CarMax 2001 Annual Report Download - page 82

6. INCOME TAXES
The components of the income tax provision (benefit) on net
earnings (loss) are as follows:
Years Ended February 28 or 29
(Amounts in thousands) 2001 2000 1999
Current:
Federal ..................................... $16,986 $(1,395) $(23,773)
State ......................................... 2,174 855 (2,546)
19,160 (540) (26,319)
Deferred:
Federal ..................................... 8,494 1,190 10,945
State ......................................... 264 35 339
8,758 1,225 11,284
Income tax provision (benefit).... $27,918 $ 685 $(15,035)
The effective income tax rate differed from the federal statu-
tory income tax rate as follows:
Years Ended February 28 or 29
2001 2000 1999
Federal statutory income tax rate ........ 35% 35% 35%
State and local income taxes,
net of federal benefit ........................ 3% 3% 4%
Effective income tax rate....................... 38% 38% 39%
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 liabilities at February 28 or 29 are as follows:
(Amounts in thousands) 2001 2000
Deferred tax assets:
Accrued expenses ........................................ $ 5,173 $ 5,510
Other.............................................................. 235 309
Total gross deferred tax assets............. 5,408 5,819
Deferred tax liabilities:
Depreciation ................................................. 3,850 6,181
Securitized receivables................................ 15,262 4,919
Inventory ...................................................... 6,449 4,655
Prepaid expenses ......................................... 1,629 3,088
Total gross deferred tax liabilities....... 27,190 18,843
Net deferred tax liability.................................. $21,782 $13,024
In assessing the realizability of deferred tax assets, manage-
ment considers the scheduled reversal of deferred tax liabilities,
projected future taxable 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
28, 2001, and February 29, 2000, will be realized by the CarMax
Group; therefore, no valuation allowance is necessary.
7. ASSOCIATE BENEFIT AND STOCK INCENTIVE PLANS
(A) 401(k) PLAN: Effective August 1, 1999, the Company began
sponsoring a 401(k) Plan for all employees meeting certain eligi-
bility 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 expense
for this plan for CarMax Group associates was $686,000 in fiscal
2001 and $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 Common Stock. The rights
are exercisable only upon the attainment of, or the commence-
ment 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 sub-
ject to adjustment. A total of 500,000 shares of such preferred
stock, which have preferential dividend and liquidation rights,
have been designated. 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 deter-
mined to be fair by the board of directors) or engages in certain
transactions with the Company after the rights become exercis-
able, each right will be converted into a right to purchase, for half
the current market 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 similar 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 com-
mon 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 sepa-
rate voting group. On all matters on which both series of com-
mon stock would vote together as a single voting group, (i) each
outstanding share of Circuit City Group Common Stock shall
have one vote and (ii) each outstanding share of CarMax Group
Common Stock shall have a number of votes based on the
weighted average ratio of the market value of a share of
CarMax Group Common Stock to a share of Circuit City Group
Common 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 separate 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.
79
CIRCUIT CITY STORES, INC. 2001 ANNUAL REPORT
Carmax Group