Advance Auto Parts 2003 Annual Report Download - page 45

Total option activity was as follows:
2003 2002 2001
Number Weighted-Average Number Weighted-Average Number Weighted-Average
Plan of Shares Exercise Price of Shares Exercise Price of Shares Exercise Price
Fixed Price Service Options
Outstanding at beginning of year................. 5,536 $13.13 6,056 $11.24 4,408 $ 8.61
Granted ......................................................... 1,252 21.78 1,104 21.13 686 10.50
Converted options in connection
with Discount acquisition......................... —— — — 1,150 19.45
Exercised ...................................................... (1,274) 12.89 (1,556) 11.17 (124) 17.54
Forfeited........................................................ (103) 21.16 (68) 21.16 (64) 8.35
Outstanding at end of year ........................... 5,411 $15.05 5,536 $13.13 6,056 $11.24
Other Options
Outstanding at beginning of year................. 1,000 $ 9.00 1,000 $ 8.00 1,000 $ 7.00
Exercised ...................................................... (1,000) 9.00 ————
Outstanding at end of year ........................... —$— 1,000 $ 9.00 1,000 $ 8.00
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Advance Auto Parts, Inc. and Subsidiaries
and thereafter. If the health care cost were increased 1% for
all future years the accumulated postretirement benefit
obligation would have increased by $2,588 as of January 3,
2004. The effect of this change on the combined service and
interest cost would have been an increase of $153 for 2003.
If the health care cost were decreased 1% for all future
years the accumulated postretirement benefit obligation
would have decreased by $2,538 as of January 3, 2004. The
effect of this change on the combined service and interest
cost would have been a decrease of $127 for 2003.
The Company reserves the right to change or terminate
the benefits or contributions at any time. The Company also
continues to evaluate ways in which it can better manage
these benefits and control costs. Any changes in the plan or
revisions to assumptions that affect the amount of expected
future benefits may have a significant impact on the amount
of the reported obligation and annual expense.
20—Stock Options
The Company maintains a senior executive stock option
plan and an executive stock option plan, or the Option Plans,
for key team members of the Company. The Option Plans
provide for the granting of non-qualified stock options. All
options terminate on the seventh anniversary of the grant
date. Shares authorized for grant under the senior executive
and the executive stock option plans are 3,420 and 7,200,
respectively, at January 3, 2004. Subsequent to January 3,
2004, the Company granted 1,188 fixed price options at an
exercise price of $39.31.
The Company has historically maintained three types of
option plans; Fixed Price Service Options, or Fixed Options,
Performance Options, or Performance Options, and Variable
Option plans, or Variable Options. The Fixed Options vest
over a three-year period in three equal installments begin-
ning on the first anniversary of the grant date. During the
fourth quarter of fiscal 2001, the board of directors
approved an amendment to the Performance Options and
the Variable Options. The amendment accelerated the vest-
ing of the Performance Options by removing the variable
provisions under the plan and established a fixed exercise
price of $9.00 per share for the Variable Options. As a result
of the increase in the Company’s stock price and the above
amendment, the Company recorded a charge of $8,611 in fis-
cal 2001 to recognize the associated compensation expense.
Accordingly, all options under the above-mentioned plans
are considered fixed for accounting treatment under APB
No. 25 as described below.
Additionally, as a result of the Discount acquisition, the
Company converted all outstanding stock options of Discount
with an exercise price greater than $7.50 per share to options
to purchase the Company’s common stock. The Company
converted 1,150 options from the executive stock option
plan at a weighted-average exercise price of $19.45 per
share. These options will terminate on the tenth anniversary
of the original option agreement between Discount and the
team member. The fair value of the 1,150 converted options
to purchase the Company’s common stock was included in
the purchase price of Discount.
As a result of the recapitalization in fiscal 1998, an existing
stockholder received stock options, referred to as other
options, to purchase up to 1,000 shares of common stock. The
stock options are fully vested, nonforfeitable and provided
for a $5.00 per share exercise price, increasing $1.00 per
share annually, through the expiration date of April 2005.
The fair value of these options, as determined at the grant
date were included in the recapitalization in fiscal 1998 as
consideration paid to the existing stockholder. The other
options were completely exercised during fiscal 2003.