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CIRCUIT CITY STORES, INC.
ANNUAL REPORT 2002
A Focus on the Customer

Table of contents

  • Page 1
    CIRCUIT CITY STORES, INC. ANNUAL REPORT 2002 A Focus on the Customer

  • Page 2
    ...; high quality; and customer-friendly service. At the end of fiscal year 2002, CarMax operated 40 retail units in 38 locations, including 35 used-car superstores and 18 new-car franchises. IN THIS REPORT, WE USE THE FOLLOWING TERMS AND DEFINITIONS: Circuit City Stores and Circuit City Stores...

  • Page 3
    ... year after year. CarMax's open, customerfriendly approach to the business has been revolutionary. Without having to negotiate, a CarMax customer knows the low price of the car, of financing and of an extended warranty and the price CarMax will pay the customer for a trade-in. This sales process...

  • Page 4
    ... announced plans to separate the CarMax auto superstore business from the Circuit City consumer electronics business through a tax-free transaction in which CarMax, Inc. will become an independent, separately traded public company. With solid sales and earnings growth over the past two years, CarMax...

  • Page 5
    .... Great service starts with great people. Customers will largely rate their Circuit City experience based on their interaction with our store Associates. In fiscal 2002, we improved this interaction by: â- Completing the move of all sales training to a highly interactive Web-based program that...

  • Page 6
    ... half of the year, new-car manufacturers introduced zero-percent financing incentives to counteract an industry-wide slowdown in new-car sales. For CarMax, the result was increased traffic in all stores as consumers cross-shopped new cars and used cars. CarMax's powerful consumer offer enabled it to...

  • Page 7
    ...Search" option. Fully automated store-to-store transfers. Now, when a customer wants a car transferred to a local store, the transfer is easier, faster and less costly to the company. With a click of the computer mouse, a sales consultant can initiate a used-vehicle transfer from any CarMax location...

  • Page 8
    ... Circuit City's differentiated position as the industry's high-service consumer electronics superstore. We are focusing significant attention on: â- â- â- Providing the best sales assistance possible. Merchandise selection and presentation. Increasing traffic through effective marketing programs...

  • Page 9
    7 C I R C U I T C I T Y S TO R E S , I N C . A N N UA L R E P O RT 2 0 0 2

  • Page 10
    S H A R I N G O U R EXPERTISE

  • Page 11
    ... price, including Circuit City prices, within 30 days after the sale. We also recognize that many of today's consumers prefer to research and shop for products online. At CircuitCity.com, consumers find comprehensive information on more than 3,500 products. Our Web customers can elect to purchase...

  • Page 12
    E XC I T I N G S H O P P I N G E X P E R I E N C E

  • Page 13
    ... familiar products. New products, providing superior home entertainment and computing experiences, are the fuel for our industry's growth. Since their introduction five years ago, DVD players have become the fastest selling consumer electronics product of all time, reaching annual unit sales of 12...

  • Page 14
    © 2002 Warner Home Video. © 2001 Warner Bros. Harry Potter publishing. Rights © J.K. Rowling. Harry Potter characters, names and related indicia are trademarks of Warner Bros. © 2001. All rights reserved (s02) D R I V I N G C U S TO M E R T R A F F I C

  • Page 15
    ... capabilities in all stores, but still have considerable opportunity to upgrade our store base. A multi-year remodeling and relocation program will enable us to progress down this path, giving more and more Circuit City customers a great place to shop. Driving sales by driving traffic. It is not...

  • Page 16
    ... by CarMax Associates in fiscal 2002 illustrated that: â- CarMax's core business - retailing late-model, high-quality used cars - provides the opportunity for excellent growth. The CarMax consumer offer continues to grow in popularity with car shoppers. Unique operating processes and information...

  • Page 17
    ... S (as of February 28, 2002) CALIFORNIA ILLINOIS TEXAS Los Angeles (3) FLORIDA Chicago (7) NORTH CAROLINA Miami (3) Orlando (2) Tampa (2) GEORGIA Charlotte Greensboro Raleigh SOUTH CAROLINA Dallas/Fort Worth (4) Houston (4) San Antonio VIRGINIA Richmond WASHINGTON, D.C./ BALTIMORE (5) Atlanta...

  • Page 18
    Each CarMax superstore offers consumers at least 250 late-model, high-quality used cars and light trucks from which to choose. With CarMax.com and the storeto-store transfer option, consumers have access to CarMax's inventory of more than 14,000 vehicles across the country.

  • Page 19
    ...rates and loan terms, whether through CarMax Auto Finance or one of the other lenders offered at CarMax locations, are based on the customer's credit application and history, the customer's down payment and the car the customer wants to purchase. The credit application is entered online by the sales...

  • Page 20
    Every used car we sell must pass the comprehensive CarMax Certified Quality Inspection. SM Sophisticated statistical modeling using data we capture from every store helps guide our superstore purchasing managers to assure that each store has the optimal inventory for its trade area.

  • Page 21
    ... If the customer buys the transferred car, $150 of any transfer fee charged is credited as part of the customer's payment for the car. Customer-Friendly Service CarMax has removed the contentious haggling over price, and a CarMax sales consultant is paid the same dollar commission for selling a $23...

  • Page 22
    ... CarMax Associates are the backbone of our business. These APPRAISALS COMPLETED (IN THOUSANDS) USED CARS SOLD (IN THOUSANDS) COMPARABLE STORE SALES GROWTH 810+ Associates at our Laurel, Md., 500+ 650+ Laurel Toyota store. FY00 FY01 FY02 FY00 FY01 FY02 FY00 2% FY01 17% FY02 used-car...

  • Page 23
    ... Associates and shareholders. CarMax sales consultants take our customers through the entire sales process, from the test drive through financing to delivery. A sales consultant is paid a flat, dollar commission on each vehicle sold, so his or her only concern is helping customers find the cars...

  • Page 24
    ... $ 252 $ 166 $ 190 Cash dividends per share paid on Circuit City Group Common Stock ...$ 0.07 Return on average stockholders' equity (%) ...8.6 Number of Associates at year-end ...52,035 Number of Circuit City retail units at year-end ...624 Number of CarMax retail units at year-end...40 $ 0.07...

  • Page 25
    ... of the public offering. On February 22, 2002, Circuit City Stores, Inc. announced that its board of directors had authorized management to initiate a process that would separate the CarMax auto superstore business from the Circuit City consumer electronics business through a tax-free transaction in...

  • Page 26
    ...by using management's projections of key factors, such as finance charge income, default rates, payment rates, forward interest rate curves and discount rates appropriate for the type of asset and risk. These projections are derived from CIRCUIT CITY STORES, INC . ANNUAL REPORT 2002 24 THE CIRCUIT...

  • Page 27
    ... STORE SALES CHANGE Fiscal Video...Audio...Information Technology...Entertainment ...Appliances ... 39% 15 34 12 - 35% 16 35 7 7 100% 32% 16 33 5 14 100% 31% 17 32 5 15 100% 31% 18 30 6 15 100% 2002 2001 2000 Total ...100% In most states, Circuit City sells extended warranty programs...

  • Page 28
    ...an industry-wide slowdown in new-car sales. New-car manufacturers returned to more conventional sales and financing incentives in January 2002. Increased average retail prices resulting from a higher mix of later-model used cars, luxury vehicles and sport utility vehicles and higher new-car average...

  • Page 29
    ... on the gross margin and thus profitability. our specific gross profit dollar targets per vehicle, increased average retail prices resulting from a higher mix of later-model used cars, luxury vehicles and sport utility vehicles generated the decline in gross profit as a percentage of sales in...

  • Page 30
    ... 2002 improvement. The decline in fiscal 2001 reï¬,ects the lower earnings for the Circuit City business, partly offset by the increased earnings achieved by the CarMax business. In a public offering completed during the second quarter of fiscal 2002, the Company sold 9,516,800 shares of CarMax...

  • Page 31
    ... store size going forward. We also believe that we can add approximately 10 satellite stores in CarMax's existing markets. In fiscal 2003, CarMax plans to open four to six stores, approximately one half of which are expected to be satellite stores. 29 CIRCUIT CITY STORES, INC . ANNUAL REPORT 2002...

  • Page 32
    ... these rebate expenses from cost of sales, buying and warehousing to net sales and operating revenues to be in compliance with EITF No. 00-14. On a pro forma basis, this reclassification would have increased the fiscal 2002 Circuit City Stores, Inc. gross profit margin by 12 basis points...

  • Page 33
    ...scal 2002 compared with fiscal 2001. The increase in accounts payable primarily reï¬,ects extended payment terms achieved through supply chain management in the Circuit City business. The fiscal 2001 decline in cash provided by operating activities was largely a function of lower net earnings for...

  • Page 34
    ... conducted tests of a co-branded Circuit City bankcard, which offers more utility to the customer than the private-label card. We are considering transitioning our privatelabel program to this card. On a monthly basis, CarMax's finance operation sells its automobile loan receivables to a special...

  • Page 35
    ...surplus cash, issuance and repayment of debt, securitization of receivables, sale-leasebacks of real estate and inter-group loans. In February 2002, Circuit City Stores, Inc. announced plans to separate the CarMax business from the Circuit City business in a tax-free transaction in which CarMax, Inc...

  • Page 36
    ... yield of Circuit City's variable rate credit cards may be contractually limited or limited at some point by competitive conditions. Interest rate exposure relating to CarMax's securitized automobile loan receivables represents a market risk exposure that we manage with matched funding and interest...

  • Page 37
    ... has authorized management to initiate a process that would separate the CarMax business from the Circuit City business through a tax-free transaction in which CarMax, Inc. would become an independent, separately traded public company. CarMax, Inc. has filed a registration statement related to this...

  • Page 38
    ... operations ...Net earnings...$ Circuit City Group diluted: Continuing operations ...$ Discontinued operations ...Net earnings...$ CarMax Group basic...$ CarMax Group diluted ...$ See accompanying notes to consolidated financial statements. CIRCUIT CITY STORES, INC . ANNUAL REPORT 2002 36...

  • Page 39
    CONSOLIDATED BALANCE SHEETS At February 28 (Amounts in thousands except share data) ASSETS CURRENT ASSETS: 2002 2001 CIRCUIT CITY STORES, INC . Cash and cash equivalents [NOTE 2]...$1,251,532 Net accounts receivable [NOTE 11] ...726,541 Inventory ...1,633,327 Prepaid expenses and other current ...

  • Page 40
    ... payments on long-term debt [NOTE 4] ...Issuances of Circuit City Group Common Stock, net...Issuances of CarMax Group Common Stock, net...Proceeds from CarMax Group Common Stock offering, net [NOTE 1] ...Dividends paid on Circuit City Group Common Stock ...NET CASH PROVIDED BY (USED IN) FINANCING...

  • Page 41
    ... by Company ...Unearned compensation-restricted stock...Cash dividends-Circuit City Group Common Stock ($0.07 per share) ...Net earnings ...Sale of CarMax Group Common Stock [NOTE 1] ...Exercise of common stock options [NOTE 6] ...Shares issued under employee stock purchase plans [NOTE 6] ...Shares...

  • Page 42
    ... and Exchange Commission. On February 22, 2002, Circuit City Stores, Inc. announced that its board of directors had authorized management to initiate a process that would separate the CarMax auto superstore business from the Circuit City consumer electronics business through a tax-free transaction...

  • Page 43
    ... in earnings. Retained interests are included in net accounts receivable on the consolidated balance sheets. (D) FAIR VALUE OF FINANCIAL INSTRUMENTS: The carrying value of the Company's cash and cash equivalents, credit card, automobile loan and other receivables, accounts payable, short-term...

  • Page 44
    ...terms of coverage from 12 to 72 months. Because third parties are the primary obligors under these warranties, commission revenue is recognized at the time of sale, net of a provision for estimated customer returns of the warranties. (L) DEFERRED REVENUE: Circuit City sells its own extended warranty...

  • Page 45
    ... sites that are scheduled to open more than one year beyond the fiscal year reported. 4. DEBT Long-term debt at February 28 is summarized as follows: (Amounts in thousands) 2002 2001 Term loans...$100,000 $230,000 Industrial Development Revenue Bonds due through 2006 at various prime-based rates...

  • Page 46
    .... (B) SHAREHOLDER RIGHTS PLAN: In conjunction with the Company's Shareholder 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 Circuit City Group Common Stock and CarMax Group Common Stock. The rights are...

  • Page 47
    ... the plans, the Company matches $0.15. Purchases are limited to 10 percent of an employee's eligible compensation, up to a maximum of $7,500 per year. The Company has authorized 15,500,000 shares of Circuit City Group Common Stock and 2,000,000 shares of CarMax Group Common Stock for purchase under...

  • Page 48
    ... summarizes information about stock options outstanding as of February 28, 2002. The Company applies APB Opinion No. 25 and related interpretations in accounting for its stock option plans. Accordingly, no compensation cost has been recognized. Had compensation cost been determined based on the fair...

  • Page 49
    ... Net earnings available to common shareholders ...$ 27,996 Basic net earnings per share ...$ 0.87 0.82 Diluted net earnings per share ...$ Circuit City Group: Expected dividend yield...0.6% Expected stock volatility ...62% Risk-free interest rates...5% Expected lives (in years) ...5 CarMax Group...

  • Page 50
    ...11,463 $12,908 Assumptions used in the accounting for the pension plan were: Years Ended February 28 or 29 2002 2001 2000 Weighted average discount rate...Rate of increase in compensation levels: Circuit City Group ...CarMax Group...Expected rate of return on plan assets ... 7.25% 6.00% 7.00% 9.00...

  • Page 51
    ... minimum tangible net worth, minimum delinquency rates and minimum coverage of rent and interest expense. Circuit City was in compliance with these covenants at February 28, 2002 and 2001. The total principal amount of credit card receivables managed was $2.85 billion at February 28, 2002, and $2.80...

  • Page 52
    ...City estimates future cash ï¬,ows using management's projections of key factors, such as finance charge income, default rates, payment rates, forward interest rate curves and discount rates appropriate for the type of asset and risk. Circuit City employs a risk-based pricing strategy that increases...

  • Page 53
    ... rental market for these leased properties. These expenses are reported separately on 51 CIRCUIT CITY STORES, INC . ANNUAL REPORT 2002 CIRCUIT CITY STORES, INC . The market and credit risks associated with interest rate caps and interest rate swaps are similar to those relating to other types of...

  • Page 54
    ... required impairment tests of goodwill, as outlined in the new pronouncement. Based on preliminary estimates, as well as ongoing periodic assessments of goodwill, the Company does not expect to recognize any material impairment losses from these tests. CIRCUIT CITY STORES, INC . ANNUAL REPORT 2002...

  • Page 55
    ...ned in that Opinion). SFAS No. 144 17. OPERATING SEGMENT INFORMATION The Company conducts business in two operating segments: Circuit City and CarMax. These segments are identified and managed by the Company based on the different products and services offered by each. Circuit City refers to the...

  • Page 56
    ... operations and their cash ï¬,ows for each of the fiscal years in the three-year period ended February 28, 2002, in conformity with accounting principles generally accepted in the United States of America. KPMG LLP Richmond, Virginia April 2, 2002 CIRCUIT CITY STORES, INC . ANNUAL REPORT 2002 54

  • Page 57
    ... of the public offering. On February 22, 2002, Circuit City Stores, Inc. announced that its board of directors had authorized management to initiate a process that would separate the CarMax auto superstore business from the Circuit City consumer electronics business through a tax-free transaction in...

  • Page 58
    ... the customer. In the three states where third-party warranty sales are not permitted, Circuit City sells an extended warranty for which we are the primary obligor. Gross dollar sales from all extended warranty programs were 5.1 percent of total sales of the Circuit City business in fiscal 2002 and...

  • Page 59
    ... significant short-term change overall. Because we purchase substantially all products sold in Circuit City stores in U.S. dollars, prices are not directly impacted by the value of the dollar in relation to foreign currencies. Cost of Sales, Buying and Warehousing The gross profit margin was 24...

  • Page 60
    ... resources on store remodeling, sales counselor training, customer service enhancements, marketing programs and supply chain initiatives to take advantage of the growth opportunities these products provide and thus improve our sales and profitability. Over the past two years, we have experimented...

  • Page 61
    ... and Financial Condition" for the estimated contribution of the Circuit City business earnings attributed to the Circuit City Group Common Stock in fiscal 2003. with fiscal 2001. The increase in accounts payable primarily reï¬,ects extended payment terms achieved through supply chain management...

  • Page 62
    ... offers more utility to the consumer than the private-label card. We are considering transitioning our private-label program to this card. During the second quarter of fiscal 2002, Circuit City Stores, Inc. completed the public offering of 9,516,800 shares of CarMax Group Common Stock. The shares...

  • Page 63
    ...: (Amounts in millions) 2002 2001 Floating-rate securitizations ...$2,798 Held for sale...49 Total...$2,847 $2,754 45 $2,799 The Company manages the market risk associated with the private-label credit card and bankcard revolving loan portfolios of Circuit City's finance operation. Portions...

  • Page 64
    CIRCUIT CITY GROUP STATEMENTS OF EARNINGS (Amounts in thousands) 2002 % Years Ended February 28 or 29 2001 % 2000 % NET SALES AND OPERATING REVENUES ...$9,589,803 100.0 Cost of sales, buying and warehousing ...Appliance exit costs [NOTE 13] ...GROSS PROFIT ... 7,251,831 10,000 2,327,972 2,...

  • Page 65
    ... and equipment, net [NOTES 3 AND 4] ...Deferred income taxes ...Reserved CarMax Group shares [NOTE 2] ...Other assets... 3,075,008 732,802 2,647 311,386 11,354 TOTAL ASSETS ...$4,133,197 LIABILITIES AND GROUP EQUITY CURRENT LIABILITIES: $3,452,559 Current installments of allocated long-term debt...

  • Page 66
    ... short-term debt, net ...Decrease in allocated long-term debt, net...Issuances of Circuit City Group Common Stock, net...Allocated proceeds from CarMax Group Common Stock offering, net [NOTE 1] ...Dividends paid...NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES OF CONTINUING OPERATIONS ...CASH...

  • Page 67
    ... to Group financial statements. 65 CIRCUIT CITY STORES, INC . ANNUAL REPORT 2002 CIRCUIT CITY GROUP Net earnings...Equity issuances, net ...Cash dividends...Allocated proceeds from CarMax Group Common Stock offering, net [NOTE 1] ...Reserved CarMax Group shares adjustment [NOTES 1 AND 2] ...

  • Page 68
    ... and Exchange Commission. On February 22, 2002, Circuit City Stores, Inc. announced that its board of directors had authorized management to initiate a process that would separate the CarMax auto superstore business from the Circuit City consumer electronics business through a tax-free transaction...

  • Page 69
    ... earnings process is complete, generally at either the time of sale to a customer or upon delivery to a customer. Circuit City sells extended warranty contracts on behalf of unrelated third parties. The contracts extend beyond the normal manufacturer's warranty period, usually with terms (including...

  • Page 70
    ... Circuit City Group also is subject to risks and uncertainties related to the CarMax Group because of the reserved CarMax Group shares. CarMax is a used- and new-car retail business. The diversity of CarMax's customers and suppliers reduces the risk that a severe impact will occur in the near term...

  • Page 71
    ...scheduled, the Company used existing working capital to repay this term loan in June 2001. The Company maintains a multi-year, $150,000,000 unsecured revolving credit agreement with four banks. The agreement calls for interest based on both committed rates and money market rates and a commitment fee...

  • Page 72
    ... 28, 2002, 2,317,348 restricted shares of Circuit City Group Common Stock were outstanding. (D) STOCK INCENTIVE PLANS: Under the Company's stock incentive plans, nonqualified stock options may be granted to management, key employees and outside directors to purchase shares of Circuit City Group...

  • Page 73
    ...summarizes information about stock options outstanding as of February 28, 2002. Circuit City applies APB Opinion No. 25 and related interpretations in accounting for its stock option plans. Accordingly, no compensation cost has been recognized. Had compensation cost been determined based on the fair...

  • Page 74
    ... on years of service and average compensation. Plan assets consist primarily of equity securities and included 160,000 shares of Circuit City Group Common Stock at February 28, 2002 and 2001. Eligible employees of Circuit City participate in the Company's plan. Pension costs for these employees have...

  • Page 75
    ... over the term of the leases. Neither the Company nor the Circuit City Group has continuing involvement under sale-leaseback transactions. Non-appliance-related lease termination costs were $25.8 million in fiscal 2002, of which $13.7 million was related to current year relocations; $1.1 million...

  • Page 76
    ...City estimates future cash ï¬,ows using management's projections of key factors, such as finance charge income, default rates, payment rates, forward interest rate curves and discount rates appropriate for the type of asset and risk. Circuit City employs a risk-based pricing strategy that increases...

  • Page 77
    ... exit the appliance business, the Company closed eight distribution centers and eight service centers. The majority of these closed properties are leased. While the Company has entered into contracts to sublease some of these properties, it continues the process of marketing the remaining properties...

  • Page 78
    ... Company expects to reclassify these rebate expenses from cost of sales, buying and warehousing to net sales and operating revenues to be in compliance with EITF No. 00-14. On a pro forma basis, this reclassification would have increased the fiscal 2002 Circuit City Group gross profit margin by...

  • Page 79
    ... cash ï¬,ows for each of the fiscal years in the three-year period ended February 28, 2002, in conformity with accounting principles generally accepted in the United States of America. KPMG LLP Richmond, Virginia April 2, 2002 77 CIRCUIT CITY STORES, INC . ANNUAL REPORT 2002 CIRCUIT CITY GROUP...

  • Page 80
    ...the "Net Earnings" section below for further discussion of the public offering. On February 22, 2002, Circuit City Stores, Inc. announced that its board of directors had authorized management to initiate a process that would separate the CarMax auto superstore business from the Circuit City consumer...

  • Page 81
    ... in Los Angeles, Calif., with one used-car superstore within the next two fiscal years. The fiscal 2001 total sales increase reï¬,ects a 17 percent increase in the comparable store vehicle dollar sales of the CarMax business, driven by higher-than-anticipated used-car sales, and the net addition...

  • Page 82
    ... targets per vehicle, increased average retail prices resulting from a higher mix of later-model used cars, luxury vehicles and sport utility vehicles generated the decline in gross profit as a percentage of sales in fiscal 2002. Used-car gross profit dollars are similar across makes and models...

  • Page 83
    ... transaction, which represented the first sale-leaseback entered into by CarMax without a Circuit City Stores, Inc. guarantee, was structured at competitive rates with an initial lease term of 15 years and two 10-year renewal options. 81 CIRCUIT CITY STORES, INC . ANNUAL REPORT 2002 CARMAX GROUP

  • Page 84
    ...with the purchase of land for new store construction. This note, which is payable in August 2002, was included in short-term debt as of February 28, 2002. As scheduled, the Company used existing working capital to repay a $130 million term loan in fiscal 2002 and a $175 million term loan in fiscal...

  • Page 85
    ...basis to match funding costs to the use of the funding. Credit risk is the exposure to nonperformance of another party to an agreement. The Company mitigates credit risk by dealing with highly rated bank counterparties. FORWARD-LOOKING STATEMENTS The Company manages the market risk associated with...

  • Page 86
    ...Earnings before income taxes ...Provision for income taxes [NOTES 1 AND 5]...NET EARNINGS ...$ Net earnings attributed to [NOTE 1]: Circuit City Group Common Stock...$ CarMax Group Common Stock...$ See accompanying notes to Group financial statements. CIRCUIT CITY STORES, INC . ANNUAL REPORT 2002...

  • Page 87
    ... 3,620 319,450 391,503 $710,953 CARMAX GROUP 223,392 - 8,416 2,935 234,743 485,479 Commitments and contingent liabilities [NOTES 1, 7, 8 AND 12] TOTAL LIABILITIES AND GROUP EQUITY ...$720,222 See accompanying notes to Group financial statements. 85 CIRCUIT CITY STORES, INC . ANNUAL REPORT 2002

  • Page 88
    ... Cash used in business acquisitions...Purchases of property and equipment...Proceeds from sales of property and equipment, net...NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES ...FINANCING ACTIVITIES: - (41,417) 98,965 57,548 Increase (decrease) in allocated short-term debt, net...(Decrease...

  • Page 89
    ...950 391,503 90,802 3,174 Net earnings...Equity issuances, net ...BALANCE AT FEBRUARY 28, 2001 ... Net earnings...Equity issuances, net ... BALANCE AT FEBRUARY 28, 2002 ...$485,479 See accompanying notes to Group financial statements. 87 CIRCUIT CITY STORES, INC . ANNUAL REPORT 2002 CARMAX GROUP

  • Page 90
    ... and Exchange Commission. On February 22, 2002, Circuit City Stores, Inc. announced that its board of directors had authorized management to initiate a process that would separate the CarMax auto superstore business from the Circuit City consumer electronics business through a tax-free transaction...

  • Page 91
    ...usually have terms of coverage from 12 to 72 months. Because third parties are the primary obligors under these warranties, commission revenue is recognized at the time of sale, net of a provision for estimated customer returns of the warranties. (J) SELLING, GENERAL AND ADMINISTRATIVE EXPENSES: Pro...

  • Page 92
    ...scheduled, the Company used existing working capital to repay this term loan in June 2001. The Company maintains a multi-year, $150,000,000 unsecured revolving credit agreement with four banks. The agreement calls for interest based on both committed rates and money market rates and a commitment fee...

  • Page 93
    ... in conjunction with the purchase of land for new store construction. This note is due in August 2002 and was classified as short-term debt at February 28, 2002. The scheduled aggregate annual principal payments on the Company's long-term obligations for the next five fiscal years are as follows...

  • Page 94
    ... up to 15 percent of their salaries, and the Company matches a portion of those employee contributions. The Company's expense for this plan for CarMax associates was $885,000 in fiscal 2002, $686,000 in fiscal 2001 and $317,000 in fiscal 2000. CIRCUIT CITY STORES, INC . ANNUAL REPORT 2002 92

  • Page 95
    ...plan. Pension costs for these employees have been allocated to CarMax based on its proportionate share of the projected benefit obligation. Company 93 CIRCUIT CITY STORES, INC . ANNUAL REPORT 2002 CARMAX GROUP Expected dividend yield...- Expected stock volatility ...79% Risk-free interest rates...

  • Page 96
    ...a Circuit City Stores, Inc. guarantee, was structured at competitive rates with an initial lease term of 15 years and two 10-year renewal options. In conjunction with this sale-leaseback transaction, CarMax must meet financial covenants relating to minimum tangible net worth and minimum coverage of...

  • Page 97
    ...CarMax estimates future cash ï¬,ows using management's projections of key factors, such as finance charge income, default rates, payment rates and discount rates appropriate for the type of asset and risk. CarMax employs a risk-based pricing strategy that increases the stated annual percentage rate...

  • Page 98
    .... The Company mitigates credit risk by dealing with highly rated bank counterparties. 12. CONTINGENT LIABILITIES In the normal course of business, CarMax is involved in various legal proceedings. Based upon CarMax's evaluation of the information presently available, management believes that...

  • Page 99
    ... LLP Richmond, Virginia April 2, 2002 97 CIRCUIT CITY STORES, INC . ANNUAL REPORT 2002 CARMAX GROUP We have audited the accompanying balance sheets of the CarMax Group (as defined in Note 1) as of February 28, 2002 and 2001, and the related statements of earnings, group equity and cash ï¬,ows...

  • Page 100
    ... discuss accounting controls, audit findings and financial reporting matters. W. Alan McCollough President and Chief Executive Officer Michael T. Chalifoux Executive Vice President, Chief Financial Officer and Corporate Secretary April 2, 2002 CIRCUIT CITY STORES, INC . ANNUAL REPORT 2002 98

  • Page 101
    ... Vice President Tax Accounting Scott A. Rivas Vice President Human Resources Fiona P. Dias Senior Vice President Marketing William E. McCorey Vice President Management Information Systems Janice A. McNee Assistant Vice President Marketing Angela C. Schwarz Vice President CarMax Auto Finance...

  • Page 102
    ...; Atlanta, Georgia Michael T. Chalifoux (1) Executive Vice President, Chief Financial Officer and Corporate Secretary Richard N. Cooper (2,5) Professor of Economics, Harvard University; Boston, Massachusetts Barbara S. Feigin (2,3) Consultant; Retired, Executive Vice President, Worldwide Director of...

  • Page 103
    ...I O N STOCK INFORMATION ANNUAL MEETING SHAREHOLDER INQUIRIES CORPORATE OFFICES Circuit City Stores, Inc. 9950 Mayland Drive Richmond, Virginia 23233-1464 (804) 527-4000 CarMax 4900 Cox Road Glen Allen, Virginia 23060-6295 (804) 747-0422 WEB SITES Listed on the New York Stock Exchange Circuit City...

  • Page 104
    Circuit City Stores, Inc. 9950 Mayland Drive Richmond, Virginia 23233-1464 CarMax 4900 Cox Road Glen Allen, Virginia 23060-6295