CARMAX, INC. AND SUBSIDIARIES

Consolidated Statements of Cash Flows

(Unaudited)


	Nine Months Ended November 30
(In thousands)	2021		2020
OPERATING ACTIVITIES:
Net earnings	$	991,461	$	536,974
Adjustments to reconcile net earnings to net cash (used in) provided by operating activities:
Depreciation and amortization	200,819		180,495
Share-based compensation expense	108,962		73,946
Provision for loan losses	87,342		156,147
Provision for cancellation reserves	91,607		53,511
Deferred income tax provision (benefit)	19,564		(19,529)
Other	(26,808)		5,966
Net (increase) decrease in:
Accounts receivable, net	(290,346)		22,111
Inventory	(1,502,323)		66,211
Other current assets	(13,615)		29,478
Auto loans receivable, net	(1,764,693)		(73,827)
Other assets	(18,309)		(8,151)
Net increase (decrease) in:
Accounts payable, accrued expenses and other
current liabilities and accrued income taxes	170,474		(124,092)
Other liabilities	(136,780)		(30,854)
NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES	(2,082,645)		868,386
INVESTING ACTIVITIES:
Capital expenditures	(226,903)		(123,952)
Proceeds from disposal of property and equipment	260		1,846
Proceeds from sale of business	12,284		—
Purchases of investments	(13,676)		(2,709)
Sales and returns of investments	36,915		2,739
Business acquisition, net of cash acquired	(241,563)		—
NET CASH USED IN INVESTING ACTIVITIES	(432,683)		(122,076)
FINANCING ACTIVITIES:
Increase in short-term debt, net	—		968
Proceeds from issuances of long-term debt	5,804,200		1,562,300
Payments on long-term debt	(4,524,973)		(2,022,586)
Cash paid for debt issuance costs	(14,473)		(12,797)
Payments on finance lease obligations	(8,822)		(4,871)
Issuances of non-recourse notes payable	11,217,298		7,947,313
Payments on non-recourse notes payable	(9,565,649)		(7,940,254)
Repurchase and retirement of common stock	(475,950)		(158,625)
Equity issuances	76,310		94,295
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES	2,507,941		(534,257)
(Decrease) increase in cash, cash equivalents, and restricted cash	(7,387)		212,053
Cash, cash equivalents, and restricted cash at beginning of year	771,947		656,390
CASH, CASH EQUIVALENTS, AND RESTRICTED CASH AT END OF PERIOD	$	764,560	$	868,443

RECONCILIATION OF CASH, CASH EQUIVALENTS AND RESTRICTED CASH TO THE CONSOLIDATED BALANCE SHEETS:
Cash and cash equivalents	$	62,598	$	236,643
Restricted cash from collections on auto loans receivable	552,487		492,610
Restricted cash included in other assets	149,475		139,190
CASH, CASH EQUIVALENTS AND RESTRICTED CASH AT END OF PERIOD	$	764,560	$	868,443

Nine Months Ended November 30
(In thousands) 2017 2016
OPERATING ACTIVITIES:
Net earnings $ 541,966
$ 474,367
Adjustments to reconcile net earnings to net cash used in operating activities:
Depreciation and amortization 133,175
125,654
Share-based compensation expense 52,363
72,026
Provision for loan losses 98,982
104,249
Provision for cancellation reserves 50,850
51,768
Deferred income tax provision (benefit) 14,384
(584 )
Other 1,223
2,118
Net decrease (increase) in:
Accounts receivable, net 56,547
40,168
Inventory (179,988 ) (238,146 )
Other current assets (5,422 ) (5,802 )
Auto loan receivables, net (879,731 ) (900,675 )
Other assets (348 ) 1,193
Net (decrease) increase in:
Accounts payable, accrued expenses and other
current liabilities and accrued income taxes (9,373 ) 1,840
Other liabilities (67,750 ) (64,222 )
NET CASH USED IN OPERATING ACTIVITIES (193,122 ) (336,046 )
INVESTING ACTIVITIES:
Capital expenditures (227,559 ) (315,543 )
Proceeds from disposal of property and equipment 96
728
Increase in restricted cash from collections on auto loan receivables (8,592 ) (13,211 )
Increase in restricted cash in reserve accounts (16,799 ) (11,663 )
Release of restricted cash from reserve accounts 13,411
8,083
Purchases of investments (8,525 ) (6,924 )
Sales of investments 466
318
NET CASH USED IN INVESTING ACTIVITIES (247,502 ) (338,212 )
FINANCING ACTIVITIES:
Increase in short-term debt, net 531
452
Proceeds from issuances of long-term debt 2,996,700
1,660,600
Payments on long-term debt (2,906,700 ) (1,484,900 )
Cash paid for debt issuance costs (11,524 ) (12,568 )
Payments on finance and capital lease obligations (6,704 ) (8,407 )
Issuances of non-recourse notes payable 7,720,963
7,235,000
Payments on non-recourse notes payable (6,976,360 ) (6,299,802 )
Repurchase and retirement of common stock (454,960 ) (464,352 )
Equity issuances 66,549
34,554
NET CASH PROVIDED BY FINANCING ACTIVITIES 428,495
660,577
Decrease in cash and cash equivalents (12,129 ) (13,681 )
Cash and cash equivalents at beginning of year 38,416
37,394
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 26,287
$ 23,713

See accompanying notes to consolidated financial statements.

Page 6

CARMAX, INC. AND SUBSIDIARIES

Consolidated Statements of Shareholders’ Equity

(Unaudited)


	Nine Months Ended November 30, 2021
								Accumulated
	Common			Capital in				Other
	Shares	Common		Excess of		Retained		Comprehensive
(In thousands)	Outstanding	Stock		Par Value		Earnings		Loss		Total
Balance as of February 28, 2021	163,172	$	81,586	$	1,513,821	$	2,887,897	$	(118,691)	$	4,364,613
Net earnings	—	—		—		436,756		—		436,756
Other comprehensive income	—	—		—		—		2,937		2,937
Share-based compensation expense	—	—		20,102		—		—		20,102

Repurchases of common stock	(998)	(499)		(9,348)		(114,695)		—		(124,542)
Exercise of common stock options	375	187		21,403		—		—		21,590
Stock incentive plans, net shares issued	254	127		(18,102)		—		—		(17,975)

Balance as of May 31, 2021	162,803	$	81,401	$	1,527,876	$	3,209,958	$	(115,754)	$	4,703,481
Net earnings	—	—		—		285,267		—		285,267
Other comprehensive income	—	—		—		—		3,411		3,411
Share-based compensation expense	—	—		14,116		—		—		14,116
Shares issued for acquisition	776	388		90,183		—		—		90,571
Repurchases of common stock	(1,754)	(877)		(17,164)		(202,004)		—		(220,045)
Exercise of common stock options	621	311		38,185		—		—		38,496
Stock incentive plans, net shares issued	24	12		(130)		—		—		(118)
Balance as of August 31, 2021	162,470	$	81,235	$	1,653,066	$	3,293,221	$	(112,343)	$	4,915,179
Net earnings	—	—		—		269,438		—		269,438
Other comprehensive income	—	—		—		—		12,042		12,042
Share-based compensation expense	—	—		12,347		—		—		12,347
Repurchases of common stock	(851)	(425)		(8,695)		(106,226)		—		(115,346)
Exercise of common stock options	253	126		16,097		—		—		16,223
Stock incentive plans, net shares issued	—	—		(87)		—		—		(87)

Balance as of November 30, 2021	161,872	$	80,936	$	1,672,728	$	3,456,433	$	(100,301)	$	5,109,796

See accompanying notes to consolidated financial statements.

Page 7

CARMAX, INC. AND SUBSIDIARIES

Consolidated Statements of Shareholders’ Equity

(Unaudited)


	Nine Months Ended November 30, 2020
								Accumulated
	Common			Capital in				Other
	Shares	Common		Excess of		Retained		Comprehensive
(In thousands)	Outstanding	Stock		Par Value		Earnings		Loss		Total
Balance as of February 29, 2020	163,081	$	81,541	$	1,348,988	$	2,488,417	$	(150,071)	$	3,768,875
Adoption of CECL	—	—		—		(153,306)		—		(153,306)
Net earnings	—	—		—		4,978		—		4,978
Other comprehensive loss	—	—		—		—		(15,334)		(15,334)
Share-based compensation expense	—	—		17,652		—		—		17,652
Repurchases of common stock	(515)	(258)		(4,271)		(36,180)		—		(40,709)
Exercise of common stock options	35	18		1,688		—		—		1,706
Stock incentive plans, net shares issued	154	77		(5,629)		—		—		(5,552)
Balance as of May 31, 2020	162,755	$	81,378	$	1,358,428	$	2,303,909	$	(165,405)	$	3,578,310
Net earnings	—	—		—		296,696		—		296,696
Other comprehensive income	—	—		—		—		4,979		4,979
Share-based compensation expense	—	—		12,568		—		—		12,568
Repurchases of common stock	—	—		—		—		—		—
Exercise of common stock options	1,403	701		89,318		—		—		90,019
Stock incentive plans, net shares issued	4	2		(14)		—		—		(12)

Balance as of August 31, 2020	164,162	$	82,081	$	1,460,300	$	2,600,605	$	(160,426)	$	3,982,560
Net earnings	—	—		—		235,300		—		235,300
Other comprehensive income	—	—		—		—		7,502		7,502
Share-based compensation expense	—	—		9,942		—		—		9,942
Repurchases of common stock	(1,176)	(588)		(10,509)		(98,152)		—		(109,249)
Exercise of common stock options	43	21		2,549		—		—		2,570
Stock incentive plans, net shares issued	5	3		(152)		—		—		(149)

Balance as of November 30, 2020	163,034	$	81,517	$	1,462,130	$	2,737,753	$	(152,924)	$	4,128,476

See accompanying notes to consolidated financial statements.

Page 8

CARMAX, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)

1.Background

Business. CarMax, Inc. (“we,” “our,” “us,” “CarMax” and “the company”), including its wholly owned subsidiaries, is the nation’s largest and most profitable retailer of used ~~vehicles in the United States.~~vehicles. We operate in ~~two~~2 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 17 for additional information on our reportable segments and Note 2 for additional information regarding our acquisition of Edmunds.

We deliver an unrivaled customer experience by offering a broad selection of ~~high~~ quality used vehicles and related products and services at ~~low,~~competitive, no-haggle prices using a customer-friendly sales ~~process~~process. Our omni-channel platform, which gives us the largest addressable market in ~~an attractive, modern sales facility, as well as~~the used car industry, empowers our retail customers to buy a car on their terms – online, in-store or a seamless combination of both. Customers can choose to complete the car-buying experience in-person at one of our stores; or buy the car online and receive delivery through ~~carmax.com and our mobile apps.~~express pickup, available nationwide, or home delivery, available to most customers. We ~~provide~~offer customers ~~with~~ 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.

2. ~~Accounting Policies~~

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 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, 2021 (the “2021 Annual Report”), with the exception of those related to recent accounting pronouncements adopted in the current fiscal year. These consolidated financial statements should be read in conjunction with the audited consolidated financial statements and footnotes included in our 2021 Annual ~~Report on Form 10-K for the fiscal year ended February 28, 2017.~~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. In particular, the novel coronavirus (“COVID-19”) pandemic continues to have an adverse impact on global economic conditions and may impact future estimates including, but not limited to, our allowance for loan losses, inventory valuations, fair value measurements, downward adjustments to investments in equity securities, asset impairment charges, the effectiveness of the company’s hedging instruments, deferred tax valuation allowances, cancellation reserves, actuarial losses on our retirement benefit plans and discount rate assumptions.

Depreciation and amortization previously included in selling, general, and administrative expenses is now separately presented on the consolidated statements of earnings. Prior period amounts have been reclassified to conform to the current period’s presentation. Depreciation and amortization related to other areas of our business, including cost of sales and CAF, is included in its respective line item on the consolidated statements of earnings. Certain other prior year amounts have been reclassified to conform to the current year’s presentation. Amounts and percentages may not total due to rounding.

Page 9

Recent Accounting Pronouncements.

Effective in Future Periods

In ~~connection with our prospective adoption of~~October 2021, the Financial Accounting Standards ~~Board's~~Board (“FASB”) issued an accounting pronouncement (ASU 2021-08) related to accounting for acquired revenue contracts with customers in a business combination. The amendments in this update address diversity in practice and inconsistency related to recognition of an acquired contract liability and the effect of payment terms on subsequent revenue recognition for the acquirer. This update is effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. We plan to adopt this pronouncement for our fiscal year beginning March 1, 2023, and we do not expect it to have a material effect on our consolidated financial statements.

In November 2021, the FASB issued an accounting pronouncement (ASU 2021-10) related to government assistance disclosures. The amendments in this update increase the transparency surrounding government assistance by requiring disclosure of 1) the types of assistance received, 2) an entity’s accounting for the assistance, and 3) the effect of the assistance on the entity’s financial statements. The update is effective for annual periods beginning after December 15, 2021. We plan to adopt this pronouncement for our fiscal year beginning March 1, 2022, and we do not expect it to have a material effect on our consolidated financial statements.

2. Acquisition of Edmunds

On June 1, 2021, we completed the acquisition of Edmunds Holding Company, one of the most well established and trusted online guides for automotive information and a recognized leader in digital car shopping innovations. With this acquisition, CarMax has enhanced its digital capabilities and further strengthened its role and reach across the used auto ecosystem while adding exceptional technology and creative talent. Edmunds continues to operate independently and remains focused on delivering confidence to consumers and excellent value to its dealer and OEM clients. Additionally, this acquisition allows both businesses to accelerate their respective capabilities to deliver an enhanced digital experience to their customers by leveraging Edmunds’ compelling content and technology, CarMax’s unparalleled national scale and infrastructure, and the combined talent of both businesses.

The acquisition was accounted for in accordance with Accounting Standards ~~Update~~Codification (“~~ASU”~~ASC”) ~~2016-09 during~~Topic 805, Business Combinations, and, accordingly, Edmunds’ results of operations have been consolidated in our financial statements since the ~~current fiscal year, our provision for income taxes was reduced by $8.7~~date of acquisition. We recorded a preliminary allocation of the purchase price to assets acquired and liabilities assumed based on their estimated fair values as of June 1, 2021. The transaction costs associated with the acquisition were approximately $8.0 million and ~~$13.3~~were expensed as incurred within selling, general and administrative expenses.

The following table summarizes the total purchase consideration:


(In thousands)
Total cash consideration for outstanding shares	$	251,047
Fair value of common stock (1)	90,571
Fair value of preexisting relationship	60,200
Total	$	401,818

(1) Represents the issuance of 776,097 shares of CarMax common stock to Edmunds equity holders, the fair value of which was based on the market value of CarMax common stock as of market close on the acquisition date (June 1, 2021).

In January 2020, we acquired a minority stake in Edmunds for $50 million. The noncontrolling equity investment in Edmunds was remeasured at a fair value of $60.2 million ~~for~~prior to the ~~three and nine months ended November 30, 2017, respectively. The standard requires~~acquisition of the ~~income tax effects of our share-based awards to be recognized~~remaining ownership stake on June 1, 2021, which resulted in the ~~provision for~~recognition of a gain of $8.7 million. The gain is included in other income taxes when the awards vest or are settled. Previously, these tax effects were recognized within shareholders' equity as capital in excess of par value. Additionally, cash flows related to excess tax benefits from share-based payment arrangements are now classified as operating activities, rather than financing activities, in the consolidated statements of ~~cash flows. Prior period amounts have been reclassified~~earnings.

Page 10

The following table summarizes the estimated preliminary fair values of the assets acquired and liabilities assumed at the date of the acquisition and is subject to ~~conform~~final fair value determination:


(In thousands)	Fair Value
Cash	$	9,484
Accounts receivable, net	33,719
Other current assets	2,397
Property and equipment, net	20,741
Goodwill (1)	141,258
Intangible assets	218,000
Operating lease assets	97,250
Other assets	191
Total assets acquired	523,040

Accounts payable	5,063
Accrued expenses and other current liabilities	11,277
Current portion of operating lease liabilities	12,795
Deferred income taxes (1)	3,823
Operating lease liabilities, excluding current portion	88,264
Total liabilities assumed	121,222
Net assets acquired	$	401,818

(1) During the third quarter of fiscal 2022, we obtained new information about facts and circumstances that existed as of the acquisition date, which resulted in a change in the fair value of assets and liabilities recognized. The adjustments were primarily related to ~~the current year's presentation, resulting~~research and development tax credits, which resulted in ~~an increase~~a decrease in ~~cash provided by operating activities~~goodwill and a decrease in deferred income taxes of $8.4 million.

The excess of purchase consideration over the fair value of net identifiable assets acquired and liabilities assumed was recorded as goodwill, which is primarily attributed to expected synergies and the assembled workforce of the acquired business and is not deductible for tax purposes. The fair values assigned to the net identifiable assets and liabilities assumed are based on management’s estimates and assumptions and may be subject to change as additional information is received. The primary areas that remain preliminary relate to the fair values of intangible assets acquired, certain identifiable assets and liabilities acquired, and income and non-income based taxes and residual goodwill. We expect to finalize the valuation as soon as practicable, but not later than one year from the acquisition date.

Identifiable intangible assets were recognized at their estimated acquisition date fair values. The preliminary fair value of identifiable intangible assets was determined by using certain estimates and assumptions that are not observable in the market. The preliminary fair values of the trade name asset and the internally developed software asset were determined using the relief-from-royalty method, and the preliminary fair value of the customer relationships asset was determined using the excess earnings method. These income-based approaches included significant assumptions such as the amount and timing of projected cash ~~provided by financing activities~~flows, growth rates, customer attrition rates, discount rates, and the assessment of ~~$7.1 million~~the asset’s life cycle. The preliminary estimated fair value and estimated remaining useful lives of identifiable intangible assets are as follows:


		Preliminary
(In thousands)	Useful Life (Years)	Fair Value
Trade name	Indefinite	$	31,900
Internally developed software	7	52,900
Customer relationships	17	133,200
Identifiable intangible assets		$	218,000

The operating results of Edmunds have been included in our consolidated financial statements since the date of the acquisition. Net sales and operating revenues and net earnings attributable to Edmunds were not material for the ~~nine months ended November 30, 2016.~~

~~Cash and Cash Equivalents.~~ ~~Cash equivalents~~reporting periods presented. Our pro forma results as if the acquisition had taken place on the first day of ~~approximately $0.6 million as of November 30, 2017, and $0.3 million as of February 28, 2017, consisted of highly liquid investments with original maturities of three months or less.~~

~~Restricted Cash~~fiscal 2021 would not be materially different from ~~Collections on Auto Loan Receivables.~~ Cash equivalents totaling $388.9 million as of November 30, 2017, and $380.4 million as of February 28, 2017, consisted of collections of principal, interest and fee payments on auto loan receivables that are restricted for payment to holders of non-recourse notes payable pursuant to the ~~applicable agreements.~~

~~Financing and Securitization Transactions.~~ We maintain a revolving funding program composed of three warehouse facilities (“warehouse facilities”) that we use to fund auto loan receivables originated by CAF. We typically elect to fund these receivables through an asset-backed term funding transaction, such as a term securitization or alternative funding arrangement, at a later date. We sell the auto loan receivables to one of three wholly owned, bankruptcy-remote, special purpose entities that transfer an

~~undivided percentage ownership interest~~amounts reflected in the ~~receivables, but~~accompanying consolidated financial statements, and therefore are not the receivables themselves, to entities formed by third-party investors. These entities issue asset-backed commercial paper or utilize other funding sources supported by the transferred receivables, and the proceeds are used to finance the related receivables.presented.

Page 11

We typically use term securitizations to provide long-term funding for most of the auto loan receivables initially funded through the warehouse facilities. In these transactions, a pool of auto loan receivables is sold to a bankruptcy-remote, special purpose entity that, in turn, transfers the receivables to a special purpose securitization trust. The securitization trust issues asset-backed securities, secured or otherwise supported by the transferred receivables, and the proceeds from the sale of the asset-backed securities are used to finance the securitized receivables.

We are required to evaluate term securitization trusts for consolidation. In our capacity as servicer, we have the power to direct the activities of the trusts that most significantly impact the economic performance of the trusts. In addition, we have the obligation to absorb losses (subject to limitations) and the rights to receive any returns of the trusts, which could be significant. Accordingly, we are the primary beneficiary of the trusts and are required to consolidate them.3. Revenue

We recognize transfers of auto loan receivables into the warehouse facilities and asset-backed term funding transactions, including term securitizations, (together, “non-recourse funding vehicles”) as secured borrowings, which result in recording the auto loan receivables and the related non-recourse notes payable on our consolidated balance sheets.

~~These receivables can only be used as collateral to settle obligations~~revenue when control of the related non-recourse funding vehicles. The non-recourse funding vehicles and investors have no recourse to our assets beyond the related receivables, the amounts on deposit in reserve accounts and the restricted cash from collections on auto loan receivables. We have not provided financialgood or ~~other support~~service has been transferred to the non-recourse funding vehicles that was not previously contractually required, and there are no additional arrangements, guarantees or other commitments that could require us to provide financial support to the non-recourse funding vehicles.

~~See Notes 4 and 10 for additional information on auto loan receivables and non-recourse notes payable.~~

~~Auto Loan Receivables, Net.~~ Auto loan receivables include amounts due from customers related to retail vehicle sales financed through CAF. The receivables are presented net of an allowance for estimated loan losses. The allowance for loan losses represents an estimate of the amount of net losses inherent in our portfolio of managed receivables as of the applicable reporting date and expected to become evident during the following 12 months. The allowance for loan losses is primarily based on the composition of the portfolio of managed receivables, historical loss trends and forecasted forward loss curves. For receivables that have less than 12 months of performance history, the estimate also takes into account the credit grades of the receivables and historical losses by credit grade to supplement actual loss data in estimating future performance. Once the receivables have 12 months of performance history, the estimate reflects actual loss experience of those receivables to date along with forward loss curves to predict future performance. The forward loss curves are constructed using historical performance data and show the average timing of losses over the course of a receivable’s life.

We also consider recent trends in delinquencies and defaults, recovery rates and the economic environment in assessing the models used in estimating the allowance for loan losses, and may adjust the allowance for loan losses to reflect factors that may not be captured in the models. In addition, we periodically consider whether the use of additional metrics would result in improved model performance and revise the models when appropriate. The provision for loan losses is the periodic expense of maintaining an adequate allowance.

~~An account is considered delinquent when the related~~ customer, fails to make a substantial portion of a scheduled payment on or before the due date. In general, accounts are charged-off on the last business day of the month during which the earliest of the following occurs: the receivable is 120 days or more delinquent as of the last business day of the month, the related vehicle is repossessed and liquidated, or the receivable is otherwise deemed uncollectible. For purposes of determining impairment, auto loans are evaluated collectively, as they represent a large group of smaller-balance homogeneous loans, and therefore, are not individually evaluated for impairment. See Note 4 for additional information on auto loan receivables.

Interest income and expenses related to auto loans are included in CAF income. Interest income on auto loan receivables is recognized when earned based on contractual loan terms. All loans continue to accrue interest until repayment or charge-off. 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.

~~Property and Equipment.~~ ~~Property and equipment is stated at cost less accumulated depreciation and amortization of $1.14 billion and $1.04 billion as of November 30, 2017 and February 28, 2017, respectively.~~

~~Other Assets.~~ Other assets includes amounts classified as restricted cash on deposit in reserve accounts and restricted investments. The restricted cash on deposit in reserve accounts is for the benefit of holders of non-recourse notes payable, and these funds are not expected to be available to the company or its creditors. In the event that the cash generated by the related receivables in a given period was insufficient to pay the interest, principal and other required payments, the balances on deposit in the reserve accounts would be used to pay those amounts. Restricted cash on deposit in reserve accounts is invested in money market securities or bank deposit accounts and was $56.2 million as of November 30, 2017, and $52.8 million as of February 28, 2017.

Restricted investments includes money market securities primarily held to satisfy certain insurance program requirements, as well as investments held in a rabbi trust established to fund informally our executive deferred compensation plan. Restricted investments totaled $75.7 million as of November 30, 2017, and $70.8 million as of February 28, 2017.

~~Revenue Recognition.~~ ~~We recognize revenue when the earnings process is complete,~~ generally either at the time of sale ~~to a customer~~ 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.

Disaggregation of Revenue


	Three Months Ended November 30				Nine Months Ended November 30
(In millions)	2021		2020		2021		2020
Used vehicle sales	$	6,435.6	$	4,209.7	$	18,697.3	$	11,385.2
Wholesale vehicle sales	1,922.3		828.4		4,998.2		1,990.3
Other sales and revenues:
Extended protection plan revenues	106.6		101.7		353.8		294.5
Third-party finance fees, net	1.6		(10.6)		(0.3)		(36.7)
Advertising & subscription revenues (1)	33.3		—		67.9		—
Service revenues	19.7		24.6		62.9		70.6
Other	8.7		31.1		33.9		82.0
Total other sales and revenues	169.9		146.8		518.2		410.4
Total net sales and operating revenues	$	8,527.8	$	5,184.9	$	24,213.7	$	13,785.9

(1) Excludes intersegment revenues that have been eliminated in consolidation. See Note 17 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 ~~5-day,~~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 16 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 ~~primary obligors,~~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. Periodically, we may receive additional revenue based upon the level of underwriting profits of the third parties who administer the products. These additional amounts are recognized as revenue when received. 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 78 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

Page 12

will not result in a significant revenue reversal. An estimate of the amount to which we expect to be entitled, subject to various constraints, is recognized upon satisfying the performance obligation of selling the ESP. These constraints include factors that are outside of the company’s influence or control and the length of time until settlement. We apply the expected value method, utilizing historical claims and cancellation data from CarMax customers, as well as external data and other qualitative assumptions. This estimate is reassessed each reporting period with changes reflected in other sales and revenues on our consolidated statements of earnings and other assets on our consolidated balance sheets. As of November 30, 2021 and February 28, 2021, no current or long-term contract asset was recognized related to cumulative profit-sharing payments to which we expect to be entitled.

Third-Party Finance 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.

~~We collect sales taxes~~Advertising and ~~other taxes~~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 ~~behalf of governmental authorities at~~ the ~~time of sale.~~manufacturers' websites. These ~~taxes~~fees are ~~accounted for on a net basis~~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 ~~not included in net sales and operating revenues or cost of sales.~~

~~Derivative Instruments and Hedging Activities.~~ ~~We enter into derivative instruments to manage certain risks arising from both our business operations and economic conditions that result in~~recognized over the future known receipt or payment of uncertain cash amounts, the values of which are impacted by interest rates. We recognize the derivatives at fair value on the consolidated balance sheets, and where applicable, such contracts covered by master netting agreements are reported net. Gross positive fair values are netted with gross negative fair values by counterparty. The accounting for changes in the fair value of derivatives depends on the intended use of the derivative, whether we have elected to designate a derivative in a hedging relationship and apply hedge accounting and whether the hedging relationship has satisfied the criteria necessary to apply hedge accounting. We may enter into derivative contracts that are intended to economically hedge certain risks, even though hedge accounting may not apply or we do not elect to apply hedge accounting. See Note 5 for additional information on derivative instruments and hedging activities.

~~Recent Accounting Pronouncements.~~

~~Effective in Future Periods~~.

In May 2014, the FASB issued an accounting pronouncement (FASB ASU 2014-09) related to revenue recognition. This ASU, along with subsequent ASUs issued to clarify certain provisions and the effective date of ASU 2014-09, provides a single, comprehensive revenue recognition model for all contracts with customers. The standard contains principles that an entity will apply to determine the measurement of revenue and the timing of when it is recognized. The entity will recognize revenue to reflect the transfer of goods or services to customers at an amountperiod that the entity expects to be entitled to in exchange for those goods or services. This standard will become effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017. We will adopt this standard for our fiscal year beginning March 1, 2018 and plan to apply the modified retrospective transition method with a cumulative effect adjustment, if any, recognized at the date of adoption.

While we continue to assess all potential impacts of this standard, we generally do not expect adoption of the standard to have a material impact on our consolidated financial statements. We primarily sell products and recognize revenue at the point of sale or delivery to customers, at which point the earnings process is deemed to be complete. Our performance obligationsservices are ~~clearly~~

~~identifiable and we do not anticipate significant changes~~made available to the ~~assessment of such performance obligations or the timing of our revenue recognition upon adoption of the new standard. Additionally, our conclusions related~~dealers. Subscription revenues also include a digital marketing subscription service, which allows dealers to ~~revenue that is currently~~gain exposure on third party partner websites. Revenues for this service are recognized on a net ~~basis are not expected to change under the new standard. Our primary business processes are consistent with the principles contained in the ASU,~~basis.

Service Revenues. Service revenue consists of labor and we do not expect significant changes to those processes, our internal controls or systems. The standard will require us to present our reserve for estimated sales returns on a gross basis on our consolidated balance sheets, with a return asset and a corresponding refund liability. Currently this reserve is presented as a net liability. This change will result in an estimated $10 million to $15 million increase to both assets and liabilities. The standard will require additional financial statement disclosures, the effects of which we do not expect to be significant.

~~In February 2016, the FASB issued an accounting pronouncement (FASB ASU 2016-02)~~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 ~~accounting for leases. This pronouncement requires lessees~~time the work is completed.

Other Revenues.Other revenues consist primarily of new vehicle sales and sales of accessories. Revenue in this category is recognized upon transfer of control to ~~record most leases on their balance sheet while also disclosing key information about those lease arrangements. Under~~ the new guidance, lease classification as either a finance lease or an operating lease will affect the pattern and classification of expense recognition in the income statement. The classification criteria to distinguish between finance and operating leases are generally consistent with the classification criteria to distinguish between capital and operating leases under existing lease accounting guidance. This pronouncement is effective for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2018. We expect to adopt the new standard for our fiscal year beginning March 1, 2019. A modified retrospective transition approach is required for leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements, with practical expedients available for election as a package.customer.

We expect that this standard will have a material effect on our consolidated balance sheets as a result of recognizing new right-of-use assets and lease liabilities for existing operating leases. To date, we have not completed our comprehensive analysis of those leases and are unable to quantify the impact at this time. We are still evaluating the impact of the standard on our sale-leaseback transactions currently accounted for as direct financings. We believe that the majority of our leases will maintain their current lease classification under the new standard. As a result, we do not expect the new standard to have a material effect on our expense recognition pattern or, in turn, our consolidated statements of operations. We are continuing to evaluate the full impact of the new standard, as well as its impacts on our business processes, systems, and internal controls.

3. 4. 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~~CAF’s operating results by assessing profitability, the performance of the auto ~~loan receivables~~loans receivable, including trends in credit losses and delinquencies, and CAF direct expenses. This information is used to assess ~~CAF's~~CAF’s performance and make operating decisions, including resource allocation.

We typically use securitizations or other funding arrangements to fund loans originated by ~~CAF, as discussed in Note 2.~~CAF. CAF income primarily reflects the interest and fee income generated by the auto ~~loan receivables~~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 ~~loan receivables,~~loans receivable, which are disclosed in Note 4,5, 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.

Page 13

Components of CAF Income


	Three Months Ended November 30						Nine Months Ended November 30
(In millions)	2021		% (1)	2020		% (1)	2021		% (1)	2020		% (1)
Interest margin:
Interest and fee income	$	330.0	8.6	$	288.5	8.5	$	964.4	8.7	$	851.1	8.5
Interest expense	(53.6)		(1.4)	(77.1)		(2.3)	(180.0)		(1.6)	(243.0)		(2.4)
Total interest margin	276.4		7.2	211.4		6.3	784.4		7.1	608.1		6.1
Provision for loan losses	(76.2)		(2.0)	(8.2)		(0.2)	(87.3)		(0.8)	(156.1)		(1.6)

Total interest margin after provision for loan losses	200.2		5.2	203.2		6.0	697.1		6.3	452.0		4.5

Total other expense	—		—	—		—	—		—	(2.2)		—

Direct expenses:
Payroll and fringe benefit expense	(12.7)		(0.3)	(11.6)		(0.3)	(37.7)		(0.3)	(34.2)		(0.3)
Depreciation and amortization	(2.4)		(0.1)	(0.2)		—	(2.8)		—	(0.6)		—
Other direct expenses	(19.2)		(0.5)	(15.0)		(0.4)	(48.9)		(0.4)	(40.4)		(0.4)
Total direct expenses	(34.3)		(0.9)	(26.8)		(0.8)	(89.4)		(0.8)	(75.2)		(0.7)
CarMax Auto Finance income	$	166.0	4.3	$	176.4	5.2	$	607.7	5.5	$	374.6	3.7

Total average managed receivables	$	15,288.8		$	13,517.5		$	14,706.9		$	13,381.6

(1) Annualized percentage of total average managed receivables.

Three Months Ended November 30 Nine Months Ended November 30
(In millions) 2017
% ⁽¹⁾
2016
% ⁽¹⁾
2017
% ⁽¹⁾
2016
% ⁽¹⁾
Interest margin:
Interest and fee income $ 217.1
7.6
$ 192.7
7.5
$ 637.4
7.7
$ 567.0
7.5
Interest expense (55.4 ) (2.0 ) (44.1 ) (1.7 ) (156.6 ) (1.9 ) (125.3 ) (1.7 )
Total interest margin 161.7
5.7
148.6
5.8
480.8
5.8
441.7
5.9
Provision for loan losses (37.5 ) (1.3 ) (41.9 ) (1.6 ) (99.0 ) (1.2 ) (104.2 ) (1.4 )
Total interest margin after provision for loan losses 124.2
4.4
106.7
4.1
381.8
4.6
337.5
4.5

Direct expenses:
Payroll and fringe benefit expense (8.9 ) (0.3 ) (7.5 ) (0.3 ) (26.2 ) (0.3 ) (22.9 ) (0.3 )
Other direct expenses (12.5 ) (0.4 ) (9.8 ) (0.4 ) (35.5 ) (0.4 ) (28.5 ) (0.4 )
Total direct expenses (21.4 ) (0.8 ) (17.3 ) (0.7 ) (61.7 ) (0.7 ) (51.4 ) (0.7 )
CarMax Auto Finance income $ 102.8
3.6
$ 89.4
3.5
$ 320.1
3.9
$ 286.1
3.8

Total average managed receivables $ 11,365.6

$ 10,297.8

$ 11,102.4
$ 10,030.9


⁽¹⁾	~~Annualized percentage of total average managed receivables.~~

4. 5. Auto ~~Loan Receivables~~Loans Receivable

Auto ~~loan receivables~~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 ~~loan receivables~~loans receivable originated by CAF until we elect to fund them through an asset-backed term funding ~~transaction.~~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 ~~loan receivables~~loans receivable serve as collateral for the related non-recourse notes payable of ~~$11.49~~$15.42 billion as of November 30, ~~2017~~2021 and ~~$10.74~~$13.76 billion as of February 28, ~~2017.~~2021. See ~~Notes 2 and~~Note 10 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 4 for additional information on CAF income.

Page 14

Auto ~~Loan Receivables,~~Loans Receivable, Net


	As of November 30		As of February 28
(In millions)	2021		2021
Asset-backed term funding	$	11,725.4	$	11,008.3
Warehouse facilities	3,155.9		2,314.1
Overcollateralization (1)	479.2		345.2
Other managed receivables (2)	163.5		179.6
Total ending managed receivables	15,524.0		13,847.2
Accrued interest and fees	73.7		57.4
Other	(4.0)		(3.7)
Less: allowance for loan losses	(426.5)		(411.1)
Auto loans receivable, net	$	15,167.2	$	13,489.8

As of November 30 As of February 28
(In millions) 2017 2017
Asset-backed term funding transactions $ 9,256.9
$ 8,784.7
Warehouse facilities 1,882.0
1,624.0
Overcollateralization ⁽¹⁾
263.6
211.4
Other managed receivables⁽²⁾
53.1
61.2
Total ending managed receivables 11,455.6
10,681.3
Accrued interest and fees 47.8
38.5
Other 1.1
(0.1 )
Less allowance for loan losses (127.7 ) (123.6 )
Auto loan receivables, net $ 11,376.8
$ 10,596.1


⁽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.~~

(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 rely on 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 ~~assigned a grade of “A” are determined to have~~with the highest probability of repayment ~~and customers~~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 ~~loan receivables~~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.

Ending Managed Receivables by Major Credit Grade


	As of November 30, 2021
	Fiscal Year of Origination (1)
(In millions)	2022		2021		2020		2019		2018		Prior to 2018		Total		% (2)
A	$	3,172.3	$	1,999.2	$	1,454.6	$	693.7	$	275.2	$	57.6	$	7,652.6	49.3
B	2,306.4		1,446.1		977.3		556.2		260.0		80.4		5,626.4		36.2
C and other	922.4		583.2		374.8		210.4		103.9		50.3		2,245.0		14.5
Total ending managed receivables	$	6,401.1	$	4,028.5	$	2,806.7	$	1,460.3	$	639.1	$	188.3	$	15,524.0	100.0


	As of February 28, 2021
	Fiscal Year of Origination (1)
(In millions)	2021		2020		2019		2018		2017		Prior to 2017		Total		% (2)
A	$	2,782.0	$	2,146.5	$	1,146.7	$	568.9	$	199.6	$	30.4	$	6,874.1	49.6
B	1,993.6		1,424.5		870.1		476.0		195.5		49.2		5,008.9		36.2
C and other	786.1		541.6		320.4		182.0		99.8		34.3		1,964.2		14.2
Total ending managed receivables	$	5,561.7	$	4,112.6	$	2,337.2	$	1,226.9	$	494.9	$	113.9	$	13,847.2	100.0

(1) Classified based on credit grade assigned when customers were initially approved for financing.

(2) Percent of total ending managed receivables.

Page 15

As of November 30 As of February 28
(In millions)
2017⁽¹⁾

% ⁽²⁾

2017⁽¹⁾

% ⁽²⁾
A $ 5,630.3
49.2 $ 5,223.4
48.9
B 4,069.1
35.5 3,739.4
35.0
C and other 1,756.2
15.3 1,718.5
16.1
Total ending managed receivables $ 11,455.6
100.0 $ 10,681.3
100.0


⁽¹⁾	~~Classified based on credit grade assigned when customers were initially approved for financing.~~


⁽²⁾	~~Percent of total ending managed receivables.~~

Allowance for Loan ~~Losses~~

Three Months Ended November 30 Nine Months Ended November 30
(In millions) 2017
%⁽¹⁾
2016
%⁽¹⁾
2017
%⁽¹⁾
2016
%⁽¹⁾
Balance as of beginning of period $ 129.5
1.15 $ 109.7
1.08 $ 123.6
1.16 $ 94.9
0.99
Charge-offs (68.8 ) (62.9 )
(183.3 ) (164.6 )
Recoveries 29.5
26.1

88.4
80.3

Provision for loan losses 37.5
41.9

99.0
104.2

Balance as of end of period $ 127.7
1.11 $ 114.8
1.10 $ 127.7
1.11 $ 114.8
1.10


⁽¹⁾	~~Percentof total ending managed receivables.~~

Losses.The allowance for loan losses at November 30, 2021 represents ~~an estimate~~the net credit losses expected over the remaining contractual life of ~~the amount of net losses inherent in~~ our ~~portfolio of~~ managed ~~receivables as of the applicable reporting date and anticipated to occur during the following 12 months.~~receivables. The allowance for loan losses is determined using a net loss timing curve, primarily based on the composition of the portfolio of managed receivables and historical gross loss ~~trends~~ and ~~forecasted~~recovery trends. Due to the fact that losses for receivables with less than 18 months of performance history can be volatile, our net loss estimate weights both historical losses by credit grade at origination and actual loss data on the receivables to-date, along with forward loss ~~curves. We also~~curves, in estimating future performance. Once the receivables have 18 months of performance history, the net loss estimate reflects actual loss experience of those receivables to date, along with forward loss curves, to predict future performance. The forward loss curves are constructed using historical performance data and show the average timing of losses over the course of a receivable’s life. The net loss estimate is calculated by applying the loss rates developed using the methods described above to the amortized cost basis of the managed receivables.

The output of the net loss timing curve is adjusted to take into account ~~recent trends~~reasonable and supportable forecasts about the future. Specifically, the change in ~~delinquencies and defaults, recovery~~U.S. unemployment rates and the National Automobile Dealers Association (“NADA”) used vehicle price index are used to predict changes in gross loss and recovery rate, respectively. An economic ~~environment.~~adjustment factor, based upon a single macroeconomic scenario, is developed to capture the relationship between changes in these forecasts and changes in gross loss and recovery rates. This factor is applied to the output of the net loss timing curve for the reasonable and supportable forecast period of two years. After the end of this two-year period, we revert to historical experience on a straight-line basis over a period of 12 months. We periodically consider whether the use of alternative metrics would result in improved model performance and revise the models when appropriate. We also consider whether qualitative adjustments are necessary for factors that are not reflected in the quantitative methods but impact the measurement of estimated credit losses. Such adjustments include the uncertainty of the impacts of recent economic trends on customer behavior. The ~~provision~~change in the allowance for loan losses is recognized through an adjustment to the ~~periodic expense~~ provision for loan losses.

Allowance for Loan Losses


	Three Months Ended November 30						Nine Months Ended November 30
(In millions)	2021		% (1)	2020		% (1)	2021		% (1)	2020		% (1)
Balance as of beginning of period	$	398.1	2.66	$	432.5	3.23	$	411.1	2.97	$	157.8	1.16
Adoption of CECL	—			—			—			202.0
Adjusted balance as of beginning of period	398.1		2.66	432.5		3.23	411.1		2.97	359.8		2.64
Charge-offs	(68.2)			(49.9)			(153.7)			(174.5)
Recoveries (2)	20.4			40.8			81.8			90.2
Provision for loan losses	76.2			8.2			87.3			156.1
Balance as of end of period (3)	$	426.5	2.75	$	431.6	3.17	$	426.5	2.75	$	431.6	3.17

(1) Percentof ~~maintaining an adequate allowance.~~total ending managed receivables.

(2) Net of costs incurred to recover vehicle.

(3) The allowance for loan losses primarily relates to estimated losses on CAF’s core receivables; $40.8 million and $31.8 million of the total allowance relates to the outstanding CAF Tier 3 loan balances as of November 30, 2021 and February 28, 2021, respectively.

During the first nine months of fiscal 2022, the allowance for loan losses increased $15.4 million, primarily reflecting growth in receivables, partially offset by favorable loan loss performance during the year. Although net charge-offs remained low in the first nine months of fiscal 2022, the future impact of the COVID-19 environment on credit losses remains uncertain. As a result, we determined that the quantitative loss rates should be qualitatively adjusted to reflect future loss performance from potential customer hardship and to mitigate the quantitative impact of recent favorable loss performance, as we do not believe the favorable loss performance this fiscal year is consistent with our best estimate of expected future losses. The allowance for loan losses as of November 30, 2021 reflects both the positive customer payment behavior compared to historical experience recently observed as well as the unpredictability of the current macroeconomic environment.

Past Due Receivables. An account is considered delinquent when the related customer fails to make a substantial portion of a scheduled payment on or before the due date. In general, accounts are charged-off on the last business day of the month during which the earliest of the following occurs: the receivable is 120 days or more delinquent as of the last business day of the month, the related vehicle is repossessed and liquidated, or the receivable is otherwise deemed uncollectible. For purposes of determining impairment, auto loans are evaluated collectively, as they represent a large group of smaller-balance homogeneous loans, and therefore, are not individually evaluated for impairment.

Page 16

Past Due Receivables


	As of November 30, 2021
	Major Credit Grade
(In millions)	A		B		C & Other		Total		% (1)
Current	$	7,617.6	$	5,373.2	$	1,938.8	$	14,929.6	96.17
Delinquent loans:
31-60 days past due	23.0		160.4		179.7		363.1		2.34
61-90 days past due	9.2		74.5		102.3		186.0		1.20
Greater than 90 days past due	2.8		18.3		24.2		45.3		0.29
Total past due	35.0		253.2		306.2		594.4		3.83
Total ending managed receivables	$	7,652.6	$	5,626.4	$	2,245.0	$	15,524.0	100.00


	As of February 28, 2021
	Major Credit Grade
(In millions)	A		B		C & Other		Total		% (1)
Current	$	6,847.2	$	4,840.3	$	1,767.2	$	13,454.7	97.17
Delinquent loans:
31-60 days past due	17.3		108.9		120.0		246.2		1.78
61-90 days past due	7.0		48.4		64.5		119.9		0.86
Greater than 90 days past due	2.6		11.3		12.5		26.4		0.19
Total past due	26.9		168.6		197.0		392.5		2.83
Total ending managed receivables	$	6,874.1	$	5,008.9	$	1,964.2	$	13,847.2	100.00

(1) Percent of total ending managed receivables.

~~Impact of Inflation.~~ Historically, inflation has not had a significant impact on results. Profitability is primarily affected by our ability to achieve targeted unit sales and gross profit dollars per vehicle rather than by changes in average retail prices. However, changes in average vehicle selling prices impact CAF income, to the extent the average amount financed also changes.

SG&A Expenses

COMPONENTS OF SG&A EXPENSES AS A PERCENTAGE OF TOTAL SG&A EXPENSES

Three Months Ended November 30 Nine Months Ended November 30
(In millions except per unit data) 2017 2016 Change 2017 2016 Change
Compensation and benefits⁽¹⁾
$ 209.8
$ 182.2
15.1 % $ 650.4
$ 598.1
8.7 %
Store occupancy costs 86.0
75.8
13.4 % 250.9
222.6
12.7 %
Advertising expense 36.5
34.8
4.9 % 114.3
104.1
9.8 %
Other overhead costs⁽²⁾
67.4
63.9
5.4 % 192.6
178.3
8.0 %
Total SG&A expenses $ 399.7
$ 356.7
12.0 % $ 1,208.2
$ 1,103.1
9.5 %
SG&A per used vehicle unit ⁽³⁾
$ 2,356
$ 2,275
$ 81
$ 2,193
$ 2,227
$ (34 )
Three Months Ended November 30, 2021 Nine Months Ended November 30, 2021


⁽¹⁾	~~Excludes compensation and benefits related to reconditioning and vehicle repair service, whichareincluded in cost of sales. See Note 11 for details of share-based compensation expense by grant type.~~


⁽²⁾	~~Includes IT expenses, preopening and relocation costs, insurance, travel, non-CAF bad debt, charitable contributions and other administrative expenses.~~


⁽³⁾	~~Calculated as total SG&A expenses divided by total used vehicle units.~~

COMPONENTS OF SG&A EXPENSES COMPARED WITH PRIOR PERIOD(1) (2)


	Three Months Ended November 30								Nine Months Ended November 30
(In millions except per unit data)	2021			2020			Change		2021			2020			Change
Compensation and benefits:
Compensation and benefits, excluding share-based compensation expense	$	308.3		$	230.8		33.6	%	$	891.8		$	661.3		34.9	%
Share-based compensation expense	33.3			10.7			210.7	%	100.5			68.7			46.3	%
Total compensation and benefits (3)	$	341.6		$	241.5		41.4	%	$	992.3		$	730.0		35.9	%
Occupancy costs	59.3			53.8			10.3	%	165.0			152.4			8.3	%
Advertising expense	76.1			58.8			29.4	%	233.6			143.8			62.5	%
Other overhead costs (4)	98.9			76.7			29.1	%	313.4			171.4			82.8	%
Total SG&A expenses	$	575.9		$	430.8		33.7	%	$	1,704.3		$	1,197.6		42.3	%
SG&A as % of gross profit	68.8		%	68.2		%	0.6	%	66.1		%	68.9		%	(2.8)	%

(1) Depreciation and amortization previously included in SG&A expenses is now separately presented and is excluded from this table. Prior period amounts have been reclassified to conform to the current period’s presentation.

(2) Amounts are net of intercompany eliminations.

(3) Excludes compensation and benefits related to reconditioning and vehicle repair service, whichareincluded in cost of sales. See Note 11 for details of share-based compensation expense by grant type.

(4) Includes IT expenses, non-CAF bad debt, insurance, preopening and relocation costs, charitable contributions, travel and other administrative expenses.

SG&A expenses increased ~~12.0%~~33.7% in the third quarter of fiscal 2018. The increase primarily reflected the 13% growth in our store base since the beginning of last year’s third quarter (representing the addition of 21 stores) and an increase of $8.0 million, or $42 per unit, approximately half of which was related2022. Factors contributing to the ~~accrual for~~increase include the ~~company's incentive pay and half due to higher share-based compensation expense.~~following:

SG&A expenses increased 9.5% in the first nine months of fiscal 2018. The increase primarily reflected the 16% growth in our store base, from 158 used car stores as of the beginning of fiscal 2017 to 184 as of November 30, 2017; a $20.7•$77.5 million increase in ~~the incentive pay accrual;~~compensation and ~~higher variable costs associated with our comparable store unit growth. These increases were partially offset by a $19.1 million decrease in share-based compensation expense. The decrease in~~benefits expense, excluding share-based compensation expense, ~~was a result of higher expenses associated with equity awards granted~~driven by increased staffing and ~~modified in connection with the retirement of our former chief executive officer in fiscal 2017~~sales growth as well as ~~a decrease~~the inclusion of Edmunds in the current quarter.

•$22.6 million increase in stock-based compensation expense, primarily related to cash-settled restricted stock units, ~~in fiscal 2018. The~~as the expense associated with these units was primarily driven by the change in the company's stock price during the relevant periods. ~~In addition, we experienced some timing favorability~~

•$17.3 million increase in advertising expense driven by our previously communicated investment in advertising spend.

•$22.2 million increase in other overhead costs, which included a $22.6 million one-time benefit related to ~~planned spending on~~the receipt of settlement proceeds in a class action lawsuit during the current quarter. The remainder of the change reflects investments to advance our technology platforms and support our strategic initiatives as well as cost-reduction actions taken in response to the pandemic in the prior year quarter.

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SG&A expenses increased 42.3% in the first nine months of fiscal 2022. Factors contributing to the increase include the following:

•$230.5 million increase in compensation and ~~marketing, some~~benefits expense, excluding share-based compensation expense, driven by increased staffing, sales growth and the addition of ~~which we believe may materialize~~Edmunds during the current year as well as cost-reduction actions taken in response to the pandemic in the prior year period.

•$31.8 million increase in stock-based compensation expense, primarily related to cash-settled restricted stock units, as the expense associated with these units was primarily driven by the change in the company's stock price during the relevant periods.

•$89.8 million increase in advertising expense driven by our previously communicated investment in advertising spend.

•$142.0 million increase in other overhead costs, primarily reflecting investments to advance our technology platforms and support our strategic initiatives as well as cost-reduction actions taken in response to the pandemic in the prior year period. The current year period included a $22.6 million one-time benefit related to the receipt of settlement proceeds in a class action lawsuit while the prior year period included a one-time benefit of $40.3 million related to the receipt of settlement proceeds in a class action lawsuit.

Our intention is to lever SG&A as a percentage of gross profit for both the full year and fourth ~~quarter. Both periods included increased spending on strategic initiatives.~~quarter of fiscal 2022.

Interest Expense. Interest expense includes the interest related to short- and long-term debt, financing obligations and finance ~~and capital~~ lease obligations. It does not include interest on the non-recourse notes payable, which is reflected within CAF income.

Interest expense ~~rose to $17.4~~of $24.3 million ~~in the third quarter of fiscal 2018, from $15.1~~and $67.2 million in ~~the third quarter of fiscal 2017. The increase primarily reflected higher outstanding debt in fiscal 2018 and a reduction in capitalized interest.~~

Interest expense rose to $51.1 million in the first nine months of fiscal 2018, from $40.1 million in the prior year period. The increase reflected the combined effects of higher outstanding debt levels, growth in our finance and capital lease obligations and a reduction in capitalized interest.

~~Income Taxes.~~ The effective income tax rate was 33.9% in the third quarter of fiscal 2018 and 36.5% in the first nine months of fiscal 2018 versus 37.8% and 37.9%, respectively, in the corresponding periods of fiscal 2017. For the third quarter and first nine months of fiscal ~~2018, our provision for income taxes~~2022, respectively, was ~~reduced by $8.7~~relatively consistent with $19.5 million and ~~$13.3~~$65.9 million in the third quarter and first nine months of fiscal 2021, respectively.

Other (Income) Expense. Other income was $8.1 million and $35.5 million in the third quarter and first nine months of fiscal 2022, respectively, compared with $0.9 million and expense of $0.7 million in the third quarter and first nine months of fiscal 2021, respectively. The increase for the nine-month period was primarily due to ~~the adoption of Financial Accounting Standards Board (“FASB”) Accounting Standards Update (“ASU”) 2016-09~~net gains on ~~share-based compensation.~~an equity investment recorded during fiscal 2022.

Income Taxes. The ~~standard requires the~~effective income tax ~~effects of our share-based awards to be recognized~~rate was 24.3% in the ~~provision for income taxes when~~third quarter of fiscal 2022 and 23.2% in the ~~awards vest or are settled. Previously, these tax effects were recognized within shareholders’ equity as capital~~first nine months of fiscal 2022 versus 24.2% in ~~excess~~the third quarter of ~~par value. We have adopted this provision~~fiscal 2021 and 23.6% in the first nine months of ~~the standard on a prospective basis.~~fiscal 2021.

RESULTS OF OPERATIONS – CARMAX AUTO FINANCE

CAF income primarily reflects ~~the~~ interest and fee income generated by CAF’s portfolio of auto ~~loan receivables~~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. Total interest margin reflects the spread between interest and fees charged to consumers and our funding costs. Changes in the interest margin on new originations affect CAF income over time. Increases in interest rates, which affect CAF’s funding costs, or other competitive pressures on consumer rates, could result in compression in the interest margin on new originations. Changes in the allowance for loan losses as a percentage of ending managed receivables reflect the effect of changes in loss and delinquency experience and economic factors on our outlook for net losses expected to occur over the remaining contractual life of the loans receivable.

CAF’s managed portfolio is composed primarily of loans originated over the past several years. Trends in receivable growth and interest margins primarily reflect the cumulative effect of changes in the business over a multi-year period. Historically, we have sought to originate loans with an underlying risk profile that we believe will, in the aggregate and excluding CAF’s Tier 2 and Tier 3 originations, result in cumulative net losses in the 2% to 2.5% range over the life of the loans. Actual loss performance of the loans may fall outside of this range based on various factors, including intentional changes in the risk profile of originations, economic conditions (including the effects of COVID-19) and wholesale recovery rates. Current period originations reflect current trends in both our retail sales and the CAF business, including the volume of loans originated, current interest rates charged to consumers, loan terms and average credit scores. Loans originated in a given fiscal period impact CAF income over time, as we recognize income over the life of the underlying auto loan.

CAF’s managed portfolio is composed primarily of loans originated over the past several years. Trends in receivable growth and interest margins primarily reflect the cumulative effect of changes in the business over a multi-year period. We strive to originate loans with an underlying risk profile that we believe will, in the aggregate and excluding CAF's Tier 3 originations, result in cumulative net losses in the 2% to 2.5% range over the life of the loans. Actual loss performance of the loans may fall outside of this range based on various factors, including intentional changes in the risk profile of originations, economic conditions and wholesale recovery rates. Current period originations reflect current trends in both our retail sales and the CAF business, including the volume of loans originated, current interest rates charged to consumers, loan terms and average credit scores. Because we recognize CAF income over the life of the underlying auto loan, loans originated in a given fiscal period generally do not have a significant effect on that period’s financial results.

See Note 34 for additional information on CAF income and Note 45 for information on auto ~~loan receivables,~~loans receivable, including credit quality.

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SELECTED CAF FINANCIAL INFORMATION


	Three Months Ended November 30						Nine Months Ended November 30
(In millions)	2021		% (1)	2020		% (1)	2021		% (1)	2020		% (1)
Interest margin:
Interest and fee income	$	330.0	8.6	$	288.5	8.5	$	964.4	8.7	$	851.1	8.5
Interest expense	(53.6)		(1.4)	(77.1)		(2.3)	(180.0)		(1.6)	(243.0)		(2.4)
Total interest margin	$	276.4	7.2	$	211.4	6.3	$	784.4	7.1	$	608.1	6.1
Provision for loan losses	$	(76.2)	(2.0)	$	(8.2)	(0.2)	$	(87.3)	(0.8)	$	(156.1)	(1.6)
CarMax Auto Finance income	$	166.0	4.3	$	176.4	5.2	$	607.7	5.5	$	374.6	3.7


⁽¹⁾	~~Annualized percentage of total average managed receivables.~~

(1) Annualized percentage of total average managed receivables.

CAF ORIGINATION INFORMATION (AFTER THE IMPACT OF 3-DAY PAYOFFS)


	Three Months Ended November 30						Nine Months Ended November 30
	2021			2020			2021			2020
Net loans originated (in millions)	$	2,420.3		$	1,824.9		$	7,276.1		$	4,607.8
Vehicle units financed	95,997			88,952			314,031			230,296
Net penetration rate (1)	42.2		%	45.7		%	43.0		%	42.1		%
Weighted average contract rate	8.3		%	8.6		%	8.6		%	8.4		%
Weighted average credit score (2)	706			702			702			706
Weighted average loan-to-value (LTV) (3)	88.0		%	92.0		%	89.2		%	92.1		%
Weighted average term (in months)	66.0			66.2			66.5			66.0

Three Months Ended November 30 Nine Months Ended November 30
2017 2016 2017 2016
Net loans originated (in millions)
$ 1,454.5
$ 1,339.1
$ 4,542.8
$ 4,217.7
Vehicle units financed 74,914
70,513
237,677
221,495
Net penetration rate ⁽¹⁾
44.2 % 45.0 % 43.1 % 44.7 %
Weighted average contract rate 7.7 % 7.3 % 7.7 % 7.4 %
Weighted average credit score⁽²⁾
708
707
707
705
Weighted average loan-to-value (LTV) ⁽³⁾
95.1 % 95.5 % 95.0 % 95.0 %
Weighted average term (in months)
65.8
65.8
65.8
65.8

(1) Vehicle units financed as a percentage of total used units sold.

⁽¹⁾

(2) The credit scores represent FICO® scores and reflect only receivables with obligors that have a FICO® score at the time of application. The FICO® score with respect to any receivable with co-obligors is calculated as the average of each obligor’s FICO® score at the time of application. FICO® scores are not a significant factor in our primary scoring model, which relies on information from credit bureaus and other application information as discussed inNote 5. FICO® is a federally registered servicemark of Fair Isaac Corporation.

(3) LTV represents the ratio of the amount financed to the total collateral value, which is measured as the vehicle selling price plus applicable taxes, title and fees.

~~Vehicle units financed as a percentage of total used units sold.~~

⁽²⁾

The credit scores represent FICO® scores and reflect only receivables with obligors that have a FICO® score at the time of application. The FICO® score with respect to any receivable with co-obligors is calculated as the average of each obligor’s FICO® score at the time of application. FICO® scores are not a significant factor in our primary scoring model, which relies on information from credit bureaus and other application information as discussed in~~Note 4. FICO® is a federally registered servicemark of Fair Isaac Corporation.~~


⁽³⁾	~~LTV represents the ratio of the amount financed to the total collateral value, which is measured as the vehicle selling price plus applicable taxes, title and fees.~~

LOAN PERFORMANCE INFORMATION


	As of and for the Three Months Ended November 30						As of and for the Nine Months Ended November 30
(In millions)	2021			2020			2021			2020
Total ending managed receivables	$	15,524.0		$	13,636.1		$	15,524.0		$	13,636.1
Total average managed receivables	$	15,288.8		$	13,517.5		$	14,706.9		$	13,381.6
Allowance for loan losses	$	426.5		$	431.6		$	426.5		$	431.6
Allowance for loan losses as a percentage of ending managed receivables	2.75		%	3.17		%	2.75		%	3.17		%
Net credit losses on managed receivables	$	47.8		$	9.1		$	71.9		$	84.3
Annualized net credit losses as a percentage of total average managed receivables	1.25		%	0.27		%	0.65		%	0.84		%
Past due accounts as a percentage of ending managed receivables	3.83		%	2.93		%	3.83		%	2.93		%
Average recovery rate (1)	71.9		%	55.6		%	67.3		%	53.2		%

L~~OAN~~ P~~ERFORMANCE~~ I~~NFORMATION~~

(1) The average recovery rate represents the average percentage of the outstanding principal balance we receive when a vehicle is repossessed and liquidated, generally at our wholesale auctions. While in any individual period conditions may vary, over the past 10 fiscal years, the annual recovery rate has ranged from a low of 46% to a high of 60%, and it is primarily affected by the wholesale market environment.

Page 42

As of and for the Three Months Ended
November 30 As of and for the Nine Months Ended
November 30
(In millions) 2017 2016 2017 2016
Total ending managed receivables $ 11,455.6
$ 10,407.7
$ 11,455.6
$ 10,407.7
Total average managed receivables $ 11,365.6
$ 10,297.8
$ 11,102.4
$ 10,030.9
Allowance for loan losses ⁽¹⁾
$ 127.7
$ 114.8
$ 127.7
$ 114.8
Allowance for loan losses as a percentage of ending managed receivables 1.11 % 1.10 % 1.11 % 1.10 %
Net credit losses on managed receivables $ 39.3
$ 36.8
$ 94.9
$ 84.3
Annualized net credit losses as a percentage of total average managed receivables 1.38 % 1.43 % 1.14 % 1.12 %
Past due accounts as a percentage of ending managed receivables 3.54 % 3.46 % 3.54 % 3.46 %
Average recovery rate⁽²⁾
45.8 % 46.2 % 46.4 % 48.2 %
•CAF Income (Decrease of $10.4 million, or 5.9%, and increase of $233.1 million, or 62.2%, in the third quarter and first nine months of fiscal 2022, respectively)


⁽¹⁾	~~The allowance for loan losses represents an estimate of the amount of net losses inherent~~◦The decrease in ~~our portfolio of managed receivables as of the applicable reporting date and anticipated to occur during the following 12 months.~~


⁽²⁾	The average recovery rate represents the average percentage of the outstanding principal balance we receive when a vehicle is repossessed and liquidated, generally at our wholesale auctions. The annual recovery rate has ranged from a low of 42% to a high of 60%, and it is primarily affected by changes in the wholesale market pricing environment.

CAF income ~~increased 15.1% in~~for the third quarter of fiscal ~~2018 and 11.9% in the first nine months of the year. The increase was due to~~2022 reflects an increase ~~in average managed receivables and a decline~~ in the provision for loan losses, ~~slightly~~partially offset by ~~a lower~~increases in the total interest margin ~~percentage. Average~~percentage and average managed ~~receivables grew 10.4% and 10.7%~~receivables.

◦The increase in ~~the third quarter and~~CAF income for the first nine months of fiscal ~~2018, respectively, driven primarily by~~2022 reflects increases in the ~~rise~~total interest margin percentage and average managed receivables as well as a decrease in the provision for loan losses.

◦During the third quarter of fiscal 2022, CAF ~~loan originations~~completed the conversion of its auto-loan servicing system, resulting in ~~recent years.~~ approximately $5 million of conversion-related costs incurred during the quarter.

◦The ~~growth~~increase in net loan originations in both the third quarter and ~~the~~ first nine months of fiscal ~~2018~~2022 resulted from ~~our used vehicle sales growth and~~ an increase in the average amount financed ~~partially offset by a decrease in CAF's penetration rate.~~as well as our used unit sales growth.

~~The total interest margin, which reflects the spread between interest~~•Provision for Loan Losses ($76.2 million and fees charged to consumers and our funding costs, declined as a percentage of average managed receivables to 5.7% in the third quarter and 5.8% in the first nine months of fiscal 2018 from 5.8% and 5.9%, respectively, in the corresponding periods of fiscal 2017. This was the result of gradual compression of the spread between rates charged to consumers and our funding costs in recent years. Changes in the interest margin on new originations affect CAF income over time. Continued increases in interest rates, which affect CAF’s funding costs, or other competitive pressures on consumer rates, could result in further compression in the interest margin on new originations.

~~The provision for loan losses declined to $37.5~~$87.3 million in the third quarter and ~~$99.0 million in the~~ first nine months of fiscal ~~2018, from $41.9~~2022, respectively, compared with $8.2 million and ~~$104.2~~$156.1 million ~~respectively,~~ in ~~the corresponding prior year periods. The prior year's provision was affected by rising loss experience, while losses were generally consistent with expectations in both~~ the third quarter and ~~the~~ first nine months of fiscal ~~2018. As~~2021, respectively)

◦The current quarter provision primarily reflected the expected lifetime losses on loans originated during the quarter, while the prior year quarter provision reflected the continued reduction of the reserve that was established at the start of the COVID-19 pandemic. This reduction continued into the fourth quarter of fiscal 2021 as well as the first quarter and, to a ~~result,~~lesser extent, the second quarter of fiscal 2022.

◦The allowance for loan losses as a percentage of ending managed receivables was ~~1.11%~~2.75% as of November 30, ~~2017,~~2021, compared with ~~1.16% as of February 28, 2017 and 1.10%~~3.17% as of November 30, ~~2016. Changes~~2020 and 2.66% as of August 31, 2021.

◦The current quarter provision also included a six basis point adjustment for added Tier 2 and Tier 3 originations. The adjustment was primarily driven by the implementation of our Tier 2 origination test described below.

◦The change in the ~~allowance~~provision for ~~loan losses~~the nine-month period was primarily driven by reserve increases during the first quarter of fiscal 2021 associated with deterioration in the macroeconomic environment resulting from the COVID-19 pandemic.

•Total Interest Margin (Increased to 7.2% and 7.1% in the third quarter and first nine months of fiscal 2022, respectively, from 6.3% and 6.1% in the third quarter and first nine months of fiscal 2021, respectively)

◦The increase in the total interest margin percentage was primarily the result of lower funding costs as ~~a percentage of ending managed receivables reflect the effect of the change in loss~~well as higher interest and ~~delinquency experience on our outlook for net losses expected to occur over the next 12 months.~~fees from consumers.

Tier 3 Loan Originations. CAF also originates a small portion of auto loans to customers who typically would be financed by our Tier 3 finance providers, in order to better understand the performance of these loans, mitigate risk and add incremental profits. Historically, CAF ~~currently targets~~targeted originating approximately 5% of the total Tier 3 loan ~~volume; however, this rate may vary over time based on market conditions.~~volume. During the first quarter of fiscal 2022, we began to increase our Tier 3 loan volume beyond our target of 5% of total Tier 3 loan volume to 10% by the end of the first quarter of fiscal 2022. Additionally, in the second quarter of fiscal 2022 CAF began to test loan originations in the Tier 2 space. Any future adjustments in Tier 2 and Tier 3 will consider the broader lending environment along with the long-term sustainability of the change. A total of ~~$142.2~~$177.4 million and ~~$123.3~~$147.7 million in CAF Tier 3 receivables were outstanding as of November 30, ~~2017~~2021 and February 28, ~~2017,~~2021, respectively. These loans have higher loss and delinquency rates than the remainder of the CAF portfolio, as well as higher contract rates. As of November 30, ~~2017~~2021 and February 28, ~~2017,~~2021, approximately 10% of the total allowance for loan losses related to the outstanding CAF Tier 3 loan balances.

PLANNED FUTURE ACTIVITIES

We ~~currently plan to open 15~~anticipate opening a total of ten stores in fiscal ~~2018~~2022. These stores will predominantly be cross functional stores that have a smaller footprint and ~~between 13~~can leverage our scale and 16the presence of our larger format stores in ~~fiscal 2019.~~nearby markets. We currently estimate capital expenditures will total approximately ~~$325~~$350 million in fiscal ~~2018 versus $412~~2022. We expect nearly $100 million ~~in fiscal 2017. The decrease in planned capital spending primarily reflects reduced spending on construction and land acquisitions resulting from changes in the mix~~ of ~~markets in which stores are being built.~~

~~We currently plan to open the following stores within 12 months from November 30, 2017. During~~ this ~~period, we~~spend will be ~~entering eight new television markets and expanding our presence~~focused on investments in seven existing television markets. Of the 15 stores we plan to open during the 12 months ending November 30, 2018, 12 will be in Metropolitan Statistical Areas having populations of 600,000 or less, which we define as small markets.technology.

P~~LANNED~~ S~~TORE~~ O~~PENINGS~~ ~~– NEXT~~ ~~12 MONTHS~~



~~Location~~	~~Television Market~~	~~Metropolitan Statistical Area~~	~~Planned Opening Date~~
~~Myrtle Beach, South Carolina~~ ⁽¹⁾	~~Myrtle Beach/Florence~~ ⁽²⁾	~~Myrtle Beach~~	~~Q4 Fiscal 2018~~
~~South Portland, Maine~~	~~Portland/Auburn~~ ⁽²⁾	~~Portland~~	~~Q4 Fiscal 2018~~
~~Manchester, New Hampshire~~	~~Boston~~	~~Manchester~~	~~Q4 Fiscal 2018~~
~~Golden, Colorado~~	~~Denver~~	~~Denver/Aurora~~	~~Q4 Fiscal 2018~~
~~Winterville, North Carolina~~	~~Greenville/New Bern/Washington~~⁽²⁾	~~Greenville~~	~~Q1 Fiscal 2019~~
~~McKinney, Texas~~	~~Dallas/Ft. Worth~~	~~Dallas/Ft. Worth~~	~~Q1 Fiscal 2019~~
~~Jensen Beach, Florida~~	~~Miami/Ft. Lauderdale/W. Palm Beach~~	~~Port St. Lucie~~	~~Q1 Fiscal 2019~~
~~Santa Fe, New Mexico~~	~~Albuquerque/Santa Fe~~	~~Santa Fe~~	~~Q2 Fiscal 2019~~
~~Warner Robins, Georgia~~	~~Macon~~ ⁽²⁾	~~Warner Robins~~	~~Q2 Fiscal 2019~~
~~Norman, Oklahoma~~	~~Oklahoma City~~	~~Oklahoma City~~	~~Q2 Fiscal 2019~~
~~Wilmington, North Carolina~~	~~Wilmington~~ ⁽²⁾	~~Wilmington~~	~~Q3 Fiscal 2019~~
~~Lafayette, Louisiana~~	~~Lafayette~~ ⁽²⁾	~~Lafayette~~	~~Q3 Fiscal 2019~~
~~Corpus Christi, Texas~~	~~Corpus Christi~~ ⁽²⁾	~~Corpus Christi~~	~~Q3 Fiscal 2019~~
~~Shreveport, Louisiana~~	~~Shreveport~~⁽²⁾	~~Shreveport~~	~~Q3 Fiscal 2019~~
~~Melbourne, Florida~~	~~Orlando/Daytona Beach~~	~~Palm Bay/Melbourne~~	~~Q3 Fiscal 2019~~


⁽¹⁾	~~Store opened in December 2017.~~


⁽²⁾	~~Represents new television market as of planned store opening date.~~

~~Normal construction, permitting or other scheduling delays could shift the opening dates of any of these stores into a later period.~~

FINANCIAL CONDITION

Liquidity and Capital Resources.

Our primary ongoing cash requirements are to fund our existing operations, store expansion and improvement, CAF and ~~CAF.~~strategic growth initiatives. Since fiscal 2013, we have also elected to use cash for our share repurchase program. 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.

Page 43

Our current capital allocation strategy is to focus on our core business, including investing in digital capabilities and the strategic expansion of our store footprint, pursue new growth opportunities through investments, partnerships and acquisitions and return excess capital to shareholders. Given the year-over-year improvement in our business and overall macroeconomic conditions, the strength of the credit markets and our solid balance sheet, we believe we have the appropriate liquidity, access to capital and financial strength to support our operations and continue investing in our strategic initiatives for the foreseeable future.

On June 1, 2021, we completed our acquisition of Edmunds for a total purchase price of $401.8 million, inclusive of our initial investment. The consideration paid at closing included a combination of cash and shares of CarMax common stock. See Note 2 for additional information.

We currently target an adjusted debt-to-total capital ratio in a range of 35% to 45%. Our adjusted debt to capital ratio, net of cash on hand, was at the middle of our targeted range for the third quarter of fiscal 2022. In calculating this ratio, we utilize total debt excluding non-recourse notes payable, finance lease liabilities, a multiple of 8eight times rent expense and total ~~shareholders'~~shareholders’ equity. WeGenerally, we expect to use our revolving credit facility and other financing sources, together with stock repurchases, to maintain this targeted ratio; however, in any period, we may be outside this range due to seasonal, market, strategic or other factors.

Operating Activities. During the first nine months of fiscal ~~2018,~~2022, net cash used in operating activities totaled ~~$193.1 million,~~$2.08 billion, compared with ~~$336.0~~cash provided by operating activities of $868.4 million in the prior year period. ~~The net~~Our operating cash ~~used in operating activities included increases~~flows are significantly impacted by changes in auto ~~loan receivables of $879.7 million~~loans receivable, which increased $1.76 billion in the current year period ~~and $900.7~~compared with $73.8 million in the prior year period.

The majority of the ~~increases~~changes in auto ~~loan receivables~~loans receivable are accompanied by ~~increases~~changes in non-recourse notes payable, which are issued to fund auto loans originated by CAF. Net issuances of non-recourse notes payable were $1.65 billion in the current year period compared with $7 thousand in the prior year period and are separately reflected as cash from financing activities. Due to the presentation differences between auto loans receivable and non-recourse notes payable on the consolidated statements of cash flows, fluctuations in these amounts can have a significant impact on our operating and financing cash flows without affecting our overall liquidity, working capital or cash flows.

As of November 30, ~~2017,~~2021, total inventory was ~~$2.44~~$4.66 billion, representing an increase of ~~$180.0 million, or 8.0%,~~$1.50 billion compared with the balance as of the start of the fiscal year. The increase was primarily ~~reflected the addition of inventory~~due to ~~support store openings in fiscal 2018 as well as~~ an increase in the average carrying cost of inventory ~~due to~~as a result of higher acquisition costs, driven by market appreciation, as well as an increase in ~~acquisition costs~~vehicle units. Saleable inventory levels have been below our targets throughout the current fiscal year as a result of temporary production slowdowns experienced in the fourth quarter of fiscal 2021 and ~~changes~~strong demand experienced during the first nine months of fiscal 2022. We made substantial progress in building our ~~vehicle mix.~~inventory position during the second quarter of fiscal 2022, and we achieved sequential growth in saleable inventory each month during the third quarter, which continued early into the fourth quarter. Although retail demand will determine the pace of our inventory build, we believe we have the resources we need to build inventory ahead of the tax refund season.

~~When considering cash provided by operating activities, management uses an adjusted measure of~~The change in net cash from operating activities that offsets the changes in auto loan receivables with the corresponding changes in non-recourse notes payable. This is achieved by adding back the cash provided from the net issuances of non-recourse notes payable, which represents the increase in auto loan receivables that were funded through the issuance of non-recourse notes payable during the period. The resulting financial measure, adjusted net cash from operating activities, is a non-GAAP financial measure. We believe adjusted net cash from operating activities is a meaningful metric for investors because it provides better visibility into the cash generated from operations. Including the increases in non-recourse notes payable, net cash provided by operating activities would have been as follows:

R~~ECONCILIATION OF~~ A~~DJUSTED~~ NET C~~ASH FROM~~ O~~PERATING~~ A~~CTIVITIES~~

Nine Months Ended November 30
(In millions) 2017 2016
Net cash used in operating activities ⁽¹⁾
$ (193.1 ) $ (336.0 )
Add: Net issuances of non-recourse notes payable ⁽²⁾
744.6
935.2
Adjusted net cash provided by operating activities $ 551.5
$ 599.2


⁽¹⁾	In connection with our adoption of FASB ASU 2016-09 during the current fiscal year, cash flows related to excess tax benefits from share-based payment arrangements are now classified as operating activities, rather than financing activities, in the consolidated statements of cash flows. Prior period amounts have been reclassified to conform to the current year's presentation.


⁽²⁾	~~Calculated using the gross issuances less payments on non-recourse notes payable as disclosed on the consolidated statements of cash flows.~~

~~Adjusted net cash~~(used in) provided by operating activities for the first nine months of the current fiscal year ~~decreased~~ compared with the prior year period ~~primarily due to~~reflected the ~~timing~~changes in auto loans receivable and ~~use of non-recourse funding vehicles in relation to originations of auto loan receivables. This decrease was~~inventory, as discussed above, partially offset by an increase in net ~~income~~earnings when excluding non-cash expenses, which include depreciation and amortization, share-based compensation expense and the ~~impact~~provisions for loan losses and cancellation reserves. Our results for the first nine months of ~~changes in inventory. In addition, net issuances of non-recourse notes payable in~~ fiscal ~~2017~~2021 were significantly impacted by COVID-19, primarily during the ~~new warehouse facility being used~~first quarter. In response, we took proactive measures to ~~fund certain of CAF's Tier 3 loans.~~strengthen our liquidity position, including reducing our inventory levels and aligning our costs to lower sales volumes.

Investing Activities. During the first nine months of the fiscal year, net cash used in investing activities totaled ~~$247.5~~$432.7 million in fiscal ~~2018~~2022 compared with ~~$338.2~~$122.1 million in fiscal ~~2017.~~2021. For fiscal 2022, this included $241.6 million in cash paid in connection with the Edmunds acquisition, net of cash acquired. Capital expenditures were ~~$227.6~~$226.9 million in the current year period versus ~~$315.5~~$124.0 million in the prior year period. Capital expenditures primarily ~~include~~included store construction costs ~~real estate acquisitions for planned future store openings,~~ and store remodeling ~~costs.~~expenses as well as investments in technology. We maintain a multi-year pipeline of sites to support our store growth, so portions of capital spending in one year may relate to stores that we open in subsequent fiscal years. ~~The~~

decrease in capital expenditures in the current year period largely reflected reduced spending on construction and land acquisitions resulting from changes in the mix of markets in which stores are being built.

As of November 30, ~~2017, 108~~2021, 147 of our ~~184~~226 used car stores were located on owned sites and 7679 were located on leased sites, including 2023 land-only leases and 56 land and building leases.

Page 44

Financing Activities. During the first nine months of ~~the~~ fiscal ~~year,~~2022, net cash provided by financing activities totaled ~~$428.5~~$2.51 billion compared with net cash used in financing activities of $534.3 million in ~~fiscal 2018 compared with $660.6 million in fiscal 2017.~~the prior year period. Included in these amounts were net ~~increases in total~~issuances of non-recourse notes payable of ~~$744.6 million and $935.2 million, respectively, which were~~$1.65 billion compared with $7 thousand in the prior year period. Non-recourse notes payable are typically used to ~~provide the financing for the majority of the increases of $879.7 million and $900.7 million, respectively,~~fund changes in auto ~~loan receivables~~loans receivable (see “Operating Activities”).

During the first nine months of fiscal ~~2018, we increased~~2022, cash provided by financing activities was impacted by stock repurchases of $476.0 million as well as net borrowings on our ~~revolving credit facility by $90.0 million.~~long-term debt of $1.28 billion, including a new $700 million term loan entered into during the third quarter of fiscal 2022. During the first nine months of fiscal ~~2017, we sold $500 million of senior unsecured notes~~2021, cash used in ~~a private placement and used a portion of the proceeds to reduce net borrowings under our revolving credit facility. Net cash provided by~~ financing activities was ~~also~~ impacted by stock repurchases of ~~$455.0~~$158.6 million ~~in the first nine months~~as well as net payments on our long-term debt of ~~fiscal 2018 compared with $464.4 million in the first nine months of fiscal 2017.~~$460.3 million.

TOTAL DEBT AND CASH AND CASH EQUIVALENTS


(In thousands)		As of November 30		As of February 28
Debt Description (1)	Maturity Date	2021		2021
Revolving credit facility (2)	June 2024	$	588,100	$	—
Term loan (2)	June 2024	300,000		300,000
Term loan (2)	October 2026	699,318		—
3.86% Senior notes	April 2023	100,000		100,000
4.17% Senior notes	April 2026	200,000		200,000
4.27% Senior notes	April 2028	200,000		200,000
Financing obligations	Various dates through February 2059	527,260		533,578
Non-recourse notes payable	Various dates through August 2028	15,416,457		13,764,808
Total debt (3)		18,031,135		15,098,386
Cash and cash equivalents		$	62,598	$	132,319

As of November 30 As of February 28
(In thousands) 2017 2017
Borrowings under revolving credit facility $ 245,593
$ 155,062
Other long-term debt 800,000
800,000
Finance and capital lease obligations 500,558
496,136
Non-recourse notes payable 11,487,028
10,742,425
Total debt⁽¹⁾
$ 13,033,179
$ 12,193,623
Cash and cash equivalents $ 26,287
$ 38,416


⁽¹⁾	~~Total debt excludes unamortized debt issuance costs. See Note 10 for additional information.~~

(1) Interest is payable monthly, with the exception of our senior notes, which are payable semi-annually.

~~We have a $1.20~~ (2) Borrowings accrue interest at variable rates based on the Eurodollar rate (LIBOR), or successor benchmark rate, the federal funds rate, or the prime rate, depending on the type of borrowing.

(3) Total debt excludes unamortized debt issuance costs. See Note 10 for additional information.

Borrowings under our $1.45 billion unsecured revolving ~~credit facility, which expires in August 2020. Borrowings under this~~ credit facility are available for working capital and general corporate purposes, and the unused portion is fully available to us. ~~We also have a $300 million variable-rate term loan, which is due in August 2020.~~ In ~~addition,~~December 2021, we ~~have $500 million~~exercised the accordion feature to increase the credit limit of ~~fixed-rate senior unsecured notes, which are due in 2023, 2026 and 2028.~~this facility to $2.00 billion with no other material changes to the terms of the agreement. The credit facility, term ~~loan~~loans and senior note agreements contain representations and warranties, conditions and covenants. If these requirements ~~were~~are not met, all amounts outstanding or otherwise owed could become due and payable immediately and other limitations could be placed on our ability to use any available borrowing capacity. As of November 30, 2021, we were in compliance with these financial covenants.

Finance and capital lease obligations relate primarily to stores subject to sale-leaseback transactions that did not qualify for sale accounting and, therefore, are accounted for as financings. Payments on the leases are recognized as interest expense and a reduction of the obligations. In the event the leases are modified or extended beyond their original lease term, the related obligation is increased based on the present value of the revised future minimum lease payments, with a corresponding increase to the assets subject to these transactions. Upon modification, the amortization of the obligation is reset, resulting in more of the lease payments being applied to interest expense in the initial years following the modification.

See Note 10 for additional information on our revolving credit facility, term ~~loan,~~loans, senior notes and ~~finance and capital lease~~financing obligations.

CAF auto ~~loan receivables~~loans receivable are primarily funded through our warehouse facilities and asset-backed term funding transactions. These non-recourse funding vehicles are structured to legally isolate the auto ~~loan receivables,~~loans receivable, and we would not expect to be able to access the assets of our non-recourse funding vehicles, even in insolvency, receivership or conservatorship proceedings. Similarly, the investors in the non-recourse notes payable have no recourse to our assets beyond the related receivables, the amounts on deposit in reserve accounts and the restricted cash from collections on auto ~~loan receivables.~~loans receivable. We do, however, continue to have the rights associated with the interest we retain in these non-recourse funding vehicles. ~~Loans originated in the CAF Tier 3 loan origination program are primarily being funded through a $140 million warehouse facility, as well as the use of existing working capital.~~

The timing of principal payments on the non-recourse notes payable is based on the timing of principal collections and defaults on the related auto loan receivables. The current portion of non-recourse notes payable represents principal payments that are due to be distributed in the following period.

As of November 30, ~~2017, $9.61~~2021, $12.26 billion and $3.16 billion of non-recourse notes payable ~~was~~were outstanding related to asset-backed term funding ~~transactions. These notes payable have scheduled maturities through May 2024, but they may mature earlier, depending on the repayment rate of the underlying auto loan receivables.~~transactions and our warehouse facilities, respectively. During the first nine months of fiscal ~~2018,~~2022, we funded a total of ~~$3.90~~$5.72 billion ~~of auto loan receivables~~ in asset-backed term funding transactions.

As of November 30, ~~2017, $1.88~~2021, we had $1.67 billion of ~~non-recourse notes payable was outstanding related to~~unused capacity in our warehouse facilities.

We have periodically increased our warehouse facility limit over time, as our store base, sales and CAF loan originations have grown. As of November 30, 2017, the combined limit of our warehouse facilities was $2.94 billion, and the unused warehouse capacity totaled $1.06 billion. Of the combined limit, $1.50 billion will expire in February 2018, $1.30 billion will expire in August 2018 and $140.0 million will expire in September 2018. See ~~Notes 2 and~~Note 10 for additional information on the warehouse facilities.

We generally repurchase the receivables funded through our warehouse facilities when we enter into an asset-backed term funding transaction. If our counterparties were to refuse to permit these repurchases it could impact our ability to execute on

~~The~~

Page 45

our funding program. Additionally, the agreements related to the warehouse facilities include various representations and warranties, covenants and performance triggers. If these requirements are not met, we could be unable to continue to fund receivables through the warehouse facilities. In addition, warehouse facility investors could charge us a higher rate of interest and could have us replaced as servicer. Further, we could be required to deposit collections on the related receivables with the warehouse facility agents on a daily basis and deliver executed lockbox agreements to the warehouse facility agents.

We expect that adjusted net cash provided by operations, borrowings under existing, new or expanded credit facilities and other funding arrangements will be sufficient to fund CAF, capital expenditures, repurchases of stock and working capital for the foreseeable future. We anticipate that we will be able to enter into new, or renew or expand existing, funding arrangements to meet our future funding needs. However, based on conditions in the credit markets, the cost for these arrangements could be materially higher than historical levels and the timing and capacity of these transactions could be dictated by market availability rather than our requirements.

The timing and amount of stock repurchases are determined based on ~~share~~stock price, market conditions, legal requirements and other factors. Shares repurchased are deemed authorized but unissued shares of common stock. As of November 30, ~~2017, the board had authorized~~2021, a total of ~~$4.55~~$2 billion of ~~repurchases. At that date, $1.14 billion~~board authorizations for repurchases was ~~available for repurchase,~~outstanding, with no expiration date, ~~under the board's outstanding authorization.~~of which $876.2 million remained available for repurchase. See Note 11 for more information on share repurchase activity.

Fair Value ~~Measurements.~~Measurements

We recognize money market securities, mutual fund investments, certain equity investments and derivative instruments at fair value. See Note 67 for more information on fair value measurements.

FORWARD-LOOKING STATEMENTS

We caution readers that the statements contained in this report about our future business plans, operations, capital structure, opportunities, or prospects, including without limitation any statements or factors regarding expected operating capacity, sales, inventory, market share, online purchases of vehicles from consumers, gross profit per used unit, revenue, margins, expenditures, liquidity, loan originations, CAF income, stock repurchases, indebtedness, earnings, or market conditions or expectations with regards to the continued impact of the COVID-19 pandemic are forward-looking statements made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. You can identify these forward-looking statements by the use of words such as “anticipate,” “believe,” “could,” “estimate,” “expect,” “intend,” “may,” “outlook,” “plan,” “positioned,” “predict,” “target,” “should,” “will” and other similar expressions, whether in the negative or affirmative. Such forward-looking statements are based upon management’s current knowledge and assumptions about future events and involve risks and uncertainties that could cause actual results to differ materially from anticipated results. We disclaim any intent or obligation to update these statements. Among the factors that could cause actual results and outcomes to differ materially from those contained in the forward-looking statements are the following:

~~Changes in~~•The effect and consequences of COVID-19 on matters including U.S. and local economies; our business operations and continuity; the ~~competitive landscape and/or our failure to successfully adjust to such changes.~~

~~Events that damage our reputation or harm~~availability of corporate and consumer financing; the ~~perception of the quality~~health and productivity of our ~~brand.~~associates; the ability of third-party providers to continue uninterrupted service; and the regulatory environment in which we operate.

•Changes in general or regional U.S. economic conditions.

~~Changes in tax law, including the effect of federal tax reform.~~

•Changes in the availability or cost of capital and working capital financing, including changes related to the asset-backed securitization market.

•Changes in the competitive landscape and/or our failure to successfully adjust to such changes.

•Events that damage our reputation or harm the perception of the quality of our brand.

•Our inability to realize the benefits associated with our omni-channel initiatives.

•Our inability to realize the expected benefits of strategic transactions, including our acquisition of Edmunds.

•Our inability to recruit, develop and retain associates and maintain positive associate relations.

•The loss of key associates from our store, regional or corporate management teams or a significant increase in labor costs.

•Security breaches or other events that result in the misappropriation, loss or other unauthorized disclosure of confidential customer, associate or corporate information.

•Significant changes in prices of new and used vehicles.

•Changes in economic conditions or other factors that result in greater credit losses for CAF’s portfolio of auto ~~loan receivables~~loans receivable than anticipated.

•A reduction in the availability of or access to sources of inventory or a failure to expeditiously liquidate inventory.

•Changes in consumer credit availability provided by our third-party finance providers.

•Changes in the availability of extended protection plan products from third-party providers.

Page 46

•Factors related to the regulatory and legislative environment in which we operate.

•Factors related to geographic and sales growth, including the inability to effectively manage our growth.

•The failure of or inability to sufficiently enhance key information systems.

•The performance of third-party vendors we rely on for key components of our business.

•The effect of various litigation matters.

•Adverse conditions affecting one or more automotive manufacturers, and manufacturer recalls.

•The failure or inability to realize the benefits associated with our strategic investments.

•The inaccuracy of estimates and assumptions used in the preparation of our financial statements, or the effect of new accounting requirements or changes to U.S. generally accepted accounting principles.

•The ~~performance of third-party vendors we rely on~~volatility in the market price for ~~key components of~~ our ~~business.~~common stock.

~~Factors related~~•The failure or inability to ~~seasonal fluctuations in~~adequately protect our ~~business.~~intellectual property.

•The occurrence of severe weather events.

•Factors related to the geographic concentration of our stores.

For more details on factors that could affect expectations, see Part II, Item 1A, “Risk Factors” on Page 3849 of this report, our Annual Report on Form 10-K for the fiscal year ended February 28, ~~2017,~~2021, and our quarterly or current reports as filed with or furnished to the U.S. Securities and Exchange Commission (“SEC”). Our filings are publicly available on our investor information home page at investors.carmax.com. Requests for information may also be made to our Investor Relations Department by email to investor_relations@carmax.com or by calling 1-804-747-0422, ext. ~~4391.~~7865. We undertake no obligation to update or revise any forward-looking statements after the date they are made, whether as a result of new information, future events or otherwise.

Page 47

Item 3. Quantitative and Qualitative Disclosures about Market Risk

There have been no material changes to our market risk since February 28, ~~2017.~~2021. For information on our exposure to market risk, refer to Part II, Item 7A, “Quantitative and Qualitative Disclosures about Market Risk,” contained in our Annual Report on Form 10-K for the fiscal year ended February 28, ~~2017.~~2021.

Item 4. Controls and Procedures

Disclosure. We maintain disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934 (“Exchange Act”)) that are designed to ensure that information required to be disclosed in our reports filed under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Our disclosure controls and procedures are also designed to ensure that this information is accumulated and communicated to management, including the chief executive officer (“CEO”) and the chief financial officer (“CFO”), as appropriate to allow timely decisions regarding required disclosure.

As of the end of the period covered by this report, with the participation of the CEO and CFO, we evaluated the effectiveness of our disclosure controls and procedures. Based upon that evaluation, the CEO and CFO concluded that our disclosure controls and procedures were effective as of the end of the period.

Internal Control over Financial Reporting. During the third quarter of fiscal 2022, we implemented a new consumer auto loan accounting system and updated our business processes and internal controls as a result. There ~~was~~were no ~~change~~other changes in our internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) that occurred during the quarter ended November 30, ~~2017,~~2021, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

Page 48

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

For a discussion of certain legal proceedings, see Note 1516 to the consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.

Item 1A. Risk Factors

In connection with information set forth in this Form 10-Q, the factors discussed under “Risk Factors” in our Form 10-K for fiscal year ended February 28, ~~2017,~~2021, should be considered. These risks could materially and adversely affect our business, financial condition, and results of operations. There have been no material changes to the factors discussed in our Form 10‑~~K, except as follows:~~K.

~~The final impacts of the Tax Cuts and Jobs Act could be materially different from our current estimates.~~

The Tax Cuts and Jobs Act was signed into law in December 2017. The new law made numerous changes to federal corporate tax law that we expect will significantly reduce our effective tax rate in future periods. As disclosed in the Form 10-Q for the quarter ended November 30, 2017, our fourth quarter effective income tax rate will reflect the benefit of a pro-rata two-month tax rate reduction for fiscal 2018, which will partially offset a one-time unfavorable impact related to the revaluation of our deferred tax asset. The estimated impact of the new law is based on management’s current knowledge and assumptions and recognized impacts could be materially different from current estimates based on our actual results in the fourth quarter of fiscal 2018 and our further analysis of the new law.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

On October ~~22, 2014, we announced that~~23, 2018, the board ~~had~~ authorized the repurchase of up to $2 billion of our common stock expiring on December 31, 2016. On June 28, 2016, we announced that the board had further authorized the repurchase of up to an additional $750 million of our common stock. At the same time, the board removed thewith no expiration ~~date of the outstanding repurchase authorizations.~~date. Purchases may be made in open market or privately negotiated transactions at ~~management’s~~management's discretion and the timing and amount of repurchases are determined based on ~~share~~stock price, market conditions, legal requirements and other factors. Shares repurchased are deemed authorized but unissued shares of common stock.

The following table provides information relating to the ~~company’s~~company's repurchase of common stock for the third quarter of fiscal ~~2018.~~2022. The table does not include transactions related to employee equity awards or ~~the~~ exercise of employee stock options.


					Approximate
					Dollar Value
				Total Number	of Shares that
	Total Number	Average		of Shares Purchased	May Yet Be
	of Shares	Price Paid		as Part of Publicly	Purchased Under
Period	Purchased	per Share		Announced Program	the Program
September 1 - 30, 2021	448,500	$	134.75	448,500	$	931,090,293
October 1 - 31, 2021	284,480	$	131.78	284,480	$	893,602,019
November 1 - 30, 2021	118,098	$	147.46	118,098	$	876,187,778
Total	851,078			851,078

Page 49

Approximate
Dollar Value
Total Number of Shares that
Total Number Average of Shares Purchased May Yet Be
of Shares Price Paid as Part of Publicly Purchased Under
Period Purchased per Share Announced Program the Program
September 1 - 30, 2017 473,200
$ 70.01
473,200
$ 1,218,679,474
October 1 - 31, 2017 443,669
$ 75.40
443,669
$ 1,185,226,060
November 1 - 30, 2017 571,550
$ 71.05
571,550
$ 1,144,614,884
Total 1,488,419
1,488,419

Item 6. Exhibits



31.1			Certification of the Chief Executive Officer Pursuant to Rule 13a-14(a), filed herewith.

31.2			Certification of the Chief Financial Officer Pursuant to Rule 13a-14(a), filed herewith.

32.1			Certification of the Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, filed herewith.

32.2			Certification of the Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, filed herewith.

101.INS			XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.

101.SCH			XBRL Taxonomy Extension Schema Document

101.CAL			XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF			XBRL Taxonomy Extension Definition Linkbase Document

101.LAB			XBRL Taxonomy Extension Label Linkbase Document

101.PRE			XBRL Taxonomy Extension Presentation Linkbase Document

104			Cover Page Interactive Data File - the cover page XBRL tags are embedded within the Inline XBRL document.

Page 50

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.




CARMAX, INC.


By:			/s/ William D. Nash
			William D. Nash
			President and
			Chief Executive Officer


By:			/s/ ~~Thomas W. Reedy~~Enrique N. Mayor-Mora
			~~Thomas W. Reedy~~Enrique N. Mayor-Mora
			~~Executive~~Senior Vice President and
			Chief Financial Officer

January ~~4, 2018~~6, 2022

Page 4051



~~VIRGINIA~~Virginia		54-1821055
(State or other jurisdiction of incorporation)		(I.R.S. Employer
~~incorporation or organization)~~	Identification No.)



12800 ~~TUCKAHOE CREEK PARKWAY, RICHMOND, VIRGINIA~~Tuckahoe Creek Parkway		23238
Richmond,	Virginia
(Address of ~~principal executive offices)~~Principal Executive Offices)		(Zip Code)


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock	KMX	New York Stock Exchange



Large accelerated filerx	☒	Accelerated filer¨	☐
Non-accelerated filer¨ ~~(Do not check if a smaller reporting company)~~	☐	Smaller reporting company¨	☐
		Emerging growth company¨	☐



Class						Outstanding as of December ~~29, 2017~~31, 2021
Common Stock, par value $0.50						~~180,847,916~~161,679,866


☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF ~~THE SECURITIES EXCHANGE ACT~~ OF ~~1934~~ ~~For the Quarterly Period EndedNovember 30, 2017~~ OR ~~[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF~~ THE SECURITIES EXCHANGE ACT OF 1934


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934


					Page No.
PART I.			FINANCIAL INFORMATION

			~~Page~~ ~~No.~~ Item 1.	Financial Statements:
~~PART I.~~			~~FINANCIAL INFORMATION~~

	~~Item 1.~~	~~Financial Statements:~~

		Consolidated Statements of Earnings (Unaudited) –
				Three and Nine Months Ended November 30, ~~2017~~2021 and ~~2016~~2020	3

				Consolidated Statements of Comprehensive Income (Unaudited) –
				Three and Nine Months Ended November 30, ~~2017~~2021 and ~~2016~~2020	4

				Consolidated Balance Sheets (Unaudited) –
				November 30, ~~2017~~2021 and February 28, ~~2017~~2021	5

				Consolidated Statements of Cash Flows (Unaudited) –
				Nine Months Ended November 30, ~~2017~~2021 and ~~2016~~2020	6

				Consolidated Statements of Shareholders’ Equity (Unaudited) –
				Three and Nine Months Ended November 30, 2021 and 2020	7

				Notes to Consolidated Financial Statements (Unaudited)	79

			Item 2.	~~Management's~~Management’s Discussion and Analysis of Financial Condition and
				Results of Operations	2330

			Item 3.	Quantitative and Qualitative Disclosures About Market Risk	3748

			Item 4.	Controls and Procedures	3748

PART II.			OTHER INFORMATION

			Item 1.	Legal Proceedings	3849

			Item 1A.	Risk Factors	3849

			Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	3849

			Item 6.	Exhibits	3950

SIGNATURES					4051


	As of November 30		As of February 28
(In thousands except share data)	2021		2021
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	62,598	$	132,319
Restricted cash from collections on auto loans receivable	552,487		496,415
Accounts receivable, net	563,135		239,070
Inventory	4,659,460		3,157,159
Other current assets	117,390		91,833
TOTAL CURRENT ASSETS	5,955,070		4,116,796
Auto loans receivable, net of allowance for loan losses of $426,507 and $411,150 as of November 30, 2021 and February 28, 2021, respectively	15,167,170		13,489,819
Property and equipment, net of accumulated depreciation of $1,542,238 and $1,414,264 as of November 30, 2021 and February 28, 2021, respectively	3,175,577		3,055,563
Deferred income taxes	134,382		164,261
Operating lease assets	543,645		431,652
Goodwill	141,258		653
Other assets	458,117		282,797
TOTAL ASSETS	$	25,575,219	$	21,541,541

LIABILITIES AND SHAREHOLDERS’ EQUITY
CURRENT LIABILITIES:
Accounts payable	$	936,556	$	799,333
Accrued expenses and other current liabilities	530,592		415,465
Accrued income taxes	518		218
Current portion of operating lease liabilities	43,151		30,953

Current portion of long-term debt	10,889		9,927
Current portion of non-recourse notes payable	535,146		442,652
TOTAL CURRENT LIABILITIES	2,056,852		1,698,548
Long-term debt, excluding current portion	2,602,598		1,322,415
Non-recourse notes payable, excluding current portion	14,856,266		13,297,504
Operating lease liabilities, excluding current portion	529,821		423,618
Other liabilities	419,886		434,843
TOTAL LIABILITIES	20,465,423		17,176,928

Commitments and contingent liabilities	0		0
SHAREHOLDERS’ EQUITY:
Common stock, $0.50 par value; 350,000,000 shares authorized; 161,871,923 and 163,172,333 shares issued and outstanding as of November 30, 2021 and February 28, 2021, respectively	80,936		81,586
Capital in excess of par value	1,672,728		1,513,821
Accumulated other comprehensive loss	(100,301)		(118,691)
Retained earnings	3,456,433		2,887,897
TOTAL SHAREHOLDERS’ EQUITY	5,109,796		4,364,613
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY	$	25,575,219	$	21,541,541



	As of November 30, 2017				As of February 28, 2017
(In thousands)	Assets ⁽¹⁾		Liabilities ⁽²⁾		Assets⁽¹⁾		Liabilities⁽²⁾
Derivatives designated as accounting hedges:
Interest rate swaps - current	$	6,072	$	—	$	2,997	$	(509	)
Interest rate swaps - long-term	832		—		—		—
Total	$	6,904	$	—	$	2,997	$	(509	)


⁽¹⁾	~~Current amounts reported in other current assets and long-term amounts reported in other assets on the consolidated balance sheets.~~


⁽²⁾	~~Current amounts reported in accounts payable and long-term amounts reported in other liabilities on the consolidated balance sheets.~~



	Three Months Ended						Nine Months Ended
	November 30						November 30
(In thousands)	2017			2016			2017			2016
Derivatives designated as accounting hedges:
Gain recognized in AOCL⁽¹⁾	$	12,361		$	7,282		$	4,423		$	6,484
Loss reclassified from AOCL into CAF income⁽¹⁾	$	(906	)	$	(2,935	)	$	(2,871	)	$	(8,868	)


~~Level 1~~	~~Inputs include unadjusted quoted prices in active markets for identical assets or liabilities that we can access at the measurement date.~~


~~Level 2~~	Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly, including quoted prices for similar assets in active markets, quoted prices from identical or similar assets in inactive markets and observable inputs such as interest rates and yield curves.



~~Yes~~ x		No ¨



~~Yes~~ x		No ¨



~~Yes~~ ¨		No x


	Three Months Ended November 30							Nine Months Ended November 30									Three Months Ended November 30						Nine Months Ended November 30
(In thousands except per share data)	2017			%⁽¹⁾	2016		%⁽¹⁾	2017			%⁽¹⁾	2016			%⁽¹⁾	(In thousands except per share data)	2021		%(1)	2020		%(1)	2021		%(1)	2020		%(1)
SALES AND OPERATING REVENUES:																SALES AND OPERATING REVENUES:
Used vehicle sales	$	3,425,540		83.4	$	3,090,613	83.5	$	10,963,113		84.1	$	9,820,401		83.0	Used vehicle sales	$	6,435,590	75.5	$	4,209,748	81.2	$	18,697,300	77.2	$	11,385,183	82.6
Wholesale vehicle sales	552,754			13.5	488,385		13.2	1,653,911			12.7	1,616,528			13.7	Wholesale vehicle sales	1,922,283		22.5	828,362		16.0	4,998,212		20.6	1,990,296		14.4
Other sales and revenues	128,723			3.1	122,526		3.3	418,967			3.2	388,229			3.3	Other sales and revenues	169,886		2.0	146,834		2.8	518,205		2.1	410,413		3.0
NET SALES AND OPERATING REVENUES	4,107,017			100.0	3,701,524		100.0	13,035,991			100.0	11,825,158			100.0	NET SALES AND OPERATING REVENUES	8,527,759		100.0	5,184,944		100.0	24,213,717		100.0	13,785,892		100.0
Cost of sales	3,567,829			86.9	3,198,389		86.4	11,243,860			86.3	10,204,024			86.3
COST OF SALES:																COST OF SALES:
Used vehicle cost of sales																Used vehicle cost of sales	5,927,237		69.5	3,791,134		73.1	17,085,416		70.6	10,223,875		74.2
Wholesale vehicle cost of sales																Wholesale vehicle cost of sales	1,710,103		20.1	713,961		13.8	4,411,175		18.2	1,669,595		12.1
Other cost of sales																Other cost of sales	53,859		0.6	48,419		0.9	140,573		0.6	154,666		1.1
TOTAL COST OF SALES																TOTAL COST OF SALES	7,691,199		90.2	4,553,514		87.8	21,637,164		89.4	12,048,136		87.4
GROSS PROFIT	539,188			13.1	503,135		13.6	1,792,131			13.7	1,621,134			13.7	GROSS PROFIT	836,560		9.8	631,430		12.2	2,576,553		10.6	1,737,756		12.6
CARMAX AUTO FINANCE INCOME	102,810			2.5	89,359		2.4	320,109			2.5	286,086			2.4	CARMAX AUTO FINANCE INCOME	165,968		1.9	176,445		3.4	607,732		2.5	374,590		2.7
Selling, general and administrative expenses	399,672			9.7	356,735		9.6	1,208,237			9.3	1,103,091			9.3	Selling, general and administrative expenses	575,930		6.8	430,781		8.3	1,704,285		7.0	1,197,595		8.7
Depreciation and amortization																Depreciation and amortization	54,428		0.6	48,016		0.9	157,107		0.6	145,126		1.1
Interest expense	17,405			0.4	15,071		0.4	51,079			0.4	40,063			0.3	Interest expense	24,303		0.3	19,462		0.4	67,247		0.3	65,889		0.5
Other (income) expense	(279		)	—	1,027		—	(561		)	—	(24		)	—	Other (income) expense	(8,094)		(0.1)	(887)		—	(35,453)		(0.1)	728		—
Earnings before income taxes	225,200			5.5	219,661		5.9	853,485			6.5	764,090			6.5	Earnings before income taxes	355,961		4.2	310,503		6.0	1,291,099		5.3	703,008		5.1
Income tax provision	76,360			1.9	83,016		2.2	311,519			2.4	289,723			2.5	Income tax provision	86,523		1.0	75,203		1.5	299,638		1.2	166,034		1.2
NET EARNINGS	$	148,840		3.6	$	136,645	3.7	$	541,966		4.2	$	474,367		4.0	NET EARNINGS	$	269,438	3.2	$	235,300	4.5	$	991,461	4.1	$	536,974	3.9
WEIGHTED AVERAGE COMMON SHARES:																WEIGHTED AVERAGE COMMON SHARES:
Basic	181,888				189,200			183,324				191,431				Basic	162,006			163,732			162,710			163,278
Diluted	184,033				190,818			185,201				193,239				Diluted	164,873			165,773			165,606			164,976
NET EARNINGS PER SHARE:																NET EARNINGS PER SHARE:
Basic	$	0.82			$	0.72		$	2.96			$	2.48			Basic	$	1.66		$	1.44		$	6.09		$	3.29
Diluted	$	0.81			$	0.72		$	2.93			$	2.45			Diluted	$	1.63		$	1.42		$	5.99		$	3.25


~~Level 3~~	Inputs that are significant to the measurement that are not observable in the market and include management's judgments about the assumptions market participants would use in pricing the asset or liability (including assumptions about risk).



	Three Months Ended November 30
	Pension Plan				Restoration Plan				Total
(In thousands)	2017		2016		2017		2016		2017		2016
Net pension expense	$	51	$	82	$	117	$	120	$	168	$	202


(In billions)	Capacity
Warehouse facilities:
December 2021 expiration	$	0.18
February 2022 expiration	2.35
August 2022 expiration	2.30
Combined warehouse facility limit	$	4.83
Unused capacity	$	1.67

Non-recourse notes payable outstanding:
Warehouse facilities	$	3.16
Asset-backed term funding transactions	12.26
Non-recourse notes payable	$	15.42


Share/Unit Activity
	Nine Months Ended November 30, 2021
	Equity Classified						Liability Classified
(Shares/units in thousands)	Options		MSUs		Other		RSUs
Outstanding as of February 28, 2021	6,266		520		84		1,606
Granted	922		82		89		377
Exercised or vested and converted	(1,249)		(197)		(2)		(715)
Cancelled	(78)		(11)		(2)		(78)
Outstanding as of November 30, 2021	5,861		394		169		1,190

Weighted average grant date fair value per share/unit:

Granted	$	42.31	$	178.16	$	132.96	$	136.48
Ending outstanding	$	23.75	$	112.21	$	108.30	$	93.44


	As of November 30, 2021
Unrecognized compensation (in millions)	$	54.4	$	17.5	$	4.8



	Nine Months Ended November 30, 2017
	Equity Classified											Liability Classified
(Shares/units in thousands)	Options			MSUs			PSUs		RSAs			RSUs
Outstanding as of February 28, 2017	7,753			504			149		50			1,406
Granted	1,951			162			74		29			628
Exercised or vested and converted	(1,690		)	(228		)	—		(30		)	(466		)
Cancelled	(33		)	(7		)	—		—			(82		)
Outstanding as of November 30, 2017	7,981			431			223		49			1,486

Weighted average grant date fair value per share/unit:

Granted	$	16.15		$	74.04		$	58.38	$	62.35		$	58.39
Ending outstanding	$	15.67		$	74.03		$	60.10	$	58.18		$	59.35

	As of November 30, 2017
Unrecognized compensation (in millions)	$	41.3		$	13.0		$	2.9	$	1.0


	As of November 30		As of February 28
Lease Term and Discount Rate	2021		2021
Weighted Average Remaining Lease Term (in years)
Operating leases	17.45		19.37
Finance leases	12.78		13.56

Weighted Average Discount Rate
Operating leases	4.80	%	5.36	%
Finance leases	14.48	%	15.09	%


	As of November 30, 2021
(In thousands)	Operating Leases (1)		Finance Leases (1)
Fiscal 2022, remaining	$	17,382	$	6,142
Fiscal 2023	69,570		25,633
Fiscal 2024	69,053		30,569
Fiscal 2025	68,544		27,316
Fiscal 2026	63,015		27,925
Thereafter	626,442		212,443
Total lease payments	914,006		330,028
Less: interest	(341,034)		(180,117)
Present value of lease liabilities	$	572,972	$	149,911


	Three Months Ended November 30, 2021
(In thousands)	CarMax Sales Operations		Other		Eliminations		Total
Sales and operating revenues	$	8,494,437	$	33,322	$	—	$	8,527,759
Intersegment sales and operating revenues	—		7,973		(7,973)		—
Total sales and operating revenues	$	8,494,437	$	41,295	$	(7,973)	$	8,527,759
Depreciation and amortization (1)	$	226	$	2,489	$	—	$	2,715
Gross profit	$	809,998	$	28,275	$	(1,713)	$	836,560
Reconciliation to Consolidated Earnings Before Taxes:
CAF Income							165,968
Selling, general and administrative expenses							(575,930)
Depreciation and amortization (2)							(54,428)
Interest expense							(24,303)
Other income (expense)							8,094
Earnings before income taxes							$	355,961


(Dollars in millions except per share or per unit data)	Three Months Ended November 30, 2021			Change from Three Months Ended November 30, 2020		Nine Months Ended November 30, 2021			Change from Nine Months Ended November 30, 2020
Income statement information
Net sales and operating revenues	$	8,527.8		64.5	%	$	24,213.7		75.6	%
Gross profit	$	836.6		32.5	%	$	2,576.6		48.3	%
CAF income	$	166.0		(5.9)	%	$	607.7		62.2	%
Selling, general and administrative expenses	$	575.9		33.7	%	$	1,704.3		42.3	%
Net earnings	$	269.4		14.5	%	$	991.5		84.6	%
Unit sales information
Used unit sales	227,424			16.9	%	730,020			33.5	%
Change in used unit sales in comparable stores	15.8		%	N/A		32.5		%	N/A
Wholesale unit sales	187,630			48.5	%	557,117			72.7	%
Per unit information
Used gross profit per unit	$	2,235		3.9	%	$	2,208		4.0	%
Wholesale gross profit per unit	$	1,131		24.8	%	$	1,054		6.0	%
SG&A as % of gross profit	68.8		%	0.6	%	66.1		%	(2.8)	%
Per share information
Net earnings per diluted share	$	1.63		14.8	%	$	5.99		84.3	%


	Three Months Ended November 30 (1)				Nine Months Ended November 30 (1)
	2021		2020		2021		2020
Used vehicle units	15.8	%	(0.8)	%	32.5	%	(14.8)	%
Used vehicle revenues	51.4	%	2.5	%	63.4	%	(14.1)	%



	Three Months Ended November 30 ⁽¹⁾				Nine Months Ended November 30 ⁽¹⁾
	2017		2016		2017		2016
CAF ⁽²⁾	49.2	%	50.1	%	48.5	%	49.9	%
Tier 2⁽³⁾	15.4	%	17.0	%	16.9	%	17.7	%
Tier 3⁽⁴⁾	10.8	%	9.7	%	10.1	%	9.9	%
Other⁽⁵⁾	24.6	%	23.2	%	24.5	%	22.5	%
Total	100.0	%	100.0	%	100.0	%	100.0	%


⁽¹⁾ (2) Includes CAF’s Tier 3 loan originations, which represent less than 1% of total used units sold. (3) Third-party finance providers who generally pay us a fee or to whom no fee is paid. (4) Third-party finance providers to whom we pay a fee. (5) Represents customers arranging their own financing and customers that do not require financing.	~~Calculated as used vehicle units financed for respective channel as a percentage of total used units sold.~~


⁽²⁾	~~Includes CAF's Tier 3 loan originations, which represent less than 1% of total used units sold.~~


⁽³⁾	~~Third-party finance providers who generally pay us a fee or to whom no fee is paid.~~


⁽⁴⁾	~~Third-party finance providers to whom we pay a fee.~~


⁽⁵⁾	~~Represents customers arranging their own financing and customers that do not require financing.~~


⁽¹⁾	~~Calculated as category gross profit divided by its respective units sold, except the other and total categories, which are divided by total used units sold.~~


⁽²⁾	~~Calculated as a percentage of its respective sales or revenue.~~



	As of and for the Three Months Ended November 30						As of and for the Nine Months Ended November 30
(In millions)	2017			2016			2017			2016
Total ending managed receivables	$	11,455.6		$	10,407.7		$	11,455.6		$	10,407.7
Total average managed receivables	$	11,365.6		$	10,297.8		$	11,102.4		$	10,030.9
Allowance for loan losses ⁽¹⁾	$	127.7		$	114.8		$	127.7		$	114.8
Allowance for loan losses as a percentage of ending managed receivables	1.11		%	1.10		%	1.11		%	1.10		%
Net credit losses on managed receivables	$	39.3		$	36.8		$	94.9		$	84.3
Annualized net credit losses as a percentage of total average managed receivables	1.38		%	1.43		%	1.14		%	1.12		%
Past due accounts as a percentage of ending managed receivables	3.54		%	3.46		%	3.54		%	3.46		%
Average recovery rate⁽²⁾	45.8		%	46.2		%	46.4		%	48.2		%