CarMax 2006 Annual Report Download - page 23

We evaluate the need to record valuation allowances that would reduce deferred tax assets to the amount
that will more likely than not be realized. When assessing the need for valuation allowances, we consider
future reversals of existing temporary differences and future taxable income. We believe that all of our
recorded deferred tax assets as of February 28, 2006, will more likely than not be realized. However, if a
change in circumstances results in a change in our ability to realize our deferred tax assets, our tax provision
would increase in the period when the change in circumstances occurs.
In addition, the calculation of our tax liabilities involves dealing with uncertainties in the application of
complex tax regulations. We recognize potential liabilities for anticipated tax audit issues based on our estimate
of whether, and the extent to which, additional taxes will be due. If payments of these amounts ultimately
prove to be unnecessary, the reversal of the liabilities would result in tax benefits being recognized in the period
when we determine the liabilities are no longer necessary. If our estimate of tax liabilities proves to be less than
the ultimate assessment, a further charge to expense would result in the period of determination.
Information regarding income taxes is presented in Note 7 to the company’s consolidated financial
statements.
Defined Benefit Retirement Plan
The plan obligations and related assets of our defined benefit retirement plan are presented in Note 8 to the
company’s consolidated financial statements. Plan assets, which consist primarily of marketable equity and
debt instruments, are valued using current market quotations. Plan obligations and the annual pension
expense are determined by independent actuaries using a number of assumptions provided by the company.
Key assumptions used to measure the plan obligations include the discount rate, the estimated rate of salary
increases, and the estimated future return on plan assets. In determining the discount rate, we use the
current yield on high-quality, fixed-income investments that have maturities corresponding to the anticipated
timing of the benefit payments. Salary increase assumptions are based upon historical experience and
anticipated future board and management actions. Asset returns are estimated based upon the anticipated
average yield on the plan assets. We do not believe that any significant changes in assumptions used to
measure the plan obligations are likely to occur that would have a material impact on the company’s
financial position or results of operations.
RESULTS OF OPERATIONS
Certain prior year amounts have been reclassified to conform to the current year’s presentation.
NET SALES AND OPERATING REVENUES
Years Ended February 28 or 29
(In millions) 2006 % 2005 % 2004 %
Used vehicle sales.......................................... $4,771.3 76.2 $3,997.2 76.0 $3,470.6 75.5
New vehicle sales........................................... 502.8 8.0 492.1 9.4 515.4 11.2
Wholesale vehicle sales ................................. 778.3 12.4 589.7 11.2 440.6 9.6
Other sales and revenues:
Extended service plan revenues................. 97.9 1.6 84.6 1.6 77.1 1.7
Service department sales............................. 93.4 1.5 82.3 1.6 69.1 1.5
Third-party finance fees, net ...................... 16.3 0.3 14.4 0.3 19.6 0.4
Appraisal purchase processing fees ............ — — — — 5.3 0.1
Total other sales and revenues...................... 207.6 3.3 181.3 3.4 171.1 3.7
Total net sales and operating revenues......... $6,260.0 100.0 $5,260.3 100.0 $4,597.7 100.0
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