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): May 25,2004
-----------
CIRCUIT CITY STORES, INC.
-------------------------
(Exact name of registrant as specified in its charter)
Virginia
(State or other jurisdiction of
incorporation or organization)
001-05767 54-0493875
--------- ----------
(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)
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS.
On May 26, 2004, Circuit City announced that it had completed the sale
of its private-label finance operation, which included both its
private-label Circuit City credit card accounts and its co-branded
Circuit City Plus Visa credit card accounts, to Bank One Corporation.
Circuit City anticipates that the net cash proceeds from the sale,
which was completed on May 25, 2004, will total approximately $400
million and that the after-tax loss on the sale will total
approximately $9 million, primarily driven by transition- and
transaction-related expenses. Approximately $4 million of the loss was
incurred in the fiscal year ended February 29, 2004. The company
expects the remainder of the loss to be incurred in the company's first
fiscal quarter ending May 31, 2004. On the date of the sale, the
private-label operation included receivables and the related cash
reserves of approximately $1.8 million and approximately 1.5 million
active accounts.
The two companies entered into a relationship in which Bank One
purchased the portfolio, will offer new private-label and co-branded
credit cards, and will provide credit card services to existing
cardholders. Bank One will compensate Circuit City for each new account
opened and provide special financing terms to Circuit City customers.
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 private-label finance operation required by
Item 7 of Form 8-K is included on pages 3 through 6 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, Tyler International Funding,
Inc. and Bank One, Delaware, National Association dated as of
January 16, 2004
10.1 The Consumer Credit Card Program Agreement dated as of January 16,
2004, between Circuit City Stores, Inc. and Bank One, Delaware,
N.A., (File No. 1-5767), is expressly incorporated herein by this
reference
99.1 Press Release dated May 26, 2004
2
CIRCUIT CITY STORES, INC.
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
YEAR ENDED FEBRUARY 29, 2004
(Amounts in thousands except per share data)
Circuit City Circuit City
Stores Pro Forma Stores
Historical Adjustments Pro Forma
NET SALES AND OPERATING REVENUES $ 9,745,445 $ 32,390 (A) $ 9,777,835
Cost of sales, buying and warehousing 7,518,120 - 7,518,120
------------- -------------- ------------
GROSS PROFIT 2,227,325 32,390 2,259,715
Finance income 32,693 (32,693)(A) -
Selling, general and administrative expenses 2,220,796 (443)(A) 2,220,353
Stock-based compensation expense 38,658 - 38,658
Interest expense 1,804 - 1,804
------------- -------------- ------------
Loss from continuing operations before income taxes (1,240) 140 (1,100)
Income tax (benefit) provision (453) 52 (A) (401)
------------- -------------- ------------
NET LOSS FROM CONTINUING OPERATIONS $ (787) $ 88 $ (699)
============= ============== ============
Weighted average common shares:
Basic 205,865 205,865
============= ============
Diluted 205,685 205,865
============= ============
NET EARNINGS PER SHARE FROM
CONTINUING OPERATIONS:
Basic $ - $ -
============= ============
Diluted $ - $ -
============= ============
See accompanying notes to unaudited pro forma consolidated financial statements.
3
CIRCUIT CITY STORES, INC.
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
AS OF FEBRUARY 29, 2004
(Amounts in thousands)
Circuit City Circuit City
Stores Pro Forma Stores
Historical Adjustments Pro Forma
ASSETS
Current Assets:
Cash and cash equivalents $ 783,471 $ 419,668 (B) $ 1,203,139
Accounts receivable, net of allowance for
doubtful accounts 154,039 (70,420) (C) 83,619
Retained interests in securitized receivables 425,678 (425,678) (C) -
Merchandise inventory 1,517,256 - 1,517,256
Prepaid expenses and other current assets 38,617 - 38,617
--------------- ------------- ---------------
Total Current Assets 2,919,061 (76,430) 2,842,631
Property and equipment, net 585,903 (3,913) (D) 581,990
Deferred income taxes 98,934 1,600 (F) 100,534
Other assets 29,102 - 29,102
--------------- ------------- ---------------
TOTAL ASSETS $ 3,633,000 $ (78,743) $ 3,554,257
=============== ============= ===============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 879,635 $ - $ 879,635
Accrued expenses and other current liabilities 131,512 2,592 (E) 134,104
Accrued income taxes 71,163 - 71,163
Deferred income taxes 90,210 (75,914) (F) 14,296
Current installments of long-term debt 1,115 - 1,115
Liabilities of discontinued operations 3,068 - 3,068
--------------- ------------- ---------------
Total Current Liabilities 1,176,703 (73,322) 1,103,381
Long-term debt, excluding current installments 22,691 - 22,691
Accrued straight-line rent 98,470 - 98,470
Other liabilities 111,175 - 111,175
--------------- ------------- ---------------
TOTAL LIABILITIES 1,409,039 (73,322) 1,335,717
--------------- ------------- ---------------
Stockholders' Equity:
Common stock 101,950 - 101,950
Capital in excess of par value 922,600 - 922,600
Retained earnings 1,199,411 (5,421) (B) 1,193,990
--------------- ------------- ---------------
TOTAL STOCKHOLDERS' EQUITY 2,223,961 (5,421) 2,218,540
--------------- ------------- ---------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 3,633,000 $ (78,743) $ 3,554,257
=============== ============= ===============
See accompanying notes to unaudited pro forma consolidated financial statements.
4
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 4 give effect to the disposition of its
private-label finance operation. The unaudited pro forma consolidated balance
sheet assumes the disposition of the private-label finance operation on February
29, 2004. 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 for the fiscal
year ended February 29, 2004, give effect to the disposition of the
private-label finance operation as if the disposition occurred on March 1, 2003.
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 29, 2004.
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 private-label finance operation have been removed
from the unaudited pro forma consolidated statements of operations. The
pro forma adjustment to net sales and operating revenues reflects
revenues that would have been earned in fiscal 2004 pursuant to the
Consumer Credit Card Program Agreement with Bank One. Per the
agreement, Bank One will pay Circuit City per each new account opened.
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 private-label finance operation. The pro
forma adjustment to selling, general and administrative expenses
reflects rental income from Bank One for office space. The pro forma
adjustment to income taxes was made at an effective tax rate of 36.5
percent.
Circuit City anticipates the after-tax loss on the sale will total
approximately $9 million, primarily driven by transition- and
transaction-related expenses.
5
Approximately $4 million of the loss was incurred in the fiscal year
ended February 29, 2004. The company expects the remainder of the loss
to be incurred in the company's first fiscal quarter ending May 31,
2004.
(B) The unaudited pro forma consolidated balance sheet reflects after-tax
net cash proceeds of approximately $420 million from the sale of the
private-label finance operation as of February 29, 2004. The unaudited
pro forma consolidated balance sheet includes adjustments to reflect
the estimated after-tax loss of approximately $5 million expected to be
incurred in the company's first fiscal quarter ending May 31, 2004.
The cash proceeds as of the closing date will differ from the pro forma
amounts presented as of February 29, 2004, because the proceeds are
determined based on the credit card receivable balances as of the
closing date. Based on the credit card receivable balances at May 25,
2004, the estimated after-tax cash proceeds from the sale total
approximately $400 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
elimination of assets sold.
(E) The pro forma adjustment to accrued expenses and other current
liabilities reflects the estimated liability for transition- and
transaction-related expenses resulting from the sale. Transition- and
transaction-related costs of approximately $6 million were accrued in
the historical financial statements at February 29, 2004.
(F) The pro forma adjustments to deferred income taxes reflect the reversal
of deferred taxes related to the private-label finance operation.
6
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
-----------------------------------------------
Philip J. Dunn
Senior Vice President, Treasurer,
Corporate Controller and
Chief Accounting Officer
Date: June 4, 2004
7
INDEX TO EXHIBIT
Exhibit No. Description of Exhibit
2.1 Purchase and Sale Agreement by and among Circuit City Stores,
Inc., First North American National Bank, Tyler International
Funding, Inc. and Bank One, Delaware, National Association
dated as of January 16, 2004
10.1 The Consumer Credit Card Program Agreement dated as of January
16, 2004, between Circuit City Stores, Inc. and Bank One,
Delaware, N.A., (File No. 1-5767), is expressly incorporated
herein by this reference
99.1 Press Release dated May 26, 2004
8