Napa Auto Parts 2005 Annual Report Download - page 34

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4. LEASED PROPERTIES (CONTINUED)
Future minimum payments, by year and in the aggregate,
under the capital and noncancelable operating leases with
initial or remaining terms of one year or more consisted of
the following at December 31, 2005:
Rental expense for operating leases was approximately
$147,187,000 in 2005, $132,493,000 in 2004 and $117,652,000
in 2003.
5. STOCK OPTIONS AND RESTRICTED STOCK AWARDS
In 1999, the Company authorized the grant of options of up
to 9,000,000 shares of common stock. In accordance with stock
option plans approved by shareholders, options are granted
to key personnel for the purchase of the Company’s stock at
prices not less than the fair market value of the shares on the
dates of grant. Most options may be exercised not earlier than
twelve months nor later than ten years from the date of grant.
Pro forma information regarding net income and earnings per
share is required by SFAS No. 123, as amended, determined as
if the Company had accounted for its employee stock options
granted subsequent to December 31, 1994, under the fair value
method of SFAS No. 123. The fair value for these options was
estimated at the date of grant using a Black-Scholes option
pricing model with the following weighted-average assump-
tions for 2005, 2004 and 2003, respectively: risk-free interest
rates of 4.1%, 4.0%, and 4.0%; dividend yield of 3.2%, 3.7%,
and 3.6%; annual volatility factor of the expected market price
of the Company’s common stock of 0.23, 0.23, and 0.25; an
expected life of the options of 6, 8, and 8 years; and turnover
of 4.0 to 4.4% based on the historical pattern of existing grants.
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 employee stock options have character-
istics significantly different from those of traded options, and
because changes in the subjective input assumptions can mate-
rially affect the fair value estimate, in management’s opinion,
the existing models do not necessarily provide a reliable single
measure of the fair value of its employee stock options.
For purposes of pro forma disclosures under SFAS No. 123, as
amended by SFAS No. 148, the estimated fair value of the options
is amortized to expense over the options’ vesting period. The
following table illustrates the effect on net income and income
per share if the fair value based method had been applied to all
outstanding and unvested awards in each period:
Notes to Consolidated Financial Statements
(continued)
(in thousands, except per share amounts) Year ended December 31, 2005 2004 2003
Net income, as reported $437,434 $ 395,552 $ 334,101
Add: Stock-based employee compensation expense related to
option grants after January 1, 2003 included in reported net income,
net of related tax effects 4,247 1,566 13
Deduct: Total stock-based employee compensation expense determined
under fair value based method for all awards, net of related tax effects (6,225) (5,324) (5,688)
Pro forma net income $435,456 $ 391,794 $ 328,426
Income per share:
Basic—as reported $ 2.51 $ 2.26 $ 1.92
Basic—pro forma $ 2.50 $ 2.24 $ 1.89
Diluted—as reported $ 2.50 $ 2.25 $ 1.91
Diluted—pro forma $ 2.49 $ 2.23 $ 1.88
Capital Operating
(in thousands) Leases Leases
2006 $ 3,537 $ 134,530
2007 3,551 104,861
2008 3,554 74,572
2009 3,596 48,483
2010 3,076 32,976
Thereafter 10,062 79,696
Total minimum lease payments 27,376 $ 475,118
Amounts representing interest 5,665
Present value of future minimum
lease payments $ 21,711