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Equity Incentive Plans

12 Months Ended

Dec. 30, 2018

Disclosure of Compensation Related Costs, Share-based Payments [Abstract]

(9)	Equity Incentive Plans

The cost of all employee stock options, as well as other equity-based compensation arrangements, is reflected in the consolidated statements of income based on the estimated fair value of the awards and is amortized over the requisite service period of each award.

The Company’s current equity incentive plan benefits certain of the Company’s employees and directors and is named the Domino’s Pizza, Inc. 2004 Equity Incentive Plan (the “2004 Equity Incentive Plan”). As of December 30, 2018, the maximum number of shares that may be granted under the 2004 Equity Incentive Plan is 15,600,000 shares of voting common stock of which 2,708,278 shares were authorized for grant but have not been granted.

The Company recorded total

non-cash

compensation expense of $22.8 million, $20.7 million and $18.6 million in 2018, 2017 and 2016, respectively. All

non-cash

compensation expense amounts are recorded in general and administrative expense. The Company recorded a deferred tax benefit related to

non-cash

compensation expense of approximately $4.0 million in 2018 and $5.2 million in 2017.

The Company adopted ASU

2016-09

during 2017, which is intended to simplify several areas of accounting for share-based compensation arrangements. As a result, excess tax benefits or deficiencies from equity-based compensation activity are now reflected in the Company’s consolidated statements of income as a component of the provision for income taxes, whereas they previously were recognized in the consolidated statement of stockholders’ deficit. The Company also elected to account for forfeitures as they occur, rather than to use an estimate of expected forfeitures for financial statement reporting purposes. The Company’s election to account for forfeitures as they occur had an immaterial impact on its equity-based compensation expense.

Stock Options

As of December 30, 2018, the number of stock options granted and outstanding under the 2004 Equity Incentive Plan was 1,909,399 options. Stock options granted in fiscal 2009 through fiscal 2012 were granted with an exercise price equal to the market price at the date of the grant, expire ten years from the date of grant and generally vest over three years from the date of grant. Stock options granted in fiscal 2013 through fiscal 2018 were granted with an exercise price equal to the market price at the date of the grant, expire ten years from the date of grant and generally vest over four years from the date of grant. Additionally, all stock options granted become fully exercisable upon vesting. These awards also contain provisions for accelerated vesting upon the retirement of holders that have achieved specific service and age requirements.

Stock option activity related to the 2004 Equity Incentive Plan is summarized as follows:

	Common Stock Options
	Outstanding			Weighted Average Exercise Price		Weighted Average Remaining Life		Aggregate Intrinsic Value
						(Years)		(In thousands)
Stock options at January 3, 2016		3,323,476		$	28.57
Stock options granted		233,280			129.42
Stock options cancelled		(12,798	)		104.23
Stock options exercised		(1,045,648	)		14.38
Stock options at January 1, 2017		2,498,310		$	43.54
Stock options granted		126,720			201.19
Stock options cancelled		(28,991	)		101.97
Stock options exercised		(357,925	)		17.05
Stock options at December 31, 2017		2,238,114		$	55.94
Stock options granted		96,580			266.11
Stock options cancelled		(11,193	)		174.63
Stock options exercised		(414,102	)		23.74
Stock options at December 30, 2018		1,909,399		$	72.86		4.5	$	340,555
Exercisable at December 30, 2018		1,698,583		$	56.40		4.0	$	328,788

The total intrinsic value of stock options exercised was approximately $91.2 million, $62.0 million and $128.0 million in 2018, 2017 and 2016, respectively. Cash received from the exercise of stock options was approximately $9.8 million, $6.1 million and $15.2 million in 2018, 2017 and 2016, respectively. The tax benefit realized from stock options exercised was approximately $22.0 million, $23.0 million and $46.1 million in 2018, 2017 and 2016, respectively.

The Company recorded total

non-cash

compensation expense of $6.3 million, $6.8 million and $4.9 million in 2018, 2017 and 2016, respectively, related to stock option awards. As of December 30, 2018, there was $7.8 million of total unrecognized compensation cost related to unvested stock options granted under the 2004 Equity Incentive Plan which generally will be recognized on a straight-line basis over the related vesting period. This unrecognized compensation cost is expected to be recognized over a weighted average period of 2.8 years.

Management estimated the fair value of each option grant made during 2018, 2017 and 2016 as of the date of the grant using the Black-Scholes option pricing method. Weighted average assumptions are presented in the following table. The risk-free interest rate is based on the estimated effective life and is estimated based on U.S. Treasury Bond rates as of the grant date. The expected life is based on several factors, including, among other things, the vesting term and contractual term as well as historical experience. The expected volatility is based principally on the historical volatility of the Company’s share price.


	2018			2017			2016
Risk-free interest rate		2.7	%		2.0	%		1.3	%
Expected life (years)		5.5			5.5			5.5
Expected volatility		24.2	%		25.8	%		26.0	%
Expected dividend yield		0.8	%		0.9	%		1.2	%
Weighted average fair value per stock option	$	67.65		$	49.57		$	29.59

Option valuation models require the input of highly subjective assumptions. In management’s opinion, existing models do not necessarily provide a reliable single measure of the fair value of the Company’s stock options, as changes in subjective input assumptions can significantly affect the fair value estimate.

Other Equity-Based Compensation Arrangements

The Company granted 3,790 shares, 4,410 shares and 6,920 shares of restricted stock in 2018, 2017 and 2016, respectively, to members of its Board of Directors. These grants generally vest one year from the date of the grant and have a fair value equal to the market price of the Company’s stock on the grant date. These awards also contain provisions for accelerated vesting upon the retirement of holders that have achieved specific service and age requirements. The Company recorded total

non-cash

compensation expense of $0.8 million, $0.8 million and $0.9 million in 2018, 2017 and 2016, respectively, related to these restricted stock awards. As of December 30, 2018, there was less than $0.1 million of total unrecognized compensation cost related to these restricted stock grants.

In 2018, the Company granted 28,570 shares of restricted stock to two executives of the Company. These grants will vest four years from the date of the grant and have a fair value equal to the market price of the Company’s stock on the grant date. These awards also contain provisions for accelerated vesting upon the retirement of holders that have achieved specific service and age requirements. The Company recorded total

non-cash

compensation expense of $1.1 million in 2018 related to these restricted stock awards. As of December 30, 2018, there was $7.0 million of total unrecognized compensation cost related to these restricted stock grants.

The Company granted 59,070 shares, 67,840 shares and 90,730 shares of performance-based restricted stock in 2018, 2017 and 2016, respectively, to certain employees of the Company. These performance-based restricted stock awards are separated into four tranches and have time-based and performance-based vesting conditions with the last tranche vesting four years from the issuance date. These awards also contain provisions for accelerated vesting upon the retirement of holders that have achieved specific service and age requirements. These awards are considered granted for accounting purposes when the performance target is set, which is generally in the fourth quarter of each year. The Company recorded total

non-cash

compensation expense of $14.6 million, $13.1 million and $12.8 million in 2018, 2017 and 2016, respectively, related to these awards. As of December 30, 2018, there was an estimated $27.2 million of total unrecognized compensation cost related to performance-based restricted stock.

Restricted stock and performance-based restricted stock activity related to the 2004 Equity Incentive Plan is summarized as follows:

	Shares			Weighted Average Grant Date Fair Value
Nonvested at January 3, 2016		316,332		$	75.74
Shares granted (1)		97,650			131.75
Shares cancelled		(13,970	)		88.34
Shares vested		(123,792	)		70.39
Nonvested at January 1, 2017		276,220		$	97.48
Shares granted (1)		72,250			205.21
Shares cancelled		(16,109	)		115.71
Shares vested		(137,757	)		80.55
Nonvested at December 31, 2017		194,604		$	147.94
Shares granted (1)		91,430			271.33
Shares cancelled		(12,692	)		178.06
Shares vested		(82,963	)		128.57
Nonvested at December 30, 2018		190,379		$	213.57

(1)

The weighted average grant date fair value for performance-based restricted shares granted was calculated based on the market price on the grant dates. Certain tranches will ultimately be valued when the performance condition is established for each tranche, which generally occurs in the fourth quarter of each fiscal year.