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Stock And Stock-Based Incentive Plans | 6 Months Ended
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Aug. 31, 2014
Stock And Stock-Based Incentive Plans [Abstract] |
Stock And Stock-Based Incentive Plans | 1 1.Stock and Stock-Based Incentive Plans (A)Share Repurchase Program In fiscal 2013, our board of directors authorized the repurchase of up to $800 million of our common stock, and on April 4, 2014, we announced that they had authorized the repurchase of up to an additional $1 billion of our common stock. During the quarter ended August 31, 2014, we exhausted the initial $800 million authorization and, as of August 31, 2014, $907.0 m illion was available for repurchase unde r the $1 billion authorization, which expires on December 31, 2015. For the three months ended August 31, 2014, we repurchased 4,024,801 shares of common stock at an average purchase pric e of $49.92 per share. For the six months ended August 31, 2014, we repurchased 7,866,740 shares of common stock at an average purchase price of $47.68 per share. For the three months ended August 31, 2013, we repurchased 1,046,629 shares of common stock at an average purchase price of $46.54 per share. For the six months ended August 31, 2013, we purchased 3,992,251 shares of common stock at an average price of $43.40 per share. (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 granting of equity-based compensation awards, including nonqualified stock options, incentive stock options, stock appreciation rights, restricted stock awards, stock- and cash-settled restricted stock units, stock grants or a combination of awards. To date, we have not awarded a n y incentive stock options. The majority of associates who receive share-based compensation awards primarily receive cash-settled restricted stock units. Senior management and other key associates receive awards of nonqualified stock options and stock-settled restricted stock units. Nonemployee directors receive awards o f nonqualified stock options, stock grants and/or restricted stock awards. Excluding stock grants, all share-based compensation awards, including any associated dividend rights, are subject to forfeiture. 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 option s 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 t hree-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. MSU s do not have voting rights. Restricted Stock Awards. 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 RSAs are entitled to vote on matters submitted to holders of our common stock for a vote. During the six months ended August 31, 2014, we granted to our 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 the six months ended August 31, 2013. The unrecognized compensation costs related to nonvested RSAs totaled $0.2 million as of August 31, 2014. These costs are expected to be recognized on a straight-line basis over a weighted average period of 0.8 years. (C)Share-Based Compensation Composition of Share-Based Compensation Expense
|  | Three Months Ended | Six Months Ended
|  | August 31 | August 31
(In thousands) |  | 2014 | 2013 | 2014 | 2013
Cost of sales |  | $ | 1,247 |  | $ | 586 |  | $ | 1,574 |  | $ | 1,859 |
CarMax Auto Finance income |  |  | 961 |  |  | 730 |  |  | 1,637 |  |  | 1,512 |
Selling, general and administrative expenses |  |  | 20,493 |  |  | 14,063 |  |  | 35,209 |  |  | 35,237 |
Share-based compensation expense, before income taxes |  | $ | 22,701 |  | $ | 15,379 |  | $ | 38,420 |  | $ | 38,608 |
Composition of Share-Based Compensation Expense – By Grant Type
|  | Three Months Ended | Six Months Ended
|  | August 31 | August 31
(In thousands) |  | 2014 | 2013 | 2014 | 2013
Nonqualified stock options |  | $ | 6,887 |  | $ | 5,786 |  | $ | 15,007 |  | $ | 12,819 |
Cash-settled restricted stock units |  |  | 11,074 |  |  | 5,884 |  |  | 14,221 |  |  | 17,972 |
Stock-settled restricted stock units |  |  | 3,472 |  |  | 2,891 |  |  | 7,593 |  |  | 6,711 |
Employee stock purchase plan |  |  | 311 |  |  | 318 |  |  | 642 |  |  | 606 |
Restricted stock awards to non-employee directors |  |  | 957 |  |  | ― |  |  | 957 |  |  | ― |
Stock grants to non-employee directors |  |  | ― |  |  | 500 |  |  | ― |  |  | 500 |
Share-based compensation expense, before income taxes |  | $ | 22,701 |  | $ | 15,379 |  | $ | 38,420 |  | $ | 38,608 |
We recognize compensati on 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 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 or for the six months ended August 31, 2014 or 2013. Stock Option Activity
|  |  |  |  |  | Weighted |  |  |  |
|  |  |  |  |  | Average |  |  |  |
|  |  |  | Weighted |  | Remaining |  | Aggregate
| Number of | Average |  | Contractual |  | Intrinsic
(Shares and intrinsic value in thousands) | Shares | Exercise Price |  | Life (Years) |  | Value
Outstanding as of February 28, 2014 |  | 10,018 |  | $ | 27.02 |  |  |  |  |  |  |  |  |
Options granted |  | 2,003 |  |  | 44.96 |  |  |  |  |  |  |  |  |
Options exercised |  | (2,591) |  |  | 17.09 |  |  |  |  |  |  |  |  |
Options forfeited or expired |  | (16) |  |  | 32.69 |  |  |  |  |  |  |  |  |
Outstanding as of August 31, 2014 |  | 9,414 |  | $ | 33.56 |  |  |  | 4.4 |  |  | $ | 177,333 |
Exercisable as of August 31, 2014 |  | 4,979 |  | $ | 27.40 |  |  |  | 3.3 |  |  | $ | 124,494 |
During the six months ended August 31, 2014 and 2013, we granted nonqualified options to purchase 2,003,238 and 1,601,699 shares of common stock, respectively. The total cash received as a result of stock option exercises for the six months ended August 31, 2014 and 2013, was $44.3 million and $20.8 million, respectively. We settle stock option exercises with authorized but unissued shares of our common stock. The total intrinsic value of options exercised for the six months ended August 31, 2014 and 2013, was $85.9 million and $29.5 million, respectively. We realized related tax benefits of $34.6 million and $11.8 million during the six months ended August 31, 2014 and 2013, respectively. Outstanding Stock Options
|  |  |  |  |  | As of August 31, 2014
|  |  |  |  |  | Options Outstanding |  | Options Exercisable
|  |  |  |  |  |  |  |  | Weighted |  |  |  |  |  |  |  |
|  |  |  |  |  |  |  |  | Average | Weighted |  |  |  |  | Weighted
|  |  |  |  |  |  |  |  | Remaining | Average |  |  |  |  | Average
(Shares in thousands) | Number of | Contractual | Exercise |  | Number of | Exercise
Range of Exercise Prices | Shares | Life (Years) | Price |  | Shares | Price
$ | 11.43 |  |  |  |  |  | 554 |  |  | 1.6 |  | $ | 11.43 |  |  |  | 554 |  | $ | 11.43 |
$ | 13.19 | - | $ | 19.82 |  |  | 488 |  |  | 0.9 |  | $ | 15.57 |  |  |  | 488 |  | $ | 15.57 |
$ | 19.98 | - | $ | 25.39 |  |  | 1,288 |  |  | 2.7 |  | $ | 25.19 |  |  |  | 1,288 |  | $ | 25.19 |
$ | 28.81 | - | $ | 32.69 |  |  | 3,511 |  |  | 4.2 |  | $ | 32.12 |  |  |  | 2,181 |  | $ | 32.22 |
$ | 33.11 | - | $ | 49.25 |  |  | 3,573 |  |  | 6.1 |  | $ | 43.89 |  |  |  | 468 |  | $ | 42.21 |
Total |  |  |  |  |  |  | 9,414 |  |  | 4.4 |  | $ | 33.56 |  |  |  | 4,979 |  | $ | 27.40 |
For stock options, 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 a closed-form valuation model (for example, the Black-Scholes model), such as the 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 a closed-form 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 value per share at the date of grant for options granted during the six months ended August 31, 2014 and 2013, was $13.21 and $15.59, respectively. The unrecognized compensation costs related to nonvested options totaled $43.7 million as of August 31, 2014. These costs are expected to be recognized on a straight-line basis over a weighted average period of 2.5 years. Assumptions Used to Estimate Option Values
|  | Six Months Ended August 31
|  | 2014 |  | 2013
Dividend yield |  |  |  |  | 0.0 | % |  |  |  |  | 0.0 | %
Expected volatility factor (1) |  | 25.2 | % | - | 32.7 | % |  | 28.1 | % | - | 46.8 | %
Weighted average expected volatility |  |  |  |  | 31.9 | % |  |  |  |  | 44.7 | %
Risk-free interest rate (2) |  | 0.03 | % | - | 2.7 | % |  | 0.02 | % | - | 2.6 | %
Expected term (in years) (3) |  |  |  |  | 4.7 |  |  |  |  |  | 4.7 |
(1)Measured using historical daily price changes of our stock for a period corresponding to the term of the options 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. Cash-Settled Restricted Stock Unit Activity
|  |  |  | Weighted
|  |  |  | Average
|  | Number of | Grant Date
(Units in thousands) |  | Units | Fair Value
Outstanding as of February 28, 2014 |  | 1,531 |  | $ | 35.68 |
Stock units granted |  | 588 |  | $ | 44.96 |
Stock units vested and converted |  | (463) |  | $ | 32.77 |
Stock units cancelled |  | (65) |  | $ | 38.86 |
Outstanding as of August 31, 2014 |  | 1,591 |  | $ | 39.82 |
During the six months ended August 31, 2014 and 2013, we granted 587,511 and 541,819 RSUs, respectively. The initial fair market value per RSU at the date of grant for the RSUs granted during the six months ended August 31, 2014 and 2013, was $44.96 and $42.68, respectively. The RSUs are cash-settled upon vesting. During the six months ended August 31, 2014 we paid $21.2 million and $23.0 million, respectively (before payroll tax withholdings), to RSU holders upon the vesting of RSUs. We realized tax benefits of $8.6 million and $9.2 million during the six months ended August 31, 2014 and 2013, respectively. Expected Cash Settlement Range Upon Restricted Stock Unit Vesting
|  | As of August 31, 2014
(In thousands) |  | Minimum (1) | Maximum (1)
Fiscal 2016 |  | $ | 12,376 |  | $ | 33,003 |
Fiscal 2017 |  |  | 14,100 |  |  | 37,600 |
Fiscal 2018 |  |  | 16,285 |  |  | 43,428 |
Total expected cash settlements |  | $ | 42,761 |  | $ | 114,031 |
(1)Net of estimated forfeitures. Stock-Settled Restricted Stock Unit Activity
|  |  |  | Weighted
|  |  |  | Average
|  | Number of | Grant Date
(Units in thousands) |  | Units | Fair Value
Outstanding as of February 28, 2014 |  | 852 |  | $ | 45.26 |
Stock units granted |  | 245 |  | $ | 55.37 |
Stock units vested and converted |  | (289) |  | $ | 45.65 |
Stock units cancelled |  | ― |  | $ | ― |
Outstanding as of August 31, 2014 |  | 808 |  | $ | 48.18 |
During the six months ended August 31, 2014 and 2013, we granted 245,190 and 236,675 MSUs, respectively. The weighted average fair value per MSU at the date of grant for MSUs granted during the six months ended August 31, 2014 and 2013, was $55.37 and $51.98, respectively. The fair values were determined using a Monte-Carlo simulation and were based on the expected market price of our common stock on the vesting date and the expected number of converted common shares. We realized related tax benefits of $7.4 million and $6.7 million for the six months ended August 31, 2014 and 2013, respectively, from the vesting of market stock units. The unrecognized compensation costs related to nonvested MSUs totaled $19.0 million as of August 31, 2014. These costs are expected to be recognized on a straight-line basis over a weighted average period of 1.4 years.

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- Definition The entire disclosure for compensation-related costs for equity-based compensation, which may include disclosure of policies, compensation plan details, allocation of equity compensation, incentive distributions, equity-based arrangements to obtain goods and services, deferred compensation arrangements, employee stock ownership plan details and employee stock purchase plan details. + References Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 718 -SubTopic 10 -Section 50 -Paragraph 1 -URI http://asc.fasb.org/extlink&oid=6415400&loc=d3e5047-113901 Reference 2: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 718 -SubTopic 10 -Section 50 -Paragraph 2 -URI http://asc.fasb.org/extlink&oid=6415400&loc=d3e5070-113901 Reference 3: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 505 -SubTopic 50 -Section 50 -Paragraph 1 -URI http://asc.fasb.org/extlink&oid=6406099&loc=d3e25284-112666 Reference 4: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 718 -SubTopic 40 -Section 50 -Paragraph 1 -URI http://asc.fasb.org/extlink&oid=6418621&loc=d3e17540-113929 Reference 5: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 718 -SubTopic 10 -Section 50 -Paragraph 4 -URI http://asc.fasb.org/extlink&oid=6415400&loc=d3e5444-113901 Reference 6: http://www.xbrl.org/2003/role/presentationRef -Publisher SEC -Name Staff Accounting Bulletin (SAB) -Number Topic 14 + Details
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