Jack In The Box 2006 Annual Report Download - page 74

JACK IN THE BOX INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)
F-24
10. SHARE-BASED EMPLOYEE COMPENSATION (continued)
Employee stock purchase plan — In February 2006, the stockholders of the Company approved an employee
stock purchase plan for all eligible employees to purchase shares of common stock at 95% of the fair market
value on the date of purchase. Employees may authorize the Company to withhold up to 15% of their base
compensation during any offering period, subject to certain limitations. A maximum of 100,000 shares of
common stock may be issued under the plan. As of October 1, 2006, no shares have been issued. During fiscal
2006, the Company received cash from employees of $136 for the first offering period, which began June 1,
2006.
Stock options — Generally, options granted to employees have contractual terms up to 11 years and provide for
an option exercise price of 100% of the closing market value of the common stock at the date of grant.
Furthermore, options generally vest over a four-year period, or sooner for employees meeting certain age and
years of service thresholds. Options issued to directors vest over a period of six months.
The following is a summary of stock option activity for fiscal year 2006:
Shares
Weighted-
average
exercise
price
Weighted-
average
remaining
contractual
term (years)
Aggregate
intrinsic
value
Options outstanding at October 2, 2005................................. 4,473,700 $ 23.56
Granted............................................................................... 373,600 48.46
Exercised ............................................................................ (1,609,554) 21.66
Forfeited ............................................................................. (107,367) 22.79
Expired ............................................................................... (12,862) 19.73
Options outstanding at October 1, 2006 ................................. 3,117,517 27.57 6.37 $ 76,830
Options exercisable at October 1, 2006.................................. 1,933,699 24.56 5.29 53,402
Options exercisable and expected to vest at
October 1, 2006 .................................................................... 3,072,616 27.39 6.36 76,156
Effective in the fourth quarter of fiscal 2005, we began utilizing a binomial-based model to determine the fair
value of options granted. The fair value of all prior options granted has been estimated on the date of grant using
the Black-Scholes option-pricing model. Valuation models require the input of highly subjective assumptions,
including the expected volatility of the stock price. The following weighted-average assumptions were used for
stock option grants in each year:
2006 2005 2004
Risk-free interest rate ....................................................................................... 4.12% 4.10% 3.70%
Expected dividends yield.................................................................................. 0.00% 0.00% 0.00%
Expected stock price volatility ......................................................................... 34.88% 35.50% 40.40%
Expected life of options (in years).................................................................... 5.92 6.00 6.00
In 2006, the risk-free interest rate was determined by a yield curve of risk-free rates based on published U.S.
Treasury spot rates in effect at the time of grant, and has a term equal to the expected life. In 2005 and 2004, the
risk-free rates were based on the grant date rate for zero coupon U.S. government issues with a remaining term
similar to the expected life.
The dividend yield assumption is based on the Company’ s history and expectations of dividend payouts.
The expected stock price volatility in 2006 represents an average of the implied volatility and the Company’ s
historical volatility. In 2005 and 2004, prior to using a binomial-based model, the expected stock price volatility
was based on the historical volatility of the Company’ s stock for a period approximating the expected life.
The expected life of the options represents the period of time the options are expected to be outstanding and is
based on historical trends.