10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C.  20549

FORM 10-Q

[ X ]    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF

THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period EndedNovember 30, 2016

OR

[    ]    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF

THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number:  1-31420

CARMAX, INC.

(Exact name of registrant as specified in its charter)

VIRGINIA	54-1821055
(State or other jurisdiction of	(I.R.S. Employer
incorporation or organization)	Identification No.)

12800 TUCKAHOE CREEK PARKWAY, RICHMOND, VIRGINIA	23238
(Address of principal executive offices)	(Zip Code)

(804) 747-0422

(Registrant's telephone number, including area code)

N/A

(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes x No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).   

Yes x No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company.  See definition of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.  (Check one):

Large accelerated filer x	Accelerated filer ¨
Non-accelerated filer ¨	Smaller reporting company ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).

Yes ¨ No x

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

Class	Outstanding as of December 30, 2016
Common Stock, par value $0.50	187,116,434

Page 1

CARMAX, INC. AND SUBSIDIARIES

TABLE OF CONTENTS

			Page No.
PART I.	FINANCIAL INFORMATION
	Item 1.	Financial Statements:
		Consolidated Statements of Earnings (Unaudited) –
		Three and Nine Months Ended November 30, 2016 and 2015	3
		Consolidated Statements of Comprehensive Income (Unaudited) –
		Three and Nine Months Ended November 30, 2016 and 2015	4
		Consolidated Balance Sheets (Unaudited) –
		November 30, 2016 and February 29, 2016	5
		Consolidated Statements of Cash Flows (Unaudited) –
		Nine Months Ended November 30, 2016 and 2015	6
		Notes to Consolidated Financial Statements (Unaudited)	7
	Item 2.	Management's Discussion and Analysis of Financial Condition and
		Results of Operations	22
	Item 3.	Quantitative and Qualitative Disclosures About Market Risk	36
	Item 4.	Controls and Procedures	36
PART II.	OTHER INFORMATION
	Item 1.	Legal Proceedings	37
	Item 1A.	Risk Factors	37
	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	37
	Item 5.	Other Information	38
	Item 6.	Exhibits	39
SIGNATURES			40
EXHIBIT INDEX			41

Page 2

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

CARMAX, INC. AND SUBSIDIARIES

Consolidated Statements of Earnings

(Unaudited)

	Three Months Ended November 30						Nine Months Ended November 30
(In thousands except per share data)	2016		%(1)	2015		%(1)	2016			%(1)	2015		%(1)
SALES AND OPERATING REVENUES:
Used vehicle sales	$	3,090,613	83.5	$	2,908,963	82.1	$	9,820,401		83.0	$	9,351,841	81.7
Wholesale vehicle sales	488,385		13.2	513,796		14.5	1,616,528			13.7	1,682,195		14.7
Other sales and revenues	122,526		3.3	121,310		3.4	388,229			3.3	409,834		3.6
NET SALES AND OPERATING REVENUES	3,701,524		100.0	3,544,069		100.0	11,825,158			100.0	11,443,870		100.0
Cost of sales	3,198,389		86.4	3,079,738		86.9	10,204,024			86.3	9,914,375		86.6
GROSS PROFIT	503,135		13.6	464,331		13.1	1,621,134			13.7	1,529,495		13.4
CARMAX AUTO FINANCE INCOME	89,359		2.4	92,316		2.6	286,086			2.4	299,703		2.6
Selling, general and administrative expenses	356,735		9.6	337,512		9.5	1,103,091			9.3	1,018,075		8.9
Interest expense	15,071		0.4	10,021		0.3	40,063			0.3	24,574		0.2
Other expense (income)	1,027		—	1,157		—	(24		)	—	2,791		—
Earnings before income taxes	219,661		5.9	207,957		5.9	764,090			6.5	783,758		6.8
Income tax provision	83,016		2.2	79,758		2.3	289,723			2.5	301,357		2.6
NET EARNINGS	$	136,645	3.7	$	128,199	3.6	$	474,367		4.0	$	482,401	4.2
WEIGHTED AVERAGE COMMON SHARES:
Basic	189,200			201,291			191,431				205,760
Diluted	190,818			203,383			193,239				208,242
NET EARNINGS PER SHARE:
Basic	$	0.72		$	0.64		$	2.48			$	2.34
Diluted	$	0.72		$	0.63		$	2.45			$	2.32

⁽¹⁾    Percents are calculated as a percentage of net sales and operating revenues and may not total due to rounding.

See accompanying notes to consolidated financial statements.

Page 3

CARMAX, INC. AND SUBSIDIARIES

Consolidated Statements of Comprehensive Income

(Unaudited)

	Three Months Ended November 30					Nine Months Ended November 30
(In thousands)	2016		2015			2016		2015
NET EARNINGS	$	136,645	$	128,199		$	474,367	$	482,401
Other comprehensive income (loss), net of taxes:
Net change in retirement benefit plan unrecognized actuarial losses	247		322			744		967
Net change in cash flow hedge unrecognized losses	6,200		(837		)	9,317		(2,240		)
Other comprehensive income (loss), net of taxes	6,447		(515		)	10,061		(1,273		)
TOTAL COMPREHENSIVE INCOME	$	143,092	$	127,684		$	484,428	$	481,128

See accompanying notes to consolidated financial statements.

Page 4

CARMAX, INC. AND SUBSIDIARIES

Consolidated Balance Sheets

(Unaudited)

	As of November 30			As of February 29
(In thousands except share data)	2016			2016
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	23,713		$	37,394
Restricted cash from collections on auto loan receivables	357,040			343,829
Accounts receivable, net	92,003			132,171
Inventory	2,170,175			1,932,029
Other current assets	41,347			26,358
TOTAL CURRENT ASSETS	2,684,278			2,471,781
Auto loan receivables, net	10,333,318			9,536,892
Property and equipment, net	2,449,343			2,161,698
Deferred income taxes	155,995			161,862
Other assets	137,133			127,678
TOTAL ASSETS	$	15,760,067		$	14,459,911
LIABILITIES AND SHAREHOLDERS’ EQUITY
CURRENT LIABILITIES:
Accounts payable	$	476,757		$	441,746
Accrued expenses and other current liabilities	224,585			245,909
Accrued income taxes	2,071			2,029
Short-term debt	880			428
Current portion of finance and capital lease obligations	10,566			14,331
Current portion of non-recourse notes payable	312,858			300,750
TOTAL CURRENT LIABILITIES	1,027,717			1,005,193
Long-term debt, excluding current portion	888,161			713,910
Finance and capital lease obligations, excluding current portion	466,965			400,323
Non-recourse notes payable, excluding current portion	10,129,401			9,206,425
Other liabilities	232,439			229,274
TOTAL LIABILITIES	12,744,683			11,555,125
Commitments and contingent liabilities
SHAREHOLDERS’ EQUITY:
Common stock, $0.50 par value; 350,000,000 shares authorized; 187,351,060 and 194,712,234 shares issued and outstanding as of November 30, 2016 and February 29, 2016, respectively	93,676			97,356
Capital in excess of par value	1,160,484			1,130,822
Accumulated other comprehensive loss	(60,135		)	(70,196		)
Retained earnings	1,821,359			1,746,804
TOTAL SHAREHOLDERS’ EQUITY	3,015,384			2,904,786
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY	$	15,760,067		$	14,459,911

See accompanying notes to consolidated financial statements.

Page 5

CARMAX, INC. AND SUBSIDIARIES

Consolidated Statements of Cash Flows

(Unaudited)

	Nine Months Ended November 30
(In thousands)	2016			2015
OPERATING ACTIVITIES:
Net earnings	$	474,367		$	482,401
Adjustments to reconcile net earnings to net cash used in operating activities:
Depreciation and amortization	125,654			100,504
Share-based compensation expense	72,026			45,284
Provision for loan losses	104,249			70,165
Provision for cancellation reserves	51,768			61,048
Deferred income tax benefit	(584		)	(8,322		)
Other	2,118			3,007
Net decrease (increase) in:
Accounts receivable, net	40,168			49,160
Inventory	(238,146		)	(66,396		)
Other current assets	(5,802		)	12,397
Auto loan receivables, net	(900,675		)	(952,974		)
Other assets	1,193			268
Net decrease in:
Accounts Payable, accrued expenses and other
current liabilities and accrued income taxes	(5,240		)	(109,243		)
Other liabilities	(64,222		)	(68,878		)
NET CASH USED IN OPERATING ACTIVITIES	(343,126		)	(381,579		)
INVESTING ACTIVITIES:
Capital expenditures	(315,543		)	(240,835		)
Proceeds from sales of assets	728			1,520
Increase in restricted cash from collections on auto loan receivables	(13,211		)	(22,064		)
Increase in restricted cash in reserve accounts	(11,663		)	(8,383		)
Release of restricted cash from reserve accounts	8,083			5,907
Purchases of money market securities, net	(3,482		)	(6,106		)
Purchases of trading securities	(3,442		)	(4,759		)
Sales of trading securities	318			101
NET CASH USED IN INVESTING ACTIVITIES	(338,212		)	(274,619		)
FINANCING ACTIVITIES:
Increase (decrease) in short-term debt, net	452			(749		)
Proceeds from issuances of long-term debt	1,660,600			1,137,300
Payments on long-term debt	(1,484,900		)	(583,300		)
Cash paid for debt issuance costs	(12,568		)	(3,104		)
Payments on finance and capital lease obligations	(8,407		)	(13,310		)
Issuances of non-recourse notes payable	7,235,000			7,430,805
Payments on non-recourse notes payable	(6,299,802		)	(6,565,516		)
Repurchase and retirement of common stock	(464,352		)	(816,181		)
Equity issuances	34,554			44,855
Excess tax benefits from share-based payment arrangements	7,080			31,138
NET CASH PROVIDED BY FINANCING ACTIVITIES	667,657			661,938
(Decrease) increase in cash and cash equivalents	(13,681		)	5,740
Cash and cash equivalents at beginning of year	37,394			27,606
CASH AND CASH EQUIVALENTS AT END OF PERIOD	$	23,713		$	33,346

See accompanying notes to consolidated financial statements.

Page 6

CARMAX, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)

1.    Background

CarMax, Inc. (“we,” “our,” “us,” “CarMax” and “the company”), including its wholly owned subsidiaries, is the largest retailer of used vehicles in the United States. We operate in two reportable segments:  CarMax Sales Operations and CarMax Auto Finance (“CAF”).  Our CarMax Sales Operations segment consists of all aspects of our auto merchandising and service operations, excluding financing provided by CAF.  Our CAF segment consists solely of our own finance operation that provides financing to customers buying retail vehicles from CarMax.

We seek to deliver an unrivaled customer experience by offering a broad selection of high quality used vehicles and related products and services at low, no-haggle prices using a customer-friendly sales process in an attractive, modern sales facility, as well as through carmax.com and our mobile apps.  We provide customers with a full range of related products and services, including the appraisal and purchase of vehicles directly from consumers; the financing of vehicle purchases through CAF and third-party financing providers; the sale of extended protection plan (“EPP”) products, which include extended service plans (“ESPs”) and guaranteed asset protection (“GAP”); and vehicle repair service.  Vehicles purchased through the appraisal process that do not meet our retail standards are sold to licensed dealers through on-site wholesale auctions.

2.    Accounting Policies

Basis of Presentation and Use of Estimates.  The accompanying interim unaudited consolidated financial statements include the accounts of CarMax and our wholly owned subsidiaries.  All significant intercompany balances and transactions have been eliminated in consolidation.  These consolidated financial statements have been prepared in conformity with U.S. generally accepted accounting principles (“GAAP”) for interim financial information.  Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements.  In the opinion of management, such interim consolidated financial statements reflect all normal recurring adjustments considered necessary to present fairly the financial position and the results of operations and cash flows for the interim periods presented.  The results of operations for the interim periods are not necessarily indicative of the results to be expected for the full fiscal year.  These consolidated financial statements should be read in conjunction with the audited consolidated financial statements and footnotes included in our Annual Report on Form 10-K for the fiscal year ended February 29, 2016.

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses and the disclosure of contingent assets and liabilities.  Actual results could differ from those estimates.  Certain prior year amounts have been reclassified to conform to the current year’s presentation.  Amounts and percentages may not total due to rounding.

In connection with our adoption of ASU 2015-03 in fiscal 2017, we have presented all debt issuance costs, with the exception of those related to our revolving credit facility, as a reduction of the carrying amount of the related debt liability. Prior period amounts have been reclassified to conform to the current year's presentation.

In the fourth quarter of fiscal 2016, we reclassified New Vehicle Sales to Other Sales and Revenues and no longer separately present New Vehicle Sales. All periods presented have been revised for this new presentation.

Cash and Cash Equivalents.  Cash equivalents of approximately $272,000 as of November 30, 2016, and $109,000 as of February 29, 2016, consisted of highly liquid investments with original maturities of three months or less.

Restricted Cash from Collections on Auto Loan Receivables.  Cash equivalents totaling $357.0 million as of November 30, 2016, and $343.8 million as of February 29, 2016, consisted of collections of principal, interest and fee payments on securitized auto loan receivables that are restricted for payment to the securitization investors pursuant to the applicable securitization agreements.

Securitizations.  We maintain a revolving securitization program composed of three warehouse facilities (“warehouse facilities”) that we use to fund auto loan receivables originated by CAF. We typically elect to fund these receivables through a term securitization or alternative funding arrangement at a later date.  We sell the auto loan receivables to one of three wholly owned, bankruptcy-remote, special purpose entities that transfer an undivided percentage ownership interest in the receivables, but not the receivables themselves, to entities formed by third-party investors.  These entities issue asset-backed commercial paper or utilize other funding sources supported by the transferred receivables, and the proceeds are used to finance the securitized receivables.

Page 7

We typically use term securitizations to provide long-term funding for most of the auto loan receivables initially securitized through the warehouse facilities.  In these transactions, a pool of auto loan receivables is sold to a bankruptcy-remote, special purpose entity that, in turn, transfers the receivables to a special purpose securitization trust.  The securitization trust issues asset-backed securities, secured or otherwise supported by the transferred receivables, and the proceeds from the sale of the asset-backed securities are used to finance the securitized receivables.

We are required to evaluate term securitization trusts for consolidation.  In our capacity as servicer, we have the power to direct the activities of the trusts that most significantly impact the economic performance of the trusts.  In addition, we have the obligation to absorb losses (subject to limitations) and the rights to receive any returns of the trusts, which could be significant.  Accordingly, we are the primary beneficiary of the trusts and are required to consolidate them.

We recognize transfers of auto loan receivables into the warehouse facilities and term securitizations (“securitization vehicles”) as secured borrowings, which result in recording the auto loan receivables and the related non-recourse notes payable on our consolidated balance sheets.

The securitized receivables can only be used as collateral to settle obligations of the securitization vehicles.  The securitization vehicles and investors have no recourse to our assets beyond the securitized receivables, the amounts on deposit in reserve accounts and the restricted cash from collections on auto loan receivables.  We have not provided financial or other support to the securitization vehicles that was not previously contractually required, and there are no additional arrangements, guarantees or other commitments that could require us to provide financial support to the securitization vehicles.

See Notes 4 and 10 for additional information on auto loan receivables and non-recourse notes payable.

Auto Loan Receivables, Net.  Auto loan receivables include amounts due from customers related to retail vehicle sales financed through CAF.  The receivables are presented net of an allowance for estimated loan losses.  The allowance for loan losses represents an estimate of the amount of net losses inherent in our portfolio of managed receivables as of the applicable reporting date and anticipated to occur during the following 12 months.  The allowance is primarily based on the credit quality of the underlying receivables, historical loss trends and forecasted forward loss curves.  We also take into account recent trends in delinquencies and defaults, recovery rates and the economic environment.  The provision for loan losses is the periodic expense of maintaining an adequate allowance.

An account is considered delinquent when the related customer fails to make a substantial portion of a scheduled payment on or before the due date.  In general, accounts are charged-off on the last business day of the month during which the earliest of the following occurs:  the receivable is 120 days or more delinquent as of the last business day of the month, the related vehicle is repossessed and liquidated, or the receivable is otherwise deemed uncollectible.  For purposes of determining impairment, auto loans are evaluated collectively, as they represent a large group of smaller-balance homogeneous loans, and therefore, are not individually evaluated for impairment.  See Note 4 for additional information on auto loan receivables.

Interest income and expenses related to auto loans are included in CAF income.  Interest income on auto loan receivables is recognized when earned based on contractual loan terms.  All loans continue to accrue interest until repayment or charge-off.  Direct costs associated with loan originations are not considered material, and thus, are expensed as incurred.  See Note 3 for additional information on CAF income.

Property and Equipment.  Property and equipment is stated at cost less accumulated depreciation and amortization of $1.01 billion and $925.3 million as of November 30, 2016 and February 29, 2016, respectively.

Other Assets.  Other assets includes amounts classified as restricted cash on deposit in reserve accounts and restricted investments.  The restricted cash on deposit in reserve accounts is for the benefit of holders of non-recourse notes payable, and these funds are not expected to be available to the company or its creditors.  In the event that the cash generated by the securitized receivables in a given period was insufficient to pay the interest, principal and other required payments, the balances on deposit in the reserve accounts would be used to pay those amounts.  Restricted cash on deposit in reserve accounts is invested in money market securities and was $50.2 million as of November 30, 2016, and $46.6 million as of February 29, 2016.

Restricted investments includes money market securities primarily held to satisfy certain insurance program requirements, as well as mutual funds held in a rabbi trust established to fund informally our executive deferred compensation plan.  Restricted investments totaled $70.7 million as of November 30, 2016, and $63.0 million as of February 29, 2016.

Page 8

Revenue Recognition.    We recognize revenue when the earnings process is complete, generally either at the time of sale to a customer or upon delivery to a customer.  As part of our customer service strategy, we guarantee the retail vehicles we sell with a 5-day, money-back guarantee.  We record a reserve for estimated returns based on historical experience and trends.

We also sell ESP and GAP products on behalf of unrelated third parties, who are the primary obligors, to customers who purchase a vehicle.  The ESPs we currently offer on all used vehicles provide coverage up to 60 months (subject to mileage limitations), while GAP covers the customer for the term of their finance contract. We recognize revenue at the time of sale, net of a reserve for estimated contract cancellations.  Periodically, we may receive additional revenue based upon the level of underwriting profits of the third parties who administer the products.  These additional amounts are recognized as revenue when received.  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 7 for additional information on cancellation reserves.

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.

We collect sales taxes and other taxes from customers on behalf of governmental authorities at the time of sale.  These taxes are accounted for on a net basis and are not included in net sales and operating revenues or cost of sales.

Derivative Instruments and Hedging Activities.  We enter into derivative instruments to manage certain risks arising from both our business operations and economic conditions that result in the future known receipt or payment of uncertain cash amounts, the values of which are impacted by interest rates.  We recognize the derivatives at fair value as either current assets or current liabilities on the consolidated balance sheets, and where applicable, such contracts covered by master netting agreements are reported net.  Gross positive fair values are netted with gross negative fair values by counterparty.  The accounting for changes in the fair value of derivatives depends on the intended use of the derivative, whether we have elected to designate a derivative in a hedging relationship and apply hedge accounting and whether the hedging relationship has satisfied the criteria necessary to apply hedge accounting.  We may enter into derivative contracts that are intended to economically hedge certain risks, even though hedge accounting may not apply or we do not elect to apply hedge accounting.  See Note 5 for additional information on derivative instruments and hedging activities.

Recent Accounting Pronouncements.

Effective in Future Periods. In October 2016, the Financial Accounting Standards Board (“FASB”) issued an accounting pronouncement (FASB ASU 2016-16) related to the income tax effects of intra-entity transfers of assets other than inventory. The pronouncement requires that entities recognize the income tax effects of intra-entity transfers of assets other than inventory when the transfer occurs. Current GAAP prohibits the recognition of those tax effects until the asset has been sold to an outside party. The pronouncement is effective for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2017, with early adoption permitted. We plan to adopt this pronouncement for our fiscal year beginning March 1, 2018, and are currently evaluating the effect on our consolidated financial statements.

In November 2016, the FASB issued an accounting pronouncement (FASB ASU 2016-18) related to the presentation of restricted cash in the statement of cash flows. The pronouncement requires that a statement of cash flows explain the change during the period in cash, cash equivalents, and amounts generally described as restricted cash. Amounts generally described as restricted cash should be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. The pronouncement is effective for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2017, with early adoption permitted. We plan to adopt this pronouncement for our fiscal year beginning March 1, 2018, and the pronouncement will result in changes to our consolidated statements of cash flows such that restricted cash amounts will be included in the beginning-of-period and end-of-period cash and cash equivalents totals.

Page 9

3.    CarMax Auto Finance

CAF provides financing to qualified retail customers purchasing vehicles from CarMax.  CAF provides us the opportunity to capture additional profits, cash flows and sales 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.  This information is used to assess CAF's performance and make operating decisions, including resource allocation.

We typically use securitizations to fund loans originated by CAF, as discussed in Note 2.  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.  Although CAF benefits from certain indirect overhead expenditures, we have not allocated indirect costs to CAF to avoid making subjective allocation decisions.  Examples of indirect costs not allocated to CAF include retail store expenses and corporate expenses.  In addition, except for auto loan receivables, which are disclosed in Note 4, CAF assets are not separately reported nor do we allocate assets to CAF because such allocation would not be useful to management in making operating decisions.

Components of CAF Income

	Three Months Ended November 30										Nine Months Ended November 30
(In millions)	2016			% (1)		2015			% (1)		2016			% (1)		2015			% (1)
Interest margin:
Interest and fee income	$	192.7		7.5		$	172.3		7.4		$	567.0		7.5		$	507.0		7.5
Interest expense	(44.1		)	(1.7	)	(33.0		)	(1.4	)	(125.3		)	(1.7	)	(91.9		)	(1.4	)
Total interest margin	148.6			5.8		139.3			6.0		441.7			5.9		415.1			6.2
Provision for loan losses	(41.9		)	(1.6	)	(30.9		)	(1.3	)	(104.2		)	(1.4	)	(70.2		)	(1.0	)
Total interest margin after provision for loan losses	106.7			4.1		108.4			4.7		337.5			4.5		344.9			5.1
Total other expense	—			—		(0.3		)	—		—			—		(0.4		)	—
Direct expenses:
Payroll and fringe benefit expense	(7.5		)	(0.3	)	(7.1		)	(0.3	)	(22.9		)	(0.3	)	(21.0		)	(0.3	)
Other direct expenses	(9.8		)	(0.4	)	(8.7		)	(0.4	)	(28.5		)	(0.4	)	(23.8		)	(0.4	)
Total direct expenses	(17.3		)	(0.7	)	(15.8		)	(0.7	)	(51.4		)	(0.7	)	(44.8		)	(0.7	)
CarMax Auto Finance income	$	89.4		3.5		$	92.3		4.0		$	286.1		3.8		$	299.7		4.5
Total average managed receivables	$	10,297.8				$	9,261.4				$	10,030.9				$	8,973.3

⁽¹⁾   Annualized percentage of total average managed receivables.     

Page 10

4.    Auto Loan Receivables

Auto loan receivables include amounts due from customers related to retail vehicle sales financed through CAF and are presented net of an allowance for estimated loan losses.  We generally use warehouse facilities to fund auto loan receivables originated by CAF until we elect to fund them through a term securitization or alternative funding arrangement.  The majority of the auto loan receivables serve as collateral for the related non-recourse notes payable of $10.46 billion as of November 30, 2016 and $9.53 billion as of February 29, 2016.  

Auto Loan Receivables, Net

	As of November 30			As of February 29
(In millions)	2016			2016
Term securitizations	$	8,473.1		$	7,828.0
Warehouse facilities	1,677.0			1,399.0
Other receivables(1)	257.6			366.6
Total ending managed receivables	10,407.7			9,593.6
Accrued interest and fees	41.8			35.0
Other	(1.4		)	3.2
Less allowance for loan losses	(114.8		)	(94.9		)
Auto loan receivables, net	$	10,333.3		$	9,536.9

⁽¹⁾   Other receivables includes receivables not funded through the warehouse facilities or term securitizations, including receivables restricted as excess collateral for those funding arrangements.

During fiscal 2017, we entered into a new $100 million warehouse facility to fund managed receivables associated with a portion of CAF's Tier 3 loan origination activity. These receivables have historically been included in other receivables, within managed receivables. Amounts securitized within this facility are now included within warehouse facilities. See Notes 2 and 10 for additional information on securitizations and non-recourse notes payable.

Credit Quality.  When customers apply for financing, CAF’s proprietary scoring models rely on the customers’ credit history and certain application information to evaluate and rank their risk.  We obtain credit histories and other credit data that includes information such as number, age, type of and payment history for prior or existing credit accounts.  The application information that is used includes income, collateral value and down payment.  The scoring models yield credit grades that represent the relative likelihood of repayment.  Customers assigned a grade of “A” are determined to have the highest probability of repayment, and customers assigned a lower grade are determined to have a lower probability of repayment.  For loans that are approved, the credit grade influences the terms of the agreement, such as the required loan-to-value ratio and interest rate.

CAF uses a combination of the initial credit grades and historical performance to monitor the credit quality of the auto loan receivables on an ongoing basis.  We validate the accuracy of the scoring models periodically.  Loan performance is reviewed on a recurring basis to identify whether the assigned grades adequately reflect the customers’ likelihood of repayment.

Ending Managed Receivables by Major Credit Grade

	As of November 30			As of February 29
(In millions)	2016(1)		% (2)	2016(1)		% (2)
A	$	5,068.7	48.7	$	4,666.6	48.6
B	3,643.9		35.0	3,400.1		35.4
C and other	1,695.1		16.3	1,526.9		16.0
Total ending managed receivables	$	10,407.7	100.0	$	9,593.6	100.0

⁽¹⁾   Classified based on credit grade assigned when customers were initially approved for financing.

⁽²⁾   Percent of total ending managed receivables.

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Allowance for Loan Losses

	Three Months Ended November 30								Nine Months Ended November 30
(In millions)	2016			%(1)	2015			%(1)	2016			%(1)	2015			%(1)
Balance as of beginning of period	$	109.7		1.08	$	87.8		0.96	$	94.9		0.99	$	81.7		0.97
Charge-offs	(62.9		)		(51.9		)		(164.6		)		(128.7		)
Recoveries	26.1				24.1				80.3				67.7
Provision for loan losses	41.9				30.9				104.2				70.2
Balance as of end of period	$	114.8		1.10	$	90.9		0.97	$	114.8		1.10	$	90.9		0.97

⁽¹⁾   Percentof total ending managed receivables.

The allowance for loan losses represents an estimate of the amount of net losses inherent in our portfolio of managed receivables as of the applicable reporting date and anticipated to occur during the following 12 months.  The allowance is primarily based on the credit quality of the underlying receivables, historical loss trends and forecasted forward loss curves.  We also take into account recent trends in delinquencies and defaults, recovery rates and the economic environment.  The provision for loan losses is the periodic expense of maintaining an adequate allowance.

Past Due Receivables

	As of November 30			As of February 29
(In millions)	2016		%(1)	2016		%(1)
Total ending managed receivables	$	10,407.7	100.0	$	9,593.6	100.0
Delinquent loans:
31-60 days past due	$	228.8	2.2	$	171.0	1.8
61-90 days past due	101.9		1.0	69.1		0.7
Greater than 90 days past due	29.0		0.3	22.7		0.2
Total past due	$	359.7	3.5	$	262.8	2.7

⁽¹⁾   Percent of total ending managed receivables.

5.    Derivative Instruments and Hedging Activities

We use derivatives to manage certain risks arising from both our business operations and economic conditions, particularly with regard to issuances of debt.  Primary exposures include LIBOR and other rates used as benchmarks in our securitizations and other debt financing.  We enter into derivative instruments to manage exposures related to the future known receipt or payment of uncertain cash amounts, the values of which are impacted by interest rates, and designate these derivative instruments as cash flow hedges for accounting purposes.  Our derivative instruments are used to manage (i) 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 loan receivables, and (ii) exposure to variable interest rates associated with our term loan, as further discussed in Note 10.

For the derivatives associated with our securitization program, the effective portion of changes in the fair value is initially recorded in accumulated other comprehensive loss (“AOCL”).  For the majority of these derivatives, the amounts are subsequently reclassified into CAF income in the period that the hedged forecasted transaction affects earnings, which occurs as interest expense is recognized on those future issuances of debt. During the next 12 months, we estimate that an additional $5.5 million will be reclassified from AOCL as a decrease to CAF income.

As of November 30, 2016 and February 29, 2016, we had interest rate swaps outstanding with a combined notional amount of $2.32 billion and $2.42 billion, respectively, that were designated as cash flow hedges of interest rate risk.

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Fair Values of Derivative Instruments

	As of November 30, 2016					As of February 29, 2016
(In thousands)	Assets (1)		Liabilities (2)			Assets (1)		Liabilities (2)
Derivatives designated as accounting hedges:
Interest rate swaps	$	8,778	$	(318	)	$	587	$	(8,024	)

⁽¹⁾   Reported in other current assets on the consolidated balance sheets.

⁽²⁾   Reported in accounts payable on the consolidated balance sheets.

Effect of Derivative Instruments on Comprehensive Income

	Three Months Ended						Nine Months Ended
	November 30						November 30
(In thousands)	2016			2015			2016			2015
Derivatives designated as accounting hedges:
Gain (loss) recognized in AOCL (1)	$	7,282		$	(3,325	)	$	6,484		$	(9,596	)
Loss reclassified from AOCL into CAF income(1)	$	(2,935	)	$	(1,944	)	$	(8,868	)	$	(5,902	)
Loss recognized in CAF income (2)	$	—		$	(336	)	$	—		$	(438	)

⁽¹⁾  Represents the effective portion.

⁽²⁾  Represents the ineffective portion.

6.    Fair Value Measurements

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants in the principal market or, if none exists, the most advantageous market, for the specific asset or liability at the measurement date (referred to as the “exit price”).  The fair value should be based on assumptions that market participants would use, including a consideration of nonperformance risk.

We assess the inputs used to measure fair value using the three-tier hierarchy.  The hierarchy indicates the extent to which inputs used in measuring fair value are observable in the market.

Level 1 Inputs include unadjusted quoted prices in active markets for identical assets or liabilities that we can access at the measurement date.

Level 2 Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly, including quoted prices for similar assets in active markets, quoted prices from identical or similar assets in inactive markets and observable inputs such as interest rates and yield curves.

Level 3 Inputs that are significant to the measurement that are not observable in the market and include management's judgments about the assumptions market participants would use in pricing the asset or liability (including assumptions about risk).

Our fair value processes include controls that are designed to ensure that fair values are appropriate.  Such controls include model validation, review of key model inputs, analysis of period-over-period fluctuations and reviews by senior management.

Valuation Methodologies

Money Market Securities.  Money market securities are cash equivalents, which are included in cash and cash equivalents, restricted cash from collections on auto loan receivables or other assets.  They consist of highly liquid investments with original maturities of three months or less and are classified as Level 1.

Mutual Fund Investments.  Mutual fund investments consist of publicly traded mutual funds that primarily include diversified investments in large-, mid- and small-cap domestic and international companies.  The investments, which are included in other assets, are held in a rabbi trust established to fund informally our executive deferred compensation plan and are classified as Level 1.

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Derivative Instruments.  The fair values of our derivative instruments are included in either other current assets or accounts payable.  As described in Note 5, as part of our risk management strategy, we utilize derivative instruments 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 loan receivables as well as to manage exposure to variable interest rates on our term loan.  Our derivatives are not exchange-traded and are over-the-counter customized derivative instruments.  All of our derivative exposures are with highly rated bank counterparties.

We measure derivative fair values assuming that the unit of account is an individual derivative instrument and that derivatives are sold or transferred on a stand-alone basis.  We estimate the fair value of our derivatives using quotes determined by the derivative counterparties and third-party valuation services.  Quotes from third-party valuation services and quotes received from bank counterparties project future cash flows and discount the future amounts to a present value using market-based expectations for interest rates and the contractual terms of the derivative instruments.  The models do not require significant judgment and model inputs can typically be observed in a liquid market; however, because the models include inputs other than quoted prices in active markets, all derivatives are classified as Level 2.

Our derivative fair value measurements consider assumptions about counterparty and our own nonperformance risk.  We monitor counterparty and our own nonperformance risk and, in the event that we determine that a party is unlikely to perform under terms of the contract, we would adjust the derivative fair value to reflect the nonperformance risk.

Items Measured at Fair Value on a Recurring Basis

	As of November 30, 2016
(In thousands)	Level 1			Level 2			Total
Assets:
Money market securities	$	460,379		$	—		$	460,379
Mutual fund investments	17,861			—			17,861
Derivative instruments	—			8,778			8,778
Total assets at fair value	$	478,240		$	8,778		$	487,018
Percent of total assets at fair value	98.2		%	1.8		%	100.0		%
Percent of total assets	3.0		%	0.1		%	3.1		%
Liabilities:
Derivative instruments	$	—		$	(318	)	$	(318	)
Total liabilities at fair value	$	—		$	(318	)	$	(318	)
Percent of total liabilities	—		%	—		%	—		%

	As of February 29, 2016
(In thousands)	Level 1			Level 2			Total
Assets:
Money market securities	$	439,943		$	—		$	439,943
Mutual fund investments	13,622			—			13,622
Derivative instruments	—			587			587
Total assets at fair value	$	453,565		$	587		$	454,152
Percent of total assets at fair value	99.9		%	0.1		%	100.0		%
Percent of total assets	3.1		%	—		%	3.1		%
Liabilities:
Derivative instruments	$	—		$	(8,024	)	$	(8,024	)
Total liabilities at fair value	$	—		$	(8,024	)	$	(8,024	)
Percent of total liabilities	—		%	0.1		%	0.1		%

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There were no transfers between Levels 1 and 2 for the three and nine months ended November 30, 2016. As of November 30, 2016 and February 29, 2016 we had no Level 3 assets.

7.    Cancellation Reserves

We recognize revenue for EPP products at the time of sale, net of a reserve for estimated contract cancellations.  Cancellations of these services may result from early termination by the customer, or default or prepayment on the finance contract.  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. 

Cancellation Reserves

	Three Months Ended November 30						Nine Months Ended November 30
(In millions)	2016			2015			2016			2015
Balance as of beginning of period	$	113.3		$	108.1		$	110.2		$	94.4
Cancellations	(16.8		)	(16.9		)	(49.6		)	(45.6		)
Provision for future cancellations	15.9			18.6			51.8			61.0
Balance as of end of period	$	112.4		$	109.8		$	112.4		$	109.8

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. As of November 30, 2016 and February 29, 2016, the current portion of cancellation reserves was $57.1 million and $54.4 million, respectively.

8.    Income Taxes

We had $30.4 million of gross unrecognized tax benefits as of November 30, 2016, and $26.8 million as of February 29, 2016.  There were no significant changes to the gross unrecognized tax benefits as reported for the year ended February 29, 2016, as all activity was related to positions taken on tax returns filed or intended to be filed in the current fiscal year.

9.    Retirement Plans

We have two frozen noncontributory defined benefit plans: our pension plan (the “pension plan”) and our unfunded, nonqualified plan (the “restoration plan”), which restores retirement benefits for certain associates who are affected by Internal Revenue Code limitations on benefits provided under the pension plan. No additional benefits have accrued under these plans since they were frozen; however, we have a continuing obligation to fund the pension plan and will continue to recognize net periodic pension expense for both plans for benefits earned prior to being frozen. We use a fiscal year end measurement date for both the pension plan and the restoration plan.

Net Pension Expense

	Three Months Ended November 30
	Pension Plan				Restoration Plan				Total
(In thousands)	2016		2015		2016		2015		2016		2015
Net pension expense	$	82	$	212	$	120	$	114	$	202	$	326

	Nine Months Ended November 30
	Pension Plan				Restoration Plan				Total
(In thousands)	2016		2015		2016		2015		2016		2015
Net pension expense	$	248	$	636	$	360	$	342	$	608	$	978

Net pension expense includes actuarial loss amortization of $0.4 million and $0.5 million for the three months ended November 30, 2016 and 2015, respectively, and $1.2 million and $1.5 million for the nine months ended November 30, 2016 and 2015, respectively. We made no contributions to the pension plan during the nine months ended November 30, 2016, and do not anticipate making

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any contributions during the remainder of fiscal 2017; however, conditions may change where we may elect to make contributions.  The expected long-term rate of return on plan assets for the pension plan was 7.75% as of February 29, 2016.

10.    Debt

	As of November 30			As of February 29
(In thousands)	2016			2016
Revolving credit facility	$	91,580		$	415,428
Term loan	300,000			300,000
3.86% Senior notes due 2023	100,000			—
4.17% Senior notes due 2026	200,000			—
4.27% Senior notes due 2028	200,000			—
Finance and capital lease obligations	477,531			414,654
Non-recourse notes payable	10,462,947			9,527,750
Total debt	11,832,058			10,657,832
Less: current portion	(324,304		)	(315,509		)
Less: unamortized debt issuance costs	(23,227		)	(21,665		)
Long-term debt, net	$	11,484,527		$	10,320,658

In connection with our adoption of ASU 2015-03 in fiscal 2017, we have presented all debt issuance costs, with the exception of those related to our revolving credit facility, as a reduction of the carrying amount of the related debt liability. Prior period amounts have been reclassified to conform to the current year's presentation.

Revolving Credit Facility.    We have a $1.20 billion unsecured revolving credit facility (the “credit facility”) with various financial institutions that expires in August 2020. Borrowings under the credit facility are available for working capital and general corporate purposes.  Borrowings accrue interest at variable rates based on LIBOR, the federal funds rate, or the prime rate, depending on the type of borrowing, and we pay a commitment fee on the unused portions of the available funds.  Borrowings under the credit facility are either due “on demand” or at maturity depending on the type of borrowing.  Borrowings with “on demand” repayment terms are presented as short-term debt, while amounts due at maturity are presented as long-term debt with expected repayments within the next 12 months presented as a component of current portion of long-term debt.  As of November 30, 2016, the unused capacity of $1.11 billion was fully available to us.

Term Loan.    We have a $300 million term loan that expires in August 2020.  The term loan accrues interest at variable rates based on the LIBOR rate, the federal funds rate, or the prime rate, and interest is payable monthly.  As of November 30, 2016, $300 million remained outstanding and was classified as long-term debt, as no repayments are scheduled to be made within the next 12 months.  Borrowings under the term loan are available for working capital and general corporate purposes.  We have entered into an interest rate derivative contract to manage our exposure to variable interest rates associated with this term loan.

Senior Notes. During the first quarter of fiscal 2017, we entered into a note purchase agreement to issue and sell an aggregate of $500 million principal amount of senior unsecured notes, due 2023, 2026 and 2028, in a private placement to certain accredited investors. As of November 30, 2016, $500 million of senior unsecured notes were outstanding. Borrowings under these notes are available for working capital and general corporate purposes. Interest on the notes is payable semi-annually.

Finance and Capital Lease Obligations.  Finance and capital lease obligations relate primarily to stores subject to sale-leaseback transactions that did not qualify for sale accounting, and therefore, are accounted for as financings.  The leases were structured at varying interest rates and generally have initial lease terms ranging from 15 to 20 years with payments made monthly.  Payments on the leases are recognized as interest expense and a reduction of the obligations.  We have not entered into any new sale-leaseback transactions since fiscal 2009. In the event the leases are modified or extended beyond their original lease term, the related obligation is increased based on the present value of the revised future lease payments, with a corresponding increase to the assets subject to these transactions. Upon modification, the amortization of the obligation is reset, resulting in more of the lease payments being applied to interest expense in the initial years following the modification. See Note 14 for additional information on finance and capital lease obligations.

Non-Recourse Notes Payable.  The non-recourse notes payable relate to auto loan receivables funded through term securitizations and our warehouse facilities.  The timing of principal payments on the non-recourse notes payable is based on the timing of

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principal collections and defaults on the securitized auto loan receivables. The current portion of non-recourse notes payable represents principal payments that are due to be distributed in the following period.

As of November 30, 2016, $8.79 billion of non-recourse notes payable was outstanding related to term securitizations.  These notes payable accrue interest predominantly at fixed rates and have scheduled maturities through April 2023, but may mature earlier, depending upon the repayment rate of the underlying auto loan receivables. 

As of November 30, 2016, $1.68 billion of non-recourse notes payable was outstanding related to our warehouse facilities. In fiscal 2017, we increased the combined limit of our warehouse facilities by $300 million. As of November 30, 2016, the combined warehouse facility limit was $2.80 billion, and the unused warehouse capacity totaled $1.12 billion.  Of the combined warehouse facility limit, $1.50 billion will expire in February 2017 and $1.30 billion will expire in August 2017.  The return requirements of warehouse facility investors could fluctuate significantly depending on market conditions.  At renewal, the cost, structure and capacity of the facilities could change.  These changes could have a significant impact on our funding costs.

See Notes 2 and 4 for additional information on the related securitized auto loan receivables.

Capitalized Interest.We capitalize interest in connection with the construction of certain facilities.  For the nine months ended November 30, 2016 and 2015, we capitalized interest of $8.4 million and $7.6 million, respectively.

Financial Covenants.  The credit facility, term loan and senior note agreements contain representations and warranties, conditions and covenants.  We must also meet financial covenants in conjunction with certain of the sale-leaseback transactions.  Our securitization agreements contain representations and warranties, financial covenants and performance triggers.  As of November 30, 2016, we were in compliance with all financial covenants and our securitized receivables were in compliance with the related performance triggers.

11.    Stock and Stock-Based Incentive Plans

(A) Share Repurchase Program

As of November 30, 2016, our board of directors has authorized the repurchase of up to $4.55 billion of our common stock. At that date, $1.69 billion was available for repurchase under the board's outstanding authorization, which includes an additional $750 million authorized during fiscal 2017. Also during fiscal 2017, the board removed the expiration date of the outstanding repurchase authorizations.  

Common Stock Repurchases

	Three Months Ended				Nine Months Ended
	November 30				November 30
	2016		2015		2016		2015
Number of shares repurchased (in thousands)	3,780.5		7,680.8		8,715.2		13,336.1
Average cost per share	$	52.56	$	58.03	$	52.38	$	61.14
Available for repurchase, as of end of period (in millions)	$	1,691.5	$	1,553.8	$	1,691.5	$	1,553.8

(B) Share-Based Compensation

Composition of Share-Based Compensation Expense

	Three Months Ended				Nine Months Ended
	November 30				November 30
(In thousands)	2016		2015		2016		2015
Cost of sales	$	584	$	394	$	2,998	$	1,459
CarMax Auto Finance income	663		502		2,314		1,100
Selling, general and administrative expenses	10,522		11,178		67,784		43,728
Share-based compensation expense, before income taxes	$	11,769	$	12,074	$	73,096	$	46,287

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Composition of Share-Based Compensation Expense – By Grant Type

	Three Months Ended					Nine Months Ended
	November 30					November 30
(In thousands)	2016			2015		2016		2015
Nonqualified stock options	$	4,756		$	5,794	$	32,977	$	20,064
Cash-settled restricted stock units (RSUs)	4,490			2,960		25,951		14,358
Stock-settled market stock units (MSUs)	2,463			2,586		9,811		8,123
Stock-settled performance stock units (PSUs)	(488		)	341		1,844		1,579
Employee stock purchase plan	305			296		1,070		1,003
Restricted stock awards (RSAs)	243			97		1,443		1,160
Share-based compensation expense, before income taxes	$	11,769		$	12,074	$	73,096	$	46,287

(C) Stock Incentive Plan Information

Share/Unit Activity

	Nine Months Ended November 30, 2016
	Equity Classified											Liability Classified
(Shares/units in thousands)	Options			MSUs			PSUs		RSAs			RSUs
Outstanding as of February 29, 2016	7,322			543			66		17			1,320
Granted	2,310			171			83		49			632
Exercised or vested and converted	(1,144		)	(210		)	—		(17		)	(436		)
Cancelled	(4		)	(1		)	—		—			(89		)
Outstanding as of November 30, 2016	8,484			503			149		49			1,427
Weighted average grant date fair value per share/unit:
Granted	$	14.19		$	63.96		$	51.63	$	50.65		$	51.63
Ending outstanding	$	14.99		$	65.66		$	60.94	$	50.65		$	55.04
	As of November 30, 2016
Unrecognized compensation (in millions)	$	37.4		$	13.6		$	2.5	$	1.2

In the second quarter of fiscal 2017, in connection with the retirement of our former CEO, Thomas J. Folliard, the board of directors modified certain equity awards previously granted to him. This modification effectively provided Mr. Folliard retirement treatment under the terms of the awards, notwithstanding that he was younger than 55 years old. The modification resulted in the recognition of additional share-based compensation expense of $10.9 million. In addition, the awards granted to Mr. Folliard in April 2016 effectively provided him retirement treatment, thus full expense recognition of $3.5 million occurred at the grant date.

12.    Net Earnings Per Share

Basic net earnings per share is computed by dividing net earnings available for basic common shares by the weighted average number of shares of common stock outstanding.  Diluted net earnings per share is computed by dividing net earnings available for diluted common shares by the sum of weighted average number of shares of common stock outstanding and dilutive potential common stock.   Diluted net earnings per share is calculated using the “if-converted” treasury stock method.

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Basic and Dilutive Net Earnings Per Share Reconciliations

	Three Months Ended				Nine Months Ended
	November 30				November 30
(In thousands except per share data)	2016		2015		2016		2015
Net earnings	$	136,645	$	128,199	$	474,367	$	482,401
Weighted average common shares outstanding	189,200		201,291		191,431		205,760
Dilutive potential common shares:
Stock options	1,191		1,552		1,346		1,853
Stock-settled stock units and awards	427		540		462		629
Weighted average common shares and dilutive potential common shares	190,818		203,383		193,239		208,242
Basic net earnings per share	$	0.72	$	0.64	$	2.48	$	2.34
Diluted net earnings per share	$	0.72	$	0.63	$	2.45	$	2.32

Certain options to purchase shares of common stock were outstanding and not included in the calculation of diluted net earnings per share because their inclusion would have been antidilutive.  On a weighted average basis, for the three months ended November 30, 2016 and 2015, options to purchase 3,104,720 shares and 1,383,861 shares of common stock, respectively, were not included. For the nine months ended November 30, 2016 and 2015, weighted average options to purchase 3,253,237 shares and 1,195,011 shares, respectively, were not included.

13.    Accumulated Other Comprehensive Loss

Changes in Accumulated Other Comprehensive Loss By Component

							Total
	Net						Accumulated
	Unrecognized			Net			Other
	Actuarial			Unrecognized			Comprehensive
(In thousands, net of income taxes)	Losses			Hedge Losses			Loss
Balance as of February 29, 2016	$	(56,470	)	$	(13,726	)	$	(70,196	)
Other comprehensive income before reclassifications	—			3,936			3,936
Amounts reclassified from accumulated other comprehensive loss	744			5,381			6,125
Other comprehensive income	744			9,317			10,061
Balance as of November 30, 2016	$	(55,726	)	$	(4,409	)	$	(60,135	)

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Changes In and Reclassifications Out of Accumulated Other Comprehensive Loss

	Three Months Ended November 30						Nine Months Ended November 30
(In thousands)	2016			2015			2016			2015
Retirement Benefit Plans (Note 9):
Actuarial loss amortization reclassifications recognized in net pension expense:
Cost of sales	$	160		$	212		$	477		$	628
CarMax Auto Finance income	10			13			28			37
Selling, general and administrative expenses	217			289			655			878
Total amortization reclassifications recognized in net pension expense	387			514			1,160			1,543
Tax expense	(140		)	(192		)	(416		)	(576		)
Amortization reclassifications recognized in net pension expense, net of tax	247			322			744			967
Net change in retirement benefit plan unrecognized actuarial losses, net of tax	247			322			744			967
Cash Flow Hedges (Note 5):
Effective portion of changes in fair value	7,282			(3,325		)	6,484			(9,596		)
Tax (expense) benefit	(2,863		)	1,308			(2,548		)	3,775
Effective portion of changes in fair value, net of tax	4,419			(2,017		)	3,936			(5,821		)
Reclassifications to CarMax Auto Finance income	2,935			1,944			8,868			5,902
Tax expense	(1,154		)	(764		)	(3,487		)	(2,321		)
Reclassification of hedge losses, net of tax	1,781			1,180			5,381			3,581
Net change in cash flow hedge unrecognized losses, net of tax	6,200			(837		)	9,317			(2,240		)
Total other comprehensive income (loss), net of tax	$	6,447		$	(515	)	$	10,061		$	(1,273	)

Changes in the funded status of our retirement plans and the effective portion of changes in the fair value of derivatives that are designated and qualify as cash flow hedges are recognized in accumulated other comprehensive loss.  The cumulative balances are net of deferred taxes of $36.0 million as of November 30, 2016, and $42.4 million as of February 29, 2016.

14.    Supplemental Cash Flow Information

Supplemental disclosures of cash flow information:

	Nine Months Ended November 30
(In thousands)	2016		2015
Non-cash investing and financing activities:
Increase in accrued capital expenditures	$	8,629	$	6,563
Increase in finance and capital lease obligations	$	70,072	$	92,001

15.    Contingent Liabilities

Litigation. On April 2, 2008, Mr. John Fowler filed a putative class action lawsuit against CarMax Auto Superstores California, LLC and CarMax Auto Superstores West Coast, Inc. in the Superior Court of California, County of Los Angeles.  Subsequently, two other lawsuits, Leena Areso et al. v. CarMax Auto Superstores California, LLC and Justin Weaver v. CarMax Auto Superstores California, LLC, were consolidated as part of the Fowler case.  The allegations in the consolidated case involved wage and hour claims with respect to a putative class consisting of sales consultants, sales managers, and other hourly employees who worked for the company in California from April 2, 2004, to the present.  The court dismissed certain of the initial claims so that, by June 16, 2009, the remaining claims regarded the sales consultant putative class and were: (1) failure to provide meal breaks or compensation in lieu thereof; (2) failure to pay wages of terminated or resigned employees related to meal breaks; (3) unfair competition; and (4) claims under the California Labor Code Private Attorney General Act (the "Private Attorney General Act").  On

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March 30, 2016, the remaining claims asserted by Fowler were settled for an immaterial amount. On August 30, 2016, the remaining claims asserted by Areso were settled for an immaterial amount.

CarMax entities are defendants in three additional proceedings asserting wage and hour claims with respect to CarMax sales consultants in California. The asserted claims include failure to pay minimum wage, provide meal periods and rest breaks, pay statutory/contractual wages, reimburse for work-related expenses, provide accurate itemized wage statements; unfair competition; and Private Attorney General Act claims. On September 4, 2015, Craig Weiss v. CarMax Auto Superstores California, LLC, and CarMax Auto Superstores West Coast, Inc., a putative class action, was filed in the Superior Court of California, County of Placer. The Weiss lawsuit seeks civil penalties, fines, cost of suit, and the recovery of attorneys’ fees. On June 29, 2016, Ryan Gomez et al. v. CarMax Superstores California, LLC, and CarMax Auto Superstores West Coast, Inc., a putative class action, was filed in the Superior Court of the State of California, Los Angeles. The Gomez lawsuit seeks declaratory relief, unspecified damages, restitution, statutory penalties, interest, cost and attorneys’ fees. On September 7, 2016, James Rowland v. CarMax Superstores California, LLC, and CarMax Auto Superstores West Coast, Inc., a putative class action, was filed in the U.S. District Court, Eastern District of California, Sacramento Division. The Rowland lawsuit seeks unspecified damages, restitution, statutory penalties, interest, cost and attorneys’ fees. We are unable to make a reasonable estimate of the amount or range of loss that could result from an unfavorable outcome in these matters.

We are involved in various other legal proceedings in the normal course of business.  Based upon our evaluation of information currently available, we believe that the ultimate resolution of any such proceedings will not have a material adverse effect, either individually or in the aggregate, on our financial condition, results of operations or cash flows.

Other Matters.  In accordance with the terms of real estate lease agreements, we generally agree to indemnify the lessor from certain liabilities arising as a result of the use of the leased premises, including environmental liabilities and repairs to leased property upon termination of the lease.  Additionally, in accordance with the terms of agreements entered into for the sale of properties, we generally agree to indemnify the buyer from certain liabilities and costs arising subsequent to the date of the sale, including environmental liabilities and liabilities resulting from the breach of representations or warranties made in accordance with the agreements.  We do not have any known material environmental commitments, contingencies or other indemnification issues arising from these arrangements.

As part of our customer service strategy, we guarantee the used vehicles we retail with at least a 30-day limited warranty.  A vehicle in need of repair within this period will be repaired free of charge.  As a result, each vehicle sold has an implied liability associated with it.  Accordingly, based on historical trends, we record a provision for estimated future repairs during the guarantee period for each vehicle sold.  The liability for this guarantee was $5.7 million as of November 30, 2016, and $6.1 million as of February 29, 2016, and is included in accrued expenses and other current liabilities.

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ITEM 2.

MANAGEMENT'S DISCUSSION AND ANALYSIS

OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is provided as a supplement to, and should be read in conjunction with, our audited consolidated financial statements, the accompanying notes and the MD&A included in our Annual Report on Form 10-K for the fiscal year ended February 29, 2016 (“fiscal 2016”), as well as our consolidated financial statements and the accompanying notes included in Item 1 of this Form 10-Q.  Note references are to the notes to consolidated financial statements included in Item 1.  All references to net earnings per share are to diluted net earnings per share.  Certain prior year amounts have been reclassified to conform to the current year’s presentation.  Amounts and percentages may not total due to rounding.

OVERVIEW

CarMax is the nation’s largest retailer of used vehicles.  We operate in two reportable segments:  CarMax Sales Operations and CarMax Auto Finance (“CAF”).  Our CarMax Sales Operations segment consists of all aspects of our auto merchandising and service operations, excluding financing provided by CAF.  Our CAF segment consists solely of our own finance operation that provides financing to customers buying retail vehicles from CarMax.

CarMax Sales Operations

Our sales operations segment consists of retail sales of used vehicles and related products and services, such as wholesale vehicle sales; the sale of extended protection plan (“EPP”) products, which include extended service plans (“ESPs”) and guaranteed asset protection (“GAP”); and vehicle repair service. We focus on addressing the major sources of customer dissatisfaction with traditional auto retailers while maximizing operating efficiencies.  We offer low, no-haggle prices; a broad selection of CarMax Quality Certified used vehicles; value-added EPP products; and superior customer service. Our website and related mobile apps are tools for communicating the CarMax consumer offer in detail, sophisticated search engines for finding the right vehicle and sales channels for customers who prefer to initiate the shopping and sales process online. 

Our customers finance the majority of the retail vehicles purchased from us, and availability of on-the-spot financing is a critical component of the sales process.  We provide financing to qualified retail customers through CAF and our arrangements with industry-leading third-party finance providers.  All of the finance offers, whether by CAF or our third-party providers, are backed by a 3-day payoff option. 

As of November 30, 2016, we operated 169 used car stores in 84 U.S. markets, covering 55 mid-sized markets, 23 large markets and 6 small markets.  We define mid-sized markets as those with television viewing populations generally between 600,000 and 3 million people.  As of that date, we also conducted wholesale auctions at 71 used car stores and we operated 2 new car franchises. 

CarMax Auto Finance

In addition to third-party financing providers, we provide vehicle financing through CAF, which offers financing solely to customers buying retail vehicles from CarMax.  CAF allows us to manage our reliance on third-party financing providers and to leverage knowledge of our business to provide qualifying customers a competitive financing option.  As a result, we believe CAF enables us to capture additional profits, cash flows and sales.  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 expenses.  CAF income does not include any allocation of indirect costs.  After the effect of 3-day payoffs and vehicle returns, CAF financed 44.7% of our retail used vehicle unit sales in the first nine months of fiscal 2017.  As of November 30, 2016, CAF serviced approximately 783,000 customer accounts in its $10.41 billion portfolio of managed receivables. 

Management regularly analyzes CAF’s operating results by assessing the competitiveness of our consumer offer, profitability, the performance of the auto loan receivables, including trends in credit losses and delinquencies, and CAF direct expenses.

Revenues and Profitability -- Three and Nine Months Ended November 30, 2016

During the third quarter of fiscal 2017, net sales and operating revenues increased 4.4% and net earnings increased 6.6%. The 14.3% increase in earnings per share reflected the increase in net earnings and the effect of our ongoing share repurchase program.

Our primary source of revenue and net income is the retail sale of used vehicles.  During the third quarter of fiscal 2017, we sold 156,789 used vehicles, representing 83.5% of our net sales and operating revenues and 67.1% of our gross profit.  Compared to the prior year period, used vehicle revenues grew 6.2% and used vehicle gross profits improved 8.8% in the third quarter primarily due to a 9.1% increase in total used unit sales, which included a 5.4% increase in comparable store used units.

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Wholesale sales are also a significant contributor to our revenues and net income.  During the third quarter of fiscal 2017, we sold 91,973 wholesale vehicles, representing 13.2% of our net sales and operating revenues and 16.4% of our gross profit.  Compared to the prior year period, wholesale vehicle revenues fell 4.9% and wholesale vehicle gross profits declined 7.3% in the third quarter primarily due to a 2.2% reduction in unit sales and a 5.2% decrease in wholesale vehicle gross profit per unit.

During the third quarter of fiscal 2017, other sales and revenues, which include revenue earned on the sale of EPP products, net third-party finance fees, and service department and new vehicle sales, represented 3.3% of our net sales and operating revenues and 16.4% of our gross profit. Compared to the prior year period, other sales and revenues increased 1.0% and other gross profit rose 27.7% in the third quarter, primarily reflecting the improvements in EPP revenues and net third-party finance fees.

Income from our CAF segment totaled $89.4 million in the third quarter of fiscal 2017, down 3.2% compared with the prior year period.  The decline in CAF income was primarily due to an increase in the provision for loan losses and a lower total interest margin percentage.

Selling, general and administrative ("SG&A") expenses increased 5.7% to $356.7 million, primarily reflecting the 12% increase in our store base since the beginning of the third quarter of fiscal 2016, as well as higher variable costs associated with our comparable store unit growth.

During the first nine months of fiscal 2017, net sales and operating revenues increased 3.3%, net earnings declined 1.7% and net earnings per share increased 5.6%.Net earnings for the first nine months of the current year were reduced by $0.04 per diluted share related to the modification of certain equity awards held by our recently retired chief executive officer.

Liquidity

Our primary ongoing sources of liquidity include funds provided by operations, proceeds from securitization transactions, and borrowings under our revolving credit facility or through other financing sources.  During the first nine months of fiscal 2017, net cash used in operations totaled $343.1 million. This amount, combined with $935.2 million of net issuances of non-recourse notes payable, resulted in $592.1 million of adjusted net cash provided by operating activities (a non-GAAP measure). This liquidity, together with a $175.7 million increase in the long-term debt, was primarily used to fund the increase in CAF auto loan receivables, the 8.7 million common shares repurchased under our share repurchase program and our store growth.

When considering cash provided by operating activities, management does not include increases in auto loan receivables that have been securitized with non-recourse notes payable, which are separately reflected as cash provided by financing activities.  For a reconciliation of adjusted net cash provided by operating activities to net cash used in operating activities, the most directly comparable GAAP financial measure, see “Reconciliation of Adjusted Net Cash from Operating Activities” included in “Financial Condition – Liquidity and Capital Resources.”

Future Outlook

Over the long term, we believe the primary driver for earnings growth will be vehicle unit sales growth from both new stores and stores included in our comparable store base.  We also believe that increased used vehicle unit sales will drive increased sales of wholesale vehicles and ancillary products and, over time, increased CAF income.  To expand our vehicle unit sales at new and existing stores, we will need to continue delivering an unrivaled customer experience in stores and online, which will require investments in our information technology infrastructure and other strategic initiatives. We also will need to continue hiring and developing the associates necessary to drive our success, while managing the risks posed by an evolving competitive environment.  In addition, to support our store growth plans, we will need to continue procuring suitable real estate at favorable terms. While in any individual period conditions may vary, over the long term we would expect to begin leveraging our SG&A expenses when comparable store used unit sales growth reaches the mid-single digit range.

We are continuing the national rollout of our retail concept, and as of November 30, 2016, we had used car stores located in markets that represented approximately 69% of the U.S. population.  During the first nine months of fiscal 2017, we opened 11 stores, and during the remainder of the fiscal year, we plan to open 4 stores.  In fiscal 2018, we plan to open between 13 and 16 stores.   For a detailed list of stores we plan to open in the 12 months following November 30, 2016, see the table included in “Planned Future Activities.”

A significant portion of our used vehicle inventory is sourced from local, regional and online wholesale auto auctions. Wholesale vehicle prices are influenced by a variety of factors, including the supply of vehicles available at auction relative to dealer demand. Industry sources predict that there will be a continued influx in off-lease vehicles in coming years, which has and could continue to increase the volume of late-model vehicles available at auction relative to dealer demand. This has and could continue to reduce wholesale auction prices and our vehicle acquisition costs. It could also impact CAF recovery rates.

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For additional information about risks and uncertainties facing our Company, see “Risk Factors,” included in Part I. Item 1A of the Annual Report on Form 10-K for the fiscal year ended February 29, 2016.

CRITICAL ACCOUNTING POLICIES

For information on critical accounting policies, see “Critical Accounting Policies” in MD&A included in Item 7 of the Annual Report on Form 10-K for the fiscal year ended February 29, 2016.  These policies relate to financing and securitization transactions, revenue recognition and income taxes.

RESULTS OF OPERATIONS – CARMAX SALES OPERATIONS

NET SALES AND OPERATING REVENUES

	Three Months Ended November 30								Nine Months Ended November 30
(In millions)	2016			2015			Change		2016			2015			Change
Used vehicle sales	$	3,090.6		$	2,909.0		6.2	%	$	9,820.4		$	9,351.8		5.0	%
Wholesale vehicle sales	488.4			513.8			(4.9	)%	1,616.5			1,682.2			(3.9	)%
Other sales and revenues:
Extended protection plan revenues	70.2			61.6			14.0	%	221.5			197.4			12.2	%
Third-party finance fees, net	(9.1		)	(13.6		)	32.9	%	(29.3		)	(45.1		)	35.1	%
Other (1)	61.4			73.3			(16.2	)%	196.0			257.5			(23.9	)%
Total other sales and revenues	122.5			121.3			1.0	%	388.2			409.8			(5.3	)%
Total net sales and operating revenues	$	3,701.5		$	3,544.1		4.4	%	$	11,825.2		$	11,443.9		3.3	%

⁽¹⁾ Includes service department and new vehicle sales. In the fourth quarter of fiscal 2016, we reclassified new vehicle sales to other sales and revenues and no longer separately present new vehicle sales. Prior period amounts have been revised for this presentation.

UNIT SALES

	Three Months Ended November 30				Nine Months Ended November 30
	2016	2015	Change		2016	2015	Change
Used vehicles	156,789	143,673	9.1	%	495,277	464,699	6.6	%
Wholesale vehicles	91,973	94,066	(2.2	)%	300,543	302,218	(0.6	)%

AVERAGE SELLING PRICES

	Three Months Ended November 30						Nine Months Ended November 30
	2016		2015		Change		2016		2015		Change
Used vehicles	$	19,520	$	20,094	(2.9	)%	$	19,640	$	19,970	(1.7	)%
Wholesale vehicles	$	5,103	$	5,243	(2.7	)%	$	5,165	$	5,345	(3.4	)%

COMPARABLE STORE USED VEHICLE SALES CHANGES

	Three Months Ended November 30				Nine Months Ended November 30
	2016		2015		2016		2015
Used vehicle units	5.4	%	(0.8	)%	2.8	%	3.0	%
Used vehicle revenues	2.5	%	0.0	%	1.2	%	2.3	%

Stores are added to the comparable store base beginning in their fourteenth full month of operation. We do not remove renovated stores from our comparable store base. We have relocated one used car store, which we excluded from our comparable store base effective as of the relocation date and for thirteen full months thereafter. Comparable store calculations include results for a set of stores that were included in our comparable store base in both the current and corresponding prior year periods.

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VEHICLE SALES CHANGES

	Three Months Ended November 30				Nine Months Ended November 30
	2016		2015		2016		2015
Used vehicle units	9.1	%	3.2	%	6.6	%	7.3	%
Used vehicle revenues	6.2	%	4.1	%	5.0	%	6.6	%
Wholesale vehicle units	(2.2	)%	3.4	%	(0.6	)%	5.6	%
Wholesale vehicle revenues	(4.9	)%	6.7	%	(3.9	)%	8.0	%

CHANGE IN USED CAR STORE BASE

	Three Months Ended November 30		Nine Months Ended November 30
	2016	2015	2016	2015
Used car stores, beginning of period	163	151	158	144
Store openings	6	2	11	9
Used car stores, end of period	169	153	169	153

During the first nine months of fiscal 2017, we opened 11 stores, including 8 stores in 6 new markets (1 store each in Springfield, Illinois; El Paso, Texas; Bristol, Tennessee; Boise, Idaho; and Grand Rapids, Michigan; and 3 stores in San Francisco, California) and 3 stores in existing markets (Boston, Massachusetts; Philadelphia, Pennsylvania; and Daytona Beach, Florida). 

Used Vehicle Sales.  The 6.2% increase in used vehicle revenues in the third quarter of fiscal 2017 resulted from the combination of a 9.1% increase in used unit sales and a 2.9% decline in average retail selling price. The increase in used unit sales included a 5.4% increase in comparable store used unit sales and sales from newer stores not yet included in the comparable store base.  The comparable store used unit sales performance resulted from an increase in conversion as well as a small increase in store traffic, despite the decline in Tier 3 mix. We believe that improved execution in our stores, as well as our website redesign and related online capabilities, which have made it easier for our customers to submit leads, have contributed to our continued improvements in conversion. Tier 3 sales, which include those financed by our Tier 3 third-party finance providers and CAF's Tier 3 loan originations, fell to 10.2% of used unit sales, before the effect of 3-day payoffs, in the current year's third quarter from 13.8% in the prior year's third quarter. The decline in Tier 3 sales mix was the result of a continuation of tightened lending standards by one of our third-party Tier 3 finance providers that we experienced starting in the middle of the first quarter of the current year, and lower applicant volume within this credit tier. During fiscal 2017, we have experienced an overall improvement in the credit quality of our credit applicant mix, which contributed to the lower penetration rates for both Tier 2 and Tier 3 providers and higher penetration rates for CAF and customers arranging their own financing. Based on our analysis of industry data, we believe the shift in credit applicant mix was not unique to CarMax. For the non-Tier 3 customer base, comparable store used unit sales rose 9.8% in the third quarter of fiscal 2017.

The decline in average retail selling price reflected the net effects of lower vehicle acquisition costs and shifts in the mix of our sales by both vehicle age and vehicle class. Generally, we pass on decreases in our vehicle acquisition costs to consumers in the form of lower selling prices. We believe the increased supply of late-model vehicles available at auction is contributing to the lower acquisition costs, which, in turn, is helping to increase the value proposition of late-model used vehicles relative to new cars.

The 5.0% increase in used vehicle revenues in the first nine months of fiscal 2017 resulted from a 6.6% increase in used unit sales combined with a 1.7% decline in average retail selling price. The increase in used unit sales included a 2.8% increase in comparable store used unit sales and sales from newer stores not yet included in the comparable store base. Trends that influenced our used vehicle unit sales during the third quarter of fiscal 2017, including the solid improvement in conversion, a decrease in Tier 3 sales mix and the overall improvement in the credit quality of our credit applicant mix, also influenced our performance during the first nine months of fiscal 2017. Tier 3 sales mix declined to 10.5% from 14.1% in the prior year nine-month period. In addition, we experienced a decrease in overall store traffic compared with the first nine months of fiscal 2016. Historically, the Tier 3 rate of conversion of credit applications to sales has been significantly lower than that in other credit tiers. As a result, we believe a decline in Tier 3 sales mix typically represents a disproportionate decline in underlying customer traffic. For the non-Tier 3 customer base, comparable store used unit sales rose 7.1% in the first nine months of fiscal 2017. Similar to the third quarter, lower vehicle acquisition costs and shifts in the sales mix by vehicle age and class contributed to the decline in average retail selling price for the first nine months of fiscal 2017.

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Wholesale Vehicle Sales.    Vehicles sold at our wholesale auctions are, on average, approximately 10 years old with more than 100,000 miles and they are primarily comprised of vehicles purchased through our appraisal process that do not meet our retail standards. Our wholesale auction prices usually reflect the trends in the general wholesale market for the types of vehicles we sell, although they can also be affected by changes in vehicle mix or the average age, mileage or condition of the vehicles being sold.

The 4.9% decrease in wholesale vehicle revenues in the third quarter of fiscal 2017 resulted from a 2.7% decrease in wholesale vehicle average selling price and a 2.2% decrease in wholesale unit sales.  During the current year's quarter, increases in wholesale unit volumes attributable to the growth in our store base and an improved appraisal buy rate were more than offset by a reduction in appraisal traffic. In particular, we experienced a reduced mix of 7- to 9-year old vehicles in our wholesale sales mix, which we believe resulted, at least in part, from the reduced overall industry supply of these model year vehicles due to the decline in industry new vehicle sales during the recession. This shift in mix also contributed to the decline in average selling price.

The 3.9% decrease in wholesale vehicle revenues in the first nine months of fiscal 2017 resulted from a 3.4% decrease in wholesale vehicle average selling price and a 0.6% decline in wholesale unit sales. The factors that influenced our third quarter results also contributed to the results for the nine-month period.

Other Sales and Revenues.  Other sales and revenues include revenue from the sale of ESPs and GAP (collectively reported in EPP revenues, net of a reserve for estimated contract cancellations), net third-party finance fees, and other revenues, which are predominantly comprised of service department and new vehicle sales. We refer to the third-party finance providers who generally pay us a fee or to whom no fee is paid as Tier 2 providers, and we refer to the providers to whom we pay a fee as Tier 3 providers. The fees we pay to the Tier 3 providers are reflected as an offset to finance fee revenues received from the Tier 2 providers. The mix of our retail vehicles financed by CAF, Tier 2 and Tier 3 providers, or customers that arrange their own financing, may vary from quarter to quarter depending on several factors, including the credit quality of applicants, changes in providers’ credit decisioning and external market conditions. Changes in originations by one tier of credit providers may also affect the originations made by providers in other tiers. Before the effect of 3-day payoffs, our Tier 2 providers financed 15.7% of our used vehicle units in the third quarter of fiscal 2017 compared with 16.9% in the prior year period, and they financed 16.5% of our used vehicle units in the first nine months of fiscal 2017 versus 17.4% in the first nine months of fiscal 2016.

Other sales and revenues increased 1.0% in the third quarter of fiscal 2017. New vehicle sales declined due to the disposal of two of our four new car franchises during the third quarter of fiscal 2016.  EPP revenues increased 14.0% compared with the prior year’s quarter, largely reflecting the growth in our used unit sales and pricing changes. Net third-party finance fees improved 32.9% versus the prior year's quarter primarily due to the reduced proportion of our used unit sales financed by Tier 3 finance providers.

Other sales and revenues declined 5.3% in the first nine months of fiscal 2017. Trends for the first nine months of the fiscal year were generally similar to those in the third quarter, as the decline in other sales and revenues was driven by a decrease in new vehicle sales, partially offset by a 12.2% increase in EPP revenues and a 35.1% improvement in net third-party finance fees.

Seasonality.  Historically, our business has been seasonal.  Our stores typically experience their strongest traffic and sales in the spring and summer quarters.  Sales are typically slowest in the fall quarter.  We typically experience an increase in traffic and sales in February and March, coinciding with tax refund season.

GROSS PROFIT

	Three Months Ended November 30						Nine Months Ended November 30
(In millions)	2016		2015		Change		2016		2015		Change
Used vehicle gross profit	$	337.8	$	310.4	8.8	%	$	1,076.1	$	1,011.2	6.4	%
Wholesale vehicle gross profit	82.8		89.3		(7.3	)%	277.1		295.4		(6.2	)%
Other gross profit	82.5		64.6		27.7	%	267.9		222.9		20.2	%
Total	$	503.1	$	464.3	8.4	%	$	1,621.1	$	1,529.5	6.0	%

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GROSS PROFIT PER UNIT

	Three Months Ended November 30						Nine Months Ended November 30
	2016			2015			2016			2015
	$ per unit(1)		%(2)	$ per unit(1)		%(2)	$ per unit(1)		%(2)	$ per unit(1)		%(2)
Used vehicle gross profit	$	2,155	10.9	$	2,160	10.7	$	2,173	11.0	$	2,176	10.8
Wholesale vehicle gross profit	$	900	16.9	$	949	17.4	$	922	17.1	$	977	17.6
Other gross profit	$	527	67.4	$	450	53.3	$	541	69.0	$	480	54.4
Total gross profit	$	3,209	13.6	$	3,232	13.1	$	3,273	13.7	$	3,291	13.4

⁽¹⁾   Calculated as category gross profit divided by its respective units sold, except the other and total categories, which are divided by total used units sold.

⁽²⁾   Calculated as a percentage of its respective sales or revenue.

Used Vehicle Gross Profit.    We target a dollar range of gross profit per used unit sold.  The gross profit dollar target for an individual vehicle is based on a variety of factors, including its probability of sale and its mileage relative to its age; however, it is not primarily based on the vehicle’s selling price.  Our ability to quickly adjust appraisal offers to be consistent with the broader market trade-in trends and the pace of our inventory turns reduce our exposure to the inherent continual fluctuation in used vehicle values and contribute to our ability to manage gross profit dollars per unit. 

We systematically mark down individual vehicle prices based on proprietary pricing algorithms in order to appropriately balance sales trends, inventory turns and gross profit achievement.  Other factors that may influence gross profit include changes in our vehicle reconditioning costs, changes in the percentage of vehicles sourced directly from consumers through our appraisal process and changes in the wholesale pricing environment.  Vehicles purchased directly from consumers typically generate more gross profit per unit compared with vehicles purchased at auction or through other channels.

Used vehicle gross profit rose 8.8% in the third quarter of fiscal 2017 and 6.4% in the first nine months of fiscal 2017, driven by the increases of 9.1% and 6.6%, respectively, in total used unit sales.  Despite an overall trend reported by publicly traded auto retailers in recent quarters towards lower gross profit per unit sold, our used vehicle gross profit per unit remained consistent with the corresponding prior year periods in both the third quarter and the first nine months of fiscal 2017. We believe we can manage to a targeted gross profit per unit dollar range, subject to future changes to our business or pricing strategy.

Wholesale Vehicle Gross Profit.    Our wholesale gross profit per unit reflects the demand for older, higher mileage vehicles, which are the mainstay of our auctions, as well as the continued strong dealer attendance and resulting high dealer-to-car ratios at our auctions.  The frequency of our auctions, which are generally held weekly or bi-weekly, minimizes the depreciation risk on these vehicles.  Our ability to adjust appraisal offers in response to the wholesale pricing environment is a key factor that influences wholesale gross profit. 

Wholesale vehicle gross profit declined 7.3% in the third quarter of fiscal 2017, reflecting the combination of the 2.2% decrease in wholesale unit sales and a $49, or 5.2%, reduction in wholesale vehicle gross profit per unit. In last year's third quarter, wholesale gross profit per unit was at a record third quarter level, creating a more challenging comparison. In addition, compared with the prior year quarter, differences in the rate of depreciation relative to changes in our appraisal offers contributed to the decline in wholesale vehicle gross profit per unit.

Wholesale vehicle gross profit declined 6.2% in the first nine months of fiscal 2017, reflecting the combination of the 0.6% decline in wholesale unit volume and a $55, or 5.6%, reduction in wholesale vehicle gross profit per unit. The factors influencing the decline in wholesale vehicle gross profit per unit in the third quarter, particularly the historically high wholesale gross profit per unit we experienced during the first nine months of fiscal 2016, also contributed to the decline in the nine-month period.

Other Gross Profit.  Other gross profit includes profits related to EPP revenues, net third-party finance fees and other revenues, which are predominantly comprised of service department operations, including used vehicle reconditioning, and new vehicle sales.  We have no cost of sales related to EPP revenues or net third-party finance fees, as these represent revenues paid to us by certain third-party providers.  Third-party finance fees are reported net of the fees we pay to Tier 3 finance providers.  Accordingly, changes in the relative mix of the other gross profit components can affect the composition and amount of other gross profit.

Other gross profit rose 27.7% in the third quarter of fiscal 2017, primarily reflecting the improvements in EPP revenues and net third-party finance fees discussed above. The decrease in new vehicle sales did not significantly affect other gross profit.

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Other gross profit rose 20.2% in the first nine months of fiscal 2017. Similar to the third quarter, the increase was primarily driven by improvements in EPP revenues and net third-party finance fees.

Impact of Inflation.  Historically, inflation has not had a significant impact on results.  Profitability is primarily affected by our ability to achieve targeted unit sales and gross profit dollars per vehicle rather than by changes in average retail prices.  However, changes in average vehicle selling prices impact CAF income, to the extent the average amount financed also changes.

Selling, General and Administrative ("SG&A") Expenses

COMPONENTS OF SG&A EXPENSES

	Three Months Ended November 30							Nine Months Ended November 30
(In millions except per unit data)	2016		2015		Change			2016		2015		Change
Compensation and benefits(1)	$	182.2	$	176.9	2.9		%	$	598.1	$	559.0	7.0		%
Store occupancy costs	75.8		70.1		8.1		%	222.6		204.0		9.1		%
Advertising expense	34.8		37.5		(6.9		)%	104.1		106.0		(1.8		)%
Other overhead costs(2)	63.9		53.0		20.7		%	178.3		149.1		19.6		%
Total SG&A expenses	$	356.7	$	337.5	5.7		%	$	1,103.1	$	1,018.1	8.4		%
SG&A per used vehicle unit (3)	$	2,275	$	2,349	$	(74	)	$	2,227	$	2,191	$	36

⁽¹⁾   Excludes compensation and benefits related to reconditioning and vehicle repair service, whichareincluded in cost of sales.

⁽²⁾   Includes IT expenses, insurance, non-CAF bad debt, travel, preopening and relocation costs, charitable contributions and other administrative expenses.

⁽³⁾   Calculated as total SG&A expenses divided by total used vehicle units.

The 5.7% increase in SG&A expenses in the third quarter of fiscal 2017 primarily reflected the 12% growth in our store base since the beginning of last year’s third quarter (representing the addition of 18 stores), as well as higher variable costs associated with our comparable store unit growth. Compared with the prior year's third quarter, advertising expense declined 6.9%, despite the increase in our store base, as the prior year period included costs related to a new advertising campaign. The $10.9 million, or 20.7% increase in other overhead costs largely reflected increased spending related to strategic initiatives.

SG&A expenses increased 8.4% in the first nine months of fiscal 2017. The increase primarily reflected the 17% growth in our store base, from 144 used car stores as of the beginning of fiscal 2016 to 169 stores as of November 30, 2016, and a $24.1 million increase in share-based compensation expense, partially offset by an $11.7 million reduction in the accrual for the company's incentive pay. The fiscal 2017 share-based compensation expense included a $10.9 million adjustment related to a modification by the board of directors in the second quarter of certain equity awards previously granted to our recently retired chief executive officer, Thomas J. Folliard. As a result of the modification, Mr. Folliard was effectively provided retirement treatment under the terms of the awards, notwithstanding that he was younger than 55 years old. However, the vesting of the awards was not accelerated on his retirement and no changes were made to the full-term expiration dates or the strike prices of the awards. The remainder of the increase in share-based compensation expense was largely related to cash-settled restricted stock units. The expense associated with these units is primarily influenced by the change in the company's stock price occurring during the relevant quarters. The $29.2 million, or 19.6% increase in other overhead costs largely reflected increased spending related to strategic initiatives.

Interest Expense.  Interest expense includes the interest related to short- and long-term debt and finance and capital lease obligations.  It does not include interest on the non-recourse notes payable, which is reflected within CAF income.

Interest expense rose to $15.1 million in the third quarter of fiscal 2017, from $10.0 million in the third quarter of fiscal 2016. The increase reflected the combination of planned higher outstanding debt levels in fiscal 2017 as part of our capital structure strategy, as well as growth in our finance and capital lease obligations. See “Financial Condition – Liquidity and Capital Resources” for further discussion. During fiscal 2017, we sold $500 million of senior unsecured notes, due in 2023, 2026 and 2028, to investors in a private placement.

Interest expense rose to $40.1 million in the first nine months of fiscal 2017, from $24.6 million in the prior year period. Similar to the third quarter, the increase reflected the combined effects of planned higher outstanding debt levels and growth in our finance and capital lease obligations.

Income Taxes.    The effective income tax rate was 37.8% in the third quarter and 37.9% in the first nine months of fiscal 2017 versus 38.4% and 38.5%, respectively, in the corresponding periods of fiscal 2016.    

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RESULTS OF OPERATIONS – CARMAX AUTO FINANCE

CAF income primarily reflects the interest and fee income generated by CAF’s portfolio of 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.  Although CAF benefits from certain indirect overhead expenditures, we have not allocated indirect costs to CAF to avoid making subjective allocation decisions.  Examples of indirect costs not allocated to CAF include retail store expenses and corporate expenses.

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. We strive to originate loans with an underlying risk profile that we believe will, in the aggregate and excluding CAF's Tier 3 originations, result in cumulative net losses in the 2% to 2.5% range over the life of the loans. Actual loss performance of the loans may fall outside of this range based on various factors, including intentional changes in the risk profile of originations, economic conditions and wholesale recovery rates. Current period originations reflect current trends in both our retail sales and the CAF business, including the volume of loans originated, current interest rates charged to consumers, loan terms and average credit scores. Because we recognize CAF income over the life of the underlying auto loan, loans originated in a given fiscal period generally do not have a significant effect on that period’s financial results.

See Note 3 for additional information on CAF income and Note 4 for information on auto loan receivables, including credit quality. 

SELECTED CAF FINANCIAL INFORMATION

	Three Months Ended November 30										Nine Months Ended November 30
(In millions)	2016			% (1)		2015			%(1)		2016			% (1)		2015			% (1)
Interest margin:
Interest and fee income	$	192.7		7.5		$	172.3		7.4		$	567.0		7.5		$	507.0		7.5
Interest expense	(44.1		)	(1.7	)	(33.0		)	(1.4	)	(125.3		)	(1.7	)	(91.9		)	(1.4	)
Total interest margin	$	148.6		5.8		$	139.3		6.0		$	441.7		5.9		$	415.1		6.2
Provision for loan losses	$	(41.9	)	(1.6	)	$	(30.9	)	(1.3	)	$	(104.2	)	(1.4	)	$	(70.2	)	(1.0	)
CarMax Auto Finance income	$	89.4		3.5		$	92.3		4.0		$	286.1		3.8		$	299.7		4.5

⁽¹⁾   Annualized percentage of total average managed receivables.

CAF ORIGINATION INFORMATION

	Three Months Ended November 30 (1)						Nine Months Ended November 30 (1)
	2016			2015			2016			2015
Net loans originated (in millions)	$	1,339.1		$	1,224.0		$	4,217.7		$	3,912.1
Vehicle units financed	70,513			62,251			221,495			200,347
Penetration rate (2)	45.0		%	43.3		%	44.7		%	43.1		%
Weighted average contract rate	7.3		%	7.3		%	7.4		%	7.3		%
Weighted average credit score (3)	707			704			705			702
Weighted average loan-to-value (LTV) (4)	95.5		%	94.8		%	95.0		%	94.7		%
Weighted average term (in months)	65.8			66.0			65.8			65.9

⁽¹⁾   All information relatesto loansoriginated net of 3-day payoffs and vehicle returns.

⁽²⁾   Vehicle units financed as a percentage of total used units sold.

⁽³⁾   The credit scores represent FICO scores, and reflect only receivables with obligors that have a FICO score at the time of application. The FICO score with respect to any receivable with co-obligors is calculated as the average of each obligor’s FICO score at the time of application. FICO scores are not a significant factor in our primary scoring model, which relies on information from credit bureaus and other application information as discussed inNote 4.  FICO® is a federally registered servicemark of Fair Isaac Corporation.

⁽⁴⁾   LTV represents the ratio of the amount financed to the total collateral value, which is measured as the vehicle selling price plus applicable taxes, title and fees.

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LOAN PERFORMANCE INFORMATION

	As of and for the Three Months Ended   November 30						As of and for the Nine Months Ended   November 30
(In millions)	2016			2015			2016			2015
Total ending managed receivables	$	10,407.7		$	9,371.5		$	10,407.7		$	9,371.5
Total average managed receivables	$	10,297.8		$	9,261.4		$	10,030.9		$	8,973.3
Allowance for loan losses (1)	$	114.8		$	90.9		$	114.8		$	90.9
Allowance for loan losses as a percentage of ending managed receivables	1.10		%	0.97		%	1.10		%	0.97		%
Net credit losses on managed receivables	$	36.8		$	27.8		$	84.3		$	61.0
Annualized net credit losses as a percentage of total average managed receivables	1.43		%	1.20		%	1.12		%	0.91		%
Past due accounts as a percentage of ending managed receivables	3.46		%	3.24		%	3.46		%	3.24		%
Average recovery rate (2)	46.2		%	49.7		%	48.2		%	52.0		%

⁽¹⁾  The allowance for loan losses represents an estimate of the amount of net losses inherent in our portfolio of managed receivables as of the applicable reporting date and anticipated to occur during the following 12 months. 

⁽²⁾  The average recovery rate represents the average percentage of the outstanding principal balance we receive when a vehicle is repossessed and liquidated, generally at our wholesale auctions.  The annual recovery rate has ranged from a low of 42% to a high of 60%, and it is primarily affected by changes in the wholesale market pricing environment.

CAF income declined 3.2% in the third quarter of fiscal 2017 and 4.5% in the first nine months of the year. The decline was due to an increase in the provision for loan losses and a lower total interest margin percentage, partially offset by the increase in average managed receivables. Average managed receivables grew 11.2% in the third quarter and 11.8% in the first nine months of fiscal 2017 driven by the rise in CAF loan originations in recent years. The growth in net loan originations in fiscal 2017 resulted from our used vehicle sales growth and an increase in CAF's penetration rate that was caused by the increased mix of credit applications from customers at the higher end of the credit spectrum.

The total interest margin, which reflects the spread between interest and fees charged to consumers and our funding costs, declined as a percentage of average managed receivables to 5.8% in third quarter and 5.9% in the first nine months of fiscal 2017 from 6.0% and 6.2%, respectively, in the corresponding prior year periods.  This was the result of gradual compression of the spread between rates charged to consumers and our funding costs in recent years.  Changes in the interest margin on new originations affect CAF income over time.  Rising interest rates, which affect CAF’s funding costs, or other competitive pressures on consumer rates could result in further compression in the interest margin on new originations.

The provision for loan losses rose to $41.9 million in the third quarter and $104.2 million in the first nine months of fiscal 2017, from $30.9 million and $70.2 million, respectively, in the corresponding prior year periods due to the combined effects of: unfavorable loss experience in fiscal 2017; favorable loss experience in the first quarter of fiscal 2016, which reduced last year's provision; and the growth in managed receivables. While the higher loss rates were primarily due to an increase in charge-offs, lower recovery rates also contributed to the unfavorable loss experience in fiscal 2017, which we believe reflects conditions impacting our industry as a whole. The increase in the allowance for loan losses as a percentage of ending managed receivables reflected the effect of the change in loss and delinquency experience on our outlook for net losses expected to occur over the next 12 months.

Tier 3 Loan Originations.  CAF also originates a small portion of auto loans to customers who typically would be financed by our Tier 3 finance providers, in order to better understand the performance of these loans, mitigate risk and add incremental profits. CAF currently targets originating approximately 5% of the total Tier 3 loan volume; however, this rate may vary over time based on market conditions. As of November 30, 2016, $117.2 million in CAF Tier 3 receivables were outstanding.  These loans have higher loss and delinquency rates than the remainder of the CAF portfolio, as well as higher contract rates.  As of November 30, 2016 and 2015, approximately 10% of the total allowance for loan losses related to the outstanding CAF Tier 3 loan balances. During fiscal 2017, we entered into a new $100 million warehouse facility that is being used to fund a portion of CAF’s Tier 3 loan origination activity. Previously, these loans had been funded separately from the remainder of CAF’s portfolio using existing working capital. 

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PLANNED FUTURE ACTIVITIES

In fiscal 2017, we plan to open 15 stores. In fiscal 2018, we plan to open between 13 and 16 stores. We currently estimate capital expenditures will total approximately $450 million in fiscal 2017 versus $332 million in fiscal 2016. The increase in planned capital spending primarily reflects the expected timing of land acquisitions and construction activity.

We currently plan to open the following stores within 12 months from November 30, 2016:

PLANNED STORE OPENINGS – NEXT 12 MONTHS

Location	Television Market	Market Status	Planned Opening Date
Palmdale, California	Los Angeles	Existing	Q4 Fiscal 2017
Murrieta, California	Los Angeles	Existing	Q4 Fiscal 2017
Mobile, Alabama	Mobile/Pensacola	New	Q4 Fiscal 2017
Albany, New York	Albany	New	Q4 Fiscal 2017
Puyallup, Washington	Seattle/Tacoma	New	Q1 Fiscal 2018
Lynnwood, Washington	Seattle/Tacoma	Existing	Q1 Fiscal 2018
Pensacola, Florida	Mobile/Pensacola	Existing	Q1 Fiscal 2018
Waterbury, Connecticut	Hartford/New Haven	Existing	Q2 Fiscal 2018
San Jose, California	San Francisco/Oakland/San Jose	Existing	Q2 Fiscal 2018
Salisbury, Maryland	Salisbury	New	Q2 Fiscal 2018
Langhorne, Pennsylvania	Philadelphia	Existing	Q3 Fiscal 2018
Tyler, Texas	Tyler/Longview	New	Q3 Fiscal 2018
Las Vegas, Nevada	Las Vegas	Existing	Q3 Fiscal 2018
Colma, California	San Francisco/Oakland/San Jose	Existing	Q3 Fiscal 2018
Renton, Washington	Seattle/Tacoma	Existing	Q3 Fiscal 2018

Normal construction, permitting or other scheduling delays could shift the opening dates of any of these stores into a later period.

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FINANCIAL CONDITION

Liquidity and Capital Resources.

Our primary ongoing cash requirements are to fund our existing operations, store expansion and improvement and CAF. Since fiscal 2013, we have also elected to use cash for our share repurchase program.  Our primary ongoing sources of liquidity include funds provided by operations, proceeds from securitization transactions or other funding arrangements, and borrowings under our revolving credit facility or through other financing sources.

We currently target an adjusted debt to total capital ratio in a range of 35% to 45%. In calculating this ratio, we utilize total debt, excluding non-recourse notes payable, a multiple of 8 times rent expense and total shareholders' equity. We expect to use our revolving credit facility and other financing sources, together with stock repurchases, to achieve and maintain this targeted ratio; however, in any period, we may be outside this range due to seasonal, market, strategic or other factors.

Operating Activities.  During the first nine months of fiscal 2017, net cash used in operating activities totaled $343.1 million, compared with $381.6 million in the prior year period.  The net cash used in operating activities included increases in auto loan receivables of $900.7 million in the current year period and $953.0 million in the prior year period.  The majority of the increases in auto loan receivables are accompanied by increases in non-recourse notes payable, which are separately reflected as cash provided by financing activities. 

As of November 30, 2016, total inventory was $2.17 billion, representing an increase of $238.1 million, or 12.3%, compared with the balance as of the start of the fiscal year.  The increase primarily reflected the addition of inventory to support store openings and our comparable store sales growth in fiscal 2017, net of a decline in the average carrying cost of inventory due to changes in acquisition costs and vehicle mix. In addition, we typically build inventories in the late fall in order to take advantage of seasonal sales opportunities in the fourth quarter.

When considering cash provided by operating activities, management uses an adjusted measure of net cash from operating activities that offsets the changes in auto loan receivables with the corresponding changes in non-recourse notes payable.  This is achieved by adding back the cash provided from the net issuances of non-recourse notes payable, which represents the increase in auto loan receivables that were securitized through the issuance of non-recourse notes payable during the period.  The resulting financial measure, adjusted net cash from operating activities, is a non-GAAP financial measure.  We believe adjusted net cash from operating activities is a meaningful metric for investors because it provides better visibility into the cash generated from operations.  Including the increases in non-recourse notes payable, net cash provided by operating activities would have been as follows:

RECONCILIATION OF ADJUSTED NET CASH FROM OPERATING ACTIVITIES

	Nine Months Ended November 30
(In millions)	2016			2015
Net cash used in operating activities	$	(343.1	)	$	(381.6	)
Add: Net issuances of non-recourse notes payable (1)	935.2			865.3
Adjusted net cash provided by operating activities	$	592.1		$	483.7

⁽¹⁾   Calculated using the gross issuances less payments on non-recourse notes payable as disclosed on the consolidated statements of cash flows.

Adjusted net cash provided by operating activities for the first nine months of the current fiscal year increased compared to the prior year period primarily due to the timing of payments related to operating payables and an increase in net income when excluding non-cash expenses, which include depreciation and amortization, share-based compensation expense and the provisions for loan losses and cancellation reserves. This was partially offset by the impact of the change in inventory during the current fiscal year. In addition, the increase in net issuances of non-recourse notes payable was primarily attributable to the new warehouse facility being used to fund certain of CAF’s Tier 3 loans. In the prior fiscal year, all of CAF's Tier 3 loans were funded through the use of existing working capital.

Investing Activities. During the first nine months of the fiscal year, net cash used in investing activities totaled $338.2 million in fiscal 2017 compared with $274.6 million in fiscal 2016.  Capital expenditures were $315.5 million in the current year period versus $240.8 million in the prior year period.  Capital expenditures primarily include real estate acquisitions for planned future store openings, store construction costs and store remodeling costs.  We maintain a multi-year pipeline of sites to support our store growth, so portions of capital spending in one year may relate to stores that we open in subsequent fiscal years. The increase in

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capital expenditures in the current year period largely reflected timing changes in the purchases of land and related construction activity for future stores.

As of November 30, 2016, 95 of our 169 used car stores were located on owned sites and 74 were located on leased sites, including 18 land-only leases and 56 land and building leases.

Financing Activities.  During the first nine months of the fiscal year, net cash provided by financing activities totaled $667.7 million in fiscal 2017 compared with $661.9 million in fiscal 2016.  Included in these amounts were net increases in total non-recourse notes payable of $935.2 million and $865.3 million, respectively, which were used to provide the financing for the majority of the increases of $900.7 million and $953.0 million, respectively, in auto loan receivables (see "Operating Activities").  

During the first nine months of fiscal 2017, we sold $500 million of senior unsecured notes in a private placement, and used a portion of the proceeds to reduce net borrowings under our revolving credit facility. Net cash provided by financing activities was reduced by stock repurchases of $464.4 million in the first nine months of fiscal 2017 compared with $816.2 million in the first nine months of fiscal 2016.

TOTAL DEBT AND CASH AND CASH EQUIVALENTS

	As of November 30		As of February 29
(In thousands)	2016		2016
Borrowings under revolving credit facility	$	91,580	$	415,428
Other long-term debt	800,000		300,000
Finance and capital lease obligations	477,531		414,654
Non-recourse notes payable	10,462,947		9,527,750
Total debt (1)	$	11,832,058	$	10,657,832
Cash and cash equivalents	$	23,713	$	37,394

⁽¹⁾  Total debt excludes unamortized debt issuance costs. See Note 10 for additional information.

We have a $1.20 billion unsecured revolving credit facility, which expires in August 2020.  Borrowings under this credit facility are available for working capital and general corporate purposes, and the unused portion is fully available to us.  We also have a $300 million variable-rate term loan, which is due in August 2020. In addition, we have $500 million of senior unsecured notes, which are due in 2023, 2026 and 2028. The credit facility, term loan and senior unsecured notes contain representations and warranties, conditions and covenants.  If these requirements were not met, all amounts outstanding or otherwise owed could become due and payable immediately and other limitations could be placed on our ability to use any available borrowing capacity. 

Finance and capital lease obligations relate primarily to stores subject to sale-leaseback transactions that did not qualify for sale accounting and are, therefore, accounted for as financings. A portion of the periodic lease payments is recognized as interest expense and the remainder reduces the obligation. In the event the leases are modified or extended beyond their original lease term, the related obligation is increased based on the present value of the revised future lease payments, with a corresponding increase to the assets subject to these transactions. Upon modification, the amortization of the obligation is reset, resulting in more of the lease payments being applied to interest expense in the initial years following the modification. During fiscal 2016 and fiscal 2017, select finance lease obligations were modified or extended beyond their original lease term, resulting in increases in both the recorded obligations and the related interest expense recognized.

See Note 10 for additional information on our revolving credit facility, term loan, senior notes and finance and capital lease obligations.

CAF auto loan receivables are primarily funded through securitization transactions.  Our securitizations are structured to legally isolate the auto loan receivables, and we would not expect to be able to access the assets of our securitization vehicles, even in insolvency, receivership or conservatorship proceedings.  Similarly, the investors in the non-recourse notes payable have no recourse to our assets beyond the securitized receivables, the amounts on deposit in reserve accounts and the restricted cash from collections on auto loan receivables.  We do, however, continue to have the rights associated with the interest we retain in these securitization vehicles. Loans originated in the CAF Tier 3 loan origination program are primarily being funded through a $100 million warehouse facility, as well as the use of existing working capital.

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The timing of principal payments on the non-recourse notes payable is based on the timing of principal collections and defaults on the securitized auto loan receivables. The current portion of non-recourse notes payable represents principal payments that are due to be distributed in the following period. 

As of November 30, 2016, $8.79 billion of non-recourse notes payable was outstanding related to term securitizations.  These notes payable have scheduled maturities through April 2023, but they may mature earlier, depending on the repayment rate of the underlying auto loan receivables.  During the first nine months of fiscal 2017, we completed three term securitizations, funding a total of $3.73 billion of auto loan receivables. 

As of November 30, 2016, $1.68 billion of non-recourse notes payable was outstanding related to our warehouse facilities.  We have periodically increased our warehouse facility limit over time, as our store base, sales and CAF loan originations have grown.  In fiscal 2017, we increased the combined limit of our warehouse facilities by $300 million. As of November 30, 2016, the combined warehouse facility limit was $2.80 billion, and the unused warehouse capacity totaled $1.12 billion.  Of the combined warehouse facility limit, $1.50 billion will expire in February 2017 and $1.30 billion will expire in August 2017.  See Notes 2 and 10 for additional information on the warehouse facilities.

The securitization agreements related to the warehouse facilities include various representations and warranties, covenants and performance triggers.  If these requirements are not met, we could be unable to continue to securitize receivables through the warehouse facilities.  In addition, warehouse facility investors could charge us a higher rate of interest and could have us replaced as servicer.  Further, we could be required to deposit collections on the securitized receivables with the warehouse facility agents on a daily basis and deliver executed lockbox agreements to the warehouse facility agents. 

We expect that adjusted net cash provided by operations, borrowings under existing, new or expanded credit facilities and other funding arrangements will be sufficient to fund CAF, capital expenditures, repurchases of stock and working capital for the foreseeable future.  We anticipate that we will be able to enter into new, or renew or expand existing, funding arrangements to meet our future funding needs.  However, based on conditions in the credit markets, the cost for these arrangements could be materially higher than historical levels and the timing and capacity of these transactions could be dictated by market availability rather than our requirements.

The timing and amount of stock repurchases are determined based on share price, market conditions, legal requirements and other factors.  Shares repurchased are deemed authorized but unissued shares of common stock.  As of November 30, 2016, the board had authorized a total of $4.55 billion of repurchases.  At that date, $1.69 billion was available for repurchase under the board's outstanding authorization, which includes an additional $750 million authorized during the second quarter of fiscal 2017. Also during fiscal 2017, the board removed the expiration date of the outstanding repurchase authorizations. See Note 11 for more information on share repurchase activity.

Fair Value Measurements.  We report money market securities, mutual fund investments and derivative instruments at fair value.  See Note 6 for more information on fair value measurements.

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FORWARD-LOOKING STATEMENTS

We caution readers that the statements contained in this report about our future business plans, operations, capital structure, opportunities, or prospects, including without limitation any statements or factors regarding expected sales, margins, expenditures, CAF income, stock repurchases, indebtedness, earnings, or market conditions are forward-looking statements made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995.  You can identify these forward-looking statements by use of words such as “anticipate,” “believe,” “could,” “estimate,” “expect,” “intend,” “may,” “outlook,” “plan,” “predict,” “should,” “will” and other similar expressions, whether in the negative or affirmative.  Such forward-looking statements are based upon management’s current knowledge and assumptions about future events and involve risks and uncertainties that could cause actual results to differ materially from anticipated results.  We disclaim any intent or obligation to update these statements.  Among the factors that could cause actual results and outcomes to differ materially from those contained in the forward-looking statements are the following:

• Changes in the competitive landscape and/or our failure to successfully adjust to such changes.

• Events that damage our reputation or harm the perception of the quality of our brand.

• Changes in general or regional U.S. economic conditions.

• Changes in the availability or cost of capital and working capital financing, including changes related to the asset-backed securitization market.

• Changes in the attractiveness or availability of consumer credit provided by our third-party financing providers.

• Changes in the availability of extended protection plan products from third-party providers.

• Our inability to recruit, develop and retain associates and maintain positive associate relations.

• The loss of key associates from our store, regional or corporate management teams or a significant increase in labor costs.

• Security breaches or other events that result in the misappropriation, loss or other unauthorized disclosure of confidential customer or associate information.

• Significant changes in prices of new and used vehicles.

• A reduction in the availability of or access to sources of inventory or a failure to expeditiously liquidate inventory.

• Factors related to the regulatory and legislative environment in which we operate.

• Factors related to geographic growth, including the inability to acquire or lease suitable real estate at favorable terms or to effectively manage our growth.

• The failure of key information systems.

• The effect of various litigation matters.

• Adverse conditions affecting one or more automotive manufacturers, and manufacturer recalls.

• The inaccuracy of estimates and assumptions used in the preparation of our financial statements, or the effect of new accounting requirements or changes to U.S. generally accepted accounting principles.

• Factors related to the seasonal fluctuations in our business.

• The occurrence of severe weather events.

• Factors related to the geographic concentration of our stores.

For more details on factors that could affect expectations, see Part II, Item 1A, “Risk Factors” on Page 37 of this report, our Annual Report on Form 10-K for the fiscal year ended February 29, 2016, and our quarterly or current reports as filed with or furnished to the U.S. Securities and Exchange Commission (“SEC”).  Our filings are publicly available on our investor information home page at investors.carmax.com.  Requests for information may also be made to our Investor Relations Department by email to investor_relations@carmax.com or by calling 1-804-747-0422, ext. 4391.  We undertake no obligation to update or revise any forward-looking statements after the date they are made, whether as a result of new information, future events or otherwise.

Page 35

Item 3.    Quantitative and Qualitative Disclosures about Market Risk

There have been no material changes to our market risk since February 29, 2016.  For information on our exposure to market risk, refer to Part II, Item 7A, “Quantitative and Qualitative Disclosures about Market Risk,” contained in our Annual Report on Form 10-K for the year ended February 29, 2016.

Item 4.    Controls and Procedures

Disclosure.  We maintain disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934 (“Exchange Act”)) that are designed to ensure that information required to be disclosed in our reports filed under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms.  Our disclosure controls and procedures are also designed to ensure that this information is accumulated and communicated to management, including the chief executive officer (“CEO”) and the chief financial officer (“CFO”), as appropriate to allow timely decisions regarding required disclosure.

As of the end of the period covered by this report, with the participation of the CEO and CFO, we evaluated the effectiveness of our disclosure controls and procedures.  Based upon that evaluation, the CEO and CFO concluded that our disclosure controls and procedures were effective as of the end of the period.

Internal Control over Financial Reporting.    There was no change in our internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) that occurred during the quarter ended November 30, 2016, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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PART II.  OTHER INFORMATION

Item 1.    Legal Proceedings

For a discussion of legal proceedings, see Note 15 to the consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.

At its request, we have provided the Orange County, California District Attorney’s office with documents and information related to the handling, storage and disposal of certain types of hazardous waste at our Orange County store locations. We have an ongoing dialogue with the Orange County District Attorney’s office regarding these matters and, as part of these discussions, on December 1, 2016 they informed us that they had communicated the status of their informal inquiry to the environmental offices of nine other California counties. Based upon our evaluation of information currently available, we believe that the ultimate resolution of this matter will not have a material adverse effect on our financial condition, results of operations or cash flows.

Item 1A.     Risk Factors

In connection with information set forth in this Form 10-Q, the factors discussed under “Risk Factors” in our Form 10-K for fiscal year ended February 29, 2016, should be considered.  These risks could materially and adversely affect our business, financial condition, and results of operations.  There have been no material changes to the factors discussed in our Form 10‑K.

Item 2.    Unregistered Sales of Equity Securities and Use of Proceeds

On October 22, 2014, we announced that the board had authorized the repurchase of up to $2 billion of our common stock, expiring on December 31, 2016.  On June 28, 2016, we announced that the board had further authorized the repurchase of up to an additional $750 million of our common stock. At the same time, the board removed the expiration date of the outstanding repurchase authorizations. Purchases may be made in open market or privately negotiated transactions at management’s discretion and the timing and amount of repurchases are determined based on share price, market conditions, legal requirements and other factors.  Shares repurchased are deemed authorized but unissued shares of common stock. 

The following table provides information relating to the company’s repurchase of common stock for the third quarter of fiscal 2017.  The table does not include transactions related to employee equity awards or the exercise of employee stock options.

					Approximate
					Dollar Value
				Total Number	of Shares that
	Total Number	Average		of Shares Purchased	May Yet Be
	of Shares	Price Paid		as Part of Publicly	Purchased Under
Period	Purchased	per Share		Announced Program	the Program
September 1 - 30, 2016	763,047	$	55.60	763,047	$	1,847,774,134
October 1 - 31, 2016	2,033,661	$	51.44	2,033,661	$	1,743,171,647
November 1 - 30, 2016	983,759	$	52.53	983,759	$	1,691,497,105
Total	3,780,467			3,780,467

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Item 5.     Other Information

On January 3, 2017, we entered into a severance agreement with each of Thomas W. Reedy, Executive Vice President and Chief Financial Officer; William C. Wood, Jr., Executive Vice President and Chief Operating Officer; and Edwin J. Hill, Executive Vice President, Strategy and Business Transformation (the “Severance Agreements”). These Severance Agreements replace the previously outstanding severance agreements with each of these executive officers, with revisions to reflect each executive officer’s current title and salary as well as to address each officer’s rights as a potential whistleblower. None of the Severance Agreements provide a guaranteed term of employment.

Under the terms of the Severance Agreements, the Compensation and Personnel Committee (the “Committee”) of our Board of Directors establishes and approves each executive officer’s annual base salary, which cannot be less than the minimum base salary set forth in each Severance Agreement unless across-the-board reductions in salary are implemented for all of our senior officers. Additionally, the Committee approves the performance measures and payment amounts that determine each executive officer’s annual incentive bonus under our bonus plan.

The Severance Agreements contain restrictive covenants relating to confidential information, non-competition and non-solicitation of our associates. They provide further that each of the executive officers is eligible to participate in our Stock Incentive Plan and to participate in all other incentive, compensation, benefit and similar plans available to our other executive officers.

Each Severance Agreement also provides for payments and other benefits in certain circumstances involving a termination of employment, including a termination of employment in connection with a change-in-control. Payments in connection with a change-in-control are subject to a “double trigger”; that is, the executive is not entitled to payment unless there is both a change-in-control and the executive is subsequently terminated without cause (or resigns for good reason).

The Severance Agreements remain in effect during the term of the executive officer’s employment with us. This summary is qualified by the terms of the Severance Agreements, which are filed as exhibits to this Quarterly Report on Form 10-Q.

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Item 6.    Exhibits

3.1	CarMax, Inc. Bylaws, as amended and restated September 1, 2016, filed as Exhibit 3.1 to CarMax's Current Report on Form 8-K, filed September 1, 2016 (File No. 1-31420), is incorporated by this reference.
10.1	CarMax, Inc. Severance Agreement, dated as of September 1, 2016, between CarMax, Inc. and William D. Nash, filed as Exhibit 10.1 to CarMax's Current Report on Form 8-K, filed September 1, 2016 (File No. 1-31420), is incorporated by this reference.
10.2	CarMax, Inc. Severance Agreement, dated as of January 3, 2017, between CarMax. Inc. and Thomas W. Reedy, filed herewith.
10.3	CarMax, Inc. Severance Agreement, dated as of January 3, 2017, between CarMax. Inc. and William C. Wood, Jr., filed herewith.
10.4	CarMax, Inc. Severance Agreement, dated as of January 3, 2017, between CarMax. Inc. and Edwin J. Hill, filed herewith.
31.1	Certification of the Chief Executive Officer Pursuant to Rule 13a-14(a), filed herewith.
31.2	Certification of the Chief Financial Officer Pursuant to Rule 13a-14(a), filed herewith.
32.1	Certification of the Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, filed herewith.
32.2	Certification of the Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, filed herewith.
101.INS	XBRL Instance Document
101.SCH	XBRL Taxonomy Extension Schema Document
101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF	XBRL Taxonomy Extension Definition Linkbase Document
101.LAB	XBRL Taxonomy Extension Label Linkbase Document
101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document

Page 39

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

CARMAX, INC.
By:	/s/  William D. Nash
	William D. Nash
	President and
	Chief Executive Officer
By:	/s/  Thomas W. Reedy
	Thomas W. Reedy
	Executive Vice President and
	Chief Financial Officer

January 6, 2017

Page 40

EXHIBIT INDEX

3.1	CarMax, Inc. Bylaws, as amended and restated September 1, 2016, filed as Exhibit 3.1 to CarMax's Current Report on Form 8-K, filed September 1, 2016 (File No. 1-31420), is incorporated by this reference.
10.1	CarMax, Inc. Severance Agreement, dated as of September 1, 2016, between CarMax, Inc. and William D. Nash, filed as Exhibit 10.1 to CarMax's Current Report on Form 8-K, filed September 1, 2016 (File No. 1-31420), is incorporated by this reference.
10.2	CarMax, Inc. Severance Agreement, dated as of January 3, 2017, between CarMax. Inc. and Thomas W. Reedy, filed herewith.
10.3	CarMax, Inc. Severance Agreement, dated as of January 3, 2017, between CarMax. Inc. and William C. Wood, Jr., filed herewith.
10.4	CarMax, Inc. Severance Agreement, dated as of January 3, 2017, between CarMax. Inc. and Edwin J. Hill, filed herewith.
31.1	Certification of the Chief Executive Officer Pursuant to Rule 13a-14(a), filed herewith.
31.2	Certification of the Chief Financial Officer Pursuant to Rule 13a-14(a), filed herewith.
32.1	Certification of the Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, filed herewith.
32.2	Certification of the Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, filed herewith.
101.INS	XBRL Instance Document
101.SCH	XBRL Taxonomy Extension Schema Document
101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF	XBRL Taxonomy Extension Definition Linkbase Document
101.LAB	XBRL Taxonomy Extension Label Linkbase Document
101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document

Page 41

EX-10.2

CARMAX, INC.

SEVERANCE AGREEMENT

THIS SEVERANCE AGREEMENT (“Agreement”) is entered into as of January 3, 2017 (“Effective Date”) between CarMax, Inc., a Virginia corporation, and its affiliated companies (collectively, the “Company”), and Thomas W. Reedy, Jr. (the “Executive”).

WHEREAS, the Company recognizes the Executive’s intimate knowledge and experience in the business of the Company, and has appointed the Executive as Executive Vice President and Chief Financial Officer.

WHEREAS, the Executive will develop and come in contact with the Company’s proprietary and confidential information that is not readily available to the public, and that is of great importance to the Company and that is treated by the Company as secret and confidential information;

WHEREAS, the Company and the Executive desire to agree upon the terms, conditions, compensation and benefits of the Executive’s future employment; and

WHEREAS, upon execution of this Agreement, any prior employment or severance agreement between the Executive and the Company, whether oral or written, will have no force and effect with respect to the terms and conditions of Executive’s employment and will be replaced and superseded by the terms of this Agreement.

NOW, THEREFORE, in consideration of the Executive’s appointment and continued employment by the Company, and of the premises, mutual covenants and agreements of the parties set forth in this Agreement, and of other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto, intending to be legally bound, agree as follows:

Article 1.    Employment Acceptance

The Company hereby agrees to employ the Executive and the Executive hereby accepts employment as Executive Vice President and Chief Financial Officer of the Company, in accordance with the terms and conditions set forth herein.

Article 2.    Position and Responsibilities

During the term of the Executive’s employment with the Company (“Term”), the Executive agrees to serve as Executive Vice President and Chief Financial Officer of the Company. In his capacity as Executive Vice President and Chief Financial Officer, the Executive shall report directly to the Company’s President and Chief Executive Officer (“CEO”) and shall have the duties and responsibilities of Executive Vice President and Chief Financial Officer and

such other duties and responsibilities not inconsistent with the performance of his duties as Executive Vice President and Chief Financial Officer of the Company. The Executive’s principal work location shall be the corporate headquarters of the Company located in the Richmond, Virginia metropolitan area.

Article 3.    Standard of Care

3.1General. During the Term, the Executive shall devote his full business time, attention, knowledge and skills to the Company’s business and interests. The Executive covenants, warrants, and represents that he shall:

(a) Devote his best efforts and talents to the performance of his employment obligations and duties for the Company;

(b) Exercise the highest degree of loyalty and the highest standards of conduct in the performance of his duties;

(c) Observe and conform to the Company’s bylaws and other rules, regulations, and policies established or issued by the Company; and

(d) Refrain from taking advantage, for himself or others, of any corporate opportunities of the Company.

3.2Forfeiture and Return of Incentive Compensation. It is the Company’s expectation that the Executive will discharge his duties hereunder with utmost attention to the standards set forth in Section 3.1. In the event the CarMax, Inc. Board of Directors (“Board”) determines that the Executive has engaged in conduct constituting Cause (as defined in Section 7.6(a)), which conduct directly results in the filing of a restatement of any financial statement previously filed with the Securities and Exchange Commission (or other governmental agency) under the Federal securities laws, the Executive shall immediately (a) forfeit all unpaid Affected Compensation (as defined below) and (b) upon demand by the Company repay to the Company all Affected Compensation received or realized by the Executive together with interest at the prime rate in effect from time to time as reported in The Wall Street Journal; provided, however, that the forfeiture and repayment provisions of this Section 3.2 shall not apply to conduct constituting “gross negligence” under Section 7.6(a)(ii) or to conduct under Section 7.6(a)(iii), Section 7.6(a)(vii) or Section 7.6(a)(viii). “Affected Compensation” means any payment to the Executive, any award or vesting of any equity or other short-term or long-term incentive compensation to the Executive, or any before-tax proceeds of a sale of previously awarded equity compensation realized by the Executive, in any instance in which (i) the payment, award or vesting of the foregoing was expressly conditioned upon the achievement of certain financial results that were subsequently the subject of such restatement, and (ii) a lesser amount of payment, award or vesting or before-tax proceeds of a sale of any of the foregoing would have been made to, vested in or otherwise earned or realized by, the Executive based upon such restated financial results.

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Article 4.Other Activities

During the Term, the Executive shall comply with the provisions of Article 8 herein. Furthermore, during his employment, the Executive agrees to obtain the written consent of the CEO before entering into any other occupation, even if dissimilar to that of the Company, including, without limitation, service as a member of a board of directors of one or more other companies. Such consent may be granted or withheld, in the CEO’s sole discretion. The Executive may participate on charitable and civic boards, and in educational, professional, community and industry affairs, without CEO consent, provided that such participation does not interfere with the performance of his duties.

Article 5.Compensation and Benefits

As remuneration for all services to be rendered by the Executive during the Term, and as consideration for complying with the covenants herein during and after the termination or expiration of the Term, the Company shall pay and provide to the Executive the following compensation and benefits:

5.1Base Salary. During the Term, the Company shall pay the Executive a base salary (“Base Salary”) in an amount established and approved by the Compensation and Personnel Committee of the Board (“Compensation Committee”); provided, however, that such Base Salary shall be established at a rate of not less than $700,000.00 per year, except as otherwise provided in this Section 5.1 below. This Base Salary shall be subject to all appropriate federal and state withholding taxes and payable in accordance with the normal payroll practices of the Company. The Compensation Committee shall review and adjust the Base Salary as it deems appropriate at least annually during the Term; provided, however, that the Executive’s Base Salary shall not be decreased without the Executive’s written consent, other than across-the-board reductions applicable to all senior officers of the Company. If adjusted, the Base Salary shall be so adjusted for all purposes of this Agreement.

5.2Annual Bonus. In addition to his Base Salary, the Executive shall be entitled to participate in the Company’s Annual Performance-Based Bonus Plan (“Annual Bonus Plan”), as such Annual Bonus Plan may exist from time to time during the Term. Under the Company’s Annual Bonus Plan, the Executive has the opportunity to earn an annual bonus with respect to any fiscal year of the Company (“Annual Bonus”). The Annual Bonus will be determined by a formula approved each fiscal year by the Compensation Committee (the “Annual Bonus Formula”) in its sole discretion. At the beginning of each fiscal year, the Compensation Committee will authorize, in accordance with the Annual Bonus Plan, the Executive’s Annual Bonus for that fiscal year, which shall be targeted at seventy-five percent (75%) of the Executive’s Base Salary for that fiscal year (“Target Bonus Rate”). The specified Target Bonus Rate may be increased from time to time by the Compensation Committee but shall not be decreased without the Executive’s written consent. Depending upon the actual financial performance recorded by the Company for any given fiscal year, the Executive’s Annual Bonus may be increased or decreased solely in accordance with the Annual Bonus Formula and otherwise in accordance with the Annual Bonus Plan.

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5.3Long-Term Incentives. During the Term, the Executive shall be eligible to participate in the Company’s 2002 Stock Incentive Plan, as amended and restated (or any successor incentive plan thereto), to the extent that the Compensation Committee, in its sole discretion, determines is appropriate. The Compensation Committee will make its determination consistent with the methodology used by the Company for compensating the Executive’s peer executives. Additionally, the Executive shall be entitled to participate in all other incentive plans, whether equity-based or cash-based, applicable generally to his peer executives within the Company.

5.4Retirement and Deferred Compensation Plans. During the Term, the Executive shall be entitled to participate in all tax-qualified and nonqualified retirement and deferred compensation plans, policies and programs applicable generally to his peer executives within the Company, subject to the eligibility and participation requirements of such plans, policies and programs.

5.5Welfare Benefit Plans. During the Term, the Executive and the Executive’s family will be entitled to participate in all welfare benefit plans, policies and programs, including those defined under Section 3(1) of the Employee Retirement Income Security Act of 1974, as amended, provided by the Company to his peer executives within the Company, subject to the eligibility requirements and other provisions of such plans, policies and programs.

5.6Fringe Benefits. During the Term, the Executive will be entitled to fringe benefits in accordance with the plans, policies and programs of the Company in effect for his peer executives within the Company.

5.7Vacation. During the Term, the Executive will be entitled to participate in the Company’s Time Away paid time off program for salaried employees (or successor paid time off program) as that program is administered by the Company and as it may be amended or modified from time to time; provided, in all events, the Executive will be entitled to not less than 30 days of paid vacation each fiscal year.

5.8Right to Change Plans. By reason of Sections 5.4, 5.5, 5.6 and 5.7 herein, the Company shall not be obligated to institute, maintain, or refrain from changing, amending, or discontinuing any benefit plan, policy or program, so long as such changes are similarly applicable to the Executive’s peer executives.

Article 6.Expenses

During the Term, the Company shall pay or reimburse the Executive for all ordinary and necessary expenses, in a reasonable amount, that the Executive incurs in performing his duties under this Agreement including, but not limited to, travel, entertainment, professional dues and subscriptions, and all dues, fees, and expenses associated with membership in various professional, business, and civic associations and societies in which the Company finds that the Executive’s participation is in the best interests of the Company. The payment or reimbursement of expenses shall be subject to such rules concerning documentation of expenses and the type or

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magnitude of such expenses as the Compensation Committee or the Company, as applicable, may establish from time to time.

Article 7.Employment Termination

7.1Date of Termination. The Company or the Executive may terminate the Executive’s employment in accordance with the provisions of this Article 7. The “Date of Termination” of the Executive’s employment shall be as determined in Sections 7.2, 7.3, 7.4, 7.5, 7.6, and 7.7 below.

7.2Termination Due to Retirement or Death.

(a)In the event the Executive’s employment ends by reason of Retirement (as defined below), the Date of Termination shall be the date set forth in a notice by the Executive, which notice shall be given to the Company at least ninety (90) days prior to such date. In the event of the Executive’s death, the Date of Termination shall be the date of death. In either case, the Executive’s benefits shall be determined in accordance with the Company’s retirement, survivor’s benefits, insurance and other applicable plans and programs of the Company then in effect. For the purposes of this Agreement, “Retirement” shall mean the Executive’s voluntary termination of employment at a time during which he is eligible for “Normal Retirement” or “Early Retirement” as such terms are defined in the CarMax, Inc. Pension Plan as of the Effective Date.

(b)Upon the Date of Termination due to the Executive’s Retirement or death, the Company shall be obligated to pay the Executive or, if applicable, the Executive’s beneficiary or estate, the following “Accrued Obligations”: (i) any Base Salary that was accrued but not yet paid as of the Date of Termination; (ii) the unpaid Annual Bonus, if any, earned with respect to the fiscal year preceding the Date of Termination; (iii) any compensation previously deferred by the Executive by his own election; and (iv) all other employee welfare and retirement benefits to which the Executive is entitled on the Date of Termination in accordance with the terms of the applicable plan or plans. The Accrued Obligations payable under the above clauses (i) and (ii) shall be paid to the Executive in a lump sum cash payment within ten (10) days after the Date of Termination or as soon thereafter as may be practicable. The Accrued Obligations payable under clauses (iii) and (iv) shall be paid in accordance with the terms of the plan under which they are due.

(c)Upon the Date of Termination due to the Executive’s Retirement, the Executive shall be entitled to a pro rata share of the Annual Bonus based on actual performance for the fiscal year in which the Date of Termination occurs (such proration to be based on the fraction, the numerator of which is the number of full completed days of employment during the fiscal year through the Date of Termination, and the denominator of which is 365) (“Pro Rata Actual Bonus”). The Pro Rata Actual Bonus, if any, shall be paid to the Executive when annual bonuses are paid to other senior officers of the Company for such fiscal year.

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(d)Upon the Date of Termination due to the Executive’s death, the Executive’s beneficiary or estate shall be entitled to a pro rata share of the Annual Bonus at the Target Bonus Rate for the fiscal year in which the Date of Termination occurs (such proration to be based on the fraction, the numerator of which is the number of full completed days of employment during the fiscal year through the Date of Termination, and the denominator of which is 365) (“Pro Rata Target Bonus”). The Pro Rata Target Bonus shall be paid to the Executive’s beneficiary or estate in a lump sum cash payment within ten (10) days after the date of the Executive’s death or as soon as practicable thereafter.

(e)Upon the termination of the Executive’s employment due to his Retirement or death, the terms and conditions of the awards and agreements applicable to the Executive’s outstanding stock options, stock grants, stock appreciation rights, performance-based grants, and all other forms of long-term incentive compensation, regardless of whether such compensation is equity or cash based, will govern the consequences of the termination of the Executive’s employment under this Section 7.2.

7.3    Termination Due to Disability.

(a)    The Company shall have the right to terminate the Executive’s employment for his Disability (as defined below). The Date of Termination due to Disability shall be the date set forth in a notice to the Executive, which notice shall be given by the Company at least thirty (30) days prior to such date. For the purposes of this Agreement, “Disability” or “Disabled” shall mean any physical or mental illness or injury that causes the Executive (i) to be considered “disabled” for the purpose of eligibility to receive income-replacement benefits in accordance with the Company’s long-term disability plan in which the Executive is a participant, or (ii) if the Executive does not participate in any such plan, to be unable to substantially perform the duties of his position for 180 days in the aggregate during any period of twelve (12) consecutive months and a physician selected by the Company (and reasonably acceptable to the Executive) shall have furnished to the Company certification that the return of the Executive to his normal duties is impossible or improbable. The Board shall review the foregoing information and shall determine in good faith if the Executive is Disabled. The Board’s decision shall be binding on the Executive. Notwithstanding the foregoing, if the Executive incurs a physical or mental illness or injury that does not constitute a Disability, such physical or mental illness or injury shall not constitute a failure by the Executive to perform his duties hereunder and shall not be deemed a breach or default of this Agreement by the Executive.

(b)Upon the Date of Termination due to the Executive’s Disability, the Executive shall be entitled to his Accrued Obligations and a Pro Rata Target Bonus. The Accrued Obligations provided under Section 7.2(b)(i) and (ii) and the Pro Rata Target Bonus shall be paid to the Executive in a lump sum cash payment within ten (10) days after the Date of Termination or as soon as practicable thereafter. The Accrued Obligations provided under Section 7.2(b)(iii) and (iv) shall be paid in accordance with the terms of the plan under which they are due.

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(c)Upon the termination of the Executive’s employment due to his Disability, the terms and conditions of the awards and agreements applicable to the Executive’s outstanding stock options, stock grants, stock appreciation rights, performance-based grants, and all other forms of long-term incentive compensation, regardless of whether such compensation is equity or cash based, will govern the consequences of the termination of the Executive’s employment under this Section 7.3.

7.4    Voluntary Termination by the Executive Without Good Reason. The Executive may terminate his employment at any time without Good Reason (as defined in Section 7.7)by giving the Company at least forty five (45) days notice, which notice shall state the Date of Termination. The Company reserves the right to require the Executive not to work during the notice period but shall pay the Executive his accrued and unpaid Base Salary, at the rate then in effect provided in Section 5.1 herein, through the Date of Termination (but not to exceed forty-five (45) days), and such payment shall be made to the Executive within ten (10) days after the Date of Termination or as soon thereafter as may be practicable. The Company shall also pay the Executive any compensation previously deferred by the Executive by his own election and all other employee welfare and retirement benefits to which the Executive is entitled on the Date of Termination, all in accordance with the terms of the applicable plan or plans under which they are due. In the event of the Executive’s voluntary termination of employment without Good Reason, the terms and conditions of the awards and agreements applicable to the Executive’s outstanding stock options, stock grants, stock appreciation rights, performance-based grants, and all other forms of long-term incentive compensation, regardless of whether such compensation is equity or cash based, will govern the consequences of the termination of the Executive’s employment under this Section 7.4.

7.5Involuntary Termination by the Company Without Cause. Upon notice to the Executive, the Company may terminate the Executive’s employment at any time for any reason other than for Cause and other than due to Disability (“Involuntary Termination Without Cause”). The Date of Termination shall be the date stated in such notice.

(a)In the event of the Executive’s Involuntary Termination Without Cause, which occurs prior to the occurrence of, or after the conclusion of, a Change in Control Employment Period (defined at Section 11.4) that relates to a “Change in Control Event” (as defined in Section 11.5(b)), the Executive shall receive the following payments and benefits:

(i)The Company shall pay to the Executive, in equal monthly installments over the twenty-four (24) month period beginning on the 60^th day following the Executive’s “Separation from Service” (as such term is defined in the Internal Revenue Code of 1986, as amended (“Code”) Section 409A), an amount equal to the product of two (2) times the sum of (x) the Executive’s Base Salary and (y) the amount of the last Annual Bonus for the Executive as determined by the Compensation Committeein accordance with the Annual Bonus Plan, regardless of the Date of Termination.

(ii)The Executive’s participation in the Company’s health, dental, and vision plans will end on the last day of the month in which the Date of Termination

7

occurs. The Executive may elect to continue coverage under the health, dental and/or vision plans for himself and his eligible dependents in accordance with the terms and procedures of the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended (“COBRA”). If the Executive elects COBRA coverage, the Executive shall be responsible for remitting the COBRA premium to the Company (or to a COBRA administrator designated by the Company) in accordance with the terms of the Company’s health, dental and vision plans and applicable COBRA requirements. If the Executive elects COBRA coverage, the Company shall reimburse the Executive for a portion of the cost of such coverage until the end of the COBRA coverage period, up to a maximum period of eighteen (18) months. The amount of the Company’s reimbursement shall be equal to the sum of (1) the amount the Company would have otherwise paid for such coverage if the Executive had remained an active employee of the Company, and (2) the COBRA administration fee. If the Executive does not elect COBRA coverage, the Company shall have no obligation to the Executive with respect to health, dental and vision benefits following the Date of Termination.

(iii)The Company shall provide the Executive with reasonable outplacement services not to exceed a cost of $25,000. Such services shall be provided no later than the expiration of the two-year period following the Executive’s Separation from Service.

(iv)The Executive shall be entitled to his Accrued Obligations and a Pro Rata Actual Bonus. The Accrued Obligations provided under Section 7.2(b)(i) and (ii) shall be paid to the Executive in a lump sum cash payment within ten (10) days after the Date of Termination or as soon thereafter as may be practicable. The Accrued Obligations provided under Section 7.2(b)(iii) and (iv) shall be paid in accordance with the terms of the plan under which they are due. The Pro Rata Actual Bonus, if any, shall be paid to the Executive when annual bonuses are paid to other senior officers of the Company for such fiscal year.

(v)The terms and conditions of the awards and agreements applicable to the Executive’s outstanding stock options, stock grants, stock appreciation rights, performance-based grants, and all other forms of long-term incentive compensation, regardless of whether such compensation is equity or cash based, will govern the consequences of the termination of the Executive’s employment under this Section 7.5.

(b)Amounts payable under this Section 7.5 shall be in lieu of any amounts otherwise payable under any severance plan or agreement covering senior officers of the Company.

(c)In the event that the Company terminates the Executive’s employment at any time for any reason (i) other than for Cause and other than due to Disability and (ii) after the Executive has attained age 65 or higher, such termination shall not be deemed an Involuntary Termination Without Cause.

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7.6Termination For Cause. The Company may terminate the Executive’s employment at any time for Cause, without notice or liability for doing so. The Date of Termination shall be the date that Cause is determined as provided below.

(a)For purposes of this Agreement, “Cause” means a good faith determination by the Board that one (1) or more of the following has occurred:

(i)The Executive has committed a material breach of this Agreement, which breach was not cured or waived by the Company, within ten (10) days of receipt by the Executive of notice from the Company specifying the breach;

(ii)The Executive has committed gross negligence in the performance of his duties hereunder, intentionally fails to perform his duties, engages in intentional misconduct or intentionally refuses to abide by or comply with the directives of the Board, the CEO or the Company’s policies and procedures, as applicable, which actions continued for a period of ten (10) days after receipt by the Executive of notice of the need to cure or cease;

(iii)The Executive has willfully and continuously failed to perform substantially his duties (other than any such failure resulting from the Executive’s Disability or incapacity due to bodily injury or physical or mental illness), after a written demand for substantial performance is delivered to the Executive by the Board or the CEO that specifically identifies the manner in which the Board or the CEO believes that the Executive has not substantially performed his duties;

(iv)The Executive has willfully violated a material requirement of the Company’s code of conduct or breached his fiduciary duty to the Company;

(v)The Executive’s conviction of (or a plea of guilty or nolo contendere to) a felony or any crime involving moral turpitude, dishonesty, fraud, theft or financial impropriety;

(vi)The Executive has engaged in illegal conduct, embezzlement or fraud with respect to the business or affairs of the Company;

(vii)The Executive has failed to disclose to the Board a conflict of interest of which the Executive knew or with reasonable diligence should have known in connection with any transaction entered into on behalf of the Company; or

(viii)The Executive has failed to agree to a modification of the Agreement pursuant to Section 17.3 hereof when the purpose of the modification is to comply with applicable federal, state or local laws or regulations, or when such modification is designed to further define the restrictions of Article 8 or otherwise enhance the enforcement of Article 8 without increasing the duration or scope of the Article 8 restrictions.

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No act or failure to act on the Executive’s part will be considered “willful” if conducted by the Executive in good faith and with a reasonable belief that the Executive’s act or omission was in, and not opposed to, the best interests of the Company.

(b)If the Executive’s employment is terminated for Cause during the Term, this Agreement will terminate without further obligation of the Company to the Executive other than (i) the payment to the Executive of his accrued and unpaid Base Salary through the Date of Termination, and (ii) the payment ofany compensation previously deferred by the Executive by his own election and all other employee welfare and retirement benefits to which the Executive is entitled on the Date of Termination, all in accordance with the terms of the applicable plan or plans under which they are due. In the event of the Executive’s termination of employment for Cause, the terms and conditions of the awards and agreements applicable to the Executive’s outstanding stock options, stock grants, stock appreciation rights, performance-based grants, and all other forms of long-term incentive compensation, regardless of whether such compensation is equity or cash based, will govern the consequences of the termination of the Executive’s employment under this Section 7.6.

7.7Termination for Good Reason. At any time during the Term, the Executive may terminate his employment for Good Reason (as defined below) upon notice to the Company. Such notice shall state the intended Date of Termination and shall be given to the Company at least forty-five (45) days prior to such date and shall set forth in detail the facts and circumstances claimed to provide grounds for such termination. The Company shall have the right to cure the facts and circumstances giving rise to such grounds for termination for Good Reason. If the Company does not so cure within such forty-five (45) day notice period, then the Executive’s employment shall terminate on the Date of Termination stated in the notice.

(a)For purposes of this Agreement, “Good Reason” shall mean, without the Executive’s express written consent, the occurrence of any one (1) or more of the following:

(i)A reduction in the Executive’s Base Salary (other than, prior to the occurrence of a Change in Control or Asset Sale, a reduction across-the-board affecting all senior officers in substantially like percentages of their base salaries) or Target Bonus Rate;

(ii)A material reduction in the Executive’s duties or authority as Executive Vice President and Chief Financial Officer of the Company, or any removal of the Executive from or any failure to reappoint or reelect the Executive to such positions (except in connection with the termination of the Executive’s employment for Cause or Disability, as a result of the Executive’s death or Retirement or by the Executive other than for Good Reason);

(iii)The Executive being required to relocate to a principal place of employment more than thirty-five (35) miles from the Company’s headquarters except, prior to the occurrence of a Change in Control or Asset Sale, in connection with the

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relocation of substantially all senior Company executives pursuant to the relocation of the Company’s headquarters; or

(iv)The failure of the Company to obtain an agreement from any successor to all or substantially all of the assets or business of the Company to assume and agree to perform this Agreement within fifteen (15) days after a merger, consolidation, sale or similar transaction.

(b)In the event of the Executive’s voluntary termination of employment for Good Reason, which occurs prior to the occurrence of, or after the conclusion of, a Change in Control Employment Period that relates to a Change in Control Event, the Executive shall receive the following payments and benefits:

(i)The Company shall pay to the Executive, in equal monthly installments over the twenty-four (24) month period beginning on the 60^th day following the Executive’s Separation from Service, an amount equal to the product of two (2) times the sum of (x) the Executive’s Base Salary and (y) the amount of the last Annual Bonus for the Executive as determined by the Compensation Committeein accordance with the Annual Bonus Plan, regardless of the Date of Termination.

(ii)The Executive’s participation in the Company’s health, dental, and vision plans will end on the last day of the month in which the Date of Termination occurs. The Executive may elect to continue coverage under the health, dental and/or vision plans for himself and his eligible dependents in accordance with the terms and procedures of the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended (“COBRA”). If the Executive elects COBRA coverage, the Executive shall be responsible for remitting the COBRA premium to the Company (or to a COBRA administrator designated by the Company) in accordance with the terms of the Company’s health, dental and vision plans and applicable COBRA requirements. If the Executive elects COBRA coverage, the Company shall reimburse the Executive for a portion of the cost of such coverage until the end of the COBRA coverage period, up to a maximum period of eighteen (18) months. The amount of the Company’s reimbursement shall be equal to the sum of (1) the amount the Company would have otherwise paid for such coverage if the Executive had remained an active employee of the Company, and (2) the COBRA administration fee. If the Executive does not elect COBRA coverage, the Company shall have no obligation to the Executive with respect to health, dental and vision benefits following the Date of Termination.

(iii)The Company shall provide the Executive with reasonable outplacement services not to exceed a cost of $25,000. Such services shall be provided no later than the expiration of the two-year period following the Executive’s Separation from Service.

(iv)The Executive shall be entitled to his Accrued Obligations. The Accrued Obligations provided under Section 7.2(b)(i) and (ii) shall be paid to the

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Executive in a lump sum cash payment on the tenth day after the Date of Termination or as soon thereafter as may be practicable. The Accrued Obligations provided under Section 7.2(b)(iii) and (iv) shall be paid in accordance with the terms of the plan under which they are due.

(v)The terms and conditions of the awards and agreements applicable to the Executive’s outstanding stock options, stock grants, stock appreciation rights, performance-based grants, and all other forms of long-term incentive compensation, regardless of whether such compensation is equity or cash based, will govern the consequences of the termination of the Executive’s employment under this Section 7.7.

(vi)The Executive shall be entitled to a one-time payment in an amount equal to the Executive’s Base Salary on the Date of Termination multiplied by seventy-five percent (75%). This one-time payment shall be paid to the Executive in a lump sum cash payment on the tenth day after the Date of Termination or as soon thereafter as may be practicable.

(c)The Executive’s right to terminate his employment for Good Reason shall not be affected by the Executive’s incapacity due to physical or mental illness not constituting a Disability.Amounts payable under this Section 7.7 shall be in lieu of any amounts otherwise payable under any severance plan or agreement covering senior officers of the Company.

7.8Conditions on Company Obligations. All payments and benefits made or provided pursuant to Article 7 are subject to the Executive’s:

(a)Compliance with the provisions of Article 8, Article 9, Article 10 and Section 17.2 hereof;

(b)Except with respect to payment of the Executive’s Accrued Obligations, delivery to the Company of an executed Agreement and General Release without the Executive having revoked such agreement, which shall be substantially in the form attached hereto as Exhibit A (with such changes or additions as needed under then applicable law to give effect to its intent and purpose) (“Agreement and General Release”), satisfactory to the Company by the appropriate deadlines specified by the Company, provided that all such steps must be completed prior to the 60th day (or for purposes of Section 11.5(b), the 45th day) following the Executive’s Separation from Service; and

(c)Compliance with Code Section 409A. Notwithstanding anything herein to the contrary, distributions under Section 7.5(a)(i), 7.7(b)(i), 7.7(b)(vi), or 11.5(b) may not be made to a Key Employee (as defined below) upon his or her Separation from Service before the date which is six months after the date of the Key Employee’s Separation from Service (or, if earlier, the date of death of the Key Employee) (the “Key Employee Delay”). Any payments that would otherwise be made during this period of delay shall be accumulated and paid on the first day of the seventh month following the Executive’s Separation from Service (or, if earlier, the first day of the month after the Executive’s death). For purposes of this Section 7.8(c), “Key

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Employee” means an executive who, as of December 31^st of a calendar year, meets the requirements of Code Section 409A(a)(2)(B)(i) to be treated as a “specified employee” of the Company; i.e., a key employee (as defined in Code Section 416(i)(1)(A)(i), (ii) or (iii) applied in accordance with the regulations thereunder and disregarding Code Section 416(i)(5)). An executive who meets the criteria in the preceding sentence will be considered a Key Employee for purposes of this Agreement for the 12-month period commencing on the next following April 1.

After payment of all amounts and benefits under this Article 7, the Company thereafter shall have no further obligation under this Agreement.

Article 8.Covenant Not to Compete

The terms and provisions contained in this Article 8 comprise a covenant not to compete (the “Covenant Not to Compete”). The Executive acknowledges and agrees as follows:

8.1CarMax operates a unique business concept regarding the sale and servicing of new and used vehicles in a highly competitive industry.

8.2CarMax’s competitors have attempted to duplicate CarMax’s business concept in various markets throughout the United States, including markets where CarMax does not currently have a business location, and may continue to do so.

8.3In connection with the Executive’s employment with CarMax, he will receive access to, and training regarding, CarMax’s business concept and will, accordingly, acquire commercially valuable knowledge of and insight into CarMax’s operations and CarMax’s proprietary and confidential information, any of which if made available to any Competitor (as defined below) could place CarMax at a competitive disadvantage.

8.4In order to protect CarMax’s legitimate business interests from Competitors (as defined below) and to protect CarMax’s critical interest in its proprietary and confidential information, the Executive covenants and agrees as follows:

During the Executive’s employment with CarMax and for a period of twenty-four (24) months following the last day of the Executive’s employment (the “Restricted Period”), the Executive will not, directly or indirectly, compete with CarMax by acting “in a competitive capacity” (as defined below), for, or on behalf of, any person or entity operating or developing, during the Restricted Period, a business that provides or intends to provide activities, products or services that are the same or substantially similar to, and competitive with, the business of CarMax as of Executive’s last day of employment with CarMax (each, a “Competitor”) within any Metropolitan Statistical Area (as defined by the United States Office of Management and Budget) in which CarMax has a retail store site as of Executive’s last day of employment. Such Competitors include, but are not limited to: Sonic Automotive, Inc.; Lithia Motors, Inc.; Group 1 Automotive, Inc.; AutoNation, Inc.; Penske Automotive Group, Inc.; Asbury Automotive Group, Inc.;

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Hendrick Automotive Group; Auction Direct USA, L.P.; Car Sense Inc.; AutoAmerica, Inc.; Left Gate Property Holding, Inc. d/b/a Texas Direct Auto; Off Lease Only, Inc.; Carvana, LLC; Carvana Group, LLC; AutoMatch USA, LLC; DriveTime Car Sales Company, LLC; DriveTime Automotive Group, Inc.; CarLotz, Inc.; Hertz Global Holdings, Inc.; Enterprise Holdings, Inc.; Avis Budget Group, Inc.; Cox Automotive, Inc.; Classified Ventures, LLC; TrueCar, Inc.; Edmunds.com, Inc.; Dealertrack Technologies, Inc.; Dealer Dot Com, Inc.; CarGurus, LLC; Blinker, Inc.; and Beepi, Inc., and any automotive retail operation affiliated with, owned, operated, or controlled by Berkshire Hathaway Inc.; Home Depot, Inc.; Lowe’s Companies, Inc.; Target Corporation; Wal-Mart Stores, Inc.; Sears Holdings Corporation; Carrefour S.A.; Costco Wholesale Corporation; Royal Dutch Shell plc; Exxon Mobil Corporation; Chevron Corporation; and/or Gulliver International Co., Ltd.

8.5A business, including any Competitor, or any of its respective subsidiaries or affiliates, will not be considered to be in competition with CarMax for purposes of Article 8 if the business, or operating unit of the business, or its respective subsidiaries or affiliates, by which the Executive will be or is employed (i) does not have within the twenty-four (24) months preceding the Executive’s termination of employment with CarMax, annual gross revenues (calculated on a rolling 12-month basis) of at least $5,000,000 derived from the sale and servicing of new or used vehicles; or (ii) is not projected (by the business or operating unit of the business) to have within the twenty-four (24) months following the Executive’s termination of employment with CarMax, annual gross revenues (regardless of how calculated) of at least $5,000,000 derived from the sale and servicing of new or used vehicles.

8.6Acting “in a competitive capacity” shall mean providing to a Competitor, directly or indirectly, the same or substantially similar services that the Executive provided to CarMax at any time during Executive’s last twenty-four (24) months of employment.

8.7Nothing herein shall prevent or restrict the Executive from working for any person in any role or in any capacity that is not in competition with CarMax.

8.8Notwithstanding the foregoing, nothing herein shall be deemed to prevent or limit the right of the Executive to invest in the capital stock or other securities of any corporation whose stock or securities are regularly traded on any public exchange.

8.9Intellectual Property. The Executive understands and acknowledges that any writing, invention, design, system, process, development or discovery (collectively, “Intellectual Property”) conceived, developed, created or made by the Executive, alone or with others, both during the Term of this Agreement and in the course of the Executive’s employment prior to the Term, is the sole and exclusive property of the Company to the extent such Intellectual Property is related to the Executive’s duties or is within the scope of the Company’s actual or anticipated business. The Executive agrees to assign to the Company any and all of his right, title, and interest in and to such Intellectual Property, including, but not limited to, patent, trademark and other rights. The Executive further agrees to cooperate fully with the Company to secure, maintain, enforce, or defend the Company’s ownership of and rights in such Intellectual

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Property. The rights and remedies of this Section 8.9 are in addition to any rights and remedies available under applicable law.

8.10The Executive and CarMax have examined in detail the Covenant Not to Compete contained in this Article 8 and each agrees that the restraint imposed upon the Executive is reasonable in light of the legitimate business interests of CarMax and is not unduly harsh or burdensome with respect to the Executive’s ability to earn a livelihood. If any provision of the Covenant Not to Compete relating to the time period, geographic area or scope of restricted activities shall be declared by a court of competent jurisdiction to exceed the maximum time period, geographic area or scope of activities, as applicable, that such court deems reasonable and enforceable, then such time period, geographic area or scope of activities shall be deemed to be, and thereafter shall become, the maximum time period, scope of activities or largest geographic area that such court deems reasonable and enforceable and this Agreement shall automatically be considered to have been amended and revised to reflect such determination.

8.11The Executive and CarMax acknowledge that the Executive’s services are of a special, extraordinary, and intellectual character that gives the Executive unique value, and that CarMax’s business is highly competitive, and that violation of the Covenant Not to Compete provided herein would cause immediate, immeasurable, and irreparable harm, loss, and damage to CarMax not adequately compensable by a monetary award. In the event of any breach or threatened breach by the Executive of the Covenant Not to Compete, CarMax shall be entitled to such equitable and injunctive relief as may be available to restrain the Executive from violating the provisions hereof. Nothing herein shall be construed as prohibiting CarMax from pursuing any other remedies available at law or in equity for such breach or threatened breach, including the recovery of damages and the immediate termination of the employment of the Executive hereunder for Cause.

Article 9.Non-Solicitation of Employees

The Executive agrees that during the Executive’s employment with CarMax and for a period of twenty-four (24) months following the last day of the Executive’s employment, the Executive shall not, directly or indirectly, solicit or induce, or attempt to solicit or induce, any employee of CarMax with whom the Executive had material business-related contact on behalf of CarMax, to leave employment with CarMax for any reason whatsoever (the “Covenant Not to Solicit”). For purposes of this Article 9, employee shall mean any individual employed by CarMax.

Article 10.Confidentiality

The terms and provisions contained in this Article 10 comprise a covenant of confidentiality (the “Covenant of Confidentiality”).

The Executive understands and agrees that any and all Protected Information is the property of CarMax and is essential to the protection of CarMax’s goodwill and to the maintenance of CarMax’s competitive position and accordingly should be kept secret. For purposes of this Agreement, “Protected Information” means trade secrets, confidential and

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proprietary business information of or about CarMax, and any other information of CarMax, including technical data, processes, know‑how, financial data, analyses, forecasts, plans, operations information and data, customer lists (including potential customers) and information, marketing plans, materials and information, product and service information, accounts and billings information, sales transaction data, sales documents and information, discoveries, ideas, concepts, designs, drawings, specifications, techniques, models, information systems data and materials, computer software or hardware, data analyses and compilations, source code, object code, documentation, diagrams, flow charts, research, procedures, methods, systems, programs, price lists, pricing policies, supplier and distributor information, sources of supply, internal memoranda, promotional plans, internal policies, purchasing information, operating methods and procedures, training materials, and any products and services which may be developed from time to time by CarMax and its agents or employees, including the Executive; provided, however, that information that is in the public domain (other than as a result of a breach of this Agreement), approved for release by CarMax or lawfully obtained from third parties who are not bound by a confidentiality agreement with CarMax, is not Protected Information.

CarMax has advised the Executive and the Executive acknowledges that it is the policy of CarMax to maintain as secret and confidential all Protected Information, and that Protected Information has been and will be developed at substantial cost to and effort by CarMax. The Executive agrees to hold in strict confidence and safeguard any and all Protected Information accessed or accessible by the Executive during the Executive’s employment. The Executive shall not, without the prior written consent of CarMax, at any time, directly or indirectly, divulge, furnish, use, disclose or make accessible to any person, firm, corporation, association, or other entity (otherwise than as may be required in the regular course of the Executive’s employment with CarMax), any Protected Information, or cause any such Protected Information to enter the public domain.

Nothing contained in this Article 10 is intended to reduce in any way the protection available to CarMax pursuant to the Uniform Trade Secrets Act as adopted in Virginia or any other state or other applicable laws that prohibit the misuse or disclosure of confidential or proprietary information. Unless lengthened by the application of the Virginia Uniform Trade Secrets Act or other applicable law, the restrictions in Article 10 shall remain in effect during Associate’s employment and for five (5) years thereafter.

Article 11.Change in Control; Sale of Assets

11.1Purpose. The Company recognizes that the possibility of a Change in Control or Asset Sale exists, and the uncertainty and questions that it may raise among management may result in the departure or distraction of management personnel to the detriment of the Company. Accordingly, the purpose of this Article 11 is to encourage the Executive to continue employment after a Change in Control or Asset Sale by providing reasonable employment security to the Executive and to recognize the prior service of the Executive in the event of a termination of employment under certain circumstances after a Change in Control or Asset Sale. This Article 11 shall not become effective, and the Company shall have no obligation hereunder,

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if the employment of the Executive with the Company terminates before a Change in Control or Asset Sale.

11.2Definitions.

(a)“Change in Control” of the Company means the occurrence of either of the following events: (i) a third person, including a “group” as defined in Section 13(d)(3) of the Securities Exchange Act of 1934, as amended, becomes, or obtains the right to become, the beneficial owner of Company securities having twenty percent (20%) or more of the combined voting power of the then outstanding securities of the Company that may be cast for the election of directors to the Board of the Company (other than as a result of an issuance of securities initiated by the Company in the ordinary course of business); or (ii) as the result of, or in connection with, any cash tender or exchange offer, merger or other business combination, sale of assets or contested election, or any combination of the foregoing transactions, the persons who were directors of the Company before such transactions shall cease to constitute a majority of the board or of the board of directors of any successor to the Company.

(b)“Asset Sale” shall mean a sale of all or substantially all of the assets of the Company in a single transaction or a series of related transactions.

11.3Long-Term Incentive Compensation. The terms and conditions of the awards and agreements applicable to the Executive’s outstanding stock options, stock grants, stock appreciation rights, performance-based grants, and all other forms of long-term incentive compensation, regardless of whether such compensation is equity or cash based, will govern the consequences to the Executive upon the occurrence of a Change in Control or an Asset Sale or upon a termination of the Executive’s employment thereafter.

11.4Continued Employment Following Change in Control or an Asset Sale. If a Change in Control or an Asset Sale occurs and the Executive is employed by the Company on the date the Change in Control or Asset Sale occurs (the “Change in Control Date”), the period beginning on the Change in Control Date and ending on the second (2nd) anniversary of such date shall be the “Change in Control Employment Period.”

11.5Termination of Employment During Change in Control Employment Period. The Executive will be entitled to the compensation and benefits described in this Section 11.5 if, during the Change in Control Employment Period, (a) the Company terminates his employment for any reason other than for Cause or due to Disability, or (b) the Executive voluntarily terminates his employment with the Company for Good Reason. The compensation and benefits described in this Section 11.5 are in lieu of, and not in addition to, any compensation and benefits provided to the Executive pursuant to Sections 7.5 and 7.7 herein and any amounts otherwise payable under any severance plan or agreement covering senior officers of the Company. Upon such a termination of employment, the Executive shall receive the following payments and benefits:

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(a)The Executive shall be entitled to his Accrued Obligations and a Pro Rata Target Bonus. The Accrued Obligations provided under Section 7.2(b)(i) and (ii) and the Pro Rata Target Bonus shall be paid to the Executive in a lump sum cash payment within ten (10) days after the Date of Termination or as soon thereafter as may be practicable. The Accrued Obligations provided under Section 7.2(b)(iii) and (iv) shall be paid in accordance with the terms of the plan under which they are due.

(b)The Company shall pay to the Executive an amount equal to 2.99 times the Executive’s Final Compensation. For purposes of this Agreement, “Final Compensation” means the Base Salary in effect at the Date of Termination, plus the higher Annual Bonus paid or payable for the two (2) most recently completed fiscal years. If the Change in Control Employment Period relates to an event that also qualifies as a Change in Control Event, this payment will be paid to the Executive in a lump sum cash payment on the forty-fifth (45th) day following the Executive’s Separation from Service. Otherwise, such payment shall be paid at the time and in the form set forth in Section 7.5. For purposes of this Section 11.5(b), a “Change in Control Event” means an event described in IRS regulations or other guidance under Code Section 409A(a)(2)(A)(v).

(c)The Executive’s participation in the Company’s health, dental, and vision plans will end on the last day of the month in which the Date of Termination occurs. The Executive may elect to continue coverage under the health, dental and/or vision plans for himself and his eligible dependents in accordance with the terms and procedures of COBRA. If the Executive elects COBRA coverage, the Executive shall be responsible for remitting the COBRA premium to the Company (or to a COBRA administrator designated by the Company) in accordance with the terms of the health, dental and vision plans and applicable COBRA requirements. If the Executive elects COBRA coverage, the Company shall reimburse the Executive for a portion of the cost of such coverage until the end of the COBRA coverage period, up to a maximum period of eighteen (18) months. The amount of the Company’s reimbursement shall be equal to the sum of (1) the amount the Company would have otherwise paid for such coverage if the Executive had remained an active employee of the Company, and (2) the COBRA administration fee. If the Executive does not elect COBRA coverage, the Company shall have no obligation to the Executive with respect to health, dental and vision benefits following the Date of Termination.

(d)The Company shall provide the Executive with reasonable outplacement services not to exceed a cost of $25,000. Such services shall be provided no later than the expiration of the two-year period following the Executive’s Separation from Service.

11.6Death, Disability or Retirement Termination During Change In Control Employment Period. If the Executive’s employment ends by reason of Retirement, the Executive’s death, or as a result of Disability during the Change in Control Employment Period, this Agreement will terminate without any further obligation on the part of the Company under this Agreement other than:

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(a)The Executive (or his beneficiary or his estate in the event of his death) will be entitled to the payment of the Executive’s Accrued Obligations and a Pro Rata Target Bonus. The Accrued Obligations provided under Section 7.2(b)(i) and (ii) and the Pro Rata Target Bonus shall be paid in a lump sum cash payment within ten (10) days after the Date of Termination or as soon thereafter as may be practicable. The Accrued Obligations provided under Section 7.2(b)(iii) and (iv) shall be paid in accordance with the terms of the plan under which they are due; and

(b)The terms and conditions of the awards and agreements applicable to the Executive’s outstanding stock options, stock grants, stock appreciation rights, performance-based grants, and all other forms of long-term incentive compensation, regardless of whether such compensation is equity or cash based, will govern the consequences of the termination of the Executive’s employment under this Section 11.6.

The compensation and benefits described in this Section 11.6 are in lieu of, and not in addition to, any compensation and benefits provided to the Executive pursuant to Sections 7.2 and 7.3 herein and any amounts otherwise payable under any severance plan or agreement covering senior officers of the Company.

11.7Termination for Cause and Termination Other Than For Good Reason Following a Change in Control.

(a)If the Executive’s employment is terminated for Cause during the Change in Control Employment Period, this Agreement will terminate without further obligation to the Executive other than the payment to the Executive of his accrued and unpaid Base Salary through the Date of Termination, as well as any deferred compensation and other employee welfare and retirement benefits to which the Executive is entitled on the Date of Termination in accordance with the terms of the applicable plan or plans under which they are due. The terms and conditions of the awards and agreements applicable to the Executive’s outstanding stock options, stock grants, stock appreciation rights, performance-based grants, and all other forms of long-term incentive compensation, regardless of whether such compensation is equity or cash based, will govern the consequences of the termination of the Executive’s employment under this Section 11.7(a). The compensation and benefits described in this Section 11.7 are in lieu of, and not in addition to, any compensation and benefits provided to the Executive pursuant to Sections 7.4 and 7.6 herein and any amounts otherwise payable under any severance plan or agreement covering senior officers of the Company.

(b)If the Executive terminates employment during the Change in Control Employment Period other than for Good Reason, this Agreement will terminate without further obligation to the Executive other than:

(i)    The Executive (or his beneficiary or his estate in the event of his death) will be entitled to the payment of the Executive’s Accrued Obligations. The Accrued Obligations provided under Section 7.2(b)(i) and (ii) shall be paid in a lump sum cash payment within ten (10) days after the Date of Termination or as soon thereafter as

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may be practicable. The Accrued Obligations provided under Section 7.2(b)(iii) and (iv) shall be paid in accordance with the terms of the plan under which they are due; and

(ii) The terms and conditions of the awards and agreements applicable to the Executive’s outstanding stock options, stock grants, stock appreciation rights, performance-based grants, and all other forms of long-term incentive compensation, regardless of whether such compensation is equity or cash based, will govern the consequences of the termination of the Executive’s employment under this Section 11.7(b).

11.8Conditions on Company Obligations. All payments and benefits made or provided pursuant to Article 11 are subject to the provisions of Section 7.8 (including the Key Employee Delay in Section 7.8(c)). After payment of all amounts and benefits under this Article 11, the Company thereafter shall have no further obligation under this Agreement.

Article 12.Assignment

12.1Assignment by Company. This Agreement may and shall be assigned or transferred to, and shall be binding upon and shall inure to the benefit of, any successor of the Company, and any such successor shall be deemed substituted for all purposes of the “Company” under the terms of this Agreement. As used in this Agreement, the term “successor” shall mean any person, firm, corporation, or business entity which, at any time, whether by merger, purchase, or otherwise, acquires all or substantially all, or control of all or substantially all, of the assets or the business of the Company. Except as provided herein, the Company may not otherwise assign this Agreement.

12.2Assignment by the Executive. The services to be provided by the Executive to the Company hereunder are personal to the Company and the Executive’s duties may not be assigned by the Executive; provided, however, that this Agreement shall inure to the benefit of and be enforceable by the Executive’s personal or legal representatives, executors, and administrators, successors, heirs, distributees, devisees, and legatees. If the Executive dies while any amounts payable to the Executive hereunder remain outstanding, all such amounts, unless otherwise provided herein, shall be paid in accordance with the terms of this Agreement to the Executive’s devisee, legatee, or other designee or, in the absence of such designee, to the Executive’s estate.

Article 13.Dispute Resolution

Except for actions initiated by CarMax to enjoin a breach by the Executive, and/or recover damages from the Executive, related to the Covenant Not to Compete (Article 8), the Covenant Not to Solicit (Article 9) or the Covenant of Confidentiality (Article 10) (collectively, the “Restrictive Covenants”), which action(s) CarMax may bring in an appropriate court of law or equity, any disagreement between the Executive and CarMax concerning anything covered by this Agreement or concerning other terms or conditions of the Executive’s employment or the termination of the Executive’s employment will be settled by final and binding arbitration pursuant to CarMax’s

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Dispute Resolution Rules and Procedures in effect at the time the disagreement or dispute arises or at the time of termination in the event the Executive’s employment terminated. The decision of the arbitrator will be final and binding on both the Executive and CarMax and may be enforced in a court of appropriate jurisdiction.

Article 14.Litigation By Third Parties

All litigation or inquiries by third parties (including, but not limited to, those by the Company’s shareholders or by government agencies) arising out of or in connection with the Executive’s performance under this Agreement, against either the Company or the Executive or both, shall be jointly defended or opposed by the parties hereto to support this Agreement. The Company shall appoint legal counsel for the parties and shall bear the costs, reasonable legal fees and expenses related to such litigation or inquiry.

Article 15.Indemnity; Limitation of Liability

As an officer of the Company, the Executive shall be entitled to indemnity and limitation of liability as provided pursuant to the Company’s Articles of Incorporation, bylaws and any other governing document, as the same shall be amended from time to time.

Article 16.Notice

Any notices, requests, demands, or other communications provided for by this Agreement shall be in writing, and given by delivery in person or by registered or certified mail, postage prepaid (in which case notice will be deemed to have been given on the third day after mailing) or by overnight delivery by a reliable overnight courier service (in which case notice will be deemed to have been given on the day after delivery to such courier service). Notices to the Executive shall be directed to the last address he has filed in writing with the Company. Notices to the Company shall be directed to the Secretary of the Company.

Article 17.Miscellaneous

17.1Entire Agreement. This Agreement supersedes any prior agreements or understandings, oral or written, between the parties hereto, with respect to the subject matter hereof, and constitutes the entire agreement of the parties with respect thereto. Without limiting the generality of the foregoing sentence, this Agreement completely supersedes any and all prior employment and severance agreements entered into by and between the Company, and the Executive, and all amendments thereto, in their entirety.

17.2Return of Materials. Upon the termination of the Executive’s employment with the Company, however such termination is effected, the Executive shall promptly deliver to the Company all property (including Intellectual Property), records, materials, documents, and copies of documents concerning the Executive’s business and/or its customers (hereinafter collectively “Company Materials”) which the Executive has in his possession or under his control at the time of termination of his employment. The Executive further agrees not to take or

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extract any portion of Company Materials in written, computer, electronic or any other reproducible form without the prior written consent of the Board.

17.3Modification. This Agreement shall not be varied, altered, modified, canceled, changed, or in any way amended except by mutual agreement of the parties in a written instrument executed by the parties hereto or their legal representatives.

17.4Severability. It is the intention of the parties that the provisions of the restrictive covenants herein shall be enforceable to the fullest extent permissible under the applicable law. If any clause or provision of this Agreement is held to be illegal, invalid, or unenforceable under present or future laws effective during the Term hereof, then the remainder of this Agreement shall not be affected thereby, and in lieu of each clause or provision of this Agreement that is illegal, invalid or unenforceable, there shall be added, as a part of this Agreement, a clause or provision as similar in terms to such illegal, invalid or unenforceable clause or provision as may be possible and as may be legal, valid and enforceable.

17.5Attorney’s Fees. In any action arising under this Agreement, CarMax, so long as it prevails, shall be entitled to recover its reasonable attorney’s fees and costs.

17.6Section 409A. Notwithstanding any other provision of this Agreement, (i) to the extent applicable, this Agreement will be interpreted, operated and administered in accordance with the requirements of Code Section 409A, and (ii) if either the Company or the Executive determines that any provision of this Agreement may cause compensation payable to the Executive to be classified as income under Code Section 409A(a) or (b) and thereby results in tax penalties to the Executive, the Company or the Executive, as the case may be, shall notify the other party and the parties will amend the Agreement to avoid penalties under Code Section 409A.

17.7Counterparts. This Agreement may be executed in one (1) or more counterparts, each of which shall be deemed to be an original, but all of which together will constitute one and the same Agreement.

17.8Tax Withholding. The Company may withhold from any benefits payable under this Agreement all federal, state, city, or other taxes as may be required pursuant to any law or governmental regulation or ruling.

17.9Restrictive Covenants of the Essence. The Restrictive Covenants in Articles 8, 9 and 10 of the Agreement are of the essence of this Agreement. In the event that the Executive has a claim or cause of action against CarMax (whether related to this Agreement or not), such claim or cause of action, including but not limited to a breach of this Agreement by CarMax, shall not prevent or otherwise constitute a defense to CarMax’s enforcement of the Restrictive Covenants and shall not excuse the Executive’s performance of the Restrictive Covenants. CarMax shall at all times maintain the right to seek enforcement of the Restrictive Covenants whether or not CarMax has previously refrained from seeking enforcement of any such Restrictive Covenant as to the Executive or any other peer Executive who has signed an

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agreement with similar covenants. Notwithstanding any provision contained within this Agreement, the obligations of the Executive under Articles 8, 9, 10, 13 and 17 of this Agreement shall continue after the termination of this Agreement and the Executive’s employment and shall be binding on the Executive’s heirs, executors, legal representatives and assigns.

17.10Beneficiaries. The Executive may designate one (1) or more persons or entities as the primary or contingent beneficiaries of any amounts to be received under this Agreement. Such designation must be in the form of a signed writing acceptable to the Company’s chief legal officer. The Executive may make or change such designation at any time.

17.11Full Settlement. Except as set forth in this Agreement, the Company’s obligation to make the payments provided for in this Agreement and otherwise to perform its obligations hereunder shall not be affected by any circumstances, including without limitation, set-off, counterclaim, recoupment, defense or other claim, right or action which the Company may have against the Executive or others, except to the extent any amounts are due the Company or its subsidiaries or affiliates pursuant to a judgment against the Executive; provided, however, in no event shall any judgment result in the offset of amounts subject to Code Section 409A. In no event shall the Executive be obligated to seek other employment in mitigation of the amounts payable to the Executive under any of the provisions of this Agreement, nor shall the amount of any payment hereunder be reduced by any compensation earned by the Executive as a result of employment by another employer; provided, that continued health, dental and vision benefit plan participation pursuant to Section 7.5(a)(ii) or Section 11.5(c) herein shall be reduced to the extent that the Executive becomes eligible to such benefits from a subsequent employer.

17.12Contractual Rights to Benefits. This Agreement establishes and vests in the Executive a contractual right to the benefits to which he is entitled hereunder. However, nothing herein contained shall require or be deemed to require, or prohibit or be deemed to prohibit, the Company to segregate, earmark, or otherwise set aside any funds or other assets in trust or otherwise to provide for any payments to be made or required hereunder.

17.13Resignations. Upon the termination of the Executive’s employment, however such termination is effected, he shall be deemed to have resigned as of the date of such termination all offices and directorships he may have held with the Company and all subsidiaries.

Article 18.Governing Law

This Agreement shall be governed by, construed and enforced in accordance with the laws of the Commonwealth of Virginia without regard to conflicts of laws principles thereof. In the event of any litigation between CarMax and Executive related to the enforcement or enforceability of the Restrictive Covenants, the parties agree that the Circuit Court for the County of Henrico, Virginia, shall have mandatory and exclusive jurisdiction and venue of any such action.

Article 19.Protected Rights

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Notwithstanding any other terms and conditions of this Agreement:

Executive understands that nothing contained in this Agreement limits Executive’s ability to file a charge or complaint with the Equal Employment Opportunity Commission, the National Labor Relations Board, the Occupational Safety and Health Administration, the Securities and Exchange Commission or any other federal, state or local governmental agency or commission (“Government Agencies”). Executive further understands that this Agreement does not limit Executive’s ability to communicate with any Government Agencies or otherwise participate in any investigation or proceeding that may be conducted by any Government Agency, including providing documents or other information, without notice to the Company. This Agreement does not limit Executive’s right to receive an award for information provided to any Government Agencies.

[Signature Page Follows]

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IN WITNESS WHEREOF, the Executive and the Company have executed this Agreement as of January 3, 2017.

CARMAX, INC.: 
By:/s/ Eric M. MargolinEric M. Margolin

Executive Vice President, General Counsel and Corporate Secretary

EXECUTIVE:/s/ Thomas W. Reedy, Jr.

Thomas W. Reedy, Jr.

Executive Vice President and

Chief Financial Officer

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EXHIBIT A

[Form of Release]

AGREEMENT AND GENERAL RELEASE

This Agreement and General Release (the “Agreement and General Release”), dated as of _______ __, 20__, is made by and between CarMax, Inc., for itself and its affiliates, subsidiaries, divisions, successors and assigns in such capacity, and the current, future and former employees, officers, directors, trustees and agents thereof (collectively referred to throughout this Agreement as the “Company”) and _______________________ (“Executive”), for him/herself and his/her heirs, executors, administrators, successors and assigns (together with Executive, collectively referred to throughout this Agreement and General Release as “Employee”) agree:

1.    Last Day of Employment. The Executive’s last day of employment with the Company is ____________, 20__. In addition, effective as of ____________, 20__, the Executive resigns from the Executive’s position as ____________ of the Company, and will not be eligible for any benefits or compensation after ____________, 20__, other than as specifically provided in Articles 7 or 11, as applicable, of the Severance Agreement between the Company and the Executive dated as of __________ __, 20__ (“Severance Agreement”) and the Executive’s continued right to indemnification and directors and officers liability insurance. In addition, effective as of ____________, 20__, the Executive resigns from all offices, directorships, trusteeships, committee memberships and fiduciary capacities held with, or on behalf of, the Company or any benefit plans of the Company. These resignations will become irrevocable as set forth in Section 3 below.

2.    Consideration. The parties acknowledge that this Agreement and General Release is being executed in accordance with Article 7 or Article 11 of the Severance Agreement, as applicable, and that this Agreement and General Release is a condition to the receipt by Employee of all payments and benefits thereunder.

3.    Revocation. The Executive may revoke this Agreement and General Release for a period of seven (7) calendar days following the day the Executive executes this Agreement and General Release. Any revocation within this period must be submitted, in writing, to the Company and state, “I hereby revoke my acceptance of our Agreement and General Release.” The revocation must be personally delivered to the Company’s _______________, or his/her designee, or mailed to the Company, _______________________________ and postmarked within seven (7) calendar days of execution of this Agreement and General Release. This Agreement and General Release shall not become effective or enforceable until the revocation period has expired. If the last day of the revocation period is a Saturday, Sunday, or legal holiday in Virginia, then the revocation period shall not expire until the next following day that is not a Saturday, Sunday, or legal holiday.

4.    General Release of Claims. Employee knowingly and voluntarily releases and forever discharges the Company from any and all claims, rights, causes of action, demands, damages, fees, costs, expenses, including attorneys’ fees, and liabilities of any kind whatsoever, whether

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known or unknown, against the Company, that Employee has, has ever had or may have as of the date of execution of this Agreement and General Release, including, but not limited to, any alleged violation of:

●    The Age Discrimination in Employment Act of 1967, as amended;

●    The Older Workers Benefit Protection Act of 1990;

●    Title VII of the Civil Rights Act of 1964, as amended;

●    The Civil Rights Act of 1991;

●    Sections 1981 through 1988 of Title 42 of the United States Code, as amended;

●    The Employee Retirement Income Security Act of 1974, as amended;

●    The Immigration Reform and Control Act, as amended;

●    The Americans with Disabilities Act of 1990, as amended;

●    The Worker Adjustment and Retraining Notification Act, as amended;

●    The Occupational Safety and Health Act, as amended;

●    The Family and Medical Leave Act of 1993;

●    All other federal, state or local civil or human rights laws, whistleblower laws, or any other local, state or federal law, regulations and ordinances;

●    All public policy, contract, tort, or common laws; and

●    All allegations for costs, fees, and other expenses including attorneys’ fees incurred in these matters.

Notwithstanding anything herein to the contrary, the sole matters to which the Agreement and General Release do not apply are: (i) Employee’s rights of indemnification and directors and officers liability insurance coverage to which the Executive was entitled immediately prior to __________ __, 20__ with regard to the Executive’s service as an officer and director of the Company (including, without limitation, under Article 15 of the Severance Agreement); (ii) Employee’s rights under any tax-qualified pension plan or claims for accrued vested benefits under any other employee benefit plan, policy or arrangement maintained by the Company or under the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended; (iii) Employee’s rights under Article 7 or Article 11 of the Severance Agreement, as the case may be; (iv) Employee’s rights as a stockholder of the Company; (v) Employee’s right to file charges or complaints with the Equal Employment Opportunity Commission, the National Labor Relations Board, the Occupational Safety and Health Administration, the Securities and Exchange Commission or any other federal, state or local

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governmental agency or commission (“Government Agencies”), although Employee waives the Executive’s right to recover any damages or other relief in any claim or suit brought by or through the Government Agencies on behalf of Employee under the Age Discrimination in Employment Act, Title VII of the Civil Rights Act of 1964 as amended, the Americans with Disabilities Act, or any other federal or state discrimination law, except where such waivers are prohibited by law, provided, however, this Agreement and General Release does not limit Employee’s right to receive an award for information provided to any Government Agencies; and (vi) Employee’s rights that cannot be released by private agreement under applicable law.

5.    Affirmations. Employee affirms that the Executive has been paid or has received all compensation, wages, bonuses, commissions, and/or benefits to which the Executive may be entitled and no other compensation, wages, bonuses, commissions and benefits are due to the Executive, except as provided in Article 7 or Article 11 of the Severance Agreement, as applicable. The Employee also affirms the Executive has no known workplace injuries.

6.    Return of Property. Employee represents that the Executive has returned to the Company all property belonging to the Company, including but not limited to any vehicle, laptop, cell phone, keys, access cards, phone cards and credit cards, and all Protected Information as defined in Article 10 of the Severance Agreement.

7.    Cooperation. Employee agrees to reasonably cooperate with the Company to provide truthful and accurate information in connection with any administrative proceeding, arbitration, or litigation relating to any matter that occurred during the Associate’s employment with the Company in which the Associate was involved or of which the Associate has knowledge. Employee further understands that this Agreement and General Release does not limit Employee’s ability to communicate with any Government Agencies or otherwise participate in any investigation or proceeding that may be conducted by any Government Agency, including providing documents or other information, without notice to the Company.

8.    Governing Law and Interpretation. This Agreement and General Release shall be governed and construedin accordance with the laws of the Commonwealth of Virginia, without reference to Virginia’s choice of law statutes or decisions. In the event Employee or the Company breaches any provision of this Agreement and General Release, Employee and the Company acknowledge thateither may institute an action to specifically enforce any term or terms of this Agreement and General Release pursuant to the dispute resolution provisions of Article 13 of the Severance Agreement. Should any provision of this Agreement and General Release be declared illegal or unenforceable by any court of competent jurisdiction and should the provision be incapable of being modified to be enforceable, such provision shall immediately become null and void, leaving the remainder of this Agreement and General Release in full force and effect. Nothing herein, however, shall operate to void or nullify any enforceable general release language contained in this Agreement and General Release.

9.    No Admission of Wrongdoing. Employee agrees neither this Agreement and General Release nor the furnishing of the consideration for this Agreement and General Release shall be

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deemed or construed at any time for any purpose as an admission by the Company of any liability or unlawful conduct of any kind.

10.    Amendment. This Agreement and General Release may not be modified, altered or changed except upon express written consent of both parties wherein specific reference is made to this Agreement and General Release.

11.    Entire Agreement. This Agreement and General Release sets forth the entire agreement between the parties hereto and fully supersedes any prior agreements or understandings between the parties; provided, however, that notwithstanding anything in this Agreement and General Release, the provisions in the Severance Agreement that are intended to survive termination of the Severance Agreement, including but not limited to those contained in Articles 8, 9 and 10, 13 and in Section 17.2 thereof, shall survive and continue in full force and effect. Employee acknowledges the Executive has not relied on any representations, promises, or agreements of any kind made to the Executive in connection with the Executive’s decision to accept this Agreement and General Release.

EMPLOYEE HAS BEEN ADVISED THAT EXECUTIVE HAS UP TO TWENTY-ONE (21) CALENDAR DAYS TO REVIEW AND CONSIDER THIS AGREEMENT AND GENERAL RELEASE AND HAS BEEN ADVISED IN WRITING TO CONSULT WITH AN ATTORNEY PRIOR TO EXECUTION OF THIS AGREEMENT AND GENERAL RELEASE.

EMPLOYEE AGREES ANY MODIFICATIONS, MATERIAL OR OTHERWISE, MADE TO THIS AGREEMENT AND GENERAL RELEASE DO NOT RESTART OR AFFECT IN ANY MANNER THE ORIGINAL TWENTY-ONE (21) CALENDAR DAY CONSIDERATION PERIOD.

HAVING ELECTED TO EXECUTE THIS AGREEMENT AND GENERAL RELEASE, TO FULFILL THE PROMISES SET FORTH HEREIN, AND TO RECEIVE THE SUMS AND BENEFITS SET FORTH IN THE SEVERANCE AGREEMENT, TO WHICH EMPLOYEE WOULD NOT OTHERWISE BE ENTITLED, EMPLOYEE FREELY AND KNOWINGLY, AND AFTER DUE CONSIDERATION, ENTERS INTO THIS AGREEMENT AND GENERAL RELEASE INTENDING TO WAIVE, SETTLE AND RELEASE ALL CLAIMS EMPLOYEE HAS OR MIGHT HAVE AGAINST THE COMPANY AS SET FORTH HEREIN.

[Signature Page Follows]

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IN WITNESS WHEREOF, the parties hereto knowingly and voluntarily executed this Agreement and General Release as of the date set forth below:

CARMAX, INC.: 
By:Name:_____________________________
Title:______________________________

EXECUTIVE/EMPLOYEE:

Name: _____________________________

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EX-10.3

CARMAX, INC.

SEVERANCE AGREEMENT

THIS SEVERANCE AGREEMENT (“Agreement”) is entered into as of January 3, 2017 (“Effective Date”) between CarMax, Inc., a Virginia corporation, and its affiliated companies (collectively, the “Company”), and William C. Wood, Jr. (the “Executive”).

WHEREAS, the Company recognizes the Executive’s intimate knowledge and experience in the business of the Company, and has appointed the Executive as Executive Vice President and Chief Operating Officer.

WHEREAS, the Executive will develop and come in contact with the Company’s proprietary and confidential information that is not readily available to the public, and that is of great importance to the Company and that is treated by the Company as secret and confidential information;

WHEREAS, the Company and the Executive desire to agree upon the terms, conditions, compensation and benefits of the Executive’s future employment; and

WHEREAS, upon execution of this Agreement, any prior employment or severance agreement between the Executive and the Company, whether oral or written, will have no force and effect with respect to the terms and conditions of Executive’s employment and will be replaced and superseded by the terms of this Agreement.

NOW, THEREFORE, in consideration of the Executive’s appointment and continued employment by the Company, and of the premises, mutual covenants and agreements of the parties set forth in this Agreement, and of other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto, intending to be legally bound, agree as follows:

Article 1.    Employment Acceptance

The Company hereby agrees to employ the Executive and the Executive hereby accepts employment as Executive Vice President and Chief Operating Officer of the Company, in accordance with the terms and conditions set forth herein.

Article 2.Position and Responsibilities

During the term of the Executive’s employment with the Company (“Term”), the Executive agrees to serve as Executive Vice President and Chief Operating Officer of the Company. In his capacity as Executive Vice President and Chief Operating Officer, the Executive shall report directly to the Company’s President and Chief Executive Officer (“CEO”) and shall have the duties and responsibilities of Executive Vice President and Chief Operating

Officer and such other duties and responsibilities not inconsistent with the performance of his duties as Executive Vice President and Chief Operating Officer of the Company. The Executive’s principal work location shall be the corporate headquarters of the Company located in the Richmond, Virginia metropolitan area.

Article 3.Standard of Care

3.1General. During the Term, the Executive shall devote his full business time, attention, knowledge and skills to the Company’s business and interests. The Executive covenants, warrants, and represents that he shall:

(a) Devote his best efforts and talents to the performance of his employment obligations and duties for the Company;

(b) Exercise the highest degree of loyalty and the highest standards of conduct in the performance of his duties;

(c) Observe and conform to the Company’s bylaws and other rules, regulations, and policies established or issued by the Company; and

(d) Refrain from taking advantage, for himself or others, of any corporate opportunities of the Company.

3.2Forfeiture and Return of Incentive Compensation. It is the Company’s expectation that the Executive will discharge his duties hereunder with utmost attention to the standards set forth in Section 3.1. In the event the CarMax, Inc. Board of Directors (“Board”) determines that the Executive has engaged in conduct constituting Cause (as defined in Section 7.6(a)), which conduct directly results in the filing of a restatement of any financial statement previously filed with the Securities and Exchange Commission (or other governmental agency) under the Federal securities laws, the Executive shall immediately (a) forfeit all unpaid Affected Compensation (as defined below) and (b) upon demand by the Company repay to the Company all Affected Compensation received or realized by the Executive together with interest at the prime rate in effect from time to time as reported in The Wall Street Journal; provided, however, that the forfeiture and repayment provisions of this Section 3.2 shall not apply to conduct constituting “gross negligence” under Section 7.6(a)(ii) or to conduct under Section 7.6(a)(iii), Section 7.6(a)(vii) or Section 7.6(a)(viii). “Affected Compensation” means any payment to the Executive, any award or vesting of any equity or other short-term or long-term incentive compensation to the Executive, or any before-tax proceeds of a sale of previously awarded equity compensation realized by the Executive, in any instance in which (i) the payment, award or vesting of the foregoing was expressly conditioned upon the achievement of certain financial results that were subsequently the subject of such restatement, and (ii) a lesser amount of payment, award or vesting or before-tax proceeds of a sale of any of the foregoing would have been made to, vested in or otherwise earned or realized by, the Executive based upon such restated financial results.

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Article 4.Other Activities

During the Term, the Executive shall comply with the provisions of Article 8 herein. Furthermore, during his employment, the Executive agrees to obtain the written consent of the CEO before entering into any other occupation, even if dissimilar to that of the Company, including, without limitation, service as a member of a board of directors of one or more other companies. Such consent may be granted or withheld, in the CEO’s sole discretion. The Executive may participate on charitable and civic boards, and in educational, professional, community and industry affairs, without CEO consent, provided that such participation does not interfere with the performance of his duties.

Article 5.Compensation and Benefits

As remuneration for all services to be rendered by the Executive during the Term, and as consideration for complying with the covenants herein during and after the termination or expiration of the Term, the Company shall pay and provide to the Executive the following compensation and benefits:

5.1Base Salary. During the Term, the Company shall pay the Executive a base salary (“Base Salary”) in an amount established and approved by the Compensation and Personnel Committee of the Board (“Compensation Committee”); provided, however, that such Base Salary shall be established at a rate of not less than $700,000.00 per year, except as otherwise provided in this Section 5.1 below. This Base Salary shall be subject to all appropriate federal and state withholding taxes and payable in accordance with the normal payroll practices of the Company. The Compensation Committee shall review and adjust the Base Salary as it deems appropriate at least annually during the Term; provided, however, that the Executive’s Base Salary shall not be decreased without the Executive’s written consent, other than across-the-board reductions applicable to all senior officers of the Company. If adjusted, the Base Salary shall be so adjusted for all purposes of this Agreement.

5.2Annual Bonus. In addition to his Base Salary, the Executive shall be entitled to participate in the Company’s Annual Performance-Based Bonus Plan (“Annual Bonus Plan”), as such Annual Bonus Plan may exist from time to time during the Term. Under the Company’s Annual Bonus Plan, the Executive has the opportunity to earn an annual bonus with respect to any fiscal year of the Company (“Annual Bonus”). The Annual Bonus will be determined by a formula approved each fiscal year by the Compensation Committee (the “Annual Bonus Formula”) in its sole discretion. At the beginning of each fiscal year, the Compensation Committee will authorize, in accordance with the Annual Bonus Plan, the Executive’s Annual Bonus for that fiscal year, which shall be targeted at seventy-five percent (75%) of the Executive’s Base Salary for that fiscal year (“Target Bonus Rate”). The specified Target Bonus Rate may be increased from time to time by the Compensation Committee but shall not be decreased without the Executive’s written consent. Depending upon the actual financial performance recorded by the Company for any given fiscal year, the Executive’s Annual Bonus may be increased or decreased solely in accordance with the Annual Bonus Formula and otherwise in accordance with the Annual Bonus Plan.

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5.3Long-Term Incentives. During the Term, the Executive shall be eligible to participate in the Company’s 2002 Stock Incentive Plan, as amended and restated (or any successor incentive plan thereto), to the extent that the Compensation Committee, in its sole discretion, determines is appropriate. The Compensation Committee will make its determination consistent with the methodology used by the Company for compensating the Executive’s peer executives. Additionally, the Executive shall be entitled to participate in all other incentive plans, whether equity-based or cash-based, applicable generally to his peer executives within the Company.

5.4Retirement and Deferred Compensation Plans. During the Term, the Executive shall be entitled to participate in all tax-qualified and nonqualified retirement and deferred compensation plans, policies and programs applicable generally to his peer executives within the Company, subject to the eligibility and participation requirements of such plans, policies and programs.

5.5Welfare Benefit Plans. During the Term, the Executive and the Executive’s family will be entitled to participate in all welfare benefit plans, policies and programs, including those defined under Section 3(1) of the Employee Retirement Income Security Act of 1974, as amended, provided by the Company to his peer executives within the Company, subject to the eligibility requirements and other provisions of such plans, policies and programs.

5.6Fringe Benefits. During the Term, the Executive will be entitled to fringe benefits in accordance with the plans, policies and programs of the Company in effect for his peer executives within the Company.

5.7Vacation. During the Term, the Executive will be entitled to participate in the Company’s Time Away paid time off program for salaried employees (or successor paid time off program) as that program is administered by the Company and as it may be amended or modified from time to time; provided, in all events, the Executive will be entitled to not less than 30 days of paid vacation each fiscal year.

5.8Right to Change Plans. By reason of Sections 5.4, 5.5, 5.6 and 5.7 herein, the Company shall not be obligated to institute, maintain, or refrain from changing, amending, or discontinuing any benefit plan, policy or program, so long as such changes are similarly applicable to the Executive’s peer executives.

Article 6.Expenses

During the Term, the Company shall pay or reimburse the Executive for all ordinary and necessary expenses, in a reasonable amount, that the Executive incurs in performing his duties under this Agreement including, but not limited to, travel, entertainment, professional dues and subscriptions, and all dues, fees, and expenses associated with membership in various professional, business, and civic associations and societies in which the Company finds that the Executive’s participation is in the best interests of the Company. The payment or reimbursement of expenses shall be subject to such rules concerning documentation of expenses and the type or

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magnitude of such expenses as the Compensation Committee or the Company, as applicable, may establish from time to time.

Article 7.Employment Termination

7.1Date of Termination. The Company or the Executive may terminate the Executive’s employment in accordance with the provisions of this Article 7. The “Date of Termination” of the Executive’s employment shall be as determined in Sections 7.2, 7.3, 7.4, 7.5, 7.6, and 7.7 below.

7.2Termination Due to Retirement or Death.

(a)In the event the Executive’s employment ends by reason of Retirement (as defined below), the Date of Termination shall be the date set forth in a notice by the Executive, which notice shall be given to the Company at least ninety (90) days prior to such date. In the event of the Executive’s death, the Date of Termination shall be the date of death. In either case, the Executive’s benefits shall be determined in accordance with the Company’s retirement, survivor’s benefits, insurance and other applicable plans and programs of the Company then in effect. For the purposes of this Agreement, “Retirement” shall mean the Executive’s voluntary termination of employment at a time during which he is eligible for “Normal Retirement” or “Early Retirement” as such terms are defined in the CarMax, Inc. Pension Plan as of the Effective Date.

(b)Upon the Date of Termination due to the Executive’s Retirement or death, the Company shall be obligated to pay the Executive or, if applicable, the Executive’s beneficiary or estate, the following “Accrued Obligations”: (i) any Base Salary that was accrued but not yet paid as of the Date of Termination; (ii) the unpaid Annual Bonus, if any, earned with respect to the fiscal year preceding the Date of Termination; (iii) any compensation previously deferred by the Executive by his own election; and (iv) all other employee welfare and retirement benefits to which the Executive is entitled on the Date of Termination in accordance with the terms of the applicable plan or plans. The Accrued Obligations payable under the above clauses (i) and (ii) shall be paid to the Executive in a lump sum cash payment within ten (10) days after the Date of Termination or as soon thereafter as may be practicable. The Accrued Obligations payable under clauses (iii) and (iv) shall be paid in accordance with the terms of the plan under which they are due.

(c)Upon the Date of Termination due to the Executive’s Retirement, the Executive shall be entitled to a pro rata share of the Annual Bonus based on actual performance for the fiscal year in which the Date of Termination occurs (such proration to be based on the fraction, the numerator of which is the number of full completed days of employment during the fiscal year through the Date of Termination, and the denominator of which is 365) (“Pro Rata Actual Bonus”). The Pro Rata Actual Bonus, if any, shall be paid to the Executive when annual bonuses are paid to other senior officers of the Company for such fiscal year.

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(d)Upon the Date of Termination due to the Executive’s death, the Executive’s beneficiary or estate shall be entitled to a pro rata share of the Annual Bonus at the Target Bonus Rate for the fiscal year in which the Date of Termination occurs (such proration to be based on the fraction, the numerator of which is the number of full completed days of employment during the fiscal year through the Date of Termination, and the denominator of which is 365) (“Pro Rata Target Bonus”). The Pro Rata Target Bonus shall be paid to the Executive’s beneficiary or estate in a lump sum cash payment within ten (10) days after the date of the Executive’s death or as soon as practicable thereafter.

(e)Upon the termination of the Executive’s employment due to his Retirement or death, the terms and conditions of the awards and agreements applicable to the Executive’s outstanding stock options, stock grants, stock appreciation rights, performance-based grants, and all other forms of long-term incentive compensation, regardless of whether such compensation is equity or cash based, will govern the consequences of the termination of the Executive’s employment under this Section 7.2.

7.3    Termination Due to Disability.

(a)    The Company shall have the right to terminate the Executive’s employment for his Disability (as defined below). The Date of Termination due to Disability shall be the date set forth in a notice to the Executive, which notice shall be given by the Company at least thirty (30) days prior to such date. For the purposes of this Agreement, “Disability” or “Disabled” shall mean any physical or mental illness or injury that causes the Executive (i) to be considered “disabled” for the purpose of eligibility to receive income-replacement benefits in accordance with the Company’s long-term disability plan in which the Executive is a participant, or (ii) if the Executive does not participate in any such plan, to be unable to substantially perform the duties of his position for 180 days in the aggregate during any period of twelve (12) consecutive months and a physician selected by the Company (and reasonably acceptable to the Executive) shall have furnished to the Company certification that the return of the Executive to his normal duties is impossible or improbable. The Board shall review the foregoing information and shall determine in good faith if the Executive is Disabled. The Board’s decision shall be binding on the Executive. Notwithstanding the foregoing, if the Executive incurs a physical or mental illness or injury that does not constitute a Disability, such physical or mental illness or injury shall not constitute a failure by the Executive to perform his duties hereunder and shall not be deemed a breach or default of this Agreement by the Executive.

(b)Upon the Date of Termination due to the Executive’s Disability, the Executive shall be entitled to his Accrued Obligations and a Pro Rata Target Bonus. The Accrued Obligations provided under Section 7.2(b)(i) and (ii) and the Pro Rata Target Bonus shall be paid to the Executive in a lump sum cash payment within ten (10) days after the Date of Termination or as soon as practicable thereafter. The Accrued Obligations provided under Section 7.2(b)(iii) and (iv) shall be paid in accordance with the terms of the plan under which they are due.

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(c)Upon the termination of the Executive’s employment due to his Disability, the terms and conditions of the awards and agreements applicable to the Executive’s outstanding stock options, stock grants, stock appreciation rights, performance-based grants, and all other forms of long-term incentive compensation, regardless of whether such compensation is equity or cash based, will govern the consequences of the termination of the Executive’s employment under this Section 7.3.

7.4    Voluntary Termination by the Executive Without Good Reason. The Executive may terminate his employment at any time without Good Reason (as defined in Section 7.7)by giving the Company at least forty five (45) days notice, which notice shall state the Date of Termination. The Company reserves the right to require the Executive not to work during the notice period but shall pay the Executive his accrued and unpaid Base Salary, at the rate then in effect provided in Section 5.1 herein, through the Date of Termination (but not to exceed forty-five (45) days), and such payment shall be made to the Executive within ten (10) days after the Date of Termination or as soon thereafter as may be practicable. The Company shall also pay the Executive any compensation previously deferred by the Executive by his own election and all other employee welfare and retirement benefits to which the Executive is entitled on the Date of Termination, all in accordance with the terms of the applicable plan or plans under which they are due. In the event of the Executive’s voluntary termination of employment without Good Reason, the terms and conditions of the awards and agreements applicable to the Executive’s outstanding stock options, stock grants, stock appreciation rights, performance-based grants, and all other forms of long-term incentive compensation, regardless of whether such compensation is equity or cash based, will govern the consequences of the termination of the Executive’s employment under this Section 7.4.

7.5Involuntary Termination by the Company Without Cause. Upon notice to the Executive, the Company may terminate the Executive’s employment at any time for any reason other than for Cause and other than due to Disability (“Involuntary Termination Without Cause”). The Date of Termination shall be the date stated in such notice.

(a)In the event of the Executive’s Involuntary Termination Without Cause, which occurs prior to the occurrence of, or after the conclusion of, a Change in Control Employment Period (defined at Section 11.4) that relates to a “Change in Control Event” (as defined in Section 11.5(b)), the Executive shall receive the following payments and benefits:

(i)The Company shall pay to the Executive, in equal monthly installments over the twenty-four (24) month period beginning on the 60^th day following the Executive’s “Separation from Service” (as such term is defined in the Internal Revenue Code of 1986, as amended (“Code”) Section 409A), an amount equal to the product of two (2) times the sum of (x) the Executive’s Base Salary and (y) the amount of the last Annual Bonus for the Executive as determined by the Compensation Committeein accordance with the Annual Bonus Plan, regardless of the Date of Termination.

(ii)The Executive’s participation in the Company’s health, dental, and vision plans will end on the last day of the month in which the Date of Termination

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occurs. The Executive may elect to continue coverage under the health, dental and/or vision plans for himself and his eligible dependents in accordance with the terms and procedures of the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended (“COBRA”). If the Executive elects COBRA coverage, the Executive shall be responsible for remitting the COBRA premium to the Company (or to a COBRA administrator designated by the Company) in accordance with the terms of the Company’s health, dental and vision plans and applicable COBRA requirements. If the Executive elects COBRA coverage, the Company shall reimburse the Executive for a portion of the cost of such coverage until the end of the COBRA coverage period, up to a maximum period of eighteen (18) months. The amount of the Company’s reimbursement shall be equal to the sum of (1) the amount the Company would have otherwise paid for such coverage if the Executive had remained an active employee of the Company, and (2) the COBRA administration fee. If the Executive does not elect COBRA coverage, the Company shall have no obligation to the Executive with respect to health, dental and vision benefits following the Date of Termination.

(iii)The Company shall provide the Executive with reasonable outplacement services not to exceed a cost of $25,000. Such services shall be provided no later than the expiration of the two-year period following the Executive’s Separation from Service.

(iv)The Executive shall be entitled to his Accrued Obligations and a Pro Rata Actual Bonus. The Accrued Obligations provided under Section 7.2(b)(i) and (ii) shall be paid to the Executive in a lump sum cash payment within ten (10) days after the Date of Termination or as soon thereafter as may be practicable. The Accrued Obligations provided under Section 7.2(b)(iii) and (iv) shall be paid in accordance with the terms of the plan under which they are due. The Pro Rata Actual Bonus, if any, shall be paid to the Executive when annual bonuses are paid to other senior officers of the Company for such fiscal year.

(v)The terms and conditions of the awards and agreements applicable to the Executive’s outstanding stock options, stock grants, stock appreciation rights, performance-based grants, and all other forms of long-term incentive compensation, regardless of whether such compensation is equity or cash based, will govern the consequences of the termination of the Executive’s employment under this Section 7.5.

(b)Amounts payable under this Section 7.5 shall be in lieu of any amounts otherwise payable under any severance plan or agreement covering senior officers of the Company.

(c)In the event that the Company terminates the Executive’s employment at any time for any reason (i) other than for Cause and other than due to Disability and (ii) after the Executive has attained age 65 or higher, such termination shall not be deemed an Involuntary Termination Without Cause.

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7.6Termination For Cause. The Company may terminate the Executive’s employment at any time for Cause, without notice or liability for doing so. The Date of Termination shall be the date that Cause is determined as provided below.

(a)For purposes of this Agreement, “Cause” means a good faith determination by the Board that one (1) or more of the following has occurred:

(i)The Executive has committed a material breach of this Agreement, which breach was not cured or waived by the Company, within ten (10) days of receipt by the Executive of notice from the Company specifying the breach;

(ii)The Executive has committed gross negligence in the performance of his duties hereunder, intentionally fails to perform his duties, engages in intentional misconduct or intentionally refuses to abide by or comply with the directives of the Board, the CEO or the Company’s policies and procedures, as applicable, which actions continued for a period of ten (10) days after receipt by the Executive of notice of the need to cure or cease;

(iii)The Executive has willfully and continuously failed to perform substantially his duties (other than any such failure resulting from the Executive’s Disability or incapacity due to bodily injury or physical or mental illness), after a written demand for substantial performance is delivered to the Executive by the Board or the CEO that specifically identifies the manner in which the Board or the CEO believes that the Executive has not substantially performed his duties;

(iv)The Executive has willfully violated a material requirement of the Company’s code of conduct or breached his fiduciary duty to the Company;

(v)The Executive’s conviction of (or a plea of guilty or nolo contendere to) a felony or any crime involving moral turpitude, dishonesty, fraud, theft or financial impropriety;

(vi)The Executive has engaged in illegal conduct, embezzlement or fraud with respect to the business or affairs of the Company;

(vii)The Executive has failed to disclose to the Board a conflict of interest of which the Executive knew or with reasonable diligence should have known in connection with any transaction entered into on behalf of the Company; or

(viii)The Executive has failed to agree to a modification of the Agreement pursuant to Section 17.3 hereof when the purpose of the modification is to comply with applicable federal, state or local laws or regulations, or when such modification is designed to further define the restrictions of Article 8 or otherwise enhance the enforcement of Article 8 without increasing the duration or scope of the Article 8 restrictions.

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No act or failure to act on the Executive’s part will be considered “willful” if conducted by the Executive in good faith and with a reasonable belief that the Executive’s act or omission was in, and not opposed to, the best interests of the Company.

(b)If the Executive’s employment is terminated for Cause during the Term, this Agreement will terminate without further obligation of the Company to the Executive other than (i) the payment to the Executive of his accrued and unpaid Base Salary through the Date of Termination, and (ii) the payment ofany compensation previously deferred by the Executive by his own election and all other employee welfare and retirement benefits to which the Executive is entitled on the Date of Termination, all in accordance with the terms of the applicable plan or plans under which they are due. In the event of the Executive’s termination of employment for Cause, the terms and conditions of the awards and agreements applicable to the Executive’s outstanding stock options, stock grants, stock appreciation rights, performance-based grants, and all other forms of long-term incentive compensation, regardless of whether such compensation is equity or cash based, will govern the consequences of the termination of the Executive’s employment under this Section 7.6.

7.7Termination for Good Reason. At any time during the Term, the Executive may terminate his employment for Good Reason (as defined below) upon notice to the Company. Such notice shall state the intended Date of Termination and shall be given to the Company at least forty-five (45) days prior to such date and shall set forth in detail the facts and circumstances claimed to provide grounds for such termination. The Company shall have the right to cure the facts and circumstances giving rise to such grounds for termination for Good Reason. If the Company does not so cure within such forty-five (45) day notice period, then the Executive’s employment shall terminate on the Date of Termination stated in the notice.

(a)For purposes of this Agreement, “Good Reason” shall mean, without the Executive’s express written consent, the occurrence of any one (1) or more of the following:

(i)A reduction in the Executive’s Base Salary (other than, prior to the occurrence of a Change in Control or Asset Sale, a reduction across-the-board affecting all senior officers in substantially like percentages of their base salaries) or Target Bonus Rate;

(ii)A material reduction in the Executive’s duties or authority as Executive Vice President and Chief Operating Officer of the Company, or any removal of the Executive from or any failure to reappoint or reelect the Executive to such positions (except in connection with the termination of the Executive’s employment for Cause or Disability, as a result of the Executive’s death or Retirement or by the Executive other than for Good Reason);

(iii)The Executive being required to relocate to a principal place of employment more than thirty-five (35) miles from the Company’s headquarters except, prior to the occurrence of a Change in Control or Asset Sale, in connection with the

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relocation of substantially all senior Company executives pursuant to the relocation of the Company’s headquarters; or

(iv)The failure of the Company to obtain an agreement from any successor to all or substantially all of the assets or business of the Company to assume and agree to perform this Agreement within fifteen (15) days after a merger, consolidation, sale or similar transaction.

(b)In the event of the Executive’s voluntary termination of employment for Good Reason, which occurs prior to the occurrence of, or after the conclusion of, a Change in Control Employment Period that relates to a Change in Control Event, the Executive shall receive the following payments and benefits:

(i)The Company shall pay to the Executive, in equal monthly installments over the twenty-four (24) month period beginning on the 60^th day following the Executive’s Separation from Service, an amount equal to the product of two (2) times the sum of (x) the Executive’s Base Salary and (y) the amount of the last Annual Bonus for the Executive as determined by the Compensation Committeein accordance with the Annual Bonus Plan, regardless of the Date of Termination.

(ii)The Executive’s participation in the Company’s health, dental, and vision plans will end on the last day of the month in which the Date of Termination occurs. The Executive may elect to continue coverage under the health, dental and/or vision plans for himself and his eligible dependents in accordance with the terms and procedures of the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended (“COBRA”). If the Executive elects COBRA coverage, the Executive shall be responsible for remitting the COBRA premium to the Company (or to a COBRA administrator designated by the Company) in accordance with the terms of the Company’s health, dental and vision plans and applicable COBRA requirements. If the Executive elects COBRA coverage, the Company shall reimburse the Executive for a portion of the cost of such coverage until the end of the COBRA coverage period, up to a maximum period of eighteen (18) months. The amount of the Company’s reimbursement shall be equal to the sum of (1) the amount the Company would have otherwise paid for such coverage if the Executive had remained an active employee of the Company, and (2) the COBRA administration fee. If the Executive does not elect COBRA coverage, the Company shall have no obligation to the Executive with respect to health, dental and vision benefits following the Date of Termination.

(iii)The Company shall provide the Executive with reasonable outplacement services not to exceed a cost of $25,000. Such services shall be provided no later than the expiration of the two-year period following the Executive’s Separation from Service.

(iv)The Executive shall be entitled to his Accrued Obligations. The Accrued Obligations provided under Section 7.2(b)(i) and (ii) shall be paid to the

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Executive in a lump sum cash payment on the tenth day after the Date of Termination or as soon thereafter as may be practicable. The Accrued Obligations provided under Section 7.2(b)(iii) and (iv) shall be paid in accordance with the terms of the plan under which they are due.

(v)The terms and conditions of the awards and agreements applicable to the Executive’s outstanding stock options, stock grants, stock appreciation rights, performance-based grants, and all other forms of long-term incentive compensation, regardless of whether such compensation is equity or cash based, will govern the consequences of the termination of the Executive’s employment under this Section 7.7.

(vi)The Executive shall be entitled to a one-time payment in an amount equal to the Executive’s Base Salary on the Date of Termination multiplied by seventy-five percent (75%). This one-time payment shall be paid to the Executive in a lump sum cash payment on the tenth day after the Date of Termination or as soon thereafter as may be practicable.

(c)The Executive’s right to terminate his employment for Good Reason shall not be affected by the Executive’s incapacity due to physical or mental illness not constituting a Disability.Amounts payable under this Section 7.7 shall be in lieu of any amounts otherwise payable under any severance plan or agreement covering senior officers of the Company.

7.8Conditions on Company Obligations. All payments and benefits made or provided pursuant to Article 7 are subject to the Executive’s:

(a)Compliance with the provisions of Article 8, Article 9, Article 10 and Section 17.2 hereof;

(b)Except with respect to payment of the Executive’s Accrued Obligations, delivery to the Company of an executed Agreement and General Release without the Executive having revoked such agreement, which shall be substantially in the form attached hereto as Exhibit A (with such changes or additions as needed under then applicable law to give effect to its intent and purpose) (“Agreement and General Release”), satisfactory to the Company by the appropriate deadlines specified by the Company, provided that all such steps must be completed prior to the 60th day (or for purposes of Section 11.5(b), the 45th day) following the Executive’s Separation from Service; and

(c)Compliance with Code Section 409A. Notwithstanding anything herein to the contrary, distributions under Section 7.5(a)(i), 7.7(b)(i), 7.7(b)(vi), or 11.5(b) may not be made to a Key Employee (as defined below) upon his or her Separation from Service before the date which is six months after the date of the Key Employee’s Separation from Service (or, if earlier, the date of death of the Key Employee) (the “Key Employee Delay”). Any payments that would otherwise be made during this period of delay shall be accumulated and paid on the first day of the seventh month following the Executive’s Separation from Service (or, if earlier, the first day of the month after the Executive’s death). For purposes of this Section 7.8(c), “Key

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Employee” means an executive who, as of December 31^st of a calendar year, meets the requirements of Code Section 409A(a)(2)(B)(i) to be treated as a “specified employee” of the Company; i.e., a key employee (as defined in Code Section 416(i)(1)(A)(i), (ii) or (iii) applied in accordance with the regulations thereunder and disregarding Code Section 416(i)(5)). An executive who meets the criteria in the preceding sentence will be considered a Key Employee for purposes of this Agreement for the 12-month period commencing on the next following April 1.

After payment of all amounts and benefits under this Article 7, the Company thereafter shall have no further obligation under this Agreement.

Article 8.Covenant Not to Compete

The terms and provisions contained in this Article 8 comprise a covenant not to compete (the “Covenant Not to Compete”). The Executive acknowledges and agrees as follows:

8.1CarMax operates a unique business concept regarding the sale and servicing of new and used vehicles in a highly competitive industry.

8.2CarMax’s competitors have attempted to duplicate CarMax’s business concept in various markets throughout the United States, including markets where CarMax does not currently have a business location, and may continue to do so.

8.3In connection with the Executive’s employment with CarMax, he will receive access to, and training regarding, CarMax’s business concept and will, accordingly, acquire commercially valuable knowledge of and insight into CarMax’s operations and CarMax’s proprietary and confidential information, any of which if made available to any Competitor (as defined below) could place CarMax at a competitive disadvantage.

8.4In order to protect CarMax’s legitimate business interests from Competitors (as defined below) and to protect CarMax’s critical interest in its proprietary and confidential information, the Executive covenants and agrees as follows:

During the Executive’s employment with CarMax and for a period of twenty-four (24) months following the last day of the Executive’s employment (the “Restricted Period”), the Executive will not, directly or indirectly, compete with CarMax by acting “in a competitive capacity” (as defined below), for, or on behalf of, any person or entity operating or developing, during the Restricted Period, a business that provides or intends to provide activities, products or services that are the same or substantially similar to, and competitive with, the business of CarMax as of Executive’s last day of employment with CarMax (each, a “Competitor”) within any Metropolitan Statistical Area (as defined by the United States Office of Management and Budget) in which CarMax has a retail store site as of Executive’s last day of employment. Such Competitors include, but are not limited to: Sonic Automotive, Inc.; Lithia Motors, Inc.; Group 1 Automotive, Inc.; AutoNation, Inc.; Penske Automotive Group, Inc.; Asbury Automotive Group, Inc.;

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Hendrick Automotive Group; Auction Direct USA, L.P.; Car Sense Inc.; AutoAmerica, Inc.; Left Gate Property Holding, Inc. d/b/a Texas Direct Auto; Off Lease Only, Inc.; Carvana, LLC; Carvana Group, LLC; AutoMatch USA, LLC; DriveTime Car Sales Company, LLC; DriveTime Automotive Group, Inc.; CarLotz, Inc.; Hertz Global Holdings, Inc.; Enterprise Holdings, Inc.; Avis Budget Group, Inc.; Cox Automotive, Inc.; Classified Ventures, LLC; TrueCar, Inc.; Edmunds.com, Inc.; Dealertrack Technologies, Inc.; Dealer Dot Com, Inc.; CarGurus, LLC; Blinker, Inc.; and Beepi, Inc., and any automotive retail operation affiliated with, owned, operated, or controlled by Berkshire Hathaway Inc.; Home Depot, Inc.; Lowe’s Companies, Inc.; Target Corporation; Wal-Mart Stores, Inc.; Sears Holdings Corporation; Carrefour S.A.; Costco Wholesale Corporation; Royal Dutch Shell plc; Exxon Mobil Corporation; Chevron Corporation; and/or Gulliver International Co., Ltd.

8.5A business, including any Competitor, or any of its respective subsidiaries or affiliates, will not be considered to be in competition with CarMax for purposes of Article 8 if the business, or operating unit of the business, or its respective subsidiaries or affiliates, by which the Executive will be or is employed (i) does not have within the twenty-four (24) months preceding the Executive’s termination of employment with CarMax, annual gross revenues (calculated on a rolling 12-month basis) of at least $5,000,000 derived from the sale and servicing of new or used vehicles; or (ii) is not projected (by the business or operating unit of the business) to have within the twenty-four (24) months following the Executive’s termination of employment with CarMax, annual gross revenues (regardless of how calculated) of at least $5,000,000 derived from the sale and servicing of new or used vehicles.

8.6Acting “in a competitive capacity” shall mean providing to a Competitor, directly or indirectly, the same or substantially similar services that the Executive provided to CarMax at any time during Executive’s last twenty-four (24) months of employment.

8.7Nothing herein shall prevent or restrict the Executive from working for any person in any role or in any capacity that is not in competition with CarMax.

8.8Notwithstanding the foregoing, nothing herein shall be deemed to prevent or limit the right of the Executive to invest in the capital stock or other securities of any corporation whose stock or securities are regularly traded on any public exchange.

8.9Intellectual Property. The Executive understands and acknowledges that any writing, invention, design, system, process, development or discovery (collectively, “Intellectual Property”) conceived, developed, created or made by the Executive, alone or with others, both during the Term of this Agreement and in the course of the Executive’s employment prior to the Term, is the sole and exclusive property of the Company to the extent such Intellectual Property is related to the Executive’s duties or is within the scope of the Company’s actual or anticipated business. The Executive agrees to assign to the Company any and all of his right, title, and interest in and to such Intellectual Property, including, but not limited to, patent, trademark and other rights. The Executive further agrees to cooperate fully with the Company to secure, maintain, enforce, or defend the Company’s ownership of and rights in such Intellectual

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Property. The rights and remedies of this Section 8.9 are in addition to any rights and remedies available under applicable law.

8.10The Executive and CarMax have examined in detail the Covenant Not to Compete contained in this Article 8 and each agrees that the restraint imposed upon the Executive is reasonable in light of the legitimate business interests of CarMax and is not unduly harsh or burdensome with respect to the Executive’s ability to earn a livelihood. If any provision of the Covenant Not to Compete relating to the time period, geographic area or scope of restricted activities shall be declared by a court of competent jurisdiction to exceed the maximum time period, geographic area or scope of activities, as applicable, that such court deems reasonable and enforceable, then such time period, geographic area or scope of activities shall be deemed to be, and thereafter shall become, the maximum time period, scope of activities or largest geographic area that such court deems reasonable and enforceable and this Agreement shall automatically be considered to have been amended and revised to reflect such determination.

8.11The Executive and CarMax acknowledge that the Executive’s services are of a special, extraordinary, and intellectual character that gives the Executive unique value, and that CarMax’s business is highly competitive, and that violation of the Covenant Not to Compete provided herein would cause immediate, immeasurable, and irreparable harm, loss, and damage to CarMax not adequately compensable by a monetary award. In the event of any breach or threatened breach by the Executive of the Covenant Not to Compete, CarMax shall be entitled to such equitable and injunctive relief as may be available to restrain the Executive from violating the provisions hereof. Nothing herein shall be construed as prohibiting CarMax from pursuing any other remedies available at law or in equity for such breach or threatened breach, including the recovery of damages and the immediate termination of the employment of the Executive hereunder for Cause.

Article 9.Non-Solicitation of Employees

The Executive agrees that during the Executive’s employment with CarMax and for a period of twenty-four (24) months following the last day of the Executive’s employment, the Executive shall not, directly or indirectly, solicit or induce, or attempt to solicit or induce, any employee of CarMax with whom the Executive had material business-related contact on behalf of CarMax, to leave employment with CarMax for any reason whatsoever (the “Covenant Not to Solicit”). For purposes of this Article 9, employee shall mean any individual employed by CarMax.

Article 10.Confidentiality

The terms and provisions contained in this Article 10 comprise a covenant of confidentiality (the “Covenant of Confidentiality”).

The Executive understands and agrees that any and all Protected Information is the property of CarMax and is essential to the protection of CarMax’s goodwill and to the maintenance of CarMax’s competitive position and accordingly should be kept secret. For purposes of this Agreement, “Protected Information” means trade secrets, confidential and

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proprietary business information of or about CarMax, and any other information of CarMax, including technical data, processes, know‑how, financial data, analyses, forecasts, plans, operations information and data, customer lists (including potential customers) and information, marketing plans, materials and information, product and service information, accounts and billings information, sales transaction data, sales documents and information, discoveries, ideas, concepts, designs, drawings, specifications, techniques, models, information systems data and materials, computer software or hardware, data analyses and compilations, source code, object code, documentation, diagrams, flow charts, research, procedures, methods, systems, programs, price lists, pricing policies, supplier and distributor information, sources of supply, internal memoranda, promotional plans, internal policies, purchasing information, operating methods and procedures, training materials, and any products and services which may be developed from time to time by CarMax and its agents or employees, including the Executive; provided, however, that information that is in the public domain (other than as a result of a breach of this Agreement), approved for release by CarMax or lawfully obtained from third parties who are not bound by a confidentiality agreement with CarMax, is not Protected Information.

CarMax has advised the Executive and the Executive acknowledges that it is the policy of CarMax to maintain as secret and confidential all Protected Information, and that Protected Information has been and will be developed at substantial cost to and effort by CarMax. The Executive agrees to hold in strict confidence and safeguard any and all Protected Information accessed or accessible by the Executive during the Executive’s employment. The Executive shall not, without the prior written consent of CarMax, at any time, directly or indirectly, divulge, furnish, use, disclose or make accessible to any person, firm, corporation, association, or other entity (otherwise than as may be required in the regular course of the Executive’s employment with CarMax), any Protected Information, or cause any such Protected Information to enter the public domain.

Nothing contained in this Article 10 is intended to reduce in any way the protection available to CarMax pursuant to the Uniform Trade Secrets Act as adopted in Virginia or any other state or other applicable laws that prohibit the misuse or disclosure of confidential or proprietary information. Unless lengthened by the application of the Virginia Uniform Trade Secrets Act or other applicable law, the restrictions in Article 10 shall remain in effect during Associate’s employment and for five (5) years thereafter.

Article 11.Change in Control; Sale of Assets

11.1Purpose. The Company recognizes that the possibility of a Change in Control or Asset Sale exists, and the uncertainty and questions that it may raise among management may result in the departure or distraction of management personnel to the detriment of the Company. Accordingly, the purpose of this Article 11 is to encourage the Executive to continue employment after a Change in Control or Asset Sale by providing reasonable employment security to the Executive and to recognize the prior service of the Executive in the event of a termination of employment under certain circumstances after a Change in Control or Asset Sale. This Article 11 shall not become effective, and the Company shall have no obligation hereunder,

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if the employment of the Executive with the Company terminates before a Change in Control or Asset Sale.

11.2Definitions.

(a)“Change in Control” of the Company means the occurrence of either of the following events: (i) a third person, including a “group” as defined in Section 13(d)(3) of the Securities Exchange Act of 1934, as amended, becomes, or obtains the right to become, the beneficial owner of Company securities having twenty percent (20%) or more of the combined voting power of the then outstanding securities of the Company that may be cast for the election of directors to the Board of the Company (other than as a result of an issuance of securities initiated by the Company in the ordinary course of business); or (ii) as the result of, or in connection with, any cash tender or exchange offer, merger or other business combination, sale of assets or contested election, or any combination of the foregoing transactions, the persons who were directors of the Company before such transactions shall cease to constitute a majority of the board or of the board of directors of any successor to the Company.

(b)“Asset Sale” shall mean a sale of all or substantially all of the assets of the Company in a single transaction or a series of related transactions.

11.3Long-Term Incentive Compensation. The terms and conditions of the awards and agreements applicable to the Executive’s outstanding stock options, stock grants, stock appreciation rights, performance-based grants, and all other forms of long-term incentive compensation, regardless of whether such compensation is equity or cash based, will govern the consequences to the Executive upon the occurrence of a Change in Control or an Asset Sale or upon a termination of the Executive’s employment thereafter.

11.4Continued Employment Following Change in Control or an Asset Sale. If a Change in Control or an Asset Sale occurs and the Executive is employed by the Company on the date the Change in Control or Asset Sale occurs (the “Change in Control Date”), the period beginning on the Change in Control Date and ending on the second (2nd) anniversary of such date shall be the “Change in Control Employment Period.”

11.5Termination of Employment During Change in Control Employment Period. The Executive will be entitled to the compensation and benefits described in this Section 11.5 if, during the Change in Control Employment Period, (a) the Company terminates his employment for any reason other than for Cause or due to Disability, or (b) the Executive voluntarily terminates his employment with the Company for Good Reason. The compensation and benefits described in this Section 11.5 are in lieu of, and not in addition to, any compensation and benefits provided to the Executive pursuant to Sections 7.5 and 7.7 herein and any amounts otherwise payable under any severance plan or agreement covering senior officers of the Company. Upon such a termination of employment, the Executive shall receive the following payments and benefits:

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(a)The Executive shall be entitled to his Accrued Obligations and a Pro Rata Target Bonus. The Accrued Obligations provided under Section 7.2(b)(i) and (ii) and the Pro Rata Target Bonus shall be paid to the Executive in a lump sum cash payment within ten (10) days after the Date of Termination or as soon thereafter as may be practicable. The Accrued Obligations provided under Section 7.2(b)(iii) and (iv) shall be paid in accordance with the terms of the plan under which they are due.

(b)The Company shall pay to the Executive an amount equal to 2.99 times the Executive’s Final Compensation. For purposes of this Agreement, “Final Compensation” means the Base Salary in effect at the Date of Termination, plus the higher Annual Bonus paid or payable for the two (2) most recently completed fiscal years. If the Change in Control Employment Period relates to an event that also qualifies as a Change in Control Event, this payment will be paid to the Executive in a lump sum cash payment on the forty-fifth (45th) day following the Executive’s Separation from Service. Otherwise, such payment shall be paid at the time and in the form set forth in Section 7.5. For purposes of this Section 11.5(b), a “Change in Control Event” means an event described in IRS regulations or other guidance under Code Section 409A(a)(2)(A)(v).

(c)The Executive’s participation in the Company’s health, dental, and vision plans will end on the last day of the month in which the Date of Termination occurs. The Executive may elect to continue coverage under the health, dental and/or vision plans for himself and his eligible dependents in accordance with the terms and procedures of COBRA. If the Executive elects COBRA coverage, the Executive shall be responsible for remitting the COBRA premium to the Company (or to a COBRA administrator designated by the Company) in accordance with the terms of the health, dental and vision plans and applicable COBRA requirements. If the Executive elects COBRA coverage, the Company shall reimburse the Executive for a portion of the cost of such coverage until the end of the COBRA coverage period, up to a maximum period of eighteen (18) months. The amount of the Company’s reimbursement shall be equal to the sum of (1) the amount the Company would have otherwise paid for such coverage if the Executive had remained an active employee of the Company, and (2) the COBRA administration fee. If the Executive does not elect COBRA coverage, the Company shall have no obligation to the Executive with respect to health, dental and vision benefits following the Date of Termination.

(d)The Company shall provide the Executive with reasonable outplacement services not to exceed a cost of $25,000. Such services shall be provided no later than the expiration of the two-year period following the Executive’s Separation from Service.

11.6Death, Disability or Retirement Termination During Change In Control Employment Period. If the Executive’s employment ends by reason of Retirement, the Executive’s death, or as a result of Disability during the Change in Control Employment Period, this Agreement will terminate without any further obligation on the part of the Company under this Agreement other than:

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(a)The Executive (or his beneficiary or his estate in the event of his death) will be entitled to the payment of the Executive’s Accrued Obligations and a Pro Rata Target Bonus. The Accrued Obligations provided under Section 7.2(b)(i) and (ii) and the Pro Rata Target Bonus shall be paid in a lump sum cash payment within ten (10) days after the Date of Termination or as soon thereafter as may be practicable. The Accrued Obligations provided under Section 7.2(b)(iii) and (iv) shall be paid in accordance with the terms of the plan under which they are due; and

(b)The terms and conditions of the awards and agreements applicable to the Executive’s outstanding stock options, stock grants, stock appreciation rights, performance-based grants, and all other forms of long-term incentive compensation, regardless of whether such compensation is equity or cash based, will govern the consequences of the termination of the Executive’s employment under this Section 11.6.

The compensation and benefits described in this Section 11.6 are in lieu of, and not in addition to, any compensation and benefits provided to the Executive pursuant to Sections 7.2 and 7.3 herein and any amounts otherwise payable under any severance plan or agreement covering senior officers of the Company.

11.7Termination for Cause and Termination Other Than For Good Reason Following a Change in Control.

(a)If the Executive’s employment is terminated for Cause during the Change in Control Employment Period, this Agreement will terminate without further obligation to the Executive other than the payment to the Executive of his accrued and unpaid Base Salary through the Date of Termination, as well as any deferred compensation and other employee welfare and retirement benefits to which the Executive is entitled on the Date of Termination in accordance with the terms of the applicable plan or plans under which they are due. The terms and conditions of the awards and agreements applicable to the Executive’s outstanding stock options, stock grants, stock appreciation rights, performance-based grants, and all other forms of long-term incentive compensation, regardless of whether such compensation is equity or cash based, will govern the consequences of the termination of the Executive’s employment under this Section 11.7(a). The compensation and benefits described in this Section 11.7 are in lieu of, and not in addition to, any compensation and benefits provided to the Executive pursuant to Sections 7.4 and 7.6 herein and any amounts otherwise payable under any severance plan or agreement covering senior officers of the Company.

(b)If the Executive terminates employment during the Change in Control Employment Period other than for Good Reason, this Agreement will terminate without further obligation to the Executive other than:

(i)    The Executive (or his beneficiary or his estate in the event of his death) will be entitled to the payment of the Executive’s Accrued Obligations. The Accrued Obligations provided under Section 7.2(b)(i) and (ii) shall be paid in a lump sum cash payment within ten (10) days after the Date of Termination or as soon thereafter as

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may be practicable. The Accrued Obligations provided under Section 7.2(b)(iii) and (iv) shall be paid in accordance with the terms of the plan under which they are due; and

(ii) The terms and conditions of the awards and agreements applicable to the Executive’s outstanding stock options, stock grants, stock appreciation rights, performance-based grants, and all other forms of long-term incentive compensation, regardless of whether such compensation is equity or cash based, will govern the consequences of the termination of the Executive’s employment under this Section 11.7(b).

11.8Conditions on Company Obligations. All payments and benefits made or provided pursuant to Article 11 are subject to the provisions of Section 7.8 (including the Key Employee Delay in Section 7.8(c)). After payment of all amounts and benefits under this Article 11, the Company thereafter shall have no further obligation under this Agreement.

Article 12.Assignment

12.1Assignment by Company. This Agreement may and shall be assigned or transferred to, and shall be binding upon and shall inure to the benefit of, any successor of the Company, and any such successor shall be deemed substituted for all purposes of the “Company” under the terms of this Agreement. As used in this Agreement, the term “successor” shall mean any person, firm, corporation, or business entity which, at any time, whether by merger, purchase, or otherwise, acquires all or substantially all, or control of all or substantially all, of the assets or the business of the Company. Except as provided herein, the Company may not otherwise assign this Agreement.

12.2Assignment by the Executive. The services to be provided by the Executive to the Company hereunder are personal to the Company and the Executive’s duties may not be assigned by the Executive; provided, however, that this Agreement shall inure to the benefit of and be enforceable by the Executive’s personal or legal representatives, executors, and administrators, successors, heirs, distributees, devisees, and legatees. If the Executive dies while any amounts payable to the Executive hereunder remain outstanding, all such amounts, unless otherwise provided herein, shall be paid in accordance with the terms of this Agreement to the Executive’s devisee, legatee, or other designee or, in the absence of such designee, to the Executive’s estate.

Article 13.Dispute Resolution

Except for actions initiated by CarMax to enjoin a breach by the Executive, and/or recover damages from the Executive, related to the Covenant Not to Compete (Article 8), the Covenant Not to Solicit (Article 9) or the Covenant of Confidentiality (Article 10) (collectively, the “Restrictive Covenants”), which action(s) CarMax may bring in an appropriate court of law or equity, any disagreement between the Executive and CarMax concerning anything covered by this Agreement or concerning other terms or conditions of the Executive’s employment or the termination of the Executive’s employment will be settled by final and binding arbitration pursuant to CarMax’s

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Dispute Resolution Rules and Procedures in effect at the time the disagreement or dispute arises or at the time of termination in the event the Executive’s employment terminated. The decision of the arbitrator will be final and binding on both the Executive and CarMax and may be enforced in a court of appropriate jurisdiction.

Article 14.Litigation By Third Parties

All litigation or inquiries by third parties (including, but not limited to, those by the Company’s shareholders or by government agencies) arising out of or in connection with the Executive’s performance under this Agreement, against either the Company or the Executive or both, shall be jointly defended or opposed by the parties hereto to support this Agreement. The Company shall appoint legal counsel for the parties and shall bear the costs, reasonable legal fees and expenses related to such litigation or inquiry.

Article 15.Indemnity; Limitation of Liability

As an officer of the Company, the Executive shall be entitled to indemnity and limitation of liability as provided pursuant to the Company’s Articles of Incorporation, bylaws and any other governing document, as the same shall be amended from time to time.

Article 16.Notice

Any notices, requests, demands, or other communications provided for by this Agreement shall be in writing, and given by delivery in person or by registered or certified mail, postage prepaid (in which case notice will be deemed to have been given on the third day after mailing) or by overnight delivery by a reliable overnight courier service (in which case notice will be deemed to have been given on the day after delivery to such courier service). Notices to the Executive shall be directed to the last address he has filed in writing with the Company. Notices to the Company shall be directed to the Secretary of the Company.

Article 17.Miscellaneous

17.1Entire Agreement. This Agreement supersedes any prior agreements or understandings, oral or written, between the parties hereto, with respect to the subject matter hereof, and constitutes the entire agreement of the parties with respect thereto. Without limiting the generality of the foregoing sentence, this Agreement completely supersedes any and all prior employment and severance agreements entered into by and between the Company, and the Executive, and all amendments thereto, in their entirety.

17.2Return of Materials. Upon the termination of the Executive’s employment with the Company, however such termination is effected, the Executive shall promptly deliver to the Company all property (including Intellectual Property), records, materials, documents, and copies of documents concerning the Executive’s business and/or its customers (hereinafter collectively “Company Materials”) which the Executive has in his possession or under his control at the time of termination of his employment. The Executive further agrees not to take or

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extract any portion of Company Materials in written, computer, electronic or any other reproducible form without the prior written consent of the Board.

17.3Modification. This Agreement shall not be varied, altered, modified, canceled, changed, or in any way amended except by mutual agreement of the parties in a written instrument executed by the parties hereto or their legal representatives.

17.4Severability. It is the intention of the parties that the provisions of the restrictive covenants herein shall be enforceable to the fullest extent permissible under the applicable law. If any clause or provision of this Agreement is held to be illegal, invalid, or unenforceable under present or future laws effective during the Term hereof, then the remainder of this Agreement shall not be affected thereby, and in lieu of each clause or provision of this Agreement that is illegal, invalid or unenforceable, there shall be added, as a part of this Agreement, a clause or provision as similar in terms to such illegal, invalid or unenforceable clause or provision as may be possible and as may be legal, valid and enforceable.

17.5Attorney’s Fees. In any action arising under this Agreement, CarMax, so long as it prevails, shall be entitled to recover its reasonable attorney’s fees and costs.

17.6Section 409A. Notwithstanding any other provision of this Agreement, (i) to the extent applicable, this Agreement will be interpreted, operated and administered in accordance with the requirements of Code Section 409A, and (ii) if either the Company or the Executive determines that any provision of this Agreement may cause compensation payable to the Executive to be classified as income under Code Section 409A(a) or (b) and thereby results in tax penalties to the Executive, the Company or the Executive, as the case may be, shall notify the other party and the parties will amend the Agreement to avoid penalties under Code Section 409A.

17.7Counterparts. This Agreement may be executed in one (1) or more counterparts, each of which shall be deemed to be an original, but all of which together will constitute one and the same Agreement.

17.8Tax Withholding. The Company may withhold from any benefits payable under this Agreement all federal, state, city, or other taxes as may be required pursuant to any law or governmental regulation or ruling.

17.9Restrictive Covenants of the Essence. The Restrictive Covenants in Articles 8, 9 and 10 of the Agreement are of the essence of this Agreement. In the event that the Executive has a claim or cause of action against CarMax (whether related to this Agreement or not), such claim or cause of action, including but not limited to a breach of this Agreement by CarMax, shall not prevent or otherwise constitute a defense to CarMax’s enforcement of the Restrictive Covenants and shall not excuse the Executive’s performance of the Restrictive Covenants. CarMax shall at all times maintain the right to seek enforcement of the Restrictive Covenants whether or not CarMax has previously refrained from seeking enforcement of any such Restrictive Covenant as to the Executive or any other peer Executive who has signed an

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agreement with similar covenants. Notwithstanding any provision contained within this Agreement, the obligations of the Executive under Articles 8, 9, 10, 13 and 17 of this Agreement shall continue after the termination of this Agreement and the Executive’s employment and shall be binding on the Executive’s heirs, executors, legal representatives and assigns.

17.10Beneficiaries. The Executive may designate one (1) or more persons or entities as the primary or contingent beneficiaries of any amounts to be received under this Agreement. Such designation must be in the form of a signed writing acceptable to the Company’s chief legal officer. The Executive may make or change such designation at any time.

17.11Full Settlement. Except as set forth in this Agreement, the Company’s obligation to make the payments provided for in this Agreement and otherwise to perform its obligations hereunder shall not be affected by any circumstances, including without limitation, set-off, counterclaim, recoupment, defense or other claim, right or action which the Company may have against the Executive or others, except to the extent any amounts are due the Company or its subsidiaries or affiliates pursuant to a judgment against the Executive; provided, however, in no event shall any judgment result in the offset of amounts subject to Code Section 409A. In no event shall the Executive be obligated to seek other employment in mitigation of the amounts payable to the Executive under any of the provisions of this Agreement, nor shall the amount of any payment hereunder be reduced by any compensation earned by the Executive as a result of employment by another employer; provided, that continued health, dental and vision benefit plan participation pursuant to Section 7.5(a)(ii) or Section 11.5(c) herein shall be reduced to the extent that the Executive becomes eligible to such benefits from a subsequent employer.

17.12Contractual Rights to Benefits. This Agreement establishes and vests in the Executive a contractual right to the benefits to which he is entitled hereunder. However, nothing herein contained shall require or be deemed to require, or prohibit or be deemed to prohibit, the Company to segregate, earmark, or otherwise set aside any funds or other assets in trust or otherwise to provide for any payments to be made or required hereunder.

17.13Resignations. Upon the termination of the Executive’s employment, however such termination is effected, he shall be deemed to have resigned as of the date of such termination all offices and directorships he may have held with the Company and all subsidiaries.

Article 18.Governing Law

This Agreement shall be governed by, construed and enforced in accordance with the laws of the Commonwealth of Virginia without regard to conflicts of laws principles thereof. In the event of any litigation between CarMax and Executive related to the enforcement or enforceability of the Restrictive Covenants, the parties agree that the Circuit Court for the County of Henrico, Virginia, shall have mandatory and exclusive jurisdiction and venue of any such action.

Article 19.Protected Rights

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Notwithstanding any other terms and conditions of this Agreement:

Executive understands that nothing contained in this Agreement limits Executive’s ability to file a charge or complaint with the Equal Employment Opportunity Commission, the National Labor Relations Board, the Occupational Safety and Health Administration, the Securities and Exchange Commission or any other federal, state or local governmental agency or commission (“Government Agencies”). Executive further understands that this Agreement does not limit Executive’s ability to communicate with any Government Agencies or otherwise participate in any investigation or proceeding that may be conducted by any Government Agency, including providing documents or other information, without notice to the Company. This Agreement does not limit Executive’s right to receive an award for information provided to any Government Agencies.

[Signature Page Follows]

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IN WITNESS WHEREOF, the Executive and the Company have executed this Agreement as of January 3, 2017.

CARMAX, INC.: 
By:/s/ Eric M. MargolinEric M. Margolin

Executive Vice President, General Counsel and Corporate Secretary

EXECUTIVE:/s/ William C. Wood

William C. Wood, Jr.

Executive Vice President and

Chief Operating Officer

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EXHIBIT A

[Form of Release]

AGREEMENT AND GENERAL RELEASE

This Agreement and General Release (the “Agreement and General Release”), dated as of _______ __, 20__, is made by and between CarMax, Inc., for itself and its affiliates, subsidiaries, divisions, successors and assigns in such capacity, and the current, future and former employees, officers, directors, trustees and agents thereof (collectively referred to throughout this Agreement as the “Company”) and _______________________ (“Executive”), for him/herself and his/her heirs, executors, administrators, successors and assigns (together with Executive, collectively referred to throughout this Agreement and General Release as “Employee”) agree:

1.    Last Day of Employment. The Executive’s last day of employment with the Company is ____________, 20__. In addition, effective as of ____________, 20__, the Executive resigns from the Executive’s position as ____________ of the Company, and will not be eligible for any benefits or compensation after ____________, 20__, other than as specifically provided in Articles 7 or 11, as applicable, of the Severance Agreement between the Company and the Executive dated as of __________ __, 20__ (“Severance Agreement”) and the Executive’s continued right to indemnification and directors and officers liability insurance. In addition, effective as of ____________, 20__, the Executive resigns from all offices, directorships, trusteeships, committee memberships and fiduciary capacities held with, or on behalf of, the Company or any benefit plans of the Company. These resignations will become irrevocable as set forth in Section 3 below.

2.    Consideration. The parties acknowledge that this Agreement and General Release is being executed in accordance with Article 7 or Article 11 of the Severance Agreement, as applicable, and that this Agreement and General Release is a condition to the receipt by Employee of all payments and benefits thereunder.

3.    Revocation. The Executive may revoke this Agreement and General Release for a period of seven (7) calendar days following the day the Executive executes this Agreement and General Release. Any revocation within this period must be submitted, in writing, to the Company and state, “I hereby revoke my acceptance of our Agreement and General Release.” The revocation must be personally delivered to the Company’s _______________, or his/her designee, or mailed to the Company, _______________________________ and postmarked within seven (7) calendar days of execution of this Agreement and General Release. This Agreement and General Release shall not become effective or enforceable until the revocation period has expired. If the last day of the revocation period is a Saturday, Sunday, or legal holiday in Virginia, then the revocation period shall not expire until the next following day that is not a Saturday, Sunday, or legal holiday.

4.    General Release of Claims. Employee knowingly and voluntarily releases and forever discharges the Company from any and all claims, rights, causes of action, demands, damages, fees, costs, expenses, including attorneys’ fees, and liabilities of any kind whatsoever, whether

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known or unknown, against the Company, that Employee has, has ever had or may have as of the date of execution of this Agreement and General Release, including, but not limited to, any alleged violation of:

●    The Age Discrimination in Employment Act of 1967, as amended;

●    The Older Workers Benefit Protection Act of 1990;

●    Title VII of the Civil Rights Act of 1964, as amended;

●    The Civil Rights Act of 1991;

●    Sections 1981 through 1988 of Title 42 of the United States Code, as amended;

●    The Employee Retirement Income Security Act of 1974, as amended;

●    The Immigration Reform and Control Act, as amended;

●    The Americans with Disabilities Act of 1990, as amended;

●    The Worker Adjustment and Retraining Notification Act, as amended;

●    The Occupational Safety and Health Act, as amended;

●    The Family and Medical Leave Act of 1993;

●    All other federal, state or local civil or human rights laws, whistleblower laws, or any other local, state or federal law, regulations and ordinances;

●    All public policy, contract, tort, or common laws; and

●    All allegations for costs, fees, and other expenses including attorneys’ fees incurred in these matters.

Notwithstanding anything herein to the contrary, the sole matters to which the Agreement and General Release do not apply are: (i) Employee’s rights of indemnification and directors and officers liability insurance coverage to which the Executive was entitled immediately prior to __________ __, 20__ with regard to the Executive’s service as an officer and director of the Company (including, without limitation, under Article 15 of the Severance Agreement); (ii) Employee’s rights under any tax-qualified pension plan or claims for accrued vested benefits under any other employee benefit plan, policy or arrangement maintained by the Company or under the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended; (iii) Employee’s rights under Article 7 or Article 11 of the Severance Agreement, as the case may be; (iv) Employee’s rights as a stockholder of the Company; (v) Employee’s right to file charges or complaints with the Equal Employment Opportunity Commission, the National Labor Relations Board, the Occupational Safety and Health Administration, the Securities and Exchange Commission or any other federal, state or local

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governmental agency or commission (“Government Agencies”), although Employee waives the Executive’s right to recover any damages or other relief in any claim or suit brought by or through the Government Agencies on behalf of Employee under the Age Discrimination in Employment Act, Title VII of the Civil Rights Act of 1964 as amended, the Americans with Disabilities Act, or any other federal or state discrimination law, except where such waivers are prohibited by law, provided, however, this Agreement and General Release does not limit Employee’s right to receive an award for information provided to any Government Agencies; and (vi) Employee’s rights that cannot be released by private agreement under applicable law.

5.    Affirmations. Employee affirms that the Executive has been paid or has received all compensation, wages, bonuses, commissions, and/or benefits to which the Executive may be entitled and no other compensation, wages, bonuses, commissions and benefits are due to the Executive, except as provided in Article 7 or Article 11 of the Severance Agreement, as applicable. The Employee also affirms the Executive has no known workplace injuries.

6.    Return of Property. Employee represents that the Executive has returned to the Company all property belonging to the Company, including but not limited to any vehicle, laptop, cell phone, keys, access cards, phone cards and credit cards, and all Protected Information as defined in Article 10 of the Severance Agreement.

7.    Cooperation. Employee agrees to reasonably cooperate with the Company to provide truthful and accurate information in connection with any administrative proceeding, arbitration, or litigation relating to any matter that occurred during the Associate’s employment with the Company in which the Associate was involved or of which the Associate has knowledge. Employee further understands that this Agreement and General Release does not limit Employee’s ability to communicate with any Government Agencies or otherwise participate in any investigation or proceeding that may be conducted by any Government Agency, including providing documents or other information, without notice to the Company.

8.    Governing Law and Interpretation. This Agreement and General Release shall be governed and construedin accordance with the laws of the Commonwealth of Virginia, without reference to Virginia’s choice of law statutes or decisions. In the event Employee or the Company breaches any provision of this Agreement and General Release, Employee and the Company acknowledge thateither may institute an action to specifically enforce any term or terms of this Agreement and General Release pursuant to the dispute resolution provisions of Article 13 of the Severance Agreement. Should any provision of this Agreement and General Release be declared illegal or unenforceable by any court of competent jurisdiction and should the provision be incapable of being modified to be enforceable, such provision shall immediately become null and void, leaving the remainder of this Agreement and General Release in full force and effect. Nothing herein, however, shall operate to void or nullify any enforceable general release language contained in this Agreement and General Release.

9.    No Admission of Wrongdoing. Employee agrees neither this Agreement and General Release nor the furnishing of the consideration for this Agreement and General Release shall be

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deemed or construed at any time for any purpose as an admission by the Company of any liability or unlawful conduct of any kind.

10.    Amendment. This Agreement and General Release may not be modified, altered or changed except upon express written consent of both parties wherein specific reference is made to this Agreement and General Release.

11.    Entire Agreement. This Agreement and General Release sets forth the entire agreement between the parties hereto and fully supersedes any prior agreements or understandings between the parties; provided, however, that notwithstanding anything in this Agreement and General Release, the provisions in the Severance Agreement that are intended to survive termination of the Severance Agreement, including but not limited to those contained in Articles 8, 9 and 10, 13 and in Section 17.2 thereof, shall survive and continue in full force and effect. Employee acknowledges the Executive has not relied on any representations, promises, or agreements of any kind made to the Executive in connection with the Executive’s decision to accept this Agreement and General Release.

EMPLOYEE HAS BEEN ADVISED THAT EXECUTIVE HAS UP TO TWENTY-ONE (21) CALENDAR DAYS TO REVIEW AND CONSIDER THIS AGREEMENT AND GENERAL RELEASE AND HAS BEEN ADVISED IN WRITING TO CONSULT WITH AN ATTORNEY PRIOR TO EXECUTION OF THIS AGREEMENT AND GENERAL RELEASE.

EMPLOYEE AGREES ANY MODIFICATIONS, MATERIAL OR OTHERWISE, MADE TO THIS AGREEMENT AND GENERAL RELEASE DO NOT RESTART OR AFFECT IN ANY MANNER THE ORIGINAL TWENTY-ONE (21) CALENDAR DAY CONSIDERATION PERIOD.

HAVING ELECTED TO EXECUTE THIS AGREEMENT AND GENERAL RELEASE, TO FULFILL THE PROMISES SET FORTH HEREIN, AND TO RECEIVE THE SUMS AND BENEFITS SET FORTH IN THE SEVERANCE AGREEMENT, TO WHICH EMPLOYEE WOULD NOT OTHERWISE BE ENTITLED, EMPLOYEE FREELY AND KNOWINGLY, AND AFTER DUE CONSIDERATION, ENTERS INTO THIS AGREEMENT AND GENERAL RELEASE INTENDING TO WAIVE, SETTLE AND RELEASE ALL CLAIMS EMPLOYEE HAS OR MIGHT HAVE AGAINST THE COMPANY AS SET FORTH HEREIN.

[Signature Page Follows]

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IN WITNESS WHEREOF, the parties hereto knowingly and voluntarily executed this Agreement and General Release as of the date set forth below:

CARMAX, INC.: 
By:Name:_____________________________
Title:______________________________

EXECUTIVE/EMPLOYEE:

Name: _____________________________

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EX-10.4

CARMAX, INC.

SEVERANCE AGREEMENT

THIS SEVERANCE AGREEMENT (“Agreement”) is entered into as of January 3, 2017 (“Effective Date”) between CarMax, Inc., a Virginia corporation, and its affiliated companies (collectively, the “Company”), and Edwin J. Hill (the “Executive”).

WHEREAS, the Company recognizes the Executive’s intimate knowledge and experience in the business of the Company, and has appointed the Executive as Executive Vice President, Strategy and Business Transformation;

WHEREAS, the Executive will develop and come in contact with the Company’s proprietary and confidential information that is not readily available to the public, and that is of great importance to the Company and that is treated by the Company as secret and confidential information;

WHEREAS, the Company and the Executive desire to agree upon the terms, conditions, compensation and benefits of the Executive’s future employment; and

WHEREAS, upon execution of this Agreement, any prior employment or severance agreement between the Executive and the Company, whether oral or written, will have no force and effect with respect to the terms and conditions of Executive’s employment and will be replaced and superseded by the terms of this Agreement.

NOW, THEREFORE, in consideration of the Executive’s appointment and continued employment by the Company, and of the premises, mutual covenants and agreements of the parties set forth in this Agreement, and of other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto, intending to be legally bound, agree as follows:

Article 1.    Employment Acceptance

The Company hereby agrees to employ the Executive and the Executive hereby accepts employment as Executive Vice President, Strategy and Business Transformation of the Company, in accordance with the terms and conditions set forth herein.

Article 2.Position and Responsibilities

During the term of the Executive’s employment with the Company (“Term”), the Executive agrees to serve as Executive Vice President, Strategy and Business Transformation of the Company. In his capacity as Executive Vice President, Strategy and Business Transformation, the Executive shall report directly to the Company’s Executive Vice President and Chief Operating Officer (“COO”) and shall have the duties and responsibilities of Executive

Vice President, Strategy and Business Transformation and such other duties and responsibilities not inconsistent with the performance of his duties as Executive Vice President, Strategy and Business Transformation of the Company. The Executive’s principal work location shall be the corporate headquarters of the Company located in the Richmond, Virginia metropolitan area.

Article 3.Standard of Care

3.1General. During the Term, the Executive shall devote his full business time, attention, knowledge and skills to the Company’s business and interests. The Executive covenants, warrants, and represents that he shall:

(a) Devote his best efforts and talents to the performance of his employment obligations and duties for the Company;

(b) Exercise the highest degree of loyalty and the highest standards of conduct in the performance of his duties;

(c) Observe and conform to the Company’s bylaws and other rules, regulations, and policies established or issued by the Company; and

(d) Refrain from taking advantage, for himself or others, of any corporate opportunities of the Company.

3.2Forfeiture and Return of Incentive Compensation. It is the Company’s expectation that the Executive will discharge his duties hereunder with utmost attention to the standards set forth in Section 3.1. In the event the CarMax, Inc. Board of Directors (“Board”) determines that the Executive has engaged in conduct constituting Cause (as defined in Section 7.6(a)), which conduct directly results in the filing of a restatement of any financial statement previously filed with the Securities and Exchange Commission (or other governmental agency) under the Federal securities laws, the Executive shall immediately (a) forfeit all unpaid Affected Compensation (as defined below) and (b) upon demand by the Company repay to the Company all Affected Compensation received or realized by the Executive together with interest at the prime rate in effect from time to time as reported in The Wall Street Journal; provided, however, that the forfeiture and repayment provisions of this Section 3.2 shall not apply to conduct constituting “gross negligence” under Section 7.6(a)(ii) or to conduct under Section 7.6(a)(iii), Section 7.6(a)(vii) or Section 7.6(a)(viii). “Affected Compensation” means any payment to the Executive, any award or vesting of any equity or other short-term or long-term incentive compensation to the Executive, or any before-tax proceeds of a sale of previously awarded equity compensation realized by the Executive, in any instance in which (i) the payment, award or vesting of the foregoing was expressly conditioned upon the achievement of certain financial results that were subsequently the subject of such restatement, and (ii) a lesser amount of payment, award or vesting or before-tax proceeds of a sale of any of the foregoing would have been made to, vested in or otherwise earned or realized by, the Executive based upon such restated financial results.

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Article 4.Other Activities

During the Term, the Executive shall comply with the provisions of Article 8 herein. Furthermore, during his employment, the Executive agrees to obtain the written consent of the Company’s President and Chief Executive Officer (the “CEO”) before entering into any other occupation, even if dissimilar to that of the Company, including, without limitation, service as a member of a board of directors of one or more other companies. Such consent may be granted or withheld, in the CEO’s sole discretion. The Executive may participate on charitable and civic boards, and in educational, professional, community and industry affairs, without CEO consent, provided that such participation does not interfere with the performance of his duties.

Article 5.Compensation and Benefits

As remuneration for all services to be rendered by the Executive during the Term, and as consideration for complying with the covenants herein during and after the termination or expiration of the Term, the Company shall pay and provide to the Executive the following compensation and benefits:

5.1Base Salary. During the Term, the Company shall pay the Executive a base salary (“Base Salary”) in an amount established and approved by the Compensation and Personnel Committee of the Board (“Compensation Committee”); provided, however, that such Base Salary shall be established at a rate of not less than $600,000.00 per year, except as otherwise provided in this Section 5.1 below. This Base Salary shall be subject to all appropriate federal and state withholding taxes and payable in accordance with the normal payroll practices of the Company. The Compensation Committee shall review and adjust the Base Salary as it deems appropriate at least annually during the Term; provided, however, that the Executive’s Base Salary shall not be decreased without the Executive’s written consent, other than across-the-board reductions applicable to all senior officers of the Company. If adjusted, the Base Salary shall be so adjusted for all purposes of this Agreement.

5.2Annual Bonus. In addition to his Base Salary, the Executive shall be entitled to participate in the Company’s Annual Performance-Based Bonus Plan (“Annual Bonus Plan”), as such Annual Bonus Plan may exist from time to time during the Term. Under the Company’s Annual Bonus Plan, the Executive has the opportunity to earn an annual bonus with respect to any fiscal year of the Company (“Annual Bonus”). The Annual Bonus will be determined by a formula approved each fiscal year by the Compensation Committee (the “Annual Bonus Formula”) in its sole discretion. At the beginning of each fiscal year, the Compensation Committee will authorize, in accordance with the Annual Bonus Plan, the Executive’s Annual Bonus for that fiscal year, which shall be targeted at seventy-five percent (75%) of the Executive’s Base Salary for that fiscal year (“Target Bonus Rate”). The specified Target Bonus Rate may be increased from time to time by the Compensation Committee but shall not be decreased without the Executive’s written consent. Depending upon the actual financial performance recorded by the Company for any given fiscal year, the Executive’s Annual Bonus may be increased or decreased solely in accordance with the Annual Bonus Formula and otherwise in accordance with the Annual Bonus Plan.

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5.3Long-Term Incentives. During the Term, the Executive shall be eligible to participate in the Company’s 2002 Stock Incentive Plan, as amended and restated (or any successor incentive plan thereto), to the extent that the Compensation Committee, in its sole discretion, determines is appropriate. The Compensation Committee will make its determination consistent with the methodology used by the Company for compensating the Executive’s peer executives. Additionally, the Executive shall be entitled to participate in all other incentive plans, whether equity-based or cash-based, applicable generally to his peer executives within the Company.

5.4Retirement and Deferred Compensation Plans. During the Term, the Executive shall be entitled to participate in all tax-qualified and nonqualified retirement and deferred compensation plans, policies and programs applicable generally to his peer executives within the Company, subject to the eligibility and participation requirements of such plans, policies and programs.

5.5Welfare Benefit Plans. During the Term, the Executive and the Executive’s family will be entitled to participate in all welfare benefit plans, policies and programs, including those defined under Section 3(1) of the Employee Retirement Income Security Act of 1974, as amended, provided by the Company to his peer executives within the Company, subject to the eligibility requirements and other provisions of such plans, policies and programs.

5.6Fringe Benefits. During the Term, the Executive will be entitled to fringe benefits in accordance with the plans, policies and programs of the Company in effect for his peer executives within the Company.

5.7Vacation. During the Term, the Executive will be entitled to participate in the Company’s Time Away paid time off program for salaried employees (or successor paid time off program) as that program is administered by the Company and as it may be amended or modified from time to time; provided, in all events, the Executive will be entitled to not less than 30 days of paid vacation each fiscal year.

5.8Right to Change Plans. By reason of Sections 5.4, 5.5, 5.6 and 5.7 herein, the Company shall not be obligated to institute, maintain, or refrain from changing, amending, or discontinuing any benefit plan, policy or program, so long as such changes are similarly applicable to the Executive’s peer executives.

Article 6.Expenses

During the Term, the Company shall pay or reimburse the Executive for all ordinary and necessary expenses, in a reasonable amount, that the Executive incurs in performing his duties under this Agreement including, but not limited to, travel, entertainment, professional dues and subscriptions, and all dues, fees, and expenses associated with membership in various professional, business, and civic associations and societies in which the Company finds that the Executive’s participation is in the best interests of the Company. The payment or reimbursement of expenses shall be subject to such rules concerning documentation of expenses and the type or

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magnitude of such expenses as the Compensation Committee or the Company, as applicable, may establish from time to time.

Article 7.Employment Termination

7.1Date of Termination. The Company or the Executive may terminate the Executive’s employment in accordance with the provisions of this Article 7. The “Date of Termination” of the Executive’s employment shall be as determined in Sections 7.2, 7.3, 7.4, 7.5, 7.6, and 7.7 below.

7.2Termination Due to Retirement or Death.

(a)In the event the Executive’s employment ends by reason of Retirement (as defined below), the Date of Termination shall be the date set forth in a notice by the Executive, which notice shall be given to the Company at least ninety (90) days prior to such date. In the event of the Executive’s death, the Date of Termination shall be the date of death. In either case, the Executive’s benefits shall be determined in accordance with the Company’s retirement, survivor’s benefits, insurance and other applicable plans and programs of the Company then in effect. For the purposes of this Agreement, “Retirement” shall mean the Executive’s voluntary termination of employment at a time during which he is eligible for “Normal Retirement” or “Early Retirement” as such terms are defined in the CarMax, Inc. Pension Plan as of the Effective Date.

(b)Upon the Date of Termination due to the Executive’s Retirement or death, the Company shall be obligated to pay the Executive or, if applicable, the Executive’s beneficiary or estate, the following “Accrued Obligations”: (i) any Base Salary that was accrued but not yet paid as of the Date of Termination; (ii) the unpaid Annual Bonus, if any, earned with respect to the fiscal year preceding the Date of Termination; (iii) any compensation previously deferred by the Executive by his own election; and (iv) all other employee welfare and retirement benefits to which the Executive is entitled on the Date of Termination in accordance with the terms of the applicable plan or plans. The Accrued Obligations payable under the above clauses (i) and (ii) shall be paid to the Executive in a lump sum cash payment within ten (10) days after the Date of Termination or as soon thereafter as may be practicable. The Accrued Obligations payable under clauses (iii) and (iv) shall be paid in accordance with the terms of the plan under which they are due.

(c)Upon the Date of Termination due to the Executive’s Retirement, the Executive shall be entitled to a pro rata share of the Annual Bonus based on actual performance for the fiscal year in which the Date of Termination occurs (such proration to be based on the fraction, the numerator of which is the number of full completed days of employment during the fiscal year through the Date of Termination, and the denominator of which is 365) (“Pro Rata Actual Bonus”). The Pro Rata Actual Bonus, if any, shall be paid to the Executive when annual bonuses are paid to other senior officers of the Company for such fiscal year.

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(d)Upon the Date of Termination due to the Executive’s death, the Executive’s beneficiary or estate shall be entitled to a pro rata share of the Annual Bonus at the Target Bonus Rate for the fiscal year in which the Date of Termination occurs (such proration to be based on the fraction, the numerator of which is the number of full completed days of employment during the fiscal year through the Date of Termination, and the denominator of which is 365) (“Pro Rata Target Bonus”). The Pro Rata Target Bonus shall be paid to the Executive’s beneficiary or estate in a lump sum cash payment within ten (10) days after the date of the Executive’s death or as soon as practicable thereafter.

(e)Upon the termination of the Executive’s employment due to his Retirement or death, the terms and conditions of the awards and agreements applicable to the Executive’s outstanding stock options, stock grants, stock appreciation rights, performance-based grants, and all other forms of long-term incentive compensation, regardless of whether such compensation is equity or cash based, will govern the consequences of the termination of the Executive’s employment under this Section 7.2.

7.3    Termination Due to Disability.

(a)    The Company shall have the right to terminate the Executive’s employment for his Disability (as defined below). The Date of Termination due to Disability shall be the date set forth in a notice to the Executive, which notice shall be given by the Company at least thirty (30) days prior to such date. For the purposes of this Agreement, “Disability” or “Disabled” shall mean any physical or mental illness or injury that causes the Executive (i) to be considered “disabled” for the purpose of eligibility to receive income-replacement benefits in accordance with the Company’s long-term disability plan in which the Executive is a participant, or (ii) if the Executive does not participate in any such plan, to be unable to substantially perform the duties of his position for 180 days in the aggregate during any period of twelve (12) consecutive months and a physician selected by the Company (and reasonably acceptable to the Executive) shall have furnished to the Company certification that the return of the Executive to his normal duties is impossible or improbable. The Board shall review the foregoing information and shall determine in good faith if the Executive is Disabled. The Board’s decision shall be binding on the Executive. Notwithstanding the foregoing, if the Executive incurs a physical or mental illness or injury that does not constitute a Disability, such physical or mental illness or injury shall not constitute a failure by the Executive to perform his duties hereunder and shall not be deemed a breach or default of this Agreement by the Executive.

(b)Upon the Date of Termination due to the Executive’s Disability, the Executive shall be entitled to his Accrued Obligations and a Pro Rata Target Bonus. The Accrued Obligations provided under Section 7.2(b)(i) and (ii) and the Pro Rata Target Bonus shall be paid to the Executive in a lump sum cash payment within ten (10) days after the Date of Termination or as soon as practicable thereafter. The Accrued Obligations provided under Section 7.2(b)(iii) and (iv) shall be paid in accordance with the terms of the plan under which they are due.

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(c)Upon the termination of the Executive’s employment due to his Disability, the terms and conditions of the awards and agreements applicable to the Executive’s outstanding stock options, stock grants, stock appreciation rights, performance-based grants, and all other forms of long-term incentive compensation, regardless of whether such compensation is equity or cash based, will govern the consequences of the termination of the Executive’s employment under this Section 7.3.

7.4    Voluntary Termination by the Executive Without Good Reason. The Executive may terminate his employment at any time without Good Reason (as defined in Section 7.7)by giving the Company at least forty five (45) days notice, which notice shall state the Date of Termination. The Company reserves the right to require the Executive not to work during the notice period but shall pay the Executive his accrued and unpaid Base Salary, at the rate then in effect provided in Section 5.1 herein, through the Date of Termination (but not to exceed forty-five (45) days), and such payment shall be made to the Executive within ten (10) days after the Date of Termination or as soon thereafter as may be practicable. The Company shall also pay the Executive any compensation previously deferred by the Executive by his own election and all other employee welfare and retirement benefits to which the Executive is entitled on the Date of Termination, all in accordance with the terms of the applicable plan or plans under which they are due. In the event of the Executive’s voluntary termination of employment without Good Reason, the terms and conditions of the awards and agreements applicable to the Executive’s outstanding stock options, stock grants, stock appreciation rights, performance-based grants, and all other forms of long-term incentive compensation, regardless of whether such compensation is equity or cash based, will govern the consequences of the termination of the Executive’s employment under this Section 7.4.

7.5Involuntary Termination by the Company Without Cause. Upon notice to the Executive, the Company may terminate the Executive’s employment at any time for any reason other than for Cause and other than due to Disability (“Involuntary Termination Without Cause”). The Date of Termination shall be the date stated in such notice.

(a)In the event of the Executive’s Involuntary Termination Without Cause, which occurs prior to the occurrence of, or after the conclusion of, a Change in Control Employment Period (defined at Section 11.4) that relates to a “Change in Control Event” (as defined in Section 11.5(b)), the Executive shall receive the following payments and benefits:

(i)The Company shall pay to the Executive, in equal monthly installments over the twenty-four (24) month period beginning on the 60^th day following the Executive’s “Separation from Service” (as such term is defined in the Internal Revenue Code of 1986, as amended (“Code”) Section 409A), an amount equal to the product of two (2) times the sum of (x) the Executive’s Base Salary and (y) the amount of the last Annual Bonus for the Executive as determined by the Compensation Committeein accordance with the Annual Bonus Plan, regardless of the Date of Termination.

(ii)The Executive’s participation in the Company’s health, dental, and vision plans will end on the last day of the month in which the Date of Termination

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occurs. The Executive may elect to continue coverage under the health, dental and/or vision plans for himself and his eligible dependents in accordance with the terms and procedures of the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended (“COBRA”). If the Executive elects COBRA coverage, the Executive shall be responsible for remitting the COBRA premium to the Company (or to a COBRA administrator designated by the Company) in accordance with the terms of the Company’s health, dental and vision plans and applicable COBRA requirements. If the Executive elects COBRA coverage, the Company shall reimburse the Executive for a portion of the cost of such coverage until the end of the COBRA coverage period, up to a maximum period of eighteen (18) months. The amount of the Company’s reimbursement shall be equal to the sum of (1) the amount the Company would have otherwise paid for such coverage if the Executive had remained an active employee of the Company, and (2) the COBRA administration fee. If the Executive does not elect COBRA coverage, the Company shall have no obligation to the Executive with respect to health, dental and vision benefits following the Date of Termination.

(iii)The Company shall provide the Executive with reasonable outplacement services not to exceed a cost of $25,000. Such services shall be provided no later than the expiration of the two-year period following the Executive’s Separation from Service.

(iv)The Executive shall be entitled to his Accrued Obligations and a Pro Rata Actual Bonus. The Accrued Obligations provided under Section 7.2(b)(i) and (ii) shall be paid to the Executive in a lump sum cash payment within ten (10) days after the Date of Termination or as soon thereafter as may be practicable. The Accrued Obligations provided under Section 7.2(b)(iii) and (iv) shall be paid in accordance with the terms of the plan under which they are due. The Pro Rata Actual Bonus, if any, shall be paid to the Executive when annual bonuses are paid to other senior officers of the Company for such fiscal year.

(v)The terms and conditions of the awards and agreements applicable to the Executive’s outstanding stock options, stock grants, stock appreciation rights, performance-based grants, and all other forms of long-term incentive compensation, regardless of whether such compensation is equity or cash based, will govern the consequences of the termination of the Executive’s employment under this Section 7.5.

(b)Amounts payable under this Section 7.5 shall be in lieu of any amounts otherwise payable under any severance plan or agreement covering senior officers of the Company.

(c)In the event that the Company terminates the Executive’s employment at any time for any reason (i) other than for Cause and other than due to Disability and (ii) after the Executive has attained age 65 or higher, such termination shall not be deemed an Involuntary Termination Without Cause.

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7.6Termination For Cause. The Company may terminate the Executive’s employment at any time for Cause, without notice or liability for doing so. The Date of Termination shall be the date that Cause is determined as provided below.

(a)For purposes of this Agreement, “Cause” means a good faith determination by the Board that one (1) or more of the following has occurred:

(i)The Executive has committed a material breach of this Agreement, which breach was not cured or waived by the Company, within ten (10) days of receipt by the Executive of notice from the Company specifying the breach;

(ii)The Executive has committed gross negligence in the performance of his duties hereunder, intentionally fails to perform his duties, engages in intentional misconduct or intentionally refuses to abide by or comply with the directives of the Board, the CEO, the COO or the Company’s policies and procedures, as applicable, which actions continued for a period of ten (10) days after receipt by the Executive of notice of the need to cure or cease;

(iii)The Executive has willfully and continuously failed to perform substantially his duties (other than any such failure resulting from the Executive’s Disability or incapacity due to bodily injury or physical or mental illness), after a written demand for substantial performance is delivered to the Executive by the Board, the CEO or the COO that specifically identifies the manner in which the Board, the CEO or the COO believes that the Executive has not substantially performed his duties;

(iv)The Executive has willfully violated a material requirement of the Company’s code of conduct or breached his fiduciary duty to the Company;

(v)The Executive’s conviction of (or a plea of guilty or nolo contendere to) a felony or any crime involving moral turpitude, dishonesty, fraud, theft or financial impropriety;

(vi)The Executive has engaged in illegal conduct, embezzlement or fraud with respect to the business or affairs of the Company;

(vii)The Executive has failed to disclose to the Board a conflict of interest of which the Executive knew or with reasonable diligence should have known in connection with any transaction entered into on behalf of the Company; or

(viii)The Executive has failed to agree to a modification of the Agreement pursuant to Section 17.3 hereof when the purpose of the modification is to comply with applicable federal, state or local laws or regulations, or when such modification is designed to further define the restrictions of Article 8 or otherwise enhance the enforcement of Article 8 without increasing the duration or scope of the Article 8 restrictions.

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No act or failure to act on the Executive’s part will be considered “willful” if conducted by the Executive in good faith and with a reasonable belief that the Executive’s act or omission was in, and not opposed to, the best interests of the Company.

(b)If the Executive’s employment is terminated for Cause during the Term, this Agreement will terminate without further obligation of the Company to the Executive other than (i) the payment to the Executive of his accrued and unpaid Base Salary through the Date of Termination, and (ii) the payment ofany compensation previously deferred by the Executive by his own election and all other employee welfare and retirement benefits to which the Executive is entitled on the Date of Termination, all in accordance with the terms of the applicable plan or plans under which they are due. In the event of the Executive’s termination of employment for Cause, the terms and conditions of the awards and agreements applicable to the Executive’s outstanding stock options, stock grants, stock appreciation rights, performance-based grants, and all other forms of long-term incentive compensation, regardless of whether such compensation is equity or cash based, will govern the consequences of the termination of the Executive’s employment under this Section 7.6.

7.7Termination for Good Reason. At any time during the Term, the Executive may terminate his employment for Good Reason (as defined below) upon notice to the Company. Such notice shall state the intended Date of Termination and shall be given to the Company at least forty-five (45) days prior to such date and shall set forth in detail the facts and circumstances claimed to provide grounds for such termination. The Company shall have the right to cure the facts and circumstances giving rise to such grounds for termination for Good Reason. If the Company does not so cure within such forty-five (45) day notice period, then the Executive’s employment shall terminate on the Date of Termination stated in the notice.

(a)For purposes of this Agreement, “Good Reason” shall mean, without the Executive’s express written consent, the occurrence of any one (1) or more of the following:

(i)A reduction in the Executive’s Base Salary (other than, prior to the occurrence of a Change in Control or Asset Sale, a reduction across-the-board affecting all senior officers in substantially like percentages of their base salaries) or Target Bonus Rate;

(ii)A material reduction in the Executive’s duties or authority as Executive Vice President, Strategy and Business Transformation of the Company, or any removal of the Executive from or any failure to reappoint or reelect the Executive to such positions (except in connection with the termination of the Executive’s employment for Cause or Disability, as a result of the Executive’s death or Retirement or by the Executive other than for Good Reason);

(iii)The Executive being required to relocate to a principal place of employment more than thirty-five (35) miles from the Company’s headquarters except, prior to the occurrence of a Change in Control or Asset Sale, in connection with the

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relocation of substantially all senior Company executives pursuant to the relocation of the Company’s headquarters; or

(iv)The failure of the Company to obtain an agreement from any successor to all or substantially all of the assets or business of the Company to assume and agree to perform this Agreement within fifteen (15) days after a merger, consolidation, sale or similar transaction.

(b)In the event of the Executive’s voluntary termination of employment for Good Reason, which occurs prior to the occurrence of, or after the conclusion of, a Change in Control Employment Period that relates to a Change in Control Event, the Executive shall receive the following payments and benefits:

(i)The Company shall pay to the Executive, in equal monthly installments over the twenty-four (24) month period beginning on the 60^th day following the Executive’s Separation from Service, an amount equal to the product of two (2) times the sum of (x) the Executive’s Base Salary and (y) the amount of the last Annual Bonus for the Executive as determined by the Compensation Committeein accordance with the Annual Bonus Plan, regardless of the Date of Termination.

(ii)The Executive’s participation in the Company’s health, dental, and vision plans will end on the last day of the month in which the Date of Termination occurs. The Executive may elect to continue coverage under the health, dental and/or vision plans for himself and his eligible dependents in accordance with the terms and procedures of the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended (“COBRA”). If the Executive elects COBRA coverage, the Executive shall be responsible for remitting the COBRA premium to the Company (or to a COBRA administrator designated by the Company) in accordance with the terms of the Company’s health, dental and vision plans and applicable COBRA requirements. If the Executive elects COBRA coverage, the Company shall reimburse the Executive for a portion of the cost of such coverage until the end of the COBRA coverage period, up to a maximum period of eighteen (18) months. The amount of the Company’s reimbursement shall be equal to the sum of (1) the amount the Company would have otherwise paid for such coverage if the Executive had remained an active employee of the Company, and (2) the COBRA administration fee. If the Executive does not elect COBRA coverage, the Company shall have no obligation to the Executive with respect to health, dental and vision benefits following the Date of Termination.

(iii)The Company shall provide the Executive with reasonable outplacement services not to exceed a cost of $25,000. Such services shall be provided no later than the expiration of the two-year period following the Executive’s Separation from Service.

(iv)The Executive shall be entitled to his Accrued Obligations. The Accrued Obligations provided under Section 7.2(b)(i) and (ii) shall be paid to the

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Executive in a lump sum cash payment on the tenth day after the Date of Termination or as soon thereafter as may be practicable. The Accrued Obligations provided under Section 7.2(b)(iii) and (iv) shall be paid in accordance with the terms of the plan under which they are due.

(v)The terms and conditions of the awards and agreements applicable to the Executive’s outstanding stock options, stock grants, stock appreciation rights, performance-based grants, and all other forms of long-term incentive compensation, regardless of whether such compensation is equity or cash based, will govern the consequences of the termination of the Executive’s employment under this Section 7.7.

(vi)The Executive shall be entitled to a one-time payment in an amount equal to the Executive’s Base Salary on the Date of Termination multiplied by seventy-five percent (75%). This one-time payment shall be paid to the Executive in a lump sum cash payment on the tenth day after the Date of Termination or as soon thereafter as may be practicable.

(c)The Executive’s right to terminate his employment for Good Reason shall not be affected by the Executive’s incapacity due to physical or mental illness not constituting a Disability.Amounts payable under this Section 7.7 shall be in lieu of any amounts otherwise payable under any severance plan or agreement covering senior officers of the Company.

7.8Conditions on Company Obligations. All payments and benefits made or provided pursuant to Article 7 are subject to the Executive’s:

(a)Compliance with the provisions of Article 8, Article 9, Article 10 and Section 17.2 hereof;

(b)Except with respect to payment of the Executive’s Accrued Obligations, delivery to the Company of an executed Agreement and General Release without the Executive having revoked such agreement, which shall be substantially in the form attached hereto as Exhibit A (with such changes or additions as needed under then applicable law to give effect to its intent and purpose) (“Agreement and General Release”), satisfactory to the Company by the appropriate deadlines specified by the Company, provided that all such steps must be completed prior to the 60th day (or for purposes of Section 11.5(b), the 45th day) following the Executive’s Separation from Service; and

(c)Compliance with Code Section 409A. Notwithstanding anything herein to the contrary, distributions under Section 7.5(a)(i), 7.7(b)(i), 7.7(b)(vi), or 11.5(b) may not be made to a Key Employee (as defined below) upon his or her Separation from Service before the date which is six months after the date of the Key Employee’s Separation from Service (or, if earlier, the date of death of the Key Employee) (the “Key Employee Delay”). Any payments that would otherwise be made during this period of delay shall be accumulated and paid on the first day of the seventh month following the Executive’s Separation from Service (or, if earlier, the first day of the month after the Executive’s death). For purposes of this Section 7.8(c), “Key

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Employee” means an executive who, as of December 31^st of a calendar year, meets the requirements of Code Section 409A(a)(2)(B)(i) to be treated as a “specified employee” of the Company; i.e., a key employee (as defined in Code Section 416(i)(1)(A)(i), (ii) or (iii) applied in accordance with the regulations thereunder and disregarding Code Section 416(i)(5)). An executive who meets the criteria in the preceding sentence will be considered a Key Employee for purposes of this Agreement for the 12-month period commencing on the next following April 1.

After payment of all amounts and benefits under this Article 7, the Company thereafter shall have no further obligation under this Agreement.

Article 8.Covenant Not to Compete

The terms and provisions contained in this Article 8 comprise a covenant not to compete (the “Covenant Not to Compete”). The Executive acknowledges and agrees as follows:

8.1CarMax operates a unique business concept regarding the sale and servicing of new and used vehicles in a highly competitive industry.

8.2CarMax’s competitors have attempted to duplicate CarMax’s business concept in various markets throughout the United States, including markets where CarMax does not currently have a business location, and may continue to do so.

8.3In connection with the Executive’s employment with CarMax, he will receive access to, and training regarding, CarMax’s business concept and will, accordingly, acquire commercially valuable knowledge of and insight into CarMax’s operations and CarMax’s proprietary and confidential information, any of which if made available to any Competitor (as defined below) could place CarMax at a competitive disadvantage.

8.4In order to protect CarMax’s legitimate business interests from Competitors (as defined below) and to protect CarMax’s critical interest in its proprietary and confidential information, the Executive covenants and agrees as follows:

During the Executive’s employment with CarMax and for a period of twenty-four (24) months following the last day of the Executive’s employment (the “Restricted Period”), the Executive will not, directly or indirectly, compete with CarMax by acting “in a competitive capacity” (as defined below), for, or on behalf of, any person or entity operating or developing, during the Restricted Period, a business that provides or intends to provide activities, products or services that are the same or substantially similar to, and competitive with, the business of CarMax as of Executive’s last day of employment with CarMax (each, a “Competitor”) within any Metropolitan Statistical Area (as defined by the United States Office of Management and Budget) in which CarMax has a retail store site as of Executive’s last day of employment. Such Competitors include, but are not limited to: Sonic Automotive, Inc.; Lithia Motors, Inc.; Group 1 Automotive, Inc.; AutoNation, Inc.; Penske Automotive Group, Inc.; Asbury Automotive Group, Inc.;

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Hendrick Automotive Group; Auction Direct USA, L.P.; Car Sense Inc.; AutoAmerica, Inc.; Left Gate Property Holding, Inc. d/b/a Texas Direct Auto; Off Lease Only, Inc.; Carvana, LLC; Carvana Group, LLC; AutoMatch USA, LLC; DriveTime Car Sales Company, LLC; DriveTime Automotive Group, Inc.; CarLotz, Inc.; Hertz Global Holdings, Inc.; Enterprise Holdings, Inc.; Avis Budget Group, Inc.; Cox Automotive, Inc.; Classified Ventures, LLC; TrueCar, Inc.; Edmunds.com, Inc.; Dealertrack Technologies, Inc.; Dealer Dot Com, Inc.; CarGurus, LLC; Blinker, Inc.; and Beepi, Inc., and any automotive retail operation affiliated with, owned, operated, or controlled by Berkshire Hathaway Inc.; Home Depot, Inc.; Lowe’s Companies, Inc.; Target Corporation; Wal-Mart Stores, Inc.; Sears Holdings Corporation; Carrefour S.A.; Costco Wholesale Corporation; Royal Dutch Shell plc; Exxon Mobil Corporation; Chevron Corporation; and/or Gulliver International Co., Ltd.

8.5A business, including any Competitor, or any of its respective subsidiaries or affiliates, will not be considered to be in competition with CarMax for purposes of Article 8 if the business, or operating unit of the business, or its respective subsidiaries or affiliates, by which the Executive will be or is employed (i) does not have within the twenty-four (24) months preceding the Executive’s termination of employment with CarMax, annual gross revenues (calculated on a rolling 12-month basis) of at least $5,000,000 derived from the sale and servicing of new or used vehicles; or (ii) is not projected (by the business or operating unit of the business) to have within the twenty-four (24) months following the Executive’s termination of employment with CarMax, annual gross revenues (regardless of how calculated) of at least $5,000,000 derived from the sale and servicing of new or used vehicles.

8.6Acting “in a competitive capacity” shall mean providing to a Competitor, directly or indirectly, the same or substantially similar services that the Executive provided to CarMax at any time during Executive’s last twenty-four (24) months of employment.

8.7Nothing herein shall prevent or restrict the Executive from working for any person in any role or in any capacity that is not in competition with CarMax.

8.8Notwithstanding the foregoing, nothing herein shall be deemed to prevent or limit the right of the Executive to invest in the capital stock or other securities of any corporation whose stock or securities are regularly traded on any public exchange.

8.9Intellectual Property. The Executive understands and acknowledges that any writing, invention, design, system, process, development or discovery (collectively, “Intellectual Property”) conceived, developed, created or made by the Executive, alone or with others, both during the Term of this Agreement and in the course of the Executive’s employment prior to the Term, is the sole and exclusive property of the Company to the extent such Intellectual Property is related to the Executive’s duties or is within the scope of the Company’s actual or anticipated business. The Executive agrees to assign to the Company any and all of his right, title, and interest in and to such Intellectual Property, including, but not limited to, patent, trademark and other rights. The Executive further agrees to cooperate fully with the Company to secure, maintain, enforce, or defend the Company’s ownership of and rights in such Intellectual

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Property. The rights and remedies of this Section 8.9 are in addition to any rights and remedies available under applicable law.

8.10The Executive and CarMax have examined in detail the Covenant Not to Compete contained in this Article 8 and each agrees that the restraint imposed upon the Executive is reasonable in light of the legitimate business interests of CarMax and is not unduly harsh or burdensome with respect to the Executive’s ability to earn a livelihood. If any provision of the Covenant Not to Compete relating to the time period, geographic area or scope of restricted activities shall be declared by a court of competent jurisdiction to exceed the maximum time period, geographic area or scope of activities, as applicable, that such court deems reasonable and enforceable, then such time period, geographic area or scope of activities shall be deemed to be, and thereafter shall become, the maximum time period, scope of activities or largest geographic area that such court deems reasonable and enforceable and this Agreement shall automatically be considered to have been amended and revised to reflect such determination.

8.11The Executive and CarMax acknowledge that the Executive’s services are of a special, extraordinary, and intellectual character that gives the Executive unique value, and that CarMax’s business is highly competitive, and that violation of the Covenant Not to Compete provided herein would cause immediate, immeasurable, and irreparable harm, loss, and damage to CarMax not adequately compensable by a monetary award. In the event of any breach or threatened breach by the Executive of the Covenant Not to Compete, CarMax shall be entitled to such equitable and injunctive relief as may be available to restrain the Executive from violating the provisions hereof. Nothing herein shall be construed as prohibiting CarMax from pursuing any other remedies available at law or in equity for such breach or threatened breach, including the recovery of damages and the immediate termination of the employment of the Executive hereunder for Cause.

Article 9.Non-Solicitation of Employees

The Executive agrees that during the Executive’s employment with CarMax and for a period of twenty-four (24) months following the last day of the Executive’s employment, the Executive shall not, directly or indirectly, solicit or induce, or attempt to solicit or induce, any employee of CarMax with whom the Executive had material business-related contact on behalf of CarMax, to leave employment with CarMax for any reason whatsoever (the “Covenant Not to Solicit”). For purposes of this Article 9, employee shall mean any individual employed by CarMax.

Article 10.Confidentiality

The terms and provisions contained in this Article 10 comprise a covenant of confidentiality (the “Covenant of Confidentiality”).

The Executive understands and agrees that any and all Protected Information is the property of CarMax and is essential to the protection of CarMax’s goodwill and to the maintenance of CarMax’s competitive position and accordingly should be kept secret. For purposes of this Agreement, “Protected Information” means trade secrets, confidential and

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proprietary business information of or about CarMax, and any other information of CarMax, including technical data, processes, know‑how, financial data, analyses, forecasts, plans, operations information and data, customer lists (including potential customers) and information, marketing plans, materials and information, product and service information, accounts and billings information, sales transaction data, sales documents and information, discoveries, ideas, concepts, designs, drawings, specifications, techniques, models, information systems data and materials, computer software or hardware, data analyses and compilations, source code, object code, documentation, diagrams, flow charts, research, procedures, methods, systems, programs, price lists, pricing policies, supplier and distributor information, sources of supply, internal memoranda, promotional plans, internal policies, purchasing information, operating methods and procedures, training materials, and any products and services which may be developed from time to time by CarMax and its agents or employees, including the Executive; provided, however, that information that is in the public domain (other than as a result of a breach of this Agreement), approved for release by CarMax or lawfully obtained from third parties who are not bound by a confidentiality agreement with CarMax, is not Protected Information.

CarMax has advised the Executive and the Executive acknowledges that it is the policy of CarMax to maintain as secret and confidential all Protected Information, and that Protected Information has been and will be developed at substantial cost to and effort by CarMax. The Executive agrees to hold in strict confidence and safeguard any and all Protected Information accessed or accessible by the Executive during the Executive’s employment. The Executive shall not, without the prior written consent of CarMax, at any time, directly or indirectly, divulge, furnish, use, disclose or make accessible to any person, firm, corporation, association, or other entity (otherwise than as may be required in the regular course of the Executive’s employment with CarMax), any Protected Information, or cause any such Protected Information to enter the public domain.

Nothing contained in this Article 10 is intended to reduce in any way the protection available to CarMax pursuant to the Uniform Trade Secrets Act as adopted in Virginia or any other state or other applicable laws that prohibit the misuse or disclosure of confidential or proprietary information. Unless lengthened by the application of the Virginia Uniform Trade Secrets Act or other applicable law, the restrictions in Article 10 shall remain in effect during Associate’s employment and for five (5) years thereafter.

Article 11.Change in Control; Sale of Assets

11.1Purpose. The Company recognizes that the possibility of a Change in Control or Asset Sale exists, and the uncertainty and questions that it may raise among management may result in the departure or distraction of management personnel to the detriment of the Company. Accordingly, the purpose of this Article 11 is to encourage the Executive to continue employment after a Change in Control or Asset Sale by providing reasonable employment security to the Executive and to recognize the prior service of the Executive in the event of a termination of employment under certain circumstances after a Change in Control or Asset Sale. This Article 11 shall not become effective, and the Company shall have no obligation hereunder,

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if the employment of the Executive with the Company terminates before a Change in Control or Asset Sale.

11.2Definitions.

(a)“Change in Control” of the Company means the occurrence of either of the following events: (i) a third person, including a “group” as defined in Section 13(d)(3) of the Securities Exchange Act of 1934, as amended, becomes, or obtains the right to become, the beneficial owner of Company securities having twenty percent (20%) or more of the combined voting power of the then outstanding securities of the Company that may be cast for the election of directors to the Board of the Company (other than as a result of an issuance of securities initiated by the Company in the ordinary course of business); or (ii) as the result of, or in connection with, any cash tender or exchange offer, merger or other business combination, sale of assets or contested election, or any combination of the foregoing transactions, the persons who were directors of the Company before such transactions shall cease to constitute a majority of the board or of the board of directors of any successor to the Company.

(b)“Asset Sale” shall mean a sale of all or substantially all of the assets of the Company in a single transaction or a series of related transactions.

11.3Long-Term Incentive Compensation. The terms and conditions of the awards and agreements applicable to the Executive’s outstanding stock options, stock grants, stock appreciation rights, performance-based grants, and all other forms of long-term incentive compensation, regardless of whether such compensation is equity or cash based, will govern the consequences to the Executive upon the occurrence of a Change in Control or an Asset Sale or upon a termination of the Executive’s employment thereafter.

11.4Continued Employment Following Change in Control or an Asset Sale. If a Change in Control or an Asset Sale occurs and the Executive is employed by the Company on the date the Change in Control or Asset Sale occurs (the “Change in Control Date”), the period beginning on the Change in Control Date and ending on the second (2nd) anniversary of such date shall be the “Change in Control Employment Period.”

11.5Termination of Employment During Change in Control Employment Period. The Executive will be entitled to the compensation and benefits described in this Section 11.5 if, during the Change in Control Employment Period, (a) the Company terminates his employment for any reason other than for Cause or due to Disability, or (b) the Executive voluntarily terminates his employment with the Company for Good Reason. The compensation and benefits described in this Section 11.5 are in lieu of, and not in addition to, any compensation and benefits provided to the Executive pursuant to Sections 7.5 and 7.7 herein and any amounts otherwise payable under any severance plan or agreement covering senior officers of the Company. Upon such a termination of employment, the Executive shall receive the following payments and benefits:

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(a)The Executive shall be entitled to his Accrued Obligations and a Pro Rata Target Bonus. The Accrued Obligations provided under Section 7.2(b)(i) and (ii) and the Pro Rata Target Bonus shall be paid to the Executive in a lump sum cash payment within ten (10) days after the Date of Termination or as soon thereafter as may be practicable. The Accrued Obligations provided under Section 7.2(b)(iii) and (iv) shall be paid in accordance with the terms of the plan under which they are due.

(b)The Company shall pay to the Executive an amount equal to 2.99 times the Executive’s Final Compensation. For purposes of this Agreement, “Final Compensation” means the Base Salary in effect at the Date of Termination, plus the higher Annual Bonus paid or payable for the two (2) most recently completed fiscal years. If the Change in Control Employment Period relates to an event that also qualifies as a Change in Control Event, this payment will be paid to the Executive in a lump sum cash payment on the forty-fifth (45th) day following the Executive’s Separation from Service. Otherwise, such payment shall be paid at the time and in the form set forth in Section 7.5. For purposes of this Section 11.5(b), a “Change in Control Event” means an event described in IRS regulations or other guidance under Code Section 409A(a)(2)(A)(v).

(c)The Executive’s participation in the Company’s health, dental, and vision plans will end on the last day of the month in which the Date of Termination occurs. The Executive may elect to continue coverage under the health, dental and/or vision plans for himself and his eligible dependents in accordance with the terms and procedures of COBRA. If the Executive elects COBRA coverage, the Executive shall be responsible for remitting the COBRA premium to the Company (or to a COBRA administrator designated by the Company) in accordance with the terms of the health, dental and vision plans and applicable COBRA requirements. If the Executive elects COBRA coverage, the Company shall reimburse the Executive for a portion of the cost of such coverage until the end of the COBRA coverage period, up to a maximum period of eighteen (18) months. The amount of the Company’s reimbursement shall be equal to the sum of (1) the amount the Company would have otherwise paid for such coverage if the Executive had remained an active employee of the Company, and (2) the COBRA administration fee. If the Executive does not elect COBRA coverage, the Company shall have no obligation to the Executive with respect to health, dental and vision benefits following the Date of Termination.

(d)The Company shall provide the Executive with reasonable outplacement services not to exceed a cost of $25,000. Such services shall be provided no later than the expiration of the two-year period following the Executive’s Separation from Service.

11.6Death, Disability or Retirement Termination During Change In Control Employment Period. If the Executive’s employment ends by reason of Retirement, the Executive’s death, or as a result of Disability during the Change in Control Employment Period, this Agreement will terminate without any further obligation on the part of the Company under this Agreement other than:

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(a)The Executive (or his beneficiary or his estate in the event of his death) will be entitled to the payment of the Executive’s Accrued Obligations and a Pro Rata Target Bonus. The Accrued Obligations provided under Section 7.2(b)(i) and (ii) and the Pro Rata Target Bonus shall be paid in a lump sum cash payment within ten (10) days after the Date of Termination or as soon thereafter as may be practicable. The Accrued Obligations provided under Section 7.2(b)(iii) and (iv) shall be paid in accordance with the terms of the plan under which they are due; and

(b)The terms and conditions of the awards and agreements applicable to the Executive’s outstanding stock options, stock grants, stock appreciation rights, performance-based grants, and all other forms of long-term incentive compensation, regardless of whether such compensation is equity or cash based, will govern the consequences of the termination of the Executive’s employment under this Section 11.6.

The compensation and benefits described in this Section 11.6 are in lieu of, and not in addition to, any compensation and benefits provided to the Executive pursuant to Sections 7.2 and 7.3 herein and any amounts otherwise payable under any severance plan or agreement covering senior officers of the Company.

11.7Termination for Cause and Termination Other Than For Good Reason Following a Change in Control.

(a)If the Executive’s employment is terminated for Cause during the Change in Control Employment Period, this Agreement will terminate without further obligation to the Executive other than the payment to the Executive of his accrued and unpaid Base Salary through the Date of Termination, as well as any deferred compensation and other employee welfare and retirement benefits to which the Executive is entitled on the Date of Termination in accordance with the terms of the applicable plan or plans under which they are due. The terms and conditions of the awards and agreements applicable to the Executive’s outstanding stock options, stock grants, stock appreciation rights, performance-based grants, and all other forms of long-term incentive compensation, regardless of whether such compensation is equity or cash based, will govern the consequences of the termination of the Executive’s employment under this Section 11.7(a). The compensation and benefits described in this Section 11.7 are in lieu of, and not in addition to, any compensation and benefits provided to the Executive pursuant to Sections 7.4 and 7.6 herein and any amounts otherwise payable under any severance plan or agreement covering senior officers of the Company.

(b)If the Executive terminates employment during the Change in Control Employment Period other than for Good Reason, this Agreement will terminate without further obligation to the Executive other than:

(i)    The Executive (or his beneficiary or his estate in the event of his death) will be entitled to the payment of the Executive’s Accrued Obligations. The Accrued Obligations provided under Section 7.2(b)(i) and (ii) shall be paid in a lump sum cash payment within ten (10) days after the Date of Termination or as soon thereafter as

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may be practicable. The Accrued Obligations provided under Section 7.2(b)(iii) and (iv) shall be paid in accordance with the terms of the plan under which they are due; and

(ii) The terms and conditions of the awards and agreements applicable to the Executive’s outstanding stock options, stock grants, stock appreciation rights, performance-based grants, and all other forms of long-term incentive compensation, regardless of whether such compensation is equity or cash based, will govern the consequences of the termination of the Executive’s employment under this Section 11.7(b).

11.8Conditions on Company Obligations. All payments and benefits made or provided pursuant to Article 11 are subject to the provisions of Section 7.8 (including the Key Employee Delay in Section 7.8(c)). After payment of all amounts and benefits under this Article 11, the Company thereafter shall have no further obligation under this Agreement.

Article 12.Assignment

12.1Assignment by Company. This Agreement may and shall be assigned or transferred to, and shall be binding upon and shall inure to the benefit of, any successor of the Company, and any such successor shall be deemed substituted for all purposes of the “Company” under the terms of this Agreement. As used in this Agreement, the term “successor” shall mean any person, firm, corporation, or business entity which, at any time, whether by merger, purchase, or otherwise, acquires all or substantially all, or control of all or substantially all, of the assets or the business of the Company. Except as provided herein, the Company may not otherwise assign this Agreement.

12.2Assignment by the Executive. The services to be provided by the Executive to the Company hereunder are personal to the Company and the Executive’s duties may not be assigned by the Executive; provided, however, that this Agreement shall inure to the benefit of and be enforceable by the Executive’s personal or legal representatives, executors, and administrators, successors, heirs, distributees, devisees, and legatees. If the Executive dies while any amounts payable to the Executive hereunder remain outstanding, all such amounts, unless otherwise provided herein, shall be paid in accordance with the terms of this Agreement to the Executive’s devisee, legatee, or other designee or, in the absence of such designee, to the Executive’s estate.

Article 13.Dispute Resolution

Except for actions initiated by CarMax to enjoin a breach by the Executive, and/or recover damages from the Executive, related to the Covenant Not to Compete (Article 8), the Covenant Not to Solicit (Article 9) or the Covenant of Confidentiality (Article 10) (collectively, the “Restrictive Covenants”), which action(s) CarMax may bring in an appropriate court of law or equity, any disagreement between the Executive and CarMax concerning anything covered by this Agreement or concerning other terms or conditions of the Executive’s employment or the termination of the Executive’s employment will be settled by final and binding arbitration pursuant to CarMax’s

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Dispute Resolution Rules and Procedures in effect at the time the disagreement or dispute arises or at the time of termination in the event the Executive’s employment terminated. The decision of the arbitrator will be final and binding on both the Executive and CarMax and may be enforced in a court of appropriate jurisdiction.

Article 14.Litigation By Third Parties

All litigation or inquiries by third parties (including, but not limited to, those by the Company’s shareholders or by government agencies) arising out of or in connection with the Executive’s performance under this Agreement, against either the Company or the Executive or both, shall be jointly defended or opposed by the parties hereto to support this Agreement. The Company shall appoint legal counsel for the parties and shall bear the costs, reasonable legal fees and expenses related to such litigation or inquiry.

Article 15.Indemnity; Limitation of Liability

As an officer of the Company, the Executive shall be entitled to indemnity and limitation of liability as provided pursuant to the Company’s Articles of Incorporation, bylaws and any other governing document, as the same shall be amended from time to time.

Article 16.Notice

Any notices, requests, demands, or other communications provided for by this Agreement shall be in writing, and given by delivery in person or by registered or certified mail, postage prepaid (in which case notice will be deemed to have been given on the third day after mailing) or by overnight delivery by a reliable overnight courier service (in which case notice will be deemed to have been given on the day after delivery to such courier service). Notices to the Executive shall be directed to the last address he has filed in writing with the Company. Notices to the Company shall be directed to the Secretary of the Company.

Article 17.Miscellaneous

17.1Entire Agreement. This Agreement supersedes any prior agreements or understandings, oral or written, between the parties hereto, with respect to the subject matter hereof, and constitutes the entire agreement of the parties with respect thereto. Without limiting the generality of the foregoing sentence, this Agreement completely supersedes any and all prior employment and severance agreements entered into by and between the Company, and the Executive, and all amendments thereto, in their entirety.

17.2Return of Materials. Upon the termination of the Executive’s employment with the Company, however such termination is effected, the Executive shall promptly deliver to the Company all property (including Intellectual Property), records, materials, documents, and copies of documents concerning the Executive’s business and/or its customers (hereinafter collectively “Company Materials”) which the Executive has in his possession or under his control at the time of termination of his employment. The Executive further agrees not to take or

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extract any portion of Company Materials in written, computer, electronic or any other reproducible form without the prior written consent of the Board.

17.3Modification. This Agreement shall not be varied, altered, modified, canceled, changed, or in any way amended except by mutual agreement of the parties in a written instrument executed by the parties hereto or their legal representatives.

17.4Severability. It is the intention of the parties that the provisions of the restrictive covenants herein shall be enforceable to the fullest extent permissible under the applicable law. If any clause or provision of this Agreement is held to be illegal, invalid, or unenforceable under present or future laws effective during the Term hereof, then the remainder of this Agreement shall not be affected thereby, and in lieu of each clause or provision of this Agreement that is illegal, invalid or unenforceable, there shall be added, as a part of this Agreement, a clause or provision as similar in terms to such illegal, invalid or unenforceable clause or provision as may be possible and as may be legal, valid and enforceable.

17.5Attorney’s Fees. In any action arising under this Agreement, CarMax, so long as it prevails, shall be entitled to recover its reasonable attorney’s fees and costs.

17.6Section 409A. Notwithstanding any other provision of this Agreement, (i) to the extent applicable, this Agreement will be interpreted, operated and administered in accordance with the requirements of Code Section 409A, and (ii) if either the Company or the Executive determines that any provision of this Agreement may cause compensation payable to the Executive to be classified as income under Code Section 409A(a) or (b) and thereby results in tax penalties to the Executive, the Company or the Executive, as the case may be, shall notify the other party and the parties will amend the Agreement to avoid penalties under Code Section 409A.

17.7Counterparts. This Agreement may be executed in one (1) or more counterparts, each of which shall be deemed to be an original, but all of which together will constitute one and the same Agreement.

17.8Tax Withholding. The Company may withhold from any benefits payable under this Agreement all federal, state, city, or other taxes as may be required pursuant to any law or governmental regulation or ruling.

17.9Restrictive Covenants of the Essence. The Restrictive Covenants in Articles 8, 9 and 10 of the Agreement are of the essence of this Agreement. In the event that the Executive has a claim or cause of action against CarMax (whether related to this Agreement or not), such claim or cause of action, including but not limited to a breach of this Agreement by CarMax, shall not prevent or otherwise constitute a defense to CarMax’s enforcement of the Restrictive Covenants and shall not excuse the Executive’s performance of the Restrictive Covenants. CarMax shall at all times maintain the right to seek enforcement of the Restrictive Covenants whether or not CarMax has previously refrained from seeking enforcement of any such Restrictive Covenant as to the Executive or any other peer Executive who has signed an

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agreement with similar covenants. Notwithstanding any provision contained within this Agreement, the obligations of the Executive under Articles 8, 9, 10, 13 and 17 of this Agreement shall continue after the termination of this Agreement and the Executive’s employment and shall be binding on the Executive’s heirs, executors, legal representatives and assigns.

17.10Beneficiaries. The Executive may designate one (1) or more persons or entities as the primary or contingent beneficiaries of any amounts to be received under this Agreement. Such designation must be in the form of a signed writing acceptable to the Company’s chief legal officer. The Executive may make or change such designation at any time.

17.11Full Settlement. Except as set forth in this Agreement, the Company’s obligation to make the payments provided for in this Agreement and otherwise to perform its obligations hereunder shall not be affected by any circumstances, including without limitation, set-off, counterclaim, recoupment, defense or other claim, right or action which the Company may have against the Executive or others, except to the extent any amounts are due the Company or its subsidiaries or affiliates pursuant to a judgment against the Executive; provided, however, in no event shall any judgment result in the offset of amounts subject to Code Section 409A. In no event shall the Executive be obligated to seek other employment in mitigation of the amounts payable to the Executive under any of the provisions of this Agreement, nor shall the amount of any payment hereunder be reduced by any compensation earned by the Executive as a result of employment by another employer; provided, that continued health, dental and vision benefit plan participation pursuant to Section 7.5(a)(ii) or Section 11.5(c) herein shall be reduced to the extent that the Executive becomes eligible to such benefits from a subsequent employer.

17.12Contractual Rights to Benefits. This Agreement establishes and vests in the Executive a contractual right to the benefits to which he is entitled hereunder. However, nothing herein contained shall require or be deemed to require, or prohibit or be deemed to prohibit, the Company to segregate, earmark, or otherwise set aside any funds or other assets in trust or otherwise to provide for any payments to be made or required hereunder.

17.13Resignations. Upon the termination of the Executive’s employment, however such termination is effected, he shall be deemed to have resigned as of the date of such termination all offices and directorships he may have held with the Company and all subsidiaries.

Article 18.Governing Law

This Agreement shall be governed by, construed and enforced in accordance with the laws of the Commonwealth of Virginia without regard to conflicts of laws principles thereof. In the event of any litigation between CarMax and Executive related to the enforcement or enforceability of the Restrictive Covenants, the parties agree that the Circuit Court for the County of Henrico, Virginia, shall have mandatory and exclusive jurisdiction and venue of any such action.

Article 19.Protected Rights

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Notwithstanding any other terms and conditions of this Agreement:

Executive understands that nothing contained in this Agreement limits Executive’s ability to file a charge or complaint with the Equal Employment Opportunity Commission, the National Labor Relations Board, the Occupational Safety and Health Administration, the Securities and Exchange Commission or any other federal, state or local governmental agency or commission (“Government Agencies”). Executive further understands that this Agreement does not limit Executive’s ability to communicate with any Government Agencies or otherwise participate in any investigation or proceeding that may be conducted by any Government Agency, including providing documents or other information, without notice to the Company. This Agreement does not limit Executive’s right to receive an award for information provided to any Government Agencies.

[Signature Page Follows]

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IN WITNESS WHEREOF, the Executive and the Company have executed this Agreement as of January 3, 2017.

CARMAX, INC.: 
By:/s/ Eric M. MargolinEric M. Margolin

Executive Vice President, General Counsel and Corporate Secretary

EXECUTIVE:/s/ Edwin J. Hill

Edwin J. Hill

Executive Vice President, Strategy and

Business Transformation

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EXHIBIT A

[Form of Release]

AGREEMENT AND GENERAL RELEASE

This Agreement and General Release (the “Agreement and General Release”), dated as of _______ __, 20__, is made by and between CarMax, Inc., for itself and its affiliates, subsidiaries, divisions, successors and assigns in such capacity, and the current, future and former employees, officers, directors, trustees and agents thereof (collectively referred to throughout this Agreement as the “Company”) and _______________________ (“Executive”), for him/herself and his/her heirs, executors, administrators, successors and assigns (together with Executive, collectively referred to throughout this Agreement and General Release as “Employee”) agree:

1.    Last Day of Employment. The Executive’s last day of employment with the Company is ____________, 20__. In addition, effective as of ____________, 20__, the Executive resigns from the Executive’s position as ____________ of the Company, and will not be eligible for any benefits or compensation after ____________, 20__, other than as specifically provided in Articles 7 or 11, as applicable, of the Severance Agreement between the Company and the Executive dated as of __________ __, 20__ (“Severance Agreement”) and the Executive’s continued right to indemnification and directors and officers liability insurance. In addition, effective as of ____________, 20__, the Executive resigns from all offices, directorships, trusteeships, committee memberships and fiduciary capacities held with, or on behalf of, the Company or any benefit plans of the Company. These resignations will become irrevocable as set forth in Section 3 below.

2.    Consideration. The parties acknowledge that this Agreement and General Release is being executed in accordance with Article 7 or Article 11 of the Severance Agreement, as applicable, and that this Agreement and General Release is a condition to the receipt by Employee of all payments and benefits thereunder.

3.    Revocation. The Executive may revoke this Agreement and General Release for a period of seven (7) calendar days following the day the Executive executes this Agreement and General Release. Any revocation within this period must be submitted, in writing, to the Company and state, “I hereby revoke my acceptance of our Agreement and General Release.” The revocation must be personally delivered to the Company’s _______________, or his/her designee, or mailed to the Company, _______________________________ and postmarked within seven (7) calendar days of execution of this Agreement and General Release. This Agreement and General Release shall not become effective or enforceable until the revocation period has expired. If the last day of the revocation period is a Saturday, Sunday, or legal holiday in Virginia, then the revocation period shall not expire until the next following day that is not a Saturday, Sunday, or legal holiday.

4.    General Release of Claims. Employee knowingly and voluntarily releases and forever discharges the Company from any and all claims, rights, causes of action, demands, damages, fees, costs, expenses, including attorneys’ fees, and liabilities of any kind whatsoever, whether

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known or unknown, against the Company, that Employee has, has ever had or may have as of the date of execution of this Agreement and General Release, including, but not limited to, any alleged violation of:

●    The Age Discrimination in Employment Act of 1967, as amended;

●    The Older Workers Benefit Protection Act of 1990;

●    Title VII of the Civil Rights Act of 1964, as amended;

●    The Civil Rights Act of 1991;

●    Sections 1981 through 1988 of Title 42 of the United States Code, as amended;

●    The Employee Retirement Income Security Act of 1974, as amended;

●    The Immigration Reform and Control Act, as amended;

●    The Americans with Disabilities Act of 1990, as amended;

●    The Worker Adjustment and Retraining Notification Act, as amended;

●    The Occupational Safety and Health Act, as amended;

●    The Family and Medical Leave Act of 1993;

●    All other federal, state or local civil or human rights laws, whistleblower laws, or any other local, state or federal law, regulations and ordinances;

●    All public policy, contract, tort, or common laws; and

●    All allegations for costs, fees, and other expenses including attorneys’ fees incurred in these matters.

Notwithstanding anything herein to the contrary, the sole matters to which the Agreement and General Release do not apply are: (i) Employee’s rights of indemnification and directors and officers liability insurance coverage to which the Executive was entitled immediately prior to __________ __, 20__ with regard to the Executive’s service as an officer and director of the Company (including, without limitation, under Article 15 of the Severance Agreement); (ii) Employee’s rights under any tax-qualified pension plan or claims for accrued vested benefits under any other employee benefit plan, policy or arrangement maintained by the Company or under the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended; (iii) Employee’s rights under Article 7 or Article 11 of the Severance Agreement, as the case may be; (iv) Employee’s rights as a stockholder of the Company; (v) Employee’s right to file charges or complaints with the Equal Employment Opportunity Commission, the National Labor Relations Board, the Occupational Safety and Health Administration, the Securities and Exchange Commission or any other federal, state or local

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governmental agency or commission (“Government Agencies”), although Employee waives the Executive’s right to recover any damages or other relief in any claim or suit brought by or through the Government Agencies on behalf of Employee under the Age Discrimination in Employment Act, Title VII of the Civil Rights Act of 1964 as amended, the Americans with Disabilities Act, or any other federal or state discrimination law, except where such waivers are prohibited by law, provided, however, this Agreement and General Release does not limit Employee’s right to receive an award for information provided to any Government Agencies; and (vi) Employee’s rights that cannot be released by private agreement under applicable law.

5.    Affirmations. Employee affirms that the Executive has been paid or has received all compensation, wages, bonuses, commissions, and/or benefits to which the Executive may be entitled and no other compensation, wages, bonuses, commissions and benefits are due to the Executive, except as provided in Article 7 or Article 11 of the Severance Agreement, as applicable. The Employee also affirms the Executive has no known workplace injuries.

6.    Return of Property. Employee represents that the Executive has returned to the Company all property belonging to the Company, including but not limited to any vehicle, laptop, cell phone, keys, access cards, phone cards and credit cards, and all Protected Information as defined in Article 10 of the Severance Agreement.

7.    Cooperation. Employee agrees to reasonably cooperate with the Company to provide truthful and accurate information in connection with any administrative proceeding, arbitration, or litigation relating to any matter that occurred during the Associate’s employment with the Company in which the Associate was involved or of which the Associate has knowledge. Employee further understands that this Agreement and General Release does not limit Employee’s ability to communicate with any Government Agencies or otherwise participate in any investigation or proceeding that may be conducted by any Government Agency, including providing documents or other information, without notice to the Company.

8.    Governing Law and Interpretation. This Agreement and General Release shall be governed and construedin accordance with the laws of the Commonwealth of Virginia, without reference to Virginia’s choice of law statutes or decisions. In the event Employee or the Company breaches any provision of this Agreement and General Release, Employee and the Company acknowledge thateither may institute an action to specifically enforce any term or terms of this Agreement and General Release pursuant to the dispute resolution provisions of Article 13 of the Severance Agreement. Should any provision of this Agreement and General Release be declared illegal or unenforceable by any court of competent jurisdiction and should the provision be incapable of being modified to be enforceable, such provision shall immediately become null and void, leaving the remainder of this Agreement and General Release in full force and effect. Nothing herein, however, shall operate to void or nullify any enforceable general release language contained in this Agreement and General Release.

9.    No Admission of Wrongdoing. Employee agrees neither this Agreement and General Release nor the furnishing of the consideration for this Agreement and General Release shall be

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deemed or construed at any time for any purpose as an admission by the Company of any liability or unlawful conduct of any kind.

10.    Amendment. This Agreement and General Release may not be modified, altered or changed except upon express written consent of both parties wherein specific reference is made to this Agreement and General Release.

11.    Entire Agreement. This Agreement and General Release sets forth the entire agreement between the parties hereto and fully supersedes any prior agreements or understandings between the parties; provided, however, that notwithstanding anything in this Agreement and General Release, the provisions in the Severance Agreement that are intended to survive termination of the Severance Agreement, including but not limited to those contained in Articles 8, 9 and 10, 13 and in Section 17.2 thereof, shall survive and continue in full force and effect. Employee acknowledges the Executive has not relied on any representations, promises, or agreements of any kind made to the Executive in connection with the Executive’s decision to accept this Agreement and General Release.

EMPLOYEE HAS BEEN ADVISED THAT EXECUTIVE HAS UP TO TWENTY-ONE (21) CALENDAR DAYS TO REVIEW AND CONSIDER THIS AGREEMENT AND GENERAL RELEASE AND HAS BEEN ADVISED IN WRITING TO CONSULT WITH AN ATTORNEY PRIOR TO EXECUTION OF THIS AGREEMENT AND GENERAL RELEASE.

EMPLOYEE AGREES ANY MODIFICATIONS, MATERIAL OR OTHERWISE, MADE TO THIS AGREEMENT AND GENERAL RELEASE DO NOT RESTART OR AFFECT IN ANY MANNER THE ORIGINAL TWENTY-ONE (21) CALENDAR DAY CONSIDERATION PERIOD.

HAVING ELECTED TO EXECUTE THIS AGREEMENT AND GENERAL RELEASE, TO FULFILL THE PROMISES SET FORTH HEREIN, AND TO RECEIVE THE SUMS AND BENEFITS SET FORTH IN THE SEVERANCE AGREEMENT, TO WHICH EMPLOYEE WOULD NOT OTHERWISE BE ENTITLED, EMPLOYEE FREELY AND KNOWINGLY, AND AFTER DUE CONSIDERATION, ENTERS INTO THIS AGREEMENT AND GENERAL RELEASE INTENDING TO WAIVE, SETTLE AND RELEASE ALL CLAIMS EMPLOYEE HAS OR MIGHT HAVE AGAINST THE COMPANY AS SET FORTH HEREIN.

[Signature Page Follows]

29

IN WITNESS WHEREOF, the parties hereto knowingly and voluntarily executed this Agreement and General Release as of the date set forth below:

CARMAX, INC.: 
By:Name:_____________________________
Title:______________________________

EXECUTIVE/EMPLOYEE:

Name: _____________________________

30

EX-31.1

EXHIBIT 31.1

Certification of the Chief Executive Officer

Pursuant to Rule 13a-14(a)

I, William D. Nash, certify that:

1. I have reviewed this quarterly report on Form 10-Q of CarMax, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date:  January 6, 2017

/s/ William D. Nash

William D. Nash

President and

Chief Executive Officer

EX-31.2

EXHIBIT 31.2

Certification of the Chief Financial Officer

Pursuant to Rule 13a-14(a)

I, Thomas W. Reedy, certify that:

1. I have reviewed this quarterly report on Form 10-Q of CarMax, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date:  January 6, 2017

/s/ Thomas W. Reedy 

Thomas W. Reedy

Executive Vice President and

Chief Financial Officer

EX-32.1

EXHIBIT 32.1

CERTIFICATION OF THE CHIEF EXECUTIVE OFFICER

PURSUANT TO 18 U.S.C. SECTION 1350

In connection with the CarMax, Inc. (the "company") Quarterly Report on Form 10-Q for the period ended November 30, 2016, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, William D. Nash, President and Chief Executive Officer of the company, certify pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to my knowledge:

1.  The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

2.  The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the company as of, and for, the periods presented in the Report.

Date:	January 6, 2017	By:	/s/ William D. Nash
			William D. Nash
			President and Chief Executive Officer

EX-32.2

EXHIBIT 32.2

CERTIFICATION OF THE CHIEF FINANCIAL OFFICER

PURSUANT TO 18 U.S.C. SECTION 1350

In connection with the CarMax, Inc. (the "company") Quarterly Report on Form 10-Q for the period ended November 30, 2016, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Thomas W. Reedy,  Executive Vice President and Chief Financial Officer of the company, certify pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to my knowledge:

1.  The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

2.  The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the company as of, and for, the periods presented in the Report.

Date:	January 6, 2017	By:	/s/ Thomas W. Reedy
			Thomas W. Reedy
			Executive Vice President and
			Chief Financial Officer

XML

Document And Entity Information - shares	9 Months Ended
	Nov. 30, 2016	Dec. 30, 2016
Document And Entity Information [Abstract]
Document Type	10-Q
Amendment Flag	false
Document Period End Date	Nov. 30, 2016
Document Fiscal Year Focus	2017
Document Fiscal Period Focus	Q3
Entity Registrant Name	CARMAX INC
Entity Central Index Key	0001170010
Entity Current Reporting Status	Yes
Entity Well-known Seasoned Issuer	Yes
Entity Voluntary Filers	No
Current Fiscal Year End Date	--02-28
Entity Filer Category	Large Accelerated Filer
Entity Common Stock, Shares Outstanding		187,116,434

XML

Consolidated Statements Of Earnings - USD ($) shares in Thousands, $ in Thousands	3 Months Ended		9 Months Ended
	Nov. 30, 2016	Nov. 30, 2015	Nov. 30, 2016	Nov. 30, 2015
Revenue, Net [Abstract]
Used vehicle sales	$ 3,090,613	$ 2,908,963	$ 9,820,401	$ 9,351,841
Wholesale vehicle sales	488,385	513,796	1,616,528	1,682,195
Other sales and revenues	122,526	121,310	388,229	409,834
NET SALES AND OPERATING REVENUES	3,701,524	3,544,069	11,825,158	11,443,870
Cost of sales	3,198,389	3,079,738	10,204,024	9,914,375
GROSS PROFIT	503,135	464,331	1,621,134	1,529,495
CARMAX AUTO FINANCE INCOME	89,359	92,316	286,086	299,703
Selling, general and administrative expenses	356,735	337,512	1,103,091	1,018,075
Interest expense	15,071	10,021	40,063	24,574
Other (income) expense	1,027	1,157	(24)	2,791
Earnings before income taxes	219,661	207,957	764,090	783,758
Income tax provision	83,016	79,758	289,723	301,357
NET EARNINGS	$ 136,645	$ 128,199	$ 474,367	$ 482,401
WEIGHTED AVERAGE COMMON SHARES:
Basic, shares	189,200	201,291	191,431	205,760
Diluted, shares	190,818	203,383	193,239	208,242
NET EARNINGS PER SHARE:
Basic (in dollars per share)	$ 0.72	$ 0.64	$ 2.48	$ 2.34
Diluted (in dollars per share)	$ 0.72	$ 0.63	$ 2.45	$ 2.32
Used vehicle sales, percent
Percentage of Sales
Item as a percent of net sales and operating revenues	83.50%	82.10%	83.00%	81.70%
Wholesale vehicle sales, percent
Percentage of Sales
Item as a percent of net sales and operating revenues	13.20%	14.50%	13.70%	14.70%
Other sales and revenues, percent
Percentage of Sales
Item as a percent of net sales and operating revenues	3.30%	3.40%	3.30%	3.60%
NET SALES AND OPERATING REVENUES, percent
Percentage of Sales
Item as a percent of net sales and operating revenues	100.00%	100.00%	100.00%	100.00%
Cost of sales, percent
Percentage of Sales
Item as a percent of net sales and operating revenues	86.40%	86.90%	86.30%	86.60%
GROSS PROFIT, percent
Percentage of Sales
Item as a percent of net sales and operating revenues	13.60%	13.10%	13.70%	13.40%
CARMAX AUTO FINANCE INCOME, percent
Percentage of Sales
Item as a percent of net sales and operating revenues	2.40%	2.60%	2.40%	2.60%
Selling, general and administrative expenses, percent
Percentage of Sales
Item as a percent of net sales and operating revenues	9.60%	9.50%	9.30%	8.90%
Interest expense, percent
Percentage of Sales
Item as a percent of net sales and operating revenues	0.40%	0.30%	0.30%	0.20%
Other (income) expense, percent
Percentage of Sales
Item as a percent of net sales and operating revenues	0.00%	0.00%	0.00%	0.00%
Earnings before income taxes, percent
Percentage of Sales
Item as a percent of net sales and operating revenues	5.90%	5.90%	6.50%	6.80%
Income tax provision, percent
Percentage of Sales
Item as a percent of net sales and operating revenues	2.20%	2.30%	2.50%	2.60%
NET EARNINGS, percent
Percentage of Sales
Item as a percent of net sales and operating revenues	3.70%	3.60%	4.00%	4.20%

XML

Consolidated Statements Of Comprehensive Income - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Nov. 30, 2016	Nov. 30, 2015	Nov. 30, 2016	Nov. 30, 2015
Statement of Comprehensive Income [Abstract]
NET EARNINGS	$ 136,645	$ 128,199	$ 474,367	$ 482,401
Other comprehensive income (loss), net of taxes:
Net change in retirement benefit plan unrecognized actuarial losses	247	322	744	967
Net change in cash flow hedge unrecognized losses	6,200	(837)	9,317	(2,240)
Other comprehensive income (loss)	6,447	(515)	10,061	(1,273)
TOTAL COMPREHENSIVE INCOME	$ 143,092	$ 127,684	$ 484,428	$ 481,128

XML

Consolidated Balance Sheets - USD ($) $ in Thousands	Nov. 30, 2016	Feb. 29, 2016
CURRENT ASSETS:
Cash and cash equivalents	$ 23,713	$ 37,394
Restricted cash from collections on auto loan receivables	357,040	343,829
Accounts receivable, net	92,003	132,171
Inventory	2,170,175	1,932,029
Other current assets	41,347	26,358
TOTAL CURRENT ASSETS	2,684,278	2,471,781
Auto loan receivables, net	10,333,318	9,536,892
Property and equipment, net	2,449,343	2,161,698
Deferred income taxes	155,995	161,862
Other assets	137,133	127,678
TOTAL ASSETS	15,760,067	14,459,911
LIABILITIES AND SHAREHOLDERS’ EQUITY
Accounts payable	476,757	441,746
Accrued expenses and other current liabilities	224,585	245,909
Accrued income taxes	2,071	2,029
Short-term debt	880	428
Current portion of finance and capital lease obligations	10,566	14,331
Current portion of non-recourse notes payable	312,858	300,750
TOTAL CURRENT LIABILITIES	1,027,717	1,005,193
Long-term debt, excluding current portion	888,161	713,910
Finance and capital lease obligations, excluding current portion	466,965	400,323
Non-recourse notes payable, excluding current portion	10,129,401	9,206,425
Other liabilities	232,439	229,274
TOTAL LIABILITIES	12,744,683	11,555,125
Commitments and contingent liabilities
SHAREHOLDERS’ EQUITY:
Common stock, $0.50 par value; 350,000,000 shares authorized; 187,351,060 and 194,712,234 shares issued and outstanding as of November 30, 2016 and February 29, 2016, respectively	93,676	97,356
Capital in excess of par value	1,160,484	1,130,822
Accumulated other comprehensive loss	(60,135)	(70,196)
Retained earnings	1,821,359	1,746,804
TOTAL SHAREHOLDERS’ EQUITY	3,015,384	2,904,786
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY	$ 15,760,067	$ 14,459,911

XML

Consolidated Balance Sheets (Parenthetical) - $ / shares	Nov. 30, 2016	Feb. 29, 2016
Statement of Financial Position [Abstract]
Common stock, par value (in dollars per share)	$ 0.5	$ 0.5
Common stock, shares authorized	350,000,000	350,000,000
Common stock, shares issued	187,351,060	194,712,234
Common stock, shares outstanding	187,351,060	194,712,234

XML

Consolidated Statements Of Cash Flows - USD ($) $ in Thousands	9 Months Ended
	Nov. 30, 2016	Nov. 30, 2015
OPERATING ACTIVITIES:
Net earnings	$ 474,367	$ 482,401
Adjustments to reconcile net earnings to net cash used in operating activities
Depreciation and amortization	125,654	100,504
Share-based compensation expense	72,026	45,284
Provision for loan losses	104,249	70,165
Provision for cancellation reserves	51,768	61,048
Deferred income tax benefit	(584)	(8,322)
Other	2,118	3,007
Net decrease (increase) in:
Accounts receivable, net	40,168	49,160
Inventory	(238,146)	(66,396)
Other current assets	(5,802)	12,397
Auto loan receivables, net	(900,675)	(952,974)
Other assets	1,193	268
Net decrease in:
Accounts payable, accrued expenses and other current liabilities and accrued income taxes	(5,240)	(109,243)
Other liabilities	(64,222)	(68,878)
NET CASH USED IN OPERATING ACTIVITIES	(343,126)	(381,579)
INVESTING ACTIVITIES:
Capital expenditures	(315,543)	(240,835)
Proceeds from sales of assets	728	1,520
Increase in restricted cash from collections on auto loan receivables	(13,211)	(22,064)
Increase in restricted cash in reserve accounts	(11,663)	(8,383)
Release of restricted cash from reserve accounts	8,083	5,907
Purchases of money market securities, net	(3,482)	(6,106)
Purchases of trading securities	(3,442)	(4,759)
Sales of trading securities	318	101
NET CASH USED IN INVESTING ACTIVITIES	(338,212)	(274,619)
FINANCING ACTIVITIES:
Increase (decrease) in short-term debt, net	452	(749)
Proceeds from issuances of long-term debt	1,660,600	1,137,300
Payments on long-term debt	(1,484,900)	(583,300)
Cash paid for debt issuance costs	(12,568)	(3,104)
Payments on finance and capital lease obligations	(8,407)	(13,310)
Issuances of non-recourse notes payable	7,235,000	7,430,805
Payments on non-recourse notes payable	(6,299,802)	(6,565,516)
Repurchase and retirement of common stock	(464,352)	(816,181)
Equity issuances	34,554	44,855
Excess tax benefits from share-based payment arrangements	7,080	31,138
NET CASH PROVIDED BY FINANCING ACTIVITIES	667,657	661,938
(Decrease) increase in cash and cash equivalents	(13,681)	5,740
Cash and cash equivalents at beginning of year	37,394	27,606
CASH AND CASH EQUIVALENTS AT END OF PERIOD	$ 23,713	$ 33,346

XML

Background

9 Months Ended

Nov. 30, 2016

Organization, Consolidation and Presentation of Financial Statements [Abstract]

Background

Background

CarMax, Inc. (“we,” “our,” “us,” “CarMax” and “the company”), including its wholly owned subsidiaries, is the largest retailer of used vehicles in the United States. We operate in two reportable segments:  CarMax Sales Operations and CarMax Auto Finance (“CAF”).  Our CarMax Sales Operations segment consists of all aspects of our auto merchandising and service operations, excluding financing provided by CAF.  Our CAF segment consists solely of our own finance operation that provides financing to customers buying retail vehicles from CarMax.

We seek to deliver an unrivaled customer experience by offering a broad selection of high quality used vehicles and related products and services at low, no-haggle prices using a customer-friendly sales process in an attractive, modern sales facility, as well as through carmax.com and our mobile apps.  We provide customers with a full range of related products and services, including the appraisal and purchase of vehicles directly from consumers; the financing of vehicle purchases through CAF and third-party financing providers; the sale of extended protection plan (“EPP”) products, which include extended service plans (“ESPs”) and guaranteed asset protection (“GAP”); and vehicle repair service.  Vehicles purchased through the appraisal process that do not meet our retail standards are sold to licensed dealers through on-site wholesale auctions.

XML

Accounting Policies

9 Months Ended

Nov. 30, 2016

Accounting Policies [Abstract]

Accounting Policies

Accounting Policies

Basis of Presentation and Use of Estimates.  The accompanying interim unaudited consolidated financial statements include the accounts of CarMax and our wholly owned subsidiaries.  All significant intercompany balances and transactions have been eliminated in consolidation.  These consolidated financial statements have been prepared in conformity with U.S. generally accepted accounting principles (“GAAP”) for interim financial information.  Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements.  In the opinion of management, such interim consolidated financial statements reflect all normal recurring adjustments considered necessary to present fairly the financial position and the results of operations and cash flows for the interim periods presented.  The results of operations for the interim periods are not necessarily indicative of the results to be expected for the full fiscal year.  These consolidated financial statements should be read in conjunction with the audited consolidated financial statements and footnotes included in our Annual Report on Form 10-K for the fiscal year ended February 29, 2016.

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses and the disclosure of contingent assets and liabilities.  Actual results could differ from those estimates.  Certain prior year amounts have been reclassified to conform to the current year’s presentation.  Amounts and percentages may not total due to rounding.

In connection with our adoption of ASU 2015-03 in fiscal 2017, we have presented all debt issuance costs, with the exception of those related to our revolving credit facility, as a reduction of the carrying amount of the related debt liability. Prior period amounts have been reclassified to conform to the current year's presentation.

In the fourth quarter of fiscal 2016, we reclassified New Vehicle Sales to Other Sales and Revenues and no longer separately present New Vehicle Sales. All periods presented have been revised for this new presentation.

Cash and Cash Equivalents.  Cash equivalents of approximately $272,000 as of November 30, 2016, and $109,000 as of February 29, 2016, consisted of highly liquid investments with original maturities of three months or less.

Restricted Cash from Collections on Auto Loan Receivables.  Cash equivalents totaling $357.0 million as of November 30, 2016, and $343.8 million as of February 29, 2016, consisted of collections of principal, interest and fee payments on securitized auto loan receivables that are restricted for payment to the securitization investors pursuant to the applicable securitization agreements.

Securitizations.  We maintain a revolving securitization program composed of three warehouse facilities (“warehouse facilities”) that we use to fund auto loan receivables originated by CAF. We typically elect to fund these receivables through a term securitization or alternative funding arrangement at a later date.  We sell the auto loan receivables to one of three wholly owned, bankruptcy-remote, special purpose entities that transfer an undivided percentage ownership interest in the receivables, but not the receivables themselves, to entities formed by third-party investors.  These entities issue asset-backed commercial paper or utilize other funding sources supported by the transferred receivables, and the proceeds are used to finance the securitized receivables.

We typically use term securitizations to provide long-term funding for most of the auto loan receivables initially securitized through the warehouse facilities.  In these transactions, a pool of auto loan receivables is sold to a bankruptcy-remote, special purpose entity that, in turn, transfers the receivables to a special purpose securitization trust.  The securitization trust issues asset-backed securities, secured or otherwise supported by the transferred receivables, and the proceeds from the sale of the asset-backed securities are used to finance the securitized receivables.

We are required to evaluate term securitization trusts for consolidation.  In our capacity as servicer, we have the power to direct the activities of the trusts that most significantly impact the economic performance of the trusts.  In addition, we have the obligation to absorb losses (subject to limitations) and the rights to receive any returns of the trusts, which could be significant.  Accordingly, we are the primary beneficiary of the trusts and are required to consolidate them.

We recognize transfers of auto loan receivables into the warehouse facilities and term securitizations (“securitization vehicles”) as secured borrowings, which result in recording the auto loan receivables and the related non-recourse notes payable on our consolidated balance sheets.

The securitized receivables can only be used as collateral to settle obligations of the securitization vehicles.  The securitization vehicles and investors have no recourse to our assets beyond the securitized receivables, the amounts on deposit in reserve accounts and the restricted cash from collections on auto loan receivables.  We have not provided financial or other support to the securitization vehicles that was not previously contractually required, and there are no additional arrangements, guarantees or other commitments that could require us to provide financial support to the securitization vehicles.

See Notes 4 and 10 for additional information on auto loan receivables and non-recourse notes payable.

Auto Loan Receivables, Net.  Auto loan receivables include amounts due from customers related to retail vehicle sales financed through CAF.  The receivables are presented net of an allowance for estimated loan losses.  The allowance for loan losses represents an estimate of the amount of net losses inherent in our portfolio of managed receivables as of the applicable reporting date and anticipated to occur during the following 12 months.  The allowance is primarily based on the credit quality of the underlying receivables, historical loss trends and forecasted forward loss curves.  We also take into account recent trends in delinquencies and defaults, recovery rates and the economic environment.  The provision for loan losses is the periodic expense of maintaining an adequate allowance.

An account is considered delinquent when the related customer fails to make a substantial portion of a scheduled payment on or before the due date.  In general, accounts are charged-off on the last business day of the month during which the earliest of the following occurs:  the receivable is 120 days or more delinquent as of the last business day of the month, the related vehicle is repossessed and liquidated, or the receivable is otherwise deemed uncollectible.  For purposes of determining impairment, auto loans are evaluated collectively, as they represent a large group of smaller-balance homogeneous loans, and therefore, are not individually evaluated for impairment.  See Note 4 for additional information on auto loan receivables.

Interest income and expenses related to auto loans are included in CAF income.  Interest income on auto loan receivables is recognized when earned based on contractual loan terms.  All loans continue to accrue interest until repayment or charge-off.  Direct costs associated with loan originations are not considered material, and thus, are expensed as incurred.  See Note 3 for additional information on CAF income.

Property and Equipment.  Property and equipment is stated at cost less accumulated depreciation and amortization of $1.01 billion and $925.3 million as of November 30, 2016 and February 29, 2016, respectively.

Other Assets.  Other assets includes amounts classified as restricted cash on deposit in reserve accounts and restricted investments.  The restricted cash on deposit in reserve accounts is for the benefit of holders of non-recourse notes payable, and these funds are not expected to be available to the company or its creditors.  In the event that the cash generated by the securitized receivables in a given period was insufficient to pay the interest, principal and other required payments, the balances on deposit in the reserve accounts would be used to pay those amounts.  Restricted cash on deposit in reserve accounts is invested in money market securities and was $50.2 million as of November 30, 2016, and $46.6 million as of February 29, 2016.

Restricted investments includes money market securities primarily held to satisfy certain insurance program requirements, as well as mutual funds held in a rabbi trust established to fund informally our executive deferred compensation plan.  Restricted investments totaled $70.7 million as of November 30, 2016, and $63.0 million as of February 29, 2016.

Revenue Recognition.    We recognize revenue when the earnings process is complete, generally either at the time of sale to a customer or upon delivery to a customer.  As part of our customer service strategy, we guarantee the retail vehicles we sell with a 5-day, money-back guarantee.  We record a reserve for estimated returns based on historical experience and trends.

We also sell ESP and GAP products on behalf of unrelated third parties, who are the primary obligors, to customers who purchase a vehicle.  The ESPs we currently offer on all used vehicles provide coverage up to 60 months (subject to mileage limitations), while GAP covers the customer for the term of their finance contract. We recognize revenue at the time of sale, net of a reserve for estimated contract cancellations.  Periodically, we may receive additional revenue based upon the level of underwriting profits of the third parties who administer the products.  These additional amounts are recognized as revenue when received.  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 7 for additional information on cancellation reserves.

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.

We collect sales taxes and other taxes from customers on behalf of governmental authorities at the time of sale.  These taxes are accounted for on a net basis and are not included in net sales and operating revenues or cost of sales.

Derivative Instruments and Hedging Activities.  We enter into derivative instruments to manage certain risks arising from both our business operations and economic conditions that result in the future known receipt or payment of uncertain cash amounts, the values of which are impacted by interest rates.  We recognize the derivatives at fair value as either current assets or current liabilities on the consolidated balance sheets, and where applicable, such contracts covered by master netting agreements are reported net.  Gross positive fair values are netted with gross negative fair values by counterparty.  The accounting for changes in the fair value of derivatives depends on the intended use of the derivative, whether we have elected to designate a derivative in a hedging relationship and apply hedge accounting and whether the hedging relationship has satisfied the criteria necessary to apply hedge accounting.  We may enter into derivative contracts that are intended to economically hedge certain risks, even though hedge accounting may not apply or we do not elect to apply hedge accounting.  See Note 5 for additional information on derivative instruments and hedging activities.

Recent Accounting Pronouncements.

Effective in Future Periods. In October 2016, the Financial Accounting Standards Board (“FASB”) issued an accounting pronouncement (FASB ASU 2016-16) related to the income tax effects of intra-entity transfers of assets other than inventory. The pronouncement requires that entities recognize the income tax effects of intra-entity transfers of assets other than inventory when the transfer occurs. Current GAAP prohibits the recognition of those tax effects until the asset has been sold to an outside party. The pronouncement is effective for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2017, with early adoption permitted. We plan to adopt this pronouncement for our fiscal year beginning March 1, 2018, and are currently evaluating the effect on our consolidated financial statements.

In November 2016, the FASB issued an accounting pronouncement (FASB ASU 2016-18) related to the presentation of restricted cash in the statement of cash flows. The pronouncement requires that a statement of cash flows explain the change during the period in cash, cash equivalents, and amounts generally described as restricted cash. Amounts generally described as restricted cash should be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. The pronouncement is effective for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2017, with early adoption permitted. We plan to adopt this pronouncement for our fiscal year beginning March 1, 2018, and the pronouncement will result in changes to our consolidated statements of cash flows such that restricted cash amounts will be included in the beginning-of-period and end-of-period cash and cash equivalents totals.

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CarMax Auto Finance

9 Months Ended

Nov. 30, 2016

CarMax Auto Finance Income [Abstract]

CarMax Auto Finance

CarMax Auto Finance

CAF provides financing to qualified retail customers purchasing vehicles from CarMax.  CAF provides us the opportunity to capture additional profits, cash flows and sales 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.  This information is used to assess CAF's performance and make operating decisions, including resource allocation.

We typically use securitizations to fund loans originated by CAF, as discussed in Note 2.  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.  Although CAF benefits from certain indirect overhead expenditures, we have not allocated indirect costs to CAF to avoid making subjective allocation decisions.  Examples of indirect costs not allocated to CAF include retail store expenses and corporate expenses.  In addition, except for auto loan receivables, which are disclosed in Note 4, CAF assets are not separately reported nor do we allocate assets to CAF because such allocation would not be useful to management in making operating decisions.

Components of CAF Income

	Three Months Ended November 30										Nine Months Ended November 30
(In millions)	2016			% (1)		2015			% (1)		2016			% (1)		2015			% (1)
Interest margin:
Interest and fee income	$	192.7		7.5		$	172.3		7.4		$	567.0		7.5		$	507.0		7.5
Interest expense	(44.1		)	(1.7	)	(33.0		)	(1.4	)	(125.3		)	(1.7	)	(91.9		)	(1.4	)
Total interest margin	148.6			5.8		139.3			6.0		441.7			5.9		415.1			6.2
Provision for loan losses	(41.9		)	(1.6	)	(30.9		)	(1.3	)	(104.2		)	(1.4	)	(70.2		)	(1.0	)
Total interest margin after provision for loan losses	106.7			4.1		108.4			4.7		337.5			4.5		344.9			5.1
Total other expense	—			—		(0.3		)	—		—			—		(0.4		)	—
Direct expenses:
Payroll and fringe benefit expense	(7.5		)	(0.3	)	(7.1		)	(0.3	)	(22.9		)	(0.3	)	(21.0		)	(0.3	)
Other direct expenses	(9.8		)	(0.4	)	(8.7		)	(0.4	)	(28.5		)	(0.4	)	(23.8		)	(0.4	)
Total direct expenses	(17.3		)	(0.7	)	(15.8		)	(0.7	)	(51.4		)	(0.7	)	(44.8		)	(0.7	)
CarMax Auto Finance income	$	89.4		3.5		$	92.3		4.0		$	286.1		3.8		$	299.7		4.5
Total average managed receivables	$	10,297.8				$	9,261.4				$	10,030.9				$	8,973.3

⁽¹⁾   Annualized percentage of total average managed receivables.

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Auto Loan Receivables

9 Months Ended

Nov. 30, 2016

Loans Receivable, Net [Abstract]

Auto Loan Receivables

Auto Loan Receivables

Auto loan receivables include amounts due from customers related to retail vehicle sales financed through CAF and are presented net of an allowance for estimated loan losses.  We generally use warehouse facilities to fund auto loan receivables originated by CAF until we elect to fund them through a term securitization or alternative funding arrangement.  The majority of the auto loan receivables serve as collateral for the related non-recourse notes payable of $10.46 billion as of November 30, 2016 and $9.53 billion as of February 29, 2016.  

Auto Loan Receivables, Net

	As of November 30			As of February 29
(In millions)	2016			2016
Term securitizations	$	8,473.1		$	7,828.0
Warehouse facilities	1,677.0			1,399.0
Other receivables(1)	257.6			366.6
Total ending managed receivables	10,407.7			9,593.6
Accrued interest and fees	41.8			35.0
Other	(1.4		)	3.2
Less allowance for loan losses	(114.8		)	(94.9		)
Auto loan receivables, net	$	10,333.3		$	9,536.9

⁽¹⁾   Other receivables includes receivables not funded through the warehouse facilities or term securitizations, including receivables restricted as excess collateral for those funding arrangements.

During fiscal 2017, we entered into a new $100 million warehouse facility to fund managed receivables associated with a portion of CAF's Tier 3 loan origination activity. These receivables have historically been included in other receivables, within managed receivables. Amounts securitized within this facility are now included within warehouse facilities. See Notes 2 and 10 for additional information on securitizations and non-recourse notes payable.

Credit Quality.  When customers apply for financing, CAF’s proprietary scoring models rely on the customers’ credit history and certain application information to evaluate and rank their risk.  We obtain credit histories and other credit data that includes information such as number, age, type of and payment history for prior or existing credit accounts.  The application information that is used includes income, collateral value and down payment.  The scoring models yield credit grades that represent the relative likelihood of repayment.  Customers assigned a grade of “A” are determined to have the highest probability of repayment, and customers assigned a lower grade are determined to have a lower probability of repayment.  For loans that are approved, the credit grade influences the terms of the agreement, such as the required loan-to-value ratio and interest rate.

CAF uses a combination of the initial credit grades and historical performance to monitor the credit quality of the auto loan receivables on an ongoing basis.  We validate the accuracy of the scoring models periodically.  Loan performance is reviewed on a recurring basis to identify whether the assigned grades adequately reflect the customers’ likelihood of repayment.

Ending Managed Receivables by Major Credit Grade

	As of November 30			As of February 29
(In millions)	2016(1)		% (2)	2016(1)		% (2)
A	$	5,068.7	48.7	$	4,666.6	48.6
B	3,643.9		35.0	3,400.1		35.4
C and other	1,695.1		16.3	1,526.9		16.0
Total ending managed receivables	$	10,407.7	100.0	$	9,593.6	100.0

⁽¹⁾   Classified based on credit grade assigned when customers were initially approved for financing.

⁽²⁾   Percent of total ending managed receivables.

Allowance for Loan Losses

	Three Months Ended November 30								Nine Months Ended November 30
(In millions)	2016			%(1)	2015			%(1)	2016			%(1)	2015			%(1)
Balance as of beginning of period	$	109.7		1.08	$	87.8		0.96	$	94.9		0.99	$	81.7		0.97
Charge-offs	(62.9		)		(51.9		)		(164.6		)		(128.7		)
Recoveries	26.1				24.1				80.3				67.7
Provision for loan losses	41.9				30.9				104.2				70.2
Balance as of end of period	$	114.8		1.10	$	90.9		0.97	$	114.8		1.10	$	90.9		0.97

⁽¹⁾   Percentof total ending managed receivables.

The allowance for loan losses represents an estimate of the amount of net losses inherent in our portfolio of managed receivables as of the applicable reporting date and anticipated to occur during the following 12 months.  The allowance is primarily based on the credit quality of the underlying receivables, historical loss trends and forecasted forward loss curves.  We also take into account recent trends in delinquencies and defaults, recovery rates and the economic environment.  The provision for loan losses is the periodic expense of maintaining an adequate allowance.

Past Due Receivables

	As of November 30			As of February 29
(In millions)	2016		%(1)	2016		%(1)
Total ending managed receivables	$	10,407.7	100.0	$	9,593.6	100.0
Delinquent loans:
31-60 days past due	$	228.8	2.2	$	171.0	1.8
61-90 days past due	101.9		1.0	69.1		0.7
Greater than 90 days past due	29.0		0.3	22.7		0.2
Total past due	$	359.7	3.5	$	262.8	2.7

⁽¹⁾   Percent of total ending managed receivables.

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Derivative Instruments And Hedging Activities

9 Months Ended

Nov. 30, 2016

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Derivative Instruments And Hedging Activities

Derivative Instruments and Hedging Activities

We use derivatives to manage certain risks arising from both our business operations and economic conditions, particularly with regard to issuances of debt.  Primary exposures include LIBOR and other rates used as benchmarks in our securitizations and other debt financing.  We enter into derivative instruments to manage exposures related to the future known receipt or payment of uncertain cash amounts, the values of which are impacted by interest rates, and designate these derivative instruments as cash flow hedges for accounting purposes.  Our derivative instruments are used to manage (i) 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 loan receivables, and (ii) exposure to variable interest rates associated with our term loan, as further discussed in Note 10.

For the derivatives associated with our securitization program, the effective portion of changes in the fair value is initially recorded in accumulated other comprehensive loss (“AOCL”).  For the majority of these derivatives, the amounts are subsequently reclassified into CAF income in the period that the hedged forecasted transaction affects earnings, which occurs as interest expense is recognized on those future issuances of debt. During the next 12 months, we estimate that an additional $5.5 million will be reclassified from AOCL as a decrease to CAF income.

As of November 30, 2016 and February 29, 2016, we had interest rate swaps outstanding with a combined notional amount of $2.32 billion and $2.42 billion, respectively, that were designated as cash flow hedges of interest rate risk.

Fair Values of Derivative Instruments

	As of November 30, 2016					As of February 29, 2016
(In thousands)	Assets (1)		Liabilities (2)			Assets (1)		Liabilities (2)
Derivatives designated as accounting hedges:
Interest rate swaps	$	8,778	$	(318	)	$	587	$	(8,024	)

⁽¹⁾   Reported in other current assets on the consolidated balance sheets.

⁽²⁾   Reported in accounts payable on the consolidated balance sheets.

Effect of Derivative Instruments on Comprehensive Income

	Three Months Ended						Nine Months Ended
	November 30						November 30
(In thousands)	2016			2015			2016			2015
Derivatives designated as accounting hedges:
Gain (loss) recognized in AOCL (1)	$	7,282		$	(3,325	)	$	6,484		$	(9,596	)
Loss reclassified from AOCL into CAF income(1)	$	(2,935	)	$	(1,944	)	$	(8,868	)	$	(5,902	)
Loss recognized in CAF income (2)	$	—		$	(336	)	$	—		$	(438	)

⁽¹⁾  Represents the effective portion.

⁽²⁾  Represents the ineffective portion.

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Fair Value Measurements

9 Months Ended

Nov. 30, 2016

Fair Value Disclosures [Abstract]

Fair Value Measurements

Fair Value Measurements

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants in the principal market or, if none exists, the most advantageous market, for the specific asset or liability at the measurement date (referred to as the “exit price”).  The fair value should be based on assumptions that market participants would use, including a consideration of nonperformance risk.

We assess the inputs used to measure fair value using the three-tier hierarchy.  The hierarchy indicates the extent to which inputs used in measuring fair value are observable in the market.

Level 1 Inputs include unadjusted quoted prices in active markets for identical assets or liabilities that we can access at the measurement date.

Level 2 Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly, including quoted prices for similar assets in active markets, quoted prices from identical or similar assets in inactive markets and observable inputs such as interest rates and yield curves.

Level 3 Inputs that are significant to the measurement that are not observable in the market and include management's judgments about the assumptions market participants would use in pricing the asset or liability (including assumptions about risk).

Our fair value processes include controls that are designed to ensure that fair values are appropriate.  Such controls include model validation, review of key model inputs, analysis of period-over-period fluctuations and reviews by senior management.

Valuation Methodologies

Money Market Securities.  Money market securities are cash equivalents, which are included in cash and cash equivalents, restricted cash from collections on auto loan receivables or other assets.  They consist of highly liquid investments with original maturities of three months or less and are classified as Level 1.

Mutual Fund Investments.  Mutual fund investments consist of publicly traded mutual funds that primarily include diversified investments in large-, mid- and small-cap domestic and international companies.  The investments, which are included in other assets, are held in a rabbi trust established to fund informally our executive deferred compensation plan and are classified as Level 1.

Derivative Instruments.  The fair values of our derivative instruments are included in either other current assets or accounts payable.  As described in Note 5, as part of our risk management strategy, we utilize derivative instruments 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 loan receivables as well as to manage exposure to variable interest rates on our term loan.  Our derivatives are not exchange-traded and are over-the-counter customized derivative instruments.  All of our derivative exposures are with highly rated bank counterparties.

We measure derivative fair values assuming that the unit of account is an individual derivative instrument and that derivatives are sold or transferred on a stand-alone basis.  We estimate the fair value of our derivatives using quotes determined by the derivative counterparties and third-party valuation services.  Quotes from third-party valuation services and quotes received from bank counterparties project future cash flows and discount the future amounts to a present value using market-based expectations for interest rates and the contractual terms of the derivative instruments.  The models do not require significant judgment and model inputs can typically be observed in a liquid market; however, because the models include inputs other than quoted prices in active markets, all derivatives are classified as Level 2.

Our derivative fair value measurements consider assumptions about counterparty and our own nonperformance risk.  We monitor counterparty and our own nonperformance risk and, in the event that we determine that a party is unlikely to perform under terms of the contract, we would adjust the derivative fair value to reflect the nonperformance risk.

Items Measured at Fair Value on a Recurring Basis

	As of November 30, 2016
(In thousands)	Level 1			Level 2			Total
Assets:
Money market securities	$	460,379		$	—		$	460,379
Mutual fund investments	17,861			—			17,861
Derivative instruments	—			8,778			8,778
Total assets at fair value	$	478,240		$	8,778		$	487,018
Percent of total assets at fair value	98.2		%	1.8		%	100.0		%
Percent of total assets	3.0		%	0.1		%	3.1		%
Liabilities:
Derivative instruments	$	—		$	(318	)	$	(318	)
Total liabilities at fair value	$	—		$	(318	)	$	(318	)
Percent of total liabilities	—		%	—		%	—		%

	As of February 29, 2016
(In thousands)	Level 1			Level 2			Total
Assets:
Money market securities	$	439,943		$	—		$	439,943
Mutual fund investments	13,622			—			13,622
Derivative instruments	—			587			587
Total assets at fair value	$	453,565		$	587		$	454,152
Percent of total assets at fair value	99.9		%	0.1		%	100.0		%
Percent of total assets	3.1		%	—		%	3.1		%
Liabilities:
Derivative instruments	$	—		$	(8,024	)	$	(8,024	)
Total liabilities at fair value	$	—		$	(8,024	)	$	(8,024	)
Percent of total liabilities	—		%	0.1		%	0.1		%

There were no transfers between Levels 1 and 2 for the three and nine months ended November 30, 2016. As of November 30, 2016 and February 29, 2016 we had no Level 3 assets.

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Cancellation Reserves

9 Months Ended

Nov. 30, 2016

Cancellation Reserves [Abstract]

Cancellation Reserves

Cancellation Reserves

We recognize revenue for EPP products at the time of sale, net of a reserve for estimated contract cancellations.  Cancellations of these services may result from early termination by the customer, or default or prepayment on the finance contract.  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. 

Cancellation Reserves

	Three Months Ended November 30						Nine Months Ended November 30
(In millions)	2016			2015			2016			2015
Balance as of beginning of period	$	113.3		$	108.1		$	110.2		$	94.4
Cancellations	(16.8		)	(16.9		)	(49.6		)	(45.6		)
Provision for future cancellations	15.9			18.6			51.8			61.0
Balance as of end of period	$	112.4		$	109.8		$	112.4		$	109.8

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. As of November 30, 2016 and February 29, 2016, the current portion of cancellation reserves was $57.1 million and $54.4 million, respectively.

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Income Taxes

9 Months Ended

Nov. 30, 2016

Income Tax Disclosure [Abstract]

Income Taxes

Income Taxes

We had $30.4 million of gross unrecognized tax benefits as of November 30, 2016, and $26.8 million as of February 29, 2016.  There were no significant changes to the gross unrecognized tax benefits as reported for the year ended February 29, 2016, as all activity was related to positions taken on tax returns filed or intended to be filed in the current fiscal year.

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Retirement Plans

9 Months Ended

Nov. 30, 2016

Defined Benefit Pension Plans and Defined Benefit Postretirement Plans Disclosure [Abstract]

Retirement Plans

Retirement Plans

We have two frozen noncontributory defined benefit plans: our pension plan (the “pension plan”) and our unfunded, nonqualified plan (the “restoration plan”), which restores retirement benefits for certain associates who are affected by Internal Revenue Code limitations on benefits provided under the pension plan. No additional benefits have accrued under these plans since they were frozen; however, we have a continuing obligation to fund the pension plan and will continue to recognize net periodic pension expense for both plans for benefits earned prior to being frozen. We use a fiscal year end measurement date for both the pension plan and the restoration plan.

Net Pension Expense

	Three Months Ended November 30
	Pension Plan				Restoration Plan				Total
(In thousands)	2016		2015		2016		2015		2016		2015
Net pension expense	$	82	$	212	$	120	$	114	$	202	$	326

	Nine Months Ended November 30
	Pension Plan				Restoration Plan				Total
(In thousands)	2016		2015		2016		2015		2016		2015
Net pension expense	$	248	$	636	$	360	$	342	$	608	$	978

Net pension expense includes actuarial loss amortization of $0.4 million and $0.5 million for the three months ended November 30, 2016 and 2015, respectively, and $1.2 million and $1.5 million for the nine months ended November 30, 2016 and 2015, respectively. We made no contributions to the pension plan during the nine months ended November 30, 2016, and do not anticipate making any contributions during the remainder of fiscal 2017; however, conditions may change where we may elect to make contributions.  The expected long-term rate of return on plan assets for the pension plan was 7.75% as of February 29, 2016.

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Debt

9 Months Ended

Nov. 30, 2016

Debt Disclosure [Abstract]

Debt

Debt

	As of November 30			As of February 29
(In thousands)	2016			2016
Revolving credit facility	$	91,580		$	415,428
Term loan	300,000			300,000
3.86% Senior notes due 2023	100,000			—
4.17% Senior notes due 2026	200,000			—
4.27% Senior notes due 2028	200,000			—
Finance and capital lease obligations	477,531			414,654
Non-recourse notes payable	10,462,947			9,527,750
Total debt	11,832,058			10,657,832
Less: current portion	(324,304		)	(315,509		)
Less: unamortized debt issuance costs	(23,227		)	(21,665		)
Long-term debt, net	$	11,484,527		$	10,320,658

In connection with our adoption of ASU 2015-03 in fiscal 2017, we have presented all debt issuance costs, with the exception of those related to our revolving credit facility, as a reduction of the carrying amount of the related debt liability. Prior period amounts have been reclassified to conform to the current year's presentation.

Revolving Credit Facility.    We have a $1.20 billion unsecured revolving credit facility (the “credit facility”) with various financial institutions that expires in August 2020. Borrowings under the credit facility are available for working capital and general corporate purposes.  Borrowings accrue interest at variable rates based on LIBOR, the federal funds rate, or the prime rate, depending on the type of borrowing, and we pay a commitment fee on the unused portions of the available funds.  Borrowings under the credit facility are either due “on demand” or at maturity depending on the type of borrowing.  Borrowings with “on demand” repayment terms are presented as short-term debt, while amounts due at maturity are presented as long-term debt with expected repayments within the next 12 months presented as a component of current portion of long-term debt.  As of November 30, 2016, the unused capacity of $1.11 billion was fully available to us.

Term Loan.    We have a $300 million term loan that expires in August 2020.  The term loan accrues interest at variable rates based on the LIBOR rate, the federal funds rate, or the prime rate, and interest is payable monthly.  As of November 30, 2016, $300 million remained outstanding and was classified as long-term debt, as no repayments are scheduled to be made within the next 12 months.  Borrowings under the term loan are available for working capital and general corporate purposes.  We have entered into an interest rate derivative contract to manage our exposure to variable interest rates associated with this term loan.

Senior Notes. During the first quarter of fiscal 2017, we entered into a note purchase agreement to issue and sell an aggregate of $500 million principal amount of senior unsecured notes, due 2023, 2026 and 2028, in a private placement to certain accredited investors. As of November 30, 2016, $500 million of senior unsecured notes were outstanding. Borrowings under these notes are available for working capital and general corporate purposes. Interest on the notes is payable semi-annually.

Finance and Capital Lease Obligations.  Finance and capital lease obligations relate primarily to stores subject to sale-leaseback transactions that did not qualify for sale accounting, and therefore, are accounted for as financings.  The leases were structured at varying interest rates and generally have initial lease terms ranging from 15 to 20 years with payments made monthly.  Payments on the leases are recognized as interest expense and a reduction of the obligations.  We have not entered into any new sale-leaseback transactions since fiscal 2009. In the event the leases are modified or extended beyond their original lease term, the related obligation is increased based on the present value of the revised future lease payments, with a corresponding increase to the assets subject to these transactions. Upon modification, the amortization of the obligation is reset, resulting in more of the lease payments being applied to interest expense in the initial years following the modification. See Note 14 for additional information on finance and capital lease obligations.

Non-Recourse Notes Payable.  The non-recourse notes payable relate to auto loan receivables funded through term securitizations and our warehouse facilities.  The timing of principal payments on the non-recourse notes payable is based on the timing of principal collections and defaults on the securitized auto loan receivables. The current portion of non-recourse notes payable represents principal payments that are due to be distributed in the following period.

As of November 30, 2016, $8.79 billion of non-recourse notes payable was outstanding related to term securitizations.  These notes payable accrue interest predominantly at fixed rates and have scheduled maturities through April 2023, but may mature earlier, depending upon the repayment rate of the underlying auto loan receivables. 

As of November 30, 2016, $1.68 billion of non-recourse notes payable was outstanding related to our warehouse facilities. In fiscal 2017, we increased the combined limit of our warehouse facilities by $300 million. As of November 30, 2016, the combined warehouse facility limit was $2.80 billion, and the unused warehouse capacity totaled $1.12 billion.  Of the combined warehouse facility limit, $1.50 billion will expire in February 2017 and $1.30 billion will expire in August 2017.  The return requirements of warehouse facility investors could fluctuate significantly depending on market conditions.  At renewal, the cost, structure and capacity of the facilities could change.  These changes could have a significant impact on our funding costs.

See Notes 2 and 4 for additional information on the related securitized auto loan receivables.

Capitalized Interest.We capitalize interest in connection with the construction of certain facilities.  For the nine months ended November 30, 2016 and 2015, we capitalized interest of $8.4 million and $7.6 million, respectively.

Financial Covenants.  The credit facility, term loan and senior note agreements contain representations and warranties, conditions and covenants.  We must also meet financial covenants in conjunction with certain of the sale-leaseback transactions.  Our securitization agreements contain representations and warranties, financial covenants and performance triggers.  As of November 30, 2016, we were in compliance with all financial covenants and our securitized receivables were in compliance with the related performance triggers.

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Stock And Stock-Based Incentive Plans

9 Months Ended

Nov. 30, 2016

Share-based Compensation [Abstract]

Stock And Stock-Based Incentive Plans

Stock and Stock-Based Incentive Plans

(A) Share Repurchase Program

As of November 30, 2016, our board of directors has authorized the repurchase of up to $4.55 billion of our common stock. At that date, $1.69 billion was available for repurchase under the board's outstanding authorization, which includes an additional $750 million authorized during fiscal 2017. Also during fiscal 2017, the board removed the expiration date of the outstanding repurchase authorizations.  

Common Stock Repurchases

	Three Months Ended				Nine Months Ended
	November 30				November 30
	2016		2015		2016		2015
Number of shares repurchased (in thousands)	3,780.5		7,680.8		8,715.2		13,336.1
Average cost per share	$	52.56	$	58.03	$	52.38	$	61.14
Available for repurchase, as of end of period (in millions)	$	1,691.5	$	1,553.8	$	1,691.5	$	1,553.8

(B) Share-Based Compensation

Composition of Share-Based Compensation Expense

	Three Months Ended				Nine Months Ended
	November 30				November 30
(In thousands)	2016		2015		2016		2015
Cost of sales	$	584	$	394	$	2,998	$	1,459
CarMax Auto Finance income	663		502		2,314		1,100
Selling, general and administrative expenses	10,522		11,178		67,784		43,728
Share-based compensation expense, before income taxes	$	11,769	$	12,074	$	73,096	$	46,287

Composition of Share-Based Compensation Expense – By Grant Type

	Three Months Ended					Nine Months Ended
	November 30					November 30
(In thousands)	2016			2015		2016		2015
Nonqualified stock options	$	4,756		$	5,794	$	32,977	$	20,064
Cash-settled restricted stock units (RSUs)	4,490			2,960		25,951		14,358
Stock-settled market stock units (MSUs)	2,463			2,586		9,811		8,123
Stock-settled performance stock units (PSUs)	(488		)	341		1,844		1,579
Employee stock purchase plan	305			296		1,070		1,003
Restricted stock awards (RSAs)	243			97		1,443		1,160
Share-based compensation expense, before income taxes	$	11,769		$	12,074	$	73,096	$	46,287

(C) Stock Incentive Plan Information

Share/Unit Activity

	Nine Months Ended November 30, 2016
	Equity Classified											Liability Classified
(Shares/units in thousands)	Options			MSUs			PSUs		RSAs			RSUs
Outstanding as of February 29, 2016	7,322			543			66		17			1,320
Granted	2,310			171			83		49			632
Exercised or vested and converted	(1,144		)	(210		)	—		(17		)	(436		)
Cancelled	(4		)	(1		)	—		—			(89		)
Outstanding as of November 30, 2016	8,484			503			149		49			1,427
Weighted average grant date fair value per share/unit:
Granted	$	14.19		$	63.96		$	51.63	$	50.65		$	51.63
Ending outstanding	$	14.99		$	65.66		$	60.94	$	50.65		$	55.04
	As of November 30, 2016
Unrecognized compensation (in millions)	$	37.4		$	13.6		$	2.5	$	1.2

In the second quarter of fiscal 2017, in connection with the retirement of our former CEO, Thomas J. Folliard, the board of directors modified certain equity awards previously granted to him. This modification effectively provided Mr. Folliard retirement treatment under the terms of the awards, notwithstanding that he was younger than 55 years old. The modification resulted in the recognition of additional share-based compensation expense of $10.9 million. In addition, the awards granted to Mr. Folliard in April 2016 effectively provided him retirement treatment, thus full expense recognition of $3.5 million occurred at the grant date.

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Net Earnings Per Share

9 Months Ended

Nov. 30, 2016

Earnings Per Share [Abstract]

Net Earnings Per Share

Net Earnings Per Share

Basic net earnings per share is computed by dividing net earnings available for basic common shares by the weighted average number of shares of common stock outstanding.  Diluted net earnings per share is computed by dividing net earnings available for diluted common shares by the sum of weighted average number of shares of common stock outstanding and dilutive potential common stock.   Diluted net earnings per share is calculated using the “if-converted” treasury stock method.

Basic and Dilutive Net Earnings Per Share Reconciliations

	Three Months Ended				Nine Months Ended
	November 30				November 30
(In thousands except per share data)	2016		2015		2016		2015
Net earnings	$	136,645	$	128,199	$	474,367	$	482,401
Weighted average common shares outstanding	189,200		201,291		191,431		205,760
Dilutive potential common shares:
Stock options	1,191		1,552		1,346		1,853
Stock-settled stock units and awards	427		540		462		629
Weighted average common shares and dilutive potential common shares	190,818		203,383		193,239		208,242
Basic net earnings per share	$	0.72	$	0.64	$	2.48	$	2.34
Diluted net earnings per share	$	0.72	$	0.63	$	2.45	$	2.32

Certain options to purchase shares of common stock were outstanding and not included in the calculation of diluted net earnings per share because their inclusion would have been antidilutive.  On a weighted average basis, for the three months ended November 30, 2016 and 2015, options to purchase 3,104,720 shares and 1,383,861 shares of common stock, respectively, were not included. For the nine months ended November 30, 2016 and 2015, weighted average options to purchase 3,253,237 shares and 1,195,011 shares, respectively, were not included.

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Accumulated Other Comprehensive Loss

9 Months Ended

Nov. 30, 2016

Comprehensive Income (Loss), Net of Tax, Attributable to Parent [Abstract]

Accumulated Other Comprehensive Loss

Accumulated Other Comprehensive Loss

Changes in Accumulated Other Comprehensive Loss By Component

							Total
	Net						Accumulated
	Unrecognized			Net			Other
	Actuarial			Unrecognized			Comprehensive
(In thousands, net of income taxes)	Losses			Hedge Losses			Loss
Balance as of February 29, 2016	$	(56,470	)	$	(13,726	)	$	(70,196	)
Other comprehensive income before reclassifications	—			3,936			3,936
Amounts reclassified from accumulated other comprehensive loss	744			5,381			6,125
Other comprehensive income	744			9,317			10,061
Balance as of November 30, 2016	$	(55,726	)	$	(4,409	)	$	(60,135	)

Changes In and Reclassifications Out of Accumulated Other Comprehensive Loss

	Three Months Ended November 30						Nine Months Ended November 30
(In thousands)	2016			2015			2016			2015
Retirement Benefit Plans (Note 9):
Actuarial loss amortization reclassifications recognized in net pension expense:
Cost of sales	$	160		$	212		$	477		$	628
CarMax Auto Finance income	10			13			28			37
Selling, general and administrative expenses	217			289			655			878
Total amortization reclassifications recognized in net pension expense	387			514			1,160			1,543
Tax expense	(140		)	(192		)	(416		)	(576		)
Amortization reclassifications recognized in net pension expense, net of tax	247			322			744			967
Net change in retirement benefit plan unrecognized actuarial losses, net of tax	247			322			744			967
Cash Flow Hedges (Note 5):
Effective portion of changes in fair value	7,282			(3,325		)	6,484			(9,596		)
Tax (expense) benefit	(2,863		)	1,308			(2,548		)	3,775
Effective portion of changes in fair value, net of tax	4,419			(2,017		)	3,936			(5,821		)
Reclassifications to CarMax Auto Finance income	2,935			1,944			8,868			5,902
Tax expense	(1,154		)	(764		)	(3,487		)	(2,321		)
Reclassification of hedge losses, net of tax	1,781			1,180			5,381			3,581
Net change in cash flow hedge unrecognized losses, net of tax	6,200			(837		)	9,317			(2,240		)
Total other comprehensive income (loss), net of tax	$	6,447		$	(515	)	$	10,061		$	(1,273	)

Changes in the funded status of our retirement plans and the effective portion of changes in the fair value of derivatives that are designated and qualify as cash flow hedges are recognized in accumulated other comprehensive loss.  The cumulative balances are net of deferred taxes of $36.0 million as of November 30, 2016, and $42.4 million as of February 29, 2016.

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Supplemental Cash Flow Information Supplemental Cash Flow Information (Notes)

9 Months Ended

Nov. 30, 2016

Supplemental Cash Flow [Abstract]

Cash Flow, Supplemental Disclosures [Text Block]

14.    Supplemental Cash Flow Information

Supplemental disclosures of cash flow information:

	Nine Months Ended November 30
(In thousands)	2016		2015
Non-cash investing and financing activities:
Increase in accrued capital expenditures	$	8,629	$	6,563
Increase in finance and capital lease obligations	$	70,072	$	92,001

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Contingent Liabilities

9 Months Ended

Nov. 30, 2016

Commitments and Contingencies Disclosure [Abstract]

Contingent Liabilities

Contingent Liabilities

Litigation. On April 2, 2008, Mr. John Fowler filed a putative class action lawsuit against CarMax Auto Superstores California, LLC and CarMax Auto Superstores West Coast, Inc. in the Superior Court of California, County of Los Angeles.  Subsequently, two other lawsuits, Leena Areso et al. v. CarMax Auto Superstores California, LLC and Justin Weaver v. CarMax Auto Superstores California, LLC, were consolidated as part of the Fowler case.  The allegations in the consolidated case involved wage and hour claims with respect to a putative class consisting of sales consultants, sales managers, and other hourly employees who worked for the company in California from April 2, 2004, to the present.  The court dismissed certain of the initial claims so that, by June 16, 2009, the remaining claims regarded the sales consultant putative class and were: (1) failure to provide meal breaks or compensation in lieu thereof; (2) failure to pay wages of terminated or resigned employees related to meal breaks; (3) unfair competition; and (4) claims under the California Labor Code Private Attorney General Act (the "Private Attorney General Act").  On March 30, 2016, the remaining claims asserted by Fowler were settled for an immaterial amount. On August 30, 2016, the remaining claims asserted by Areso were settled for an immaterial amount.

CarMax entities are defendants in three additional proceedings asserting wage and hour claims with respect to CarMax sales consultants in California. The asserted claims include failure to pay minimum wage, provide meal periods and rest breaks, pay statutory/contractual wages, reimburse for work-related expenses, provide accurate itemized wage statements; unfair competition; and Private Attorney General Act claims. On September 4, 2015, Craig Weiss v. CarMax Auto Superstores California, LLC, and CarMax Auto Superstores West Coast, Inc., a putative class action, was filed in the Superior Court of California, County of Placer. The Weiss lawsuit seeks civil penalties, fines, cost of suit, and the recovery of attorneys’ fees. On June 29, 2016, Ryan Gomez et al. v. CarMax Superstores California, LLC, and CarMax Auto Superstores West Coast, Inc., a putative class action, was filed in the Superior Court of the State of California, Los Angeles. The Gomez lawsuit seeks declaratory relief, unspecified damages, restitution, statutory penalties, interest, cost and attorneys’ fees. On September 7, 2016, James Rowland v. CarMax Superstores California, LLC, and CarMax Auto Superstores West Coast, Inc., a putative class action, was filed in the U.S. District Court, Eastern District of California, Sacramento Division. The Rowland lawsuit seeks unspecified damages, restitution, statutory penalties, interest, cost and attorneys’ fees. We are unable to make a reasonable estimate of the amount or range of loss that could result from an unfavorable outcome in these matters.

We are involved in various other legal proceedings in the normal course of business.  Based upon our evaluation of information currently available, we believe that the ultimate resolution of any such proceedings will not have a material adverse effect, either individually or in the aggregate, on our financial condition, results of operations or cash flows.

Other Matters.  In accordance with the terms of real estate lease agreements, we generally agree to indemnify the lessor from certain liabilities arising as a result of the use of the leased premises, including environmental liabilities and repairs to leased property upon termination of the lease.  Additionally, in accordance with the terms of agreements entered into for the sale of properties, we generally agree to indemnify the buyer from certain liabilities and costs arising subsequent to the date of the sale, including environmental liabilities and liabilities resulting from the breach of representations or warranties made in accordance with the agreements.  We do not have any known material environmental commitments, contingencies or other indemnification issues arising from these arrangements.

As part of our customer service strategy, we guarantee the used vehicles we retail with at least a 30-day limited warranty.  A vehicle in need of repair within this period will be repaired free of charge.  As a result, each vehicle sold has an implied liability associated with it.  Accordingly, based on historical trends, we record a provision for estimated future repairs during the guarantee period for each vehicle sold.  The liability for this guarantee was $5.7 million as of November 30, 2016, and $6.1 million as of February 29, 2016, and is included in accrued expenses and other current liabilities.

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Accounting Policies (Policy)

9 Months Ended

Nov. 30, 2016

Accounting Policies [Abstract]

Basis of Presentation

Basis of Presentation and Use of Estimates.  The accompanying interim unaudited consolidated financial statements include the accounts of CarMax and our wholly owned subsidiaries.  All significant intercompany balances and transactions have been eliminated in consolidation.  These consolidated financial statements have been prepared in conformity with U.S. generally accepted accounting principles (“GAAP”) for interim financial information.  Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements.  In the opinion of management, such interim consolidated financial statements reflect all normal recurring adjustments considered necessary to present fairly the financial position and the results of operations and cash flows for the interim periods presented.  The results of operations for the interim periods are not necessarily indicative of the results to be expected for the full fiscal year.  These consolidated financial statements should be read in conjunction with the audited consolidated financial statements and footnotes included in our Annual Report on Form 10-K for the fiscal year ended February 29, 2016.

Use Of Estimates

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses and the disclosure of contingent assets and liabilities.  Actual results could differ from those estimates.  Certain prior year amounts have been reclassified to conform to the current year’s presentation.  Amounts and percentages may not total due to rounding.

Cash And Cash Equivalents

Cash and Cash Equivalents.  Cash equivalents of approximately $272,000 as of November 30, 2016, and $109,000 as of February 29, 2016, consisted of highly liquid investments with original maturities of three months or less.

Restricted Cash from Collections on Auto Loan Receivables

Restricted Cash from Collections on Auto Loan Receivables.  Cash equivalents totaling $357.0 million as of November 30, 2016, and $343.8 million as of February 29, 2016, consisted of collections of principal, interest and fee payments on securitized auto loan receivables that are restricted for payment to the securitization investors pursuant to the applicable securitization agreements.

Securitizations

Securitizations.  We maintain a revolving securitization program composed of three warehouse facilities (“warehouse facilities”) that we use to fund auto loan receivables originated by CAF. We typically elect to fund these receivables through a term securitization or alternative funding arrangement at a later date.  We sell the auto loan receivables to one of three wholly owned, bankruptcy-remote, special purpose entities that transfer an undivided percentage ownership interest in the receivables, but not the receivables themselves, to entities formed by third-party investors.  These entities issue asset-backed commercial paper or utilize other funding sources supported by the transferred receivables, and the proceeds are used to finance the securitized receivables.

We typically use term securitizations to provide long-term funding for most of the auto loan receivables initially securitized through the warehouse facilities.  In these transactions, a pool of auto loan receivables is sold to a bankruptcy-remote, special purpose entity that, in turn, transfers the receivables to a special purpose securitization trust.  The securitization trust issues asset-backed securities, secured or otherwise supported by the transferred receivables, and the proceeds from the sale of the asset-backed securities are used to finance the securitized receivables.

We are required to evaluate term securitization trusts for consolidation.  In our capacity as servicer, we have the power to direct the activities of the trusts that most significantly impact the economic performance of the trusts.  In addition, we have the obligation to absorb losses (subject to limitations) and the rights to receive any returns of the trusts, which could be significant.  Accordingly, we are the primary beneficiary of the trusts and are required to consolidate them.

We recognize transfers of auto loan receivables into the warehouse facilities and term securitizations (“securitization vehicles”) as secured borrowings, which result in recording the auto loan receivables and the related non-recourse notes payable on our consolidated balance sheets.

The securitized receivables can only be used as collateral to settle obligations of the securitization vehicles.  The securitization vehicles and investors have no recourse to our assets beyond the securitized receivables, the amounts on deposit in reserve accounts and the restricted cash from collections on auto loan receivables.  We have not provided financial or other support to the securitization vehicles that was not previously contractually required, and there are no additional arrangements, guarantees or other commitments that could require us to provide financial support to the securitization vehicles.

See Notes 4 and 10 for additional information on auto loan receivables and non-recourse notes payable.

Auto Loan Receivables, Net

Auto Loan Receivables, Net.  Auto loan receivables include amounts due from customers related to retail vehicle sales financed through CAF.  The receivables are presented net of an allowance for estimated loan losses.  The allowance for loan losses represents an estimate of the amount of net losses inherent in our portfolio of managed receivables as of the applicable reporting date and anticipated to occur during the following 12 months.  The allowance is primarily based on the credit quality of the underlying receivables, historical loss trends and forecasted forward loss curves.  We also take into account recent trends in delinquencies and defaults, recovery rates and the economic environment.  The provision for loan losses is the periodic expense of maintaining an adequate allowance.

An account is considered delinquent when the related customer fails to make a substantial portion of a scheduled payment on or before the due date.  In general, accounts are charged-off on the last business day of the month during which the earliest of the following occurs:  the receivable is 120 days or more delinquent as of the last business day of the month, the related vehicle is repossessed and liquidated, or the receivable is otherwise deemed uncollectible.  For purposes of determining impairment, auto loans are evaluated collectively, as they represent a large group of smaller-balance homogeneous loans, and therefore, are not individually evaluated for impairment.  See Note 4 for additional information on auto loan receivables.

Interest income and expenses related to auto loans are included in CAF income.  Interest income on auto loan receivables is recognized when earned based on contractual loan terms.  All loans continue to accrue interest until repayment or charge-off.  Direct costs associated with loan originations are not considered material, and thus, are expensed as incurred.  See Note 3 for additional information on CAF income.

Property And Equipment

Property and Equipment.  Property and equipment is stated at cost less accumulated depreciation and amortization of $1.01 billion and $925.3 million as of November 30, 2016 and February 29, 2016, respectively.

Other Assets

Other Assets.  Other assets includes amounts classified as restricted cash on deposit in reserve accounts and restricted investments.  The restricted cash on deposit in reserve accounts is for the benefit of holders of non-recourse notes payable, and these funds are not expected to be available to the company or its creditors.  In the event that the cash generated by the securitized receivables in a given period was insufficient to pay the interest, principal and other required payments, the balances on deposit in the reserve accounts would be used to pay those amounts.  Restricted cash on deposit in reserve accounts is invested in money market securities and was $50.2 million as of November 30, 2016, and $46.6 million as of February 29, 2016.

Restricted investments includes money market securities primarily held to satisfy certain insurance program requirements, as well as mutual funds held in a rabbi trust established to fund informally our executive deferred compensation plan.  Restricted investments totaled $70.7 million as of November 30, 2016, and $63.0 million as of February 29, 2016.

Revenue Recognition

Revenue Recognition.    We recognize revenue when the earnings process is complete, generally either at the time of sale to a customer or upon delivery to a customer.  As part of our customer service strategy, we guarantee the retail vehicles we sell with a 5-day, money-back guarantee.  We record a reserve for estimated returns based on historical experience and trends.

We also sell ESP and GAP products on behalf of unrelated third parties, who are the primary obligors, to customers who purchase a vehicle.  The ESPs we currently offer on all used vehicles provide coverage up to 60 months (subject to mileage limitations), while GAP covers the customer for the term of their finance contract. We recognize revenue at the time of sale, net of a reserve for estimated contract cancellations.  Periodically, we may receive additional revenue based upon the level of underwriting profits of the third parties who administer the products.  These additional amounts are recognized as revenue when received.  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 7 for additional information on cancellation reserves.

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.

We collect sales taxes and other taxes from customers on behalf of governmental authorities at the time of sale.  These taxes are accounted for on a net basis and are not included in net sales and operating revenues or cost of sales.

Derivative Instruments And Hedging Activities

Derivative Instruments and Hedging Activities.  We enter into derivative instruments to manage certain risks arising from both our business operations and economic conditions that result in the future known receipt or payment of uncertain cash amounts, the values of which are impacted by interest rates.  We recognize the derivatives at fair value as either current assets or current liabilities on the consolidated balance sheets, and where applicable, such contracts covered by master netting agreements are reported net.  Gross positive fair values are netted with gross negative fair values by counterparty.  The accounting for changes in the fair value of derivatives depends on the intended use of the derivative, whether we have elected to designate a derivative in a hedging relationship and apply hedge accounting and whether the hedging relationship has satisfied the criteria necessary to apply hedge accounting.  We may enter into derivative contracts that are intended to economically hedge certain risks, even though hedge accounting may not apply or we do not elect to apply hedge accounting.  See Note 5 for additional information on derivative instruments and hedging activities.

Recent Accounting Pronouncements

Recent Accounting Pronouncements.

Effective in Future Periods. In October 2016, the Financial Accounting Standards Board (“FASB”) issued an accounting pronouncement (FASB ASU 2016-16) related to the income tax effects of intra-entity transfers of assets other than inventory. The pronouncement requires that entities recognize the income tax effects of intra-entity transfers of assets other than inventory when the transfer occurs. Current GAAP prohibits the recognition of those tax effects until the asset has been sold to an outside party. The pronouncement is effective for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2017, with early adoption permitted. We plan to adopt this pronouncement for our fiscal year beginning March 1, 2018, and are currently evaluating the effect on our consolidated financial statements.

In November 2016, the FASB issued an accounting pronouncement (FASB ASU 2016-18) related to the presentation of restricted cash in the statement of cash flows. The pronouncement requires that a statement of cash flows explain the change during the period in cash, cash equivalents, and amounts generally described as restricted cash. Amounts generally described as restricted cash should be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. The pronouncement is effective for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2017, with early adoption permitted. We plan to adopt this pronouncement for our fiscal year beginning March 1, 2018, and the pronouncement will result in changes to our consolidated statements of cash flows such that restricted cash amounts will be included in the beginning-of-period and end-of-period cash and cash equivalents totals.

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CarMax Auto Finance (Tables)

9 Months Ended

Nov. 30, 2016

CarMax Auto Finance Income [Abstract]

Components Of CarMax Auto Finance Income

Components of CAF Income

	Three Months Ended November 30										Nine Months Ended November 30
(In millions)	2016			% (1)		2015			% (1)		2016			% (1)		2015			% (1)
Interest margin:
Interest and fee income	$	192.7		7.5		$	172.3		7.4		$	567.0		7.5		$	507.0		7.5
Interest expense	(44.1		)	(1.7	)	(33.0		)	(1.4	)	(125.3		)	(1.7	)	(91.9		)	(1.4	)
Total interest margin	148.6			5.8		139.3			6.0		441.7			5.9		415.1			6.2
Provision for loan losses	(41.9		)	(1.6	)	(30.9		)	(1.3	)	(104.2		)	(1.4	)	(70.2		)	(1.0	)
Total interest margin after provision for loan losses	106.7			4.1		108.4			4.7		337.5			4.5		344.9			5.1
Total other expense	—			—		(0.3		)	—		—			—		(0.4		)	—
Direct expenses:
Payroll and fringe benefit expense	(7.5		)	(0.3	)	(7.1		)	(0.3	)	(22.9		)	(0.3	)	(21.0		)	(0.3	)
Other direct expenses	(9.8		)	(0.4	)	(8.7		)	(0.4	)	(28.5		)	(0.4	)	(23.8		)	(0.4	)
Total direct expenses	(17.3		)	(0.7	)	(15.8		)	(0.7	)	(51.4		)	(0.7	)	(44.8		)	(0.7	)
CarMax Auto Finance income	$	89.4		3.5		$	92.3		4.0		$	286.1		3.8		$	299.7		4.5
Total average managed receivables	$	10,297.8				$	9,261.4				$	10,030.9				$	8,973.3

⁽¹⁾   Annualized percentage of total average managed receivables.

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Auto Loan Receivables (Tables)

9 Months Ended

Nov. 30, 2016

Loans Receivable, Net [Abstract]

Auto Loan Receivables, Net

Auto Loan Receivables, Net

	As of November 30			As of February 29
(In millions)	2016			2016
Term securitizations	$	8,473.1		$	7,828.0
Warehouse facilities	1,677.0			1,399.0
Other receivables(1)	257.6			366.6
Total ending managed receivables	10,407.7			9,593.6
Accrued interest and fees	41.8			35.0
Other	(1.4		)	3.2
Less allowance for loan losses	(114.8		)	(94.9		)
Auto loan receivables, net	$	10,333.3		$	9,536.9

⁽¹⁾   Other receivables includes receivables not funded through the warehouse facilities or term securitizations, including receivables restricted as excess collateral for those funding arrangements.

Ending Managed Receivables By Major Credit Grade

Ending Managed Receivables by Major Credit Grade

	As of November 30			As of February 29
(In millions)	2016(1)		% (2)	2016(1)		% (2)
A	$	5,068.7	48.7	$	4,666.6	48.6
B	3,643.9		35.0	3,400.1		35.4
C and other	1,695.1		16.3	1,526.9		16.0
Total ending managed receivables	$	10,407.7	100.0	$	9,593.6	100.0

⁽¹⁾   Classified based on credit grade assigned when customers were initially approved for financing.

⁽²⁾   Percent of total ending managed receivables.

Allowance For Loan Losses

Allowance for Loan Losses

	Three Months Ended November 30								Nine Months Ended November 30
(In millions)	2016			%(1)	2015			%(1)	2016			%(1)	2015			%(1)
Balance as of beginning of period	$	109.7		1.08	$	87.8		0.96	$	94.9		0.99	$	81.7		0.97
Charge-offs	(62.9		)		(51.9		)		(164.6		)		(128.7		)
Recoveries	26.1				24.1				80.3				67.7
Provision for loan losses	41.9				30.9				104.2				70.2
Balance as of end of period	$	114.8		1.10	$	90.9		0.97	$	114.8		1.10	$	90.9		0.97

⁽¹⁾   Percentof total ending managed receivables.

Past Due Receivables

Past Due Receivables

	As of November 30			As of February 29
(In millions)	2016		%(1)	2016		%(1)
Total ending managed receivables	$	10,407.7	100.0	$	9,593.6	100.0
Delinquent loans:
31-60 days past due	$	228.8	2.2	$	171.0	1.8
61-90 days past due	101.9		1.0	69.1		0.7
Greater than 90 days past due	29.0		0.3	22.7		0.2
Total past due	$	359.7	3.5	$	262.8	2.7

⁽¹⁾   Percent of total ending managed receivables.

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Derivative Instruments And Hedging Activities (Tables)

9 Months Ended

Nov. 30, 2016

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Fair Values Of Derivative Instruments On The Consolidated Balance Sheets

Fair Values of Derivative Instruments

	As of November 30, 2016					As of February 29, 2016
(In thousands)	Assets (1)		Liabilities (2)			Assets (1)		Liabilities (2)
Derivatives designated as accounting hedges:
Interest rate swaps	$	8,778	$	(318	)	$	587	$	(8,024	)

⁽¹⁾   Reported in other current assets on the consolidated balance sheets.

⁽²⁾   Reported in accounts payable on the consolidated balance sheets.

Schedule Of Effect Of Derivative Instruments On Comprehensive Income

Effect of Derivative Instruments on Comprehensive Income

	Three Months Ended						Nine Months Ended
	November 30						November 30
(In thousands)	2016			2015			2016			2015
Derivatives designated as accounting hedges:
Gain (loss) recognized in AOCL (1)	$	7,282		$	(3,325	)	$	6,484		$	(9,596	)
Loss reclassified from AOCL into CAF income(1)	$	(2,935	)	$	(1,944	)	$	(8,868	)	$	(5,902	)
Loss recognized in CAF income (2)	$	—		$	(336	)	$	—		$	(438	)

⁽¹⁾  Represents the effective portion.

⁽²⁾  Represents the ineffective portion.

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Fair Value Measurements (Tables)

9 Months Ended

Nov. 30, 2016

Fair Value Disclosures [Abstract]

Schedule Of Items Measured At Fair Value On A Recurring Basis

Items Measured at Fair Value on a Recurring Basis

	As of November 30, 2016
(In thousands)	Level 1			Level 2			Total
Assets:
Money market securities	$	460,379		$	—		$	460,379
Mutual fund investments	17,861			—			17,861
Derivative instruments	—			8,778			8,778
Total assets at fair value	$	478,240		$	8,778		$	487,018
Percent of total assets at fair value	98.2		%	1.8		%	100.0		%
Percent of total assets	3.0		%	0.1		%	3.1		%
Liabilities:
Derivative instruments	$	—		$	(318	)	$	(318	)
Total liabilities at fair value	$	—		$	(318	)	$	(318	)
Percent of total liabilities	—		%	—		%	—		%

	As of February 29, 2016
(In thousands)	Level 1			Level 2			Total
Assets:
Money market securities	$	439,943		$	—		$	439,943
Mutual fund investments	13,622			—			13,622
Derivative instruments	—			587			587
Total assets at fair value	$	453,565		$	587		$	454,152
Percent of total assets at fair value	99.9		%	0.1		%	100.0		%
Percent of total assets	3.1		%	—		%	3.1		%
Liabilities:
Derivative instruments	$	—		$	(8,024	)	$	(8,024	)
Total liabilities at fair value	$	—		$	(8,024	)	$	(8,024	)
Percent of total liabilities	—		%	0.1		%	0.1		%

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Cancellation Reserves (Tables)

9 Months Ended

Nov. 30, 2016

Cancellation Reserves [Abstract]

Schedule Of Cancellation Reserves Accrual

Cancellation Reserves

	Three Months Ended November 30						Nine Months Ended November 30
(In millions)	2016			2015			2016			2015
Balance as of beginning of period	$	113.3		$	108.1		$	110.2		$	94.4
Cancellations	(16.8		)	(16.9		)	(49.6		)	(45.6		)
Provision for future cancellations	15.9			18.6			51.8			61.0
Balance as of end of period	$	112.4		$	109.8		$	112.4		$	109.8

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Retirement Plans (Tables)

9 Months Ended

Nov. 30, 2016

Defined Benefit Pension Plans and Defined Benefit Postretirement Plans Disclosure [Abstract]

Components Of Net Pension Expense

Net Pension Expense

	Three Months Ended November 30
	Pension Plan				Restoration Plan				Total
(In thousands)	2016		2015		2016		2015		2016		2015
Net pension expense	$	82	$	212	$	120	$	114	$	202	$	326

	Nine Months Ended November 30
	Pension Plan				Restoration Plan				Total
(In thousands)	2016		2015		2016		2015		2016		2015
Net pension expense	$	248	$	636	$	360	$	342	$	608	$	978

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Debt (Tables)

9 Months Ended

Nov. 30, 2016

Debt Disclosure [Abstract]

Schedule Of Debt

Debt

	As of November 30			As of February 29
(In thousands)	2016			2016
Revolving credit facility	$	91,580		$	415,428
Term loan	300,000			300,000
3.86% Senior notes due 2023	100,000			—
4.17% Senior notes due 2026	200,000			—
4.27% Senior notes due 2028	200,000			—
Finance and capital lease obligations	477,531			414,654
Non-recourse notes payable	10,462,947			9,527,750
Total debt	11,832,058			10,657,832
Less: current portion	(324,304		)	(315,509		)
Less: unamortized debt issuance costs	(23,227		)	(21,665		)
Long-term debt, net	$	11,484,527		$	10,320,658

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Stock And Stock-Based Incentive Plans (Tables)

9 Months Ended

Nov. 30, 2016

Share-based Compensation Arrangement by Share-based Payment Award [Line Items]

Composition Of Share-Based Compensation Expense

Composition of Share-Based Compensation Expense

	Three Months Ended				Nine Months Ended
	November 30				November 30
(In thousands)	2016		2015		2016		2015
Cost of sales	$	584	$	394	$	2,998	$	1,459
CarMax Auto Finance income	663		502		2,314		1,100
Selling, general and administrative expenses	10,522		11,178		67,784		43,728
Share-based compensation expense, before income taxes	$	11,769	$	12,074	$	73,096	$	46,287

Composition Of Share-Based Compensation Expense - By Grant Type

Composition of Share-Based Compensation Expense – By Grant Type

	Three Months Ended					Nine Months Ended
	November 30					November 30
(In thousands)	2016			2015		2016		2015
Nonqualified stock options	$	4,756		$	5,794	$	32,977	$	20,064
Cash-settled restricted stock units (RSUs)	4,490			2,960		25,951		14,358
Stock-settled market stock units (MSUs)	2,463			2,586		9,811		8,123
Stock-settled performance stock units (PSUs)	(488		)	341		1,844		1,579
Employee stock purchase plan	305			296		1,070		1,003
Restricted stock awards (RSAs)	243			97		1,443		1,160
Share-based compensation expense, before income taxes	$	11,769		$	12,074	$	73,096	$	46,287

Schedule Of Stock Incentive Plan Information

Share/Unit Activity

	Nine Months Ended November 30, 2016
	Equity Classified											Liability Classified
(Shares/units in thousands)	Options			MSUs			PSUs		RSAs			RSUs
Outstanding as of February 29, 2016	7,322			543			66		17			1,320
Granted	2,310			171			83		49			632
Exercised or vested and converted	(1,144		)	(210		)	—		(17		)	(436		)
Cancelled	(4		)	(1		)	—		—			(89		)
Outstanding as of November 30, 2016	8,484			503			149		49			1,427
Weighted average grant date fair value per share/unit:
Granted	$	14.19		$	63.96		$	51.63	$	50.65		$	51.63
Ending outstanding	$	14.99		$	65.66		$	60.94	$	50.65		$	55.04
	As of November 30, 2016
Unrecognized compensation (in millions)	$	37.4		$	13.6		$	2.5	$	1.2

Share Repurchase Program

Share-based Compensation Arrangement by Share-based Payment Award [Line Items]

Schedule Of Common Stock Repurchases

Common Stock Repurchases

	Three Months Ended				Nine Months Ended
	November 30				November 30
	2016		2015		2016		2015
Number of shares repurchased (in thousands)	3,780.5		7,680.8		8,715.2		13,336.1
Average cost per share	$	52.56	$	58.03	$	52.38	$	61.14
Available for repurchase, as of end of period (in millions)	$	1,691.5	$	1,553.8	$	1,691.5	$	1,553.8

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Net Earnings Per Share (Tables)

9 Months Ended

Nov. 30, 2016

Earnings Per Share [Abstract]

Basic And Dilutive Net Earnings Per Share Reconciliations

Basic and Dilutive Net Earnings Per Share Reconciliations

	Three Months Ended				Nine Months Ended
	November 30				November 30
(In thousands except per share data)	2016		2015		2016		2015
Net earnings	$	136,645	$	128,199	$	474,367	$	482,401
Weighted average common shares outstanding	189,200		201,291		191,431		205,760
Dilutive potential common shares:
Stock options	1,191		1,552		1,346		1,853
Stock-settled stock units and awards	427		540		462		629
Weighted average common shares and dilutive potential common shares	190,818		203,383		193,239		208,242
Basic net earnings per share	$	0.72	$	0.64	$	2.48	$	2.34
Diluted net earnings per share	$	0.72	$	0.63	$	2.45	$	2.32

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Accumulated Other Comprehensive Loss (Tables)

9 Months Ended

Nov. 30, 2016

Comprehensive Income (Loss), Net of Tax, Attributable to Parent [Abstract]

Changes In Accumulated Other Comprehensive Loss By Component

Changes in Accumulated Other Comprehensive Loss By Component

							Total
	Net						Accumulated
	Unrecognized			Net			Other
	Actuarial			Unrecognized			Comprehensive
(In thousands, net of income taxes)	Losses			Hedge Losses			Loss
Balance as of February 29, 2016	$	(56,470	)	$	(13,726	)	$	(70,196	)
Other comprehensive income before reclassifications	—			3,936			3,936
Amounts reclassified from accumulated other comprehensive loss	744			5,381			6,125
Other comprehensive income	744			9,317			10,061
Balance as of November 30, 2016	$	(55,726	)	$	(4,409	)	$	(60,135	)

Changes In And Reclassifications Out Of Accumulated Other Comprehensive Loss

Changes In and Reclassifications Out of Accumulated Other Comprehensive Loss

	Three Months Ended November 30						Nine Months Ended November 30
(In thousands)	2016			2015			2016			2015
Retirement Benefit Plans (Note 9):
Actuarial loss amortization reclassifications recognized in net pension expense:
Cost of sales	$	160		$	212		$	477		$	628
CarMax Auto Finance income	10			13			28			37
Selling, general and administrative expenses	217			289			655			878
Total amortization reclassifications recognized in net pension expense	387			514			1,160			1,543
Tax expense	(140		)	(192		)	(416		)	(576		)
Amortization reclassifications recognized in net pension expense, net of tax	247			322			744			967
Net change in retirement benefit plan unrecognized actuarial losses, net of tax	247			322			744			967
Cash Flow Hedges (Note 5):
Effective portion of changes in fair value	7,282			(3,325		)	6,484			(9,596		)
Tax (expense) benefit	(2,863		)	1,308			(2,548		)	3,775
Effective portion of changes in fair value, net of tax	4,419			(2,017		)	3,936			(5,821		)
Reclassifications to CarMax Auto Finance income	2,935			1,944			8,868			5,902
Tax expense	(1,154		)	(764		)	(3,487		)	(2,321		)
Reclassification of hedge losses, net of tax	1,781			1,180			5,381			3,581
Net change in cash flow hedge unrecognized losses, net of tax	6,200			(837		)	9,317			(2,240		)
Total other comprehensive income (loss), net of tax	$	6,447		$	(515	)	$	10,061		$	(1,273	)

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Supplemental Cash Flow Information Supplemental Cash Flow Information (Tables)

9 Months Ended

Nov. 30, 2016

Supplemental Cash Flow Elements [Abstract]

Schedule of Cash Flow, Supplemental Disclosures [Table Text Block]

	Nine Months Ended November 30
(In thousands)	2016		2015
Non-cash investing and financing activities:
Increase in accrued capital expenditures	$	8,629	$	6,563
Increase in finance and capital lease obligations	$	70,072	$	92,001

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Background Background (Narrative) (Details)	9 Months Ended
	Nov. 30, 2016 segment
Organization, Consolidation and Presentation of Financial Statements [Abstract]
Reportable segments	2

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Accounting Policies (Narrative) (Details)	9 Months Ended
	Nov. 30, 2016 USD ($) warehouse	Feb. 29, 2016 USD ($)
Accounting Policies [Abstract]
Cash equivalents	$ 272,000	$ 109,000
Restricted cash from collections on auto loan receivables	$ 357,040,000	343,829,000
Number of warehouse facilities | warehouse	3
Required benchmark for account delinquency	120 days
Accumulated depreciation and amortization	$ 1,010,000,000	925,300,000
Restricted cash on deposit in reserve accounts	50,200,000	46,600,000
Restricted investments	$ 70,700,000	$ 63,000,000

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CarMax Auto Finance (Components Of CarMax Auto Finance Income) (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Nov. 30, 2016	Nov. 30, 2015	Nov. 30, 2016	Nov. 30, 2015
Auto Finance Income [Line Items]
Interest and fee income	$ 192,700	$ 172,300	$ 567,000	$ 507,000
Interest expense	(44,100)	(33,000)	(125,300)	(91,900)
Total interest margin	148,600	139,300	441,700	415,100
Provision for loan losses	(41,900)	(30,900)	(104,200)	(70,200)
Total interest margin after provision for loan losses	106,700	108,400	337,500	344,900
Other Nonoperating Expense	0	(300)	0	(400)
Payroll and fringe benefit expense	(7,500)	(7,100)	(22,900)	(21,000)
Other direct expenses	(9,800)	(8,700)	(28,500)	(23,800)
Total direct expenses	(17,300)	(15,800)	(51,400)	(44,800)
CarMax Auto Finance income	89,359	92,316	286,086	299,703
Total average managed receivables	$ 10,297,800	$ 9,261,400	$ 10,030,900	$ 8,973,300
Interest and fee income, percent
Auto Finance Income [Line Items]
Item as percent of total average managed receivables	7.50%	7.40%	7.50%	7.50%
Interest expense, percent
Auto Finance Income [Line Items]
Item as percent of total average managed receivables	(1.70%)	(1.40%)	(1.70%)	(1.40%)
Total interest margin, percent
Auto Finance Income [Line Items]
Item as percent of total average managed receivables	5.80%	6.00%	5.90%	6.20%
Provision for loan losses, percent
Auto Finance Income [Line Items]
Item as percent of total average managed receivables	(1.60%)	(1.30%)	(1.40%)	(1.00%)
Total interest margin after provision for loan losses, percent
Auto Finance Income [Line Items]
Item as percent of total average managed receivables	4.10%	4.70%	4.50%	5.10%
Other Nonoperating Expense [Member]
Auto Finance Income [Line Items]
Item as percent of total average managed receivables	0.00%	0.00%	0.00%	0.00%
Payroll and fringe benefit expense, percent
Auto Finance Income [Line Items]
Item as percent of total average managed receivables	(0.30%)	(0.30%)	(0.30%)	(0.30%)
Other direct expenses, percent
Auto Finance Income [Line Items]
Item as percent of total average managed receivables	(0.40%)	(0.40%)	(0.40%)	(0.40%)
Total direct expenses, percent
Auto Finance Income [Line Items]
Item as percent of total average managed receivables	(0.70%)	(0.70%)	(0.70%)	(0.70%)
CarMax Auto Finance income, percent
Auto Finance Income [Line Items]
Item as percent of total average managed receivables	3.50%	4.00%	3.80%	4.50%

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Auto Loan Receivables Auto Loan Receivables (Narrative) (Details) $ in Millions	Nov. 30, 2016 USD ($)
Warehouse Facility Three [Member]
Debt Instrument [Line Items]
Warehouse Facilities Maximum Borrowing Capacity	$ 100

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Auto Loan Receivables (Auto Loan Receivables, Net) (Details) - USD ($) $ in Thousands	Nov. 30, 2016	Aug. 31, 2016	Feb. 29, 2016	Nov. 30, 2015	Aug. 31, 2015	Feb. 28, 2015
Non-recourse notes payable	$ 10,462,947		$ 9,527,750
Total ending managed receivables	10,407,700		9,593,600
Accrued interest and fees	41,800		35,000
Other	(1,400)		3,200
Less allowance for loan losses	(114,800)	$ (109,700)	(94,900)	$ (90,900)	$ (87,800)	$ (81,700)
Auto loan receivables, net	10,333,318		9,536,892
Term Securitizations [Member]
Total ending managed receivables	8,473,100		7,828,000
Warehouse facilities
Total ending managed receivables	1,677,000		1,399,000
Other receivables
Total ending managed receivables	$ 257,600		$ 366,600

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Auto Loan Receivables (Ending Managed Receivables By Major Credit Grade) (Details) - USD ($) $ in Millions	Nov. 30, 2016	Feb. 29, 2016
Financing Receivable, By Major Credit Grade [Line Items]
Total ending managed receivables	$ 10,407.7	$ 9,593.6
Total ending managed receivables as percentage by major credit grade	100.00%	100.00%
Credit Grade A
Financing Receivable, By Major Credit Grade [Line Items]
Total ending managed receivables	$ 5,068.7	$ 4,666.6
Total ending managed receivables as percentage by major credit grade	48.70%	48.60%
Credit Grade B
Financing Receivable, By Major Credit Grade [Line Items]
Total ending managed receivables	$ 3,643.9	$ 3,400.1
Total ending managed receivables as percentage by major credit grade	35.00%	35.40%
Credit Grade C And Other
Financing Receivable, By Major Credit Grade [Line Items]
Total ending managed receivables	$ 1,695.1	$ 1,526.9
Total ending managed receivables as percentage by major credit grade	16.30%	16.00%

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Auto Loan Receivables (Allowance For Loan Losses) (Details) - USD ($) $ in Millions	3 Months Ended		9 Months Ended
	Nov. 30, 2016	Nov. 30, 2015	Nov. 30, 2016	Nov. 30, 2015
Financing Receivable, Allowance for Credit Losses [Line Items]
Balance as of beginning of period	$ 109.7	$ 87.8	$ 94.9	$ 81.7
Charge-offs	(62.9)	(51.9)	(164.6)	(128.7)
Recoveries	26.1	24.1	80.3	67.7
Provision for loan losses	41.9	30.9	104.2	70.2
Balance as of end of period	$ 114.8	$ 90.9	$ 114.8	$ 90.9
Allowance For Loan Losses, percent
Financing Receivable, Allowance for Credit Losses [Line Items]
Item as percent of total ending managed receivables, balance as of beginning of period	1.08%	0.96%	0.99%	0.97%
Item as percent of total ending managed receivables, balance as of end of period	1.10%	0.97%	1.10%	0.97%

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Auto Loan Receivables (Past Due Receivables) (Details) - USD ($) $ in Millions	Nov. 30, 2016	Feb. 29, 2016
Financing Receivable, Past Due [Line Items]
Total ending managed receivables	$ 10,407.7	$ 9,593.6
Total past due	$ 359.7	$ 262.8
Past due receivables as a percentage of total ending managed receivables	3.50%	2.70%
Total ending managed receivables, percent
Financing Receivable, Past Due [Line Items]
Item as percent of total ending managed receivables	100.00%	100.00%
Thirty One To Sixty Days Past Due [Member]
Financing Receivable, Past Due [Line Items]
Total past due	$ 228.8	$ 171.0
Past due receivables as a percentage of total ending managed receivables	2.20%	1.80%
Sixty One To Ninety Days Past Due [Member]
Financing Receivable, Past Due [Line Items]
Total past due	$ 101.9	$ 69.1
Past due receivables as a percentage of total ending managed receivables	1.00%	0.70%
Greater Than Ninety Days Past Due [Member]
Financing Receivable, Past Due [Line Items]
Total past due	$ 29.0	$ 22.7
Past due receivables as a percentage of total ending managed receivables	0.30%	0.20%

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Derivative Instruments And Hedging Activities (Narrative) (Details) - Designated As Hedging Instrument - Interest Rate Swaps - Cash Flow Hedging - USD ($) $ in Millions	9 Months Ended
	Nov. 30, 2016	Feb. 29, 2016
Derivative [Line Items]
Additional reclassification as decrease from AOCL to CAF income within the next 12 months	$ 5.5
Derivative notional amount	$ 2,320.0	$ 2,420.0

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Derivative Instruments And Hedging Activities (Fair Values Of Derivative Instruments On The Consolidated Balance Sheets) (Details) - Designated As Hedging Instrument - Interest Rate Swaps - USD ($) $ in Thousands	Nov. 30, 2016	Feb. 29, 2016
Other Current Assets
Derivatives, Fair Value [Line Items]
Assets	$ 8,778	$ 587
Accounts Payable
Derivatives, Fair Value [Line Items]
Liabilities	$ (318)	$ (8,024)

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Derivative Instruments And Hedging Activities (Schedule Of Effect Of Derivative Instruments On Comprehensive Income) (Details) - Designated As Hedging Instrument - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Nov. 30, 2016	Nov. 30, 2015	Nov. 30, 2016	Nov. 30, 2015
Derivative [Line Items]
Gain/(Loss) recognized in AOCL	$ 7,282	$ (3,325)	$ 6,484	$ (9,596)
Loss reclassified from AOCL into CAF Income	(2,935)	(1,944)	(8,868)	(5,902)
Derivative Instruments, Gain (Loss) Recognized in Income, Ineffective Portion and Amount Excluded from Effectiveness Testing, Net	$ 0	$ (336)	$ 0	$ (438)

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Fair Value Measurements (Schedule Of Items Measured At Fair Value On A Recurring Basis) (Details) - USD ($) $ in Thousands	Nov. 30, 2016	Feb. 29, 2016
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Money market securities	$ 460,379	$ 439,943
Mutual fund investments	17,861	13,622
Derivative instruments	8,778	587
Total assets at fair value	$ 487,018	$ 454,152
Percent of total assets at fair value	100.00%	100.00%
Percent of total assets	3.10%	3.10%
Liabilities: Derivative instruments	$ (318)	$ (8,024)
Total liabilities at fair value	$ (318)	$ (8,024)
Percent of total liabilities	0.00%	0.10%
Level 1
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Money market securities	$ 460,379	$ 439,943
Mutual fund investments	17,861	13,622
Derivative instruments	0	0
Total assets at fair value	$ 478,240	$ 453,565
Percent of total assets at fair value	98.20%	99.90%
Percent of total assets	3.00%	3.10%
Liabilities: Derivative instruments	$ 0	$ 0
Total liabilities at fair value	$ 0	$ 0
Percent of total liabilities	0.00%	0.00%
Level 2
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Money market securities	$ 0	$ 0
Mutual fund investments	0	0
Derivative instruments	8,778	587
Total assets at fair value	$ 8,778	$ 587
Percent of total assets at fair value	1.80%	0.10%
Percent of total assets	0.10%	0.00%
Liabilities: Derivative instruments	$ (318)	$ (8,024)
Total liabilities at fair value	$ (318)	$ (8,024)
Percent of total liabilities	0.00%	0.10%

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Cancellation Reserves (Narrative) (Details) - USD ($) $ in Millions	Nov. 30, 2016	Feb. 29, 2016
Cancellation Reserves [Abstract]
Cancellation reserves, current portion	$ 57.1	$ 54.4

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Cancellation Reserves (Schedule Of Cancellation Reserves Accrual) (Details) - USD ($) $ in Millions	3 Months Ended		9 Months Ended
	Nov. 30, 2016	Nov. 30, 2015	Nov. 30, 2016	Nov. 30, 2015
Cancellation Reserves [Abstract]
Balance as of beginning of period	$ 113.3	$ 108.1	$ 110.2	$ 94.4
Cancellations	(16.8)	(16.9)	(49.6)	(45.6)
Provision for future cancellations	15.9	18.6	51.8	61.0
Balance as of end of period	$ 112.4	$ 109.8	$ 112.4	$ 109.8

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Income Taxes (Narrative) (Details) - USD ($) $ in Millions	Nov. 30, 2016	Feb. 29, 2016
Income Tax Disclosure [Abstract]
Unrecognized tax benefits, gross	$ 30.4	$ 26.8

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Retirement Plans (Narrative) (Details) - USD ($)	3 Months Ended		9 Months Ended		12 Months Ended
	Nov. 30, 2016	Nov. 30, 2015	Nov. 30, 2016	Nov. 30, 2015	Feb. 29, 2016
Defined Benefit Pension Plans and Defined Benefit Postretirement Plans Disclosure [Abstract]
Defined Benefit Plan, Amortization of Gains (Losses)	$ (400,000)	$ (500,000)	$ (1,200,000)	$ (1,500,000)
Contributions to pension plan			0
Anticipated contribution during remainder of fiscal year			$ 0
Expected rate of return on plan assets					7.75%

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Retirement Plans (Components Of Net Pension Expense) (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Nov. 30, 2016	Nov. 30, 2015	Nov. 30, 2016	Nov. 30, 2015
Defined Benefit Plan Disclosure [Line Items]
Net pension expense	$ 202	$ 326	$ 608	$ 978
Pension Plan
Defined Benefit Plan Disclosure [Line Items]
Net pension expense	82	212	248	636
Restoration Plan
Defined Benefit Plan Disclosure [Line Items]
Net pension expense	$ 120	$ 114	$ 360	$ 342

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Debt (Schedule Of Debt) (Details) - USD ($) $ in Thousands	Nov. 30, 2016	Feb. 29, 2016
Debt Instrument [Line Items]
Total debt	$ 11,484,527	$ 10,320,658
Unamortized Debt Issuance Expense	23,227	21,665
Long-term Debt and Capital Lease Obligations, Current	(324,304)	(315,509)
Long-term Debt and Capital Lease Obligations	11,832,058	10,657,832
Non-Recourse Debt	10,462,947	9,527,750
Finance and Capital Lease Obligations	477,531	414,654
Revolving Credit Facility [Member]
Debt Instrument [Line Items]
Long-term Debt	91,580	415,428
Term Loan [Member]
Debt Instrument [Line Items]
Long-term Debt	300,000	300,000
3.86% senior notes dues 2023 [Member]
Debt Instrument [Line Items]
Long-term Debt	100,000	0
4.17% senior notes due 2026 [Member]
Debt Instrument [Line Items]
Long-term Debt	200,000	0
4.27% senior notes due 2028 [Member]
Debt Instrument [Line Items]
Long-term Debt	$ 200,000	$ 0

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Debt (Narrative) (Details) - USD ($) $ in Thousands	9 Months Ended
	Nov. 30, 2016	Nov. 30, 2015	Feb. 29, 2016
Debt Instrument [Line Items]
Non-recourse notes payable	$ 10,462,947		$ 9,527,750
Warehouse Facility Increase	300,000
Capitalized interest	8,400	$ 7,600
Credit Facility
Debt Instrument [Line Items]
Maximum borrowing capacity	1,200,000
Unused capacity	1,110,000
Term Loan [Member]
Debt Instrument [Line Items]
Debt Instrument Face Amount	300,000
Outstanding Balance	300,000
Senior Notes [Member]
Debt Instrument [Line Items]
Debt Instrument Face Amount	500,000
Outstanding Balance	$ 500,000
Finance and capital lease obligation | Minimum
Debt Instrument [Line Items]
Initial lease terms, in years	15 years
Finance and capital lease obligation | Maximum
Debt Instrument [Line Items]
Initial lease terms, in years	20 years
Term Securitizations
Debt Instrument [Line Items]
Non-recourse notes payable	$ 8,790,000
Debt maturity, end	Apr. 17, 2023
Warehouse facilities
Debt Instrument [Line Items]
Non-recourse notes payable	$ 1,680,000
Warehouse Facilities Maximum Borrowing Capacity	2,800,000
Remaining borrowing capacity	1,120,000
Warehouse Facility Three [Member]
Debt Instrument [Line Items]
Warehouse Facilities Maximum Borrowing Capacity	100,000
Warehouse Facility Two
Debt Instrument [Line Items]
Warehouse Facilities Maximum Borrowing Capacity	1,500,000
Warehouse Facility One and Three [Member]
Debt Instrument [Line Items]
Warehouse Facilities Maximum Borrowing Capacity	$ 1,300,000

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Stock And Stock-Based Incentive Plans (Narrative) (Details) - USD ($)	3 Months Ended
	Aug. 31, 2016	May 31, 2016	Nov. 30, 2016	Jun. 28, 2016	Nov. 30, 2015
Stock and Stock-Based Incentive Plans
Share-based Compensation Arrangement by Share-based Payment Award, Plan Modification, Incremental Compensation Cost	$ 10,900,000	$ 3,500,000
Share Repurchase Program
Stock and Stock-Based Incentive Plans
Stock Repurchase Program, Authorized Amount			$ 4,550,000,000
Available for repurchase, as of end of period			$ 1,691,500,000		$ 1,553,800,000
share repurchase program additional authorization [Member]
Stock and Stock-Based Incentive Plans
Stock Repurchase Program, Authorized Amount				$ 750,000,000

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Stock And Stock-Based Incentive Plans (Schedule Of Common Stock Repurchases) (Details) - Share Repurchase Program - USD ($) $ / shares in Units, $ in Millions	3 Months Ended		9 Months Ended
	Nov. 30, 2016	Nov. 30, 2015	Nov. 30, 2016	Nov. 30, 2015
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Treasury Stock Acquired, Average Cost Per Share	$ 52.56	$ 58.03	$ 52.38	$ 61.14
Treasury Stock, Shares, Acquired	3,780,500	7,680,800	8,715,200	13,336,100
Available for repurchase, as of end of period	$ 1,691.5	$ 1,553.8	$ 1,691.5	$ 1,553.8

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Stock And Stock-Based Incentive Plans (Composition Of Share-Based Compensation Expense) (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Nov. 30, 2016	Nov. 30, 2015	Nov. 30, 2016	Nov. 30, 2015
Share-based Compensation Arrangement by Share-based Payment Award, Compensation Cost [Line Items]
Share-based compensation expense, before income taxes	$ 11,769	$ 12,074	$ 73,096	$ 46,287
Cost of sales
Share-based Compensation Arrangement by Share-based Payment Award, Compensation Cost [Line Items]
Share-based compensation expense, before income taxes	584	394	2,998	1,459
CarMax Auto Finance income
Share-based Compensation Arrangement by Share-based Payment Award, Compensation Cost [Line Items]
Share-based compensation expense, before income taxes	663	502	2,314	1,100
Selling, general and administrative expenses
Share-based Compensation Arrangement by Share-based Payment Award, Compensation Cost [Line Items]
Share-based compensation expense, before income taxes	$ 10,522	$ 11,178	$ 67,784	$ 43,728

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Stock And Stock-Based Incentive Plans (Composition Of Share-Based Compensation Expense - By Grant Type) (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Nov. 30, 2016	Nov. 30, 2015	Nov. 30, 2016	Nov. 30, 2015
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Share-based compensation expense, before income taxes	$ 11,769	$ 12,074	$ 73,096	$ 46,287
Stock options
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Share-based compensation expense, before income taxes	4,756	5,794	32,977	20,064
Cash-settled restricted stock units (RSUs)
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Share-based compensation expense, before income taxes	4,490	2,960	25,951	14,358
Stock-settled market stock units (MSUs)
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Share-based compensation expense, before income taxes	2,463	2,586	9,811	8,123
Stock-settled performance stock units (PSUs)
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Share-based compensation expense, before income taxes	(488)	341	1,844	1,579
Employee stock purchase plan
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Share-based compensation expense, before income taxes	305	296	1,070	1,003
Restricted stock awards (RSAs)
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Share-based compensation expense, before income taxes	$ 243	$ 97	$ 1,443	$ 1,160

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Stock And Stock-Based Incentive Plans Schedule of Stock Incentive Plan Information (Details) - USD ($) $ / shares in Units, shares in Thousands, $ in Millions	9 Months Ended
	Nov. 30, 2016	Feb. 29, 2016
Schedule of Stock Incentive Plan Information [Line Items]
Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding, Number	8,484	7,322
Share-based Compensation Arrangement by Share-based Payment Award, Options, Grants in Period, Gross	2,310
Share-based Compensation Arrangement by Share-based Payment Award, Options, Exercises in Period	(1,144)
Share-based Compensation Arrangement by Share-based Payment Award, Options, Nonvested Options Forfeited, Number of Shares	(4)
Share-based Compensation Arrangement by Share-based Payment Award, Options, Grants in Period, Weighted Average Grant Date Fair Value	$ 14.19
Options Outstanding Weighted Average Grant Date Fair Value	$ 14.99
Employee Service Share-based Compensation, Nonvested Awards, Compensation Cost Not yet Recognized	$ 37.4
stock-settled market stock units [Domain]
Schedule of Stock Incentive Plan Information [Line Items]
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Nonvested, Number	503	543
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Grants in Period	171
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Vested in Period	(210)
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Forfeited in Period	(1)
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Grants in Period, Weighted Average Grant Date Fair Value	$ 63.96
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Nonvested, Weighted Average Grant Date Fair Value	$ 65.66
Employee Service Share-based Compensation, Nonvested Awards, Compensation Cost Not yet Recognized	$ 13.6
performance stock units [Domain]
Schedule of Stock Incentive Plan Information [Line Items]
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Nonvested, Number	149	66
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Grants in Period	83
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Vested in Period	0
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Forfeited in Period	0
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Grants in Period, Weighted Average Grant Date Fair Value	$ 51.63
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Nonvested, Weighted Average Grant Date Fair Value	$ 60.94
Employee Service Share-based Compensation, Nonvested Awards, Compensation Cost Not yet Recognized	$ 2.5
Restricted Stock [Member]
Schedule of Stock Incentive Plan Information [Line Items]
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Nonvested, Number	49	17
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Grants in Period	49
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Vested in Period	(17)
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Forfeited in Period	0
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Grants in Period, Weighted Average Grant Date Fair Value	$ 50.65
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Nonvested, Weighted Average Grant Date Fair Value	$ 50.65
Employee Service Share-based Compensation, Nonvested Awards, Compensation Cost Not yet Recognized	$ 1.2
Restricted Stock Units (RSUs) [Member]
Schedule of Stock Incentive Plan Information [Line Items]
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Nonvested, Number	1,427	1,320
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Grants in Period	632
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Vested in Period	(436)
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Forfeited in Period	(89)
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Grants in Period, Weighted Average Grant Date Fair Value	$ 51.63
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Nonvested, Weighted Average Grant Date Fair Value	$ 55.04

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Net Earnings Per Share (Basic And Dilutive Net Earnings Per Share Reconciliations) (Details) - USD ($) $ / shares in Units, shares in Thousands, $ in Thousands	3 Months Ended		9 Months Ended
	Nov. 30, 2016	Nov. 30, 2015	Nov. 30, 2016	Nov. 30, 2015
Schedule of Basic and Dilutive Net Earnings Per Share Reconciliation [Line Items]
Net earnings	$ 136,645	$ 128,199	$ 474,367	$ 482,401
Weighted average common shares outstanding, shares	189,200	201,291	191,431	205,760
Weighted average common shares and dilutive potential common shares, shares	190,818	203,383	193,239	208,242
Basic net earnings per share (in dollars per share)	$ 0.72	$ 0.64	$ 2.48	$ 2.34
Diluted net earnings per share (in dollars per share)	$ 0.72	$ 0.63	$ 2.45	$ 2.32
Stock options
Schedule of Basic and Dilutive Net Earnings Per Share Reconciliation [Line Items]
Dilutive potential common shares, shares	1,191	1,552	1,346	1,853
Stock-settled stock units and awards
Schedule of Basic and Dilutive Net Earnings Per Share Reconciliation [Line Items]
Dilutive potential common shares, shares	427	540	462	629

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Net Earnings Per Share (Narrative) (Details) - shares	3 Months Ended		9 Months Ended
	Nov. 30, 2016	Nov. 30, 2015	Nov. 30, 2016	Nov. 30, 2015
Earnings Per Share [Abstract]
Anti-dilutive securities not included in calculation of diluted net earnings per share	3,104,720	1,383,861	3,253,237	1,195,011

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Accumulated Other Comprehensive Loss (Accumulated Other Comprehensive Loss) (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Nov. 30, 2016	Nov. 30, 2015	Nov. 30, 2016	Nov. 30, 2015
Schedule of Accumulated Other Comprehensive Loss [Line Items]
Beginning balance			$ (70,196)
Other comprehensive income before reclassifications			3,936
Amounts reclassified from accumulated other comprehensive loss			6,125
Other comprehensive income (loss)	$ 6,447	$ (515)	10,061	$ (1,273)
Ending balance	(60,135)		(60,135)
Net Unrecognized Actuarial Losses
Schedule of Accumulated Other Comprehensive Loss [Line Items]
Beginning balance			(56,470)
Other comprehensive income before reclassifications			0
Amounts reclassified from accumulated other comprehensive loss			744
Other comprehensive income (loss)			744
Ending balance	(55,726)		(55,726)
Net Unrecognized Hedge Losses
Schedule of Accumulated Other Comprehensive Loss [Line Items]
Beginning balance			(13,726)
Other comprehensive income before reclassifications			3,936
Amounts reclassified from accumulated other comprehensive loss			5,381
Other comprehensive income (loss)			9,317
Ending balance	$ (4,409)		$ (4,409)

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Accumulated Other Comprehensive Loss (Changes In and Reclassifications Out of Accumulated Other Comprehensive Loss) (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Nov. 30, 2016	Nov. 30, 2015	Nov. 30, 2016	Nov. 30, 2015
Total amortization reclassifications recognized in net pension expense	$ 387	$ 514	$ 1,160	$ 1,543
Tax expense	(140)	(192)	(416)	(576)
Amortization reclassifications recognized in net pension expense, net of tax	247	322	744	967
Net change in retirement benefit plan unrecognized actuarial losses, net of tax	247	322	744	967
Effective portion of changes in fair value	7,282	(3,325)	6,484	(9,596)
Tax (expense) benefit	(2,863)	1,308	(2,548)	3,775
Effective portion of changes in fair value, net of tax	4,419	(2,017)	3,936	(5,821)
Reclassifications to CarMax Auto Finance income	2,935	1,944	8,868	5,902
Tax expense	(1,154)	(764)	(3,487)	(2,321)
Reclassification of hedge losses, net of tax	1,781	1,180	5,381	3,581
Net change in cash flow hedge unrecognized losses, net of tax	6,200	(837)	9,317	(2,240)
Other comprehensive income (loss), net of taxes	6,447	(515)	10,061	(1,273)
Cost of sales
Total amortization reclassifications recognized in net pension expense	160	212	477	628
CarMax Auto Finance income
Total amortization reclassifications recognized in net pension expense	10	13	28	37
Selling, general and administrative expenses
Total amortization reclassifications recognized in net pension expense	$ 217	$ 289	$ 655	$ 878

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Accumulated Other Comprehensive Loss (Narrative) (Details) - USD ($) $ in Millions	Nov. 30, 2016	Feb. 29, 2016
Comprehensive Income (Loss), Net of Tax, Attributable to Parent [Abstract]
Deferred tax	$ 36.0	$ 42.4

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Supplemental Cash Flow Information Supplemental Cash Flow Information (Details) - USD ($) $ in Thousands	9 Months Ended
	Nov. 30, 2016	Nov. 30, 2015
Supplemental Cash Flow Details [Abstract]
(Decrease) increase in accrued capital expenditures	$ 8,629	$ 6,563
Capital Lease Obligations Incurred	$ 70,072	$ 92,001

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Contingent Liabilities (Details) - USD ($) $ in Millions	Nov. 30, 2016	Feb. 29, 2016
Commitments and Contingencies Disclosure [Abstract]
Liability associated with guarantee	$ 5.7	$ 6.1