(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.

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 29, 2013, 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 3,595,914 shares were authorized for grant but have not been granted.

The Company recorded total non-cash compensation expense of $14.0 million, $17.6 million and $22.0 million in 2011, 2012 and 2013, respectively, which reduced net income by $8.8 million, $10.9 million and $14.0 million in 2011, 2012 and 2013, respectively. All non-cash compensation expense amounts are recorded in general and administrative expense.

Stock Options

As of December 29, 2013, the number of stock options granted and outstanding under the 2004 Equity Incentive Plan was 4,317,065 shares of common stock. Stock options granted under the 2004 Equity Incentive Plan and a predecessor plan prior to fiscal 2009 were generally granted at the market price at the date of the grant, expire ten years from the date of grant and vest over five years from the date of grant. Stock options granted from 2009 to 2012 were granted at 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 were granted at 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.

As part of the 2012 Recapitalization and pursuant to the anti-dilution provisions in the 2004 Equity Incentive Plan, the Company made cash payments totaling approximately $13.5 million on certain stock options, reduced the exercise price on certain other stock options by an equivalent per share amount and, in certain circumstances, both reduced the stock option exercise price and made a cash payment totaling $3.00 per share. In accordance with the equity restructuring guidance, these anti-dilution payments were accounted for as modifications/settlements and were recorded as increases in total stockholders’ deficit. Affected stock option exercise prices presented below have been adjusted to reflect these 2012 Recapitalization-related actions.

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 2, 2011		8,995,667		$	9.60

Stock options granted		392,000			19.24
Stock options cancelled		(170,213	)		10.30
Stock options exercised		(3,773,763	)		8.88

Stock options at January 1, 2012		5,443,691		$	10.78

Stock options granted		215,670			32.28
Stock options cancelled		(58,153	)		11.91
Stock options exercised		(938,669	)		9.55

Stock options at December 30, 2012		4,662,539		$	11.50

Stock options granted		591,490			50.83
Stock options cancelled		(8,500	)		7.63
Stock options exercised		(928,464	)		10.22

Stock options at December 29, 2013		4,317,065		$	17.17		5.5	$	228,879

Exercisable at December 29, 2013		3,464,614		$	11.15		4.7	$	204,522

The total intrinsic value of stock options exercised was approximately $50.2 million, $27.5 million and $46.0 million in 2011, 2012 and 2013, respectively. Cash received from the exercise of stock options was approximately $33.5 million, $8.9 million and $9.5 million in 2011, 2012 and 2013, respectively. The tax benefit realized from stock options exercised was approximately $13.5 million, $8.7 million and $15.5 million in 2011, 2012 and 2013, respectively.

The Company recorded total non-cash compensation expense of $6.1 million, $5.3 million and $6.9 million in 2011, 2012 and 2013, respectively, related to these awards. As of December 29, 2013, there was $6.6 million of total unrecognized compensation cost related to unvested stock options granted under the 2004 Equity Incentive Plan which 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 3.0 years.

Management estimated the fair value of each option grant made during 2011, 2012 and 2013 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 term, and is estimated based on U.S. Treasury Bond rates as of the grant date. The expected life (years) 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.


	2011			2012			2013
Risk-free interest rate		2.1	%		1.0	%		1.1	%
Expected life (years)		5.0			5.0			5.5
Expected volatility		45.0	%		45.0	%		38.7	%
Expected dividend yield		0.0	%		0.0	%		1.6	%

Weighted average fair value per share	$	8.04		$	13.70		$	15.84

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 53,125 shares, 22,420 shares and 24,540 shares of restricted stock in 2011, 2012 and 2013, 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. The Company recorded total non-cash compensation expense of $0.7 million, $0.8 million and $1.0 million in 2011, 2012 and 2013, respectively, related to these restricted stock awards. All non-cash compensation expense amounts are recorded in general and administrative expense. As of December 29, 2013, there was approximately $0.2 million of total unrecognized compensation cost related to these restricted stock grants.

The Company granted 376,309 shares, 282,170 shares and 312,330 shares of performance-based restricted stock in 2011, 2012 and 2013, respectively, to certain employees of the Company. The performance-based restricted stock awards granted in 2011 and 2012 are separated into three tranches and have time-based and performance-based vesting conditions with the last tranche vesting three years from the issuance date. The performance-based restricted stock awards granted in 2013 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 $7.2 million, $11.5 million and $14.1 million in 2011, 2012 and 2013, respectively, related to these awards. All non-cash compensation expense amounts are recorded in general and administrative expense. As of December 29, 2013, there was an estimated $24.7 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 December 30, 2012		691,842		$	17.61

Shares granted (1)		336,870		$	52.26
Shares cancelled		(7,776	)	$	51.98
Shares vested		(393,760	)	$	31.58

Nonvested at December 29, 2013		627,176		$	23.41

(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.