CarMax 2007 Annual Report Download - page 58

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fiscal 2007, $94.8 million in fiscal 2006, and $51.0 million in fiscal 2005. Proceeds received when we refinance
receivables in public securitizations are excluded from this table as they are not considered new securitizations.
Proceeds from collections. Proceeds from collections reinvested in revolving period securitizations represent
principal amounts collected on receivables securitized through the warehouse facility that are used to fund new
originations.
Servicing fees. Servicing fees received represent cash fees paid to CarMax to service the securitized receivables.
Other cash flows received from the retained interest. Other cash flows received from the retained interest
represents cash that we receive from the securitized receivables other than servicing fees. It includes cash collected
on interest-only strip receivables and amounts released to us from reserve accounts.
Financial Covenants and Performance Triggers
Certain of the securitization agreements include various financial covenants and performance triggers. These
agreements require us to meet financial covenants related to maintaining minimum tangible net worth, maximum
total liabilities to tangible net worth ratio, minimum current ratio, and minimum fixed charge coverage ratio.
Performance triggers require certain pools of securitized receivables to achieve specified thresholds related to
portfolio yields, loss rates, and delinquency rates. If these financial covenants and/or thresholds are not met, in
addition to other consequences, we may be unable to continue to securitize receivables through the warehouse
facility. At February 28, 2007, we were in compliance with the financial covenants, and the securitized receivables
were in compliance with the performance triggers.
5. FINANCIAL DERIVATIVES
We enter into amortizing fixed-pay interest rate swaps relating to our 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. We entered into two 17-month and forty 40-
month amortizing interest rate swaps with initial notional amounts totaling approximately $2.05 billion in fiscal
2007, and two 17-month and twenty-five 40-month amortizing interest rate swaps with initial notional amounts
totaling approximately $1.57 billion in fiscal 2006. The amortized notional amount of all outstanding swaps related
to the automobile loan receivable securitizations was approximately $597.5 million at February 28, 2007, and
$584.0 million at February 28, 2006. The fair value of swaps included in accounts payable totaled a net liability of
$1.0 million at February 28, 2007, and 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.
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. We do 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. We mitigate credit risk by
dealing with highly rated bank counterparties.
6. PROPERTY AND EQUIPMENT
As of February 28
(In thousands) 2007 2006
Land........................................................................................................................ $138,211 $ 85,814
Land held for sale ................................................................................................... 918 1,515
Land held for development..................................................................................... 14,461 6,084
Buildings................................................................................................................. 265,159 146,738
Capital leases .......................................................................................................... 37,122 37,122
Leasehold improvements........................................................................................ 53,696 47,513
Furniture, fixtures, and equipment.......................................................................... 174,884 154,378
Construction in progress......................................................................................... 104,771 124,381
Total property and equipment................................................................................. 789,222 603,545
Less accumulated depreciation and amortization ............................................................. 137,372 104,247
Property and equipment, net................................................................................... $651,850 $499,298