CarMax 2007 Annual Report Download - page 68

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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, 2007,
options to purchase 9,000 shares of common stock with an exercise price of $22.29 per share were outstanding and
not included in the calculation. As of February 28, 2006, options to purchase 8,923,968 shares with exercise prices
ranging from $13.19 to $21.72 per share were outstanding and not included in the calculation. As of February 28,
2005, options to purchase 4,211,612 shares with exercise prices ranging from $10.75 to $21.72 per share were
outstanding and not included in the calculation.
12. LEASE COMMITMENTS
We conduct a majority of our business in leased premises. Our lease obligations are based upon contractual
minimum rates. Most leases provide that we 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. 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 $75.4 million in fiscal 2007, $72.6 million in fiscal
2006, and $61.5 million in fiscal 2005.
FUTURE MINIMUM LEASE OBLIGATIONS
As of February 28, 2007
Capital Operating Lease
(In thousands) Leases(1) Commitments(1)
Fiscal 2008................................................................................... $ 4,453 $ 71,041
Fiscal 2009................................................................................... 4,462 71,784
Fiscal 2010................................................................................... 4,627 72,418
Fiscal 2011................................................................................... 4,777 72,705
Fiscal 2012................................................................................... 4,777 72,821
Fiscal 2013 and thereafter............................................................ 43,914 602,955
Total minimum lease payments ................................................... $ 67,010 $963,725
Less amounts representing interest.............................................. (32,223)
Present value of net minimum capital lease payments [Note 9]...... $ 34,787
(1) Excludes taxes, insurance, and other costs payable directly by the company.
We entered into no sale-leaseback transactions in fiscal 2007. We entered into sale-leaseback transactions involving
five superstores valued at approximately $72.7 million in fiscal 2006, and transactions for seven superstores valued
at $84.0 million in fiscal 2005. All sale-leaseback transactions are structured at competitive rates. Gains or losses
on sale-leaseback transactions are recorded as deferred rent and amortized over the lease term. We do not have
continuing involvement under the sale-leaseback transactions. In conjunction with certain sale-leaseback
transactions, we must meet financial covenants relating to minimum tangible net worth and minimum coverage of
rent expense. We were in compliance with all such covenants as of February 28, 2007.
13. SUPPLEMENTAL FINANCIAL STATEMENT INFORMATION
(A) Goodwill and Other Intangibles
Other assets on the consolidated balance sheets included goodwill and other intangibles with a carrying value of
$10.1 million as of February 28, 2007, and $15.0 million as of February 28, 2006. We recognized an impairment
charge of $4.9 million, included in selling, general, and administrative expenses, related to goodwill and franchise
rights associated with one of our new car franchises in fiscal 2007. No impairment of goodwill or intangible assets
resulted from our annual impairment tests in fiscal 2006 or fiscal 2005.
(B) Accrued Compensation and Benefits
Accrued expenses and other current liabilities on the consolidated balance sheets included accrued compensation
and benefits of $60.1 million as of February 28, 2007, and $57.4 million as of February 28, 2006.