Panera Bread 2006 Annual Report Download - page 50

Stock-Based Compensation
The Company maintains several stock-based incentive plans. The Company grants options to purchase
common stock at an option price equal to the market value of the stock at the date of grant. Options are generally
exercisable ratably over a four-year period beginning one year from date of grant and have a six-year term. The
Company also grants restricted stock with vesting and terms similar to option grants. In addition, the Company
offers a stock purchase plan where employees may purchase the Company’s common stock each calendar quarter
through payroll deductions. Participants in the stock purchase plan may elect to purchase the Company’s common
stock at 85 percent of market value on the purchase date.
Effective December 28, 2005, the Company adopted the fair value recognition provisions of SFAS 123R.
SFAS 123R requires all stock-based compensation, including grants of employee stock options, to be recognized in
the statement of operations based on their fair values. The Company adopted this accounting treatment using the
modified prospective transition method, as permitted under SFAS 123R; therefore results for prior periods have not
been restated. The Company uses the Black-Scholes option pricing model which requires extensive use of
accounting judgment and financial estimates, including estimates of the expected term participants will retain
their vested stock options before exercising them, the estimated volatility of the Company’s common stock price
over the expected term, and the number of options that will be forfeited prior to the completion of their vesting
requirements. The provisions of SFAS 123R apply to new stock options and stock options outstanding, but not yet
vested, on the date the Company adopted SFAS 123R.
Stock-based compensation expense recognized during the fiscal year ended December 26, 2006 totaled
approximately $5.9 million related to stock options, $1.4 million related to restricted stock, and $0.3 million related
to stock purchase plan discounts. Stock-based compensation expense was included in “general and administrative
expenses” in the Consolidated Statements of Operations.
Prior to the adoption of SFAS 123R, the Company accounted for stock-based compensation using the intrinsic
value method prescribed in Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to
Employees” (“APB 25”), and related interpretations. Accordingly, prior to fiscal 2006, stock-based compensation
was included as pro forma disclosure in the financial statement footnotes. The Company’s pro forma net income and
pro forma earnings per share for fiscal years ended December 27, 2005 and December 25, 2004, had compensation
costs for the Company’s stock option plans been determined under the fair value based method and recognition
provisions of SFAS 123 at the grant date, would have been as follows (in thousands, except per share amounts):
December 27,
2005
December 25,
2004
For the Fiscal Year Ended
Net income, as reported .................................... $52,183 $38,580
Add:
Total stock-based compensation expense included in reported net
income, net of tax ..................................... 513 —
Deduct:
Compensation expense determined using Black-Scholes, net of tax . . (4,628) (3,077)
Pro forma net income ...................................... $48,068 $35,503
Net income per share:
Basic, as reported ....................................... $ 1.69 $ 1.28
Basic, pro forma........................................ $ 1.56 $ 1.18
Diluted, as reported ..................................... $ 1.65 $ 1.25
Diluted, pro forma ...................................... $ 1.52 $ 1.15
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PANERA BREAD COMPANY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)