CarMax 2004 Annual Report Download - page 45

EARNINGS PER SHARE
CarMax was a wholly owned subsidiary of Circuit City during
a portion of the periods presented. Earnings per share for
fiscal 2003 and 2002 have been presented to reflect the capital
structure effective with the separation of CarMax from
Circuit City. All earnings per share calculations have been
computed as if the separation had occurred at the beginning
of the periods presented.
Reconciliations of the numerator and denominator of basic
and diluted earnings per share are presented below:
Years Ended February 29 or 28
(In thousands except per share data) 2004 2003 2002
Weighted average
common shares 103,503 102,983 102,039
Dilutive potential
common shares:
Options 2,113 1,579 1,950
Restricted stock 12 833
Weighted average common
shares and dilutive
potential common shares 105,628 104,570 104,022
Net earnings available
to common shareholders $116,450 $94,802 $90,802
Basic net earnings per share $1.13 $ 0.92 $ 0.89
Diluted net earnings
per share $1.10 $ 0.91 $ 0.87
Certain options were outstanding and not included in the
computation of diluted earnings per share because the
options’ exercise prices were greater than the average market
price of the common shares. Options to purchase 18,364
shares of CarMax, Inc. common stock with exercise prices
ranging from $35.23 to $43.44 per share were outstanding
and not included in the calculation at the end of fiscal 2004;
1,053,610 shares with exercise prices ranging from $18.60 to
$43.44 per share at the end of fiscal 2003; and 15,364 shares
with exercise prices ranging from $37.49 to $43.44 per share
at the end of fiscal 2002.
LEASE COMMITMENTS
The company conducts a substantial portion of its business in
leased premises. The company’s lease obligations are based
upon contractual minimum rates. CarMax operates 23 of its
sales locations pursuant to various leases under which its former
parent Circuit City was the original tenant and primary obligor.
Circuit City had originally entered into these leases so that
CarMax could take advantage of the favorable economic terms
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available to Circuit City as a large retailer at that time. Circuit
City has assigned each of these leases to CarMax. Despite the
assignment and pursuant to the terms of the leases, Circuit City
remains contingently liable under the leases. In recognition of
this ongoing contingent liability, CarMax made a one-time
special dividend payment of $28.4 million to Circuit City on
the October 1, 2002, separation date.
Rental expense for all operating leases was $54.2 million in
fiscal 2004, $48.1 million in fiscal 2003, and $41.4 million in
fiscal 2002. Most leases provide that the company pay taxes,
maintenance, insurance, and operating expenses applicable to
the premises. The initial term of most real property leases will
expire within the next 20 years; however, most of the leases
have options providing for renewal periods of 5 to 20 years at
terms similar to the initial terms.
As of February 29, 2004, future minimum fixed lease
obligations, excluding taxes, insurance, and other costs payable
directly by the company, were approximately:
Operating Lease
(In thousands) Commitments
2005 $ 58,205
2006 58,940
2007 57,432
2008 57,641
2009 57,913
2010 and thereafter 602,902
Total minimum lease payments $893,033
In fiscal 2004, the company entered into three sale-
leaseback transactions covering nine superstore properties
valued at approximately $107.0 million. These transactions
were structured as operating leases with initial terms of either
15 or 20 years with various renewal options. In fiscal 2003,
the company entered into a sale-leaseback transaction
covering three superstore properties valued at approximately
$37.6 million. This transaction was structured with initial
lease terms of 15 years and two 10-year renewal options. All
sales-leaseback transactions are structured at competitive
rates. Gains on sale-leaseback transactions are deferred and
amortized over the term of the leases. The company does not
have continuing involvement under the sale-leaseback
transactions. In conjunction with certain sale-leaseback
transactions, the company must meet financial covenants
relating to minimum tangible net worth and minimum
coverage of rent expense. The company was in compliance
with all such covenants at February 29, 2004.
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