CarMax 2002 Annual Report Download - page 33

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31 CIRCUIT CITY STORES, INC. ANNUAL REPORT 2002
FINANCIAL CONDITION
Liquidity and Capital Resources
CASH FLOW HIGHLIGHTS
Years Ended February 28 or 29
(Amounts in millions) 2002 2001 2000
Net earnings from continuing operations... $ 218.8 $ 160.8 $ 327.8
Depreciation and amortization.................. $ 150.7 $ 153.1 $ 148.2
Provision for deferred income taxes ........... $ 31.2 $ 19.8 $ 43.1
Cash provided by (used for)
working capital, net ............................. $ 336.7 $(165.7) $ 122.4
Cash provided by operating activities ........ $ 837.2 $ 167.1 $ 638.3
Purchases of property and equipment........ $(214.0) $(285.6) $(222.3)
Proceeds from sales of property
and equipment, net.............................. $ 187.4 $ 115.7 $ 100.2
Net decrease in short-term and
long-term debt..................................... $(123.4) $(179.9) $ (7.7)
Proceeds from CarMax stock
offering, net ......................................... $ 139.5 – –
CASH PROVIDED BY OPERATIONS. Circuit City Stores generated
net cash from operating activities of $837.2 million in fiscal
2002, compared with $167.1 million in fiscal 2001 and $638.3
million in fiscal 2000. The fiscal 2002 improvement primarily
resulted from working capital efficiencies and a $58.0 million
increase in net earnings. Improved supply chain management in
the Circuit City business contributed to a $192.0 million
reduction in working capital used for inventories in fiscal 2002
compared with fiscal 2001. Increases in accounts payable,
accrued expenses and other current liabilities, and accrued
income taxes reduced working capital by an additional $401.0
million in fiscal 2002 compared with fiscal 2001. The increase
in accounts payable primarily reflects 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 the
Circuit City business and an increase in working capital, partly
offset by the increase in earnings for the CarMax business.
INVESTING ACTIVITIES. Net cash used in investing activities was
$26.6 million in fiscal 2002, compared with $171.2 million in fis-
cal 2001 and $157.0 million in fiscal 2000. Capital expenditures
were $214.0 million in fiscal 2002, $285.6 million in fiscal 2001
and $222.3 million in fiscal 2000. Fiscal 2002 capital expen-
ditures included spending for the construction of 11 new and
eight relocated Circuit City Superstores, $19.8 million of capital-
ized Circuit City remodeling expenditures and the construction of
two standard-sized CarMax used-car superstores, one of which
opened during the first quarter of fiscal 2003, and one satellite
used-car superstore. Fiscal 2001 capital expenditures included
spending for the construction of 23 new and two relocated
Circuit City Superstores and $106.0 million of capitalized
Circuit City remodeling expenditures associated with full remodels
of 26 Superstores, primarily in south and central Florida, and
partial remodels associated with the exit from the appliance busi-
ness. Fiscal 2000 capital expenditures included spending for the
construction of 34 new and four relocated Circuit City
Superstores and four CarMax used-car superstores.
Capital expenditures have been funded primarily through
internally generated funds, sale-leaseback transactions, landlord
reimbursements and short- and long-term debt. Net proceeds
from sales of property and equipment, including sale-leasebacks,
totaled $187.4 million in fiscal 2002, $115.7 million in fiscal
2001 and $100.2 million in fiscal 2000. In August 2001, Circuit
City completed a sale-leaseback transaction for its Orlando, Fla.,
distribution center, from which total proceeds of $19.5 million
were received. In November 2001, we completed a sale-leaseback
transaction for Circuit City’s Marion, Ill., distribution center,
from which total proceeds of $29.0 million were received. In
August 2001, CarMax entered into a sale-leaseback transaction
covering nine superstore properties for an aggregate sale price of
$102.4 million. This 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.
In fiscal 2003, we anticipate capital expenditures for the
Circuit City business of approximately $150 million. In fiscal
2003, the Circuit City business plans to open approximately 10
Superstores, remodel the video department and install lighting
upgrades in approximately 300 Superstores and relocate approx-
imately 10 Superstores. We expect Circuit City will continue
incurring remodeling and relocation costs in fiscal years 2004
and 2005.
In fiscal 2003, we anticipate capital expenditures for the
CarMax business of approximately $175 million. CarMax
planned expenditures primarily relate to new store construction,
including furniture, fixtures and equipment and land purchases,
and leasehold improvements to existing properties. CarMax
expects to open four to six stores during fiscal 2003, approxi-
mately one half of which will be satellite stores, and, assuming the
business continues to meet our expectations, 22 to 30 stores over
the following four years. We expect the initial cash investment per
store to be in the range of $20 million to $27 million for a stan-
dard superstore and $10 million to $15 million for a satellite store.
If CarMax takes full advantage of building and land sale-lease-
backs, then we expect the net cash used to fund a new store will be
$8 million to $12 million for a standard superstore and $5 million
to $7 million for a satellite superstore. As a new store matures,
sales financed through CarMax’s finance operation will require
additional use of capital in the form of a seller’s interest in the
receivables or reserves. For a standard used-car superstore, we
would expect the cash investment for the seller’s interest to range
from $0.8 million to $1.5 million at the end of the first year of
operation, growing to $2.2 million to $3.4 million after five years
of operation.
For the Company, we expect that available cash resources,
CarMax’s anticipated credit agreement secured by vehicle inven-
tory, sale-leaseback transactions, landlord reimbursements and
cash generated by operations will be sufficient to fund capital
expenditures for the foreseeable future.
FINANCING ACTIVITIES. In December 2001, CarMax entered
into an $8.5 million secured promissory note in conjunction
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.
CIRCUIT CITY STORES, INC.