Market Overview

CarMax Reports Third Quarter Results

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RICHMOND, Va.--(BUSINESS WIRE)--

CarMax, Inc. (NYSE: KMX) today reported results for the third quarter ended November 30, 2016.

  • Net sales and operating revenues increased 4.4% to $3.70 billion.
  • Used unit sales in comparable stores increased 5.4%.
  • Total used unit sales rose 9.1%.
  • Total wholesale unit sales declined 2.2%.
  • CarMax Auto Finance (CAF) income declined 3.2% to $89.4 million.
  • Net earnings increased 6.6%, to $136.6 million, while net earnings per diluted share rose 14.3% to $0.72.

Third Quarter Business Performance Review

Sales. Total used vehicle unit sales grew 9.1% and comparable store used unit sales rose 5.4% versus the prior year's third quarter. The comparable store sales performance resulted from increases in both conversion and store traffic. Our sales performance included a reduction in the Tier 3 sales mix to 10.2% of used unit sales from 13.8% in the prior year's third quarter. Tier 3 sales represent those financed by our Tier 3 third-party finance providers to whom we pay a fee and those in CAF's Tier 3 loan origination activity. For the non-Tier 3 customer base, comparable store used unit sales rose 9.8%.

Wholesale vehicle unit sales declined 2.2% versus the third quarter of fiscal 2016, as contributions from the growth in our store base and an improved appraisal buy rate were more than offset by a reduction in appraisal traffic.

Other sales and revenues increased 1.0% compared with the third quarter of fiscal 2016. Improvements in extended protection plan (EPP) revenues and third-party finance fees were largely offset by a decrease in new vehicle sales that resulted from the disposal of two of our four new car franchises during the third quarter of fiscal 2016. EPP revenues increased 14.0%, largely reflecting the growth in our used unit sales and pricing changes. Net third-party finance fees improved by 32.9%, primarily due to the reduced proportion of our sales attributable to Tier 3 finance providers.

Gross Profit. Total gross profit increased 8.4% versus last year's third quarter, to $503.1 million. Used vehicle gross profit rose 8.8%, driven by the 9.1% increase in total used unit sales. Used vehicle gross profit per unit was consistent at $2,155 versus $2,160 in the prior year period. Wholesale vehicle gross profit declined 7.3% versus the prior year's quarter, reflecting the 2.2% decline in wholesale unit sales and a decrease in wholesale vehicle gross profit per unit to $900 from $949. Other gross profit increased 27.7%, primarily reflecting the improvement in EPP revenues and net third-party finance fees. The decrease in new vehicle sales did not significantly affect other gross profit.

SG&A. Compared with the third quarter of fiscal 2016, SG&A expenses increased 5.7% to $356.7 million. The growth primarily reflected the 12% increase in our store base since the beginning of last year's third quarter (representing the addition of 18 stores), as well as higher variable costs associated with our comparable store unit growth. Advertising expense declined 6.9% versus the prior year's quarter, despite the increase in our store base, as the prior year period included costs related to a new advertising campaign. SG&A per used unit was $2,275 in the current quarter, down $74 year-over-year.

CarMax Auto Finance.(1) Compared with last year's third quarter, CAF income declined 3.2% to $89.4 million. The decline was primarily due to an $11.0 million increase in the provision for loan losses, which resulted from both higher loss experience in recent quarters and the growth in managed receivables. Average managed receivables grew 11.2% to $10.30 billion. The total interest margin, which reflects the spread between interest and fees charged to consumers and our funding costs, declined to 5.8% of average managed receivables from 6.0% in last year's third quarter. The allowance for loan losses as a percentage of ending managed receivables was 1.10% as of November 30, 2016, compared with 0.97% as of November 30, 2015, and 1.08% as of August 31, 2016.

Interest Expense. Interest expense rose to $15.1 million in the third quarter of fiscal 2017 from $10.0 million in the prior year's quarter. The increase reflected planned higher average outstanding debt levels in fiscal 2017 as part of our capital structure strategy, as well as growth in our finance and capital lease obligations.

Store Openings. During the third quarter of fiscal 2017, we opened six stores, including two stores in new markets (Boise, Idaho, and Grand Rapids, Michigan) and four stores in existing markets (one store each in Daytona, Florida, and Philadelphia, Pennsylvania, and two stores in San Francisco, California).

Share Repurchase Activity. During the third quarter of fiscal 2017, we repurchased 3.8 million shares of common stock for $198.7 million pursuant to our share repurchase program. As of November 30, 2016, we had $1.69 billion remaining available for repurchase under the program.

 

(1)

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

 

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)   2016   2015   Change   2016   2015   Change
Used vehicle sales $ 3,090.6 $ 2,909.0 6.2 % $ 9,820.4 $ 9,351.8 5.0 %
Wholesale vehicle sales 488.4 513.8 (4.9 )% 1,616.5 1,682.2 (3.9 )%
Other sales and revenues:
Extended protection plan revenues 70.2 61.6 14.0 % 221.5 197.4 12.2 %
Third-party finance fees, net (9.1 ) (13.6 ) 32.9 % (29.3 ) (45.1 ) 35.1 %
Other (1)   61.4     73.3     (16.2 )%   196.0     257.5     (23.9 )%
Total other sales and revenues   122.5     121.3     1.0 %   388.2     409.8     (5.3 )%
Total net sales and operating revenues   $ 3,701.5     $ 3,544.1     4.4 %   $ 11,825.2     $ 11,443.9     3.3 %
 

(1)

Includes service department and new vehicle sales. In the fourth quarter of fiscal 2016, we reclassified new vehicle sales to other sales and revenues and no longer present new vehicle sales. Prior period amounts have been revised for this new presentation.

 
           

Unit Sales

 
Three Months Ended November 30 Nine Months Ended November 30
    2016   2015   Change   2016   2015   Change
Used vehicles 156,789 143,673 9.1 % 495,277 464,699 6.6 %
Wholesale vehicles 91,973 94,066 (2.2 )% 300,543 302,218 (0.6 )%
 
           

Average Selling Prices

 
Three Months Ended November 30 Nine Months Ended November 30
    2016   2015   Change   2016   2015   Change
Used vehicles $ 19,520 $ 20,094 (2.9 )% $ 19,640 $ 19,970 (1.7 )%
Wholesale vehicles $ 5,103 $ 5,243 (2.7 )% $ 5,165 $ 5,345 (3.4 )%
 
       

Vehicle Sales Changes

 
Three Months Ended Nine Months Ended
November 30 November 30
    2016   2015   2016   2015
Used vehicle units 9.1 % 3.2 % 6.6 % 7.3 %
Used vehicle revenues 6.2 % 4.1 % 5.0 % 6.6 %
 
Wholesale vehicle units (2.2 )% 3.4 % (0.6 )% 5.6 %
Wholesale vehicle revenues (4.9 )% 6.7 % (3.9 )% 8.0 %
 
       

Comparable Store Used Vehicle Sales Changes (1)

 
Three Months Ended Nine Months Ended
November 30 November 30
    2016   2015   2016   2015
Used vehicle units 5.4 % (0.8 )% 2.8 % 3.0 %
Used vehicle revenues 2.5 % 0.0 % 1.2 % 2.3 %
 

(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

.
 
               

Selected Operating Ratios

 
Three Months Ended November 30 Nine Months Ended November 30
(In millions)   2016   % (1)   2015   % (1)   2016   % (1)   2015   % (1)
Net sales and operating revenues $ 3,701.5 100.0 $ 3,544.1 100.0 $ 11,825.2 100.0 $ 11,443.9 100.0
Gross profit $ 503.1 13.6 $ 464.3 13.1 $ 1,621.1 13.7 $ 1,529.5 13.4
CarMax Auto Finance income $ 89.4 2.4 $ 92.3 2.6 $ 286.1 2.4 $ 299.7 2.6
Selling, general, and administrative expenses $ 356.7 9.6 $ 337.5 9.5 $ 1,103.1 9.3 $ 1,018.1 8.9
Interest expense $ 15.1 0.4 $ 10.0 0.3 $ 40.1 0.3 $ 24.6 0.2
Earnings before income taxes $ 219.7 5.9 $ 208.0 5.9 $ 764.1 6.5 $ 783.8 6.8
Net earnings $ 136.6 3.7 $ 128.2 3.6 $ 474.4 4.0 $ 482.4 4.2
 

(1)

 

Calculated as a percentage of net sales and operating revenues.

 
           

Gross Profit

 
Three Months Ended November 30 Nine Months Ended November 30
(In millions)   2016   2015   Change   2016   2015   Change
Used vehicle gross profit $ 337.8 $ 310.4 8.8 % $ 1,076.1 $ 1,011.2 6.4 %
Wholesale vehicle gross profit 82.8 89.3 (7.3 )% 277.1 295.4 (6.2 )%
Other gross profit   82.5   64.6   27.7 %   267.9   222.9   20.2 %
Total   $ 503.1   $ 464.3   8.4 %   $ 1,621.1   $ 1,529.5   6.0 %
 
               

Gross Profit per Unit

 
Three Months Ended November 30 Nine Months Ended November 30
    2016   2015   2016   2015
    $ per unit(1)   %(2)   $ per unit(1)   %(2)   $ per unit(1)   %(2)   $ per unit(1)   %(2)
Used vehicle gross profit $ 2,155 10.9 $ 2,160 10.7 $ 2,173 11.0 $ 2,176 10.8
Wholesale vehicle gross profit $ 900 16.9 $ 949 17.4 $ 922 17.1 $ 977 17.6
Other gross profit $ 527 67.4 $ 450 53.3 $ 541 69.0 $ 480 54.4
Total gross profit $ 3,209 13.6 $ 3,232 13.1 $ 3,273 13.7 $ 3,291 13.4
 

(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)   2016   2015   Change   2016   2015   Change

Compensation and benefits (1)

$ 182.2 $ 176.9 2.9 % $ 598.1 $ 559.0 7.0 %
Store occupancy costs 75.8 70.1 8.1 % 222.6 204.0 9.1 %
Advertising expense 34.8 37.5 (6.9 )% 104.1 106.0 (1.8 )%
Other overhead costs (2)   63.9   53.0   20.7 %   178.3   149.1   19.6 %
Total SG&A expenses   $ 356.7   $ 337.5   5.7 %   $ 1,103.1   $ 1,018.1   8.4 %
SG&A per used unit $ 2,275 $ 2,349 $ (74 ) $ 2,227 $ 2,191 $ 36
 

(1)

 

Excludes compensation and benefits related to reconditioning and vehicle repair service, which are included in cost of sales.

(2)

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

 
               

Components of CAF Income and Other CAF Information

 
Three Months Ended November 30 Nine Months Ended November 30
(In millions)   2016   % (1)   2015   % (1)   2016   % (1)   2015   % (1)
Interest margin:
Interest and fee income $ 192.7 7.5 $ 172.3 7.4 $ 567.0 7.5 $ 507.0 7.5
Interest expense   (44.1 )   (1.7 )   (33.0 )   (1.4 )   (125.3 )   (1.7 )   (91.9 )   (1.4 )
Total interest margin 148.6 5.8 139.3 6.0 441.7 5.9 415.1 6.2
Provision for loan losses   (41.9 )   (1.6 )   (30.9 )   (1.3 )   (104.2 )   (1.4 )   (70.2 )   (1.0 )

Total interest margin after provision for loan losses

106.7 4.1 108.4 4.7 337.5 4.5 344.9 5.1
 
Total other expense (0.3 ) (0.4 )
 
Total direct expenses   (17.3 )   (0.7 )   (15.8 )   (0.7 )   (51.4 )   (0.7 )   (44.8 )   (0.7 )
CarMax Auto Finance income   $ 89.4     3.5     $ 92.3     4.0     $ 286.1     3.8     $ 299.7     4.5  
 
Total average managed receivables $ 10,297.8 $ 9,261.4 $ 10,030.9 $ 8,973.3
Net loans originated $ 1,339.1 $ 1,224.0 $ 4,217.7 $ 3,912.1
Net CAF penetration rate 45.0 % 43.3 % 44.7 % 43.1 %
Weighted average contract rate 7.3 % 7.3 % 7.4 % 7.3 %
 
Ending allowance for loan losses $ 114.8 $ 90.9 $ 114.8 $ 90.9
 

Warehouse facility information:

Ending funded receivables $ 1,677.0 $ 1,391.0 $ 1,677.0 $ 1,391.0
Ending unused capacity $ 1,123.0 $ 1,109.0 $ 1,123.0 $ 1,109.0
 

(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)   2016   2015   Change   2016   2015   Change
Net earnings $ 136.6 $ 128.2 6.6 % $ 474.4 $ 482.4 (1.7 )%
Diluted weighted average shares outstanding 190.8 203.4 (6.2 )% 193.2 208.2 (7.2 )%
Net earnings per diluted share $ 0.72 $ 0.63 14.3 % $ 2.45 $ 2.32 5.6 %
 

Planned Store Openings

We currently plan to open the following stores within 12 months from November 30, 2016:

           
Location     Television Market    

Market
Status

    Planned Opening Date
Palmdale, California Los Angeles Existing Q4 Fiscal 2017
Murrieta, California Los Angeles Existing Q4 Fiscal 2017
Mobile, Alabama Mobile/Pensacola New Q4 Fiscal 2017
Albany, New York Albany New Q4 Fiscal 2017
Puyallup, Washington Seattle/Tacoma New Q1 Fiscal 2018
Lynnwood, Washington Seattle/Tacoma Existing Q1 Fiscal 2018
Pensacola, Florida Mobile/Pensacola Existing Q1 Fiscal 2018
Waterbury, Connecticut Hartford/New Haven Existing Q2 Fiscal 2018
San Jose, California San Francisco/Oakland/San Jose Existing Q2 Fiscal 2018
Salisbury, Maryland Salisbury New Q2 Fiscal 2018
Langhorne, Pennsylvania Philadelphia Existing Q3 Fiscal 2018
Tyler, Texas Tyler/Longview New Q3 Fiscal 2018
Las Vegas, Nevada Las Vegas Existing Q3 Fiscal 2018
Colma, California San Francisco/Oakland/San Jose Existing Q3 Fiscal 2018
Renton, Washington Seattle/Tacoma Existing Q3 Fiscal 2018
 

Normal construction, permitting or other scheduling delays could shift the opening dates of any of these stores into a later period. We plan to open 15 stores in fiscal 2017 and between 13 and 16 stores in fiscal 2018. We currently estimate capital expenditures will total approximately $450 million in fiscal 2017.

Conference Call Information

We will host a conference call for investors at 9:00 a.m. ET today, December 20, 2016. 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 24693785. 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 5, 2017. A telephone replay also will be available through December 27, 2016, 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 24693785.

Fourth Quarter and Fiscal Year 2017 Earnings Release Date

We currently plan to release results for the fourth quarter and fiscal year ending February 28, 2017, on Thursday, April 6, 2017, 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 2017.

About CarMax

CarMax is the nation's largest retailer of used cars and operates 169 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 22,000 associates nationwide and for 12 consecutive years has been named as one of the Fortune 100 Best Companies to Work For®. During the twelve months ended February 29, 2016, the company retailed 619,936 used vehicles and sold 394,437 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 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 the availability or cost of capital and working capital financing, including changes related to the asset-backed securitization market.
  • Changes in consumer credit availability provided by our third-party financing providers.
  • Changes in the availability of extended protection plan products from third-party providers.
  • 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 or associate information.
  • Significant changes in prices of new and used vehicles.
  • A reduction in the availability of or access to sources of inventory or a failure to expeditiously liquidate inventory.
  • Factors related to the regulatory and legislative environment in which we operate.
  • Factors related to geographic growth, including the inability to acquire or lease suitable real estate at favorable terms or to effectively manage our growth.
  • The failure of 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.
  • Factors related to seasonal fluctuations in our business.
  • The occurrence of severe weather events.
  • Factors related to the geographic concentration of our stores.

For more details on factors that could affect expectations, see our Annual Report on Form 10-K for the fiscal year ended February 29, 2016, 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.

               

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)   2016   % (1)   2015   % (1)   2016   % (1)   2015   % (1)
SALES AND OPERATING REVENUES:
Used vehicle sales $ 3,090,613 83.5 $ 2,908,963 82.1 $ 9,820,401 83.0 $ 9,351,841 81.7
Wholesale vehicle sales 488,385 13.2

513,796

14.5 1,616,528 13.7 1,682,195 14.7
Other sales and revenues   122,526   3.3   121,310   3.4   388,229     3.3   409,834   3.6
NET SALES AND OPERATING REVENUES 3,701,524 100.0 3,544,069 100.0 11,825,158 100.0 11,443,870 100.0
Cost of sales   3,198,389   86.4   3,079,738   86.9   10,204,024     86.3   9,914,375   86.6
GROSS PROFIT 503,135 13.6 464,331 13.1 1,621,134 13.7 1,529,495 13.4
CARMAX AUTO FINANCE INCOME 89,359 2.4 92,316 2.6 286,086 2.4 299,703 2.6
Selling, general and administrative expenses 356,735 9.6 337,512 9.5 1,103,091 9.3 1,018,075 8.9
Interest expense 15,071 0.4 10,021 0.3 40,063 0.3 24,574 0.2
Other expense (income)   1,027     1,157     (24 )     2,791  
Earnings before income taxes 219,661 5.9 207,957 5.9 764,090 6.5 783,758 6.8
Income tax provision   83,016   2.2   79,758   2.3   289,723     2.5   301,357   2.6
NET EARNINGS   $ 136,645   3.7   $ 128,199   3.6   $ 474,367     4.0   $ 482,401   4.2
WEIGHTED AVERAGE COMMON SHARES:
Basic 189,200 201,291 191,431 205,760
Diluted 190,818 203,383 193,239 208,242
NET EARNINGS PER SHARE:
Basic $ 0.72 $ 0.64 $ 2.48 $ 2.34
Diluted $ 0.72 $ 0.63 $ 2.45 $ 2.32
 

(1)

 

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

 
 

CARMAX, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(UNAUDITED)

         
 
As of
November 30 February 29 November 30
(In thousands except share data)   2016     2016 (1)     2015 (1) (2)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 23,713 $ 37,394 $ 33,346
Restricted cash from collections on auto loan receivables 357,040 343,829 316,186
Accounts receivable, net 92,003 132,171 88,530
Inventory 2,170,175 1,932,029 2,153,270
Other current assets   41,347       26,358       32,673  
TOTAL CURRENT ASSETS 2,684,278 2,471,781 2,624,005
Auto loan receivables, net 10,333,318 9,536,892 9,318,313
Property and equipment, net 2,449,343 2,161,698 2,105,807
Deferred income taxes 155,995 161,862 184,937
Other assets   137,133       127,678       126,966  
TOTAL ASSETS   $ 15,760,067       $ 14,459,911       $ 14,360,028  
 

LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES:

Accounts payable $ 476,757 $ 441,746 $ 420,856
Accrued expenses and other current liabilities 224,585 245,909 211,833
Accrued income taxes 2,071 2,029 328
Short-term debt 880 428 36
Current portion of finance and capital lease obligations 10,566 14,331 14,673
Current portion of non-recourse notes payable   312,858       300,750       275,828  
TOTAL CURRENT LIABILITIES 1,027,717 1,005,193 923,554
Long-term debt, excluding current portion 888,161 713,910 862,861
Finance and capital lease obligations, excluding current portion 466,965 400,323 391,856
Non-recourse notes payable, excluding current portion 10,129,401 9,206,425 9,040,092
Other liabilities   232,439       229,274       229,910  
TOTAL LIABILITIES   12,744,683       11,555,125       11,448,273  
 
Commitments and contingent liabilities
SHAREHOLDERS' EQUITY:
Common stock, $0.50 par value; 350,000,000 shares authorized; 187,351,060 and 194,712,234 shares issued and outstanding as of November 30, 2016 and February 29, 2016, respectively 93,676 97,356 98,781
Capital in excess of par value 1,160,484 1,130,822 1,136,607
Accumulated other comprehensive loss (60,135 ) (70,196 ) (66,664 )
Retained earnings   1,821,359       1,746,804       1,743,031  
TOTAL SHAREHOLDERS' EQUITY   3,015,384       2,904,786       2,911,755  
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY   $ 15,760,067       $ 14,459,911       $ 14,360,028  

(1)

 

In connection with our adoption of Financial Accounting Standards Board ("FASB") ASU 2015-3 during the first quarter of fiscal 2017, debt issuance costs, with the exception of those related to our revolving credit facility, have been reclassified from other assets to a reduction of the carrying amount of the related debt liability. Prior period amounts have been reclassified to conform to the current period's presentation.

(2)

In connection with our adoption of FASB ASU 2015-17 during the fourth quarter of fiscal 2016, current deferred tax assets have been reclassified to noncurrent assets. Prior period amounts have been reclassified to conform to the current period's presentation.

 
 

CARMAX, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

 
Nine Months Ended November 30
(In thousands)   2016   2015
OPERATING ACTIVITIES:  
Net earnings $ 474,367 $ 482,401
Adjustments to reconcile net earnings to net cash used in operating activities:
Depreciation and amortization 125,654 100,504
Share-based compensation expense 72,026 45,284
Provision for loan losses 104,249 70,165
Provision for cancellation reserves 51,768 61,048
Deferred income tax benefit (584 ) (8,322 )
Other 2,118 3,007
Net decrease (increase) in:
Accounts receivable, net 40,168 49,160
Inventory (238,146 ) (66,396 )
Other current assets (5,802 ) 12,397
Auto loan receivables, net (900,675 ) (952,974 )
Other assets 1,193 268
Net decrease in:

Accounts Payable, accrued expenses and other current liabilities and accrued income taxes

(5,240 ) (109,243 )
Other liabilities   (64,222 )   (68,878 )
NET CASH USED IN OPERATING ACTIVITIES   (343,126 )   (381,579 )
INVESTING ACTIVITIES:
Capital expenditures (315,543 ) (240,835 )
Proceeds from sales of assets 728 1,520
Increase in restricted cash from collections on auto loan receivables (13,211 ) (22,064 )
Increase in restricted cash in reserve accounts (11,663 ) (8,383 )
Release of restricted cash from reserve accounts 8,083 5,907
Purchases of money market securities, net (3,482 ) (6,106 )
Purchases of trading securities (3,442 ) (4,759 )
Sales of trading securities   318     101  
NET CASH USED IN INVESTING ACTIVITIES   (338,212 )   (274,619 )
FINANCING ACTIVITIES:
Increase (decrease) in short-term debt, net 452 (749 )
Proceeds from issuances of long-term debt 1,660,600 1,137,300
Payments on long-term debt (1,484,900 ) (583,300 )
Cash paid for debt issuance costs (12,568 ) (3,104 )
Payments on finance and capital lease obligations (8,407 ) (13,310 )
Issuances of non-recourse notes payable 7,235,000 7,430,805
Payments on non-recourse notes payable (6,299,802 ) (6,565,516 )
Repurchase and retirement of common stock (464,352 ) (816,181 )
Equity issuances 34,554 44,855
Excess tax benefits from share-based payment arrangements   7,080     31,138  
NET CASH PROVIDED BY FINANCING ACTIVITIES   667,657     661,938  
(Decrease) increase in cash and cash equivalents (13,681 ) 5,740
Cash and cash equivalents at beginning of year   37,394     27,606  
CASH AND CASH EQUIVALENTS AT END OF PERIOD   $ 23,713     $ 33,346  
 

Contacts:
Investors:
Katharine Kenny, Vice President, Investor Relations, (804) 935-4591
Celeste Gunter, Manager, Investor Relations, (804) 935-4597
or
Media:
pr@carmax.com, (855) 887-2915

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