CARMAX (KMX)

Net cash used in financing activities was $1.6 million in fiscal 2006, while net cash provided by financing activities was $63.8 million in fiscal 2005. In fiscal 2004, net cash used in financing activities was $47.6 million. In fiscal 2006, we used cash generated from operations to reduce total debt by $6.8 million. In fiscal 2005, we increased total debt by $60.2 million primarily to fund increased inventory. In fiscal 2004, we used cash generated from operations to reduce total outstanding debt by $51.6 million.

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 each of the swing lines are due on demand and must be repaid monthly or refinanced through other committed borrowings under the credit agreement.

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As of February 28, 2006, $159.3 million was outstanding under the credit facility, with the remainder fully available to the company. The outstanding balance included $0.5 million of swing line loans classified as short-term debt, $58.8 million classified as current portion of long-term debt, and $100.0 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 cash generated by operations; proceeds from securitization transactions; and, if needed, additional debt and sale-leaseback transactions will be sufficient to fund capital expenditures and working capital for the foreseeable future.

Net cash provided by financing activities was $63.8 million in fiscal 2005. In fiscal 2004, net cash used in financing activities was $47.6 million, compared with net cash provided of $39.8 million in fiscal 2003. In fiscal 2005, we increased short-term debt by $60.8 million primarily to fund increased inventory. In fiscal 2004, we used cash generated from operations to reduce total outstanding debt by $51.6 million. In fiscal 2003, we increased total outstanding debt by $67.6 million and paid a one-time dividend of $28.4 million to Circuit City in conjunction with the separation transaction.

The 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 $2.43 billion at February 28, 2005, $2.20 billion at February 29,

2004, and $1.86 billion at February 28, 2003. During fiscal 2005, we completed two public automobile loan securitizations totaling $1.15 billion. At February 28, 2005, the warehouse facility limit was $825.0 million and unused warehouse capacity totaled $162.5 million. The warehouse facility matures in June 2005. Note 2(C) and Note 4 to the company’s consolidated financial statements include a discussion of the warehouse facility. 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.

We maintain a $300 million credit facility secured by vehicle inventory. As of February 28, 2005, the amount outstanding under this credit facility was $165.2 million, with the remainder fully available to the company. See Note 9 to the company’s consolidated financial statements for discussion of expiration, renewals, and covenants associated with this facility.

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.