CarMax 2015 Annual Report Download - page 70

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66
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 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 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 do not have voting rights.
Restricted Stock. Restricted stock awards (RSAs) are awards of our common stock that are subject to specified
restrictions that lapse one year from the grant date. Participants holding restricted stock are entitled to vote on matters
submitted to holders of our common stock for a vote. During the fiscal year ended February 28, 2015, we granted to
our non-employee board of directors RSAs of 22,860 shares at a fair value per share on the grant date of $51.18. No
RSAs were outstanding during fiscal 2014 and 2013. The unrecognized compensation costs related to nonvested
RSAs totaled $0.1 million as of February 28, 2015. These costs are expected to be recognized on a straight-line basis
over a weighted average period of 0.3 years.
(D) Share-Based Compensation
COMPOSITION OF SHARE-BASED COMPENSATION EXPENSE
Years Ended February 28
(In thousands) 2015 2014 2013
Cost of sales $ 4,236
$ 3,200 $ 3,010
CarMax Auto Finance income 5,898 2,983 2,521
Selling, general and administrative expenses 73,020 61,487 57,643
Share-based compensation expense, before income taxes $ 83,154 $ 67,670 $ 63,174
COMPOSITION OF SHARE-BASED COMPENSATION EXPENSE – BY GRANT TYPE
Years Ended February 28
(In thousands) 2015 2014 2013
N
onqualified stock options $ 28,954 $ 23,914 $ 24,853
Cash-settled restricted stock units 38,539 29,551 24,268
Stock-settled restricted stock units 13,299 12,515 12,441
Employee stock purchase plan 1,274 1,190 1,062
Stock grants to non-employee directors ― 500 550
Restricted stock to non-employee directors 1,088 ― ―
Share-based compensation expense, before income taxes $ 83,154 $ 67,670 $ 63,174
We recognize compensation expense for stock options, MSUs and RSAs 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