☒ | QUARTERLY 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 |
Virginia | 54-1821055 | ||||||||||||||||
(State or other jurisdiction of incorporation) | (I.R.S. Employer Identification No.) | ||||||||||||||||
12800 Tuckahoe Creek Parkway | 23238 | ||||||||||||||||
Richmond, | Virginia | ||||||||||||||||
(Address of 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 filer | ☒ | Accelerated filer | ☐ | ||||||||
Non-accelerated filer | ☐ | Smaller reporting company | ☐ | ||||||||
Emerging growth company | ☐ |
Class | Outstanding as of September 30, | |||||||
Common Stock, par value $0.50 |
Page No. | |||||||||||||||||
PART I. | FINANCIAL INFORMATION | ||||||||||||||||
Financial Statements: | |||||||||||||||||
Consolidated Statements of Earnings (Unaudited) – | |||||||||||||||||
Three and Six Months Ended August 31, | |||||||||||||||||
Consolidated Statements of Comprehensive Income (Unaudited) – | |||||||||||||||||
Three and Six Months Ended August 31, | |||||||||||||||||
Consolidated Balance Sheets (Unaudited) – | |||||||||||||||||
August 31, | |||||||||||||||||
Consolidated Statements of Cash Flows (Unaudited) – | |||||||||||||||||
Six Months Ended August 31, | |||||||||||||||||
Consolidated Statements of | |||||||||||||||||
Three and Six Months Ended August 31, | |||||||||||||||||
Notes to Consolidated Financial Statements (Unaudited) | |||||||||||||||||
Item 2. | |||||||||||||||||
Results of Operations | |||||||||||||||||
Item 3. | Quantitative and Qualitative Disclosures About Market Risk | ||||||||||||||||
Item 4. | Controls and Procedures | ||||||||||||||||
PART II. | OTHER INFORMATION | ||||||||||||||||
Item 1. | Legal Proceedings | ||||||||||||||||
Item 1A. | Risk Factors | ||||||||||||||||
Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds | ||||||||||||||||
Item 6. | Exhibits | ||||||||||||||||
SIGNATURES | |||||||||||||||||
Three Months Ended August 31 | Six Months Ended August 31 | Three Months Ended August 31 | Six Months Ended August 31 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
(In thousands except per share data) | 2019 | %(1) | 2018 | %(1) | 2019 | %(1) | 2018 | %(1) | (In thousands except per share data) | 2020 | %(1) | 2019 | %(1) | 2020 | %(1) | 2019 | %(1) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
SALES AND OPERATING REVENUES: | SALES AND OPERATING REVENUES: | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Used vehicle sales | $ | 4,346,295 | 83.6 | $ | 3,975,368 | 83.4 | $ | 8,886,952 | 84.1 | $ | 7,996,415 | 83.7 | Used vehicle sales | $ | 4,389,233 | 81.7 | $ | 4,346,295 | 83.6 | $ | 7,175,435 | 83.4 | $ | 8,886,952 | 84.1 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Wholesale vehicle sales | 678,286 | 13.0 | 627,990 | 13.2 | 1,340,735 | 12.7 | 1,245,641 | 13.0 | Wholesale vehicle sales | 819,082 | 15.2 | 678,286 | 13.0 | 1,161,934 | 13.5 | 1,340,735 | 12.7 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Other sales and revenues | 176,570 | 3.4 | 162,677 | 3.4 | 339,782 | 3.2 | 316,571 | 3.3 | Other sales and revenues | 163,851 | 3.0 | 176,570 | 3.4 | 263,579 | 3.1 | 339,782 | 3.2 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
NET SALES AND OPERATING REVENUES | 5,201,151 | 100.0 | 4,766,035 | 100.0 | 10,567,469 | 100.0 | 9,558,627 | 100.0 | NET SALES AND OPERATING REVENUES | 5,372,166 | 100.0 | 5,201,151 | 100.0 | 8,600,948 | 100.0 | 10,567,469 | 100.0 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
COST OF SALES: | COST OF SALES: | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Used vehicle cost of sales | 3,889,917 | 74.8 | 3,546,383 | 74.4 | 7,933,741 | 75.1 | 7,127,992 | 74.6 | Used vehicle cost of sales | 3,908,065 | 72.7 | 3,889,917 | 74.8 | 6,432,741 | 74.8 | 7,933,741 | 75.1 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Wholesale vehicle cost of sales | 560,906 | 10.8 | 516,913 | 10.8 | 1,097,396 | 10.4 | 1,019,858 | 10.7 | Wholesale vehicle cost of sales | 674,712 | 12.6 | 560,906 | 10.8 | 955,634 | 11.1 | 1,097,396 | 10.4 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Other cost of sales | 56,875 | 1.1 | 52,103 | 1.1 | 100,496 | 1.0 | 98,801 | 1.0 | Other cost of sales | 37,246 | 0.7 | 56,875 | 1.1 | 106,247 | 1.2 | 100,496 | 1.0 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
TOTAL COST OF SALES | 4,507,698 | 86.7 | 4,115,399 | 86.3 | 9,131,633 | 86.4 | 8,246,651 | 86.3 | TOTAL COST OF SALES | 4,620,023 | 86.0 | 4,507,698 | 86.7 | 7,494,622 | 87.1 | 9,131,633 | 86.4 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
GROSS PROFIT | 693,453 | 13.3 | 650,636 | 13.7 | 1,435,836 | 13.6 | 1,311,976 | 13.7 | GROSS PROFIT | 752,143 | 14.0 | 693,453 | 13.3 | 1,106,326 | 12.9 | 1,435,836 | 13.6 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
CARMAX AUTO FINANCE INCOME | 114,131 | 2.2 | 109,667 | 2.3 | 230,090 | 2.2 | 225,260 | 2.4 | CARMAX AUTO FINANCE INCOME | 147,195 | 2.7 | 114,131 | 2.2 | 198,145 | 2.3 | 230,090 | 2.2 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Selling, general and administrative expenses | 480,831 | 9.2 | 453,554 | 9.5 | 970,491 | 9.2 | 891,788 | 9.3 | Selling, general and administrative expenses | 490,208 | 9.1 | 480,831 | 9.2 | 863,924 | 10.0 | 970,491 | 9.2 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Interest expense | 21,073 | 0.4 | 17,950 | 0.4 | 38,857 | 0.4 | 36,002 | 0.4 | Interest expense | 22,469 | 0.4 | 21,073 | 0.4 | 46,427 | 0.5 | 38,857 | 0.4 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Other expense (income) | 143 | — | (686 | ) | — | (216 | ) | — | 277 | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Other (income) expense | Other (income) expense | (1,680) | 0 | 143 | 0 | 1,615 | 0 | (216) | 0 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Earnings before income taxes | 305,537 | 5.9 | 289,485 | 6.1 | 656,794 | 6.2 | 609,169 | 6.4 | Earnings before income taxes | 388,341 | 7.2 | 305,537 | 5.9 | 392,505 | 4.6 | 656,794 | 6.2 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Income tax provision | 71,938 | 1.4 | 68,595 | 1.4 | 156,451 | 1.5 | 149,623 | 1.6 | Income tax provision | 91,645 | 1.7 | 71,938 | 1.4 | 90,831 | 1.1 | 156,451 | 1.5 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
NET EARNINGS | $ | 233,599 | 4.5 | $ | 220,890 | 4.6 | $ | 500,343 | 4.7 | $ | 459,546 | 4.8 | NET EARNINGS | $ | 296,696 | 5.5 | $ | 233,599 | 4.5 | $ | 301,674 | 3.5 | $ | 500,343 | 4.7 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
WEIGHTED AVERAGE COMMON SHARES: | WEIGHTED AVERAGE COMMON SHARES: | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Basic | 165,354 | 176,284 | 165,839 | 177,211 | Basic | 163,434 | 165,354 | 163,053 | 165,839 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Diluted | 167,272 | 178,200 | 167,458 | 178,811 | Diluted | 165,623 | 167,272 | 164,580 | 167,458 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
NET EARNINGS PER SHARE: | NET EARNINGS PER SHARE: | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Basic | $ | 1.41 | $ | 1.25 | $ | 3.02 | $ | 2.59 | Basic | $ | 1.82 | $ | 1.41 | $ | 1.85 | $ | 3.02 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Diluted | $ | 1.40 | $ | 1.24 | $ | 2.99 | $ | 2.57 | Diluted | $ | 1.79 | $ | 1.40 | $ | 1.83 | $ | 2.99 |
Three Months Ended August 31 | Six Months Ended August 31 | Three Months Ended August 31 | Six Months Ended August 31 | |||||||||||||||||||||||||||||||||||||||||||||||
(In thousands) | 2019 | 2018 | 2019 | 2018 | (In thousands) | 2020 | 2019 | 2020 | 2019 | |||||||||||||||||||||||||||||||||||||||||
NET EARNINGS | $ | 233,599 | $ | 220,890 | $ | 500,343 | $ | 459,546 | NET EARNINGS | $ | 296,696 | $ | 233,599 | $ | 301,674 | $ | 500,343 | |||||||||||||||||||||||||||||||||
Other comprehensive (loss) income, net of taxes | ||||||||||||||||||||||||||||||||||||||||||||||||||
Other comprehensive income (loss), net of taxes: | Other comprehensive income (loss), net of taxes: | |||||||||||||||||||||||||||||||||||||||||||||||||
Net change in retirement benefit plan unrecognized actuarial losses | 356 | 370 | 711 | 739 | Net change in retirement benefit plan unrecognized actuarial losses | 728 | 356 | 1,456 | 711 | |||||||||||||||||||||||||||||||||||||||||
Net change in cash flow hedge unrecognized losses | (10,780 | ) | 240 | (24,331 | ) | (862 | ) | Net change in cash flow hedge unrecognized losses | 4,251 | (10,780) | (11,811) | (24,331) | ||||||||||||||||||||||||||||||||||||||
Other comprehensive (loss) income, net of taxes | (10,424 | ) | 610 | (23,620 | ) | (123 | ) | |||||||||||||||||||||||||||||||||||||||||||
Other comprehensive income (loss), net of taxes | Other comprehensive income (loss), net of taxes | 4,979 | (10,424) | (10,355) | (23,620) | |||||||||||||||||||||||||||||||||||||||||||||
TOTAL COMPREHENSIVE INCOME | $ | 223,175 | $ | 221,500 | $ | 476,723 | $ | 459,423 | TOTAL COMPREHENSIVE INCOME | $ | 301,675 | $ | 223,175 | $ | 291,319 | $ | 476,723 |
As of August 31 | As of February 29 | ||||||||||
(In thousands except share data) | 2020 | 2020 | |||||||||
ASSETS | |||||||||||
CURRENT ASSETS: | |||||||||||
Cash and cash equivalents | $ | 711,561 | $ | 58,211 | |||||||
Restricted cash from collections on auto loans receivable | 520,876 | 481,043 | |||||||||
Accounts receivable, net | 203,155 | 191,090 | |||||||||
Inventory | 2,824,959 | 2,846,416 | |||||||||
Other current assets | 67,308 | 86,927 | |||||||||
TOTAL CURRENT ASSETS | 4,327,859 | 3,663,687 | |||||||||
Auto loans receivable, net of allowance for loan losses of $432,546 and $157,796 as of August 31, 2020 and February 29, 2020, respectively | 13,013,106 | 13,551,711 | |||||||||
Property and equipment, net of accumulated depreciation of $1,342,321 and $1,266,920 as of August 31, 2020 and February 29, 2020, respectively | 3,044,773 | 3,069,102 | |||||||||
Deferred income taxes | 133,749 | 89,842 | |||||||||
Operating lease assets | 444,158 | 449,094 | |||||||||
Other assets | 282,661 | 258,746 | |||||||||
TOTAL ASSETS | $ | 21,246,306 | $ | 21,082,182 | |||||||
LIABILITIES AND SHAREHOLDERS’ EQUITY | |||||||||||
CURRENT LIABILITIES: | |||||||||||
Accounts payable | $ | 683,715 | $ | 737,144 | |||||||
Accrued expenses and other current liabilities | 350,185 | 331,738 | |||||||||
Accrued income taxes | 64,734 | 1,389 | |||||||||
Current portion of operating lease liabilities | 31,616 | 30,980 | |||||||||
Short-term debt | 838 | 40 | |||||||||
Current portion of long-term debt | 10,005 | 9,251 | |||||||||
Current portion of non-recourse notes payable | 457,849 | 424,165 | |||||||||
TOTAL CURRENT LIABILITIES | 1,598,942 | 1,534,707 | |||||||||
Long-term debt, excluding current portion | 1,896,784 | 1,778,672 | |||||||||
Non-recourse notes payable, excluding current portion | 12,900,984 | 13,165,384 | |||||||||
Operating lease liabilities, excluding current portion | 435,113 | 440,671 | |||||||||
Other liabilities | 431,923 | 393,873 | |||||||||
TOTAL LIABILITIES | 17,263,746 | 17,313,307 | |||||||||
Commitments and contingent liabilities | |||||||||||
SHAREHOLDERS’ EQUITY: | |||||||||||
Common stock, $0.50 par value; 350,000,000 shares authorized; 164,162,253 and 163,081,376 shares issued and outstanding as of August 31, 2020 and February 29, 2020, respectively | 82,081 | 81,541 | |||||||||
Capital in excess of par value | 1,460,300 | 1,348,988 | |||||||||
Accumulated other comprehensive loss | (160,426) | (150,071) | |||||||||
Retained earnings | 2,600,605 | 2,488,417 | |||||||||
TOTAL SHAREHOLDERS’ EQUITY | 3,982,560 | 3,768,875 | |||||||||
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY | $ | 21,246,306 | $ | 21,082,182 |
As of August 31 | As of February 28 | ||||||
(In thousands except share data) | 2019 | 2019 | |||||
ASSETS | |||||||
CURRENT ASSETS: | |||||||
Cash and cash equivalents | $ | 40,737 | $ | 46,938 | |||
Restricted cash from collections on auto loan receivables | 483,374 | 440,669 | |||||
Accounts receivable, net | 141,091 | 139,850 | |||||
Inventory | 2,604,750 | 2,519,455 | |||||
Other current assets | 114,987 | 67,101 | |||||
TOTAL CURRENT ASSETS | 3,384,939 | 3,214,013 | |||||
Auto loan receivables, net | 13,065,959 | 12,428,487 | |||||
Property and equipment, net of accumulated depreciation of $1,199,375 and $1,297,393 as of August 31, 2019 and February 28, 2019, respectively | 2,981,260 | 2,828,058 | |||||
Deferred income taxes | 66,048 | 61,346 | |||||
Operating lease assets | 456,449 | — | |||||
Other assets | 185,599 | 185,963 | |||||
TOTAL ASSETS | $ | 20,140,254 | $ | 18,717,867 | |||
LIABILITIES AND SHAREHOLDERS’ EQUITY | |||||||
CURRENT LIABILITIES: | |||||||
Accounts payable | $ | 628,507 | $ | 593,171 | |||
Accrued expenses and other current liabilities | 301,503 | 318,204 | |||||
Accrued income taxes | 1,389 | 3,784 | |||||
Current portion of operating lease liabilities | 30,066 | — | |||||
Short-term debt | 915 | 1,129 | |||||
Current portion of long-term debt | 10,762 | 10,177 | |||||
Current portion of non-recourse notes payable | 423,562 | 385,044 | |||||
TOTAL CURRENT LIABILITIES | 1,396,704 | 1,311,509 | |||||
Long-term debt, excluding current portion | 1,689,079 | 1,649,244 | |||||
Non-recourse notes payable, excluding current portion | 12,695,050 | 12,127,290 | |||||
Operating lease liabilities, excluding current portion | 448,640 | — | |||||
Other liabilities | 299,224 | 272,796 | |||||
TOTAL LIABILITIES | 16,528,697 | 15,360,839 | |||||
Commitments and contingent liabilities | |||||||
SHAREHOLDERS’ EQUITY: | |||||||
Common stock, $0.50 par value; 350,000,000 shares authorized; 164,885,648 and 167,478,924 shares issued and outstanding as of August 31, 2019 and February 28, 2019, respectively | 82,442 | 83,739 | |||||
Capital in excess of par value | 1,313,290 | 1,237,153 | |||||
Accumulated other comprehensive loss | (91,630 | ) | (68,010 | ) | |||
Retained earnings | 2,307,455 | 2,104,146 | |||||
TOTAL SHAREHOLDERS’ EQUITY | 3,611,557 | 3,357,028 | |||||
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY | $ | 20,140,254 | $ | 18,717,867 |
Six Months Ended August 31 | ||||||||||||||||||||
(In thousands) | 2020 | 2019 | ||||||||||||||||||
OPERATING ACTIVITIES: | ||||||||||||||||||||
Net earnings | $ | 301,674 | $ | 500,343 | ||||||||||||||||
Adjustments to reconcile net earnings to net cash provided by (used in) operating activities: | ||||||||||||||||||||
Depreciation and amortization | 118,967 | 103,468 | ||||||||||||||||||
Share-based compensation expense | 62,794 | 68,887 | ||||||||||||||||||
Provision for loan losses | 147,977 | 83,693 | ||||||||||||||||||
Provision for cancellation reserves | 35,678 | 45,471 | ||||||||||||||||||
Deferred income tax provision | 8,598 | 3,812 | ||||||||||||||||||
Other | 5,098 | 3,718 | ||||||||||||||||||
Net (increase) decrease in: | ||||||||||||||||||||
Accounts receivable, net | (12,065) | (1,241) | ||||||||||||||||||
Inventory | 21,457 | (85,295) | ||||||||||||||||||
Other current assets | 19,691 | (48,452) | ||||||||||||||||||
Auto loans receivable, net | 188,601 | (721,165) | ||||||||||||||||||
Other assets | (6,586) | 15,421 | ||||||||||||||||||
Net increase (decrease) in: | ||||||||||||||||||||
Accounts Payable, accrued expenses and other | ||||||||||||||||||||
current liabilities and accrued income taxes | 24,912 | (26,632) | ||||||||||||||||||
Other liabilities | (27,020) | (67,484) | ||||||||||||||||||
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES | 889,776 | (125,456) | ||||||||||||||||||
INVESTING ACTIVITIES: | ||||||||||||||||||||
Capital expenditures | (91,998) | (171,347) | ||||||||||||||||||
Proceeds from disposal of property and equipment | 826 | 3 | ||||||||||||||||||
Purchases of investments | (2,566) | (8,244) | ||||||||||||||||||
Sales of investments | 1,381 | 720 | ||||||||||||||||||
NET CASH USED IN INVESTING ACTIVITIES | (92,357) | (178,868) | ||||||||||||||||||
FINANCING ACTIVITIES: | ||||||||||||||||||||
Increase (decrease) in short-term debt, net | 798 | (214) | ||||||||||||||||||
Proceeds from issuances of long-term debt | 1,542,500 | 3,293,500 | ||||||||||||||||||
Payments on long-term debt | (1,425,084) | (3,284,866) | ||||||||||||||||||
Cash paid for debt issuance costs | (8,037) | (10,862) | ||||||||||||||||||
Payments on finance lease obligations | (2,880) | (1,694) | ||||||||||||||||||
Issuances of non-recourse notes payable | 4,798,000 | 5,748,000 | ||||||||||||||||||
Payments on non-recourse notes payable | (5,028,898) | (5,141,901) | ||||||||||||||||||
Repurchase and retirement of common stock | (54,151) | (341,929) | ||||||||||||||||||
Equity issuances | 91,724 | 86,521 | ||||||||||||||||||
NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES | (86,028) | 346,555 | ||||||||||||||||||
Increase in cash, cash equivalents, and restricted cash | 711,391 | 42,231 | ||||||||||||||||||
Cash, cash equivalents, and restricted cash at beginning of year | 656,390 | 595,377 | ||||||||||||||||||
CASH, CASH EQUIVALENTS, AND RESTRICTED CASH AT END OF PERIOD | $ | 1,367,781 | $ | 637,608 | ||||||||||||||||
RECONCILIATION OF CASH, CASH EQUIVALENTS AND RESTRICTED CASH TO THE CONSOLIDATED BALANCE SHEETS: | ||||||||||||||||||||
Cash and cash equivalents | $ | 711,561 | $ | 40,737 | ||||||||||||||||
Restricted cash from collections on auto loans receivable | 520,876 | 483,374 | ||||||||||||||||||
Restricted cash included in other assets | 135,344 | 113,497 | ||||||||||||||||||
CASH, CASH EQUIVALENTS AND RESTRICTED CASH AT END OF PERIOD | $ | 1,367,781 | $ | 637,608 |
Six Months Ended August 31 | |||||||
(In thousands) | 2019 | 2018 | |||||
OPERATING ACTIVITIES: | |||||||
Net earnings | $ | 500,343 | $ | 459,546 | |||
Adjustments to reconcile net earnings to net cash (used in) provided by operating activities: | |||||||
Depreciation and amortization | 103,468 | 90,311 | |||||
Share-based compensation expense | 68,887 | 54,234 | |||||
Provision for loan losses | 83,693 | 70,863 | |||||
Provision for cancellation reserves | 45,471 | 38,699 | |||||
Deferred income tax provision | 3,812 | 2,539 | |||||
Other | 3,718 | 1,358 | |||||
Net (increase) decrease in: | |||||||
Accounts receivable, net | (1,241 | ) | 28,438 | ||||
Inventory | (85,295 | ) | 33,339 | ||||
Other current assets | (48,452 | ) | 22,161 | ||||
Auto loan receivables, net | (721,165 | ) | (675,614 | ) | |||
Other assets | 15,421 | (7,167 | ) | ||||
Net (decrease) increase in: | |||||||
Accounts payable, accrued expenses and other | |||||||
current liabilities and accrued income taxes | (26,632 | ) | 57,639 | ||||
Other liabilities | (67,484 | ) | (65,461 | ) | |||
NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES | (125,456 | ) | 110,885 | ||||
INVESTING ACTIVITIES: | |||||||
Capital expenditures | (171,347 | ) | (171,111 | ) | |||
Proceeds from disposal of property and equipment | 3 | 565 | |||||
Purchases of investments | (8,244 | ) | (5,306 | ) | |||
Sales of investments | 720 | 904 | |||||
NET CASH USED IN INVESTING ACTIVITIES | (178,868 | ) | (174,948 | ) | |||
FINANCING ACTIVITIES: | |||||||
(Decrease) increase in short-term debt, net | (214 | ) | 3,169 | ||||
Proceeds from issuances of long-term debt | 3,293,500 | 1,300,600 | |||||
Payments on long-term debt | (3,284,866 | ) | (1,460,584 | ) | |||
Cash paid for debt issuance costs | (10,862 | ) | (8,189 | ) | |||
Payments on finance lease obligations | (1,694 | ) | (335 | ) | |||
Issuances of non-recourse notes payable | 5,748,000 | 5,486,502 | |||||
Payments on non-recourse notes payable | (5,141,901 | ) | (4,878,974 | ) | |||
Repurchase and retirement of common stock | (341,929 | ) | (381,347 | ) | |||
Equity issuances | 86,521 | 47,502 | |||||
NET CASH PROVIDED BY FINANCING ACTIVITIES | 346,555 | 108,344 | |||||
Increase in cash, cash equivalents, and restricted cash | 42,231 | 44,281 | |||||
Cash, cash equivalents, and restricted cash at beginning of year | 595,377 | 554,898 | |||||
CASH, CASH EQUIVALENTS, AND RESTRICTED CASH AT END OF PERIOD | $ | 637,608 | $ | 599,179 | |||
RECONCILIATION OF CASH, CASH EQUIVALENTS AND RESTRICTED CASH TO THE CONSOLIDATED BALANCE SHEETS: | |||||||
Cash and cash equivalents | $ | 40,737 | $ | 37,147 | |||
Restricted cash from collections on auto loan receivables | 483,374 | 447,642 | |||||
Restricted cash included in other assets | 113,497 | 114,390 | |||||
CASH, CASH EQUIVALENTS AND RESTRICTED CASH AT END OF PERIOD | $ | 637,608 | $ | 599,179 |
Six Months Ended August 31, 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 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
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) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Adoption of CECL | — | — | — | (153,306) | — | (153,306) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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 | 0 | 0 | 0 | 0 | — | 0 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Three and Six Months Ended August 31, 2019 | ||||||||||||||||||||||
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, 2019 | 167,479 | $ | 83,739 | $ | 1,237,153 | $ | 2,104,146 | $ | (68,010 | ) | $ | 3,357,028 | ||||||||||
Net earnings | — | — | — | 266,744 | — | 266,744 | ||||||||||||||||
Other comprehensive loss | — | — | — | — | (13,196 | ) | (13,196 | ) | ||||||||||||||
Share-based compensation expense | — | — | 18,912 | — | — | 18,912 | ||||||||||||||||
Repurchases of common stock | (2,953 | ) | (1,476 | ) | (21,991 | ) | (181,368 | ) | — | (204,835 | ) | |||||||||||
Exercise of common stock options | 727 | 363 | 32,888 | — | — | 33,251 | ||||||||||||||||
Stock incentive plans, net shares issued | 142 | 71 | (5,220 | ) | — | — | (5,149 | ) | ||||||||||||||
Balance as of May 31, 2019 | 165,395 | $ | 82,697 | $ | 1,261,742 | $ | 2,189,522 | $ | (81,206 | ) | $ | 3,452,755 | ||||||||||
Net earnings | — | — | — | 233,599 | — | 233,599 | ||||||||||||||||
Other comprehensive loss | — | — | — | — | (10,424 | ) | (10,424 | ) | ||||||||||||||
Share-based compensation expense | — | — | 10,757 | — | — | 10,757 | ||||||||||||||||
Repurchases of common stock | (1,526 | ) | (763 | ) | (11,933 | ) | (115,666 | ) | — | (128,362 | ) | |||||||||||
Exercise of common stock options | 1,008 | 504 | 52,766 | — | — | 53,270 | ||||||||||||||||
Stock incentive plans, net shares issued | 9 | 4 | (42 | ) | — | — | (38 | ) | ||||||||||||||
Balance as of August 31, 2019 | 164,886 | $ | 82,442 | $ | 1,313,290 | $ | 2,307,455 | $ | (91,630 | ) | $ | 3,611,557 | ||||||||||
Three and Six Months Ended August 31, 2018 | ||||||||||||||||||||||
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, 2018 | 179,748 | $ | 89,874 | $ | 1,234,047 | $ | 2,047,240 | $ | (54,312 | ) | $ | 3,316,849 | ||||||||||
Net earnings | — | — | — | 238,656 | — | 238,656 | ||||||||||||||||
Other comprehensive loss | — | — | — | — | (733 | ) | (733 | ) | ||||||||||||||
Share-based compensation expense | — | — | 16,645 | — | — | 16,645 | ||||||||||||||||
Repurchases of common stock | (3,308 | ) | (1,654 | ) | (22,824 | ) | (182,926 | ) | — | (207,404 | ) | |||||||||||
Exercise of common stock options | 212 | 106 | 8,946 | — | — | 9,052 | ||||||||||||||||
Stock incentive plans, net shares issued | 68 | 34 | (2,202 | ) | — | — | (2,168 | ) | ||||||||||||||
Adoption of ASU 2014-09 | — | — | — | 12,864 | — | 12,864 | ||||||||||||||||
Balance as of May 31, 2018 | 176,720 | $ | 88,360 | $ | 1,234,612 | $ | 2,115,834 | $ | (55,045 | ) | $ | 3,383,761 | ||||||||||
Net earnings | — | — | — | 220,890 | — | 220,890 | ||||||||||||||||
Other comprehensive income | — | — | — | — | 610 | 610 | ||||||||||||||||
Share-based compensation expense | — | — | 9,695 | — | — | 9,695 | ||||||||||||||||
Repurchases of common stock | (2,291 | ) | (1,146 | ) | (16,334 | ) | (153,746 | ) | — | (171,226 | ) | |||||||||||
Exercise of common stock options | 860 | 430 | 38,019 | — | — | 38,449 | ||||||||||||||||
Stock incentive plans, net shares issued | 1 | 1 | (62 | ) | — | — | (61 | ) | ||||||||||||||
Balance as of August 31, 2018 | 175,290 | $ | 87,645 | $ | 1,265,930 | $ | 2,182,978 | $ | (54,435 | ) | $ | 3,482,118 |
Six Months Ended August 31, 2019 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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, 2019 | 167,479 | $ | 83,739 | $ | 1,237,153 | $ | 2,104,146 | $ | (68,010) | $ | 3,357,028 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net earnings | — | — | — | 266,744 | — | 266,744 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Other comprehensive loss | — | — | — | — | (13,196) | (13,196) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Share-based compensation expense | — | — | 18,912 | — | — | 18,912 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Repurchases of common stock | (2,953) | (1,476) | (21,991) | (181,368) | — | (204,835) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Exercise of common stock options | 727 | 363 | 32,888 | — | — | 33,251 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Stock incentive plans, net shares issued | 142 | 71 | (5,220) | — | — | (5,149) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Balance as of May 31, 2019 | 165,395 | $ | 82,697 | $ | 1,261,742 | $ | 2,189,522 | $ | (81,206) | $ | 3,452,755 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net earnings | — | — | — | 233,599 | — | 233,599 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Other comprehensive loss | — | — | — | — | (10,424) | (10,424) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Share-based compensation expense | — | — | 10,757 | — | — | 10,757 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Repurchases of common stock | (1,526) | (763) | (11,933) | (115,666) | — | (128,362) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Exercise of common stock options | 1,008 | 504 | 52,766 | — | — | 53,270 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Stock incentive plans, net shares issued | 9 | 4 | (42) | — | — | (38) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Balance as of August 31, 2019 | 164,886 | $ | 82,442 | $ | 1,313,290 | $ | 2,307,455 | $ | (91,630) | $ | 3,611,557 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Three Months Ended August 31 | Six Months Ended August 31 | ||||||||||||||||||||||||||||||||||
(In millions) | 2020 | 2019 | 2020 | 2019 | |||||||||||||||||||||||||||||||
Used vehicle sales | $ | 4,389.2 | $ | 4,346.3 | $ | 7,175.4 | $ | 8,887.0 | |||||||||||||||||||||||||||
Wholesale vehicle sales | 819.1 | 678.3 | 1,161.9 | 1,340.7 | |||||||||||||||||||||||||||||||
Other sales and revenues: | |||||||||||||||||||||||||||||||||||
Extended protection plan revenues | 119.4 | 113.3 | 192.8 | 224.6 | |||||||||||||||||||||||||||||||
Third-party finance fees, net | (15.4) | (10.3) | (26.2) | (25.8) | |||||||||||||||||||||||||||||||
Service revenues | 26.5 | 33.4 | 46.0 | 67.3 | |||||||||||||||||||||||||||||||
Other | 33.4 | 40.2 | 51.0 | 73.7 | |||||||||||||||||||||||||||||||
Total other sales and revenues | 163.9 | 176.6 | 263.6 | 339.8 | |||||||||||||||||||||||||||||||
Total net sales and operating revenues | $ | 5,372.2 | $ | 5,201.2 | $ | 8,600.9 | $ | 10,567.5 |
Three Months Ended August 31 | Six Months Ended August 31 | ||||||||||||||
(In millions) | 2019 | 2018 | 2019 | 2018 | |||||||||||
Used vehicle sales | $ | 4,346.3 | $ | 3,975.4 | $ | 8,887.0 | $ | 7,996.4 | |||||||
Wholesale vehicle sales | 678.3 | 628.0 | 1,340.7 | 1,245.6 | |||||||||||
Other sales and revenues: | |||||||||||||||
Extended protection plan revenues | 113.3 | 98.5 | 224.6 | 198.6 | |||||||||||
Third-party finance fees, net | (10.3 | ) | (9.7 | ) | (25.8 | ) | (24.2 | ) | |||||||
Service revenues | 33.4 | 36.1 | 67.3 | 72.7 | |||||||||||
Other | 40.2 | 37.8 | 73.7 | 69.5 | |||||||||||
Total other sales and revenues | 176.6 | 162.7 | 339.8 | 316.6 | |||||||||||
Total net sales and operating revenues | $ | 5,201.2 | $ | 4,766.0 | $ | 10,567.5 | $ | 9,558.6 |
Three Months Ended August 31 | Six Months Ended August 31 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
(In millions) | 2020 | % (1) | 2019 | % (1) | 2020 | % (1) | 2019 | % (1) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Interest margin: | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Interest and fee income | $ | 280.1 | 8.5 | $ | 275.7 | 8.5 | $ | 562.6 | 8.5 | $ | 541.9 | 8.4 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Interest expense | (81.3) | (2.5) | (90.6) | (2.8) | (165.9) | (2.5) | (178.0) | (2.8) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Total interest margin | 198.8 | 6.0 | 185.1 | 5.7 | 396.7 | 6.0 | 363.9 | 5.7 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Provision for loan losses | (26.0) | (0.8) | (45.5) | (1.4) | (148.0) | (2.2) | (83.7) | (1.3) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Total interest margin after provision for loan losses | 172.8 | 5.2 | 139.6 | 4.3 | 248.7 | 3.7 | 280.2 | 4.4 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Total other expense | (0.3) | 0 | 0 | 0 | (2.2) | 0 | 0 | 0 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Direct expenses: | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Payroll and fringe benefit expense | (11.4) | (0.3) | (10.4) | (0.3) | (22.6) | (0.3) | (20.5) | (0.3) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Other direct expenses | (14.0) | (0.4) | (15.1) | (0.5) | (25.8) | (0.4) | (29.6) | (0.5) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Total direct expenses | (25.4) | (0.8) | (25.5) | (0.8) | (48.4) | (0.7) | (50.1) | (0.8) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
CarMax Auto Finance income | $ | 147.2 | 4.5 | $ | 114.1 | 3.5 | $ | 198.1 | 3.0 | $ | 230.1 | 3.6 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Total average managed receivables | $ | 13,218.8 | $ | 13,012.1 | $ | 13,313.6 | $ | 12,859.7 |
Three Months Ended August 31 | Six Months Ended August 31 | ||||||||||||||||||||||||||
(In millions) | 2019 | % (1) | 2018 | % (1) | 2019 | % (1) | 2018 | % (1) | |||||||||||||||||||
Interest margin: | |||||||||||||||||||||||||||
Interest and fee income | $ | 275.7 | 8.5 | $ | 242.2 | 8.0 | $ | 541.9 | 8.4 | $ | 474.5 | 8.0 | |||||||||||||||
Interest expense | (90.6 | ) | (2.8 | ) | (69.1 | ) | (2.3 | ) | (178.0 | ) | (2.8 | ) | (132.9 | ) | (2.2 | ) | |||||||||||
Total interest margin | 185.1 | 5.7 | 173.1 | 5.7 | 363.9 | 5.7 | 341.6 | 5.7 | |||||||||||||||||||
Provision for loan losses | (45.5 | ) | (1.4 | ) | (40.0 | ) | (1.3 | ) | (83.7 | ) | (1.3 | ) | (70.9 | ) | (1.2 | ) | |||||||||||
Total interest margin after provision for loan losses | 139.6 | 4.3 | 133.1 | 4.4 | 280.2 | 4.4 | 270.7 | 4.5 | |||||||||||||||||||
Total other expense | — | — | (0.3 | ) | — | — | — | (0.3 | ) | — | |||||||||||||||||
Direct expenses: | |||||||||||||||||||||||||||
Payroll and fringe benefit expense | (10.4 | ) | (0.3 | ) | (9.6 | ) | (0.3 | ) | (20.5 | ) | (0.3 | ) | (19.2 | ) | (0.3 | ) | |||||||||||
Other direct expenses | (15.1 | ) | (0.5 | ) | (13.5 | ) | (0.4 | ) | (29.6 | ) | (0.5 | ) | (25.9 | ) | (0.4 | ) | |||||||||||
Total direct expenses | (25.5 | ) | (0.8 | ) | (23.1 | ) | (0.8 | ) | (50.1 | ) | (0.8 | ) | (45.1 | ) | (0.8 | ) | |||||||||||
CarMax Auto Finance income | $ | 114.1 | 3.5 | $ | 109.7 | 3.6 | $ | 230.1 | 3.6 | $ | 225.3 | 3.8 | |||||||||||||||
Total average managed receivables | $ | 13,012.1 | $ | 12,067.5 | $ | 12,859.7 | $ | 11,921.4 |
As of August 31 | As of February 29 | ||||||||||
(In millions) | 2020 | 2020 | |||||||||
Asset-backed term funding | $ | 10,670.9 | $ | 11,007.1 | |||||||
Warehouse facilities | 2,253.7 | 2,181.7 | |||||||||
Overcollateralization (1) | 312.0 | 289.0 | |||||||||
Other managed receivables (2) | 142.4 | 140.0 | |||||||||
Total ending managed receivables | 13,379.0 | 13,617.8 | |||||||||
Accrued interest and fees | 61.7 | 56.2 | |||||||||
Other | 4.9 | 35.5 | |||||||||
Less: allowance for loan losses | (432.5) | (157.8) | |||||||||
Auto loans receivable, net | $ | 13,013.1 | $ | 13,551.7 |
As of August 31 | As of February 28 | ||||||
(In millions) | 2019 | 2019 | |||||
Asset-backed term funding | $ | 10,452.9 | $ | 10,273.4 | |||
Warehouse facilities | 2,265.0 | 1,877.0 | |||||
Overcollateralization (1) | 295.2 | 273.3 | |||||
Other managed receivables (2) | 118.4 | 86.5 | |||||
Total ending managed receivables | 13,131.5 | 12,510.2 | |||||
Accrued interest and fees | 59.3 | 49.6 | |||||
Other | 25.6 | 6.9 | |||||
Less allowance for loan losses | (150.4 | ) | (138.2 | ) | |||
Auto loan receivables, net | $ | 13,066.0 | $ | 12,428.5 |
As of August 31, 2020 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Fiscal Year of Origination (1) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
(In millions) | 2021 | 2020 | 2019 | 2018 | 2017 | Prior to 2017 | Total | % (2) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
A | $ | 1,340.3 | $ | 2,649.4 | $ | 1,493.6 | $ | 814.5 | $ | 353.2 | $ | 88.6 | $ | 6,739.6 | 50.4 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
B | 938.2 | 1,729.2 | 1,093.1 | 638.5 | 302.4 | 112.7 | 4,814.1 | 36.0 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
C and other | 322.3 | 650.9 | 398.1 | 239.9 | 146.1 | 68.0 | 1,825.3 | 13.6 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Total ending managed receivables | $ | 2,600.8 | $ | 5,029.5 | $ | 2,984.8 | $ | 1,692.9 | $ | 801.7 | $ | 269.3 | $ | 13,379.0 | 100.0 |
As of August 31 | As of February 28 | ||||||||||
(In millions) | 2019 (1) | % (2) | 2019 (1) | % (2) | |||||||
A | $ | 6,533.6 | 49.8 | $ | 6,225.6 | 49.8 | |||||
B | 4,753.5 | 36.2 | 4,488.2 | 35.9 | |||||||
C and other | 1,844.4 | 14.0 | 1,796.4 | 14.3 | |||||||
Total ending managed receivables | $ | 13,131.5 | 100.0 | $ | 12,510.2 | 100.0 |
As of February 29 | |||||||||||||||||
(In millions) | 2020 (1) | % (2) | |||||||||||||||
A | $ | 6,915.9 | 50.8 | ||||||||||||||
B | 4,841.2 | 35.6 | |||||||||||||||
C and other | 1,860.7 | 13.6 | |||||||||||||||
Total ending managed receivables | $ | 13,617.8 | 100.0 |
(1) Classified based on credit grade assigned when customers were initially approved for financing. (2) Percent of total ending managed receivables. |
Three Months Ended August 31 | Six Months Ended August 31 | ||||||||||||||||||||||
(In millions) | 2019 | % (1) | 2018 | % (1) | 2019 | % (1) | 2018 | % (1) | |||||||||||||||
Balance as of beginning of period | $ | 147.0 | 1.14 | $ | 134.3 | 1.13 | $ | 138.2 | 1.10 | $ | 128.6 | 1.11 | |||||||||||
Charge-offs | (76.3 | ) | (64.9 | ) | (142.2 | ) | (123.8 | ) | |||||||||||||||
Recoveries | 34.2 | 28.7 | 70.7 | 62.4 | |||||||||||||||||||
Provision for loan losses | 45.5 | 40.0 | 83.7 | 70.9 | |||||||||||||||||||
Balance as of end of period | $ | 150.4 | 1.15 | $ | 138.1 | 1.13 | $ | 150.4 | 1.15 | $ | 138.1 | 1.13 |
Three Months Ended August 31 | Six Months Ended August 31 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
(In millions) | 2020 | % (1) | 2019 (2) | % (1) | 2020 | % (1) | 2019 (2) | % (1) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Balance as of beginning of period | $ | 437.2 | 3.32 | $ | 147.0 | 1.14 | $ | 157.8 | 1.16 | $ | 138.2 | 1.10 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Adoption of CECL | — | — | 202.0 | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Adjusted balance as of beginning of period | 437.2 | 3.32 | 147.0 | 1.14 | 359.8 | 2.64 | 138.2 | 1.10 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Charge-offs | (53.9) | (76.3) | (124.6) | (142.2) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Recoveries (3) | 23.2 | 34.2 | 49.3 | 70.7 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Provision for loan losses | 26.0 | 45.5 | 148.0 | 83.7 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Balance as of end of period | $ | 432.5 | 3.23 | $ | 150.4 | 1.15 | $ | 432.5 | 3.23 | $ | 150.4 | 1.15 |
As of August 31, 2020 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
Major Credit Grade | |||||||||||||||||||||||||||||||||||||||||||||||||||||
(In millions) | A | B | C & Other | Total | % (1) | ||||||||||||||||||||||||||||||||||||||||||||||||
Current | $ | 6,713.9 | $ | 4,663.4 | $ | 1,651.5 | $ | 13,028.8 | 97.38 | ||||||||||||||||||||||||||||||||||||||||||||
Delinquent loans: | |||||||||||||||||||||||||||||||||||||||||||||||||||||
31-60 days past due | 15.7 | 94.2 | 103.9 | 213.8 | 1.60 | ||||||||||||||||||||||||||||||||||||||||||||||||
61-90 days past due | 7.2 | 43.5 | 55.6 | 106.3 | 0.79 | ||||||||||||||||||||||||||||||||||||||||||||||||
Greater than 90 days past due | 2.8 | 13.0 | 14.3 | 30.1 | 0.23 | ||||||||||||||||||||||||||||||||||||||||||||||||
Total past due | 25.7 | 150.7 | 173.8 | 350.2 | 2.62 | ||||||||||||||||||||||||||||||||||||||||||||||||
Total ending managed receivables | $ | 6,739.6 | $ | 4,814.1 | $ | 1,825.3 | $ | 13,379.0 | 100.00 |
As of August 31 | As of February 28 | ||||||||||
(In millions) | 2019 | % (1) | 2019 | % (1) | |||||||
Total ending managed receivables | $ | 13,131.5 | 100.0 | $ | 12,510.2 | 100.0 | |||||
Delinquent loans: | |||||||||||
31-60 days past due | $ | 292.0 | 2.2 | $ | 276.5 | 2.2 | |||||
61-90 days past due | 140.8 | 1.1 | 141.4 | 1.1 | |||||||
Greater than 90 days past due | 33.7 | 0.3 | 33.9 | 0.3 | |||||||
Total past due | $ | 466.5 | 3.6 | $ | 451.8 | 3.6 |
As of February 29 | |||||||||||||||||
(In millions) | 2020 | % (1) | |||||||||||||||
Total ending managed receivables | $ | 13,617.8 | 100.00 | ||||||||||||||
Delinquent loans: | |||||||||||||||||
31-60 days past due | $ | 296.4 | 2.18 | ||||||||||||||
61-90 days past due | 138.3 | 1.01 | |||||||||||||||
Greater than 90 days past due | 34.2 | 0.25 | |||||||||||||||
Total past due | $ | 468.9 | 3.44 |
As of August 31, 2019 | As of August 31, 2020 | |||||||||||||||||||||||||||||||||||||||
(In thousands) | Level 1 | Level 2 | Total | (In thousands) | Level 1 | Level 2 | Total | |||||||||||||||||||||||||||||||||
Assets: | Assets: | |||||||||||||||||||||||||||||||||||||||
Money market securities | $ | 272,991 | $ | — | $ | 272,991 | Money market securities | $ | 852,767 | $ | 0 | $ | 852,767 | |||||||||||||||||||||||||||
Mutual fund investments | 21,663 | — | 21,663 | Mutual fund investments | 23,424 | 0 | 23,424 | |||||||||||||||||||||||||||||||||
Derivative instruments | — | 1 | 1 | |||||||||||||||||||||||||||||||||||||
Derivative instruments designated as hedges | Derivative instruments designated as hedges | 0 | 75 | 75 | ||||||||||||||||||||||||||||||||||||
Total assets at fair value | $ | 294,654 | $ | 1 | $ | 294,655 | Total assets at fair value | $ | 876,191 | $ | 75 | $ | 876,266 | |||||||||||||||||||||||||||
Percent of total assets at fair value | 100.0 | % | — | % | 100.0 | % | Percent of total assets at fair value | 100.0 | % | 0 | % | 100.0 | % | |||||||||||||||||||||||||||
Percent of total assets | 1.5 | % | — | % | 1.5 | % | Percent of total assets | 4.1 | % | 0 | % | 4.1 | % | |||||||||||||||||||||||||||
Liabilities: | Liabilities: | |||||||||||||||||||||||||||||||||||||||
Derivative instruments | $ | — | $ | (15,747 | ) | $ | (15,747 | ) | ||||||||||||||||||||||||||||||||
Derivative instruments designated as hedges | Derivative instruments designated as hedges | $ | 0 | $ | (9,741) | $ | (9,741) | |||||||||||||||||||||||||||||||||
Total liabilities at fair value | $ | — | $ | (15,747 | ) | $ | (15,747 | ) | Total liabilities at fair value | $ | 0 | $ | (9,741) | $ | (9,741) | |||||||||||||||||||||||||
Percent of total liabilities | — | % | (0.1 | )% | (0.1 | )% | Percent of total liabilities | 0 | % | 0.1 | % | 0.1 | % |
As of February 28, 2019 | |||||||||||
(In thousands) | Level 1 | Level 2 | Total | ||||||||
Assets: | |||||||||||
Money market securities | $ | 372,448 | $ | — | $ | 372,448 | |||||
Mutual fund investments | 19,263 | — | 19,263 | ||||||||
Derivative instruments | — | 1,844 | 1,844 | ||||||||
Total assets at fair value | $ | 391,711 | $ | 1,844 | $ | 393,555 | |||||
Percent of total assets at fair value | 99.5 | % | 0.5 | % | 100.0 | % | |||||
Percent of total assets | 2.1 | % | — | % | 2.1 | % | |||||
Liabilities: | |||||||||||
Derivative instruments | $ | — | $ | (6,120 | ) | $ | (6,120 | ) | |||
Total liabilities at fair value | $ | — | $ | (6,120 | ) | $ | (6,120 | ) | |||
Percent of total liabilities | — | % | — | % | — | % |
As of February 29, 2020 | |||||||||||||||||||||||||||||
(In thousands) | Level 1 | Level 2 | Total | ||||||||||||||||||||||||||
Assets: | |||||||||||||||||||||||||||||
Money market securities | $ | 273,203 | $ | 0 | $ | 273,203 | |||||||||||||||||||||||
Mutual fund investments | 22,668 | 0 | 22,668 | ||||||||||||||||||||||||||
Total assets at fair value | $ | 295,871 | $ | 0 | $ | 295,871 | |||||||||||||||||||||||
Percent of total assets at fair value | 100.0 | % | 0 | % | 100.0 | % | |||||||||||||||||||||||
Percent of total assets | 1.4 | % | 0 | % | 1.4 | % | |||||||||||||||||||||||
Liabilities: | |||||||||||||||||||||||||||||
Derivative instruments designated as hedges | $ | 0 | $ | (23,992) | $ | (23,992) | |||||||||||||||||||||||
Total liabilities at fair value | $ | 0 | $ | (23,992) | $ | (23,992) | |||||||||||||||||||||||
Percent of total liabilities | 0 | % | 0.1 | % | 0.1 | % |
(In thousands) | As of August 31, 2020 | As of February 29, 2020 | |||||||||
Carrying value | $ | 500,000 | $ | 500,000 | |||||||
Fair value | $ | 553,518 | $ | 546,197 |
(In thousands) | As of August 31, 2019 | As of February 28, 2019 | |||||
Carrying value | $ | 500,000 | $ | 500,000 | |||
Fair value | $ | 532,508 | $ | 488,590 |
Three Months Ended August 31 | Six Months Ended August 31 | ||||||||||||||
(In millions) | 2019 | 2018 | 2019 | 2018 | |||||||||||
Balance as of beginning of period | $ | 109.5 | $ | 108.7 | $ | 102.8 | $ | 105.2 | |||||||
Cancellations | (17.9 | ) | (16.7 | ) | (36.7 | ) | (33.3 | ) | |||||||
Provision for future cancellations | 20.0 | 18.6 | 45.5 | 38.7 | |||||||||||
Balance as of end of period | $ | 111.6 | $ | 110.6 | $ | 111.6 | $ | 110.6 |
Three Months Ended August 31 | Six Months Ended August 31 | ||||||||||||||||||||||||||||||||||
(In millions) | 2020 | 2019 | 2020 | 2019 | |||||||||||||||||||||||||||||||
Balance as of beginning of period | $ | 116.7 | $ | 109.5 | $ | 117.9 | $ | 102.8 | |||||||||||||||||||||||||||
Cancellations | (16.1) | (17.9) | (30.9) | (36.7) | |||||||||||||||||||||||||||||||
Provision for future cancellations | 22.0 | 20.0 | 35.6 | 45.5 | |||||||||||||||||||||||||||||||
Balance as of end of period | $ | 122.6 | $ | 111.6 | $ | 122.6 | $ | 111.6 |
(In thousands) | As of August 31 | As of February 29 | ||||||||||||
Debt Description (1) | Maturity Date | 2020 | 2020 | |||||||||||
Revolving credit facility (2) (3) | June 2024 | $ | 575,838 | $ | 452,740 | |||||||||
Term loan | June 2024 | 300,000 | 300,000 | |||||||||||
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 | 533,165 | 536,739 | |||||||||||
Non-recourse notes payable | Various dates through May 2027 | 13,382,375 | 13,613,272 | |||||||||||
Total debt | 15,291,378 | 15,402,751 | ||||||||||||
Less: current portion | (468,692) | (433,456) | ||||||||||||
Less: unamortized debt issuance costs | (24,918) | (25,240) | ||||||||||||
Long-term debt, net | $ | 14,797,768 | $ | 14,944,055 |
(In thousands) | As of August 31 | As of February 28 | ||||||
Debt Description (1) | Maturity Date | 2019 | 2019 | |||||
Revolving credit facility (2) | June 2024 | $ | 379,515 | $ | 366,529 | |||
Term loan (2) | June 2024 | 300,000 | 300,000 | |||||
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 | 522,897 | 495,626 | |||||
Non-recourse notes payable | Various dates through January 2026 | 13,141,504 | 12,535,405 | |||||
Total debt | 14,843,916 | 14,197,560 | ||||||
Less: current portion | (435,239 | ) | (396,350 | ) | ||||
Less: unamortized debt issuance costs | (24,548 | ) | (24,676 | ) | ||||
Long-term debt, net | $ | 14,384,129 | $ | 13,776,534 |
(in billions) | Capacity | ||
Warehouse facilities | |||
September 2019 expiration (1) | $ | 0.15 | |
February 2020 expiration | 1.95 | ||
August 2020 expiration | 1.40 | ||
Combined warehouse facility limit | $ | 3.50 | |
Unused capacity | $ | 1.24 | |
Non-recourse notes payable outstanding: | |||
Warehouse facilities | $ | 2.26 | |
Asset-backed term funding transactions | 10.88 | ||
Non-recourse notes payable | $ | 13.14 |
(In billions) | Capacity | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Warehouse facilities: | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
September 2020 expiration (1)
(1) In September 2020, the expiration date was extended to September 2021 and the capacity was increased to $175 million. We generally enter into warehouse facility agreements for one-year terms and See Note 4 for additional information on the related auto Capitalized Interest. We capitalize interest in connection with the construction of certain facilities. For the six months ended August 31, Financial Covenants. The credit facility, term loan and senior note agreements contain representations and warranties, conditions and covenants. We must also meet financial covenants in conjunction with certain financing obligations. The agreements governing our non-recourse funding vehicles contain representations and warranties, financial covenants and performance triggers. As of August 31, Page 19 10. Stock and Stock-Based Incentive Plans (A) Share Repurchase Program As of August 31, Common Stock Repurchases
(B)Share-Based Compensation Composition of Share-Based Compensation Expense
Composition of Share-Based Compensation Expense – By Grant Type
Page 20 (C) Stock Incentive Plan Information Share/Unit Activity
11. Net Earnings Per Share Basic net earnings per share is computed by dividing net earnings available for basic common shares by the weighted average number of shares of common stock outstanding. Diluted net earnings per share is computed by dividing net earnings available for diluted common shares by the sum of weighted average number of shares of common stock outstanding and dilutive potential common stock. Diluted net earnings per share is calculated using the “if-converted” treasury stock method. Basic and Dilutive Net Earnings Per Share Reconciliations
Certain options to purchase shares of common stock were outstanding and not included in the calculation of diluted net earnings per share because their inclusion would have been antidilutive. On a weighted average basis, for the three months ended August 31, 12. Accumulated Other Comprehensive Loss Changes in Accumulated Other Comprehensive Loss By Component
Changes In and Reclassifications Out of Accumulated Other Comprehensive Loss
Changes in the funded status of our retirement plans and changes in the fair value of derivatives that are designated and qualify as cash flow hedges are recognized in accumulated other comprehensive loss. The cumulative balances are net of deferred taxes of Page 22 13. Leases Our leases primarily consist of operating and finance leases related to retail stores, office space, land and equipment. We also have stores subject to sale-leaseback transactions that did not qualify for sale accounting and are accounted for as financing obligations. For more information on these financing obligations see Note 9. The initial term for real property leases is typically 5 to 20 years. For equipment leases, the initial term generally ranges from 3 to 8 years. Most leases include one or more options to renew, with renewal terms that can extend the lease term from 1 to 20 years or more. We include options to renew (or terminate) in our lease term, and as part of our right-of-use ("ROU") assets and lease liabilities, when it is reasonably certain that we will exercise that option. ROU assets and the related lease liabilities are initially measured at the present value of future lease payments over the lease term. As most of our leases do not provide an implicit rate, we use our collateralized incremental borrowing rate based on the information available at the commencement date in determining the present value of future payments. We include variable lease payments in the initial measurement of ROU assets and lease liabilities only to the extent they depend on an index or rate. Changes in such indices or rates are accounted for in the period the change occurs, and do not result in the remeasurement of the ROU asset or liability. We are also responsible for payment of certain real estate taxes, insurance and other expenses on our leases. These amounts are generally considered to be variable and are not included in the measurement of the ROU asset and lease liability. We generally account for non-lease components, such as maintenance, separately from lease components. For certain equipment leases, we apply a portfolio approach to account for the lease assets and liabilities. Our lease agreements do not contain any material residual value guarantees or material restricted covenants. Leases with a term of 12 months or less are not recorded on the balance sheet; we recognize lease expense for these leases on a straight-line basis over the lease term. The components of lease expense were as follows:
(1) Includes short-term leases and variable lease costs, which are immaterial. Page 23 Supplemental balance sheet information related to leases was as follows:
(1) Finance lease assets are recorded net of accumulated depreciation of Lease term and discount rate information related to leases was as follows:
Supplemental cash flow information related to leases was as follows:
Page 24 Maturities of lease liabilities were as follows:
(1) Lease payments exclude
14. Supplemental Cash Flow Information Supplemental disclosures of cash flow information:
See Note 13 for supplemental cash flow information related to leases. 15. Contingent Liabilities Litigation. CarMax entities are defendants in four proceedings asserting wage and hour claims with respect to CarMax sales consultants and non-exempt employees in California. The asserted claims include failure to pay minimum wage, provide meal periods and rest breaks, pay statutory/contractual wages, reimburse for work-related expenses and provide accurate itemized wage statements; unfair competition; and Private Attorney General Act claims. On September 4, 2015, Craig Weiss et al., v. CarMax Auto Superstores California, LLC, and CarMax Auto Superstores West Coast, Inc., a putative class action, was filed in the Superior Court of California, County of Placer. The Weiss lawsuit seeks civil penalties, fines, cost of suit, and the recovery of attorneys’ fees. On June 29, 2016, Ryan Gomez et al. v. CarMax Auto Superstores California, LLC, and CarMax Auto Superstores West Coast, Inc., a putative class action, was filed in the Superior Court of the State of California, Los Angeles. The Gomez lawsuit seeks declaratory relief, unspecified damages, restitution, statutory penalties, interest, cost and attorneys’ fees. On October 31, 2017, Joshua Sabanovich v. CarMax Superstores California, LLC et. al., a putative class action, was filed in the Superior Court of California, County of Stanislaus. The Sabanovich lawsuit seeks unspecified damages, restitution, statutory penalties, interest, cost and attorneys’ fees. On November 21, 2018, Derek CarMax has reached a global agreement settling the Weiss, Gomez and McElhannon lawsuits on a class basis. The settlement agreement was submitted for pre-approval to the Superior Court of California, County of Placer on August 14, 2020 as part of the Weiss lawsuit and the settlement is expected to be submitted for final approval following the completion of required class procedures. In anticipation of the consolidation of claims under the global settlement agreement, on March 11, 2020, the Gomez and McElhannon lawsuits were dismissed, as the claims of the plaintiffs will be addressed in the global settlement. The monetary settlement under this agreement is for an immaterial amount that has been fully accrued. Page 25 The Sabanovich lawsuit is not included in the global settlement agreement. Based upon our evaluation of information currently available, we believe that the ultimate resolution of the foregoing proceedings will not have a material adverse effect, either individually or in the aggregate, on our financial condition, results of operations or cash flows. The company is a class member in a consolidated and settled class action lawsuit (In re: Takata Airbag Product Liability Litigation (U.S. District Court, Southern District of Florida)) against Toyota, Mazda, Subaru, BMW, Honda, Nissan and Ford related to the economic loss associated with defective Takata airbags installed as original equipment in certain model vehicles from model years 2000-2018. On April 15, 2020, CarMax received $40.3 million in net recoveries from the Toyota, Mazda, Subaru, BMW, Honda and Nissan settlement funds. CarMax remains a class member for the Ford settlement fund. We are unable to make a reasonable estimate of the amount or range of We are involved in various other legal proceedings in the normal course of business. Based upon our evaluation of information currently available, we believe that the ultimate resolution of any such proceedings will not have a material adverse effect, either individually or in the aggregate, on our financial condition, results of operations or cash flows. Other Matters. In accordance with the terms of real estate lease agreements, we generally agree to indemnify the lessor from certain liabilities arising as a result of the use of the leased premises, including environmental liabilities and repairs to leased property upon termination of the lease. Additionally, in accordance with the terms of agreements entered into for the sale of properties, we generally agree to indemnify the buyer from certain liabilities and costs arising subsequent to the date of the sale, including environmental liabilities and liabilities resulting from the breach of representations or warranties made in accordance with the agreements. We do not have any known material environmental commitments, contingencies or other indemnification issues arising from these arrangements. As part of our customer service strategy, we guarantee the used vehicles we retail with a 90-day/4,000 mile limited warranty. A vehicle in need of repair within this period will be repaired free of charge. As a result, each vehicle sold has an implied liability associated with it. Accordingly, based on historical trends, we record a provision for estimated future repairs during the guarantee period for each vehicle sold. The liability for this guarantee was Page 26 ITEM 2. OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is provided as a supplement to, and should be read in conjunction with, our audited consolidated financial statements, the accompanying notes and the MD&A included in our Annual Report on Form 10-K for the fiscal year ended February OVERVIEW CarMax is the nation’s largest and most profitable retailer of used vehicles. We operate in two reportable segments: CarMax Sales Operations and CarMax Auto Finance (“CAF”). Our CarMax Sales Operations segment consists of all aspects of our auto merchandising and service operations, excluding financing provided by CAF. Our CAF segment consists solely of our own finance operation that provides financing to customers buying retail vehicles from CarMax. CarMax Sales Operations Our sales operations segment consists of retail sales of used vehicles and related products and services, such as wholesale vehicle sales; the sale of extended protection plan (“EPP”) products, which include extended service plans (“ESPs”) and guaranteed asset protection (“GAP”); and vehicle repair service. We offer competitive, no-haggle prices; a broad selection of CarMax Quality Certified used vehicles; value-added EPP products; and superior customer service. Our Our customers finance the majority of the retail vehicles purchased from us, and availability of on-the-spot financing is a critical component of the sales process. We provide financing to qualified retail customers through CAF and our arrangements with industry-leading third-party finance providers. All of the finance offers, whether by CAF or our third-party providers, are backed by a 3-day payoff option. As of August 31, CarMax Auto Finance In addition to third-party finance providers, we provide vehicle financing through CAF, which offers financing solely to customers buying retail vehicles from CarMax. CAF allows us to manage our reliance on third-party finance providers and to leverage knowledge of our business to provide qualifying customers a competitive financing option. As a result, we believe CAF enables us to capture additional profits, cash flows and sales. CAF income primarily reflects the interest and fee income generated by the auto Management regularly analyzes CAF’s operating results by assessing the competitiveness of our consumer offer, profitability, the performance of the auto Impact of COVID-19 In March 2020, the World Health Organization declared the outbreak of the novel coronavirus (“COVID-19”) as a global pandemic. In the following weeks, many U.S. states and localities issued shelter-in-place orders impacting the operations of our stores and consumer demand. We followed mandates from public health officials and government agencies, including implementation of enhanced cleaning measures and social distancing guidelines and, in many localities, the closing of stores and wholesale auctions. As a result of these store closures and lower consumer demand, we announced in April 2020 that more than 15,000 associates had been placed on furlough. During the first six months of fiscal 2021, we spent approximately Page 27 $30 million supporting associates impacted by COVID-19, store closures and furloughs. This included providing associates with at least 14 days of pay continuity upon store closure or quarantine, along with continuing medical benefits for associates who were furloughed. During the second quarter of fiscal 2021, we began to call back associates from furlough and by the end of July 2020, we no longer had any associates on furlough. We have implemented robust plans to reduce the risk of exposure and further spread of the virus in our stores and continue to follow the mandates of public health officials and government agencies. We also launched contactless curbside pickup nationwide to better serve our customers in alignment with enhanced safety practices. In addition, we quickly shifted our wholesale business from in-person to online auctions, and we continue to keep our appraisal lanes open for customers who want or need to sell their cars. During the second quarter of fiscal 2021, we completed the rollout of our omni-channel experience, which gives us the largest addressable market in the used car industry. This offering gives customers the option to seamlessly do as much, or as little, online and in-person as they prefer. At the peak of the COVID-19 pandemic in early April, due to the mandates of public health officials and government agencies, approximately half of our stores were closed or under limited operations. Limited operations means the stores could sell cars but were limited to appointment-only, curbside pickup, home delivery or some combination of all three. As a result, used vehicle sales were down more than 75% during that period. Further, pricing and margin was pressured by sharp declines in industry wholesale valuations due to a steep depreciation environment. During this period, we reduced inventory levels to align with sales. Since hitting a trough in early April, we have seen our sales improve as stores reopened, occupancy restrictions eased and customers re-engaged in car buying. As of August 31, 2020, all of our stores were open, but many continue to run under occupancy restrictions. We experienced negative comparable used unit sales in the first quarter of fiscal 2021, which continued into June when we experienced high single digit negative comparable used unit sales. The June results were more than offset by mid single digit positive comparable used unit sales in both July and August, a trend that continued through September. As demand increased during the second quarter, we were able to build our saleable inventory by more than 50% and successfully ramped up to target levels in September. The impact of COVID-19 on CAF loan origination volume has been consistent with our retail and wholesale sales performance noted above. As the pandemic escalated, we saw an increase in delinquencies and greater demand for payment extensions. In response, we implemented a variety of measures to support our customers through this difficult time and to maximize the long-term collectability of the portfolio. This included temporarily suspending repossessions, waiving late fees, and providing loan payment extensions where appropriate. In addition to pausing our in-house Tier 3 lending, we also made temporary underwriting adjustments focused on preserving CAF's high-quality portfolio and tested certain loan routing to our third-party providers. Payment extensions spiked in April and have declined significantly since then as customers have exhibited the ability and willingness to pay. During the first six months of fiscal 2021, delinquency rates were lower year-over-year. During the back half of the second quarter of fiscal 2021, we ceased CAF's underwriting adjustments noted above, and in September we resumed our in-house Tier 3 lending. In response to COVID-19, we took several measures in the first quarter of fiscal 2021 to enhance our liquidity position and provide additional financial flexibility. This included drawing down additional funds on our revolving credit facility, pausing our stock repurchase program, pausing our store expansion strategy and remodels, reducing inventory levels and aligning other operating expenses to the lower sales volume. In addition to the temporary furlough mentioned above, we also implemented a hiring freeze, reduced advertising spending and reduced labor hours. As of the end of the second quarter, we are actively hiring nationwide and have resumed our store expansion strategy with plans to open between eight and ten stores in fiscal 2022. Subsequent to the end of the second quarter, we used our cash on hand to fully pay down the outstanding balance on our revolving credit facility and resumed our share repurchase program. During the first quarter of fiscal 2021, new legislation was enacted, and new IRS guidance was issued to provide relief to businesses in response to the COVID-19 pandemic. We have evaluated the tax provisions included in legislation such as the Coronavirus Aid, Relief, and Economic Security Act (CARES Act), as well as recent IRS guidance. While the most significant impacts to the company include the employee retention tax credit and payroll tax deferral provisions of the CARES Act, we do not expect recent IRS guidance or the CARES Act to have a material impact on our results of operations. The COVID-19 pandemic remains a rapidly evolving situation. We continue to actively monitor developments that may cause us to take further actions that alter our business operations as may be required by federal, state or local authorities or that we determine are in the best interests of our associates, customers and shareholders. The duration and severity of the COVID-19 Page 28 outbreak are uncertain, and we are unable to determine the full impact that social distancing protocols, or potential subsequent outbreaks, will ultimately have on our operations or consumer demand. As such, the full impact on our revenues, profitability, financial position and liquidity remains uncertain at this time. Revenues and Profitability The sources of revenue and gross profit from the CarMax Sales Operations segment for the first six months of fiscal
A high-level summary of our financial results for the second quarter and first half of fiscal
Net earnings per diluted share during the first half of fiscal 2021 included a one-time benefit of $0.18 in connection with our receipt of settlement proceeds in April 2020 related to a previously disclosed class action lawsuit. Refer to “Results of Operations” for further details on our revenues and profitability. Page 29 Liquidity 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. this liquidity was Future Outlook We recognize the current environment has accelerated a shift in In the near term, our strategic investments will focus on our customer experience, vehicle acquisition and marketing. As we go forward, we plan to focus on clearly differentiating our brand from digital-only and traditional dealer brands by demonstrating the benefits of our omni-channel offering. As a result, we plan to increase our year-over-year marketing spend in the second half of fiscal 2021. We also continue to focus on driving effectiveness through our centralized CECs, improving our core buying channels and opening new buying channels and modernizing our wholesale auction platforms. While it is still a relatively new capability for us and still maturing, our CECs are quickly becoming more effective than our previous model. Approximately 70% of our customers interacted with our CECs during the second quarter. Additionally, approximately 50% of our customers chose to progress their sale remotely, which is up from 42% prior to COVID-19. We have taken decisive actions since the start of the COVID-19 pandemic that have supported our ability to appropriately manage costs. We will continue to act on opportunities to become leaner, more agile and a more cost-effective organization over the long term. Our long-term strategy continues to be focused on completing the rollout of our retail concept and optimizing our omni-channel experience, with the goal of increasing our share of used vehicle unit sales in each of the markets in which we operate. At the same time, we are identifying and investing in new initiatives that we believe will also be solid contributors to our earnings growth. We believe, Page 30 In calendar •Delivering a customer-driven, omni-channel buying and selling experience that is a unique and powerful integration of our in-store and online capabilities. •Opening stores in new markets and expanding our presence in existing markets. •Hiring and developing an engaged and skilled workforce. •Improving efficiency in our stores and our logistics operations to drive out waste. •Leveraging data and advanced analytics to continuously improve the customer experience as well as our processes and systems. In order to execute our long-term strategy, we As of August 31, While we execute both our short- and long-term strategy, there are trends and factors that could impact our strategic approach or our results in the short and medium term. For additional information about risks and uncertainties facing our company, see “Risk Factors,” included in Part I. Item 1A of the Annual Report on Form 10-K for the fiscal year ended February CRITICAL ACCOUNTING POLICIES For information on critical accounting policies, see Page 31 RESULTS OF OPERATIONS – CARMAX SALES OPERATIONS NET SALES AND OPERATING REVENUES
UNIT SALES
AVERAGE SELLING PRICES
COMPARABLE STORE USED VEHICLE SALES CHANGES
VEHICLE SALES CHANGES
Page 32
USED VEHICLE FINANCING PENETRATION BY CHANNEL (BEFORE THE IMPACT OF 3-DAY PAYOFFS)
CHANGE IN USED CAR STORE BASE
During the first six months of fiscal Used Vehicle Sales. The The The Wholesale Vehicle Sales. Vehicles sold at our wholesale auctions are, on average, approximately 10 years old with more than 100,000 miles and are primarily vehicles purchased through our appraisal process that do not meet our retail standards. Our wholesale auction prices usually reflect trends in the general wholesale market for the types of vehicles we sell, although they can also be affected by changes in vehicle mix or the average age, mileage or condition of the vehicles being sold. The Page 33 The The increase in average selling price in both the second quarter and Other Sales and Revenues. Other sales and revenues include revenue from the sale of ESPs and GAP (collectively reported in EPP revenues, net of a reserve for estimated contract cancellations), net third-party finance fees, and other revenues, which are predominantly comprised of service department and new vehicle sales. The fees we pay to the Tier 3 providers are reflected as an offset to finance fee revenues received from the Tier 2 providers. The mix of our retail vehicles financed by CAF, Tier 2 and Tier 3 providers, or customers that arrange their own financing, may vary from quarter to quarter depending on several factors, including the credit quality of applicants, changes in providers’ credit decisioning and external market conditions. Changes in originations by one tier of credit providers may also affect the originations made by providers in other tiers. Other sales and revenues Other sales and revenues Seasonality. Historically, our business has been seasonal. Our stores typically experience their strongest traffic and sales in the spring and summer, GROSS PROFIT
GROSS PROFIT PER UNIT
(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. Used Vehicle Gross Profit. We target a dollar range of gross profit per used unit sold. The gross profit dollar target for an individual vehicle is based on a variety of factors, including its probability of sale and its mileage relative to its age; however, it is not primarily based on the vehicle’s selling price. Our ability to quickly adjust appraisal offers to be consistent with the broader market trade-in trends and the pace of our inventory turns reduce our exposure to the inherent continual fluctuation in used vehicle values and contribute to our ability to manage gross profit dollars per unit. Page 34 We systematically adjust individual vehicle prices based on proprietary pricing algorithms in order to appropriately balance sales trends, inventory turns and gross profit achievement. Other factors that may influence gross profit include the wholesale and retail vehicle pricing environments, vehicle reconditioning and logistics costs, and the percentage of vehicles sourced directly from consumers through our appraisal process. Vehicles purchased directly from consumers typically generate more gross profit per unit compared with vehicles purchased at auction or through other channels. Used vehicle gross profit Wholesale Vehicle Gross Profit. Our wholesale gross profit per unit reflects the demand for older, higher mileage vehicles, which are the mainstay of our auctions, as well as strong dealer attendance and resulting high dealer-to-car ratios at our auctions. The frequency of our auctions, which are generally held weekly or bi-weekly, minimizes the depreciation risk on these vehicles. Our ability to adjust appraisal offers in response to the wholesale pricing environment is a key factor that influences wholesale gross profit. Wholesale vehicle gross profit increased Other Gross Profit. Other gross profit includes profits related to EPP revenues, net third-party finance fees and other revenues. Other revenues Other gross profit 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, we believe higher vehicle acquisition prices have adversely impacted, and could impact in the future, our comparable store used unit sales growth. Changes in average vehicle selling prices can also impact CAF income, to the extent the average amount financed also changes. Page 35 SG&A Expenses COMPONENTS OF SG&A EXPENSES AS A PERCENTAGE OF TOTAL SG&A EXPENSES COMPONENTS OF SG&A EXPENSES COMPARED WITH PRIOR PERIOD
(1) Excludes compensation and benefits related to reconditioning and vehicle repair service, whichareincluded in cost of sales. See Note 10 for details of share-based compensation expense by grant type. (2) Includes IT expenses, preopening and relocation costs, insurance, non-CAF bad debt, travel, charitable contributions and other administrative expenses. (3) Calculated as total SG&A expenses divided by total used vehicle units. SG&A expenses increased •$ •$ •$22.9 million decrease in other overhead costs, Page 36 SG&A expenses decreased 11.0% in the •$40.3 million one-time benefit, representing our receipt of settlement proceeds in a class action lawsuit related to the economic loss associated with vehicles containing Takata airbags. •$4.8 million decrease in share-based compensation expense. The decrease in share-based compensation expense was primarily related to cash-settled restricted stock units, as •$3.8 million decrease in advertising expense. We plan to Interest Expense. Interest expense includes the interest related to short- and long-term debt, financing obligations and finance lease obligations. It does not include interest on the non-recourse notes payable, which is reflected within CAF income. Interest expense Income Taxes. The effective income tax rate was 23.6% in the second quarter of fiscal 2021 and 23.1% in the first six months of fiscal 2021 versus 23.5% in the second quarter of fiscal 2020 and 23.8% in the first RESULTS OF OPERATIONS – CARMAX AUTO FINANCE CAF income primarily reflects interest and fee income generated by CAF’s portfolio of auto 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. 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. See Note 3 for additional information on CAF income and Note 4 for information on auto Page 37 SELECTED CAF FINANCIAL INFORMATION
CAF ORIGINATION INFORMATION (AFTER THE IMPACT OF 3-DAY PAYOFFS)
LOAN PERFORMANCE INFORMATION
(1) The allowance for loan losses as of August 31, 2020, includes a $202.0 million increase as a result of our adoption of CECL during the first quarter of fiscal 2021. (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. 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 38
CAF Income (Increase of •CAF Income (Decrease of $31.9 million or 13.9% in the first six months of fiscal 2021) ◦The decrease in CAF income reflects an increase in the provision for loan losses, partially offset by improvement in the total interest margin percentage. ◦The decrease in net loan originations resulted from our used vehicle sales decline as well as a decline in CAF's net penetration rate. •Provision for Loan Losses ◦The decrease in the provision for loan losses was primarily due to favorable loss experience in comparison to our loss expectations set at the end of the first quarter, resulting in a $29.6 million favorable adjustment for receivables then outstanding. ◦This adjustment was more than offset by a $55.6 million increase to the provision related to our estimate of lifetime losses on originations during the second quarter. ◦While we experienced some loss favorability during the second quarter, this favorability was tempered by economic adjustment factors applied to the provision. The allowance for loan losses as of August 31, 2020 •Provision for Loan Losses (Increase of $64.3 million in the ◦The provision included $93.7 million, which largely reflected our initial estimate of lifetime losses on loans originated in each quarter of the current fiscal year. ◦The provision also included a net increase of $54.3 million in our estimate of lifetime losses on loans existing at the beginning of each quarter during the current fiscal year, largely resulting from COVID-19 turmoil and worsened economic factors. ◦In connection with our adoption of CECL during the first quarter of fiscal 2021, we recorded a $202.0 million increase in the allowance for loan losses on the first quarter opening balance sheet, with a corresponding decrease of $153.3 million, net of tax, in retained earnings. •Total interest margin ◦The increase in the total interest margin percentage for both the second quarter and first six months of fiscal 2021 was the result of lower funding costs. 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 PLANNED FUTURE ACTIVITIES In the first quarter of fiscal 2021, we paused our store expansion strategy in response to the COVID-19 situation. We Page 39 FINANCIAL CONDITION Liquidity and Capital Resources During the first quarter of fiscal 2021, in response to the COVID-19 crisis, we took immediate and proactive measures to bolster our liquidity position and provide additional financial flexibility to improve our ability to meet our short-term liquidity needs. Those measures included drawing down additional funds on our revolving credit facility, pausing our stock repurchase program, pausing our store expansion strategy and actively aligning operating expenses to the current state of the business. We strengthened our overall financial position by selling through inventory and quickly aligning costs to lower sales volumes. As demand increased during the second quarter, we were able to build our saleable inventory by more than 50% and successfully ramped up to target levels in September. Subsequent to the end of the second quarter, we fully paid down the outstanding balance on our revolving credit facility and resumed our store expansion strategy and share repurchase program. Our current capital allocation strategy is to remain focused on growing the business while maintaining an appropriate amount of caution given the uncertainty that remains in the economic environment. Given the turnaround in our business, 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 omni and digital initiatives for the foreseeable future. We currently target an adjusted debt-to-total capital ratio in a range of 35% to 45%. Our adjusted debt to capital ratio was modestly below our targeted range for the second quarter of fiscal 2021, when netting out our accumulated cash of approximately $712 million. In calculating this ratio, we utilize total debt excluding non-recourse notes payable, finance lease liabilities, a multiple of eight times rent expense and total Operating Activities. During the first six months of fiscal The majority of the changes in auto loans receivable are accompanied by changes in non-recourse notes payable, which are issued to fund auto loans originated by CAF. Net payments on non-recourse notes payable were $230.9 million in the current year period compared with net issuances of $606.1 million in the prior year period As of August 31, The change in
Investing Activities. During the first six months of the fiscal year, net cash used in investing activities totaled $92.4 million in fiscal 2021 compared with $178.9 million in fiscal Page 40 As of August 31, Financing Activities. During the first six months of fiscal During the first six months of fiscal 2021, cash used in financing activities was impacted by stock repurchases of $54.2 million as well as net borrowings on our long-term debt of $117.4 million. During the first six months of fiscal 2020, cash provided by financing activities was impacted by stock repurchases of $341.9 million as well as net borrowings on our long-term debt of $8.6 million. TOTAL DEBT AND CASH AND CASH EQUIVALENTS
(1) Interest is payable monthly, with the exception of our senior notes, which are payable semi-annually. (2) Borrowings accrue interest at variable rates based on the Eurodollar rate (LIBOR), the federal funds rate, or the prime rate, depending on the type of borrowing. (3) Total debt excludes unamortized debt issuance costs. See Note 9 for additional information. (4) On September 16, 2020, we fully paid down the outstanding borrowings under this facility with cash on hand. Borrowings under our $1.45 billion unsecured revolving credit facility are available for working capital and general corporate purposes, and the unused portion is fully available to us. The credit facility, term loan and senior note agreements contain representations and warranties, conditions and covenants. If these requirements 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 August 31, 2020, we were in compliance with these financial covenants. See Note 9 for additional information on our revolving credit facility, term loan, senior notes and financing obligations. CAF auto As of August 31, We have periodically increased our warehouse facility limit over time, as our store base, sales and CAF loan originations have grown. See Note 9 for additional information on the warehouse facilities. Page 41 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 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. The timing and amount of stock repurchases are determined based on Fair Value We recognize money market securities, mutual fund investments and derivative instruments at fair value. See Note 6 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, market share, margins, expenditures, CAF income, stock repurchases, indebtedness, tax rates, earnings, or market conditions 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,” “predict,” “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 general or regional U.S. economic conditions. •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 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 •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 42 •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 volatility in the market price for our common stock. •The •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 investor_relations@carmax.com or by calling 1-804-747-0422, ext. 4391. 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. Item 3. Quantitative and Qualitative Disclosures about Market Risk There have been no material changes to our market risk since February 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. There was no change in our internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) that occurred during the quarter ended August 31, Page 44 PART II. OTHER INFORMATION Item 1. Legal Proceedings As previously disclosed, in May 2020, we received a pre-filing negotiation request from the United States Environmental Protection Agency (EPA) with respect to alleged violations of the Clean Water Act related to the discharge of petroleum from a storage tank at a CarMax retail store location. The discharge was accidental and is being remediated. In September 2020, we reached an agreement with the EPA to resolve this matter with a civil penalty payment of $119,440. Final EPA acceptance of the settlement is subject to a public comment period that will end in October 2020. For 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 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds Page 45
Item 6. Exhibits
Page 46 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.
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