CarMax 2003 Annual Report Download - page 44

42 CARMAX 2003
retained interests. These sensitivities are hypothetical and
should be used with caution. In this table, the effect of a
variation in a particular assumption on the fair value of the
retained interests is calculated without changing any other
assumption; in actual circumstances, changes in one factor
may result in changes in another, which might magnify or
counteract the sensitivities.
Impact on Fair
Impact on Fair
Assumptions Value of 10% Value of 20%
(Dollar amounts in millions) Used Adverse Change Adverse Change
Prepayment rate 1.45%-1.55% $5.3 $10.2
Cumulative
default rate 1.85%-2.40% $3.2 $ 6.5
Annual discount rate 12.0% $1.7 $ 3.4
Prepayment rate. The company uses the Absolute
Prepayment Model or “ABS” to estimate prepayments. This
model assumes a rate of prepayment each month relative to the
original number of receivables in a pool of receivables. ABS
further assumes that all the receivables are the same size and
amortize at the same rate and that each receivable in each
month of its life will either be paid as scheduled or prepaid in
full. For example, in a pool of receivables originally containing
10,000 receivables, a 1% ABS rate means that 100 receivables
prepay each month.
Cumulative default rate. Cumulative default rate or
“static pool” net losses are calculated by dividing the total
projected future credit losses of a pool of receivables by the
original pool balance.
Continuing Involvement with Securitized Receivables
The company continues to manage the automobile loan
receivables that it securitizes.The company receives servicing
fees of approximately 1% of the outstanding principal balance
of the securitized receivables. The servicing fees specified in
the securitization agreements adequately compensate the
company for servicing the securitized receivables.
Accordingly, no servicing asset or liability has been recorded.
The company is at risk for the retained interests in the
securitized receivables. If the securitized receivables do not
perform as originally projected, the value of the retained
interests would be impacted. The assumptions used to value
the retained interests, as well as a sensitivity analysis, are
detailed in the “Key Assumptions Used in Measuring
Retained Interests and Sensitivity Analysis” section of this
footnote. Supplemental information about the managed
receivables is shown in the following tables:
Fiscal
(Amounts in millions) 2003 2002 2001
Loans securitized $1,859.1 $1,489.4 $1,215.4
Loans held for sale
or investment 19.6 13.9 11.6
Ending managed receivables $1,878.7 $1,503.3 $1,227.0
Accounts 31+ days past due $ 27.6 $ 22.3 $ 18.1
Past due accounts as a
percentage of ending
managed receivables 1.5% 1.5% 1.5%
Fiscal
(Amounts in millions) 2003 2002 2001
Average managed
receivables $1,701.0 $1,393.7 $1,088.9
Credit losses on managed
receivables $ 17.5 $ 12.9 $ 7.2
Annualized losses as a
percentage of average
managed receivables 1.0% 0.9% 0.7%
Selected Cash Flows from Securitized Receivables
The table below summarizes certain cash flows received from
and paid to the automobile loan securitizations:
Fiscal
(Amounts in millions) 2003 2002
■Proceeds from new securitizations $1,018.7 $755.7
■Proceeds from collections reinvested
in revolving period securitizations $ 468.9 $452.3
■Servicing fees received $ 17.0 $ 13.8
■Other cash flows received from
retained interests:
Interest-only strip receivables $ 65.4 $ 48.2
Cash reserve releases, net $ 25.3 $ 15.8
Proceeds from new securitizations. Proceeds from new
securitizations represent receivables newly securitized through
the warehouse facility during the period. Receivables initially
securitized through the warehouse facility that are
periodically sold in publicly underwritten offers are not
considered new securitizations for this table.