CarMax 2016 Annual Report Download - page 38
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Finance and capital lease obligations relate primarily to stores subject to sale-leaseback transactions that did not qualify for sale
accounting and are, therefore, accounted for as financings. A portion of the periodic lease payments is recognized as interest
expense and the remainder reduces the obligation. In the event the leases are modified or extended beyond their original lease
term, the related obligation is increased based on the present value of the revised future minimum lease payments, with a
corresponding increase to the assets subject to these transactions. Upon modification, the amortization of the obligation is reset,
resulting in more of the lease payments being applied to interest expense in the initial years following the modification. During
fiscal 2016, finance lease obligations were increased by $103.2 million related to leases that were modified or extended beyond
their original lease term, resulting in an increase of interest expense recognized in fiscal 2016 that is expected to continue in fiscal
2017.
See Note 11 for additional information on our revolving credit facility, term loan and finance and capital lease obligations.
CAF auto loan receivables are primarily funded through securitization transactions. Our securitizations are structured to legally
isolate the auto loan receivables, and we would not expect to be able to access the assets of our securitization vehicles, even in
insolvency, receivership or conservatorship proceedings. Similarly, the investors in the non-recourse notes payable have no
recourse to our assets beyond the securitized receivables, the amounts on deposit in reserve accounts and the restricted cash from
collections on auto loan receivables. We do, however, continue to have the rights associated with the interest we retain in these
securitization vehicles. Loans originated in the CAF Tier 3 loan origination program are currently being funded using existing
working capital.
The timing of principal payments on the non-recourse notes payable is based on the timing of principal collections and defaults
on the securitized auto loan receivables. The current portion of non-recourse notes payable represents principal payments that
are due to be distributed in the following period.
As of February 29, 2016, $8.13 billion of non-recourse notes payable was outstanding related to term securitizations. These notes
payable have scheduled maturities through August 2022, but they may mature earlier, depending on the repayment rate of the
underlying auto loan receivables. During fiscal 2016, we completed four term securitizations, funding a total of $4.36 billion of
auto loan receivables.
As of February 29, 2016, $1.40 billion of non-recourse notes payable was outstanding related to our warehouse facilities. We
have periodically increased our warehouse facility limit over time, as our store base, sales and CAF loan originations have grown. As
of February 29, 2016, the combined warehouse facility limit was $2.50 billion, and unused warehouse capacity totaled $1.10
billion. Of the combined warehouse facility limit, $1.00 billion will expire in August 2016 and $1.50 billion will expire in February
2017. See Notes 2(F) and 11 for additional information on the warehouse facilities.
The securitization agreements related to the warehouse facilities include various representations and warranties, covenants and
performance triggers. If these requirements are not met, we could be unable to continue to securitize receivables through the
warehouse facilities. In addition, warehouse facility investors could charge us a higher rate of interest and could have us replaced
as servicer. Further, we could be required to deposit collections on the securitized receivables with the warehouse facility agents
on a daily basis and deliver executed lockbox agreements to the warehouse facility agents.
We expect that adjusted net cash provided by operations, borrowings under existing, new or expanded credit facilities and other
funding arrangements will be sufficient to fund CAF, capital expenditures, repurchases of stock and working capital for the
foreseeable future. We anticipate that we will be able to enter into new, or renew or expand existing, funding arrangements to
meet our future funding needs. However, based on conditions in the credit markets, the cost for these arrangements could be
materially higher than historical levels and the timing and capacity of these transactions could be dictated by market availability
rather than our requirements.
The timing and amount of stock repurchases are determined based on share price, market conditions, legal requirements and other
factors. Shares repurchased are deemed authorized but unissued shares of common stock. As of February 29, 2016, the board
had authorized a total of $3.80 billion of repurchases. At that date, $1.40 billion was available for repurchase under the board’s
outstanding authorization, which expires on December 31, 2016. See Note 12 for more information on share repurchase activity.
Fair Value Measurements. We report money market securities, mutual fund investments and derivative instruments at fair
value. See Note 6 for more information on fair value measurements.