Company: KMX
Filing Date: 2025-04-11
Form Type: 10-K
Source: 0001170010-25-000024
Chunk: 106

Company: CARMAX INC
Filing Date: 2025-04-11
Form: 10-K
Item: Item 8
Chunk 106
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  We recognize revenue, on a net basis, at the time of sale.  We also record a reserve, or refund liability, for estimated contract cancellations.  The reserve for cancellations is evaluated for each product and is based on forecasted forward cancellation curves utilizing historical experience, recent trends and credit mix of the customer base.  Our risk related to contract cancellations is limited to the revenue that we receive.  Cancellations fluctuate depending on the volume of EPP sales, customer financing default or prepayment rates, and shifts in customer behavior, including those related to changes in the coverage or term of the product.  The current portion of estimated cancellation reserves is recognized as a component of accrued expenses and other current liabilities with the remaining amount recognized in other liabilities.  See Note 9 for additional information on cancellation reserves.

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We are contractually entitled to receive profit-sharing revenues based on the performance of the ESPs administered by third parties.  These revenues are a form of variable consideration included in EPP revenues to the extent that it is probable that it will not result in a significant revenue reversal.  An estimate of the amount to which we expect to be entitled is determined upon satisfying the performance obligation of selling the ESP.  This estimate is subject to various constraints; primarily, factors that are outside of the company’s influence or control.  We have determined that these constraints generally preclude any profit-sharing revenues from being recognized before they are paid.  As of February 28, 2025 and February 29, 2024, no current or long-term contract asset was recognized related to cumulative profit-sharing payments to which we expect to be entitled.  The estimate of the amount to which we expect to be entitled is reassessed each reporting period and any changes are reflected in other sales and revenues on our consolidated statements of earnings and other assets on our consolidated balance sheets.Third-Party Finance (Fees)/Income.  Customers applying for financing who are not approved or are conditionally approved by CAF are generally evaluated by other third-party finance providers.  These providers generally either pay us or are paid a fixed, pre-negotiated fee per contract.  We recognize these fees at the time of sale.Advertising and Subscription Revenues.  Advertising and subscription revenues consist of revenues earned by our Edmunds business.  Advertising revenues are derived from advertising contracts with automotive manufacturers based on fixed fees per impression and fees for certain activities completed by customers on the manufacturers’ websites.  These fees are recognized