CarMax 2016 Annual Report Download - page 15
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of financing, our reconditioning process, or our treatment of customers. Even the perception of a decrease in the quality of our
brand could impact results.
The growing use of social media increases the speed with which information and opinions can be shared and thus the speed with
which reputation can be affected. We monitor social media and attempt to address customer concerns, provide accurate information
and protect our reputation, but there can be no guarantee that our efforts will succeed. If we fail to correct or mitigate misinformation
or negative information, including information spread through social media or traditional media channels, about the vehicles we
offer, our customer experience, or any aspect of our brand, it could have a material adverse effect on our business, sales and results
of operations.
The automotive retail industry in general and our business in particular are sensitive to economic conditions. These conditions
could adversely affect our business, sales, results of operations and financial condition.
We are subject to national and regional U.S. economic conditions. These conditions include, but are not limited to, recession,
inflation, interest rates, unemployment levels, the state of the housing market, gasoline prices, consumer credit availability,
consumer credit delinquency and loss rates, personal discretionary spending levels, and consumer sentiment about the economy
in general. These conditions and the economy in general could be affected by significant national or international events such as
acts of terrorism. When these economic conditions worsen or stagnate, it can have a material adverse effect on consumer demand
for vehicles generally, including the used vehicles that we sell, and the availability of consumer credit to finance vehicle
purchases. This could result in lower sales, decreased margins on units sold, and decreased profits for our CAF segment. Worsening
or stagnating economic conditions can also have a material adverse effect on the supply of late-model used vehicles, as automotive
manufacturers produce fewer new vehicles and consumers retain their current vehicles for longer periods of time. This could result
in increased costs to acquire used vehicle inventory and decreased margins on units sold.
Any significant change or deterioration in economic conditions could have a material adverse effect on our business, sales, results
of operations and financial condition.
Our business is dependent upon capital to fund growth and to support the activities of our CAF segment. Changes in capital
and credit markets could adversely affect our business, sales, results of operations and financial condition.
Changes in the availability or cost of capital and working capital financing, including the long-term financing to support our
geographic expansion, could adversely affect sales, operating strategies and store growth. Although internally generated cash
flows have recently been sufficient to fund geographic expansion, there can be no assurance that we will continue to generate cash
flows sufficient to fund growth. Failure to do so—or our decision to put our cash to other uses—would make us more dependent
on external sources of financing to fund our geographic expansion.
Changes in the availability or cost of the long-term financing to support the origination of auto loan receivables through CAF
could adversely affect sales and results of operations. We use a securitization program to fund substantially all of the auto loan
receivables originated by CAF. 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.
Our revolving credit facility, term loan and certain securitization and sale-leaseback agreements contain covenants and 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.
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—especially if coupled with a failure to generate
significant cash flows—could have a material adverse effect on our business, sales, results of operations and financial condition.
We rely on third-party financing providers to finance a significant portion of our customers’ vehicle purchases. Accordingly,
our sales and results of operations are partially dependent on the actions of these third parties.
We provide financing to qualified customers through CAF and a number of third-party financing providers. If one or more of
these third-party providers cease to provide financing to our customers, provide financing to fewer customers or no longer provide
financing on competitive terms, it could have a material adverse effect on our business, sales and results of operations. Additionally,