false2024Q300011700102/290.500.50350,000,000350,000,000158,021,407158,079,033158,021,407158,079,0331,782,0871,614,924511,924507,20127.140000011700102023-03-012023-11-3000011700102024-01-03xbrli:shares0001170010kmx:UsedVehiclesMember2023-09-012023-11-30iso4217:USD0001170010kmx:NetSalesAndOperatingRevenuesMemberkmx:UsedVehiclesMember2023-09-012023-11-30xbrli:pure0001170010kmx:UsedVehiclesMember2022-09-012022-11-300001170010kmx:NetSalesAndOperatingRevenuesMemberkmx:UsedVehiclesMember2022-09-012022-11-300001170010kmx:UsedVehiclesMember2023-03-012023-11-300001170010kmx:NetSalesAndOperatingRevenuesMemberkmx:UsedVehiclesMember2023-03-012023-11-300001170010kmx:UsedVehiclesMember2022-03-012022-11-300001170010kmx:NetSalesAndOperatingRevenuesMemberkmx:UsedVehiclesMember2022-03-012022-11-300001170010kmx:WholesaleVehiclesMember2023-09-012023-11-300001170010kmx:NetSalesAndOperatingRevenuesMemberkmx:WholesaleVehiclesMember2023-09-012023-11-300001170010kmx:WholesaleVehiclesMember2022-09-012022-11-300001170010kmx:NetSalesAndOperatingRevenuesMemberkmx:WholesaleVehiclesMember2022-09-012022-11-300001170010kmx:WholesaleVehiclesMember2023-03-012023-11-300001170010kmx:NetSalesAndOperatingRevenuesMemberkmx:WholesaleVehiclesMember2023-03-012023-11-300001170010kmx:WholesaleVehiclesMember2022-03-012022-11-300001170010kmx:NetSalesAndOperatingRevenuesMemberkmx:WholesaleVehiclesMember2022-03-012022-11-300001170010kmx:OtherMember2023-09-012023-11-300001170010kmx:NetSalesAndOperatingRevenuesMemberkmx:OtherMember2023-09-012023-11-300001170010kmx:OtherMember2022-09-012022-11-300001170010kmx:NetSalesAndOperatingRevenuesMemberkmx:OtherMember2022-09-012022-11-300001170010kmx:OtherMember2023-03-012023-11-300001170010kmx:NetSalesAndOperatingRevenuesMemberkmx:OtherMember2023-03-012023-11-300001170010kmx:OtherMember2022-03-012022-11-300001170010kmx:NetSalesAndOperatingRevenuesMemberkmx:OtherMember2022-03-012022-11-3000011700102023-09-012023-11-300001170010kmx:NetSalesAndOperatingRevenuesMember2023-09-012023-11-3000011700102022-09-012022-11-300001170010kmx:NetSalesAndOperatingRevenuesMember2022-09-012022-11-300001170010kmx:NetSalesAndOperatingRevenuesMember2023-03-012023-11-3000011700102022-03-012022-11-300001170010kmx:NetSalesAndOperatingRevenuesMember2022-03-012022-11-300001170010us-gaap:CostOfSalesMemberkmx:UsedVehiclesMember2023-09-012023-11-300001170010us-gaap:CostOfSalesMemberkmx:UsedVehiclesMember2022-09-012022-11-300001170010us-gaap:CostOfSalesMemberkmx:UsedVehiclesMember2023-03-012023-11-300001170010us-gaap:CostOfSalesMemberkmx:UsedVehiclesMember2022-03-012022-11-300001170010us-gaap:CostOfSalesMemberkmx:WholesaleVehiclesMember2023-09-012023-11-300001170010us-gaap:CostOfSalesMemberkmx:WholesaleVehiclesMember2022-09-012022-11-300001170010us-gaap:CostOfSalesMemberkmx:WholesaleVehiclesMember2023-03-012023-11-300001170010us-gaap:CostOfSalesMemberkmx:WholesaleVehiclesMember2022-03-012022-11-300001170010us-gaap:CostOfSalesMemberkmx:OtherMember2023-09-012023-11-300001170010us-gaap:CostOfSalesMemberkmx:OtherMember2022-09-012022-11-300001170010us-gaap:CostOfSalesMemberkmx:OtherMember2023-03-012023-11-300001170010us-gaap:CostOfSalesMemberkmx:OtherMember2022-03-012022-11-300001170010us-gaap:CostOfSalesMember2023-09-012023-11-300001170010us-gaap:CostOfSalesMember2022-09-012022-11-300001170010us-gaap:CostOfSalesMember2023-03-012023-11-300001170010us-gaap:CostOfSalesMember2022-03-012022-11-300001170010kmx:GrossProfitMember2023-09-012023-11-300001170010kmx:GrossProfitMember2022-09-012022-11-300001170010kmx:GrossProfitMember2023-03-012023-11-300001170010kmx:GrossProfitMember2022-03-012022-11-300001170010kmx:NetIncomeLossFromFinancingMember2023-09-012023-11-300001170010kmx:NetIncomeLossFromFinancingMember2022-09-012022-11-300001170010kmx:NetIncomeLossFromFinancingMember2023-03-012023-11-300001170010kmx:NetIncomeLossFromFinancingMember2022-03-012022-11-300001170010us-gaap:SellingGeneralAndAdministrativeExpensesMember2023-09-012023-11-300001170010us-gaap:SellingGeneralAndAdministrativeExpensesMember2022-09-012022-11-300001170010us-gaap:SellingGeneralAndAdministrativeExpensesMember2023-03-012023-11-300001170010us-gaap:SellingGeneralAndAdministrativeExpensesMember2022-03-012022-11-300001170010kmx:DepreciationAndAmortizationMember2023-09-012023-11-300001170010kmx:DepreciationAndAmortizationMember2022-09-012022-11-300001170010kmx:DepreciationAndAmortizationMember2023-03-012023-11-300001170010kmx:DepreciationAndAmortizationMember2022-03-012022-11-300001170010us-gaap:InterestExpenseMember2023-09-012023-11-300001170010us-gaap:InterestExpenseMember2022-09-012022-11-300001170010us-gaap:InterestExpenseMember2023-03-012023-11-300001170010us-gaap:InterestExpenseMember2022-03-012022-11-300001170010us-gaap:NonoperatingIncomeExpenseMember2023-09-012023-11-300001170010us-gaap:NonoperatingIncomeExpenseMember2022-09-012022-11-300001170010us-gaap:NonoperatingIncomeExpenseMember2023-03-012023-11-300001170010us-gaap:NonoperatingIncomeExpenseMember2022-03-012022-11-300001170010kmx:EarningsBeforeIncomeTaxesMember2023-09-012023-11-300001170010kmx:EarningsBeforeIncomeTaxesMember2022-09-012022-11-300001170010kmx:EarningsBeforeIncomeTaxesMember2023-03-012023-11-300001170010kmx:EarningsBeforeIncomeTaxesMember2022-03-012022-11-300001170010kmx:IncomeTaxProvisionMember2023-09-012023-11-300001170010kmx:IncomeTaxProvisionMember2022-09-012022-11-300001170010kmx:IncomeTaxProvisionMember2023-03-012023-11-300001170010kmx:IncomeTaxProvisionMember2022-03-012022-11-300001170010kmx:NetEarningsMember2023-09-012023-11-300001170010kmx:NetEarningsMember2022-09-012022-11-300001170010kmx:NetEarningsMember2023-03-012023-11-300001170010kmx:NetEarningsMember2022-03-012022-11-30iso4217:USDxbrli:shares00011700102023-11-3000011700102023-02-2800011700102022-02-2800011700102022-11-300001170010us-gaap:CommonStockMember2023-02-280001170010us-gaap:AdditionalPaidInCapitalMember2023-02-280001170010us-gaap:RetainedEarningsMember2023-02-280001170010us-gaap:AccumulatedOtherComprehensiveIncomeMember2023-02-280001170010us-gaap:RetainedEarningsMember2023-03-012023-05-3100011700102023-03-012023-05-310001170010us-gaap:AccumulatedOtherComprehensiveIncomeMember2023-03-012023-05-310001170010us-gaap:AdditionalPaidInCapitalMember2023-03-012023-05-310001170010us-gaap:CommonStockMember2023-03-012023-05-310001170010us-gaap:CommonStockMember2023-05-310001170010us-gaap:AdditionalPaidInCapitalMember2023-05-310001170010us-gaap:RetainedEarningsMember2023-05-310001170010us-gaap:AccumulatedOtherComprehensiveIncomeMember2023-05-3100011700102023-05-310001170010us-gaap:RetainedEarningsMember2023-06-012023-08-3100011700102023-06-012023-08-310001170010us-gaap:AccumulatedOtherComprehensiveIncomeMember2023-06-012023-08-310001170010us-gaap:AdditionalPaidInCapitalMember2023-06-012023-08-310001170010us-gaap:CommonStockMember2023-06-012023-08-310001170010us-gaap:CommonStockMember2023-08-310001170010us-gaap:AdditionalPaidInCapitalMember2023-08-310001170010us-gaap:RetainedEarningsMember2023-08-310001170010us-gaap:AccumulatedOtherComprehensiveIncomeMember2023-08-3100011700102023-08-310001170010us-gaap:RetainedEarningsMember2023-09-012023-11-300001170010us-gaap:AccumulatedOtherComprehensiveIncomeMember2023-09-012023-11-300001170010us-gaap:AdditionalPaidInCapitalMember2023-09-012023-11-300001170010us-gaap:CommonStockMember2023-09-012023-11-300001170010us-gaap:CommonStockMember2023-11-300001170010us-gaap:AdditionalPaidInCapitalMember2023-11-300001170010us-gaap:RetainedEarningsMember2023-11-300001170010us-gaap:AccumulatedOtherComprehensiveIncomeMember2023-11-300001170010us-gaap:CommonStockMember2022-02-280001170010us-gaap:AdditionalPaidInCapitalMember2022-02-280001170010us-gaap:RetainedEarningsMember2022-02-280001170010us-gaap:AccumulatedOtherComprehensiveIncomeMember2022-02-280001170010us-gaap:RetainedEarningsMember2022-03-012022-05-3100011700102022-03-012022-05-310001170010us-gaap:AccumulatedOtherComprehensiveIncomeMember2022-03-012022-05-310001170010us-gaap:AdditionalPaidInCapitalMember2022-03-012022-05-310001170010us-gaap:CommonStockMember2022-03-012022-05-310001170010us-gaap:CommonStockMember2022-05-310001170010us-gaap:AdditionalPaidInCapitalMember2022-05-310001170010us-gaap:RetainedEarningsMember2022-05-310001170010us-gaap:AccumulatedOtherComprehensiveIncomeMember2022-05-3100011700102022-05-310001170010us-gaap:RetainedEarningsMember2022-06-012022-08-3100011700102022-06-012022-08-310001170010us-gaap:AccumulatedOtherComprehensiveIncomeMember2022-06-012022-08-310001170010us-gaap:AdditionalPaidInCapitalMember2022-06-012022-08-310001170010us-gaap:CommonStockMember2022-06-012022-08-310001170010us-gaap:CommonStockMember2022-08-310001170010us-gaap:AdditionalPaidInCapitalMember2022-08-310001170010us-gaap:RetainedEarningsMember2022-08-310001170010us-gaap:AccumulatedOtherComprehensiveIncomeMember2022-08-3100011700102022-08-310001170010us-gaap:RetainedEarningsMember2022-09-012022-11-300001170010us-gaap:AccumulatedOtherComprehensiveIncomeMember2022-09-012022-11-300001170010us-gaap:AdditionalPaidInCapitalMember2022-09-012022-11-300001170010us-gaap:CommonStockMember2022-09-012022-11-300001170010us-gaap:CommonStockMember2022-11-300001170010us-gaap:AdditionalPaidInCapitalMember2022-11-300001170010us-gaap:RetainedEarningsMember2022-11-300001170010us-gaap:AccumulatedOtherComprehensiveIncomeMember2022-11-30kmx:segment0001170010kmx:UsedVehiclesMember2023-09-012023-11-300001170010kmx:UsedVehiclesMember2022-09-012022-11-300001170010kmx:UsedVehiclesMember2023-03-012023-11-300001170010kmx:UsedVehiclesMember2022-03-012022-11-300001170010kmx:WholesaleVehiclesMember2023-09-012023-11-300001170010kmx:WholesaleVehiclesMember2022-09-012022-11-300001170010kmx:WholesaleVehiclesMember2023-03-012023-11-300001170010kmx:WholesaleVehiclesMember2022-03-012022-11-300001170010kmx:ExtendedprotectionplanDomain2023-09-012023-11-300001170010kmx:ExtendedprotectionplanDomain2022-09-012022-11-300001170010kmx:ExtendedprotectionplanDomain2023-03-012023-11-300001170010kmx:ExtendedprotectionplanDomain2022-03-012022-11-300001170010kmx:ThirdpartyfinancefeesDomain2023-09-012023-11-300001170010kmx:ThirdpartyfinancefeesDomain2022-09-012022-11-300001170010kmx:ThirdpartyfinancefeesDomain2023-03-012023-11-300001170010kmx:ThirdpartyfinancefeesDomain2022-03-012022-11-300001170010kmx:AdvertisingSubscriptionRevenuesDomain2023-09-012023-11-300001170010kmx:AdvertisingSubscriptionRevenuesDomain2022-09-012022-11-300001170010kmx:AdvertisingSubscriptionRevenuesDomain2023-03-012023-11-300001170010kmx:AdvertisingSubscriptionRevenuesDomain2022-03-012022-11-300001170010kmx:ServiceDomain2023-09-012023-11-300001170010kmx:ServiceDomain2022-09-012022-11-300001170010kmx:ServiceDomain2023-03-012023-11-300001170010kmx:ServiceDomain2022-03-012022-11-300001170010kmx:OtherDomain2023-09-012023-11-300001170010kmx:OtherDomain2022-09-012022-11-300001170010kmx:OtherDomain2023-03-012023-11-300001170010kmx:OtherDomain2022-03-012022-11-300001170010kmx:OtherMember2023-09-012023-11-300001170010kmx:OtherMember2022-09-012022-11-300001170010kmx:OtherMember2023-03-012023-11-300001170010kmx:OtherMember2022-03-012022-11-300001170010kmx:InterestAndFeeIncomeMember2023-09-012023-11-300001170010kmx:InterestAndFeeIncomeMember2022-09-012022-11-300001170010kmx:InterestAndFeeIncomeMember2023-03-012023-11-300001170010kmx:InterestAndFeeIncomeMember2022-03-012022-11-300001170010kmx:InterestIncomeExpenseNetMember2023-09-012023-11-300001170010kmx:InterestIncomeExpenseNetMember2022-09-012022-11-300001170010kmx:InterestIncomeExpenseNetMember2023-03-012023-11-300001170010kmx:InterestIncomeExpenseNetMember2022-03-012022-11-300001170010kmx:ProvisionForLoanLossesMember2023-09-012023-11-300001170010kmx:ProvisionForLoanLossesMember2022-09-012022-11-300001170010kmx:ProvisionForLoanLossesMember2023-03-012023-11-300001170010kmx:ProvisionForLoanLossesMember2022-03-012022-11-300001170010kmx:TotalInterestMarginAfterProvisionForLoanLossesMember2023-09-012023-11-300001170010kmx:TotalInterestMarginAfterProvisionForLoanLossesMember2022-09-012022-11-300001170010kmx:TotalInterestMarginAfterProvisionForLoanLossesMember2023-03-012023-11-300001170010kmx:TotalInterestMarginAfterProvisionForLoanLossesMember2022-03-012022-11-300001170010kmx:PayrollAndFringeBenefitExpenseMember2023-09-012023-11-300001170010kmx:PayrollAndFringeBenefitExpenseMember2022-09-012022-11-300001170010kmx:PayrollAndFringeBenefitExpenseMember2023-03-012023-11-300001170010kmx:PayrollAndFringeBenefitExpenseMember2022-03-012022-11-300001170010kmx:OtherDirectExpensesMember2023-09-012023-11-300001170010kmx:OtherDirectExpensesMember2022-09-012022-11-300001170010kmx:OtherDirectExpensesMember2023-03-012023-11-300001170010kmx:OtherDirectExpensesMember2022-03-012022-11-300001170010kmx:TotalDirectExpensesMember2023-09-012023-11-300001170010kmx:TotalDirectExpensesMember2022-09-012022-11-300001170010kmx:TotalDirectExpensesMember2023-03-012023-11-300001170010kmx:TotalDirectExpensesMember2022-03-012022-11-300001170010kmx:CarmaxAutoFinanceIncomeMember2023-09-012023-11-300001170010kmx:CarmaxAutoFinanceIncomeMember2022-09-012022-11-300001170010kmx:CarmaxAutoFinanceIncomeMember2023-03-012023-11-300001170010kmx:CarmaxAutoFinanceIncomeMember2022-03-012022-11-300001170010kmx:TermSecuritizationsMember2023-11-300001170010kmx:TermSecuritizationsMember2023-02-280001170010kmx:WarehouseFacilitiesReceivablesMember2023-11-300001170010kmx:WarehouseFacilitiesReceivablesMember2023-02-280001170010kmx:ExcessCollateralMember2023-11-300001170010kmx:ExcessCollateralMember2023-02-280001170010kmx:OtherReceivablesMember2023-11-300001170010kmx:OtherReceivablesMember2023-02-280001170010kmx:CoreManagedReceivablesMemberkmx:CreditGradeAMember2023-11-300001170010kmx:CreditGradeBMemberkmx:CoreManagedReceivablesMember2023-11-300001170010kmx:CreditGradeCAndOtherMemberkmx:CoreManagedReceivablesMember2023-11-300001170010kmx:CoreManagedReceivablesMember2023-11-300001170010kmx:CreditGradeCAndOtherMemberkmx:OtherManagedReceivablesMember2023-11-300001170010kmx:CoreManagedReceivablesMemberkmx:CreditGradeAMember2023-02-280001170010kmx:CreditGradeBMemberkmx:CoreManagedReceivablesMember2023-02-280001170010kmx:CreditGradeCAndOtherMemberkmx:CoreManagedReceivablesMember2023-02-280001170010kmx:CoreManagedReceivablesMember2023-02-280001170010kmx:CreditGradeCAndOtherMemberkmx:OtherManagedReceivablesMember2023-02-280001170010kmx:CoreManagedReceivablesMember2023-08-310001170010kmx:OtherManagedReceivablesMember2023-08-310001170010us-gaap:AllowanceForLoanAndLeaseLossesMember2023-08-310001170010kmx:CoreManagedReceivablesMember2023-09-012023-11-300001170010kmx:OtherManagedReceivablesMember2023-09-012023-11-300001170010kmx:OtherManagedReceivablesMember2023-11-300001170010us-gaap:AllowanceForLoanAndLeaseLossesMember2023-11-300001170010kmx:CoreManagedReceivablesMember2022-08-310001170010kmx:OtherManagedReceivablesMember2022-08-310001170010us-gaap:AllowanceForLoanAndLeaseLossesMember2022-08-310001170010kmx:CoreManagedReceivablesMember2022-09-012022-11-300001170010kmx:OtherManagedReceivablesMember2022-09-012022-11-300001170010kmx:CoreManagedReceivablesMember2022-11-300001170010kmx:OtherManagedReceivablesMember2022-11-300001170010us-gaap:AllowanceForLoanAndLeaseLossesMember2022-11-300001170010kmx:OtherManagedReceivablesMember2023-02-280001170010us-gaap:AllowanceForLoanAndLeaseLossesMember2023-02-280001170010kmx:CoreManagedReceivablesMember2023-03-012023-11-300001170010kmx:OtherManagedReceivablesMember2023-03-012023-11-300001170010kmx:CoreManagedReceivablesMember2022-02-280001170010kmx:OtherManagedReceivablesMember2022-02-280001170010us-gaap:AllowanceForLoanAndLeaseLossesMember2022-02-280001170010kmx:CoreManagedReceivablesMember2022-03-012022-11-300001170010kmx:OtherManagedReceivablesMember2022-03-012022-11-300001170010kmx:OneToThirtyDaysPastDueMember2023-11-300001170010kmx:ThirtyOneToSixtyDaysPastDueMemberkmx:CoreManagedReceivablesMemberkmx:CreditGradeAMember2023-11-300001170010kmx:CreditGradeBMemberkmx:ThirtyOneToSixtyDaysPastDueMemberkmx:CoreManagedReceivablesMember2023-11-300001170010kmx:CreditGradeCAndOtherMemberkmx:ThirtyOneToSixtyDaysPastDueMemberkmx:CoreManagedReceivablesMember2023-11-300001170010kmx:CoreManagedReceivablesMemberkmx:ThirtyOneToSixtyDaysPastDueMember2023-11-300001170010kmx:CreditGradeCAndOtherMemberkmx:ThirtyOneToSixtyDaysPastDueMemberkmx:OtherManagedReceivablesMember2023-11-300001170010kmx:ThirtyOneToSixtyDaysPastDueMember2023-11-300001170010kmx:SixtyOneToNinetyDaysPastDueMemberkmx:CoreManagedReceivablesMemberkmx:CreditGradeAMember2023-11-300001170010kmx:CreditGradeBMemberkmx:SixtyOneToNinetyDaysPastDueMemberkmx:CoreManagedReceivablesMember2023-11-300001170010kmx:CreditGradeCAndOtherMemberkmx:SixtyOneToNinetyDaysPastDueMemberkmx:CoreManagedReceivablesMember2023-11-300001170010kmx:SixtyOneToNinetyDaysPastDueMemberkmx:CoreManagedReceivablesMember2023-11-300001170010kmx:CreditGradeCAndOtherMemberkmx:SixtyOneToNinetyDaysPastDueMemberkmx:OtherManagedReceivablesMember2023-11-300001170010kmx:SixtyOneToNinetyDaysPastDueMember2023-11-300001170010kmx:GreaterThanNinetyDaysPastDueMemberkmx:CoreManagedReceivablesMemberkmx:CreditGradeAMember2023-11-300001170010kmx:GreaterThanNinetyDaysPastDueMemberkmx:CreditGradeBMemberkmx:CoreManagedReceivablesMember2023-11-300001170010kmx:CreditGradeCAndOtherMemberkmx:GreaterThanNinetyDaysPastDueMemberkmx:CoreManagedReceivablesMember2023-11-300001170010kmx:GreaterThanNinetyDaysPastDueMemberkmx:CoreManagedReceivablesMember2023-11-300001170010kmx:CreditGradeCAndOtherMemberkmx:GreaterThanNinetyDaysPastDueMemberkmx:OtherManagedReceivablesMember2023-11-300001170010kmx:GreaterThanNinetyDaysPastDueMember2023-11-300001170010kmx:OneToThirtyDaysPastDueMember2023-02-280001170010kmx:ThirtyOneToSixtyDaysPastDueMemberkmx:CoreManagedReceivablesMemberkmx:CreditGradeAMember2023-02-280001170010kmx:CreditGradeBMemberkmx:ThirtyOneToSixtyDaysPastDueMemberkmx:CoreManagedReceivablesMember2023-02-280001170010kmx:CreditGradeCAndOtherMemberkmx:ThirtyOneToSixtyDaysPastDueMemberkmx:CoreManagedReceivablesMember2023-02-280001170010kmx:CoreManagedReceivablesMemberkmx:ThirtyOneToSixtyDaysPastDueMember2023-02-280001170010kmx:CreditGradeCAndOtherMemberkmx:ThirtyOneToSixtyDaysPastDueMemberkmx:OtherManagedReceivablesMember2023-02-280001170010kmx:ThirtyOneToSixtyDaysPastDueMember2023-02-280001170010kmx:SixtyOneToNinetyDaysPastDueMemberkmx:CoreManagedReceivablesMemberkmx:CreditGradeAMember2023-02-280001170010kmx:CreditGradeBMemberkmx:SixtyOneToNinetyDaysPastDueMemberkmx:CoreManagedReceivablesMember2023-02-280001170010kmx:CreditGradeCAndOtherMemberkmx:SixtyOneToNinetyDaysPastDueMemberkmx:CoreManagedReceivablesMember2023-02-280001170010kmx:SixtyOneToNinetyDaysPastDueMemberkmx:CoreManagedReceivablesMember2023-02-280001170010kmx:CreditGradeCAndOtherMemberkmx:SixtyOneToNinetyDaysPastDueMemberkmx:OtherManagedReceivablesMember2023-02-280001170010kmx:SixtyOneToNinetyDaysPastDueMember2023-02-280001170010kmx:GreaterThanNinetyDaysPastDueMemberkmx:CoreManagedReceivablesMemberkmx:CreditGradeAMember2023-02-280001170010kmx:GreaterThanNinetyDaysPastDueMemberkmx:CreditGradeBMemberkmx:CoreManagedReceivablesMember2023-02-280001170010kmx:CreditGradeCAndOtherMemberkmx:GreaterThanNinetyDaysPastDueMemberkmx:CoreManagedReceivablesMember2023-02-280001170010kmx:GreaterThanNinetyDaysPastDueMemberkmx:CoreManagedReceivablesMember2023-02-280001170010kmx:CreditGradeCAndOtherMemberkmx:GreaterThanNinetyDaysPastDueMemberkmx:OtherManagedReceivablesMember2023-02-280001170010kmx:GreaterThanNinetyDaysPastDueMember2023-02-280001170010us-gaap:DesignatedAsHedgingInstrumentMemberus-gaap:CashFlowHedgingMemberus-gaap:InterestRateSwapMember2023-03-012023-11-300001170010us-gaap:NondesignatedMemberus-gaap:CashFlowHedgingMemberus-gaap:InterestRateSwapMember2023-09-012023-11-300001170010us-gaap:NondesignatedMemberus-gaap:CashFlowHedgingMemberus-gaap:InterestRateSwapMember2023-03-012023-11-300001170010us-gaap:DesignatedAsHedgingInstrumentMemberus-gaap:CashFlowHedgingMemberus-gaap:InterestRateSwapMember2023-11-300001170010us-gaap:DesignatedAsHedgingInstrumentMemberus-gaap:CashFlowHedgingMemberus-gaap:InterestRateSwapMember2023-02-280001170010us-gaap:NondesignatedMemberus-gaap:CashFlowHedgingMemberus-gaap:InterestRateSwapMember2023-11-300001170010us-gaap:NondesignatedMemberus-gaap:CashFlowHedgingMemberus-gaap:InterestRateSwapMember2023-02-280001170010us-gaap:FairValueInputsLevel1Member2023-11-300001170010us-gaap:FairValueInputsLevel2Member2023-11-300001170010us-gaap:DesignatedAsHedgingInstrumentMemberus-gaap:FairValueInputsLevel1Member2023-11-300001170010us-gaap:DesignatedAsHedgingInstrumentMemberus-gaap:FairValueInputsLevel2Member2023-11-300001170010us-gaap:DesignatedAsHedgingInstrumentMember2023-11-300001170010us-gaap:NondesignatedMemberus-gaap:FairValueInputsLevel1Member2023-11-300001170010us-gaap:NondesignatedMemberus-gaap:FairValueInputsLevel2Member2023-11-300001170010us-gaap:NondesignatedMember2023-11-300001170010us-gaap:FairValueInputsLevel1Member2023-02-280001170010us-gaap:FairValueInputsLevel2Member2023-02-280001170010us-gaap:DesignatedAsHedgingInstrumentMemberus-gaap:FairValueInputsLevel1Member2023-02-280001170010us-gaap:DesignatedAsHedgingInstrumentMemberus-gaap:FairValueInputsLevel2Member2023-02-280001170010us-gaap:DesignatedAsHedgingInstrumentMember2023-02-280001170010us-gaap:NondesignatedMemberus-gaap:FairValueInputsLevel1Member2023-02-280001170010us-gaap:NondesignatedMemberus-gaap:FairValueInputsLevel2Member2023-02-280001170010us-gaap:NondesignatedMember2023-02-280001170010us-gaap:RevolvingCreditFacilityMember2023-11-300001170010us-gaap:RevolvingCreditFacilityMember2023-02-280001170010kmx:TermLoanMember2023-11-300001170010kmx:TermLoanMember2023-02-280001170010kmx:October2021TermLoanMember2023-11-300001170010kmx:October2021TermLoanMember2023-02-280001170010kmx:A3.86seniornotesdues2023Member2023-11-300001170010kmx:A3.86seniornotesdues2023Member2023-02-280001170010kmx:A4.17seniornotesdue2026Member2023-11-300001170010kmx:A4.17seniornotesdue2026Member2023-02-280001170010kmx:A4.27seniornotesdue2028Member2023-11-300001170010kmx:A4.27seniornotesdue2028Member2023-02-280001170010us-gaap:LineOfCreditMember2023-11-300001170010kmx:TermLoanMember2023-11-300001170010kmx:October2021TermLoanMember2023-11-300001170010us-gaap:SeniorNotesMember2023-11-300001170010kmx:FinancingObligationMembersrt:MinimumMember2023-03-012023-11-300001170010kmx:FinancingObligationMembersrt:MaximumMember2023-03-012023-11-300001170010kmx:WarehouseFacilityOneMember2023-11-300001170010kmx:WarehouseFacilityThreeMember2023-11-300001170010kmx:WarehouseFacilityTwoMember2023-11-300001170010kmx:WarehouseFacilitiesMember2023-11-300001170010kmx:TermSecuritizationsDebtMember2023-11-300001170010kmx:ShareRepurchaseProgramMember2023-11-300001170010kmx:ShareRepurchaseProgramMember2023-09-012023-11-300001170010kmx:ShareRepurchaseProgramMember2022-09-012022-11-300001170010kmx:ShareRepurchaseProgramMember2023-03-012023-11-300001170010kmx:ShareRepurchaseProgramMember2022-03-012022-11-300001170010kmx:ShareRepurchaseProgramMember2022-11-300001170010us-gaap:CostOfSalesMember2023-09-012023-11-300001170010us-gaap:CostOfSalesMember2022-09-012022-11-300001170010us-gaap:CostOfSalesMember2023-03-012023-11-300001170010us-gaap:CostOfSalesMember2022-03-012022-11-300001170010kmx:CarmaxAutoFinanceIncomeMember2023-09-012023-11-300001170010kmx:CarmaxAutoFinanceIncomeMember2022-09-012022-11-300001170010kmx:CarmaxAutoFinanceIncomeMember2023-03-012023-11-300001170010kmx:CarmaxAutoFinanceIncomeMember2022-03-012022-11-300001170010us-gaap:SellingGeneralAndAdministrativeExpensesMember2023-09-012023-11-300001170010us-gaap:SellingGeneralAndAdministrativeExpensesMember2022-09-012022-11-300001170010us-gaap:SellingGeneralAndAdministrativeExpensesMember2023-03-012023-11-300001170010us-gaap:SellingGeneralAndAdministrativeExpensesMember2022-03-012022-11-300001170010us-gaap:EmployeeStockOptionMember2023-09-012023-11-300001170010us-gaap:EmployeeStockOptionMember2022-09-012022-11-300001170010us-gaap:EmployeeStockOptionMember2023-03-012023-11-300001170010us-gaap:EmployeeStockOptionMember2022-03-012022-11-300001170010kmx:CashSettledRestrictedStockUnitsMember2023-09-012023-11-300001170010kmx:CashSettledRestrictedStockUnitsMember2022-09-012022-11-300001170010kmx:CashSettledRestrictedStockUnitsMember2023-03-012023-11-300001170010kmx:CashSettledRestrictedStockUnitsMember2022-03-012022-11-300001170010kmx:StockSettledRestrictedStockUnitsMember2023-09-012023-11-300001170010kmx:StockSettledRestrictedStockUnitsMember2022-09-012022-11-300001170010kmx:StockSettledRestrictedStockUnitsMember2023-03-012023-11-300001170010kmx:StockSettledRestrictedStockUnitsMember2022-03-012022-11-300001170010us-gaap:PerformanceSharesMember2023-09-012023-11-300001170010us-gaap:PerformanceSharesMember2022-09-012022-11-300001170010us-gaap:PerformanceSharesMember2023-03-012023-11-300001170010us-gaap:PerformanceSharesMember2022-03-012022-11-300001170010us-gaap:RestrictedStockMember2023-09-012023-11-300001170010us-gaap:RestrictedStockMember2022-09-012022-11-300001170010us-gaap:RestrictedStockMember2023-03-012023-11-300001170010us-gaap:RestrictedStockMember2022-03-012022-11-300001170010kmx:DeferredStockUnitsMember2023-09-012023-11-300001170010kmx:DeferredStockUnitsMember2022-09-012022-11-300001170010kmx:DeferredStockUnitsMember2023-03-012023-11-300001170010kmx:DeferredStockUnitsMember2022-03-012022-11-300001170010us-gaap:EmployeeStockMember2023-09-012023-11-300001170010us-gaap:EmployeeStockMember2022-09-012022-11-300001170010us-gaap:EmployeeStockMember2023-03-012023-11-300001170010us-gaap:EmployeeStockMember2022-03-012022-11-300001170010kmx:OthersharebasedincentivesMember2023-09-012023-11-300001170010kmx:OthersharebasedincentivesMember2022-09-012022-11-300001170010kmx:OthersharebasedincentivesMember2023-03-012023-11-300001170010kmx:OthersharebasedincentivesMember2022-03-012022-11-300001170010kmx:StockSettledRestrictedStockUnitsMember2023-02-280001170010kmx:OthersharebasedincentivesMember2023-02-280001170010kmx:CashSettledRestrictedStockUnitsMember2023-02-280001170010kmx:StockSettledRestrictedStockUnitsMember2023-11-300001170010kmx:OthersharebasedincentivesMember2023-11-300001170010kmx:CashSettledRestrictedStockUnitsMember2023-11-300001170010us-gaap:EmployeeStockOptionMember2023-09-012023-11-300001170010us-gaap:EmployeeStockOptionMember2022-09-012022-11-300001170010us-gaap:EmployeeStockOptionMember2023-03-012023-11-300001170010us-gaap:EmployeeStockOptionMember2022-03-012022-11-300001170010kmx:StockSettledStockUnitsAndAwardsMember2023-09-012023-11-300001170010kmx:StockSettledStockUnitsAndAwardsMember2022-09-012022-11-300001170010kmx:StockSettledStockUnitsAndAwardsMember2023-03-012023-11-300001170010kmx:StockSettledStockUnitsAndAwardsMember2022-03-012022-11-300001170010kmx:UnrecognizedActuarialLossesMember2023-02-280001170010kmx:UnrecognizedHedgeLossesMember2023-02-280001170010kmx:UnrecognizedActuarialLossesMember2023-03-012023-11-300001170010kmx:UnrecognizedHedgeLossesMember2023-03-012023-11-300001170010kmx:UnrecognizedActuarialLossesMember2023-11-300001170010kmx:UnrecognizedHedgeLossesMember2023-11-300001170010kmx:CarmaxAutoFinanceMember2023-09-012023-11-300001170010kmx:CarmaxAutoFinanceMember2022-09-012022-11-300001170010kmx:CarmaxAutoFinanceMember2023-03-012023-11-300001170010kmx:CarmaxAutoFinanceMember2022-03-012022-11-300001170010srt:MinimumMember2023-03-012023-11-300001170010srt:MaximumMember2023-03-012023-11-30utr:Rate0001170010kmx:CarMaxSalesOperationsMember2023-09-012023-11-300001170010us-gaap:AllOtherSegmentsMember2023-09-012023-11-300001170010us-gaap:AllOtherSegmentsMemberus-gaap:IntersegmentEliminationMember2023-09-012023-11-300001170010us-gaap:IntersegmentEliminationMember2023-09-012023-11-300001170010us-gaap:OperatingSegmentsMemberkmx:CarMaxSalesOperationsMember2023-09-012023-11-300001170010us-gaap:AllOtherSegmentsMemberus-gaap:OperatingSegmentsMember2023-09-012023-11-300001170010us-gaap:CostOfSalesMemberkmx:CarMaxSalesOperationsMember2023-09-012023-11-300001170010us-gaap:AllOtherSegmentsMemberus-gaap:CostOfSalesMember2023-09-012023-11-300001170010kmx:CarMaxSalesOperationsMember2022-09-012022-11-300001170010us-gaap:AllOtherSegmentsMember2022-09-012022-11-300001170010us-gaap:AllOtherSegmentsMemberus-gaap:IntersegmentEliminationMember2022-09-012022-11-300001170010us-gaap:IntersegmentEliminationMember2022-09-012022-11-300001170010us-gaap:OperatingSegmentsMemberkmx:CarMaxSalesOperationsMember2022-09-012022-11-300001170010us-gaap:AllOtherSegmentsMemberus-gaap:OperatingSegmentsMember2022-09-012022-11-300001170010us-gaap:CostOfSalesMemberkmx:CarMaxSalesOperationsMember2022-09-012022-11-300001170010us-gaap:AllOtherSegmentsMemberus-gaap:CostOfSalesMember2022-09-012022-11-300001170010kmx:CarMaxSalesOperationsMember2023-03-012023-11-300001170010us-gaap:AllOtherSegmentsMember2023-03-012023-11-300001170010us-gaap:AllOtherSegmentsMemberus-gaap:IntersegmentEliminationMember2023-03-012023-11-300001170010us-gaap:IntersegmentEliminationMember2023-03-012023-11-300001170010us-gaap:OperatingSegmentsMemberkmx:CarMaxSalesOperationsMember2023-03-012023-11-300001170010us-gaap:AllOtherSegmentsMemberus-gaap:OperatingSegmentsMember2023-03-012023-11-300001170010us-gaap:CostOfSalesMemberkmx:CarMaxSalesOperationsMember2023-03-012023-11-300001170010us-gaap:AllOtherSegmentsMemberus-gaap:CostOfSalesMember2023-03-012023-11-300001170010kmx:CarMaxSalesOperationsMember2022-03-012022-11-300001170010us-gaap:AllOtherSegmentsMember2022-03-012022-11-300001170010us-gaap:AllOtherSegmentsMemberus-gaap:IntersegmentEliminationMember2022-03-012022-11-300001170010us-gaap:IntersegmentEliminationMember2022-03-012022-11-300001170010us-gaap:OperatingSegmentsMemberkmx:CarMaxSalesOperationsMember2022-03-012022-11-300001170010us-gaap:AllOtherSegmentsMemberus-gaap:OperatingSegmentsMember2022-03-012022-11-300001170010us-gaap:CostOfSalesMemberkmx:CarMaxSalesOperationsMember2022-03-012022-11-300001170010us-gaap:AllOtherSegmentsMemberus-gaap:CostOfSalesMember2022-03-012022-11-30

 

 

For the Quarterly Period Ended November 30, 2023

 

 

(Exact name of registrant as specified in its charter)

 

(Registrant’s telephone number, including area code)

 

(Former name, former address and former fiscal year, if changed since last report)

 

Securities registered pursuant to Section 12(b) of the Act:

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 every Interactive Data File required to be submitted 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 such files).    Yes  ☒    No  ☐ 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company.  See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes  ☐     No  ☒

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

 

 

 

 

 

 

(1)    Percents are calculated as a percentage of net sales and operating revenues and may not total due to rounding. 

  

 

 

 

 

  

 

(Unaudited)

1.Background

Business. CarMax, Inc. (“we,” “our,” “us,” “CarMax” and “the company”), including its wholly owned subsidiaries, is the nation’s largest retailer of used vehicles.  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 financing to customers buying retail vehicles from CarMax. On June 1, 2021, we completed the acquisition of Edmunds Holding Company (“Edmunds”), which does not meet the quantitative thresholds to be considered a reportable segment. See Note 16 for additional information on our reportable segments.

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”); 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.

Basis of Presentation and Use of Estimates. The accompanying interim unaudited consolidated financial statements include the accounts of CarMax and our wholly owned subsidiaries.  All significant intercompany balances and transactions have been eliminated in consolidation.  These interim unaudited consolidated financial statements have been prepared in conformity with U.S. generally accepted accounting principles (“GAAP”) for interim financial information.  Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements.  In the opinion of management, such interim consolidated financial statements reflect all normal recurring adjustments considered necessary to present fairly the financial position and the results of operations and cash flows for the interim periods presented.  The results of operations for the interim periods are not necessarily indicative of the results to be expected for the full fiscal year.  

The accounting policies followed in the presentation of our interim financial results are consistent with those included in the company’s Annual Report on Form 10-K for the fiscal year ended February 28, 2023 (the “2023 Annual Report”), with the exception of those related to recent accounting pronouncements adopted in the current fiscal year. These interim unaudited consolidated financial statements should be read in conjunction with the audited consolidated financial statements and footnotes included in our 2023 Annual Report.

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses and the disclosure of contingent assets and liabilities.  Actual results could differ from those estimates.  Certain prior year amounts have been reclassified to conform to the current year’s presentation.  Amounts and percentages may not total due to rounding.

In October 2023, the Financial Accounting Standards Board (“FASB”) issued an accounting pronouncement (ASU 2023-06) related to disclosure or presentation requirements for various subtopics in the FASB’s Accounting Standards Codification (“Codification”). The amendments in the update are intended to align the requirements in the Codification with the U.S. Securities and Exchange Commission's (“SEC”) regulations and facilitate the application of GAAP for all entities. The effective date for each amendment is the date on which the SEC removal of the related disclosure requirement from Regulation S-X or Regulation S-K becomes effective, or if the SEC has not removed the requirements by June 30, 2027, this amendment will be removed from the Codification and will not become effective for any entity. Early adoption is prohibited. We do not expect this update to have a material impact on our consolidated financial statements.

In November 2023, the FASB issued an accounting pronouncement (ASU 2023-07) related to the disclosure of incremental segment information on an annual and interim basis. This update is effective for annual periods beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024, and requires retrospective application to all prior periods presented in the financial statements. We plan to adopt this pronouncement beginning with our fiscal year ended February 28, 2025, and we do not expect it to have a material effect on our consolidated financial statements.

In December 2023, the FASB issued an accounting pronouncement (ASU 2023-09) related to income tax disclosures. The amendments in this update are intended to enhance the transparency and decision usefulness of income tax disclosures primarily through changes to the rate reconciliation and income taxes paid information. This update is effective for annual periods beginning after December 15, 2024, though early adoption is permitted. We plan to adopt this pronouncement for our fiscal year beginning March 1, 2025, and we do not expect it to have a material effect on our consolidated financial statements.

2. Revenue

 

We recognize revenue when control of the good or service has been transferred to the customer, generally either at the time of sale or upon delivery to a customer.  Our contracts have a fixed contract price and revenue is measured as the amount of consideration we expect to receive in exchange for transferring goods or providing services. We collect sales taxes and other taxes from customers on behalf of governmental authorities at the time of sale.  These taxes are accounted for on a net basis and are not included in net sales and operating revenues or cost of sales. We generally expense sales commissions when incurred because the amortization period would have been less than one year. These costs are recorded within selling, general and administrative expenses. We do not have any significant payment terms as payment is received at or shortly after the point of sale.

(1)     Excludes intersegment sales and operating revenues that have been eliminated in consolidation. See Note 16 for further details.

Used Vehicle Sales. Revenue from the sale of used vehicles is recognized upon transfer of control of the vehicle to the customer. As part of our customer service strategy, we guarantee the retail vehicles we sell with a 30-day/1,500 mile, money-back guarantee.  We record a reserve for estimated returns based on historical experience and trends. The reserve for estimated returns is presented gross on the consolidated balance sheets, with a return asset recorded in other current assets and a refund liability recorded in accrued expenses and other current liabilities. We also guarantee the used vehicles we sell with a 90-day/4,000-mile limited warranty. These warranties are deemed assurance-type warranties and are accounted for as warranty obligations. See Note 15 for additional information on this warranty and its related obligation.

Wholesale Vehicle Sales. Wholesale vehicles are sold at our auctions, and revenue from the sale of these vehicles is recognized upon transfer of control of the vehicle to the customer. Dealers also pay a fee to us based on the sale price of the vehicles they purchase. This fee is recognized as revenue at the time of sale. While we provide condition disclosures on each wholesale vehicle sold, the vehicles are subject to a limited right of return. We record a reserve for estimated returns based on historical experience and trends. The reserve for estimated returns is presented gross on the consolidated balance sheets, with a return asset recorded in other current assets and a refund liability recorded in accrued expenses and other current liabilities.

EPP Revenues. We also sell ESP and GAP products on behalf of unrelated third parties, who are primarily responsible for fulfilling the contract, to customers who purchase a retail vehicle. The ESPs we currently offer on all used vehicles provide coverage up to 60 months (subject to mileage limitations), while GAP covers the customer for the term of their finance contract. We recognize revenue, on a net basis, at the time of sale. We also record a reserve, or refund liability, for estimated contract cancellations. The reserve for cancellations is evaluated for each product and is based on forecasted forward cancellation curves utilizing historical experience, recent trends and credit mix of the customer base. Our risk related to contract cancellations is limited to the revenue that we receive. Cancellations fluctuate depending on the volume of EPP sales, customer financing default or prepayment rates, and shifts in customer behavior, including those related to changes in the coverage or term of the product.

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. See Note 7 for additional information on cancellation reserves.

We are contractually entitled to receive profit-sharing revenues based on the performance of the ESPs administered by third parties. These revenues are a form of variable consideration included in EPP revenues to the extent that it is probable that it will not result in a significant revenue reversal. An estimate of the amount to which we expect to be entitled is determined upon satisfying the performance obligation of selling the ESP. This estimate is subject to various constraints; primarily, factors that are outside of the company’s influence or control. We have determined that these constraints generally preclude any profit-sharing revenues from being recognized before they are paid. As of November 30, 2023 and February 28, 2023, no current or long-term contract asset was recognized related to cumulative profit-sharing payments to which we expect to be entitled. The estimate of the amount to which we expect to be entitled is reassessed each reporting period and any changes are reflected in other sales and revenues on our consolidated statements of earnings and other assets on our consolidated balance sheets.

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.

Advertising and Subscription Revenues. Advertising and subscription revenues consist of revenues earned by our Edmunds business. Advertising revenues are derived from advertising contracts with automotive manufacturers based on fixed fees per impression and fees for certain activities completed by customers on the manufacturers' websites. These fees are recognized in the period the impressions are delivered or certain activities occurred. Subscription revenues are derived from packages sold to automotive dealers that include car leads, inventory listings and enhanced placement in Edmunds' dealer locator and are recognized over the period that the services are made available to the dealers. Subscription revenues also include a digital marketing subscription service, which allows dealers to gain exposure on third party partner websites. Revenues for this service are recognized on a net basis.

Service Revenues. Service revenue consists of labor and parts income related to vehicle repair service, including repairs of vehicles covered under an ESP we sell or warranty program. Service revenue is recognized at the time the work is completed.

Other Revenues. Other revenues include miscellaneous goods and services, which are immaterial to our consolidated financial statements.

3. CarMax Auto Finance

 

CAF provides financing to qualified retail customers purchasing vehicles from CarMax.  CAF provides us the opportunity to capture additional profits, cash flows and sales while managing our reliance on third-party finance sources.  Management regularly analyzes CAF’s operating results by assessing profitability, the performance of the auto loans receivable, including trends in credit losses and delinquencies, and CAF direct expenses.  This information is used to assess CAF’s performance and make operating decisions, including resource allocation.

We typically use securitizations or other funding arrangements to fund loans originated by CAF.  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 CAF expenses.

CAF income does not include any allocation of indirect costs.  Although CAF benefits from certain indirect overhead expenditures, we have not allocated indirect costs to CAF to avoid making subjective allocation decisions.  Examples of indirect costs not allocated to CAF include retail store expenses and corporate expenses.  In addition, except for auto loans receivable, which are disclosed in Note 4, CAF assets are not separately reported nor do we allocate assets to CAF because such allocation would not be useful to management in making operating decisions.

(1)     Annualized percentage of total average managed receivables.     

4. Auto Loans Receivable

 

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 $17.03 billion as of November 30, 2023, and $16.36 billion as of February 28, 2023. See Note 9 for additional information on securitizations and non-recourse notes payable.

Interest income and expenses related to auto loans are included in CAF income.  Interest income on auto loans receivable is recognized when earned based on contractual loan terms.  All loans continue to accrue interest until repayment or charge-off.  When a charge-off occurs, accrued interest is written off by reversing interest income. Direct costs associated with loan originations are not considered material, and thus, are expensed as incurred.  See Note 3 for additional information on CAF income.

(1)     Represents receivables restricted as excess collateral for the non-recourse funding vehicles.

(2)     Other managed receivables includes receivables not funded through the non-recourse funding vehicles.

Credit Quality.  When customers apply for financing, CAF’s proprietary scoring models utilize the customers’ credit history and certain application information to evaluate and rank their risk.  We obtain credit histories and other credit data that includes information such as number, age, type of and payment history for prior or existing credit accounts.  The application information that is used includes income, collateral value and down payment.  The scoring models yield credit grades that represent the relative likelihood of repayment.  Customers with the highest probability of repayment are A-grade customers. Customers assigned a lower grade are determined to have a lower probability of repayment.  For loans that are approved, the credit grade influences the terms of the agreement, such as the required loan-to-value ratio and interest rate. After origination, credit grades are generally not updated.

CAF uses a combination of the initial credit grades and historical performance to monitor the credit quality of the auto loans receivable on an ongoing basis.  We validate the accuracy of the scoring models periodically.  Loan performance is reviewed on a recurring basis to identify whether the assigned grades adequately reflect the customers’ likelihood of repayment.