Company: KMX
Filing Date: 2025-04-11
Form Type: 10-K
Source: 0001170010-25-000024
Chunk: 82

Company: CARMAX INC
Filing Date: 2025-04-11
Form: 10-K
Item: Item 7A
Chunk 82
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Item 7A.  Quantitative and Qualitative Disclosures about Market Risk.

Interest Rate Exposure - Non-Recourse Notes Payable

As of February 28, 2025 and February 29, 2024, all loans in our portfolio of managed receivables were fixed-rate installment contracts.  Financing for these receivables was achieved primarily through non-recourse funding vehicles that, in turn, issued both fixed- and variable-rate notes.  Non-recourse funding vehicles include warehouse facilities and asset-backed term funding transactions.  

Borrowings under our warehouse facilities are variable-rate debt and are secured by auto loans receivable.  The receivables are funded through the warehouse facilities until we elect to fund them through an asset-backed term funding transaction, which issue notes payable that accrue interest predominantly at fixed rates.  

Interest rate risk related to variable-rate debt is primarily mitigated by entering into derivative instruments.  Our derivative instruments are used to manage differences in the amount of our known or expected cash receipts and our known or expected cash payments principally related to the funding of our auto loans receivable.  Disruptions in the credit markets or unexpected changes in prepayment activity could impact the effectiveness of our hedging strategies.  Generally, changes in interest rates associated with underlying swaps will not have a material impact on earnings; however, they could have a material impact on cash and cash flows.

Absent any additional actions by the company to further mitigate risk, a 100-basis point increase in market interest rates associated with non-recourse funding vehicles would have decreased our fiscal 2025 net earnings per share by approximately $0.18.

Credit risk is the exposure to nonperformance of another party to an agreement.  We mitigate credit risk by dealing with highly rated bank counterparties.  The market and credit risks associated with derivative instruments are similar to those relating to other types of financial instruments.  See Notes 5 and 6 for additional information on derivative instruments and hedging activities.

COMPOSITION OF NON-RECOURSE NOTES PAYABLE

 As of February 28 or 29(In millions)20252024Fixed-rate$10,933.1 $10,437.1 Variable-rate (1)6,186.7 6,429.9 Total$17,119.8 $16,867.0 

(1)Variable-rate debt includes borrowings under our warehouse facilities as well as the variable portion of borrowings under our asset-backed