CarMax 2011 Annual Report Download - page 67

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57
the underlying notional amount. These interest rate swaps are designated as cash flow hedges of forecasted interest
payments in anticipation of permanent funding in the term securitization market. Prior to March 1, 2010, no
derivative instruments were designated as cash flow hedges.
For derivatives that are designated and qualify as cash flow hedges, the effective portion of changes in the fair value
is initially recorded in accumulated other comprehensive loss (“AOCL”) and is subsequently reclassified into CAF
income in the period that the hedged forecasted transaction affects earnings. The ineffective portion of the change in
fair value of the derivatives is recognized directly in CAF income.
Amounts reported in AOCL related to derivatives will be reclassified to CAF income as interest expense is incurred
on our future issuances of fixed-rate debt. During the next 12 months, we estimate that an additional $5.8 million
will be reclassified as a decrease to CAF income.
During the year ended February 28, 2011, we entered into the following interest rate derivatives that were
designated as cash flow hedges of interest rate risk:
Interest rate swaps 16 46 months $ 1,936,000
Product
Number of
Instruments
Initial Term
Year Ended February 28, 2011
Initial Notional
Amount
(in thousands)
As of February 28, 2011, we had the following outstanding derivatives that were designated as cash flow hedges:
Interest rate swaps 8 46 months 972,000$
Product
Number of
Instruments
Remaining Term
As of February 28, 2011
Current Notional
Amount
(in thousands)
Non-designated Hedges. Derivative instruments not designated as accounting hedges, including interest rate swaps
and interest rate caps, are not speculative and are used to better match funding costs to the interest on fixed-rate
receivables being securitized, to minimize the funding costs related to certain term securitization trusts and to limit
risk for investors in the warehouse facilities. Changes in the fair value of derivatives not designated as accounting
hedges are recorded directly in CAF income. Prior to March 1, 2010, substantially all of the changes in the fair
value of derivatives were offset by the changes in fair value of our retained interest in the related securitized
receivables, which were also recorded in CAF income. See Note 5 for additional information on retained interest.
Certain term securitization trusts have entered into derivative instruments, such as interest rate swaps, to mitigate
their interest rate risk on a related financial instrument or to lock the interest rate on a portion of its asset-backed
variable debt. Effective March 1, 2010, the derivative instruments of the term securitization trusts were consolidated
on our consolidated balance sheets as part of the adoption of ASU Nos. 2009-16 and 2009-17.
During the year ended February 28, 2011, we entered into the following interest rate derivatives that were not
designated as accounting hedges:
Interest rate caps (1) 4 47 to 53 months ―$
Product
Number of
Instruments
Initial Term
Year Ended February 28, 2011
Initial Notional
Amount
(in thousands)
(1) Includes two asset derivatives and two liability derivatives with offsetting initial notional amounts of $31.6 million.