O'Reilly Auto Parts 2003 Annual Report Download - page 51

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notes to consolidated financial statements (continued)
page 49
The Company also maintains a stock option plan for non-employee directors of the Company under which 500,000 shares of common
stock were reserved for issuance. All director stock options are granted at fair market value on the date of grant and expire on the
earlier of termination of service 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:
number
price per share of shares
Outstanding at December 31, 2000 $ 9.09-23.91 90,000
Granted 20.65 30,000
Exercised 9.09-23.91 (70,000)
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
All options under this plan were exercisable at December 31, 2003, 2002, and 2001.
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 2003, 2002, and 2001, respectively: risk-free interest rates of 3.61%, 4.01% and 5.16%; volatility
factors of the expected market price of the Company’s common stock of .458, .481, and .475; and weighted-average expected life of
the options of 9.4, 9.0 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, 2003, 2002, and 2001 were $20.56, $17.75
and $16.52, respectively. The weighted-average remaining contractual life at December 31, 2003, for all outstanding options under
the Company’s stock option plans is 7.5 years. The weighted-average exercise price for all outstanding options under the Company’s
stock option plans was $26.11, $22.78 and $20.63 at December 31, 2003, 2002 and 2001, 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.