CarMax 2016 Annual Report Download - page 16
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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.
We rely on third-party providers to supply EPP products to our customers. Accordingly, our sales and results of operations are
partially dependent on the actions of these third-parties.
We receive revenue for selling EPP products on behalf of unrelated third-parties, who are the primary obligors. The third parties
that provide ESPs are The Warranty Group, CNA National Warranty Corporation and Fidelity Warranty Services. The third party
that provides GAP products is Safe-Guard Products International LLC. If one or more of these third-party providers cease to
provide EPP products, make changes to their products or no longer provide their products on competitive terms, 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.
Our success depends upon the continued contributions of our more than 22,000 associates.
Our associates are the driving force behind our success. We believe that one of the things that sets CarMax apart is a culture
centered on valuing all associates. In addition, our strategic initiatives require management, employees and contractors to adapt
and learn new skills and capabilities. Our failure to maintain this culture or to continue recruiting, developing and retaining the
associates that drive our success could have a material adverse effect on our business, sales and results of operations. Our ability
to recruit associates while controlling related costs is subject to numerous external and internal factors, including unemployment
levels, prevailing wage rates, our growth plans, changes in employment legislation, and competition for qualified employees in
the industry and regions in which we operate and for qualified service technicians in particular. Our ability to recruit associates
while controlling related costs is also subject to our ability to maintain positive associate relations. If we are unable to do so, or
if despite our efforts we become subject to successful unionization efforts, it could increase costs, limit our ability to respond to
competitive threats and have a material adverse effect on our business, sales and results of operations.
Our success also depends upon the continued contributions of our store, region and corporate management teams. Consequently,
the loss of the services of any of these associates could have a material adverse effect on our business, sales and results of
operations. In addition, an inability to build our management bench strength to support store growth could have a material adverse
effect on our business, sales and results of operations.
We collect sensitive confidential information from our customers. A breach of this confidentiality, whether due to a cyber-
security or other incident, could result in harm to our customers and damage to our brand.
We collect, process and retain sensitive and confidential customer information in the normal course of business and may share
that information with our third-party service providers. This information includes the information customers provide when
purchasing a vehicle and applying for vehicle financing. We also collect, process and retain sensitive and confidential associate
information in the normal course of business and may share that information with our third-party service providers. Although we
have taken measures designed to safeguard such information and have received assurances from our third-party providers, our
facilities and systems, and those of third-party providers, could be vulnerable to external or internal security breaches, acts of
vandalism, computer viruses, misplaced or lost data, programming or human errors or other similar events. Numerous national
retailers have disclosed security breaches involving sophisticated cyber-attacks that were not recognized or detected until after
such retailers had been affected, notwithstanding the preventive measures such retailers had in place. Any security breach involving
the misappropriation, loss or other unauthorized disclosure of confidential customer or associate information, whether experienced
by us or by our third-party service providers, and whether due to an external cyber-security incident, a programming error, or other
cause, could damage our reputation, expose us to mitigation costs and the risks of private litigation and government enforcement,
disrupt our business and otherwise have a material adverse effect on our business, sales and results of operations. In addition, our
failure to respond quickly and appropriately to such a security breach could exacerbate the consequences of the breach.
Our business is sensitive to changes in the prices of new and used vehicles.
Any significant changes in retail prices for new and used vehicles could have a material adverse effect on our sales and results of
operations. For example, 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 sales and
results of operations and could result in decreased used margins. Manufacturer incentives could contribute to narrowing this price
gap. In addition, any significant changes in wholesale prices for used vehicles could have a material adverse effect on our results
of operations by reducing wholesale margins.