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Unformatted text preview: CARMAX, INC. Annual Report
Fiscal Year 2014 CarMax Used Car Superstores
Arizona Phoenix (2)
Tucson Florida Kansas Nevada Oregon Ft. Myers (2)
Tampa (2) Kansas City (2)
Wichita Las Vegas (2)
Reno* Portland* (2) Kentucky New Mexico Lexington
Louisville Albuquerque Lancaster* (2)
Philadelphia (2) New York South Carolina Louisiana Rochester* Charleston
Greenville Georgia Atlanta (5)
Savannah California Bakersfield
Los Angeles (10)
San Diego (2) Baton Rouge Illinois Mississippi Chicago (8)
Tupelo* Colorado Springs
Denver (2) Indianapolis Missouri Iowa St. Louis (2) Connecticut Des Moines Nebraska Colorado Charlotte (4)
Raleigh* (3) North Attleborough Hartford /New Haven (2) Charlottesville
Norfolk / Virginia Beach (2)
Nashville (3) Cincinnati
Dayton Virginia Washington Tennessee Ohio Washington, D.C. /
Milwaukee (2) Texas Austin (2)
Dallas / Fort Worth* (5)
San Antonio (2) Oklahoma Omaha Salt Lake City Pennsylvania North Carolina Massachusetts Utah Oklahoma City
Tulsa *Opening in fiscal 2015
(including one store each
in Dallas, Lancaster and
Raleigh) CARMAX MARKETS
` Existing Markets
` Opening in Fiscal 2015 13.5% 13.1% 14.4%
11.8% 14.1% $492.6
$434.3 1 1 5 $277.8 $413.8 $377.5 12
10 447,728 408,080 396,181 357,129 $10.96 $10.00 $7.47 $8.98 $12.57 526,929 (Size of markers is based on
number of CarMax stores in
each market) 10 11 12 13 14 10 11 12 13 14 10 11 12 13 14 10 11 12 13 14 10 11 12 13 14 Total Revenues Used Vehicles Sold Comparable Store
Used Unit Sales Net Earnings Return on
Invested Capital (in billions) (percentage change) (in millions) (unleveraged, excluding
non-recourse debt) Letter to Shareholders
During fiscal 2014, we celebrated our 20th anniversary. CarMax was created in 1993 to address a strong
consumer need for a better way to buy used cars. Since opening our first store in Richmond, Virginia, we’ve
sold more than 5 million retail vehicles and expanded to 133 stores nationwide. We opened 13 stores in fiscal
2014 – our most in any one year. We anticipate a similar schedule of store openings for the next two years as
we continue to fill in our national footprint. We were pleased this year to report double-digit growth in our
estimated market share. Our data indicates that we grew share by 16% in the age 0 -10 used vehicle market.
During fiscal 2014, total revenues increased 15% to $12.6 billion. We sold more than 877,000 vehicles,
including nearly 535,000 retail vehicles and more than 342,000 wholesale vehicles at our auctions. Our
comparable store used unit sales growth of 12% was our strongest since fiscal 2002. CarMax Auto Finance
(CAF) income increased by 12% to approximately $336 million and our loan portfolio grew to more than
$7 billion by year end. Net earnings rose 13% to $492.6 million or $2.16 per diluted share.
Superior Customer Experience
As we accelerated our store openings this year, we continued our focus on enhancing the customer experience
– both online and in our stores. Our carmax.com website and mobile apps are essential tools used to drive
customer traffic, and we continue to enrich their functionality to meet customer needs. This year we added
more personalized elements, improved the search capabilities, redesigned the vehicle listings to be more
impactful and scannable, added larger high definition photos with zoom capabilities, and enabled shoppers to
make online appointments and hold cars for up to seven days.
Our web visits are measures of consumer interest in CarMax, and we believe increasing numbers of our
customers are starting with us online. For the full year, our website visits grew to an average of approximately
12 million per month, increasing more than 32% from the previous year. By the end of fiscal 2014, visits to our
mobile site represented 30% of total visits, while visits utilizing our mobile apps more than doubled compared
with a year earlier - to more than 12% of our online traffic. In fact, by the end of fiscal 2014, 57% of our online
traffic came from devices other than desktops or laptops.
While many customers start their search for the perfect vehicle online, our stores remain critical to the sales
process. Many elements of the car-buying process, including test drives, financing and the completion of final
paperwork, are still best handled at a store, with the assistance of well-trained associates. We continue to
refine our recent store redesign, which includes greater utilization of technology and touch screen search
capabilities, as well as other processes that elevate the customer experience, such as having all cars on the
display lot unlocked and available for browsing and giving customers the option of test driving vehicles on their
During fiscal 2014, we also added 3 new wholesale auction sites, which are now conducted at 60 of our used
car superstores. Since our inception, we’ve sold nearly 3 million wholesale vehicles at our auctions. Each year
we continue to add more functionality to carmaxauctions.com, which allows dealers to manage their own
accounts and provides them with a sneak-preview of our nationwide wholesale inventory, including
photographs and vehicle history reports. Wholesale customers also can receive email alerts when specific
vehicles become available at an upcoming auction. Financial Highlights
(Dollars in millions except per share data) Fiscal Years Ended February 28 or 29 ‘14 vs. ‘13 2014 2013 2012 2011 2010 Operating Results
Net sales and operating revenues 15% $ 12,574.3 $ 10,962.8 $10,003.6 $ 8,975.6 $ 7,470.2 Net earnings 13% $ 492.6 $ 434.3 $ 413.8 $ 377.5 $ 277.8 Diluted net earnings per share 16% $ 2.16 $ 1.87 $ 1.79 $ 1.65 $ 1.24 $ 310.3 $ 235.7 $ 172.6 $ 76.6 $ 22.4 Other Information
Capital expenditures 32% Used car superstores, at end of year 11% 131 118 108 103 100 Associates, at end of year 11% 20,171 18,111 16,460 15,565 13,439 1 CarMax Fiscal 2014 Smart Growth and Associate Engagement
As we continue to grow, we know it’s essential to be smart about how we grow. We remain committed to the
CarMax culture of continuous improvement. During fiscal 2014, we began testing a small format store,
designed to allow us to economically enter smaller markets. The small format store also represents an ideal
environment in which to test and develop more efficient ways of buying and selling vehicles. We opened our
first two small format stores in Harrisonburg, Virginia and Jackson, Tennessee. In these stores, our focus on
teamwork is particularly important, as associates handle multiple aspects of a customer’s transaction. In the
small format environment and elsewhere throughout the company, we continue to search for scalable solutions.
We are delighted to have been named by Fortune magazine as one of its “100 Best Companies to Work For”
for the tenth consecutive year. This honor is a testament to our continuous focus on a culture of integrity,
diversity and respect, where associates have the opportunity to build fulfilling careers. Comprehensive and
relevant training – online and in a classroom setting – are key to CarMax’s success. For the seventh
consecutive year, CarMax was named to Training magazine’s Top 125, which recognizes organizations that
provide extraordinary employer-sponsored workforce training and development programs. We are very proud
of programs like the recently introduced Summit, which immerse entry-level managers into leadership
development by having them work closely with other experienced managers. Not only does the program teach
managers specific skills, it also incorporates nonprofit community service into the workshop.
Giving back to the communities in which we live and work is an integral part of the CarMax culture, and in fiscal
2014, The CarMax Foundation celebrated 10 years of making a positive impact in our communities.
Established in 2003, the Foundation has evolved and expanded, and it had another record year in fiscal 2014.
Annual grants totaled $4.7 million, and the Foundation surpassed $19 million in total giving since its formation.
In addition, 100% of our locations organized at least one volunteer team builder and we held a record 729 total
volunteer events during fiscal 2014.
As we grow and enter new markets, it’s important to demonstrate that CarMax will be an active and giving
member of our new communities. The Foundation partners with the leadership teams in new stores to help
them organize community volunteer projects before the store even opens. In fiscal 2014, more than 165
associates in newly opened stores participated in volunteer events prior to the grand opening of their location.
Recently, CarMax associates identified Children’s Healthy Living as the Foundation’s national focus. This year
we committed to a three-year, $4.1 million partnership with the nationally recognized non-profit KaBOOM!.
This organization targets communities in need of safe, accessible places for children to play, with the goal of
ensuring that all children get the balance of active play they need to become healthy and successful adults.
KaBOOM! doesn’t just build playgrounds, it empowers, connects and strengthens communities. CarMax is
proud that our partnership to fund and build 30 playgrounds (7 of which were completed in fiscal 2014) will
impact more than 100,000 children.
CarMax has a tremendous opportunity for growth in the years to come. We’re currently in markets that
comprise less than 60% of the U.S. population, and in many of those markets we’re not yet fully stored.
Evolution and innovation are critical to our long-term competitive position, so we’re continuously refining our
business model and continuously getting better. But it is the engagement and skill of our associates that will
ultimately drive our success. Once again this year, let me take this opportunity to thank each and every one of
our more than 20,000 associates for everything they do every day to support and drive our future. And, we
also thank all our customers, communities and shareholders for their support and confidence in CarMax. Tom Folliard
President and Chief Executive Officer
April 25, 2014 CarMax Fiscal 2014 2 UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549 FORM 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended February 28, 2014
OR TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
to For the transition period from
Commission File Number: 1-31420 CARMAX, INC.
(Exact name of registrant as specified in its charter) VIRGINIA 54-1821055 (State or other jurisdiction of
incorporation or organization) (I.R.S. Employer
Identification No.) 12800 TUCKAHOE CREEK PARKWAY, RICHMOND, VIRGINIA 23238 (Address of principal executive offices) (Zip Code) Registrant’s telephone number, including area code: (804) 747-0422
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered Common Stock, par value $0.50 New York Stock Exchange Securities registered pursuant to Section 12(g) of the Act:
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities
Yes No Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the
Yes No 1 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 No Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if
any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during
the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes No Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained
herein, and will not be contained, to the best of the registrant’s knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer or a non-accelerated
filer or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller
reporting company in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer Non-accelerated filer (do not check if a smaller reporting company) Accelerated filer Smaller reporting company Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).
Yes No The aggregate market value of the registrant’s common stock held by non-affiliates as of August 31, 2013,
computed by reference to the closing price of the registrant’s common stock on the New York Stock Exchange on
that date, was $10,621,543,601.
On March 31, 2014, there were 220,805,697 outstanding shares of CarMax, Inc. common stock.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the CarMax, Inc. Notice of 2014 Annual Meeting of Shareholders and Proxy Statement are incorporated
by reference in Part III of this Form 10-K. 2 CARMAX, INC.
FOR FISCAL YEAR ENDED FEBRUARY 28, 2014
TABLE OF CONTENTS
No. PART I
4 Item 1. Business Item 1A. Risk Factors 12 Item 1B. Unresolved Staff Comments 17 Item 2. Properties 18 Item 3. Legal Proceedings 19 Item 4. Mine Safety Disclosures 20
PART II Item 5. Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases
of Equity Securities 21 Item 6. Selected Financial Data 23 Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations 24 Item 7A. Quantitative and Qualitative Disclosures about Market Risk 39 Item 8. Consolidated Financial Statements and Supplementary Data 40 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 76 Item 9A. Controls and Procedures 76 Item 9B. Other Information 76
PART III Item 10. Directors, Executive Officers and Corporate Governance 76 Item 11. Executive Compensation 77 Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters 78 Item 13. Certain Relationships and Related Transactions and Director Independence 78 Item 14. Principal Accountant Fees and Services 78
PART IV Item 15. Exhibits and Financial Statement Schedules 78 Signatures 79 3 PART I
In this document, “we,” “our,” “us,” “CarMax” and “the company” refer to CarMax, Inc. and its wholly owned
subsidiaries, unless the context requires otherwise.
FORWARD-LOOKING AND CAUTIONARY STATEMENTS
This Annual Report on Form 10-K and, in particular, the description of our business set forth in Item 1 and our
Management’s Discussion and Analysis of Financial Condition and Results of Operations set forth in Item 7 contain
forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934, including statements regarding: Our projected future sales growth, comparable store unit sales growth, margins, earnings, CarMax Auto Finance
income and earnings per share. Our expectations of factors that could affect CarMax Auto Finance income. Our expected future expenditures, cash needs and financing sources. The projected number, timing and cost of new store openings. Our sales and marketing plans. Our assessment of the potential outcome and financial impact of litigation and the potential impact of
unasserted claims. Our assessment of competitors and potential competitors. Our assessment of the effect of recent legislation and accounting pronouncements. In addition, any statements contained in or incorporated by reference into this report that are not statements of
historical fact should be considered forward-looking statements. You can identify these forward-looking statements
by use of words such as “anticipate,” “believe,” “could,” “estimate,” “expect,” “intend,” “may,” “outlook,” “plan,”
“predict,” “should,” “will” and other similar expressions, whether in the negative or affirmative. We cannot
guarantee that we will achieve the plans, intentions or expectations disclosed in the forward-looking statements.
There are a number of important risks and uncertainties that could cause actual results to differ materially from those
indicated by our forward-looking statements. These risks and uncertainties include, without limitation, those set
forth in Item 1A under the heading “Risk Factors.” We caution investors not to place undue reliance on any
forward-looking statements as these statements speak only as of the date when made. We disclaim any intent or
obligation to update any forward-looking statements made in this report.
Item 1. Business.
CarMax Background. CarMax, Inc. was incorporated under the laws of the Commonwealth of Virginia in 1996.
CarMax, Inc. is a holding company and our operations are conducted through our subsidiaries. Our home office is
located at 12800 Tuckahoe Creek Parkway, Richmond, Virginia.
Under the ownership of Circuit City Stores, Inc. (“Circuit City”), we began operations in 1993 with the opening of
our first CarMax superstore in Richmond, Virginia. On October 1, 2002, the CarMax business was separated from
Circuit City through a tax-free transaction, becoming an independent, publicly traded company.
CarMax Business. We operate in two reportable segments: CarMax Sales Operations and CarMax Auto Finance
(“CAF”). Our CarMax Sales Operations segment consists of all aspects of our auto merchandising and service
operations, excluding financing provided by CAF. Our CAF segment consists solely of our own finance operation
that provides vehicle financing through CarMax superstores.
CarMax Sales Operations: We are the nation’s largest retailer of used cars, based on the 526,929 used vehicles we
retailed during the fiscal year ended February 28, 2014. As of the end of fiscal 2014, we operated 131 used car 4 superstores in 64 metropolitan markets. In addition, we are one of the nation’s largest wholesale vehicle auction
operators, based on the 342,576 wholesale vehicles we sold through our on-site auctions in fiscal 2014.
We were the first used vehicle retailer to offer a large selection of high quality used vehicles at low, “no-haggle”
prices using a customer-friendly sales process in an attractive, modern sales facility. Our consumer offer allows
customers to shop for vehicles the same way they shop for items at other “big-box” retailers. We provide low, nohaggle prices; a broad selection of CarMax Quality Certified vehicles; and superior customer service. Our strategy
is to revolutionize the auto retailing market by addressing the major sources of customer dissatisfaction with
traditional auto retailers and to maximize operating efficiencies through the use of standardized operating
procedures and store formats enhanced by sophisticated, proprietary management information systems.
Our consumer offer enables customers to evaluate separately each component of the sales process, including the
purchase of a vehicle, the financing of that vehicle, the purchase of extended service plans for that vehicle and the
sale of the customer’s current vehicle to CarMax. Customers can make informed decisions based on comprehensive
information about th...
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