CarMax 2012 Annual Report Download - page 72

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of nonqualified stock options and, starting in fiscal 2010, stock-settled restricted stock units. Nonemployee directors
receive awards of nonqualified stock options and stock grants.
Nonqualified Stock Options. Nonqualified stock options are awards that allow the recipient to purchase shares of
our common stock at a fixed price. Stock options are granted at an exercise price equal to the fair market value of
our common 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 are subject to forfeiture and expire no later than ten years after the date
of the grant.
Cash-Settled Restricted Stock Units. Also referred to as restricted stock units, or RSUs, these are awards that entitle
the holder to a cash payment equal to the fair market value of a share of our common stock for each unit granted at
the end of a three-year vesting period. However, the cash payment per RSU will not be greater than 200% or less
than 75% of the fair market value of a share of our common stock on the grant date. RSUs are liability awards that
are subject to forfeiture and do not have voting rights.
Stock-Settled Restricted Stock Units. Also referred to as market stock units, or MSUs, these are awards to eligible
key associates that are converted into between zero and two shares of common stock for each unit granted at the end
of a three-year vesting period. The conversion ratio is calculated by dividing the average closing price of our stock
during the final forty trading days of the three-year vesting period by our stock price on the grant date, with the
resulting quotient capped at two. This quotient is then multiplied by the number of MSUs granted to yield the
number of shares awarded. MSUs are subject to forfeiture and do not have voting rights.
Restricted Stock. Restricted stock awards are awards of our common stock that are subject to specified restrictions
and a risk of forfeiture. The restrictions typically lapse three years from the grant date. Participants holding
restricted stock are entitled to vote on matters submitted to holders of our common stock for a vote. No restricted
stock awards have been granted since fiscal 2009.
(C) Share-Based Compensation
COMPOSITION OF SHARE-BASED COMPENSATION EXPENSE
(In thousands)
Cost of sales 1,845$ 2,081$ 2,103$
CarM ax A uto Finance income 1,867 1,603 1,334
Selling, general and administrative expenses 45,392 40,996 35,407
Share-based compensation expense, before income taxes 49,104$ 44,680$ 38,844$
Ye ar s Ende d Fe br uar y 2 9 or 2 8
2012 2011 2010
COMPOSITION OF SHARE-BASED COMPENSATION EXPENSE – BY GRANT TYPE
(In thousands)
Nonqualified stock options 21,581$ 17,302$ 17,404$
Cash-settled restricted stock units 15,435 13,917 5,718
Stock-s ettled res tricted s tock units 10,360 5,948 2,614
Employee stock purchase plan 1,015 1,074 987
Stock grants to non-employee directors 550 475 550
Restricted stock 163 5,964 11,571
Share-based compensation expense, before income taxes 49,104$ 44,680$ 38,844$
Ye ar s En de d Fe br uar y 2 9 or 2 8
2012 2011 2010
We recognize compensation expense for stock options, MSUs 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. The
variable expense associated with RSUs is recognized over their vesting period (net of expected forfeitures) and is
calculated based on the volume-weighted average price of our common stock on the last trading day of each
reporting period. The total costs for matching contributions for our employee stock purchase plan are included in
share-based compensation expense. There were no capitalized share-based compensation costs as of the end of
fiscal 2012, fiscal 2011 or fiscal 2010.