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Stock-Based Compensation | 6 Months Ended
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Jul. 13, 2019
Disclosure Of Compensation Related Costs Sharebased Payments [Abstract] |
Stock-Based Compensation | 17. 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 to provide 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. Equity awards granted after May 21, 2014 are governed by the Omnibus Plan. No additional awards were issued under the EPIP after May 21, 2014 and the last issued awards were fully exercised during the first quarter of fiscal 2018. Awards granted under the Omnibus Plan are limited to the authorized amount of 8,000,000 shares. 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. The company typically grants awards at the beginning of its fiscal year. There were no grants to employees during fiscal 2018. Information on grants to employees during fiscal 2019 is discussed below. Stock Options The company issued non-qualified stock options (“NQSOs”) during fiscal years 2011 and prior that were vested and fully exercised by the end of our first quarter of fiscal 2018. The company’s final 72,785 stock options, with an exercise price of $10.87, outstanding on December 30, 2017 were exercised during the first quarter of fiscal 2018. There are no outstanding NQSOs as of July 13, 2019. The cash received, the windfall tax benefit, and intrinsic value from stock option exercises for the twenty-eight weeks ended July 14, 2018 were as follows (amounts in thousands):
|  | July 14, 2018 |
Cash received from option exercises |  | $ | 791 |
Tax benefit at exercise, net |  | $ | 111 |
Intrinsic value of stock options exercised |  | $ | 609 |
Performance-Contingent Restricted Stock Awards Performance-Contingent Total Shareholder Return Shares (“TSR Shares”) Certain key employees have been granted performance-contingent restricted stock under the Omnibus Plan in the form of TSR Shares. The awards vest approximately three 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. 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 2017 award, which vested in fiscal 2019, vested at 153% 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 TSR 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. On May 23, 2019, the company’s CEO received an award of TSR Shares that brings his total grant equal to the CEO’s target award (“promotion award”). This grant will be measured under the same guidelines as the December 30, 2018 grant of TSR Shares described above. The company’s former CEO forfeited 112,840 TSR shares at his retirement on May 23, 2019. 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 |  | December 30, 2018 |  |  | May 23, 2019 |
Shares granted |  |  | 440 |  |  |  | 11 |
Vesting date |  | 3/1/2022 |  |  | 3/1/2022 |
Fair value per share |  | $ | 21.58 |  |  | $ | 27.23 |
Performance-Contingent Return on Invested Capital Shares (“ROIC Shares”) Certain key employees have been granted performance-contingent restricted stock under the Omnibus Plan in the form of ROIC Shares. The awards generally vest approximately three 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. Return on Invested Capital (“ROIC”) is calculated by dividing our profit, as defined, by the invested capital. 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 three fiscal year performance period. If the lowest ROI Target is not met, the awards are forfeited. The ROIC Shares can be earned based on a range from 0% to 125% of target as defined below:
| • | ROIC above WACC by less than 1.75 percentage points pays 0% of ROI Target;
| • | ROIC above WACC by 1.75 percentage points pays 50% of ROI Target;
| • | 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 2017 award, which vested in fiscal 2019, actual attainment was 75% 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 ROIC 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 ROIC 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 2019 award is being expensed at 100% of ROI Target. On May 23, 2019, the company’s CEO received a promotion award of ROIC Shares. This grant will be measured under the same guidelines as the December 30, 2018 grant of ROIC Shares described above. The company’s former CEO forfeited 112,840 ROIC shares at his retirement on May 23, 2019. 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 |  | December 30, 2018 |  |  | May 23, 2019 |
Shares granted |  |  | 440 |  |  |  | 11 |
Vesting date |  | 3/1/2022 |  |  | 3/1/2022 |
Fair value per share |  | $ | 18.29 |  |  | $ | 23.08 |
Performance-Contingent Restricted Stock Summary The table below presents the TSR modifier share adjustment, ROIC modifier share adjustment, accumulated dividends on vested shares, and the tax benefit/(expense) at vesting of the performance-contingent restricted stock awards (amounts in thousands, except per share data).
Award Granted |  |  | Fiscal Year Vested |  |  | TSR Modifier Increase/(Decrease) Shares |  |  | ROIC Modifier Increase/(Decrease) Shares |  |  | Dividends at Vesting (thousands) |  |  | Tax Benefit/(Expense) |  |  | Fair Value at Vesting |
| 2017 |  |  |  | 2019 |  |  |  | 205,686 |  |  |  | (97,131 | ) |  | $ | 1,219 |  |  | $ | 936 |  |  | $ | 18,570 |
| 2016 |  |  |  | 2018 |  |  |  | (333,112 | ) |  |  | (114,190 | ) |  | $ | 405 |  |  | $ | (2,130 | ) |  | $ | 6,504 |
Performance-Contingent Restricted Stock The company’s performance-contingent restricted stock activity for the twenty-eight weeks ended July 13, 2019 is presented below (amounts in thousands, except price data):
|  | Shares |  |  | Weighted Average Grant Date Fair Value |
Nonvested shares at December 29, 2018 |  |  | 779 |  |  | $ | 21.64 |
Initial grant at target |  |  | 903 |  |  | $ | 20.06 |
Grant reduction for not achieving the ROIC modifier |  |  | (97 | ) |  | $ | 19.97 |
Grant increase for achieving the TSR modifier |  |  | 206 |  |  | $ | 23.31 |
Vested |  |  | (885 | ) |  | $ | 22.21 |
Forfeited |  |  | (241 | ) |  | $ | 20.18 |
Nonvested shares at July 13, 2019 |  |  | 665 |  |  | $ | 20.11 |
As of July 13, 2019, there was $11.2 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 2.63 years. The total intrinsic value of shares vested during the twelve and twenty-eight weeks ended July 13, 2019 was $18.6 million. Time-Based Restricted Stock Units Certain key employees have been granted time-based restricted stock units (“TBRSU Shares”). The executive officers of the company did not receive any TBRSU Shares. These awards vest on January 5th each year in equal installments over a three-year period beginning in fiscal 2020. Dividends earned on shares will be held by the company during the vesting period and paid in cash when the awards vest and shares are distributed. On May 23, 2019, the company’s CEO was granted TBRSU Shares of approximately $1.0 million pursuant to the Omnibus Plan. This award will vest 100% on the fourth anniversary of the date of grant provided the CEO remains employed by the company during this period. Vesting will also occur in the event of the CEO’s death or disability, but not his retirement if prior to the fourth anniversary of the grant date. Dividends will accrue on the award and will be paid to the CEO on the vesting date for all shares that vest. There were 43,330 shares issued for this award at a fair value of $23.08 per share. The following TBRSU Shares have been granted under the Omnibus Plan and have service periods remaining (amounts in thousands, except price data):
Grant Date |  | December 30, 2018 |  |  | May 23, 2019 |
Shares granted |  |  | 244 |  |  |  | 43 |
Vesting date |  | Equally over 3 years |  |  | 5/23/2023 |
Fair value per share |  | $ | 18.29 |  |  | $ | 23.08 |
The TBRSU Shares activity for the twenty-eight weeks ended July 13, 2019 is set forth below (amounts in thousands, except price data):
|  | TBRSU Shares |  |  | Weighted Average Fair Value |  |  | Weighted Average Remaining Contractual Term (Years) |  |  | Unrecognized Compensation Cost |
Nonvested shares at December 29, 2018 |  |  | — |  |  | $ | — |  |  |  |  |  |  |  |  |
Granted |  |  | 288 |  |  |  | 19.01 |  |  |  |  |  |  |  |  |
Forfeitures |  |  | (9 | ) |  |  | 18.29 |  |  |  |  |  |  |  |  |
Nonvested shares at July 13, 2019 |  |  | 279 |  |  | $ | 19.03 |  |  |  | 2.78 |  |  | $ | 5,471 |
Deferred Stock Non-employee directors may convert their annual board retainers into deferred stock 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 that cash would have been received if no conversion existed. Accumulated dividends are paid upon delivery of the shares. During fiscal 2019, non-employee directors elected to receive an aggregate of 2,707 common shares for board retainer deferrals pursuant to the Omnibus Plan. A total of 5,180 common shares were vested and issued for previous board retainer deferrals. Non-employee directors also receive annual grants of deferred stock. This deferred stock vests one year from the grant date. 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. During fiscal 2018, non-employee directors received an aggregate of 65,000 shares for their annual grant pursuant to the Omnibus Plan that vested during the twelve weeks ended July 13, 2019. During fiscal 2019, non-employee directors received an aggregate of 46,240 shares for their annual grant pursuant to the Omnibus Plan. The deferred stock activity for the twenty-eight weeks ended July 13, 2019 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 December 29, 2018 |  |  | 66 |  |  | $ | 19.93 |  |  |  |  |  |  |  |  |
Vested |  |  | (66 | ) |  | $ | 19.93 |  |  |  |  |  |  |  |  |
Granted |  |  | 49 |  |  | $ | 22.31 |  |  |  |  |  |  |  |  |
Nonvested shares at July 13, 2019 |  |  | 49 |  |  | $ | 22.31 |  |  |  | 0.87 |  |  | $ | 1,092 |
As of July 13, 2019, there was $0.9 million of total unrecognized compensation cost related to deferred stock awards granted under the Omnibus Plan that will be recognized over a weighted-average period of 0.87 years. The total intrinsic value of shares vested during the twelve and twenty-eight weeks ended July 13, 2019 was $1.4 million. Stock-Based Payments Compensation Expense Summary The following table summarizes the company’s stock-based compensation expense for the twelve and twenty-eight weeks ended July 13, 2019 and July 14, 2018, respectively (amounts in thousands):
|  | For the Twelve Weeks Ended |
|  | July 13, 2019 |  |  | July 14, 2018 |
Performance-contingent restricted stock awards |  | $ | 508 |  |  | $ | 1,720 |
TBRSU Shares |  |  | 354 |  |  |  | — |
Deferred stock awards |  |  | 270 |  |  |  | 356 |
Total stock-based compensation |  | $ | 1,132 |  |  | $ | 2,076 |
|  | For the Twenty-Eight Weeks Ended |
|  | July 13, 2019 |  |  | July 14, 2018 |
Performance-contingent restricted stock awards |  | $ | 2,865 |  |  | $ | 4,573 |
TBRSU Shares |  |  | 802 |  |  |  | — |
Deferred and restricted stock |  |  | 644 |  |  |  | 877 |
Total stock-based compensation |  | $ | 4,311 |  |  | $ | 5,450 |

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