O'Reilly Auto Parts 2011 Annual Report Download - page 76

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The fair value of each stock option award is estimated on the date of the grant using the Black-Scholes option pricing model. The
Black-Scholes model requires the use of assumptions, including the risk free rate, expected life, expected volatility and expected
dividend yield.
Risk-free interest rate – The United States Treasury rates in effect at the time the options are granted for the options’
expected life.
Expected life - Represents the period of time that options granted are expected to be outstanding. The Company uses
historical experience to estimate the expected life of options granted.
Expected volatility – Measure of the amount by which the Company’s stock price has historically fluctuated.
Expected dividend yield – The Company has not paid, nor does it have plans in the foreseeable future to pay, any dividends.
The table below identifies the weighted-average assumptions used for grants awarded during the years ended December 31, 2011,
2010 and 2009:
Risk-free interest rate 1.16 %1.67 %2.04 %
Expected life 3.7 Years 4.3 Years 4.7 Years
Expected volatility 33.3 %33.9 %33.0 %
Expected dividend yield - % - % - %
2011
2010
2009
December 31,
The Company’s forfeiture rate is the estimated percentage of options awarded that are expected to be forfeited or cancelled prior to
becoming fully vested. The Company’s estimate is evaluated periodically, is based upon historical experience at the time of
evaluation and reduces expense ratably over the vesting period.
The following table summarizes activity related to stock options awarded by the Company for the periods ending December 31, 2011,
2010 and 2009:
Compensation expense for stock options awarded (in millions) $ 17.6 $ 14.9 $13.5
Income tax benefit from compensation expense related to stock options (in millions) 6.8 5.7 5.2
Total intrinsic value of stock options exercised (in millions) 71.5 60.0 30.0
Cash received from exercise of stock options (in millions) 50.3 56.9 54.3
Weighted-average grant-date fair value of options awarded $ 16.93 $ 14.24 $11.10
Weighted-average remaining contractual life of exercisable options (in years) 5.12 5.21 5.21
2010
2009
2011
For the Years Ended December 31,
The remaining unrecognized compensation expense related to unvested stock option awards at December 31, 2011, was $39.6 million
and the weighted-average period of time over which this cost will be recognized is 2.8 years.
Restricted stock:
The Company’s performance incentive plan provides for the award of shares of restricted stock to its corporate and senior
management that vest evenly over a three-year period and are held in escrow until such vesting has occurred. Generally, unvested
shares are forfeited when an employee ceases employment. The fair value of shares awarded under this plan is based on the closing
market price of the Company’s common stock on the date of award and compensation expense is recorded evenly over the vesting
period.
The table below identifies the employee restricted stock activity under this plan during the year ended December 31, 2011:
Shares
(in thousands)
Non-vested at December 31, 2010 34 $ 38.30
Granted during the period 42 55.48
Vested during the period (1) (33) 44.27
Forfeited during the period (3) 47.51
Non-vested at December 31, 2011 40 $ 50.72
(1) Includes 11.3 million shares withheld to cover Team Members' taxes upon vesting.
Weighted-
Average Grant-
Date Fair Value
The Company’s director stock plan provides for the award of shares of restricted stock that vest evenly over a three-year period and
are held in escrow until such vesting has occurred. Generally, unvested shares are forfeited when a director ceases their service on the
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FORM 10-K