Napa Auto Parts 2006 Annual Report Download - page 37

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For the year ended December 31, 2006, total compensation cost
related to nonvested awards not yet recognized was approximately
$20.2 million. The weighted-average period over which this
compensation cost is expected to be recognized is approximately
three years. The aggregate intrinsic value for options and RSUs
outstanding at December 31, 2005 and 2006 was approximately
$56.4 million and $74.6 million, respectively. The aggregate
intrinsic value for options and RSUs vested totaled approximately
$39.0 million and $46.4 million at December 31, 2005 and 2006,
respectively. At December 31, 2006, the weighted-average con-
tractual life for outstanding and exercisable options and RSUs was
seven and six years, respectively. For the years ended December
31, 2006, 2005 and 2004, $11.9 million, $6.9 million and $2.5
million of share-based compensation cost was recorded, respec-
tively. The total income tax benet recognized in the income
statement for share-based compensation arrangements was ap-
proximately $4.8 million, $2.8 million and $1.0 million for 2006,
2005 and 2004, respectively. There have been no modications
to valuation methodologies or methods subsequent to the adop-
tion of SFAS No. 123(R).
For the years ended December 31, 2006, 2005 and 2004 the fair
value for options and SARs granted was estimated using a Black-
Scholes option pricing model with the following weighted-aver-
age assumptions, respectively: risk-free interest rate of 4.8%,
4.1% and 4.0%; dividend yield of 2.9%, 3.2% and 3.7%; annual
historical volatility factor of the expected market price of the
Company’s common stock of 21%, 23% and 23%; an expected life
and estimated turnover based on the historical pattern of existing
grants of six, six and eight years and 4.0% to 4.4%, respectively.
The fair value of RSUs is based on the price of the Company’s
stock on the date of the grant. The total fair value of shares
vested during the years ended December 31, 2006, 2005 and
2004 was $6.9 million, $8.0 million and $6.2 million, respectively.
For purposes of pro forma disclosures under SFAS No. 123, as amended by SFAS No. 148
Accounting for Stock-Based Compensation
Transition and Disclosure,
an amendment of FASB Statement No. 123, the estimated fair value of the options is amortized to expense
over the options’ vesting period. The following table illustrates the effect on net income and income per share if the fair value based
method had been applied to all outstanding and unvested awards in each period (in thousands, except per share amounts):
Year Ended December 31, 2005 2004
Net income, as reported º$ 437,434 $ 395,552
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
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)
Pro forma net income $ 435,456 $ 391,794
Income per share:
Basic—as reported $ 2.51 $ 2.26
Basic—pro forma $ 2.50 $ 2.24
Diluted—as reported $ 2.50 $ 2.25
Diluted—pro forma $ 2.49 $ 2.23