CARMAX INC
For the period ended Aug 31, 2024. Filed Sep 27, 2024.
View on SEC.govAbout this filing
A company's report for each of its first three quarters. The financial statements are not audited. It shows how the business has moved since the last annual report, and what management says changed.
Aug 31, 2024 · Filed Sep 27, 2024
KMX$51.48-2.1%Stored close · as of Nov 6, 2026
What changed in Management’s Discussion and Analysis?
Read the current filingPrevious report: 10-Q
Period ended 2024-05-31; filed 2024-06-27.
0001170010-24-000087
Item 2. Management’s Discussion and Analysis of Financial Condition andCurrent report: 10-Q
Period ended 2024-08-31; filed 2024-09-27.
0001170010-24-000130
Item 2. Management’s Discussion and Analysis of Financial Condition andThe baseline is this issuer’s latest earlier reporting period of the same form that was filed before the current report. A previous 10-Q is a different quarter, not a year-over-year comparison. Amendments are excluded.
Compared 362 previous paragraphs and 337 current paragraphs.
203 unchanged; 100 reworded; 27 added; 59 removed; 0 previous and 7 current paragraphs rearranged.
Tables are not compared: 59 previous and 53 current tables excluded. Dates, whitespace, punctuation and numbering changes are ignored; changes to financial figures remain significant.
A changed paragraph is not evidence that risk increased or decreased. An unchanged paragraph does not establish that risk stayed the same.
Added paragraphs (27)
Current report
(B)Share-Based Compensation
Current report
(C)Stock Incentive Plan Information
Current report
Share/Unit Activity
Current report
•We have focused on customer shopping accounts, which make it easier for customers to see the steps they have taken on their shopping journey, whether on their own or with help from an associate. These accounts also guide next steps and promote MaxCare, our ESP product. We are currently testing this offering in several stores and plan to deploy it nationwide later this year.
Current report
•We developed a new knowledge management system that we are testing in our CECs, which leverages generative AI to empower associates with instant access to the information they need. We believe this will enable our CECs to be more effective and efficient, and we plan to launch the bot across all CECs later this year.
Current report
•We released an enhancement to our finance-based shopping platform that seamlessly incorporates existing instant appraisal offers into our prequalification offering.
Current report
•We launched an EV hub as a consumer research resource on carmax.com. The hub contains guides that address top questions shoppers have about EVs, including hybrids, and serves to help consumers determine if an EV is right for them.
Current report
As we continue to evaluate our logistics operations, including equipment and leasing arrangements, we may incur charges that we estimate will be less than $10 million in the near term, which would likely be recorded in other (income)/expense. These charges are expected to be more than offset by the efficiencies gained in our logistics operations over time.
Current report
During the first six months of fiscal 2025, we opened two stores in existing television markets (El Paso, TX and Gainesville, GA).
Current report
Wholesale vehicle gross profit increased 0.9% in the second quarter of fiscal 2025, primarily driven by a $12 increase in wholesale vehicle gross profit per unit, partially offset by a 0.3% decrease in wholesale unit sales. Wholesale vehicle gross profit decreased 3.1% in the first six months of fiscal 2025, primarily driven by a 4.5% decrease in wholesale unit sales, partially offset by a $15 increase in wholesale vehicle gross profit per unit.
Current report
Other gross profit increased 33.1% and 16.5% in the second quarter and first six months of fiscal 2025, respectively, primarily driven by increases in EPP revenues, as discussed above, as well as improvements in service department margins. The increase in service department profits for both the second quarter and first six months of fiscal 2025 was driven by efficiency and cost coverage measures that we have implemented. The increase in service department margins for the second quarter was also impacted by the increase in used unit sales. We expect to continue to see significant year-over-year favorability in service department profits for the full year of fiscal 2025, as governed by sales performance given the leverage/deleverage nature of service.
Current report
Three Months Ended August 31, 2024 Six Months Ended August 31, 2024
Current report
•$15.6 million increase in compensation and benefits, excluding share-based compensation expense, driven by an increase in the corporate bonus accrual, which was reduced in the prior year period.
Current report
•$6.9 million increase in occupancy costs driven by the timing of store maintenance spend and inflationary pressures on utilities.
Current report
SG&A expenses increased $103.6 million, or 9.0%, in the first six months of fiscal 2025. Factors contributing to the increase include the following:
Current report
•$13.0 million increase in compensation and benefits, excluding share-based compensation expense, driven by an increase in the corporate bonus accrual, which was reduced in the second quarter of the prior year.
Current report
•$11.4 million increase in occupancy costs driven by the timing of store maintenance spend and inflationary pressures on utilities.
Current report
Excluding the legal settlement in the prior year period, SG&A expenses in the first six months of fiscal 2025 increased 3.0%, or $36.4 million.
Current report
While advertising expense on a per total unit basis for the second quarter of fiscal 2025 was slightly lower than our previously disclosed annual target, we continue to expect the full-year advertising spend for fiscal 2025 to be consistent with fiscal 2024 at approximately $200 per total unit.
Current report
Interest expense of $27.0 million and $58.4 million in the second quarter and first six months of fiscal 2025, respectively, was relatively consistent with $31.6 million and $62.1 million in the second quarter and first six months of fiscal 2024, respectively.
Current report
Other Income. Other income of $3.3 million and $2.9 million in the second quarter and first six months of fiscal 2025, respectively, was relatively consistent with $2.6 million and $3.8 million in the second quarter and first six months of fiscal 2024, respectively.
Current report
•CAF Income (Decreases of $19.4 million, or 14.4%, and $9.8 million, or 3.6%, in the second quarter and first six months of fiscal 2025, respectively)
Current report
•Total Interest Margin was 6.1% in both the second quarter and first six months of fiscal 2025, consistent with both the second quarter and first six months of fiscal 2024.
Current report
◦The provision for loan losses resulted in expense of $112.6 million and $193.8 million in the second quarter and first six months of fiscal 2025, respectively, compared with expense of $89.8 million and $170.7 million in the second quarter and first six months of fiscal 2024, respectively.
Current report
◦The provision for loan losses in the second quarter of fiscal 2025 included an increase of $52.2 million in our estimate of lifetime losses on existing loans, which was nearly an 11% increase in our loss expectations. We believe the increase is largely related to the industry wide worsening in loss experience. The remaining $60.4 million reflected our estimate of lifetime losses on current quarter originations.
Current report
◦The increases in the provision for loan losses in both periods were primarily driven by unfavorable loss performance. We experienced higher losses for receivables originated in 2022 and 2023, when average selling prices were elevated and these customers were later challenged with the macro-inflationary environment. In addition, we experiences higher losses pertaining to a segment of customers generally concentrated at the lower end of Tier 1, which we addressed through further tightening in April 2024. While the loan loss reserve was adjusted for these receivables during the first quarter of fiscal 2025, further deterioration was observed during the second quarter, resulting in an additional adjustment to the reserve.
Current report
◦Despite the year-over-year growth in the provision for loan losses, the allowance for loan losses as a percentage of ending managed receivables only increased 3 basis points from the first quarter of fiscal 2025, which is a result of credit tightening measures we implemented over the course of the last two years and their growing impact on our receivable portfolio.
Removed paragraphs (59)
Previous report
Recent Accounting Pronouncements.
Previous report
Adopted in the Current Period
Previous report
In June 2022, the Financial Accounting Standards Board (“FASB”) issued an accounting pronouncement (ASU 2022-03) related to accounting for equity securities. The amendments in the update clarify the guidance for measuring the fair value of equity securities subject to contractual restrictions that prohibit the sale of equity securities, as well as introduce new disclosure requirements for equity securities subject to contractual sale restrictions that are measured at fair value. This update is effective for annual periods beginning after December 15, 2023, and interim periods within those fiscal years. We adopted this pronouncement for our fiscal year beginning March 1, 2024, and it did not have a material effect on our consolidated financial statements.
Previous report
In March 2023, the FASB issued an accounting pronouncement (ASU 2023-01) related to accounting for leases between entities under common control. The amendments in this update that apply to public business entities clarify the accounting for leasehold improvements associated with common control leases. This update is effective for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years. We adopted this pronouncement for our fiscal year beginning March 1, 2024, and it did not have a material effect on our consolidated financial statements.
Previous report
In March 2023, the FASB issued an accounting pronouncement (ASU 2023-02) related to accounting for investments in tax credit structures using the proportional amortization method. The amendments in this update permit reporting entities to elect to account for their tax equity investments, regardless of the tax credit program from which the income tax credits are received, using the proportional amortization method if certain conditions are met. This update is effective for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years. We adopted this pronouncement for our fiscal year beginning March 1, 2024, and it did not have a material effect on our consolidated financial statements.
Previous report
(1)Percent of total ending managed receivables.
Previous report
(1)Percent of total ending managed receivables.
Previous report
(B)Stock Incentive Plans
Previous report
We maintain long-term incentive plans for management, certain employees and the nonemployee members of our board. The plans allow for the granting of equity-based compensation awards, including nonqualified stock options, incentive stock options, stock appreciation rights, restricted stock awards, stock- and cash-settled restricted stock units, stock grants or a combination of awards. To date, we have not awarded any incentive stock options.
Previous report
The majority of associates who receive share-based compensation awards primarily receive cash-settled restricted stock units. Senior management and other key associates receive awards of nonqualified stock options, stock-settled restricted stock units and/or restricted stock awards. Nonemployee directors are eligible to receive awards of nonqualified stock options, stock grants, stock-settled restricted stock units and/or restricted stock awards. Excluding stock grants and stock-settled deferred stock units, all share-based compensation awards, including any associated dividend rights, are subject to forfeiture.
Previous report
Nonqualified Stock Options. Nonqualified stock options are awards that allow the recipient to purchase shares of our common stock at a fixed price. Stock options are granted at an exercise price equal to the fair market value of our common stock on the grant date. The stock options generally vest annually in equal amounts over four years. These options expire seven years after the date of the grant.
Previous report
Cash-Settled Restricted Stock Units. Also referred to as restricted stock units, or RSUs, these are awards that entitle the holder to a cash payment equal to the fair market value of a share of our common stock for each unit granted. Conversion generally occurs annually in equal amounts over three years. However, the cash payment per RSU will not be greater than 200% or less than 75% of the fair market value of a share of our common stock on the grant date. The initial grant date fair values are based on the closing prices of our common stock on the grant dates. RSUs are liability-classified awards and do not have voting rights.
Previous report
Stock-Settled Market Stock Units. Also referred to as market stock units, or MSUs, these are restricted stock unit awards with market conditions granted to eligible key associates that are converted into between zero andtwo shares of common stock for each unit granted. Conversion generally occurs at the end of athree-year vesting period. The conversion ratio is calculated by dividing the average closing price of our stock during the final 40 trading days of thethree-year vesting period by our stock price on the grant date, with the resulting quotient capped attwo. This quotient is then multiplied by the number of MSUs granted to yield the number of shares awarded. The grant date fair values are determined using a Monte-Carlo simulation and are based on the expected market price of our common stock on the vesting date and the expected number of converted common shares. MSUs do not have voting rights.
Previous report
Other Share-Based Incentives
Previous report
Stock-Settled Performance Stock Units. Also referred to as performance stock units, or PSUs, these are restricted stock unit awards with performance conditions granted to eligible key associates that are converted into between zero andtwo shares of common stock for each unit granted. Conversion generally occurs at the end of athree-year vesting period. For the fiscal 2022 grants, the first- and second-year periods of the fiscal 2023 grants and the first-year period of the fiscal 2024 grants, the conversion ratio is based on the company reaching certain performance target levels set by the board at the beginning of each one-year period, with the resulting quotients subject to meeting a minimum 25% threshold and capped at 200%. For the third-year period of the fiscal 2023 grants, the second-year period of the fiscal 2024 grants and the fiscal 2025 grants, the conversion ratio is based on the company reaching certain target levels set by the board, with the resulting quotients subject to meeting a minimum 50% threshold and capped at 200%. These quotients are then multiplied by the number of PSUs granted to yield the number of shares awarded.
Previous report
For the first year of the fiscal 2022 awards, these targets were based on annual pretax diluted earnings per share excluding any unrealized gains or losses on equity investments in private companies; the board certified a performance adjustment factor of 200%. For the second- and third-year periods of the fiscal 2022 awards, the first- and second-year periods of the fiscal 2023 awards and the first-year period of the fiscal 2024 awards, the performance targets are based on annual pretax diluted earnings per share, excluding any unrealized gains or losses on equity investments in private companies, and market share. For the second-year period of the fiscal 2022 awards and the first-year period of the fiscal 2023 awards, the board certified a performance adjustment factor of 4%. For the third-year period of the fiscal 2022 awards, the second-year period of the fiscal 2023 grants and the first-year period of the fiscal 2024 grants, the board certified a performance adjustment factor of 38%. For the third-year period of the fiscal 2023 awards and the second-year period of the fiscal 2024 awards, the performance targets are based on the annual pre-tax earnings, excluding any unrealized gains or losses on equity investments in private companies and any significant non-recurring non-cash gains or losses. For the third-year period of the fiscal 2024 awards, the remaining awarded 23,551 PSUs do not qualify as grants under ASC 718 as mutual understanding of the target performance levels are either not fully set or have not been set. For the fiscal 2025 awards, the performance targets are based on the cumulative three-year pretax earnings, excluding any unrealized gains or losses on equity investments in private companies and any significant non-recurring non-cash gains or losses.
Previous report
PSUs do not have voting rights. The grant date fair values are based on the closing prices of our common stock on the grant dates. As of May 31, 2024,296,997 units were outstanding at a weighted average grant date fair value per share of $71.11.
Previous report
Stock-Settled Deferred Stock Units. Also referred to as deferred stock units, or DSUs, these are restricted stock unit awards granted to non-employee members of our board that are converted intoone share of common stock for each unit granted. Conversion occurs at the end of theone-year vesting period unless the director has exercised the option to defer conversion until separation of service to the company. The grant date fair values are based on the closing prices of our common stock on the grant dates. DSUs have no voting rights. As of May 31, 2024,97,001 units were outstanding at a weighted average grant date fair value of $89.80.
Previous report
Restricted Stock Awards. Restricted stock awards, or RSAs, are awards of our common stock that are subject to specified restrictions that generally lapse after aone- tothree-year period from the date of the grant. The grant date fair values are based on the closing prices of our common stock on the grant dates. Participants holding restricted stock are entitled to vote on matters submitted to holders of our common stock for a vote. As of May 31, 2024, there were no RSAs outstanding.
Previous report
(C)Share-Based Compensation
Previous report
Unrecognized Share-Based Compensation Expense – By Grant Type
Previous report
We recognize compensation expense for stock options, MSUs, PSUs, DSUs and RSAs on a straight-line basis (net of estimated forfeitures) over the requisite service period, which is generally the vesting period of the award. The PSU expense is adjusted for any change in management’s assessment of the performance target level that is probable of being achieved. The variable expense associated with RSUs is recognized over their vesting period (net of estimated forfeitures) and is calculated based on the closing price of our common stock on the last trading day of each reporting period.
Previous report
The total costs for matching contributions for our employee stock purchase plan are included in share-based compensation expense. There were no capitalized share-based compensation costs as of or for the three months ended May 31, 2024 or 2023.
Previous report
Stock Option Activity
Previous report
Stock Option Information
Previous report
For stock options, the fair value of each award is estimated as of the date of grant using a binomial valuation model. In computing the value of the option, the binomial model considers characteristics of fair-value option pricing that are not available for consideration under a closed-form valuation model (for example, the Black-Scholes model), such as the contractual term of the option, the probability that the option will be exercised prior to the end of its contractual life and the probability of termination or retirement of the option holder. For this reason, we believe that the binomial model provides a fair value that is more representative of actual experience and future expected experience than the value calculated using a closed-form model. Estimates of fair value are not intended to predict actual future events or the value ultimately realized by the recipients of share-based awards.
Previous report
Assumptions Used to Estimate Option Values
Previous report
(1)Measured using historical daily price changes of our stock for a period corresponding to the term of the options and the implied volatility derived from the market prices of traded options on our stock.
Previous report
(2)Based on the U.S. Treasury yield curve at the time of grant.
Previous report
(3)Represents the estimated number of years that options will be outstanding prior to exercise.
Previous report
Cash-Settled Restricted Stock Unit Activity
Previous report
Cash-Settled Restricted Stock Unit Information
Previous report
Expected Cash Settlement Range Upon Restricted Stock Unit Vesting
Previous report
(1)Net of estimated forfeitures.
Previous report
Stock-Settled Market Stock Unit Activity
Previous report
Stock-Settled Market Stock Unit Information
Previous report
Litigation. CarMax entities are defendants in a proceeding asserting wage and hour claims with respect to non-exempt CarMax employees in California. The asserted claims include failure to provide meal periods and rest breaks; pay statutory or contractual wages; reimburse for work-related expenses; and Private Attorneys General Act (“PAGA”) claims. On July 9, 2021, Daniel Bendure v. CarMax Auto Superstores California, LLC et al., a putative class action, was filed in the Superior Court of California, County of San Bernardino. The Bendure lawsuit seeks civil penalties for violation of the Labor Code, attorneys’ fees, costs, restitution of unpaid wages, interest, injunctive and equitable relief, general damages, and special damages. Bendure subsequently decided not to proceed with an individual or putative class claim, but rather filed and served a PAGA-only complaint in the Superior Court of California for the County of San Bernardino on December 7, 2021, based on the same allegations pled in the original complaint.
Previous report
The California Supreme Court held in Adolph v. Uber that an employee who signs an arbitration agreement, as Bendure has, may still pursue a representative PAGA action in court if the employee is successful in his individual PAGA action in arbitration. In light of this decision, Bendure filed a demand on October 16, 2023 for an individual arbitration. The parties have agreed to settle the matter for a nominal amount.
Previous report
•We enhanced CAF’s ability to become a full spectrum lender, which we believe will position us to grow CAF income over time, by expanding our current asset-backed securitization program from a single issuance to one that more broadly incorporates CAF’s receivables across distinct prime and non-prime segments. We believe this will allow us to better align our offering with each investor base and ultimately generate added funding capacity.
Previous report
•We enhanced our MaxOffer product, attracting dealers and expanding our vehicle sourcing capabilities. We achieved record volume each month of the quarter and are launching MaxOffer in New York during the second quarter of fiscal 2025.
Showing the first 40 of 59 passages. Open the source sections for the rest.
Reworded paragraphs (100)
Previous wording
(1)Percents are calculated as a percentage of net sales and operating revenues and may not total due to rounding.
Current wording
(1) Percents are calculated as a percentage of net sales and operating revenues and may not total due to rounding.
Previous wording
We deliver an unrivaled customer experience by offering a broad selection of quality used vehicles and related products and services at competitive, no-haggle prices using a customer-friendly sales process. Our omni-channel platform, which gives us the largest addressable market in the used car industry, empowers our retail customers to buy a car on their terms – online, in-store or an integrated combination of both. We offer customers a range of related products and services, including the appraisal and purchase of vehicles directly from consumers; the financing of retail vehicle purchases through CAF and third-party finance providers; the sale of extended protection plan (“EPP”) products, which include extended service plans (“ESPs”) and guaranteed asset protection (“GAP”); advertising and subscription services; and vehicle repair service. Vehicles purchased through the appraisal process that do not meet our retail standards are sold to licensed dealers through on-site or virtual wholesale auctions.
Current wording
We deliver an unrivaled customer experience by offering a broad selection of quality used vehicles and related products and services at competitive, no-haggle prices using a customer-friendly sales process. Our omni-channel platform, which gives us the largest addressable market in the used car industry, empowers our retail customers to buy a car on their terms – online, in-store or an integrated combination of both. We offer customers a range of related products and services, including the appraisal and purchase of vehicles directly from consumers and dealers; the financing of retail vehicle purchases through CAF and third-party finance providers; the sale of extended protection plan (“EPP”) products, which include extended service plans (“ESPs”) and guaranteed asset protection (“GAP”); advertising and subscription services; and vehicle repair service. Vehicles purchased through the appraisal process that do not meet our retail standards are sold to licensed dealers through on-site or virtual wholesale auctions.
Previous wording
(1)Excludes intercompany sales and operating revenues that have been eliminated in consolidation.
Current wording
(1) Excludes intercompany sales and operating revenues that have been eliminated in consolidation.
Previous wording
Third-Party Finance (Fees)/Income. Customers applying for financing who are not approved or are conditionally approved by CAF are generally evaluated by other third-party finance providers. These providers generally either pay us or are paid a fixed, pre-negotiated fee per contract. We recognize these fees at the time of sale.
Current wording
Third-Party Finance Income/(Fees). Customers applying for financing who are not approved or are conditionally approved by CAF are generally evaluated by other third-party finance providers. These providers generally either pay us or are paid a fixed, pre-negotiated fee per contract. We recognize these fees at the time of sale.
Previous wording
(1)Annualized percentage of total average managed receivables.
Current wording
(1) Annualized percentage of total average managed receivables.
Previous wording
Auto loans receivable include amounts due from customers related to retail vehicle sales financed through CAF and are presented net of an allowance for estimated loan losses. These auto loans represent a large group of smaller-balance homogeneous loans, which we consider to be part of one class of financing receivable and one portfolio segment for purposes of determining our allowance for loan losses. We generally use warehouse facilities to fund auto loans receivable originated by CAF until we elect to fund them through an asset-backed term funding transaction, such as a term securitization or alternative funding arrangement. We recognize transfers of auto loans receivable into the warehouse facilities and asset-backed term funding transactions (together, “non-recourse funding vehicles”) as secured borrowings, which result in recording the auto loans receivable and the related non-recourse notes payable on our consolidated balance sheets. The majority of the auto loans receivable serve as collateral for the related non-recourse notes payable of $17.17 billion as of May 31, 2024, and $16.87 billion as of February 29, 2024. See Note 9 for additional information on securitizations and non-recourse notes payable.
Current wording
Auto loans receivable include amounts due from customers related to retail vehicle sales financed through CAF and are presented net of an allowance for estimated loan losses. These auto loans represent a large group of smaller-balance homogeneous loans, which we consider to be part of one class of financing receivable and one portfolio segment for purposes of determining our allowance for loan losses. We generally use warehouse facilities to fund auto loans receivable originated by CAF until we elect to fund them through an asset-backed term funding transaction, such as a term securitization or alternative funding arrangement. We recognize transfers of auto loans receivable into the warehouse facilities and asset-backed term funding transactions (together, “non-recourse funding vehicles”) as secured borrowings, which result in recording the auto loans receivable and the related non-recourse notes payable on our consolidated balance sheets. The majority of the auto loans receivable serve as collateral for the related non-recourse notes payable of $17.10 billion as of August 31, 2024, and $16.87 billion as of February 29, 2024. See Note 9 for additional information on securitizations and non-recourse notes payable.
Previous wording
(1)Represents receivables restricted as excess collateral for the non-recourse funding vehicles.
Current wording
(1) Represents receivables restricted as excess collateral for the non-recourse funding vehicles.
Previous wording
(1)Classified based on credit grade assigned when customers were initially approved for financing.
Current wording
(1) Classified based on credit grade assigned when customers were initially approved for financing.
Previous wording
(2)Percent of total ending managed receivables.
Current wording
(2) Percent of total ending managed receivables.
Previous wording
(3)Represents CAF’s Tier 1 originations.
Current wording
(3) Represents CAF’s Tier 1 originations.
Previous wording
(4)Represents CAF’s Tier 2 and Tier 3 originations.
Current wording
(4) Represents CAF’s Tier 2 and Tier 3 originations.
Previous wording
(2)Net of costs incurred to recover vehicle.
Current wording
(2) Net of costs incurred to recover vehicle.
Previous wording
During the first three months of fiscal 2025, the allowance for loan losses as a percent of total ending managed receivables increased by 1 basis point. The increase was primarily due to CAF’s expanded investment in Tier 2, partially offset by the previously implemented tightened underwriting standards in response to the current environment. The increase in net charge-offs primarily reflects continued customer hardship in the current economic environment. The allowance for loan losses as of May 31, 2024 reflects our best estimate of expected future losses based on recent trends in delinquencies, loss performance, recovery rates and the economic environment.
Current wording
During the first six months of fiscal 2025, the allowance for loan losses as a percent of total ending managed receivables increased by 4 basis points. The increase was primarily due to unfavorable loss performance related to CAF’s core receivables as well as CAF’s expanded investment in Tier 2, partially offset by the previously implemented tightened underwriting standards in response to the current environment. The increase in net charge-offs primarily reflects continued customer hardship in the current economic environment. The allowance for loan losses as of August 31, 2024 reflects our best estimate of expected future losses based on recent trends in delinquencies, loss performance, recovery rates and the economic environment.
Previous wording
For the derivatives associated with our non-recourse funding vehicles that are designated as cash flow hedges, the changes in fair value are initially recorded in accumulated other comprehensive income (“AOCI”). For the majority of these derivatives, the amounts are subsequently reclassified into CAF income in the period that the hedged forecasted transaction affects earnings, which occurs as interest expense is recognized on those future issuances of debt. During the next 12 months, we estimate that an additional $51.7 million will be reclassified from AOCI as an increase to CAF income. Changes in fair value related to derivatives that have not been designated as cash flow hedges for accounting purposes are recognized in the income statement in the period in which the change occurs. For the three months ended May 31, 2024, we recognized expense of $3.2 million in CAF income representing these changes in fair value.
Current wording
For the derivatives associated with our non-recourse funding vehicles that are designated as cash flow hedges, the changes in fair value are initially recorded in accumulated other comprehensive income (“AOCI”). For the majority of these derivatives, the amounts are subsequently reclassified into CAF income in the period that the hedged forecasted transaction affects earnings, which occurs as interest expense is recognized on those future issuances of debt. During the next 12 months, we estimate that an additional $35.0 million will be reclassified from AOCI as an increase to CAF income. Changes in fair value related to derivatives that have not been designated as cash flow hedges for accounting purposes are recognized in the income statement in the period in which the change occurs. For the three and six months ended August 31, 2024, we recognized expense of $4.6 million and $7.7 million, respectively, in CAF income representing these changes in fair value.
Previous wording
As of May 31, 2024 and February 29, 2024, we had interest rate swaps outstanding with a combined notional amount of $4.99 billion and $5.21 billion, respectively, that were designated as cash flow hedges of interest rate risk. As of May 31, 2024 and February 29, 2024, we had interest rate swaps with a combined notional amount of $529.0 million and $704.0 million, respectively, outstanding that were not designated as cash flow hedges for accounting purposes.
Current wording
As of August 31, 2024 and February 29, 2024, we had interest rate swaps outstanding with a combined notional amount of $5.12 billion and $5.21 billion, respectively, that were designated as cash flow hedges of interest rate risk. As of August 31,
Previous wording
The current portion of estimated cancellation reserves is recognized as a component of accrued expenses and other current liabilities with the remaining amount recognized in other liabilities. As of May 31, 2024 and February 29, 2024, the current portion of cancellation reserves was $70.9 million and $69.7 million, respectively.
Current wording
The current portion of estimated cancellation reserves is recognized as a component of accrued expenses and other current liabilities with the remaining amount recognized in other liabilities. As of August 31, 2024 and February 29, 2024, the current portion of cancellation reserves was $72.3 million and $69.7 million, respectively.
Previous wording
We had $30.0 million of gross unrecognized tax benefits as of May 31, 2024, and $28.8 million as of February 29, 2024. There were no significant changes to the gross unrecognized tax benefits as reported for the fiscal year ended February 29, 2024.
Current wording
We had $31.3 million of gross unrecognized tax benefits as of August 31, 2024, and $28.8 million as of February 29, 2024. There were no significant changes to the gross unrecognized tax benefits as reported for the fiscal year ended February 29, 2024.
Previous wording
(1)Interest is payable monthly, with the exception of our senior notes, which are payable semi-annually.
Current wording
(1) Interest is payable monthly, with the exception of our senior notes, which are payable semi-annually.
Previous wording
(2)Borrowings accrue interest at variable rates based on SOFR, the federal funds rate, or the prime rate, depending on the type of borrowing.
Current wording
(2) Borrowings accrue interest at variable rates based on SOFR, the federal funds rate, or the prime rate, depending on the type of borrowing.
Previous wording
Term Loans. The $300 million term loan was paid in May 2024. Borrowings under the $700 million term loan are available for working capital and general corporate purposes. The interest rate on our term loan was 6.33% as of May 31, 2024. The $700 million term loan was classified as long-term debt as no repayments are scheduled to be made within the next 12 months.
Current wording
Term Loans. The $300 million term loan was paid in May 2024. Borrowings under the $700 million term loan are available for working capital and general corporate purposes. The interest rate on our term loan was 6.35% as of August 31, 2024. The $700 million term loan was classified as long-term debt as no repayments are scheduled to be made within the next 12 months.
Previous wording
In June 2024, we entered into a $625 million asset-backed term funding transaction for our new non-prime securitization program. Going forward, we plan to expand our current asset-backed securitization program from a single issuance to one that more broadly incorporates the funding of CAF’s receivables across distinct prime and non-prime segments. We believe this new program will enable us to fund incremental originations and support future CAF growth across the credit spectrum by creating additional funding capacity, driving additional finance income for the business over time.
Current wording
In June 2024, we entered into a $625 million asset-backed term funding transaction related to our new non-prime securitization program. In July 2024, we entered into a $1.4 billion asset-backed term funding transaction comprised of higher prime auto loans receivable. Going forward, we plan to utilize separate asset-backed securitization programs to more broadly incorporate funding of CAF’s receivables across distinct higher prime and non-prime segments. We believe this new two-program strategy will enable us to fund incremental originations and support future CAF growth across the credit spectrum by creating additional funding capacity, driving additional finance income for the business over time.
Previous wording
Capitalized Interest. We capitalize interest in connection with the construction of certain facilities. For the three months ended May 31, 2024 and 2023, we capitalized interest of $1.5 million and $1.4 million, respectively.
Current wording
Capitalized Interest. We capitalize interest in connection with the construction of certain facilities. For the six months ended August 31, 2024 and 2023, we capitalized interest of $3.1 million and $2.9 million, respectively.
Previous wording
As of May 31, 2024, a total of $4.0 billion of board authorizations for repurchases of our common stock was outstanding, with no expiration date, of which $2.26 billion remained available for repurchase.
Current wording
As of August 31, 2024, a total of $4.0 billion of board authorizations for repurchases of our common stock was outstanding, with no expiration date, of which $2.15 billion remained available for repurchase.
Previous wording
Certain options to purchase shares of common stock were outstanding and not included in the calculation of diluted net earnings per share because their inclusion would have been antidilutive. On a weighted average basis, for the three months ended May 31, 2024 and 2023, options to purchase 4,796,089 shares and 5,425,830 shares of common stock, respectively, were not included.
Current wording
Certain options to purchase shares of common stock were outstanding and not included in the calculation of diluted net earnings per share because their inclusion would have been antidilutive. On a weighted average basis, for the three months ended August 31, 2024 and 2023, options to purchase 5,083,556 shares and 3,508,300 shares of common stock, respectively, were not included. For the six months ended August 31, 2024 and 2023, options to purchase 5,133,763 shares and 5,518,543 shares of common stock, respectively, were not included.
Previous wording
Changes in the funded status of our retirement plans and changes in the fair value of derivatives that are designated and qualify as cash flow hedges are recognized in accumulated other comprehensive income. The cumulative balances are net of deferred taxes of $20.0 million as of May 31, 2024 and $19.3 million as of February 29, 2024.
Current wording
Changes in the funded status of our retirement plans and changes in the fair value of derivatives that are designated and qualify as cash flow hedges are recognized in accumulated other comprehensive income. The cumulative balances are net of deferred taxes of $3.0 million as of August 31, 2024 and $19.3 million as of February 29, 2024.
Previous wording
(1)Includes short-term leases and variable lease costs, which are immaterial.
Current wording
(1) Includes short-term leases and variable lease costs, which are immaterial.
Previous wording
(1)Finance lease assets are recorded net of accumulated depreciation of $59.4 million as of May 31, 2024 and $55.5 million as of February 29, 2024.
Current wording
(1) Finance lease assets are recorded net of accumulated depreciation of $62.3 million as of August 31, 2024 and $55.5 million as of February 29, 2024.
Previous wording
(1)Lease payments exclude $4.7 million of legally binding minimum lease payments for leases signed but not yet commenced.
Current wording
(1) Lease payments exclude $4.7 million of legally binding minimum lease payments for leases signed but not yet commenced.
Previous wording
The company is a class member in a consolidated and settled class action lawsuit (In re: Takata Airbag Product Liability Litigation (U.S. District Court, Southern District of Florida)) against Toyota, Mazda, Subaru, BMW, Honda, Nissan, Ford and Volkswagen related to the economic loss associated with defective Takata airbags installed as original equipment in certain model vehicles from model years 2000-2019. In April 2020, CarMax received $40.3 million in net recoveries from the Toyota, Mazda, Subaru, BMW, Honda and Nissan settlement funds. In January 2022, CarMax received $3.8 million in net recoveries from the Ford settlement funds. On April 21, 2023, CarMax received $59.3 million in net recoveries from residual undisbursed funds in the Toyota, Mazda, Subaru, BMW, Honda and Nissan settlements. On August 9, 2023, CarMax received $7.9 million in additional residual funds in the BMW, Mazda, and Nissan settlements. CarMax remains a class member for residual funds in the Ford settlement. The Volkswagen settlement has not yet been resolved. We are unable to make a reasonable estimate of the amount or range of gain that could result from CarMax’s participation in the Ford residual or Volkswagen matters.
Current wording
Litigation. The company is a class member in a consolidated and settled class action lawsuit (In re: Takata Airbag Product Liability Litigation (U.S. District Court, Southern District of Florida)) against Toyota, Mazda, Subaru, BMW, Honda, Nissan, Ford and Volkswagen related to the economic loss associated with defective Takata airbags installed as original equipment in certain model vehicles from model years 2000-2019. In April 2020, CarMax received $40.3 million in net recoveries from the Toyota, Mazda, Subaru, BMW, Honda and Nissan settlement funds. In January 2022, CarMax received $3.8 million in net recoveries from the Ford settlement funds. On April 21, 2023, CarMax received $59.3 million in net recoveries from residual undisbursed funds in the Toyota, Mazda, Subaru, BMW, Honda and Nissan settlements. On August 9, 2023, CarMax received $7.9 million in additional residual funds in the BMW, Mazda, and Nissan settlements. CarMax remains a class member for residual funds in the Ford settlement. The Volkswagen settlement has not yet been resolved. We are unable to make a reasonable estimate of the amount or range of gain that could result from CarMax’s participation in the Ford residual or Volkswagen matters.
Previous wording
As part of our customer service strategy, we guarantee the used vehicles we retail with a 90-day/4,000 mile limited warranty. A vehicle in need of repair within this period will be repaired free of charge. As a result, each vehicle sold has an implied liability associated with it. Accordingly, based on historical trends, we record a provision for estimated future repairs during the guarantee period for each vehicle sold. The liability for this guarantee was $30.5 million as of May 31, 2024, and $30.9 million as of February 29, 2024, and is included in accrued expenses and other current liabilities.
Current wording
As part of our customer service strategy, we guarantee the used vehicles we retail with a 90-day/4,000 mile limited warranty. A vehicle in need of repair within this period will be repaired free of charge. As a result, each vehicle sold has an implied liability associated with it. Accordingly, based on historical trends, we record a provision for estimated future repairs during the guarantee period for each vehicle sold. The liability for this guarantee was $31.0 million as of August 31, 2024, and $30.9 million as of February 29, 2024, and is included in accrued expenses and other current liabilities.
Previous wording
As of May 31, 2024, we operated 245 used car stores in 109 U.S. television markets.
Current wording
As of August 31, 2024, we operated 247 used car stores in 109 U.S. television markets.
Previous wording
In addition to third-party finance providers, we provide vehicle financing through CAF, which offers financing solely to customers buying retail vehicles from CarMax. CAF allows us to manage our reliance on third-party finance providers and to leverage knowledge of our business to provide qualifying customers a competitive financing option. As a result, we believe CAF enables us to capture additional profits, cash flows and sales. CAF income primarily reflects the interest and fee income generated by the auto loans receivable less the interest expense associated with the debt issued to fund these receivables, a provision for estimated loan losses and direct expenses. CAF income does not include any allocation of indirect costs. After the effect of 3-day payoffs and vehicle returns, CAF financed 43.3% of our retail used vehicle unit sales in the first three months of fiscal 2025. As of May 31, 2024, CAF serviced approximately 1.1 million customer accounts in its $17.64 billion portfolio of managed receivables.
Current wording
In addition to third-party finance providers, we provide vehicle financing through CAF, which offers financing solely to customers buying retail vehicles from CarMax. CAF allows us to manage our reliance on third-party finance providers and to leverage knowledge of our business to provide qualifying customers a competitive financing option. As a result, we believe CAF enables us to capture additional profits, cash flows and sales. CAF income primarily reflects the interest and fee income generated by the auto loans receivable less the interest expense associated with the debt issued to fund these receivables, a provision for estimated loan losses and direct expenses. CAF income does not include any allocation of indirect costs. After the effect of 3-day payoffs and vehicle returns, CAF financed 42.6% of our retail used vehicle unit sales in the first six months of fiscal 2025. As of August 31, 2024, CAF serviced approximately 1.1 million customer accounts in its $17.77 billion portfolio of managed receivables.
Previous wording
The sources of revenue and gross profit from the CarMax Sales Operations segment for the first three months of fiscal 2025 are as follows:
Current wording
The sources of revenue and gross profit from the CarMax Sales Operations segment for the first six months of fiscal 2025 are as follows:
Previous wording
A high-level summary of our financial results for the first quarter of fiscal 2025 as compared to the first quarter of fiscal 2024 is as follows (1):
Current wording
A high-level summary of our financial results for the second quarter and first six months of fiscal 2025 as compared to the second quarter and first six months of fiscal 2024 is as follows (1):
Previous wording
(1)Where applicable, amounts are net of intercompany eliminations.
Current wording
(1) Where applicable, amounts are net of intercompany eliminations.
Previous wording
(2)An online retail sale is defined as a sale where the customer completes all four of the following activities remotely: reserving the vehicle; financing the vehicle, if needed; trading-in or opting out of a trade-in; and creating an online sales order.
Current wording
(2) An online retail sale is defined as a sale where the customer completes all four of the following activities remotely: reserving the vehicle; financing the vehicle, if needed; trading-in or opting out of a trade-in; and creating an online sales order.
Previous wording
(3)An omni sale is defined as a sale where customers complete at least one, but not all, of the four activities listed above online.
Current wording
(3) An omni sale is defined as a sale where customers complete at least one, but not all, of the four activities listed above online.
Previous wording
(4)Revenue from online transactions is defined as revenue from retail sales that qualify as an online retail sale, as well as any related EPP and third-party finance contribution, wholesale sales where the winning bid was taken from an online bid and all revenue earned by Edmunds.
Current wording
(4) Revenue from online transactions is defined as revenue from retail sales that qualify as an online retail sale, as well as any related EPP and third-party finance contribution, wholesale sales where the winning bid was taken from an online bid and all revenue earned by Edmunds.
Previous wording
Net earnings per diluted share during the first quarter of the prior fiscal year included a benefit of $0.28 in connection with the receipt of settlement proceeds in a class action lawsuit related to the economic loss associated with vehicles containing Takata airbags. Refer to“Results of Operations” for further details on our revenues and profitability.
Current wording
Net earnings per diluted share during the first six months of the prior fiscal year included a benefit of $0.32 in connection with the receipt of settlement proceeds in a class action lawsuit related to the economic loss associated with vehicles containing Takata airbags. Refer to“Results of Operations” for further details on our revenues and profitability.
Previous wording
Our primary ongoing sources of liquidity include funds provided by operations, proceeds from non-recourse funding vehicles, and borrowings under our revolving credit facility or through other financing sources. In addition to funding our operations, this liquidity has been used to fund the repurchase of common stock under our share repurchase program and our capital expenditures.
Current wording
Our primary ongoing sources of liquidity include funds provided by operations, proceeds from non-recourse funding vehicles and borrowings under our revolving credit facility or through other financing sources. In addition to funding our operations, this liquidity has been used to fund our capital expenditures and the repurchase of common stock under our share repurchase program.
Showing the first 40 of 100 pairs. Open the source sections for the rest.
Rearranged current paragraphs (7)
Current report — wording carried from elsewhere
(1) Percent of total ending managed receivables.
Current report — wording carried from elsewhere
(1) Percent of total ending managed receivables.
Current report — wording carried from elsewhere
2024 and February 29, 2024, we had interest rate swaps with a combined notional amount of $386.1 million and $704.0 million, respectively, outstanding that were not designated as cash flow hedges for accounting purposes.
Current report — wording carried from elsewhere
(1) Amounts are net of intercompany eliminations.
Current report — wording carried from elsewhere
(1) Amounts are net of intercompany eliminations.
Current report — wording carried from elsewhere
CAF has expanded its asset-backed securitization program to allow for distinct higher prime and non-prime issuances, with higher prime generally representing FICO scores greater than 650 and non-prime generally representing FICO scores below
Current report — wording carried from elsewhere
We believe this strategy will enable CAF to efficiently fund incremental originations and support future CAF growth across the credit spectrum by creating additional funding capacity, driving additional finance income for the business over time. In June 2024, CAF closed on its first non-prime securitization deal, and in July 2024, CAF closed on its first higher prime securitization deal under this expanded funding strategy.