CarMax 2002 Annual Report Download - page 61

59 CIRCUIT CITY STORES, INC. ANNUAL REPORT 2002
CIRCUIT CITY GROUP
digital product innovation, will contribute to this growth. We
plan to open approximately 10 Superstores in fiscal 2003. Given
our presence in virtually all of the nation’s top metropolitan
markets, new Superstores are being added in one- or two-store
markets or to increase our presence in existing major markets.
Because of the limited planned geographic expansion, we expect
total sales growth to only slightly exceed comparable store sales
growth. We expect relatively stable gross profit margins in fiscal
2003. We also expect a modest increase in the expense ratio in
fiscal 2003, despite the anticipated increase in comparable store
sales. Planned increases in remodeling and relocation expenses,
advertising and systems enhancements are among the antici-
pated contributors to the higher expense ratio. For the full year,
we expect the fiscal 2003 profit contribution from Circuit City’s
finance operation to be similar to the contribution in fiscal
2002. Refer to the “Circuit City Stores, Inc. Management’s
Discussion and Analysis of Results of Operations and Financial
Condition” for the estimated contribution of the Circuit City
business earnings attributed to the Circuit City Group Com-
mon Stock in fiscal 2003.
RECENT ACCOUNTING PRONOUNCEMENTS
Refer to the “Circuit City Stores, Inc. Management’s Discussion
and Analysis of Results of Operations and Financial Condition”
for a review of recent accounting pronouncements.
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 before income attributed
to the reserved CarMax shares.............. $ 128.0 $ 115.2 $ 326.7
Depreciation and amortization.................. $ 134.4 $ 126.3 $ 132.9
Provision for deferred income taxes ........... $ 28.0 $ 11.0 $ 41.8
Cash provided by (used for) working
capital, net ........................................... $ 407.6 $(102.0) $ 168.0
Cash provided by operating activities ........ $ 794.6 $ 149.2 $ 661.8
Purchases of property and equipment........ $(172.6) $(274.7) $(176.9)
Proceeds from sales of property
and equipment, net.............................. $ 88.5 $ 100.2 $ 74.8
Net decrease in allocated short-term
and long-term debt .............................. $ (19.6) $(157.6) $ (76.6)
Allocated proceeds from CarMax stock
offering, net ......................................... $ 139.5 – –
CASH PROVIDED BY OPERATIONS. Circuit City generated net cash
from operating activities of $794.6 million in fiscal 2002, com-
pared with $149.2 million in fiscal 2001 and $661.8 million in
fiscal 2000. The fiscal 2002 improvement primarily resulted
from working capital efficiencies. Improved supply chain man-
agement contributed to a $181.2 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 $385.5 million in fiscal 2002 compared
with fiscal 2001. The increase in accounts payable primarily
reflects extended payment terms achieved through supply chain
management. The fiscal 2001 decline in cash provided by oper-
ating activities was largely a function of lower net earnings and
an increase in working capital.
INVESTING ACTIVITIES. Net cash used in investing activities was
$84.1 million in fiscal 2002, compared with $174.5 million in
fiscal 2001 and $102.1 million in fiscal 2000. The Circuit City
Group’s capital expenditures were $172.6 million in fiscal
2002, $274.7 million in fiscal 2001 and $176.9 million in fis-
cal 2000. Fiscal 2002 capital expenditures included spending
for the construction of 11 new and eight relocated Circuit City
Superstores and $19.8 million of capitalized remodeling expen-
ditures. Fiscal 2001 capital expenditures included spending for
the construction of 23 new and two relocated Circuit City
Superstores and $106.0 million of capitalized 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 business. Fiscal
2000 capital expenditures included spending for the construc-
tion of 34 new and four relocated Circuit City Superstores.
Capital expenditures have been funded primarily through
internally generated funds, sale-leaseback transactions, landlord
reimbursements and allocated short- and long-term debt. Net
proceeds from sales of property and equipment, including sale-
leasebacks, totaled $88.5 million in fiscal 2002, $100.2 million
in fiscal 2001 and $74.8 million in fiscal 2000. In August 2001,
we completed a sale-leaseback transaction for the Orlando, Fla.,
distribution center, from which total proceeds of $19.5 million
were received. In November 2001, we completed a sale-lease-
back transaction for the Marion, Ill., distribution center, from
which total proceeds of $29.0 million were received.
In fiscal 2003, we anticipate capital expenditures for the
Circuit City business of approximately $150 million. In fiscal
2003, we plan to open approximately 10 Superstores, remodel
the video department and install lighting upgrades in approxi-
mately 300 Superstores and relocate approximately 10
Superstores. We expect to continue incurring remodeling and
relocation costs in fiscal years 2004 and 2005.
We expect that available cash resources, sale-leaseback trans-
actions, landlord reimbursements and cash generated by opera-
tions will be sufficient to fund capital expenditures of the
Circuit City business for the foreseeable future.
FINANCING ACTIVITIES. Most financial activities, including the
investment of surplus cash and the issuance and repayment of
short-term and long-term debt, are managed by the Company
on a centralized basis. Allocated debt of the Circuit City Group
consists of (1) Company debt, if any, that has been allocated in
its entirety to the Circuit City Group and (2) a portion of the
Company’s debt that is allocated between the Groups. This
pooled debt bears interest at a rate based on the average pooled
debt balance. Expenses related to increases in pooled debt are
reflected in the weighted average interest rate of the pooled debt.
As scheduled, the Company used existing working capital to
repay a $130 million term loan in fiscal 2002 and a $175 mil-
lion term loan in fiscal 2001. At February 28, 2002, a $100
million outstanding term loan due in July 2002 was classified as