SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 8-K
Current Report
Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): November 18, 2003
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CIRCUIT CITY STORES, INC.
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(Exact name of registrant as specified in its charter)
Virginia
(State or other jurisdiction of
incorporation or organization)
001-05767 54-0493875
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(Commission (I.R.S. Employer
File No.) 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 or Former Address, if Changed Since Last Report)
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS.
On November 18, 2003, Circuit City Stores, Inc. completed the sale of its
bankcard business, which included Visa and MasterCard credit card receivables
and related cash reserves totaling approximately $1.5 billion, to FleetBoston
Financial for approximately $1.3 billion in cash. Circuit City anticipates that
the after-tax loss on the sale will be approximately $82 million and that the
net after-tax cash proceeds from the sale will total approximately $279 million.
The company expects to incur closing adjustments following the completion date
of the sale. A copy of the company's press release announcing the completion of
the sale of its bankcard business is filed with this report as Exhibit 99.1 and
is incorporated herein by reference.
The sale agreement includes a transition services arrangement under which
employees of Circuit City's finance operation will continue to service the
bankcard accounts until final conversion, which is expected to occur in the
company's first fiscal quarter ending May 31, 2004. FleetBoston Financial will
reimburse Circuit City for operating costs incurred during the transition
period.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
(a) Financial statements of business acquired.
Not applicable.
(b) Pro forma financial information.
The unaudited pro forma consolidated financial information with respect
to the disposition of the company's bankcard business required by Item
7 of Form 8-K is included on pages 3 through 7 of this report and is
incorporated herein by reference.
(c) Exhibits.
2.1 Purchase and Sale Agreement by and among Circuit City Stores,
Inc., First North American National Bank, DC Funding
International, Inc. and Fleet Bank (RI), National Association,
dated as of October 21, 2003
99.1 Press Release dated November 19, 2003
2
CIRCUIT CITY STORES, INC.
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
SIX MONTHS ENDED AUGUST 31, 2003
(Amounts in thousands except per share data)
Circuit City Circuit City
Stores Pro Forma Stores
Historical Adjustments Pro Forma
NET SALES AND OPERATING REVENUES $ 4,089,020 $ - $ 4,089,020
Cost of sales, buying and warehousing 3,153,335 - 3,153,335
----------------- ----------------- -----------------
GROSS PROFIT 935,685 - 935,685
Finance (loss) income (155,415) 172,201 (A) 16,786
Selling, general and administrative expenses 1,043,795 2,146 (A) 1,045,941
Interest expense 1,310 - 1,310
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Loss from continuing operations
before income taxes (264,835) 170,055 (94,780)
Income tax benefit (96,666) 61,220 (A) (35,446)
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NET LOSS FROM CONTINUING OPERATIONS $ (168,169) $ 108,835 $ (59,334)
================= ================= =================
Weighted average common shares:
Basic 206,003 206,003
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Diluted 206,003 206,003
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NET LOSS PER SHARE FROM CONTINUING OPERATIONS:
Basic $ (0.82) $ (0.29)
================= =================
Diluted $ (0.82) $ (0.29)
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See accompanying notes to unaudited pro forma consolidated financial statements.
3
CIRCUIT CITY STORES, INC.
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
YEAR ENDED FEBRUARY 28, 2003
(Amounts in thousands except per share data)
Circuit City Circuit City
Stores Pro Forma Stores
Historical Adjustments Pro Forma
NET SALES AND OPERATING REVENUES $ 9,953,530 $ - $ 9,953,530
Cost of sales, buying and warehousing 7,603,205 - 7,603,205
----------------- ----------------- -----------------
GROSS PROFIT 2,350,325 - 2,350,325
Finance income 62,416 (35,123)(A) 27,293
Selling, general and administrative expenses 2,344,608 4,961 (A) 2,349,569
Interest expense 1,093 - 1,093
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Earnings from continuing operations
before income taxes 67,040 (40,084) 26,956
Provision for income taxes 25,475 (14,430)(A) 11,045
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NET EARNINGS FROM CONTINUING OPERATIONS $ 41,565 $ (25,654) $ 15,911
================= ================= =================
Weighted average common shares:
Basic 207,217 207,217
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Diluted 209,203 209,203
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NET EARNINGS PER SHARE FROM
CONTINUING OPERATIONS:
Basic $ 0.20 $ 0.08
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Diluted $ 0.20 $ 0.08
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See accompanying notes to unaudited pro forma consolidated financial statements.
4
CIRCUIT CITY STORES, INC.
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
AS OF AUGUST 31, 2003
(Amounts in thousands)
Circuit City Circuit City
Stores Pro Forma Stores
Historical Adjustments Pro Forma
ASSETS
Current Assets:
Cash and cash equivalents $ 633,072 $ 324,283 (B) $ 957,355
Accounts receivable, net of allowance for
doubtful accounts 168,450 (47,897) (C) 120,553
Retained interests in securitized receivables 617,860 (250,030) (C) 367,830
Merchandise inventory 1,554,432 - 1,554,432
Prepaid expenses and other current assets 60,179 (6,471) (B) 53,708
---------------- ----------------- ---------------
Total Current Assets 3,033,993 19,885 3,053,878
Property and equipment, net 625,532 (985) (D) 624,547
Deferred income taxes 25,435 - 25,435
Other assets 35,477 - 35,477
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TOTAL ASSETS $ 3,720,437 $ 18,900 $ 3,739,337
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 1,186,880 $ - $ 1,186,880
Accrued expenses and other current liabilities 126,685 10,090 (E) 136,775
Deferred income taxes 68,962 (927) (B) 68,035
Current installments of long-term debt 1,366 - 1,366
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Total Current Liabilities 1,383,893 9,163 1,393,056
Long-term debt, excluding current installments 10,630 - 10,630
Accrued straight-line rent 101,242 - 101,242
Other liabilities 68,169 - 68,169
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TOTAL LIABILITIES 1,563,934 9,163 1,573,097
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Stockholders' Equity:
Circuit City common stock 104,734 - 104,734
Capital in excess of par value 839,724 - 839,724
Retained earnings 1,212,045 9,737 (B) 1,221,782
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TOTAL STOCKHOLDERS' EQUITY 2,156,503 9,737 2,166,240
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 3,720,437 $ 18,900 $ 3,739,337
================ ================= ===============
See accompanying notes to unaudited pro forma consolidated financial statements.
5
CIRCUIT CITY STORES, INC.
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
The unaudited pro forma consolidated financial statements of Circuit City
Stores, Inc. included on pages 3 through 5 give effect to the disposition of its
bankcard business, which includes credit card receivables and related cash
reserves. The disposition will be accounted for as a discontinued operation
beginning with the third fiscal quarter ending November 30, 2003. The unaudited
pro forma consolidated balance sheet assumes the disposition of the bankcard
business on August 31, 2003. Pro forma information is based upon the historical
consolidated balance sheet data of Circuit City as of that date.
The unaudited pro forma consolidated statements of operations give effect to the
disposition of the bankcard business for the six month period ended August 31,
2003, and for the fiscal year ended February 28, 2003, as if the disposition
occurred on March 1, 2002.
The unaudited pro forma consolidated financial statements should be read in
conjunction with the historical consolidated financial statements and related
notes incorporated by reference in the Circuit City Stores, Inc. Annual Report
on Form 10-K for the fiscal year ended February 28, 2003, and included in
Circuit City Stores, Inc. Quarterly Reports on Form 10-Q for the periods ended
May 31, 2003, and August 31, 2003.
The pro forma adjustments are based on available information and assumptions
that management believes are reasonable and are described in the following
notes. The unaudited pro forma consolidated financial statements do not
necessarily represent Circuit City's results of operations and financial
position had the transaction occurred at such dates nor are they necessarily
indicative of results of operations and financial position that may occur in the
future.
(A) The results of the bankcard business have been removed from the
unaudited pro forma consolidated statements of operations. The pro
forma adjustment to finance income reflects the elimination of
securitization income, payroll and related fringe benefit expenses and
other direct expenses of the bankcard business. The pro forma
adjustment to selling, general and administrative expenses reflects the
elimination of income attributed to North National Insurance Ltd., a
separate insurance subsidiary of Circuit City, for insurance and debt
cancellation products sold on behalf of the bankcard business. The pro
forma adjustment to income taxes was made at an effective tax rate of
36%.
An after-tax loss of approximately $82 million, which is not reflected
in the unaudited pro forma consolidated statements of operations, is
expected on the sale of the bankcard business. The $82 million
after-tax loss consists of approximately $75 million of adjustments to
the carrying value of Circuit City's retained interest in the bankcard
portfolio and approximately $7 million of other costs, including
severance and lease termination.
6
An after-tax loss of $95 million was recognized during the second
fiscal quarter ended August 31, 2003, to reflect the then-estimated net
proceeds from the sale. To reflect the actual proceeds from the sale, a
reduction of approximately $20 million in the after-tax loss will be
recorded in the third fiscal quarter ending November 30, 2003.
Severance costs will be incurred ratably through the final conversion
date and lease termination costs are expected to be incurred in the
first fiscal quarter of next year.
(B) The unaudited pro forma consolidated balance sheet reflects net cash
proceeds of approximately $324 million from the sale of the bankcard
business, which includes credit card receivables and related cash
reserves, as of August 31, 2003. The unaudited pro forma consolidated
balance sheet includes adjustments to reflect an estimated after-tax
loss of approximately $85 million as of August 31, 2003.
The cash proceeds and after-tax loss as of the closing date will differ
from the pro forma amounts presented as of August 31, 2003, because the
proceeds are determined based on the credit card receivable and cash
reserve balances as of the closing date. Based upon credit card
receivable and cash reserve balances as of November 18, 2003, the
estimated after-tax loss on the sale is expected to be approximately
$82 million and the estimated after-tax cash proceeds will be
approximately $279 million.
(C) The pro forma adjustments to accounts receivable and retained interests
in securitized receivables reflect the elimination of the assets sold.
(D) The pro forma adjustment to property and equipment reflects the
impairment of property and equipment as a result of the sale.
(E) The pro forma adjustment to accrued expenses and other current
liabilities reflects the estimated liability for lease termination and
severance costs resulting from the sale and assumes these costs were
incurred on August 31, 2003.
7
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended,
the registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
CIRCUIT CITY STORES, INC.
By: /s/Philip J. Dunn
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Philip J. Dunn
Senior Vice President, Treasurer,
Corporate Controller and
Chief Accounting Officer
Date: December 2, 2003
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EXHIBIT INDEX
Exhibit No. Description of Exhibit
2.1 Purchase and Sale Agreement by and among Circuit City Stores,
Inc., First North American National Bank, DC Funding
International, Inc. and Fleet Bank (RI), National Association,
dated as of October 21, 2003
99.1 Press Release dated November 19, 2003
9