CarMax 2006 Annual Report Download - page 52

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50
CARMAX 2006
Funding Policy. For the defined benefit pension plan, the company contributes amounts sufficient to meet
minimum funding requirements as set forth in the employee benefit and tax laws plus any additional amounts
as the company may determine to be appropriate. The company expects to contribute at least $11.0 million to
the pension plan in fiscal 2007.
Funded Status. The funded status represents the difference between the projected benefit obligations and
the market value of the assets.
FUNDED STATUS RECONCILIATION
As of February 28
Pension Plan Restoration Plan Total
(In thousands) 2006 2005 2006 2005 2006 2005
Funded status................................... $(39,392) $(23,358) $(6,864) $(4,508) $(46,256) $ (27,866)
Unrecognized actuarial loss ............ 23,947 13,877 3,427 1,945 27,374 15,822
Unrecognized prior service cost ..... 220 257 217 242 437 499
Net amount recognized ................... $(15,225) $ (9,224) $(3,220) $(2,321) $(18,445) $(11,545)
COMPONENTS OF NET PENSION EXPENSE
Years Ended February 28 or 29
Pension Plan Restoration Plan Total
(In thousands) 2006 2005 2004 2006 2005 2004 2006 2005 2004
Service cost................. $ 8,780 $6,557 $5,529 $480 $343 $231 $ 9,260 $6,900 $5,760
Interest cost................. 2,794 2,152 1,679 259 232 126 3,053 2,384 1,805
Expected return
on plan assets........... (2,071) (1,523) (892) ——— (2,071) (1,523) (892)
Amortization of
prior service cost...... 37 37 37 24 24 — 61 61 37
Recognized
actuarial loss ............ 961 736 647 136 149 53 1,097 885 700
Net pension
expense..................... $10,501 $7,959 $7,000 $899 $748 $410 $11,400 $8,707 $7,410
WEIGHTED AVERAGE ASSUMPTIONS USED TO DETERMINE NET PENSION EXPENSE
Years Ended February 28 or 29
Pension Plan Restoration Plan
2006 2005 2004 2006 2005 2004
Discount rate...................................................... 5.75% 6.00% 6.50% 5.75% 6.00% 6.50%
Expected rate of return on plan assets.............. 8.00% 8.00% 9.00% ———
Rate of compensation increase.......................... 5.00% 5.00% 6.00% 7.00% 7.00% 6.00%
Assumptions Used to Determine Plan Information. Underlying both the calculation of the projected
benefit obligation and the net periodic plan expense are actuarial calculations of each plan’s liability. These
calculations use participant-specific information such as salary, age, and years of service, as well as certain
assumptions, the most significant being the discount rate, expected rate of return on plan assets, rate of
compensation increase, and mortality rate. The company evaluates these assumptions, at a minimum, annually,
and makes changes as necessary.
The discount rate assumption used for the retirement benefit plan accounting reflects the yields available on
high-quality, fixed income debt instruments. For the company’s plans, we review high-quality corporate bond
indices in addition to a hypothetical portfolio of corporate bonds constructed with maturities that approximate
the expected timing of the anticipated benefit payments.