How does Del Taco determine the expected cost of performance shares?
Del_Taco Franchise · 2025 FDDAnswer from 2025 FDD Document
cost related to stock options grants. There were no stock options exercised in fiscal year 2024. The total intrinsic value of stock options exercised was less than $0.1 million in fiscal years 2023 and 2022, respectively.
Performance share awards — Performance share awards, granted in the form of stock units, represent a right to receive a certain number of shares of common stock based on the achievement of corporate performance goals and continued employment during the vesting period. Performance share awards issued to executives vest at the end of a three-year period and vested amounts may range from 0% to a maximum of 150% of targeted amounts depending on the achievement of performance measures at the end of a three-year period. If the awardee ceases to be employed by the Company prior to the last day of the performance period due to retirement, disability, or death, the performance share awards become vested pro-rata based on the number of full accounting periods the awardee was continuously employed by the Company during the performance period. The expected cost of the shares is based on the fair value of our stock on the date of grant and is reflected over the vesting period with a reduction for estimated forfeitures. These awards may be settled in cash or shares of common stock at the election of the Company on the date of grant. It is our intent to settle these awards with shares of common stock.
Source: Item 21 — FINANCIAL STATEMENTS (FDD page 58)
What This Means (2025 FDD)
According to Del Taco's 2025 Franchise Disclosure Document, the expected cost of performance shares is determined based on the fair value of Del Taco's stock on the date the shares are granted. This cost is then reflected over the vesting period, taking into account estimated forfeitures. These performance share awards are granted in the form of stock units, which represent the right to receive a certain number of shares of common stock. The actual number of shares ultimately received depends on the achievement of corporate performance goals and continued employment during the vesting period.
Performance share awards issued to executives typically vest at the end of a three-year period. The vested amounts can range from 0% to a maximum of 150% of the targeted amount, depending on how well the company meets its performance measures over those three years. If an executive leaves the company due to retirement, disability, or death before the end of the performance period, the performance share awards become vested pro-rata. This means they vest based on the number of full accounting periods the executive was continuously employed by Del Taco during the performance period.
Del Taco retains the option to settle these awards in either cash or shares of common stock on the date of grant, though the company states its intent is to settle these awards with shares of common stock. As of September 29, 2024, there was approximately $3.0 million of total unrecognized compensation cost related to performance share awards, which is expected to be recognized over a weighted-average period of 1.9 years. The weighted-average grant date fair value of awards granted was $70.19, $65.74, and $78.95 in fiscal years 2024, 2023, and 2022, respectively. The total fair value of awards that became fully vested during fiscal years 2024, 2023, and 2022 was $2.7 million, $1.8 million, and $0.1 million, respectively.