CarMax 2015 Annual Report Download - page 49

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
45
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 stores.
We seek to deliver an unrivaled customer experience by offering a broad selection of high quality used vehicles and
related products and services at 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 CAF and third-party
financing providers; the sale of extended protection plan (“EPP”) products, which include extended service plans
(“ESP”) and guaranteed asset protection (“GAP”); 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 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 approximately $48,000 as of February 28, 2015, and $607.0 million as of February 28, 2014,
consisted of highly liquid investments with original maturities of three months or less.
(C) Restricted Cash from Collections on Auto Loan Receivables
Cash equivalents totaling $294.1 million as of February 28, 2015, and $259.3 million as of February 28, 2014,
consisted of collections of principal, interest and fee payments on securitized auto loan receivables that are restricted
for payment to the securitization investors pursuant to the applicable securitization agreements.
(D) Marketable Securities
The Company classifies its marketable securities as trading. These securities consisted primarily of mutual funds
reported at fair value with unrealized gains and losses reflected as a component of other expense. Marketable securities
as of February 28, 2015 and 2014 pertain to the Company's restricted investments held in a rabbi trust. Proceeds from
the sales of marketable securities were $0.7 million and $0.5 million in fiscal 2015 and 2014, respectively. Realized
and unrealized gains of $0.2 million and $0 were recognized during fiscal 2015 and fiscal 2014, respectively.
(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 we elect to fund them through a term securitization or
alternative funding arrangement. We sell the auto loan receivables to one of two wholly owned, bankruptcy-remote,
special purpose entities that transfer 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.