Dunkin' Donuts 2013 Annual Report Download - page 93

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A summary of the status of the Company’s executive stock options as of December 28, 2013 and changes during fiscal year
2013 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 29, 2012 3,331,993 $ 3.85 7.3
Exercised (932,519) 3.68
Forfeited or expired (193,527) 7.15
Share options outstanding at December 28, 2013 2,205,947 3.64 6.3 $ 97.3
Share options exercisable at December 28, 2013 1,067,692 3.29 6.2 47.5
The total grant-date fair value of executive stock options vested during fiscal years 2013, 2012, and 2011 was $1.8 million,
$2.8 million, and $862 thousand, respectively. The total intrinsic value of executive stock options exercised was $35.3 million,
$33.8 million, and $489 thousand for fiscal years 2013, 2012, and 2011, respectively. As of December 28, 2013, there was $682
thousand 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 1.6 years.
2006 Plan stock options—nonexecutive and 2011 Plan stock options
During fiscal year 2011, the Company granted options to nonexecutives to purchase 50,491 shares of common stock under the
2006 Plan. Additionally, during fiscal years 2013, 2012, and 2011, the Company granted options to certain employees to
purchase 1,177,999, 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 2013, 2012, and 2011:
Fiscal year ended
December 28,
2013
December 29,
2012
December 31,
2011
Weighted average grant-date fair value of share options granted 9.92 10.65 10.27
Weighted average assumptions:
Risk-free interest rate 1.2% 0.8%-1.4% 1.2%-2.7%
Expected volatility 33.0% 43.0% 43.0%-72.0%
Dividend yield 2.0% 1.8%-2.1% —
Expected term (years) 6.25 6.25 6.25-6.5
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.