UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended November 30, 2005
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number: 1-31420
CARMAX, INC.
(Exact name of registrant as specified in its charter)
VIRGINIA 54-1821055
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
12800 TUCKAHOE CREEK PARKWAY, RICHMOND, VIRGINIA 23238
(Address of principal executive offices) (Zip Code)
(804) 747-0422
(Registrant's telephone number, including area code)
NA
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
----- -----
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act).
Yes X No
----- -----
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act).
Yes No X
----- -----
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at December 31, 2005
----------------------------- --------------------------------
Common Stock, par value $0.50 104,851,247
CARMAX, INC. AND SUBSIDIARIES
TABLE OF CONTENTS
-----------------
Page
No.
---
PART I. FINANCIAL INFORMATION
---------------------
Item 1. Consolidated Financial Statements:
Consolidated Statements of Earnings -
Three Months and Nine Months Ended November 30, 2005 and 2004 3
Consolidated Balance Sheets -
November 30, 2005, and February 28, 2005 4
Consolidated Statements of Cash Flows -
Nine Months Ended November 30, 2005 and 2004 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations 15
Item 3. Quantitative and Qualitative Disclosures About Market Risk 27
Item 4. Controls and Procedures 28
PART II. OTHER INFORMATION
-----------------
Item 1. Legal Proceedings 29
Item 6. Exhibits 29
SIGNATURES 30
- ----------
EXHIBIT INDEX 31
- -------------
Page 2 of 31
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CARMAX, INC. AND SUBSIDIARIES
-----------------------------
Consolidated Statements of Earnings (Unaudited)
(In thousands except per share data)
Three Months Ended Nine Months Ended
November 30 November 30
---------------------------------------- -----------------------------------------
2005 %(1) 2004 %(1) 2005 %(1) 2004 %(1)
------ ------- ------- ------- ------- ------- ------- -------
Sales and operating revenues:
Used vehicle sales $ 1,087,097 76.3 $ 926,023 76.2 $ 3,527,416 76.1 $ 2,898,757 75.0
New vehicle sales 113,299 8.0 114,199 9.4 399,314 8.6 388,480 10.1
Wholesale vehicle sales 174,235 12.2 132,669 10.9 554,510 12.0 441,658 11.4
Other sales and revenues 49,349 3.5 42,820 3.5 154,953 3.3 135,313 3.5
----------------------------------------- ----------------------------------------
Net sales and operating revenues 1,423,980 100.0 1,215,711 100.0 4,636,193 100.0 3,864,208 100.0
Cost of sales 1,246,807 87.6 1,070,265 88.0 4,052,677 87.4 3,388,332 87.7
----------------------------------------- ----------------------------------------
Gross profit 177,173 12.4 145,446 12.0 583,516 12.6 475,876 12.3
CarMax Auto Finance income
(Notes 3 and 4) 27,971 2.0 20,439 1.7 78,866 1.7 62,999 1.6
Selling, general, and administrative
expenses 161,727 11.4 137,170 11.3 486,236 10.5 402,584 10.4
Gain on franchise dispositions, net - - 692 0.1 - - 681 -
Interest expense 430 - - - 1,999 - 817 -
Interest income 262 - 175 - 588 - 294 -
----------------------------------------- ----------------------------------------
Earnings before income taxes 43,249 3.0 29,582 2.4 174,735 3.8 136,449 3.5
Provision for income taxes 16,837 1.2 11,537 0.9 67,083 1.4 53,215 1.4
----------------------------------------- ----------------------------------------
Net earnings $ 26,412 1.9 $ 18,045 1.5 $ 107,652 2.3 $ 83,234 2.2
========================================= ========================================
Weighted average common
shares (Note 7):
Basic 104,727 104,070 104,547 103,978
============ =========== =========== ===========
Diluted 106,442 105,735 106,281 105,673
============ =========== =========== ===========
Net earnings per share (Note 7):
Basic $ 0.25 $ 0.17 $ 1.03 $ 0.80
============ =========== =========== ===========
Diluted $ 0.25 $ 0.17 $ 1.01 $ 0.79
============ =========== =========== ===========
(1) Percents are calculated as a percentage of net sales and operating revenues and may not equal totals due to rounding.
See accompanying notes to consolidated financial statements.
Page 3 of 31
CARMAX, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(In thousands except share data)
November 30, 2005 February 28, 2005
----------------- -----------------
(Unaudited)
ASSETS
- ------
Current assets:
Cash and cash equivalents (Note 2) $ 34,977 $ 29,099
Accounts receivable, net 55,616 76,167
Automobile loan receivables held for sale (Note 4) 1,527 22,152
Retained interest in securitized receivables (Note 4) 158,930 147,963
Inventory 606,366 576,567
Prepaid expenses and other current assets 11,381 13,008
----------- ------------
Total current assets 868,797 864,956
Property and equipment, net 465,990 406,301
Deferred income taxes 5,869 -
Other assets 26,484 21,756
----------- ------------
TOTAL ASSETS $ 1,367,140 $ 1,293,013
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
- ------------------------------------
Current liabilities:
Accounts payable $ 173,341 $ 170,646
Accrued expenses and other current liabilities 75,266 65,664
Accrued income taxes 21,571 1,179
Deferred income taxes 19,572 26,315
Short-term debt (Note 9) 4,707 65,197
Current portion of long-term debt (Note 9) 40,042 330
----------- ------------
Total current liabilities 334,499 329,331
Long-term debt, excluding current portion (Note 9) 85,036 128,419
Deferred revenue and other liabilities 29,322 29,260
Deferred income taxes - 5,027
----------- ------------
TOTAL LIABILITIES 448,857 492,037
----------- ------------
Commitments and contingent liabilities (Note 6)
Shareholders' equity:
Common stock, $0.50 par value; 350,000,000 shares authorized;
104,841,310 and 104,303,375 shares issued and outstanding
at November 30, 2005, and February 28, 2005, respectively 52,421 52,152
Capital in excess of par value 498,550 489,164
Retained earnings 367,312 259,660
----------- ------------
TOTAL SHAREHOLDERS' EQUITY 918,283 800,976
----------- ------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 1,367,140 $ 1,293,013
============ ============
See accompanying notes to consolidated financial statements.
Page 4 of 31
CARMAX, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows (Unaudited)
(In thousands)
Nine Months Ended
November 30
2005 2004
----------- -----------
Operating Activities:
- ---------------------
Net earnings $ 107,652 $ 83,234
Adjustments to reconcile net earnings to net
cash provided by operating activities:
Depreciation and amortization 19,193 13,334
Amortization of restricted stock awards 53 79
Gain on disposition of assets (777) (810)
Deferred income tax benefit (17,639) (2,163)
Changes in operating assets and liabilities:
Decrease in accounts receivable, net 20,551 8,664
Decrease in automobile loan receivables
held for sale 20,625 15,241
(Increase) decrease in retained interest in
securitized receivables (10,967) 14,367
Increase in inventory (29,799) (37,621)
Decrease (increase) in prepaid expenses
and other current assets 1,627 (598)
Increase in other assets (434) (394)
Increase (decrease) in accounts payable,
accrued expenses and other current liabilities,
and accrued income taxes 37,804 (11,500)
Increase in deferred revenue and other liabilities 800 1,772
---------- ----------
Net cash provided by operating activities 148,689 83,605
---------- ----------
Investing Activities:
- ---------------------
Purchases of property and equipment (153,490) (176,341)
Proceeds from sales of assets 78,217 52,657
---------- ----------
Net cash used in investing activities (75,273) (123,684)
---------- ----------
Financing Activities:
- ---------------------
(Decrease) increase in short-term debt, net (60,490) 1,885
Issuance of long-term debt 105,229 -
Payments on long-term debt (116,764) -
Equity issuances, net 4,487 2,313
---------- ----------
Net cash (used in) provided by financing activities (67,538) 4,198
---------- ----------
Increase (decrease) in cash and cash equivalents 5,878 (35,881)
Cash and cash equivalents at beginning of year 29,099 61,643
---------- ----------
Cash and cash equivalents at end of period $ 34,977 $ 25,762
========== ==========
See accompanying notes to consolidated financial statements.
Page 5 of 31
CARMAX, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
------------------------------------------
(Unaudited)
1. Background
----------
CarMax, Inc. ("CarMax" and "the company"), including its wholly owned
subsidiaries, is the largest retailer of used cars and light trucks in the
United States. CarMax was the first used vehicle retailer to offer a large
selection of quality used vehicles at low, "no-haggle" prices using a
customer-friendly sales process in an attractive, modern sales facility.
CarMax also sells new vehicles under various franchise agreements. CarMax
provides its customers with a full range of related services, including the
financing of vehicle purchases through its own finance operation, CarMax
Auto Finance ("CAF"), and third-party lenders; the sale of extended service
plans; and vehicle repair service.
2. Accounting Policies
-------------------
Principles of Consolidation. CarMax's consolidated financial statements
conform to U.S. generally accepted accounting principles. The interim
period consolidated financial statements are unaudited; however, in the
opinion of management, all adjustments, which consist only of normal,
recurring adjustments necessary for a fair presentation of the interim
consolidated financial statements, have been included. All significant
intercompany balances and transactions have been eliminated in
consolidation.
The fiscal year end balance sheet data were derived from the audited
consolidated financial statements included in the company's Annual Report
on Form 10-K for the fiscal year ended February 28, 2005. The Notes to
Consolidated Financial Statements contained in the Annual Report should be
read in conjunction with these consolidated financial statements.
Cash and Cash Equivalents. Cash equivalents of $22.3 million at November
30, 2005, and $18.0 million at February 28, 2005, consisted of highly
liquid securities with original maturities of three months or less.
Included in cash equivalents at November 30, 2005, and February 28, 2005,
were restricted cash deposits of $17.7 million and $12.0 million,
respectively, which were associated with certain insurance deductibles.
Stock-Based Compensation. The company accounts for its stock-based
compensation plans under the recognition and measurement principles of
Accounting Principles Board ("APB") Opinion No. 25, "Accounting for Stock
Issued to Employees," and related interpretations. Under this opinion and
related interpretations, compensation expense is recorded on the date of
grant and amortized over the vesting period only if the market value of the
underlying stock on the grant date exceeds the exercise price. No stock
option-based employee compensation cost is reflected in net earnings, as
options granted under those plans had exercise prices equal to the market
value of the underlying common stock on the date of grant. The following
table illustrates the effect on net earnings and net earnings per share as
if the fair-value-based method of accounting had been applied to all
outstanding stock awards in each reported period:
Page 6 of 31
Three Months Ended Nine Months Ended
November 30 November 30
(In thousands except per share data) 2005 2004 2005 2004
-------------------------------------------------------------------------------------------------------------------------
Net earnings, as reported ...................................... $ 26,412 $18,045 $ 107,652 $ 83,234
Total additional stock-based compensation expenses
determined under the fair-value-based method
for all awards, net of related tax effects ................. 3,460 2,983 10,015 8,636
---------------------- -------------------------
Pro forma net earnings ......................................... $ 22,952 $15,062 $ 97,637 $ 74,598
====================== =========================
Earnings per share:
Basic, as reported.......................................... $ 0.25 $ 0.17 $ 1.03 $ 0.80
Basic, pro forma............................................ $ 0.22 $ 0.14 $ 0.93 $ 0.72
Diluted, as reported........................................ $ 0.25 $ 0.17 $ 1.01 $ 0.79
Diluted, pro forma.......................................... $ 0.22 $ 0.14 $ 0.92 $ 0.71
The pro forma effect on the third quarter and first nine months of fiscal
2006 and prior periods may not be representative of the pro forma effects
on net earnings and net earnings per share for future periods.
Reclassifications. Certain prior year amounts have been reclassified to
conform to the current period's presentation.
3. CarMax Auto Finance Income
--------------------------
The company's finance operation, CAF, originates prime-rated financing for
qualified customers at competitive market rates of interest. Throughout
each month, the company sells substantially all of the loans originated by
CAF in securitization transactions as discussed in Note 4. The majority of
the contribution from CAF is generated by the spread between the interest
rate charged to the customer and the related cost of funds. A gain,
recorded at the time of each securitization transaction, results from
recording a receivable approximately equal to the present value of the
expected residual cash flows generated by the securitized receivables. The
cash flows are calculated taking into account expected prepayment and
default rates.
CarMax Auto Finance income was as follows:
Three Months Ended Nine Months Ended
November 30 November 30
(In millions) 2005 2004 2005 2004
--------------------------------------------------------------------------------------------------------------------
Gains on sales of loans................................. $ 20.9 $ 14.3 $ 58.7 $ 44.8
-------------------- ---------------------
Other CAF income:
Servicing fee income................................. 7.0 6.2 20.5 18.3
Interest income...................................... 5.6 4.9 15.7 14.3
-------------------- ---------------------
Total other CAF income.................................. 12.6 11.1 36.2 32.6
-------------------- ---------------------
Direct CAF expenses:
CAF payroll and fringe benefit expense............... 2.7 2.3 7.6 6.8
Other direct CAF expenses............................ 2.9 2.7 8.4 7.6
-------------------- ---------------------
Total direct CAF expenses............................... 5.6 5.0 16.0 14.4
-------------------- ---------------------
CarMax Auto Finance income.............................. $ 28.0 $20.4 $ 78.9 $ 63.0
==================== =====================
Amounts in the table above may not total due to rounding.
Page 7 of 31
CarMax Auto Finance income does not include any allocation of indirect
costs or income. The company presents this information on a direct basis to
avoid making arbitrary decisions regarding the indirect benefit or costs
that could be attributed to CAF. Examples of indirect costs not included
are retail store expenses, retail financing commissions, and corporate
expenses such as human resources, administrative services, marketing,
information systems, accounting, legal, treasury, and executive payroll.
4. Securitizations
---------------
The company uses a securitization program to fund substantially all of the
automobile loan receivables originated by CAF. The company sells the
automobile loan receivables to a wholly owned, bankruptcy-remote, special
purpose entity that transfers an undivided interest in the receivables to a
group of third-party investors. The special purpose entity and investors
have no recourse to the company's assets. The company's risk is limited to
the retained interest on the company's consolidated balance sheets. The
investors issue commercial paper supported by the transferred receivables,
and the proceeds from the sale of the commercial paper are used to pay for
the securitized receivables. This program is referred to as the warehouse
facility.
The company periodically uses public securitizations to refinance the
receivables previously securitized through the warehouse facility. In a
public securitization, a pool of automobile loan receivables is sold to a
bankruptcy-remote, special purpose entity that in turn transfers the
receivables to a special purpose securitization trust. The securitization
trust issues asset-backed securities, secured or otherwise supported by the
transferred receivables, and the proceeds from the sale of the securities
are used to pay for the securitized receivables. Refinancing receivables in
a public securitization during a quarter may or may not have a significant
impact on the company's results, depending on securitization structures and
market conditions. The company recognized a gain of $0.01 per share in the
first quarter of fiscal 2006 related to the 2005-1 public securitization
and a gain of $0.01 per share in the third quarter of fiscal 2006 related
to the 2005-2 public securitization. These gains may not be representative
of the potential impact of future securitizations.
The transfers of receivables are accounted for as sales in accordance with
Statement of Financial Accounting Standards ("SFAS") No. 140, "Accounting
for Transfers and Servicing of Financial Assets and Extinguishments of
Liabilities." When the receivables are securitized, the company recognizes
a gain or loss on the sale of the receivables as described in Note 3.
Three Months Nine Months
Ended November 30 Ended November 30
(In millions) 2005 2004 2005 2004
-------------------------------------------------------------------------------------------------------------------
Net loans originated......................... $415.7 $346.1 $1,333.8 $1,102.0
Loans sold................................... $416.6 $345.7 $1,405.9 $1,168.2
Gains on sales of loans (1).................. $ 20.9 $ 14.3 $ 58.7 $ 44.8
Gains on sales of loans as a
percentage of loans sold (1)............. 5.0% 4.1% 4.2% 3.8%
(1) Includes the effects of valuation adjustments, new public securitizations, and the repurchase and resale
of receivables in existing public securitizations.
Retained Interest. The company retains an interest in the automobile loan
receivables that it securitizes. The retained interest, presented as a
current asset on the company's consolidated balance sheets, serves as a
credit enhancement for the benefit of the investors in the securitized
receivables. The retained interest includes the present value of the
expected residual cash flows generated by the securitized receivables, or
"interest-only strip receivables," the restricted cash on deposit in
various reserve accounts, and an undivided ownership interest in the
receivables securitized through the warehouse facility and certain public
securitizations, or "required excess receivables," as described below. On a
combined basis, the cash reserves and required excess receivables are
generally 2% to 4% of managed receivables. The special purpose entities and
the investors have no recourse to the company's assets. The company's risk
Page 8 of 31
is limited to the retained interest on the company's consolidated balance
sheets. The fair value of the retained interest may fluctuate depending on
the performance of the securitized receivables.
The fair value of the retained interest was $158.9 million as of November
30, 2005, and $148.0 million as of February 28, 2005. The retained interest
had a weighted average life of 1.5 years as of November 30, 2005, and as of
February 28, 2005. As defined in SFAS No. 140, the weighted average life in
periods (for example, months or years) of prepayable assets is calculated
by multiplying the principal collections expected in each future period by
the number of periods until that future period, summing those products, and
dividing the sum by the initial principal balance. The following is a
detailed explanation of the components of the retained interest.
Interest-only strip receivables. Interest-only strip receivables represent
-------------------------------
the present value of residual cash flows the company expects to receive
over the life of the securitized receivables. The value of these
receivables is determined by estimating the future cash flows using
management's assumptions of key factors, such as finance charge income,
default rates, prepayment rates, and discount rates appropriate for the
type of asset and risk. The value of interest-only strip receivables may be
affected by external factors, such as changes in the behavior patterns of
customers, changes in the strength of the economy, and developments in the
interest rate markets; therefore, actual performance may differ from these
assumptions. Management evaluates the performance of the receivables
relative to these assumptions on a regular basis. Any financial impact
resulting from a change in performance is recognized in earnings in the
period in which it occurs.
Restricted cash. Restricted cash represents amounts on deposit in various
---------------
reserve accounts established for the benefit of the securitization
investors. In the event that the cash generated by the securitized
receivables in a given period was insufficient to pay the interest,
principal, and other required payments, the balances on deposit in the
reserve accounts would be used to pay those amounts. In general, each of
the company's securitizations requires that an amount equal to a specified
percentage of the initial receivables balance be deposited in a reserve
account on the closing date and that any excess cash generated by the
receivables be used to fund the reserve account to the extent necessary to
maintain the required amount. If the amount on deposit in the reserve
account exceeds the required amount, an amount equal to that excess is
released through the special purpose entity to the company. In the public
securitizations, the amount required to be on deposit in the reserve
account must equal or exceed a specified floor amount. The reserve account
remains funded until the investors are paid in full, at which time the
remaining balance is released through the special purpose entity to the
company. The amount required to be maintained in the public securitization
reserve accounts may increase depending upon the performance of the
securitized receivables. The amount on deposit in restricted cash accounts
was $32.6 million as of November 30, 2005, and $33.5 million as of February
28, 2005.
Required excess receivables. The warehouse facility and certain public
-----------------------------
securitizations require that the total value of the securitized receivables
exceed, by a specified amount, the principal amount owed to the investors.
The required excess receivables balance represents this specified amount.
Any cash flows generated by the required excess receivables are used, if
needed, to make payments to the investors. Any remaining cash flows from
the excess receivables are released through the special purpose entity to
the company. The unpaid principal balance related to the required excess
receivables was $51.4 million as of November 30, 2005, and $44.3 million as
of February 28, 2005.
Key Assumptions Used in Measuring the Retained Interest and Sensitivity
Analysis. The following table shows the key economic assumptions used in
measuring the fair value of the retained interest at November 30, 2005, and
a sensitivity analysis showing the hypothetical effect on the retained
interest if there were unfavorable variations from the assumptions used.
Key economic assumptions at November 30, 2005, were not materially
different from assumptions used to measure the fair value of the retained
interest at the time of securitization. These sensitivity analyses are
hypothetical and should be used with caution. In this table, the effect of
a variation in a particular assumption on the fair value of the retained
interest is calculated without changing any other assumption; in actual
circumstances, changes in one factor may result in changes in another,
which might magnify or counteract the sensitivities.
Page 9 of 31
Impact on Fair Impact on Fair
Assumptions Value of 10% Value of 20%
(In millions) Used Adverse Change Adverse Change
---------------------------------------------------------------------------------------------------------------------
Prepayment rate........................ 1.42%-1.50% $5.1 $ 10.3
Cumulative default rate................ 1.45%-2.18% $4.5 $ 9.1
Annual discount rate................... 12.0% $2.3 $ 4.5
Prepayment rate. The company uses the Absolute Prepayment Model or "ABS" to
---------------
estimate prepayments. This model assumes a rate of prepayment each month
relative to the original number of receivables in a pool of receivables.
ABS further assumes that all the receivables are the same size and amortize
at the same rate and that each receivable in each month of its life will
either be paid as scheduled or prepaid in full. For example, in a pool of
receivables originally containing 10,000 receivables, a 1% ABS rate means
that 100 receivables prepay each month.
Cumulative default rate. The cumulative default rate, or "static pool" net
------------------------
losses, is calculated by dividing the total projected credit losses of a
pool of receivables by the original pool balance.
Continuing Involvement with Securitized Receivables. The company continues
to manage the automobile loan receivables that it securitizes. The company
receives servicing fees of approximately 1% of the outstanding principal
balance of the securitized receivables. The servicing fees specified in the
securitization agreements adequately compensate the company for servicing
the securitized receivables. Accordingly, no servicing asset or liability
has been recorded. The company is at risk for the retained interest in the
securitized receivables. If the securitized receivables do not perform as
originally projected, the value of the retained interest would be impacted.
Supplemental information about the managed receivables is shown in the
following tables:
As of November 30 As of February 28 or 29
(In millions) 2005 2004 2005 2004
-----------------------------------------------------------------------------------------------------------------------
Loans securitized..................................... $ 2,654.6 $ 2,379.9 $2,427.2 $2,200.4
Loans held for sale or investment..................... 56.1 39.3 67.7 48.2
------------------------------------------------------------
Ending managed receivables............................ $ 2,710.7 $ 2,419.2 $2,494.9 $2,248.6
============================================================
Accounts 31+ days past due............................ $ 43.3 $ 38.5 $ 31.1 $ 31.4
Past due accounts as a percentage of
ending managed receivables........................ 1.60% 1.59% 1.24% 1.40%
Three Months Nine Months
Ended November 30 Ended November 30
(In millions) 2005 2004 2005 2004
-----------------------------------------------------------------------------------------------------------------------
Average managed receivables............................... $ 2,705.9 $ 2,407.2 $ 2,626.6 $ 2,357.3
Credit losses on managed receivables...................... $ 5.3 $ 5.0 $ 13.4 $ 14.4
Annualized credit losses as a percentage of
average managed receivables........................... 0.78% 0.83% 0.68% 0.81%
Page 10 of 31
Selected Cash Flows from Securitized Receivables. The table below
summarizes certain cash flows received from and paid to the automobile loan
securitizations:
Three Months Nine Months
Ended November 30 Ended November 30
(In millions) 2005 2004 2005 2004
------------------------------------------------------------------------------------------------------------------------
o Proceeds from new securitizations............................ $327.0 $ 294.0 $ 1,118.5 $ 966.5
o Proceeds from collections reinvested in
revolving period securitizations......................... $185.7 $ 132.3 $ 573.9 $ 443.7
o Servicing fees received...................................... $ 7.0 $ 6.2 $ 20.3 $ 18.2
o Other cash flows received from the retained interest:........
Interest-only strip receivables.......................... $ 20.1 $ 20.6 $ 62.2 $ 62.6
Cash reserve releases, net............................... $ 3.2 $ 3.0 $ 12.3 $ 13.9
Proceeds from new securitizations. Proceeds from new securitizations
------------------------------------
includes proceeds from receivables newly securitized through the warehouse
facility during the period. Proceeds from receivables previously
securitized through the warehouse facility that are periodically refinanced
in public securitizations are not considered proceeds from new
securitizations for this table. Proceeds from receivables repurchased from
public securitizations and refinanced through the warehouse facility are
included in proceeds from new securitizations and totaled $51.5 million in
the first quarter of fiscal 2006 and $51.0 million in the first quarter of
fiscal 2005. The company has the option to repurchase the loan balances
outstanding in public securitizations when the remaining balance of the
related auto loans receivable falls below 10% of the original pool balance.
The company exercised this option in the first quarters of fiscal 2006 and
fiscal 2005. No such repurchases occurred in the second or third quarters
of fiscal 2006 or fiscal 2005.
Proceeds from collections. Proceeds from collections reinvested in
---------------------------
revolving period securitizations represent principal amounts collected on
receivables securitized through the warehouse facility that are used to
fund new originations.
Servicing fees. Servicing fees received represent cash fees paid to the
---------------
company to service the securitized receivables.
Other cash flows received from the retained interest. Other cash flows
--------------------------------------------------------
received from the retained interest represent cash received by the company
from securitized receivables other than servicing fees. It includes cash
collected on interest-only strip receivables and amounts released to the
company from restricted cash accounts.
Financial Covenants and Performance Triggers. Certain securitization
agreements include various financial covenants and performance triggers.
For such agreements, the company must meet financial covenants relating to
minimum tangible net worth, maximum total liabilities to tangible net worth
ratio, minimum tangible net worth to managed assets ratio, minimum current
ratio, minimum cash balance or borrowing capacity, and minimum fixed charge
coverage ratio. Certain pools of securitized receivables must meet
performance tests relating to portfolio yield, default rates, and
delinquency rates. If these financial covenants and/or performance tests
are not met, in addition to other consequences, the company may be unable
to continue to securitize receivables through the warehouse facility or it
may be terminated as servicer under the securitizations. At November 30,
2005, the company was in compliance with these financial covenants, and the
securitized receivables were in compliance with these performance triggers.
5. Financial Derivatives
---------------------
The company enters into amortizing fixed-pay interest rate swaps relating
to its automobile loan receivable securitizations. Swaps are used to better
match funding costs to the fixed-rate receivables being securitized by
converting variable-rate financing costs in the warehouse facility to
Page 11 of 31
fixed-rate obligations. During the third quarter of fiscal 2006, the
company entered into six 40-month amortizing interest rate swaps with
initial notional amounts totaling $330.0 million. The amortized notional
amount of all outstanding swaps related to the automobile loan receivable
securitizations was $638.5 million at November 30, 2005, and $662.1 million
at February 28, 2005. The fair value of swaps included in prepaid expenses
and other current assets was a net asset of $3.4 million at November 30,
2005, and $5.4 million at February 28, 2005.
The market and credit risks associated with interest rate swaps are similar
to those relating to other types of financial instruments. Market risk is
the exposure created by potential fluctuations in interest rates. The
company does not anticipate significant market risk from swaps as they are
used on a monthly basis to match funding costs to the use of the funding.
Credit risk is the exposure to nonperformance of another party to an
agreement. The company mitigates credit risk by dealing with highly rated
bank counterparties.
6. Retirement Plans
----------------
The company has a noncontributory defined benefit pension plan (the
"pension plan") covering the majority of full-time employees. The company
also has an unfunded nonqualified plan (the "restoration plan") that
restores retirement benefits for certain senior executives who are affected
by the Internal Revenue Code limitations on benefits provided under the
pension plan. The company uses a fiscal year end measurement date for both
the pension plan and the restoration plan. The components of net pension
expense were as follows:
Three Months Ended November 30
Pension Plan Restoration Plan Total
------------ ---------------- ------------------
(In thousands) 2005 2004 2005 2004 2005 2004
----------------------------------------------------------------------------------------------------------------------
Service cost............................... $2,332 $1,624 $ 172 $ 91 $2,504 $1,715
Interest cost.............................. 698 538 64 62 762 600
Expected return on plan assets............. (567) (392) - - (567) (392)
Amortization of prior year
service cost........................... 10 9 6 12 16 21
Recognized actuarial loss.................. 241 184 34 37 275 221
--------------------------------------------------------------------------
Net pension expense........................ $2,714 $1,963 $276 $202 $2,990 $2,165
==========================================================================
Nine Months Ended November 30
Pension Plan Restoration Plan Total
------------ ---------------- ------------------
(In thousands) 2005 2004 2005 2004 2005 2004
----------------------------------------------------------------------------------------------------------------------
Service cost............................... $6,584 $4,932 $360 $251 $6,944 $5,183
Interest cost.............................. 2,096 1,614 194 170 2,290 1,784
Expected return on plan assets............. (1,553) (1,130) - - (1,553) (1,130)
Amortization of prior year
service cost........................... 28 27 18 12 46 39
Recognized actuarial loss.................. 721 552 102 113 823 665
--------------------------------------------------------------------------
Net pension expense........................ $7,876 $5,995 $674 $546 $8,550 $6,541
==========================================================================
During the third quarter of fiscal 2006, the company made a $4.5 million
contribution to the pension plan. The company does not anticipate making a
contribution to the pension plan in the fourth quarter of fiscal 2006.
Page 12 of 31
7. Earnings per Share
------------------
Reconciliations of the numerator and denominator of basic and diluted
earnings per share are presented below:
Three Months Nine Months
Ended November 30 Ended November 30
(In thousands except per share data) 2005 2004 2005 2004
-------------------------------------------------------------------------------------------------------------------------
Weighted average common shares.............................. 104,727 104,070 104,547 103,978
Dilutive potential common shares:
Options.................................................. 1,706 1,649 1,720 1,680
Restricted stock......................................... 9 16 14 15
---------------------------- --------------------------
Weighted average common shares
and dilutive potential common shares..................... 106,442 105,735 106,281 105,673
============================ ==========================
Net earnings available to common shareholders............... $ 26,412 $ 18,045 $ 107,652 $ 83,234
Basic net earnings per share................................ $ 0.25 $ 0.17 $ 1.03 $ 0.80
Diluted net earnings per share.............................. $ 0.25 $ 0.17 $ 1.01 $ 0.79
Certain options were outstanding and not included in the computation of
diluted earnings per share because the options' exercise prices were
greater than the average market price of the common shares. As of November
30, 2005, options to purchase 1,919,226 shares of common stock with
exercise prices ranging from $29.61 to $43.44 per share were outstanding
and not included in the calculation. As of November 30, 2004, options to
purchase 3,015,740 shares with exercise prices ranging from $26.83 to
$43.44 per share were outstanding and not included in the calculation.
8. Recent Accounting Pronouncements
--------------------------------
SFAS No. 123R, "Share-Based Payment," replaces SFAS No. 123, "Accounting
for Stock-Based Compensation" and supercedes APB Opinion No. 25,
"Accounting for Stock Issued to Employees." This new standard requires a
public entity to measure the cost of employee services received in exchange
for an award of equity instruments based on the grant-date fair value of
the award. That cost will be recognized over the period during which an
employee is required to provide services in exchange for the award (usually
the vesting period). In accordance with the revised statement, the company
will be required to recognize the expense attributable to stock options
effective with the company's 2007 fiscal year, beginning March 1, 2006. The
company has not yet determined the impact of adopting SFAS 123R on its
financial position, results of operations, or cash flows.
9. Long-Term Debt
--------------
In the second quarter of fiscal 2006, CarMax entered into a four year,
revolving credit facility (the "credit agreement") with Bank of America,
N.A. and various other financial institutions and terminated its $300
million credit facility with DaimlerChrysler Services North America, LLC
and Toyota Motor Credit Corporation. The credit agreement is secured by
vehicle inventory and contains customary representations and warranties,
conditions, and covenants. Borrowings accrue interest at variable rates
based on LIBOR, the federal funds rate, or the prime rate, depending on the
type of borrowing. The company pays a commitment fee on the unused portion
of the available funds. All outstanding principal amounts will be due and
payable in August 2009, and there are no penalties for prepayment.
The credit agreement provides for aggregate borrowings of up to $450
million. The aggregate borrowing limit includes a $25 million limit on new
vehicle swing line loans, a $25 million limit on other swing line loans,
and a $30 million limit on standby letters of credit. Borrowings on each of
Page 13 of 31
the swing lines are due on demand and must be repaid monthly or refinanced
through other committed borrowings under the credit agreement.
As of November 30, 2005, $93.8 million was outstanding under the credit
facility, with the remainder fully available to the company. The
outstanding balance included $4.7 million of swing line loans classified as
short-term debt, $39.1 million classified as current portion of long-term
debt, and $50.0 million classified as long-term debt. The determination of
the amount classified as long-term debt was based on management's intent as
to that portion expected to remain outstanding for more than one year from
the balance sheet date.
Obligations under capital leases as of November 30, 2005, consisted of
$35.0 million classified as long-term debt, and $0.9 million classified as
current portion of long-term debt.
10. Subsequent Event
----------------
In December 2005, the company completed a $450 million public
securitization of automobile loan receivables.
Page 14 of 31
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS
------------------------------------
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
------------------------------------------------
The following Management's Discussion and Analysis of Financial Condition and
Results of Operations ("MD&A") is provided as a supplement to, and should be
read in conjunction with, our audited consolidated financial statements, the
accompanying notes, and the MD&A included in the company's Annual Report on Form
10-K for the fiscal year ended February 28, 2005.
In this discussion, "we," "our," "us," "CarMax," "CarMax, Inc.," and "the
company" refer to CarMax, Inc. and its wholly owned subsidiaries, unless the
context requires otherwise. Amounts and percentages in tables may not total due
to rounding.
BUSINESS OVERVIEW
CarMax is the nation's largest retailer of used vehicles. As of November 30,
2005, we operated 67 used car superstores in 31 markets, including 23 mid-sized
markets and eight large markets. We define mid-sized markets as those with
television viewing audiences generally between 1 million and 2.5 million people.
We also operated seven new car franchises, all of which were integrated or
co-located with our used car superstores. During the twelve month period ended
November 30, 2005, we sold 285,950 used cars, representing 93% of the total
306,820 vehicles the company sold at retail during that period.
We believe the CarMax consumer offer is unique in the auto retailing
marketplace. Our offer gives consumers a way to shop for cars in the same manner
that they shop for items at other "big box" retailers. Our consumer offer is
structured around four core equities: low, no-haggle prices; a broad selection;
high quality; and customer-friendly service. We generate revenues, income, and
cash flows primarily by retailing used vehicles and associated items including
vehicle financing, extended service plans, and vehicle repair service. A
majority of the used vehicles we sell at retail are purchased directly from
consumers. Vehicles purchased through our appraisal process that do not meet our
retail standards are sold at on-site wholesale auctions. CarMax provides
prime-rated financing to qualified customers through CarMax Auto Finance ("CAF")
and Bank of America. Nonprime financing is provided through several third-party
lenders, and subprime financing is provided through a third-party lender under a
program rolled out to our entire store base in August 2004. We periodically test
additional third-party lenders. CarMax has no recourse liability for loans
provided by third-party lenders. We sell extended service plans on behalf of
unrelated third parties who are the primary obligors. We have no contractual
liability to the customer under these third-party service plans. Extended
service plan revenues represent commissions from the unrelated third parties.
Sales of new vehicles represented a decreasing percentage of our total revenues
over the last several years as we divested new car franchises and added used car
superstores.
We are still at a relatively early stage in the national rollout of our retail
concept. We believe the primary driver for future earnings growth will be
vehicle unit sales growth from comparable store sales increases and from
geographic expansion. We plan to open used car superstores at a rate of
approximately 15% to 20% of our used car superstore base each year. In the first
nine months of fiscal 2006, we opened nine used car superstores, representing an
approximate 16% increase in our store base. No superstore openings are planned
for the fourth quarter of fiscal 2006.
Page 15 of 31
Fiscal 2006 Third Quarter Highlights
- ------------------------------------
|X| Net sales and operating revenues increased 17% to $1.42 billion from $1.22
billion in the third quarter of fiscal 2005, while net earnings increased
46% to $26.4 million, or $0.25 per share, from $18.0 million, or $0.17 per
share.
|X| Total used vehicle unit sales increased 13%, which included a 3% increase
in comparable store used unit sales.
|X| We opened four used car superstores in the third quarter of fiscal 2006,
entering the Virginia Beach and Wichita markets with standard superstores
and adding satellite superstores in the Miami and Nashville markets.
|X| Our total gross profit per unit increased to $2,483 from $2,284 in the
third quarter of fiscal 2005. Compared with the prior year's third quarter,
used vehicle gross profit per unit was similar, new vehicle gross profit
per unit declined modestly, and wholesale gross profit per unit increased
substantially. The wholesale gross profit benefited from unexpectedly
strong wholesale pricing trends.
|X| CAF income increased 37% to $28.0 million from $20.4 million in the third
quarter of fiscal 2005, reflecting the growth in total vehicle sales and
managed receivables, a favorable valuation adjustment, and the favorable
effect of a new public securitization completed in September.
|X| Selling, general, and administrative expenses as a percent of net sales and
operating revenues (the "SG&A ratio") increased slightly to 11.4% from
11.3% in the third quarter of fiscal 2005. The moderate rate of increase in
comparable store used unit sales was not sufficient to provide SG&A
leverage. The growing proportion of our store base that is comprised of
stores not yet at basic maturity and a lower-than-normal corporate bonus
expense in the prior year were also contributing factors. Stores generally
have higher SG&A ratios during their first several years of operation.
|X| For the nine months ended November 30, net cash provided by operating
activities increased to $148.7 million from $83.6 million in fiscal 2005,
reflecting the improved net earnings and an increase in cash generated from
changes in working capital.
FORWARD-LOOKING STATEMENTS
The company cautions readers that the statements contained in this MD&A
regarding the company's future business plans, operations, opportunities, or
prospects, including without limitation any statements or factors regarding
expected sales, margins, or earnings, are forward-looking statements made
pursuant to the safe harbor provisions of the Private Securities Litigation
Reform Act of 1995. Such forward-looking statements are based upon management's
current knowledge and assumptions about future events and involve risks and
uncertainties that could cause actual results to differ materially from
anticipated results. For more details on factors that could affect expectations,
see the company's Annual Report on Form 10-K for the fiscal year ended February
28, 2005, and its quarterly and current reports as filed with or furnished to
the Securities and Exchange Commission.
CRITICAL ACCOUNTING POLICIES
For a discussion of our critical accounting policies see "Critical Accounting
Policies" in Management's Discussion and Analysis included in the CarMax, Inc.
2005 Annual Report to Shareholders, which is included as Exhibit 13.1 to the
Annual Report on Form 10-K for the fiscal year ended February 28, 2005. These
policies relate to securitization transactions, revenue recognition, income
taxes, and the defined benefit retirement plan.
RESULTS OF OPERATIONS
Reclassifications. Certain prior year amounts have been reclassified to conform
to the current period's presentation.
Page 16 of 31
Seasonality. CarMax's operations, in common with other retailers in general, are
subject to seasonal influences. Historically, our superstores experience their
strongest sales in the spring and summer fiscal quarters. The net earnings of
any quarter are seasonally disproportionate to net sales since administrative
and certain operating expenses remain relatively constant during the year.
Therefore, quarterly results should not be relied upon as necessarily indicative
of results for the entire fiscal year.
Net Sales and Operating Revenues
- --------------------------------
Three Months Nine Months
Ended November 30 Ended November 30
(In millions) 2005 % 2004 % 2005 % 2004 %
- ------------------------------------------------------------------------------------------------------------------------------
Used vehicle sales..................... $1,087.1 76.3 $ 926.0 76.2 $3,527.4 76.1 $2,898.8 75.0
New vehicle sales...................... 113.3 8.0 114.2 9.4 399.3 8.6 388.5 10.1
Wholesale vehicle sales................ 174.2 12.2 132.7 10.9 554.5 12.0 441.7 11.4
Other sales and revenues:
Extended service plan revenues....... 22.6 1.6 19.6 1.6 72.7 1.6 61.5 1.6
Service department sales............. 23.0 1.6 20.0 1.6 70.4 1.5 61.8 1.6
Third-party finance fees, net........ 3.8 0.3 3.2 0.3 11.8 0.3 12.0 0.3
-------------------------------------------------------------------------------------
Total other sales and revenues......... 49.3 3.5 42.8 3.5 155.0 3.3 135.3 3.5
-------------------------------------------------------------------------------------
Total net sales and operating
revenues............................. $ 1,424.0 100.0 $1,215.7 100.0 $4,636.2 100.0 $3,864.2 100.0
=====================================================================================
Retail vehicle sales changes were as follows:
Three Months Nine Months
Ended November 30 Ended November 30
2005 2004 2005 2004
-------------------------------------------------------
Vehicle units:
Used vehicles.......................... 13 % 15 % 18% 8 %
New vehicles........................... (2)% (6)% 1% (3)%
Total ...................................... 12 % 13 % 17% 7 %
Vehicle dollars:
Used vehicles.......................... 17 % 16 % 22% 10 %
New vehicles........................... (1)% (7)% 3% (3)%
Total ...................................... 15 % 13 % 19% 9 %
Comparable store used unit sales growth is one of the key drivers of our
profitability. A CarMax store is included in comparable store sales in the
store's fourteenth full month of operation. Comparable store retail sales
changes were as follows:
Three Months Nine Months
Ended November 30 Ended November 30
2005 2004 2005 2004
--------------------------------------------------------
Vehicle units:
Used vehicles.......................... 3 % 2% 7% (3)%
New vehicles........................... (6)% 11% 2% 12 %
Total ...................................... 3 % 2% 6% (2)%
Page 17 of 31
Three Months Nine Months
Ended November 30 Ended November 30
2005 2004 2005 2004
-------------------------------------------------------
Vehicle dollars:
Used vehicles.......................... 7 % 3% 10% (1)%
New vehicles........................... (5)% 9% 3% 11 %
Total ...................................... 6 % 4% 9% 0 %
Used Vehicle Sales. The 17% increase in used vehicle dollar sales in the third
- -------------------
quarter of fiscal 2006 reflected a 13% increase in unit sales and a 4% increase
in average retail selling price. The unit sales growth reflected sales from
newer superstores not yet in the comparable store base, together with a 3%
increase in comparable store used units. At November 30, 2005, 12 of our 67
superstores were not yet included in the comparable store base. The comparable
store used unit sales growth was driven by an increase in store traffic, as well
as continuing strong execution by our store teams. We were able to sustain
positive momentum in our used car business, even as the cross-shopping benefit
from this summer's domestic new car manufacturers' employee pricing programs
waned. The new car manufacturers' employee pricing programs ended in late
September and early October 2005. The effect on sales from hurricanes occurring
during the quarter was slightly positive. As anticipated, we were able to fully
recover the sales lost to weather-related store closures in south Florida and in
Houston from Hurricanes Wilma and Rita. In addition, we experienced a slight
sales benefit from replacement purchases made by consumers displaced by
Hurricane Katrina, despite having no CarMax stores in Louisiana or Mississippi.
For the first nine months of fiscal 2006, the 22% increase in used vehicle
dollar sales reflected an 18% increase in unit sales and a 3% increase in
average retail selling price. The unit sales growth reflected sales from newer
superstores not yet in the comparable store base, together with a 7% increase in
comparable store used units. The comparable store used unit sales growth was
driven by a solid increase in store traffic, as well as continuing strong
execution by our store teams. We experienced a strong increase in store traffic
in the second quarter of fiscal 2006, which we believe was helped in part by the
domestic new car manufacturers' employee pricing programs which created greater
clarity on new car pricing and increased traffic in the marketplace. Our
no-haggle consumer offer makes price comparing easy, and we believe it gives us
a unique advantage as consumers cross-shop. The 7% increase in comparable store
used units for the nine month period included approximately one percentage point
added from sales financed by our subprime finance provider, which was added to
our third-party lender group near the end of the second quarter of fiscal 2005.
New Vehicle Sales. The 1% decline in new vehicle dollar sales in the third
- -------------------
quarter of fiscal 2006 reflected the combination of a 2% decline in unit sales
and a 1% increase in average retail selling price. The sales performance of our
new car franchises was generally in line with the overall performance of the
brands we represent. Industry sales of the domestic new car manufacturers'
brands declined significantly following the end of the employee pricing programs
in late September and early October 2005.
For the first nine months of fiscal 2006, the 3% increase in new vehicle dollar
sales reflected a 1% increase in both unit sales and average retail selling
price. The unit sales increase reflected the strong second quarter unit sales
generated by the employee discount programs, partially offset by the effects of
the softer third quarter new vehicle sales and the dispositions, as planned, of
five new car franchises in the second half of fiscal 2005.
Wholesale Vehicle Sales. The 31% increase in wholesale vehicle dollar sales in
- ------------------------
the third quarter of fiscal 2006 reflected a 16% increase in average wholesale
selling prices and a 13% increase in wholesale unit sales, which was in line
with our increase in retail used unit sales. Overall, this year's autumn
wholesale prices did not fall as much as has been typical for the model-year
changeover season. The significant drop in wholesale pricing for SUVs and light
trucks, brought about, we believe, by lower demand for "gas guzzlers," was
offset by stronger demand for more fuel-efficient compact and mid-sized cars. In
Page 18 of 31
addition, wholesale pricing was bolstered by the limited supply of 2005 model
year closeout vehicles following the success of the domestic manufacturers' new
car employee pricing programs.
For the first nine months of fiscal 2006, the 26% increase in wholesale vehicle
dollar sales reflected 12% increases in both average wholesale selling price and
wholesale unit sales. Our in-house wholesale auction prices exhibited unusual
aggregate price strength in fiscal 2006, reflecting trends in the general
wholesale market. We believe that reduced supplies of off-lease and off-rental
cars, as well as the strong demand for smaller, fuel-efficient cars contributed
to the pricing strength in the wholesale market. We experienced a particularly
strong increase in appraisal traffic in the second quarter of fiscal 2006 that
we believe was due in part to the new car employee pricing programs and in part
to an increase in radio advertising over the summer focused on our "we buy cars"
message. Even as prices on SUVs and light trucks fell dramatically over the
summer and early fall, CarMax continued to make appraisal purchase offers on all
vehicles presented for appraisal by consumers. We believe a portion of the
higher appraisal traffic reflected franchised dealers' loss of negotiating
ability on trade-ins in connection with the more transparent employee discount
price on new cars. Vehicles acquired through the appraisal purchase process that
do not meet our retail standards are sold at our on-site wholesale auctions.
Other Sales and Revenues. Other sales and revenues include extended service plan
- ------------------------
revenues, service department sales, and third-party finance fees. Other sales
and revenues increased 15% in both the third quarter and the first nine months
of fiscal 2006, as extended service plan and service department revenues
benefited from the increase in retail vehicle sales and the growth in the store
base. Third-party finance fees increased in the third quarter of fiscal 2006
consistent with our growth in used vehicle sales; however, these revenues
declined modestly for the nine-month period as the result of the August 2004
rollout of a subprime finance provider. As is customary in the industry,
subprime finance contracts are purchased from the company at a discount. We
record this discount as an offset to the third-party finance fee revenues
received from our prime and nonprime finance providers.
Supplemental information related to vehicle sales follows:
Retail Unit Sales
- -----------------
Three Months Nine Months
Ended November 30 Ended November 30
2005 2004 2005 2004
---------------------------- ----------------------------
Used vehicles ............................ 66,680 58,908 216,439 183,657
New vehicles ............................ 4,675 4,765 16,599 16,365
---------------------------- ----------------------------
Total ...................................... 71,355 63,673 233,038 200,022
============================ ============================
Average Retail Selling Prices
- -----------------------------
Three Months Nine Months
Ended November 30 Ended November 30
2005 2004 2005 2004
------------------------------ ------------------------------
Used vehicles............................... $16,147 $15,591 $16,157 $15,650
New vehicles................................ $24,081 $23,804 $23,896 $23,562
Weighted average............................ $16,667 $16,205 $16,708 $16,297
Page 19 of 31
Retail Vehicle Sales Mix
- ------------------------
Three Months Nine Months
Ended November 30 Ended November 30
2005 2004 2005 2004
---------------------------- ----------------------------
Vehicle units:
Used vehicles......................... 93% 93% 93% 92%
New vehicles.......................... 7 7 7 8
---------------------------- ----------------------------
Total....................................... 100% 100% 100% 100%
=========================== ============================
Vehicle dollars:
Used vehicles......................... 91% 89% 90% 88%
New vehicles.......................... 9 11 10 12
---------------------------- ----------------------------
Total....................................... 100% 100% 100% 100%
============================ ============================
Retail Stores. CarMax opened nine superstores during the first nine months of
- -------------
fiscal 2006. During the first two quarters, we opened five superstores. We
entered the Jacksonville, Kansas City and Salt Lake City markets with one
superstore each, and added two superstores in the Los Angeles market, bringing
to five our total store count in this large market. During the third quarter, we
opened four superstores. We entered the Virginia Beach and the Wichita markets
with a standard superstore in each, and we added satellite superstores in Miami
and Nashville. We have a total of seven new car franchises and expect to
maintain long-term strategic relationships with the automotive manufacturers we
currently represent.
Estimate
Retail Store Mix Feb. 28, 2006 Nov. 30, 2005 Feb. 28, 2005 Nov. 30, 2004
- --------------------------------------------------------------------------------------------------------------------------
Mega superstores............................. 13 13 13 13
Standard superstores......................... 34 34 29 29
Satellite superstores........................ 20 20 16 15
---------------------------------------------------------------------------
Total used car superstores................... 67 67 58 57
Co-located new car stores.................... 4 4 3 3
---------------------------------------------------------------------------
Total........................................ 71 71 61 60
===========================================================================
Gross Profit
- ------------
Three Months Nine Months
Ended November 30 Ended November 30
2005 2004 2005 2004
$ per unit(1) %(2) $ per unit(1) %(2) $ per unit(1) %(2) $ per unit(1) %(2)
-------------------------------------- ---------------------------------------
Used vehicle gross profit.................. 1,758 10.8 1,765 11.2 1,807 11.1 1,826 11.6
New vehicle gross profit................... 866 3.6 886 3.7 943 3.9 866 3.7
Wholesale vehicle gross profit............. 726 16.8 440 11.8 641 15.3 428 11.4
Other gross profit......................... 374 54.0 339 50.5 395 59.3 379 56.1
Total gross profit......................... 2,483 12.4 2,284 12.0 2,504 12.6 2,379 12.3
(1) Calculated as category gross profit dollars divided by the respective units sold, except the other and total categories,
which are divided by total retail units sold.
(2) Calculated as a percentage of its respective sales or revenue.
Used Vehicle Gross Profit. Our third quarter used vehicle gross profit per unit
- -------------------------
was similar to our used vehicle gross profit per unit in the prior year's
quarter. Increasing gasoline costs caused wholesale prices for SUVs and light
trucks to plummet in the summer and early fall, before reaching a price point in
the latter part of the third quarter that attracted renewed buying interest.
Meanwhile, prices for more gasoline efficient compact cars remained above
historical norms. We were able to maintain margins in this environment due to
Page 20 of 31
our ability to quickly adjust appraisal offers to stay in line with the broader
market trade-in offer trends. In addition, our rapid inventory turns, which
reduce our exposure to declining prices, contributed to our margin stability.
For the nine months ended November 30, 2005, used vehicle gross profit per unit
declined modestly compared with the prior year, due in part to an increase in
wholesale auction pricing in the first quarter of fiscal 2006. This increase
adversely affected used vehicle gross profits, particularly for vehicles
obtained through the major public wholesale auctions.
New Vehicle Gross Profit. The decline in new vehicle gross profit per unit for
- -------------------------
the third quarter reflects the highly competitive new vehicle market. For the
first nine months of fiscal 2006, the increase in the new vehicle gross profit
per unit was primarily attributable to an improvement in our new car margins
realized during the new car manufacturers' employee discount programs. We were
able to modestly increase our new car prices during the employee discount
programs, as our pricing had generally been below the employee discount pricing.
Wholesale Vehicle Gross Profit. For the third quarter and the first nine months
- ------------------------------
of fiscal 2006, wholesale vehicle gross profit per unit increased substantially
from the prior year levels, primarily as a result of a stronger-than-normal
wholesale vehicle pricing environment. In the first half of fiscal 2006, we did
not increase our appraisal offers at the same rate as the steep increase in
major public wholesale auction market prices. We believe that doing so helped to
keep our retail prices more in line with demand, helping to keep our cars
attractive to consumers as they compared their options in the new and used car
marketplace. However, as our in-store auction prices usually reflect the broader
wholesale market trends, our wholesale margins expanded. In the third quarter of
fiscal 2006, we adjusted our appraisal offers to incorporate the anticipated
drop in wholesale pricing that typically occurs in the fall. We were
particularly aggressive in our appraisals of SUVs, where prices had continued to
fall dramatically through the summer. Our wholesale auctions reflected the more
modest price declines in the overall wholesale marketplace, giving us unusually
high wholesale gross profit.
Other Gross Profit. Compared with the prior year's third quarter and first nine
- ------------------
months, other gross profits per unit increased moderately. The improvements were
primarily the result of the growth in extended service plan revenues, which have
no associated cost of sales, and the growth in our service margin. The service
department, which is the only category within other sales and revenues that has
an associated cost of sales, reported higher profits reflecting the greater
overhead expense absorption that higher vehicle sales and reconditioning volumes
provide.
CarMax Auto Finance Income
- --------------------------
CAF provides prime auto financing for our used and new car sales. Because the
purchase of an automobile is traditionally reliant on the consumer's ability to
obtain on-the-spot financing, it is important to our business that such
financing be available to creditworthy customers. While financing can also be
obtained from third-party sources, we believe that total reliance on third
parties can create an unacceptable volatility and business risk. Furthermore, we
believe that our processes and systems, the transparency of our pricing, and our
vehicle quality provide a unique and ideal environment in which to procure
high-quality auto loan receivables, both for CAF and for third-party lenders.
CAF provides us the opportunity to capture additional profits and cash flows
from auto loan receivables while managing our reliance on third-party finance
sources.
Page 21 of 31
The components of CarMax Auto Finance income were as follows:
Three Months Ended Nov. 30 Nine Months Ended Nov. 30
(In millions) 2005 % 2004 % 2005 % 2004 %
- ------------------------------------------------------------------------------------------------------------------------------
Gains on sales of loans(1)........................ $ 20.9 5.0 $ 14.3 4.1 $ 58.7 4.2 $ 44.8 3.8
------------------------------------ -----------------------------------
Other CAF income: (2)
Servicing fee income......................... 7.0 1.0 6.2 1.0 20.5 1.0 18.3 1.0
Interest income.............................. 5.6 0.8 4.9 0.8 15.7 0.8 14.3 0.8
----------------------------------- -----------------------------------
Total other CAF income............................ 12.6 1.9 11.1 1.8 36.2 1.8 32.6 1.8
----------------------------------- -----------------------------------
Direct CAF expenses: (2)
CAF payroll and fringe benefit expense....... 2.7 0.4 2.3 0.4 7.6 0.4 6.8 0.4
Other direct CAF expenses.................... 2.9 0.4 2.7 0.4 8.4 0.4 7.6 0.4
----------------------------------- -----------------------------------
Total direct CAF expenses......................... 5.6 0.8 5.0 0.8 16.0 0.8 14.4 0.8
----------------------------------- -----------------------------------
CarMax Auto Finance income (3).................... $ 28.0 2.0 $ 20.4 1.7 $ 78.9 1.7 $ 63.0 1.6
==================================== ===================================
Loans sold........................................ $ 416.6 $ 345.7 $1,405.9 $1,168.2
Average managed receivables....................... $ 2,705.9 $2,407.2 $2,626.6 $2,357.3
Net sales and operating revenues.................. $ 1,424.0 $1,215.7 $4,636.2 $3,864.2
Ending managed receivables........................ $ 2,710.7 $2,419.2 $2,710.7 $2,419.2
Percent columns indicate:
(1) Percent of loans sold.
(2) Annualized percent of averaged managed receivables.
(3) Percent of net sales and operating revenues.
CAF income rose 37% in the third quarter compared with the prior year's quarter.
In the third quarter of fiscal 2006, CAF's gains on sales of loans benefited
from the growth in total vehicle sales, a $0.02 per share favorable valuation
adjustment, and a $0.01 per share benefit resulting from the favorable impact of
the 2005-2 public securitization completed in September 2005. In the third
quarter of fiscal 2005, CAF's gains on sales of loans included a benefit of
$0.01 per share resulting from a favorable valuation adjustment. Other CAF
income and direct CAF expenses for the third quarter of fiscal 2006 increased
proportionately to managed receivables.
For the first nine months of fiscal 2006, CAF income increased 25% compared with
the same period of the prior year. For the first nine months of fiscal 2006,
CAF's gains on sales of loans benefited from the growth in total vehicle sales,
a modest improvement in CAF loan penetration, $0.04 per share of favorable
valuation adjustments, and $0.02 per share of favorable effects from the public
securitizations completed in April and September. For the first nine months of
fiscal 2005, CAF's gains on sales of loans included a benefit of $0.01 per share
resulting from a favorable valuation adjustment. Other CAF income and direct CAF
expenses for the first nine months of fiscal 2006 increased proportionately to
managed receivables.
The favorable valuation adjustments of $0.04 per share in the first nine months
of fiscal 2006 and $0.01 per share in the first nine months of fiscal 2005
resulted primarily from lowering the loss rate assumptions on pools of
previously securitized receivables. These pools of receivables continue to
experience loss rates lower than our initial expectations, reflecting the
favorable economic environment and continued strong performance of CAF's
portfolio.
Page 22 of 31
In May 2005, we exercised our option to repurchase the loan balances outstanding
in the 2001-2 securitization when the remaining balance of the related auto
loans receivable fell below 10% of the original pool balance. These loans were
subsequently resold into the warehouse facility. In May 2004, we completed a
similar repurchase and resale related to the 2001-1 securitization. In both
cases, the remaining loan balances carried relatively high interest rates that,
combined with relatively low short-term funding costs, resulted in an earnings
benefit for the first quarter of both fiscal years of approximately $0.01 per
share.
The reported gains on sales of loans include the effects of the valuation
adjustments, new public securitizations, and the repurchase and resale of
receivables in existing public securitizations. Excluding the effects of such
items, the gains on loans originated and sold were 3.6% during the third quarter
of fiscal 2006, compared with 3.5% in the prior year quarter, and 3.4% for the
first nine months of fiscal 2006, compared with 3.7% in the first nine months of
fiscal 2005.
We are at risk for the performance of the managed securitized receivables to the
extent that we maintain a retained interest in the receivables. Supplemental
information on our portfolio of managed receivables is as follows:
As of November 30 As of February 28 or 29
(In millions) 2005 2004 2005 2004
- ---------------------------------------------------------------------------------------------------------------------------
Loans securitized.......................................... $ 2,654.6 $ 2,379.9 $ 2,427.2 $ 2,200.4
Loans held for sale or investment.......................... 56.1 39.3 67.7 48.2
-------------------------------------------------------------
Ending managed receivables................................. $ 2,710.7 $ 2,419.2 $ 2,494.9 $ 2,248.6
=============================================================
Accounts 31+ days past due................................. $ 43.3 $ 38.5 $ 31.1 $ 31.4
Past due accounts as a percentage of
ending managed receivables.............................. 1.60% 1.59% 1.24% 1.40%
Three Months Nine Months
Ended November 30 Ended November 30
(In millions) 2005 2004 2005 2004
- ---------------------------------------------------------------------------------------------------------------------------
Average managed receivables................................ $ 2,705.9 $ 2,407.2 $ 2,626.6 $ 2,357.3
Credit losses on managed receivables....................... $ 5.3 $ 5.0 $ 13.4 $ 14.4
Annualized credit losses as a percentage of
average managed receivables............................. 0.78% 0.83% 0.68% 0.81%
If the managed receivables do not perform in accordance with the assumptions
used in determining the fair value of the retained interest, earnings could be
impacted. Annualized losses as a percentage of average managed receivables for
the third quarter and first nine months of fiscal 2006 decreased compared with
the same periods in fiscal 2005. We believe the decrease was due to a
combination of factors including improved general economic conditions, the
implementation of a new credit scorecard in the third quarter of fiscal 2003,
and operational efficiencies resulting from system enhancements. The change in
performance is reflected in the favorable adjustments to our loss rate
assumptions during the first and third quarters of fiscal 2006, as previously
discussed.
Selling, General and Administrative Expenses
- --------------------------------------------
The SG&A ratio increased slightly to 11.4% in the third quarter of fiscal 2006
from 11.3% in the third quarter of the prior fiscal year. As expected, the
moderate rate of increase in comparable store used unit sales was not sufficient
to provide SG&A leverage. Having a larger percentage of our store base that is
made up of newer stores not yet at basic maturity, which we define as four
years, and a lower-than-normal corporate bonus expense in fiscal 2005 were also
contributing factors. Newer stores typically experience higher SG&A ratios. At
Page 23 of 31
the end of this year's third quarter, 49% of our stores were less than four
years old compared with 40% at the end of last year's third quarter.
For the first nine months of fiscal 2006, the SG&A ratio increased slightly to
10.5% compared with 10.4% for the same period last year. This increase was
attributable to the factors mentioned above, as well as costs associated with
the rollout of marketwide television advertising in Los Angeles in the first
quarter of fiscal 2006, concurrent with the opening of our fifth superstore in
this large market.
Income Taxes
- ------------
The effective income tax rate was 38.4% in the first nine months of fiscal 2006
compared with 39.0% in the same period of fiscal 2005. The reduced effective tax
rate was primarily the result of a legal entity reorganization in December 2004.
The company created a centralized corporate management entity in an effort to
obtain operational, legal, and other benefits that also resulted in state tax
efficiencies. The effective tax rate for the third quarter of fiscal 2006 was
adjusted to reach the expected annual effective tax rate of 38.4% for the fiscal
year, which increased from 38.2% at the end of the second quarter. This
adjustment resulted in an effective tax rate of 38.9% for the third quarter.
Operations Outlook
- ------------------
Comparable Store Sales and Earnings Per Share. For the fourth quarter of fiscal
- ----------------------------------------------
2006, we anticipate comparable store used vehicle unit sales performance in the
range of -4% to +2%. The width of this range reflects the degree of short-term
sales volatility experienced in recent quarters. This range is built on an
assumption of normal winter weather. We achieved 12% comparable store used
vehicle unit growth in the fourth quarter of fiscal 2005, making the fourth
quarter the most challenging quarterly comparison of fiscal 2006. Last year's
comparable store unit sales growth included 5 percentage points attributable to
rolling out a new subprime finance provider. We do not anticipate any
incremental sales growth from this source in the current year's fourth quarter.
We expect fourth quarter earnings per share in the range of $0.25 to $0.31. We
expect the fourth quarter CAF gains on loans originated and sold will be
approximately 3.5%, which is at the low end of our normalized range of 3.5% to
4.5%, and slightly lower than the 3.7% gain spread realized in the fourth
quarter of fiscal 2005.
Assuming performance within expected ranges in the fourth quarter, we anticipate
full year fiscal 2006 comparable store used vehicle unit growth in the range of
4% to 6% and earnings per share in the range of $1.27 to $1.33, or an increase
of 19% to 24% compared with the $1.07 per share earned in fiscal 2005.
Planned Superstore Openings. No superstore openings are planned for the fourth
- ----------------------------
quarter of fiscal 2006.
During the fiscal year ending February 28, 2007, we currently plan to open 11
used car superstores, representing a 16% increase in our store base, which is
consistent with our target for used car superstore annual growth in the range of
15% to 20%. Fiscal 2007 planned store openings include:
Standard Satellite Total
Superstores Superstores Superstores
- ----------------------------------------- ----------------------------------- ----------------- ----------------- ----------------
Hartford / New Haven, Conn. New mid-sized market 1 1 2
Columbus, Ohio New mid-sized market 1 1 2
Oklahoma City, Okla. New mid-sized market 1 - 1
Los Angeles, Calif. Existing large market - 2 2
Charlottesville, Va. New small market - 1 1
Fredericksburg, Va. (1) Existing large market 1 - 1
Austin, Tex. Existing mid-sized market - 1 1
Charlotte, N.C. Existing mid-sized market 1 - 1
----------------- ----------------- ----------------
Total planned openings 5 6 11
================= ================= ================
(1) Part of the Washington, D.C. television market
Page 24 of 31
The Charlottesville superstore represents our first test of the CarMax
superstore concept in a small market. Charlottesville has a television viewing
audience of approximately 185,000. We will be adjusting our store footprint,
inventory, and staffing model in the Charlottesville store as a result of the
smaller overall sales opportunities provided by this market. The store's
performance over the next few years will help us better understand our
longer-term opportunities in small markets.
Annual Guidance. Beginning with fiscal 2007, we will no longer issue quarterly
- ----------------
guidance. We will issue guidance on comparable store used unit sales and on
earnings per share only for the full fiscal year. This decision reflects our
continuing focus on longer-term store, sales, and earnings growth and on return
on invested capital, as well as our recognition that the performance in
shorter-term periods can be more volatile than over the longer term. As we
report our quarterly results, we plan to comment on our performance relative to
our annual guidance.
RECENT ACCOUNTING PRONOUNCEMENTS
For a discussion of recent accounting pronouncements applicable to the company,
see Note 8 to the company's consolidated financial statements.
FINANCIAL CONDITION
Liquidity and Capital Resources
- -------------------------------
Operating Activities. Net cash from operations increased to $148.7 million in
- ---------------------
the first nine months of fiscal 2006 from $83.6 million in the first nine months
of fiscal 2005. The increase reflected a combination of factors, including a
$24.4 million increase in net earnings and favorable changes in working capital
resulting from the timing of disbursements, partially offset by increases in
receivables and inventory.
Investing Activities. Net cash used in investing activities was $75.3 million in
- --------------------
the first nine months of fiscal 2006, compared with $123.7 million in the first
nine months of the prior fiscal year. Capital expenditures were $153.5 million
in the first nine months of fiscal 2006, compared with $176.3 million in
corresponding period of the prior fiscal year. In addition to store construction
costs, capital expenditures included costs associated with our new home office,
which was completed in October 2005, and the cost of land acquired for future
year store openings. The decrease in capital expenditures in fiscal 2006
compared with the prior year was primarily due to the timing of land purchases
for future year store openings.
The company generated net proceeds from the sales of assets of $78.2 million in
the first nine months of fiscal 2006, compared with $52.7 million in the first
nine months of fiscal 2005. These proceeds were primarily associated with
sale-leaseback transactions. In the nine months ended November 30, 2005, we
completed the sale-leaseback of five superstores, while in the corresponding
period of the prior fiscal year, we completed the sale-leaseback of three
superstores. The sale-leaseback transactions were structured with initial lease
terms of either 15 or 20 years with four, five-year renewal options. As of
November 30, 2005, we owned ten superstores currently in operation and the
company's home office in Richmond, Virginia.
Financing Activities. Net cash used in financing activities was $67.5 million in
- --------------------
the first nine months of fiscal 2006, compared with net cash provided by
financing activities of $4.2 million in the first nine months of fiscal 2005. In
the first nine months of fiscal 2006, we used cash generated from operations to
reduce total debt by $72.0 million.
The outstanding aggregate principal amount of automobile loan receivables funded
through securitizations, which are discussed in Notes 3 and 4 to the company's
consolidated financial statements, totaled $2.65 billion at November 30, 2005,
and $2.38 billion at November 30, 2004. During the first nine months of fiscal
2006, we completed two public securitizations of automobile loan receivables
totaling $1.14 billion. Subsequent to the end of the quarter, in December 2005,
we completed a third public securitization of automobile loan receivables
totaling $450 million. At November 30, 2005, the unused warehouse capacity
Page 25 of 31
totaled $186.0 million. The warehouse facility matures in July 2006. We
anticipate that we will be able to renew, expand, or enter into new
securitization arrangements to meet the future needs of the automobile finance
operation.
In August 2005, we entered into a new, four-year, $450 million revolving credit
facility secured by vehicle inventory. Concurrently, we terminated our existing
$300 million credit agreement. Borrowings under the new credit facility are
available for working capital and general corporate purposes, and represent
senior secured indebtedness of the company. All outstanding principal amounts
borrowed under the credit facility will be due and payable in August 2009. The
aggregate borrowing limit includes a $25 million limit on new vehicle swing line
loans, a $25 million limit on other swing line loans, and a $30 million limit on
standby letters of credit. Borrowings on the each of the swing lines are due on
demand and must be repaid monthly or refinanced through other committed
borrowings under the credit agreement.
As of November 30, 2005, $93.8 million was outstanding under the credit
facility, with the remainder fully available to the company. The outstanding
balance included $4.7 million of swing line loans classified as short-term debt,
$39.1 million classified as current portion of long-term debt, and $50.0 million
classified as long-term debt. The determination of the amount classified as
long-term debt was based on management's intent as to that portion expected to
remain outstanding for more than one year from the balance sheet date.
We expect that proceeds from securitization transactions; sale-leaseback
transactions; current and, if needed, additional credit facilities; and cash
generated by operations will be sufficient to fund capital expenditures and
working capital for the foreseeable future.
Page 26 of 31
ITEM 3.
QUANTITATIVE AND QUALITATIVE
DISCLOSURES ABOUT MARKET RISK
Automobile Installment Loan Receivables. At November 30, 2005, and February 28,
- ---------------------------------------
2005, all loans in the portfolio of automobile loan receivables were fixed-rate
installment loans. Financing for these automobile loan receivables is achieved
through asset securitization programs that, in turn, issue both fixed- and
floating-rate securities. Interest rate exposure relating to floating-rate
securitizations is managed through the use of interest rate swaps. Receivables
held for investment or sale are financed with working capital. Generally,
changes in interest rates associated with underlying swaps will not have a
material impact on earnings. However, changes in interest rates associated with
underlying swaps may have a material impact on cash and cash flows.
Credit risk is the exposure to nonperformance of another party to an agreement.
Credit risk is mitigated by dealing with highly rated bank counterparties. The
market and credit risks associated with financial derivatives are similar to
those relating to other types of financial instruments.
The total principal amount of managed receivables securitized or held for
investment or sale as of November 30, 2005, and February 28, 2005, was as
follows:
(In millions) November 30 February 28
- ----------------------------------------------------------------------------------------------------------------
Fixed-rate securitizations............................................. $ 2,015.6 $ 1,764.7
Floating-rate securitizations
synthetically altered to fixed.................................... 638.5 662.1
Floating-rate securitizations.......................................... 0.5 0.4
Held for investment (1)................................................ 54.6 45.5
Held for sale (2)...................................................... 1.5 22.2
---------------------------------------
Total.................................................................. $ 2,710.7 $ 2,494.9
=======================================
(1) The majority is held by a bankruptcy-remote special purpose entity.
(2) Held by a bankruptcy-remote special purpose entity.
Interest Rate Exposure. We also have interest rate risk from changing interest
- ----------------------
rates related to our outstanding debt. Substantially all of the debt is
floating-rate debt based on LIBOR. A 100-basis point increase in market interest
rates would not have had a material effect on our results of operations or cash
flows for the three months or the nine months ended November 30, 2005.
Page 27 of 31
ITEM 4.
CONTROLS AND PROCEDURES
The company maintains disclosure controls and procedures ("disclosure controls")
that are designed to ensure that information required to be disclosed in our
reports filed under the Securities Exchange Act of 1934 is recorded, processed,
summarized, and reported within the time periods specified in the U.S.
Securities and Exchange Commission's rules and forms. Disclosure controls are
also designed to ensure that such information is accumulated and communicated to
our management, including the chief executive officer ("CEO") and the chief
financial officer ("CFO"), as appropriate, to allow timely decisions regarding
required disclosure.
As of the end of the period covered by this report, the company evaluated the
effectiveness of the design and operation of its disclosure controls. This
evaluation was performed under the supervision and with the participation of
management, including our CEO and CFO. Based upon that evaluation, the CEO and
CFO concluded that the company's disclosure controls were effective as of the
end of such period. There was no change in the company's internal control over
financial reporting that occurred during the quarter ended November 30, 2005,
that has materially affected, or is reasonably likely to materially affect, the
company's internal control over financial reporting.
Page 28 of 31
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
CarMax is subject to various legal proceedings, claims, and
liabilities that arise in the ordinary course of its business. In
the opinion of management, the amount of ultimate liability with
respect to these actions will not materially affect the financial
position or results of operations of CarMax.
Item 6. Exhibits
31.1 Certification of the Chief Executive Officer Pursuant to
Rule 13a-14(a), filed herewith.
31.2 Certification of the Chief Financial Officer Pursuant to
Rule 13a-14(a), filed herewith.
32.1 Certification of the Chief Executive Officer Pursuant to 18
U.S.C. Section 1350, filed herewith.
32.2 Certification of the Chief Financial Officer Pursuant to 18
U.S.C. Section 1350, filed herewith.
Page 29 of 31
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CARMAX, INC.
By: /s/ Austin Ligon
--------------------------------------
Austin Ligon
President and
Chief Executive Officer
By: /s/ Keith D. Browning
--------------------------------------
Keith D. Browning
Executive Vice President and
Chief Financial Officer
January 6, 2006
Page 30 of 31
EXHIBIT INDEX
31.1 Certification of the Chief Executive Officer Pursuant to
Rule 13a-14(a), filed herewith.
31.2 Certification of the Chief Financial Officer Pursuant to
Rule 13a-14(a), filed herewith.
32.1 Certification of the Chief Executive Officer Pursuant to 18
U.S.C. Section 1350, filed herewith.
32.2 Certification of the Chief Financial Officer Pursuant to 18
U.S.C. Section 1350, filed herewith.
Page 31 of 31