CarMax 2006 Annual Report Download - page 35

CARMAX 2006 33
FINANCIAL CONDITION
Operating Activities
We generated net cash from operating activities of $122.3 million in fiscal 2006, $45.7 million in fiscal 2005,
and $147.0 million in fiscal 2004. The $76.6 million improvement in cash generated from operating activities in
fiscal 2006 compared with fiscal 2005 primarily reflected the $35.2 million increase in net earnings and a $39.9
million reduction in the year-over-year growth in current assets other than cash. The increase in inventories in
both years reflected the growth in total vehicle inventories resulting from the expansion of our store base. The
$101.2 million decline in cash generated from operating activities in fiscal 2005 compared with fiscal 2004
primarily reflected a $110.9 million increase in the year-over-year growth in inventories. Inventory levels were
similar at the beginning and the end of fiscal 2004, reflecting a higher-than-normal inventory balance at the
beginning of the year and the disposal of four new car franchises, which together offset the growth in inventory
associated with store openings.
The aggregate principal amount of automobile loan receivables funded through securitizations, which
are discussed in Notes 3 and 4 to the company’s consolidated financial statements, totaled $2.71 billion at
February 28, 2006, $2.43 billion at February 28, 2005, and $2.20 billion at February 29, 2004. During fiscal
2006, we completed three public automobile securitizations totaling $1.59 billion. At February 28, 2006, the
warehouse facility limit was $825.0 million and unused warehouse capacity totaled $241.0 million. The
warehouse facility matures in July 2006. Note 4 to the company’s consolidated financial statements includes
a discussion of the warehouse facility. We anticipate that we will be able to renew, expand, or enter into new
securitization arrangements to meet the future needs of the automobile finance operation.
Investing Activities
Net cash used in investing activities was $116.1 million in fiscal 2006, $141.1 million in fiscal 2005, and $73.8
million in fiscal 2004. Capital expenditures were $194.4 million in fiscal 2006, $230.1 million in fiscal 2005,
and $181.3 million in fiscal 2004. In addition to store construction costs, capital expenditures for all three years
included the cost of land acquired for future year store openings and costs associated with our new home
office, which was completed in October 2005. Compared with fiscal 2005, the decline in capital spending in
fiscal 2006 primarily reflects fewer real estate purchases for store development in future years. Several of the
store sites added in fiscal 2006 were acquired pursuant to long-term leases, as opposed to purchases.
Capital expenditures are funded through internally generated funds, short- and long-term debt, and sale-
leaseback transactions. Net proceeds from the sales of assets totaled $78.3 million in fiscal 2006, $89.0 million
in fiscal 2005, and $107.5 million in fiscal 2004. The majority of the sale proceeds relate to sale-leaseback
transactions. In fiscal 2006, we entered into sale-leaseback transactions involving five superstores valued at
$72.7 million. In fiscal 2005, we entered into sale-leaseback transactions involving seven superstores valued at
approximately $84.0 million. In fiscal 2004, we entered into sale-leaseback transactions involving nine
superstores valued at approximately $107.0 million. These transactions were structured with initial lease terms
of either 15 or 20 years with four, five-year renewal options. At February 28, 2006, we owned ten superstores
currently in operation, as well as the company’s home office in Richmond, Virginia. In addition, six store
facilities were accounted for as capital leases.
Financing Activities
Net cash used in financing activities was $1.6 million in fiscal 2006, while net cash provided by financing
activities was $63.8 million in fiscal 2005. In fiscal 2004, net cash used in financing activities was $47.6 million.
In fiscal 2006, we used cash generated from operations to reduce total debt by $6.8 million. In fiscal 2005, we
increased total debt by $60.2 million primarily to fund increased inventory. In fiscal 2004, we used cash
generated from operations to reduce total outstanding debt by $51.6 million.
In August 2005, we entered into a new, four-year $450 million revolving credit facility secured by vehicle
inventory. Concurrently, we terminated our existing $300 million credit agreement. Borrowings under the new
credit facility are available for working capital and general corporate purposes, and represent senior secured
indebtedness of the company. All outstanding principal amounts borrowed under the credit facility will be due
and payable in August 2009. The aggregate borrowing limit includes a $25 million limit on new vehicle swing
line loans, a $25 million limit on other swing line loans, and a $30 million limit on standby letters of credit.
Borrowings on each of the swing lines are due on demand and must be repaid monthly or refinanced through
other committed borrowings under the credit agreement.