Wendy's 2008 Annual Report Download - page 145

(a) The weighted average remaining contractual terms for the Package Options and Class A Options that are
vested or are expected to vest at December 28, 2008 are 2.9 years and 8.3 years, respectively.
The weighted average fair value per share as of the grant date as calculated under the Black-Scholes Model
of the Company’s stock options granted during 2008, 2007 and 2006, which were granted at exercise prices
equal to the market price of the Company’s common stock on the grant date were as follows:
Class A
Options
Class B
Options
2008 ..................................................................... 2.12 2.20
2007 ..................................................................... 4.57 4.52
2006 ..................................................................... 3.37 4.79
The fair value of the Company’s stock options on the date of grant and as of the merger date for options
assumed was calculated under the Black-Scholes Model with the weighted average assumptions set forth as
follows:
Class A
Options
Class B
Options
Class A
Options
Class B
Options
Class A
Options
Class B
Options
2008 2007 2006
Risk-free interest rate ............................. 2.13% 3.78% 4.88% 4.69% 4.83% 4.90%
Expected option life in years....................... 6.2 7.5 8.4 7.5 3.8 6.9
Expected volatility . ............................... 47.0% 36.0% 20.9% 26.5% 20.9% 27.4%
Expected dividend yield ........................... 1.29% 2.53% 2.01% 2.38% 2.00% 2.42%
The risk-free interest rate represents the U.S. Treasury zero-coupon bond yield approximating the
expected option life of stock options granted during the respective years. The expected option life represents
the period of time that the stock options granted during the period are expected to be outstanding based on
the Company’s historical exercise trends for similar grants. The expected volatility is based on the historical
market price volatility of the classes of common stock for the related options granted during the years. The
expected dividend yield represents the Company’s annualized average yield for regular quarterly dividends
declared prior to the respective stock option grant dates.
The Black-Scholes Model has limitations on its effectiveness including that it was developed for use in
estimating the fair value of traded options which have no vesting restrictions and are fully transferable and that
the model requires the use of highly subjective assumptions including expected stock price volatility. The
Company’s stock option awards to employees have characteristics significantly different from those of traded
options and changes in the subjective input assumptions can materially affect the fair value estimates.
As of December 28, 2008, there was $16,408 of total unrecognized compensation cost related to
nonvested share-based compensation grants which would be recognized over a weighted-average period of 2.6
years. The Company’s currently outstanding stock options have maximum contractual terms of ten years and,
with certain exceptions, vest ratably over three years. All of the options under the Wendy’s Plans that were
granted prior to 2008 vested immediately as of the date of the Wendy’s Merger. Options granted under the
Wendy’s Plans during 2008, regardless of whether they were granted before or after the merger, vest ratably
over three years from the date of grant, with certain exceptions.
All discussions below related to option activity for prior years include a discussion of the then available
Class B Common Stock or options which, if they were still outstanding as of the date of the Wendy’s Merger,
have been converted to Class A Common Stock or options exercisable into Class A Common Stock.
The Company reduced the exercise prices of all outstanding stock options for the DFR dividend
distributed to shareholders of record as of March 29, 2008 (see Note 3). The exercise prices were reduced by
$0.39 for each of the Package Options and by $0.13 for each of the Class A Options and Class B Options.
137
Wendy’s/Arby’s Group, Inc. and Subsidiaries
(Formerly Triarc Companies, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED
(In Thousands Except Per Share Amounts)