CarMax 2006 Annual Report Download - page 49

CARMAX 2006 47
FINANCIAL DERIVATIVES
The company enters into amortizing fixed-pay interest rate swaps relating to its automobile loan receivable
securitizations. Swaps are used to better match funding costs to the fixed-rate receivables being securitized by
converting variable-rate financing costs in the warehouse facility to fixed-rate obligations. The company
entered into two 17-month and twenty-five 40-month amortizing interest rate swaps with initial notional
amounts totaling approximately $1.57 billion in fiscal 2006, and one 18-month and twenty-six 40-month
amortizing interest rate swaps with initial notional amounts totaling approximately $1.36 billion in fiscal 2005.
The amortized notional amount of all outstanding swaps related to the automobile loan receivable
securitizations was approximately $584.0 million at February 28, 2006, and $662.1 million at February 28,
2005. The fair value of swaps included in prepaid expenses and other current assets totaled a net asset of $1.6
million at February 28, 2006, and $5.4 million at February 28, 2005.
The market and credit risks associated with interest rate swaps are similar to those relating to other types of
financial instruments. Market risk is the exposure created by potential fluctuations in interest rates. The
company does not anticipate significant market risk from swaps as they are used on a monthly basis to match
funding costs to the use of the funding. Credit risk is the exposure to nonperformance of another party to an
agreement. The company mitigates credit risk by dealing with highly rated bank counterparties.
PROPERTY AND EQUIPMENT
As of February 28
(In thousands) 2006 2005
Land ........................................................................................................ $ 85,814 $ 37,650
Land held for sale................................................................................... 1,515 2,664
Land held for development.................................................................... 6,084 6,084
Buildings.................................................................................................. 146,738 49,047
Capital leases........................................................................................... 37,122 29,258
Leasehold improvements........................................................................ 47,513 45,346
Furniture, fixtures, and equipment ........................................................ 154,378 125,734
Construction in progress........................................................................ 124,381 198,682
Total property and equipment ............................................................... 603,545 494,465
Less accumulated depreciation and amortization ................................. 104,247 88,164
Property and equipment, net ................................................................. $499,298 $406,301
Land held for development represents land owned for future sites that are scheduled to open more than one
year beyond the fiscal year reported. Leased property meeting capital lease criteria is capitalized and the
present value of the related lease payments is recorded as long-term debt.
INCOME TAXES
PROVISION FOR INCOME TAXES
Years Ended February 28 or 29
(In thousands) 2006 2005 2004
Current:
Federal ....................................................................... $ 92,488 $62,662 $65,212
State........................................................................... 11,431 10,117 8,986
Total................................................................................ 103,919 72,779 74,198
Deferred:
Federal ....................................................................... (10,955) (1,068) (1,180)
State........................................................................... (1,036) (116) (118)
Total................................................................................ (11,991) (1,184) (1,298)
Provision for income taxes ............................................ $ 91,928 $71,595 $72,900
7
5
6