CAKE » Topics » Stock-Based Compensation

These excerpts taken from the CAKE 10-K filed Feb 27, 2009.

Stock-Based Compensation

 

We apply the Black-Scholes valuation model in determining the fair value of stock option grants, which requires the use of subjective assumptions, including the volatility of our common stock price and the length of time employees will retain their vested stock options prior to exercise.  Additionally, we estimate the expected forfeiture rate related to both stock options and restricted stock in determining the amount of stock-based compensation expense for each period.  Changes in these assumptions can materially affect our results of operations.   See Note 12

 

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Table of Contents

 

of Notes to Consolidated Financial Statements in Part IV, Item 15 of this report for further discussion of stock-based compensation.

 

Stock-Based Compensation



 



We apply the Black-Scholes valuation model in determining the fair
value of stock option grants, which requires the use of subjective assumptions,
including the volatility of our common stock price and the length of time
employees will retain their vested stock options prior to exercise.  Additionally, we estimate the expected
forfeiture rate related to both stock options and restricted stock in
determining the amount of stock-based compensation expense for each
period.  Changes in these assumptions can
materially affect our results of operations.  
See Note 12



 



44
















Table of Contents



 



of Notes to Consolidated
Financial Statements in Part IV, Item 15 of this report for further
discussion of stock-based compensation.



 



Stock-Based Compensation

 

We maintain performance incentive plans under which incentive stock options, non-qualified stock options, stock appreciation rights, restricted shares, deferred shares, performance shares and performance units may be granted to employees and consultants.  To date, we have only granted non-qualified stock options and restricted shares of common stock under these plans.  Stock options generally vest at 20% per year or, in the case of restaurant management, cliff vest in five years and expire eight to ten years from the date of grant.  Certain stock options require that either the grantee or the Company satisfy specified performance criteria prior to exercisability of vested stock options.  Restricted shares vest 100% not prior to three years from the date of grant, and require that the staff member remains employed in good standing with the Company as of the vesting date.  Certain executive officer stock options and restricted stock may vest earlier in the event of a change of control, as defined in the plan.

 

Non-employee directors have received only non-qualified stock options under a non-employee director equity plan, which expired in May 2007.  Currently, we do not have a plan under which non-employee directors may be granted stock options or other equity interests in the Company.

 

We apply the Black-Scholes valuation model in determining the fair value of stock option grants, which is then amortized on a straight-line basis over the requisite service period.  See Note 12 for discussion of the assumptions utilized in our stock option valuation model.   We reclassify the excess tax benefit resulting from the exercise of stock options out of cash flows from operating activities and into cash flows from financing activities on the consolidated statements of cash flows.

 

Stock-Based Compensation



 



We maintain performance
incentive plans under which incentive stock options, non-qualified stock
options, stock appreciation rights, restricted shares, deferred shares,
performance shares and performance units may be granted to employees and
consultants.  To date, we have only granted
non-qualified stock options and restricted shares of common stock under these
plans.  Stock options generally vest at 20% per year or, in the case of
restaurant management, cliff vest in five years and expire eight to ten years
from the date of grant.  Certain stock
options require that either the grantee or the Company satisfy specified
performance criteria prior to exercisability of vested stock options.  Restricted shares vest 100% not prior to
three years from the date of grant, and require that the staff member remains
employed in good standing with the Company as of the vesting date.  Certain executive officer stock options and
restricted stock may vest earlier in the event of a change of control, as
defined in the plan.



 



Non-employee
directors have received only non-qualified stock options under a non-employee
director equity plan, which expired in May 2007.  Currently, we do not have a plan under which
non-employee directors may be granted stock options or other equity interests
in the Company.



 



We apply the
Black-Scholes valuation model in determining the fair value of stock option
grants, which is then amortized on a straight-line basis over the requisite
service period.  See Note 12 for
discussion of the assumptions utilized in our stock option valuation
model.   We reclassify the excess tax
benefit resulting from the exercise of stock options out of cash flows from
operating activities and into cash flows from financing activities on the
consolidated statements of cash flows.



 



12.  Stock-Based Compensation

 

We maintain performance incentive plans under which incentive stock options, non-qualified stock options, stock appreciation rights, restricted shares, deferred shares, performance shares and performance units may be granted to employees and consultants.  Our current practice is to issue new shares, rather than treasury shares, upon stock option exercises and for restricted share grants.  Our current performance incentive plans cumulatively permit the issuance of up to 20.0 million shares of our common stock, of which 6.4 million are currently available for grant.  To date, we have only granted non-qualified stock options and restricted shares of common stock under these plans.  Stock options generally vest at 20% per year or, in the case of restaurant management, cliff vest in five years and expire eight to ten years from the date of grant.  Certain stock options require that either the grantee or the Company satisfy specified performance criteria prior to exercisability of vested stock options.  Restricted shares vest 100% not prior to three years from the date of grant, and require that the staff member remains employed in good standing with the Company as of the vesting date.  Certain executive officer stock options and restricted stock may vest earlier in the event of a change of control, as defined in the plan.

 

Non-employee directors have received only non-qualified stock options under a non-employee director equity plan, which expired in May 2007.  Currently, we do not have a plan under which non-employee directors may be granted stock options or other equity interests in the Company.

 

Stock-based compensation totaled $13.1 million, $18.2 million and $18.2 million for fiscal 2008, 2007 and 2006, respectively.  The total income tax benefit recognized in the consolidated statements of operations related to stock-based compensation was $3.9 million, $5.5 million and $5.1 million during fiscal 2008, 2007 and 2006, respectively.  Capitalized stock-based compensation for fiscal years 2008, 2007 and 2006 was $1.3 million, $1.7 million and $1.3 million, respectively and was included in property and equipment, net and other assets on the consolidated balance sheet.

 

12.  Stock-Based Compensation



 



We
maintain performance incentive plans under which incentive stock options, non-qualified
stock options, stock appreciation rights, restricted shares, deferred shares,
performance shares and performance units may be granted to employees and
consultants. 
Our current practice
is to issue new shares, rather than treasury shares, upon stock option
exercises and for restricted share grants. 
Our current performance
incentive plans cumulatively permit the issuance of up to 20.0 million shares
of our common stock, of which 6.4 million are currently available for
grant.  To date, we have only granted non-qualified stock options and
restricted shares of common stock under these plans.  Stock options
generally vest at 20% per year or, in the case of restaurant management, cliff
vest in five years and expire eight to ten years from the date of grant.  Certain stock options require that either the
grantee or the Company satisfy specified performance criteria prior to
exercisability of vested stock options. 
Restricted shares vest 100% not prior to three years from the date of
grant, and require that the staff member remains employed in good standing with
the Company as of the vesting date. 
Certain executive officer stock options and restricted stock may vest
earlier in the event of a change of control, as defined in the plan.



 



Non-employee
directors have received only non-qualified stock options under a non-employee
director equity plan, which expired in May 2007.  Currently, we do not have a plan under which
non-employee directors may be granted stock options or other equity interests
in the Company.



 



Stock-based
compensation totaled $13.1 million,
$18.2 million and $18.2 million for fiscal 2008, 2007 and
2006, respectively.  The total income tax
benefit recognized in the consolidated statements of operations related to
stock-based compensation was $3.9 million, $5.5 million and $5.1 million during
fiscal 2008, 2007 and 2006, respectively. 
Capitalized stock-based compensation for fiscal years 2008, 2007 and
2006 was $1.3 million, $1.7 million and $1.3 million, respectively and was
included in property and equipment, net and other assets on the consolidated
balance sheet.



 



These excerpts taken from the CAKE 10-K filed Feb 28, 2008.

Stock-Based Compensation

 

We maintain performance incentive plans under which incentive stock options, non-qualified stock options, stock appreciation rights, restricted shares, deferred shares, performance shares and performance units may be granted to employees and consultants.  Non-employee directors may receive non-qualified stock options only.  Our current performance incentive plans permit the issuance of up to 20.0 million shares of our common stock, of which 6.8 million are available for grant.  To date, we have only granted non-qualified stock options and restricted shares under these plans.  Stock options generally vest at 20% per year or cliff vest in five years, expire ten years from the date of grant, and become exercisable provided that we or the grantee meet or exceed certain performance criteria approved by our Board of Directors.  Restricted shares generally vest 100% after three years and are not subject to performance criteria.  Our current practice is to issue new shares, rather than treasury shares, upon stock option exercises and for restricted share grants.

 

Prior to the January 4, 2006 adoption of Financial Accounting Standards Board (“FASB”) Statement No. 123(R), “Share-Based Payment” (“SFAS 123R”), we accounted for stock-based compensation using the intrinsic value method prescribed in Accounting Principles Board (“APB”) Opinion No. 25, “Accounting for Stock Issued to Employees,” and, therefore, recognized expense for certain grants of stock options that were issued at a discount to directors, officers and employees.  As permitted by SFAS 123, “Accounting for Stock-Based Compensation” (“SFAS 123”), stock-based compensation based on grant date fair value was included as a pro forma disclosure in the Notes to the Financial Statements.

 

Effective January 4, 2006, we adopted SFAS 123R using the modified prospective transition method and, as a result, did not retroactively adjust results from prior periods. Under this transition method, stock-based compensation was recognized for: 1) expense related to the remaining unvested portion of all stock option awards granted prior to January 4, 2006, based on the grant date fair value estimated in accordance with the original provisions of SFAS 123; and 2) expense related to all stock option awards granted on or subsequent to January 4, 2006, based on the grant date fair value estimated in accordance with the provisions of SFAS 123R.  We apply the Black-Scholes valuation model in determining the fair value of share-based payments to employees, which is then amortized on a straight-line basis over the requisite service period.

 

Stock-Based
Compensation



 



We maintain performance
incentive plans under which incentive stock options, non-qualified stock
options, stock appreciation rights, restricted shares, deferred shares,
performance shares and performance units may be granted to employees and
consultants.  Non-employee directors may receive
non-qualified stock options only.  Our
current performance incentive plans permit the issuance of up to 20.0 million
shares of our common stock, of which 6.8 million are available for grant. 
To date, we have only granted non-qualified stock options and restricted shares
under these plans.  Stock options generally vest at 20% per year or cliff
vest in five years, expire ten years from the date of grant, and become
exercisable provided that we or the grantee meet or exceed certain performance
criteria approved by our Board of Directors. 
Restricted shares generally vest 100% after three years and are not
subject to performance criteria.  Our
current practice is to issue new shares, rather than treasury shares, upon
stock option exercises and for restricted share grants.



 



Prior to the January 4,
2006 adoption of Financial Accounting Standards Board (“FASB”) Statement No. 123(R),
“Share-Based Payment” (“SFAS 123R”), we accounted for stock-based compensation
using the intrinsic value method prescribed in Accounting Principles Board (“APB”)
Opinion No. 25, “Accounting for Stock Issued to Employees,” and,
therefore, recognized expense for certain grants of stock options that were
issued at a discount to directors, officers and employees.  As permitted
by SFAS 123, “Accounting for Stock-Based Compensation” (“SFAS 123”),
stock-based compensation based on grant date fair value was included as a pro
forma disclosure in the Notes to the Financial Statements.



 



Effective January 4,
2006, we adopted SFAS 123R using the modified prospective transition method
and, as a result, did not retroactively adjust results from prior periods.
Under this transition method, stock-based compensation was recognized for: 1)
expense related to the remaining unvested portion of all stock option awards
granted prior to January 4, 2006, based on the grant date fair value
estimated in accordance with the original provisions of SFAS 123; and 2)
expense related to all stock option awards granted on or subsequent to January 4,
2006, based on the grant date fair value estimated in accordance with the
provisions of SFAS 123R.  We apply the Black-Scholes valuation model in
determining the fair value of share-based payments to employees, which is then
amortized on a straight-line basis over the requisite service period.



 



This excerpt taken from the CAKE 10-K filed Feb 22, 2007.

Stock-Based Compensation

We maintain performance incentive plans under which incentive stock options, non-qualified stock options, stock appreciation rights, restricted shares, deferred shares, performance shares and performance units may be granted to employees and consultants.  Non-employee directors may receive non-qualified stock options only.  Our current performance incentive plans permit the issuance of up to 20.0 million shares of our common stock, of which 8.3 million are available for grant.  To date, we have only granted non-qualified stock options and restricted shares under these plans.  Stock options generally vest at 20% per year or cliff vest in five years, expire ten years from the date of grant, and become exercisable provided that we or the grantee meet or exceed certain performance criteria approved by our Board of Directors.  Restricted shares generally vest 100% after three years and are not subject to performance criteria.  Our current practice is to issue new shares, rather than treasury shares, upon stock option exercises and for restricted share grants.

59




Prior to the January 4, 2006 adoption of Financial Accounting Standards Board (“FASB”) Statement No. 123(R), “Share-Based Payment” (“SFAS 123R”), we accounted for stock-based compensation using the intrinsic value method prescribed in Accounting Principles Board (“APB”) Opinion No. 25, “Accounting for Stock Issued to Employees,” and, therefore, recognized expense for certain grants of stock options that were issued at a discount to directors, officers and employees.  As permitted by SFAS 123, “Accounting for Stock-Based Compensation” (“SFAS 123”), stock-based compensation based on grant date fair value was included as a pro forma disclosure in the Notes to the  Financial Statements.

Effective January 4, 2006, we adopted SFAS 123R using the modified prospective transition method and, as a result, did not retroactively adjust results from prior periods. Under this transition method, stock-based compensation was recognized for: 1) expense related to the remaining unvested portion of all stock option awards granted prior to January 4, 2006, based on the grant date fair value estimated in accordance with the original provisions of SFAS 123; and 2) expense related to all stock option awards granted on or subsequent to January 4, 2006, based on the grant date fair value estimated in accordance with the provisions of SFAS 123R.  We apply the Black-Scholes valuation model in determining the fair value of share-based payments to employees, which is then amortized on a straight-line basis over the requisite service period.

This excerpt taken from the CAKE 10-Q filed Dec 8, 2006.

Stock-Based Compensation

We account for stock-based compensation in accordance with the provisions of SFAS 123R.  We use the Black-Scholes option-pricing model, which requires the input of highly subjective assumptions.  These assumptions include estimating the length of time employees will retain their stock options before exercising them (“expected term”), the estimated volatility of the Company’s common stock price over the expected term and the number of options that will ultimately not complete their vesting requirements (“forfeitures”). Changes in the subjective assumptions can materially affect the estimated fair value of stock-based compensation and consequently, the related amount recognized on the consolidated statements of operations.  See Note 4 of the Notes to Consolidated Financial Statements in this Form 10-Q/A for further discussion of stock-based compensation.

There have been no material changes to the other critical accounting policies previously reported in our Annual Report on Form 10-K/A for the fiscal year ended January 3, 2006.

This excerpt taken from the CAKE 10-Q filed Dec 8, 2006.

Stock-Based Compensation

We account for stock-based compensation in accordance with the provisions of SFAS 123R.  We use the Black-Scholes option-pricing model, which requires the input of highly subjective assumptions.  These assumptions include estimating the length of time employees will retain their stock options before exercising them (“expected term”), the estimated volatility of the Company’s common stock price over the expected term and the number of options that will ultimately not complete their vesting requirements (“forfeitures”). Changes in the subjective assumptions can materially affect the estimated fair value of stock-based compensation and consequently, the related amount recognized on the consolidated statements of operations.  See Note 4 of the Notes to Consolidated Financial Statements in this Form 10-Q for further discussion of stock-based compensation.

There have been no material changes to the other critical accounting policies previously reported in our Annual Report on Form 10-K/A for the fiscal year ended January 3, 2006.

This excerpt taken from the CAKE 10-K filed Dec 8, 2006.

Stock-Based Compensation

We maintain performance incentive plans under which incentive stock options, non-qualified stock options, stock appreciation rights, restricted shares, deferred shares, performance shares and performance units may be granted to employees, consultants and non-employee directors.  To date, we have only granted non-qualified stock options under these plans.  We account for stock-based compensation using the intrinsic value method prescribed in Accounting Principles Board (“APB”) Opinion No. 25, “Accounting for Stock Issued to Employees,” and related interpretations.  Historically, no compensation expense was recognized for Company-issued stock options.  As permitted by SFAS 123, “Accounting for Stock-Based Compensation” (“SFAS 123”), stock-based compensation was included as a pro forma disclosure in the Notes to the Consolidated Financial Statements.

However, as further discussed in Note 1 of Notes to Consolidated Financial Statements in Part II, Item 8 of this report, the Audit Committee of our Board of Directors initiated a voluntary review of our stock option granting practices from 1992 to the present.  The review encompassed all grants made under our various stock option plans in effect during this period.  Based on the results of this review, we restated our historical accounting to correct the application of the measurement date, as defined in Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees,” for certain grants of stock options to directors, officers and employees, resulting from administrative oversight and the date selection methods used by the Company.  The restatement adjustments were non-cash and had no impact on revenues or net cash flow.

In December 2004, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 123 (revised 2004), “Share-Based Payment,” which requires compensation expense associated with stock options to be included in the financial statements beginning with the first annual period after June 15, 2005.  See “Recent Accounting Pronouncements” for further discussion.

This excerpt taken from the CAKE 10-Q filed Dec 8, 2006.

Stock-Based Compensation

We account for stock-based compensation in accordance with the provisions of SFAS 123R.  We use the Black-Scholes option-pricing model, which requires the input of highly subjective assumptions.  These assumptions include estimating the length of time employees will retain their stock options before exercising them (“expected term”), the estimated volatility of the Company’s common stock price over the expected term and the number of options that will ultimately not complete their vesting requirements (“forfeitures”). Changes in the subjective assumptions can materially affect the estimated fair value of stock-based compensation and consequently, the related amount recognized on the consolidated statements of operations.  See Note 4 of the Notes to Consolidated Financial Statements in this Form 10-Q for further discussion of stock-based compensation.

There have been no material changes to the other critical accounting policies previously reported in our Annual Report on Form 10-K/A for the fiscal year ended January 3, 2006.

This excerpt taken from the CAKE 10-Q filed Apr 28, 2006.

Stock-Based Compensation

          We account for stock-based compensation in accordance with the provisions of SFAS 123R.  We use the Black-Scholes option-pricing model, which requires the input of highly subjective assumptions.  These assumptions include estimating the length of time employees will retain their stock options before exercising them (“expected term”), the estimated volatility of the Company’s common stock price over the expected term and the number of options that will ultimately not complete their vesting requirements (“forfeitures”). Changes in the subjective assumptions can materially affect the estimated fair value of stock-based compensation and consequently, the related amount recognized on the consolidated statements of operations.  See Note 4 of the Notes to Consolidated Financial Statements in this Form 10-Q for further discussion of stock-based compensation.

          There have been no material changes to the other critical accounting policies previously reported in our Annual Report on Form 10-K for the fiscal year ended January 3, 2006.

This excerpt taken from the CAKE 10-K filed Feb 22, 2006.

Stock-Based Compensation

          We maintain performance incentive plans under which incentive stock options, non-qualified stock options, stock appreciation rights, restricted shares, deferred shares, performance shares and performance units may be granted to employees, consultants and non-employee directors.  To date, we have only granted non-qualified stock options under these plans. We account for stock-based compensation using the intrinsic value method prescribed in Accounting Principles Board (“APB”) Opinion No. 25, “Accounting for Stock Issued to Employees,” and related interpretations.  Our policy is to grant all stock options at the fair market value of the underlying stock at the date of grant.  Accordingly, we do not recognize compensation expense for Company-issued stock options in our financial statements.

          If compensation cost for our stock options had been recognized based upon the estimated fair value on the grant date under the fair value methodology allowed by SFAS No. 123 “Accounting for Stock-Based Compensation” (“SFAS 123”), as amended, our net income and net income per share would have been as follows (in thousands, except per share data):

   

Fiscal Year

 
   
 

 

 

2005

 

2004

 

2003

 

 

 


 


 


 

Net income, as reported

 

$

87,546

 

$

66,538

 

$

57,230

 

Total stock-based employee compensation expense, net of taxes

 

 

11,129

 

 

9,083

 

 

7,493

 

 

 



 



 



 

Net income, pro forma

 

$

76,417

 

$

57,455

 

$

49,737

 

 

 



 



 



 

Basic net income per share, as reported

 

$

1.12

 

$

0.86

 

$

0.76

 

Basic net income per share, pro forma

 

$

0.98

 

$

0.74

 

$

0.66

 

Diluted net income per share, as reported

 

$

1.09

 

$

0.84

 

$

0.74

 

Diluted net income per share, pro forma

 

$

0.96

 

$

0.72

 

$

0.64

 

60


          The weighted average fair value at the grant date for options issued in fiscal 2005, 2004 and 2003 was $12.81, $14.17 and $10.67 per option, respectively. For the first three quarters of fiscal 2005, we employed the binomial lattice option valuation model. Upon further review of the various valuation techniques and the relevance of our historical exercise patterns, we believe the Black-Scholes option pricing model is currently a better tool for estimating our stock-based compensation cost.  We utilized the Black-Scholes model in fiscal years 2003 and 2004, the fourth quarter of fiscal 2005 and will employ it on a go-forward basis. The fair value of options at date of grant was estimated using the following weighted average assumptions for each respective fiscal year: (a) no dividend yield on our stock, (b) expected stock price volatility of 35.57 %, 44.12% and 48.91%, (c) a risk-free interest rate of 3.86%, 3.67% and 3.78%, and (d) expected option lives of 4.7 years, 6 years and 6 years. Under the binomial lattice model for the first three quarters of fiscal 2005, we used a termination rate of 0.6% and an exercise multiple of 1.35.  Compensation expense is allocated on a straight-line basis over the vesting period.

          In December 2004, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 123 (revised 2004), “Share-Based Payment,” which requires compensation expense associated with stock options to be included in the financial statements beginning with the first annual period after June 15, 2005.  See “Recent Accounting Pronouncements” for further discussion.

This excerpt taken from the CAKE 10-K filed Apr 6, 2005.

Stock-Based Compensation

          We maintain performance incentive plans under which incentive stock options, non-qualified stock options, stock appreciation rights, restricted shares, deferred shares, performance shares and performance units may be granted to employees, consultants and non-employee directors.  We account for stock-based compensation using the intrinsic value method prescribed in Accounting Principles Board (“APB”) Opinion No. 25, “Accounting for Stock Issued to Employees,” and related interpretations.  Our policy is to grant all stock options at the fair market value of the underlying stock at the date of grant.  Accordingly, we do not recognize compensation expense for company-issued stock options in our financial statements.

          The Company has determined pro forma amounts as if the fair value method required by SFAS No. 123, “Accounting for Stock-Based Compensation” had been applied to its stock-based compensation.  The pro forma effect on net income as if the fair value of stock-based compensation had been recognized as compensation expense on a straight-line basis over the vesting period of the stock option was as follows for fiscal 2004, 2003 and 2002 (in thousands, except net income per share):

 

 

Fiscal 2004

 

Fiscal 2003

 

Fiscal 2002

 

 

 



 



 



 

 

 

 

 

 

(restated)

 

(restated)

 

Net income, as reported

 

$

66,538

 

$

57,230

 

$

48,771

 

Net income, pro forma

 

$

57,455

 

$

49,737

 

$

42,422

 

Basic net income per share, as reported

 

$

0.86

 

$

0.76

 

$

0.66

 

Basic net income per share, pro forma

 

$

0.74

 

$

0.66

 

$

0.57

 

Diluted net income per share, as reported

 

$

0.84

 

$

0.74

 

$

0.64

 

Diluted net income per share, pro forma

 

$

0.72

 

$

0.64

 

$

0.55

 

          The weighted average fair value at date of grant for options issued in fiscal 2004, 2003 and 2002 was $14.17, $10.67 and $11.13 per option, respectively.  The fair value of options at date of grant was estimated using the Black-Scholes option pricing model with the following weighted average assumptions for each respective fiscal year: (a) no dividend yield on our stock, (b) expected volatility of our stock of 44.12%, 48.91% and 49.20%, (c) a risk-free interest rate of 3.67%, 3.78% and 4.19%, and (d) expected option lives of six years in all years presented.

          The Black-Scholes option pricing model was developed to estimate the fair value of traded options that have no vesting restrictions and are fully transferable.  Option valuation models require the input of highly subjective assumptions including the expected stock price volatility.  Since company-issued stock options have characteristics significantly different from those of traded options, and since changes in the subjective input assumptions utilized by option pricing models can materially affect the fair value estimate of stock options derived from such models, management believes that existing option valuation models do not necessarily provide a reliable single measure of the fair value of company-issued stock options.  Since company-issued stock options do not trade on a secondary exchange, their holders cannot receive any value or derive any benefit unless the market price of the underlying stock has increased above the grant price of the stock option at the time the option becomes exercisable.

57


1.     Summary of Significant Accounting Policies (continued):

          In December 2004, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 123 (revised 2004), “Share-Based Payment,” which requires compensation expense associated with stock options to be included in the financial statements beginning with the first interim or annual period after June 15, 2005.  See Recent Accounting Pronouncements for further discussion.

This excerpt taken from the CAKE 10-K filed Apr 4, 2005.

Stock-Based Compensation

          We maintain performance incentive plans under which incentive stock options, non-qualified stock options, stock appreciation rights, restricted shares, deferred shares, performance shares and performance units may be granted to employees, consultants and non-employee directors.  We account for stock-based compensation using the intrinsic value method prescribed in Accounting Principles Board (“APB”) Opinion No. 25, “Accounting for Stock Issued to Employees,” and related interpretations.  Our policy is to grant all stock options at the fair market value of the underlying stock at the date of grant.  Accordingly, we do not recognize compensation expense for company-issued stock options in our financial statements.

          The Company has determined pro forma amounts as if the fair value method required by SFAS No. 123, “Accounting for Stock-Based Compensation” had been applied to its stock-based compensation.  The pro forma effect on net income as if the fair value of stock-based compensation had been recognized as compensation expense on a straight-line basis over the vesting period of the stock option was as follows for fiscal 2004, 2003 and 2002 (in thousands, except net income per share):

 

 

Fiscal 2004

 

Fiscal 2003

 

Fiscal 2002

 

 

 



 



 



 

 

 

 

 

 

(restated)

 

(restated)

 

Net income, as reported

 

$

66,538

 

$

57,230

 

$

48,771

 

Net income, pro forma

 

$

57,455

 

$

49,737

 

$

42,422

 

Basic net income per share, as reported

 

$

0.86

 

$

0.76

 

$

0.66

 

Basic net income per share, pro forma

 

$

0.74

 

$

0.66

 

$

0.57

 

Diluted net income per share, as reported

 

$

0.84

 

$

0.74

 

$

0.64

 

Diluted net income per share, pro forma

 

$

0.72

 

$

0.64

 

$

0.55

 

          The weighted average fair value at date of grant for options issued in fiscal 2004, 2003 and 2002 was $14.17, $10.67 and $11.13 per option, respectively.  The fair value of options at date of grant was estimated using the Black-Scholes option pricing model with the following weighted average assumptions for each respective fiscal year: (a) no dividend yield on our stock, (b) expected volatility of our stock of 44.12%, 48.91% and 49.20%, (c) a risk-free interest rate of 3.67%, 3.78% and 4.19%, and (d) expected option lives of six years in all years presented.

          The Black-Scholes option pricing model was developed to estimate the fair value of traded options that have no vesting restrictions and are fully transferable.  Option valuation models require the input of highly subjective assumptions including the expected stock price volatility.  Since company-issued stock options have characteristics significantly different from those of traded options, and since changes in the subjective input assumptions utilized by option pricing models can materially affect the fair value estimate of stock options derived from such models, management believes that existing option valuation models do not necessarily provide a reliable single measure of the fair value of company-issued stock options.  Since company-issued stock options do not trade on a secondary exchange, their holders cannot receive any value or derive any benefit unless the market price of the underlying stock has increased above the grant price of the stock option at the time the option becomes exercisable.

57


1.     Summary of Significant Accounting Policies (continued):

          In December 2004, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 123 (revised 2004), “Share-Based Payment,” which requires compensation expense associated with stock options to be included in the financial statements beginning with the first interim or annual period after June 15, 2005.  See Recent Accounting Pronouncements for further discussion.

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