CarMax 2002 Annual Report Download - page 71

69 CIRCUIT CITY STORES, INC. ANNUAL REPORT 2002
CIRCUIT CITY GROUP
In July 1994, the Company entered into a seven-year,
$100,000,000 unsecured bank term loan. The loan was restruc-
tured in August 1996 as a six-year, $100,000,000 unsecured
bank term loan. Principal is due in full at maturity with interest
payable periodically at LIBOR plus 0.40 percent. At February 28,
2002, the interest rate on the term loan was 2.25 percent. This
term loan is due in July 2002 and was classified as a current lia-
bility at February 28, 2002. Although the Company has the
ability to refinance this loan, it intends to repay the debt using
existing working capital.
In June 1996, the Company entered into a five-year,
$130,000,000 unsecured bank term loan. Principal was due in
full at maturity with interest payable periodically at LIBOR
plus 0.35 percent. As scheduled, the Company used existing
working capital to repay this term loan in June 2001.
The Company maintains a multi-year, $150,000,000 unse-
cured revolving credit agreement with four banks. The agreement
calls for interest based on both committed rates and money mar-
ket rates and a commitment fee of 0.18 percent per annum. The
agreement was entered into as of August 31, 1996, and expires
on August 31, 2002. No amounts were outstanding under the
revolving credit agreement at February 28, 2002 or 2001, and
the Company does not plan to renew this agreement.
The Industrial Development Revenue Bonds are collateral-
ized by land, buildings and equipment with an aggregate carry-
ing value of approximately $5,144,000 at February 28, 2002,
and $6,243,000 at February 28, 2001.
The scheduled aggregate annual principal payments on the
Company’s long-term obligations for the next five fiscal years
are as follows: 2003 – $102,073,000; 2004 – $1,410,000;
2005 – $2,521,000; 2006 – $1,083,000; 2007– $1,010,000.
Under certain of the debt agreements, the Company must
meet financial covenants relating to minimum tangible net
worth, current ratios and debt-to-capital ratios. The Company
was in compliance with all such covenants at February 28, 2002
and 2001.
Short-term debt of the Company is funded through com-
mitted lines of credit and informal credit arrangements, as well
as the revolving credit agreement. Other information regarding
short-term financing and committed lines of credit is as follows:
Years Ended February 28
(Amounts in thousands) 2002 2001
Average short-term financing outstanding.......... $ 2,256 $ 56,065
Maximum short-term financing outstanding ..... $ 6,594 $363,199
Aggregate committed lines of credit ................... $195,000 $360,000
The weighted average interest rate on the outstanding short-
term debt was 4.4 percent during fiscal 2002, 6.8 percent dur-
ing fiscal 2001 and 5.6 percent during fiscal 2000.
Interest expense allocated by the Company to Circuit City,
excluding interest capitalized, was $881,000 in fiscal 2002,
$7,273,000 in fiscal 2001 and $13,844,000 in fiscal 2000. Circuit
City capitalizes interest in connection with the construction of
certain facilities and software developed or obtained for internal use.
Capitalized interest totaled $1,277,000 in fiscal 2002, $2,121,000
in fiscal 2001 and $2,166,000 in fiscal 2000.
5. INCOME TAXES
The components of the provision for income taxes on earnings
from continuing operations before income attributed to the
reserved CarMax Group shares are as follows:
Years Ended February 28 or 29
(Amounts in thousands) 2002 2001 2000
Current:
Federal ......................................... $38,854 $52,846 $141,514
State ............................................. 11,588 7,993 16,901
50,442 60,839 158,415
Deferred:
Federal ......................................... 27,164 9,505 40,572
State ............................................. 840 293 1,256
28,004 9,798 41,828
Provision for income taxes................. $78,446 $70,637 $200,243
The effective income tax rate differed from the federal statu-
tory income tax rate as follows:
Years Ended February 28 or 29
2002 2001 2000
Federal statutory income tax rate ............... 35% 35% 35%
State and local income taxes,
net of federal benefit............................. 3 3 3
Effective income tax rate............................ 38% 38% 38%
In accordance with SFAS No. 109, the tax effects of tempo-
rary differences that give rise to a significant portion of the
deferred tax assets and liabilities at February 28 are as follows:
(Amounts in thousands) 2002 2001
Deferred tax assets:
Accrued expenses .......................................... $ 61,299 $ 42,953
Other............................................................ 8,639 7,311
Total gross deferred tax assets .................. 69,938 50,264
Deferred tax liabilities:
Deferred revenue .......................................... 75,079 32,825
Depreciation and amortization ..................... 36,123 42,488
Securitized receivables................................... 36,749 36,257
Inventory ...................................................... 22,338 9,927
Prepaid expenses ........................................... 10,197 10,788
Other............................................................ 3,102 3,625
Total gross deferred tax liabilities............. 183,588 135,910
Net deferred tax liability..................................... $113,650 $ 85,646
Based on Circuit City’s historical and current pretax earn-
ings, management believes the amount of gross deferred tax
assets will more likely than not be realized through future tax-
able income; therefore, no valuation allowance is necessary.