UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------------------
FORM 10-Q
(Mark One)
[X] Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 For the quarterly period ended May 31, 2008
or
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 For the transition period from ____ to _____
Commission file number: 1-5767
CIRCUIT CITY STORES, INC.
(Exact name of registrant as specified in its charter)
Virginia 54-0493875
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
9950 Mayland Drive
Richmond, Virginia 23233
(Address of principal executive offices) (Zip Code)
(804) 486 - 4000
(Registrant's telephone number, including area code)
N/A
(Former name, former address, and former fiscal year, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes |X| No ___
Indicate by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
the definitions of "large accelerated filer," "accelerated filer" and "smaller
reporting company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer |X| Accelerated filer __ Non-accelerated filer __ Smaller reporting company__
-----
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act).
Yes___ No |X|
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at May 31, 2008
Common Stock, par value $0.50 168,512,147
CIRCUIT CITY STORES, INC.
FORM 10-Q
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements:
Consolidated Statements of Operations -
Three Months Ended May 31, 2008 and 2007 3
Consolidated Balance Sheets -
May 31, 2008, and February 29, 2008 4
Consolidated Statements of Cash Flows -
Three Months Ended May 31, 2008 and 2007 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 14
Item 3. Quantitative and Qualitative Disclosures About Market Risk 27
Item 4. Controls and Procedures 28
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 28
Item 1A. Risk Factors 28
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 28
Item 6. Exhibits 30
SIGNATURES 31
EXHIBIT INDEX 32
Page 2 of 32
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Circuit City Stores, Inc.
Consolidated Statements of Operations (Unaudited)
(Amounts in thousands except per share data)
Three Months Ended
May 31
2008 2007
-------------- -------------
Net sales $ 2,301,074 $ 2,485,537
Cost of sales, buying and warehousing 1,822,400 1,925,352
-------------- -------------
Gross profit 478,674 560,185
Selling, general and administrative expenses 640,009 648,354
-------------- -------------
Operating loss (161,335) (88,169)
Interest income 1,168 5,737
Interest expense 1,682 43
-------------- -------------
Loss from continuing operations before income taxes (161,849) (82,475)
Income tax expense (benefit) 2,966 (27,663)
-------------- -------------
Net loss from continuing operations (164,815) (54,812)
Earnings from discontinued operations, net of tax - 246
-------------- -------------
Net loss $ (164,815) $ (54,566)
============== =============
Weighted average common shares:
Basic 164,949 165,842
Diluted 164,949 165,842
Loss per share:
Basic:
Continuing operations $ (1.00) $ (0.33)
Discontinued operations $ - $ 0.00
Basic loss per share $ (1.00) $ (0.33)
Diluted:
Continuing operations $ (1.00) $ (0.33)
Discontinued operations $ - $ 0.00
Diluted loss per share $ (1.00) $ (0.33)
Cash dividends paid per share $ 0.04 $ 0.04
See accompanying notes to consolidated financial statements.
Page 3 of 32
Circuit City Stores, Inc.
Consolidated Balance Sheets
(Amounts in thousands except share data)
May 31, 2008 Feb. 29, 2008
------------ -------------
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 90,848 $ 296,055
Short-term investments 1,329 1,366
Accounts receivable, net of allowance for doubtful accounts 307,033 330,599
Merchandise inventory 1,686,314 1,573,560
Deferred income taxes, net of valuation allowance 28,571 38,672
Income tax receivable 161,765 158,116
Prepaid expenses and other current assets 73,698 41,352
-------------- -------------
Total current assets 2,349,558 2,439,720
Property and equipment, net of accumulated depreciation of
$1,481,216 and $1,448,250 1,037,808 1,037,321
Goodwill 116,928 118,031
Other intangible assets, net of accumulated amortization of
$7,837 and $7,224 17,551 18,400
Other assets 127,478 132,458
-------------- ------------
TOTAL ASSETS $ 3,649,323 $ 3,745,930
============== =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Merchandise payable $ 933,190 $ 912,094
Expenses payable 287,448 232,386
Accrued expenses and other current liabilities 325,270 346,818
Accrued compensation 60,558 85,127
Accrued income taxes 17,427 17,680
Short-term debt 55,000 -
Current installments of long-term debt 11,801 11,582
-------------- -------------
Total current liabilities 1,690,694 1,605,687
Long-term debt, excluding current installments 60,831 57,050
Accrued straight-line rent 150,241 145,960
Deferred rent credits 163,893 163,662
Accrued lease termination costs 75,640 82,900
Deferred income taxes, net of valuation allowance 25,543 35,586
Other liabilities 149,750 151,910
-------------- -------------
TOTAL LIABILITIES 2,316,592 2,242,755
-------------- -------------
Commitments and contingent liabilities
Stockholders' equity:
Common stock, $0.50 par value;
525,000,000 shares authorized; 168,512,147 shares
issued and outstanding at May 31, 2008
(168,859,462 at February 29, 2008) 84,256 84,430
Additional paid-in capital 322,929 319,573
Retained earnings 809,624 981,112
Accumulated other comprehensive income 115,922 118,060
------------- -------------
TOTAL STOCKHOLDERS' EQUITY 1,332,731 1,503,175
------------- -------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 3,649,323 $ 3,745,930
============= =============
See accompanying notes to consolidated financial statements.
Page 4 of 32
Circuit City Stores, Inc.
Consolidated Statements of Cash Flows (Unaudited)
(Amounts in thousands)
Three Months Ended
May 31
2008 2007
------------- ------------
Operating Activities:
Net loss $ (164,815) $ (54,566)
Adjustments to reconcile net loss to net cash
used in operating activities of continuing operations:
Net earnings from discontinued operations - (246)
Depreciation expense 45,106 48,981
Amortization expense 669 1,162
Stock-based compensation expense 3,208 4,942
Loss on dispositions of property and equipment 1,749 245
Provision for deferred income taxes 847 6,964
Other 1,803 (376)
Changes in operating assets and liabilities:
Accounts receivable, net 10,334 19,140
Merchandise inventory (114,150) (99,455)
Prepaid expenses and other current assets (28,223) (33,018)
Other assets 905 (497)
Merchandise payable 18,966 (2,571)
Expenses payable 6,626 (10,440)
Accrued expenses, other current liabilities and income taxes (49,520) (159,708)
Other long-term liabilities (9,031) 24,835
------------- ------------
Net cash used in operating activities of continuing operations (275,526) (254,608)
------------ ------------
Investing Activities:
Purchases of property and equipment (50,753) (65,661)
Proceeds from sales of property and equipment 22,880 10,992
Purchases of investment securities - (238,675)
Sales and maturities of investment securities - 585,260
Other investing activities 139 (1,823)
------------ ------------
Net cash (used in) provided by investing activities of continuing operations (27,734) 290,093
------------ ------------
Financing Activities:
Proceeds from short-term borrowings 405,000 4,515
Principal payments on short-term borrowings (350,000) -
Principal payments on long-term debt (3,398) (2,090)
Changes in overdraft balances 53,263 (28,709)
Excess tax benefit from stock-based compensation - 470
Repurchases of common stock - (46,757)
Issuances of common stock - 3,237
Dividends paid (6,663) (6,782)
Other financing activities (37) (25)
------------ ------------
Net cash provided by (used in) financing activities of continuing operations 98,165 (76,141)
------------ ------------
Discontinued Operations:
Operating cash flows - 11,240
Investing cash flows - -
Financing cash flows - (57)
------------ ------------
Net cash provided by discontinued operations - 11,183
------------ ------------
Effect of exchange rate changes on cash (112) 641
------------ ------------
Decrease in cash and cash equivalents (205,207) (28,832)
Cash and cash equivalents at beginning of year 296,055 141,141
------------- ------------
Cash and cash equivalents at end of period $ 90,848 $ 112,309
============= ============
See accompanying notes to consolidated financial statements.
Page 5 of 32
CIRCUIT CITY STORES, INC.
Notes to Consolidated Financial Statements
(Unaudited)
1. Basis of Presentation
Circuit City Stores, Inc. is a leading specialty retailer of consumer
electronics, home office products, entertainment software, and related
services. The company has two reportable segments: its domestic segment and
its international segment.
The domestic segment is engaged in the business of selling brand-name and
private-label consumer electronics, personal computers, entertainment
software, and related services in its stores in the United States and via
the Web at www.circuitcity.com and www.firedog.com. At May 31, 2008, the
company's domestic segment operated 687 Superstores and 9 outlet stores in
158 U.S. media markets.
The international segment, which is comprised of the operations of
InterTAN, Inc., is engaged in the business of selling private-label and
brand-name consumer electronics in Canada. The international segment's
headquarters are located in Barrie, Ontario, Canada, and it operates
through retail stores and dealer outlets in Canada primarily under the
trade name The Source By Circuit CitySM. At May 31, 2008, the international
segment conducted business through 775 retail stores and dealer outlets,
which consisted of 502 company-owned stores and 273 dealer outlets. The
international segment also operates a Web site at www.thesource.ca. In
February 2007, the board of directors authorized management to explore
strategic alternatives for InterTAN, Inc., which could include the sale of
the operation.
Effective January 28, 2007, the company returned the management of 92
Rogers Plus(R) stores to Rogers Wireless Inc. Results from the Rogers
Plus(R) stores are presented as results from discontinued operations for
the three months ended May 31, 2007.
In May 2008, the company retained Goldman, Sachs & Co. to assist the
company in exploring strategic alternatives to enhance shareholder value.
The preparation of financial statements in conformity with U.S. generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets, liabilities,
revenues and expenses and the disclosure of contingent assets and
liabilities. Actual results may differ from these estimates. The
accompanying unaudited financial statements contain all adjustments of a
normal, recurring nature, except as otherwise disclosed herein, which are,
in the opinion of management, necessary for a fair presentation. Due to the
seasonal nature of the company's business, interim results are not
necessarily indicative of results for the entire fiscal year. The company's
consolidated financial statements included in this report should be read in
conjunction with the notes to the audited financial statements in the
company's fiscal 2008 annual report on Form 10-K.
Within the financial tables in this quarterly report on Form 10-Q, certain
columns and rows may not sum due to the use of rounded numbers for
disclosure purposes. Percentages presented are calculated from the
underlying whole-dollar amounts.
2. Recent Accounting Pronouncements
As permitted under transition rules by the Financial Accounting Standards
Board ("FASB"), the company partially adopted the provisions of Statement
of Financial Accounting Standards ("SFAS") No. 157, "Fair Value
Measurements," as of March 1, 2008, on a prospective basis. SFAS No. 157
defines fair value, establishes a framework for measuring fair value and
expands disclosures about fair value measurements. This Statement does not
require any new fair value measurements, but applies to existing accounting
pronouncements that require or permit fair value measurement as the
relevant measurement attribute. As permitted by FASB Staff Position No. FAS
157-2, "Effective Date of FASB Statement No. 157,"
Page 6 of 32
the company delayed the adoption of SFAS No. 157 for all non-financial
assets and non-financial liabilities, except those that are recognized or
disclosed at fair value in the financial statements on a recurring basis
(at least annually), until March 1, 2009. The partial adoption of SFAS No.
157 did not have an impact on the company's financial position, results of
operations or cash flows. The full adoption of SFAS No. 157 is not expected
to have a material effect on the company's financial position, results of
operations or cash flows.
In February 2007, the FASB issued SFAS No. 159, "The Fair Value Option for
Financial Assets and Financial Liabilities." SFAS No. 159 permits entities
to choose to measure many financial instruments and certain assets and
liabilities at fair value. The company adopted SFAS No. 159 as of March 1,
2008. As the company did not elect the fair value option for any of its
financial instruments or other assets and liabilities, the adoption of this
standard did not have an impact on its financial position, results of
operations or cash flows.
On March 1, 2008, the company adopted Emerging Issues Task Force Issue
06-11, "Accounting for Income Tax Benefits of Dividends on Share-Based
Payment Awards," ("EITF 06-11") on a prospective basis. This Issue requires
income tax benefits from dividends or dividend equivalents that are charged
to retained earnings and are paid to employees for equity-classified
nonvested equity shares, nonvested equity share units, and outstanding
equity share options to be recognized as an increase to additional paid-in
capital. During the first quarter of fiscal 2009, the income tax benefit of
these dividends could not be recognized because the company has recorded a
full valuation allowance against the deferred tax assets of its U.S.
operations. Thus, the adoption of EITF 06-11 did not have an impact on the
company's financial position, results of operations or cash flows.
In December 2007, the FASB issued SFAS No. 141(R), "Business Combinations,"
and SFAS No. 160, "Noncontrolling Interests in Consolidated Financial
Statements, an amendment of ARB No. 51." These new standards significantly
change the accounting for and reporting of business combination
transactions and noncontrolling interests (previously referred to as
minority interests) in consolidated financial statements. Both standards
will be effective for the company beginning with the first quarter of
fiscal 2010 and will be applied prospectively to future business
combinations.
In April 2008, the FASB issued FASB Staff Position No. FAS 142-3,
"Determination of the Useful Life of Intangible Assets," ("FSP No. 142-3").
This FSP amends the factors that should be considered in developing renewal
or extension assumptions used to determine the useful life of a recognized
intangible asset under SFAS No. 142, "Goodwill and Other Intangible
Assets". The intent of this FSP is to improve the consistency between the
useful life of a recognized intangible asset under SFAS No. 142 and the
period of expected cash flows used to measure the fair value of the asset
under SFAS No. 141(R) and other U.S. generally accepted accounting
principles. This FSP is effective for the company as of March 1, 2009, and
will be applied prospectively to future business combinations.
In May 2008, the FASB issued SFAS No. 162, "The Hierarchy of Generally
Accepted Accounting Principles." SFAS No. 162 identifies the sources of
accounting principles and the framework for selecting the principles used
in the preparation of financial statements. SFAS No. 162 will be effective
60 days following the Securities and Exchange Commission's approval of the
Public Company Accounting Oversight Board amendments to AU Section 411,
"The Meaning of Present Fairly in Conformity with Generally Accepted
Accounting Principles." The company does not expect the adoption of this
standard to have an impact on its financial position, results of operations
or cash flows.
In June 2008, the FASB issued FSP EITF 03-6-1, "Determining Whether
Instruments Granted in Share-Based Payment Transactions Are Participating
Securities," ("FSP EITF 03-6-1"). This FSP addresses whether instruments
granted in share-based payment transactions are participating securities
prior to vesting and, therefore, need to be included in computing earnings
per share under the two-class method described in SFAS No. 128, "Earnings
Per Share." This FSP will be effective for the company beginning with the
first quarter of fiscal 2010 and will be applied retrospectively. The
company is currently evaluating the impact of adopting FSP EITF 03-6-1.
Page 7 of 32
3. Loss Per Share
For the three months ended May 31, 2008, and May 31, 2007, no options or
nonvested stock were included in the computation of diluted loss per share
because the company reported a net loss from continuing operations. Shares
excluded were as follows:
Three Months Ended
May 31
(Shares in millions) 2008 2007
-------------------------------------------------------------------------------------
Options...................................................... 9.8 8.6
Nonvested stock.............................................. 4.1 4.0
4. Income Taxes
Quarterly, the company evaluates its deferred income taxes to determine if
valuation allowances are required. During fiscal 2008, the company
determined that its U.S. operations had generated a cumulative three-year
loss. Based on the cumulative three-year loss and other available objective
evidence, management concluded that a full valuation allowance should be
recorded against the net deferred tax assets of the U.S. operations. The
total valuation allowance was $192.6 million at May 31, 2008, and $129.8
million at February 29, 2008. The increase in the valuation allowance is
attributable to the loss generated by the company's U.S. operations during
the three months ended May 31, 2008.
During the first quarter of fiscal 2009, the company recorded income tax
expense of $3.0 million on a loss from continuing operations of $161.8
million. Due to the valuation allowance, the company did not record an
income tax benefit for the first quarter loss of its U.S. operations. The
income tax expense is comprised primarily of discrete items and state
income tax expense, partially offset by a benefit recognized related to the
pre-tax loss of the company's Canadian operations. The discrete items are
comprised primarily of an adjustment to a previously-filed tax position
related to leases.
5. Exit and Other Activities
At a location's cease-use date, estimated lease termination costs to close
a store, distribution center or repair center are recorded in selling,
general and administrative expenses on the consolidated statements of
operations. Accrued lease termination costs include future minimum lease
payments, taxes, insurance and maintenance costs from the date of closure
to the end of the remaining lease term less estimated sublease rental
income, net of tenant improvement allowances and broker fees. The company
evaluates these assumptions each quarter and adjusts the liability
accordingly. The liability for lease termination costs is discounted using
a credit-adjusted risk-free rate of interest.
The accrual for lease termination costs for the domestic segment includes
the following activity:
Three Months Ended
May 31
(Amounts in millions) 2008 2007
----------------------------------------------------------------------------------------------------------
Accrued lease termination costs at beginning of period...................... $115.5 $105.6
Provisions for closed locations............................................. 0.6 -
Changes in assumptions about future sublease income......................... (0.1) 2.4
Interest accretion.......................................................... 2.4 2.0
Cash payments, net of cash received on subleased locations.................. (9.2) (8.6)
--------------------------
Accrued lease termination costs at end of period............................ 109.2 101.4
Less current portion of accrued lease termination costs..................... 33.6 29.7
--------------------------
Non-current portion of accrued lease termination costs...................... $ 75.6 $ 71.7
==========================
Page 8 of 32
At May 31, 2008, accrued lease termination costs of $109.2 million
consisted of 94 locations, of which 39 were subleased. The provision for
closed locations included in the table above represents the initial
estimate of lease termination costs for locations at the cease-use date.
The current portion of accrued lease termination costs is included in
accrued expenses and other current liabilities, and the non-current portion
is presented separately, on the consolidated balance sheets.
At February 29, 2008, accrued severance totaled $10.0 million. During the
first quarter of fiscal 2009, the company made cash payments of $2.5
million and recorded an additional charge of $0.6 million related to
severance arrangements. The additional charge is recorded in cost of sales,
buying and warehousing or selling, general and administrative expenses
depending on the classification of the related employee's payroll expense.
At May 31, 2008, accrued severance totaled $8.1 million. Accrued severance
is included in accrued compensation on the consolidated balance sheets.
6. Stock-Based Compensation
Under the company's stock-based incentive plans, stock options, nonvested
stock, nonvested stock units and other equity-based awards may be granted
to employees and non-employee directors. At May 31, 2008, 2.0 million
shares of common stock were available for future grants. Common shares are
issued from authorized and unissued shares upon the exercise of stock
options, the grant of nonvested stock or the vesting of or lapse of
deferral restrictions on nonvested stock units.
Compensation expense for stock-based incentive plans is summarized in the
table below.
Three Months Ended
May 31
(Amounts in millions) 2008 2007
-----------------------------------------------------------------------------------------
Compensation expense recognized:
Stock options........................................... $1.9 $2.6
Nonvested stock and nonvested stock units............... 1.3 2.3
Phantom stock units..................................... 0.9 (0.1)
Employee stock purchase plan............................ 0.1 0.2
Other................................................... 0.1 0.1
----------------------------
Total compensation expense recognized.............. $4.3 $5.1
============================
Tax benefit recognized, before valuation allowance......... $1.6 $1.8
Stock-based compensation expense is recorded in cost of sales, buying and
warehousing or in selling, general and administrative expenses depending on
the classification of the related employee's payroll cost. The
classification of stock-based compensation expense is summarized in the
table below.
Three Months Ended
May 31
(Amounts in millions) 2008 2007
-------------------------------------------------------------------------------------
Cost of sales, buying and warehousing...................... $0.6 $0.6
Selling, general and administrative expenses............... 3.7 4.5
---------------------
Total compensation expense recognized...................... $4.3 $5.1
=====================
The company recognizes stock-based compensation expense net of an estimated
forfeiture rate based on historical forfeiture activity. During the three
months ended May 31, 2008, and the three months ended May 31, 2007, the
company increased the estimated forfeiture rate on certain nonvested stock
awards to reflect changes in expectations regarding the number of
instruments that will vest. These changes were the result of higher than
anticipated actual forfeitures, due in part to restructuring activities.
Page 9 of 32
7. Comprehensive Loss
Comprehensive loss consists of net loss and certain other items that are
recorded directly to stockholders' equity, net of deferred income taxes. In
addition to net loss, comprehensive loss includes foreign currency
translation adjustments, adjustments to reflect the funded status of the
company's pension plans on the consolidated balance sheets, and unrealized
gains and losses on available-for-sale securities.
The components of comprehensive loss, net of taxes, were as follows:
Three Months Ended
May 31
(Amounts in millions) 2008 2007
--------------------------------------------------------------------------------------
Net loss................................................... $(164.8) $(54.6)
Foreign currency translation adjustments................... (1.9) 16.6
Other...................................................... (0.2) 0.1
-------------------------
Comprehensive loss......................................... $(167.0) $(37.9)
========================
8. Pension Plans
The company's domestic segment has a noncontributory defined benefit
pension plan and an unfunded nonqualified benefit restoration plan that
restored retirement benefits for domestic segment senior executives who
were affected by Internal Revenue Code limitations on benefits provided
under the company's defined benefit pension plan. Both plans were amended
to freeze benefit accruals effective February 28, 2005, except for select
grandfathered participants who were at or near their early or normal
retirement date. Both plans were further amended to freeze benefit accruals
for the grandfathered participants as of February 29, 2008. As a result,
all participants in the plans are no longer eligible to increase their
benefits under the plans, but will retain any benefits accrued through the
effective date of the plan amendments.
The components of net pension income for the plans were as follows:
Three Months Ended
May 31
(Amounts in millions) 2008 2007
---------------------------------------------------------------------------------
Service cost.......................................... $ - $ 0.6
Interest cost......................................... 4.1 4.0
Expected return on plan assets........................ (5.5) (5.2)
Recognized prior service cost......................... - 0.1
Recognized actuarial (gain) loss...................... (0.1) 0.4
-----------------------
Net pension income.................................... $(1.5) $ (0.1)
=======================
The company did not make any contributions to the defined benefit pension
plan during the three months ended May 31, 2008. No contributions are
required during fiscal 2009 under applicable law for this pension plan. The
company intends to make any contributions necessary to meet ERISA minimum
funding standards and intends to make additional contributions as needed to
ensure that the fair value of plan assets at February 28, 2009, is equal to
or exceeds the accumulated benefit obligation.
A contribution of $0.8 million, which is equal to the expected benefit
payments for fiscal 2009, is expected to be made to the restoration plan
during fiscal 2009. Benefit payments during the three months ended May 31,
2008, were $0.2 million.
Page 10 of 32
9. Discontinued Operations
For the quarter ended May 31, 2007, earnings from discontinued operations
totaled $0.2 million, which is net of $0.2 million of income taxes, and
primarily related to the operations of the Rogers Plus(R) stores, of which
the management was returned to Rogers Wireless Inc. in January 2007.
10. Segment Information
The company has two reportable segments: its domestic segment and its
international segment. The company identified these segments based on its
management reporting structure and the nature of the products and services
offered by each segment. The domestic segment is primarily engaged in the
business of selling brand-name and private-label consumer electronics,
personal computers, entertainment software, and related services in the
United States. The international segment is primarily engaged in the
business of selling private-label and brand-name consumer electronics in
Canada.
Net sales by reportable segment were as follows:
Three Months Ended
May 31
(Amounts in millions) 2008 2007
----------------------------------------------------------------------------------------
Domestic segment.......................................... $2,166.8 $2,376.9
International segment..................................... 134.3 108.6
---------------------------
Net sales................................................. $2,301.1 $2,485.5
===========================
The (loss) earnings from continuing operations before income taxes by
reportable segment were as follows:
Three Months Ended
May 31
(Amounts in millions) 2008 2007
--------------------------------------------------------------------------------------
Domestic segment.......................................... $(159.9) $(86.4)
International segment..................................... (1.9) 3.9
--------------------------
Loss from continuing operations
before income taxes.................................. $(161.8) $(82.5)
==========================
The international segment's earnings from continuing operations before
income taxes for the three months ended May 31, 2007, include a recovery of
$7.5 million related to a former subsidiary.
Total assets by reportable segment were as follows:
At May 31 At February 29
(Amounts in millions) 2008 2008
------------------------------------------------------------------------------------------------
Domestic segment......................................... $3,240.9 $3,335.7
International segment.................................... 408.4 410.3
-----------------------------------
Total assets............................................. $3,649.3 $3,745.9
====================================
Page 11 of 32
The domestic segment net sales by category were as follows:
Three Months Ended May 31
2008 2007
% of % of
(Dollar amounts in millions) $ Sales $ Sales
----------------------------------------------------------------------------------------
Video................................ $ 889.4 41.0% $ 934.0 39.3%
Information technology............... 591.4 27.3 628.6 26.4
Audio................................ 262.6 12.1 334.9 14.1
Entertainment........................ 262.1 12.1 272.5 11.5
Warranty, services and other(a)...... 161.3 7.5 206.9 8.7
-------------------------------------------------
Net sales............................ $2,166.8 100.0% $2,376.9 100.0%
===============================================
(a) Warranty, services and other includes extended warranty net sales;
revenues from PC services, mobile installations, home theater installations
and product repairs; net financing; and revenues from third parties for
services subscriptions.
The international segment net sales by category were as follows:
Three Months Ended May 31
2008 2007
% of % of
(Dollar amounts in millions) $ Sales $ Sales
----------------------------------------------------------------------------------------
Video................................ $ 25.6 19.0% $ 20.0 18.5%
Information technology............... 47.3 35.3 39.8 36.6
Audio................................ 44.0 32.8 36.5 33.6
Entertainment........................ 9.3 7.0 5.0 4.6
Warranty, services and other(a)...... 8.0 5.9 7.3 6.7
-------------------------------------------------
Net sales............................ $134.3 100.0% $108.6 100.0%
=================================================
(a) Warranty, services and other includes extended warranty sales and
product repair revenue.
11. Supplemental Consolidated Statements of Cash Flows Information
The following table summarizes supplemental cash flow information.
Three Months Ended
May 31
(Amounts in millions) 2008 2007
----------------------------------------------------------------------------------------------------------------
Supplemental schedule of non-cash investing and financing activities:
Non-cash capital expenditures(a).................................................. $20.6 $34.4
Capital lease obligations......................................................... $ 7.4 $ 0.3
Sale-leaseback receivables(a)..................................................... $ 4.2 $ 2.3
(a) Amounts disclosed in prior quarters reflected the change in the accrual
and receivable balances rather than the balances related to non-cash
transactions arising during the quarter. Prior year amounts have been
corrected to reflect the non-cash transactions for the quarter. The
correction did not impact the statements of cash flows in any period.
12. Risks and Uncertainties
The company experienced a net loss in the first quarter of fiscal 2009 of
$164.8 million, and its cash, cash equivalents and short-term investments
position declined from $297.4 million at February 29, 2008, to $92.2
million at May 31, 2008. The company has projected only a modest
improvement in its loss for fiscal 2009 compared with its loss of $319.9
million for fiscal 2008. This outlook is based on the following:
o A continuation of current operating trends through the first half of
fiscal 2009 and an improvement in second half trends
Page 12 of 32
o A continuation of weak macroeconomic trends, particularly in the first
half of the fiscal year
o Improved retail execution, leading to higher close rates and improved
basket, offsetting a decline in store traffic
o Sales growth in key product areas including LCD televisions, notebook
computers and video gaming products, offset by sales declines in
projection and tube televisions, desktop computers and portable audio
products
o Improvements in merchandise margins, shrink and markdowns
o Low-single-digit percentage growth in SG&A dollars compared with fiscal
2008 driven by incremental and relocated store openings and increased
compensation costs
The company has taken steps to enhance its liquidity by amending and
increasing its asset-based credit facility in January 2008 to $1.3 billion
from $500 million. The company's plans to manage its liquidity position in
fiscal 2009 include improving close rates and attachment rates, which would
have a positive impact on both sales and margin; improving working capital
through targeted improvements in net-owned inventory; reducing projected
capital expenditures by $85 million to $105 million below prior year
levels; suspending repurchases of common stock; maintaining an intense
focus on controlling expenses; and maintaining strong relationships with
its vendors to ensure continued availability of vendor credit.
Additionally, in June 2008, the board of directors suspended the
declaration and payment of quarterly cash dividends on the company's common
stock as part of its focus on conserving capital.
The company has considered the impact of the financial outlook on its
liquidity and has performed an analysis of the key assumptions in its
forecast such as sales, gross margin and SG&A expenses; an evaluation of
its relationships with vendors, including availability of vendor credit;
and an analysis of cash requirements, including its net-owned inventory
position, other working capital changes, capital expenditures and borrowing
availability under the credit facility. Based on these analyses and
evaluations, the company expects that its anticipated sources of liquidity
will be sufficient to meet its obligations without disposition of assets
outside of the ordinary course of business or significant revisions of its
planned operations through fiscal 2009.
13. Subsequent Event
On June 19, 2008, the company announced that its board of directors has
suspended the declaration and payment of quarterly cash dividends on the
company's common stock, effective immediately.
Page 13 of 32
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
We are a leading specialty retailer of consumer electronics, home office
products, entertainment software, and related services. We have two reportable
segments: our domestic segment and our international segment.
Our domestic segment is engaged in the business of selling brand-name and
private-label consumer electronics, personal computers, entertainment software,
and related services in our stores in the United States and via the Web at
www.circuitcity.com and www.firedog.com. At May 31, 2008, the domestic segment
operated 687 Superstores and 9 outlet stores in 158 U.S. media markets.
Our international segment, which is comprised of the operations of InterTAN,
Inc., is engaged in the business of selling private-label and brand-name
consumer electronics in Canada. The international segment's headquarters are
located in Barrie, Ontario, Canada, and it operates through retail stores and
dealer outlets in Canada primarily under the trade name The Source By Circuit
CitySM. At May 31, 2008, the international segment conducted business through
775 retail stores and dealer outlets, which consisted of 502 company-owned
stores and 273 dealer outlets. The international segment also operates a Web
site at www.thesource.ca. In February 2007, the board of directors authorized
management to explore strategic alternatives for InterTAN, Inc., which could
include the sale of the operation.
Effective January 28, 2007, we returned the management of 92 Rogers Plus(R)
stores to Rogers Wireless Inc. Results from the Rogers Plus(R) stores are
presented as results from discontinued operations for the three months ended May
31, 2007.
In May 2008, we retained Goldman, Sachs & Co. to assist us in exploring
strategic alternatives to enhance shareholder value.
Management's Discussion and Analysis (MD&A) is designed to provide the reader of
financial statements with a narrative discussion of our results of operations;
financial position, liquidity and capital resources; critical accounting
policies and significant estimates; and the impact of recently issued accounting
standards. Our MD&A is presented in seven sections:
o Executive Summary
o Critical Accounting Policies
o Results of Operations
o Recent Accounting Pronouncements
o Financial Condition
o Financial Outlook
o Forward-Looking Statements
This discussion should be read in conjunction with our Consolidated Financial
Statements and accompanying Notes included in this report and in the fiscal 2008
annual report on Form 10-K, as well as our reports on Form 8-K and other SEC
filings.
Within the financial tables in this quarterly report on Form 10-Q, certain
columns and rows may not sum due to the use of rounded numbers for disclosure
purposes. Percentages presented are calculated from the underlying whole-dollar
amounts. All per share amounts are presented on a fully diluted basis.
EXECUTIVE SUMMARY
Fiscal 2009 First Quarter Performance
o Net sales declined 7.4 percent to $2.30 billion from $2.49 billion in the
same period last fiscal year, driven by a comparable store sales decline of
11.3 percent.
o In the domestic segment, direct channel sales, which include Web- and call
center-originated sales, grew 3 percent, and firedogSM PC services and home
theater installation revenues decreased 16 percent from the
Page 14 of 32
same period last fiscal year. In the first quarter of last fiscal year, we
posted direct channel sales growth of 21 percent, and firedogSM PC services
and home theater installation revenues increased 70 percent.
o Gross profit margin declined 174 basis points to 20.8 percent due to lower
merchandise margins as well as a decrease in extended warranty net sales in
the domestic segment.
o SG&A expenses as a percentage of net sales increased 173 basis points from
the same period last fiscal year, which primarily reflects the overall
de-leveraging impact of lower sales in the domestic segment.
o The loss from continuing operations before income taxes was 7.0 percent of
net sales compared with a loss from continuing operations before income
taxes of 3.3 percent of net sales in the same period last year.
o We reported a net loss from continuing operations of $164.8 million, or
$1.00 per share, for the first quarter of fiscal 2009, compared with a net
loss from continuing operations of $54.8 million, or $0.33 per share, in
the same period last fiscal year.
CRITICAL ACCOUNTING POLICIES
See the discussion of critical accounting policies in Management's Discussion
and Analysis of Financial Condition and Results of Operations in our fiscal 2008
annual report on Form 10-K. These policies relate to inventory valuation,
goodwill, income taxes, accrued lease termination costs, stock-based
compensation and pension plans.
RESULTS OF OPERATIONS
Our operations, consistent with other retailers in general, are subject to
seasonal influences. Historically, we have realized more of our net sales and
net earnings in the fourth quarter, which includes the majority of the holiday
selling season, than in any other fiscal quarter. The net (loss) earnings of any
quarter are seasonally disproportionate to net sales since administrative and
certain operating expenses remain relatively constant during the year.
Therefore, quarterly results should not be relied upon as necessarily indicative
of results for the entire fiscal year.
Summary of Segment Performance
Where relevant, we have included separate discussions of our domestic and
international segments. The following tables summarize performance by segment.
SEGMENT PERFORMANCE SUMMARY
Three Months Ended May 31, 2008
Domestic International Consolidated
% of % of % of
(Dollar amounts in millions) $ Sales $ Sales $ Sales
-------------------------------------------------------------------------------------------------------------------------
Net sales............................... $2,166.8 100.0% $134.3 100.0% $2,301.1 100.0%
Gross profit............................ $ 434.1 20.0% $ 44.6 33.2% $ 478.7 20.8%
Selling, general and administrative
expenses............................ $ 593.4 27.4% $ 46.6 34.7% $ 640.0 27.8%
Loss from continuing
operations before income taxes...... $ (159.9) (7.4)% $ (1.9) (1.5)% $ (161.8) (7.0)%
Page 15 of 32
Three Months Ended May 31, 2007
Domestic International Consolidated
% of % of % of
(Dollar amounts in millions) $ Sales $ Sales $ Sales
-------------------------------------------------------------------------------------------------------------------------
Net sales............................... $2,376.9 100.0% $108.6 100.0% $2,485.5 100.0%
Gross profit............................ $ 520.5 21.9% $ 39.7 36.6% $ 560.2 22.5%
Selling, general and administrative
expenses............................ $ 612.5 25.8% $ 35.9 33.0% $ 648.4 26.1%
(Loss) earnings from continuing
operations before income taxes........ $ (86.4) (3.6)% $ 3.9 3.6% $ (82.5) (3.3)%
Net Sales
Consolidated
For the first quarter of fiscal 2009, our net sales decreased 7.4 percent to
$2.30 billion, and comparable store sales decreased 11.3 percent from the same
period last fiscal year. A store's sales are included in comparable store sales
after the store has been open for a full 12 months. Comparable store sales
include Web- and call center-originated sales and sales from relocated and
remodeled stores. Sales from closed stores are included in comparable store
sales until the month in which the stores are closed. The calculation of
comparable store sales excludes the impact of fluctuations in foreign currency
exchange rates.
Our major sales categories are
o video, which includes televisions, imaging products, DVD hardware,
camcorders, furniture, and related accessories;
o information technology, which includes PC hardware, telecommunications
products and related accessories;
o audio, which includes home audio, mobile audio, portable audio and
navigation products, and related accessories;
o entertainment, which includes movie software, music software, game
software, game hardware and PC software; and
o warranty, services and other, which includes extended warranty net sales;
revenues from PC services, mobile installations, home theater installations
and product repairs; net financing; and revenues received from third
parties for services subscriptions.
Domestic Segment
For the first quarter of fiscal 2009, the domestic segment's net sales were
$2.17 billion, a decrease of 8.8 percent from the same period last fiscal year.
Comparable store sales decreased 12.2 percent driven by a decline in traffic and
close rates as compared to the same period last fiscal year. During the first
quarter of fiscal 2009, comparable store average ticket was approximately flat
to the same period last fiscal year. The sub-category with the largest
comparable store sales growth was large LCD televisions. Video gaming products
and digital-to-analog converter boxes also showed strong sales growth. We had
broad-based weakness across most other categories, including other television
sub-categories, information technology products, audio products and music and
movie software. We saw continued weakness across all regions of the country,
though the strongest comparable store sales declines were in Florida, California
and the Rocky Mountain region. Similar to the prior quarter, the northeast
region performed relatively better than other regions. For the quarter, direct
channel sales grew 3 percent. The direct channel sales growth was lower than
Page 16 of 32
historical year-over-year growth due primarily to a less aggressive promotional
stance in categories such as PC hardware and televisions.
The domestic segment's net sales represented by each major sales category for
the three months ended May 31, 2008 and 2007, are shown below.
NET SALES BY CATEGORY
Three Months Ended May 31
2008 2007
% of % of
(Dollar amounts in millions) $ Sales $ Sales
----------------------------------------------------------------------------------------
Video................................ $ 889.4 41.0% $ 934.0 39.3%
Information technology............... 591.4 27.3 628.6 26.4
Audio................................ 262.6 12.1 334.9 14.1
Entertainment........................ 262.1 12.1 272.5 11.5
Warranty, services and other......... 161.3 7.5 206.9 8.7
-------------------------------------------------
Net sales............................ $2,166.8 100.0% $2,376.9 100.0%
===============================================
In the video category, we generated a slight double-digit comparable store sales
decrease in the first quarter. Comparable store sales of flat panel televisions
increased by a high-single digit. Total television comparable store sales
experienced a single digit decrease, as significant comparable store sales
decreases in projection and tube televisions more than offset the flat panel
television increase. Comparable store sales of digital imaging products and
accessories and camcorders decreased by double digits.
In the information technology category, we generated a high-single-digit
comparable store sales decrease in the first quarter. Comparable store sales of
desktop computers declined by double digits, and comparable store sales of
notebook computers increased by a low-single digit.
In the audio category, we generated a double-digit comparable store sales
decrease in the first quarter. Comparable store sales of navigation products
increased by a low-single digit. Comparable store sales of portable digital
audio, mobile and home audio products declined by strong double digits.
In the entertainment category, we generated a high-single-digit comparable store
sales decrease in the first quarter. Comparable store sales of video gaming
products increased by double digits. Comparable store sales of video software
and music software declined by double digits.
Domestic segment extended warranty net sales were $53.8 million, or 2.5 percent
of domestic segment net sales, in the first quarter, compared with $73.7
million, or 3.1 percent of domestic segment net sales, in the same period last
year. FiredogSM PC services and home theater installation revenues decreased 16
percent to $54.3 million in the first quarter from $64.4 million last year.
FiredogSM PC services and home theater installation revenue performance in the
prior year period was the second highest year-over-year dollar increase in our
history due primarily to an effective home theater installation bundle offer and
the benefits of the launch of Microsoft Windows Vista.
The following table provides the number of our domestic segment stores:
DOMESTIC SEGMENT STORE MIX
May 31, 2008 Feb. 29, 2008 May 31, 2007
---------------------------------------------------------------------------------------------------------------
Superstores....................................... 687 682 643
Other stores...................................... 9 11 13
----------------------------------------------------------
Total domestic segment stores..................... 696 693 656
==========================================================
Page 17 of 32
International Segment
The international segment's net sales increased 23.6 percent to $134.3 million
for the first quarter of fiscal 2008, compared with $108.6 million for the first
quarter of last fiscal year. The increase was driven by the favorable impact of
fluctuations in foreign currency exchanges rates of 14 percent and the
comparable store sales increase of 10.5 percent in local currency. These
increases were partially offset by the impact of the year-over-year net decrease
of 25 retail stores and dealer outlets.
NET SALES BY CATEGORY
Three Months Ended May 31
2008 2007
% of % of
(Dollar amounts in millions) $ Sales $ Sales
----------------------------------------------------------------------------------------
Video................................ $ 25.6 19.0% $ 20.0 18.5%
Information technology............... 47.3 35.3 39.8 36.6
Audio................................ 44.0 32.8 36.5 33.6
Entertainment........................ 9.3 7.0 5.0 4.6
Warranty, services and other......... 8.0 5.9 7.3 6.7
------------------------------------------------
Net sales............................ $134.3 100.0% $108.6 100.0%
===============================================
INTERNATIONAL SEGMENT STORE MIX
May 31, 2008 Feb. 29, 2008 May 31, 2007
---------------------------------------------------------------------------------------------------------------
Company-owned stores.............................. 502 502 505
Dealer outlets.................................... 273 277 294
Battery Plus(R) stores.............................. - - 1
--------------------------------------------------------
Total international segment stores................ 775 779 800
========================================================
Gross Profit Margin
Consolidated
The gross profit margin was 20.8 percent of net sales in the first quarter of
fiscal 2009, compared with 22.5 percent for the same period last fiscal year, a
decline of 174 basis points. The domestic segment contributed 207 basis points
to the 174 basis point decrease in the consolidated gross profit margin. The
international segment favorably impacted the consolidated gross profit margin by
34 basis points.
Domestic Segment
The domestic segment's gross profit margin was 20.0 percent of domestic segment
net sales in the first quarter of fiscal 2009, compared with 21.9 percent for
the same period last fiscal year, a decline of 186 basis points. The decline was
driven primarily by a decrease of 62 basis points in extended warranty net sales
as a percent of domestic segment net sales as well as a decrease of 114 basis
points in merchandise margins as a percent of domestic segment net sales. The
lower merchandise margins were driven primarily by negative mix shifts within
imaging and notebook computers as well as clearance activities and an increase
in the mix of sales of notebook computers. The year-over-year change in the
gross margin rate was the smallest decline in five quarters as we saw improved
performance in the television category, primarily driven by assortment and
promotional mix shifts within the category.
An increase in shrink also contributed to the gross margin decline. In the first
quarter, we continued to record our shrink estimate at the same rate that we
realized for fiscal 2008. We will do so until we conduct physical inventory
counts which are expected to occur in the third quarter.
Page 18 of 32
International Segment
The international segment's gross profit margin was 33.2 percent of
international segment net sales in the first quarter of fiscal 2009, compared
with 36.6 percent for the same period last fiscal year, a decline of 337 basis
points. The decrease resulted primarily from an increased mix of sales from
clearance product across many categories as well as a mix shift from
higher-margin categories.
Selling, General and Administrative Expenses
Consolidated
Three Months Ended May 31
2008 2007
% of % of
(Dollar amounts in millions) $ Sales $ Sales
------------------------------------------------------------------------------------
Store expenses.......................... $529.7 23.0% $556.7 22.4%
General and administrative
expenses........................... 99.1 4.3 85.5 3.4
Stock-based compensation
expense............................ 3.7 0.2 4.5 0.2
Remodel expenses........................ 0.0 0.0 (0.0) (0.0)
Relocation expenses..................... 1.0 0.0 1.1 0.0
Pre-opening expenses.................... 6.4 0.3 0.5 0.0
----------------------------------------
Total ................................. $640.0 27.8% $648.4 26.1%
=========================================
Selling, general and administrative expenses were 27.8 percent of consolidated
net sales in the first quarter of fiscal 2009, compared with 26.1 percent for
the same period last fiscal year, an increase of 173 basis points. The domestic
segment and international segment contributed 115 basis points and 58 basis
points, respectively, to the increase in the consolidated expense-to-sales
ratio.
Domestic Segment
Three Months Ended May 31
2008 2007
% of % of
(Dollar amounts in millions) $ Sales $ Sales
------------------------------------------------------------------------------------
Store expenses.......................... $492.1 22.7% $524.2 22.1%
General and administrative
expenses........................... 90.3 4.2 82.4 3.5
Stock-based compensation
expense............................ 3.5 0.2 4.3 0.2
Remodel expenses........................ 0.0 0.0 (0.0) (0.0)
Relocation expenses..................... 1.0 0.0 1.1 0.0
Pre-opening expenses.................... 6.4 0.3 0.5 0.0
---------------------------------------------
Total ................................. $593.4 27.4% $612.5 25.8%
=============================================
For the three months ended May 31, 2008, the domestic segment's expense-to-sales
ratio increased 162 basis points from the same period last fiscal year. The
increase primarily reflects the overall de-leveraging impact of lower sales.
Also contributing to the increase was a 124 basis point increase in expenses
related to the 65 domestic segment Superstores that have opened during the past
12 months. Partially offsetting these increases was an 81 basis point decrease
in compensation costs that resulted primarily from our expense reduction
initiatives.
Page 19 of 32
International Segment
Three Months Ended May 31
2008 2007
% of % of
(Dollar amounts in millions) $ Sales $ Sales
------------------------------------------------------------------------------------
Store expenses.......................... $37.6 28.0% $32.6 30.0%
General and administrative
expenses........................... 8.8 6.6 3.1 2.9
Stock-based compensation
expense............................ 0.2 0.1 0.2 0.1
------------------------------------------
Total ................................. $46.6 34.7% $35.9 33.0%
=========================================
For the first quarter of fiscal 2009, the international segment's
expense-to-sales ratio increased 171 basis points from the same period last year
primarily due to a $7.5 million recovery related to a former subsidiary,
reducing fiscal 2008 general and administrative expenses. The recovery, which
was not repeated in fiscal 2009, negatively impacted the expense-to-sales ratio
increase by 691 basis points.
Income Tax Expense (Benefit)
During the first quarter of fiscal 2009, we recorded income tax expense of $3.0
million on a loss from continuing operations of $161.8 million. Due to the
valuation allowance, we did not record an income tax benefit for the first
quarter loss of our U.S. operations. The income tax expense is comprised
primarily of discrete items and state income tax expense, partially offset by a
benefit recognized related to the pre-tax loss of our Canadian operations. The
discrete items are comprised primarily of an adjustment to a previously-filed
tax position related to leases.
Net Loss from Continuing Operations
The net loss from continuing operations was $164.8 million, or $1.00 per share,
in the three months ended May 31, 2008, compared with a net loss from continuing
operations of $54.8 million, or $0.33 cents per share, in the same period last
fiscal year.
Earnings from Discontinued Operations
For the three months ended May 31, 2007, the net earnings from discontinued
operations totaled $0.2 million, which is net of $0.2 million of income taxes,
and primarily related to the operations of the Rogers Plus(R) stores, of which
the management was returned to Rogers Wireless Inc. in January 2007.
RECENT ACCOUNTING PRONOUNCEMENTS
As permitted under transition rules by the Financial Accounting Standards Board
("FASB"), we partially adopted the provisions of Statement of Financial
Accounting Standards ("SFAS") No. 157, "Fair Value Measurements," as of March 1,
2008, on a prospective basis. SFAS No. 157 defines fair value, establishes a
framework for measuring fair value and expands disclosures about fair value
measurements. This Statement does not require any new fair value measurements,
but applies to existing accounting pronouncements that require or permit fair
value measurement as the relevant measurement attribute. As permitted by FASB
Staff Position No. FAS 157-2, "Effective Date of FASB Statement No. 157," we
delayed the adoption of SFAS No. 157 for all non-financial assets and
non-financial liabilities, except those that are recognized or disclosed at fair
value in the financial statements on a recurring basis (at least annually),
until March 1, 2009. The partial adoption of SFAS No. 157 did not have an impact
on our financial position, results of operations or cash flows. The full
adoption of SFAS No. 157 is not expected to have a material effect on our
financial position, results of operations or cash flows.
Page 20 of 32
In February 2007, the FASB issued SFAS No. 159, "The Fair Value Option for
Financial Assets and Financial Liabilities." SFAS No. 159 permits entities to
choose to measure many financial instruments and certain assets and liabilities
at fair value. We adopted SFAS No. 159 as of March 1, 2008. As we did not elect
the fair value option for any of our financial instruments or other assets and
liabilities, the adoption of this standard did not have an impact on our
financial position, results of operations or cash flows.
On March 1, 2008, we adopted Emerging Issues Task Force Issue 06-11, "Accounting
for Income Tax Benefits of Dividends on Share-Based Payment Awards," ("EITF
06-11") on a prospective basis. This Issue requires income tax benefits from
dividends or dividend equivalents that are charged to retained earnings and are
paid to employees for equity-classified nonvested equity shares, nonvested
equity share units, and outstanding equity share options to be recognized as an
increase to additional paid-in capital. During the first quarter of fiscal 2009,
the income tax benefit of these dividends could not be recognized because we
have recorded a full valuation allowance against the deferred tax assets of our
U.S. operations. Thus, the adoption of EITF 06-11 did not have an impact on our
financial position, results of operations or cash flows.
In December 2007, the FASB issued SFAS No. 141(R), "Business Combinations," and
SFAS No. 160, "Noncontrolling Interests in Consolidated Financial Statements, an
amendment of ARB No. 51." These new standards significantly change the
accounting for and reporting of business combination transactions and
noncontrolling interests (previously referred to as minority interests) in
consolidated financial statements. Both standards will be effective for us
beginning with the first quarter of fiscal 2010 and will be applied
prospectively to future business combinations.
In April 2008, the FASB issued FASB Staff Position No. FAS 142-3, "Determination
of the Useful Life of Intangible Assets," ("FSP No. 142-3"). This FSP amends the
factors that should be considered in developing renewal or extension assumptions
used to determine the useful life of a recognized intangible asset under SFAS
No. 142, "Goodwill and Other Intangible Assets." The intent of this FSP is to
improve the consistency between the useful life of a recognized intangible asset
under SFAS No. 142 and the period of expected cash flows used to measure the
fair value of the asset under SFAS No. 141(R) and other U.S. generally accepted
accounting principles. This FSP is effective for us as of March 1, 2009, and
will be applied prospectively to future business combinations.
In May 2008, the FASB issued SFAS No. 162, "The Hierarchy of Generally Accepted
Accounting Principles." SFAS No. 162 identifies the sources of accounting
principles and the framework for selecting the principles used in the
preparation of financial statements. SFAS No. 162 will be effective 60 days
following the Securities and Exchange Commission's approval of the Public
Company Accounting Oversight Board amendments to AU Section 411, "The Meaning of
Present Fairly in Conformity with Generally Accepted Accounting Principles." We
do not expect the adoption of this standard to have an impact on our financial
position, results of operations or cash flows.
In June 2008, the FASB issued FSP EITF 03-6-1, "Determining Whether Instruments
Granted in Share-Based Payment Transactions Are Participating Securities," ("FSP
EITF 03-6-1"). This FSP addresses whether instruments granted in share-based
payment transactions are participating securities prior to vesting and,
therefore, need to be included in computing earnings per share under the
two-class method described in SFAS No. 128, "Earnings Per Share." This FSP will
be effective for us beginning with the first quarter of fiscal 2010 and will be
applied retrospectively. We are currently evaluating the impact of adopting FSP
EITF 03-6-1.
Page 21 of 32
FINANCIAL CONDITION
Liquidity and Capital Resources
Cash Flows
Cash Flows Summary
The following table summarizes our cash flows for the three months ended May 31,
2008 and 2007:
Three Months Ended
May 31
(Amounts in millions) 2008 2007
----------------------------------------------------------------------------------------
Net cash (used in) provided by:
Operating activities.................................... $(275.5) $(254.6)
Investing activities.................................... (27.7) 290.1
Financing activities.................................... 98.2 (76.1)
Discontinued operations................................. - 11.2
Effect of exchange rate changes on cash................... (0.1) 0.6
--------------------------
Decrease in cash and
cash equivalents........................................ $(205.2) $ (28.8)
==========================
Operating Activities
For the three months ended May 31, 2008, net cash used in operating activities
was $275.5 million, compared with net cash used in operating activities of
$254.6 million in the three months ended May 31, 2007. The change was due
primarily to a net loss of $164.8 million for the three months ended May 31,
2008, compared with net loss of $54.6 million for the three months ended May 31,
2007. Partially offsetting the impact of the increase in the net loss were
changes in operating assets and liabilities, primarily the increase in the
income tax receivable during the first quarter of fiscal 2008 that was not
repeated during the first quarter of fiscal 2009 due to our inability to carry
the net operating loss of the U.S. operations back to prior periods.
Investing Activities
Net cash used in investing activities was $27.7 million for the three months
ended May 31, 2008, compared with net cash provided by investing activities of
$290.1 million for the three months ended May 31, 2007. The change was due
primarily to a decrease in net sales and maturities of investment securities,
partially offset by a decrease in purchases of property and equipment.
Financing Activities
For the three months ended May 31, 2008, net cash provided by financing
activities was $98.2 million, compared with net cash used in financing
activities of $76.1 million in the three months ended May 31, 2007. The change
was due primarily to cash provided by book overdrafts and an increase in the net
cash provided by proceeds from short-term borrowings during the first quarter of
fiscal 2009.
We have a revolving credit facility secured by inventory and credit card
receivables. This facility is used to support letters of credit and to meet
borrowing needs. Loans primarily bear interest at a spread over either LIBOR or
prime. The facility has a stated commitment of $1.3 billion, which includes a
$1.25 billion commitment for the domestic segment and a $50 million commitment
for the international segment, and is scheduled to expire in January 2013. In
general, the maximum amount of borrowings, including loans and outstanding
letters of credit, outstanding on any date may not exceed the lesser of a
borrowing base calculated as a percentage of our eligible inventory and credit
card receivables or 90 percent of $1.3 billion. We are required to maintain a
minimum level of available borrowings under the facility.
At May 31, 2008, we had outstanding letters of credit of $48.8 million and $55.0
million of short-term borrowings related to the domestic segment, leaving $963.0
million available for borrowing under the credit facility. We were in compliance
with all covenants at May 31, 2008. While the level of borrowings may vary
Page 22 of 32
during the quarters, we expect double-digit borrowings by the end of the second
quarter and no borrowings by the end of the third quarter for the domestic
segment.
The board of directors has previously authorized the repurchase of up to $1.2
billion of common stock, of which $233.7 million remained available at May 31,
2008. We did not repurchase common stock during the three months ended May 31,
2008. During the three months ended May 31, 2007, we used cash to repurchase 2.5
million shares of common stock at an average price of $18.68 per share, for a
total price of $46.7 million, excluding commission fees. As of May 31, 2008, we
had repurchased 60.4 million shares of common stock at an average price of
$16.01 per share, for a total price of $966.3 million, excluding commission
fees, cumulatively since inception of the stock repurchase program.
On June 19, 2008, we announced that our board of directors has suspended the
declaration and payment of quarterly cash dividends on our common stock,
effective immediately.
Net-owned Inventory
Merchandise inventory increased to $1.69 billion at May 31, 2008, from $1.57
billion at February 28, 2008. Net-owned inventory increased by $91.7 million
from February 29, 2008, to May 31, 2008. Domestic segment net-owned inventory
increased by $99.9 million from February 29, 2008, to May 31, 2008, primarily
due to seasonal inventory build.
Capital Expenditures
Capital expenditures, net of landlord reimbursements, were $38.1 million in the
three months ended May 31, 2008, compared with $63.3 million in the same period
last fiscal year. The decrease in capital expenditures was driven primarily by a
decrease in non-store investments.
Sources of Liquidity
Our primary sources of liquidity include borrowings under the credit facility,
available cash and cash equivalents, expected reductions in net-owned inventory
and landlord reimbursements for store construction. The facility contains
representations and warranties, conditions, covenants and events of default that
are customary for this type of credit facility; however, it contains no
financial covenants. It places limitations on specific uses of borrowings,
including for dividends, stock repurchases and acquisitions. We do not believe
the limitations contained in the credit facility will, in the foreseeable
future, adversely affect our ability to use the credit facility and execute our
business plan.
Potential additional sources of cash in fiscal 2009 include proceeds from the
sale of a subsidiary and an income tax refund due to the carryback of a portion
of our net operating loss for the 2008 fiscal year. We will evaluate funding
alternatives as necessary to support future needs.
Expected uses of cash in fiscal 2009 include contractual obligations and funds
required to support our operating activities, including an increase in inventory
levels in advance of the holiday season. Potential uses of cash that are subject
to our discretion include capital expenditures, primarily for new store
construction, store relocations, information technology systems and existing
store updates.
We experienced a net loss in the first quarter of fiscal 2009 of $164.8 million,
and our cash, cash equivalents and short-term investments position declined from
$297.4 million at February 29, 2008, to $92.2 million at May 31, 2008. We have
projected only a modest improvement in our loss for fiscal 2009 compared with
our loss of $319.9 million for fiscal 2008. This outlook is based on the
following:
o A continuation of current operating trends through the first half of fiscal
2009 and an improvement in second half trends
o A continuation of weak macroeconomic trends, particularly in the first half
of the fiscal year
o Improved retail execution, leading to higher close rates and improved
basket, offsetting a decline in store traffic
Page 23 of 32
o Sales growth in key product areas including LCD televisions, notebook
computers and video gaming products, offset by sales declines in projection
and tube televisions, desktop computers and portable audio products
o Improvements in merchandise margins, shrink and markdowns
o Low-single-digit percentage growth in SG&A dollars compared with fiscal
2008 driven by incremental and relocated store openings and increased
compensation costs
We have taken steps to enhance our liquidity by amending and increasing our
asset-based credit facility in January 2008 to $1.3 billion from $500 million.
Our plans to manage our liquidity position in fiscal 2009 include improving our
close rates and attachment rates, which would have a positive impact on both
sales and margin; improving working capital through targeted improvements in
net-owned inventory; reducing projected capital expenditures by $85 million to
$105 million below prior year levels; suspending repurchases of common stock;
maintaining an intense focus on controlling expenses; and maintaining strong
relationships with our vendors to ensure continued availability of vendor
credit. Additionally, in June 2008, the board of directors suspended the
declaration and payment of quarterly cash dividends on our common stock as part
of our focus on conserving capital.
We have considered the impact of the financial outlook on our liquidity and have
performed an analysis of the key assumptions in our forecast such as sales,
gross margin and SG&A expenses; an evaluation of our relationships with vendors,
including availability of vendor credit; and an analysis of cash requirements,
including our net-owned inventory position, other working capital changes,
capital expenditures and borrowing availability under our credit facility. Based
on these analyses and evaluations, we expect that our anticipated sources of
liquidity will be sufficient to meet our obligations without disposition of
assets outside of the ordinary course of business or significant revisions of
our planned operations through fiscal 2009.
FINANCIAL OUTLOOK
We reaffirm the following expectations for fiscal 2009 as of the date of this
filing:
o Consolidated net sales relatively unchanged from the prior year
o A mid-single digit domestic segment comparable store sales decline
o Improvement in earnings from continuing operations before income taxes as a
percentage of consolidated net sales of 50 basis points to 100 basis points
o No income tax expense or benefit, excluding discrete items, associated with
the domestic segment
o Depreciation and amortization expense of approximately $185 million
o A reduction in domestic segment net-owned inventory from February 29, 2008,
to February 28, 2009, of $50 million to $100 million
Our forecast for capital expenditures, net of landlord reimbursements, is $120
million to $140 million for fiscal 2009.
For the second quarter, we expect to record a loss from continuing operations
before income taxes of $170 million to $185 million, compared with a loss of
$128.2 million in the prior year second quarter. While the expected loss is
larger than the prior year period, the year-over-year increase in the loss is
significantly smaller than the increase in the first quarter loss. The primary
driver of the difference in expected second quarter results from actual first
quarter results is higher expenses associated with more store openings.
Page 24 of 32
Due to operating improvements, traction against current sales- and gross
margin-driving initiatives, and more favorable year-over-year comparisons, we
expect a gradual recovery in the second half of fiscal 2009. We expect to see
year-over-year improvements in operating results beginning in the third quarter
and improved pre-tax profit from continuing operations in the fourth quarter as
compared to fiscal 2008 results. We believe that we have adequate cash and
borrowing capacity to complete the next phase of the turnaround plan.
We continue to expect to open 45 to 55 new and relocated domestic segment
Superstores in fiscal 2009. Domestic segment Superstore openings estimates are
shown in the following table. The timing of store openings depends upon a number
of factors and can change during the year. All of our remaining openings for
fiscal 2009 will be in the city(TM) format.
Domestic Segment Superstore Openings Estimates(a)
Q1(a) Q2 Q3 Q4 FY09
------------------------------------------------------------------------------------------
Incremental Superstores.................... 5 13-17 21-23 0-2 39-47
Relocated Superstores...................... - 6-7 0-1 - 6-8
-----------------------------------------------
Total Superstore openings.................. 5 19-24 21-24 0-2 45-55
================================================
(a) First quarter openings are actual. In February 2008, we closed one store in
advance of opening a replacement store in the second quarter of fiscal 2009. The
replacement store is included in relocations for the second quarter of fiscal
2009.
FORWARD-LOOKING STATEMENTS
The provisions of the Private Securities Litigation Reform Act of 1995 provide
companies with a "safe harbor" when making forward-looking statements. This
"safe harbor" encourages companies to provide prospective information about
their companies without fear of litigation. We wish to take advantage of the
"safe harbor" provisions of the Act. Our statements that are not historical
facts, including statements about management's expectations for fiscal 2009 and
beyond, are forward-looking statements and involve various risks and
uncertainties. In most cases, you can identify our forward-looking statements by
words such as "expect," "anticipate," "believe," "should," "may," "plan," "will"
or similar words.
Forward-looking statements are estimates and projections reflecting our judgment
and involve a number of risks and uncertainties that could cause actual results
to differ materially from those suggested by the forward-looking statements.
Although we believe that the estimates and projections reflected in the
forward-looking statements are reasonable, our expectations may prove to be
incorrect. The retail industry and the specialty retail industry, in particular,
are dynamic by nature and have undergone significant changes in recent years.
Our ability to anticipate and successfully respond to the continuing challenges
of our industry is key to achieving our expectations. Important factors that
could cause actual results to differ materially from estimates or projections
contained in our forward-looking statements include the following:
o changes in the amount and degree of competition, pricing and promotional
pressure exerted by current competitors and potential new competition from
competitors using either similar or alternative methods or channels of
distribution such as the Internet, telephone shopping services and mail
order;
o our response to pricing and promotional activities of our competitors;
o the successful implementation of our initiatives to accelerate sales
growth, gross margin improvement and expense reductions;
o our ability to reduce our overall cost and expense structure and to
maintain cost reductions while continuing to grow sales;
o our ability to control and leverage expenses as a percentage of sales;
o changes in general economic conditions including, but not limited to,
financial market performance, consumer credit availability, interest rates,
inflation, energy prices, personal discretionary spending
Page 25 of 32
levels, trends in consumer retail spending (both in general and in our
product categories), unemployment and consumer sentiment about the economy
in general;
o the level of consumer response to new products or product features in the
merchandise categories we sell and changes in our merchandise sales mix;
o the pace of commoditization of digital products;
o the impact of inventory and supply chain management initiatives on
inventory levels and profitability;
o our ability to generate sales and margin growth through expanded services
offerings;
o the impact of new products and product features on the demand for existing
products and the pricing and profit margins associated with the products we
sell;
o significant changes in retail prices for products and services we sell;
o changes in availability or cost of financing for working capital and
capital expenditures, including financing to support development of our
business;
o the lack of availability or access to sources of inventory or the loss or
disruption in supply from one of our major suppliers;
o the impact of a significant change in the relationships with key vendors;
o our inability to liquidate excess inventory should excess inventory
develop;
o our inability to maintain sales and profitability improvement programs for
our Circuit City Superstores, including our store revitalization plan;
o our ability to continue to generate strong sales growth through our direct
sales channel;
o the availability of appropriate real estate locations for relocations and
new stores;
o the cost and timeliness of new store openings and relocations;
o consumer reaction to new store locations and changes in our store design
and merchandise;
o our ability and the ability of Chase Card Services to successfully market
and promote the third party credit card program being offered by Chase Card
Services;
o the extent to which customers respond to promotional financing offers and
the types of promotional terms we offer;
o our ability to attract and retain an effective management team or changes
in the costs or availability of a suitable work force to manage and support
our service-driven operating strategies;
o the impact of our wage management initiative on associate morale and our
reputation with customers;
o the impact of initiatives related to upgrading merchandising, marketing and
information systems on revenue and operating margin and the costs
associated with these investments;
o changes in production or distribution costs or costs of materials for our
advertising;
o effectiveness of our advertising and marketing programs for increasing
consumer traffic and sales;
o the imposition of new restrictions or regulations regarding the sale of
products and/or services we sell, changes in tax rules and regulations
applicable to the imposition of new environmental restrictions, regulations
or laws or the discovery of environmental conditions at current or future
locations, or any failure to comply with such laws or any adverse change in
such laws;
o the impact of any strategic alternatives that we may pursue;
o the outcome of our review of strategic alternatives for our international
segment;
o deterioration of the expected future performance of our international
segment, resulting in an additional goodwill impairment charge;
Page 26 of 32
o the timely production and delivery of private-label merchandise and level
of consumer demand for those products;
o reduced investment returns or other changes relative to the assumptions for
our pension plans that impact our pension expense;
o the availability of sources of liquidity to fund capital expenditures and
working capital;
o changes in our anticipated cash flow and liquidity;
o whether, when and in what amounts share repurchases may be made under our
stock buyback program;
o adverse results in litigation matters;
o currency exchange rate fluctuations between Canadian and U.S. dollars and
other currencies;
o the global regulatory and trade environment;
o the disruption of global, national or regional transportation systems;
o the occurrence of severe weather events or natural disasters that could
significantly damage or destroy stores or prohibit consumers from traveling
to our retail locations, especially during peak selling periods; and
o the successful execution of the initiatives to achieve revenue growth and
increase gross profit margin underlying our projected 2009 results as
discussed under "Financial Outlook" in MD&A.
We believe our forward-looking statements are reasonable. However, undue
reliance should not be placed on forward-looking statements, which are based on
current expectations.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are exposed to market risk from potential changes in the U.S./Canadian
currency exchange rates as they relate to inventory purchases and the
translation of our international segment's financial results.
Inventory Purchases
A portion of InterTAN's purchases are from vendors requiring payment in U.S.
dollars. Accordingly, there is risk that the value of the Canadian dollar could
fluctuate relative to the U.S. dollar from the time the goods are ordered until
payment is made. InterTAN's management monitors the foreign exchange risk
associated with its U.S. dollar open orders on a regular basis by reviewing the
amount of such open orders; exchange rates, including forecasts from major
financial institutions; local news; and other economic factors. At May 31, 2008,
U.S. dollar open purchase orders totaled approximately $12.5 million. A 10
percent decline in the value of the Canadian dollar would result in an increase
in product cost of approximately $1.3 million for those orders. The incremental
cost of such a decline in currency values, if incurred, would be reflected in
higher cost of sales in future periods. In these circumstances, management would
take product pricing action, to the degree commercially feasible.
Translation of Financial Results
Because we translate a portion of our international segment's financial results
from Canadian dollars to U.S. dollars, fluctuations in the value of the Canadian
dollar have a direct effect on reported consolidated results. We do not hedge
against the possible impact of this risk. A 10 percent adverse change in the
foreign currency exchange rate would not have a significant impact on our
consolidated results of operations or financial position.
Page 27 of 32
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Under the supervision and with the participation of the company's management,
including the chief executive officer and chief financial officer, the company
has evaluated the effectiveness of its "disclosure controls and procedures," as
that term is defined in Rule 13a-15(e) of the Securities Exchange Act of 1934,
as amended, as of the end of the period covered by this quarterly report on Form
10-Q. Based upon the evaluation, the chief executive officer and chief financial
officer concluded that the company's disclosure controls and procedures were
effective as of May 31, 2008.
Changes in Internal Control over Financial Reporting
There were no changes in the company's internal control over financial reporting
that occurred during the quarter ended May 31, 2008, that have materially
affected, or are reasonably likely to materially affect, the company's internal
control over financial reporting.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Except as described in our annual report on Form 10-K for the year ended
February 29, 2008, there are no material pending legal proceedings to which we,
including our subsidiaries, are a party or of which our property is the subject.
ITEM 1A. RISK FACTORS
In addition to the other information set forth in this report, you should
carefully consider the factors discussed in Part I, "Item 1A. Risk Factors" in
our annual report on Form 10-K for the year ended February 29, 2008, which could
materially affect our business, financial condition or future results. There
have been no material changes to those risk factors since we filed our fiscal
2008 annual report on Form 10-K. The risks described in our annual report on
Form 10-K are not the only risks facing our company. Additional risks and
uncertainties not currently known to us or that we currently deem to be
immaterial also may materially adversely affect our business, financial
condition and/or operating results.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
The following table provides information about common stock repurchases by or on
behalf of the company during the quarter ended May 31, 2008:
Approximate
Dollar Value of
Total Number Shares that
of Shares May Yet Be
Total Number Average Purchased as Purchased
of Shares Price Part of Publicly Under
Purchased(a) Paid Announced the Program(b)
(in thousands) per Share(a) Program (in millions)
---------------------------------------------------------------------------------------------------------------------------------
March 1 - March 31, 2008......................... 2.6 $4.42 - $233.7
April 1 - April 30, 2008......................... 1.6 $4.45 - $233.7
May 1 - May 31, 2008............................. 3.4 $5.04 - $233.7
------------ -----------
Total fiscal 2009 first quarter.................. 7.6 $4.70 -
============ ===========
(a) These columns reflect shares of common stock withheld to pay tax withholding
obligations for employees in connection with the vesting of stock awards. These
shares are not considered part of the share repurchase program described in (b)
below.
Page 28 of 32
(b) In January 2003, the company announced that the board of directors had
authorized the repurchase of up to $200 million of common stock. In June 2004,
the company announced a $200 million increase in its stock repurchase
authorization, raising the repurchase capacity to $400 million. In March 2005,
the company announced a $400 million increase in its stock repurchase
authorization, raising the repurchase capacity to $800 million. In June 2006,
the company announced a $400 million increase in its stock repurchase
authorization, raising the repurchase capacity to $1.2 billion. There is no
expiration date under the authorization. At May 31, 2008, $233.7 million
remained available for stock repurchases under the $1.2 billion stock repurchase
authorization.
Page 29 of 32
ITEM 6. EXHIBITS
Articles of Incorporation and Bylaws
3.1 Circuit City Stores, Inc. Amended and Restated Articles of Incorporation,
effective February 3, 1997, as amended through August 16, 2005, filed as
Exhibit 3.1 to the company's Form 8-A/A filed September 13, 2005 (File No.
1-5767), are expressly incorporated herein by this reference.
3.2 Circuit City Stores, Inc. Bylaws, as amended June 24, 2008.
Material Contracts
10.1 Settlement Agreement dated May 8, 2008 by and among Wattles Capital
Management, LLC, Mark J. Wattles, James A. Marcum, Elliott Wahle, Don R.
Kornstein, Anthony Bergamo and Alexander M. Bond and Circuit City Stores,
Inc., filed as Exhibit 10.1 to the company's Current Report on Form 8-K
filed May 9, 2008 (File No. 1-5767), is expressly incorporated herein by
this reference.
Rule 13a-14(a)/15d-14(a) Certifications
31.1 Certification of CEO under Rule 13a-14(a) of the Securities Exchange Act of
1934
31.2 Certification of CFO under Rule 13a-14(a) of the Securities Exchange Act of
1934
Section 1350 Certifications
32.1 Certification of CEO under Section 906 of the Sarbanes-Oxley Act of 2002
32.2 Certification of CFO under Section 906 of the Sarbanes-Oxley Act of 2002
Page 30 of 32
SIGNATURES
Pursuant to the requirements 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)
Date: June 30, 2008 By: /s/ Philip J. Schoonover
--------------------------------------
Philip J. Schoonover
Chairman, President and Chief Executive Officer
and Director
Date: June 30, 2008 By: /s/ Bruce H. Besanko
--------------------------------------
Bruce H. Besanko
Executive Vice President and
Chief Financial Officer
Page 31 of 32
EXHIBIT INDEX
Articles of Incorporation and Bylaws
3.1 Circuit City Stores, Inc. Amended and Restated Articles of Incorporation,
effective February 3, 1997, as amended through August 16, 2005, filed as
Exhibit 3.1 to the company's Form 8-A/A filed September 13, 2005 (File No.
1-5767), are expressly incorporated herein by this reference.
3.2 Circuit City Stores, Inc. Bylaws, as amended June 24, 2008.
Material Contracts
10.1 Settlement Agreement dated May 8, 2008 by and among Wattles Capital
Management, LLC, Mark J. Wattles, James A. Marcum, Elliott Wahle, Don R.
Kornstein, Anthony Bergamo and Alexander M. Bond and Circuit City Stores,
Inc., filed as Exhibit 10.1 to the company's Current Report on Form 8-K
filed May 9, 2008 (File No. 1-5767), is expressly incorporated herein by
this reference.
Rule 13a-14(a)/15d-14(a) Certifications
31.1 Certification of CEO under Rule 13a-14(a) of the Securities Exchange Act of
1934
31.2 Certification of CFO under Rule 13a-14(a) of the Securities Exchange Act of
1934
Section 1350 Certifications
32.1 Certification of CEO under Section 906 of the Sarbanes-Oxley Act of 2002
32.2 Certification of CFO under Section 906 of the Sarbanes-Oxley Act of 2002
Page 32 of 32