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93 CIRCUIT CITY STORES, INC. ANNUAL REPORT 2002
CARMAX GROUP
The CarMax Group’s stock option activity is summarized in
Table 1 above. Table 2 above summarizes information about
stock options outstanding as of February 28, 2002.
CarMax applies APB Opinion No. 25 and related interpreta-
tions in accounting for its stock option plans. Accordingly, no
compensation cost has been recognized. Had compensation
cost been determined based on the fair value at the grant date
consistent with the methods of SFAS No. 123, the net earnings
attributed to the CarMax Group would have changed to the
pro forma amounts indicated in the following table. In accor-
dance with the transition provisions of SFAS No. 123, the pro
forma amounts reflect options with grant dates subsequent to
March 1, 1995. Therefore, the full impact of calculating com-
pensation cost for stock options under SFAS No. 123 is not
reflected in the pro forma net earnings amounts presented
below because compensation cost is reflected over the options’
vesting periods and compensation cost of options granted prior
to March 1, 1995, is not considered. The pro forma effect on
fiscal year 2002 may not be representative of the pro forma
effects on net earnings for future years.
Years Ended February 28 or 29
(Amounts in thousands) 2002 2001 2000
Net earnings:
As reported.......................................... $27,996 $11,555 $256
Pro forma ............................................ $27,522 $11,345 $ 75
For the purpose of computing the pro forma amounts indi-
cated above, the fair value of each option on the date of grant was
estimated using the Black-Scholes option-pricing model. The
weighted average assumptions used in the model were as follows:
2002 2001 2000
Expected dividend yield............................. – – –
Expected stock volatility ............................ 79% 71% 62%
Risk-free interest rates................................ 5% 7% 6%
Expected lives (in years)............................. 4 4 4
Using these assumptions in the Black-Scholes model, the
weighted average fair value of options granted for the CarMax
Group was $3 per share in fiscal 2002, $1 per share in fiscal
2001 and $3 per share in fiscal 2000.
7. PENSION PLANS
The Company has a noncontributory defined benefit pension
plan covering the majority of full-time employees who are at
least age 21 and have completed one year of service. The cost
of the program is being funded currently. Plan benefits gener-
ally are based 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 CarMax
participate in the Company’s plan. Pension costs for these
employees have been allocated to CarMax based on its propor-
tionate share of the projected benefit obligation. Company
TABLE 1 2002 2001 2000
Weighted Average Weighted Average Weighted Average
(Shares in thousands) Shares Exercise Price Shares Exercise Price Shares Exercise Price
Outstanding at beginning of year............. 4,107 $3.16 3,324 $3.87 4,380 $1.77
Granted.................................................... 1,659 4.94 1,281 1.70 1,132 5.89
Exercised .................................................. (1,941) 1.32 (56) 0.22 (2,027) 0.22
Cancelled ................................................. (194) 5.95 (442) 4.67 (161) 6.94
Outstanding at end of year....................... 3,631 $4.81 4,107 $3.16 3,324 $3.87
Options exercisable at end of year ............ 821 $6.85 1,943 $2.94 1,203 $2.54
TABLE 2 Options Outstanding Options Exercisable
Weighted Average
(Shares in thousands) Number Remaining Weighted Average Number Weighted Average
Range of Exercise Prices Outstanding Contractual Life Exercise Price Exercisable Exercise Price
$ 1.63...................................................... 962 5.0 $ 1.63 193 $ 1.63
3.22 to 4.89 ....................................... 1,648 5.9 4.82 25 3.66
6.06 to 9.06 ....................................... 794 4.2 6.37 387 6.51
9.19 to 14.00 ....................................... 141 2.9 11.09 136 11.02
15.00 to 22.47 ....................................... 86 2.5 15.42 80 15.08
Total......................................................... 3,631 5.1 $ 4.81 821 $ 6.85