................ $3,598,350 $3,127,000
Private-label credit card receivables are financed through securitization
programs employing a master trust structure. As of February 29, 2000,
these securitization programs had a capacity of $1.85 billion. The agree-
ment has no recourse provisions.
During fiscal 1998,a bank card master trust securitization facility was estab-
lished and issued two series from the trust. Provisions under the master
trust agreement provide recourse to the Company for any cash flow deficien-
cies on $229 million of the receivables sold. The finance charges from the
transferred receivables are used to fund interest costs,charge-offs,servicing
fees and other related costs. The Company believes that as of February 29,
2000,no liability existed under these recourse provisions. The bank card
securitization program has a total program capacity of $1.75 billion.
Rights recorded for future finance income from serviced assets that exceed
the contractually specified servicing fees are carried at fair value and
amounted to $37.3 million at February 29,2000,$27.3 million at February 28,
1999,and $25.0 million at February 28, 1998, and are included in net
accounts receivable. Changes in these retained interests consisted of
originated retained interests of $52.9 million for fiscal 2000,$37.3 million
for fiscal 1999 and $33.3 million for fiscal 1998,less amortization of
$42.9 million in fiscal 2000,$35.0 million in fiscal 1999 and $11.5 million
in fiscal 1998. The servicing fees specified in the credit card securitization
agreements adequately compensate the finance operation for servicing the
accounts. Accordingly, no servicing asset or liability has been recorded.
The finance operation’s servicing revenue totaled $213.1 million for fiscal
2000,$210.4 million for fiscal 1999 and $195.7 million for fiscal 1998.