CarMax 2011 Annual Report Download - page 55

N O T E S T O C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S
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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. At select locations 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 CarMax Auto Finance (“CAF”), our own finance operation, and third-party financing providers;
the sale of extended service plans (“ESP”), guaranteed asset protection (“GAP”) 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 (“GAAP”) 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.
(B) Cash and Cash Equivalents
Cash equivalents of $23.9 million as of February 28, 2011, and $0.5 million as of February 28, 2010, consisted of
highly liquid investments with original maturities of three months or less.
(C) Restricted Cash from Collections on Auto Loan Receivables
Cash accounts totaling $161.1 million as of February 28, 2011, consisted of collections of principal and interest
payments on securitized auto loan receivables that are restricted for payment to the securitization investors pursuant
to the applicable securitization agreements.
(D) Accounts Receivable, Net
Accounts receivable, net of an allowance for doubtful accounts, include certain amounts due from third-party
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.
(E) Securitizations
As of March 1, 2010, we adopted Financial Accounting Standards Board (“FASB”) Accounting Standards Update
(“ASU”) Nos. 2009-16 and 2009-17 (formerly Statements of Financial Accounting Standards Nos. 166 and 167,
respectively) on a prospective basis. ASU No. 2009-16 amended FASB Accounting Standards Codification
(“ASC”) Topic 860, “Transfers and Servicing,” and ASU No. 2009-17 amended FASB ASC Topic 810,
“Consolidation.” ASU No. 2009-16 removed the concept of a qualifying special-purpose entity (“QSPE”) from
Topic 860 and removed the provision within Topic 810 exempting these entities from consolidation. These
pronouncements also clarified the requirements for isolation and the limitations on the portions of financial assets
that are eligible for sale accounting treatment.
Pursuant to these pronouncements, we recognize transfers of auto loan receivables into term securitizations as
secured borrowings, which results in recording the auto loan receivables and the related non-recourse notes payable
to the investors on our consolidated balance sheets. All transfers of receivables into our warehouse facilities on or
after March 1, 2010, are also accounted for as secured borrowings. As of March 1, 2010, we amended our
warehouse facility agreement in effect as of that date. As a result, auto loan receivables previously securitized
through that warehouse facility no longer qualify for sale treatment because, under the amendment, CarMax now has
effective control over the receivables. The receivables that were funded in the warehouse facility at that date were
consolidated, at their fair value, along with the related non-recourse notes payable to the investors.