O'Reilly Auto Parts 2008 Annual Report Download - page 59

O’REILLY AUTOMOTIVE 2008 ANNUAL REPORT PG.57
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
At December 31, 2008, approximately 303,000 and 335,000 shares were available for future grants under the employee stock option plan and
director stock option plan, respectively. For the year ended December 31, 2008, the Company recognized stock option compensation expense
related to these plans of $7,991,000 and a corresponding income tax benet of $3,072,000. 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 benet of $1,801,000.
e fair value of each stock option grant is estimated on the date of the grant using the Black-Scholes option-pricing model. e 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. e Company uses historical data and experience to estimate the expected life of options granted. e risk free
interest rate for periods within the contractual life of the options are based on the United States Treasury rates in eect for the expected life of
the options. e following weighted-average assumptions were used for grants issued for the years ended December 31, 2008, 2007 and 2006:
2008 2007 2006
Risk-free interest rate 2.91% 4.47% 4.01%
Expected life (Years) 4.2 4.4 4.7
Expected volatility 26.8% 33.7% 35.1%
Expected dividend yield 0% 0% 0%
e weighted-average grant-date fair value of options granted during the years ended December 31, 2008, 2007 and 2006 were $7.01,
$11.81 and $11.72, respectively. e total intrinsic value of options exercised during the years ended December 31, 2008, 2007 and 2006
were $6,600,000, $19,511,000 and $22,985,000, respectively. e Company recorded cash received from the exercise of stock options of
$18,625,000, $17,124,000 and $15,970,000, in the years ended December 31, 2008, 2007 and 2006, respectively. e remaining unrecognized
compensation cost related to unvested awards at December 31, 2008, was $39,146,000 and the weighted-average period of time over which
this cost will be recognized is 3.19 years.
In conjunction with the acquisition of CSK, the Company exchanged 1,742,278 stock options for all the outstanding stock options held by CSK.
Per the terms of the CSK stock option plan, the vesting of all the outstanding stock options was accelerated upon change in control. is was
recorded as part of the purchase price of CSK’s acquired operations (see Note 2 Business Combination for further information).
EMPLOYEE STOCK PURCHASE PLAN
e Company’s employee stock purchase plan permits all eligible employees to purchase shares of the Company’s common stock at 85% of
the fair market value. Participants may authorize the Company to withhold up to 5% of their annual salary to participate in the plan. e
stock purchase plan authorizes up to 2,750,000 shares to be granted. During the year ended December 31, 2008, the Company issued 208,293
shares under the purchase plan at a weighted average price of $22.61 per share. During the year ended December 31, 2007, the Company
issued 156,466 shares under the purchase plan at a weighted average price of $29.12 per share. During the year ended December 31, 2006, the
Company issued 165,306 shares under the purchase plan at a weighted average price of $27.36 per share. SFAS No. 123R requires compensation
expense to be recognized based on the discount between the grant date fair value and the employee purchase price for shares sold to employees.
During the year ended December 31, 2008, the Company recorded $831,000 of compensation cost related to employee share purchases and a
corresponding income tax benet of $319,000. During the year ended December 31, 2007, the Company recorded $804,000 of compensation
cost related to employee share purchases and a corresponding income tax benet of $290,000. At December 31, 2008, approximately 133,000
shares were reserved for future issuance.
OTHER EMPLOYEE BENEFIT PLANS
e Company sponsors a contributory prot sharing and savings plan that covers substantially all employees who are at least 21 years of age and
have at least six months of service. e Company has agreed to make matching contributions equal to 100% of the rst 2% of each employee’s
wages that are contributed and 25% of the next 4% of each employee’s wages that are contributed. e Company may also make additional
discretionary prot sharing contributions to the plan on an annual basis as determined by the Board of Directors. e Company’s matching
and prot sharing contributions under this plan are funded in the form of shares of the Company’s common stock. A total of 4,200,000 shares
of common stock have been authorized for issuance under this plan. During the year ended December 31, 2008, the Company recorded
$4,159,000 of compensation cost for contributions to this plan and a corresponding income tax benet of $1,599,000. During the year ended
December 31, 2007, the Company recorded $6,849,000 of compensation cost for contributions to this plan and a corresponding income tax
benet of $2,527,000. During the year ended December 31, 2006, the Company recorded $6,429,000 of compensation cost for contributions to
this plan and a corresponding income tax benet of $2,372,000. e Company issued 321,162 shares in 2008 to fund the 2007 prot sharing and
matching contributions at an average grant date fair value of $26.72. e Company issued 197,431 shares in 2007 to fund the 2006 prot sharing
and matching contributions at an average grant date fair value of $32.90. e Company issued 204,000 shares in 2006 to fund the 2005 prot