CarMax 2009 Annual Report Download - page 67

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61
(B) Stock Incentive Plans
We maintain long-term incentive plans for management, key employees and the nonemployee members of our board
of directors. The plans allow for the grant of equity-based compensation awards, including nonqualified stock
options, incentive stock options, stock appreciation rights, restricted stock awards, stock grants or a combination of
awards. To date, we have awarded no incentive stock options.
In fiscal 2006 and prior years, we primarily awarded stock options to employees who received share-based
compensation. Beginning in fiscal 2007, the majority of employees receiving awards now receive restricted stock
instead of stock options. Senior management continues to receive awards of nonqualified stock options.
Nonemployee directors continue to receive awards of nonqualified stock options and stock grants.
Stock options are awards that allow the recipient to purchase shares of our stock at a fixed price. Stock options are
granted at an exercise price equal to the fair market value of our stock on the grant date. Substantially all of the
stock options vest annually in equal amounts over periods of three to four years. These options expire no later than
ten years after the date of the grant. Restricted stock awards are subject to specified restrictions and a risk of
forfeiture. The restrictions typically lapse three years from the grant date.
As of February 28, 2009, a total of 34,500,000 shares of CarMax common stock have been authorized to be issued
under the long-term incentive plans. The number of unissued common shares reserved for future grants under the
long-term incentive plans was 5,182,895 as of February 28, 2009.
(C) Share-Based Compensation
COMPOSITION OF SHARE-BASED COMPENSATION EXPENSE
Years Ended February 28 or 29
(In thousands) 2009 2008 2007
Cost of sales............................................................................... $ 2,136 $ 1,945 $ 1,392
CarMax Auto Finance income................................................... 1,181 1,250 917
Selling, general and administrative expenses ............................ 33,201 31,487 30,379
Share-based compensation expense, before income taxes......... $ 36,518 $ 34,682 $ 32,688
We recognize compensation expense for stock options and restricted stock on a straight-line basis (net of estimated
forfeitures) over the requisite service period, which is generally the vesting period of the award. Our employee
stock purchase plan is considered a liability-classified compensatory plan; the associated costs of $1.1 million in
fiscal 2009, $1.2 million in fiscal 2008 and $0.9 million in fiscal 2007 are included in share-based compensation
expense. There were no capitalized share-based compensation costs as of February 28, 2009, February 29, 2008,
and February 28, 2007.
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, 2008...................... 13,648 $14.55
Options granted ................................................ 2,220 $19.56
Options exercised ............................................. (817) $12.47
Options forfeited or expired.............................. (207) $15.95
Outstanding as of February 28, 2009................ 14,844 $15.40 4.9 $2,213
Exercisable as of February 28, 2009................. 9,450 $13.17 4.5 $2,213
We granted nonqualified options to purchase 2,219,857 shares of common stock in fiscal 2009 and 1,882,183 shares
of common stock in fiscal 2008. The total cash received as a result of stock option exercises was $10.2 million in
fiscal 2009, $14.7 million in fiscal 2008 and $35.4 million in fiscal 2007. We settle stock option exercises with
authorized but unissued shares of CarMax common stock. The total intrinsic value of options exercised was $5.7
million for fiscal 2009, $26.8 million for fiscal 2008 and $74.7 million for fiscal 2007. We realized related tax
benefits of $2.2 million for fiscal 2009, $10.6 million for fiscal 2008 and $28.7 million for fiscal 2007.