CarMax 2012 Annual Report Download - page 50

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receivables are presented net of an allowance for estimated loan losses. See Note 7 for additional information on
fair value measurements.
(G) Inventory
Inventory is primarily comprised of vehicles held for sale or currently undergoing reconditioning and is stated at the
lower of cost or market. Vehicle inventory cost is determined by specific identification. Parts and labor used to
recondition vehicles, as well as transportation and other incremental expenses associated with acquiring and
reconditioning vehicles, are included in inventory. Certain manufacturer incentives and rebates for new car
inventory, including holdbacks, are recognized as a reduction to new car inventory when we purchase the vehicles.
(H) Auto Loan Receivables, Net
Auto loan receivables include amounts due from customers primarily related to used retail vehicle sales financed
through CAF and are presented net of an allowance for estimated loan losses. The allowance for loan losses
represents an estimate of the amount of net losses inherent in our portfolio of managed receivables as of the
applicable reporting date and anticipated to occur during the following 12 months. The allowance is primarily based
on the credit quality of the underlying receivables, historical loss trends and forecasted forward loss curves. We also
take into account recent trends in delinquencies and losses, recovery rates and the economic environment. The
provision for loan losses is the periodic expense of maintaining an adequate allowance.
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. See Note 4 for
additional information on auto loan receivables.
Interest income and expenses related to auto loans are included in CAF income. Interest income on auto loan
receivables is recognized when earned based on contractual loan terms. All loans continue to accrue interest until
repayment or charge-off. Direct costs associated with loan originations are not considered material. See Note 3 for
a summary of CAF income.
(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. Property held under capital lease is stated at the lesser of the present value of the future
minimum lease payments at the inception of the lease or fair value. Amortization of capital lease assets is computed
on a straight-line basis over the shorter of the initial lease term or the estimated useful life of the asset and is
included in depreciation expense. 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
Build ing s
Cap ital leas e
Leasehold improvements
Furniture, fixtures and equipment
Life
25 years
20 years
8 – 15 years
3 – 15 years
We review long-lived assets for impairment when 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. We recognized impairments of $0.2 million in
fiscal 2012 and $2.1 million in fiscal 2010 related to assets within land held for sale. No impairment of long-lived
assets resulted from our impairment tests in fiscal 2011.
(J) Other Assets
Computer Software Costs. We capitalize external direct costs of materials and services used in, and payroll and
related costs for employees directly involved in the development of, internal-use software. We amortize amounts
capitalized on a straight-line basis over five years.