14. 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 stock 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 7, 2017.

The stock option activity for the forty weeks ended October 7, 2017 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 December 31, 2016		1,846		$	10.89
Exercised		(852	)	$	10.91
Outstanding at October 7, 2017		994		$	10.87		0.34	$	7,835
Exercisable at October 7, 2017		994		$	10.87		0.34	$	7,835

As of October 7, 2017, 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 7, 2017 and October 8, 2016, respectively, were as follows (amounts in thousands):

	October 7, 2017		October 8, 2016
Cash received from option exercises	$	9,296	$	18,862
Tax benefit at exercise, net	$	2,004	$	2,462
Intrinsic value of stock options exercised	$	7,197	$	10,503

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 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. 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 2015 award, which vested in fiscal 2017, did not meet the performance condition and no shares were issued. The 2014 award, which vested in fiscal 2016, vested at 27% 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.

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 1, 2017		January 3, 2016
Shares granted		426		401
Vesting date	3/1/2019		2/21/2018
Fair value per share	$	23.31	$	24.17

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 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. 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 two 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; 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 2015 award, which vested in fiscal 2017, actual attainment was 87% of ROI Target. The 2014 award, which vested in fiscal 2016, actual attainment was 96% 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 2016 and 2017 awards are being expensed at 65% and 100% of ROI Target, respectively. 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 1, 2017		January 3, 2016
Shares granted		426		401
Vesting date	3/1/2019		2/21/2018
Fair value per share	$	19.97	$	21.49

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). The shortfall at vesting of 2015 award was recorded as tax expense. The tax impact on the 2014 award at vesting was treated as a shortfall for reporting purposes.

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
	2015		2017		(378,219	)		(49,272	)	$	392	$	(3,099	)	$	6,316
	2014		2016		(248,872	)		(13,637	)	$	441	$	(3,090	)	$	7,173

Performance-Contingent Restricted Stock

The company’s performance-contingent restricted stock activity for the forty weeks ended October 7, 2017 is presented below (amounts in thousands, except price data):

	Shares			Weighted Average Grant Date Fair Value
Nonvested shares at December 31, 2016		1,543		$	21.53
Initial grant at target		855		$	21.64
Grant reduction for not achieving the ROIC modifier		(49	)	$	19.14
Grant reduction for not achieving the TSR modifier		(378	)	$	21.21
Vested		(329	)	$	19.14
Forfeited		(47	)	$	21.09
Nonvested shares at October 7, 2017		1,595		$	22.21

As of October 7, 2017, there was $14.1 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 1.21 years. The total intrinsic value of shares vested during the twelve and forty weeks ended October 7, 2017 was $6.3 million.

Deferred and Restricted 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 of time that cash would have been received if no conversion existed. Accumulated dividends are paid upon delivery of the shares. During fiscal 2017, non-employee directors elected to receive an aggregate of 10,020 common shares for board retainer deferrals pursuant to the Omnibus Plan.

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 2017, non-employee directors received an aggregate of 77,220 shares for their annual grant pursuant to the Omnibus Plan.

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 vested at 100% on the fourth anniversary of the date of the grant. Dividends accrued on the award and were paid to the CEO on the vesting date. There were 58,500 shares issued for this award at a fair value of $22.25 per share. This award vested at a price of $18.48 and the shares were issued in our second quarter of fiscal 2017.

The deferred stock activity for the forty weeks ended October 7, 2017 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 31, 2016		149		$	20.39
Vested		(149	)	$	20.39
Granted		87		$	18.70
Nonvested shares at October 7, 2017		87		$	18.70		0.61	$	1,531

As of October 7, 2017, there was $1.0 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 0.61 years. The total intrinsic value of shares vested during the twelve and forty weeks ended October 7, 2017 was $2.8 million.

Stock-Based Payments Compensation Expense Summary

The following table summarizes the company’s stock-based compensation expense for the twelve and forty weeks ended October 7, 2017 and October 8, 2016, respectively (amounts in thousands):

	For the Twelve Weeks Ended				For the Forty Weeks Ended
	October 7, 2017		October 8, 2016		October 7, 2017		October 8, 2016
Performance-contingent restricted stock awards	$	2,638	$	3,220	$	10,321	$	13,335
Deferred and restricted stock		380		479		1,387		1,682
Stock appreciation rights		—		—		—		(12	)
Total stock-based compensation	$	3,018	$	3,699	$	11,708	$	15,005