Wendy's 2010 Annual Report Download - page 124

WENDY’S/ARBY’S GROUP, INC. AND SUBSIDIARIES
WENDY’S/ARBY’S RESTAURANTS, LLC AND SUBSIDIARIES
COMBINED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED
(In Thousands Except Per Share Amounts)
The weighted average fair value per share as of the grant date as calculated under the Black-Scholes Model for
stock options granted during 2010, 2009 and 2008 (which were all granted at exercise prices equal to the market price
of Wendy’s/Arby’s Common Stock or Class B common stock on the grant date) were as follows:
Common Stock
Options
Class B
Options
2010 ......................................................... $1.47 N/A
2009 ......................................................... $1.83 N/A
2008 ......................................................... $2.12 $2.20
The fair value of stock options on the date of grant and as of the Merger Date for options assumed in 2008 was
calculated utilizing the following weighted average assumptions:
2010 2009 2008
Common
Stock
Options
Common
Stock
Options
Common
Stock
Options
Class B
Options
Risk-free interest rate ........................................... 2.01% 2.46% 2.13% 3.78%
Expected option life in years ..................................... 5.4 5.1 6.2 7.5
Expected volatility ............................................. 45.2% 49.6% 47.0% 36.0%
Expected dividend yield ......................................... 1.53% 1.35% 1.29% 2.53%
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 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 Wendy’s/Arby’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. Employee stock
option awards have characteristics significantly different from those of traded options and changes in the subjective
input assumptions can materially affect the fair value estimates.
The Companies’ current 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.
Wendy’s/Arby’s reduced the exercise prices of all outstanding stock options for the DFR dividend distributed to
shareholders of record as of March 29, 2008. The exercise prices were reduced by $0.39 for each of the Package
Options and by $0.13 for each of the Common Stock Options and Class B Options.
Restricted Shares
Wendy’s/Arby’s issues restricted share awards (“RSAs”) and restricted share units (“RSUs”). For the purposes of
our disclosures, the term “Restricted Shares” applies to RSAs and RSUs collectively unless otherwise noted.
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