Company: KMX
Filing Date: 2025-04-11
Form Type: 10-K
Source: 0001170010-25-000024
Chunk: 140

Company: CARMAX INC
Filing Date: 2025-04-11
Form: 10-K
Item: Item 8
Chunk 140
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 obligations.  For more information on these financing obligations see Note 12.  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.

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Our lease agreements do not contain any material residual value guarantees or material restrictive 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.  In January 2025, we subleased the second floor of the Edmunds headquarters to a third party.  As the sublease rents were lower than the leased rent, we identified a triggering event for potential impairment of the right-of-use asset associated with the property.  The fair value of the right-of-use asset was then estimated using a future discounted cash flow model that included consideration of market rent, the remaining lease term, and an appropriate discount rate.  In fiscal 2025, we recorded an impairment charge related to the right-of-use asset of $12.3 million,