CarMax 2010 Annual Report Download - page 49

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39
Item 7A. Quantitative and Qualitative Disclosures about Market Risk.
Auto Loan Receivables
As of February 28, 2010 and 2009, 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 could 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.
Credit risk is the exposure to nonperformance of another party to an agreement. We mitigate credit risk 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. Notes 5 and 6 provide additional information on financial
derivatives.
COMPOSITION OF AUTO LOAN RECEIVABLES
(In millions)
Principal amount of:
Fixed-rate securitizations 1 3,432.9$ 2,246.7$
Floating-rate securitizations synthetically altered to fixed (1) 512.9 1,584.6
Floating-rate securitizations 1 0.8 0.6
Loans held for investment (2) 135.5 145.1
Loans held for sale (3) 30.6 9.7
Total 4,112.7$ 3,986.7$
As of February 28
2010 2009
(1) Includes variable-rate securities totaling $182.7 million as of February 28, 2010, and $370.2 million as of February 28, 2009, issued in
connection with certain term securitizations that were synthetically altered to fixed at the bankruptcy-remote special purpose entity.
(2) The majority is held by a bankruptcy-remote special purpose entity.
(3) Held by a bankruptcy-remote special purpose entity.
Interest Rate Exposure
We also have interest rate risk from changing interest rates related to our outstanding debt. Substantially all of our
debt is floating-rate debt based on LIBOR. A 100-basis point increase in market interest rates would have decreased
our fiscal 2010 net earnings per share by $0.01.