Jack In The Box 2007 Annual Report Download - page 77

including the expected volatility of the stock price. The following weighted-average assumptions were used for
stock option grants in each year:
2007 2006 2005
Risk-free interest rate ........................................ 4.20% 4.12% 4.10%
Expected dividends yield ..................................... 0.00% 0.00% 0.00%
Expected stock price volatility .................................. 37.85% 34.88% 35.50%
Expected life of options (in years)............................... 4.65 5.92 6.00
In 2007, 2006 and the fourth quarter of fiscal 2005, 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 the first three quarters of 2005, 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 2007, 2006 and the fourth quarter of 2005, represents an average of the
implied volatility and the Company’s historical volatility. In 2005, 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.
The weighted-average grant-date fair value of options granted was $11.20, $10.21, and $6.86 in 2007, 2006,
and 2005, respectively. The intrinsic value of stock options is defined as the difference between the current market
value and the grant price. The total intrinsic value of stock options exercised was $47.6 million, $33.7 million, and
$25.5 million in 2007, 2006, and 2005, respectively.
As of September 30, 2007, there was approximately $13.7 million of total unrecognized compensation cost
related to stock options granted under our stock incentive plans. That cost is expected to be recognized over a
weighted-average period of 1.6 years.
Performance-vested stock awards — We began granting performance-vested stock awards to certain employ-
ees in fiscal year 2005. Performance awards represent a right to receive a certain number of shares of common stock
upon achievement of performance goals at the end of a three-year period. The expected cost of the shares is being
reflected over the performance period and is reduced for estimated forfeitures. The expected cost for all awards
granted is based on the fair value of our stock on the date of grant, reduced for estimated forfeitures, as it is our intent
to settle these awards with shares of common stock.
The following is a summary of performance-vested stock award activity for fiscal year 2007:
Shares
Weighted-
Average
Grant Date
Fair Value
Performance-vested stock awards outstanding at October 1, 2006 .......... 427,612 $19.60
Granted .................................................. 112,320 30.69
Issued ................................................... (1,244) 14.96
Forfeited ................................................. (14,840) 19.77
Performance-vested stock awards outstanding at September 30, 2007 ....... 523,848 $22.02
Vested and subject to release at September 30, 2007 ................... 146,116 $14.96
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JACK IN THE BOX INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)