O'Reilly Auto Parts 2004 Annual Report Download - page 48

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to the Company as a director or seven years. Options granted under this plan become exercisable six months from the date of grant. A summary of
outstanding stock options under this plan is as follows:
U M B E R
R I C E PE R H ARE O F H ARE S
Outstanding at December 31, 2001 $12.44 - 23.91 50,000
Granted 29.02 30,000
Outstanding at December 31, 2002 $12.44 - 29.02 80,000
Granted 29.20 30,000
Outstanding at December 31, 2003 $12.44 - 29.20 110,000
Granted 41.67 12,500
Exercised 12.44 - 20.65 (20,000)
Outstanding at December 31, 2004 $20.65 - 41.67 102,500
All options under this plan were exercisable at December 31, 2004, 2003, and 2002.
Pro forma information regarding net income and earnings per share is required by SFAS No. 123, and has been determined as if the Company had
accounted for its employee and non-employee director stock options under the fair value method.
The fair values for these options were estimated at the date of grant using a Black-Scholes option pricing model with the following weighted-average
assumptions for 2004, 2003, and 2002, respectively: risk-free interest rates of 3.01%, 3.61% and 4.01%; volatility factors of the expected market
price of the Company's common stock of .404, .458, and .481; and expected life of the options of 4.0, 9.4 and 9.0 years. The Company assumed a
0% dividend yield over the expected life of the options. The weighted-average fair values of options granted during the years ended December 31,
2004, 2003, and 2002 were $14.47, $20.56 and $17.75, respectively. The weighted-average remaining contractual life at December 31, 2004, for all
outstanding options under the Company's stock option plans is 7.2 years. The weighted-average exercise price for all outstanding options under the
Company's stock option plans was $29.88, $26.11 and $22.78 at December 31, 2004, 2003 and 2002, respectively.
The Black-Scholes option valuation model was developed for use in estimating the fair value of traded options, which have no vesting restrictions and
are fully transferable. In addition, option valuation models require the input of highly subjective assumptions, including the expected stock price
volatility. Because the Company's stock options have characteristics significantly different from those of traded options and because changes in the
subjective input assumptions can materially affect the fair value estimate, in management's opinion, the existing model does not necessarily provide a
reliable single measure of the fair value of its employee stock options.
NOTE 9—INCOME PER COMMON SHARE
The following table sets forth the computation of basic and diluted income per common share:
(In thousands, except per share data)
Y
E AR S E N D E D E C E M B E R 2004 2003 2002
Numerator (basic and diluted):
Net income $139,566 $100,087 $ 81,992
Denominator:
Denominator for basic income per common share-
weighted-average shares 55,010 53,908 53,114
Effect of stock options (Note 8) 701 622 578
Denominator for diluted income per common share-
adjusted weighted-average shares and assumed conversion 55,711 54,530 53,692
Basic net income per common share $2.54 $ 1.86 $ 1.54
Net income per common share-assuming dilution $ 2.51 $ 1.84 $ 1.53
46 O’REILLY AUTOMOTIVE
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)