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Stock-Based Compensation | 12 Months Ended
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Jan. 01, 2019
Stock-Based Compensation |
Stock-Based Compensation | 13. Stock-Based Compensation We maintain stock-based incentive plans under which incentive stock options, non-qualified stock options, stock appreciation rights, restricted shares and restricted share units may be granted to staff members and consultants. Our current practice is to issue new shares, rather than treasury shares, upon stock option exercises, for restricted share grants and upon vesting of restricted share units. To date, we have only granted non-qualified stock options, restricted shares and restricted share units of common stock under these plans. 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. On April 5, 2017, our Board approved an amendment to our 2010 Stock Incentive Plan to increase the number of shares of common stock reserved for grant under the plan to 12.7 million shares from 9.2 million shares. This amendment was approved by our stockholders at our annual meeting held on June 8, 2017. This is our only active stock-based incentive plan, and approximately 2.9 million of these shares were available for grant as of January 1, 2019. Stock options generally vest at 20% per year and expire eight years from the date of grant. Restricted shares and restricted share units generally vest between three to five 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 restricted share units granted to executive officers contain performance-based vesting conditions. Performance goals are determined by the Board of Directors. The quantity of units that will vest ranges from 0% to 150% based on the level of achievement of the performance conditions. Equity awards for certain executive officers may vest earlier in the event of a change of control in which the acquirer fails to assume or continue such awards, as defined in the plan, or under certain circumstances described in such executive officers’ respective employment agreements. Compensation expense is recognized only for those options, restricted shares and restricted share units expected to vest, with forfeitures estimated based on our historical experience and future expectations. The following table presents information related to stock-based compensation, net of forfeitures (in thousands):
|  | Fiscal Year
|  | 2018 |  | 2017(2) |  | 2016
Labor expenses |  | $ | 5,681 |  | $ | 5,236 |  | $ | 6,023
Other operating costs and expenses |  |  | 287 |  |  | 243 |  |  | 251
General and administrative expenses |  |  | 14,020 |  |  | 10,978 |  |  | 15,199
Total stock-based compensation |  |  | 19,988 |  |  | 16,457 |  |  | 21,473
Income tax benefit |  |  | 4,987 |  |  | 6,295 |  |  | 8,213
Total stock-based compensation, net of taxes |  | $ | 15,001 |  | $ | 10,162 |  | $ | 13,260
Capitalized stock-based compensation (1) |  | $ | 262 |  | $ | 239 |  | $ | 338
| (1) |  | It is our policy to capitalize the portion of stock-based compensation costs for our internal development and legal departments that relates to capitalizable activities such as the design and construction of new restaurants, remodeling existing locations, lease, intellectual property and liquor license acquisition activities and equipment installation. Capitalized stock-based compensation is included in property and equipment, net and other assets on the consolidated balance sheets.
| (2) |  | Fiscal 2017 stock-based compensation expense includes a $3.9 million benefit for an out-of-period adjustment related to a correction in stock-based compensation valuation and forfeitures. We believe this adjustment is immaterial to the applicable prior periods.
Stock Options The weighted average fair value at the grant date for options issued during fiscal 2018, 2017 and 2016 was $11.62, $14.83 and $12.10 per share, respectively. The fair value of options was estimated utilizing the Black-Scholes valuation model with the following weighted average assumptions for fiscal 2018, 2017 and 2016, respectively: (a) an expected option term of 6.9 years, 6.9 years and 6.8 years, (b) expected stock price volatility of 27.8%, 24.4% and 26.3%, (c) a risk-free interest rate of 2.8%, 2.3% and 1.6%, and (d) a dividend yield on our stock of 2.5%, 1.6% and 1.6%. The expected option term represents the estimated period of time until exercise and is based on historical experience of similar options, giving consideration to the contractual terms, vesting schedules and expectations of future staff member behavior. Expected stock price volatility is based on a combination of the historical volatility of our stock and the implied volatility of actively traded options on our common stock. The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of grant with an equivalent remaining term. The dividend yield is based on anticipated cash dividend payouts. Stock option activity during fiscal 2018 was as follows:
|  |  |  |  |  |  | Weighted |  |  |
|  |  |  |  |  |  | Average |  |  |
|  |  |  | Weighted |  | Remaining |  | Aggregate
|  |  |  | Average |  | Contractual |  | Intrinsic
|  | Shares |  | Exercise Price |  | Term |  | Value(1)
|  | (In thousands) |  | (Per share) |  | (In years) |  | (In thousands)
Outstanding at beginning of year |  | 1,741 |  | $ | 42.25 |  | 4.0 |  | $ | 14,766
Granted |  | 381 |  | $ | 47.22 |  |  |  |  |
Exercised |  | (286) |  | $ | 30.00 |  |  |  |  |
Forfeited or cancelled |  | (37) |  | $ | 50.33 |  |  |  |  |
Outstanding at end of year |  | 1,799 |  | $ | 45.03 |  | 4.1 |  | $ | 5,606
Exercisable at end of year |  | 1,010 |  | $ | 40.89 |  | 2.6 |  | $ | 5,606
| (1) |  | Aggregate intrinsic value is calculated as the difference between our closing stock price at fiscal year-end and the exercise price, multiplied by the number of in-the-money options and represents the pre-tax amount that would have been received by the option holders, had they all exercised their options on the fiscal year -end date.
The total intrinsic value of options exercised during fiscal 2018, 2017 and 2016 was $6.2 million, $11.2 million and $40.4 million, respectively. As of January 1, 2019, total unrecognized stock-based compensation expense related to unvested stock options was $6.9 million, which we expect to recognize over a weighted average period of approximately 3.0 years. Restricted Shares and Restricted Share Units Restricted share and restricted share unit activity during fiscal 2018 was as follows:
|  |  |  | Weighted
|  |  |  | Average
|  |  |  | Fair
|  | Shares |  | Value
|  | (In thousands) |  | (Per share)
Outstanding at beginning of year |  | 1,694 |  | $ | 46.38
Granted |  | 576 |  | $ | 48.22
Vested |  | (424) |  | $ | 41.94
Forfeited |  | (144) |  | $ | 46.53
Outstanding at end of year |  | 1,702 |  | $ | 48.08
Fair value of our restricted shares and restricted share units is based on our closing stock price on the date of grant. The weighted average fair value for restricted shares and restricted share units issued during fiscal 2018, 2017 and 2016 was $48.22, $54.29 and $50.89, respectively. The fair value of shares that vested during fiscal 2018, 2017 and 2016 was $17.8 million, $18.4 million and $12.2 million, respectively. As of January 1, 2019, total unrecognized stock-based compensation expense related to unvested restricted shares and restricted share units was $35.8 million, which we expect to recognize over a weighted average period of approximately 2.9 years.

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- Definition The entire disclosure for compensation-related costs for equity-based compensation, which may include disclosure of policies, compensation plan details, allocation of equity compensation, incentive distributions, equity-based arrangements to obtain goods and services, deferred compensation arrangements, employee stock ownership plan details and employee stock purchase plan details. + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 718 -URI http://asc.fasb.org/topic&trid=2228938 Reference 2: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 505 -SubTopic 50 -URI http://asc.fasb.org/subtopic&trid=2208855 + Details
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