Equity Compensation

12 Months Ended

Dec. 25, 2011

Equity Compensation

17.  Equity Compensation

We award stock options and restricted stock from time to time under the Papa John’s International, Inc. 2011 Omnibus Incentive Plan and other such agreements as may arise. There are approximately 4.8 million shares of common stock authorized for issuance and remaining available under the 2011 Omnibus Incentive Plan as of December 25, 2011, which includes 2.0 million shares transferred from the Papa John’s International, Inc. 2008 Omnibus Incentive Plan. Option awards are granted with an exercise price equal to the market price of the Company’s stock at the date of grant. Options outstanding as of December 25, 2011 generally expire five years from the date of grant and vest over a 24- or 36-month period.

We recorded stock-based employee compensation expense of $6.7 million in 2011, $6.1 million in 2010 and $5.8 million in 2009. The total income tax benefit recognized in the income statement for share-based compensation arrangements was $2.2 million in 2011, $2.2 million in 2010 and $2.1 million in 2009. At December 25, 2011, there was $5.5 million of unrecognized compensation cost related to nonvested option awards and restricted stock, of which the Company expects to recognize $3.8 million in 2012, $1.5 million in 2013 and $200,000 in 2014.

Stock Options

Options exercised included 572,000 shares in 2011, 356,000 shares in 2010 and 612,000 shares in 2009. The total intrinsic value of the options exercised during 2011, 2010 and 2009 was $4.6 million, $2.6 million and $4.3 million, respectively. Cash received upon the exercise of stock options was $14.0 million, $6.4 million and $9.8 million during 2011, 2010 and 2009, respectively, and the related tax benefits realized were approximately $1.7 million, $943,000 and $1.5 million during the corresponding periods.

Information pertaining to option activity during 2011 is as follows (number of options and aggregate intrinsic value in thousands):

						Weighted
				Weighted		Average
	Number			Average		Remaining		Aggregate
	of			Exercise		Contractual		Intrinsic
	Options			Price		Term		Value
Outstanding at December 26, 2010		1,931		$	26.80
Granted		403			29.09
Exercised		(572	)		24.56
Cancelled		(334	)		31.74
Outstanding at December 25, 2011		1,428		$	27.19		2.63	$	15,259
Vested or expected to vest at December 25, 2011		1,396		$	27.04		2.69	$	14,919
Exercisable at December 25, 2011		791		$	26.40		1.77	$	9,077

The following is a summary of the significant assumptions used in estimating the fair value of options granted in 2011, 2010 and 2009:

	2011			2010			2009
Assumptions (weighted average):
Risk-free interest rate		1.5	%		1.8	%		1.3	%
Expected dividend yield		0.0	%		0.0	%		0.0	%
Expected volatility		0.41			0.43			0.41
Expected term (in years)		3.7			3.7			3.7

The risk-free interest rate for the periods within the contractual life of an option is based on the U.S. Treasury yield curve in effect at the time of grant. The estimated volatility is based on the historical volatility of our stock and other factors. The expected term of options represents the period of time that options granted are expected to be outstanding.

The weighted average grant-date fair values of options granted during 2011, 2010 and 2009 was $9.50, $9.13 and $7.26, respectively. The Company granted 403,000, 445,000 and 997,000 options in 2011, 2010 and 2009, respectively.

Restricted Stock

In 2011, 2010 and 2009, we granted shares of restricted stock that were 100% time-based and have a three-year graded vesting schedule. These restricted shares are intended to focus participants on our long-range objectives, while at the same time serving as a retention mechanism. Prior to 2009, we granted performance-based restricted stock, which vested based on the achievement of compounded annual growth rate (CAGR) of consolidated income, as defined. The fair value of the restricted stock is based on the market price of the Company’s shares on the grant date.

Information pertaining to restricted stock activity during 2011, 2010 and 2009 is as follows (shares in thousands):

				Weighted
				Average
				Grant-Date
	Shares			Fair Value
Total as of December 28, 2008		283		$	29.84
Granted		108			26.54
Forfeited		(121	)		30.03
Total as of December 27, 2009		270			28.34
Granted		171			27.13
Forfeited		(123	)		30.77
Vested		(34	)		26.40
Total as of December 26, 2010		284			26.62
Granted		160			29.07
Forfeited		(78	)		26.99
Vested		(116	)		27.27
Total as of December 25, 2011		250		$	28.19