Papa Johns 2000 Annual Report Download - page 65

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60
17. Stock Options (continued)
Pro forma information regarding net income and earnings per share is required by SFAS 123, which also
requires that the information be determined as if we have accounted for our employee stock options
granted subsequent to December 25, 1994 under the fair value method of that Statement. The fair value
for these options was estimated at the date of grant using a Black-Scholes option pricing model, which
was developed for use in estimating the fair value of traded options which have no vesting restrictions and
are fully transferable. Option valuation models require the input of highly subjective assumptions including
the expected stock price volatility. Because our employee stock options have characteristics significantly
different from those of traded options, and because changes in the subjective input assumptions can
materially affect the fair value estimate, in management’ s opinion, the existing models do not necessarily
provide a reliable single measure of the fair value of our employee stock options.
For purposes of pro forma disclosures, the estimated fair value of the options is amortized to expense over
the options’ vesting period. Our pro forma information follows, along with the indicated weighted average
assumptions used:
2000 1999 1998
Pro forma net income before cumulative effect
of a change in accounting principle (in thousands) 25,806$ 39,349$ 26,457$
Pro forma earnings per share:
Basic 1.04$ 1.30$ .90$
Assuming dilution 1.04$ 1.27$ .87$
Assumptions (weighted average):
Risk-free interest rate 5.3% 6.0% 4.8%
Expected dividend yield 0.0% 0.0% 0.0%
Expected volatility 0.49 0.47 0.47
Expected life (in years) 4.6 4.0 4.0
Because SFAS 123 is applicable only to options granted subsequent to December 25, 1994, our pro forma
effect was not fully reflected until 2000 when the complete five years of vesting occurred for 1995 option
awards.
Information pertaining to options for 2000, 1999 and 1998 is as follows (number of options in thousands):
2000 1999 1998
Number of Weighted-Average Number of Weighted-Average Number of Weighted-Average
Options Exercise Price Options Exercise Price Options Exercise Price
Outstanding-beginning of year 5,740 $28.55 5,782 $28.54 5,197 $25.28
Granted 197 24.59 1,216 26.68 1,535 37.90
Exercised 149 14.50 636 22.72 545 21.41
Cancelled 519 32.18 622 32.83 405 29.53
Outstanding-end of year 5,269 $28.53 5,740 $28.55 5,782 $28.54
Exercisable-end of year 3,394 $28.06 2,638 $27.30 2,232 $25.64
Weighted-average fair value
of options granted during
the year $9.02 $9.22 $13.43