CarMax 2008 Annual Report Download - page 53

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BUSINESS AND BACKGROUND
CarMax, Inc. (“we”, “our”, “us”, “CarMax” and “the company”), including its wholly owned subsidiaries, is the
largest retailer of used vehicles in the United States. We were the first used vehicle retailer to offer a large selection
of high quality used vehicles at competitively low, no-haggle prices using a customer-friendly sales process in an
attractive, modern sales facility. We also sell new vehicles under various franchise agreements. We provide
customers with a full range of related products and services, including the financing of vehicle purchases through
our own finance operation, CarMax Auto Finance (“CAF”), and third-party lenders; the sale of extended service
plans and accessories; the appraisal and purchase of vehicles directly from consumers; and vehicle repair service.
Vehicles purchased through the appraisal process that do not meet our retail standards are sold to licensed dealers
through on-site wholesale auctions.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(A) Basis of Presentation and Use of Estimates
The consolidated financial statements include the accounts of CarMax and our wholly owned subsidiaries. All
significant intercompany balances and transactions have been eliminated in consolidation. 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 could differ from those estimates. Amounts and
percentages may not total due to rounding.
On February 22, 2007, the board of directors declared a 2-for-1 stock split in the form of a common stock dividend
for shareholders of record on March 19, 2007, which was distributed on March 26, 2007. All share and per share
data included in the consolidated financial statements and accompanying notes reflect this stock split.
(B) Cash and Cash Equivalents
Cash equivalents of $2.0 million as of February 29, 2008, and $1.5 million as of February 28, 2007, consisted of
highly liquid investments with original maturities of three months or less.
(C) Securitizations
The transfers of receivables associated with our auto loan securitization program are accounted for as sales. We
retain an interest in the auto loan receivables that we securitize. The retained interest includes the present value of
the expected residual cash flows generated by the securitized receivables, various reserve accounts, required excess
receivables and retained subordinated bonds. The retained interest is carried at fair value and changes in fair value
are included in earnings. See Notes 3 and 4 for additional discussion of securitizations.
(D) Fair Value of Financial Instruments
Due to the short-term nature and/or variable rates associated with these financial instruments, the carrying value of
our cash and cash equivalents, receivables including auto loan receivables held for sale, restricted investments,
accounts payable, short-term debt and long-term debt approximates fair value. Our retained interest in securitized
receivables and derivative financial instruments are recorded at fair value.
(E) Accounts Receivable
Accounts receivable, net of an allowance for doubtful accounts, include certain amounts due from finance
companies and customers, from new car manufacturers for incentives, from third parties for warranty
reimbursements, and for other miscellaneous receivables. The allowance for doubtful accounts is estimated based
on historical experience and trends.