CarMax 2013 Annual Report Download - page 33

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RESULTS OF OPERATIONS – CARMAX AUTO FINANCE
CAF provides financing to qualified customers purchasing vehicles at CarMax. Because the purchase of a vehicle is
generally reliant on the consumer’s ability to obtain on-the-spot financing, it is important to our business that
financing be available to creditworthy customers. While financing can also be obtained from third-party sources, we
believe that total reliance on third parties can create unacceptable volatility and business risk. Furthermore, we
believe the company’s processes and systems, transparency of pricing, vehicle quality and the integrity of the
information collected at the time the customer applies for credit provide a unique and ideal environment in which to
procure high quality auto loans, both for CAF and for the third-party finance providers.
We believe CAF enables us to capture additional sales, profits and cash flows while managing our reliance on third-
party finance sources. Management regularly analyzes CAF's operating results by assessing profitability, the
performance of the auto loan receivables including trends in credit losses and delinquencies, and CAF direct
expenses.
CAF income primarily reflects the interest and fee income generated by the auto loan receivables 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. We present this information on a direct
basis to avoid making arbitrary decisions regarding the indirect benefits or costs that could be attributed to CAF.
Examples of indirect costs not allocated to CAF include retail store expenses and corporate expenses such as human
resources, administrative services, marketing, information systems, accounting, legal, treasury and executive payroll.
COMPONENTS OF CAF INCOME
Years Ended February 28 or 29
(In millions) 2013 % (1) 2012 % (1) 2011 % (1)
Interest margin:
Interest and fee income $495.3 9.2
$ 448.7 9.6 $ 419.1 9.9
Interest expense (95.1) (1.8) (106.1) (2.3) (133.8) (3.2)
Total interest margin 400.2 7.4 342.6 7.3 285.3 6.7
Provision for loan losses (56.2) (1.0) (36.4) (0.8) (27.7) (0.7)
Total interest margin after
provision for loan losses 344.0 6.4 306.2 6.6 257.6 6.1
Other income ― ―1.5 ― 7.5 0.2
Direct expenses:
Payroll and fringe benefit expense (21.2) (0.4) (20.7) (0.4) (20.6) (0.5)
Other direct expenses (23.5) (0.4) (24.8) (0.5) (24.5) (0.6)
Total direct expenses (44.7) (0.8) (45.5) (1.0) (45.1) (1.1)
CarMax Auto Finance income $299.3 5.6
$ 262.2 5.6 $ 220.0 5.2
Total average managed receivables $ 5,385.5 $ 4,662.4 $ 4,229.9
(1) Percent of total average managed receivables.
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