C
A
R
M
A
X
,
I
N
C
.
A
N
N
U
A
L
R
E
P
O
R
T
F
I
S
C
A
L
Y
E
A
R
2
0
2
1
ANNUAL REPORT FISCAL YEAR 2021
The Nation’s Largest Used Car Retailer
+750K+
CARS SOLD
IN FY2021
+425K+
WHOLESALE CARS
IN FY2021
$6 Bn
CAF ORIGINATIONS
IN FY2021
27M
AVERAGE MONTHLY
WEB VISITS
27K
ASSOCIATES
NATIONWIDE
24 HOUR
TEST DRIVES
30 DAY
RETURNS1
90 DAY
WARRANTY2
220
locations
nationwide
CARMAX MARKETS
`` Existing Television Markets
as of April 20, 2021
(Size of markers is based on
number of CarMax stores in
each market)
1Up to 1,500 miles. 290 days or 4,000 miles limited warranty.
2021 Letter to Shareholders
Dear Fellow Shareholders,
A year ago, most of us couldn’t envision how these past twelve months would unfold. What has stood out
to me is the strength, resiliency, and the way in which we have worked to take care of each other through
these unprecedented times. While this year was the most difficult operating environment we have ever
seen, it also made clear that all the work we have done to achieve the digital transformation of our
business has placed CarMax in an incredibly strong position. We are seeing the benefits these investments
are generating and are excited about the opportunities ahead of us.
I am very proud of how our 27,000 associates supported each other, our customers, and our communities
throughout this past year, demonstrating once again that our people are key to our success. They
repeatedly rose to the occasion to deliver exceptional experiences for our customers and meet the needs
of our business, while innovating for the future. It is a testament to the strength of our culture and the
hard work of our associates at every level that we were recognized for the 17th consecutive year as one of
FORTUNE Magazine’s 100 Best Companies to Work For®. We are also proud that this year we further
advanced our longstanding commitment to diversity and inclusion. It is our vision that everyone,
everywhere has the same opportunity to reach their full potential.
Well before the COVID-19 pandemic began, we started on a journey to create a seamless, world-class
online and in-store experience for consumers through our omni-channel strategy. This strategy leverages
many of our core strengths, including our differentiated scale, proprietary tech stack, extensive data
assets, and our skilled and knowledgeable associates. This unmatched omni-channel experience supports
CarMax’s leadership position as the largest and most customer-centric retailer of used autos.
At the start of fiscal 2021, the pandemic posed
significant challenges to our business. Shelter-in-place
orders and occupancy restrictions limited operating
capacity at our stores and put pressure on sales.
However, it also validated our digital transformation
and gave us a unique opportunity to accelerate our
pace of innovation. During this time, we unveiled
several notable tech-driven offerings for consumers,
including expanding and enhancing our online shopping
capabilities to
for
contactless, curbside pickup. We also moved our entire
wholesale auction business to virtual over the span of
just a couple of weeks.
include a brand-new option
“This unmatched omni-
channel experience
supports CarMax’s
leadership position as
the largest and most
customer-centric retailer
of used autos.”
1
Then, in August, we completed the national rollout of our omni-channel platform. This was a significant
milestone for our entire organization. In the remainder of the fiscal year, we continued to enhance our
customer experience through new offerings, such as online instant appraisals. We also reiterated our
customer-centric approach by introducing the Love Your Car Guarantee, an industry-leading signature
customer offering, and extending our Money Back Guarantee to 30 days, which is unmatched in the auto
industry.
We will continue to evolve our business as an omni-channel retailer by innovating at an accelerated pace,
leveraging our scale across technology, data, talent and physical assets to unlock opportunities to
compete across the used auto ecosystem. A great
example of this is our planned acquisition of Edmunds,
which expands our reach and brings us closer to a
broader set of consumers and dealers. We are confident
this investment will serve as a springboard for many new
fragmented used auto
initiatives
ecosystem.
the highly
in
“Our transformative
investments over the
past several years have
put CarMax in the best
position to win now and
in the future.”
Our transformative investments over the past several
years have put CarMax in the best position to win now
and in the future. And, while we have undergone a
massive transformation, two things that will not change
are: (1) our purpose: to drive integrity by being honest
and transparent in every interaction; and, (2) our core values that inform everything we do: do the right
thing, put people first, win together and go for greatness.
This year has certainly proven, yet again, the strength and the resilience of CarMax. I am incredibly proud
of our accomplishments and learnings, and focused on the tremendous opportunities ahead for us. Thank
you to our customers, communities and shareholders for your continued confidence in CarMax’s bright
future.
To our associates, you are CarMax’s true differentiator and competitive advantage. I am honored to be a
part of this team. I know this past year was a challenging time for all of us, but we have come through it
better and stronger than ever. Thank you for your unwavering dedication to our values and all that you
do.
Bill Nash
President and Chief Executive Officer
April 23, 2021
2
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
FORM 10-K
☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For the fiscal year ended February 28, 2021
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
☐
For the transition period from ____ to ____
Commission file number 001-31420
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
Richmond, Virginia
(Address of Principal Executive Offices)
23238
(Zip Code)
(804) 747-0422
Registrant's telephone number, including area code
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Common Stock
Trading Symbol(s)
KMX
Name of each exchange on which registered
New York Stock Exchange
Securities registered pursuant to section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes ☒ No ☐
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
Yes ☐ No ☒
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 and posted on its corporate web site, if any, every
Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter)
during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a
smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company”
in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer
Non-accelerated filer
☒
☐
Accelerated filer
Smaller 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 has filed a report on and attestation to its management’s assessment of the
effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C.
7262(b)) by the registered public accounting firm that prepared or issued its audit report.
☒
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☒
The aggregate market value of the registrant’s common stock held by non-affiliates as of August 31, 2020, computed by
reference to the closing price of the registrant’s common stock on the New York Stock Exchange on that date, was
$17,553,869,713.
On March 31, 2021, there were 163,180,172 outstanding shares of CarMax, Inc. common stock.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the CarMax, Inc. Notice of 2021 Annual Meeting of Shareholders and Proxy Statement are incorporated by
reference in Part III of this Form 10-K.
CARMAX, INC.
FORM 10-K
FOR FISCAL YEAR ENDED FEBRUARY 28, 2021
TABLE OF CONTENTS
Item 1.
Item 1A.
Item 1B.
Item 2.
Item 3.
Item 4.
Item 5.
Item 6.
Item 7.
Item 7A.
Item 8.
Item 9.
Item 9A.
Item 9B.
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.
Item 15.
Item 16.
Business
Risk Factors
Unresolved Staff Comments
Properties
Legal Proceedings
Mine Safety Disclosures
Executive Officers of the Company
PART I
PART II
Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases
of Equity Securities
Selected Financial Data
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Quantitative and Qualitative Disclosures about Market Risk
Consolidated Financial Statements and Supplementary Data
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Controls and Procedures
Other Information
PART III
Directors, Executive Officers and Corporate Governance
Executive Compensation
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters
Certain Relationships and Related Transactions and Director Independence
Principal Accountant Fees and Services
Exhibits and Financial Statement Schedules
Form 10-K Summary
Signatures
PART IV
Page
No.
5
12
19
19
21
21
21
23
25
26
42
44
84
84
84
84
85
85
85
85
85
89
90
3
PART I
In this document, “we,” “our,” “us,” “CarMax” and “the company” refer to CarMax, Inc. and its wholly owned subsidiaries,
unless the context requires otherwise.
FORWARD-LOOKING AND CAUTIONARY STATEMENTS
This Annual Report on Form 10-K and, in particular, the description of our business set forth in Item 1 and our Management’s
Discussion and Analysis of Financial Condition and Results of Operations set forth in Item 7 contain forward-looking
statements within the meaning of Section 27A of the Securities Act of 1933, as amended (“Securities Act”), and Section 21E of
the Securities Exchange Act of 1934, as amended (“Exchange Act”), including statements regarding:
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
The effect and consequences of the novel coronavirus (“COVID-19”) public health crisis on matters including U.S. and
local economies; our business operations and continuity; the availability of corporate and consumer financing; the health
and productivity of our associates and their access to effective vaccines; the ability of third-party providers to continue
uninterrupted service; and the regulatory environment in which we operate.
Our projected future sales growth, comparable store sales growth, margins, tax rates, earnings, CarMax Auto Finance
income and earnings per share.
Our business strategies.
Our expectations for strategic investments, including the proposed acquisition of Edmunds.
Our expectations of factors that could affect CarMax Auto Finance income.
Our expected future expenditures, cash needs, and financing sources.
Our expected capital structure, stock repurchases and indebtedness.
The projected number, timing and cost of new store openings.
Our gross profit margin, inventory levels and ability to leverage selling, general and administrative and other fixed costs.
Our sales and marketing plans.
The capabilities of our proprietary information technology systems and other systems.
Our assessment of the potential outcome and financial impact of litigation and the potential impact of unasserted claims.
Our assessment of competitors and potential competitors.
Our expectations for growth in our markets and business sectors.
Our assessment of the effect of recent legislation and accounting pronouncements.
In addition, any statements contained in or incorporated by reference into this report that are not statements of historical fact
should be considered forward-looking statements. You can identify these forward-looking statements by the use of words such
as “anticipate,” “believe,” “could,” “estimate,” “expect,” “intend,” “may,” “outlook,” “plan,” “positioned,” “predict,” “should,”
“will” and other similar expressions, whether in the negative or affirmative. We cannot guarantee that we will achieve the
plans, intentions or expectations disclosed in the forward-looking statements. There are a number of important risks and
uncertainties that could cause actual results to differ materially from those indicated by our forward-looking statements. These
risks and uncertainties include, without limitation, those set forth in Item 1A under the heading “Risk Factors.” We caution
investors not to place undue reliance on any forward-looking statements as these statements speak only as of the date when
made. We disclaim any intent or obligation to update any forward-looking statements made in this report.
4
Item 1. Business.
BUSINESS OVERVIEW
CarMax Background
CarMax, Inc. delivers 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. We are the nation’s largest and
most profitable retailer of used cars, and we sold 751,862 used vehicles at retail during the fiscal year ended February 28,
2021. We are also one of the nation’s largest operators of wholesale vehicle auctions, with 426,268 vehicles sold during fiscal
2021, and one of the nation’s largest providers of used vehicle financing, servicing approximately 1,054,000 customer accounts
in our $13.85 billion portfolio of managed receivables as of February 28, 2021.
Our omni-channel platform, which gives us the largest addressable market in the used car industry, empowers customers to buy
a car on their terms – online, in-store or a seamless combination of both. Customers can choose to complete the car-buying
experience in-person at one of our stores; or buy the car online and receive delivery through contactless curbside pickup,
available nationwide, or home delivery, available to most customers.
CarMax was incorporated under the laws of the Commonwealth of Virginia in 1996. CarMax, Inc. is a holding company and
our operations are conducted through our subsidiaries. Under the ownership of Circuit City Stores, Inc. (“Circuit City”), we
began operations in 1993 with the opening of our first CarMax store in Richmond, Virginia. On October 1, 2002, the CarMax
business was separated from Circuit City through a tax-free transaction, becoming an independent, publicly traded
company. As of February 28, 2021, we operated 220 used car stores in 106 U.S. television markets. Our home office is located
at 12800 Tuckahoe Creek Parkway, Richmond, Virginia.
Impact of COVID-19
In March 2020, the World Health Organization declared the outbreak of COVID-19 as a global pandemic. Throughout fiscal
2021, many U.S. states and localities have shelter-in-place orders and occupancy restrictions, impacting the operations of our
stores and consumer demand. We have implemented robust plans to reduce the risk of exposure and transmission 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 kept our appraisal lanes open for customers
who wanted or needed to sell their cars. During the second quarter of fiscal 2021, we completed the rollout of our omni-
channel platform, giving us the largest addressable market in the used car industry. Despite the challenges associated with the
COVID-19 pandemic, this omni-channel platform is allowing customers to connect and transact with us in more ways than
ever.
The ongoing crisis of COVID-19 continues to evolve. At the end of fiscal 2021, states and localities were in the midst of a
vaccine distribution program; however, the ultimate duration and severity of the COVID-19 pandemic remain uncertain. We
continue to actively monitor developments that may cause us to take further actions that alter our business operations. For
further discussion of the impacts of COVID-19 on our business and fiscal 2021 results, refer to Item 7. Management’s
Discussion and Analysis of Financial Condition and Results of Operations.
CarMax Business
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 CarMax Sales Operations segment sells used vehicles, purchases used vehicles from customers
and other sources, sells related products and services, and arranges financing options for customers, all for competitive, no-
haggle prices. We enable our customers to separately evaluate each component of the sales process based on comprehensive
information about the terms and associated prices of each component. Customers can accept or decline any individual element
of the offer without affecting the price or terms of any other component of the offer.
5
Purchasing a Vehicle:
The vehicle purchase process at CarMax differs fundamentally from the traditional auto retail experience. Our no-haggle
pricing removes a frequent customer frustration with the purchase process and allows customers to shop for vehicles the same
way they shop for other consumer products. Our omni-channel platform further empowers our customers to buy a car on their
own terms – online, in-store, or a seamless combination of both. Customers can choose to complete the car-buying experience
in-person at one of our stores; or buy the car online and receive delivery through contactless curbside pickup, available
nationwide, or home delivery, available to most customers.
Our omni-channel platform provides multiple ways for our customers to interact with us, including completely online. A
customer may interact with our customer experience consultants when communicating with us via phone or text messages.
These employees are paid a fixed hourly rate and receive incentive bonuses based on their ability to effectively progress the
customer through their car buying journey. Customers may also interact in-person with our sales consultants who are generally
paid commissions on a fixed dollars-per-unit standard, thereby earning the same commission regardless of the vehicle being
sold, the amount a customer finances or the related interest rate. These pay structures align our associates’ interests with those
of our customers, in contrast to other dealerships where sales and finance personnel may receive higher commissions for
negotiating higher prices and interest rates, or steering customers to vehicles with higher gross profits.
We recondition every used vehicle we retail to meet our CarMax Quality Certified standards, and each vehicle must pass an
inspection before being offered for sale. We stand behind every used vehicle we sell with our Love Your Car Guarantee. This
guarantee gives customers the ability to take 24-hour test drives before committing to purchase as well as provides a 30-
day/1,500 mile money-back guarantee and a 90-day/4,000-mile limited warranty. Our CarMax Quality Certified standards
were developed internally by CarMax and are not affiliated with any third party or original equipment manufacturer program.
We maximize customer choice by offering a large selection of inventory on our lots and by making our nationwide inventory
available for viewing on carmax.com as well as our mobile apps. As of February 28, 2021, we had approximately 63,000
saleable retail vehicles in our inventory. Vehicles in-transit or on customer hold are not visible on our website. Upon request
by a customer, we will transfer virtually any used vehicle in our inventory. This gives CarMax customers access to a much
larger selection of vehicles than any traditional auto retailer. In fiscal 2021, approximately 38% of our vehicles sold were
transferred at customer request.
In addition to retailing used vehicles, we sold new vehicles under franchise agreements at two locations during fiscal 2021.
During the fourth quarter, we sold the Toyota new car franchise located in Laurel, MD, resulting in one new car franchise
remaining at February 28, 2021.
Selling us a Vehicle:
We have separated the practice of trading in a used vehicle in conjunction with the purchase of another vehicle into two distinct
and independent transactions. We will appraise a customer’s vehicle free of charge and make a written, guaranteed offer to buy
that vehicle regardless of whether the owner is purchasing a vehicle from us. This no-haggle offer is good for seven days. In
the fourth quarter of fiscal 2021, we completed the nationwide rollout of our online instant appraisal offer, which quickly gives
customers an offer on their vehicle. Early response to this offering has been strong, positioning us to become the largest online
buyer of used vehicles from consumers and strengthening our leadership position as the largest used vehicle buyer from
consumers.
Based on age, mileage or condition, fewer than half of the vehicles acquired through our appraisal process meet our retail
standards. Those vehicles that do not meet our retail standards are sold to licensed dealers through our wholesale
auctions. Unlike many other auto auctions, we own all the vehicles that we sell in our auctions, which allows us to maintain a
high auction sales rate. This high sales rate, combined with dealer-friendly practices, makes our auctions an attractive source of
vehicles for licensed dealers. In response to the COVID-19 pandemic, we moved our auctions, previously held at 74 of our 220
stores, to an online platform during fiscal 2021. As of February 28, 2021, our average auction sales rate was approximately
95%.
Financing a Vehicle:
The availability of on-the-spot financing is a critical component of the vehicle purchase process, and having an array of finance
sources increases approvals, expands finance opportunities for our customers and mitigates risk to CarMax. Our finance
program provides access to credit for customers across a wide range of the credit spectrum through both CAF and third-party
providers. We believe that our processes and systems, transparency of pricing, and vehicle quality, as well as the integrity of
the information collected at the time the customer applies for credit, allow CAF and our third-party providers to make
underwriting decisions in a unique and advantageous environment distinct from the traditional auto retail environment. All
6
finance offers, whether from CAF or our third-party providers, are backed by a 3-day payoff option, which allows customers to
refinance their loan with another finance provider within three business days at no charge.
Related Products and Services:
We provide customers with a range of other related products and services, including extended protection plan (“EPP”) products
and vehicle repair service. EPP products include extended service plans (“ESPs”) and guaranteed asset protection (“GAP”),
which is designed to cover the unpaid balance on an auto loan in the event of a total loss of the vehicle or unrecovered theft.
Our ESP customers have access to vehicle repair service at each CarMax store and at thousands of independent and franchised
service providers. We believe that the broad scope of our ESPs helps promote customer satisfaction and loyalty, and thus
increases the likelihood of repeat and referral business. In fiscal 2021, approximately 60% of the customers who purchased a
retail used vehicle also purchased an ESP and approximately 20% purchased GAP.
CarMax Auto Finance. CAF provides 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. CAF utilizes proprietary scoring models based upon the credit history and other
credit data of the customer along with CAF’s historical experience to predict the likelihood of customer repayment. Because
CAF offers financing solely to CarMax customers, our scoring models are optimized for the CarMax channel. We believe CAF
enables us to capture additional profits, cash flows and sales. After the effect of 3-day payoffs and vehicle returns, CAF
financed 42.5% of our retail used vehicle unit sales in fiscal 2021.
CAF also services all auto loans it originates and is responsible for providing billing statements, collecting payments,
maintaining contact with delinquent customers, and arranging for the repossession of vehicles securing defaulted loans.
Competition
CarMax Sales Operations. The U.S. used car marketplace is highly fragmented, and we face competition from franchised
dealers, who sell both new and used vehicles; online sellers; independent used car dealers; and private parties. According to
industry sources, as of December 31, 2020, there were over 18,000 franchised dealers in the U.S., who sell the majority of late-
model used vehicles. Competition in our industry has evolved with the adoption of online platforms and marketing tools, all of
which facilitate increased competition.
Based on industry data, there were approximately 38 million used cars sold in the U.S. in calendar 2020, of which
approximately 21 million were estimated to be age 0- to 10-year old vehicles. While we are the largest retailer of used vehicles
in the U.S., in calendar 2020, we estimate we sold approximately 3.5% of the age 0- to 10-year old vehicles sold on a
nationwide basis. We estimate we sold approximately 4.3% of the age 0- to 10-year old vehicles sold in the current comparable
store markets in which we operate in calendar 2020, a decline from 4.7% in 2019. We had strong momentum entering the
current year and were gaining significant market share up until the onset of the COVID-19 pandemic during the first quarter of
fiscal 2021. As markets re-opened and our omni-channel platform launched nationwide, we began gaining market share again,
leading to market share gains over the last five months of calendar 2020. Our market share is generally correlated to the length
of time we have operated in a given market. Entering new markets could have a dampening effect on our market share given
that our initial market share in new markets is generally much lower than our average.
We believe that our principal competitive advantages in used vehicle retailing include our ability to provide a high degree of
customer satisfaction with the car-buying experience by virtue of our competitive, no-haggle prices and our customer-friendly
sales process; our breadth of selection of the most popular makes and models available; the quality of our vehicles; our
proprietary information systems; the transparency and availability of CAF and third-party financing; the locations of our retail
stores; and our commitment to evolving our car-buying experience to meet customers’ changing expectations. We believe our
omni-channel platform reinforces our competitive advantages as it empowers customers to buy a car on their own terms,
whether completely from home, in-store or through a seamlessly integrated combination of online and in-store experiences.
Our diversified business model, combined with our emerging omni-channel experience, is a unique advantage in the used car
industry that firmly positions us to continue growing our market share while creating shareholder value over the long-term. We
completed our omni-channel rollout in the second quarter of fiscal 2021. We now have a common platform across all of
CarMax that leverages our scale, nationwide footprint and infrastructure and empowers our customers to buy a vehicle on their
terms.
In addition, we believe our willingness to appraise and purchase a customer’s vehicle, whether or not the customer is buying a
car from us, provides a competitive sourcing advantage for retail vehicles. Our high volume of appraisal purchases supplies not
only a large portion of our retail inventory, but also provides the scale that enables us to conduct our own wholesale auctions to
dispose of vehicles that do not meet our retail standards.
7
Our wholesale auctions compete with other automotive auction houses. In contrast to the highly fragmented used vehicle retail
market, the automotive auction market has two primary competitors: Manheim, a subsidiary of Cox Enterprises, and KAR
Auction Services, Inc., which together represent a large majority of the North American wholesale car auction market. These
competitors auction vehicles of all ages, while CarMax’s auctions predominantly sell older, higher mileage vehicles. During
fiscal 2021, in response to the impacts of COVID-19, we quickly transitioned our wholesale auctions to an online platform.
Once we restart in-person auction operations, we expect to continue to use online wholesale technology by moving to simulcast
auctions.
CarMax Auto Finance. CAF operates and is a significant participant in the auto finance sector of the consumer finance
market. This sector is primarily comprised of banks, captive finance divisions of new car manufacturers, credit unions and
independent finance companies. According to industry sources, this sector represented more than $1 trillion in outstanding
receivables as of December 31, 2020. CAF’s primary competitors are banks and credit unions that offer direct financing to
customers purchasing used cars.
We believe that CAF’s principal competitive advantage is its strategic position as the primary finance source for CarMax
customers, and that CAF’s primary driver for growth is the growth in CarMax’s retail used unit sales. We periodically test
different credit offers and closely monitor acceptance rates and the effect on sales to assess market competitiveness. We also
monitor 3-day payoffs, as the percentage of customers exercising this option can be an indication of the competitiveness of our
offer.
Products and Services
Retail Merchandising. We offer customers a broad selection of makes and models of used vehicles, including domestic,
imported and luxury vehicles, at competitive prices. Our focus is vehicles that are 0 to 10 years old; these vehicles generally
range in price from $11,000 to $37,000. The mix of our used vehicle inventory by make, model and age will vary from time to
time, depending on consumer preferences, seasonality and market pricing and availability.
Wholesale Auctions. The typical vehicle sold at our wholesale auctions is approximately 10 years old and has more than
100,000 miles. We provide condition disclosures on each vehicle, including those for vehicles with major mechanical issues,
possible frame or flood damage, branded titles, salvage history and unknown true mileage. Professional, licensed auctioneers
conduct our auctions. Dealers pay a fee to us based on the sales price of the vehicles they purchase. Our auctions are generally
held on a weekly or bi-weekly basis.
Extended Protection Plans. In conjunction with the sale of a vehicle, we offer customers EPP products. We receive revenue
for selling these plans on behalf of unrelated third parties, who are the primary obligors. We have no contractual liability to
customers for claims under these agreements. The ESPs we currently offer on all used retail vehicles provide coverage up to 60
months (subject to mileage limitations). GAP covers the customer for the term of their finance contract. The EPPs that we sell
(other than manufacturer programs on new car sales) have been designed to our specifications and are administered by the third
parties through private-label arrangements. Periodically, we may receive profit-sharing revenues based upon the performance
of the ESP policies administered by third parties. As of February 28, 2021, our third-party ESP providers included Assurant,
Inc., CNA National Warranty Corporation and Fidelity Warranty Services, Inc. Our third-party GAP provider as of
February 28, 2021 was Safe-Guard Products International LLC.
Reconditioning and Service. An integral part of our used car consumer offer is the reconditioning process designed to make
sure every car meets our internal standards before it can become a CarMax Quality Certified vehicle. This process includes an
inspection of the engine and all major systems. Based on this inspection, we determine the reconditioning necessary to bring
the vehicle up to our internal quality standards. Many of our stores depend upon nearby, typically larger, CarMax stores for
reconditioning, which increases efficiency and reduces overhead. We perform most routine mechanical and minor body repairs
in-house; however, for some reconditioning services, including, but not limited to, services related to manufacturer’s
warranties, we engage third parties specializing in those services. CarMax does not have manufacturer authorization to
complete recall-related repairs, and some vehicles CarMax sells may have unrepaired safety recalls. However, safety recall
information, as reported by the National Highway Traffic Safety Administration, is available on our website, and we review any
unrepaired safety recall information with our used vehicle customers before purchase.
All CarMax used car stores provide vehicle repair service, including repairs of vehicles covered by the ESPs we sell.
Additionally, we have partnered with third-party providers of auto service and repair. Through these partnerships, our
customers have access to a nationwide network of trusted, quality and fair-priced service and repair locations.
Customer Credit. We offer financing alternatives for retail customers across a wide range of the credit spectrum through CAF
and arrangements with several financial institutions. Vehicles are financed using retail installment contracts secured by the
8
vehicle. As of February 28, 2021, our third-party finance providers included Ally Financial, American Credit Acceptance,
Capital One Auto Finance, Chase Auto Finance, Exeter Finance Corp., Santander Consumer USA and Westlake Financial
Services. We have no recourse liability for credit losses on retail installment contracts arranged and held by third-party
providers, and we periodically test additional third-party providers.
Generally, credit applications submitted by customers to CarMax are initially reviewed by CAF using our proprietary
underwriting standards. Based on that review, CAF makes financing offers designed to create a loan portfolio that meets our
targeted risk profile in the aggregate. Applications that CAF declines or approves with conditions are generally evaluated by
other third-party finance providers. Third-party providers generally either pay us or are paid a fixed, pre-negotiated fee per
contract. We refer to the providers who generally pay us a fee or to whom no fee is paid as Tier 2 providers and we refer to
providers to whom we pay a fee as Tier 3 providers. We are willing to pay a fee to Tier 3 providers because we believe their
participation provides us with incremental sales by enabling customers to secure financing that they may not otherwise be able
to obtain. All fees either received or paid are pre-negotiated at a fixed amount and do not vary based on the amount
financed, the interest rate, the term of the loan or the loan-to-value ratio. CAF also provides financing for a small percentage of
customers who would typically be financed by a Tier 3 provider.
We do not offer financing to dealers purchasing vehicles at our wholesale auctions. However, we have made arrangements to
have third-party financing available to our auction customers.
Suppliers for Used Vehicles
We acquire a significant percentage of our retail used vehicle inventory directly from consumers through our in-store and online
appraisal processes, as well as through local, regional and online auctions. While in any individual period conditions may vary,
over the past 5 fiscal years, 36% to 41% of our retail inventory has been acquired through our appraisal process annually. We
also acquire used vehicle inventory from wholesalers, franchised and independent dealers and fleet owners, such as leasing
companies and rental companies. The used vehicle inventory we acquire directly from consumers through our appraisal process
helps provide an inventory of makes and models that reflects consumer preferences in each market.
The supply of late-model used vehicles is influenced by a variety of factors, including the total number of vehicles in operation;
the volume of new vehicle sales, which in turn generate used car trade-ins; and the number of used vehicles sold or remarketed
through retail channels, wholesale transactions and at automotive auctions. According to industry sources, there were
approximately 281 million light vehicles in operation in the U.S. as of December 31, 2020. During calendar year 2020, it is
estimated that approximately 14 million new cars and 38 million used cars were sold at retail, many of which were
accompanied by trade-ins, and more than 15 million wholesale vehicles were sold at auctions and through other channels.
Based on the large number of vehicles remarketed each year, consumer acceptance of our appraisal process, our experience and
success in acquiring vehicles from auctions and other sources, and the large size of the U.S. auction market relative to our
needs, we believe that sources of used vehicles will continue to be sufficient to meet our current and future needs.
Seasonality
Historically, our business has been seasonal. Our stores typically experience their strongest traffic and sales in the spring and
summer, with an increase in traffic and sales in February and March, coinciding with federal income tax refunds. Sales are
typically slowest in the fall. In fiscal 2021, traffic and sales were impacted by the COVID-19 pandemic during periods of the
year when we have historically experienced strong traffic and sales, and it remains unclear how the continuing impact of
COVID-19 and related stimulus payments will affect the seasonality of our business.
Technology
We leverage a combination of cloud-based solutions and proprietary technologies to run our operations. We have a strong
software engineering discipline and we have adopted Agile, DevOps, Lean and other leading digital delivery practices.
Technology teams are tightly integrated with the rest of the business and part of the cross-functional “Product” teams. Our
Product teams use a “test and learn” approach to iterate and deploy new technology-enabled experiences to our associates and
customers. CarMax uses advanced data science and machine learning capabilities to optimize our business and the customer
experience. Our business is supported by digital and mobile technologies that provide enhanced customer experience while
enabling highly
including credit processing and supply chain
management. Buyers and sales consultants are equipped with mobile and centralized tools that allow them to access real-time
information to better serve our customers. Our proprietary digital technology provides our management with real-time
information about many aspects of our omni-channel operations, such as inventory management, pricing, vehicle transfers,
integrated automation of all operating functions,
9
wholesale auctions and sales consultant productivity. Real-time access to a complete view of our customer interactions from
omni-channel allows our associates to provide a tailored and differentiated experience to our customers.
Our proprietary centralized inventory management and pricing system tracks each vehicle throughout the sales process and
allows us to buy the mix of makes, models, age, mileage and price points tailored to customer buying preferences at each
CarMax location. Leveraging our more than twenty-five years of experience buying and selling millions of used vehicles, our
system generates recommended initial retail price points, as well as retail price markdowns for specific vehicles based on
algorithms that take into account factors that include sales history, consumer interest and seasonal patterns. We believe this
systematic approach to vehicle pricing allows us to optimize inventory turns, which reduces the depreciation risk inherent in
used cars and helps us to achieve our targeted gross profit dollars per unit. Because of the pricing discipline afforded by our
inventory management and pricing system, generally more than 99% of our entire used car inventory offered at retail is sold at
retail.
Marketing and Advertising
Our marketing strategies are focused on developing awareness of the advantages of shopping at our stores and on carmax.com
and on attracting customers who are already considering buying or selling a vehicle. These strategies are implemented through
a broad range of media types including, but not limited to, traditional broadcast, digital, search, video on demand and
social. Our website and related mobile apps received an average of 27 million monthly visits during fiscal 2021 and are
marketing tools for communicating the CarMax consumer offer in detail. They are also sophisticated search engines for finding
the right vehicle and sales channels for customers who prefer to conduct part of the shopping and sales process online. Our
website and mobile apps also include a variety of other customer service features, including the ability to initiate vehicle
transfers, schedule appointments and apply for financing pre-approval. Information on the thousands of cars available in our
nationwide inventory is updated near real-time. Our survey data indicates that during fiscal 2021, approximately 96% of
customers who purchased a vehicle from us had first visited us online.
In 2019 we introduced a new advertising campaign — The Way It Should Be — highlighting the human element that CarMax
provides to the car buying and selling experiences. During the fourth quarter of fiscal 2021, we introduced the next phase of
this national multi-media marketing campaign to increase awareness of our core omni-channel capabilities, including our Love
Your Car Guarantee campaign, highlighting our 24-hour test drives and 30-day/1,500 mile money-back guarantee, aimed at
elevating our customers’ confidence in their CarMax vehicle purchase.
Human Capital Resources
CarMax’s purpose, to drive integrity by being honest and transparent in every interaction, is brought to life each day by our
associates’ commitment to living our core values. We recognize that our associates are the key to our success, and we are
proud to provide an award-winning workplace where we value the diversity and contribution of all associates and foster a
culture where associates can achieve their career goals. Our associates are further guided by the policies and procedures we
have in place to ensure everyone is treated with respect and has opportunities to reach their full potential.
On February 28, 2021, we had a total of 26,889 full- and part-time associates, including 21,357 hourly and salaried associates,
of which 782 work in our CAF segment. We also had 3,923 in-store sales associates and 1,609 sales associates in our Customer
Experience Centers (“CECs”), compared with 4,788 in-store sales associates and 876 CEC sales associates as of February 29,
2020. Our in-store sales associates predominantly work on a commission basis while our CEC sales associates are hourly
employees who are incentive eligible. We employ additional associates during peak selling seasons. No associate is subject to
a collective bargaining agreement. We annually review our pay in each geographic market to ensure we are providing a fair
and competitive wage. We pay the vast majority of our associates $15 or more per hour and offer health and other benefits to
all of our full-time associates.
As we continue to implement our omni-channel car buying experience, the shape of our workforce has evolved. As of
February 28, 2021, we had 811 technology, product and data science associates, of which 178 were hired during fiscal 2021 as
we accelerated our innovation. In addition, we have enhanced our intern and college hiring program, and put in place a
technology reskilling program and a product manager-in-training career path. As part of our standard compensation plan, we
provide equity for all roles working on our innovation efforts as a strong engagement and retention tool. As of February 28,
2021, we also had more than 300 contractors assisting us in technology roles. We believe this evolution in our workforce will
be critical to the development of our technology platforms and strategic initiatives.
Our commitment to our associates is reflected in our fair and broad-based compensation packages and benefit programs, our
continuous investment in talent acquisition, engagement, and development activities, and our comprehensive safety and security
program. We review pay equity annually based on objective factors such as position, tenure, and location. If we find
10
discrepancies that cannot be explained by these objective factors, we make appropriate adjustments. Our goal is to provide
equal pay for comparable work regardless of gender, age, race or ethnicity.
We have been recognized for 17 consecutive years as one of Fortune magazine’s 100 Best Companies to Work For® and have
also been selected as one of Training magazine’s “Training Top 125” companies for 14 years in a row. These awards reflect
our ability to provide associates with the tools they need to succeed and grow in their careers.
We request and utilize regular feedback from our associates. Our goal is to achieve world-class associate engagement and
responding to associate feedback allows us to focus on the issues that matter to our associates, as well as support them through
the ongoing evolution and organizational changes.
Diversity and Inclusion. The CarMax culture of diversity and inclusion is built on a foundation of integrity and respect, and
we encourage the diverse backgrounds and perspectives our associates bring to locations across the country. Our diversity and
inclusion commitment is based on a company vision to ensure everyone, everywhere has the opportunity to reach their full
potential. As of February 28, 2021, our non-management workforce was 27% female and 73% male and 47% non-diverse and
53% diverse. The breakdown for our management workforce was 25% female and 75% male and 74% non-diverse and 26%
diverse. For purposes of workforce diversity, CarMax considers ethnic and racial minorities as diverse and defines management
as director and above at the corporate level and the top four managers at the store-level and CEC-level, as a group.
In March 2021, we announced updates on our commitment to take a stand against racial injustice and our continued efforts to
advance diversity and inclusion in our business. This included beginning close partnerships with several nonprofit
organizations who have proven expertise at the forefront of local initiatives in the areas of education, careers, access to credit
and financial education, and entrepreneurship. In addition to these partnerships, CarMax has recently done the following:
•
•
•
•
•
•
Hired a Vice President of Corporate Social Responsibility as well as a Chief Diversity and Inclusion officer to lead
overall company vision and strategy for advancement in this area.
Established a diversity and inclusion governance model which includes a council and an executive steering committee, of
which the CEO is a member.
Committed to the CEO Action for Diversity and Inclusion pledge.
Launched a company-wide associate education program on diversity and inclusion, including training on unconscious
bias.
Created educational resources and provided tools for associate-led dialogue around race relations and inclusion
opportunities.
Implemented a quarterly plan for measuring and tracking progress on diversity and inclusion commitments.
Safety. The safety of our associates and our customers is always a top priority in how we deliver our experiences and serve our
communities. Since the onset of the COVID-19 pandemic, we have implemented robust plans to reduce the risk of exposure
and transmission at our locations. This includes following the mandates of public health officials and government agencies,
launching contactless curbside pickup nationwide, and shifting our wholesale business from in-person to online auctions.
Throughout the pandemic, we have remained committed to promoting healthy practices for our associates.
We are proud of the team of associates who serve our customers each day, and we are constantly looking for ways to ensure we
hire, develop, and retain a strong team to support our future growth.
Intellectual Property
Our brand image is a critical element of our business strategy. We rely on trademarks, domain names and copyrights to protect
core aspects of CarMax’s look and feel. Innovation and technology also play an increasingly vital role in all aspects of the
business. We actively pursue appropriate intellectual property protection for our state-of-the-art work by filing patent
applications in areas ranging from vehicle reconditioning and digital merchandising to impact capture and search engine
optimization.
Laws and Regulations
Vehicle Dealer and Other Laws and Regulations. We operate in a highly regulated industry. In every state in which we
operate, we must obtain licenses and permits to conduct business, including dealer, service, sales and finance licenses issued by
state and local regulatory authorities. A wide range of federal, state and local laws and regulations govern the manner in which
we conduct business, including advertising, sales, financing and employment practices. These laws include consumer
protection laws and privacy laws, as well as other laws and regulations applicable to motor vehicle dealers. These laws also
include federal and state wage-hour, anti-discrimination and other employment practices laws. Our financing activities with
customers are subject to federal truth-in-lending, consumer leasing, equal credit opportunity and fair credit reporting laws and
11
regulations, as well as state and local motor vehicle finance, collection, repossession and installment finance laws. Our
activities are subject to enforcement by the Federal Trade Commission and other federal and state regulators, and our financing
activities are also subject to enforcement by the Consumer Financial Protection Bureau (“CFPB”).
The CFPB has supervisory authority over large nonbank auto finance companies, including CarMax’s CAF segment. The
CFPB can use this authority to conduct supervisory examinations to ensure compliance with various federal consumer
protection laws.
Claims arising out of actual or alleged violations of law could be asserted against us by individuals or governmental authorities
and could expose us to significant damages or other penalties, including revocation or suspension of the licenses necessary to
conduct business and fines.
Additionally, we are subject to laws, regulations, and other governmental actions instituted in response to the COVID-19
pandemic. Among other things, these actions have required and may continue to require, in many localities, store occupancy
restrictions, store closures and restrictions on in-person wholesale auctions.
Environmental Laws and Regulations. We are subject to a variety of federal, state and local laws and regulations that pertain
to the environment. Our business involves the use, handling and disposal of hazardous materials and wastes, including motor
oil, gasoline, solvents, lubricants, paints and other substances. We are subject to compliance with regulations concerning,
among other things, the operation of underground and above-ground gasoline storage tanks, gasoline dispensing equipment,
above-ground oil tanks and automotive paint booths.
AVAILABILITY OF REPORTS AND OTHER INFORMATION
The following items are available free of charge on our website through the “Corporate Governance” link on our investor
information home page at investors.carmax.com, shortly after we file them with, or furnish them to, the U.S. Securities and
Exchange Commission (the “SEC”): annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-
K, proxy statements on Schedule 14A, and any amendments to those reports. The following documents are also available free
of charge on our website: Corporate Governance Guidelines, Code of Business Conduct, and the charters of the Audit,
Nominating and Governance, and Compensation and Personnel Committees. We publish any changes to these documents on
our website. We also promptly disclose reportable waivers of the Code of Business Conduct on our website. The contents of
our website are not, however, part of this report.
Printed copies of these documents are also available to any shareholder, without charge, upon written request to our corporate
secretary at the address set forth on the cover page of this report.
Item 1A. Risk Factors.
We are subject to a variety of risks, the most significant of which are described below. Our business, sales, results of operations
and financial condition could be materially adversely affected by any of these risks.
BUSINESS RISKS
The COVID-19 pandemic has had and may continue to have a significant negative impact on our business, sales, results of
operations and financial condition.
The COVID-19 pandemic has led to a severe disruption in general economic activity, particularly retail operations, as
businesses and federal, state, and local governments take measures to mitigate the ongoing public health crisis. We have
experienced significant disruption to our business, both in terms of disruption to our operations and the adverse effect on overall
economic conditions. While we have re-opened the stores that we closed at the beginning of the outbreak, we continue to
maintain restricted operations at many of our retail and wholesale locations and we may need to close stores again in the future.
The scope and duration of these limitations are uncertain and the continued potential for store closures may persist. Limited
retail operations, including occupancy restrictions and store closures, and the uncertainty caused by COVID-19 resulted in
weakened consumer demand. These conditions could continue to have a significantly negative effect on all aspects of our
business, including used vehicle sales operations, wholesale vehicle auctions, used vehicle financing, extended protection plan
sales, inventory acquisition, and retail service.
The extent to which the COVID-19 pandemic further impacts our industry, business, sales, results of operations and financial
condition will depend on future developments, which are highly uncertain and cannot be predicted, including, but not limited to,
12
the duration and spread of the outbreak, its severity, the actions to contain the virus or treat its impact, including the availability
and efficacy of vaccines, and how quickly and to what extent normal economic and operating conditions can resume. There are
no comparable recent events that provide guidance as to the long term effect COVID-19 may have on our business or the
economy, and even if the COVID-19 pandemic subsides, we may continue to experience significant impacts to our business as
a result of its economic impact and changes in consumer behavior.
We operate in a highly competitive industry. Failure to develop and execute strategies to remain the nation’s preferred
retailer of used vehicles and to adapt to the increasing use of digital and online tools to market, buy, sell and finance used
vehicles could adversely affect our business, sales and results of operations.
Automotive retailing is a highly competitive and highly fragmented business. Our competition includes publicly and privately
owned new and used car dealers and online and mobile sales platforms, as well as millions of private individuals. Competitors
buy and sell the same or similar makes of vehicles that we offer in the same or similar markets at competitive prices. New car
dealers leverage their franchise relationships with automotive manufacturers to brand certain used cars as “certified pre-
owned,” which could provide those competitors with an advantage over CarMax.
Retail Competition. Some of our competitors have replicated or attempted to replicate portions of the consumer offer that we
pioneered when we opened our first used car store in 1993, including our use of competitive, no-haggle prices and our
commitment to buy a customer’s vehicle even if they do not purchase one from us.
Competitors using online focused business models, both for direct sales and consumer-to-consumer facilitation, could
materially impact our business model. Increased online used vehicle offerings could make it more difficult for us to
differentiate our customer offering from competitors’ offerings, could result in lower-than-expected retail margins, and could
have a material adverse effect on our business, sales and results of operations. If we fail to respond effectively to our retail
competitors, it could have a material adverse effect on our business, sales and results of operations.
Online Facilitation. In addition, our competitive standing is affected by companies, including search engines and online
classified sites, that are not direct competitors but that may direct online traffic to the websites of competing automotive
retailers. The increasing activities of these companies could make it more difficult for carmax.com to attract traffic. These
companies could also make it more difficult for CarMax to otherwise market its vehicles online.
The increasing use of digital and online tools to facilitate consumers’ sales or trade-ins of their current vehicles could have a
material adverse effect on our ability to source vehicles through our appraisal process, which in turn could have a material
adverse effect on our vehicle acquisition costs and results of operations. For example, online appraisal tools are available to
consumers that generate offers and facilitate purchases by dealers other than CarMax.
In addition, there are companies that sell software and data solutions to new and used car dealers to enable those dealers to,
among other things, more efficiently source and price inventory. Although these companies do not compete with CarMax, the
increasing use of such products by dealers who compete with CarMax could reduce the relative competitive advantage of
CarMax’s internally developed proprietary systems.
If we fail to respond effectively to competitive pressures or to changes in the used vehicle marketplace, it could have a material
adverse effect on our business, sales and results of operations.
CAF Competition. Our CAF segment is subject to competition from various financial institutions, including banks and credit
unions, which provide vehicle financing to consumers. If we were unable to continue providing competitive finance offers to
our customers through CAF, it could result in a greater percentage of sales financed through our third-party finance providers,
which are generally less profitable to CarMax, or through other outside financing sources. Moreover, if CAF competitors are
able to attract potential customers before they visit CarMax, whether through competitive finance offers or ease of customer
experience, they may be directed to retail options other than CarMax. Accordingly, if CAF was unable to continue making
competitive finance offers to our customers, or our finance competitors are able to successfully attract and redirect a
disproportionate number of our potential customers, it could have a material adverse effect on our business, sales and results of
operations.
Evolving Marketplace. The marketplace for used vehicles may be impacted by the significant, and likely accelerating, changes
to the broader automotive industry. The COVID-19 pandemic has likely accelerated the consumer trend of buying a car online,
sight unseen. Technological changes, including the development of autonomous vehicles, new products and services, new
business models and new methods of travel could reduce automotive retail demand or disrupt our current business model. If we
13
fail to respond effectively to the evolving marketplace, it could have a material adverse effect on our business, sales and results
of operations.
The automotive retail industry in general and our business in particular are sensitive to economic conditions. These
conditions could adversely affect our business, sales, results of operations and financial condition.
We are subject to national and regional U.S. economic conditions. These conditions include, but are not limited to, recession,
inflation, interest rates, unemployment levels, the state of the housing market, gasoline prices, consumer credit availability,
consumer credit delinquency and loss rates, personal discretionary spending levels, and consumer sentiment about the economy
in general. These conditions and the economy in general could be affected by significant national or international events such
as a global health crisis, like COVID-19, and acts of terrorism. When these economic conditions worsen or stagnate, it can
have a material adverse effect on consumer demand for vehicles generally, demand from particular consumer categories or
demand for particular vehicle types. It can also negatively impact availability of credit to finance vehicle purchases for all or
certain categories of consumers. This could result in lower sales, decreased margins on units sold, and decreased profits for our
CAF segment. Worsening or stagnating economic conditions can also have a material adverse effect on the supply of late-
model used vehicles, as automotive manufacturers produce fewer new vehicles and consumers retain their current vehicles for
longer periods of time. This could result in increased costs to acquire used vehicle inventory and decreased margins on units
sold.
Any significant change or deterioration in economic conditions, including as a result of COVID-19, could have a material
adverse effect on our business, sales, results of operations and financial condition.
Our business is dependent upon capital to operate, fund growth and support the activities of our CAF segment. Changes in
capital and credit markets could adversely affect our business, sales, results of operations and financial condition.
Changes in the availability or cost of capital and working capital financing, including the long-term financing to support the
expansion of our store base and sales growth in existing stores, could adversely affect sales, operating strategies and store
growth. Although, in recent years, internally generated cash flows have been sufficient to maintain our operations and fund our
growth, there can be no assurance that we will continue to generate sufficient cash for these purposes. Failure to do so—or our
decision to put our cash to other uses—would make us more dependent on external sources of financing to fund our growth.
Changes in the availability or cost of the long-term financing to support the origination of auto loans receivable through CAF
could adversely affect sales and results of operations. We use a securitization program to fund the majority of the auto loans
receivable originated by CAF. Changes in the condition of the asset-backed securitization market could lead us to incur higher
costs to access funds in this market or require us to seek alternative means to finance CAF’s loan originations. In the event that
this market ceased to exist and there were no immediate alternative funding sources available, we might be forced to curtail our
lending practices for some period of time. The impact of reducing or curtailing CAF’s loan originations could have a material
adverse effect on our business, sales and results of operations.
Our revolving credit facility, term loan, senior unsecured notes and certain securitization and sale-leaseback agreements contain
covenants and performance triggers. Any failure to comply with these covenants or performance triggers could have a material
adverse effect on our business, results of operations and financial condition.
Disruptions in the capital and credit markets could adversely affect our ability to draw on our revolving credit facility. If our
ability to secure funds from the facility were significantly impaired, our access to working capital would be impacted, our
ability to maintain appropriate inventory levels could be affected and these conditions—especially if coupled with a failure to
generate significant cash flows—could have a material adverse effect on our business, sales, results of operations and financial
condition.
CarMax was founded on the fundamental principle of integrity. Failure to maintain a reputation of integrity and to
otherwise maintain and enhance our brand could adversely affect our business, sales and results of operations.
Our reputation as a company that is founded on the fundamental principle of integrity is critical to our success. Our reputation
as a retailer offering competitive, no-haggle prices, a broad selection of CarMax Quality Certified used vehicles and superior
customer service is also critical to our success. If we fail to maintain the high standards on which our reputation is built, or if
an event occurs that damages this reputation, it could adversely affect consumer demand and have a material adverse effect on
our business, sales and results of operations. Such an event could include an isolated incident at a single store, particularly if
such incident results in adverse publicity, governmental investigations, or litigation and could involve, among other things, our
14
sales process, our provision of financing, our reconditioning process, or our treatment of customers. Even the perception of a
decrease in the quality of our brand could impact results.
The use of social media increases the speed with which information and opinions can be shared and thus the speed with which
reputation can be affected. We monitor social media and attempt to address customer concerns, provide accurate information
and protect our reputation, but there can be no guarantee that our efforts will succeed. If we fail to correct or mitigate
misinformation or negative information, including information spread through social media or traditional media channels, about
the vehicles we offer, our customer experience, or any aspect of our brand, it could have a material adverse effect on our
business, sales and results of operations.
Our failure to realize the benefits associated with our omni-channel initiatives could have a material adverse effect on our
business, sales and results of operations.
During the second quarter of fiscal 2021, we completed the rollout of our omni-channel platform. We have made a
considerable investment in our omni-channel platform and a failure to capture the benefits that we expect from this rollout
could have a material adverse effect on our business, sales and results of operations. We must anticipate and meet our
customers’ expectations in an evolving retail industry. Our business, sales and results of operations may be negatively affected
if we fail to provide a high quality and consistent customer experience, regardless of sales channel, if our omni-channel
platform does not meet customer expectations, or if we are unable to attract, retain and manage the personnel at various levels
who have the necessary skills and experience we need to implement our omni-channel initiatives.
Our failure to manage our growth and the related challenges could have a material adverse effect on our business, sales and
results of operations.
Our growth is dependent on the success of our omni-channel platform as well as on opening stores in new and existing markets
and continued sales growth in our existing stores. The continued enhancement of our omni-channel model and the expansion of
our store base place significant demands on our management team, our associates and our information systems. If we fail to
effectively or efficiently manage our growth, it could have a material adverse effect on our business, sales and results of
operations. Sales growth in our existing stores requires that we continue to effectively execute our business strategies and
implement new and ongoing initiatives to elevate the experience of our customers. See the risk factor above titled “Our failure
to realize the benefits associated with our omni-channel initiatives could have a material adverse effect on our business, sales
and results of operations” for more discussion of this risk. The expansion of our store base and implementation of new
initiatives also requires us to recruit and retain the associates necessary to support that expansion. See the risk factor above
titled “Our success depends upon the continued contributions of our associates” for discussion of this risk. The expansion of
our store base also requires real estate. Our inability to acquire or lease suitable real estate at favorable terms could limit our
expansion and could have a material adverse effect on our business and results of operations.
Our success depends upon the continued contributions of our associates.
Our associates are the driving force behind our success. We believe that one of the things that distinguishes CarMax is a
culture centered on valuing our associates. A failure to maintain our culture, in response to COVID-19 or in response to some
other crisis, could have a material adverse effect on our business, sales and results of operations.
In addition, managing our response to the ongoing COVID-19 pandemic as well as our strategic initiatives require management,
employees and contractors to adapt and learn new skills and capabilities. A failure to maintain an adaptable and responsive
culture or to continue developing and retaining the associates that drive our success could have a material adverse effect on our
business, sales and results of operations.
The spread of COVID-19, especially in the early half of fiscal 2021, caused us to modify our business practices, including
adopting measures such as hiring freezes, employee furloughs and reduction in pay for certain officers. We have subsequently
lifted these measures, but as the pandemic continues or potentially worsens, we may have to adopt similar measures in the
future that may affect our ability to maintain positive associate relations. If we are unable to maintain positive relations, or if,
despite our efforts, we become subject to successful unionization efforts, it could increase costs, limit our ability to respond to
competitive threats and have a material adverse effect on our business, sales and results of operations.
Our response to COVID-19 and our ongoing success also depend upon the continued contributions of our store, region and
corporate management teams. Consequently, the loss of the services of any of these associates could have a material adverse
effect on our business, sales and results of operations. In addition, an inability to build our management bench strength to
support store growth could have a material adverse effect on our business, sales and results of operations.
15
Our business is sensitive to changes in the prices of new and used vehicles.
Any significant changes in retail prices for new and used vehicles could have a material adverse effect on our sales and results
of operations. For example, if retail prices for used vehicles rise relative to retail prices for new vehicles, it could make buying
a new vehicle more attractive to our customers than buying a used vehicle, which could have a material adverse effect on sales
and results of operations and could result in decreased used margins. Manufacturer incentives could contribute to narrowing
this price gap. In addition, any significant changes in wholesale prices for used vehicles could have a material adverse effect on
our results of operations by reducing wholesale margins.
We may experience greater credit losses in CAF’s portfolio of auto loans receivable than anticipated.
We are exposed to the risk that our customers who finance their purchases through CAF will be unable or unwilling to repay
their loans according to their terms and that the vehicle collateral securing the payment of their loans may not be sufficient to
ensure full repayment. Credit losses are inherent in CAF’s business and could have a material adverse effect on our results of
operations.
We make various assumptions and judgments about CAF’s portfolio of auto loans receivable and provide an allowance for loan
losses based on a number of factors. Although management will establish an allowance for loan losses it believes is
appropriate, this allowance may not be adequate. For example, when economic conditions deteriorate unexpectedly, such as in
connection with the initial COVID-19 outbreak, additional loan losses not incorporated in the existing allowance for loan losses
may occur. In addition, as the impact of COVID-19 continues, our allowance for loan losses may prove insufficient. Losses in
excess of the existing allowance for loan losses could have a material adverse effect on our business, results of operations and
financial condition.
Our business is dependent upon access to vehicle inventory. A failure to expeditiously liquidate that inventory—or obstacles
to acquiring inventory—whether because of supply, competition, or other factors could have a material adverse effect on our
business, sales and results of operations.
Used vehicle inventory is subject to depreciation risk. Accordingly, if we develop excess inventory, the inability to liquidate
such inventory at prices that allow us to meet margin targets or to recover our costs could have a material adverse effect on our
results of operations.
A reduction in the availability of, or access to, sources of inventory also could have a material adverse effect on our business,
sales and results of operations.
We source a significant percentage of our vehicles through our appraisal process, which includes our online instant appraisal
offers, and these vehicles are generally more profitable for CarMax. Accordingly, if we fail to adjust appraisal offers to stay in
line with broader market trade-in offer trends, or fail to recognize those trends, it could adversely affect our ability to acquire
inventory. It could also force us to purchase a greater percentage of our inventory from third-party auctions, which is generally
less profitable for CarMax. Our ability to source vehicles through our appraisal process could also be affected by competition,
both from new and used car dealers directly and through third parties driving appraisal traffic to those dealers. See the risk
factor above titled “We operate in a highly competitive industry” for discussion of this risk. Our ability to source vehicles from
third-party auctions could be affected by an increase in the number of closed auctions that are open only to new car dealers who
have franchise relationships with automotive manufacturers.
Our failure to realize the benefits associated with our strategic investments, including potential acquisitions, could have a
material adverse effect on our business, sales and results of operations and we may incur impairment losses on our strategic
investments in equity securities.
From time to time, CarMax makes strategic investments, including acquisitions, and we currently hold non-controlling equity
investments in several companies. We may encounter difficulties in managing our strategic investments and in assimilating
new capabilities or acquisitions to meet the future needs of our business. Furthermore, we may not realize all the anticipated
benefits of these investments, or the realized benefits may be significantly delayed. While our evaluation of any potential
transaction includes business, legal, and financial due diligence with the goal of identifying and evaluating the material risks
involved, our due diligence reviews may not identify all of the issues necessary to accurately estimate the cost and potential
benefits and risks of a particular investment.
Additionally, under U.S. generally accepted accounting principles (“GAAP”), if any investment’s fair value declines below its
carrying value, we will need to record an impairment loss in the applicable fiscal period. As a result, we may incur expenses
16
related to the impairment of existing or future equity investments. Any such impairment charge could have a material adverse
effect on our business, financial condition and results of operations.
We rely on third-party finance providers to finance a significant portion of our customers’ vehicle purchases. Accordingly,
our sales and results of operations are partially dependent on the actions of these third parties.
We provide financing to qualified customers through CAF and a number of third-party finance providers. If one or more of
these third-party providers cease to provide financing to our customers, provide financing to fewer customers or no longer
provide financing on competitive terms, it could have a material adverse effect on our business, sales and results of
operations. Additionally, if we were unable to replace the current third-party providers upon the occurrence of one or more of
the foregoing events, it could also have a material adverse effect on our business, sales and results of operations.
We rely on third-party providers to supply EPP products to our customers. Accordingly, our sales and results of operations
are partially dependent on the actions of these third-parties.
We receive revenue for selling EPP products on behalf of unrelated third-parties, who are the primary obligors. If one or more
of these third-party providers cease to provide EPP products, make changes to their products or no longer provide their products
on competitive terms, it could have a material adverse effect on our business, sales and results of operations. Additionally, if we
were unable to replace the current third-party providers upon the occurrence of one or more of the foregoing events, it could
also have a material adverse effect on our business, sales and results of operations.
We rely on third-party vendors for key components of our business.
Many components of our business, including data management, key operational processes and critical customer systems are
provided by third parties. We carefully select our third-party vendors, but we do not control their actions. If our vendors fail to
perform as we expect, our operations and reputation could suffer if the failure harms the vendors’ ability to serve us and our
customers. One or more of these third-party vendors may experience financial distress, staffing shortages or liquidity
challenges, file for bankruptcy protection, go out of business, or suffer disruptions in their business due to the COVID-19
outbreak. The use of third-party vendors represents an unavoidable inherent risk to our company that could have a material
adverse effect on our business, sales and results of operations.
Our business is sensitive to conditions affecting automotive manufacturers, including manufacturer recalls.
Adverse conditions affecting one or more automotive manufacturers could have a material adverse effect on our sales and
results of operations and could impact the supply of vehicles, including the supply of late-model used vehicles. In addition,
manufacturer recalls are a common occurrence. Because we do not have manufacturer authorization to complete recall-related
repairs, some vehicles we sell may have unrepaired safety recalls. Such recalls, and our lack of authorization to make recall-
related repairs, could adversely affect used vehicle sales or valuations, could cause us to temporarily remove vehicles from
inventory, could force us to incur increased costs and could expose us to litigation and adverse publicity related to the sale of
recalled vehicles, which could have a material adverse effect on our business, sales and results of operations.
Our results of operations and financial condition are subject to management’s accounting judgments and estimates, as well
as changes in accounting policies.
The preparation of our financial statements requires us to make estimates and assumptions affecting the reported amounts of
CarMax’s assets, liabilities, revenues, expenses and earnings. If these estimates or assumptions are incorrect, it could have a
material adverse effect on our results of operations or financial condition. We have identified several accounting policies as
being “critical” to the fair presentation of our financial condition and results of operations because they involve major aspects of
our business and require us to make judgments about matters that are inherently uncertain. These policies are described in Item
7. Management’s Discussion and Analysis of Financial Condition and Results of Operations, and the notes to consolidated
financial statements included in Item 8. Consolidated Financial Statements and Supplementary Data.
The implementation of new accounting requirements or other changes to GAAP could have a material adverse effect on our
reported results of operations and financial condition.
17
We may not be able to adequately protect our intellectual property, which could adversely affect our business, sales, results
of operations and financial condition.
Protecting our intellectual property (including patents, trademarks, copyrights, confidential information and trade secrets) is
integral to our business. The failure to protect our intellectual property, including from unauthorized uses, can erode consumer
trust and our brand value and have a material adverse effect on our business.
Our business is sensitive to weather events.
The occurrence of severe weather events, such as rain, hail, snow, wind, storms, hurricanes, extended periods of unusually cold
weather or natural disasters, could cause store closures or affect the timing of consumer demand, either of which could
adversely affect consumer traffic and could have a material adverse effect on our sales and results of operations in a given
period.
We are subject to local conditions in the geographic areas in which we are concentrated.
Our performance is subject to local economic, competitive and other conditions prevailing in geographic areas where we
operate. Since a large portion of our sales is generated in the Southeastern U.S., California, Texas and Washington, D.C./
Baltimore, our results of operations depend substantially on general economic conditions and consumer spending habits in these
markets. In the event that any of these geographic areas experience a downturn in economic conditions, or are particularly
affected by COVID-19 and related government actions taken to reduce the spread of the virus, it could have a material adverse
effect on our business, sales and results of operations.
TECHNOLOGY AND DATA PRIVACY RISKS
We collect sensitive confidential information from our customers. A breach of this confidentiality, whether due to a
cybersecurity or other incident, could result in harm to our customers and damage to our brand.
We collect, process and retain sensitive and confidential customer information in the normal course of business and may share
that information with our third-party service providers. This information includes the information customers provide when
purchasing a vehicle and applying for vehicle financing. We also collect, process and retain sensitive and confidential associate
information in the normal course of business and may share that information with our third-party service providers. Although
we have taken measures designed to safeguard such information and have received assurances from our third-party providers,
our facilities and systems, and those of third-party providers, could be vulnerable to external or internal security breaches, acts
of vandalism, computer viruses, misplaced or lost data, programming or human errors or other similar events. Numerous
national retailers have disclosed security breaches involving sophisticated cyber-attacks that were not recognized or detected
until after such retailers had been affected, notwithstanding the preventive measures such retailers had in place. Any security
breach involving the misappropriation, loss or other unauthorized disclosure of confidential customer or associate information,
whether experienced by us or by our third-party service providers, and whether due to an external cybersecurity incident, a
programming error, or other cause, could damage our reputation, expose us to mitigation costs and the risks of private litigation
and government enforcement, disrupt our business and otherwise have a material adverse effect on our business, sales and
results of operations. In addition, our failure to respond quickly and appropriately to such a security breach could exacerbate
the consequences of the breach.
We rely on sophisticated information systems to run our business. The failure of these systems, or the inability to enhance
our capabilities, could have a material adverse effect on our business, sales and results of operations.
Our business is dependent upon the integrity and efficient operation of our information systems. In particular, we rely on our
information systems to manage sales, inventory, our customer-facing websites and applications (carmax.com, CarMax mobile
apps, and carmaxauctions.com), consumer financing and customer information. The failure of these systems to perform as
designed, the failure to maintain or update these systems as necessary, or the inability to enhance our information technology
capabilities, could disrupt our business operations and have a material adverse effect on our sales and results of operations.
Despite our ongoing efforts to maintain and enhance the integrity and security of these systems, we could be subjected to
attacks by hackers, including denial-of-service attacks directed at our websites or other system breaches or malfunctions due to
associate error or misconduct or other disruptions. Such incidents could disrupt our business and have a material adverse effect
on sales and results of operations. See the risk factor above titled “We collect sensitive confidential information from our
customers” for the risks associated with a breach of confidential customer or associate information.
18
REGULATORY AND LITIGATION RISKS
We operate in a highly regulated industry and are subject to a wide range of federal, state and local laws and
regulations. Changes in these laws and regulations, or our failure to comply, could have a material adverse effect on our
business, sales, results of operations and financial condition.
We are subject to a wide range of federal, state and local laws and regulations, as well as changes in these laws and regulations
and the manner in which they are interpreted or applied. Our sale of used vehicles is subject to state and local licensing
requirements, federal and state laws regulating vehicle advertising, and state laws regulating vehicle sales and service. Our
provision of vehicle financing is subject to federal and state laws regulating the provision of consumer finance. Our facilities
and business operations are subject to laws and regulations relating to environmental protection and health and safety. In
addition to these laws and regulations that apply specifically to our business, we are also subject to laws and regulations
affecting public companies and large employers generally, including privacy laws and federal employment practices, securities
and tax laws. For additional discussion of these laws and regulations, see the section of this Form 10-K titled “Business – Laws
and Regulations.”
The violation of any of these laws or regulations could result in administrative, civil or criminal penalties or in a cease-and-
desist order against our business operations, any of which could damage our reputation and have a material adverse effect on
our business, sales and results of operations. We have incurred and will continue to incur capital and operating expenses and
other costs to comply with these laws and regulations.
We are subject to various legal proceedings. If the outcomes of these proceedings are adverse to CarMax, it could have a
material adverse effect on our business, results of operations and financial condition.
We are subject to various litigation matters from time to time, which could have a material adverse effect on our business,
results of operations and financial condition. Claims arising out of actual or alleged violations of law could be asserted against
us by individuals, either individually or through class actions, or by governmental entities in civil or criminal investigations and
proceedings. These claims could be asserted under a variety of laws including, but not limited to, consumer finance laws,
consumer protection laws, intellectual property laws, privacy laws, labor and employment laws, securities laws and employee
benefit laws. These actions could expose us to adverse publicity and to substantial monetary damages and legal defense costs,
injunctive relief and criminal and civil fines and penalties including, but not limited to, suspension or revocation of licenses to
conduct business.
GENERAL RISKS
The market price of our common stock may be volatile and could expose us to securities class action litigation.
The price of our common stock may be subject to wide fluctuations based upon our operating results, general economic and
market conditions, general trends and prospects for our industry, announcements by our competitors and other factors. In
addition, the market price of our common stock may also be affected by whether we meet analysts’ expectations. Failure to
meet such expectations could have a material adverse effect on the price of our common stock. Following periods of volatility
in the market price of a company’s securities, securities class action litigation is more likely. If litigation were instituted against
us, it could result in substantial costs and a diversion of our attention and resources, which could have a material adverse effect
on our business.
Item 1B. Unresolved Staff Comments.
None.
Item 2. Properties.
We conduct our retail vehicle operations primarily in two formats – production and non-production stores. Production stores
are those locations at which vehicle reconditioning is performed. Production stores have more service bays and require
additional space for reconditioning activities and, therefore, are generally larger than non-production stores. In determining
whether to construct a production or a non-production store on a given site, we take several factors into account, including the
anticipated long-term regional reconditioning needs and the available acreage of the sites in that market. As a result, some
stores that are constructed to accommodate reconditioning activities may initially be operated as non-production stores until we
expand our presence in that market. We also have production and non-production stores that operate in Metropolitan Statistical
19
Areas (“MSAs”) of less than 600,000 people, which we define as small markets. Some of these stores also have a smaller
footprint compared with our stores in larger markets.
USED CAR STORES BY FORMAT AS OF FEBRUARY 28, 2021
Store count
Store location size
Production Stores
Non-production Stores
102
118
generally 10 - 25 acres
generally 4 - 12 acres
Stores located in small MSAs
11
39
As of February 28, 2021, wholesale auctions previously located at production stores were being conducted virtually.
USED CAR STORES BY STATE AS OF FEBRUARY 28, 2021
State
Alabama
Arizona
California
Colorado
Connecticut
Delaware
Florida
Georgia
Idaho
Illinois
Indiana
Iowa
Kansas
Kentucky
Louisiana
Maine
Maryland
Massachusetts
Michigan
Minnesota
Mississippi
Count
State
Count
5 Missouri
4 Nebraska
28 Nevada
6 New Hampshire
3 New Jersey
1 New Mexico
20 New York
11 North Carolina
1 Ohio
9 Oklahoma
3 Oregon
1 Pennsylvania
2 Rhode Island
2 South Carolina
5 Tennessee
1 Texas
7 Utah
4 Virginia
1 Washington
2 Wisconsin
3 Total
3
1
4
1
2
2
3
11
5
3
3
5
1
4
10
23
1
10
5
4
220
Of the 220 used car stores open as of February 28, 2021, 141 were located on owned sites and 79 were located on leased sites.
The leases are classified as follows:
Land-only leases
Land and building leases
Total leased sites
23
56
79
As of February 28, 2021, we leased our CAF office buildings in Atlanta, Georgia, as well as office buildings for our customer
experience centers in Atlanta, Georgia; Kansas City, Missouri; and Phoenix, Arizona. We also lease other ancillary properties
to support our corporate and store operations. We own our home office building in Richmond, Virginia and land associated
with planned future store openings.
20
Item 3. Legal Proceedings.
Information in response to this Item is included in Note 17 to the Consolidated Financial Statements included in Item 8 of this
Annual Report on Form 10-K and is incorporated herein by reference.
Item 4. Mine Safety Disclosures.
None.
INFORMATION ABOUT OUR EXECUTIVE OFFICERS
The following table identifies our current executive officers. We are not aware of any family relationships among any of our
executive officers or between any of our executive officers and any directors. All executive officers are elected annually and
serve for one year or until their successors are elected and qualify. The next election of officers will occur in June 2021.
Name
William D. Nash………………………..….……...........
Edwin J. Hill……………………....……………............
James Lyski………………….……..……………..........
Eric M. Margolin………………….……..………..........
Shamim Mohammad………………….……..…...….....
Diane L. Cafritz……………………....…………….......
Jon G. Daniels………………….……..…………..........
Enrique Mayor-Mora......................................................
Darren C. Newberry........................................................
C. Joseph Wilson.............................................................
Age Office
51
President, Chief Executive Officer and Director
61
58
68
52
50
49
52
51
48
Executive Vice President and Chief Operating Officer
Executive Vice President and Chief Marketing Officer
Executive Vice President, General Counsel and Corporate Secretary
Executive Vice President and Chief Information and Technology Officer
Senior Vice President and Chief Human Resources Officer
Senior Vice President, CarMax Auto Finance
Senior Vice President and Chief Financial Officer
Senior Vice President, Store Operations
Senior Vice President, Store Strategy and Logistics
Mr. Nash joined CarMax in 1997 as auction manager. In 2007, he was promoted to vice president and later, senior vice
president of merchandising, a position he held until 2011, when he was named senior vice president, human resources and
administrative services. In 2012, he was promoted to executive vice president, human resources and administrative services. In
February 2016, he was promoted to president, and in September 2016, he was promoted to chief executive officer and named to
the board of directors. Prior to joining CarMax, Mr. Nash worked at Circuit City.
Mr. Hill joined CarMax in 1995 as director of service operations and, in 2000, was promoted to assistant vice president, service
operations. In 2001, Mr. Hill was promoted to vice president, service operations, a position he held until 2010, when he was
promoted to senior vice president of service operations. In 2013, Mr. Hill was promoted to senior vice president, strategy and
transformation and in 2016, he was promoted to executive vice president, strategy and business transformation. Mr. Hill was
promoted to executive vice president and chief operating officer in August 2018.
Mr. Lyski joined CarMax in August 2014 as senior vice president and chief marketing officer. In 2017, he was promoted to
executive vice president and chief marketing officer. Prior to joining CarMax, he served as chief marketing officer of The
Scotts Miracle-Gro Company from 2011 to 2014 and as chief marketing officer at Nationwide Mutual Insurance Company from
2006 to 2010. In addition, Mr. Lyski has held marketing leadership positions at Cigna Healthcare Inc. and FedEx Corporation.
Mr. Margolin joined CarMax in 2007 as senior vice president, general counsel and corporate secretary. In 2016, Mr. Margolin
was promoted to executive vice president, general counsel and corporate secretary. Prior to joining CarMax, he was senior vice
president, general counsel and corporate secretary with Advance Auto Parts, Inc. and, before that, vice president, general
counsel and corporate secretary with Tire Kingdom, Inc.
Mr. Mohammad joined CarMax in 2012 as vice president of application development and IT planning. In 2014, he was
promoted to senior vice president and chief information officer. In 2018, he was named senior vice president and chief
information and technology officer and in 2021, he was promoted to executive vice president and chief information and
technology officer. Prior to joining CarMax, Mr. Mohammad was vice president of information technology at BJ’s Wholesale
Club from 2006 to 2012 and held various positions at Blockbuster and TravelCLICK.
21
Ms. Cafritz joined CarMax in 2003 as assistant general counsel. She was promoted to associate general counsel, director in
2005, deputy general counsel, assistant vice president in 2010, and vice president in 2014. During her tenure in the CarMax
legal department, Ms. Cafritz managed commercial and consumer litigation, was responsible for operational regulatory
guidance and led CarMax’s government affairs program. In 2017, Ms. Cafritz was named senior vice president and chief
human resources officer. Prior to joining CarMax, Ms. Cafritz was a partner at McDermott, Will & Emery.
Mr. Daniels joined CarMax in 2008 as vice president, risk and analytics. In 2014, he was promoted to senior vice president,
CarMax Auto Finance. Prior to joining CarMax, Mr. Daniels served as group director, credit risk management of HSBC and
vice president of Metris.
Mr. Mayor-Mora joined CarMax in 2011 as vice president, finance before assuming the role of vice president and treasurer in
2016. Mr. Mayor-Mora was promoted to senior vice president and chief financial officer in October 2019. Prior to joining
CarMax, he served as vice president of financial planning and analysis and investor relations at Denny’s Corporation from 2005
to 2011. He also served in financial positions of increasing responsibility at Gap, Inc. from 2001 to 2005.
Mr. Newberry joined CarMax in March 2004 as location general manager-in-training in the Los Angeles region and was
promoted to location general manager of the Duarte, California store in 2006. He was subsequently promoted to positions of
increasing responsibility, including regional vice president general manager in 2013 and vice president, regional sales in 2016.
In 2017, he was promoted to senior vice president, store operations. Prior to joining CarMax, Mr. Newberry served as store
manager and area manager for Bed, Bath and Beyond from 1994 to 2004.
Mr. Wilson joined CarMax in 1995 as a buyer-in-training at the Raleigh, North Carolina store, where he was subsequently
promoted to buyer and then senior buyer. Mr. Wilson later served as purchasing manager at two CarMax stores in southern
Florida before being promoted to regional vice president of merchandising. He was promoted to assistant vice president,
auction services and merchandising development in 2008, vice president, auction services and merchandising development in
2013, and then vice president, merchandising operations in 2016. In 2017, Mr. Wilson was promoted to senior vice president,
store strategy and logistics.
22
PART II
Item 5. Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
Securities.
Our common stock is listed and traded on the New York Stock Exchange under the ticker symbol KMX. We are authorized to
issue up to 350,000,000 shares of common stock and up to 20,000,000 shares of preferred stock. As of February 28, 2021,
there were 163,172,333 shares of CarMax common stock outstanding and we had approximately 2,900 shareholders of
record. As of that date, there were no preferred shares outstanding.
We have not paid any dividends on our common stock and do not plan to pay dividends on our common stock for the
foreseeable future.
During the fourth quarter of fiscal 2021, we did not sell any CarMax equity securities in transactions that were not registered
under the Securities Act.
Issuer Purchases of Equity Securities
The following table provides information relating to the company’s repurchase of common stock during the fourth quarter of
fiscal 2021. The table does not include transactions related to employee equity awards or the exercise of employee stock
options.
Total Number
of Shares
Purchased
Average
Price Paid
per Share
496,190 $
192,281 $
— $
688,471
94.68
100.60
—
Total Number
of Shares Purchased
as Part of Publicly
Announced Programs
496,190 $
192,281 $
— $
688,471
Approximate
Dollar Value
of Shares that
May Yet Be
Purchased Under
the Programs (1)
1,355,421,769
1,336,077,551
1,336,077,551
Period
December 1-31, 2020
January 1-31, 2021
February 1-28, 2021
Total
(1) On October 23, 2018, the board authorized the repurchase of up to $2 billion of our common stock with no expiration date. Purchases
may be made in open market or privately negotiated transactions at management’s discretion and the timing and amount of repurchases
are determined based on share price, market conditions, legal requirements and other factors. Shares repurchased are deemed
authorized but unissued shares of common stock.
23
Performance Graph
The following graph compares the cumulative total shareholder return (stock price appreciation plus dividends, as applicable)
on our common stock for the last five fiscal years with the cumulative total return of the S&P 500 Index and the S&P 500
Retailing Index. The graph assumes an original investment of $100 in CarMax common stock and in each index on February
29, 2016, and the reinvestment of all dividends, as applicable.
CarMax
S&P 500 Index
S&P 500 Retailing Index
As of February 29 or 28
2016
2017
2018
2019
2020
2021
$
$
$
100.00 $
100.00 $
100.00 $
139.52 $
124.98 $
121.02 $
133.85 $
146.35 $
170.15 $
134.24 $
153.20 $
184.87 $
188.74 $
165.75 $
206.64 $
258.34
217.61
305.82
24
COMPARISON OF CUMULATIVE FIVE YEAR TOTAL RETURNCarMaxS&P 500 Index- Total ReturnsS&P 500 Retailing Index201620172018201920202021$0$50$100$150$200$250$300$350
Item 6. Selected Financial Data.
(Dollars and shares in millions, except per share or per unit data)
FY21
FY20
FY19
FY18
FY17
Income statement information
Used vehicle sales
Wholesale vehicle sales
Net sales and operating revenues
Gross profit
CarMax Auto Finance income
Selling, general and administrative expenses
Interest expense
Net earnings
Share and per share information
Weighted average diluted shares outstanding
Diluted net earnings per share
Balance sheet information
Auto loans receivable, net
Total assets
Total current liabilities
Total notes payable and other debt:
Non-recourse notes payable
Other (1)
Unit sales information
Used vehicle units sold
Wholesale vehicle units sold
Per unit information
Used vehicle gross profit
Wholesale vehicle gross profit
SG&A per used unit
Percent changes in
Comparable store used vehicle unit sales
Total used vehicle unit sales
Wholesale vehicle unit sales
CarMax Auto Finance information
CAF total interest margin (2)
Other information
Used car stores
Associates
$ 15,713.6
2,668.8
18,950.1
2,379.1
562.8
1,898.8
86.2
746.9
$ 17,169.5
2,500.0
20,320.0
2,722.3
456.0
1,940.1
83.0
888.4
$ 15,172.8
2,393.0
18,173.1
2,480.6
438.7
1,730.3
75.8
842.4
$ 14,392.4
2,181.2
17,120.2
2,328.9
421.2
1,617.1
70.7
664.1
$ 13,270.7
2,082.5
15,875.1
2,183.3
369.0
1,488.5
56.4
627.0
165.1
4.52
166.8
5.33
$
175.9
4.79
$
184.5
3.60
$
192.2
3.26
$
$
$ 13,489.8
21,541.5
1,698.5
$ 13,551.7
21,082.2
1,534.7
$ 12,428.5
18,717.9
1,311.5
$ 11,535.7
17,486.3
1,174.1
$ 10,596.1
16,279.4
1,105.8
13,740.2
1,332.3
13,589.5
1,788.0
12,512.3
1,660.5
11,622.4
1,481.9
10,720.9
1,436.0
751,862
426,268
832,640
466,177
748,961
447,491
721,512
408,509
671,294
391,686
$
2,113
993
2,525
$
2,186
975
2,330
$
2,175
963
2,310
$
2,173
961
2,241
$
2,163
926
2,217
(11.7) %
(9.7)
(8.6)
7.7 %
11.2
4.2
0.3 %
3.8
9.5
2.0 %
7.5
4.3
4.3 %
8.3
(0.7)
6.1 %
5.7 %
5.6 %
5.7 %
5.8 %
220
26,889
216
27,050
203
25,946
188
25,110
173
24,344
(1)
In connection with our adoption of Accounting Standards Update (“ASU”) 2016-02, Leases (“ASC 842”) during fiscal 2020, certain
prior period amounts have been reclassified to conform to the current year’s presentation.
(2) Represents CAF total interest margin (which reflects the spread between interest and fees charged to consumers and our funding costs)
as a percentage of total average managed receivables.
25
Item 7. Management’s Discussion and Analysis 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 and the
accompanying notes presented in Item 8. Consolidated Financial Statements and Supplementary Data. Note references are to
the notes to consolidated financial statements included in Item 8. Certain prior year amounts have been reclassified to conform
to the current year’s presentation. All references to net earnings per share are to diluted net earnings per share. Amounts and
percentages may not total due to rounding.
OVERVIEW
See Part I, Item 1 for a detailed description and discussion of the company’s business.
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 omni-channel
platform, which gives us the largest addressable market in the used car industry, empowers customers to buy a car on their
terms – online, in-store or a seamless combination of both. Customers can choose to complete the car-buying experience in-
person at one of our stores; or buy the car online and receive delivery through contactless curbside pickup, available
nationwide, or home delivery, available to most customers.
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 February 28, 2021, we operated 220 used car stores in 106 U.S. television markets. As of that date, wholesale auctions
previously held at 74 of our used car stores were being conducted virtually. During the fourth quarter of fiscal 2021, we sold
the Toyota new car franchise located in Laurel, MD, resulting in 1 new car franchise remaining at February 28, 2021.
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 loans receivable less the interest expense associated with the debt issued to fund these receivables, a
provision for estimated loan losses and direct expenses. CAF income does not include any allocation of indirect costs. After
the effect of 3-day payoffs and vehicle returns, CAF financed 42.5% of our retail used vehicle unit sales in fiscal 2021. As of
February 28, 2021, CAF serviced approximately 1,054,000 customer accounts in its $13.85 billion portfolio of managed
receivables.
Management regularly analyzes CAF’s operating results by assessing the competitiveness of our consumer offer, profitability,
the performance of the auto loans receivable, including trends in credit losses and delinquencies, and CAF direct expenses.
26
Revenues and Profitability
Our primary sources of revenue and gross profit from CarMax Sales Operations for fiscal 2021 are as follows:
Net Sales and
Operating Revenues
Gross Profit
A high-level summary of our financial results from fiscal 2021 compared with fiscal 2020 is as follows:
(Dollars in millions except per share or per unit data)
Income statement information
Net sales and operating revenues
Gross profit
CAF income
Selling, general and administrative expenses
Net earnings
Unit sales information
Used unit sales
Change in used unit sales in comparable stores
Wholesale unit sales
Per unit information
Used gross profit per unit
Wholesale gross profit per unit
SG&A per used vehicle unit
Per share information
Net earnings per diluted share
2021
Change from
2020
$ 18,950.1
2,379.1
562.8
1,898.8
746.9
751,862
(11.7) %
426,268
2,113
993
2,525
$
$
$
$
$
$
$
$
(6.7) %
(12.6) %
23.4 %
(2.1) %
(15.9) %
(9.7) %
N/A
(8.6) %
(3.3) %
1.8 %
8.4 %
4.52
(15.2) %
Net earnings per diluted share during fiscal 2021 included a one-time benefit of $0.19 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. A discussion regarding Results of
Operations and Financial Condition for fiscal 2020 as compared to fiscal 2019 is included in Part II, Item 7 of our Annual
Report on Form 10-K for the fiscal year ended February 29, 2020, filed with the SEC on April 21, 2020.
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. We provided associates with at least 14 days of pay continuity upon store
27
83%14%3%UsedWholesaleOther67%18%15%
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. During the first half of fiscal 2021, we spent approximately $30 million supporting associates impacted by
COVID-19, store closures and furloughs.
We have implemented robust plans to reduce the risk of exposure and transmission 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. During the second quarter of fiscal 2021, we completed the rollout of our
omni-channel platform, giving us the largest addressable market in the used car industry. This offering allows customers to
seamlessly do as much, or as little, online and in-person as they prefer.
Our fiscal 2021 results were significantly impacted by the COVID-19 pandemic. In particular retail sales were negatively
impacted by store closures and occupancy restrictions in response to COVID-19, primarily during the first quarter. For further
details of these impacts, refer to “Results of Operations.”
Beginning in the first quarter of fiscal 2021, as the pandemic escalated, our CAF business 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 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.
During fiscal 2021, new legislation was enacted to provide relief to businesses in response to the COVID-19 pandemic,
including the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) and the Taxpayer Certainty and Disaster
Tax Relief Act. On March 6, 2021 the American Rescue Plan Act of 2021 was enacted. We have evaluated the tax provisions
of these acts as well as new IRS guidance issued. 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
legislation to have a material impact on our results of operations.
The ongoing crisis of COVID-19 continues to evolve and cause uncertainty. At the end of fiscal 2021, states and localities
were in the midst of a vaccine distribution program; however, the continued spread and impact of COVID-19 persist. As such,
we are unable to determine the full impact that social distancing protocols, the availability and efficacy of vaccines, or potential
subsequent outbreaks, will ultimately have on our operations or consumer demand. 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.
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. In addition to funding our operations,
this liquidity was used to fund the repurchase of common stock under our share repurchase program and our store growth.
As previously disclosed, in response to the COVID-19 pandemic, we took certain measures in the first quarter of fiscal 2021 to
enhance our liquidity position and provide additional financial flexibility, including drawing down additional funds on our
revolving credit facility, pausing our stock repurchase program, pausing our store expansion strategy and remodels and actively
aligning operating expenses to the current state of the business, including the previously discussed furlough. We strengthened
our overall financial position by selling through inventory and quickly aligning costs to lower sales volumes. We have
continued to adjust inventory levels and operating expenses throughout the pandemic to align with sales trends. During the
third quarter, we fully paid down the outstanding balance on our revolving credit facility and resumed our store expansion
strategy and share repurchase program. 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 as well as other strategic initiatives for the foreseeable future.
28
Strategic Update and Future Outlook
The COVID-19 pandemic has created an unprecedented and challenging time. As discussed above, we have taken several steps
to ensure a strong liquidity position and enable our stores to operate amidst the current health and safety concerns while
continuing to invest in our strategic priorities. We will continue to monitor the ongoing effects of the pandemic and make any
further decisions necessary to position the company for a strong recovery as we emerge from this crisis.
We recognize the current environment has accelerated a shift in consumer buying behavior. Customers are seeking safety,
personalization and convenience in how they shop for and buy a vehicle more than ever. Our omni-channel platform empowers
customers to buy a car on their own terms, whether completely from home, in-store or through a seamlessly integrated
combination of online and in-store experiences. Our diversified business model, combined with our emerging omni-channel
experience, is a unique advantage in the used car industry that firmly positions us to continue growing our market share while
creating shareholder value over the long-term. We completed our omni-channel rollout in the second quarter of fiscal 2021.
We now have a common platform across all of CarMax that leverages our scale, nationwide footprint and infrastructure and
empowers our customers to buy a vehicle on their terms.
With the completion of our omni-channel rollout, we are now focusing our efforts on optimizing and enhancing the customer
experience. In particular, we are focused on enabling self-service for all components of the sale. In the fourth quarter of fiscal
2021, we made significant progress in this area, and at the end of the quarter, approximately 25% of our customers were eligible
to buy a vehicle online independently if they choose, up significantly from the third quarter. We are on track for most of our
customers to have the ability to buy a vehicle online independently if they choose by the middle of fiscal 2022. Additionally,
approximately 75% of our customers advanced their transaction digitally during the fourth quarter of fiscal 2021, with
approximately 5% buying the vehicle online.
In the fourth quarter of fiscal 2021, we completed the nationwide rollout of our online instant appraisal offer, which quickly
provides customers an offer on their vehicle. Early response to this offering has been strong, positioning us to become the
largest online buyer of used vehicles from consumers and strengthening our leadership position as the largest used vehicle
buyer from consumers. We believe that our online appraisal offers provide us with the potential to approach or exceed the high
end of our historical self-sufficiency rate. We also introduced our Love Your Car Guarantee in the fourth quarter of fiscal
2021. This guarantee allows customers to take a 24-hour test drive before committing to purchase and also offers a 30-
day/1,500 mile money-back guarantee and a 90-day/4,000-mile limited warranty. At the end of the fourth quarter, we also
launched a “penny perfect” transactable financing offer in our online checkout process. With this enhancement, customers can
apply and accept finance offers without needing the assistance of an associate to submit a credit application over the phone or in
store. We plan to make this available to all customers in the first quarter of fiscal 2022.
We first launched our omni-channel platform in the Atlanta market in December 2018. Now, two years later after continued
testing on pricing and advertising, our omni-channel platform is delivering sustained growth in this competitive market. The
Atlanta market continues to outperform the company, maintaining its market share in calendar 2020 despite pressure from
COVID-19. During the last five months of calendar 2020, our market share in Atlanta increased 13.8%. Over the past two
years, our market share in Atlanta has increased 10.9%.
Our strategic investments in the near term will focus on our customer experience, vehicle acquisition and marketing. As we
continue enhancing our online experience and offerings, we believe it is important to educate customers on our omni-channel
platform and to differentiate and elevate our brand. During the fourth quarter of fiscal 2021, we introduced the next phase of
our national multi-media marketing campaign that began last year. As a result, marketing spend increased year-over-year.
Throughout the quarter, we set records every week for web visits, reaching more than 8 million weekly visits by the end of
February 2021. After the campaign launch, web traffic and Google query volumes were both up approximately 25% compared
with the months prior to launch. As we head into fiscal 2022, we expect our marketing spend to remain elevated with similar
per unit expenses as experienced in the second half of fiscal 2021. We believe we are well positioned to gain market share
through the promotion of our omni-channel platform and new product offerings such as our Love Your Car Guarantee.
Leveraging the enhanced omni-channel platform, advertising campaign and experience in our Atlanta market discussed above,
we implemented pricing and marketing tests in select markets during the fourth quarter of fiscal 2021 in an effort to proactively
drive sales volume. Early results for these tests were positive, and we plan to continue these tests into the first quarter of fiscal
2022 while also monitoring macroeconomic factors. We expect our gross profit per used unit to remain above $2,000 for the
quarter. While these tests confirm what we have historically seen regarding price elasticity, several factors have changed
resulting in a stronger flow through from the increased sales and thereby driving profitability. These factors include: the high
level of profitability for our CAF originations, a lower variable cost structure resulting from our continued transition to CECs
and the favorable changes to our third-party finance providers fee structure.
29
In March 2021, we signed a definitive agreement to acquire Edmunds, one of the most well established and trusted online
guides for automotive information and a recognized industry leader in digital car shopping innovations. With this acquisition,
CarMax will enhance its digital capabilities and further strengthen its role and reach across the used auto ecosystem while
adding exceptional technology and creative talent. Edmunds will continue to operate independently and will remain focused on
delivering confidence to consumers and excellent value to its dealer and OEM clients. Additionally, this acquisition will allow
both businesses to accelerate their respective capabilities to deliver an enhanced digital experience to their customers by
leveraging Edmunds’ compelling content and technology, our unparalleled national scale and infrastructure, and the combined
talent of both businesses. We expect to pay for the transaction with a combination of cash and equity. The transaction is
subject to certain conditions to close typical for a transaction of this nature. We anticipate this transaction will close in June
2021 and expect Edmunds’ financial results to have an immaterial impact to CarMax’s earnings per share in fiscal 2022, with
potential for significant shareholder value creation over the longer term.
Our long-term strategy continues to be focused on completing the rollout of our retail concept and improving and enhancing 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 contribute to earnings
growth. We believe, over the long term, used vehicle unit sales are the primary driver for earnings growth. We also believe
increased used vehicle unit sales will drive increased sales of wholesale vehicles and ancillary products and, over time,
increased CAF income.
In order to execute our long-term strategy, we plan to continue to invest in various strategic initiatives to increase innovation,
specifically with regards to customer-facing and customer-enabling technologies, as well as marketing. We are also focused on
ensuring we are efficient in our spend, targeting specific areas where we expect to achieve more efficiencies and leverage. This
includes our CECs, which are maturing and becoming more efficient and effective. This past year our CECs were more
efficient than the prior year and we expect this trend to accelerate in fiscal 2022. Our use of data is a core component of these
initiatives and continues to be a strategic asset for us as we leverage data to enhance the customer experience and increase
operational efficiencies. For fiscal 2022, we would expect to leverage our SG&A expenses when comparable store used unit
sales growth is in the range of 5% to 8% on a two-year stacked basis. In periods of investment, like fiscal 2022, we will need to
be at the higher end of this two-year range to lever against fiscal 2021.
In calendar 2020, we estimate we sold approximately 4.3% of the age 0- to 10-year old vehicles sold in the current comparable
store markets in which we operate, a decline from 4.7% in 2019. We had strong momentum entering the current year and were
gaining significant market share up until the onset of the COVID-19 pandemic during the first quarter of fiscal 2021. As
markets re-opened and our omni-channel platform launched nationwide, we began gaining market share again, leading to
market share gains over the last five months of calendar 2020. On a nationwide basis, we estimate we sold approximately 3.5%
of the age 0- to 10-year old vehicles sold. Our strategy to increase our market share includes focusing on:
•
•
•
•
•
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 reduce waste.
Leveraging data and advanced analytics to continuously improve the customer experience as well as our processes and
systems.
As of February 28, 2021, we had used car stores located in 106 television markets, which covered approximately 77% of the
U.S. population. The format and operating models utilized in our stores are continuously evaluated and may evolve over time
based upon market and consumer expectations. We opened 4 stores in fiscal 2021. In response to COVID-19, we paused our
store expansion strategy in the first quarter of fiscal 2021. We have resumed new store growth and anticipate opening ten stores
during fiscal 2022.
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 this Form 10-K.
CRITICAL ACCOUNTING POLICIES
Our results of operations and financial condition as reflected in the consolidated financial statements have been prepared in
accordance with U.S. generally accepted accounting principles. Preparation of financial statements requires management to
30
make estimates and assumptions affecting the reported amounts of assets, liabilities, revenues, expenses and the disclosures of
contingent assets and liabilities. We use our historical experience and other relevant factors when developing our estimates and
assumptions. We regularly evaluate these estimates and assumptions. Note 1 includes a discussion of significant accounting
policies. The accounting policies discussed below are the ones we consider critical to an understanding of our consolidated
financial statements because their application places the most significant demands on our judgment. Our financial results might
have been different if different assumptions had been used or other conditions had prevailed.
Financing and Securitization Transactions
We maintain a revolving funding program composed of three warehouse facilities (“warehouse facilities”) that we use to fund
auto loans receivable originated by CAF. We typically elect to fund these receivables through an asset-backed term funding
transaction, such as a term securitization or alternative funding arrangement, at a later date. We recognize transfers of auto
loans receivable into the warehouse facilities and asset-backed term funding transactions, including term securitizations
(together, “non-recourse funding vehicles”), as secured borrowings, which result in recording the auto loans receivable and the
related non-recourse notes payable on our consolidated balance sheets. CAF income included in the consolidated statements of
earnings 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.
See Notes 1(F), 1(H) and 4 for additional information on securitizations and auto loans receivable.
Allowance for Loan Losses
The allowance for loan losses represents the net credit losses expected over the remaining contractual life of our managed
receivables. Because net loss performance can vary substantially over time, estimating net losses requires assumptions about
matters that are uncertain.
The allowance for loan losses is determined using a net loss timing curve, primarily based on the composition of the portfolio of
managed receivables and historical gross loss 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.
The output of the net loss timing curve 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 (“NADA”) used vehicle
price index are used to predict changes in gross loss and recovery rate, respectively. An economic adjustment factor, based
upon a single macroeconomic scenario, is developed to capture the relationship between changes in these indices and changes
in gross loss and recovery rates. This factor is applied to the output of the net loss timing curve for the reasonable and
supportable forecast period of two years. After the end of this two year period, the impact of the economic factor is phased out
of the allowance for loan loss calculation 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 model when appropriate. We also
consider whether qualitative adjustments are necessary for factors 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.
Determining the appropriateness of the allowance for loan losses requires management to exercise judgment about matters that
are inherently uncertain, including the timing and distribution of net losses that could materially affect the allowance for loan
losses and, therefore, net earnings. To the extent that actual performance differs from our estimates, additional provision for
credit losses may be required that would reduce net earnings. A 10% change in the estimated loss rates would have changed the
allowance for loan losses by approximately $41.1 million as of February 28, 2021.
See Notes 1(H) and 4 for additional information on the allowance for loan losses.
Revenue Recognition
We recognize revenue when the earnings process is complete, generally either at the time of sale to a customer or upon delivery
to a customer. As part of our customer service strategy, we guarantee the retail vehicles we sell with a 30‑day, money-back
31
guarantee. We record a reserve for estimated returns based on historical experience and trends, and results could be affected if
future vehicle returns differ from historical averages.
We also sell ESPs and GAP on behalf of unrelated third parties, who are the primary obligors, 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 retail installment 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 related to changes in the coverage or term of the product. Results could be
affected if actual events differ from our estimates. A 10% change in the estimated cancellation rates would have changed
cancellation reserves by approximately $12.5 million as of February 28, 2021. See Note 8 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, subject to various
constraints, is recognized upon satisfying the performance obligation of selling the ESP. These constraints include factors that
are outside of the company’s influence or control and the length of time until settlement. We apply the expected value method,
utilizing historical claims and cancellation data from CarMax customers, as well as external data and other qualitative
assumptions. This estimate is reassessed each reporting period with changes reflected in other sales and revenues on our
consolidated statements of earnings and other assets on our consolidated balance sheets.
Customers applying for financing who are not approved or are conditionally approved by CAF are generally evaluated by other
third-party finance providers. These providers generally either pay us or are paid a fixed, pre-negotiated fee per contract. We
recognize these fees at the time of sale.
We collect sales taxes 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.
See Note 2 for additional information on revenue recognition.
RESULTS OF OPERATIONS – CARMAX SALES OPERATIONS
NET SALES AND OPERATING REVENUES
(In millions)
Used vehicle sales
Wholesale vehicle sales
Other sales and revenues:
Extended protection plan revenues
Third-party finance fees, net
Other
Total other sales and revenues
Total net sales and operating revenues
$
UNIT SALES
Used vehicles
Wholesale vehicles
$
2021
15,713.6
2,668.8
Change
Years Ended February 28 or 29
2020
17,169.5
2,500.0
(8.5) % $
6.7 %
Change
13.2 % $
4.5 %
2019
15,172.8
2,393.0
412.8
(39.6)
194.6
567.8
18,950.1
(5.6) %
13.6 %
(24.8) %
(12.7) %
(6.7) % $
437.4
(45.8)
258.9
650.5
20,320.0
14.4 %
(5.6) %
(3.5) %
7.1 %
11.8 % $
382.5
(43.4)
268.2
607.3
18,173.1
Years Ended February 28 or 29
2021
751,862
426,268
Change
2020
Change
2019
(9.7) % 832,640
(8.6) % 466,177
11.2 % 748,961
4.2 % 447,491
32
AVERAGE SELLING PRICES
Used vehicles
Wholesale vehicles
Years Ended February 28 or 29
2021
$ 20,690
5,957
$
Change
2020
Change
2019
1.3 % $ 20,418
5,089
17.1 % $
1.7 % $ 20,077
5,098
(0.2) % $
COMPARABLE STORE USED VEHICLE SALES CHANGES
Used vehicle units
Used vehicle dollars
Years Ended February 28 or 29
2021
2020
2019
(11.7) %
(10.5) %
7.7 %
9.7 %
0.3 %
1.9 %
Stores are added to the comparable store base beginning in their fourteenth full month of operation. We do not remove
renovated stores from our comparable store base. Comparable store calculations include results for a set of stores that were
included in our comparable store base in both the current and corresponding prior year periods.
VEHICLE SALES CHANGES
Used vehicle units
Used vehicle revenues
Wholesale vehicle units
Wholesale vehicle revenues
Years Ended February 28 or 29
2021
2020
2019
(9.7) %
(8.5) %
(8.6) %
6.7 %
11.2 %
13.2 %
4.2 %
4.5 %
3.8 %
5.4 %
9.5 %
9.7 %
USED VEHICLE FINANCING PENETRATION BY CHANNEL (BEFORE THE IMPACT OF 3-DAY PAYOFFS)
CAF (2)
Tier 2 (3)
Tier 3 (4)
Other (5)
Total
Years Ended February 28 or 29 (1)
2019
2020
2021
45.5 %
46.7 %
48.4 %
22.3
10.9
21.3
20.2
10.2
22.9
17.9
9.9
23.8
100.0 %
100.0 %
100.0 %
Includes CAF’s Tier 3 loan originations, which represent less than 1% of total used units sold.
(1) Calculated as used vehicle units financed for respective channel as a percentage of total used units sold.
(2)
(3) Third-party finance providers who generally pay us a fee or to whom no fee is paid.
(4) Third-party finance providers to whom we pay a fee.
(5) Represents customers arranging their own financing and customers that do not require financing.
CHANGE IN USED CAR STORE BASE
Used car stores, beginning of year
Store openings
Used car stores, end of year
Years Ended February 28 or 29
2021
2020
2019
216
4
220
203
13
216
188
15
203
During fiscal 2021, we opened 4 stores, all in existing television markets (Tampa, FL; Philadelphia, PA; New Orleans, LA; and
Los Angeles, CA).
33
Used Vehicle Sales
Fiscal 2021 Versus Fiscal 2020. The 8.5% decrease in used vehicle revenues in fiscal 2021 was primarily due to a 9.7%
decrease in used unit sales, partially offset by a 1.3% increase in average retail selling price. The decrease in used units
included an 11.7% decrease in comparable store used unit sales. This reflected the combined effects of COVID-19 related store
closures and restrictions in operations, as well as reduced customer traffic resulting from the economic impact of the pandemic
and nationwide shelter-in-place orders. The increase in average retail selling price reflected higher vehicle acquisition costs
driven by market appreciation, partially offset by shifts in the mix of our sales by vehicle age.
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 into September. However, as the election
approached and COVID-19 cases surged, which resulted in tightened occupancy restrictions and shelter-in-place orders from
state and local governments, we saw demand soften. As a result, sales trended down in the latter part of the third quarter. Sales
began to accelerate towards the end of December and into January as we launched our new marketing campaign, expanded our
pricing tests, introduced new customer offerings and a second round of stimulus checks was issued. This trend continued until
the middle of February when severe winter weather across a large portion of the U.S., delays in tax refunds relative to last
year’s timing and a lower inventory position due to COVID-19- and weather-related production constraints negatively impacted
retail sales. Comparable used unit sales growth for the fourth quarter of fiscal 2021 were also impacted by the extra day for leap
day in the prior year.
Sales in March 2021 were robust, exceeding 100,000 used units sold for the month and resulting in double-digit used unit and
comparable used unit sales growth when compared with a COVID-19 impacted March 2020 and a record March 2019. During
the month, the initial distribution of tax refund and stimulus checks began, weather improved and customers continued to
respond favorably to our ongoing strategic investments and growth initiatives.
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 comprised of vehicles purchased through our appraisal process that do not meet our retail standards. Our wholesale
auction prices usually reflect the 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. Our wholesale
auctions were moved to an online format in response to the COVID-19 pandemic and continue to operate completely online.
Fiscal 2021 Versus Fiscal 2020. The 6.7% increase in wholesale vehicle revenues in fiscal 2021 was primarily due to a 17.1%
increase in average selling price, partially offset by an 8.6% decrease in wholesale unit sales. The increase in average selling
price was primarily due to increased acquisition costs driven by market appreciation. The decline in wholesale units was
largely driven by lower appraisal traffic, which was significantly impacted by COVID-19, partially offset by an increase in our
appraisal buy rate. We achieved a record buy rate in fiscal 2021.
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.
Fiscal 2021 Versus Fiscal 2020. Other sales and revenues declined 12.7% in fiscal 2021, reflecting decreases in other
revenues, including new car and service department sales, and EPP revenues, partially offset by the improvement in net third-
party finance fees. EPP revenues declined 5.6%, largely reflecting the reduction in our used unit sales as discussed above,
partially offset by favorable adjustments to the cancellation reserves and an increase in profit sharing revenue recognized in the
current year. The new car and service department sales declines reflected both store closures and reduced customer traffic in
response to COVID-19. The decline in new car sales was also driven by the divestiture of a franchise in the fourth quarter of
fiscal 2021. Net third-party finance fees improved as a result of favorable adjustments in the fee agreements with our Tier 2
and Tier 3 providers made during the fourth quarter of fiscal 2021.
34
GROSS PROFIT
(In millions)
Used vehicle gross profit
Wholesale vehicle gross profit
Other gross profit
Total
GROSS PROFIT PER UNIT
2021
1,588.9
423.3
366.9
2,379.1
$
$
Years Ended February 28 or 29
2020
Change
Change
(12.7) % $
(6.8) %
(18.1) %
(12.6) % $
1,820.1
454.4
447.8
2,722.3
11.7 % $
5.4 %
6.4 %
9.7 % $
2019
1,628.7
431.0
420.9
2,480.6
Years Ended February 28 or 29
2021
2020
2019
Used vehicle gross profit
Wholesale vehicle gross profit
Other gross profit
Total gross profit
$ per unit (1)
2,113
$
993
$
488
$
3,164
$
% (2)
$ per unit (1)
2,186
975
538
3,270
10.1 $
15.9 $
64.6 $
12.6 $
% (2)
$ per unit (1)
2,175
963
562
3,312
10.6 $
18.2 $
68.9 $
13.4 $
% (2)
10.7
18.0
69.3
13.6
(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.
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.
Fiscal 2021 Versus Fiscal 2020. Used vehicle gross profit declined 12.7% in fiscal 2021, reflecting the 9.7% decline in total
used unit sales as well as the $73 decline in used vehicle gross profit per unit. During the first quarter of fiscal 2021, our used
vehicle gross profit per unit was pressured by pricing adjustments made to better align inventory levels with sales in response to
COVID-19. During the fourth quarter of fiscal 2021, our used vehicle gross profit per unit was impacted by pricing tests rolled
out in select markets.
We believe we can manage to a targeted gross profit per unit dollar range, subject to future changes to our business, pricing
strategy or external market conditions. As noted above, in connection with the improvements and enhancements we are making
to our omni-channel experience, we also implemented pricing and marketing tests in select markets during the fourth quarter of
fiscal 2021. Early results for these tests were positive and we plan to continue the tests into the first quarter of fiscal 2022 while
also monitoring macroeconomic factors. We continue to expect gross profit per used unit to be above $2,000 during the
quarter.
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.
Fiscal 2021 Versus Fiscal 2020. Wholesale vehicle gross profit decreased 6.8% in fiscal 2021, driven by the 8.6% decrease in
wholesale unit sales, partially offset by a modest increase in wholesale gross profit per unit. Wholesale gross profit per unit
35
was under significant pressure early in the first quarter of fiscal 2021, reflecting sharp declines in industry wholesale valuations;
however, wholesale gross profit per unit had fully recovered by the end of the first quarter. During the second quarter of fiscal
2021, performance was supported by strong appreciation in the market. By the end of the second quarter, depreciation had
returned to the wholesale market, and steep depreciation continued during the third quarter. At the beginning of the fourth
quarter, industry prices flattened out and began to appreciate through the remainder of the quarter.
Other Gross Profit
Other gross profit includes profits related to EPP revenues, net third-party finance fees and other revenues. Other revenues are
predominantly comprised of service department operations, including used vehicle reconditioning, and new vehicle sales. We
have no cost of sales related to EPP revenues or net third-party finance fees, as these represent revenues paid to us by certain
third-party providers. Third-party finance fees are reported net of the fees we pay to third-party Tier 3 finance
providers. Accordingly, changes in the relative mix of the components of other gross profit can affect the composition and
amount of other gross profit.
Fiscal 2021 Versus Fiscal 2020. Other gross profit decreased 18.1% in fiscal 2021, reflecting a decline in service department
profits and EPP revenues. Service results reflected the overhead deleverage resulting from our decline in used car sales, pay
continuity for our technicians and other service personnel during periods of reduced vehicle reconditioning activity in the first
quarter and discretionary bonuses for service and reconditioning associates.
SG&A Expenses
COMPONENTS OF SG&A EXPENSES AS A PERCENTAGE OF TOTAL SG&A EXPENSES
Fiscal Year 2021
COMPONENTS OF SG&A EXPENSES COMPARED WITH PRIOR PERIODS
(In millions except per unit data)
Compensation and benefits:
Compensation and benefits, excluding share-
based compensation expense
Share-based compensation expense
Total compensation and benefits (1)
Store occupancy costs
Advertising expense
Other overhead costs (2)
Total SG&A expenses
SG&A per used vehicle unit (3)
2021
Years Ended February 28 or 29
2020
Change
Change
2019
$
$
$
$
909.8
111.7
1,021.5
399.1
217.5
260.7
1,898.8
2,525 $
(0.4) % $
913.2
9.4 % $
835.0
12.4 %
0.9 % $
1.5 %
13.7 %
(24.0) %
(2.1) % $
$
195
99.4
1,012.6
393.4
191.3
342.8
1,940.1
2,330 $
42.2 %
11.9 % $
9.6 %
15.0 %
14.3 %
12.1 % $
$
20
69.9
904.9
359.1
166.4
299.9
1,730.3
2,310
(1)
(2)
Excludes compensation and benefits related to reconditioning and vehicle repair service, which are included in cost of sales. See Note
12 for details of stock-based compensation expense by grant type.
Includes IT expenses, non-CAF bad debt, insurance, preopening and relocation costs, charitable contributions, travel and other
administrative expenses.
(3) Calculated as total SG&A expenses divided by total used vehicle units.
36
54%21%11%14%Total comp and benefitsStore occupancy costsAdvertising expenseOther overhead costs
Fiscal 2021 Versus Fiscal 2020 (Decrease of $41.3 million or 2.1%). This decrease reflected a reduction in costs associated
with our decline in sales volume and actions taken in response to COVID-19 to reduce costs, partially offset by continued
spending to advance our technology platforms and support strategic initiatives. The decrease also reflected the following:
•
•
•
$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.
$26.2 million increase in advertising expense primarily due to our new advertising campaign launched during the
fourth quarter of fiscal 2021 and incremental marketing spend in select markets in conjunction with our expanded
pricing tests.
$12.3 million increase in share-based compensation expense. The increase in share-based compensation expense
was largely related to cash-settled restricted stock units, as the expense associated with these units was primarily
driven by the change in the company's stock price during the relevant periods.
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.
Fiscal 2021 Versus Fiscal 2020. Interest expense of $86.2 million in fiscal 2021 was relatively consistent with $83.0 million
in fiscal 2020.
Income Taxes
The effective income tax rate was 22.6% in fiscal 2021 compared with 23.5% in fiscal 2020. The decrease in the effective tax
rate is primarily due to an increase in excess tax benefits recognized on stock exercises and releases in fiscal 2021.
RESULTS OF OPERATIONS – CARMAX AUTO FINANCE
CAF income primarily reflects interest and fee income generated by CAF’s portfolio of 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. Total interest margin reflects the spread between interest and fees charged to consumers and our funding costs.
Changes in the interest margin on new originations affect CAF income over time. Increases in interest rates, which affect
CAF’s funding costs, or other competitive pressures on consumer rates, could result in compression in the interest margin on
new originations. Changes in the allowance for loan losses as a percentage of ending managed receivables reflect the effect of
changes in loss and delinquency experience and economic factors on our outlook for net losses expected to occur over the
remaining contractual life of the loans receivable.
CAF’s managed portfolio is composed primarily of loans originated over the past several years. Trends in receivable growth
and interest margins primarily reflect the cumulative effect of changes in the business over a multi-year period. Historically, we
have strived to originate loans with an underlying risk profile that we believe will, in the aggregate and excluding CAF’s Tier 3
originations, result in cumulative net losses in the 2% to 2.5% range over the life of the loans. Actual loss performance of the
loans may fall outside of this range based on various factors, including intentional changes in the risk profile of originations,
economic conditions (including the effects of the COVID-19 outbreak) and wholesale recovery rates. Based on underwriting
adjustments made during the first quarter of fiscal 2021, in response to higher anticipated losses related to COVID-19, we
targeted new loans toward the higher end of this range. In the second quarter of fiscal 2021, we ceased the underwriting
adjustments made during the previous quarter and we anticipate loans originated since to remain within our targeted range.
Current period originations reflect current trends in both our retail sales and the CAF business, including the volume of loans
originated, current interest rates charged to consumers, loan terms and average credit scores. Loans originated in a given fiscal
period impact CAF income over time, as we recognize income over the life of the underlying auto loan.
CAF 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 loans receivable, including credit
quality.
37
SELECTED CAF FINANCIAL INFORMATION
(In millions)
Interest margin:
Interest and fee income
Interest expense
Total interest margin
Provision for loan losses
CarMax Auto Finance income
Years Ended February 28 or 29
2021
% (1)
2020
% (1)
2019
% (1)
$ 1,142.0
(314.1)
827.9
(160.7)
562.8
$
$
$
8.5 $ 1,104.1
(358.1)
(2.3)
746.0
6.1 $
(185.7)
(1.2) $
456.0
4.2 $
8.4 $
(2.7)
5.7 $
(1.4) $
3.5 $
972.9
(289.3)
683.6
(153.8)
438.7
8.0
(2.4)
5.6
(1.3)
3.6
(1)
Percent of total average managed receivables.
CAF ORIGINATION INFORMATION (AFTER THE IMPACT OF 3-DAY PAYOFFS)
Net loans originated (in millions)
Vehicle units financed
Net penetration rate (1)
Weighted average contract rate
Weighted average credit score (2)
Weighted average loan-to-value (LTV) (3)
Weighted average term (in months)
Years Ended February 28 or 29
2020
$ 7,089.7
353,654
2019
$ 6,330.1
323,864
2021
$ 6,395.0
319,346
42.5 %
8.4 %
706
92.0 %
66.0
42.5 %
8.4 %
710
94.2 %
66.1
43.2 %
8.5 %
706
94.8 %
66.0
(1)
(2)
(3)
Vehicle units financed as a percentage of total used units sold.
The credit scores represent FICO® scores and reflect only receivables with obligors that have a FICO® score at the time of
application. The FICO® score with respect to any receivable with co-obligors is calculated as the average of each obligor’s FICO®
score at the time of application. FICO® scores are not a significant factor in our primary scoring model, which relies on information
from credit bureaus and other application information as discussed in Note 4. FICO® is a federally registered servicemark of Fair
Isaac Corporation.
LTV represents the ratio of the amount financed to the total collateral value, which is measured as the vehicle selling price plus
applicable taxes, title and fees.
LOAN PERFORMANCE INFORMATION
(In millions)
Total ending managed receivables
Total average managed receivables
Allowance for loan losses (1)
Allowance for loan losses as a percentage of ending managed receivables
Net credit losses on managed receivables
Net credit losses as a percentage of total average managed receivables
Past due accounts as a percentage of ending managed receivables
Average recovery rate (2)
As of and for the
Years Ended February 28 or 29
2020
$ 13,617.8
$ 13,105.1
2019
$ 12,510.2
$ 12,150.2
2021
$ 13,847.2
$ 13,463.3
$
411.1
2.97 %
$
109.4
$
$
0.81 %
2.83 %
53.5 %
$
$
157.8
1.16 %
166.1
1.27 %
3.44 %
48.1 %
138.2
1.10 %
144.2
1.19 %
3.61 %
47.7 %
(1) The allowance for loan losses as of February 28, 2021, 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 changes in the
wholesale market pricing environment.
38
Fiscal 2021 Versus Fiscal 2020.
•
•
CAF Income (Increase of $106.8 million or 23.4%)
◦
The increase in CAF income reflects increases in the total interest margin percentage and average managed receivables
as well as a decrease in the provision for loan losses.
The decrease in net loan originations in fiscal 2021 largely resulted from our used vehicle sales decline.
◦
Provision for Loan Losses (Decreased to $160.7 million from $185.7 million)
◦
◦
The provision largely reflected our initial estimate of lifetime losses on loans originated in fiscal 2021.
The provision also included an increase in our estimate of lifetime losses made during the first quarter of fiscal 2021,
largely resulting from COVID-19 turmoil and worsened economic factors, which was largely offset by favorable loss
experience in comparison to our expectations during the remainder of fiscal 2021.
The allowance for loan losses as a percentage of ending managed receivables was 2.97% as of February 28, 2021
compared with 2.64% as of March 1, 2020, after our adoption of CECL.
◦
◦ We believe our current reserve is appropriate and considers both the positive customer payment behavior recently
observed as well as the unpredictability of the current environment and the uncertain consumer situation.
•
Total interest margin increased as a percentage of average managed receivables to 6.1% in fiscal 2021 compared with 5.7%
in fiscal 2020 as a 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 has targeted originating approximately 5% of the total Tier 3 loan volume; however, this rate may
vary over time based on market conditions. During the first quarter of fiscal 2021, we paused our CAF Tier 3 lending given the
current economic outlook and uncertainty surrounding COVID-19. Early in the third quarter, we resumed our Tier 3 lending
program. A total of $147.7 million and $167.5 million in CAF Tier 3 receivables were outstanding as of February 28, 2021 and
February 29, 2020, respectively. These loans have higher loss and delinquency rates than the remainder of the CAF portfolio,
as well as higher contract rates. As of February 28, 2021 and February 29, 2020, approximately 10% of the total allowance for
loan losses related to the outstanding CAF Tier 3 loan balances. Subsequent to the end of fiscal 2021, we began to increase our
Tier 3 volume beyond our target of 5% of the total Tier 3 loan volume, and we anticipate reaching and maintaining a 10% share
in Tier 3 loan volume by the end of the first quarter of fiscal 2022.
PLANNED FUTURE ACTIVITIES
We anticipate opening ten stores in fiscal 2022. These stores will predominantly be cross functional stores that have a smaller
footprint and can leverage our scale and presence of the larger format stores in nearby markets. We currently estimate capital
expenditures will total approximately $350 million in fiscal 2022. Over $100 million, or approximately one-third of this spend,
will be focused on investments in technology, an increase from approximately 15% four years ago.
RECENT ACCOUNTING PRONOUNCEMENTS
See Note 1(X) to the consolidated financial statements for information on recent accounting pronouncements applicable to
CarMax.
FINANCIAL CONDITION
Liquidity and Capital Resources
Our primary ongoing cash requirements are to fund our existing operations, store expansion and improvement, CAF, and
strategic growth initiatives. Since fiscal 2013, we have also elected to use cash for our share repurchase program. Our primary
ongoing sources of liquidity include funds provided by operations, proceeds from non-recourse funding vehicles and
borrowings under our revolving credit facility or through other financing sources.
During the first quarter of fiscal 2021, in response to COVID-19, 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. We
have continued to adjust inventory levels throughout the pandemic to align with sales trends. During the third quarter, we fully
paid down the outstanding balance on our revolving credit facility and resumed our store expansion strategy and share
39
repurchase program. 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 strategic initiatives for the foreseeable future.
In March 2021, we signed a definitive agreement to acquire Edmunds for a purchase price that implies an enterprise value of
$404 million, inclusive of our initial investment. We expect to pay for the transaction with a combination of cash and equity
and anticipate it will close in June 2021.
We are party to contractual obligations involving commitments to make payments to third parties. These obligations impact our
liquidity and capital resource needs. Our contractual obligations primarily consist of long-term debt and related interest
payments, leases, purchase obligations and commitments, income taxes and defined benefit retirement plans. See Notes 11 and
15 for amounts outstanding as of February 28, 2021 related to debt and leases, respectively.
Our contractual obligations related to income taxes represent the net unrecognized tax benefits related to uncertain tax
positions. See Note 9 for information related to income taxes. Our contractual obligations related to defined benefit retirement
plans represent the funded status recognized as of February 28, 2021. See Note 10 for information related to these plans.
Purchase obligations and commitments consist of certain enforceable and legally binding obligations related to real estate
purchases, third-party outsourcing services and advertising. As of February 28, 2021, our purchase obligations and
commitments were approximately $141.2 million, of which $68.0 million are due in fiscal 2022. The majority of the remaining
purchase obligations and commitments are due within the next three years.
We currently target an adjusted debt to capital ratio in a range of 35% to 45%. At the end of fiscal 2021, our adjusted debt to
capital ratio was below our targeted range for the year. 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 shareholders’ equity. Generally, we
expect to use our revolving credit facility and other financing sources, together with stock repurchases, to maintain this targeted
ratio; however, in any period, we may be outside this range due to seasonal, market, strategic or other factors.
Operating Activities. During fiscal 2021, net cash provided by operating activities totaled $667.8 million, compared with net
cash used in operating activities of $236.6 million in fiscal 2020. Our operating cash flows are significantly impacted by
changes in auto loans receivable, which increased $300.8 million in fiscal 2021 compared with $1.31 billion in fiscal 2020.
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 issuances of non-recourse notes payable were $151.5 million in fiscal 2021
compared with $1.08 billion in fiscal 2020 and are separately reflected as cash from financing activities. Due to the
presentation differences between auto loans receivable and non-recourse notes payable on the consolidated statements of cash
flows, fluctuations in these amounts can have a significant impact on our operating and financing cash flows without affecting
our overall liquidity, working capital or cash flows.
As of February 28, 2021, total inventory was $3.16 billion, representing an increase of $310.7 million, or 10.9%, compared
with the balance as of the start of the fiscal year. The increase primarily reflected an increase in the average carrying cost of
inventory as a result of higher acquisition costs, driven by market appreciation, as well as increased units due to decreased sales
at the end of the fourth quarter of fiscal 2021 as a result of severe weather and tax refund delays.
The change in net cash provided by (used in) operating activities for fiscal 2021 compared with fiscal 2020 reflected the change
in auto loans receivable, partially offset by a decrease in net earnings when excluding non-cash expenses, which include
depreciation and amortization, share-based compensation expense and the provisions for loan losses and cancellation reserves.
Investing Activities. Net cash used in investing activities totaled $128.2 million in fiscal 2021 and $389.4 million in fiscal
2020. Investing activities primarily consist of capital expenditures, which totaled $164.5 million in fiscal 2021 and
$331.9 million in fiscal 2020. Capital expenditures primarily include store construction costs, real estate acquisitions for
planned future store openings and store remodeling expenses. We maintain a multi-year pipeline of sites to support our store
growth, so portions of capital spending in one year may relate to stores that we open in subsequent fiscal years. In response to
COVID-19, we paused our store expansion and remodel strategy during the first quarter of fiscal 2021. We have since resumed
these activities. We opened 4 stores in fiscal 2021 compared with 13 stores in fiscal 2020.
40
Financing Activities. Net cash used in financing activities was $424.0 million in fiscal 2021, compared with net cash provided
by financing activities of $687.0 million in fiscal 2020. Included in these amounts were net issuances of non-recourse notes
payable of $151.5 million compared with $1.08 billion, respectively. Non-recourse notes payable are typically used to fund
changes in auto loans receivable (see Operating Activities).
During fiscal 2021, cash used in financing activities was impacted by stock repurchases of $229.9 million as well as net
payments on our long-term debt of $463.0 million. During fiscal 2020, cash provided by financing activities was impacted by
stock repurchases of $567.7 million as well as net borrowings on our long-term debt of $77.8 million.
TOTAL DEBT AND CASH AND CASH EQUIVALENTS
(In thousands)
Debt Description (1)
Maturity Date
As of February 28 or 29
2021
2020
Revolving credit facility (2)
Term loan (2)
3.86% Senior notes
4.17% Senior notes
4.27% Senior notes
Financing obligations
Non-recourse notes payable
Total debt (3)
Cash and cash equivalents
June 2024
$
— $
452,740
June 2024
April 2023
April 2026
April 2028
Various dates through February 2059
Various dates through November 2027
300,000
100,000
200,000
200,000
533,578
13,764,808
300,000
100,000
200,000
200,000
536,739
13,613,272
$ 15,098,386 $ 15,402,751
58,211
$
132,319 $
(1)
(2)
(3)
Interest is payable monthly, with the exception of our senior notes, which are payable semi-annually.
Borrowings accrue interest at variable rates based on LIBOR, the federal funds rate, or the prime rate, depending on the type of
borrowing.
Total debt excludes unamortized debt issuance costs. See Note 11 for additional information.
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 February 28, 2021, we were in compliance with these financial covenants.
See Note 11 for additional information on our revolving credit facility, term loan, senior notes and financing obligations.
CAF auto loans receivable are primarily funded through our warehouse facilities and asset-backed term funding transactions.
These non-recourse funding vehicles are structured to legally isolate the auto loans receivable, and we would not expect to be
able to access the assets of our non-recourse funding vehicles, even in insolvency, receivership or conservatorship
proceedings. Similarly, the investors in the non-recourse notes payable have no recourse to our assets beyond the related
receivables, the amounts on deposit in reserve accounts and the restricted cash from collections on auto loans receivable. We
do, however, continue to have the rights associated with the interest we retain in these non-recourse funding vehicles.
As of February 28, 2021, $11.45 billion and $2.31 billion of non-recourse notes payable were outstanding related to asset-
backed term funding transactions and our warehouse facilities, respectively. During fiscal 2021, we funded a total of
$5.78 billion in asset-backed term funding transactions. As of February 28, 2021, we had $1.61 billion of unused capacity in
our warehouse facilities.
We have periodically increased our warehouse facility limit over time, as our store base, sales and CAF loan originations have
grown. See Notes 1(F) and 11 for additional information on the warehouse facilities.
We generally repurchase the receivables funded through our warehouse facilities when we enter into an asset-backed term
funding transaction. If our counterparties were to refuse to permit these repurchases it could impact our ability to execute on
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
41
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 stock price, market conditions, legal requirements and
other factors. Shares repurchased are deemed authorized but unissued shares of common stock. As of February 28, 2021, a
total of $2 billion of board authorizations for repurchases were outstanding, with no expiration date, of which $1.34 billion
remained available for repurchase. In March 2020, our current stock repurchase program was suspended. The repurchase
authorization remained effective and the program resumed in September 2020. See Note 12 for more information on share
repurchase activity.
Fair Value Measurements. We recognize money market securities, mutual fund investments and derivative instruments at fair
value. See Note 6 for more information on fair value measurements.
Item 7A. Quantitative and Qualitative Disclosures about Market Risk.
Interest Rate Exposure - Non-Recourse Notes Payable
As of February 28, 2021 and February 29, 2020, all loans in our portfolio of managed receivables were fixed-rate installment
contracts. Financing for these receivables was achieved primarily through non-recourse funding vehicles that, in turn, issued
both fixed- and variable-rate notes. Non-recourse funding vehicles include warehouse facilities and asset-backed term funding
transactions.
Borrowings under our warehouse facilities are variable-rate debt and are secured by auto loans receivable. The receivables are
funded through the warehouse facilities until we elect to fund them through an asset-backed term funding transaction, which
issue notes payable that accrue interest predominantly at fixed rates.
Interest rate risk related to variable-rate debt is primarily mitigated by entering into derivative instruments. Our derivative
instruments are used to manage 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. Disruptions in the credit markets or unexpected
changes in prepayment activity could impact the effectiveness of our hedging strategies. Generally, changes in interest rates
associated with underlying swaps will not have a material impact on earnings; however, they could have a material impact on
cash and cash flows.
Absent any additional actions by the company to further mitigate risk, a 100-basis point increase in market interest rates
associated with non-recourse funding vehicles would have decreased our fiscal 2021 net earnings per share by approximately
$0.11.
Credit risk is the exposure to nonperformance of another party to an agreement. We mitigate credit risk by dealing with highly
rated bank counterparties. The market and credit risks associated with derivative instruments are similar to those relating to
other types of financial instruments. See Notes 5 and 6 for additional information on derivative instruments and hedging
activities.
COMPOSITION OF NON-RECOURSE NOTES PAYABLE
(In millions)
Fixed-rate
Variable-rate (1)
Total
As of February 28 or 29
2021
10,887.2 $
2,877.6
13,764.8 $
2020
10,853.4
2,759.9
13,613.3
$
$
(1)
Variable-rate debt includes borrowings under our warehouse facilities as well as the variable portion of borrowings under our asset-
backed term funding transactions. See Note 11.
Interest Rate Exposure - Other Debt
We have interest rate risk from changing interest rates related to borrowings under our revolving credit facility. We also have
interest rate risk from changing interest rates related to borrowings under our term loan; however, a portion of the variable-rate
risk is mitigated by a derivative instrument. Substantially all of these borrowings are variable-rate debt based on LIBOR. A
100-basis point increase in market interest rates would have decreased our fiscal 2021 net earnings per share by approximately
$0.02.
42
Other Market Exposures
Our pension plan has interest rate risk related to its projected benefit obligation (“PBO”). Due to the relatively young overall
age of the plan’s participants, a 100-basis point change in the discount rate has approximately a 20% effect on the PBO
balance. A 100-basis point decrease in the discount rate would have decreased our fiscal 2021 net earnings per share by less
than $0.01. See Note 10 for more information on our benefit plans.
As our cash-settled restricted stock units are liability awards, the related compensation expense is sensitive to changes in the
company’s stock price. The mark-to-market effect on the liability depends on each award’s grant price and previously
recognized expense. At February 28, 2021, a 10% change in the company’s stock price would have affected fiscal 2021 net
earnings per share by approximately $0.04.
43
Item 8. Consolidated Financial Statements and Supplementary Data.
MANAGEMENT’S ANNUAL REPORT ON INTERNAL CONTROL
OVER FINANCIAL REPORTING
Management is responsible for establishing and maintaining adequate internal control over financial reporting for the
company. Because of its inherent limitations, internal control over financial reporting may not prevent or detect
misstatements. Accordingly, even effective internal control over financial reporting can provide only reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance
with U.S. generally accepted accounting principles.
Management conducted an evaluation of the effectiveness of our internal control over financial reporting based on the
framework and criteria established in Internal Control—Integrated Framework (2013), issued by the Committee of Sponsoring
Organizations of the Treadway Commission. Based on this evaluation, our management has concluded that our internal control
over financial reporting was effective as of February 28, 2021.
KPMG LLP, the company’s independent registered public accounting firm, has issued a report on our internal control over
financial reporting. Their report is included herein.
WILLIAM D. NASH
PRESIDENT AND CHIEF EXECUTIVE OFFICER
ENRIQUE N. MAYOR-MORA
SENIOR VICE PRESIDENT AND
CHIEF FINANCIAL OFFICER
44
REPORT OF INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM
To the Shareholders and Board of Directors
CarMax, Inc.:
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheets of CarMax, Inc. and subsidiaries (the Company) as of February
28, 2021 and February 29, 2020, the related consolidated statements of earnings, comprehensive income, cash flows, and
shareholders’ equity for each of the years in the three-year period ended February 28, 2021, and the related notes (collectively,
the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material
respects, the financial position of the Company as of February 28, 2021 and February 29, 2020, and the results of its operations
and its cash flows for each of the years in the three-year period ended February 28, 2021, in conformity with U.S. generally
accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States)
(PCAOB), the Company’s internal control over financial reporting as of February 28, 2021, based on criteria established in
Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway
Commission, and our report dated April 20, 2021 expressed an unqualified opinion on the effectiveness of the Company’s
internal control over financial reporting.
Change in Accounting Principle
As discussed in Note 1 to the consolidated financial statements, the Company has changed its method of accounting for the
recognition and measurement of credit losses as of March 1, 2020 due to the adoption of Accounting Standards Update No.
2016-13—Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express
an opinion on these consolidated financial statements based on our audits. We are a public accounting firm registered with the
PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and
the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement,
whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the
consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such
procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial
statements. Our audits also included evaluating the accounting principles used and significant estimates made by management,
as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a
reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial
statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or
disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or
complex judgments. The communication of a critical audit matter does not alter in any way our opinion on the consolidated
financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate
opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Assessment of the allowance for loan losses on core receivables
As discussed in Notes 1(H) and 4 to the consolidated financial statements, the Company maintained an allowance for
loan losses on core receivables for the net credit losses expected over the remaining contractual life of the managed
receivables. The balance of the allowance for loan losses at February 28, 2021 was $411.1 million, a substantial
portion of which related to core receivables. The Company estimates the allowance for loan losses using the net loss
timing curve method, primarily based on the composition of the portfolio of managed receivables and historical gross
loss and recovery trends. The net loss estimate for core receivables with less than 18 months of performance history
45
weights both the 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 for core receivables reflects actual loss experience of those receivables to date, along with
forward loss curves. The output of the net loss timing curve is adjusted to take into account reasonable and supportable
macroeconomic forecasts about the future. An economic adjustment factor, based upon a single macroeconomic
scenario, is developed to capture the relationship between changes in this forecast and changes in gross loss rates. This
factor is applied to the output of the net loss timing curve for the reasonable and supportable forecast period, after
which the Company reverts to historical experience on a straight-line basis. In addition, the Company assesses the need
to make qualitative adjustments to the output of the net loss timing curve method as necessary for factors not reflected
in the quantitative methods.
We identified the assessment of the allowance for loan losses on core receivables as a critical audit matter. A high
degree of audit effort, including specialized skills and knowledge, and complex auditor judgment was involved in the
assessment due to significant measurement uncertainty. The assessment involved evaluating the allowance for loan
losses methodology, including the net loss timing curve and its key assumptions, which consisted of the historical
observation periods, forward loss curves, the weighting of actual loss data versus historical losses by credit grade
performance used for receivables with less than 18 months of performance history, and an economic adjustment factor
for the reasonable and supportable forecast period. Our assessment also included an evaluation of the qualitative
adjustments and the conceptual soundness and mathematical accuracy of the net loss timing curve.
The following are the primary procedures we performed to address this critical audit matter. We evaluated the design
and tested the operating effectiveness of certain internal controls related to the measurement of the allowance for loan
losses on core receivables, including controls over the (1) development and approval of the allowance for loan losses
methodology, (2) the identification and determination of the key assumptions and qualitative adjustments, and (3)
design and mathematical accuracy of the net loss timing curve. We evaluated the Company’s process to develop the
allowance for loan losses on core receivables and involved credit risk professionals with specialized skills and
knowledge, who assisted in:
•
•
•
•
•
evaluating the Company’s allowance for loan losses methodology for compliance with U.S. generally
accepted accounting principles
evaluating the conceptual soundness and mathematical accuracy of the net loss timing curve
evaluating the methodology, including key assumptions, used to develop the economic adjustment factor and
the reasonable and supportable period by comparing them to the Company’s business environment, relevant
industry practices, and portfolio risk characteristics and trends
assessing the other key assumptions used in the net loss timing curve by comparing to historical loss
performance and the credit composition of the existing loan portfolio
evaluating the methodology used to develop the qualitative adjustments compared with relevant credit risk
factors and consistency with trends and identified limitations of the underlying net loss timing curve
We have served as the Company’s auditor since 1996.
Richmond, Virginia
April 20, 2021
46
REPORT OF INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM
To the Shareholders and Board of Directors
CarMax, Inc.:
Opinion on Internal Control Over Financial Reporting
We have audited CarMax, Inc. and subsidiaries’ (the Company) internal control over financial reporting as of February 28,
2021, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring
Organizations of the Treadway Commission. In our opinion, the Company maintained, in all material respects, effective internal
control over financial reporting as of February 28, 2021, based on criteria established in Internal Control – Integrated
Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States)
(PCAOB), the consolidated balance sheets of the Company as of February 28, 2021 and February 29, 2020, the related
consolidated statements of earnings, comprehensive income, cash flows and shareholders’ equity for each of the years in the
three-year period ended February 28, 2021, and the related notes (collectively, the consolidated financial statements), and our
report dated April 20, 2021 expressed an unqualified opinion on those consolidated financial statements.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its
assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s
Annual Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s
internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are
required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable
rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all
material respects. Our audit of internal control over financial reporting included obtaining an understanding of internal control
over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating
effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we
considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures
that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and
dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and
expenditures of the company are being made only in accordance with authorizations of management and directors of the
company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or
disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Richmond, Virginia
April 20, 2021
47
CONSOLIDATED STATEMENTS OF EARNINGS
(In thousands except per share data)
2021
% (1)
2020
% (1)
2019
% (1)
Years Ended February 28 or 29
SALES AND OPERATING REVENUES:
Used vehicle sales
Wholesale vehicle sales
Other sales and revenues
NET SALES AND OPERATING REVENUES
COST OF SALES:
Used vehicle cost of sales
Wholesale vehicle cost of sales
Other cost of sales
TOTAL COST OF SALES
GROSS PROFIT
CARMAX AUTO FINANCE INCOME
Selling, general and administrative expenses
Interest expense
Other (income) expense
Earnings before income taxes
Income tax provision
NET EARNINGS
WEIGHTED AVERAGE COMMON SHARES:
Basic
Diluted
NET EARNINGS PER SHARE:
Basic
Diluted
$
15,713,583
2,668,753
567,813
18,950,149
82.9 $
14.1
3.0
100.0
17,169,462
2,500,042
650,483
20,319,987
84.5 $
12.3
3.2
100.0
15,172,772
2,392,992
607,336
18,173,100
83.5
13.2
3.3
100.0
14,124,715
2,245,431
200,878
16,571,024
2,379,125
562,810
1,898,775
86,178
(8,275)
965,257
218,338
746,919
163,183
165,133
4.58
4.52
$
$
$
74.5
11.8
1.1
87.4
12.6
3.0
10.0
0.5
—
5.1
1.2
3.9 $
15,349,401
2,045,680
202,566
17,597,647
2,722,340
456,030
1,940,067
83,007
(5,690)
1,160,986
272,553
888,433
164,836
166,820
75.5
10.1
1.0
86.6
13.4
2.2
9.5
0.4
—
5.7
1.3
4.4 $
13,544,033
1,961,959
186,517
15,692,509
2,480,591
438,690
1,730,275
75,792
408
1,112,806
270,393
842,413
174,463
175,884
$
$
5.39
5.33
$
$
4.83
4.79
74.5
10.8
1.0
86.4
13.6
2.4
9.5
0.4
—
6.1
1.5
4.6
(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.
48
Years Ended February 28 or 29
2020
2019
2021
$
746,919 $
888,433 $
842,413
28,640
2,740
31,380
778,299 $
(50,824)
(31,237)
(82,061)
806,372 $
(1,981)
(11,717)
(13,698)
828,715
$
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands)
NET EARNINGS
Other comprehensive income (loss), net of taxes:
Net change in retirement benefit plan unrecognized actuarial losses
Net change in cash flow hedge unrecognized losses
Other comprehensive income (loss), net of taxes
TOTAL COMPREHENSIVE INCOME
See accompanying notes to consolidated financial statements.
49
CONSOLIDATED BALANCE SHEETS
(In thousands except share data)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents
Restricted cash from collections on auto loans receivable
Accounts receivable, net
Inventory
Other current assets
TOTAL CURRENT ASSETS
Auto loans receivable, net of allowance for loan losses of $411,150 and $157,796 as of
February 28, 2021 and February 29, 2020, respectively
Property and equipment, net
Deferred income taxes
Operating lease assets
Other assets
TOTAL ASSETS
LIABILITIES AND SHAREHOLDERS’ EQUITY
CURRENT LIABILITIES:
Accounts payable
Accrued expenses and other current liabilities
Accrued income taxes
Current portion of operating lease liabilities
Short-term debt
Current portion of long-term debt
Current portion of non-recourse notes payable
TOTAL CURRENT LIABILITIES
Long-term debt, excluding current portion
Non-recourse notes payable, excluding current portion
Operating lease liabilities, excluding current portion
Other liabilities
TOTAL LIABILITIES
Commitments and contingent liabilities
SHAREHOLDERS’ EQUITY:
As of February 28 or 29
2021
2020
$
132,319 $
496,415
239,070
3,157,159
91,833
4,116,796
58,211
481,043
191,090
2,846,416
86,927
3,663,687
13,489,819
3,055,563
164,261
431,652
283,450
13,551,711
3,069,102
89,842
449,094
258,746
$ 21,541,541 $ 21,082,182
$
799,333 $
415,465
218
30,953
—
9,927
442,652
1,698,548
1,322,415
13,297,504
423,618
434,843
17,176,928
737,144
331,738
1,389
30,980
40
9,251
424,165
1,534,707
1,778,672
13,165,384
440,671
393,873
17,313,307
Common stock, $0.50 par value; 350,000,000 shares authorized; 163,172,333 and
163,081,376 shares issued and outstanding as of February 28, 2021 and February 29, 2020,
respectively
Capital in excess of par value
Accumulated other comprehensive loss
Retained earnings
TOTAL SHAREHOLDERS’ EQUITY
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY
81,586
1,513,821
(118,691)
2,887,897
4,364,613
81,541
1,348,988
(150,071)
2,488,417
3,768,875
$ 21,541,541 $ 21,082,182
See accompanying notes to consolidated financial statements.
50
CONSOLIDATED STATEMENTS OF CASH FLOWS
\
(In thousands)
OPERATING ACTIVITIES:
Net earnings
Adjustments to reconcile net earnings to net cash provided by (used in)
operating activities:
Depreciation and amortization
Share-based compensation expense
Provision for loan losses
Provision for cancellation reserves
Deferred income tax (benefit) provision
Other
Net (increase) decrease in:
Accounts receivable, net
Inventory
Other current assets
Auto loans receivable, net
Other assets
Net increase (decrease) in:
Accounts payable, accrued expenses and other
current liabilities and accrued income taxes
Other liabilities
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES
INVESTING ACTIVITIES:
Capital expenditures
Proceeds from disposal of property and equipment
Proceeds from sale of business
Purchases of investments
Sales and returns of investments
NET CASH USED IN INVESTING ACTIVITIES
FINANCING ACTIVITIES:
(Decrease) increase in short-term debt, net
Proceeds from issuances of long-term debt
Payments on long-term debt
Cash paid for debt issuance costs
Payments on finance lease obligations
Issuances of non-recourse notes payable
Payments on non-recourse notes payable
Repurchase and retirement of common stock
Equity issuances
NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES
Increase in cash, cash equivalents, and restricted cash
Cash, cash equivalents, and restricted cash at beginning of year
Years Ended February 28 or 29
2020
2019
2021
$
746,919 $
888,433 $
842,413
242,156
121,899
160,703
72,235
(35,787)
(1,409)
215,811
108,861
185,695
89,272
(1,102)
3,507
182,247
75,011
153,848
63,937
2,300
2,825
(43,507)
(323,318)
(50)
(300,838)
(12,862)
(51,240)
(326,961)
(19,843)
(1,308,919)
4,265
(6,529)
(128,761)
32,890
(1,046,631)
(7,230)
106,788
(65,169)
667,760
85,442
(109,827)
(236,606)
86,360
(89,709)
162,971
(164,536)
1,846
29,911
(3,729)
8,325
(128,183)
(331,896)
3
—
(59,050)
1,579
(389,364)
(304,636)
692
—
(6,147)
1,578
(308,513)
(40)
(1,089)
1,754,300
(2,217,305)
(18,296)
(7,424)
6,277,600
(6,199,793)
(20,102)
(4,151)
1,002
4,314,500
(4,155,718)
(17,063)
(894)
10,805,546
10,892,502
11,786,432
(10,654,011) (10,708,564) (10,001,712)
(904,726)
58,130
186,021
40,479
554,898
(567,747)
124,397
686,983
61,013
595,377
(229,938)
143,148
(424,020)
115,557
656,390
CASH, CASH EQUIVALENTS AND RESTRICTED CASH AT END OF
YEAR
$
771,947 $
656,390 $
595,377
RECONCILIATION OF CASH, CASH EQUIVALENTS AND RESTRICTED CASH TO THE CONSOLIDATED
BALANCE SHEETS
Cash and cash equivalents
Restricted cash from collections on auto loans receivable
Restricted cash included in other assets
132,319 $
496,415
143,213
58,211 $
481,043
117,136
46,938
440,669
107,770
$
CASH, CASH EQUIVALENTS AND RESTRICTED CASH AT END OF
YEAR
$
771,947 $
656,390 $
595,377
See accompanying notes to consolidated financial statements.
51
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(In thousands)
Common
Shares
Outstanding
Common
Stock
Capital in
Excess of
Par Value
Retained
Earnings
Accumulated
Other
Comprehensive
Loss
Total
Balance as of February 28, 2018
179,748 $
89,874 $ 1,234,047 $ 2,047,240 $
(54,312) $ 3,316,849
Balance as of February 28, 2019
167,479
83,739
1,237,153
2,104,146
(68,010)
3,357,028
Net earnings
Other comprehensive loss
Share-based compensation expense
Repurchases of common stock
Exercise of common stock options
Stock incentive plans, net shares
issued
Adoption of ASU 2018-02
—
—
—
(13,635)
1,314
52
—
—
—
—
—
—
45,870
842,413
—
—
(6,817)
(97,913)
(798,371)
657
57,474
25
—
(2,325)
—
12,864
Net earnings
Other comprehensive loss
Share-based compensation expense
Repurchases of common stock
Exercise of common stock options
Stock incentive plans, net shares
issued
Adoption of CECL
Net earnings
Other comprehensive income
Share-based compensation expense
Repurchases of common stock
Exercise of common stock options
Stock incentive plans, net shares
issued
—
—
—
—
—
—
(6,971)
2,413
(3,486)
1,207
—
—
48,122
888,433
—
—
(54,009)
(504,162)
123,190
160
81
(5,468)
—
—
—
—
—
—
—
—
(2,380)
2,307
(1,190)
1,153
—
—
—
49,656
(153,306)
746,919
—
—
(20,967)
(194,133)
141,994
164
82
(5,850)
—
—
—
—
—
—
—
(13,698)
—
—
—
—
—
842,413
(13,698)
45,870
(903,101)
58,131
(2,300)
12,864
—
(82,061)
—
—
—
—
888,433
(82,061)
48,122
(561,657)
124,397
(5,387)
—
—
31,380
—
—
—
—
(153,306)
746,919
31,380
49,656
(216,290)
143,147
(5,768)
Balance as of February 29, 2020
163,081
81,541
1,348,988
2,488,417
(150,071)
3,768,875
Balance as of February 28, 2021
163,172 $
81,586 $ 1,513,821 $ 2,887,897 $
(118,691) $ 4,364,613
See accompanying notes to consolidated financial statements.
52
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(A) Business and Background
CarMax, Inc. (“we,” “our,” “us,” “CarMax” and “the company”), including its wholly owned subsidiaries, is the nation’s largest
and most profitable retailer of used vehicles. 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.
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 customers to buy a car on their terms – online, in-store or a
seamless combination of both. Customers can choose to complete the car-buying experience in-person at one of our stores; or
buy the car online and receive delivery through contactless curbside pickup, available nationwide, or home delivery, available
to most customers. We offer customers a range of related products and services, including the appraisal and purchase of
vehicles directly from consumers; the financing of retail vehicle purchases through CAF and third-party finance providers; the
sale of extended protection plan (“EPP”) products, which include extended service plans (“ESPs”) and guaranteed asset
protection (“GAP”); and vehicle repair service. Vehicles purchased through the appraisal process that do not meet our retail
standards are sold to licensed dealers through on-site or virtual wholesale auctions.
(B) Basis of Presentation and Use of Estimates
The consolidated financial statements include the accounts of CarMax and our wholly owned subsidiaries. All significant
intercompany balances and transactions have been eliminated in consolidation. The preparation of financial statements in
conformity with U.S. generally accepted accounting principles (“GAAP”) requires management to make estimates and
assumptions that affect the reported amounts of assets, liabilities, revenues and expenses and the disclosure of contingent assets
and liabilities. Actual results could differ from those estimates. In particular, the novel coronavirus (“COVID-19”) pandemic
and the resulting adverse impacts to global economic conditions, as well as our operations, may impact future estimates
including, but not limited to, our allowance for loan losses, inventory valuations, fair value measurements, downward
adjustments to investments in equity securities, asset impairment charges, the effectiveness of the company’s hedging
instruments, deferred tax valuation allowances, cancellation reserves, actuarial losses on our retirement benefit plans and
discount rate assumptions. Certain prior year amounts have been reclassified to conform to the current year’s
presentation. Amounts and percentages may not total due to rounding.
(C) Cash and Cash Equivalents
Cash equivalents consisting of highly liquid investments with original maturities of three months or less, were $46.9 million as
of February 28, 2021 and were not significant to the consolidated balance sheet as of February 29, 2020.
(D) Restricted Cash from Collections on Auto Loans Receivable
Cash equivalents, totaling $496.4 million as of February 28, 2021 and $481.0 million as of February 29, 2020, consisted of
collections of principal, interest and fee payments on auto loans receivable that are restricted for payment to holders of non-
recourse notes payable pursuant to the applicable agreements.
(E) Accounts Receivable, Net
Accounts receivable, net of an allowance for doubtful accounts, includes certain amounts due from third-party finance providers
and customers, and other miscellaneous receivables. The allowance for doubtful accounts is estimated based on historical
experience and trends.
(F) Financing and Securitization Transactions
We maintain a revolving funding program composed of three warehouse facilities (“warehouse facilities”) that we use to fund
auto loans receivable originated by CAF. We typically elect to fund these receivables through an asset-backed term funding
transaction, such as a term securitization or alternative funding arrangement, at a later date. We sell the auto loans receivable to
one of three wholly owned, bankruptcy-remote, special purpose entities that transfer an undivided percentage ownership
interest in the receivables, but not the receivables themselves, to entities formed by third-party investors. These entities issue
asset-backed commercial paper or utilize other funding sources supported by the transferred receivables, and the proceeds are
used to finance the related receivables.
53
We typically use term securitizations to provide long-term funding for most of the auto loans receivable initially funded through
the warehouse facilities. In these transactions, a pool of auto loans receivable is sold to a bankruptcy-remote, special purpose
entity that, in turn, transfers the receivables to a special purpose securitization trust. The securitization trust issues asset-backed
securities, secured or otherwise supported by the transferred receivables, and the proceeds from the sale of the asset-backed
securities are used to finance the securitized receivables.
We are required to evaluate term securitization trusts for consolidation. In our capacity as servicer, we have the power to direct
the activities of the trusts that most significantly impact the economic performance of the trusts. In addition, we have the
obligation to absorb losses (subject to limitations) and the rights to receive any returns of the trusts, which could be
significant. Accordingly, we are the primary beneficiary of the trusts and are required to consolidate them.
We recognize transfers of auto loans receivable into the warehouse facilities and asset-backed term funding transactions,
including term securitizations (together, “non-recourse funding vehicles”), as secured borrowings, which result in recording the
auto loans receivable and the related non-recourse notes payable on our consolidated balance sheets.
These receivables can only be used as collateral to settle obligations of the related non-recourse funding vehicles. The non-
recourse funding vehicles and investors have no recourse to our assets beyond the related receivables, the amounts on deposit in
reserve accounts and the restricted cash from collections on auto loans receivable. We have not provided financial or other
support to the non-recourse funding vehicles that was not previously contractually required, and there are no additional
arrangements, guarantees or other commitments that could require us to provide financial support to the non-recourse funding
vehicles.
See Notes 4 and 11 for additional information on auto loans receivable and non-recourse notes payable.
(G) Inventory
Inventory is primarily comprised of vehicles held for sale or currently undergoing reconditioning and is stated at the lower of
cost or net realizable value (“NRV”). Vehicle inventory cost is determined by specific identification. Parts, labor and overhead
costs associated with reconditioning vehicles, as well as transportation and other incremental expenses associated with
acquiring and reconditioning vehicles, are included in inventory.
(H) Auto Loans Receivable, Net
Auto loans receivable include amounts due from customers related to retail vehicle sales financed through CAF and are
presented net of an allowance for loan losses. The allowance for loan losses represents the net credit losses expected over the
remaining contractual life of our managed receivables. See Note 4 for additional information on our significant accounting
policies related to auto loans receivable and the allowance for loan losses.
(I) Property and Equipment
Property and equipment is stated at cost less accumulated depreciation and amortization. Depreciation and amortization are
calculated using the straight-line method over the shorter of the asset’s estimated useful life or the lease term, if
applicable. Costs incurred during new store construction are capitalized as construction-in-progress and reclassified to the
appropriate fixed asset categories when the store is completed.
Estimated Useful Lives
Buildings
Leasehold improvements
Furniture, fixtures and equipment
Life
25 years
15 years
3 – 15 years
We review long-lived assets for impairment when events or changes in circumstances indicate the carrying amount of an asset
may not be recoverable. We recognize impairment when the sum of undiscounted estimated future cash flows expected to
result from the use of the asset is less than the carrying value of the asset. See Note 7 for additional information on property
and equipment.
(J) Other Assets
Restricted Cash on Deposit in Reserve Accounts. The restricted cash on deposit in reserve accounts is for the benefit of
holders of non-recourse notes payable, and these funds are not expected to be available to the company or its creditors. In the
event that the cash generated by the related receivables in a given period was insufficient to pay the interest, principal and other
54
required payments, the balances on deposit in the reserve accounts would be used to pay those amounts. Restricted cash on
deposit in reserve accounts is invested in money market securities or bank deposit accounts and was $97.2 million as of
February 28, 2021 and $67.8 million as of February 29, 2020.
Other Investments. Other investments includes restricted money market securities primarily held to satisfy certain insurance
program requirements, investments held in a rabbi trust established to fund informally our executive deferred compensation
plan and investments in equity securities. Money market securities and mutual funds are reported at fair value, and investments
in equity securities are reported at cost less any impairment and adjusted for any observable changes in price. Gains and losses
on these securities are reflected as a component of other (income) expense. Other investments totaled $152.9 million as of
February 28, 2021 and $156.7 million as of February 29, 2020.
(K) Financing Obligations
We generally account for sale-leaseback transactions as financing obligations. Accordingly, we record certain of the assets
subject to these transactions on our consolidated balance sheets in property and equipment and the related sales proceeds as
financing obligations in long-term debt. Depreciation is recognized on the assets over their estimated useful lives, generally 25
years. A portion of the periodic lease payments is recognized as interest expense and the remainder reduces the obligation. In
the event the sale-leasebacks are modified or extended beyond their original term, the related obligation is increased based on
the present value of the revised future minimum lease payments on the date of the modification, with a corresponding increase
to the net carrying amount of the assets subject to these transactions. See Note 11 for additional information on financing
obligations.
(L) Accrued Expenses
As of February 28, 2021 and February 29, 2020, accrued expenses and other current liabilities included accrued compensation
and benefits of $223.1 million and $142.9 million, respectively; loss reserves for general liability and workers’ compensation
insurance of $42.9 million and $41.0 million, respectively; and the current portion of cancellation reserves. See Note 8 for
additional information on cancellation reserves.
(M) Defined Benefit Plan Obligations
The recognized funded status of defined benefit retirement plan obligations is included both in accrued expenses and other
current liabilities and in other liabilities. The current portion represents benefits expected to be paid from our benefit
restoration plan over the next 12 months. The defined benefit retirement plan obligations are determined using a number of
actuarial assumptions. Key assumptions used in measuring the plan obligations include the discount rate, rate of return on plan
assets and mortality rate. See Note 10 for additional information on our benefit plans.
(N) Insurance Liabilities
Insurance liabilities are included in accrued expenses and other current liabilities. We use a combination of insurance and self-
insurance for a number of risks including workers’ compensation, general liability and employee-related health care costs, a
portion of which is paid by associates. Estimated insurance liabilities are determined by considering historical claims
experience, demographic factors and other actuarial assumptions.
(O) Revenue Recognition
Our revenue consists primarily of used and wholesale vehicle sales, as well as sales from EPP products and vehicle repair
service. See Note 2 for additional information on our significant accounting policies related to revenue recognition.
(P) Cost of Sales
Cost of sales includes the cost to acquire vehicles and the reconditioning and transportation costs associated with preparing the
vehicles for resale. It also includes payroll, fringe benefits, and parts, labor and overhead costs associated with reconditioning
and vehicle repair services. The gross profit earned by our service department for used vehicle reconditioning service is a
reduction of cost of sales. We maintain a reserve to eliminate the internal profit on vehicles that have not been sold.
(Q) Selling, General and Administrative Expenses
Selling, general and administrative (“SG&A”) expenses primarily include compensation and benefits, other than payroll related
to reconditioning and vehicle repair services; depreciation, rent and other occupancy costs; advertising; and IT expenses, non-
CAF bad debt, insurance, preopening and relocation costs, charitable contributions, travel, and other administrative expenses.
(R) Advertising Expenses
Advertising costs are expensed as incurred and substantially all are included in SG&A expenses. Total advertising expenses
were $218.6 million in fiscal 2021, $191.8 million in fiscal 2020 and $167.0 million in fiscal 2019.
55
(S) Store Opening Expenses
Costs related to store openings, including preopening costs, are expensed as incurred and are included in SG&A expenses.
(T) Share-Based Compensation
Share-based compensation represents the cost related to share-based awards granted to employees and non-employee
directors. We measure share-based compensation cost at the grant date, based on the estimated fair value of the award, and we
recognize the cost on a straight-line basis, net of estimated forfeitures, over the grantee’s requisite service period, which is
generally the vesting period of the award. We estimate the fair value of stock options using a binomial valuation model. Key
assumptions used in estimating the fair value of options are dividend yield, expected volatility, risk-free interest rate and
expected term. The fair values of restricted stock, stock-settled performance stock units and stock-settled deferred stock units
are based on the volume-weighted average market prices or closing prices on the date of the grant. The fair value of stock-
settled market stock units is determined using a Monte-Carlo simulation based on the expected market price of our common
stock on the vesting date and the expected number of converted common shares. Cash-settled restricted stock units are liability
awards with fair value measurement based on the volume-weighted average market price or closing price of CarMax common
stock as of the end of each reporting period. Share-based compensation expense is recorded in either cost of sales, CAF income
or SG&A expenses based on the recipients’ respective function.
We record deferred tax assets for awards that result in deductions on our income tax returns, based on the amount of
compensation expense recognized and
in which we will receive a
tax rate
deduction. Differences between the deferred tax assets recognized for financial reporting purposes and the actual tax deduction
reported on the income tax return are recorded in income tax expense. See Note 12 for additional information on stock-based
compensation.
the statutory
jurisdiction
the
in
(U) Derivative Instruments and Hedging Activities
We enter into derivative instruments to manage certain risks arising from both our business operations and economic conditions
that result in the future known receipt or payment of uncertain cash amounts, the values of which are impacted by interest
rates. We recognize the derivatives at fair value on the consolidated balance sheets, and where applicable, such contracts
covered by master netting agreements are reported net. Gross positive fair values are netted with gross negative fair values by
counterparty. The accounting for changes in the fair value of derivatives depends on the intended use of the derivative, whether
we have elected to designate a derivative in a hedging relationship and apply hedge accounting and whether the hedging
relationship has satisfied the criteria necessary to apply hedge accounting. We may enter into derivative contracts that are
intended to economically hedge certain risks, even though hedge accounting may not apply or we do not elect to apply hedge
accounting. See Note 5 for additional information on derivative instruments and hedging activities.
(V) Income Taxes
We file a consolidated federal income tax return for a majority of our subsidiaries. Certain subsidiaries are required to file
separate partnership or corporate federal income tax returns. Deferred income taxes reflect the impact of temporary differences
between the amounts of assets and liabilities recognized for financial reporting purposes and the amounts recognized for income
tax purposes, measured by applying currently enacted tax laws. A deferred tax asset is recognized if it is more likely than not
that a benefit will be realized. Changes in tax laws and tax rates are reflected in the income tax provision in the period in which
the changes are enacted. We evaluate the need to record valuation allowances that would reduce deferred tax assets to the
amount that will more likely than not be realized. When assessing the need for valuation allowances, we consider available loss
carrybacks, tax planning strategies, future reversals of existing temporary differences and future taxable income.
We recognize uncertain tax liabilities when, despite our belief that our tax return positions are supportable, we believe that the
tax positions may not be fully sustained upon review by tax authorities. Benefits from tax positions are measured at the highest
tax benefit that is greater than 50% likely of being realized upon settlement. The current portion of these tax liabilities is
included in accrued income taxes and any noncurrent portion is included in other liabilities. To the extent that the final tax
outcome of these matters is different from the amounts recorded, the differences impact income tax expense in the period in
which the determination is made. Interest and penalties related to income tax matters are included in SG&A expenses. See
Note 9 for additional information on income taxes.
(W) 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 the 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. See Note
13 for additional information on net earnings per share.
56
(X) Recent Accounting Pronouncements
Adopted in the Current Period.
In June 2016, the Financial Accounting Standards Board (“FASB”) issued an accounting pronouncement (ASU 2016-13 or
“CECL”) related to the measurement of credit losses on financial instruments. This pronouncement, along with subsequent
ASUs issued to clarify certain provisions of ASU 2016-13, changed the impairment model for most financial assets and
requires the use of an “expected loss” model for instruments measured at amortized cost. Under this model, entities are
required to estimate the lifetime expected credit loss on such instruments and record an allowance to offset the amortized cost
basis of the financial asset, resulting in a net presentation of the amount expected to be collected on the financial asset. In
developing the estimate for lifetime expected credit loss, entities must incorporate historical experience, current conditions, and
reasonable and supportable forecasts. This pronouncement was effective for fiscal years, and for interim periods within those
fiscal years, beginning after December 15, 2019.
We designed an allowance for loan loss methodology to comply with these new requirements, which was adopted for our fiscal
year beginning March 1, 2020 using the modified retrospective approach. The adoption of this pronouncement resulted in the
recognition of a $202.0 million increase in the allowance for loan losses on our opening consolidated balance sheet as of
March 1, 2020, with a corresponding net-of-tax $153.3 million reduction in retained earnings. The increase in the allowance for
loan losses on the opening balance sheet was primarily the result of extending the loan loss forecast period from 12 months to
the entire lifetime of the loan portfolio. This methodology has increased volatility in our quarterly provision for loan losses.
This volatility is the result of estimating loan losses over a longer forecast period and the incorporation of economic adjustment
factors, including changes in U.S. unemployment rates and the National Automobile Dealers Association (“NADA”) used
vehicle price index. At the time of adoption, we implemented testing of the effectiveness of our new allowance for loan loss
methodology, as well as relevant controls and governance structure.
Prior to the adoption of CECL, the allowance for loan losses represented an estimate of the amount of net losses inherent in our
portfolio of managed receivables as of the applicable reporting date and expected to become evident during the following 12
months. The allowance for loan losses was primarily based on the composition of the portfolio of managed receivables,
historical observation periods and net loss data, the period of time between the loss event inherent in the portfolio and the
charge-off date and forecasted forward loss curves. We also considered recent trends in delinquencies and defaults, recovery
rates and the economic environment in assessing the models used in estimating the allowance for loan losses. Allowance for
loan loss amounts presented for prior years continue to reflect this previous methodology.
In August 2018, the FASB issued an accounting pronouncement (ASU 2018-14) related to disclosure requirements for defined
benefit plans. The pronouncement eliminates, modifies and adds disclosure requirements for defined benefit plans. We
adopted this pronouncement for our fiscal year beginning March 1, 2020, and it did not have a material effect on our
consolidated financial statements.
In October 2018, the FASB issued an accounting pronouncement (ASU 2018-17) related to related party guidance for variable
interest entities. We adopted this pronouncement for our fiscal year beginning March 1, 2020, and it did not have a material
effect on our consolidated financial statements.
In March 2020, the FASB issued an accounting pronouncement (ASU 2020-04) related to reference rate reform. The
pronouncement provides optional guidance for a limited period of time to ease the potential burden of accounting for reference
rate reform. This guidance is effective for all entities as of March 12, 2020 through December 31, 2022. We expect to utilize
this optional guidance but do not expect it to have a material effect on our consolidated financial statements.
Effective in Future Periods.
In December 2019, the FASB issued an accounting pronouncement (ASU 2019-12) related to simplifying the accounting for
income taxes. The pronouncement is effective for fiscal years, and for interim periods within those fiscal years, beginning after
December 15, 2020. We plan to adopt this pronouncement for our fiscal year beginning March 1, 2021, and we do not expect it
to have a material effect on our consolidated financial statements.
In August 2020, the FASB issued an accounting pronouncement (ASU 2020-06) related to the measurement and disclosure
requirements for convertible instruments and contracts in an entity's own equity. The pronouncement simplifies and adds
disclosure requirements for the accounting and measurement of convertible instruments and the settlement assessment for
contracts in an entity's own equity. This pronouncement is effective for fiscal years, and for interim periods within those fiscal
years, beginning after December 15, 2021. We plan to adopt this pronouncement for our fiscal year beginning March 1, 2022,
and we do not expect it to have a material effect on our consolidated financial statements.
57
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 SG&A. We do not have
any significant payment terms as payment is received at or shortly after the point of sale.
Disaggregation of Revenue
(In millions)
Used vehicle sales
Wholesale vehicle sales
Other sales and revenues:
Extended protection plan revenues
Third-party finance fees, net
Service revenues
Other
Total other sales and revenues
Total net sales and operating revenues
Years Ended February 28 or 29
2020
2021
2019
$
15,713.6
$
17,169.5
$
2,668.8
2,500.0
15,172.8
2,393.0
412.8
(39.6)
92.0
102.6
567.8
437.4
(45.8)
123.5
135.4
650.5
382.5
(43.4)
136.8
131.4
607.3
$
18,950.1
$
20,320.0
$
18,173.1
Used Vehicle Sales. Revenue from the sale of used vehicles is recognized upon transfer of control of the vehicle to the
customer. As part of our customer service strategy, we guarantee the retail vehicles we sell with a 30-day/1,500 mile money-
back guarantee. We record a reserve for estimated returns based on historical experience and trends. The reserve for estimated
returns is presented gross on the consolidated balance sheets, with a return asset recorded in other current assets and a refund
liability recorded in accrued expenses and other current liabilities. We also guarantee the used vehicles we sell with a 90-
day/4,000-mile limited warranty. These warranties are deemed assurance-type warranties and are accounted for as warranty
obligations. See Note 17 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 8 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, subject to various
constraints, is recognized upon satisfying the performance obligation of selling the ESP. These constraints include factors that
are outside of the company’s influence or control and the length of time until settlement. We apply the expected value method,
58
utilizing historical claims and cancellation data from CarMax customers, as well as external data and other qualitative
assumptions. This estimate is reassessed each reporting period with changes reflected in other sales and revenues on our
consolidated statements of earnings and other assets on our consolidated balance sheets. As of February 28, 2021 and
February 29, 2020, no current or long-term contract asset was recognized related to cumulative profit-sharing payments to
which we expect to be entitled.
Third-Party Finance Fees. Customers applying for financing who are not approved or are conditionally approved by CAF are
generally evaluated by other third-party finance providers. These providers generally either pay us or are paid a fixed, pre-
negotiated fee per contract. We recognize these fees at the time of sale.
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 consist primarily of new vehicle sales at our new car franchise locations and sales of
accessories. Revenue in this category is recognized upon transfer of control to the customer.
3. CARMAX AUTO FINANCE
CAF provides financing to qualified retail customers purchasing vehicles from CarMax. CAF provides us the opportunity to
capture additional profits, cash flows and sales while managing our reliance on third-party finance sources. Management
regularly analyzes CAF’s operating results by assessing profitability, the performance of the auto loans receivable including
trends in credit losses and delinquencies, and CAF direct expenses. This information is used to assess CAF’s performance and
make operating decisions including resource allocation.
We typically use securitizations or other funding arrangements to fund loans originated by CAF, as discussed in Note
1(F). 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
(In millions)
Interest margin:
Interest and fee income
Interest expense
Total interest margin
Provision for loan losses
Total interest margin after
provision for loan losses
Total other expense
Direct expenses:
Payroll and fringe benefit expense
Other direct expenses
Total direct expenses
CarMax Auto Finance income
Years Ended February 28 or 29
2021
% (1)
2020
% (1)
2019
% (1)
$
1,142.0
(314.1)
827.9
(160.7)
8.5 $
(2.3)
6.1
(1.2)
1,104.1
(358.1)
746.0
(185.7)
8.4 $
(2.7)
5.7
(1.4)
667.2
(2.2)
5.0
—
560.3
—
4.3
—
(46.0)
(56.2)
(102.2)
562.8
(0.3)
(0.4)
(0.8)
4.2 $
(42.3)
(62.0)
(104.3)
456.0
(0.3)
(0.5)
(0.8)
3.5 $
$
972.9
(289.3)
683.6
(153.8)
529.8
(0.4)
(38.3)
(52.4)
(90.7)
438.7
8.0
(2.4)
5.6
(1.3)
4.4
—
(0.3)
(0.4)
(0.7)
3.6
Total average managed receivables
$ 13,463.3
$
13,105.1
$
12,150.2
(1) Percent of total average managed receivables.
59
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. The majority of the auto loans receivable
serve as collateral for the related non-recourse notes payable of $13.76 billion as of February 28, 2021, and $13.61 billion as of
February 29, 2020. See Notes 1(F) and 11 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.
Auto Loans Receivable, Net
(In millions)
Asset-backed term funding
Warehouse facilities
Overcollateralization (1)
Other managed receivables (2)
Total ending managed receivables
Accrued interest and fees
Other
Less: allowance for loan losses
Auto loans receivable, net
As of February 28 or 29
2021
11,008.3 $
2,314.1
345.2
179.6
13,847.2
57.4
(3.7)
(411.1)
13,489.8 $
2020
11,007.1
2,181.7
289.0
140.0
13,617.8
56.2
35.5
(157.8)
13,551.7
$
$
Represents receivables restricted as excess collateral for the non-recourse funding vehicles.
(1)
(2) Other managed receivables includes receivables not funded through the non-recourse funding vehicles.
Credit Quality. When customers apply for financing, CAF’s proprietary scoring models rely on the customers’ credit history
and certain application information to evaluate and rank their risk. We obtain credit histories and other credit data that includes
information such as number, age, type of and payment history for prior or existing credit accounts. The application information
that is used includes income, collateral value and down payment. The scoring models yield credit grades that represent the
relative likelihood of repayment. Customers 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.
60
Ending Managed Receivables by Major Credit Grade
(In millions)
A
B
C and other
As of February 28, 2021
Fiscal Year of Origination (1)
2021
2020
2019
2018
2017
Prior to
2017
Total
% (2)
$ 2,782.0 $ 2,146.5 $ 1,146.7 $ 568.9 $ 199.6 $
30.4 $ 6,874.1
1,993.6
1,424.5
786.1
541.6
870.1
320.4
476.0
182.0
195.5
99.8
49.2
5,008.9
34.3
1,964.2
49.6
36.2
14.2
Total ending managed receivables
$ 5,561.7 $ 4,112.6 $ 2,337.2 $ 1,226.9 $ 494.9 $ 113.9 $ 13,847.2
100.0
(In millions)
A
B
C and other
Total ending managed receivables
As of February 29
2020 (1)
% (2)
$
$
6,915.9
4,841.2
1,860.7
13,617.8
50.8
35.6
13.6
100.0
(1) Classified based on credit grade assigned when customers were initially approved for financing.
(2)
Percent of total ending managed receivables.
Allowance for Loan Losses. The allowance for loan losses at February 28, 2021 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, 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.
The output of the net loss timing curve is adjusted to take into account reasonable and supportable forecasts about the future.
Specifically, the change in U.S. unemployment rates and the NADA used vehicle price index are used to predict changes in
gross loss and recovery rate, 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 net loss timing curve for the reasonable and supportable forecast period of two years. After
the end of this two-year period, we revert to historical experience on a straight-line basis over a period of 12 months. We
periodically consider whether the use of alternative metrics would result in improved model performance and revise the models
when appropriate. We also consider whether qualitative adjustments are necessary for factors 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.
61
Allowance for Loan Losses
(In millions)
Balance as of beginning of year
Adoption of ASU 2016-13
Adjusted balance as of beginning of period
Charge-offs
Recoveries (3)
Provision for loan losses
Balance as of end of year (4)
2021
As of February 28 or 29
2020 (2)
% (1)
% (1)
$
$
157.8
202.0
359.8
(230.4)
121.0
160.7
411.1
1.16 $
2.64
2.97 $
138.2
—
138.2
(309.0)
142.9
185.7
157.8
1.10
1.10
1.16
(1)
(2)
Percent of total ending managed receivables
The comparative information has not been restated and continues to be reported under the accounting guidance in effect during fiscal
2020.
(3) Net of costs incurred to recover vehicle.
(4)
The allowance for loan losses primarily relates to estimated losses on CAF’s core receivables, noting that $31.8 million and
$17.3 million of the total allowance related to the outstanding CAF Tier 3 loan balances as of February 28, 2021 and February 29,
2020, respectively.
As discussed in Note 1(X), we adopted CECL during the first quarter of fiscal 2021. The adoption of this pronouncement
resulted in the recognition of a $202.0 million increase in the allowance for loan losses as of March 1, 2020, with a
corresponding net-of-tax decrease of $153.3 million in retained earnings. The remaining increase in the allowance for loan
losses for the year ended February 28, 2021 reflects the uncertainty related to COVID-19, including its impact on the economic
adjustment factors, and qualitative considerations applied to the ending allowance. In particular, we determined that the
quantitative loss rates should be qualitatively adjusted to reflect future loss performance from expected customer hardship and
to mitigate the quantitative impact of recent favorable loss performance, as we do not believe that recent favorable loss
performance is consistent with our best estimate of expected future losses. The allowance for loan losses as of February 28,
2021 reflects both the positive customer payment behavior compared to historical experience recently observed as well as the
unpredictability of the current environment and the uncertain consumer situation.
Past Due Receivables. An account is considered delinquent when the related customer fails to make a substantial portion of a
scheduled payment on or before the due date. In general, accounts are charged-off on the last business day of the month during
which the earliest of the following occurs: the receivable is 120 days or more delinquent as of the last business day of the
month, the related vehicle is repossessed and liquidated, or the receivable is otherwise deemed uncollectible. For purposes of
determining impairment, auto loans are evaluated collectively, as they represent a large group of smaller-balance homogeneous
loans, and therefore, are not individually evaluated for impairment.
Past Due Receivables
(In millions)
Current
Delinquent loans:
31-60 days past due
61-90 days past due
Greater than 90 days past due
Total past due
Total ending managed receivables
$
$
$
$
$
$
As of February 28, 2021
Major Credit Grade
A
B
C & Other
Total
% (1)
6,847.2 $
4,840.3 $
1,767.2 $
13,454.7
97.17
17.3 $
7.0 $
2.6 $
26.9 $
108.9 $
120.0 $
48.4 $
11.3 $
64.5 $
12.5 $
168.6 $
197.0 $
246.2
119.9
26.4
392.5
1.78
0.86
0.19
2.83
6,874.1 $
5,008.9 $
1,964.2 $
13,847.2
100.00
62
(In millions)
Total ending managed receivables
Delinquent loans:
31-60 days past due
61-90 days past due
Greater than 90 days past due
Total past due
As of February 29
2020
% (1)
13,617.8
100.00
296.4
138.3
34.2
468.9
2.18
1.01
0.25
3.44
$
$
$
(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 LIBOR 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 loan.
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 loss (“AOCL”). 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 $16.5 million will be reclassified from AOCL as a decrease 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 year ended February 28, 2021, we recognized a loss of $1.7 million in CAF
income representing these changes in fair value.
As of February 28, 2021 and February 29, 2020, we had interest rate swaps outstanding with a combined notional amount of
$2.43 billion and $2.62 billion, respectively, that were designated as cash flow hedges of interest rate risk. As of February 28,
2021, we had interest rate swaps with a combined notional amount of $255.2 million outstanding that were not designated as
cash flow hedges.
See Note 6 for discussion of fair values of financial instruments and Note 14 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.
Level 2
Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly
or indirectly, including quoted prices for similar assets in active markets, quoted prices from identical or similar
assets in inactive markets and observable inputs such as interest rates and yield curves.
63
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
(In thousands)
Assets:
Money market securities
Mutual fund investments
Financial derivatives designated as hedges
Financial derivatives not designated as hedges
Total assets at fair value
Percent of total assets at fair value
Percent of total assets
Liabilities:
Derivative instruments designated as hedges
Total liabilities at fair value
Percent of total liabilities
As of February 28, 2021
Level 2
Total
Level 1
$
685,585
$
—
$
685,585
24,049
—
—
—
4,061
501
24,049
4,061
501
$
709,634
$
4,562
$
714,196
99.4 %
3.3 %
0.6 %
— %
100.0 %
3.3 %
$
$
—
—
$
$
(6,024)
(6,024)
$
$
(6,024)
(6,024)
— %
— %
— %
64
(In thousands)
Assets:
Money market securities
Mutual fund investments
Total assets at fair value
Percent of total assets at fair value
Percent of total assets
Liabilities:
Derivative instruments designated as hedges
Total liabilities at fair value
Percent of total liabilities
As of February 29, 2020
Level 2
Total
Level 1
$
$
273,203
22,668
295,871
$
$
100.0 %
1.4 %
—
—
—
— %
— %
$
$
273,203
22,668
295,871
100.0 %
1.4 %
$
$
—
—
$
$
(23,992)
(23,992)
$
$
(23,992)
(23,992)
— %
0.1 %
0.1 %
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. We believe that the carrying value of our
revolving credit facility and term loan 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
February 28, 2021 and February 29, 2020, respectively, are as follows:
(In thousands)
Carrying value
Fair value
7. PROPERTY AND EQUIPMENT
(In thousands)
Land
Land held for development (1)
Buildings
Leasehold improvements
Furniture, fixtures and equipment
Construction in progress
Finance leases
Total property and equipment
Less: accumulated depreciation and amortization
Property and equipment, net
As of February 28, 2021
As of February 29, 2020
$
$
500,000
556,993
$
$
500,000
546,197
As of February 28 or 29
2021
868,221 $
78,960
2,198,182
291,129
750,278
155,915
127,142
4,469,827
(1,414,264)
3,055,563 $
2020
847,391
73,268
2,165,405
278,781
715,507
171,236
84,434
4,336,022
(1,266,920)
3,069,102
$
$
(1) Land held for development represents land owned for potential store growth.
Depreciation expense was $195.3 million in fiscal 2021, $190.6 million in fiscal 2020 and $169.8 million in fiscal 2019.
8. 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.
65
Cancellation Reserves
(In millions)
Balance as of beginning of year
Cancellations
Provision for future cancellations
Balance as of end of year
As of February 28 or 29
2021
2020
$
$
117.9 $
(65.6)
72.2
124.5 $
102.8
(74.2)
89.3
117.9
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 February 28, 2021 and February 29, 2020, the current
portion of cancellation reserves was $58.7 million and $63.5 million, respectively.
9.
INCOME TAXES
During fiscal 2021, new legislation was enacted to provide relief to businesses in response to the COVID-19 pandemic,
including the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) and the Taxpayer Certainty and Disaster
Tax Relief Act. On March 6, 2021 the American Rescue Plan Act of 2021 was enacted. We have evaluated the tax provisions
of these acts as well as new IRS guidance issued. 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
legislation to have a material impact on our results of operations.
Income Tax Provision
(In thousands)
Current:
Federal
State
Total
Deferred:
Federal
State
Total
Income tax provision
Effective Income Tax Rate Reconciliation
Federal statutory income tax rate
State and local income taxes, net of federal benefit
2017 Tax Act
Share-based compensation
Nondeductible and other items
Credits
Effective income tax rate
Years Ended February 28 or 29
2020
2019
2021
$
$
209,447 $
44,678
254,125
225,858 $
47,797
273,655
218,497
49,596
268,093
(27,971)
(7,816)
(35,787)
218,338 $
146
(1,248)
(1,102)
272,553 $
3,601
(1,301)
2,300
270,393
Years Ended February 28 or 29
2021
2020
2019
21.0 %
3.3
—
(1.6)
0.5
(0.6)
22.6 %
21.0 %
3.4
—
(1.1)
0.7
(0.5)
23.5 %
21.0 %
3.4
(0.1)
(0.3)
0.7
(0.4)
24.3 %
66
Temporary Differences Resulting in Deferred Tax Assets and Liabilities
(In thousands)
Deferred tax assets:
Accrued expenses and other
Partnership basis (1)
Operating lease liabilities
Share-based compensation
Derivatives
Capital loss carry forward
Total deferred tax assets
Less: valuation allowance
Total deferred tax assets after valuation allowance
Deferred tax liabilities:
Prepaid expenses
Property and equipment
Operating lease assets
Inventory
Total deferred tax liabilities
Net deferred tax asset
As of February 28 or 29
2021
2020
$
$
67,185 $
135,437
115,583
54,681
9,317
901
383,104
(901)
382,203
21,302
75,383
110,006
11,251
217,942
164,261 $
39,576
89,359
119,558
51,039
10,346
917
310,795
(917)
309,878
19,742
67,589
114,212
18,493
220,036
89,842
(1) As discussed in Note 1(X), we adopted CECL during the first quarter of fiscal 2021. This adoption resulted in the recognition of a
$48.7 million increase in net deferred tax assets as of March 1, 2020.
Except for amounts for which a valuation allowance has been provided, we believe it is more likely than not that the results of
future operations and the reversals of existing deferred taxable temporary differences will generate sufficient taxable income to
realize the deferred tax assets. The valuation allowance as of February 28, 2021, relates to capital loss carryforwards that are
not more likely than not to be utilized prior to their expiration.
Reconciliation of Unrecognized Tax Benefits
(In thousands)
Balance at beginning of year
Increases for tax positions of prior years
Decreases for tax positions of prior years
Increases based on tax positions related to the current year
Settlements
Lapse of statute
Balance at end of year
Years Ended February 28 or 29
2020
2021
2019
$
$
30,865 $
188
(4,468)
3,634
(4)
(1,218)
28,997 $
30,270 $
3,493
(2,913)
4,170
(326)
(3,829)
30,865 $
28,685
2,035
(266)
2,498
(44)
(2,638)
30,270
As of February 28, 2021, we had $29.0 million of gross unrecognized tax benefits, $7.6 million of which, if recognized, would
affect our effective tax rate. It is reasonably possible that the amount of the unrecognized tax benefit will increase or decrease
during the next 12 months; however, we do not expect the change to have a significant effect on our results of operations,
financial condition or cash flows. As of February 29, 2020, we had $30.9 million of gross unrecognized tax benefits,
$9.2 million of which, if recognized, would affect our effective tax rate. As of February 28, 2019, we had $30.3 million of
gross unrecognized tax benefits, $10.7 million of which, if recognized, would affect our effective tax rate.
Our continuing practice is to recognize interest and penalties related to income tax matters in SG&A expenses. Our accrual for
interest and penalties was $4.7 million, $4.0 million and $3.2 million as of February 28, 2021, February 29, 2020 and
February 28, 2019, respectively.
67
CarMax is subject to U.S. federal income tax as well as income tax of multiple states and local jurisdictions. With a few
insignificant exceptions, we are no longer subject to U.S. federal, state and local income tax examinations by tax authorities for
years prior to fiscal 2016.
10. BENEFIT PLANS
(A) Retirement Benefit Plans
We have two frozen noncontributory defined benefit plans: our pension plan (the “pension plan”) and our unfunded,
nonqualified plan (the “restoration plan”), which restores retirement benefits for certain associates who are affected by Internal
Revenue Code limitations on benefits provided under the pension plan. No additional benefits have accrued under these plans
since they were frozen; however, we have a continuing obligation to fund the pension plan and will continue to recognize net
periodic pension expense for both plans for benefits earned prior to being frozen. We use a fiscal year end measurement date
for both the pension plan and the restoration plan.
Benefit Plan Information
(In thousands)
Plan assets
Projected benefit obligation
Funded status recognized
As of February 28 or 29
Pension Plan
2021
2020
Restoration Plan
2020
2021
Total
2021
2020
$ 209,773 $ 168,835 $
— $
295,930
(86,157) $ (129,606) $
298,441
12,062
(12,062) $
$
— $ 209,773 $ 168,835
307,992
310,939
(98,219) $ (142,104)
12,498
(12,498) $
Amounts recognized in the consolidated balance sheets:
Current liability
Noncurrent liability
Net amount recognized
$
$
— $
— $
(86,157)
(129,606)
(86,157) $ (129,606) $
(639) $
(11,423)
(12,062) $
(615) $
(11,883)
(12,498) $
(615)
(639) $
(97,580)
(141,489)
(98,219) $ (142,104)
(In thousands)
Total net pension (benefit)
expense
Total net actuarial (gain)
loss (1)
Pension Plan
Restoration Plan
2021
2020
2019
2021
2020
2019
2021
Total
2020
2019
(1,378)
(1,595)
(681)
433
488
474
(945)
(1,107)
(207)
(33,703)
67,385
4,478
(210) 1,476
82
(33,913) 68,861
4,560
(1) Changes recognized in Accumulated Other Comprehensive Loss.
The projected benefit obligation (“PBO”) will change primarily due to interest cost and total net actuarial (gain) loss, and plan
assets will change primarily as a result of the actual return on plan assets. Benefit payments, which reduce the PBO and plan
assets, were not material in fiscal 2021 or 2020. Employer contributions, which increase plan assets, were $4.6 million in
fiscal 2021; there were no contributions in fiscal 2020. The net actuarial (gain) loss in a fiscal year is recognized in
accumulated other comprehensive loss and may later be recognized as a component of future pension expense. In fiscal 2022,
we anticipate that $3.4 million in estimated actuarial losses of the pension plan will be amortized from accumulated other
comprehensive loss. Estimated actuarial losses to be amortized from accumulated other comprehensive loss for the restoration
plan are not expected to be significant.
Benefit Obligations. The accumulated benefit obligation (“ABO”) and PBO represent the obligations of the benefit plans for
past service as of the measurement date. ABO is the present value of benefits earned to date with benefits computed based on
current service and compensation levels. PBO is ABO increased to reflect expected future service and increased compensation
levels. As a result of the freeze of plan benefits under our pension and restoration plans, the ABO and PBO balances are equal
to one another at all subsequent dates.
Funding Policy. For the pension plan, we contribute amounts sufficient to meet minimum funding requirements as set forth in
the employee benefit and tax laws, plus any additional amounts as we may determine to be appropriate. We do not expect to
make any contributions to the pension plan in fiscal 2022. We expect the pension plan to make benefit payments of
approximately $5.7 million for each of the next three fiscal years, and $7.0 million for each of the subsequent two fiscal years.
68
For the non-funded restoration plan, we contribute an amount equal to the benefit payments, which we expect to be
approximately $0.6 million for each of the next five fiscal years.
Assumptions Used to Determine Benefit Obligations
Discount rate
Assumptions Used to Determine Net Pension Expense
As of February 28 or 29
Pension Plan
Restoration Plan
2021
2020
2021
2020
2.95 %
2.85 %
2.95 %
2.85 %
As of February 28 or 29
Pension Plan
Restoration Plan
Discount rate
Expected rate of return on plan assets
2020
2021
2.85 % 4.20 %
7.75 % 7.75 %
2019
4.10 %
7.75 %
2020
2021
2.85 % 4.20 %
— %
— %
2019
4.10 %
— %
Assumptions. Underlying both the calculation of the PBO and the net pension expense are actuarial calculations of each plan’s
liability. These calculations use participant-specific information such as salary, age and years of service, as well as certain
assumptions, the most significant being the discount rate, rate of return on plan assets and mortality rate. We evaluate these
assumptions at least once a year and make changes as necessary.
The discount rate used for retirement benefit plan accounting reflects the yields available on high-quality, fixed income debt
instruments. For our plans, we review high quality corporate bond indices in addition to a hypothetical portfolio of corporate
bonds with maturities that approximate the expected timing of the anticipated benefit payments.
To determine the expected long-term return on plan assets, we consider the current and anticipated asset allocations, as well as
historical and estimated returns on various categories of plan assets. We apply the estimated rate of return to a market-related
value of assets, which reduces the underlying variability in the asset values. The use of expected long-term rates of return on
pension plan assets could result in recognized asset returns that are greater or less than the actual returns of those pension plan
assets in any given year. Over time, however, the expected long-term returns are anticipated to approximate the actual long-
term returns, and therefore, result in a pattern of income and expense recognition that more closely matches the pattern of the
services provided by the employees. Differences between actual and expected returns, which are a component of unrecognized
actuarial gains/losses, are recognized over the average life expectancy of all plan participants.
Fair Value of Plan Assets
(In thousands)
Mutual funds (Level 1):
Equity securities – international
Collective funds (NAV):
Short-term investments
Equity securities
Fixed income securities
Total
As of February 28 or 29
2021
2020
$
25,741 $
20,410
1,633
131,039
51,360
209,773 $
420
104,823
43,182
168,835
$
Plan Assets. Our pension plan assets are held in trust and a fiduciary committee sets the investment policies and
strategies. Long-term strategic investment objectives include achieving reasonable returns while prudently balancing risk and
return, and controlling costs. We target allocating approximately 75% of plan assets to equity and equity-related instruments
and approximately 25% to fixed income securities. Equity securities are currently composed of both collective funds and
mutual funds that include highly diversified investments in large-, mid- and small-cap companies located in the United States
and internationally. The fixed income securities are currently composed of collective funds that include investments in debt
69
securities, corporate bonds, mortgage-backed securities and other debt obligations primarily in the United States. We do not
expect any plan assets to be returned to us during fiscal 2022.
The fair values of the plan’s assets are provided by the plan’s trustee and the investment managers. Within the fair value
hierarchy (see Note 6), the mutual funds are classified as Level 1 as quoted active market prices for identical assets are used to
measure fair value. The collective funds are public investment vehicles valued using a net asset value (“NAV”) and, therefore,
are outside of the fair value hierarchy. The collective funds may be liquidated with minimal restrictions.
(B) Retirement Savings 401(k) Plan
We sponsor a 401(k) plan for all associates meeting certain eligibility criteria. The plan contains a company matching
contribution as well as an additional discretionary company-funded contribution to those associates meeting certain age and
service requirements. The total cost for company contributions was $48.5 million in fiscal 2021, $47.4 million in fiscal 2020
and $42.3 million in fiscal 2019.
(C) Retirement Restoration Plan
We sponsor a non-qualified retirement plan for certain senior executives who are affected by Internal Revenue Code limitations
on benefits provided under the Retirement Savings 401(k) Plan. Under this plan, these associates may continue to defer
portions of their compensation for retirement savings. We match the associates’ contributions at the same rate provided under
the 401(k) plan, and also may provide an annual discretionary company-funded contribution under the same terms of the 401(k)
plan. This plan is unfunded with lump sum payments to be made upon the associate’s retirement. The total cost for this plan
was not significant in fiscal 2021, fiscal 2020 and fiscal 2019.
(D) Executive Deferred Compensation Plan
We sponsor an unfunded nonqualified deferred compensation plan to permit certain eligible associates to defer receipt of a
portion of their compensation to a future date. This plan also includes a restorative company contribution designed to
compensate the plan participants for any loss of company contributions under the Retirement Savings 401(k) Plan and the
Retirement Restoration Plan due to a reduction in their eligible compensation resulting from deferrals into the Executive
Deferred Compensation Plan. The total cost for this plan was not significant in fiscal 2021, fiscal 2020 and fiscal 2019.
11. DEBT
(In thousands)
Debt Description (1)
Maturity Date
As of February 28 or 29
2021
2020
Revolving credit facility (2)
Term loan (2)
3.86% Senior notes
4.17% Senior notes
4.27% Senior notes
Financing obligations
Non-recourse notes payable
Total debt
Less: current portion
Less: unamortized debt issuance costs
Long-term debt, net
June 2024
$
— $
452,740
June 2024
April 2023
April 2026
April 2028
Various dates through February 2059
Various dates through November 2027
300,000
100,000
200,000
200,000
533,578
13,764,808
15,098,386
(452,579)
(25,888)
14,619,919 $
$
300,000
100,000
200,000
200,000
536,739
13,613,272
15,402,751
(433,456)
(25,240)
14,944,055
Interest is payable monthly, with the exception of our senior notes, which are payable semi-annually.
(1)
(2) Borrowings accrue interest at variable rates based on LIBOR, the federal funds rate, or the prime rate, depending on the type of
borrowing.
Revolving Credit Facility. Borrowings under our $1.45 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 February 28, 2021, the unused capacity of $1.45 billion was fully available to us.
The weighted average interest rate on outstanding short-term and long-term debt was 1.74% in fiscal 2021, 3.23% in fiscal 2020
and 3.50% in fiscal 2019.
70
Term Loan. Borrowings under our $300 million term loan are available for working capital and general corporate purposes.
The interest rate on our term loan was 1.02% as of February 28, 2021, and the 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 $500 million are available for working capital and general
corporate purposes. These 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 did 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.
Future maturities of financing obligations were as follows:
(In thousands)
Fiscal 2022
Fiscal 2023
Fiscal 2024
Fiscal 2025
Fiscal 2026
Thereafter
Total payments
Less: interest
Present value of financing obligations
As of February 28, 2021
$
$
53,129
53,780
56,075
54,747
57,943
845,920
1,121,594
(588,016)
533,578
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.
Notes payable related to our asset-backed term funding transactions accrue interest predominantly at fixed rates and have
scheduled maturities through November 2027, but may mature earlier, depending upon repayment rate of the underlying auto
loans receivable.
Information on our funding vehicles of non-recourse notes payable as of February 28, 2021 are as follows:
(in billions)
Warehouse facilities:
August 2021 expiration
September 2021 expiration
February 2022 expiration
Combined warehouse facility limit
Unused capacity
Non-recourse notes payable outstanding:
Warehouse facilities
Asset-backed term funding transactions
Non-recourse notes payable
71
Capacity
1.40
0.18
2.35
3.93
1.61
2.31
11.45
13.76
$
$
$
$
$
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.
See Notes 1(F) and 4 for additional information on the related auto loans receivable.
Capitalized Interest. We capitalize interest in connection with the construction of certain facilities. For fiscal 2021, fiscal 2020
and fiscal 2019, we capitalized interest of $3.3 million, $7.0 million, and $6.4 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, financial covenants and
performance triggers. As of February 28, 2021, we were in compliance with all financial covenants and our non-recourse
funding vehicles were in compliance with the related performance triggers.
12. STOCK AND STOCK-BASED INCENTIVE PLANS
(A) Preferred Stock
Under the terms of our Articles of Incorporation, the board of directors (“board”) may determine the rights, preferences and
terms of our authorized but unissued shares of preferred stock. We have authorized 20,000,000 shares of preferred stock, $20
par value. No shares of preferred stock are currently outstanding.
(B) Share Repurchase Program
As of February 28, 2021, a total of $2 billion of board authorizations for repurchases of our common stock was outstanding,
with no expiration date, of which $1.34 billion remained available for repurchase. In March 2020, our current stock repurchase
program was suspended. The repurchase authorization remained effective and the program resumed in September 2020.
Common Stock Repurchases
Number of shares repurchased (in thousands)
Average cost per share
Available for repurchase, as of end of year (in millions)
2,379.8
90.87 $
1,336.1 $
6,971.1
80.56 $
1,552.3 $
$
$
Years Ended February 28 or 29
2020
2021
2019
13,634.7
66.22
2,113.9
(C) 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.
As of February 28, 2021, a total of 60,850,000 shares of our common stock had been authorized to be issued under the long-
term incentive plans. The number of unissued common shares reserved for future grants under the long-term incentive plans
was 7,734,437 as of that date.
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 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.
72
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. For grants prior to fiscal
2021, conversion generally occurs at the end of a three-year vesting period. For RSUs granted in fiscal 2021, 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 volume-weighted average prices or 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 2018
grants, the conversion ratio is based on the company reaching certain target levels set by the board for cumulative three-year
pretax diluted earnings per share at the end of the three-year period, with the resulting quotient subject to meeting a minimum
25% threshold and capped at 200%; based on the company’s results for the three-year period, the board certified a performance
adjustment factor of 119%. For the fiscal 2020 grants, the conversion ratio is based on the company reaching certain
performance target levels set by the board at the beginning of each one-year period, with the resulting quotients subject to
meeting a minimum 25% threshold and capped at 200%. These quotients are then multiplied by the number of PSUs granted to
yield the number of shares awarded. For the first-year period, 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 117% for the first-year period. For the second- and third-year periods, the remaining awarded 42,099
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. The grant date fair values are based on the volume-weighted average prices of our common stock on the
grant dates. PSUs do not have voting rights. No PSUs were awarded in fiscal 2021. As of February 28, 2021, 21,053 units
were outstanding at a weighted average grant date fair value per share of $78.61.
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 of directors 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 volume-weighted average
prices or closing prices of our common stock on the grant dates. DSUs have no voting rights. As of February 28, 2021, 56,921
units were outstanding at a weighted average grant date fair value of $82.23.
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 volume-weighted average prices or 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 February 28, 2021,
there were 5,591 shares outstanding at a grant date value of $89.41.
Employee Stock Purchase Plan. We sponsor an employee stock purchase plan for all associates meeting certain eligibility
criteria. We have authorized up to 8,000,000 shares of common stock with a total of 2,425,936 shares remaining available for
issuance under the plan as of February 28, 2021. Associate contributions are limited to 10% of eligible compensation, up to a
maximum that was increased in January 2020 from $7,500 per year to $10,000 per year. For each $1.00 contributed to the plan
by associates, we match $0.15. Shares are acquired through open-market purchases. We purchased 202,085 shares at an
average price per share of $87.41 during fiscal 2021, 174,325 shares at an average price per share of $85.64 during fiscal 2020
and 185,856 shares at an average price per share of $67.66 during fiscal 2019.
73
(D) Share-Based Compensation
Composition of Share-Based Compensation Expense
(In thousands)
Cost of sales
CarMax Auto Finance income
Selling, general and administrative expenses
Share-based compensation expense, before income taxes
Composition of Share-Based Compensation Expense – By Grant Type
(In thousands)
Nonqualified stock options
Cash-settled restricted stock units (RSUs)
Stock-settled market stock units (MSUs)
Other share-based incentives:
Stock-settled performance stock units (PSUs)
Stock-settled deferred stock units (DSUs)
Restricted stock (RSAs)
Employee stock purchase plan
Total other share-based incentives
Share-based compensation expense, before income taxes
Unrecognized Share--Based Compensation Expense – By Grant Type
$
$
$
$
(Costs in millions)
Nonqualified stock options
Stock-settled market stock units
Other share-based incentives:
Stock-settled performance stock units
Stock-settled deferred stock units
Restricted stock
Total other share-based incentives
Total
Years Ended February 28 or 29
2020
2019
2021
6,805 $
5,657
111,749
124,211 $
6,382 $
4,940
99,435
110,757 $
2,952
3,804
69,928
76,684
Years Ended February 28 or 29
2020
2019
2021
31,500 $
72,243
15,596
30,166 $
60,739
12,874
489
1,925
147
2,311
4,872
124,211 $
2,559
2,500
23
1,896
6,978
110,757 $
29,992
29,141
12,683
1,733
1,155
307
1,673
4,868
76,684
As of February 28, 2021
Unrecognized
Compensation
Costs
Weighted Average
Remaining
Recognition Life
(Years)
$
$
44.0
14.9
0.5
—
0.2
0.7
59.6
2.1
1.2
1.2
—
2.0
1.4
1.9
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 volume-weighted average price or 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 years ended February 28, 2021,
February 29, 2020 or February 28, 2019.
74
Stock Option Activity
(Shares and intrinsic value in thousands)
Outstanding as of February 29, 2020
Options granted
Options exercised
Options forfeited or expired
Outstanding as of February 28, 2021
Weighted
Average
Exercise
Price
Weighted
Average
Remaining
Contractual
Life (Years)
Aggregate
Intrinsic
Value
Number of
Shares
6,994 $
1,607
(2,306)
(29)
6,266 $
64.85
71.56
62.06
70.39
67.57
4.5 $
325,425
Exercisable as of February 28, 2021
2,390 $
62.58
3.5 $
136,083
Stock Option Information
Options granted
Weighted average grant date fair value per share
Cash received from options exercised (in millions)
Intrinsic value of options exercised (in millions)
Realized tax benefits (in millions)
Years Ended February 28 or 29
2021
2020
2019
1,607,401
1,601,489
1,745,497
22.80 $
143.1 $
94.0 $
25.5 $
22.10 $
124.4 $
78.6 $
21.8 $
18.75
58.1
37.1
10.2
$
$
$
$
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
Dividend yield
Expected volatility factor (1)
Weighted average expected volatility
Risk-free interest rate (2)
Expected term (in years) (3)
Years Ended February 28 or 29
2021
2020
2019
0.0 %
0.0 %
0.0 %
36.1 % -
56.1 % 26.8 % -
32.6 %
26.1 % -
34.1 %
0.1 % -
38.2 %
0.7 %
4.6
29.2 %
29.1 %
1.5 % -
2.4 %
1.7 % -
3.0 %
4.6
4.6
(1) Measured using historical daily price changes of our stock for a period corresponding to the term of the options and the implied
(2)
(3)
volatility derived from the market prices of traded options on our stock.
Based on the U.S. Treasury yield curve at the time of grant.
Represents the estimated number of years that options will be outstanding prior to exercise.
75
Cash-Settled Restricted Stock Unit Activity
(Units in thousands)
Outstanding as of February 29, 2020
Stock units granted
Stock units vested and converted
Stock units cancelled
Outstanding as of February 28, 2021
Cash-Settled Restricted Stock Unit Information
Weighted
Average
Grant Date
Fair Value
Number of
Units
1,557 $
670
(525)
(96)
1,606 $
66.85
71.09
59.25
70.59
70.88
Stock units granted
Initial weighted average grant date fair value per share
Payments (before payroll tax withholdings) upon
vesting (in millions)
Realized tax benefits (in millions)
$
$
$
Years Ended February 28 or 29
2021
2020
2019
669,937
562,321
71.09 $
78.62 $
629,942
63.07
38.1 $
10.5 $
37.8 $
10.5 $
21.0
5.8
Expected Cash Settlement Range Upon Restricted Stock Unit Vesting
As of February 28, 2021
(In thousands)
Fiscal 2022
Fiscal 2023
Fiscal 2024
Total expected cash settlements
(1) Net of estimated forfeitures.
Stock-Settled Market Stock Unit Activity
(Units in thousands)
Outstanding as of February 29, 2020
Stock units granted
Stock units vested and converted
Stock units cancelled
Outstanding as of February 28, 2021
Minimum (1) Maximum (1)
$
32,426 $
36,241
9,687
78,354 $
86,470
96,642
25,831
208,943
$
Weighted
Average
Grant Date
Fair Value
Number of
Units
477 $
200
(149)
(8)
520 $
84.05
93.82
74.17
91.00
90.53
76
Stock-Settled Market Stock Unit Information
Stock units granted
Weighted average grant date fair value per share
Realized tax benefits (in millions)
199,916
131,311
$
$
93.82 $
3.2 $
98.67 $
4.0 $
205,868
82.09
1.4
Years Ended February 28 or 29
2021
2020
2019
13. NET EARNINGS PER SHARE
Basic and Dilutive Net Earnings Per Share Reconciliations
(In thousands except per share data)
Net earnings
Years Ended February 28 or 29
2020
2019
2021
$
746,919 $
888,433 $
842,413
Weighted average common shares outstanding
163,183
164,836
174,463
Dilutive potential common shares:
Stock options
Stock-settled restricted stock units
Weighted average common shares and dilutive
potential common shares
Basic net earnings per share
Diluted net earnings per share
1,543
407
1,580
404
1,028
393
165,133
166,820
175,884
$
$
4.58 $
4.52 $
5.39 $
5.33 $
4.83
4.79
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 fiscal 2021, fiscal 2020 and
fiscal 2019, options to purchase 1,131,764 shares, 1,355,679 shares and 4,009,566 shares of common stock, respectively, were
not included.
77
14. ACCUMULATED OTHER COMPREHENSIVE LOSS
Changes in Accumulated Other Comprehensive Loss By Component
(In thousands, net of income taxes)
Balance as of February 28, 2018
Other comprehensive loss before reclassifications
Amounts reclassified from accumulated other
comprehensive loss
Other comprehensive loss
Balance as of February 28, 2019
Other comprehensive loss before reclassifications
Amounts reclassified from accumulated other
comprehensive loss
Other comprehensive loss
Balance as of February 29, 2020
Other comprehensive income (loss) before reclassifications
Amounts reclassified from accumulated other
comprehensive loss
Other comprehensive income
Balance as of February 28, 2021
Net
Unrecognized
Actuarial
Losses
Net
Unrecognized
Hedge Gains
(Losses)
Total
Accumulated
Other
Comprehensive
Loss
$
(68,497) $
(3,459)
14,185 $
(6,703)
(54,312)
(10,162)
1,478
(1,981)
(70,478)
(52,254)
1,430
(50,824)
(121,302)
25,729
(5,014)
(11,717)
2,468
(34,631)
3,394
(31,237)
(28,769)
(12,616)
2,911
28,640
15,356
2,740
(3,536)
(13,698)
(68,010)
(86,885)
4,824
(82,061)
(150,071)
13,113
18,267
31,380
$
(92,662) $
(26,029) $
(118,691)
78
Changes In and Reclassifications Out of Accumulated Other Comprehensive Loss
(In thousands)
Retirement Benefit Plans (Note 10):
Actuarial gain (loss) arising during the year
Tax (expense) benefit
Actuarial gain (loss) arising during the year, net of tax
Actuarial loss amortization reclassifications recognized in net pension expense:
Cost of sales
CarMax Auto Finance income
Selling, general and administrative expenses
Total amortization reclassifications recognized in net pension expense
Tax expense
Amortization reclassifications recognized in net
pension expense, net of tax
Net change in retirement benefit plan unrecognized
actuarial losses, net of tax
Cash Flow Hedges (Note 5):
Changes in fair value
Tax benefit
Changes in fair value, net of tax
Reclassifications to CarMax Auto Finance income
Tax (expense) benefit
Reclassification of hedge losses (gains), net of tax
Net change in cash flow hedge unrecognized losses, net of tax
Total other comprehensive income (loss), net of tax
Years Ended February 28 or 29
2019
2020
2021
$
33,913 $
(8,184)
25,729
(68,861) $
16,607
(52,254)
(4,560)
1,101
(3,459)
1,617
108
2,112
3,837
(926)
797
49
1,028
1,874
(444)
812
51
1,086
1,949
(471)
2,911
1,430
1,478
28,640
(50,824)
(1,981)
(17,122)
4,506
(12,616)
20,841
(5,485)
15,356
2,740
31,380 $
(47,083)
12,452
(34,631)
4,614
(1,220)
3,394
(31,237)
(82,061) $
(9,103)
2,400
(6,703)
(6,809)
1,795
(5,014)
(11,717)
(13,698)
$
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 $38.7 million as of February 28, 2021 and $48.8 million as of February 29, 2020.
15. LEASE COMMITMENTS
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 11.
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.
79
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:
(In thousands)
Operating lease cost (1)
Finance lease cost:
Depreciation of lease assets
Interest on lease liabilities
Total finance lease cost
Total lease cost
Years Ended February 28 or 29
2021
2020
$
57,325 $
57,656
8,362
10,724
19,086
$
76,411 $
5,769
7,678
13,447
71,103
(1)
Includes short-term leases and variable lease costs, which are immaterial.
Supplemental balance sheet information related to leases was as follows:
(In thousands)
Assets:
Classification
Operating lease assets
Finance lease assets
Operating lease assets
Property and equipment, net (1)
Total lease assets
Liabilities:
Current:
Operating leases
Current portion of operating lease liabilities
Finance leases
Accrued expenses and other current liabilities
Long-term:
$
$
$
Operating leases
Operating lease liabilities, excluding current portion
As of February 28 or 29
2021
2020
431,652 $
109,665
541,317 $
30,953 $
9,422
423,618
120,094
449,094
75,320
524,414
30,980
5,066
440,671
79,327
556,044
Finance leases
Other liabilities
Total lease liabilities
$
584,087 $
(1) Finance lease assets are recorded net of accumulated depreciation of $17.5 million as of February 28, 2021 and $9.1 million as of
February 29, 2020.
Lease term and discount rate information related to leases was as follows:
Lease Term and Discount Rate
Weighted Average Remaining Lease Term (in years)
Operating leases
Finance leases
Weighted Average Discount Rate
Operating leases
Finance leases
As of February 28 or 29
2021
2020
19.37
13.56
19.98
13.55
5.36 %
15.09 %
5.40 %
10.32 %
80
Supplemental cash flow information related to leases was as follows:
(In thousands)
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases
Operating cash flows from finance leases
Financing cash flows from finance leases
Lease assets obtained in exchange for lease obligations:
Operating leases
Finance leases
Maturities of lease liabilities were as follows:
(In thousands)
Fiscal 2022
Fiscal 2023
Fiscal 2024
Fiscal 2025
Fiscal 2026
Thereafter
Total lease payments
Less: interest
Present value of lease liabilities
Years Ended February 28 or 29
2020
2021
$
$
$
$
$
56,762 $
8,517 $
7,424 $
14,010 $
45,857 $
57,145
4,027
4,151
27,136
53,111
As of February 28, 2021
Operating Leases (1)
53,378
$
$
51,167
50,293
49,197
43,359
529,331
776,725
(322,154)
$
454,571
$
Finance Leases (1)
21,974
23,776
26,599
23,310
23,881
190,869
310,409
(180,893)
129,516
(1) Lease payments exclude $36.9 million of legally binding minimum lease payments for leases signed but not yet commenced.
16. SUPPLEMENTAL CASH FLOW INFORMATION
Supplemental disclosures of cash flow information:
(In thousands)
Cash paid for interest
Cash paid for income taxes
Non-cash investing and financing activities:
(Decrease) increase in accrued capital expenditures
Increase in financing obligations
See Note 15 for supplemental cash flow information related to leases.
17. COMMITMENTS AND CONTINGENCIES
Years Ended February 28 or 29
2020
2019
2021
$
$
$
$
86,437
247,748
$
$
85,607
286,008
(25,595) $
$
4,726
3,840
48,942
$
$
$
$
74,204
220,669
(3,066)
35,848
(A) Litigation
CarMax entities were 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.
81
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 McElhannon et al. v. CarMax Auto
Superstores California, LLC and CarMax Auto Superstores West Coast, Inc., a putative class action, was filed in Superior Court
of California, County of Alameda. On February 1, 2019, the McElhannon lawsuit was removed to the U.S. District Court,
Northern District of California, San Francisco Division. The lawsuit was remanded back to the Superior Court of California,
County of Alameda on June 4, 2019. The McElhannon lawsuit seeks unspecified damages, restitution, statutory and/or civil
penalties, interest, cost and attorneys’ fees.
In fiscal 2021, CarMax reached a global agreement settling the Weiss, Gomez and McElhannon lawsuits on a class basis. The
settlement agreement was approved by the Superior Court of California, County of Placer on December 10, 2020. The
monetary settlement under this agreement was for an immaterial amount.
The Sabanovich lawsuit was not included in the global settlement agreement. Based upon our evaluation of information
currently available, we believe that the ultimate resolution of the Sabanovich lawsuit will not have a material adverse effect on
our financial condition, results of operations or cash flows.
As previously reported, the company cooperated with representatives from multiple California municipality district attorney
offices in an inquiry by those offices into the handling, storage and disposal of certain types of hazardous waste at our store
locations in those municipalities. CarMax and the district attorney offices reached a settlement agreement, which was entered
and approved by the Superior Court of California, County of Orange on June 8, 2020. The settlement included an immaterial
monetary payment covering penalties, costs, and supplemental environmental projects as well as certain injunctive relief.
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 gain that could result from CarMax’s participation in the Ford
settlement fund.
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.
(B) 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 sell at 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 $15.2 million as of February 28, 2021
and $10.5 million as of February 29, 2020, and is included in accrued expenses and other current liabilities.
At various times we may have certain purchase obligations that are enforceable and legally binding primarily related to real
estate purchases, advertising and third-party outsourcing services. As of February 28, 2021, we have material purchase
obligations of $141.2 million, of which $68.0 million are expected to be fulfilled in fiscal 2022.
82
18. SUBSEQUENT EVENTS
In March 2021, we signed a definitive agreement to acquire Edmunds, one of the most well established and trusted online
guides for automotive information and a recognized industry leader in digital car shopping innovations. With this acquisition,
CarMax will enhance its digital capabilities and further strengthen its role and reach across the used auto ecosystem while
adding exceptional technology and creative talent. Edmunds will continue to operate independently and will remain focused on
delivering confidence to consumers and excellent value to its dealer and OEM clients. Additionally, this acquisition will allow
both businesses to accelerate their respective capabilities to deliver an enhanced digital experience to their customers by
leveraging Edmunds’ compelling content and technology, our unparalleled national scale and infrastructure, and the combined
talent of both businesses. We expect to pay for the transaction with a combination of cash and equity for a purchase price that
implies an enterprise value of $404 million, inclusive of our initial investment. The transaction is subject to certain conditions
to close typical for a transaction of this nature. We anticipate this transaction will close in June 2021 and expect Edmunds’
financial results to have an immaterial impact to CarMax’s earnings per share in fiscal 2022.
83
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
None.
Item 9A. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures (“disclosure controls”) 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. Disclosure controls 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, we evaluated the effectiveness of the design and operation of our disclosure
controls. This evaluation was performed under the supervision and with the participation of management, including the CEO
and CFO. Based upon that evaluation, the CEO and CFO concluded that our disclosure controls were effective as of the end of
the period.
Changes in Internal Control over Financial Reporting
There was no change in our internal control over financial reporting that occurred during the quarter ended February 28, 2021
that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. We have
not experienced any material impact to our internal controls over financial reporting despite the fact that many of our employees
are working remotely due to the COVID-19 pandemic. We continue to monitor for and assess any effects the COVID-19
pandemic may have on the design or operating effectiveness of our internal control over financial reporting.
Management’s Report on Internal Control over Financial Reporting
Management’s annual report on internal control over financial reporting is included in Item 8. Consolidated Financial
Statements and Supplementary Data, of this Form 10-K and is incorporated herein by reference.
Item 9B. Other Information.
None.
PART III
With the exception of the information incorporated by reference from our 2021 Proxy Statement in Items 10, 11, 12, 13 and 14
of Part III of this Annual Report on Form 10-K, our 2021 Proxy Statement is not to be deemed filed as a part of this Form 10-K.
Item 10. Directors, Executive Officers and Corporate Governance.
The information concerning our executive officers required by this Item is incorporated by reference to the section titled
“Executive Officers of the Company” included in Part I of this Annual Report on Form 10-K.
The information concerning our directors required by this Item is incorporated by reference to the section titled “Proposal One:
Election of Directors” in our 2021 Proxy Statement.
The information concerning the audit committee of our board of directors and the audit committee financial expert required by
this Item is incorporated by reference to the information included in the sub-section titled “Corporate Governance – Board
Committees” in our 2021 Proxy Statement.
The information concerning our code of ethics (“Code of Business Conduct”) for senior management required by this Item is
incorporated by reference to the sub-section titled “Corporate Governance – Overview” in our 2021 Proxy Statement.
84
Item 11. Executive Compensation.
The information required by this Item is incorporated by reference to the sections titled “Compensation Discussion and
in our 2021 Proxy
Analysis,” “Compensation and Personnel Committee Report” and “Compensation Tables”
Statement. Additional information required by this Item is incorporated by reference to the section titled “Director
Compensation” in our 2021 Proxy Statement.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
The information required by this Item concerning equity compensation plans is incorporated by reference to the subsection
titled “CarMax Share Ownership” in our 2021 Proxy Statement.
The information required by this Item concerning security ownership of certain beneficial owners and management is
incorporated by reference to the section titled “CarMax Share Ownership” in our 2021 Proxy Statement.
Item 13. Certain Relationships and Related Transactions and Director Independence.
The information required by this Item is incorporated by reference to the sub-section titled “Corporate Governance – Related
Person Transactions” in our 2021 Proxy Statement.
The information required by this Item concerning director independence is incorporated by reference to the sub‑section titled
“Corporate Governance – Independence” in our 2021 Proxy Statement.
Item 14. Principal Accountant Fees and Services.
The information required by this Item is incorporated by reference to the section titled “Auditor Fees and Pre-Approval Policy”
in our 2021 Proxy Statement.
PART IV
Item 15. Exhibits and Financial Statement Schedules.
The following documents are filed as part of this report:
1. Financial Statements. All financial statements as set forth under Item 8 of this Form 10-K.
2. Financial Statement Schedules. Schedules have been omitted because they are not applicable, are not required or the
information required to be set forth therein is included in the Consolidated Financial Statements and Notes thereto.
3. Exhibits:
3.1
3.2
4.1
10.1
10.2
CarMax, Inc. Amended and Restated Articles of Incorporation, effective June 24, 2013, filed as Exhibit
3.1 to CarMax’s Current Report on Form 8-K, filed June 28, 2013 (File No. 1-31420), is incorporated by
this reference.
CarMax, Inc. Bylaws, as amended and restated April 28, 2020, filed as Exhibit 3.1 to CarMax’s Current
Report on Form 8-K, filed May 1, 2020 (File No. 1-31420), is incorporated by this reference.
Description of Securities Registered Pursuant to Section 12 of the Securities Exchange Act of 1934, filed
as Exhibit 4.1 to CarMax’s Annual Report on Form 10-K, filed April 21, 2020 (File No. 1-31420), is
incorporated by this reference.
CarMax, Inc. Severance Agreement for Executive Officer, dated September 1, 2016, between CarMax,
Inc. and William D. Nash, filed as Exhibit 10.1 to CarMax’s Current Report on Form 8-K, filed
September 1, 2016 (File No. 1-31420) is incorporated by this reference. *
CarMax, Inc. Severance Agreement for Executive Officer, dated January 6, 2015, between CarMax, Inc.
and Thomas J. Folliard, filed as Exhibit 10.2 to CarMax’s Quarterly Report on Form 10-Q, filed January
8, 2015 (File No. 1-31420) is incorporated by this reference. *
85
10.3
10.4
10.5
10.6
10.7
10.8
10.9
10.10
10.11
10.12
10.13
10.14
10.15
10.16
10.17
10.18
10.19
CarMax, Inc. Amendment to Severance Agreement for Executive Officer, dated August 31, 2016,
between CarMax, Inc. and Thomas J. Folliard, filed as Exhibit 10.2 to CarMax’s Current Report on Form
8-K, filed September 1, 2016 (File No. 1-31420) is incorporated by this reference. *
CarMax, Inc. Severance Agreement for Executive Officer, dated January 3, 2017, between CarMax, Inc.
and Thomas W. Reedy, filed as Exhibit 10.2 to CarMax’s Quarterly Report on Form 10-Q, filed January
6, 2017 (File No. 1-31420) is incorporated by this reference. *
CarMax, Inc. Severance Agreement for Executive Officer, dated January 3, 2017, between CarMax, Inc.
and William C. Wood, Jr., filed as Exhibit 10.3 to CarMax’s Quarterly Report on Form 10-Q, filed
January 6, 2017 (File No. 1-31420) is incorporated by this reference. *
CarMax, Inc. Severance Agreement for Executive Officer, dated January 3, 2017, between CarMax, Inc.
and Edwin J. Hill, filed as Exhibit 10.4 to CarMax’s Quarterly Report on Form 10-Q, filed January 6,
2017 (File No. 1-31420) is incorporated by this reference. *
CarMax, Inc. Severance Agreement for Executive Officer, dated January 6, 2015, between CarMax, Inc.
and Eric M. Margolin, filed as Exhibit 10.6 to CarMax’s Quarterly Report on Form 10-Q, filed January 8,
2015 (File No. 1-31420) is incorporated by this reference. *
CarMax, Inc. Benefit Restoration Plan, as amended and restated, effective June 30, 2011, filed as Exhibit
10.1 to CarMax’s Current Report on Form 8-K, filed June 30, 2011 (File No. 1-31420), is incorporated
by this reference. *
CarMax, Inc. Retirement Restoration Plan, as amended and restated, effective January 1, 2017, filed as
Exhibit 10.6 to CarMax’s Quarterly Report on Form 10-Q, filed July 7, 2016 (File No. 1-31420), is
incorporated by this reference. *
CarMax, Inc. Executive Deferred Compensation Plan, as amended and restated, effective June 30, 2011,
filed as Exhibit 10.3 to CarMax’s Current Report on Form 8-K, filed June 30, 2011 (File No. 1-31420), is
incorporated by this reference. *
CarMax, Inc. Non-Employee Directors Stock Incentive Plan, as amended and restated June 24, 2008,
filed as Exhibit 10.1 to CarMax’s Quarterly Report on Form 10-Q, filed July 10, 2008 (File No.
1‑31420), is incorporated by this reference. *
CarMax, Inc. 2002 Stock Incentive Plan, as amended and restated June 23, 2020, filed as Exhibit 10.1 to
CarMax’s Current Report on Form 8-K, filed June 25, 2020 (File No. 1-31420), is incorporated by this
reference. *
CarMax, Inc. Annual Performance-Based Bonus Plan, as amended and restated June 25, 2012, filed as
Exhibit 10.2 to CarMax’s Current Report on Form 8-K, filed June 29, 2012 (File No. 1-31420), is
incorporated by this reference. *
CarMax, Inc. 2002 Employee Stock Purchase Plan, as amended and restated January 1, 2020, filed as
Exhibit 10.2 to CarMax’s Quarterly Report on Form 10-Q, filed January 7, 2020 (File No. 1-31420), is
incorporated by this reference.
Credit Agreement, dated August 24, 2015, among CarMax Auto Superstores, Inc., CarMax, Inc., certain
subsidiaries of CarMax named therein, Bank of America, N.A., as a lender and as administrative agent,
and the other lending institutions named therein, filed as Exhibit 10.1 to CarMax’s Current Report on
Form 8-K, filed August 26, 2015 (File No. 1-31420), is incorporated by this reference.
Amended Notice of Stock Option Grant between CarMax, Inc. and Thomas J. Folliard, dated August 31,
2016, filed as Exhibit 10.3 to CarMax’s Current Report on Form 8-K, filed September 1, 2016 (File No.
1-31420), is incorporated by reference. *
Amended Notice of Stock Option Grant between CarMax, Inc. and Thomas J. Folliard, dated August 31,
2016, filed as Exhibit 10.4 to CarMax’s Current Report on Form 8-K, filed September 1, 2016 (File No.
1-31420), is incorporated by reference. *
Amended Notice of Market Stock Unit Grant between CarMax, Inc. and Thomas J. Folliard, dated
August 31, 2016, filed as Exhibit 10.5 to CarMax’s Current Report on Form 8-K, filed September 1, 2016
(File No. 1-31420), is incorporated by reference. *
Amended Notice of Stock Option Grant between CarMax, Inc. and Thomas J. Folliard, dated August 31,
2016, filed as Exhibit 10.6 to CarMax’s Current Report on Form 8-K, filed September 1, 2016 (File No.
1-31420), is incorporated by reference. *
86
10.20
10.21
10.22
10.23
10.24
10.25
10.26
10.27
10.28
10.29
10.30
10.31
10.32
10.33
10.34
10.35
10.36
10.37
Amended Notice of Performance Stock Unit Grant between CarMax, Inc. and Thomas J. Folliard, dated
August 31, 2016, filed as Exhibit 10.7 to CarMax’s Current Report on Form 8-K, filed September 1, 2016
(File No. 1-31420), is incorporated by reference. *
Form of Notice of Restricted Stock Grant between CarMax, Inc. and certain executive officers effective
March 24, 2016, filed as Exhibit 10.1 to CarMax’s Current Report on Form 8-K, filed March 25, 2016
(File No. 1-31420), is incorporated by this reference. *
Form of Notice of Cash-Settled Restricted Stock Unit Grant between CarMax Inc. and certain named and
other executive officers, effective March 24, 2016, filed as Exhibit 10.2 to CarMax’s Current Report on
Form 8-K, filed March 25, 2016 (File No. 1-31420), is incorporated by reference. *
Form of Notice of Stock Option Grant between CarMax, Inc. and certain named and other executive
officers, effective March 24, 2016, filed as Exhibit 10.3 to CarMax’s Current Report on Form 8-K, filed
March 25, 2016 (File No. 1-31420), is incorporated by reference. *
Form of Notice of Performance Stock Unit Grant between CarMax, Inc. and certain named and other
executive officers, effective March 24, 2016, filed as Exhibit 10.4 to CarMax’s Current Report on Form
8-K, filed March 25, 2016 (File No. 1-31420), is incorporated by reference. *
Form of Notice of Stock Option Grant between CarMax, Inc. and certain named and other executive
officers, effective January 26, 2015, filed as Exhibit 10.1 to CarMax’s Current Report on Form 8-K, filed
February 13, 2015 (File No. 1-31420), is incorporated by reference. *
Form of Notice of Market Stock Unit Grant between CarMax, Inc. and certain named and other executive
officers, effective January 26, 2015, filed as Exhibit 10.2 to CarMax’s Current Report on Form 8-K, filed
February 13, 2015 (File No. 1-31420), is incorporated by reference. *
Form of Notice of Performance Stock Unit Grant between CarMax, Inc. and certain named and other
executive officers, effective January 26, 2015, filed as Exhibit 10.3 to CarMax’s Current Report on Form
8-K, filed February 13, 2015 (File No. 1-31420), is incorporated by reference. *
Form of Notice of Restricted Stock Grant between CarMax, Inc. and certain non-employee directors of
the CarMax, Inc. board of directors, filed as Exhibit 10.1 to CarMax’s Quarterly Report on Form 10-Q,
filed October 8, 2014 (File No. 1-31420), is incorporated by this reference. *
Form of Notice of Stock Option Grant between CarMax, Inc. and certain named and other executive
officers, effective January 27, 2014, filed as Exhibit 10.1 to CarMax’s Current Report on Form 8-K, filed
January 31, 2014 (File No. 1-31420), is incorporated by reference. *
Form of Notice of Market Stock Unit Grant between CarMax, Inc. and certain named and other executive
officers, effective January 27, 2014, filed as Exhibit 10.2 to CarMax’s Current Report on Form 8-K, filed
January 31, 2014 (File No. 1-31420), is incorporated by reference. *
Form of Notice of Stock Option Grant between CarMax, Inc. and certain named and other executive
officers, effective December 21, 2011, filed as Exhibit 10.1 to CarMax’s Current Report on Form 8-K,
filed December 23, 2011 (File No. 1-31420), is incorporated by reference. *
Form of Notice of Market Stock Unit Grant between CarMax, Inc. and certain named and other executive
officers, effective December 21, 2011, filed as Exhibit 10.2 to CarMax’s Current Report on Form 8-K,
filed December 23, 2011 (File No. 1-31420), is incorporated by reference. *
Form of Notice of Restricted Stock Unit Grant between CarMax Inc. and certain named and other
executive officers, effective December 21, 2011, filed as Exhibit 10.3 to CarMax’s Current Report on
Form 8-K, filed December 23, 2011 (File No. 1-31420), is incorporated by reference. *
Form of Notice of Stock Option Grant between CarMax, Inc. and certain named and other executive
officers, effective October 18, 2010, filed as Exhibit 10.1 to CarMax’s Current Report on Form 8-K, filed
October 22, 2010 (File No. 1-31420), is incorporated by this reference. *
Form of Notice of Market Stock Unit Grant between CarMax, Inc. and certain named and other executive
officers, effective October 18, 2010, filed as Exhibit 10.2 to CarMax’s Current Report on Form 8-K, filed
October 22, 2010 (File No. 1-31420), is incorporated by this reference. *
Form of Notice of Stock Option Grant between CarMax, Inc. and certain named and other executive
officers, effective January 1, 2009, filed as Exhibit 10.1 to CarMax’s Quarterly Report on Form 10-Q,
filed January 8, 2009 (File No. 1-31420), is incorporated by this reference. *
Form of Directors Stock Option Grant Agreement between CarMax, Inc. and certain non-employee
directors of the CarMax, Inc. board of directors, filed as Exhibit 10.3 to CarMax’s Quarterly Report on
Form 10-Q, filed July 10, 2008 (File No. 1-31420), is incorporated by this reference. *
87
10.38
10.39
10.40
10.41
10.42
10.43
10.44
10.45
10.46
10.47
10.48
10.49
10.50
10.51
10.52
10.53
10.54
Form of Notice of Stock Option Grant between CarMax, Inc. and certain named and other executive
officers, filed as Exhibit 10.18 to CarMax’s Annual Report on Form 10-K, filed April 25, 2008 (File No.
1-31420), is incorporated by this reference. *
Form of Notice of Stock Option Grant between CarMax, Inc. and certain named and other executive
officers, filed as Exhibit 10.2 to CarMax’s Current Report on Form 8-K, filed October 20, 2006 (File No.
1-31420), is incorporated by this reference. *
Form of Directors Stock Option Grant Agreement between CarMax, Inc. and certain non-employee
directors of the CarMax, Inc. board of directors, filed as Exhibit 10.5 to CarMax’s Current Report on
Form 8-K, filed April 28, 2006 (File No. 1-31420), is incorporated by this reference. *
Form of Incentive Award Agreement between CarMax, Inc. and certain named executive officers, filed as
Exhibit 10.16 to CarMax’s Annual Report on Form 10-K, filed May 13, 2005 (File No. 1-31420), is
incorporated by this reference. *
Form of Incentive Award Agreement between CarMax, Inc. and certain executive officers, filed as
Exhibit 10.17 to CarMax’s Annual Report on Form 10-K, filed May 13, 2005 (File No. 1-31420), is
incorporated by this reference. *
Form of Incentive Award Agreement between CarMax, Inc. and certain non-employee directors of the
CarMax, Inc. board of directors, filed as Exhibit 10.18 to CarMax’s Annual Report on Form 10-K, filed
May 13, 2005 (File No. 1-31420), is incorporated by this reference. *
Form of Amendment to Incentive Award Agreement between CarMax, Inc. and certain non-employee
directors of the CarMax, Inc. board of directors, filed as Exhibit 10.19 to CarMax’s Annual Report on
Form 10-K, filed May 13, 2005 (File No. 1-31420), is incorporated by this reference. *
Form of Stock Grant Notice Letter from CarMax, Inc. to certain non-employee directors of the CarMax,
Inc. board of directors, filed as Exhibit 10.20 to CarMax’s Annual Report on Form 10-K, filed
May 13, 2005 (File No. 1-31420), is incorporated by this reference. *
CarMax, Inc. Annual Performance-Based Bonus Plan, dated April 24, 2018, filed as Exhibit 10.46 to
CarMax’s Annual Report on Form 10-K, filed April 24, 2018 (File No. 1-31420), is incorporated by this
reference. *
Form of Notice of Restricted Stock Unit Grant between CarMax, Inc. and certain non-employee directors
of the CarMax, Inc. board of directors, filed as Exhibit 10.47 to CarMax’s Annual Report on Form 10-K
filed April 24, 2018 (File No. 1-31420), is incorporated by this reference. *
Form of Notice of Restricted Stock Unit Grant between CarMax, Inc. and certain non-employee directors
of the CarMax, Inc. board of directors, filed as Exhibit 10.1 to CarMax’s Quarterly Report on Form 10-Q
filed January 8, 2019 (File No. 1-31420), is incorporated by this reference. *
Consulting Agreement, dated June 27, 2018, between CarMax, Inc. and William C. Wood Jr., filed as
Exhibit 10.1 to CarMax’s Current Report on Form 8-K, filed June 29, 2018 (File No. 1-31420), is
incorporated by this reference.*
Form of Notice of Performance Stock Unit Grant between CarMax, Inc. and certain named and other
executive officers, filed as Exhibit 10.50 to CarMax’s Annual Report on Form 10-K filed April 19, 2019
(File No. 1-31420), is incorporated by this reference. *
CarMax, Inc. Severance Agreement for Executive Officer, dated April 23, 2017, between CarMax, Inc.
and James Lyski, filed as Exhibit 10.51 to CarMax’s Annual Report on Form 10-K filed April 19, 2019
(File No. 1-31420), is incorporated by this reference. *
CarMax, Inc. Severance Agreement, effective October 25, 2019, between CarMax, Inc. and Enrique N.
Mayor-Mora, filed as Exhibit 10.1 to CarMax’s Current Report on Form 8-K, filed October 24, 2019
(File No. 1-31420), is incorporated by this reference. *
CarMax, Inc. 2002 Stock Incentive Plan, as amended and restated June 25, 2019, filed as Exhibit 10.1 to
CarMax's Current Report on Form 8-K, filed June 26, 2019 (File No. 1-31420), is incorporated by this
reference. *
Credit Agreement, dated as of June 7, 2019, among CarMax Auto Superstores, Inc., CarMax, Inc., certain
subsidiaries of CarMax named therein, Bank of America, N.A., as a lender and as administrative agent,
and the other lending institutions named therein, filed as Exhibit 10.1 to CarMax's Current Report on
Form 8-K, filed June 11, 2019 (File No. 1-31420), is incorporated by this reference.
88
10.55
10.56
10.57
21.1
23.1
24.1
31.1
31.2
32.1
32.2
Form of Notice of Market Stock Unit Grant between CarMax, Inc. and certain named and other executive
officers, effective March 27, 2020, filed as Exhibit 10.55 to CarMax’s Annual Report on Form 10-K,
filed April 21, 2020 (File No. 1-31420), is incorporated by this reference. *
Form of Notice of Cash-Settled Restricted Stock Unit Grant between CarMax Inc. and certain named and
other executive officers, effective March 27, 2020, filed as Exhibit 10.56 to CarMax’s Annual Report on
Form 10-K, filed April 21, 2020 (File No. 1-31420), is incorporated by this reference. *
Consulting Agreement, dated December 21, 2020, between CarMax, Inc. and Thomas W. Reedy, filed as
Exhibit 10.1 to CarMax’s Quarterly Report on Form 10-Q, filed January 6, 2021 (File No. 1-31420), is
incorporated by this reference. *
CarMax, Inc. Subsidiaries, filed herewith.
Consent of KPMG LLP, filed herewith.
Powers of Attorney, filed herewith.
Certification of the Chief Executive Officer Pursuant to Rule 13a-14(a), filed herewith.
Certification of the Chief Financial Officer Pursuant to Rule 13a-14(a), filed herewith
Certification of the Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, filed herewith.
Certification of the Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, filed herewith.
101.INS
XBRL Instance Document.
101.SCH
XBRL Taxonomy Extension Schema Document.
101.SCH
XBRL Taxonomy Extension Schema Document.
101.DEF
XBRL Taxonomy Extension Definition Linkbase Document.
101.LAB
XBRL Taxonomy Extension Label Linkbase Document.
101.PRE
XBRL Taxonomy Extension Presentation Linkbase Document.
104
Cover Page Interactive File.
* Indicates management contract, compensatory plan or arrangement of the company required to be filed as an exhibit.
Certain instruments defining rights of holders of long-term debt of the company are omitted pursuant to Item 601(b)(4)(iii)
of Regulation S-K. Upon request, the company agrees to furnish to the SEC copies of such instruments.
Item 16. Form 10-K Summary.
None.
89
Signatures
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this
report to be signed on its behalf by the undersigned, thereunto duly authorized.
CarMax, Inc.
By:
/s/ WILLIAM D. NASH
By:
/s/ ENRIQUE N. MAYOR-MORA
William D. Nash
Enrique N. Mayor-Mora
President and Chief Executive Officer
Senior Vice President and Chief Financial Officer
April 20, 2021
April 20, 2021
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons on
behalf of the registrant and in the capacities and on the dates indicated:
/s/ WILLIAM D. NASH
William D. Nash
President, Chief Executive Officer and Director
April 20, 2021
/s/ ENRIQUE N. MAYOR-MORA
Enrique N. Mayor-Mora
Senior Vice President and Chief Financial Officer
April 20, 2021
/s/ JILL A. LIVESAY
Jill A. Livesay
Vice President and Chief Accounting Officer
April 20, 2021
/s/ PETER J. BENSEN *
Peter J. Bensen
Director
April 20, 2021
/s/ RONALD E. BLAYLOCK *
Ronald E. Blaylock
Director
April 20, 2021
/s/ SONA CHAWLA *
Sona Chawla
Director
April 20, 2021
/s/ THOMAS J. FOLLIARD *
Thomas J. Folliard
Director
April 20, 2021
/s/ SHIRA GOODMAN *
Shira Goodman
Director
April 20, 2021
/s/ ROBERT J. HOMBACH *
Robert J. Hombach
Director
April 20, 2021
/s/ DAVID W. MCCREIGHT *
David W. McCreight
Director
April 20, 2021
/s/ MARK F. O’NEIL *
Mark F. O’Neil
Director
April 20, 2021
/s/ PIETRO SATRIANO *
Pietro Satriano
Director
April 20, 2021
/s/ MARCELLA SHINDER *
Marcella Shinder
Director
April 20, 2021
/s/ MITCHELL D. STEENROD *
Mitchell D. Steenrod
Director
April 20, 2021
*By:
/s/ ENRIQUE N. MAYOR-MORA
Enrique N. Mayor-Mora
Attorney-In-Fact
The original powers of attorney authorizing William D. Nash and Enrique N. Mayor-Mora, or either of them, to sign this annual
report on behalf of certain directors and officers of the company are included as Exhibit 24.1.
90
BOARD OF DIRECTORS
Thomas J. Folliard
Non-Executive Chair of the Board
Retired President and Chief Executive Officer
CarMax, Inc.
Peter J. Bensen (1)
Retired Chief Administrative Officer and
Corporate EVP and Chief Financial Officer
McDonald’s Corporation
Ronald E. Blaylock (2)
Founder and Managing Partner
GenNx360 Capital Partners
Retired Chief Executive Officer
Blaylock & Company
Sona Chawla (2) (4)
Chief Growth and Innovation Officer
CDW Corporation
Shira Goodman (3)
Advisory Director
Charlesbank Capital Partners
Retired Chief Executive Officer
Staples, Inc.
Robert J. Hombach (1)
Retired EVP, Chief Financial Officer and
Chief Operations Officer
Baxalta Incorporated
David W. McCreight (1)
Retired President
Urban Outfitters, Inc.
Retired Chief Executive Officer
Anthropologie Group
William D. Nash
President and Chief Executive Officer
CarMax, Inc.
Mark F. O’Neil (1) (4)
Retired Chief Operating Officer
Cox Automotive
Pietro Satriano (3)
Chief Executive Officer
US Foods Holding Corp.
Marcella Shinder (3) (4)
Advisory Director
Charlesbank Capital Partners
Retired Global Head of Partnerships
WeWork Companies, Inc.
Mitchell D. Steenrod (2)
Lead Independent Director of the Board
Retired SVP and Chief Financial Officer
Pilot Travel Centers LLC
Board of Directors Committee Membership: (1) Audit (2) Compensation and Personnel (3) Nominating and Governance
(4) Technology and Innovation Committee
SENIOR MANAGEMENT TEAM
Bill Nash
President and Chief Executive Officer
Ed Hill
EVP, Chief Operating Officer
Jim Lyski
EVP, Chief Marketing Officer
Eric Margolin
EVP, General Counsel and
Corporate Secretary
Shamim Mohammad
EVP, Chief Information and
Technology Officer
Diane Cafritz
SVP, Legal and
Chief Human Resources Officer
Jon Daniels
SVP, CarMax Auto Finance
Enrique Mayor-Mora
SVP, Chief Financial Officer
Darren Newberry
SVP, Store Operations
Joe Wilson
SVP, Store Strategy and Logistics
91
[This Page Intentionally Left Blank]
[This Page Intentionally Left Blank]
[This Page Intentionally Left Blank]
CARMAX CARES While fiscal year 2021 was an unprecedented year, our commitment to our communities
remained constant. We developed new ways to engage associates and impact our communities. We awarded over $2.5 mil lion
in unrestricted program grants, so approved nonprofits could direct our contribution to best meet immediate needs. To help
associates invest in their communities, we launched our Care Card program which empowered them to direct $25 to the
nonprofit of their choice. Nearly 18,000 associates participated resulting in donations to approximately 6,500 different non-
profits nationwide. We also pledged $1 million to help combat social inequity and injustice. After listening to and learning from
associates, external experts, and community leaders, we are focusing our efforts on promoting equitable access to economic
opportunity through partnerships with LIFT, STRIVE, and Sponsors for Educational Opportunity.
$75M
GIVEN BACK
TO HELP OUR
COMMUNITIES
THRIVE
CORP ORATE & SH ARE HO L DER IN F OR MAT ION
HOME OFFICE
CarMax, Inc.
12800 Tuckahoe Creek Parkway
Richmond, Virginia 23238
Telephone: (804) 747-0422
WEBSITE
www.carmax.com
ANNUAL SHAREHOLDERS’ MEETING
Tuesday, June 29, 2021, at 1:00 p.m. ET
In light of the public health concerns and restrictions resulting from
COVID-19, CarMax will be hosting a virtual annual meeting in 2021.
Shareholders will be able to attend and participate, including
voting shares and submitting questions, online. Information on
how to participate can be found in CarMax’s Notice of 2021
Annual Meeting of Shareholders and Proxy Statement.
STOCK INFORMATION
CarMax, Inc. common stock is traded on the New York Stock
Exchange under the ticker symbol KMX.
As of February 28 2021, there were approximately 2,900
CarMax shareholders of record. This number excludes share-
holders holding stock under nominee security position listings.
TRANSFER AGENT AND REGISTRAR
Contact our transfer agent for questions regarding your stock
certifi cates, including changes of address, name or ownership;
lost cer tificates; or to consolidate multiple accounts.
American Stock Transfer & Trust Company, LLC
6201 15th Avenue
Brooklyn, NY 11219
Toll free: (866) 714-7297
Via email: info@amstock.com
Website: www.astfinancial.com
DESIGN: VIVO DESIGN, INC.
INDEPENDENT AUDITORS
KPMG LLP
1021 East Cary Street, Suite 2000
Richmond, Virginia 23219
FINANCIAL INFORMATION
For quarterly sales and earnings information, financial reports,
filings with the Securities and Exchange Commission, news
releases and other investor information, please visit our inves-
tor website at investors.carmax.com. Information may also be
obtained from the Investor Relations Department at:
Email: investor_relations@carmax.com
Telephone: (804) 747-0422, ext. 7865
CORPORATE GOVERNANCE INFORMATION
Copies of the CarMax Corporate Governance Guidelines, the
Code of Business Conduct, and the charters for each of the
Audit Committee, Nominating and Governance Committee,
Compensation and Personnel Committee and Technology and
Innovation Committee are available from our investor website,
at investors.carmax.com, under the corporate governance tab.
Alter na tively, shareholders may obtain, without charge, cop-
ies of these documents by writing to Investor Relations at the
CarMax home office.
INVESTOR RELATIONS
Security analysts and investors are invited to contact:
Stacy Frole, Vice President, Investor Relations
Telephone: (804) 747-0422, ext. 7865
Email: investor_relations@carmax.com
GENERAL INFORMATION
Members of the media and others seeking general information
about CarMax should contact:
Catherine Gryp, Director, Public Relations
Telephone: (855) 887-2915
Email: pr@carmax.com
CARMAX, INC.
12800 TUCKAHOE CREEK PARKWAY
RICHMOND, VIRGINIA 23238
804 747 0422
WWW.CARMAX.COM
C
A
R
M
A
X
,
I
N
C
.
A
N
N
U
A
L
R
E
P
O
R
T
F
I
S
C
A
L
Y
E
A
R
2
0
2
1