EX-99.1 2 q3fy18earningsrelease.htm EXHIBIT 99.1 Exhibit











CARMAX REPORTS THIRD QUARTER RESULTS

Richmond, Va., December 21, 2017 – CarMax, Inc. (NYSE:KMX) today reported results for the third quarter ended November 30, 2017. Year-over-year highlights include:

▪
Net sales and operating revenues increased 11.0% to $4.11 billion.

▪
Used unit sales in comparable stores increased 2.7%.

▪
Total used unit sales rose 8.2%.

▪
Total wholesale unit sales increased 9.1%.

▪
CarMax Auto Finance (CAF) income increased 15.1% to $102.8 million.

▪
Net earnings increased 8.9% to $148.8 million and net earnings per diluted share rose 12.5% to $0.81.

Third Quarter Business Performance Review

Sales. Total used vehicle unit sales grew 8.2% and comparable store used unit sales rose 2.7% versus the prior year’s third quarter. The comparable store sales performance reflected an increase in conversion, partially offset by lower store traffic. We were able to leverage our national footprint and nationwide transportation network to quickly transfer vehicles into hurricane-affected markets, and these stores drove our third quarter comparable store unit sales growth.

Total wholesale vehicle unit sales increased 9.1% compared with the third quarter of fiscal 2017, reflecting a substantial increase in our appraisal buy rate and the growth in our store base. We believe the appraisal buy rate benefited from strong wholesale industry vehicle valuations.
Other sales and revenues increased 5.1% compared with the third quarter of fiscal 2017, primarily reflecting improvements in extended protection plan (EPP) revenues, partially offset by a decline in net third-party finance fees. EPP revenues increased 9.8%, largely due to the growth in our used unit sales. The $3.7 million reduction in third-party finance fees reflected shifts in our sales mix by finance channel.


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Gross Profit. Total gross profit increased 7.2% versus last year’s third quarter, to $539.2 million. Used vehicle gross profit rose 7.9%, driven by the 8.2% increase in total used unit sales. Used vehicle gross profit per unit was similar at $2,148 versus $2,155 in the prior year period. Wholesale vehicle gross profit increased 13.1% versus the prior year’s quarter, driven by the 9.1% increase in wholesale unit sales and an increase in wholesale vehicle gross profit per unit to $933 from $900. We believe this year’s third quarter wholesale gross profit per unit continued to benefit from a favorable depreciation environment relative to historical trends. Other gross profit declined 1.6%, reflecting a decrease in service profits, together with the noted changes in EPP revenues and net third-party finance fees.

SG&A. Compared with the third quarter of fiscal 2017, SG&A expenses increased 12.0% to $399.7 million. Factors contributing to the increase included: (i) the 13% increase in our store base since the beginning of last year’s third quarter (representing the addition of 21 stores) and (ii) a combined increase of $8.0 million in stock-based compensation expense and the accrual for corporate incentive pay. SG&A per used unit was $2,356 in the current quarter, up $81 year-over-year, of which $42 was due to the higher stock-based compensation expense and corporate incentive pay accrual.

CarMax Auto Finance.(1) Compared with last year’s third quarter, CAF income increased 15.1% to $102.8 million. The increase reflected the combined effects of the growth in average managed receivables and a decline in the provision for loan losses, partially offset by a lower total interest margin percentage. Average managed receivables grew 10.4% to $11.37 billion. The provision for loan losses declined 10.5% to $37.5 million, compared with $41.9 million in the prior year quarter. The prior year’s provision was affected by rising loss experience, while losses in the current year’s quarter were generally consistent with expectations. The allowance for loan losses as a percentage of ending managed receivables was 1.11% as of November 30, 2017, compared with 1.15% as of August 31, 2017, and 1.10% as of November 30, 2016. The total interest margin, which reflects the spread between interest and fees charged to consumers and our funding costs, was 5.7% of average managed receivables compared with 5.8% in last year’s third quarter.

Interest Expense. Interest expense rose to $17.4 million in the third quarter of fiscal 2018 from $15.1 million in the prior year’s third quarter. The increase primarily reflected higher outstanding debt in fiscal 2018 and a reduction in capitalized interest.

Income Taxes. The effective tax rate declined to 33.9% in the third quarter of fiscal 2018 from 37.8% in the prior year’s third quarter. The current year’s third quarter provision for income taxes was reduced $8.7 million by the effect of a new accounting standard for share-based compensation on stock option settlement activity. The new accounting standard, which was adopted as of the beginning of fiscal 2018, requires the income tax effects of share-based awards be recognized in the provision for income taxes when the awards vest or are settled; previously the tax effects were recognized in shareholders’ equity.

Store Openings. During the third quarter of fiscal 2018, we opened five stores. We entered one new television market (Tyler, Texas) and we added four stores in existing television markets (Philadelphia, Pennsylvania; Las Vegas, Nevada; San Francisco, California; and Seattle, Washington).

Share Repurchase Activity. During the third quarter of fiscal 2018, we repurchased 1.5 million shares of common stock for $107.2 million pursuant to our share repurchase program. As of November 30, 2017, we had $1.14 billion remaining available for repurchase under the current authorization.






(1) 
Although CAF benefits from certain indirect overhead expenditures, we have not allocated indirect costs to CAF to avoid making subjective allocation decisions.

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Supplemental Financial Information
Amounts and percentage calculations may not total due to rounding.


Sales Components

 
Three Months Ended November 30
 
Nine Months Ended November 30
(In millions)
2017
 
2016
 
Change
 
2017
 
2016
 
Change
Used vehicle sales
$
3,425.5

 
$
3,090.6

 
10.8
 %
 
$
10,963.1

 
$
9,820.4

 
11.6
 %
Wholesale vehicle sales
552.8

 
488.4

 
13.2
 %
 
1,653.9

 
1,616.5

 
2.3
 %
Other sales and revenues:
 
 
 
 
 
 
 
 
 
 
 
Extended protection plan revenues
77.1

 
70.2

 
9.8
 %
 
254.5

 
221.5

 
14.9
 %
Third-party finance fees, net
(12.8
)
 
(9.1
)
 
(40.7
)%
 
(35.8
)
 
(29.3
)
 
(22.3
)%
Other
64.4

 
61.4

 
5.0
 %
 
200.3

 
196.0

 
2.2
 %
Total other sales and revenues
128.7

 
122.5

 
5.1
 %
 
419.0

 
388.2

 
7.9
 %
Total net sales and operating revenues
$
4,107.0

 
$
3,701.5

 
11.0
 %
 
$
13,036.0

 
$
11,825.2

 
10.2
 %


Unit Sales

 
Three Months Ended November 30
 
Nine Months Ended November 30
 
2017
 
2016
 
Change
 
2017
 
2016
 
Change
Used vehicles
169,648
 
156,789
 
8.2
%
 
550,940
 
495,277
 
11.2
%
Wholesale vehicles
100,332
 
91,973
 
9.1
%
 
309,283
 
300,543
 
2.9
%


Average Selling Prices

 
Three Months Ended November 30
 
Nine Months Ended November 30
 
2017
 
2016
 
Change
 
2017
 
2016
 
Change
Used vehicles
$
20,008

 
$
19,520

 
2.5
%
 
$
19,705

 
$
19,640

 
0.3
 %
Wholesale vehicles
$
5,268

 
$
5,103

 
3.2
%
 
$
5,110

 
$
5,165

 
(1.1
)%


Vehicle Sales Changes

 
Three Months Ended November 30
 
Nine Months Ended 
 November 30
 
2017
2016
 
2017
2016
Used vehicle units
8.2
%
9.1
 %
 
11.2
%
6.6
 %
Used vehicle revenues
10.8
%
6.2
 %
 
11.6
%
5.0
 %
 
 
 
 
 
 
Wholesale vehicle units
9.1
%
(2.2
)%
 
2.9
%
(0.6
)%
Wholesale vehicle revenues
13.2
%
(4.9
)%
 
2.3
%
(3.9
)%


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Comparable Store Used Vehicle Sales Changes (1) 

 
Three Months Ended November 30
 
Nine Months Ended 
 November 30
 
2017
2016
 
2017
2016
Used vehicle units
2.7
%
5.4
%
 
5.5
%
2.8
%
Used vehicle revenues
5.3
%
2.5
%
 
5.8
%
1.2
%


(1) 
Stores are added to the comparable store base beginning in their fourteenth full month of operation. 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.


Used Vehicle Financing Penetration by Channel (Before the Impact of 3-day Payoffs) (1) 
 
Three Months Ended November 30
 
Nine Months Ended November 30
 
2017
 
2016
 
2017
 
2016
CAF (2)
49.2
%
 
50.1
%
 
48.5
%
 
49.9
%
Tier 2 (3)
15.4
%
 
17.0
%
 
16.9
%
 
17.7
%
Tier 3 (4)
10.8
%
 
9.7
%
 
10.1
%
 
9.9
%
Other (5)
24.6
%
 
23.2
%
 
24.5
%
 
22.5
%
Total
100.0
%
 
100.0
%
 
100.0
%
 
100.0
%

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


Selected Operating Ratios

 
Three Months Ended November 30
 
Nine Months Ended November 30
(In millions)
2017
% (1)
 
2016
% (1)
 
2017
% (1)
 
2016
% (1)
Net sales and operating revenues
$
4,107.0

100.0
 
$
3,701.5

100.0
 
$
13,036.0

100.0
 
$
11,825.2

100.0
Gross profit
$
539.2

13.1
 
$
503.1

13.6
 
$
1,792.1

13.7
 
$
1,621.1

13.7
CarMax Auto Finance income
$
102.8

2.5
 
$
89.4

2.4
 
$
320.1

2.5
 
$
286.1

2.4
Selling, general, and administrative expenses
$
399.7

9.7
 
$
356.7

9.6
 
$
1,208.2

9.3
 
$
1,103.1

9.3
Interest expense
$
17.4

0.4
 
$
15.1

0.4
 
$
51.1

0.4
 
$
40.1

0.3
Earnings before income taxes
$
225.2

5.5
 
$
219.7

5.9
 
$
853.5

6.5
 
$
764.1

6.5
Net earnings
$
148.8

3.6
 
$
136.6

3.7
 
$
542.0

4.2
 
$
474.4

4.0



(1) 
Calculated as a percentage of net sales and operating revenues.









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Gross Profit

 
Three Months Ended November 30
 
Nine Months Ended November 30
(In millions)
2017
 
2016
 
Change
 
2017
 
2016
 
Change
Used vehicle gross profit
$
364.3

 
$
337.8

 
7.9
 %
 
$
1,201.4

 
$
1,076.1

 
11.6
%
Wholesale vehicle gross profit
93.6

 
82.8

 
13.1
 %
 
298.5

 
277.1

 
7.7
%
Other gross profit
81.3

 
82.5

 
(1.6
)%
 
292.2

 
267.9

 
9.1
%
Total
$
539.2

 
$
503.1

 
7.2
 %
 
$
1,792.1

 
$
1,621.1

 
10.5
%


Gross Profit per Unit

 
Three Months Ended November 30
 
Nine Months Ended November 30
 
2017
2016
 
2017
2016
 
$ per unit(1)
%(2)
$ per unit(1)
%(2)
 
$ per unit(1)
%(2)
$ per unit(1)
%(2)
Used vehicle gross profit
$
2,148

10.6
$
2,155

10.9
 
$
2,181

11.0
$
2,173

11.0
Wholesale vehicle gross profit
$
933

16.9
$
900

16.9
 
$
965

18.1
$
922

17.1
Other gross profit
$
479

63.1
$
527

67.4
 
$
530

69.7
$
541

69.0
Total gross profit
$
3,178

13.1
$
3,209

13.6
 
$
3,253

13.7
$
3,273

13.7



(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.


SG&A Expenses


 
Three Months Ended November 30
 
Nine Months Ended November 30
(In millions)
2017
 
2016
 
Change
 
2017
 
2016
 
Change
Compensation and benefits (1)
$
209.8

 
$
182.2

 
15.1
%
 
$
650.4

 
$
598.1

 
8.7
%
Store occupancy costs
86.0

 
75.8

 
13.4
%
 
250.9

 
222.6

 
12.7
%
Advertising expense
36.5

 
34.8

 
4.9
%
 
114.3

 
104.1

 
9.8
%
Other overhead costs (2)
67.4

 
63.9

 
5.4
%
 
192.6

 
178.3

 
8.0
%
Total SG&A expenses
$
399.7

 
$
356.7

 
12.0
%
 
$
1,208.2

 
$
1,103.1

 
9.5
%
SG&A per used unit
$
2,356

 
$
2,275

 
$
81

 
$
2,193

 
$
2,227

 
$
(34
)


(1) 
Excludes compensation and benefits related to reconditioning and vehicle repair service, which are included in cost of sales.
(2) 
Includes IT expenses, preopening and relocation costs, insurance, travel, non-CAF bad debt, charitable contributions and other administrative expenses.



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Components of CAF Income and Other CAF Information

 
Three Months Ended November 30
 
Nine Months Ended November 30
(In millions)
2017
% (1)
2016
% (1)
 
2017
% (1)
2016
% (1)
Interest margin:
 
 
 
 
 
 
 
 
 
Interest and fee income
$
217.1

7.6

$
192.7

7.5

 
$
637.4

7.7

$
567.0

7.5

Interest expense
(55.4
)
(2.0
)
(44.1
)
(1.7
)
 
(156.6
)
(1.9
)
(125.3
)
(1.7
)
Total interest margin
161.7

5.7

148.6

5.8

 
480.8

5.8

441.7

5.9

Provision for loan losses
(37.5
)
(1.3
)
(41.9
)
(1.6
)
 
(99.0
)
(1.2
)
(104.2
)
(1.4
)
Total interest margin after
 
 
 
 
 
 
 
 
 
provision for loan losses
124.2

4.4

106.7

4.1

 
381.8

4.6

337.5

4.5

 
 
 
 
 
 
 
 
 
 
Total direct expenses
(21.4
)
(0.8
)
(17.3
)
(0.7
)
 
(61.7
)
(0.7
)
(51.4
)
(0.7
)
CarMax Auto Finance income
$
102.8

3.6

$
89.4

3.5

 
$
320.1

3.9

$
286.1

3.8

 
 
 
 
 
 
 
 
 
 
Total average managed receivables
$
11,365.6

 
$
10,297.8

 
 
$
11,102.4

 
$
10,030.9

 
Net loans originated
$
1,454.5

 
$
1,339.1

 
 
$
4,542.8

 
$
4,217.7

 
Net penetration rate
44.2
%
 
45.0
%
 
 
43.1
%
 
44.7
%
 
Weighted average contract rate
7.7
%
 
7.3
%
 
 
7.7
%
 
7.4
%
 
 
 
 
 
 
 
 
 
 
 
Ending allowance for loan losses
$
127.7

 
$
114.8

 
 
$
127.7

 
$
114.8

 
 
 
 
 
 
 
 
 
 
 
Warehouse facility information:
 
 
 
 
 
 
 
 
 
Ending funded receivables
$
1,882.0

 
$
1,677.0

 
 
$
1,882.0

 
$
1,677.0

 
Ending unused capacity
$
1,058.0

 
$
1,123.0

 
 
$
1,058.0

 
$
1,123.0

 
 
 
 
 
 
 
 
 
 
 


(1) 
Annualized percentage of total average managed receivables.


Earnings Highlights

 
Three Months Ended November 30
 
Nine Months Ended November 30
(In millions except per share data)
2017
 
2016
 
Change
 
2017
 
2016
 
Change
Net earnings
$
148.8

 
$
136.6

 
8.9
 %
 
$
542.0

 
$
474.4

 
14.3
 %
Diluted weighted average shares outstanding
184.0

 
190.8

 
(3.6
)%
 
185.2

 
193.2

 
(4.2
)%
Net earnings per diluted share
$
0.81

 
$
0.72

 
12.5
 %
 
$
2.93

 
$
2.45

 
19.6
 %



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Planned Store Openings

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

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

(1)  
Store opened in December 2017.
(2)  
Represents new television market as of planned store opening date.

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


Conference Call Information

We will host a conference call for investors at 9:00 a.m. ET today, December 21, 2017. Domestic investors may access the call at 1-888-298-3261 (international callers dial 1-706-679-7457). The conference I.D. for both domestic and international callers is 73777146. A live webcast of the call will be available on our investor information home page at investors.carmax.com.

A webcast replay of the call will be available at investors.carmax.com through April 3, 2018. A telephone replay also will be available through December 29, 2017, and may be accessed by dialing 1-855-859-2056 (international callers dial 1-404-537-3406). The conference I.D. for both domestic and international callers is 73777146.

Fourth Quarter Fiscal 2018 Earnings Release Date

We currently plan to release results for the fourth quarter ending February 28, 2018, on Wednesday, April 4, 2018, before the opening of trading on the New York Stock Exchange. We plan to host a conference call for investors at 9:00 a.m. ET on that date. Information on this conference call will be available on our investor information home page at investors.carmax.com in March 2018.

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About CarMax

CarMax is the nation’s largest retailer of used cars, currently operating 185 stores in 39 states nationwide. CarMax revolutionized the auto industry by delivering the honest, transparent and high-integrity car buying experience customers want and deserve. For more than 20 years, CarMax has made car buying more ethical, fair and stress-free by offering a no-haggle, no-hassle experience and an incredible selection of vehicles. CarMax makes selling your car easy too, by offering no-obligation appraisals good for seven days. At CarMax, we’ll buy your car even if you don’t buy ours®. CarMax has more than 24,000 associates nationwide and for 13 consecutive years has been named as one of the Fortune 100 Best Companies to Work For®. During the twelve months ended February 28, 2017, the company retailed 671,294 used vehicles and sold 391,686 wholesale vehicles at its in-store auctions. For more information, access the CarMax website at www.carmax.com.

Forward-Looking Statements

We caution readers that the statements contained in this release about our future business plans, operations, opportunities or prospects, including without limitation any statements or factors regarding expected sales, margins, expenses, capital expenditures, debt obligations or earnings, are forward-looking statements made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. You can identify these forward-looking statements by the use of words such as “anticipate,” “believe,” “could,” “estimate,” “expect,” “intend,” “may,” “outlook,” “plan,” “predict,” “should,” “will” and other similar expressions, whether in the negative or affirmative. Such forward-looking statements are based upon management’s current knowledge and assumptions about future events and involve risks and uncertainties that could cause actual results to differ materially from anticipated results. Among the factors that could cause actual results and outcomes to differ materially from those contained in the forward-looking statements are the following:

•
Changes in the competitive landscape and/or our failure to successfully adjust to such changes.
•
Events that damage our reputation or harm the perception of the quality of our brand.
•
Changes in general or regional U.S. economic conditions.
•
Changes in tax law, including the effect of federal tax reform.
•
Changes in the availability or cost of capital and working capital financing, including changes related to the asset-backed securitization market.
•
Our inability to recruit, develop and retain associates and maintain positive associate relations.
•
The loss of key associates from our store, regional or corporate management teams or a significant increase in labor costs.
•
Security breaches or other events that result in the misappropriation, loss or other unauthorized disclosure of confidential customer, associate or corporate information.
•
Significant changes in prices of new and used vehicles.
•
Changes in economic conditions or other factors that result in greater credit losses for CAF’s portfolio of auto loan receivables than anticipated.
•
A reduction in the availability of or access to sources of inventory or a failure to expeditiously liquidate inventory.
•
Changes in consumer credit availability provided by our third-party finance providers.
•
Changes in the availability of extended protection plan products from third-party providers.
•
Factors related to the regulatory and legislative environment in which we operate.
•
Factors related to geographic and sales growth, including the inability to effectively manage our growth.
•
The failure of or inability to sufficiently enhance key information systems.
•
The effect of various litigation matters.
•
Adverse conditions affecting one or more automotive manufacturers, and manufacturer recalls.
•
The inaccuracy of estimates and assumptions used in the preparation of our financial statements, or the effect of new accounting requirements or changes to U.S. generally accepted accounting principles.
•
The performance of the third-party vendors we rely on for key components of our business.
•
Factors related to seasonal fluctuations in our business.
•
The occurrence of severe weather events.

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•
Factors related to the geographic concentration of our stores.

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

Investors:    
Katharine Kenny, Vice President, Investor Relations, (804) 935-4591
Celeste Gunter, Manager, Investor Relations, (804) 935-4597

Media:
pr@carmax.com, (855) 887-2915


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CARMAX, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(UNAUDITED)





 
Three Months Ended November 30
 
Nine Months Ended November 30
(In thousands except per share data)
2017
% (1)
2016
% (1)
 
2017
% (1)
2016
% (1)
SALES AND OPERATING REVENUES:
 
 
 
 
 
 
 
 
 
Used vehicle sales
$
3,425,540

83.4

$
3,090,613

83.5
 
$
10,963,113

84.1

$
9,820,401

83.0

Wholesale vehicle sales
552,754

13.5

488,385

13.2
 
1,653,911

12.7

1,616,528

13.7

Other sales and revenues
128,723

3.1

122,526

3.3
 
418,967

3.2

388,229

3.3

NET SALES AND OPERATING REVENUES
4,107,017

100.0

3,701,524

100.0
 
13,035,991

100.0

11,825,158

100.0

Cost of sales
3,567,829

86.9

3,198,389

86.4
 
11,243,860

86.3

10,204,024

86.3

GROSS PROFIT 
539,188

13.1

503,135

13.6
 
1,792,131

13.7

1,621,134

13.7

CARMAX AUTO FINANCE INCOME 
102,810

2.5

89,359

2.4
 
320,109

2.5

286,086

2.4

Selling, general and administrative expenses
399,672

9.7

356,735

9.6
 
1,208,237

9.3

1,103,091

9.3

Interest expense
17,405

0.4

15,071

0.4
 
51,079

0.4

40,063

0.3

Other (income) expense
(279
)
—

1,027

—
 
(561
)
—

(24
)
—

Earnings before income taxes
225,200

5.5

219,661

5.9
 
853,485

6.5

764,090

6.5

Income tax provision
76,360

1.9

83,016

2.2
 
311,519

2.4

289,723

2.5

NET EARNINGS 
$
148,840

3.6

$
136,645

3.7
 
$
541,966

4.2

$
474,367

4.0

WEIGHTED AVERAGE COMMON SHARES:
 
 
 
 
 
 
 
 
 
Basic
181,888

 
189,200

 
 
183,324

 
191,431

 
Diluted
184,033

 
190,818

 
 
185,201

 
193,239

 
NET EARNINGS PER SHARE:
 
 
 
 
 
 
 
 
 
Basic
$
0.82

 
$
0.72

 
 
$
2.96

 
$
2.48

 
Diluted
$
0.81

 
$
0.72

 
 
$
2.93

 
$
2.45

 

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


-more-



CARMAX, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)


 
 
As of
 
 
November 30
 
February 28
 
November 30
(In thousands except share data)
2017
 
2017
 
2016
ASSETS
 
 
 
 
 
 
CURRENT ASSETS:
 
 
 
 
 
 
Cash and cash equivalents
$
26,287

 
$
38,416

 
$
23,713

 
Restricted cash from collections on auto loan receivables
388,945

 
380,353

 
357,040

 
Accounts receivable, net
95,841

 
152,388

 
92,003

 
Inventory
2,440,551

 
2,260,563

 
2,170,175

 
Other current assets
53,299

 
41,910

 
41,347

 
TOTAL CURRENT ASSETS 
3,004,923

 
2,873,630

 
2,684,278

 
Auto loan receivables, net
11,376,825

 
10,596,076

 
10,333,318

 
Property and equipment, net
2,634,442

 
2,518,393

 
2,449,343

 
Deferred income taxes
133,173

 
150,962

 
155,995

 
Other assets
154,051

 
140,295

 
137,133

 
TOTAL ASSETS 
$
17,303,414

 
$
16,279,356

 
$
15,760,067

 
 
 
 
 
 
 
LIABILITIES AND SHAREHOLDERS’ EQUITY
 
 
 
 
 
 
CURRENT LIABILITIES:
 
 
 
 
 
 
Accounts payable
$
519,984

 
$
494,989

 
$
476,757

 
Accrued expenses and other current liabilities
233,397

 
266,128

 
224,585

 
Accrued income taxes
—

 
1,404

 
2,071

 
Short-term debt
593

 
62

 
880

 
Current portion of finance and capital lease obligations
9,590

 
9,491

 
10,566

 
Current portion of non-recourse notes payable
348,114

 
333,713

 
312,858

 
TOTAL CURRENT LIABILITIES 
1,111,678

 
1,105,787

 
1,027,717

 
Long-term debt, excluding current portion
1,042,874

 
952,562

 
888,161

 
Finance and capital lease obligations, excluding current portion
490,968

 
486,645

 
466,965

 
Non-recourse notes payable, excluding current portion
11,117,495

 
10,387,231

 
10,129,401

 
Other liabilities
239,672

 
238,551

 
232,439

 
TOTAL LIABILITIES 
14,002,687

 
13,170,776

 
12,744,683

 
 
 
 
 
 
 
 
Commitments and contingent liabilities
 
 
 
 
 
 
SHAREHOLDERS’ EQUITY:
 
 
 
 
 
 
Common stock, $0.50 par value; 350,000,000 shares authorized; 181,489,439 and 186,548,602 shares issued and outstanding as of November 30, 2017 and February 28, 2017, respectively
90,745

 
93,274

 
93,676

 
Capital in excess of par value
1,233,062

 
1,188,578

 
1,160,484

 
Accumulated other comprehensive loss
(51,304
)
 
(56,555
)
 
(60,135
)
 
Retained earnings
2,028,224

 
1,883,283

 
1,821,359

 
TOTAL SHAREHOLDERS’ EQUITY 
3,300,727

 
3,108,580

 
3,015,384

 
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY 
$
17,303,414

 
$
16,279,356

 
$
15,760,067





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CARMAX, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
 
Nine Months Ended November 30
(In thousands)
2017
 
2016 (1)
OPERATING ACTIVITIES:
 
 
 
Net earnings
$
541,966

 
$
474,367

Adjustments to reconcile net earnings to net cash used in operating activities:
 
 
 
Depreciation and amortization
133,175

 
125,654

Share-based compensation expense
52,363

 
72,026

Provision for loan losses
98,982

 
104,249

Provision for cancellation reserves
50,850

 
51,768

Deferred income tax provision (benefit)
14,384

 
(584
)
Other
1,223

 
2,118

Net decrease (increase) in:
 
 
 
Accounts receivable, net
56,547

 
40,168

Inventory
(179,988
)
 
(238,146
)
Other current assets
(5,422
)
 
(5,802
)
Auto loan receivables, net
(879,731
)
 
(900,675
)
Other assets
(348
)
 
1,193

Net (decrease) increase in:
 
 
 
Accounts payable, accrued expenses and other
 
 
 
  current liabilities and accrued income taxes
(9,373
)
 
1,840

Other liabilities
(67,750
)
 
(64,222
)
NET CASH USED IN OPERATING ACTIVITIES
(193,122
)
 
(336,046
)
INVESTING ACTIVITIES:
 
 
 
Capital expenditures
(227,559
)
 
(315,543
)
Proceeds from disposal of property and equipment
96

 
728

Increase in restricted cash from collections on auto loan receivables
(8,592
)
 
(13,211
)
Increase in restricted cash in reserve accounts
(16,799
)
 
(11,663
)
Release of restricted cash from reserve accounts
13,411

 
8,083

Purchases of investments
(8,525
)
 
(6,924
)
Sales of investments
466

 
318

NET CASH USED IN INVESTING ACTIVITIES
(247,502
)
 
(338,212
)
FINANCING ACTIVITIES:
 
 
 
Increase in short-term debt, net
531

 
452

Proceeds from issuances of long-term debt
2,996,700

 
1,660,600

Payments on long-term debt
(2,906,700
)
 
(1,484,900
)
Cash paid for debt issuance costs
(11,524
)
 
(12,568
)
Payments on finance and capital lease obligations
(6,704
)
 
(8,407
)
Issuances of non-recourse notes payable
7,720,963

 
7,235,000

Payments on non-recourse notes payable
(6,976,360
)
 
(6,299,802
)
Repurchase and retirement of common stock
(454,960
)
 
(464,352
)
Equity issuances
66,549

 
34,554

NET CASH PROVIDED BY FINANCING ACTIVITIES
428,495

 
660,577

Decrease in cash and cash equivalents
(12,129
)
 
(13,681
)
Cash and cash equivalents at beginning of year
38,416

 
37,394

CASH AND CASH EQUIVALENTS AT END OF PERIOD
$
26,287

 
$
23,713


(1) In connection with our adoption of Financial Accounting Standards Board (“FASB”) ASU 2016-09 during the first quarter of fiscal 2018, cash flows related to excess tax benefits from share-based payment arrangements are now classified as operating activities rather than financing activities. Prior period amounts have been reclassified to conform to the current period’s presentation.

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