CarMax 2001 Annual Report Download - page 41

Stock outstanding and dilutive potential CarMax Group
Common Stock.
(P) STOCK-BASED COMPENSATION: The Company accounts for
stock-based compensation in accordance with Accounting
Principles Board Opinion No. 25, “Accounting For Stock Issued to
Employees,” and provides the pro forma disclosures of SFAS No.
123, “Accounting for Stock-Based Compensation.”
(Q) DERIVATIVE FINANCIAL INSTRUMENTS: The Company enters
into interest rate swap agreements to manage exposure to interest
rates and to more closely match funding costs to the use of funding.
Swaps entered into by a seller as part of a sale of financial assets
are considered proceeds at fair value in the determination of the
gain or loss on the sale. If such a swap were to be terminated, the
impact on the fair value of the financial asset created by the sale of
the related receivables would be estimated and included in earnings.
(R) RISKS AND UNCERTAINTIES: The Circuit City Group is a lead-
ing national retailer of brand-name consumer electronics, personal
computers and entertainment software. The diversity of the Circuit
City Group's products, customers, suppliers and geographic opera-
tions reduces the risk that a severe impact will occur in the near
term as a result of changes in its customer base, competition,
sources of supply or markets. It is unlikely that any one event
would have a severe impact on the Company’s operating results.
The CarMax Group is a used- and new-car retail business. The
diversity of the CarMax Group’s customers and suppliers reduces
the risk that a severe impact will occur in the near term as a
result of changes in its customer base, competition or sources of
supply. However, because of the CarMax Group’s limited overall
size, management cannot assure that unanticipated events will
not have a negative impact on the Company.
The preparation of financial statements in conformity with
accounting principles generally accepted in the United States of
America 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 liabilities.
Actual results could differ from those estimates.
(S) RECLASSIFICATIONS: Certain amounts in prior years have been
reclassified to conform to classifications adopted in fiscal 2001.
3. BUSINESS ACQUISITIONS
The CarMax Group acquired the franchise rights and the related
assets of one new-car dealership for an aggregate cost of $1.3
million in fiscal 2001, five new-car dealerships for an aggregate
cost of $34.8 million in fiscal 2000 and four new-car dealerships
for an aggregate cost of 49.6 million in fiscal 1999. These acquisi-
tions were financed through available cash resources and, in fiscal
1999, the issuance of two promissory notes aggregating $8.0 mil-
lion. Costs in excess of the fair value of the net tangible assets
acquired (primarily inventory) have been recorded as goodwill and
covenants not to compete. These acquisitions were accounted for
under the purchase method and the results of the operations of
each acquired franchise were included in the accompanying con-
solidated financial statements since the dates of acquisition.
Unaudited pro-forma information related to these acquisitions is
not included because the impact of these acquisitions on the
accompanying consolidated financial statements is not material.
4. PROPERTY AND EQUIPMENT
Property and equipment, at cost, at February 28 or 29 is summa-
rized as follows:
(Amounts in thousands) 2001 2000
Land and buildings (20 to 25 years)............ $ 178,042 $ 180,422
Land held for sale........................................... 30,730 41,850
Land held for development........................... 4,285 17,697
Construction in progress ............................... 58,659 69,388
Furniture, fixtures and equipment
(3 to 8 years).............................................. 874,367 750,737
Leasehold improvements
(10 to 15 years).......................................... 619,782 586,005
Capital leases, primarily buildings
(20 years).................................................... 12,471 12,471
1,778,336 1,658,570
Less accumulated depreciation and
amortization .............................................. 789,389 693,389
Property and equipment, net........................ $ 988,947 $ 965,181
Land held for development is land owned for future sites
that are scheduled to open more than one year beyond the fiscal
year reported.
5. DEBT
Long-term debt at February 28 or 29 is summarized as follows:
(Amounts in thousands) 2001 2000
Term loans ............................................................ $230,000 $405,000
Industrial Development Revenue Bonds due
through 2006 at various prime-based rates
of interest ranging from 5.5% to 6.7%........ 4,400 5,419
Obligations under capital leases [NOTE 10] .......... 12,049 12,416
Note payable ........................................................ 2,076 3,750
Total long-term debt ........................................... 248,525 426,585
Less current installments.................................... 132,388 177,344
Long-term debt, excluding current
installments .................................................... $116,137 $249,241
In July 1994, the Company entered into a seven-year,
$100,000,000 unsecured 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 peri-
odically at LIBOR plus 0.40 percent. At February 28, 2001, the
interest rate on the term loan was 5.97 percent.
In May 1995, the Company entered into a five-year,
$175,000,000 unsecured bank term loan. As scheduled, the
Company used existing working capital to repay this term loan
in May 2000.
In June 1996, the Company entered into a five-year,
$130,000,000 unsecured bank term loan. Principal is due in full at
maturity with interest payable periodically at LIBOR plus 0.35 per-
cent. At February 28, 2001, the interest rate on the term loan was
5.73 percent. This term loan is due in June 2001 and was classi-
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CIRCUIT CITY STORES, INC. 2001 ANNUAL REPORT