CarMax 2006 Annual Report Download - page 55

CARMAX 2006 53
Restricted Stock Awards. Restricted stock awards are issued in the name of the employee, who has all the
rights of a shareholder, subject to certain restrictions or forfeitures. The restrictions generally expire either three
or four years after the date of grant. No restricted stock awards were granted in fiscal 2006 or fiscal 2005.
At the date of grant, the market value of restricted shares is recorded as unearned compensation and is a
component of equity. Unearned compensation is expensed over the restriction period. The total expense for
restricted stock was $53,700 in fiscal 2006; $108,000 in fiscal 2005; and $121,500 in fiscal 2004. There were
no outstanding restricted shares at February 28, 2006. At February 28, 2005, there were 23,918 restricted
shares outstanding.
(C) Employee Stock Purchase Plan
The company has an employee stock purchase plan for all employees meeting certain eligibility criteria.
Employee contributions are limited to 10% of eligible compensation, up to a maximum of $7,500 per year. For
each $1.00 contributed by employees to the plan, the company matches $0.15. 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, 2006, a total of 302,227 shares remained available under the plan. Shares purchased on the
open market on behalf of employees were 213,659 during fiscal 2006; 225,961 during fiscal 2005; and 161,662
during fiscal 2004. The average price per share purchased under the plan was $28.83 in fiscal 2006, $25.96 in
fiscal 2005, and $29.97 in fiscal 2004. The total cost for matching contributions was $803,600 in fiscal 2006;
$746,700 in fiscal 2005; and $598,600 in fiscal 2004.
NET EARNINGS PER SHARE
BASIC AND DILUTIVE NET EARNINGS PER SHARE RECONCILIATIONS
Years Ended February 28 or 29
(In thousands except per share data) 2006 2005 2004
Net earnings available to common shareholders........................ $148,055 $112,928 $116,450
Weighted average common shares outstanding.......................... 104,635 104,036 103,503
Dilutive potential common shares:
Stock options ..................................................................... 1,698 1,728 2,113
Restricted stock.................................................................. 11 15 12
Weighted average common shares and
dilutive potential common shares .......................................... 106,344 105,779 105,628
Basic net earnings per share ........................................................ $ 1.41 $ 1.09 $ 1.13
Diluted net earnings per share .................................................... $ 1.39 $ 1.07 $ 1.10
Certain options were outstanding and not included in the calculation of diluted net earnings per share because
the options’ exercise prices were greater than the average market price of the common shares. As of February 28,
2006, options to purchase 1,890,921 shares of common stock with exercise prices ranging from $29.61 to $43.44
per share were outstanding and not included in the calculation. As of February 28, 2005, options to purchase
26,580 shares with exercise prices ranging from $30.34 to $43.44 per share were outstanding and not included in
the calculation. As of February 29, 2004, options to purchase 18,364 shares with exercise prices ranging from
$35.23 to $43.44 per share were outstanding and not included in the calculation.
LEASE COMMITMENTS
The company conducts a majority of its business in leased premises. The company’s lease obligations are
based upon contractual minimum rates. Most leases provide that the company pays 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. For operating leases, rent is recognized on a straight-line basis over
the lease term, including scheduled rent increases and rent holidays. Rent expense for all operating leases was
$72.6 million in fiscal 2006, $61.5 million in fiscal 2005, and $54.2 million in fiscal 2004.
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