Circuit City 2000 Annual Report Download - page 13

Long-term debt, excluding
current portion......................... $1.7 $2.5 $2.0 $2.0
Stockholders' equity...................... $255.7 $310.2 $286.6 $272.2 $228.6
(1) An "active customer" is defined as a customer who has purchased from the Company within the preceding 12 months.
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.
Results of Operations
The Company incurred a net loss for the year ended December 31, 2000 of $40.8 million compared to net income
for the year ended December 31, 1999 of $36.0 million and net income for the year ended December 31, 1998 of $41.3
million. In August 2000 the Company discovered certain irregularities in the financial records of a subsidiary company.
As a result, certain asset values were overstated and income was overstated as disclosed in the Company's quarterly
statements for March 31 and June 31, 2000. The Company restated its financial results for the aforementioned periods.
The following table represents the Company's consolidated statement of income data expressed as a percentage
of net sales for the three most recent fiscal years:
2000 1999 1998
---- ---- ----
Net sales..................................................... 100.0% 100.0% 100.0%
Gross profit.................................................. 12.4 17.9 20.1
Selling, general and administrative expenses.................. 16.1 14.5 15.6
Income (loss) from operations................................. (3.6) 3.4 4.5
Interest and other income..................................... .1 .2
Interest expense.............................................. .3
Income taxes.................................................. (1.5) 1.4 1.8
Net income (loss)............................................. (2.4) 2.1 2.9
NET SALES
Net sales of $1.69 billion in 2000 were $68 million or 3.9% lower than the $1.75 billion reported in 1999.
Worldwide sales of PC's, representing approximately 25% of the Company's total sales, were down only 1% for the
year in spite of difficult market conditions. Sales attributable to the Company's North American operations decreased
9.9% to $1.14 billion in 2000 from $1.26 billion in 1999. The decrease was primarily in the Company's computer
products business, as a result of lower incoming orders from inbound customers. European sales increased 11.6% to
$548.1 million in 2000 from $491.1 million in 1999, as all of the Company's operations in Europe reported sales
increases for the year. Movements in foreign exchange rates negatively impacted the European sales comparison by
approximately $57 million in 2000 compared to 1999. Excluding the movements in foreign exchange rates, European
sales would have increased 23% over the prior year. For the year ended December 31, 1999, net sales increased by
$318.8 million or 22.2% to $1.75 billion from $1.44 billion in 1998. This increase was primarily attributable to
increased demand for the Company's PC's, increased revenue from relationship marketing sales and the inclusion of
sales from Simply Computers Ltd. ("Simply") since its acquisition at the beginning of February 1999. Sales from the
Company's North American operations increased 12.7% to $1.26 billion in 1999 from $1.12 billion in 1998. European
sales increased to $491.1 million in 1999 from $314.4 million in 1998, an increase of 56.2%, of which approximately
$110 million (35%) related to Simply. The effect of changes in exchange rates on European sales for 1999 was not
significant.
GROSS PROFIT
Gross profit, which consists of net sales less product, shipping, assembly and certain distribution center costs,
decreased by $104.7 million or 33.3% to $209.9 million in 2000 from $314.5 million in 1999. The gross profit margin
decreased to 12.4% in 2000 from 17.9% in 1999. Gross profit was significantly impacted by losses in the Company's
PC assembly business, principally related to increased sales returns and losses on liquidation of excess inventory.