CarMax 2000 Annual Report Download - page 78

CIRCUIT CITY STORES, INC. 2000 ANNUAL REPORT
76
8. INCOME TAXES
The components of the income tax provision (benefit) are as follows:
Years Ended February 29 or 28
(Amounts in thousands) 2000 1999 1998
Current:
Federal ................................ $(1,395) $(23,773) $(17,101)
State .................................... 855 (2,546) (2,913)
(540) (26,319) (20,014)
Deferred:
Federal ................................ 1,190 10,945 (1,259)
State .................................... 35 339 (608)
1,225 11,284 (1,867)
Income tax provision (benefit)... $ 685 $(15,035) $(21,881)
The effective income tax rate differed from the Federal statutory income
tax rate as follows:
Years Ended February 29 or 28
2000 1999 1998
Federal statutory income tax rate......... 35.0% 35.0% 35.0%
State and local income taxes,
net of Federal benefit...................... 3.0 4.0 4.0
Effective income tax rate...................... 38.0% 39.0% 39.0%
In accordance with SFAS No.109,the tax effects of temporary differences
that give rise to a significant portion of the deferred tax assets and liabili-
ties at February 29 or 28 are as follows:
(Amounts in thousands) 2000 1999
Deferred tax assets:
Deferred revenue............................................. $ 91 $ 130
Accrued expenses ........................................... 5,510 2,970
Other............................................................... 218 184
Total gross deferred tax assets .................. 5,819 3,284
Deferred tax liabilities:
Depreciation.................................................... 6,181 4,435
Inventory capitalization.................................. 4,655 4,620
Gain on sales of receivables ............................ 4,919 4,653
Prepaid expenses ............................................ 3,088 1,375
Total gross deferred tax liabilities ............. 18,843 15,083
Net deferred tax liability....................................... $13,024 $11,799
In assessing the realizability of deferred tax assets,management consid-
ers the scheduled reversal of deferred tax liabilities,projected future tax-
able income and tax planning strategies. Based on these considerations,
management believes that it is more likely than not that the gross
deferred tax assets at February 29, 2000, and February 28, 1999, will be
realized by the CarMax Group; therefore,no valuation allowance is necessary.
9. 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 for CarMax Group associates was
$317,000 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
CarMax Group Stock. The rights are exercisable 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
CarMax Group right 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 500,000 shares of such preferred stock,which have preferential divi-
dend and liquidation rights,have been designated and reserved. No such
shares are outstanding. In the event that an acquiring person or group
acquires the specified ownership percentage of the Company’s common
stock (except pursuant to a cash tender 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 purchase,for half the current mar-
ket 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 and an additional 500,000
shares of preferred stock designated as Series E which are related to simi-
lar rights held by Circuit City Group shareholders.
(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