Equity incentive plans

The Dunkin’ Brands Group, Inc. 2015 Omnibus Long-Term Incentive Plan (the “2015 Plan”) was adopted in May 2015, and is the only plan under which the Company currently grants awards. A maximum of 6,200,000 shares of common stock may be delivered in satisfaction of awards under the 2015 Plan. Prior to the 2015 Plan, the Company granted awards under the Dunkin’ Brands Group, Inc. 2011 Omnibus Long-Term Incentive Plan (the “2011 Plan”) and the 2006 Executive Incentive Plan, as amended (the “2006 Plan”).

Total share-based compensation expense, which is included in general and administrative expenses, net, consisted of the following (in thousands):



	Fiscal year ended
	December 30, 2017		December 31, 2016	December 26, 2015
Time-vested stock options	$	8,611	10,654	10,519
Restricted stock units	4,337		3,608	3,408
2011 Plan restricted shares	701		1,793	1,967
Performance stock units	1,277		1,086	—
Other	—		40	198
Total share-based compensation	$	14,926	17,181	16,092
Total related tax benefit	$	8,339	6,955	6,512

The actual tax benefit realized from stock options exercised during fiscal years 2017, 2016, and 2015 was $11.1 million, $4.1 million, and $13.1 million, respectively.

Time-vested stock options

Time-vested stock options granted under the 2011 Plan and 2015 Plan vest in equal annual amounts over a 4-year period subsequent to the grant date, and as such are subject to a service condition, and also fully vest upon a change of control. The requisite service period over which compensation cost is being recognized is 4 years. The maximum contractual term of the stock options is 7 or 10 years.

The fair value of time-vested stock options was estimated on the date of grant using the Black-Scholes option pricing model. This model is impacted by the Company’s stock price and certain assumptions related to the Company’s stock and employees’ exercise behavior. The following weighted average assumptions were utilized in determining the fair value of the 2015 Plan options granted during fiscal years 2017 and 2016 and the 2011 Plan options granted during fiscal year 2015:



	Fiscal year ended
	December 30, 2017			December 31, 2016			December 26, 2015
Weighted average grant-date fair value of share options granted	$	9.87		$	7.41		$	8.66
Weighted average assumptions:
Risk-free interest rate	1.9		%	1.2		%	1.5		%
Expected volatility	24.0		%	25.0		%	25.0		%
Dividend yield	2.3		%	2.7		%	2.2		%
Expected term (years)	4.88			4.90			4.91

The expected term was primarily estimated utilizing the simplified method. We utilized the simplified method because the Company does not have sufficient historical exercise data to provide a reasonable basis upon which to estimate expected term. The risk-free interest rate assumption was based on yields of U.S. Treasury securities in effect at the date of grant with terms similar to the expected term. Expected volatility was estimated based on the Company’s historical volatility, and also considering historical volatility of peer companies over a period equivalent to the expected term. Additionally, the dividend yield was estimated based on dividends currently being paid on the underlying common stock at the date of grant. Estimated and actual forfeitures have not had a material impact on share-based compensation expense.

A summary of the status of the time-vested stock options as of December 30, 2017 and changes during fiscal year 2017 is presented below:



	Number of shares		Weighted average exercise price		Weighted average remaining contractual term (years)	Aggregate intrinsic value (in millions)
Share options outstanding at December 31, 2016	4,889,585		$	44.82	5.3
Granted	1,181,777		55.04
Exercised	(880,346	)	40.37
Forfeited or expired	(823,489	)	49.38
Share options outstanding at December 30, 2017	4,367,527		47.63		4.6	$	73.6
Share options exercisable at December 30, 2017	2,026,779		44.99		3.9	39.5

The total grant-date fair value of the time-vested options vested during fiscal years 2017, 2016, and 2015 was $9.9 million, $10.6 million, and $7.4 million, respectively. The total intrinsic value of the time-vested stock options exercised was $13.0 million, $5.3 million, and $6.7 million for fiscal years 2017, 2016, and 2015, respectively. As of December 30, 2017, there was $12.7 million of total unrecognized compensation cost related to the time-vested stock options. Unrecognized compensation cost is expected to be recognized over a weighted average period of approximately 2.4 years.

Restricted stock units

The Company typically grants restricted stock units to certain employees and non-employee members of our board of directors. Restricted stock units granted to employees generally vest in three equal installments on each of the first three annual anniversaries of the grant date. Restricted stock units granted to our non-employee members of our board of directors generally vest in one installment on the first anniversary of the grant date.

A summary of the changes in the Company’s restricted stock units during fiscal year 2017 is presented below:



	Number of shares		Weighted average grant-date fair value		Weighted average remaining contractual term (years)	Aggregate intrinsic value (in millions)
Nonvested restricted stock units at December 31, 2016	183,676		$	44.91	1.7
Granted	91,272		52.44
Vested	(90,976	)	45.37
Forfeited	(8,546	)	46.37
Nonvested restricted stock units at December 30, 2017	175,426		48.51		1.5	$	11.3

The fair value of each restricted stock unit is determined on the date of grant based on our closing stock price, less the present value of expected dividends not received during the vesting period. The weighted average grant-date fair value of restricted stock units granted during fiscal years 2017, 2016, and 2015 was $52.44, $44.34, and $46.21, respectively. As of December 30, 2017, there was $5.2 million of total unrecognized compensation cost related to restricted stock units, which is expected to be recognized over a weighted average period of approximately 1.8 years. The total grant-date fair value of restricted stock units vested during fiscal years 2017, 2016, and 2015 was $4.1 million, $3.5 million, and $2.6 million, respectively.

2011 Plan restricted shares

During fiscal year 2014, the Company granted restricted shares of 27,096. The restricted shares vested in full during fiscal year 2016 based on a service condition, and had a grant-date fair value of $51.67 per share, which was determined on the date of grant based on the Company’s closing stock price. During fiscal year 2015, the Company granted restricted shares of 21,101. The restricted shares were eligible to vest in equal installments in February 2018 and 2019 based on a service condition, and had a grant-date fair value of $47.39 per share, which was determined on the date of grant based on the Company’s closing stock price. As of December 30, 2017, there was no unrecognized compensation cost related to these restricted shares, as the shares were forfeited during fiscal year 2017.

In addition, during fiscal year 2014, the Company granted 150,000 contingently issuable restricted shares. The contingently issuable restricted shares are eligible to vest on December 31, 2018, subject to a service condition and a market vesting condition linked to the level of total shareholder return received by the Company’s shareholders during the performance period measured against the median total shareholder return of the companies in the S&P 500 Composite Index. The contingently issuable restricted shares were valued based on a Monte Carlo simulation model to reflect the impact of the total shareholder return market condition, resulting in a grant-date fair value of $37.94 per share. As of December 30, 2017, there was $1.2 million of total unrecognized compensation cost related to these restricted shares, which is expected to be recognized over a period of approximately 1.0 year.

As of December 30, 2017, 150,000 2011 Plan restricted shares remained unvested. The total grant-date fair value of restricted shares vested during fiscal year 2016 was $1.4 million. No shares vested during fiscal years 2017 and 2015.

Performance stock units

The Company granted 84,705 and 121,030 performance stock units (“PSUs”) to certain employees during fiscal years 2017 and 2016, respectively, which are generally eligible to cliff-vest approximately three years from the grant date. Of the total PSUs granted in 2017 and 2016, 37,027 and 39,684 PSUs, respectively, are subject to a service condition and a market vesting condition linked to the level of total shareholder return received by the Company’s shareholders during the performance period measured against the companies in the S&P 500 Composite Index (“TSR PSUs”). The remaining 47,678 and 81,346 PSUs granted in 2017 and 2016, respectively, are subject to a service condition and a performance vesting condition based on the level of adjusted operating income growth achieved over the performance period (“AOI PSUs”). The maximum vesting percentage that could be realized for each of the TSR PSUs and the AOI PSUs is 200% based on the level of performance achieved for the respective awards. All of the PSUs are also subject to a one-year post-vesting holding period. The TSR PSUs were valued based on a Monte Carlo simulation model to reflect the impact of the total shareholder return market condition, resulting in a weighted average grant-date fair value of $67.52 and $55.36 per unit granted in 2017 and 2016, respectively. The probability of satisfying a market condition is considered in the estimation of the grant-date fair value for TSR PSUs and the compensation cost is not reversed if the market condition is not achieved, provided the requisite service has been provided. The AOI PSUs granted in 2017 and 2016 have a weighted average grant-date fair value of $52.44 and $44.22 per unit, respectively. Total compensation cost for the AOI PSUs is determined based on the most likely outcome of the performance condition and the number of awards expected to vest based on the outcome.

A summary of the changes in the Company’s PSUs during fiscal year 2017 is presented below:



	Number of shares		Weighted average grant-date fair value		Weighted average remaining contractual term (years)	Aggregate intrinsic value (in millions)
Nonvested performance stock units at December 31, 2016	113,041		$	47.90	2.3
Granted	84,705		59.03
Forfeited	(49,160	)	44.89
Nonvested performance stock units at December 30, 2017	148,586		52.72		1.7	$	9.6

As of December 30, 2017, there was $4.0 million of total unrecognized compensation cost related to PSUs, which is expected to be recognized over a weighted average period of approximately 1.9 years.