Panera Bread 2006 Annual Report Download - page 61

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Under APB No. 25, the Company did not expense stock-based compensation costs during the fiscal years
ended December 27, 2005 and December 25, 2004. 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
Expected volatility is based on an average of the historical volatility of the Company’s stock, the implied
volatility of market options, peer company volatility, and other factors. The average expected life represents the
period of time that option grants are expected to be outstanding and is derived from historical terms and other
factors. The risk-free rate is based on the rate of U.S. Treasury zero-coupon issues with a remaining term equal to
the expected life of option grants. The Company uses historical data to estimate pre-vesting forfeiture rates.
The weighted average fair value of the options granted during 2005 and 2004 was $21.19 per share and
$13.49 per share, respectively, on the date of grant using the Black-Scholes option-pricing model with the following
assumptions: expected dividend yield of 0%, expected volatility of 36% in 2005 and 2004, risk-free interest rate of
4.04% in 2005 and 3.42% in 2004, and an expected life of 5 years in 2005 and 2004.
The weighted average fair value of options granted during 2006 of $19.18 was estimated on the grant date
using the Black-Scholes option-pricing model with the following assumptions: expected volatility of 30%, expected
term of 5 years, risk-free interest rate of 4.84%, and expected dividend yield of 0%.
56
PANERA BREAD COMPANY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)