CarMax 2008 Annual Report Download - page 44

Download and view the complete annual report

Please find page 44 of the 2008 CarMax annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 85

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81
  • 82
  • 83
  • 84
  • 85

32
exercises by the former chief executive officer in connection with his retirement, and other exercises prompted by
the significant increase in our stock price during that fiscal year.
We expect that cash generated by operations and proceeds from securitization transactions or other funding
arrangements, sale-leaseback transactions and borrowings under existing or expanded credit facilities will be
sufficient to fund capital expenditures and working capital for the foreseeable future.
CONTRACTUAL OBLIGATIONS
As of February 29, 2008
(In millions)
Total
Less Than
1 Year
1 to 3
Years
3 to 5
Years
More
Than
5 Years Other
Revolving credit agreement (1)..............
.
$ 300.2 $ — $ — $300.2 $ — $ —
Capital leases (2) ....................................
.
54.7 3.4 7.2 7.3 36.8 —
Operating leases (2)................................
.
931.7 73.5 148.3 148.9 561.0 —
Purchase obligations (3) .........................
.
114.6 90.5 22.1 2.0 — —
Asset retirement obligations (4) .............
.
1.1 — — — 1.1 —
Defined benefit retirement plans (5) ......
.
60.8 0.3 — — — 60.5
Unrecognized tax benefits (6) ................
.
32.7 2.4 — — — 30.3
Total......................................................
.
$1,495.8 $170.1 $177.6 $ 458.4 $ 598.9 $ 90.8
(1) Due to the uncertainty of forecasting expected variable interest rate payments, those amounts are not included in the table. See
Note 9.
(2) Excludes taxes, insurance and other costs payable directly by us. These costs vary from year to year and are incurred in the
ordinary course of business. See Note 13.
(3) Includes certain enforceable and legally binding obligations related to the purchase of real property and third-party
outsourcing services.
(4) Represents the liability to retire signage, fixtures and other assets at certain leased locations.
(5) Represents the recognized funded status of our retirement plan, of which $60.5 million has no contractual payment schedule
and we expect payments to occur beyond 12 months from February 29, 2008. See Note 8.
(6) Represents the gross unrecognized tax benefits related to uncertain tax positions. The timing of payments associated with
$30.3 million of these tax benefits could not be estimated as of February 29, 2008. See Note 7.
Off-Balance Sheet Arrangements
CAF provides financing for our used and new car sales. We use a securitization program to fund substantially all of
the auto loan receivables originated by CAF. We sell the auto 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 auto 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.
Item 7A. Quantitative and Qualitative Disclosures about Market Risk.
Auto Loan Receivables
As of February 29, 2008, and February 28, 2007, all loans in our portfolio of auto loan receivables were fixed-rate
installment loans. Financing for these auto loan receivables was achieved through asset securitization programs that,
in turn, issued both fixed- and floating-rate securities. We manage the interest rate exposure relating to floating-rate
securitizations through the use of interest rate swaps. Disruptions in the credit markets may impact the effectiveness
of our hedging strategies. 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,
they could have a material impact on cash and cash flows.