Edgar Filing: CIRCUIT CITY STORES INC

As filed with the Securities and Exchange Commission on July 23, 2001.

Registration No. 333-62962
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

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AMENDMENT NO. 2

TO
FORM S-3
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933

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CIRCUIT CITY STORES, INC.
(Exact name of registrant as specified in charter)
Commonwealth of Virginia 54-0493875
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
9950 Mayland Drive
Richmond, Virginia 23233
(804) 527-4000
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
W. Alan McCollough
President and Chief Executive Officer
Circuit City Stores, Inc.
9950 Mayland Drive
Richmond, Virginia 23233
(804) 527-4000
(Name, address, including zip code, and telephone number, including area code,
of agent for service of process)

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Copies to:
Robert L. Burrus, Jr., Esq. Raymond W. Wagner, Esq.
McGuireWoods LLP Simpson Thacher & Bartlett
One James Center 425 Lexington Avenue
901 East Cary Street New York, New York 10017
Richmond, Virginia 23219 (212) 455-2000
(804) 775-1000 (212) 455-2502 (facsimile)
(804) 698-2023 (facsimile)

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Approximate date of commencement of proposed sale to the public: As soon as
practicable after the effective date of this registration statement.

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The registrant hereby amends this registration statement on such date or
dates as may be necessary to delay its effective date until the registrant
shall file a further amendment which specifically states that this
registration statement shall thereafter become effective in accordance with
Section 8(a) of the Securities Act or until the registration statement shall
become effective on such date as the Securities and Exchange Commission,
acting pursuant to said Section 8(a), may determine.

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++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+The information in this prospectus is not complete and may be changed. We may +
+not sell these securities until the registration statement filed with the +
+Securities and Exchange Commission is effective. This prospectus is not an +
+offer to sell these securities and we are not soliciting offers to buy these +
+securities in any state where the offer or sale is not permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
PROSPECTUS (Subject to Completion)

Issued July 23, 2001

7,500,000 Shares
Circuit City Stores, Inc.
CARMAX GROUP COMMON STOCK

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Circuit City Stores, Inc. is offering 7,500,000 shares of its CarMax group
stock intended to reflect the separate performance of its CarMax business. The
shares being sold in the offering are shares of CarMax group stock that we have
reserved for the Circuit City group. We intend to use all of the proceeds of
the offering to fund operations of the Circuit City group.

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CarMax group stock is listed on the New York Stock Exchange under the symbol
"KMX." On July 20, 2001, the last reported sale price of the CarMax group stock
was $18.52 per share.

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Investing in CarMax group stock involves risks. See "Risk Factors" beginning on
page 10.

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PRICE $ A SHARE

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Underwriting
Price to Discounts and Proceeds to
Public Commissions Circuit City Stores
-------- ------------- -------------------

Per Share............................ $ $ $
Total................................ $ $ $

Circuit City Stores, Inc. has granted the underwriters the right to purchase up
to an additional 1,125,000 shares of CarMax group stock to cover over-
allotments.

The Securities and Exchange Commission and state securities regulators have not
approved or disapproved these securities, or determined if this prospectus is
truthful or complete. Any representation to the contrary is a criminal offense.

Morgan Stanley & Co. Incorporated expects to deliver the shares of CarMax group
stock to purchasers on , 2001.

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MORGAN STANLEY

BANC OF AMERICA SECURITIES LLC

UBS WARBURG

, 2001

[PHOTO OF CARMAX SUPERSTORE - INSIDE]

[PHOTO OF CARMAX SUPERSTORE - OUTSIDE]

TABLE OF CONTENTS

Page
----

Prospectus Summary.................. 1
Risk Factors........................ 10
Special Note Regarding Forward-
Looking Statements................. 21
Use of Proceeds..................... 22
Price Range of CarMax Group Stock... 22
Dividend Policy..................... 22
Selected Financial Data of the
CarMax Group....................... 23
Selected Consolidated Financial Data
of Circuit City Stores, Inc........ 24
Management's Discussion and Analysis
of Financial Condition and Results
of Operations of Circuit City
Stores, Inc........................ 26

Page
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Business of the CarMax Group........ 43
Management of CarMax................ 56
Management of Circuit City Stores,
Inc................................ 57
Business of the Circuit City Group.. 58
Description of Capital Stock........ 62
Inter-Group Policies................ 84
United States Federal Income Tax
Consequences....................... 86
Underwriters........................ 89
Legal Matters....................... 90
Experts............................. 91
Where You Can Find More
Information........................ 91

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Circuit City Stores, Inc. is a Virginia corporation with principal
executive offices located at 9950 Mayland Drive, Richmond, Virginia 23233,
(804) 527-4000. Our Web site address is http://www.CircuitCity.com. The
information on our Web site is not part of this prospectus.

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In this prospectus, "Circuit City Stores," "we," "us" and "our" refer to
Circuit City Stores, Inc. and our wholly owned subsidiaries, unless the
context requires otherwise. The term "CarMax group stock" refers to our common
stock, par value $.50 per share, which is intended to reflect the performance
of our CarMax business. The term "Circuit City group stock" refers to our
common stock, par value $.50 per share, which is intended to reflect the
performance of our businesses other than our CarMax business, and includes the
Circuit City consumer electronics business and the shares of CarMax group
stock we have reserved for the Circuit City group or for issuance to holders
of Circuit City group stock.

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You should rely on the information contained in this prospectus. We have
not authorized anyone to provide you with information different from that
contained in this prospectus. We are offering to sell, and seeking offers to
buy, shares of common stock only in jurisdictions where offers and sales are
permitted. The information contained in this prospectus is accurate only as of
the date of this prospectus, regardless of the time of delivery of this
prospectus or any sales of common stock.
i

PROSPECTUS SUMMARY

You should read the following summary together with the more detailed
information included or incorporated by reference in this prospectus. Unless we
indicate otherwise, all information in this prospectus assumes that the
underwriters do not exercise their over-allotment option.

CIRCUIT CITY STORES, INC.

We are a leading national retailer of brand-name consumer electronics,
personal computers and entertainment software as well as the pioneer of the
used-car superstore concept. At May 31, 2001, our Circuit City business
included 594 Superstores in 161 markets and 32 Circuit City Express mall
stores. Our CarMax business at May 31, 2001, operated 40 retail units from 37
locations, including 33 used-car superstores and satellite stores, and 21 new-
car franchises. Our finance operations provide consumer revolving credit and
automobile installment loans. For fiscal year 2001, we generated net sales and
operating revenues of $13.0 billion and net earnings of $160.8 million.

In early 1997, with the approval of our shareholders, we changed our capital
structure and created two common stock series. Our common stock existing at
that time was renamed Circuit City group stock. We conducted an offering in
which approximately 22 million shares of the other series, called CarMax group
stock, were offered to the public. At June 30, 2001, shares of CarMax group
stock reserved for the Circuit City group or for issuance to holders of Circuit
City group stock represented approximately 74% of the total outstanding or
reserved shares of CarMax group stock, excluding shares reserved under our
stock incentive plans for our employees and directors.

Characteristics of Tracking Stock

Our CarMax group stock is intended to reflect the performance of the CarMax
group and our Circuit City group stock is intended to reflect the performance
of the Circuit City group. However, they are series of our common stock, not of
the group they are intended to track. Accordingly, holders of CarMax group
stock and Circuit City group stock are subject to all of the risks of an equity
investment in us and all of our businesses, assets and liabilities. Neither
shares of CarMax group stock nor shares of Circuit City group stock represent a
direct equity or legal interest solely in the assets and liabilities allocated
to a particular group. Instead those shares represent direct equity and legal
interests in the assets and liabilities of Circuit City Stores.

Holders of CarMax group stock and Circuit City group stock generally vote as
a single class on all matters submitted to a vote of our shareholders,
including the election of directors. The vote per share of the CarMax group
stock is different from the vote per share of the Circuit City group stock. The
Circuit City group stock has one vote per share. The vote of the CarMax group
stock is based on the market price of a share of CarMax group stock relative to
the market price of a share of Circuit City group stock measured over a 20-day
period occurring before the record date for a shareholder meeting.

The market price of the CarMax group stock may not accurately reflect the
reported financial results and prospects of the CarMax group or the dividend
policies established by our board of directors with respect to the CarMax group
stock. The market price of the Circuit City group stock may not accurately
reflect the reported financial results and prospects of the Circuit City group
or the dividend policies established by our board of directors with respect to
the Circuit City group stock. Events affecting our company generally or the
results of one group could adversely affect the results of operations of the
other group or the market price of the common stock tracking the other group.
In addition, holders of CarMax group stock and Circuit City group stock may
have conflicting interests, which could be resolved by our board to the
detriment of one group or the other.

The CarMax Group

In 1993, we pioneered the used-car superstore concept when we opened the
first CarMax location in Richmond, Virginia. We purchase, recondition and sell
used vehicles. We also sell new vehicles under franchise agreements with
DaimlerChrysler, Mitsubishi, Nissan, Toyota, BMW, Ford and General Motors.
CarMax provides customers the opportunity to purchase vehicles the same way
they buy other retail products, with friendly service and non-negotiated low
prices. For fiscal year 2001, the CarMax group generated net sales and
operating revenues of $2.5 billion and net earnings of $45.6 million. Sales of
used cars, which is the major part of the CarMax business, represented
approximately 81% of the CarMax group's total vehicle sales in dollars in
fiscal 2001.

As of May 31, 2001, we operated 40 CarMax retail units from 37 locations,
including 33 used-car superstores and satellite stores, two co-located new-car
stores and five stand-alone new-car franchises. In total, we operated 21 new-
car franchises.

Our CarMax used-car locations feature a broad selection of top-quality
domestic and imported used cars and trucks, with a wide range of prices
appealing to a large range of potential customers. Our used-car selection
covers popular brands from manufacturers such as DaimlerChrysler, Ford, General
Motors, Honda, Mitsubishi, Nissan and Toyota and specialty brands such as BMW
and Lexus. All used vehicles undergo a comprehensive, certified quality
inspection by CarMax service technicians and are reconditioned to ensure that
they meet CarMax quality standards. We back our commitment to quality with a
five-day or 250-mile money-back guarantee and a 30-day limited warranty.

Every CarMax customer receives the same competitive price without having to
negotiate. We have extended our CarMax "no-haggle" philosophy to every stage of
the vehicle transaction, including financing rates, accessories, extended
warranty pricing and our low vehicle documentation fees. We have replaced the
traditional trade-in transaction with a process in which trained CarMax buyers
appraise any vehicle and provide the vehicle's owner with a written guaranteed
cash offer that is good for seven days or 300 miles. The appraisal process is
available to everyone, whether or not the individual is purchasing a vehicle
from CarMax.

Our proprietary store technology provides our management with real-time
intelligence about every aspect of store operation, such as inventory
management, pricing, vehicle transfers, wholesale auctions and sales consultant
productivity. Through inventory management systems and controls, we minimize
inventory carrying costs. The CarMax information system enables us to track
each vehicle throughout the sales process. Using the information provided by
the CarMax information system and applying sophisticated statistical modeling
techniques, we are able to optimize inventory mix and display by store,
anticipate future inventory needs at each store, evaluate sales consultant
performance and refine our vehicle pricing strategy. We dispose of any vehicle
that has not been sold at retail in accordance with our strict inventory aging
policies.

We offer CarMax customers an opportunity to obtain prime financing for
vehicle purchases through our own finance operation or through Bank of America.
In addition, Chrysler Financial, BMW Financial, Ford Motor Credit, General
Motors Acceptance, Mitsubishi Motors Credit, Nissan Motors Acceptance and
Toyota Motors Financial Services offer prime financing to customers purchasing
new vehicles at applicable CarMax locations. Non-prime financing is offered by
TransSouth Financial at all CarMax locations and by Wells Fargo Financial
Acceptance and AmeriCredit Financial Services on a regional basis, with no
financial recourse to us.

We plan to continue growing the CarMax group's revenues and enhancing profit
margins by:

. entering new mid-sized markets;

. expanding our presence in existing multi-store markets using our hub-
and-satellite fill-in store strategy;

. continuing to develop and take advantage of our sophisticated
information systems and controls; and

. leveraging overhead across our store base.

Through fiscal 1999, we utilized three CarMax superstore formats that varied
in display capacity depending on several factors, including local market size
and consumer demand:

. "A" stores designed to serve primarily small and medium-sized markets
and trade areas in large metropolitan markets, with approximately 45,000
to 50,000 square feet of building space and a display capacity of up to
600 vehicles, and

. "B" and "C" stores designed for large markets and trade areas, with
approximately 74,000 to 97,000 square feet of building space and a
display capacity of 800 to 1,000 vehicles.

Despite the success of our "B" and "C" superstores in some markets, we found
that in general they were too large to be economically efficient. Consequently,
in fiscal 1999, we downsized the two remaining "B" and "C" stores we were
developing to "A" stores. In addition, we have focused our near-term expansion
on adding "A" stores in new, mid-sized markets that can be served effectively
with one CarMax superstore. These "A" store prototypes are located on 10 to 14
acres and have approximately 24 service and reconditioning bays.

In addition, in late fiscal 1999, we began testing a hub-and-satellite
operating strategy in our existing multi-store markets. Under our hub-and-
satellite operating model, a satellite store uses the reconditioning,
purchasing and business office operations of a nearby full-sized hub
superstore. The consumer offer is identical in both the hub and satellite
stores. Our prototypical satellite store operates from an approximately 14,000-
square-foot facility, is located on five to six acres and has four to seven
service bays for regular maintenance and warranty service. We opened two
prototypical satellite stores late in fiscal 1999 and two more in fiscal 2000.
We have also converted six of our existing locations to serve as satellite
stores in order to leverage overhead at nearby hub stores.

The Circuit City Group

Our Circuit City business is a leading national retailer of brand-name
consumer electronics, personal computers and entertainment software. We sell
video equipment; audio equipment; mobile electronics, including car stereo
systems and security systems; home office products; and other consumer
electronic products, including cellular phones, entertainment software and
accessories. Until fiscal 2001, we also sold major appliances. However, during
that year we exited that category and remerchandised the appliance selling
space with expanded selections of consumer electronics, home office products
and entertainment software.

As of May 31, 2001, we operated 626 Circuit City retail locations throughout
the United States. We have established our presence in virtually all of the
nation's top 100 markets and expect to continue adding to the existing Circuit
City store base as attractive market opportunities arise. During fiscal 2001,
in connection with our exit from the appliance category, we partially remodeled
more than 500 of our Circuit City Superstore locations. We also fully remodeled
26 Superstores to incorporate the store design that we were using for our new
stores. Although consumer reaction to the full remodels was favorable, they
were more costly and disruptive than we had anticipated. Therefore, we reduced
our remodeling plan for fiscal 2002 and are testing modified remodel designs.
The modified designs are intended to achieve comparable enhancements to the
shopping experience while reducing associated cost and disruption to sales.

Each Circuit City store location follows detailed operating procedures and
merchandising programs. Included are procedures for inventory maintenance,
customer relations, store administration, merchandise display, store security
and the demonstration and sale of products. Merchandise lines vary from
location to location based on store size and market characteristics. Most
merchandise is supplied directly to the stores from one of our eight automated
distribution centers, which are strategically located around the country.

The consumer electronics industry is highly competitive. Our competitors
include large specialty, discount or warehouse retailers as well as local,
regional and non-bricks-and-mortar retailers. We use service, selection and
pricing to differentiate Circuit City from the competition. As part of our
competitive strategy, Circuit City Superstores offer a broad selection of
merchandise that includes 3,100 to 4,300 brand-name items, excluding
entertainment software, depending on the selling square footage of the
Superstore. Professionally trained sales counselors, convenient credit options,
factory-authorized product repair, home delivery, installation centers for
automotive electronics, exchange and no-lemon policies and extended warranties
reflect a strong commitment to customer service. We strive to maintain highly
competitive prices and offer customers a low-price guarantee.

Because consumer electronics and personal computers represent relatively
large purchases for the average consumer, our Circuit City business is affected
by consumer credit availability, which varies with the state of the economy and
the location of a particular store. In fiscal 1991, we established a credit
card finance operation to issue a Circuit City private-label credit card. Our
Circuit City finance operation's credit extension, customer service and
collection operations are fully automated with state-of-the-art technology to
maintain a high level of profitability and customer service.

In fiscal 2002, we are focusing on improved sales counselor training and
other new programs involving store operations that we believe will enhance
customer service and store productivity. In addition, we introduced in July
2001 a new marketing campaign to help increase foot traffic at all Circuit City
Superstores. This campaign, which features a new logo, focuses on the
differentiated customer service that consumers can find at a Circuit City
store. We believe that the campaign, combined with strong customer service
delivery by our employees, our product offerings and a more contemporary store
shopping experience will help the Circuit City business gain market share.

As of June 30, 2001, 75,440,000 shares of CarMax group stock were reserved
for the Circuit City group or for issuance to holders of Circuit City group
stock. As of that date, shares of CarMax group stock reserved for the Circuit
City group represented approximately 74% of the total outstanding or reserved
shares of CarMax group stock, excluding shares reserved under our stock
incentive plans for employees and directors. We allocate to the Circuit City
group the portion of the net earnings (loss) of the CarMax group attributed to
the shares of CarMax group stock reserved for the Circuit City group or for
issuance to holders of Circuit City group stock. In fiscal 2001, the Circuit
City group generated net sales and operating revenue of $10.5 billion and had
earnings from continuing operations of $149.2 million.

THE OFFERING

CarMax group stock offered........................ 7,500,000 shares

CarMax group stock outstanding as of June 30,
2001............................................. 26,643,573 shares
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Total CarMax group stock outstanding as
of June 30, 2001 (as adjusted to give
effect to this offering)......................... 34,143,573 shares

CarMax group stock reserved for the Circuit City
group or for issuance to holders of Circuit City
group stock as of June 30, 2001 (as adjusted to
give effect to this offering).................... 67,940,000 shares
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Total CarMax group stock outstanding or reserved
as of June 30, 2001.............................. 102,083,573 shares
==================
Over-allotment option............................. 1,125,000 shares

Use of proceeds................................... We will receive net proceeds from this
offering of approximately $ . We intend
to use all of the net proceeds of the
offering, including any net proceeds
resulting from the exercise by the
underwriters of their over-allotment
option, for general purposes of the Circuit
City group, including the ongoing
remodeling of our Circuit City Superstores.

NYSE symbol....................................... KMX

The shares of CarMax group stock outstanding or reserved as of June 30, 2001
exclude shares of CarMax group stock reserved under our stock incentive plans
for employees and directors (including the 4,637,000 shares subject to issuance
pursuant to stock options issued under our stock incentive plans).

The shares of CarMax group stock to be issued in connection with this
offering (including shares subject to the underwriters' over-allotment option)
will come from shares of CarMax group stock reserved for the Circuit City group
or for issuance to holders of Circuit City group stock. The issuance of these
shares will reduce the number of shares of CarMax group stock we have reserved
for the Circuit City group or for issuance to holders of Circuit City group
stock.

CARMAX GROUP STOCK

The following table summarizes the terms of the CarMax group stock. This
summary should be read together with the more detailed information set forth
under "Description of Capital Stock--CarMax Group Stock."

Dividends: We do not intend to pay dividends on
the CarMax group stock for the
foreseeable future.

Voting Rights: Variable, based on the average market
value of the CarMax group stock
relative to the average market value of
the Circuit City group stock.

Conversion at the Option of Convertible into the number of shares
Our Board of Directors: of Circuit City group stock equaling
115% of the relative average market
values of the two series of common
stock.

Redemption in Exchange for Redeemable for common stock of our
the Stock of a Subsidiary subsidiaries holding all of the assets
at the Option of Our Board and liabilities of the CarMax group.
of Directors:

Rights on Sale of 80% or Holders will receive a special
More of the Assets dividend, their shares will be wholly
Attributed to the CarMax or partially redeemed, or their shares
Group: will be converted into the number of
shares of Circuit City group stock
equaling 110% of the relative average
market values of the two series of
common stock.

Liquidation: Holders of CarMax group stock and
Circuit City group stock will share the
assets of Circuit City Stores remaining
for distribution to holders of common
stock in proportion to each series'
respective liquidation units per share.
Each share of CarMax group stock and
each share of Circuit City group stock
has one liquidation unit.

SUMMARY FINANCIAL DATA OF THE CARMAX GROUP

The following summary financial data for each of the fiscal years 1997
through 2001 are derived from financial statements of the CarMax group for
those years, which have been audited by KPMG LLP, independent auditors. The
summary financial data as of May 31, 2001 and 2000 and for the three months
ended May 31, 2001 and 2000 have been derived from the CarMax group's unaudited
financial statements and, in our opinion, reflect all adjustments (consisting
only of normal, recurring adjustments) necessary for a fair presentation of the
data for those periods. The CarMax group's results of operations for the three
months ended May 31, 2001 may not be indicative of results that may be expected
for the full year. You should read the table below in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations of Circuit City Stores, Inc." included in this prospectus and the
CarMax group financial statements and related notes and the Circuit City
Stores, Inc. consolidated financial statements and related notes incorporated
by reference in this prospectus.

Three Months
Ended May 31, Year Ended February 28 or 29,
------------------ -------------------------------------------------------
2001 2000 2001 2000 1999 1998 1997
-------- -------- ---------- ---------- ---------- -------- --------
(In thousands, except sales change and number of stores data)

RESULTS OF OPERATIONS
Net sales and operating
revenues............... $796,820 $625,741 $2,500,991 $2,014,984 $1,466,298 $874,206 $510,249
Cost of sales........... 692,860 540,279 2,171,232 1,774,619 1,294,032 800,699 466,788
-------- -------- ---------- ---------- ---------- -------- --------
Gross profit.......... 103,960 85,462 329,759 240,365 172,266 73,507 43,461
-------- -------- ---------- ---------- ---------- -------- --------
Selling, general and
administrative
expenses............... 58,550 59,444 244,167 228,200 204,422 127,822 53,111
Interest expense........ 2,551 3,528 12,110 10,362 6,393 1,789 6,279
-------- -------- ---------- ---------- ---------- -------- --------
Total expenses.......... 61,101 62,972 256,277 238,562 210,815 129,611 59,390
-------- -------- ---------- ---------- ---------- -------- --------
Earnings (loss) before
income taxes......... 42,859 22,490 73,482 1,803 (38,549) (56,104) (15,929)
Income tax provision
(benefit).............. 16,287 8,546 27,918 685 (15,035) (21,881) (6,611)
-------- -------- ---------- ---------- ---------- -------- --------
Net earnings (loss)... $ 26,572 $ 13,944 $ 45,564 $ 1,118 $ (23,514) $(34,223) $ (9,318)
======== ======== ========== ========== ========== ======== ========

OTHER DATA
Percentage sales change
from prior comparable
period:
Total................. 27% 29% 24% 37% 68 % 71% 85%
Comparable stores..... 27% 14% 17% 2% (2)% 6% 23%
Number of stores at
fiscal period-end...... 40 40 40 40 31 18 7

As of May 31, As of February 28 or 29,
------------------ -------------------------------------------------------
2001 2000 2001 2000 1999 1998 1997
-------- -------- ---------- ---------- ---------- -------- --------
(In thousands)

BALANCE SHEET DATA
Working capital......... $307,585 $349,334 $ 266,970 $ 229,547 $ 259,200 $177,028 $300,504
Total assets............ 795,402 719,086 710,953 675,495 571,198 448,322 427,187
Total liabilities....... 374,469 359,007 319,450 330,506 230,783 88,376 35,371
Group net worth......... 420,933 360,079 391,503 344,989 340,415 359,946 391,816

SUMMARY CONSOLIDATED FINANCIAL DATA OF CIRCUIT CITY STORES, INC.

The following summary consolidated financial data for each of the fiscal
years 1997 through 2001 are derived from our consolidated financial statements
for those years, which have been audited by KPMG LLP, independent auditors. The
summary financial data as of May 31, 2001 and 2000 and for the three months
ended May 31, 2001 and 2000 have been derived from our unaudited financial
statements and, in our opinion, reflect all adjustments (consisting only of
normal, recurring adjustments) necessary for a fair presentation of the data
for those periods. Our results of operations for the three months ended May 31,
2001 may not be indicative of results that may be expected for the full year.
You should read the table below in conjunction with "Management's Discussion
and Analysis of Financial Condition and Results of Operations of Circuit City
Stores, Inc." included in this prospectus and our consolidated financial
statements and related notes incorporated by reference in this prospectus.

Three Months Ended
May 31, Year Ended February 28 or 29,
--------------------- ------------------------------------------------------------
2001 2000 2001 2000 1999 1998 1997
---------- ---------- ----------- ----------- ----------- ---------- ----------
(In thousands, except per share data)

RESULTS OF OPERATIONS
Net sales and operating
revenues............... $2,678,474 $3,074,851 $12,959,028 $12,614,390 $10,810,468 $8,870,797 $7,663,811
Cost of sales, buying
and warehousing ....... 2,112,121 2,391,589 10,135,380 9,751,833 8,354,230 6,827,133 5,902,711
Appliance exit costs.... -- -- 28,326 -- -- -- --
---------- ---------- ----------- ----------- ----------- ---------- ----------
Gross profit............ 566,353 683,262 2,795,322 2,862,557 2,456,238 2,043,664 1,761,100
---------- ---------- ----------- ----------- ----------- ---------- ----------
Selling, general and
administrative
expenses .............. 535,994 579,206 2,514,912 2,309,593 2,086,838 1,815,275 1,498,681
Appliance exit costs.... -- -- 1,670 -- -- -- --
Interest expense........ 2,992 6,221 19,383 24,206 28,319 26,861 29,782
---------- ---------- ----------- ----------- ----------- ---------- ----------
Total expenses.......... 538,986 585,427 2,535,965 2,333,799 2,115,157 1,842,136 1,528,463
---------- ---------- ----------- ----------- ----------- ---------- ----------
Earnings from
continuing operations
before income taxes... 27,367 97,835 259,357 528,758 341,081 201,528 232,637
Provision for income
taxes.................. 10,400 37,177 98,555 200,928 129,611 76,581 88,403
---------- ---------- ----------- ----------- ----------- ---------- ----------
Earnings from
continuing
operations............ 16,967 60,658 160,802 327,830 211,470 124,947 144,234
---------- ---------- ----------- ----------- ----------- ---------- ----------
Discontinued operations:
Loss from discontinued
operations of Divx,
less income tax
benefit............... -- -- -- (16,215) (68,546) (20,636) (7,820)
Loss on disposal of
Divx, less income tax
benefit............... -- -- -- (114,025) -- -- --
---------- ---------- ----------- ----------- ----------- ---------- ----------
Loss from discontinued
operations............ -- -- -- (130,240) (68,546) (20,636) (7,820)
---------- ---------- ----------- ----------- ----------- ---------- ----------
Net earnings........... $ 16,967 $ 60,658 $ 160,802 $ 197,590 $ 142,924 $ 104,311 $ 136,414
========== ========== =========== =========== =========== ========== ==========
Net earnings (loss)
attributed to:
Circuit City group
stock:
Continuing operations.. $ 10,135 $ 57,123 $ 149,247 $ 327,574 $ 216,927 $ 132,710 $ 144,500
Discontinued
operations............ -- -- -- (130,240) (68,546) (20,636) (7,820)
CarMax group stock..... 6,832 3,535 11,555 256 (5,457) (7,763) (266)
---------- ---------- ----------- ----------- ----------- ---------- ----------
$ 16,967 $ 60,658 $ 160,802 $ 197,590 $ 142,924 $ 104,311 $ 136,414
========== ========== =========== =========== =========== ========== ==========
Net earnings (loss) per
share attributed to:
Circuit City group
stock basic:
Continuing operations.. $ 0.05 0.28 $ 0.73 $ 1.63 $ 1.09 $ 0.68 $ 0.74
Discontinued
operations............ -- -- -- (0.65) (0.34) (0.11) (0.04)
---------- ---------- ----------- ----------- ----------- ---------- ----------
Net earnings........... $ 0.05 $ 0.28 $ 0.73 $ 0.98 $ 0.75 $ 0.57 $ 0.70
========== ========== =========== =========== =========== ========== ==========
Circuit City group
stock diluted:
Continuing operations.. $ 0.05 0.28 $ 0.73 $ 1.60 $ 1.08 $ 0.67 $ 0.73
Discontinued
operations............ -- -- -- (0.64) (0.34) (0.10) (0.04)
---------- ---------- ----------- ----------- ----------- ---------- ----------
Net earnings........... $ 0.05 $ 0.28 $ 0.73 $ 0.96 $ 0.74 $ 0.57 $ 0.69
========== ========== =========== =========== =========== ========== ==========
CarMax group stock
basic................. $ 0.26 $ 0.14 $ 0.45 $ 0.01 $ (0.24) $ (0.35) $ (0.01)
========== ========== =========== =========== =========== ========== ==========
CarMax group stock
diluted............... $ 0.25 $ 0.13 $ 0.43 $ 0.01 $ (0.24) (0.35) (0.01)
========== ========== =========== =========== =========== ========== ==========

As of May 31, As of February 28 or 29,
--------------------- ------------------------------------------------------
2001 2000 2001 2000 1999 1998 1997
---------- ---------- ---------- ---------- ---------- ---------- ----------
(In thousands)

BALANCE SHEET DATA
Working capital......... $1,587,868 $1,644,074 $1,555,580 $1,536,456 $1,430,710 $1,240,523 $1,326,482
Total assets............ 3,814,747 3,834,644 3,871,333 3,955,348 3,445,266 3,231,701 3,081,173
Long-term debt
(including current
installments).......... 248,250 251,320 248,525 426,585 429,292 425,593 431,780
Total liabilities....... 1,435,424 1,592,730 1,514,850 1,813,174 1,540,136 1,501,662 1,466,317
Total stockholders'
equity................. 2,379,323 2,241,914 2,356,483 2,142,174 1,905,130 1,730,039 1,614,856

RISK FACTORS

You should carefully consider the following risks and other information
included or incorporated by reference in this prospectus before investing in
shares of CarMax group stock.

Risk Factors Relating to the Business of the CarMax Group.

Failure to open and operate new CarMax stores successfully could adversely
affect our future results of operations.

Our business strategy calls for the expansion of the CarMax store base to
generate additional revenues without increasing overhead proportionately. We
expect to open approximately two stores in fiscal 2002, four to six stores in
fiscal 2003 and six to eight stores in each of fiscal 2004, 2005 and 2006. We
cannot assure you that we will be able to open and operate new stores
effectively without substantial costs, delays or operational or financial
problems, including as a result of:

. the lack of availability of suitable store sites at reasonable costs;

. the possibility that our standard store prototype may not be effective
in new mid-sized markets;

. the possibility that our satellite store prototype may not be effective
in some of our existing multi-store markets;

. difficulties we may encounter in obtaining necessary additional capital;
and

. difficulties we may encounter in attracting and retaining additional
qualified personnel.

These factors could have a material adverse effect on the expansion of our
store base and, as a result, our future operating results.

We operate in a highly competitive industry and new entrants to the industry
could adversely affect our business.

Automotive retailing in the United States is highly competitive. In the
used-vehicle market, we compete with existing franchised and independent
dealers, rental companies and private parties. We believe that companies could
decide to enter the market because of the potential for high sales volume per
location as well as the fragmentation and the relatively high gross margins
that exist in the industry. In addition, many franchised new-car dealerships
have increased their focus on the used-vehicle market in recent years. Part of
our business strategy is to position the CarMax group as a low-price, low-cost
operator in the industry. However, increased competition, particularly from
new entrants adopting non-traditional selling methods similar to those that we
use, may result in increased wholesale costs for used cars and lower-than-
expected retail sales prices and margins.

The inability to obtain funding through sale-leaseback transactions,
securitization facilities or other sources may adversely affect our CarMax
business and our expansion plans.

We will continue to need substantial capital to fund the opening and
operation of new CarMax stores. Most of our capital expenditures have been
funded through sale-leaseback transactions and allocated short- and long-term
debt. In addition, we sell most of our automobile installment loan receivables
through asset securitization facilities. Our ability to continue undertaking
both sale-leaseback and securitization transactions, and to do so on
economically favorable terms, depends in large part on factors that are beyond
our control. These factors include:

. conditions in the securities and finance markets generally;

. prevailing interest rates; and

. conditions in the markets for securitized instruments and lease
financings.

Any reduction in inventory availability or increase in inventory costs that
are not reflected in retail market prices would adversely affect our business.

We acquire a significant proportion of our used-vehicle inventory through
our appraisal process and through auctions. To a lesser extent, we also
acquire used vehicles from wholesalers, franchised and independent dealers and
fleet owners, such as leasing companies and rental companies. We may not be
able to obtain sufficient inventory to meet our needs, at least not at
comparable costs, if competitive pressures increase as a result of new
entrants to the used-car market or if changes occur in the type or proportion
of used vehicles that are sold through these sources. A reduction in the
availability of inventory from these sources or an increase in inventory costs
that cannot be reflected in retail market prices would adversely affect our
business.

If we cannot dispose of vehicles acquired through the appraisal process at
prices that allow us to recover our costs, our profitability will be adversely
affected.

Because more than half of the cars we purchase through our appraisal
process fail to meet our retail quality standards, we sell these vehicles
through our own onsite wholesale auctions. We cannot assure you that the sales
prices we receive at these auctions will be sufficient to cover the prices we
paid for these vehicles or that the auctions will not be interrupted by
adverse economic conditions or be affected by a reduction in, or the
diminished purchasing ability of, attendees at our auctions.

Aggressive discounting by new-car manufacturers may adversely affect our
results of operations.

Aggressive discounting by manufacturers of new cars may result in lower
retail sales prices and margins for used vehicles. Discounting typically
occurs or intensifies in the Fall during the close-out of prior year models.
Our inventory includes a significant proportion of late-model used vehicles
that are particularly affected by this discounting. As a result, aggressive or
prolonged discounting by manufacturers may adversely affect our results of
operations for the periods in which it occurs.

The loss of key personnel, or the inability to attract and retain additional
personnel, may adversely affect our business and our plans for expansion.

Our success depends to a significant degree upon the continued efforts of
the principal employees who manage the CarMax group. We cannot assure you that
we will be able to retain these key employees. The loss of the services of one
or more of these key employees could adversely affect our business.

In addition, we need to hire experienced general managers and other
qualified personnel as we open new stores. The market for qualified employees
in the retail industry and in the regions in which we operate, particularly
for general managers and sales and service personnel, is highly competitive.
Our inability to attract and retain additional qualified personnel as needed
could adversely affect our expansion plans for the CarMax group and our
results of operations.

The cyclical and local nature of automobile sales may adversely affect our
business.

The automobile industry, particularly the new-vehicle market, is cyclical
and historically has experienced periodic downturns characterized by
oversupply and weak demand. Many factors affect the industry, including
general economic conditions, consumer confidence, the level of personal
discretionary spending, interest rates and credit availability. We cannot
assure you that the industry will not experience sustained periods of decline
in vehicle sales in the future. Any decline could have an adverse effect on
our business.

Economic, competitive and other conditions at regional and local levels
also affect the performance of our stores. Our stores are currently located in
Virginia, North Carolina, Florida, California, Georgia, Illinois, Texas,
Maryland, South Carolina, Tennessee and Wisconsin. Adverse changes, such as
price-cutting by dealers or a general economic downturn, affecting some or all
of these markets or the new markets we enter, could adversely affect our
CarMax business, although the automotive retail industry as a whole might not
be affected.

A decrease in the quality of our finance operation's contract portfolio or the
availability of credit for our customers could lead to a decrease in our
vehicle sales and profitability.

Payments on some of the installment sales contracts originated by our
finance operation become delinquent from time to time and some contracts end
up in default. We cannot assure you that the current credit performance of our
finance operation's customers will be maintained or that general economic
conditions will not worsen and lead to higher rates of delinquency and
default. A general decline in the quality of our contract portfolio could lead
us to reduce the credit available through our finance operation. A reduction
in the availability of credit could adversely affect our sales and
profitability. In particular, if one or more of our non-prime financing
sources become unavailable to provide credit to our customers, we may sell
fewer used vehicles, which would adversely affect our earnings.

Automobile manufacturers exercise significant control over our new-vehicle
operations.

Each of our new-vehicle locations operates pursuant to a franchise
agreement with the applicable manufacturer or authorized distributor. These
franchise agreements, compliance with which is closely monitored by the
manufacturers, impose various requirements on us. Each of our franchise
agreements provides for termination or non-renewal for a variety of causes,
including any unapproved change of ownership or management of our subsidiary
that entered into the agreement and other material breaches of the agreement.
We cannot guarantee that all of our franchise agreements will be renewed or
that the terms of the renewals will be favorable to us.

Adverse conditions affecting one or more automobile manufacturers may
negatively impact our new-vehicle operations.

We currently operate new-car dealerships under franchise agreements with
DaimlerChrysler, Mitsubishi, Nissan, Toyota, BMW, Ford and General Motors.
Events such as labor disputes and other production disruptions or negative
publicity affecting a particular manufacturer or vehicle model could adversely
affect our new-vehicle operations. In addition, the late delivery of vehicles
from a manufacturer, which may occur particularly during periods when new
products are being introduced, can reduce our sales of new vehicles.

Manufacturer awards of additional franchises in our markets could adversely
affect our new-vehicle sales and profitability.

Our franchise agreements do not give us the exclusive right to sell a
manufacturer's products within a given geographic area. Our new-vehicle sales
and profitability could be adversely affected if any of our manufacturers
awards franchises to others in the markets where we operate.

Compliance with environmental and other governmental regulations may result in
significant additional costs.

We are subject to a wide range of federal, state and local laws and
regulations, such as local licensing requirements and consumer protection
laws. These laws regulate, among other things, the manner in which we conduct
our business, including our advertising, sales and consumer lending practices.
Violation of these laws and regulations could result in civil and criminal
penalties being levied against us or could result in a cease and desist order
being issued for operations that are not in compliance. Future laws and
regulations may be more stringent and require us to incur significant
additional costs.

Our CarMax business involves the use and disposal of hazardous or toxic
materials and the operation and removal of aboveground and underground storage
tanks. As a result, we are subject to federal, state and local laws and
regulations governing the handling, storage and disposal of these materials as
well as wastewater discharges, air emissions and the cleanup of contaminated
property or water. We may be required by these laws to pay the full amount of
the costs of investigation and/or cleanup of contaminated properties, even if
we were

not at fault for disposal of the materials or if disposal were legal at the
time. Compliance with new laws and regulations, stricter interpretations of
existing laws and regulations or the discovery of contamination at our
existing or future store locations could require us to incur significant
additional costs.

Risk Factors Relating to the Business of the Circuit City Group.

Failure to successfully implement sales and profitability improvement programs
for our Circuit City Superstores could mean continued unsatisfactory results
in this business.

We are focusing significant attention on programs to improve the sales and
profitability of our Circuit City business, which have recently declined. We
reported losses in the third quarter of fiscal 2001 and the first quarter of
fiscal 2002. During fiscal 2001, we exited the major appliance category, which
we had determined produced below average profits for us and was experiencing a
declining sales pace and substantially increasing competition. We also began
remodeling our Superstores using a design we believe offers better product
placements and a more contemporary shopping experience. In July 2001, we
introduced a new marketing campaign. In addition, we plan to improve sales
counselor training and implement customer service enhancements and process
improvements. We cannot assure you that we will be able to implement these
programs effectively or that they will result in improvement to the extent
that we anticipate. There are various risks associated with them, including
the following:

. the remodeling process for each store is expected to disrupt sales for
up to 60 days, but, if it takes longer to complete, the sales disruption
could be greater than anticipated;

. the remodels are capital intensive, with the most extensive new designs
expected to cost approximately $1.5 million per Superstore, and we may
not be able to achieve our expected return on investment;

. the remodels may not be effective in achieving our goal of providing the
customer with a more desirable shopping experience;

. the marketing campaign may not be effective in increasing the amount of
foot traffic in the stores;

. our training programs may not be successful or our sales counselors may
not accomplish the strong customer service delivery we need; and

. the change in our merchandise mix to eliminate the major appliance
category and increase our offerings of consumer electronics, home office
and entertainment software may not attain the level of consumer
acceptance we have experienced in the past.

These factors could result in continued unsatisfactory results for the
Circuit City store business or delays or additional cost in implementing our
plans to improve sales and profitability.

We operate in a highly competitive industry and continued strong performance
by our competitors could adversely affect our business.

The consumer electronics industry is highly competitive. Our competitors
include large specialty, discount or warehouse retailers as well as local,
regional and non-bricks-and-mortar retailers. Because of the strong
performance by some of our competitors, they may be better able to discount
aggressively and sustain these discounts for longer periods of time. This
price competition could adversely affect our business to a greater degree than
it affects our competitors' business.

Our industry is sensitive to trends in consumer retail spending, both in
general and in our product categories, and negative trends have, and could in
the future, adversely affect our business.

During fiscal 2001, our business was adversely affected by a number of
trends relating to consumer spending, including a general slowdown in consumer
spending during the second half of the year. In addition, the desktop personal
computer business softened industry-wide during the second half of fiscal
2001. Both of these trends continued into the first quarter of fiscal 2002,
adversely affecting our results. Both of these trends also require us to
effectively manage inventory and to protect against the effect of excess
inventory on working capital. We cannot assure you that these trends will end
or that we will be able to manage around them effectively.

Risk Factors Relating to Our Tracking Stock Capital Structure.

The market price of CarMax group stock may not reflect the separate
performance of the CarMax business.

The market price of CarMax group stock may not reflect the separate
performance of our CarMax business. The market price of CarMax group stock
could simply reflect the performance of Circuit City Stores as a whole, or the
market price of CarMax group stock could move independently of the performance
of our CarMax business. Investors may discount the value of CarMax group stock
because it is part of a common enterprise rather than a stand-alone entity.

The market price of CarMax group stock could be affected by factors that do
not affect traditional common stock.

The complex nature of the terms of CarMax group stock may adversely affect
the market price of CarMax group stock.

The complex nature of the terms of CarMax group stock, such as the
convertibility of CarMax group stock into Circuit City group stock or vice
versa, and the potential difficulties investors may have understanding these
terms may adversely affect the market price of CarMax group stock.

The market price of CarMax group stock may be adversely affected by events
involving the Circuit City group or the performance of Circuit City group
stock.

Events, such as earnings announcements or other developments concerning the
Circuit City group that the market does not view favorably and which thus
adversely affect the market price of Circuit City group stock, may adversely
affect the market price of CarMax group stock. Because both series are common
stock of Circuit City Stores, an adverse market reaction to Circuit City group
stock may, by association, cause an adverse reaction to CarMax group stock.
This reaction could occur even if the triggering event was not material to
Circuit City Stores as a whole.

You will be subject to all of the risks of an investment in Circuit City
Stores as a whole, even if you own only CarMax group stock.

The holders of CarMax group stock and the holders of Circuit City group
stock are shareholders of a single company, Circuit City Stores. Financial
effects arising from the Circuit City group that affect Circuit City Stores'
consolidated results of operations or financial condition could, if
significant, affect the results of operations or financial condition of the
CarMax group. The CarMax group and the Circuit City group are not separate
legal entities and as such cannot own assets or enter into legally binding
agreements. The issuance of CarMax group stock and Circuit City group stock
and the attribution of assets, liabilities and shareholders' equity to the
CarMax group or the Circuit City group will not affect ownership of our assets
or responsibility for our liabilities or those of our subsidiaries.

We could be required to use assets attributed to the CarMax group to pay
the liabilities attributed to the Circuit City group.

The assets we attribute to the CarMax group could be subject to the
liabilities attributed to the Circuit City group, even if those liabilities
arise from lawsuits, contracts or indebtedness that we attribute to the
Circuit City

group. No provision of our articles of incorporation prevents us from using
the assets attributed to the CarMax group to satisfy the liabilities
attributed to the Circuit City group.

Financial effects from the Circuit City group could adversely affect the
CarMax group's ability to pay dividends.

Net losses of the Circuit City group and dividends paid on shares of
Circuit City group stock may reduce the dividends we can pay on CarMax group
stock under Virginia law.

Financial effects from the Circuit City group could adversely affect the
CarMax group's borrowing costs.

If Circuit City Stores or any of its subsidiaries were to incur significant
indebtedness on behalf of the Circuit City group, including indebtedness
incurred or assumed in connection with an acquisition or investment, it could
affect the credit rating of Circuit City Stores and its subsidiaries. This, in
turn, would increase both the borrowing costs of Circuit City Stores as a
whole and the portion of these costs allocated to the CarMax group.

Our board of directors may change our inter-group policies to the detriment of
the CarMax group without shareholder approval.

Our board of directors may at any time change, or make exceptions to, our
inter-group policies. As a result, our policies regarding the allocation of
financing arrangements, shared corporate services, taxes, debt, interest and
other similar matters may be changed or supplemented by our board of directors
without shareholder approval. A decision to change or make exceptions to these
policies or adopt additional policies could be detrimental to you and
advantageous to the holders of Circuit City group stock.

You will not have some of the shareholder rights traditionally associated with
common stock.

There will be no board of directors that owes any separate duties to you.

The CarMax group will not have a separate board of directors to represent
solely your interests as holders of CarMax group stock. Consequently, there
will be no board of directors that owes any separate duties to you. Our board
of directors will act in accordance with its good faith business judgment of
the best interests of Circuit City Stores, taking into consideration the
interests of all common shareholders regardless of class or series, which may
be detrimental to you.

You may not have any remedies if any action by directors or officers has an
adverse effect on CarMax group stock.

You may not have any remedies if any action or decision of our directors or
officers has an adverse effect on the holders of CarMax group stock compared
to the holders of Circuit City group stock. Although we are not aware of any
Virginia court adjudicating such an action in the context of our capital
structure, principles of Virginia law provide that our directors must act in
accordance with their good faith business judgment of the best interests of
Circuit City Stores, taking into consideration the interests of all common
shareholders regardless of class or series. As a result, in some
circumstances, our directors and officers may be required to make a decision
that is adverse to the holders of CarMax group stock. A Virginia court hearing
a case involving such a challenge may decide to apply principles of Virginia
law different from the principles discussed above or may develop new
principles of law.

Transfers of cash, other assets or liabilities between the CarMax group and
the Circuit City group could cause a loss in value to CarMax group stock.

Under our inter-group policies, our board of directors may decide to
transfer cash, other assets or liabilities between groups at fair value as
determined by our board of directors. If the financial markets do not view the

fair value determination as equitable or the transfer as fair to the CarMax
group, then CarMax group stock may suffer a loss in value.

Limits exist on the voting power of CarMax group stock.

If you do not own Circuit City group stock as well as CarMax group stock,
you may not have sufficient voting power to protect your interests.

The holders of Circuit City group stock could control the outcome of a
shareholder vote because Circuit City group stock will retain a substantial
majority of the combined voting power of Circuit City group stock and CarMax
group stock. This may be true even if the matter involves a divergence of, or
a conflict between, your interests and the interests of the holders of Circuit
City group stock. Matters upon which you may have insufficient voting power to
protect your interests include the election of directors and some mergers,
acquisitions and other extraordinary transactions. This control results
because both series of stock will generally vote as a single voting group,
except in limited circumstances requiring a vote of a single series voting as
a separate group.

You may not be entitled to vote on a sale of assets attributed to the
CarMax group, and you may not be able to block a transaction you believe is
unfair.

Virginia law requires shareholder approval only for a sale or other
disposition of all or substantially all of the assets of Circuit City Stores.
Because the assets attributed to the CarMax group may represent less than
substantially all of the assets of Circuit City Stores as a whole, our board
of directors could, without shareholder approval, approve sales or other
dispositions of all or any other amount of the assets attributed to the CarMax
group. In exercising its discretion, our board of directors is not required to
select the option that would result in the distribution with the highest value
to you.

Conflicts of interest may arise between you and holders of Circuit City group
stock that may be resolved adversely to you, which may cause your CarMax group
stock to suffer a loss in value.

The existence of separate series of common stock could give rise to
occasions when your interests and the interests of holders of Circuit City
group stock diverge, conflict or appear to diverge or conflict. Because the
value of the assets attributed to the Circuit City group, the revenue and
earnings generated by those assets and the market capitalization of Circuit
City group stock are substantially larger than the value of the assets
attributed to the CarMax group, the revenue and earnings generated by those
assets and the market capitalization of CarMax group stock, our board of
directors may resolve many conflicts of interests between the two groups in
favor of the Circuit City group.

Operational and financial decisions could favor the Circuit City group over
the CarMax group.

Our board of directors could from time to time, without shareholder
approval, make operational and financial decisions or implement policies that
affect disproportionately the businesses attributed to a single group. These
decisions could include:

. allocation of financing opportunities in the public markets;

. allocation of business opportunities, resources and personnel; and

. transfers of funds, assets or liabilities between groups and other
inter-group transactions.

In each case, the opportunity, resources or personnel allocated, or funds,
assets or liabilities transferred, to the Circuit City group by the board of
directors may be equally or more suitable for the CarMax group. Furthermore,
any such decision may benefit the Circuit City group's business without
benefiting the CarMax group's business. For example, our decision to borrow
funds for the Circuit City group's business may adversely affect our ability
to borrow funds for the CarMax group's business sufficient to implement the
CarMax group's growth strategies or may increase its cost of those funds.

Proceeds of a merger may be allocated disproportionately in favor of
Circuit City group stock.

Our board of directors will determine how consideration received in a
merger involving Circuit City Stores will be allocated between you and the
holders of Circuit City group stock, subject to any required approval of the
transaction by shareholders. In doing so, our board of directors could
allocate the proceeds in a manner not proportionate to the market
capitalizations of the two series of stock. In that event, the value of your
CarMax group stock could be adversely affected.

Our board of directors may pay dividends on Circuit City group stock that
require the borrowing of funds from the CarMax group.

Our board of directors could, in its sole discretion, declare and pay
dividends exclusively on CarMax group stock, exclusively on Circuit City group
stock, or on both, in equal or unequal amounts. Our board of directors could
pay more dividends on Circuit City group stock than would be financially
prudent if the Circuit City group were a stand-alone corporation, subject to
the limitations contained in our articles of incorporation. Funds allocated to
the CarMax group could be borrowed by the Circuit City group to fund dividends
on Circuit City group stock.

Conversion of one series of stock into the other will change the nature of
your investment, could dilute your economic interest in Circuit City Stores
and could result in a loss in value.

Our board of directors could, without shareholder approval, convert shares
of CarMax group stock into shares of Circuit City group stock or shares of
Circuit City group stock into shares of CarMax group stock, at a 115% premium
over the relative average market values of the two series of common stock. A
conversion would preclude you from retaining your investment in a security
that is intended to reflect separately the performance of the CarMax group.

A conversion of either series of common stock could also have the following
adverse effects on your investment:

. If you own shares of CarMax group stock into which Circuit City group
stock is being converted at a premium, it is likely that your shares
will suffer a loss in value because your economic interest in Circuit
City Stores will be diluted.

. If you own shares of CarMax group stock into which Circuit City group
stock is being converted and the shares of Circuit City group stock are
considered overvalued, the holders of shares of Circuit City group stock
will receive more shares of CarMax group stock than they should and you
will suffer a loss in value in addition to any loss resulting from
dilution of your economic interest.

. If you own shares of CarMax group stock that are being converted into
Circuit City group stock and your CarMax group shares are considered
undervalued, you will not receive as many shares of Circuit City group
stock as you should and may suffer a loss in value. Your loss would
increase if Circuit City group stock is also considered overvalued.

Decisions by directors and officers that adversely affect the market price of
CarMax group stock or favorably affect the market price of Circuit City group
stock would decrease the relative voting power of CarMax group stock and the
number of shares of Circuit City group stock received in a conversion.

The relative voting power per share of each series of common stock and the
number of shares of one series of common stock issuable upon the conversion of
the other series of common stock will vary depending upon the relative market
prices of CarMax group stock and Circuit City group stock. The market price of
CarMax group stock could be adversely affected by market reaction to decisions
by our board of directors or our management that investors perceive to
disadvantage the holders of CarMax group stock.

If our board of directors causes a separation of one group from Circuit City
Stores, CarMax group stock may suffer a loss in value.

Our board of directors may, without shareholder approval, declare that all
outstanding shares of either series of common stock will be exchanged for
shares of one or more wholly owned subsidiaries of Circuit City Stores that
own all of the assets and liabilities attributed to that group. Such an
exchange would result in the subsidiary or subsidiaries becoming independent
of Circuit City Stores. If our board of directors chooses to exchange shares
of CarMax group stock, the market value of the subsidiary shares received in
that exchange could be or become less than the market value of CarMax group
stock exchanged. Alternatively, if our board of directors chooses to exchange
shares of Circuit City group stock, the market value of CarMax group stock, as
the remaining series of Circuit City Stores common stock, could decrease from
its market value before the exchange.

The market value may decrease in either event in part because the
subsidiary or the CarMax businesses remaining part of Circuit City Stores, as
the case may be, may no longer benefit from the advantages of doing business
under common ownership with the other group. Specifically, they may no longer
be able to take advantage of our shared managerial expertise, cost savings in
corporate overhead and enhanced access to capital markets, including
guaranties provided by Circuit City Stores of debt incurred or similar
obligations incurred for the benefit of the CarMax group.

A separation of either group from Circuit City Stores, Inc., may present
difficulties in legally dividing assets and liabilities, which could adversely
affect the business of the CarMax group and/or the value of CarMax group
stock.

If our board of directors determines that a separation by any means of
either group from Circuit City Stores, Inc, were desirable, we would face
difficulties in segregating the legal title to, or responsibility for, the
assets and liabilities attributed to each group. These difficulties arise
because legal title to the assets, and liability for debts and other
obligations, attributed to each group are in the name of Circuit City Stores,
Inc. and/or its subsidiaries. Such difficulties would be encountered whether
the separation occurred in the form of a sale of the business of a group, the
exchange of subsidiary shares for the series of stock relating to a group (as
described above), or otherwise. For example, the separation of the CarMax
group from Circuit City Stores, Inc. would not by itself release Circuit City
Stores, Inc. from its contingent liability under guaranties it has made to
third parties of operating lease obligations incurred for the benefit of the
CarMax group. As of June 30, 2001, the amount of such contingent lease
obligations was approximately $558 million. If such a separation were to
occur, the CarMax group business could be required to compensate or provide
security to Circuit City Stores, Inc. for such contingent liabilities or
obtain releases of such guaranties from the third party lessors. Such actions
could result in significant expenditures that may adversely affect the
business of the CarMax group and/or the value of CarMax group stock.

You may receive less consideration upon a sale of the assets attributed to the
CarMax group than if the CarMax group were a separate company.

If we sell 80% or more of the properties and assets attributed to the
CarMax group, our board of directors must, subject to some exceptions:

. distribute to you by special dividend or redemption an amount equal to
your proportionate interest in the net proceeds of the sale; or

. convert your outstanding shares of CarMax group stock into a number of
shares of Circuit City group stock equal to 110% of the relative average
market values of the two series of common stock measured over a 10-
trading day period occurring shortly after the sale.

If the CarMax group were a separate, independent company and its shares
were acquired by another person, certain costs of that sale, including
corporate taxes, might not be payable in connection with that acquisition. As
a result, shareholders of a separate, independent company might receive a
greater amount than you would receive as holders of CarMax group stock. In
addition, we cannot assure you that the net proceeds per share of CarMax group
stock will be equal to or more than the market value per share of CarMax group
stock prior to or after the announcement of a sale.

If Circuit City Stores were to be liquidated, you may receive less than you
would if there were only one series of Circuit City Stores common stock
outstanding.

The liquidation rights of the holders of CarMax group stock and the holders
of Circuit City group stock are fixed. As a result, liquidation rights of the
two series of stock will not bear any relationship to the relative market
values, the relative voting rights of the series of common stock or the
relative value of the assets attributed to the groups. Each share of CarMax
group stock currently is entitled to the same amount upon liquidation as each
share of Circuit City group stock is entitled.

Provisions governing our common stock could prevent a change in control of
Circuit City Stores and the payment of a premium for shares.

Our shareholder rights plan could prevent you from profiting from an
increase in the market value of your shares as a result of a change in control
of Circuit City Stores by delaying or preventing a change in control. In
addition, provisions of Virginia law, our articles of incorporation and our
bylaws may also deter hostile takeover attempts.

It will not be possible for a third party to acquire only the CarMax group
without Circuit City Stores' consent.

If the CarMax group were a stand-alone entity, any person interested in
acquiring it without negotiation with our management could seek control of the
outstanding stock of that entity by means of a tender offer or proxy contest.
However, because the CarMax group is part of a single company, a person
interested in acquiring only the CarMax group without negotiation with our
management would be required to seek control of the voting power represented
by all of the outstanding capital stock of Circuit City Stores entitled to
vote on that acquisition, including Circuit City group stock. This may
discourage potential interested bidders from seeking to acquire the CarMax
group.

Because it might be possible for an acquiror to obtain control of Circuit City
Stores by purchasing shares of only Circuit City group stock, holders of
CarMax group stock may not share in any takeover premium.

A potential acquiror could acquire control of Circuit City Stores by
acquiring shares of common stock having a majority of the voting power of all
shares of our common stock outstanding. A majority of the voting power could
be obtained by acquiring a sufficient number of shares of both series of
common stock or, if one series of common stock has a majority of the voting
power, only shares of that series. After this offering, the Circuit City group
stock will still have a substantial majority of the voting power. As a result,
it may be possible for an acquiror to obtain control of us by purchasing only
shares of Circuit City group stock such that the holders of CarMax group stock
would not share in any premiums paid by the acquiror for such control.

Stock ownership could cause our directors to favor the Circuit City group over
the CarMax group.

In general, our directors have a greater economic interest in Circuit City
group stock than in CarMax group stock. Our board of directors has a duty to
act in its good faith business judgment of the best interests of Circuit City
Stores, taking into consideration the interests of all common shareholders
regardless of class or series. However, the fact that the actual value of
their collective interests in Circuit City group stock is greater than their
collective interests in CarMax group stock could give rise to claims of
conflict of interest when our board of directors makes decisions on matters
where the interests of the Circuit City group and the CarMax group diverge.

If the Internal Revenue Service asserts that the conversion of tracking stock
is taxable, you could have a taxable gain or taxable income if CarMax group
stock is converted to Circuit City group stock.

While we believe that, under current law, no income, gain, loss or
deduction should be recognized by you for U.S. federal income tax purposes as
a result of any conversion of the CarMax group stock into Circuit City group
stock, there are no court decisions or other authorities bearing directly on
this point. In fact, the Internal

Revenue Service announced that it will not issue advance rulings on the
classification of stock with characteristics similar to the CarMax group stock
and the Circuit City group stock. The Treasury Department could issue
regulations or other guidance that change current law, possibly with
retroactive effect. It is possible, therefore, that the Internal Revenue
Service could successfully assert that the conversion of one series of our
common stock into the other series of our common stock could be taxable to you
and/or to us.

Legislative proposals could have adverse tax consequences for us or for
holders of CarMax group stock or Circuit City group stock.

The Clinton Administration Budget Proposals in 1999 and 2000 proposed
legislation that would have adversely affected holders of tracking stock such
as CarMax group stock and Circuit City group stock. Although Congress did not
act on either proposal and the recent Bush Administration Budget Proposal
contains no such similar provision, it is impossible to predict whether any
proposals relating to tracking stock will be made in the future, and to what
extent Congress will act upon any such proposals.

Risk Factors Relating to this Offering

The stock market may be volatile and could affect the price of CarMax group
stock.

The stock market has recently experienced significant price and volume
fluctuations. Therefore, the price at which CarMax group stock trades after
this offering is likely to be volatile due to any of the following factors:

. variations in the quarterly operating results of the CarMax group;

. changes in financial estimates or investment recommendations by
securities analysts relating to CarMax group stock;

. announcements by the CarMax group or its competitors of significant
contracts, acquisitions, strategic partnerships, joint ventures or
capital commitments;

. future sales, distributions or issuances of CarMax group stock;

. changes in investors' perceptions of investments in CarMax group stock;

. changes in investors' perceptions about tracking stock generally;

. the relatively small number of shares of CarMax group stock outstanding;
and

. fluctuations in the stock market price and volume of traded shares
generally.

Future sales, distributions or issuances of CarMax group stock could adversely
affect its market price, and as a result, Circuit City Stores' future access
to capital for use by the CarMax group may be limited.

Due to the relatively small number of shares of CarMax group stock
outstanding, the market price of CarMax group stock could be materially
adversely affected by any sales, distributions or issuances of substantial
amounts of CarMax group stock in the public market, including issuances of
CarMax group stock we have reserved for the benefit of the Circuit City group
or for issuance to holders of Circuit City group stock, or the perception that
these sales, distributions or issuances might occur. If the market price of
CarMax group stock is depressed as a result of these factors, it could limit
future access to capital to be used by the CarMax group.

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This prospectus includes and incorporates by reference "forward-looking
statements" within the meaning of the securities laws. All statements that are
not historical facts are "forward-looking statements." The words "estimate,"
"project," "intend," "expect," "believe," "anticipate" and similar
expressions, and statements concerning our strategy, identify forward-looking
statements. These forward-looking statements include statements regarding the
expected financial position, business, financing plans, business prospects,
revenues, working capital, liquidity, capital needs, interest costs and
income, in each case relating to the CarMax group and the Circuit City group
as well as our company as a whole.

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. Important factors that could cause actual results
to differ materially from estimates or projections contained in the forward-
looking statements include:

. changes in the amount and degree of promotional intensity exerted by
current competitors and potential new competition from both retail
stores and alternative methods or channels of distribution such as
online and telephone shopping services and mail order;

. changes in general U.S. or regional U.S. economic conditions including,
but not limited to, consumer credit availability, consumer credit
delinquency and default rates, interest rates, inflation, personal
discretionary spending levels and consumer sentiment about the economy
in general;

. the presence or absence of, or consumer acceptance of, new products or
product features in the merchandise categories we sell and changes in
our actual merchandise sales mix;

. significant changes in retail prices for products sold by any of our
businesses;

. lack of availability or access to sources of inventory;

. inability on the part of either of our businesses to liquidate excess
inventory should excess inventory develop;

. unanticipated adverse results from the remodeling of Circuit City
Superstores;

. the ability to attract and retain an effective management team in a
dynamic environment or changes in the cost or availability of a suitable
work force to manage and support our service-driven operating
strategies;

. changes in availability or cost of capital expenditure and working
capital financing, including the availability of long-term financing to
support development of our businesses and the availability of
securitization financing;

. changes in production or distribution costs or cost of materials for our
advertising;

. availability of appropriate real estate locations for expansion;

. 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, or any failure to comply with such
laws or any adverse change in such laws;

. adverse results in significant litigation matters; and

. those factors listed in this prospectus under "Risk Factors."

We believe these forward-looking statements are reasonable; however, undue
reliance should not be placed on any forward-looking statements, which are
based on current expectations.

USE OF PROCEEDS

We will receive net proceeds from this offering of approximately $ after
deducting underwriting discounts and commissions and estimated offering
expenses. We intend to allocate the net proceeds from this offering, including
any net proceeds of shares issued upon exercise of the underwriters' over-
allotment option, to the Circuit City group to be used for the Circuit City
group's general purposes, including the ongoing remodeling of our Circuit City
Superstores.

PRICE RANGE OF CARMAX GROUP STOCK

The following table sets forth for the periods indicated the intra-day high
and low sales prices per share of the CarMax group stock as reported on the
New York Stock Exchange.

High Low
----- -----

Fiscal Year Ended February 29, 2000:
First Quarter................................................... $5.50 $3.69
Second Quarter.................................................. 7.13 3.38
Third Quarter................................................... 4.00 1.75
Fourth Quarter.................................................. 3.25 1.31

Fiscal Year Ended February 28, 2001:
First Quarter................................................... 4.25 1.56
Second Quarter.................................................. 4.88 2.63
Third Quarter................................................... 5.38 3.38
Fourth Quarter.................................................. 5.50 3.69

Fiscal Year Ended February 28, 2002:
First Quarter................................................... 15.49 4.70
Second Quarter (through July 20, 2001).......................... 20.50 11.50

As of June 30, 2001, we had 462 holders of record of CarMax group stock. On
July 20, 2001, the last reported sales price of CarMax group stock as reported
on the New York Stock Exchange was $18.52 per share.

DIVIDEND POLICY

We have not paid dividends on the CarMax group stock and do not currently
anticipate paying dividends in the foreseeable future. We currently intend to
pay dividends on the Circuit City group stock at a quarterly rate of 1.75
cents per share. While we do not currently intend to change our dividend
policies, we reserve the right to do so. Dividends on the CarMax group stock,
if any, will be paid at the discretion of our board of directors based
primarily on the financial condition, results of operations and business
requirements of the CarMax group and Circuit City Stores as a whole and other
factors as our board of directors considers relevant. Dividends on the CarMax
group stock may be declared and paid only out of the lesser of:

. the assets of Circuit City Stores legally available for payment of
dividends; and

. the CarMax group available dividend amount.

The CarMax group available dividend amount is intended to be the same as
the amount of assets that would be available for payment of dividends on
CarMax group stock if the CarMax group were a separate company under Virginia
law.

SELECTED FINANCIAL DATA OF THE CARMAX GROUP

The following selected financial data for each of the fiscal years 1997
through 2001 are derived from financial statements of the CarMax group for
those years, which have been audited by KPMG LLP, independent auditors. The
selected financial data as of May 31, 2001 and 2000 and for the three months
ended May 31, 2001 and 2000 have been derived from the CarMax group's
unaudited financial statements and, in our opinion, reflect all adjustments
(consisting only of normal, recurring adjustments) necessary for a fair
presentation of the data for those periods. The CarMax group's results of
operations for the three months ended May 31, 2001 may not be indicative of
results that may be expected for the full year. You should read the table
below in conjunction with "Management's Discussion and Analysis of Financial
Condition and Results of Operations of Circuit City Stores, Inc." included in
this prospectus and the CarMax group financial statements and related notes
and the Circuit City Stores, Inc. consolidated financial statements and
related notes incorporated by reference in this prospectus.

SELECTED CONSOLIDATED FINANCIAL DATA OF CIRCUIT CITY STORES, INC.

The following selected consolidated financial data for each of the fiscal
years 1997 through 2001 are derived from our consolidated financial statements
for those years, which have been audited by KPMG LLP, independent auditors.
The selected financial data as of May 31, 2001 and 2000 and for the three
months ended May 31, 2001 and 2000 have been derived from our unaudited
financial statements and, in our opinion, reflect all adjustments (consisting
only of normal, recurring adjustments) necessary for a fair presentation of
the data for those periods. Our results of operations for the three months
ended May 31, 2001 may not be indicative of results that may be expected for
the full year. You should read the table below in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations of Circuit City Stores, Inc." included in this prospectus and our
consolidated financial statements and related notes incorporated by reference
in this prospectus.

RESULTS OF OPERATIONS
Net sales and operating
revenues............... $2,678,474 $3,074,851 $12,959,028 $12,614,390 $10,810,468 $8,870,797 $7,663,811
Cost of sales, buying
and warehousing........ 2,112,121 2,391,589 10,135,380 9,751,833 8,354,230 6,827,133 5,902,711
Appliance exit costs.... -- -- 28,326 -- -- -- --
---------- ---------- ----------- ----------- ----------- ---------- ----------
Gross profit........... 566,353 683,262 2,795,322 2,862,557 2,456,238 2,043,664 1,761,100
---------- ---------- ----------- ----------- ----------- ---------- ----------
Selling, general and
administrative
expenses............... 535,994 579,206 2,514,912 2,309,593 2,086,838 1,815,275 1,498,681
Appliance exit costs.... -- -- 1,670 -- -- -- --
Interest expense........ 2,992 6,221 19,383 24,206 28,319 26,861 29,782
---------- ---------- ----------- ----------- ----------- ---------- ----------
Total expenses.......... 538,986 585,427 2,535,965 2,333,799 2,115,157 1,842,136 1,528,463
---------- ---------- ----------- ----------- ----------- ---------- ----------
Earnings from
continuing operations
before income taxes... 27,367 97,835 259,357 528,758 341,081 201,528 232,637
Provision for income
taxes.................. 10,400 37,177 98,555 200,928 129,611 76,581 88,403
---------- ---------- ----------- ----------- ----------- ---------- ----------
Earnings from
continuing
operations............ 16,967 60,658 160,802 327,830 211,470 124,947 144,234
---------- ---------- ----------- ----------- ----------- ---------- ----------
Discontinued operations:
Loss from discontinued
operations of Divx,
less income tax
benefit............... -- -- -- (16,215) (68,546) (20,636) (7,820)
Loss on disposal of
Divx, less income tax
benefit............... -- -- -- (114,025) -- -- --
---------- ---------- ----------- ----------- ----------- ---------- ----------
Loss from discontinued
operations............ -- -- -- (130,240) (68,546) (20,636) (7,820)
---------- ---------- ----------- ----------- ----------- ---------- ----------
Net earnings........... $ 16,967 $ 60,658 $ 160,802 $ 197,590 $ 142,924 $ 104,311 $ 136,414
========== ========== =========== =========== =========== ========== ==========
Net earnings (loss)
attributed to:
Circuit City group
stock:
Continuing operations.. $ 10,135 $ 57,123 $ 149,247 $ 327,574 $ 216,927 $ 132,710 $ 144,500
Discontinued
operations............ -- -- -- (130,240) (68,546) (20,636) (7,820)
CarMax group stock..... 6,832 3,535 11,555 256 (5,457) (7,763) (266)
---------- ---------- ----------- ----------- ----------- ---------- ----------
$ 16,967 $ 60,658 $ 160,802 $ 197,590 $ 142,924 $ 104,311 $ 136,414
========== ========== =========== =========== =========== ========== ==========
Net earnings (loss) per
share attributed to:
Circuit City group
stock basic:
Continuing operations.. $ 0.05 0.28 $ 0.73 $ 1.63 $ 1.09 $ 0.68 $ 0.74
Discontinued
operations............ -- -- -- (0.65) (0.34) (0.11) (0.04)
---------- ---------- ----------- ----------- ----------- ---------- ----------
Net earnings........... $ 0.05 $ 0.28 $ 0.73 $ 0.98 $ 0.75 $ 0.57 $ 0.70
========== ========== =========== =========== =========== ========== ==========
Circuit City group
stock diluted:
Continuing operations.. $ 0.05 0.28 $ 0.73 $ 1.60 $ 1.08 $ 0.67 $ 0.73
Discontinued
operations............ -- -- -- (0.64) (0.34) (0.10) (0.04)
---------- ---------- ----------- ----------- ----------- ---------- ----------
Net earnings........... $ 0.05 $ 0.28 $ 0.73 $ 0.96 $ 0.74 $ 0.57 $ 0.69
========== ========== =========== =========== =========== ========== ==========
CarMax group stock
basic................. $ 0.26 $ 0.14 $ 0.45 $ 0.01 $ (0.24) $ (0.35) $ (0.01)
========== ========== =========== =========== =========== ========== ==========
CarMax group stock
diluted............... $ 0.25 $ 0.13 $ 0.43 $ 0.01 $ (0.24) (0.35) (0.01)
========== ========== =========== =========== =========== ========== ==========

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS OF CIRCUIT CITY STORES, INC.

The common stock of Circuit City Stores, Inc. consists of two common stock
series, which are intended to reflect the performance of our two businesses.
Holders of Circuit City group stock and holders of CarMax group stock are
shareholders of Circuit City Stores and as such are subject to all of the
risks associated with an investment in Circuit City Stores and all of our
businesses, assets and liabilities. The results of operations or financial
condition of one group could affect the results of operations or financial
condition of the other group.

Results Of Operations--Fiscal Years 2001, 2000 and 1999

Sales Growth

Total sales for Circuit City Stores increased 3% in fiscal 2001 to $12.96
billion. In fiscal 2000, total sales increased 17% to $12.61 billion from
$10.81 billion in fiscal 1999.

Percentage Sales Change From Prior Year

Circuit City Circuit City
Stores, Inc. Group CarMax Group
------------ ----------------- ----------------
Fiscal Total Total Comparable Total Comparable
------ ------------ ----- ---------- ----- ----------

2001............................. 3% (1)% (4)% 24% 17 %
2000............................. 17% 13 % 8 % 37% 2 %
1999............................. 22% 17 % 8 % 68% (2)%
1998............................. 16% 12 % (1)% 71% 6 %
1997............................. 9% 6 % (8)% 85% 23 %

The Circuit City Group. For the Circuit City group, total sales decreased
1% in fiscal 2001 to $10.46 billion. In fiscal 2000, total sales were $10.60
billion, a 13% increase from $9.34 billion in fiscal 1999. The fiscal 2001
total sales decline includes a 4% decline in the comparable store sales of the
Circuit City business, partly offset by the net addition of 23 Circuit City
Superstores. Throughout fiscal 2001, we experienced significant variability in
the Circuit City comparable store sales pace. The sales pace in the major
appliance category softened significantly at the end of the first quarter and
into the second quarter. In late July 2000, we announced plans to exit the
appliance business and expand our selection of key consumer electronics and
home office products. A product profitability analysis had indicated that the
appliance category produced below-average profits. This analysis, combined
with the declining sales pace and expected increases in competition, led to
the decision to exit the category. The exit from the appliance business and
remerchandising of the appliance selling space was completed by the end of the
third fiscal quarter. Nevertheless, the Circuit City business continued to
experience a highly variable comparable store sales pace, and sales softened
substantially in the last two months of the fiscal year. We believe the
variability reflects the slower consumer spending experienced by most
retailers during the second half of the year, some disruption to sales caused
by the partial remodeling to remerchandise the appliance space, significant
declines in average retails and industry-wide declines in desktop personal
computer sales by year-end. Throughout the year, new technologies, better-
featured consumer electronics and the new and expanded selections added to the
store produced strong sales growth, although not always in line with our
expectations. Excluding the appliance category from fiscal 2001 and fiscal
2000 sales, comparable store sales rose 3% in fiscal 2001.

In addition to the partial remodels, we fully remodeled 25 Circuit City
Superstores in central and south Florida and one Superstore in Richmond,
Virginia, to a design that we believe is more contemporary and easier to
navigate. The full remodels offer better product adjacencies, more and highly
visible cash registers, better lighting and signs, and the expanded and new
product selections now available in all stores. The 23 new stores opened from
August 2000 through February 2001 also reflect this new design, and all new
stores planned for fiscal 2002 will reflect this design. Consumer reaction to
the design has been positive, but the ability to meet our

longer-term expectations has been difficult to determine given the overall
slowdown that occurred during the second half of the fiscal year. In addition,
the cost of remodeling and the disruption to sales in remodeled stores were
higher than anticipated. Fiscal 2002 remodels will follow less costly designs
that can be completed over a shorter time period, but which we believe will
offer similar benefits to the consumer. We also will focus on new marketing
programs designed to increase foot traffic at all Circuit City Superstores.

Geographic expansion is currently a limited contributor to Circuit City's
growth. We opened 23 new Circuit City Superstores and relocated two Circuit
City Superstores in fiscal 2001, increasing the store base 4%. New Superstores
were added to existing markets or built in one- or two-store markets given
that we already operate stores in virtually all of the nation's top
metropolitan markets.

From fiscal 1997 through fiscal 1998, a lack of significant consumer
electronics product introductions resulted in weak industry sales. Geographic
expansion was the primary contributor to growth of the Circuit City business
during this time. The industry began to emerge from this period of declining
sales in fiscal 1999, and that trend continued in fiscal 2000. As noted above,
sales softened again in fiscal 2001. We continue to believe that new
technologies will generate significant industry growth during the current
decade. However, we expect little, if any, sales growth in fiscal 2002.

In most states, Circuit City sells extended warranty programs on behalf of
unrelated third parties who are the primary obligors. Under these third-party
warranty programs, we have no contractual liability to the customer. In states
where third-party warranty sales are not permitted, Circuit City sells an
extended warranty for which we are the primary obligor. Gross dollar sales
from all extended warranty programs were 5.1% of total sales of the Circuit
City business in fiscal 2001, compared with 5.4% in fiscal 2000 and fiscal
1999. Total extended warranty revenue, which is reported in total sales, was
4.0% of sales in fiscal 2001, 4.4% of sales in fiscal 2000 and 4.6% of sales
in fiscal 1999. The gross profit margins on products sold with extended
warranties are higher than the gross profit margins on products sold without
extended warranties. The fiscal 2001 decline in extended warranty sales as a
percent of total sales reflects the increased selection of products, such as
entertainment software, for which extended warranties are not available and
reduced consumer demand for warranties on many consumer electronics and home
office products that have experienced significant declines in average retails.
Third-party extended warranty revenue was 3.9% of total sales in fiscal 2001
and 4.1% of total sales in fiscal 2000 and fiscal 1999.

The CarMax Group. For the CarMax group, total sales increased 24% in fiscal
2001 to $2.50 billion. In fiscal 2000, total sales increased 37% to $2.01
billion from $1.47 billion in fiscal 1999. The fiscal 2001 total sales
increase reflects a 17% increase in the comparable store sales of the CarMax
business, driven by higher-than-anticipated used-car sales, and the net
addition of two used-car superstores, two prototype satellite stores and six
new-car franchises since the end of fiscal 1999. The new stores and four of
the franchises moved into the comparable store sales base throughout fiscal
2001.

Percent Vehicle Sales By Category

Fiscal
----------------------------
2001 2000 1999 1998 1997
---- ---- ---- ---- ----

Vehicle Dollars:
Used Vehicles........................................ 81% 79% 90% 89% 88%
New Vehicles......................................... 19% 21% 10% 11% 12%
Vehicle Units:
Used Vehicles........................................ 87% 86% 94% 93% 92%
New Vehicles......................................... 13% 14% 6% 7% 8%

We believe the CarMax group's fiscal 2001 sales performance primarily
reflects the improved execution of the CarMax offer at individual stores,
increased awareness and use of the CarMax Web site and the exit of the

CarMax group's primary used-car superstore competitor late in fiscal 2000. We
believe this competitor's exit from five multi-store markets helped eliminate
consumer confusion over the two offers. The CarMax group's used-car comparable
store sales growth remained strong through the fiscal 2001 anniversary of this
competitor's exit from the used-car superstore business. We also believe that
the continuation of the CarMax group's robust used-car sales growth during the
second half of the fiscal year indicates that the CarMax used-car concept
offers strong consumer value and can generate steady sales growth in an
economic downturn.

Geographic expansion of the CarMax used-car superstore concept and the
addition of new-car franchises were the primary contributors to the CarMax
group's total sales growth from fiscal 1999 through the first half of fiscal
2000. Throughout this period, weak used-car sales more than offset the CarMax
group's strong comparable store sales growth in new cars. Late in fiscal 1999,
the CarMax group adopted a hub-and-satellite operating strategy in existing
multi-store markets. Under the hub-and-satellite operating model, a satellite
store delivers the same consumer offer as a hub store, but uses the
reconditioning, purchasing and business office operations of a nearby hub
store. The prototype satellites require one-half to one-third the acreage of
an "A" store. In fiscal 1999, we converted five CarMax superstores in multi-
store markets to satellite operations and opened two prototype satellite
stores. During fiscal 2000, we opened two CarMax used-car superstores, two
prototype satellite used-car superstores, five stand-alone new-car stores and
one new-car franchise that was integrated with a used-car superstore. We also
converted one existing CarMax store into a satellite operation and relocated
one new-car franchise next to a used-car superstore.

In the second half of fiscal 2000, the CarMax group limited its geographic
expansion to focus on building sales and profitability in existing markets.
The sales pace improved at the CarMax group's used-car superstores, including
those stores with integrated new-car franchises, and the CarMax group
generated comparable store sales growth for the last two quarters and for the
fiscal year. That success continued in fiscal 2001 with strong comparable
store sales throughout the year and used-car sales that exceeded expectations
in all four quarters. During the year, the CarMax group added two new-car
franchises, integrating them with existing used-car superstores.

Although the performance of the used-car superstores and integrated used-
and new-car superstores exceeded expectations in fiscal 2001, we have been
disappointed by the performance of the stand-alone new-car stores. Operations
at these stores have improved significantly versus their levels prior to
acquisition; however, they remain below our expectations.

Retail Units*

Retail Units at Fiscal
Year-End
------------------------
2001 2000 1999 1998 1997
---- ---- ---- ---- ----

"C" and "B" Stores..................................... 14 14 13 8 2
"A" Stores............................................. 17 17 16 10 5
Prototype Satellite Stores............................. 4 4 2 - -
Stand-Alone New-Car Stores............................. 5 5 - - -
--- --- --- --- ---
Total................................................ 40 40 31 18 7
=== === === === ===

--------
* CarMax opened two prototype satellite stores in late fiscal 1999 and two
prototype satellite stores in late fiscal 2000. In addition to the four
prototype satellite stores in operation, six "A," "B" or "C" stores have
been converted to satellite operations. "C" stores represent the largest
format.

New-Car Franchises

New-Car Franchises at
Fiscal Year-End
------------------------
2001 2000 1999 1998 1997
---- ---- ---- ---- ----

Integrated/Co-Located New Car Franchises............... 17 15 16 2 1
Stand-Alone New-Car Franchises......................... 5 5 - - -
--- --- --- --- ---
Total New-Car Franchises............................. 22 20 16 2 1
=== === === === ===

In most states, the CarMax group sells extended warranties on behalf of
unrelated third parties who are the primary obligors. Under this third-party
warranty program, we have no contractual liability to the customer. In states
where third-party warranty sales were not permitted, the CarMax group has sold
its own extended warranty for which we are the primary obligor. Gross dollar
sales from all extended warranty programs were 4.0% of total sales of the
CarMax business in fiscal 2001, 3.7% in fiscal 2000 and 4.3% in fiscal 1999.
The fiscal 2001 increase reflects the increase in used-car sales as a
percentage of the overall mix, enhanced manufacturers' programs on new cars
and improved warranty penetration. Used cars achieve a higher extended
warranty penetration rate than new cars. The fiscal 2000 decrease reflects the
increase in new-car sales as a percentage of the overall mix. Total extended
warranty revenue, which is reported in total sales, was 1.8% of total sales in
fiscal 2001, 1.6% in fiscal 2000 and 2.0% in fiscal 1999. Third-party extended
warranty revenue was 1.8% of total sales in fiscal 2001, 1.6% in fiscal 2000
and 1.9% in fiscal 1999.

Impact Of Inflation. Inflation has not been a significant contributor to
Circuit City Stores' results. For the Circuit City business, average retail
prices have declined in virtually all product categories during the past three
years. Although product introductions could help reverse this trend in
selected areas, we expect no significant short-term change overall. Because we
purchase substantially all products sold in Circuit City stores in U.S.
dollars, prices are not directly impacted by the value of the dollar in
relation to foreign currencies.

For the CarMax business, profitability is based on achieving specific gross
profit dollars per vehicle rather than on average retail prices. Because the
wholesale market generally adjusts to reflect retail price trends, we believe
that if the stores meet inventory turn objectives then changes in average
retail prices will have only a short-term impact on the gross margin and thus
profitability of that business.

Cost of Sales, Buying and Warehousing

For Circuit City Stores, the gross profit margin was 21.6% of sales in
fiscal 2001, compared with 22.7% of sales in fiscal 2000 and fiscal 1999. The
fiscal 2001 gross profit margin reflects lower gross profit margins for the
Circuit City business and higher gross profit margins for the CarMax business,
compared with fiscal 2000. Because the CarMax business produces lower gross
margins than the Circuit City business, the increased sales contribution from
CarMax may reduce our overall gross profit margin even though the CarMax
group's gross profit margin may increase. Excluding the impact of the
appliance merchandise markdowns and the one-time appliance exit costs incurred
by the Circuit City business, our gross profit margin was 22.0% of sales in
fiscal 2001.

The Circuit City Group. For the Circuit City business, the gross profit
margin was 23.6% of sales in fiscal 2001, 24.7% of sales in fiscal 2000 and
24.4% of sales in fiscal 1999. The fiscal 2001 gross profit margin was reduced
by one-time costs of $28.3 million and merchandise markdowns of $28.0 million
associated with the exit from the appliance business, significantly lower
appliance gross margins prior to the announced plans to exit that business and
a merchandise mix that included a high percentage of traditional products that
carry lower gross profit margins. The one-time appliance exit costs included
lease terminations, employee severance, fixed asset impairment and other
related costs. Excluding the appliance category, the gross profit margin was
24.7% of sales in fiscal 2001, compared with 25.4% of sales in fiscal 2000 and
24.7% of sales in fiscal 1999. Excluding the impact of the appliance
merchandise markdowns and the one-time appliance exit costs, the gross profit
margin was 24.1% of sales in fiscal 2001.

The improvement in the gross profit margin from fiscal 1999 to fiscal 2000
primarily reflected the higher percentage of sales from better-featured
products and newer technologies, which carry higher gross profit margins, and
continued improvements in inventory management partly offset by the strength
in personal computer sales, which carry lower gross margins. In fiscal 2001,
the decline in the gross profit margin was limited by lower personal computer
sales and by continued double-digit sales growth in new technologies and in
higher margin categories where selection was expanded as part of the exit from
the appliance business. The impact of the exit from the appliance category and
the high proportion of sales represented by traditional products more than
offset these factors.

The CarMax Group. For the CarMax business, the gross profit margin was
13.2% in fiscal 2001, 11.9% in fiscal 2000 and 11.7% in fiscal 1999. At the
end of fiscal 1998, the CarMax group instituted a profit improvement plan that
included better inventory management, increased retail service sales, pricing
adjustments and the addition of consumer electronics accessory sales. The
CarMax group's gross profit margins have improved significantly since that
time. In fiscal 2001, the increase in used-car sales as a percent of the total
sales mix and continued strong inventory management throughout the year,
especially during the second half when the model-year transition occurs in the
new-car segment, contributed to a higher gross margin. Significant increases
in unit sales of new cars as a percentage of total unit sales limited the
gross margin improvement in fiscal 2000.

Selling, General and Administrative Expenses

For Circuit City Stores, selling, general and administrative expenses were
19.4% of sales in fiscal 2001, compared with 18.3% of sales in fiscal 2000 and
19.3% of sales in fiscal 1999. Profits generated by our finance operations and
fees received for arranging financing through third parties are recorded as a
reduction to selling, general and administrative expenses.

The Circuit City Group. For the Circuit City business, selling, general and
administrative expenses were 21.7% of sales in fiscal 2001, compared with
19.6% of sales in fiscal 2000 and 20.1% of sales in fiscal 1999. The fiscal
2001 increase reflects the decline in comparable store sales, $41.9 million in
remodeling costs for the Florida stores, $30.0 million in costs related to the
partial remodels and $5.0 million in severance costs associated with a fourth
quarter workforce reduction. Excluding these costs and the estimated sales
disruption during the seven to 10 days of partial remodeling that occurred
primarily in the third quarter, the fiscal 2001 expense ratio would have been
20.9% of sales. The improvement in the expense ratio from fiscal 1999 to
fiscal 2000 primarily reflects leverage gained from the fiscal 2000 comparable
store sales increase.

The CarMax Group. For the CarMax business, selling, general and
administrative expenses were 9.8% of sales in fiscal 2001, 11.3% of sales in
fiscal 2000 and 13.9% of sales in fiscal 1999. The fiscal 2001 selling,
general and administrative expense ratio continued the improvement experienced
in fiscal 2000 and reflects the leverage achieved from strong total and
comparable store sales growth; more efficient advertising expenditures;
overall improvements in store productivity, including those achieved through
the hub and satellite operating strategy we adopted in multi-store markets;
and a favorable contribution from the finance operation. The fiscal 2001
improvements were partly offset by an $8.7 million write-off of goodwill
associated with two underperforming stand-alone new-car franchises. Excluding
these costs, the fiscal 2001 expense ratio would have been 9.4% of sales. The
fiscal 2000 improvements were partly offset by $4.8 million in charges related
to lease termination costs on undeveloped property and a write-down of assets
associated with excess property for sale. Excluding these costs, the fiscal
2000 expense ratio would have been 11.1% of sales. The higher ratio in fiscal
1999 reflects the costs associated with the expansion of CarMax superstores
and the below-plan sales in a number of multi-store metropolitan markets.

Interest Expense

Interest expense has remained unchanged as a percent of sales across the
three-year period at 0.2% of sales.

The Circuit City Group. For the Circuit City business, interest expense was
relatively unchanged as a percent of sales across the three-year period at
0.1% of sales in fiscal 2001 and fiscal 2000 and 0.2% of sales in fiscal 1999.
Interest expense was incurred on allocated debt used to fund store expansion,
remodeling and working capital, including inventory.

The CarMax Group. For the CarMax business, interest expense was relatively
unchanged as a percent of sales across the three-year period, at 0.5% of sales
in fiscal 2001 and fiscal 2000 and 0.4% of sales in fiscal 1999. Interest
expense was incurred primarily on allocated debt to fund new store growth,
franchise acquisitions and working capital, including inventory.

Income Taxes

The Circuit City Group. The group's effective income tax rate was 38.0% in
fiscal 2001 and fiscal 2000, compared with 38.1% in fiscal 1999.

The CarMax Group. The group's effective income tax rate was 38.0% in fiscal
2001 and fiscal 2000, compared with 39.0% in fiscal 1999. In fiscal 1999, the
CarMax group generated a loss and therefore recorded related income tax
benefits.

Net Earnings (Loss)

Net earnings for Circuit City Stores were $160.8 million in fiscal 2001,
$197.6 million in fiscal 2000 and $142.9 million in fiscal 1999. Earnings from
continuing operations for Circuit City Stores were $160.8 million in fiscal
2001, compared with $327.8 million in fiscal 2000 and $211.5 million in fiscal
1999. The fiscal 2001 decrease reflects the lower earnings for the Circuit
City business, partly offset by the earnings increase achieved by the CarMax
business. The fiscal 2000 increase reflects earnings growth of 39% for the
Circuit City business and a slight profit for the CarMax business.

The Circuit City Group. Net earnings attributed to the Circuit City group
were $149.2 million in fiscal 2001, $197.3 million in fiscal 2000 and $148.4
million in fiscal 1999. Before giving effect to income attributed to the
inter-group reserved shares, earnings from continuing operations were $115.2
million, or 56 cents per share, in fiscal 2001, compared with $326.7 million,
or $1.60 per share, in fiscal 2000 and $235.0 million, or $1.17 per share, in
fiscal 1999. Excluding the estimated sales disruption during the seven to 10
days of partial remodeling, the appliance merchandise markdowns, exit costs,
remodel expenses and severance costs related to the workforce reduction,
earnings from continuing operations before giving effect to income attributed
to the inter-group reserved shares would have been $205.1 million, or $1.00
per share, in fiscal 2001.

Net earnings attributed to the Circuit City group's inter-group reserved
shares were $34.0 million in fiscal 2001, compared with net earnings of
$862,000 in fiscal 2000 and a net loss of $18.1 million in fiscal 1999.

Earnings from continuing operations attributed to the Circuit City group
were $149.2 million, or 73 cents per share, in fiscal 2001; $327.6 million, or
$1.60 per share, in fiscal 2000; and $216.9 million, or $1.08 per share, in
fiscal 1999.

Circuit City Group
Earnings per Share
from Continuing
Operations for
Fiscal Year,
--------------------
2001 2000 1999
------ ----- ------

Circuit City store business............................... $ 1.00 $1.60 $ 1.17
Impact of merchandise markdowns*.......................... (0.08) - -
Impact of appliance exit.................................. (0.09) - -
Impact of Florida remodels**.............................. (0.13) - -
Impact of partial remodels**.............................. (0.09) - -
Estimated impact of sales disruption...................... (0.03) - -
Impact of workforce reduction**........................... (0.02) - -
Inter-group reserved shares............................... 0.17 - (0.09)
------ ----- ------
Circuit City group........................................ $ 0.73 $1.60 $ 1.08
====== ===== ======

--------
* Reflected as a reduction in gross profit margins.
** Reflected as an increase in selling, general and administrative expenses.

Circuit City Group Loss from Discontinued Operations. On June 16, 1999,
Digital Video Express announced that it would cease marketing of the Divx home
video system and discontinue operations, but existing, registered customers
would be able to view discs during a two-year phase-out period. The operating
results of Divx and the loss on disposal of the Divx business have been
segregated from continuing operations and reported as separate line items,
after tax, on our statements of earnings for the periods presented.

The loss from the discontinued operations of Divx totaled $16.2 million
after an income tax benefit of $9.9 million in fiscal 2000 and $68.5 million
after an income tax benefit of $42.0 million in fiscal 1999.

In fiscal 2000, the loss on the disposal of the Divx business totaled
$114.0 million after an income tax benefit of $69.9 million. The loss on the
disposal includes a provision for operating losses to be incurred during the
phase-out period. It also includes provisions for commitments under licensing
agreements with motion picture distributors, the write-down of assets to net
realizable value, lease termination costs, employee severance and benefit
costs and other contractual commitments.

The CarMax Group. Net earnings were $45.6 million in fiscal 2001, compared
with net earnings of $1.1 million in fiscal 2000 and a net loss of $23.5
million in fiscal 1999. In the fourth quarter of fiscal 2001, the CarMax group
recorded a pretax charge of $8.7 million relating to the write-off of goodwill
associated with two under performing stand-alone new-car franchises. Excluding
the write-off of goodwill, net earnings would have been $51.0 million in
fiscal 2001. In the fourth quarter of fiscal 2000, the CarMax group recorded a
pretax charge of $4.8 million relating to lease termination costs on
undeveloped property and the write-down of assets associated with excess
property for sale. Excluding lease termination costs and the write-down of
assets, net earnings would have been $4.1 million in fiscal 2000.

Net earnings attributed to the outstanding CarMax group stock were $11.6
million, or 43 cents per share, in fiscal 2001, compared with $256,000, or 1
cent per share, in fiscal 2000, and a net loss of $5.5 million, or 24 cents
per share, in fiscal 1999. Reported earnings and losses attributed to the
CarMax group stock exclude the

earnings and losses attributed to the inter-group reserved shares. At February
28, 2001, February 29, 2000 and February 28, 1999, the inter-group reserved
shares of CarMax group stock represented 74.6%, 74.7% and 76.6%, respectively,
of the total number of outstanding or reserved shares of CarMax group stock,
excluding shares reserved under our stock incentive plans for employees and
directors.

Financial Condition--Fiscal Years 2001, 2000 and 1999

Liquidity and Capital Resources

In fiscal 2001, net cash provided by operating activities of continuing
operations was $155.8 million, compared with $626.2 million in fiscal 2000 and
$319.0 million in fiscal 1999. The fiscal 2001 decrease reflects the lower
earnings from continuing operations for the Circuit City business and a
decrease in accounts payable, partly offset by the increase in earnings for
the CarMax business. The fiscal 2000 increase primarily reflects increased
earnings from the Circuit City and CarMax businesses and increases in accounts
payable for both businesses, partly offset by increases in inventory.

Most financial activities, including the investment of surplus cash and the
issuance and repayment of short-term and long-term debt, are managed by
Circuit City Stores on a centralized basis. Allocated debt of each of the
CarMax group and the Circuit City group consists of:

. Circuit City Stores' debt, if any, that has been allocated in its
entirety to that group; and

. a portion of Circuit City Stores' debt that is allocated between the
CarMax group and the Circuit City group.

This pooled debt bears interest at a rate based on the average pooled debt
balance. Expenses related to increases in pooled debt are reflected in the
weighted average interest rate of the pooled debt.

During fiscal 2001, a term loan totaling $175 million was repaid using
existing working capital. In addition, a term loan totaling $130 million and
due in June 2001 was classified as a current liability. Although we have the
ability to refinance this debt, we intend to repay it using existing working
capital. Payment of corporate pooled debt does not necessarily result in a
reduction of the CarMax group's or the Circuit City group's allocated debt.

Capital expenditures have been funded primarily through sale-leaseback
transactions, landlord reimbursements and short- and long-term debt. Capital
expenditures of $285.6 million in fiscal 2001 primarily were related to
Circuit City Superstore remodeling and new Circuit City Superstore
construction. Capital expenditures of $222.3 million in fiscal 2000 and $352.4
million in fiscal 1999 largely were incurred in connection with the expansion
programs for both businesses. Sale-leasebacks, landlord reimbursement
transactions and fixed asset sales totaled $115.7 million in fiscal 2001,
$100.2 million in fiscal 2000 and $273.6 million in fiscal 1999.

The Circuit City Group. In fiscal 2001, net cash provided by operating
activities of continuing operations was $137.9 million, compared with $650.2
million in fiscal 2000 and $399.4 million in fiscal 1999. The fiscal 2001
decrease reflects the lower earnings from continuing operations for the
Circuit City business and a decrease in accounts payable. The fiscal 2000
increase reflects a 39% increase in earnings from continuing operations for
the Circuit City business and an increase in accounts payable, partly offset
by an increase in inventory.

The Circuit City group's capital expenditures were $274.7 million in fiscal
2001, $176.9 million in fiscal 2000 and $214.1 million in fiscal 1999. The
group's capital expenditures in fiscal 2001 primarily were related to
Superstore remodeling and new Circuit City Superstore construction. In fiscal
2000 and fiscal 1999, these expenditures primarily reflected new store
construction. Capital expenditures for the Circuit City group have been funded
through sale-leaseback transactions, landlord reimbursements and allocated
short- and long-term debt. Sale-leasebacks, landlord reimbursement
transactions and fixed asset sales totaled $100.2 million in fiscal 2001,
$74.8 million in fiscal 2000 and $134.3 million in fiscal 1999.

Circuit City's finance operation primarily funds its credit card programs
through securitization transactions that allow the operation to sell its
receivables while retaining a small interest in them. The finance operation
has a master trust securitization facility for its private-label credit card
that allows the transfer of up to $1.31 billion in receivables through both
private placement and the public market. A second master trust securitization
program allows for the transfer of up to $1.94 billion in receivables related
to the operation's bankcard programs. Securitized receivables totaled $2.75
billion at February 28, 2001. Under the securitization programs, receivables
are sold to unaffiliated third parties with the servicing rights retained. We
expect that both securitization programs can be expanded to accommodate future
receivables growth.

The CarMax Group. In fiscal 2001, net cash provided by the CarMax group's
operating activities was $17.8 million. The fiscal 2001 increase reflects a
$44.4 million increase in net earnings, offset by an increase in inventory.
Net cash used in operating activities was $24.0 million in fiscal 2000 and
$80.3 million in fiscal 1999. For the three-year period, cash primarily was
used to purchase inventory related to comparable store sales growth, store
openings and additional new-car franchises. In fiscal 1999, cash also was used
to fund net losses.

The CarMax group's capital expenditures were $10.8 million in fiscal 2001,
$45.4 million in fiscal 2000 and $138.3 million in fiscal 1999. In fiscal
2001, the CarMax group's capital expenditures primarily were related to
equipment purchases. The CarMax group's capital expenditures through fiscal
2000 primarily were related to store expansion. Capital expenditures for the
CarMax group have been funded through sale-leaseback transactions and
allocated short- and long-term debt. Fixed asset sales and sale-leaseback
transactions totaled $15.5 million in fiscal 2001, $25.3 million in fiscal
2000 and $139.3 million in fiscal 1999.

During fiscal 2001, we acquired one new-car franchise for a total of $1.3
million. In fiscal 2000, we acquired five new-car franchises for a total of
$34.8 million. These acquisitions were financed through available cash
resources, including allocated debt. Costs in excess of the acquired net
tangible assets, which were primarily inventory, were recorded as goodwill and
covenants not to compete.

We have an asset securitization program operated through a special purpose
subsidiary on behalf of the CarMax group. At the end of fiscal 2001, that
program allowed the transfer of up to $450 million in automobile loan
receivables. In October 1999, we formed an owner trust securitization facility
that allowed for a $644 million securitization of automobile loan receivables
in the public market. At February 28, 2001, the program had a capacity of $329
million. In January 2001, we formed an additional owner trust securitization
facility that allowed for a $655 million securitization of automobile loan
receivables in the public market. The program had a capacity of $655 million
at the end of fiscal 2001. Securitized receivables under all CarMax group
programs totaled $1.28 billion at the end of fiscal 2001. Under the
securitization programs, receivables are sold to unaffiliated third parties
with the servicing rights retained. We expect that these securitization
programs can be expanded to accommodate future receivables growth.

Capital Structure

Total assets at February 28, 2001, were $3.87 billion, down $84.0 million,
or 2%, since February 29, 2000. A $197.8 million decrease in cash offset by a
$68.5 million increase in inventory primarily contributed to the decrease in
total assets.

Over the past three years, expansion for the Circuit City and CarMax
businesses has been funded with internally generated cash, sale-leaseback
transactions, operating leases and short-term and long-term debt. Finance
operation receivables have been funded through securitization transactions.

During fiscal 2001, stockholders' equity increased 10% to $2.36 billion.
Capitalization for the past five years is illustrated in the "Capitalization"
table below. Circuit City Stores produced a return on equity of 7.1% in fiscal
2001, compared with 9.8% in fiscal 2000.

We believe that in fiscal 2002 capital expenditures of approximately $295
million can be funded through a combination of internally generated cash,
sale-leaseback transactions, operating leases or floor plan financing of

CarMax inventory and that securitization transactions will finance the growth
in receivables. At the end of fiscal 2001, we maintained a $150 million
unsecured revolving credit agreement and $360 million in committed seasonal
lines that are renewed annually with various banks.

The groups rely on the external debt of Circuit City Stores to provide
working capital needed to fund net assets not otherwise financed through sale-
leasebacks or the securitization of receivables. All significant financial
activities of each group are managed by Circuit City Stores on a centralized
basis and are dependent on the financial condition of Circuit City Stores.
These financial activities include the investment of surplus cash, issuance
and repayment of debt, securitization of receivables, sale-leasebacks of real
estate and inter-group loans.

Capitalization

Fiscal
-----------------------------------------------------------
2001 2000 1999 1998 1997
----------- ----------- ----------- ----------- -----------
$ % $ % $ % $ % $ %
------- --- ------- --- ------- --- ------- --- ------- ---
(Dollar amounts in millions)

Long-term debt,
excluding current
installments........... 116.1 5 249.2 10 426.6 17 424.3 18 430.3 19
Other long-term
liabilities............ 107.1 4 157.8 6 149.7 6 171.5 7 199.4 9
Total stockholders'
equity................. 2,356.5 91 2,142.2 84 1,905.1 77 1,730.0 75 1,614.8 72
------- --- ------- --- ------- --- ------- --- ------- ---
Total capitalization... 2,579.7 100 2,549.2 100 2,481.4 100 2,325.8 100 2,244.5 100
======= === ======= === ======= === ======= === ======= ===

The Circuit City Group. In fiscal 2002, we anticipate capital expenditures
for the group of approximately $215 million, primarily related to construction
of new Superstores, the remodeling of 24 existing Superstores and the
relocation of approximately 10 Superstores.

We believe that proceeds from sales of property and equipment and
receivables, future increases in Circuit City Stores' debt allocated to the
Circuit City group and cash generated by operations will be sufficient to fund
the capital expenditures and operations of the Circuit City business.

The CarMax Group. In fiscal 2002, we anticipate capital expenditures of
approximately $80 million, primarily related to new store construction. We
expect to open two CarMax used-car superstores late in fiscal 2002 and
assuming the business continues to meet our expectations, as many as 30 stores
over the following four years. The initial cash investment per store is
expected to be in the range of $22 million to $30 million for an "A" store and
$11 million to $18 million for a satellite store. The initial investment
includes the land and building; furniture, fixtures and equipment; inventory;
and the seller's interest in the automobile loan receivables of the CarMax
group's finance operation. These investments are expected primarily to be
funded through sale-leasebacks, securitization of receivables or floor plan
financing for inventory. If the CarMax group takes full advantage of building
and land sale-leaseback and inventory financing, the net cash investment per
store is expected to be $4 million to $6 million for an "A" store and $2
million to $3 million for a satellite store.

We believe that the proceeds from sales of property and equipment and
receivables, future increases in Circuit City Stores' debt allocated to the
CarMax group, inter-group loans, floor plan financing and cash generated by
operations will be sufficient to fund the capital expenditures and operations
of the CarMax group's business.

Results of Operations--First Quarters of Fiscal 2002 and 2001

Net Sales and Operating Revenues and General Comments

Total sales for Circuit City Stores for the first quarter of fiscal 2002
were $2.68 billion, a decrease of 13% from $3.07 billion for the same period
last year.

Comparable Sales Change

First Quarter
-----------------------
Fiscal 2002 Fiscal 2001
----------- -----------

Circuit City Group................................... (25%) 7%
CarMax Group......................................... 27% 14%

Our operations, in common with other retailers in general, are subject to
seasonal influences. Historically, the Circuit City business has realized more
of its net sales and net earnings in the final fiscal quarter, which includes
the December holiday selling season, than in any other fiscal quarter. The
CarMax business, however, has experienced more of its net sales in the first
half of the fiscal year. The net earnings of any interim quarter are
seasonally disproportionate to net sales because administrative and certain
operating expenses remain relatively constant during the year. Therefore,
interim results should not be relied upon as necessarily indicative of results
for the entire fiscal year.

The Circuit City Group. Total sales for the Circuit City group for the
first quarter of fiscal 2002 were $1.88 billion, a decrease of 23% from $2.45
billion for the same period last year, reflecting the absence of major
appliances, continued industry-wide weakness in personal computer sales and
general softness in some other product categories. Circuit City continued to
see strong sales growth in new technologies and product categories where
selections were expanded as a result of the appliance exit. Comparable store
sales, including all merchandise sales categories in all comparable stores,
declined 25%. Excluding the appliance category, from which we completed our
exit in the third quarter of fiscal 2001, comparable store sales declined 13%.

We plan to open approximately 15 Circuit City Superstores and relocate
approximately 10 Circuit City Superstores in the current fiscal year. In the
first quarter of fiscal 2002, we opened one Circuit City Superstore in the Las
Vegas, Nevada, market and relocated one store in the Los Angeles, California,
market. Our remodel plan for fiscal 2002 includes 24 Circuit City Superstores
and will enable us to test two different remodel designs. We began the first
set of remodels, which included 10 stores in the Chicago market and two stores
in the Norfolk, Virginia, market, during the first quarter of fiscal 2002. We
expect costs for the first set of remodels, which is the more extensive of the
two, to average approximately $1.5 million per store. We began the second set
of remodels early in the second quarter of this fiscal year in the
Washington/Baltimore market. We expect the second set to include 12
Superstores.

Gross dollar sales from all extended warranty programs were 5.5% of sales
in the first quarter of fiscal 2002 and 5.4% of sales in the first quarter of
fiscal 2001. Third-party warranty revenue was 4.3% of sales in this fiscal
year's first quarter and 4.2% in the same period last year. The total extended
warranty revenue that is reported in total sales was 4.3% of sales in this
fiscal year's first quarter versus 4.4% in the first quarter of last fiscal
year.

The CarMax Group. The CarMax group continued a strong sales trend begun in
fiscal 2001, with sales increasing 27% for the first quarter of fiscal 2002 to
$796.8 million from $625.7 million in last year's first quarter. The increase
is a result of continued strength in the core used-car business, increased
average retails produced by a higher mix of later-model used-car sales
vehicles and stronger-than-anticipated new-car sales. For most of the fiscal
2002 first quarter, all CarMax locations were included in the comparable store
sales calculations. CarMax's comparable store sales increased 27% in the first
quarter compared to a 14% increase in the same prior year period.

We plan moderate geographic growth for the CarMax group through the
addition of superstores in new mid-sized markets that can be served
effectively with one CarMax superstore and additional satellite stores in
existing multi-store markets. Mid-sized markets are those with populations of
approximately 1 million to 2.5 million people. In late fiscal 2002, we plan to
open two CarMax superstores in the single-store markets of Sacramento,
California, and Greensboro, North Carolina.

Retail Units

May 31, Feb. 28,
--------- ----------
2001 2000 2002* 2001
---- ---- ----- ----

"C" and "B" Stores......................................... 14 14 14 14
"A" Stores................................................. 17 17 19 17
Prototype Satellite Stores................................. 4 4 4 4
Stand-Alone New-Car Stores................................. 5 5 5 5
--- --- --- ---
Total.................................................... 40 40 42 40
=== === === ===

--------
* Estimate.

Gross dollar sales from all extended warranty programs were 3.8% of sales
in the first quarter of fiscal 2002 compared with 4.0% in the same period last
year. Third-party warranty revenue decreased to 1.7% of sales in this fiscal
year's first quarter from 1.8% in the same period last year. The total
extended warranty revenue that is reported in total sales was 1.7% of sales in
the first quarter of fiscal 2002, compared with 1.8% in fiscal 2001.

Percent Vehicle Sales By Category

First Quarter
-------------
Fiscal Fiscal
2002 2001
------ ------

Vehicle Dollars:
Used Vehicles................................................ 81% 80%
New Vehicles................................................. 19% 20%
Vehicle Units:
Used Vehicles................................................ 87% 86%
New Vehicles................................................. 13% 14%

Cost of Sales, Buying and Warehousing

For Circuit City Stores, the gross profit margin was 21.1% of sales in the
first quarter of fiscal 2002, compared with 22.2% in the same period last
year.

The Circuit City Group. For the Circuit City business, the gross profit
margin increased to 24.6% of sales in the first quarter of fiscal 2002 from
24.4% in the same period last year. The improved margin reflects strong sales
trends in technologies that are new to the consumer, such as digital
televisions, digital cameras and camcorders, and softness in personal computer
sales.

The CarMax Group. For the CarMax business, the gross profit margin
decreased to 13.0% of sales in the first quarter of fiscal 2002 from 13.7% for
the same period last year. Although we achieved our gross margin dollar
targets per vehicle, higher average retails resulting from the growth in
later-model used-car sales and higher-than-expected new-car sales generated
the decline in the gross profit margin percentage.

Selling, General and Administrative Expenses

For Circuit City Stores, the selling, general and administrative expense
ratio was 20.0% in the first quarter of fiscal 2002, compared with 18.8% for
the same period last year.

The Circuit City Group. For the Circuit City business, the selling, general
and administrative expense ratio was 25.4% of sales in the first quarter of
fiscal 2002, compared with 21.2% for the same period last year. The increased
expense ratio reflects lower comparable store sales partly offset by cost
efficiency initiatives and the contribution from Circuit City's credit
operation. During the quarter, advertising expenditures were reduced in part
by eliminating inefficient print distribution, while the effectiveness of the
ads were improved through a change in format and creative approach. Also,
credit operations exceeded our expectations during the quarter as funding
costs declined more rapidly than yields, however, we do not expect this
benefit to continue.

The CarMax Group. For the CarMax business, the selling, general and
administrative expense ratio was 7.3% of sales in the first quarter of fiscal
2002, compared with 9.5% of sales for the same period last year. The expense
ratio improvement reflects the significant expense leverage generated by the
comparable sales growth. CarMax's finance operation also contributed to the
improved ratio as lower funding costs generated higher spreads.

Net Earnings

Net earnings for Circuit City Stores decreased to $17.0 million for the
first quarter of fiscal 2002 from $60.7 million in last year's first quarter.

The Circuit City Group. Net earnings for the Circuit City group for the
first quarter of fiscal 2002, were $10.1 million compared with $57.1 million
in the same period last year. During the first quarter of fiscal 2002, the net
earnings attributed to the inter-group reserved shares were $19.7 million
compared with $10.4 million for the same period last year. Excluding the
income attributed to the inter-group reserved shares, Circuit City incurred a
loss for the first quarter of fiscal 2002 of $9.6 million compared with
earnings of $46.7 million for the same period last year.

The CarMax Group. During the first quarter of fiscal 2002, the CarMax
group's net earnings increased 91% to $26.6 million from $13.9 million for the
same period last year. The net earnings attributed to the CarMax group stock
were $6.8 million for the first quarter of fiscal 2002, compared with $3.5
million for the same period last year.

Financial Condition--First Quarter of Fiscal 2002

At May 31, 2001, our total assets were $3.81 billion. The inventory
decrease of $25.8 million from the end of fiscal year 2001 reflects our
increased focus on inventory management, partially offset by an increase in
the CarMax group's inventory to support seasonal sales trends. Primarily
because of the inventory decline, accounts payable has decreased $81.0 million
since the end of fiscal 2001. As scheduled, we used existing working capital
to repay a term loan totaling $130.0 million in June 2001. Payment of
corporate debt will not necessarily reduce a particular group's allocated
debt.

Both groups rely on the external debt we allocate to them to provide
working capital needed to fund net assets not otherwise financed through sale-
leasebacks or receivable securitizations. We manage all significant financial
activities of the Circuit City business and the CarMax business on a
centralized basis. Each group's significant financial activities are dependent
on our financial condition as a whole and include the investment of surplus
cash, issuance and repayment of debt, securitization of receivables and sale-
leasebacks of real estate. At May 31, 2001, we maintained a $150 million
unsecured revolving credit facility and $360 million in seasonal lines that
are renewed annually with various banks.

In July 2001, we expect to offer publicly up to 8,625,000 shares, which
includes the underwriters' over-allotment option of 1,125,000 shares, of
CarMax group stock. The shares that will be sold in the offering are shares of
CarMax group stock that have been reserved for the Circuit City group or for
issuance to holders of Circuit City group stock. We intend to allocate the net
proceeds from this offering, including any net proceeds of shares issued upon
exercise of the underwriters' over-allotment option, to the Circuit City group
to be used for that group's general purposes, including the ongoing remodeling
of the Circuit City Superstores.

The Circuit City Group. At May 31, 2001, the Circuit City group's total
assets were $3.33 billion. The merchandise inventory decrease of $81.7 million
reflects an increased focus on inventory management. Primarily because of the
inventory decline, accounts payable has decreased $106.9 million since the end
of fiscal 2001.

Circuit City's finance operation has a master trust securitization facility
that allows the transfer of its private-label credit card receivables through
private placement and the public market. As of May 31, 2001, the master trust
program had a total program capacity of $1.18 billion. Circuit City's finance
operation also has a master trust securitization facility related to its
bankcard program. As of May 31, 2001, the bankcard master trust program had a
total program capacity of $1.94 billion. These master trust vehicles permit
further expansion of the securitization programs in both the public and
private markets. We anticipate that we will be able to expand Circuit City's
securitization programs to meet future needs.

We believe that proceeds from sales of property and equipment and
receivables, future increases in the debt allocated to the Circuit City group,
cash generated by operations and proceeds from the public stock offering
discussed above will be sufficient to fund the capital expenditures and
operations of the Circuit City business.

The CarMax Group. Total assets at May 31, 2001, were $795.4 million, an
increase of $84.4 million, or 12%, from $711.0 million at February 28, 2001.
Inventory increased $55.8 million to support seasonal sales trends. Net
accounts receivable increased by $30.0 million, reflecting an increase in auto
loans.

We have an asset securitization program operated through a special purpose
subsidiary on behalf of CarMax. This program had a capacity of $625 million as
of May 31, 2001. On behalf of CarMax, we also have a public asset
securitization program with a capacity of $280 million as of May 31, 2001, and
a second public asset securitization program with a capacity of $562 million
as of May 31, 2001. We anticipate that we will be able to expand these
securitization programs to meet future needs.

We believe that proceeds from sales of property and equipment and
receivables, future increases in the debt allocated to the CarMax group,
inter-group loans, floor plan financing and cash generated by operations will
be sufficient to fund the capital expenditures and operations of the CarMax
group's business.

Operations Outlook

The Circuit City Group. For the Circuit City business, we believe that
increased household penetration of products and services such as broadband
Internet access, wireless communications, multi-channel video

programming devices, digital television and digital imaging will drive
profitability in the consumer electronics industry during this decade. To take
advantage of these opportunities, we exited the major appliance business and
expanded our consumer electronics and home office product selections in fiscal
2001. We are focusing significant attention on store remodeling, sales
counselor training programs, customer service enhancements, process
improvements, inventory management and marketing programs to improve the sales
and profitability of our Circuit City business.

Despite these plans and our long-term outlook for market share growth, we
recognize that the sales pace at our Circuit City stores slowed throughout
fiscal 2001 and the first quarter of fiscal 2002. Therefore, we are cautious
in our outlook for fiscal 2002. We expect to open approximately 15 new Circuit
City Superstores, relocate approximately 10 Superstores and remodel 24
Superstores. We expect limited sales and earnings growth for the Circuit City
business in fiscal 2002. We do, however, expect continued strong sales and
earnings growth for the CarMax business and anticipate that CarMax will make a
greater contribution to the earnings attributed to the Circuit City group
stock in fiscal 2002.

The CarMax Group. We believe that the higher-than-expected sales and
earnings growth produced by the CarMax group in fiscal 2001 and the first
quarter of fiscal 2002 indicates that the CarMax business has developed a
store concept that can generate sustained profits. We believe that we have in
place the infrastructure that will enable the CarMax group to maintain its
improved level of execution, generate additional comparable store sales growth
and resume geographic expansion.

In mid-sized markets, our most mature CarMax stores have captured used-car
market shares of 8% to 10%. We have identified approximately 35 additional
markets that could support an "A" store, the standard CarMax store size going
forward. We expect to enter two of these markets, Sacramento, California, and
Greensboro, North Carolina, in late fiscal 2002. We also believe that we can
add another 10 satellite CarMax superstores in our existing multi-store
markets. Assuming the CarMax used-car business continues to meet our
expectations, we plan to open, in fiscal 2003, four to six stores, including
openings in mid-sized markets and satellite stores in existing multi-store
markets, and, in fiscal 2004 through fiscal 2006, six to eight stores per
year, again focusing near-term growth on mid-sized markets or satellites.

Based on the performance of the existing used-car superstores, we believe
that a standard "A" store in a mid-sized market will at maturity produce sales
in the $50 million to $100 million range and a pretax, before non-store
overhead, store operating profit margin in the range of 5.0% to 9.5%. We
believe a satellite store at maturity will produce sales in the $36 million to
$72 million range and a pretax, before non-store overhead, store operating
profit margin in the range of 5.0% to 9.3%. In both cases, maturity is assumed
to be the fifth year of operation. If we meet our store opening and sales per
store objectives, we believe that the CarMax group can produce annual sales
volumes of $5 billion within five years. Non-store overhead, which includes
all field operating expenses outside the store as well as corporate overhead,
was 2.3% of sales in fiscal 2001, and we estimate it will decline to
approximately 1.7% of sales when annual volumes reach $5 billion.

Recent Accounting Pronouncements

In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities." SFAS No. 133, as amended by SFAS No. 137 and No. 138,
standardizes the accounting for derivative instruments and requires that an
entity recognize those items as either assets or liabilities and measure them
at fair value. We adopted SFAS No. 133 during the first quarter of fiscal year
2002. Adoption of SFAS 133 did not have a material impact on our financial
position, results of operations or cash flows.

In September 2000, the FASB issued SFAS No. 140, "Accounting for Transfers
and Servicing of Financial Assets and Extinguishments of Liabilities--a
replacement of FASB Statement No. 125." While SFAS No. 140 carries over most
of the provisions of SFAS No. 125, it provides new standards for reporting
financial assets transferred as collateral and new standards for the
derecognition of financial assets, in particular transactions

involving the use of special purpose entities. SFAS No. 140 also prescribes
additional disclosures for securitization transactions accounted for as sales.
We adopted SFAS No. 140 during the first quarter of fiscal year 2002. Adoption
of SFAS No. 140 did not have a material impact on our financial position,
results of operations or cash flows.

In July 2000, the FASB issued Emerging Issues Task Force No. 00-14,
"Accounting for Certain Sales Incentives," which is effective for the fiscal
quarter beginning after December 15, 2001. The issue provides guidance for
sales incentives, such as mail-in rebates, offered to customers to be
classified as a reduction of revenue. We offer certain mail-in rebates that we
currently record in cost of sales, buying and warehousing. We do not expect
the adoption of EITF No. 00-14 to have a material impact on our financial
position, results of operations or cash flows. However, we expect to
reclassify certain rebate expenses from cost of sales, buying and warehousing
to net sales and operating income to be in compliance with EITF No. 00-14.
This reclassification would have increased our gross profit margin and our
expense ratio by .20% for fiscal 2001. For the quarter ended May 31, 2001,
this reclassification would have increased our gross profit margin by .09% and
our expense ratio by .08%.

Market Risk

We centrally manage the private-label and bankcard revolving loan
portfolios of the Circuit City finance operation and the automobile
installment loan portfolio of the CarMax finance operation. Portions of these
portfolios are securitized and, therefore, are not presented on our balance
sheets. Interest rate exposure relating to these receivables represents a
market risk exposure that we have managed with matched funding and interest
rate swaps.

Revolving Loans

Interest rates charged on the accounts in the managed private-label and
bankcard portfolios are primarily indexed to the prime rate, adjustable on a
monthly basis, with the balance at a fixed annual percentage rate. Total
principal outstanding at February 28, 2001, and February 29, 2000, had the
following rate structure:

2001 2000
------ ------
(Amounts in
millions)

Indexed to prime rate............................................ $2,596 $2,631
Fixed-rate....................................................... 203 213
------ ------
Total.......................................................... $2,799 $2,844
====== ======

Financing for the securitization programs is achieved primarily through the
issuance of public market debt, which is issued at floating rates based on
LIBOR. Receivables held by Circuit City Stores for sale are financed with
working capital. At February 28, 2001, and February 29, 2000, financings were
as follows:

2001 2000
------ ------
(Amounts in
millions)

Floating-rate (including synthetic alteration) securitizations... $2,754 $2,689
Fixed-rate securitization........................................ - 137
Held by Circuit City Stores for sale............................. 45 18
------ ------
Total.......................................................... $2,799 $2,844
====== ======

As of May 31, 2001 the private-label and bankcard revolving loan portfolios
of the Circuit City group had not changed significantly since February 28,
2001.

Automobile Installment Loans

Total principal outstanding for fixed-rate automobile loans at May 31,
2001, February 28, 2001 and February 29, 2000, was as follows:

May 31, Feb. 28, Feb. 29,
2001 2001 2000
------- -------- --------
(Amounts in millions)

Fixed-rate............................................ $1,357 $1,296 $932
====== ====== ====

Financing for these receivables is achieved through asset securitization
programs that, in turn, issue both fixed- and floating-rate securities.
Receivables held by Circuit City Stores for investment or sale are financed
with working capital. Financings at May 31, 2001, February 28, 2001 and
February 29, 2000, were as follows:

May 31, Feb. 28, Feb. 29,
2001 2001 2000
------- -------- --------
(Amounts in millions)

Fixed-rate securitizations.......................... $ 842 $ 984 $559
Floating-rate securitizations synthetically altered
to fixed........................................... 493 299 327
Floating-rate securitizations....................... 2 1 1
Held by Circuit City Stores:
For investment*................................... 14 9 22
For sale.......................................... 6 3 23
------ ------ ----
Total........................................... $1,357 $1,296 $932
====== ====== ====

--------
* Held by a bankruptcy remote special purpose company.

We have analyzed our interest rate exposure and have concluded that it did
not represent a material market risk at May 31, 2001, February 28, 2001 and
February 29, 2000. Because programs are in place to manage interest rate
exposure relating to the consumer and installment loan portfolios, we expect
to experience relatively little impact as interest rates fluctuate. We also
have the ability to adjust fixed-rate revolving cards and the index on
floating-rate cards, subject to cardholder ratification, but do not currently
anticipate the need to do so.

BUSINESS OF THE CARMAX GROUP

Overview

The CarMax group is a leading retailer of used cars and light trucks in the
United States with 40 retail units as of May 31, 2001 operated from 37
locations, including 33 used-car superstores and satellite stores, two co-
located new-car stores and five stand-alone new-car franchises. We operate 21
new-car franchises, most of which are co-located or integrated with our used-
car superstores. Used-car sales, which are the major part of our business,
represented approximately 81% of the group's total vehicle sales in dollars in
fiscal 2001. Our CarMax stores are located in the Southeast, Midwest, Mid-
Atlantic and West.

We purchase, recondition and sell used vehicles. In addition, we sell new
vehicles under franchise agreements with DaimlerChrysler, Mitsubishi, Nissan,
Toyota, BMW, Ford and General Motors. We provide CarMax customers the
opportunity to purchase vehicles the same way they buy other retail products,
with friendly service and non-negotiated low prices. We have separated the
practice of trading in a used vehicle in conjunction with the purchase of
another vehicle into two distinct and independent transactions. We provide an
appraisal that allows current vehicle owners to sell their cars to us
regardless of their intent to purchase a vehicle from us. We also provide our
customers with a full range of related services, including the financing of
vehicle purchases through our own financing operation and the sale of extended
warranties. Since our last public offering in fiscal 1997, net sales and
operating revenue has grown from $510.2 million in fiscal 1997 to $2.5 billion
in fiscal 2001, representing a 49% compound annual growth rate. Net earnings
have increased from a net loss in fiscal 1997 of $9.3 million to net income of
$45.6 million in fiscal 2001.

History and Background

Circuit City Stores, a leading U.S. consumer electronics retailer,
established the CarMax used-vehicle business in 1993 to revolutionize the
highly fragmented used-vehicle retail market. We were the first used-vehicle
retailer to offer a large selection of quality used vehicles at low, fixed
prices using a customer-friendly sales process in an attractive, modern sales
facility.

We have designed a strategy to better serve this market by addressing what
we believe to be the major sources of dissatisfaction with traditional used-
car retailing and to maximize operating efficiencies with sophisticated
systems and standardized operating procedures and store formats. The Circuit
City group's focus on customer satisfaction and operating efficiency has
enabled it to become one of the largest consumer electronics retailers in the
United States. At its inception, CarMax leveraged Circuit City Stores'
operational expertise, innovative systems and resources to develop the used-
vehicle retailing concept, to develop store prototypes and proprietary systems
and to implement effective financial and operational controls.

Industry Overview

Automotive retailing, with approximately $743 billion in calendar year 2000
sales, is the largest consumer retail market in the United States,
representing nearly 8% of the U.S. gross domestic product. Used-vehicle sales
in 2000 were estimated at $363 billion, of which approximately $310 billion
were generated by franchised and independent dealers and the balance in
privately negotiated transactions. We are focused on the late-model segment of
the used-car market, which primarily includes one-year-old to six-year-old
used cars. We believe that conditions in the used-vehicle retail market,
coupled with our operating and growth strategies, provide us with an
opportunity for substantial growth.

We believe that although the number of franchised dealers has declined to
approximately 22,000 over the last four years, further consolidation of
franchised dealers is likely as megadealers continue to put competitive
pressures on undercapitalized dealers, individual dealership owners reach
retirement age and manufacturers continue to press for greater efficiency in
their distribution networks. Notwithstanding this trend, the industry today
remains highly fragmented, with few large dealers. According to Automotive
News, the top 100 franchised

dealer groups in calendar year 2000 accounted for less than 5% of used-vehicle
sales and less than 14% of new-car sales in the U.S. We believe that the size
and fragmented nature of the used-vehicle industry and the historically high
rate of customer dissatisfaction with the traditional used-car sales process
offer us significant opportunities for market share growth.

Competitive Strengths

We have pioneered and implemented operating strategies and a unique
customer offer that we believe enhance customer satisfaction and loyalty and
maximize operating efficiency. We believe we have the following competitive
strengths.

Low, Fixed "No-Haggle" Prices

We have implemented an everyday low price strategy under which we set
fixed, "no-haggle" prices on our used and new vehicles. Our used-car prices
are, on average, $1,500 below the Kelley Blue Book price and approximately 75%
of our new cars are priced below dealer invoice. We believe most prices are at
or below the best negotiated price in the market. Prices on all vehicles are
clearly displayed on each vehicle's information sticker and in our newspaper
advertising. We have extended our "no-haggle" philosophy to every stage of the
vehicle transaction, including trade-ins, financing rates, accessories,
extended warranty pricing and our low vehicle documentation fees.

Broad Selection of High-Quality Vehicles

Each CarMax used-car location features a broad selection of top-quality
domestic and imported used cars and trucks, with a wide range of prices
appealing to a large range of potential customers. CarMax stores vary in
inventory size from 250 to 650 vehicles depending on local market size and
consumer demand. Our used car selection covers popular brands by manufacturers
such as DaimlerChrysler, Ford, General Motors, Honda, Mitsubishi, Nissan and
Toyota and specialty brands like BMW and Lexus. To ensure that our quality
standards are maintained, vehicles undergo a comprehensive, certified quality
inspection by our service technicians as well as a thorough reconditioning
process. We back our commitment to quality with a five-day or 250-mile money-
back guarantee and a limited 30-day warranty.

Efficient, Customer-Friendly Sales Process

We have developed a streamlined, innovative sales process that redefines
the way consumers buy vehicles. We believe that the major causes of consumer
dissatisfaction with the traditional car-buying experience include:

. dealers' attempts to combine the vehicle purchase transaction with the
trade-in transaction, financing and the sale of related products;

. confrontational negotiations between the customer and the dealer;

. difficulty the customer experiences in obtaining sufficient information
to make informed decisions;

. interaction with multiple personnel at different stages of the buying
process; and

. hidden costs and inflated prices embedded in the sales process.

By contrast, our process enables customers to evaluate separately each step
of the sales process described below and to make informed decisions at each
step based on complete information about their options and associated prices.
To increase efficiency, the same sales consultant, as well as the customer-
friendly, proprietary

CarMax point-of-sale system, assist the customer throughout the CarMax sales
process. We designed the elements of the CarMax offer to create a customer-
friendly experience. Our "no-haggle" pricing allows our sales consultants to
focus solely on our customers' needs. The entire purchase process, including a
test-drive and financing, can be completed in less than one hour. We conduct
extensive market research to measure our customer service record and to refine
our consumer offer.

. Selection and Price. Customers can use our in-store CarMax information
system or our CarMax Web site to electronically search our inventory for
vehicles that meet their model and feature requirements and price range.
The CarMax information system displays a color picture of each vehicle
and optionally generates a vehicle information sheet with the vehicle
price and selected features for the customer's reference and a map
directing the customer to the vehicle's location on the lot. Prices are
clearly displayed, along with selected vehicle features, on each
vehicle's price and information window sticker. The CarMax low, "no-
haggle" price policy assures all customers the same low price and avoids
confrontational price negotiations.

. Trade-Ins. We have replaced the traditional "trade-in" transaction with
a process in which our trained buyers appraise any vehicle, usually in
30 minutes or less, and provide the vehicle's owner with a written
guaranteed cash offer that is good for seven days or 300 miles. An
appraisal is available to everyone free of charge, whether or not the
individual is purchasing a vehicle from us. In contrast to traditional
dealers who seek to combine the vehicle purchase and trade-in
transactions, the CarMax sales process enables the customer to
separately evaluate and make an informed decision with respect to each
transaction.

. Financing. Our sales consultants use the CarMax information system to
electronically submit financing applications and receive responses on
prime financing from either our finance operation or Bank of America, or
both, typically in less than five minutes. Non-prime financing is also
provided through the CarMax information system by a variety of third-
party lenders. Customers are then able to review online with the sales
consultant financing options and terms from each financing source that
we use, including the amount financed, interest rate, term and monthly
payment. We believe that, by contrast, traditional dealers frequently
offer inflated financing terms to customers and do not clearly separate
the components of the financing transaction.

. Extended Warranties. We offer extended warranties that have been
designed to our specifications. We believe that superior coverage and
low, fixed prices distinguish our extended warranties from those of our
competitors. Through the CarMax information system, the customer can
review online with the sales consultant all available extended warranty
options and costs and make an informed, unpressured decision. In
contrast, at many traditional dealers, customers may feel pressured into
buying extended warranties they do not want at inflated prices.

. CarMax.com. The CarMax Web site, CarMax.com, offers complete inventory
and pricing search capabilities. Inventory information on the more than
12,000 cars available in our nationwide inventory is updated daily.
CarMax.com includes all the detailed vehicle information available at
the store such as pictures of each vehicle, prices, features,
specifications and store locations as well as sorting and comparison
features that allow consumers to easily compare vehicles. The site also
includes features such as detailed vehicle reviews, payment calculators
and an option to estimate trade-in values via a link with Kelley Blue
Book. We believe these features make it easier for consumers to meet all
of their auto research needs on CarMax.com and, based on a study we
conducted in calendar year 2000, have contributed to site visit times
that are 50% longer than comparable car sites. Both used-car and new-car
customers can contact dedicated Internet sales consultants online via
CarMax.com, by telephone or by fax. Customers can work with these sales
consultants from the comfort of home--including applying for financing--
and need only visit the store to sign the paperwork and pick up their
vehicle.

Our sales consultants play a significant role in ensuring a customer-
friendly sales process. Sales consultants, including both full- and part-time
employees, are compensated on a commission basis. The amount of the

commission is a fixed dollar amount per vehicle sold. By contrast, sales and
finance personnel at traditional dealerships often receive higher commissions
for negotiating higher prices and for steering customers toward vehicles with
higher gross margins. Most of our sales consultants have had prior retail
experience before joining us, and we place great emphasis on integrity and
customer-relations skills in our hiring policies and training programs. Few of
our sales consultants have had prior experience in automobile sales.

Sophisticated Information Systems and Inventory Management Systems and
Controls

Our stores are supported by an advanced information system that improves
the customer experience while providing tightly integrated automation of all
operating functions. Customers can select a range of vehicles using touch-
screen computers that display their choices and provide a map of the lot to
assist them in their selection of a vehicle. Our inventory management system
includes bar codes on each vehicle and each on-site parking place. Daily
scanning tracks movement of vehicles on the lot and an electronic gate helps
track test drives for vehicles and sales consultants. Online financing and
computer-assisted document preparation ensure rapid completion of the sales
transaction. Behind the scenes, our proprietary store technology provides our
management with real-time intelligence about every aspect of store operation,
such as inventory management, pricing, vehicle transfers, wholesale auctions
and sales consultant productivity.

Through our inventory management systems and controls, we minimize
inventory carrying costs. The CarMax information system enables each vehicle
to be tracked throughout the sales process. Using the information provided by
the CarMax information system, and applying sophisticated statistical modeling
techniques, we are able to optimize our inventory mix and display by store,
anticipate future inventory needs at each store, evaluate sales consultant
performance and refine our vehicle pricing strategy.

Business Strategy

We have established a strong foundation for future growth based upon our
unique knowledge of the used- car market, our established presence in key
locations and our ability to execute our business plan in a market subject to
continuous change. Since our February 1997 public offering, we have refined
our operating strategies and have emerged as the nation's leading specialty
used-car retailer. We believe that we are well-positioned to succeed in the
highly competitive automotive retail industry. Specifically, we are now better
able to identify profitable markets, determine the appropriate store formats
to fit those markets and effectively manage pricing and inventory mix.

Since 1997, we have modified and re-established our new-store growth model
to move away from large-format superstores. Despite the success of our large-
format superstores in Norcross, Georgia and Laurel, Maryland, in our Miami,
Tampa, Houston, Dallas and Chicago markets, this format has proven less
effective. We found that customers in these metropolitan markets were
unwilling to travel great distances to our large-format superstores, resulting
in stores that were too large and that underserved our target customer base.
Rather, customers preferred to patronize stores that were closer to their
homes. Consequently, we plan to expand our number of stores by adding "A"
superstores in new, mid-sized markets that can be served effectively with one
CarMax superstore, together with satellite fill-in stores in existing multi-
store markets. In fully-developed, mid-sized markets, we intend to test
whether increased penetration may be achieved by adding a satellite store. We
believe that by focusing on mid-sized markets and satellite fill-in
superstores over the near term, we can achieve a higher return on our
investment with lower risk. This approach also allows us to postpone entering
large multi-store markets until our hub-and-satellite model in existing large
multi-store markets has matured further and we have developed a lower-risk
model for large markets.

We plan to open 24 to 32 stores over the next five years. We plan to open
two superstores late in fiscal 2002 in the mid-sized markets of Sacramento,
California, and Greensboro, North Carolina. In fiscal 2003, our goal is to
open four to six superstores. These stores will be a combination of
superstores in new mid-sized markets and additional satellite stores in
existing multi-store markets. We expect to open six to eight new stores,
including superstores and satellite stores, per year in fiscal 2004, 2005 and
2006, depending upon market opportunities and management's comfort with sales
and profitability projections.

We expect the following business strategies will help us improve our sales
growth and enhance our profit margins.

Enter New Mid-Sized Markets

A "mid-sized market" typically has a population of 1.0 to 2.5 million
people. We are currently in seven mid-sized markets including Richmond,
Raleigh, Charlotte, Orlando, San Antonio, Greenville (South Carolina) and
Nashville. We are targeting approximately 35 additional mid-sized markets that
are suitable for our "A" store prototype. The "A" store prototype is
approximately 45,000 to 50,000 square feet on 10 to 14 acres with
approximately 24 service and reconditioning bays. We believe that focusing on
mid-sized markets enhances our sales growth and profitability due to the
following factors:

. site selection and real estate acquisition typically are simpler in mid-
sized markets;

. establishing consumer awareness is easier in a mid-sized market because
all forms of media can be used economically to achieve broad consumer
reach; and

. as a group, CarMax's mid-sized markets have the highest average return
on investment of all store types.

Expand Presence in Existing Multi-Store Markets Using Our Hub-and-Satellite
Fill-in Store Strategy

Under our hub-and-satellite strategy, a satellite store uses the
reconditioning, purchasing and business office operations of a nearby full-
sized hub superstore. The consumer offer is identical in both hub superstores
and satellite stores. These hub stores have service facilities that provide
regular maintenance and warranty service typical of any new-car dealership and
also recondition all used vehicles prior to sale at both the hub superstore
and any related satellite store. A prototypical satellite store operates on a
five- to six-acre site with an approximately 14,000-square-foot facility. The
satellite facility houses offices, a showroom and four to seven service bays
for regular maintenance and warranty service.

We plan to focus on adding satellite fill-in stores in underserved trade
areas in our existing multi-store markets, which include Washington/Baltimore,
Chicago, Atlanta, Dallas, Houston, Miami and Tampa. We have identified
approximately 10 underserved trade areas to target in these markets. We are
focusing on the addition of satellite fill-in stores in existing markets
because:

. satellite stores leverage existing facilities and management in those
markets;

. satellite stores present the same consumer offer, including size of
inventory, on one-half to one-third the acreage of a standard
superstore; and

. satellite stores require little or no incremental advertising.

The three prototypical satellite fill-in stores we have opened so far in
multi-store markets, located in Rockville, Maryland; Plano, Texas; and Cypress
Fairbanks, Texas, were profitable in their first year.

Continue to Develop and Take Advantage of Our Sophisticated Information
Systems and Controls

Advanced information systems, which are a key to CarMax's successful
inventory management, provide our stores with the ability to anticipate future
inventory needs and manage our pricing strategy. Through this centralized
system, we are able to immediately integrate new stores into our network of
CarMax stores, allowing the new stores to rapidly achieve operating
efficiency. We continue to enhance and refine our information systems, which
we believe to be a core competitive strength.

Enhance Margins

During the last two years, we have focused on executing a profit
improvement program, that targeted the following elements:

. gross margin improvement;

. reduction of non-store overhead;

. reduction of costs through improved operational effectiveness and sales
and store productivity; and

. incremental sales opportunities through retail service and accessory
sales.

This profit improvement program helped CarMax to achieve record net profits
in fiscal 2001. In addition to growth from the opening of new stores, we
expect that we will realize mid-single digit used-vehicle sales growth from
comparable store sales increases as our stores mature. We believe this growth
will produce significant store operating profit leverage.

CarMax Used-Vehicle Operations

Vehicles

We offer our customers a broad selection of makes and models of used
vehicles, including both domestic and imported cars and light trucks, at
competitive prices. Our used-car selection covers popular brands from
manufacturers such as DaimlerChrysler, Ford, General Motors, Honda,
Mitsubishi, Nissan and Toyota and specialty brands like BMW and Lexus. To
appeal to the vast array of consumer preferences and budgets, we offer used
vehicles under two programs--the CarMax program and the ValuMax program.
CarMax program used cars are less than six years old, have fewer than 60,000
miles and generally range in price from $6,500 to $30,000. ValuMax program
used cars are more than six years old or have 60,000 miles or more and
generally range in price from $4,000 to $19,000.

We perform a comprehensive, certified quality inspection of each used
vehicle. Our commitment to quality is demonstrated to the customer through a
five-day or 250 mile money-back guarantee and a limited 30-day warranty. Each
CarMax program vehicle must pass a comprehensive quality inspection that
covers all major and minor mechanical systems and all safety functions as well
as cosmetic criteria. Each ValuMax program vehicle must pass a quality
inspection covering most major mechanical systems and all safety functions.
For ValuMax, concentration is placed on providing good, basic, mechanically-
sound transportation. Cosmetic corrections or repairs of convenience or luxury
items, such as electric mirrors or electric antennas, are generally not
performed.

Sourcing

We acquire our used-vehicle inventory directly from consumers through our
unique appraisal process and through other sources, including local and
regional auctions, wholesalers, franchised and independent dealers and fleet
owners, such as leasing companies and rental companies. In stores open for
more than one year, we acquire a larger portion of our used-vehicle inventory
from consumers or from local and regional auctions in the markets that we
serve. This buying strategy provides an inventory of makes and models that
reflects the tastes of the market.

We have replaced the traditional trade-in transaction with a process in
which trained CarMax buyers appraise any vehicle and provide the vehicle's
owner with a written guaranteed cash offer that is good for seven days or 300
miles. The appraisal process is available to everyone, whether or not the
individual is purchasing a vehicle from us. We believe that this process
enables us to access the private market as a significant additional

source for used vehicles. In addition, many vehicles purchased directly from
consumers represent the highest quality used vehicles available in the market
because they have been maintained by their owners. Because our operating
strategy is to build customer confidence and satisfaction by offering only
high-quality vehicles, fewer than half of the vehicles acquired through the
appraisal process meet the CarMax retail standard. We sell those vehicles that
do not meet our retail standards at our own onsite wholesale auctions,
generally at our cost.

All used vehicles are evaluated on the basis of their wholesale and
reconditioning costs, and, for off-site purchases, cost of delivery to the
store where they will be reconditioned. Buyers based at the stores purchase
most of our inventory. Our buyers, in collaboration with our headquarters
staff, rely on the extensive inventory and sales trend data available through
the CarMax information system.

We utilize an in-house training and mentoring program to develop employees
skilled in the distinctive CarMax approach to evaluating and purchasing used
vehicles. We have found that individuals without prior experience in
automobile wholesaling are the most receptive to the skills and values
imparted by this training. We believe that development of this unique training
program for buyers has provided us with an advantage over our competitors. All
significant purchasing decisions are made by trained personnel. We use data
from the CarMax information system to monitor and evaluate the performance of
our buyers on an ongoing basis.

Based on consumer acceptance of the appraisal process at existing CarMax
stores and our experience and success to date in acquiring vehicles from
auctions and other sources, we believe that our sources of used vehicles will
continue to be sufficient to meet current needs and to support planned
expansion.

Vehicle Inventory Management

We have developed and implemented the CarMax information system, a
sophisticated, computerized inventory management and point-of-sale system,
that is unique to the automobile retail business. This proprietary system
allows headquarters and store personnel to effectively manage vehicle
inventory mix to reflect local demand at each store and minimize inventory
carrying costs. The system can also be accessed directly by customers as a key
component of the customer-friendly CarMax shopping process.

From the time we appraise a used vehicle until the vehicle is sold, all
relevant information relating to that vehicle is captured by the CarMax
information system. This information includes the make, model and features of
the vehicle, the wholesale cost, the nature and cost of the reconditioning
services performed, the retail price, how long the vehicle has been on display
and its location on the lot. The system utilizes vehicle sensors and
electronic gates erected around each parking lot, as well as bar codes placed
on each vehicle and parking place, to effectively track both vehicle location
and movement on and off the lot as well as test drives, which are identified
both by vehicle and sales consultant. Using this information, and applying
sophisticated statistical modeling techniques, we are able to optimize our
inventory mix and display, anticipate future inventory needs at each store,
evaluate sales consultant performance and refine our vehicle pricing strategy.
To make inventory decisions, we supplement information provided by the CarMax
information system with data from customer and market surveys and from private
and governmental reports analyzing local, regional and national vehicle-
purchasing trends.

The quality of inventory is reevaluated weekly by our headquarters
analytical team with respect to mix, price, store location and other factors.
If warranted, appropriate adjustments to those factors are recommended to the
store's purchasing manager. Based on an average of fiscal year-end inventory
values, during fiscal 2001 we turned our used-vehicle inventory approximately
eight times. We dispose of any vehicle that has not been sold at retail in
accordance with our strict inventory aging policy. During fiscal 2001,
approximately one percent of the number of units available for retail sale
were ultimately sold at wholesale.

Reconditioning

An integral part of our used-car consumer offer is the reconditioning
process. This process includes a comprehensive, certified quality inspection
of the engine, cooling and fuel system, drive axle, transmission,

electronic systems, suspension, brake system, steering, air conditioning,
interior and optional equipment. Based on this quality inspection, we
determine the reconditioning necessary to bring the vehicle up to our high
quality standards. Cars in the ValuMax program must meet the same mechanical,
electrical and safety standards, but fewer cosmetic and optional equipment
standards. Vehicle inspections are completed by our mechanics, approximately
half of whom are Automotive Service Excellence (A.S.E.) certified.

We perform most routine mechanical and minor body repairs in-house;
however, for some reconditioning services, we engage third parties
specializing in those services. Over the past several years, we have been
performing an increasing percentage of reconditioning services in-house and,
based on the cost savings realized, we expect that trend to continue.

Service

All CarMax used-car locations provide vehicle repair service, including
used-car warranty service. Factory-authorized service is also provided at all
new-car franchises. In fiscal 2000 and fiscal 2001, we expanded our retail
service operations as our customer base increased. In fiscal 2002, we intend
to continue our retail service expansion through additional marketing and
growth in our customer base. We have developed systems and procedures that are
intended to ensure that our retail repair service operations are conducted in
the same customer-friendly and efficient manner as our other operations. We
offer retail repair service to the public at all existing locations.

We believe that the efficiency of our service and reconditioning operations
are enhanced by our use of technician support groups, as well as by our
compensation programs. These support groups and compensation programs are
designed to increase the productivity of our service technicians and result in
reduced costs and higher-quality repairs and reconditioning. Each group
contains a small number of service professionals with different skills and
levels of experience. The experienced technicians in the group perform the
more complicated repairs with assistance from the apprentices, who also
perform simpler functions on their own. Rather than paying technicians on an
hourly basis, each technician receives a flat rate for each repair or service
performed. We are able to track the productivity of each technician through
the CarMax information system.

We place special emphasis on attracting, developing and retaining qualified
technicians and believe that our favorable working conditions and compensation
programs allow us to attract and retain highly qualified technicians in each
market we enter. All technicians attend in-house training programs designed to
develop their skills in performing routine repair services on the diverse
makes and models of vehicles we sell. Technicians at our new-car franchises
also attend manufacturer-sponsored training programs to stay abreast of
current diagnostic, repair and maintenance techniques for those manufacturers'
vehicles. In addition, utilization of technician support groups allows for
greater on-the-job training opportunities for new technicians.

CarMax New-Vehicle Operations

CarMax operates new-car dealerships under separate franchise or dealer
agreements with DaimlerChrysler, Mitsubishi, Nissan, Toyota, BMW, Ford and
General Motors. We employ the same efficient customer-friendly sales process
in our new-car operations as we do in our used-car operations. New cars are
offered with a full range of related services, at low, "no-haggle" prices. In
fiscal 2001, approximately 75% of our new cars were priced below dealer's
invoice. We use the CarMax information system to provide complete information
to the customer regarding vehicle inventory, as well as financing and extended
warranty options.

Vehicle Financing

We offer our customers an opportunity to obtain prime financing for vehicle
purchases through our finance operation or Bank of America. In addition,
Chrysler Financial, BMW Financial, Ford Motor Credit, General

Motors Acceptance, Mitsubishi Motors Credit, Nissan Motors Acceptance and
Toyota Motors Financial Services offer prime financing to customers purchasing
new vehicles at applicable CarMax locations. Non-prime financing is offered by
TransSouth Financial at all CarMax locations and by Wells Fargo Financial
Acceptance and AmeriCredit Financial Services on a regional basis, with no
financial recourse to us. Sales consultants use our proprietary CarMax point-
of-sale system to electronically submit financing applications and receive
responses from multiple lenders, generally in less than five minutes from
prime lenders. Financings are typically installment contracts secured by the
vehicles financed. Customers are permitted to refinance their loans within
three days of a purchase without incurring any finance or related charges.

The CarMax finance operation generates income solely from the financing we
provide to CarMax customers through the sale and servicing of the contract
receivables we originate. In addition, the finance operation enables us to
make credit decisions based on overall business considerations and thus helps
to ensure the reasonable availability of credit to support our vehicle sales
(while retaining our credit standards) in the event third-party lenders should
curtail credit availability due to market considerations. We believe that the
high quality of our used vehicles as well as the broad scope of the extended
warranties we sell reduce default rates on our customers' loans by helping to
keep the purchased vehicles operational. The lower default rates enable us to
provide and arrange financing at competitive rates. Our arrangements with
third-party lenders provide for payment of a fee to us at the time of
financing provided the loan is not refinanced within three days. We have no
recourse liability on loans arranged with third-party lenders.

The CarMax finance operation currently sells contract receivables to an
unaffiliated third party, which purchases interests in contract receivables
and similar assets originated by third parties. We retain a subordinated
undivided interest in these receivables to the extent of the excess of the
receivables balance over the purchaser's investment. We also continue to
service the receivables for a monthly servicing fee. We have no additional
liability on these receivables. Circuit City Stores has created asset
securitization facilities operated through special purpose subsidiaries on
behalf of the CarMax group to refinance from time to time a portion of these
contract receivables in the public market. At May 31, 2001, approximately
$1.34 billion in receivables had been sold through these facilities to
unaffiliated third parties with the servicing rights retained by us. We expect
that additional securitization facilities can be created as needed to
refinance future receivables.

As an alternative to loan financing, we also arrange lease financing for
our new-vehicle customers through manufacturers and Bank of America.

Extended Warranty Sales

At the time we sell a vehicle, we offer to sell to the customer an extended
warranty. We offer these extended warranties at low, fixed prices. All
extended warranties we sell (other than manufacturers' warranties) have been
designed to our specifications and are administered by Consumer Program
Administrators, Inc. and by Automotive Warranty Services of Florida, Inc.,
subsidiaries of AON Corporation, through a private-label arrangement under
which we receive a fee from the administrator at the time the extended
warranty is sold. We offer comprehensive extended warranties on CarMax program
vehicles and comprehensive power train extended warranties on ValuMax program
vehicles.

All CarMax used-car locations provide vehicle repair service, including
warranty service. Our extended warranty customers also have access to an
additional 14,000 independent service providers nationwide. We believe that
the quality of the services provided by this provider network, as well as the
broad scope of our extended warranties, helps promote customer satisfaction
and loyalty and thus increases the likelihood of repeat and referral business.

Currently, in all the states in which we operate, we sell warranties on
behalf of unrelated third parties who are the primary obligors. Under these
third-party warranty programs, we have no contractual liability to the

customer. Prior to 1997, we sold our own contracts for which we are the
primary obligor at one location where third-party warranty sales were not
permitted. Contracts usually had terms of coverage between 12 and 72 months.

Training

We are committed to providing exceptional training to our associates. New
store associates are offered structured, self-paced training programs that
introduce them to company policies and their specific job responsibilities.
Associate participation and performance in each training program is measured
by a unique, intranet-based testing and tracking system. Most new associates
are assigned mentors who provide on-the-job guidance and support. Many of our
compensation programs reward associates for continuously improving their
skills.

We also offer comprehensive, facilitated classroom training courses to
sales consultants, buyers, automotive technicians and managers. All sales
consultants receive extensive customer service training and ongoing training
as new products become available. Each buyer undergoes a 12- to 24-month
apprenticeship under the tutelage of an experienced buyer and appraises
thousands of cars before making his or her first independent purchase.
Approximately half of our service technicians are A.S.E.-certified--the
industry standard for technician training. At June 30, 2001, our 37 general
managers averaged over four years of CarMax experience and more than 10 years
of prior management experience.

Marketing and Advertising

Our marketing strategies are focused on developing awareness of the
advantages of shopping at CarMax, attracting customers who are already in the
market to purchase a vehicle and targeting specific segments of the market
through special promotions. Our marketing strategies are implemented primarily
through newspaper, television and radio advertising. Television and radio
broadcast advertisements are designed to enhance consumer awareness of the
CarMax name, CarMax.com and key components of the CarMax offer. Newspaper
advertisements promote our broad selection of vehicles and price leadership,
targeting consumers with immediate purchase intentions. Both broadcast and
newspaper advertisements are designed to drive customers to our Web site and
to our stores. The style and substance of our advertisements are distinctly
different from those placed by most automobile dealers. The third major
advertising support for CarMax is our Web site, which acts as both a marketing
tool for communicating our equities in detail as well as a sophisticated
search engine for finding the right vehicle.

In fiscal 2001, we further refined our marketing approach by eliminating
spending that research showed to be unprofitable. We now employ a low-cost,
high-frequency television strategy, coupled with more targeted newspaper
advertising. Advertising expenditures were 1.8% of net sales and operating
revenues in fiscal 2001, 2.4% of net sales and operating revenues in fiscal
2000 and 3.4% of net sales and operating revenues in fiscal 1999. Our fiscal
2001 and 2000 advertising expense ratios reflect leverage from the total and
comparable store sales increases and changes in media buying strategy. Our
advertising expense ratio for fiscal 1999 reflected increased expenses
associated with store openings, which offset leverage from increased store
sales.

We also target specific segments of the used-vehicle market through special
promotions. Such promotions may focus on a particular type of vehicle (e.g.,
"Minivan Month") or a particular price point (e.g., $9,999 or less) for a
large number of vehicles. Promotions are closely coordinated by our marketing
staff with purchasing departments at selected locations to ensure that
appropriate quantities of targeted inventory are purchased and displayed, thus
maximizing the benefits of the promotion.

As additional satellite stores are opened in a particular market, we expect
to realize further cost economies as a result of even greater leveraging of
our advertising expenses in that local market area over a larger number of
stores. We utilize market awareness and customer satisfaction surveys to help
tailor our marketing efforts to the purchasing habits and preferences of
customers in each market area.

Facilities

The CarMax group's operations were conducted in 40 retail units from 37
store locations as of May 31, 2001. The following table summarizes the CarMax
group retail units as of May 31, 2001:

Superstores
------------ Prototypical Stand-Alone
B & C A Satellite Stores New-Car Stores Total
------------ ---------------- -------------- -----

California............... 1 - - 3 4
Florida.................. 3 3 - 1 7
Georgia.................. 1 2 - - 3
Illinois................. 3 1 - - 4
Maryland................. 1 2 1 - 4
North Carolina........... - 2 - - 2
South Carolina........... - 1 - - 1
Tennessee................ - 1 - - 1
Texas.................... 4 3 2 1 10
Virginia................. - 2 - - 2
Wisconsin................ 1 - 1 - 2
----- ----- --- --- ---
14 17 4 5 40
===== ===== === === ===

We own nine and lease the remainder of these stores. We currently lease the
CarMax headquarters, which is located in suburban Richmond, Virginia, near the
site of the first CarMax retail store.

New-Car Franchise Agreements

CarMax operates new-car dealerships under separate franchise or dealer
agreements with manufacturers. These agreements generally allow us to sell
manufacturer's brands, perform warranty work on these vehicles and sell
related parts and services within a specified market area. Designation of
specified market areas generally does not guarantee exclusivity within a
specified territory. These agreements generally impose operational
requirements and restrictions, including inventory levels, working capital,
monthly financial reporting, signage and cooperation with marketing
strategies. A manufacturer may terminate a dealer agreement under certain
circumstances, including a change in ownership without prior manufacturer
approval, failure to maintain adequate customer satisfaction ratings or a
material breach of other provisions of the agreement. We also have entered
into framework agreements with several major vehicle manufacturers. These
agreements generally contain provisions relating to the acquisition, ownership
structure, advertising and management of a dealership franchised by those
manufacturers.

Various U.S. federal and state laws governing the relationship between
automotive dealerships and vehicle manufacturers also might affect us. These
laws include statutes prohibiting manufacturers from terminating or failing to
renew franchise agreements without proper cause and unreasonably withholding
approval for proposed ownership changes.

Competition

The used- and new-car retail business is highly competitive. Consumers
typically have many choices when deciding where to purchase a used or new
vehicle. In both the used- and new-vehicle markets, we seek to distinguish
CarMax from traditional dealerships through our sales approach and other
innovative operating strategies. In the used-vehicle market, we compete with
existing franchised and independent dealers, rental companies and private
parties. Many franchised new-car dealerships also have increased their focus
on the used-vehicle market.

We believe that the principal competitive factors in used-vehicle sales are
the following:

. price;

. ability to offer a wide selection of vehicles, including the more
popular makes and models;

. quality of the vehicles;

. location of retail sites; and

. degree of customer satisfaction with the car-buying experience.

Other competitive factors include the ability to offer or arrange customer
financing on competitive terms and the quality and cost of primary and
extended warranties. We believe that CarMax is competitive in all of these
areas and enjoys advantages over competitors that employ traditional selling
methods.

Part of our business strategy is to position CarMax as a low-price operator
in the industry. In fiscal 1999, our used-car sales were negatively impacted
by the initiation of intensely competitive price incentives in the new-car
industry and insufficient customer traffic at CarMax locations in a number of
multi-store metropolitan markets, particularly those affected by our primary
used-car superstore competitor. Late in fiscal 2000, that competitor exited
the used-car superstore business. We believe this competitor's exit from five
multi-store markets helped eliminate consumer confusion over the two consumer
offers.

In the new-vehicle market, we compete with other franchised dealers
offering vehicles produced by the same or other manufacturers and with auto
brokers and leasing companies. As is typical of such arrangements, our
existing franchise agreements do not guarantee exclusivity within a specified
territory. Aggressive discounting by manufacturers of new cars, which
typically occurs in the fall during the close-out of prior year models, may
result in lower retail prices and margins for used vehicles during such
discounting. In fiscal 2001 and 2000, our new-car sales were strong, resulting
in part from the highly promotional climate in the new-car industry.

We believe that the principal competitive factors in new-vehicle sales are
the following:

. price;

. dealer sales promotions;

. ability of dealerships to offer a wide selection of the most popular
vehicles;

. location of retail sites; and

. quality of customer service.

Given that the new-vehicle market has historically been served primarily by
dealerships employing traditional high-pressure, negotiation-oriented sales
techniques, we believe that our customer friendly, low- pressure sales methods
will create additional competitive factors in which we may have an advantage.

Seasonality

Our CarMax business is seasonal, with each location generally experiencing
more of its net sales in the first half of the fiscal year. During the fall
quarter, new-model-year introductions and discounting on close-out vehicles
can cause rapid depreciation of used-car prices, especially on late-model
vehicles. We anticipate that the seasonality of the business may vary from
region to region as our operations expand geographically.

Governmental Regulation

Our CarMax operations are subject to ongoing regulation, supervision and
licensing under various U.S. federal, state and local statutes, ordinances and
regulations. Among other things, these laws require that we obtain a license
in order to establish, operate or relocate a dealership or to operate an
automotive repair facility. These laws also regulate the manner in which we
conduct our business, including our advertising and sales practices.

Our financing activities with our customers are subject to U.S. federal
truth in lending, consumer lending and equal credit opportunity regulations as
well as state and local motor vehicle finance laws, installment finance laws,
usury laws and other installment sales laws. Some states regulate finance fees
that may be paid as a result of vehicle sales.

As with automobile dealerships generally, and service operations in
particular, our CarMax business involves the use, handling and disposal of
hazardous or toxic substances, including motor oil, gasoline, transmission
fluid, solvents, lubricants and other materials. The business also involves
the past and current operation and/or removal of aboveground and underground
storage tanks containing such substances. Accordingly, we are subject to U.S.
federal, state and local laws and regulations governing air and water quality
and the handling, storage and disposal of hazardous or toxic substances. We
believe that we do not have any material environmental liabilities and that
compliance with such laws and regulations will not, individually or in the
aggregate, have a material adverse effect on our results of operations or
financial condition. However, environmental laws and regulations are complex
and subject to frequent change. There can be no assurance that compliance with
amended, new or more stringent laws or regulations, stricter interpretations
of existing laws or the future discovery of environmental conditions at
current or future locations will not require additional expenditures by us, or
that such expenditures would not be material.

We believe that we are in substantial compliance with all laws affecting
our business. Possible penalties for violation of any of these laws include
revocation of licenses and imposition of fines. In addition, many laws may
give customers a private cause of action.

Employees

On May 31, 2001, CarMax had 4,638 hourly and salaried employees and 2,080
sales employees who worked on a commission basis. No CarMax employee is
subject to a collective bargaining agreement. Additional CarMax personnel are
employed during peak selling seasons.

MANAGEMENT OF CARMAX

The table below sets forth the management of CarMax:

Name Age Title
---- --- -----

W. Austin Ligon....... 50 President
Keith D. Browning..... 48 Executive Vice President, Chief Financial Officer
Thomas J. Folliard.... 36 Executive Vice President, Store Operations
Michael K. Dolan...... 52 Senior Vice President, Chief Information Officer
Joseph S. Kunkel...... 38 Senior Vice President, Marketing and Strategy

Mr. Ligon joined Circuit City Stores in 1990 as Vice President of Corporate
Planning and was named Senior Vice President in 1991. Along with Circuit City
Stores Chairman Richard Sharp, Mr. Ligon was the co-developer of the CarMax
concept and has been integrally involved in the leadership of the business
since its inception. He was named President of CarMax in 1995 and led CarMax
during the offering of the CarMax group stock in 1997. Mr. Ligon came to
Circuit City Stores from Marriott Corporation where he was Senior Vice
President of Strategic Planning for Marriott Hotels and Resorts.

Mr. Browning joined Circuit City Stores in 1982. He was Controller for the
West Coast division from 1984 to 1987. He was appointed Assistant Controller
for Circuit City Stores in 1987, was promoted to Corporate Controller in 1990
and was made Vice President of Circuit City Stores in 1992. Mr. Browning had
extensive experience with the rollout of the Circuit City concept, beginning
with the initial Circuit City Superstore rollout for the West Coast division.
Mr. Browning joined CarMax in early 1996 and has been involved in the
development of accounting procedures, systems and internal controls for CarMax
since its inception.

Mr. Folliard joined CarMax in 1993 as Senior Buyer and became Director of
Purchasing in 1994. Mr. Folliard was promoted to Vice President of
Merchandising of CarMax in 1996 and Senior Vice President of Store Operations
in July 2000. He was responsible for the design and development of the unique
CarMax purchasing process, the buyer training program and in-store wholesale
auction system.

Mr. Dolan joined CarMax in 1997 as Vice President and Chief Information
Officer. Mr. Dolan had prior executive experience in information systems with
H.E.B. Stores, a privately held grocery retailer, where he was Vice President
and Chief Information Officer.

Mr. Kunkel joined CarMax in 1998 as Vice President, Marketing and Strategy.
Prior to joining CarMax, Mr. Kunkel was President of Wholesome Kidfoods, Inc.
Mr. Kunkel was previously a Senior Manager with McKinsey and Company.

MANAGEMENT OF CIRCUIT CITY STORES, INC.

The table below sets forth the executive officers of Circuit City Stores,
Inc.:

Name Age Office
---- --- ------

W. Alan McCollough............. 51 President and Chief Executive Officer
Richard S. Birnbaum............ 48 Executive Vice President, Operations
Michael T. Chalifoux........... 54 Executive Vice President, Chief Financial
Officer and Corporate Secretary
John W. Froman................. 47 Executive Vice President, Merchandising
Ann-Marie Austin-Stephens...... 42 Senior Vice President, Store Innovation and
Development
Dennis J. Bowman............... 47 Senior Vice President and Chief Information
Officer
W. Stephen Cannon.............. 49 Senior Vice President and General Counsel
Fiona P. Dias.................. 35 Senior Vice President, Marketing
Philip J. Dunn................. 48 Senior Vice President, Treasurer and
Controller
W. Austin Ligon................ 50 Senior Vice President, Automotive
Gary M. Mierenfeld............. 50 Senior Vice President, Distribution and
National Service
Jeffrey S. Wells............... 55 Senior Vice President, Human Resources

BUSINESS OF THE CIRCUIT CITY GROUP

Overview

Our Circuit City business is a leading national retailer of brand-name
consumer electronics, personal computers and entertainment software. We sell
video equipment, including televisions, digital satellite systems, video
cassette recorders, camcorders, cameras and DVD players; audio equipment,
including home stereo systems and compact disc players; mobile electronics,
including car stereo systems and security systems; home office products,
including personal computers, printers, peripherals, software and facsimile
machines; other consumer electronic products, including cellular phones,
telephones and portable audio and video products; and entertainment software
and accessories. As of May 31, 2001, we operated 594 Circuit City Superstores
in 161 markets throughout the United States and 32 Circuit City Express mall
stores. We have established our presence in virtually all of the nation's top
100 markets and expect to continue adding to the existing store base as
attractive market opportunities arise.

Appliance Exit

We exited the major appliance business and expanded our consumer
electronics and home office product selections in fiscal 2001. When we exited
the appliance business, we closed six distribution centers and seven service
centers, and expect to close two distribution centers and one service center
by July 31, 2001. We have maintained control over the Circuit City in-home
major appliance repair business, although repairs are subcontracted to an
unrelated third party.

Outlook

We believe that increased household penetration of products and services
such as broadband Internet access, wireless communications, multi-channel
video programming devices, digital television and digital imaging will drive
profitability in the consumer electronics industry during this decade. We are
focusing significant attention on store remodeling, sales counselor training
programs, customer service enhancements, process improvements, inventory
management and marketing programs to improve the sales and profitability of
our Circuit City business.

As a part of our exit from the major appliance business, we partially
remodeled more than 500 Circuit City Superstores to refurbish and
remerchandise space formerly reserved for appliances with expanded selections
of computer software, peripherals and accessories; entertainment software,
including more DVD titles and an increased selection of video game hardware
and software; digital imaging products; and telecommunications products. In
addition to these partial remodels, we fully remodeled 26 Superstores to a new
design that offers better product placements and makes it easier for the
consumer to shop by placing more products on the sales floor rather than in
the store warehouse and by adding highly visible cash registers at the front
of each store. The design of the remodel is similar to the design used for 23
of 25 new stores opened in fiscal 2001.

At the time of our announced plans to exit the appliance business, we had
planned to fully remodel another 140 Circuit City Superstores in fiscal 2002.
Although consumer reaction to the remodels was favorable, they were more
costly and more disruptive to sales than we had anticipated. For that reason,
we reduced the fiscal 2002 remodeling plan from 140 to 24 Circuit City
Superstores, remodeling 10 stores in the Chicago market, 12 stores in the
Washington, D.C., market and two stores in the Norfolk, Virginia, market. The
Chicago and Norfolk remodels, which are the most extensive, are expected to
cost an average of $1.5 million and should be completed with no more than 60
days disruption to the sales floor. The design for all new stores in fiscal
2002 reflects the store design introduced last year. We expect to continue
enhancing both the new and remodel designs.

We plan to improve sales counselor training by continuing in fiscal 2002 to
add more training modules to our Web-based training programs, which were begun
last year. We are introducing a certification program to ensure that all
Circuit City store associates complete training modules on a timely basis and
proficiency tests to ensure that they stay up to date. We also have initiated
a Customer Satisfaction Council charged with improving policies and removing
any obstacles to customer service in our stores. In addition, we have several
pilot projects

underway that have simplified store operations and yielded improvements in
store productivity that we believe can increase customer satisfaction. We are,
for example, testing a new operating environment designed to speed front-
counter transactions and changes in inventory receiving, warehouse management
and store material flow to reduce truck-to-floor cycle time. Finally, we are
studying compensation to help ensure that it supports our customer service
goals.

In addition to these plans, we are undertaking efforts to reduce costs
while further improving customer satisfaction. We are adopting the Six Sigma
error reduction methodology, applying it to existing programs or new
processes. All Circuit City senior managers have completed at least an initial
Six Sigma training class. We are working with a team of outside consultants to
improve our inventory management, with the goal of reducing the amount of
stock in the system while improving in-stock positions for the consumer.

In July 2001, we introduced a new marketing campaign to help increase foot
traffic at all Circuit City Superstores. This new campaign, which is
accompanied by a new logo, will focus on the differentiated customer service
that consumers can find at a Circuit City store. We believe that this
campaign, combined with strong customer service delivery by our associates, a
powerful product offering and a more contemporary store shopping experience,
will help the Circuit City business gain market share in the consumer
electronics and home office retail segments. We will be monitoring our
progress with market research, including focus groups, mystery shops, online
surveys and third-party data, and through our sales and profitability growth.

Operating Procedures; Merchandising

Each Circuit City store location follows detailed operating procedures and
merchandising programs. Included are procedures for inventory maintenance,
customer relations, store administration, merchandise display, store security
and the demonstration and sale of products. Merchandise lines vary from
location to location based on store size and market characteristics. Most
merchandise is supplied directly to the stores from one of our eight automated
distribution centers which are strategically located around the country.

Our Circuit City operating regions use a centralized buying organization.
The central buying staff reduces costs by purchasing in large volumes and
structuring a sound basic merchandising program. Our merchandising strategy
emphasizes a broad selection of products, including the industry's newest
technologies, and a wide range of prices. Merchandise mix and displays are
controlled centrally to help ensure a high level of consistency from store to
store. Merchandise pricing varies by market to reflect local competitive
conditions.

Suppliers

During fiscal 2001, our 10 largest Circuit City suppliers accounted for
approximately 63% of merchandise purchased. Our major Circuit City suppliers
include Sony Electronics, Hewlett Packard, Compaq, Panasonic, Thomson, JVC,
Hitachi, eMachines, Toshiba and Philips. Brand-name advertised products are
sold by all of the Circuit City retail locations. We have no significant long-
term contracts for the purchase of merchandise.

Advertising

Our Circuit City business relies on considerable amounts of advertising to
maintain high levels of consumer awareness. Advertising expenditures from
continuing operations were 4.0% of net sales and operating revenues

in fiscal 2001, 3.7% of net sales and operating revenues in fiscal 2000 and
4.0% of net sales and operating revenues in fiscal 1999. Our Circuit City
business is generally one of the largest newspaper advertisers in the markets
that we serve. We primarily use print advertising, including multi-page
vehicles and run-of-press newspaper advertisements, for Superstore
advertising. We emphasize the use of multi-page vehicles to allow a more
extensive presentation of the broad selection of products and price ranges we
carry. In addition, we combine both network television and cable advertising
to communicate our consumer offer. Our Circuit City advertisements are
regularly seen in USA Today and on top-rated sports and entertainment
programs. We expect to add radio and national magazine advertising to this mix
in fiscal 2002.

As part of our competitive strategy, we advertise low prices and provide
customers with a low-price guarantee. For every product that we sell, with
some restrictions, we will meet any advertised price from a local store
stocking the same new item, available for sale with a manufacturer's warranty
and in a factory-sealed box. In most cases, if a customer finds a lower
advertised price, including our own sale price, within 30 days, we will refund
the difference to the customer.

Competition

The consumer electronics industry is highly competitive. Our competitors
include large specialty, discount or warehouse retailers as well as local,
regional and non-bricks-and-mortar retailers. We use service, selection and
pricing to differentiate Circuit City from the competition. As part of our
competitive strategy, Circuit City Superstores offer a broad selection of
merchandise that includes 3,100 to 4,300 brand-name items, excluding
entertainment software, depending on the selling square footage of the
Superstore. Professionally trained sales counselors, convenient credit
options, factory-authorized product repair, home delivery, installation
centers for automotive electronics exchange and no-lemon policies and extended
warranties reflect a strong commitment to customer service. We strive to
maintain highly competitive prices and offer customers a low-price guarantee.

Employees; Training

Our Circuit City Superstores are staffed with commissioned and hourly sales
associates; sales support personnel such as customer service associates,
merchandise specialists and stockpersons; a store manager; one or more sales
managers, an operations manager and one or more customer service managers. On
May 31, 2001, the Circuit City group had 30,612 hourly and salaried employees
and 14,325 employees who worked on a commission basis. None of these employees
are subject to a collective bargaining agreement. Additional personnel are
employed during peak selling seasons.

Store associates receive continuous training delivered by customized Web-
based interactive courses, supported with in-store mentoring. Courses include
product knowledge with an emphasis on new technology, customer service and
store operations. Associates also receive online tutoring with links to vendor
Web sites for additional resources. Management training programs are designed
to prepare future leaders and include Web-based training, in-store activities,
online tutoring and classroom instruction.

Consumer Credit

Because consumer electronics and personal computers represent relatively
large purchases for the average consumer, our Circuit City business is
affected by consumer credit availability, which varies with the state of the
economy and the location of a particular store. In fiscal 1991, we established
a credit card finance operation to issue a private-label credit card. The
finance operation's credit extension, customer service and collection
operations are fully automated with state-of-the-art technology to maintain a
high level of profitability and customer service. The credit card finance
operation also manages a bankcard portfolio. Receivables generated by both the
private-label credit card and bankcard programs are sold to non-affiliated
entities under asset securitization programs.

E-commerce

Our Circuit City e-Superstore Web site provides broad product selection,
convenient purchase and delivery options and in-depth product comparison
information. Internet customers can check the inventory of up to three Circuit
City Superstores in their market, as well as the in-stock availability from
the e-Superstore. The Web site inventory is also accessible from any store
location. Products can be shipped through the e-Superstore for normal shipping
charges or they can be picked up using the Express Pickup service at a local
Superstore. Products purchased through the e-Superstore are shipped from an
existing distribution center directly to the customer. Products purchased
through the Web site can be serviced, exchanged or returned to any Circuit
City Superstore location.

Distribution

As of June 30, 2001, we operated seven automated Circuit City electronics
distribution centers. These centers are designed to serve stores within a 500-
mile range. They use conveyor systems and laser bar-code scanners to reduce
labor requirements, prevent inventory damage and maintain inventory control.
We also operate smaller distribution centers handling primarily larger non-
conveyable electronics products. We believe that the use of the distribution
centers enables us to distribute efficiently a broad selection of merchandise
to our stores, reduce inventory requirements at individual stores, benefit
from volume purchasing and maintain accounting control. We also operate an
automated centralized distribution center for entertainment software. Most of
our store merchandise is distributed through our distribution centers.

Service

We offer service and repairs for nearly all the products we sell. Customers
are also able to purchase extended warranties on most of the merchandise that
we sell. We sell two extended warranty programs on behalf of unrelated third
parties that are the primary obligors. Under these programs, we have no
contractual liability to the customer. In states where third-party warranty
sales are not permitted, a warranty is sold for which we are the primary
obligor. During fiscal 2001, Circuit City initiated the Replacement Protection
Plan, which covers various types of electronics merchandise, including some
types of TVs, VCRs, MP3 players and Mini Disc players. If the customer
purchases an RPP and the merchandise becomes defective or is broken, the
customer can return the merchandise and receive a check for the retail price
of the merchandise, plus any shipping and handling.

Digital Video Express

Digital Video Express, a business that has now been discontinued, was
primarily engaged in the business of replicating and distributing specially
encrypted DVDs at wholesale. On June 16, 1999, Digital Video Express announced
that it would cease marketing of the Divx home video system and discontinue
operations, but existing, registered customers would be able to view discs
during a two-year phase-out period.

Inter-Group Reserved Shares

As of June 30, 2001, 75,440,000 shares of CarMax Group stock were reserved
for the Circuit City group or for issuance to holders of Circuit City group
stock. As of that date, shares of CarMax group stock reserved for the Circuit
City group represented approximately 74% of the total outstanding or reserved
shares of CarMax group stock, excluding shares reserved under our stock
incentive plans for employees and directors. We allocate to the Circuit City
group the portion of the net earnings (loss) of the CarMax group attributed to
shares of CarMax group stock reserved for the Circuit City group or for
issuance to holders of Circuit City group stock.

DESCRIPTION OF CAPITAL STOCK

We have summarized below the material terms of our capital stock and
material provisions of our articles of incorporation, our bylaws and our
shareholder rights plan. We encourage you to read these documents, all of
which we have filed as exhibits to the registration statement of which this
prospectus is a part.

The following summary refers to the shares of CarMax group stock that we
have reserved for the Circuit City group or for issuance to the holders of
Circuit City group stock. It also refers to the related outstanding shares
fraction calculated by dividing the number of outstanding shares of CarMax
group stock issued to the public by the sum of the number of outstanding
shares of CarMax group stock issued to the public plus the number of shares of
CarMax group stock then reserved for the Circuit City group or for issuance to
the holders of Circuit City group stock. The outstanding shares fraction will
equal one at any time that there are no shares of CarMax group stock then
reserved for that purpose.

The number of reserved shares of CarMax group stock and the outstanding
shares fraction may change in the future if we take specified actions,
including:

. issue additional shares of CarMax group stock;

. pay share dividends on CarMax group stock or Circuit City group stock in
CarMax group stock;

. repurchase CarMax group stock; or

. transfer cash, other assets or liabilities between the CarMax group and
Circuit City group.

These actions, and the effect that they would have on the holders of CarMax
group stock, are described further under "--CarMax Group Stock--Shares of
CarMax Group Stock Reserved for the Circuit City Group or for Issuance to the
Holders of Circuit City Group Stock."

Linkage Between Group Performance and Market Place

We believe that CarMax group stock will reflect the separate performance of
our CarMax businesses. Our belief is based in part on the following:

. upon the sale of 80% or more of the assets attributed to the CarMax
group stock, our board of directors is required to take action that
returns the value of the net proceeds of those assets to the holders of
CarMax group stock;

. the amount available for payment of dividends to the holders of CarMax
group stock may not exceed the amount that would be available for
payment of dividends if the businesses tracked by CarMax group stock
were a separate corporation;

. if we decide to spin-off the assets attributed to the CarMax group, we
can redeem shares of CarMax group stock with stock of one or more
wholly-owned subsidiaries that hold all of the assets and liabilities
attributed to the CarMax group; and

. the availability of separate, more detailed and specific public
information about the CarMax group and more focused coverage of the
CarMax group by research analysts.

Although we believe that these factors will cause CarMax group stock to
reflect the separate performance of our CarMax business, we cannot guarantee
that CarMax group stock will perform as intended.

Our CarMax Group and Our Circuit City Group

Our CarMax group consists of our CarMax business, and our Circuit City
group consists of all of our other businesses. The business of the CarMax
group is described beginning on page 43, and the business of the Circuit City
group is described briefly beginning on page 58. Neither group is a separate
legal entity. Neither group can

issue securities or incur obligations; those powers can only be exercised by
Circuit City Stores or one of its subsidiaries. CarMax group stock and Circuit
City group stock are both series of common stock of Circuit City Stores and
not of either group.

Actions by Our Board of Directors Without Shareholder Approval; No Separate
Board of Directors for the CarMax Group

Under our articles of incorporation, the board of directors of Circuit City
Stores is able to take actions with respect to the CarMax group and CarMax
group stock without shareholder approval so long as those actions are taken on
the terms and conditions set forth in our articles of incorporation. The
CarMax group does not have a separate board of directors to represent solely
the interests of holders of CarMax group stock. As described under "--Voting
Rights," the holders of CarMax group stock and the holders of Circuit City
group stock will generally vote together as a single voting group on all
matters on which holders of common stock are entitled to vote. This includes
the election of directors of Circuit City Stores.

If we decide to take other actions with respect to CarMax group stock or
the CarMax group that is not on the terms and conditions in our articles of
incorporation, we would be required to obtain shareholder approval of an
amendment to our articles of incorporation. In instances listed under "--
Voting Rights," approval of such an amendment would require both the approval
of the holders of CarMax group stock and Circuit City group stock, voting
together as a single voting group, and the approval of the holders of any
series of common stock affected by an amendment, voting as a separate voting
group.

The actions that our board of directors may take without shareholder
approval, discussed in more detail below, include decisions to:

. issue additional shares of CarMax group stock and Circuit City group
stock;

. pay dividends on a series of common stock, subject to the limitations
set forth in the articles of incorporation;

. convert one series of common stock into another series on the terms set
forth in the articles of incorporation;

. redeem the series of common stock tracking either group in exchange for
stock of one or more wholly-owned subsidiaries holding all of the assets
and liabilities attributed to that group;

. dispose of assets attributed to the CarMax group;

. pay a special dividend on, or redeem shares of, CarMax group stock or
convert shares of CarMax group stock into shares of another series if we
dispose of 80% or more of the assets attributed to the CarMax group; or

. take actions that require an increase or decrease in the number of
shares of CarMax group stock reserved for the Circuit City group or for
issuance to the holders of Circuit City group stock.

Authorized and Outstanding Shares of Common Stock

Our Capital Structure

Our articles of incorporation authorize us to issue 527 million shares of
stock as follows:

. 525 million shares of common stock in series, par value $.50 per share,
and

. two million shares of preferred stock in series, par value $20 per
share.

Of the 525 million shares of common stock, our board of directors has
designated:

. 350 million shares as "Circuit City Stores, Inc.--Circuit City Group
Common Stock," and

. 175 million shares as "Circuit City Stores, Inc.--CarMax Group Common
Stock."

As of June 30, 2001, 208,095,542 shares of Circuit City group stock and
26,643,573 shares of CarMax group stock were outstanding.

Of the two million shares of preferred stock, in connection with our
shareholder rights plan our board of directors has designated one million
shares as follows:

. 500,000 shares as "Cumulative Participating Preferred Stock, Series E,"
and

. 500,000 shares as "Cumulative Participating Preferred Stock, Series F."

As of June 30, 2001, none of these shares were outstanding.

Issuances of Common Stock Without Shareholder Approval

Our board of directors may issue authorized but unissued shares of CarMax
group stock and Circuit City group stock from time to time for any proper
corporate purposes, without shareholder approval, except as may be required by
Virginia law or the rules of any stock exchange on which any series of
outstanding common stock may then be listed.

Our articles of incorporation permit our board of directors at any time to
increase the number of shares in any series of common stock so long as the
number of shares in all series of common stock immediately after the increase
does not exceed the total number of shares of common stock authorized by our
articles of incorporation in effect at that time. Our articles of
incorporation also permit our board of directors to decrease the number of
shares in any series of common stock that it has previously designated, but
not below the number of shares of that series then outstanding.

Attribution of Proceeds of Issuance of CarMax Group Stock

If we issue shares of CarMax group stock for cash or other property, such
as in an acquisition, the proceeds of that sale, including property acquired
in an acquisition, may be attributed to the CarMax group. However, if there
are shares of CarMax group stock reserved for the Circuit City group or for
issuance to the holders of Circuit City group stock, our board of directors
will decide at the time of the issuance whether any portion of the proceeds
should be attributed to the Circuit City group. If it makes a determination to
attribute all or a portion of the proceeds to the Circuit City group, as in
this offering, then the number of those reserved shares would be reduced by
the number of shares sold for those proceeds.

When we attribute proceeds of an issuance of shares of CarMax group stock
to the Circuit City group, we may do so only to the extent there are a
sufficient number of shares of CarMax group stock reserved for the Circuit
City group or for issuance to the holders of Circuit City group stock. If at
the time of any sale of shares of CarMax group stock there were no shares of
CarMax group stock reserved for the Circuit City group or for issuance to the
holders of Circuit City group stock, we could not attribute the proceeds of
that sale to the Circuit City group.

CarMax Group Stock

Dividends

Our articles of incorporation provide that dividends on CarMax group stock
are limited to the lesser of:

. the assets of Circuit City Stores legally available for distribution
under Virginia law; and

. the CarMax group available dividend amount, which is intended to be the
same amount that would be legally available for the payment of dividends
on CarMax group stock if the CarMax group were a separate company under
Virginia law.

The CarMax group available dividend amount is calculated by first
multiplying:

. the outstanding shares fraction with respect to CarMax group stock

times

. the total assets attributed to the CarMax group less the total
liabilities attributed to the CarMax group,

and then subtracting from that calculated amount, unless our articles of
incorporation provide otherwise, the amount that would be needed to satisfy
the preferential rights upon dissolution of shares of stock, if any,
attributed to the CarMax group that have a preference over CarMax group stock
upon a dissolution of Circuit City Stores.

That amount would be the CarMax available dividend amount unless the
payment of a dividend in that amount would cause the assets attributed to the
CarMax group to be insufficient to pay debts attributed to the CarMax group as
they become due in the usual course of business. If so, then the CarMax
available dividend amount would be reduced by an amount sufficient to ensure
that the CarMax group would be able to pay those debts.

Under Virginia law, the amount of funds of Circuit City Stores legally
available for distributions is determined on the basis of our entire company,
and not only the respective groups. As a result, the amount of our legally
available funds will reflect the amount of:

. any net losses of each group;

. any distributions on CarMax group stock, Circuit City group stock or any
preferred stock; and

. any repurchases of CarMax group stock, Circuit City group stock or any
preferred stock.

Payments of dividends on CarMax group stock also may be restricted by loan
agreements, indentures and other agreements or obligations entered into by
Circuit City Stores from time to time.

If there are shares of CarMax group stock reserved for the Circuit City
group or for issuance to the holders of Circuit City group stock at the time
of any dividend on the outstanding shares of CarMax group stock, we will
credit to the Circuit City group, and charge against the CarMax group, an
amount that would be payable if the reserved shares were outstanding shares.

Voting Rights

The holders of CarMax group stock and the holders of Circuit City group
stock are entitled to vote on any matter on which our shareholders are, by
Virginia law, by stock exchange rules or by the provisions of our articles of
incorporation or our bylaws or as determined by our board or directors,
entitled to vote.

The holders of CarMax group stock and the holders of Circuit City group
stock, and any series of preferred stock entitled to vote with the holders of
common stock, will vote together as a single voting group on each matter on
which holders of common stock are generally entitled to vote, except as
described below.

On all matters as to which CarMax group stock and Circuit City group stock
will vote together as a single voting group:

. each share of CarMax group stock will have a number of votes, which may
be a fraction of one vote, equal to the average market value of one
share of CarMax group stock divided by the average market value of one
share of Circuit City group stock, calculated over a 20-trading day
period as follows:

. four times the average market value of CarMax group stock over the
five-trading day period ending on the tenth trading day prior to the
record date for determining the holders entitled to vote, plus

. three times the average market value of CarMax group stock over the
next preceding five-trading day period, plus

. two times the average market value of CarMax group stock over the
next preceding five-trading day period, plus

. the average market value of CarMax group stock over the next
preceding five-trading day period,

divided by

. four times the average market value of Circuit City group stock over
the five-trading day period ending on the tenth trading day prior to
the record date for determining the holders entitled to vote, plus

. three times the average market value of Circuit City group stock over
the next preceding five-trading day period, plus

. two times the average market value of Circuit City group stock over
the next preceding five-trading day period, plus

. the average market value of Circuit City group stock over the next
preceding five-trading day period.

As a result of this calculation, each share of CarMax group stock may
have more than, less than or exactly one vote per share; and

. each share of Circuit City group stock will have one vote.

The following illustration demonstrates the calculation of the number of
votes to which each share of CarMax group stock would be entitled on all
matters on which the holders of CarMax group stock and Circuit City group
stock vote together as a single group.

If:

. the average market value of the CarMax group stock for the four periods
specified above were $20, $19, $21 and $20, respectively, and

. the average market value of the Circuit City group stock for the four
periods specified above were $25, $24, $26 and $25, respectively,

then each share of Circuit City group stock would have one vote and each share
of CarMax group stock would have 0.799 votes based on the following
calculation:

(4 X $20) + (3 X $19) + (2 X $21) + (1 X $20) = .799
---------------------------------------------
(4 X $25) + (3 X $24) + (2 X $26) + (1 X $25)

Based on such number of votes, on any proposal where both series of stock vote
together as a single voting group and assuming six times as many shares of
Circuit City group stock as CarMax group stock are issued and outstanding, the
shares of Circuit City group stock and CarMax group stock would represent
approximately 88% and 12%, respectively, of the total voting power.

Accordingly, the relative per share voting rights of CarMax group stock and
Circuit City group stock will fluctuate depending on changes in the relative
market values of shares of the series of common stock.

We expect that Circuit City group stock will retain a substantial majority
of the total voting power of Circuit City Stores because we expect that the
total market value of the outstanding shares of Circuit City group stock will
continue to be greater than the total market value of the outstanding shares
of CarMax group stock.

We set forth the number of outstanding shares of CarMax group stock and
Circuit City group stock in our annual reports on Form 10-K and our quarterly
reports on Form 10-Q filed under the Securities Exchange Act of 1934. We
disclose in any proxy statement for a shareholders' meeting the number of
outstanding shares and per share voting rights of CarMax group stock and
Circuit City group stock.

If shares of only CarMax group stock are outstanding, each share will have
one vote. If CarMax group stock is entitled to vote as a separate voting group
with respect to any matter, each share of that series will, for purposes of
that vote, have one vote on such matter.

The holders of CarMax group stock and the holders of Circuit City group
stock will not have any rights to vote separately as a voting group on any
matter coming before our shareholders, except in the limited circumstances
provided under Virginia law described below or by stock exchange rules, our
articles of incorporation or our bylaws. Our board of directors could also
decide, in its sole discretion, to condition the taking of any action upon the
approval of the holders of CarMax group stock or the holders of Circuit City
group stock, voting as a separate voting group.

The holders of the outstanding shares of a series of common stock are
entitled to vote as a separate voting group on mergers, statutory share
exchanges and proposed amendments to our articles of incorporation if the
merger, statutory share exchange or amendment would otherwise require
shareholder approval and would:

. effect an exchange or reclassification of all or part of the shares of
the series into shares of another series or class;

. effect an exchange or reclassification, or create the right of exchange,
of all or part of the shares of another series or class into shares of
the series;

. change the designation, rights, preferences or limitations of all or
part of the shares of the series;

. change the shares of all or part of the series into a different number
of shares of the same series;

. create a new series or class of shares, or change a series or class with
subordinate and inferior rights into a series or class of shares having
rights or preferences with respect to distributions or to dissolution
that are prior, superior or substantially equal to the shares of the
series; or

. increase the rights, preferences or number of authorized shares of any
series or class having rights or preferences with respect to
distributions or to dissolution that are prior, superior or
substantially equal to the shares of the series.

Under Virginia law and our articles of incorporation:

. approval of certain matters, such as a merger, statutory share exchange,
sale of all or substantially all of the assets of Circuit City Stores
and certain amendments to our articles of incorporation, requires the
approval of the holders of more than two-thirds of the total number of
votes entitled to be cast thereon by each voting group,

. approval of any other amendments to the articles of incorporation
requires the approval of the holders of a majority of the votes entitled
to be cast thereon by each voting group, and

. approval of most other matters (other than the election of directors who
are elected by a plurality of the votes cast) requires the votes cast in
favor of the matter to exceed the votes cast opposing the matter.

Accordingly, if a separate vote on a matter by the holders of either CarMax
group stock or Circuit City group stock is not required under Virginia law and
if the board of directors does not require a separate vote, the series that is
entitled to more than the number of votes required to approve such matter will
be in a position to control the outcome of the vote on such matter even if the
matter involved a divergence or the appearance of a

divergence of the interests between the holders of CarMax group stock and
Circuit City group stock. Conversely, if a separate vote of the holders of
either the CarMax group stock or Circuit City group stock is required to
approve, for example, a merger of the type described above, the favorable vote
of the holders of more than two-thirds of the total number of votes entitled
to be cast with respect to each of CarMax group stock and Circuit City group
stock may be required for approval. In such instance, the holders of either
CarMax group stock or Circuit City group stock could prevent approval of such
merger notwithstanding the fact that the holders of more than two-thirds of
the total number of votes entitled to be cast with respect to both the CarMax
group stock and Circuit City group stock had voted in favor of it.

Conversion at Our Option

Conversion of CarMax Group Stock into Circuit City Group Stock. Our board
or directors may at any time, without shareholder approval, convert each share
of CarMax group stock into the number of shares of Circuit City group stock
equal to 115% of the ratio of the relative average market values of CarMax
group stock to Circuit City group stock calculated over a 20-trading day
period. We will determine this ratio as follows:

. four times the average market value of CarMax group stock over the five-
trading day period ending on the fifth trading day prior to the date of
the conversion notice mailed to holders, plus

. three times the average market value of CarMax group stock over the next
preceding five-trading day period, plus

. two times the average market value of CarMax group stock over the next
preceding five-trading day period, plus

. the average market value of CarMax group stock over the next preceding
five-trading day period,

divided by

. four times the average market value of Circuit City group stock over the
five-trading day period ending on the fifth trading day prior to the
date of the conversion notice mailed to holders, plus

. three times the average market value of Circuit City group stock over
the next preceding five-trading day period, plus

. two times the average market value of Circuit City group stock over the
next preceding five-trading day period, plus

. the average market value of Circuit City group stock over the next
preceding five-trading day period.

Conversion of Circuit City Group Stock into CarMax Group Stock. Our board
of directors may at any time, without shareholder approval, convert each share
of Circuit City group stock into the number of shares of CarMax group stock
equal to 115% of the ratio of the relative average market values of Circuit
City group stock to CarMax group stock calculated over a 20-trading day
period. We will determine this ratio as follows:

. four times the average market value of Circuit City group stock over the
five-trading day period ending on the fifth trading day prior to the
date of the conversion notice mailed to holders, plus

. three times the average market value of Circuit City group stock over
the next preceding five-trading day period, plus

. two times the average market value of Circuit City group stock over the
next preceding five-trading day period, plus

. the average market value of Circuit City group stock over the next
preceding five-trading day period,

divided by

. four times the average market value of CarMax group stock over the five-
trading day period ending on the fifth trading day prior to the date of
the conversion notice mailed to holders, plus

. three times the average market value of CarMax group stock over the next
preceding five-trading day period, plus

. two times the average market value of CarMax group stock over the next
preceding five-trading day period, plus

. the average market value of CarMax group stock over the next preceding
five-trading day period.

Purposes of Optional Conversion Provisions; Shareholder Considerations. The
conversion provisions described above allow us the flexibility to recapitalize
CarMax group stock and Circuit City group stock into one series of common
stock that would, after the recapitalization, represent an equity interest in
the combined businesses of the CarMax group and the Circuit City group. Such
optional conversion could be exercised at any future time if our board of
directors determines that, under particular facts and circumstances then
existing, an equity structure including these two series of common stock was
no longer in the best interests of Circuit City Stores. A conversion could be
exercised at a time that is disadvantageous to the holders of CarMax group
stock.

Conversion would be based upon the relative market values of CarMax group
stock and Circuit City group stock. Many factors could affect the market
values of CarMax group stock or Circuit City group stock, including our
results of operations and those of each of the groups, trading volume and
general economic and market conditions. Market values also could be affected
by decisions by our board of directors or our management that investors
perceive to affect differently the series of stock related to one group
compared to the series of stock related to the other group. These decisions
could include changes to our inter-group policies, transfers of assets and
liabilities between groups, allocations of corporate opportunities and
financing resources between the groups and changes in dividend policies.

The following illustration demonstrates the calculation of the number of
shares issuable upon conversion of CarMax group stock into shares of Circuit
City group stock at our option.

If:

. the weighted average market value, as calculated above, of one share of
CarMax group stock over the 20-trading day valuation period was $19.90
per share, and

. the weighted average market value of one share of Circuit City group
stock over the 20-trading day valuation period was $24.90 per share,

then each share of CarMax group stock could be converted into 0.919 shares of
Circuit City group stock based on the following calculation:

weighted average market value
115% X of CarMax group stock =
-----------------------------
weighted average market value
of Circuit City group stock

1.15 X $19.90 per share = 0.919 shares
-----------------------------
$24.90 per share

Redemption of CarMax Group Stock in Exchange for Stock of Subsidiary

Our board of directors may at any time, without shareholder approval,
redeem on a pro rata basis all of the outstanding shares of CarMax group stock
in exchange for shares of common stock of one or more of our wholly-owned
subsidiaries that own all of the assets and liabilities attributed to the
CarMax group.

These provisions are intended to give us increased flexibility with respect
to spinning-off the assets and liabilities attributed to the CarMax group by
transferring all of the assets and liabilities attributed to the CarMax

group to one or more wholly-owned subsidiaries. As a result of this
redemption, the holders of CarMax group stock and the holders of Circuit City
group stock would hold securities of separate legal entities operating in
distinct lines of business. No decision has been made to spin off the assets
and liabilities attributed to the CarMax group; however, this redemption could
be authorized by our board of directors at any time in the future if it
determines that, under the facts and circumstances then existing, an equity
structure comprised of CarMax group stock and Circuit City group stock is no
longer in the best interests of Circuit City Stores and a spin-off of the
assets attributed to the CarMax group in a company separate from Circuit City
Stores is desirable.

If at the time of this redemption of CarMax group stock there are shares of
CarMax group stock reserved for the Circuit City group or for issuance to the
holders of Circuit City group stock, the number of shares of those
subsidiaries that we will exchange for all of the outstanding shares of CarMax
group stock in such redemption will be equal to the product of:

. the outstanding shares fraction; and

. the number of shares of common stock of each subsidiary that will be
outstanding immediately after the redemption.

We will retain the balance of the shares of those subsidiaries for the Circuit
City group or distribute them to the holders of Circuit City group stock.

We may redeem shares of CarMax group stock for subsidiary stock only if we
have assets legally available for distribution under Virginia law.

The following illustration demonstrates the application of the provisions
with respect to a redemption of all CarMax group stock in exchange for shares
of the common stock of one of our wholly-owned subsidiaries that owns all of
the assets and liabilities attributed to the CarMax group.

If:

. 40 million shares of CarMax group stock were outstanding,

. 60 million shares of CarMax group stock were reserved for the Circuit
City group or for issuance to the holders of Circuit City group stock,
resulting in a 2/5 outstanding shares fraction, and

. 100 million shares of common stock of that CarMax group subsidiary will
be outstanding immediately after the redemption,

then we will exchange 40 million shares of common stock of that CarMax group
subsidiary for CarMax group stock based on the following calculation:

the number of shares of
common stock of that CarMax
outstanding X group subsidiary that will =
shares fraction be outstanding
immediately after the
redemption

2/5 X 100 million = 40 million shares

As a result of the outstanding shares fraction, we will retain the
remaining 60 million shares of common stock of that CarMax group subsidiary
for the Circuit City group or distribute them to the holders of Circuit City
group stock.

Mandatory Dividend, Redemption or Conversion of CarMax Group Stock if
Disposition of the Assets Attributed to the CarMax Group Occurs

If we dispose of 80% or more of the then fair value of the properties and
assets attributed to the CarMax group in a transaction or series of related
transactions, our board of directors is required to take action that returns
the value of the net proceeds of those assets to the holders of CarMax group
stock. That action could take the form of a special dividend, a redemption of
shares or a conversion into Circuit City group stock. There are exceptions,
however, to this requirement that are described below under "--Exceptions to
the Mandatory Dividend, Redemption or Conversion of CarMax Group Stock if a
Disposition of the Assets Attributed to the CarMax Group Occurs."

If no exception applies, our board of directors will elect, without
shareholder approval, to do one of the following:

. pay a special dividend to the holders of CarMax group stock in cash
and/or securities (other than common stock) or other property having a
fair value equal to the product of:

--the outstanding shares fraction with respect to CarMax group stock,
and

--the net proceeds of the disposition;

. if the disposition involves:

--100% of the properties and assets, redeem all outstanding shares of
CarMax group stock in exchange for cash and/or securities or other
property having a fair value equal to the product of:

. the outstanding shares fraction with respect to CarMax group
stock, and

. the net proceeds of the disposition;

--80% or more, but less than 100%, of the properties and assets, redeem
a number of whole shares of CarMax group stock in exchange for cash
and/or securities or other property having a fair value equal to the
product of:

. the outstanding shares fraction with respect to CarMax group
stock, and

. the net proceeds of the disposition;

the number of shares so redeemed will have in the aggregate an average
market value, during the period of ten consecutive trading days
beginning on the 16th trading day following the disposition date,
closest to the product of:

. the outstanding shares fraction with respect to CarMax group stock,
and

. the net proceeds of the disposition; or

. convert each outstanding share of CarMax group stock into a number of
shares of Circuit City group stock equal to 110% of the ratio of the
average market value of one share of CarMax group stock to the average
market value of one share of Circuit City group stock. We will calculate
the average market values during the ten-trading day period beginning on
the 16th trading day following the disposition date.

In addition, within one year from the date of the payment of a dividend or
the making of a redemption as described above, our board of directors may
convert each share of CarMax group stock into the number of shares of Circuit
City group stock equal to 110% of the ratio of the relative average market
values of CarMax group stock to Circuit City group stock calculated over a 20-
trading day period. We will determine this ratio as follows:

. four times the average market value of CarMax group stock over the five-
trading day period ending on the fifth trading day prior to the date of
the conversion notice mailed to holders, plus

. three times the average market value of CarMax group stock over the next
preceding five-trading day period, plus

. two times the average market value of CarMax group stock over the next
preceding five-trading day period, plus

. the average market value of CarMax group stock over the next preceding
five-trading day period,

divided by

. four times the average market value of Circuit City group stock over the
five-trading day period ending on the fifth trading day prior to the
date of the conversion notice mailed to holders, plus

. three times the average market value of Circuit City group stock over
the next preceding five-trading day period, plus

. two times the average market value of Circuit City group stock over the
next preceding five-trading day period, plus

. the average market value of Circuit City group stock over the next
preceding five-trading day period.

If there are shares of CarMax group stock reserved for the Circuit City
group or for issuance to the holders of Circuit City group stock at the time
of any special dividend on or redemption of CarMax group stock, we will credit
to the Circuit City group, and charge against the CarMax group, an amount that
would be payable if the reserved shares of CarMax group stock were outstanding
shares.

We may only pay a special dividend or redeem shares of CarMax group stock
if we have assets available for distributions under Virginia law and the
amount to be paid to holders is less than or equal to the CarMax group
available dividend amount. We will pay the special dividend or complete the
redemption or conversion on or prior to the 85th trading day following the
disposition date.

The "net proceeds" of a disposition means an amount equal to what remains
of the gross proceeds of the disposition after any payment of, or reasonable
provision is made as determined by our board of directors for:

. any taxes we estimate will be payable by us, or which we estimate would
have been payable but for the utilization of tax benefits attributable
to the other group, in respect of the disposition or in respect of any
resulting dividend or redemption;

. any transaction costs, including, without limitation, any legal,
investment banking and accounting fees and expenses; and

. any liabilities attributed to the CarMax group, including, without
limitation:

. any liabilities for deferred taxes,

. any indemnity or guarantee obligations incurred in connection with
the disposition or otherwise,

. any liabilities for future purchase price adjustments, and

. any preferential amounts plus any accumulated and unpaid dividends
in respect of any preferred stock attributed to the CarMax group.

We may elect to pay the special dividend or redemption price either in:

. the same form as the proceeds of the disposition were received; or

. any other combination of cash, securities (other than common stock) or
other property that our board of directors or, in the case of securities
that have not been publicly traded for a period of at least 15 months,
an independent investment banking firm, determines will have a total
market value of not less than the fair value of the net proceeds.

The factors our board of directors will consider when it is required to
choose among paying a special dividend, redeeming shares or converting shares
of CarMax group stock into Circuit City group stock will depend upon all of
the facts and circumstances at the time. If we dispose of 80% or more of the
properties and assets attributed to the CarMax group, we probably would redeem
the shares of CarMax group stock or exercise our conversion option because the
scope or scale of the remaining properties and assets attributed to the group
would likely not provide a reasonable basis for a tracking stock for the
CarMax group. We may wish to convert CarMax group stock into Circuit City
group stock, even at the applicable premium, if it was then desirable for us
to retain the proceeds of the sale for our remaining businesses; however, the
likely taxability of an asset sale and the dividend or redemption at both the
corporate and shareholder levels makes it very unlikely that we would dispose
of any substantial amount of properties or assets in this manner.

The following illustration demonstrates the application of the provisions
requiring a mandatory special dividend, redemption or conversion if a
disposition of the assets attributed to the CarMax group occurs.

If:

. 40 million shares of CarMax group stock were outstanding;

. 60 million shares of CarMax group stock were reserved for the Circuit
City group or for issuance to the holders of Circuit City group stock,
resulting in a 2/5 outstanding shares fraction;

. the net proceeds of the sale of more than 80% but less than 100% of the
properties and assets attributed to the CarMax group equals $1.8
billion;

. the average market value of CarMax group stock during the ten-trading
day valuation period was $20 per share; and

. the average market value of Circuit City group stock during the ten-
trading day valuation period was $25 per share;

then we could do any one of the following:

(1) pay a special dividend to the holders of CarMax group stock equal to:

outstanding
shares fraction X net proceeds =
----------------------------
number of outstanding shares
of CarMax group stock

2/5 X $1.8 billion = $18 per share
----------------------------
40 million shares

Because of the reserved shares of CarMax group stock, we will credit to the
Circuit City group, and charge against the CarMax group, $1.08 billion (3/5
x $1.8 billion).

(2) redeem for $20 per share a number of shares of CarMax group stock equal
to:

outstanding
shares fraction X net proceeds =
----------------------------
average market value
of CarMax group stock

2/5 X $1.8 billion = 36 million shares
----------------------------
$20 per share

At the same time, because of the reserved shares of CarMax group stock, we
will effectively treat as redeemed 54 million reserved shares of CarMax
group stock for $20 per share by crediting to the Circuit City group, and
charging against the CarMax group, $1.08 billion.

(3) convert each outstanding share of CarMax group stock into a number of
shares of Circuit City group stock equal to:

average market value
110% X of CarMax group stock =
----------------------------
average market value of
Circuit City group stock
1.1 X $20 per share = 0.88 shares
----------------------------
$25 per share

Exceptions to the Mandatory Dividend, Redemption or Conversion of CarMax
Group Stock if a Disposition of the Assets Attributed to the CarMax Group
Occurs. We are not required to take any of the above actions for any
disposition of 80% or more of the properties and assets attributed to the
CarMax group in a transaction or series of related transactions that results
in our receiving for those properties and assets primarily equity securities
of any entity that:

. acquires those properties or assets or succeeds to the business
conducted with those properties or assets or that controls such acquirer
or successor, and

. is primarily engaged or proposes to engage primarily in one or more
businesses similar or complementary to those businesses conducted by the
CarMax group prior to the disposition, as determined by our board of
directors.

The purpose of this exception is to enable us to technically "dispose" of
properties or assets attributed to the CarMax group to another entity engaged
or proposing to engage in businesses similar or complementary to those of the
CarMax group without requiring a special dividend on, or redemption or
conversion of, CarMax group stock, so long as we receive an equity interest in
that entity. We are not required to control that entity, whether by ownership
or contractual provisions.

In addition, we are not required to effect a special dividend, redemption
or conversion if a disposition is:

. of 80% or more of our properties and assets in one transaction or series
of related transactions in connection with our dissolution and the
distribution of our assets to shareholders,

. on a pro rata basis, such as a spin-off, or

. made to any person or entity controlled by us, as determined by our
board of directors.

Notices if Disposition of the Assets Attributed to the CarMax Group
Occurs. Not later than the 10th trading day after the disposition date, we
will announce publicly by press release:

. the net proceeds of the disposition;

. the number of shares outstanding of CarMax group stock;

. the number of shares of CarMax group stock into or for which convertible
securities are then convertible, exchangeable or exercisable and the
conversion, exchange or exercise price of those convertible securities;
and

. if applicable, the outstanding shares fraction on the date of the
notice.

Not earlier than the 26th trading day and not later than the 30th trading
day after the disposition date, we will announce publicly by press release
whether we will pay a special dividend or redeem shares of CarMax group stock
with the net proceeds of the disposition or convert the shares of CarMax group
stock into Circuit City group stock.

We will mail to each holder of CarMax group stock the additional notices
and other information required by our articles of incorporation.

Disposition of Less than 80% of the Assets. If we dispose of less than 80%
of the properties and assets attributed to the CarMax group in a transaction
or series of transactions, we will attribute the proceeds to the CarMax group.
We will use those proceeds:

. in the business of the CarMax group;

. for distribution to the holders of CarMax group stock: or

. to buy back shares of CarMax group stock in the open market.

We may use those proceeds in the business of the Circuit City group only if we
reattribute to the CarMax group consideration with an equivalent fair value.

Selection of Shares for Redemption

If fewer than all of the outstanding shares of CarMax group stock are to be
redeemed, we will redeem those shares proportionately from among the holders
of outstanding shares of CarMax group stock or by such other method as may be
determined by our board of directors to be equitable.

Fractional Interests; Transfer Taxes

We are not required to issue fractional shares of any capital stock or any
fractional securities to any holder of CarMax group stock upon any conversion,
redemption, dividend or other distribution described above. If a fraction is
not issued to a holder, we will pay cash instead of that fraction.

We will pay all documentary, stamp or similar issue or transfer taxes that
may be payable in respect of the issue or delivery of any shares of capital
stock and/or other securities to the holders of record on redemption or
conversion of shares.

Liquidation Rights

Under our articles of incorporation, in the event of our dissolution, the
holders of CarMax group stock and the holders of Circuit City group stock will
be entitled to receive our assets on a per share basis in proportion to the
liquidation units per share of such series. However, holders of CarMax group
stock and Circuit City group stock will be entitled to receive our assets only
after payment or provision for payment of the debts and other liabilities of
Circuit City Stores and full preferential amounts to which holders of any
preferred stock are entitled.

Each outstanding share of CarMax group stock and each outstanding share of
Circuit City group stock has one liquidation unit.

The number of liquidation units to which each share of CarMax group stock
is entitled will not be changed without the approval of the holders of the
series of common stock adversely affected thereby voting as a separate voting
group, except in the limited circumstances described below. As a result, the
liquidation rights of the holders of the respective series of common stock do
not, and in the future may not, bear any relationship to the relative market
values, the relative voting rights of the series of common stock or the value
of the assets attributed to the groups.

No holder of CarMax group stock will have any special right to receive
specific assets attributed to the CarMax group and no holder of Circuit City
group stock will have any special right to receive specific assets attributed
to the Circuit City group in the case of our dissolution.

If we subdivide or combine the outstanding shares of a series of common
stock or declare a dividend or other distribution of shares of a series of
common stock to holders of that series of common stock, the number of
liquidation units of either series will be appropriately adjusted by our board
of directors so as to avoid any dilution in liquidation rights of any series.

Neither a merger or share exchange of Circuit City Stores into or with any
other corporation, nor any sale, lease, exchange or other disposition of all
or any part of our properties and assets, will, alone, cause the liquidation
of Circuit City Stores, for purposes of these liquidation rights provisions.

Shares of CarMax Group Stock Reserved for the Circuit City Group or for
Issuance to the Holders of Circuit City Group Stock

As of June 30, 2001, we had reserved 75,440,000 shares of CarMax group
stock for the Circuit City group or for issuance to the holders of Circuit
City group stock. Because the shares of CarMax group stock being sold in this
offering are included, prior to the offering, in the number of shares of
CarMax group stock reserved for the Circuit City group or for issuance to the
holders of Circuit City group stock, the total number of shares of CarMax
group stock outstanding or reserved for the Circuit City group or for issuance
to holders of Circuit City group stock will not increase. The 7,500,000 shares
issued in this offering will represent approximately 9.9% of the shares of
CarMax group stock reserved for the Circuit City group or for issuance to
holders of Circuit City group stock.

The 75,440,000 shares of CarMax group stock that we have reserved for the
Circuit City group or for issuance to the holders of Circuit City group stock
are not outstanding shares of CarMax group stock and are not entitled to vote
until we actually issue them. The outstanding shares fraction indicates the
relationship between the shares of CarMax group stock held by the public and
the sum of those shares and the shares reserved for the Circuit City group or
for issuance to the holders of Circuit City group stock. It is calculated by
dividing the number of shares of CarMax group stock issued to the public by
the sum of the number of shares of CarMax group stock issued to the public
plus the number of shares of CarMax group stock then reserved for the Circuit
City group or for issuance to the holders of Circuit City group stock. The
outstanding shares fraction will equal one at any time that there are no
shares of CarMax group stock then reserved for the Circuit City group or for
issuance to the holders of Circuit City group stock. Immediately after this
offering, the outstanding shares fraction will equal approximately 33%. If the
underwriters exercise their overallotment option in full, the outstanding
shares fraction will equal approximately 34%.

At any time that there are shares of CarMax group stock reserved for the
Circuit City group or for issuance to the holders of Circuit City group stock,
the outstanding shares fraction will be used to allocate to the Circuit City
group any dividend or redemption payment made to the holders of CarMax group
stock.

The following illustration demonstrates the calculation of the outstanding
shares fraction.

If:

. 40 million shares of CarMax group stock were outstanding, and

. 60 million shares of CarMax group stock were reserved for the Circuit
City group or for issuance to the holders of Circuit City group stock,

then the outstanding shares fraction with respect to CarMax group stock would
equal 2/5 based on the following calculation:

number of shares of
CarMax group stock outstanding =
-----------------------------------
number of shares of CarMax group
stock outstanding + number of
reserved shares of CarMax group
stock

40 million shares = 2/5
-----------------------------------
40 million shares + 60 million
shares

The number of shares of CarMax group stock reserved for the Circuit City
group or for issuance to the holders of Circuit City group stock will be
increased, without shareholder approval, to reflect:

. share dividends of CarMax group stock to holders of CarMax group stock;

. reclassifications of CarMax group stock resulting in a greater number of
shares of CarMax group stock outstanding;

. purchases of CarMax group stock with assets attributed to the Circuit
City group; and

. transfers to the CarMax group of assets attributed to the Circuit City
group.

The number of shares of CarMax group stock reserved for the Circuit City
group or for issuance to the holders of Circuit City group stock will be
decreased, without shareholder approval, to reflect:

. sales of CarMax group stock for the account of the Circuit City group,
as in this offering;

. share dividends of CarMax group stock to the holders of Circuit City
group stock;

. the issuance of CarMax group stock when convertible securities are
converted if those shares of CarMax group stock were reserved for the
Circuit City group or for issuance to the holders of Circuit City group
stock;

. the issuance of CarMax group stock when securities convertible into
CarMax group stock and issued as a distribution to the holders of
Circuit City group stock are converted;

. reclassifications of CarMax group stock resulting in a smaller number of
shares of CarMax group stock outstanding; and

. transfers to the Circuit City group of assets attributed to the CarMax
group.

Determinations by the Board of Directors

Any determinations made in good faith by our board of directors with
respect to a series of common stock will be final and binding on all of our
shareholders.

Preemptive Rights

The holders of CarMax group stock do not have any preemptive rights or any
rights to convert their shares into any other securities of Circuit City
Stores.

Circuit City Group Stock

Dividends

Our articles of incorporation provide that dividends on Circuit City group
stock are limited to the lesser of:

. the assets of Circuit City Stores legally available for distribution
under Virginia law; and

. the Circuit City group available distribution amount.

The Circuit City group available distribution amount will be calculated in
a manner similar to the manner in which the CarMax group available
distribution amount is calculated.

Voting Rights

The holders of Circuit City group stock have the voting rights described
under "--CarMax Group Stock--Voting Rights."

Conversion and Redemption

Circuit City group stock is subject to conversion and redemption as
described under "--CarMax Group Stock--Conversion at Our Option," "--CarMax
Group Stock--Redemption of CarMax Group Stock in Exchange for Stock of
Subsidiary" and "--CarMax Group Stock--Mandatory Dividend, Redemption or
Conversion of CarMax Group Stock if Disposition of the Assets Attributed to
the CarMax Group Occurs."

Liquidation Rights

In the event of our dissolution, the holders of Circuit City group stock
are entitled to receive assets as described under "--CarMax Group Stock--
Liquidation Rights."

Preemptive Rights

The holders of Circuit City group stock do not have any preemptive rights
or any rights to convert their shares into any other securities of Circuit
City Stores.

Shareholder Rights Plan

Under our shareholder rights plan:

. each outstanding share of CarMax group stock has associated with it a
right to purchase one four-hundredth of a share of our Series F
Preferred Stock at a purchase price of $100, subject to adjustment; and

. each outstanding share of Circuit City group stock has associated with
it a right to purchase one eight-hundredth of a share of our Series E
Preferred Stock at a purchase price of $125, subject to adjustment.

The purpose of the rights agreement is to:

. give our board of directors the opportunity to negotiate with any
persons seeking to obtain control of Circuit City Stores;

. deter acquisitions of voting control of Circuit City Stores, or of any
series of our common stock, without assurance of fair and equal
treatment of all of our shareholders or all holders of that series of
common stock, as applicable; and

. prevent a person from acquiring in the market a sufficient amount of
Circuit City Stores voting power, or a sufficient number of shares of a
series of our common stock, to be in a position to block an action
sought to be taken by our shareholders or by the holders of that series
of common stock, as applicable.

The exercise of the rights would cause substantial dilution to a person
attempting to acquire Circuit City Stores on terms not approved by our board
of directors and therefore would significantly increase the price that person
would have to pay to acquire Circuit City Stores. Our rights plan may deter a
potential hostile acquisition or tender offer.

Until a distribution date occurs, the CarMax group rights and the Circuit
City group rights:

. will not be exercisable; and

. will be represented by the same certificate that represents the shares
with which the rights are associated and will trade together with those
shares.

Following a distribution date, the rights would become exercisable and we
would issue separate certificates representing the rights, which would trade
separately from CarMax group stock and Circuit City group stock.

A "distribution date" would occur upon the earlier of:

. the 10th day following a public announcement that a person or group of
affiliated persons has become an acquiring person, or

. the 10th business day (or such later time as our board of directors may
determine prior to any person or group of persons becoming an acquiring
person) following the commencement of, or first public announcement of
the intent of any person or group of affiliated persons to commence, a
tender offer or exchange offer that, if successful, would result in the
person or group of persons becoming an acquiring person.

Under our shareholder rights plan, a person or group of persons becomes an
"acquiring person" if such person or group has acquired or obtained the right
to acquire beneficial ownership of either:

. 15% or more of the outstanding shares of Circuit City group stock, or

. 30% or more of the outstanding shares of CarMax group stock and 15% or
more of the voting power of the outstanding shares of CarMax group stock
and Circuit City group stock.

For these purposes, the voting power at any time of a share of CarMax group
stock or Circuit City group stock will be the voting power shown in Circuit
City Store's most recent definitive proxy statement filed with the SEC.

If any person or group of persons becomes an acquiring person, then,
following the distribution date, each holder of a CarMax group right and each
holder of a Circuit City group right, other than the acquiring person (whose
rights are thereafter void), will be entitled to receive, upon the exercise of
such right, a number of shares of CarMax group stock or Circuit City group
stock, respectively, having a market value two times the exercise price.

At any time following the date on which a person or group of persons
becomes an acquiring person, if:

. Circuit City Stores merges or enters into any similar business
combination and Circuit City Stores is not the surviving corporation,

. another entity merges or enters into any similar transaction with
Circuit City Stores, and Circuit City Stores is the surviving
corporation but all or part of our common stock is converted or
exchanged for other securities, cash or property,

. Circuit City Stores enters into a statutory share exchange, or

. 50% or more of the assets or earning power of Circuit City Stores is
sold or transferred,

then following the distribution date each holder of a CarMax group right and
each holder of a Circuit City group right will be entitled to receive, upon
the exercise of such right, a number of shares of common stock of the
acquiring entity having a market value two times the exercise price.

At any time prior to the time a person or group of persons becomes an
acquiring person, our board of directors may redeem all of the CarMax group
rights at a redemption price of $.01 per right and all of the Circuit City
group rights at a redemption price of $.005 per right. On the redemption date,
the rights will expire and the only entitlement of the holders of rights will
be to receive the redemption price.

At any time after a person or group of persons becomes an acquiring person,
and before any acquiring person acquires 50% or more of the outstanding shares
of our common stock, we may require a holder to exchange all or any portion of
its rights at an exchange ratio of:

. one share of CarMax group stock or one four-hundredth of a share of
Series F preferred stock per CarMax group right, or

. one share of Circuit City group stock or one eight-hundredth of a share
of Series E preferred stock per Circuit City group right.

Until a right is exercised, the holder of a right will have no rights as a
shareholder of Circuit City Stores, including, without limitation, the right
to vote or to receive dividends. After exercise, each one four-hundredth of a
share of Series F preferred stock will be entitled to:

. a quarterly dividend equal to the greater of the quarterly dividend
declared on the CarMax group stock or $.01,

. upon liquidation, a minimum preferential liquidation payment equal to
the greater of $100 or the market price of the CarMax group stock at the
time of liquidation, plus accrued and unpaid dividends, and

. in the event of a merger, consolidation or other transaction in which
CarMax group stock is exchanged, the same amount received per share of
CarMax group stock.

After exercise, each one eight-hundredth of a share of Series E preferred
stock will be entitled to:

. a quarterly dividend equal to the greater of the quarterly dividend
declared on the Circuit City group stock or $.005,

. upon liquidation, a minimum preferential liquidation payment equal to
the greater of $125 or the market price of the Circuit City group stock
at the time of liquidation, plus accrued and unpaid dividends, and

. in the event of a merger, consolidation or other transaction in which
Circuit City group stock is exchanged, the same amount received per
share of Circuit City group stock.

The CarMax group rights and the Circuit City group rights will expire on
April 14, 2008, unless earlier exercised by a holder or redeemed by Circuit
City Stores.

Provisions of our shareholder rights plan relating to the principal
economic terms of the rights generally may not be amended at any time. At any
time prior to the time any person or group of persons becomes an acquiring
person, we may supplement or amend other provisions of the shareholder rights
plan in any manner, without the approval of any holders of rights, whether or
not such supplement or amendment is or would be adverse to any holders of the
rights. Thereafter, we may, without the approval of any holders of rights,
supplement or amend the shareholder rights plan only:

. to cure any ambiguity, defect or inconsistency, or

. in any manner that would not adversely affect the interests of the
holders of rights, other than interests of an acquiring person.

Although the issuance of the rights will not be taxable to shareholders or
to Circuit City Stores, shareholders may, depending upon the circumstances,
recognize taxable income at such time as the rights become exercisable

or are exercised for common stock or other consideration of Circuit City
Stores or for common stock of an acquiring person, as described above.

Anti-Takeover Considerations, Our Articles of Incorporation and Bylaws

The following discussion concerns material provisions of Virginia law, our
articles of incorporation and our bylaws that could be viewed as having the
effect of discouraging an attempt to obtain control of Circuit City Stores. We
have described the anti-takeover aspects of our shareholder rights plan above.

Anti-Takeover Statutes

We are subject to the Virginia anti-takeover law regulating "control share
acquisitions." A control share acquisition is an acquisition of voting shares
by a person which, when added to all the other voting shares beneficially
owned by that person, would cause that person's voting strength with respect
to an election of directors to meet or exceed any of the following thresholds:

. one-fifth,

. one-third, or

. a majority.

Under Virginia law, shares acquired in a control share acquisition have no
voting rights unless granted by a majority vote of all outstanding shares
other than those held by the acquiring person or any officer or employee
director of the corporation, or the articles of incorporation or bylaws of the
corporation provide that this regulation does not apply to acquisitions of its
shares. An acquiring person that owns five percent or more of the
corporation's voting stock may require that a special meeting of the
shareholders be held, within 50 days of the acquiring person's request, to
consider the grant of voting rights to the shares acquired or to be acquired
in the control share acquisition. If voting rights are not granted and the
corporation's articles of incorporation or bylaws permit, the acquiring
person's shares acquired in a control share acquisition may be repurchased by
the corporation, at its option, at a price per share equal to the acquiring
person's cost. Virginia law grants dissenters' rights to any shareholder who
objects to a control share acquisition that is approved by a vote of
disinterested shareholders and that gives the acquiring person control of a
majority of the corporation's voting shares.

We are also subject to the Virginia law regulating "affiliated
transactions." Material acquisition transactions between a Virginia
corporation and any holder of more than 10% of any class of its outstanding
voting shares are required to be approved by:

. the holders of at least two-thirds of the remaining voting shares, and

. a majority of the disinterested directors if the acquisition transaction
occurs within three years after the acquiring person became a 10%
holder.

Affiliated transactions subject to this approval requirement include mergers,
share exchanges, material dispositions of corporate assets not in the ordinary
course of business, any dissolution of the corporation proposed by or on
behalf of a 10% holder or any reclassification, including reverse stock
splits, recapitalization or merger of the corporation with its subsidiaries,
that increases the percentage of voting shares owned beneficially by a 10%
holder by more than five percent. There are certain exceptions to these
approval requirements, including an exception for acquisition transactions
with a 10% holder whose acquisition of its 10% interest was pre-approved by a
majority of the disinterested directors.

Financing Arrangements

Some of our financing arrangements permit the termination of those
arrangements and the acceleration of our borrowings or other obligations
thereunder if:

. any person or group becomes, or acquires the right to become, the
beneficial owner of stock representing 50% or more of the combined
voting power of our outstanding voting stock, or

. a transaction occurs as a result of which the directors immediately
prior to the transaction (together with persons elected or nominated by
not less than two-thirds of those directors) cease to constitute a
majority of our board of directors.

Board of Directors; Classification; Removal; Vacancies

Our board of directors is divided into three classes of directors serving
staggered three-year terms. Each class consists of, as nearly as possible,
one-third of the total number of directors. The classification of directors
makes it more difficult for shareholders to change the composition of our
board of directors. At least two annual meetings of shareholders, instead of
one, generally will be required to change the majority of our board of
directors. The classification provisions of our bylaws could discourage a
third party from initiating a proxy contest, making a tender offer or
otherwise attempting to obtain control of Circuit City Stores.

Our bylaws provide that the number of members of our board of directors
shall be 12. Under Virginia law, our board of directors may amend the bylaws
from time to time to increase or decrease the number of directors by up to 30%
of the number of directors in office immediately following the most recent
election of directors by our shareholders; provided, that any decrease in the
number of directors may not shorten an incumbent director's term or reduce any
quorum or voting requirements until the person ceases to be a director.
However, under our articles of incorporation, our total number of directors
may not exceed 17 and the aggregate number of vacancies resulting from an
increase in the number of directors which may be created and filled by action
of the board of directors between annual meetings of shareholders may not
exceed two.

Under Virginia law, a member of our board of directors may be removed with
or without cause by a majority of the votes entitled to be cast at a meeting
of shareholders called expressly for that purpose at which a quorum is
present. If a director is elected by a voting group of shareholders, only the
shareholders of that voting group may participate in the vote to remove the
director.

Our bylaws provide that any vacancy occurring on our board of directors,
including a vacancy resulting from the removal of a director or an increase in
the number of directors, may be filled:

. by our shareholders,

. by the remaining directors, or

. by the affirmative vote of a majority of the remaining directors, though
less than a quorum.

Special Meetings of Shareholders

Our bylaws provide that special meetings of shareholders may be called only
by the chairman of our board of directors, our president or our board of
directors.

Shareholder Nominations and Proposals

Our bylaws provide that a shareholder may nominate one or more persons for
election as directors at a meeting only if advance notice of such nomination
has been delivered to the Secretary of Circuit City Stores, by personal
delivery or United States mail, not later than:

. with respect to an election to be held at an annual meeting of
shareholders, 120 days in advance of such meeting, or

. with respect to a special meeting of shareholders for the election of
directors, the close of business on the seventh day following the date
on which notice of such meeting is given to shareholders.

The foregoing notice must describe:

. the name and address of the shareholder making the nomination and of the
person or persons being nominated,

. a representation that the shareholder is a holder of record of stock in
Circuit City Stores entitled to vote at such meeting and intends to
appear in person or by proxy at the meeting,

. a description of all the arrangements or understandings between the
shareholder and each nominee and any other person pursuant to which the
nomination is being made by the shareholder,

. such other information regarding each nominee as would be required by
the Securities and Exchange Commission to be included in a proxy
statement had the nominee been nominated or intended to be nominated by
the board of directors, and

. the consent of each nominee to serve as a director of Circuit City
Stores if so elected.

Our bylaws provide that a shareholder may present business before an annual
meeting of shareholders if advance notice of such proposal has been delivered
to the Secretary of Circuit City Stores, by personal delivery or United States
mail:

. on or after February 1st and before March 1st of the year in which the
meeting will be held, or

. not less than 90 days before the date of the meeting if the date of such
meeting has been changed by more than 30 days.

The foregoing notice must describe:

. the name and address of the shareholder proposing business,

. the class and number of shares of stock of Circuit City Stores
beneficially owned by such shareholder,

. a brief description of the business desired to be brought before the
meeting, including the complete text of any resolution and the reasons
for conducting such business at the meeting, and

. any interest that the shareholder may have in such business.

These procedural requirements could have the effect of delaying or preventing
the submission of matters proposed by any shareholder to a vote of the
shareholders.

Liability of Officers and Directors

Our articles of incorporation limit or eliminate the liability of our
directors and officers to the fullest extent permitted by Virginia law.

Stock Transfer Agent and Registrar

Wells Fargo Bank Minnesota, N.A. acts as the stock transfer agent, rights
agent and registrar for both CarMax group stock and Circuit City group stock.

INTER-GROUP POLICIES

Our board of directors has adopted inter-group policies regarding the
relationship between the CarMax group and the Circuit City group.

Amendment and Modification of Our Inter-Group Policies

Our board of directors may, without shareholder approval, modify or rescind
our inter-group policies. Our board of directors also may, without shareholder
approval, adopt additional policies, or make exceptions to policies, that may
have a disparate effect on our two series of stock. Any modifications,
rescissions, additions or exceptions would be made, by our board of directors
in its good faith business judgment of Circuit City Stores' best interests,
taking into consideration the interests of all common shareholders regardless
of class or series.

Financial Reporting

Circuit City Stores prepares financial statements in accordance with
accounting principles generally accepted in the United States consistently
applied, for both the CarMax group and the Circuit City group, except that the
Circuit City group accounts for its interest in the CarMax group in a manner
similar to the equity method of accounting. Generally accepted accounting
principles would require that the CarMax group be consolidated with the
Circuit City group. These financial statements, taken together, comprise all
of the accounts included in the consolidated financial statements of Circuit
City Stores. The financial statements of each group reflect the financial
position, results of operations and cash flows of the businesses included in
each group, and include allocated portions of our corporate general and
administrative costs and other shared services.

Allocation Matters

Financial Activities

We manage our inter-group financial activities on a centralized basis.
These financial activities include the investment of surplus cash, the
issuance and repayment of short-term and long-term debt, the increase or
decrease in the number of shares of CarMax group stock reserved for the
Circuit City group or for issuance to holders of Circuit City group stock,
other transfers of property between the groups and the issuance of CarMax
group stock and Circuit City group stock.

Transfers Between Groups. If we reallocate cash or other property allocated
to one group to the other group, our board of directors will determine to
account for that reallocation in one of the following ways:

. as a reallocation of pooled debt;

. as a short-term or long-term loan from one group to the other group;

. as an increase or decrease in the number of shares of CarMax group stock
reserved for the Circuit City group or for issuance to holders of
Circuit City group stock; or

. as a sale of assets between the two groups.

One exception to this procedure is when we pay dividends or make other
distributions on CarMax group stock when we have reserved shares of CarMax
group stock for the Circuit City group or for issuance to holders of Circuit
City group stock. We discuss this exception below.

We do not have specific criteria to determine which of the foregoing would
be applied to a particular reallocation of cash or property from one group to
the other group. Our board of directors would make this determination in the
exercise of its business judgment based upon all relevant circumstances,
including the financing needs and objectives of the recipient group, the
investment objectives of the transferring group, the availability and cost of
alternative financing sources, prevailing interest rates and general economic
conditions.

Debt. Circuit City Stores' debt is either pooled between the CarMax group
and the Circuit City group or is allocated entirely to one group. The cash we
allocate to one group that is used to repay pooled debt will decrease that
group's allocated portion of the pooled debt. The cash or other property we
allocate to one group that is transferred to the other group will, if so
determined by our board of directors, decrease the transferring group's
allocated portion of the pooled debt and, correspondingly, increase the
recipient group's allocated portion of the pooled debt. Pooled debt bears a
weighted average interest rate calculated on a periodic basis and applied to
the average pooled debt balance during the period. We reflect expenses related
to increases in pooled debt in the weighted average interest of the pooled
debt.

Our board of directors may allocate cash or other property previously
allocated to one group to the other group as a short-term loan or as a long-
term loan. Our board of directors will establish the terms on which loans
between the groups are made, including interest rate, amortization schedule,
maturity and redemption terms.

Changes in Reserved Shares. Our board of directors may also allocate cash
or other property previously allocated to the Circuit City group to the CarMax
group to increase the number of shares of CarMax group stock reserved for the
Circuit City group or for issuance to holders of Circuit City group stock. Our
board of directors may also allocate cash or other property previously
allocated to the CarMax group to the Circuit City group to decrease the number
of shares of CarMax group stock reserved for the Circuit City group or for
issuance to holders of Circuit City group stock.

Transfers of Other Property. Our board of directors will make all
reallocations of material assets from one group to the other group on a fair
value basis, as determined by our board of directors.

Issuance and Purchases of Common Stock; Dividends. When we issue shares of
CarMax group stock and allocate the proceeds to the CarMax group, we will
reflect those proceeds entirely in the financial statements of the CarMax
group. When we issue shares of Circuit City group stock, or when we issue
additional shares of CarMax group stock and allocate those proceeds to the
Circuit City group when we have reserved shares of CarMax group stock for the
Circuit City group or for issuance to holders of Circuit City group stock, we
will reflect those proceeds entirely in the financial statements of the
Circuit City group.

We will reflect dividends or other distributions on, and purchases of,
shares of CarMax group stock or Circuit City group stock entirely in the
respective financial statements of the CarMax group or the Circuit City group,
respectively. However, for as long as there are shares of CarMax group stock
reserved for the Circuit City group or for issuance to holders of Circuit City
group stock, we will credit the Circuit City group's financial statements, and
we will charge the CarMax group's financial statements, with an amount that is
proportionate to the aggregate amount paid in respect of the dividend or other
distribution.

Corporate General and Administrative Costs

We generally allocate corporate general and administrative costs for shared
corporate services to the CarMax group and the Circuit City group based upon
their use of those services. Where determinations based on use alone are not
practical, we use other methods and criteria that our management believes to
be equitable and provide a reasonable estimate of the costs attributable to
each group.

Taxes

We calculate U.S. federal income taxes on a consolidated basis and allocate
them to each group in accordance with our tax allocation policy. We reflect
these allocated amounts in the financial statements of each group. In general,
we allocate the consolidated tax provision and related tax payments or refunds
between the groups, based principally on the financial income, taxable income,
credits and other amounts directly related to each group. We allocate tax
benefits that cannot be used by the group generating the benefit, but which
can be utilized on a consolidated basis, to the group that generated the
benefit. As a result, the allocated group amounts of taxes payable or
refundable are not necessarily comparable to those that would have resulted
had each group filed a separate tax return. We generally compute state income
taxes on a separate company basis.

UNITED STATES FEDERAL INCOME TAX CONSEQUENCES

Prospective investors should consult their own tax advisors concerning the
tax consequences of acquiring, owning and disposing of shares of CarMax group
stock in light of their particular circumstances. The tax summary provided
below is of a general nature only and is not intended to be, nor should it be
construed to be, legal or tax advice to any particular investor.

We summarize below the material U.S. federal income tax consequences of
acquiring, owning and disposing of shares of CarMax group stock. We base this
summary on the Internal Revenue Code of 1986, as amended, Treasury Department
regulations promulgated thereunder and interpretations of each by the courts
and the Internal Revenue Service, all as they exist as of the date of this
document and all of which are subject to change at any time, possibly with
retroactive effect. In particular, Congress could enact legislation affecting
the treatment of stock with characteristics similar to the CarMax group stock,
or the Treasury Department could issue regulations or other guidance that
change current law, including regulations issued pursuant to its broad
authority under Section 337(d) of the Internal Revenue Code. Any future
legislation or regulations (or other guidance) could alter significantly the
tax consequences summarized herein.

This summary does not discuss all U.S. federal tax considerations that may
be relevant to you in light of your particular circumstances, nor does it
address any state, local or foreign tax consequences that may result from the
receipt, ownership or disposition of shares of CarMax group stock. In
addition, this summary does not apply to you if:

. you acquire or hold shares of CarMax group stock from the exercise of an
option or other similar security or otherwise receive shares of CarMax
group stock as compensation;

. you do not acquire and hold shares of CarMax group stock as a capital
asset;

. you are a person whose "functional currency" is not the U.S. dollar;

. you acquire or hold shares of CarMax group stock as part of a straddle,
hedging or conversion transaction, synthetic security, or an integrated
or constructive sale transaction; or

. you are a person subject to special rules under the U.S. federal income
tax laws, such as a financial institution, an insurance company, a tax-
exempt organization, a mutual fund, a broker dealer, or an S corporation
or other pass-through entity.

U.S. Federal Income Tax Consequences of the Issuance of CarMax Group Stock

In the opinion of McGuireWoods LLP, our tax counsel, the shares of CarMax
group stock will be considered common stock of Circuit City Stores for U.S.
federal income tax purposes. Accordingly, for U.S. federal income tax
purposes, we believe neither you nor we will recognize any income, gain or
loss as a result of the issuance of the CarMax group stock. As discussed
below, however, the U.S. federal income tax treatment of tracking stock such
as CarMax group stock has not been authoritatively settled.

No ruling has been sought from the Internal Revenue Service. In fact, the
Internal Revenue Service has announced that it will not issue advance rulings
on the classification of an instrument that has certain voting and liquidation
rights in an issuing corporation but the dividend rights of which are
determined by reference to the earnings of a segregated portion of the issuing
corporation's assets, including assets held by a subsidiary. In addition,
there are no court decisions or other authorities that bear directly on the
U.S. federal income tax consequences of issuing, converting or classifying
instruments with characteristics similar to those of the CarMax group stock.
The opinion of McGuireWoods LLP is not binding on the Internal Revenue Service
or the courts and merely represents the best judgment of McGuireWoods LLP
based upon existing authorities and customary representations made to it by
management.

It is possible, therefore, that the Internal Revenue Service could assert
successfully that the shares of CarMax group stock represent property other
than stock of Circuit City Stores. In that event, we would be

required to recognize significant taxable income or gain on the sale or
distribution of shares of CarMax group stock, and we could lose our ability to
file consolidated U.S. federal and state income tax returns with the entities
in the CarMax group.

U.S. Federal Income Tax Consequences of the Conversion of CarMax Group Stock

We have the right, at any time, to convert one series of our common stock
into the other at a premium. Under current law, assuming that, at the time of
conversion, each series of stock is considered common stock of Circuit City
Stores for U.S. federal income tax purposes, generally:

. no gain or loss would be recognized for U.S. federal income tax purposes
by us or by holders of the converted shares (except where cash is
received in lieu of fractional shares);

. the tax basis in the shares received as the result of the conversion
would equal the adjusted tax basis in the shares surrendered, subject to
adjustment for fractional shares redeemed for cash; and

. the holding period in the received shares would include the holding
period of the shares surrendered in the exchange.

As noted above, however, there are no court decisions or other authorities
bearing directly on the U.S. federal income tax consequences of issuing,
converting, or classifying instruments with characteristics similar to those
of the CarMax group stock. Congress could enact legislation (such as that
proposed in the Clinton Administration Budget Proposals in 1999 and 2000) or
the Treasury Department could issue regulations or other guidance that change
current law, possibly with retroactive effect. It is possible, therefore, that
the Internal Revenue Service could successfully assert that the conversion of
one series of our common stock into the other series of our common stock could
be taxable to you and/or to us.

Tax Consequences to Non-United States Shareholders

The following is a general discussion of certain U.S. federal income tax
consequences of the ownership and disposition of the CarMax group stock by a
non-U.S. shareholder. For purposes of this discussion, a non-U.S. shareholder
generally is a holder who, for U.S. federal income tax purposes, is a foreign
corporation, a non-resident alien individual, a foreign partnership or a
foreign estate or trust.

Dividends

Generally, any dividend paid to a non-U.S. shareholder of CarMax group
stock will be subject to U.S. withholding tax at a 30% rate (or a lower rate
if provided under an applicable income tax treaty). However, dividends paid to
a non-U.S. shareholder that are effectively connected with the non-U.S.
shareholder's conduct of a trade or business within the U.S. will not be
subject to the withholding tax, but instead, will be subject to regular U.S.
federal income tax at the graduated rates in the same manner as if the non-
U.S. shareholder were a U.S. resident, unless a tax treaty exemption applies
to exclude such dividends from U.S. tax.

If the non-U.S. shareholder is a corporation, any effectively connected
income may also be subject to a branch profits tax at a rate of 30% (or a
lower rate if provided under an applicable income tax treaty). A non-U.S.
shareholder may be required to satisfy certain certification requirements to
claim treaty benefits or otherwise claim a reduction of, or exemption from,
the withholding obligation described above.

Sale or Exchange of CarMax Group Stock

A non-U.S. shareholder generally will not be subject to U.S. federal income
tax on any gain realized on the taxable sale or exchange of CarMax group stock
unless:

. the gain is effectively connected with the conduct of a trade or
business of the non-U.S. shareholder within the United States, or to the
extent required by an applicable income tax treaty the gain is
attributable to a "permanent establishment" maintained by the non-U.S.
shareholder in the United States;

. the non-U.S. shareholder is a non-resident alien individual present in
the United States for 183 days or more in the taxable year of the sale
or exchange and certain other conditions are satisfied;

. the non-U.S. shareholder is subject to tax pursuant to the provisions of
the Internal Revenue Code applicable to certain United States
expatriates; or

. the non-U.S. shareholder has owned, directly or indirectly, more than
five percent of the value of the class of stock in question at any time
during the five-year period ending at the time of the sale or exchange,
and we are a United States real property holding corporation (as defined
in Section 897 of the Internal Revenue Code) during the shorter of the
period for which the non-U.S. shareholder holds the CarMax group stock
or the five-year period ending at the time of the sale or exchange.

We do not believe that we are a United States real property holding
corporation as of the date hereof, although it has not been determined or
established whether we will be a United States real property holding
corporation in the future.

Information Reporting and Backup Withholding for U.S. and Non-U.S.
Shareholders

Certain non-corporate holders of CarMax group stock may be subject to
backup withholding tax on the payment of dividends on such stock. Backup
withholding will apply only if the shareholder fails to provide us with his
correct taxpayer identification number or otherwise fails to establish his
exemption from withholding in accordance with the Internal Revenue Code and
applicable Treasury regulations. Shareholders should consult their tax
advisors regarding their qualification for a tax exemption from backup
withholding and the procedure for obtaining such an exemption if applicable.

Generally, non-U.S. shareholders will not be subject to backup withholding
on the payment of dividends if they provide us with certain documentation of
their foreign status. In addition, a foreign partnership and certain foreign
trusts must provide additional documentation, which certifies that the
individual partners, beneficiaries, or owners of the partnership or trust are
non-U.S. shareholders and provides the individual partners', beneficiaries' or
owners' names and addresses.

Upon the sale or other taxable disposition of CarMax group stock by a
shareholder to or through certain third parties, including a U.S. broker or
the U.S. office of a foreign broker, the broker generally must backup withhold
and report the sale to the Internal Revenue Service unless the holder
certifies its taxpayer identification number or its exempt non-U.S. status
under penalties of perjury, or otherwise establishes an exemption from backup
withholding. Upon the sale or other taxable disposition of CarMax group stock
by a non-U.S. shareholder to or through the foreign office of a United States
broker, or a foreign broker with certain types of relationships to the United
States, the broker generally must report the sale to the Internal Revenue
Service, but not backup withhold, unless the broker has documentary evidence
in its files that the seller is a non-U.S. shareholder and/or certain other
conditions are met, or the holder otherwise establishes an exemption.

Backup withholding is not an additional tax. Any amounts withheld under the
backup withholding rules are generally allowable as credit against a
shareholder's U.S. federal income tax liability, if any, which may entitle
such shareholder to a refund, provided that the required information is
furnished to the Internal Revenue Service.

Prospective purchasers of CarMax group stock are urged to consult their own
tax advisors as to the U.S. federal, state, local and foreign tax consequences
of acquiring, holding, and disposing of CarMax group stock in light of their
particular circumstances and the potential changes in the applicable U.S. tax
laws.

UNDERWRITERS

Under the terms and subject to the conditions contained in an underwriting
agreement dated the date of this prospectus, the underwriters named below, for
whom Morgan Stanley & Co. Incorporated, Banc of America Securities LLC and UBS
Warburg LLC are acting as representatives, have severally agreed to purchase,
and we have agreed to sell to them, severally, the respective number of shares
of CarMax group stock set forth opposite the names of the underwriters below:

Number of
Name Shares
---- ---------

Morgan Stanley & Co. Incorporated..................................
Banc of America Securities LLC.....................................
UBS Warburg LLC....................................................

Total.......................................................... 7,500,000
=========

The underwriters are offering the shares of CarMax group stock subject to
their acceptance of the shares from us and subject to prior sale. The
underwriting agreement provides that the obligations of the several
underwriters to pay for and accept delivery of the shares of CarMax group
stock offered by this prospectus are subject to the approval of specific legal
matters by their counsel and to other conditions. The underwriters are
obligated to purchase all of the shares of CarMax group stock offered by this
prospectus if any shares are taken. However, the underwriters are not required
to purchase the shares covered by the underwriters' over-allotment option
described below.

The underwriters initially propose to offer part of the shares directly to
the public at the public offering price set forth on the cover page of this
prospectus. The underwriters may also offer the shares to securities dealers
at a price that represents a concession not in excess of $ a share under
the public offering price. Any underwriter may allow, and those dealers may
reallow, a concession not in excess of $ a share to other underwriters or
to some dealers. After the initial offering of the shares, the offering price
and other selling terms may from time to time be changed by the
representatives.

Circuit City Stores has granted to the underwriters an option, exercisable
for 30 days from the date of this prospectus, to purchase up to an aggregate
of 1,125,000 additional shares of CarMax group stock at the public offering
price set forth on the cover page of this prospectus, less underwriting
discounts and commissions. The underwriters may exercise this option solely
for the purpose of covering over-allotments, if any, made in connection with
the offering of the shares offered by this prospectus. To the extent this
option is exercised, each underwriter will become obligated, subject to
specified conditions, to purchase about the same percentage of the additional
shares as the number set forth next to the underwriter's name in the preceding
table bears to the total number of shares of CarMax group stock set forth next
to the names of all underwriters in the preceding table. If the underwriters'
option is exercised in full, the total price to the public for this offering
would be $ , the total underwriters' discounts and commissions would be $
and total proceeds to Circuit City Stores would be $ .

Each of Circuit City Stores and our senior officers who manage the CarMax
group and who hold shares of or options for CarMax group stock has agreed
that, without the prior written consent of Morgan Stanley & Co. Incorporated
on behalf of the underwriters, it or he will not, during the period ending 90
days after the date of this prospectus:

. offer, pledge, sell, contract to sell, sell any option or contract to
purchase, purchase any option or contract to sell, grant any option,
right or warrant to purchase, lend or otherwise transfer or dispose of,
directly or indirectly, any shares of CarMax group stock or any
securities convertible into or exercisable or exchangeable for CarMax
group stock; or

. enter into any swap or other arrangement that transfers to another, in
whole or in part, any of the economic consequences of ownership of the
CarMax group stock;

whether any transaction described above is to be settled by delivery of shares
of CarMax group stock or other securities, in cash or otherwise. The
restrictions described in this paragraph do not apply to:

. the sale of CarMax group stock to the underwriters;

. the issuance by us of shares of CarMax group stock and the grant by us
of stock options and similar rights, in each case under our existing
benefit plans for employees and directors;

. transactions by any person other than us relating to shares of CarMax
group stock or other securities acquired in open market transactions
after the completion of the offering;

. bona fide gifts by any person other than us, provided that the donees of
any such gifts have agreed in writing to be bound by the foregoing
restrictions; or

. transfers or dispositions of shares of CarMax group stock or any
security convertible into CarMax group stock by sale or delivery to us.

The CarMax group stock is traded on the New York Stock Exchange under the
symbol "KMX."

In order to facilitate the offering of the CarMax group stock, the
underwriters may engage in transactions that stabilize, maintain or otherwise
affect the price of the CarMax group stock. Specifically, the underwriters may
sell more shares than they are obligated to purchase under the underwriting
agreement, creating a short position in CarMax group stock for their own
account. A short sale is covered if the short position is no greater than the
number of shares available for purchase by the underwriters under the over-
allotment option. The underwriters can close out a covered short sale by
exercising the over-allotment option or purchasing shares in the open market.
In determining the source of shares to close out a covered short sale, the
underwriters will consider, among other things, the open market price of
shares compared to the price available under the over-allotment option. The
underwriters must close out any naked short position by purchasing shares in
the open market. A naked short position is more likely to be created if the
underwriters are concerned that there may be downward pressure on the price of
the CarMax group stock in the open market after pricing that could adversely
affect investors who purchase in the offering. As an additional means of
facilitating the offering, the underwriters may bid for, and purchase, shares
of CarMax group stock in the open market to stabilize the price of the CarMax
group stock. The underwriting syndicate may also reclaim selling concessions
allowed to an underwriter or a dealer for distributing the CarMax group stock
in the offering if the syndicate repurchases previously distributed CarMax
group stock to cover syndicate short positions or to stabilize the price of
the CarMax group stock. These activities may stabilize or maintain the market
price of the CarMax group stock above independent market levels. The
underwriters are not required to engage in these activities and may end any of
these activities at any time.

We and the underwriters have agreed to indemnify each other against a
variety of liabilities, including liabilities under the Securities Act.

From time to time, some of the underwriters and their affiliates have
provided, and continue to provide, investment banking services to us. Bank of
America, N.A., an affiliate of Banc of America Securities LLC, provides CarMax
customers with third party automobile financing and is a participant in
securitization programs for credit card receivables of the Circuit City group
and automobile loan receivables of the CarMax group.

LEGAL MATTERS

The validity of the CarMax group stock will be passed upon for us by
McGuireWoods LLP, Richmond, Virginia. Certain legal matters relating to the
offering will be passed upon for the underwriters by Simpson Thacher &
Bartlett, New York, New York. As of July 18, 2001, lawyers of McGuireWoods LLP
own approximately 21,000 shares of Circuit City group stock and approximately
36,000 shares of CarMax group stock.

EXPERTS

KPMG LLP, our independent auditors, have audited the Circuit City Stores,
Inc. consolidated financial statements and schedule, the financial statements
and schedule of the Circuit City group and the financial statements and
schedule of the CarMax group included in the Circuit City Stores, Inc. Annual
Report on Form 10-K for the year ended February 28, 2001, as set forth in
their reports, which are incorporated by reference in this prospectus. These
financial statements and schedules are incorporated by reference in reliance
on their reports, given on the authority of that firm as experts in accounting
and auditing. The reports of KPMG LLP dated April 2, 2001 covering the Circuit
City group financial statements as of February 28, 2001 and February 29, 2000
and for each of the fiscal years in the three-year period ended February 28,
2001, and the related financial statement schedule, include a qualification
related to the effects of not consolidating the CarMax group with the Circuit
City group as required by accounting principles generally accepted in the
United States of America.

WHERE YOU CAN FIND MORE INFORMATION

We file annual, quarterly and current reports, proxy statements and other
information with the SEC. Our SEC filings are available to the public over the
Internet at the SEC's web site at http://www.sec.gov. You may also read and
copy any document we file with the SEC at its public reference facilities at
450 Fifth Street, N.W., Washington, D.C. 20549, 7 World Trade Center, Suite
1300, New York, New York 10048 and Citicorp Center, 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661-2511. You can also obtain copies of the
documents at prescribed rates by writing to the Public Reference Section of
the SEC at 450 Fifth Street, N.W., Washington, D.C. 20549. Please call the SEC
at 1-800-SEC-0330 for further information on the operation of the public
reference facilities. Our SEC filings are also available at the office of the
New York Stock Exchange. For further information on obtaining copies of our
public filings at the New York Stock Exchange, you should call (212) 656-5060.

The SEC allows us to "incorporate by reference" the information that we
file with them, which means that we can disclose important information to you
by referring you to those documents. The information incorporated by reference
is an important part of this prospectus. In addition, any information that we
file with the SEC subsequent to the date of this prospectus will automatically
update this prospectus. We incorporate by reference the documents listed
below, which we have already filed with the SEC, and any future filings we
make with the SEC under Sections 13(a), 13(c), 14 or 15(d) of the Securities
Exchange Act of 1934 until the offering of the CarMax group stock contemplated
by this prospectus is completed:

. Annual Report on Form 10-K for the year ended February 28, 2001;

. Quarterly Report on Form 10-Q for the quarter ended May 31, 2001;

. Description of the CarMax group stock and Circuit City group stock
contained in the Form 8-A filed January 2, 1997, as amended by the Forms
8-A/A filed January 31, 1997, July 8, 1997, April 28, 1998, May 7, 1999,
July 20, 2001 and July 23, 2001 (File No. 1-5767); and

. Description of the rights to purchase our series E cumulative
participating preferred stock, par value $20 per share, and the rights
to purchase our series F cumulative participating preferred stock, par
value $20 per share, contained in the Form 8-A filed April 28, 1998, as
amended by the Forms 8-A/A filed May 7, 1999, July 20, 2001 and July 23,
2001 (File No. 1-5767).

You may request a copy of these filings, other than an exhibit to a filing
unless that exhibit is specifically incorporated by reference into that
filing, at no cost, by writing or calling us at the following address:

Circuit City Stores, Inc.
9950 Mayland Drive
Richmond, Virginia 23233
Attention: Corporate Secretary
Telephone: (804) 527-4022

We have also filed a registration statement (No. 333-62962) with the SEC
relating to the CarMax group stock. This prospectus is part of that
registration statement. You may obtain from the SEC a copy of the registration
statement and exhibits that we filed with the SEC when we registered the
CarMax group stock. The registration statement contains additional information
that may be important to you.

[PHOTO [PHOTO
OF OF
CUSTOMER ACCESSING CARMAX APPRAISER
CARMAX.COM WEB SITE] AND VEHICLE]

[PHOTO [PHOTO
OF OF
CARMAX CARMAX
TECHNICIAN SALES CONSULTANT
AND VEHICLE] AND CUSTOMERS]

[LOGO OF CARMAX]

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

Item 14. Other Expenses of Issuance and Distribution*

The following table sets forth the expenses other than underwriting
discounts and commissions (all of which will be paid by Circuit City Stores,
Inc.) to be incurred in connection with the registration and sale of the
securities:

Securities and Exchange Commission filing fee...................... $ 30,888
NASD filing fee.................................................... 12,855
NYSE listing fee................................................... 26,250
Blue Sky fees and expenses......................................... 5,000
Accounting fees and expenses....................................... 78,000
Legal fees and expenses............................................ 273,500
Printing and engraving expenses.................................... 125,000
Miscellaneous...................................................... 23,507
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Total............................................................ $575,000
========

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* All of the above amounts, other than the Securities and Exchange
Commission filing fee, the NASD filing fee and the NYSE listing fee, are
estimates.

Item 15. Indemnification of Directors and Officers

The laws of the Commonwealth of Virginia pursuant to which Circuit City
Stores is incorporated permit it to indemnify its officers and directors
against certain liabilities with the approval of its shareholders. The Amended
and Restated Articles of Incorporation of Circuit City Stores, as amended,
which have been approved by our shareholders, provide for the indemnification
of each director and officer (including former directors and officers and each
person who may have served at the request of Circuit City Stores as a director
or officer of any other legal entity and, in all such cases, his or her heirs,
executors and administrators) against liabilities (including expenses)
reasonably incurred by him or her in connection with any actual or threatened
action, suit or proceeding to which he or she may be made a party by reason of
his or her being or having been a director or officer of Circuit City Stores,
except in relation to any action, suit or proceeding in which he or she has
been adjudged liable because of willful misconduct or a knowing violation of
the criminal law.

Circuit City Stores has purchased directors' and officers' liability
insurance policies. Within the limits of their coverage, the policies insure
(1) the directors and officers of Circuit City Stores and its subsidiaries
against certain losses resulting from claims against them in their capacities
as directors and officers to the extent that such losses are not indemnified
by Circuit City Stores and (2) Circuit City Stores to the extent that it
indemnifies such directors and officers for losses as permitted under the laws
of Virginia.

In the Underwriting Agreement, a proposed form of which is filed as Exhibit
1.1 hereto, the Underwriters will agree to indemnify, under certain
conditions, Circuit City Stores, its directors, certain of its officers and
persons who control Circuit City Stores within the meaning of the Securities
Act of 1933, as amended, against certain liabilities.

II-1

Item 16. Exhibits

Exhibit
No. Document
------- --------

1.1 Form of Underwriting Agreement.*

4.1 Amended and Restated Articles of Incorporation of Circuit City Stores,
Inc., effective February 3, 1997, filed as Exhibit 3(i)(a) to our
Amended Quarterly Report on Form 10-Q/A for the quarter ended May 31,
1999 (File No. 1-5767), are expressly incorporated herein by this
reference.

4.2 Articles of Amendment to our Amended and Restated Articles of
Incorporation, effective April 28, 1998, filed as Exhibit 3(i)(b) to
our Amended Quarterly Report on Form 10-Q/A for the quarter ended May
31, 1999 (File No. 1-5767), are expressly incorporated herein by this
reference.

4.3 Articles of Amendment to our Amended and Restated Articles of
Incorporation, effective June 22, 1999, filed as Exhibit 3(i)(c) to
our Amended Quarterly Report on Form 10-Q/A for the quarter ended
May 31, 1999 (File No. 1-5767), are expressly incorporated herein by
this reference.

4.4 Form of Certificate of Circuit City Stores, Inc.--CarMax Group Common
Stock, filed as Exhibit 4.3(a) to our Registration Statement on Form
S-3 (Registration No. 333-15995) is expressly incorporated herein by
this reference.

4.5 Form of Certificate of Circuit City Stores, Inc.--Circuit City Group
Common Stock, filed as Exhibit 4.3(b) to our Registration Statement on
Form S-3 (Registration No. 333-15995) is expressly incorporated herein
by this reference.

4.6 Bylaws of Circuit City Stores, Inc., as amended and restated April 11,
2000, filed as Exhibit 3(ii) to our Quarterly Report on Form 10-Q for
the quarter ended May 31, 2000 (File No. 1-5767), are expressly
incorporated herein by this reference.

4.7 Second Amended and Restated Rights Agreement dated as of July 10,
2001, between Circuit City Stores, Inc. and Wells Fargo Bank
Minnesota, N.A. (formerly Norwest Bank Minnesota, N.A.), as Rights
Agent, filed as Exhibit 1 to our Form 8-A/A filed on July 20, 2001, is
expressly incorporated herein by this reference.

5.1 Opinion and consent of McGuireWoods LLP, regarding the legality of the
securities being registered.**

8.1 Opinion and consent of McGuireWoods LLP as to certain tax matters.**

23.1 Consent of KPMG LLP.**

23.2 Consents of McGuireWoods LLP (included in Exhibits 5.1 and 8.1).

24.1 Powers of Attorney.*

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* Previously filed.

** Filed herewith.

Item 17. Undertakings

1. The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to section 13(a) or section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof.

2. Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant, pursuant to the provisions described under Item 15 or
otherwise, the registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification by it is against
public policy as expressed in the Securities Act of 1933 and is, therefore,

II-2

unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the registrant of expenses incurred or
paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities
being registered, the registrant will, unless in the opinion of its counsel
the matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act of 1933 and will be
governed by the final adjudication of such issue.

3. The undersigned registrant hereby undertakes that:

(a) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this registration statement in reliance upon Rule 430A and contained in
a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.

(b) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.

II-3

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, the registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this Amendment No. 2
to be signed on its behalf by the undersigned, thereunto duly authorized, in
the City of Richmond, Commonwealth of Virginia, on the 23rd day of July 2001.

Circuit City Stores, Inc.

/s/ Michael T. Chalifoux
By __________________________________
Michael T. Chalifoux
Executive Vice President, Chief
Financial Officer,
Corporate Secretary and Director

Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 2 has been signed by the following persons in the capacities indicated on
the 23rd day of July 2001.

Signature Title
--------- -----

/s/ W. Alan McCollough* President, Chief Executive Officer and
___________________________________________ Director (Principal Executive Officer)
W. Alan McCollough

/s/ Michael T. Chalifoux Executive Vice President, Chief Financial
___________________________________________ Officer Corporate Secretary and Director
Michael T. Chalifoux (Principal Financial Officer)

/s/ Philip J. Dunn* Senior Vice President, Treasurer, Corporate
___________________________________________ Controller and Chief Accounting Officer
Philip J. Dunn (Principal Accounting Officer)

/s/ Richard N. Cooper* Director
___________________________________________
Richard N. Cooper

/s/ Barbara S. Feigin* Director
___________________________________________
Barbara S. Feigin

/s/ James F. Hardymon* Director
___________________________________________
James F. Hardymon

/s/ Robert S. Jepson Jr.* Director
___________________________________________
Robert S. Jepson Jr.

/s/ Hugh G. Robinson* Director
___________________________________________
Hugh G. Robinson

II-4

Signature Title
--------- -----

/s/ Mikael Salovaara* Director
___________________________________________
Mikael Salovaara

/s/ Richard L. Sharp* Director
___________________________________________
Richard L. Sharp

/s/ John W. Snow* Director
___________________________________________
John W. Snow

/s/ Carolyn Y. Woo* Director
___________________________________________
Carolyn Y. Woo

/s/ Michael T. Chalifoux
*By: ______________________________________
Michael T. Chalifoux
Attorney-in-Fact

II-5

EXHIBIT INDEX

Exhibit
No. Document
------- --------

1.1 Form of Underwriting Agreement.*

5.1 Opinion and consent of McGuireWoods LLP, regarding the legality of the
securities being registered.**

8.1 Opinion and consent of McGuireWoods LLP as to certain tax matters.**

23.1 Consent of KPMG LLP.**

23.2 Consents of McGuireWoods LLP (included in Exhibits 5.1 and 8.1).

24.1 Powers of Attorney.*

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* Previously filed.

** Filed herewith.