CarMax 2013 Annual Report Download - page 48

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 operate in two reportable segments: CarMax Sales
Operations and CarMax Auto Finance (“CAF”). Our CarMax Sales Operations segment consists of all aspects of
our auto merchandising and service operations, excluding financing provided by CAF. Our CAF segment consists
solely of our own finance operation that provides vehicle financing through CarMax superstores.
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 provide
customers with a full range of related products and services, including the appraisal and purchase of vehicles
directly from consumers; the financing of vehicle purchases through our own finance operation, CAF, and third-
party financing providers; the sale of extended service plans (“ESP”), guaranteed asset protection (“GAP”) and
accessories; 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. At select locations we also sell new
vehicles under various franchise agreements.
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.
Certain prior year amounts have been reclassified to conform to the current year’s presentation. Amounts and
percentages may not total due to rounding.
(B) Cash and Cash Equivalents
Cash equivalents of $430.3 million as of February 28, 2013, and $429.3 million as of February 29, 2012, 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 $224.3 million as of February 28, 2013, and $204.3 million as of February 29, 2012,
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) Marketable Securities
During fiscal 2013, the Company classified all marketable securities as available-for-sale. These securities
consisted exclusively of variable-rate demand notes reported at fair value with unrealized gains and losses, net of
taxes, excluded from net income and shown separately as a component of accumulated other comprehensive loss
within shareholders' equity. There were no marketable securities available-for-sale as of February 28, 2013, and
February 29, 2012.
Proceeds from the sales of marketable securities available-for-sale were $30.3 million in fiscal 2013. There were no
related gains or losses during fiscal 2013. There were no marketable securities outstanding during fiscal 2012.
(E) Accounts Receivable, Net
Accounts receivable, net of an allowance for doubtful accounts, includes certain amounts due from third-party
finance providers and customers and other miscellaneous receivables. The allowance for doubtful accounts is
estimated based on historical experience and trends.
(F) Securitizations
We maintain a revolving securitization program composed of two warehouse facilities (“warehouse facilities”) that
we use to fund auto loan receivables originated by CAF until they are funded through a term securitization or
alternative funding arrangement. We sell the auto loan receivables to a wholly owned, bankruptcy-remote, special
purpose entity that transfers an undivided percentage ownership interest in the receivables, but not the receivables
themselves, to entities formed by third-party investors. These entities issue asset-backed commercial paper or utilize
other funding sources supported by the transferred receivables, and the proceeds are used to finance the securitized
receivables.
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