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STOCK-BASED COMPENSATION | 9 Months Ended
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Oct. 08, 2016
Disclosure Of Compensation Related Costs Sharebased Payments [Abstract] |
STOCK-BASED COMPENSATION | 13. STOCK-BASED COMPENSATION On March 5, 2014, our Board of Directors approved and adopted the 2014 Omnibus Equity and Incentive Compensation Plan (“Omnibus Plan”). The Omnibus Plan was approved by our shareholders on May 21, 2014. The Omnibus Plan authorizes the compensation committee of the Board of Directors to provide equity-based compensation in the form of stock options, stock appreciation rights, restricted stock, restricted stock units, performance shares, performance units, dividend equivalents and other awards for the purpose of providing our officers, key employees, and non-employee directors’ incentives and rewards for performance. The Omnibus Plan replaced the Flowers Foods’ 2001 Equity and Performance Incentive Plan, as amended and restated as of April 1, 2009 (“EPIP”), the stock appreciation right plan, and the bonus plan. All outstanding equity awards that were made under the EPIP will continue to be governed by the EPIP; however, all equity awards granted after May 21, 2014 are governed by the Omnibus Plan. No additional awards will be issued under the EPIP. Awards granted under the Omnibus Plan are limited to the authorized amount of 8,000,000 shares. The EPIP authorized the compensation committee of the Board of Directors to make awards of options to purchase our common stock, restricted stock, performance stock and units and deferred stock. The company’s officers, key employees and non-employee directors (whose grants are generally approved by the full Board of Directors) were eligible to receive awards under the EPIP. Over the life of the EPIP, the company issued options, restricted stock and deferred stock. The following is a summary of stock options, restricted stock, and deferred stock outstanding under the plans described above. Information relating to the company’s stock appreciation rights, which were issued under a separate stock appreciation right plan, is also described below. Stock Options The company issued non-qualified stock options (“NQSOs”) during fiscal years 2011 and prior that have no additional service period remaining. All outstanding NQSOs have vested and are exercisable on October 8, 2016. The stock option activity for the forty weeks ended October 8, 2016 pursuant to the EPIP is set forth below (amounts in thousands, except price data):
|  | Options |  |  | Weighted Average Exercise Price |  |  | Weighted Average Remaining Contractual Term (Years) |  |  | Aggregate Intrinsic Value |
Outstanding at January 2, 2016 |  |  | 4,353 |  |  | $ | 10.97 |  |  |  |  |  |  |  |  |
Exercised |  |  | (1,716 | ) |  | $ | 10.99 |  |  |  |  |  |  |  |  |
Outstanding at October 8, 2016 |  |  | 2,637 |  |  | $ | 10.95 |  |  |  | 0.91 |  |  | $ | 9,907 |
Exercisable at October 8, 2016 |  |  | 2,637 |  |  | $ | 10.95 |  |  |  | 0.91 |  |  | $ | 9,907 |
As of October 8, 2016, compensation expense related to the NQSOs was fully amortized. The cash received, the windfall tax benefit, and intrinsic value from stock option exercises for the forty weeks ended October 8, 2016 and October 10, 2015 were as follows (amounts in thousands):
|  | October 8, 2016 |  |  | October 10, 2015 |
Cash received from option exercises |  | $ | 18,862 |  |  | $ | 18,571 |
Cash tax windfall, net |  | $ | 2,462 |  |  | $ | 7,282 |
Intrinsic value of stock options exercised |  | $ | 10,503 |  |  | $ | 23,366 |
Performance-Contingent Restricted Stock Awards Performance-Contingent Total Shareholder Return Shares (“TSR Shares”) Since 2012, certain key employees have been granted performance-contingent restricted stock under the EPIP and the Omnibus Plan in the form of TSR Shares. The awards generally vest approximately two years from the date of grant (after the filing of the company’s Annual Report on Form 10-K), and the shares become non-forfeitable if, and to the extent that, on that date the vesting conditions are satisfied. As a result of the delay (July as opposed to January) in the grant of the 2012 awards, the 2012 awards vested during the first quarter of 2014, 18 months from the grant date. The 2013, 2014, 2015 and 2016 awards (granted during the first quarters of their respective years) vest two years from the date of grant. The total shareholder return (“TSR”) is the percent change in the company’s stock price over the measurement period plus the dividends paid to shareholders. The performance payout is calculated at the end of each of the last four quarters (averaged) in the measurement period. Once the TSR is determined for the company (“Company TSR”), it is compared to the TSR of our food company peers (“Peer Group TSR”). The Company TSR compared to the Peer Group TSR will determine the payout as set forth below:
Percentile |  | Payout as % of Target |
90th |  |  | 200 | %
70th |  |  | 150 | %
50th |  |  | 100 | %
30th |  |  | 50 | %
Below 30th |  |  | 0 | %
For performance between the levels described above, the degree of vesting is interpolated on a linear basis. The 2014 award vested at 27% of target. The 2013 award vested at 88% of target. The TSR shares vest immediately if the grantee dies or becomes disabled. However, if the grantee retires at age 65 (or age 55 with at least 10 years of service with the company) or later, on the normal vesting date the grantee will receive a pro-rated number of shares based upon the retirement date and measured at the actual performance for the entire performance period. In addition, if the company undergoes a change in control, the TSR shares will immediately vest at the target level, provided that if 12 months of the performance period have been completed, vesting will be determined based on Company TSR as of the date of the change in control without application of four-quarter averaging. During the vesting period, the grantee has none of the rights of a shareholder. Dividends declared during the vesting period will accrue and will be paid at vesting on the shares that ultimately vest. The fair value estimate was determined using a Monte Carlo simulation model, which utilizes multiple input variables to estimate the probability of the company achieving the market condition discussed above. Inputs into the model included the following for the company and comparator companies: (i) TSR from the beginning of the performance cycle through the measurement date; (ii) volatility; (iii) risk-free interest rates; and (iv) the correlation of the comparator companies’ TSR. The inputs are based on historical capital market data. The following performance-contingent TSR Shares have been granted under the Omnibus Plan and have service period remaining (amounts in thousands, except price data):
Grant date |  | January 3, 2016 |  |  | January 4, 2015 |
Shares granted |  |  | 401 |  |  |  | 414 |
Vesting date |  | 2/21/2018 |  |  | 3/1/2017 |
Fair value per share |  | $ | 24.17 |  |  | $ | 21.21 |
Performance-Contingent Return on Invested Capital Shares (“ROIC Shares”) Since 2012, certain key employees have been granted performance-contingent restricted stock under the EPIP and the Omnibus Plan in the form of ROIC Shares. The awards generally vest approximately two years from the date of grant (after the filing of the company’s Annual Report on Form 10-K), and the shares become non-forfeitable if, and to the extent that, on that date, the vesting conditions are satisfied. As a result of the delay (July as opposed to January) in the grant of the 2012 awards, the 2012 awards vested during the first quarter of 2014, 18 months from the grant date. The 2013, 2014, 2015, and 2016 awards (granted during the first quarters of their respective years) vest two years from the date of grant. Return on Invested Capital is calculated by dividing our profit, as defined, by the invested capital (“ROIC”). Generally, the performance condition requires the company’s average ROIC to exceed its average weighted cost of capital (“WACC”) by between 1.75 to 4.75 percentage points (the “ROI Target”) over the two fiscal year performance period. If the lowest ROI Target is not met, the awards are forfeited. The shares can be earned based on a range from 0% to 125% of target as defined below:
| • | 0% payout if ROIC exceeds WACC by less than 1.75 percentage points;
| • | ROIC above WACC by 1.75 percentage points pays 50% of ROI Target; or
| • | ROIC above WACC by 3.75 percentage points pays 100% of ROI Target; or
| • | ROIC above WACC by 4.75 percentage points pays 125% of ROI Target.
For performance between the levels described above, the degree of vesting is interpolated on a linear basis. The 2014 award actual attainment was 96% of ROI Target. The 2013 award actual attainment was 125% of ROI Target. The ROIC Shares vest immediately if the grantee dies or becomes disabled. However, if the grantee retires at age 65 (or age 55 with at least 10 years of service with the company) or later, on the normal vesting date the grantee will receive a pro-rated number of shares based upon the retirement date and actual performance for the entire performance period. In addition, if the company undergoes a change in control, the ROIC Shares will immediately vest at the target level. During the vesting period, the grantee has none of the rights of a shareholder. Dividends declared during the vesting period will accrue and will be paid at vesting on the shares that ultimately vest. The fair value of this type of award is equal to the stock price on the grant date. Since these awards have a performance condition feature the expense associated with these awards may change depending on the expected ROI Target attained at each reporting period. The 2015 award is being expensed at 105% of ROI Target and the 2016 award is being expensed at 100% of ROI Target. The following performance-contingent ROIC Shares have been granted under the Omnibus Plan and have service period remaining (amounts in thousands, except price data):
Grant date |  | January 3, 2016 |  |  | January 4, 2015 |
Shares granted |  |  | 401 |  |  |  | 414 |
Vesting date |  | 2/21/2018 |  |  | 3/1/2017 |
Fair value per share |  | $ | 21.49 |  |  | $ | 19.14 |
Performance-Contingent Restricted Stock (2014 Grant) In connection with the vesting of the performance-contingent restricted stock granted in January 2014, during the forty weeks ended October 8, 2016, 248,872 common shares available for this grant were reduced because the company attained only 27% of the S&P TSR target of the grant (“TSR modifier”). An additional 13,637 common shares were reduced because the company attained 96% of the ROI Target (“ROIC modifier”). At vesting, the company paid accumulated dividends of $0.4 million. The tax shortfall at vesting of these awards was $2.9 million. Performance-Contingent Restricted Stock The company’s performance-contingent restricted stock activity for the forty weeks ended October 8, 2016, is presented below (amounts in thousands, except price data):
|  | Shares |  |  | Weighted Average Grant Date Fair Value |
Nonvested shares at January 2, 2016 |  |  | 1,349 |  |  | $ | 21.26 |
Initial grant at target |  |  | 801 |  |  | $ | 22.83 |
Grant reduction for not achieving the ROIC modifier |  |  | (14 | ) |  | $ | 21.47 |
Grant reduction for not achieving the TSR modifier |  |  | (249 | ) |  | $ | 23.97 |
Vested |  |  | (312 | ) |  | $ | 22.02 |
Forfeited |  |  | (26 | ) |  | $ | 23.60 |
Nonvested shares at October 8, 2016 |  |  | 1,549 |  |  | $ | 21.53 |
As of October 8, 2016, there was $14.4 million of total unrecognized compensation cost related to nonvested restricted stock granted under the Omnibus Plan. That cost is expected to be recognized over a weighted-average period of 1.18 years. The total intrinsic value of shares vested during the period ended October 8, 2016 was $7.2 million. Deferred and Restricted Stock Pursuant to the EPIP, previously the company allowed non-employee directors to convert their annual board retainers into deferred stock equal in value to 130% of the cash payments these directors would have otherwise received. The deferred stock had a minimum two-year vesting period and will be distributed to the individual (along with accumulated dividends) at a time designated by the individual at the date of conversion. Following the May 2014 Board of Directors meeting and the adoption of the Omnibus Plan, annual board retainers converted into deferred stock and issued under the Omnibus Plan are equal in value to 100% of the cash payments directors would otherwise receive and the vesting period is a one-year period to match the period of time that cash would have been received if no conversion existed. Going forward, under the Omnibus Plan, non-employee directors may elect to convert their annual board retainers into deferred stock equal in value to 100% of the cash payments they otherwise would have received. The deferred stock so converted will have a one-year pro-rated vesting period. Accumulated dividends are paid upon delivery of the shares. During fiscal 2016, non-employee directors deferred an aggregate of 19,040 common shares for board retainer deferrals pursuant to the Omnibus Plan. Pursuant to the Omnibus Plan and the EPIP, non-employee directors also receive annual grants of deferred stock. This deferred stock vests over one year from the grant date. During fiscal 2016, non-employee directors were granted an aggregate of 76,274 common shares of deferred stock pursuant to the Omnibus Plan. The deferred stock will be distributed to the grantee at a time designated by the grantee at the date of grant. Compensation expense is recorded on this deferred stock over the one-year minimum vesting period. On May 31, 2013, the company’s Chief Executive Officer (“CEO”) received a time-based restricted stock award of approximately $1.3 million of restricted stock pursuant to the EPIP. This award will vest 100% on the fourth anniversary of the date of the grant provided the CEO remains employed by the company during this period and the award value does not exceed 0.5% of our cumulative EBITDA over the vesting period. Vesting will also occur in the event of the CEO’s death or disability, but not his retirement. Dividends will accrue on the award and will be paid to the CEO on the vesting date for all shares that vest. There were 58,500 shares issued for this award at a fair value of $22.25 per share. The deferred stock activity for the forty weeks ended October 8, 2016 is set forth below (amounts in thousands, except price data):
|  | Shares |  |  | Weighted Average Fair Value |  |  | Weighted Average Remaining Contractual Term (Years) |  |  | Aggregate Intrinsic Value |
Nonvested shares at January 2, 2016 |  |  | 126 |  |  | $ | 21.89 |  |  |  |  |  |  |  |  |
Vested |  |  | (72 | ) |  | $ | 21.59 |  |  |  |  |  |  |  |  |
Granted |  |  | 95 |  |  | $ | 19.30 |  |  |  |  |  |  |  |  |
Nonvested shares at October 8, 2016 |  |  | 149 |  |  | $ | 20.39 |  |  |  | 0.61 |  |  | $ | 1,335 |
As of October 8, 2016, there was $1.2 million of total unrecognized compensation cost related to deferred stock awards granted under the Ominbus Plan that will be recognized over a weighted-average period of 0.61 years. The total intrinsic value of shares vested during the period ended October 8, 2016 was less than $1.3 million. Stock Appreciation Rights Prior to 2007, the company allowed non-employee directors to convert their retainers and committee chair fees into rights. These rights vested after one year and were exercisable over nine years. The company recorded compensation expense for these rights at a measurement date based on changes between the grant price and an estimated fair value of the rights using the Black-Scholes option-pricing model. All remaining shares outstanding at January 2, 2016 were exercised during the forty weeks ended October 8, 2016. Share-Based Payments Compensation Expense Summary The following table summarizes the company’s stock based compensation expense for the twelve and forty weeks ended October 8, 2016 and October 10, 2015, respectively (amounts in thousands):
|  | For the Twelve Weeks Ended |  |  | For the Forty Weeks Ended |
|  | October 8, 2016 |  |  | October 10, 2015 |  |  | October 8, 2016 |  |  | October 10, 2015 |
Performance-contingent restricted stock awards |  | $ | 3,220 |  |  | $ | 1,811 |  |  | $ | 13,335 |  |  | $ | 11,457 |
Deferred and restricted stock |  |  | 479 |  |  |  | 548 |  |  |  | 1,682 |  |  |  | 1,658 |
Stock appreciation rights |  |  | — |  |  |  | 124 |  |  |  | (12 | ) |  |  | 176 |
Total stock based compensation |  | $ | 3,699 |  |  | $ | 2,483 |  |  | $ | 15,005 |  |  | $ | 13,291 |

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