O'Reilly Auto Parts 2006 Annual Report Download - page 39

o’reilly automotive 2006 annual report
page 37
notes to consolidated financial statements (continued)
and typically vest 25% a year, over four years. The Company records compensation expense for the grant date fair value of option awards evenly over
the vesting period under the straight-line method. A summary of the shares subject to currently issued and outstanding stock options under this plan
is as follows:
weighted-
average
weighted- remaining
average contractual aggregate
exercise terms intrinsic
shares price (in years) value
Outstanding at December 31, 2005 6,883,042 $ 17.67
Granted 1,084,000 31.97
Exercised (1,128,259) 13.85
Forfeited (388,038) 26.39
Outstanding at December 31, 2006 6,450,745 $ 20.38 6.87 $76,041,000
Vested or expected to vest at December 31, 2006 6,217,132 $ 19.95 6.78 $75,819,000
Exercisable at December 31, 2006 5,445,858 $ 18.23 6.41 $75,324,000
The Company maintains a stock based incentive plan for non-employee directors of the Company pursuant to which the Company may grant stock
options. Up to 1,000,000 shares of common stock have been authorized for issuance under this plan. Options are granted at an exercise price that is
equal to the market value of the Company’s common stock on the date of the grant. Options granted under the plan expire after seven years and vest
fully after six months. The Company records compensation expense for the grant date fair value of option awards evenly over the vesting period under
the straight-line method. A summary of the shares subject to currently issued and outstanding stock options under this plan is as follows:
weighted-
average
weighted- remaining
average contractual aggregate
exercise terms intrinsic
shares price (in years) value
Outstanding at December 31, 2005 190,000 $ 15.32
Granted 25,000 34.92
Exercised (25,000) 13.73
Forfeited - -
Outstanding at December 31, 2006 190,000 $ 18.09 3.44 $ 2,725,400
Vested or expected to vest at December 31, 2006 190,000 $ 18.09 3.44 $ 2,725,400
Exercisable at December 31, 2006 190,000 $ 18.09 3.44 $ 2,725,400
At December 31, 2006, approximately 11,732,000 and 400,000 shares were reserved for future issuance under the employee stock option plan and
director stock option plan, respectively. For the year ended December 31, 2006, the Company recognized stock option compensation expense related
to these plans of $2,762,000 and a corresponding income tax benefit of $1,019,000.
The fair value of each stock option grant 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 expected volatility, expected life, the risk free rate and the expected dividend yield. Expected volatility is based
upon the historical volatility of the Company’s stock. Expected life represents the period of time that options granted are expected to be outstanding.
The Company uses historical data and experience to estimate the expected life of options granted. The risk free interest rate for periods within the
contractual life of the options are based on the United States Treasury rates in effect for the expected life of the options. The following weighted-average
assumptions were used for grants issued for the years ended December 31, 2006, 2005 and 2004:
2006 2005 2004
Risk free interest rate 4.01% 4.25% 3.01%
Expected life 4.7 years 4.0 years 4.0 years
Expected volatility 35.1% 35.8% 40.4%
Expected dividend yield 0% 0% 0%
The weighted-average grant-date fair value of options granted during the years ended December 31, 2006, 2005 and 2004 were $11.71, $8.82 and
$14.47, respectively. The total intrinsic value of options exercised during the years ended December 31, 2006, 2005 and 2004 were $22,985,000,
$19,100,000 and $9,753,000, respectively. The Company recorded cash received from the exercise of stock options of $15,970,000, $14,915,000 and