CarMax 2015 Annual Report Download - page 58

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54
In addition, in fiscal 2015 we issued floating rate notes in one term securitization. To manage our exposure to interest
rate movements, we entered into an interest rate swap that involved the receipt of variable amounts from a counterparty
in exchange for making fixed-rate payments over the estimated life of the note. This derivative is designated and
qualifies as a cash flow hedge. The ineffective portion of the change in fair value of the derivatives is recognized
directly in CAF income. The hedge was fully effective in fiscal 2015 and changes in the fair value were recorded in
AOCL.
Designated Cash Flow Hedge – Other Debt. Our objective in using an interest rate derivative for our term loan is to
manage our exposure to interest rate movements. To accomplish this objective, we use an interest rate swap that
involves the receipt of variable amounts from a counterparty in exchange for our making fixed-rate payments over the
life of the loan without exchange of the underlying notional amount. This derivative instrument, issued in fiscal 2015,
is designated and qualifies as a cash flow hedge, where the effective portion of the changes in the fair value is recorded
in AOCL. The ineffective portion of the change in fair value is recognized in current income. There was no
ineffectiveness recognized related to this derivative in fiscal 2015.
As of February 28, 2015 and 2014, we had interest rate swaps outstanding with a combined notional amount of
$1,403.0 million and $869.0 million, respectively that were designated as cash flow hedges of interest rate risk.
As of February 28, 2015 and 2014, all derivatives were designated as accounting hedges.
FAIR VALUES OF DERIVATIVE INSTRUMENTS
As of February 28
2015 2014
(In thousands) Assets Liabilities Assets Liabilities
Derivatives designated as accounting hedges:
Interest rate swaps (1)
$ 1,201 $ ― $ ― $ ―
Interest rate swaps (2)
― (1,064) ― (1,351)
Total derivatives designated as accounting hedges 1,201 (1,064) ― (1,351)
Total
$ 1,201 $ (1,064) $ ― $ (1,351)
(1) Reported in other current assets on the consolidated balance sheets.
(2) Reported in accounts payable on the consolidated balance sheets.
EFFECT OF DERIVATIVE INSTRUMENTS ON COMPREHENSIVE INCOME
Years Ended February 28
(In thousands) 2015 2014 2013
Derivatives designated as accounting hedges:
Loss recognized in AOCL (1)
$ (5,847)
$ (5,286) $ (6,691)
Loss reclassified from AOCL into CAF income (1) $ (8,118)
$ (9,872) $ (12,981)
Gain recognized in CAF income (2)
$ ― $ 76 $ ―
Derivatives not designated as accounting hedges:
Loss recognized in CAF income (3)
$ ― $ ― $ (2)
(1) Represents the effective portion.
(2) Represents the ineffective portion.
(3) Represents the loss on interest rate swaps, the net periodic settlements and accrued interest.