CarMax 2009 Annual Report Download - page 68

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OUTSTANDING STOCK OPTIONS
As of February 28, 2009
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
$6.62 to $9.30..................................... 2,167 4.0 $ 7.16 2,167 $ 7.16
$10.74 to $13.42 ................................. 4,189 4.9 $ 13.21 3,237 $ 13.21
$14.13 to $15.72 ................................. 2,828 5.1 $ 14.71 2,710 $ 14.70
$16.33 to $22.29 ................................. 3,978 5.2 $18.61 909 $ 17.20
$24.99 to $25.79 ................................. 1,682 5.1 $ 25.04 427 $ 25.05
Total.................................................... 14,844 4.9 $ 15.40 9,450 $ 13.17
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, such as 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 this reason, we believe that the binomial model provides a fair value that is more representative of
actual experience and future expected experience than the value calculated using the Black-Scholes model. For
grants to nonemployee directors prior to fiscal 2009, we used the Black-Scholes model to estimate the fair value of
stock option awards. Beginning in fiscal 2009, we used the binomial model. 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 $7.16 per share in fiscal 2009, $8.43
per share in fiscal 2008 and $7.08 per share in fiscal 2007. The unrecognized compensation costs related to
nonvested options totaled $20.7 million as of February 28, 2009. These costs are expected to be recognized over a
weighted average period of 2.0 years.
ASSUMPTIONS USED TO ESTIMATE OPTION VALUES
Years Ended February 28 or 29
2009 2008 2007
Dividend yield ........................................................................... 0.0% 0.0% 0.0%
Expected volatility factor (1) ...................................................... 34.8%-60.9% 28.0%-54.0% 29.8%-63.4%
Weighted average expected volatility........................................ 44.1% 38.5% 47.4%
Risk-free interest rate (2) ............................................................ 1.5%-3.7% 4.3%-5.0% 4.5%-5.1%
Expected term (in years) (3) ....................................................... 4.8-5.2 4.2-4.4 4.5-4.6
(1) Measured using historical daily price changes of our stock for a period corresponding to the term of the option and the
implied volatility derived from the market prices of traded options on our stock.
(2) Based on the U.S. Treasury yield curve in effect at the time of grant.
(3) Represents the estimated number of years that options will be outstanding prior to exercise.
RESTRICTED STOCK ACTIVITY
(In thousands) Number of Shares
Weighted Average Grant
Date Fair Value
Outstanding as of March 1, 2008....................................... 1,721 $21.04
Restricted stock granted..................................................... 1,079 $19.82
Restricted stock vested or cancelled .................................. (167) $20.83
Outstanding as of February 28, 2009................................. 2,633 $20.55
We granted 1,078,580 shares of restricted stock to our employees in fiscal 2009 and 914,505 shares in fiscal 2008.
The fair value of a restricted stock award is determined and fixed based on the fair market value of our stock on the
grant date.