O'Reilly Auto Parts 2007 Annual Report Download - page 41

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Notes to Consolidated Financial Statements (continued)
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-Average Remaining Contractual Aggregate
Shares Exercise Price Terms (in years) Intrinsic Value
Outstanding at December 31, 2006 6,450,745 $ 20.38
Granted 1,416,925 33.67
Exercised (1,045,292) 16.38
Forfeited (577,538) 27.86
Outstanding at December 31, 2007 6,244,840 $ 23.41 6.69 $ 58,549,000
Vested or expected to vest at December 31, 2007 5,846,832 $ 22.76 6.53 $ 58,319,000
Exercisable at December 31, 2007 4,404,403 $ 19.31 5.70 $ 57,879,000
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. Since the adoption of SFAS No. 123R, 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-Average Remaining Contractual Aggregate
Shares Exercise Price Terms (in years) Intrinsic Value
Outstanding at December 31, 2006 190,000 $ 18.09
Granted 25,000 34.84
Exercised -- --
Forfeited -- --
Outstanding at December 31, 2007 215,000 $ 20.12 2.89 $ 2,769,000
Vested or expected to vest at December 31, 2007 215,000 $ 20.12 2.89 $ 2,769,000
Exercisable at December 31, 2007 215,000 $ 20.12 2.89 $ 2,769,000
At December 31, 2007, approximately 10,687,000 and 375,000 shares were reserved for future issuance under the employee stock option plan
and director stock option plan, respectively. For the year ended December 31, 2007, the Company recognized stock option compensation
expense related to these plans of $4,882,000 and a corresponding income tax benefit of $1,801,000. 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, 2007, 2006 and 2005:
2007 2006 2005
Risk free interest rate 4.47% 4.01% 4.25%
Expected life 4.4 years 4.7 years 4.0 years
Expected volatility 33.7% 35.1% 35.8%
Expected dividend yield 0% 0% 0%
The weighted-average grant-date fair value of options granted during the years ended December 31, 2007, 2006 and 2005 were $11.81,
$11.72 and $8.82, respectively. The total intrinsic value of options exercised during the years ended December 31, 2007, 2006 and 2005
were $19,511,000, $22,985,000 and $19,100,000, respectively. The Company recorded cash received from the exercise of stock options of
$17,124,000, $15,970,000 and $14,915,000, in the years ended December 31, 2007, 2006 and 2005, respectively. The remaining unrecognized
compensation cost related to unvested awards at December 31, 2007, was $18,107,000 and the weighted-average period of time over which this
cost will be recognized is 2.9 years.