CarMax 2005 Annual Report Download - page 43

CARMAX 2005 41
stock, which has preferential dividend and liquidation rights, have
been authorized and designated. No such shares are outstanding. In
the event that an acquiring person or group acquires the specified
ownership percentage of CarMax, Inc. common stock (except
pursuant to a cash tender offer for all outstanding shares
determined to be fair by the board of directors) or engages in
certain transactions with the company after the rights become
exercisable, each right will be converted into a right to purchase,
for half the current market price at that time,shares of the CarMax,
Inc. common stock valued at two times the exercise price. The
company also has an additional 19,880,000 shares of undesignated
preferred stock authorized of which no shares are outstanding.
(B) Stock Incentive Plans
Under the company’s stock incentive plans, nonqualified stock
options may be granted to management, key employees, and
outside directors to purchase shares of common stock. The
exercise price for nonqualified options is equal to, or greater
than, the market value at the date of grant. Options generally
are exercisable over a period from one to ten years from the date
of grant. CarMax has authorized 10,100,000 shares of common
stock to be issued as either options, stock appreciation rights,
restricted stock grants, or stock grants. Shares of common stock
available for issuance of options, stock appreciation rights,
restricted stock grants, or stock grants totaled 1,727,450 at
February 28, 2005.
The company’s stock option activity is summarized in Table 2.
Table 3 summarizes information about stock options outstanding
as of February 28, 2005.
(C) Restricted Stock
The company has issued restricted stock under the provisions of
the CarMax, Inc. 2002 Amended and Restated Stock Incentive
Plan whereby management and key employees are granted
restricted shares of common stock. Shares are awarded in the
name of the employee, who has all the rights of a shareholder,
subject to certain restrictions or forfeitures. Restrictions on the
awards generally expire three or four years from the date of
grant. No restricted stock awards were granted in fiscal 2005. In
fiscal 2004, 228 shares of restricted stock were granted.
At the date of grant, the market value of all shares granted is
recorded as unearned compensation and is a component of equity.
Unearned compensation is expensed over the restriction periods.
The total charge to operations was $108,000 in fiscal 2005;
$121,500 in fiscal 2004; and $77,400 in fiscal 2003. Outstanding
shares of restricted common stock at February 28, 2005, and
February 29, 2004, were 23,918 and 25,817, respectively.
(D) Employee Stock Purchase Plan
The company has an employee stock purchase plan for all
employees meeting certain eligibility criteria. Under the plan,
eligible employees may, subject to certain limitations, purchase
shares of common stock. For each $1.00 contributed by
employees under the plan, the company matches $0.15.
Purchases are limited to 10% of an employee’s eligible
compensation, up to a maximum of $7,500 per year. CarMax
has authorized up to 1,000,000 shares of common stock for the
employee stock purchase plan. The source of the shares available
for purchase by employees may, at the company’s option, be
open market purchases or newly issued shares.
At February 28, 2005, a total of 515,886 shares remained
available under the plan. Shares purchased on the open market
on behalf of employees were 225,961 during fiscal 2005;
161,662 during fiscal 2004; and 213,931 during fiscal 2003. The
average price per share purchased under the plan was $25.96 in
fiscal 2005, $29.97 in fiscal 2004, and $19.43 in fiscal 2003. The
company match totaled $746,700 in fiscal 2005; $598,600 in
fiscal 2004; and $520,700 in fiscal 2003.
TABLE 2 — STOCK OPTION ACTIVITY Years Ended February 28 or 29
2005 2004 2003
Weighted Average Weighted Average Weighted Average
(Shares in thousands) Shares Exercise Price Shares Exercise Price Shares Exercise Price
Outstanding at beginning of year 5,676 $12.24 4,345 $10.25 3,631 $ 4.81
Granted 2,126 $29.47 2,154 $14.59 1,134 $26.22
Exercised (522) $ 8.40 (693) $ 6.53 (285) $ 5.06
Cancelled (188) $21.50 (130) $14.88 (135) $ 9.03
Outstanding at end of year 7,092 $17.45 5,676 $12.24 4,345 $10.25
Options exercisable at end of year 2,693 $ 9.93 1,839 $ 8.02 1,440 $ 6.08
TABLE 3 — OUTSTANDING STOCK OPTIONS
Options Outstanding as of February 28, 2005 Options Exercisable as of February 28, 2005
Weighted Average
(Shares in thousands) Number Remaining Weighted Average Number Weighted Average
Range of Exercise Prices Outstanding Contractual Life Exercise Price Exercisable Exercise Price
$ 1.63 526 2.0 $ 1.63 526 $ 1.63
$ 3.31 to $ 4.89 1,145 3.0 $ 4.82 793 $ 4.79
$ 6.06 to $ 8.69 452 1.3 $ 6.16 452 $ 6.16
$12.93 to $19.16 1,955 8.0 $14.31 455 $14.34
$20.00 to $28.38 972 4.3 $26.64 448 $26.80
$29.61 to $43.44 2,042 9.0 $29.72 19 $40.72
Total 7,092 6.1 $17.45 2,693 $ 9.93