UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended February 28, 2002
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from_________ to _________
Commission File No.: 1-5767
CIRCUIT CITY STORES, INC.
(Exact name of Registrant as specified in its charter)
VIRGINIA 54-0493875
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
9950 Mayland Drive
Richmond, VA 23233
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (804) 527-4000
Securities registered pursuant to Section 12(b)of the Act:
Name of Each Exchange
Title of Each Class on Which Registered
Circuit City Stores, Inc.-Circuit City Group Common Stock, Par Value $0.50 New York Stock Exchange
Circuit City Stores, Inc.-CarMax Group Common Stock, Par Value $0.50 New York Stock Exchange
Rights to Purchase Preferred Stock,
Series E, Par Value $20.00 New York Stock Exchange
Series F, Par Value $20.00 New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes |X| No ___
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K [|X|].
On April 30, 2002, the Company had outstanding 209,845,675 shares of
Circuit City Group Common Stock and 37,030,117 shares of CarMax Group Common
Stock. The aggregate market value of the common shares held by non-affiliates
(without admitting that any person whose shares are not included in determining
such value is an affiliate) was $4,524,272,753 for the Circuit City Group and
$1,092,388,452 for the CarMax Group based upon the closing price of these shares
as reported by the New York Stock Exchange on April 30, 2002.
Page 1 of 22
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the following documents are incorporated by reference in
Parts I, II, III and IV of this Form 10-K Report: (1) Pages 23 through 97 of the
Company's Annual Report to Stockholders for the fiscal year ended February 28,
2002, (Parts I, II and IV) and Supplement to Annual Report - Management's
Discussion and Analysis of Results of Operations and Financial Condition and (2)
"Item One - Election of Directors," "Beneficial Ownership of Securities,"
"Compensation of Executive Officers," "Compensation of Directors" and "Section
16(a) Beneficial Ownership Reporting Compliance" in the May 10, 2002, Proxy
Statement, furnished to shareholders of the Company in connection with the 2002
Annual Meeting of such shareholders (Part III).
TABLE OF CONTENTS
Item Page
PART I
1. Business 3
2. Properties 13
3. Legal Proceedings 15
4. Submission of Matters to a Vote of Security Holders 15
Executive Officers of the Company 15
PART II
5. Market for the Company's Common Equity and Related Stockholder Matters 17
6. Selected Financial Data 17
7. Management's Discussion and Analysis of Results of Operations and Financial Condition 17
7a. Quantitative and Qualitative Disclosures about Market Risk 17
8. Financial Statements and Supplementary Data 17
9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 18
PART III
10. Directors and Executive Officers of the Company 18
11. Executive Compensation 18
12. Security Ownership of Certain Beneficial Owners and Management 18
13. Certain Relationships and Related Transactions 18
PART IV
14. Exhibits, Financial Statement Schedules and Reports on Form 8-K 18
Page 2 of 22
PART I
Item 1. Business.
Circuit City Stores, Inc. (the Company) was incorporated under the laws
of the Commonwealth of Virginia in 1949. Its corporate headquarters are located
at 9950 Mayland Drive, Richmond, Virginia. Its retail operations consist of
Circuit City Superstores and mall-based Circuit City Express stores. Certain of
the Company's subsidiaries operate CarMax Auto Superstores, a used- and new-car
retail business. The Company has wholly owned finance operations that provide
consumer revolving credit and automobile installment loans.
In this document, the following terms and definitions are used:
The Company refers to Circuit City Stores, Inc. and subsidiaries,
including the Circuit City retail stores and related operations and the
CarMax retail stores and related operations.
Circuit City refers to the retail operations bearing the Circuit City
name and to all related operations such as Circuit City's finance
operation and product service.
Circuit City Group refers to the Circuit City and Circuit City-related
operations and the shares of CarMax Group Common Stock reserved for the
Circuit City Group or for issuance to holders of Circuit City Group
Common Stock.
CarMax Group and CarMax refer to retail locations bearing the CarMax
name and to all related operations such as CarMax's finance operation.
Capital Structure. The common stock of Circuit City Stores, Inc.
consists of two common stock series that are intended to reflect the performance
of the Company's two businesses. The Circuit City Group Common Stock is intended
to reflect the performance of the Circuit City stores and related operations and
the shares of CarMax Group Common Stock reserved for the Circuit City Group or
for issuance to holders of Circuit City Group Common Stock. The CarMax Group
Common Stock is intended to reflect the performance of the CarMax stores and
related operations.
On February 22, 2002, Circuit City Stores, Inc. announced that its
board of directors had authorized management to initiate a process that would
separate the CarMax auto superstore business from the Circuit City consumer
electronics business through a tax-free transaction in which CarMax, Inc.,
presently a wholly owned subsidiary of Circuit City Stores, Inc., would become
an independent, separately traded public company. CarMax, Inc. holds
substantially all of the businesses, assets and liabilities of the CarMax Group.
The separation plan calls for Circuit City Stores, Inc. to redeem the
outstanding shares of CarMax Group Common Stock in exchange for shares of common
stock of CarMax, Inc. Simultaneously, shares of CarMax, Inc. common stock,
representing the shares of CarMax Group Common Stock reserved for the holders of
Circuit City Group Common Stock, would be distributed as a tax-free dividend to
the holders of Circuit City Group Common Stock.
In the proposed separation, the holders of CarMax Group Common Stock
would receive one share of CarMax, Inc. common stock for each share of stock
redeemed by the Company. We anticipate that the holders of Circuit City Group
Common Stock would receive a fraction of a share of CarMax, Inc. common stock
for each share of Circuit City Group Common Stock they hold. The exact fraction
would be determined on the record date for the distribution. The separation is
expected to be completed by late summer, subject to shareholder approval and
final approval from the board of directors. CarMax, Inc. has filed a
registration statement regarding this transaction with the Securities and
Exchange Commission. This registration statement contains pro forma financial
information that is intended to reflect the potential effects of the separation
of the two businesses.
Notwithstanding the attribution of the Company's assets and
liabilities, including contingent liabilities, and stockholders' equity between
the Circuit City Group and the CarMax Group for the purposes of preparing the
financial statements, holders of Circuit City Group Common Stock and holders of
CarMax Group Common Stock are shareholders of the Company and continue to be
subject to all of the risks associated with an investment in the Company and all
of its businesses, assets and liabilities. Such attribution and the equity
structure of the Company do not affect title to the assets or responsibility for
the liabilities of the Company or any of its subsidiaries. Neither shares of
Circuit City Group Common Stock nor shares of CarMax Group Common Stock
represent a direct equity or legal interest solely in the assets and liabilities
allocated to a particular Group. Instead, those shares represent direct equity
and legal interests in the assets and liabilities of the Company. The results of
operations or financial condition of one Group could affect the results of
operations or financial condition of the other Group. Net losses of either Group
and dividends or distributions on, or repurchases of, Circuit City
Page 3 of 22
Group Common Stock or CarMax Group Common Stock will reduce funds legally
available for dividends on, or repurchases of, both stocks. Accordingly, the
Company's consolidated financial statements should be read in conjunction with
the financial statements of each Group and the Company's SEC filings.
The financial statements of the Company reflect the performance of each
Group's business as well as the allocation of the Company's assets, liabilities,
expenses and cash flows between the Groups in accordance with the policies
adopted by the board of directors. These policies may be modified or rescinded,
or new policies may be adopted, at the sole discretion of the board of
directors, although the board of directors has no present plans to do so except
for the possible effects of the proposed CarMax separation. These management and
allocation policies include the following:
Dividends. Future dividends on the Circuit City Group Common Stock and
the CarMax Group Common Stock will be based primarily upon the financial
condition, results of operations and business requirements of the relevant Group
and the Company as a whole, as well as any limitations specified in the
Company's governing documents.
CarMax currently operates 23 of its locations pursuant to various
leases under which Circuit City Stores, Inc. was the original tenant and primary
obligor. Circuit City Stores, Inc., and not CarMax, had originally entered into
these leases so that CarMax could take advantage of the favorable economic terms
available to the Company as a large retailer. The Company has assigned each of
these leases to CarMax. Despite the assignment and pursuant to the terms of the
leases, the Company remains contingently liable under the leases. For example,
if CarMax were to fail to make lease payments under one or more of the leases,
the Company may be required to make these payments on CarMax's behalf. In
recognition of this ongoing contingent liability, CarMax has agreed to make a
one-time special dividend payment to Circuit City Stores, Inc. on the separation
date, assuming the separation is completed. We currently expect this special
dividend to be between $25 million and $35 million.
Optional Conversion of Series of Common Stock. The board of directors
may, at any time, at its sole discretion, decide to convert shares of one
Group's common stock into shares of the other Group's common stock at a 15
percent premium or a 10 percent premium following any dividend or partial
redemption undertaken in connection with a disposition of all or substantially
all of the properties or assets attributed to the Group whose common stock is
being converted.
Conflicts of Interest. The existence of separate series of common stock
could result in conflicts of interest between the holders of Circuit City Group
Common Stock and the holders of CarMax Group Common Stock. When making decisions
with regard to matters that could create diverging interests, the board of
directors would act in good faith to serve the best interests of the Company,
taking into consideration the interests of all shareholders.
Effects of Corporate Events on Rights of Shareholders. Although the
common stock of each Group is intended to reflect the separate performance of
that Group, a person interested in acquiring control of only one Group without
negotiation with the Company's management would still be required to seek
control of the voting power represented by all of the outstanding common stock
of the Company. In the event of liquidation, dissolution or termination of the
Company, whether voluntary or involuntary, after payment or provision for
payment of the debts and other liabilities of the Company and full preferential
amounts to which holders of any series of Preferred Stock are entitled, the
shareholders of each Group would be entitled to receive the net assets, if any,
of the Company remaining for distribution to holders of common stock on a per
share basis in proportion to the liquidation units per share of each series.
Each share of Circuit City Group Common Stock would have one liquidation unit
and each share of CarMax Group Common Stock would have one-half of a liquidation
unit.
Circuit City Group:
General. Circuit City is a leading national retailer of brand-name
consumer electronics, personal computers and entertainment software. It sells
video equipment, including televisions, digital satellite systems, DVD players,
video cassette recorders, camcorders and cameras; audio equipment, including
home and portable audio systems and compact disc players; mobile electronics,
including car audio, video and security systems; home office products, including
personal computers, printers, peripherals, software and facsimile machines;
entertainment software, including video games, DVD movies and music; and other
consumer electronics products, including wireless phones, corded and cordless
phones and accessories. Merchandise lines vary from location to location based
on store size and market characteristics. Most merchandise is supplied directly
to the stores by regional warehouse distribution facilities.
Prior to fiscal year 2002, Circuit City sold major appliances. In
fiscal year 2001, the Company announced plans to exit the major appliance
category and expand its selection of key consumer electronics and home office
products in all Circuit City Superstores. See section "Appliance Exit" below for
further information.
Page 4 of 22
Through a 75 percent owned business Digital Video Express that has been
discontinued and for which Circuit City was allocated 100 percent of the losses
from inception, the Company developed a new digital video system for watching
movies at home. This system was marketed in fiscal years 1999 and 2000. Divx was
primarily engaged in the business of replicating and distributing specialty
encrypted DVDs at wholesale. See section "Discontinued Operations" below for
further information.
Expansion. At April 30, 2002, Circuit City operated 623 retail
locations throughout the United States. Circuit City has established its
presence in virtually all of the nation's top 100 markets and, therefore,
contemplates only limited geographic expansion. We expect to continue adding to
the existing store base as attractive market opportunities arise. In fiscal
2003, Circuit City expects to open approximately 10 new Circuit City Superstores
and relocate approximately 10 Superstores. Over the past two years, we have
experimented with several remodel designs and product category tests to expand
the benefits of our new Circuit City store design to the existing store base. In
fiscal 2003, we plan to draw on these remodel and product category tests to roll
out a remodeled video department and lighting upgrade to approximately 300
Superstores. We believe that rolling out this remodeled department will enable
us to increase market share in the growing and highly profitable big-screen
television category and further solidify our position in the overall video
category. The fiscal 2003 remodeling plan will allow us to affect a large number
of Superstores in a manner that has significant potential for incremental
benefit, while minimizing the disruptive impact of the remodeling process. We
expect the remodeling activities will take approximately two weeks to complete
in each store. We will continue testing design ideas for other departments. We
plan to continue improving the Circuit City store base in fiscal 2004 and fiscal
2005 by completing the remodel of these 300 stores and by relocating additional
stores to provide a shopping experience that we believe is more consistent with
the preferences of today's consumer.
Merchandising. Each Circuit City store location follows detailed
operating procedures and merchandising programs. Included are procedures for
inventory maintenance, customer relations, store administration, merchandise
display, store security and the demonstration and sale of products. Most
merchandise is supplied directly to the stores from one of Circuit City's seven
automated distribution centers, which are strategically located around the
country, and from a centrally located automated software entertainment
distribution center. Circuit City's operating regions use a centralized buying
organization. The central buying staff reduces costs by purchasing in large
volumes and structuring a sound basic merchandising program. Circuit City's
merchandising strategy emphasizes a broad selection of products, including the
industry's newest technologies, and a wide range of prices. Merchandise mix and
displays are controlled centrally to help ensure a high level of consistency
among the stores. Merchandise pricing varies by market to reflect local
competitive conditions.
Suppliers. During fiscal 2002, Circuit City's 10 largest suppliers
accounted for approximately 68 percent of merchandise purchased. Circuit City's
major suppliers include Sony Electronics, Hewlett Packard, Compaq Computer
Corporation, Panasonic, JVC Company of America, Thomson Multimedia Inc., Hitachi
America LTD, Toshiba, Philips Comsumer Electronics and Universal Music and Video
Distribution. Brand-name advertised products are sold by all of the Circuit City
retail locations. Circuit City has no significant long-term contracts for the
purchase of merchandise.
Advertising. Circuit City's business relies on considerable amounts of
advertising to maintain high levels of consumer awareness. Advertising
expenditures from continuing operations were 3.8 percent of net sales and
operating revenues in fiscal 2002, 4.0 percent in fiscal 2001 and 3.7 percent in
fiscal 2000. The Circuit City business is generally one of the largest newspaper
advertisers in the markets that it serves. Circuit City uses multi-page vehicles
and run-of-press newspaper advertisements, network and cable television
advertising, magazine advertising, direct mail and interactive media. The
multi-page vehicles provide an extensive presentation of the broad selection of
products and price ranges Circuit City carries. As part of its competitive
strategy, Circuit City advertises low prices and provides customers with a
low-price guarantee. For every product that Circuit City sells, with some
restrictions, we will meet any advertised price from a local store stocking the
same new item. In most cases, if a customer finds a lower advertised price,
including Circuit City's own sale price, within 30 days, Circuit City will
refund the difference plus 10 percent of the difference to the customer.
Competition. The consumer electronics industry is highly competitive.
Circuit City's competitors include large specialty, discount or warehouse
retailers as well as local, regional and non-brick-and-mortar retailers. Circuit
City uses service, selection and pricing to differentiate its stores from the
competition. As part of Circuit City's competitive strategy, the Circuit City
Superstores offer a broad selection of brand-name merchandise. Professionally
trained sales counselors, convenient credit options, factory-authorized product
repair, home delivery, installation centers for automotive electronics, exchange
and no-lemon policies and extended warranties reflect a strong commitment to
customer service. Circuit City strives to maintain highly competitive prices and
offers customers a low-price guarantee.
Page 5 of 22
Customer Satisfaction. Circuit City conducts market research to monitor
store operations and help ensure customer satisfaction. Market research
techniques used include focus groups, online customer satisfaction surveys from
BizRate.com, telephone interviews, exit interviews and "mystery shops," in which
a professional mystery shopper acts as a customer to evaluate customer service
performance. Quick feedback enables management to identify issues that need to
be addressed, ensuring that store and individual performance remain focused on
providing the highest possible level of customer service.
Employees/Training. At April 30, 2002, the Company had 34,252 hourly
and salaried employees and 14,915 employees who worked on a commission basis.
Circuit City Superstores are staffed with commissioned and hourly sales
associates; sales support personnel such as customer service associates,
merchandise specialists and stockpersons; a store manager; one or more sales
managers; and an operations manager. At April 30, 2002, Circuit City Group had
28,994 hourly and salaried employees and 12,685 employees who worked on a
commission basis. None of these employees are subject to a collective bargaining
agreement. Additional personnel may be employed during peak selling seasons.
Store Associates receive continuous training delivered by customized
Web-based interactive courses, supported with in-store mentoring. Courses
include product knowledge with an emphasis on new technology, customer service
and store operations. Associates also receive online tutoring with links to
vendor Web sites for additional resources. In fiscal 2003, a certification
program is being implemented to establish minimum proficiency levels and measure
each sales counselor's product knowledge and product service. Management
training programs are designed to prepare future leaders and include Web-based
training, in-store activities, online tutoring and classroom instruction.
Consumer Credit. Because consumer electronics and personal computers
represent relatively large purchases for the average consumer, Circuit City's
business is affected by consumer credit availability, which varies with the
state of the economy and the location of a particular store. In fiscal 1991,
Circuit City established a credit card finance operation to issue a
private-label credit card. In fiscal 2002, approximately 15 percent of Circuit
City's total sales were made through its private-label credit card and
approximately 50 percent through third-party credit sources. The finance
operation's credit extension, customer service and collection operations are
fully automated with state-of-the-art technology to maintain a high level of
profitability and customer service. The credit card finance operation also
manages a MasterCard and Visa bankcard portfolio. Receivables generated by both
the private-label credit card and bankcard programs are financed through asset
securitization programs. In fiscal 2003, the Company plans to offer a co-branded
Visa credit card that will be issued by Circuit City's finance operation.
Systems. Circuit City's in-store point-of-sale system maintains an
online record of all transactions and allows management to track performance by
region, store and individual sales counselor. The information gathered by the
system supports automatic replenishment of in-store inventory from the regional
distribution centers and is incorporated into product buying decisions. The POS
system is interfaced with the finance operation's credit approval system. The
in-store POS system also is seamlessly integrated with the Company's e-commerce
Web site, circuitcity.com. This integration provides the capability for in-store
pickup of merchandise ordered from circuitcity.com and allows for in-store
ordering of merchandise for shipment directly to the customer's home. In the
stores, electronic signature capture for all credit card purchases, automatic
printing of manufacturers' rebates, bar-code scanning for product returns and
repairs, automatic price tag printing for price changes and computerized home
delivery scheduling enhance Circuit City's customer service. These enhancements
eliminate time-consuming administrative tasks for store Associates and reduce
costs through smoother store-level execution. The POS system also is directly
integrated with the registration systems of major Internet service providers
such as AmericaOnline, CompuServe and MSN, allowing in-store registration with
the interactive services to be completed in approximately five minutes. At
in-store kiosks, the POS system also allows customers to sign up for high speed
Internet (broadband) service, and to special order custom-built computers from
major PC vendors.
Circuit City's Customer Service Information System maintains an online
history of customer purchases and enables sales counselors to better assist
customers with purchases by ensuring that new products can be integrated with
existing products in the home. This system also facilitates product returns and
repairs.
The Company also is utilizing comprehensive, Internet-based training
systems to enhance the product knowledge of in-store Associates.
E-Commerce. Circuit City's e-Superstore Web site provides broad product
selection, convenient purchase and delivery options and in-depth product
comparison information. Internet customers can check the inventory of up to
three Circuit City Superstores in nearby locations, in addition to the in-stock
availability from the e-Superstore. The Web site inventory also is accessible
from any store location. Products can be shipped through the e-Superstore for
normal shipping
Page 6 of 22
charges or they can be picked up, using the Express Pickup service, at a local
Superstore. Products purchased through the e-Superstore are shipped from an
existing distribution center directly to the customer. Products purchased
through the Web site can be serviced through, exchanged at or returned to any
Circuit City Superstore location.
In addition to Circuit City's own Web site, the Company has partnered
with Amazon.com to increase selection and convenience for Amazon's consumer
electronics shoppers by providing immediate in-store pickup at Circuit City
Stores nationwide on thousands of electronics items. In cases where both
Amazon.com and Circuit City offer the same electronics products, customers have
a choice between traditional Amazon.com shipping options and immediate pickup
from a nearby Circuit City Superstore. Items offered exclusively by Circuit City
are available for in-store pickup only; and merchandise offered exclusively by
Amazon.com will be delivered from Amazon.com.
Distribution. As of April 30, 2002, Circuit City operated seven
automated regional Circuit City electronics distribution centers, each designed
to serve stores within a 500-mile range. These centers use conveyor systems and
laser bar-code scanners to reduce labor requirements, prevent inventory damage
and maintain inventory control. Circuit City also operates smaller distribution
centers handling primarily larger non-conveyable electronics products. Circuit
City believes that for most merchandise the use of the distribution centers
enables it to distribute efficiently a broad selection of merchandise to its
stores, reduce inventory requirements at individual stores, benefit from volume
purchasing and maintain accounting control. Additionally, Circuit City operates
an automated centralized entertainment software distribution center that serves
all stores. Most of Circuit City's store merchandise is distributed through its
distribution centers, although it expects to add direct-to-store delivery in
fiscal 2003 for key products where timely delivery to the store is critical to
sales.
Service. Circuit City offers service and repairs for most of the hard
goods it sells. Customers also are able to purchase extended warranties on most
of the merchandise that it sells. Circuit City sells extended warranty programs
on behalf of unrelated third parties who are the primary obligors. Under these
third-party warranty programs, Circuit City has no contractual liability to the
customer. In the three states where third-party warranty sales are not
permitted, Circuit City sells an extended warranty for which it is the primary
obligor. During fiscal 2001, Circuit City initiated the Replacement Protection
Plan, a third-party program which covers various types of electronics
merchandise, including some types of TVs, VCRs, MP3 players and Mini Disc
players. If the customer purchases an RPP, the customer can return defective
merchandise during the plan period and receive a check for the original purchase
price of the merchandise, plus any shipping and handling.
As of April 30, 2002, Circuit City had 22 regional, factory-authorized
repair facilities. To meet customer needs, merchandise that requires service or
repair usually is moved by truck from the stores to the nearest regional service
facility and is returned to the store for customer pick-up after repair. Circuit
City also has in-home technicians who service large items not conveniently
carried to the store.
Seasonality. Like many retail businesses, Circuit City's sales are
greater in the fourth quarter of the fiscal year than in other periods of the
fiscal year because of holiday buying patterns. A corresponding pre-season
inventory build-up is associated with this sales volume. This increased sales
volume results in a lower ratio of fixed costs to sales and a higher ratio of
operating income to sales in the fourth fiscal quarter. The Circuit City Group's
sales from continuing operations for the fourth fiscal quarter, which includes
the holiday season, were $3.39 billion in fiscal 2002, $3.18 billion in fiscal
2001 and $3.48 billion in fiscal 2000. Fourth quarter sales represented
approximately 35 percent of total sales in fiscal 2002, 30 percent in fiscal
2001 and 33 percent in fiscal 2000.
Appliance Exit. On July 25, 2000, the Company announced plans to exit
the major appliance category and expand its selection of key consumer
electronics and home office products in all Circuit City Superstores. A product
profitability analysis had indicated that the appliance category produced
below-average profits. This analysis, combined with declining appliance sales,
expected increases in appliance competition and the Company's profit
expectations for the consumer electronics and home office categories led to the
decision to exit the major appliance category. The Company maintains control
over Circuit City's in-home major appliance repair business, although repairs
are subcontracted to an unrelated third party.
To exit the appliance business, the Company closed eight distribution
centers and eight service centers. The majority of these closed properties are
leased. While the Company has entered into contracts to sublease some of these
properties, it continues the process of marketing the remaining properties to be
subleased.
Approximately 910 employees were terminated as a result of the exit
from the appliance business. These reductions mainly were in the service,
distribution and merchandising functions. Because severance was paid to
employees on a biweekly schedule based on years of service, cash payments lagged
job eliminations. Certain fixed assets were written down in
Page 7 of 22
connection with the exit from the appliance business, including appliance
build-to-order kiosks in stores and non-salvageable fixed assets and leasehold
improvements at the closed locations.
Discontinued Operations. On June 16, 1999, Digital Video Express
announced that it would cease marketing the Divx home video system and
discontinue operations. Discontinued operations have been segregated on the
consolidated statements of cash flows; however, Divx is not segregated on the
consolidated balance sheets.
For fiscal 2002 and 2001, the discontinued Divx operations had no
impact on the net earnings of Circuit City Stores, Inc. In fiscal 2000, the loss
from the discontinued Divx operations totaled $16.2 million after an income tax
benefit of $9.9 million and the loss on the disposal of the Divx business
totaled $114.0 million after an income tax benefit of $69.9 million. The loss on
the disposal included a provision for operating losses to be incurred during the
phase-out period. It also included provisions for commitments under licensing
agreements with motion picture distributors, the write-down of assets to net
realizable value, lease termination costs, employee severance and benefit costs
and other contractual commitments.
As of February 28, 2002, entities comprising the discontinued Divx
operations have been dissolved. The remaining liabilities, totaling $18.5
million, have been assumed by the Company and are included in the consolidated
and Circuit City Group balance sheets.
CarMax Group:
General. CarMax is the nation's largest specialty retailer of used cars
and light trucks. In 1993, CarMax pioneered the used-car superstore concept when
it opened its first location in Richmond, Virginia. CarMax purchases,
reconditions and sells used vehicles. In addition, CarMax sells new vehicles
under franchise agreements with DaimlerChrysler, Mitsubishi, Nissan, Toyota,
Ford and General Motors. CarMax provides its customers the opportunity to
purchase vehicles the same way they buy other retail products, with
non-negotiated, low prices and friendly service. CarMax has separated the
practice of trading in a used vehicle in conjunction with the purchase of
another vehicle into two distinct and independent transactions. CarMax provides
an appraisal that allows current vehicle owners to sell their cars to CarMax
regardless of their intent to purchase a vehicle from CarMax. CarMax also
provides its customers with a full range of related services, including the
financing of vehicle purchases through its own finance operation and third-party
lenders, the sale of extended warranties and vehicle repair service.
Expansion. At April 30, 2002, CarMax operated 41 retail units from 39
locations, including 36 used-car superstores and three stand-alone new-car
franchises. At April 30, 2002, CarMax operated 18 new-car franchises, 15 of
which were co-located or integrated with its used-car superstores. Used-car
sales, which are the major part of CarMax's business, represented 82 percent of
its total vehicle sales in dollars in fiscal 2002. CarMax stores are located in
the Southeastern, Midwestern, Mid-Atlantic and Western United States.
Since 1999, CarMax has modified and re-established its new-store growth
model to move away from large-format superstores. Despite the success of its
large-format superstores in Norcross, Ga., and Laurel, Md., this format proved
less effective in its Miami, Tampa, Houston, Dallas and Chicago markets. CarMax
found that customers in these metropolitan markets were unwilling to travel
great distances to its large-format superstores, resulting in stores that were
too large and that underserved CarMax's target customer in these markets.
Rather, customers preferred to patronize stores that were closer to their homes.
Consequently, CarMax plans to expand its number of stores by adding standard
superstores (formerly referred to as "A" superstores) in new, mid-sized markets
that can be served effectively with one CarMax superstore, together with
satellite fill-in superstores in existing multi-store markets. In
fully-developed mid-sized markets, CarMax intends to test whether increased
penetration can be achieved by adding a satellite superstore. CarMax believes
that by focusing on mid-sized markets and satellite fill-in superstores over the
near term, it can achieve a higher return on its investment with lower risk.
This approach also allows CarMax to postpone entering large multi-store markets
until its hub-and-satellite model in existing large multi-store markets has
matured further and provides CarMax the opportunity to better anticipate the
number, location and types of stores that will be required in such markets.
CarMax plans to open 22 to 30 stores over the next four years. CarMax
opened two superstores late in fiscal 2002, a standard-sized superstore in the
new market of Greensboro, N.C., and a satellite superstore in the greater
Chicago market. In April 2002, CarMax opened a standard-size superstore in
Roseville, Calif., in the Sacramento market. CarMax intends to open an
additional three to five superstores in fiscal 2003, including superstores in
new mid-sized markets and additional satellite superstores in existing markets.
CarMax expects to open six to eight new stores, including superstores and
satellite
Page 8 of 22
superstores, in each of fiscal 2004, 2005 and 2006, depending upon market
opportunities and management's comfort with sales and profitability projections.
A "mid-sized market" typically has a population of 1.0 million to 2.5
million people. CarMax currently operates stores in nine mid-sized markets
including Richmond, Raleigh, Charlotte, Orlando, San Antonio, Greenville,
Nashville, Greensboro, and Sacramento. CarMax believes that more than 30
additional mid-sized markets may be suitable for its standard store prototype.
The standard store prototype is approximately 40,000 to 60,000 square feet on 10
to 14 acres with approximately 24 service and reconditioning bays.
Under CarMax's hub-and-satellite strategy, a satellite superstore uses
the reconditioning, purchasing and business office operations of a nearby
full-sized hub superstore. The consumer offer is identical in both hub
superstores and satellite superstores. These hub stores have service facilities
that provide regular maintenance and warranty service typical of most new-car
dealerships and also recondition all used vehicles prior to sale at both the hub
superstore and any related satellite superstore. A prototypical satellite
superstore operates on a five-to six-acre site with an approximately
14,000-square-foot facility. The satellite facility houses offices, a showroom
and four to seven service bays for regular maintenance and warranty service.
In addition to entering new mid-sized markets, CarMax plans to focus on
adding satellite fill-in superstores in underserved trade areas in its existing
multi-store markets, which include Washington/Baltimore, Chicago, Atlanta,
Dallas, Houston, Miami and Tampa. CarMax has identified approximately 10
underserved trade areas to target in these markets.
Merchandising. CarMax offers its customers a broad selection of makes
and models of used vehicles, including both domestic and imported cars and light
trucks, at competitive prices. CarMax's used-car selection covers popular brands
from manufacturers such as DaimlerChrysler, Ford, General Motors, Honda,
Mitsubishi, Nissan and Toyota and specialty brands like BMW and Lexus. To appeal
to the vast array of consumer preferences and budgets, CarMax offers used
vehicles under two programs--the CarMax program and the ValuMax program. CarMax
used cars are less than six years old, have fewer than 60,000 miles and
generally range in price from $8,500 to $30,000. ValuMax used cars are more than
six years old or have 60,000 miles or more and generally range in price from
$5,500 to $19,000.
CarMax's commitment to quality is demonstrated to the customer through
a five-day or 250-mile money-back guarantee and an industry-leading 30-day
limited warranty. Each CarMax vehicle must pass a comprehensive quality
inspection that covers all major and minor mechanical systems and all safety
functions as well as cosmetic criteria. Each ValuMax vehicle must pass a quality
inspection covering most major mechanical systems and all safety functions. For
ValuMax, concentration is placed on providing good, basic, mechanically-sound
transportation. Cosmetic corrections or repairs of convenience or luxury items,
such as electric mirrors or electric antennas, are generally not performed.
At all new-car locations, a full selection of the manufacturer's models
related to the franchise is available. CarMax operates new-car dealerships under
separate franchise or dealer agreements with DaimlerChrysler, Mitsubishi,
Nissan, Toyota, Ford and General Motors.
CarMax has implemented an everyday low-price strategy under which
CarMax sets "no-haggle" prices on its used and new vehicles. In fiscal 2002, its
used-car prices were, on average, $1,700 below retail Kelley Blue Book price.
CarMax believes most prices are at or below the best negotiated price in the
market. Prices on all vehicles are clearly displayed on each vehicle's
information sticker, on carmax.com and in CarMax's newspaper advertising. CarMax
has extended its no-haggle philosophy to every stage of the vehicle transaction,
including trade-ins, financing rates, accessories, extended warranty pricing and
its low vehicle documentation fees.
CarMax has replaced the traditional "trade-in" transaction with a
process in which CarMax trained buyers appraise any vehicle, usually in 30
minutes or less, and provide the vehicle's owner with a written, guaranteed cash
offer that is good for seven days or 300 miles. An appraisal is available to
everyone free of charge, whether or not the individual is purchasing a vehicle
from CarMax. In contrast to traditional dealers who seek to combine the vehicle
purchase and trade-in transactions, the CarMax sales process enables the
customer to separately evaluate and make an informed decision with respect to
each transaction.
Suppliers. CarMax acquires its used-vehicle inventory directly from
consumers through its unique appraisal process and through other sources,
including local and regional auctions, wholesalers, franchised and independent
dealers, and fleet owners, such as leasing companies and rental companies. In
stores open for more than one year, CarMax acquires a
Page 9 of 22
larger portion of its used-vehicle inventory from consumers than from any other
source. This buying strategy provides an inventory of makes and models that
reflects the tastes of the market.
All used vehicles are evaluated on the basis of their wholesale and
reconditioning costs, and, for off-site purchases, cost of delivery to the store
where they will be reconditioned. Buyers based at the stores purchase most of
CarMax's inventory. CarMax's buyers, in collaboration with its headquarters
staff, rely on the extensive inventory and sales trend data available through
the CarMax information system.
Based on consumer acceptance of the appraisal process at existing
CarMax stores and CarMax's experience and success to date in acquiring vehicles
from auctions and other sources, CarMax believes that its sources of used
vehicles will continue to be sufficient to meet current needs and to support
planned expansion.
New-car inventory for the franchise locations is governed by the terms
of the sales and service agreements with DaimlerChrysler, Mitsubishi, Nissan,
Toyota, Ford and General Motors.
Reconditioning. An integral part of CarMax's used-car consumer offer is
the reconditioning process. This process includes a comprehensive, certified
quality inspection of the engine, cooling and fuel system, drive axle,
transmission, electronic systems, suspension, brake system, steering, air
conditioning, interior and optional equipment. Based on this quality inspection,
CarMax determines the reconditioning necessary to bring the vehicle up to
CarMax's high quality standards. Cars in the ValuMax program must meet the same
mechanical, electrical and safety standards, but fewer cosmetic and optional
equipment standards. Vehicle inspections are completed by CarMax's mechanics,
approximately half of whom are Automotive Service Excellence (A.S.E.) certified.
CarMax performs most routine mechanical and minor body repairs
in-house; however, for some reconditioning services, CarMax engages third
parties specializing in those services. Over the past several years, CarMax has
been performing an increasing percentage of reconditioning services in-house
and, based on the cost savings realized, CarMax expects that trend to continue.
Advertising. CarMax's marketing strategies are focused on developing
awareness of the advantages of shopping at CarMax, attracting customers who are
already in the market to purchase a vehicle and targeting specific segments of
the market through special promotions. CarMax's marketing strategies are
implemented primarily through newspaper, television and radio advertising, and
the CarMax Web site. Newspaper advertisements promote CarMax's broad selection
of vehicles and price leadership, targeting consumers with immediate purchase
intentions. Television and radio broadcast advertisements are designed to
enhance consumer awareness of the CarMax name, carmax.com and key components of
the CarMax offer. Both newspaper and broadcast advertisements are designed to
drive customers to the CarMax Web site and to its stores. The style and
substance of CarMax's advertisements are distinctly different from those placed
by most automobile dealers. The third major marketing support for CarMax is its
Web site, carmax.com, which acts as a marketing tool for communicating its
consumer offer in detail, a sophisticated search engine for finding the right
vehicle and a sales channel for customers who prefer to complete a part of the
shopping and sales process online with one of CarMax's internet sales
consultants.
In fiscal 2001, CarMax refined its advertising approach by eliminating
spending that research showed to be unprofitable and by increasing the
efficiency of its television advertising. In fiscal 2002, CarMax continued to
refine the advertising approach implemented in fiscal 2001. CarMax employs a
targeted, high-frequency, low-cost-per-impression television strategy, coupled
with more targeted newspaper advertising. Advertising expenditures were 1.5
percent of net sales and operating revenues in fiscal 2002, 1.8 percent in
fiscal 2001 and 2.4 percent in fiscal 2000. CarMax's fiscal 2002, 2001 and 2000
advertising expense ratios reflect leverage from the total and comparable store
sales increases and changes in media buying strategy.
As additional satellite superstores are opened in a particular market,
CarMax expects to further leverage its advertising expenses in that market over
a larger number of stores. CarMax utilizes market awareness and customer
satisfaction surveys to help tailor its marketing efforts to the purchasing
habits and preferences of customers in each market.
Franchises. CarMax operates new-car dealerships under separate
franchise or dealer agreements with manufacturers. These agreements generally
allow CarMax to sell manufacturers' brands, perform warranty work on these
vehicles and sell related parts and services within a specified market area.
Designation of specified market areas generally does not guarantee exclusivity
within a specified territory. These agreements generally impose operational
requirements and restrictions, including inventory levels, working capital,
monthly financial reporting, signage and cooperation with marketing strategies.
A manufacturer may terminate a dealer agreement under certain circumstances,
including a change in ownership
Page 10 of 22
without prior manufacturer approval, failure to maintain adequate customer
satisfaction ratings or a material breach of other provisions of the agreement.
CarMax also has entered into framework agreements with several major vehicle
manufacturers. These agreements generally contain provisions relating to the
acquisition, ownership structure, advertising and management of a dealership
franchised by those manufacturers.
Various U.S. federal and state laws governing the relationship between
automotive dealerships and vehicle manufacturers also might affect CarMax. These
laws include statutes prohibiting manufacturers from terminating or failing to
renew franchise agreements without proper cause and unreasonably withholding
approval for proposed ownership changes.
Competition. The used- and new-car retail business is highly
competitive. Consumers typically have many choices when deciding where to
purchase a used or new vehicle. In both the used- and new-vehicle markets,
CarMax seeks to distinguish itself from traditional dealerships through its
consumer offer, sales approach and other innovative operating strategies. In the
used-vehicle market, CarMax competes with existing franchised and independent
dealers, rental companies and private parties. Many franchised new-car
dealerships also have increased their focus on the used-vehicle market.
CarMax believes that the principal competitive factors in used-vehicle
sales are price; ability to offer a wide selection of vehicles, including the
more popular makes and models; quality of the vehicles; location of retail
sites; and degree of customer satisfaction with the car-buying experience. Other
competitive factors include the ability to offer or arrange customer financing
on competitive terms and the quality and cost of primary and extended
warranties. CarMax believes that it is competitive in all of these areas and
enjoys advantages over competitors that employ traditional selling methods.
In the new-vehicle market, CarMax competes with other franchised
dealers offering vehicles produced by the same or other manufacturers and with
auto brokers and leasing companies. CarMax believes that the principal
competitive factors in new-vehicle sales are price; dealer sales promotions;
ability of dealerships to offer a wide selection of the most popular vehicles;
location of retail sites; and quality of customer service. The new-vehicle
market has historically been served primarily by dealerships employing
traditional high-pressure, negotiation-oriented sales techniques. CarMax
believes that its customer-friendly, low-pressure sales methods will introduce
points of competitive differentiation in which it may have an advantage.
Customer Satisfaction. The CarMax process enables customers to evaluate
separately each step of the sales process and to make informed decisions at each
step based on comprehensive information about their options and the associated
prices. To increase efficiency, the same sales consultant and the
customer-friendly, proprietary CarMax inventory information system are available
to assist the customer throughout the CarMax sales process. CarMax designed the
elements of the CarMax offer to create a customer-friendly experience. CarMax's
no-haggle pricing allows its sales consultants to focus solely on its customers'
needs. The entire purchase process, including a test-drive and financing, can be
completed in less than one hour. CarMax conducts extensive market research to
measure its customer service record and to refine its consumer offer.
CarMax's sales consultants play a significant role in ensuring a
customer-friendly sales process. CarMax places great emphasis on integrity and
customer-relations skills in its hiring policies and training programs. Although
few of CarMax's sales consultants have had prior experience in automobile sales,
most of CarMax's sales consultants have had prior retail experience before
joining CarMax. Sales consultants, including both full- and part-time employees,
are compensated on a commission basis. The amount of the commission is a fixed
dollar amount per vehicle sold. In contrast, sales and finance personnel at
traditional dealerships often receive higher commissions for negotiating higher
prices and for steering customers toward vehicles with higher gross margins.
Training. CarMax is committed to providing exceptional training to its
associates. New store associates are offered structured, self-paced training
programs that introduce them to company policies and their specific job
responsibilities. Associate participation and performance in each training
program are measured by a unique, intranet-based testing and tracking system.
Most new associates are assigned mentors who provide on-the-job guidance and
support. Many of CarMax's compensation programs reward associates for
continuously improving their skills.
CarMax also offers comprehensive, facilitated classroom training
courses to sales consultants, buyers, automotive technicians and managers. All
sales consultants receive extensive customer service training both initially and
on an ongoing basis. Each buyer undergoes a 12- to 24-month apprenticeship under
the tutelage of an experienced buyer and appraises thousands of cars before
making his or her first independent purchase. Approximately half of CarMax's
service technicians are A.S.E.-certified, the industry standard for technician
training. All technicians attend in-house training programs designed to develop
their skills in performing routine repair services on the diverse makes and
models of vehicles that CarMax sells. Technicians at CarMax's new-car franchises
also attend manufacturer-sponsored training programs to stay abreast of current
Page 11 of 22
diagnostic, repair and maintenance techniques for the specific manufacturer
vehicles. In addition, utilization of technician support groups allows for
greater on-the-job training opportunities for new technicians. At April 30,
2002, CarMax's 39 general managers averaged five years of CarMax experience and
more than nine years of prior management experience.
Consumer Credit. CarMax offers its customers an opportunity to obtain
prime financing for vehicle purchases through its own finance operation or Bank
of America. In addition, Chrysler Financial, Ford Motor Credit, General Motors
Acceptance, Mitsubishi Motors Credit, Nissan Motors Acceptance and Toyota Motors
Financial Services offer prime financing to customers purchasing new vehicles at
applicable CarMax locations. Non-prime financing is offered by TransSouth
Financial, Wells Fargo Financial Acceptance and AmeriCredit Financial Services,
with no financial recourse to CarMax. Sales consultants use CarMax's proprietary
information system to electronically submit financing applications and receive
responses from multiple lenders, generally in less than five minutes from prime
lenders. Financings are typically installment sale contracts secured by the
vehicles financed. Customers are permitted to refinance their loans within three
days of a purchase without incurring any finance or related charges. CarMax's
arrangements with third-party lenders provide for payment of a fee to CarMax at
the time of financing, provided the loan is not refinanced within three days.
CarMax has no recourse liability on loans arranged with third-party lenders.
The CarMax finance operation generates income solely from the prime
credit CarMax provides to qualified customers through the sale and servicing of
the contract receivables originated by CarMax. In addition, the finance
operation enables CarMax to make credit decisions based on overall business
considerations and thus helps to ensure the reasonable availability of credit to
support CarMax's vehicle sales, while retaining its credit standards, in the
event third-party lenders should curtail credit availability due to market
considerations. CarMax believes that the high quality of its used vehicles as
well as the broad scope of the extended warranties CarMax sells reduces default
rates on its customers' loans by helping to keep the purchased vehicles
operational. The lower default rates enable CarMax to provide and arrange
financing at competitive rates. Receivables generated by the finance operation
are financed through asset securitization programs.
Systems. CarMax's stores are supported by an advanced information
system that improves the customer experience while providing tightly integrated
automation of all operating functions. Customers can select a range of vehicles
using touch-screen computers that display their choices and provide a map of the
lot to assist them in their selection of a vehicle. CarMax's inventory
management system includes bar codes on each vehicle and each on-site parking
place. Daily scanning tracks movement of vehicles on the lot and an electronic
gate helps track test drives for vehicles and sales consultants. Online
financing and computer-assisted document preparation ensure rapid completion of
the sales transaction. Behind the scenes, CarMax's proprietary store technology
provides its management with real-time intelligence about every aspect of store
operation, such as inventory management, pricing, vehicle transfers, wholesale
auctions and sales consultant productivity.
Advanced information systems, which are a key to CarMax's successful
inventory management, provide CarMax stores with the ability to anticipate
future inventory needs and manage its pricing strategy. Through this centralized
system, CarMax is able to immediately integrate new stores into its network of
CarMax stores, allowing the new stores to rapidly achieve operating efficiency.
CarMax continues to enhance and refine its information systems, which CarMax
believes to be a core competitive strength.
E-Commerce. The CarMax Web site, carmax.com, offers complete inventory
and pricing search capabilities. Inventory information on the more than 14,000
cars available in the CarMax nationwide inventory is updated daily. Carmax.com
includes all the detailed vehicle information, such as pictures of each vehicle,
prices, features, specifications and store locations, available at the store as
well as sorting and comparison features that allow consumers to easily compare
vehicles. The site also includes features such as detailed vehicle reviews,
payment calculators and an option to estimate trade-in values via a link with
Kelley Blue Book. CarMax believes these features make it easier for consumers to
meet all of their auto research needs on carmax.com. Both used-car and new-car
customers can contact dedicated Internet sales consultants online via
carmax.com, by telephone or by fax. Customers can work with these sales
consultants from the comfort of home - including applying for financing - and
need only visit the store to sign the paperwork and pick up their vehicle.
Service. All CarMax used-car locations provide vehicle repair service,
including used-car warranty service. Factory-authorized service also is provided
at all new-car franchises. In fiscal 2000 and fiscal 2001, CarMax expanded its
retail service operations as its customer base increased. In fiscal 2002, CarMax
continued its retail service expansion through additional marketing and growth
in its customer base. CarMax has developed systems and procedures that are
intended to ensure that its retail repair service operations are conducted in
the same customer-friendly and efficient manner as its other operations. CarMax
offers retail repair service to the public at all existing locations.
Page 12 of 22
CarMax believes that the efficiency of its service and reconditioning
operations are enhanced by its use of technician support groups, as well as by
its compensation programs. These support groups and compensation programs are
designed to increase the productivity of its service technicians and result in
reduced costs and higher-quality repairs and reconditioning. Each group contains
a small number of service professionals with different skills and levels of
experience. The experienced technicians in the group perform the more
complicated repairs with assistance from the apprentices, who also perform
simpler functions on their own. Rather than paying technicians on an hourly
basis, each technician receives a flat rate for each repair or service
performed. CarMax is able to track the productivity of each technician through
the CarMax information system.
In all the states in which CarMax operates, it sells warranties on
behalf of unrelated third parties that are the primary obligors. Under these
third-party warranty programs, CarMax has no contractual liability to the
customer. Contracts usually have terms of coverage between 12 and 72 months.
Seasonality. CarMax's business is seasonal, with each location
generally experiencing more of its net sales in the first half of the fiscal
year. During the fall quarter, new-model-year introductions and discounting on
close-out vehicles can cause rapid depreciation of used-car prices, especially
on late-model vehicles. CarMax anticipates that the seasonality of the business
may vary from region to region as its operations expand geographically.
Employees. On April 30, 2002, CarMax had 5,258 hourly and salaried
employees and 2,230 sales employees who worked on a commission basis. No CarMax
employee is subject to a collective bargaining agreement. Additional CarMax
personnel are employed during peak selling seasons.
Environmental. As with automobile dealerships generally, and service
operations in particular, CarMax's business involves the use, handling and
disposal of hazardous or toxic substances, including motor oil, gasoline,
transmission fluid, solvents, lubricants and other materials. The business also
involves the past and current operation and/or removal of aboveground and
underground storage tanks containing such substances. Accordingly, CarMax is
subject to U.S. federal, state and local laws and regulations governing air and
water quality and the handling, storage and disposal of hazardous or toxic
substances. CarMax believes that it does not have any material environmental
liabilities and that compliance with such laws and regulations will not,
individually or in the aggregate have a material adverse effect on its results
of operations or financial condition.
Item 2. Properties.
At April 30, 2002, the Company's Circuit City retail operations were conducted
in 623 locations, including 603 Superstores and 20 mall-based Circuit City
Express Stores. At April 30, 2002, CarMax's operations were conducted in 41
retail units from 39 locations.
Page 13 of 22
The following table summarizes the Company's Circuit City and CarMax
retail units as of April 30, 2002:
Circuit City Group CarMax Group
-------------------------------- ------------------------------------------------
Superstores
------------------------------
Express Prototype New
Superstores Stores Total Mega Standard Satellite Car Total
----------- ------ ----- ------------------------------------- -----
Alabama 7 - 7 - - - - -
Arizona 10 1 11 - - - - -
Arkansas 4 - 4 - - - - -
California 82 2 84 1 1 - 2 4
Colorado 11 - 11 - - - - -
Connecticut 7 1 8 - - - - -
Delaware 2 - 2 - - - - -
Florida 46 - 46 3 3 - 1 7
Georgia 21 2 23 1 2 - - 3
Hawaii 1 - 1 - - - - -
Idaho 2 - 2 - - - - -
Illinois 33 - 33 3 1 - - 4
Indiana 15 - 15 - - 1 - 1
Kansas 5 - 5 - - - - -
Kentucky 6 - 6 - - - - -
Louisiana 8 1 9 - - - - -
Maine 2 - 2 - - - - -
Maryland 16 - 16 1 1 1 1 4
Massachusetts 14 4 18 - - - - -
Michigan 23 1 24 - - - - -
Minnesota 9 1 10 - - - - -
Mississippi 3 - 3 - - - - -
Missouri 11 - 11 - - - - -
Nebraska 2 - 2 - - - - -
Nevada 6 - 6 - - - - -
New Hampshire 5 1 6 - - - - -
New Jersey 13 - 13 - - - - -
New Mexico 1 - 1 - - - - -
New York 29 - 29 - - - - -
North Carolina 18 1 19 - 3 - - 3
Ohio 27 2 29 - - - - -
Oklahoma 4 - 4 - - - - -
Oregon 8 - 8 - - - - -
Pennsylvania 26 1 27 - - - - -
Rhode Island 2 - 2 - - - - -
South Carolina 8 - 8 - 1 - - 1
Tennessee 13 - 13 - 1 - - 1
Texas 48 - 48 4 3 2 - 9
Utah 5 - 5 - - - - -
Vermont 1 - 1 - - - - -
Virginia 25 2 27 - 2 - - 2
Washington 12 - 12 - - - - -
West Virginia 4 - 4 - - - - -
Wisconsin 7 - 7 - - 1 1 2
Wyoming 1 - 1 - - - - -
-------------------------------------------------------------------------------------
603 20 623 13 18 5 5 41
=====================================================================================
Page 14 of 22
Of the stores open at April 30, 2002, the Company owns three Circuit
City and three CarMax stores. The Company leases the remaining Circuit City and
CarMax stores. During fiscal 2003, the Company anticipates entering into
sale-leaseback transactions for all six of the Circuit City and CarMax store
locations owned by the Company as of April 30, 2002.
For information with respect to obligations for Circuit City leases,
see Note 8 to the Circuit City Group Financial Statements on page 72 of the
Company's 2002 Annual Report to Stockholders, which is incorporated herein by
reference. For information with respect to obligations for CarMax leases, see
Note 8 to the CarMax Group Financial Statements on page 94 of the Company's 2002
Annual Report to Stockholders, which is incorporated herein by reference.
Of the Company's ten distribution centers, nine are leased. The Company
owns a 388,000-square-foot consumer electronics distribution center in Doswell,
Va., which has been financed with Industrial Development Revenue Bonds.
In addition, the Company owns most of the land but leases the three
buildings in which its corporate headquarters is located. The CarMax
headquarters, which is located near the site of the first CarMax retail store,
is also leased. The Company leases space for all warehouse, service and office
facilities except for the aforementioned properties.
Item 3. Legal Proceedings.
In the normal course of business, the Company is involved in various
legal proceedings. Based upon the Company's evaluation of the information
presently available, management believes that the ultimate resolution of any
such proceedings will not have a material adverse effect on the Company's
financial position, liquidity or results of operations.
On or about April 22, 2002, Kevin Smith, individually and on behalf of
all others similarly situated, filed a complaint against the Company and W. Alan
McCollough in the United States District Court for the Eastern District of
Virginia, Richmond Division. The Complaint seeks certification of a class, which
would include all purchasers of the Company's common stock between December 6,
2001, and February 22, 2002, and alleges that, during the specified time period,
the Company and Mr. McCollough violated federal securities laws by
misrepresenting material facts about the business and operations of the Circuit
City Group. The plaintiff seeks unspecified compensatory damages, attorneys'
fees and costs. Although the complaint uses the general term common stock in
describing the class of stockholders it seeks to clarify, the specific
allegations regarding stock price all relate to the Circuit City Group Common
Stock. Regardless, the Company believes that the allegations are without merit
and that the Company has substantial defenses to the claims alleged. As a
result, the Company intends to defend the action vigorously.
Item 4. Submission of Matters to a Vote of Security Holders.
No matter was submitted to a vote of security holders during the fourth
quarter of the fiscal year ended February 28, 2002.
Executive Officers of the Company.
The following table identifies the present executive officers of the
Company. The Company is not aware of any family relationship between any
executive officers of the Company or any executive officer and any director of
the Company. All executive officers are generally elected annually and serve for
one year or until their successors are elected and qualify. The next general
election of officers will occur in June 2002.
Name Age Office
W. Alan McCollough 52 President and
Chief Executive Officer
Michael T. Chalifoux 55 Executive Vice President,
Chief Financial Officer and
Corporate Secretary
John W. Froman 48 Executive Vice President
Chief Operating Officer
Kim D. Maguire 46 Executive Vice President
Merchandising
Page 15 of 22
Name Age Office
Ann-Marie Austin-Stephens 43 Senior Vice President
Store Innovation and Development
Dennis J. Bowman 48 Senior Vice President and
Chief Information Officer
W. Stephen Cannon 50 Senior Vice President and
General Counsel
Fiona P. Dias 36 Senior Vice President
Marketing
Philip J. Dunn 49 Senior Vice President,
Treasurer and Controller
W. Austin Ligon 51 Senior Vice President
Automotive
Gary M. Mierenfeld 50 Senior Vice President
Supply Chain
Jeffrey S. Wells 56 Senior Vice President
Human Resources and Training
Mr. McCollough is a director and a member of the Company's executive
committee. He joined the Company in 1987 as general manager of corporate
operations. He was elected assistant vice president in 1989, vice president and
Central Division president in 1991, senior vice president - merchandising in
1994, president and chief operating officer in 1997 and chief executive officer
in June 2000.
Mr. Chalifoux is a director and a member of the Company's executive
committee. He joined the Company in 1983 as corporate controller and was elected
vice president and chief financial officer in 1988. He became senior vice
president and chief financial officer in 1990, corporate secretary in 1993 and
executive vice president in 1998.
Mr. Froman joined the Company in 1986 as a store manager and general
manager in training. In 1987, he was promoted to general manager and in 1989 was
named assistant vice president. He was promoted to director of corporate
operations in 1990 and in 1992 added the title of vice president. He was elected
Central Division president in 1994, named senior vice president - merchandising
in 1997 and was promoted to executive vice president in 2000. He was named chief
operating officer in 2001.
Mr. Maguire joined the Company in 2001 as executive vice president -
merchandising. Prior to joining the Company, Mr. Maguire had been employed by
Target Stores for 20 years, most recently as senior vice president - hardlines.
Ms. Austin-Stephens joined the Company in 1999 as vice president of
Strategic Planning. She was elected senior vice president in 2000. Before
joining the Company, she had served more than three years as the director of
technology and brand marketing for The Frito-Lay Company and 13 years with The
Procter and Gamble Company in various marketing, strategy and product
development positions.
Mr. Bowman joined the Company in 1996 as vice president and chief
information officer. He was elected senior vice president and chief information
officer in 1997. Prior to joining the Company, he had served, since 1993, as
senior vice president - information services for Rite Aid Corporation; from 1984
to 1993, he was a consultant with McKinsey & Company.
Mr. Cannon joined the Company in 1994 as senior vice president and
general counsel. Prior to joining the Company, he had been, since 1986, a
partner in Wunder, Diefenderfer, Ryan, Cannon & Thelen, a Washington, D.C., law
firm.
Ms. Dias joined the Company in 2000 as senior vice president -
marketing. Before joining the Company, she was chief marketing officer at Stick
Networks, Inc.; vice president - marketing and development for the Frito-Lay
Company from
Page 16 of 22
1999 to 2000; from 1996 to 1999, she was director of brand management and
corporate development at Pennzoil Quaker State Company; and, prior to 1996, held
various brand management positions with The Procter and Gamble Company.
Mr. Dunn joined the Company in 1984. He was named treasurer in 1990,
was promoted to vice president in 1992 and added the title of controller in
1996. In 1999, he was elected senior vice president.
Mr. Ligon joined the Company in 1990 as vice president - corporate
planning and communications. He was elected senior vice president - corporate
planning and communications in 1991, senior vice president - corporate planning
and automotive in 1994 and senior vice president - automotive and CarMax
president in 1996.
Mr. Mierenfeld joined the Company in 1993 as vice president -
distribution. He was elected senior vice president - supply chain in 1999.
Mr. Wells joined the Company in 1996 as senior vice president - human
resources and training. Prior to joining the Company, he had served as a senior
vice president of Toys "R" Us, Inc. since 1992.
Part II
With the exception of the information incorporated by reference from
the 2002 Annual Report to Stockholders and the Supplement to Annual Report -
Management's Discussion and Analysis of Results of Operations and Financial
Condition in Item 2 of Part I and Items 5, 6, 7, 7a and 8 of Part II and Item 14
of Part IV of this Form 10-K, the Company's 2002 Annual Report to Stockholders
and the Supplement to Annual Report - Management's Discussion and Analysis of
Results of Operations and Financial Condition are not to be deemed filed as a
part of this Report.
Item 5. Market for the Company's Common Equity and Related Stockholder Matters.
Incorporated herein by reference is the information appearing under the
heading "Common Stock" on page 35 of the Company's 2002 Annual Report to
Stockholders.
As of April 30, 2002, there were 8,195 shareholders of record of the
Circuit City Group Common Stock and 405 shareholders of record of the CarMax
Group Common Stock.
Item 6. Selected Financial Data.
Incorporated herein by reference is the information appearing under the
heading "Reported Historical Information" on page 23 of the Company's 2002
Annual Report to Stockholders.
Item 7. Management's Discussion and Analysis of Results of Operations and
Financial Condition.
Incorporated herein by reference is the information appearing under the
heading "Management's Discussion and Analysis of Results of Operations and
Financial Condition" on pages 23 through 35 for Circuit City Stores, Inc., pages
55 through 61 for the Circuit City Group, and pages 78 through 83 for the CarMax
Group of the Company's 2002 Annual Report to Stockholders and the additional
finance operation disclosure in the Supplement to Annual Report - Management's
Discussion and Analysis of Results of Operations and Financial Condition. As
previously announced, CarMax, Inc. has filed a registration statement related to
the proposed separation of the CarMax auto superstore business from the Circuit
City consumer electronics business. The risk factors contained in that
registration statement are attached to this report as Exhibit 99 and should be
read in conjunction with the cautionary statements listed under "Management's
Discussion and Analysis of Results of Operations and Financial Condition" on
pages 34 and 35 of the Company's 2002 Annual Report to Stockholders.
Item 7a. Quantitative and Qualitative Disclosures about Market Risk.
Incorporated herein by reference is the information appearing under the
sub-heading "Market Risk" on page 34 for Circuit City Stores, Inc., page 61 for
the Circuit City Group and page 83 for the CarMax Group of the Company's 2002
Annual Report to Stockholders.
Item 8. Financial Statements and Supplementary Data.
Incorporated herein by reference is the information appearing under the
headings "Consolidated Statements of Earnings," "Consolidated Balance Sheets,"
"Consolidated Statements of Cash Flows," "Consolidated Statements of
Page 17 of 22
Stockholders' Equity," "Notes to Consolidated Financial Statements," and
"Independent Auditors' Report," on pages 36 through 54 of the Company's 2002
Annual Report to Stockholders.
Incorporated herein by reference is the information appearing under the
headings "Circuit City Group Statements of Earnings," "Circuit City Group
Balance Sheets," "Circuit City Group Statements of Cash Flows," "Circuit City
Group Statements of Group Equity," "Notes to Circuit City Group Financial
Statements," and "Independent Auditors' Report," on pages 62 through 77 of the
Company's 2002 Annual Report to Stockholders.
Incorporated herein by reference is the information appearing under the
headings "CarMax Group Statements of Earnings," "CarMax Group Balance Sheets,"
"CarMax Group Statements of Cash Flows," "CarMax Group Statements of Group
Equity, " "Notes to CarMax Group Financial Statements," and "Independent
Auditors' Report," on pages 84 through 97 of the Company's 2002 Annual Report to
Stockholders.
Incorporated herein by reference is the information appearing under the
heading "Quarterly Financial Data (Unaudited)" on page 54 for Circuit City
Stores, Inc., page 77 for the Circuit City Group and page 97 for the CarMax
Group of the Company's 2002 Annual Report to Stockholders.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
None.
Part III
With the exception of the information incorporated by reference from
the Company's Proxy Statement in Items 10, 11 and 12 of Part III of this Form
10-K, the Company's Proxy Statement dated May 10, 2002, is not to be deemed
filed as a part of this Report.
Item 10. Directors and Executive Officers of the Company.
The information concerning the Company's directors required by this
Item is incorporated by reference to the section entitled "Item One - Election
of Directors" appearing on pages 3 through 5 of the Company's Proxy Statement
dated May 10, 2002.
The information concerning the Company's executive officers required by
this Item is incorporated by reference to the section in Part I hereof entitled
"Executive Officers of the Company" appearing on pages 14 and 15.
The information concerning compliance with Section 16(a) of the
Securities Exchange Act of 1934 required by this Item is incorporated by
reference to the section entitled "Section 16(a) Beneficial Ownership Reporting
Compliance" appearing on page 19 of the Company's Proxy Statement dated May 10,
2002.
Item 11. Executive Compensation.
The information required by this Item is incorporated by reference to
the sections entitled "Compensation of Executive Officers" appearing on pages 11
through 18 of the Company's Proxy Statement dated May 10, 2002.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
The information required by this Item is incorporated by reference to
the section entitled "Beneficial Ownership of Securities" appearing on pages 6
through 8 of the Company's Proxy Statement dated May 10, 2002.
Item 13. Certain Relationships and Related Transactions.
None.
Part IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.
Page 18 of 22
(a) The following documents are filed as part of this Report:
1. Financial Statements. The following Financial Statements of
Circuit City Stores, Inc., the Circuit City Group and the CarMax
Group, and the related notes to Financial Statements and the
Independent Auditors' Reports are incorporated by reference to
pages 36 through 54 for Circuit City Stores, Inc., pages 62
through 77 for the Circuit City Group, and pages 84 through 97
for the CarMax Group of the Company's 2002 Annual Report to
Stockholders:
Consolidated Statements of Earnings for the fiscal years ended
February 28 or 29, 2002, 2001 and 2000.
Circuit City Group Statements of Earnings for the fiscal years
ended February 28 or 29, 2002, 2001 and 2000.
CarMax Group Statements of Earnings for the fiscal years ended
February 28 or 29, 2002, 2001 and 2000.
Consolidated Balance Sheets at February 28, 2002 and 2001.
Circuit City Group Balance Sheets at February 28, 2002 and 2001.
CarMax Group Balance Sheets at February 28, 2002 and 2001.
Consolidated Statements of Cash Flows for the fiscal years ended
February 28 or 29, 2002, 2001 and 2000.
Circuit City Group Statements of Cash Flows for the fiscal years
ended February 28 or 29, 2002, 2001 and 2000.
CarMax Group Statements of Cash Flows for the fiscal years ended
February 28 or 29, 2002, 2001 and 2000.
Consolidated Statements of Stockholders' Equity for the fiscal
years ended February 28 or 29, 2002, 2001 and 2000.
Circuit City Group Statements of Group Equity for the fiscal
years ended February 28 or 29, 2002, 2001 and 2000.
CarMax Group Statements of Group Equity for the fiscal years
ended February 28 or 29, 2002, 2001 and 2000.
Notes to Consolidated Financial Statements.
Notes to Circuit City Group Financial Statements.
Notes to CarMax Group Financial Statements.
Independent Auditors' Report, Circuit City Stores, Inc.
Independent Auditors' Report, Circuit City Group.
Independent Auditors' Report, CarMax Group.
2. Financial Statement Schedules. The following financial statement
schedules of Circuit City Stores, Inc., Circuit City Group and
CarMax Group for the fiscal years ended February 28 or 29, 2002,
2001 and 2000, are filed as part of this Report and should be
read in conjunction with the Financial Statements of Circuit City
Stores, Inc., Circuit City Group and CarMax Group.
II Valuation and Qualifying Accounts and Reserves, Circuit City Stores, Inc. S-1
II Valuation and Qualifying Accounts and Reserves, Circuit City Group S-1
II Valuation and Qualifying Accounts and Reserves, CarMax Group S-1
Page 19 of 22
Independent Auditors' Report on Circuit City Stores, Inc. Financial Statement Schedule S-2
Independent Auditors' Report on Circuit City Group Financial Statement Schedule S-2
Independent Auditors' Report on CarMax Group Financial Statement Schedule S-2
Schedules not listed above have been omitted because they are not
applicable or are not required or the information required to be
set forth therein is included in the Consolidated Financial
Statements or Notes thereto.
3. Exhibits. The Exhibits listed on the accompanying Index to
Exhibits immediately following the financial statement schedules
are filed as part of, or incorporated by reference into, this
Report.
(b) Reports on Form 8-K.
The Company filed a Form 8-K on February 22, 2002, announcing the
Company's plans to split-off its CarMax auto Superstore business.
Page 20 of 22
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
CIRCUIT CITY STORES, INC.
(Registrant)
By /s/W. Alan McCollough
-------------------------
W. Alan McCollough
President and Chief Executive Officer
By /s/Michael T. Chalifoux
-------------------------
Michael T. Chalifoux
Executive Vice President,
Chief Financial Officer and
Corporate Secretary
By /s/Philip J. Dunn
-------------------------
Philip J. Dunn
Senior Vice President, Treasurer,
Corporate Controller and
Chief Accounting Officer
May 28, 2002
Page 21 of 22
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed by the following persons on behalf of the Registrant and in the
capacities and on the dates indicated:
Signature Title Date
Carolyn H. Byrd* Director May 28, 2002
--------------------------
Carolyn H. Byrd
Michael T. Chalifoux Director May 28, 2002
--------------------------
Michael T. Chalifoux
Richard N. Cooper* Director May 28, 2002
--------------------------
Richard N. Cooper
Barbara S. Feigin* Director May 28, 2002
--------------------------
Barbara S. Feigin
James F. Hardymon* Director May 28, 2002
--------------------------
James F. Hardymon
Robert S. Jepson Jr.* Director May 28, 2002
--------------------------
Robert S. Jepson Jr.
/s/Warren A. McCollough Director May 28, 2002
--------------------------
Warren A. McCollough
Hugh G. Robinson* Director May 28, 2002
--------------------------
Hugh G. Robinson
Paula G. Rosput* Director May 28, 2002
--------------------------
Paula G. Rosput
Mikael Salovaara* Director May 28, 2002
--------------------------
Mikael Salovaara
Richard L. Sharp* Director May 28, 2002
--------------------------
Richard L. Sharp
John W. Snow* Director May 28, 2002
--------------------------
John W. Snow
Carolyn Y. Woo* Director May 28, 2002
--------------------------
Carolyn Y. Woo
By: /s/Warren A. McCollough
---------------------------
Warren A. McCollough,
Attorney-In-Fact
*The original powers of attorney authorizing Warren A. McCollough and Michael T.
Chalifoux, or either of them, to sign this annual report on behalf of certain
directors and officers of the Company are included as Exhibit 24.
Page 22 of 22
S-1
Schedule II
CIRCUIT CITY STORES, INC. AND SUBSIDIARIES
Valuation and Qualifying Accounts and Reserves
----------------------------------------------
(Amounts in thousands)
Balance at Charged Charge-offs Balance at
Beginning to less End of
Description of Year Income Recoveries Year
----------- ------- ------ ---------- ----
Circuit City Stores, Inc.:
Year ended February 29, 2000:
Allowance for doubtful accounts $ 16,282 $ 7,758 $ (5,727) $ 18,313
========= ======= ========= =========
Year ended February 28, 2001:
Allowance for doubtful accounts $ 18,313 $ 8,878 $ (18,219) $ 8,972
======== ======= ========= =========
Year ended February 28, 2002:
Allowance for doubtful accounts $ 8,972 $ 5,552 $ (9,777) $ 4,747
======== ======= ========= =========
Circuit City Group:
Year ended February 29, 2000:
Allowance for doubtful accounts $ 11,069 $ 4,324 $ (2,898) $ 12,495
======== ======= ========= =========
Year ended February 28, 2001:
Allowance for doubtful accounts $ 12,495 $ 5,171 $ (15,598) $ 2,068
======== ======= ========= =========
Year ended February 28, 2002:
Allowance for doubtful accounts $ 2,068 $ 3,485 $ (4,893) $ 660
======== ======= ======== =========
CarMax Group:
Year ended February 29, 2000:
Allowance for doubtful accounts $ 5,213 $ 3,434 $ (2,829) $ 5,818
======== ======= ========= =========
Year ended February 28, 2001:
Allowance for doubtful accounts $ 5,818 $ 3,707 $ (2,621) $ 6,904
======== ======= ========= =========
Year ended February 28, 2002:
Allowance for doubtful accounts $ 6,904 $ 2,067 $ (4,884) $ 4,087
======== ======= ========= =========
Certain prior year amounts have been changed to conform to current year
presentation.
S-2
Independent Auditors' Report on Financial Statement Schedule
The Board of Directors
Circuit City Stores, Inc.:
Under date of April 2, 2002, we reported on the consolidated balance
sheets of Circuit City Stores, Inc. and subsidiaries (the Company) as
of February 28, 2002 and 2001, and the related consolidated statements
of earnings, stockholders' equity and cash flows for each of the fiscal
years in the three-year period ended February 28, 2002, as contained in
the February 28, 2002 annual report to stockholders. These consolidated
financial statements and our report thereon are incorporated by
reference in the annual report on Form 10-K for the fiscal year ended
February 28, 2002. In connection with our audits of the aforementioned
consolidated financial statements, we also have audited the related
Circuit City Stores, Inc. financial statement schedule as listed in
Item 14(a)2 of this Form 10-K. This financial statement schedule is the
responsibility of the Company's management. Our responsibility is to
express an opinion on this financial statement schedule based on our
audits.
In our opinion, such schedule, when considered in relation to the basic
consolidated financial statements taken as a whole, presents fairly, in
all material respects, the information set forth therein.
/s/KPMG LLP
Richmond, Virginia
April 2, 2002
S-2
Independent Auditors' Report on Financial Statement Schedule
The Board of Directors
Circuit City Stores, Inc.:
Under date of April 2, 2002, we reported on the balance sheets of the
Circuit City Group as of February 28, 2002 and 2001, and the related
statements of earnings, group equity and cash flows for each of the
fiscal years in the three-year period ended February 28, 2002, as
contained in the February 28, 2002 annual report to stockholders. Our
report dated April 2, 2002 includes a qualification related to the
effects of not consolidating the CarMax Group with the Circuit City
Group as required by accounting principles generally accepted in the
United States of America. These financial statements and our report
thereon are incorporated by reference in the annual report on Form 10-K
of Circuit City Stores, Inc. for the fiscal year ended February 28,
2002. In connection with our audits of the aforementioned financial
statements, we also have audited the related Circuit City Group
financial statement schedule as listed in Item 14(a)2 of this Form
10-K. This financial statement schedule is the responsibility of
Circuit City Stores, Inc.'s management. Our responsibility is to
express an opinion on this financial statement schedule based on our
audits.
In our opinion, except for the effects of not consolidating the CarMax
Group with the Circuit City Group as discussed in the preceding
paragraph, such schedule, when considered in relation to the basic
financial statements taken as a whole, presents fairly, in all material
respects, the information set forth therein.
/s/KPMG LLP
Richmond, Virginia
April 2, 2002
S-2
Independent Auditors' Report on Financial Statement Schedule
The Board of Directors
Circuit City Stores, Inc.:
Under date of April 2, 2002, we reported on the balance sheets of the
CarMax Group as of February 28, 2002 and 2001, and the related
statements of operations, group equity and cash flows for each of the
fiscal years in the three-year period ended February 28, 2002, as
contained in the February 28, 2002 annual report to stockholders. These
financial statements and our report thereon are incorporated by
reference in the annual report on Form 10-K of Circuit City Stores,
Inc. for the fiscal year ended February 28, 2002. In connection with
our audits of the aforementioned financial statements, we also have
audited the related CarMax Group financial statement schedule as listed
in Item 14(a)2 of this Form 10-K. This financial statement schedule is
the responsibility of Circuit City Stores, Inc.'s management. Our
responsibility is to express an opinion on this financial statement
schedule based on our audits.
In our opinion, such schedule, when considered in relation to the basic
financial statements taken as a whole, presents fairly, in all material
respects, the information set forth therein.
/s/KPMG LLP
Richmond, Virginia
April 2, 2002
Circuit City Stores, Inc.
Annual Report on Form 10-K
INDEX TO EXHIBITS
(3) Articles of Incorporation and Bylaws
(a) Amended and Restated Articles of Incorporation of the
Company, effective February 3, 1997, filed as Exhibit
3(i)(a) to the Company's Amended Quarterly Report on
Form 10-Q/A for the quarter ended May 31, 1999 (File
No. 1-5767), are expressly incorporated herein by
this reference.
(b) Articles of Amendment to the Company's Amended and
Restated Articles of Incorporation, effective April
28, 1998, filed as Exhibit 3(i)(b) to the Company's
Amended Quarterly Report on Form 10-Q/A for the
quarter ended May 31, 1999 (File No. 1-5767), are
expressly incorporated herein by this reference.
(c) Articles of Amendment to the Company's Amended and
Restated Articles of Incorporation, effective June
22, 1999, filed as Exhibit 3(i)(c) to the Company's
Amended Quarterly Report on Form 10-Q/A for the
quarter ended May 31, 1999 (File No. 1-5767), are
expressly incorporated herein by this reference.
(d) Bylaws of the Company, as amended and restated
December 20, 2001, filed as Exhibit 3(ii) to the
Company's Quarterly Report on Form 10-Q for the
quarter ended November 30, 2001 (File No. 1-5767),
are expressly incorporated herein by this reference.
(4) Instruments Defining the Rights of Security Holders, Including
Indentures
(a) Second Amended and Restated Rights Agreement dated as
of July 10, 2001, between the Company and Wells Fargo
Bank Minnesota, N.A. (Formerly Named Norwest Bank
Minnesota, N.A.), dated as of July 20, 2001, filed as
Exhibit 1 to the Company's Form 8-A/A filed on July
20, 2001 (File No. 1-5767), is expressly incorporated
herein by this reference.
(b) $100,000,000 term loan agreement dated July 28, 1994,
between the Company, The Long-Term Credit Bank of
Japan, Limited, as agent, and the banks named
therein. Pursuant to Item 601(b)(4)(iii) of
Regulation S-K, in lieu of filing a copy of such
agreement, the Company agrees to furnish a copy of
such agreement to the Commission upon request.
(c) First Amendment to Term Loan Agreement dated October
24, 1995, to the $100,000,000 term loan agreement
dated July 28, 1994, between the Company, The
Long-Term Credit Bank of Japan, Limited, as agent,
and the banks named therein. Pursuant to Item
601(b)(4)(iii) of Regulation S-K, in lieu of filing a
copy of such agreement, the Company agrees to furnish
a copy of such agreement to the Commission upon
request.
(d) Second Amendment to Term Loan Agreement dated August
21, 1996, to the $100,000,000 term loan agreement
dated July 28, 1994, between the Company, The
Long-Term Credit Bank of Japan, Limited, as agent,
and the banks named therein. Pursuant to Item
601(b)(4)(iii) of Regulation S-K, in lieu of filing a
copy of such agreement, the Company agrees to furnish
a copy of such agreement to the Commission upon
request.
(e) Third Amendment to Term Loan Agreement dated
September 23, 1999, to the $100,000,000 term loan
agreement dated July 28, 1994, between the Company,
General Electric Capital Corporation, as successor
agent, and the banks named therein. Pursuant to Item
601(b)(4)(iii) of Regulation S-K, in lieu of filing a
copy of such agreement, the Company agrees to furnish
a copy of such agreement to the Commission upon
request.
(f) Fourth Amendment to Term Loan Agreement dated
December 15, 2000, to the $100,000,000 term loan
agreement dated July 28, 1994, between the Company,
General Electric Capital Corporation, as successor
agent, and the banks named therein. Pursuant to Item
601(b)(4)(iii) of Regulation S-K. In lieu of filing a
copy of such agreement, the Company agrees to furnish
a copy of such agreement to Commission upon request.
(g) $150,000,000 Credit Agreement dated August 31, 1996,
between the Company, Crestar Bank, as agent, and the
banks named therein. Pursuant to Item 601(b)(4)(iii)
of Regulation S-K, in lieu of filing a copy of such
agreement, the Company agrees to furnish a copy of
such agreement to the Commission upon request.
(h) First Amendment to Credit Agreement dated May 1,
1998, to the $150,000,000 Credit Agreement dated
August 31, 1996, between the Company, Crestar Bank,
as agent, and the banks named therein. Pursuant to
Item 601(b)(4)(iii) of Regulation S-K, in lieu of
filing a copy of such agreement, the Company agrees
to furnish a copy of such agreement to the Commission
upon request.
(i) Second Amendment to Credit Agreement dated September
1, 1999, to the $150,000,000 Credit Agreement dated
August 31, 1996, between the Company, Crestar Bank,
as agent, and the banks named therein. Pursuant to
Item 601(b)(4)(iii) of Regulation S-K, in lieu of
filing a copy of such agreement, the Company agrees
to furnish a copy of such agreement to the Commission
upon request.
(j) Third Amendment to Credit Agreement dated December
15, 2000, to the $150,000,000 Credit Agreement dated
August 31, 1996, between the Company SunTrust, as
successor agent, and the banks named therein.
Pursuant to Item 601(b)(4)(iii) of Regulation S-K, in
lieu of filing a copy of such agreement, the Company
agrees to furnish a copy of such agreement to the
Commission upon request.
(10) Material Contracts*
(a) The Company's 2000 Non-Employee Directors Stock
Incentive Plan, filed as Appendix A to the Company's
Definitive Proxy Statement dated May 10, 2000, for
the Annual Meeting of Shareholders held on June 13,
2000 (File No. 1-5767), is expressly incorporated
herein by this reference.
(b) Amendments effective June 15, 2001, to Company's 2000
Non-Employee Directors Stock Incentive Plan, filed as
Exhibit 10 to the Company's Quarterly Report on Form
10-Q for the quarter ended May 31, 2001 (File No.
1-5767), is expressly incorporated herein by this
reference.
(c) The Company's Amended and Restated 1989 Non-Employee
Directors Stock Option Plan, filed as Exhibit A to
the Company's Definitive Proxy Statement dated May 9,
1997, for the Annual Meeting of Shareholders held on
June 17, 1997 (File No. 1-5767), is expressly
incorporated herein by this reference.
(d) Amendments adopted June 17, 1997, to the Company's
Amended and Restated 1989 Non-Employee Directors
Stock Option Plan filed as Exhibit 10(ii) to the
Company's Quarterly Report on Form 10-Q for the
quarter ended May 31, 1997 (File No. 1-5767), is
expressly incorporated herein by this reference.
(e) The Company's 1994 Stock Incentive Plan, as amended
as of January 24, 1997, filed as Annex III to the
Company's Definitive Proxy Statement dated December
24, 1996, for a Special Meeting of Shareholders held
on January 24, 1997 (File No. 1-5767), is expressly
incorporated herein by this reference.
(f) Amendments effective June 13, 2000, to the Company's
1994 Stock Incentive Plan as amended, filed as
Exhibit 10 to the Company's Quarterly Report on form
10-Q for the quarter ended May 31, 2000 (File No.
1-5767), is expressly incorporated herein by this
reference.
(g) Amendment effective June 15, 1999, to the Company's
1994 Stock Incentive Plan, as amended, filed as
Exhibit 10 to the Company's Quarterly Report on Form
10-Q for the quarter ended May 31, 1999 (File No.
1-5767), is expressly incorporated herein by this
reference.
(h) Letter agreement and non-compete agreement dated
January 30, 1996, (revised February 12, 1996),
between the Company and Alan L. Wurtzel filed as
Exhibit 10(g) to the Company's Annual Report on Form
10-K for the fiscal year ended February 28, 1995
(File No. 1-5767), is expressly incorporated herein
by this reference.
(i) Employment agreement between the Company and Richard
L. Sharp dated October 17, 1986, and amendment dated
August 1, 1989, to the employment agreement, filed as
Exhibit 10(m) to the Company's Annual Report on Form
10-K for the fiscal year ended February 28, 1993
(File No. 1-5767), is expressly incorporated herein
by this reference.
(j) Employment agreement between the Company and John W.
Froman dated June 27, 1990, filed as Exhibit 10(i) to
the Company's Annual Report on Form 10-K for the
fiscal year ended February 28, 2001 (File No.
1-5767), is expressly incorporated herein by this
reference.
(k) Employment agreement between the Company and William
A. Ligon dated April 25, 1995, filed as Exhibit 10(j)
to the Company's Annual Report on Form 10-K for the
fiscal year ended February 28, 2001 (File No.
1-5767), is expressly incorporated herein by this
reference.
(l) Employment agreement dated May 25, 1989, between the
Company and Michael T. Chalifoux, filed as Exhibit
10(x) to the Company's Annual Report on Form 10-K for
the fiscal year ended February 28, 1991 (File No.
1-5767), is expressly incorporated herein by this
reference.
(m) Employment agreement dated April 24, 1995, between
the Company and W. Alan McCollough filed as Exhibit
10(l) to the Company's Annual Report on Form 10-K for
the fiscal year ended February 28, 1995 (File No.
1-5767), is expressly incorporated herein by this
reference.
(n) The Company's Annual Performance-Based Bonus Plan, as
amended as of January 24, 1997, filed as Annex IV to
the Company's Definitive Proxy Statement dated
December 24, 1996, for a Special Meeting of
Shareholders held on January 24, 1997 (File No.
1-5767), is expressly incorporated herein by this
reference.
(o) The Company's Non-Employee Directors Deferred
Compensation Plan, filed as Exhibit 10 to the
Company's Quarterly Report on Form 10-Q for the
quarter ended August 31, 2000 (File No. 1-5767), is
expressly incorporated herein by this reference.
(p) Program for deferral of director compensation
implemented October 1995 filed as Exhibit 10(i) to
the Company's Quarterly Report on Form 10-Q for the
quarter ended November 30, 1995 (File No. 1-5767), is
expressly incorporated herein by this reference.
(q) Benefit Restoration Plan, effective February 28,
1999, filed as Exhibit 10(m) to the Company's Annual
Report on Form 10-K for the fiscal year ended
February 28, 1999 (File 1-5767), is expressly
incorporated herein by this reference.
(13) Annual Report to Stockholders
Pages 23 through 97 of the Company's Annual Report to stockholders for
the fiscal year ended February 28, 2002, and the Supplement to Annual
Report - Management's Discussion and Analysis of Results of Operations
and Financial Condition
(21) Subsidiaries of the Company
(23) Consents of Experts and Counsel
Consent of KPMG LLP
(24) Powers of Attorney
(99) Additional Exhibits
Risk Factors excerpt from the Registration Statement of CarMax, Inc.
filed in connection with the proposed separation of the CarMax business
from the Circuit City business (Registration No. 333-85240; Amendment
No. 1 filed with the Securities and Exchange Commission on May 14,
2002)
*All contracts listed under Exhibit 10 are management contracts, compensatory
plans or arrangements of the Company required to be filed as an exhibit.