CarMax 2007 Annual Report Download - page 66

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56
STOCK OPTION ACTIVITY
(Shares and intrinsic value in thousands)
Number of
Shares
Weighted
Average
Exercise
Price
Weighted
Average
Remaining
Contractual
Life (Years)
Aggregate
Intrinsic
Value
Outstanding as of March 1, 2006...................... 17,538 $ 10.28
Options granted ................................................ 1,905 $ 17.14
Options exercised ............................................. (5,281) $ 7.01
Options forfeited or expired.............................. (387) $ 13.18
Outstanding as of February 28, 2007................ 13,775 $ 12.39 6.3 $195,134
Exercisable as of February 28, 2007................. 6,301 $ 10.60 5.2 $100,545
We granted our employees nonqualified options to purchase 1,837,200 shares of common stock in fiscal 2007 and
5,210,954 shares of common stock in fiscal 2006. We granted our nonemployee directors nonqualified options to
purchase 68,040 shares of common stock in fiscal 2007 and 68,382 shares of common stock in fiscal 2006.
The total cash received from employees as a result of employee stock option exercises was $35.4 million in fiscal
2007, $5.9 million in fiscal 2006, and $4.4 million in fiscal 2005. We settle employee stock option exercises with
authorized but unissued shares of CarMax common stock. The total intrinsic value of options exercised was
$74.7 million for fiscal 2007, $13.0 million for fiscal 2006, and $10.2 million for fiscal 2005. We realized related
tax benefits of $28.7 million for fiscal 2007, $5.2 million for fiscal 2006, and $4.0 million for fiscal 2005.
OUTSTANDING STOCK OPTIONS
As of February 28, 2007 Options Outstanding Options Exercisable
(Shares in thousands)
Range of Exercise Prices
Number of
Shares
Weighted
Average
Remaining
Contractual
Life (Years)
Weighted
Average
Exercise Price
Number of
Shares
Weighted
Average
Exercise Price
$0.81 to $2.44..................................... 679 1.0 $ 2.43 679 $ 2.43
$6.62 to $9.30..................................... 2,692 6.0 $ 7.16 1,916 $ 7.16
$10.00 to $13.42................................. 5,231 6.8 $ 13.21 2,060 $ 13.27
$14.13 to $15.72................................. 3,278 7.1 $ 14.71 1,639 $ 14.62
$16.33 to $22.29................................. 1,895 6.2 $ 17.15 7 $ 19.19
Total ................................................... 13,775 6.3 $ 12.39 6,301 $ 10.60
For all stock options granted prior to March 1, 2006, the fair value was estimated as of the date of grant using a
Black-Scholes option-pricing model. For stock options granted to employees on or after March 1, 2006, the fair
value of each award is estimated as of the date of grant using a binomial valuation model. In computing the value of
the option, the binomial model considers characteristics of fair-value option pricing that are not available for
consideration under the Black-Scholes model. Similar to the Black-Scholes model, the binomial model takes into
account variables such as expected volatility, dividend yield, and risk-free interest rate. However, in addition, the
binomial model considers the contractual term of the option, the probability that the option will be exercised prior to
the end of its contractual life, and the probability of termination or retirement of the option holder. For these
reasons, we believe that the fair value provided by the binomial model is more representative of actual experience
and future expected experience than the value calculated using the Black-Scholes model. For grants to nonemployee
directors, we will continue to use the Black-Scholes model to estimate the fair value of stock option awards due to
the comparatively small population of recipients of these awards. Estimates of fair value are not intended to predict
actual future events or the value ultimately realized by the recipients of share-based awards.
The weighted average fair values at the date of grant for options granted were $7.08 per share in fiscal 2007, $6.34
per share in fiscal 2006, and $8.75 per share in fiscal 2005. The unrecognized compensation costs related to all
nonvested options totaled $30.6 million at February 28, 2007. These costs are expected to be recognized over a
weighted average period of 1.9 years.