Advance Auto Parts 2006 Annual Report Download - page 96

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ADVANCE AUTO PARTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
December 30, 2006, December 31, 2005 and January 1, 2005
(in thousands, except per share data)
The following table summarizes the fixed stock option transactions for the fiscal year ended December 30,
2006:
Number of
Options
Weighted-
Average
Exercise Price
Weighted-
Average
Remaining
Contractual
Term (in years)
Aggregate
Intrinsic Value
Fixed Price Options
Outstanding at beginning of year 6,192 24.46$
Granted 2,116 40.38
Exercised (741) 18.96
Forfeited (298) 32.97
Outstanding at December 30, 2006 7,269 29.31$ 4.58 56,126$
Outstanding, net of expected forfeitures 6,955 29.00$ 4.58 55,496$
Outstanding and exercisable 3,341 21.21$ 3.49 48,249$
The aggregate intrinsic value in the preceding table is based on the Company’s closing stock price of $35.56 as
of the last trading day of the period ended December 30, 2006. The aggregate intrinsic value of options (the amount
by which the market price of the stock on the date of exercise exceeded the exercise price of the option) exercised
during the fiscal years ended December 30, 2006, December 31, 2005 and January 1, 2005, was $14,001, $77,611
and $60,793, respectively. As of December 30, 2006, there was $26,304 of unrecognized compensation expense
related to non-vested fixed stock options that is expected to be recognized over a weighted average period of 1.8
years.
The weighted average fair value of stock options granted during the fiscal years ended December 30, 2006,
December 31, 2005 and January 1, 2005, was $10.68, $10.54 and $8.28 per share, respectively. The fair value of
each stock option was estimated on the date of grant using the Black-Scholes option-pricing model with the
following weighted average assumptions:
Black-Scholes Option Valuation Assumptions
(1)
2006 2005 2004
Risk-free interest rate
(2)
4.6% 3.7% 3.3%
Expected dividend yield
(3)
0.6% - -
Expected stock price volatility
(4)
28.0% 33.2% 34.3%
Expected life of stock options (in months)
(5)
44 48 48
(1) Forfeitures are based on historical experience.
(2) The risk-free interest rate is based on a U.S. Treasury constant maturity interest rate whose term is consistent
with the expected life of the Company’s stock options.
(3) The Company declared its first ever cash dividend beginning in its first quarter of 2006.
(4) Expected volatility is based on the historical volatility of the Company’s common stock for the period
consistent with the expected life of the Company’s stock options.
(5) The expected life of the Company’s stock options represents the estimated period of time until exercise and is
based on historical experience of such awards.
The Company granted seven and six DSUs in fiscal years 2006 and 2005, respectively at a weighted average
fair value of $38.35 and $39.65, respectively. The DSUs are awarded at a price equal to the market price of the
Company’s underlying stock on the date of the grant. For fiscal years 2006 and 2005, respectively, the Company
recognized a total of $285 and $237, on a pre-tax basis, in compensation expense related to these DSU grants.
F-33