CarMax 2007 Annual Report Download - page 53

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(F) Inventory
Inventory is comprised primarily of vehicles held for sale or undergoing reconditioning and is stated at the lower of
cost or market. Vehicle inventory cost is determined by specific identification. Parts and labor used to recondition
vehicles, as well as transportation and other incremental expenses associated with acquiring and reconditioning
vehicles, are included in inventory. Certain manufacturer incentives and rebates for new car inventory, including
holdbacks, are recognized as a reduction to new car inventory when we purchase the vehicles. We recognize
volume-based incentives as a reduction to cost of sales when we determine the achievement of qualifying sales
volumes is probable.
(G) Property and Equipment
Property and equipment is stated at cost less accumulated depreciation and amortization. Depreciation and
amortization are calculated using the straight-line method over the shorter of the asset's estimated useful life or the
lease term, if applicable. Property held under capital lease is stated at the lesser of the present value of the future
minimum lease payments at the inception of the lease or fair value. Amortization of capital lease assets is computed
on a straight-line basis over the shorter of the initial lease term or the estimated useful life of the asset and is
included in depreciation expense. Costs incurred during new store construction are capitalized as construction-in-
progress and reclassified to the appropriate fixed asset category when the store opens.
ESTIMATED USEFUL LIVES
Life
Buildings.......................................................................................................................................... 25 – 40 years
Capital leases ................................................................................................................................... 10 – 20 years
Leasehold improvements................................................................................................................. 8 – 15 years
Furniture, fixtures, and equipment................................................................................................... 5 – 15 years
We review long-lived assets for impairment when circumstances indicate the carrying amount of an asset may not be
recoverable. We recognize impairment when the sum of undiscounted estimated future cash flows expected to result
from the use of the asset is less than the carrying value of the asset.
(H) Other Assets
Computer Software Costs
We capitalize external direct costs of materials and services used in the development of internal-use software and
payroll and payroll-related costs for employees directly involved in the development of internal-use software. We
amortize amounts capitalized on a straight-line basis over five years.
Goodwill and Intangible Assets
We review goodwill and intangible assets for impairment annually or when circumstances indicate the carrying
amount may not be recoverable.
Restricted Cash Deposits
At February 28, 2007, and February 28, 2006, other assets included restricted cash deposits of $21.7 million and
$17.7 million, respectively, associated with certain insurance programs.
(I) Defined Benefit Plan Obligations
Defined benefit retirement plan obligations are included in accrued expenses and other current liabilities and
deferred revenue and other liabilities on our consolidated balance sheets. The current portion represents benefits
expected to be paid over the next 12 months from our benefit restoration plan. We previously reported defined
benefit retirement plan obligations entirely in accrued expenses and other current liabilities. The defined benefit
retirement plan obligations are determined by independent actuaries using a number of assumptions provided by the
company. Key assumptions used in measuring the plan obligations include the discount rate, the estimated long-
term return on plan assets, the estimated rate of compensation increases, and the mortality rate.
On February 28, 2007, we adopted SFAS No. 158, “Employers’ Accounting for Defined Benefit Pension and Other
Postretirement Plans – an amendment of FASB Statements No. 87, 88, 106 and 132(R),” (“SFAS 158”). See Note
8(A) for additional discussion.
(J) Insurance Liabilities
Insurance liabilities are included in accrued expenses and other current liabilities on our consolidated balance sheets.
We use a combination of insurance and self-insurance for a number of risks including workers' compensation,