UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------------------
FORM 10-Q
[X] Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 For the quarterly period ended August 31, 2004
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) 527- 4000
(Registrant's telephone number, including area code)
N/A
(Former name, former address, and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes |X| No
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Exchange Act Rule 12b-2). Yes |X| No ___
Indicate the number of shares outstanding of each of the registrant's classes of
common stock, as of the latest practicable date.
Class Outstanding at September 30, 2004
Common Stock, par value $0.50 195,410,959
A Table of Contents is included on Page 2 and an Exhibit Index is included on
Page 28.
CIRCUIT CITY STORES, INC. AND SUBSIDIARIES
TABLE OF CONTENTS
Page
No.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements:
Consolidated Statements of Operations -
Three Months and Six Months Ended August 31, 2004 and 2003 3
Consolidated Balance Sheets -
August 31, 2004 and February 29, 2004 4
Consolidated Statements of Cash Flows -
Six Months Ended August 31, 2004 and 2003 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 13
Item 3. Quantitative and Qualitative Disclosures about Market Risk 22
Item 4. Controls and Procedures 23
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 23
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 24
Item 4. Submission of Matters to a Vote of Security Holders 24
Item 6. Exhibits 25
SIGNATURES 27
EXHIBIT INDEX 28
Page 2 of 29
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Circuit City Stores, Inc. and Subsidiaries
Consolidated Statements of Operations (Unaudited)
(Amounts in thousands except per share data)
Three Months Ended Six Months Ended
August 31 August 31
2004 2003 2004 2003
------------ ------------ ------------ -------------
Net sales and operating revenues $2,345,026 $ 2,155,700 $4,411,614 $4,089,020
Cost of sales, buying and warehousing 1,767,491 1,668,325 3,353,644 3,153,335
------------ ------------- ------------ -------------
Gross profit 577,535 487,375 1,057,970 935,685
Finance income - 8,769 5,564 16,787
Selling, general and administrative expenses 586,177 544,591 1,074,122 1,039,133
Stock-based compensation expense 8,443 12,131 14,397 19,646
Interest expense 799 303 1,149 1,310
------------ ------------- ------------ -------------
Loss from continuing operations
before income taxes (17,884) (60,881) (26,134) (107,617)
Income tax benefit (6,468) (21,570) (9,484) (40,217)
------------ ------------- ------------ -------------
Net loss from continuing operations (11,416) (39,311) (16,650) (67,400)
Net loss from discontinued operation (507) (90,314) (1,214) (108,921)
------------ ------------- ------------ -------------
Net loss $ (11,923) $ (129,625) $ (17,864) $ (176,321)
============ ============= ============ =============
Weighted average common shares:
Basic 195,350 206,177 197,390 206,003
============ ============= ============ =============
Diluted 195,350 206,177 197,390 206,003
============ ============= ============ =============
Net loss per share:
Basic:
Continuing operations $ (0.06) $ (0.19) $ (0.08) $ (0.33)
Discontinued operation - (0.44) (0.01) (0.53)
------------ ------------ ------------ -------------
$ (0.06) $ (0.63) $ (0.09) $ (0.86)
============ ============ ============ =============
Diluted:
Continuing operations $ (0.06) $ (0.19) $ (0.08) $ (0.33)
Discontinued operation - (0.44) (0.01) (0.53)
------------ ------------ ------------ -------------
$ (0.06) $ (0.63) $ (0.09) $ (0.86)
============ ============ ============ =============
Cash dividends paid per share $ 0.0175 $ 0.0175 $ 0.0350 $ 0.0350
============ ============= ============ =============
See accompanying notes to consolidated financial statements.
Page 3 of 29
Circuit City Stores, Inc. and Subsidiaries
Consolidated Balance Sheets
(Amounts in thousands except share data)
Aug. 31, 2004 Feb. 29, 2004
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 953,808 $ 783,471
Accounts receivable, net of allowance for doubtful accounts
of $380 and $547 68,026 154,039
Retained interests in securitized receivables - 425,678
Merchandise inventory 1,636,993 1,517,256
Prepaid expenses and other current assets 46,885 38,617
-------------- -------------
Total current assets 2,705,712 2,919,061
Property and equipment, net 640,322 585,903
Deferred income taxes 75,827 98,934
Goodwill 208,316 -
Other intangible assets 31,696 -
Other assets 19,995 29,102
-------------- -------------
TOTAL ASSETS $3,681,868 $3,633,000
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $1,090,658 $ 879,635
Accrued expenses and other current liabilities 174,697 131,512
Accrued income taxes 33,065 71,163
Deferred income taxes 25,650 90,210
Short-term debt 3,850 -
Current installments of long-term debt 13,434 1,115
Liabilities of discontinued operation - 3,068
-------------- -------------
Total current liabilities 1,341,354 1,176,703
Long-term debt, excluding current installments 11,979 22,691
Accrued straight-line rent 101,779 98,470
Other liabilities 127,018 111,175
-------------- -------------
TOTAL LIABILITIES 1,582,130 1,409,039
------------- -------------
Stockholders' equity:
Common stock, $0.50 par value;
525,000,000 shares authorized; 195,183,368 shares
issued and outstanding at August 31, 2004
(203,899,395 at February 29, 2004) 97,592 101,950
Capital in excess of par value 818,167 922,600
Retained earnings 1,174,472 1,199,411
Accumulated other comprehensive income 9,507 -
-------------- -------------
TOTAL STOCKHOLDERS' EQUITY 2,099,738 2,223,961
-------------- -------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $3,681,868 $3,633,000
========== ==========
See accompanying notes to consolidated financial statements.
Page 4 of 29
Circuit City Stores, Inc. and Subsidiaries
Consolidated Statements of Cash Flows (Unaudited)
(Amounts in thousands)
Six Months Ended
August 31
2004 2003
--------------- -------------
Operating Activities:
Net loss $ (17,864) $(176,321)
Adjustments to reconcile net loss to net cash provided by (used in)
operating activities of continuing operations:
Net loss from discontinued operation 1,214 108,921
Depreciation and amortization 72,304 97,719
Stock option expense 9,796 12,247
Amortization of restricted stock awards 4,152 6,808
Loss (gain) on dispositions of property and equipment 895 (14)
Provision for deferred income taxes (64,371) (13,604)
Changes in operating assets and liabilities:
Decrease in accounts receivable, net 22,179 20,679
Decrease (increase) in retained interests in securitized receivables 32,867 (128,689)
Increase in merchandise inventory (23,570) (144,696)
Increase in prepaid expenses and other current assets (3,627) (42,014)
Decrease in other assets 10,523 3,775
Increase in accounts payable 186,474 223,179
Decrease in accrued expenses and other current liabilities,
and accrued income taxes (44,467) (51,450)
Increase in accrued straight-line rent and other liabilities 2,822 3,144
------------- ------------
Net cash provided by (used in) operating activities of
continuing operations 189,327 (80,316)
------------- ------------
Investing Activities:
--------------------
Proceeds from the sale of the private-label finance operation 475,857 -
Acquisitions, net of cash acquired of $30,615 (268,668) -
Purchases of property and equipment (116,291) (85,698)
Proceeds from sales of property and equipment 37,413 12,055
------------- ------------
Net cash provided by (used in) investing activities of
continuing operations 128,311 (73,643)
------------ ------------
Financing Activities:
--------------------
Proceeds from short-term debt 3,790 -
Principal payments on long-term debt (16,877) (668)
Repurchase and retirement of common stock (140,605) (13,941)
Issuances of common stock, net 16,652 (555)
Dividends paid (7,075) (7,300)
------------ ------------
Net cash used in financing activities of continuing operations (144,115) (22,464)
------------- ------------
Net cash used in discontinued bankcard finance operation (4,282) (75,175)
Effect of exchange rate changes on cash 1,096 -
------------- ------------
Increase (decrease) in cash and cash equivalents 170,337 (251,598)
Cash and cash equivalents at beginning of year 783,471 884,670
------------- ------------
Cash and cash equivalents at end of period $ 953,808 $ 633,072
============= ============
See accompanying notes to consolidated financial statements. See Note 13 for
supplemental cash flow information.
page 5 of 29
CIRCUIT CITY STORES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
1. Basis of Presentation
The consolidated financial statements of the company conform to accounting
principles generally accepted in the United States of America. In the
opinion of management, the accompanying unaudited financial statements
contain all adjustments, which consist only of normal, recurring
adjustments, necessary for a fair presentation. Due to the seasonal nature
of the company's business, interim results are not necessarily indicative
of results for the entire fiscal year. The company's consolidated financial
statements included in this report should be read in conjunction with the
notes to the audited financial statements incorporated by reference in the
company's fiscal 2004 Annual Report on Form 10-K.
On May 12, 2004, the company acquired a controlling interest in InterTAN,
Inc. and on May 19, 2004, completed its acquisition of 100 percent of the
common stock of InterTAN for cash consideration of $259.3 million, which
includes transaction costs and is net of cash acquired of $30.6 million.
InterTAN is a leading consumer electronics retailer of both private-label
and internationally branded products with headquarters in Barrie, Ontario,
Canada. InterTAN operates retail consumer electronics outlets under the
RadioShack(R) name in Canada under a licensing agreement with a subsidiary
of RadioShack Corporation. In addition to enabling Circuit City to
accelerate the offering of private-label merchandise to its customers, the
acquisition of InterTAN gives Circuit City its first presence in the
Canadian market. See Note 3 for additional discussion of the acquisition.
On May 25, 2004, the company completed the sale of its private-label
finance operation, comprised of its private-label and co-branded Visa
credit card programs, to Chase Card Services, formerly Bank One
Corporation. Results from the private-label finance operation, including
transition and transaction costs of approximately $6 million related to the
sale of the operation, are included in finance income. The company also
entered into a Consumer Credit Card Program Agreement under which Chase
Card Services is offering private-label and co-branded credit cards to new
and existing customers of the company. The company is compensated under the
program agreement primarily based on the number of new accounts opened.
After the sale date, the earnings contribution from the program agreement
has been included in net sales and operating revenues on the consolidated
statement of operations. See Note 4 and Note 13 for additional discussion
concerning the sale of the private-label finance operation.
On November 18, 2003, the company completed the sale of its bankcard
finance operation, which included Visa and MasterCard credit card
receivables and related cash reserves. Results from the bankcard finance
operation are presented as results from discontinued operation. See Note 2
for additional discussion concerning the sale of the bankcard finance
operation.
Certain prior year amounts have been reclassified to conform to the current
presentation.
2. Discontinued Operation
On November 18, 2003, the company completed the sale of its bankcard
finance operation to FleetBoston Financial. Results from the bankcard
finance operation are presented as results from discontinued operation. The
sale agreement included a transition services agreement under which
employees of the company's finance operation continued to service the
bankcard accounts until final conversion of the bankcard portfolio to
FleetBoston, which occurred on April 2, 2004. Through that date,
FleetBoston was obligated to reimburse the company for operating costs
incurred during the transition period. The company incurred severance costs
ratably through the final conversion date.
The after-tax loss from the discontinued bankcard finance operation totaled
$0.5 million for the three months ended August 31, 2004, and $90.3 million
for the same period last fiscal year. The after-tax loss from the
discontinued bankcard finance operation totaled $1.2 million for the six
months ended August 31,
Page 6 of 29
2004, and $108.9 million for the same period last fiscal year. Cash flows
related to the discontinued operation have been segregated on the
consolidated statements of cash flows.
3. Acquisition
On May 12, 2004, the company acquired a controlling interest in InterTAN,
Inc. and on May 19, 2004, completed its acquisition of 100 percent of the
common stock of InterTAN. This acquisition was accounted for using the
purchase method in accordance with Statement of Financial Accounting
Standards No. 141, "Business Combinations." Accordingly, the company
recorded the net assets at their estimated fair values, and included
operating results in the consolidated financial statements since May 12,
2004. The company allocated the purchase price to the assets and
liabilities using available information. The purchase price allocation
includes goodwill of $191.7 million and identifiable intangible assets of
$28.0 million. Goodwill is not deductible for tax purposes. Under SFAS No.
142, "Goodwill and Intangible Assets," goodwill is not amortized, but is
reviewed for impairment at least annually. The identifiable intangible
assets consist of contract-based intangibles and will be amortized on a
straight-line basis over their estimated useful lives, which range from 4.5
years to 20 years. The identifiable intangible assets will be reviewed for
impairment at least annually. The company has elected the fourth quarter to
complete its annual goodwill and identifiable intangible assets impairment
test. See Note 9 and Note 13 for additional discussion of goodwill and
other intangible assets.
Selected historical and pro forma financial information assuming the
acquisition had been consummated at the beginning of fiscal 2003 was as
follows:
Three Months Ended Six Months Ended
August 31 August 31
2004 2003 2004 2003
(Amounts in millions except per share data) Pro Forma Pro Forma Pro Forma
------------------------------------------------------------------------------------ ---------------------------
Net sales and operating revenues....................... $2,345.0 $2,256.4 $4,490.9 $4,278.2
Net loss from continuing operations.................... $ 11.4 $ 39.7 $ 16.4 $ 69.0
Net loss per share from continuing
operations........................................... $ 0.06 $ 0.19 $ 0.08 $ 0.34
Net loss............................................... $ 11.9 $ 130.0 $ 17.6 $ 177.9
Net loss per share..................................... $ 0.06 $ 0.63 $ 0.09 $ 0.86
After Circuit City's March 31, 2004 announcement of its agreement to
acquire InterTAN, RadioShack Corporation asserted early termination of its
licensing and certain other agreements with InterTAN. On April 5, 2004,
RadioShack filed suit against InterTAN in Tarrant County, Texas, and
amended that suit on April 27, 2004. InterTAN disputes the various
termination scenarios alleged by RadioShack and is vigorously defending
against those claims. On May 11, 2004, InterTAN asserted a counterclaim
seeking a declaration under U.S. federal trademark law that the use of the
RadioShack marks is proper. Circuit City was added as a necessary party to
that litigation and removed the matter to Federal Court in the Northern
District of Texas. On May 12, 2004, Circuit City filed its own suit in
Federal Court in the Northern District of Texas seeking a declaration under
U.S. federal trademark law that the use of the marks in Canada is proper.
InterTAN has cross-claimed against RadioShack based on federal trademark
law and remedies for business disparagement.
Circuit City believes that RadioShack is not entitled to early termination
of the agreements and that InterTAN has substantial defenses to the
RadioShack claims. Circuit City intends to vigorously pursue its claims and
defend the claims in the RadioShack litigation. Circuit City believes that
this litigation will not have a material adverse effect on the company's
financial condition or results of operations.
Page 7 of 29
4. Finance Income
Finance income includes the results from the company's private-label
finance operation, including transition and transaction costs of
approximately $6 million related to the sale of the operation to Chase Card
Services, through May 25, 2004, the date the company completed the sale.
For the three and six months ended August 31, 2004 and 2003, the components
of pretax finance income were as follows:
Three Months Ended Six Months Ended
August 31 August 31
(Amounts in millions) 2004 2003 2004 2003
------------------------------------------------------------------------------------- -----------------------
Securitization income...................................... $ - $29.2 $28.1 $57.6
Less: Payroll and fringe benefit expenses.................. - 7.5 7.6 15.5
Other direct expenses.............................. - 12.9 14.9 25.3
---------------------- -----------------------
Finance income............................................. $ - $ 8.8 $ 5.6 $16.8
====================== =======================
Securitization income primarily is comprised of the gain on the sale of
receivables generated by the company's private-label finance operation,
income from retained interests in the credit card receivables and income
related to servicing the receivables, as well as the impact of increases or
decreases in the fair value of the retained interests. Finance income does
not include any allocation of indirect costs or income. The company
presents information on the performance of its finance operation on a
direct basis to avoid making arbitrary decisions regarding the periodic
indirect benefits or costs that could be attributed to this operation.
Examples of indirect costs not included are corporate expenses such as
human resources, administrative services, marketing, information systems,
accounting, legal, treasury and executive payroll, as well as retail store
expenses.
5. Stock-Based Compensation
Effective December 1, 2003, the company adopted the fair value based method
of accounting for stock-based compensation in accordance with SFAS No. 123,
"Accounting for Stock-Based Compensation." The adoption of this standard
was applied using the retroactive restatement method as defined in SFAS No.
148, "Accounting for Stock-Based Compensation - Transition and Disclosure."
The following table sets forth the effect of the retroactive restatement
for adoption of SFAS No. 123 and the presentation of results from the
bankcard finance operation as results from discontinued operation.
Page 8 of 29
(Amounts in thousands Three Months Ended Six Months Ended
except per share data) August 31, 2003 August 31, 2003
Net loss from continuing operations:
Previously reported...................................... $124,245 $168,169
Restated for bankcard operation sale..................... $ 33,931 $ 59,248
-
Restated for bankcard operation sale and
adoption of SFAS No. 123.............................. $ 39,311 $ 67,400
Net loss per share from continuing operations:
Basic:
Previously reported................................... $ 0.60 $ 0.82
Restated for bankcard operation sale.................. $ 0.16 $ 0.29
Restated for bankcard operation sale and
adoption of SFAS No. 123........................... $ 0.19 $ 0.33
Diluted:
Previously reported................................... $ 0.60 $ 0.82
Restated for bankcard operation sale.................. $ 0.16 $ 0.29
Restated for bankcard operation sale and
adoption of SFAS No. 123........................... $ 0.19 $ 0.33
The fair value of each stock option granted by the company is estimated on
the grant date using the Black-Scholes option-pricing model with the
following weighted average assumptions.
Three Months Ended Six Months Ended
August 31 August 31
2004 2003 2004 2003
------------------------------------------------------------------------------------- -----------------------
Expected dividend yield.......................... 0.6% 1.0% 0.6% 1.1%
Expected stock volatility........................ 65% 76% 65% 76%
Risk-free interest rates......................... 4% 2% 4% 3%
Expected lives (in years)........................ 4 5 4 5
Using these assumptions in the Black-Scholes model, the weighted average
fair value of options granted was $6.43 per option for the three months
ended August 31, 2004, and $6.38 per option for the six months ended August
31, 2004. The weighted average fair value of options granted was $4.21 per
option for the three months ended August 31, 2003, and $3.58 per option for
the six months ended August 31, 2003.
6. Comprehensive Loss
The components of the company's comprehensive loss consist of the net loss
and other comprehensive income. Other comprehensive income is comprised of
foreign currency translation adjustments and is recorded net of deferred
income taxes directly to stockholders' equity.
The components of comprehensive loss, net of taxes, were as follows:
Three Months Ended Six Months Ended
August 31 August 31
(Amounts in millions) 2004 2003 2004 2003
--------------------------------------------------------------------------------------- ------------------------
Net loss................................................... $(11.9) $(129.6) $(17.9) $(176.3)
Foreign currency translation............................... 6.2 - 9.5 -
------------------------- -----------------------
Comprehensive loss......................................... $ (5.7) $(129.6) $ (8.4) $(176.3)
======================== ========================
page 9 of 29
7. Net Loss per Share
For the three and six months ended August 31, 2004 and 2003, no options or
restricted stock were included in the calculation of diluted net loss per
share because the company reported a loss from continuing operations.
Options to purchase 18.0 million shares of common stock with exercise
prices ranging from $3.10 to $27.21 and restricted stock amounting to 2.4
million shares were outstanding at August 31, 2004. Options to purchase
20.2 million shares of common stock with exercise prices ranging from $5.61
to $27.21 per share and restricted stock amounting to 3.6 million shares
were outstanding at August 31, 2003.
8. Restricted Cash
The sale of the private-label finance operation eliminated the company's
obligation to restrict cash for settlement obligations. During the second
quarter of fiscal 2005, the company settled the remaining liquidity
restrictions on the cash of First North American National Bank, the
company's wholly owned national bank subsidiary, as part of the liquidation
of that subsidiary. As a result, the company did not have any cash and cash
equivalents held by the company's regulated subsidiaries and not available
for general corporate purposes at August 31, 2004. Cash and cash
equivalents held by the company's regulated subsidiaries and not available
for general corporate purposes were $61.6 million at February 29, 2004.
9. Goodwill and Other Intangible Assets
The changes in the carrying amount of goodwill by reportable segment for
the three months ended August 31, 2004 were as follows:
Domestic International
(Amounts in millions) Retail Operation Retail Operation
-------------------------------------------------------------------------------------------------------------------
Balance at May 31, 2004................................. $ 5.4 $176.2
Purchase price allocation adjustment.................... (2.9) 19.2
Goodwill resulting from acquisition..................... - 3.0
Changes in foreign currency exchange rates.............. - 7.4
------ ------
Balance at August 31, 2004.............................. $ 2.5 $205.8
====== ======
Acquired intangible assets at August 31, 2004, were as follows:
At August 31, 2004
Weighted
Gross Average
Carrying Amortization Accumulated
(Dollar amounts in millions) Amount Period (in years) Amortization
-----------------------------------------------------------------------------------------------------------------
Dealer-relationship contracts................ $13.7 20.0 $0.2
Vendor contract.............................. 10.6 10.0 0.2
Employment agreements........................ 5.3 4.5 0.3
Other........................................ 2.9 2.9 0.2
------ ------
Total........................................ $32.5 $0.9
===== ======
Amortization expense for amortizing intangible assets for the three months
ended August 31, 2004 was $0.9 million. The company did not record any
amortization expense in the first quarter of fiscal 2005. Estimated
amortization expense for fiscal 2005 is $2.8 million. Estimated
amortization expense for the next five fiscal years is $3.8 million in
2006, $3.6 million in 2007, $3.0 million in 2008, $2.5 million in 2009, and
$1.7 million in 2010. These amortization expense estimates are subject to
fluctuations in foreign currency exchange rates. See Note 3 and Note 13 for
additional discussion of goodwill and other intangible assets.
Page 10 of 29
10. Common Stock Repurchased
In January 2003, the company's board of directors authorized the repurchase
of up to $200 million of common stock. In June 2004, the board authorized a
$200 million increase in its stock repurchase authorization for an
aggregate authorization of $400 million. During the three months ended
August 31, 2004, the company repurchased and retired approximately 5.3
million shares under that authorization at a cost of $69.6 million. For the
six months ended August 31, 2004, the company repurchased and retired 11.1
million shares under that authorization at a cost of $140.6 million. As of
August 31, 2004, the company had repurchased and retired approximately 20.3
million shares of common stock at a cost of $225.0 million. Based on the
market value of the common stock at August 31, 2004, the remaining $175.0
million authorized would allow the company to repurchase up to
approximately 7 percent of the 195.2 million shares then outstanding.
11. Pension Plans
The company provides a noncontributory defined benefit pension plan to
eligible employees. Plan benefits generally are based on years of service
and average compensation. The company also has an unfunded nonqualified
benefit restoration plan that restores retirement benefits for senior
executives who are affected by Internal Revenue Code limitations on
benefits provided under the company's pension plan.
The components of the net pension expense for the plans were as follows:
Three Months Ended Six Months Ended
August 31 August 31
(Amounts in thousands) 2004 2003 2004 2003
----------------------------------------------------------------------------------- --------------------------
Service cost........................................... $ 3,817 $ 3,968 $ 7,633 $ 7,936
Interest cost......................................... 3,906 3,316 7,814 6,632
Expected return on plan assets........................ (4,101) (3,630) (8,203) (7,259)
Amortization of prior service cost.................... 119 119 238 237
Amortization of recognized actuarial loss............. 1,255 818 2,510 1,636
------------------------- --------------------------
Net pension expense................................... $ 4,996 $ 4,591 $ 9,992 $ 9,182
========================= ==========================
Circuit City made no contributions to its defined benefit pension plan
during the first half of fiscal 2005. The company intends to make any
contributions to the defined benefit pension plan that would be necessary
to meet ERISA minimum funding standards and any additional contributions as
needed to ensure that the fair value of plan assets at February 28, 2005,
exceeds the accumulated benefit obligation. The company does not currently
expect to make a contribution in fiscal 2005. The company's expected
contribution for the restoration plan is equal to the expected benefit
payments for the plan, which was $463,000 as of February 29, 2004.
12. Segment Information
The company has two reportable segments: its domestic retail operation and
its international retail operation. 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 retail operation segment
is primarily engaged in the business of selling brand-name consumer
electronics, personal computers and entertainment software in the United
States. The international retail operation segment is primarily engaged in
the business of selling private-label and internationally branded consumer
electronics products in Canada. Prior to the second quarter of fiscal 2005,
the company had a third reportable segment, its finance operation. The
company completed the sale of its private-label finance operation,
comprised of its private-label and Visa co-branded credit card programs, to
Chase Card Services on May 25, 2004. Results from the private-label finance
operation, including transition and transaction costs of approximately $6
million related to the sale of the operation, are included in finance
income. See Note 4 for additional discussion of finance income. The company
has entered into an ongoing arrangement under which Chase Card Services is
offering private-label and co-branded credit cards to new and existing
customers of the
Page 11 of 29
company and providing credit card services to all cardholders. After the
sale date, the earnings contribution from that arrangement has been
included in net sales and operating revenues on the consolidated statement
of operations and is included in the domestic retail segment. This
contribution amounted to $6.6 million in this fiscal year's second quarter.
The accounting policies for the company's segments are the same as those
set forth in Note 14 below and Note 2 to the company's audited consolidated
financial statements incorporated by reference in the company's fiscal 2004
Annual Report on Form 10-K.
Revenue by reportable segment and the reconciliation to the consolidated
statements of operations were as follows:
Three Months Ended Six Months Ended
August 31 August 31
(Amounts in millions) 2004 2003 2004 2003
---------------------------------------------------------------------------------------- --------------------------
Domestic retail operation................................. $2,227.2 $2,155.7 $4,272.1 $4,089.0
International retail operation............................ 117.8 - 139.5 -
Finance operation......................................... - 29.2 28.1 57.6
--------------------------- --------------------------
Total revenue............................................. 2,345.0 2,184.9 4,439.7 4,146.6
Less: securitization income*.............................. - 29.2 28.1 57.6
--------------------------- --------------------------
Net sales and operating revenues ......................... $2,345.0 $2,155.7 $4,411.6 $4,089.0
========================= ========================
*Securitization income is included in finance income, which is reported
separately from net sales and operating revenues on the statements of
operations.
The loss or earnings from continuing operations before income taxes by
reportable segment and the reconciliation to the consolidated statements of
operations were as follows:
Three Months Ended Six Months Ended
August 31 August 31
(Amounts in millions) 2004 2003 2004 2003
------------------------------------------------------------------------------------- -----------------------
Domestic retail operation................................. $(23.4) $(69.7) $(37.8) $(124.4)
International retail operation............................ 5.5 - 6.1 -
Finance operation*........................................ - 8.8 5.6 16.8
----------------------- -----------------------
Loss from continuing operations before income
taxes................................................. $(17.9) $ (60.9) $(26.1) $(107.6)
===================== =====================
*Results from the finance operation do not include certain indirect costs.
See Note 4 to the consolidated financial statements in this report for a
discussion of the indirect costs excluded.
Total assets by reportable segment and the reconciliation to the
consolidated balance sheets were as follows:
At August 31 At February 29
(Amounts in millions) 2004 2004
---------------------------------------------------------------------------- -------------------
Domestic retail operation................................ $3,284.1 $3,031.7
International retail operation........................... 397.8 -
Finance operation........................................ - 601.3
---------- ----------
Total assets............................................. $3,681.9 $3,633.0
======== ========
Goodwill and intangible assets by reportable segment were as follows:
At August 31 At February 29
(Amounts in millions) 2004 2004
--------------------------------------------------------------------------- -------------------
Domestic retail operation................................ $ 5.2 $ -
International retail operation........................... 234.8 -
-------- ------
Total goodwill and intangible assets..................... $240.0 $ -
====== ======
Page 12 of 29
13. Supplemental Consolidated Statement of Cash Flows Information
The following table summarizes supplemental cash flow information for the
six months ended August 31, 2004.
Six Months Ended
(Amounts in thousands) August 31, 2004
-----------------------------------------------------------------------------------------------------
Supplemental schedule of non-cash investing and financing
activities:
Capital lease obligation.................................................. $ 2,754
========
Acquisition of InterTAN:
Fair value of assets acquired:
Cash and cash equivalents............................................. $ 30,615
Merchandise inventory................................................. 88,837
Property and equipment, net........................................... 42,614
Goodwill.............................................................. 191,735
Other intangible assets............................................... 28,000
Other assets.......................................................... 7,634
---------
Total fair value of assets acquired................................... 389,435
Less:
Liabilities assumed................................................... 93,002
Cash acquired......................................................... 30,615
Stock options issued.................................................. 6,498
---------
Acquistion of InterTAN, net of cash acquired............................. $259,320
========
Other acquisitions:
Fair value of assets acquired............................................ $ 13,413
Less: liabilities assumed................................................ 4,065
---------
Other acquisitions....................................................... $ 9,348
=========
14. Foreign Currency Translation
The local currency of InterTAN, the Canadian dollar, is its functional
currency. For reporting purposes, assets and liabilities are translated
into U.S. dollars using the exchange rates in effect at the balance sheet
date, income and expense items are translated using monthly average
exchange rates. The effects of exchange rate changes on net assets of
InterTAN are recorded in equity as part of accumulated other comprehensive
income. See Note 6 for additional discussion of other comprehensive income.
Gains and losses from foreign currency transactions are included in
selling, general and administrative expenses in the consolidated statement
of operations.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
On May 12, 2004, we acquired a controlling interest in InterTAN, Inc. and on May
19, 2004, completed the acquisition of 100 percent of the common stock of
InterTAN for cash consideration of $259.3 million, which includes transaction
costs and is net of cash acquired of $30.6 million. InterTAN is a leading
consumer electronics retailer of both private-label and internationally branded
products with headquarters in Barrie, Ontario, Canada. In addition to enabling
us to accelerate the offering of private-label merchandise to our customers, the
acquisition of InterTAN gives us our first presence in the Canadian market.
On May 25, 2004, we completed the sale of our private-label finance operation,
comprised of our private-label and co-branded Visa credit card programs, to
Chase Card Services, formerly Bank One Corporation. Results
Page 13 of 29
from the private-label finance operation, including transition and transaction
costs of approximately $6 million related to the sale of the operation, are
included in finance income. We also entered into a Consumer Credit Card Program
Agreement under which Chase Card Services is offering private-label and
co-branded credit cards to new and existing customers. As part of the program
agreement, we plan to jointly develop and introduce new features, products and
services to drive additional sales. We are compensated under the program
primarily based on the number of new accounts opened. Chase Card Services is
obligated to offer special promotional financing terms to our customers. We
determine the frequency, volume and, subject to certain limits, the terms of
these promotions. Chase Card Services is compensated for these promotions in
accordance with a negotiated fee schedule. The program agreement has an initial
seven-year term with automatic three-year renewals. The agreement has customary
representations, warranties, covenants, events of default and termination rights
for an agreement of this type. After the sale date, the earnings contribution
from the program agreement has been included in net sales and operating revenues
on the consolidated statement of operations. See Note 4 and Note 12 to the
consolidated financial statements in this report for additional discussion
concerning the sale of the private-label finance operation.
On November 18, 2003, we completed the sale of our bankcard finance operation,
which included Visa and MasterCard credit card receivables and related cash
reserves. Results from the bankcard finance operation are presented as results
from discontinued operation. See Note 2 to the consolidated financial statements
in this report for additional discussion concerning the sale of the bankcard
finance operation.
CRITICAL ACCOUNTING POLICIES
For a discussion of our critical accounting policies, see Management's
Discussion and Analysis of Results of Operations and Financial Condition, which
is incorporated by reference in our fiscal 2004 Annual Report on Form 10-K.
These policies relate to the calculation of the value of retained interests in
securitization transactions, the calculation of the liability for lease
termination costs, accounting for pension plans, accounting for stock-based
compensation expense and accounting for cash consideration received from
vendors.
During the first quarter of fiscal 2005, we recognized goodwill and other
intangible assets related to our acquisition of InterTAN. We have added the
following critical accounting policy.
Accounting for Goodwill and Other Intangible Assets
We account for goodwill and other intangible assets in accordance with Statement
of Financial Accounting Standards No. 142, "Goodwill and Other Intangible
Assets." SFAS No. 142 requires that goodwill and other intangible assets with
indefinite useful lives no longer be amortized, but instead evaluated for
impairment on an annual basis, or more frequently if certain events occur or
circumstances exist. We will evaluate the goodwill balance in the last quarter
of the fiscal year. Through the impairment test, goodwill, other intangible
assets, and tangible assets and liabilities are divided among reporting units.
If the fair value of those reporting units is less than the carrying value, then
the implied fair value of the goodwill of the reporting unit must be compared to
the carrying value of that goodwill. In the instance that the fair value of the
goodwill is less than the carrying value, goodwill is deemed to be impaired and
an impairment loss, equal to the excess of the fair value over the carrying
value, must be recorded.
The performance of the goodwill impairment test is subject to significant
judgement in determining the fair value of reporting units, due to the
estimation of future cash flows, discount rates, and other assumptions. Changes
in these estimates and assumptions could have a significant impact on the fair
value and/or goodwill impairment of each reporting unit.
RESULTS OF OPERATIONS
Our operations, in common with other retailers in general, are subject to
seasonal influences. Historically, we have realized more of our net sales and
net earnings in the fourth quarter, which includes the majority of the holiday
selling season, than in any other fiscal quarter. The net earnings for any
particular quarter are seasonally disproportionate to net sales since
administrative and certain operating expenses remain relatively
Page 14 of 29
constant during the year. Therefore, quarterly results should not be relied upon
as necessarily indicative of results for the entire fiscal year.
Net Sales and Operating Revenues
Total sales for the second quarter of fiscal 2005 increased 8.8 percent to $2.35
billion from $2.16 billion in last fiscal year's second quarter. Comparable
store merchandise sales increased 2.9 percent for the second quarter of fiscal
2005. Total sales for the first six months of fiscal 2005 increased 7.9 percent
to $4.41 billion from $4.09 billion for the first six months of last fiscal
year. Comparable store merchandise sales increased 4.5 percent for the first six
months of fiscal 2005. Comparable store merchandise sales include merchandise
sales from domestic stores that have been open for 12 full calendar months and
from all relocated stores, as well as web originated merchandise sales. Circuit
City acquired InterTAN in May 2004. Comparable store merchandise sales for the
current fiscal year's second quarter and first six months and total sales for
the same periods of last fiscal year reflect domestic sales only.
Sales by segment for the three and six months ended August 31, 2004 and 2003
were as follows.
Three Months Ended Six Months Ended
August 31 August 31
(Dollar amounts in billions) 2004 2003 2004 2003
------------------------------------------------------------------------------------------ ------------------------
Domestic segment sales......................................... $2.23 $2.16 $4.27 $4.09
International segment sales.................................... 0.12 - 0.14 -
-------------------- ----------------------
Total sales.................................................... $2.35 $2.16 $4.41 $4.09
=================== ====================
The percent of merchandise sales represented by each major product category for
the three and six months ended August 31, 2004 and 2003, is shown below.
International segment sales have been included in sales by merchandise category
since completion of the acquisition in May 2004, but had no material impact on
the percentages for the second quarter or six months ended August 31, 2004.
Three Months Ended Six Months Ended
August 31 August 31
2004 2003 2004 2003
-------------------------------------------------------------------------------------- -----------------------
Video..................................................... 40% 39% 41% 39%
Information technology.................................... 37 36 35 35
Audio..................................................... 13 14 13 14
Entertainment............................................. 10 11 11 12
---------------------- --------------------------
Total..................................................... 100% 100% 100% 100%
====================== ==========================
In the video category, we produced a single-digit comparable store sales
increase, led by sales of new technology televisions and digital imaging
products. Video category sales reflect triple-digit comparable store sales
growth in plasma and LCD televisions and double-digit growth in sales of digital
televisions and digital imaging products. Double-digit declines in tube
television and DVD player sales and a single-digit decline in camcorder sales
partly offset the growth in other video products.
A single-digit comparable store sales increase in the information technology
category reflects single-digit comparable store sales growth in both personal
computer hardware and accessories. In personal computer hardware, double-digit
comparable store sales growth in notebooks was partly offset by double-digit
declines in desktop computers and single-digit declines in printers. Monitor
sales were relatively unchanged from the prior year.
Comparable store sales in the audio category were relatively unchanged.
Double-digit comparable store sales growth in portable audio products, driven by
digital audio products such as MP3 players, and single-digit growth in mobile
audio products, driven by satellite radio, were offset by double-digit
comparable store sales declines in home audio products.
Page 15 of 29
Comparable store sales in the entertainment category were relatively unchanged
reflecting a double-digit decline in video game products offset by single-digit
comparable store sales growth in music software. Comparable store sales of video
software were relatively unchanged.
The following table provides the numbers of our domestic segment stores:
Aug. 31, 2004 Feb. 29, 2004 Aug. 31, 2003
------------------------------------------------------------------------ --------------- -------------
Superstores....................................... 604 599 612
Mall-based stores................................. 5 5 13
---- ---- ----
Total domestic segment stores..................... 609 604 625
==== ==== ====
In fiscal 2005, in our domestic retail operation segment, we expect to open
approximately 60 Superstores, of which slightly less than half will be
relocations. In the second quarter of fiscal 2005, we opened two Superstores and
relocated a total of nine Superstores. For the first half of fiscal 2005, we
opened four new Superstores, and relocated ten Superstores, of which one
Superstore was a replacement for a Superstore we closed in late fiscal 2004.
The following table provides the numbers of international segment stores and
dealer outlets:
August 31, 2004
-----------------------------------------------------------------------
Company-operated stores........................... 515
Dealer outlets.................................... 390
Rogers Wireless stores............................ 84
Battery Plus stores............................... 27
------
Total international segment stores................ 1,016
=======
Company-operated stores operate under the trade name "RadioShack." Dealer
outlets are independent retail businesses that operate under their own trade
names but are permitted, under dealer agreements, to purchase any of the
products sold by company-operated stores. Rogers Wireless stores are dedicated
primarily to the sale of wireless services, including related hardware, offered
by Rogers Wireless, Inc. Battery Plus stores retail batteries and other
specialty consumer electronics products.
Our domestic retail operation sells extended warranty programs on behalf of
unrelated third parties that are the primary obligors. Because the third parties
are the primary obligors under these contracts, commission revenue for the
unrelated-third-party extended warranty plans is recognized at the time of sale.
For our domestic retail operation segment, the total extended warranty revenue
included in total sales was $91.7 million, or 4.1 percent of domestic retail
sales, in the second quarter of fiscal 2005, compared with $77.8 million, or 3.6
percent of sales, in last fiscal year's second quarter. The domestic extended
warranty revenue included in total sales was $169.0 million, or 4.0 percent of
domestic retail sales, in the first half of fiscal 2005, compared with $150.2
million, or 3.7 percent of sales, in last fiscal year's second half. We believe
that the increase primarily is due to better store-level execution. For our
international retail operation segment, we are the primary obligor for our
extended warranty programs. Accordingly, extended warranty revenue is deferred
at point of sale and recognized as revenue over the life of the contract and was
immaterial for the three and six months ended August 31, 2004.
Gross Profit Margin
The gross profit margin was 24.6 percent of sales in the second quarter of
fiscal 2005, compared with 22.6 percent in the same period last fiscal year. For
the first six months of fiscal 2005, the gross profit margin was 24.0 percent of
sales, compared with 22.9 percent for the same period last fiscal year. The
inclusion of the international segment contributed 77 basis points to this
year's second quarter gross profit margin. The increase in the gross profit
margin of our domestic segment of 125 basis points reflects stability in
merchandise margins for the quarter; the increase in extended warranty sales,
which carry higher than average gross profit margins; the increased efficiency
of our product service and distribution operations; and the inclusion of credit
Page 16 of 29
revenues in net sales and operating revenues in the consolidated statement of
operations. The inclusion of credit revenues contributed 23 basis points to this
year's second quarter gross profit margin.
Finance Income
We completed the sale of our private-label finance operation, comprised of our
private-label and co-branded Visa credit card programs, to Chase Card Services
on May 25, 2004. Results from the private-label finance operation through the
date of the sale, including transition and transaction costs of approximately $6
million related to the sale of the operation, are included in finance income.
See Note 1, Note 4 and Note 12 to the consolidated financial statements in this
report for additional discussion concerning the sale of our private-label
finance operation.
For the three and six months ended August 31, 2004 and 2003, the components of
pretax finance income were as follows:
Three Months Ended Six Months Ended
August 31 August 31
(Amounts in millions) 2004 2003 2004 2003
-------------------------------------------------------------------------------------------- ----------------------
Securitization income........................................... $ - $29.2 $28.1 $57.6
Less: Payroll and fringe benefit expenses....................... - 7.5 7.6 15.5
Other direct expenses................................... - 12.9 14.9 25.3
---------------------- ------------------------
Finance income.................................................. $ - $ 8.8 $ 5.6 $16.8
====================== ======================
Finance income is reduced by payroll, fringe benefits and other costs directly
associated with the management and securitization of the private-label
receivables. Payroll and fringe benefit expenses generally vary with the amount
of serviced receivables. Other direct expenses include third-party data
processing fees, rent, credit promotion expenses, Visa fees, transition and
transaction costs related to the sale of the private-label finance operation and
other operating expenses. Finance income does not include any allocation of
indirect costs or income. Examples of indirect costs not included are corporate
expenses such as human resources, administrative services, marketing,
information systems, accounting, legal, treasury and executive payroll, as well
as retail store expenses.
Selling, General and Administrative Expenses
Three Months Ended August 31 Six Months Ended August 31
2004 2003 2004 2003
% of % of % of % of
(Dollar amounts in millions) $(a) Sales $ Sales $(b) Sales $ Sales
------------------------------------------------------------------------------------ --------------------------------------------
Store expenses.......................... $520.7 22.2% $480.7 22.3% $ 971.9 22.0% $ 923.3 22.6%
General and administrative
expenses........................... 48.6 2.1 42.0 1.9 84.5 1.9 78.2 1.9
Remodel expenses........................ - - 18.2 0.8 0.1 - 29.5 0.7
Relocation expenses..................... 16.5 0.7 4.0 0.2 18.4 0.4 9.1 0.2
Pre-opening expenses.................... 3.6 0.1 1.4 0.1 4.5 0.1 3.1 0.1
Interest income......................... (3.2) (0.1) (1.7) (0.1) (5.3) (0.1) (4.1) (0.1)
------------------------------------------ --------------------------------------------
Total ................................. $586.2 25.0% $544.6 25.3% $1,074.1 24.3% $1,039.1 25.4%
========================================= ============================================
(a) Includes international segment store expenses of $31.7 million and general
and administrative expenses of $8.6 million.
(b) Includes international segment store expenses of $38.3 million and general
and administrative expenses of $10.0 million.
Selling, general and administrative expenses were 25.0 percent of total sales in
the second quarter of this fiscal year, compared with 25.3 percent of total
sales in the same period last year. The inclusion of the international segment
increased this year's second quarter expense-to-sales ratio by 49 basis points.
The year-over-year improvement in the domestic segment's expense-to-sales ratio
of 75 basis points was primarily driven by
Page 17 of 29
o leverage from the comparable stores sales growth;
o a reduction of approximately 50 basis points in rent and occupancy costs as a
percent of sales, largely resulting from the closure of 19 underperforming
stores in February 2004;
o a reduction of approximately 30 basis points in payroll and fringe benefit
costs as a percent of sales; and
o a reduction of approximately 30 basis points in relocation and remodel
expenses as a percent of sales, which reflects the large number of stores that
were refixtured in last year's second quarter.
These improvements were partly offset by an increase of approximately 20 basis
points in advertising expense as a percent of sales.
This year's second quarter expenses included $16.5 million of relocation costs,
including accelerated depreciation of assets related to planned future
relocations, related to the relocation of nine Superstores. Expenses in last
year's second quarter included $22.2 million of remodel and relocation costs,
including costs related to the refixturing of 208 Superstores, the relocation of
one Superstore and the full remodel of three Superstores, as well as accelerated
depreciation on assets to be taken out of service as a result of the store
remodeling and relocation program.
We anticipate that capital expenditures, net of sale-leasebacks and tenant
improvement allowances, will total approximately $155 million in the current
fiscal year. These estimates include approximately $55 million related to
domestic store openings, $50 million related to domestic relocations and
remodels and $50 million related to other items such as domestic management
information systems and our international segment. We project that expenses
related to domestic Superstore relocations and one remodel will total
approximately $47 million in fiscal 2005. We incurred $18.4 million or
approximately 39 percent of the anticipated remodel and relocation expenses in
the six months ended August 31, 2004.
Interest Expense
Interest expense was $0.8 million for the second quarter of this fiscal year and
$0.3 million for the second quarter of the prior fiscal year. Interest expense
was $1.1 million for the six months ended August 31, 2004, and $1.3 million for
the six months ended August 31, 2003. Interest expense for the first six months
of last fiscal year reflects interest paid as a result of completed audits of
prior year income tax returns.
Income Taxes
The effective income tax rate applicable to results from continuing operations
was 36.2 percent for the three months ended August 31, 2004, and 35.4 percent
for the three months ended August 31, 2003. The effective income tax rate
applicable to results from continuing operations was 36.3 percent for the six
months ended August 31, 2004, and 37.4 percent for the six months ended August
31, 2003. The estimated effective income tax rate applicable to results from
continuing operations for our domestic retail operation segment for fiscal 2005
is expected to be 36.7 percent. The estimated effective income tax rate
applicable to results from continuing operations for our international retail
operation segment for fiscal 2005 is expected to be 38.5 percent. The
consolidated effective income tax rate applicable to results from continuing
operations will be the weighted average of our segments' rates.
Net Loss from Continuing Operations
The net loss from continuing operations was $11.4 million, or 6 cents per share,
in the second quarter ended August 31, 2004, compared with the net loss from
continuing operations of $39.3 million, or 19 cents per share, in the second
quarter of last fiscal year. The international segment's results reduced the
fiscal 2005 second quarter net loss from continuing operations by $3.4 million,
or 2 cents per share.
For the six months ended August 31, 2004, the net loss from continuing
operations was $16.7 million, or 8 cents per share, compared with the net loss
from continuing operations of $67.4 million, or 33 cents per share, for the same
period last fiscal year. The international segment's results reduced the net
loss from continuing operations for the first six months of fiscal 2005 by $3.8
million, or 2 cents per share.
Page 18 of 29
Net Loss from Discontinued Operation
On November 18, 2003, we completed the sale of our bankcard finance operation to
FleetBoston Financial. Results from the bankcard finance operation are presented
as results from discontinued operation. The sale agreement included a transition
services agreement under which employees of our finance operation continued to
service the bankcard accounts until final conversion of the bankcard portfolio
to FleetBoston, which occurred on April 2, 2004. Through that date, FleetBoston
reimbursed us for operating costs incurred during the transition period. We
incurred severance costs ratably through the final conversion date.
The after-tax loss from the discontinued bankcard finance operation totaled $0.5
million for the three months ended August 31, 2004, which is comprised of
post-closing adjustments related to the sale of the operation, and $90.3 million
for the same period last fiscal year. The after-tax loss from the discontinued
bankcard finance operation totaled $1.2 million for the six months ended August
31, 2004, and $108.9 million for the same period last fiscal year.
Operations Outlook
Our attention is focused on building value for shareholders by providing
superior consumer electronics solutions to families. We remain focused on four
basic areas: 1) driving store revenue growth, 2) growing Web-based revenues, 3)
stabilizing gross margins and 4) bringing our overall cost and expense structure
in line with our current level of revenues. We believe we have the right plan in
place to combine profitable revenue growth with improved in-store execution, and
we have the resources to execute that plan.
Growing store revenues requires a focused team effort among numerous functions
including store operations, merchandising, Circuit City Direct, marketing, real
estate and finance. An important component of driving sales growth is the
ongoing store revitalization plan, which incorporates opening new locations in
vibrant trade areas, relocating stores to better locations within existing trade
areas and, to a lesser extent, improving the performance of existing stores
through remodeling activities designed to improve the shopping experience. From
the beginning of fiscal 2001 through August 31, 2004, 145 Superstores, or 24
percent of our 604 Superstores, had been newly constructed, relocated or fully
remodeled to provide a contemporary shopping experience with easy product access
and more powerful merchandising displays. We expect that ratio to reach
approximately 30 percent by the end of this fiscal year. At the end of the
second quarter, we had 31 relocated stores that have been open for more than six
months. In their first full six months following grand opening, these 31 stores
have averaged sales changes that were approximately 25 percentage points better
than the sales pace of the remainder of the store base during the same time
periods and an internal rate of return of approximately 15 percent. We continue
to anticipate that as we add stores to the relocation base, the average results
from relocated stores will vary. Although we do not have a statistically
significant base of stores for which we can measure the performance after the
first six months, a preliminary assessment of these stores indicated that on
average, in addition to their initial sales lift in the first six months, they
produced comparable store sales changes that are relatively consistent with the
rest of the chain. In fiscal 2005, we expect to open approximately 60
Superstores, of which slightly less than half will be relocations. We have
signed leases on all the sites we expect to open this fiscal year and plan to
open approximately 30 of the stores in this year's third quarter and
approximately 16 of the stores in this year's fourth quarter.
We have developed a marketing program to further energize the Circuit City
brand. This year's campaign is designed to have one consistent message that will
resonate with our customers in the media, online and in-store. Beginning in the
third quarter we will launch this campaign in conjunction with traffic building
programs, targeted marketing to the Hispanic community and a rewards-based
program tied to our Circuit City credit cards.
Our Circuit City Direct organization is focused on continuing to drive strong
Web-originated sales growth. In September, we launched our next generation Web
site at www.circuitcity.com. The new site features more intuitive navigation and
includes triple the previous product selection with more than one million items
for sale. In addition to new features, the new site maintains and improves many
of the capabilities of the previous site
Page 19 of 29
including our in-store pick up option; on-line credit applications and financing
through Chase Card Services; and integration and cross-marketing with our
Superstores. Our acquisition of the assets of MusicNow reflects our belief that
there is a significant Internet-based opportunity to drive sales through the
delivery of licensed content.
We have many ongoing activities throughout the company that we expect to benefit
the gross profit margin. These activities include
o expanding our own-brand product assortments as we head into the holiday
season, especially through integrating InterTAN products;
o reducing the cost of acquisition of products through increased competition
among vendors in certain product areas;
o examining the balance of products within each product category, particularly
between price points and across vendors;
o rationalizing the number of items offered in low-volume stores;
o expanding the use of markdown optimization tools;
o improving inventory forecasting; and
o focusing on selling attachments and services.
We were pleased with the year-over-year improvement in our selling, general and
administrative expenses as a percentage of sales for the six months ended August
31, 2004. During fiscal 2004, we implemented improvements such as consolidating
districts, regions and divisions; centralizing indirect procurement; rightsizing
corporate missions; and closing under-performing stores. We continue to believe
that reducing our expense structure is an integral component of building a new
Circuit City and will continue to focus on driving additional expense
reductions.
FINANCIAL CONDITION
Liquidity and Capital Resources
At August 31, 2004, we had cash and cash equivalents of $953.8 million, compared
with $783.5 million at February 29, 2004. The higher cash balance primarily
reflects the net cash proceeds of $470.0 million from the sale of the
private-label finance operation partly offset by acquisition costs for InterTAN
of $259.3 million, net of cash acquired. During the first six months of fiscal
2005, we also used $140.6 million of cash to repurchase common stock under our
stock repurchase authorization.
At August 31, 2003, we had cash and cash equivalents of $633.1 million. The
year-over-year change in the cash balance largely reflects the net cash proceeds
of $470.0 million from the sale of the private-label finance operation and the
net cash proceeds of $282 million from the sale of the bankcard finance
operation, partly offset by acquisition costs for InterTAN of $259.3 million,
net of cash acquired. Since the end of the second quarter of fiscal 2004 through
August 31, 2004, we also used $211.1 million of cash to repurchase common stock
under our stock repurchase authorization.
Operating Activities. For the six months ended August 31, 2004, net cash
provided by operating activities was $189.3 million, compared with net cash used
in operating activities of $80.3 million for the six months ended August 31,
2003. The increase in net cash provided by operating activities is primarily due
to changes in retained interests in securitized receivables and merchandise
inventory.
Retained interests in securitized receivables decreased by $32.9 million in the
first six months of fiscal 2005, compared with an increase of $128.7 million in
the first six months of last fiscal year. The current year decrease relates to
the sale of the private-label finance operation. The prior year increase
reflects the completion of a $500 million private-label credit card
securitization transaction to replace a maturing term securitization.
Merchandise inventory increased by $23.6 million in the first six months of
fiscal 2005, compared with an increase of $144.7 million in the first six months
of last fiscal year. The change in inventory reflects the
Page 20 of 29
beginning of our increased focus on working capital management, by more closely
matching the timing of merchandise receipt into distribution centers and
deployment to stores with expected sales levels, and selectively adjusting
merchandise display quantities in some stores to reflect those individual
store's sales.
Investing Activities. For the six months ended August 31, 2004, net cash
provided by investing activities was $128.3 million compared with net cash used
in investing activities of $73.6 million for the six months ended August 31,
2003. The increase in net cash provided by investing activities is primarily due
to cash proceeds of $475.9 million from the sale of the private-label finance
operation offset by net acquisition costs for InterTAN of $259.3 million.
Financing Activities. For the six months ended August 31, 2004, net cash used in
financing activities was $144.1 million, compared with net cash used in
financing activities of $22.5 million for the six months ended August 31, 2003.
The change primarily reflects $140.6 million used to repurchase common stock
during the first six months of this fiscal year compared with $13.9 million used
during the same period last fiscal year. Based on the market value of the common
stock at August 31, 2004, the remaining $175.0 million, of the $400 million
total stock repurchase authorization, would allow for the repurchase of up to
approximately 7 percent of the 195.2 million shares then outstanding.
We have a $500 million revolving credit facility secured by inventory. On July
8, 2004, the credit agreement was amended to include InterTAN as a borrower. The
amended credit agreement established a $400 million borrowing limit for our
domestic retail operation and a $100 million borrowing limit for our
international retail operation. At August 31, 2004, short-term borrowings on
this facility were $3.8 million and outstanding letters of credit related to
this facility were $99.6 million, leaving $396.6 million available for
borrowing. We were in compliance with all covenants under this facility at
August 31, 2004.
We expect that available cash resources, our existing credit facility,
sale-leaseback transactions, landlord reimbursements and cash generated by
operations will be sufficient to fund capital expenditures and working capital
for the foreseeable future.
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 2005 and
beyond, are forward-looking statements and involve various risks and
uncertainties.
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
o changes in the amount and degree of promotional intensity exerted by
current competitors and potential new competition from competitors using
either similar or alternative methods or channels of distribution such as
online and telephone shopping services and mail order;
o changes in general economic conditions including, but not limited to,
consumer credit availability, consumer credit delinquency and default
rates, interest rates, inflation, personal discretionary spending levels,
trends in consumer retail spending, both in general and in our product
categories, and consumer sentiment about the economy in general;
Page 21 of 29
o the presence or absence of, or consumer acceptance of, new products or
product features in the merchandise categories we sell and changes in our
merchandise sales mix;
o significant changes in retail prices for products 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 lack of availability or access to sources of inventory;
o inability to liquidate excess inventory should excess inventory develop;
o failure to successfully implement sales and profitability improvement
programs for our Circuit City Superstores, including our store
revitalization plan;
o our ability to continue to generate strong sales growth through our Web
site;
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
integrate our retail business with the third party credit card program
being offered by Chase Card Services;
o future levels of sales activity and the acceptance of the Chase Card
Services third party credit program, including the related rewards
component, by consumers on an ongoing basis;
o our ability to attract and retain an effective management team or changes
in the costs or availability of a suitable work force to manage and support
our service-driven operating strategies;
o changes in production or distribution costs or costs of materials for our
advertising;
o availability of appropriate real estate locations for relocations and new
stores;
o successful implementation of our customer service initiatives;
o the imposition of new restrictions or regulations regarding the sale of
products and/or services we sell, changes in tax rules and regulations
applicable to us or our competitors, the imposition of new environmental
restrictions, regulations or laws or the discovery of environmental
conditions at current or future locations, or any failure to comply with
such laws or any adverse change in such laws;
o our ability to integrate and operate InterTAN successfully and to realize
the anticipated benefits of the transaction, including successfully
introducing InterTAN's products in our domestic Superstores and realizing
inventory purchasing synergies;
o timely production and delivery of private-label merchandise and level of
consumer demand for those products;
o reduced investment returns in our pension plan;
o changes in our anticipated cash flow;
o adverse results in significant litigation matters, including the outcome
and impact on InterTAN of litigation instituted by RadioShack Corporation
to terminate InterTAN's right to use the RadioShack(R) name in Canada and
related rights to purchase merchandise through RadioShack;
o currency exchange rate fluctuations between Canadian and U.S. dollars and
other currencies; and
o the regulatory and trade environment in the U.S. and Canada.
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
As a result of the acquisition of InterTAN, we are exposed to market risk from
potential changes in the U.S./Canadian currency exchange rates as they relate to
inventory purchases and the translation of InterTAN's financial results.
Inventory Purchases
A portion of InterTAN's purchases are from vendors requiring payment in U.S.
dollars. Accordingly, there is risk that the value of the Canadian dollar could
fluctuate relative to the U.S. dollar from the time the goods are ordered until
payment is made. InterTAN's management monitors the foreign exchange risk
associated with its U.S. dollar open orders on a regular basis by reviewing the
amount of such open orders, exchange rates, including forecasts from major
financial institutions, local news and other economic factors. At August 31,
Page 22 of 29
2004, U.S. dollar open purchase orders totaled approximately $30.6 million. A 10
percent decline in the value of the Canadian dollar would result in an increase
in product cost of approximately $3.1 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, where appropriate.
Translation of Financial Results
Fluctuations in the value of the Canadian dollar have a direct effect on
reported consolidated results due to the acquisition of InterTAN. We do not
hedge against the possible impact of this risk. A 10 percent adverse change in
the foreign currency exchange rate would not have a significant impact on our
results of operations or financial position.
ITEM 4. CONTROLS AND PROCEDURES
Under the supervision and with the participation of the company's management,
including the chief executive officer and chief financial officer, the company
has evaluated the effectiveness of its "disclosure controls and procedures," as
that term is defined in Rule 13a-15(e) of the Securities Exchange Act of 1934,
as amended, as of the end of the period covered by this Quarterly Report on Form
10-Q. Based upon their evaluation, the chief executive officer and chief
financial officer concluded that the company's disclosure controls and
procedures are effective. There were no changes in the company's internal
control over financial reporting in the quarter ended August 31, 2004, that have
materially affected, or are reasonably likely to materially affect, the
company's internal control over financial reporting.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On March 31, 2004, Circuit City announced a public tender offer to purchase the
stock of InterTAN. Circuit City completed the acquisition and InterTAN became a
wholly owned subsidiary of Circuit City on May 19, 2004. Among other things,
InterTAN operates retail consumer electronics outlets under the RadioShack(R)
name in Canada under a licensing agreement with a subsidiary of RadioShack
Corporation. InterTAN also operates under two other agreements with RadioShack
and its subsidiaries ("RadioShack"): a merchandising agreement and an
advertising agreement.
After the March 31, 2004 announcement, RadioShack asserted early termination of
all three agreements under a variety of theories and on a variety of proposed
termination dates. RadioShack asserts that InterTAN failed to pay an annual fee
in material breach of the advertising agreement and, alternatively, that a
"without cause" termination of the advertising agreement triggers termination of
the other agreements.
On April 5, 2004, RadioShack filed suit against InterTAN in Tarrant County,
Texas, and amended that suit on April 27, 2004. InterTAN disputes the various
termination scenarios alleged by RadioShack and is vigorously defending against
those claims. On May 11, 2004, InterTAN asserted a counterclaim seeking a
declaration under U.S. federal trademark law that the use of the RadioShack
marks is proper. Circuit City was added as a necessary party to that litigation
and removed the matter to Federal Court in the Northern District of Texas. On
May 12, 2004, Circuit City filed its own suit in Federal Court in the Northern
District of Texas seeking a declaration under U.S. federal trademark law that
the use of the marks in Canada is proper. InterTAN has cross-claimed against
RadioShack based on federal trademark law and remedies for business
disparagement.
Circuit City believes that RadioShack is not entitled to early termination of
the agreements and that InterTAN has substantial defenses to the RadioShack
claims. Circuit City intends to vigorously pursue its claims and defend the
claims in the RadioShack litigation. Circuit City believes that this litigation
will not have a material adverse effect on the company's financial condition or
results of operations.
Page 23 of 29
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
The following table provides information about common stock repurchases by or on
behalf of the company during the quarter ended August 31, 2004:
Maximum Dollar
Total Number Value of
of Shares Shares that
Average Purchased as May Yet Be
Total Number Price Part of Publicly Purchased
of Shares Paid Announced Under the
(Amounts in millions except per share data) Purchased per Share Program Program*
----------------------------------------------------------------------------------------------------------------------------------
June 1 - June 30, 2004.............................. 0.8 $12.71 0.8 $234.6
July 1 - July 31, 2004.............................. 3.7 $13.05 3.7 $186.4
August 1 - August 31, 2004.......................... 0.8 $13.95 0.8 $175.0
--- ---
Total Fiscal 2005 Second Quarter.................... 5.3 $13.14 5.3
=== ===
*In January 2003, the company announced that the board of directors 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 total repurchase capacity to $400 million. There is no expiration date under
either authorization.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a) The annual meeting of the company's shareholders was
held June 15, 2004.
(b)(i) At the annual meeting, the shareholders of the
company elected James F. Hardymon, Allen B. King and
Carolyn Y. Woo as directors for a three-year term and
E. V. Goings and J. Patrick Spainhour as directors
for a one-year term. The elections were approved by
the following votes:
Directors For Withheld
------------------------- ---------------- -------------
E. V. Goings 165,362,771 16,656,507
James F. Hardymon 165,399,633 16,619,645
Allen B. King 163,334,736 18,684,542
J. Patrick Spainhour 170,353,571 11,665,707
Carolyn Y. Woo 170,397,223 11,622,055
(ii) At the annual meeting, the shareholders of the
company voted in favor of a proposal to approve the
Amended and Restated 1984 Circuit City Stores, Inc.
Employee Stock Purchase Plan. This proposal was
approved by the following votes:
Broker
For Against Abstain Non-Votes
--------------- ---------------- -------------- ---------
128,023,716 14,692,176 3,142,375 36,161,011
(iii) At the annual meeting, the shareholders of the
company voted in favor of a proposal to approve an
amendment to the 2000 Non-Employee Directors Stock
Incentive Plan. This proposal was approved by the
following votes:
Page 24 of 29
Broker
For Against Abstain Non-Votes
--------------- ------------- -------------- ---------
118,634,721 24,011,636 3,211,910 36,161,011
(iv) At the annual meeting, the shareholders of the
company voted to ratify the appointment of KPMG LLP
as the company's independent auditors for fiscal year
2005. This ratification was approved by the following
votes:
Broker
For Against Abstain Non-Votes
-------------- -------------- ------------ ---------
176,139,291 4,919,960 960,027 0
ITEM 6. EXHIBITS
3.1 Amended and Restated Articles of Incorporation of the company,
effective February 3, 1997, as amended through October 1, 2002,
filed as Exhibit 3(i) to the company's Quarterly Report on Form
10-Q for the quarter ended November 30, 2002 (File No. 1-5767),
are expressly incorporated herein by this reference.
3.2 Bylaws of the company, as amended and restated June 17, 2003,
filed as Exhibit 3 (iii) to the company's Quarterly Report on
Form 10-Q for the quarter ended May 31, 2003 (File No. 1-5767),
are expressly incorporated herein by this reference.
4.1 Third Amended and Restated Rights Agreement, dated as of October
1, 2002, between the company and Wells Fargo Bank Minnesota,
N.A., as Rights Agent, filed as Exhibit 1 to the company's Form
8-A/A filed on October 1, 2002 (File No. 1-5767), is expressly
incorporated herein by this reference.
10.1 Amended and Restated Credit Agreement dated as of July 8, 2004
among Circuit City Stores, Inc., the Lenders party thereto, Fleet
National Bank, Fleet Retail Group Inc., Fleet Securities, Inc.,
Bank of America, N.A. Congress Financial Corporation (Central),
General Electric Capital Corporation, Bank One, NA, JPMorgan
Chase Bank, National City Business Credit, Inc., The CIT
Group/Business Credit, Inc. and Wells Fargo Foothill, LLC, filed
herewith.*
10.2 Circuit City Stores, Inc. 2003 Stock Incentive Plan, as Amended
and Restated, Effective August 17, 2004, filed herewith.**
10.3 InterTAN, Inc. Amended and Restated 1996 Stock Option Plan, filed
herewith.**
10.4 The 1984 Circuit City Stores, Inc. Employee Stock Purchase Plan
as Amended and Restated Effective August 17, 2004, filed
herewith.**
10.5 Circuit City Stores, Inc. 2000 Non-Employee Directors Stock
Incentive Plan, as Amended and Restated, Effective August 17,
2004, filed herewith.**
10.6 Circuit City Stores, Inc. Restricted Stock Unit Deferral Program
Under the Circuit City Stores, Inc. 2000 Non-Employee Directors
Stock Incentive Plan, filed herewith.**
10.7 Amendment to Program Agreement dated as of May 25, 2004 between
Circuit City Stores, Inc. and Bank One, Delaware, N.A., filed
herewith.
10.8 Amendment #2 to Program Agreement, effective as of May 25, 2004,
between Circuit City Stores, Inc. and Bank One, Delaware, N.A.,
filed herewith.*
10.9 Form of Non-Qualified Stock Option Grant Letter, filed as Exhibit
10.2 to the company's Form 8-K filed on October 4, 2004 (File No.
1-5767), is expressly incorporated herein by this reference.**
10.10 Form of Restricted Stock Grant Letter, filed as Exhibit 10.3 to
the company's Form 8-K filed on October 4, 2004 (File No.
1-5767), is expressly incorporated herein by this reference.**
Page 25 of 29
10.11 Form of Performance Restricted Stock Grant Letter, filed as
Exhibit 10.4 to the company's Form 8-K filed on October 4, 2004
(File No. 1-5767), is expressly incorporated herein by this
reference.**
31.1 Rule 13a-14(a)/15d-14(a) Certification of CEO under Rule
13a-14(a) of the Securities Exchange Act of 1934, filed herewith.
31.2 Rule 13a-14(a)/15d-14(a) Certification of CFO under Rule
13a-14(a) of the Securities Exchange Act of 1934, filed herewith.
32.1 Section 1350 Certification of CEO under Section 906 of the
Sarbanes-Oxley Act of 2002, filed herewith.
32.2 Section 1350 Certification of CFO under Section 906 of the
Sarbanes-Oxley Act of 2002, filed herewith.
* Portions of these exhibits have been omitted and filed separately
with the SEC pursuant to the company's application for the
confidential treatment of the omitted information pursuant to
Rule 24b-A of the Exchange Act.
** Indicates management contracts, compensatory plans or
arrangements of the company required to be filed as an exhibit.
Page 26 of 29
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the company
has duly caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
CIRCUIT CITY STORES, INC.
(Registrant)
By: /s/ W. Alan McCollough
--------------------------------------
W. Alan McCollough
Chairman, President and
Chief Executive Officer
By: /s/ Michael E. Foss
--------------------------------------
Michael E. Foss
Senior Vice President and
Chief Financial Officer
By: /s/ Philip J. Dunn
--------------------------------------
Philip J. Dunn
Senior Vice President, Treasurer,
Corporate Controller and
Chief Accounting Officer
October 8, 2004
Page 27 of 29
EXHIBIT INDEX
3.1 Amended and Restated Articles of Incorporation of the company, effective
February 3, 1997, as amended through October 1, 2002, filed as Exhibit
3(i) to the company's Quarterly Report on Form 10-Q for the quarter
ended November 30, 2002 (File No. 1-5767), are expressly incorporated
herein by this reference.
3.2 Bylaws of the company, as amended and restated June 17, 2003, filed as
Exhibit 3 (iii) to the company's Quarterly Report on Form 10-Q for the
quarter ended May 31, 2003 (File No. 1-5767), are expressly incorporated
herein by this reference.
4.1 Third Amended and Restated Rights Agreement, dated as of October 1,
2002, between he company and Wells Fargo Bank Minnesota, N.A., as Rights
Agent, filed as Exhibit 1 to the company's Form 8-A/A filed on October
1, 2002 (File No. 1-5767), is expressly incorporated herein by this
reference.
10.1 Amended and Restated Credit Agreement dated as of July 8, 2004 among
Circuit City Stores, Inc., the Lenders party thereto, Fleet National
Bank, Fleet Retail Group Inc., Fleet Securities, Inc., Bank of America,
N.A. Congress Financial Corporation (Central), General Electric Capital
Corporation, Bank One, NA, JPMorgan Chase Bank, National City Business
Credit, Inc., The CIT Group/Business Credit, Inc. and Wells Fargo
Foothill, LLC, filed herewith.*
10.2 Circuit City Stores, Inc. 2003 Stock Incentive Plan, as Amended and
Restated, Effective August 17, 2004, filed herewith.**
10.3 InterTAN, Inc. Amended and Restated 1996 Stock Option Plan, filed
herewith.**
10.4 The 1984 Circuit City Stores, Inc. Employee Stock Purchase Plan as
Amended and Restated Effective August 17, 2004, filed herewith.**
10.5 Circuit City Stores, Inc. 2000 Non-Employee Directors Stock Incentive
Plan, as Amended and Restated, Effective August 17, 2004, filed
herewith.**
10.6 Circuit City Stores, Inc. Restricted Stock Unit Deferral Program Under
the Circuit City Stores, Inc. 2000 Non-Employee Directors Stock
Incentive Plan, filed herewith.**
10.7 Amendment to Program Agreement dated as of May 25, 2004 between Circuit
City Stores, Inc. and Bank One, Delaware, N.A., filed herewith.
10.8 Amendment #2 to Program Agreement, effective as of May 25, 2004, between
Circuit City Stores, Inc. and Bank One, Delaware, N.A., filed herewith.*
10.9 Form of Non-Qualified Stock Option Grant Letter, filed as Exhibit 10.2
to the company's Form 8-K filed on October 4, 2004 (File No. 1-5767), is
expressly incorporated herein by this reference.**
10.10 Form of Restricted Stock Grant Letter, filed as Exhibit 10.3 to the
company's Form 8-K filed on October 4, 2004 (File No. 1-5767), is
expressly incorporated herein by this reference.**
10.11 Form of Performance Restricted Stock Grant Letter, filed as Exhibit 10.4
to the company's Form 8-K filed on October 4, 2004 (File No. 1-5767), is
expressly incorporated herein by this reference.**
31.1 Rule 13a-14(a)/15d-14(a) Certification of CEO under Rule 13a-14(a) of
the Securities Exchange Act of 1934, filed herewith.
31.2 Rule 13a-14(a)/15d-14(a) Certification of CFO under Rule 13a-14(a) of
the Securities Exchange Act of 1934, filed herewith.
Page 28 of 29
32.1 Section 1350 Certification of CEO under Section 906 of the
Sarbanes-Oxley Act of 2002, filed herewith.
32.2 Section 1350 Certification of CFO under Section 906 of the
Sarbanes-Oxley Act of 2002, filed herewith.
* Portions of these exhibits have been omitted and filed separately with
the SEC pursuant to the company's application for the confidential
treatment of the omitted information pursuant to Rule 24b-A of the
Exchange Act.
** Indicates management contracts, compensatory plans or arrangements of
the company required to be filed as an exhibit.
Page 29 of 29