O'Reilly Auto Parts 2012 Annual Report Download - page 74

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FORM 10-k
64
Shares
(in thousands)
Weighted-
Average
Exercise Price
Avera
g
e Remainin
g
Contractual Terms
(in years)
Aggregate Intrinsic
Value (in thousands)
Outstanding at December 31, 2011 7,393 $ 37.41
Granted 1,834 88.75
Exercised (1,831) 29.41
Forfeited (675) 62.97
Outstanding at December 31, 2012 6,721 $ 51.03 6.86 $ 258,059
Vested or expected to vest at December 31, 2012 6,224 $ 49.17 6.70 $ 250,536
Exercisable at December 31, 2012 3,527 $ 31.36 5.17 $ 204,777
The Company’s director stock plan provides for the granting of stock options for the purchase of the common stock of the Company to
directors of the Company. Director stock 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. Director stock options granted under the plans expire after seven years and vest
fully after six months. The Company records compensation expense for the grant date fair value of the option awards evenly over the
vesting period.
The table below identifies the director stock option activity under this plan during the year ended December 31, 2012:
Shares
(in thousands)
Weighted-
Average
Exercise Price
Avera
g
e Remainin
g
Contractual Terms
(in years)
Aggregate Intrinsic
Value (in thousands)
Outstanding at December 31, 2011 97 $ 35.00
Granted - -
Exercised (29) 34.92
Forfeited - -
Outstanding at December 31, 2012 68 $ 35.03 3.31 $ 3,698
Vested or ex
p
ected to vest at December 31, 2012 68 $35.03 3.31 $3,698
Exercisable at December 31, 2012 68 $35.03 3.31 $3,698
The fair value of each stock option award 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 the risk free rate, expected life, expected volatility and expected
dividend yield.
•
Risk-free interest rate
– The United States Treasury rates in effect at the time the options are granted for the options’ expected
life.
•
•
Expected life
- Represents the period of time that options granted are expected to be outstanding. The Company uses
historical experience to estimate the expected life of options granted.
•
Expected volatility
– Measure of the amount by which the Company’s stock price has historically fluctuated.
•
Expected dividend yield –
The Company has not paid, nor does it have plans in the foreseeable future to pay, any dividends.
The table below identifies the weighted-average assumptions used for grants awarded during the years ended December 31, 2012,
2011 and 2010:
December 31,
2012 2011 2010
Risk free interest rate 0.59 % 1.16 % 1.67 %
Expected life 3.9 Years 3.7 Years 4.3 Years
Expected volatility 33.5 % 33.3 % 33.9 %
Expected dividend yield - % - % - %
The Company’s forfeiture rate is the estimated percentage of options awarded that are expected to be forfeited or cancelled prior to
becoming fully vested. The Company’s estimate is evaluated periodically, is based upon historical experience at the time of
evaluation and reduces expense ratably over the vesting period or the minimum required service period.
The following table summarizes activity related to stock options awarded by the Company for the years ended December 31, 2012,
2011 and 2010: