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9. Stock-Based Compensation
From time to time, the Company has granted nonqualified stock options, restricted stock awards, cash-settled and stock-settled restricted stock units and performance units to officers, other employees and non-employee directors of the Company. Currently, the Company is authorized to grant nonqualified stock options, stock appreciation rights, restricted stock awards, cash-settled and stock-settled restricted stock units and performance units to officers, other employees and nonemployee directors under the DineEquity, Inc. 2011 Stock Incentive Plan (the “2011 Plan”). The 2011 Plan was approved by stockholders on May 17, 2011 and permits the issuance of up to 1,500,000 shares of the Company’s common stock for incentive stock awards.
The nonqualified stock options generally vest over a three-year period and have a term of ten years from the effective issuance date. Option exercise prices equal the closing price of the Company’s common stock on the New York Stock Exchange on the date of grant. Restricted stock awards and restricted stock units are issued at no cost to the holder and vest over terms determined by the Compensation Committee of the Company’s Board of Directors, generally three years.
The following table summarizes the components of the Company’s stock-based compensation expense included in general and administrative expenses in the consolidated financial statements:
|
|
|
Three Months Ended
June 30, |
|
Six Months Ended
June 30, |
|
|
|
|
2011 |
|
2010 |
|
2011 |
|
2010 |
|
|
|
|
(In millions) |
|
|
Pre-tax compensation expense |
|
$ |
3.3 |
|
$ |
3.3 |
|
$ |
6.4 |
|
$ |
8.2 |
|
|
Tax provision |
|
(1.3 |
) |
(1.3 |
) |
(2.5 |
) |
(3.3 |
) |
|
Total stock-based compensation expense, net of tax |
|
$ |
2.0 |
|
$ |
2.0 |
|
$ |
3.9 |
|
$ |
4.9 |
|
As of June 30, 2011, $7.9 million and $9.0 million (including estimated forfeitures) of total unrecognized compensation cost related to restricted stock and stock options, respectively, is expected to be recognized over a weighted average period of 1.66 years for restricted stock and 1.57 years for stock options.
The estimated fair values of the options granted during 2011 were calculated using a Black-Scholes option pricing model. The following summarizes the assumptions used in the Black-Scholes model:
|
Risk-free interest rate |
|
2.11 |
% |
|
Weighted average historical volatility |
|
82.5 |
% |
|
Dividend yield |
|
— |
|
|
Expected years until exercise |
|
4.85 |
|
|
Forfeitures |
|
11.0 |
% |
|
Weighted average fair value of options granted |
|
$ |
37.03 |
|
|
|
|
|
|
Option balances as of June 30, 2011 and activity related to the Company’s stock options during the six-month period then ended were as follows:
|
|
|
Shares |
|
Weighted
Average
Exercise
Price |
|
Weighted Average
Remaining
Contractual Term
(in Years) |
|
Aggregate
Intrinsic
Value |
|
|
Outstanding at December 31, 2010 |
|
1,523,710 |
|
$ |
24.90 |
|
|
|
|
|
|
Granted |
|
170,949 |
|
$ |
56.58 |
|
|
|
|
|
|
Exercised |
|
(376,083 |
) |
$ |
16.59 |
|
|
|
|
|
|
Forfeited |
|
(10,355 |
) |
$ |
16.85 |
|
|
|
|
|
|
Outstanding at June 30, 2011 |
|
1,308,221 |
|
$ |
31.49 |
|
7.28 |
|
$ |
29,553,000 |
|
|
Vested at June 30, 2011 and Expected to Vest |
|
1,121,962 |
|
$ |
32.44 |
|
7.09 |
|
$ |
24,252,000 |
|
|
Exercisable at June 30, 2011 |
|
565,602 |
|
$ |
35.36 |
|
5.59 |
|
$ |
10,374,000 |
|
The aggregate intrinsic value in the table above represents the total pre-tax intrinsic value (the difference between the closing stock price of the Company’s common stock on the last trading day of the second quarter of 2011 and the exercise price, multiplied by the number of in-the-money options) that would have been received by the option holders had all option holders exercised their options on June 30, 2011. The amount of aggregate intrinsic value will change based on the fair market value of the Company’s common stock and the number of in-the-money options.
A summary of restricted stock activity for the six months ended June 30, 2011 is presented below:
|
|
|
Restricted
Stock |
|
Weighted
Average
Grant Date
Fair Value |
|
Restricted
Stock Units |
|
Weighted
Average
Grant Date
Fair Value |
|
|
Outstanding at December 31, 2010 |
|
666,244 |
|
$ |
28.62 |
|
18,000 |
|
$ |
29.32 |
|
|
Granted |
|
112,124 |
|
$ |
56.45 |
|
— |
|
— |
|
|
Released |
|
(244,465 |
) |
$ |
42.77 |
|
— |
|
— |
|
|
Forfeited |
|
(32,019 |
) |
$ |
25.98 |
|
— |
|
— |
|
|
Outstanding at June 30, 2011 |
|
501,884 |
|
$ |
28.12 |
|
18,000 |
|
$ |
29.32 |
|
The Company has issued 44,957 shares of cash-settled restricted stock units to members of the Board of Directors, of which 41,957 are outstanding at June 30, 2011. As these instruments only can be settled in cash, they are recorded as liabilities based on the closing price of the Company’s common stock as of June 30, 2011. For the six months ended June 30, 2011 and 2010, $0.8 million and $0.7 million, respectively, were included as pre-tax stock-based compensation expense for the cash-settled restricted stock units.
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