Under the terms of our Articles of Incorporation, the board of directors may determine the rights, preferences and terms of our authorized but unissued shares of preferred stock. We have authorized 20,000,000 shares of preferred stock, $20 par value. No shares of preferred stock are currently outstanding.

As of February 29, 2020, a total of $2 billion of board authorizations for repurchases of our common stock was outstanding, with no expiration date, of which $1.55 billion remained available for repurchase. Subsequent to the end of the fiscal year, our current stock repurchase program was suspended, although the repurchase authorization remains effective.

We maintain long-term incentive plans for management, certain employees and the nonemployee members of our board of directors. The plans allow for the granting of equity-based compensation awards, including nonqualified stock options, incentive stock options, stock appreciation rights, restricted stock awards, stock- and cash-settled restricted stock units, stock grants or a combination of awards. To date, we have not awarded any incentive stock options.

The majority of associates who receive share-based compensation awards primarily receive cash-settled restricted stock units. Senior management and other key associates receive awards of nonqualified stock options, stock-settled restricted stock units and/or restricted stock awards. Nonemployee directors receive awards of nonqualified stock options, stock grants, stock-settled restricted stock units and/or restricted stock awards. Excluding stock grants and stock-settled deferred stock units, all share-based compensation awards, including any associated dividend rights, are subject to forfeiture.

Nonqualified Stock Options. Nonqualified stock options are awards that allow the recipient to purchase shares of our common stock at a fixed price. Stock options are granted at an exercise price equal to the fair market value of our common stock on the grant date. The stock options generally vest annually in equal amounts over 4 years. These options expire 7 years after the date of the grant.

Cash-Settled Restricted Stock Units. Also referred to as restricted stock units, or RSUs, these are awards that entitle the holder to a cash payment equal to the fair market value of a share of our common stock for each unit granted. Conversion generally occurs at the end of a three-year vesting period. However, the cash payment per RSU will not be greater than 200% or less than 75% of the fair market value of a share of our common stock on the grant date. The initial grant date fair values are based on the volume-weighted average prices of our common stock on the grant dates. RSUs are liability awards and do not have voting rights.

Stock-Settled Market Stock Units. Also referred to as market stock units, or MSUs, these are restricted stock unit awards with market conditions granted to eligible key associates that are converted into between zero and two shares of common stock for each unit granted. Conversion generally occurs at the end of a three-year vesting period. The conversion ratio is calculated by dividing the average closing price of our stock during the final 40 trading days of the three-year vesting period by our stock price on the grant date, with the resulting quotient capped at two. This quotient is then multiplied by the number of MSUs granted to yield the number of shares awarded. The grant date fair values are determined using a Monte-Carlo simulation and are based on the expected market price of our common stock on the vesting date and the expected number of converted common shares. MSUs do not have voting rights.

Stock-Settled Performance Stock Units. Also referred to as performance stock units, or PSUs, these are restricted stock unit awards with performance conditions granted to eligible key associates that are converted into between zero and two shares of common stock for each unit granted. Conversion generally occurs at the end of a three-year vesting period. For the fiscal 2018 grants, the conversion ratio is based on the company reaching certain target levels set by the board of directors for cumulative three-year pretax diluted earnings per share at the end of the three-year period, with the resulting quotient subject to meeting a minimum 25% threshold and capped at 200%. For the fiscal 2020 grants, the conversion ratio is based on the company reaching certain target levels set by the board of directors for annual pretax diluted earnings per share excluding any unrealized gains or losses on equity investments in private companies at the end of each one-year period for one-third of the granted units, with the resulting quotients subject to meeting a minimum 25% threshold and capped at 200%. These quotients are then multiplied by the number of PSUs granted to yield the number of shares awarded. The grant date fair values are based on the volume-weighted average prices of our common stock on the grant dates. PSUs do not have voting rights. As of February 29, 2020, 128,487 units were outstanding at a weighted average grant date fair value per share of $68.32.

Stock-Settled Deferred Stock Units. Also referred to as deferred stock units, or DSUs, these are restricted stock unit awards granted to non-employee members of our board of directors that are converted into one share of common stock for each unit granted. Conversion occurs at the end of the one-year vesting period unless the director has exercised the option to defer conversion until separation of service to the company. The grant date fair values are based on the volume-weighted average prices of our common stock on the grant dates. DSUs have no voting rights. As of February 29, 2020, 38,730 units were outstanding at a weighted average grant date fair value of $80.19.

Restricted Stock Awards. Restricted stock awards, or RSAs, are awards of our common stock that are subject to specified restrictions that generally lapse after a one- to three-year period from the date of the grant. The grant date fair values are based on the volume-weighted average prices of our common stock on the grant dates. Participants holding restricted stock are entitled to vote on matters submitted to holders of our common stock for a vote. As of February 29, 2020, there were 4,517 shares outstanding at a grant date value of $88.54.

Employee Stock Purchase Plan. We sponsor an employee stock purchase plan for all associates meeting certain eligibility criteria. We have authorized up to 8,000,000 shares of common stock with a total of 2,628,021 shares remaining available for issuance under the plan as of February 29, 2020. Associate contributions are limited to 10% of eligible compensation, up to a maximum that was increased in January 2020 from $7,500 per year to $10,000 per year. For each $1.00 contributed to the plan by associates, we match $0.15. Shares are acquired through open-market purchases. We purchased 174,325 shares at an average price per share of $85.64 during fiscal 2020, 185,856 shares at an average price per share of $67.66 during fiscal 2019 and 177,433 shares at an average price per share of $65.11 during fiscal 2018.



	Years Ended February 29 or 28
(In thousands)	2020		2019		2018
Cost of sales	$	6,382	$	2,952	$	2,552
CarMax Auto Finance income	4,940		3,804		3,167
Selling, general and administrative expenses	99,435		69,928		57,701
Share-based compensation expense, before income taxes	$	110,757	$	76,684	$	63,420



	Years Ended February 29 or 28
(In thousands)	2020		2019		2018
Nonqualified stock options	$	30,166	$	29,992	$	26,461
Cash-settled restricted stock units (RSUs)	60,739		29,141		23,539
Stock-settled market stock units (MSUs)	12,874		12,683		10,032
Other share-based incentives:
Stock-settled performance stock units (PSUs)	2,559		1,733		648
Stock-settled deferred stock units (DSUs)	2,500		1,155		—
Restricted stock (RSAs)	23		307		1,199
Employee stock purchase plan	1,896		1,673		1,541
Total other share-based incentives	6,978		4,868		3,388
Share-based compensation expense, before income taxes	$	110,757	$	76,684	$	63,420



	As of February 29, 2020
			Weighted Average
	Unrecognized		Remaining
	Compensation		Recognition Life
(Costs in millions)	Costs		(Years)
Nonqualified stock options	$	40.4	2.1
Stock-settled market stock units	12.7		1.1
Other share-based incentives:
Stock-settled performance stock units	5.0		1.2
Stock-settled deferred stock units	—		—
Restricted stock	0.4		2.8
Total other share-based incentives	5.4		0.9
Total	$	58.5	1.8

We recognize compensation expense for stock options, MSUs, PSUs, DSUs and RSAs on a straight-line basis (net of estimated forfeitures) over the requisite service period, which is generally the vesting period of the award. The PSU expense is adjusted for any change in management’s assessment of the performance target level that is probable of being achieved. The variable expense associated with RSUs is recognized over their vesting period (net of estimated forfeitures) and is calculated based on the volume-weighted average price of our common stock on the last trading day of each reporting period.



					Weighted
			Weighted		Average
			Average		Remaining	Aggregate
	Number of		Exercise		Contractual	Intrinsic
(Shares and intrinsic value in thousands)	Shares		Price		Life (Years)	Value
Outstanding as of February 28, 2019	7,869		$	57.96
Options granted	1,601		78.74
Options exercised	(2,413	)	51.55
Options forfeited or expired	(63	)	67.15
Outstanding as of February 29, 2020	6,994		$	64.85	4.3	$	157,088

Exercisable as of February 29, 2020	3,010		$	62.08	3.3	$	75,935



	Years Ended February 29 or 28
	2020		2019		2018
Options granted	1,601,489		1,745,497		1,955,117
Weighted average grant date fair value per share	$	22.10	$	18.75	$	16.15
Cash received from options exercised (in millions)	$	124.4	$	58.1	$	73.5
Intrinsic value of options exercised (in millions)	$	78.6	$	37.1	$	57.1
Realized tax benefits (in millions)	$	21.8	$	10.2	$	21.8

consideration under a closed-form valuation model (for example, the Black-Scholes model), such as the contractual term of the option, the probability that the option will be exercised prior to the end of its contractual life and the probability of termination or retirement of the option holder. For this reason, we believe that the binomial model provides a fair value that is more representative of actual experience and future expected experience than the value calculated using a closed-form model. Estimates of fair value are not intended to predict actual future events or the value ultimately realized by the recipients of share-based awards.



	Years Ended February 29 or 28
	2020					2019					2018
Dividend yield				0.0	%				0.0	%				0.0	%
Expected volatility factor⁽¹⁾	26.8	%	-	32.6	%	26.1	%	-	34.1	%	27.3	%	-	34.2	%
Weighted average expected volatility				29.2	%				29.1	%				29.7	%
Risk-free interest rate ⁽²⁾	1.5	%	-	2.4	%	1.7	%	-	3.0	%	0.7	%	-	2.3	%
Expected term (in years)⁽³⁾				4.6					4.6					4.6



			Weighted
			Average
	Number of		Grant Date
(Units in thousands)	Units		Fair Value
Outstanding as of February 28, 2019	1,609		$	58.00
Stock units granted	562		$	78.62
Stock units vested and converted	(505	)	$	52.05
Stock units cancelled	(109	)	$	65.58
Outstanding as of February 29, 2020	1,557		$	66.85



	Years Ended February 29 or 28
	2020		2019		2018
Stock units granted	562,321		629,942		628,095
Initial weighted average grant date fair value per share	$	78.62	$	63.07	$	58.39
Payments (before payroll tax withholdings) upon
vesting (in millions)	$	37.8	$	21.0	$	26.6
Realized tax benefits (in millions)	$	10.5	$	5.8	$	10.2



			Weighted
			Average
	Number of		Grant Date
(Units in thousands)	Units		Fair Value
Outstanding as of February 28, 2019	509		$	74.36
Stock units granted	131		$	98.67
Stock units vested and converted	(154	)	$	64.36
Stock units cancelled	(9	)	$	86.34
Outstanding as of February 29, 2020	477		$	84.05