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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 28, 1999
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 [ ].
On April 30, 1999, the Company had outstanding 101,159,903 Circuit
City Group common shares and 23,326,533 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 $6,221,334,034 for the Circuit City Group and
$104,969,399 for the CarMax Group based upon the closing price of these shares
as reported by the New York Stock Exchange on April 30, 1999.
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 81 of the
Company's Annual Report to Shareholders for the fiscal year ended February 28,
1999, (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 12, 1999, Proxy Statement, furnished to shareholders of
the Company in connection with the 1999 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 13
6. Selected Financial Data 13
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 14
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, Circuit City
electronics-only stores 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. In addition, as of February 28, 1999, Circuit City
Stores, Inc. owned approximately 75 percent of Digital Video Express. The
Company has been allocated 100 percent of the losses since inception. Digital
Video Express primarily is engaged in the business of replicating and
distributing specially encrypted DVD discs at wholesale. The Company has wholly
owned finance operations that provide consumer revolving credit and automobile
installment loans.
Changes in Capital Structure. On January 24, 1997, shareholders of
Circuit City Stores, Inc. and subsidiaries approved the creation of two common
stock series. The Company's existing common stock was subsequently redesignated
as Circuit City Stores, Inc.-Circuit City Group Common Stock. In an initial
public offering, which was completed February 7, 1997, the Company sold 21.86
million shares of Circuit City Stores, Inc.-CarMax Group Common Stock.
The Circuit City Group Common Stock is intended to track the
performance of the Circuit City store-related operations, the Company's
investment in Digital Video Express and the Group's retained interest in the
CarMax Group. 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 Common Stock and
holders of CarMax Group Common Stock are shareholders of the Company and
continue to be subject to all of the risks associated with an investment in the
Company and all of its businesses, assets and liabilities. Such attribution and
the 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 includes Circuit City retail stores and related operations, the
CarMax retail stores and related operations, and the Company's
investment in Digital Video Express.
Circuit City refers to the retail operations bearing the Circuit City
name and to all related operations such as product service and its
finance operation.
Circuit City Group refers to the Circuit City operations, the
Company's investment in Digital Video Express and the retained
interest in the CarMax Group.
CarMax Group and CarMax refer to retail locations bearing the CarMax
name and to all related operations such as its finance operation.
Circuit City Group:
This section describes the Circuit City business and the Company's
investment in Digital Video Express. 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, 1999, Circuit City operated 590 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 2000, Circuit City expects to open approximately 35 additional
Superstores and remodel another 50 to include its most recent merchandising
innovations. Management estimates that it has the opportunity to open
approximately 250 additional stores. 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 1999, Circuit City's 10 largest suppliers
accounted for approximately 55 percent of merchandise purchased. Circuit City's
major suppliers include Sony Electronics, Thomson, Panasonic, Whirlpool, Compaq,
JVC, Packard Bell, Hewlett Packard, IBM, and Maytag. 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. The Circuit City Group relies on considerable amounts of
advertising to maintain high levels of consumer awareness. Advertising
expenditures were 4.5 percent of sales in fiscal 1999, 4.6 percent of sales in
fiscal 1998 and 4.8 percent of sales in fiscal 1997. 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 and electronics-only store
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.
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 product introductions resulted in lower average retail prices and
weak sales throughout the industry. This industry weakness resulted in a highly
competitive climate, and a significant number of regional competitors closed
stores. In fiscal 1999, the industry began to emerge from this period of
declining sales. 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
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. Extensive market research is conducted to
measure Circuit City's customer service record and to refine its consumer offer.
Over 375,000 customer surveys were conducted last year to track satisfaction
among Circuit City's existing customers. These surveys, conducted from customer
transaction records, measure satisfaction with all points of interaction,
including sales counselors, cashiers, warehouse staff, Roadshop installers, home
delivery personnel and product service specialists. 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. These programs also provide experienced Associates with
ongoing training in new technologies and merchandising opportunities. In
addition, every month sales counselors are required to test their knowledge of
important products through Training Tracker, an online test administration
program. 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 1999, approximately 15 percent of Circuit City's total sales were made
through its private-label credit card and 45 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, on-line 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 bankcard portfolio.
Receivables generated by both the private-label credit card and bankcard
programs are sold to non-affiliated entities under asset securitization
programs.
Systems. Circuit City's in-store POS system maintains an on-line
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, 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, eliminating time-consuming administrative tasks for store
Associates and reducing costs through smoother store-level execution.
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.
Distribution. At April 30, 1999, Circuit City operated nine automated
electronics distribution centers. These centers are designed to serve stores
within a 500-mile range. They utilize 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 repair 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, 1999, Circuit City had 38 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 that provide
these plans for merchandise sold by Circuit City and other retailers. 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 is also sold in most major markets. In states where
third-party warranty sales are not permitted, Circuit City sells its own
extended warranty.
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 for the fourth fiscal quarter (which includes the Christmas
season) were $3,029,343,000 in fiscal 1999, $2,585,969,000 in fiscal 1998 and
$2,282,625,000 in fiscal 1997. Fourth quarter sales represented approximately 32
percent of total sales in fiscal 1999, 1998 and 1997.
Divx. The Divx system includes DVD players with the Divx feature and
Divx discs. Divx offers the consumer a convenient no-return, rental-like system.
For a suggested retail price of $4.49, consumers get high-quality digital
picture and sound, plus a more convenient, flexible, viewing time than offered
by VHS or DVD rental or by pay-per-view. Consumers buy Divx discs whenever it is
convenient to shop. Unlike video rentals, the Divx viewing period begins not
when consumers leave the store, but when they first insert the disc into their
player and push play. After that point, consumers have a 48-hour window in which
they can watch the movie as many times as they want. Unlike pay-per-view, the
consumer can rewind, scan or pause the movie or even finish watching it the next
day. And, in contrast to video rental, the movie never has to be returned, which
eliminates all late fees and allows consumers to build an inexpensive home
library. Subsequent two-day viewing periods cost only about $3.25, and selected
favorite movies can be converted to unlimited viewing for play on any
Divx-equipped player registered to their account. On a regular basis, the
Divx-equipped player uses the phone connection to automatically transfer viewing
information to the Divx billing system. Payment is made through the customer's
credit or debit card. This entire process takes place with no customer
involvement, and the call never interferes with normal phone usage. No phone
connection is ever required during movie play.
After passing key technological tests and securing agreements with
consumer electronics manufacturers and major motion picture studios, the Company
introduced the Divx concept in September 1997. Digital Video Express has secured
agreements with major movie studios to provide titles. At April 30, 1999,
approximately 440 titles were available, with up to 40 titles being added each
month. The system was launched in two markets in June 1998 with Zenith-Inteq
brand players. National roll out began in late September 1998 with the
introduction of the RCA brand player. The addition of ProScan and Panasonic
players gave Divx four brand selections by early December. JVC, Pioneer, Harman
Kardon and Kenwood have announced plans to manufacture DVD players with the Divx
feature in fiscal 2000. Divx-equipped players and Divx discs were available in
approximately 800 retail stores at the end of fiscal 1999.
Page 6 of 18
In April 1998, Divx opened its Customer Satisfaction Center in Rocky
Mount, N.C. This center assists Divx customers with the registration of their
players and provides general help and trouble-shooting on any customer issues.
In May 1998, Divx opened a distribution center in Jackson, Tenn. That center
distributes Divx discs to retailers and directly to customers ordering through
DivxFlix, its on-line store at www.divx.com. In January 1999, Divx launched an
on-line retail distribution program, called divxwholesale.com for Divx discs.
This program allows smaller retailers to quickly and efficiently order new Divx
inventory.
In May 1995, the Company agreed to invest $30.0 million in Divx. That
commitment was increased to $130.0 million in September 1997. Although that
commitment was fulfilled during fiscal 1999, the Company continues to fund the
operations of Divx as management continues to explore various financing options.
As of February 28, 1999, the Company owned approximately 75 percent of the
partnership and has been allocated 100 percent of the losses since inception.
The Company allocates its investment in Divx to the Circuit City Group. As of
February 28, 1999, the Company had funded approximately $207 million for the
operations of Divx.
CarMax Group:
General. In 1993, CarMax pioneered the used-car Superstore concept
when it opened its first location in Richmond, Va. In fiscal 1998 and fiscal
1999, CarMax continued the first phase of its national roll out plan. 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.
CarMax purchases and sells used vehicles at each of its stores. CarMax
reconditions vehicles at most of its stores and sells new vehicles at nine of
its locations under sales and service agreements with DaimlerChrysler, Nissan,
Mitsubishi, Toyota, Ford, Chevrolet, Cadillac, Subaru and BMW.
Expansion. As of April 30, 1999, CarMax operated 32 store locations,
including 29 used-car superstores and 17 new-car franchises. In fiscal 1999,
CarMax began testing a hub/satellite operating process. Under the hub/satellite
process, a satellite store shares reconditioning, purchasing and business office
operations with a nearby hub store. The consumer offer is identical in both the
hub and satellite stores. In fiscal 2000, management will focus on improving
profitability in existing multi-store markets through the addition of satellite
stores and new-car franchises. CarMax expects to open three additional used-car
superstores, including one with a new-car franchise in fiscal 2000.
Merchandising. Each CarMax location features 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 in the current model year through five years old with
fewer than 60,000 miles and range in price from $6,000 to $30,000. Through the
ValuMax program, CarMax sells high-quality used vehicles that are either older
or have higher mileage and generally range in price from $3,000 to $18,000. 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.
Most CarMax used cars are priced below retail book value. For new
cars, CarMax's goal is to be competitive with the lowest available price in the
market. 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, extended warranty pricing and
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
more than 50 percent 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 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.
Page 7 of 18
New-car inventory for the franchise locations is provided under the
terms of the sales and service agreements with DaimlerChrysler, Nissan,
Mitsubishi, Toyota, Ford, Chevrolet, Cadillac, Subaru and BMW.
Reconditioning. An integral part of CarMax's used-car consumer offer
is the reconditioning process. In fiscal 1998, management closed its centralized
reconditioning facilities after experience proved that in-store reconditioning
is more efficient and produces a higher quality vehicle for the consumer.
In-market reconditioning by trained CarMax service technicians provides direct
accountability to the customer, eliminates potential transportation damage to
the vehicle and reduces transportation costs.
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. Advertising expenditures
were 3.4 percent of sales in fiscal 1999 and 1998 and 2.3 percent of sales in
fiscal 1997. Although markets were fully stored in fiscal 1999, advertising did
not decline as a percentage of sales as originally anticipated. In fiscal 1999,
new-car manufacturers intensified their promotional activities throughout the
year resulting in sales below CarMax's expectations in all markets. The impact
of lower sales resulting from the intense new-car competition substantially
offsets the anticipated leverage of having more fully stored markets in fiscal
1999. During fiscal 1998, expansion left CarMax with five markets that were
partially stored for much of the second half of the year. Because these new
markets were not completely stored, initial advertising levels were below those
of a fully stored market. While this approach worked successfully for the
Atlanta entry three years ago, it did not create sufficient consumer awareness
to drive expected levels of consumer traffic in fiscal 1998. As a consequence,
CarMax instituted stepped-up awareness building campaigns in the third quarter
of fiscal 1998 and advertising expense as a percentage of sales was above the
fiscal 1997 level.
Franchises. CarMax operates new-car dealerships under separate
franchise or dealer agreements with DaimlerChrysler, Nissan, Mitsubishi, Toyota,
Ford, Chevrolet, Cadillac, Subaru and BMW. The agreements generally grant CarMax
the right to sell the manufacturer's brand of vehicles and provide 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 has also entered into framework agreements with several major
vehicle manufacturers. These agreements generally contain provisions relating to
the acquisition, ownership structure, management and operation of a dealership
franchised by such manufacturers.
There are also various federal and state laws governing the
relationship between automotive dealerships and vehicle manufacturers which
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. 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 sales prices and margins for used vehicles during such discounting.
In fiscal 1999, CarMax's new-car sales were strong resulting in part from the
highly promotional climate in the new-car industry.
Page 8 of 18
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
solely on a commission basis. The amount of the commission is a fixed dollar
amount per vehicle sold. 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. All of CarMax's Associates complete an initial orientation
program entitled "The CarMax Way." This program is designed to ensure that all
CarMax Associates deliver on its mission statement, which is to provide all
customers with great quality cars at great prices with exceptional customer
service. At the completion of fiscal 1999, the 30 location general managers
averaged almost three years of CarMax experience and 12 years of prior
management experience. Each store has eight to 18 inventory buyers. 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. All sales consultants complete three weeks of additional training and
receive ongoing training as new products and services become available. Most of
CarMax's service technicians are ASE-certified, the industry standard for
technician training.
Consumer Credit. CarMax provides prime financing for its customers'
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, Subaru American Credit and
Toyota Motor Credit provide prime financing to customers purchasing new vehicles
at applicable CarMax locations. Sub-prime financing is provided by TransSouth
Financial at all CarMax locations and Franklin Acceptance on a regional basis,
with no financial recourse to CarMax. Sales consultants use AutoMation(R) to
electronically submit financing applications and receive responses from multiple
lenders, generally in less than eight minutes.
Systems. AutoMation(R) is a unique, proprietary and enterprise-wide
inventory management and sales system. Using a touch screen, CarMax customers
can electronically search the inventory for cars that meet their specific needs.
AutoMation(R) 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.
Service. During fiscal 1998, CarMax completed the roll out of retail
repair service to all locations. In fiscal 2000, CarMax intends to expand its
retail service operations as its customer base expands. Extended warranty sales
prior to July 1997 include third-party contracts and CarMax's own extended
warranty contracts. In most states, CarMax sells warranties on behalf of an
unrelated third party and has no contractual liability to the customer under the
warranty programs. In states where third-party warranty sales are not permitted,
CarMax has sold its own extended warranty. CarMax expects to continue selling
this warranty where state law restricts third-party warranty sales. 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 on 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, 1999, the Company had 33,484 hourly and salaried
employees and 20,946 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 30,000 of the Company's hourly and salaried employees and 19,362
of the Company's sales employees working on a commission basis. The CarMax Group
accounted for 3,484 of the Company's hourly and salaried employees and 1,584 of
the Company's sales employees working on a commission basis.
Page 9 of 18
Item 2. Properties.
At April 30, 1999, the Company's Circuit City retail operations were
conducted in 590 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 1999, selling space
in the "D" format averaged approximately 23,000 square feet with total square
footage averaging 43,042. The "C" format constitutes the largest percent of the
store base. At the end of fiscal 1999 selling square footage in this format
averaged 15,000 square feet with total square footage for all "C" stores
averaging 34,036. 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 1999, selling space in these stores averaged approximately 12,500 square
feet with an average total square footage of 26,651. 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 9,500 square feet at the end of
fiscal 1999, and total square footage averaged 19,558. The "A" stores feature a
layout, staffing levels and merchandise assortment that creates high
productivity in the smallest markets.
The Company's 48 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 32 locations as of
April 30, 1999. In larger, metropolitan markets, CarMax has begun testing a
hub/satellite operating process. Under the hub/satellite process, a satellite
store shares reconditioning, purchasing and business office operations with a
nearby hub store. The consumer offer is identical in both the hub and satellite
stores. Prototypical satellite stores are expected to be approximately 12,000
square feet on four-to-six acre sites. CarMax opened one prototypical satellite
store late in fiscal 1999. All other fiscal 1999 satellite stores are larger
stores and are therefore classified by size, with "C" stores representing the
largest store format. Going forward, management expects primarily to open
smaller format "A" stores and satellite stores. In fiscal 1999, two locations
were reclassed from "B" stores to "A" stores. The "Other" category in the
following table under the CarMax Group includes two prototype satellite stores
and three 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, 1999:
Circuit City Group CarMax Group
---------------------------------------------------------- ---------------------------------
Superstores Electronics - Mall Superstores
------------------------ -------------
D C B A Only Stores Total C B A Other Total
- - - - ---- ------ ----- -------------- ----- -----
Alabama 1 4 - 1 - 1 7 - - - - -
Arizona 2 6 2 - - 1 11 - - - - -
Arkansas - 2 - 2 - - 4 - - - - -
California 16 52 11 2 - 4 85 - - - - -
Colorado 5 2 1 2 - - 10 - - - - -
Connecticut 3 3 1 - - 1 8 - - - - -
Delaware - 2 - - - 1 3 - - - - -
District of Columbia - - - - - 1 1 - - - - -
Florida 5 23 8 1 - 1 38 1 2 3 1 7
Georgia 4 7 5 - - 3 19 1 - 2 - 3
Hawaii 1 - - - - - 1 - - - - -
Idaho 1 - - 1 - - 2 - - - - -
Illinois 6 19 4 - - 4 33 3 - 1 - 4
Indiana 1 5 3 4 - - 13 - - - - -
Kansas 1 3 - - - - 4 - - - - -
Kentucky - 5 - 1 - - 6 - - - - -
Louisiana - 5 - 2 - 1 8 - - - - -
Maine - - 1 - - - 1 - - - - -
Maryland 1 12 2 - - 4 19 1 - 1 2 4
Massachusetts 1 9 3 - - 6 19 - - - - -
Michigan 8 6 5 3 - 1 23 - - - - -
Minnesota 1 7 1 - - 1 10 - - - - -
Mississippi - 1 - - - - 1 - - - - -
Missouri 1 9 1 - - 1 12 - - - - -
Nebraska 1 1 - - - - 2 - - - - -
Nevada 1 3 - - - - 4 - - - - -
New Hampshire - 4 - - - 2 6 - - - - -
New Jersey 1 6 2 - - - 9 - - - - -
New Mexico 1 - - - - - 1 - - - - -
New York 11 7 4 3 - 2 27 - - - - -
North Carolina 6 5 4 2 - 2 19 - - 2 - 2
Ohio 7 12 5 - - 3 27 - - - - -
Oklahoma - 2 1 1 - - 4 - - - - -
Oregon 2 5 - 1 - - 8 - - - - -
Pennsylvania 2 12 3 2 - 2 21 - - - - -
Rhode Island - 1 - - - - 1 - - - - -
South Carolina 2 4 1 - - 1 8 - - 1 - 1
Tennessee 4 5 1 3 - - 13 - - - - -
Texas 7 27 4 7 - 2 47 2 2 3 - 7
Utah 5 - - - - - 5 - - - - -
Vermont - - 1 - - - 1 - - - - -
Virginia 2 13 5 5 - 3 28 - - 2 - 2
Washington 4 3 3 1 - - 11 - - - - -
West Virginia - - 1 - 2 - 3 - - - - -
Wisconsin 4 2 1 - - - 7 - - - 2 2
------------------------------------------------------------------------------------------------
118 294 84 44 2 48 590 8 4 15 5 32
================================================================================================
Of the stores open at April 30, 1999, the Company owns four Circuit
City store locations and five CarMax store locations. The Company leases the
remaining 586 Circuit City locations and 27 CarMax locations. During fiscal
2000, the Company anticipates entering into sale-leaseback transactions for one
of the Circuit City locations and for all of the CarMax locations that were
owned by the Company and open as of April 30, 1999.
Page 11 of 18
For information with respect to obligations for Circuit City leases,
see note 10 of the Notes to Circuit City Group Financial Statements on page 60
of the Company's 1999 Annual Report to Stockholders, which is incorporated
herein by reference. For information with respect to obligations for CarMax
leases, see note 12 of the Notes to CarMax Group Financial Statements on page 78
of the Company's 1999 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 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 28, 1999.
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 1999.
Name Age Office
Richard L. Sharp 52 Chairman of the Board and
Chief Executive Officer
W. Alan McCollough 49 President and
Chief Operating Officer
Richard S. Birnbaum 46 Executive Vice President
Operations
Michael T. Chalifoux 52 Executive Vice President,
Chief Financial Officer and
Corporate Secretary
Dennis J. Bowman 45 Senior Vice President and
Chief Information Officer
W. Stephen Cannon 47 Senior Vice President and
General Counsel
John A. Fitzsimmons 56 Senior Vice President
Administration
John W. Froman 45 Senior Vice President
Merchandising
W. Austin Ligon 48 Senior Vice President
Automotive
Gary Mierenfeld 47 Senior Vice President
Distribution and National Service
Jeffrey S. Wells 53 Senior Vice President
Human Resources
Page 12 of 18
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.
Mr. McCollough 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 and president and chief operating officer in 1997.
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. 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. Fitzsimmons joined the Company in 1987 as senior vice president -
administration.
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. In 1994, he
was elected president of the Company's Central Division and in 1997 was named
senior vice president - merchandising.
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.
Part II
With the exception of the information incorporated by reference from
the 1999 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 1999
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 81 of the Company's 1999 Annual Report to
Stockholders.
As of April 30, 1999, there were 8,296 shareholders of record of the
Circuit City Group common stock and 543 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 1999
Annual Report to Stockholders.
Page 13 of 18
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 1999 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 27 for Circuit City Stores, Inc., page 49
for the Circuit City Group and page 67 for the CarMax Group of the Company's
1999 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 1999
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 1999 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 (Deficit)," "Notes to CarMax Group Financial Statements," and
"Independent Auditors' Report," on pages 68 through 80 of the Company's 1999
Annual Report to Stockholders.
Incorporated herein by reference is the information appearing under
the heading "Quarterly Financial Data (Unaudited)" on page 44 for Circuit City
Stores, Inc., page 63 for the Circuit City Group and page 80 for the CarMax
Group of the Company's 1999 Annual Report to Stockholders.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
None.
Part III
With the exception of the information incorporated by reference from
the Company's Proxy Statement in Items 10, 11 and 12 of Part III of this Form
10-K, the Company's Proxy Statement dated May 12, 1999, 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 12, 1999.
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
16 of the Company's Proxy Statement dated May 12, 1999.
Page 14 of 18
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 8 through 10 and pages 15 through 16 of the Company's Proxy Statement
dated May 12, 1999.
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 12, 1999.
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 1999 Annual Report to
Shareholders:
Consolidated Statements of Earnings for the fiscal years ended February 28, 1999, 1998 and 1997.
Circuit City Group Statements of Earnings for the fiscal years ended February 28, 1999, 1998 and 1997.
CarMax Group Statements of Operations for the fiscal years ended February 28, 1999, 1998 and 1997.
Consolidated Balance Sheets at February 28, 1999 and 1998.
Circuit City Group Balance Sheets at February 28, 1999 and 1998.
CarMax Group Balance Sheets at February 28, 1999 and 1998.
Consolidated Statements of Cash Flows for the fiscal years ended February 28, 1999, 1998 and 1997.
Circuit City Group Statements of Cash Flows for the fiscal years ended February 28, 1999, 1998 and 1997.
CarMax Group Statements of Cash Flows for the fiscal years ended February 28, 1999, 1998 and 1997.
Consolidated Statements of Stockholders' Equity for the fiscal years ended February 28, 1999, 1998 and 1997.
Circuit City Group Statements of Group Equity for the fiscal years ended February 28, 1999, 1998 and 1997.
CarMax Group Statements of Group Equity (Deficit) for the fiscal years ended February 28, 1999, 1998 and 1997.
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.
Page 15 of 18
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 28, 1999, 1998
and 1997, 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
Vice President, Treasurer,
Corporate Controller and
Chief Accounting Officer
May 25, 1999
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 25, 1999
Michael T. Chalifoux
Richard N. Cooper* Director May 25, 1999
Richard N. Cooper
Barbara S. Feigin* Director May 25, 1999
Barbara S. Feigin
James F. Hardymon* Director May 25, 1999
James F. Hardymon
Robert S. Jepson Jr.* Director May 25, 1999
Robert S. Jepson Jr.
Hugh G. Robinson* Director May 25, 1999
Hugh G. Robinson
Walter J. Salmon* Director May 25, 1999
Walter J. Salmon
Mikael Salovaara* Director May 25, 1999
Mikael Salovaara
s/ Richard L. Sharp Director May 25, 1999
Richard L. Sharp
John W. Snow* Director May 25, 1999
John W. Snow
Edward Villanueva* Director May 25, 1999
Edward Villanueva
Alan L. Wurtzel* Director May 25, 1999
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, 1997:
Allowance for doubtful accounts $ 10,025 $ 8,773 $ (3,402) $ 15,396
======== ======== ========= =========
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
======== ======== ========= =========
Circuit City Group:
Year ended February 28, 1997:
Allowance for doubtful accounts $ 9,580 $ 6,817 $ (2,863) $ 13,534
======== ======== ========= =========
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
======== ======== ========= =========
CarMax Group:
Year ended February 28, 1997:
Allowance for doubtful accounts $ 445 $ 1,956 $ (539) $ 1,862
======== ======== ========= =========
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
======== ======== ========= =========
S-2
Independent Auditors' Report on Financial Statement Schedule
The Board of Directors
Circuit City Stores, Inc.:
Under date of April 2, 1999, we reported on the consolidated balance
sheets of Circuit City Stores, Inc. and subsidiaries (the Company) as
of February 28, 1999 and 1998, and the related consolidated statements
of earnings, stockholders' equity and cash flows for each of the fiscal
years in the three-year period ended February 28, 1999, as contained in
the February 28, 1999 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
28, 1999. In connection with our audits of the aforementioned
consolidated financial statements, we also have audited the related
Circuit City Stores, Inc. financial statement schedule as listed in
Item 14(a)2 of this Form 10-K. This financial statement schedule is the
responsibility of the Company's management. Our responsibility is to
express an opinion on this financial statement schedule based on our
audits.
In our opinion, such schedule, when considered in relation to the basic
consolidated financial statements taken as a whole, presents fairly, in
all material respects, the information set forth therein.
s/KPMG LLP
Richmond, Virginia
April 2, 1999
S-2
Independent Auditors' Report on Financial Statement Schedule
The Board of Directors
Circuit City Stores, Inc.:
Under date of April 2, 1999, we reported on the balance sheets of the
Circuit City Group as of February 28, 1999 and 1998, and the related
statements of earnings, group equity and cash flows for each of the
fiscal years in the three-year period ended February 28, 1999, as
contained in the February 28, 1999 annual report to stockholders. Our
report dated April 2, 1999 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 28, 1999. In connection with our
audits of the aforementioned financial statements, we also have audited
the related Circuit City Group financial statement schedule as listed
in Item 14(a)2 of this Form 10-K. This financial statement schedule is
the responsibility of Circuit City Stores, Inc.'s management. Our
responsibility is to express an opinion on this financial statement
schedule based on our audits.
In our opinion, except for the effects of not consolidating the CarMax
Group with the Circuit City Group as discussed in the preceding
paragraph, such schedule, when considered in relation to the basic
financial statements taken as a whole, presents fairly, in all material
respects, the information set forth therein.
s/KPMG LLP
Richmond, Virginia
April 2, 1999
S-2
Independent Auditors' Report on Financial Statement Schedule
The Board of Directors
Circuit City Stores, Inc.:
Under date of April 2, 1999, we reported on the balance sheets of the
CarMax Group as of February 28, 1999 and 1998, and the related
statements of operations, group equity (deficit) and cash flows for
each of the fiscal years in the three-year period ended February 28,
1999, as contained in the February 28, 1999 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 28, 1999. In connection
with our audits of the aforementioned financial statements, we also
have audited the related CarMax Group financial statement schedule as
listed in Item 14(a)2 of this Form 10-K. This financial statement
schedule is the responsibility of Circuit City Stores, Inc.'s
management. Our responsibility is to express an opinion on this
financial statement schedule based on our audits.
In our opinion, such schedule, when considered in relation to the basic
financial statements taken as a whole, presents fairly, in all material
respects, the information set forth therein.
s/KPMG LLP
Richmond, Virginia
April 2, 1999
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) to the Company's Quarterly Report on Form 10-Q
for the quarter ended November 30, 1998, (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)(a) to the Company's
Quarterly Report on Form 10-Q for the quarter ended
November 30, 1998, (File No. 1-5767) are expressly
incorporated herein by this reference.
(c) Bylaws of the Company, as amended and restated
October 13, 1998, filed as Exhibit 3(II) to the
Company's Quarterly Report on Form 10-Q for the
quarter ended November 30, 1998, (File No. 1-5767)
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.
(e) $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.
Page 1 of 3
(f) 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.
(g) $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.
(h) $150,000,000 Credit Agreement dated August 31, 1996,
between the Company, Crestar Bank, as agent, and the
banks named therein. Pursuant to Item 601(b)(4)(iii)
of Regulation S-K, in lieu of filing a copy of such
agreement, the Company agrees to furnish a copy of
such agreement to the Commission upon request.
(i) 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.
(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 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) 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.
(e) 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.
(f) 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.
Page 2 of 3
(g) 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.
(h) 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.
(i) 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.
(j) 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.
(k) 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.
(l) 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.
(m) Benefit Restoration Plan, effective February 28,
1999, is filed herewith.
(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.
Page 3 of 3