CarMax 2005 Annual Report Download - page 42

40 CARMAX 2005
To determine the expected long-term rate of return on
pension plan assets, the company considers the current and
expected asset allocations, as well as historical and expected
returns on various categories of plan assets. The company
applies the expected rate of return to a market-related value of
assets, which reduces the underlying variability in assets to
which the expected return is applied.
Asset Allocation Strategy. The company’s pension plan assets
are held in trust.The asset allocation was as follows:
As of February 28 or 29
2005 2004
Target Actual Actual
Allocation Allocation Allocation
Equity securities 80% 76% 80%
Fixed income securities 20% 24% 20%
Total 100% 100% 100%
Plan fiduciaries set investment policies and strategies for the
pension plan. Long-term strategic investment objectives include
preserving the funded status of the trust and balancing risk and
return. The plan fiduciaries oversee the investment allocation
process, which includes selecting investment managers, setting
long-term strategic targets, and monitoring asset allocations.
Target allocation ranges are guidelines, not limitations, and
occasionally plan fiduciaries will approve allocations above or
below a target range.
Estimated Future Benefit Payments. As of February 28,
2005, expected benefit payments, which reflect estimated future
employee service, as appropriate, were as follows:
Pension Restoration
(In thousands) Plan Plan
Fiscal 2006 $ 136 $ 4
Fiscal 2007 209 65
Fiscal 2008 307 119
Fiscal 2009 433 193
Fiscal 2010 609 237
Fiscal 2011 through 2015 $7,535 $1,553
(B) 401(k) Plans
CarMax sponsors a 401(k) plan for all associates meeting certain
eligibility criteria. Under the plan, eligible associates can
contribute up to 40% of their salaries, and the company
matches a portion of those contributions. The total expense for
this plan was $1.7 million in fiscal 2005, $1.1 million in fiscal
2004, and $1.0 million in fiscal 2003.
DEBT
Total debt is summarized as follows:
As of February 28 or 29
(In thousands) 2005 2004
Term loan $100,000 $100,000
Revolving loan 65,197 4,446
Obligations under capital
leases [Note 12] 28,749 —
Total debt 193,946 104,446
Less current installments 330 —
Less short-term debt 65,197 4,446
Total long-term debt, excluding
current installments $128,419 $100,000
The company has a $300 million credit agreement secured
by vehicle inventory. The credit agreement includes a $200
million revolving loan commitment and a $100 million term
loan. Principal is due in full at maturity with interest payable
monthly at a LIBOR-based rate. Under this agreement, the
company must meet financial covenants relating to minimum
current ratio, maximum total liabilities to tangible net worth
ratio, and minimum fixed charge coverage ratio. The credit
agreement is scheduled to terminate on May 17, 2006. The
termination date of the agreement will be automatically
extended annually for one year unless either CarMax or the
lender elects, prior to the extension date, not to extend the
agreement. As of February 28, 2005, the amount outstanding
under this credit agreement was $165.2 million.
In fiscal 2005, the company recorded five capital leases for
superstores. The related lease assets are included in property and
equipment. These leases were structured at varying interest rates
with initial lease terms ranging from 15 to 20 years with
payments made monthly. The present value of minimum lease
payments totaled $28.7 million at February 28, 2005.
The weighted average interest rate on the outstanding short-
term debt was 4.3% during fiscal 2005, 3.5% during fiscal 2004,
and 3.2% during fiscal 2003.
The company capitalizes interest in connection with the
construction of certain facilities. Capitalized interest totaled
$3.5 million in fiscal 2005, $2.5 million in fiscal 2004, and $1.0
million in fiscal 2003.
STOCK AND STOCK-BASED
INCENTIVE PLANS
(A) Shareholder Rights Plan and Undesignated
Preferred Stock
In conjunction with the company’s shareholder rights plan,
shareholders received preferred stock purchase rights as a dividend
at the rate of one right for each share of CarMax, Inc. common
stock owned. The rights are exercisable only upon the attainment
of, or the commencement of a tender offer to attain, a 15%
ownership interest in the company by a person or group. When
exercisable, each right would entitle the holder to buy one one-
thousandth of a share of Cumulative Participating Preferred Stock,
Series A, $20 par value, at an exercise price of $140 per share,
subject to adjustment. A total of 120,000 shares of such preferred
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