CarMax 2006 Annual Report Download - page 36

34 CARMAX 2006
As of February 28, 2006, $159.3 million was outstanding under the credit facility, with the remainder fully
available to the company. The outstanding balance included $0.5 million of swing line loans classified as short-
term debt, $58.8 million classified as current portion of long-term debt, and $100.0 million classified as long-
term debt. The determination of the amount classified as long-term debt was based on management’s intent as
to that portion expected to remain outstanding for more than one year from the balance sheet date.
We expect that cash generated by operations; proceeds from securitization transactions; and, if needed,
additional debt and sale-leaseback transactions will be sufficient to fund capital expenditures and working
capital for the foreseeable future.
CONTRACTUAL OBLIGATIONS
As of February 28, 2006
Less than 1 to 3 3 to 5 More than
(In millions) Total 1 Year Years Years 5 Years
Revolving credit agreement............................................ $ 159.3 $ 59.3 $ — $100.0 $ —
Capital leases (1)................................................................ 71.5 4.5 8.9 9.4 48.7
Operating leases (1) ........................................................... 982.2 68.6 138.6 141.1 633.9
Purchase obligations (2) .................................................... 76.7 47.7 15.9 12.0 1.1
Total ............................................................................... $1,289.7 $180.1 $163.4 $262.5 $683.7
(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, and certain automotive reconditioning products.
Off-Balance Sheet Arrangements
CAF provides prime automobile 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 routinely 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, 2006, and February 28, 2005, 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.