CarMax 2006 Annual Report Download - page 33

CARMAX 2006 31
Income Taxes
The effective income tax rate was 38.3% in fiscal 2006, 38.8% in fiscal 2005, and 38.5% in fiscal 2004. The
fiscal 2006 decrease resulted primarily from a legal entity reorganization in the fourth quarter of fiscal 2005.
The company created a centralized corporate management entity in an effort to obtain operational, legal, and
other benefits that also resulted in state tax efficiencies. The fiscal 2005 increase resulted from geographic
expansion into states with higher income tax rates, including having a larger percentage of stores located in
unitary tax states.
OPERATIONS OUTLOOK
Store Openings and Capital Expenditures
During the fiscal year ending February 28, 2007, we plan to expand our used car superstore base by
approximately 16%, opening approximately 11 used car superstores, consisting of an approximately equal mix
of standard and satellite superstores.
FISCAL 2007 PLANNED SUPERSTORE OPENINGS
Standard Satellite Total
Superstores Superstores Superstores
Hartford/New Haven, Conn. .... New mid-sized market ...................... 1 1 2
Columbus, Ohio ........................ New mid-sized market ...................... 1 1 2
Oklahoma City, Okla. ............... New mid-sized market ...................... 1 — 1
Los Angeles, Calif...................... Existing large market ........................ — 1 1
Charlottesville, Va...................... New small market ............................. — 1 1
Fredericksburg, Va.(1) .................. Existing large market ........................ 1 — 1
Austin, Tex. ................................ Existing mid-sized market................. — 1 1
Charlotte, N.C. .......................... Existing mid-sized market................. 1 — 1
Fresno, Calif. .............................. New mid-sized market ...................... 1 — 1
Total planned openings............................................................................. 6 5 11
(1) Part of the Washington, D.C. television market.
We expect to open approximately four stores in the first quarter of fiscal 2007, two stores late in the third
quarter, and five stores in the fourth quarter. Given their timing, we expect little, if any, contribution to fiscal
2007 sales and profits from the stores scheduled to open in the fourth quarter. In addition, normal construction,
permitting, or other scheduling delays could shift the opening dates of any of these stores into fiscal 2008.
With an estimated television viewing population of approximately 185,000, Charlottesville, Va., represents
our first entry into a small market. We will be adjusting our store footprint, inventory, and our staffing model in
this store, as a result of the smaller overall sales opportunities provided by this market. This store’s performance
over the next few years will help us better understand our longer-term opportunities in small markets.
In May 2006, we opened our first “CarMax Car Buying Center,” which is in the Atlanta market in a major
automotive retail center not currently served by CarMax. The store is staffed with CarMax buyers, who
conduct appraisals and purchase vehicles on site using the same processes and systems utilized in our used car
superstores. We do not sell cars at this store. This test store is part of our long-term program to increase both
appraisal traffic and retail vehicle sourcing self-sufficiency.
We estimate gross capital expenditures will total approximately $300 million in fiscal 2007. Planned
expenditures primarily relate to new store construction and land purchases associated with future year store
openings. Compared with fiscal 2006, the increase in estimated fiscal 2007 capital spending primarily reflects
a higher level of real estate purchases for store development in future years, as well as the timing of
construction activities.