Baskin Robbins 2011 Annual Report Download - page 107

Executive stock options granted during fiscal year 2011 consisted of the following:
Grant Date
Number of
awards
granted
Option
exercise
price
Fair value of
underlying
common stock
3/9/2011 .................................... 637,040 $ 7.31 $ 7.31
7/26/2011 ................................... 191,000 $19.00 $19.00
Prior to the initial public offering, the fair value of the common stock underlying the options granted was
determined based on a contemporaneous valuation performed by an independent third-party valuation specialist
in accordance with the guidelines outlined in the American Institute of Certified Public Accountants Practice
Aid, Valuation of Privately-Held-Company Equity Securities Issued as Compensation.
As of December 31, 2011, there was $1.6 million of total unrecognized compensation cost related to Tranche 4
options, which is expected to be recognized over a weighted average period of approximately 3.2 years. As of
December 31, 2011, there was $590 thousand of total unrecognized compensation cost related to the 28.5% of
Tranche 5 options for which the performance condition had been achieved but the requisite service had not yet
been provided, which is expected to be recognized over a weighted average period of approximately 3.5 years.
The total unrecognized compensation cost related to the remaining 71.5% of Tranche 5 options is $4.7 million,
and will not be recognized until the related performance condition is deemed probable of occurring.
2006 Plan stock options—nonexecutive and 2011 Plan stock options
During fiscal years 2011, 2010, and 2009, the Company granted options to nonexecutives to purchase 50,491
shares, 222,198 shares, and 14,908 shares, respectively, of common stock under the 2006 Plan. Additionally,
during fiscal year 2011, the Company granted options to certain employees to purchase 292,700 shares of
common stock under the 2011 Plan. The nonexecutive options and 2011 Plan options vest in equal annual
amounts over either a four- or five-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 2011,
2010, and 2009:
Fiscal year ended
December 31,
2011
December 25,
2010
December 26,
2009
Weighted average grant-date fair value of share options granted .... $10.27 2.88 0.79
Weighted average assumptions:
Risk-free interest rate .................................. 1.2%-2.7% 2.1% 2.3%
Expected volatility .................................... 43.0%-72.0% 58.0% 37.0%
Dividend yield ....................................... — — —
Expected term (years) ................................. 6.25-6.5 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 Company did not
anticipate paying dividends on the underlying common stock at the date of grant.
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