circuit city stores 2007 Annual Report, Proxy Statement, Form 10-K

CIRCUIT CITY STORES, INC.

ANNUAL REPORT 2007 | PROXY STATEMENT | FORM 10-K

Consumers today are living a ‘digital’ life. The variety and complexity of

consumer electronics enable us to create a theater experience or a full-

service office environment right in the comfort of our homes; but some-

times putting together the full experience can be difficult for consumers to

achieve on their own. In fall 2006, Circuit City created a new brand,

firedogSM, to enhance the full potential of our customers’ ‘digital’ lives

through helpful, knowledgeable, friendly and reliable experts

who have a passion to serve. firedogSM services include in-store and in-home

PC services, available through Circuit City’s more than 600 Superstores

across the country; home-theater installations, available within

25 miles of Circuit City locations; and remote technical assistance

for PCs through http://www.firedog.com 24 hours a day, 7 days a week.

firedogSM technicians and installers have received extensive training to

install, repair or optimize consumer technology products. Through

firedogSM, Circuit City provides a profitable, differentiated offering in

the high-growth consumer services market that we estimate will reach

$20 billion in fiscal 2010.

CIRCUIT CITY STORES, INC. | ANNUAL REPORT 2007

Fiscal year 2007 was a period of change and significantprogress as we adapted to the challenges and opportuni-ties posed by the dynamic, competitive North Americanretail marketplace. For the year, our net sales grew 8 per-cent to $12.43 billion. Earnings from continuing operationsbefore income taxes were 0.2 percent of consolidated netsales, compared with 2.0 percent in the prior year. Fiscal2007 results include $145 million, or 116 basis points ofconsolidated net sales, in pre-tax charges associated withthe impairment of international segment goodwill, storeand facility closures and other restructuring activities.

ACCELERATING OUR TRANSFORMATIONWe began a process to transform Circuit City two and ahalf years ago, and we are committed to the vision welaid out to better serve our customers, our Associatesand our shareholders. Our long-term strategy for differ-entiation, our North Star, “It’s all about helping you,” is the framework that guides our decisions.

When we began this journey, we had assumptionsabout the growth of the flat-panel television businessand the pace at which it would commoditize. Fallingretail prices are a reality in the consumer electronicsbusiness. Retail prices for these televisions, however,declined more rapidly than our expectations, and thelevel reached in fall 2006 was a year ahead of ourexpectations. The resulting change impacted many parts of our business in the third and fourth quarters of our just-completed fiscal year.

Seeing the flat panel television business modelchanges, along with strong competition from traditionalconsumer electronics retailers as well as newer entrants,we began moving with increased urgency to identify rev-enue growth opportunities, gross margin rate improve-ments and SG&A efficiency opportunities in order torebuild reasonable profitability. We also need to ensurethat Circuit City has caught up to retail industry bestpractices with our merchandising and retail transforma-tion efforts. I would characterize these efforts not as achange in plan or strategy, but rather an acceleration of our overall transformation given the rapid changes in our marketplace.

We reorganized and streamlined the senior leadershipteam around delivering a seamless multi-channel cus-tomer experience, including the following changes:

■ Danny Clark now leads all of our sales channels, encom-passing domestic and international stores, Web sites,

services execution and concept development; Dannyoversees sales conversion and the customer experience.

■ Dave Mathews now leads our merchandising, supplychain, services development and marketing organi-zations; Dave oversees value proposition creationand its communication to customers.

In February, Mike Foss announced his intention toresign as chief financial officer effective mid-April to pur-sue other opportunities. I would like to thank Mike for hisnearly four years of service to Circuit City and his tremen-dous contribution to reshaping the company’s culture aswell as reducing its cost and expense structure. A searchfor a new CFO is underway.

We see enormous opportunities with the four pillars ofour strategy to win in home entertainment, grow our serv-ices business, leverage the shift to multi-channel retailingand significantly improve our real estate position.

Home EntertainmentIndustry views about the rate of growth of total televisionsales from 2006 to 2010 generally predict a low-single-digit annual revenue growth rate. Given the average sell-ing price declines expected, this implies significant unitgrowth of TVs. This unit growth presents us with a greatopportunity to provide the customer the complete solu-tion through firedogSM installations; digital services suchas digital cable and HD satellite; cables and other acces-sories; furniture and brackets; financing; and Circuit CityAdvantageSM Protection Plans. We will manage the per-formance gap among our stores and focus on creating abetter multi-channel experience, to increase revenue andmargin per transaction.

ServicesWe continue to build our services platform throughfiredogSM. The total market opportunity for home theaterinstallation and consumer PC-related services is expectedto reach $20 billion annually by fiscal 2010. We startedoffering PC services about two years ago and launchedthe firedogSM brand last September. In merely two years,we grew the business to an annual revenue base of $200 million. We expect sales to approximately double in fiscal 2008 to more than $400 million and are expect-ing significant growth in future years. While the revenuefrom firedogSM is still relatively small, it will be a signifi-cant driver of profit in fiscal 2008 because of its above-average margins.

T O O U R S H A R E H O L D E R S


Multi-channelBased on forecasted values from Forrester Research (“USeCommerce: Five Year Forecast and Data Overview”,Forrester Research, Inc., October 2006), we calculate thatindustry e-commerce sales of the products we sell willgrow by 16 percent on average for the next three calen-dar years. We reached $1.12 billion in fiscal 2007 Web-and call center-originated sales, and we expect directchannel revenues to grow 30 percent to 40 percent in fis-cal 2008. We will invest in new capabilities that improvepersonalization and solution offerings, leading to animproved customer experience and increased revenueand margin per transaction.

Real EstateWe are transforming our real estate position primarily byopening incremental stores in new trade areas and relo-cating stores to better locations in existing trade areas.In addition, we continue to right-size our latest retail con-cept store for today’s multi-channel shopping experi-ence, tomorrow’s product assortment trends and thefiredogSM services we offer. During fiscal 2007, weopened 35 Superstores, including 12 relocations, andclosed 7 underperforming stores in the U.S. We expectto open 60 to 65 Superstores in fiscal 2008 and toincrease the pace to up to 100 openings in fiscal 2009,with approximately one-third of the openings expectedto be relocations in each year. With up to 200 new andrelocated stores opening between fiscal 2007 and fiscal2009, we have an opportunity to drive a significantamount of incremental revenue and profit as well asupgrade our brand image.

Additional important points in our transformation accel-eration plan include

■ outsourcing our information technology infrastruc-ture operations to IBM, which will provide world-class systems and reduce planned infrastructurecosts by approximately 16 percent over the term of the contract;

■ instituting new retail standard operating proce-dures, including new tools and training, to betterengage Associates and increase time available toserve customers;

■ better leveraging the opportunity to include thecomplete customer solution of hardware, relevantaccessories and services in each transaction in ourstores, on the Web and through our call center;

■ optimizing channel assortments and improving ourdirect sourcing efforts; and

■ re-engineering our supply chain to accelerate effortsto increase our customer-encountered in-stock whilereducing net-owned inventory.

Some of our decisions, particularly those that resultedin the separation of Associates, were difficult. But we

must remain competitive in the marketplace, and wemust be prepared to make changes to grow and thrive.To build a competitive organization for the future, we willbe making additional changes. These changes include

■ reducing spans of control and layers of managementthroughout the enterprise to ensure that our front-line Associates are empowered to do their work;

■ instituting more expense controls around purchas-ing, travel, consultants and many other forms of dis-cretionary spending;

■ identifying overlapping functions that can be com-bined to drive efficiency;

■ prioritizing initiatives, so we can eliminate entire piecesof work that do not serve our strategic framework; and

■ exploring strategic alternatives, including a possiblesale, for InterTAN, Inc., the company’s internationalsegment.

While our focus remains on the future, I want to acknowl-edge the important accomplishments our Associatesmade this year. We grew total revenues for the third yearin a row. In each calendar quarter of 2006, we increasedour overall consumer electronics hardware market sharecompared with the prior year according to TraQline. Weachieved our goal of reaching $1 billion in Web-origi-nated sales, which grew more than 50 percent for theyear, while making organizational changes to become atrue multi-channel retailer. During the second half of theyear, we successfully launched our firedogSM brand, cov-ering consumer PC services and home theater installa-tion, and grew our annual services revenue by nearly 80 percent. We accomplished these goals and createdmore than 2,500 jobs through our investments for growthin services, multi-channel and new stores. We freed upcash by reducing domestic segment net-owned inventoryby $88 million. We returned approximately $250 millionto our shareholders through stock repurchases and anincreased quarterly dividend rate.

Retailing in general, and consumer electronics retailingin particular, is extremely competitive. With the perma-nent changes to the television business model, we mustmove with urgency to develop a world-class retail plat-form. I’m confident we are on the right path to create asuccessful future for the more than 40,000 Associates whowork at Circuit City, to provide our customers with com-petitive pricing on the products and services we sell, andto deliver increased shareholder value.

PHILIP J. SCHOONOVER

Chairman, President and Chief Executive OfficerApril 30, 2007

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Circuit City Stores, Inc.

9950 Mayland Drive Richmond, Virginia 23233

www.circuitcity.com http://investor.circuitcity.com

Notice of Annual Meeting of Shareholders DATE .......................................................Tuesday, June 26, 2007

TIME .......................................................10:00 a.m. Eastern Daylight Time LOCATION ..............................................The Jepson Alumni Center

The University of Richmond 49 Crenshaw Way Richmond, Virginia 23173

ITEMS OF BUSINESS ...............................(1) Elect three directors to a three-year term and one director to a two year term;

(2) Ratify the appointment of KPMG LLP as the company’s independent registered public accounting firm for fiscal year 2008; and

(3) Transact any other business that may properly come before the meeting and any adjournments of the meeting.

RECORD DATE .......................................You may vote if you are a shareholder of record on

April 19, 2007 (the “Record Date”).

Your vote is important. Whether or not you plan to attend the meeting, please vote your proxy as soon as possible. You can vote your shares by completing and returning your proxy card or by voting on the Internet or by telephone. See details under the heading “How do I vote?” If you plan to attend the meeting in person, please see the information on admission procedures under the heading “May I attend the Annual Meeting?” You are cordially invited to attend the meeting. By Order of the Board of Directors,

Reginald D. Hedgebeth Senior Vice President, General Counsel and Secretary April 27, 2007

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TABLE OF CONTENTS Questions and Answers About the Annual Meeting and Voting ........................................................................ 3

Information Concerning the Board of Directors and Its Committees ............................................................... 6

Item One – Election of Directors....................................................................................................................... 11

2007 Non-Employee Director Compensation ....................................................................................................... 14

Compensation & Personnel Committee Report ................................................................................................... 17

Compensation Discussion & Analysis ................................................................................................................... 17

Overview ............................................................................................................................................................ 17 Executive Compensation Philosophy ................................................................................................................. 18 Elements of Compensation Program.................................................................................................................. 19 Other Compensation Policies & Practices.......................................................................................................... 24

2007 Executive Compensation ............................................................................................................................... 27

Summary Compensation Table for Fiscal 2007 ................................................................................................. 27 Grants of Plan-Based Awards for Fiscal 2007 ................................................................................................... 31 Outstanding Equity Awards at 2007 Fiscal Year-End........................................................................................ 33 Option Exercises and Stock Vested in Fiscal 2007 ............................................................................................ 34 Pension Benefits as of Fiscal 2007..................................................................................................................... 35 Nonqualified Deferred Compensation at Fiscal 2007 ........................................................................................ 37 Potential Payments Upon Termination or Change-in-Control ........................................................................... 38

Beneficial Ownership of Securities ........................................................................................................................ 43

Equity Compensation Plans Information ............................................................................................................. 45

Section 16(a) Beneficial Ownership Reporting Compliance ............................................................................... 46

Report of the Audit Committee ............................................................................................................................. 46

Item Two – Ratification of Appointment of Independent Registered Public Accounting Firm ................. 48

Other Business......................................................................................................................................................... 49

Proposals by Shareholders for Presentation at the 2008 Annual Meeting ........................................................ 49

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QUESTIONS AND ANSWERS ABOUT THE ANNUAL MEETING AND VOTING

Why did I receive these proxy materials? This proxy statement was mailed to holders of common stock of Circuit City Stores, Inc. (“Circuit City,” the “Company,” “we,” “us” or “our”), a Virginia corporation, on or about May 7, 2007. The Circuit City Board of Directors (the “Board”) is asking for your proxy. By giving us your proxy, you authorize the proxyholders (Reginald D. Hedgebeth and Robert L. Burrus, Jr.) to vote your shares at the Annual Meeting of Shareholders (“Annual Meeting”) according to the instructions you provide. If the Annual Meeting adjourns or is postponed, your proxy will be used to vote your shares when the meeting reconvenes. A copy of the Annual Report on Form 10-K of the Company for the fiscal year ended February 28, 2007, has been mailed to you with this proxy statement. May I attend the Annual Meeting? You are invited to attend the meeting. It will be held on Tuesday, June 26, 2007, beginning at 10:00 a.m. E.D.T. at The Jepson Alumni Center, The University of Richmond, 49 Crenshaw Way, Richmond, Virginia 23173. You will need to present photo identification, such as a driver’s license, and proof of Circuit City stock ownership as of the record date when you arrive at the meeting. If you hold your shares through a bank, broker or other holder of record and you plan to attend the Annual Meeting, you must present proof of your ownership of Circuit City stock, such as a bank or brokerage account statement, in order to be admitted to the meeting. No cameras, recording equipment, electronic devices, large bags, briefcases or packages will be permitted in the Annual Meeting. Even if you plan to attend the Annual Meeting, please vote your proxy in advance over the Internet, by telephone or by mail.

Who is entitled to vote? If you are a shareholder of Circuit City common stock at the close of business on the Record Date of April 19, 2007, you can vote. There were 170,681,424 shares of common stock outstanding and entitled to vote on that date. For each matter properly brought before the Annual Meeting, you have one vote for each share you own.

What is the difference between holding shares as a shareholder of record and as a beneficial owner? If your shares are registered directly in your name with Circuit City’s transfer agent, Wells Fargo Shareowner Services, you are considered, with respect to those shares, the “shareholder of record.” The Notice of Annual Meeting, Proxy Statement and Annual Report have been sent directly to you by Circuit City. If your shares are held in a stock brokerage account or by a bank or other holder of record, you are considered the “beneficial owner” of shares held in street name. The Notice of Annual Meeting, Proxy Statement and Annual Report have been forwarded to you by your broker, bank or other holder of record who is considered, with respect to those shares, the “shareholder of record.” As the beneficial owner, you have the right to direct your broker, bank or other holder of record on how to vote your shares using the voting instruction card included in the mailing or by following their instructions for voting by telephone or on the internet. How do I vote? You may vote using any of the following methods: • Telephone – You can vote by calling the

toll-free telephone number on your proxy card. Please have your proxy card in hand when you call. Easy-to-follow voice

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prompts allow you to vote your shares and confirm that your instructions have been properly recorded.

• Internet – You can vote by visiting the Web site for Internet voting listed on your proxy card. Please have your proxy card available when you go online.

• Mail – Be sure to complete, sign and date the proxy card and return it in the enclosed postage-paid envelope.

• In person – You may vote in person at the Annual Meeting.

A valid proxy, if not revoked, will be voted for the election of the nominees for director named in this proxy statement and for ratification of the appointment of KPMG LLP as the Company’s independent registered public accounting firm for fiscal year 2008 unless you give specific instructions to the contrary, in which event it will be voted in accordance with those instructions. If your shares are held in “street name” by your broker, do not follow the above instructions. Instead, follow the separate instructions provided by your broker. Can I change my vote?

If you are a shareholder of record, you may revoke your proxy or change your vote at any time before it is voted at the Annual Meeting by

• completing and mailing to us a proxy card dated later than your last proxy;

• submitting a written revocation to the Secretary of Circuit City Stores, Inc. at 9950 Mayland Drive, Richmond, Virginia 23233; or

• appearing in person and voting at the Annual Meeting.

If your shares are held in “street name” by your broker, you may revoke your proxy or change your vote only by following the separate instructions provided by your broker. To vote in person at the Annual Meeting, you must attend the meeting and cast your vote in accordance with the voting provisions

established for the Annual Meeting. Attendance at the Annual Meeting without voting in accordance with the voting procedures will not in and of itself revoke a proxy. If your broker holds your shares and you want to attend and vote your shares at the Annual Meeting, please bring a letter from your broker to the Annual Meeting identifying you as the beneficial owner of the shares and authorizing you to vote. What is a “quorum”? A quorum consists of a majority of the outstanding shares present, or represented by proxy, at the meeting. A quorum is necessary to conduct business at the Annual Meeting. Inspectors of election will determine the presence of a quorum at the Annual Meeting. You are part of the quorum if you have voted by proxy. Abstentions count as shares present at the meeting for purposes of determining a quorum. Shares held by brokers that are not voted on any matter at the Annual Meeting will not be included in determining whether a quorum is present at the meeting. How are votes counted? Currently, our directors are elected by a “plurality” vote where the four nominees at this 2007 meeting receiving the greatest number of votes cast will be elected. You may vote “for” or “withhold” for the election of directors. Shares held by brokers that are not voted in the election of directors will have no effect on the election of directors. Our corporate governance principles, which are available online at http://investor.circuitcity.com, set forth our procedure if a director-nominee is elected but receives a majority of “withheld” votes. In an uncontested election, any director-nominee for whom greater than 50 percent of the outstanding shares are “withheld” from his or her election would tender his or her resignation for consideration by the Nominating & Governance Committee. The Nominating & Governance Committee would recommend to the Board the action to be taken with respect to such resignation.

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Effective July 1, 2007, however, our Bylaws will be changed to follow a “majority” vote standard for director elections. At the 2008 Annual Meeting, you will be able to vote “for,” “against” or “abstain” for each director. Each director will then be elected if the number of votes “for” that director exceeds the number of votes “against.” Under Virginia law, if a director is not elected at the annual meeting, the director will continue to serve on the Board as a “holdover director.” To address this, our corporate governance principles will provide that a director in this situation shall tender his or her resignation for consideration by the Nominating & Governance Committee and the full Board. The appointment of KPMG LLP as the Company’s independent registered public accounting firm will be approved if the votes cast in favor of the action exceed the votes cast against it. Abstentions and broker non-votes will not be considered cast either for or against a matter. A broker non-vote occurs when a broker or other nominee who holds shares for another does not vote on a particular item because the nominee does not have discretionary voting authority for that item and has not received instructions from the owner of the shares.

How are shares held in the Employee Stock Purchase Plan voted?

Participants in the 1984 Circuit City Stores, Inc. Employee Stock Purchase Plan will receive a form to provide voting instructions to Computershare Trust Co., Inc. for the shares of common stock held on each participant’s behalf by Computershare, as service provider for the plan. The share amounts on the form will include the shares in your plan account. If you also own shares as a record holder, then the form will also allow you to vote those shares by proxy. Voting instructions should be returned, properly executed, in the envelope provided. Participants in the Employee Stock Purchase Plan may also provide voting instructions by telephone or Internet, as described on the proxy

card mailed with this proxy statement. Computershare will vote in accordance with your instructions. If you do not return voting instructions or an executed proxy, Computershare will not vote the shares held in your plan account.

Who will pay for the cost of this proxy solicitation? Circuit City will pay the cost of soliciting proxies. In addition to the solicitation of proxies by mail, our officers and regular employees, without compensation other than their regular compensation, may solicit proxies by telephone, electronic means and personal interview. We have hired Morrow & Co., Inc. of New York, New York, at an approximate cost of $7,500 plus out-of-pocket expenses, to assist in the solicitation of proxies of shareholders whose shares are held in “street name” by brokers, banks and other institutions. Who will count the vote? Representatives from our transfer agent, Wells Fargo Shareowner Services, will tabulate the votes. What does it mean if I get more than one proxy or voting instruction card? If your shares are registered in more than one name or in more than one account, you will receive more than one card. Please complete and return all of the proxy or voting instruction cards you receive (or vote by telephone or the Internet all of the shares on all of the proxy or voting instruction cards received) to ensure that all of your shares are voted. How do I comment on Company business? Space for your comments is provided on the proxy card, or you may send your comments to us in care of the Secretary. Although it is not possible to respond to each shareholder, your comments help us to understand your concerns and address your needs.

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INFORMATION CONCERNING THE BOARD OF DIRECTORS AND ITS COMMITTEES The Board of Directors met eight times during the fiscal year ended February 28, 2007.

Information concerning the current membership of the principal oversight committees of the Board and the number of meetings held during the fiscal year is provided in the tables below.

Each director attended at least 75 percent of the aggregate number of meetings of the Board and the committee(s) on which the director served.

Each person who was a director or director-nominee on June 27, 2006 attended the 2006

Annual Meeting. Meetings of the Board and its committees are held in conjunction with the Annual Meeting of shareholders, and all directors and nominees are expected to attend the Annual Meeting of Shareholders.

All members of the Audit, Nominating & Governance, and Compensation & Personnel Committees are independent, non-management directors. The chair of each committee reports decisions and recommendations to the full Board.

Audit Committee

Members Primary Responsibilities MeetingsRonald M. Brill, Chair (1) Carolyn H. Byrd Allen B. King J. Patrick Spainhour Carolyn Y. Woo

• Assist Board oversight of (i) the integrity of our consolidated financial statements, (ii) compliance with legal and regulatory requirements, (iii) the independent registered public accounting firm’s qualifications and independence, and (iv) the performance of the internal audit function and independent registered public accounting firm

• Appoint, set compensation of, and oversee work of our independent registered public accounting firm, including pre-approval of audit and permitted non-audit services

• Periodically consult with management, internal audit and the independent registered public accounting firm about our internal controls

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(1) The Board of Directors has determined that Mr. Brill, the committee’s Chairman, is an “audit committee financial expert.” Nominating & Governance Committee Members Primary Responsibilities MeetingsMikael Salovaara, Chair (2) Ursula O. Fairbairn Barbara S. Feigin James F. Hardymon Alan Kane

• Identify individuals qualified to become members of the Board

• Recommend director nominees • Recommend non-employee director compensation and

benefits • Coordinate oversight of management succession planning,

evaluation of the Chief Executive Officer, and evaluation of the Board and its Committees

• Develop and recommend corporate governance principles to the Board

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(2) Lead Director

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Compensation & Personnel Committee

Members Primary Responsibilities MeetingsUrsula O. Fairbairn, Chair Barbara S. Feigin James F. Hardymon Alan Kane Mikael Salovaara

• Review and approve the executive compensation philosophy • Review and approve executive compensation programs and

awards • Review and recommend to the Board, as applicable, short- and

long-term incentive compensation plans • Review and recommend to the independent members of the

Board the CEO’s compensation • Review and approve other executives’ compensation • Oversee investment allocations of the funds of the Retirement

Plan and performance of fund managers.

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Corporate Governance Documents Available on the Company’s Web Site The Board has adopted written charters for the Audit, Nominating & Governance, and Compensation & Personnel Committees. Copies of each of the following documents are available on the Company’s investor information home page at http://investor.circuitcity.com and in print to any shareholder who requests them from the Company’s Secretary at Circuit City Stores, Inc., Attn: Corporate Secretary, 9950 Mayland Drive, Richmond, VA 23233: • Audit Committee Charter • Compensation & Personnel Committee Charter • Nominating & Governance Committee Charter • Corporate Governance Guidelines • Global Code of Business Conduct In addition, you can find information concerning the Company’s strategic planning process, including the Board’s active involvement in the process, on the Company’s investor information home page at http://investor.circuitcity.com. Global Code of Business Conduct The Board of Directors has adopted the Global Code of Business Conduct, which is a code of ethics that applies to all members of the Board of Directors and Company employees, including the Chief Executive Officer; Chief Financial Officer; and Controller and Chief Accounting Officer. The Company satisfies any disclosure obligations with respect to amendments or

waivers of the Code of Business Conduct by posting the information on the Company’s investor information Web site at http://investor.circuitcity.com. Independence A director of the Company is considered “independent” if he or she meets the independence requirements of the New York Stock Exchange. Affiliation with a customer or supplier of goods or services to us is not considered to be material to a determination of a Board member’s independence so long as payments in any fiscal year to or from us do not exceed 2 percent of the gross revenues of the customer or supplier, or $1 million dollars, whichever is greater. Other commercial and business relationships are evaluated by the Board on a case-by-case basis to determine if they constitute a material relationship. Each director and each director-nominee is responsible for disclosing to our legal department all relationships with us that should be taken into account when determining the member’s or nominee’s independence. Members of the Audit Committee must also meet separate applicable independence requirements under the rules of the New York Stock Exchange adopted in accordance with the Sarbanes-Oxley Act of 2002. Based on the foregoing criteria, the Board determined that each of the following directors is independent: Mr. Brill, Ms. Byrd, Ms. Fairbairn, Ms. Feigin, Mr. Hardymon, Mr. Kane,

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Mr. King, Mr. Salovaara, Mr. Spainhour and Ms. Woo. All members of the Audit; Compensation & Personnel; and Nominating & Governance Committees satisfy the standards of independence for members of such Committees established under applicable law and New York Stock Exchange listing requirements. The Board of Directors has determined that all members of the Audit Committee are “independent” as defined in the applicable listing standards of the New York Stock Exchange and the rules of the Securities and Exchange Commission. In addition, the Board of Directors has determined, in its business judgment, that each member of the Audit Committee is financially literate and that Mr. Brill possesses accounting or related financial management expertise. Review of Related Person Transactions The Board of Directors adopted a Related Person Transactions Policy for the review, approval or ratification of transactions involving the Company and a “Related Person.” The term “Related Person” includes directors, director nominees, executive officers, and 5% or greater shareholders and beneficial owners. In addition, any immediate family members or any firm, corporate or other entity in which one of these people is employed or is a general partner or principal would be a related person. Under the policy, our legal department requests information from directors and executive officers to identify Related Persons. The information is used to identify any transaction or series of transactions in which the Company is a participant, the amount involved exceeds $120,000 and a Related Person has a direct or indirect material interest. Proposed or existing transactions that are identified are submitted to the Board of Directors for consideration. Based on all the relevant facts and circumstances, the Board will determine whether or not to approve a transaction and will approve only those transactions that are in the best interests of the Company. If we become aware of an existing transaction that was not approved under this

policy, then it will be referred to the Board who will consider all alternatives, including ratification, amendment or termination of the transaction. We did not have any Related Person Transactions in fiscal year 2007. Additional Information about the Compensation & Personnel Committee The Compensation & Personnel Committee uses a consultant from Towers Perrin HR Services to obtain information about market competitiveness, trends and industry compensation practices. Towers Perrin also advises the Compensation & Personnel Committee on the design of our long-term incentive compensation programs. Towers Perrin is engaged by the Compensation & Personnel Committee and reports to the Compensation & Personnel Committee. The compensation consultant attended all the Compensation & Personnel Committee meetings in fiscal year 2007.

Under the terms of the engagement letter between the Compensation & Personnel Committee and Towers Perrin, they assist the Compensation & Personnel Committee with the following:

• Providing the Compensation & Personnel Committee with market data for each senior officer position.

• Providing the Compensation & Personnel Committee with an independent assessment of management recommendations for changes in the compensation structure and design of individual programs.

• Attending all regularly scheduled Compensation & Personnel Committee meetings.

• Supporting the Senior Vice President, Human Resources in ensuring that the Company’s executive compensation programs are designed and administered consistent with the Compensation & Personnel Committee’s requirements.

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• Providing periodic support to the Chair and the other members of the Compensation & Personnel Committee.

Towers Perrin and the Compensation & Personnel Committee have agreed that no work shall be undertaken for Circuit City outside of the Towers Perrin engagement letter (unless fees are under $5,000) without prior approval of the Compensation & Personnel Committee’s Chair. In this regard, Towers Perrin performed work for management related to analysis of stock-based compensation burn rate and dilution and assisted with preparation of the information shown in the “Potential Payments Upon Termination or Change-in-Control” section of this proxy statement. The compensation consultant also advised the Nominating & Governance Committee on setting compensation for non-employee directors. Non-employee director compensation is reviewed annually based upon market data gathered by Towers Perrin for a sample of general industry companies with similar revenues, as well as several specialty consumer electronics retailers. Towers Perrin also provides information concerning current trends in director compensation. Following discussion of this data, the Nominating & Governance Committee provides a recommendation to the Board of Directors concerning compensation for the non-employee directors. Management provides recommendations to the Compensation & Personnel Committee regarding executive compensation plan design and compensation levels for individual senior executives. The Chief Executive Officer and the Chief Financial Officer review Circuit City’s performance goals and financial budget with the Compensation & Personnel Committee for consideration in establishing incentive compensation targets. The Chief Executive Officer is responsible for performance evaluations of the executives who report to him. He communicates the results of those evaluations to the Compensation & Personnel Committee in connection with his recommendations concerning salary increases and pay adjustments for these executives.

Non-Employee Director Meetings The non-management directors of the Board meet in executive session at each regularly scheduled Board meeting and at other times, when appropriate. These meetings may include discussion with the Chairman and Chief Executive Officer present for a portion of the discussion. The Lead Director, who is also the chair of the Nominating & Governance Committee, generally presides at the meetings of the non-management directors. In addition, the Lead Director undertakes such other responsibilities as the directors designate, including communicating with the Chairman and Chief Executive Officer on behalf of the non-employee directors. Shareholder Recommendations for Director Candidates On behalf of the Board, the Nominating & Governance Committee considers director nominees recommended by the Company’s shareholders. In accordance with the Company’s Bylaws, a shareholder who desires to nominate a person to the Board should submit to the Secretary of the Company written notice of his or her intent to make such nomination. That notice must be given either by personal delivery or by United States mail, postage prepaid, not later than 120 days in advance of the Annual 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 first given to shareholders. Each such notice must set forth

• the name and address of the shareholder

who intends to make the nomination and of the person or persons to be nominated;

• a representation that the shareholder is a record holder of the Company entitled to vote at such meeting and intends to appear in person or by proxy at the meeting to nominate the person or persons specified in the notice;

• a description of all arrangements or understandings between the shareholder

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and each nominee and any other person or persons (naming such person or persons) pursuant to which the nomination or nominations are to be made by the shareholder;

• such other information regarding each nominee proposed by such shareholder as would be required to be included in a proxy statement filed pursuant to the proxy rules of the Securities and Exchange Commission, 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 the Company if so elected.

The Company’s Board of Directors embraces the principle that diversity in all respects both strengthens its membership and increases its effectiveness. The Board strives to select for its membership highly qualified individuals who are dedicated to advancing the interests of the Company’s shareholders. When vacancies on the Board occur, the Nominating & Governance Committee seeks individuals who, based on their background and qualifications, can promote this goal in conjunction with the other members of the Board. The Committee actively seeks nominees who will bring diverse talents, experiences and perspectives to the Board’s deliberations. The Committee would evaluate nominees for director proposed by shareholders

in the same manner it evaluates other prospective nominees. Communicating with the Board Interested parties may communicate with the Lead Director, the non-management directors as a group or the Board of Directors by writing to: Lead Director Circuit City Stores, Inc. 9950 Mayland Drive Richmond, VA 23233 The Board has requested that the Corporate Secretary’s office assist with processing of mail addressed to the Board or addressed to individual directors (other than the Lead Director). Communications are distributed to the Board or to the addressee, with copies to other relevant parties such as Committee Chairs or the Lead Director. Solicitations, marketing or other unsolicited vendor information will be excluded unless it pertains to a substantive matter. Concerns may also be communicated to the Board by calling the following confidential, anonymous, toll-free Alertline telephone number: (800) 296-4948. Any concern relating to accounting, internal accounting controls or auditing matters will be referred both to the Chairman and to the Chair of the Audit Committee.

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ITEM ONE — ELECTION OF DIRECTORS

The Company’s Board of Directors is divided into three classes with staggered three-year terms. The Board, upon the recommendation of the Nominating & Governance Committee, has nominated Barbara S. Feigin, Allen B. King, and Carolyn Y. Woo, whose terms as directors of the Company will expire at the 2007 Annual Meeting, for re-election to the Board. In addition, the Board, upon the recommendation of the Nominating & Governance Committee, has nominated James F. Hardymon for re-election to a two-year term, to replace Michael E. Foss. Mr. Foss will be resigning from the Board at the June meeting in connection with his departure from the Company to become an executive officer of Petco Animal Supplies, Inc. Although Mr. Hardymon would not otherwise be eligible for re-nomination because of his age, the Board believes that exceptional circumstances exist in this case due to the timing of Mr. Foss’ departure. Following Mr. Foss’ resignation in June, the size of the Board will be reduced to a total of 11 directors, with Mr. Schoonover serving as the

only employee director. The Board has initiated a search for an additional non-employee director but does not expect to complete this process by the date of the Annual Meeting. Your proxy for this Annual Meeting cannot be voted for more than four director nominees. If the Board identifies and appoints an additional non-employee director following the date of the Annual Meeting, that individual will stand for election at the 2008 Annual Meeting and the size of the Board would be increased back to 12 directors. All nominees have indicated their willingness to serve if elected. If, at the time of the Annual Meeting, any nominee is unable or unwilling to serve as a director then shares represented by properly executed proxies will be voted at the discretion of the persons named in those proxies for such other person as the Board may designate.

Information about the nominees for election as directors and the other directors of the Company whose terms of office do not expire this year appears below.

Nominees for Election to a Three-Year Term BARBARA S. FEIGIN, 69, consultant specializing in strategic marketing and

branding since February 1999. She served as Executive Vice President, Worldwide Director of Strategic Services and a member of the Agency Policy Council of Grey Global Group, Inc. (formerly Grey Advertising, Inc.), the principal business of which is advertising and marketing communications, from 1983 until her retirement in February 1999. She is a director of VF Corporation. She has been a director of the Company since 1994.

ALLEN B. KING, 60, Chairman and Chief Executive Officer of Universal

Corporation, a diversified corporation with operations in tobacco and agri-products, and Chairman and Chief Executive Officer of Universal Leaf Tobacco Company, Inc., international buyers and processors of leaf tobacco, since 2003. Prior to his election as Chief Executive Officer, Mr. King was Chief Operating Officer for more than five years. He is a director of Universal Corporation and Universal Leaf Tobacco Co., Inc. He has been a director of the Company since 2003.

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CAROLYN Y. WOO, 53, Dean of the Mendoza College of Business, University of

Notre Dame, since 1997. She is a director of AON Corporation and NISource, Inc. She has been a director of the Company since 2001.

Nominee for Election to a Two-Year Term JAMES F. HARDYMON, 72, retired as Chairman of Textron, Inc. in January 1999.

Mr. Hardymon joined Textron, Inc., a public company that produces aircraft, fastening systems, and industrial components and products, in 1989 as President and Chief Operating Officer. He became Chief Executive Officer in 1992 and assumed the title of Chairman in 1993. He is a director of American Standard Companies, Inc. and Lexmark International, Inc. He has been a director of the Company since 1998.

Directors Whose Terms Do Not Expire This Year RONALD M. BRILL, 63, Private Investor. Mr. Brill served as Executive Vice

President and Chief Administrative Officer of The Home Depot, Inc., a home improvement retailer, from 1995 until 2000 and as a director of the same company from 1987 until 2000. He is a director of Pharmaca Integrative Pharmacy, Inc. He has been a director of the Company since 2002. His present term will expire in 2009.

CAROLYN H. BYRD, 58, Chairman and Chief Executive Officer of GlobalTech

Financial, LLC, a financial services company, since May 2000. She was President of Coca-Cola Financial Corporation from 1997 to May 2000. She is a director of Rare Hospitality International, Inc. and AFC Enterprises, Inc. She has been a director of the Company since 2001. Her present term will expire in 2008.

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URSULA O. FAIRBAIRN, 64, President and Chief Executive Officer of Fairbairn Group LLC, a human resources and executive management consulting company, since April 2005. She served as Executive Vice President, Human Resources and Quality for American Express Company, a diversified global travel and financial services company, from December 1996 until her retirement in April 2005. She is a director of Air Products and Chemicals, Inc., Centex Corporation, Sunoco, Inc. and VF Corporation. She has been director of the Company since 2005. Her present term will expire in 2008.

ALAN KANE, 65, Dean of the School of Business and Technology at the Fashion

Institute of Technology (FIT) since 2005. From 1997 to 2006, he was Professor of Retailing at the Columbia Graduate School of Business. Before joining the faculty at Columbia, Mr. Kane spent 28 years in the retailing industry with Federated Department Stores, The May Company, Grossman's Inc. and a privately held retailer. He is a director of American Eagle Outfitters. He has been a director of the Company since 2003. His present term will expire in 2008.

MIKAEL SALOVAARA, 53, Private Investor. Mr. Salovaara is a retired partner

from Goldman, Sachs & Co., an investment banking firm, from 1980 to 1991 and from Greycliff Partners, a merchant banking firm, from 1991 to 2002. He has been a director of the Company since 1995. His present term will expire in 2009.

PHILIP J. SCHOONOVER, 47, Chairman, President and Chief Executive Officer

of the Company. Mr. Schoonover joined the Company in 2004 as executive vice president and chief merchandising officer. He was elected president in 2005 and chief executive officer in March 2006. Before joining the Company, he was executive vice president – customer segments at Best Buy Co., Inc., from April 2004 until September 2004; executive vice president – new business development from February 2002 until April 2004; and senior vice president merchandising for five years. He has been a director of the Company since December 2005. His present term will expire in 2009.

J. PATRICK SPAINHOUR, 57, Chairman and Chief Executive Officer of The

ServiceMaster Company, a provider of lawn, housekeeping, pest-control and maintenance services since May 2006. He served as Chairman and Chief Executive Officer of Ann Taylor Stores Corporation, a specialty retailer of women's apparel, shoes and accessories, from 1996 to 2005. He is a director of The ServiceMaster Company and Tupperware Brands Corporation. He has been a director of the Company since 2004. His present term will expire in 2008.

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2007 NON-EMPLOYEE DIRECTOR COMPENSATION During fiscal year 2007, directors who were not employees of Circuit City received a combination of equity-based and cash compensation. Directors who are also employees receive no compensation for service as members of the Board or Board committees. If a director is elected to fill a vacancy between Annual Meetings, the director’s cash retainer and equity-based compensation is prorated for the actual period of service. Annual Retainer Fees The cash compensation for non-employee directors included an annual retainer of $60,000 for service on the Board and an additional annual retainer of $5,000 for serving as chair of the Compensation & Personnel or Nominating & Governance Committees. The Lead Director receives an additional retainer of $5,000 per year. The chair of the Audit Committee receives an additional annual retainer of $10,000 per year. Retainer fees are paid quarterly. If a non-employee director attends less than 75 percent of the aggregate meetings of the Board and committees on which the director serves during a year, he or she forfeits 50 percent of the annual cash retainer earned for the year. Committee Meeting Fees Committee meeting fees are paid as follows: (i) $1,500 for each day of committee meetings attended that are held in person, and (ii) $750 for each day of committee meetings attended that are held by telephone. No separate fees are paid for Board meetings. Payment in Stock Non-employee directors may elect to receive a stock grant in lieu of the retainer, meeting fees or other cash compensation to which the director would otherwise be entitled. The number of shares under the stock grant will equal the amount of fees otherwise payable to the director divided by the fair market value of our common stock on the payment date, rounded to the nearest whole share. All cash compensation,

and all stock grants in lieu of cash, are paid quarterly on the dates of our regular dividend payments. Restricted Stock Units The non-employee directors’ equity-based compensation for fiscal 2007 was a restricted stock unit grant with a fair market value on the date of grant of $100,000, which vests one year from the date of grant. Non-employee directors are not permitted to sell or transfer the shares underlying the restricted stock units granted until the shares are fully vested and the non-employee director ceases to be a director of the Company. Restricted stock units are generally awarded on the date of the Annual Meeting. Accordingly, on June 27, 2006, the date of the 2006 Annual Meeting of Shareholders, the 10 non-employee directors were each issued a retainer grant of 3,720 shares of restricted stock units, which vest on June 27, 2007. Stock Ownership Guidelines for Directors In order to further encourage a link between director and shareholder interests, non-employee directors receive more than half of their director compensation in the form of equity, which they are required to hold while they serve on the Board. Within five years of joining the Circuit City Board, non-employee directors are expected to own an amount of shares or share equivalents equal to five times the annual retainer. Shares or units held by a director under any deferral plan are included in calculating the value of ownership to determine whether this minimum ownership requirement has been met. Deferred Compensation Non-employee directors may defer all or part of the annual retainer and committee meeting fees under a deferred compensation plan. On the last day of the fiscal year, a non-employee director’s deferred cash compensation account is credited with an additional amount equal to the product of (1) the average daily balance credited to the Cash Deferral Account during that fiscal year

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and (2) a percentage which shall be the average of the five-year Treasury Bill rates in effect on the first business day of each fiscal quarter during such fiscal year plus 30 basis points. Non-employee directors may also defer the restricted stock units awarded to them. Unvested restricted stock units and deferred restricted stock units are credited with additional units equal to the fair market value of the cash dividend payable on the non-vested and deferred restricted stock units listed in the 2007 Director Compensation Table below. The additional units earned become vested at the time the related restricted stock units vest. In fiscal 2007, Ms. Byrd, Ms. Fairbairn, Ms. Feigin, Mr. Hardymon, Mr. Kane, Mr. King, Mr. Salovaara, and Mr. Spainhour deferred this stock grant. Other Compensation Non-employee directors may participate in the Circuit City Foundation’s matching gift program. The Foundation will match charitable contributions made by any Circuit City

employee up to a total of $1,000 per year, up to $5,000 per year for officers and up to a total of $10,000 per year for non-employee directors. We pay or reimburse the cost of transportation, lodging and expenses related to Circuit City business and make our aircraft available to transport directors to and from the location of the Board and Committee meetings. On occasion, directors may arrive from or return to a location other than their primary residence or business address due to the timing and schedule for our Board meetings. We calculated the incremental cost to the Company for this travel to other locations when preparing the table shown below. We used the same method described in the notes following the Summary Compensation Table for personal use of corporate aircraft by executive officers. Directors are covered by our business travel accident insurance policy, which generally covers all employees and directors.

2007 Director Compensation Table The total fiscal 2007 compensation of our Non-Employee Directors is shown in the following table:

Name

Fees Earned or Paid in Cash

($) (1)

Stock Awards

($) (2) (3)

All Other Compensation

($) (4) Total

($) Ronald M. Brill 82,750 106,905 0 189,655 Carolyn H. Byrd 72,000 106,905 0 178,905 Ursula O. Fairbairn 72,000 96,281 6,800 175,081 Barbara S. Feigin 70,500 106,905 2,080 179,485 James F. Hardymon 70,750 106,905 10,000 187,655 Alan Kane 68,250 106,905 0 175,155 Allen B. King 72,750 107,551 0 180,301 Mikael Salovaara 77,000 106,905 10,000 193,905 J. Patrick Spainhour 70,500 105,238 10,000 185,738 Carolyn Y. Woo 68,250 106,905 10,000 185,155

(1) Includes annual retainer, meeting fees, Committee Chair fees and the Lead Director fee. Dollar amounts reflect

fees earned as cash compensation, regardless of whether the director has elected to be paid in cash or stock.

(2) The amounts reflect the dollar amount recognized for financial statement reporting purposes for the fiscal year ended February 28, 2007, in accordance with Statement of Financial Accounting Standards (“SFAS”) No. 123R, “Share-Based Payments,” of awards pursuant to the Circuit City Stores, Inc. 2003 Stock Incentive Plan and thus may include amounts from awards granted in and prior to fiscal 2007. See Note 14 to the consolidated financial statements in our Annual Report on Form 10-K for the fiscal year ended February 28, 2007 and Note 16 to the consolidated financial statements in our Annual Report on Form 10-K for the fiscal year ended

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February 28, 2006 for a description of assumptions underlying valuation of equity awards. Unlike the amount reflected in the consolidated financial statements, this amount does not reflect any estimate of forfeitures related to service-based vesting. Instead, it assumes that the director will perform the requisite service to vest in the award.

(3) The differences in the amounts shown among Board members reflect length of service: Ms. Fairbairn joined the Board in 2005, Mr. Spainhour joined the Board in 2004 and Mr. King joined the Board in August 2003.

The grant date fair value of stock awards in the table for Mr. Brill, Ms. Byrd, Ms. Feigin, Mr. Hardymon, Mr. Kane, Mr. Salovaara and Ms. Woo is as follows: an award of 3,720 restricted stock units on 6/27/06 with a grant date fair value of $99,994; an award of 4,813 restricted stock units on 6/21/05 with a grant date fair value of $79,992; an award of 4,649 restricted stock units on 6/15/04 with a grant date fair value of $58,624; and an award of 8,114 restricted stock units on 6/15/03 with a grant date fair value of $60,003.

The grant date fair value of stock awards in the table for Ms. Fairbairn includes the awards made on 6/27/06 and 6/21/05. For Mr. Spainhour, it includes the awards made on 6/27/06, 6/21/05 and 6/15/04. For Mr. King, it includes the awards made on 6/27/06, 6/21/05, 6/15/04 and an award of 7,438 restricted stock units on 9/1/2003 with a grant date fair value of $76,351.

The following chart provides the number of outstanding stock awards for each director listed in the table above as of February 28, 2007:

Name

Unvested Restricted

Stock Units*

Vested Deferred Restricted Stock

Units*

Deferred Retainer

Units Non-Qualified Stock Options

Brill 8,538 0 0 8,408 Byrd 8,538 13,025 0 11,153 Fairbairn 6,968 1,611 0 0 Feigin 8,538 14,476 1,451 15,986 Hardymon 8,538 14,476 1,451 15,986 Kane 8,538 13,025 0 0 King 8,538 12,306 0 0 Salovaara 8,538 13,025 0 15,986 Spainhour 8,538 4,754 0 0 Woo 8,538 0 0 12,191

*includes additional units earned as dividend equivalents

We ceased granting non-qualified stock options and deferred retainer units to Directors in 2002. The options and deferred retainer units shown in the chart above are fully vested and do not impact the value of stock awards listed in the 2007 Director Compensation Table.

(4) The incremental cost to the Company of perquisites and other personal benefits for each non-employee director did not exceed $10,000. The amounts in the “All Other Compensation” column to the 2007 Director Compensation Table represent the matching contributions made by the Circuit City Foundation on behalf of directors.

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COMPENSATION & PERSONNEL COMMITTEE REPORT

The Compensation & Personnel Committee has reviewed and discussed with management the Compensation Discussion & Analysis section which follows this report. Based on the review and discussions, the Compensation & Personnel Committee recommended to the Board of

Directors that the Compensation Discussion & Analysis be included in our proxy statement and incorporated by reference into the Annual Report on Form 10-K for the fiscal year ended February 28, 2007.

Compensation & Personnel Committee

Ursula O. Fairbairn, Chair Barbara S. Feigin

James F. Hardymon Alan Kane

Mikael Salovaara

COMPENSATION DISCUSSION & ANALYSIS (CD&A) OVERVIEW This Compensation Discussion & Analysis (CD&A) is designed to explain the material elements of compensation paid to our executive officers and provide the material factors underlying our compensation policies and decisions. The information in this CD&A provides context for the compensation disclosures in the tables that follow and should be read along with those disclosures. The Compensation & Personnel Committee of the Board of Directors is referred to as “the Committee” in this CD&A. The terms “we” and “our” refer to Circuit City Stores, Inc. When we refer to the “named executive officers” we are referring to the six individuals listed in the Summary Compensation Table in the “2007 Executive Compensation” section. Executive Summary Our executive compensation program consists of base salary and at-risk compensation, both short- and long-term. The elements of our executive compensation program include base salary, an annual performance-based bonus, long-term incentive awards, retirement programs, perquisites and fringe benefits.

The Committee uses a variety of resources, including tally sheets, competitive market analysis, an independent consultant and the external auditors to make decisions about executive compensation that are consistent with our executive compensation philosophy. The Committee considers Circuit City’s business performance, financial goals and the current industry environment when determining how to apply the Committee’s executive compensation philosophy to decisions about executive compensation. Background Several years ago, Circuit City initiated efforts to re-build our company and chart a new strategic course. A significant part of our turnaround effort has been focused on attracting and retaining a strong management team to lead this business transformation. To motivate the executive officers to focus on our long-term growth targets and remain with the Company during our transformation, we awarded long-term incentive stock awards in fiscal year 2006 covering a multi-year period. These awards are designed to place a significant portion of their compensation at risk and keep incentives aligned with the business challenges

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and competitive environment. As executive officers have been hired or promoted, we have made additional awards under this program. The Committee, in consultation with management, set aggressive bonus targets for fiscal year 2007. However, this year proved to be challenging for us. We saw intensified gross margin pressures in the second half of the year within the flat panel television category. We have launched efforts to accelerate the timing of planned initiatives to improve sales and gross margin, as well as improve the efficiency of our expense structure. The management team is focused intently on getting our cost structure more in line with today’s marketplace. In the midst of this challenging business climate we made a number of key changes to our executive leadership team. In particular, we have changed our executive management structure to improve execution and accountability, to better align all retail channels and to improve the coordination between merchandising and marketing. As a result of the difficult business environment and our philosophy that a significant portion of executive compensation should be at-risk, the named executive officers did not receive a bonus this year. EXECUTIVE COMPENSATION PHILOSOPHY Our executive compensation program is designed to: • Align compensation with short- and long-

term business objectives and the interests of our shareholders.

• Attract, motivate, reward and retain executive leadership who will contribute to the long-term success of the company.

• Reward achievement of high levels of performance that drive long-term business success and enhance shareholder value.

In conjunction with making decisions concerning executive compensation, the

Committee reviews external competitive data prepared by the independent consultant. The total direct compensation opportunity consists of base salary and at-risk incentive compensation, both short- and long-term, and is targeted at the median of the competitive market data. At-risk incentive compensation plans are structured to align compensation with performance. In aligning compensation with performance, we consider current business conditions and the need to balance short- and longer-term results with the ability to retain, attract and motivate an experienced executive team. The compensation program is designed to reward both individual performance and company performance that exceeds established goals and objectives. Specifically, we have used two different financial measures for the short- and long-term incentive awards to maintain focus on both earnings per share and longer-term gains in net operating profit margin. Operating profit margin is earnings from continuing operations before income taxes as percentage of net sales and operating revenues. We have chosen to balance the allocation between annual and long-term incentives to ensure executives are motivated to achieve both annual and long-term company goals. As an executive’s responsibility within the organization increases, we allocate a higher portion of his or her salary to at-risk compensation. The target percentage of base salary for payment of the annual performance-based bonus increases from 60% for senior vice presidents to 80% for executive vice presidents and 100% for the chief executive officer. The rationale for this is that as an executive moves higher in the organization, a greater portion of his or her annual and cash-based compensation should be at risk. Market Competitiveness The Committee engaged Towers Perrin Human Resources Services to review the competitiveness of our executive compensation program for senior executives. This review

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focused on base salary, target total cash compensation (equal to salary plus target bonus), and target total direct compensation (equal to salary plus target bonus plus the annualized, expected value of long-term incentives). Based on a review of our executives’ job duties, Towers Perrin matched our executive positions to various benchmark positions reported in the following two primary surveys:

• Towers Perrin’s Executive Compensation Data Bank, which reports data from more than 500 companies across a broad range of industries

• Hay Total Remuneration Survey – Retail Industry

The Towers Perrin data provides general industry information while the Hay survey data includes more than 70 retailers that participate in the survey. For positions commonly found across industries, Towers Perrin developed blended “going rates” based on the average of the 50th percentile retail and general industry data. For positions specific to the retail industry, competitive data was based on the rates in the Hay survey. Where possible, primary market data was adjusted to correspond to each executive’s approximate scope of responsibility. Further, an effort was made to use data based on companies of a similar revenue size. Towers Perrin also collected available data from proxy statements for the following companies to use as secondary information: The Home Depot, Inc., Target Corp., Sears Holdings Corp., Walgreen Co., Best Buy Co., Inc., Dillard’s, Inc., TJX Companies, Inc., Gap Inc., Office Depot Inc., Limited Brands, Inc., Nordstrom, Inc., RadioShack Corp. and Federated Department Stores, Inc. The results of this work on market competitiveness were used for both the annual base salary review process and for individual compensation decisions in connection with hiring and promotion of executive officers. The Committee uses this information as a tool to

achieve the executive compensation philosophy principles stated above. ELEMENTS OF COMPENSATION PROGRAM Our ongoing executive compensation program consists of the following elements:

• Base Salary

• Annual Performance-Based Bonus

• Long-Term Incentive Awards

• Retirement Programs

• Perquisites & Fringe Benefits In addition, we may provide some of the forms of compensation listed above for a period of time after termination of employment. Base Salary Individual base salaries are established in relation to benchmark competitive data and are adjusted to recognize the level of responsibility, business performance, individual performance and internal equity. The Chief Executive Officer reviews the performance of the executive officers annually and provides a recommendation to the Committee concerning base salary increases for the executives. The independent consultant provides the Committee competitive market information for base salaries. On average, the senior executive officers as a group received an increase of 3.77% as a result of the annual salary review in fiscal year 2007 related to performance in fiscal year 2006. In making decisions about base salary increases, the Committee also takes into account the impact of such increases on target bonus and total cash compensation. A number of senior executives were hired during fiscal 2007. In setting their base salaries, the Committee took into consideration their compensation levels at their previous employers, the results of competitive market information for the positions they were hired into and their total

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cash compensation opportunity. In order to recruit these executives, Circuit City also offered one-time equity awards and sign-on bonuses which replaced compensation opportunities forfeited with previous employers or which were otherwise believed necessary to recruit these executives. Annual Performance-Based Bonus Short-term incentive compensation is designed to reinforce the relationship between executive pay and the company’s performance each fiscal year. The annual performance-based bonus is a cash incentive award that is tied to attainment of company goals that, if achieved, fund the payments under the plan. Senior executives are eligible for target awards in an amount based on a percentage of their base salary. The target levels for the senior executive officer positions, which do not change from year to year, are as follows:

Position

Target bonus percent of

base annual salary

Maximum bonus percent of base annual

salary CEO 100% 200% EVP* 80% 160% SVP 60% 120%

*includes the Chief Financial Officer The amount paid to individual executive officers under the annual performance-based bonus plan is equal to the executive’s base annual salary in effect on December 1st multiplied by the target bonus percent applicable to their job position and multiplied by the performance level we achieved as a Company. If achieved, attainment of performance levels is certified by the Committee following the end of the fiscal year based on actual results in our audited financial statements. For fiscal 2007, the Committee set the criteria for the company performance level based upon earnings per share results. We believe that this was an appropriate performance measure for the annual bonus because it is widely accepted,

easily understood, reflects our efforts to grow revenue, and takes into account our goal to reduce and leverage expenses. Achievement of this performance goal is determined based on GAAP earnings as reported in our financial statements, excluding the effects of any change(s) in accounting principles. All determinations regarding the achievement of the performance goal are made by the Committee and expenses related to store and facility closures, if any, are included in the results. Actual payout opportunity for fiscal year 2007 ranged as shown in the table below, with the 100% payout level intended to represent our target performance goal.

Performance Levels FY07 Goal 50% 75% 100% 150% 200%EPS $0.75 $0.87 $1.00 $1.15 $1.30

The performance levels shown above were established in connection with projections made in our annual financial planning process at the beginning of the fiscal year. The Committee approved the performance criteria and target levels within the first 90 days of the fiscal year. The Committee approves new targets under the annual performance-based bonus plan each year. As a result of the challenging competitive environment in the second half of the fiscal year, we did not achieve the earnings per share targets listed above. Consequently, none of the named executive officers who were serving as executives on the last day of the fiscal year received a bonus. Long-Term Incentive Awards Long-term compensation consists primarily of stock-based awards. Stock-based awards, whether options or restricted shares, may be awarded based on the executive’s position, experience and performance. In June 2005, we designed our current long-term incentive program that includes a mixture of restricted stock, performance-accelerated restricted stock and non-qualified stock options.

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We refer to this long-term incentive plan as the LTIP. The LTIP is designed to be equivalent to the total awards we would otherwise have made over the course of multiple fiscal years. As a result, we did not make an annual equity award to executives or other key employees participating in the LTIP during fiscal year 2007. Executives who were employed with us when this program was implemented in June 2005 received equity awards at the following levels based upon their position:

Position Restricted

Stock

Performance Accelerated Restricted

Stock

Non-Qualified

Stock Options

CEO 100,000 100,000 0(2)

President 90,000 90,000 340,000EVP 65,000 65,000 200,000SVP(1) 35,000 35,000 140,000SVP 13,500 13,500 54,000(1) SVPs on the Management Executive Committee (2) At the former CEO’s request, the options that

would have been awarded to him were set aside for use in making “Chairman’s Awards” of restricted stock up to an equivalent value to recognize outstanding performance.

We awarded an equal number of shares of restricted stock and performance-accelerated restricted stock under the LTIP as a balance between retaining these executives through the end of the vesting period and providing an incentive to drive results above our business plans by meeting the criteria for acceleration. Executives who have been hired or promoted to their current position since June 2005 received awards of a pro-rata number of shares of restricted stock, performance-accelerated restricted stock and stock options in the LTIP. In addition, we have awarded options and restricted stock that is not part of the LTIP to newly hired executives in connection with their employment offer and to current executives as recognition for superior performance.

The restricted stock awards under the LTIP will vest 100% on July 1, 2009. The performance-accelerated restricted stock awards under the LTIP will vest on July 1, 2009, with a provision for earlier accelerated vesting based upon attainment of annual operating profit margin at the following levels, which are cumulative:

Operating Profit Margin

Acceleration of shares

2.3% 25% of shares vest3.25% 50% of shares vest

4.0% 75% of shares vest4.5% 100% of shares vest

Operating profit margin is earnings from continuing operations before income taxes as a percentage of net sales and operating revenues, as each is reflected in our annual audited consolidated financial statements. The non-qualified stock options under the LTIP vest at a rate of one-fourth per year from the grant date. The equity awards under the LTIP to senior executives include a provision requiring the executive officer to retain at least 50 percent of the shares received upon vesting or exercise, after satisfaction of applicable tax liabilities, until the executive officer meets our stock ownership guidelines. In addition, the restricted stock awards and the performance-accelerated restricted stock awards under the LTIP contain a performance condition applicable to the named executive officers that will prevent shares from vesting unless our stock price has increased to a specified level by the final vesting date for the award. If the stock price is not at the specified level, then the award will remain restricted until it reaches and maintains the required stock price for five consecutive trading days. If that performance condition is not met within three years after the final vesting date, then any shares that had not vested on the final vesting date will be forfeited by the named executive officer. This provision is designed to ensure that the awards are fully deductible for tax purposes when they vest.

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Upon issuance of the award, the time-based restricted stock and performance-accelerated restricted stock are included in our outstanding shares. Dividends are paid on these shares at the regular dividend rate in effect for our common stock. No dividends are paid on stock options. Mr. Schoonover’s total compensation for fiscal year 2007 shown in the Summary Compensation Table includes a one-time award of 1,000,000 non-qualified stock options granted upon his promotion to CEO effective March 1, 2006. These stock options will vest one-third on March 1, 2009, one-third on March 1, 2010 and one-third on March 1, 2011. These stock options have a longer vesting period than our normal terms and conditions because this award is designed to provide a long-term incentive to Mr. Schoonover to lead changes in Circuit City’s business that will increase shareholder value. Additionally, the number of options awarded reflects the Committee’s belief that the CEO should have a significant stake in the Company as a shareholder. The award of stock options will allow him to acquire shares necessary to achieve his required stock ownership levels. Retirement Programs In fiscal year 2005, we substantially froze our pension plan and a related benefit restoration plan for executives. The benefit restoration plan was designed to provide benefits for the senior executives who were affected by the Internal Revenue Code limits on benefits provided under a pension plan. It is a non-qualified defined benefit plan. Freezing the pension and benefit restoration plans were part of changes to our overall retirement program in fiscal 2005. Executives who were within 10 years of early or normal retirement under the pension plan in fiscal 2005 remained eligible to receive supplemental benefits under the non-qualified benefit restoration plan. Of the current named executive officers, only Mr. Clark and Mr. Jonas remain eligible for benefits under the benefit restoration plan. They will only receive these benefits if they work for us until retirement.

To remain competitive from a benefits perspective, the Committee adopted a Supplemental 401(k) Plan effective March 1, 2005 that, like the benefit restoration plan, is designed to provide benefits for executives affected by the Internal Revenue Code limits on qualified retirement plans. The Supplemental 401(k) plan is designed to mirror the tax-qualified 401(k) plan. It is not designed to provide any additional benefit features to these executives beyond those available under the qualified plan. The Supplemental 401(k) Plan is an unfunded, non-qualified deferred compensation plan, under which executives may defer up to 40 percent of their compensation and are eligible to receive a matching contribution of up to 4 percent of their compensation less any matching contribution received under the tax-qualified 401(k) plan. These deferral and matching contribution percentages are the same as the percentages under our regular 401(k) plan. Matching contributions are made following the same formula used for safe harbor matching contributions under the qualified plan and the investment choices are substantially equal to those offered in the qualified plan. For fiscal year 2007, Mr. Schoonover, Mr. Foss and Mr. Jonas participated in the Supplemental 401(k) Plan. Perquisites & Fringe Benefits We provide perquisites to the executive officers, as outlined in the chart following the Summary Compensation Table. Senior Vice Presidents and above are eligible for: • a car allowance of $858 per month,

• a financial planning allowance of up to $6,000 per year, and

• participation in the Officer Evaluation Program which provides consumer electronics to the executive for personal use and evaluation of the merchandise.

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Additionally, the Chief Executive Officer and the Chief Financial Officer are allowed limited personal use of our aircraft. The Chief Executive Officer may use up to 50 hours per year and the Chief Financial Officer may use up to 30 hours per year. These executives are taxed for their personal use of the aircraft based on a standard industry fare level formula, which equates to roughly the cost of first-class airfare. The aggregate incremental cost of the use of the aircraft for these executives is described further under the Summary Compensation Table in the “2007 Executive Compensation” section. The Officer Evaluation Program is designed to provide the company with feedback and evaluations concerning merchandise we sell to consumers. In addition, it helps us become more familiar with these products. Executives are allowed to use merchandise with a discounted retail value of up to $8,000 at any given time under the program. After evaluating a product for 18 months, they must then either return it to us or purchase it at its then current-value. The aggregate incremental cost of this program is described further under the Summary Compensation Table in the “2007 Executive Compensation” section. Senior Vice Presidents and above may also receive:

• relocation benefits • merchandise, and • other fringe benefits

We offer relocation benefits to employees when they join the Company. In some cases, the relocation benefits offered to executives are more generous than the relocation benefits that are generally available to other salaried employees. We incur the cost of travel expenses and merchandise gifts for executives and their spouses in connection with an annual recognition event for our top performing store directors and field personnel. On occasion, we may gross-up the employee’s pay for taxes related to imputed income on these gifts. We consider each of these fringe benefits to be business-related but are reporting them as

perquisites to provide full disclosure for investors. We also provide certain benefits to all employees and/or all full-time employees that are not included as perquisites in the Summary Compensation Table for the named executive officers because they are broadly available. This includes health and welfare benefits, an Associate Discount Program on merchandise, adoption assistance, credit union membership, matching gift contributions to qualifying educational and cultural organizations and an employee stock purchase plan. Post-Termination Compensation Under our employment agreements and certain plan documents, the named executive officers may be entitled to post-termination compensation in certain cases. These provisions are detailed further and quantified in the section of this proxy statement titled “Potential Payments Upon Termination or Change-In-Control.” We provide these benefits to executives because we want their focus to be directed toward business objectives and not disrupted by an actual or rumored change-in-control of the company. Further, we believe that these provisions are necessary to retain key employees during the volatility of our business turnaround and in light of past situations where we were the target of unsolicited offers to acquire the Company. In the event a corporate transaction was being considered, we believe that these provisions would cause the executives to act in the best interest of shareholders without undue concern over how a transaction might affect their personal employment. To ensure this post-termination compensation is reasonable, the Board of Directors has adopted a policy with respect to employment agreements with executive officers that limits benefits payable in the event of a change-in-control. For employment agreements with executive officers entered into after June 21, 2005 (including written amendments to, but excluding automatic renewals of, existing employment agreements),

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the value of change-in-control severance benefits payable under the agreements, determined as set forth below, may not exceed 2.99 times the sum of the executive officer’s base salary plus the most recent bonus paid to the executive officer (or, if no bonus has been paid to the executive officer in the executive officer’s current position, the executive officer’s target bonus at a 100% payout).

Of the named executive officers, only Mr. Hedgebeth joined us after this provision was implemented, but it applies to all executive officers who enter into new employment agreements with us.

The following are subject to the 2.99x limit:

• lump sum severance payments

• periodic cash payments

• consulting fees (other than fees paid on an hourly or per diem basis for work actually performed)

• the value of post-termination employee benefit plan and fringe benefit continuation

• additional service credit under our frozen non-qualified defined benefit plan

The value of accelerated vesting of stock options and other long-term incentive awards is not subject to the 2.99x limit, nor is accelerated payment of an amount that would otherwise be due to the executive officer at a later date. We believe that accelerated vesting protects an existing award under a stock incentive plan and does not provide an additional severance benefit. Acceleration of payment is only a timing change and we do not view it as providing an additional severance benefit. Because excise taxes may be imposed on a portion of change-in-control benefits in some cases, excise tax reimbursement and gross-up payments may still apply in these situations. Such payments do not increase the after tax value of benefits to the executive officer, and therefore, we do not count them for purposes of our 2.99x limit.

Our employment agreements also provide for severance payments in the event of the executive’s termination. In the event of a termination without cause or termination by the executive for Good Reason, we will provide cash severance in amounts that range from one times base salary and target bonus up to two times base salary and target bonus plus a pro-rata share of target bonus for the fiscal year in which the termination occurs. Other severance provisions include accelerated vesting of stock that would have vested during the then-current term of the agreement, outplacement services and continuation of employee benefits for up to two years.

OTHER COMPENSATION POLICIES & PRACTICES

Stock Ownership Guidelines Our stock ownership guidelines require executives to hold specific levels of our stock in order to ensure focus on long-term success and shareholder value. Consistent with this philosophy, the Committee has implemented stock ownership guidelines for the senior executives as follows:

Job Level # Shares Chief Executive Officer 325,000 Executive Vice President* 165,000 Senior Vice President (Management Executive Committee)

85,000

Other Senior Executives 45,000 *includes Chief Financial Officer The guidelines were effective July 1, 2004. Executives in their positions at that time have until July 1, 2009 to attain the required minimum level. New executives or those promoted into a new position have five years from their date of hire or promotion to attain the required level. Under the guidelines, non-vested restricted stock and stock options do not count toward ownership until all restrictions lapse or options are exercised. Each year, the Committee evaluates management’s progress in meeting the target levels.

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The guidelines are designed to further align management’s long-term interests with that of shareholders by encouraging executives to make a commitment to hold a minimum amount of Circuit City stock. The Committee takes these guidelines into account when making decisions about equity awards to senior executives. Long-term incentive awards are designed to ensure that each executive has the ability to meet their target ownership levels. Executives who fail to meet these guidelines by the specified date will be expected to hold all shares acquired through stock option exercises, (or the net number of shares remaining after a cashless exercise) until they reach their target level. In addition, these executives will be expected to invest between 25% to 30% of the proceeds from their annual bonus payment until they reach their target level. Stock Option Practices We award stock options to senior executive officers. A limited number of non-executives in key roles may also receive options in connection with an employment offer. Stock option grants and restricted stock awards to senior executives are made at regularly scheduled Committee meetings, which occur every two months. Our Senior Vice President of Human Resources, in consultation with the Chief Executive Officer and the Chief Financial Officer provides the Committee with a recommendation concerning the recipients, the reason for the award and the number of options to be awarded. The Committee is also provided with information concerning stock utilization and the number of shares available under our stock plans. The grant date is the date of the meeting when the options are approved by the Committee. We communicate the fact of the award promptly to the executive and we issue a written award letter setting forth our obligations under the award. Stock option grants to non-executives in connection with hiring or promotion are granted on the first day of the month following the hire date or effective date of a promotion. The Board

delegates authority to the CEO to grant a limited number of equity awards for that purpose and the awards are reported to the Committee at the next regular meeting. We do not use written consents in connection with stock option awards. We do not coordinate the issuance of stock options with the release or withholding of material non-public information. The date of our regular Committee meetings is established at least one-year in advance without regard to the expected release dates for earnings or other announcements. Other stock awards are generally made as part of a long-term or annual stock incentive award program and approved by the Committee, with the grant date specified in advance as part of the proposed Committee resolutions. Stock options are awarded at the fair market value of our stock on the grant date, as defined in the stock incentive plan; no “discounted” options are awarded. Until December 2006, fair market value was defined in the stock incentive plan as the average of the high and low prices of our stock on the grant date. Effective December 14, 2006, fair market value is now defined in the plan as the closing price on the grant date. This change was made to simplify disclosure for investors under the new proxy statement rules. Prohibition on Repricing and Reloads As a matter of policy, our stock incentive plans prohibit the surrender of a stock option in consideration for the grant of a new option with a lower exercise price or for another equity award. We are not allowed to make changes to the plan that would permit this practice without shareholder approval. In addition, the Committee cannot take any action which would reduce the exercise price of a stock option or stock appreciation right, whether by amendment, cancellation or otherwise, after such award is granted. Executive Compensation Recovery Policy It is our policy that we will, to the extent permitted by governing law, require

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reimbursement of a portion of any performance-based bonus paid to any senior executive officer after March 1, 2007 where

• the payment was based on the achievement of certain financial results that were subsequently the subject of a substantial financial restatement, as determined by the non-management members of the Board;

• in the view of the non-management members of the Board, the officer personally engaged in fraud or misconduct that caused or partially caused the need for substantial financial restatement; and

• a lower payment would have been made to the officer based upon the restated financial results.

In each such instance we will, to the extent practicable, seek to recover the amount by which the individual officer’s annual bonus for the relevant period exceeded the lower payment that would have been made to the officer based upon the restated financial results, plus a reasonable rate of interest; provided that we will not seek to recover bonuses paid more than three years prior to the date the applicable restatement is disclosed.

Accounting & Tax Considerations The Committee considers accounting and tax implications when making compensation decisions.

Under Section 162(m) of the Internal Revenue Code, non-performance based compensation paid to the named executive officers in excess of $1 million dollars is not tax-deductible. Certain other criteria apply for performance-based compensation to be deductible. Where possible, we try to preserve the tax deductibility of executive compensation. From time to time, we may award compensation that is not fully deductible when deemed necessary by the Committee, balancing tax efficiency with the objectives of our executive compensation philosophy. In addition, our deduction for personal use of the corporate aircraft by the CEO and CFO is limited because we report this compensation as income to them using a standard industry fare level calculation, but we are required by the Internal Revenue Service to compute the cost of this perquisite to us on a higher non-deductible basis.

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2007 EXECUTIVE COMPENSATION Summary Compensation Table for Fiscal 2007. The table below sets forth for the fiscal year ended February 28, 2007, the compensation earned by the Chief Executive Officer, the Chief Financial Officer, the three other most highly compensated executive officers and one individual for whom disclosure would have been required but who was not serving as an executive officer at the end of the fiscal year. We refer to these individuals as our named executive officers.

Name and Principal Position (1)

Year Salary ($)

Bonus($)

Stock Awards ($) (2)

Option Awards ($) (2)

Non-Equity

Incentive Plan

Compen-sation

($)

Change in

Pension Value &

Non- Qualified Deferred Compen-

sation Earnings

($) (3)

All Other Compen-

sation ($) (4)

Total ($)

Philip J. Schoonover Chairman, President & CEO 2007 894,615 0 1,074,852 4,777,004 0 - 208,477 6,954,948 Michael E. Foss EVP, Chief Financial Officer 2007 570,192 0 544,120 504,513 0 713 56,355 1,675,893 George D. Clark, Jr. EVP, Multi-channel Sales 2007 523,462 0 517,800 314,557 0 179,865 25,838 1,561,521 Reginald D. Hedgebeth SVP, General Counsel & Secretary 2007 337,115 0 307,130 440,326 0 - 24,559 1,109,129 Eric A. Jonas, Jr. SVP, Human Resources 2007 370,192 0 288,058 390,492 0 68,591 49,947 1,167,281 Brian E. Levy Former SVP & CEO of InterTAN 2007 215,124 71,433 (199,922) 576,728 0 - 2,493,442 (5) 3,156,805

(1) Mr. Levy resigned effective March 23, 2006. In addition, Mr. Foss provided notice on February 19, 2007 that

he would resign in April 2007. The stock awards and option awards shown for Mr. Levy in the table above reflect the reversal of stock-based compensation expense recognized by the company in fiscal 2007 as a result of his resignation.

(2) Amounts reflect the dollar amount recognized for financial statement reporting purposes for the fiscal year ended February 28, 2007, in accordance with Statement of Financial Accounting Standards (“SFAS”) No. 123R, “Share-Based Payments,” of awards pursuant to the Circuit City Stores, Inc. 2003 Stock Incentive Plan and thus may include amounts from awards granted in and prior to fiscal 2007. See Note 14 to the consolidated financial statements in our Annual Report on Form 10-K for the fiscal year ended February 28, 2007 and Note 16 to the consolidated financial statements in our Annual Report on Form 10-K for the fiscal year ended February 28, 2006 for a description of assumptions underlying valuation of equity awards. Unlike the amount reflected in the consolidated financial statements, this amount does not reflect any estimate of forfeitures related to service-based vesting. Instead, it assumes that the executive will perform the requisite service to vest in the award.

(3) Mr. Schoonover, Mr. Hedgebeth and Mr. Levy are not eligible to participate in the frozen defined benefit plans. Mr. Foss has a frozen pension benefit based on two years of service which would have become vested if he had

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earned five years of service; he is not eligible to receive benefits under the non-qualified benefit restoration plan. Mr. Clark and Mr. Jonas each have a frozen vested pension benefit and are sustained participants in the non-qualified benefit restoration plan. The aggregate annual change in the actuarial present value of accumulated benefits under these plans for Mr. Foss, Mr. Clark and Mr. Jonas are shown above and comprised of the following amounts:

Change in Pension Benefit

Value ($)

Change in Benefit Restoration Plan

Value ($) Michael E. Foss 713 0 George D. Clark, Jr. 6,609 173,256 Eric A. Jonas, Jr. 3,107 65,484

(4) All Other Compensation for the named executive officers includes the following:

Name Year

Company Match Under

Defined Contribution

Plans ($)

Cost of Basic Life Insurance

($)

RelocationPayment

($) (a)

Company Contribution

to Stock Purchase Plan

($)

Payment in Connection

with Termination

($)

Matching

Contributions by Circuit City

Foundation ($)

Perquisites and Other Personal Benefits

($) Total

($) Schoonover 2007 35,785 1,051 50,000 - - 5,000 116,641(b) 208,477Foss 2007 22,808 471 - - - 2,000 31,077(c) 56,355Clark 2007 4,554 845 - - - 2,500 17,939(d) 25,838Hedgebeth 2007 2,092 297 - - - 1,000 21,169(e) 24,559Jonas 2007 24,048 4,059 - - - 3,250 18,590(e) 49,947Levy 2007 3,474 - - 3,641 2,483,316 0 3,011(f) 2,493,442

(a) In connection with his promotion to CEO, Mr. Schoonover was provided with a payment of $50,000

for relocation expenses that are not otherwise reimbursable by the Company. (b) The amount shown for Mr. Schoonover includes: $92, 971 representing the incremental cost to Circuit

City for personal use of the corporate aircraft. The amount also includes an aggregate of $23,670 for car allowance, financial planning reimbursement, value of merchandise acquired in fiscal year 2007 through the officer evaluation program and gifts of merchandise.

(c) The amount shown for Mr. Foss includes: the incremental cost to Circuit City for personal use of the corporate aircraft (which was less than $25,000), car allowance, value of merchandise acquired in fiscal year 2007 through the officer evaluation program and gifts of merchandise.

(d) The amount shown for Mr. Clark includes: car allowance, value of merchandise acquired in fiscal year 2007 through the officer evaluation program and gifts of merchandise.

(e) The amounts shown for Mr. Hedgebeth and Mr. Jonas includes: car allowance, financial planning reimbursement, value of merchandise acquired in fiscal year 2007 through the officer evaluation program and gifts of merchandise.

(f) The amount shown for Mr. Levy includes car allowance. (5) In connection with his employment agreement, Mr. Levy was entitled upon his termination to receive

payments for liabilities assumed by InterTAN Canada, Ltd and guaranteed by Circuit City under the InterTAN, Inc. Deferred Compensation Plan. This deferred compensation was accelerated and paid in a one-time payment of $2,483,316 on May 30, 2006.

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Perquisites In accordance with SEC rules, we report the amount of each perquisite that exceeds the greater of $25,000 or 10% of the aggregate perquisites granted to each named executive officer. In fiscal 2007, the executive officers were eligible for a car allowance of $858 per month, reimbursement of financial planning expenses of up to $6,000 and participation in the officer evaluation program. Under the officer evaluation program, executives may select merchandise for evaluation and personal use. Participants may have a maximum of $8,000 worth of merchandise at a time. After eighteen months, executives may return the merchandise or purchase the merchandise at a discounted rate. The incremental cost to us is calculated by summing the discounted retail price of each product acquired in fiscal year 2007 by the named executive officer. We calculate the incremental cost of personal use of our aircraft by calculating fuel cost per mile and adding expenses such as crew expenses, ramp fees, landing fees and catering. We also include the incremental tax expense that is incurred because these executives are taxed for their personal use of the corporate aircraft based on a standard industry fare level formula rather than the full cost of operating the aircraft. We do not include in our calculation non-variable items such as maintenance, labor, parts, engine restoration, crew salaries, hangar, insurance, training and weather monitoring services. 2007 Salary Information Mr. Schoonover was named Chief Executive Officer effective March 1, 2006 and Chairman of the Board effective June 27, 2006, upon the retirement of former Chairman and CEO, W. Alan McCollough. The Committee approved an increase in Mr. Schoonover’s base salary from $725,000 to $900,000. The size of the increase reflects the significant increase in his responsibilities as CEO. This amount is approximately $75,000 less than the base salary

of the former CEO, however, reflecting the fact that Mr. Schoonover is new to this position. As part of the annual performance review in April 2006, Mr. Foss received a base salary increase from $550,000 to $575,000, an increase of 4.5%, reflecting his strong performance as CFO and his additional responsibilities for oversight of the international segment operations. Mr. Clark was promoted to the level of Executive Vice President effective March 1, 2006. He received a base salary increase in connection with this promotion. Mr. Clark’s base salary increased to $525,000 from $475,000 or 10.5%. As part of the annual performance review in April 2006, Mr. Jonas received a 7.0% base salary increase from $350,000 to $375,000, and Mr. Hedgebeth received a 4.6% base salary increase from $325,000 to $340,000. Employment Agreements We have employment agreements with each of the named executive officers. Generally, the employment agreements provide for annual salary review and participation in our bonus, stock incentive and other employee benefit programs. Each agreement contains provisions confirming the executive’s obligation to maintain confidentiality of our information and not to compete with Circuit City for a specified period of time after his or her employment ends. These employment agreements address the following termination scenarios:

• Termination due to Death or Disability

• Termination for Cause

• Involuntary Termination by the Company Without Cause

• Termination by Executive with Good Reason

• Termination following a Change-in-Control

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If an executive dies while performing responsibilities under the employment agreement, we will be obligated to pay benefits to his or her survivors as determined by our retirement, insurance and employee benefit programs. In addition, the employment agreement provides that all stock grants would become immediately vested and exercisable by the executive’s survivors or estate. If an executive becomes unable to perform normal duties because of any physical or mental illness or injury, then we consider that executive disabled for purposes of the employment agreement if (i) the condition has persisted for 180 days in a 12 month period, (ii) a physician has certified that the executive is unlikely to be able to return to normal duties, or (iii) the disability insurer covering the executive has determined that the executive is totally disabled. We would have the right to terminate the executive’s employment for disability and would be obligated to pay the executive accrued salary and any unpaid earned bonus. In addition, all stock grants, other than performance-based restricted stock, would become immediately vested and exercisable by the executive or his or her personal representatives. The executive may also have other vested rights and benefits under our compensation programs such as disability insurance or retirement benefits that would provide for payments in this scenario. We can terminate an executive for “cause” if he or she materially breaches the terms of the employment agreement and does not cure the breach within ten days notice. Cause also generally includes gross negligence, misconduct, refusal to abide by policies and procedures, conviction of a felony or crime of moral turpitude, illegal conduct, dishonesty, fraud, or failure to disclose a conflict of interest. If we terminate an executive for cause under the employment agreement, then we only owe the executive his or her salary through the termination date. If we decide to end an executive’s employment for any reason other than death, disability or cause, then we are obligated to pay certain benefits in connection with an “Involuntary

Termination by the Company Without Cause.” This would include our decision not to renew the executive’s employment agreement at the end of a term or renewal period. In the event of Involuntary Termination Without Cause, the employment agreements specify that we would pay the executive an amount ranging from one to two times their base salary and target bonus, provide health and welfare benefit plan participation for one to two years, provide up to $50,000 in outplacement services, accelerate vesting of stock options and restricted stock (other than performance-based) that would have vested during the current term of the agreement and (if applicable) provide age and service credit under the pension, medical and other benefit plans. In addition, certain executives would also be entitled to a pro-rata target bonus for the year in which the termination occurs. The specific time periods and provisions applicable to each of the named executive officers under this scenario are described in the section titled “Potential Payments Upon Termination or Change-In-Control.” If we reduce or limit an executive’s salary, annual bonus, long-term incentive plan participation, benefits or other compensation arrangement without the executive’s consent and in a manner that is not consistent with other similarly situated executives, then the executive may give us notice that he or she is terminating the employment agreement for “Good Reason.” We would have an opportunity to cure the event or circumstance, but if we did not, we would owe the executive the same benefits as if we had terminated his or her employment without cause. The employment agreements also provide that a change-in-control occurs if an individual, entity or group acquires more than 35% of Circuit City’s common stock; a majority of the incumbent members of our Board of Directors are replaced; or there is a merger, consolidation or sale of substantially all of the assets of Circuit City. If a change-in-control occurs and an executive’s employment is terminated within a specified time period following the change-in-control, then the executive would be due certain benefits upon termination. Benefits would also be due if the executive voluntarily terminates for

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any reason in the thirteenth month following a change-in-control. These provisions are quantified in the section of this proxy statement titled, “Potential Payments Upon Termination or Change-In-Control” and the specific terms and conditions applicable to each of the named executive officers is listed in that section.

Finally, an executive may voluntarily resign under the employment agreement by giving us 45 days notice. We can ask the executive not to work during that notice period, but we are obligated to pay his or her salary and all vested benefits through the end of the notice period.

Grants of Plan-Based Awards for Fiscal 2007. The following table shows cash incentive awards under the 2003 Annual Performance-Based Bonus Plan and awards of restricted stock and non-qualified stock options under the 2003 Stock Incentive Plan.

Estimated Possible Payouts Under Non-Equity Incentive

Plan Awards (1)

Estimated Future Payouts Under Equity Incentive Plan Awards

(2)

Name Grant Date

Approval Date

Thresh-old ($)

Target ($)

Maximum ($)

Thresh-old (#)

Target(#)

Max-imum

(#)

All Other Stock

Awards: Number

of Shares

of Stock or Units

(#)

All Other Option

Awards: Number of Securities

Underlying Options (#)

Exercise or Base Price of Option Awards ($/Sh)

Closing Price

on Grant Date ($/Sh)

Grant Date Fair Value of

Stock and Option Awards

($) Schoonover - - 450,000 900,000 1,800,000 - - - - - - - - 3/1/06 2/20/06 - - - - 30,000 - - - - - 715,500(5) 3/1/06 2/20/06 - - - - - - - 1,000,000(3) 23.845(4) 23.92 15,320,000(5)

Foss - - 230,000 460,000 920,000 - - - - - - - - Clark - - 210,000 420,000 840,000 - - - - - - - - 3/1/06 2/20/06 - - - - 30,000 - - - - - 715,500(5) Hedgebeth 102,000 204,000 408,000 - - - - - - - - Jonas 112,500 225,000 450,000 - - - - - - - - Levy - - - - - - - - - - - - -

(1) Target levels and maximum payout under the 2003 Annual Performance Based Bonus Plan for the named

executive officers is as follows:

Name

Target bonus as percent of base

salary

Maximum bonus as percent of base

salary Schoonover 100% 200% Foss 80% 160% Clark 80% 160% Hedgebeth 60% 120% Jonas 60% 120% Levy - -

Threshold levels shown in the table represent a 50% payout under the bonus plan, which is the minimum performance level under the plan. As described in the Compensation Discussion & Analysis, no amounts were awarded to the named executive officers under the plan for fiscal 2007 because the performance thresholds were not achieved.

For fiscal 2008, the Committee has again set the criteria for the company performance level based upon earnings per share.

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(2) Under our long-term equity incentive program, Mr. Schoonover and Mr. Clark were granted performance-

accelerated restricted stock in connection with their promotions in March 2006. The awards were approved at a Compensation & Personnel Committee meeting on February 20, 2006 but were effective March 1, 2006 which was the effective date of the promotions. Accelerated vesting of a percentage of the shares will occur if Circuit City achieves an Operating Profit Margin, measured as of each fiscal year end for fiscal years 2008 and 2009. The awards will vest 25 percent if the Operating Profit Margin is 2.3 percent; 50 percent at 3.25 percent; 75 percent at 4.0 percent; and 100 percent at 4.5 percent. If accelerated vesting does not occur, the shares will vest 100% on July 1, 2009.

Mr. Schoonover and Mr. Clark were also awarded shares of restricted stock in connection with their promotions. This stock will vest 100 percent on July 1, 2009, subject to the market condition described below.

Both the performance-accelerated restricted stock and the restricted stock awards are subject to a stock price performance condition that will prevent shares from vesting unless our stock price has increased to a specified level by the final vesting date for the award. If the stock price is not at the specified level, then the award will remain restricted until it reaches and maintains the required stock price for five consecutive trading days. If that performance condition is not met within three years after the final vesting date, then any shares that had not vested on the final vesting date will be forfeited by the named executive officer.

(3) Mr. Schoonover was granted non-qualified stock options in connection with his promotion. The options will

become exercisable in three equal installments on each of the third, fourth and fifth anniversaries of the grant date.

(4) Exercise price was calculated based on the average of the high and low stock price on the date of grant. Until

December 2006, fair market value was defined in the stock incentive plan as the average of the high and low prices of our stock on the grant date. Effective December 14, 2006, fair market value is now defined in the plan as the closing price on the grant date. This change was made to simplify disclosure for investors under the new proxy statement rules.

(5) The grant date fair value of these stock and options awards reflects the full accounting expense, as of the grant

date, that will be recognized by the Company over the course of multiple years and does not necessarily represent the value that will be realized by the executive officer upon vesting or exercise.

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Outstanding Equity Awards at 2007 Fiscal Year-End. The following table shows outstanding equity awards held by the named executive officers as of February 28, 2007.

Option Awards Stock Awards

Name

No. of Securities

Underlying Unexercised

Options (#)

Exercisable

No. of Securities

Underlying Unexercised

Options (#) Un-

exercisable

Equity Incentive

Plan Awards:

No. of Securities

Underlying Unexercised Unearned Options

(#)

Option Exercise

Price ($)

Option Expiration

Date

No. of Shares

or Units of Stock

That Have Not

Vested (#)

Market Value of Shares

or Units of Stock

That Have Not

Vested ($)

Equity Incentive

Plan Awards:

No. of Unearned

Shares, Units or Other Rights That

Have Not Vested (#)

Equity Incentive

Plan Awards: Market

or Payout Value of

Unearned Shares, Units or Other Rights That

Have Not Vested

($) 233,334(1) 116,666(1) - 15.63 10/04/14 - - - -85,000(2) 255,000(2) - 16.62 06/21/15 - - - -

- 1,000,000(3) - 23.845 03/01/16 - - - -

Schoonover

- - - - - 12,500(4) $237,500 210,000(5) $3,990,000- 7,500(6) - 6.81 06/16/11 - - - -

37,500(7) - - 7.395 06/17/13 - - - -16,667(8) 8,333(8) - 12.84 08/17/14 - - - -50,000(2) 150,000(2) - 16.62 06/21/15 - - - -

Foss

- - - - - - 130,000(5) $2,470,000Clark 20,000(9) - - 27.21 06/15/07 - - - - 16,742(10) - - 23.48 06/13/08 - - - - 40,000(11) - - 8.30 04/10/09 - - - - 37,498(12) - - 14.52 04/08/10 - - - - 20,000(13) - - 5.61 04/15/11 - - - - 50,000(7) - - 7.395 06/17/13 - - - - 35,000(1) 105,000(1) - 16.62 06/21/15 - - - - - - - - - - 100,000(5) $1,900,000Hedgebeth 10,000(14) 20,000(14) - 17.925 07/11/15 35,000(15) 105,000(15) - 17.925 07/11/15 - - - - - - 70,000(5) $1,330,000Jonas 5,250(16) - - 27.21 06/15/07 5,750(13) - - 5.61 04/15/11 7,000(17) - - 12.165 06/01/14 20,000(8) 10,000(8) - 12.84 08/17/14 35,000(2) 105,000(2) - 16.62 06/21/15 - 7,000(18) - 12.165 06/01/14 - - - - - - 70,000(5) $1,330,000Levy - - - - - - - - -

(1) The options vest in three equal annual installments beginning on October 4, 2005. (2) The options vest in four equal annual installments beginning on July 1, 2006. (3) The options vest in three equal annual installments beginning on March 1, 2009. (4) The shares vest in two equal annual installments beginning on October 4, 2006.

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(5) One-half of the shares are subject to accelerated vesting. All shares will vest on July 1, 2009 if acceleration does not occur, subject to a stock price performance condition.

(6) The options will vest in four equal annual installments beginning on June 16, 2004. (7) The options vested 100 percent on February 28, 2006. (8) The options will vest in three equal annual installments beginning on September 1, 2005. (9) The options vested on June 15, 2003. (10) The options vested on June 13, 2004. (11) The options vested on April 10, 2004. (12) The options vested on April 8, 2005. (13) The options vested on April 15, 2006. (14) The options vest in three equal annual installments beginning on July 11, 2006. (15) The options vest in four equal annual installments beginning on July 11, 2006. (16) The options vested on June 15, 2002. (17) The options vested on June 1, 2006. (18) The options will vest on June 1, 2007. Option Exercises and Stock Vested in Fiscal 2007. The following table shows amounts received upon exercise of options or the vesting of stock during the fiscal year ended February 28, 2007.

Option Awards Stock Awards

Name

Number of Shares Acquired

on Exercise (#)

Value Realized on

Exercise ($)(1)

Number of Shares Acquired on

Vesting (#)

Value Realized on

Vesting ($)(2)

Philip J. Schoonover - - 12,500 316,250 Michael E. Foss 60,000 1,115,831 14,742 423,210 George D. Clark, Jr. 20,998 126,252 2,250 52,571 Reginald D. Hedgebeth - - - - Eric A. Jonas, Jr. - - - - Brian E. Levy 239,036 4,382,369 - -

(1) Amounts listed in the table above as value realized on exercise of option awards are calculated by determining

the difference between the market price of the underlying shares on the date of exercise and the exercise price of the options. These amounts do not include amounts withheld or paid for taxes, fees or exercise costs.

(2) Amounts listed in the table above as value realized on vesting of the shares of stock awards are calculated by

multiplying the number of shares of stock by the market value of the shares on the vesting date. These amounts do not include amounts withheld or paid for taxes and fees.

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POST-EMPLOYMENT COMPENSATION Pension Benefits as of Fiscal 2007 Circuit City has maintained a defined benefit pension plan and a related non-qualified benefit restoration plan. These defined benefit plans were frozen in fiscal year 2005 in connection with changes in our employee benefit plans that included providing additional company matching contributions under the defined contribution plans. The following table provides the actuarial present value of each named executive officer’s total accumulated benefit under the pension plan and the benefit restoration plan as of February 28, 2007:

Name Plan Name

Number of Years

Credited Service

(#)

Present Value of

Accumulated Benefit

($)

Payments During

Last Fiscal Year ($)

Philip J. Schoonover - - - - Michael E. Foss Pension Plan 2 22,308 -

Pension Plan 22 218,344 - George D. Clark, Jr. Benefit Restoration Plan 24 (1) 537,444 -

Reginald D. Hedgebeth - - - - Pension Plan 7 90,145 - Eric A. Jonas, Jr. Benefit Restoration Plan 9 138,582 -

Brian E. Levy - - - - (1) The actual number of years of service earned by Mr. Clark is 22 but his benefit payment as a sustained

participant under the restoration plan will include service performed after the plan was frozen. Mr. Schoonover and Mr. Hedgebeth are not eligible to participate in either plan because the plans were frozen before they were eligible to participate. Mr. Foss has a frozen pension benefit based on two years of service, which would have vested if he continued employment with us for one more year. Mr. Foss is not eligible to receive benefits under the benefit restoration plan. Mr. Clark and Mr. Jonas have frozen vested pension benefits. If they remain employed with us until retirement, they will be entitled to receive a supplemental benefit under the benefit restoration plan. None of the named executive officers are currently eligible for early retirement. The values in the table above were calculated in accordance with generally accepted accounting principles using the same assumptions used for financial statement valuation purposes. The values were calculated based upon our normal retirement age of 65 and were based upon the named executive officer’s average compensation for the five highest consecutive of the last 10

calendar years of employment. For additional information about the valuation method and all material assumptions applied in quantifying the present value of the accumulated benefit, please refer to footnote 15 to the financial statements in our Annual Report on Form 10-K for the year ending February 28, 2007. For purposes of both plans, compensation of participants includes base pay, bonuses, overtime and commissions and excludes amounts realized under any employee stock purchase plan or stock incentive plan. Compensation for those individuals listed in the Summary Compensation Table for benefit determination purposes is therefore substantially the same as the amounts listed in the salary, bonus and non-equity incentive plan awards columns. Pension Plan The pension plan covers employees who, as of February 28, 2005, had reached age 21 and

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completed one year of service. The pension plan was frozen as of February 28, 2005, except for employees who were (i) within three years of their early retirement date; (ii) had reached their early or normal retirement date; or (iii) were permanently disabled before March 1, 2005. Benefits under the pension plan are based on a designated percentage of the average of compensation for the five highest consecutive of the last 10 calendar years of employment, multiplied by years of credited service, and integrated with Social Security covered compensation. The formula for calculating the annual benefit at Normal Retirement is as follows: (i) 0.85 percent of the participant’s Highest Average Earnings, plus (ii) 0.65 percent of the excess of the participant’s Highest Average Earnings over the participant’s social security covered compensation, multiplied by (iii) the participant’s years of benefit service earned through February 28, 2005 (not to exceed 35 years) except for grandfathered participants who still continue to earn benefit service. Benefit service accrued up to February 28, 1989, however, was subject to the terms of a prior retirement plan, with a different accrued benefit formula. Benefit Restoration Plan The Internal Revenue Code imposes certain limits related to pension plan benefits. The benefit restoration plan was designed to compensate executives for any resulting reduction in their pension plan benefit due to the IRS limits up to the plan’s maximum benefit limit. The benefit restoration plan uses the same formula as the pension plan without restrictions

on compensation minus the amount of the participant’s benefit payable under the pension plan. The total combined retirement benefit will be equal to the amount resulting from the formula described above without applying any of the IRS limitations. For fiscal 2007, the Internal Revenue Code limit on the annual retirement benefits that may be paid from the pension plan was $175,000 and the limit on the amount of compensation that may be recognized by the pension plan was $220,000. Any annual pension benefit accrued over $175,000 would have been payable under the benefit restoration plan. The maximum annual benefit payable under the benefit restoration plan was $437,500 for fiscal 2007. The benefit restoration plan was also frozen as of February 28, 2005, except for a sustained group of participants who, as of that date, were within 10 years of attaining their early retirement date or normal retirement date. None of the named executive officers is currently eligible for early retirement. As of February 28, 2007, there were 29 active senior executives participating in the benefit restoration plan and 15 participants who were retired, terminated or disabled at the time the plan was frozen and are receiving or are entitled to receive benefits. All other senior executives are ineligible to participate in the benefit restoration plan. The accumulated benefit obligation under the benefit restoration plan at February 28, 2007 was $14.3 million. The plan is unfunded. The Board of Directors has the authority to award past service credits and accelerated service benefits.

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Non-qualified Deferred Compensation at Fiscal 2007 The following table provides specific information for each named executive officer for the Supplemental 401(k) Plan as of February 28, 2007:

Name

Executive Contributions

in Last FY ($) (1)

Registrant Contributions

in Last FY ($) (2)

Aggregate Earning in

Last FY ($) (2)

Aggregate Withdrawals/ Distributions

($)

Aggregate Balance at Last FYE

($) Philip J. Schoonover 64,769 25,908 9,567 0 100,244 Michael E. Foss 101,866 20,154 33,999 0 311,988 George D. Clark, Jr. 0 0 0 0 0 Reginald D. Hedgebeth 0 0 0 0 0 Eric A. Jonas, Jr. 18,867 15,094 13,318 0 91,316 Brian E. Levy - - - - -

(1) 100% of these amounts are included in the amounts reported in the salary column of the Summary

Compensation Table for the named executive officers. (2) None of these amounts are included in the amounts reported in the salary column of the Summary

Compensation Table for the Named executive officers in the current or prior years. Circuit City sponsors a Supplemental 401(k) Plan for U.S.-based employees which, like the benefit restoration plan, is designed to provide benefits for executives affected by Internal Revenue Code limits on qualified retirement plans. The Supplemental 401(k) Plan is an unfunded, non-qualified deferred compensation plan, under which these executives may defer up to 40 percent of their compensation and are eligible to receive a matching contribution of up to 4 percent of their compensation, minus the amount contributed as a matching contribution under the tax-qualified 401(k) Plan. Matching contributions are made following the same formula used for safe harbor matching contributions under Circuit City’s tax-qualified 401(k) Plan. All cash compensation earned after one of the IRS limitations is met under the qualified 401(k) plan is eligible for deferral under the Supplemental 401(k) Plan. Participants are fully vested in their accounts and may direct the investment of their accounts in investment funds substantially equal to those offered under Circuit City’s tax-qualified 401(k) Plan. The investments are hypothetical, with the amounts earned on the accounts corresponding to the

relevant rates of return associated with the selected investment funds. No in-service withdrawals are permitted except in the case of an unforeseeable emergency. A participant may withdraw up to 50 percent of his or her account balance attributable to deferral contributions in the case of an unforeseeable emergency. An unforeseeable emergency is a severe financial hardship resulting from illness or accident of the participant, his or her spouse or a dependent; loss of the participant’s property due to casualty; or other such event beyond the control of the participant. Withdrawals made as a result of an unforeseeable emergency will be made in a cash lump sum payment. Benefits are paid in a single lump sum in cash on termination of employment, death or disability. Benefits paid to key employees as a result of termination of employment will be delayed six months as may be required by law. Upon a change-in-control, we would be required to fund a rabbi trust with the amount necessary to pay all benefits under the plan.

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POTENTIAL PAYMENTS UPON TERMINATION OR CHANGE-IN-CONTROL

We have employment agreements with each of the named executive officers. As noted above, Mr. Levy resigned effective March 23, 2006, and Mr. Foss provided notice of his voluntary resignation effective in April 2007. These employment agreements and the scenarios under which we may owe payments to an executive following termination are described in the narrative following the Summary Compensation Table. In addition to the employment agreement provisions concerning accelerated vesting of stock, the Compensation & Personnel Committee of the Board has provided for accelerated vesting upon a change of control under certain awards of stock options and restricted stock (including performance-based restricted stock) under the 1994 and 2003 Stock Incentive Plans. The Committee also has discretion under the 1994 and 2003 plans to accelerate the time at which any or all restrictions with respect to restricted stock or restricted stock units shall lapse or remove any and all such restrictions. The Committee reviews our total compensation obligations to each of our senior executive officers under the following termination scenarios: voluntary termination, termination for cause, involuntary termination without cause and involuntary termination without cause following a change-in-control of the Company. In addition, the Committee reviewed with the independent consultant a quantitative analysis of the potential costs related to existing change-in-

control severance arrangements. The Committee has determined that the potential compensation payable in these circumstances is consistent with its compensation philosophy and external practices. The following tables and the notes following each quantify the expected payments to the named executive officers in each post-employment scenario, except Mr. Levy, whose actual post-employment compensation is described separately. In addition to the amounts shown in the tables below, the named executive officers would be eligible under all scenarios to receive all accrued and vested benefits valued as of February 28, 2007 as follows:

• All currently-exercisable stock options: Mr. Schoonover $988,636; Mr. Foss $656,856; Mr. Clark $1,527,341; Mr. Hedgebeth $48,375 and Mr. Jonas $331,338

• The vested qualified 401(k) plan account balance: Mr. Schoonover $40,670; Mr. Foss $60,636; Mr. Clark $75,084; Mr. Hedgebeth $4,682 and Mr. Jonas $124,162

• The vested Supplemental 401(k) plan account balance as reported in the Nonqualified Deferred Compensation Plan Table

• The Retirement Plan single life annuity, payable at age 55 in all scenarios except death: Mr. Clark $30,670 and Mr. Jonas $9,787

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Termination Due to Death Upon termination due to death, the named executive officers are eligible for the following payments and benefits as of February 28, 2007:

Cash Severance

($)

Pro Rata Bonus for

Termination Year ($) (1)

Acceleration of Long-term

Incentives ($) (2)

Present Value of Retirement

Benefits ($)

Benefit Continuation

($)

280G Excise Tax Gross-ups

($) Total ($) (3)

Schoonover 0 0 5,227,564 0 0 0 5,227,564 Foss 0 230,000 2,969,756 0 0 0 3,199,756 Clark 0 210,000 2,192,650 331,278(4) 0 0 2,733,928 Hedgebeth 0 0 1,464,375 0 0 0 1,464,375 Jonas 0 0 1,689,345 0 0 0 1,689,345

(1) Upon termination due to death, Mr. Foss and Mr. Clark would receive a pro rata “minimum” bonus payout for

the year of termination. These minimum bonus rates would be equivalent to the threshold amount listed in the “Grants of Plan-Based Awards” table under the heading “Estimated Possible Payouts Under Non-Equity Incentive Plan Awards.”

(2) Upon termination due to death, each of the named executive officers’ estate or beneficiaries would receive immediate vesting of all outstanding stock awards

(3) In addition to the above amounts, upon termination due to death, the named executive officers would be eligible to receive a basic life insurance benefit under the Circuit City Stores, Inc. Associate Life Insurance Plan as follows: Mr. Schoonover $900,000; Mr. Foss $575,000; Mr. Clark $525,000; Mr. Hedgebeth $340,000 and Mr. Jonas $375,000. Above these levels, additional supplemental life insurance is optional, and the premiums for any elected supplemental life insurance are entirely employee-paid.

(4) Mr. Clark is a participant in our Benefit Restoration Plan. Upon termination due to death, benefits would be payable to Mr. Clark’s spouse. The table reflects the lump sum present value of the single life annuity of $33,502 payable to Mr. Clark’s spouse. In addition, Mr. Clark’s spouse would receive the Retirement Plan single life annuity of $13,937 per year in the event of his death.

Termination Due to Disability Upon termination due to disability, the named executive officers are eligible for the following payments and benefits as of February 28, 2007:

Cash Severance

($)

Pro Rata Bonus for



Incentives ($) (2)


Benefits ($)


($)


($) Total ($) (3)

Schoonover 0 0 5,227,564 0 0 0 5,227,564 Foss 0 460,000 2,969,756 0 0 0 3,429,756 Clark 0 420,000 2,192,650 0 0 0 2,612,650 Hedgebeth 0 0 1,464,375 0 0 0 1,464,375 Jonas 0 0 1,689,345 0 0 0 1,689,345

(1) Upon termination due to disability, Mr. Foss and Mr. Clark would receive a pro rata target bonus payout for the

year of termination. These target bonus rates would be equivalent to the target amount listed in the “Grants of Plan-Based Awards” table under the heading “Estimated Possible Payouts Under Non-Equity Incentive Plan Awards.”

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(2) Upon termination due to disability, each of the named executive officers would receive immediate vesting of all outstanding stock awards

(3) In addition to the amounts shown above, each of the named executive officers would be eligible upon disability to receive a monthly long-term disability benefit of $14,167 under the Circuit City Stores, Inc. Associate Long-Term Disability Plan.

Involuntary Termination by the Company without Cause and Termination by Executive with Good Reason Upon involuntary termination by the company without cause or termination by the executive with Good Reason (as described earlier), the named executive officers are eligible for the following payments and benefits as of February 28, 2007:

Cash Severance

($) (1)

Pro Rata Bonus for



Incentives ($) (3)


Benefits ($)


($) (4)


($) Total

($) Schoonover 1,800,000 0 202,300 0 74,564 0 2,076,864 Foss 2,070,000 460,000 210,425 0 60,478 0 2,800,903 Clark 1,890,000 420,000 126,050 0 73,908 0 2,509,958 Hedgebeth 544,000 0 37,625 0 61,188 0 642,813 Jonas 600,000 0 131,145 0 58,964 0 790,109

(1) Cash severance equal to the sum of current base salary and target annual bonus multiplied by: 1.0x in the case

of Mr. Schoonover, Mr. Hedgebeth and Mr. Jonas; 2.0x in the case of Mr. Foss and Mr. Clark

(2) Upon involuntary termination without cause or termination by the executive for Good Reason, Mr. Foss and Mr. Clark would receive a pro rata target bonus payout for the year of termination. These target bonus rates would be equivalent to the target amount listed in the “Grants of Plan-Based Awards” table under the heading “Estimated Possible Payouts Under Non-Equity Incentive Plan Awards.”

(3) Immediate vesting of all outstanding stock awards, with the exception of outstanding awards with performance-based vesting criteria that would have become vested between the date of termination and expiration of the current renewal period as specified in the employment agreements as follows: Mr. Schoonover – October 3, 2007; Mr. Foss – August 5, 2008; Mr. Clark – December 3, 2007; Mr. Hedgebeth – July 10, 2007

(4) Includes the value of continued participation in all health and welfare benefit plans for two years following termination (one year in the case of Mr. Hedgebeth and Mr. Jonas) and outplacement fees not to exceed $50,000

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Termination by the Company without Cause following a Change-in-Control / Termination by Executive for Good Reason Following a Change-in-Control Upon termination by the company without cause following a change-in-control or termination by the executive for Good Reason following a change-in-control, the named executive officers are eligible for the following payments and benefits as of February 28, 2007:

Cash Severance

($) (1)

Pro Rata Bonus for



Incentives ($) (3)


Benefits ($)


($) (4)


($) (5) Total

($) Schoonover 3,600,000 0 5,227,564 0 203,156 4,233,279 13,264,000 Foss 3,105,000 460,000 2,969,756 0 258,605 1,677,367 8,470,728 Clark 2,835,000 420,000 2,192,650 0 188,750 1,499,267 7,135,667 Hedgebeth 1,088,000 0 1,464,375 0 140,968 766,124 3,459,467 Jonas 1,200,000 0 1,689,345 0 136,520 748,061 3,773,926

(1) Cash severance payable in a lump sum equal to the sum of current base salary and target annual bonus

multiplied by: 2.0x in the case of Mr. Schoonover, Mr. Hedgebeth and Mr. Jonas; 3.0x in the case of Mr. Foss and Mr. Clark

(2) Upon termination by the Company without cause following a change-in-control or termination by the executive for Good Reason following a change-in-control, Mr. Foss and Mr. Clark would receive a pro rata target bonus payout for the year of termination. These target bonus rates would be equivalent to the target amount listed in the “Grants of Plan-Based Awards” table under the heading “Estimated Possible Payouts Under Non-Equity Incentive Plan Awards.”

(3) Immediate vesting of all outstanding stock awards, assuming the Compensation & Personnel Committee exercises its authority to accelerate vesting of all outstanding awards upon a change-in-control

(4) Includes the value of continued participation in all health and welfare benefit plans for two years following termination (three years in the case of Mr. Foss and Mr. Clark), a lump sum payment equal to 2.0x the cost of perquisites currently provided to each executive (3.0x in the case of Mr. Foss and Mr. Clark) and outplacement fees not to exceed $50,000

(5) Includes reimbursement for the excise tax imposed by Section 4999 of the Internal Revenue Code, plus all taxes imposed on the reimbursement payment. However, in the case of Mr. Hedgebeth the value of change-in-control severance benefits is capped at 2.99x base salary and most recent bonus paid (or if no bonus has been paid, his target annual bonus). This limit applies to the cash severance payments, outplacement fees, health and welfare benefits continuation and payments based on the cost of perquisites. The value of accelerated stock options and restricted shares is not subject to this limit. Excise tax reimbursements will continue to apply and may cause total benefits to exceed the 2.99 limit.

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Termination by the Executive without Good Reason or Termination by the Company for Cause Upon a termination by the executive without Good Reason or upon termination by the company for cause (as defined in our employment agreements), the named executive officers do not receive cash severance or any other payments or benefits contingent on the termination. Upon termination by the executive without Good Reason or upon termination by the company for cause, the named executive officers

are only eligible for accrued / unpaid compensation and/or benefits through the date of termination, including • unpaid base salary for service through the

date of termination and

• all other benefits to which the executive has a vested right as of the termination date, including exercisable stock options

Post-employment compensation paid to Brian Levy Brian E. Levy, President and Chief Executive Officer of InterTAN Canada, Ltd. advised Circuit City Stores, Inc. on March 23, 2006 of his desire to voluntarily resign and retire effective immediately. The effective date of Mr. Levy’s separation from employment was May 7, 2006. In accordance with the terms of Article 7.3 his Employment Agreement dated March 30, 2004, Mr. Levy received his regular base salary through May 7, 2006, but did not receive severance or benefits following that date. Mr. Levy was entitled to receive payments for liabilities assumed by InterTAN Canada, Ltd and guaranteed by Circuit City under the InterTAN, Inc. Deferred Compensation Plan. This deferred compensation was accelerated and paid in a one time payment of $2,483,316 on May 30, 2006. This amount is included in the Summary Compensation Table in the column titled “All Other Compensation.”

Mr. Levy received an annual bonus for fiscal year 2006 at a target level of 66 percent of his base salary for fiscal year 2006. He was also paid a pro-rata bonus of $67,873.23 USD for fiscal year 2007 covering the period up to his separation date of May 7, 2006. Circuit City accelerated vesting of nonqualified stock options covering 12,500 shares at an option exercise price of $10.67 per share which were awarded on May 12, 2004 and were originally scheduled to vest on May 12, 2006. In addition, we accelerated the vesting of a nonqualified stock option to purchase 75,000 shares of our common stock at an exercise price of $10.67 per share. These options, together with other vested stock options held by Mr. Levy as of his separation date, were exercisable until August 8, 2006, as provided under the terms of the applicable stock option plans and related stock option agreements.

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BENEFICIAL OWNERSHIP OF SECURITIES

Stock Ownership of Directors and Officers. We encourage stock ownership by our directors, officers and employees. The following table sets forth information regarding beneficial ownership of Circuit City’s common stock, as of April 19, 2007 for each director; the named executive officers; and our directors and executive officers as a group.

Beneficial Ownership (1) Name

Option Shares That May Be Acquired within 60 Days after

April 19, 2007 (2)

Total Shares of Common Stock Beneficially Owned

as of April 19, 2007 (3)

Percent of

Class NAMED EXECUTIVE OFFICERS Philip J. Schoonover* ......................... 318,334 549,309 ** Michael E. Foss* ................................ 161,667 344,069 ** George D. Clark, Jr............................. 219,240 372,590 ** Reginald D. Hedgebeth....................... 45,000 115,000 ** Eric A. Jonas, Jr.................................. 80,000 158,018 ** Brian E. Levy...................................... 0 0 ** ** DIRECTORS ** Ronald M. Brill................................... 8,408 36,044 ** Carolyn H. Byrd ................................. 11,153 34,159 ** Ursula O. Fairbairn ............................. 0 16,531 ** Barbara S. Feigin ................................ 15,986 43,638 ** James F. Hardymon ............................ 15,986 44,519 ** Alan Kane........................................... 0 36,491 ** Allen B. King...................................... 0 24,888 ** Mikael Salovaara ................................ 15,986 82,594 ** J. Patrick Spainhour............................ 0 13,496 ** Carolyn Y. Woo.................................. 12,191 34,674 ** All directors and executive officers as

a group (27 persons) ........................

1,487,596

3,071,060

1.80% * Mr. Schoonover and Mr. Foss are also directors.

** Less than 1 percent of class, based on the total number of shares of common stock outstanding on April 19, 2007.

(1) Unless otherwise noted, each shareholder has sole voting power and sole investment power with respect to the securities shown in the table below.

(2) Includes shares of common stock that could be acquired through the exercise of stock options within 60 days after April 19, 2007.

(3) In addition to the option shares described in note (2) above, includes restricted stock held by the named executive officers as follows: Mr. Schoonover 230,975; Mr. Foss 182,402; Mr. Hedgebeth 70,000; Mr. Jonas 78,543; and 571,095 awarded to other executive officers.

In addition to the option shares described in note (2) above, includes non-vested restricted stock units, deferred restricted stock units and additional non-vested or deferred units earned as dividends on the restricted stock unit awards held by the Directors as follows: Mr. Brill 8,538; Ms. Byrd 21,563; Ms. Fairbairn 8,579; Ms. Feigin 23,013; Mr. Hardymon 23,013; Mr. Kane 21,563; Mr. King 20,844; Mr. Salovaara 21,563; Mr. Spainhour 13,288; and Ms. Woo 8,538. Additionally, Ms. Feigin and Mr. Hardymon each have 1,451 stock units that represent deferred stock retainer awards made in fiscal years 2000, 2001 and 2002 in connection with service as a non-employee director.

The restricted stock units and deferred stock units held by the Directors are not shares of common stock and have no voting power.

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Principal shareholders. The following table contains information regarding the persons we know beneficially own more than 5 percent of our common stock as of April 19, 2007.

Shares of Common Stock Beneficially Owned

Name and Address Number Percent of Class FMR Corp. (1)

82 Devonshire Street Boston, Massachusetts 02109

21,675,464

12.375% Wellington Management Company, LLP (2) 75 State Street Boston, MA 02109

18,022,320

10.26%

Maverick Capital, Ltd. (3)

300 Crescent Court, 18th Floor Dallas, TX 75201

11,162,284

6.4%

(1) Information concerning the Circuit City common stock beneficially owned by FMR Corp. (“FMR”) was obtained from a Schedule 13G/A filed on February 14, 2007. According to the Schedule 13G, FMR is a parent holding company and certain members of the family of Edward C. Johnson 3rd, Chairman of FMR, may be deemed members of a group that controls FMR. The Schedule 13G indicates that of the 21,675,464 shares beneficially owned: (i) 19,643,875 shares are beneficially owned by Fidelity Management & Research Company (“Fidelity Research”), a wholly owned subsidiary of FMR and a registered investment advisor; (ii) 81,300 shares are beneficially owned by Fidelity Management Trust Company (“Fidelity Trust”), a wholly owned subsidiary of FMR and a bank, which serves as investment manager for certain institutional accounts; (iii) 600 shares are beneficially owned by Strategic Advisers, Inc., a wholly-owned subsidiary of FMR and an investment adviser which provides investment advisory services to individuals; (iv) 418,470 shares are beneficially owned by Pyramis Global Advisors, LLC (“PGALLC”), an indirect wholly-owned subsidiary of FMR and an investment advisor to institutional accounts, non-U.S. mutual funds or investment companies; (v) 1,044,458 shares are beneficially owned by Pyramis Global Advisors Trust Company (“PGATC”), an indirect wholly-owned subsidiary of FMR and a bank; and (vi) 486,761 shares are beneficially owned by Fidelity International Limited (“Fidelity International”), a foreign-based subsidiary and investment adviser for certain institutional investors. FMR and Mr. Johnson have sole power to dispose of the shares beneficially owned and sole power to vote the shares beneficially owned by Fidelity Trust, PGALLC and PGATC. However, the trustees of the mutual funds managed by Fidelity Research have sole power to vote the shares that are beneficially owned by Fidelity Research. FMR and Fidelity International believe that they are not acting as a “group” for purposes of Section 13(d) of the Securities Exchange Act of 1934 (“Exchange Act”), as amended, and therefore believe that they are not otherwise required to attribute to each other the “beneficial ownership” of the securities “beneficially owned” by the other corporation within the meaning of Rule 13d-3 of the Exchange Act.

(2) Information concerning the Circuit City common stock beneficially owned by Wellington Management Company, LLP (“Wellington”) was obtained from a Schedule 13G/A filed on March 12, 2007. According to the Schedule 13G, Wellington is an investment advisor and has shared voting power for 10,634,520 shares and shared dispositive power for 17,974,920 shares. The shares are owned of record by clients of Wellington Management. Those clients have the right to receive, or the power to direct the receipt of, dividends from, or the proceeds from the sale of, such securities. No such client is known to have such right or power with respect to more than five percent of Circuit City’s common Stock.

(3) Information concerning the Circuit City common stock beneficially owned by Maverick Capital, Ltd (“Maverick”) was obtained from a Schedule 13G filed on February 14, 2007 by Maverick Capital, Ltd, Maverick Capital Management, LLC and Lee S. Ainslie, III. According to the Schedule 13G, Maverick is an investment advisor and a parent holding company with sole voting power and sole dispositive power for the 11,162,284 shares through the investment discretion it exercises over its clients’ accounts. Maverick Capital

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Management, LLC is the General Partner of Maverick Capital, Ltd. Mr. Ainslie is the manager of Maverick Capital Management LLC and is granted sole investment discretion pursuant to Maverick Capital Management, LLC’s regulations.

EQUITY COMPENSATION PLANS INFORMATION

The following table gives information about Circuit City common stock that may be issued upon the exercise of options, warrants and rights under all existing equity compensation plans as of February 28, 2007.

Plan Category

Number of Securities to be Issued

Upon Exercise of Outstanding Options, Warrants and Rights

Weighted-Average Exercise Price of

Outstanding Options, Warrants and Rights

Number of Securities Remaining Available for Future Issuance

Under Equity Compensation Plans (Excluding Securities

Reflected in First Column)

Equity Compensation Plans Approved by Security Holders (1) ...................

8,839,037 (2)

$18.16 (3) 5,474,104 (4)(5)

Equity Compensation Plans Not Approved by Security Holders .......

-

-

-

Total............................................. 8,839,037 5,474,104 (1) Includes the following equity compensation plans that have been approved by shareholders: the Amended

and Restated 1984 Circuit City Stores, Inc. Employee Stock Purchase Plan (the “ESPP”), the 2000 Non-Employee Directors Stock Incentive Plan (the “2000 Directors Plan”), the Circuit City Stores, Inc. 2003 Stock Incentive Plan, the Circuit City Stores, Inc. 1994 Stock Incentive Plan (the “1994 Plan”) and the InterTAN, Inc. 1996 Stock Option Plan (the “1996 InterTAN Plan”). The 1994 Plan has been terminated and no additional awards may be made under it. The 1996 InterTAN Plan was approved by shareholders of InterTAN and assumed by Circuit City in connection with Circuit City’s acquisition of InterTAN in May 2004.

(2) Includes shares of common stock that may be issued to settle deferred compensation obligations and

restricted stock units that have been awarded pursuant to the 2000 Directors Plan and the 2003 Stock Incentive Plan.

(3) Excludes restricted stock units and shares of common stock that may be issued to settle deferred

compensation obligations. (4) Includes restricted stock, restricted stock units, options and stock appreciation rights that may be awarded

under the 2000 Directors Plan, the 2003 Stock Incentive Plan and the 1996 InterTAN Plan. (5) Includes 1,411,287 shares remaining available for issuance under the ESPP. Under the ESPP, certain officers

of the Company may, by written consent, increase the maximum number of shares of the Company’s common stock that may be purchased under the ESPP as they deem necessary to accommodate cumulative purchases of common stock for any calendar year. However, the officers may not increase the number of shares reserved for issuance under the ESPP by more than 1 percent of the number of shares of common stock outstanding as of December 31 of the previous calendar year. Without further shareholder authorization, the number of shares added to the ESPP under this mechanism plus the 2,474,454 shares that were available for purchase as of March 1, 2004 will not exceed 20,000,000, subject to adjustment for stock dividends, stock splits and other recapitalizations as contemplated under the plan.

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SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

Section 16(a) of the Securities Exchange Act requires our executive officers, directors and persons who own more than 10 percent of our common stock to file reports of ownership and changes in ownership on Forms 3, 4 and 5 with the Securities and Exchange Commission. Officers, directors and greater-than-10 percent shareholders are required by regulation to furnish us with copies of all Forms 3, 4 and 5 they file.

Based on our review of the copies of those forms, and any amendments we have received,

and written representations from our officers and directors, we believe that all officers, directors and beneficial owners of more than 10 percent of Circuit City’s common stock complied with all of the filing requirements applicable to them with respect to transactions during the fiscal year ended February 28, 2007, except that one report was filed late by Mr. Foss with respect to the withholding of shares to pay his tax liability upon the vesting of restricted stock on June 16, 2006. Due to an error by the Company, the transaction was not reported to the Securities and Exchange Commission until July 18, 2006.

REPORT OF THE AUDIT COMMITTEE The Audit Committee acts under a written charter adopted by the Board of Directors. The Committee’s primary purpose is to assist the Board of Directors in its oversight of the Company’s financial reporting process. Management is responsible for the preparation, presentation and integrity of the Company’s financial statements; accounting and financial reporting principles; internal controls; and procedures designed to assure compliance with accounting standards and applicable laws and regulations. The independent registered public accounting firm, KPMG LLP, is responsible for performing an independent audit of the consolidated financial statements and of the Company’s internal control over financial reporting in accordance with the standards of the Public Company Accounting Oversight Board (United States). During fiscal year 2007, the Committee met with management, the internal auditors and the independent registered public accounting firm. Regularly throughout the year, the Committee had separate private sessions with the independent registered public accounting firm and the internal auditors to discuss, among other things, financial management; accounting and internal control issues; assessment of the Company’s risks; audit plans; and the overall quality of the Company’s financial reporting.

In performing its oversight role, the Audit Committee has reviewed and discussed the following with management and/or the independent registered public accounting firm:

• Quarterly and year-end results

• The quality and acceptability of the audited financial statements

• Management’s discussion and analysis and the Company’s disclosure controls and procedures and internal control over financial reporting

• The Company’s compliance with Section 404 of the Sarbanes-Oxley Act relative to testing of internal control over financial reporting

• The matters required to be discussed with the independent registered public accounting firm under Statement on Auditing Standards No. 61, Communication with Audit Committees

The Committee has received the written disclosures and the letter from the independent registered public accounting firm required by Independence Standards Board Standard No. 1, Independence Discussions with Audit Committees. The Company has also considered whether the provision of specific non-audit

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services by the independent registered public accounting firm is compatible with maintaining its independence. Based on the review and discussions described in this report, and subject to the limitations on its role and responsibilities described in this report and in its charter, the Audit Committee recommended to the Board of Directors that the audited financial statements be included in the Company’s Annual Report on Form 10-K for the fiscal year ended February 28, 2007. In performing all of these functions, the Audit Committee acts only in an oversight capacity. In its oversight role, the Committee relies on the

work and assurances of the Company’s management, which has the primary responsibility for financial statements and reports and the Company’s internal control over financial reporting, and of the independent registered public accounting firm who, in its reports, expresses opinions on the conformity of the Company’s annual consolidated financial statements with U.S. generally accepted accounting principles and on management’s assessment of the effectiveness of the Company’s internal control over financial reporting and the effectiveness of the Company’s internal control over financial reporting.

AUDIT COMMITTEE Ronald M. Brill, Chair

Carolyn H. Byrd Allen B. King

J. Patrick Spainhour Carolyn Y. Woo

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ITEM TWO –– RATIFICATION OF APPOINTMENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

KPMG LLP, an independent registered public accounting firm, served as the Company’s independent registered public accounting firm during the fiscal year ended February 28, 2007, and has been selected by the Audit Committee to serve as the Company’s independent registered public accounting firm for the current fiscal year. Representatives of KPMG LLP will be present at the Annual Meeting, will have the opportunity to make a statement if they so desire and will be available to respond to appropriate questions. Although shareholder ratification is not required by the Company’s Bylaws or otherwise, the Board, as a matter of good corporate governance, is requesting that shareholders ratify the selection of KPMG LLP as the Company’s independent registered public accounting firm for fiscal year 2008. If shareholders do not ratify the selection of KPMG LLP, the Audit Committee will reconsider its appointment. THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE FOR RATIFICATION OF THE APPOINTMENT OF KPMG LLP AS THE COMPANY’S INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM FOR FISCAL YEAR 2008. The following table presents fees billed to the Company by KPMG LLP for the fiscal years ended February 28, 2007, and February 28, 2006:

2007 2006 Audit Fees $ 2,008,264 $1,888,000 Audit-Related Fees $48,000 $72,000 Tax Fees $77,896 $208,447 All Other Fees $0 $0

Audit Fees include fees billed for the audit of the annual consolidated financial statements and of the Company’s internal control over financial reporting, quarterly reviews of unaudited financial statements, and consents and other services related to registration statements filed with the Securities and Exchange Commission. Audit-Related Fees for 2007 and 2006 include fees billed for audits of employee benefit plans and audits of the statutory financial statements of a foreign subsidiary. Audit-Related Fees for 2006 also include fees for due diligence assistance on a proposed acquisition. Tax Fees include fees billed for tax compliance, tax advice and tax planning.

The Audit Committee has adopted pre-approval guidelines for services performed by the Company's independent registered public accounting firm. The guidelines require advance approval of all audit and non-audit services performed by KPMG LLP for the Company. Non-audit services involving fees payable to KPMG LLP of $25,000 or less may be approved in advance by the Chair of the Audit Committee, who then reports the approval at the next scheduled Audit Committee meeting. All services performed by KPMG during fiscal 2007 and fiscal 2006 were approved in accordance with the Committee’s pre-approval guidelines.

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OTHER BUSINESS

At this time, the Company does not know of any other business that will be presented to shareholders at the meeting. If any other business properly comes before the meeting, your proxy may be voted by the persons named in it in such manner as they deem proper.

PROPOSALS BY SHAREHOLDERS FOR PRESENTATION AT THE 2008 ANNUAL MEETING

All proposals submitted by shareholders for presentation at the 2008 Annual Meeting must comply with the Securities and Exchange Commission's rules regarding shareholder proposals. In addition, Section 1.3 of the Company’s Bylaws provides that, in addition to other applicable requirements, for business to be properly brought before an Annual Meeting by a shareholder, the shareholder must give timely written notice to the Secretary or an Assistant Secretary at the principal office of the Company. The notice must be received (1) on or after February 1 and before March 1 of the year in which the meeting will be held, if clause (2) is not applicable, or (2) not less than 90 days before the date of the meeting if the date for that meeting prescribed in the Bylaws has been changed by more than 30 days. The shareholder’s notice must include

• the name and address of the shareholder, as they appear on the Company’s stock transfer books; • the number of shares of stock of the Company beneficially owned by the shareholder; • a representation that the shareholder is a record holder at the time the notice is given and

intends to appear in person or by proxy at the meeting to present the business specified in the notice;

• a brief description of the business desired to be brought before the meeting, including the

complete text of any resolutions to be presented and the reasons for wanting to conduct such business; and

• any interest that the shareholder may have in such business.

The proxies will have discretionary authority to vote on any matter that properly comes before the meeting if the shareholder has not provided timely written notice as required by the Bylaws.

A proposal that any shareholder desires to have included in the proxy statement for the 2008 Annual Meeting of shareholders must be received by the Company no later than January 1, 2008.

By Order of the Board of Directors,

Reginald D. Hedgebeth Senior Vice President, General Counsel and Secretary

April 27, 2007

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549 _________________________

FORM 10-K

[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended February 28, 2007

OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from_________ to _________

Commission File Number: 1-5767 CIRCUIT CITY STORES, INC.

(Exact name of registrant as specified in its charter)

VIRGINIA 54-0493875 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.)

9950 Mayland Drive Richmond, Virginia 23233 (Address of principal executive offices) (Zip Code)

Registrant’s telephone number, including area code: (804) 486-4000

Securities registered pursuant to Section 12(b) of the Act:

Name of each exchange Title of each class on which registered Common Stock, Par Value $0.50 per share New York Stock Exchange

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes No __ Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes __ No

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes No ___

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ]

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. Large accelerated filer Accelerated filer __ Non-accelerated filer __ Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act.) Yes __ No

The aggregate market value of the registrant’s common shares held by non-affiliates as of August 31, 2006, which was the last business day of the registrant’s most recently completed second fiscal quarter, was $4,075,922,680 based upon the closing price of these shares as reported by the New York Stock Exchange on that date.

On March 31, 2007, the company had outstanding 170,740,087 shares of common stock.

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DOCUMENTS INCORPORATED BY REFERENCE

Portions of the company’s Definitive Proxy Statement dated April 27, 2007, furnished to shareholders of the company in connection with the 2007 Annual Meeting of Shareholders are incorporated by reference in Part III of this Annual Report on Form 10-K.

TABLE OF CONTENTS

PART I

Item 1. Business ................................................................................................................................................ 3

Item 1A. Risk Factors .......................................................................................................................................... 10

Item 1B. Unresolved Staff Comments ................................................................................................................. 14

Item 2. Properties .............................................................................................................................................. 15

Item 3. Legal Proceedings................................................................................................................................. 16

Item 4. Submission of Matters to a Vote of Security Holders........................................................................... 16

Executive Officers of the Company ...................................................................................................................... 16

PART II

Item 5. Market for the Company’s Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities ................................................................................................... 20

Item 6. Selected Financial Data......................................................................................................................... 22

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations ............... 23

Item 7A. Quantitative and Qualitative Disclosures about Market Risk ............................................................... 46

Item 8. Financial Statements and Supplementary Data..................................................................................... 47

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure ............... 81

Item 9A. Controls and Procedures ....................................................................................................................... 81

Item 9B. Other Information ................................................................................................................................. 81

PART III

Item 10. Directors, Executive Officers and Corporate Governance.................................................................... 81

Item 11. Executive Compensation ...................................................................................................................... 81

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters .................................................................................................................................................. 82

Item 13. Certain Relationships and Related Transactions, and Director Independence...................................... 82

Item 14. Principal Accountant Fees and Services ............................................................................................... 82

PART IV

Item 15. Exhibits and Financial Statement Schedules ........................................................................................ 82

Signatures............................................................................................................................................................. 83

Schedule II............................................................................................................................................................ S-1

Report of Independent Registered Public Accounting Firm ........................................................................... S-2

Exhibit Index........................................................................................................................................................ EI-1

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PART I

Item 1. Business. Circuit City Stores, Inc. is a leading specialty retailer of consumer electronics, home office products, entertainment software, and related services. Circuit City was incorporated under the laws of the Commonwealth of Virginia in 1949. Its corporate headquarters are located at 9950 Mayland Drive, Richmond, Virginia. The company has two reportable segments: its domestic segment and its international segment. For fiscal 2007, net sales were $11.86 billion for the domestic segment and $570.2 million for the international segment. Prior to the second quarter of fiscal 2005, the company had another reportable segment, its finance operation that was sold in May 2004. The domestic segment is engaged in the business of selling brand-name consumer electronics, personal computers, entertainment software, and related services in Circuit City stores in the United States and via the Web at www.circuitcity.com and www.firedog.com. At February 28, 2007, the company’s domestic segment operated 642 Superstores and 12 other stores in 158 U.S. media markets.

The international segment, which is comprised of the operations of InterTAN, Inc., is engaged in the business of selling private-label and brand-name consumer electronics in Canada. At February 28, 2007, the international segment conducted business through 806 retail stores and dealer outlets, which consisted of 509 company-owned stores, 296 dealer outlets and 1 Battery Plus® store. The international segment re-branded most of its company-owned stores and dealer outlets to The Source By Circuit CitySM during fiscal 2006. The international segment operates a Web site at www.thesource.ca. In February 2007, the board of directors authorized management to explore strategic alternatives for InterTAN, Inc., which could include the sale of the operation. Additional discussion of Circuit City’s operating segments is included in Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations and Note 17, Segment Information, of the Notes to Consolidated Financial Statements, included in Item 8, Financial Statements and Supplementary Data, of this Annual Report on Form 10-K. The company is in the midst of a retail and merchandising transformation, with the goal of continuing to improve its core business through growing sales, improving gross profit margins, reducing expenses and improving working capital management. During this transformation period, the company will make significant investments in information systems, multi-channel capabilities, innovation activities and real estate. The company has implemented a disciplined innovation process to enable future growth by appealing to new customers, providing new product and service offerings and searching for new business opportunities. In February 2007, the company changed its executive management structure to improve execution and accountability, to better align all retail channels and to increase the coordination between merchandising and marketing. The executive vice president of merchandising, services and marketing oversees the merchandising, supply chain, services and marketing organizations. These organizations are tasked with the creation and communication of the company’s value propositions to the customer. All retail channels, including all domestic and international segment retail stores and direct channels, report to the executive vice president, multi-channel sales. Multi-channel Operations Circuit City has a highly integrated multi-channel business model, which allows customers to shop in its stores, on the Web and via the telephone. Store operations are managed by an executive vice president, multi-channel sales, who oversees sales conversion and the customer experience. During fiscal 2007, the domestic segment retail operations were divided into 10 regions, which were under the supervision of regional vice presidents. The 10 regions were comprised of 67 districts, which were managed by district managers who regularly visit stores to monitor store operations and meet with store directors. In early fiscal 2008, the number of regions was reduced to eight. Domestic segment Superstores are typically staffed with an average of 56 full-time and part-time Associates including sales support personnel, such as customer service

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Associates, product specialists and stockpersons; in-store technicians and installers; sales managers; an operations manager; and a store director. The company’s direct-to-consumer business has grown rapidly since the launch of its Web site in 1999. Through www.circuitcity.com and the company’s telephone call center, customers have access to a wide selection of consumer electronics, technology and entertainment products, and related services as well as around-the-clock customer service. The company’s Web site at www.circuitcity.com offers more than 150,000 customer ratings and reviews of products, as well as in-depth product and technology information. Customers may view real-time in-store inventory of products selected on www.circuitcity.com, purchase the products online, and pick up the products in a nearby store. As an enhancement of its multi-channel capabilities, Circuit City offers a 24/24 Pickup GuaranteeSM for qualifying purchases made through its Web site or telephone call centers. Under this policy, qualifying purchases will be ready for customers to pick up at their designated store within 24 minutes of purchase confirmation, or the customer will receive a $24 Circuit City gift card. During fiscal 2007, approximately 54 percent of online sales were picked up in a store. At February 28, 2007, the domestic segment had 43,011 hourly and salaried employees. None of these employees is subject to a collective bargaining agreement. The company employs additional personnel during peak selling seasons. The company has an hourly pay structure for the domestic segment’s non-management sales force. The company currently has an initiative underway to streamline store operating procedures in order to allocate store labor resources more effectively. International segment retail stores are divided into four regions, which are managed by regional vice presidents. The 4 regions are further divided into 21 districts, which are under the supervision of district managers who regularly visit stores to monitor store operations. Dealer outlets are divided into seven areas across Canada, each of which is under the supervision of an area sales manager. International segment stores operating under the trade name The Source By Circuit CitySM typically have a small store format and are strategically located in malls and shopping centers. Each store provides readily available products and services to meet a wide range of consumer electronic needs. Dealer outlets are independent retail businesses that operate under their own trade names but are permitted, under dealer agreements, to purchase any of the products sold by The Source By Circuit CitySM. The dealer agreements contain a sub-license permitting the dealers to designate their consumer electronics department or business as a The Source By Circuit CitySM dealer. International segment retail stores are typically staffed by 5 to 20 Associates, including full-time and part-time commissioned sales Associates and a store manager. At February 28, 2007, the international segment had 3,071 hourly and salaried Associates. Approximately 100 of these Associates, who are engaged in warehousing and distribution operations, are represented by a union. The terms of a three-year collective bargaining agreement ending in April 2009 were ratified with these employees. The company considers its relationship with the union-represented employees to be good. Domestic segment and international segment Associates receive frequent training and development through interactive e-learning courses, workbooks and management-driven in-store mentoring. Training focuses on selling skills, product knowledge with an emphasis on new technology, customer service and store operations. Associates use Circuit City’s Web site as an additional training resource for product knowledge. Management training programs are designed to prepare the company’s leaders and include Web-based training, in-store activities and classroom instruction. Merchandising The company offers a broad selection of products and services through its stores, on the Web and via the telephone. The domestic segment’s major sales categories are

• video, which includes televisions, imaging products, DVD hardware, camcorders, digital cameras, furniture, and related accessories;

• information technology, which includes personal computer hardware, telecommunications products and related accessories;

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• audio, which includes home audio products, mobile audio products, portable audio products, and related accessories;

• entertainment, which includes movie software, music software, game software, game hardware and personal computer software; and

• warranty, services and other, which includes extended warranty net sales; revenues from computer-related services, mobile installations, home theater installations and product repairs; net financing; and revenues received from third parties for services subscriptions.

To ensure consistency, each domestic segment store follows operating procedures and merchandising programs, including procedures for inventory maintenance and merchandise displays. The company currently has an initiative underway to streamline these store operating procedures in order to allocate store labor resources more effectively. Merchandise pricing may vary by market to reflect local competitive conditions. The international segment's merchandising strategy focuses on a merchandise offering designed to increase both sales and gross profit margin. The segment intends to make fundamental changes including the following:

• optimizing assortments, including expanding assortments in strategic growth categories, narrowing assortments in other categories and increasing the sales penetration of higher margin private-label products;

• managing lifecycle transitions to new assortments to minimize markdown risk and present more current assortments to the customer;

• implementing a formal pricing strategy to leverage the company’s multi-market pricing capabilities and improve margins; and

• reducing non-working inventory. Marketing

In fiscal 2007, Circuit City began brand management initiatives designed to build a deeper customer relationship and support the company’s multi-channel strategy. These initiatives include developing partnerships and alliances with third parties to build brand value; instituting more disciplined measures of return on marketing expenses to promote accountability; and promoting better cross-functional coordination within the company to create a unified and seamless customer experience. The company intends to build upon these early steps with a multi-year plan to differentiate the Circuit City brand from its competitors. Circuit City utilizes multiple marketing vehicles to build brand awareness and promote specific products and offers. The domestic segment uses newspaper advertisements, television, direct mailings and online marketing. The company also offers a rewards credit card in partnership with Chase Card Services. Cardholders can choose rewards points or promotional financing for qualifying purchases at Circuit City. The points can be redeemed for future purchases, enabling Circuit City to reward its loyal customers while encouraging repeat traffic to its stores. During fiscal 2007, the company tested a new information system that will make it easier to publish different newspaper advertisements in different domestic segment geographic markets. The company expects to expand the use of this system in fiscal 2008. During fiscal 2007, the domestic segment launched the firedogSM brand to provide home theater installation and PC services in-store, at home and remotely. The brand name captures the attributes that the company wants its technicians and installers to embody: helpful, knowledgeable, friendly and reliable. The decision to build an integrated brand for both PC services and home theater installation was based on customer research and was more cost-efficient than building multiple brands.

During fiscal 2006, the international segment completed the brand transition to The Source By Circuit CitySM. The company supported the brand launch with a major advertising campaign featuring television and radio commercials as well as print and outdoor advertising. The international segment is among the largest retail advertisers in Canada and advertises through multiple channels, including newspaper, television, direct mailings and radio.

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Supply Chain During fiscal 2007, the company continued to make improvements to its supply chain organization and processes. Results of these improvements include improved in-stock positions, reduced net-owned inventory, decreased inactive inventory and an enhanced product offering. The company also built a vertically-integrated supply chain organization encompassing sourcing; vendor relations; logistics; distribution and warehousing; inventory management; inventory lifecycle pricing management; space planning; and supply process re-engineering. Due to this structural alignment, the company expects, over time, to be able to identify and react rapidly to changes in consumer demand as well as reduce the time from buying decision through replenishment and display of the product at the point of sale. The company is in the process of upgrading its merchandising, marketing and supply chain information systems, which will enable additional improvements and efficiencies in processes. Circuit City relies on a best sourcing strategy to find products with the best value for the cost. Depending on the type of product, the company procures merchandise from a variety of sources and methods, including new and existing vendors, reverse auctions, and direct relationships with manufacturers. Through Circuit City Global Sourcing, Ltd., a wholly owned subsidiary, the company has developed internal sourcing capabilities, including offices in China, Hong Kong and Taiwan. As a retailer primarily of branded consumer electronics that relies upon its ability to offer consumers a comprehensive and attractive assortment of merchandise and services, Circuit City depends upon strong and stable supplier relationships. During fiscal 2007, the domestic segment’s five largest suppliers accounted for approximately 42 percent of merchandise purchased. The major suppliers were Sony, Hewlett-Packard, Samsung, Toshiba and Apple. The international segment’s five largest suppliers accounted for approximately 43 percent of its merchandise purchased and were Rogers Wireless, Motorola, Acer, Apple and Panasonic. The loss or disruption in supply from any one of these major suppliers could have a material adverse effect on the company’s revenue and earnings. Circuit City has no indication that any of its major suppliers will discontinue selling merchandise to the company. The company has not experienced significant difficulty in maintaining satisfactory sources of supply and generally expects that adequate sources of supply will continue to exist for the types of merchandise sold in its stores. Circuit City offers an increasing amount of private-label merchandise to complement its branded strategy. These unique brands supplement one of the best selections of brand-name products in the consumer electronics industry and provide an even broader selection to customers. As of February 28, 2007, the domestic segment operated

• six automated regional electronics distribution centers;

• one smaller automated distribution center that primarily handles large non-conveyable products, such as big screen televisions;

• one automated centralized entertainment software distribution center that serves all stores; and

• one import consolidation and distribution center. Most products are shipped from manufacturers directly to the distribution centers. Circuit City believes that the use of distribution centers enables it to efficiently distribute a broad selection of merchandise to its stores, reduce inventory levels at individual stores, benefit from volume purchasing and maintain inventory control. Some products are received directly from the manufacturer by the stores in order to reduce costs and time-to-shelf. The international segment’s stores are replenished primarily through one automated distribution center in Barrie, Ontario, Canada.

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Information Technology The company is undertaking a series of critical initiatives designed to transform its information technology (IT) systems and organization. Through this multi-year process, the IT organization will

• utilize IT solutions available in the marketplace with minimal customization, resulting in a more flexible infrastructure to reduce costs;

• develop strong partnerships with IT vendors, providing a deeper pool of talent, more flexible resources and access to expertise in retail systems; and

• reduce lifetime costs and mitigate risks through simplification.

Late in fiscal 2007, the company consolidated the IT organizations that supported Circuit City’s domestic segment Superstores, direct channel and the international segment. The change eliminates duplication of processes and allows the unified IT organization to build solutions that serve the company’s multi-channel needs. Early in fiscal 2008, the company announced that it has entered into an agreement with IBM to outsource its IT infrastructure operations. Areas that IBM will manage for Circuit City include data center operations, store support services, e-commerce hosting operations, service desk operations, network management, network services, desktop support, enterprise systems management and IT security administration. By leveraging IBM's global resources and support structure and implementing efficient and consistent processes, tools and architectures, Circuit City estimates cost savings of more than 16 percent over the term of the contract. The domestic segment’s in-store point-of-sale (POS) systems maintain an online record of all transactions and allow management to track performance by region, store and store Associate on a near real-time basis. The information gathered by the systems supports automatic replenishment of in-store inventory from the regional distribution centers and is incorporated into product buying decisions. The in-store POS systems are seamlessly integrated with the company’s e-commerce Web site. This integration provides the capability for in-store pickup of merchandise ordered from the Internet and allows for in-store ordering of merchandise for shipment directly to the customer’s home. As part of an effort to eliminate complex, custom-developed information systems, the domestic segment began deployment of new POS systems to a limited number of locations during fiscal 2007. The rollout is expected to be complete during fiscal 2008. The new POS systems deliver more flexible, scalable systems to support the company’s new store growth and new initiatives; allow for easier and faster training; provide enhanced data security; and enable additional capabilities for services and in-store pickup of merchandise. For the international segment, each of the retail stores has one or more computers that serve as POS terminals and are linked to the operational headquarters. This information network provides detailed sales and margin information on a daily basis, updates the customer database and acts as a monitor of individual store performance. The POS systems also are linked directly to a system used to automatically replenish a store’s stock as inventory is sold. The retail stores have in-store kiosks that allow customers to look up and order product online. The company has implemented new data warehousing capabilities that will improve internal processes, streamline applications and allow more timely analysis of data for the domestic segment. In fiscal 2007, the domestic segment began implementing an extensive suite of systems, provided by Oracle Retail (formerly Retek), to transform its merchandising, supply chain, planning and marketing processes. The Oracle Retail implementation, known internally as the merchandising systems transformation (MST), is expected to enhance speed, flexibility, visibility and optimization across all channels and better integrate financial, assortment and space planning with forecasting and replenishment. The rollout will be a series of discrete systems releases, and each can deliver benefits upon implementation. The new systems are designed to allow the company to collaborate with its vendors and optimize pricing and space allocation in its stores. As of February 28, 2007, two modules had been implemented. The company expects the implementation of MST to be completed in fiscal 2009. The company expects the improvements to drive comparable store sales gains, through improved in-stock inventory levels, and margins, through price and promotion optimization as well as better product transition management.

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Domestic Segment Superstore Revitalization During fiscal 2001, Circuit City introduced a new Superstore format that features a brighter, more contemporary look and an open, easily navigable floor plan conducive to browsing. The format allows the company to put all products, except those that are too large for customers to carry themselves, on the sales floor. The company has improved product adjacencies so that customers can conveniently shop for products and accessories related to their core product purchase. Shopping carts, baskets and centralized cash register checkouts add to the convenience of the increased number of “take-with” products. The company continues to refine its store prototypes. The company’s new store prototypes include both 30,000 square foot and 20,000 square foot formats. The size of the trade area is the primary driver in determining which of the two prototypes is most appropriate. During fiscal 2008, the company expects more than half of the openings to be in the 20,000 square foot format. During fiscal 2007, the company opened 23 incremental Superstores and relocated 12 Superstores. The following table summarizes the progress of the domestic segment Superstore revitalization program over the last seven fiscal years. Superstores at Superstore Superstore Superstore End of Fiscal Fiscal Openings Relocations Full Remodels Closures Year 2007............................. 23 12(a) 2(b) 8(c) 642 2006............................. 18 10 – 4(a) 626 2005............................. 31 28(d) 1 19(e) 612 2004............................. 8 18 4 20(d,g) 599 2003............................. 8(e) 11 3 1 611 2002............................. 11 8 12 1 604 2001............................. 24(f) 1 26(g) 1 594 Total............................. 123 88 48 54 (a) In February 2006, the company closed one store in advance of opening a replacement store in the first quarter of fiscal 2007. The replacement store is included in fiscal 2007 store relocations. (b) One fiscal 2007 remodel consisted of rebuilding a hurricane-damaged store on the same site. (c) In February 2007, the company closed one store in advance of opening a replacement store in the first quarter of fiscal 2008. The replacement store will be included in fiscal 2008 store relocations. (d) On February 29, 2004, the company closed one store in advance of opening a replacement store in the first quarter of fiscal 2005. The replacement store is included in fiscal 2005 store relocations. (e) One of the stores opened in fiscal 2003 was closed in February 2005. (f) Two of the 24 new store openings did not have the new format. (g) Two of the locations that were fully remodeled in fiscal 2001 were closed in February 2004. From the beginning of fiscal 2001 through fiscal 2007, a total of 254 Superstores, or 40 percent of the company’s 642 domestic segment Superstores, net of closures, have been constructed, relocated or fully remodeled under one of the new formats. During fiscal 2008, the company expects to open 60 to 65 domestic segment Superstores, of which it expects 17 to 19 will be relocations. The company expects that at February 28, 2008, approximately 46 percent of the store base will have been relocated, built in new trade areas or fully remodeled, net of closures, since the beginning of fiscal 2001. Competition The consumer electronics retail industry is highly competitive. Competitors include

• other consumer electronics retailers,

• discount retailers,

• warehouse clubs,

• home office retailers,

• Internet-based retailers and

• direct-to-consumer alternatives.

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Discount and warehouse club retailers continue to increase consumer electronics offerings, particularly on

entry-level and less complex products. In addition, many of the company’s vendors and suppliers have opened retail store locations and increased their direct sales to consumers. The company’s competitors may offer products and services at lower prices; promote products and services more aggressively; offer more attractive financing; and receive more favorable product allocations than the company does. Any of these actions could adversely affect the company’s sales and profit margin. In response, Circuit City continues to build a differentiated offering based primarily on the company's growth pillars of home entertainment, services and multi-channel integration. Circuit City's domestic segment differentiates itself from competitors by offering a high level of customer service; competitive prices; complete product and service assortments; and the option of multi-channel shopping. The international segment differentiates itself from other consumer electronics retailers in Canada through its range of products and its service orientation. Acquisition of InterTAN, Inc. In May 2004, Circuit City completed its acquisition of InterTAN, Inc. for cash consideration of $259.3 million, which includes transaction costs and is net of cash acquired of $30.6 million. In addition to giving Circuit City a greater product-sourcing capability and the ability to accelerate the offering of private-label merchandise to its customers, the acquisition of InterTAN gave Circuit City its first presence in the Canadian market. For information regarding the company’s risks associated with the international segment, see Forward-Looking Statements included in Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, and Translation of Financial Results included in Item 7A, Quantitative and Qualitative Disclosures about Market Risk, of this Annual Report on Form 10-K. Intellectual Property The company’s principal trademarks and service marks, which are “Circuit City,” “firedog,” “The Source By Circuit City,” “Circuit City Advantage” and “24/24 Pickup Guarantee” either have been registered or have trademark applications pending with the United States Patent and Trademark Office and with the trademark registries of various foreign jurisdictions. The company’s rights in these trademarks and service marks continue for as long as they are used. The company believes that the “Circuit City” name and the circle logo design have significant value and are important to its business. The company also owns various trademarks used with private-label consumer electronics designed and manufactured by third parties for Circuit City. The company has also filed a patent application for a system and method of guided sales using a tablet personal computer. The company has trademark applications pending in both the United States and Canada for “The Source By Circuit City.” The international segment also operates one store under the license for Battery Plus®. The company’s InterTAN subsidiary formerly licensed marks from RadioShack Corporation to operate retail consumer electronics outlets under the RadioShack® name in Canada. All stores formerly operated under license from RadioShack Corporation were re-branded during fiscal 2006. Seasonality Like many retailers, Circuit City’s revenues are typically greatest during the fourth fiscal quarter because it includes the majority of the holiday selling season. A corresponding pre-season inventory build during the third fiscal quarter is typically associated with this higher sales period. Working Capital The company funds capital expenditures and working capital needs through available cash, borrowing capacity under its $500 million credit facility and landlord reimbursements. Additional discussion of Circuit City’s Liquidity and Capital Resources is included in Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, of this Annual Report on Form 10-K.

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Sale of Private-Label Finance Operation In May 2004, the company completed the sale of its private-label finance operation, comprised of its private-label and co-branded Visa credit card programs, to Chase Card Services. Results from the private-label finance operation are included in finance income on the consolidated statement of operations for fiscal 2005. The company entered into a Consumer Credit Card Program Agreement under which Chase Card Services is offering private-label and co-branded credit cards to new and existing customers. Circuit City is compensated under the program agreement primarily based on the number of new accounts opened less promotional financing costs that exceed a negotiated base amount. The net results from the program agreement are included in net sales on the consolidated statements of operations. Discontinued Operations On January 28, 2007, in accordance with the Amending Agreement dated March 27, 2004, Rogers Wireless Inc. terminated its agreement with InterTAN Canada Ltd. with respect to the operation of the Rogers Plus® stores in the international segment. Results from the Rogers Plus® stores are presented as results from discontinued operations on the consolidated statements of operations.

The company closed a domestic segment operation in fiscal 2007 that previously had been held for sale. The company sold a domestic segment subsidiary, MusicNow, LLC, in fiscal 2006. Results from these operations are presented as results from discontinued operations on the consolidated statements of operations. Available Information Circuit City makes available, free of charge on its Web site, its Annual Report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and any amendments to those reports as soon as practicable after electronically filing the material with or furnishing the material to the Securities and Exchange Commission. These documents may be viewed by visiting the company’s investor information Web site at http://investor.circuitcity.com and selecting the “SEC Filings” link under the “Investor Information” header. The company also makes available, free of charge on its Web site, the charters of the Audit Committee, Nominating and Governance Committee, and Compensation and Personnel Committee as well as the global code of business conduct and the corporate governance guidelines adopted by the board of directors. These documents may be viewed by visiting the investor information Web site at http://investor.circuitcity.com, and selecting the desired information under the “Corporate Governance” header. The company intends to satisfy any disclosure obligations with respect to amendments or waivers of the global code of business conduct by posting the information on the company’s investor Web site. References to the company’s Web site do not constitute incorporation by reference of the information contained on the Web site, and the information contained on the Web site is not part of this document. Item 1A. Risk Factors. Our business is influenced by many factors that are difficult to predict, involve risks or uncertainties that may materially affect actual results and are often beyond our control. Understanding how these factors may affect our business is important to understanding information about the company in this Annual Report on Form 10-K and our other filings and releases. Our discussion below contains “forward-looking statements,” as discussed in Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations (MD&A). You should read the discussion below in conjunction with our MD&A, and the consolidated financial statements and related notes included in this report. Failure to improve our cost and expense structure could have a material adverse impact on our profitability and earnings.

The average selling prices of key products, including flat panel televisions, have decreased significantly which makes it more challenging for us to maintain or grow profit margins on these products. Many of our competitors have been able to leverage sales growth and maintain efficient cost structures. We have taken actions

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to improve our cost and expense structure and continue to look for ways to more cost-effectively deliver our products and services to customers. Our strategies for growing revenues will require investments in information technology, innovation and real estate, which could make it difficult for us to achieve or maintain cost reductions. Unplanned increases in labor rates, advertising and marketing expenses or indirect spending could have a material adverse impact on our profitability and operating results. We face intense, multi-channel competition from a variety of competitors that could negatively impact our financial performance. In order to achieve profitable results, we must compete successfully in the consumer electronics industry against large specialty retailers, discount or warehouse retailers, home office retailers, Internet-based retailers, direct-to-consumer alternatives and local or regional retailers. Many of our vendors and suppliers have opened retail store locations and increased their direct sales to consumers. Because of the size and strong performance of some of our competitors, they may promote merchandise more aggressively and offer more attractive financing and discount prices for extended periods of time, which could adversely affect our profit margin. If we cannot respond adequately to these multiple sources and types of competition, it could adversely impact customer traffic, market share and overall financial performance. If we are not successful in growing our services platform and increasing sales of services and accessories, then our margin and revenues could be adversely impacted.

Our strategy includes sales and revenue growth from services, including home theater installation and services for personal computers. We also are focused on increasing revenues through “solution selling” where we provide the customer with key products as well as cables, connectors, brackets, batteries, chargers, stands, mounts and other accessories. If we are unable to increase the rates at which our customers purchase these services and accessories, then our margin rates could be negatively impacted by decreases in average retail prices. In addition, our revenues could be adversely impacted as a larger number of competitors are able to sell products online and through discount retail channels. We may not be able to attract and retain qualified Associates at all levels within the company, which could adversely affect our sales performance, cost structure and competitive position within the industry.

We must recruit and retain a large number of qualified Associates in order to perform successfully. We face intense competition for Associates at all levels of the company, and we compete in job markets nationally. Many of our Associates are in entry-level or part-time positions, which typically have high levels of turnover. Our ability to maintain appropriate staffing levels while controlling labor costs is subject to a number of external factors such as the quality of the labor market in our trade areas, unemployment levels, prevailing wages, changing demographics, health insurance costs and state labor and employment requirements. If we are unable to attract and retain qualified Associates, then our sales performance may be adversely impacted or our labor costs may increase significantly. We have taken steps to bring our hourly wages in line with the marketplace, which could have an adverse impact on morale, productivity, recruiting and retention. In addition, we have made a number of management changes focused on improving the level of talent at the management and executive levels within the company. If we are unable to retain key managers and executives, then it may be difficult for us to maintain a competitive position within the industry or to implement strategic changes in the future. Failure to effectively manage our inventory levels could adversely affect our financial results. We rely on a best sourcing strategy where we procure merchandise from a variety of sources and methods, including new and existing vendors, reverse auctions, global sourcing capability within the company and direct relationships with manufacturers. We depend on strong and stable supplier relationships and accurate forecasts of customer demand. Reduced consumer spending or lack of consumer interest in our products could lead to excess inventory levels; alternatively, if we do not have adequate inventory to respond to customer demand for products, we may lose sales to competitors. Additionally, we may inaccurately forecast product life cycles or end-of-life products, leaving us with excess inventory. As a result, we may be forced to lower our prices, adversely impacting margins and financial results.

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We may be unable to relocate successfully or open new stores in desirable locations, which could adversely affect our ability to increase sales and achieve profitable growth.

Our store revitalization program is an important part of our business plan. We have a significant number of stores in older formats or in locations where the trade area has shifted away from our target market. We continue to refine our store prototypes and seek real estate in smaller trade areas and urban locations in addition to larger markets. When we open new stores in markets where we already have a presence, our existing locations may experience a decline in sales as a result. For our store revitalization program to be successful, we must identify and lease favorable store sites, construct the building, and hire and train Associates for the new location. In many locations, we face intense competition from other retailers for both real estate and qualified Associates. Construction, environmental, zoning and real estate delays may negatively impact store openings and increase costs and capital expenditures. We cannot be certain that new or relocated stores will produce the anticipated sales or return on investment or that existing stores will not be adversely affected by new or expanded competition in their market areas. Consumers may not upgrade televisions or buy related audio products, home theater products or services at the rate we expect during the next few years, which would adversely affect our growth, revenues and margins. Because of the transition from analog to digital television broadcasting, we have invested significant inventory, store space and labor in the advanced television category. We expect a large number of consumers to replace analog television sets in the next few years and to purchase related audio products, home theater products and services at the same time. Set-top converters and other technology will permit consumers to continue to use analog televisions even after broadcasting is converted to a digital signal. As a result, if consumers do not embrace advanced television at the levels we expect, our growth, revenues and margins may be negatively impacted. We may not be able to successfully execute our multi-channel marketing strategy, which could adversely affect our growth, revenues and margins. Our direct-to-consumer business has grown rapidly since the launch of our Web site in 1999. We have invested heavily in marketing our in-store pickup process for Web orders, and we have initiated a catalog offering that allows consumers to order products by phone. These efforts are intended to attract new customers and increase sales from existing customers, but they could result in customers making fewer trips to our brick-and-mortar stores. It may be more challenging for us to increase sales of extended warranties, services and accessories as customers move toward greater online shopping. In addition, competitive pricing on the Internet and the ability of online customers to perform better price comparisons could negatively impact traffic, average purchase amount and profit margins. Our business is heavily dependent upon information systems, which require upgrades that may be expensive or difficult to implement, and which could result in higher costs and business disruption. Our information systems include in-store point-of-sale systems that provide information used to track sales performance by Associates, inventory replenishment, e-commerce product availability, product margin information and customer information. In addition, we have or are implementing systems for data warehousing; merchandising and supply chain; planning; and marketing. These systems are complex and require integration with each other and with business processes. We have outsourced a large portion of our information technology infrastructure operations to IBM. If IBM does not respond to our needs or provide satisfactory levels of service under this arrangement, or if we encounter difficulty implementing new systems or maintaining and upgrading current systems, then our business operations could be disrupted and our expenses could increase. Our business is subject to quarterly fluctuations and seasonality, which leaves our financial and operating results vulnerable to temporary unfavorable conditions that may impact key selling periods. The most significant portion of our revenue is generated during the period that begins with Thanksgiving, includes the holiday shopping season and continues until the Super Bowl. The majority of this period occurs in the company’s fourth fiscal quarter. As a result, any factors negatively affecting us during this time of year, including

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adverse weather or unfavorable economic conditions, could have a material adverse impact on our revenue and profitability for the entire year. In addition, other key holiday weekends during the year, such as Memorial Day, Fourth of July and Labor Day, bring disproportionately high revenues for the quarter in which they fall, relative to non-holiday weekends, and also leave us somewhat vulnerable to adverse impacts from temporary unfavorable conditions. General economic conditions or a decline in consumer discretionary spending may adversely impact our sales in a disproportionate fashion. We sell products and services that consumers tend to view as conveniences rather than necessities. As a result, our results of operations are more sensitive to changes in general economic conditions that impact consumer spending, including discretionary spending. Future economic conditions such as employment levels, business conditions, interest rates, energy costs and tax rates could reduce consumer spending or change consumer purchasing habits. A general reduction in the level of consumer spending or our inability to respond to shifting consumer attitudes regarding products, store locations and other factors could adversely affect our growth and profitability. We may not be able to anticipate and respond to changes in consumer demand, preferences and patterns, which could adversely affect our sales and profitability. The consumer electronics industry is subject to rapid technological change, obsolescence and price erosion. Our success depends on our ability to anticipate and respond to consumer demand and preferences for new items. The introduction and availability of new products are often controlled by manufacturers and may be subject to the cooperation of third parties such as television broadcasters and wireless providers. We may be adversely impacted by limited quantities of new products. The introduction of new technologies may negatively impact sales of existing products. Significant deviations from the projected demand for products we sell could result in lost sales or lower margins due to the need to mark down excess inventory. Our innovation and strategy efforts may fail to increase sales, improve margins or enhance the customer experience and may not result in any meaningful differentiation against our competitors, which could adversely affect our ability to achieve profitable growth.

We have instituted an innovation process to define and test strategic initiatives to grow business in key areas and to identify future areas of growth for us. As a result of this innovation process, we are making large investments in training, information systems and store formats that could prove to be unsustainable or unprofitable when rolled out on a national scale. This could negatively impact our expense structure and profitability. Our failure to successfully implement our strategic vision or the occurrence of any of the following events could have a material adverse impact on our business:

• Inability to provide a superior customer experience in our stores that is differentiated from our

competitors • Failure to leverage our assets to create new revenue streams and profit • Failure to identify customer needs and desires and to tailor our shopping experience in a way that meets

these needs • Inability to grow revenue through in-home sales and service offerings • Lack of core competencies, talent and systems needed to sustain growth and support innovation efforts

We rely on foreign sources for a significant portion of our merchandise, so disruptions in countries where our goods are produced or international trade or transportation issues could adversely affect availability of key products and result in associated declines in revenues. We depend on products produced outside the United States and Canada. We could be adversely affected by a number of risks associated with production and delivery of those products into our market areas, including

• Economic or political instability, natural disasters or public health emergencies in countries where our suppliers are located;

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• Increases in shipping costs; • Transportation delays or interruptions, particularly as they may affect seasonal periods; and • Changes in laws or taxation policies as they may affect the import and export of goods.

Item 1B. Unresolved Staff Comments. None.

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Item 2. Properties. The following table summarizes the geographic location of the company’s retail stores and dealer outlets at February 28, 2007.

Domestic Segment International Segment Other Company- Dealer Battery Superstores Stores Total Owned Outlets Plus® Total Alabama 8 - 8 Alberta 48 49 - 97 Arizona 14 - 14 British Columbia 53 40 - 93 Arkansas 4 - 4 Manitoba 13 16 - 29 California 89 - 89 New Brunswick 13 9 - 22 Colorado 16 - 16 Newfoundland 7 14 - 21 Connecticut 9 1 10 Northwest Delaware 2 - 2 Territories 1 3 - 4 Florida 49 - 49 Nova Scotia 19 9 - 28 Georgia 22 - 22 Nunavut - 1 - 1 Hawaii 1 - 1 Ontario 219 84 1 304 Idaho 2 - 2 Prince Edward Illinois 30 1 31 Island 3 4 - 7 Indiana 12 1 13 Quebec 118 49 - 167 Kansas 3 - 3 Saskatchewan 14 17 - 31 Kentucky 7 - 7 Yukon 1 1 - 2 Louisiana 9 - 9 509 296 1 806 Maine 3 - 3 Maryland 17 - 17 Massachusetts 17 2 19 Michigan 20 2 22 Minnesota 9 - 9 The following table summarizes the lease expiration Mississippi 5 - 5 dates of the domestic segment at February 28, 2007. Missouri 11 - 11 Nebraska 1 - 1 Nevada 6 - 6 Fiscal Year of Lease Expiration Stores New Hampshire 6 - 6 2008 through 2012 78 New Jersey 19 - 19 2013 through 2017 200 New Mexico 2 - 2 2018 through 2022 342 New York 33 - 33 2023 through 2025 29 North Carolina 21 - 21 649 Ohio 24 2 26 Company-owned stores 5 Oklahoma 5 - 5 Total stores at February 28, 2007 654 Oregon 7 - 7 Pennsylvania 30 - 30 Rhode Island 1 - 1 South Carolina 9 - 9 Tennessee 12 - 12 Texas 54 - 54 Utah 5 - 5 Vermont 1 - 1 Virginia 23 1 24 Washington 12 1 13 West Virginia 4 - 4 Wisconsin 7 1 8 Wyoming 1 - 1 642 12 654

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Of the domestic segment’s stores open at February 28, 2007, the company owns 5 stores and leases the remaining 649 stores. All nine of the domestic segment’s distribution centers are leased. The company owns one of its five domestic segment repair centers and leases one building for its call center. For its corporate headquarters in Richmond, Virginia, the company leases two buildings and owns some of the land. The company leases space for all warehouse, repair and office facilities except as otherwise noted. InterTAN owns a 402,000 square-foot building containing office and warehouse space and a retail location in Barrie, Ontario, Canada, where the headquarters of the international segment are located. With the exception of a retail store located on this property, the international segment’s retail operations are conducted in leased facilities. The dealer outlets included in the preceding table are independent retail businesses that operate under their own trade names but are permitted, under dealer agreements, to purchase any of the products sold by The Source By Circuit CitySM. For information regarding the company’s lease obligations, see Note 10, Lease Commitments, of the Notes to Consolidated Financial Statements, included in Item 8, Financial Statements and Supplementary Data, of this Annual Report on Form 10-K. Item 3. Legal Proceedings.

None. Item 4. Submission of Matters to a Vote of Security Holders. No matter was submitted to a vote of security holders during the fourth quarter of the fiscal year ended February 28, 2007. Executive Officers of the Company The company is not aware of any family relationship between any executive officers of the company or any executive officer and any director of the company. The executive officers are generally elected annually and serve for one year or until their successors are elected. The next general election of officers is expected to occur in June 2007. The following table identifies the executive officers of the company at March 31, 2007. Name Age Office Philip J. Schoonover 47 Chairman, President and Chief Executive Officer George D. Clark, Jr. 47 Executive Vice President Multi-Channel Sales Michael E. Foss 49 Executive Vice President Chief Financial Officer David L. Mathews 47 Executive Vice President Merchandising, Services and Marketing Ronald G. Cuthbertson 50 Senior Vice President Supply Chain and Inventory Management Philip J. Dunn 54 Senior Vice President Treasurer and Controller Reginald D. Hedgebeth 39 Senior Vice President General Counsel and Secretary

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Eric A. Jonas, Jr. 52 Senior Vice President Human Resources John J. Kelly 49 Senior Vice President General Merchandise Manager Irynne V. MacKay 37 Senior Vice President General Merchandise Manager William E. McCorey, Jr. 49 Senior Vice President Chief Information Officer Steven P. Pappas 43 Senior Vice President President – Small Stores Marc J. Sieger 38 Senior Vice President General Manager - Services Peter C. Weedfald 53 Senior Vice President Chief Marketing Officer Marshall J. Whaling 52 Senior Vice President Retail Operations Randall W. Wick 46 Senior Vice President General Merchandise Manager Mr. Schoonover joined the company in October 2004 as executive vice president and chief merchandising officer. He was elected president in February 2005, chief executive officer in March 2006 and chairman in June 2006. Before joining the company, he was executive vice president – customer segments at Best Buy Co., Inc., a retailer of consumer electronics, home office products, entertainment software, appliances and related services, from April 2004 until September 2004. He joined Best Buy in 1995 and previously served as executive vice president – new business development from February 2002 until April 2004; executive vice president – digital technology solutions from February 2001 until February 2002; and senior vice president – merchandising for five years. Before joining Best Buy, Mr. Schoonover was an executive vice president at TOPS Appliance City, a retailer of home appliances and consumer electronics, and held sales and executive marketing positions with Sony Corporation of America. Mr. Clark joined the company in 1983. He was promoted to store manager in 1987, district manager in 1992 and regional vice president in 1993. He was named assistant vice president in 1995; vice president and Central Division president in 1997; Eastern Division president in 2002; senior vice president in 2003; and general merchandise manager for technology in 2004. He was named president – retail stores in March 2005; executive vice president – retail stores in March 2006 and executive vice president – multi-channel sales in February 2007.

Mr. Foss joined the company in 2003 as senior vice president and chief financial officer. He was promoted to executive vice president in 2005. Before joining the company, he was executive vice president of corporate/business development for TeleTech Holdings Inc., a global provider of customer management solutions for large companies, from 2001 to 2003; president of TeleTech Companies Group, an operating division of TeleTech Holdings, Inc., from 2000 to 2001; and executive vice president and chief financial officer of TeleTech Holdings and president of TeleTech Companies Group from 1999 to 2000. Mr. Foss was employed by Eastman Kodak Corporation, a company engaged in developing, manufacturing and marketing traditional and digital imaging products, services and solutions, from 1997 to 1999 in various senior positions, including chief executive officer of Kodak’s Picturevision Inc. subsidiary. Mr. Foss will be resigning from the company in April 2007 and from the board of directors in June 2007 to become an executive officer of Petco Animal Supplies, Inc. Mr. Foss will serve as principal financial officer pursuant to a consulting agreement through the date of the filing of this Annual Report on Form 10-K.

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Mr. Mathews joined the company in June 2005 as senior vice president, president Circuit City Direct. In

February 2007, Mathews was named executive vice president, merchandising, services and marketing. Prior to joining the company, he was an independent consultant from August 2004 to June 2005. He served from January 2003 to April 2004 as president and chief operating officer of Crutchfield Corporation, a direct integrated marketer of consumer electronics products. From June 2001 to January 2003, he was an independent consultant. In addition, he served from October 2000 to June 2001 as senior vice president of marketing for eCustomers, Inc., a provider of enterprise customer response solutions, and from July 1997 to October 2000 he was employed by Dell Computer Corporation in various marketing roles, including director of global marketing. Before joining Dell, he worked at L.L. Bean, Inc. for 11 years in catalog, international retailing and internet roles. Mr. Cuthbertson joined the company in March 2005 as senior vice president, supply chain and inventory management. Before joining the company, he was president and chief executive officer of Southport Consulting, Inc., a management consulting company. Prior to his role at Southport Consulting, he was employed at Best Buy Co., Inc. from 1999 to 2004 and served in numerous roles including enterprise vice president, with concurrent roles of vice president Best Buy International and vice president global sourcing, and executive vice president, merchandising, marketing and supply chain at Best Buy Canada Ltd. Mr. Cuthbertson also served in various positions at Sears Canada, Inc., a division of Sears, Roebuck & Co., a retailer of home merchandise, apparel and automotive products and related services, from 1979 to 1998. Mr. Dunn joined the company in 1984 as an assistant controller of inventory audit and control. He was named treasurer in 1990, was promoted to vice president in 1992 and added the title of controller in 1996. In 1999, he was elected senior vice president. Mr. Dunn was employed by Arthur Young & Co., an accounting firm and a predecessor of Ernst and Young LLP, from 1980 to 1984.

Mr. Hedgebeth joined the company in 2005 as senior vice president, general counsel and secretary. Prior to joining the company, he was employed by The Home Depot, Inc., a home improvement retailer, for six years, serving most recently as vice president of legal. Previously, he was a corporate and securities associate at the law firm of King and Spalding, LLP and held various finance and real estate positions at GE Capital Corporation.

Mr. Jonas joined the company in 1998 as director of associate relations. He was promoted to assistant vice

president of corporate human resources services in 2000, was elected vice president in 2003 and was elected senior vice president in 2004. Prior to joining the company, he was employed by Toys “R” Us, a worldwide retailer of toys, baby products, and children’s apparel, from 1985 until 1998, including director of human resources for the Babies “R” Us division from 1996 to 1998. Mr. Kelly joined the company in May 2005 as senior vice president, general merchandise manager for technology. Before joining the company, he was vice president of home merchandising, and vice president of QVC.com for QVC, Inc., a televised retailer of electronics, jewelry and consumer products, from 2001 to 2005; and vice president of appliances and senior vice president of the consumer electronics division for Sharp Electronics Corporation from 1996 to 2001. Before joining Sharp Electronics, Mr. Kelly was employed by Macy’s for more than 15 years in various positions, including the executive training program and divisional merchandise manager vice president of electronics.

Ms. MacKay joined the company in December 2006 as senior vice president, general merchandise manager for entertainment. Before joining the company, she served as managing director of Infinitive, Inc., a management consulting firm based in the Washington, D.C. area, for two years. During that time, Ms. MacKay led the team assisting Circuit City with its merchandising transformation. Prior to joining Infinitive in 2004, she was a senior director at Best Buy Co., Inc. At Best Buy, she worked on new business development and customer centricity. Before joining Best Buy, Ms. MacKay worked for nine years at Accenture, a global management consulting, technology services and outsourcing company, on large scale retail transformation projects. Mr. McCorey joined the company in 1991 as supervisor, computer operations. He was named manager, computer operations in 1992 and manager, computer services in 1993. He was promoted to director, computer services in 1996; assistant vice president in 1998 and vice president, computer services in 2000. From 2003 to 2005, he served as vice president, business applications. He served as the chief information officer at 2nd Swing,

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Inc., a retailer of golf clubs and related accessories from January 2005 to April 2005. Mr. McCorey rejoined the company in April 2005 as vice president, business applications. He was promoted to senior vice president, chief information officer in October 2006. Mr. Pappas joined the company in June 2006 as senior vice president, president – small stores. Before joining the company, he was vice president/general manager of Kiosk Operations, Inc., a subsidiary of RadioShack Corporation (a specialty retailer of consumer electronics products and services) that operates Sprint-branded kiosks, from July 2004 until May 2006. Mr. Pappas joined RadioShack in 1985. He was promoted to regional manager in 1993 and divisional vice president in 1996. Mr. Sieger joined the company in 2003 as vice president of warranty administration, with additional responsibility for the service division including field and depot repair, installations, personal computer services and call centers. In March 2005, he was named senior vice president and general manager - services. Prior to joining the company, he spent 13 years at General Electric Company, a diversified technology, media and financial services company, working in roles in finance, marketing, e-commerce, sales and business development.

Mr. Weedfald joined the company in July 2006 as senior vice president, general merchandise manager for entertainment/content. In September 2006, he was named chief marketing officer. Before joining the company, he served as a senior vice president, sales and marketing, U.S. consumer electronics and North American corporate marketing for Samsung Electronics America, a marketer of consumer electronics, information systems and home appliance products, from February 2005 to July 2006. He joined Samsung in October 2001 and served as vice president strategic marketing North America from October 2001 to November 2003 and as senior vice president and chief marketing officer, Samsung North America from November 2003 to February 2005. Prior to joining Samsung in 2001, Mr. Weedfald held various senior positions with ViewSonic Corporation, a worldwide provider of advanced display technology from 1998 to 2000. Prior to joining ViewSonic in 1998, he served in various senior publisher positions at Ziff-Davis Publishing, a leading integrated media company serving the technology and videogame markets. Mr. Whaling joined the company in May 2006 as senior vice president, retail operations. Prior to joining the company, Mr. Whaling was senior vice president of sales and operations for the business-to-business division at Best Buy Co., Inc. He joined Best Buy in 1997 and served as vice president of retail operations and as regional vice president and district manager. Before joining Best Buy, he worked for American of Madison, Inc. for more than twenty years, last serving as senior vice president of stores. American of Madison is a retailer of furniture, appliances and consumer electronics that operates stores under the American TV and Appliance name. Mr. Wick joined the company in December 2004 as senior vice president, general merchandise manager for consumer electronics. Before joining the company, he served as executive vice president of Petters Group Worldwide, an independent operating company that specializes in brand marketing. Prior to joining Petters Group Worldwide in 2004, he was vice president of retail strategies at Best Buy Co., Inc. from 2002 to 2004. He joined Best Buy in 1996 and served as merchandising manager from 1996 to 2001 and as vice president of merchandise from 2001 to 2002. Before joining Best Buy, he worked for Fretter/Silo, formerly a large retailer of home entertainment products, consumer electronics and appliances, for ten years.

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PART II Item 5. Market for the Company’s Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities. The common stock of Circuit City Stores, Inc. is traded on the New York Stock Exchange under the symbol CC. As of March 31, 2007, there were approximately 4,900 shareholders of record of common stock. On April 19, 2007, the common stock closed at $18.23. Market Price of Common Stock 2007 2006 Dividends Quarter High Low High Low 2007 2006

1st ............................................. $31.54 $23.00 $16.89 $14.80 $.0175 $.0175 2nd............................................ $31.30 $22.19 $18.71 $16.25 $.0175 $.0175 3rd............................................. $29.31 $22.32 $22.11 $15.36 $.0400 $.0175 4th............................................. $25.52 $18.25 $25.92 $20.21 $.0400 $.0175 Total.......................................... $.1150 $.0700

The following table provides information about common stock repurchases by or on behalf of the company during the quarter ended February 28, 2007: Total Number of Shares Approximate Dollar Average Purchased as Value of Shares Total Number Price Part of Publicly that May Yet Be (Amounts in millions except per of Shares Paid Announced Purchased Under share data and footnote (a) data) Purchased(a) per Share(a) Program the Program(b)

December 1 – December 31, 2006……………… 0.4 $19.84 0.4 $371.4 January 1 – January 31, 2007…………………… 3.7 $19.91 3.7 $298.0 February 1 – February 28, 2007………………… 0.9 $20.41 0.9 $280.4 Fiscal 2007 fourth quarter………………………. 5.0 $19.99 5.0 (a) In addition to purchases under the share repurchase authorization, these columns include shares of common stock withheld to pay tax withholding obligations for employees in connection with the vesting of nonvested stock awards. The withholding of 11 shares in the month of December 2006 and 116 shares in the month of January 2007 are not considered part of the share repurchase program described in (b) below. (b) In January 2003, the company announced that the board of directors had authorized the repurchase of up to $200 million of common stock. In June 2004, the company announced a $200 million increase in its stock repurchase authorization, raising the repurchase capacity to $400 million. In March 2005, the company announced a $400 million increase in its stock repurchase authorization, raising the repurchase capacity to $800 million. In June 2006, the company announced a $400 million increase in its stock repurchase authorization, raising the repurchase capacity to $1.2 billion. There is no expiration date under the authorization. At March 31, 2007, $280.4 million remained available for share repurchases under the share repurchase authorization. If the remaining borrowing availability under the company’s $500 million revolving credit facility falls below $100 million, cash dividends and stock repurchases are limited to an aggregate of $75 million in any fiscal year. At February 28, 2007, $439.9 million was available for borrowing under the credit facility.

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Comparison of Cumulative Five Year Total Return

$0

$50

$100

$150

$200

$250

2002 2003 2004 2005 2006 2007

Circuit City Stores, Inc. S&P 500 Index S&P 500 Retailing

Fiscal Year 2002 2003 2004 2005 2006 2007 Circuit City Stores, Inc.(a) .............. $100 $37.69 $ 96.18 $135.15 $208.73 $165.88 S&P 500 Index .............................. $100 $77.32 $ 107.10 $114.58 $124.20 $139.06 S&P 500 Retailing......................... $100 $72.39 $ 113.21 $125.29 $135.97 $149.85 (a) The return on the company’s common stock includes the effect of a dividend of CarMax, Inc. common stock distributed on October 1, 2002. The dividend resulted in a per share adjustment of $5.1162 (the fair market value of the dividend), reflected as a special dividend reinvested in the company’s common stock.

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Item 6. Selected Financial Data. 2007 2006 2005 2004 2003

CONSOLIDATED SUMMARY OF NET (LOSS) EARNINGS FROM CONTINUING OPERATIONS

(Amounts in millions except per share data)

Net sales............................................................................................ $12,430 $11,514 $10,414 $9,857 $10,055

Gross profit ....................................................................................... $ 2,928 $ 2,810 $ 2,552 $2,284 $ 2,397

Selling, general and administrative expenses.................................... $ 2,842 $ 2,596 $ 2,471 $2,320 $ 2,439 Impairment of goodwill .................................................................... $ 92 $ – $ – $ – $ – Operating (loss) income.................................................................... $ (5)(a) $ 215 $ 87 $ (4) $ (15) Earnings (loss) from continuing operations before income taxes...... $ 20 $ 233 $ 97 $ (1) $ (10)

Net (loss) earnings from continuing operations ................................ $ (10) $ 147 $ 61 $ (1) $ (8)

(Loss) earnings per share from continuing operations:

Basic ....................................................................................... $ (0.06) $ 0.83 $ 0.31 $ – $ (0.04)

Diluted .................................................................................... $ (0.06) $ 0.82 $ 0.31 $ – $ (0.04)

CONSOLIDATED SUMMARY OF NET (LOSS) EARNINGS FROM CONTINUING OPERATIONS PERCENTAGES

(% of net sales except effective tax rate)

Gross profit ....................................................................................... 23.6 24.4 24.5 23.2 23.8

Operating (loss) income.................................................................... – 1.9 0.8 – (0.1)

Earnings (loss) from continuing operations before income taxes...... 0.2 2.0 0.9 – (0.1)

Effective tax rate ............................................................................... 150.1(a) 36.8 37.5 36.5 21.9

Net (loss) earnings from continuing operations ................................ (0.1) 1.3 0.6 – (0.1)

CONSOLIDATED SUMMARY BALANCE SHEETS

(Amounts in millions)

Total current assets ........................................................................... $ 2,884 $ 2,833 $ 2,745 $3,006(b) $ 3,116

Property and equipment, net ............................................................. $ 921 $ 839 $ 727 $ 665 $ 722

Goodwill and other intangible assets, net.......................................... $ 141 $ 254 $ 247 $ – $ –

Total assets........................................................................................ $ 4,007 $ 4,069 $ 3,840 $3,808(b) $ 3,960

Total current liabilities...................................................................... $ 1,714 $ 1,622 $ 1,315 $1,217(b) $ 1,249

Long-term debt, excluding current installments................................ $ 50 $ 52 $ 20 $ 33 $ 22

Other long-term liabilities................................................................. $ 452 $ 440 $ 425 $ 341 $ 322

Total liabilities .................................................................................. $ 2,216 $ 2,114 $ 1,760 $1,592(b) $ 1,593

Total stockholders’ equity................................................................. $ 1,791 $ 1,955 $ 2,080 $2,216 $ 2,366

Total liabilities and stockholders’ equity .......................................... $ 4,007 $ 4,069 $ 3,840 $3,808(b) $ 3,960

CONSOLIDATED SUMMARY OF CASH FLOWS FROM CONTINUING OPERATIONS

(Amounts in millions)

Depreciation and amortization .......................................................... $ 181 $ 163 $ 153 $ 198 $ 160

Cash flow from operating activities of continuing operations........... $ 316 $ 365 $ 389(c) $ (126) $ (163)

Purchases of property and equipment ............................................... $ 286 $ 254 $ 261(c) $ 176 $ 151

OTHER DATA

Capital expenditures, net of landlord reimbursements (in millions) ...... $ 242 $ 220 $ 164 $ 127 $ 99

Cash dividends per share paid........................................................... $ 0.115 $ 0.07 $ 0.07 $ 0.07 $ 0.07 Return on average stockholders’ equity (%) ..................................... (0.5) 7.3 2.8 – (0.3) Number of Associates of domestic segment ..................................... 43,011 42,359 42,425 43,211 38,849

Number of Associates of international segment................................ 3,071 3,648 3,521 – – Number of domestic segment retail stores ........................................ 654 631 617 604 626

Number of international segment retail stores and dealer outlets...... 806 954 966 – – Results from the Rogers Plus® stores are presented as results from discontinued operations for all periods presented. Consolidated results include results from InterTAN from the acquisition date, May 12, 2004. See consolidated financial statements and accompanying notes, included in Item 8, Financial Statements and Supplementary Data, of this Annual Report on Form 10-K. (a) In fiscal 2007, the company recorded an impairment charge of $92.0 million associated with its international segment’s goodwill. The impairment charge is not deductible for tax purposes. (b) Reflects reclassification of deposits in transit of $25.6 million from expenses payable to cash and cash equivalents. (c) See Note 1, Basis of Presentation, of the Notes to Consolidated Financial Statements.

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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

We are a leading specialty retailer of consumer electronics, home office products, entertainment software, and related services. We have two reportable segments: our domestic segment and our international segment.

Our domestic segment is engaged in the business of selling brand-name consumer electronics, personal computers, entertainment software, and related services in our stores in the United States and via the Web at www.circuitcity.com and www.firedog.com. At February 28, 2007, the domestic segment operated 642 Superstores and 12 other stores in 158 U.S. media markets.

Our international segment, which is comprised of the operations of InterTAN, Inc., is engaged in the business of selling private-label and brand-name consumer electronics in Canada. On May 12, 2004, we acquired a controlling interest in InterTAN, Inc. and on May 19, 2004, completed our acquisition of 100 percent of the common stock of InterTAN for cash consideration of $259.3 million, which includes transaction costs and is net of cash acquired of $30.6 million. In addition to giving us a greater product-sourcing capability and the ability to accelerate the offering of private-label merchandise to our customers, the acquisition of InterTAN gave us our first presence in the Canadian market. The international segment’s headquarters are located in Barrie, Ontario, Canada, and it operates through retail stores and dealer outlets in Canada primarily under the trade name The Source By Circuit CitySM. At February 28, 2007, the international segment conducted business through 806 retail stores and dealer outlets, which consisted of 509 company-owned stores, 296 dealer outlets and 1 Battery Plus® store. The international segment also operates a Web site at www.thesource.ca.

Effective January 28, 2007, we returned the management of 92 Rogers Plus® stores to Rogers Wireless Inc. in accordance with the Amending Agreement dated March 27, 2004, between Rogers Wireless Inc. and InterTAN Canada Ltd. Results from the Rogers Plus® stores are presented as results from discontinued operations in all periods presented.

In February 2007, the board of directors authorized management to explore strategic alternatives for InterTAN, Inc., which could include the sale of the operation.

Management’s Discussion and Analysis (MD&A) is designed to provide the reader of financial statements with a narrative discussion of our results of operations; financial position, liquidity and capital resources; critical accounting policies and significant estimates; and the impact of recently issued accounting standards. Our MD&A is presented in eight sections:

• Executive Summary

• Critical Accounting Policies

• Results of Operations

• Recent Accounting Pronouncements

• Financial Condition

• Domestic Segment Superstore Revitalization Program

• Fiscal 2008 Outlook

• Forward-Looking Statements

This discussion should be read in conjunction with the Consolidated Financial Statements and accompanying Notes included in Item 8, Financial Statements and Supplementary Data, as well as with Item 1A, Risk Factors, included in this Annual Report on Form 10-K. All per share amounts in this discussion are presented on a fully diluted basis.

The terms “Circuit City,” “company,” “we,” “our” and “us” are used throughout this report and, depending on the context of their use, may represent any of the following: the legal entity, Circuit City Stores, Inc., a Virginia corporation, one of Circuit City’s operating segments or the entirety of Circuit City Stores, Inc. and its consolidated subsidiaries.

Executive Summary

Fiscal 2007 Performance Summary

• Net sales were $12.43 billion compared with $11.51 billion in the prior year, an increase of 8.0 percent. Comparable store sales grew 5.8 percent compared with an 8.2 percent increase in fiscal

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2006. The fiscal 2007 sales increase primarily reflects domestic segment comparable store sales growth of 6.1 percent and the contribution of 16 net additional domestic segment Superstores.

• The gross profit margin decreased by 85 basis points from fiscal 2006 to 23.6 percent of net sales primarily due to decreases in domestic segment extended warranty net sales and merchandise margin.

• Selling, general and administrative expenses increased 32 basis points from fiscal 2006 to 22.9 percent of net sales. The increase reflects net incremental expenses, primarily related to strategic investments in information technology, multi-channel and innovation activities, which totaled approximately 90 basis points of consolidated net sales. We also incurred pre-tax expenses of $48.7 million, or 39 basis points of consolidated net sales, associated with store and facility closures and other restructuring activities, which primarily related to leases and severance. These expenses were partially offset by growth in payroll and advertising expenses that was slower than growth in consolidated net sales, resulting in a lower expense-to-sales ratio.

• We recorded a non-cash impairment charge of $92.0 million, or 74 basis points of consolidated net sales, related to the goodwill associated with the international segment.

• Earnings from continuing operations before income taxes were 0.2 percent of net sales in fiscal 2007 compared with 2.0 percent of net sales in fiscal 2006. The percentage decrease primarily results from the decline in gross profit margin, the impairment of goodwill and the pre-tax expenses associated with store and facility closures and other restructuring activities.

• The net loss from continuing operations was $10.2 million, or 6 cents per share, compared with net earnings of $147.4 million, or 82 cents per share, in fiscal 2006.

Fiscal 2007 Significant Events

Fiscal 2007 was a challenging year in a number of respects.

At the beginning of the fiscal year, we set a number of financial targets, including strong sales growth and earnings from continuing operations before income taxes (EBT) as a percentage of consolidated net sales within a range of 2.0 percent to 2.4 percent, compared with 2.0 percent in the prior year. Through the first half of the year, we delivered a number of key successes, including stronger than expected sales growth and improved EBT margins. For the first quarter, we delivered growth in comparable store sales that set a three-year record for us and returned to first quarter profitability. Our financial results continued to show year-over-year improvement in the second quarter.

In the fall of 2006, industry dynamics in the flat panel television business changed as we saw an acceleration of the frequency of price drops from our major vendors and competitors. While we expected significant average selling price (ASP) declines, the magnitude and velocity of the actual declines was far greater than we had anticipated. During the third quarter, for medium and large LCD televisions, the rate of price decline was 50 percent more than we had budgeted; for plasma televisions, the rate of the price decline was three times greater than we had budgeted. Despite the price declines, our third quarter sales of flat panel televisions, both in units and dollars, came in above our sales plan.

Despite this sales strength, third quarter merchandise margins were pressured due to several factors. The declining average selling prices directly pressured gross margin rate and dollars. A higher percentage of television sales dollars, compared with the first half of the fiscal year, were returned to customers who took advantage of Circuit City’s Unbeatable Price Guarantee program, under which, if within 30 days from the date of our offer, the customer shows us a lower, currently advertised price from another local store with the same item in stock, we will refund 110 percent of the difference between our price and theirs. Greater use of this program pressured gross margin rate and dollars. Partially offsetting these negative trends, we saw sales of related accessories and services grow and the margin rate for this basket of products remain steady. However, this gross profit dollar increase was not large enough to offset the declines in flat panel television gross profit dollars compared with our expectations. While unit sales grew, the volume came at lower price points, and therefore lower gross profit dollars.

Compounding the industry changes, we believe that our execution of pricing and markdown management, overall promotional effectiveness, and the prioritization and editing of the holiday preparation plan we asked the stores to execute was below our expectations.

Following these changes, we lowered our financial forecast for fiscal 2007 to an EBT range of 1.0 to 1.4 percent.

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In May 2006, we stated our goal of delivering EBT as a percentage of consolidated net sales of 5 percent in a three- to five-year time frame. At that time, we planned to reach this goal through strong sales growth, gross margin improvement and a more efficient expense structure. We expected to reach these financial targets through a number of specific initiatives including retail transformation work, services growth, multi-channel growth, price optimization, sourcing, inventory optimization and expense reductions. As a result of the intensified gross margin pressures within the industry, in the fall we launched efforts to accelerate the timing of those initiatives. We now believe the results of this program will serve to deliver sustainable growth in revenues and profits in an environment with lower gross margins.

Several actions from these initiatives were announced in February and March 2007, including a management realignment; domestic and international segment store closures and headcount reductions; a wage management initiative; and the outsourcing of information technology infrastructure operations. These activities are focused on driving improved execution and reducing the company’s cost and expense structure through ensuring that Circuit City implements and follows retail industry best practices. As a result of these and other restructuring actions as well as the impairment of goodwill, we incurred $144.6 million, or 116 basis points of consolidated net sales, in pre-tax charges. Results also were negatively impacted by pre-tax earnings of $8.2 million, or 7 basis points of consolidated net sales, from Rogers Plus® stores that have been presented as results from discontinued operations. To build the competitive organization of the future, we will make additional changes to develop a world-class retail platform.

Despite the difficulties, we made significant progress in re-engineering the people, processes and technologies of the organization and invested in key business areas to allow for sustainable growth in revenues and profits. The most significant examples follow:

• Strategic Architecture. We introduced our strategic architecture, “It’s all about helping you.” The architecture serves as the framework for strategic decisions and alignment of work. Our organizational structure supports the architecture, builds accountability and improves financial results. We continued to work on building a culture of engagement with our customers and Associates. We are listening to our customers through our front-line Associates; aligning compensation, recognition and rewards with key business outcomes; and communicating more clearly so that Associates understand how their work contributes to our strategies, expectations and business goals.

• Win in Home Entertainment. We capitalized on a strong flat panel television cycle, posting strong growth in sales. Despite our changed outlook after the third quarter, this is still an extremely robust product cycle in consumer electronics and a significant opportunity for revenue growth.

• Multi-channel. Our multi-channel sales process is more than just doing business through multiple channels – it truly integrates our sales channels into a seamless experience. Web-originated sales grew more than 50 percent for the year, and sales from our Web site reached the $1 billion net sales milestone for fiscal 2007. Our market share for online consumer electronics continued to grow, with industry source TraQline reporting fourth quarter market share growth of 40 percent compared with the prior year for www.circuitcity.com. We also opened a new state-of-the-art call center to provide a more robust level of service to our customers.

• Services. The growing complexity of home theater and technology products has created frustration for many customers who desire more assistance with installation, repair and upgrades. In response, we launched the firedogSM brand in September 2006 to assist customers with home theater installations, consumer PC services and the convergence and integration of multiple technology products. We estimate a $20 billion consumer market opportunity for these services by fiscal 2010. In fiscal 2007, we delivered strong services revenue growth of nearly 80 percent from the prior year to reach more than $200 million in annual sales. We continued to build cultural muscle in our stores as well as infrastructure and systems to support growth.

• Real Estate. Another key growth initiative for us is real estate. We delivered on our domestic segment store opening plans for the year with 23 incremental Superstores and 12 Superstore relocations. We made progress on building the pipeline for fiscal 2008 openings and expect to open 60 to 65 Superstores in fiscal 2008. We also have built the platform to open 75 to 100 Superstores per year beginning in fiscal 2009. As we increase the number of our annual openings, we continue to address our existing base by updating store interiors and exteriors as well as closing underperforming stores. We also continue to explore different store sizes and concepts. As the mix of sales of music and movie software shifts to digital formats rather than physical formats, and as more customers prefer a multi-channel shopping experience, we believe a smaller store footprint can, in many cases, meet our customers’ needs more effectively and

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efficiently. In fiscal 2007, approximately 70 percent of our domestic segment Superstore openings were approximately 30,000 total square feet and approximately 30 percent were 20,000 total square feet. In fiscal 2008, we expect more than half of the domestic segment Superstore openings to be 20,000 total square feet.

• Reduced Net-owned Inventory. We reduced domestic segment net-owned inventory by $88 million while growing sales, improving in-stocks and reducing overall inventory.

• Management Transformation. From October 2004 through February 2007, we have named 51 new vice presidents or higher level executives through a combination of external hires and internal promotions affecting virtually all parts of the company. These changes represent a significant enhancement of the team both in strength and diversity of experience.

• Returning Value to Shareholders. We raised our quarterly dividend to 4 cents per share from 1.75 cents per share. In addition, we increased our share buyback authorization by $400 million to $1.2 billion and repurchased 10 million shares for $237 million, excluding commission fees, for an average price of $23.62.

In fiscal 2008, we will continue to focus on our long-term strategy and transformation efforts. Our four growth pillars of win in home entertainment, services, multi-channel and real estate serve as the foundation for our strategic initiatives. Our accelerated transformation efforts that we began in fiscal 2007 will largely be implemented in fiscal 2008.

In merchandising, our transformation efforts include aligning resources to drive accountability; implementing tighter governance of pricing, promotions and markdown decisions; collaborating better with our strategic partners; building strategic sourcing capabilities and continuing our supply chain optimization work; and continuing to develop merchandising and marketing capacity and capabilities through new skill sets and new IT systems. Our retail transformation will include a redefined operating model with enhanced focus on operational excellence and labor optimization; the establishment of regional and district learning labs to support the process of change management in our stores; the implementation of new standard operating procedures in our stores; and a renewed focus on managing the performance gaps among stores. We will continue our SG&A reduction activities with a focus on all layers of the business.

Our plan assumes most of the organizational and process changes will take place during the first half of the year so that we can focus on execution of the new initiatives during the holiday selling season.

Critical Accounting Policies

Our consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles. Preparation of financial statements requires us to make estimates and assumptions affecting the reported amounts of assets, liabilities, revenues and expenses and the disclosure of contingent assets and liabilities. We use our historical experience and other relevant factors when developing our estimates and assumptions, which we continually evaluate. Note 2, Summary of Significant Accounting Policies, of the Notes to Consolidated Financial Statements, included in Item 8, Financial Statements and Supplementary Data, of this Annual Report on Form 10-K includes a discussion of our significant accounting policies. The following accounting policies are those we consider critical to an understanding of the consolidated financial statements because their application places the most significant demands on our judgment. Our financial results might have been different if other assumptions had been used or other conditions had prevailed.

Inventory Valuation

We value our inventory using the average cost method and include the cost of freight from the vendor to our distribution centers, or in the case of direct shipments, the cost of freight from the vendor to our stores. We estimate the realizable value of inventory based on assumptions about forecasted consumer demand, market conditions and obsolescence. If the estimated realizable value is less than cost, the inventory value is reduced to its estimated realizable value. If estimates regarding consumer demand and market conditions are inaccurate or unexpected changes in technology affect demand, we could be exposed to losses in excess of amounts recorded.

Our inventory loss reserve represents estimated physical inventory losses that have occurred since the last physical inventory date. Independent physical inventory counts are taken on a regular basis to ensure that the inventory reported in the consolidated financial statements is accurately stated. During the interim period between physical inventory counts, we reserve for anticipated physical inventory losses on a location-by-location basis.

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Our inventory loss reserve contains uncertainties because the calculation requires management to make assumptions and apply judgment regarding a number of factors, including historical results and current inventory loss trends. Actual physical inventory counts are performed in January of each fiscal year. The loss reserve recorded at February 28, 2007, represents estimated physical inventory losses for approximately six weeks of the fiscal year. A 10 percent change in this estimate would not be significant to the consolidated financial statements.

Goodwill

Goodwill is reported as a separate line item on our consolidated balance sheets. The balance in goodwill was $121.8 million at February 28, 2007, and $224.0 million at February 28, 2006. We evaluate goodwill for impairment on an annual basis and more frequently if events or circumstances indicate that goodwill may be impaired, such as a significant adverse change in the business climate or a decision to sell or dispose of a reporting unit. Application of the goodwill impairment test requires judgment, including the identification of reporting units, assignment of assets and liabilities to reporting units, assignment of goodwill to reporting units and determination of the fair value of each reporting unit.

We estimate the fair value of the reporting unit using the average of discounted cash flows and comparative market multiples of earnings before interest, taxes, depreciation and amortization. Applying this methodology requires significant management judgments including estimation of future cash flows, estimation of the long-term rate of growth for the reporting unit, selection of an appropriate discount rate, economic projections and market data. Changes in these assumptions and estimates could materially affect the determination of fair value.

If the analysis indicates that goodwill is impaired, measuring the impairment requires a fair value estimate of each identified tangible and intangible asset. We obtain independent appraisals, as appropriate, to support our goodwill impairment analysis.

During the fourth quarter of fiscal 2007, due to deterioration in the sales and margin trends of our international segment, we determined that it was necessary to reevaluate goodwill associated with this segment for impairment. As a result of this analysis, we recorded an impairment charge of $92.0 million to write down goodwill to its estimated fair value.

If actual results are not consistent with our assumptions and estimates used in the analysis, we may be subject to further impairment losses that could be material.

Income Taxes

We account for income taxes in accordance with SFAS No. 109, “Accounting for Income Taxes,” which requires that deferred tax assets and liabilities be recognized using enacted tax rates for the effect of the temporary differences between the book and tax basis of recorded assets and liabilities. We make estimates and judgments with regard to the calculation of certain tax assets and liabilities. SFAS No. 109 also requires that deferred tax assets be reduced by valuation allowances if it is more likely than not that some portion of the deferred tax asset will not be realized. Quarterly, we assess the likelihood the benefits of a deferred tax asset will be realized by considering historical and projected taxable income and tax planning strategies. Should a change in circumstances lead to a change in our judgments about the realization of deferred tax assets in future years, we adjust the valuation allowances in the period that the change in circumstances occurs, along with a current charge or credit to net earnings. Significant changes to our estimates and assumptions may result in an increase or decrease to our tax expense in a subsequent period.

We estimate and accrue income tax contingencies for differences in interpretation that may exist with tax authorities. Quarterly, we evaluate income tax contingency accruals. We consider a variety of factors, including the nature and amount of tax income and expense items, the current tax statutes, the current status of audits performed by tax authorities and the projected earnings. To the extent we prevail in matters for which reserves have been established, or are required to pay amounts in excess of our reserves, our effective income tax rate in a given financial statement period could be materially affected. An unfavorable tax settlement would require use of our cash and may result in an increase in our effective income tax rate in the period of resolution if the settlement is in excess of our reserves. A tax settlement for an amount lower than our reserves would be recognized as a reduction in our income tax expense in the period of resolution and would result in a decrease in our effective tax rate.

Income tax contingency accruals were $20.7 million at February 28, 2007, and $19.4 million at February 28, 2006. At February 28, 2007, the accrual for income tax contingencies is reflected as an offset to the income tax receivable on the consolidated balance sheet. During fiscal 2007, we recorded a reduction to tax expense of $2.6 million related to the revision of management estimates regarding certain tax contingencies. We did not make any

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other changes in estimates related to tax contingencies during fiscal 2007 that would have a significant impact on the consolidated financial statements.

Effective March 1, 2007, we will adopt FASB Interpretation (“FIN”) No. 48, “Accounting for Uncertainty in Income Taxes.” FIN No. 48 establishes standards for recognition and measurement, in the financial statements, of positions taken, or expected to be taken, by an entity in its income tax returns. Positions taken by an entity in its income tax returns must satisfy a more-likely-than-not recognition threshold, assuming that the positions will be examined by taxing authorities with full knowledge of all relevant information, in order for the positions to be recognized in the consolidated financial statements.

Accrued Lease Termination Costs

When leased properties are no longer used for operating purposes, we recognize a liability for our future lease payments and related costs, from the date of closure through the end of the remaining lease term, net of contractual or estimated sublease rental income. Inherent in the calculation of accrued lease termination costs are significant management judgments and estimates, including estimates of the amount and timing of future sublease revenues, the timing and duration of future vacancy periods and the amount and timing of future settlement payments. When making these assumptions, we consider a number of factors including our historical experience, the condition and location of the property, the terms of the lease, the specific real estate market and general economic conditions. We review these judgments and estimates on a quarterly basis and make appropriate revisions.

Accrued lease termination costs were $105.6 million at February 28, 2007, and $110.0 million at February 28, 2006. We present the changes in the accrued lease termination costs in the notes to the consolidated financial statements. Changes in assumptions increased the liability for lease termination costs by approximately $12 million for fiscal 2007, approximately $10 million for fiscal 2006 and approximately $6 million in fiscal 2005. In fiscal 2007, we recorded a $12.9 million reversal of the liability due to a change in estimate for seven previously-vacant stores that have re-opened or will re-open as outlet stores. If actual results are not consistent with our estimates or assumptions, changes to the lease termination liability could be material.

Stock-Based Compensation

Effective March 1, 2006, we adopted Statement of Financial Accounting Standards No. 123 (revised 2004), “Share-Based Payment” (SFAS No. 123(R)), which requires companies to record compensation expense based on the fair value of employee stock-based compensation awards. Under the fair value recognition provisions of SFAS No. 123(R), we recognize stock-based compensation net of an estimated forfeiture rate and, therefore, only recognize compensation expense for those shares expected to vest. If our actual forfeiture rate is materially different from our estimate, the stock-based compensation expense could be significantly different from what we have recorded in the current period. Stock-based compensation cost is measured at the grant date based on the fair value of the award and recognized over the service period of the award. We determine the fair value of our non-qualified stock options at the grant date using the Black-Scholes option valuation model.

Option valuation models, including the Black-Scholes model, require us to make highly subjective assumptions regarding the expected future volatility of the stock price, expected term of the option, expected dividend yield and the risk-free interest rate. The assumptions used in the Black-Scholes model represent our best estimates, but these estimates involve inherent uncertainties and the application of management judgment. Changes in these assumptions can materially affect the fair value estimate.

The vesting of certain nonvested stock awards may accelerate if we achieve operating margin targets. The recognition of compensation expense over the requisite service period is based on the likelihood of achieving the performance targets. Performance-accelerated nonvested stock awards require management to make assumptions regarding the likelihood of achieving company goals. If actual results differ from our assumptions, stock-based compensation expense could be significantly different from what we have recorded in the current period.

Stock-based compensation expense was $28.7 million in fiscal 2007, $26.9 million in fiscal 2006 and $19.1 million in fiscal 2005. During the second half of fiscal 2007, we increased the estimated forfeiture rates on certain awards to reflect a change in our expectations regarding the number of instruments that will ultimately vest. This change in expectations was driven by higher than anticipated fiscal 2007 forfeitures, due in part to changes to executive management. Consistent with the provisions of SFAS No. 123(R), the effect of the change in estimate was recognized in compensation expense in fiscal 2007. If actual results are not consistent with our estimates or assumptions, we may be exposed to changes in stock-based compensation expense that could be material. Additionally, if actual results are not consistent with the assumptions used, the stock-based compensation expense reported in our consolidated financial statements may not be representative of the actual economic cost of the stock-based compensation.

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Pension Plans

Net pension expense recognized in our consolidated financial statements for our defined benefit pension plan and unfunded non-qualified benefit restoration plan is determined on an actuarial basis. The effects of both the performance of pension plan assets and changes in pension plan liability discount rates on the computation of net pension expense are amortized over future periods. Actual results in any given year will often differ from actuarial assumptions because of economic conditions and expectations for the future.

A significant element in determining the net pension expense is the expected return on plan assets. We use a calculated market-related value of pension plan assets to determine the expected return on pension plan assets. The calculated market-related value of the plan assets is different from the actual or fair market value of the assets. The fair market value is the value of the assets at a point in time that is available to make payments to pension plan participants and to cover transaction costs. The calculated market-related value recognizes changes in fair value on a straight-line basis over a five-year period. This recognition method spreads the effects of year-over-year volatility in the financial markets over that period of years. The rate of return assumption is reviewed annually and adjusted as appropriate. For fiscal 2007, fiscal 2006 and fiscal 2005, our expected rate of return on plan assets was 8.25 percent. Net pension expense for our pension plans was $2.4 million in fiscal 2007, $1.7 million in fiscal 2006 and $19.8 million in fiscal 2005. These expenses are included in cost of sales, buying and warehousing and selling, general and administrative expenses on the consolidated statements of operations.

At the end of each fiscal year, we determine the weighted average discount rate used to calculate the present value of plan liabilities. The discount rate is an estimate of the interest rate at which the pension liabilities could be effectively settled at the end of the year. When estimating the discount rate, we review yields available on high-quality, fixed income debt instruments. We reviewed high-quality corporate bond indices in addition to a hypothetical portfolio of corporate bonds constructed with maturities that approximate the expected timing of our anticipated benefit payments. We selected a discount rate of 5.75 percent at February 28, 2007, and 5.65 percent at February 28, 2006.

The following table is a sensitivity analysis that illustrates the effect on net pension expense and the funded status of changing the expected rate of return on plan assets and the discount rate, while holding all other assumptions constant:

Increase / (Decrease) In Change in February 28, 2007 Fiscal 2007 (Amounts in millions) Assumption Funded Status Expense

Expected rate of return on plan assets .......... +/- 25 basis points N/A $(0.6) / $0.6 Discount rate................................................. +/- 25 basis points $13.0 / $(13.9) $(1.4) / $1.5

In October 2004, the board of directors approved amendments to freeze both the defined benefit pension plan and the non-qualified benefit restoration plan, effective February 28, 2005. As a result, all eligible employees retain any benefits accumulated to the effective date, but are no longer eligible to increase their benefit. Eligible employees will continue to earn vesting credit toward the pension plan’s vesting requirements. Employees who would be eligible to retire under the pension plan’s early or normal retirement provisions on or before February 28, 2008, are considered grandfathered employees and are not subject to the plan changes to either plan. In addition, employees who would be eligible to retire under the pension plan’s early or normal retirement provisions on before February 28, 2015, are considered sustained employees under the benefit restoration plan and will be eligible to receive the supplemental benefits they would have received under the benefit restoration plan had their pension plan benefit accruals not been frozen. The impact of the changes to the plans was a curtailment charge of $1.1 million in the fiscal year ended February 28, 2005.

In the fourth quarter of fiscal 2007 we adopted SFAS No. 158, “Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans – an amendment of FASB Statements No. 87, 88, 106, and 132(R).” SFAS No. 158 requires an employer to recognize a plan’s funded status in its balance sheets and recognize the changes in a plan’s funded status in accumulated other comprehensive income in the year in which the changes occur. Additional discussion and the impact of adopting this statement are included in Note 15, Employee Benefit Plans, of the Notes to Consolidated Financial Statements, included in Item 8, Financial Statements and Supplementary Data, of this Annual Report on Form 10-K.

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Results of Operations

Reclassifications and Adjustments

We reclassified stock-based compensation expense from a separate line on the consolidated statement of operations to selling, general and administrative expenses.

During fiscal 2006, we identified errors in the previously filed consolidated statement of cash flows for the fiscal year ended February 28, 2005. The errors were considered immaterial; however, we have revised the statement of cash flows for the fiscal year ended February 28, 2005, included in this filing. The errors were the result of the following: we incorrectly reflected bank overdrafts of $36.3 million as a change in expenses payable in operating activities rather than in financing activities; we incorrectly included accruals of $7.5 million for purchases of property and equipment in operating activities and investing activities; and we incorrectly reflected deposits in transit of $25.6 million as a change in expenses payable in operating activities rather than as a change in cash and cash equivalents.

During fiscal 2006, we identified errors in previously issued financial statements. We evaluated the impact of the errors in the consolidated financial statements for previously reported periods, on the 2006 fiscal year and on earnings trends. Based upon the evaluation, we concluded the errors and the corrections of such errors were not material to the company’s financial statements taken as a whole and corrected the errors in the fourth quarter of fiscal 2006. As a result, we recognized an after-tax reduction in net earnings of $3.2 million during the fourth quarter of fiscal 2006 that relates primarily to benefits recognized in the first three quarters of fiscal 2006 for the estimated non-redemption of the rewards feature on the Circuit City Rewards Credit Card. We also recognized an after-tax benefit of $0.4 million during the fourth quarter of fiscal 2006 to correct errors in lease accounting and for other matters in the consolidated financial statements for prior fiscal years. In addition, in fiscal 2006 we revised prior year consolidated financial statements for immaterial corrections of errors related to lease accounting and for other matters. Immaterial amounts previously reported incorrectly as rent expense have been reclassified to interest expense on the fiscal 2005 consolidated statement of operations.

Summary of Segment Performance

Where relevant, we have included separate discussions of our domestic and international segments. Our domestic segment is engaged in the business of selling brand-name consumer electronics, personal computers, entertainment software, and related services in our stores in the United States and via the Web at www.circuitcity.com and www.firedog.com. Our international segment is engaged in the business of selling private-label and brand-name consumer electronics in Canada and via the Web at www.thesource.ca and principally includes the operations of InterTAN, Inc., which we acquired in May 2004. Consolidated results include results from InterTAN from the acquisition date. Prior to the second quarter of fiscal 2005, we had another reportable segment, our finance operation. The following tables summarize performance by segment.

SEGMENT PERFORMANCE SUMMARY

Year Ended February 28, 2007 Domestic International Consolidated % of % of % of (Dollar amounts in millions) $ Sales $ Sales $ Sales Net sales ........................................... $ 11,859.6 100.0% $ 570.2 100.0% $ 12,429.8 100.0% Gross profit....................................... $ 2,740.0 23.1% $ 188.4 33.0% $ 2,928.3 23.6% Selling, general and administrative

expenses ...................................... $ 2,632.8 22.2% $ 208.8 36.6% $ 2,841.6 22.9% Impairment of goodwill(a) ................. $ – – $ 92.0 16.1% $ 92.0 0.7% Net earnings (loss) from continuing

operations .................................... $ 97.1 0.8% $ (107.3) (18.8)% $ (10.2) (0.1)% (a) In fiscal 2007, we recorded an impairment charge of $92.0 million associated with the international segment’s goodwill. The impairment charge is not deductible for tax purposes.

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Year Ended February 28, 2006 Domestic International Consolidated % of % of % of (Dollar amounts in millions) $ Sales $ Sales $ Sales Net sales ........................................... $ 10,974.0 100.0% $ 540.2 100.0% $ 11,514.2 100.0% Gross profit....................................... $ 2,604.5 23.7% $ 206.0 38.1% $ 2,810.5 24.4% Selling, general and administrative

expenses ...................................... $ 2,379.9 21.7% $ 215.8 39.9% $ 2,595.7 22.5% Net earnings (loss) from continuing

operations .................................... $ 154.8 1.4% $ (7.3) (1.4)% $ 147.4 1.3%

Year Ended February 28, 2005 (Amounts in millions) Domestic International(a) Finance Consolidated Net sales ........................................... $10,014.6 $ 398.9 $ – $ 10,413.5 Gross profit....................................... $ 2,385.6 $ 166.6 $ – $ 2,552.2 Selling, general and administrative

expenses....................................... $ 2,331.2 $ 139.6 $ – $ 2,470.7 Finance income................................. $ – $ – $ 5.6 $ 5.6 Net earnings from continuing operations .................................... $ 41.1 $ 15.9 $ 3.5 $ 60.6 (a) The international segment’s results are included from May 12, 2004, when we acquired a controlling interest in InterTAN, Inc.

Net Sales

Consolidated

For the fiscal year ended February 28, 2007, our net sales increased 8.0 percent to $12.43 billion, and comparable store sales increased 5.8 percent. In fiscal 2006, net sales increased 10.6 percent to $11.51 billion from $10.41 billion in fiscal 2005, and comparable store sales increased 8.2 percent.

PERCENT SALES CHANGE FROM PRIOR YEAR

Fiscal Total Comparable 2007.................................................. 8.0% 5.8% 2006.................................................. 10.6% 8.2%

A store’s sales are included in comparable store sales after the store has been open for a full 12 months. Comparable store sales include Web-originated sales and sales from relocated and remodeled stores. Sales from closed stores are included in comparable store sales until the month in which the stores are closed. Beginning June 1, 2005, international segment sales are included in comparable stores sales and are calculated in local currency. The calculation of comparable store sales excludes the impact of fluctuations in foreign currency exchange rates.

The fiscal 2007 sales increase primarily reflects the increase in domestic segment comparable store sales and the contribution of 16 net additional domestic segment Superstores.

The fiscal 2006 sales increase primarily reflects the increase in domestic segment comparable store sales and the addition of 18 Superstores partially offset by the closure of 19 Superstores late in fiscal 2005.

Domestic Segment

The domestic segment’s fiscal 2007 net sales were $11.86 billion, an increase of 8.1 percent over fiscal 2006 sales of $10.97 billion. Comparable store sales increased 6.1 percent. The fiscal 2007 sales increase primarily reflects the increase in the comparable store sales and the contribution of 16 net additional domestic segment Superstores. The comparable store sales increase is due primarily to an increase in Web- and call center-originated sales as well as an increase in the average ticket associated with Superstore sales. A strong increase in sales of flat panel televisions drove the increase in average ticket.

The domestic segment’s fiscal 2006 net sales were $10.97 billion, an increase of 9.6 percent over fiscal 2005 sales of $10.01 billion. Comparable store sales increased 8.3 percent. The fiscal 2006 sales increase primarily reflects the increase in comparable store sales and the addition of 18 Superstores, partially offset by the closure of 19 Superstores in late fiscal 2005. The comparable store sales increase is due primarily to an increase in average ticket associated with Superstore sales as well as an increase in Web- and call center-originated sales. A strong product cycle for certain consumer electronics products, especially flat panel televisions, combined with many of

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the initiatives we undertook throughout fiscal 2006 drove the sales increase. Additionally, we believe that our product portfolio management, promotional effectiveness and inventory management initiatives, in particular, contributed to the strong sales increase in fiscal 2006 over fiscal 2005.

PERCENT OF DOMESTIC SEGMENT NET SALES BY CATEGORY(a)

Years Ended February 28 2007 2006 2005 Video ...................................................... 42 % 42 % 39 % Information technology .......................... 25 25 28 Audio ...................................................... 15 15 14 Entertainment ......................................... 11 11 12 Warranty, services and other(b) ............... 7 7 7 Net Sales................................................. 100 % 100 % 100 % (a) We have adapted our presentation of sales by category to represent total sales and have reclassified certain sales from video and information technology to warranty, services and other. (b) Warranty, services and other includes extended warranty net sales; revenues from computer-related services, mobile installations, home theater installations and product repairs; net financing; and revenues from third parties for services subscriptions.

For fiscal 2007, our growth was primarily driven by strong double-digit comparable store sales growth of flat panel televisions. Comparable store sales of notebook computers, video game products and digital imaging products grew double digits and comparable store sales of navigation products grew by triple digits. Strong sales growth in these areas was partially offset by double digit declines in sales of tube and projection televisions. For fiscal 2007 in the domestic segment, Web-originated sales grew 52 percent; firedogSM services revenues, including computer-related services and home theater installations, grew 77 percent; and call center sales grew 73 percent from the prior year. For fiscal 2007, Web-originated sales reached $1 billion and firedogSM services revenues exceeded $200 million.

For fiscal 2006, we generated our strongest comparable store sales gain in flat panel televisions, which grew triple digits from the prior year. We also experienced strong comparable store sales gains in portable audio hardware and related accessories; digital cameras and related accessories; navigation products; and PC Services. Web-originated sales grew 59 percent and call center sales grew 104 percent compared with fiscal 2005. We experienced sales declines in tube and projection televisions, as our sales mix shifts to flat panel technologies; in DVD players, as the category has matured; and in music software, as industry trends are shifting to electronic distribution of music.

Extended Warranty Net Sales. The domestic segment sells extended warranty programs on behalf of unrelated third parties who are the primary obligors. The commission revenue for extended warranty net sales is included in net sales. Reflecting our expanded ability to provide high-value services in a growing number of ways, we view extended warranty net sales as one component of many that contributes to both sales and gross margin. Our customer service approach focuses on selling “solutions,” with warranties being only one of many available solutions.

The percent of domestic segment sales attributable to sales of extended warranties was 3.5 percent in fiscal 2007, 3.8 percent in fiscal 2006 and 3.8 percent in fiscal 2005. As average selling prices on many products declined during fiscal 2007, extended warranty net sales as a percentage of domestic segment net sales also declined compared to fiscal 2006. We believe that consumers perceive a reduced need for an extended warranty when the product price has declined. We are reviewing our extended warranty offerings, pricing strategies and in-store training to address this issue.

Net Financing. In May 2004, we sold our private-label finance operation to Chase Card Services. We entered into an arrangement under which Chase offers private-label and co-branded credit cards to new and existing customers. Revenues from new account activations are offset by the costs associated with promotional financing over a predetermined base. The net results from the arrangement are included in net sales on the consolidated statements of operations.

DOMESTIC SEGMENT STORE MIX

Retail Units at Year End 2007 2006 2005 Superstores ............................................. 642 626 612 Other stores............................................. 12 5 5 Total domestic segment stores................ 654 631 617

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Prior to fiscal 2001, our Superstore prototypes utilized a showroom model, which required sales assistance for each transaction to retrieve product that was stocked in a large warehouse. Approximately 61 percent of our domestic segment Superstores were constructed as the showroom prototypes, and today have excess square footage in the warehouse area that is unused. The showroom prototypes on average include approximately 60 percent of the total square footage as selling area and 40 percent as non-selling area, which includes areas such as warehouse space, mobile installation bays, training rooms and restrooms.

During fiscal 2001, Circuit City introduced a new Superstore format that features a brighter, more contemporary look and an open, easily navigable floor plan conducive to browsing. The format allows the company to put all products, except those that are too large for customers to carry themselves, on the sales floor. These post-showroom prototypes on average include approximately 72 percent of the total square footage as selling area. In fiscal 2007, the average selling area for stores opened was 76 percent of the total square footage.

We provide both selling square footage and total square footage metrics for the domestic segment Superstores in order to aid investors in understanding the impact of the changes in the prototypes.

DOMESTIC SEGMENT SUPERSTORE SQUARE FOOTAGE SUMMARY

At February 28 Selling Sq. Ft. Total Sq. Ft. 2007................................. 13,243,665 21,172,652 2006................................. 12,990,321 20,728,064 2005................................. 12,953,259 20,922,618

International Segment

The international segment’s fiscal 2007 net sales were $570.2 million, an increase of 5.6 percent over fiscal 2006 sales of $540.2 million. The sales increase was driven by the effect of fluctuations in foreign currency exchange rates, which accounted for approximately 4 percentage points of the increase. Comparable store sales decreased 0.8 percent in fiscal 2007 in local currency.

The international segment’s net sales were $540.2 million in fiscal 2006 and $398.9 million in fiscal 2005. International segment sales are included from May 12, 2004, when we acquired a controlling interest in InterTAN, Inc. The effect of fluctuations in foreign currency exchange rates accounted for approximately 8 percentage points of the segment’s fiscal 2006 net sales increase. Comparable store sales increased 5.0 percent in fiscal 2006 in local currency.

PERCENT OF INTERNATIONAL SEGMENT NET SALES BY CATEGORY

Years Ended February 28 2007 2006 2005(b) Video ...................................................... 19 % 19 % 18 % Information technology .......................... 38 37 36 Audio ...................................................... 33 32 33 Entertainment ......................................... 5 5 7 Warranty, services and other(a) ............... 5 7 6 Net sales ................................................. 100 % 100 % 100 % (a) Warranty, services and other includes extended warranty sales and product repair revenue. (b) The international segment’s sales are included from May 12, 2004, when we acquired a controlling interest in InterTAN, Inc.

INTERNATIONAL SEGMENT STORE MIX

Retail Units at Year End 2007 2006 2005 Company-owned stores ....................... 509 540 521 Dealer outlets....................................... 296 300 331 Rogers Plus® stores(a)........................... – 93 88 Battery Plus® stores.............................. 1 21 26 Total international segment stores....... 806 954 966 (a) Effective January 28, 2007, we returned the management of 92 Rogers Plus® stores to Rogers Wireless Inc. in accordance with the Amending Agreement dated March 27, 2004, between Rogers Wireless Inc. and InterTAN Canada Ltd. Results from the Rogers Plus® stores are presented as results from discontinued operations for all periods presented.

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International segment stores operating under the trade name The Source By Circuit CitySM typically have a small store format with 2,107 average square feet.

Gross Profit Margin

Consolidated

The gross profit margin rate was 23.6 percent in fiscal 2007, 24.4 percent in fiscal 2006 and 24.5 percent in fiscal 2005.

The gross profit margin rate declined 85 basis points in fiscal 2007 from fiscal 2006 primarily due to decreases in the domestic segment extended warranty net sales and merchandise margin. The domestic segment contributed 58 basis points to the decline and the international segment contributed 27 basis points to the decline.

The gross profit margin rate declined 10 basis points in fiscal 2006 from fiscal 2005 primarily due to higher promotional financing costs that resulted from higher interest rates than were in place during fiscal 2005.

Domestic Segment

The domestic segment’s gross profit margin rate was 23.1 percent in fiscal 2007, 23.7 percent in fiscal 2006 and 23.8 percent in fiscal 2005.

The domestic segment’s gross profit margin rate decreased 63 basis points in fiscal 2007 from fiscal 2006, driven by a decrease in merchandise margin primarily in televisions, PC hardware, and entertainment software, as well as a decrease in extended warranty net sales as a percentage of domestic segment net sales.

The domestic segment’s gross profit margin rate decreased 9 basis points in fiscal 2006 from fiscal 2005. The change primarily reflects higher promotional financing costs that resulted from higher interest rates than in fiscal 2005.


The international segment’s gross profit margin rate was 33.0 percent in fiscal 2007, 38.1 percent in fiscal 2006 and 41.8 percent in fiscal 2005.

The gross profit margin decrease from fiscal 2006 to fiscal 2007 is due to an increased level of inventory write-offs and merchandise markdowns compared with the prior year as well as a shift in the product sales mix from higher-margin categories, including batteries, to lower-margin, higher-growth categories, including personal electronics and navigation products. Results also include $3.3 million, or 58 basis points of international segment net sales, for inventory write-offs associated with plans to exit certain product lines, clearance sales associated with store closures and other actions to align the international segment merchandise assortment with consumer demand.

The international segment’s gross profit margin rate decrease from fiscal 2005 to fiscal 2006 is due primarily to a shift in the product sales mix from higher-margin categories, including batteries, parts, and accessories, to lower-margin, higher-growth categories, including PC hardware and video and personal electronics.

Selling, General and Administrative Expenses

Consolidated

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES

Years Ended February 28 2007 2006 2005(d) % of % of % of (Dollar amounts in millions) $ Sales $ Sales $ Sales Store expenses(a) .................................. $2,447.2 19.7% $2,235.4 19.4% $2,140.6 20.6% General and administrative expenses(b) 350.1 2.8 317.2 2.8 254.0 2.4 Stock-based compensation expense..... 24.2 0.2 26.9 0.2 19.1 0.2 Remodel expenses ............................... 0.7 – – – 0.3 – Relocation expenses(c) ......................... 4.5 – 7.1 0.1 40.8 0.4 Pre-opening expenses .......................... 14.8 0.1 9.0 0.1 15.8 0.2 Total..................................................... $2,841.6 22.9% $2,595.7 22.5% $2,470.7 23.7% (a) Store expenses for fiscal 2007 include expenses of $41.3 million associated with store and other facility closures and other restructuring activities.

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(b) General and administrative expenses for fiscal 2007 include expenses of $7.4 million associated with restructuring activities. General and administrative expenses for fiscal 2006 include $29.9 million in brand transition costs, primarily related to advertising expenses and inventory write-downs, which resulted from the litigation with RadioShack Corporation. (c) Relocation expenses for fiscal 2007 include a $12.9 million benefit from the reversal of lease termination charges for seven previously-vacant stores that have re-opened or will re-open as outlet stores. (d) Selling, general and administrative expenses for the international segment are included from May 12, 2004, when we acquired a controlling interest in InterTAN, Inc.

Selling, general and administrative expenses were 22.9 percent of sales in fiscal 2007, 22.5 percent of sales in fiscal 2006, and 23.7 percent of sales in fiscal 2005.

The consolidated expense-to-sales ratio increased 32 basis points from 2006 to fiscal 2007. The domestic segment contributed 51 basis points to the increase, which was partially offset by a decrease of 19 basis points contributed by the international segment. The 32 basis point increase primarily reflects net incremental expenses, related to strategic investments in information technology, multi-channel and innovation activities that totaled approximately 90 basis points of consolidated net sales. We incurred expenses of $48.7 million, or 39 basis points of consolidated net sales, associated with store and facility closures and other restructuring activities, which primarily related to leases and severance. Of this amount, a charge of $7.4 million is classified as general and administrative expenses, and the remainder is classified as store expenses. The expenses were partially offset by leverage of payroll and advertising expenses; expenses in these categories grew at a slower rate than net sales, resulting in a lower expense-to-sales ratio. Fiscal 2007 relocation expenses include a $12.9 million, or 10 basis points of consolidated net sales, benefit from the reversal of lease termination charges for seven previously-vacant locations that have re-opened or will re-open as outlet stores.

The decrease in the selling, general and administrative expense ratio from fiscal 2005 to fiscal 2006 primarily reflects lower domestic segment payroll and fringe benefit expenses, store closing costs and relocation expenses, as well as leverage on higher sales levels. Fiscal 2006 domestic segment store expenses include a $9.4 million gain on our portion of the settlement in the Visa/MasterCard antitrust litigation. Fiscal 2006 general and administrative expenses include $29.9 million in brand transition costs, primarily related to advertising expenses and inventory write-downs, which resulted from the litigation with RadioShack Corporation. Fiscal 2006 domestic segment general and administrative expenses include costs related to innovation initiatives and upgrades to our information technology systems. The fiscal 2006 expenses include costs associated with the 10 fiscal 2006 relocations and planned future relocations.

Domestic Segment


Years Ended February 28 2007 2006 2005 % of % of % of (Dollar amounts in millions) $ Sales $ Sales $ Sales Store expenses(a) .................................. $2,278.2 19.2% $2,085.4 19.0% $2,029.4 20.3% General and administrative expenses(b) 312.1 2.6 252.5 2.3 226.4 2.3 Stock-based compensation expense..... 22.5 0.2 25.9 0.2 18.5 0.2 Remodel expenses ............................... 0.7 – – – 0.3 – Relocation expenses(c) ......................... 4.5 – 7.1 0.1 40.8 0.4 Pre-opening expenses .......................... 14.8 0.1 9.0 0.1 15.8 0.2 Total..................................................... $2,632.8 22.2% $2,379.9 21.7% $2,331.2 23.3% (a) Store expenses for fiscal 2007 include expenses of $31.0 million associated with store and facility closures and other restructuring activities. (b) General and administrative expenses for fiscal 2007 include expenses of $7.4 million associated with restructuring activities. (c) Relocation expenses for fiscal 2007 include a $12.9 million benefit from the reversal of lease termination charges for seven previously-vacant stores that have re-opened or will re-open as outlet stores.

The domestic segment’s expense-to-sales ratio increased 51 basis points in fiscal 2007 from fiscal 2006. The increase in the selling, general and administrative expense ratio from fiscal 2006 to fiscal 2007 primarily reflects net incremental expenses, related to strategic investments in information technology, multi-channel and innovation activities that totaled 98 basis points of domestic segment net sales. Also in fiscal 2007, we incurred $38.4 million, or 32 basis points of domestic segment net sales, associated with store and facility closures and other restructuring activities, primarily lease-related costs and severance. Of the total amount, a charge of $7.4 million is classified as general and administrative expenses, and the remainder is classified as store expenses. The expenses were partially offset by leverage of payroll and advertising expenses; expenses in these categories grew at a slower rate than net sales, resulting in lower expense-to-sales ratio. Fiscal 2007 relocation expenses include a

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$12.9 million benefit from the reversal of lease termination charges for seven previously-vacant locations that have re-opened or will re-open as outlet stores.

The domestic segment’s expense-to-sales ratio decreased 159 basis points in fiscal 2006 from fiscal 2005. The improvement primarily reflects lower domestic segment payroll and fringe benefit expenses, store closing costs and relocation expenses, as well as leverage on higher sales levels. Fiscal 2006 domestic segment store expenses include a $9.4 million gain on our portion of the settlement in the Visa/MasterCard antitrust litigation. Fiscal 2006 domestic segment general and administrative expenses include costs related to innovation initiatives and upgrades to our information technology systems. Relocation expenses totaled $7.1 million in fiscal 2006 and include costs associated with 10 relocations and planned future relocations. Relocation and remodel expenses totaled $41.1 million in fiscal 2005 and include costs associated with 28 relocations and the remodeling of 1 Superstore.

The increase in stock-based compensation expense from fiscal 2005 to fiscal 2006 reflects the fiscal 2005 reversal of previously recognized compensation costs related to performance-based nonvested stock grants. Under the terms of these nonvested stock grants, vesting was contingent upon our achieving a targeted operating profit margin for fiscal 2006. During the fourth quarter of fiscal 2005, management determined that it was unlikely that the target would be met and, as a result, reversed the expense recorded life-to-date.



Years Ended February 28 2007 2006 2005(c) % of % of % of (Dollar amounts in millions) $ Sales $ Sales $ Sales Store expenses(a) .................................. $169.0 29.6% $150.1 27.8% $111.3 27.9% General and administrative expenses(b) 38.1 6.7 64.7 12.0 27.5 6.9 Stock-based compensation expense..... 1.7 0.3 1.0 0.2 0.7 0.2 Total..................................................... $208.8 36.6% $215.8 39.9% $139.6 35.0% (a) Store expenses for fiscal 2007 include expenses of $10.3 million associated with store closures and other restructuring activities. (b) General and administrative expenses for fiscal 2006 include $29.9 million in brand transition costs, primarily related to advertising expenses and inventory write-downs, which resulted from the litigation with RadioShack Corporation. (b) Selling, general and administrative expenses for the international segment are included from May 12, 2004, when we acquired a controlling interest in InterTAN, Inc.

The international segment’s expense-to-sales ratio was 36.6 percent in fiscal 2007, 39.9 percent in fiscal 2006 and 35.0 percent in fiscal 2005.

The decrease in the selling, general and administrative expense-to-sales ratio for fiscal 2007 is the result of the absence of brand transition costs. The decrease was partially offset by expenses of $10.3 million associated with store closures and other restructuring activities.

The increase in store expenses during fiscal 2006 compared to fiscal 2005 is the result of the inclusion of the international segment for a full 12 months as well as increased payroll and rent expenses. General and administrative expenses include $29.9 million in brand transition costs, primarily related to advertising expenses and inventory write-downs, which resulted from the litigation with RadioShack Corporation.

Impairment of Goodwill

Due to deterioration in the sales and margin trends of our international segment, we determined during the fourth quarter of fiscal 2007 that it was necessary to reevaluate the goodwill associated with this segment for impairment. As a result of this analysis, we recorded a non-cash impairment charge of $92.0 million, or 74 basis points of consolidated net sales, in the fourth quarter of fiscal 2007. The impairment charge is not deductible for tax purposes.

Income Tax Expense

The consolidated effective income tax rate applicable to results from continuing operations was 150.1 percent in fiscal 2007, 36.8 percent in fiscal 2006 and 37.5 percent in fiscal 2005. The increase in the effective tax rate in fiscal 2007 is primarily a result of the goodwill impairment charge that is not tax deductible. The impact of the non-deductible impairment charge is partially offset by tax-exempt investment income and tax adjustments resulting in a tax benefit, including an adjustment identified during the preparation of the fiscal 2006 tax return and the revision of management estimates related to tax contingencies. The decrease in the effective tax rate in fiscal

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2006 is a result of the favorable resolution of state income tax audits and a decrease in the withholding tax liability on the deemed repatriation of foreign earnings.

Net (Loss) Earnings from Continuing Operations

The net loss from continuing operations was $10.2 million, or 6 cents per share, for the fiscal year ended February 28, 2007. Net earnings from continuing operations were $147.4 million, or 82 cents per share, for the fiscal year ended February 28, 2006. Net earnings from continuing operations were $60.6 million, or 31 cents per share, for the fiscal year ended February 28, 2005.

The net loss from continuing operations for fiscal 2007 includes a $92.0 million goodwill impairment charge related to the international segment and $35.4 million in after-tax expenses related to store and facility closures as well as other restructuring activities.

The improvement in the net earnings from continuing operations in fiscal 2006 was driven by the domestic segment comparable store sales increase, lower domestic segment payroll and fringe benefit expenses, lower domestic segment store closing costs, lower domestic segment relocation costs and leverage on higher sales levels, partially offset by higher promotional financing costs. The international segment’s results decreased net earnings from continuing operations for fiscal year 2006 by $7.3 million, or 4 cents per share.

Net Earnings (Loss) from Discontinued Operations

NET EARNINGS (LOSS) FROM DISCONTINUED OPERATIONS Years Ended February 28

(Amounts in millions) 2007 2006 2005 Rogers Plus® stores........................................................ $ 5.4 $ 3.7 $ 3.8 Domestic segment operation ......................................... (4.8) (5.3) – MusicNow, LLC............................................................ – (3.7) (4.4) Bankcard business ......................................................... (0.5) – (1.2) Divx ............................................................................... – – 3.0 Net earnings (loss) from discontinued operations ......... $ 0.1 $(5.4) $ 1.1

For fiscal 2007, net earnings from discontinued operations include $5.4 million of earnings from the 92 Rogers Plus® stores, partially offset by a $4.8 million net loss related to the closure of a domestic segment operation and a $0.5 million loss from the bankcard business that relates to income tax expense from a revision of management’s estimate regarding tax uncertainties.

For fiscal 2006, the net loss from discontinued operations totaled $5.4 million and related to a subsidiary, MusicNow, LLC, that was sold in October 2005 and an operation that was held for sale at February 28, 2006, partially offset by earnings from the Rogers Plus® stores.

For fiscal 2005, net earnings from discontinued operations totaled $1.1 million and are comprised of earnings from the Rogers Plus® stores and a gain related to a reduction in the provision for commitments under Divx licensing agreements, partially offset by a loss from MusicNow and post-closing adjustments related to the sale of the bankcard operation.

Recent Accounting Pronouncements

We adopted Financial Accounting Standards Board Interpretation No. 47, “Accounting for Conditional Asset Retirement Obligations” (FIN No. 47), an interpretation of SFAS No. 143, “Asset Retirement Obligations,” on February 28, 2006. The impact of adopting FIN No. 47 was the recognition of additional net assets amounting to $1.5 million; an asset retirement obligation of $5.1 million; and a charge of $3.7 million ($2.4 million, net of tax), which was included in cumulative effect of change in accounting principle in the fiscal 2006 consolidated statement of operations.

Effective March 1, 2006, we adopted SFAS No. 123(R), which requires companies to record compensation expense based on the fair value of employee stock-based compensation awards as measured at the grant date and to recognize that expense over the period during which the employee is required to provide service in exchange for the award. Under the fair value recognition provisions of SFAS 123(R), we recognize stock-based compensation net of an estimated forfeiture rate and, therefore, only recognize compensation expense for those shares expected to vest. We adopted SFAS No. 123(R) using the modified prospective transition method. Prior to the adoption of SFAS No. 123(R), we accounted for stock-based compensation using a fair-value based method in accordance with SFAS No.

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123, “Stock-Based Compensation,” and recognized forfeitures as they occurred. As a result of adopting SFAS No. 123(R), the company recorded an after-tax benefit of $1.8 million, $2.8 million pre-tax, to adjust for awards granted prior to March 1, 2006, that were not expected to vest. The benefit was recorded as a cumulative effect of a change in accounting principle in the fiscal 2007 consolidated statement of operations.

In October 2005, the FASB issued FASB Staff Position (FSP) No. FAS 13-1, “Accounting for Rental Costs Incurred During a Construction Period.” FSP No. FAS 13-1 requires companies to expense rent payments for building or ground leases incurred during a construction period. We adopted FSP No. FAS 13-1 on a prospective basis in the first quarter of fiscal 2007. The adoption of this new standard did not have a material impact on our financial position, results of operations or cash flows.

In June 2006, the FASB issued Interpretation No. 48, “Accounting for Uncertainty in Income Taxes – an interpretation of FASB Statement No. 109” (FIN No. 48). FIN No. 48 prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in an income tax return. The Interpretation also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. The provisions of FIN No. 48 are effective for us beginning with the first quarter of fiscal 2008. The cumulative effect of the adoption of FIN No. 48 will be reported as an adjustment to retained earnings as of the date of adoption, except for items that would not be recognized in earnings, such as the effects of the positions related to business combinations. We are finalizing our assessment of uncertain tax positions and estimate a reduction to retained earnings as of March 1, 2007, of approximately $5 million to $15 million.

In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements”. SFAS No. 157 defines fair value, establishes a framework for measuring fair value and requires additional disclosures about fair value measurements. The provisions of SFAS No. 157 are effective for us beginning with the first quarter of fiscal 2009. We have not yet determined the impact of adopting this standard.

In the fourth quarter of fiscal 2007, we adopted SFAS No. 158, “Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans – an amendment of FASB Statements No. 87, 88, 106, and 132(R).” SFAS No. 158 requires an employer to recognize a plan’s funded status in its balance sheets and recognize the changes in a plan’s funded status in accumulated other comprehensive income in the year in which the changes occur. The adoption of SFAS No. 158 did not have any impact on our results of operations or cash flows. See Note 15, Employee Benefit Plans, for the impact of adopting SFAS No. 158 on our consolidated balance sheets.

In the fourth quarter of fiscal 2007, we adopted Staff Accounting Bulletin (SAB) No. 108, “Considering the Effects of Prior Year Misstatements When Quantifying Misstatements in Current Year Financial Statements.” In SAB No. 108, the SEC staff established an approach that requires quantification of financial statement misstatements using both the roll-over and iron curtain methods. This model is commonly referred to as a “dual approach” because it requires quantification of errors under both methods. The provisions of SAB No. 108 are effective for our fiscal year ended February 28, 2007. The adoption of SAB No. 108 did not have a material impact on our financial position, results of operations or cash flows.

In February 2007, the FASB issued SFAS No. 159, "The Fair Value Option for Financial Assets and Financial Liabilities." SFAS No. 159 permits entities to choose to measure many financial instruments and certain assets and liabilities at fair value. SFAS No. 159 will be effective for us beginning with the first quarter of fiscal 2009. We have not yet determined the impact of adopting this standard.

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Financial Condition

Liquidity and Capital Resources Cash Flows Summary

The following table summarizes our cash flows for each of the past three fiscal years:

Years Ended February 28 (Amounts in millions) 2007 2006 2005 Net cash provided by (used in): Operating activities .............................................. $ 316.3 $ 364.9 $ 389.3 Investing activities ............................................... (334.7) (593.9) (66.9) Financing activities .............................................. (160.8) (318.4) (239.3) Discontinued operations....................................... 5.7 (18.0) (14.5) Effect of exchange rate changes on cash .................... (1.4) 1.7 2.0 (Decrease) increase in cash and cash equivalents ...... $ (174.8) $ (563.7) $ 70.6

Operating Activities

We generated net cash of $316.3 million from operating activities in fiscal 2007, compared with $364.9 million in fiscal 2006 and $389.3 million in fiscal 2005. The decrease in cash provided by operating activities in fiscal 2007 compared with fiscal 2006 primarily resulted from an increase in vendor receivables and a decrease in accrued income taxes, partially offset by cash provided by improvements in inventory management. Cash provided by the decrease in net-owned inventory, calculated as merchandise inventory less merchandise payable, during fiscal 2007 was $122.7 million; cash used by the increase in net-owned inventory during fiscal 2006 was $19.8 million.

Net cash provided by operating activities decreased to $364.9 million in fiscal 2006 from $389.3 million in fiscal 2005. The decrease in cash provided by operating activities was primarily driven by changes in net-owned inventory. During fiscal 2006, cash used by the increase in net-owned inventory was $19.8 million, compared with cash provided by a decrease in net-owned inventory of $188.2 million during fiscal 2005. These changes were partially offset by cash provided by an increase in net earnings adjusted for non-cash items during fiscal 2006. Net earnings increased from $61.7 million in fiscal 2005 to $139.7 million in fiscal 2006.

Investing Activities

Net cash used in investing activities was $334.7 million in fiscal 2007, $593.9 million in fiscal 2006, and $66.9 million in fiscal 2005. The decrease in cash used for investing activities during fiscal 2007 compared to fiscal 2006 was due primarily to a decrease in net purchases of investment securities, partially offset by increased purchases of property and equipment as we make investments in new Superstores, store refreshes and category resets.

Net cash used in investing activities increased to $593.3 million in fiscal 2006 from $66.9 million in fiscal 2005. During fiscal 2005, proceeds from the sale of our private-label finance operation more than offset the cash used to acquire InterTAN, Inc. Additionally, net purchases of investment securities increased in fiscal 2006 compared to fiscal 2005 as we began to invest in variable rate demand notes in fiscal 2006.

Financing Activities

Net cash used in financing activities was $160.8 million in fiscal 2007, $318.4 million in fiscal 2006, and $239.3 million in fiscal 2005. The decrease in cash used during fiscal 2007 compared to fiscal 2006 was primarily due to a decrease in cash used to repurchase common stock under the stock repurchase authorization, coupled with an increase in cash provided by the issuance of common stock. In June 2006, the board authorized a $400 million increase in the stock repurchase authorization resulting in a total stock repurchase authorization of $1.2 billion, of which $280.4 million remained available at February 28, 2007. During fiscal 2007, we used cash to repurchase 10.0 million shares of common stock at a total cost of $236.9 million, excluding commission fees. During fiscal 2006, we used cash to repurchase 19.4 million shares of common stock at a total cost of $338.5 million, excluding commission fees. At February 28, 2007, we had repurchased 57.9 million shares of common stock at a total cost of $919.6 million, excluding commission fees, cumulatively since inception of the stock repurchase program.

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Also in June 2006, the board of directors authorized an increase in our quarterly dividend rate to $0.04 per share from the previous quarterly dividend of $0.0175 per share on our common stock. The dividend rate change was effective with the quarterly dividend in the third quarter of fiscal 2007, resulting in an increase in cash used to pay dividends in fiscal 2007.

The increase in cash used in financing activities during fiscal 2006 compared to fiscal 2005 was primarily due to an increase in the cash used for share repurchases. During fiscal 2005, we used cash to repurchase 19.2 million shares of common stock at a total cost of $259.8 million, excluding commission fees.

At February 28, 2007, outstanding debt totaled $57.6 million, compared with $81.2 million at February 28, 2006, and $20.8 million at February 28, 2005. The decrease from 2006 to 2007 reflects the repayment of the international segment’s short-term borrowings. The increase from 2005 to 2006 reflects short-term borrowings in our international segment related to inventory, the addition of store-related capital leases in fiscal 2006 and increased obligations related to our information systems upgrades.

We leased a corporate office building under an operating lease arrangement with a variable interest entity. In fiscal 2005, we sold the corporate office building and the related debt was repaid.

We have a $500 million revolving credit facility secured by inventory and accounts receivable. This facility is used to support letters of credit and for short-term borrowing needs. Loans primarily bear interest at a spread over LIBOR or at prime. The facility is scheduled to mature in June 2009. The maximum credit extensions, including loans and outstanding letters of credit, permitted under the credit facility on any date are determined by calculating a borrowing base that is a percentage of our eligible inventory and accounts receivable as of the date of the credit extension. If the remaining borrowing availability under the facility falls below $100 million, cash dividends and stock repurchases are limited to an aggregate of $75 million in any fiscal year. If the remaining borrowing availability under the facility falls below $50 million for five consecutive business days, all proceeds from the sale of inventory must be applied on a daily basis to payment of amounts owed under the facility. The facility has representations and warranties, covenants and events of default that are customary for this type of credit facility. The credit facility provides for a $400 million borrowing limit for the domestic segment and a $100 million borrowing limit for the international segment. At February 28, 2007, we had no short-term borrowings on this facility, and outstanding letters of credit were $60.1 million, leaving $439.9 million available for borrowing under the credit facility. At February 28, 2006, we had $22.0 million of short-term borrowings related to our international segment, and outstanding letters of credit were $52.0 million, leaving $426.0 million available for borrowing under the credit facility. We were in compliance with all covenants at February 28, 2007.

Cash, Cash Equivalents and Short-term Investments

At February 28, 2007, we had cash, cash equivalents and short-term investments of $739.5 million compared with $838.0 million at February 28, 2006, and $1.00 billion at February 28, 2005. The change in the cash position between February 28, 2006, and February 28, 2007, reflects the use of cash for property and equipment purchases as well as share repurchases, partially offset by cash provided by operations, including the decrease in net-owned inventory. For fiscal 2006, net purchases of investment securities, share repurchases and purchases of property and equipment were partially offset by cash provided by operations.

Net-owned Inventory

Merchandise inventory decreased to $1.64 billion at February 28, 2007, from $1.70 billion at February 28, 2006. Net-owned inventory, calculated as merchandise inventory less merchandise payable, decreased by $133.4 million from February 28, 2006, to February 28, 2007. Domestic segment net-owned inventory decreased by $88.1 million from February 28, 2006, to February 28, 2007, driven by improved supply chain and inventory management execution, including a reduction in slower-moving and at-risk inventories while improving customer-encountered in-stock levels.

Liquidity

Our primary sources of liquidity include available cash, the reduction in net-owned inventory, borrowing capacity under the credit facility and landlord reimbursements.

Potential uses of cash during fiscal 2008 include

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• capital expenditures, primarily for information technology systems, store relocations, new store construction and existing store updates;

• payment of dividends;

• expansion of our Web business;

• innovation initiatives;

• repurchases of common stock; and

• investments or acquisitions that would support the initiatives in our core business.

Capital Expenditures

Capital expenditures, net of total landlord reimbursements, for fiscal 2007 totaled $242 million and included

• $108 million related to domestic segment relocations, new store construction, store refreshes and category resets;

• $98 million related to information technology;

• $25 million related to distribution and other expenditures; and

• $11 million related to the international segment.

Contractual Obligations

CONTRACTUAL OBLIGATIONS AT FEBRUARY 28, 2007

Payments Due by Fiscal Year (Amounts in millions) Total 2008 2009-2010 2011-2012 Thereafter Contractual obligations(a): Operating leases(b,c) ........................ $4,617.1 $422.7 $837.6 $800.8 $2,556.0 Capital leases(b,d)............................. 37.7 3.6 5.3 3.9 24.9 Financing lease obligations(d) ......... 14.8 0.9 1.8 1.3 10.8 Other debt(d).................................... 5.2 2.7 2.5 – – Interest payments ........................... 69.8 7.9 14.4 13.1 34.4 Other contractual obligations(e)............................... 199.4 72.8 114.5 11.8 0.3 Total.................................................... $4,944.0 $510.6 $976.1 $830.9 $2,626.4 (a) Included in other long-term liabilities on our consolidated balance sheet at February 28, 2007, are: a $22.1 million obligation for deferred compensation; a $53.6 million liability for self-insurance obligations; and a $5.6 million liability for asset retirement obligations. Because the timing of their future cash flows is uncertain, these other long-term liabilities are excluded from this table. (b) See Note 10, Lease Commitments, of the Notes to Consolidated Financial Statements for further information related to lease commitments on active properties. (c) Operating lease obligations do not include payments to landlords for real estate taxes, common area maintenance and insurance. These amounts, if included in the above table, would increase the total operating lease obligations of $4,617.1 million by approximately $1.2 billion as calculated as of February 28, 2007. (d) See Note 8, Debt, of the Notes to Consolidated Financial Statements. (e) Other contractual obligations include commitments primarily related to advertising and information technology programs. The table does not include obligations arising from a seven-year, $775 million information technology services contract with IBM that was signed in early fiscal 2008.

CarMax, Inc., a former subsidiary engaged in the auto superstore business, currently operates 23 of its sales locations pursuant to leases under which we are the primary obligor. We entered into these leases on behalf of CarMax, so that they could take advantage of the favorable economic terms available to us as a large retailer. In conjunction with the separation of CarMax, we have assigned each of these leases to CarMax, but we remain contingently liable under the leases. In recognition of our ongoing contingent liability, CarMax paid a $28.4 million special dividend to us at the time of the separation in fiscal 2003. At February 28, 2007, the future minimum fixed

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lease obligations on these 23 leases totaled $370.0 million and are included in operating leases in the preceding table.

Off-Balance Sheet Arrangements

Other than our operating leases described in Note 10, Lease Commitments, of the Notes to Consolidated Financial Statements, we did not have any off-balance sheet arrangements at February 28, 2007.

Domestic Segment Superstore Revitalization Program

From the beginning of fiscal 2001 through fiscal 2007, we built as new, relocated or fully remodeled 254 Superstores, net of closures, as part of an overall effort to bring a more contemporary shopping experience to our customers. In addition to new store designs, we have increased inventory levels on the sales floor in virtually all stores to help ensure that customers find complete consumer electronics solutions, including all the accessories they need.

During fiscal 2007, the domestic segment opened 35 Superstores and fully remodeled 2 Superstores. Twelve of the opened stores were relocations and 23 were incremental stores. Net expenses related to domestic segment relocations and remodels totaled $5.2 million in fiscal 2007. Relocation expenses include expenses associated with completing 12 relocations, partially offset by a benefit of $12.9 million from the reversal of lease termination charges for seven previously-vacant stores that have re-opened or will re-open as outlet stores. In fiscal 2007, the average accelerated depreciation expense per relocated store was approximately $200,000, booked ratably from the time the decision is made to relocate the store to closure, and the average lease impairment expense was approximately $900,000, booked when we cease use of the property. Capital expenditures, net of landlord reimbursements, to build a new or relocated store averaged approximately $1.5 million in fiscal 2007.

During fiscal 2006, the domestic segment opened 28 Superstores. Ten of the opened stores were relocations and 18 were incremental stores. Expenses related to domestic segment relocations totaled $7.1 million in fiscal 2006.

During fiscal 2005, the domestic segment opened 59 Superstores and fully remodeled 1 Superstore. Twenty-eight of the opened stores were relocations and 31 were incremental stores. Expenses related to domestic segment store relocations and one remodel totaled $41.1 million in fiscal 2005.

As of February 28, 2007, there were 75 stores that had been relocated under our store revitalization program with results available for at least 12 months following their relocation. There were also 95 stores open more than 12 months on February 28, 2007, that were incremental to our overall store base. Of those 95 incremental stores, 71 had been open more than 24 months.

The 75 relocated stores open more than 12 months produced the following results for their 12-month periods after grand opening:

• an average sales change that was approximately 26 percentage points better than the sales pace of the rest of the store base during the same time periods

• a return on invested capital, including lease termination and sublease costs on vacated stores, of approximately 11 percent

• a return on invested capital, excluding lease termination and sublease costs on vacated stores, of approximately 25 percent

The 95 incremental stores open more than 12 months produced a return on invested capital of approximately 15 percent measured at the end of the first 12 months after grand opening. The 71 incremental stores open more than 24 months produced a return on invested capital of approximately 20 percent measured at the end of the second 12 months after grand opening.

We remain committed to our store revitalization strategy. As we build stores, we are committed to selecting superior real estate, and so, the mix of new versus relocated stores opened in any one year will depend upon the availability of sites that we expect would meet or exceed our performance hurdles.

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Fiscal 2008 Outlook

We initially provided an outlook for fiscal 2008 results on April 4, 2007. Based on trends for the month of April, we are updating that outlook.

For the month of April, we experienced substantially below-plan sales, primarily related to the large flat panel and projection television categories.

Due to this trend, we now expect a loss from continuing operations before income taxes of $80 million to $90 million for the first quarter of fiscal 2008. In light of uncertainties in the current operating environment, we are withdrawing our previously issued guidance for the first half of fiscal year 2008.

Assuming business trends improve and the transformation efforts are effective, we forecast fiscal 2008 earnings from continuing operations before income taxes (EBT) as a percentage of consolidated net sales at the low end of the our previously guided range of 1.4 percent to 1.8 percent.

We will continue to monitor general business trends as well as the effectiveness of our transformation efforts and expect to provide an updated fiscal 2008 forecast when we release results for the first quarter of fiscal 2008 in June.

We expect to generate the following results in fiscal 2008:

• consolidated net sales growth of 5 percent to 8 percent, including domestic segment comparable store sales growth of 3 percent to 5 percent

• domestic segment net sales of firedogSM services to approximately double from approximately $200 million in fiscal 2007

• growth in domestic segment direct channel sales of 30 percent to 40 percent, from $1.12 billion in fiscal 2007; direct channel includes Web-originated and call center-originated sales

• earnings from continuing operations before income taxes (EBT) as a percentage of consolidated net sales at the low end of our previously guided range of 1.4 percent to 1.8 percent

The outlook also includes the following expectations:

• depreciation and amortization expense of approximately $200 million

• the addition of 60 to 65 domestic segment Superstores, including 17 to 19 Superstore relocations

• expenses of $25 million related to domestic segment Superstore relocations and Superstore refresh activities

• consolidated income tax rate applicable to continuing operations of 35.2 percent

• a reduction in domestic segment net-owned inventory from February 28, 2007, to February 29, 2008, of $100 million to $150 million

We anticipate that capital expenditures, net of landlord reimbursements, for our domestic and international segments will total approximately $255 million in fiscal 2008. Of the fiscal 2008 estimate,

• $135 million relates to domestic segment store activities including new store locations, relocations, remodels, store refresh and category reset activities;

• $70 million relates to information technology;

• $40 million relates to distribution and other capital expenditures; and

• $10 million relates to the international segment.

Assumptions

The fiscal 2008 outlook is based on the following assumptions:

• improved business trends and effective transformation efforts

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• sales growth in key product areas including flat panel televisions, video game hardware, notebook computers, digital imaging and portable digital audio players as well as related accessories and services

• continued growth in direct channel sales

• improved customer-encountered inventory in-stock levels

• success of cost reduction initiatives currently under way

Our financial outlook takes into account industry expectations coupled with our expectations for each of our businesses. U.S. consumer spending on consumer electronics is forecasted by TNS Retail Forward to grow 4.1 percent in calendar year 2007, compared with calendar year 2006, to $157 billion. Based on forecasted values in Forrester Research, Inc.’s “US eCommerce: Five Year Forecast and Data Overview” (October 2006), Circuit City calculates that industry e-commerce sales of the products it sells (consumer electronics; computer hardware, software and peripherals; music and video software; and toys and video games) will grow by approximately 17 percent in calendar 2007, compared with calendar 2006. We expect to benefit from both the overall industry product sales growth and the shift to the online channel where we believe we have a competitive advantage due to our strategic focus on building multi-channel capabilities.

We anticipate continuing strong consumer demand for high definition televisions and content. North American shipments of the company’s largest product category, televisions, is forecasted by DisplaySearch to grow 12 percent in calendar 2007, compared with 2006. United States household penetration of digital televisions reached 33 percent in 2006, and household penetration of high definition televisions reached approximately 26 percent, according to the Consumer Electronics Association. The increased availability of high definition content from over-the-air broadcast, cable and satellite services generates demand for televisions that can display the full high definition picture. The pending cessation of the analog broadcast signal in February 2009 will require television viewers who depend upon over-the-air broadcasts to have a digital tuner or analog-to-digital converter box in order to continue to receive broadcast signals. In addition, consumers value space-saving flat panel technology, as opposed to the larger cathode-ray tube displays. Television unit sales increases will be partially offset by average selling price declines. In order to capitalize on these trends, we continue to refine our merchandising assortments, promotional offers, supply chain capabilities, services offerings and in-store training.

Forward-Looking Statements

The provisions of the Private Securities Litigation Reform Act of 1995 provide companies with a “safe harbor” when making forward-looking statements. This “safe harbor” encourages companies to provide prospective information about their companies without fear of litigation. We wish to take advantage of the “safe harbor” provisions of the Act. Our statements that are not historical facts, including statements about management’s expectations for fiscal 2008 and beyond, are forward-looking statements and involve various risks and uncertainties. In most cases, you can identify our forward-looking statements by words such as “expect,” “believe,” “should,” “may,” “plan,” “will” or similar words.

Forward-looking statements are estimates and projections reflecting our judgment and involve a number of risks and uncertainties that could cause actual results to differ materially from those suggested by the forward-looking statements. Although we believe that the estimates and projections reflected in the forward-looking statements are reasonable, our expectations may prove to be incorrect. The retail industry and the specialty retail industry, in particular, are dynamic by nature and have undergone significant changes in recent years. Our ability to anticipate and successfully respond to the continuing challenges of our industry is key to achieving our expectations. Important factors that could cause actual results to differ materially from estimates or projections contained in our forward-looking statements include

• changes in the amount and degree of competition, pricing and promotional pressure exerted by current competitors and potential new competition from competitors using either similar or alternative methods or channels of distribution such as the Internet, telephone shopping services and mail order;

• our response to pricing and promotional activities of our competitors;

• the successful implementation of our initiatives to accelerate sales growth, gross margin improvement and expense reductions;

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• our ability to reduce our overall cost and expense structure and to maintain cost reductions while continuing to grow sales;

• our ability to control and leverage expenses as a percentage of sales;

• changes in general economic conditions including, but not limited to, financial market performance, consumer credit availability, interest rates, inflation, energy prices, personal discretionary spending levels, trends in consumer retail spending, (both in general and in our product categories), unemployment and consumer sentiment about the economy in general;

• the level of consumer response to new products or product features in the merchandise categories we sell and changes in our merchandise sales mix;

• the pace of commoditization of digital products;

• the impact of inventory and supply chain management initiatives on inventory levels and profitability;

• our ability to generate sales and margin growth through expanded services offerings;

• the impact of new products and product features on the demand for existing products and the pricing and profit margins associated with the products we sell;

• significant changes in retail prices for products and services we sell;

• changes in availability or cost of financing for working capital and capital expenditures, including financing to support development of our business;

• the lack of availability or access to sources of inventory or the loss or disruption in supply from one of our major suppliers;

• our inability to liquidate excess inventory should excess inventory develop;

• our inability to maintain sales and profitability improvement programs for our Circuit City Superstores, including our store revitalization plan;

• our ability to continue to generate strong sales growth through our direct sales channel;

• the availability of appropriate real estate locations for relocations and new stores;

• the cost and timeliness of new store openings and relocations;

• consumer reaction to new store locations and changes in our store design and merchandise;

• our ability and the ability of Chase Card Services to successfully market and promote the third party credit card program being offered by Chase Card Services;

• the extent to which customers respond to promotional financing offers and the types of promotional terms we offer;

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

• the impact of our wage management initiative on Associate morale and our reputation with customers;

• the impact of initiatives related to upgrading merchandising, marketing and information systems on revenue and operating margin and the costs associated with these investments;

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

• effectiveness of our advertising and marketing programs for increasing consumer traffic and sales;

• the imposition of new restrictions or regulations regarding the sale of products and/or services we sell, changes in tax rules and regulations applicable to, the imposition of new environmental restrictions, regulations or laws or the discovery of environmental conditions at current or future locations, or any failure to comply with such laws or any adverse change in such laws;

• the outcome of our review of strategic alternatives for our international segment;

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• further deterioration of the expected future performance of our international segment, resulting in an additional goodwill impairment charge;

• the timely production and delivery of private-label merchandise and level of consumer demand for those products;

• reduced investment returns or other changes relative to the assumptions for our pension plans that impact our pension expense;

• changes in our anticipated cash flow;

• whether, when and in what amounts share repurchases may be made under our stock buyback program;

• adverse results in litigation matters;

• currency exchange rate fluctuations between Canadian and U.S. dollars and other currencies;

• the global regulatory and trade environment;

• the disruption of global, national or regional transportation systems;

• the occurrence of severe weather events or natural disasters that could significantly damage or destroy stores or prohibit consumers from traveling to our retail locations, especially during peak selling periods; and

• the successful execution of the initiatives to achieve revenue growth and increase gross profit margin underlying our projected 2008 results as discussed under “Fiscal 2008 Outlook” in MD&A.

We believe our forward-looking statements are reasonable. However, undue reliance should not be placed on forward-looking statements, which are based on current expectations.

Item 7A. Quantitative and Qualitative Disclosures about Market Risk.

We are exposed to market risk from potential changes in the U.S./Canadian currency exchange rates as they relate to inventory purchases and the translation of our international segment’s financial results.

Inventory Purchases

A portion of InterTAN’s purchases are from vendors requiring payment in U.S. dollars. Accordingly, there is risk that the value of the Canadian dollar could fluctuate relative to the U.S. dollar from the time the goods are ordered until payment is made. InterTAN’s management monitors the foreign exchange risk associated with its U.S. dollar open orders on a regular basis by reviewing the amount of such open orders; exchange rates, including forecasts from major financial institutions; local news; and other economic factors. At February 28, 2007, U.S. dollar open purchase orders totaled approximately $8.1 million. A 10 percent decline in the value of the Canadian dollar would result in an increase in product cost of approximately $0.8 million for those orders. The incremental cost of such a decline in currency values, if incurred, would be reflected in higher cost of sales in future periods. In these circumstances, management would take product pricing action, to the degree commercially feasible.

Translation of Financial Results

Because we translate our international segment’s financial results from Canadian dollars to U. S. dollars, fluctuations in the value of the Canadian dollar have a direct effect on reported consolidated results. We do not hedge against the possible impact of this risk. A 10 percent adverse change in the foreign currency exchange rate would not have a significant impact on our results of operations or financial position.

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Item 8. Financial Statements and Supplementary Data.

Circuit City Stores, Inc. CONSOLIDATED STATEMENTS OF OPERATIONS

Years Ended February 28 (Amounts in thousands except per share data) 2007 % 2006 % 2005 % NET SALES .............................................................. $12,429,754 100.0 $11,514,151 100.0 $10,413,524 100.0 Cost of sales, buying and warehousing ....................... 9,501,438 76.4 8,703,683 75.6 7,861,364 75.5 GROSS PROFIT ...................................................... 2,928,316 23.6 2,810,468 24.4 2,552,160 24.5 Selling, general and administrative expenses .............. 2,841,619 22.9 2,595,706 22.5 2,470,712 23.7 Impairment of goodwill............................................... 92,000 0.7 – – – – Finance income ........................................................... – – – – 5,564 0.1 OPERATING (LOSS) INCOME ........................... (5,303) – 214,762 1.9 87,012 0.8 Interest income ............................................................ 27,150 0.2 21,826 0.2 14,404 0.1 Interest expense ........................................................... 1,519 – 3,143 – 4,451 – Earnings from continuing operations before income taxes ........................................................... 20,328 0.2 233,445 2.0 96,965 0.9 Income tax expense ..................................................... 30,510 0.2 85,996 0.7 36,396 0.3

NET (LOSS) EARNINGS FROM

CONTINUING OPERATIONS ...................... (10,182) (0.1) 147,449 1.3 60,569 0.6

EARNINGS (LOSS) FROM DISCONTINUED

OPERATIONS, NET OF TAX ....................... 128 – (5,350) – 1,089 –CUMULATIVE EFFECT OF CHANGE IN

ACCOUNTING PRINCIPLES, NET OF TAX 1,773 – (2,353) – – – NET (LOSS) EARNINGS ................................... $ (8,281) (0.1) $ 139,746 1.2 $ 61,658 0.6 Weighted average common shares: Basic ...................................................................... 170,448 177,456 193,466 Diluted ................................................................... 170,448 180,653 196,227

(LOSS) EARNINGS PER SHARE: Basic: Continuing operations............................................. $ (0.06) $ 0.83 $ 0.31 Discontinued operations….. ................................... $ – $ (0.03) $ 0.01 Cumulative effect of change in accounting principles ........................................................... $ 0.01 $ (0.01) $ – Basic (loss) earnings per share ............................... $ (0.05) $ 0.79 $ 0.32 Diluted: Continuing operations............................................. $ (0.06) $ 0.82 $ 0.31 Discontinued operations….. ................................... $ – $ (0.03) $ 0.01 Cumulative effect of change in accounting principles ........................................................... $ 0.01 $ (0.01) $ – Diluted (loss) earnings per share ............................ $ (0.05) $ 0.77 $ 0.31

See accompanying notes to consolidated financial statements.

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Circuit City Stores, Inc. CONSOLIDATED BALANCE SHEETS

At February 28 (Amounts in thousands except share data) 2007 2006 ASSETS

CURRENT ASSETS: Cash and cash equivalents .................................................................................... $ 141,141 $ 315,970 Short-term investments......................................................................................... 598,341 521,992 Accounts receivable, net of allowance for doubtful accounts ............................. 382,555 220,869 Merchandise inventory ......................................................................................... 1,636,507 1,698,026 Deferred income taxes.......................................................................................... 34,868 29,598 Income tax receivable........................................................................................... 42,722 5,571 Prepaid expenses and other current assets............................................................ 47,378 41,315

TOTAL CURRENT ASSETS .................................................................... 2,883,512 2,833,341 Property and equipment, net of accumulated depreciation................................... 921,027 839,356 Deferred income taxes.......................................................................................... 31,910 97,889 Goodwill ............................................................................................................... 121,774 223,999 Other intangible assets, net of accumulated amortization .................................... 19,285 30,372 Other assets........................................................................................................... 29,775 44,087

TOTAL ASSETS........................................................................................ $4,007,283 $4,069,044

LIABILITIES AND STOCKHOLDERS’ EQUITY

CURRENT LIABILITIES: Merchandise payable ............................................................................................ $ 922,205 $ 850,359 Expenses payable.................................................................................................. 281,709 202,300 Accrued expenses and other current liabilities ..................................................... 404,444 379,768 Accrued compensation ......................................................................................... 98,509 84,743 Accrued income taxes........................................................................................... – 75,909 Short-term debt..................................................................................................... – 22,003 Current installments of long-term debt................................................................. 7,162 7,248

TOTAL CURRENT LIABILITIES........................................................... 1,714,029 1,622,330 Long-term debt, excluding current installments................................................... 50,487 51,985 Accrued straight-line rent and deferred rent credits ............................................. 277,636 256,120 Accrued lease termination costs ........................................................................... 76,326 79,091 Other liabilities ..................................................................................................... 97,561 104,885

TOTAL LIABILITIES ..................................................................................... 2,216,039 2,114,411 Commitments and contingent liabilities STOCKHOLDERS’ EQUITY: Common stock, $0.50 par value; 525,000,000 shares authorized; 170,689,406 shares issued and outstanding (174,789,390 in 2006) ..................... 85,345 87,395 Additional paid-in capital ..................................................................................... 344,144 458,211 Retained earnings ................................................................................................. 1,336,317 1,364,740 Accumulated other comprehensive income.......................................................... 25,438 44,287

TOTAL STOCKHOLDERS’ EQUITY ..................................................... 1,791,244 1,954,633

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY ................... $4,007,283 $4,069,044


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Circuit City Stores, Inc. CONSOLIDATED STATEMENTS OF CASH FLOWS Years Ended February 28 (Amounts in thousands) 2007 2006 2005(a) OPERATING ACTIVITIES: Net (loss) earnings ........................................................................................................................$ (8,281) $ 139,746 $ 61,658 Adjustments to reconcile net (loss) earnings to net cash provided by operating activities of continuing operations: Net (earnings) loss from discontinued operations ..................................................................... (128) 5,350 (1,089) Depreciation expense ................................................................................................................ 177,828 160,608 151,597 Amortization expense ............................................................................................................... 3,645 2,618 1,851 Impairment of goodwill ............................................................................................................ 92,000 – – Stock-based compensation expense ......................................................................................... 26,727 24,386 18,305 (Gain) loss on dispositions of property and equipment ............................................................. (1,439) 2,370 (206) Provision for deferred income taxes.......................................................................................... 72,717 (14,252) (116,300) Cumulative effect of change in accounting principles .............................................................. (1,773) 2,353 – Other ......................................................................................................................................... 1,689 (1,726) – Changes in operating assets and liabilities: Accounts receivable, net ........................................................................................................... (133,152) 16,552 (58,738) Retained interests in securitized receivables ............................................................................. – – 32,867 Merchandise inventory.............................................................................................................. 49,352 (231,114) 160,037 Prepaid expenses and other current assets................................................................................. (9,580) (17,341) 7,207 Other assets ............................................................................................................................... 535 (3,061) 3,816 Merchandise payable................................................................................................................. 73,317 211,362 28,199 Expenses payable ...................................................................................................................... 55,722 40,921 (17,372) Accrued expenses and other current liabilities, and accrued income taxes .............................. (81,364) 43,202 54,021 Other long-term liabilities ......................................................................................................... (1,474) (17,032) 63,494

NET CASH PROVIDED BY OPERATING ACTIVITIES OF CONTINUING OPERATIONS.......................... 316,341 364,942 389,347 INVESTING ACTIVITIES:

Purchases of property and equipment ....................................................................................... (285,725) (254,451) (261,461) Proceeds from sales of property and equipment........................................................................ 38,620 55,421 106,369 Purchases of investment securities ............................................................................................ (2,002,123) (1,409,760) (125,325) Sales and maturities of investment securities ............................................................................ 1,926,086 1,014,910 – Other investing activities........................................................................................................... (11,567) – – Proceeds from the sale of the private-label finance operation................................................... – – 475,857 Acquisitions, net of cash acquired of $30,615 .......................................................................... – – (262,320)

NET CASH USED IN INVESTING ACTIVITIES OF CONTINUING OPERATIONS ............................. (334,709) (593,880) (66,880) FINANCING ACTIVITIES:

Proceeds from short-term borrowings....................................................................................... 35,657 73,954 12,329 Principal payments on short-term borrowings .......................................................................... (56,912) (53,893) (13,458) Proceeds from long-term debt ................................................................................................... 1,216 1,032 – Principal payments on long-term debt....................................................................................... (6,724) (1,829) (28,008) Changes in overdraft balances................................................................................................... 19,347 (22,540) 36,329 Repurchases of common stock.................................................................................................. (237,203) (338,476) (259,832) Issuances of common stock....................................................................................................... 89,662 38,038 27,156 Dividends paid .......................................................................................................................... (20,126) (12,844) (13,848) Excess tax benefit from stock-based payments ......................................................................... 15,729 – – Redemption of preferred share purchase rights......................................................................... – (1,876) – Other financing activities .......................................................................................................... (1,424) – –

NET CASH USED IN FINANCING ACTIVITIES OF CONTINUING OPERATIONS.................................... (160,778) (318,434) (239,332) DISCONTINUED OPERATIONS:

Operating cash flows................................................................................................................. 3,310 (9,884) (7,193) Investing cash flows.................................................................................................................. 2,958 (8,089) (6,615) Financing cash flows................................................................................................................. (592) – (724)

NET CASH PROVIDED BY (USED IN) DISCONTINUED OPERATIONS................................................... 5,676 (17,973) (14,532) EFFECT OF EXCHANGE RATE CHANGES ON CASH............................................................................... (1,359) 1,655 2,016

(Decrease) increase in cash and cash equivalents ............................................................................. (174,829) (563,690) 70,619 Cash and cash equivalents at beginning of year ................................................................................ 315,970 879,660 809,041

CASH AND CASH EQUIVALENTS AT END OF YEAR ................................................................... $ 141,141 $ 315,970 $879,660

(a) See Note 1, Basis of Presentation, of the Notes to Consolidated Financial Statements. See accompanying notes to consolidated financial statements.

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Circuit City Stores, Inc. CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY AND COMPREHENSIVE INCOME Accumulated Additional Other Common Stock Paid-in Retained Comprehensive (Amounts in thousands except per share data) Shares Amount Capital Earnings Income Total

BALANCE AT FEBRUARY 29, 2004........................ 203,899 $ 101,950 $922,600 $1,191,904 $ – $ 2,216,454

Comprehensive income:

Net earnings ........................................................ – – – 61,658 – 61,658

Other comprehensive income, net of taxes:

Foreign currency translation adjustment

(net of deferred taxes of $13,707)............ – – – – 25,100 25,100

Comprehensive income ....................................... 86,758

Repurchases of common stock .................................. (19,163) (9,582) (250,250) – – (259,832)

Compensation for stock awards................................. – – 18,305 – – 18,305

Exercise of common stock options............................ 3,489 1,745 26,761 – – 28,506

Shares issued under stock-based incentive plans,

net of cancellations, and other ............................. (75) (38) (1,312) – – (1,350)

Tax effect from stock issued...................................... – – (1,564) – – (1,564)

Shares issued in acquisition of InterTAN, Inc. .......... – – 6,498 – – 6,498

Dividends – common stock ($0.07 per share) ........... – – – (13,848) – (13,848)

BALANCE AT FEBRUARY 28, 2005........................ 188,150 94,075 721,038 1,239,714 25,100 2,079,927

Comprehensive income:

Net earnings .......................................................... – – – 139,746 – 139,746

Other comprehensive income (loss), net of taxes:


(net of deferred taxes of $11,316).............. – – – – 19,500 19,500

Minimum pension liability adjustment

(net of deferred taxes of $182)................... – – – – (313) (313)

Comprehensive income ......................................... 158,933

Repurchases of common stock .................................... (19,396) (9,698) (328,778) – – (338,476)

Compensation for stock awards................................... – – 24,386 – – 24,386

Exercise of common stock options.............................. 3,830 1,915 36,752 – – 38,667


net of cancellations, and other ............................... 2,205 1,103 (2,160) – – (1,057)

Tax effect from stock issued........................................ – – 6,973 – – 6,973

Redemption of preferred share purchase rights ........... – – – (1,876) – (1,876)

Dividends – common stock ($0.07 per share) ............. – – – (12,844) – (12,844) BALANCE AT FEBRUARY 28, 2006 ................................ 174,789 87,395 458,211 1,364,740 44,287 1,954,633 Comprehensive loss:

Net loss.................................................................. – – – (8,281) – (8,281)

Other comprehensive (loss) income, net of taxes:


(net of deferred taxes of $3,630)................ – – – – (7,793) (7,793)

Unrealized gain on available-for-sale

securities (net of deferred taxes of $219)... – – – – 377 377

Minimum pension liability adjustment

(net of deferred taxes of $136)................... – – – – (229) (229)

Comprehensive loss............................................... (15,926)

Adjustment to initially apply SFAS No. 158 (net of

deferred taxes of $6,628)....................................... – – – – (11,204) (11,204)

Repurchases of common stock .................................... (10,032) (5,016) (232,187) – – (237,203)

Compensation for stock awards................................... – – 26,727 – – 26,727

Adjustment to initially apply SFAS No. 123(R).......... – – (2,370) – – (2,370)

Exercise of common stock options, net ....................... 5,767 2,883 86,228 – – 89,111


net of cancellations, and other ............................... 165 83 (1,027) – – (944)

Tax effect from stock issued........................................ – – 8,562 – – 8,562

Dividends – common stock ($0.115 per share)............ – – – (20,142) – (20,142) BALANCE AT FEBRUARY 28, 2007 ................................ 170,689 $ 85,345 $344,144 $1,336,317 $ 25,438 $ 1,791,244


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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. BASIS OF PRESENTATION

Description of Business: Circuit City Stores, Inc. is a leading specialty retailer of consumer electronics, home office products, entertainment software, and related services. The company has two reportable segments: its domestic segment and its international segment.

The domestic segment is engaged in the business of selling brand-name consumer electronics, personal computers, entertainment software, and related services in Circuit City stores in the United States and via the Web at www.circuitcity.com and www.firedog.com. At February 28, 2007, the company’s domestic segment operated 642 Superstores and 12 other stores in 158 U.S. media markets.

The international segment, which is comprised of the operations of InterTAN, Inc., is engaged in the business of selling private-label and brand-name consumer electronics in Canada. On May 12, 2004, the company acquired a controlling interest in InterTAN, Inc. and on May 19, 2004, completed its acquisition of 100 percent of the common stock of InterTAN for cash consideration of $259.3 million, which includes transaction costs and is net of cash acquired of $30.6 million. In addition to giving Circuit City a greater product-sourcing capability and the ability to accelerate the offering of private-label merchandise to its customers, the acquisition of InterTAN gave the company its first presence in the Canadian market. The international segment’s headquarters are located in Barrie, Ontario, Canada, and it operates through retail stores and dealer outlets in Canada primarily under the trade name The Source By Circuit CitySM. At February 28, 2007, the international segment conducted business through 806 retail stores and dealer outlets, which consisted of 509 company-owned stores, 296 dealer outlets and 1 Battery Plus® store. The international segment also operates a Web site at www.thesource.ca.

Effective January 28, 2007, the company returned the management of 92 Rogers Plus® stores to Rogers Wireless Inc. in accordance with the Amending Agreement dated March 27, 2004, between Rogers Wireless Inc. and InterTAN Canada Ltd. Results from the Rogers Plus® stores are presented as results from discontinued operations in all periods presented.

In February 2007, the board of directors authorized management to explore strategic alternatives for InterTAN, Inc., which could include the sale of the operation.

The company closed a domestic segment operation in fiscal 2007 that previously had been held for sale. The company sold a domestic segment subsidiary, MusicNow, LLC, in fiscal 2006. Results from these operations are presented as results from discontinued operations on the consolidated statements of operations.

On May 25, 2004, the company completed the sale of its private-label finance operation, comprised of its private-label and co-branded Visa credit card programs, to Chase Card Services. Results from the private-label finance operation are included in finance income on the consolidated statement of operation. The company entered into a consumer credit card program agreement under which Chase Card Services is offering private-label and co-branded credit cards to new and existing customers. The company is compensated under the program agreement primarily based on the number of new accounts opened less promotional financing costs that exceed a negotiated base amount. The net results from the program agreement are included in net sales on the consolidated statements of operations.

Reclassifications and Adjustments: The company reclassified stock-based compensation expense from a separate line on the consolidated statements of operations to selling, general and administrative expenses.

During fiscal 2006, the company identified errors in its previously filed consolidated statement of cash flows for the fiscal year ended February 28, 2005. The errors were considered immaterial; however, the company has revised the statement of cash flows for the fiscal year ended February 28, 2005, included in this filing. The errors were the result of the following: the company incorrectly reflected bank overdrafts of $36.3 million as a change in expenses payable in operating activities rather than in financing activities; the company incorrectly included accruals of $7.5 million for purchases of property and equipment in operating activities and investing activities; and the company incorrectly reflected deposits in transit of $25.6 million as a change in expenses payable in operating activities rather than as a change in cash and cash equivalents.

During fiscal 2006, the company identified errors in previously issued financial statements. Management evaluated the impact of the errors in the consolidated financial statements for previously reported periods, on the 2006 fiscal year and on earnings trends. Based upon the evaluation, management concluded the errors and the corrections of such errors were not material to the company’s financial statements taken as a whole and corrected

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the errors in the fourth quarter of fiscal 2006. As a result, the company recognized an after-tax reduction in net earnings of $3.2 million during the fourth quarter of fiscal 2006 that relates primarily to benefits recognized in the first three quarters of fiscal 2006 for the estimated non-redemption of the rewards feature on the Circuit City Rewards Credit Card. The company also recognized an after-tax benefit of $0.4 million during the fourth quarter of fiscal 2006 to correct errors in lease accounting and for other matters in the consolidated financial statements for prior fiscal years. In addition, in fiscal 2006 the company revised prior year consolidated financial statements for immaterial corrections of errors related to lease accounting and for other matters. Immaterial amounts previously reported incorrectly as rent expense have been reclassified to interest expense on the fiscal 2005 consolidated statement of operations.

To improve presentation and comparability, amounts previously reported in the consolidated financial statements have been reclassified to conform to current-year presentation.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation: The consolidated financial statements of the company conform to U.S. generally accepted accounting principles. The consolidated financial statements include the accounts of the company and its wholly owned subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation.

Use of Estimates: The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses and the disclosure of contingent assets and liabilities. Actual results may differ from those estimates.

Fiscal Year: The company’s fiscal year begins on March 1 and ends on February 28 or February 29.

Revenue Recognition: The company recognizes revenue from the sale of merchandise at the time a customer takes possession of the merchandise. Net sales exclude sales tax collected from customers. The company recognizes service revenue at the time the service is provided, the sales price is fixed or determinable, and collectibility is reasonably assured. The company sells gift cards and records related deferred revenue at the time of sale. Amounts billed to customers for shipping and handling are recorded as revenue and are recognized at the time the service is performed.

The domestic segment sells extended warranty contracts that provide repair and/or replacement coverage exceeding that offered under traditional manufacturers’ warranties. Because unrelated third parties are the primary obligors under these contracts, commission revenue for the unrelated-third-party extended warranty plans is recognized at the time of sale. For the international segment, the company is the primary obligor for its extended warranty programs. Accordingly, extended warranty revenue is deferred at point of sale and recognized as revenue over the life of the contract.

An allowance has been established for estimated sales returns based on historical return rates.

Gift Cards: The company sells gift cards to its customers in its stores and on its Web site. The gift cards do not have an expiration date. The company recognizes income from gift cards when the gift card is redeemed by the customer or when the likelihood of the gift card being redeemed by the customer is remote (gift card breakage) and it is determined that the company does not have a legal obligation to remit the value of unredeemed gift cards to the relevant jurisdictions. The gift card breakage rate is based upon historical redemption patterns. Based on the company’s historical information, the likelihood of a gift card remaining unredeemed can be determined 24 months after the gift card is issued. At that time, breakage income is recognized for those cards for which the likelihood of redemption is deemed to be remote. Gift card breakage revenue is included in net sales on the consolidated statements of operations.

Sales Incentives: The company offers sales incentives, such as discounts and rebates that entitle customers to a reduction in the price of a product or service. For sales incentives in which the company is the obligor, the reduction in revenue is recognized when the sale is recorded. The company offers rewards points for purchases using the Circuit City private-label or Visa credit card. The value of points earned through the rewards card is included in accrued expenses and other current liabilities on the consolidated balance sheets and recorded as a reduction to revenue at the time the points are earned.

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Cost of Sales, Buying and Warehousing and Selling, General and Administrative Expenses: The primary costs classified in each major expense category include: Cost of Sales, Buying and Warehousing Selling General and Administrative Expenses

• Total cost of merchandise sold including: • Payroll, fringe benefit costs and stock-based –Cost of transportation of merchandise from compensation expense for store and corporate vendors to the company’s stores; Associates;

–Vendor allowances that are not a • Occupancy costs of store and corporate reimbursement of specific, incremental and facilities; identifiable costs to promote a vendor's products; • Depreciation related to store and corporate • Cost of services performed; assets; • Physical inventory losses; • Advertising; • Markdowns; • Vendor allowances that are a reimbursement • Merchandising costs; of specific, incremental and identifiable • Customer shipping and handling expenses; and costs to promote a vendor’s products; • Operating costs of the company’s repair and • Costs related to relocating and remodeling store distribution centers. locations; • Professional service fees; and • Other administrative costs, such as credit card service fees, supplies, and bad debt.

Vendor Allowances: The company receives cash consideration from vendors, including volume incentives and reimbursements for specific costs such as price protection and advertising, through a variety of programs. Most vendor allowances are recognized as a reduction to cost of sales, buying and warehousing when the related product is sold or other conditions of the allowances are met. Cash consideration that represents a reimbursement of specific, incremental, identifiable direct costs incurred by the company to promote the vendors’ products is reported as a reduction to expense in the period in which the costs are incurred.

Store Opening Expenses: Non-capital expenditures for store openings are expensed as incurred and primarily include advertising costs, store occupancy costs, payroll and fringe benefit costs, and supply costs.

Advertising Expenses: Advertising costs, primarily consisting of print and television advertisements, are expensed the first time the advertisement runs and are included in selling, general and administrative expenses on the consolidated statements of operations. Advertising expenses, net of specific vendor advertising reimbursements, were $424.6 million in fiscal 2007, $431.8 million in fiscal 2006 and $365.8 million in fiscal 2005.

Stock-Based Compensation: The company sponsors various stock-based incentive plans. Effective March 1, 2006, the company adopted Statement of Financial Accounting Standards No. 123 (revised 2004), “Share-Based Payment” (SFAS No. 123(R)), using the modified prospective transition method. The statement requires companies to recognize the fair value of employee stock-based compensation awards over the period during which the employee is required to provide service in exchange for the award. In addition, the statement requires companies to estimate the number of equity awards granted that are expected to be forfeited, recognize compensation expense based on the number of awards that are expected to vest, and subsequently adjust estimated forfeitures to reflect actual forfeitures. Under SFAS No. 123(R), companies are required to report excess tax benefits as a financing cash inflow rather than as a reduction of taxes paid.

Prior to the adoption of SFAS No. 123(R), the company accounted for stock-based compensation using a fair value-based method in accordance with SFAS No. 123, “Stock-Based Compensation.” Under SFAS No. 123, the company recognized forfeitures when they occurred and benefits of tax deductions in excess of recognized compensation costs were reported as operating cash flows. Because the fair value recognition provisions of SFAS No. 123 and SFAS No. 123(R) were materially consistent under the company’s stock-based incentive plans, the adoption of SFAS No. 123(R) did not have a material impact on the company’s financial position, results of operations or cash flows.

The company values stock option grants using the Black-Scholes option valuation model and recognizes expense over the options’ vesting periods. For nonvested stock, the market value at the grant date is expensed over the restriction periods. The vesting of certain nonvested stock awards may accelerate if the company achieves operating profit margin targets. The expense related to the performance-accelerated awards is recognized based on the likelihood of management achieving the performance targets.

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Earnings Per Share: Basic earnings per share is computed using the weighted average number of shares of common stock outstanding. For purposes of calculating basic earnings per share, awards of nonvested stock that are subject to the satisfaction of certain conditions are excluded from the weighted average number of common shares outstanding until all necessary conditions have been satisfied. Diluted earnings per share is computed using the weighted average number of common shares and potentially dilutive common equivalent shares outstanding, including nonvested stock.

Foreign Currency Translation: The local currency of the international segment, the Canadian dollar, is its functional currency. For reporting purposes, international segment assets and liabilities are translated into U.S. dollars using the exchange rates in effect at the balance sheet date. Income and expense items are translated using monthly average exchange rates. The effects of exchange rate changes on the translation of the net assets of the international segment are included as a component of stockholders’ equity in accumulated other comprehensive income. Gains and losses from foreign currency transactions are immaterial and are included in selling, general and administrative expenses on the consolidated statements of operations.

Fair Value of Financial Instruments: The carrying values of the company’s cash equivalents, short-term investments, accounts receivable, current liabilities and long-term debt approximate fair value.

Cash and Cash Equivalents: Cash and cash equivalents consist of cash on hand, money market funds and tax-exempt commercial paper with original maturities of three months or less. All cash and cash equivalents were available for general corporate purposes at February 28, 2007, and February 28, 2006.

Outstanding checks in excess of funds on deposit at February 28, 2007 and February 28, 2006 totaled $89.9 million and $71.1 million, respectively, and are included in expenses payable on the company’s consolidated balance sheets.

Short-Term Investments: As part of its cash management program, the company maintains a portfolio of marketable investment securities. The company primarily invests in variable rate demand notes that are classified as available-for-sale securities and commercial paper that is classified as a held-to-maturity security. The variable rate demand notes are long-term instruments maturing through 2040; however, the interest rates are reset approximately every seven days, at which time the securities can be sold. Accordingly, the securities are classified as current assets on the consolidated balance sheets. The commercial paper has an investment grade and a term to earliest maturity of 3 to 12 months. The marketable investment securities are carried at cost, which approximates fair value. The cost of securities matured or sold is based on the specific identification method.

Merchandise Inventory: Inventory is comprised of finished goods held for sale and is stated at the lower of cost or market value. Cost is determined by the average cost method and includes the cost of freight from the vendor to the company’s distribution centers, or in the case of direct shipments, the cost of freight from the vendor to the company’s stores. The company estimates the realizable value of inventory based on assumptions about forecasted consumer demand, market conditions and obsolescence. If the estimated realizable value is less than cost, the inventory value is reduced to its estimated realizable value.

The company’s inventory loss reserve represents estimated physical inventory losses that have occurred since the last physical inventory date. Independent physical inventory counts are taken on a regular basis to ensure that the inventory reported in the consolidated financial statements is accurately stated. During the interim period between physical inventory counts, the company reserves for anticipated physical inventory losses on a location-by-location basis.

Property and Equipment: Property and equipment is stated at cost less accumulated depreciation. Depreciation is calculated using the straight-line method over the assets’ estimated useful lives. Property held under capital leases is stated at the lower of the present value of the future minimum lease payments at the inception of the lease or market value and is depreciated on a straight-line basis over the lease term. Leasehold improvements are depreciated over the shorter of their estimated useful lives or the period from the date the assets are placed in service to the end of the expected lease term.

The company capitalizes external direct costs of materials and services used in the development of internal-use software and payroll and payroll-related costs for Associates directly involved in the development of internal-use software. Once capitalized software is available for use, it is included in furniture, fixtures and equipment and depreciated on a straight-line basis over a period of three to seven years.

Impairment or Disposal of Long-Lived Assets: The company reviews long-lived assets for impairment when circumstances indicate the carrying amount of an asset may not be recoverable. Impairment is recognized when the sum of undiscounted estimated future cash flows expected to result from the use of the asset is less than the asset’s carrying value. The impairment loss recognized represents the difference between the asset’s carrying

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value and its estimated fair value. When the company commits to a plan to close or relocate a store, distribution center or repair center, estimates of the depreciable lives of fixtures, equipment and leasehold improvements to be abandoned are revised to reflect the use of the assets over their shortened useful lives.

Goodwill and Other Intangible Assets: The excess of the purchase price over the fair value of identifiable net assets of acquired companies is allocated to goodwill. Goodwill is not amortized but is evaluated for impairment at the reporting unit level on an annual basis, during the second quarter of each fiscal year, or more frequently if events or circumstances indicate that goodwill may be impaired. A reporting unit is an operating segment, or one level below an operating segment, for which discrete financial information is available and is regularly reviewed by management.

The company estimates the fair value of the reporting unit using the average of discounted cash flows and comparative market multiples of earnings before interest, taxes, depreciation and amortization. If the fair value of the reporting unit is less than its carrying value, then the implied fair value of the goodwill of the reporting unit must be calculated and compared to the carrying value of that goodwill. If the implied fair value of the goodwill is less than its carrying value, goodwill is deemed to be impaired and an impairment loss, equal to the excess of the carrying value over the implied fair value, must be recorded.

The company completed its annual impairment testing during the second quarter of fiscal 2007 and determined there was no impairment. During the fourth quarter of fiscal 2007, due to deterioration in sales and margin trends of the international segment, the company determined that it was necessary to reevaluate goodwill associated with this segment for impairment. As a result of this analysis, the company recorded an impairment charge of $92.0 million to write down goodwill to its estimated fair value.

The company has identifiable intangible assets that primarily were acquired through acquisition. The identifiable intangible assets are primarily contract-based and are amortized on a straight-line basis over their estimated useful lives.

Deferred Income Taxes: Deferred income taxes reflect the impact of temporary differences between the amounts of assets and liabilities recognized for financial reporting purposes and the amounts recognized for income tax purposes, measured by applying currently enacted tax rates. The company recognizes a deferred tax asset if it is more likely than not that the company will realize a benefit from that deferred tax asset.

Accrued Straight-Line Rent: Some of the company’s leases contain rent escalations, which are based on either scheduled and specified escalations of the minimum rent or a change in an index that may be completely unrelated to the use of the underlying leased property, such as a multiple of the change in the Consumer Price Index. The company recognizes rent expense for leases that include scheduled and specified escalations of the minimum rent on a straight-line basis over the base term of the lease. Any difference between the straight-line rent amount and the amount payable under the lease is included in accrued straight-line rent and deferred rent credits on the consolidated balance sheets.

Landlord Reimbursements: The company conducts a substantial portion of its business in leased properties. The company constructs stores on both owned and leased land and may receive reimbursement from a landlord for the cost of the structure. These transactions are evaluated under sale-leaseback accounting, and in cases where substantial funding is received, the transaction qualifies as a sale. Any gain or loss from the transaction is deferred and amortized as rent expense on a straight-line basis over the base term of the lease. The deferred gain is included in accrued straight-line rent and deferred rent credits, and the deferred loss is included in other assets on the consolidated balance sheets. Landlord reimbursements from transactions qualifying as sales are included in cash flows from investing activities as proceeds from sales of property and equipment.

In cases where reimbursement from a landlord results in substantial under-funding of costs incurred for the construction of the building, the company is deemed to have continuing involvement and the transaction qualifies as a financing under sale-leaseback accounting. The landlord reimbursement is considered a financing and is included in long-term debt on the consolidated balance sheets. The interest on the financing lease obligations is recognized using the effective interest method over the base term of the lease. Landlord reimbursements from transactions qualifying as financings are included in cash flows from financing activities as proceeds from long-term debt.

In instances where the company leases an existing structure, reimbursement from a landlord for tenant improvements is classified as an incentive and included in accrued straight-line rent and deferred rent credits on the consolidated balance sheets. The deferred rent credit is amortized as rent expense on a straight-line basis over the base term of the lease. Landlord reimbursements from these transactions are included in cash flows from operating activities as a change in other long-term liabilities.

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Accrued Lease Termination Costs: At a location’s cease-use date, the future lease payments and related costs, from the date of closure to the end of the remaining lease term, net of contractual or estimated sublease rental income is recorded in selling, general and administrative expenses on the consolidated statements of operations. The liability for accrued lease termination costs is discounted using a credit-adjusted risk-free rate of interest. The company evaluates these assumptions each quarter and adjusts the liability accordingly. The current portion of accrued lease termination costs is included in accrued expenses and other current liabilities on the consolidated balance sheets. The non-current portion of accrued lease termination costs is presented separately on the consolidated balance sheets.

Comprehensive Income (Loss): Comprehensive income (loss) consists of two components: net earnings (loss) and other comprehensive income (loss). Other comprehensive income (loss) is comprised primarily of foreign currency translation adjustments but also includes unrealized gains and losses on available-for-sale securities and minimum pension liability adjustments. Other comprehensive income (loss) is recorded net of deferred income taxes directly as a component of stockholders’ equity.

Risks and Uncertainties: The company is a leading specialty retailer of brand-name consumer electronics, personal computers, entertainment software, and related services. The diversity of the company’s products, customers and geographic operations reduces the risk that a severe impact will occur in the near term as a result of changes in its customer base, competition or markets. During fiscal 2007, the domestic segment’s five largest suppliers accounted for approximately 42 percent of merchandise purchased. The major suppliers were Sony, Hewlett-Packard, Samsung, Toshiba and Apple. The international segment’s five largest suppliers accounted for approximately 43 percent of its merchandise purchased and were Rogers Wireless, Motorola, Acer, Apple and Panasonic.

The international segment has 100 employees, or approximately 3 percent of the segment’s employees, who are represented by a union. These 100 employees are located in the international segment’s distribution center in Barrie, Ontario, Canada. The terms of a three-year collective bargaining agreement ending in April 2009 were ratified with these employees.

3. RECENT ACCOUNTING PRONOUNCEMENTS

The company adopted Financial Accounting Standards Board Interpretation No. 47, “Accounting for Conditional Asset Retirement Obligations” (FIN No. 47), an interpretation of SFAS No. 143, “Asset Retirement Obligations,” on February 28, 2006. The impact of adopting FIN No. 47 was the recognition of additional net assets amounting to $1.5 million; an asset retirement obligation of $5.1 million; and a charge of $3.7 million ($2.4 million, net of tax), which was included in cumulative effect of change in accounting principle in the fiscal 2006 consolidated statement of operations.

As discussed in Note 14, Stock-Based Incentive Plans, the company adopted SFAS No. 123(R) during the first quarter of fiscal 2007.

In October 2005, the FASB issued FASB Staff Position (FSP) No. FAS 13-1, “Accounting for Rental Costs Incurred During a Construction Period.” FSP No. FAS 13-1 requires companies to expense rent payments for building or ground leases incurred during a construction period. The company adopted FSP No. FAS 13-1 on a prospective basis in the first quarter of fiscal 2007. The adoption of this new standard did not have a material impact on the company’s financial position, results of operations or cash flows.

In June 2006, the FASB issued Interpretation No. 48, “Accounting for Uncertainty in Income Taxes – an interpretation of FASB Statement No. 109” (FIN No. 48). FIN No. 48 prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in an income tax return. The Interpretation also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. The provisions of FIN No. 48 are effective for the company beginning with the first quarter of fiscal 2008. The cumulative effect of the adoption of FIN No. 48 will be reported as an adjustment to retained earnings as of the date of adoption, except for items that would not be recognized in earnings, such as the effects of the positions related to business combinations. The company is finalizing its assessment of its uncertain tax positions and estimates a reduction to retained earnings as of March 1, 2007, of approximately $5 million to $15 million.

In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements.” SFAS No. 157 defines fair value, establishes a framework for measuring fair value and requires additional disclosures about fair value measurements. The provisions of SFAS No. 157 are effective for the company beginning with the first quarter of fiscal 2009. The company has not yet determined the impact of adopting this standard.

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In the fourth quarter of fiscal 2007, the company adopted SFAS No. 158, “Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans – an amendment of FASB Statements No. 87, 88, 106, and 132(R).” SFAS No. 158 requires an employer to recognize a plan’s funded status in its balance sheets and recognize the changes in a plan’s funded status in accumulated other comprehensive income in the year in which the changes occur. The adoption of SFAS No. 158 did not have any impact on the company’s results of operations or cash flows. See Note 15, Employee Benefit Plans, for the impact of adopting SFAS No. 158 on the consolidated balance sheet.

In the fourth quarter of fiscal 2007, the company adopted Staff Accounting Bulletin (SAB) No. 108, “Considering the Effects of Prior Year Misstatements When Quantifying Misstatements in Current Year Financial Statements.” In SAB No. 108, the SEC staff established an approach that requires quantification of financial statement misstatements using both the roll-over and the iron curtain methods. This model is commonly referred to as a “dual approach” because it requires quantification of errors under both methods. The provisions of SAB No. 108 are effective for the company’s fiscal year ended February 28, 2007. The adoption of SAB No. 108 did not have a material impact on the company’s financial position, results of operations or cash flows.

In February 2007, the FASB issued SFAS No. 159, "The Fair Value Option for Financial Assets and Financial Liabilities." SFAS No. 159 permits entities to choose to measure many financial instruments and certain assets and liabilities at fair value. SFAS No. 159 will be effective for the company beginning with the first quarter of fiscal 2009. The company has not yet determined the impact of adopting this standard.

4. (LOSS) EARNINGS PER SHARE

The following table presents a reconciliation of the denominators used in the (loss) earnings per share calculations.

Years Ended February 28 (Shares in millions) 2007 2006 2005 Weighted average common shares................................. 170.4 177.5 193.5 Potentially dilutive common equivalent shares: Options...................................................................... – 2.7 2.2 Nonvested stock ........................................................ – 0.5 0.5 Weighted average common shares and potentially dilutive common equivalent shares........................... 170.4 180.7 196.2

For fiscal 2007, no options or nonvested stock were included in the computation of the company’s diluted loss per share because the company reported a net loss from continuing operations. The fiscal 2006 and fiscal 2005 computations of potentially dilutive common equivalent shares excluded certain options to purchase shares of common stock because the exercise prices were greater than the average market price of the common shares and, therefore, the effect would be anti-dilutive. Shares excluded were as follows:

At February 28 (Shares in millions) 2007 2006 2005 Options.............................................................................. 11.6 5.2 6.1 Nonvested stock................................................................ 4.2 – –

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5. SHORT-TERM INVESTMENTS

The company’s marketable investment securities primarily include variable rate demand notes and commercial paper. These securities are carried at cost which approximates fair value due to their highly liquid nature.

The following table presents the estimated fair value of the company’s investment securities.

At February 28 (Amounts in millions) 2007 2006

Available-for-sale securities: Variable rate demand notes...................................... $596.6 $400.3 Other ........................................................................ 0.6 – Held-to-maturity securities: Commercial paper.................................................... – 121.1 Trading securities.......................................................... 1.1 0.6 Total .............................................................................. $598.3 $522.0

6. PROPERTY AND EQUIPMENT

Property and equipment, stated at cost, is summarized as follows:

At February 28 (Amounts in millions) 2007 2006 Land .............................................................................. $ 33.2 $ 31.0 Buildings (up to 25 years)............................................. 274.5 268.9 Construction in progress ............................................... 111.1 142.7 Furniture, fixtures and equipment (1 to 8 years)........... 1,075.5 892.7 Leasehold improvements (up to 21 years) .................... 689.3 648.7 Capital leases (3 to 27 years) ........................................ 35.3 32.7 Other ............................................................................. 2.4 2.1 2,221.3 2,018.8 Less accumulated depreciation ..................................... 1,300.3 1,179.4 Property and equipment, net ......................................... $ 921.0 $ 839.4

Capitalized interest totaled $8.0 million for fiscal 2007, $5.0 million for fiscal 2006 and $2.9 million for fiscal 2005.

The net book values of assets under capital leases are summarized as follows:

At February 28 (Amounts in millions) 2007 2006 Buildings................................................................................. $28.8 $26.0 Furniture, fixtures and equipment........................................... 6.5 6.7 35.3 32.7 Less accumulated depreciation ............................................... 8.4 4.5 Assets under capital leases, net ............................................... $26.9 $28.2

Depreciation expense for assets under capital leases was $3.9 million during fiscal 2007, $1.6 million during fiscal 2006, and $0.3 million during fiscal 2005.

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7. GOODWILL AND OTHER INTANGIBLE ASSETS

The changes in the carrying amount of goodwill by reportable segment were as follows: Domestic International

(Amounts in millions) Segment Segment Total Balance at February 28, 2005 ....................................... $ 3.1 $212.8 $215.9 Goodwill resulting from acquisitions............................ 9.4 – 9.4 Purchase price adjustments ........................................... – (7.1) (7.1) Impairment.................................................................... (9.0) – (9.0) Dispositions................................................................... (0.3) – (0.3) Foreign currency translation ......................................... – 15.1 15.1 Balance at February 28, 2006 ....................................... 3.2 220.8 224.0 Purchase price adjustments for tax benefits.................. – (0.3) (0.3) Impairment.................................................................... (0.1) (92.0) (92.1) Dispositions................................................................... (3.0) – (3.0) Foreign currency translation ......................................... – (6.8) (6.8) Balance at February 28, 2007 ....................................... $ 0.1 $121.7 $121.8

The company completed its annual impairment testing during the second quarter of fiscal 2007 and determined there was no impairment. During the fourth quarter of fiscal 2007, due to deterioration in sales and margin trends of the international segment, the company determined that it was necessary to reevaluate goodwill associated with this segment for impairment. As a result of this analysis, the company recorded an impairment charge of $92.0 million to write down goodwill to its estimated fair value.

During fiscal 2006, the company sold one domestic segment subsidiary and held another for sale. As a result of these decisions, the company recorded impairment charges of $9.0 million in results from discontinued operations for the goodwill associated with these operations.

The gross amounts, accumulated amortization and weighted average amortization periods of other intangible assets were as follows:

At February 28, 2007 Gross Weighted Average Carrying Accumulated Amortization

(Amounts in millions) Value Amortization Period (in years) Amortizable intangible assets: Dealer-relationship contracts .................................... $15.4 $ 2.1 20.0 Vendor contract......................................................... 11.9 7.6 4.1 Employment and non-compete agreements .............. 5.9 4.5 3.4 Other ......................................................................... 0.3 – 10.0 Total ............................................................................... $33.5 $ 14.2 11.3

At February 28, 2006 Gross Weighted Average Carrying Accumulated Amortization

(Amounts in millions) Value Amortization Period (in years) Amortizable intangible assets: Dealer-relationship contracts ....................................... $15.9 $1.4 20.0 Vendor contract............................................................ 12.2 2.1 10.0 Employment and non-compete agreements ................. 6.1 2.4 4.5 Other ............................................................................ 1.7 0.2 5.0 Non-amortizing intangible asset: Intangible asset related to minimum pension liability ..................................... 0.6 – – Total .................................................................................. $36.5 $ 6.1 13.3

Estimated amortization expense for the next five fiscal years is $3.8 million in 2008, $2.3 million in 2009, $2.1 million in 2010, $0.8 million in 2011, and $0.8 million in 2012. These amortization expense estimates are subject to fluctuations in foreign currency exchange rates.

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8. DEBT

The company has a $500 million revolving credit facility secured by inventory and accounts receivable. This facility is used to support letters of credit and for short-term borrowing needs. Loans primarily bear interest at a spread over LIBOR or at prime. The facility is scheduled to mature in June 2009. The maximum credit extensions, including loans and outstanding letters of credit, permitted under the credit facility on any date are determined by calculating a borrowing base that is a percentage of the company’s eligible inventory and accounts receivable as of the date of the credit extension. If the remaining borrowing availability under the facility falls below $100 million, cash dividends and stock repurchases are limited to an aggregate of $75 million in any fiscal year. If the remaining borrowing availability under the facility falls below $50 million for five consecutive business days, all proceeds from the sale of inventory must be applied on a daily basis to payment of amounts owed under the facility. The facility has representations and warranties, covenants and events of default that are customary for this type of credit facility. The credit facility provides for a $400 million borrowing limit for the domestic segment and a $100 million borrowing limit for the international segment. At February 28, 2007, the company had no short-term borrowings, and outstanding letters of credit were $60.1 million, leaving $439.9 million available for borrowing. At February 28, 2006, the international segment had $22.0 million of short-term borrowings at an interest rate of 5.25 percent. At February 28, 2006, outstanding letters of credit were $52.0 million, leaving $426.0 million available for borrowing. The company was in compliance with all covenants at February 28, 2007.

Long-term debt is summarized as follows: At February 28 (Amounts in millions) 2007 2006 Obligations under capital leases, payable in varying installments through January 2023............................... $37.7 $39.0 Financing lease obligations, payable in varying installments through January 2022............................... 14.8 12.1 Other ................................................................................. 5.2 8.1 Total long-term debt ......................................................... 57.7 59.2 Less current installments................................................... 7.2 7.2 Long-term debt, excluding current installments ............... $50.5 $52.0

Other debt of $5.2 million represents a financing obligation for services purchased at an interest rate of 5.95 percent. The financing obligation had an original term of 36 months, with monthly payments of principal and interest, and is scheduled to mature in December 2008. The financing obligation contains customary representations, warranties and covenants as well as events of default.

The maturities of long-term debt for the next five years are as follows:

Financing (Amounts in millions) Capital Lease Fiscal Year Leases Obligations Other 2008 ........................................................... $ 3.6 $0.9 $ 2.7 2009 ........................................................... $ 3.4 $1.0 $ 2.5 2010 ........................................................... $ 1.9 $0.8 $ – 2011 ........................................................... $ 1.8 $0.7 $ – 2012 ........................................................... $ 2.1 $0.6 $ –

9. INCOME TAXES

The earnings (loss) from continuing operations before income taxes were as follows:

Years Ended February 28 (Amounts in millions) 2007 2006 2005 U. S. earnings.......................................................................... $ 36.0 $237.7 $ 64.7 Foreign (loss) earnings............................................................ (15.7) (4.3) 32.3 Earnings from continuing operations before income taxes .... $ 20.3 $233.4 $ 97.0

Included in U.S. earnings is the goodwill impairment charge of $92.0 million recorded by InterTAN, Inc. InterTAN, Inc. falls within the U.S. jurisdiction for tax purposes. For segment reporting under SFAS No. 131, the operations of InterTAN, Inc. are included in the international segment.

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Total income tax expense (benefit) on earnings (loss) was allocated as follows:

Years Ended February 28 (Amounts in millions) 2007 2006 2005 Continuing operations............................................................. $30.5 $86.0 $36.4 Discontinued operations.......................................................... 0.4 (3.1) 0.4 Change in accounting principles ............................................. 1.0 (1.3) – Total income tax expense........................................................ $31.9 $81.6 $36.8

The components of income tax expense on earnings from continuing operations were as follows:

Years Ended February 28 (Amounts in millions) 2007 2006 2005 Current: Federal................................................................................ $(36.5) $ 94.0 $132.6 Foreign ............................................................................... (4.9) (2.1) 12.2 State.................................................................................... (0.8) 8.4 7.9 (42.2) 100.3 152.7 Deferred: Federal................................................................................ 71.8 (13.9) (112.2) Foreign ............................................................................... (0.7) (0.3) (0.1) State.................................................................................... 1.6 (0.1) (4.0) 72.7 (14.3) (116.3) Income tax expense................................................................. $ 30.5 $ 86.0 $ 36.4

The company files a consolidated federal income tax return for its U.S. operations. The company has not provided for U.S. deferred income taxes or foreign withholding taxes on pre-acquisition earnings of its foreign subsidiaries because the company deems these earnings to be permanently reinvested. If these pre-acquisition earnings were not considered permanently reinvested, an additional deferred income tax liability of $6.9 million would have been provided. The company intends to repatriate post-acquisition earnings of its foreign subsidiaries.

The effective income tax rate applicable to results from continuing operations differed from the federal statutory income tax rate as follows:

Years Ended February 28 2007 2006 2005 Federal statutory income tax rate ............................................ 35.0% 35.0% 35.0% State and local income taxes, net of federal benefit................ 2.6 2.1 2.7 Non-deductible meals and entertainment................................ 2.2 0.2 0.2 Return-to-provision adjustment .............................................. (10.4) – – Taxes on foreign income that differ from the federal statutory rate....................................................................... 3.9 (0.1) 1.6 Change in effective rate of deferred tax asset ......................... (3.6) (0.4) (0.7) Federal and state tax credits .................................................... (3.5) (0.3) (0.7) Non-deductible goodwill impairment ..................................... 164.9 – – Tax-exempt interest income.................................................... (34.0) (1.0) (0.6) Non-deductible compensation ................................................ 4.9 0.2 – Change in reserves for tax contingencies................................ (15.7) (0.4) 1.1 Change in valuation allowance ............................................... 4.6 – – Other ....................................................................................... (0.8) 1.5 (1.1)

Effective income tax rate ........................................................ 150.1% 36.8% 37.5%

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The tax effects of temporary differences that give rise to a significant portion of the deferred tax assets and liabilities from operations were as follows:

At February 28 (Amounts in millions) 2007 2006 Deferred tax assets: Accrued liabilities ..................................................... $ 78.9 $ 77.2 Stock-based compensation........................................ 31.8 39.7 Accrued straight-line rent and deferred rent credits.. 104.3 99.8 Depreciation and amortization .................................. 0.3 – Deferred revenue....................................................... 14.2 14.1 Tax credit and net operating loss carryforwards ....... 1.5 3.7 Foreign tax credits..................................................... 1.5 2.2 Pension plans ............................................................ 6.8 0.2 Other ......................................................................... 4.6 2.3 Gross deferred tax assets........................................... 243.9 239.2 Valuation allowance.................................................. (2.4) (2.2) Total deferred tax assets ..................................... 241.5 237.0 Deferred tax liabilities: Depreciation and amortization .................................. 133.6 63.3 Merchandise inventory.............................................. 0.5 5.2 Prepaid pension and other prepaid expenses............. 16.3 16.0 Foreign currency translation adjustment................... 21.4 25.0 Other ......................................................................... 2.9 – Total deferred tax liabilities................................ 174.7 109.5 Net deferred tax asset..................................................... $ 66.8 $127.5

Deferred tax assets and liabilities were included in the consolidated balance sheets as follows: At February 28 (Amounts in millions) 2007 2006 Current deferred tax assets in excess of liabilities ............... $ 34.9 $ 29.6 Non-current deferred tax assets in excess of liabilities........ 31.9 97.9 Net deferred tax asset........................................................... $66.8 $ 127.5

Deferred income taxes include a deferred tax asset associated with foreign tax credits created by the international segment of $1.5 million as of February 28, 2007, and $2.2 million as of February 28, 2006. Due to the uncertainty regarding the realization of this tax benefit, management has provided a full valuation allowance against the deferred tax asset. The changes in the deferred tax asset and the corresponding valuation allowance during fiscal 2007 were primarily a result of the loss from Canadian operations and foreign currency fluctuations.

Deferred income taxes include a deferred tax asset associated with a capital loss carryforward of $0.9 million as of February 28, 2007. Due to the uncertainty of future net capital gain income, management has provided a full valuation allowance against the deferred tax asset.

Based on the company’s historical and expected future taxable earnings, management believes it is more likely than not the company will realize the benefit of the existing deferred tax assets, net of the valuation allowance, at February 28, 2007.

During fiscal 2007, the company recognized a deferred tax asset of $1.5 million related to state net operating losses. As of February 28, 2007, the company had approximately $31.3 million of state net operating loss carryforwards. The net operating loss carryforwards expire from fiscal 2009 to fiscal 2027.

The company’s income tax returns, like those of most companies, are periodically audited by domestic and foreign tax authorities. These audits include questions regarding the company’s tax filing positions, including the timing and amount of deductions and the allocation of income among various tax jurisdictions. At any one time, multiple tax years are subject to audit by the various tax authorities. In evaluating the exposures related to the company’s various tax filing positions, the company records reserves for probable exposures. A number of years may elapse before a particular matter, for which there is an established reserve, is audited and fully resolved. The company adjusts its income tax contingency accruals and income tax expense in the period in which actual results

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of a settlement with tax authorities differ from the established reserve, the statute of limitations expires for the relevant taxing authority to examine the tax position or when more information becomes available. Income tax contingency accruals were $20.7 million at February 28, 2007, and $19.4 million at February 28, 2006. At February 28, 2007, the accrual for income tax contingencies is reflected as an offset to the income tax receivable on the consolidated balance sheet.

10. LEASE COMMITMENTS

The company conducts a substantial portion of its business in leased premises. The initial terms of these leases generally range up to 20 years with varying renewal options. In addition to base rent, these lease agreements provide that the company pay real estate taxes, common area maintenance, insurance, operating expenses, and in some instances, rent expense based on sales volumes in excess of defined amounts.

For leases that include scheduled and specified escalations of the minimum rent, the company recognizes the related rent expense on a straight-line basis over the base term of the lease. Any difference between the straight-line rent amount and the amount payable under the lease is included in accrued straight-line rent and deferred rent credits on the consolidated balance sheets. Accrued straight-line rent was $133.7 million at February 28, 2007, and $123.7 million at February 28, 2006.

Rent expense for operating leases on active stores, offices and equipment that is included in selling, general and administrative expenses is summarized as follows:

Years Ended February 28 (Amounts in millions) 2007 2006 2005 Minimum rentals..................................................................... $346.5 $321.6 $317.8 Rental expense based on sales volume ................................... 0.5 1.2 0.5 Total rent expense ................................................................... $347.0 $322.8 $318.3

In addition, the company incurs rental costs related to its repair and distribution operations that are included in cost of sales, buying and warehousing. These costs were $22.5 million in fiscal 2007, $20.8 million in fiscal 2006 and $21.9 million in fiscal 2005.

The company constructs stores on both owned and leased land and may receive reimbursement from a landlord for the cost of the structure. These transactions are evaluated under sale-leaseback accounting, and in cases where substantial funding is received, the transaction qualifies as a sale. Any gain or loss from the transaction is deferred and amortized as rent expense on a straight-line basis over the base term of the lease. The deferred gain is included in accrued straight-line rent and deferred rent credits, and the deferred loss is included in other assets on the consolidated balance sheets. The deferred loss included in other assets was $10.2 million at February 28, 2007, and $12.0 million at February 28, 2006. The deferred gain included in accrued straight-line rent and deferred rent credits was $94.5 million at February 28, 2007, and $90.0 million at February 28, 2006.

In instances where the company leases an existing structure, reimbursement from a landlord for tenant improvements is classified as an incentive and included in accrued straight-line rent and deferred rent credits on the consolidated balance sheets. The deferred rent credit is amortized as rent expense on a straight-line basis over the base term of the lease. The incentives included in accrued straight-line rent and deferred rent credits were $49.4 million at February 28, 2007, and $42.4 million at February 28, 2006.

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Future minimum lease commitments, excluding taxes, insurance and common area maintenance; and sublease income as of February 28, 2007, are as follows:

Capital Operating Operating (Amounts in millions) Lease Lease Sublease Fiscal Year Commitments Commitments Income 2008 ................................................................................. $ 8.5 $ 384.3 $ 34.3 2009 ................................................................................. 8.1 384.4 33.4 2010 ................................................................................. 6.4 382.1 32.9 2011 ................................................................................. 6.1 370.3 32.0 2012 ................................................................................. 6.1 365.2 31.9 After 2012 ........................................................................ 46.5 2,381.0 232.4 Total minimum lease payments ....................................... 81.7 $4,267.4 $ 396.8 Less amounts representing interest .................................. 44.0 Present value of net minimum lease payments ................ 37.7 Less current installments of obligations under capital leases ..................................................... 3.6 Obligations under capital leases excluding current installments..................................................... $34.1

CarMax, Inc., a former subsidiary, currently operates 23 of its sales locations pursuant to leases under which the company is the primary obligor. In conjunction with the separation of CarMax, the company assigned each of these operating leases to CarMax. CarMax paid a special dividend of $28.4 million to Circuit City Stores, Inc. in fiscal 2003 in recognition of the company’s continuing contingent liability on the leases related to these CarMax locations. At February 28, 2007, the future minimum fixed lease obligations on these 23 leases totaled $370.0 million. Amounts presented within the above table reflect the company’s operating lease commitments on these leases and the corresponding sublease income associated with these CarMax locations.

11. EXIT AND OTHER ACTIVITIES

At a location’s cease-use date, estimated lease termination costs to close a store, distribution center or repair center are recorded in selling, general and administrative expenses on the consolidated statements of operations. The calculation of accrued lease termination costs includes future minimum lease payments, taxes, insurance and maintenance costs from the date of closure to the end of the remaining lease term. The calculation also includes estimated sublease income, net of tenant improvement allowances and broker fees. The liability for lease termination costs is discounted using a credit-adjusted risk-free rate of interest. The company evaluates these assumptions each quarter and adjusts the liability accordingly.

The accrual for lease termination costs for the domestic segment includes the following activity:

Years Ended February 28 (Amounts in millions) 2007 2006 2005 Accrued lease termination costs at beginning of year................ $110.0 $128.2 $ 91.8 Provisions for closed locations .................................................. 26.7 7.9 70.5 Changes in assumptions about future sublease income and terminations.................................................................... 16.2 18.3 4.9 Reversals of accruals for locations returned to operation .......... (12.9) (5.4) – Interest accretion........................................................................ 7.4 9.5 11.3 Cash payments, net of cash received on subleased locations ................................................................................ (41.8) (48.5) (50.3)

Accrued lease termination costs at end of year.......................... 105.6 110.0 128.2 Less current portion of accrued lease termination costs ............ 29.3 30.9 37.5 Non-current portion of accrued lease termination costs ............ $ 76.3 $ 79.1 $ 90.7

The current portion of accrued lease termination costs is included in accrued expenses and other current liabilities, and the non-current portion is presented separately on the consolidated balance sheets.

During the fourth quarter of fiscal 2007, the company recorded an $11.9 million charge associated with asset impairments, costs to terminate leases for the closure of international segment retail stores and inventory

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write-offs. Of this amount, $8.6 million was included in selling, general and administrative expenses and $3.3 million was included in cost of sales, buying and warehousing

During the fourth quarter of fiscal 2007, the company recorded a $20.4 million charge in selling, general and administrative expenses related to severance costs for involuntary terminations. The severance costs primarily were the result of separation of employees affected by a wage management initiative, the realignment of the company’s retail operating structures, the company’s agreement with IBM to outsource its information technology infrastructure operations and the store closures discussed above. No cash payments related to those severance costs were made in fiscal 2007.

12. CONTINGENT LIABILITIES

In the normal course of business, the company is involved in various legal proceedings. Based upon the company’s evaluation of the information presently available, management believes that the ultimate resolution of any such proceedings will not have a material adverse effect on the company’s financial condition, liquidity or results of operations.

13. CAPITAL STOCK

(A) Shareholder Rights Plan: In conjunction with the company’s shareholder rights plan as amended and restated, preferred share purchase rights were distributed as a dividend at the rate of one right for each share of common stock. The rights were exercisable only upon the attainment of, or the commencement of a tender offer to attain, a specified ownership interest in the company by a person or group. In April 2005, the company’s board of directors ordered the redemption of all outstanding preferred share purchase rights under the shareholder rights plan. On May 15, 2005, the company paid a redemption price equal to one cent per share of the company’s common stock to shareholders of record at the close of business on May 1, 2005. The preferred share purchase rights terminated on May 1, 2005.

(B) Preferred Stock: The company has 2.0 million shares of undesignated preferred stock authorized, of which no shares are outstanding.

(C) Common Stock Repurchased: The company’s board of directors has authorized the repurchase of up to $1.2 billion of common stock, of which $280.4 million remained available at March 31, 2007. Through February 28, 2007, the company had repurchased 57.9 million shares of common stock at a cost of $919.6 million, excluding commission fees, cumulatively since inception of the stock repurchase program.

Common stock repurchase activity is shown in the following table.

Years Ended February 28 (Amounts in millions) 2007 2006 2005 Total number of shares repurchased ....................................... 10.0 19.4 19.2 Cost, excluding commission fees............................................ $236.9 $338.5 $259.8

14. STOCK-BASED INCENTIVE PLANS

Effective March 1, 2006, the company adopted SFAS No. 123(R), “Share-Based Payment,” using the modified prospective transition method. Under this method, prior periods are not restated. Prior to the adoption of SFAS No. 123(R), the company accounted for stock-based compensation using a fair value-based method in accordance with SFAS No. 123. Because the fair value recognition provisions of SFAS No. 123 and SFAS No. 123(R) were materially consistent under the company’s stock-based incentive plans, the adoption of SFAS No. 123(R) did not have a material impact on the company’s financial position, results of operations or cash flows.

Under SFAS No. 123(R), companies are required to report excess tax benefits as a financing cash inflow rather than as a reduction of taxes paid. Under SFAS No. 123, benefits of tax deductions in excess of recognized compensation expense were reported as operating cash flows.

SFAS No. 123(R) requires companies to estimate the number of equity awards granted that are expected to be forfeited, recognize compensation expense based on the number of awards that are expected to vest, and subsequently adjust estimated forfeitures to reflect actual forfeitures. Under SFAS No. 123, the company recognized forfeitures when they occurred. During the first quarter of fiscal 2007, the company recorded an after-tax benefit of $1.8 million, $2.8 million pre-tax, as a cumulative effect of a change in accounting principle to adjust for awards granted prior to March 1, 2006, that were not expected to vest.

Under the company’s stock-based incentive plans, nonqualified stock options, nonvested stock, nonvested stock units and other equity-based awards may be granted to management, key employees and non-employee directors. The company previously referred to nonvested stock as restricted stock and nonvested stock units as

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restricted stock units. At February 28, 2007, 4.1 million shares of common stock were available for future grants of options, nonvested stock or nonvested stock units. The number of shares available for grant at February 28, 2006, was 5.0 million shares of common stock. Upon the exercise of stock options, the grant of nonvested stock, or the vesting of or lapse of deferral restrictions on nonvested stock units, common shares are issued from authorized and unissued shares.

Stock-based compensation expense is recorded in cost of sales, buying and warehousing or selling, general and administrative expenses depending on the classification of the related employee’s payroll cost. The company has elected to recognize compensation expense for stock-based awards on a straight-line basis over the requisite service period for the entire award. Compensation expense for stock-based incentive plans included in earnings from continuing operations is summarized in the table below.

Years Ended February 28 (Amounts in millions) 2007 2006 2005 Compensation expense recognized: Stock options................................................................ $10.5 $13.1 $ 18.7 Nonvested stock and nonvested stock units ................. 16.1 11.2 (0.4) Phantom stock.............................................................. 1.1 1.7 – Employee stock purchase plan..................................... 0.8 0.9 0.8 Other ............................................................................ 0.2 – –

Total compensation expense recognized ................ $28.7 $26.9 $ 19.1 Tax benefit recognized...................................................... $10.0 $ 9.6 $ 6.8

Of the $28.7 million of stock-based compensation expense recorded in fiscal 2007, $4.5 million was recorded in cost of sales, buying and warehousing and $24.2 million was recorded in selling, general and administrative expenses.

(A) Stock Options: Under the terms of the company’s stock-based incentive plans, the exercise price for nonqualified options must be equal to, or greater than, the market value on the grant date. Options granted generally vest over one year to four years and expire no more than ten years after the date of grant. The company values stock options using the Black-Scholes option-pricing model and recognizes this value as an expense over the vesting period. Option valuation models require the company to make subjective assumptions. Changes in the subjective assumptions can materially affect the fair value estimate. The expected dividend yield is based on expected annual dividends and the market value of the company’s stock. The expected stock volatility assumption is based on historical volatility of the company’s stock. The risk-free interest rate is based on the U.S. Treasury Strip rate posted at the grant date for the expected term of the option. The expected term represents the period of time that options granted are expected to be outstanding and is primarily based on the historical exercise experience and post-vesting employment termination behavior of the company’s employees. The company evaluates historical exercise behavior for two separate groups based on the employee’s position in the company.

During fiscal 2007, a stock option grant with a vesting period of five years and a contractual term of ten years was made to Philip J. Schoonover, chairman, president and chief executive officer. Due to the lack of historical exercise behavior for an option with similar vesting provisions, the company used a simplified method to estimate the expected term of the grant. An average of the award’s weighted average vesting period and its contractual term was calculated and resulted in an expected term of seven years.

The fair value of each option granted is estimated on the grant date using the Black-Scholes option valuation model with the following weighted average assumptions:

Years Ended February 28 2007 2006 2005

Expected dividend yield.................................................... 0.3% 0.4% 0.6% Expected stock volatility................................................... 60% 61% 64% Risk-free interest rate........................................................ 5% 4% 4% Expected term (in years) ................................................... 7 5 4

Using these assumptions in the Black-Scholes model, the weighted average grant date fair value of options granted was $14.81 per share in fiscal 2007, $8.77 per share in fiscal 2006 and $6.63 per share in fiscal 2005.

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The company’s stock option activity is summarized below.

Fiscal 2007 Fiscal 2006 Fiscal 2005 Weighted Average Weighted Average Weighted Average

(Shares in thousands) Shares Exercise Price Shares Exercise Price Shares Exercise Price

Outstanding at beginning of year .... 14,109 $16.41 16,602 $14.96 17,829 $14.31 Granted............................................ 1,278 $24.66 2,543 $16.80 3,109 $12.60 InterTAN acquisition grants............ – $ – – $ – 1,128 $ 6.01 Exercised......................................... (5,832) $15.58 (3,834) $10.10 (3,489) $ 8.17 Forfeited .......................................... (743) $16.41 (644) $12.50 (1,211) $ 9.12 Expired ............................................ (63) $17.32 (558) $22.92 (764) $ 17.19

Outstanding at end of year .............. 8,749 $18.16 14,109 $16.41 16,602 $ 14.96

Options exercisable at end of year .. 6,051 $17.27 9,965 $17.25 10,627 $ 17.71

The total fair value of stock options vested was $12.9 million in fiscal 2007, $19.2 million in fiscal 2006 and $22.4 million in fiscal 2005. The total intrinsic value of options exercised was $65.3 million in fiscal 2007, $33.1 million in fiscal 2006 and $19.0 million in fiscal 2005. As of February 28, 2007, the total remaining unrecognized compensation cost related to unvested stock options was $23.4 million and is expected to be recognized over a weighted average period of 3.1 years. The stock options outstanding at February 28, 2007, had an aggregate intrinsic value of $29.8 million and a weighted average remaining contractual term of 5.0 years. The options exercisable at February 28, 2007 had an aggregate intrinsic value of $25.8 million and a weighted average remaining contractual term of 3.3 years.

During fiscal 2007, Brian E. Levy, president and chief executive officer of InterTAN Canada Ltd., announced his intent to resign and retire. The company accelerated the vesting of 87,500 options originally granted to Mr. Levy in fiscal 2005. The modification to the terms of these awards resulted in incremental compensation expense of $0.7 million.

The following table summarizes information regarding stock options outstanding at February 28, 2007.

Options Outstanding Options Exercisable

Weighted Average (Shares in thousands) Number Remaining Weighted Average Number Weighted Average Range of Exercise Prices Outstanding Contractual Term Exercise Price Exercisable Exercise Price

$ 5.12 to 7.59 .................... 615 5.1 $ 6.42 615 $ 6.42 8.30 to 11.95 .................... 959 2.6 $ 8.67 930 $ 8.59 12.17 to 12.84 .................... 750 7.3 $12.31 648 $ 12.26 14.05 to 14.52 .................... 489 3.4 $14.49 476 $14.49 14.86 to 15.63 .................... 376 7.6 $15.58 251 $15.58 15.65 to 17.93 .................... 1,617 8.3 $16.76 457 $16.75 18.24 to 23.48 .................... 1,765 1.5 $23.38 1,738 $23.42 23.85 to 26.99 .................... 1,055 9.0 $24.00 – $ – 27.21 to 29.23 .................... 1,123 1.8 $27.34 936 $27.21 Total .................................... 8,749 5.0 $18.16 6,051 $17.27

(B) Nonvested Stock and Nonvested Stock Units: Under the company’s stock-based incentive plans, shares of nonvested stock are granted in the name of an employee or a non-employee director, who has all the rights of a shareholder, including the right to receive dividends, subject to certain restrictions and possible forfeiture. The fair value of nonvested stock is the market value on the grant date and is expensed over the vesting period. Restrictions on nonvested stock generally expire two years to four years from the grant date, when the stock typically becomes fully vested. Beginning June 2005, certain awards made to employees who are named executive officers in the proxy statement for the fiscal year end prior to the completion of the service condition also are subject to a market condition. The market condition could extend the vesting period up to an additional three years and could result in the awards being forfeited if the market condition is not satisfied.

A portion of the outstanding nonvested stock awards is performance-accelerated shares that are eligible for accelerated vesting if the company achieves earnings from continuing operations before income taxes as a percentage of net sales targets for fiscal 2008 and fiscal 2009. If vesting is not accelerated, the shares vest on July 1, 2009, except for awards that are subject to the market condition.

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During fiscal 2006 and fiscal 2007, the company issued nonvested stock awards with a vesting date of July 1, 2009, as part of a long-term incentive program. In February 2007, the company’s board of directors approved the acceleration of vesting of 1.0 million outstanding shares, or one-half of the 2.0 million shares originally granted, to approximately 300 employees. According to the modified terms, the accelerated nonvested shares will vest on July 1, 2008, and the remainder will vest on July 1, 2009. Vesting was not accelerated on nonvested stock held by executive officers of the company. The primary purpose of the accelerated vesting was to encourage retention. The change to the vesting terms did not alter the fair value of the awards, but it resulted in an adjustment to the estimated forfeiture rate for those awards. The revision to the estimated forfeiture rate resulted in an increase in stock-based compensation expense of approximately $0.8 million in the fourth quarter of fiscal 2007.

In fiscal 2004 and fiscal 2005, the company issued performance-based nonvested stock awards. The vesting of these shares was based on the company achieving operating profit margin targets for fiscal 2006. During the fourth quarter of fiscal 2005, management determined that it was unlikely the performance targets related to these performance-based shares would be met. Accordingly, the company reversed the related compensation expense of $6.5 million that had been recorded life-to-date as of November 30, 2004. Of this amount, $3.4 million was recorded in fiscal 2004 and $3.1 million was recorded in fiscal 2005. As a result of the reversal, compensation expense related to nonvested stock was a benefit of $1.6 million in fiscal 2005.

The company also issues nonvested stock units. Nonvested stock units are granted in the name of an employee or a non-employee director. Once granted, nonvested stock units are eligible for dividends but have no voting rights. The nonvested stock units are redeemed for company stock once the vesting period and any applicable deferral restrictions have been satisfied. The fair value of nonvested stock units is the market value on the grant date. Compensation cost is recognized over the vesting period, which is generally one year to three years.

Years Ended February 28 2007 2006 2005

Weighted average fair value of nonvested stock granted (per share)...................................................... $25.28 $ 17.20 $ 12.68 Weighted average fair value of nonvested stock units granted (per share) ............................................. $26.88 $ 16.62 $ 13.62 Fair value of nonvested stock and nonvested stock units vested (in millions) ............................................. $ 1.1 $ 2.8 $ 16.0

The company’s nonvested stock and nonvested stock unit activity during fiscal 2007 is summarized in the table below.

Weighted Average Aggregate Shares Grant Date Intrinsic Value

(in thousands) Fair Value (in millions)

Nonvested at February 28, 2006 ........... 3,825 $ 17.08 Granted.................................................. 1,299 $ 25.32 Vested ................................................... (90) $ 12.13 Forfeited................................................ (1,059) $ 18.05 Nonvested at February 28, 2007 ........... 3,975 $ 19.63 $75.5

Total unrecognized compensation cost related to nonvested stock and nonvested stock units at February 28, 2007, was $44.0 million and is expected to be recognized over a weighted average period of 2.3 years. If nonvested stock or nonvested stock units are forfeited, the shares issued as nonvested stock or the shares reserved for the nonvested stock units are available for future granting.

(C) Phantom Stock Program: The company issues phantom stock units through a long-term incentive program. An employee does not receive rights of a shareholder as a result of holding these units, nor is any stock transferred. The value of one unit is based on the market value of one share of common stock on the vesting date. The units will be settled in cash at the end of the two-year vesting period. The cost of the grants is recognized over the vesting period, and the related liability is included in accrued compensation on the consolidated balance sheets. No phantom stock units were granted during fiscal 2007.

(D) Employee Stock Purchase Plan: The company has an employee stock purchase plan for all domestic segment employees meeting eligibility criteria. Under the plan, eligible employees may, subject to limitations, purchase shares of common stock. The company matches $0.15 for each $1.00 contributed by employees.

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Purchases are limited to 10 percent of an employee’s eligible compensation, up to a maximum of $13,000 per year. The company has authorized 18.5 million shares of common stock for purchase under the plan. At February 28, 2007, a total of 1.4 million shares remained available under the plan. The obligation for the company match is included in accrued expenses and other current liabilities on the consolidated balance sheets.

Years Ended February 28 2007 2006 2005 Number of shares purchased on the open market on behalf of employees (in millions).................................. 0.2 0.4 0.5 Average price per share of common stock purchased ........................................................................... $25.50 $18.34 $13.85

15. EMPLOYEE BENEFIT PLANS

A) Pension Plans: The company’s domestic segment has a noncontributory defined benefit pension plan that was frozen as of February 28, 2005, except for employees who (i) were within three years of their early retirement date or normal retirement date; (ii) had reached their early or normal retirement date; or (iii) were permanently disabled before March 1, 2005. As a result, all employees affected by the plan freeze retain any benefits accumulated to the effective date, but are no longer eligible to increase their benefit.

The company also has an unfunded nonqualified benefit restoration plan that restored retirement benefits for domestic segment senior executives who were affected by Internal Revenue Code limitations on benefits provided under the company’s pension plan. The benefit restoration plan was frozen as of February 28, 2005, and will provide benefits for participants who, as of that date, were within 10 years of attaining their early retirement date or normal retirement date. The impact of freezing these plans was a curtailment charge of $1.1 million in the fiscal year ended February 28, 2005.

On December 22, 2005, the benefit restoration plan was amended to allow W. Alan McCollough to elect to receive a lump-sum payment following his retirement. Mr. McCollough received additional age and service credit under the benefit restoration plan, which resulted in Mr. McCollough receiving the maximum benefit payable under the plan, an incremental benefit on a lump-sum payment basis of $1.8 million. This $1.8 million was expensed fiscal 2006 and is included in selling, general and administrative expenses on the consolidated statement of operations. In fiscal 2007, Mr. McCollough received a lump-sum payment of $4.4 million.

In the fourth quarter of fiscal 2007, the company adopted SFAS No. 158, “Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans – an amendment of FASB Statements No. 87, 88, 106, and 132(R).” SFAS No. 158 requires an employer to recognize a plan’s funded status in its balance sheets and recognize the changes in a plan’s funded status in accumulated other comprehensive income in the year in which the changes occur.

The table below discloses the impact of adopting SFAS No. 158 on the company’s consolidated balance sheet as of February 28, 2007. Before Adoption Adjustment After Adoption

(Amounts in millions) of SFAS No. 158 Increase/(Decrease) of SFAS No. 158 Deferred income taxes (non-current)............. $ 25.3 $ 6.6 $ 31.9 Other intangible assets, net............................ $ 19.7 $ (0.4) $ 19.3 Other assets ................................................... $ 44.9 $(15.1) $ 29.8 Total assets .................................................... $4,016.2 $ (8.9) $4,007.3 Other liabilities .............................................. $ 95.3 $ 2.3 $ 97.6 Total liabilities............................................... $2,213.8 $ 2.3 $2,216.0 Accumulated other comprehensive income... $ (36.6) $(11.2) $ (25.4) Total stockholder’s equity ............................. $1,802.4 $(11.2) $1,791.2 Total liabilities and stockholders’ equity ...... $4,016.2 $ (8.9) $4,007.3

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The company uses the last day of its fiscal year as a measurement date for determining pension plan assets and obligations. The change in projected benefit obligation, change in plan assets and reconciliation of funded status for the plans were as follows: At February 28 (Amounts in millions) 2007 2006

Change in projected benefit obligation: Projected benefit obligation at beginning of year ......... $273.3 $242.7 Service cost ................................................................... 2.7 2.8 Interest cost ................................................................... 15.3 13.8 Actuarial loss(a).............................................................. 2.8 16.8 Benefits paid ................................................................. (10.6) (4.6) Special termination benefit ........................................... – 1.8 Curtailment(b) ................................................................ (0.9) – Projected benefit obligation at end of year ................... $282.6 $273.3

Change in plan assets: Fair value of plan assets at beginning of year............... $252.6 $226.9 Actual return on plan assets .......................................... 29.5 29.8 Employer contributions................................................. 5.1 0.5 Benefits paid ................................................................. (10.6) (4.6) Fair value of plan assets at end of year ......................... $276.6 $252.6

Reconciliation of funded status: Funded status ................................................................ $ (6.0) $(20.7) Unrecognized actuarial loss .......................................... – 29.9 Unrecognized prior service cost.................................... – 0.8 Net amount recognized ................................................. $ (6.0) $ 10.0 (a) Actuarial loss for fiscal 2006 results primarily from changes in mortality assumptions and from the change in the discount rate from 5.75 percent to 5.65 percent. (b) Restructuring activities resulted in a curtailment of $0.9 million for the qualified plan in fiscal 2007.

The net amounts recognized on the consolidated balance sheets were as follows:

At February 28 (Amounts in millions) 2007 2006

Other assets ..................................................................... $ 10.6 $ 25.7 Other liabilities................................................................ (16.6) (16.8) Other intangible assets, net ............................................. – 0.6 Accumulated other comprehensive income .................... – 0.3 Deferred income taxes on minimum pension liability .... – 0.2 Net amounts recognized.................................................. $ (6.0) $ 10.0

Amounts recognized in accumulated other comprehensive income consist of the following:

At February 28 (Amounts in millions, pretax) 2007

Net actuarial loss........................................................ $18.1 Amortization of prior service cost ............................. 0.6 Total ........................................................................... $18.7

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Net pension expense is included in cost of sales, buying and warehousing and selling, general and administrative expenses on the consolidated statements of operations. The components of net pension expense for the plans were as follows:

Years Ended February 28 (Amounts in millions) 2007 2006 2005

Service cost ..................................................................... $ 2.7 $ 2.8 $ 14.0 Interest cost ..................................................................... 15.3 13.8 15.6 Expected return on plan assets ........................................ (19.1) (18.0) (16.4) Recognized prior service cost ......................................... 0.2 0.2 0.5 Recognized actuarial loss................................................ 2.5 1.1 5.0 Special termination benefit ............................................. – 1.8 – Loss due to curtailment................................................... – – 1.1 Loss due to settlement(a) .................................................. 0.8 – – Net pension expense ....................................................... $ 2.4 $ 1.7 $ 19.8 (a) In fiscal 2007, Mr. McCollough received a $4.4 million lump-sum payment, which resulted in a loss due to settlement of $0.8 million.

Amounts in accumulated other comprehensive income expected to be recognized as components of net pension expense in fiscal 2008 are as follows: At February 29 (Amounts in millions, pretax) 2008

Net actuarial loss........................................................ $ 1.5 Amortization of prior service cost ............................. 0.2 Total ........................................................................... $ 1.7

Benefit obligations are determined using assumptions at the end of each fiscal year and are not impacted by the expected rate of return on plan assets. The weighted average assumptions used in computing the benefit obligations for the plans were as follows:

At February 28 2007 2006

Weighted average discount rate ........................................ 5.75% 5.65% Rate of increase in compensation levels ........................... 5.00% 5.00%

Net pension expense is determined using assumptions at the beginning of each fiscal year. The weighted average assumptions used in computing net pension expense for the plans were as follows:

At February 28 2007 2006 2005

Weighted average discount rate ........................................ 5.65% 5.75% 6.00% Rate of increase in compensation levels ........................... 5.00% 5.00% 5.00% Expected rate of return on plan assets............................... 8.25% 8.25% 8.25%

At the end of each fiscal year, the company determines the weighted average discount rate used to calculate the present value of plan liabilities. The discount rate is an estimate of the interest rate at which the pension liabilities could be effectively settled at the end of the year. When estimating the discount rate, the company reviews yields available on high-quality, fixed income debt instruments. The company reviewed high-quality corporate bond indices in addition to a hypothetical portfolio of corporate bonds constructed with maturities that approximate the expected timing of our anticipated benefit payments.

The percentage composition of assets held by the pension plan was as follows:

At February 28 2007 2006 Domestic equity ................................................................ 74% 74% International equity ........................................................... 21 22 Cash and cash equivalents ................................................ 1 – Other ................................................................................. 4 4 Total .................................................................................. 100% 100%

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The company uses a calculated market-related value of pension plan assets to determine the expected return on pension plan assets. The calculated market-related value of the plan assets is different from the actual or fair market value of the assets. The fair market value is the value of the assets at a point in time that is available to make payments to pension plan participants and to cover transaction costs. The calculated market-related value recognizes changes in fair value on a straight-line basis over a five-year period. This recognition method spreads the effects of year-over-year volatility in the financial markets over that period of years.

The plan’s overall investment objective is to provide a long-term return that, along with company contributions, is expected to meet future benefit payment requirements. The company engages a third party to advise the company on both asset allocations and individual fund managers. On January 30, 2007, the company revised its plan’s target asset allocation to 60 percent fixed income and 40 percent equity. The plan’s target allocation is determined by taking into consideration the amounts and timing of projected liabilities, the company’s funding policies and expected returns on various asset classes. Plan assets did not include any shares of the company’s common stock at February 28, 2007, or February 28, 2006.

The company did not make a contribution to the defined benefit pension plan during fiscal 2007 or fiscal 2006. Company contributions to the defined benefit pension plan were $18.0 million in fiscal 2005. No contributions are required during fiscal 2008 under applicable law for this pension plan. The company intends to make any contributions necessary to meet ERISA minimum funding standards and intends to make additional contributions as needed to ensure that the fair value of plan assets at February 29, 2008, exceeds the accumulated benefit obligation. The company does not expect to make a contribution in fiscal 2008. The accumulated benefit obligation for the defined benefit pension plan was $258.7 million at February 28, 2007, and $248.2 million at February 28, 2006.

During fiscal 2007, Congress passed the Pension Protection Act of 2006. The Act introduces new funding requirements for defined benefit pension plans, introduces benefit limitations for underfunded plans and raises tax deduction limits for contributions. Required funding under the Act will be dependent upon many factors, including, among other things, the pension plan’s future funded status and plan asset returns. The Act’s primary effect will be to change the minimum funding requirements for plan years beginning in fiscal 2008. Until regulations are issued by the Department of Treasury, the financial effect is uncertain. However, the changes in the timing and amount of required contributions are not expected to be materially different from current projections.

The expected benefit payments of the defined benefit pension plan for the next 10 fiscal years are as follows:

(Amounts in Fiscal Year millions)

2008 .............................................. $ 4.9 2009 .............................................. $ 5.3 2010 .............................................. $ 5.9 2011 .............................................. $ 6.6 2012 .............................................. $ 7.4 2013 through 2017 ........................ $ 54.1

The accumulated benefit obligation under the benefit restoration plan was $14.3 million at February 28, 2007, and $16.8 million at February 28, 2006. Company contributions to the benefit restoration plan were $5.1 million in fiscal 2007, $0.5 million in fiscal 2006 and in fiscal 2005. The benefit payments for fiscal 2007 include a lump-sum payment to Mr. McCollough of $4.4 million. A contribution of $0.7 million, which is equal to the expected benefit payments, is expected to be made to this plan during fiscal 2008.

The expected benefit payments of the benefit restoration plan for the next 10 years are as follows: (Amounts in Fiscal Year millions)

2008 .............................................. $ 0.7 2009 .............................................. $ 0.8 2010 .............................................. $ 0.8 2011 .............................................. $ 0.9 2012 .............................................. $1.0 2013 through 2017 ........................ $5.9

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(B) 401 (k) Plan and Registered Retirement Savings Plan: The company sponsors a 401(k) plan for domestic segment employees meeting eligibility criteria. Under the plan, eligible employees can contribute up to 40 percent of their eligible compensation up to the annual limit designated by the Internal Revenue Service. The company matches $1.00 for each $1.00 contributed by an employee on the first 3 percent of an employee’s eligible compensation, and $0.50 for each $1.00 on the next 2 percent of an employee’s eligible compensation. Effective August 1, 2006, the company amended the plan to allow employee deferrals after 3 months of service with the company match starting after 1 year of service. The company’s expense for this plan was $10.2 million in fiscal 2007, $9.4 million in fiscal 2006 and $3.6 million in fiscal 2005 and is included in cost of sales, buying and warehousing and selling, general and administrative expenses on the consolidated statements of operations.

The company sponsors a group registered retirement savings plan for all international segment employees, under which full-time and qualifying part-time employees with at least 12 months of service may join the plan and contribute up to 3 percent of their salaries. Employee contributions are matched dollar for dollar by the company. Both employee and employer contributions are invested in a broad range of investment options. After membership in the plan for 12 months, an employee may elect to contribute up to an additional 2 percent of an employee’s salary to the plan, which is also matched dollar for dollar by the company. These additional contributions are also invested in a broad range of investment options. The company’s expense for this plan was $0.7 million in fiscal 2007, $0.8 million in fiscal 2006 and $0.6 million in fiscal 2005 and is included in selling, general and administrative expenses on the consolidated statements of operations.

16. DISCONTINUED OPERATIONS

(A) Rogers Plus® Stores: Effective January 28, 2007, the company returned the management of 92 Rogers Plus® stores to Rogers Wireless Inc. in accordance with the Amending Agreement dated March 27, 2004, between Rogers Wireless Inc. and InterTAN Canada Ltd.

For fiscal year 2007, the income from discontinued operations for these stores totaled $5.4 million, which is net of tax of $2.8 million. For fiscal 2006, the income from discontinued operations for these stores totaled $3.7 million, which is net of $2.0 million of income taxes. For fiscal 2005, the loss from discontinued operations for these stores was $3.8 million, which is net of $2.0 million of income taxes.

(B) Domestic Segment Operation: The company closed a domestic segment operation in fiscal 2007 that previously had been held for sale. For fiscal 2007, the loss totaled $4.8 million, which is net of $2.9 million of income taxes. The net loss includes the loss from operations, asset write-offs and impairment charges. For fiscal 2006, the loss from discontinued operations totaled $5.3 million, which is net of $3.0 million of income taxes. The net loss from discontinued operations for fiscal 2006 includes the write-down to estimated fair value less cost to sell the operation.

(C) MusicNow LLC: The company sold a domestic segment subsidiary, MusicNow, LLC, in fiscal 2006. For fiscal 2006, the loss from discontinued operations totaled $3.7 million, which is net of $2.1 million of income taxes. The net loss from discontinued operations for fiscal 2006 includes an after-tax charge of $4.9 million for the loss on the disposal. For fiscal 2005, the loss from MusicNow was $4.4 million, which is net of $2.6 million of income taxes.

(D) Bankcard Operation: On November 18, 2003, the company completed the sale of its bankcard finance operation to FleetBoston Financial. For fiscal 2007, the loss relates to income tax expense resulting from a revision of management’s estimate regarding certain tax uncertainties. For fiscal 2005, the loss from the discontinued bankcard operation totaled $1.2 million, which is net of $0.7 million of income taxes, and is comprised of post-closing adjustments related to the sale of the bankcard operation.

(E) Divx: In fiscal 2000, Digital Video Express announced that it would cease marketing the Divx home video system and discontinue operations. The provision for commitments under licensing agreements was reduced $4.6 million in fiscal 2005, reducing accrued expenses and other current liabilities related to the former Divx operations to zero on the consolidated balance sheet at February 28, 2005. This reduction benefited the fiscal 2005 results from discontinued operations by $3.0 million. The company has no further commitments related to the Divx operation.

17. SEGMENT INFORMATION

The company has two reportable segments: its domestic segment and its international segment. The company identified these segments based on its management reporting structure and the nature of the products and services offered by each segment. The domestic segment is primarily engaged in the business of selling brand-name consumer electronics, personal computers, entertainment software, and related services in the United States. The

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international segment is primarily engaged in the business of selling private-label and brand-name consumer electronics in Canada.

Prior to the second quarter of fiscal 2005, the company had another reportable segment, its finance operation. The company completed the sale of its private-label finance operation, comprised of its private-label and co-branded Visa credit card programs, to Chase Card Services on May 25, 2004. Results from the private-label finance operation are included in finance income on the consolidated statement of operations for fiscal 2005. See Note 20, Finance Income, for additional discussion. The company entered into an arrangement under which Chase Card Services is offering private-label and co-branded credit cards to new and existing customers and providing credit card services to all cardholders. The net results from that arrangement are included in net sales on the consolidated statements of operations and are included in the domestic segment.

Revenue by reportable segment and the reconciliation to the consolidated statements of operations were as follows:

Years Ended February 28 (Amounts in millions) 2007 2006 2005 Domestic segment........................................................ $11,859.6 $10,974.0 $10,014.6 International segment(a) ................................................ 570.2 540.2 398.9 Finance operation......................................................... – – 28.1 Total revenues.............................................................. 12,429.8 11,514.2 10,441.6 Less: securitization income(b) ....................................... – – 28.1 Net sales ....................................................................... $12,429.8 $11,514.2 $10,413.5 (a) The international segment’s revenue is included from May 12, 2004, when Circuit City acquired a controlling interest in InterTAN, Inc. (b) Securitization income is included in finance income, which reflects the results of the finance operation and is reported separately from net sales on the consolidated statement of operations for fiscal 2005.

The net (loss) earnings from continuing operations by reportable segment were as follows:

Years Ended February 28 (Amounts in millions) 2007 2006 2005 Domestic segment........................................................ $ 97.1 $154.8 $41.1 International segment(a,b) .............................................. (107.3) (7.3) 15.9 Finance operation......................................................... – – 3.5 Net (loss) earnings from continuing operations........... $ (10.2) $147.4 $60.6 (a) In fiscal 2007, the company recorded an impairment charge of $92.0 million associated with its international segment’s goodwill. The impairment charge is not deductible for tax purposes. (b) The international segment’s net (loss) earnings from continuing operations are included from May 12, 2004, when Circuit City acquired a controlling interest in InterTAN, Inc.

The income tax expense (benefit) from continuing operations by reportable segment was as follows:

Years Ended February 28 (Amounts in millions) 2007 2006 2005 Domestic segment........................................................ $36.6 $89.6 $23.7 International segment(a,b) .............................................. (6.1) (3.6) 10.6 Finance operation......................................................... – – 2.0 Income tax expense...................................................... $30.5 $86.0 $36.4 (a) In fiscal 2007, the company recorded an impairment charge of $92.0 million associated with its international segment’s goodwill. The impairment charge is not deductible for tax purposes. (b) The international segment’s income tax expense is included from May 12, 2004, when Circuit City acquired a controlling interest in InterTAN, Inc.

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Total assets by reportable segment were as follows:

At February 28 (Amounts in millions) 2007 2006 2005 Domestic segment........................................................ $3,657.5 $3,594.4 $3,405.3 International segment................................................... 349.8 474.6 434.7 Total assets................................................................... $4,007.3 $4,069.0 $3,840.0

Goodwill and other intangible assets, net of accumulated amortization, by reportable segment were as follows:

At February 28 (Amounts in millions) 2007 2006 2005 Domestic segment........................................................ $ 0.3 $ 5.3 $ 5.3 International segment................................................... 140.8 249.1 241.9 Goodwill and other intangible assets, net .................... $141.1 $254.4 $247.2

Depreciation and amortization by reportable segment were as follows:

Years Ended February 28 (Amounts in millions) 2007 2006 2005 Domestic segment........................................................ $165.9 $149.3 $143.9 International segment................................................... 15.6 13.9 9.5 Total depreciation and amortization ............................ $181.5 $163.2 $153.4

Purchases of property and equipment by reportable segment were as follows:

Years Ended February 28 (Amounts in millions) 2007 2006 2005 Domestic segment........................................................ $274.8 $231.9 $252.3 International segment................................................... 10.9 22.6 9.2 Total purchases of property and equipment................. $285.7 $254.5 $261.5

Interest income by reportable segment was as follows:

Years Ended February 28 (Amounts in millions) 2007 2006 2005 Domestic segment........................................................ $26.5 $21.3 $14.1 International segment................................................... 0.7 0.5 0.3 Total interest income.................................................... $27.2 $21.8 $14.4

The percent of domestic segment net sales by category is as follows:

Years Ended February 28 2007 2006 2005 Video................................................ 42 % 42 % 39 % Information technology.................... 25 25 28 Audio ............................................... 15 15 14 Entertainment................................... 11 11 12 Warranty, services and other(a)......... 7 7 7 Net sales ........................................... 100 % 100 % 100 % (a) Warranty, services and other includes extended warranty net sales; revenues from computer-related services, mobile installations, home theater installations and product repairs; net financing; and revenues received from third parties for services subscriptions.

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The percent of international segment net sales by category is as follows:

Years Ended February 28 2007 2006 2005(b) Video................................................ 19 % 19 % 18% Information technology.................... 38 37 36 Audio ............................................... 33 32 33 Entertainment................................... 5 5 7 Warranty, services and other(a)......... 5 7 6 Net sales ........................................... 100 % 100 % 100 % (a) Warranty, services and other includes extended warranty sales and product repair revenue. (b) The international segment’s sales are included from May 12, 2004, when Circuit City acquired a controlling interest in InterTAN, Inc.

18. SUPPLEMENTAL CONSOLIDATED STATEMENTS OF CASH FLOWS INFORMATION

The following table summarizes supplemental cash flow information. Years Ended February 28 (Amounts in millions) 2007 2006 2005

Cash paid during the year for: Interest ...................................................................................................... $ 1.5 $ 6.8 $ 4.9 Income taxes............................................................................................. $ 74.2 $ 94.2 $ 152.8

Supplemental schedule of non-cash investing and financing activities: Capital lease obligations.............................................................................. $ 2.9 $ 26.2 $ 2.8 Non-cash capital expenditures..................................................................... $ 10.0 $ 20.2 $ 7.5 Increase in sale-leaseback receivables......................................................... $ 14.9 $ – $ – Reduction of liability related to the discontinued Divx operation............... $ – $ – $ 4.6

Acquisition of InterTAN: Fair value of assets acquired: Cash and cash equivalents ........................................................................ $ – $ – $ 30.6 Merchandise inventory ............................................................................. – – 88.8 Property and equipment, net..................................................................... – – 42.6 Goodwill................................................................................................... – – 185.4 Other intangible assets.............................................................................. – – 28.0 Other assets............................................................................................... – – 14.2 Total fair value of assets acquired ............................................................ – – 389.6

Less: Liabilities assumed ................................................................................... – – 93.2 Cash acquired ........................................................................................... – – 30.6 Stock options issued ................................................................................. – – 6.5 Acquisition of InterTAN, net of cash acquired............................................ $ – $ – $259.3

Other acquisitions: Fair value of assets acquired........................................................................ $ – $ 13.6 $ 13.5 Less: liabilities assumed .............................................................................. – 0.3 4.0 Other acquisitions ........................................................................................ $ – $ 13.3 $ 9.5

19. ACQUISITION

On May 12, 2004, the company acquired a controlling interest in InterTAN, Inc. and on May 19, 2004, completed its acquisition of 100 percent of the common stock of InterTAN for cash consideration of $259.3 million, which includes transaction costs and is net of cash acquired of $30.6 million. This acquisition was accounted for using the purchase method. Accordingly, the company recorded the net assets at their estimated fair values and included operating results in the consolidated financial statements since May 12, 2004. The company allocated the purchase price to the acquired assets and liabilities using available information. The purchase price allocation included goodwill of $185.4 million and identifiable intangible assets of $28.0 million. Goodwill is not deductible for tax purposes. The identifiable intangible assets consist of contract-based intangibles and are

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amortized on a straight-line basis over their estimated useful lives. See Note 7, Goodwill and Other Intangible Assets, and Note 18, Supplemental Consolidated Statements of Cash Flows Information, for additional discussion.

Selected unaudited pro forma financial information assuming the acquisition had been consummated at the beginning of fiscal 2004 is as follows: (Unaudited)

Year Ended February 28 2005 (Amounts in millions except per share data) Pro Forma Net sales ............................................................................. $10,484.8 Net earnings from continuing operations........................... $ 60.7 Earnings per share from continuing operations ................. $ 0.31

20. FINANCE INCOME

Finance income includes the results from the company’s private-label finance operation through May 25, 2004, the date the company completed the sale of the operation.

Components of pretax finance income were as follows:

Year Ended February 28 (Amounts in millions) 2005 Securitization income............................................... $28.1 Less: Payroll and fringe benefit expenses ............... 7.6 Other direct expenses ..................................... 14.9 Finance income ........................................................ $ 5.6

Securitization income primarily is comprised of the gain on the sale of the credit card receivables generated by the company’s private-label finance operation, income from the retained interests in the securitized receivables and income related to servicing the securitized receivables, as well as the impact of increases or decreases in the fair value of the retained interests.

21. QUARTERLY FINANCIAL DATA (UNAUDITED) (Amounts in millions First Quarter Second Quarter Third Quarter Fourth Quarter except per share data) 2007 2006 2007 2006 2007(a) 2006 2007 2006 Net sales ............................... $ 2,596.6 $ 2,212.1 $ 2,818.5 $ 2,536.0 $ 3,060.0 $ 2,879.7 $ 3,954.7 $ 3,886.4 Gross profit........................... $ 635.8 $ 554.0 $ 670.1 $ 604.2 $ 675.8 $ 694.6 $ 946.6 $ 957.6

Net earnings (loss) from: Continuing operations ........ $ 5.3 $ (12.3) $ 11.7 $ 2.7 $ (19.9) $ 9.1 $ (7.2) $ 148.0 Discontinued operations..... (0.7) (0.8) (1.6) (1.3) (0.5) 1.1 2.9 (4.3) Cumulative effect of change in accounting principles .. 1.8 – – – – – – (2.4) Net earnings (loss) ............. $ 6.4 $ (13.1) $ 10.0 $ 1.3 $ (20.4) $ 10.1 $ (4.3) $ 141.4 Earnings (loss) per share: Basic: Continuing operations ........ $ 0.03 $ (0.07) $ 0.07 $ 0.01 $ (0.12) $ 0.05 $ (0.04) $ 0.86 Discontinued operations..... $ – $ – $ (0.01) $ (0.01) $ – $ 0.01 $ 0.02 $ (0.02) Cumulative effect of change in accounting principles .. $ 0.01 $ – – $ – $ – $ – $ – $ (0.01) Earnings (loss) ................... $ 0.04 $ (0.07) $ 0.06 $ 0.01 $ (0.12) $ 0.06 $ (0.03) $ 0.82 Diluted: Continuing operations ........ $ 0.03 $ (0.07) $ 0.07 $ 0.01 $ (0.12) $ 0.05 $ (0.04) $ 0.84 Discontinued operations..... $ – $ – $ (0.01) $ (0.01) $ – $ 0.01 $ 0.02 $ (0.02) Cumulative effect of change in accounting principles .. $ 0.01 $ – $ – $ – $ – $ – $ – $ (0.01) Earnings (loss) ................... $ 0.04 $ (0.07) $ 0.06 $ 0.01 $ (0.12) $ 0.06 $ (0.03) $ 0.81

(a) Third quarter results have been recast to correct errors primarily related to the timing of revenue recognition for Web-originated sales. The impact of the correction was a reduction of net sales by $21 million, a decrease in gross profit by $7 million and an increase of the net loss from continuing operations by $4.5 million. These amounts are included in fourth quarter results.

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Results shown above exclude results from discontinued operations. Year-to-date earnings per share are calculated by dividing year-to-date earnings by the weighted average shares outstanding for the full year. Therefore, year-to-date earnings per share may not equal the sum of the quarterly earnings per share.

During the third quarter of fiscal 2007, the company recorded tax adjustments related to the fiscal 2006 tax provision. The adjustments totaled $1.9 million and resulted in a reduction to tax expense. The adjustments were identified during the preparation of the fiscal 2006 tax return.

The results for the fourth quarter of fiscal 2007 include the following: an impairment charge of $92.0 million related to the goodwill associated with the international segment; expenses of $52.6 million associated with store and facility closures and other restructuring activities, which primarily related to leases and severance; and a reduction to tax expense of $2.6 million related to the revision of management estimates regarding tax contingencies.

In fiscal 2006, the company identified errors in previously issued financial statements. Management evaluated the impact of the errors in the consolidated financial statements for previously reported periods, on the 2006 fiscal year and on earnings trends. Based upon the evaluation, management concluded the errors and the corrections of such errors were not material to the company’s financial statements taken as a whole and corrected the errors in the fourth quarter of fiscal 2006. As a result, the company recognized an after-tax reduction in net earnings of $3.2 million during the fourth quarter of fiscal 2006 that relates primarily to benefits recognized in the first three quarters of fiscal 2006 for the estimated non-redemption of the rewards feature on the Circuit City Rewards Credit Card. The company also recognized an after-tax benefit of $0.4 million during the fourth quarter of fiscal 2006 to correct errors in lease accounting and for other matters in the consolidated financial statements for prior fiscal years.

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Report of Independent Registered Public Accounting Firm

The Board of Directors and Stockholders Circuit City Stores, Inc.: We have audited the accompanying consolidated balance sheets of Circuit City Stores, Inc. and subsidiaries (the Company) as of February 28, 2007 and February 28, 2006, and the related consolidated statements of operations, stockholders’ equity and comprehensive income, and cash flows for each of the fiscal years in the three-year period ended February 28, 2007. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Circuit City Stores, Inc. and subsidiaries as of February 28, 2007 and February 28, 2006, and the results of their operations and their cash flows for each of the fiscal years in the three-year period ended February 28, 2007, in conformity with U.S. generally accepted accounting principles.

As discussed in Note 3 to the consolidated financial statements, the Company adopted the provisions of Statement of Financial Accounting Standard No. 123R (Revised 2004), “Share-Based Payment,” and the provisions of Statement of Financial Accounting Standard No. 158, “Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans – an amendment of FASB Statements No. 87, 88, 106 and 132(R)” in fiscal 2007. In addition, the Company adopted the provisions of FASB Interpretation No. 47, “Accounting for Conditional Asset Retirement Obligations,” an interpretation of Statement of Financial Accounting Standard No. 143, “Asset Retirement Obligations” in fiscal 2006.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness of Circuit City Stores, Inc.’s internal control over financial reporting as of February 28, 2007, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our report dated April 30, 2007 expressed an unqualified opinion on management’s assessment of, and the effective operation of, internal control over financial reporting.

/S/KPMG LLP

Richmond, Virginia April 30, 2007

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The Board of Directors and Stockholders Circuit City Stores, Inc.:

We have audited management’s assessment, included in the accompanying Management’s Report on Internal Control over Financial Reporting, that Circuit City Stores, Inc. and subsidiaries (the Company) maintained effective internal control over financial reporting as of February 28, 2007, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting. Our responsibility is to express an opinion on management's assessment and an opinion on the effectiveness of the Company’s internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, evaluating management's assessment, testing and evaluating the design and operating effectiveness of internal control, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, management’s assessment that the Company maintained effective internal control over financial reporting as of February 28, 2007, is fairly stated, in all material respects, based on criteria established in Internal Control—Integrated Framework issued by COSO. Also, in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of February 28, 2007, based on criteria established in Internal Control—Integrated Framework issued by COSO.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of Circuit City Stores, Inc. and subsidiaries as of February 28, 2007 and February 28, 2006, and the related consolidated statements of operations, stockholders’ equity and comprehensive income, and cash flows for each of the fiscal years in the three-year period ended February 28, 2007, and our report dated April 30, 2007 expressed an unqualified opinion on those consolidated financial statements.

/s/KPMG LLP


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Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.

None.

Item 9A. Controls and Procedures.

Evaluation of Disclosure Controls and Procedures

Under the supervision and with the participation of the company’s management, including the chief executive officer and chief financial officer, the company has evaluated the effectiveness of its “disclosure controls and procedures,” as that term is defined in Rule 13a-15(e) of the Securities Exchange Act of 1934, as amended, as of the end of the period covered by this Annual Report on Form 10-K. Based upon their evaluation, the chief executive officer and chief financial officer concluded that the company’s disclosure controls and procedures are effective.

Management's Report on Internal Control over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rule 13a-15(f) under the Securities Exchange Act of 1934, as amended. Under the supervision and with the participation of management, including our principal executive officer and principal financial officer, we have conducted an evaluation of the effectiveness of internal control over financial reporting based on the framework in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

Based on our evaluation under the framework in Internal Control - Integrated Framework, our management concluded that internal control over financial reporting was effective as of February 28, 2007.

Our management’s assessment of the effectiveness of internal control over financial reporting as of February 28, 2007, has been audited by KPMG LLP, an independent registered public accounting firm, as stated in their report, which is included in this Annual Report on Form 10-K.

Changes in Control over Financial Reporting

There were no changes in the company’s internal control over financial reporting that occurred during the quarter ended February 28, 2007, that have materially affected, or are reasonably likely to materially affect, the company’s internal control over financial reporting.

Item 9B. Other Information. None.

PART III

Item 10. Directors , Executive Officers and Corporate Governance.

The information appearing under the heading “Item One – Election of Directors” on pages 11 through 13 of the company’s Proxy Statement dated April 27, 2007, is incorporated in this item by reference.

The information appearing under the heading “Information Concerning the Board of Directors and Its Committees” on pages 6 through 10 of the company’s Proxy Statement dated April 27, 2007, is incorporated in this item by reference.

The information appearing under the heading “Section 16(a) Beneficial Ownership Reporting Compliance” on page 46 of the company’s Proxy Statement dated April 27, 2007, is incorporated in this item by reference.

The company’s global code of business conduct is available on the company’s investor information homepage at http://investor.circuitcity.com under the Corporate Governance heading.

Information concerning the company’s executive officers is included in Part I of this report under the caption “Executive Officers of the Company.”

Item 11. Executive Compensation.

The information appearing under the heading “Compensation & Personnel Committee Report” on page 17 of the company’s Proxy Statement dated April 27, 2007, is incorporated in this item by reference.

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The information appearing under the heading “Compensation Discussion & Analysis (CD&A)” on pages 17 through 26 of the company’s Proxy Statement dated April 27, 2007, is incorporated in this item by reference.

The information appearing under the heading “2007 Executive Compensation” on pages 27 through 34 of the company’s Proxy Statement dated April 27, 2007, is incorporated in this item by reference.

The information appearing under the heading “Post-Employment Compensation” on pages 35 through 37 of the company’s Proxy Statement dated April 27, 2007, is incorporated in this item by reference.

The information appearing under the heading “Potential Payments Upon Termination or Change-In-Control” on pages 38 through 42 of the company’s Proxy Statement dated April 27, 2007, is incorporated in this item by reference.

The information appearing under the heading “2007 Non-Employee Director Compensation” on pages 14 through 16 of the company’s Proxy Statement dated April 27, 2007, is incorporated in this item by reference.

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters.

The information appearing under the heading “Beneficial Ownership of Securities” on pages 43 through 45 of the company’s Proxy Statement dated April 27, 2007 is incorporated in this item by reference.

The information appearing under the heading “Equity Compensation Plans Information” on page 45 of the company’s Proxy Statement dated April 27, 2007, is incorporated in this item by reference.

Item 13. Certain Relationships and Related Transactions, and Director Independence.

The information appearing under the heading “Information Concerning the Board of Directors and Its Committees” on pages 6 through 10 of the company’s Proxy Statement dated April 27, 2007, is incorporated in this item by reference.

Item 14. Principal Accountant Fees and Services.

The information appearing under the heading “Item Two - Ratification of Appointment of Independent Registered Public Accounting Firm” on page 48 of the company’s Proxy Statement dated April 27, 2007, is incorporated in this item by reference.

PART IV

Item 15. Exhibits and Financial Statement Schedules.

(a) The following are filed as a part of this report.

1. Financial Statements. All financial statements as set forth under Item 8 of this report.

2. Financial Statement Schedules. The following financial statement schedules of Circuit City Stores, Inc. for the fiscal years ended February 28, 2007, February 28, 2006, and February 28, 2005, are filed in as part of this report and should be read in conjunction with the consolidated financial statements of Circuit City Stores, Inc. and the notes thereto, described in Item 15(a)1.

Schedule II Valuation and Qualifying Accounts and Reserves S-1

Report of Independent Registered Public Accounting Firm on Financial Statement Schedule S-2

Schedules not listed above have been omitted because they are not applicable or are not required or the information required to be set forth therein is included in the consolidated financial statements or notes thereto.

3. Exhibits. The exhibits listed on the accompanying Exhibit Index immediately following the financial schedules are filed as part of, or are incorporated by reference into, this report.

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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

CIRCUIT CITY STORES, INC.

April 30, 2007 By: /s/Philip J. Schoonover Philip J. Schoonover Chairman, President and Chief Executive Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons on behalf of the registrant and in the capacities indicated. /s/Philip J. Schoonover /s/Michael E. Foss Philip J. Schoonover Michael E. Foss Chairman, President and Chief Executive Officer, Principal Financial Officer, Director (Principal Executive Officer) Director April 30, 2007 April 30, 2007 /s/Philip J. Dunn Ronald M. Brill* Philip J. Dunn Ronald M. Brill Senior Vice President, Treasurer, Controller and Director Chief Accounting Officer (Principal Accounting Officer) April 30, 2007 Carolyn H. Byrd* Ursula O. Fairbairn* Carolyn H. Byrd Ursula O. Fairbairn Director Director Barbara S. Feigin* James F. Hardymon* Barbara S. Feigin James F. Hardymon Director Director Alan Kane* Allen B. King* Alan Kane Allen B. King Director Director Mikael Salovaara* J. Patrick Spainhour* Mikael Salovaara J. Patrick Spainhour Director Director Carolyn Y. Woo* Carolyn Y. Woo Director *By: /s/Philip J. Schoonover Philip J. Schoonover Attorney-In-Fact April 30, 2007

S-1

Schedule II Circuit City Stores, Inc.

Valuation and Qualifying Accounts and Reserves

(Amounts in thousands) Balance at Charged to Charged Charge-offs Balance at Beginning Costs and to Other less End of Description of Year Expenses Accounts(a) Recoveries Year Year ended February 28, 2005: Allowance for doubtful accounts $ 547 $ 2,420 $ – $ (2,847) $ 120 Sales returns and allowances $ 4,739 $ 186(b) $ 814 $ – $ 5,739 Inventory loss reserve $ 4,350 $ 35,270 $ – $ (34,270) $ 5,350 Year ended February 28, 2006: Allowance for doubtful accounts $ 120 $ 5,386 $ – $ (5,295) $ 211 Sales returns and allowances $ 5,739 $ 133(b) $ – $ – $ 5,872 Inventory loss reserve $ 5,350 $ 45,581 $ – $ (45,809) $ 5,122 Year ended February 28, 2007: Allowance for doubtful accounts $ 211 $ 8,298 $ – $ (7,638) $ 871 Sales returns and allowances $ 5,872 $ (121)(b) $ – $ – $ 5,751 Inventory loss reserve $ 5,122 $ 49,219 $ – $ (49,403) $ 4,938 (a) Includes InterTAN’s balance as of May 12, 2004. (b) Represents increase (decrease) in the required reserve based on the company’s evaluation of estimated sales returns.

S-2


The Board of Directors and Stockholders Circuit City Stores, Inc:

Under date of April 30, 2007, we reported on the consolidated balance sheets of Circuit City Stores, Inc. and subsidiaries (the Company) as of February 28, 2007 and February 28, 2006, and the related consolidated financial statements of operations, stockholder’s equity and comprehensive income, and cash flows for each of the fiscal years in the three-year period ended February 28, 2007, as contained in the 2007 annual report to shareholders. In connection with our audits of the aforementioned consolidated financial statements, we also audited the related consolidated financial statement schedule as listed in Item 15(a)2 of this Form 10-K. This financial statement schedule is the responsibility of the Company’s management. Our responsibility is to express an opinion on this financial statement schedule based on our audits.

In our opinion, such financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material aspects, the information set forth therein.

/s/KPMG LLP


EI-1

EXHIBIT INDEX Articles of Incorporation and Bylaws 3.1 Circuit City Stores, Inc. Amended and Restated Articles of Incorporation, effective February 3, 1997, as

amended through August 16, 2005, filed as Exhibit 3.1 to the company’s Form 8-A/A filed September 13, 2005 (File No. 1-5767), are expressly incorporated herein by this reference.

3.2 Circuit City Stores, Inc. Bylaws, as amended and restated April 17, 2007, filed as Exhibit 3.1 to the

Company’s Current Report on Form 8-K filed April 19, 2007 (File No. 1-5767), are expressly incorporated herein by this reference.

Material Contracts 10.1 Circuit City Stores, Inc. 2000 Non-Employee Directors Stock Incentive Plan, as Amended and Restated,

Effective December 14, 2006, filed as Exhibit 10.2 to the company’s Quarterly Report on form 10-Q for the quarter ended November 30, 2006 (File No. 1-5767), is expressly incorporated herein by this reference.*

10.2 Circuit City Stores, Inc. 2003 Stock Incentive Plan, as Amended and Restated, Effective December 14,

2006, filed as Exhibit 10.1 to the company’s Quarterly Report on form 10-Q for the quarter ended November 30, 2006 (File No. 1-5767), is expressly incorporated herein by this reference.*

10.3 Circuit City Stores, Inc. 1994 Stock Incentive Plan, as amended as of January 24, 1997, filed as Annex III

to the company’s Definitive Proxy Statement dated December 24, 1996, for a Special Meeting of Shareholders held on January 24, 1997 (File No. 1-5767), is expressly incorporated herein by this reference.*

10.4 Amendments effective June 13, 2000, to the Circuit City Stores, Inc. 1994 Stock Incentive Plan as

amended, filed as Exhibit 10 to the company’s Quarterly Report on form 10-Q for the quarter ended May 31, 2000 (File No. 1-5767), are expressly incorporated herein by this reference.*

10.5 Amendment effective June 15, 1999, to the Circuit City Stores, Inc. 1994 Stock Incentive Plan as

amended, filed as Exhibit 10 to the company’s Quarterly Report on form 10-Q for the quarter ended May 31, 1999 (File No. 1-5767), is expressly incorporated herein by this reference.*

10.6 InterTAN, Inc. Amended and Restated 1996 Stock Option Plan, filed as Exhibit 10.3 to the company’s

Quarterly Reports on Form 10-Q for the quarter ended August 31, 2004 (File NO. 1-5767), is expressly incorporated herein by this reference.*

10.7 Form of Non-Qualified Stock Option Grant Letter, filed as exhibit 10.3 to the company’s Quarterly Report

on Form 10-Q for the quarter ended May 31, 2005 (File No. 1-5767), is expressly incorporated herein by this reference.*

10.8 Form of Time-based Restricted Stock Award Letter, filed as exhibit 10.5 to the company’s Current Report

on Form 8-K filed June 29, 2006 (File No. 1-5767), is expressly incorporated herein by this reference.* 10.9 Form of Performance Accelerated Restricted Stock Award Letter, filed as exhibit 10.4 to the company’s

Current Report on Form 8-K filed June 29, 2006 (File No. 1-5767), is expressly incorporated herein by this reference.*

10.10 Form of Restricted Stock Unit Award Agreement for Non-Employee Directors, filed as Exhibit 10.2 to the

company’s Current Report on Form 8-K filed June 29, 2006 (File No. 1-5767), is expressly incorporated herein by this reference.*

10.11 Employment agreement between the company and Philip J. Schoonover effective October 4, 2004, filed as

Exhibit 10.1 to the company’s Current Report on Form 8-K filed October 4, 2004 (File No. 1-5767), is expressly incorporated herein by this reference.*

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10.12 Employment agreement between the company and Michael E. Foss effective February 6, 2004, filed as

Exhibit 10.17 to the company’s Annual Report on Form 10-K for the fiscal year ended February 28, 2005 (File No. 1-5767), is expressly incorporated herein by this reference.*

10.13 Letter agreement between the company and Michael E. Foss effective April 17, 2007, filed herewith.* 10.14 Employment agreement between the company and George D. Clark, Jr. effective December 4, 2003, filed

herewith.* 10.15 Employment agreement between the company and Reginald D. Hedgebeth effective July 11, 2005, filed

herewith.* 10.16 Employment agreement between the company and Eric A. Jonas, Jr. effective July 26, 2004, filed

herewith.* 10.17 Employment agreement between the company and Brian E. Levy effective March 30, 2004, filed as Exhibit

10.1 to the company’s Quarterly Report on Form 10-Q for the quarter ended May 31, 2004 (File No. 1-5767), is expressly incorporated herein by this reference.*

10.18 Retirement and Consulting Agreement between the company and W. Alan McCollough effective December

22, 2005, filed as Exhibit 10.2 to the company’s Quarterly Report on form 10-Q for the quarter ended November 30, 2005 (File No. 1-5767), is expressly incorporated herein by this reference.*

10.19 Letter Agreement between the company and Fiona P. Dias, filed as Exhibit 10.3 to the company’s Current

Report on Form 8-K filed June 29, 2006 (File No. 1-5767), is expressly incorporated herein by this reference.*

10.20 Circuit City Stores, Inc. 2003 Annual Performance-Based Bonus Plan, filed as Appendix C to the

company’s Definitive Proxy Statement dated May 9,2003, for an Annual Meeting of Shareholders held on June 17, 2003 (File No. 1-5767), is expressly incorporated herein by this reference.*

10.21 Circuit City Stores, Inc. Restricted Stock Unit Deferral Program under the Circuit City Stores, Inc. 2000

Non-Employee Directors Stock Incentive Plan, filed as Exhibit 10.6 to the company’s Quarterly Report on Form 10-Q for the quarter ended August 31, 2004 (File No. 1-5767), is expressly incorporated herein by this reference.*

10.22 Circuit City Stores, Inc. Non-Employee Directors Deferred Compensation Plan, filed as Exhibit 10 to the

company’s Quarterly Report on Form 10-Q for the quarter ended August 31, 2000 (File No. 1-5767), is expressly incorporated herein by this reference.*

10.23 Program for deferral of director compensation implemented October 1995 filed as Exhibit 10 (i) to the

company’s Quarterly Report on Form 10-Q for the quarter ended November 30, 1995 (File No. 1-5767), is expressly incorporated herein by this reference.*

10.24 Circuit City Stores, Inc. Benefit Restoration Plan, As Amended and Restated Effective February 28, 2005

and amended through December 2005, filed as Exhibit 10.1 to the company’s Quarterly Report on Form 10-Q for the quarter ended November 30, 2005 (File No. 1-5767), is expressly incorporated herein by this reference.*

10.25 Circuit City Stores, Inc. Supplemental 401(k) Plan Effective March 1, 2005, filed as Exhibit 10.2 to the

company’s Current Report on Form 8-K filed October 29, 2004 (File No. 1-5767), is expressly incorporated herein by this reference.*

10.26 The 1984 Circuit City Stores, Inc. Employee Stock Purchase Plan as Amended and Restated Effective

August 17, 2004, field as Exhibit 10.4 to the company’s Quarterly Report on Form 10-Q for the quarter ended August 31, 2004 (File No. 1-5767), is expressly incorporated herein by this reference.*

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10.27 InterTAN Canada, Ltd. Stock Purchase Program, filed as Appendix B to the company’s Definitive Proxy Statement dated May 13, 2005, for the Annual Meeting of Shareholders held on June 21, 2005 (File No. 1-5767), is expressly incorporated herein by this reference.*

10.28 Amended and Restated Credit Agreement dated as of July 8, 2004, filed as Exhibit 10.1 to the company’s

Quarterly Report on Form 10-Q for the quarter ended August 31, 2004 (File No. 1-5767), is expressly incorporated herein by this reference.

10.29 First Amendment to Amended and Restated Credit Agreement dated as of November 17, 2004, filed as

Exhibit 10.4 to the company’s Quarterly Report on Form 10-Q for the quarter ended November 30, 2004 (File No.1-5767), is expressly incorporated herein by this reference.

10.30 Second Amendment to the Amended and Restated Credit Agreement and to Security Agreement, filed as

Exhibit 10.1 to the company’s Current Report on Form 8-K filed on July 21, 2005 (File No. 1-5767), is expressly incorporated herein by this reference.

10.31 Third Amendment to the Amended and Restated Credit Agreement, dated as of October 18, 2005, filed as

Exhibit 10.4 to the company’s Quarterly Report on Form 10-Q for the quarter ended November 30, 2005 (File No. 1-5767), is expressly incorporated herein by this reference.

10.32 The Consumer Credit Card Program Agreement dated as of January 16, 2004, between Circuit City Stores,

Inc. and Bank One, Delaware, N.A., filed as Exhibit 10(r) to the company’s Annual Report on Form 10-K for the fiscal year ended February 29, 2004 (File No. 1-5767), is expressly incorporated herein by this reference.

10.33 Amendment to Program Agreement, dated as of May 25, 2004, between Circuit City Stores, Inc. and Bank

One, Delaware, N.A., filed as Exhibit 10.7 to the company’s Quarterly Report on Form 10-Q for the quarter ended August 31, 2004 (File No. 1-5767), is expressly incorporated herein by this reference.

10.34 Amendment #2 to Program Agreement, effective as of May 25, 2004, between Circuit City Stores, Inc. and

Bank One, Delaware, N.A., filed as Exhibit 10.8 to the company’s Quarterly Report on Form 10-Q for the quarter ended August 31, 2004 (File No. 1-5767), is expressly incorporated herein by this reference.

10.35 Schedule of Non-Employee Director Compensation, filed as Exhibit 10.1 to the company’s Current Report

on Form 8-K filed June 29, 2006 (File No. 1-5767), is expressly incorporated herein by this reference.* 10.36 Schedule of Compensation for Named Executive Officers, filed herewith.* 21.1 Subsidiaries of the Company 23.1 Consent of Independent Registered Public Accounting Firm 24.1 Powers of Attorney Rule 13a-14(a)/15d-14(a) Certifications 31.1 Certification of CEO under Rule 13a-14(a) of the Securities and Exchange Act of 1934 31.2 Certification of CFO under Rule 13a-14(a) of the Securities and Exchange Act of 1934 Section 1350 Certifications 32.1 Certification of CEO under Section 906 of the Sarbanes-Oxley Act of 2002 32.2 Certification of CFO under Section 906 of the Sarbanes-Oxley Act of 2002 *Indicates management contracts, compensatory plans or arrangements of the company required to be filed as an exhibit.


SHAREHOLDER INFORMATION

CORPORATE OFFICESCircuit City Stores, Inc.9950 Mayland DriveRichmond, Virginia 23233-1464

ANNUAL MEETINGJune 26, 2007, 10:00 a.m.The Jepson Alumni CenterThe University of RichmondRichmond, Virginia

STOCK INFORMATIONListed on the New York Stock ExchangeCircuit City NYSE symbol: CCThere were approximately 4,900 share-holders of record at February 28, 2007.

INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMKPMG LLPRichmond, Virginia

TRANSFER AGENT AND REGISTRARWells Fargo Shareowner ServicesSouth St. Paul, Minnesota(800) 401-1957http://www.wellsfargo.com/com/shareowner_services

SHAREHOLDER INQUIRIESOffice of Investor Relations(804) 527-4038

SECURITIES ANALYST INQUIRIESBill CiminoDirector of Corporate Communications(804) 418-8163

WEB SITEwww.circuitcity.com

INVESTOR INFORMATION WEB SITEhttp://investor.circuitcity.com

BOARD OF DIRECTORS

PHILIP J. SCHOONOVERChairman, President and Chief Executive Officer

MIKAEL SALOVAARA(2,3)

Lead Director; Private Investor; Retired, Partner, Greycliff Partners;Morristown, New Jersey

RONALD M. BRILL(1)

Private Investor; Retired, Executive VicePresident and Chief Administrative Officer,The Home Depot, Inc.; Atlanta, Georgia

CAROLYN H. BYRD(1)

Chairman and Chief Executive Officer,GlobalTech Financial, LLC; Atlanta, Georgia

URSULA O. FAIRBAIRN(2,3)

President and Chief Executive Officer,Fairbairn Group LLC; New York, New York

BARBARA S. FEIGIN(2,3)

Consultant; Retired, Executive VicePresident, Worldwide Director of Strategic Services, Grey Global Group, Inc.;New York, New York

MICHAEL E. FOSSPrincipal Financial Officer

JAMES F. HARDYMON(2,3)

Retired, Chairman and Chief ExecutiveOfficer, Textron Inc.; Lexington, Kentucky

ALAN KANE(2,3)

Dean of the School of Business andTechnology, Fashion Institute of Technology(FIT); New York, New York

ALLEN B. KING(1)

Chairman and Chief Executive Officer,Universal Corporation; Richmond, Virginia

J. PATRICK SPAINHOUR(1)

Chairman and Chief Executive Officer, The ServiceMaster Company; Downers Grove, Illinois

CAROLYN Y. WOO(1)

Dean, Mendoza College of Business,University of Notre Dame; South Bend, Indiana

(1) Audit Committee Member(2) Compensation & Personnel Committee

Member(3) Nominating & Governance Committee

Member

CERTIFICATIONSCircuit City has submitted to the New YorkStock Exchange (NYSE) a certification by itschief executive officer that he is not awareof any violation by the company of NYSEcorporate governance listing standards.Circuit City also has filed with the Securitiesand Exchange Commission as exhibits toits Annual Report on Form 10-K for theyear ended February 28, 2007, the certifi-cations of its chief executive officer andchief financial officer required by Section302 of the Sarbanes-Oxley Act of 2002.

EXECUTIVE OFFICERS

PHILIP J. SCHOONOVERChairman, President and Chief Executive Officer

GEORGE D. CLARK, JR.Executive Vice PresidentMulti-Channel Sales

MICHAEL E. FOSSPrincipal Financial Officer

DAVID L. MATHEWSExecutive Vice PresidentMerchandising, Services and Marketing

RONALD G. CUTHBERTSONSenior Vice PresidentSupply Chain and Inventory Management

PHILIP J. DUNNSenior Vice PresidentTreasurer and Controller

REGINALD D. HEDGEBETHSenior Vice PresidentGeneral Counsel and Secretary

ERIC A. JONAS, JR.Senior Vice PresidentHuman Resources

JOHN J. KELLYSenior Vice PresidentGeneral Merchandise Manager

IRYNNE V. MACKAYSenior Vice PresidentGeneral Merchandise Manager

WILLIAM E. MCCOREY JR.Senior Vice PresidentChief Information Officer

STEVEN P. PAPPASSenior Vice PresidentPresident – Small Stores

MARC J. SIEGERSenior Vice PresidentGeneral Manager – Services

PETER C. WEEDFALDSenior Vice PresidentChief Marketing Officer

MARSHALL J. WHALINGSenior Vice PresidentRetail Operations

RANDALL W. WICKSenior Vice PresidentGeneral Merchandise Manager

We have combined the Annual Report, Notice of Annual Meeting, Proxy Statement, and Form 10-K to reduce costs and return more value to our shareholders. In keeping with our commitment to corporate responsibility, this book is printed on paper that contains post-consumer

recycled content. Please help us preserve the environment by choosing to receive shareholder materials electronically.

CIRCUIT CITY STORES, INC. | 9950 MAYLAND DRIVE | RICHMOND, VIRGINIA 23233-1464

Economy & Finance

circuit city stores 2007 Annual Report, Proxy Statement, Form 10-K