O'Reilly Auto Parts 2009 Annual Report Download - page 79

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NOTE 11 — SHARE-BASED EMPLOYEE COMPENSATION PLANS AND OTHER BENEFIT PLANS
The Company recognizes share-based compensation expense based on the fair value of the awards at the time of the grant. Share-
based payments include stock option awards issued under the Company’s employee stock option plan, director stock option plan, stock
issued through the Company’s employee stock purchase plan and stock awarded to employees through other benefit programs.
Stock Options
The Company’s employee stock-based incentive plans provides for the granting of stock options to certain key employees of the
Company for the purchase of common stock of the Company. A total of 34,000,000 shares have been authorized for issuance under
these plans. Options are granted at an exercise price that is equal to the closing market price of the Company’s common stock on the
date of the grant. Options granted under the plans expire after ten years 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 these plans are as follows:
Shares
Weighted-
Average
Exercise
Price
Weighted-
Average
Remaining
Contractual
Terms (in
years)
Aggregate
Intrinsic Value
Outstanding at December 31, 2008 11,270,976 $ 25.25
Granted 1,536,702 34.63
Exercised (2,195,815) 24.27
Forfeited (886,984) 29.34
Outstanding at December 31, 2009 9,724,879 $ 26.57 6.98 $
112,311,115
Vested or expected to vest at December 31, 2009 8,791,096 $ 26.13 6.79 $
105,413,590
Exercisable at December 31, 2009 4,844,901 $ 23.70 5.29 $
69,855,725
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:
Shares
Weighted-
Average
Exercise
Price
Weighted-
Average
Remaining
Contractual
Terms (in
years)
Aggregate
Intrinsic Value
Outstanding at December 31, 2008 240,000 $ 23.04
Granted 25,000 37.50
Exercised (60,000) 17.63
Forfeited -- --
Outstanding at December 31, 2009 205,000 $ 26.39 3.24 2,404,925
Vested or expected to vest at December 31, 2009 205,000 $ 26.39 3.24 2,404,925
Exercisable at December 31, 2009 205,000 $ 26.39 3.24 2,404,925
At December 31, 2009, approximately 9,691,000 and 310,000 shares were available for future grants under the employee stock option
plan and director stock option plan, respectively. For the year ended December 31, 2009, the Company recognized stock option
compensation expense related to these plans of $13,451,000 and a corresponding income tax benefit of $5,246,000. 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 benefit 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 benefit of $1,801,000.
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