Circuit City 2002 Annual Report Download - page 18

provided by operations in 2000 primarily as a result of reductions in inventories.
Cash of $14.7 million was used in investing activities in 2002. This included $15.4 million of additions to
property, plant and equipment, primarily for the completion of a new facility for the Company's United Kingdom
operations. In 2001 the Company used cash in investing activities of $23.8 million, primarily for property, plant and
equipment additions. These included $9.5 million for software and systems development and $5.5 million toward the
construction of the Company's United Kingdom facility. In 2000 the Company used net cash in investing activities of
$40.7 million for property, plant and equipment additions. Capital additions in 2000 included $13.6 million for the
purchase and outfitting of a new distribution facility in Georgia, $2 million for upgrading the Company's information
systems infrastructure and $7.9 million in connection with software development programs.
The Company anticipates no major capital expenditures in 2003 and will fund any expenditures out of cash from
operations and borrowings.
Cash of $33.8 million was provided by financing activities in 2002 from bank borrowings and the mortgaging of
the Company's Georgia distribution facility and new United Kingdom facility. In 2001, $45.8 million of cash was used
in financing activities, all of which went to pay down short-term borrowings. In 2000, $27.5 million of cash was
provided by financing activities. In 2000 the Company purchased 1.1 million shares of its common stock for $9.8
million and used $2.2 million to repay a long-term loan in Europe. The Company borrowed $39.6 million to finance
these expenditures as well as the fixed asset additions.
As a result of the net losses incurred in the United States in the years ended December 31, 2001 and 2000, the
Company applied for and received refunds of approximately $11 million and $25 million, respectively, from the
Internal Revenue Service.
Under the Company's $70 million revolving credit agreement, which expires in June 2004, availability as of
December 31, 2002 was $44.3 million, of which the Company may not draw $20 million through June 30, 2003. There
were outstanding letters of credit of $6.1 million and there were no outstanding advances. As a result of the previously
discussed goodwill impairment charge and write-off of the software development project, the revolving credit
agreement was amended effective June 30, 2002 to waive an event of default of a financial covenant and modify the
agreement to eliminate the effect of these items on future periods.
The Company also maintains a £15 million ($24.2 million at the December 31, 2002 exchange rate) multi-
currency credit facility with a financial institution in the United Kingdom, which is available to its United Kingdom
subsidiaries. The facility does not have a termination date, but may be canceled with six months notice beginning in
December 2003. Borrowings under the facility are secured by certain assets of the Company's United Kingdom
subsidiaries. At December 31, 2002 there were £12.4 million ($20.0 million) of borrowings outstanding under this line
with interest payable at a rate of 6.08%.
In 2002 the Company entered into a £6.6 million ($10.6 million), 11½ year term loan agreement with a United
Kingdom bank, to finance the construction of its new United Kingdom facility. The borrowings are secured by the land
and building and are repayable in 40 quarterly installments of £165,000 ($266,000) beginning in November 2002. The
outstanding borrowings bear interest at LIBOR plus 160 basis points (5.69% at December 31, 2002). In connection
with this term loan, the Company also entered into an interest rate collar agreement to reduce its exposure to market
rate fluctuations. At December 31, 2002, the notional amount of the interest rate collar was £6,435,000 ($10,360,000)
with an interest rate cap of 6.0% and a floor of 4.5%. The interest rate collar expires on April 30, 2005. As of
December 31, 2002, the collar was in a loss position of approximately $117,000 and, accordingly, the aggregate fair
value of the collar was recorded as a liability. The change in the fair value of this derivative for the year ended
December 31, 2002 has been recognized in the Consolidated Statement of Operations as this hedge was determined to
be ineffective. The term loan agreement contains certain financial and other covenants related to the Company's United
Kingdom subsidiaries.
In April 2002, the Company entered into a ten year, $8.4 million mortgage loan on its Suwanee, Georgia
distribution facility. The mortgage has monthly principal and interest payments of $62,000 through May 2012, with a
final additional principal payment of $6.4 million at maturity in May 2012. The mortgage bears interest at 7.04% and is
collateralized by the underlying land and building.