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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended February 29, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from_________ to _________
Commission File No.: 1-5767
CIRCUIT CITY STORES, INC.
(Exact name of Registrant as specified in its charter)
VIRGINIA 54-0493875
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
9950 Mayland Drive
Richmond, VA 23233
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (804) 527-4000
Securities registered pursuant to Section 12(b) of the Act:
Name of Each Exchange
Title of Each Class on Which Registered
Circuit City Stores, Inc.-Circuit City Group Common Stock, Par Value $0.50 New York Stock Exchange
Circuit City Stores, Inc.-CarMax Group Common Stock, Par Value $0.50 New York Stock Exchange
Rights to Purchase Preferred Stock,
Series E, Par Value $20.00 New York Stock Exchange
Series F, Par Value $20.00 New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the Registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes |X| No ___
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K [|X|].
On April 30, 2000, the Company had outstanding 204,793,432 Circuit
City Group common shares and 25,620,720 CarMax Group common shares. The
aggregate market value of the common shares held by non-affiliates (without
admitting that any person whose shares are not included in determining such
value is an affiliate) was $12,044,413,720 for the Circuit City Group and
$65,653,095 for the CarMax Group based upon the closing price of these shares as
reported by the New York Stock Exchange on April 28, 2000.
Page 1 OF 18
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the following documents are incorporated by reference in
Parts I, II, III and IV of this Form 10-K Report: (1) Pages 23 through 80 of the
Company's Annual Report to Shareholders for the fiscal year ended February 29,
2000, (Parts I, II and IV) and (2) "Item One--Election of Directors,"
"Beneficial Ownership of Securities," "Executive Compensation," "Employment
Agreements and Change-in-Control Arrangements," "Compensation of Directors" and
"Section 16(a) Compliance" in the May 10, 2000, Proxy Statement, furnished to
shareholders of the Company in connection with the 2000 Annual Meeting of such
shareholders (Part III).
TABLE OF CONTENTS
Item Page
PART I
1. Business 3
2. Properties 10
3. Legal Proceedings 12
4. Submission of Matters to a Vote of Security Holders 12
Executive Officers of the Company 12
PART II
5. Market for the Company's Common Equity and Related Stockholder Matters 14
6. Selected Financial Data 14
7. Management's Discussion and Analysis of Results of Operations and Financial Condition 14
7a. Quantitative and Qualitative Disclosure about Market Risk 14
8. Financial Statements and Supplementary Data 14
9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 14
PART III
10. Directors and Executive Officers of the Company 15
11. Executive Compensation 15
12. Security Ownership of Certain Beneficial Owners and Management 15
13. Certain Relationships and Related Transactions 15
PART IV
14. Exhibits, Financial Statement Schedules and Reports on Form 8-K 15
Page 2 of 18
PART I
Item 1. Business.
Circuit City Stores, Inc. was incorporated under the laws of Virginia
in 1949. Its corporate headquarters is located at 9950 Mayland Drive, Richmond,
Va. Its retail operations consist of Circuit City Superstores and mall-based
Circuit City Express stores. Certain of Circuit City Stores, Inc. subsidiaries
operate CarMax Auto Superstores, a used- and new-car retail business. The
Company has wholly owned finance operations that provide consumer revolving
credit and automobile installment loans. In addition, the Company owns
approximately 75 percent of Digital Video Express, a business that has been
discontinued, and has been allocated 100 percent of the Divx losses since
inception. Divx was primarily engaged in the business of replicating and
distributing specially encrypted DVDs at wholesale.
Capital Structure.
The common stock of Circuit City Stores, Inc. consists of two common
stock series, which are intended to reflect the performance of the Company's two
businesses. The Circuit City Group Common Stock is intended to track the
performance of the Circuit City stores and related operations, the Group's
retained interest in the CarMax Group, and the Company's investment in Digital
Video Express, which has been discontinued. The CarMax Group Common Stock is
intended to track the performance of the CarMax operations.
Notwithstanding the attribution of the Company's assets and
liabilities, including contingent liabilities, and stockholders' equity between
the Circuit City Group and the CarMax Group for the purposes of preparing their
respective financial statements, holders of Circuit City Group Stock and holders
of CarMax Group Stock are shareholders of the Company and continue to be subject
to all of the risks associated with an investment in the Company and all of its
businesses, assets and liabilities. Such attribution and the change in the
equity structure of the Company does not affect title to the assets or
responsibility for the liabilities of the Company or any of its subsidiaries.
The results of operations or financial condition of one Group could affect the
results of operations or financial condition of the other Group. Accordingly,
the Company's consolidated financial statements should be read in conjunction
with the financial statements of each Group.
In this document, the following terms and definitions are used:
The Company refers to Circuit City Stores, Inc. and subsidiaries,
which include Circuit City retail stores and related operations, the
CarMax retail stores and related operations, and the Company's
investment in Digital Video Express, which has been discontinued.
Circuit City refers to retail operations bearing the Circuit City
name and to all related operations such as the finance operation and
product service.
Circuit City Group refers to Circuit City, the retained interest in
the CarMax Group and the Company's investment in Digital Video
Express, which has been discontinued.
CarMax Group and CarMax refer to retail locations bearing the CarMax
name and to all related operations such as CarMax's finance
operation.
Circuit City Group:
This section describes the Circuit City business and the Company's
investment in Digital Video Express, which has been discontinued. It excludes
the retained interest in the CarMax business, which is discussed separately
beginning on page 7. Divx is discussed in more detail at the end of the Circuit
City Group section on page 6.
Page 3 of 18
General. Circuit City is a leading national retailer of brand-name
consumer electronics, personal computers, major appliances and entertainment
software. It sells video equipment, including televisions, digital satellite
systems, video cassette recorders, camcorders and digital video disc players;
audio equipment, including home stereo systems, compact disc players, tape
recorders and tape players; mobile electronics, including car stereo systems and
security systems; home office products, including personal computers, printers,
peripherals, software and facsimile machines; other consumer electronics
products, including cellular phones, telephones and portable audio and video
products; major appliances, including washers, dryers, refrigerators, microwave
ovens and ranges; and entertainment software.
Each Circuit City store location follows detailed operating
procedures and merchandising programs. Included are procedures for inventory
maintenance, advertising, customer relations, store administration, merchandise
display, store security and the demonstration and sale of products. Merchandise
lines vary from location to location based on store size and market
characteristics. Most merchandise is supplied directly to the stores by regional
warehouse distribution facilities.
Expansion. As of April 30, 2000, Circuit City operated 618 retail
locations throughout the United States. Circuit City has established its
presence in virtually all of the nation's top 100 markets and will continue
adding to the existing store base as attractive market opportunities arise. In
fiscal 2001, Circuit City expects to open approximately 25 additional
Superstores and remodel another 30 to 35 to include its most recent
merchandising innovations. These remodeled Superstores will allow management to
test a concept dedicated to consumer electronics and home office products. In
the remodel markets, Circuit City will test approximately six stand-alone major
appliance stores to create better selling space for the new technologies in the
appliance business and to increase consumer awareness of Circuit City's
appliance offering. Management believes that the Group has the opportunity to
operate approximately 800 Superstores within the United States. Circuit City's
goal is to maximize profitability in each market it serves by capturing large
market shares that produce high sales volumes across a broad merchandise mix.
Merchandising. Because management believes that local markets have
individual characteristics which vary greatly by the advertising, merchandising
and pricing strategies of competitors, Circuit City has organized its marketing
function to focus on markets with similar competitive conditions. Circuit City's
operating regions benefit from a centralized buying organization. The central
buying staff reduces costs by purchasing in large volumes, structures a sound
basic merchandising program and is supported by advanced management information
and distribution systems.
Circuit City's merchandising strategy emphasizes a broad selection of
products, including the industry's newest technologies, and a wide range of
prices. Merchandise mix and displays are controlled centrally to help ensure a
high level of consistency from store to store. Merchandise pricing and selling
strategies vary by market to reflect competitive conditions.
Although suggested retail prices are established by the corporate
merchandising department, each store manager is responsible for shopping the
local competition on a regular basis and is empowered to adjust retail prices to
meet in-market conditions. As part of its competitive strategy, Circuit City
advertises low prices and provides customers with a low-price guarantee. Circuit
City will beat any price from a local store stocking the same new item,
available for sale with a manufacturer's warranty and in a factory-sealed box.
In most cases, if a customer finds a lower price, including Circuit City's own
sale price, within 30 days, Circuit City will refund 110 percent of the
difference to the customer.
Suppliers. During fiscal 2000, Circuit City's 10 largest suppliers
accounted for approximately 60 percent of merchandise purchased. Circuit City's
major suppliers include Sony Electronics, Hewlett Packard, Compaq, Thomson,
Panasonic, JVC, Whirlpool, Maytag, eMachines and Toshiba. Brand-name advertised
products are sold by all of Circuit City's retail locations. Circuit City has no
significant long-term contracts for the purchase of merchandise.
In the past, Circuit City has not experienced any continued or
ongoing difficulty obtaining satisfactory sources of supply and believes that
adequate sources of supply exist for the types of merchandise sold in its
stores.
Advertising. Circuit City relies on considerable amounts of
advertising to maintain high levels of consumer awareness. Advertising
expenditures from continuing operations were 3.7 percent of sales in fiscal
2000, 4.0 percent of sales in fiscal 1999 and 4.6 percent of sales in fiscal
1998. Circuit City is generally one of the largest newspaper advertisers in the
markets that it serves. Circuit City primarily uses print advertising, including
multi-page vehicles and run-of-press newspaper ads, for Superstore advertising.
Circuit City emphasizes the use of multi-page vehicles to allow a more extensive
presentation of the broad selection of products and price ranges it carries.
These multi-page vehicles are generally distributed in newspapers. In addition,
Circuit City combines both spot TV for local advertising and network cable
advertising to communicate its consumer offer. Circuit City advertisements are
regularly seen in USA Today and on top-rated sports and entertainment programs.
Page 4 of 18
Competition. From mid-fiscal 1996 through fiscal 1998, a lack of
significant consumer electronics product introductions resulted in weak industry
sales. The industry began to emerge from this period of declining sales in
fiscal 1999, and that trend continued in fiscal 2000. Despite the improvement,
the consumer electronics industry remains highly competitive. Circuit City's
primary competitors are large specialty, discount or warehouse retailers with
generally lower levels of service.
Circuit City uses selection, service and pricing to differentiate
itself from the competition. As part of its competitive strategy, Circuit City's
Superstores offer a broad selection of top-quality merchandise that includes
3,200 to 4,000 brand-name items (excluding entertainment software), depending on
the selling square footage of the Superstore. Professionally trained sales
counselors, convenient credit options, factory-authorized product repair, home
delivery, installation centers for automotive electronics, exchange and no-lemon
policies, reflect a strong commitment to customer service. Circuit City strives
to maintain highly competitive prices and offers customers the low-price
guarantee previously described.
Customer Satisfaction. Circuit City conducts market research to
monitor store operations and help assure customer satisfaction. Market research
techniques used include telephone interviews, exit interviews and "mystery
shops," in which an Associate acts as a customer to evaluate customer service
performance. Quick feedback enables management to identify issues that need to
be addressed, ensuring that store and individual performance remain focused on
providing the highest possible level of customer service.
Training. Circuit City staffs its Superstores with commissioned sales
counselors, support personnel (cashiers and stockpersons), a store manager, one
or more sales managers and an operations manager. New sales counselors complete
an in-market training program focused on product knowledge, customer service and
store operations. In fiscal 2001, Circuit City will introduce interactive
Web-based training for store, service center and distribution Associates. Online
access will provide experienced Associates with ongoing training in new
technologies. Market training facilities are utilized for classroom sessions
taught by professional trainers, and a state-of-the-art, in-house video studio
produces video-based training materials. Formalized training for store, sales
and operations managers focuses on human resource management, sales management
and critical operating procedures. Individual development plans address personal
training needs, giving Associates advancement opportunity.
Consumer Credit. Because consumer electronics, personal computers and
major appliances represent relatively large purchases for the average consumer,
Circuit City's business is affected by consumer credit availability, which
varies with the state of the economy and the location of a particular store. In
fiscal 2000, approximately 14 percent of Circuit City's total sales were made
through its private-label credit card and 47 percent through third-party credit
sources.
In fiscal 1991, the Company established a credit card finance
operation to issue its private-label credit card. The credit card finance
operation is located in Kennesaw, Ga. This credit program enhances customer
service with increased credit availability, online links between the stores and
the credit operation and better control over customer interactions. Interfacing
the finance operation with Circuit City's point-of-sale (POS) system has
produced a rapid customer credit approval process. A customer's application can
be electronically scored, and qualified customers can generally receive approval
in under one minute. In addition to increased credit availability, the
private-label credit card program provides Circuit City with additional
marketing opportunities, including direct mail campaigns to credit card
customers and special financing programs for promotions. The finance operation's
credit extension, customer service and collection operations are fully automated
with state-of-the-art technology to maintain a high level of profitability and
customer service. This technology aids its collection philosophy of contacting
cardholders in the preliminary days of delinquency to resolve any past due
status.
The credit card finance operation also manages a bank card portfolio.
Receivables generated by both the private-label credit card and bank card
programs are sold to non-affiliated entities under asset securitization
programs.
Systems. Circuit City's in-store POS system maintains an online
record of all transactions and allows management to track performance by region,
store and individual sales counselor. The information gathered by the system
supports automatic replenishment of in-store inventory from the regional
distribution centers and is incorporated into product buying decisions. The POS
system is interfaced with the finance operation's credit approval system. In the
stores, electronic signature capture for all credit card purchases, automatic
printing of manufacturers' rebates, bar-code scanning for product returns and
repairs, automatic price tag printing for price changes and computerized home
delivery scheduling enhance Circuit City's customer service. These enhancements
eliminate time-consuming administrative tasks for store Associates and reduce
costs through smoother store-level execution. As part of an agreement with
America Online, Inc. announced in December 1999, the POS system is also
integrated with the registration systems of AOL and CompuServe, allowing
in-store registration with the interactive services to be completed in
approximately five minutes. At in-store kiosks, the POS system also allows
customers to special order custom-built computers from major PC vendors.
Page 5 of 18
Circuit City's Customer Service Information System maintains an
on-line history of customer purchases and enables sales counselors to better
assist customers with purchases by ensuring that new products can be integrated
with existing products in the home. This system also facilitates product returns
and product repair.
E-commerce. In July 1999, Circuit City launched its e-commerce Web
site. Circuit City provides in-depth product comparison information, broad
product selection and convenient purchase and delivery options. Internet
customers can check the inventory of up to three Circuit City Superstores in
their market, as well as the in-stock availability from the e-Superstore.
Beginning in April 2000, the Web site inventory also is accessible from any
store location through the POS system. Products can be shipped through the
e-Superstore for normal shipping charges or they can be picked up using the
Express Pickup service at a local Superstore. Products purchased through the
e-Superstore are shipped from an existing distribution center directly to the
customer. Products purchased through the Web site can be serviced, exchanged or
returned to any Circuit City Superstore location.
Distribution. At April 30, 2000, Circuit City operated seven
automated electronics distribution centers. These centers are designed to serve
stores within a 500-mile range. They use conveyor systems and laser bar-code
scanners to reduce labor requirements, prevent inventory damage and maintain
inventory control. Circuit City also operates smaller distribution centers
handling primarily appliances and larger electronics products. Management
believes that the use of the distribution centers enables it to efficiently
distribute a broad selection of merchandise to its stores, reduce inventory
requirements at individual stores, benefit from volume purchasing and maintain
accounting control. Circuit City also operates an automated, centralized
distribution center for entertainment software. Most of Circuit City's store
merchandise is distributed through its distribution centers.
Service. Circuit City offers service and repairs for nearly all the
products it sells. Customers also are able to purchase extended warranty plans
on most of the merchandise Circuit City sells.
At April 30, 2000, Circuit City had 34 regional, factory-authorized
repair facilities. To meet customer needs, merchandise that requires service or
repair usually is moved by truck from the stores to the nearest regional service
facility and is returned to the customer at the store after repair. Circuit City
also has in-home technicians who service large items not conveniently carried to
a store.
Extended warranty plans provide coverage beyond the normal
manufacturer's warranty period, usually with terms of coverage, including the
manufacturer's warranty period, between 12 and 60 months. Circuit City sells two
extended warranty programs on behalf of unrelated third parties who are the
primary obligors. These third parties issue these plans for merchandise sold by
other retailers as well as Circuit City. Under these third-party warranty
programs, the Company has no contractual liability to the customer. One of these
programs is sold in most major markets and features in-home service for personal
computer products. The second program covers consumer electronics and major
appliances and also is sold in most major markets. In states where third-party
warranty sales are not permitted, the Group sells a Circuit City extended
warranty for which the Company is the primary obligor.
Seasonality. Like many retail businesses, the Circuit City Group's
sales are greater in the fourth quarter of the fiscal year than in other periods
of the fiscal year because of holiday buying patterns. A corresponding
pre-seasonal inventory build-up is associated with this sales volume. This
increased sales volume results in a lower ratio of fixed costs to sales and a
higher ratio of operating income to sales in the fourth fiscal quarter. Circuit
City Group's sales from continuing operations for the fourth fiscal quarter,
which includes the Christmas season, were $3,476,171,000 in fiscal 2000,
$3,029,418,000 in fiscal 1999 and $2,585,969,000 in fiscal 1998. Fourth quarter
sales represented approximately 33 percent of total sales in fiscal 2000 and 32
percent in fiscal 1999 and fiscal 1998.
Divx. On June 16, 1999, Digital Video Express announced that it would
cease marketing of the Divx home video system and discontinue operations because
it did not obtain the studio support necessary for long-term success. Existing,
registered customers can view discs during a two-year phase-out period. The
operating results of Divx and the loss on the disposal of the Divx business have
been segregated from continuing operations and reported as separate line items,
after tax, on the Company's and Circuit City Group's statements of earnings. For
fiscal 2000, the loss from the discontinued operations of Divx totaled $16.2
million after an income tax benefit of $9.9 million. The loss from the
discontinued operations of Divx totaled $68.5 million after an income tax
benefit of $42.0 million in fiscal 1999 and $20.6 after an income tax benefit of
$12.6 million in fiscal 1998.
In fiscal 2000, the loss on the disposal of the Divx business totaled
$114.0 million after an income tax benefit of $69.9 million. The loss on the
disposal includes a provision for operating losses to be incurred during the
phase-out period. It also includes provisions for commitments under the
licensing agreements with motion picture distributors, the write-down of assets
to net realizable value, lease termination costs, employee severance and benefit
costs and other contractual commitments.
Page 6 of 18
The Divx system included DVD players with the Divx feature and Divx
discs. Divx offered consumers a convenient no-return, rental-like system. Unlike
video rentals, the Divx viewing period began when customers first inserted a
disc into their player and pushed play. After that point, consumers had a
48-hour window in which they could watch the movie as many times as they wanted.
Subsequent two-day viewing periods could be purchased at a discounted rate, and
selected favorite movies could be converted to unlimited viewing for play on any
Divx-equipped player registered to the customer's account. On a regular basis,
Divx-equipped players used the telephone connection to automatically transfer
viewing information to the Divx billing system. Payment was made through a
customer's credit or debit card.
CarMax Group:
General. In 1993, CarMax pioneered the used-car superstore concept
when it opened its first location in Richmond, Va. CarMax purchases,
reconditions and sells used vehicles. In addition, CarMax sells new vehicles
under sales and service agreements with DaimlerChrysler, Nissan, Mitsubishi,
Toyota, Ford, General Motors and BMW. CarMax allows customers to purchase
vehicles the same way they can buy virtually every other retail product, with
friendly service and non-negotiated low prices.
Expansion. As of April 30, 2000, CarMax operated 40 store locations,
including 31 used-car superstores and co-located new-car stores, four prototype
satellite stores and five stand-alone new-car franchises. In total, CarMax
operates 20 new-car franchises. In fiscal 1999, CarMax began testing a hub and
satellite operating strategy. Under the hub and satellite strategy, a satellite
store uses the reconditioning, purchasing and business office operations of a
nearby hub store. The consumer offer is identical in both the hub and satellite
stores. A prototypical satellite store operates on a four- to six-acre site with
a 12,000- to 14,000-square-foot facility that houses offices, a showroom and
four to seven service bays for regular maintenance and warranty service. As of
April 30, 2000, CarMax operated four prototypical satellite stores and had
converted six superstores to satellite operations. In fiscal 2000, CarMax slowed
its geographic expansion to focus on improving sales and profitability in
existing multi-store markets through the addition of satellite stores and
new-car franchises. In fiscal 2001, CarMax's management expects to continue this
focus on revenue growth and operating margin enhancements in existing CarMax
markets. Management will concentrate on the hub and satellite operating strategy
for its used-car superstores and seek new-car franchises to integrate or
co-locate with used-car superstores. In addition, management is actively
pursuing opportunities to integrate or co-locate as many of the five stand-alone
new-car franchises with existing used-car superstores as possible. Management
anticipates that in fiscal 2001 and beyond any new stores will be smaller "A"
stores or satellite stores.
Merchandising. All used-car CarMax locations feature a broad
selection of top-quality domestic and import used cars and trucks, with a wide
range of prices appealing to a large range of potential customers. CarMax's
selection covers the most popular brands, such as Ford, General Motors,
Chrysler, Toyota, Honda, Nissan and Mitsubishi and specialty brands like Lexus
and BMW. To appeal to the vast array of consumer preferences and budgets, CarMax
offers its used vehicles under two programs - the CarMax program and the ValuMax
program. CarMax used cars are generally less than six years old with fewer than
60,000 miles and range in price from $6,500 to $30,000. Through the ValuMax
program, CarMax sells high-quality used vehicles that are either older than six
years or have greater than 60,000 miles and generally range in price from $4,000
to $19,000. To ensure that CarMax quality standards are maintained, vehicles
under both programs undergo a comprehensive, certified quality inspection by
CarMax service technicians. CarMax backs its commitment to quality with a
five-day or 250-mile, money-back guarantee and a limited warranty. At all
new-car locations, the full selection of the manufacturer's models is available.
CarMax new-car franchises include Chrysler, Plymouth, Dodge, Jeep, Mitsubishi,
Nissan, Toyota, BMW, Chevrolet and Ford.
CarMax used-car prices average $1,300 below Kelley Blue Book prices
and more than 80 percent of CarMax's new cars are priced below manufacturers'
invoice. All customers receive the same low price with no negotiating required.
CarMax has extended its "no-haggle" philosophy to every stage of the vehicle
transaction, including trade-ins, financing rates, electronic accessories,
extended warranty pricing and its low vehicle documentation fees. CarMax has
replaced the traditional "trade-in" transaction with a process in which trained
CarMax buyers appraise any vehicle and provide the vehicle's owner with a
written guaranteed cash offer that is good for seven days or 300 miles. The
appraisal process is available to everyone, whether or not the individual is
purchasing a vehicle from CarMax. In conjunction with Circuit City's in-store
Roadshops, CarMax sells electronic accessories at its store locations.
Suppliers. In stores open for more than one year, CarMax acquires the
majority of its used-vehicle inventory from consumers or from local and regional
auctions in the markets that it serves. This buying strategy provides an
inventory of makes and models that reflect the tastes of the market. CarMax
appraises and makes an offer to purchase any properly documented vehicle from an
individual. CarMax also acquires used vehicles directly from other sources,
including wholesalers, franchised and independent dealers and fleet owners, such
as leasing companies and rental companies. Based on consumer acceptance of the
appraisal process at existing CarMax stores and the experience and success of
CarMax to date in
Page 7 of 18
acquiring vehicles from auctions and other sources, management believes that its
sources of used vehicles will continue to be sufficient to meet current needs
and to support planned expansion.
New-car inventory for the franchise locations is governed by the
terms of the sales and service agreements with DaimlerChrysler, Nissan,
Mitsubishi, Toyota, Ford, General Motors and BMW.
Reconditioning. An integral part of CarMax's used-car consumer offer
is the reconditioning process. This process includes: (1) a comprehensive,
certified quality inspection by CarMax ASE-certified technicians, (2) completion
of all scheduled preventive maintenance and required mechanical repairs, (3) a
thorough cosmetic reconditioning that includes car detailing and minor repairs
of scratches, dents, etc. and (4) a standard, final quality-control check. In
fiscal 1998, management closed its centralized reconditioning facilities after
experience proved that in-market reconditioning is more efficient and produces a
higher quality vehicle for the consumer.
Advertising. Television and radio advertisements are designed to
enhance consumer awareness of the CarMax name and key components of the CarMax
offer. These advertisements are distinctly different from those placed by most
auto dealers. Newspaper ads promote CarMax's selection and price leadership,
targeting consumers with immediate purchase intentions. In fiscal 2000, CarMax
modified its advertising campaign to build greater awareness and focus on the
core equities of the CarMax offer. The CarMax Web site also helped build traffic
throughout fiscal 2000, and enhancements to the Web site at the end of fiscal
2000 continue to contribute to CarMax's overall awareness. Advertising
expenditures were 2.4 percent of sales in fiscal 2000 and 3.4 percent of sales
in fiscal 1999 and 1998. The fiscal 2000 advertising expense ratio reflects
leverage from the total and comparable store sales increases and changes in
media buying strategy designed to increase buying efficiency for both television
and newspaper. The advertising expense ratio was unchanged from fiscal 1998 to
fiscal 1999 as expenses associated with store openings offset the leverage from
increased store sales.
Franchises. CarMax operates new-car dealerships under separate
franchise or dealer agreements with DaimlerChrysler, Nissan, Mitsubishi, Toyota,
Ford, General Motors and BMW. The agreements generally grant CarMax the right to
sell the manufacturer's vehicle brands, perform warranty work on these vehicles
and sell related parts and services within a specified market area. The
designation of specified market areas generally does not guarantee exclusivity
within a specified territory. The agreements govern the relationship between the
dealership and the manufacturer and generally impose certain operational
requirements and restrictions. These requirements include inventory levels,
working capital, monthly financial reporting, signage and cooperation with
marketing strategies. A manufacturer may terminate a dealer agreement under
certain circumstances, including a change in ownership without prior
manufacturer approval, failure to maintain adequate customer satisfaction
ratings or a material breach or other provisions of the agreement. CarMax also
has entered into framework agreements with several major vehicle manufacturers.
These agreements generally contain provisions relating to the acquisition,
ownership structure, advertising and management of a dealership franchised by
such manufacturers.
Various federal and state laws governing the relationship between
automotive dealerships and vehicle manufacturers also might affect CarMax. These
laws include statutes prohibiting manufacturers from terminating or failing to
renew franchise agreements without proper cause and unreasonably withholding
approval for proposed ownership changes.
Competition. The $650 billion used- and new-car retail business is
highly competitive. In the used-vehicle market, CarMax competes with existing
franchised and independent dealers, rental companies and private parties. Many
franchised new-car dealerships also have increased their focus on the
used-vehicle market. Late in fiscal 2000, CarMax's primary competitor exited the
used-car superstore business. Management believes their exit from the
Dallas/Fort Worth, Houston, San Antonio, Tampa and Miami markets, where the two
companies competed, will help eliminate consumer confusion over the two offers
and increase customer flow for CarMax. Part of CarMax's business strategy is to
position itself as a low-price operator in the industry. In fiscal 1999,
CarMax's used-car sales were negatively impacted by an intensely competitive
new-car industry and insufficient customer traffic in a number of multi-store
metropolitan markets.
In the new-vehicle market, CarMax competes with other franchised
dealers offering vehicles produced by the same or other manufacturers and with
auto brokers and leasing companies. As is typical of such arrangements, CarMax's
existing franchise agreements do not guarantee exclusivity within a specified
territory. Aggressive discounting by manufacturers of new cars, which typically
occurs in the fall during the close-out of prior year models, may result in
lower retail prices and margins for used vehicles during such discounting. In
fiscal 2000 and 1999, CarMax's new-car sales were strong, resulting in part from
the highly promotional climate in the new-car industry.
Customer Satisfaction. The elements of the CarMax offer are designed
to create a customer-friendly experience. The "no-haggle" pricing allows the
sales consultant to focus solely on the customer's needs. CarMax sales personnel
play a significant role in ensuring a customer-friendly sales process. All sales
consultants, including both full- and part-time employees, are compensated on a
commission basis. The amount of the commission is a fixed dollar amount per
vehicle sold.
Page 8 of 18
The entire purchase process, including a test-drive and financing, can be
completed in less than one hour. Extensive market research is conducted to
measure CarMax's customer service record and to refine its consumer offer.
Training. CarMax is committed to providing exceptional initial and
ongoing training to its Associates. All new Associates are offered structured,
self-paced training programs that introduce them to company policies and their
specific job responsibilities. Associate participation and performance in each
training program is measured corporately by a unique, intranet-based testing and
tracking system. Most new Associates are assigned mentors who provide on-the-job
guidance and support. Many CarMax compensation programs reward Associates for
continuously improving their skills.
CarMax also offers comprehensive, facilitated classroom training
courses to sales consultants, buyers, automotive technicians and managers. All
sales consultants receive extensive customer service training and ongoing
training as new products become available. Each buyer undergoes a 12- to
24-month apprenticeship under the tutelage of an experienced buyer and appraises
thousands of cars before making his or her first independent purchase. Most
service technicians are ASE-certified - the industry standard for technician
training. At the end of fiscal 2000, the 38 general managers averaged more than
three years of CarMax experience and 12 years of prior management experience.
Consumer Credit. CarMax offers its customers an opportunity to obtain
prime financing for vehicle purchases through its finance operation or Bank of
America. In addition, Chrysler Financial, BMW Financial, Ford Motor Credit,
General Motors Acceptance, Mitsubishi Motors Credit, Nissan Motors Acceptance
and Toyota Motor Credit offer prime financing to customers purchasing new
vehicles at applicable CarMax locations. Non-prime financing is offered by
TransSouth Financial at all CarMax locations and Flagship Credit and AmeriCredit
on a regional basis, with no financial recourse to CarMax. Sales consultants use
CarMax's proprietary point-of-sale system to electronically submit financing
applications and receive responses from multiple lenders, generally in less than
eight minutes.
Systems. Using a touch screen, CarMax customers can electronically
search the inventory for cars that meet their specific needs. The CarMax
inventory information system displays a color picture of the car and generates a
vehicle information sheet for customer reference. After the selection process is
complete, financing applications are submitted electronically and purchase and
title forms are systematically generated, reducing customer wait time. The
inventory management system includes bar codes on each vehicle and each on-site
parking place. Daily scanning tracks movement of vehicles on the lot. An
electronic gate helps track test drives for vehicles and sales consultants. This
combination of systems allows inventory and sales performance to be closely
monitored, enabling management to quickly resolve any issues.
E-commerce. Since 1997, CarMax's Web site has offered complete
inventory and pricing search capabilities. In fiscal 2000, the site was updated
to include all the detailed vehicle information available at the store; this
information includes a picture of each vehicle, prices, features, specifications
and the store location. Inventory information on the more than 10,000 cars
available in CarMax's nationwide inventory is updated daily. In addition, The
Insta-Price Online New-Car Buying Service was launched in fiscal 2000 for 10
major cities. This service connects the customer with a dedicated CarMax
Internet sales consultant so that the sales consultant can answer all questions
regarding purchase details, including financing inquiries. The customer is then
able to pick up the new vehicle from the store location. Also in fiscal 2000,
CarMax began testing partnerships with most major online automotive sites to
further expand its online presence.
Service. During fiscal 1998, CarMax completed the roll out of retail
repair service to all locations. In fiscal 2000, CarMax expanded its retail
service operations as its customer base increased. In fiscal 2001, CarMax
intends to continue its retail service expansion through additional marketing
and growth in its customer base.
In most states, CarMax sells warranties on behalf of an unrelated
third party who is the primary obligor. Under this third-party warranty program,
the Company has no contractual liability to the customer. In states where
third-party warranty sales are not permitted, CarMax has sold its own extended
warranty for which the Company is the primary obligor. Contracts usually have
terms of coverage between 12 and 72 months.
Seasonality. The business of CarMax is seasonal, with each location
generally experiencing more of its net sales in the first half of the fiscal
year. During the fall quarter, new-model-year introductions and discounting on
close-out vehicles can cause rapid depreciation of used-car prices, especially
on late-model vehicles. CarMax anticipates that the seasonality of its business
may vary from region to region as its operations expand geographically.
Employees:
On April 30, 2000, the Company had 35,101 hourly and salaried
employees and 24,093 sales employees working on a commission basis. None of the
Company's employees are subject to a collective bargaining agreement. Additional
personnel are employed during peak selling seasons. The Circuit City Group
accounted for 30,902 of the Company's hourly
Page 9 of 18
and salaried employees and 22,382 of the Company's sales employees working on a
commission basis. The CarMax Group accounted for 4,199 of the Company's hourly
and salaried employees and 1,711 of the Company's sales employees working on a
commission basis.
Item 2. Properties.
At April 30, 2000, the Company's Circuit City retail operations were
conducted in 618 locations. The Company operates four Circuit City Superstore
formats with square footage and merchandise assortments tailored to population
and volume expectations for specific trade areas. The "D" format was developed
to serve the most populous trade areas. At the end of fiscal 2000, selling space
in the "D" format averaged approximately 23,000 square feet with total square
footage averaging 43,043. The "C" format constitutes the largest percent of the
store base. At the end of fiscal 2000, selling square footage in this format
averaged 15,000 square feet with total square footage for all "C" stores
averaging 34,006. The "B" format is often located in smaller markets or in trade
areas that are on the fringes of larger metropolitan markets. At the end of
fiscal 2000, selling space in these stores averaged approximately 13,000 square
feet with an average total square footage of 27,078. The "B" stores offer a
broad merchandise assortment that maximizes return on investment in these lower
volume areas. The "A" format serves the least populated trade areas. Selling
space in these stores averaged approximately 9,000 square feet at the end of
fiscal 2000, and total square footage averaged 19,098. The "A" stores feature a
layout, staffing levels and merchandise assortment that creates high
productivity in the smallest markets.
The Company's 45 mall-based Circuit City Express stores are located
in regional malls, are approximately 2,000 to 3,000 square feet in size and
specialize in leading-edge technology.
The Company's CarMax operations were conducted in 40 locations as of
April 30, 2000. Late in fiscal 1999, CarMax began testing a hub and satellite
operating strategy in existing multi-store markets. Under the hub and satellite
strategy, a satellite store uses the reconditioning, purchasing and business
office operations of a nearby hub store. The display capacity and consumer offer
are identical in both the hub and satellite stores. A prototypical satellite
store operates on a four-to-six acre site with a 12,000- to 14,000-square-foot
facility that houses sales offices, a showroom, and four to seven service bays
for regular maintenance and warranty service. CarMax opened two prototypical
satellite stores late in fiscal 1999 and two more in fiscal 2000. All other
satellite stores are larger stores and are therefore classified by size, with
"C" stores representing the largest store format. Management anticipates that in
fiscal 2001, and beyond, any new stores will be smaller "A" stores or satellite
stores. In fiscal 2000, CarMax reclassified certain stores based on square
footage. The "Other" category in the following table under the CarMax Group
includes four prototype satellite stores and five stand-alone, new-car stores.
Page 10 of 18
The following table summarizes the Company's Circuit City and CarMax
stores as of April 30, 2000:
Circuit City Group CarMax Group
------------------------------------------------ ----------------------------------------
Superstores Mall Superstores
------------------------ ----------------
D C B A Stores Total C B A Other Total
- - - - ------ ----- - - - ----- -----
Alabama 1 4 - 2 1 8 - - - - -
Arizona 2 6 2 - 1 11 - - - - -
Arkansas - 2 - 2 - 4 - - - - -
California 16 52 12 2 4 86 - 1 - 3 4
Colorado 5 2 2 2 - 11 - - - - -
Connecticut 3 3 1 - 1 8 - - - - -
Delaware - 2 - - 1 3 - - - - -
District of Columbia - - - - 1 1 - - - - -
Florida 5 23 10 2 1 41 1 2 3 1 7
Georgia 4 7 6 - 3 20 1 - 2 - 3
Hawaii 1 - - - - 1 - - - - -
Idaho 1 - - 1 - 2 - - - - -
Illinois 6 19 4 - 3 32 3 - 1 - 4
Indiana 1 5 4 5 - 15 - - - - -
Kansas 1 3 1 - - 5 - - - - -
Kentucky - 5 - 1 - 6 - - - - -
Louisiana - 5 1 2 1 9 - - - - -
Maine - - 2 - - 2 - - - - -
Maryland 1 12 2 - 4 19 1 - 2 1 4
Massachusetts 1 9 3 - 6 19 - - - - -
Michigan 8 6 5 3 1 23 - - - - -
Minnesota 1 7 1 - 1 10 - - - - -
Mississippi - 1 - 2 - 3 - - - - -
Missouri 1 9 1 1 1 13 - - - - -
Nebraska 1 1 - - - 2 - - - - -
Nevada 1 3 - - - 4 - - - - -
New Hampshire - 4 - - 2 6 - - - - -
New Jersey 1 9 3 - - 13 - - - - -
New Mexico 1 - - - - 1 - - - - -
New York 11 7 7 3 2 30 - - - - -
North Carolina 6 5 5 2 1 19 - - 2 - 2
Ohio 7 12 5 2 3 29 - - - - -
Oklahoma - 2 1 1 - 4 - - - - -
Oregon 2 5 - 1 - 8 - - - - -
Pennsylvania 2 11 5 4 2 24 - - - - -
Rhode Island - 1 - - - 1 - - - - -
South Carolina 2 3 2 - - 7 - - 1 - 1
Tennessee 4 5 1 3 - 13 - - 1 - 1
Texas 7 27 5 7 2 48 2 2 3 3 10
Utah 5 - - - - 5 - - - - -
Vermont - - 1 - - 1 - - - - -
Virginia 2 13 5 5 3 28 - - 2 - 2
Washington 4 3 3 1 - 11 - - - - -
West Virginia - - 3 1 - 4 - - - - -
Wisconsin 4 2 1 - - 7 1 - - 1 2
Wyoming - - - 1 - 1 - - - - -
---------------------------------------------------------------------------------------------
118 295 104 56 45 618 9 5 17 9 40
=============================================================================================
Of the stores open at April 30, 2000, the Company owns six Circuit
City store locations and 10 CarMax store locations. The Company leases the
remaining Circuit City and CarMax locations. During fiscal 2001, the Company
anticipates entering into sale-leaseback transactions for three of the Circuit
City locations owned by the Company as of April 30, 2000.
For information with respect to obligations for Circuit City leases,
see note 10 of the Notes to Circuit City Group Financial Statements on page 61
of the Company's 2000 Annual Report to Stockholders, which is incorporated
herein by
Page 11 of 18
reference. For information with respect to obligations for CarMax leases, see
note 12 of the Notes to CarMax Group Financial Statements on page 79 of the
Company's 2000 Annual Report to Stockholders, which is incorporated herein by
reference.
The Company owns a 388,000-square-foot consumer electronics/appliance
distribution center in Doswell, Va., and a 387,000-square-foot consumer
electronics/appliance distribution center in Atlanta, Ga. These distribution
centers have been financed with Industrial Development Revenue Bonds.
The Company owns a distribution center in Marion, Ill. and an office
building in Kennesaw, Ga. The Company anticipates entering into sale-leaseback
transactions for both of these properties in fiscal 2001. In addition, the
Company owns most of the land but leases the three buildings in which its
corporate headquarters is located. The Company leases space for all warehouse,
service and office facilities except for the aforementioned properties.
Item 3. Legal Proceedings.
In the normal course of business, the Company is involved in various
legal proceedings. Based upon the Company's evaluation of the information
presently available, management believes that the ultimate resolution of any
such proceedings will not have a material adverse effect on the Company's
financial position, liquidity or results of operations.
Item 4. Submission of Matters to a Vote of Security Holders.
No matter was submitted to a vote of security holders during the
fourth quarter of the fiscal year ended February 29, 2000.
Executive Officers of the Company.
The following table identifies the present executive officers of the
Company. The Company is not aware of any family relationship between any
executive officers of the Company or any executive officer and any director of
the Company. All executive officers are generally elected annually and serve for
one year or until their successors are elected and qualify. The next general
election of officers will occur in June 2000.
Name Age Office
---- --- ------
Richard L. Sharp 53 Chairman of the Board and
Chief Executive Officer
W. Alan McCollough 50 President and
Chief Operating Officer
Richard S. Birnbaum 47 Executive Vice President
Operations
Michael T. Chalifoux 53 Executive Vice President,
Chief Financial Officer and
Corporate Secretary
John W. Froman 46 Executive Vice President
Merchandising
Dennis J. Bowman 46 Senior Vice President and
Chief Information Officer
W. Stephen Cannon 48 Senior Vice President and
General Counsel
Philip J. Dunn 47 Senior Vice President,
Treasurer and Controller
John A. Fitzsimmons 57 Senior Vice President
Administration
Page 12 of 18
Name Age Office
---- --- ------
W. Austin Ligon 49 Senior Vice President
Automotive
Gary Mierenfeld 48 Senior Vice President
Distribution and National Service
Jeffrey S. Wells 54 Senior Vice President
Human Resources
Mr. Sharp is a director and a member of the Company's executive
committee. He joined the Company in 1982 as executive vice president and was
elected president in 1984, chief executive officer in 1986 and chairman of the
board in 1994. While remaining chairman of the Company, Mr. Sharp will step down
as chief executive officer in June 2000.
Mr. McCollough is a director and a member of the Company's executive
committee. He joined the Company in 1987 as general manager of corporate
operations. He was elected assistant vice president in 1989, vice president and
central division president in 1991, senior vice president - merchandising in
1994, president and chief operating officer in 1997 and chief executive officer,
effective June 2000.
Mr. Birnbaum joined the Company in 1972. He was elected vice
president in 1985, Central Division president in 1986, senior vice president -
marketing in 1991 and executive vice president - operations in 1994.
Mr. Chalifoux is a director and a member of the Company's executive
committee. He joined the Company in 1983 as corporate controller and was elected
vice president and chief financial officer in 1988. He was elected senior vice
president in 1991, corporate secretary in 1993 and executive vice president in
1998.
Mr. Froman joined the Company in 1986 as a store manager and general
manager in training. In 1987, he was promoted to general manager and in 1989 was
named assistant vice president. He was promoted to director of corporate
operations in 1990 and in 1992 added the title of vice president. He was elected
president of the Company's Central Division in 1994, named senior vice president
- - merchandising in 1997 and executive vice president in 2000.
Mr. Bowman joined the Company in 1996 as vice president and chief
information officer. He was elected senior vice president and chief information
officer in 1997. Prior to joining the Company, he had served as senior vice
president - information services for Rite Aid Corporation since 1993 and from
1984 to 1993 was a consultant with McKinsey & Company.
Mr. Cannon joined the Company in 1994 as senior vice president and
general counsel. Prior to joining the Company, he had been, since 1986, a
partner in Wunder, Diefenderfer, Ryan, Cannon & Thelen, a Washington, D.C., law
firm.
Mr. Dunn joined the Company in 1984. He was named treasurer in 1990,
was promoted to vice president in 1992 and added the title of controller in
1996. In 1999, he was elected senior vice president.
Mr. Fitzsimmons joined the Company in 1987 as senior vice president -
administration.
Mr. Ligon joined the Company in 1990 as vice president - corporate
planning and communications. He was elected senior vice president - corporate
planning and communications in 1991, senior vice president - corporate planning
and automotive in 1994 and senior vice president-automotive and CarMax president
in 1996.
Mr. Mierenfeld joined the Company in 1993 as vice president -
distribution. He was elected senior vice president - distribution and national
service in 1999.
Mr. Wells joined the Company in 1996 as senior vice president - human
resources. Prior to joining the Company, he had served as a senior vice
president of Toys "R" Us, Inc. since 1992.
Page 13 of 18
Part II
With the exception of the information incorporated by reference from
the 2000 Annual Report to Stockholders in Item 2 of Part I and Items 5, 6, 7, 7a
and 8 of Part II and Item 14 of Part IV of this Form 10-K, the Company's 2000
Annual Report to Stockholders is not to be deemed filed as a part of this
Report.
Item 5. Market for the Company's Common Equity and Related Stockholder Matters.
Incorporated herein by reference is the information appearing under
the heading "Common Stock" on page 29 of the Company's 2000 Annual Report to
Stockholders.
As of April 30, 2000, there were 8,308 shareholders of record of the
Circuit City Group common stock and 550 shareholders of record of the CarMax
Group common stock.
Item 6. Selected Financial Data.
Incorporated herein by reference is the information appearing under
the heading "Reported Historical Information" on page 23 of the Company's 2000
Annual Report to Stockholders.
Item 7. Management's Discussion and Analysis of Results of Operations and
Financial Condition.
Incorporated herein by reference is the information appearing under
the heading "Management's Discussion and Analysis of Results of Operations and
Financial Condition" on pages 23 through 29 for Circuit City Stores, Inc., pages
46 through 49 for the Circuit City Group, and pages 64 through 67 for the CarMax
Group of the Company's 2000 Annual Report to Stockholders.
Item 7a. Quantitative and Qualitative Disclosure about Market Risk.
Incorporated herein by reference is the information appearing under
the sub-heading "Market Risk" on page 28 for Circuit City Stores, Inc., page 49
for the Circuit City Group and page 67 for the CarMax Group of the Company's
2000 Annual Report to Stockholders.
Item 8. Financial Statements and Supplementary Data.
Incorporated herein by reference is the information appearing under
the headings "Consolidated Statements of Earnings," "Consolidated Balance
Sheets," "Consolidated Statements of Cash Flows," "Consolidated Statements of
Stockholders' Equity," "Notes to Consolidated Financial Statements," and
"Independent Auditors' Report," on pages 30 through 45 of the Company's 2000
Annual Report to Stockholders.
Incorporated herein by reference is the information appearing under
the headings "Circuit City Group Statements of Earnings," "Circuit City Group
Balance Sheets," "Circuit City Group Statements of Cash Flows," "Circuit City
Group Statements of Group Equity," "Notes to Circuit City Group Financial
Statements," and "Independent Auditors' Report," on pages 50 through 63 of the
Company's 2000 Annual Report to Stockholders.
Incorporated herein by reference is the information appearing under
the headings "CarMax Group Statements of Operations," "CarMax Group Balance
Sheets," "CarMax Group Statements of Cash Flows," "CarMax Group Statements of
Group Equity, " "Notes to CarMax Group Financial Statements," and "Independent
Auditors' Report," on pages 68 through 80 of the Company's 2000 Annual Report to
Stockholders.
Incorporated herein by reference is the information appearing under
the heading "Quarterly Financial Data (Unaudited)" on page 45 for Circuit City
Stores, Inc., page 63 for the Circuit City Group and page 80 for the CarMax
Group of the Company's 2000 Annual Report to Stockholders.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
None.
Page 14 of 18
Part III
With the exception of the information incorporated by reference from
the Company's Proxy Statement in Items 10, 11 and 12 of Part III of this Form
10-K, the Company's Proxy Statement dated May 10, 2000, is not to be deemed
filed as a part of this Report.
Item 10. Directors and Executive Officers of the Company.
The information concerning the Company's directors required by this
Item is incorporated by reference to the section entitled "Item One - Election
of Directors" appearing on pages 2 through 4 of the Company's Proxy Statement
dated May 10, 2000.
The information concerning the Company's executive officers required
by this Item is incorporated by reference to the section in Part I hereof
entitled "Executive Officers of the Company" appearing on pages 12 and 13.
The information concerning compliance with Section 16(a) of the
Securities Exchange Act of 1934 required by this Item is incorporated by
reference to the section entitled "Section 16(a) Compliance" appearing on page
17 of the Company's Proxy Statement dated May 10, 2000.
Item 11. Executive Compensation.
The information required by this Item is incorporated by reference to
the sections entitled "Executive Compensation," "Employment Agreements and
Change-in-Control Arrangements," and "Compensation of Directors," appearing on
pages 9 through 11 and pages 16 through 17 of the Company's Proxy Statement
dated May 10, 2000.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
The information required by this Item is incorporated by reference to
the section entitled "Beneficial Ownership of Securities" appearing on pages 5
through 7 of the Company's Proxy Statement dated May 10, 2000.
Item 13. Certain Relationships and Related Transactions.
None.
Part IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.
(a) The following documents are filed as part of this Report:
1. Financial Statements. The following Financial Statements of
Circuit City Stores, Inc., the Circuit City Group and the CarMax
Group, and the related notes to Financial Statements and the
Independent Auditors' Reports are incorporated by reference to
pages 30 through 45 for Circuit City Stores, Inc., pages 50
through 63 for the Circuit City Group, and pages 68 through 80
for the CarMax Group of the Company's 2000 Annual Report to
Shareholders:
Consolidated Statements of Earnings for the fiscal years ended
February 29 or 28, 2000, 1999 and 1998.
Circuit City Group Statements of Earnings for the fiscal years
ended February 29 or 28, 2000, 1999 and 1998.
CarMax Group Statements of Operations for the fiscal years ended
February 29 or 28, 2000, 1999 and 1998.
Consolidated Balance Sheets at February 29, 2000 and February 28,
1999.
Circuit City Group Balance Sheets at February 29, 2000 and
February 28, 1999.
CarMax Group Balance Sheets at February 29, 2000 and February 28,
1999.
Consolidated Statements of Cash Flows for the fiscal years ended
February 29 or 28, 2000, 1999 and 1998.
Circuit City Group Statements of Cash Flows for the fiscal years
ended February 29 or 28, 2000, 1999 and 1998.
Page 15 of 18
CarMax Group Statements of Cash Flows for the fiscal years ended
February 29 or 28, 2000, 1999 and 1998.
Consolidated Statements of Stockholders' Equity for the fiscal
years ended February 29 or 28, 2000, 1999 and 1998.
Circuit City Group Statements of Group Equity for the fiscal
years ended February 29 or 28, 2000, 1999 and 1998.
CarMax Group Statements of Group Equity for the fiscal years
ended February 29 or 28, 2000, 1999 and 1998.
Notes to Consolidated Financial Statements.
Notes to Circuit City Group Financial Statements.
Notes to CarMax Group Financial Statements.
Independent Auditors' Report, Circuit City Stores, Inc.
Independent Auditors' Report, Circuit City Group.
Independent Auditors' Report, CarMax Group.
2. Financial Statement Schedule. The following financial statement
schedules of Circuit City Stores, Inc., Circuit City Group and
CarMax Group for the fiscal years ended February 29 or 28, 2000,
1999 and 1998, are filed as part of this Report and should be
read in conjunction with the Financial Statements of Circuit City
Stores, Inc., Circuit City Group and CarMax Group.
II Valuation and Qualifying Accounts and Reserves, Circuit City Stores, Inc. S-1
II Valuation and Qualifying Accounts and Reserves, Circuit City Group S-1
II Valuation and Qualifying Accounts and Reserves, CarMax Group S-1
Independent Auditors' Report on Circuit City Stores, Inc. Financial Statement Schedule S-2
Independent Auditors' Report on Circuit City Group Financial Statement Schedule S-2
Independent Auditors' Report on CarMax Group Financial Statement Schedule S-2
Schedules not listed above have been omitted because they are not
applicable or are not required or the information required to be
set forth therein is included in the Consolidated Financial
Statements or Notes thereto.
3. Exhibits. The Exhibits listed on the accompanying Index to
Exhibits immediately following the financial statement schedules
are filed as part of, or incorporated by reference into, this
Report.
(b) Reports on Form 8-K.
The Company did not file any reports on Form 8-K during the last
fiscal quarter covered by this Report.
Page 16 of 18
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
CIRCUIT CITY STORES, INC.
(Registrant)
By s/ Richard L. Sharp
Richard L. Sharp
Chairman of the Board and
Chief Executive Officer
By s/ Michael T. Chalifoux
Michael T. Chalifoux
Executive Vice President,
Chief Financial Officer and
Corporate Secretary
By s/ Philip J. Dunn
Philip J. Dunn
Senior Vice President, Treasurer,
Corporate Controller and
Chief Accounting Officer
May 23, 2000
Page 17 of 18
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed by the following persons on behalf of the Registrant and in the
capacities and on the dates indicated:
Signature Title Date
Michael T. Chalifoux* Director May 23, 2000
- --------------------------
Michael T. Chalifoux
Richard N. Cooper* Director May 23, 2000
- --------------------------
Richard N. Cooper
Barbara S. Feigin* Director May 23, 2000
- --------------------------
Barbara S. Feigin
James F. Hardymon* Director May 23, 2000
- --------------------------
James F. Hardymon
Robert S. Jepson Jr.* Director May 23, 2000
- --------------------------
Robert S. Jepson Jr.
W. Alan McCollough* Director May 23, 2000
- --------------------------
W. Alan McCollough
Hugh G. Robinson* Director May 23, 2000
- --------------------------
Hugh G. Robinson
Walter J. Salmon* Director May 23, 2000
- --------------------------
Walter J. Salmon
Mikael Salovaara* Director May 23, 2000
- --------------------------
Mikael Salovaara
s/ Richard L. Sharp Director May 23, 2000
- --------------------------
Richard L. Sharp
John W. Snow* Director May 23, 2000
- --------------------------
John W. Snow
Edward Villanueva* Director May 23, 2000
- --------------------------
Edward Villanueva
Alan L. Wurtzel* Director May 23, 2000
- --------------------------
Alan L. Wurtzel
By: s/ Richard L. Sharp
- -----------------------
Richard L. Sharp,
Attorney-In-Fact
*The original powers of attorney authorizing Richard L. Sharp and Michael T.
Chalifoux, or either of them, to sign this annual report on behalf of certain
directors and officers of the Company are included as Exhibit 24.
Page 18 of 18
S-1
Schedule II
CIRCUIT CITY STORES, INC. AND SUBSIDIARIES
Valuation and Qualifying Accounts and Reserves
(Amounts in thousands)
Balance at Charged Charge-offs Balance at
Beginning to less End of
Description of Year Income Recoveries Year
Circuit City Stores, Inc.:
Year ended February 28, 1998:
Allowance for doubtful accounts $ 15,396 $ 8,464 $ (5,554) $ 18,306
======== ======== ========= =========
Year ended February 28, 1999:
Allowance for doubtful accounts $ 18,306 $ 3,918 $ (5,942) $ 16,282
======== ======== ========= =========
Year ended February 29, 2000:
Allowance for doubtful accounts $ 16,282 $ 8,853 $ (6,822) $ 18,313
======== ======== ========= =========
Circuit City Group:
Year ended February 28, 1998:
Allowance for doubtful accounts $ 13,534 $ 5,616 $ (4,627) $ 14,523
======== ======== ========= =========
Year ended February 28, 1999:
Allowance for doubtful accounts $ 14,523 $ 1,374 $ (4,828) $ 11,069
======== ======== ========= =========
Year ended February 29, 2000:
Allowance for doubtful accounts $ 11,069 $ 4,324 $ (2,898) $ 12,495
======== ======== ========= =========
CarMax Group:
Year ended February 28, 1998:
Allowance for doubtful accounts $ 1,862 $ 2,848 $ (927) $ 3,783
======== ======== ========= =========
Year ended February 28, 1999:
Allowance for doubtful accounts $ 3,783 $ 2,544 $ (1,114) $ 5,213
======== ======== ========= =========
Year ended February 29, 2000:
Allowance for doubtful accounts $ 5,213 $ 4,529 $ (3,924) $ 5,818
======== ======== ========= =========
S-2
Independent Auditors' Report on Financial Statement Schedule
The Board of Directors
Circuit City Stores, Inc.:
Under date of April 4, 2000, we reported on the consolidated balance sheets of
Circuit City Stores, Inc. and subsidiaries (the Company) as of February 29, 2000
and February 28, 1999, and the related consolidated statements of earnings,
stockholders' equity and cash flows for each of the fiscal years in the
three-year period ended February 29, 2000, as contained in the February 29, 2000
annual report to stockholders. These consolidated financial statements and our
report thereon are incorporated by reference in the annual report on Form 10-K
for the year ended February 29, 2000. In connection with our audits of the
aforementioned consolidated financial statements, we also have audited the
related Circuit City Stores, Inc. financial statement schedule as listed in Item
14(a)2 of this Form 10-K. This financial statement schedule is the
responsibility of the Company's management. Our responsibility is to express an
opinion on this financial statement schedule based on our audits.
In our opinion, such schedule, when considered in relation to the basic
consolidated financial statements taken as a whole, presents fairly, in all
material respects, the information set forth therein.
s/KPMG LLP
Richmond, Virginia
April 4, 2000
S-2
Independent Auditors' Report on Financial Statement Schedule
The Board of Directors
Circuit City Stores, Inc.:
Under date of April 4, 2000, we reported on the balance sheets of the Circuit
City Group as of February 29, 2000 and February 28, 1999, and the related
statements of earnings, group equity and cash flows for each of the fiscal years
in the three-year period ended February 29, 2000, as contained in the February
29, 2000 annual report to stockholders. Our report dated April 4, 2000 includes
a qualification related to the effects of not consolidating the CarMax Group
with the Circuit City Group as required by generally accepted accounting
principles. These financial statements and our report thereon are incorporated
by reference in the annual report on Form 10-K of Circuit City Stores, Inc. for
the year ended February 29, 2000. In connection with our audits of the
aforementioned financial statements, we also have audited the related Circuit
City Group financial statement schedule as listed in Item 14(a)2 of this Form
10-K. This financial statement schedule is the responsibility of Circuit City
Stores, Inc.'s management. Our responsibility is to express an opinion on this
financial statement schedule based on our audits.
In our opinion, except for the effects of not consolidating the CarMax Group
with the Circuit City Group as discussed in the preceding paragraph, such
schedule, when considered in relation to the basic financial statements taken as
a whole, presents fairly, in all material respects, the information set forth
therein.
s/KPMG LLP
Richmond, Virginia
April 4, 2000
S-2
Independent Auditors' Report on Financial Statement Schedule
The Board of Directors
Circuit City Stores, Inc.:
Under date of April 4, 2000, we reported on the balance sheets of the CarMax
Group as of February 29, 2000 and February 28, 1999, and the related statements
of operations, group equity and cash flows for each of the fiscal years in the
three-year period ended February 29, 2000, as contained in the February 29, 2000
annual report to stockholders. These financial statements and our report thereon
are incorporated by reference in the annual report on Form 10-K of Circuit City
Stores, Inc. for the year ended February 29, 2000. In connection with our audits
of the aforementioned financial statements, we also have audited the related
CarMax Group financial statement schedule as listed in Item 14(a)2 of this Form
10-K. This financial statement schedule is the responsibility of Circuit City
Stores, Inc.'s management. Our responsibility is to express an opinion on this
financial statement schedule based on our audits.
In our opinion, such schedule, when considered in relation to the basic
financial statements taken as a whole, presents fairly, in all material
respects, the information set forth therein.
s/KPMG LLP
Richmond, Virginia
April 4, 2000
Circuit City Stores, Inc.
Annual Report on Form 10-K
INDEX TO EXHIBITS
(3) Articles of Incorporation and Bylaws
(a) Amended and Restated Articles of Incorporation of the
Company, effective February 3, 1997, filed as Exhibit
3(i)(a) to the Company's Amended Quarterly Report on
Form 10-Q/A for the quarter ended May 31, 1999, (File
No. 1-5767) are expressly incorporated herein by this
reference.
(b) Articles of Amendment to the Company's Amended and
Restated Articles of Incorporation, effective April
28, 1998, filed as Exhibit 3(i)(b) to the Company's
Amended Quarterly Report on Form 10-Q/A for the
quarter ended May 31, 1999, (File No. 1-5767) are
expressly incorporated herein by this reference.
(c) Articles of Amendment to the Company's Amended and
Restated Articles of Incorporation, effective June
22, 1999, filed as Exhibit 3(i)(c) to the Company's
Amended Quarterly Report on Form 10-Q/A for the
quarter ended May 31, 1999 (File No. 1-5767), are
expressly incorporated herein by this reference.
(d) Bylaws of the Company, as amended and restated
February 15, 2000, filed as Exhibit 4.4 to the
Company's Form S-8 filed on March 24, 2000, are
expressly incorporated herein by this reference.
(4) Instruments Defining the Rights of Security Holders, Including Indentures
(a) First Amended and Restated Rights Agreement dated as
of February 16, 1999, between the Company and Norwest
Bank Minnesota, N.A., as Rights Agent, filed as
Exhibit 1 to the Company's Form 8-A/A filed on May 7,
1999, is expressly incorporated herein by this
reference.
(b) $100,000,000 term loan agreement dated July 28, 1994,
between the Company, The Long-Term Credit Bank of
Japan, Limited, as agent, and the banks named
therein. Pursuant to Item 601(b)(4)(iii) of
Regulation S-K, in lieu of filing a copy of such
agreement, the Company agrees to furnish a copy of
such agreement to the Commission upon request.
(c) First Amendment to Term Loan Agreement dated October
24, 1995, to the $100,000,000 term loan agreement
dated July 28, 1994, between the Company, The
Long-Term Credit Bank of Japan, Limited, as agent,
and the banks named therein. Pursuant to Item
601(b)(4)(iii) of Regulation S-K, in lieu of filing a
copy of such agreement, the Company agrees to furnish
a copy of such agreement to the Commission upon
request.
(d) Second Amendment to Term Loan Agreement dated August
21, 1996, to the $100,000,000 term loan agreement
dated July 28, 1994, between the Company, The
Long-Term Credit Bank of Japan, Limited, as agent,
and the banks named therein. Pursuant to Item
601(b)(4)(iii) of Regulation S-K, in lieu of filing a
copy of such agreement, the Company agrees to furnish
a copy of such agreement to the Commission upon
request.
Page 1 of 4
(e) Third Amendment to Term Loan Agreement dated
September 23, 1999 to the $100,000,000 term loan
agreement dated July 28, 1994, between the Company,
General Electric Capital Corporation, as successor
agent, and the banks named therein. Pursuant to Item
601(b)(4)(iii) of Regulation S-K, in lieu of filing a
copy of such agreement, the Company agrees to furnish
a copy of such agreement to the Commission upon
request.
(f) $175,000,000 term loan agreement dated May 26, 1995,
between the Company, LTCB Trust Company, as agent,
and the banks named therein. Pursuant to Item
601(b)(4)(iii) of Regulation S-K, in lieu of filing a
copy of such agreement, the Company agrees to furnish
a copy of such agreement to the Commission upon
request.
(g) First Amendment to Term Loan Agreement dated October
24, 1995, to the $175,000,000 term loan agreement
dated May 26, 1995, between the Company, LTCB Trust
Company, as agent, and the banks named therein.
Pursuant to Item 601(b)(4)(iii) of Regulation S-K, in
lieu of filing a copy of such agreement, the Company
agrees to furnish a copy of such agreement to the
Commission upon request.
(h) Second Amendment to the Term Loan Agreement dated
September 23, 1999 to the $175,000,000 term loan
agreement dated May 26, 1995, between the Company,
General Electric Capital Corporation, as successor
agent, and the banks named therein. Pursuant to Item
601(b)(4)(iii) of Regulation S-K, in lieu of filing a
copy of such agreement, the Company agrees to furnish
a copy of such agreement to the Commission upon
request.
(i) $130,000,000 term loan agreement dated June 14, 1996,
between the Company, Royal Bank of Canada, as agent,
and the banks named therein. Pursuant to Item
601(b)(4)(iii) of Regulation S-K, in lieu of filing a
copy of such agreement, the Company agrees to furnish
a copy of such agreement to the Commission upon
request.
(j) $150,000,000 Credit Agreement dated August 31, 1996,
between the Company, Crestar Bank, as agent, and the
banks named therein. Pursuant to Item 601(b)(4)(iii)
of Regulation S-K, in lieu of filing a copy of such
agreement, the Company agrees to furnish a copy of
such agreement to the Commission upon request.
(k) First Amendment to Credit Agreement dated May 1,
1998, to the $150,000,000 Credit Agreement dated
August 31, 1996, between the Company, Crestar Bank,
as agent, and the banks named therein. Pursuant to
Item 601(b)(4)(iii) of Regulation S-K, in lieu of
filing a copy of such agreement, the Company agrees
to furnish a copy of such agreement to the Commission
upon request.
(l) Second Amendment to Credit Agreement dated September
1, 1999 to the $150,000,000 Credit Agreement dated
August 31, 1996, between the Company, Crestar Bank,
as agent, and the banks named therein. Pursuant to
Item 601(b)(4)(iii) of Regulation S-K, in lieu of
filing a copy of such agreement, the Company agrees
to furnish a copy of such agreement to the Commission
upon request.
(10) Material Contracts*
(a) The Company's Amended and Restated 1989 Non-Employee
Directors Stock Option Plan, filed as Exhibit A to
the Company's Definitive Proxy Statement dated May 9,
1997, for the Annual Meeting of Stockholders held on
June 17, 1997, is expressly incorporated herein by
this reference.
(b) Amendments adopted June 17, 1997, to the Company's
Amended and Restated 1989 Non-Employee Directors
Stock Option Plan filed as Exhibit 10(ii) to the
Company's
Page 2 of 4
Quarterly Report on Form 10-Q for the quarter ended
May 31, 1997 is expressly incorporated herein by this
reference.
(c) The Company's 1994 Stock Incentive Plan, as amended
as of January 24, 1997, filed as Annex III to the
Company's Definitive Proxy Statement dated December
24, 1996, for a Special Meeting of Shareholders held
on January 24, 1997, (File No. 1-5767) is expressly
incorporated herein by this reference.
(d) Amendment effective June 15, 1999, to the Company's
1994 Stock Incentive Plan, as amended, filed as
Exhibit 10 to the Company's Quarterly Report on Form
10-Q for the quarter ended May 31, 1999, is expressly
incorporated herein by this reference.
(e) Letter agreement and non-compete agreement dated
January 30, 1996, (revised February 12, 1996),
between the Company and Alan L. Wurtzel filed as
Exhibit 10(g) to the Company's Annual Report on Form
10-K for the fiscal year ended February 28, 1995,
(File No. 1-5767) is expressly incorporated herein by
this reference.
(f) Employment agreement between the Company and Richard
L. Sharp dated October 17, 1986, and amendment dated
August 1, 1989, to the employment agreement, filed as
Exhibit 10(m) to the Company's Annual Report on Form
10-K for the fiscal year ended February 28, 1993,
(File No. 1-5767) is expressly incorporated herein by
this reference.
(g) Employment agreement dated June 1, 1988, between the
Company and John A. Fitzsimmons, filed as Exhibit
10(n) to the Company's Annual Report on Form 10-K for
the fiscal year ended February 28, 1989, (File No.
1-5767) is expressly incorporated herein by this
reference.
(h) Amendment dated August 1, 1989, to employment
agreement dated June 1, 1988, between the Company and
John A. Fitzsimmons, filed as Exhibit 10(o) to the
Company's Annual Report on Form 10-K for the fiscal
year ended February 28, 1993, (File No. 1-5767) is
expressly incorporated herein by this reference.
(i) Employment agreement dated May 25, 1989, between the
Company and Michael T. Chalifoux, filed as Exhibit
10(x) to the Company's Annual Report on Form 10-K for
the fiscal year ended February 28, 1991, (File No.
1-5767) is expressly incorporated herein by this
reference.
(j) Employment agreement dated April 24, 1995, between
the Company and W. Alan McCollough filed as Exhibit
10(l) to the Company's Annual Report on Form 10-K for
the fiscal year ended February 28, 1995, (File No.
1-5767), is expressly incorporated herein by this
reference.
(k) Amended and restated employment agreement dated May
12, 1995, between the Company and Richard S. Birnbaum
filed as Exhibit 10(s) to the Company's Annual Report
on Form 10-K for the fiscal year ended February 28,
1995, (File No. 1-5767) is expressly incorporated
herein by this reference.
(l) The Company's Annual Performance-Based Bonus Plan, as
amended as of January 24, 1997, filed as Annex IV to
the Company's Definitive Proxy Statement dated
December 24, 1996, for a Special Meeting of
Shareholders held on January 24, 1997, (File No.
1-5767) is expressly incorporated herein by this
reference.
Page 3 of 4
(m) Program for deferral of director compensation
implemented October 1995 filed as Exhibit 10(i) to
the Company's Quarterly Report on Form 10-Q for the
quarter ended November 30, 1995, (Filed No. 1-5767)
is expressly incorporated herein by this reference.
(n) Benefit Restoration Plan, effective February 28,
1999, filed as Exhibit 10(m) to the Company's Annual
Report on Form 10-K for the fiscal year ended
February 28, 1999, (File 1-5767) is expressly
incorporated herein by this reference.
(13) Annual Report to Stockholders
(21) Subsidiaries of the Company
(23) Consents of Experts and Counsel
Consent of KPMG LLP to Incorporation by Reference of Independent
Auditors' Reports into the Company's Registration Statements on Form
S-8.
(24) Powers of Attorney
(27) Financial Data Schedule
* All contracts listed under Exhibit 10 are management contracts, compensatory
plans or arrangements of the Company required to be filed as an exhibit.
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