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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C.  20549
 
FORM 10-Q
 
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended May 31, 2024
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
Commission File Number:  1-31420
 
CARMAX, INC.
(Exact name of registrant as specified in its charter)
 
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)
(804) 747-0422
(Registrant’s telephone number, including area code)
 
N/A
(Former name, former address and former fiscal year, if changed since last report)
 
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol(s)
Name of each exchange on which registered
Common Stock
KMX
New York Stock Exchange
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.   Yes      No   
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes      No   
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company.  See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. 
Large accelerated filerAccelerated filer
Non-accelerated filerSmaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes       No  
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
Class Outstanding as of June 25, 2024
Common Stock, par value $0.50 156,078,952
Page 1


CARMAX, INC. AND SUBSIDIARIES
 
TABLE OF CONTENTS
 
 
Page
No.
PART I.FINANCIAL INFORMATION  
 Item 1.Financial Statements: 
  Consolidated Statements of Earnings (Unaudited) – 
  Three Months Ended May 31, 2024 and 2023
    
  Consolidated Statements of Comprehensive Income (Unaudited) – 
  Three Months Ended May 31, 2024 and 2023
    
  Consolidated Balance Sheets (Unaudited) – 
  May 31, 2024 and February 29, 2024
    
  Consolidated Statements of Cash Flows (Unaudited) – 
  Three Months Ended May 31, 2024 and 2023
    
Consolidated Statements of Shareholders’ Equity (Unaudited) –
Three Months Ended May 31, 2024 and 2023
  Notes to Consolidated Financial Statements (Unaudited)
Item 2.Management’s Discussion and Analysis of Financial Condition and
 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

Page 2


PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

CARMAX, INC. AND SUBSIDIARIES
Consolidated Statements of Earnings
(Unaudited)
 
 
 
 Three Months Ended May 31
(In thousands except per share data)2024
%(1)
2023
%(1)
SALES AND OPERATING REVENUES:
Used vehicle sales$5,677,476 79.8 $6,001,471 78.1 
Wholesale vehicle sales1,256,439 17.7 1,514,363 19.7 
Other sales and revenues179,482 2.5 171,229 2.2 
NET SALES AND OPERATING REVENUES7,113,397 100.0 7,687,063 100.0 
COST OF SALES:
Used vehicle cost of sales5,181,979 72.8 5,486,846 71.4 
Wholesale vehicle cost of sales1,099,311 15.5 1,346,538 17.5 
Other cost of sales40,212 0.6 36,289 0.5 
TOTAL COST OF SALES6,321,502 88.9 6,869,673 89.4 
GROSS PROFIT 791,895 11.1 817,390 10.6 
CARMAX AUTO FINANCE INCOME 146,970 2.1 137,358 1.8 
Selling, general and administrative expenses638,578 9.0 559,837 7.3 
Depreciation and amortization61,869 0.9 58,419 0.8 
Interest expense31,362 0.4 30,466 0.4 
Other expense (income)416  (1,214) 
Earnings before income taxes206,640 2.9 307,240 4.0 
Income tax provision54,200 0.8 78,942 1.0 
NET EARNINGS $152,440 2.1 $228,298 3.0 
WEIGHTED AVERAGE COMMON SHARES:
Basic157,161 158,116 
Diluted157,706 158,561 
NET EARNINGS PER SHARE:
Basic$0.97 $1.44 
Diluted$0.97 $1.44 
 
(1)    Percents are calculated as a percentage of net sales and operating revenues and may not total due to rounding. 
  









See accompanying notes to consolidated financial statements.
Page 3


CARMAX, INC. AND SUBSIDIARIES
Consolidated Statements of Comprehensive Income
(Unaudited)
 
 
 
 Three Months Ended May 31
(In thousands)20242023
NET EARNINGS$152,440 $228,298 
Other comprehensive income (loss), net of taxes:  
Net change in retirement benefit plan unrecognized actuarial losses84 98 
Net change in cash flow hedge unrecognized gains2,315 (36,637)
Other comprehensive income (loss), net of taxes2,399 (36,539)
TOTAL COMPREHENSIVE INCOME$154,839 $191,759 
 
  
 






































See accompanying notes to consolidated financial statements.
Page 4


CARMAX, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(Unaudited)
 As of May 31As of February 29
(In thousands except share data)20242024
ASSETS  
CURRENT ASSETS:  
Cash and cash equivalents$218,931 $574,142 
Restricted cash from collections on auto loans receivable536,407 506,648 
Accounts receivable, net212,370 221,153 
Inventory3,772,885 3,678,070 
Other current assets229,714 246,581 
TOTAL CURRENT ASSETS 4,970,307 5,226,594 
Auto loans receivable, net of allowance for loan losses of $493,064 and $482,790 as of May 31, 2024 and February 29, 2024, respectively17,268,321 17,011,844 
Property and equipment, net of accumulated depreciation of $1,877,474 and $1,813,783 as of May 31, 2024 and February 29, 2024, respectively3,734,736 3,665,530 
Deferred income taxes100,104 98,790 
Operating lease assets509,043 520,717 
Goodwill141,258 141,258 
Other assets518,325 532,064 
TOTAL ASSETS $27,242,094 $27,196,797 
LIABILITIES AND SHAREHOLDERS’ EQUITY  
CURRENT LIABILITIES:  
Accounts payable$911,348 $933,708 
Accrued expenses and other current liabilities456,277 523,971 
Accrued income taxes24,792  
Current portion of operating lease liabilities57,534 57,161 
Current portion of long-term debt21,550 313,282 
Current portion of non-recourse notes payable514,394 484,167 
TOTAL CURRENT LIABILITIES 1,985,895 2,312,289 
Long-term debt, excluding current portion1,591,366 1,602,355 
Non-recourse notes payable, excluding current portion16,626,011 16,357,301 
Operating lease liabilities, excluding current portion484,632 496,210 
Other liabilities387,320 354,902 
TOTAL LIABILITIES 21,075,224 21,123,057 
Commitments and contingent liabilities
SHAREHOLDERS’ EQUITY:
Common stock, $0.50 par value; 350,000,000 shares authorized; 156,352,956 and 157,611,939 shares issued and outstanding as of May 31, 2024 and February 29, 2024, respectively78,176 78,806 
Capital in excess of par value1,834,218 1,808,746 
Accumulated other comprehensive income61,678 59,279 
Retained earnings4,192,798 4,126,909 
TOTAL SHAREHOLDERS’ EQUITY 6,166,870 6,073,740 
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY $27,242,094 $27,196,797 

See accompanying notes to consolidated financial statements.
Page 5


CARMAX, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(Unaudited)
 Three Months Ended May 31
(In thousands)20242023
OPERATING ACTIVITIES:  
Net earnings$152,440 $228,298 
Adjustments to reconcile net earnings to net cash used in operating activities:  
Depreciation and amortization69,244 62,998 
Share-based compensation expense48,098 36,384 
Provision for loan losses81,226 80,890 
Provision for cancellation reserves24,343 24,070 
Deferred income tax benefit(2,036)(7,127)
Other2,545 2,976 
Net decrease (increase) in:  
Accounts receivable, net8,783 (22,439)
Inventory(94,815)(355,078)
Other current assets32,881 30,923 
Auto loans receivable, net(337,703)(483,964)
Other assets(3,797)634 
Net (decrease) increase in:  
Accounts payable, accrued expenses and other  
  current liabilities and accrued income taxes(75,206)239,276 
Other liabilities(23,692)(23,126)
NET CASH USED IN OPERATING ACTIVITIES(117,689)(185,285)
INVESTING ACTIVITIES:  
Capital expenditures(103,914)(136,719)
Proceeds from disposal of property and equipment1 1,171 
Purchases of investments(2,093)(1,228)
Sales and returns of investments136 17 
NET CASH USED IN INVESTING ACTIVITIES(105,870)(136,759)
FINANCING ACTIVITIES:  
Proceeds from issuances of long-term debt 98,600 
Payments on long-term debt(303,080)(201,377)
Cash paid for debt issuance costs(5,668)(3,608)
Payments on finance lease obligations(4,548)(3,785)
Issuances of non-recourse notes payable3,676,000 3,125,929 
Payments on non-recourse notes payable(3,376,447)(2,706,222)
Repurchase and retirement of common stock(106,850)(3,931)
Equity issuances8,209 989 
NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES(112,384)306,595 
Decrease in cash, cash equivalents, and restricted cash(335,943)(15,449)
Cash, cash equivalents, and restricted cash at beginning of year1,250,410 951,004 
CASH, CASH EQUIVALENTS, AND RESTRICTED CASH AT END OF PERIOD$914,467 $935,555 
RECONCILIATION OF CASH, CASH EQUIVALENTS AND RESTRICTED CASH TO THE CONSOLIDATED BALANCE SHEETS:
Cash and cash equivalents$218,931 $264,247 
Restricted cash from collections on auto loans receivable536,407 506,465 
Restricted cash included in other assets159,129 164,843 
CASH, CASH EQUIVALENTS, AND RESTRICTED CASH AT END OF PERIOD$914,467 $935,555 






See accompanying notes to consolidated financial statements.
Page 6


CARMAX, INC. AND SUBSIDIARIES
Consolidated Statements of Shareholders’ Equity
(Unaudited)
Three Months Ended May 31, 2024
     Accumulated 
 Common Capital in Other 
 SharesCommonExcess ofRetainedComprehensive 
(In thousands)OutstandingStockPar ValueEarningsIncomeTotal
Balance as of February 29, 2024157,612 $78,806 $1,808,746 $4,126,909 $59,279 $6,073,740 
Net earnings— — — 152,440 — 152,440 
Other comprehensive income— — — — 2,399 2,399 
Share-based compensation expense— — 36,708 — — 36,708 
Repurchases of common stock(1,446)(723)(17,615)(86,551)— (104,889)
Exercise of common stock options138 69 8,140 — — 8,209 
Stock incentive plans, net shares issued49 24 (1,761)— — (1,737)
Balance as of May 31, 2024156,353 $78,176 $1,834,218 $4,192,798 $61,678 $6,166,870 



CARMAX, INC. AND SUBSIDIARIES
Consolidated Statements of Shareholders’ Equity
(Unaudited)
Three Months Ended May 31, 2023
     Accumulated 
 Common Capital in Other 
 SharesCommonExcess ofRetainedComprehensive 
(In thousands)OutstandingStockPar ValueEarningsIncomeTotal
Balance as of February 28, 2023158,079 $79,040 $1,713,074 $3,723,094 $97,869 $5,613,077 
Net earnings— — — 228,298 — 228,298 
Other comprehensive loss— — — — (36,539)(36,539)
Share-based compensation expense— — 21,274 — — 21,274 
Exercise of common stock options18 9 979 — — 988 
Stock incentive plans, net shares issued112 56 (3,986)— — (3,930)
Balance as of May 31, 2023158,209 $79,105 $1,731,341 $3,951,392 $61,330 $5,823,168 






















See accompanying notes to consolidated financial statements.
Page 7


CARMAX, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)

1.Background
Business. CarMax, Inc. (“we,” “our,” “us,” “CarMax” and “the company”), including its wholly owned subsidiaries, is the nation’s largest retailer of used vehicles.  We operate in two reportable segments:  CarMax Sales Operations and CarMax Auto Finance (“CAF”).  Our CarMax Sales Operations segment consists of all aspects of our auto merchandising and service operations, excluding financing provided by CAF.  Our CAF segment consists solely of our own finance operation that provides financing to customers buying retail vehicles from CarMax.
On June 1, 2021, we completed the acquisition of Edmunds Holding Company (“Edmunds”). At that time, Edmunds was identified as a non-reportable operating segment and has been presented as “Other” in the Segment Information footnote in our prior period financial statements. Since the acquisition, Edmunds’ business strategy has become increasingly integrated with that of CarMax Sales Operations. Beginning in the first quarter of fiscal 2025, the chief operating decision maker (“CODM”) assessed the financial performance related to Edmunds’ operations together with the rest of the CarMax Sales Operations segment. As a result, as of May 31, 2024, the company realigned its operating segments to be consistent with the manner in which the CODM assesses performance and makes resource allocations. The company now operates in two operating segments, CarMax Sales Operations and CAF, both of which continue to be reportable segments.
The operating segment change did not impact the company’s consolidated financial statements but did impact our previous segment footnote disclosure. The Segment Information footnote is no longer presented, as the previous disclosures were for the purpose of presenting the Edmunds operating segment separate from CarMax Sales Operations. The current and prior period required disclosures related to our reportable segments are included elsewhere within the consolidated financial statements and related footnotes. The performance of our CarMax Sales Operations segment is reviewed by our CODM at the gross profit level, the components of which are presented within the consolidated statement of earnings. The required segment information related to our CAF segment is presented in Note 3. Additionally, asset information by segment is not utilized for purposes of assessing performance or allocating resources and, as a result, such information has not been presented.
We deliver an unrivaled customer experience by offering a broad selection of quality used vehicles and related products and services at competitive, no-haggle prices using a customer-friendly sales process.  Our omni-channel platform, which gives us the largest addressable market in the used car industry, empowers our retail customers to buy a car on their terms – online, in-store or an integrated combination of both. We offer customers a range of related products and services, including the appraisal and purchase of vehicles directly from consumers; the financing of retail vehicle purchases through CAF and third-party finance providers; the sale of extended protection plan (“EPP”) products, which include extended service plans (“ESPs”) and guaranteed asset protection (“GAP”); advertising and subscription services; and vehicle repair service.  Vehicles purchased through the appraisal process that do not meet our retail standards are sold to licensed dealers through on-site or virtual wholesale auctions.
Basis of Presentation and Use of Estimates. The accompanying interim unaudited consolidated financial statements include the accounts of CarMax and our wholly owned subsidiaries.  All significant intercompany balances and transactions have been eliminated in consolidation.  These interim unaudited consolidated financial statements have been prepared in conformity with U.S. generally accepted accounting principles (“GAAP”) for interim financial information.  Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements.  In the opinion of management, such interim consolidated financial statements reflect all normal recurring adjustments considered necessary to present fairly the financial position and the results of operations and cash flows for the interim periods presented.  The results of operations for the interim periods are not necessarily indicative of the results to be expected for the full fiscal year.  
The accounting policies followed in the presentation of our interim financial results are consistent with those included in the company’s Annual Report on Form 10-K for the fiscal year ended February 29, 2024 (the “2024 Annual Report”), with the exception of those related to recent accounting pronouncements adopted in the current fiscal year. These interim unaudited consolidated financial statements should be read in conjunction with the audited consolidated financial statements and footnotes included in our 2024 Annual Report.
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses and the disclosure of contingent assets and liabilities.  Actual results could differ from those estimates.  Certain prior year amounts have been reclassified to conform to the current year’s presentation.  Amounts and percentages may not total due to rounding.
Page 8


Recent Accounting Pronouncements.
Adopted in the Current Period
In June 2022, the Financial Accounting Standards Board (“FASB”) issued an accounting pronouncement (ASU 2022-03) related to accounting for equity securities. The amendments in the update clarify the guidance for measuring the fair value of equity securities subject to contractual restrictions that prohibit the sale of equity securities, as well as introduce new disclosure requirements for equity securities subject to contractual sale restrictions that are measured at fair value. This update is effective for annual periods beginning after December 15, 2023, and interim periods within those fiscal years. We adopted this pronouncement for our fiscal year beginning March 1, 2024, and it did not have a material effect on our consolidated financial statements.
In March 2023, the FASB issued an accounting pronouncement (ASU 2023-01) related to accounting for leases between entities under common control. The amendments in this update that apply to public business entities clarify the accounting for leasehold improvements associated with common control leases. This update is effective for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years. We adopted this pronouncement for our fiscal year beginning March 1, 2024, and it did not have a material effect on our consolidated financial statements.
In March 2023, the FASB issued an accounting pronouncement (ASU 2023-02) related to accounting for investments in tax credit structures using the proportional amortization method. The amendments in this update permit reporting entities to elect to account for their tax equity investments, regardless of the tax credit program from which the income tax credits are received, using the proportional amortization method if certain conditions are met. This update is effective for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years. We adopted this pronouncement for our fiscal year beginning March 1, 2024, and it did not have a material effect on our consolidated financial statements.
2. Revenue
We recognize revenue when control of the good or service has been transferred to the customer, generally either at the time of sale or upon delivery to a customer.  Our contracts have a fixed contract price and revenue is measured as the amount of consideration we expect to receive in exchange for transferring goods or providing services. We collect sales taxes and other taxes from customers on behalf of governmental authorities at the time of sale.  These taxes are accounted for on a net basis and are not included in net sales and operating revenues or cost of sales. We generally expense sales commissions when incurred because the amortization period would have been less than one year. These costs are recorded within selling, general and administrative expenses. We do not have any significant payment terms as payment is received at or shortly after the point of sale.
Disaggregation of Revenue
Three Months Ended May 31
(In millions)20242023
Used vehicle sales$5,677.5 $6,001.5 
Wholesale vehicle sales1,256.4 1,514.4 
Other sales and revenues:
Extended protection plan revenues118.8 111.2 
Third-party finance (fees)/income, net(1.7)0.3 
Advertising & subscription revenues (1)
34.7 31.4 
Service revenues22.7 22.1 
Other5.0 6.2 
Total other sales and revenues179.5 171.2 
Total net sales and operating revenues$7,113.4 $7,687.1 

(1)     Excludes intercompany sales and operating revenues that have been eliminated in consolidation.

Used Vehicle Sales. Revenue from the sale of used vehicles is recognized upon transfer of control of the vehicle to the customer. As part of our customer service strategy, we guarantee the retail vehicles we sell with a 10-day money-back guarantee.  We record a reserve for estimated returns based on historical experience and trends. The reserve for estimated returns is presented gross on the consolidated balance sheets, with a return asset recorded in other current assets and a refund liability recorded in accrued expenses and other current liabilities. We also guarantee the used vehicles we sell with a 90-
Page 9


day/4,000-mile limited warranty. These warranties are deemed assurance-type warranties and are accounted for as warranty obligations. See Note 15 for additional information on this warranty and its related obligation.
Wholesale Vehicle Sales. Wholesale vehicles are sold at our auctions, and revenue from the sale of these vehicles is recognized upon transfer of control of the vehicle to the customer. Dealers also pay a fee to us based on the sale price of the vehicles they purchase. This fee is recognized as revenue at the time of sale. While we provide condition disclosures on each wholesale vehicle sold, the vehicles are subject to a limited right of return. We record a reserve for estimated returns based on historical experience and trends. The reserve for estimated returns is presented gross on the consolidated balance sheets, with a return asset recorded in other current assets and a refund liability recorded in accrued expenses and other current liabilities.
EPP Revenues. We also sell ESP and GAP products on behalf of unrelated third parties, who are primarily responsible for fulfilling the contract, to customers who purchase a retail vehicle.  The ESPs we currently offer on all used vehicles provide coverage up to 60 months (subject to mileage limitations), while GAP covers the customer for the term of their finance contract. We recognize revenue, on a net basis, at the time of sale. We also record a reserve, or refund liability, for estimated contract cancellations. The reserve for cancellations is evaluated for each product and is based on forecasted forward cancellation curves utilizing historical experience, recent trends and credit mix of the customer base.  Our risk related to contract cancellations is limited to the revenue that we receive.  Cancellations fluctuate depending on the volume of EPP sales, customer financing default or prepayment rates, and shifts in customer behavior, including those related to changes in the coverage or term of the product.  The current portion of estimated cancellation reserves is recognized as a component of accrued expenses and other current liabilities with the remaining amount recognized in other liabilities.  See Note 7 for additional information on cancellation reserves.
We are contractually entitled to receive profit-sharing revenues based on the performance of the ESPs administered by third parties. These revenues are a form of variable consideration included in EPP revenues to the extent that it is probable that it will not result in a significant revenue reversal. An estimate of the amount to which we expect to be entitled is determined upon satisfying the performance obligation of selling the ESP. This estimate is subject to various constraints; primarily, factors that are outside of the company’s influence or control. We have determined that these constraints generally preclude any profit-sharing revenues from being recognized before they are paid. As of May 31, 2024 and February 29, 2024, no current or long-term contract asset was recognized related to cumulative profit-sharing payments to which we expect to be entitled. The estimate of the amount to which we expect to be entitled is reassessed each reporting period and any changes are reflected in other sales and revenues on our consolidated statements of earnings and other assets on our consolidated balance sheets.
Third-Party Finance (Fees)/Income. Customers applying for financing who are not approved or are conditionally approved by CAF are generally evaluated by other third-party finance providers.  These providers generally either pay us or are paid a fixed, pre-negotiated fee per contract.  We recognize these fees at the time of sale.
Advertising and Subscription Revenues. Advertising and subscription revenues consist of revenues earned by our Edmunds business. Advertising revenues are derived from advertising contracts with automotive manufacturers based on fixed fees per impression and fees for certain activities completed by customers on the manufacturers’ websites. These fees are recognized in the period the impressions are delivered or certain activities occurred. Subscription revenues are derived from packages sold to automotive dealers that include car leads, inventory listings and enhanced placement in Edmunds’ dealer locator and are recognized over the period that the services are made available to the dealers. Subscription revenues also include a digital marketing subscription service, which allows dealers to gain exposure on third party partner websites. Revenues for this service are recognized on a net basis.
Service Revenues. Service revenue consists of labor and parts income related to vehicle repair service, including repairs of vehicles covered under an ESP we sell or warranty program. Service revenue is recognized at the time the work is completed.
Other Revenues. Other revenues include miscellaneous goods and services, which are immaterial to our consolidated financial statements.
3. CarMax Auto Finance
CAF provides financing to qualified retail customers purchasing vehicles from CarMax.  CAF provides us the opportunity to capture additional profits, cash flows and sales while managing our reliance on third-party finance sources.  Management regularly analyzes CAF’s operating results by assessing profitability, the performance of the auto loans receivable, including trends in credit losses and delinquencies, and CAF direct expenses.  This information is used to assess CAF’s performance and make operating decisions, including resource allocation.
Page 10


We typically use securitizations or other funding arrangements to fund loans originated by CAF.  CAF income primarily reflects the interest and fee income generated by the auto loans receivable less the interest expense associated with the debt issued to fund these receivables, a provision for estimated loan losses and direct CAF expenses.
CAF income does not include any allocation of indirect costs.  Although CAF benefits from certain indirect overhead expenditures, we have not allocated indirect costs to CAF to avoid making subjective allocation decisions.  Examples of indirect costs not allocated to CAF include retail store expenses and corporate expenses.  In addition, except for auto loans receivable, which are disclosed in Note 4, CAF assets are not separately reported nor do we allocate assets to CAF because such allocation would not be useful to management in making operating decisions.
Components of CAF Income
Three Months Ended May 31
(In millions)2024
(1)
2023
(1)
Interest margin:
Interest and fee income$452.5 10.3 $400.5 9.4 
Interest expense(182.3)(4.2)(142.6)(3.4)
Total interest margin270.2 6.2 257.9 6.1 
Provision for loan losses(81.2)(1.9)(80.9)(1.9)
Total interest margin after provision for loan losses189.0 4.3 177.0 4.2 
Direct expenses:
Payroll and fringe benefit expense(18.6)(0.4)(16.6)(0.4)
Depreciation and amortization(4.2)(0.1)(4.1)(0.1)
Other direct expenses(19.2)(0.4)(18.9)(0.4)
Total direct expenses(42.0)(1.0)(39.6)(0.9)
CarMax Auto Finance income$147.0 3.3 $137.4 3.2 
Total average managed receivables$17,551.2 $17,003.4 

(1)     Annualized percentage of total average managed receivables.     

4. Auto Loans Receivable
Auto loans receivable include amounts due from customers related to retail vehicle sales financed through CAF and are presented net of an allowance for estimated loan losses.  These auto loans represent a large group of smaller-balance homogeneous loans, which we consider to be part of one class of financing receivable and one portfolio segment for purposes of determining our allowance for loan losses. We generally use warehouse facilities to fund auto loans receivable originated by CAF until we elect to fund them through an asset-backed term funding transaction, such as a term securitization or alternative funding arrangement.  We recognize transfers of auto loans receivable into the warehouse facilities and asset-backed term funding transactions (together, “non-recourse funding vehicles”) as secured borrowings, which result in recording the auto loans receivable and the related non-recourse notes payable on our consolidated balance sheets. The majority of the auto loans receivable serve as collateral for the related non-recourse notes payable of $17.17 billion as of May 31, 2024, and $16.87 billion as of February 29, 2024. See Note 9 for additional information on securitizations and non-recourse notes payable.
Interest income and expenses related to auto loans are included in CAF income.  Interest income on auto loans receivable is recognized when earned based on contractual loan terms.  All loans continue to accrue interest until repayment or charge-off.  When a charge-off occurs, accrued interest is written off by reversing interest income. Direct costs associated with loan originations are not considered material, and thus, are expensed as incurred.  See Note 3 for additional information on CAF income.
Page 11


Auto Loans Receivable, Net
 As of May 31As of February 29
(In millions)20242024
Asset-backed term funding$12,475.5 $12,638.2 
Warehouse facilities4,176.6 3,744.6 
Overcollateralization (1)
813.2 790.9 
Other managed receivables (2)
176.3 218.1 
Total ending managed receivables17,641.6 17,391.8 
Accrued interest and fees100.3 90.9 
Other19.5 11.9 
Less: allowance for loan losses(493.1)(482.8)
Auto loans receivable, net$17,268.3 $17,011.8 

(1)     Represents receivables restricted as excess collateral for the non-recourse funding vehicles.
(2)     Other managed receivables includes receivables not funded through the non-recourse funding vehicles.

Credit Quality.  When customers apply for financing, CAF’s proprietary scoring models utilize the customers’ credit history and certain application information to evaluate and rank their risk.  We obtain credit histories and other credit data that includes information such as number, age, type of and payment history for prior or existing credit accounts.  The application information that is used includes income, collateral value and down payment.  The scoring models yield credit grades that represent the relative likelihood of repayment.  Customers with the highest probability of repayment are A-grade customers. Customers assigned a lower grade are determined to have a lower probability of repayment.  For loans that are approved, the credit grade influences the terms of the agreement, such as the required loan-to-value ratio and interest rate. After origination, credit grades are generally not updated.
CAF uses a combination of the initial credit grades and historical performance to monitor the credit quality of the auto loans receivable on an ongoing basis.  We validate the accuracy of the scoring models periodically.  Loan performance is reviewed on a recurring basis to identify whether the assigned grades adequately reflect the customers’ likelihood of repayment.
Ending Managed Receivables by Major Credit Grade
As of May 31, 2024
Fiscal Year of Origination (1)
(In millions)20252024202320222021Prior to 2021Total
% (2)
Core managed receivables (3):
A$1,298.6 $3,535.2 $2,388.4 $1,428.4 $507.2 $212.1 $9,369.9 53.1 
B650.6 2,172.1 1,582.3 1,092.5 423.8 217.2 6,138.5 34.8 
C and other94.0 318.2 451.2 357.7 166.0 86.7 1,473.8 8.4 
Total core managed receivables2,043.2 6,025.5 4,421.9 2,878.6 1,097.0 516.0 16,982.2 96.3 
Other managed receivables (4):
C and other131.6 278.1 159.7 65.3 8.2 16.5 659.4 3.7 
Total ending managed receivables$2,174.8 $6,303.6 $4,581.6 $2,943.9 $1,105.2 $532.5 $17,641.6 100.0 
Gross charge-offs$0.4 $40.1 $50.8 $27.4 $8.1 $6.3 $133.1 

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As of February 29, 2024
Fiscal Year of Origination (1)
(In millions)20242023202220212020Prior to 2020Total
% (2)
Core managed receivables (3):
A$3,922.7 $2,660.6 $1,635.1 $614.0 $268.7 $40.0 $9,141.1 52.6 
B2,370.8 1,738.8 1,225.9 493.3 233.4 61.3 6,123.5 35.2 
C and other344.1 498.6 400.3 192.2 86.6 26.9 1,548.7 8.9 
Total core managed receivables6,637.6 4,898.0 3,261.3 1,299.5 588.7 128.2 16,813.3 96.7 
Other managed receivables (4):
C and other299.0 176.3 72.6 9.3 12.1 9.2 578.5 3.3 
Total ending managed receivables$6,936.6 $5,074.3 $3,333.9 $1,308.8 $600.8 $137.4 $17,391.8 100.0 
Gross charge-offs$111.0 $248.6 $129.8 $41.0 $19.7 $11.4 $561.5 

(1)     Classified based on credit grade assigned when customers were initially approved for financing.
(2)     Percent of total ending managed receivables.
(3)     Represents CAF’s Tier 1 originations.
(4)     Represents CAF’s Tier 2 and Tier 3 originations.

Allowance for Loan Losses.  The allowance for loan losses at May 31, 2024 represents the net credit losses expected over the remaining contractual life of our managed receivables. The allowance for loan losses is determined using a net loss timing curve method (“method”), primarily based on the composition of the portfolio of managed receivables and historical gross loss and recovery trends. Due to the fact that losses for receivables with less than 18 months of performance history can be volatile, our net loss estimate weights both historical losses by credit grade at origination and actual loss data on the receivables to-date, along with forward loss curves, in estimating future performance. Once the receivables have 18 months of performance history, the net loss estimate reflects actual loss experience of those receivables to-date, along with forward loss curves, to predict future performance. The forward loss curves are constructed using historical performance data and show the average timing of losses over the course of a receivable’s life. The net loss estimate is calculated by applying the loss rates developed using the methods described above to the amortized cost basis of the managed receivables at inception of the loan.
The output of the method is adjusted to take into account reasonable and supportable forecasts about the future. Specifically, the change in U.S. unemployment rates and the National Automobile Dealers Association used vehicle price index are used to predict changes in gross loss and recovery rates, respectively. An economic adjustment factor, based upon a single macroeconomic scenario, is developed to capture the relationship between changes in these forecasts and changes in gross loss and recovery rates. This factor is applied to the output of the method for the reasonable and supportable forecast period of two years. After the end of this two-year period, we revert to historical experience on a straight-line basis over a period of 12 months. We periodically consider whether the use of alternative metrics would result in improved model performance and revise the models when appropriate. We also consider whether qualitative adjustments are necessary for factors that are not reflected in the quantitative methods but impact the measurement of estimated credit losses. Such adjustments include the uncertainty of the impacts of recent economic trends on customer behavior. The change in the allowance for loan losses is recognized through an adjustment to the provision for loan losses.
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Allowance for Loan Losses

Three Months Ended May 31, 2024
(In millions)CoreOtherTotal
(1)
Balance as of beginning of period$389.7 $93.1 $482.8 2.78 
Charge-offs(113.0)(20.1)(133.1)
Recoveries (2)
53.9 8.3 62.2 
Provision for loan losses66.0 15.2 81.2 
Balance as of end of period$396.6 $96.5 $493.1 2.79 

Three Months Ended May 31, 2023
(In millions)CoreOtherTotal
% (1)
Balance as of beginning of period$401.5 $105.7 $507.2 3.02 
Charge-offs(93.1)(16.7)(109.8)
Recoveries (2)
50.5 6.6 57.1 
Provision for loan losses68.6 12.3 80.9 
Balance as of end of period$427.5 $107.9 $535.4 3.11 

(1)     Percent of total ending managed receivables.
(2)     Net of costs incurred to recover vehicle.
 
During the first three months of fiscal 2025, the allowance for loan losses as a percent of total ending managed receivables increased by 1 basis point. The increase was primarily due to CAF’s expanded investment in Tier 2, partially offset by the previously implemented tightened underwriting standards in response to the current environment. The increase in net charge-offs primarily reflects continued customer hardship in the current economic environment. The allowance for loan losses as of May 31, 2024 reflects our best estimate of expected future losses based on recent trends in delinquencies, loss performance, recovery rates and the economic environment.
Past Due Receivables. An account is considered delinquent when the related customer fails to make a substantial portion of a scheduled payment on or before the due date. In general, accounts are charged-off on the last business day of the month during which the earliest of the following occurs: the receivable is 120 days or more delinquent as of the last business day of the month, the related vehicle is repossessed and liquidated, or the receivable is otherwise deemed uncollectable. For purposes of determining impairment, auto loans are evaluated collectively, as they represent a large group of smaller-balance homogeneous loans, and therefore, are not individually evaluated for impairment.
Past Due Receivables
As of May 31, 2024
Core ReceivablesOther ReceivablesTotal
(In millions)ABC & OtherTotalC & Other$
% (1)
Current$9,316.9 $5,672.3 $1,180.7 $16,169.9 $522.7 $16,692.6 94.62 
Delinquent loans:
31-60 days past due33.9 272.2 159.5 465.6 71.3 536.9 3.04 
61-90 days past due14.1 157.7 112.8 284.6 54.9 339.5 1.93 
Greater than 90 days past due5.0 36.3 20.8 62.1 10.5 72.6 0.41 
Total past due53.0 466.2 293.1 812.3 136.7 949.0 5.38 
Total ending managed receivables$9,369.9 $6,138.5 $1,473.8 $16,982.2 $659.4 $17,641.6 100.00 

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As of February 29, 2024
Core ReceivablesOther ReceivablesTotal
(In millions)ABC & OtherTotalC & Other$
% (1)
Current$9,088.1 $5,666.3 $1,243.7 $15,998.1 $447.1 $16,445.2 94.56 
Delinquent loans:
31-60 days past due32.1 271.3 162.9 466.3 68.1 534.4 3.07 
61-90 days past due15.1 149.4 118.5 283.0 53.0 336.0 1.93 
Greater than 90 days past due5.8 36.5 23.6 65.9 10.3 76.2 0.44 
Total past due53.0 457.2 305.0 815.2 131.4 946.6 5.44 
Total ending managed receivables$9,141.1 $6,123.5 $1,548.7 $16,813.3 $578.5 $17,391.8 100.00 

(1)     Percent of total ending managed receivables. 

5. Derivative Instruments and Hedging Activities
We use derivatives to manage certain risks arising from both our business operations and economic conditions, particularly with regard to issuances of debt.  Primary exposures include SOFR and other rates used as benchmarks in our securitizations and other debt financing.  We enter into derivative instruments to manage exposures related to the future known receipt or payment of uncertain cash amounts, the values of which are impacted by interest rates, and generally designate these derivative instruments as cash flow hedges for accounting purposes.  In certain cases, we may choose not to designate a derivative instrument as a cash flow hedge for accounting purposes due to uncertainty around the probability that future hedged transactions will occur. Our derivative instruments are used to manage (i) differences in the amount of our known or expected cash receipts and our known or expected cash payments principally related to the funding of our auto loans receivable, and (ii) exposure to variable interest rates associated with our term loans. 
For the derivatives associated with our non-recourse funding vehicles that are designated as cash flow hedges, the changes in fair value are initially recorded in accumulated other comprehensive income (“AOCI”).  For the majority of these derivatives, the amounts are subsequently reclassified into CAF income in the period that the hedged forecasted transaction affects earnings, which occurs as interest expense is recognized on those future issuances of debt. During the next 12 months, we estimate that an additional $51.7 million will be reclassified from AOCI as an increase to CAF income. Changes in fair value related to derivatives that have not been designated as cash flow hedges for accounting purposes are recognized in the income statement in the period in which the change occurs. For the three months ended May 31, 2024, we recognized expense of $3.2 million in CAF income representing these changes in fair value.
As of May 31, 2024 and February 29, 2024, we had interest rate swaps outstanding with a combined notional amount of $4.99 billion and $5.21 billion, respectively, that were designated as cash flow hedges of interest rate risk. As of May 31, 2024 and February 29, 2024, we had interest rate swaps with a combined notional amount of $529.0 million and $704.0 million, respectively, outstanding that were not designated as cash flow hedges for accounting purposes.
See Note 6 for discussion of fair values of financial instruments and Note 12 for the effect on comprehensive income.
6. Fair Value Measurements
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants in the principal market or, if none exists, the most advantageous market, for the specific asset or liability at the measurement date (referred to as the “exit price”).  The fair value should be based on assumptions that market participants would use, including a consideration of nonperformance risk. 
We assess the inputs used to measure fair value using the three-tier hierarchy.  The hierarchy indicates the extent to which inputs used in measuring fair value are observable in the market. 
Level 1     Inputs include unadjusted quoted prices in active markets for identical assets or liabilities that we can access at the measurement date.
 
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Level 2     Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly, including quoted prices for similar assets in active markets, quoted prices from identical or similar assets in inactive markets, observable inputs, such as interest rates and yield curves, and assumptions about risk.
 
Level 3     Inputs that are significant to the measurement that are not observable in the market and include management’s judgments about the assumptions market participants would use in pricing the asset or liability (including assumptions about risk).

Our fair value processes include controls that are designed to ensure that fair values are appropriate.  Such controls include model validation, review of key model inputs, analysis of period-over-period fluctuations and reviews by senior management.
Valuation Methodologies 
Money Market Securities.  Money market securities are cash equivalents, which are included in cash and cash equivalents, restricted cash from collections on auto loans receivable and other assets.  They consist of highly liquid investments with original maturities of three months or less and are classified as Level 1. 
Mutual Fund Investments.  Mutual fund investments consist of publicly traded mutual funds that primarily include diversified equity investments in large-, mid- and small-cap domestic and international companies or investment grade debt securities.  The investments, which are included in other assets, are held in a rabbi trust established to fund informally our executive deferred compensation plan and are classified as Level 1.
Derivative Instruments.  The fair values of our derivative instruments are included in either other current assets, other assets, accounts payable or other liabilities.  Our derivatives are not exchange-traded and are over-the-counter customized derivative instruments.  All of our derivative exposures are with highly rated bank counterparties.
We measure derivative fair values assuming that the unit of account is an individual derivative instrument and that derivatives are sold or transferred on a stand-alone basis.  We estimate the fair value of our derivatives using quotes determined by the derivative counterparties and third-party valuation services.  Quotes from third-party valuation services and quotes received from bank counterparties project future cash flows and discount the future amounts to a present value using market-based expectations for interest rates and the contractual terms of the derivative instruments.  The models do not require significant judgment and model inputs can typically be observed in a liquid market; however, because the models include inputs other than quoted prices in active markets, all derivatives are classified as Level 2. 
Our derivative fair value measurements consider assumptions about counterparty and our own nonperformance risk.  We monitor counterparty and our own nonperformance risk and, in the event that we determine that a party is unlikely to perform under terms of the contract, we would adjust the derivative fair value to reflect the nonperformance risk.
Items Measured at Fair Value on a Recurring Basis
 As of May 31, 2024
(In thousands)Level 1Level 2Total
Assets:   
Money market securities$836,465 $ $836,465 
Mutual fund investments25,175  25,175 
Derivative instruments designated as hedges 51,354 51,354 
Derivative instruments not designated as hedges 9,913 9,913 
Total assets at fair value$861,640 $61,267 $922,907 
Percent of total assets at fair value93.4  %6.6 %100.0 %
Percent of total assets3.2  %0.2 %3.4 %
Liabilities:   
Derivative instruments designated as hedges$ $(1,019)$(1,019)
Total liabilities at fair value$ $(1,019)$(1,019)
Percent of total liabilities  % % %
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 As of February 29, 2024
(In thousands)Level 1Level 2Total
Assets:   
Money market securities$1,164,270 $ $1,164,270 
Mutual fund investments24,312  24,312 
Derivative instruments designated as hedges 45,761 45,761 
Derivative instruments not designated as hedges 13,064 13,064 
Total assets at fair value$1,188,582 $58,825 $1,247,407 
Percent of total assets at fair value95.3  %4.7  %100.0  %
Percent of total assets4.4  %0.2  %4.6  %
Liabilities:   
Derivative instruments designated as hedges$ $(2,302)$(2,302)
Total liabilities at fair value$ $(2,302)$(2,302)
Percent of total liabilities  % % %

Fair Value of Financial Instruments
The carrying value of our cash and cash equivalents, accounts receivable, other restricted cash deposits and accounts payable approximates fair value due to the short-term nature and/or variable rates associated with these financial instruments. Auto loans receivable are presented net of an allowance for estimated loan losses, which we believe approximates fair value. We believe that the carrying value of our revolving credit facility and term loans approximates fair value due to the variable rates associated with these obligations. The fair value of our senior unsecured notes, which are not carried at fair value on our consolidated balance sheets, was determined using Level 2 inputs based on quoted market prices. The carrying value and fair value of the senior unsecured notes as of May 31, 2024 and February 29, 2024, respectively, are as follows:
(In thousands)As of May 31, 2024As of February 29, 2024
Carrying value$400,000 $400,000 
Fair value$380,320 $380,249 

7. Cancellation Reserves
We recognize revenue for EPP products, on a net basis, at the time of sale. We also record a reserve, or refund liability, for estimated contract cancellations.  Cancellations of these services may result from early termination by the customer, or default or prepayment on the finance contract.  The reserve for cancellations is evaluated for each product and is based on forecasted forward cancellation curves utilizing historical experience, recent trends and credit mix of the customer base.
Cancellation Reserves
 Three Months Ended May 31
(In millions)20242023
Balance as of beginning of period$128.3 $139.2 
Cancellations(21.3)(24.6)
Provision for future cancellations24.3 24.1 
Balance as of end of period$131.3 $138.7 
 
The current portion of estimated cancellation reserves is recognized as a component of accrued expenses and other current liabilities with the remaining amount recognized in other liabilities. As of May 31, 2024 and February 29, 2024, the current portion of cancellation reserves was $70.9 million and $69.7 million, respectively.
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8. Income Taxes
We had $30.0 million of gross unrecognized tax benefits as of May 31, 2024, and $28.8 million as of February 29, 2024.  There were no significant changes to the gross unrecognized tax benefits as reported for the fiscal year ended February 29, 2024.
Within the next 12 months, it is reasonably possible that statutes will expire and previously unrecognized tax benefits related to the prepayment of services provided by related entities will be recognized. Recognition of the benefits will decrease gross unrecognized tax benefits by approximately $14.0 million and would not materially impact our effective tax rate.
9. Debt

(In thousands)As of May 31As of February 29
Debt Description (1)
Maturity Date20242024
Revolving credit facility (2)
June 2028$ $ 
Term loan (2)
June 2024 300,000 
Term loan (2)
October 2026699,668 699,633 
4.17% Senior notesApril 2026200,000 200,000 
4.27% Senior notesApril 2028200,000 200,000 
Financing obligationsVarious dates through February 2059513,707 516,544 
Non-recourse notes payableVarious dates through December 203017,166,525 16,866,972 
Total debt18,779,900 18,783,149 
Less: current portion(535,944)(797,449)
Less: unamortized debt issuance costs(26,579)(26,044)
Long-term debt, net$18,217,377 $17,959,656 

(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 SOFR, the federal funds rate, or the prime rate, depending on the type of borrowing.

Revolving Credit Facility. Borrowings under our $2.00 billion unsecured revolving credit facility (the “credit facility”) are available for working capital and general corporate purposes.  We pay a commitment fee on the unused portions of the available funds. Borrowings under the credit facility are either due “on demand” or at maturity depending on the type of borrowing.  Borrowings with “on demand” repayment terms are presented as short-term debt, while amounts due at maturity are presented as long-term debt.  As of May 31, 2024, the unused capacity of $2.00 billion was fully available to us.
Term Loans. The $300 million term loan was paid in May 2024. Borrowings under the $700 million term loan are available for working capital and general corporate purposes. The interest rate on our term loan was 6.33% as of May 31, 2024. The $700 million term loan was classified as long-term debt as no repayments are scheduled to be made within the next 12 months.
Senior Notes. Borrowings under our unsecured senior notes totaling $400 million are available for working capital and general corporate purposes. As of May 31, 2024, all notes were classified as long-term debt as no repayments are scheduled to be made within the next 12 months.
Financing Obligations.  Financing obligations relate to stores subject to sale-leaseback transactions that do not qualify for sale accounting.  The financing obligations were structured at varying interest rates and generally have initial lease terms ranging from 15 to 20 years with payments made monthly.  We have not entered into any new sale-leaseback transactions since fiscal 2009. In the event the agreements are modified or extended beyond their original term, the related obligation is adjusted based on the present value of the revised future payments, with a corresponding change to the assets subject to these transactions. Upon modification, the amortization of the obligation is reset, resulting in more of the payments being applied to interest expense in the initial years following the modification.  
Non-Recourse Notes Payable.  The non-recourse notes payable relate to auto loans receivable funded through non-recourse funding vehicles.  The timing of principal payments on the non-recourse notes payable is based on the timing of principal collections and defaults on the related auto loans receivable. The current portion of non-recourse notes payable represents principal payments that are due to be distributed in the following period. 
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Notes payable related to our asset-backed term funding transactions accrue interest predominantly at fixed rates and have scheduled maturities through December 2030, but may mature earlier, depending upon the repayment rate of the underlying auto loans receivable.
Information on our funding vehicles of non-recourse notes payable as of May 31, 2024 are as follows:
(In billions)Capacity
Warehouse facilities:
August 2024 expiration$2.30 
December 2024 expiration0.70 
March 2025 expiration3.10 
Combined warehouse facility limit$6.10 
Unused capacity$1.92 
Non-recourse notes payable outstanding:
Warehouse facilities$4.18 
Asset-backed term funding transactions12.99 
Non-recourse notes payable$17.17 

We generally enter into warehouse facility agreements for one-year terms and typically renew the agreements annually. The return requirements of warehouse facility investors could fluctuate significantly depending on market conditions.  At renewal, the cost, structure and capacity of the facilities could change.  These changes could have a significant impact on our funding costs.
In June 2024, we entered into a $625 million asset-backed term funding transaction for our new non-prime securitization program. Going forward, we plan to expand our current asset-backed securitization program from a single issuance to one that more broadly incorporates the funding of CAF’s receivables across distinct prime and non-prime segments. We believe this new program will enable us to fund incremental originations and support future CAF growth across the credit spectrum by creating additional funding capacity, driving additional finance income for the business over time.
See Note 4 for additional information on the related auto loans receivable.
Capitalized Interest.  We capitalize interest in connection with the construction of certain facilities.  For the three months ended May 31, 2024 and 2023, we capitalized interest of $1.5 million and $1.4 million, respectively. 
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, as well as financial covenants and performance triggers related to events of default.  As of May 31, 2024, we were in compliance with these financial covenants and our non-recourse funding vehicles were in compliance with these performance triggers.

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10. Stock and Stock-Based Incentive Plans
(A)Share Repurchase Program
As of May 31, 2024, a total of $4.0 billion of board authorizations for repurchases of our common stock was outstanding, with no expiration date, of which $2.26 billion remained available for repurchase.
Common Stock Repurchases
 Three Months Ended
 May 31
 20242023
Number of shares repurchased (in thousands)
1,445.8  
Average cost per share$71.91 $ 
Available for repurchase, as of end of period (in millions)
$2,256.2 $2,451.3 

(B)Stock Incentive Plans
We maintain long-term incentive plans for management, certain employees and the nonemployee members of our board. The plans allow for the granting of equity-based compensation awards, including nonqualified stock options, incentive stock options, stock appreciation rights, restricted stock awards, stock- and cash-settled restricted stock units, stock grants or a combination of awards. To date, we have not awarded any incentive stock options.
The majority of associates who receive share-based compensation awards primarily receive cash-settled restricted stock units. Senior management and other key associates receive awards of nonqualified stock options, stock-settled restricted stock units and/or restricted stock awards. Nonemployee directors are eligible to receive awards of nonqualified stock options, stock grants, stock-settled restricted stock units and/or restricted stock awards. Excluding stock grants and stock-settled deferred stock units, all share-based compensation awards, including any associated dividend rights, are subject to forfeiture.
Nonqualified Stock Options. Nonqualified stock options are awards that allow the recipient to purchase shares of our common stock at a fixed price. Stock options are granted at an exercise price equal to the fair market value of our common stock on the grant date. The stock options generally vest annually in equal amounts over four years. These options expire seven years after the date of the grant.
Cash-Settled Restricted Stock Units. Also referred to as restricted stock units, or RSUs, these are awards that entitle the holder to a cash payment equal to the fair market value of a share of our common stock for each unit granted. Conversion generally occurs annually in equal amounts over three years. However, the cash payment per RSU will not be greater than 200% or less than 75% of the fair market value of a share of our common stock on the grant date. The initial grant date fair values are based on the closing prices of our common stock on the grant dates. RSUs are liability-classified awards and do not have voting rights.
Stock-Settled Market Stock Units. Also referred to as market stock units, or MSUs, these are restricted stock unit awards with market conditions granted to eligible key associates that are converted into between zero and two shares of common stock for each unit granted. Conversion generally occurs at the end of a three-year vesting period. The conversion ratio is calculated by dividing the average closing price of our stock during the final 40 trading days of the three-year vesting period by our stock price on the grant date, with the resulting quotient capped at two. This quotient is then multiplied by the number of MSUs granted to yield the number of shares awarded. The grant date fair values are determined using a Monte-Carlo simulation and are based on the expected market price of our common stock on the vesting date and the expected number of converted common shares. MSUs do not have voting rights.
Other Share-Based Incentives
Stock-Settled Performance Stock Units. Also referred to as performance stock units, or PSUs, these are restricted stock unit awards with performance conditions granted to eligible key associates that are converted into between zero and two shares of common stock for each unit granted. Conversion generally occurs at the end of a three-year vesting period. For the fiscal 2022 grants, the first- and second-year periods of the fiscal 2023 grants and the first-year period of the fiscal 2024 grants, the conversion ratio is based on the company reaching certain performance target levels set by the board at the beginning of each
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one-year period, with the resulting quotients subject to meeting a minimum 25% threshold and capped at 200%. For the third-year period of the fiscal 2023 grants, the second-year period of the fiscal 2024 grants and the fiscal 2025 grants, the conversion ratio is based on the company reaching certain target levels set by the board, with the resulting quotients subject to meeting a minimum 50% threshold and capped at 200%. These quotients are then multiplied by the number of PSUs granted to yield the number of shares awarded.
For the first year of the fiscal 2022 awards, these targets were based on annual pretax diluted earnings per share excluding any unrealized gains or losses on equity investments in private companies; the board certified a performance adjustment factor of 200%. For the second- and third-year periods of the fiscal 2022 awards, the first- and second-year periods of the fiscal 2023 awards and the first-year period of the fiscal 2024 awards, the performance targets are based on annual pretax diluted earnings per share, excluding any unrealized gains or losses on equity investments in private companies, and market share. For the second-year period of the fiscal 2022 awards and the first-year period of the fiscal 2023 awards, the board certified a performance adjustment factor of 4%. For the third-year period of the fiscal 2022 awards, the second-year period of the fiscal 2023 grants and the first-year period of the fiscal 2024 grants, the board certified a performance adjustment factor of 38%. For the third-year period of the fiscal 2023 awards and the second-year period of the fiscal 2024 awards, the performance targets are based on the annual pre-tax earnings, excluding any unrealized gains or losses on equity investments in private companies and any significant non-recurring non-cash gains or losses. For the third-year period of the fiscal 2024 awards, the remaining awarded 23,551 PSUs do not qualify as grants under ASC 718 as mutual understanding of the target performance levels are either not fully set or have not been set. For the fiscal 2025 awards, the performance targets are based on the cumulative three-year pretax earnings, excluding any unrealized gains or losses on equity investments in private companies and any significant non-recurring non-cash gains or losses.
PSUs do not have voting rights. The grant date fair values are based on the closing prices of our common stock on the grant dates. As of May 31, 2024, 296,997 units were outstanding at a weighted average grant date fair value per share of $71.11.
Stock-Settled Deferred Stock Units. Also referred to as deferred stock units, or DSUs, these are restricted stock unit awards granted to non-employee members of our board that are converted into one share of common stock for each unit granted. Conversion occurs at the end of the one-year vesting period unless the director has exercised the option to defer conversion until separation of service to the company. The grant date fair values are based on the closing prices of our common stock on the grant dates. DSUs have no voting rights. As of May 31, 2024, 97,001 units were outstanding at a weighted average grant date fair value of $89.80.
Restricted Stock Awards. Restricted stock awards, or RSAs, are awards of our common stock that are subject to specified restrictions that generally lapse after a one- to three-year period from the date of the grant. The grant date fair values are based on the closing prices of our common stock on the grant dates. Participants holding restricted stock are entitled to vote on matters submitted to holders of our common stock for a vote. As of May 31, 2024, there were no RSAs outstanding.
(C)Share-Based Compensation
Composition of Share-Based Compensation Expense
 Three Months Ended
 May 31
(In thousands)20242023
Cost of sales$1,009 $1,390 
CarMax Auto Finance income685 449 
Selling, general and administrative expenses47,101 35,304 
Share-based compensation expense, before income taxes$48,795 $37,143 
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Composition of Share-Based Compensation Expense – By Grant Type
 Three Months Ended
 May 31
(In thousands)20242023
Nonqualified stock options$18,944 $14,077 
Cash-settled restricted stock units (RSUs)11,390 15,111 
Stock-settled market stock units (MSUs)7,580 6,224 
Other share-based incentives:
Stock-settled performance stock units (PSUs)10,184 741 
Restricted stock (RSAs) 231 
Employee stock purchase plan697 759 
Total other share-based incentives$10,881 $1,731 
Share-based compensation expense, before income taxes$48,795 $37,143 

Unrecognized Share-Based Compensation Expense – By Grant Type

 As of May 31, 2024
Weighted Average
UnrecognizedRemaining
CompensationRecognition Life
(Costs in millions)Costs(Years)
Nonqualified stock options$55.0 2.4
Stock-settled market stock units28.5 2.1
Other share-based incentives:
  Stock-settled performance stock units6.8 2.4
Total other share-based incentives6.8 2.4
Total$90.3 2.3

We recognize compensation expense for stock options, MSUs, PSUs, DSUs and RSAs on a straight-line basis (net of estimated forfeitures) over the requisite service period, which is generally the vesting period of the award.  The PSU expense is adjusted for any change in management’s assessment of the performance target level that is probable of being achieved. The variable expense associated with RSUs is recognized over their vesting period (net of estimated forfeitures) and is calculated based on the closing price of our common stock on the last trading day of each reporting period. 
The total costs for matching contributions for our employee stock purchase plan are included in share-based compensation expense.  There were no capitalized share-based compensation costs as of or for the three months ended May 31, 2024 or 2023.
Stock Option Activity
   Weighted 
  WeightedAverage 
  AverageRemainingAggregate
 Number ofExerciseContractualIntrinsic
(Shares and intrinsic value in thousands)SharesPriceLife (Years)Value
Outstanding as of February 29, 20247,393 $82.03 
Options granted1,218 $67.21 
Options exercised(138)$59.39 
Options forfeited or expired(70)$83.25 
Outstanding as of May 31, 20248,403 $80.25 4.0$11,182 
Exercisable as of May 31, 20245,317 $82.02 2.8$7,295 

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Stock Option Information
Three Months Ended May 31
20242023
Options granted1,218,305 1,491,326 
Weighted average grant date fair value per share$29.18 $29.1 
Cash received from options exercised (in millions)
$8.2 $1.0 
Intrinsic value of options exercised (in millions)
$1.8 $0.2 
Realized tax benefits (in millions)
$0.4 $0.1 

For stock options, the fair value of each award is estimated as of the date of grant using a binomial valuation model.  In computing the value of the option, the binomial model considers characteristics of fair-value option pricing that are not available for consideration under a closed-form valuation model (for example, the Black-Scholes model), such as the contractual term of the option, the probability that the option will be exercised prior to the end of its contractual life and the probability of termination or retirement of the option holder.  For this reason, we believe that the binomial model provides a fair value that is more representative of actual experience and future expected experience than the value calculated using a closed-form model.  Estimates of fair value are not intended to predict actual future events or the value ultimately realized by the recipients of share-based awards.
Assumptions Used to Estimate Option Values