CarMax 2005 Annual Report Download - page 28

26 CARMAX 2005
We maintain a $300 million credit facility secured by vehicle
inventory. As of February 28, 2005, the amount outstanding
under this credit facility was $165.2 million, with the remainder
fully available to the company. See Note 9 to the company’s
consolidated financial statements for discussion of expiration,
renewals, and covenants associated with this facility.
We expect that proceeds from securitization transactions;
sale-leaseback transactions; current and, if needed, additional
credit facilities; and cash generated by operations will be
sufficient to fund capital expenditures and working capital for
the foreseeable future.
Off-Balance Sheet Arrangements
CAF provides prime auto financing for our used and new car
sales.We use a securitization program to fund substantially all of
the automobile loan receivables originated by CAF. We sell the
automobile loan receivables to a wholly owned, bankruptcy-
remote, special purpose entity that transfers an undivided
interest in the receivables to a group of third-party investors.
This program is referred to as the warehouse facility.
We periodically use public securitizations to refinance the
receivables previously securitized through the warehouse
facility. In a public securitization, a pool of automobile loan
receivables is sold to a bankruptcy-remote, special purpose
entity that in turn transfers the receivables to a special purpose
securitization trust.
Additional information regarding the nature, business
purposes, and importance of our off-balance sheet arrangement
to our liquidity and capital resources can be found in the
CarMax Auto Finance Income, Financial Condition, and
Market Risk sections of this MD&A, as well as in Notes 3 and 4
to the company’s consolidated financial statements.
MARKET RISK
Automobile Installment Loan Receivables
At February 28, 2005, and February 29, 2004, all loans in the
portfolio of automobile loan receivables were fixed-rate
installment loans. Financing for these automobile loan
receivables is achieved through asset securitization programs
that, in turn, issue both fixed- and floating-rate securities.
Interest rate exposure relating to floating-rate securitizations is
managed through the use of interest rate swaps. Receivables
held for investment or sale are financed with working capital.
Generally, changes in interest rates associated with underlying
swaps will not have a material impact on earnings. However,
changes in interest rates associated with underlying swaps may
have a material impact on cash and cash flows.
Credit risk is the exposure to nonperformance of another
party to an agreement. Credit risk is mitigated by dealing with
highly rated bank counterparties. The market and credit risks
associated with financial derivatives are similar to those relating
to other types of financial instruments. Refer to Note 5 to the
company’s consolidated financial statements for a description of
these items.
The total principal amount of managed receivables
securitized or held for investment or sale was as follows:
As of February 28 or 29
(In millions) 2005 2004
Fixed-rate securitizations $1,764.7 $1,647.9
Floating-rate securitizations
synthetically altered to fixed 662.1 551.8
Floating-rate securitizations 0.4 0.7
Held for investment(1) 45.5 29.4
Held for sale(2) 22.2 18.8
Total $2,494.9 $2,248.6
(1) The majority is held by a bankruptcy-remote special purpose entity.
(2) Held by a bankruptcy-remote special purpose entity.
CONTRACTUAL OBLIGATIONS
As of February 28, 2005
Less than 1 to 3 3 to 5 More than 5
(In millions) Total 1 Year Years Years Years
Revolving loan $ 65.2 $ 65.2 $ — $ — $ —
Term loan 100.0 — 100.0 — —
Capital leases(1) 64.6 3.2 6.7 6.9 47.9
Operating leases(1) 890.3 61.3 120.8 122.0 586.1
Purchase obligations(2) 71.4 41.2 23.2 7.0 —
Total $1,191.5 $170.9 $250.7 $135.9 $634.0
(1) See Note 12 to the company’s consolidated financial statements.
(2) Purchase obligations include certain enforceable and legally binding obligations related to the purchase of real property, third-party outsourcing services, construction services
related to our new corporate offices, and certain automotive reconditioning products.