CarMax 2013 Annual Report Download - page 17

carmax.com to attract traffic and could have a material adverse effect on our business, sales and results of
operations.
CAF and our third-party financing providers are subject to competition from various financial institutions. If we
were unable to continue providing competitive finance offers to our customers through CAF and our third-party
financing providers, it could have a material adverse effect on our business, sales and results of operations. In
addition, we believe that CAF allows us to capture additional sales, profits and cash flows. Accordingly, if CAF
was unable to continue making competitive finance offers to our customers, it could have a material adverse effect
on our business, sales and results of operations.
Capital. Changes in the availability or cost of capital and working capital financing, including the long-term
financing to support the origination of auto loan receivables through CAF and our geographic expansion, could
adversely affect sales, operating strategies and store growth. Further, our current credit facility and certain
securitization and sale-leaseback agreements contain covenants and/or performance triggers. Any failure to comply
with these covenants or performance triggers could have a material adverse effect on our business, results of
operations and financial condition.
We use a securitization program to fund substantially all of the auto loan receivables originated by CAF. Initially,
we sell these receivables into our warehouse facilities. We periodically refinance the receivables through term
securitizations. Changes in the condition of the asset-backed securitization market could lead us to incur higher
costs to access funds in this market or require us to seek alternative means to finance CAF’s loan originations. In
the event that this market ceased to exist and there were no immediate alternative funding sources available, we
might be forced to curtail our lending practices for some period of time. The impact of reducing or curtailing CAF’s
loan originations could have a material adverse effect on our business, sales and results of operations.
Disruptions in the capital and credit markets could adversely affect our ability to draw on our revolving credit
facility. If our ability to secure funds from the facility were significantly impaired, our access to working capital
would be impacted, our ability to maintain appropriate inventory levels could be affected and these conditions could
have a material adverse effect on our business, sales, results of operations and financial condition.
Third-Party Financing Providers. CarMax provides financing to qualified customers through CAF and a number
of third-party financing providers. In the event that one or more of these third-party providers could no longer, or
choose not to, provide financing to our customers, could only provide financing to a reduced segment of our
customers or could no longer provide financing at competitive rates of interest, it could have a material adverse
effect on our business, sales and results of operations. Additionally, if we were unable to replace the current third-
party providers upon the occurrence of one or more of the foregoing events, it could also have a material adverse
effect on our business, sales and results of operations.
Retail Prices. Any significant changes in retail prices for new and used vehicles could have a material adverse
effect on our sales and results of operations. If prices for used vehicles rise significantly due to supply constraints
this could adversely affect consumer demand for vehicles. If retail prices for used vehicles rise relative to retail
prices for new vehicles, it could make buying a new vehicle more attractive to our customers than buying a used
vehicle, which could have a material adverse effect on our business, sales and results of operations.
Inventory. A reduction in the availability of or access to sources of inventory could have a material adverse effect
on our business. A failure to adjust appraisal offers to stay in line with broader market trade-in offer trends, or a
failure to recognize those trends, could adversely affect our ability to acquire inventory. Should we develop excess
inventory, the inability to liquidate the excess inventory at prices that allow us to meet margin targets or to recover
our costs could have a material adverse effect on our results of operations.
Regulatory and Legislative Environment. We are subject to a wide range of federal, state and local laws and
regulations, such as licensing requirements and laws regarding advertising, vehicle sales, financing and employment
practices. Our facilities and business operations are also subject to laws and regulations relating to environmental
protection and health and safety. The violation of these laws or regulations could result in administrative, civil or
criminal penalties or in a cease-and-desist order against business operations. As a result, we have incurred and will
continue to incur capital and operating expenses and other costs to comply with these laws and regulations. Further,
private plaintiffs and federal, state and local regulatory and law enforcement authorities continue to scrutinize
advertising, sales, financing and insurance activities in the sale and leasing of motor vehicles. If, as a result, other
automotive retailers adopt more transparent, consumer-oriented business practices, our differentiation versus those
retailers could be reduced.
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