Burger King 2010 Annual Report Download - page 87

Table of Contents
BURGER KING HOLDINGS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements — (Continued)
Equity Incentive Plan and 2006 Omnibus Incentive Plan
The Company’s Equity Incentive Plan and 2006 Omnibus Incentive Plan (collectively, “the Plans”) permit the grant of
stock−based compensation awards including stock options, RSU’s, deferred shares and PBRS to participants for up to 20.8 million
shares of the Company’s common stock. Awards are granted with an exercise price or market value equal to the closing price of the
Company’s common stock on the date of grant. The number of shares available to be granted under the Plans totaled approximately
3.6 million as of June 30, 2010. The Company satisfies share−based exercises and vesting through the issuance of authorized but
previously unissued shares of the Company’s stock or treasury shares. Nonvested shares are generally net−settled with new Company
shares withheld, and not issued, to meet the employee’s minimum statutory withholding tax requirements.
Under the Company’s compensation program for the Board of Directors, non−employee directors receive an annual grant of
deferred shares of the Company’s common stock and may also elect to receive their quarterly retainer and Committee fees in deferred
shares in lieu of cash. The annual grant vests in quarterly installments over a one−year period on the first day of each calendar quarter
following the grant date, and the deferred shares granted in lieu of cash are fully vested on the grant date. The deferred shares will settle
and shares of common stock will be issued at the time the non−employee director no longer serves on the Board of Directors.
Stock−based compensation expense for stock options is estimated on the grant date using a Black−Scholes option pricing model.
The Company’s specific weighted−average assumptions for the risk−free interest rate, expected term, expected volatility and expected
dividend yield are discussed below. Additionally, the Company is required to estimate pre−vesting forfeitures for purposes of
determining compensation expense to be recognized. Future expense amounts for any quarterly or annual period could be affected by
changes in the Company’s assumptions or changes in market conditions.
The Company has determined the expected term of stock options granted using the simplified method. Based on the results of
applying the simplified method, the Company has determined that 6.25 years is an appropriate expected term for awards with four−year
graded vesting.
As a newly public company, the Company previously elected to base the estimate of expected volatility of its common stock for
the Black−Scholes option pricing model solely on the historical volatility of a group of its peers. Beginning in 2008, the Company
determined it had sufficient information regarding the historical volatility of its common stock price and implied volatility of its
exchange−traded options to incorporate a portion of these volatilities into the calculation of expected volatility used in the
Black−Scholes model, in addition to the historical volatility of a group of its peers.
The fair value of each stock option granted under the Plans during the years ended June 30, 2010, 2009, and 2008 was estimated
on the date of grant using the Black−Scholes option pricing model based on the following weighted−average assumptions:
Years Ended June 30,
2010 2009 2008
Risk−free interest rate 2.92% 3.33% 4.40%
Expected term (in years) 6.25 6.25 6.25
Expected volatility 37.15% 31.80% 29.35%
Expected dividend yield 1.37% 0.96% 1.07%
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