CarMax 2016 Annual Report Download - page 58
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Valuation Methodologies
Money Market Securities. Money market securities are cash equivalents, which are included in cash and cash equivalents, restricted
cash from collections on auto loan receivables or other assets. They consist of highly liquid investments with original maturities
of three months or less and are classified as Level 1.
Mutual Fund Investments. Mutual fund investments consist of publicly traded mutual funds that primarily include diversified
investments in large-, mid- and small-cap domestic and international companies. The investments, which are included in other
assets, are held in a rabbi trust established to fund informally our executive deferred compensation plan and are classified as Level
1.
Derivative Instruments. The fair values of our derivative instruments are included in either other current assets or accounts
payable. As described in Note 5, as part of our risk management strategy, we utilize derivative instruments to manage differences
in the amount of our known or expected cash receipts and our known or expected cash payments principally related to the funding
of our auto loan receivables as well as to manage exposure to variable interest rates on our term loan. Our derivatives are not
exchange-traded and are over-the-counter customized derivative instruments. All of our derivative exposures are with highly rated
bank counterparties.
We measure derivative fair values assuming that the unit of account is an individual derivative instrument and that derivatives are
sold or transferred on a stand-alone basis. We estimate the fair value of our derivatives using quotes determined by the derivative
counterparties and third-party valuation services. Quotes from third-party valuation services and quotes received from bank
counterparties project future cash flows and discount the future amounts to a present value using market-based expectations for
interest rates and the contractual terms of the derivative instruments. The models do not require significant judgment and model
inputs can typically be observed in a liquid market; however, because the models include inputs other than quoted prices in active
markets, all derivatives are classified as Level 2.
Our derivative fair value measurements consider assumptions about counterparty and our own nonperformance risk. We monitor
counterparty and our own nonperformance risk and, in the event that we determine that a party is unlikely to perform under terms
of the contract, we would adjust the derivative fair value to reflect the nonperformance risk.
Items Measured at Fair Value on a Recurring Basis
As of February 29, 2016
(In thousands) Level 1 Level 2 Total
Assets:
Money market securities $ 439,943 $ — $ 439,943
Mutual fund investments 13,622 — 13,622
Derivative instruments — 587 587
Total assets at fair value $ 453,565 $ 587 $ 454,152
Percent of total assets at fair value 99.9% 0.1% 100.0%
Percent of total assets 3.1% —% 3.1%
Liabilities:
Derivative instruments $ — $ (8,024) $ (8,024)
Total liabilities at fair value $ — $ (8,024) $ (8,024)
Percent of total liabilities —% 0.1% 0.1%