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- Proxy Statement (definitive) (DEF 14A)

Date : 05/03/2012 @ 8:03AM
Source : Edgar (US Regulatory)
Stock : Carmax (KMX)
Quote : 50.96  0.0 (0.00%) @ 8:28AM
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- Proxy Statement (definitive) (DEF 14A)

Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

SCHEDULE 14A

 

Proxy Statement Pursuant to Section 14(a) of the

Securities Exchange Act of 1934

(Amendment No.      )

 

 

Filed by the Registrant x                             Filed by a Party other than the Registrant ¨

 

Check the appropriate box:

 

¨   Preliminary Proxy Statement

 

¨   Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))

 

x   Definitive Proxy Statement

 

¨   Definitive Additional Materials

 

¨   Soliciting Material Pursuant to §240.14a-12

 

 

CarMax, Inc.

 

(Name of Registrant as Specified In Its Charter)

 

 

  

 

(Name of Person(s) Filing Proxy Statement, if other than the Registrant)

 

Payment of Filing Fee (Check the appropriate box):

 

x   No fee required.

 

¨   Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.

 

  (1)   Title of each class of securities to which the transaction applies:

 

  

 

  (2)   Aggregate number of securities to which the transaction applies:

 

  

 

  (3)   Per unit price or other underlying value of the transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined):

 

  

 

  (4)   Proposed maximum aggregate value of the transaction:

 

  

 

  (5)   Total fee paid:

 

  

 

 

¨   Fee paid previously with preliminary materials.

 

¨   Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing.

 

  (1)   Amount Previously Paid:

 

  

 

  (2)   Form, Schedule or Registration Statement No.:

 

  

 

  (3)   Filing Party:

 

  

 

  (4)   Date Filed:

 

  

 

 


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LOGO


Table of Contents

LOGO

 

Dear Fellow CarMax Shareholders:

 

I cordially invite you to attend the 2012 annual meeting of CarMax, Inc. shareholders. The annual meeting this year will be held on Monday, June 25, 2012, at 1:00 p.m. ET at the Richmond Marriott West Hotel, 4240 Dominion Boulevard, in Glen Allen, Virginia.

 

CarMax has elected to deliver our proxy materials to our shareholders over the Internet. This delivery process will allow us to provide shareholders with the information they need, while at the same time conserving natural resources and lowering the cost of printing and delivery. On or about May 11, 2012, we will mail to our shareholders a Notice of Internet Availability of Proxy Materials containing instructions on how to access our 2012 proxy statement and fiscal 2012 annual report to shareholders. This notice also provides instructions on how to vote online or by telephone and includes information on how to request a paper copy of the proxy materials by mail.

 

We will provide live audio coverage of the annual meeting from the CarMax investor relations website at investor.carmax.com. In addition, a replay of the annual meeting will be available at this website after the meeting. We hope that this will allow those of you who are unable to attend the meeting in person to hear CarMax management discuss this year’s results.

 

Whether or not you will be attending the annual meeting, your vote is very important. Please vote. There are four ways that you can cast your ballot—by Internet, by telephone, by mail (if you request a paper copy) or in person at the annual meeting.

 

On behalf of the board of directors, I would like to express our appreciation for your continued interest in CarMax. I look forward to seeing you at the annual meeting.

 

Sincerely,

 

LOGO

 

William R. Tiefel

Chairman of the Board of Directors

May 3, 2012


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NOTICE OF 2012 ANNUAL MEETING OF SHAREHOLDERS

 

LOGO

 

Meeting Date

and Time:

   Monday, June 25, 2012, at 1:00 p.m., Eastern Time
Place:   

Richmond Marriott West Hotel

4240 Dominion Boulevard

Glen Allen, Virginia 23060

Items of Business:   

(1)     To elect the following four persons to the board of directors: Jeffrey E. Garten, Vivian M. Stephenson, Beth A. Stewart and William R. Tiefel.

  

(2)     To ratify the selection of KPMG LLP as our independent registered public accounting firm.

  

(3)     To vote on an advisory resolution to approve the company’s executive compensation.

  

(4)     To approve the CarMax, Inc. 2002 Stock Incentive Plan, as amended and restated.

  

(5)     To approve the CarMax, Inc. Annual Performance-Based Bonus Plan, as amended and restated.

  

(6)     To vote on an advisory shareholder proposal to declassify our board of directors, if properly presented.

  

(7)     To transact any other business that may properly come before the annual meeting or any postponements or adjournments thereof.

Who May Vote:    You may vote if you were a shareholder of CarMax common stock at the close of business on April 20, 2012.

 

By order of the board of directors,

 

LOGO

 

Eric M. Margolin

Senior Vice President,

General Counsel and Corporate Secretary

May 3, 2012


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CARMAX, INC. 2012 PROXY STATEMENT TABLE OF CONTENTS

 

            Page  

Questions and Answers about Our Annual Meeting and Proxy Statement

     4   

1.

    

Why am I receiving these materials?

     4   

2.

     Why did I receive a notice in the mail regarding the Internet availability of proxy materials instead of a full set of proxy materials?      4   

3.

    

How can I get electronic access to the proxy materials?

     4   

4.

    

What items will be voted on at the 2012 annual meeting?

     4   

5.

    

What are the board’s voting recommendations?

     5   

6.

    

Who is entitled to vote?

     5   

7.

    

How many votes must be present to hold the annual meeting?

     5   

8.

     What is the difference between a shareholder of record and a beneficial owner of shares held in street name?      5   

9.

    

How do I vote my shares?

     5   

10.

    

What will happen if I do not return a proxy or give specific voting instructions?

     6   

11.

    

What proposals are considered “routine” or “non-routine”?

     6   

12.

    

What if I change my mind after I vote?

     6   

13.

    

How many votes are needed to approve each of the six proposals?

     7   

14.

    

Who can attend the annual meeting?

     7   

15.

    

Who pays the cost of proxy solicitation?

     7   

16.

    

Who will count the votes?

     7   

17.

    

Could other matters be decided at the annual meeting?

     7   

18.

    

How do I make a shareholder proposal for the 2013 annual meeting?

     8   

Proposal One — Election of Directors

     9   

Corporate Governance

     13   
    

Corporate Governance Policies and Practices

     13   
    

Director Independence

     13   
    

Executive Sessions

     13   
    

Board and Committee Meeting Attendance; Committee Membership

     13   
    

Committees of the Board

     14   
    

Board Leadership Structure

     15   
    

Board’s Role in Risk Oversight

     15   
    

Risk and Compensation Policies and Practices

     16   
    

Nominating and Governance Committee Process for Identifying Director Nominees

     16   
    

Nominating and Governance Committee Criteria for Selection of Directors; Consideration of Diversity

     17   
    

Process for Shareholder Nomination of Directors

     17   
    

Process for Shareholder or Interested Party Communication with Directors

     18   

 

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CARMAX, INC. 2012 PROXY STATEMENT TABLE OF CONTENTS  CONTINUED

 

            Page  

Compensation Discussion and Analysis

     19   
    

Section I. Overview

     19   
    

Section II. The Key Elements of Our Executive Compensation Program and Fiscal 2012 Decisions

     21   
    

Section III. Additional Elements of Compensation

     26   
    

Section IV. Employment and Severance Agreements

     27   

Compensation and Personnel Committee Report

     28   

Executive Compensation

     29   
    

Summary Compensation Table

     29   
    

All Other Compensation in Fiscal 2012

     30   
    

Grants of Plan-Based Awards in Fiscal 2012

     31   
    

Outstanding Equity Awards at Fiscal 2012 Year End

     32   
    

Option Exercises and Stock Vested in Fiscal 2012

     34   
    

Pension Benefits in Fiscal 2012

     34   
    

Nonqualified Deferred Compensation

     36   
    

Potential Payments Upon Termination or Change-in-Control

     37   

Compensation for Non-Employee Directors

     44   
    

Non-Employee Director Cash Compensation

     44   
    

Non-Employee Director Equity Compensation

     44   
    

Non-Employee Director Compensation in Fiscal 2012

     45   

CarMax Share Ownership

     46   
    

Share Ownership of Directors and Executive Officers

     46   
    

Share Ownership of Certain Beneficial Owners

     47   
    

Section 16(a) Beneficial Ownership Reporting Compliance

     48   
    

Equity Compensation Plan Information

     48   

Certain Relationships and Related Transactions

     49   

Audit Committee Report and Auditor Information

     50   
    

Audit Committee Report

     50   
    

Auditor Information

     51   

 

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            Page  

Proposal Two — Ratification of the Selection of Independent Registered Public Accounting Firm

     52   

Proposal Three — Advisory Resolution to Approve Executive Compensation

     53   

Proposal Four — Approval of the CarMax, Inc. 2002 Stock Incentive Plan, as amended and restated

     54   

Proposal Five — Approval of the CarMax, Inc. Annual Performance-Based Bonus Plan, as amended and restated

     61   

Proposal Six — Advisory Vote on Shareholder Proposal to Declassify the Board

     63   

Appendix A — CarMax, Inc. 2002 Stock Incentive Plan, as amended and restated June 25, 2012

     65   

Appendix B — CarMax, Inc. Annual Performance-Based Bonus Plan, as amended and restated June 25, 2012

     78   

 

3


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QUESTIONS AND ANSWERS ABOUT OUR ANNUAL MEETING AND PROXY STATEMENT

 

In this proxy statement, “CarMax,” the “company,” “we,” “our” and “us” refer to CarMax, Inc. and its wholly owned subsidiaries, unless the context requires otherwise.

 

1. Why am I receiving these materials?

 

The company is making this proxy statement, the fiscal 2012 annual report to shareholders and a form of proxy (the “proxy materials”) available to you in connection with the solicitation of proxies by the board of directors for use at the annual meeting of shareholders of the company to be held on Monday, June 25, 2012, at 1:00 p.m. Eastern Time, and at any postponements or adjournments thereof. You are invited to attend the annual meeting and are requested to vote on the proposals described in this proxy statement. The annual meeting will be held at the Richmond Marriott West Hotel, 4240 Dominion Boulevard, Glen Allen, Virginia 23060.

 

2. Why did I receive a notice in the mail regarding the Internet availability of proxy materials instead of a full set of proxy materials?

 

As permitted by the Securities and Exchange Commission (“SEC”), we have elected to provide access to our proxy materials primarily over the Internet rather than mailing paper copies of those materials to each shareholder. On or about May 11, 2012, we will mail a Notice of Internet Availability of Proxy Materials (the “Notice”) to our shareholders, which provides website and other information for the purpose of accessing our proxy materials. All shareholders will have the ability to access the proxy materials on the website referred to in the Notice or request a printed or electronic set of the proxy materials. Instructions on how to access the proxy materials over the Internet or to request a printed copy may be found in the Notice. In addition, shareholders may request to receive proxy materials in printed form by mail or electronically by email on an ongoing basis. We encourage you to take advantage of the availability of the proxy materials on the Internet to help reduce the cost and environmental impact of the annual meeting.

3. How can I get electronic access to the proxy materials?

 

The Notice provides you with instructions regarding how to:

 

   

View our proxy materials for the annual meeting on the Internet.

 

   

Instruct us to send proxy materials to you by email.

 

Choosing to receive proxy materials by email will save the company the cost of printing and mailing documents to you and will reduce the impact of the company’s annual meeting on the environment. If you choose to receive future proxy materials by email, you will receive an email message next year with instructions containing a link to those materials and a link to the proxy voting website. Your election to receive proxy materials by email will remain in effect unless and until you rescind it.

 

4. What items will be voted on at the 2012 annual meeting?

 

You will be voting on the following six items of business:

 

   

Proposal One: The election of the following four persons to the board of directors: Jeffrey E. Garten, Vivian M. Stephenson, Beth A. Stewart and William R. Tiefel.

 

   

Proposal Two: The ratification of the selection of KPMG LLP (“KPMG”) as our independent registered public accounting firm.

 

   

Proposal Three: An advisory resolution to approve the company’s executive compensation.

 

   

Proposal Four: The approval of the CarMax, Inc. 2002 Stock Incentive Plan, as amended and restated (the “Revised Stock Incentive Plan”).

 

   

Proposal Five: The approval of the CarMax, Inc. Annual Performance-Based Bonus Plan, as amended and restated (the “Revised Bonus Plan”).

 

   

Proposal Six: An advisory shareholder proposal to declassify the company’s Board of Directors, if properly presented at the meeting.

 

You may also be asked to vote on any other business that may properly come before the annual meeting or any postponements or adjournments thereof.

 

 

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5. What are the board’s voting recommendations?

 

Our board of directors recommends that you vote:

 

   

FOR each of the nominees to the board of directors (Proposal One);

 

   

FOR the ratification of the selection of KPMG as our independent registered public accounting firm (Proposal Two);

 

   

FOR the advisory resolution to approve of the company’s executive compensation (Proposal Three);

 

   

FOR the approval of the Revised Stock Incentive Plan (Proposal Four);

 

   

FOR the approval of the Revised Bonus Plan (Proposal Five); and

 

   

AGAINST the advisory shareholder proposal to declassify the company’s Board of Directors (Proposal Six).

 

6. Who is entitled to vote?

 

All shareholders who owned CarMax common stock at the close of business on April 20, 2012, are entitled to vote at the annual meeting. Each share of common stock is entitled to one vote. There were 228,195,276 shares of CarMax common stock outstanding on that date.

 

7. How many votes must be present to hold the annual meeting?

 

In order for us to conduct the annual meeting, a majority of our outstanding shares of common stock as of April 20, 2012, must be present in person or by proxy. This is referred to as a quorum. Abstentions and shares held by banks, brokers or nominees that are voted on any matter are included in determining whether a quorum exists.

 

8. What is the difference between a shareholder of record and a beneficial owner of shares held in street name?

 

Shareholder of Record . If your shares are registered directly in your name with the company’s transfer agent, American Stock Transfer & Trust Company, LLC (“AST”), you are

the shareholder of record with respect to those shares and we sent the Notice directly to you. If you request copies of the proxy materials by mail, you will receive a proxy card.

 

Beneficial Owner of Shares Held in Street Name . If your shares are held in an account at a brokerage firm, bank, broker-dealer or other similar organization, then you are the beneficial owner of shares held in “street name,” and the Notice was forwarded to you by that organization. The organization holding your account is considered the shareholder of record for purposes of voting at the annual meeting. As a beneficial owner, you have the right to direct that organization on how to vote the shares held in your account. If you request copies of the proxy materials by mail, you will receive a voting instruction form.

 

9. How do I vote my shares?

 

If you are a shareholder of record or a participant in our Amended and Restated 2002 Employee Stock Purchase Plan (the “ESPP”), you may vote in any of the following ways:

 

   

By Internet . You may vote online by accessing www.carmaxproxy.com and following the on-screen instructions. You will need the Control Number included on the Notice or on your proxy card, as applicable. You may vote online 24 hours a day. If you vote online, you do not need to return a proxy card.

 

   

By Telephone . If you are located in the U.S., you may vote by calling toll free 1-800-PROXIES (1-800-776-9437) and following the instructions. If you are located outside the U.S., call 1-718-921-8500. You will need the Control Number included on the Notice or on your proxy card, as applicable. You may vote by telephone 24 hours a day. If you vote by telephone, you do not need to return a proxy card.

 

   

By Mail . If you requested printed copies of the proxy materials, you will receive a proxy card, and you may vote by signing, dating and mailing the proxy card in the envelope provided.

 

   

In Person . You may vote in person at the annual meeting by requesting a ballot from the inspector of election at the meeting.

 

 

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QUESTIONS AND ANSWERS ABOUT OUR ANNUAL MEETING AND PROXY STATEMENT  CONTINUED

 

 

If you are a beneficial owner of shares held in street name , you may vote in any of the following ways:

 

   

By Internet . You may vote online by following the instructions provided in the Notice. You will need the Control Number included on the Notice or on your voting instruction form, as applicable. You may vote online 24 hours a day. If you vote online, you do not need to return a voting instruction form.

 

   

By Telephone . You may vote by telephone by following the instructions provided in the Notice. You will need the Control Number included on the Notice or on your voting instruction form, as applicable. You may vote by telephone 24 hours a day. If you vote by telephone, you do not need to return a voting instruction form.

 

   

By Mail . If you requested printed copies of the proxy materials, you will receive a voting instruction form, and you may vote by signing, dating and mailing it in the envelope provided.

 

   

In Person . You must obtain a legal proxy from the organization that holds your shares in order to vote your shares in person at the annual meeting. Follow the instructions on the Notice to obtain this legal proxy.

 

For both shareholders of record and beneficial owners of shares held in street name (other than ESPP participants), online and telephone voting is available through 11:59 p.m. ET on Sunday, June 24, 2012. For shares held by ESPP participants in an ESPP account, online and telephone voting is available through 11:59 p.m. ET on Wednesday, June 20, 2012.

 

10. What will happen if I do not return a proxy or give specific voting instructions?

 

Shareholders of Record . If you are a shareholder of record and you:

 

   

Do not vote via the Internet, by telephone or by mail, your shares will not be voted unless you attend the annual meeting to vote them in person.

 

   

Sign and return a proxy card without giving specific voting instructions, then your shares will be voted in the manner recommended by the board of directors

   

on all matters presented in this proxy statement and as the proxy holders may determine in their discretion with respect to any other matters properly presented for a vote at the annual meeting.

 

Beneficial Owners of Shares Held in Street Name or Participants in the ESPP . If you are a beneficial owner of shares held in street name or a participant in the ESPP and you do not provide the organization that holds your shares with specific voting instructions, under the rules of various national and regional securities exchanges, the organization that holds your shares may generally vote your shares on routine matters but cannot vote your shares on non-routine matters. If the organization that holds your shares does not receive instructions from you on how to vote your shares on a non-routine matter, the organization will not have the authority to vote your shares on this matter. This is generally referred to as a “broker non-vote.”

 

11. What proposals are considered “routine” or “non-routine”?

 

The election of directors (Proposal One), the advisory approval of the company’s executive compensation (Proposal Three), the approval of the Revised Stock Incentive Plan (Proposal Four), the approval of the Revised Bonus Plan (Proposal Five), and the advisory shareholder proposal to declassify the company’s Board of Directors (Proposal Six) are considered non-routine matters. A broker or other nominee cannot vote without instructions on non-routine matters, and therefore there may be broker non-votes on Proposals One, Three, Four, Five and Six.

 

The ratification of the selection of KPMG as the company’s independent registered public accounting firm (Proposal Two) is considered a routine matter. A broker or other nominee generally may vote on routine matters, and therefore we expect no broker non-votes in connection with Proposal Two.

 

12. What if I change my mind after I vote?

 

You may revoke your proxy at any time before it is exercised by submitting a subsequent vote using the same methods described in Question 9.

 

 

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13. How many votes are needed to approve each of the six proposals?

 

Proposal One: The four nominees must be approved by the affirmative vote of a majority of the votes cast. Abstentions and broker non-votes will not be counted in determining the number of votes cast for this proposal.

 

Proposal Two: The ratification of the selection of KPMG as our independent registered public accounting firm must be approved by the affirmative vote of a majority of the votes cast. Abstentions and broker non-votes will not be counted in determining the number of votes cast for this proposal.

 

Proposal Three: The advisory vote on executive compensation must be approved by the affirmative vote of a majority of the votes cast. Abstentions and broker non-votes will not be counted in determining the number of votes cast for this proposal.

 

Proposal Four: To be adopted, the Revised Stock Incentive Plan proposal must be approved by the affirmative vote of a majority of the votes cast. Under New York Stock Exchange (“NYSE”) listing standards, the total votes cast on the proposal must also represent more than 50% of all shares of common stock entitled to vote on the proposal. Shareholders may direct that their votes be cast for or against the proposal, or shareholders may abstain from voting on this proposal. Abstentions will have the same effect as votes cast against the proposal under NYSE listing standards. Broker non-votes will not be counted in determining the number of votes cast for this proposal.

 

Proposal Five: To be adopted, the Revised Bonus Plan proposal must be approved by the affirmative vote of a majority of the votes cast. Abstentions and broker non-votes will not be counted in determining the number of votes cast for this proposal.

 

Proposal Six: The advisory vote regarding the declassification of the company’s Board of Directors must be approved by the affirmative vote of a majority of the votes cast. Abstentions and broker non-votes will not be counted in determining the number of votes cast for this proposal.

14. Who can attend the annual meeting?

 

The annual meeting is open to all holders of CarMax common stock as of April 20, 2012. Shareholders who plan to attend the annual meeting may be asked to present valid picture identification, such as a driver’s license or passport. If you are a beneficial shareholder, you must bring a copy of a brokerage statement indicating ownership of CarMax shares as of April 20, 2012. If you are an authorized proxy or if you want to vote in person the shares that you hold in street name, you must present the proper documentation from your bank or broker. Cameras, recording devices and other electronic devices will not be permitted at the annual meeting.

 

15. Who pays the cost of proxy solicitation?

 

CarMax pays the cost of soliciting proxies. We will solicit proxies from our shareholders, and, after the initial solicitation, some of our employees or agents may contact shareholders by telephone, by email or in person. We have retained Georgeson, Inc. to solicit proxies for a fee of $7,500 plus reasonable expenses. We will also reimburse banks, brokerage firms and other custodians, nominees and fiduciaries for their reasonable expenses in sending proxy materials to the beneficial owners of our common stock.

 

16. Who will count the votes?

 

Representatives from AST, our transfer agent, will tabulate the votes and act as inspector of election at the annual meeting.

 

17. Could other matters be decided at the annual meeting?

 

Management and our board of directors are not aware of any matters that may come before the annual meeting other than the six proposals disclosed in this proxy statement. If other matters do properly come before the annual meeting, the named proxies will vote in accordance with their best judgment.

 

 

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QUESTIONS AND ANSWERS ABOUT OUR ANNUAL MEETING AND PROXY STATEMENT CONTINUED

 

 

18. How do I make a shareholder proposal for the 2013 annual meeting?

 

Pursuant to SEC rules, for a shareholder proposal to be considered for possible inclusion in the 2013 proxy statement, the corporate secretary of CarMax must receive the proposal in writing no later than January 11, 2013. CarMax plans to hold its 2013 annual meeting on or about June 24, 2013.

 

Pursuant to our Bylaws, if you wish to bring any matter for consideration before the 2013 annual meeting that is not included in the 2013 proxy statement, you must notify our corporate secretary in writing at CarMax, Inc., 12800 Tuckahoe Creek Parkway, Richmond, Virginia 23238, no earlier than the close of business on

December 12, 2012, and no later than the close of business on January 11, 2013. Regarding each matter, your notice must meet the conditions set forth in Section 1.3 of our Bylaws. A copy of our Bylaws is available under the “Corporate Governance” link at investor.carmax.com and also will be provided without charge to any shareholder upon written request to our corporate secretary. If we do not receive proper notice prior to the close of business on January 11, 2013, the chairman of the annual meeting will exclude the matter and it will not be acted upon at the 2013 annual meeting.

 

 

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PROPOSAL ONE — ELECTION OF DIRECTORS

 

 

Our board of directors is divided into three classes with staggered three-year terms. The Nominating and Governance Committee has recommended, and our board of directors has approved, the following nominees for election as directors:

 

   

Nominated for three-year terms expiring at the 2015 annual meeting:

 

   

Jeffrey E. Garten

   

Vivian M. Stephenson

   

Beth A. Stewart

   

William R. Tiefel

 

Your proxy will be voted to elect each of the nominees unless you tell us otherwise or the vote is otherwise prohibited. If any nominee is not available to serve—for reasons such as death or disability—your proxy will be voted for a substitute nominee if the board nominates one. Each nominee has consented to being named in this proxy statement and to serve if elected.

In 2011, our board approved the adoption of a majority vote standard for the election of our directors. Accordingly, pursuant to our Bylaws, directors must be elected by a majority of the votes cast in an uncontested election, meaning that the number of votes cast “for” a director nominee must exceed the number of votes cast “against” that nominee. In an uncontested election, any nominee who does not receive a majority of the votes cast “for” his or her election is required to tender his or her resignation promptly following the failure to receive the required vote. The Board is required to decide whether to accept such resignation. In contested elections, the required vote would be a plurality of votes cast.

 

The board of directors recommends a vote FOR each of the nominees listed below. Biographical and professional information, including information regarding each person’s specific experience, qualifications, attributes or skills that led to the conclusion that this person should serve as a CarMax director, about the nominees and the other directors of the company whose terms of office do not expire this year follows.

 

 

Nominees for Election at the 2012 Annual Meeting for Terms Expiring at the 2015 Annual Meeting

LOGO

  

JEFFREY E. GARTEN, 65. Director since 2002.

Juan Trippe Professor in the Practice of International Trade, Finance and Business at the Yale School of Management since July 2005 and Chairman of Garten Rothkopf, an international consulting firm, since October 2005. He was the Dean of the Yale School of Management from 1995 to 2005. He was the United States Undersecretary of Commerce for International Trade from 1993 to 1995 and previously spent 13 years in investment banking with Lehman Brothers and Blackstone Group. He is a director of Aetna Inc., and certain mutual funds of Credit Suisse Asset Management. He also serves on the Board of Management of Standard & Poor’s and is a member of the board of overseers of the International Rescue Committee. Mr. Garten previously served as a director of Alcan, Inc. (2007) and Calpine Corporation (1997-2005). Mr. Garten’s record as a distinguished business scholar and teacher, as well as his years of government service, investment banking work and service to other significant boards of directors, qualify him to serve on our board. His appreciation of corporate governance, as well as his tenure as a CarMax board member, provide wisdom, continuity and value to our board.

LOGO

  

VIVIAN M. STEPHENSON, 75. Director since 2006.

Retired Chief Operating Officer of Williams-Sonoma, Inc., a specialty retailer of products for the home, since 2006. She was named the chief operating officer of Williams-Sonoma in 2003. From 2000 to 2003, she served as a consultant to Apple Computer and Williams-Sonoma. She was the chief information officer for Target Corporation from 1995 to 2000. She serves on the AAA of Northern California, Nevada and Utah board of directors. Ms. Stephenson’s significant management experience with multiple successful retailers provides leadership and meaningful operational depth to our board. Further, her information technology skills strengthen the board’s understanding of the many technology-related issues confronting the company.

 

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PROPOSAL ONE — ELECTION OF DIRECTORS CONTINUED

 

LOGO

  

BETH A. STEWART, 55. Director since 2002.

Co-managing member of Trewstar, LLC, a private investment company, since 1998 and Chief Executive Officer of Trewstar Corporate Board Services, an executive search firm, since 2011. Ms. Stewart served as Chief Executive Officer of Storetrax.com, an Internet retail real estate service, from 2001 until her retirement in 2011. She was an adjunct professor at Columbia University Graduate School of Business from 1994 to 1996. She previously spent 12 years in investment banking with Goldman, Sachs & Co. She previously served as a director of Avatar Holdings Inc. (2001-2012) and General Growth Properties, Inc. (1993-2010). Ms. Stewart’s expertise in the commercial real estate market, honed through nearly 20 years of service as a director at a national retail-focused REIT and as the chief executive of an on-line retail real estate service, provides meaningful experience to CarMax as a growth retailer and qualifies her to serve on our board. Further, her investment banking experience bolsters the financial depth of our Audit Committee.

LOGO

  

WILLIAM R. TIEFEL, 78. Director since 2002.

Chairman of the Board of CarMax since 2007. Retired Vice Chairman of Marriott International, Inc. and Chairman Emeritus of The Ritz-Carlton Hotel Company, LLC since 2002. He joined Marriott Corporation in 1961. He was named president of Marriott Hotels and Resorts in 1989, president of Marriott Lodging in 1992 and vice chairman of Marriott International and chairman of The Ritz-Carlton Hotel Company in 1998. He previously served as a director of Lydian Private Bank (2005-2011). In September 2010, Lydian Private Bank became a party to a publicly available Office of Thrift Supervision Order to Cease and Desist regarding its banking practices. Mr. Tiefel’s vast leadership experience with a customer-focused, service-oriented lodging and hospitality enterprise qualify him to serve on our board. His considerable management roles have been valuable to the board as not only a director, but also as the board’s chairman.

Directors Whose Terms Expire at the 2013 Annual Meeting

LOGO

  

RONALD E. BLAYLOCK, 52. Director since 2007.

Founder and Managing Partner of GenNx360 Capital Partners, a private-equity buyout fund, focused on industrial business-to-business companies. Prior to founding GenNx360 in 2006, Mr. Blaylock was chief executive officer of Blaylock & Company, a full-service investment banking firm that he founded in 1993. Previously, Mr. Blaylock held senior management positions with PaineWebber and Citigroup. He is a director of Radio One, Inc. and W. R. Berkley Corporation. Mr. Blaylock’s experience managing two successful investment enterprises, as well as his considerable finance experience, qualify him to serve on our board. Further, Mr. Blaylock’s years of relevant experience growing companies and serving on other public company boards enable him to provide additional insight to our board and its committees.

 

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LOGO

  

RAKESH GANGWAL, 58. Director since 2011.

Former Chief Executive Officer of US Airways Group, Inc. and Worldspan Technologies, Inc. From 2003 to 2007, Mr. Gangwal served as chairman, president and chief executive officer of Worldspan Technologies, Inc., a provider of travel and information technology services to the travel and transportation industry. From 2002 to 2003, he was involved in various personal business endeavors, including private equity and consulting projects. From 1998 until his resignation in 2001, Mr. Gangwal served as president and chief executive officer of US Airways Group, Inc. and US Airways, Inc. and from 1996 to 1998, he was the president and chief operating officer of US Airways Group. After his resignation and on August 11, 2002, US Airways Group, Inc., and its seven domestic subsidiaries, including US Airways, Inc., filed voluntary petitions for relief under Chapter 11 of the United States Bankruptcy Code. US Airways Group, Inc. and its subsidiaries emerged from bankruptcy protection under a reorganization plan, which became effective on March 31, 2003. He is a co-founder of IndiGo, India’s largest low-fare airline. Mr. Gangwal is a director of PetSmart, Inc. and OfficeMax Incorporated, where he is the non-executive chairman. Mr. Gangwal’s experience as a chief executive officer, as well as his extensive background in corporate strategy, operations and technology management, provide valuable insight to our board and qualify him to serve on our board. Additionally, Mr. Gangwal’s service as a board member (including as chairman) of two publicly traded retail companies further qualifies him to serve on our board.

LOGO

  

MITCHELL D. STEENROD, 45. Director since 2011.

Senior Vice President, Chief Financial Officer and Chief Information Officer of Pilot Travel Centers LLC, the nation’s largest operator of travel centers and truck stops, since 2006. Mr. Steenrod joined Pilot Travel Centers in 2001 as controller and treasurer. In 2004, he was promoted to senior vice president and chief financial officer and in 2006 took on the additional role of chief information officer. Previously, he spent 12 years with Marathon Oil Company and Marathon Ashland Petroleum LLC in a variety of positions of increasing responsibility in accounting, general management and marketing. Mr. Steenrod’s extensive retail industry and operational experience as well as his experience implementing successful growth strategies, including growing Pilot Travel Centers from more than 200 travel centers to over 500 branded locations over a span of 10 years, qualify him to serve on our board. Additionally, Mr. Steenrod’s extensive financial and accounting experience, including his seven years of experience as a chief financial officer, strengthens our board through his understanding of accounting principles, financial reporting rules and regulations, and internal controls.

LOGO

  

THOMAS G. STEMBERG, 63. Director since 2003.

Managing General Partner of the Highland Consumer Fund at Highland Capital Partners, a venture capital firm. From 2005 to 2007, he acted as the Venture Partner of Highland Capital Partners. Mr. Stemberg is the founder and Chairman Emeritus of the Board of Staples, Inc., an office supply superstore retailer. He pioneered the office superstore industry and was chief executive officer of Staples from 1986 to 2002. From 2002 to 2004, Mr. Stemberg served as an executive officer at Staples with the title of Chairman. Mr. Stemberg is a director of PetSmart, Inc., lululemon athletica inc. and Guitar Center, Inc. He previously served as a director of Polycom, Inc. (2002-2007) and The NASDAQ Stock Market, Inc. (2002-2007). Mr. Stemberg’s creation and development of the world’s leading office products company, a “big-box” retailer that experienced significant growth and profitability under Mr. Stemberg’s leadership, provides meaningful insight and knowledge to CarMax. His prior chief executive experience, his board service with various growth retailers, and his current retail-focused venture capital work provide a deep understanding of the retail industry and qualify him to serve on our board.

 

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PROPOSAL ONE — ELECTION OF DIRECTORS CONTINUED

 

Directors Whose Terms Expire at the 2014 Annual Meeting

LOGO

  

THOMAS J. FOLLIARD, 47. Director since 2006.

President and Chief Executive Officer of CarMax since 2006. He joined CarMax in 1993 as senior buyer and became director of purchasing in 1994. Mr. Folliard was promoted to vice president of merchandising in 1996, senior vice president of store operations in 2000, executive vice president of store operations in 2001 and president and chief executive officer in 2006. As the chief executive of CarMax, Mr. Folliard leads the day-to-day operation of CarMax and is responsible for establishing and executing the company’s strategic plans. His significant experience in the auto retail industry, his tenure with CarMax and his motivational leadership of more than 16,000 CarMax associates provide the board with unique insight into the company and qualify him to serve on the board.

LOGO

  

SHIRA GOODMAN, 51. Director since 2007.

Executive Vice President, Global Growth of Staples, Inc., an office supply superstore retailer, since 2012. She joined Staples in 1992 and has held a variety of positions of increasing responsibility in general management, marketing and human resources, including serving as executive vice president, marketing from 2001 to 2009 and executive vice president, human resources from 2009 to 2012. From 1986 to 1992, Ms. Goodman worked at Bain & Company in project design, client relationships and case team management. She previously served as a director of Stride Rite Corporation (2002-2007). Ms. Goodman has proven business acumen, having served in various leadership positions at an internationally renowned retailer. In her current position, she is responsible for the international growth strategy, mergers and acquisitions and new ventures of Staples globally. Additionally, she has served as Staples’ chief human resources officer overseeing over 90,000 employees and as its chief marketing executive directing the company’s marketing efforts. Ms. Goodman’s experiences in retail marketing, human resources and business growth at the world’s largest office products company all enhance her value to our board.

LOGO

  

W. ROBERT GRAFTON, 71. Director since 2003.

Retired Managing Partner-Chief Executive, Andersen Worldwide S.C. Andersen Worldwide provided global professional auditing and consulting services through its two service entities, Arthur Andersen and Andersen Consulting. He is a retired certified public accountant and joined Arthur Andersen in 1963. He was elected a member of the Board of Partners, Andersen Worldwide in 1991 and chairman of the Board of Partners in 1994. He served as Managing Partner-Chief Executive from 1997 through 2000. Mr. Grafton is currently lead director of DiamondRock Hospitality Company. He previously served as a director of SRA International, Inc. (2010-2011). Mr. Grafton’s extensive accounting experience, as well as his role as the chief executive of an international audit and consulting firm with more than 100,000 employees, qualify him to serve on our board. His designation as an “audit committee financial expert” and his seven years of service as our Audit Committee chairman provide significant and consistent leadership.

LOGO

  

EDGAR H. GRUBB, 72. Director since 2007.

Retired Executive Vice President and Chief Financial Officer of Transamerica Corporation, a leading insurance and financial services company. He joined Transamerica in 1989, became executive vice president in 1993 and retired in 1999. From 1986 to 1989, he was the senior vice president and chief financial officer of Lucky Stores, Inc. Mr. Grubb is a director and chair of the board of AAA Northern California, Nevada & Utah Insurance Exchange and he is a director of Auto Club Partners, Inc., an affiliation of ten AAA clubs in the United States. With meaningful experience as the chief financial officer of a public company, Mr. Grubb provides CarMax with his extensive understanding of complex financial and operational issues that public companies confront. His financial acumen, as well as his demonstrated leadership capabilities, qualify him to serve on our board.

 

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CORPORATE GOVERNANCE

 

Our business and affairs are managed under the direction of the board of directors in accordance with the Virginia Stock Corporation Act, our Articles of Incorporation and our Bylaws. The standing committees of the board of directors are the Audit Committee, the Compensation and Personnel Committee and the Nominating and Governance Committee.

 

Corporate Governance Policies and Practices

 

The board of directors is actively involved in shaping our corporate governance. The board oversees the company’s compliance with the governance reforms initiated by the Sarbanes-Oxley Act of 2002, the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 and the related rules and regulations proposed and adopted by the SEC and the NYSE. In response to the various laws, rules and regulations applicable to the company, and its own views on corporate governance, the board has adopted corporate governance guidelines and a code of business conduct applicable to all company personnel, including members of the board.

 

Our corporate governance guidelines set forth the practices of the board with respect to its responsibilities, qualifications, performance, access to management and independent advisors, compensation (including director stock ownership guidelines), orientation and continuing education, and management evaluation and succession.

 

Our code of business conduct contains provisions relating to honest and ethical behavior, including the handling of conflicts of interest between personal and professional relationships, corporate opportunities, the handling of confidential information, fair dealing, protection and proper use of company assets, compliance with laws and other matters. Any amendment to or waiver from a provision of this code for our directors or executive officers will be promptly disclosed under the “Corporate Governance” link at investor.carmax.com.

 

The corporate governance guidelines, code of business conduct and the charters of the Audit Committee, the Compensation and Personnel Committee, and the Nominating and Governance Committee are also available under the “Corporate Governance” link at investor.carmax.com. A printed copy of these documents is available to any shareholder without charge upon written request to our corporate secretary at CarMax, Inc., 12800 Tuckahoe Creek Parkway, Richmond, Virginia 23238.

Director Independence

 

As part of our corporate governance guidelines, the board has adopted categorical standards to assist it in evaluating the independence of each director and determining whether relationships between directors and the company or its subsidiaries (either directly or as a partner, shareholder or officer of an organization that has a relationship with the company) are material. In April 2012, our board of directors, after consultation with and upon the recommendation of the Nominating and Governance Committee, affirmatively determined, in its business judgment, that Messrs. Blaylock, Gangwal, Garten, Grafton, Grubb, Steenrod, Stemberg and Tiefel and Ms. Goodman, Ms. Stephenson and Ms. Stewart are each independent directors under our independence guidelines and the NYSE independence standards because each director: (1) has no material relationship with the company and (2) satisfies the independence criteria set forth in our independence guidelines and the NYSE listed company manual. In addition, based on our guidelines and the NYSE standards, the board determined that Mr. Folliard is not independent because he is an executive officer of CarMax.

 

Executive Sessions

 

Our corporate governance guidelines provide that executive sessions, where solely the non-executive directors meet, are to be held at each regularly scheduled board meeting and that non-executive directors may designate, on an annual basis, a director to preside at these sessions. Our non-executive directors met in executive session at each of our regularly scheduled board meetings in fiscal 2012. Effective June 2011, the board re-elected Mr. Tiefel as its independent chairman of the board and designated him to serve as the presiding director for executive sessions.

 

Board and Committee Meeting Attendance; Committee Membership

 

Pursuant to our corporate governance guidelines, directors are expected to attend meetings of the board and of the board committees of which they are members.

 

 

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Our board of directors met four times in fiscal 2012. Each director attended 100% of the total number of meetings of the board and of the standing committees on which he or she served. All directors attended the 2011 annual meeting of shareholders, with Ms. Goodman attending via webcast.

The table below provides, for fiscal 2012, membership information and the number of meetings held by the board of directors and each of the board’s committees. The numbers in each column indicate the number of meetings each director attended within each category.

 

 

Director    Board   Audit   Compensation
and Personnel
  Nominating
and Governance

Ronald E. Blaylock

   4     5  

Keith D. Browning (a)

   3      

Thomas J. Folliard

   4      

Rakesh Gangwal

   4   12    

Jeffrey E. Garten

   4       4

Shira Goodman

   4       4

W. Robert Grafton

   4   12 *    

Edgar H. Grubb

   4     5  

Mitchell D. Steenrod

   4   12    

Thomas G. Stemberg

   4     5 *  

Vivian M. Stephenson

   4       4 *

Beth A. Stewart

   4   12    

William R. Tiefel

   4 *      

Number of Meetings

   4   12   5   4

 

* Chairman

(a)  Mr. Browning retired from the board of directors effective October 18, 2011, and he attended the three board meetings held on or prior to that date.

 

Committees of the Board

 

Audit Committee

The Audit Committee operates under a written charter adopted by the board. This charter sets forth the requirements for membership and the committee’s authority, duties and responsibilities. The Audit Committee assists in the board’s oversight of (1) the integrity of our consolidated financial statements, (2) our compliance with legal and regulatory requirements, (3) the independent auditors’ qualifications and independence and (4) the performance of our internal audit function and the independent auditors. The Audit Committee retains, and approves all fees paid to, the independent auditors. The Audit Committee also pre-approves all non-audit engagements of the independent auditors. Each member of the Audit Committee is independent and financially literate, with Messrs. Grafton and Steenrod considered audit committee financial experts, in accordance with the applicable rules of the NYSE, the

SEC and our corporate governance guidelines. The committee’s report to shareholders can be found on page 50.

 

Compensation and Personnel Committee

The Compensation and Personnel Committee operates under a written charter adopted by the board. This charter sets forth the requirements for membership and the committee’s authority, duties and responsibilities. The Compensation and Personnel Committee’s duties include (1) the review and approval of the company’s overall executive compensation philosophy, (2) the review and approval of salaries, short- and long-term incentives and other benefits and perquisites for our CEO and other executive officers, (3) the oversight of the administration of our short- and long-term incentive compensation plans and all equity-based plans, (4) the review and approval of the terms of any severance, change-in-control or employment agreements with our executive officers and

 

 

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(5) the ongoing analyses of our executive and director compensation programs. Each member of the Compensation and Personnel Committee is independent in accordance with the applicable rules of the NYSE, the SEC and our corporate governance guidelines. The committee’s report to shareholders can be found on page 28.

 

Nominating and Governance Committee

The Nominating and Governance Committee operates under a written charter adopted by the board. This charter sets forth the requirements for membership and the committee’s authority, duties and responsibilities. The Nominating and Governance Committee (1) identifies individuals qualified to become members of the board, (2) recommends to the board nominees for director to be presented at the annual meetings of shareholders and nominees to fill vacancies on the board, (3) leads the board in the oversight of management succession planning, including succession planning for the CEO, (4) develops and recommends to the board our corporate governance guidelines and (5) considers director nominees submitted by shareholders in accordance with the procedures outlined on page 17. Each member of the Nominating and Governance Committee is independent in accordance with the applicable rules of the NYSE and our corporate governance guidelines.

 

Board Leadership Structure

 

Historically at CarMax, two separate individuals have served in the roles of CEO and board chairman. Mr. Folliard has been our CEO since 2006, while Mr. Tiefel, a board member since 2002, has served as the independent chairman of the board since 2007. As our board chairman, Mr. Tiefel is responsible for chairing board meetings and meetings of shareholders, setting the agendas for board meetings and presiding over executive sessions of the independent directors. Mr. Folliard manages and oversees the day-to-day affairs of the company and directs the formulation and implementation of the company’s strategic plans. We believe that this leadership structure is currently the most appropriate for CarMax.

Our board recognizes that, depending on the circumstances, other leadership models might be appropriate. Our corporate governance guidelines state that the board has no fixed policy as to whether the roles of chairman and CEO should be separate, and the board remains free to make this choice in the manner it judges most appropriate for CarMax. These guidelines also provide that in the event that the CEO also serves as chairman, the board will appoint a lead independent director to serve in accordance with the company’s Lead Independent Director Charter, which is available under the “Corporate Governance” link at investor.carmax.com. The board periodically reviews its leadership structure and elects its chairman annually.

 

Board’s Role in Risk Oversight

 

Our board is responsible for oversight of enterprise risk. Management is responsible for day-to-day risk management and for implementing our enterprise risk management program. Management discharges this responsibility in part through the company’s Risk Committee, which is chaired by Tom Reedy, our Executive Vice President and Chief Financial Officer, and includes more than ten other members from across the company. The Risk Committee meets periodically to identify, discuss and assess the significant risks facing the company.

 

Our board oversees the company’s enterprise risk management program using several means. First, the board receives and reviews biannual reports from the Risk Committee identifying the most significant risks facing the company. Second, the board has assigned oversight of certain key risk categories to either the full board or a board committee. For each category, management reports regularly to the full board or the assigned committee, as appropriate, describing CarMax’s strategies for monitoring, managing and mitigating risks that fall within that category. Our committee charters provide that each committee will review (a) the risks and exposures over which the committee has been delegated oversight responsibility by the board and (b) the steps management has taken to monitor, manage and mitigate such risks and exposures. Finally, in accordance with its charter and NYSE listing standards, our Audit Committee has primary responsibility for oversight of the company’s procedures for identifying significant risks or

 

 

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CORPORATE GOVERNANCE CONTINUED

 

exposures. On an annual basis, Mr. Reedy, on behalf of the Risk Committee, discusses these procedures with the Audit Committee.

 

We believe that, in accordance with the process detailed above, our board exercises effective oversight of CarMax’s enterprise risk management program.

 

Risk and Compensation Policies and Practices

 

In assessing whether risks arising from CarMax’s compensation policies and practices were reasonably likely to have a material adverse effect on the company, management reviewed the company’s compensation policies and practices for all employees, the potential risks presented by those policies and practices, and the factors that mitigate those risks. As part of its review, management considered the compensation arrangements currently in place for our store associates, store management, regional leadership teams, home office and CarMax Auto Finance associates, and executive officers. Following this review, management determined that none of CarMax’s compensation policies and practices create risks that are reasonably likely to have a material adverse effect on the company.

 

Management then presented a summary of its review to the company’s Compensation and Personnel Committee for discussion at the committee’s January 2012 meeting. At that meeting, the committee and management discussed management’s summary and the risk mitigation tools employed by the company. The summary listed each compensation policy or practice applicable to the various groups of CarMax associates, the potential risks presented by that policy or practice and the risk mitigation tools employed by the company to mitigate the related risks.

 

The compensation practices and policies covered by the summary included payments in the forms of base salaries, annual bonuses, equity and equity-based awards, sales bonuses, sales commissions and hourly pay. The risk mitigation tools covered by the summary included the following:

 

   

Annual bonus payments made to senior management are (i) subject to a clawback provision, (ii) capped at a plan maximum of 200% of base salary and (iii) only paid when the metrics designed by an independent

   

committee of non-employee directors have been satisfied.

 

   

Annual equity and equity-based awards (i) are approved by an independent committee of non-employee directors, (ii) contain three and four year vesting provisions and (iii) for senior management, must be held in compliance with the company’s executive stock ownership guidelines.

 

   

Sales bonuses are subject to risk mitigation tools that ensure that associates are not overpaid based upon inflated sales figures. These tools include (i) the performance of a daily vehicle inventory at each store, (ii) centralized and non-negotiable vehicle pricing, (iii) centralized assignment of sales targets and (iv) electronic reporting of sales from each store to the home office.

 

   

Hourly pay is tracked and managed through a central time management and reporting system.

 

Following discussion with management and a review of the summary noted above, the Compensation and Personnel Committee concurred with management’s determination that none of CarMax’s compensation policies and practices create risks that are reasonably likely to have a material adverse effect on the company.

 

Nominating and Governance Committee Process for Identifying Director Nominees

 

Candidates for election to our board of directors are considered in order to fill a vacancy on the board or if the board determines that it would be beneficial to add an individual with specific skills or expertise. In identifying potential candidates for nomination to the board, the committee may consider input from several sources, including members of the Nominating and Governance Committee, other board members, the CEO, outside search firms and shareholder recommendations. Nominee candidates are evaluated in the same manner regardless of the source of the recommendation. The Nominating and Governance Committee will conduct an initial evaluation of each candidate. If suitable, the candidate will be interviewed by the committee and may also meet with other board members and company management. If the committee determines a nominee would be a valuable addition to the board, it will make a recommendation to the full board.

 

 

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Nominating and Governance Committee Criteria for Selection of Directors; Consideration of Diversity

 

The board and the Nominating and Governance Committee believe that the board should be comprised of directors with varied, complementary backgrounds and that directors should have, at a minimum, business or other relevant expertise that may be useful to the company. The board and Nominating and Governance Committee also believe that directors should possess the highest personal and professional ethics and should be willing and able to devote the requisite amount of time to company business.

 

When considering nominees for director, the Nominating and Governance Committee takes into account a number of factors, including:

 

   

The size of the existing board.

 

   

The nominee’s character, judgment, skill, education, relevant business experience, integrity, reputation and other personal attributes or special talents.

 

   

The nominee’s independence from management, the extent of existing commitments to other businesses and potential conflicts of interest with other pursuits.

 

   

The nominee’s financial and accounting background, to enable the committee to determine whether the nominee would be considered an “audit committee financial expert” or “financially literate” under the applicable rules of the NYSE and the SEC.

 

   

Whether the nominee is subject to a disqualifying factor as described in our corporate governance guidelines.

 

As noted above, in considering director nominees, the Nominating and Governance Committee believes that the board should be comprised of directors with varied, complementary backgrounds, with a particular emphasis on character, judgment, skill, education, relevant business experience, integrity, reputation and other personal attributes or special talents. We address and value diversity through our consideration of these factors in our director selection process. While we do not have a written policy with respect to the consideration of diversity in identifying director nominees, our consideration of the factors noted above has yielded a diverse, qualified, experienced and skilled CarMax board of directors.

Process for Shareholder Nomination of Directors

 

The Nominating and Governance Committee will consider nominees for director suggested by shareholders using the previously described criteria and considering the additional information referred to below. For the 2013 annual meeting, written notice to nominate a director for election must be received no earlier than the close of business on December 12, 2012, and no later than the close of business on January 11, 2013.

 

Under our Bylaws, a shareholder wishing to nominate a director at a shareholders’ meeting must deliver written notice to our corporate secretary stating his or her intention to make a nomination. For an annual meeting, the notice must be received no earlier than the close of business 150 days prior to and no later than the close of business 120 days prior to the anniversary of the date the company mailed its proxy materials for the prior year’s annual meeting. However, if the date of the annual meeting has changed by more than 30 days from the prior year, the notice must be received a reasonable time before the company mails its proxy materials, which time shall be not (a) earlier than the close of business 120 days prior to such annual meeting and (b) later than the close of business on the later of the ninetieth day prior to such meeting or the tenth day following the first public announcement by the company of the date of such meeting. For a special meeting, the notice must be received no later than the close of business on the seventh day following the date on which notice of a special meeting for the election of directors is first given to shareholders.

 

A shareholder’s notice of a proposed director nominee should be sent to our corporate secretary at CarMax, Inc., 12800 Tuckahoe Creek Parkway, Richmond, Virginia 23238, and must meet the requirements described in Section 2.3 of our Bylaws. A copy of our Bylaws is available under the “Corporate Governance” link at investor.carmax.com and also will be provided without charge to any shareholder upon written request to our corporate secretary.

 

 

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CORPORATE GOVERNANCE CONTINUED

 

 

Process for Shareholder or Interested Party Communication with Directors

 

Shareholders or other interested parties wishing to contact the board of directors or any individual director may send correspondence to CarMax, Inc., c/o Corporate Secretary, 12800 Tuckahoe Creek Parkway, Richmond, Virginia 23238, or may send an e-mail to chairman@carmax.com, which is monitored by Eric M. Margolin, our corporate secretary. Mr. Margolin will

forward to the board or appropriate board member any correspondence that deals with the functions of the board or its committees, and any other matter that would be of interest to the board. If the correspondence is unrelated to board or shareholder matters, it will be forwarded to the appropriate department within the company for further handling.

 

 

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COMPENSATION DISCUSSION AND ANALYSIS

 

Section I. Overview

 

Executive Summary

 

In fiscal 2012, we again achieved record earnings, with meaningful contributions from across our business. Highlights of the year included:

 

   

We continued our superstore growth, opening five stores in fiscal 2012 and announcing plans to open 10 stores in fiscal 2013 and between 10 to 15 stores in each of the following three fiscal years. We expect that these plans will result in a superstore base of between 148 and 163 stores by the end of fiscal 2016, an increase of between 37% and 51% in our superstore base.

 

   

We achieved a company milestone, with $10 billion in sales, as well as record net earnings of $413.8 million. Sales and net income were each up 11% and 10%, respectively, over the record results achieved in the prior year, despite the persistence of challenging market conditions.

 

   

Comparable store used unit sales increased 1%, and our data indicated that we once again increased our share of the late-model used vehicle market. While growing market share, we also improved our used and wholesale gross profit per unit.

 

   

Wholesale unit sales increased 20%, as demand at our auctions remained strong.

 

   

CarMax Auto Finance again generated strong profits, finishing the year with income of $262.2 million, an increase of 19% over the prior year.

 

At the outset of fiscal 2012, our named executive officers received an increase in base salary of 3.5%, the same increase generally given to salaried associates throughout the company. Annual bonuses to our named executive officers were paid at the 86.4% level for fiscal 2012, a reflection of our solid earnings performance, but with results slightly below our 100% target. Fiscal 2012 annual equity awards to our named executive officers were flat to the fiscal 2011 awards, as the same number of options and MSUs were awarded to each officer on a year-over-year basis. Due to an increase in our stock price, the valuation of this year’s awards was 27% greater than those provided in fiscal 2011. We believe that these compensation decisions demonstrate, and are consistent with, our pay-for-performance philosophy.

The Compensation and Personnel Committee

 

At the direction of the board of directors, the Compensation and Personnel Committee oversees all of our executive and director compensation plans, policies and programs. In fiscal 2012, the following three independent directors served on the committee: Messrs. Stemberg (its chairman), Blaylock and Grubb. As part of its oversight function, the committee reviews and determines all named executive officer compensation, whether short- or long-term, or cash- or equity-based. The committee’s role is detailed in its charter, which is available under the “Corporate Governance” link at investor.carmax.com.

 

Compensation Philosophy and Objectives

 

The committee oversees an executive compensation program designed to reflect CarMax’s pay-for-performance philosophy and that supports and reinforces the company’s key operating and strategic objectives. The committee has established the following objectives for our executive compensation program:

 

   

Align the interests of executive officers with the financial interests of our shareholders.

 

   

Encourage the achievement of our key strategic, operational and financial goals.

 

   

Link incentive compensation to company and stock price performance, which the committee believes promotes a unified vision for senior management and creates common motivation among our executives.

 

   

Attract, retain and motivate executives with the qualifications necessary to drive our long-term financial success.

 

   

Provide the committee the flexibility to respond to the continually changing environment in which we operate.

 

Consideration of the Most Recent Advisory “Say-on-Pay” Vote

 

At the 2011 annual meeting of shareholders, we conducted our first advisory shareholder vote on executive compensation. More than 98% of the votes cast were voted to approve the compensation of our named

 

 

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executive officers as disclosed in last year’s proxy statement. The committee was gratified by this shareholder response, and, based upon these results and the committee’s independent judgment, the committee decided to maintain the company’s current pay-for-performance pay practices into fiscal 2013.

 

The Named Executive Officers

 

This Compensation Discussion and Analysis describes and analyzes the key features of our executive compensation program, particularly as they relate to our named executive officers. For fiscal 2012, our named executive officers were:

 

   

Thomas J. Folliard, President and Chief Executive Officer.

 

   

Michael K. Dolan, Executive Vice President and Chief Administrative Officer.

 

   

Joseph S. Kunkel, Senior Vice President, Marketing & Strategy.

 

   

Thomas W. Reedy, Senior Vice President and Chief Financial Officer (In March 2012, Mr. Reedy was promoted to Executive Vice President and Chief Financial Officer).

 

   

William C. Wood, Senior Vice President, Stores (In March 2012, Mr. Wood was promoted to Executive Vice President, Stores).

 

   

Keith D. Browning, Former Executive Vice President, Finance. Mr. Browning retired from the company and our board of directors in October 2011.

 

Management’s Role in the Executive Compensation Process

 

Although management does not have any decision-making authority regarding executive compensation, it assists the committee by recommending appropriate base salary levels (except for the CEO), performance objectives and targets, and individual equity award amounts. Management also assists the committee with the preparation of the committee’s meeting agendas and prepares materials for those meetings as directed by the committee.

The committee has not delegated any authority with respect to the compensation of the company’s executive officers and non-employee directors. However, the committee has delegated limited authority to the company’s CEO and CFO to grant equity awards (in an amount not to exceed 75,000 shares or units between regularly scheduled committee meetings) to the company’s non-executive officer employees. Any such awards are subject to the company’s Employee Equity Grant Policy (the “Grant Policy”), which may be found at investor.carmax.com under the “Corporate Governance” link.

 

Compensation Consultants and the Peer Group

 

The committee has retained the services of Hay Group, an independent compensation consultant, in order to obtain access to independent compensation data, analysis and advice. Hay Group provides no other services to the company. Notwithstanding the committee’s use of outside advisors and management’s participation in the executive compensation process, all executive compensation determinations are made by the committee, using its independent judgment and analysis.

 

In October 2011, Hay Group, at the direction of the committee, performed a comprehensive analysis of (a) the composition of the company’s proxy peer group and (b) the total direct compensation for our named executive officers and certain executives. As part of the peer group study, Hay Group advised the committee regarding the appropriate mix of companies to use in analyzing and assessing the CarMax executive compensation program. Based upon Hay Group’s advice and the committee’s independent judgment, the committee selected the 18 public companies noted below as its new peer group, 13 of which had been in the company’s prior peer group. These peers fall within a reasonable range (both above and below CarMax) of comparative factors such as revenue, market capitalization, net income, total shareholder return, and return on investment, and these peers are generally specialty auto retailers, direct competitors or hard goods retailers. The composition of our peer group may vary from year to year.

 

 

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The following companies comprise our peer group:

 

  

Advance Auto Parts, Inc.

   Family Dollar Stores, Inc.    Penske Automotive Group, Inc.
  

AutoNation, Inc.

   GameStop Corp.    PetSmart, Inc.
  

AutoZone, Inc.

   Genuine Parts Company    Ross Stores, Inc.
  

Bed Bath & Beyond Inc.

   Group 1 Automotive, Inc.    The Sherwin-Williams Company
  

Dick’s Sporting Goods, Inc.

   The Hertz Corporation    Staples, Inc.
  

Dollar General Corporation

   Kohl’s Corporation    Tractor Supply Company

 

Hay Group’s total direct compensation study compared the value of each of our executive’s direct compensation to the corresponding compensation awarded to similarly situated personnel within the peer group noted above, as well as to the compensation awarded to executives from a broader group of retail companies. This competitive market data provides a frame of reference for the committee when evaluating executive compensation. The committee finds it useful to review these companies’ compensation practices in considering and determining CarMax’s own compensation policies and practices.

 

The committee generally tries to set base salaries that are competitive within the peer group. The committee

employs annual incentive bonuses and stock-based awards to further reward executive officers with total direct compensation above the median of the peer group when the company performs well. The failure to (a) achieve pre-determined earnings per share targets or (b) increase the company’s stock price will result in reduced or no realized compensation from the annual incentive bonus and stock-based awards compensation programs. The committee does not use peer group data as its sole determinant in making compensation decisions. This data is one of many factors that inform the committee’s compensation decisions. Other factors include individual performance, company performance, level of seniority and succession planning.

 

 

Section II. The Key Elements of Our Executive Compensation Program and Fiscal 2012 Decisions

 

The key elements of compensation for our named executive officers are base salary, an annual incentive bonus and stock-based awards. Together, these elements comprise total direct compensation.

 

Base Salary    +  

Annual Incentive

Bonus

   +    Stock-Based Awards    =    Total Direct Compensation

 

Each of the three key elements of total direct compensation promotes one or more compensation objectives set forth above. Competitive base salaries help us to attract, retain and motivate executives. Our annual incentive bonus, which is tied to earnings per share, helps to align the interests of our executive officers with the financial interests of our shareholders and encourages the achievement of the company’s financial goals. The stock-based awards directly tie an executive’s long-term compensation to the company’s stock price, as well as encourage the achievement of our strategic, operational and financial goals.

 

The committee considers each key element of compensation when designing and evaluating our executive compensation program. This consideration

ensures that the program will meet its specified objectives. The committee recognizes the impact that an adjustment to one key element of compensation may have on other elements. For example, an increase in a named executive officer’s base salary will result in a larger target incentive amount. However, decisions regarding any one key element of compensation are not determinative of decisions that will be made regarding the other key elements. Further, committee decisions regarding stock-based awards and committee decisions regarding base salaries and annual incentive bonuses are generally made at separate committee meetings. Notwithstanding the independence of these decisions, each committee decision regarding the key elements of compensation is made in furtherance of the objectives of the program.

 

 

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The committee did not consider the realized value of stock-based compensation when designing and evaluating our executive compensation program. This excluded compensation was not a factor in the committee’s analysis and decisions regarding total direct compensation and was not used when analyzing the company’s position within the peer group percentiles. The committee generally considers the value of stock-based compensation as an element of the company’s executive compensation program at the time of grant of a stock-based award, not at the time of exercise.

 

Compensation Mix

 

As officers assume higher levels of responsibility, the percentage of their compensation that is performance-based increases. Although we do not have a pre-established policy or target for allocation between specific compensation components, the majority of our named executive officers’ annual total direct compensation is determined by the company’s performance, as measured by our earnings per share and stock price. The table below illustrates how fiscal 2012 total direct compensation was allocated between performance-based and fixed compensation, as well as the break-down of performance-based compensation that is based on annual and long-term company performance.

 

    Percentage of Total Direct     
Compensation
  Percentage of
Performance-
Based Total
Compensation
 
      Performance-
Based
          Fixed           Annual           Long-
Term
 

Thomas J. Folliard

    82          18            19          81   

Michael K. Dolan

    77          23            16          84   

Joseph S. Kunkel

    70          30            15          85   

Thomas W. Reedy (a)

    76          24            11          89   

William C. Wood (a)

    76          24            11          89   

Keith D. Browning (b)

    75            25            11            89   

(a)    The company granted equity awards to Messrs. Reedy and Wood two times in fiscal 2012, once as part of the company’s annual equity award process in April 2011 and once in December 2011 related to the addition of significant new responsibilities to each of them. Accordingly, their performance-based compensation is more heavily weighted towards the company’s long-term performance than the other named executive officers.

(b)   In light of his October 2011 retirement, Mr. Browning will be paid a pro-rata bonus for fiscal 2012. His receipt of a pro-rata bonus for fiscal 2012, as opposed to a full-year bonus, affected his compensation mix allocation.

 

Base Salary

 

The committee establishes competitive base salaries to retain key officers and attract new talent that the committee believes are necessary for our long-term success. An executive officer’s base salary generally reflects the officer’s responsibilities, tenure, job performance and the direct competition for the officer’s services. The committee reviews officer base salaries at 12-month intervals, generally in April. When the committee reviews these base salaries, it considers the reports and advice provided by its independent consultant, as well as the recommendations provided by our CEO (except when setting the CEO’s base salary).

 

In April 2011, the following base salary adjustments were made.

 

Name  

Prior Base
Salary

($)

   

Adjusted

Base Salary

($)

   

Percentage

Increase

(%)

 

Thomas J. Folliard

    1,005,000        1,040,000        3.5   

Michael K. Dolan

    606,979        628,223        3.5   

Joseph S. Kunkel

    571,568        591,573        3.5   

Thomas W. Reedy

    430,000        445,000        3.5   

William C. Wood

    430,000        445,000        3.5   

Keith D. Browning (a)

    642,389        642,389          
(a)   In light of his retirement, Mr. Browning did not receive a base salary increase in fiscal 2012.

 

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In April 2011, Mr. Folliard recommended that the committee increase the base salaries for each of the other named executive officers (other than Mr. Browning, due to his upcoming retirement) by 3.5%, based upon the contributions that each officer made to the company’s performance during fiscal 2011. The committee agreed with Mr. Folliard’s recommendation.

 

In April 2011, the committee conducted a review of Mr. Folliard’s performance. As part of this performance review, the committee considered, among other factors, the company’s earnings performance, store growth plans and execution, management development, culture and cost management. Based on Mr. Folliard’s performance review and consistent with the base salary increases for the named executive officer group, the committee increased Mr. Folliard’s base salary by 3.5% to $1,040,000.

 

In October 2011, Mr. Folliard recommended that the committee increase the base salaries of each of Messrs. Reedy and Wood from $445,000 to $500,000. Mr. Folliard made this recommendation based upon the expanded roles and responsibilities that each executive assumed at that time. Following Mr. Browning’s retirement, Mr. Reedy became responsible for the management of the company’s finance operation, CarMax Auto Finance, in addition to his CFO duties. Mr. Wood, who previously had responsibility for all sales operations at the company’s stores, took on additional management responsibilities related to merchandising, our store business offices and service operations. In addition to Mr. Folliard’s recommendation, the committee considered the advice of Hay Group regarding these base salary increases. Following its independent consideration, the committee approved these base salary increases.

 

Annual Incentive Bonus

 

Pursuant to our Annual Performance-Based Bonus Plan, as amended and restated, we may provide annual incentive bonuses to our executive officers. Payments, if any, made under this plan are directly tied to the achievement of certain pre-defined financial performance goals. We adopted the Bonus Plan as a mechanism to provide this annual incentive compensation and to preserve the deductibility of this compensation in accordance with Section 162(m) of the Internal Revenue Code and related regulations.

The amount of the incentive bonus depends on our actual performance as measured against objective performance goals established by the committee at the beginning of each fiscal year. In April 2011, the committee determined that the threshold, target and maximum performance goals for fiscal 2012 would be based on our fiscal 2012 earnings per share. The committee believes that earnings per share is an appropriate measure for the performance goal because stock price appreciation is generally based on earnings growth. Accordingly, the interests of our management and our shareholders will be aligned.

 

Each named executive officer’s individual incentive bonus target is set forth in a written agreement with the company, is directly tied to his level of authority and is expressed as a percentage of his base salary. Each named executive officer’s base salary, incentive target percentage, and target and maximum incentive bonus amounts for fiscal 2012 is set forth in the table below.

 

Name   Base
Salary
($)
    Incentive
Target
Percentage
(%)
    Target
Incentive
Amount
($)
    Maximum
Incentive
Amount
($)
 

Thomas J. Folliard

    1,040,000        100        1,040,000        1,560,000   

Michael K. Dolan

    628,223        60        376,934        565,401   

Joseph S. Kunkel

    591,573        40        236,629        354,944   

Thomas W. Reedy

    500,000        40        200,000        300,000   

William C. Wood

    500,000        40        200,000        300,000   

Keith D. Browning (a)

    642,389        60        385,433        578,150   

(a)    In light of his October 2011 retirement, Mr. Browning will be paid a pro-rata bonus for fiscal 2012.

 

If the committee determines that an executive officer is eligible for payment under the Bonus Plan because our performance goals have been met, the exact bonus amount is determined by multiplying the target incentive amount by a performance adjustment factor. The performance adjustment factors established by the committee for fiscal 2012 pursuant to the Bonus Plan were:

 

   

25% if the threshold performance goal was achieved.

 

   

100% if the target performance goal was achieved.

 

   

150% if the maximum performance goal was achieved.

 

If the threshold performance goal is not achieved, no incentive bonus is paid, as was the case in each of fiscal 2009 and 2008. The performance adjustment factors are

 

 

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prorated when our actual performance exceeds a lower performance goal but not the next higher performance goal. The Bonus Plan provides that the maximum annual amount payable is the lesser of 200% of the executive’s base salary or $2,000,000. However, the committee limited the maximum performance adjustment factor to 150% for fiscal 2012.

 

Under the Bonus Plan, the committee may reduce the amount of any bonus award paid to a named executive officer below the amount that otherwise would be payable upon application of the relevant adjustment factor and may decide not to pay a bonus even when performance goals have been satisfied. Under no circumstances, however, may the committee increase the amount of any bonus payable under the Bonus Plan above what would be payable to an executive upon application of the relevant adjustment factor.

 

Performance Targets

In April 2011, the committee established the following diluted earnings per share targets for fiscal 2012: $1.67 as the threshold performance goal; $1.82 as the target performance goal; and $1.94 as the maximum performance goal under the Bonus Plan. In April 2012, the committee certified that CarMax had achieved diluted earnings per share for fiscal 2012 of $1.79, which was between our threshold and target goals. Accordingly, based on the bonus formula, the performance adjustment factor for fiscal 2012 was 86.4%.

 

During the last five fiscal years, the average performance adjustment factor has been 87% (86.4%, 150%, 200%, 0% and 0% for fiscal 2012, 2011, 2010, 2009 and 2008 respectively), meaning that, on average for the past five years, we have paid our named executive officers an annual incentive bonus award of 87% of their respective target incentive amounts.

Stock-Based Awards

 

In fiscal 2010, the company modified its stock-based compensation program. The key changes resulted in our diminished reliance on stock options as the sole form of executive equity pay and the introduction of stock-settled restricted stock units (which we refer to as “market stock units” (“MSUs”)) to enhance our long-term pay practices. Unlike options, MSUs retain some of their value even when our stock price falls below the MSU’s grant date price and therefore serve as a retention tool and provide additional associate motivation even in down-market environments. At the executive officer and vice president levels, 75% of the fair value of each equity grant was delivered in the form of stock options and 25% was delivered in the form of MSUs. Additionally, for those associates who had previously received restricted stock, we began awarding cash-settled restricted stock units in their place, in an effort to limit shareholder dilution and conserve the number of shares allocated to our Stock Incentive Plan. We maintained each of these equity compensation practices in fiscal 2012.

 

In determining the number of options and MSUs to award, the committee considers the named executive officer’s role at CarMax; our recent financial

performance; the performance of our common stock; the fair market value, expense and dilutive effect of any potential award; as well as succession planning and the retention of the services of the officer. To assist in this endeavor, the committee solicits the insight of the company’s CEO, as well as its independent compensation advisors. Generally, the CEO provides an initial recommendation of annual equity awards to the committee. The committee reviews this recommendation and then makes its own independent determination of the annual equity awards.

 

Equity awards provided to the named executive officers remained flat, as the same number of options and MSUs were awarded to each officer on a year-over-year basis. Due to an increase in our stock price, the fiscal 2012 awards had a grant date fair value that was 27% greater than those provided in fiscal 2011.

 

 

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In fiscal 2012, the committee approved stock option and MSU awards for our named executive officers in the amounts noted below. The table also includes the grant date fair values of the equity awards made in fiscal 2012 and 2011:

 

     Options and MSUs Granted in Fiscal 2012       Options and MSUs Granted in Fiscal 2011  
Name   

Number of

Stock

Options

    

Number of

MSUs

    

Total
Grant Date

Fair Value

($)

    

Number of

Stock

Options

    

Number of

MSUs

    

Total
Grant Date

Fair Value

($)

 

Thomas J. Folliard

     209,951         20,972         3,861,626         209,951         20,972         3,040,093   

Michael K. Dolan

     94,669         9,456         1,741,223         94,669         9,456         1,370,790   

Joseph S. Kunkel

     64,894         6,482         1,193,583         64,894         6,482         939,657   

Thomas W. Reedy (a)

     79,846         8,021         1,443,580         78,650         7,861         1,189,633   

William C. Wood (a)

     79,846         8,021         1,443,580         64,894         6,482         939,657   

Keith D. Browning

     94,669         9,456         1,741,223         94,669         9,456         1,370,790   

(a) As noted above, the company granted equity awards to Messrs. Reedy and Wood two times in fiscal 2012, once as part of the company’s annual equity award process in April 2011 and once in December 2011 related to the addition of significant new responsibilities to each of them.

 

The exercise price of the annual option awards granted in April of fiscal 2012 and 2011 was $32.69 and $25.39, respectively (The exercise price of the December 2011 option awards to Messrs. Reedy and Wood was $30.24). Limited stock appreciation rights (“SARs”) were granted in tandem with each of the option awards set forth above. The SARs may only be exercised in the event of a change-in-control of the company. Upon the exercise of the SAR and the surrender of the related option, the officer is entitled to receive an amount equal to the difference between the value of our common stock on the date of exercise and the exercise price of the underlying stock option. No free-standing SARs have been granted.

 

The fiscal 2012 annual equity awards were granted on April 5, 2011, which was three business days following the date on which we released our fiscal 2011 year-end earnings information. The December 2011 equity awards to Messrs. Reedy and Wood were granted on December 27, 2011, which was three business days following the date on which we released our fiscal 2012 third-quarter earnings information. Pursuant to our Grant Policy, all of these equity grants were made in accordance with a pre-determined schedule, from which the committee did not deviate. The options and MSUs were priced at the volume-weighted average price of the company’s common stock on the grant date. The committee has determined that the use of the volume-weighted average price, as opposed to the closing price, is more representative of the value of the common stock because it incorporates all trades made on the grant date, as opposed to using only the final trade of the day. Our pricing policy is also incorporated in our Grant Policy.

 

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COMPENSATION DISCUSSION AND ANALYSIS CONTINUED

 

 

Section III. Additional Elements of Compensation

 

We provide our executive officers with the benefits and perquisites described below, which are intended to be a part of a competitive compensation package.

 

Retirement Plans

We provide all associates, including our named executive officers, with the opportunity to participate in our 401(k) Plan. We also provide eligible associates, namely those individuals whose benefits under our 401(k) Plan are limited due to the compensation limits imposed by the Internal Revenue Code, the opportunity to participate in our Retirement Restoration Plan. Further, we provide a nonqualified deferred compensation benefit, our Executive Deferred Compensation Plan, to permit eligible associates to defer receipt of a portion of their base salary and/or bonus to a future date. A description of the terms of each plan can be found in the narrative discussion following the “Nonqualified Deferred Compensation” table on page 36 (Note that our 401(k) Plan is a tax-qualified plan). Additionally, details regarding the fiscal 2012 contributions to each named executive officer’s Retirement Restoration Plan and Executive Deferred Compensation Plan accounts, as well as the earnings and aggregate balances for those accounts, can be found in the “Nonqualified Deferred Compensation” table.

 

During fiscal 2009, we froze our Pension Plan and Benefit Restoration Plan, which were retirement plans that we previously offered. As a result, as of December 31, 2008, no additional benefits will accrue under the Pension Plan or the Benefit Restoration Plan. Additional details regarding these frozen benefits can be found in the “Pension Benefits in Fiscal 2012” table on page 34.

 

Health and Welfare Plans

We provide a variety of competitive health and welfare plans to our associates and executives, including medical, dental and vision care; life, accidental death and dismemberment and dependent life insurance; short-term and long-term disability insurance; and paid time off. Additionally, each executive officer is encouraged to participate, at their own cost, in our executive physical program, which provides screening, preventative and general medical care.

Company Transportation

We provide a car allowance and the use of a CarMax-owned vehicle for each of our named executive officers. We offer a similar benefit to each of our regional vice presidents. We also provide the use of a CarMax-owned vehicle, on the same terms as provided to the named executive officers, to certain other eligible associates. For all associates using CarMax-owned vehicles, we bear the maintenance and insurance costs. The IRS treats both the monthly vehicle allowance and the personal use of company-owned vehicles as income to the associate and the related taxes are paid by the associate.

 

Our executive officers are encouraged to use our plane for business travel. Additionally, our plane is available for personal use by Messrs. Folliard, Browning, Dolan and Kunkel when we do not need the plane for business travel (given his October 2011 retirement, our plane is no longer available to Mr. Browning for his personal use). Our policy regarding personal use requires that Mr. Folliard reimburse the company for the incremental costs associated with his personal use to the extent that the incremental costs exceed $125,000 in any fiscal year. The policy requires that Messrs. Browning, Dolan and Kunkel reimburse the company for the incremental costs associated with their respective personal use of the plane to the extent that the incremental costs exceed $35,000 in any fiscal year. All income taxes associated with an executive’s personal use of the plane are borne by the executive.

 

Tax and Financial Planning Services

We provide a tax and financial planning benefit to our named executive officers. Officers who elect the services of the company’s tax and financial advisory firm must pay the income taxes associated with this benefit, which is valued at $14,000 per year. Officers who forego this benefit may opt to engage their own tax professional, which expense will be borne by the company in an amount up to $5,000 ($10,000 for the CEO), with the officer paying the taxes associated with this income. The committee approved this benefit to reduce the amount of time and attention that our executive officers must spend on these matters, which permits them to focus on their responsibilities to us, and to maximize the financial reward of the compensation that we provide.

 

 

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Stock Ownership Guidelines

In April 2011, the committee adopted revised stock ownership guidelines for our executive officers. No later than five years after becoming a senior vice president, executive vice president or CEO, each officer must hold shares of our common stock equal in value to the amounts set forth below.

 

Subject Officers    Required to Own the Lesser of:

Chief Executive Officer

   6 x Base Salary or 300,000 shares

Executive Vice President

   3 x Base Salary or 100,000 shares

Senior Vice President

   2 x Base Salary or 50,000 shares

 

Shares owned outright, in-the-money stock options, restricted stock and MSUs are included in determining compliance with the share ownership requirements. As of February 29, 2012, all of our named executive officers exceeded the ownership thresholds set forth in these guidelines. The stock ownership guidelines are available under the “Corporate Governance” link at investor.carmax.com. Further, pursuant to our Policy Against Insider Trading, all CarMax associates, including our named executive officers, are prohibited from engaging in any hedging transactions with CarMax stock.

 

Tax Considerations

The company does not provide tax gross-ups on any compensation or perquisites provided to its named executive officers.

 

Section 162(m) of the Internal Revenue Code generally disallows a deduction by publicly held corporations for compensation in excess of $1 million paid to the CEO or any of the three other most highly compensated officers (other than the CFO). Certain performance-based compensation qualifies for an exemption under Section 162(m) and is not subject to the deduction limit. Compensation under our Bonus Plan and stock options granted pursuant to our Stock Incentive Plan currently qualify for the exemption. The committee continues to monitor its executive compensation plans and policies with a view toward preserving the deductibility of executive compensation while maintaining the ability to attract and retain those executives necessary to assist us in reaching our goals and objectives.

Section IV. Employment and Severance Agreements

 

We have entered into an employment or a severance agreement with each of our named executive officers. The committee has determined that these written agreements are beneficial to us because they contain restrictive covenants relating to the protection of our confidential information and covenants not to compete and not to solicit our employees. These restrictive covenants continue for a period of two years following the end of the executive officer’s employment. Additionally, the committee believes that these agreements better enable our named executive officers to focus their efforts on the company’s strategic and operating goals.

 

Mr. Folliard’s employment agreement was for an initial term of two years, with automatic extensions for additional one-year periods following the end of the initial term (or any subsequent renewal period), unless either CarMax or Mr. Folliard provides written notice of intent not to renew at least 90 days before the end of the then-current term. The severance agreements with the other named executive officers do not have a specified term of agreement.

 

Under the terms of the employment and severance agreements, the committee establishes and approves each named executive officer’s annual base salary, which cannot be less than the minimum base salary set forth in each agreement unless across-the-board reductions in salary are implemented for all of our senior officers. Additionally, the committee approves the performance measures and payment amounts that determine each named executive officer’s annual incentive bonus under the Bonus Plan. Each named executive officer is also eligible to participate in our Stock Incentive Plan and to participate in all other incentive, compensation, benefit and similar plans available to our other executive officers.

 

Clawback and Forfeiture Provisions

The employment and severance agreements contain a clawback provision. If any named executive officer engages in conduct for which he could be terminated for cause, with certain limitations, and the conduct directly results in the filing of a restatement of any financial statement that was previously filed with the SEC (or other governmental agency), the named executive officer shall

 

 

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forfeit and, upon demand by the company, repay all compensation that was expressly conditioned upon the achievement of certain financial results if the restated financial statements would have resulted in a lesser amount being paid.

 

In addition to the clawback provision contained in each of these agreements, our equity award agreements also contain a forfeiture provision. If a named executive officer is terminated for cause, the officer’s unexercised vested and unvested options are forfeited. Further, all unvested MSUs and restricted stock are also forfeited upon a termination for cause.

 

Change-in-Control and Severance Benefits

Each employment and severance agreement provides for the termination of employment due to retirement, death or disability (as those terms are defined in each agreement). The agreements also provide for the termination of employment by us without “cause” and termination by the executive officer for “good reason” (as those terms are defined in each agreement). Termination under any of these circumstances will entitle the executive officer to receive certain payments and other benefits.

 

The agreements also provide for payments and benefits following the termination of employment in these circumstances in connection with a change-in-control or a

sale of all or substantially all of the assets of the company in a single transaction or a series of related transactions (an “asset sale”). Detailed information with respect to these payments and benefits can be found under the heading, “Potential Payments Upon Termination or Change-in-Control” beginning on page 37. The executive officers are not entitled to any severance payments as a result of voluntary termination (outside of the retirement context) or if they are terminated for cause.

 

The committee believes that these severance benefits encourage the commitment and availability of our named executive officers and ensure that they will be able to devote their full attention and energy to our affairs in the face of potentially disruptive and distracting circumstances. In the event of a potential change-in-control, our named executive officers will be able to analyze and evaluate proposals objectively with a view to the best interests of CarMax and its shareholders and to act as the board may direct without fear of retribution if a change-in-control occurs. The committee recognizes that the severance benefits may have the effect of discouraging takeovers and protecting our officers from removal, because the severance benefits increase the cost that would be incurred by an acquiring company seeking to replace current management; however, the committee believes that the benefit to the company outweighs this concern.

 

 

COMPENSATION AND PERSONNEL COMMITTEE REPORT

 

The CarMax, Inc. Compensation and Personnel Committee has reviewed and discussed the Compensation Discussion and Analysis required by Item 402(b) of Regulation S-K with management and, based upon their review and discussions, recommended to the CarMax board of directors that the Compensation Discussion and Analysis be included in this proxy statement.

 

THE COMPENSATION AND PERSONNEL COMMITTEE

Thomas G. Stemberg, Chairman

Ronald E. Blaylock

Edgar H. Grubb

 

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EXECUTIVE COMPENSATION

 

 

Summary Compensation Table

 

The table below shows, for fiscal 2012, fiscal 2011 and fiscal 2010, the compensation paid to or earned by our named executive officers.

 

Name and Principal

Position

  Fiscal
Year
    Salary
($)
    Stock
Awards  (a)
($)
    Option
Awards  (a)
($)
    Non-Equity
Incentive
Plan Comp-
ensation   (b)
($)
    Change in
Pension
Value and
Nonqualified
Deferred
Comp-
ensation
Earnings  (c)
($)
    All Other
Comp-
ensation   (d)
($)
   

Total

($)

 

Thomas J. Folliard

    2012        1,037,308        955,904        2,905,722        898,560        357,735        319,390        6,474,619   

President and

Chief Executive Officer

    2011        993,077        760,025        2,280,068        1,507,500        105,469        262,693        5,908,832   
    2010        850,000        526,328        1,900,956        1,700,000        194,519        132,309        5,304,112   

Keith D. Browning

    2012        424,965        431,004        1,310,219        211,669        562,929        28,323        2,969,109   

Former Executive VP, Finance

    2011        640,347        342,685        1,028,105        578,150        204,884        91,567        2,885,738   
    2010        615,835        237,322        857,160        739,002        381,789        43,469        2,874,577   

Michael K. Dolan

    2012        626,589        431,004        1,310,219        325,671        208,520        137,694        3,039,697   

Executive VP and Chief Administrative Officer

    2011        605,028        342,685        1,028,105        546,281        82,953        118,611        2,723,663   
    2010        581,622        237,322        857,160        697,947        153,645        71,821        2,599,517   

Joseph S. Kunkel

    2012        590,034        295,450        898,133        204,448        159,024        115,738        2,262,827   

Senior VP, Marketing & Strategy

    2011        569,710        234,908        704,749        342,941        48,530        119,339        2,020,177   
    2010        547,409        162,681        587,571        437,927        89,911        88,772        1,914,271   

Thomas W. Reedy

    2012        460,800        357,949        1,085,631        172,800        54,264        73,010        2,204,454   

Senior VP and

Chief Financial Officer

    2011        411,486        297,390        892,243        258,000        16,241        55,808        1,931,168   

William C. Wood

    2012        460,800        357,949        1,085,631        172,800        130,800        67,423        2,275,403   

Senior VP, Stores

    2011        423,594        234,908        704,749        258,000        37,997        58,189        1,717,437   

 

(a)   Represents the aggregate grant date fair value of the awards made in each fiscal year as computed in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 718. These amounts do not correspond to the actual value that may be realized by each named executive officer. Additional information regarding outstanding awards, including corresponding exercise prices and expiration dates, can be found in the “Outstanding Equity Awards at Fiscal 2012 Year End” table on page 32. The assumptions used in determining the grant date fair values of the stock and option awards are set forth in Note 12(C) to our consolidated financial statements, which are included in our Annual Report on Form 10-K for the fiscal year ended February 29, 2012.

(b)   Represents the annual incentive bonus earned under our Bonus Plan.

(c)   Represents the aggregate increase in the actuarial value of accumulated benefits under our Pension Plan and Benefit Restoration Plan accrued during the relevant fiscal year. The “Pension Benefits in Fiscal 2012” table, and its accompanying narrative on pages 34 and 35, contain additional details with respect to these amounts.

(d)   Further details are included in the “All Other Compensation in Fiscal 2012” table on page 30.

 

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Table of Contents

EXECUTIVE COMPENSATION CONTINUED

 

 

All Other Compensation in Fiscal 2012

 

Name  

Personal Use
of Company
Plane  (a)

($)

    Personal Use
of Company
Automobile  (b)
($)
    Automobile
Allowance  (c)
($)
   

Retirement
Savings Plan
Contribution  (d)

($)

   

Deferred
Compensation

Account
Contributions  (e)

($)

    Other  (f)
($)
    Total
($)
 

Thomas J. Folliard

    125,000        3,645        10,296        16,060        149,138        15,251        319,390   

Keith D. Browning

                  4,264        2,923               21,136        28,323   

Michael K. Dolan

    35,000        5,456        6,396        16,193        59,913        14,736        137,694   

Joseph S. Kunkel

    28,027        6,422        6,396        15,217        44,518        15,158        115,738   

Thomas W. Reedy

    n/a        6,323        6,396        16,194        30,097        14,000        73,010   

William C. Wood

    n/a               6,396        16,227        30,064        14,736        67,423   

 

 

 

(a)   The compensation associated with the personal use of the company plane is based on (a) the incremental cost of operating the plane and (b) additional costs, if any, specifically associated with a “personal use” flight. The incremental cost is calculated based upon the average variable costs of operating the plane. Variable costs include fuel, maintenance, travel expenses for the flight crews and other miscellaneous expenses. The total annual variable costs are divided by the total number of miles our plane flew in fiscal 2012 to determine an average variable cost per mile. The average variable cost per mile is multiplied by the miles flown for personal use to derive the incremental cost. This methodology excludes fixed costs that do not change based on usage, such as salaries and benefits for the flight crews, monthly service contracts, hangar rental fees, taxes, rent, depreciation and insurance. The costs associated with deadhead flights (i.e., flights that travel to a destination with no passengers as a result of an executive’s personal use) and incremental plane charters (i.e., plane charters, if any, that we pay for because our plane was not available for business use due to an executive’s personal use) are included in the incremental cost calculations for each executive. The IRS treats the personal use of the company plane as income to the executive and the related taxes are paid by the executive using applicable Standard Industry Fare Level rates.

(b)   The value of the personal use of a company automobile is determined based on the annual lease value method and excludes any expenses such as maintenance and insurance.

(c)   The monthly vehicle allowance for Mr. Folliard is $858 and for the other named executive officers is $533.

(d)   Includes the company matching portion of each executive’s Retirement Savings Plan (“RSP”) contributions. Also includes a company-funded contribution made regardless of an executive’s participation in the RSP, as well as an additional company-funded contribution to those executives who met certain age and service requirements as of December 31, 2008, the date that our Pension Plan was frozen. These RSP benefits are offered on the same terms to all CarMax associates.

(e)   Includes the company matching portion of each executive’s Retirement Restoration Plan (“RRP”) contributions. Also includes a company-funded contribution regardless of each executive’s participation in the RRP, as well as an additional company-funded contribution to those executives who met certain age and service requirements as of December 31, 2008, the date that our Pension Plan was frozen. These RRP benefits are offered on the same terms to all CarMax associates whose salary exceeds the IRS 401(k) annual limitations. Also includes a restorative contribution designed to compensate executives for any loss of company contributions under the RSP and RRP due to a reduction in the RSP and RRP eligible compensation resulting from deferrals into the Executive Deferred Compensation Plan.

(f)   Represents the total amount of other benefits provided, none of which individually exceeded the greater of $25,000 or 10% of the total amount of these benefits, for the named executive officer including as applicable: (i) tax and financial planning services and (ii) certain travel expenses.

 

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Table of Contents

Grants of Plan-Based Awards in Fiscal 2012

 

The following table includes certain information with respect to grants of plan-based awards during fiscal 2012 to each of our named executive officers.

 

Name   Approval
Date
     Grant
Date
    Estimated Possible
Payouts Under
Non-Equity Incentive Plan
Awards (a)
    All
Other
Stock
Awards:
Number
of
Shares
of Stock
or
Units   (b)
(#)
    All Other
Option
Awards:
Number of
Securities
Underlying
Options (c)
(#)
    Exercise
or Base
Price of
Option
Awards  (d)
($/Sh)
    Grant
Date
Closing
Price
($/Sh)
    Grant
Date Fair
Value of
Stock
and
Option
Awards  (e)
($)
 
       Thres-
hold
($)
    Target
($)
    Maximum
($)
           

 

 

Thomas J. Folliard

         260,000        1,040,000        1,560,000             
    3/25/11         4/5/11              20,972              955,904   
      3/25/11         4/5/11                                        209,951        32.69        32.62        2,905,722   

Keith D. Browning

         96,358        385,433        578,150             
    3/25/11         4/5/11              9,456              431,004   
      3/25/11         4/5/11                                        94,669        32.69        32.62        1,310,219   

Michael K. Dolan

         94,233        376,934        565,401             
    3/25/11         4/5/11              9,456              431,004   
      3/25/11         4/5/11                                        94,669        32.69        32.62        1,310,219   

Joseph S. Kunkel

         59,157        236,629        354,944             
    3/25/11         4/5/11              6,482              295,450   
      3/25/11         4/5/11                                        64,894        32.69        32.62        898,133   

Thomas. W. Reedy

         50,000        200,000        300,000             
    3/25/11         4/5/11              6,482              295,450   
    3/25/11         4/5/11                64,894        32.69        32.62        898,133   
    10/17/11         12/27/11              1,539              62,499   
      10/17/11         12/27/11                                        14,952        30.24        30.20        187,498   

William C. Wood

         50,000        200,000        300,000             
    3/25/11         4/5/11              6,482              295,450   
    3/25/11         4/5/11                64,894        32.69        32.62        898,133   
    10/17/11         12/27/11              1,539              62,499   
      10/17/11         12/27/11                                        14,952        30.24        30.20        187,498   

 

(a)   Represents threshold, target and maximum payout levels under our Bonus Plan for fiscal 2012 performance. The actual amount of incentive bonus awards earned by each named executive officer in fiscal 2012 is reported under the “Non-Equity Incentive Plan Compensation” column in the “Summary Compensation Table” on page 29. Additional information regarding the design of our Bonus Plan is included in the Compensation Discussion and Analysis beginning on page 19.

(b)   Represents stock-settled restricted stock units, which we refer to as “market stock units” or “MSUs.” At the end of the three-year vesting period, each MSU will be converted into between zero and two shares of CarMax common stock. The conversion ratio is calculated by dividing the average closing price of our stock during the final 40 trading days of the three-year 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.

(c)   Each option grant vests in 25% increments annually over four years and expires on the seventh anniversary of the grant date. Limited SARs were granted in tandem with each of the option awards set forth above. The SARs may only be exercised in the event of a change-in-control of the company. Upon the exercise of the SAR and the surrender of the related option, the officer is entitled to receive an amount equal to the difference between the value of our common stock on the date of exercise and the exercise price of the underlying stock option. No free-standing SARs have been granted.

(d)   All fiscal 2012 stock options were issued with an exercise price equal to the volume-weighted average price of our common stock on the grant date.

(e)   Represents the grant date fair value of the award as determined in accordance with FASB ASC Topic 718.

 

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EXECUTIVE COMPENSATION CONTINUED

 

 

Outstanding Equity Awards at Fiscal 2012 Year End

 

The following table includes information with respect to outstanding equity awards previously granted to our named executive officers as of February 29, 2012.

 

      Option Awards (a)     Stock Awards (b)
Name   Grant
Date
   

Number of
Securities
Underlying
Unexercised
Options

(#)
Exercisable

   

Number of
Securities
Underlying
Unexercised
Options

(#)
Unexercisable

    Option
Exercise
Price
($/Sh)
   

Option

Expiration

Date

   

Number
of
Shares
or Units
of Stock
That
Have
Not
Vested

(#)

   

Market
Value of
Shares or
Units of
Stock
That
Have
Not
Vested

($)

   

Equity
Incentive
Plan
Awards:
Number
of
Unearned
Shares,
Units or
Other
Rights
That
Have
Not Yet
Vested

(#)

 

Equity
Incentive
Plan
Awards:
Market or
Payout
Value of
Unearned
Shares,
Units or
Other
Rights
That
Have
Not Yet
Vested

($)

Thomas J. Folliard

    4/1/2004        120,000               14.80        4/1/14           
      6/24/2005        120,000               13.19        6/24/15           
      4/3/2007        220,000               24.99        4/3/14           
      4/7/2008        206,250        68,750        19.82        4/7/15           
      4/7/2009        179,675        179,674        11.43        4/7/16           
      4/7/2009                32,211        1,977,111       
      4/6/2010        52,488        157,463        25.39        4/6/17           
      4/6/2010                20,972        777,984       
      4/5/2011               209,951        32.69        4/5/18           
      4/5/2011                                        20,972        604,253           

Keith D. Browning

    4/3/2007        104,000               24.99        4/3/14           
      4/7/2008        124,000               19.82        4/7/15           
      4/7/2009        162,034               11.43        4/7/16           
      4/6/2010        94,669               25.39        4/6/17           
      4/5/2011        94,669               32.69        4/5/18                           

Michael K. Dolan

    4/1/2004        50,000               14.80        4/1/14           
      5/1/2006        50,000               17.20        5/1/13           
      4/3/2007        100,000               24.99        4/3/14           
      4/7/2008        93,000        31,000        19.82        4/7/15           
      4/7/2009        40,509        81,016        11.43        4/7/16           
      4/7/2009                14,524        891,483       
      4/6/2010        23,668        71,001        25.39        4/6/17           
      4/6/2010                9,456        350,783       
      4/5/2011               94,669        32.69        4/5/18           
      4/5/2011                                        9,456        272,450           

Joseph S. Kunkel

    4/1/2004        50,000               14.80        4/1/14           
      6/24/2005        100,000               13.19        6/24/15           
      5/1/2006        100,000               17.20        5/1/13           
      4/3/2007        74,000               24.99        4/3/14           
      4/7/2008        63,750        21,250        19.82        4/7/15           
      4/7/2009        55,536        55,536        11.43        4/7/16           
      4/7/2009                9,956        611,099       
      4/6/2010        16,224        48,670        25.39        4/6/17           
      4/6/2010                6,482        240,458       
      4/5/2011               64,894        32.69        4/5/18           
      4/5/2011                                        6,482        186,762           

 

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Table of Contents
      Option Awards (a)     Stock Awards (b)
Name   Grant
Date
   

Number of
Securities
Underlying
Unexercised
Options

(#)
Exercisable

   

Number of
Securities
Underlying
Unexercised
Options

(#)
Unexercisable

    Option
Exercise
Price
($/Sh)
   

Option

Expiration

Date

   

Number
of
Shares
or Units
of Stock
That
Have
Not
Vested

(#)

    Market
Value
of
Shares
or
Units
of
Stock
That
Have
Not
Vested
($)
   

Equity
Incentive
Plan
Awards:
Number
of
Unearned
Shares,
Units or
Other
Rights
That
Have
Not Yet
Vested

(#)

 

Equity
Incentive
Plan
Awards:
Market or
Payout
Value of
Unearned
Shares,
Units or
Other
Rights
That
Have
Not Yet
Vested

($)

Thomas W. Reedy

    4/1/2004        30,000               14.80        4/1/14           
      6/24/2005        30,000               13.19        6/24/15           
      5/1/2006        40,000               17.20        5/1/13           
      4/3/2007        30,800               24.99        4/3/14           
      4/7/2008        28,500        9,500        19.82        4/7/15           
      4/7/2009        12,414        24,828        11.43        4/7/16           
      4/7/2009                4,451        273,202       
      4/6/2010        16,224        48,670        25.39        4/6/17           
      4/6/2010                6,482        240,458       
      12/27/2010        3,439        10,317        32.05        12/27/17           
      12/27/2010                1,379        40,526       
      4/5/2011               64,894        32.69        4/5/18           
      4/5/2011                6,482        186,762       
      12/27/2011               14,952        30.24        12/27/18           
      12/27/2011                                        1,539        47,935           

William C. Wood

    4/1/2004        40,000               14.80        4/1/14           
      6/24/2005        40,000               13.19        6/24/15           
      4/3/2007        30,800               24.99        4/3/14           
      4/7/2008        36,000        12,000        19.82        4/7/15           
      4/7/2009        24,828        24,828        11.43        4/7/16           
      4/7/2009                4,451        273,202       
      4/6/2010        16,224        48,670        25.39        4/6/17           
      4/6/2010                6,482        240,458       
      4/5/2011               64,894        32.69        4/5/18           
      4/5/2011                6,482        186,762       
      12/27/2011               14,952        30.24        12/27/18           
      12/27/2011                                        1,539        47,935           

 

(a)   All option awards set forth in the table vest in 25% increments annually over a four-year period. Limited SARs were granted in tandem with each option award. The SARs may be exercised only in the event of a change-in-control of the company. Upon the exercise of the SAR and the surrender of the related option, the officer is entitled to receive an amount equal to the difference between the value of our common stock on the date of exercise and the exercise price of the underlying stock option.

(b)   All stock awards set forth in the table vest on the third anniversary of the grant date. These stock awards are stock-settled restricted stock units, which we refer to as “market stock units” or “MSUs.” At the end of the three-year vesting period, each MSU will be converted into between zero and two shares of CarMax common stock. The conversion ratio is calculated by dividing the average closing price of our stock during the final 40 trading days of the three-year 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. For purposes of calculating the market value of the unvested MSUs in the table above, we assumed that the average closing price of our stock during the final 40 trading days of the three-year period was equal to the closing price of our stock on February 29, 2012, the last trading day of our fiscal year (which was $30.69).

 

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Table of Contents

EXECUTIVE COMPENSATION CONTINUED

 

 

Option Exercises and Stock Vested in Fiscal 2012

 

The following table includes information with respect to the options exercised by and the MSUs vested in the named executive officers during fiscal 2012.

 

       Option Awards      Stock Awards  
Name   

Number of Shares

Acquired on Exercise  (a)

(#)

    

Value Realized on

Exercise (b)

($)

    

Number of Shares

Acquired on Vesting

(#)

   

Value Realized on

Vesting

($)

 

Thomas J. Folliard

     165,000         2,678,350                  

Keith D. Browning

                     33,436  (c)       1,336,742   

Michael K. Dolan

                              

Joseph S. Kunkel

     50,000         902,661                  

Thomas W. Reedy

                              

William C. Wood

     40,000         524,000                  

 

(a)   Amounts represent the number of shares of common stock underlying stock options exercised during fiscal 2012.

(b)   Amounts were calculated by determining the difference between (i) the closing price of the company’s common stock on the exercise date and (ii) the exercise price of the stock options.

(c)   As a result of his retirement on October 18, 2011, all of Mr. Browning’s unvested MSUs vested. The valuation of those awards, based upon the closing price of CarMax stock on October 18, 2011 (which was $28.07), is provided in the table. However, in accordance with the terms of each MSU award agreement, each MSU award will not be settled and paid until the third anniversary of their respective grant dates.

 

Pension Benefits in Fiscal 2012

 

The following table presents information with respect to the accumulated benefits, credited service and benefit payments for each named executive officer under our Pension Plan and Benefit Restoration Plan for fiscal 2012.

 

Name    Plan Name   

Number of
Years
Credited Service

(#)

    

Present Value of
Accumulated
Benefit (a)

($)

    

Payments
During Last
Fiscal Year

($)

 

Thomas J. Folliard

   Pension Plan      16         229,347           
     Benefit Restoration Plan      16         1,069,563           

Keith D. Browning

   Pension Plan      27         714,388         16,803   
     Benefit Restoration Plan      27         2,379,904         28,747   

Michael K. Dolan

   Pension Plan      12         378,712           
     Benefit Restoration Plan      12         985,387           

Joseph S. Kunkel

   Pension Plan      11         177,836           
     Benefit Restoration Plan      11         439,175           

Thomas W. Reedy

   Pension Plan      6         89,280           
     Benefit Restoration Plan      6         111,718           

William C. Wood

   Pension Plan      19         254,420           
     Benefit Restoration Plan      19         203,597           

 

(a)   Determined assuming retirement at age 65. The discount rate (4.75%) and mortality assumptions utilized in calculating the present value of the accumulated benefit shown above were consistent with those used for our financial reporting purposes. Additional information regarding our assumptions is set forth in Note 10 to our consolidated financial statements, which are included in our Annual Report on Form 10-K for the fiscal year ended February 29, 2012.

 

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Pension Plan

This is a tax-qualified defined benefit plan that was generally available to all full-time associates after age 21 and upon completion of one year of service. Effective December 31, 2008, the company froze the Pension Plan; no additional benefits will accrue under the Pension Plan after that date.

 

Previously accrued benefits are determined under a formula that defines an annual annuity amount payable at termination or retirement. The benefit formula is the sum of (1) 0.85% times highest average earnings times years of service up to 35 years plus (2) 0.65% times the excess of highest average earnings over Social Security Covered Compensation times years of service up to 35 years. Earnings are defined as total earnings including base pay, bonuses, overtime pay and commissions, but may not exceed the applicable IRS limits for any year. In the final year of benefit accruals, the annual IRS compensation limit was $230,000. Highest average earnings are based on the highest five consecutive calendar years of earnings during the ten consecutive years before termination or December 31, 2008, if earlier. All participants are vested after five years of service. Benefits are payable at age 65 as a lifetime annuity or actuarially equivalent optional annuity. Actuarially reduced benefits are available to participants retiring after age 55 with at least ten years of service, or after age 62 with at least seven years of service.

 

Benefit Restoration Plan

The purpose of this nonqualified plan was to provide an alternate means of paying benefits intended under the Pension Plan that were restricted by law due to IRS limitations. Effective December 31, 2008, the company froze the Benefit Restoration Plan; no additional benefits will accrue under the Benefit Restoration Plan after that date. Benefits are generally determined and payable under the same terms and conditions as the Pension Plan without regard to IRS limitations on amounts of includable earnings and maximum benefits. Benefits paid are reduced by benefits payable under the Pension Plan. To be eligible to receive benefits under the Benefit Restoration Plan, participants must, upon termination, meet the early retirement or normal retirement requirements of our Pension Plan.

 

Early Retirement Benefits

As of February 29, 2012, Mr. Dolan was eligible to retire with actuarially reduced benefits from the Pension Plan and the Benefit Restoration Plan because he is over age 55 and has at least ten years of service, and therefore has met the requirements for early retirement under our Pension Plan. Mr. Browning retired in October 2011.

 

Extra Years of Credited Service

None of our named executive officers have been granted extra years of service under either the Pension Plan or the Benefit Restoration Plan.

 

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EXECUTIVE COMPENSATION CONTINUED

 

 

Nonqualified Deferred Compensation

 

The following table presents information with respect to fiscal 2012 contributions to each named executive officer’s Retirement Restoration Plan (“RRP”) and Executive Deferred Compensation Plan (“EDCP”) accounts, as well as the aggregate earnings, withdrawals/distributions and balances for each account.

 

Name    Plan
Name
  

Executive
Contributions
in Last Fiscal
Year (a)

($)

    

Registrant
Contributions
in Last Fiscal
Year (b)

($)

    

Aggregate
Earnings
in Last
Fiscal
Year (c)

($)

   

Aggregate
Withdrawals/

Distributions

($)

    

Aggregate
Balance
at Last
Fiscal
Year

End (d)
($)

 

Thomas J. Folliard

   RRP      114,721         149,138         26,168                416,899   
   EDCP                                       

Keith D. Browning

   RRP                      2,810                66,048   
   EDCP                                       

Michael K. Dolan

   RRP      23,251         30,227         11,861                204,702   
   EDCP      452,106         29,686         (3,507             486,030   

Joseph S. Kunkel

   RRP      34,245         44,518         7,886                229,354   
   EDCP                                       

Thomas W. Reedy

   RRP      23,152         30,097         3,140                80,260   
   EDCP                                       

William C. Wood

   RRP      22,057         28,674         7,016                123,526   
     EDCP      20,578         1,390         513                23,860   

 

(a)   These amounts represent payroll deductions for the applicable executive and are therefore included in the “Salary” and “Non-Equity Incentive Plan Compensation” columns of the “Summary Compensation Table” on page 29.

(b)   Company contributions are included in the “All Other Compensation” column of the “Summary Compensation Table” on page 29 and were credited to each executive’s account after the close of the fiscal year.

(c)   The company does not pay above-market interest or preferential dividends on investments in the Retirement Restoration Plan or the Executive Deferred Compensation Plan. Earnings are calculated in accordance with the performance of the mutual fund or funds selected by each executive.

(d)   For each of Messrs. Folliard, Browning, Dolan, Kunkel, Reedy and Wood, the following amounts were reported as compensation to each person in the “Summary Compensation Table” in prior fiscal years, respectively: $122,477; $60,992; $143,237; $124,474; $17,009; and $48,665.

 

Retirement Savings Plan and Retirement Restoration Plan

We provide our executives with the opportunity to participate in two retirement plans: our 401(k) Plan and our Retirement Restoration Plan.

 

Our 401(k) Plan, which we refer to as our “Retirement Savings Plan,” is a tax-qualified, broad-based retirement savings plan available to all full- and part-time associates. Associate contributions in a specified percentage of cash compensation are permitted subject to dollar limits established annually by the IRS. After one year of service, we match a portion of those contributions. We also provide a company-funded contribution regardless of associate participation, as well as an additional company-funded contribution to those associates meeting certain age and service requirements. Contributions to the Retirement Savings Plan may be invested at the employee’s direction in a variety of mutual funds. Each named executive officer’s participation in our Retirement Savings Plan is limited by the applicable IRS rules.

 

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The Retirement Restoration Plan is a nonqualified deferred compensation plan that supplements our Retirement Savings Plan and allows eligible associates, namely those individuals whose benefits under the Retirement Savings Plan are limited due to the compensation limits imposed by the Internal Revenue Code ($250,000 for 2012), to continue to defer portions of their compensation for retirement savings. The matching and company-funded contributions associated with the Retirement Restoration Plan are provided on the same terms as the Retirement Savings Plan. Retirement Restoration Plan accounts are paid in a single lump sum payment at separation from service, subject to the requirements of Section 409A of the Internal Revenue Code.

 

Executive Deferred Compensation Plan

In fiscal 2011, we established an additional nonqualified deferred compensation plan, the Executive Deferred Compensation Plan, to permit eligible associates to elect to defer receipt of a portion of their base salary and/or bonus to a future date. We do not match funds deferred through this plan. The plan merely provides a mechanism for eligible associates to defer income and related investment gains until the compensation is actually received at the chosen later date. We do, however, provide a restorative contribution designed to compensate associates for any loss of company contributions under the Retirement Savings Plan and Retirement Restoration Plan due to a reduction in the Retirement Savings Plan and Retirement Restoration Plan eligible compensation resulting from deferrals into the Executive Deferred Compensation Plan. Executive Deferred Compensation Plan accounts are paid based upon a participant’s election at the time of the deferral, subject to the requirements of Section 409A of the Internal Revenue Code. In fiscal 2012, Messrs. Dolan and Wood participated in the Executive Deferred Compensation Plan.

 

All Retirement Restoration Plan and Executive Deferred Compensation Plan accounts are considered unfunded general contractual obligations and are subject to the claims of our general, unsecured creditors.

 

Potential Payments Upon Termination or Change-in-Control

 

General

As discussed on pages 27 and 28, we have entered into employment or severance agreements with each of our named executive officers. Each agreement provides for payments and other benefits upon the occurrence of certain termination events, such as retirement, death or disability and termination of employment by the company without cause and termination by the executive officer for good reason.

 

Each agreement also provides for payments and benefits following the termination of employment in connection with a change-in-control or an asset sale. Each agreement defines a change-in-control as the acquisition by a third party of beneficial ownership of 20% or more of the voting power of our securities or, in connection with a tender or exchange offer, merger or other business transaction, the directors serving immediately prior to the transaction no longer constitute a majority of the board of directors following the transaction. The change-in-control provisions also cover an asset sale.

In connection with any of the termination events, our payment obligation under each agreement is contingent upon the named executive officer satisfying the following obligations:

 

   

During his employment and for two years following his termination, the named executive officer must comply with the provisions of the covenant not to compete.

 

   

During his employment and for the two years following his termination, the named executive officer may not solicit or induce our employees to leave us or hire any of our employees.

 

   

During his employment and at all times subsequent to his last day of his employment, the named executive officer must hold in strict confidence and safeguard any and all protected information, including information, data and trade secrets about us and our suppliers.

 

   

The named executive officer must execute an agreement and general release, under which the named executive officer releases us from any claims and returns our property.

 

   

The named executive officer must comply with Section 409A of the Internal Revenue Code of 1986, as amended.

 

 

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EXECUTIVE COMPENSATION CONTINUED

 

 

The tables in this section and their accompanying footnotes:

 

   

Describe and quantify the estimated payments and benefits that would be provided to each named executive officer as a result of the occurrence of each specified termination event and the method and duration of the relevant payments and benefits ( i.e. , lump sum, monthly or annual payments).

 

   

Describe and explain how the payment and benefit levels are determined for each specified termination event.

 

   

Do not include amounts payable to each named executive officer under our Pension Plan, Benefit Restoration Plan, Retirement Restoration Plan and Executive Deferred Compensation Plan, the details of which can be found in the sections titled “Pension Benefits in Fiscal 2012” on page 34 and “Nonqualified Deferred Compensation” on page 36. None of the termination events result in the enhancement of payments to be made under these plans.

 

In all instances, payments owed to the named executive officer would be made by us. For purposes of quantifying payments in the table below, we assumed that each termination event occurred on February 29, 2012, and we used a common stock value of $30.69 per share, which was the closing market price on February 29, 2012, which was the last trading day of the fiscal year.

 

Termination Due to Retirement, Death or Disability

Each agreement provides for the termination of employment due to retirement, death or disability. Each agreement also provides for these termination events in connection with a change-in-control or an asset sale. Each of these termination events is described below and the payments associated with each event are quantified in the table that follows:

 

   

Early Retirement . Termination due to early retirement occurs when a named executive officer voluntarily terminates his employment at a time when he is eligible for “early retirement” as this term is defined in our Pension Plan (generally, a named executive officer is eligible for “early retirement” after age 55 with at least ten years of service, or after age 62 with at least seven years of service). The effective date of termination is the date set forth in a notice from the named executive officer to us, which must be given at least 90 days prior to the effective date of termination.

   

Normal Retirement . Termination due to normal retirement occurs when a named executive officer voluntarily terminates his employment at a time when he is eligible for “normal retirement” as this term is defined in our Pension Plan (generally, a named executive officer is eligible for “normal retirement” after age 65 with at least five years of service). The effective date of termination is the date set forth in a notice from the named executive officer to us, which must be given at least 90 days prior to the effective date of termination.

 

   

Death . The effective date of termination is the date of death.

 

   

Disability . Termination due to disability occurs when we provide notice to the named executive officer that we have decided to terminate him because he has a physical or mental illness or injury that causes him:

 

   

To be considered “disabled” for the purpose of eligibility to receive income-replacement benefits in accordance with our long-term disability plan if he is a participant, or

 

   

If he does not participate in this plan, to be unable to substantially perform the duties of his position for a total of 180 days during any period of 12 consecutive months and a physician selected by us (and reasonably acceptable to the named executive officer) has furnished to us a certification that the return of the named executive officer to his normal duties is impossible or improbable.

 

The effective date of termination is the date set forth in a notice from us to the named executive officer, which must be given to the named executive officer at least 30 days prior to the effective date of termination.

 

   

Death, Disability or Retirement following a Change-in-Control . A “change-in-control death, disability or retirement” termination occurs when a termination event under the death, disability or retirement provisions explained above occurs during the two years following a change-in-control or an asset sale.

 

 

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Relevant Payments Triggered Upon

the Occurrence of the Termination

Event

 
Termination Event   

Pro Rata
Actual
Bonus  (a)

($)

    

Pro Rata
Target
Bonus  (b)

($)

    

Equity
Awards  (c)

($)

    

Financial
Services  (d)

($)

    

Total

($)

 

Early and Normal Retirement  (e)

              

Michael K. Dolan

     325,671         n/a         3,788,359         14,280         4,128,310   

Keith D. Browning (f )

     211,669         n/a         3,130,881         14,280         3,356,830   

Death and Disability and Change-in- Control Death, Disability or Retirement

              

Thomas J. Folliard

     n/a         1,040,000         8,401,736         14,280         9,456,016   

Michael K. Dolan

     n/a         376,934         3,788,359         14,280         4,179,573   

Joseph S. Kunkel

     n/a         236,629         2,596,881         14,280         2,847,790   

Thomas W. Reedy

     n/a         200,000         1,635,015         14,280         1,849,295   

William C. Wood

     n/a         200,000         1,621,664         14,280         1,835,944   

 

(a)    The Pro Rata Actual Bonus is the pro rata share of the named executive officer’s annual bonus based on actual performance for the fiscal year in which the date of termination occurs. The Pro Rata Actual Bonus will be paid to the named executive officer in a lump sum when annual bonuses are paid to other senior officers for the relevant fiscal year. Because the termination event is assumed to occur on February 29, 2012, our fiscal year end, the Pro Rata Actual Bonus is equal to the named executive officer’s actual bonus for fiscal 2012.

(b)    The Pro Rata Target Bonus is the pro rata share of the named executive officer’s annual bonus at his target bonus rate for the fiscal year in which the date of termination occurs. The Pro Rata Target Bonus will be paid to the named executive officer in a lump sum within ten days after the date of termination. Because the termination event is assumed to occur on February 29, 2012, our fiscal year end, the Pro Rata Target Bonus is equal to the named executive officer’s Target Bonus amount.

(c)   Equity awards made to the named executive officer during the course of his employment will, following certain termination events, vest and become exercisable in accordance with the terms and conditions of the Stock Incentive Plan and the individual award agreements for each award. For additional information regarding each named executive officer’s outstanding equity awards, see the “Outstanding Equity Awards at Fiscal 2012 Year End” table on page 32. The value of the vested but unexercised portion of each option has not been included in these amounts because their receipt is not affected or accelerated by these termination events.

(d)    We provide our tax and financial planning benefit to our named executive officers for the one-year period following retirement, termination without cause (including death, disability or a termination for good reason) and a change-in-control. The annual cost of this service is $14,280.

(e)    Messrs. Folliard, Kunkel, Reedy and Wood are not currently eligible for early or normal retirement.

(f)   Mr. Browning retired in October 2011. For his partial-year fiscal 2012 service, he will be paid a pro-rata actual bonus when annual bonuses are paid to other senior officers in May 2012. As a result of his retirement on October 18, 2011, all of Mr. Browning’s then-outstanding and unvested equity awards vested. The valuation of those awards, based upon the closing price of CarMax stock on October 18, 2011 (which was $28.07), is provided in the table.

 

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EXECUTIVE COMPENSATION CONTINUED

 

 

Termination With and Without Cause/With and Without Good Reason

Each employment and severance agreement provides for the termination of employment by us with and without cause and termination by the executive officer with and without good reason. Each agreement also provides for these termination events in connection with a change-in-control or an asset sale. Each of these termination events is described below and the payments associated with each event are quantified in the table that follows:

 

   

Cause . Termination by us with cause occurs, and is effective, when we decide to terminate the named executive officer based upon our good faith determination that one of the “Cause” triggering events, as described below, has occurred. We will not owe any payments to a named executive officer as a result of the occurrence of a termination with cause.

 

   

The named executive officer has materially breached the agreement and the breach is not cured by the officer or waived by us.

 

   

In the performance of his duties, the named executive officer has committed an act of gross negligence or intentional misconduct or he has intentionally failed to perform his duties or comply with the directives of the board of directors.

 

   

The named executive officer has willfully and continuously failed to perform substantially his duties after written demand by us.

 

   

The named executive officer has willfully violated a material requirement of our code of business conduct or breached his fiduciary duty to us.

 

   

The named executive officer has been convicted of a felony or any crime involving moral turpitude, dishonesty, fraud, theft or financial impropriety.

 

   

The named executive officer has engaged in illegal conduct, embezzlement or fraud with respect to our business.

 

   

The named executive officer has failed to disclose a conflict of interest of which he knew or should have known in connection with any transaction entered into on our behalf.

 

   

The named executive officer has failed to agree to certain modifications to his employment or severance agreement necessary to comply with applicable laws or to define further the restrictive covenants.

 

   

Without Cause . Termination by us without cause occurs when we terminate the named executive officer’s employment for any reason other than for cause, as described above, or for disability. The effective date of termination is the date of the notice from us to the named executive officer.

 

   

Good Reason . Termination by the named executive officer for good reason occurs when a named executive officer terminates his employment with us for one of the following events, which we do not cure:

 

   

A reduction in the named executive officer’s base salary (which was not part of an across-the-board reduction) or target bonus rate.

 

   

A material reduction in the named executive officer’s duties or authority.

 

   

A required relocation to a new principal place of employment more than 35 miles from our home office, excluding a relocation of our home office.

 

   

For Mr. Folliard, a failure by the shareholders to elect or reelect him to our board of directors.

 

   

Our failure to obtain an agreement from any successor to substantially all of our assets or our business to assume and agree to perform the employment or severance agreement within 15 days after a merger, consolidation, sale or similar transaction.

 

The effective date of termination is the date set forth in a notice from the named executive officer to us, which notice must be given to us at least 45 days prior to the effective date of termination.

 

   

Without Good Reason . Termination by the named executive officer without good reason occurs when the named executive officer terminates his employment for any reason other than good reason, as described above. The effective date of termination

 

 

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is the date set forth in a notice from the named executive officer to us, which notice must be given to us at least 45 days prior to the effective date of termination. We will not owe any payments to a named executive officer as a result of the occurrence of a termination without good reason.

 

   

Cause following a Change-in-Control . A “change-in-control cause” termination occurs when we terminate the named executive officer’s employment for cause during the two years following a change-in-control of the company or an asset sale.

 

   

Without Cause following a Change-in-Control . A “change-in-control without cause” termination occurs when we terminate the named executive officer’s employment for any reason other than for cause or due to disability during the two years following a change-in-control or an asset sale.

   

Good Reason following a Change-in-Control . A “change-in-control good reason” termination occurs when a termination by the named executive officer for good reason occurs during the two years following a change-in-control or an asset sale.

 

   

Without Good Reason following a Change-in-Control . A “change-in-control without good reason” termination occurs when a termination by the named executive officer without good reason occurs during the two years following a change-in-control or an asset sale.

 

 

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EXECUTIVE COMPENSATION CONTINUED

 

 

      Relevant Payments Triggered Upon the Occurrence of the Termination Event  
Termination Event  

Pro Rata

Actual

Bonus  (a)
($)

   

Pro Rata

Target

Bonus  (b)

($)

   

Good

Reason

Payment  (c)

($)

   

Equity

Awards  (d)

($)

   

Severance

Payment  (e)

($)

   

Partial

COBRA

reimburse-

ment  (f)

($)

   

Out-

Placement
and
Financial

Services  (g)
($)

   

Change-

In-Control

Payment  (h)

($)

   

Total

($)

 

Without Cause

                 

Thomas J. Folliard

    898,560        n/a        n/a        8,401,736        5,095,000        11,919        64,280        n/a        14,471,495   

Michael K. Dolan

    325,671        n/a        n/a        3,788,359        2,349,008        7,937        39,280        n/a        6,510,255   

Joseph S. Kunkel

    204,448        n/a        n/a        2,596,881        1,869,028        11,919        39,280        n/a        4,721,556   

Thomas W. Reedy

    172,800        n/a        n/a        1,635,015        1,516,000        11,919        39,280        n/a        3,375,014   

William C. Wood

    172,800        n/a        n/a        1,621,664        1,516,000        11,919        39,280        n/a        3,361,663   

Good Reason

                 

Thomas J. Folliard

    n/a        n/a        1,040,000        8,401,736        5,095,000        11,919        64,280        n/a        14,612,935   

Michael K. Dolan

    n/a        n/a        376,934        3,788,359        2,349,008        7,937        39,280        n/a        6,561,518   

Joseph S. Kunkel

    n/a        n/a        236,629        2,596,881        1,869,028        11,919        39,280        n/a        4,753,737   

Thomas W. Reedy

    n/a        n/a        200,000        1,635,015        1,516,000        11,919        39,280        n/a        3,402,214   

William C. Wood

    n/a        n/a        200,000        1,621,664        1,516,000        11,919        39,280        n/a        3,388,863   

Change-in-Control Cause, and Change-in-Control Without Good Reason

                 

Thomas J. Folliard

    n/a        n/a        n/a        4,200,868        n/a        n/a        n/a        n/a        4,200,868   

Michael K. Dolan

    n/a        n/a        n/a        1,894,180        n/a        n/a        n/a        n/a        1,894,180   

Joseph S. Kunkel

    n/a        n/a        n/a        1,298,441        n/a        n/a        n/a        n/a        1,298,441   

Thomas W. Reedy

    n/a        n/a        n/a        817,507        n/a        n/a        n/a        n/a        817,507   

William C. Wood

    n/a        n/a        n/a        810,832        n/a        n/a        n/a        n/a        810,832   

Change-in-Control Without Cause, and Change-in-Control Good Reason

                 

Thomas J. Folliard

    n/a        1,040,000        n/a        8,401,736        n/a        11,919        64,280        7,617,025        17,134,960   

Michael K. Dolan

    n/a        376,934        n/a        3,788,359        n/a        7,937        39,280        3,511,767        7,724,277   

Joseph S. Kunkel

    n/a        236,629        n/a        2,596,881        n/a        11,919        39,280        2,794,197        5,678,906   

Thomas W. Reedy

    n/a        200,000        n/a        1,635,015        n/a        11,919        39,280        2,266,420        4,152,634   

William C. Wood

    n/a        200,000        n/a        1,621,664        n/a        11,919        39,280        2,266,420        4,139,283   

 

(a)   The Pro Rata Actual Bonus is the pro rata share of the named executive officer’s annual bonus based on actual performance for the fiscal year in which the date of termination occurs. The Pro Rata Actual Bonus will be paid to the named executive officer in a lump sum when annual bonuses are paid to other senior officers for the relevant fiscal year. Because the termination event is assumed to occur on February 29, 2012, our fiscal year end, the Pro Rata Actual Bonus is equal to the named executive officer’s actual bonus for fiscal 2012.

(b)   The Pro Rata Target Bonus is the pro rata share of the named executive officer’s annual bonus at his target bonus rate for the fiscal year in which the date of termination occurs. The Pro Rata Target Bonus will be paid to the named executive officer in a lump sum within ten days after the date of termination. Because the termination event is assumed to occur on February 29, 2012, our fiscal year end, the Pro Rata Target Bonus is equal to the named executive officer’s Target Bonus amount.

(c)   The Good Reason Payment is a one-time payment made to the named executive officer following his termination for Good Reason, and is equal to the named executive officer’s base salary multiplied by a certain percentage, which percentage is generally the same as his target bonus percentage. The Good Reason Payment shall be paid in a lump sum cash payment within ten days after the date of termination or as soon thereafter as may be practicable.

 

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(d)   Equity awards made to the named executive officer during the course of his employment shall, following certain termination events, vest and become exercisable in accordance with the terms and conditions of the Stock Incentive Plan and the individual award agreements for each award. For additional information regarding each named executive officer’s outstanding equity awards, see the “Outstanding Equity Awards at Fiscal 2012 Year End” table on page 32. The value of the vested but unexercised portion of each option has not been included in these amounts because their receipt is not affected or accelerated by these termination events. Fifty percent of the unvested options, and fifty percent of the unvested MSUs, immediately vest upon the occurrence of any change-in-control; the other fifty percent vest on the first anniversary of the change-in-control.

(e)   The Severance Payment is equal to two times the sum of the named executive officer’s base salary and the amount of his last annual bonus as determined by the committee. The Severance Payment will be paid in equal monthly installments over the 24-month period following the date of termination. At February 29, 2012, the last annual bonus as determined by the committee for each of the named executive officers was each officer’s fiscal 2011 bonus, which amounts are set forth in the “Summary Compensation Table” on page 29.

(f)   In the event that the named executive officer elects to continue coverage under our health, dental and/or vision plans following the date of termination pursuant to the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended (“COBRA”), the named executive officer will be responsible for remitting to us the appropriate COBRA premium to continue the coverage. We will reimburse the named executive officer for a portion of the COBRA premium equal to the sum of the amount that we would have otherwise paid for the coverage if he had remained an active employee, and the COBRA administration fee. This partial COBRA reimbursement will be paid in equal monthly installments for up to an 18-month period. For purposes of this column, we have assumed that each officer elected to continue his coverage for the full 18-month period.

(g)   Outplacement services are available to each named executive officer in an amount not to exceed $50,000 for Mr. Folliard and $25,000 for the other named executive officers. The table assumes that the maximum outplacement benefit is paid to each named executive officer. We also provide our tax and financial planning benefit to our named executive officers for the one-year period following retirement, termination without cause (including death, disability or a termination for good reason) and a change-in-control. The annual cost of this service is $14,280.

(h)   The change-in-control payment is equal to 2.99 times the named executive officer’s final compensation, which consists of the sum of the named executive officer’s base salary at the date of termination and the higher of the annual bonus paid or earned but not yet paid to the named executive officer for the two most recently completed fiscal years. At February 29, 2012, the higher annual bonus for each executive officer is his fiscal 2011 annual bonus. The change-in-control payment will be paid to the named executive officer in equal monthly installments over the 24-month period following the date of termination, unless the payment related to an Internal Revenue Code Section 409A change-in-control event, as that term is defined in each officer’s agreement, in which case the change-in-control payment will be paid in a lump sum cash payment on the forty-fifth day after the date of termination.

 

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COMPENSATION FOR NON-EMPLOYEE DIRECTORS

 

 

Non-employee director compensation includes both cash and equity components. Grants of stock and stock options to non-employee directors have been made pursuant to the 2002 Non-Employee Directors Stock Incentive Plan, as amended and restated. Directors who are employees of CarMax receive no compensation for services as members of the board of directors.

 

Non-Employee Director Cash Compensation

 

In fiscal 2012, the annual cash retainer for non-employee directors was $50,000. Non-employee directors also received $1,500 for each in-person, compensable board or committee meeting attended and $750 for each telephonic, compensable board or committee meeting attended. Our chairman of the board and the chairmen of our standing committees also received additional annual fees as follows: Board ($100,000), Audit Committee ($20,000), Compensation and Personnel Committee ($12,500) and Nominating and Governance Committee ($10,000). Members of our Audit Committee receive an additional annual fee of $5,000. We reimburse all directors for travel and other necessary business expenses incurred in the performance of their services to us and extend coverage to them under our health plans at the same rates at which coverage is extended to our employees. Non-employee directors may not use our plane for personal travel.

 

Non-Employee Director Equity Compensation

 

In June 2011, each non-employee director received CarMax common stock having a fair market value of approximately $50,000 on the grant date and stock options valued at approximately $50,000 on the grant date. The stock options were valued using the binomial pricing model and vest ratably over a three-year period.

 

Non-employee directors who are elected to the board at dates other than the annual meeting date generally receive the cash retainer, stock awards and option grants prorated for their period of service.

 

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Non-Employee Director Compensation in Fiscal 2012

 

The following table provides each element of non-employee director compensation for fiscal 2012.

 

Name   

Fees Earned

or Paid in

Cash ( a )

($)

    

Stock

Awards  ( b )

($)

    

Option

Awards  ( c )( d )

($)

    

All Other

Compensation  ( e )

($)

    

Total

($)

 

Ronald E. Blaylock

     62,750         49,996         50,006                 162,752   

Rakesh Gangwal

     73,000         49,996         50,006                 173,002   

Jeffrey E. Garten

     62,000         49,996         50,006         5,000         167,002   

Shira Goodman

     62,000         49,996         50,006         3,200         165,202   

W. Robert Grafton

     93,000         49,996         50,006                 193,002   

Edgar H. Grubb

     62,750         49,996         50,006                 162,752   

Mitchell D. Steenrod

     73,000         49,996         50,006         1,000         174,002   

Thomas G. Stemberg

     75,250         49,996         50,006         15,000         190,252   

Vivian M. Stephenson

     72,000         49,996         50,006         5,000         177,002   

Beth A. Stewart

     73,000         49,996         50,006         5,000         178,002   

William R. Tiefel

     156,000         49,996         50,006                 256,002   

 

 

 

(a)   Represents the cash compensation earned in fiscal 2012 for board, committee, and committee and board chairman service, as applicable.

(b)   Represents the aggregate grant date fair value of the stock awards made in fiscal 2012 as determined in accordance with FASB ASC Topic 718. In June 2011, we granted 1,510 shares of common stock to each non-employee director.

(c)  Represents the aggregate grant date fair value of the option awards made in fiscal 2012 as determined in accordance with FASB ASC Topic 718. These amounts do not correspond to the actual value that may be recognized by each director. The assumptions used in determining the grant date fair values of these option awards are set forth in Note 12(C) to our consolidated financial statements, which are included in our Annual Report on Form 10-K for the fiscal year ended February 29, 2012. In June 2011, we granted 3,621 stock options to each non-employee director.

(d)   The following table provides information on the aggregate option awards held by each of our non-employee directors as of February 29, 2012. The figures below include both vested and unvested options.

 

Name   

Outstanding Option Awards

(#)

 

Ronald E. Blaylock

     11,240   

Rakesh Gangwal

     3,621   

Jeffrey E. Garten

     53,802   

Shira Goodman

     27,947   

W. Robert Grafton

     45,796   

Edgar H. Grubb

     31,394   

Mitchell D. Steenrod

     3,621   

Thomas G. Stemberg

     45,796   

Vivian M. Stephenson

     38,198   

Beth A. Stewart

     45,796   

William R. Tiefel

     53,802   

 

(e)   Represents matching charitable gifts made by The CarMax Foundation as part of its matching gifts program (which is broadly available to all company associates).

 

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CARMAX SHARE OWNERSHIP

 

 

Share Ownership of Directors and Executive Officers

 

The following table includes information about our common stock beneficially owned as of February 29, 2012, by:

 

   

Our CEO and the other named executive officers, as set forth in the “Summary Compensation Table” on page 29.

 

   

Each director and/or nominee for director.

 

   

All of our directors and executive officers as a group.

 

Unless otherwise noted, each shareholder has sole voting power and investment power with respect to securities shown in the table below.

 

Named Executive Officers   

CarMax Shares