UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------------------
FORM 10-Q
(Mark One)
[X] Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 For the quarterly period ended August 31, 2005
OR
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 For the transition period from ____ to _____
Commission file number: 1-5767
CIRCUIT CITY STORES, INC.
(Exact name of registrant as specified in its charter)
Virginia 54-0493875
(State of Incorporation) (I.R.S. Employer Identification No.)
9950 Mayland Drive
Richmond, Virginia 23233
(Address of principal executive offices) (Zip Code)
(804) 527- 4000
(Registrant's telephone number, including area code)
N/A
(Former name, former address, and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes |X| No ___
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). Yes |X| No ___
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act).
Yes___ No |X|
Indicate the number of shares outstanding of each of the registrant's classes of
common stock, as of the latest practicable date.
Class Outstanding at September 30, 2005
Common Stock, par value $0.50 182,117,244
A Table of Contents is included on Page 2 and an Exhibit Index is included on
Page 30.
CIRCUIT CITY STORES, INC. AND SUBSIDIARIES
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements:
Consolidated Statements of Operations -
Three Months and Six Months Ended August 31, 2005 and 2004 3
Consolidated Balance Sheets -
August 31, 2005, and February 28, 2005 4
Consolidated Statements of Cash Flows -
Six Months Ended August 31, 2005 and 2004 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 12
Item 3. Quantitative and Qualitative Disclosures about Market Risk 25
Item 4. Controls and Procedures 25
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 25
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 26
Item 4. Submission of Matters to a Vote of Security Holders 27
Item 6. Exhibits 28
SIGNATURES 29
EXHIBIT INDEX 30
Page 2 of 30
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Circuit City Stores, Inc. and Subsidiaries
Consolidated Statements of Operations (Unaudited)
(Amounts in thousands except per share data)
Three Months Ended Six Months Ended
August 31 August 31
2005 2004 2005 2004
------------ ------------ ------------ -------------
Net sales and operating revenues $2,561,707 $ 2,376,457 $4,790,157 $4,470,838
Cost of sales, buying and warehousing 1,949,687 1,785,256 3,620,236 3,384,918
------------ ------------- ------------ -------------
Gross profit 612,020 591,201 1,169,921 1,085,920
Finance income - - - 5,564
Selling, general and administrative expenses 603,089 599,843 1,178,414 1,102,072
Stock-based compensation expense 6,702 8,443 10,029 14,397
Interest expense 216 799 611 1,149
------------ ------------- ------------ -------------
Earnings (loss) from continuing operations
before income taxes 2,013 (17,884) (19,133) (26,134)
Income tax provision (benefit) 665 (6,468) (7,372) (9,484)
------------ ------------- ------------ -------------
Net earnings (loss) from continuing operations 1,348 (11,416) (11,761) (16,650)
Net loss from discontinued operation - (507) - (1,214)
------------ ------------- ------------ -------------
Net earnings (loss) $ 1,348 $ (11,923) $ (11,761) $ (17,864)
============ ============= ============ =============
Weighted average common shares:
Basic 179,057 195,350 181,893 197,390
============ ============= ============ =============
Diluted 181,801 195,350 181,893 197,390
============ ============= ============ =============
Net earnings (loss) per share:
Basic:
Continuing operations $ 0.01 $ (0.06) $ (0.06) $ (0.08)
Discontinued operation - - - (0.01)
------------ ------------ ------------ -------------
$ 0.01 $ (0.06) $ (0.06) $ (0.09)
============ ============ ============ =============
Diluted:
Continuing operations $ 0.01 $ (0.06) $ (0.06) $ (0.08)
Discontinued operation - - - (0.01)
------------ ------------ ------------ -------------
$ 0.01 $ (0.06) $ (0.06) $ (0.09)
============ ============ ============ =============
Cash dividends paid per share $ 0.0175 $ 0.0175 $ 0.0350 $ 0.0350
============ ============= ============ =============
See accompanying notes to consolidated financial statements.
Page 3 of 30
Circuit City Stores, Inc. and Subsidiaries
Consolidated Balance Sheets
(Amounts in thousands except share data)
August 31, 2005 Feb. 28, 2005
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 601,983 $ 879,660
Short-term investments 75,834 125,325
Accounts receivable, net of allowance for doubtful accounts 113,903 172,995
Merchandise inventory 1,669,204 1,459,520
Deferred income taxes 24,445 29,518
Income tax receivable 10,800 -
Prepaid expenses and other current assets 53,100 18,697
-------------- ----------
Total current assets 2,549,269 2,685,715
Property and equipment, net of accumulated depreciation of
$1,150,275 and $1,104,137 771,483 738,802
Deferred income taxes 87,049 73,558
Goodwill 224,928 215,884
Other intangible assets, net of accumulated amortization of
$4,593 and $3,035 32,547 31,331
Other assets 43,567 44,092
-------------- ----------
TOTAL ASSETS $3,708,843 $3,789,382
============ ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $1,137,652 $ 961,718
Accrued expenses and other current liabilities 205,241 228,966
Accrued income taxes - 72,274
Short-term debt 16,848 -
Current installments of long-term debt 1,442 888
-------------- -------------
Total current liabilities 1,361,183 1,263,846
Long-term debt, excluding current installments 13,940 11,522
Accrued straight-line rent and deferred rent credits 238,678 230,426
Accrued lease termination costs 88,716 104,234
Other liabilities 92,417 91,920
-------------- -------------
TOTAL LIABILITIES 1,794,934 1,701,948
------------- -------------
Stockholders' equity:
Common stock, $0.50 par value;
525,000,000 shares authorized; 182,469,066 shares
issued and outstanding at August 31, 2005
(188,150,383 at February 28, 2005) 91,235 94,075
Capital in excess of par value 562,057 721,038
Retained earnings 1,227,066 1,247,221
Accumulated other comprehensive income 33,551 25,100
------------- -----------
TOTAL STOCKHOLDERS' EQUITY 1,913,909 2,087,434
------------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $3,708,843 $3,789,382
============= ==========
See accompanying notes to consolidated financial statements.
Page 4 of 30
Circuit City Stores, Inc. and Subsidiaries
Consolidated Statements of Cash Flows (Unaudited)
(Amounts in thousands)
Six Months Ended
August 31
2005 2004
-------------- ------------
Operating Activities:
Net loss $ (11,761) $ (17,864)
Adjustments to reconcile net loss to net cash (used in) provided by
operating activities of continuing operations:
Loss from discontinued operation - 1,214
Depreciation and amortization 74,730 71,373
Stock option expense 6,176 9,796
Amortization of restricted stock awards 3,326 4,152
(Gain) loss on dispositions of property and equipment (1,779) 895
Provision for deferred income taxes (1,797) (64,371)
Goodwill impairment 2,711 -
Changes in operating assets and liabilities:
Decrease in accounts receivable, net 60,173 38,708
Decrease in retained interests in securitized receivables - 32,867
Increase in merchandise inventory (204,601) (23,570)
Increase in prepaid expenses and other current assets (33,594) (20,156)
(Increase) decrease in other assets (333) 11,974
Increase in accounts payable 173,729 185,164
Decrease in accrued expenses, other current liabilities and
accrued income taxes (104,098) (42,871)
(Decrease) increase in other long-term liabilities (8,952) 4,812
------------- ------------
Net cash (used in) provided by operating activities of continuing
operations (46,070) 192,123
------------- ------------
Investing Activities:
Proceeds from the sale of the private-label finance operation - 475,857
Acquisitions, net of cash acquired of $0 and $30,615 (12,978) (268,668)
Purchases of property and equipment (134,949) (116,291)
Proceeds from sales of property and equipment 32,260 34,617
Purchases of investment securities (99,638) -
Proceeds from maturities of investment securities 150,000 -
------------ ------------
Net cash (used in) provided by investing activities of continuing
operations (65,305) 125,515
------------ ------------
Financing Activities:
Proceeds from short-term debt 16,417 3,790
Principal payments on long-term debt (702) (16,877)
Repurchases of common stock (196,270) (140,605)
Issuances of common stock, net 22,417 16,652
Dividends paid (6,517) (7,075)
Redemption of preferred share purchase rights (1,876) -
-------------- ----------
Net cash used in financing activities of continuing operations (166,531) (144,115)
------------- ------------
Net cash used in discontinued bankcard finance operation - (4,282)
Effect of exchange rate changes on cash 229 1,096
------------- ------------
(Decrease) increase in cash and cash equivalents (277,677) 170,337
Cash and cash equivalents at beginning of year 879,660 783,471
------------- ------------
Cash and cash equivalents at end of period $ 601,983 $ 953,808
============= ============
See accompanying notes to consolidated financial statements.
Page 5 of 30
CIRCUIT CITY STORES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
1. Basis of Presentation
Circuit City Stores, Inc. is a leading specialty retailer of consumer
electronics, home office products, entertainment software, and related
services. The company has two reportable segments: its domestic segment and
its international segment.
The domestic segment is primarily engaged in the business of selling
brand-name consumer electronics, personal computers, entertainment
software, and services in Circuit City Superstores and mall-based stores in
the United States and via the Web at www.circuitcity.com. At August 31,
2005, the company's domestic segment operated 616 Superstores and five
mall-based stores in 157 U.S. media markets.
The international segment is comprised of the operations of InterTAN, Inc.
On May 12, 2004, the company acquired a controlling interest in InterTAN,
Inc. and on May 19, 2004, completed its acquisition of 100 percent of the
common stock of InterTAN for cash consideration of $259.3 million, which
includes transaction costs and is net of cash acquired of $30.6 million. In
addition to giving Circuit City a greater product-sourcing capability and
the ability to accelerate the offering of private-label merchandise to its
customers, the acquisition of InterTAN gives the company its first presence
in the Canadian market. The international segment is primarily engaged in
the business of selling both private-label and brand-name consumer
electronics. The international segment's headquarters are located in
Barrie, Ontario, Canada, and it operates through retail stores and dealer
outlets in Canada under the trade names THE SOURCE BY CIRCUIT CITYSM,
RadioShack(R), Rogers Plus(R) and Battery Plus(R). At August 31, 2005, the
international segment conducted business through 938 retail stores and
dealer outlets, which consisted of 522 company-owned stores, 300 dealer
outlets, 91 Rogers Plus(R) stores and 25 Battery Plus(R) stores. The
international segment also operates a Web site at www.thesourcecc.ca.
InterTAN, Inc. is involved in ongoing litigation with RadioShack. As a
result of this litigation, the international segment re-branded virtually
all of its company-owned stores and dealer outlets to THE SOURCE BY CIRCUIT
CITYSM. The brand transition costs primarily include advertising costs and
inventory write-downs and totaled $21.5 million for the six months ended
August 31, 2005. The company expects to incur an additional $11 million in
the second half of the fiscal year in brand transition costs, primarily
related to incremental advertising. See Note 2 for a discussion of the
litigation.
On May 25, 2004, the company completed the sale of its private-label
finance operation, comprised of its private-label and co-branded Visa
credit card programs, to Chase Card Services, formerly Bank One
Corporation. Results from the private-label finance operation, including
transition and transaction costs of approximately $6 million related to the
sale of the operation, are included in finance income for the six months
ended August 31, 2004. The company entered into a Consumer Credit Card
Program Agreement under which Chase Card Services is offering private-label
and co-branded credit cards to new and existing customers. The company is
compensated under the program agreement primarily based on the number of
new accounts opened less promotional financing costs that exceed a
negotiated base amount. The net results from the program agreement are
included in net sales and operating revenues on the consolidated statements
of operations.
The preparation of financial statements in conformity with U.S. generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets, liabilities,
revenues and expenses and the disclosure of contingent assets and
liabilities. Actual results may differ from those estimates. In the opinion
of management, the accompanying unaudited financial statements contain all
adjustments, which consist only of normal, recurring adjustments, necessary
for a fair presentation. Due to the seasonal nature of the company's
business, interim results are not necessarily indicative of results for the
entire fiscal year. The company's consolidated financial statements
Page 6 of 30
included in this report should be read in conjunction with the notes to the
audited financial statements in the company's fiscal 2005 Annual Report on
Form 10-K.
Certain prior year amounts have been reclassified to conform to the current
presentation.
2. Litigation
After Circuit City's March 31, 2004, announcement of its agreement to
acquire InterTAN, RadioShack Corporation asserted early termination of its
licensing and other agreements with InterTAN. On April 5, 2004, RadioShack
filed suit against InterTAN, and amended that suit on April 27, 2004 (the
"RadioShack litigation"). InterTAN disputes the termination scenarios
alleged by RadioShack and is vigorously defending against those claims. The
parties argued a RadioShack motion for partial summary judgment on February
3, 2005. On March 24, 2005, the court issued an order on that motion
stating that the agreements were terminated no later than December 31,
2004. Under the ruling, InterTAN's rights under the agreements expired June
30, 2005.
Circuit City continues to believe that RadioShack is not entitled to early
termination of the agreements, that InterTAN has substantial defenses to
the RadioShack claims and that RadioShack has breached the agreements by
seeking early termination. InterTAN intends to continue defending
vigorously the claims in the RadioShack litigation and to exercise its
rights under the agreements, as well as any appeal rights. Circuit City
believes that this litigation will not have a material adverse effect on
the company's financial condition or results of operations for the 2006
fiscal year.
3. Finance Income
Finance income for the six months ended August 31, 2004, includes the
results from the company's private-label finance operation, including
transition and transaction costs of approximately $6 million related to the
sale of the operation to Chase Card Services, through May 25, 2004, the
date the company completed the sale.
For the six months ended August 31, 2004, the components of pretax finance
income were as follows:
Six Months Ended
(Amounts in millions) August 31, 2004
---------------------------------------------------------------------------
Securitization income.............................. $28.1
Less: Payroll and fringe benefit expenses.......... 7.6
Other direct expenses...................... 14.9
----------------------
Finance income..................................... $ 5.6
======================
Securitization income primarily is comprised of the gain on the sale of
receivables generated by the company's private-label finance operation,
income from retained interests in the credit card receivables and income
related to servicing the receivables, as well as the impact of increases or
decreases in the fair value of the retained interests.
4. Stock-Based Compensation
The company uses the fair value based method of accounting for stock-based
compensation.
Page 7 of 30
The fair value of each stock option granted is estimated on the grant date
using the Black-Scholes option-pricing model with the following weighted
average assumptions.
Three Months Ended Six Months Ended
August 31 August 31
2005 2004 2005 2004
-------------------------------------------------------------------------------- -----------------------
Expected dividend yield.......................... 0.4% 0.6% 0.4% 0.6%
Expected stock volatility........................ 60% 65% 60% 65%
Risk-free interest rates......................... 4% 4% 4% 4%
Expected lives (in years)........................ 5 4 5 4
Using these assumptions in the Black-Scholes model, the weighted average
fair value of options granted was $8.66 per share for the three months
ended August 31, 2005, and $8.58 per share for the six months ended August
31, 2005. The weighted average fair value of options granted was $6.43 per
share for the three months ended August 31, 2004, and $6.38 per share for
the six months ended August 31, 2004.
5. Comprehensive Income (Loss)
The components of the company's comprehensive income (loss) consist of the
net earnings (loss) and other comprehensive income. Other comprehensive
income is comprised of foreign currency translation adjustments and is
recorded net of deferred income taxes directly as a component of
stockholders' equity.
The components of comprehensive income (loss), net of taxes, were as
follows:
Three Months Ended Six Months Ended
August 31 August 31
(Amounts in millions) 2005 2004 2005 2004
----------------------------------------------------------------------------------- -----------------------
Net earnings (loss).................................. $ 1.3 $(11.9) $(11.8) $(17.9)
Foreign currency translation......................... 12.8 6.2 8.5 9.5
------------------------- ----------------------
Comprehensive income (loss).......................... $14.1 $ (5.7) $ (3.3) $ (8.4)
========================= ======================
6. Net Earnings (Loss) Per Share
The following table presents a reconciliation of the denominators used in
the net earnings (loss) per share calculations.
Three Months Ended Six Months Ended
August 31 August 31
(Shares in millions) 2005 2004 2005 2004
----------------------------------------------------------------------------------------- ----------------------
Weighted average common shares............................. 179.1 195.4 181.9 197.4
Dilutive potential common shares:
Options................................................ 2.5 - - -
Restricted stock....................................... 0.2 - - -
--------------------------- ----------------------
Weighted average common shares and dilutive
potential common shares................................ 181.8 195.4 181.9 197.4
========================== ======================
For the three months ended August 31, 2005, the computation of dilutive
potential common shares excluded 5.5 million options to purchase shares of
common stock because the exercise prices were greater than the average
market price of the common shares and, therefore, the effect would be
anti-dilutive.
Page 8 of 30
For the six months ended August 31, 2005, and the three and six months
ended August 31, 2004, no stock options or restricted stock were included
in the calculation of diluted net loss per share because the company
reported a loss from continuing operations. Shares excluded were as
follows:
At August 31
(Shares in millions) 2005 2004
---------------------------------------------------------------------------
Options to purchase common stock............. 15.7 18.0
Restricted stock............................. 5.4 2.4
7. Common Stock Repurchased
The company's board of directors has authorized stock repurchases up to
$800 million, of which $259.5 million remained available at August 31,
2005. The company repurchased 5.7 million shares of common stock at a cost
of $100.2 million during the three months ended August 31, 2005, and 11.8
million shares of common stock at a cost of $196.3 million during the six
months ended August 31, 2005. The company repurchased 5.3 million shares of
common stock at a cost of $69.6 million during the three months ended
August 31, 2004, and 11.1 million shares of common stock at a cost of
$140.6 million during the six months ended August 31, 2004. As of August
31, 2005, the company had repurchased 40.2 million shares of common stock
at a cost of $540.5 million.
8. Pension Plans
The company's domestic segment has a noncontributory defined benefit
pension plan that was frozen as of February 28, 2005, except for employees
who were (i) within three years of their early retirement date or normal
retirement date; (ii) had reached their early or normal retirement date; or
(iii) were permanently disabled before March 1, 2005. As a result, all
employees affected by the plan freeze retain any benefits accumulated to
the effective date, but are no longer eligible to increase their benefit.
The company also has an unfunded nonqualified benefit restoration plan that
restored retirement benefits for domestic segment senior executives who
were affected by Internal Revenue Code limitations on benefits provided
under the company's pension plan. The benefit restoration plan was frozen
as of February 28, 2005, and will provide benefits for participants who, as
of that date, were within 10 years of attaining their early retirement date
or normal retirement date.
The components of the net pension (income) expense for the plans were as
follows:
Three Months Ended Six Months Ended
August 31 August 31
(Amounts in thousands) 2005 2004 2005 2004
----------------------------------------------------------------------------------- --------------------------
Service cost........................................... $ 704 $ 3,817 $ 1,629 $ 7,633
Interest cost......................................... 3,456 3,906 6,912 7,814
Expected return on plan assets........................ (4,507) (4,101) (9,015) (8,203)
Recognized prior service cost......................... 53 119 107 238
Recognized actuarial loss............................. 264 1,255 529 2,510
------------------------- --------------------------
Net pension (income) expense.......................... $ (30) $ 4,996 $ 162 $ 9,992
========================= ==========================
Circuit City made no pension plan contributions during the six months ended
August 31, 2005. The company is currently in the process of evaluating its
assumptions to determine its year end benefit obligations. Changes in
assumptions could affect the amount of contribution and, therefore, the
company cannot estimate the level of contribution, if any, for fiscal 2006.
The company intends to make any contributions to the defined benefit
pension plan necessary to meet ERISA minimum funding standards and will
make any additional contributions as needed to ensure that the fair value
of plan assets at February 28, 2006, exceeds the accumulated benefit
obligation.
Page 9 of 30
A contribution of $618,000, which is equal to the expected benefit payments
for fiscal 2006, is expected to be made to the restoration plan during
fiscal 2006. Benefit payments during the six months ended August 31, 2005,
were $232,000.
9. Discontinued Operation
On November 18, 2003, the company completed the sale of its bankcard
finance operation to FleetBoston Financial. Bankcard results are presented
as results from discontinued operation.
For the quarter ended August 31, 2004, the net loss from the discontinued
bankcard finance operation totaled $507,000. For the six months ended
August 31, 2004, the net loss from the discontinued bankcard finance
operation totaled $1.2 million, which is comprised of post-closing
adjustments related to the sale of the bankcard operation. Cash flows
related to the discontinued operation have been segregated on the
consolidated statements of cash flows.
10. Segment Information
The company has two reportable segments: its domestic segment and its
international segment. The company identified these segments based on its
management reporting structure and the nature of the products and services
offered by each segment. The domestic segment is primarily engaged in the
business of selling brand-name consumer electronics, personal computers,
entertainment software, and services in the United States. The
international segment is primarily engaged in the business of selling
private-label and brand-name consumer electronics products in Canada.
Prior to the second quarter of fiscal 2005, the company had another
reportable segment, its finance operation. The company completed the sale
of its private-label finance operation, comprised of its private-label and
Visa co-branded credit card programs, to Chase Card Services on May 25,
2004. Results from the private-label finance operation, including
transition and transaction costs of approximately $6 million related to the
sale of the operation, are included in finance income for the six months
ended August 31, 2004. See Note 3 for additional discussion of finance
income. The company has entered into an arrangement under which Chase Card
Services is offering private-label and co-branded credit cards to new and
existing customers and providing credit card services to all cardholders.
Revenue by reportable segment and the reconciliation to the consolidated
statements of operations were as follows:
Three Months Ended Six Months Ended
August 31 August 31
(Amounts in millions) 2005 2004 2005 2004(a)
---------------------------------------------------------------------------------------- --------------------------
Domestic segment.......................................... $2,418.7 $2,258.7 $4,533.9 $4,331.4
International segment..................................... 143.0 117.8 256.3 139.5
Finance operation......................................... - - - 28.1
--------------------------- --------------------------
Total revenue............................................. 2,561.7 2,376.5 4,790.2 4,498.9
Less: securitization income(b)............................ - - - 28.1
--------------------------- --------------------------
Net sales and operating revenues ......................... $2,561.7 $2,376.5 $4,790.2 $4,470.8
============================ ==========================
(a)The international segment's revenue is included from May 12, 2004, when
Circuit City acquired a controlling interest in InterTAN, Inc.
(b)Securitization income is included in finance income, which reflects the
results of the finance operation and is reported separately from net sales
and operating revenues on the statements of operations.
Page 10 of 30
The net earnings (loss) from continuing operations by reportable segment
were as follows:
Three Months Ended Six Months Ended
August 31 August 31
(Amounts in millions) 2005 2004 2005 2004(a)
------------------------------------------------------------------------------------- ------------------------
Domestic segment.......................................... $ 1.8 $(14.8) $ (5.3) $(23.9)
International segment..................................... (0.5) 3.4 (6.5) 3.8
Finance operation......................................... - - - 3.5
----------------------- -----------------------
Net earnings (loss) from continuing operations............ $ 1.3 $(11.4) $(11.8) $(16.7)
======================= =======================
(a)The international segment's net earnings from continuing operations are
included from May 12, 2004, when Circuit City acquired a controlling
interest in InterTAN, Inc.
Total assets by reportable segment were as follows:
At August 31 At February 28
(Amounts in millions) 2005 2005
--------------------------------------------------------------------------------------------------
Domestic segment......................................... $3,229.8 $3,354.7
International segment.................................... 479.0 434.7
-------------------------------------
Total assets............................................. $3,708.8 $3,789.4
===================================
11. Supplemental Consolidated Statements of Cash Flows Information
The following table summarizes supplemental cash flow information for the
six months ended August 31, 2005 and 2004.
Six Months Ended
August 31
(Amounts in millions) 2005 2004
--------------------------------------------------------------------------------------------------------------
Supplemental schedule of non-cash investing and financing
activities:
Capital lease obligation.................................................. $ 2.2 $ 2.8
===== ======
Acquisition of InterTAN:
Fair value of assets acquired:
Cash and cash equivalents............................................ - $ 30.6
Merchandise inventory................................................ - 88.8
Property and equipment, net.......................................... - 42.6
Goodwill............................................................. - 191.7
Other intangible assets.............................................. - 28.0
Other assets......................................................... - 7.7
----- ------
Total fair value of assets acquired.................................. - 389.4
Less:
Liablities assumed................................................... - 93.0
Cash acquired........................................................ - 30.6
Stock options issued................................................. - 6.5
----- ------
Acquistion of InterTAN, net of cash acquired............................. $ - $259.3
===== ======
Other acquisitions:
Fair value of assets acquired............................................ $13.3 $ 13.4
Less: liabilities assumed................................................ 0.3 4.1
----- ------
Other acquisitions....................................................... $13.0 $ 9.3
===== ======
Page 11 of 30
12. Recent Accounting Pronouncements
In December 2004, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 123 (revised 2004), "Share-Based
Payment." SFAS No. 123(R) requires companies to record compensation expense
based on the fair value of employee stock-based compensation awards. The
statement also requires that the compensation expense be recognized over
the period during which the employee is required to provide service in
exchange for the award. SFAS No. 123(R) will be effective for the company's
first quarter of fiscal 2007. The company has not yet determined the impact
of adopting this standard. Effective December 1, 2003, the company adopted
the fair value based method of accounting for stock-based compensation in
accordance with SFAS No. 123, "Accounting for Stock-Based Compensation," as
amended by SFAS No. 148, "Accounting for Stock-Based
Compensation-Transition and Disclosure."
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
On May 12, 2004, we acquired a controlling interest in InterTAN, Inc. for cash
consideration of $259.3 million, which includes transaction costs and is net of
cash acquired of $30.6 million. In addition to giving us a greater
product-sourcing capability and the ability to accelerate the offering of
private-label merchandise to our customers, the acquisition of InterTAN gives us
our first presence in the Canadian market. InterTAN is primarily engaged in the
business of selling both private-label and brand-name consumer electronics.
InterTAN's headquarters are located in Barrie, Ontario, Canada.
On May 25, 2004, we completed the sale of our private-label finance operation,
comprised of our private-label and co-branded Visa credit card programs, to
Chase Card Services, formerly Bank One Corporation. Results from the
private-label finance operation, including transition and transaction costs of
approximately $6 million related to the sale of the operation, are included in
finance income for the six months ended August 31, 2004. We entered into a
Consumer Credit Card Program Agreement under which Chase Card Services is
offering private-label and co-branded credit cards to new and existing
customers. As part of the program agreement, we jointly develop and introduce
new features, products and services to drive additional sales. We are
compensated under the program primarily based on the number of new accounts
opened less promotional financing costs that exceed a negotiated base amount.
Chase Card Services is obligated to offer special promotional financing terms to
our customers. We determine the frequency, volume and, subject to certain
limits, the terms of these promotions. Chase Card Services is compensated for
these promotions in accordance with a negotiated fee schedule. The program
agreement has an initial seven-year term with three-year renewals. The agreement
has customary representations, warranties, covenants, events of default and
termination rights for an agreement of this type. The net results from the
program agreement are included in net sales and operating revenues on the
consolidated statements of operations.
CRITICAL ACCOUNTING POLICIES
See the discussion of critical accounting policies under Management's Discussion
and Analysis of Financial Condition and Results of Operations in our fiscal 2005
Annual Report on Form 10-K. These policies relate to accounting for cash
consideration received from vendors, the calculation of the liability for lease
termination costs, accounting for goodwill and other identified intangible
assets, accounting for stock-based compensation expense, accounting for pension
plans and accounting for income taxes.
RESULTS OF OPERATIONS
Our operations, in common with other retailers in general, are subject to
seasonal influences. Historically, we have realized more of our net sales and
net earnings in the fourth quarter, which includes the majority of the holiday
selling season, than in any other fiscal quarter. The net earnings of any
quarter are seasonally disproportionate to net sales since administrative and
certain operating expenses remain relatively constant during the year.
Therefore, quarterly results should not be relied upon as necessarily indicative
of results for the entire fiscal year.
Page 12 of 30
Summary of Segment Performance
Where relevant, we have included separate discussions of our domestic and
international segments. Our domestic segment is primarily engaged in the
business of selling brand-name consumer electronics, personal computers,
entertainment software, and services in our Superstores and mall-based stores in
the United States and via the Web at www.circuitcity.com. Our international
segment is primarily engaged in the business of selling private-label and
brand-name consumer electronics products in Canada and via the Web at
www.thesourcecc.ca and principally includes the operations of InterTAN, Inc.,
which we acquired in May 2004. Consolidated results include results from
InterTAN from the acquisition date. Prior to the second quarter of fiscal 2005,
we had another reportable segment, our finance operation. The following tables
summarize performance by segment.
SEGMENT PERFORMANCE SUMMARY
Three Months Ended August 31, 2005 Six Months Ended August 31, 2005
(Amounts in millions) Domestic International Consolidated Domestic International Consolidated
---------------------------------------------------------------------------------- ------------------------------------------
Net sales and operating
revenues........................ $2,418.7 $143.0 $2,561.7 $4,533.9 $256.3 $4,790.2
Gross profit........................ $ 560.1 $ 51.9 $ 612.0 $1,073.1 $ 96.9 $1,169.9
Selling, general and
administrative expenses......... $ 550.7 $ 52.4 $ 603.1 $1,071.6 $106.9 $1,178.4
Net earnings (loss) from
continuing operations........... $ 1.8 $ (0.5) $ 1.3 $ (5.3) $ (6.5) $ (11.8)
Three Months Ended August 31, 2004
(Amounts in millions) Domestic International Consolidated
----------------------------------------------------------------------------------------------------
Net sales and operating revenues............... $2,258.7 $117.8 $2,376.5
Gross profit................................... $ 545.0 $ 46.2 $ 591.2
Selling, general and administrative
expenses................................... $ 559.6 $ 40.3 $ 599.8
Net (loss) earnings from continuing
operations................................. $ (14.8) $ 3.4 $ (11.4)
Six Months Ended August 31, 2004
(Amounts in millions) Domestic International(a) Finance Consolidated
-----------------------------------------------------------------------------------------------------------------
Net sales and operating revenues............... $4,331.4 $139.5 $ - $4,470.8
Gross profit................................... $1,031.1 $ 54.8 $ - $1,085.9
Finance income................................. $ - $ - $5.6 $ 5.6
Selling, general and administrative
expenses................................... $1,053.9 $ 48.2 $ - $1,102.1
Net (loss) earnings from continuing
operations................................. $ (23.9) $ 3.8 $3.5 $ (16.7)
(a)Amounts are included from May 12, 2004, when we acquired a controlling
interest in InterTAN, Inc.
Net Sales and Operating Revenues
Consolidated
For the second quarter of fiscal 2006, our total sales increased 7.8 percent to
$2.56 billion, and comparable store sales increased 5.3 percent from the same
period last year. Total sales for the first six months of fiscal 2006 increased
7.1 percent to $4.79 billion from $4.47 billion for the first six months of last
fiscal year. Comparable store sales increased 2.8 percent for the first six
months of fiscal 2006. A store's sales are included in comparable store sales
after the store has been open for a full 12 months. In addition, comparable
store sales include Web-originated sales and sales from relocated stores.
Beginning June 1, 2005,
Page 13 of 30
international segment sales are included in the company's comparable store sales
and are calculated in local currency. The calculation of consolidated comparable
store sales excludes the impact of fluctuations in foreign currency exchange
rates.
Domestic Segment
For the second quarter of fiscal 2006 the domestic segment's net sales and
operating revenues were $2.42 billion, an increase of 7.1 percent over the same
period last fiscal year. We saw improvements in close rates and average ticket
during the quarter. Comparable store sales increased 5.1 percent. A decrease in
wireless sales, principally driven by a business model change in the third
quarter of fiscal year 2005, reduced the domestic segment's overall second
quarter comparable store sales calculation by approximately 89 basis points. A
decrease in digital video service sales, principally driven by a business model
change in July 2004, reduced the domestic segment's overall second quarter
comparable store sales calculation by approximately 38 basis points.
For the six months ended August 31, 2005, domestic segment sales were $4.53
billion, an increase of 4.7 percent over the same period last fiscal year.
Comparable store sales increased 2.7 percent.
Our major product categories are the following:
o video, which includes televisions, imaging products, DVD hardware,
camcorders, digital cameras, digital video services, furniture and related
accessories
o information technology, which includes personal computer hardware, personal
computer services, telecommunications products, PDAs and related product
accessories
o audio, which includes home audio products, mobile audio products, portable
audio products and related accessories
o entertainment, which includes movie software, music software, game
software, game hardware and personal computer software
The percent of domestic segment sales represented by each major product category
for the periods ended August 31, 2005 and 2004, is shown below.
PERCENT OF DOMESTIC SEGMENT SALES BY CATEGORY(a)
Three Months Ended Six Months Ended
August 31 August 31
2005 2004 2005 2004
-------------------------------------------------------------------------------------- -----------------------
Video..................................................... 41% 41% 42% 41%
Information technology.................................... 34 36 31 35
Audio..................................................... 15 12 16 13
Entertainment............................................. 10 11 11 11
------------------------ ------------------------
Total..................................................... 100% 100% 100% 100%
====================== ========================
(a)Excludes extended warranty revenues and installation revenue.
In the video category, we produced a double-digit comparable store sales
increase in the second quarter. Television comparable store sales increased by
double digits, led by triple-digit comparable store sales growth in flat panel
displays. Growth in television sales and double-digit comparable store sales
growth in digital imaging were partially offset by double-digit comparable store
sales declines in camcorders, DVD players and digital video services.
In the information technology category, we produced a single-digit comparable
store sales decline in the second quarter. The decline was driven by a
single-digit comparable store sales decline in personal computer hardware,
including double-digit comparable store sales declines in desktop computers,
monitors and printers partially offset by a single-digit comparable store sales
increase in notebook computers. Comparable store sales for wireless also
declined double digits. Sales from our PC Services offering, which we rolled out
nationwide during the quarter, helped to offset the information technology
category's comparable store sales decline.
Page 14 of 30
In the audio category, we produced a double-digit comparable store sales
increase in the second quarter. Triple-digit comparable store sales growth in
portable digital audio products and single-digit comparable store sales growth
in mobile audio products were partially offset by a double-digit comparable
store sales decline in home audio products.
In the entertainment category, we produced a single-digit comparable store sales
decrease in the second quarter, reflecting a double-digit comparable store sales
decrease in music software and single-digit comparable store sales decreases in
video software and game products, partially offset by a double-digit comparable
store sales increase in PC software that was driven in part by our PC Services
offering.
The following table provides the number of our domestic segment stores:
DOMESTIC SEGMENT STORE MIX
Aug. 31, 2005 Feb. 28, 2005 Aug. 31, 2004
--------------------------------------------------------------------------------------------------------
Superstores................................ 616 612 604
Mall-based stores.......................... 5 5 5
----------------------------------------------------------
Total domestic segment stores.............. 621 617 609
==========================================================
In fiscal 2006, we expect to open 25 to 30 Superstores in our domestic segment,
of which 16 to 19 are expected to be new stores and nine to 11 are expected to
be relocations. In the first half of fiscal 2006, we relocated five stores and
opened five new stores. In addition, we closed one store in the Richmond, Va.
market.
The 42 relocated stores open more than 12 months produced the following results
for their 12-month periods after grand opening:
o an average sales change that was approximately 29 percentage points better
than the sales pace of the rest of the store base during the same time
periods
o a return on invested capital, including lease termination and sublease
costs on vacated stores, of approximately 10 percent
o a return on invested capital, excluding lease termination and sublease
costs on vacated stores, of approximately 22 percent
The 53 incremental stores open more than 12 months produced a return on invested
capital of 13 percent measured at the end of the first 12 months after grand
opening. The 41 incremental stores open more than 24 months produced a return on
invested capital of approximately 22 percent measured at the end of the second
12 months after grand opening.
Extended Warranty Revenues. The extended warranty revenue included in domestic
segment sales was $97.4 million, or 4.0 percent of domestic segment sales, in
the second quarter of fiscal 2006, compared with $91.7 million, or 4.1 percent
of domestic segment sales, in last fiscal year's second quarter. The extended
warranty revenue included in domestic segment sales was $182.4 million for the
first half of fiscal 2006, or 4.0 percent of domestic segment sales, compared
with $169.0 million, or 3.9 percent of domestic segment sales, for the first
half of last fiscal year.
The domestic segment sells extended warranty programs on behalf of unrelated
third parties who are the primary obligors. Extended warranty sales carry
higher-than-average gross profit margins.
International Segment
The international segment's net sales and operating revenues increased 21.5
percent to $143.0 million for the second quarter of fiscal 2006, compared with
$117.8 million for the second quarter of last fiscal year. The effect of
fluctuations in foreign currency exchange rates accounted for approximately 10
percentage points of
Page 15 of 30
the international segment's second quarter total sales increase. Comparable
store sales increased 8.2 percent for the quarter in local currency.
For the six months ended August 31, 2005, the international segment's net sales
and operating revenues were $256.3 million. For the period from May 12 through
August 31, 2004, the international segment's net sales and operating revenues
were $139.5 million. The international segment consists of the operations of
InterTAN, Inc., which Circuit City acquired in May 2004. Comparable store sales
increased 8.2 percent in local currency for the first six months of fiscal 2006.
International segment sales were included in the comparable store sales
calculation beginning June 1, 2005.
INTERNATIONAL SEGMENT STORE MIX
Aug. 31, 2005 Feb. 28, 2005 Aug. 31, 2004
----------------------------------------------------------------------------------------------------------------
Company-owned stores.............................. 522 521 515
Dealer outlets.................................... 300 331 334
Rogers Plus(R) stores............................... 91 88 84
Battery Plus(R) stores.............................. 25 26 27
--------------------------------------------------------
Total international segment stores................ 938 966 960
==========================================================
In addition to the 938 retail stores and dealer outlets open as of August 31,
2005, the international segment conducts business through 70 wholesale
relationships. At February 28, 2005, the international segment maintained 64
wholesale relationships, and at August 31, 2004, it maintained 56 wholesale
relationships.
Gross Profit Margin
Consolidated
The gross profit margin was 23.9 percent of sales in the second quarter of
fiscal 2006, compared with 24.9 percent in the same period last fiscal year. For
the first six months of fiscal 2006, the gross profit margin was 24.4 percent of
sales, compared with 24.3 percent for the same period last year.
Domestic Segment
For the second quarter of fiscal 2006, the domestic segment's gross profit
margin of 23.2 percent of sales decreased 97 basis points from the same period
last fiscal year. The change in the domestic segment's gross profit margin
primarily reflects declines in margin rates of PC hardware, projection
television and DVD software. Also contributing to the decline in gross profit
margin is the more aggressive implementation of competitive financing offers
compared to last year.
For the first half of fiscal 2006, the domestic segment's gross profit margin
was 23.7 percent of sales, compared to 23.8 percent for the same period last
fiscal year. The change in the domestic segment's gross profit margin primarily
reflects declines in margin rates of PC hardware, projection television and DVD
software. This decline in merchandise margin was partly offset by increased
extended warranty sales, which carry higher-than-average gross profit margins,
and improvements in the efficiency of our product service and distribution
operations.
International Segment
The international segment's gross profit margin in the second quarter of fiscal
2006 was 36.3 percent of international segment sales, compared to 39.3 percent
in the same period last fiscal year. The decline in the international segment's
gross profit margin primarily reflects increased sales of higher growth, higher
ticket products that carry lower gross profit margins. These products include
personal electronic and communication items, as well as video and
television-related products.
Page 16 of 30
The international segment's gross profit margin for the six months ended August
31, 2005, was 37.8 percent of sales. For the period from May 12, 2004 to August
31, 2004, the international segment's gross profit margin was 39.3 percent of
sales.
Finance Income
Finance income was $5.6 million in the six months ended August 31, 2004, and
includes a portion of the loss on the sale of the private-label finance
operation to Chase Card Services and the income generated by the private-label
finance operation from the beginning of fiscal year 2005 through the sale date.
Prior to November 2003, both our bankcard finance operation and our
private-label finance operation were conducted through our wholly owned
subsidiary, First North American National Bank, which was a limited-purpose
credit card bank, and through consolidated special purpose subsidiaries and
off-balance-sheet qualifying special purpose entities. As part of a focus on
strengthening the financial performance of our core business, we sold our
bankcard finance operation to FleetBoston Financial in November 2003 and sold
our private-label finance operation to Chase Card Services in May 2004.
Results from the bankcard finance operation are presented as results from
discontinued operation on the consolidated financial statements; therefore, its
results are not included in the "Components of Finance Income" table. See "Net
Loss from Discontinued Operation."
Coincident with the sale of the private-label operation to Chase Card Services,
we entered into an ongoing arrangement with Chase Card Services under which they
offer private-label and co-branded credit cards to both new and existing
customers.
COMPONENTS OF PRETAX FINANCE INCOME
Six Months Ended
(Amounts in millions) August 31, 2004
--------------------------------------------------------------------------------
Securitization income................................. $28.1
Less: Payroll and fringe benefit expenses............. 7.6
Other direct expenses......................... 14.9
-----------------------
Finance income........................................ $ 5.6
=======================
Securitization income primarily is comprised of the gain on the sale of the
credit card receivables, income from the retained interests in the securitized
receivables and income related to servicing the securitized receivables, as well
as the impact of increases or decreases in the fair value of the retained
interests.
Selling, General and Administrative Expenses
Consolidated
Three Months Ended August 31 Six Months Ended August 31
2005 2004 2005 2004
% of % of % of % of
(Dollar amounts in millions) $ Sales $ Sales $ Sales $ Sales
------------------------------------------------------------------------------------ ---------------------------------------------
Store expenses.......................... $526.4 20.5% $526.3 22.1% $1,028.4 21.5% $ 983.9 22.0%
General and administrative
expenses........................... 79.1 3.1 56.6 2.4 156.5 3.3 100.5 2.3
Remodel expenses........................ - - - - - - 0.1 -
Relocation expenses..................... 0.3 - 16.5 0.7 2.3 - 18.4 0.4
Pre-opening expenses.................... 2.1 0.1 3.6 0.1 2.3 - 4.5 0.1
Interest income......................... (4.8) (0.2) (3.2) (0.1) (11.1) (0.2) (5.3) (0.1)
------------------------------------------ --------------------------------------------
Total ................................. $603.1 23.5% $599.8 25.2% $1,178.4 24.6% $1,102.1 24.7%
========================================= ============================================
Page 17 of 30
Selling, general and administrative expenses were 23.5 percent of sales in the
second quarter of this fiscal year, compared with 25.2 percent in last year's
second quarter. For the first half of fiscal 2006, selling, general and
administrative expenses were 24.6 percent of sales, compared with 24.7 percent
during the same period last fiscal year.
Domestic Segment
Three Months Ended Six Months Ended
August 31 August 31
(Amounts in millions) 2005 2004 2005 2004
------------------------------------------------------------------------------ ------------------------
Store expenses....................................... $490.2 $494.3 $ 957.9 $ 945.3
General and administrative expenses.................. 62.6 48.4 119.7 90.9
Remodel expenses..................................... - - - 0.1
Relocation expenses.................................. 0.3 16.5 2.3 18.4
Pre-opening expenses................................. 2.1 3.6 2.3 4.5
Interest income...................................... (4.5) (3.2) (10.6) (5.3)
----------------------- ------------------------
Total................................................ $550.7 $559.6 $1,071.6 $1,053.9
======================= ========================
During the second quarter of fiscal 2006, the domestic segment's
expense-to-sales ratio was 22.8 percent, compared to 24.8 percent during the
same period last fiscal year. The domestic segment's expense-to-sales ratio
decreased 201 basis points. The decrease in the domestic segment's ratio for the
second quarter primarily reflects the impact of decreased payroll and relocation
expenses as well as the impact of the domestic segment's sales increase.
The domestic segment's selling, general and administrative expenses were 23.6
percent of sales during the first six months of fiscal 2006, compared with 24.3
percent during the same period last fiscal year. The decrease in the domestic
segment's expense-to-sales ratio reflects the impact of decreased payroll and
relocation expenses, which was partially offset by the impact of increased rent,
occupancy and depreciation expenses.
International Segment
Three Months Ended Six Months Ended
August 31 August 31
(Amounts in millions) 2005 2004 2005 2004(a)
------------------------------------------------------------------------------ -------------------------
Store expenses....................................... $36.2 $32.1 $ 70.5 $38.6
General and administrative expenses.................. 16.5 8.2 36.9 9.6
Interest income...................................... (0.3) - (0.5) -
----------------------- -------------------------
Total................................................ $52.4 $40.3 $106.9 $48.2
======================= =========================
(a) Selling, general and administrative expenses are included from May 12, 2004,
when we acquired a controlling interest in InterTAN, Inc.
The international segment's selling, general and administrative expenses for
this year's second quarter were 36.6 percent of international segment sales,
compared with 34.2 percent for the same period last fiscal year. The
international segment's general and administrative expenses in the second
quarter of fiscal 2006 include $9.6 million in expenses associated with the
brand transition in Canada, which resulted from the ongoing litigation with
RadioShack.
For the six months ended August 31, 2005, the international segment's
expense-to-sales ratio was 41.7 percent. The international segment's selling,
general and administrative expenses were 34.5 percent of sales for the period
from May 12, 2004 through August 31, 2004. For the first half of fiscal 2006,
the international segment's general and administrative expenses include $21.5
million in expenses associated with the brand transition in Canada.
Page 18 of 30
Stock-based Compensation Expense
Stock-based compensation expense was $6.7 million for the three months ended
August 31, 2005, compared with $8.4 million for the three months ended August
31, 2004. The decrease reflects lower weighted-average fair values of recent
grants and the complete vesting of certain grants in fiscal 2005 and the first
half of fiscal 2006.
Stock-based compensation expense was $10.0 million for the six months ended
August 31, 2005, compared with $14.4 million for the six months ended August 31,
2004. The decrease reflects lower weighted-average fair values of recent grants
and the complete vesting of certain grants in fiscal 2005 and the first half of
fiscal 2006. The stock-based compensation expense for the six months ended
August 31, 2004, includes compensation costs related to performance-based
restricted stock grants. Under the terms of those grants, vesting is contingent
upon our achieving a targeted operating profit margin for fiscal 2006. During
the fourth quarter of fiscal 2005, management determined that it is unlikely
that the target will be met and, as a result, reversed the related expense.
Income Tax Provision
The effective income tax rate applicable to results from continuing operations
was 33.1 percent for the three months ended August 31, 2005, and 36.2 percent
for the three months ended August 31, 2004. The effective income tax rate
applicable to results from continuing operations was 38.5 percent for the six
months ended August 31, 2005, and 36.3 percent for the six months ended August
31, 2004. The increase in the tax rate for the six months ended August 31, 2005,
is due to an increase in the provision for non-federal tax expense for the
domestic segment.
Net Earnings (Loss) from Continuing Operations
The net earnings from continuing operations were $1.3 million, or 1 cent per
share, in the three months ended August 31, 2005, compared with a net loss of
$11.4 million, or 6 cents per share, in the same period of last fiscal year.
For the six months ended August 31, 2005, the net loss from continuing
operations was $11.8 million, or 6 cents per share, compared with the net loss
from continuing operations of $16.7 million, or 8 cents per share, for the same
period last fiscal year.
Net Loss from Discontinued Operation
On November 18, 2003, we completed the sale of our bankcard finance operation to
FleetBoston Financial. Results from the bankcard finance operation are presented
as results from discontinued operation. The net loss from the discontinued
bankcard finance operation was $507,000 for the three months ended August 31,
2004, and $1.2 million for the six months ended August 31, 2004.
RECENT ACCOUNTING PRONOUNCEMENTS
In December 2004, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 123 (revised 2004), "Share-Based Payment."
SFAS No. 123(R) requires companies to record compensation expense based on the
fair value of employee stock-based compensation awards. The statement also
requires that the compensation expense be recognized over the period during
which the employee is required to provide service in exchange for the award.
SFAS No. 123(R) will be effective for our first quarter of fiscal 2007. We have
not yet determined the impact of adopting this standard. Effective December 1,
2003, we adopted the fair value based method of accounting for stock-based
compensation in accordance with SFAS No. 123, "Accounting for Stock-Based
Compensation," as amended by SFAS No. 148, "Accounting for Stock-Based
Compensation-Transition and Disclosure."
Page 19 of 30
FINANCIAL CONDITION
Liquidity and Capital Resources
Summary
At August 31, 2005, we had cash, cash equivalents and short-term investments of
$677.8 million, compared with $1.00 billion at February 28, 2005. During the
first six months of fiscal 2006, we used $196.3 million of cash to repurchase
common stock under our stock repurchase authorization. At August 31, 2004, we
had cash and cash equivalents of $953.8 million. The year-over-year change in
the cash balance primarily reflects the use of $315.5 million to repurchase
common stock under the company's stock repurchase authorization.
Cash Flows
We used net cash from operating activities of $46.1 million in the six months
ended August 31, 2005, compared with generating net cash from operating
activities of $192.1 million in the six months ended August 31, 2004. The
primary use of cash in the six months ended August 31, 2005, was a $72.3 million
decrease in accrued income taxes due to the payment of taxes. The generation of
cash in the six months ended August 31, 2004, resulted from an increase in
accounts payable. The change in merchandise inventory net of accounts payable
was an increase of $30.9 million for the six months ended August 31, 2005, and a
decrease of $161.6 million for the six months ended August 31, 2004.
For the six months ended August 31, 2005, net cash used in investing activities
was $65.3 million and primarily relates to the purchases of property and
equipment and investment securities partly offset by proceeds from the
maturities of investment securities. For the six months ended August 31, 2004,
net cash provided by investing activities was $125.5 million and primarily
relates to cash proceeds of $475.9 million from the sale of the private-label
finance operation, partly offset by the acquisition of InterTAN, Inc. for $259.3
million, net of acquired cash of $30.6 million.
We used net cash from financing activities of $166.5 million in the six months
ended August 31, 2005, compared with $144.1 million in the six months ended
August 31, 2004. The primary use of cash for both periods related to the
repurchase of common stock. The board of directors has authorized stock
repurchases of up to $800 million, of which $259.5 million remained available at
August 31, 2005. We repurchased 11.8 million shares of common stock at a cost of
$196.3 million during the six months ended August 31, 2005. We repurchased 11.1
million shares of common stock at a cost of $140.6 million during the same
period last fiscal year. As of August 31, 2005, we had repurchased 40.2 million
shares of common stock at a cost of $540.5 million. Based on the market value of
the common stock at August 31, 2005, the then remaining $259.5 million of the
$800 million authorization would allow for the repurchase of up to approximately
8 percent of the 182.5 million shares then outstanding.
Sources of Liquidity
We have a $500 million, four-year revolving credit facility secured by inventory
and accounts receivable. On July 15, 2005, we amended the terms of the facility
to, among other things, extend the maturity date to June 27, 2009, and revise
the borrowing limits for the international and domestic segments. The amendment
reduced the international segment's borrowing limit from $100 million to $50
million and increased the domestic segment's borrowing limit from $400 million
to $450 million. At August 31, 2005, short-term borrowings on this facility were
$16.8 million related to our international segment. At August 31, 2005,
outstanding letters of credit related to this facility were $62.2 million,
leaving $421.0 million available for borrowing. We were in compliance with all
covenants at August 31, 2005.
Net-owned inventory increased by $33.8 million from February 28, 2005, to August
31, 2005. Net-owned inventory is calculated by subtracting accounts payable from
merchandise inventory. Accounts payable includes merchandise payable, expense
payables, the liability related to gift cards, customer deposits and the rebate
liability. Merchandise inventory increased to $1.67 billion at August 31, 2005,
from $1.46 billion at
Page 20 of 30
February 28, 2005, driven by an increase in domestic segment inventory of $170.2
million due to the build of inventory to support shifts in the portfolio of
products and to increase store in-stock positions. Merchandise inventory was
$1.64 billion at August 31, 2004. Accounts payable increased to $1.14 billion at
August 31, 2005, from $961.7 million at February 28, 2005.
Our primary sources of liquidity include available cash, borrowing capacity
under the credit facility, landlord reimbursements and sale-leaseback
transactions. We expect that our primary sources of liquidity will be sufficient
to fund capital expenditures and working capital for the foreseeable future.
FISCAL 2006 OUTLOOK
Our strategy for improving our operations, financial performance and shareholder
value includes the following:
o upgrading processes, systems and talent to improve the core business
o evolving the core business to generate incremental revenues and profits
o innovating to create new businesses, related to our core business, to
produce long-term growth
Key initiatives to upgrade the core business include the following:
o store revitalization program
o promotional and marketing effectiveness
o product transition and pricing management
o multiple sourcing alternatives
o inventory management, including improved customer-encountered in-stock
levels and reduced net-owned inventory
o collaborative vendor relationships
o information systems enhancements, including a company-wide data warehouse,
as well as improved supply chain, merchandising marketing systems
Key initiatives to evolve the core business include the following:
o portfolio management of merchandise product categories, matching our
investments in merchandise product categories with the strategic intent of
the specific business
o expanded service offerings, including expanded PC Services offering
nationwide
o continued investment in Circuit City brand awareness and in marketing by
our Circuit City Direct business, ensuring a consistent multi-channel brand
o improved customer experience led by Associate engagement
o reduction of performance gap between the best and the poorest performing
stores
Key initiatives to innovate include the following:
o win in home entertainment - be the retail destination for home
entertainment products and services
o digital home services - develop breakthrough consumer electronics service
offerings
o multi-channel retailing - move focus from transactions to relationships and
provide solutions to customers wherever they want them
Based on our performance during the first six months of fiscal 2006, we updated
our fiscal 2006 outlook.
We revised the range of expectations for total sales growth. We now expect total
sales growth of five to eight percent. The previous expectation was total sales
growth of three to six percent.
We revised the range of expectations for the domestic segment's comparable store
sales growth. We now expect domestic comparable store sales growth from the low-
to mid-single digit range. Our previous expectation was comparable store sales
growth in the low-single digit range.
We reaffirmed the range of expectations for operating margin (earnings from
continuing operations before income taxes as a percent of sales) of 1.3 percent
to 2.3 percent.
Page 21 of 30
The fiscal 2006 outlook is based on the following assumptions:
o continued sales growth in flat panel televisions, portable digital audio
players, digital imaging and PC services
o sales growth in the international segment
o approximately 25 to 30 new and relocated Superstore openings
o more effective advertising and promotions to drive traffic
o an improved customer experience to increase the close rate
o enhanced customer-encountered in-stock levels
o continued growth in our Circuit City Direct business
o a stable macroeconomic environment
The company expects future gross profit margin benefit from ongoing initiatives
including sourcing, pricing and product transition management. Depending upon
the competitive environments, the company expects to balance sales, gross profit
margin and expenses to achieve its operating margin target.
Domestic segment Superstore opening estimates are shown in the table below. The
timing of store openings depends upon a number of factors and can change during
the year. The company's previous expectation was 30 to 40 new and relocated
Superstore openings.
DOMESTIC SEGMENT SUPERSTORE OPENING ESTIMATES
Q1 Q2 Q3 Q4 FY06
----------------------------------------------------------------------------------------------------------
Incremental Superstores.............................. 0 5 10 1-4 16-19
Relocated Superstores................................ 3 2 4 0-2 9-11
- - --- --- ----
Total expected Superstore openings................... 3 7 14 1-6 25-30
= = == === =====
The company expects expenses related to domestic segment store relocations to
total approximately $8 million, down from the previous forecast of $17 million.
The change results from a decrease in the expected number of relocations as well
as adjustments to the estimated lease impairment charges of the specific
relocations.
For the year, stock-based compensation expenses are expected to total $26
million to $30 million.
Capital expenditures, net of landlord reimbursements and sale leaseback
transactions, are expected to total approximately $205 million, including the
following components:
o $120 million related to information systems
o $55 million related to domestic segment relocations, new store construction
and store updates
o $18 million related to the international segment
o $12 million related to distribution and other expenditures
We have delayed the start of the rollout of our upgraded point of sale system
until early fiscal 2007. We expect to complete the rollout in fiscal 2007.
We expect the effective income tax rate applicable to results from continuing
operations for our domestic segment to be 37.1 percent. We expect the effective
income tax rate applicable to results from continuing operations for our
international segment to be 39.6 percent. The consolidated effective income tax
rate applicable to results from continuing operations will be a weighted average
of our segments' annual rates.
The fiscal 2006 outlook excludes the potential direct impact from Hurricane
Katrina, which closed 11 Circuit City stores. Nine of the stores re-opened by
September 20, 2005. We terminated one closed-store lease effective September 26,
2005. We re-opened the remaining store on September 28, 2005. The impact from
Hurricane Katrina was not material to our financial condition or statement of
operations for the three or six months ended August 31, 2005. The company
maintains property and business interruption insurance.
Page 22 of 30
As a result of Hurricane Rita, which occurred subsequent to the end of our
second quarter, we closed 17 stores. We re-opened 15 stores by September 28,
2005. The re-opening dates for two stores remain undetermined.
Expected Impact of International Segment Litigation
We are engaged in litigation with RadioShack Corporation regarding early
termination of the licensing, merchandising and advertising agreements with
RadioShack. Because of the ongoing legal conflict with RadioShack, we have taken
steps to position our Canadian operations for continued success, regardless of
the outcome of this litigation. As of June 30, 2005, we had re-branded virtually
all stores operating under the RadioShack(R) name in Canada to THE SOURCE BY
CIRCUIT CITYSM.
Potential positive impacts of this transition include the following:
o sales benefit from excitement generated by new brand
o discontinuation of payments to RadioShack of royalty and other fees
Potential negative impacts of this transition include the following:
o sales disruption from replacing old brand
o expenses for advertising new brand
o capital expenditures and expenses for new store signage and inventory
write-downs, which were incurred in the first half of fiscal 2006
We believe this litigation will not have a material adverse effect on our
financial condition or ongoing results of operations for the 2006 fiscal year.
FORWARD-LOOKING STATEMENTS
The provisions of the Private Securities Litigation Reform Act of 1995 provide
companies with a "safe harbor" when making forward-looking statements. This
"safe harbor" encourages companies to provide prospective information about
their companies without fear of litigation. We wish to take advantage of the
"safe harbor" provisions of the Act. Our statements that are not historical
facts, including statements about management's expectations for fiscal 2006 and
beyond, are forward-looking statements and involve various risks and
uncertainties. In most cases, you can identify our forward-looking statements by
words such as "expect," "believe," "should," "may," "plan," "will" or similar
words.
Forward-looking statements are estimates and projections reflecting our judgment
and involve a number of risks and uncertainties that could cause actual results
to differ materially from those suggested by the forward-looking statements.
Although we believe that the estimates and projections reflected in the
forward-looking statements are reasonable, our expectations may prove to be
incorrect. The retail industry, and the specialty retail industry in particular,
are dynamic by nature and have undergone significant changes in recent years.
Our ability to anticipate and successfully respond to the continuing challenges
of our industry is key to achieving our expectations. Important factors that
could cause actual results to differ materially from estimates or projections
contained in our forward-looking statements include the following:
o changes in the amount and degree of competition and promotional pressure
exerted by current competitors and potential new competition from
competitors using either similar or alternative methods or channels of
distribution such as the Internet, telephone shopping services and mail
order
o changes in general economic conditions including, but not limited to,
financial market performance, consumer credit availability, interest rates,
inflation, personal discretionary spending levels, trends in consumer
retail spending, both in general and in our product categories,
unemployment and consumer sentiment about the economy in general
o the presence or absence of, or consumer acceptance of, new products or
product features in the merchandise categories we sell and changes in our
merchandise sales mix
o the impact of new products and product features on the demand for existing
products and the pricing and profit margins associated with the products we
sell
o significant changes in retail prices for products we sell
Page 23 of 30
o changes in availability or cost of financing for working capital and
capital expenditures, including financing to support development of our
business
o the lack of availability or access to sources of inventory or the loss or
disruption in supply from one of our major suppliers
o the impact of initiatives related to upgrading merchandising, marketing and
information systems on revenue and operating margin and the costs
associated with these investments
o the impact of inventory and supply chain management initiatives on
inventory levels and profitability
o our inability to liquidate excess inventory should excess inventory develop
o failure to successfully implement sales and profitability improvement
programs for our Circuit City Superstores, including our store
revitalization plan
o our ability to continue to generate strong sales growth through our Web
site and to generate sales and margin growth through expanded service
offerings
o our ability to drive gross margin improvement in the second half of the
fiscal year
o the availability of appropriate real estate locations for relocations and
new stores
o the cost and timeliness of new store openings and relocations
o the impact to the average results from relocated and incremental stores as
stores are added to the relocation base and incremental store base
o consumer reaction to new store locations and changes in our store design
and merchandise
o the effect of pricing and promotional activities of our competitors and our
response to those actions
o our ability to attract and retain an effective management team or changes
in the costs or availability of a suitable work force to manage and support
our service-driven operating strategies
o changes in production or distribution costs or costs of materials for our
advertising
o effectiveness of our advertising and marketing programs for increasing
consumer traffic and sales
o the successful implementation of our initiatives to upgrade, evolve and
innovate the core business
o the imposition of new restrictions or regulations regarding the sale of
products and/or services we sell, changes in tax rules and regulations
applicable to us or our competitors, the imposition of new environmental
restrictions, regulations or laws or the discovery of environmental
conditions at current or future locations, or any failure to comply with
such laws or any adverse change in such laws
o reduced investment returns in our pension plan
o changes in our anticipated cash flow
o whether, when and in what amounts share repurchases may be made under our
stock buyback authorization
o adverse results in significant litigation matters
o impacts from legal proceedings, tax audits or other contingencies that,
while not material to the company's financial position or ongoing results
of operations, may be material with respect to results of operations for a
particular fiscal period
o the ultimate outcome of the litigation instituted by RadioShack Corporation
to terminate InterTAN's right to use the RadioShack(R) name in Canada
o currency exchange rate fluctuations between Canadian and U.S. dollars and
other currencies
o the regulatory and trade environment in the U.S. and Canada
o the disruption of global, national or regional transportation systems
o the possibility of adverse changes in general economic conditions from
higher energy prices and other widespread disruptions from the
after-effects of Hurricanes Katrina and Rita
o the occurrence of severe weather events or natural disasters that could
significantly damage or destroy stores or prohibit consumers from traveling
to our retail locations, especially during the peak holiday shopping season
o the successful execution of the initiatives to achieve revenue growth and
increase gross profit margin underlying our projected 2006 results as
discussed under "Fiscal 2006 Outlook" in MD&A
We believe our forward-looking statements are reasonable. However, undue
reliance should not be placed on forward-looking statements, which are based on
current expectations.
Page 24 of 30
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
As a result of the acquisition of InterTAN, we are exposed to market risk from
potential changes in the U.S./Canadian currency exchange rates as they relate to
inventory purchases and the translation of InterTAN's financial results.
Inventory Purchases
A portion of InterTAN's purchases are from vendors requiring payment in U.S.
dollars. Accordingly, there is risk that the value of the Canadian dollar could
fluctuate relative to the U.S. dollar from the time the goods are ordered until
payment is made. InterTAN's management monitors the foreign exchange risk
associated with its U.S. dollar open orders on a regular basis by reviewing the
amount of such open orders, exchange rates, including forecasts from major
financial institutions, local news and other economic factors. At August 31,
2005, U.S. dollar purchase orders totaled approximately $74.5 million. A 10
percent decline in the value of the Canadian dollar would result in an increase
in product cost of approximately $7.4 million. The incremental cost of such a
decline in currency values, if incurred, would be reflected in higher cost of
sales in future periods. In these circumstances, management would take product
pricing action, to the degree commercially feasible.
Translation of Financial Results
Fluctuations in the value of the Canadian dollar have a direct effect on
reported consolidated results due to the acquisition of InterTAN. We do not
hedge against the possible impact of this risk. A 10 percent adverse change in
the foreign currency exchange rate would not have a significant impact on our
consolidated results of operations or financial position.
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Under the supervision and with the participation of the company's management,
including the chief executive officer and chief financial officer, the company
has evaluated the effectiveness of its "disclosure controls and procedures," as
that term is defined in Rule 13a-15(e) of the Securities Exchange Act of 1934,
as amended, as of the end of the period covered by this Quarterly Report on Form
10-Q. Based upon their evaluation, the chief executive officer and chief
financial officer concluded that the company's disclosure controls and
procedures are effective.
Changes in Internal Controls
There were no changes in the company's internal control over financial reporting
in the quarter ended August 31, 2005, that have materially affected, or are
reasonably likely to materially affect, the company's internal control over
financial reporting.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On March 31, 2004, Circuit City announced a public tender offer to purchase the
stock of InterTAN. Circuit City completed the acquisition and InterTAN became a
wholly owned subsidiary of Circuit City on May 19, 2004. Among other things,
InterTAN has operated retail consumer electronics outlets under the
RadioShack(R) name in Canada under a licensing agreement with a subsidiary of
RadioShack Corporation. InterTAN has also operated under two other agreements
with RadioShack and its subsidiaries ("RadioShack"): a merchandising agreement
and an advertising agreement.
After the March 31, 2004 announcement, RadioShack asserted early termination of
all three agreements under a variety of theories and on a variety of proposed
termination dates. RadioShack asserts that InterTAN failed
Page 25 of 30
to pay an annual fee in material breach of the advertising agreement and,
alternatively, that a "without cause" termination of the advertising agreement
triggers termination of the other agreements.
On April 5, 2004, RadioShack filed suit against InterTAN in Tarrant County,
Texas, and amended that suit on April 27, 2004 (the "RadioShack litigation").
InterTAN disputes the various termination scenarios alleged by RadioShack and is
defending vigorously against those claims. The parties argued a RadioShack
motion for partial summary judgment on February 3, 2005. On March 24, 2005 the
court issued an order on that motion stating that the three agreements were
terminated no later than December 31, 2004. Under the ruling, InterTAN's rights
under the three agreements expired June 30, 2005.
Circuit City continues to believe that RadioShack is not entitled to early
termination of the agreements, that InterTAN has substantial defenses to the
RadioShack claims and that RadioShack has breached the agreements by seeking
early termination. InterTAN intends to continue defending vigorously the claims
and to exercise its rights under the agreements, as well as any appeal rights.
Because of the ongoing legal conflict with RadioShack, Circuit City has been
taking steps to position its Canadian operations for continued success,
regardless of the outcome of this litigation. Circuit City believes that this
litigation will not have a material adverse effect on the company's financial
condition or results of operations for the 2006 fiscal year.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
The following table provides information about common stock repurchases by or on
behalf of the company during the quarter ended August 31, 2005:
Approximate
Total Number Dollar Value of
of Shares Shares that
Average Purchased as May Yet Be
Total Number Price Part of Publicly Purchased
of Shares Paid Announced Under
(Amounts in millions except per share data) Purchased per Share Program the Program*
-----------------------------------------------------------------------------------------------------------------------------------
June 1 - June 30, 2005........................... 2.2 $17.05 2.2 $322.6
July 1 - July 31, 2005........................... 3.6 $17.71 3.6 $259.5
August 1 - August 31, 2005....................... - $ - - $259.5
----------------- -----------------
Total fiscal 2006 second quarter................. 5.7 $17.46 5.7
================= =================
* In January 2003, the company announced that the board of directors had
authorized the repurchase of up to $200 million of common stock. In June 2004,
the company announced a $200 million increase in its stock repurchase
authorization, raising the repurchase capacity to $400 million. In March 2005,
the company announced a $400 million increase in its stock repurchase
authorization, raising the repurchase capacity to $800 million. There is no
expiration date under the authorization. At August 31, 2005, $259.5 million
remained available for share repurchases under the share repurchase
authorization.
Page 26 of 30
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a) The annual meeting of the company's shareholders was held June 21,
2005.
(b)(i) At the annual meeting, the shareholders of the company elected
Carolyn H. Byrd, Ursula O. Fairbairn, Alan Kane and J. Patrick
Spainhour as directors for a three-year term. The elections were
approved by the following votes:
Directors For Withheld
------------------------- ---------------- -------------
Carolyn H. Byrd 166,073,060 4,372,311
Ursula O. Fairbairn 161,937,026 8,508,345
Alan Kane 166,064,186 4,381,185
J. Patrick Spainhour 166,854,747 3,590,624
(ii) At the annual meeting, the shareholders of the company voted in
favor of a proposal to approve the Amended and Restated Circuit
City Stores, Inc. 2003 Stock Incentive Plan. This proposal was
approved by the following votes:
Broker
For Against Abstain Non-Votes
-------------- ---------------- -------------- ---------
104,796,273 19,252,802 10,900,206 35,496,090
(iii)At the annual meeting, the shareholders of the company voted in
favor of a proposal to approve the InterTAN Canada, Ltd. Stock
Purchase Program. This proposal was approved by the following
votes:
Broker
For Against Abstain Non-Votes
------------ ------------- -------------- ---------
119,319,960 4,701,797 10,927,524 35,496,090
(iv) At the annual meeting, the shareholders of the company voted to
ratify the appointment of KPMG LLP as the company's independent
auditors for fiscal year 2006. This ratification was approved by
the following votes:
Broker
For Against Abstain Non-Votes
-------------- -------------- ------------ ---------
167,652,901 1,590,125 1,202,345 0
Page 27 of 30
ITEM 6. EXHIBITS
Articles of Incorporation and Bylaws
3.1 Circuit City Stores, Inc. Amended and Restated Articles of
Incorporation, effective February 3, 1997, as amended through
August 16, 2005, filed as Exhibit 3.1 to the company's Form 8-A/A
filed September 13, 2005 (File No. 1-5767), are expressly
incorporated herein by this reference.
3.2 Circuit City Stores, Inc. Bylaws, as amended and restated April
19, 2005, filed as Exhibit 3.1 to the company's Current Report on
Form 8-K filed April 21, 2005 (File No. 1-5767), are expressly
incorporated herein by this reference.
Material Contracts
10.1 Second Amendment to the Amended and Restated Credit Agreement and
to Security Agreement, filed as Exhibit 10.1 to the company's
Current Report on Form 8-K filed on July 21, 2005 (File No.
1-5767), is expressly incorporated herein by this reference.*
10.2 Form of Performance Accelerated Restricted Stock Award letter,
filed as Exhibit 10.1 to the company's Current Report on Form 8-K
filed June 23, 2005 (File No. 1-5767), is expressly incorporated
herein by this reference.*
10.3 Form of Time-based Restricted Stock Award letter, filed as
Exhibit 10.2 to the company's Current Report on Form 8-K filed
June 23, 2005 (File No. 1-5767), is expressly incorporated herein
by this reference.*
10.4 Form of Non-Qualified Stock Option Grant letter, filed as Exhibit
10.3 to the company's Current Report on Form 8-K filed June 23,
2005 (File No. 1-5767), is expressly incorporated herein by this
reference.*
10.5 Schedule of Non-Employee Director Compensation, filed as Exhibit
10.1 to the company's Current Report on Form 8-K filed August 19,
2005 (File No. 1-5767), is expressly incorporated herein by this
reference.*
Rule 13a-14(a)/15d-14(a) Certifications
31.1 Certification of CEO under Rule 13a-14(a) of the Securities
Exchange Act of 1934
31.2 Certification of CFO under Rule 13a-14(a) of the Securities
Exchange Act of 1934
Section 1350 Certifications
32.1 Certification of CEO under Section 906 of the Sarbanes-Oxley Act
of 2002
32.2 Certification of CFO under Section 906 of the Sarbanes-Oxley Act
of 2002
*Indicates management contracts, compensatory plans or arrangements of the
company required to be filed as an exhibit.
Page 28 of 30
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the company
has duly caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
CIRCUIT CITY STORES, INC.
(Registrant)
By: /s/ W. Alan McCollough
--------------------------------------
W. Alan McCollough
Chairman and Chief Executive Officer
By: /s/ Michael E. Foss
--------------------------------------
Michael E. Foss
Executive Vice President and
Chief Financial Officer
By: /s/ Philip J. Dunn
--------------------------------------
Philip J. Dunn
Senior Vice President, Treasurer,
Corporate Controller and
Chief Accounting Officer
October 7, 2005
Page 29 of 30
EXHIBIT INDEX
Articles of Incorporation and Bylaws
3.1 Circuit City Stores, Inc. Amended and Restated Articles of
Incorporation, effective February 3, 1997, as amended through
August 16, 2005, filed as Exhibit 3.1 to the company's Form 8-A/A
filed September 13, 2005 (File No. 1-5767), are expressly
incorporated herein by this reference.
3.2 Circuit City Stores, Inc. Bylaws, as amended and restated April
19, 2005, filed as Exhibit 3.1 to the company's Current Report on
Form 8-K filed April 21, 2005 (File No. 1-5767), are expressly
incorporated herein by this reference.
Material Contracts
10.1 Second Amendment to the Amended and Restated Credit Agreement and
to Security Agreement, filed as Exhibit 10.1 to the company's
Current Report on Form 8-K filed on July 21, 2005 (File No.
1-5767), is expressly incorporated herein by this reference.*
10.2 Form of Performance Accelerated Restricted Stock Award letter,
filed as Exhibit 10.1 to the company's Current Report on Form 8-K
filed June 23, 2005 (File No. 1-5767), is expressly incorporated
herein by this reference.*
10.3 Form of Time-based Restricted Stock Award letter, filed as
Exhibit 10.2 to the company's Current Report on Form 8-K filed
June 23, 2005 (File No. 1-5767), is expressly incorporated herein
by this reference.*
10.4 Form of Non-Qualified Stock Option Grant letter, filed as Exhibit
10.3 to the company's Current Report on Form 8-K filed June 23,
2005 (File No. 1-5767), is expressly incorporated herein by this
reference.*
10.5 Schedule of Non-Employee Director Compensation, filed as Exhibit
10.1 to the company's Current Report on Form 8-K filed August 19,
2005 (File No. 1-5767), is expressly incorporated herein by this
reference.*
Rule 13a-14(a)/15d-14(a) Certifications
31.1 Certification of CEO under Rule 13a-14(a) of the Securities
Exchange Act of 1934
31.2 Certification of CFO under Rule 13a-14(a) of the Securities
Exchange Act of 1934
Section 1350 Certifications
32.1 Certification of CEO under Section 906 of the Sarbanes-Oxley Act
of 2002
32.2 Certification of CFO under Section 906 of the Sarbanes-Oxley Act
of 2002
*Indicates management contracts, compensatory plans or arrangements of the
company required to be filed as an exhibit.
Page 30 of 30