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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------------------
FORM 10-Q
[X] Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 For the quarterly period ended November 30, 2004
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 number: 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, Virginia 23233
(Address of principal executive offices) (Zip Code)
(804) 527- 4000
(Registrant's telephone number, including area code)
N/A
(Former name, former address, and former fiscal year,
if changed since last report)
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 whether the registrant is an accelerated filer (as
defined in Exchange Act Rule 12b-2). Yes |X| No ___
Indicate the number of shares outstanding of each of the registrant's classes of
common stock, as of the latest practicable date.
Class Outstanding at December 31, 2004
Common Stock, par value $0.50 191,276,495
A Table of Contents is included on Page 2 and an Exhibit Index is included on
Page 28.
CIRCUIT CITY STORES, INC. AND SUBSIDIARIES
TABLE OF CONTENTS
Page
No.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements:
Consolidated Statements of Operations -
Three Months and Nine Months Ended November 30, 2004 and 2003 3
Consolidated Balance Sheets -
November 30, 2004 and February 29, 2004 4
Consolidated Statements of Cash Flows -
Nine Months Ended November 30, 2004 and 2003 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 14
Item 3. Quantitative and Qualitative Disclosures about Market Risk 24
Item 4. Controls and Procedures 24
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 24
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 25
Item 6. Exhibits 25
SIGNATURES 27
EXHIBIT INDEX 28
Page 2 of 28
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Circuit City Stores, Inc. and Subsidiaries
Consolidated Statements of Operations (Unaudited)
(Amounts in thousands except per share data)
Three Months Ended Nine Months Ended
November 30 November 30
2004 2003 2004 2003
------------- ------------ ------------ -------------
Net sales and operating revenues $2,493,389 $ 2,407,424 $6,905,003 $6,496,444
Cost of sales, buying and warehousing 1,866,350 1,872,600 5,219,994 5,025,935
------------- ------------- ------------ -------------
Gross profit 627,039 534,824 1,685,009 1,470,509
Finance income - 5,631 5,564 22,418
Selling, general and administrative expenses 628,841 572,217 1,702,963 1,611,350
Stock-based compensation expense 6,442 10,775 20,839 30,421
Interest expense 476 169 1,625 1,479
------------- ------------- ------------ -------------
Loss from continuing operations
before income taxes (8,720) (42,706) (34,854) (150,323)
Income tax benefit (2,820) (14,651) (12,304) (54,868)
------------- ------------- ------------ -------------
Net loss from continuing operations (5,900) (28,055) (22,550) (95,455)
Net earnings (loss) from discontinued operations - 25,546 (1,214) (83,375)
------------- ------------- ------------ -------------
Net loss $ (5,900) $ (2,509) $ (23,764) $ (178,830)
============= ============= ============ =============
Weighted average common shares:
Basic 191,135 206,441 195,321 206,148
============ ============= ============ =============
Diluted 191,135 206,441 195,321 206,148
============ ============= ============ =============
Net (loss) earnings per share:
Basic:
Continuing operations $ (0.03) $ (0.14) $ (0.12) $ (0.46)
Discontinued operations - 0.12 (0.01) (0.40)
------------ ------------ ------------ -------------
$ (0.03) $ (0.01) $ (0.12) $ (0.87)
============ ============ ============ =============
Diluted:
Continuing operations $ (0.03) $ (0.14) $ (0.12) $ (0.46)
Discontinued operations - 0.12 (0.01) (0.40)
------------ ------------ ------------ -------------
$ (0.03) $ (0.01) $ (0.12) $ (0.87)
============ ============ ============ =============
Cash dividends paid per share $ 0.0175 $ 0.0175 $ 0.0525 $ 0.0525
============ ============= ============ =============
See accompanying notes to consolidated financial statements.
Page 3 of 28
Circuit City Stores, Inc. and Subsidiaries
Consolidated Balance Sheets
(Amounts in thousands except share data)
Nov. 30, 2004 Feb. 29, 2004
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 752,478 $ 783,471
Accounts receivable, net of allowance for doubtful accounts
of $429 and $547 126,932 154,039
Retained interests in securitized receivables - 425,678
Merchandise inventory 2,458,876 1,517,256
Prepaid expenses and other current assets 42,383 38,617
------------ ----------
Total current assets 3,380,669 2,919,061
Property and equipment, net 645,785 585,903
Deferred income taxes 80,699 98,934
Goodwill 223,954 -
Other intangible assets 33,559 -
Other assets 15,814 29,102
----------- ----------
TOTAL ASSETS $4,380,480 $3,633,000
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $1,806,028 $ 879,635
Accrued expenses and other current liabilities 213,932 131,512
Accrued income taxes 23,862 71,163
Deferred income taxes 18,335 90,210
Short-term debt 12,648 -
Current installments of long-term debt 13,461 1,115
Liabilities of discontinued operation - 3,068
---------- ----------
Total current liabilities 2,088,266 1,176,703
Long-term debt, excluding current installments 11,756 22,691
Accrued straight-line rent 97,911 98,470
Other liabilities 127,812 111,175
------------ -----------
TOTAL LIABILITIES 2,325,745 1,409,039
----------- ----------
Stockholders' equity:
Common stock, $0.50 par value;
525,000,000 shares authorized; 191,249,797 shares
issued and outstanding at November 30, 2004
(203,899,395 at February 29, 2004) 95,625 101,950
Capital in excess of par value 759,406 922,600
Retained earnings 1,165,149 1,199,411
Accumulated other comprehensive income 34,555 -
----------- -----------
TOTAL STOCKHOLDERS' EQUITY 2,054,735 2,223,961
----------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $4,380,480 $3,633,000
========== ==========
See accompanying notes to consolidated financial statements.
Page 4 of 28
Circuit City Stores, Inc. and Subsidiaries
Consolidated Statements of Cash Flows (Unaudited)
(Amounts in thousands)
Nine Months Ended
November 30
2004 2003
--------------- -------------
Operating Activities:
Net loss $ (23,764) $ (178,830)
Adjustments to reconcile net loss to net cash provided by (used in)
operating activities of continuing operations:
Net loss from discontinued operations 1,214 83,375
Depreciation and amortization 113,559 143,078
Stock option expense 14,271 18,287
Amortization of restricted stock awards 5,942 11,312
Loss on dispositions of property and equipment 2,262 549
Provision for deferred income taxes (82,063) 3,107
Changes in operating assets and liabilities:
Increase in accounts receivable, net (35,997) (33,299)
Decrease (increase) in retained interests in securitized receivables 32,867 (98,732)
Increase in merchandise inventory (832,085) (1,241,342)
Increase in prepaid expenses and other current assets (7,078) (66,780)
Decrease in other assets 14,939 9,443
Increase in accounts payable 896,417 830,165
Decrease in accrued expenses and other current liabilities,
and accrued income taxes (7,327) (37,483)
(Decrease) increase in accrued straight-line rent and other liabilities (2,542) 10,460
------------- --------------
Net cash provided by (used in) operating activities of
continuing operations 90,615 (546,690)
------------- --------------
Investing Activities:
- --------------------
Proceeds from the sale of the private-label finance operation 475,857 -
Acquisitions, net of cash acquired of $30,615 (268,668) -
Purchases of property and equipment (207,755) (134,251)
Proceeds from sales of property and equipment 86,490 21,257
------------- --------------
Net cash provided by (used in) investing activities of
continuing operations 85,924 (112,994)
------------ --------------
Financing Activities:
- --------------------
Proceeds from short-term debt, net 10,183 -
Principal payments on long-term debt (15,081) (1,024)
Repurchase and retirement of common stock (210,052) (13,941)
Issuances of common stock, net 20,849 9,610
Dividends paid (10,498) (10,968)
------------- --------------
Net cash used in financing activities of continuing operations (204,599) (16,323)
------------- --------------
Net cash (used in) provided by discontinued bankcard finance operation (4,282) 246,680
Effect of exchange rate changes on cash 1,349 -
------------- --------------
Decrease in cash and cash equivalents (30,993) (429,327)
Cash and cash equivalents at beginning of year 783,471 884,670
------------- --------------
Cash and cash equivalents at end of period $ 752,478 $ 455,343
============= ==============
See accompanying notes to consolidated financial statements. See Note 13 for
supplemental cash flow information.
Page 5 of 28
CIRCUIT CITY STORES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
1. Basis of Presentation
The consolidated financial statements of the company conform to accounting
principles generally accepted in the United States of America. In the
opinion of management, the accompanying unaudited financial statements
contain all adjustments, which consist only of normal, recurring
adjustments, necessary for a fair presentation. Due to the seasonal nature
of the company's business, interim results are not indicative of results
for the entire fiscal year. The company's consolidated financial statements
included in this report should be read in conjunction with the notes to the
audited financial statements incorporated by reference in the company's
fiscal 2004 Annual Report on Form 10-K.
On May 12, 2004, the company acquired a controlling interest in InterTAN,
Inc. and on May 19, 2004, completed its acquisition of 100 percent of the
common stock of InterTAN for cash consideration of $259.3 million, which
includes transaction costs and is net of cash acquired of $30.6 million.
InterTAN is a leading consumer electronics retailer of both private-label
and internationally branded products with headquarters in Barrie, Ontario,
Canada. InterTAN operates through retail stores and dealer outlets in
Canada under the trade names RadioShack(R), Roger Plus(R) and Battery
Plus(R). In addition to enabling Circuit City to accelerate the offering of
private-label merchandise to its customers, the acquisition of InterTAN
gives Circuit City its first presence in the Canadian market. See Note 3
for additional discussion of the acquisition.
On May 25, 2004, the company completed the sale of its private-label
finance operation, comprised of its private-label and co-branded Visa
credit card programs, to Chase Card Services, formerly Bank One
Corporation. Results from the private-label finance operation, including
transition and transaction costs of approximately $6 million related to the
sale of the operation, are included in finance income. The company also
entered into a Consumer Credit Card Program Agreement under which Chase
Card Services is offering private-label and co-branded credit cards to new
and existing customers of the company. The company is compensated under the
program agreement primarily based on the number of new accounts opened less
promotional financing costs that exceed a negotiated base amount. After the
sale date, the earnings contribution from the program agreement has been
included in net sales and operating revenues on the consolidated statement
of operations. See Note 12 for additional discussion concerning the sale of
the private-label finance operation and the consumer credit agreement.
On November 18, 2003, the company completed the sale of its bankcard
finance operation, which included Visa and MasterCard credit card
receivables and related cash reserves. Results from the bankcard finance
operation are presented as results from discontinued operations. See Note 2
for additional discussion concerning the sale of the bankcard finance
operation.
Certain prior year amounts have been reclassified to conform to the current
presentation.
2. Discontinued Operations
On November 18, 2003, the company completed the sale of its bankcard
finance operation to FleetBoston Financial. Results from the bankcard
finance operation are presented as results from discontinued operations.
The sale agreement included a transition services agreement under which
employees of the company's finance operation continued to service the
bankcard accounts until final conversion of the bankcard portfolio to
FleetBoston, which occurred on April 2, 2004. Through that date,
FleetBoston reimbursed the company for operating costs incurred during the
transition period. The company incurred severance costs ratably through the
final conversion date.
The net earnings from discontinued operations totaled $25.5 million for the
three months ended November 30, 2003. The total is comprised of $24.0
million of after-tax earnings from the discontinued bankcard
Page 6 of 28
operation and $1.5 million from the discontinued Divx operation due to a
$2.3 million reduction in the provision for commitments under licensing
agreements.
For the nine months ended November 30, 2004, the net loss from discontinued
operations totaled $1.2 million, which is comprised of post-closing
adjustments related to the sale of the bankcard operation. The net loss
from discontinued operations for the nine months ended November 30, 2003,
was $83.4 million and is comprised of an after-tax net loss of $84.9
million from the discontinued bankcard operation and after-tax earnings of
$1.5 million from the discontinued Divx operation.
Cash flows related to the discontinued bankcard operation have been
segregated on the consolidated statements of cash flows.
3. Acquisition of InterTAN, Inc.
On May 12, 2004, the company acquired a controlling interest in InterTAN,
Inc. and on May 19, 2004, completed its acquisition of 100 percent of the
common stock of InterTAN for cash consideration of $259.3 million, which
includes transaction costs and is net of cash acquired of $30.6 million.
This acquisition was accounted for using the purchase method in accordance
with Statement of Financial Accounting Standards No. 141, "Business
Combinations." Accordingly, the company recorded the net assets at their
estimated fair values, and included operating results in the consolidated
financial statements since May 12, 2004. The company allocated the purchase
price to the acquired assets and liabilities using available information.
The purchase price allocation includes goodwill of $186.3 million and
identifiable intangible assets of $28.0 million. Goodwill is not deductible
for tax purposes. SFAS No. 142, "Goodwill and Intangible Assets," requires
that goodwill and other intangible assets be evaluated for impairment at
least annually. The identifiable intangible assets consist of
contract-based intangibles and will be amortized on a straight-line basis
over their estimated useful lives, which range from 4.5 years to 20 years.
The company evaluated goodwill and the identifiable intangible assets
during the second quarter of this fiscal year and will perform the
impairment evaluation annually during the second quarter of each fiscal
year. See Note 9 and Note 13 for additional discussion of goodwill and
other intangible assets.
Selected historical and pro forma financial information assuming the
acquisition had been consummated at the beginning of fiscal 2004 was as
follows:
Three Months Ended Nine Months Ended
November 30 November 30
2004 2003 2004 2003
(Amounts in millions except per share data) Historical Pro Forma Pro Forma Pro Forma
------------------------------------------------------------------------------------ ---------------------------
Net sales and operating revenues....................... $2,493.4 $2,531.6 $6,984.3 $6,809.8
Net loss from continuing operations.................... $ 5.9 $ 25.8 $ 22.3 $ 94.8
Net loss per share from continuing
operations........................................... $ 0.03 $ 0.13 $ 0.11 $ 0.46
Net loss............................................... $ 5.9 $ 0.3 $ 23.5 $ 178.2
Net loss per share..................................... $ 0.03 $ - $ 0.12 $ 0.86
After Circuit City's March 31, 2004 announcement of its agreement to
acquire InterTAN, RadioShack Corporation asserted early termination of its
licensing and other agreements with InterTAN. On April 5, 2004, RadioShack
filed suit against InterTAN, and amended that suit on April 27, 2004 (the
"RadioShack litigation"). InterTAN disputes the termination scenarios
alleged by RadioShack and is vigorously defending against those claims. On
May 11, 2004, InterTAN asserted a counterclaim seeking a declaration under
U.S. federal trademark law that the use of the RadioShack marks is proper.
Circuit City was added as a necessary party to that litigation and removed
the matter to Federal Court in the Northern District of Texas. On May 12,
2004, Circuit City filed its own suit in Federal Court in the Northern
District of Texas seeking a declaration under U.S. federal trademark law
that the use of the marks in Canada is proper (the "Circuit City
litigation"). InterTAN has cross-claimed against RadioShack based on
federal trademark law and remedies for business disparagement. On December
9, 2004, the federal court remanded the RadioShack
Page 7 of 28
litigation back to the Texas state court. On December 14, 2004, the federal
court granted RadioShack's motion to dismiss the Circuit City litigation
and the related InterTAN cross-claims.
Circuit City believes that RadioShack is not entitled to early termination
of the agreements and that InterTAN has substantial defenses to the
RadioShack claims. Circuit City and InterTAN intend to vigorously pursue
all claims and defend the claims in the RadioShack litigation. Circuit City
believes that this litigation will not have a material adverse effect on
the company's financial condition or results of operations.
4. Finance Income
Finance income includes the results from the company's private-label
finance operation, including transition and transaction costs of
approximately $6 million related to the sale of the operation to Chase Card
Services, through May 25, 2004, the date the company completed the sale.
For the three and nine months ended November 30, 2004 and 2003, the
components of pretax finance income were as follows:
Three Months Ended Nine Months Ended
November 30 November 30
(Amounts in millions) 2004 2003 2004 2003
------------------------------------------------------------------------------------- -----------------------
Securitization income...................................... $ - $ 25.3 $28.1 $83.0
Less: Payroll and fringe benefit expenses.................. - 7.0 7.6 22.6
Other direct expenses.............................. - 12.7 14.9 38.0
---------------------- -----------------------
Finance income............................................. $ - $ 5.6 $ 5.6 $22.4
====================== =======================
Securitization income primarily is comprised of the gain on the sale of
receivables generated by the company's private-label finance operation,
income from retained interests in the credit card receivables and income
related to servicing the receivables, as well as the impact of increases or
decreases in the fair value of the retained interests. Securitization
income is reduced by payroll, fringe benefits and other costs directly
associated with the management and securitization of the private-label
receivables.
5. Stock-Based Compensation
Effective December 1, 2003, the company adopted the fair value based method
of accounting for stock-based compensation in accordance with SFAS No. 123,
"Accounting for Stock-Based Compensation." The adoption of this standard
was applied using the retroactive restatement method as defined in SFAS No.
148, "Accounting for Stock-Based Compensation - Transition and Disclosure."
The following table sets forth the effect of the retroactive restatement
for adoption of SFAS No. 123.
(Amounts in thousands Three Months Ended Nine Months Ended
except per share data) November 30, 2003 November 30, 2003
------------------------------------------------------------------------------------- -----------------
Net loss from continuing operations:
Previously reported...................................... $24,073 $83,321
Restated for adoption of SFAS No. 123.................... $28,055 $95,455
Net loss per share from continuing operations:
Basic:
Previously reported................................... $ 0.12 $ 0.40
Restated for adoption of SFAS No. 123................. $ 0.14 $ 0.46
Diluted:
Previously reported................................... $ 0.12 $ 0.40
Restated for adoption of SFAS No. 123................. $ 0.14 $ 0.46
Page 8 of 28
The fair value of each stock option granted by the company is estimated as
of the grant date using the Black-Scholes option-pricing model with the
following weighted average assumptions.
Three Months Ended Nine Months Ended
November 30 November 30
2004 2003 2004 2003
- ------------------------------------------------------------------------------------- -----------------------
Expected dividend yield.......................... 0.5% 1.1% 0.6% 1.1%
Expected stock volatility........................ 63% 76% 64% 76%
Risk-free interest rates......................... 3% 2% 4% 3%
Expected lives (in years)........................ 5 5 4 5
Using these assumptions in the Black-Scholes model, the weighted average
fair value of options granted was $8.25 per option for the three months
ended November 30, 2004, and $6.61 per option for the nine months ended
November 30, 2004. The weighted average fair value of options granted was
$3.76 per option for the three months ended November 30, 2003, and $3.59
per option for the nine months ended November 30, 2003.
See Note 15 for a discussion of SFAS No. 123(R), which was issued by the
Financial Accounting Standards Board in December 2004.
6. Comprehensive Income (Loss)
The components of the company's comprehensive income (loss) consist of the
net loss and other comprehensive income. Other comprehensive income is
comprised of foreign currency translation adjustments and is recorded net
of deferred income taxes directly to stockholders' equity.
The components of comprehensive income (loss), net of taxes, were as
follows:
Three Months Ended Nine Months Ended
November 30 November 30
(Amounts in millions) 2004 2003 2004 2003
--------------------------------------------------------------------------------------- ------------------------
Net loss................................................... $ (5.9) $(2.5) $(23.8) $(178.8)
Foreign currency translation............................... 25.0 - 34.6 -
----------------------- -----------------------
Comprehensive income (loss)................................ $19.1 $(2.5) $ 10.8 $(178.8)
===================== ========================
7. Net (Loss) Earnings per Share
For the three and nine months ended November 30, 2004 and 2003, no options
or restricted stock were included in the calculation of diluted net loss
per share because the company reported a loss from continuing operations.
Options to purchase 17.4 million shares of common stock with exercise
prices ranging from $3.10 to $27.21 and restricted stock amounting to 2.3
million shares were outstanding at November 30, 2004. Options to purchase
18.6 million shares of common stock with exercise prices ranging from $5.61
to $27.21 per share and restricted stock amounting to 3.6 million shares
were outstanding at November 30, 2003.
8. Restricted Cash
The sale of the private-label finance operation eliminated the company's
obligation to restrict cash for settlement obligations. During the second
quarter of fiscal 2005, the company settled the remaining liquidity
restrictions on the cash of First North American National Bank, the
company's wholly owned national bank subsidiary, as part of the liquidation
of that subsidiary. As a result, the company did not have any cash or cash
equivalents held by the company's regulated subsidiaries and thus all cash
and cash equivalents were available for general corporate purposes at
November 30, 2004. Cash and cash equivalents held by the company's
regulated subsidiaries and not available for general corporate purposes
were $61.6 million at February 29, 2004.
Page 9 of 28
9. Goodwill and Other Intangible Assets
The changes in the carrying amount of goodwill by reportable segment for
the nine months ended November 30, 2004, were as follows:
Domestic International
(Amounts in millions) Retail Operation Retail Operation Total
-------------------------------------------------------------------------------------------------------------------------
Balance at February 29, 2004............................ $ - $ - $ -
Goodwill resulting from acquisitions.................... 2.5 189.3 191.8
Changes in foreign currency exchange rates.............. - 32.2 32.2
----- ------- -------
Balance at November 30, 2004............................ $2.5 $221.5 $224.0
==== ====== ======
Acquired intangible assets at November 30, 2004, were as follows:
At November 30, 2004
Weighted
Gross Average
Carrying Amortization Accumulated
(Dollar amounts in millions) Amount Period (in years) Amortization
-------------------------------------------------------------------------------------------------------------
Dealer-relationship contracts................ $15.2 20.0 $0.4
Vendor contract.............................. 11.7 10.0 0.5
Employment agreements........................ 5.8 4.5 0.6
Other........................................ 2.9 2.9 0.5
------ -----
Total........................................ $35.6 $2.0
===== =====
Amortization expense for amortizing intangible assets was $1.0 million for
the three months ended November 30, 2004, and $2.0 million for the nine
months ended November 30, 2004. The company did not have any amortization
expense in the first quarter of fiscal 2005. Estimated amortization expense
for fiscal 2005 is $3.1 million. Estimated amortization expense for the
next five fiscal years is $4.3 million in 2006, $4.1 million in 2007, $3.5
million in 2008, $2.9 million in 2009, and $1.9 million in 2010. These
amortization expense estimates are subject to fluctuations in foreign
currency exchange rates. See Note 3 and Note 13 for additional discussion
of goodwill and other intangible assets.
10. Common Stock Repurchased
In January 2003, the company's board of directors authorized the repurchase
of up to $200 million of common stock. In June 2004, the board authorized a
$200 million increase in its stock repurchase authorization for an
aggregate authorization of $400 million. During the three months ended
November 30, 2004, the company repurchased and retired 4.5 million shares
under that authorization at a cost of $69.4 million. For the nine months
ended November 30, 2004, the company repurchased and retired 15.6 million
shares under that authorization at a cost of $210.1 million. As of November
30, 2004, the company had repurchased and retired 24.8 million shares of
common stock under that authorization at a cost of $294.4 million. Based on
the market value of the common stock at November 30, 2004, the remaining
$105.6 million authorized would allow the company to repurchase up to
approximately 4 percent of the 191.2 million shares then outstanding.
11. Pension Plans
The company provides a noncontributory defined benefit pension plan to
eligible employees. Plan benefits generally are based on years of service
and average compensation. The company also has an unfunded nonqualified
benefit restoration plan that restores retirement benefits for senior
executives who are affected by Internal Revenue Code limitations on
benefits provided under the company's pension plan.
Page 10 of 28
The components of the net pension expense for the plans were as follows:
Three Months Ended Nine Months Ended
November 30 November 30
(Amounts in thousands) 2004 2003 2004 2003
----------------------------------------------------------------------------------- --------------------------
Service cost........................................... $ 3,497 $ 3,968 $10,492 $11,905
Interest cost......................................... 3,898 3,316 11,694 9,947
Expected return on plan assets........................ (4,093) (3,630) (12,278) (10,889)
Amortization of prior service cost.................... 119 119 356 356
Amortization of recognized actuarial loss............. 1,255 818 3,765 2,454
Adjustment due to the freezing of the plans........... 243 - 243 -
------------------------- ---------------------------
Net pension expense................................... $ 4,919 $4,591 $14,272 $13,773
========================= ========================
On October 18, 2004, the board of directors approved an amendment to freeze
both the pension and benefit restoration plans, effective February 28,
2005. Once the pension plan is frozen, all eligible associates will retain
any benefits accumulated to the effective date, but will no longer be
eligible to increase their benefit. Eligible employees will continue to
earn vesting credit toward the pension plan's vesting requirements.
Employees who would be eligible to retire under both plans' early or normal
retirement provisions on or before February 29, 2008, are considered
grandfathered employees and are not subject to the plan changes.
Circuit City made no contributions to its defined benefit pension plan
during the first nine months of fiscal 2005. The company intends to make
any contributions to the defined benefit pension plan that would be
necessary to meet ERISA minimum funding standards and any additional
contributions as needed to ensure that the fair value of plan assets at
February 28, 2005, exceeds the accumulated benefit obligation. The company
expects to make a contribution of approximately $20 million in fiscal 2005.
The company's expected contribution for the restoration plan is $463,000,
which is equal to the expected benefit payments for the plan.
12. Segment Information
The company has two reportable segments: its domestic retail operation and
its international retail operation. The company identified these segments
based on its management reporting structure and the nature of the products
and services offered by each segment. The domestic retail operation segment
is primarily engaged in the business of selling brand-name consumer
electronics, personal computers and entertainment software in the United
States. The international retail operation segment is primarily engaged in
the business of selling private-label and internationally branded consumer
electronics products in Canada. Prior to the second quarter of fiscal 2005,
the company had a third reportable segment, its finance operation. The
company completed the sale of its private-label finance operation,
comprised of its private-label and Visa co-branded credit card programs, to
Chase Card Services on May 25, 2004. Results from the private-label finance
operation, including transition and transaction costs of approximately $6
million related to the sale of the operation, are included in finance
income. See Note 4 for additional discussion of finance income. The company
has entered into an arrangement under which Chase Card Services is offering
private-label and co-branded credit cards to new and existing customers of
the company and providing credit card services to all cardholders. After
the sale date, the earnings contribution from that arrangement has been
included in net sales and operating revenues on the consolidated statement
of operations and is included in the domestic retail segment. Net credit
revenues of $1.9 million for the third quarter include new account
activation revenues of $13.3 million offset by promotional financing cost
of $11.5 million. Net credit revenues of $8.3 million for the first nine
months of the current fiscal year include new account activation revenues
of $24.3 million offset by promotional financing cost of $16.1 million.
The accounting policies for the company's segments are the same as those
set forth in Note 14 below and Note 2 to the company's audited consolidated
financial statements incorporated by reference in the company's fiscal 2004
Annual Report on Form 10-K.
Page 11 of 28
Revenue by reportable segment and the reconciliation to the consolidated
statements of operations were as follows:
Three Months Ended Nine Months Ended
November 30 November 30
(Amounts in millions) 2004 2003 2004 2003
---------------------------------------------------------------------------------------- --------------------------
Domestic retail operation................................. $2,351.4 $2,407.4 $6,623.6 $6,496.4
International retail operation............................ 142.0 - 281.4 -
Finance operation......................................... - 25.3 28.1 83.0
--------------------------- --------------------------
Total revenue............................................. 2,493.4 2,432.7 6,933.1 6,579.4
Less: securitization income*.............................. - 25.3 28.1 83.0
--------------------------- --------------------------
Net sales and operating revenues ......................... $2,493.4 $2,407.4 $6,905.0 $6,496.4
========================= ========================
*Securitization income is included in finance income, which is reported
separately from net sales and operating revenues on the statements of
operations.
The loss or earnings from continuing operations before income taxes by
reportable segment and the reconciliation to the consolidated statements of
operations were as follows:
Three Months Ended Nine Months Ended
November 30 November 30
(Amounts in millions) 2004 2003 2004 2003
------------------------------------------------------------------------------------- -----------------------
Domestic retail operation................................. $(17.6) $(48.3) $(55.5) $(172.7)
International retail operation............................ 8.9 - 15.0 -
Finance operation......................................... - 5.6 5.6 22.4
----------------------- -----------------------
Loss from continuing operations before income
taxes................................................. $ (8.7) $(42.7) $(34.9) $(150.3)
====================== =====================
Total assets by reportable segment and the reconciliation to the
consolidated balance sheets were as follows:
At November 30 At February 29
(Amounts in millions) 2004 2004
----------------------------------------------------------------------------- -------------------
Domestic retail operation................................ $3,906.3 $3,031.7
International retail operation........................... 474.2 -
Finance operation........................................ - 601.3
---------- ----------
Total assets............................................. $4,380.5 $3,633.0
======== ========
Goodwill and intangible assets by reportable segment were as follows:
At November 30 At February 29
(Amounts in millions) 2004 2004
----------------------------------------------------------------------------- -------------------
Domestic retail operation................................ $ 4.9 $ -
International retail operation........................... 252.6 -
-------- --------
Total goodwill and intangible assets..................... $257.5 $ -
====== ========
Page 12 of 28
13. Supplemental Consolidated Statement of Cash Flows Information
The following table summarizes supplemental cash flow information for the
nine months ended November 30, 2004.
Nine Months Ended
(Amounts in thousands) November 30, 2004
-----------------------------------------------------------------------------------------------------
Supplemental schedule of non-cash investing and financing
activities:
Capital lease obligation.................................................. $ 2,754
===========
Acquisition of InterTAN:
Fair value of assets acquired:
Cash and cash equivalents............................................. $ 30,615
Merchandise inventory................................................. 88,837
Property and equipment, net........................................... 42,614
Goodwill.............................................................. 186,261
Other intangible assets............................................... 28,000
Other assets.......................................................... 12,744
-----------
Total fair value of assets acquired................................... 389,071
Less:
Liabilities assumed................................................... 92,638
Cash acquired......................................................... 30,615
Stock options issued.................................................. 6,498
-----------
Acquistion of InterTAN, net of cash acquired............................. $259,320
========
Other acquisitions:
Fair value of assets acquired............................................ $ 13,413
Less: liabilities assumed................................................ 4,065
-----------
Other acquisitions....................................................... $ 9,348
===========
14. Foreign Currency Translation
The local currency of InterTAN, the Canadian dollar, is its functional
currency. For reporting purposes, assets and liabilities are translated
into U.S. dollars using the exchange rates in effect at the balance sheet
date, income and expense items are translated using monthly average
exchange rates. The effects of exchange rate changes on net assets of
InterTAN are recorded in equity as accumulated other comprehensive income.
See Note 6 for additional discussion of other comprehensive income. Gains
and losses from foreign currency transactions are included in selling,
general and administrative expenses in the consolidated statement of
operations.
15. Recent Accounting Pronouncements
In December 2004, the FASB issued SFAS No. 123 (revised 2004), "Share-Based
Payment." SFAS No. 123(R) requires companies to recognize the compensation
cost relating to share-based payment transactions in the financial
statements. SFAS No. 123(R) will be effective for the company's third
quarter of fiscal 2006. The company has not yet determined the impact of
adopting this standard. See Note 5 for information regarding the company's
adoption of SFAS No. 123.
Page 13 of 28
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
On May 12, 2004, we acquired a controlling interest in InterTAN, Inc. and on May
19, 2004, completed the acquisition of 100 percent of the common stock of
InterTAN for cash consideration of $259.3 million, which includes transaction
costs and is net of cash acquired of $30.6 million. InterTAN is a leading
consumer electronics retailer of both private-label and internationally branded
products with headquarters in Barrie, Ontario, Canada. InterTAN operates through
retail stores and dealer outlets in Canada under the trade names RadioShack(R),
Rogers Plus(R) and Battery Plus(R). In addition to enabling us to accelerate the
offering of private-label merchandise to our customers, the acquisition of
InterTAN gives us our first presence in the Canadian market.
On May 25, 2004, we completed the sale of our private-label finance operation,
comprised of our private-label and co-branded Visa credit card programs, to
Chase Card Services, formerly Bank One Corporation. Results from the
private-label finance operation, including transition and transaction costs of
approximately $6 million related to the sale of the operation, are included in
finance income. We also entered into a Consumer Credit Card Program Agreement
under which Chase Card Services is offering private-label and co-branded credit
cards to new and existing customers. As part of the program agreement, we plan
to jointly develop and introduce new features, products and services to drive
additional sales. We are compensated under the program primarily based on the
number of new accounts opened less promotional financing costs that exceed a
negotiated base amount. Chase Card Services is obligated to offer special
promotional financing terms to our customers. We determine the frequency, volume
and, subject to certain limits, the terms of these promotions. Chase Card
Services is compensated for these promotions in accordance with a negotiated fee
schedule. The program agreement has an initial seven-year term with automatic
three-year renewals. The agreement has customary representations, warranties,
covenants, events of default and termination rights for an agreement of this
type. After the sale date, the earnings contribution from the program agreement
has been included in net sales and operating revenues on the consolidated
statement of operations. See Note 12 to the consolidated financial statements in
this report for additional discussion concerning the sale of the private-label
finance operation.
On November 18, 2003, we completed the sale of our bankcard finance operation,
which included Visa and MasterCard credit card receivables and related cash
reserves. Results from the bankcard finance operation are presented as results
from discontinued operations. See Note 1 and Note 2 to the consolidated
financial statements in this report for additional discussion concerning the
sale of the bankcard finance operation.
CRITICAL ACCOUNTING POLICIES
For a discussion of our critical accounting policies, see Management's
Discussion and Analysis of Results of Operations and Financial Condition, which
is incorporated by reference in our fiscal 2004 Annual Report on Form 10-K.
These policies relate to the calculation of the value of retained interests in
securitization transactions, the calculation of the liability for lease
termination costs, accounting for pension plans, accounting for stock-based
compensation expense and accounting for cash consideration received from
vendors.
During the first quarter of fiscal 2005, we recognized goodwill and other
intangible assets related to our acquisition of InterTAN. We have added the
following critical accounting policy.
Accounting for Goodwill and Other Intangible Assets
We account for goodwill and other intangible assets in accordance with Statement
of Financial Accounting Standards No. 142, "Goodwill and Other Intangible
Assets." SFAS No. 142 requires that goodwill and other intangible assets with
indefinite useful lives be evaluated for impairment on an annual basis, or more
frequently if certain events occur or circumstances exist. We evaluated goodwill
and identifiable intangible assets during the second quarter of this fiscal year
and will perform the impairment evaluation annually during the second quarter of
each fiscal year. Through the impairment test, goodwill, other intangible
assets, and tangible assets and liabilities are divided among reporting units.
If the fair value of those reporting units is less than the carrying value, then
the implied fair value of the goodwill of the reporting unit must be compared to
the carrying
Page 14 of 28
value of that goodwill. In the instance that the fair value of the goodwill is
less than the carrying value, goodwill is deemed to be impaired and an
impairment loss, equal to the excess of the carrying value over the fair value,
must be recorded.
The performance of the goodwill impairment test is subject to significant
judgment in determining the fair value of reporting units, the estimation of
future cash flows, the estimation of discount rates, and other assumptions.
Changes in these estimates and assumptions could have a significant impact on
the fair value and/or goodwill impairment of each reporting unit.
RESULTS OF OPERATIONS
Our operations, in common with other retailers in general, are subject to
seasonal influences. Historically, we have realized more of our net sales and
net earnings in the fourth quarter, which includes the majority of the holiday
selling season, than in any other fiscal quarter. The net earnings for any
particular quarter are seasonally disproportionate to net sales since
administrative and certain operating expenses remain relatively constant during
the year. Therefore, quarterly results should not be relied upon as indicative
of results for the entire fiscal year.
Net Sales and Operating Revenues
Total sales for the third quarter of fiscal 2005 increased 3.6 percent to $2.49
billion from $2.41 billion in last fiscal year's third quarter with comparable
store merchandise sales decreasing 4.3 percent. Decreases in music and movie
software sales accounted for approximately 160 basis points of the overall
comparable store sales decline. A decrease in digital video service sales,
principally driven by a business model change, accounted for approximately 120
basis points of the overall comparable store sales decrease. A decrease in
wireless sales, principally driven by a business model change, accounted for
approximately 90 basis points of the overall comparable store sales decrease.
Total sales for this year's third quarter include domestic segment sales of
$2.35 billion and international segment sales of $142.0 million. Total sales for
the first nine months of fiscal 2005 increased 6.3 percent to $6.91 billion from
$6.50 billion for the first nine months of last fiscal year with comparable
store merchandise sales increasing 1.2 percent. Total sales for this year's
first nine months include domestic segment sales of $6.62 billion and
international segment sales of $281.4 million. Comparable store merchandise
sales include merchandise sales from domestic stores that have been open for 12
full calendar months and from all relocated stores, as well as web-originated
merchandise sales.
The domestic segment generates credit revenues from an consumer credit
arrangement under which Chase Card Services offers private-label and co-branded
credit cards to our customers. Net credit revenues of $1.9 million for the third
quarter include new account activation revenues of $13.3 million offset by
promotional financing cost of $11.5 million. New account activation revenues
exceeded our expectations, helping us to build a customer base to which we can
direct specific marketing programs. However, the cost of promotional financing
was also higher than anticipated as we responded to more competitive financing
offers in the marketplace. As a result, third quarter net credit revenues were
approximately $5 million below our initial expectations. Net credit revenues of
$8.3 million for the first nine months of the current fiscal year include new
account activation revenues of $24.3 million offset by promotional financing
cost of $16.1 million. We expect the lower-than-anticipated third quarter
results will reduce pretax credit revenues below the $30 million annualized
level we anticipated when we sold the private-label credit operation.
Neither the arrangement with Chase Card Services nor the international segment
was in place last fiscal year. Prior to this year's second fiscal quarter,
private-label and co-branded credit cards were made available through our wholly
owned subsidiary, First North American National Bank and the related income was
reported as finance income on the consolidated statements of operations. The
international segment consists of the operations of InterTAN, Inc., which we
acquired in May 2004, and thus, comparable store merchandise sales for the
current fiscal year's third quarter and first nine months and total sales for
the same periods of last fiscal year reflect domestic sales only.
Page 15 of 28
Sales by segment for the three and nine months ended November 30, 2004 and 2003
were as follows.
Three Months Ended Nine Months Ended
November 30 November 30
(Dollar amounts in billions) 2004 2003 2004 2003
- ------------------------------------------------------------------------------------------ ------------------------
Domestic segment sales......................................... $2.35 $2.41 $6.62 $6.50
International segment sales.................................... 0.14 - 0.28 -
-------------------- ----------------------
Net sales and operating revenues............................... $2.49 $2.41 $6.91 $6.50
=================== ====================
The percent of merchandise sales represented by each major product category for
the three and nine months ended November 30, 2004 and 2003, is shown below.
International segment sales are not included in sales by merchandise category.
Three Months Ended Nine Months Ended
November 30 November 30
2004 2003 2004 2003
- -------------------------------------------------------------------------------------- -----------------------
Video..................................................... 43% 42% 42% 40%
Information technology.................................... 29 31 33 33
Audio..................................................... 15 13 13 14
Entertainment............................................. 13 14 12 13
---------------------- --------------------------
Total..................................................... 100% 100% 100% 100%
====================== ==========================
Comparable store sales for the third quarter in the video category were
relatively unchanged. Triple-digit comparable store sales growth in plasma
displays, double-digit comparable store sales growth of LCD displays and digital
imaging products and single-digit comparable store sales growth in digital
televisions were offset by double-digit declines in tube television, DVD player
and digital video service comparable store sales and a single-digit decline in
camcorder comparable store sales. During the second quarter, our business model
for digital satellite services changed to substitute lower hardware cost for
activation revenue.
For the third quarter, in the audio category, we produced a single-digit
comparable store sales increase. Double-digit comparable store sales growth in
both portable audio products, driven by digital audio products such as MP3
players, and mobile audio products, driven primarily by satellite radio, was
partially offset by a double-digit comparable store sales decline in home audio
products.
A single-digit comparable store sales decrease in the information technology
category in the third quarter reflects single-digit comparable store sales
declines in both personal computer hardware and accessories. In personal
computer hardware, double-digit comparable store sales declines in desktop
computers, monitors and printers were partially offset by double-digit
comparable store sales growth in notebook computers. During the third quarter,
we launched Verizon Wireless stores within more than 570 stores. Verizon
Wireless operates the stores, and we receive revenue, which is included in total
and comparable store sales, for each new handset activation. In the past, total
and comparable store sales included sales of wireless handsets and accessories,
and revenues received for upgrades and new subscribers.
In the entertainment category, we produced a double-digit comparable store sales
decrease, reflecting double-digit comparable store sales declines in video
software and music software and a single-digit comparable store sales decline in
game products, for the third quarter.
The following table provides the numbers of our domestic segment stores:
Nov. 30, 2004 Feb. 29, 2004 Nov. 30, 2003
- ------------------------------------------------------------------------ -------------- ------------
Superstores....................................... 622 599 618
Mall-based stores................................. 5 5 5
---- ---- ----
Total domestic segment stores..................... 627 604 623
==== ==== ====
Page 16 of 28
In the third quarter of fiscal 2005, we opened 18 Superstores, fully remodeled
one store and relocated a total of 12 Superstores. For the first nine months of
fiscal 2005, we opened 22 new Superstores, fully remodeled one Superstore and
relocated 22 Superstores, of which one Superstore was a replacement for a
Superstore we closed in late fiscal 2004. We currently expect to relocate
approximately seven more Superstores and open another nine new Superstores in
the fourth quarter of the current fiscal year.
The following table provides the numbers of international segment stores and
dealer outlets:
November 30, 2004
- ------------------------------------------------------------------------
Company-operated stores........................... 518
Dealer outlets.................................... 394
Rogers Wireless stores............................ 87
Battery Plus stores............................... 27
------
Total international segment stores................ 1,026
=======
Company-operated stores operate under the trade name "RadioShack." Dealer
outlets are independent retail businesses that operate under their own trade
names but are permitted, under dealer agreements, to purchase any of the
products sold by company-operated stores. Rogers Wireless stores are dedicated
primarily to the sale of wireless services, including related hardware, offered
by Rogers Wireless, Inc. Battery Plus stores retail batteries and other
specialty consumer electronics products.
Our domestic retail operation sells extended warranty programs on behalf of
unrelated third parties that are the primary obligors. Because the third parties
are the primary obligors under these contracts, commission revenue for the
unrelated-third-party extended warranty plans is recognized at the time of sale.
For our domestic retail operation segment, the total extended warranty
commission revenue included in total sales was $91.0 million, or 3.9 percent of
domestic retail sales, in the third quarter of fiscal 2005, compared with $75.4
million, or 3.1 percent of sales, in last fiscal year's third quarter. The
domestic extended warranty commission revenue included in total sales was $260.0
million, or 3.9 percent of domestic retail sales, in the first nine months of
fiscal 2005, compared with $225.6 million, or 3.5 percent of sales, in the first
nine months of last fiscal year. We believe that the increase primarily is due
to better store-level execution. For our international retail operation segment,
we are the primary obligor for our extended warranty programs. Accordingly,
extended warranty revenue is deferred at point of sale and recognized as revenue
over the life of the contract and was immaterial for the three and nine months
ended November 30, 2004.
Gross Profit Margin
For the third quarter of fiscal 2005, the gross profit margin was 25.1 percent
of sales, compared with 22.2 percent in the same period last fiscal year. The
inclusion of the international segment's revenues and cost of sales, buying and
warehousing contributed 87 basis points to this year's third quarter gross
profit margin. The increase in the gross profit margin of our domestic segment
of 207 basis points reflects
o an improvement in merchandise gross profit margins,
o an increase in extended warranty sales and
o continued increases in the efficiency of our product service and
distribution operations.
The inclusion of net credit revenues in net sales and operating revenues had an
immaterial impact on the third quarter gross profit margin.
For the first nine months of fiscal 2005, the gross profit margin was 24.4
percent of sales, compared with 22.6 percent for the same period last fiscal
year. The inclusion of the international segment's revenues and cost of sales,
buying and warehousing contributed 64 basis points to the gross profit margin
for the first nine months of fiscal 2005. The increase in the gross profit
margin of our domestic segment of 113 basis points for the first nine months of
fiscal 2005 reflects
o continued increases in the efficiency of our product service and
distribution operations and
o an increase in extended warranty commission sales.
Page 17 of 28
The inclusion of net credit revenues in net sales and operating revenues had an
immaterial impact on the gross profit margin for the first nine months of fiscal
2005.
Finance Income
We completed the sale of our private-label finance operation, comprised of our
private-label and co-branded Visa credit card programs, to Chase Card Services
on May 25, 2004. Results from the private-label finance operation through the
date of the sale, including transition and transaction costs of approximately $6
million related to the sale of the operation, are included in finance income.
See Note 1 and Note 12 to the consolidated financial statements in this report
for additional discussion concerning the sale of our private-label finance
operation.
For the three and nine months ended November 30, 2004 and 2003, the components
of pretax finance income were as follows:
Three Months Ended Nine Months Ended
November 30 November 30
(Amounts in millions) 2004 2003 2004 2003
- -------------------------------------------------------------------------------------------- ----------------------
Securitization income........................................... $ - $25.3 $28.1 $83.0
Less: Payroll and fringe benefit expenses....................... - 7.0 7.6 22.6
Other direct expenses................................... - 12.7 14.9 38.0
---------------------- ------------------------
Finance income.................................................. $ - $ 5.6 $5.6 $22.4
====================== ========================
Securitization income primarily is comprised of the gain on the sale of
receivables generated by our private-label finance operation, income from
retained interests in the credit card receivables and income related to
servicing the receivables, as well as the impact of increases or decreases in
the fair value of the retained interests. Securitization income is reduced by
payroll, fringe benefits and other costs directly associated with the management
and securitization of the private-label receivables.
Selling, General and Administrative Expenses
Three Months Ended November 30 Nine Months Ended November 30
2004 2003 2004 2003
% of % of % of % of
(Dollar amounts in millions) $(a) Sales $ Sales $(b) Sales $ Sales
- ------------------------------------------------------------------------------------ ---------------------------------------------
Store expenses.......................... $557.4 22.3% $520.0 21.6% $1,529.7 22.1% $1,443.3 22.2%
General and administrative
expenses........................... 52.2 2.1 39.1 1.6 136.5 2.0 117.4 1.8
Remodel expenses........................ 0.2 - 0.3 - 0.3 - 29.8 0.5
Relocation expenses..................... 14.9 0.6 9.8 0.4 33.3 0.5 18.9 0.3
Pre-opening expenses.................... 7.5 0.3 4.2 0.2 12.0 0.2 7.3 0.1
Interest income......................... (3.4) (0.1) (1.2) - (8.8) (0.1) (5.3) (0.1)
------------------------------------------ ---------------------------------------------
Total ................................. $628.8 25.2% $572.2 23.8% $1,703.0 24.7% $1,611.4 24.8%
========================================= ============================================
(a) Includes international segment store expenses of $38.2 million and general
and administrative expenses of $8.4 million.
(b) Includes international segment store expenses of $76.8 million and general
and administrative expenses of $18.0 million.
Selling, general and administrative expenses were 25.2 percent of total sales in
the third quarter of this fiscal year, compared with 23.8 percent of total sales
in the same period last year. The inclusion of the international segment's
revenues and selling, general and administrative expenses increased this year's
third quarter expense-to-sales ratio by 46 basis points.
Our domestic segment's expense-to-sales ratio rose 99 basis points. The increase
was driven by
o the impact of the domestic total sales decrease;
Page 18 of 28
o an increase of approximately 40 basis points in advertising expense, which
reflects the launch of our new branding campaign in October; and
o an increase of approximately 20 basis points in relocation and remodel
costs.
Selling, general and administrative expenses were 24.7 percent of total sales
for the first nine months of fiscal 2005, compared with 24.8 percent of total
sales in the same period last year. The inclusion of the international segment's
revenues and selling, general and administrative expenses increased the
expense-to-sales ratio by 38 basis points for the first nine months of fiscal
2005.
During the first nine months of fiscal 2005, our domestic segment's
expense-to-sales ratio declined 52 basis points. The improvement in our domestic
segment's ratio was primarily driven by
o a reduction of approximately 45 basis points in rent and occupancy costs
as a percent of sales, largely driven by the closure of 19 underperforming
stores in February 2004;
o a reduction of approximately 25 basis points in relocation and remodel
expenses as a percent of sales, which reflects the large number of stores
that were refixtured in last year's second quarter; and
o a reduction of approximately 20 basis points in payroll and fringe benefit
costs as a percent of sales.
These improvements were partially offset by an increase of approximately 25
basis points in advertising expenses as a percent of sales, which reflects the
launch of our new branding campaign in October 2004.
Income Taxes
The estimated effective income tax rate applicable to results from continuing
operations for our domestic retail operation segment for fiscal 2005 is expected
to be 36.7 percent. The estimated effective income tax rate applicable to
results from continuing operations for our international retail operation
segment for fiscal 2005 is expected to be 38.5 percent. The consolidated
effective income tax rate applicable to results from continuing operations will
be the weighted average of our segments' rates.
Net Loss from Continuing Operations
The net loss from continuing operations was $5.9 million, or 3 cents per share,
in the third quarter ended November 30, 2004, compared with the net loss from
continuing operations of $28.1 million, or 14 cents per share, in the third
quarter of last fiscal year. The international segment's results reduced the
fiscal 2005 third quarter net loss from continuing operations by $5.5 million,
or 3 cents per share.
For the nine months ended November 30, 2004, the net loss from continuing
operations was $22.6 million, or 12 cents per share, compared with the net loss
from continuing operations of $95.5 million, or 46 cents per share, for the same
period last fiscal year. The international segment's results reduced the net
loss from continuing operations for the first nine months of fiscal 2005 by $9.2
million, or 5 cents per share.
Net Earnings (Loss) from Discontinued Operations
On November 18, 2003, we completed the sale of our bankcard finance operation to
FleetBoston Financial. Results from the bankcard finance operation are presented
as results from discontinued operations. The sale agreement included a
transition services agreement under which employees of our finance operation
continued to service the bankcard accounts until final conversion of the
bankcard portfolio to FleetBoston, which occurred on April 2, 2004. Through that
date, FleetBoston reimbursed us for operating costs incurred during the
transition period. We incurred severance costs ratably through the final
conversion date.
The net earnings from discontinued operations totaled $25.5 million for the
three months ended November 30, 2003. The total is comprised of $24.0 million of
after-tax earnings from the discontinued bankcard operation and $1.5 million
from the discontinued Divx operation due to a $2.3 million reduction in the
provision for commitments under licensing agreements. For the nine months ended
November 30, 2004, the after-tax net loss from discontinued operations totaled
$1.2 million, which is comprised of post-closing adjustments related to the sale
of the bankcard operation. The net loss from discontinued operations for the
nine months ended
Page 19 of 28
November 30, 2003, was $83.4 million and is comprised of an after-tax net loss
of $84.9 million from the discontinued bankcard operation and after-tax earnings
of $1.5 million from the discontinued Divx operation.
Operations Outlook
Our attention is focused on building value for shareholders by providing
superior consumer electronics solutions to families. We remain focused on four
basic areas: 1) driving store revenue growth, 2) growing Web-based revenues, 3)
stabilizing gross profit margins and 4) bringing our overall cost and expense
structure in line with our current level of revenues. We believe we have the
right plan in place to combine profitable revenue growth with improved in-store
execution, and we have the resources to execute that plan.
Growing domestic store revenues requires a focused team effort among numerous
functions including store operations, merchandising, Circuit City Direct,
marketing, real estate and finance. An important component of driving sales
growth is the ongoing store revitalization plan, which incorporates opening new
locations in vibrant trade areas, relocating stores to better locations within
existing trade areas and, to a lesser extent, improving the performance of
existing stores through remodeling activities designed to improve the shopping
experience.
From the beginning of fiscal 2001 through November 30, 2004, 176 Superstores, or
28 percent of our 622 domestic Superstores, had been newly constructed,
relocated or fully remodeled to provide a contemporary shopping experience with
easy product access and more powerful merchandising displays. We expect that
ratio to reach approximately 30 percent by the end of this fiscal year.
To provide enhanced information regarding the performance of our relocated and
incremental stores, we are introducing return on invested capital reporting.
Beginning in fiscal 2006, return on invested capital will be the sole
statistical performance measure reported for our relocated and incremental
stores.
Relocated Stores. At the end of the third quarter, we had 39 relocated stores
that have been open for more than six months. In their first full six months
following grand opening, these 39 stores have
o an average sales changes that was approximately 31 percentage points
better than the sales pace of the remainder of the store base during the
same time periods and
o an internal rate of return of approximately 17 percent.
The 27 relocated stores open more than 12 months have produced the following
results for their 12-month periods after grand opening:
o an average sales change that was approximately 27 percentage points better
than the sales pace of the remainder of the store base during the same
time periods;
o a return on invested capital of approximately 11 percent; and
o a return on invested capital, excluding sublease costs on vacated stores,
of approximately 19 percent.
Incremental Stores. Since initiation of the revitalization program, the company
has opened 71 incremental stores. For the measured periods, incremental stores
have produced the following results:
o a return on invested capital of approximately 14 percent measured at the
end of the first full year after grand opening for the 42 stores that have
been open for more than 12 months and
o a return on invested capital of approximately 19 percent measured at the
end of the first two full years after grand opening for the 36 stores that
have been more than 24 months.
We continue to anticipate that, as we add stores to the relocation base and
incremental store base, the average results from relocated and incremental
stores will vary.
Fiscal 2006 Domestic Store Opening Plan. For the year ending February 28, 2006,
we expect to open 30 to 40 domestic stores, of which approximately half will be
relocations. We expect to open five of the stores in the first quarter. We
anticipate that capital expenditures, net of sale leasebacks and tenant
improvement allowances, for our domestic and international segments combined
will total approximately $150 million in
Page 20 of 28
fiscal 2006 and that expenses related to domestic store relocations will total
approximately $28 million in fiscal 2006.
RECENT ACCOUNTING PRONOUNCEMENTS
In December 2004, the Financial Accounting Standards Board issued SFAS No. 123
(revised 2004), "Share-Based Payment." SFAS No. 123(R) requires companies to
recognize the compensation cost relating to share-based payment transactions in
the financial statements. SFAS No. 123(R) will be effective for our third
quarter of fiscal 2006. We have not yet determined the impact of adopting this
standard.
FINANCIAL CONDITION
Liquidity and Capital Resources
At November 30, 2004, we had cash and cash equivalents of $752.5 million,
compared with $783.5 million at February 29, 2004. The lower cash balance
primarily reflects acquisition costs for InterTAN of $259.3 million, net of cash
acquired, offset by net cash proceeds of $470.0 million from the sale of the
private-label finance operation. During the first nine months of fiscal 2005, we
also used $210.1 million of cash to repurchase common stock under our stock
repurchase authorization.
At November 30, 2003, we had cash and cash equivalents of $455.3 million. The
year-over-year change in the cash balance largely reflects the net cash proceeds
of $470.0 million from the sale of the private-label finance operation and a
$338.8 million reduction in domestic inventory, partly offset by acquisition
costs for InterTAN of $259.3 million, net of cash acquired. Since the end of the
third quarter of fiscal 2004 through November 30, 2004, we also used $280.5
million of cash to repurchase common stock under our stock repurchase
authorization.
Operating Activities. For the nine months ended November 30, 2004, net cash
provided by operating activities was $90.6 million, compared with net cash used
in operating activities of $546.7 million for the nine months ended November 30,
2003. The increase in net cash provided by operating activities is primarily due
to changes in merchandise inventory net of accounts payable and retained
interests in securitized receivables.
Merchandise inventory increased by $832.1 million in the first nine months of
fiscal 2005, compared with an increase of $1.24 billion in the first nine months
of last fiscal year. The change in inventory begins to reflect an increased
focus on working capital management, by more closely matching the timing of
merchandise receipt into distribution centers and deployment to stores with
expected sales levels, and selectively adjusting merchandise display quantities
in some stores to reflect those individual store's sales.
Retained interests in securitized receivables decreased by $32.9 million in the
first nine months of fiscal 2005, compared with an increase of $98.7 million in
the first nine months of last fiscal year. The current year decrease relates to
the sale of the private-label finance operation. The prior year increase
reflects the completion of a $500 million private-label credit card
securitization transaction to replace a maturing term securitization. During the
third quarter of last fiscal year, we replaced a maturing term securitization
with a variable funding program.
Investing Activities. For the nine months ended November 30, 2004, net cash
provided by investing activities was $85.9 million compared with net cash used
in investing activities of $113.0 million for the nine months ended November 30,
2003. The increase in net cash provided by investing activities is primarily due
to cash proceeds of $475.9 million from the sale of the private-label finance
operation offset by net acquisition costs for InterTAN of $259.3 million.
During the first nine months of fiscal 2005, we opened 44 of a planned for the
year total of approximately 60 domestic Superstores, of which slightly less than
half will be relocations. We anticipate that capital expenditures, net of sale
leasebacks and tenant improvement allowances, for our domestic and international
segments combined will total approximately $165 million this fiscal year, and
will include approximately:
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o $35 million related to domestic store openings,
o $60 million related to domestic relocations, one remodel and store resets
to incorporate the new Verizon features and Cool Gadgets,
o $60 million related to other items such as management information systems
and the international segment, and
o $10 million for real estate purchases.
We anticipate that expenses related to domestic store relocations and one
remodel will total approximately $41 million this fiscal year. Through the first
nine months, we incurred 81 percent of the anticipated remodel and relocation
expenses.
We remain committed to revitalizing our store base, but we also are committed to
only accepting sites that meet our rigorous standards. In fiscal 2006, we expect
to open 30 to 40 domestic Superstores, of which approximately half will be
relocations. We expect to open five of the stores in the first quarter of fiscal
2006. We anticipate that capital expenditures, net of sale leasebacks and tenant
improvement allowances, for its domestic and international segments combined
will total approximately $150 million in fiscal 2006 and that expenses related
to domestic store relocations will total approximately $28 million in fiscal
2006.
Financing Activities. For the nine months ended November 30, 2004, net cash used
in financing activities was $204.6 million, compared with net cash used in
financing activities of $16.3 million for the nine months ended November 30,
2003. The change primarily reflects $210.1 million used to repurchase common
stock during the first nine months of this fiscal year compared with $13.9
million used during the same period last fiscal year. Based on the market value
of the common stock at November 30, 2004, the remaining $105.6 million, of the
$400 million total stock repurchase authorization, would allow for the
repurchase of up to approximately 4 percent of the 191.2 million shares then
outstanding.
We have a $500 million revolving credit facility secured by inventory. On July
8, 2004, the credit agreement was amended to include InterTAN as a borrower. The
amended credit agreement established a $400 million borrowing limit for our
domestic retail operation and a $100 million borrowing limit for our
international retail operation. At November 30, 2004, short-term borrowings on
this facility were $12.6 million related to our international segment and
outstanding letters of credit related to this facility were $70.0 million,
leaving $417.4 million available for borrowing. We were in compliance with all
covenants under this facility at November 30, 2004.
We expect that available cash resources, our existing credit facility,
sale-leaseback transactions, landlord reimbursements and cash generated by
operations will be sufficient to fund capital expenditures and working capital
for the foreseeable future.
FORWARD-LOOKING STATEMENTS
The provisions of the Private Securities Litigation Reform Act of 1995 provide
companies with a "safe harbor" when making forward-looking statements. This
"safe harbor" encourages companies to provide prospective information about
their companies without fear of litigation. We wish to take advantage of the
"safe harbor" provisions of the Act. Our statements that are not historical
facts, including statements about management's expectations for fiscal 2005 and
beyond, are forward-looking statements and involve various risks and
uncertainties.
Forward-looking statements are estimates and projections reflecting our judgment
and involve a number of risks and uncertainties that could cause actual results
to differ materially from those suggested by the forward-looking statements.
Although we believe that the estimates and projections reflected in the
forward-looking statements are reasonable, our expectations may prove to be
incorrect. The retail industry, and the specialty retail industry in particular,
are dynamic by nature and have undergone significant changes in recent years.
Our ability to anticipate and successfully respond to the continuing challenges
of our industry is key to achieving our expectations. Important factors that
could cause actual results to differ materially from estimates or projections
contained in our forward-looking statements include
Page 22 of 28
o changes in the amount and degree of promotional intensity exerted by
current competitors and potential new competition from competitors using
either similar or alternative methods or channels of distribution such as
online and telephone shopping services and mail order;
o changes in general economic conditions including, but not limited to,
consumer credit availability, interest rates, inflation, personal
discretionary spending levels, trends in consumer retail spending, both in
general and in our product categories, and consumer sentiment about the
economy in general;
o the presence or absence of, or consumer acceptance of, new products or
product features in the merchandise categories we sell and changes in our
merchandise sales mix;
o significant changes in retail prices for products we sell;
o changes in availability or cost of financing for working capital and
capital expenditures, including financing to support development of our
business;
o lack of availability or access to sources of inventory;
o the impact of inventory and supply chain management initiatives on
inventory levels and profitability;
o inability to liquidate excess inventory should excess inventory develop;
o failure to successfully implement sales and profitability improvement
programs for our Circuit City Superstores, including our store
revitalization plan;
o our ability to continue to generate strong sales growth through our Web
site;
o availability of appropriate real estate locations for relocations and new
stores;
o the cost and timeliness of new store openings and relocations;
o consumer reaction to new store locations and changes in our store design
and merchandise;
o our ability and the ability of Chase Card Services to successfully
integrate our retail business with the third party credit card program
being offered by Chase Card Services;
o the extent to which customers respond to promotional financing offers and
the types of promotional terms the company offers;
o future levels of sales activity and the acceptance of the Chase Card
Services third party credit program, including the related rewards
component, by consumers on an ongoing basis;
o our ability to attract and retain an effective management team or changes
in the costs or availability of a suitable work force to manage and
support our service-driven operating strategies;
o changes in production or distribution costs or costs of materials for our
advertising;
o effectiveness of the company's brand awareness and marketing programs;
o successful implementation of our customer service initiatives;
o the imposition of new restrictions or regulations regarding the sale of
products and/or services we sell, changes in tax rules and regulations
applicable to us or our competitors, the imposition of new environmental
restrictions, regulations or laws or the discovery of environmental
conditions at current or future locations, or any failure to comply with
such laws or any adverse change in such laws;
o our ability to integrate and operate InterTAN successfully and to realize
the anticipated benefits of the transaction, including successfully
introducing InterTAN's products in our domestic Superstores and realizing
inventory purchasing synergies;
o timely production and delivery of private-label merchandise and level of
consumer demand for those products;
o reduced investment returns in our pension plan;
o changes in our anticipated cash flow;
o adverse results in significant litigation matters, including the outcome
and impact on InterTAN of litigation instituted by RadioShack Corporation
to terminate InterTAN's right to use the RadioShack(R) name in Canada and
related rights to purchase merchandise through RadioShack;
o currency exchange rate fluctuations between Canadian and U.S. dollars and
other currencies; and
o the regulatory and trade environment in the U.S. and Canada.
We believe our forward-looking statements are reasonable; however, undue
reliance should not be placed on forward-looking statements, which are based on
current expectations.
Page 23 of 28
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
As a result of the acquisition of InterTAN, we are exposed to market risk from
potential changes in the U.S./Canadian currency exchange rates as they relate to
inventory purchases and the translation of InterTAN's financial results.
Inventory Purchases
A portion of InterTAN's purchases are from vendors requiring payment in U.S.
dollars. Accordingly, there is risk that the value of the Canadian dollar could
fluctuate relative to the U.S. dollar from the time the goods are ordered until
payment is made. InterTAN's management monitors the foreign exchange risk
associated with its U.S. dollar open orders on a regular basis by reviewing the
amount of such open orders, exchange rates, including forecasts from major
financial institutions, local news and other economic factors. At November 30,
2004, U.S. dollar open purchase orders totaled approximately $18.8 million. A 10
percent decline in the value of the Canadian dollar would result in an increase
in product cost of approximately $1.9 million for those orders. The incremental
cost of such a decline in currency values, if incurred, would be reflected in
higher cost of sales in future periods. In these circumstances, management would
take product-pricing action, where appropriate.
Translation of Financial Results
Fluctuations in the value of the Canadian dollar have a direct effect on
reported consolidated results due to the acquisition of InterTAN. We do not
hedge against the possible impact of this risk. A 10 percent adverse change in
the foreign currency exchange rate would not have a significant impact on our
results of operations or financial position.
ITEM 4. CONTROLS AND PROCEDURES
Under the supervision and with the participation of the company's management,
including the chief executive officer and chief financial officer, the company
has evaluated the effectiveness of its "disclosure controls and procedures," as
that term is defined in Rule 13a-15(e) of the Securities Exchange Act of 1934,
as amended, as of the end of the period covered by this Quarterly Report on Form
10-Q. Based upon their evaluation, the chief executive officer and chief
financial officer concluded that the company's disclosure controls and
procedures are effective. There were no changes in the company's internal
control over financial reporting in the quarter ended November 30, 2004, that
have materially affected, or are reasonably likely to materially affect, the
company's internal control over financial reporting.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On March 31, 2004, Circuit City announced a public tender offer to purchase the
stock of InterTAN. Circuit City completed the acquisition and InterTAN became a
wholly owned subsidiary of Circuit City on May 19, 2004. Among other things,
InterTAN operates retail consumer electronics outlets under the RadioShack(R)
name in Canada under a licensing agreement with a subsidiary of RadioShack
Corporation. InterTAN also operates under two other agreements with RadioShack
and its subsidiaries ("RadioShack"): a merchandising agreement and an
advertising agreement.
After the March 31, 2004 announcement, RadioShack asserted early termination of
all three agreements under a variety of theories and on a variety of proposed
termination dates. RadioShack asserts that InterTAN failed to pay an annual fee
in material breach of the advertising agreement and, alternatively, that a
"without cause" termination of the advertising agreement triggers termination of
the other agreements.
On April 5, 2004, RadioShack filed suit against InterTAN in Tarrant County,
Texas, and amended that suit on April 27, 2004 (the "RadioShack litigation").
InterTAN disputes the various termination scenarios alleged by
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RadioShack and is vigorously defending against those claims. On May 11, 2004,
InterTAN asserted a counterclaim seeking a declaration under U.S. federal
trademark law that the use of the RadioShack marks is proper. Circuit City was
added as a necessary party to that litigation and removed the matter to Federal
Court in the Northern District of Texas. On May 12, 2004, Circuit City filed its
own suit in Federal Court in the Northern District of Texas seeking a
declaration under U.S. federal trademark law that the use of the marks in Canada
is proper (the "Circuit City litigation"). InterTAN has cross-claimed against
RadioShack based on federal trademark law and remedies for business
disparagement. On December 9, 2004, the federal court remanded the RadioShack
litigation back to the Texas state court. On December 14, 2004, the federal
court granted RadioShack's motion to dismiss the Circuit City litigation and the
related InterTAN cross-claims.
Circuit City believes that RadioShack is not entitled to early termination of
the agreements and that InterTAN has substantial defenses to the RadioShack
claims. Circuit City and InterTAN intend to vigorously pursue all claims and
defend the claims in the RadioShack litigation. Circuit City believes that this
litigation will not have a material adverse effect on the company's financial
condition or results of operations.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
The following table provides information about common stock repurchases by or on
behalf of the company during the quarter ended November 30, 2004:
Maximum Dollar
Total Number Value of
of Shares Shares that
Average Purchased as May Yet Be
Total Number Price Part of Publicly Purchased
of Shares Paid Announced Under the
(Amounts in millions except per share data) Purchased per Share Program Program*
- ----------------------------------------------------------------------------------------------------------------------------------
September 1 - September 30, 2004.................... - $ - - $175.0
October 1 - October 31, 2004........................ 4.5 $15.43 4.5 $105.6
November 1 - November 30, 2004...................... - $ - - $105.6
--- ----
Total Fiscal 2005 Third Quarter..................... 4.5 $15.43 4.5
=== ===
*In January 2003, the company announced that the board of directors authorized
the repurchase of up to $200 million of common stock. In June 2004, the company
announced a $200 million increase in its stock repurchase authorization, raising
the total repurchase capacity to $400 million. There is no expiration date under
either authorization.
ITEM 6. EXHIBITS
3.1 Amended and Restated Articles of Incorporation of the company,
effective February 3, 1997, as amended through October 1, 2002,
filed as Exhibit 3(i) to the company's Quarterly Report on Form
10-Q for the quarter ended November 30, 2002 (File No. 1-5767),
are expressly incorporated herein by this reference.
3.2 Bylaws of the company, as amended and restated June 17, 2003,
filed as Exhibit 3 (iii) to the company's Quarterly Report on
Form 10-Q for the quarter ended May 31, 2003 (File No. 1-5767),
are expressly incorporated herein by this reference.
4.1 Third Amended and Restated Rights Agreement, dated as of October
1, 2002, between the company and Wells Fargo Bank Minnesota,
N.A., as Rights Agent, filed as Exhibit 1 to the company's Form
8-A/A filed on October 1, 2002 (File No. 1-5767), is expressly
incorporated herein by this reference.
10.1 Circuit City Stores, Inc. Benefit Restoration Plan, As Amended
and Restated Effective February 28, 2005, filed as Exhibit 10.1
to the company's Form 8-K filed on October 29, 2004 (File
1-5767), is expressly incorporated herein by this reference.*
Page 25 of 28
10.2 Circuit City Stores, Inc. Supplemental 401(k) Plan, Effective
March 1, 2005, filed as Exhibit 10.2 to the company's Form 8-K
filed on October 29, 2004 (File 1-5767), is expressly
incorporated herein by this reference.*
10.3 Circuit City Stores, Inc. Executive Deferred Compensation Plan,
as Amended and Restated, Effective December 31, 2004, filed
herewith.*
10.4 First Amendment to Amended and Restated Credit Agreement dated as
of November 17, 2004, among Circuit City Stores, Inc., as Lead
Borrower for the Borrowers, the Borrowers party thereto, the
Lenders party thereto, and as Administrative Agent and Collateral
Agent for the Lenders, filed herewith.*
10.5 Employment agreement between the company and Philip J. Schoonover
effective October 4, 2004, filed as Exhibit 10.1 to the company's
Form 8-K filed on October 4, 2004 (File 1-5767), is expressly
incorporated herein by this reference.*
31.1 Rule 13a-14(a)/15d-14(a) Certification of CEO under Rule
13a-14(a) of the Securities Exchange Act of 1934, filed herewith.
31.2 Rule 13a-14(a)/15d-14(a) Certification of CFO under Rule
13a-14(a) of the Securities Exchange Act of 1934, filed herewith.
32.1 Section 1350 Certification of CEO under Section 906 of the
Sarbanes-Oxley Act of 2002, filed herewith.
32.2 Section 1350 Certification of CFO under Section 906 of the
Sarbanes-Oxley Act of 2002, filed herewith.
* Indicates management contracts, compensatory plans or
arrangements of the company required to be filed as an exhibit.
Page 26 of 28
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the company
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
Chairman, President and
Chief Executive Officer
By: /s/ Michael E. Foss
------------------------
Michael E. Foss
Senior Vice President and
Chief Financial Officer
By: /s/ Philip J. Dunn
--------------------------------------
Philip J. Dunn
Senior Vice President, Treasurer,
Corporate Controller and
Chief Accounting Officer
January 7, 2005
Page 27 of 28
EXHIBIT INDEX
3.1 Amended and Restated Articles of Incorporation of the company, effective
February 3, 1997, as amended through October 1, 2002, filed as Exhibit
3(i) to the company's Quarterly Report on Form 10-Q for the quarter
ended November 30, 2002 (File No. 1-5767), are expressly incorporated
herein by this reference.
3.2 Bylaws of the company, as amended and restated June 17, 2003, filed as
Exhibit 3 (iii) to the company's Quarterly Report on Form 10-Q for the
quarter ended May 31, 2003 (File No. 1-5767), are expressly incorporated
herein by this reference.
4.1 Third Amended and Restated Rights Agreement, dated as of October 1,
2002, between the company and Wells Fargo Bank Minnesota, N.A., as
Rights Agent, filed as Exhibit 1 to the company's Form 8-A/A filed on
October 1, 2002 (File No. 1-5767), is expressly incorporated herein by
this reference.
10.1 Circuit City Stores, Inc. Benefit Restoration Plan, As Amended and
Restated Effective February 28, 2005, filed as Exhibit 10.1 to the
company's Form 8-K filed on October 29, 2004 (File 1-5767), is expressly
incorporated herein by this reference.*
10.2 Circuit City Stores, Inc. Supplemental 401(k) Plan, Effective March 1,
2005, filed as Exhibit 10.2 to the company's Form 8-K filed on October
29, 2004 (File 1-5767), is expressly incorporated herein by this
reference.*
10.3 Circuit City Stores, Inc. Executive Deferred Compensation Plan, as
Amended and Restated, Effective December 31, 2004, filed herewith.*
10.4 First Amendment to Amended and Restated Credit Agreement dated as of
November 17, 2004, among Circuit City Stores, Inc., as Lead Borrower for
the Borrowers, the Borrowers party thereto, the Lenders party thereto,
and as Administrative Agent and Collateral Agent for the Lenders, filed
herewith.*
10.5 Employment agreement between the company and Philip J. Schoonover
effective October 4, 2004, filed as Exhibit 10.1 to the company's Form
8-K filed on October 4, 2004 (File 1-5767), is expressly incorporated
herein by this reference.*
31.1 Rule 13a-14(a)/15d-14(a) Certification of CEO under Rule 13a-14(a) of
the Securities Exchange Act of 1934, filed herewith.
31.2 Rule 13a-14(a)/15d-14(a) Certification of CFO under Rule 13a-14(a) of
the Securities Exchange Act of 1934, filed herewith.
32.1 Section 1350 Certification of CEO under Section 906 of the
Sarbanes-Oxley Act of 2002, filed herewith.
32.2 Section 1350 Certification of CFO under Section 906 of the
Sarbanes-Oxley Act of 2002, filed herewith.
* Indicates management contracts, compensatory plans or arrangements of
the company required to be filed as an exhibit.
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