Company: KMX
Filing Date: 2025-04-11
Form Type: 10-K
Source: 0001170010-25-000024
Chunk: 71

Company: CARMAX INC
Filing Date: 2025-04-11
Form: 10-K
Item: Item 7
Chunk 71
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 decrease primarily reflected lower outstanding debt balances in the current fiscal year resulting from the payoff of the $300 million term loan in May 2024.

Other Expense (Income)

Other expense was $11.6 million in fiscal 2025 compared with income of $10.3 million in fiscal 2024.  The change was primarily driven by expenses of $12.3 million related to an Edmunds lease impairment and $4.2 million related to equipment and leasing arrangements in our logistics operations.

Income Taxes

The effective income tax rate was 25.2% in fiscal 2025 compared with 25.3% in fiscal 2024.

RESULTS OF OPERATIONS – CARMAX AUTO FINANCE

CAF income primarily reflects interest and fee income generated by CAF’s portfolio of auto loans receivable less the interest expense associated with the debt issued to fund these receivables, a provision for estimated loan losses and direct CAF expenses.  Total interest margin reflects the spread between interest and fees charged to consumers and our funding costs.  Changes in the interest margin on new originations affect CAF income over time.  Increases in interest rates, which affect CAF’s funding costs, competitive pressures on rates charged to customers or reducing higher risk accounts in our origination strategy could result in compression in the interest margin on new originations.  

The provision for loan losses reflects changes in the allowance for loan losses.  Changes to the allowance are primarily driven by loss and delinquency experience, economic factors on our outlook for net losses expected to occur over the remaining contractual life of the loans receivable as well as changes in the mix of credit quality of originations. 

CAF’s managed portfolio is composed primarily of loans originated over the past several years.  Trends in receivable growth and interest margins primarily reflect the cumulative effect of changes in the business over a multi-year period.  Current period originations reflect current trends in both our retail sales and the CAF business, including the volume and credit mix of loans originated, current interest rates charged to consumers and loan terms.  Loans originated in a given fiscal period impact CAF income over time, as we recognize income over the life of the underlying auto loan.  

During the second quarter of fiscal 2025, CAF began testing its new full-spectrum credit scoring models and corresponding strategies across both the Tier 1 and Tier 2 spaces.  CAF began its testing of the new model in the Tier 3 space during the third quarter of