-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Hi4imDl3fKW8YEvgFsuhLu9WjVO764QQTaNT6e1sEmRH2jn4sxRr6lMbZx0c79Wk cEY/x7yB3Q58LdEon1ZDVQ== 0000916641-96-000415.txt : 19960522 0000916641-96-000415.hdr.sgml : 19960522 ACCESSION NUMBER: 0000916641-96-000415 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 19960229 FILED AS OF DATE: 19960521 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: CIRCUIT CITY STORES INC CENTRAL INDEX KEY: 0000104599 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-RADIO TV & CONSUMER ELECTRONICS STORES [5731] IRS NUMBER: 540493875 STATE OF INCORPORATION: VA FISCAL YEAR END: 0228 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-05767 FILM NUMBER: 96570513 BUSINESS ADDRESS: STREET 1: 9950 MAYLAND DR CITY: RICHMOND STATE: VA ZIP: 23233 BUSINESS PHONE: 8045274000 MAIL ADDRESS: STREET 1: 9950 MAYLAND DRIVE CITY: RICHMOND STATE: VA ZIP: 23233 FORMER COMPANY: FORMER CONFORMED NAME: WARDS CO INC DATE OF NAME CHANGE: 19840620 10-K 1 FORM 10-K FOR THE YEAR ENDED FEB. 29, 1996 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED] For the fiscal year ended February 29, 1996 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED] For the transition period from to Commission File No.: 1-5767 CIRCUIT CITY STORES, INC. (Exact name of Registrant as specified in its charter) VIRGINIA 54-0493875 (State or other jurisdiction of (I.R.S. Employer Incorporation or organization) Identification No.) 9950 Mayland Drive Richmond, VA 23233 (Address of Principal Executive Offices) (Zip Code) Registrant's telephone number, including area code: (804) 527-4000 Securities registered pursuant to Section 12(b) of the Act: Name of Each Exchange Title of Each Class on Which Registered Common Stock, Par Value $0.50 New York Stock Exchange Rights to Purchase Preferred Stock, Series E, Par Value $20.00 New York Stock Exchange Securities registered pursuant to Section 12(g) of the Act: None Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K [ ]. On May 3, 1996, the Company had 97,576,474 common shares outstanding. The aggregate market value of the common shares held by non-affiliates (without admitting that any person whose shares are not included in determining such value is an affiliate) was $2,924,887,420 based upon the closing price of these shares as reported by the New York Stock Exchange on May 3, 1996. DOCUMENTS INCORPORATED BY REFERENCE Portions of the following documents are incorporated by reference in Parts I, II, III, and IV of this Form 10-K Report: (1) Pages 17 through 33 of the Company's Annual Report to Shareholders for the fiscal year ended February 29, 1996 (Parts I, II and IV) and (2) "Election of Directors," "Beneficial Ownership of Securities," "Executive Compensation," "Employment Agreements and Change-in-Control Arrangements," "Compensation of Directors" and "Section 16(a) Compliance" in the May 10, 1996 Proxy Statement, furnished to shareholders of the Company in connection with the 1996 Annual Meeting of such shareholders (Part III). Page 1 of 14 TABLE OF CONTENTS
Item Page PART I 1. Business 3 2. Properties 7 3. Legal Proceedings 9 4. Submission of Matters to a Vote of Security Holders 9 PART II 5. Market for the Company's Common Equity and Related Stockholder Matters 10 6. Selected Financial Data 10 7. Management's Discussion and Analysis of Results of Operations and Financial Condition 10 8. Financial Statements and Supplementary Data 11 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 11 PART III 10. Directors and Executive Officers of the Company 11 11. Executive Compensation 11 12. Security Ownership of Certain Beneficial Owners and Management 11 13. Certain Relationships and Related Transactions 11 PART IV 14. Exhibits, Financial Statement Schedule, and Reports on Form 8-K 12
Page 2 of 14 PART I Item 1. Business. Circuit City Stores, Inc. (the Company) was incorporated under the laws of Virginia in 1949. Its corporate headquarters is located at 9950 Mayland Drive, Richmond, Va. The Company's retail operations consist of Circuit City Superstores, Circuit City electronics-only stores and mall-based Circuit City Express stores. The Company has a wholly owned credit card bank subsidiary, First North American National Bank, that extends consumer credit. In addition, the Company operates CarMax, a retail Superstore format selling late-model used cars. General. The Company is the nation's largest retailer of brand-name consumer electronics and major appliances and a leading retailer of personal computers and music software. It sells video equipment, including televisions, digital satellite systems, video cassette recorders and camcorders; audio equipment, including home stereo systems, compact disc players, tape recorders and tape players; mobile electronics, including car stereo systems and security systems; home office products, including personal computers, peripheral equipment and facsimile machines; other consumer electronics products, including cellular phones, telephones and portable audio and video products; entertainment software; and major appliances, including washers, dryers, refrigerators, microwave ovens and ranges. Music software, including compact discs and audio tapes, was available in approximately three-quarters of the Superstores at April 30, 1996. Each of the Company's store locations follows detailed operating procedures and merchandising programs. Included are procedures for inventory maintenance, advertising, customer relations, store administration, merchandise display, store security and the demonstration and sale of products. Each store carries a standard line of products selected at the corporate level and supplied directly to the stores by the Company's regional warehouse distribution facilities. Expansion. The Company's goal is to maximize profitability in each market it serves by capturing large market shares that produce high sales volumes across a broad merchandise mix. Merchandising. Because the Company believes that local markets have individual characteristics which vary greatly by the advertising, merchandising and pricing strategies of competitors, it has organized its marketing function to focus on markets with similar competitive conditions. The Company's operating regions benefit from a centralized buying organization. The central buying staff reduces costs by purchasing in large volumes, structures a sound basic merchandising program and is supported by advanced management information and distribution systems. The Company's merchandising strategy emphasizes a broad selection of products, including introductory products, and a wide range of prices. Merchandise mix and displays are controlled centrally in an effort to ensure a high level of consistency from store to store. Merchandise pricing and selling strategies vary by market to reflect competitive conditions. Although suggested retail prices are established by the Company's central merchandising department, each store manager is responsible for shopping the local competition on a regular basis and has the authority to adjust retail prices to meet market conditions. As part of its competitive strategy, the Company advertises low prices and provides each customer with a low-price guarantee. The Company will beat any legitimate price from a local competitor stocking the same new item in a factory-sealed box. If a customer finds a lower price, including the Company's own sale price, within 30 days, the Company will refund 110 percent of the difference to the customer. Suppliers. During fiscal 1996, the Company's 10 largest suppliers accounted for approximately 52 percent of merchandise purchased by the Company. The Company's major suppliers include Sony, Packard Bell, Thomson, Panasonic, Hitachi, NEC, Whirlpool, Hewlett Packard, Zenith, and JVC. Brand-name advertised products are sold by all of the Company's retail locations. The Company has no significant long-term contracts for the purchase of merchandise. In the past, the Company has not experienced any continued or ongoing difficulty obtaining satisfactory sources of supply and believes that adequate sources of supply exist for the types of merchandise sold in its stores. Page 3 of 14 Advertising. The Company relies on considerable amounts of advertising to stimulate Superstore and electronicsonly store sales. Expenditures for these items were 4.6 percent of sales in fiscal 1996 (4.7 percent and 5.1 percent in fiscal 1995 and 1994, respectively). The reduction in advertising as a percent of sales was primarily due to comparable store sales growth. Also, as the Company adds new stores in existing markets, the increased sales volume improves the efficiency of existing advertising expenditures. The Company primarily uses print advertising, including multi-page vehicles and run-of-press newspaper ads, for Superstore and electronics-only store advertising. The Company emphasizes the use of multi-page vehicles to allow a more extensive presentation of the broad selection of products and price ranges it carries. These multi-page vehicles are generally distributed in newspapers but are, in some cases, mailed directly to residences outside the newspapers' area of circulation. With a presence in most major metropolitan markets, the Company has begun, on a limited basis, to take advantage of national broadcast and print advertising opportunities. Television campaigns include merchandise assortment, price and customer service messages. Competition. The brand-name consumer electronics and major appliance business engaged in by the Company is highly competitive. The Company's competitors include other full-service retailers, self-service retailers, specialty retailers with differing product selections and services, general merchandise retailers and local independent operators. Over the past three years, the Company's competition has shifted to include more self-service retailers that often offer a more limited product selection but at highly competitive prices. The Company uses pricing, selection and service to differentiate itself from the competition. As part of its competitive strategy, the Company strives to maintain highly competitive prices and offers every customer the low-price guarantee previously described. The Company's Superstores offer a broad product selection that includes 3,200 to 4,000 name-brand items (excluding music software), depending on the selling square footage of the Superstore. Professionally trained sales counselors, convenient credit options, factory-authorized product repair, home delivery, installation centers for automotive electronics, a toll-free product support line and a 30-day return policy reflect the Company's strong commitment to customer service. Customer Satisfaction. Extensive market research is conducted to measure the Company's customer service record and to refine the Company's consumer offer. More than 300,000 random telephone surveys are conducted each year to track satisfaction among the Company's existing customer base. These surveys, conducted from customer transaction records, measure satisfaction with all points of customer interaction, including sales counselors, cashiers, the warehouse staff, the Roadshop installers and home delivery and product service representatives. Quick feedback allows the Company to immediately address individual performance issues. Customer Service Index scores for each store recognize strong overall performance and quickly pinpoint management issues that require attention. Training. The Company staffs its stores with commissioned sales counselors, support personnel (cashiers and stockpersons), a store manager, one or more sales managers and, in larger stores, an operations manager. New sales counselors complete a minimum two-week training program focused on product knowledge, customer service and store operations. Seven regional training facilities are utilized for classroom sessions taught by more than 40 professional trainers, and a state-of-the-art video facility produces audio, video and computer-based training materials. Formalized training for store, sales and operations managers focuses on human resource management, sales management and critical operating procedures. Individual development plans address personal training needs, giving Associates advancement opportunity. Consumer Credit. Because consumer electronics, personal computers and major appliances represent relatively large purchases for the average consumer, the Company's business is affected by consumer credit availability, which varies with the state of the economy and the location of a particular store. In fiscal 1996, approximately 18 percent of the Company's total sales were made through its private-label credit card and 44 percent through third-party credit sources. Page 4 of 14 The Company established a subsidiary, First North American National Bank (FNANB), in fiscal 1991 to handle its private-label credit card business. The credit card bank subsidiary is located in Marietta, Ga. Interfacing FNANB with the Company's point-of-sale (POS) system has produced a rapid customer credit approval process. A customer's application can be electronically scored, and qualified customers can generally receive approval in under one minute. In addition to increased credit availability, the private-label credit card program provides the Company with additional marketing opportunities, including direct mail campaigns to credit card customers and special financing programs for promotions. FNANB's credit extension, customer service and collection operations are fully automated with state-ofthe-art technology to maintain the highest possible level of customer service. This technology aids FNANB's aggressive collection philosophy, which is comprised of early and frequent contact with delinquent customers. FNANB also manages a growing bankcard portfolio. Receivables generated by both the private-label credit card and bankcard programs are sold to non-affiliated entities under asset securitization programs. In fiscal 1995, the Company partnered with American General Finance, Inc. (AGF) to provide automated credit evaluation for customers who need an installment credit option. Systems. The Company's in-store POS system maintains an on-line record of all transactions and allows performance to be tracked by region, store and individual sales counselor. The information gathered by the system supports automatic replenishment of in-store inventory from the regional distribution centers and is incorporated into the Company's product buying decisions. The POS system is interfaced with the credit approval systems of both FNANB and AGF. In the stores, electronic signature capture for all credit card purchases, bar code scanning for product returns and repairs, automatic price tag printing for price changes and computerized home delivery scheduling all enhance the Company's customer service, eliminating time-consuming administrative tasks for store Associates and reducing costs through smoother store-level execution. The Company's proprietary Customer Service Information System maintains an on-line history of customer purchases and enables the Company to better assist individuals with future purchases by ensuring that new products can be integrated with existing products in the home. It also facilitates product returns and product repair. In addition, this system supports our toll-free product support line. The product support line provides the Company's customers with access to skilled product specialists. From their homes, customers can receive immediate answers to basic questions regarding product usage and installation. This service is available only for products purchased at Circuit City. Distribution. At April 30, 1996, the Company operated nine automated electronics distribution centers. These centers are designed to serve stores within a 500-mile range. They utilize conveyor systems with laser bar code scanners to reduce labor requirements, prevent inventory damage and maintain inventory control. The Company also operates smaller distribution centers handling primarily appliances and larger electronics products. The Company believes that the use of the distribution centers enables it to efficiently distribute a broad selection of merchandise to its stores, reduce inventory requirements at individual stores, benefit from volume purchasing and maintain accounting control. In addition, the Company operates an automated, centralized distribution center for music software. Virtually all of the Company's Superstore and electronics-only store merchandise is distributed through its distribution centers. Service. The Company offers service and repair for nearly all the products it sells. Customers also are able to purchase extended warranty plans on most of the merchandise the Company sells. At April 30, 1996, the Company had 34 regional, factory-authorized repair facilities. To meet customer needs, merchandise needing service or repair usually is moved by truck from the stores to the Company's nearest regional service facility and is returned to the customer at the store after repair. The Company also has in-home technicians who service large items not conveniently carried to a store. Extended warranty plans extend coverage beyond the normal manufacturer's warranty period, usually with terms of coverage (including the manufacturer's warranty period) between 12 and 60 months. Late in fiscal 1994, the Company began selling two new extended warranty programs on behalf of unrelated third parties that issue these plans for merchandise sold by the Company and other retailers. One of these programs is sold in most major markets and features in-home service for personal computer products. The second program covers consumer electronics and major appliances and was offered by approximately two-thirds of the Company's Superstores at April 30, 1996. The Company sells its own extended warranty contracts in markets where the third-party programs are not available. Page 5 of 14 Seasonality. Like other retail businesses, the Company's sales are greater in the fourth quarter of the fiscal year than in other periods of the fiscal year because of holiday buying patterns. A corresponding pre-seasonal inventory build-up is associated with this sales volume. This increased sales volume results in a lower ratio of fixed costs to sales and produces a higher ratio of operating income to sales in the fourth fiscal quarter. The Company's sales for the fourth fiscal quarter (which includes the Christmas season) were $2,253,214,000 in fiscal 1996, $1,910,235,000 in fiscal 1995, and $1,406,736,000 in fiscal 1994 and represented approximately 32 percent of sales in fiscal 1996 and approximately 34 percent of sales in fiscal years 1995 and 1994. CarMax. In 1993, the Company began to test CarMax: The Auto Superstore(R), a retail concept selling used cars. In fiscal 1996, the Company announced the national rollout of this concept. CarMax's used cars are priced an average of $500 to $1,500 below the NADA average book value. All customers receive the same low price with no negotiating required. Competitive financing and extended warranty rates also are offered. The CarMax selection includes foreign and domestic vehicles that are one to five years old and have less than 70,000 miles. Mileage generally averages about 30,000. CarMax vehicles pass a quality inspection covering major mechanical and electrical systems, power accessories and appearance. Vehicles are backed with a five-day or 250- mile money-back guarantee and a 30-day comprehensive warranty that covers all systems checked during inspection. In addition, the Company has a franchise agreement that allows CarMax to sell new Chrysler, Plymouth, Jeep(R) and Eagle products at its Norcross, Ga., location. This agreement will allow CarMax to explore opportunities in new-car retailing. CarMax utilizes AutoMation(R), a computerized inventory and point-of-sale system. Using a touch screen, customers can electronically search the inventory for cars that meet their feature requirements and price range. AutoMation(R) displays a color picture of the car and generates a vehicle information sheet for customer reference. After the selection process is complete, financing applications and purchase and title forms are submitted electronically, reducing customer wait time. In less than 10 minutes, qualified applicants can receive approval and payment options from two sources - First North American Credit, a division of the Company, and NationsBank. The inventory management system includes bar codes on each vehicle and each on-site parking place. Daily scanning tracks movement of vehicles on the lot. An electronic gate helps track test drives for vehicles and sales consultants. This combination of systems allows close monitoring and addressing of inventory and sales performance issues. Employees. On April 30, 1996, the Company had 22,852 hourly and salaried employees and 13,578 sales employees working on a commission basis. Additional personnel are employed during peak selling seasons. Management of the Company considers its relationship with its employees to be good. None of the Company's employees is subject to a collective bargaining agreement. Information Regarding Forward-Looking Statements. The provisions of the Private Securities Litigation Reform Act of 1995 (the "Act"), which became law in late December 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. The Company wishes to take advantage of the new "safe harbor" provisions of the Act and is including this section in its Annual Report on Form 10-K in order to do so. Company statements that are not historical facts, including statements about management's expectations for fiscal year 1997 and beyond, are forward-looking statements and involve various risks and uncertainties. Factors that could cause the Company's actual results to differ materially from management's projections, forecasts, estimates and expectations include, but are not limited to, the following: (a)changes in the amount and degree of promotional intensity exerted by current competitors and potential new competition from both retail stores and alternative methods or channels of distribution such as electronic and telephone shopping services and mail order; (b)changes in general U.S. economic conditions including, but not limited to, consumer credit availability, interest rates, inflation, and consumer sentiment about the economy in general; (c)the presence or absence of new products or product features in the merchandise categories the Company sells and changes in the Company's actual merchandise sales mix; (d)lack of availability/access to sources of supply for appropriate Circuit City or CarMax inventory; Page 6 of 14 (e)the ability to maintain an effective leadership team in a dynamic environment or changes in the cost or availability of a suitable work force to manage and support the Company's service-driven operating strategy; (f)changes in availability of capital expenditure and working capital financing, including the availability of long-term financing to support development of retail stores and distribution facilities and the availability of securitization financing for credit card and auto installment sales receivables; (g)changes in production or distribution cost or cost of materials for the Company's advertising; (h)availability of appropriate real estate locations for expansion; (i)the imposition of new restrictions or regulations regarding the sale of products and or services the Company sells or changes in tax rules and regulations applicable to the Company; (j) adverse results in significant litigation matters; (k)changes in levels of competition in the car business from either traditional competitors and/or new competitors utilizing auto superstore formats. The United States retail industry and the specialty retail industry in particular are dynamic by nature and have undergone significant changes over the past several years. The Company's ability to anticipate and successfully respond to continuing challenges is key to achieving its expectations. Item 2. Properties. At April 30, 1996, the Company's Circuit City retail operations were conducted in 426 locations. The Company operates four Circuit City Superstore formats with square footage and merchandise assortments tailored to population and volume expectations for specific trade areas. The "D" format was developed in fiscal 1995 to serve the most populous trade areas. Selling space in the "D" format averages approximately 23,000 square feet with total square footage averaging approximately 42,000. The "D" stores offer the largest merchandise assortment of all the formats. The "C" format is designed to serve moderately smaller trade areas and provides a highly competitive merchandise assortment. New "C" stores typically have about 17,000 square feet of selling space; total square footage for all "C" stores averages approximately 34,000. The "B" format is often located in smaller markets or in trade areas that are on the fringes of larger metropolitan markets. Selling space in these stores averages approximately 11,000 square feet with an average total square footage of approximately 25,000. The "B" stores offer a broad merchandise assortment that maximizes return on investment in these lower volume areas. The "A" format serves the least populated trade areas. Selling space in these stores averages approximately 9,000 square feet, and total square footage averages approximately 18,000. The "A" stores feature a layout, staffing levels and merchandise assortment that creates high productivity in the smallest markets. The five electronics-only stores offer the Company's full line of consumer electronics and a limited selection of major appliances. Selling space in these stores averages approximately 4,000 square feet with an average total square footage of approximately 8,000. The Company's 38 mall-based Circuit City Express stores are located in regional malls, average approximately 2,000 to 3,000 square feet in size and sell small, gift-oriented items. Page 7 of 14 The following table summarizes the Company's Circuit City stores as of April 30, 1996: Superstores Electronics- Mall D C B A Only Stores Total --- --- --- --- ---- ------ ----- Alabama - 5 - - - 1 6 Arizona 2 6 1 - - 1 10 Arkansas - 2 - - - - 2 California 7 56 9 2 - 1 75 Colorado 4 - - - - - 4 Connecticut 2 2 - - - - 4 Delaware - 1 - - - 1 2 District of Columbia - - - - - 1 1 Florida 3 23 7 - - 1 34 Georgia 2 9 3 - - 2 16 Illinois 6 18 4 - - 2 30 Indiana - 1 2 - - - 3 Kansas 1 - - - - - 1 Kentucky - 5 - - - - 5 Louisiana - 5 - - - - 5 Maryland 1 11 1 - 2 4 19 Massachusetts 1 7 3 - - 5 16 Michigan 5 - - - - - 5 Minnesota 1 7 - - - 3 11 Missouri 1 8 - - - 1 10 Nevada - 4 - - - - 4 New Hampshire - 4 - - - 1 5 New Jersey - 4 - - - - 4 New York 4 1 - - - 4 9 North Carolina 2 7 4 - - 2 15 Ohio 5 5 - - - 1 11 Oklahoma - 2 1 - - - 3 Oregon 2 3 - - - - 5 Pennsylvania - 7 1 1 - 2 11 Rhode Island - 1 - - - - 1 South Carolina 2 4 - - - 1 7 Tennessee 2 7 - - 1 - 10 Texas 3 27 4 5 - - 39 Utah 4 - - - - - 4 Virginia 1 12 5 4 - 4 26 Washington 3 3 1 - - - 7 West Virginia - - - - 2 - 2 Wisconsin 3 1 - - - - 4 --- --- --- --- --- --- --- 67 258 46 12 5 38 426 === === === === === === ===
Of the stores open at April 30, 1996, the Company owns 25 stores and leases the remaining 401 stores. The Company anticipates entering into sale-leaseback transactions for 10 of the owned stores during fiscal 1997. Of the remaining 15 owned stores, 10 have land leases and three are financed by Industrial Development Revenue Bonds that are collateralized by the applicable land, building and equipment. For information with respect to obligations for leases, see note 7 of the Notes to Consolidated Financial Statements on page 30 of the Company's 1996 Annual Report to Stockholders, which is incorporated herein by reference. Page 8 of 14 The Company owns a 388,000-square-foot consumer electronics/appliance distribution center in Doswell, Va., and a 387,000 square-foot consumer electronics/appliance distribution center in Atlanta, Ga. These distribution centers have been financed with Industrial Development Revenue Bonds. The Company owns the land but leases the two buildings in which its corporate headquarters is located. The Company leases space for all warehouse, service and office facilities except for the aforementioned properties. As of April 30, 1996, CarMax operated five Superstores, including two in Georgia, two in North Carolina, and one in Virginia. All of these properties are leased. In addition, CarMax owns a reconditioning facility in Florida that will be sold in a sale-leaseback transaction during fiscal 1997. Item 3. Legal Proceedings. In the normal course of business, the Company is involved in various legal proceedings. Based upon the Company's evaluation of the information presently available, management believes that the ultimate resolution of any such proceedings will not have a material adverse effect on the Company's financial position, liquidity or results of operations. Item 4. Submission of Matters to a Vote of Security Holders. No matter was submitted to a vote of security holders during the fourth quarter of the fiscal year ended February 29, 1996. Executive Officers of the Company. The following table identifies the present executive officers of the Company. The Company is not aware of any family relationship between any executive officers of the Company or any executive officer and any director of the Company. All executive officers are generally elected annually and serve for one year or until their successors are elected and qualify. The next general election of officers will occur in June 1996. Name Age Office ---- --- ------ Richard L. Sharp 49 Chairman of the Board, President and Chief Executive Officer Richard S. Birnbaum 43 Executive Vice President - Operations W. Stephen Cannon 44 Senior Vice President and General Counsel Michael T. Chalifoux 49 Senior Vice President, Chief Financial Officer and Corporate Secretary John A. Fitzsimmons 53 Senior Vice President - Administration W. Austin Ligon 45 Senior Vice President - Automotive W. Alan McCollough 46 Senior Vice President - Merchandising William E. Zierden 57 Senior Vice President - Human Resources Page 9 of 14 Mr. Sharp is a director and a member of the Company's executive committee. He joined the Company in 1982 as executive vice president and was elected president in 1984, chief executive officer in 1986, and chairman of the board in 1994. Mr. Birnbaum joined the Company in 1972. He was elected vice president in 1985, Central Division president in 1986, senior vice president - marketing in 1991, and executive vice president - operations in 1994. Mr. Cannon joined the Company in April 1994 as senior vice president and general counsel. Prior to joining the Company, he had been since 1986 a partner in Wunder, Diefenderfer, Ryan, Cannon & Thelen, a Washington, D.C., law firm. Mr. Chalifoux is a director and a member of the Company's executive committee. He joined the Company in 1983 as corporate controller and was elected vice president and chief financial officer in 1988. He was elected senior vice president in 1991 and became corporate secretary in 1993. Mr. Fitzsimmons joined the Company in 1987 as senior vice president - administration. Mr. Ligon joined the Company in 1990 as vice president - corporate planning and communications. He was elected senior vice president - corporate planning and communications in 1991, senior vice president - corporate planning and automotive in 1994, and senior vice president-automotive and CarMax president in 1996. Mr. McCollough joined the Company in 1987 as general manager of corporate operations. He was elected assistant vice president in 1989, vice president and Central Division president in 1991, and senior vice president merchandising in 1994. Mr. Zierden joined the Company in 1984 as vice president - human resources. He was elected senior vice president - human resources in 1989. Part II With the exception of the information incorporated by reference from the 1996 Annual Report to Stockholders in Item 2 of Part I and Items 5, 6, 7, and 8 of Part II and Item 14 of Part IV of this Form 10-K, the Company's 1996 Annual Report to Stockholders is not to be deemed filed as a part of this Report. Item 5. Market for the Company's Common Equity and Related Stockholder Matters. Incorporated herein by reference is the information appearing under the heading "Common Stock" on page 21 of the Company's 1996 Annual Report to Stockholders. As of May 3, 1996, there were 8,111 shareholders of record of the Company's common stock. Item 6. Selected Financial Data. Incorporated herein by reference is the information appearing under the heading "Reported Historical Information" on page 17 of the Company's 1996 Annual Report to Stockholders. Item 7. Management's Discussion and Analysis of Results of Operations and Financial Condition. Incorporated herein by reference is the information appearing under the heading "Management's Discussion and Analysis of Results of Operations and Financial Condition" on pages 17 through 21 of the Company's 1996 Annual Report to Stockholders, except for the information appearing on page 21 of such Annual Report under the heading "Common Stock." Page 10 of 14 Item 8. Financial Statements and Supplementary Data. Incorporated herein by reference is the information appearing under the headings "Consolidated Statements of Earnings," "Consolidated Balance Sheets," "Consolidated Statements of Cash Flows," "Consolidated Statements of Stockholders' Equity," "Notes to Consolidated Financial Statements," and "Independent Auditors' Report," on pages 22 through 33 of the Company's 1996 Annual Report to Stockholders. Incorporated herein by reference is the information appearing under the heading "Note 12. Quarterly Financial Data (Unaudited)" on page 32 of the Company's 1996 Annual Report to Stockholders. Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure. None. Part III With the exception of the information incorporated by reference from the Company's Proxy Statement in Items 10, 11, and 12 of Part III of this Form 10-K, the Company's Proxy Statement dated May 10, 1996, is not to be deemed filed as a part of this Report. Item 10. Directors and Executive Officers of the Company. The information concerning the Company's directors required by this Item is incorporated by reference to the section entitled "Election of Directors" appearing on pages 2 through 4 of the Company's Proxy Statement dated May 10, 1996. The information concerning the Company's executive officers required by this Item is incorporated by reference to the section in Part I hereof entitled "Executive Officers of the Company" appearing on page 8. The information concerning compliance with section 16(a) of the Securities Exchange Act of 1934 required by this Item is incorporated by reference to the section entitled "Section 16(a) Compliance" appearing on pages 14 and 15 of the Company's Proxy Statement dated May 10, 1996. Item 11. Executive Compensation. The information required by this Item is incorporated by reference to the sections entitled "Executive Compensation," "Employment Agreements and Change-In-Control Arrangements," and "Compensation of Directors," appearing on pages 7 through 9 and pages 13 and 14 of the Company's Proxy Statement dated May 10, 1996. Item 12. Security Ownership of Certain Beneficial Owners and Management. The information required by this Item is incorporated by reference to the section entitled "Beneficial Ownership of Securities" appearing on pages 5 and 6 of the Company's Proxy Statement dated May 10, 1996. Item 13. Certain Relationships and Related Transactions. None. Page 11 of 14 Part IV Item 14. Exhibits, Financial Statement Schedule and Reports on Form 8-K. (a) The following documents are filed as part of this Report: 1. Financial Statements. The following Consolidated Financial Statements of Circuit City Stores, Inc. and subsidiaries and the related Independent Auditors' Report are incorporated by reference to pages 22 through 33 of the Company's 1996 Annual Report to Shareholders: Consolidated Statements of Earnings for the fiscal years ended February 29, 1996, and February 28, 1995 and 1994. Consolidated Balance Sheets at February 29, 1996, and February 28, 1995. Consolidated Statements of Cash Flows for the fiscal years ended February 29, 1996, and February 28, 1995 and 1994. Consolidated Statements of Stockholders' Equity for the fiscal years ended February 29, 1996, and February 28, 1995 and 1994. Notes to Consolidated Financial Statements. Independent Auditors' Report. 2. Financial Statement Schedule. The following financial statement schedule of Circuit City Stores, Inc. for the fiscal years ended February 29, 1996, and February 28, 1995 and 1994 is filed as part of this Report and should be read in conjunction with the Consolidated Financial Statements of Circuit City Stores, Inc.: II Valuation and Qualifying Accounts and Reserves S-1 Independent Auditors' Report on Financial Statement Schedule S-2 Schedules not listed above have been omitted because they are not applicable or are not required or the information required to be set forth therein is included in the Consolidated Financial Statements or Notes thereto. 3. Exhibits. The Exhibits listed on the accompanying Index to Exhibits immediately following the financial statement schedules are filed as part of, or incorporated by reference into, this Report. (b) Reports on Form 8-K. The Company did not file any reports on Form 8-K during the last fiscal quarter covered by this Report. Page 12 of 14 SIGNATURES Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. CIRCUIT CITY STORES, INC. (Registrant) By s/ Richard L. Sharp Richard L. Sharp Chairman of the Board, President and Chief Executive Officer By s/ Michael T. Chalifoux Michael T. Chalifoux Senior Vice President, Chief Financial Officer and Corporate Secretary By s/ Keith D. Browning Keith D. Browning Vice President, Corporate Controller and Chief Accounting Officer May 20, 1996 Page 13 of 14 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons on behalf of the Registrant and in the capacities and on the dates indicated: Signature Title Date --------- ----- ---- Michael T. Chalifoux* Director May 20, 1996 Michael T. Chalifoux Richard N. Cooper* Director May 20, 1996 Richard N. Cooper Barbara S. Feigin* Director May 20, 1996 Barbara S. Feigin Theodore D. Nierenberg* Director May 20, 1996 Theodore D. Nierenberg Hugh G. Robinson* Director May 20, 1996 Hugh G. Robinson Walter J. Salmon* Director May 20, 1996 Walter J. Salmon Mikael Salovaara* Director May 20, 1996 Mikael Salovaara s/ Richard L. Sharp, Director May 20, 1996 Richard L. Sharp Edward Villanueva* Director May 20, 1996 Edward Villanueva Alan L. Wurtzel* Director May 20, 1996 Alan L. Wurtzel *By: s/ Richard L. Sharp, Richard L. Sharp, Attorney-In-Fact The original powers of attorney authorizing Richard L. Sharp and Michael T. Chalifoux, or either of them, to sign this annual report on behalf of certain directors and officers of the Company are included as exhibit 24. Page 14 of 14 Schedule II CIRCUIT CITY STORES, INC. AND SUBSIDIARIES Valuation and Qualifying Accounts and Reserves (Amounts in thousands)
Balance at Charged Charge-offs Balance at Beginning to less End of Description of Year Income Recoveries Year ----------- ------- ------ ---------- ---- Reserves deducted from assets to which they apply: Year ended February 28, 1994: Allowance for doubtful accounts $5,249 $4,604 $(3,002) $ 6,851 ====== ====== ======== ======== Year ended February 28, 1995: Allowance for doubtful accounts $6,851 $1,292 $(1,406) $ 6,737 ====== ====== ======== ======== Year ended February 29, 1996: Allowance for doubtful accounts $6,737 $5,078 $(1,790) $ 10,025 ====== ====== ======== ========
Independent Auditors' Report on Financial Statement Schedule The Board of Directors Circuit City Stores, Inc.: Under date of April 3, 1996, we reported on the consolidated balance sheets of Circuit City Stores, Inc. and subsidiaries (the Company) as of February 29, 1996 and February 28, 1995, and the related consolidated statements of earnings, stockholders' equity and cash flows for each of the fiscal years in the three-year period ended February 29, 1996, as contained in the February 29, 1996 annual report to stockholders. These consolidated financial statements and our report thereon are incorporated by reference in the annual report on Form 10-K for the year ended February 29, 1996. In connection with our audits of the aforementioned consolidated financial statements, we also have audited the related financial statement schedule as listed in Item 14(a)2 of this Form 10-K. This financial statement schedule is the responsibility of the Company's management. Our responsibility is to express an opinion on this financial statement schedule based on our audits. In our opinion, such schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein. s/ KPMG Peat Marwick LLP Richmond, Virginia April 3, 1996 Circuit City Stores, Inc. Annual Report on Form 10-K INDEX TO EXHIBITS (3) Articles of Incorporation and Bylaws (a) Amended and Restated Articles of Incorporation of the Company, effective January 26, 1990, filed as Exhibit 3(a) to the Company's Annual Report on Form 10-K for the fiscal year ended February 28, 1993, (File No. 1-5767) are expressly incorporated herein by this reference. (b) Articles of Amendment to the Amended and Restated Articles of Incorporation of the Company effective February 26, 1993, filed as Exhibit 3(b) to the Company's Annual Report on Form 10-K for the fiscal year ended February 28, 1993, (File No. 1-5767) are expressly incorporated herein by this reference. (c) Bylaws of the Company, as amended and restated February 15, 1996, filed as Exhibit 4(b) to the Company's Current Report on Form 8-K dated March 5, 1996, (File No. 1-5767) are expressly incorporated herein by this reference. (4) Instruments Defining the Rights of Security Holders, Including Indentures (a) Amended and Restated Rights Agreement dated March 5, 1996, between the Company and Norwest Bank Minnesota, N.A., as Rights Agent, filed as Exhibit 4(a) to the Company's Current Report on Form 8-K dated March 5, 1996, (File No. 1-5767) is expressly incorporated herein by this reference. (b) $100,000,000 Amended and Restated Credit Agreement dated June 30, 1995, between the Company; Signet Bank/Virginia; Crestar Bank; NationsBank, N.A. and; Bank of America, N.T. & S.A. Pursuant to Item 601(b)(4)(iii) of Regulation S-K, in lieu of filing a copy of such agreement, the Company agrees to furnish a copy of such agreement to the Commission upon request. (c) $100,000,000 term loan agreement dated July 28, 1994, between the Company and the Long-Term Credit Bank of Japan, Limited, as agent. Pursuant to Item 601(b)(4)(iii) of Regulation S-K, in lieu of filing a copy of such agreement, the Company agrees to furnish a copy of such agreement to the Commission upon request. (d) First Amendment to Term Loan Agreement dated October 24, 1995, to the $100,000,000 term loan agreement dated July 28, 1994, between the Company and the Long-Term Credit Bank of Japan, Limited, as agent. Pursuant to Item 601(b)(4)(iii) of Regulation S-K, in lieu of filing a copy of such agreement, the Company agrees to furnish a copy of such agreement to the Commission upon request. (e) $175,000,000 term loan agreement dated May 26, 1995, between the Company and LTCB Trust Company, as agent. Pursuant to Item 601(b)(4)(iii) of Regulation S-K, in lieu of filing a copy of such agreement, the Company agrees to furnish a copy of such agreement to the Commission upon request. (f) First Amendment to Term Loan Agreement dated October 24, 1995, to the $175,000,000 term loan agreement dated May 26, 1995, between the Company and LTCB Trust Company as agent. Pursuant to Item 601(b)(4)(iii) of Regulation S-K, in lieu of filing a copy of such agreement, the Company agrees to furnish a copy of such agreement to the Commission upon request. (10) Material Contracts* (a) Company's 1988 Stock Incentive Plan, filed as Exhibit 10(c) to the Company's Annual Report on Form 10-K for the fiscal year ended February 28, 1993, (File No. 1-5767) is expressly incorporated herein by this reference. (b) Amendments to the Company's 1988 Stock Incentive Plan filed as Exhibit 10(k) to the Company's Annual Report on Form 10-K for the fiscal year ended February 29, 1990, (File No. 1-5767) are expressly incorporated herein by this reference. (c) Amendment to the Company's 1988 Stock Incentive Plan filed as Exhibit 4(h) to the Company's Registration Statement on Form S-8 (Registration No. 33-50144) filed on July 28, 1992, is expressly incorporated herein by this reference. (d) Company's Amended and Restated 1989 Non-Employee Directors' Stock Option Plan, filed as Exhibit A to the Company's Definitive Proxy Statement dated May 12, 1995, for the Annual Meeting of Stockholders held on June 13, 1995, is expressly incorporated herein by this reference. (e) Company's 1994 Stock Incentive Plan filed as Exhibit 99 to the Company's Registration Statement on Form S-8 (Registration No. 033-56697) filed on December 1, 1994, is expressly incorporated herein by this reference. (f) Amendment adopted February 10, 1995, to the Company's 1994 Stock Incentive Plan filed as Exhibit 10(f) to the Company's Annual Report on Form 10-K for the fiscal year ended February 28, 1995, (File No. 1-5767) is expressly incorporated herein by this reference. (g) Letter agreement and non-compete agreement dated January 30, 1996, (revised February 12, 1996), between the Company and Alan L. Wurtzel is filed herewith. (h) Employment agreement between the Company and Richard L. Sharp dated October 17, 1986, and amendment dated August 1, 1989, to the employment agreement, filed as Exhibit 10(m) to the Company's Annual Report on Form 10-K for the fiscal year ended February 28, 1993, (File No. 1-5767) is expressly incorporated herein by this reference. (i) Employment agreement dated June 1, 1988, between the Company and John A. Fitzsimmons, filed as Exhibit 10(n) to the Company's Annual Report on Form 10-K for the fiscal year ended February 28, 1989, (File No. 1- 5767) is expressly incorporated herein by this reference. (j) Amendment dated August 1, 1989, to employment agreement dated June 1, 1988, between the Company and John A. Fitzsimmons, filed as Exhibit 10(o) to the Company's Annual Report on Form 10-K for the fiscal year ended February 28, 1993, (File No. 1-5767) is expressly incorporated herein by this reference. (k) Employment agreement dated May 25, 1989, between the Company and Michael T. Chalifoux, filed as Exhibit 10(x) to the Company's Annual Report on Form 10-K for the fiscal year ended February 28, 1991, (File No. 1- 5767) is expressly incorporated herein by this reference. (l) Employment agreement dated April 24, 1995, between the Company and W. Alan McCollough is filed herewith. (m) Amended and restated employment agreement dated May 12, 1995, between the Company and Richard S. Birnbaum filed as Exhibit 10(s) to the Company's Annual Report on Form 10-K for the fiscal year ended February 28, 1995, (File No. 1-5767) is expressly incorporated herein by this reference. (n) Company's Annual Performance-Based Bonus Plan filed as Exhibit B to the Company's Definitive Proxy Statement dated May 13, 1994, for the Annual Meeting of Stockholders held on June 14, 1994, (File No. 1-5767) is expressly incorporated herein by this reference. (o) Program for deferral of director compensation implemented October 1995 filed as Exhibit 10(i) to the Company's Quarterly Report on Form 10-Q for the quarter ended November 30, 1995, (File No. 1-5767) is expressly incorporated herein by this reference. (13) Annual Report to Stockholders (21) Subsidiaries of the Company (23) Consents of Experts and Counsel Consent of KPMG Peat Marwick LLP to Incorporation by Reference of Independent Auditors' Reports into the Company's Registration Statements on Form S-8. (24) Powers of Attorney (27) Financial Data Schedule * All contracts listed under Exhibit 10 are management contracts, compensatory plans or arrangements of the Company required to be filed as an exhibit. EX-10 2 EXHIBIT 10(G) - EMPLOYMENT AGREEMENT THIS AGREEMENT (hereinafter called the "Non-Compete Agreement" ) is made as of January 30, 1996 (revised February 12, 1996), by and between CIRCUIT CITY STORES, INC., (the "Company"), a Virginia Corporation, and Alan L. Wurtzel. The parties agree as follows: ARTICLE I Commitments (1) Non-competition. You agree that you will not, without the prior written consent of the Company, engage in competition with the Company or its subsidiaries by being associated with any Competing Business (as hereinafter defined) during the term of this Non- Compete Agreement. For purposes of this Article, you will be deemed to have associated with a Competing Business if you: (1) directly or indirectly, alone or as a member of a partnership, own greater than a 5% interest in; or (2) manage, operate, control, or act as a consultant to; or (3) serve as an officer or director or in any managerial or executive position; with any Competing Business. A "Competing Business" is any business entity which engages in the Business of the Company and engages in Substantial Competition with the Company or its subsidiaries in one or more Metropolitan Statistical Areas ("MSA"), in which the Company or its subsidiaries have their operation, or in which, as of January 31, 1996, the Company or its subsidiaries are engaged in real estate site selection or have taken further steps toward the commencement of operation in the future, either alone or in association with another entity ("Future Statistical Areas"), and in which the Company and its subsidiaries collectively produced, or, in the case of Future Statistical Areas, are projected to produce in the first year of operations, more than $5 million of gross sales. A business will not be considered to be in "Substantial Competition" with the Company or its subsidiaries if: (1) the business or the operating unit of the business in which you are employed or with which you are associated (the "Business Unit") is not engaged in the Business of the Company; or (2) if sales of the Business Unit's products or services in the Business of the Company constitute less than 10% of such Business Unit's sales; or (3) if the sales of the Business Unit in the Business of the Company do constitute more than 10% of the sales of the Business Unit, but there is not significant geographic overlap between such Business Unit and the Company's business locations. For the purposes of this provision, there will not be a significant geographic overlap if less than 10% of the sales of such Business Unit and less than 10% of the Company's and/or the relevant subsidiaries' sales (i) are in the same MSA or (ii) are projected to be in the same MSA within the first year of operations in the case of Future Statistical Areas. The term "Business of the Company" is defined as: (a) retail sales and service of consumer electronics or appliances (with or without after-sale service) or (b) the purchase or sale of motor vehicles (with or without providing after-sale service) or (c) any other line of business in which the Company or its subsidiaries become engaged before the termination of this agreement (September 30, 1998). In every case, the good faith judgement of the Board of Directors shall be conclusive as to whether you are associated with a Competing Business. initials Alan L. Wurtzel Non-Compete Agreement January 30, 1996 (revised February 12, 1996) Page 2 (2) Non-solicitation. You agree that during the term of this Non-Compete Agreement and for a period of two years following its termination, you will not, without the prior written consent of the Company, directly or indirectly engage in efforts to induce the Company's or its subsidiaries' employees to terminate their employment for the purpose of being employed by another business entity. (3) Confidential Information. You recognize that by virtue of your previous position and tenure with the Company in an executive capacity, you have and will continue to have access to trade secrets and other confidential information of the Company and its subsidiaries in whatever form as documents, software, C.D. Rom, firmware, brochures, data, materials, knowledge, graphs, pictures and the like including, but not limited to, the Company's business methods, expansion strategies, expansion plans, merchandising and marketing techniques or policies, training techniques, internal operations, supplier information, pricing information, internal corporate planning methods, systems and operating procedures and other business matters (the "Confidential Information"). You recognize and acknowledge that such Confidential Information, as may exist from time to time, is a valuable, special and unique asset of the Company and its subsidiaries, and that this Confidential Information and its use have been responsible for the rapid growth and nationwide expansion of the Company and its subsidiaries, and if known by an entity engaged in the "Business of the Company," would cause irreparable harm to the Company and its subsidiaries. Therefore, you will not: (A) Disclose in any manner that might adversely affect the Company or its subsidiaries any Confidential Information belonging to or in the possession of the Company or its subsidiaries; or (B) Except in your capacity as a Director, remove any Confidential Information from the premises of the Company or its subsidiaries or, in any case fail or refuse to surrender the same to the Company or its subsidiaries immediately upon their request; or (C) Disclose to or use for the benefit or purposes of anyone engaged in the Business of the Company or its subsidiaries, any trade secrets or other Confidential Information, whether you learned the information before or after signing this Agreement. initials Alan L. Wurtzel Non-Compete Agreement January 30, 1996 (revised February 12, 1996) Page 3 ARTICLE II Term The term of this Non-Compete Agreement is from February 1, 1996 through September 30, 1998. ARTICLE III Compensation In consideration of your executing this Non-Compete Agreement and agreeing to be bound by its terms, the Company will: (1) Pay you $258,750.00 during the period February 1, 1996 through September 30, 1998. This amount will be paid in equal monthly payments of $8,085.93. (2) Pay you an additional monthly payment during the term of this Non-Compete Agreement. This amount is described in detail in paragraph 3.a. through 3.g. (and on Exhibit 1) of the Retirement Status Letter to you dated January 30, 1996 (revised February 12, 1996) ("the Letter"). The current amount of this additional payment is $3,1892.45 per month, but it is subject to adjustment under certain conditions which are described in the Letter. (3) Make available to you coverage under a health care plan as an alternative to COBRA. This plan is described in the Letter and in the Plan description. ARTICLE IV Death In the event that you die prior to September 30, 1998, your designated beneficiary will receive one-half of the remaining monthly payments mentioned in Article III(1) for the period of time between your death and September 30, 1998. initials Alan L. Wurtzel Non-Compete Agreement January 30, 1996 (revised February 12, 1996) Page 4 ARTICLE V Notices Any notice or other communication ("Notice") required under this Non-Compete Agreement shall be in writing and shall be deemed to have been given or made when personally delivered, or when mailed by registered or certified mail, postage prepaid, return receipt requested, to the other party. In the case of the Company, any Notice shall be delivered or mailed to its principal office to the attention of the senior Human Resources officer. Any notices shall be delivered or mailed to your last known address as reflected in the records of the Company. ARTICLE VI Assignment This Non-Compete Agreement shall not be assignable by you. However, the Company may assign it to an entity under common control with the Company or to an entity which succeeds to the portion of the Company's business in which you were previously employed. ARTICLE VII Entire Agreement; Amendments This Non-Compete Agreement and the Retirement Status Letter constitute the entire agreement and supersede all other prior agreements and understandings, both written and oral, express or implied, related to the subject matter contained herein, between you and Circuit City Stores, Inc. The Employment Agreement dated June 21, 1983, as amended by letter agreement dated September 8, 1983; December 2, 1986; May 24, 1989; and June 16, 1992 (the "Employment Agreement"), between you and Circuit City Stores, Inc., is specifically terminated as of January 31, 1996. In addition, your employment is also terminated effective that date. This Non-Compete Agreement may be amended or terminated only by a writing executed by both parties. initials Alan L. Wurtzel Non-Compete Agreement January 30, 1996 (revised February 12, 1996) Page 5 ARTICLE VIII Governing Law This Non-Compete Agreement shall be governed by and construed and enforced in accordance with the laws of the Commonwealth of Virginia. ARTICLE IX Penalties for Breach In the event that the Company gives written notice to you that you have breached your obligations under Article I, the Company shall be entitled to suspend its obligation to make the payments provided for under Article III(1) and (2) of this Non-Compete Agreement. These obligations shall remain suspended pending a judicial determination (or other resolution agreed to by the Company and you) of the issue. In the event that it is determined that you have not breached your obligations, the Company shall immediately pay you the suspended payments and shall resume making any remaining payments due to you under Article III(1) and (2) on the schedule described therein. In the event that it is determined that you have breached your obligations, in addition to any other remedies which may be available to it, the Company shall be entitled to elect one of the following alternatives: 1. The Company may terminate this Non-Compete Agreement, retain the suspended payments and provide no further payments or other benefits to you under Article III. The Company's election of this alternative shall not reduce its rights to recover any damages to which it is determined to be entitled as a result of your breach of your obligations under this Non-Compete Agreement. or 2. The Company may continue this Non-Compete Agreement in effect. If the Company elects this alternative, you shall comply with your obligations under this Non-Compete Agreement until its expiration and, subject to the Company's set-off rights described below, the Company shall pay you the initials Alan L. Wurtzel Non-Compete Agreement January 30, 1996 (revised February 12, 1996) Page 6 suspended payments and shall resume making any remaining payments under Article III(1) and (2) on the schedule described therein. The Company shall be entitled to set-off any damages to which it is determined to be entitled as a result of your breach of your obligations under this Non-Compete Agreement against the suspended payments and any remaining payments due to you during the remainder of the term of this Non-Compete Agreement. ARTICLE X Waiver Failure to insist upon strict compliance with any term or condition of this Non- Compete Agreement shall not constitute a waiver of the term or condition, nor shall any waiver or relinquishment of any right or power under this Non-Compete Agreement at any one or more times be deemed a waiver or relinquishment of such right or power at any other time. ARTICLE XI Severability If any Article, paragraph, sentence, or clause hereof, including, without limitation, Article I, is deemed invalid or unenforceable in whole or in part in any jurisdiction, all the other Provisions in this Non-Compete Agreement including the affected Provision, to the extent it is not deemed invalid or unenforceable, shall remain in full force and effect in that, and any other, jurisdiction and shall be liberally construed in order to effectuate the purpose and intent of this Non-Compete Agreement. The invalidity or unenforceability of any Provision of this Non-Compete Agreement in any jurisdiction shall not affect the validity or enforceability of that Provision in any other jurisdiction. The offer contained herein remains open until 5 p.m. on February 16, 1996. To confirm that this Non-Compete Agreement states our agreement, please sign the enclosed copy on the line above your name, date it, initial each page in the space provided for that purpose, and return the copy to Wanda Moser, Personnel Operations Manager, in the enclosed envelope by February 16, 1996. This Non-Compete Agreement is not effective until received by Wanda Moser, who will sign it to verify receipt and will send you a fully executed copy for your records. Alan L. Wurtzel Non-Compete Agreement January 30, 1996 (revised February 12, 1996) Page 7 IN WITNESS WHEREOF, the parties have executed this Non-Compete Agreement on the day and the year first written below. CIRCUIT CITY STORES, INC. By: s/Richard L. Sharp 2/12/96 Richard L. Sharp Date President and Chief Executive Officer AGREED: s/Alan L. Wurtzel 2/13/96 Alan L. Wurtzel SS# ###-##-#### Date RECEIVED: s/Wanda Moser 2/21/96 Wanda Moser Date initials January 30, 1996 Revised February 12, 1996 Alan L. Wurtzel 2134 R Street NW Washington, DC 20008 Dear Alan, As Bill Zierden and I have discussed with you, we are proposing to change the agreement which currently exists between you and Circuit City Stores, Inc. (the "Company"). The following summarizes what we have proposed: A. Your active employment with the Company will end as of January 31, 1996. Your current Employment Agreement, which is dated June 21, 1983, as amended by letter agreement dated September 8, 1983; December 2, 1986; May 24, 1989; and June 16, 1992 (the "Employment Agreement") will remain in effect through January 31, 1996 (subject to the provisions of paragraph F below), at which time it will terminate and will be succeeded by a new agreement as described in C below. B. You may remain on the Board of Directors through the end of your current term, subject to the removal rights of the Company's shareholders. You may be renominated for subsequent terms at the discretion of the nominating committee and the Board. As long as your Non-Compete Agreement is in effect, you will not be entitled to the annual retainer paid to the Directors or the committee service or attendance fees. You will be entitled to reimbursement of expenses paid to Directors for attendance at meetings. As long as you remain on the Board of Directors and such plan remains in effect, you will be eligible to participate in the 1989 Non-Employee Directors' Stock Option Plan. C. In exchange for your execution of a non-compete, confidentiality and nonsolicitation agreement (the "Non-Compete Agreement") which is dated January 30, 1996 (revised February 12, 1996), we have agreed, subject to the terms of the Non-Compete Agreement: 1. to pay you a total of $258,750.00 during the period February 1, 1996 initials Alan L. Wurtzel Retirement Status Letter January 30, 1996 (Revised February 12, 1996) Page 2 through September 30, 1998. Payments will be made in 32 equal monthly payments of $8,085.93; 2. to offer you the option to join a small-group medical plan with Blue Cross/Blue Shield of Virginia (Trigon). This option is available to you as an alternative to medical coverage under COBRA (described in paragraph D.1). If you enroll in the BC/BS plan on February 1, 1996, you may remain in it until you reach age 65. The Company will pay 25% of the cost for you and your present spouse until each of you reach age 65. (In the event that you die prior to the expiration of the Non-Compete Agreement, Circuit City will continue to pay 25% of the premium for your present spouse until she reaches age 65.) However, in no event will coverage for either of you continue beyond age 65. Based on the rates currently in effect, your cost (75% of the total premium) to cover you and your spouse would be $458.19 per month. This monthly contribution amount will change if there is a change in the total cost of the premium. Coverage for eligible family members will continue as long as they meet the definition for eligible family members as defined by the BC/BS Plan. You have received a booklet describing the Plan, its benefits and requirements, and an Enrollment Application. Although the Company expects our relationship with BC/BS to be a long one, as always, the Company reserves the right to change insurance carriers and/or amend benefits. If you secure other employment and are eligible to be covered under the medical plan of a new employer, coverage and payments under this provision will cease; 3. to pay you an additional monthly payment of $3,189.45 during the term of the Non-Compete Agreement. This amount was derived by adding the amounts listed in 3.a. through 3.g. below and is subject to change if any of the items which comprise the monthly payments change. In addition to the explanations below, Exhibit 1 details how these monthly payments were calculated. These amounts are: a) $319.16 per month to reimburse you the cost of coverage for you and your current spouse in the above-mentioned BC/BS Plan. This amount has been calculated by taking the cost of your participation in this Plan (which is currently $458.19/month or 25% of the total) less the amount of the current associate contribution of $139.00/month. This monthly amount is subject initials Alan L. Wurtzel Retirement Status Letter January 30, 1996 (Revised February 12, 1996) Page 3 to change if: 1) the total cost of the BC/BS premium changes as a result of premium increases and/or an increase or decrease due to a change in coverage (an example of this would be if you were to stop covering your current spouse) or 2) the amount of the associate contribution changes. b) $146.00 per month to replace the benefits you would have received under the Dental Plan had you continued to be employed and had you continued to be covered under that Plan. The maximum benefit you are currently eligible to receive under the Dental Plan is $1000 per year for each of you and your current spouse ($2000/year or $167 per month [less $21/month which you are currently paying for your dental premium]). We do not have a dental plan similar to the BC/BS medical plan to offer you. However, you do have the option to remain in the current Dental Plan through COBRA for up to a legally-specified period of time following the termination of your employment, at your expense, by paying the full cost of the COBRA premium. If you elect to continue coverage under COBRA, the monthly payments of $146.00 will not begin until your coverage under COBRA ends. c) $250 per month to replace your current life insurance coverage. This has been calculated by taking the average of your consultant compensation during the period of the Non-Compete Agreement ($95,000/year) x three x the cost of replacement coverage, less the amount of your current contribution. d) $330.67 per month to cover the employer side of your federal FICA taxes, which were previously paid by the Company. Using an average wage base of $64,000 for the term of the Agreement x 6.2%, this comes to $330.67 per month. e) $181.25 per month to cover the employer side of your FICA Medicare taxes, which were previously paid by the Company. Using an average wage base of $150,000 for the term of the Agreement (this amount includes your secretaries' salary) x 1.45%. f) $1,104.37 per month to cover the "gross up" for federal and state income taxes at the maximum rate for the amounts you are receiving under 3.a., 3.b., 3.c., 3.d., and 3.e. above. This amount is subject to change if the monthly amounts paid to you initials Alan L. Wurtzel Retirement Status Letter January 30, 1996 (Revised February 12, 1996) Page 4 for Medical or Dental insurance changes. (This amount was calculated by taking the total of the monthly payments in 3.a., 3.b., 3.c., 3.d. and 3.e. ($319.16 + $250 + $146 + $330.67 + $181.25 = $1,227.08) x 90%). g) $858 per month, which is in lieu of the car allowance which you presently receive as a senior executive of the Company. While this benefit is currently $858/month, it is subject to change if the amount allotted for senior executives in the Company changes; 4. pay you a lump sum of $56,565.00, which is the net present value of the difference between the benefit you would have earned if you remained full time until age 65 and your actual earned benefit under the Retirement Plan. This amount will be paid to you within ten working days of our receipt of the executed Non-Compete Agreement. 5. for the Company to continue to provide you with secretarial support. This support will be on the same basis as it currently exists, that is, the Company will employ secretarial support for you and provide you with the appropriate computer equipment (hardware, software, etc.) for that person to use. Upon the termination of the Non-Compete Agreement, you will need to make arrangements to return or purchase the aforementioned computer equipment. 6. for the Company to continue to provide you with tax preparation advice, up to $10,000 per year. This amount is subject to adjustment if is the amount approved by the Compensation Committee of the Board of Directors changes for any associates at the senior executive level. 7. for you to continue your participation in the O.E.P. program during the term of your Non-Compete Agreement. At the termination of the Non- Compete Agreement, you may purchase the merchandise which you have on loan for cost less 10%. D. A recap of the status of your participation in our benefit plans upon the termination of your employment (January 31, 1996) is as follows: 1. Medical - If you do not choose to join the BC/BS Plan, you may elect to remain in the Company's medical plan, under a federal law known as COBRA (Consolidated Omnibus Reconciliation Act of 1985). Under COBRA, your coverage can continue for up to a legally specified period of time. You will be responsible for paying the entire cost of COBRA initials Alan L. Wurtzel Retirement Status Letter January 30, 1996 (Revised February 12, 1996) Page 5 coverage. Information regarding COBRA coverage will be sent to your home shortly after February 1, 1996. 2. Dental - You may also elect to continue your dental coverage under COBRA. There is no additional option (similar to the BC/BS Plan described in B.3. above) available for dental coverage. You will be responsible for paying the entire cost of COBRA coverage. Again, information will be mailed to your home shortly after February 1, 1996. 3. Group Life Insurance - Your group life insurance (basic and supplemental) will end January 31, 1996. You have 31 days to convert to an individual policy with our carrier. Individual policy rates will be different from our group rate. (Contact Mary Gill on ext. 4475 for conversion forms.) 4. Long Term Disability - Your Long Term Disability coverage will end on your termination date of January 31, 1996. Our plan does not allow conversion to an individual plan. You have acknowledged that you will not be specifically compensated for the termination of this benefit. 5. Retirement Plan - Your participation as an active participant in the Retirement Plan ends as of the date of your termination of employment. However, the termination of your employment does not effect any retirement benefits vested prior to your termination date. E. A recap of the status of your participation in other Company programs upon the termination of your employment is as follows: 1. Car Allowance - Your monthly car allowance as an active associate will end as of January 31, 1996. 2. O.E.P. - You may continue to remain in this program until your Non- Compete Agreement terminates. At the termination of your Non- Compete Agreement you will need to make arrangements to either return or purchase any merchandise which you have. 3. Associate Discount - As a retiree with at least 20 years of service, you may continue to purchase product at Circuit City stores at the Associate Discount price. initials Alan L. Wurtzel Retirement Status Letter January 30, 1996 (Revised February 12, 1996) Page 6 4. Secretarial Support - You can continue to receive secretarial support until the end of the month in which your Non-Compete Agreement ends. This will continue to be reported as income to you, on the same basis that it is currently calculated. 5. Tax Advice - You will continue to participate in this program until your Non-Compete Agreement terminates. You are currently eligible for up to $10,000 per year, however this amount is subject to change as referenced in paragraph C.6.. As with the secretarial support, this will be reported as income to you. F. The above-mentioned agreements and understandings are based on the assumption that you remain an active, part-time employee of the Company between today and January 31, 1996. The Company's obligations under these agreements will terminate immediately in the event that your employment is terminated for "cause" prior to February 1, 1996. ("Cause" is defined in paragraph F of your Employment Agreement.) In the event that you die prior to the start date of the Non-Compete Agreement, the terms of your relationship with the Company will be defined solely by the terms of your Employment Agreement, and the Company's obligations under the agreements dated January 30, 1996 will terminate as of the date of your death. G. Assuming you accept the Non-Compete Agreement, any income received by you under this Agreement (explained in paragraph C above) will be reported as income to you on a 1099. Please sign below to indicate your acknowledgement and acceptance of these agreements. Also, please indicate your choice regarding medical plan election. Attached to this letter are two copies of the Non-Compete Agreement, and an extra copy of this letter. To execute these, please initial each page, sign each in the space provided, and return one copy of each (with your original signature) to Wanda Moser, in the enclosed envelope. Sincerely, s/Richard L. Sharp Richard L. Sharp President and Chief Executive Officer Alan L. Wurtzel Retirement Status Letter January 30, 1996 (Revised February 12, 1996) Page 7 attachment: Exhibit 1 - Calculations of Amounts for the Non-Compete Agreement ACKNOWLEDGED AND ACCEPTED: 2/13/96 s/Alan L. Wurtzel Date Alan L. Wurtzel SS# ###-##-#### initials Alan L. Wurtzel Retirement Status Letter January 30, 1996 (Revised February 12, 1996) Page 8 MEDICAL PLAN ELECTION ___X___ I elect to participate in the the Blue Cross/Blue Shield medical plan as outlined in C.2. above. _______ I elect to not participate in the above-mentioned Blue Cross/Blue Shield Plan 2/13/96 s/ Alan L. Wurtzel Date Alan L. Wurtzel SS# ###-##-#### initials EX-10 3 EXHIBIT 10(L) EMPLOYMENT AGREEMENT THIS AGREEMENT is made as of April 24, 1995, by and between CIRCUIT CITY STORES, INC., (the "Company"), a Virginia Corporation, and Warren A. McCollough, (the "Employee"). The parties agree as follows: ARTICLE I Services The Company agrees to employ the Employee as Senior Vice President during the term of this Agreement. The Employee agrees to devote his full time and attention to the business of the Company and to the faithful performance of his duties as Senior Vice President and to the performance of such additional duties as may be assigned to him from time to time by the Company's Board of Directors (the "Board") or Chief Executive Officer. At any time and from time to time while this agreement is in force, the Employee may be appointed to such other executive positions and be given such other titles and executive responsibilities as the Board may determine. ARTICLE II Term The Company agrees to employ the Employee and the Employee agrees to serve the Company for a term beginning as of April 24, 1995 and continuing through April 23, 1997. The term of this Agreement shall be automatically extended for additional one-year periods unless either party notifies the other in writing at least one year before the end of the then-current term that it does not wish to extend the term. For example, if such a notice is not given by April 24, 1996, the term of this Agreement shall extend through April 23, 1998. However, in order for the contract to expire on that date, notice must be given by April 24, 1997. If no such notice is given, the term shall extend through April 23, 1999. This Agreement may be terminated prior to its expiration by either the Company or the Employee. The consequences of such a termination are described in other provisions of this Agreement. initials Page 1 Warren A. McCollough Employment Agreement April 24, 1995 ARTICLE III Compensation The Employee's compensation shall include: (1) Base salary, as determined by the Board or the Compensation and Personnel Committee of the Board (the "Committee") following an annual review of the Employee's compensation. Until June 1, 1996, such base salary will be $380,000.00/annually. (2) Cash bonuses in accordance with the Company's annual bonus program established by the Board or the Committee and on a basis no less favorable than that applicable to other senior management employees and such other cash bonuses as the Board or the Committee, in their discretion, may determine from time to time. (3) Participation in the Company's stock incentive programs to the extent the Board or the Committee, in their discretion determines is appropriate for senior management employees. (4) Participation in the Company's pension and other benefit plans and all of the Company's fringe benefit and executive compensation programs for senior management employees not otherwise provided for in this Agreement in accordance with the terms and provisions of those plans and programs, as they may be in effect from time to time. In addition, the Company shall reimburse the Employee for all reasonable and necessary expenses incurred by the Employee in connection with the performance of his duties hereunder in accordance with corporate policies and procedures covering travel and business expense reimbursement, as they may be in effect from time to time. The Employee may elect to defer all or any part of his salary or bonus by filing a written election (the "Election") to that effect with the Secretary of the Company. As to salary, the Election shall be effective only with respect to compensation for services performed after the Employee files the Election. As to bonuses, the Election shall be effective only with respect to bonuses determined and awarded to the Employee after the Employee files the Election. Any amounts deferred by the Employee will be credited to an account established for him on the books of the Company. This account will also be credited as of the end of each fiscal year, until such time as no balance remains in the account, with initials Page 2 Warren A. McCollough Employment Agreement April 24, 1995 an additional amount equal to the product of (a) the average balance credited to the account during that fiscal year and (b) a percentage which shall be the time weighted average of the prime rate announced by Signet Bank from time to time during such fiscal year. The total amount credited to this account will become payable to the Employee after his termination of employment upon such payment schedule as he may specify in the Election. If termination of employment occurs by reason of death, or if the Employee dies after payments have commenced, any remaining payments will be made to one or more beneficiaries designated by the Employee in a writing filed with the Secretary of the Company. If the Employee fails to designate a beneficiary, or if all the designated beneficiaries predecease him, payment of the remaining unpaid balance in the account will be made to the Employee's estate. The Company reserves the right to accelerate payments or to make payment of the amounts remaining unpaid in a lump sum. All determinations made and actions taken by the Company under this Article shall be binding upon the beneficiaries and the Employee's estate. The Employee's rights, or the rights of any beneficiary, are those of a general creditor of the Company. ARTICLE IV Confidential Information The Employee recognizes that by virtue of his present position and his tenure with the Company in an executive capacity, he has and will continue to have access to Company trade secrets and other confidential information in whatever form as documents, software, C.D. Rom, firmware, brochures, data, materials, knowledge, graphs, pictures and the like including, but not limited to, the Company's business methods, expansion strategies, expansion plans, merchandising and marketing techniques or policies, training techniques, internal operations, supplier information, pricing information, internal corporate planning methods, systems and operating procedures and other business matters (the "Confidential Information"). The Employee recognizes and acknowledges that such Confidential Information, as may exist from time to time, is a valuable, special and unique asset of the Company, and that this Confidential Information and its use have been responsible for the rapid growth and nationwide expansion of the Company, and if known by an entity engaged in the "Business of the Company," would cause irreparable harm to the Company. The "Business of the Company", shall be defined as: (a) retail sales and service of consumer electronics or appliances (with or without after-sale service) or (b) the purchase or sale of motor vehicles (with or without providing after-sale service) or c) any other line of business in which the Company becomes engaged before the date the Employee's employment terminates. initials Page 3 Warren A. McCollough Employment Agreement April 24, 1995 Therefore, except in performing his duties as an employee of the Company, the Employee shall not: (1) Make or cause to be made any reproductions of any Confidential Information belonging to or in the possession of the Company; or (2) Remove any Confidential Information from the premises of the Company or fail or refuse to surrender the same to the Company immediately upon the termination of his employment or at any prior time upon the Company's request; or (3) Use for his own benefit or purposes or disclose to or use for the benefit or purposes of anyone other than the Company, both during his employment and after the termination of his employment, any trade secrets or other Confidential Information, whether he learned the information before or after signing this Agreement. ARTICLE V Non-competition and Non-solicitation (1) Non-competition. Except as hereinafter provided, the Employee agrees that he will not, without the prior written consent of the Company, engage in competition with the Company by being associated with any Competing Business (as hereinafter defined) during the term of this Agreement and for a period of one year following its termination or expiration. For purposes of this Article, the Employee will be deemed to have associated with a Competing Business if he: (1) directly or indirectly, alone or as a member of a partnership, owns greater that a 5% interest in; or (2) manages, operates, controls, or acts as a consultant to; or (3) serves as an officer or director or in any managerial or executive position; with any Competing Business. A "Competing Business" is any business entity which engages in the Business of the Company and engages in Substantial Competition with the Company in one or more Metropolitan Statistical Areas ("MSA"), in which the Company has its operation, or in which, at the date the Employee's employment terminates, the Company is engaged in real estate site selection or has taken further steps toward the commencement of operation in the future, either alone or in association with another entity ("Future Statistical Areas"), and in which the Company collectively produced, or, in the case of Future Statistical Areas, is projected to produce in the first year of operations, more than $5 million of gross sales. A business will not be considered to be in "Substantial Competition" with the Company if: (1) the business or the operating unit of the business in which the Employee is employed or with initials Page 4 Warren A. McCollough Employment Agreement April 24, 1995 which the Employee is associated (the "Business Unit") is not engaged in the Business of the Company; or (2) if sales of the Business Unit's products or services in the Business of the Company constitute less than 10% of such Business Unit's sales; or (3) if the sales of the Business Unit in the Business of the Company do not constitute more than 10% of the sales of the Business Unit, but there is not significant geographic overlap between such Business Unit and the Company's business locations. For the purposes of this provision, there will not be a significant geographic overlap if less than 10% of the sales of such Business Unit and less than 10% of the Company's sales (i) are in the same MSA or (ii) are projected to be in the same MSA within the first year of operations in the case of Future Statistical Areas. The term "Business of the Company" is defined in Article IV. In every case, the good faith judgement of the Committee shall be conclusive as to whether the Employee is associated with a Competing Business. (2) Non-solicitation. The Employee agrees that during the term of this Agreement and for a period of two years following its termination, he will not, without the prior written consent of the Company, directly or indirectly engage in efforts to induce the Company's employees to terminate their employment for the purpose of being employed by another business entity. (3) Change of Control. In the event that the Employee's employment is terminated within two years following a Change of Control (Change of Control being defined in Article VII) under circumstances described in Article VI(2), the Employee shall not be bound by the provisions of this Article. ARTICLE VI Termination by the Company (1) For Cause. The Company may immediately terminate the Employee's employment at any time prior to the expiration of this Agreement for "cause". For purposes of this Agreement, the following shall be "cause" for termination. (a) continued and deliberate neglect by the Employee of his employment duties; or (b) criminal misconduct of the Employee in connection with the performance of any of his duties, including, by way of example but not limitation, misappropriation of funds or property of the Company or accepting bribes or kickbacks in connection with any transaction entered into on behalf of the Company; or initials Page 5 Warren A. McCollough Employment Agreement April 24, 1995 (c) failure of the Employee to disclose to the Board a conflict of interest, of which he knew or, with reasonable diligence, would have known, in connection with any transaction entered into on behalf of the Company; or (d) conduct by the Employee that would result in material injury to the reputation of the Company if he were retained in his position with the Company; or (e) the Employee's conviction of a felony; or (f) a preliminary or permanent injunction or similar remedy is entered against the Employee, the Company or both preventing the Employee or the Company from performing all or part of this Agreement; or (g) breach by the Employee of the provisions of Articles IV or V of this Agreement; or (h) deliberate actions by the Employee which are contrary to the best interests of the Company. In every case, the good faith judgement of the Committee shall be conclusive as to whether cause for termination exists. In the event of a termination for cause, which shall include resignation by the Employee at the Company's request at a time when cause for termination exists, the Employee shall forfeit the right to any compensation (other than deferred compensation) under this Agreement after the date of termination, except to the extent that the terms of any plans or programs referred to in Article III (4) or any applicable law require otherwise. (2) Without Cause. The Company may terminate the Employee's employment agreement at any time prior to the expiration of this Agreement without cause ("cause" being defined in Article VI(1)). In the event: (a) the Employee's employment is terminated by the Company without cause; (b) the Employee resigns at the Company's request at a time when no cause for termination exists; or (c) the Employee voluntarily terminates his employment as a result of a reduction in compensation or benefits (which is not part of a prorata reduction in executive compensation or benefits for the Company's senior executives) or as a result of a significant reduction in the Employee's responsibilities, and the voluntary termination occurs within 60 days after such reduction, the Employee shall forfeit the right to any compensation (other than deferred compensation) under this Agreement after the date of termination except: initials Page 6 Warren A. McCollough Employment Agreement April 24, 1995 (i) 12 months of base salary, payable in biweekly installments over the following 12 months; and, in the event that the termination of employment occurs within two years following a Change of Control (Change of Control being defined in Article VII), an additional 12 months of base salary, payable in biweekly installments over the second 12-month period immediately following such termination; and (ii) a pro-rated bonus for the fiscal year in which the Employee's employment is terminated, if the termination occurs on or after September 1st of that fiscal year. The proration will be based on the number of complete months the Employee worked in that fiscal year, will be in accordance with the bonus program for such fiscal year, and will be payable within two weeks of when bonuses are distributed, and (iii) a prorated bonus for the prior fiscal year, if the Employee worked six or more months in the prior fiscal year, and if the Employee's termination date is between March 1st and the date bonuses are distributed for the prior fiscal year (if bonuses are awarded for the prior fiscal year). In this event, the bonus will be prorated for the number of complete months the Employee worked in the prior fiscal year, and (iv) Continued participation, as if still employed, in the Company's medical and dental insurance plans through the end of the month in which the Employee's severance payments end to the extent permitted by the provisions of such plans; provided, however, the Company's obligation to continue participation in these plans, ends on the last day of the month in which the Employee becomes eligible to participate in such benefits at his new place of employment. However, the Company will continue to provide benefit continuation to the extent required by federal law. Notwithstanding the foregoing, the Employee shall have the obligation to seek alternative employment following a termination of employment under Article VI(2). Any remuneration the Employee receives for the performance of personal services during the year following termination of his employment pursuant to this Article VI(2) will be an offset to the Company's obligations to pay the amounts referred to in subparagraph (i) above; provided, however, that such an offset will not reduce below one-half the remaining biweekly payments the Company is obligated to pay under subparagraph (i) above; and provided, further, that the Employee shall not have any obligation to seek other employment and no such offset will be allowed the Company if such a termination of employment occurs within initials Page 7 Warren A. McCollough Employment Agreement April 24, 1995 two years following a Change of Control (Change of Control being defined in Article VII). (3) Death or Disability. If the Employee dies or becomes disabled during the term of this Agreement, the Employee's employment will terminate as of the date of the Employee's death or the determination of the Employee's disability. In such event, neither of Article VI (1) or (2) shall be applicable. The determination as to whether the employee has suffered a disability and the date on which the disability commenced shall be made by the Committee, in its sole discretion, on the basis of competent evidence; provided, however, that the inability of the Employee to perform each of the material duties of his employment for 6 consecutive months because of a medically determined physical or mental condition shall be conclusive evidence of disability unless the Company is provided with competent medical evidence that the condition will not continue to prevent the Employee from performing his duties for more than six additional months. Two consecutive weeks of full ability to perform each of the material duties of the position shall be required to interrupt the running of the six-month period. In the event of termination because of disability, the Employee shall receive his base salary (pursuant to Article III (1)) for the first 12 months after the first date on which the Employee was unable to perform, after which he shall be entitled only to such amounts, if any, as may be available any employment-related benefit plans or programs in which the Employee may be a participant (except those which are totally paid for by the Employee through a private company). Any amounts the Employee receives under such plans or programs during the 12 months referred to above shall be an offset to amounts which he would otherwise receive under Article VI (3). In the event of the Employee's death, the designated beneficiary of the Employee shall continue to receive the Employee's base salary for a period of 3 months following his death. ARTICLE VII Termination by Employee (1) General Rule. The Employee may voluntarily terminate his employment prior to the expiration of this Agreement upon 60 days written notice to the Company. If the Employee does so for reasons other than those set forth in provision (c) of Article VI (2) or for such reasons, but after the time period set forth in such provision has expired, he shall forfeit the right to any compensation (other than deferred compensation) under this Agreement after the date of termination. initials Page 8 Warren A. McCollough Employment Agreement April 24, 1995 (2) Voluntary Termination Following a Change of Control. The provision of Article VII (1) notwithstanding, in the event that a Change of Control (as hereinafter defined) occurs and within one year thereafter the Employee voluntarily terminates his employment (other than pursuant to provision (c) of Article VI (2)), the Employee shall be entitled to receive, in addition to any other amounts he may be entitled to receive under this Agreement and subject to any applicable payroll or other taxes required to be withheld, an amount equal to one year's base salary, in addition to the continuation of his medical and dental benefits (as if still employed) during the pay-out period. This severance amount shall be payable in biweekly installments over the 12 months immediately following termination. In such event, fiscal year-end bonuses will be handled in the following manner: (i) If the Employee's termination date is on or after September 1st: any bonus awarded for that year will be prorated for the number of complete months the Employee worked in the fiscal year. (ii) If the termination occurs prior to September 1st, no bonus will be due. (iii) If the Employee's termination date is between March 1 and May 15: the Employee shall also be entitled to a bonus for the prior fiscal year, prorated for the number of complete months the Employee worked in the prior fiscal year, provided the number of months employed in that year was equal to or greater than six. (3) Change of Control Definition. In this Agreement, "Change of Control" shall mean: (i) a third person, including a "group" as defined in Section 13(d)(3) of the Securities Exchange Act of 1934, becomes, or obtains the right to become, the beneficial owner of Company securities having 20% or more of the combined voting power of the then outstanding securities of the Company that may be cast for the election of directors of the Company (other than as a result of an issuance of securities initiated by the Company in the ordinary course of business); or (ii) as the result of, or in connection with, any cash tender or exchange offer, merger or other business combination, sale of assets or contested election, or any combination of the foregoing transactions, the persons who were directors of the Company before such transactions shall cease to constitute a majority initials Page 9 Warren A. McCollough Employment Agreement April 24, 1995 of the Board of Directors of the Company or any successor to the Company. ARTICLE VIII Benefits Upon Termination Upon termination of employment, benefits are terminated as described below: 1) Medical and Dental Plans: The Employee's participation in the Medical and/or Dental plans terminates as of the last day of the month in which the Employee's employment ends, unless specifically continued during a severance payment period as noted in Article VI or Article VII(2) above. Continuation of coverage other than as provided in Article VI or Article VII(2) above, will be available in accordance with federal law and each plan's provisions. 2) Retirement Plan: The Employee's termination of employment will not affect Retirement Plan benefits earned as of the date of termination. 3) Other Benefit Programs: Participation in all other benefit programs ends as of the date of termination, except as noted below. Benefit programs include, but are not limited to, Group Life Insurance, Long Term Disability, Employee Discount Program, car allowance or company car program, the Restricted Stock and Stock Option Plans, the Officer Merchandise Evaluation Program, and the tax preparation and financial counseling programs. The ability to exercise options ends on the date of termination of employment. Participation in the fiscal year-end bonus program ends as of the date of termination unless the termination of employment is without cause as defined in Article VI (2) above. If the Employee is released, without cause, under the terms of this agreement, and the Employee has vested but unexercised stock options, or has stock options or restricted stock which are due to vest within one month of the date of termination, the Employee shall have the option to delay the termination for up to one month, to allow for any restricted stock or stock options to vest, or for the Employee to have time to exercise options. If the Employee initials Page 10 Warren A. McCollough Employment Agreement April 24, 1995 elects this option, the severance pay-out period would be reduced by a like period of time (e.g., if the Employee delays his termination for one month in order for stock to vest, the Employee would receive 11 months of severance payments and medical and dental plan continuation, instead of 12 months). If termination is for "cause," participation in all benefits, including stock options and restricted stock ends either on the date of termination or the end of the month in which the termination occurred, according to the provisions of each benefit program. If termination of employment is due to death, the right to exercise vested but unexercised stock options is in accordance with the terms of the stock option plans. All of the above is subject to the laws, regulations and plan provisions in effect at the time of the Employee's termination. ARTICLE IX Monies Owed To the extent that the Employee owes the Company any monies at the time of termination of employment, or to the extent that taxes are due on any Circuit City benefits, the Employee authorizes the Company to withhold such amounts from his final paycheck or severance payment(s), or from reimbursements or any other monies due to the Employee. ARTICLE X Notices Any notice or other communication ("Notice") required under this Agreement shall be in writing and shall be deemed to have been given or made when personally delivered, or when mailed by registered or certified mail, postage prepaid, return receipt requested, to the other party. In the case of the Company, any Notice shall be delivered or mailed to its principal office to the attention of the Secretary. In the case of the Employee, any Notice shall be delivered or mailed to his last known address as reflected in the records of the Company. initials Page 11 Warren A. McCollough Employment Agreement April 24, 1995 ARTICLE XI Assignment This agreement is one for personal service and shall not be assignable by Employee. However, Company may assign this agreement to an entity under common control with Company or to an entity which succeeds to the portion of the Company's business in which the Employee is employed. ARTICLE XII Survival of Covenants Except to the extent expressly provided otherwise in this Agreement, the covenants and agreements of the Employee and the Company, including but not limited to those set forth in Articles IV and V, shall survive the termination or expiration of this Agreement. ARTICLE XIII Entire Agreement; Amendments This Agreement constitutes the entire agreement and supersedes all other prior agreements and understandings, both written and oral, express or implied, with respect to the subject matter of this Agreement. This Agreement may be amended only by a writing executed by the parties. ARTICLE XIV Governing Law This Agreement shall be governed by and construed and enforced in accordance with the laws of the Commonwealth of Virginia. initials Page 12 Warren A. McCollough Employment Agreement April 24, 1995 ARTICLE XV Waiver Failure to insist upon strict compliance with any term or condition of this Agreement shall not constitute a waiver of the term or condition, nor shall any waiver or relinquishment of any right or power under this Agreement at any one or more times be deemed a waiver or relinquishment of such right or power at any other time. ARTICLE XVI Severability If any Article, paragraph, sentence, or clause hereof, including, without limitation, Article IV and V ("Provision"), is deemed invalid or unenforceable in whole or in part in any jurisdiction, all the other Provisions in this Agreement including the affected Provision, to the extent it is not deemed invalid or unenforceable, shall remain in full force and effect in that, and any other, jurisdiction and shall be liberally construed in order to effectuate the purpose and intent of the Agreement. The invalidity or unenforceability of any Provision of this agreement in any jurisdiction shall not affect the validity or enforceability of that Provision in any other jurisdiction. ARTICLE XVII Arbitration (1) Any disagreement or controversy between the parties concerning this Agreement (other than disagreements or controversies concerning Articles IV and V of this Agreement) shall be settled by arbitration in accordance with Commercial Arbitration Rules of the American Arbitration Association ("AAA") and this Article. In the event of any inconsistency between such Rules and this Agreement, this Agreement shall control. The decision in writing of the sole arbitrator or of a majority of the arbitrators, as the case may be, designated or selected in accordance with this Article shall be final and binding on both parties and may be enforced in a court of law or equity. The parties recognize that they wish to use arbitration to settle disagreements or controversies concerning this Agreement other than those excluded above and both parties waive their right to appeal the arbitrators' initials Page 13 Warren A. McCollough Employment Agreement April 24, 1995 decision to any court. The cost of arbitration, including arbitrators' fees and expenses of hearings and conferences, shall be shared equally by the parties. Each party shall pay its own attorney's and experts' fees and related expenses. (2) Notice of intent to arbitrate must be given within six months after the aggrieved party knows or, with reasonable diligence, would have known of the existence of the disagreement or controversy, unless the parties agree in writing to extend such six months period. (3) Disagreements and controversies submitted to arbitration hereunder shall be decided by a sole arbitrator appointed by the AAA; provided, however, that each party shall have the right, but not the obligation, to designate one additional arbitrator. If a party wishes to avail himself of such right, such party shall give written notice naming such additional arbitrator to the other party within 30 days after the notice of intent to arbitrate is given. (4) If the Employee breaches the provisions of Articles IV or V, he shall not be entitled to receive any amounts due under this Agreement that have not been previously paid to him. (5) The Employee recognizes and acknowledges that in the event of any default in or breach of any of the terms, conditions, and provisions of Articles IV or V of this Agreement (either actual or threatened) by the Employee, the Company will suffer irreparable harm and its remedies at law will be inadequate. Accordingly, the Employee agrees that, in such event, the Company shall have the right to specific performance and injunctive relief in addition to any and all other remedies and rights available to the Company under this Agreement, or at law or in equity, and all rights and remedies shall be cumulative. (6) Disagreements or controversies concerning Articles IV or V of this Agreement may be settled by arbitration in accordance with this Article if both parties so agree in writing. The offer contained herein remains open until 5 p.m. on May 24, 1995. To confirm that this letter states our agreement, please sign the enclosed copy on the line above your name, date it, initial each page in the space provided for that purpose, and return the copy to Wanda Moser, Personnel Operations Manager, in the enclosed envelope by May 10, 1995. This agreement is not effective until received by Wanda Moser, who will sign it to verify receipt and will send you a fully executed copy for your records, Page 14 Warren A. McCollough Employment Agreement April 24, 1995 IN WITNESS WHEREOF, the parties have executed this Agreement on the day and the year first written below. CIRCUIT CITY STORES, INC. By: s/Richard L. Sharp 5/25/95 Richard L. Sharp, Date President and Chief Executive Officer AGREED: s/Warren A. McCollough 5/22/95 Warren A. McCollough SS# ###-##-#### Date RECEIVED: s/Wanda Moser 5/25/95 Wanda Moser Date Page 15 EX-13 4 EXHIBIT 13 - ANNUAL REPORT REPORTED HISTORICAL INFORMATION
(AMOUNTS IN THOUSANDS EXCEPT PER SHARE DATA) 1996 1995 1994 1993 1992 Net sales and operating revenues...................... $7,029,123 $ 5,582,947 $ 4,130,415 $3,269,769 $ 2,790,232 Net earnings.......................................... $ 179,375 $ 167,875 $ 132,400 $ 110,250 $ 78,223 Net earnings per share................................ $ 1.82 $ 1.72 $ 1.36 $ 1.15 $ 0.82 Total assets.......................................... $2,526,022 $ 2,004,055 $ 1,554,664 $1,262,930 $ 999,582 Long-term debt, excluding current installments........ $ 399,161 $ 178,605 $ 29,648 $ 82,387 $ 85,415 Deferred revenue and other liabilities................ $ 214,001 $ 241,866 $ 268,360 $ 232,054 $ 187,158 Cash dividends per share paid on common stock....................................... $ 0.12 $ 0.10 $ 0.08 $ 0.06 $ 0.05
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION Our objective is to manage Circuit City's resources to create maximum long-term value for the Company's shareholders. We achieve this objective by adhering to the following policies: 1) We manage our existing business, primarily the current Superstore markets, to produce the highest possible long-term returns. 2) We make new investments that we believe will increase our earnings and produce returns above our cost of capital. The results generated by current operations and by the Company's fiscal 1996 investments are reviewed below. RESULTS OF OPERATIONS SALES GROWTH Total sales increased 26 percent in fiscal 1996, to $7.03 billion. In fiscal 1995, total sales were $5.58 billion, a 35 percent increase from $4.13 billion in fiscal 1994. Percentage Sales Change From Prior Year Circuit City All Comparable Industry Fiscal Stores Stores Sales* 1996......................... 26% 5% 6% 1995......................... 35% 15% 11% 1994......................... 26% 8% 7% 1993......................... 17% 7% 7% 1992......................... 18% 1% 0% * The industry sales rates are derived from Electronic Industries Association, Association of Home Appliance Manufacturers, Recording Industry Association of America and Company estimates of audio, video, home office, telecommunications, appliance and music software sales. Music software is not included in industry sales prior to fiscal 1995. In those years, Circuit City was not a significant participant in this category. Circuit City Operations. Circuit City's total sales growth primarily reflects continued expansion of the Superstore base and strong comparable store sales growth from Circuit City operations during most of the last three years. In fiscal 1996, the Company opened a net of 66 Superstores compared with 59 Superstores in the previous fiscal year. Twelve of the fiscal 1996 stores opened in the last month of the year. The Company entered the following major metropolitan markets: Buffalo, N.Y.; Denver, Colo.; Hartford, Conn.; Milwaukee, Wisc.; Rochester, N.Y.; Salt Lake City, Utah; and Springfield, Mass. The Company also opened stores in smaller markets, added stores to existing markets and replaced or expanded 15 stores. The Company operates four Circuit City Superstore formats with square footage and merchandise assortments tailored to population and volume expectations for specific trade areas. With these formats, the Company can penetrate virtually every market in the U.S. The "D" format was developed in fiscal 1995 to serve the most populous trade areas. Selling space in the "D" format averages about 23,000 square feet with total square footage averaging 42,242. The "D" stores offer the largest merchandise assortment of all the formats. The "C" format constitutes the largest percent of the store base. Selling square footage in this format has been increased during the last several years, and new "C" stores typically have about 17,000 square feet of selling space. Total square footage for all "C" stores averages 33,828. The "B" format often is located in smaller markets or in trade areas that are on the fringes of larger metropolitan markets. Selling space in these stores averages approximately 11,000 square feet with an average total square footage of 24,685. The "B" stores offer a broad merchandise assortment that maximizes return on investment in these lower volume areas. The "A" format serves the least populated trade areas. Selling space averages approximately 9,000 square feet, and total square footage averages 18,026. The "A" stores feature a layout, staffing levels and merchandise assortment that creates high productivity in the smallest markets. The Company also operates 36 mall-based Circuit City Express stores. These stores are located in regional malls, are approximately 2,000 to 3,000 square feet in size and sell small, gift-oriented items. During fiscal 1996, the Company opened five Circuit City Express stores and closed four stores located in underperforming malls. Store Mix Retail Units at Year End Fiscal 1996 1995 1994 1993 1992 Superstore "D" Superstore..... 61 12 - - - "C" Superstore..... 259 257 219 188 170 "B" Superstore..... 46 37 30 24 11 "A" Superstore..... 12 6 4 2 2 Electronics-Only...... 5 5 7 7 11 Circuit City Express.. 36 35 34 39 34 TOTAL................. 419 352 294 260 228 Over the past three years, industry growth in personal computers has driven strong comparable store sales increases for the Company. During the first half of fiscal 1996, rapid PC sales growth and relatively strong demand for consumer electronics and major appliances contributed to a 10 percent comparable store sales increase. Challenging prior year sales comparisons and softer industry sales in all categories led to a more modest increase of 1 percent for the second half and 5 percent for the full year. Based on market research and sales performance, the Company believes that it continues to maintain substantial shares in existing markets and to build significant shares in new markets. For the Company's core retail business, gross dollar sales from all extended warranty programs were 5.9 percent of sales in fiscal year 1996, compared with 5.8 percent in both fiscal 1995 and 1994. Total extended warranty revenue, which is reported in total sales, was 5.1 percent of sales in fiscal year 1996, 5.4 percent in fiscal year 1995 and 4.8 percent in fiscal year 1994. The gross profit margins on products sold with extended warranties are higher than the gross profit margins on products sold without extended warranties. Late in fiscal 1994, the Company began selling two new extended warranty programs on behalf of unrelated third parties that issue these plans for merchandise sold by the Company and other retailers. One of these programs is sold in most major markets and features in-home service for personal computer products. The second program covers electronics and major appliances and at year-end was offered by approximately two-thirds of the Superstores. The remaining stores sell a Circuit City extended warranty. Under the third-party programs, Circuit City acts as seller for the unrelated third parties and has no contractual liability to the customer under the extended warranty plans. Commission revenue from the third-party extended warranty plans is recognized immediately while revenue from Circuit City extended warranties is deferred and amortized on a straight-line basis over the life of the contracts. In fiscal 1996, the increase in third-party revenue was more than offset by a decrease in revenue recognized from Circuit City contracts sold in prior periods. The increase in third-party warranty sales contributed to the growth in total extended warranty revenue from fiscal 1994 to fiscal 1995. Third-party extended warranty revenue was 3.0 percent of total sales in fiscal 1996, 2.3 percent in fiscal 1995 and 0.7 percent in fiscal 1994. The Company expects third-party extended warranty revenue to continue increasing in fiscal 1997. Superstore Sales Per Total Square Foot Fiscal 1996................................................. $577 1995................................................. $584 1994................................................. $523 1993................................................. $487 1992................................................. $460 Superstore Sales Per Total Square Foot. Over the last five years, the Company has significantly increased the percentage of store square footage devoted to selling space. Expanded merchandise assortments and additional product categories such as personal computers and music software contribute to higher sales per total square foot in some stores. In fiscal 1995, the total square footage of new stores began to increase. The larger stores generate high sales volumes in specific trade areas but have lower sales per total square foot than smaller Superstores. As a result, the Company's Superstore sales per total square foot declined in fiscal 1996. Sales By Merchandise Categories* Fiscal 1996 1995 1994 1993 1992 TV................... 17% 19% 20% 23% 23% VCR/Camcorders....... 13% 14% 17% 19% 20% Audio................ 19% 22% 23% 23% 26% Home Office.......... 26% 20% 12% 7% 5% Appliances........... 14% 15% 18% 19% 19% Other................ 11% 10% 10% 9% 7% TOTAL................ 100% 100% 100% 100% 100% *In fiscal 1996, the Company moved cellular phones from the "Audio" category to the "Other" category and moved certain audio products from the "Other" category to the "Audio" category. Sales of these products have been reclassified for prior years. Sales by Merchandise Categories. Home office products, primarily personal computers, have increased dramatically as a percentage of the Company's sales during the past five years. This growth reflects a rapid increase in household penetration of this product and the strength of Circuit City's consumer offer in the category. Within the consumer electronics categories, the greatest sales growth has occurred among the fully featured products such as large-screen televisions and SurroundSound audio systems. A lack of new product features and declining retail prices for small-screen televisions and video cassette recorders have limited sales growth in the video categories. A proliferation of retail outlets and increased household penetration have reduced cellular phone sales, which are included in "Other." Impact of Inflation. Inflation has not been a significant contributor to industry growth or to Circuit City's sales growth during the last five years. The Company expects no significant change in this trend. Because the Company purchases substantially all products, including consumer electronics, in U.S. dollars, prices are not directly impacted by the value of the dollar in relation to other foreign currencies, including the Japanese yen. CarMax. During the second half of fiscal 1994, the Company began testing CarMax: The Auto Superstore, a retail concept that sells used automobiles. The Company expanded the test to a second location in fiscal 1995 and added two more locations in fiscal 1996. In January 1996, the Company announced plans to begin a national rollout of CarMax. CarMax sales totaled $304.5 million in fiscal 1996. CarMax is not included in the reported comparable store sales growth. COST OF SALES, BUYING AND WAREHOUSING The gross profit margin declined to 23.3 percent of sales in fiscal 1996 compared with 24.8 percent in fiscal 1995 and 26.8 percent in fiscal 1994. The gross profit margin trend reflects growth in personal computer sales, which produce gross profit margins lower than the Company's average; increased competition; and a highly promotional climate. The trend also reflects the addition of CarMax, which generates lower gross margins than the Circuit City operations, to the sales mix. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES The Company's lower gross profit margin has been partly offset by improvements in selling, general and administrative expenses as a percent of sales. The expense ratio was 18.8 percent of sales in fiscal 1996, 19.8 percent in fiscal 1995 and 21.6 percent in fiscal 1994. The improvement in the expense ratio primarily reflects total and comparable store sales growth achieved throughout the three-year period, an ongoing focus on maximizing store productivity and productivity of corporate overhead expenditures, a net contribution from the credit card bank subsidiary and a lower expense structure for CarMax. Operating profits generated by the Company's credit card bank subsidiary are recorded as a reduction to SG&A expenses. Throughout the three-year period, the subsidiary has benefited from a generally low interest rate environment, which lowers the bank's cost of funds. INTEREST EXPENSE Interest expense increased to 0.4 percent of sales in fiscal 1996, from 0.2 percent in fiscal 1995 and 0.1 percent in fiscal 1994. The increase reflects higher interest rates, the net addition of $369 million of long-term debt since fiscal 1994 and higher short-term borrowings resulting from the Company's growth. INCOME TAXES The Company's effective income tax rate was 37.5 percent in both fiscal 1996 and fiscal 1995 and 36.7 percent in fiscal 1994. An increase in the federal statutory income tax rate in fiscal 1994 required a revaluation of the Company's deferred tax asset. That revaluation had a favorable impact on the fiscal 1994 provision for income taxes and resulted in the lower effective tax rate for that fiscal year. The higher federal statutory income tax rate increased the Company's effective tax rate for the latter half of fiscal 1994 and throughout fiscal years 1995 and 1996. NET EARNINGS Net earnings rose 7 percent to $179.4 million in fiscal 1996. In fiscal 1995, net earnings were $167.9 million, a 27 percent increase from $132.4 million in fiscal 1994. Net earnings per share rose 6 percent in fiscal 1996, to $1.82, and 26 percent in fiscal 1995, to $1.72 from $1.36 in fiscal 1994. The Company's investment in the CarMax concept reduced fiscal 1996 net earnings per share by 7 cents. RETURN ON SALES Return on sales was 2.6 percent in fiscal 1996 compared with 3.0 percent in fiscal 1995 and 3.2 percent in fiscal 1994. OPERATIONS OUTLOOK Looking forward, management believes that continued investment in Superstore expansion will maximize long-term shareholder value. Management estimates that in fiscal 1997 the remaining markets suitable for Superstore expansion will represent $37 billion of the consumer electronics, home office, major appliance and music software industry's total retail sales potential of $95 billion. By the year 2000, Circuit City expects to expand the Superstore base into most of these markets. In fiscal 1997, the Company expects to open an estimated 60 to 65 Superstores, including approximately 20 "D" stores, 32 "C" stores, 10 "B" stores and three "A" stores. Approximately 35 of the new Superstores will open in new markets. The Company also plans to replace approximately 15 to 20 "B" and "C" stores with larger format stores, to open additional Circuit City Express stores and to open at least three more CarMax locations. Given the slower sales trends during the second half of fiscal 1996, management expects that comparable store sales growth in the first half of fiscal 1997 will be lower than the fiscal 1996 results. The Company expects an improving rate of growth in the second half. A continuation of the industry's promotional intensity, a higher percentage of personal computers in the sales mix and additional sales from CarMax are expected to reduce the gross profit margin. Management anticipates that comparable store sales growth, improvements in store operating efficiency, increased leverage of overhead expenses, a growing contribution from the credit card bank subsidiary and the lower CarMax expense structure will reduce the expense ratio and partially offset the lower gross profit margin. Although the Company expects lower pre-tax and net profit margins in fiscal 1997, management believes that the Company's financial performance and market research indicate that the Company is well-positioned competitively and financially to produce strong long-term returns and that its expansion plans will further increase long-term earnings potential. The Company anticipates that investment in the CarMax concept will have a negative impact on net earnings and net earnings per share at least through fiscal 1997 and fiscal 1998. IMPACT OF RECENT ACCOUNTING PRONOUNCEMENTS In March 1995, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." The standard is effective for fiscal years beginning after December 15, 1995. The Company does not expect the standard to have a material impact on the Company's financial position or results of operations. This SFAS will be implemented for the fiscal year ending February 28, 1997. In October 1995, the FASB issued SFAS No. 123, "Accounting for Stock-Based Compensation." The Company does not intend to adopt the optional new accounting method of the standard; however, the additional disclosures required by this SFAS will be made for the fiscal year ending February 28, 1997. The disclosure requirements of the standard are effective for fiscal years beginning after December 15, 1995. FINANCIAL CONDITION LIQUIDITY AND CAPITAL RESOURCES Cash Flow. In fiscal 1996, net cash used in operating activities was $55.3 million compared with $47.0 million provided by operating activities in fiscal 1995 and $108.3 million provided by operating activities in fiscal 1994. The fiscal 1996 decrease principally reflects the limited earnings growth and lower increases in the provision for deferred income taxes and in accounts payable. These changes were partly offset by less rapid growth in merchandise inventory, reflecting lower sales growth expectations at the end of the fiscal year, and in accounts receivable, which reflects securitization transactions during the year. The Company funded capital expenditures of $518.2 million in fiscal 1996 primarily with $251.5 million in proceeds from sales of property and equipment and proceeds from a five-year, $175 million unsecured bank term loan. The proceeds from sales of property and equipment include $183.9 million from sale-leaseback transactions, $49.0 million related to landlord reimbursements for improvements on leased land and $18.6 million from other sources. Capital expenditures in fiscal 1996 principally reflect Superstores opened during the year and a portion of the Superstores opening in fiscal 1997. The sale-leaseback transactions completed in fiscal 1996 are largely related to real estate purchased in fiscal years 1996 and 1995. The Company expects to complete additional sale-leaseback transactions in fiscal 1997. Capital expenditures of $375.4 million in fiscal 1995 and $252.3 million in fiscal 1994 largely were incurred in connection with the Superstore expansion program. The expenditures were funded primarily with net cash provided by operating activities, sale-leaseback arrangements, and landlord reimbursements. In fiscal 1995, the Company also utilized proceeds from a seven-year, $100 million unsecured bank term loan. The Company's credit card bank subsidiary primarily funds its credit card programs through securitization transactions, which allow the subsidiary to sell the receivables while retaining a small interest in the receivables. The Company's credit card bank subsidiary has a master trust securitization facility for its private-label credit card that allows the transfer of up to $1.06 billion in receivables through both private placement and the public market. A second securitization program allowed, at February 29, 1996, for the transfer of up to $850 million in receivables related to the subsidiary's bankcard programs. In fiscal 1996, automobile receivables generated by the Company's installment lending division were financed with proceeds of $87 million from a securitization transaction. The Company expects that all securitization programs can be expanded to accommodate future receivables growth. As explained in Note 10 to the Consolidated Financial Statements, the Company has entered into interest rate swap agreements related to the public issuance of securities by the master trust and the securitization of auto loan receivables. The interest rate swaps enable the Company to better match funding costs to the underlying finance charges of the receivables. Capital Structure. Total assets at February 29, 1996, were $2.53 billion, up $522.0 million, or 26 percent since February 28, 1995. The rise in assets includes increases of $287.4 million in inventory, $181.3 million in net property and equipment and $59.8 million in net receivables. The Company has funded expansion with internally generated funds, sale-leaseback transactions, operating leases and long-term debt. The Company has funded consumer receivables through securitization transactions. In fiscal 1996, the Company entered into a five-year, $175 million unsecured bank term loan agreement. As explained in Note 10 to the Consolidated Financial Statements, the Company has entered into interest rate swap agreements that effectively convert the loan facility's variable-rate obligation to a fixed-rate obligation. At February 28, 1995, the Company classified $53 million of short-term debt as long-term in anticipation of the $175 million loan agreement. Average short-term debt rose in fiscal 1996 as the Company utilized seasonal borrowing lines primarily to finance higher inventory needs resulting from more rapid Superstore expansion and the growth of the CarMax concept. At February 29, 1996, the Company classified $100 million of short-term debt as long-term. The Company expects to refinance this debt in fiscal 1997 by entering into a multi-year term loan agreement with a group of banks. During the period from fiscal 1992 to 1996, stockholders' equity grew substantially. From fiscal 1995 to 1996, stockholders' equity increased 21 percent to $1.06 billion. Capitalization for the past five years is illustrated in the "Capitalization" table. Slower earnings growth produced a return on equity of 18.5 percent in fiscal 1996 compared with 21.1 percent in fiscal 1995. The fiscal 1996 return was below the Company's long-term objective of 20 percent. The Company expects to maintain its existing long-term capitalization strategy in fiscal 1997. Management anticipates that capital expenditures of approximately $575 million will be funded through a combination of internally generated funds, sale-leaseback transactions and operating leases and that securitization transactions will finance the increase in credit card and CarMax receivables. At the end of fiscal 1996, the Company maintained a multi-year, $100 million unsecured revolving credit agreement and $255 million in seasonal lines that are renewed annually with various banks. Capitalization
Fiscal 1996 1995 1994 1993 1992 (DOLLAR AMOUNTS IN MILLIONS) $ % $ % $ % $ % $ % Long-term debt, excluding current installments......... 399.2 23 178.6 14 29.6 3 82.4 9 85.4 12 Other long-term liabilities............................ 231.8 14 241.9 19 268.4 27 232.1 26 187.1 26 Total stockholders' equity............................. 1,063.9 63 877.4 67 710.4 70 575.5 65 448.0 62 TOTAL CAPITALIZATION................................... 1,694.9 100 1,297.9 100 1,008.4 100 890.0 100 720.5 100
COMMON STOCK The Company's common stock is traded on the New York Stock Exchange. Quarterly market price and dividend data are shown below:
Market Price of Common Stock Dividends Fiscal 1996 1995 1996 1995 HIGH LOW HIGH LOW 1st........................................................ $29.13 $21.50 $23.00 $17.25 $.025 $.020 2nd........................................................ $37.13 $26.25 $24.63 $19.50 $.030 $.025 3rd........................................................ $38.00 $28.13 $27.50 $23.13 $.030 $.025 4th........................................................ $31.25 $25.00 $25.13 $21.00 $.030 $.025 TOTAL $.115 $.095
CONSOLIDATED STATEMENTS OF EARNINGS
Years Ended February 29 or 28 (AMOUNTS IN THOUSANDS EXCEPT PER SHARE DATA) 1996 % 1995 % 1994 % NET SALES AND OPERATING REVENUES.................. $ 7,029,123 100.0 $5,582,947 100.0 $4,130,415 100.0 Cost of sales, buying and warehousing............. 5,394,293 76.7 4,197,947 75.2 3,024,759 73.2 GROSS PROFIT...................................... 1,634,830 23.3 1,385,000 24.8 1,105,656 26.8 Selling, general and administrative expenses [NOTE 8].............................. 1,322,430 18.8 1,106,370 19.8 891,865 21.6 Interest expense [NOTE 3]......................... 25,400 0.4 10,030 0.2 4,791 0.1 TOTAL EXPENSES.................................... 1,347,830 19.2 1,116,400 20.0 896,656 21.7 Earnings before income taxes...................... 287,000 4.1 268,600 4.8 209,000 5.1 Provision for income taxes [NOTE 4]............... 107,625 1.5 100,725 1.8 76,600 1.9 NET EARNINGS...................................... $ 179,375 2.6 $ 167,875 3.0 $ 132,400 3.2 Weighted average common shares and common share equivalents................... 98,546 97,369 97,391 NET EARNINGS PER SHARE............................ $ 1.82 $ 1.72 $ 1.36 See accompanying notes to consolidated financial statements.
CONSOLIDATED BALANCE SHEETS
At February 29 or 28 (AMOUNTS IN THOUSANDS EXCEPT SHARE DATA) 1996 1995 ASSETS CURRENT ASSETS: Cash and cash equivalents............................................................. $ 43,704 $ 46,962 Net accounts and notes receivable [NOTE 9]............................................ 324,395 264,565 Merchandise inventory................................................................. 1,323,183 1,035,776 Deferred income taxes [NOTE 4]........................................................ 26,996 25,696 Prepaid expenses and other current assets............................................. 17,399 14,162 TOTAL CURRENT ASSETS.................................................................. 1,735,677 1,387,161 Property and equipment, net [NOTES 2 AND 3]........................................... 774,265 592,956 Deferred income taxes [NOTE 4]........................................................ - 5,947 Other assets.......................................................................... 16,080 17,991 TOTAL ASSETS.......................................................................... $2,526,022 $2,004,055 LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Current installments of long-term debt [NOTES 3 AND 7]................................ $ 1,436 $ 2,378 Accounts payable...................................................................... 604,488 576,578 Short-term debt....................................................................... 92,087 - Accrued expenses and other current liabilities........................................ 123,789 113,631 Accrued income taxes.................................................................. 9,375 13,533 TOTAL CURRENT LIABILITIES............................................................. 831,175 706,120 Long-term debt, excluding current installments [NOTES 3 AND 7]........................ 399,161 178,605 Deferred revenue and other liabilities................................................ 214,001 241,866 Deferred income taxes [NOTE 4]........................................................ 17,764 - TOTAL LIABILITIES..................................................................... 1,462,101 1,126,591 STOCKHOLDERS' EQUITY [NOTE 5]: Common stock, $0.50 par value; 150,000,000 shares authorized; 97,380,000 shares issued and outstanding (96,476,000 in 1995)......................... 48,690 48,238 Capital in excess of par value........................................................ 90,432 72,639 Retained earnings..................................................................... 924,799 756,587 TOTAL STOCKHOLDERS' EQUITY............................................................ 1,063,921 877,464 Commitments and contingent liabilities [NOTES 6, 7, 9, 10 AND 11] TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY............................................ $2,526,022 $2,004,055 See accompanying notes to consolidated financial statements.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended February 29 or 28 (AMOUNTS IN THOUSANDS) 1996 1995 1994 OPERATING ACTIVITIES: Net earnings..................................................... $ 179,375 $ 167,875 $ 132,400 Adjustments to reconcile net earnings to net cash (used in) provided by operating activities: Depreciation and amortization................................. 79,812 66,866 55,012 Loss on sales of property and equipment....................... 5,600 2,199 1,910 Provision for deferred income taxes........................... 22,411 73,745 (17,800) (Decrease) increase in deferred revenue and other liabilities. (27,865) (26,494) 36,306 Increase in net accounts and notes receivable................. (59,830) (75,575) (68,542) Increase in merchandise inventory, prepaid expenses and other current assets.......................... (290,644) (317,114) (203,783) Decrease (increase) in other assets........................... 1,911 (3,819) (522) Increase in accounts payable, accrued expenses and other current liabilities, and accrued income taxes........ 33,910 159,297 173,300 NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES.............. (55,320) 46,980 108,281 INVESTING ACTIVITIES: Purchases of property and equipment.............................. (518,175) (375,406) (252,256) Proceeds from sales of property and equipment.................... 251,454 151,481 128,029 NET CASH USED IN INVESTING ACTIVITIES............................ (266,721) (223,925) (124,227) FINANCING ACTIVITIES: Proceeds from issuance of short-term debt........................ 92,087 - - Proceeds from issuance of long-term debt......................... 222,000 153,000 - Principal payments on long-term debt............................. (2,386) (3,484) (52,748) Proceeds from issuance of common stock, net...................... 18,245 8,352 10,150 Dividends paid................................................... (11,163) (9,155) (7,674) NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES.............. 318,783 148,713 (50,272) Decrease in cash and cash equivalents............................... (3,258) (28,232) (66,218) Cash and cash equivalents at beginning of year...................... 46,962 75,194 141,412 Cash and cash equivalents at end of year............................ $ 43,704 $ 46,962 $ 75,194 SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION Cash paid during the year for: Interest......................................................... $ 22,905 $ 8,150 $ 5,297 Income taxes..................................................... $ 88,477 $ 98,894 $ 81,773
See accompanying notes to consolidated financial statements. CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Common Capital In Shares Common Excess Of Retained (AMOUNTS IN THOUSANDS EXCEPT PER SHARE DATA) Outstanding Stock Par Value Earnings Total BALANCE AT MARCH 1, 1993............................. 95,670 $ 47,835 $ 54,540 $ 473,141 $ 575,516 Net earnings...................................... - - - 132,400 132,400 Exercise of common stock options [NOTE 5]......... 316 158 2,994 - 3,152 Shares issued under Employee Stock Purchase Plan [NOTE 5]................... 76 38 1,895 - 1,933 Shares issued under the 1988 Stock Incentive Plan [NOTE 5]........................ 146 73 3,589 - 3,662 Tax benefit from stock issued..................... - - 3,367 - 3,367 Shares cancelled upon reacquisition by Company.... (128) (64) (2,014) - (2,078) Unearned compensation-restricted stock [NOTE 5]... - - 114 - 114 Cash dividends-common stock ($0.08 per share)..... - - - (7,674) (7,674) BALANCE AT FEBRUARY 28, 1994......................... 96,080 48,040 64,485 597,867 710,392 Net earnings...................................... - - - 167,875 167,875 Exercise of common stock options [NOTE 5]......... 260 130 2,519 - 2,649 Shares issued under Employee Stock Purchase Plan [NOTE 5]................... 87 43 1,868 - 1,911 Shares issued under the 1994 Stock Incentive Plan [NOTE 5]........................ 211 106 3,740 - 3,846 Tax benefit from stock issued..................... - - 3,272 - 3,272 Shares cancelled upon reacquisition by Company.... (162) (81) (3,089) - (3,170) Unearned compensation-restricted stock [NOTE 5]... - - (156) - (156) Cash dividends-common stock ($0.10 per share)..... - - - (9,155) (9,155) BALANCE AT FEBRUARY 28, 1995......................... 96,476 48,238 72,639 756,587 877,464 Net earnings...................................... - - - 179,375 179,375 Exercise of common stock options [NOTE 5]......... 645 322 7,831 - 8,153 Shares issued under Employee Stock Purchase Plan [NOTE 5]................... 75 38 2,174 - 2,212 Shares issued under the 1994 Stock Incentive Plan [NOTE 5]........................ 259 129 5,745 - 5,874 Tax benefit from stock issued..................... - - 4,746 - 4,746 Shares cancelled upon reacquisition by Company.... (75) (37) (1,631) - (1,668) Unearned compensation-restricted stock [NOTE 5]... - - (1,072) - (1,072) Cash dividends-common stock ($0.12 per share)..... - - - (11,163) (11,163) BALANCE AT FEBRUARY 29, 1996......................... 97,380 $ 48,690 $ 90,432 $ 924,799 $1,063,921
See accompanying notes to consolidated financial statements. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (A) Principles of Consolidation: The consolidated financial statements include the accounts of Circuit City Stores, Inc. and its subsidiaries (the Company), all of which are wholly owned. All significant intercompany balances and transactions have been eliminated in consolidation. (B) Cash and Cash Equivalents: Cash equivalents of $10,113,000 and $18,719,000 at February 29, 1996, and February 28, 1995, respectively, consist of highly liquid debt securities with original maturities of three months or less. (C) Fair Value of Financial Instruments: The carrying value of the Company's financial instruments, excluding interest rate swap agreements ("swaps"), approximates fair value due to variable interest rates on long-term debt and the short-term maturities of the assets and other liabilities. Credit risk is the exposure created by the potential nonperformance of another material party to an agreement due to changes in economic, industry or geographic factors. The Company mitigates credit risk by dealing only with counterparties that are highly rated by several financial rating agencies. Accordingly, the Company does not anticipate loss for nonperformance. The Company broadly diversifies all financial instruments along industry, product and geographic areas. As discussed in Note 10, swaps are not held for trading purposes and, therefore, are not carried at fair value. (D) Merchandise Inventory: Inventory is stated at the lower of cost or market. Cost is determined by the average cost method. (E) Property and Equipment: Property and equipment is stated at cost less accumulated depreciation and amortization. Depreciation and amortization are calculated using the straight-line method over the assets' estimated useful lives, which range from three to 25 years. Property held under capital leases is stated at the lower of the present value of the minimum lease payments at the inception of the lease or market value and is amortized straight-line over the lease term or the estimated useful life of the asset, whichever is shorter. (F) Pre-opening Expenses: Expenses associated with the opening of new stores are deferred and amortized ratably over the period from the date of the store opening to the end of the fiscal year. (G) Income Taxes: The Company accounts for income taxes in accordance with Statement of Financial Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes." Deferred income taxes reflect the impact of temporary differences between the amounts of assets and liabilities recognized for financial reporting purposes and the amounts recognized for income tax purposes, measured by applying currently enacted tax laws. The Company recognizes deferred tax assets if it is more likely than not that a benefit will be realized. (H) Deferred Revenue: The Company sells its own extended warranty contracts and extended warranty contracts on behalf of unrelated third parties. The contracts extend beyond the normal manufacturer's warranty period, usually with terms of coverage (including the manufacturer's warranty period) between 12 and 60 months. All revenue from the sale of the Company's own extended warranty contracts is deferred and amortized on a straight-line basis over the life of the contracts. Incremental direct contract costs related to the sale of contracts are deferred and charged to expense in proportion to the revenue recognized. All other costs are charged to expense as incurred. Commission revenue for the unrelated third-party extended warranty plans is recognized at the time of sale. (I) Selling, General and Administrative Expenses: Operating profits generated by the Company's credit card bank subsidiary are recorded as a reduction to selling, general and administrative expenses. (J) Advertising Expenses: All advertising costs are expensed as incurred. (K) Earnings Per Share: Earnings per share is computed using the weighted average number of shares of common stock and common stock equivalents outstanding during the year. (L) Risks and Uncertainties: The Company is the nation's largest retailer of brand-name consumer electronics and major appliances and a leading retailer of personal computers and music software. The diversity of the Company's products, customers, suppliers and geographic operations significantly reduces the risk that a severe impact will occur in the near term as a result of changes in its customer base, competition, sources of supply or markets. It is unlikely that any one event would have a severe impact on the Company's operating results. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses. Actual results could differ from those estimates. (M) Reclassifications: Certain amounts in prior years have been reclassified to conform to classifications adopted in fiscal 1996. 2. PROPERTY AND EQUIPMENT Property and equipment, at cost, at February 29 or 28 is summarized as follows: (AMOUNTS IN THOUSANDS) 1996 1995 Land and buildings (20 to 25 years).. $ 89,089 $ 83,109 Construction in progress............. 197,980 122,446 Furniture, fixtures and equipment (3 to 8 years).................... 389,845 344,923 Leasehold improvements (10 to 15 years).................. 353,157 286,610 Capital leases, primarily buildings (20 years)........................ 13,140 13,679 1,043,211 850,767 Less accumulated depreciation and amortization...................... 268,946 257,811 Property and equipment, net.......... $ 774,265 $592,956 3. DEBT Long-term debt at February 29 or 28 is summarized as follows: (AMOUNTS IN THOUSANDS) 1996 1995 Term loans............................. $275,000 $100,000 Short-term debt expected to be refinanced.......................... 100,000 53,000 Industrial Development Revenue Bonds due through 2006 at various prime-based rates of interest ranging from 5.4% to 6.7%........... 12,393 14,698 Obligations under capital leases [NOTE 7]............................ 13,204 13,285 Total long-term debt................... 400,597 180,983 Less current installments.............. 1,436 2,378 Long-term debt, excluding current installments................ $399,161 $178,605 In July 1994, the Company entered into a seven-year, $100,000,000, unsecured bank term loan. Principal is due in full at maturity with interest payable periodically at LIBOR plus 0.50 percent. At February 29, 1996, the interest rate on the term loan was 5.88 percent. In May 1995, the Company entered into a five-year, $175,000,000, unsecured bank term loan. Principal is due in full at maturity with interest payable periodically at LIBOR plus 0.35 percent. At February 29, 1996, the interest rate on the term loan was 5.65 percent. The Company has the intent and ability to refinance the $100,000,000 of short-term committed and uncommitted bank borrowings on a long-term basis by entering into a multi-year term loan with a group of banks. Consequently, the Company has classified the short-term debt as long-term for financial reporting purposes. The existing revolving credit agreement could be used for this purpose, although the Company does not currently intend to do so. The Company maintains a multi-year, $100,000,000, unsecured revolving credit agreement with four banks. The agreement calls for interest based on certain money market rates and a commitment fee of 0.13 percent per annum. The agreement was entered into as of June 30, 1992, was amended and restated as of June 30, 1995, and terminates June 30, 2000. The agreement provides for annual one-year extensions of the final maturity beginning on or before June 30, 1996, and each June 30 thereafter. No amounts were outstanding under the revolving credit agreement at February 29, 1996, or February 28, 1995. The Industrial Development Revenue Bonds are collateralized by land, buildings and equipment with an aggregate carrying value of approximately $13,073,000 at February 29, 1996, and $15,400,000 at February 28, 1995. The scheduled aggregate annual principal payments on long-term obligations for the next five years are as follows: 1997 - $1,436,000; 1998 - $1,489,000; 1999 - $1,586,000; 2000 - $1,743,000; 2001 - $176,380,000. Under certain of the debt agreements, the Company must meet financial covenants relating to minimum tangible net worth, current ratios and debt-to-capital ratios. The Company was in compliance with all such covenants at February 29, 1996, and February 28, 1995. Short-term debt includes committed lines of credit and informal credit arrangements. Amounts outstanding and committed lines of credit available are as follows: Years Ended February 29 or 28 (AMOUNTS IN THOUSANDS) 1996 1995 1994 Average short-term debt outstanding............. $185,789 $134,022 $ 77,392 Maximum short-term debt outstanding............. $479,000 $465,000 $355,000 Aggregate committed lines of credit............... $255,000 $285,000 $145,000 The weighted average interest rate on the outstanding short-term debt was 5.9 percent during fiscal 1996, 5.3 percent during fiscal 1995 and 3.3 percent during fiscal 1994. The Company capitalizes interest in connection with the construction of certain facilities. In fiscal 1996, interest capitalized amounted to $6,780,000 ($3,846,000 and $2,626,000 in fiscal 1995 and 1994, respectively). 4. INCOME TAXES The Company files a consolidated federal income tax return. The components of the provision for income taxes on earnings before income taxes follow: Years Ended February 29 or 28 (AMOUNTS IN THOUSANDS) 1996 1995 1994 Current: Federal........................ $ 80,678 $ 21,250 $ 85,680 State.......................... 4,536 5,730 8,720 85,214 26,980 94,400 Deferred: Federal........................ 18,891 69,035 (14,790) State.......................... 3,520 4,710 (3,010) 22,411 73,745 (17,800) Provision for income taxes........ $107,625 $100,725 $ 76,600 The enactment of the Omnibus Tax Reconciliation Act of 1993 on August 10, 1993, increased the federal statutory income tax rate for corporations from 34 percent to 35 percent effective January 1, 1993. This change in the federal tax rate and the resulting revaluation of the Company's deferred tax asset had a favorable impact on the fiscal 1994 provision for income taxes. The effective income tax rate differed from the Federal statutory income tax rate as follows: 1996 1995 1994 Federal statutory income tax rate.................. 35.0% 35.0% 35.0% State and local income taxes, net of Federal benefit.... 2.5 2.5 1.8 Other, net................... - - (0.1) Effective income tax rate.... 37.5% 37.5% 36.7% In accordance with SFAS No. 109, the tax effects of temporary differences that give rise to a significant portion of the deferred tax assets and liabilities at February 29, 1996, and February 28, 1995, are as follows: (AMOUNTS IN THOUSANDS) 1996 1995 Deferred Tax Assets: Deferred revenue................... $24,475 $32,049 Inventory capitalization........... 3,784 6,482 Accrued expenses................... 34,190 31,815 Other.............................. 3,182 5,114 Total gross deferred tax assets. 65,631 75,460 Deferred Tax Liabilities: Depreciation and amortization...... 39,800 30,510 Prepaid benefit programs........... 886 2,892 Other prepaid expenses............. 9,376 5,347 Other.............................. 6,337 5,068 Total gross deferred tax liabilities.................. 56,399 43,817 Net Deferred Tax Asset................ $ 9,232 $31,643 Of the gross deferred tax assets at February 29, 1996, and February 28, 1995, approximately $61 million and $66 million, respectively, can be realized by carrybacks or offsetting of deferred tax liabilities. Based on the Company's historical and current pre-tax earnings, management believes the remaining amount will be realized through future taxable income; therefore, no valuation allowance is necessary. 5. CAPITAL STOCK AND STOCK INCENTIVE PLANS (A) Preferred Stock: In conjunction with the Company's Shareholders Rights Plan, preferred stock purchase rights were distributed as a dividend at the rate of one right for each share of the Company's common stock. The rights are exercisable only upon the attainment of, or the commencement of a tender offer to attain, a specified ownership interest in the Company by a person or group. When exercisable, each right would entitle shareholders to buy one four-hundredth of a newly issued share of Cumulative Participating Preferred Stock, Series E, $20 par value, at an exercise price of $140 per share. A total of 500,000 shares of such preferred stock, which have preferential dividend and liquidation rights, have been authorized; 300,000 shares have been reserved. No such shares are outstanding. In the event that an acquiring person or group acquires the specified ownership percentage of the Company's common stock (except pursuant to a cash tender offer for all outstanding shares determined to be fair by continuing directors) or engages in certain transactions with the Company after the rights become exercisable, each right will be converted into a right to purchase, for half the current market price at that time, shares of the Company's common stock valued at two times the exercise price. The Company also has 1,500,000 shares of undesignated Preferred Stock authorized of which no shares are outstanding. (B) Restricted Stock: The Company has issued restricted stock under the provisions of the 1994 and 1988 Stock Incentive Plans whereby key employees are granted restricted shares of the Company's common stock. Shares are awarded in the name of the employee, who has all the rights of a stockholder, subject to certain restrictions or forfeitures. Restrictions on the awards generally expire three years from the date of grant. In fiscal 1996, restricted stock awards for 258,775 shares were granted to eligible employees. The market value of these shares has been recorded as unearned compensation and is a component of stockholders' equity. Unearned compensation is expensed over the restriction periods. In fiscal 1996, a total of $3,362,500 was charged to operations ($2,552,500 in 1995 and $2,955,400 in 1994). As of February 29, 1996, 499,279 restricted shares were outstanding. (C) Employee Stock Purchase Plan: The Company has an Employee Stock Purchase Plan for all employees meeting certain eligibility criteria. Under the Plan, eligible employees may purchase shares of the Company's common stock, subject to certain limitations, at 85 percent of its market value. Purchases are limited to 10 percent of an employee's eligible compensation, up to a maximum of $7,500 per year. At February 29, 1996, a total of 62,406 shares remained available under the Plan. During fiscal 1996, 474,889 shares were issued to or purchased on the open market for employees (537,467 and 436,400 in fiscal 1995 and 1994, respectively). The average price per share was $29.97, $22.23 and $26.20 in fiscal 1996, 1995 and 1994, respectively. The purchase price discount is charged to operations and totaled $2,030,000, $1,760,200 and $1,653,700 in fiscal 1996, 1995 and 1994, respectively. (D) Stock Incentive Plans: Under the Company's stock incentive plans, incentive and non-qualified stock options may be granted to management, key employees and outside directors to purchase shares of the Company's common stock. The exercise price for incentive stock options for employees and non-qualified options for outside directors is the market value at the date of grant; for non-qualified options granted under the 1988 Plan for employees, it is at least 85 percent of the market value at the date of grant (100 percent under the 1994 Plan). Options are generally exercisable over a period of from one to 10 years from the date of grant. Changes in stock options outstanding (and option exercise prices for such options) are as follows: Years Ended February 29 or 28 1996 1995 1994 Options outstanding at beginning of year ($5.94 to $33.00)............. 3,709,271 3,593,745 3,494,626 Granted ($18.19 to $34.63)............ 762,384 750,500 562,425 Exercised ($6.25 to $25.13)............. (644,806) (260,234) (316,243) Cancelled ($6.25 to $33.00)............. (264,143) (374,740) (147,063) Options outstanding at end of year ($5.94 to $34.63)..... 3,562,706 3,709,271 3,593,745 Options exercisable at end of year ($5.94 to $33.00)..... 1,847,169 2,070,319 1,662,032 Shares available for grant at end of year (options and restricted stock)............. 2,147,207 2,759,698 1,010,488 The stock incentive plans provide for the granting of stock appreciation rights (SARs) in tandem with non-qualified stock option grants at the discretion of the board of directors' compensation and personnel committee. The SARs granted to date become fully exercisable only upon a change of control, as defined, of the Company, notwithstanding other conditions of exercisability of the options. The SARs permit the optionee to surrender an exercisable SAR for an amount equal to the excess of the market price of the common stock over the option price when the right is exercised. Market value is defined as the greater of the highest closing price of the Company's stock during the 90 days preceding the change of control or the closing price on the date preceding the exercises. As of February 29, 1996, 5,895,967 non-qualified options with related SARs had been granted with such terms (5,417,163 in 1995 and 4,888,333 in 1994). 6. PENSION PLAN The Company has a non-contributory defined benefit pension plan covering the majority of full-time employees who are at least age 21 and have completed one year of service. The cost of this program is being funded currently. Plan benefits are generally based on years of service and average compensation. Plan assets consist primarily of equity securities and included 80,000 shares of the Company's common stock at February 29, 1996, and February 28, 1995. The components of net pension expense are as follows: Years Ended February 29 or 28 (AMOUNTS IN THOUSANDS) 1996 1995 1994 Service cost of benefits earned during the year............ $5,896 $ 4,485 $3,916 Interest cost on projected benefit obligation......... 3,632 2,715 2,351 Actual return on plan assets.. (9,277) (102) (3,632) Net amortization.............. 6,314 (3,452) 1,212 Net pension expense........... $6,565 $ 3,646 $3,847 Contributions of $1,160,000, $3,710,000 and $4,503,000 were required in fiscal 1996, 1995 and 1994, respectively. The following table sets forth the Plan's financial status and amounts recognized in the consolidated balance sheets as of February 29 or 28: (AMOUNTS IN THOUSANDS) 1996 1995 Actuarial present value of benefit obligation: Accumulated benefit obligation Vested.............................. $ 39,505 $25,983 Non-vested.......................... 5,136 3,720 Total benefits......................... 44,641 29,703 Additional amounts related to projected salary increases.................... 22,747 15,910 Projected benefit obligation for services rendered to date.................... 67,388 45,613 Plan assets at fair value.............. (47,093) (37,046) Projected benefit obligation in excess of plan assets......................... 20,295 8,567 Unrecognized loss from past experience. (14,117) (8,102) Unrecognized prior service cost........ 875 981 Unrecognized net obligation being recognized over 15 years............ 1,212 1,414 Accrued pension cost................... $ 8,265 $ 2,860 Assumptions used in the accounting for the pension plan were: Years Ended February 29 or 28 1996 1995 1994 Weighted average discount rate.. 7.0% 8.0% 7.5% Rate of increase in compensation levels....... 6.0% 6.5% 6.0% Rate of return on plan assets... 9.0% 8.0% 9.0% 7. LEASE COMMITMENTS The Company conducts a substantial portion of its business in leased premises. The Company's lease obligations are based upon contractual minimum rates. For certain locations, amounts in excess of these minimum rates are payable based upon specified percentages of sales. Rental expense and sublease income for all operating leases are summarized as follows: Years Ended February 29 or 28 (AMOUNTS IN THOUSANDS) 1996 1995 1994 Minimum rentals................ $148,082 $ 118,042 $96,110 Rentals based on sales volume.. 2,871 2,513 1,910 Sublease income................ (9,996) (8,875) (8,441) Net............................ $140,957 $ 111,680 $89,579 The Company computes rent based on a percentage of sales volumes in excess of defined amounts in certain store locations. Most of the Company's other leases are fixed dollar rental commitments, many with rent escalations based on the Consumer Price Index. Most provide that the Company pay taxes, maintenance, insurance and certain other operating expenses applicable to the premises. The initial term of real property leases will expire within the next 25 years; however, most of the leases have options providing for additional lease terms of from five to 25 years at terms substantially the same as the initial terms. Future minimum fixed lease obligations, excluding taxes, insurance and other costs payable directly by the Company, as of February 29, 1996, were: Operating Operating Fiscal Capital Lease Sublease (AMOUNTS IN THOUSANDS) Leases Commitments Income 1997....................... $ 1,541 $ 163,577 $(10,618) 1998....................... 1,541 163,964 (9,316) 1999....................... 1,579 161,498 (7,759) 2000....................... 1,662 159,327 (6,980) 2001....................... 1,681 158,105 (5,987) After 2001................. 21,683 1,791,524 (35,165) Total minimum lease payments................ 29,687 $2,597,995 $(75,825) Less amounts representing interest................ 16,483 Present value of net minimum capital lease payments [NOTE 3]....... $13,204 In fiscal 1996, the Company entered into sale-leaseback transactions with unrelated parties at an aggregate selling price of $183,900,000 ($85,970,000 in fiscal 1995 and $87,980,000 in fiscal 1994). The Company does not have continuing involvement under the sale-leaseback transactions. 8. SUPPLEMENTARY INCOME STATEMENT INFORMATION Advertising expense, which is included in selling, general and administrative expenses in the accompanying consolidated statements of earnings, amounted to $324,335,000, $262,969,000 and $211,022,000 (4.6 percent, 4.7 percent and 5.1 percent of net sales and operating revenues) in fiscal years 1996, 1995 and 1994, respectively. 9. SECURITIZATIONS (A) Credit Card Securitizations: The Company uses securitization transactions, which allow for the sale of credit card receivables to unrelated entities, to finance the consumer revolving credit receivables generated by First North American National Bank, its wholly owned credit card bank subsidiary (the "Bank Subsidiary"). No gain or loss has been recorded on these sales. Proceeds from securitization transactions were $692.3 million, $428.4 million and $214.6 million for fiscal 1996, 1995 and 1994, respectively. At February 29 or 28, the following amounts were outstanding: (AMOUNTS IN THOUSANDS) 1996 1995 Securitized receivables......... $1,860,459 $1,181,954 Interest retained by Company.... (110,459) (124,206) Net receivables transferred..... $1,750,000 $1,057,748 Net receivables transferred with recourse..................... $ 760,000 $1,057,748 Program capacity................ $1,910,000 $1,060,000 The Bank Subsidiary finances its private-label credit card program through a single master trust, through both private placement and the public market. During fiscal 1996, the Bank Subsidiary placed an additional $300 million in the public market for a total program capacity of $1,060 million. The master trust vehicle permits further expansion of the securitization programs to meet future receivables growth. The recourse provisions under the private-label securitization programs were eliminated during fiscal 1996. In addition, the Bank Subsidiary has an asset securitization program in place for its bankcard receivables that allows the transfer of up to $850 million in receivables as of February 29, 1996. The bankcard securitization agreements provide recourse to the Company for any cash flow deficiencies if the monthly credit card cash flows from finance charges are inadequate to cover such expenses. The Company believes that as of February 29, 1996, no liability existed under these recourse provisions. The finance charges from the transferred receivables are used to fund interest costs, charge-offs, servicing fees and other related costs. The Bank Subsidiary's servicing revenue totaled $142.9 million, $77.8 million and $54.5 million for fiscal 1996, 1995 and 1994, respectively. (B) Auto Loan Securitization: In fiscal 1996, the Company entered into a securitization transaction to finance the consumer installment credit receivables generated by First North American Credit Corporation, an installment lending division of the Company. No gain or loss has been recorded on this sale. Proceeds from the auto loan securitization transaction were $87 million during fiscal 1996. At February 29, 1996, the following amounts were outstanding: (AMOUNTS IN THOUSANDS) 1996 Securitized receivables......................... $ 93,065 Interest retained by Company.................... (6,065) Net receivables transferred with recourse....... $ 87,000 Program capacity................................ $100,000 The finance charges from the transferred receivables are used to fund interest costs, charge-offs and servicing fees. The securitization agreement provides recourse to the Company for any cash flow deficiencies if the monthly auto loan installment cash flows from finance charges are inadequate to cover such expenses. The Company believes that as of February 29, 1996, no liability existed under the recourse provision. As of April 1, 1996, the program capacity increased to $125 million. 10. INTEREST RATE SWAPS In October 1994, the Company entered into five-year swaps with notional amounts totaling $300 million relating to the public issuance of securities by the master trust. As part of this issuance, $344 million of five-year, fixed-rate certificates were issued to fund consumer credit receivables. The Bank Subsidiary is servicer for the accounts, and as such, receives its monthly cash portfolio yield after deducting interest, charge-offs and other related costs. The underlying receivables are based on a floating rate. The swaps were put in place to better match funding costs to the receivables being securitized. As a result, the master trust pays fixed-rate interest while the Company utilizes the swaps to convert the fixed-rate obligation to a floating-rate, LIBOR-based obligation. The fair value of the swaps is the amount at which they could be settled based on estimates obtained from the counterparties, which are two banks highly rated by several financial rating agencies. Recording the swaps at fair value at February 29, 1996, and February 28, 1995, would result in gains of $19.4 million and $6.3 million, respectively. Concurrent with the funding of the $175 million term loan facility in May 1995, the Company entered into five-year swaps with notional amounts aggregating $175 million. These swaps effectively converted the variable-rate obligation into a fixed-rate obligation. The fair value of the swaps is the amount at which they could be settled. This value is based on estimates obtained from the counterparties, which are two banks highly rated by several financial rating agencies. Recording the swaps at fair value at February 29, 1996, would result in a loss of $2.5 million. In November 1995, the Company entered into a 50-month amortizing swap in the notional amount of $75 million relating to the auto loan receivable securitization to convert variable-rate financing costs to a fixed-rate obligation. The underlying receivables are issued with a fixed-rate finance charge. The swap was put in place to better match the variable funding costs to the receivables being securitized and to preserve net portfolio yield. Recording the swap at fair value at February 29, 1996, would result in a loss of $0.3 million. The market and credit risks associated with these swaps are similar to those relating to other types of financial instruments. Market risk is the exposure created by potential fluctuations in interest rates and is directly related to the product type, agreement terms and transaction volume. The Company does not anticipate significant market risk from swaps, since their use is to more closely match funding costs to the use of the funding. Credit risk is the exposure created by potential nonperformance of another party to an agreement. The Company mitigates credit risk by dealing with highly rated counterparties. 11. CONTINGENT LIABILITIES In the normal course of business, the Company is involved in various legal proceedings. Based upon the Company's evaluation of the information presently available, management believes that the ultimate resolution of any such proceedings will not have a material adverse effect on the Company's financial position, liquidity or results of operations. 12. QUARTERLY FINANCIAL DATA (UNAUDITED)
(AMOUNTS IN THOUSANDS First Quarter Second Quarter Third Quarter Fourth Quarter Year EXCEPT PER SHARE DATA) 1996 1995 1996 1995 1996 1995 1996 1995 1996 1995 Net sales and operating revenues..$1,391,658 $1,048,695 $1,600,805 $1,218,572 $1,783,446 $1,405,445 $2,253,214 $1,910,235 $7,029,123 $5,582,947 Gross profit.........$ 319,886 $ 263,677 $ 368,292 $ 309,617 $ 405,134 $ 336,049 $ 541,518 $ 475,657 $1,634,830 $1,385,000 Net earnings.........$ 24,618 $ 19,688 $ 41,246 $ 36,055 $ 31,451 $ 28,442 $ 82,060 $ 83,690 $ 179,375 $ 167,875 Net earnings per share..........$ 0.25 $ 0.20 $ 0.42 $ 0.37 $ 0.32 $ 0.29 $ 0.83 $ 0.86 $ 1.82 $ 1.72
INDEPENDENT AUDITORS' REPORT - ------------------------------------------------------------------------------- The Board of Directors and Stockholders of Circuit City Stores, Inc.: We have audited the accompanying consolidated balance sheets of Circuit City Stores, Inc. and subsidiaries as of February 29, 1996 and February 28, 1995 and the related consolidated statements of earnings, stockholders' equity and cash flows for each of the fiscal years in the three-year period ended February 29, 1996. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Circuit City Stores, Inc. and subsidiaries as of February 29, 1996 and February 28, 1995 and the results of their operations and their cash flows for each of the fiscal years in the three-year period ended February 29, 1996 in conformity with generally accepted accounting principles. s/KPMG Peat Marwick LLP Richmond, Virginia April 3, 1996 - ------------------------------------------------------------------------------- MANAGEMENT'S REPORT The Board of Directors and Stockholders of Circuit City Stores, Inc.: The consolidated financial statements of Circuit City Stores, Inc. and subsidiaries have been prepared under the direction of management, which is responsible for their integrity and objectivity. The consolidated financial statements have been prepared in conformity with generally accepted accounting principles and, as such, include amounts that are the best estimates and judgments of management with consideration given to materiality. Management is responsible for maintaining an internal control structure designed to provide reasonable assurance that the books and records reflect the transactions of the Company and that its established policies and procedures are carefully followed. Because of inherent limitations in any system, there can be no absolute assurance that errors or irregularities will not occur. Nevertheless, management believes that the internal control structure provides reasonable assurance that assets are safeguarded and that financial information is objective and reliable. The Company's consolidated financial statements have been audited by KPMG Peat Marwick LLP, independent auditors. Their Independent Auditors' Report, which is based on audits made in accordance with generally accepted auditing standards, expresses an opinion as to the fair presentation in conformity with generally accepted accounting principles of the consolidated financial statements. In performing its audit, KPMG Peat Marwick LLP considers the Company's internal control structure to the extent it deems necessary in order to issue its opinion on the consolidated financial statements. The audit committee of the board of directors is composed solely of outside directors. The committee meets periodically with management, the internal auditors and the independent auditors to assure each is properly discharging its responsibilities. KPMG Peat Marwick LLP and the internal auditors have full and free access to meet privately with the audit committee to discuss accounting controls, audit findings and financial reporting matters. s/ Richard L. Sharp Richard L. Sharp Chairman and Chief Executive Officer s/ Michael T. Chalifoux Michael T. Chalifoux Senior Vice President, Chief Financial Officer and Corporate Secretary April 3, 1996 EX-21 5 EXHIBIT 21 -LIST OF SUBSIDIARIES EXHIBIT 21 CIRCUIT CITY STORES, INC. Subsidiaries of the Company Jurisdiction of Incorporation Subsidiary or Organization ---------- --------------- Acme Commercial Corporation Virginia CC Distribution Company of Virginia, Inc. Virginia Circuit City Stores West Coast, Inc. California First North American National Bank National Bank Located in Georgia Northern National Insurance Ltd. Bermuda Patapsco Designs, Inc. Maryland EX-23 6 EXHIBIT 23 - CONSENT OF INDEPENDENT AUDITORS EXHIBIT 23 Consent of Independent Auditors The Board of Directors Circuit City Stores, Inc.: We consent to incorporation by reference in the registration statements (Numbers 33-56697, 33- 50144, 33-36650, 33-22874, 33-64757 and 333-02971) on Form S-8 of Circuit City Stores, Inc. of our report dated April 3, 1996, relating to the consolidated balance sheets of Circuit City Stores, Inc. and subsidiaries (the Company) as of February 29, 1996 and February 28, 1995, and the related consolidated statements of earnings, stockholders' equity and cash flows for each of the fiscal years in the three-year period ended February 29, 1996, which report is incorporated by reference from the annual report to stockholders in the February 29, 1996 annual report on Form 10-K of Circuit City Stores, Inc. We also consent to the incorporation by reference in the foregoing registration statements of our report dated April 3, 1996, relating to the financial statement schedule of Circuit City Stores, Inc., which report appears as listed in Item 14(a)2 of this Form 10-K. s/ KPMG Peat Marwick LLP Richmond, Virginia May 17, 1996 EX-24 7 EXHIBIT 24 - POWERS OF ATTORNEY POWER OF ATTORNEY I hereby appoint Richard L. Sharp my true and lawful attorney-in-fact to sign on my behalf, as an individual and in the capacity stated below, the Annual Report on Form 10-K of Circuit City Stores, Inc. for its fiscal year ended February 29, 1996 and any amendment with such attorney-in-fact may deem appropriate or necessary. s/ Michael T. Chalifoux Michael T. Chalifoux Sr. Vice President Chief Financial Officer POWER OF ATTORNEY I hereby appoint Michael T. Chalifoux or Richard L. Sharp my true and lawful attorney-in-fact to sign on my behalf, as an individual and in the capacity stated below, the Annual Report on Form 10-K of Circuit City Stores, Inc. for its fiscal year ended February 29, 1996 and any amendment with such attorney-in-fact may deem appropriate or necessary. Signature: s/Richard N. Cooper Print Name: Richard N. Cooper Title: Director POWER OF ATTORNEY I hereby appoint Michael T. Chalifoux or Richard L. Sharp my true and lawful attorney-in-fact to sign on my behalf, as an individual and in the capacity stated below, the Annual Report on Form 10-K of Circuit City Stores, Inc. for its fiscal year ended February 29, 1996 and any amendment with such attorney-in-fact may deem appropriate or necessary. Signature: s/Barbara S. Feigin Print Name: Barbara S. Feigin Title: Director POWER OF ATTORNEY I hereby appoint Michael T. Chalifoux or Richard L. Sharp my true and lawful attorney-in-fact to sign on my behalf, as an individual and in the capacity stated below, the Annual Report on Form 10-K of Circuit City Stores, Inc. for its fiscal year ended February 29, 1996 and any amendment with such attorney-in-fact may deem appropriate or necessary. Signature: s/Theodore D. Nierenberg Print Name: Theodore D. Nierenberg Title: Director POWER OF ATTORNEY I hereby appoint Michael T. Chalifoux or Richard L. Sharp my true and lawful attorney-in-fact to sign on my behalf, as an individual and in the capacity stated below, the Annual Report on Form 10-K of Circuit City Stores, Inc. for its fiscal year ended February 29, 1996 and any amendment with such attorney-in-fact may deem appropriate or necessary. Signature: s/Hugh G. Robinson Print Name: Hugh G. Robinson Title: Director POWER OF ATTORNEY I hereby appoint Michael T. Chalifoux or Richard L. Sharp my true and lawful attorney-in-fact to sign on my behalf, as an individual and in the capacity stated below, the Annual Report on Form 10-K of Circuit City Stores, Inc. for its fiscal year ended February 29, 1996 and any amendment with such attorney-in-fact may deem appropriate or necessary. Signature: s/Walter J. Salmon Print Name: Walter J. Salmon Title: Director POWER OF ATTORNEY I hereby appoint Michael T. Chalifoux or Richard L. Sharp my true and lawful attorney-in-fact to sign on my behalf, as an individual and in the capacity stated below, the Annual Report on Form 10-K of Circuit City Stores, Inc. for its fiscal year ended February 29, 1996 and any amendment with such attorney-in-fact may deem appropriate or necessary. Signature: s/Mikael Salovaara Print Name: Mikael Salovaara Title: Director POWER OF ATTORNEY I hereby appoint Michael T. Chalifoux my true and lawful attorney-in-fact to sign on my behalf, as an individual and in the capacity stated below, the Annual Report on Form 10-K of Circuit City Stores, Inc. for its fiscal year ended February 29, 1996 and any amendment with such attorney-in-fact may deem appropriate or necessary. s/Richard L. Sharp Richard L. Sharp, Chairman, President and Chief Executive Officer POWER OF ATTORNEY I hereby appoint Michael T. Chalifoux or Richard L. Sharp my true and lawful attorney-in-fact to sign on my behalf, as an individual and in the capacity stated below, the Annual Report on Form 10-K of Circuit City Stores, Inc. for its fiscal year ended February 29, 1996 and any amendment with such attorney-in-fact may deem appropriate or necessary. Signature: s/Edward Villanueva Print Name: Edward Villanueva Title: Director POWER OF ATTORNEY I hereby appoint Michael T. Chalifoux or Richard L. Sharp my true and lawful attorney-in-fact to sign on my behalf, as an individual and in the capacity stated below, the Annual Report on Form 10-K of Circuit City Stores, Inc. for its fiscal year ended February 29, 1996 and any amendment with such attorney-in-fact may deem appropriate or necessary. Signature: s/Alan Wurtzel Print Name: Alan Wurtzel Title: Vice-Chairman and Director EX-27 8 FINANCIAL DATA SCHEDULE
5 1,000 12-MOS FEB-29-1996 FEB-29-1996 43,704 0 324,395 0 1,323,183 1,735,677 1,043,211 268,946 2,526,022 831,175 399,161 0 0 48,690 1,015,231 2,526,022 7,029,123 7,029,123 5,394,293 5,394,293 0 0 25,400 287,000 107,625 179,375 0 0 0 179,375 1.82 1.82
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