Dunkin' Donuts 2012 Annual Report Download - page 90

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A summary of the status of the Company’s executive stock options as of December 29, 2012 and changes during fiscal year
2012 are presented below:
Number of
shares
Weighted
average
exercise
price
Weighted
average
remaining
contractual
term (years)
Aggregate
intrinsic
value
(in millions)
Share options outstanding at December 31, 2011 4,838,730 3.74 8.3
Granted ——
Exercised (1,216,532) 3.37
Forfeited or expired (290,205) 4.14
Share options outstanding at December 29, 2012 3,331,993 3.85 7.3 $ 95.0
Share options exercisable at December 29, 2012 1,101,031 3.27 7.2 32.0
The total grant-date fair value of executive stock options vested during fiscal years 2012, 2011, and 2010 was $2.8 million,
$862 thousand, and $304 thousand, respectively. The total intrinsic value of executive stock options exercised was $33.8
million and $489 thousand for fiscal years 2012 and 2011, respectively. No executive stock options were exercised during
fiscal year 2010. As of December 29, 2012, there was $2.0 million of total unrecognized compensation cost related to Tranche
4 and Tranche 5 options, which is expected to be recognized over a weighted average period of approximately 2.2 years.
2006 Plan stock options—nonexecutive and 2011 Plan stock options
During fiscal years 2011 and 2010, the Company granted options to nonexecutives to purchase 50,491 shares and 222,198
shares, respectively, of common stock under the 2006 Plan. Additionally, during fiscal years 2012 and 2011, the Company
granted options to certain employees to purchase 746,100 and 292,700 shares, respectively, of common stock under the 2011
Plan. The nonexecutive options and 2011 Plan options vest in equal annual amounts over either a 4- or 5-year period
subsequent to the grant date, and as such are subject to a service condition, and also fully vest upon a change of control. The
requisite service period over which compensation cost is being recognized is either four or five years. The maximum
contractual term of the nonexecutive and 2011 Plan options is ten years.
The fair value of nonexecutive and 2011 Plan options was estimated on the date of grant using the Black-Scholes option pricing
model. This model is impacted by the Company’s stock price and certain assumptions related to the Company’s stock and
employees’ exercise behavior. The following weighted average assumptions were utilized in determining the fair value of
nonexecutive and 2011 Plan options granted during fiscal years 2012, 2011, and 2010:
Fiscal year ended
December 29,
2012
December 31,
2011
December 25,
2010
Weighted average grant-date fair value of share options granted 10.65 10.27 2.88
Weighted average assumptions:
Risk-free interest rate 0.8%-1.4% 1.2%-2.7% 2.1%
Expected volatility 43.0% 43.0%-72.0% 58.0%
Dividend yield 1.8%-2.1% — —
Expected term (years) 6.25 6.25-6.5 6.5
The expected term was estimated utilizing the simplified method. We utilized the simplified method because the Company does
not have sufficient historical exercise data to provide a reasonable basis upon which to estimate expected term. The risk-free
interest rate assumption was based on yields of U.S. Treasury securities in effect at the date of grant with terms similar to the
expected term. Expected volatility was estimated based on historical volatility of peer companies over a period equivalent to
the expected term. Additionally, the dividend yield was estimated based on dividends currently being paid on the underlying
common stock at the date of grant, if any.
As share-based compensation expense recognized is based on awards ultimately expected to vest, it has been reduced for
annualized estimated forfeitures of generally 10-13%. Forfeitures are required to be estimated at the time of grant and revised,
if necessary, in subsequent periods if actual forfeitures differ from those estimates. Forfeitures were estimated based on
historical and forecasted turnover, and actual forfeitures have not had a material impact on share-based compensation expense.