CarMax 2008 Annual Report Download - page 65

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ASSUMPTIONS USED TO DETERMINE NET PENSION EXPENSE
Years Ended February 29 or 28
Pension Plan Restoration Plan
2008 2007 2006 2008 2007 2006
Discount rate................................................... 5.75% 5.75% 5.75% 5.75% 5.75% 5.75%
Expected rate of return on plan assets ............ 8.00% 8.00% 8.00% — — —
Rate of compensation increase ....................... 5.00% 5.00% 5.00% 7.00% 7.00% 7.00%
Assumptions. Underlying both the calculation of the PBO and the net pension 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 increases and mortality rate. We evaluate these assumptions annually, at a minimum, and
make changes as necessary.
The discount rate used for retirement benefit plan accounting reflects the yields available on high-quality, fixed
income debt instruments. For our plans, we review high quality corporate bond indices in addition to a hypothetical
portfolio of corporate bonds with maturities that approximate the expected timing of the anticipated benefit
payments.
To determine the expected long-term return on plan assets, we consider the current and expected asset allocations, as
well as historical and expected returns on various categories of plan assets. We apply the expected rate of return to a
market-related value of assets, which reduces the underlying variability in the asset values. The use of expected
long-term rates of return on pension plan assets may result in recognized asset returns that are greater or less than
the actual returns of those pension plan assets in any given year. Over time, however, the expected long-term
returns are anticipated to approximate the actual long-term returns, and therefore, result in a pattern of income and
expense recognition that more closely matches the pattern of the services provided by the employees. Differences
between actual and expected returns, a component of unrecognized actuarial gains/losses, are recognized over the
average future expected service of the active employees in the pension plan.
We determine the rate of compensation increases based upon our long-term plans for these increases. Mortality rate
assumptions are based on the life expectancy of the population and were updated as of February 29, 2008, to account
for recent increases in life expectancy.
(B) 401(k) Plan
We sponsor 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 we match a portion of those contributions. The total cost for matching
contributions was $3.2 million in fiscal 2008, $2.7 million in fiscal 2007 and $2.0 million in fiscal 2006.
9. DEBT
As of February 29 or 28
(In thousands) 2008 2007
Revolving credit agreement......................................................................................... $ 300,217 $ 150,690
Obligations under capital leases .................................................................................. 27,614 34,787
Total debt..................................................................................................................... 327,831 185,477
Less current portion:
Revolving credit agreement.................................................................................... 100,217 150,690
Obligations under capital leases............................................................................. 461 1,043
Total long-term debt, excluding current portion.......................................................... $ 227,153 $ 33,744
We have a $500 million revolving credit facility (the “credit agreement”) with Bank of America, N.A. and various
other financial institutions. The credit agreement is secured by vehicle inventory and contains customary
representations and warranties, conditions and covenants. Borrowings accrue interest at variable rates based on
LIBOR, the federal funds rate, or the prime rate, depending on the type of borrowing. We pay a commitment fee on
the used and unused portions of the available funds. All outstanding principal amounts will be due and payable in
December 2011, and there are no penalties for prepayment.