CarMax 2003 Annual Report Download - page 37

CARMAX 2003 35
The preparation of financial statements in conformity
with accounting principles generally accepted in the United
States of America 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 could differ
from those estimates.
(T) Reclassifications
Certain prior year amounts have been reclassified to
conform to the current presentation. Wholesale sales were
reclassified and reported in net sales and operating revenues.
Previously, wholesale sales were recorded as a reduction to
cost of sales. The reclassification of wholesale sales to sales
increased sales and cost of sales by $325.6 million in fiscal
2002 and $253.5 in fiscal 2001.An additional reclassification
between sales and cost of sales made to conform to the
current presentation decreased sales and cost of sales by $9.1
million in fiscal 2002 and $7.4 million in fiscal 2001.Third-
party finance fees were reclassified and reported in net sales
and operating revenues. Previously, third-party finance fees
were recorded as a reduction to selling, general and
administrative expenses. The reclassification of third-party
finance fees increased sales and selling, general and
administrative expenses by $15.7 million in fiscal 2002 and
$11.5 million in fiscal 2001. Additionally, the company
presents CarMax Auto Finance income separately in the
consolidated statements of earnings. Previously, CarMax
Auto Finance income was recorded as a reduction to selling,
general and administrative expenses. The reclassification of
CarMax Auto Finance income increased selling, general and
administrative expenses by $66.5 million in fiscal 2002 and
$42.7 million in fiscal 2001. These reclassifications had no
impact on the company’s net earnings.
PROPERTY AND EQUIPMENT
Property and equipment, at cost, is summarized as follows:
As of February 28
(Amounts in thousands) 2003 2002
Buildings (25 years) $ 18,381 $—
Land 19,418 3,442
Land held for sale 3,354 8,762
Land held for development 8,021 8,021
Construction in progress 91,938 64,122
Furniture, fixtures and equipment
(5 to 8 years) 86,129 69,435
Leasehold improvements
(8 to 15 years) 21,029 17,281
248,270 171,063
Less accumulated depreciation and
amortization 61,112 50,087
Property and equipment, net $187,158 $120,976
Land held for development represents land owned for
future sites that are scheduled to open more than one year
beyond the fiscal year reported.
DEBT
Total debt is summarized as follows:
As of February 28
(Amounts in thousands) 2003 2002
Term loan $100,000 $—
Revolving loan 56,051 —
Debt from former parent, long-term —78,608
Debt from former parent, short-term —9,840
Total debt 156,051 88,448
Less current installments of
long-term debt —78,608
Less short-term debt 56,051 9,840
Total long-term debt, excluding
current installments $100,000 $—
In May 2002, CarMax entered into a $200 million credit
agreement secured by vehicle inventory. During the fourth
quarter of fiscal year 2003, the credit agreement was increased
from $200 million to $300 million. The credit agreement
includes a $200 million revolving loan commitment and a $100
million term loan. Principal is due in full at maturity with
interest payable monthly at a LIBOR-based rate. The credit
agreement is scheduled to terminate on May 17, 2004. The
termination date of the agreement will be automatically
extended one year each May 17 unless either CarMax or either
lender elects, prior to the extension date, not to extend the
agreement. As of February 28, 2003, the amount outstanding
under this credit agreement was $156.1 million. Under this
agreement, CarMax must meet financial covenants relating to
minimum current ratio, maximum total liabilities to tangible net
worth ratio and minimum fixed charge coverage ratio. CarMax
was in compliance with all such covenants at February 28, 2003.
At February 28, 2002, CarMax’s share of certain former-
parent, long-term debt totaled $77.8 million and was included
in current installments of long-term debt.At February 28, 2002,
the variable interest rate on this portion of debt was 2.25%.
Additionally, CarMax’s portion of certain former-parent, short-
term debt totaled $1.4 million at February 28, 2002, and was
included in short-term debt. As part of the separation in fiscal
2003, CarMax’s portion of this debt was paid in full.
In December 2001, CarMax entered into an $8.5 million
secured promissory note in conjunction with the purchase of
land for new store construction, which was included in short-
term debt at February 28, 2002. This note was repaid in
August 2002 using existing working capital.
4
3