CarMax 2014 Annual Report Download - page 71

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67
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. The stock options generally vest annually in equal amounts over periods of
one 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.
Conversion generally occurs 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.
Conversion generally occurs 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, and no awards were outstanding during fiscal 2014 and 2013. We
realized related tax benefits of $10.9 million in fiscal 2012 from the vesting of restricted stock.
(D) Share-Based Compensation
COMPOSITION OF SHARE-BASED COMPENSATION EXPENSE
Years Ended February 28 or 29
(In thousands) 2014 2013 2012
Cost of sales $ 3,200 $ 3,010 $ 1,845
CarMax Auto Finance income 2,983 2,521 1,867
Selling, general and administrative expenses 61,487 57,643 45,392
Share-based compensation expense, before income taxes $ 67,670 $ 63,174 $ 49,104
COMPOSITION OF SHARE-BASED COMPENSATION EXPENSE – BY GRANT TYPE
Years Ended February 28 or 29
(In thousands) 2014 2013 2012
N
onqualified stock options $ 23,914 $ 24,853 $ 21,581
Cash-settled restricted stock units 29,551 24,268 15,435
Stock-settled restricted stock units 12,515 12,441 10,360
Employee stock purchase plan 1,190 1,062 1,015
Stock grants to non-employee directors 500 550 550
Restricted stock ― ― 163
Share-based compensation expense, before income taxes $ 67,670 $ 63,174 $ 49,104
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 estimated 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 2014, fiscal 2013 or fiscal 2012.