Stock-Based Incentive Plans

General Description

Currently, the Company is authorized to grant stock options, stock appreciation rights, restricted stock, cash-settled and stock-settled restricted stock units and performance units to officers, other employees and non-employee directors under the Dine Brands Global, Inc. 2016 Stock Incentive Plan (the “2016 Plan”). The 2016 Plan was approved by stockholders on May 17, 2016 and permits the issuance of up to 3,750,000 shares of the Company’s common stock for incentive stock awards. The 2016 Plan will expire in May 2026.

The DineEquity, Inc. 2011 Stock Incentive Plan (the “2011 Plan”) was adopted in 2011 to permit the issuance of up to 1,500,000 shares of the Company’s common stock for incentive stock awards. The 2011 Plan was terminated upon adoption of the 2016 Plan, but there are stock options, restricted stock and restricted stock units issued under the 2011 Plan that are outstanding as of December 31, 2018.

The IHOP Corp. 2001 Stock Incentive Plan (the “2001 Plan”) was adopted in 2001 and amended and restated in 2005 and 2008 to authorize the issuance of up to 4,200,000 shares of common stock. The 2001 Plan has expired but there are stock options issued under the 2001 Plan outstanding as of December 31, 2018.

The 2016 Plan, the 2011 Plan and the 2001 Plan are collectively referred to as the “Plans.”

Stock-Based Compensation Expense

From time to time, the Company has granted nonqualified stock options, restricted stock, cash-settled and stock-settled restricted stock units and performance units to officers, other employees and non-employee directors of the Company under the Plans. The nonqualified stock options generally vest ratably over a three-year period in one-third increments and have a maturity of ten years from the grant date. Options vest immediately upon a change in control of the Company, as defined in the Plans. Option exercise prices equal the closing price of the Company's common stock on the New York Stock Exchange on the date of grant. Restricted stock and restricted stock units are issued at no cost to the holder and vest over terms determined by the Compensation Committee of the Company's Board of Directors, generally three years from the date of grant or immediately upon a change in control of the Company, as defined in the Plans. The Company either utilizes treasury stock or issues new shares from its authorized but unissued share pool when vested stock options are exercised, when restricted stock awards are granted and when restricted stock units settle in stock upon vesting.

The following table summarizes the Company's stock-based compensation expense included as a component of general and administrative expenses in the consolidated financial statements:



	Year Ended December 31,
	2018			2017			2016
	(In millions)
Total stock-based compensation expense:
Equity classified awards expense	$	10.6		$	10.9		$	11.0
Liability classified awards (credit)	3.1			(1.0		)	(0.5		)
Total pretax stock-based compensation expense	13.7			9.9			10.5
Book income tax benefit	(3.5		)	(3.8		)	(3.9		)
Total stock-based compensation expense, net of tax	$	10.2		$	6.1		$	6.6

As of December 31, 2018, total unrecognized compensation cost related to restricted stock and restricted stock units of $19.1 million and $3.6 million related to stock options is expected to be recognized over a weighted average period of approximately 1.7 years for restricted stock and restricted stock units and 1.5 years for stock options.

Equity Classified Awards - Stock Options

The per share fair values of the stock options granted have been estimated as of the date of grant using the Black-Scholes option pricing model. The Black-Scholes model considers, among other factors, the expected life of the option and the historical volatility of the Company's stock price. The Black-Scholes model meets the requirements of U.S. GAAP, but the fair values generated by the model may not be indicative of the actual fair values of the Company's stock-based awards. The following table summarizes the assumptions used to value options granted in the respective periods:

The Company granted 223,570 stock options during the year ended December 31, 2018 for which the fair value was estimated using a Black-Scholes option pricing model. The following summarizes the assumptions used in the Black-Scholes model:



	2018			2017			2016
Risk free interest rate	2.6		%	1.9		%	1.1		%
Weighted average historical volatility	26.1		%	22.9		%	27.1		%
Dividend yield	3.6		%	7.3		%	4.0		%
Expected years until exercise	4.6			4.5			4.5
Weighted average fair value of options granted	$	11.94		$	4.31		$	13.55

The Company granted 25,330 performance-based stock options and 55,245 performance-based restricted stock units during the year ended December 31, 2018. The Company granted 350,000 performance-based stock options and 175,000 performance-based restricted stock units during the year ended December 31, 2017. Fair value of these grants was estimated using a Monte Carlo simulation method. The following summarizes the assumptions used in estimating the fair values:



	2018			2017
Risk free interest rate	2.5		%	1.6		%
Weighted average historical volatility	34.4		%	30.0		%
Dividend yield	3.4		%	9.6		%
Expected years until exercise	3.0			3.4
Weighted average fair value of options granted	$	9.79		$	3.07
Weighted average fair value of restricted stock units granted	$	53.72		$	10.19

Stock option activity for the years ended December 31, 2018, 2017 and 2016 is summarized as follows:



	Number of Shares Under Option		Weighted Average Exercise Price Per Share		Weighted Average Remaining Contractual Term (in Years)	Aggregate Intrinsic Value (in Millions)
Outstanding at December 31, 2015	504,462		$	69.99
Granted	255,825		90.90
Exercised	(48,021	)	29.33
Forfeited	(7,924	)	94.30
Expired	(3,208	)	89.17
Outstanding at December 31, 2016	701,134		80.04
Granted	887,030		48.35
Exercised	(64,916	)	40.59
Forfeited	(171,847	)	65.82
Expired	(79,353	)	87.02
Outstanding at December 31, 2017	1,272,048		61.44
Granted	248,899		69.12
Exercised	(74,930	)	52.43
Forfeited	(6,309	)	68.80
Expired	—		—
Outstanding at December 31, 2018	1,439,708		$	63.21	6.6	$	15.9
Vested and Expected to Vest at December 31, 2018	1,301,066		$	64.62	6.4	$	13.4
Exercisable at December 31, 2018	571,768		$	77.73	3.6	$	2.9

The total intrinsic value of options exercised during the years ended December 31, 2018, 2017 and 2016 was $2.4 million, $1.4 million and $2.7 million, respectively.

Cash received from options exercised under all stock-based payment arrangements for the years ended December 31, 2018, 2017 and 2016 was $3.9 million, $2.6 million and $1.4 million, respectively. The actual tax benefit realized for the tax deduction from option exercises under the stock-based payment arrangements totaled $0.6 million, $0.5 million and $1.0 million, respectively, for the years ended December 31, 2018, 2017 and 2016.

Equity Classified Awards - Restricted Stock and Restricted Stock Units

Activity in equity classified awards of restricted stock and restricted stock units for the years ended December 31, 2018, 2017 and 2016 is as follows:



	Shares of Restricted Stock		Weighted Average Grant-Date Per Share Fair Value		Restricted Stock Units		Weighted Average Grant-Date Per Share Fair Value
Outstanding at December 31, 2015	257,594		$	89.99	35,116		$	86.30
Granted	88,797		88.90		13,053		90.90
Released	(77,712	)	78.70		(14,027	)	72.01
Forfeited	(33,207	)	92.82		(84	)	101.25
Outstanding at December 31, 2016	235,472		92.91		34,058		93.95
Granted	216,269		51.89		281,973		22.37
Released	(92,968	)	88.62		(12,683	)	81.63
Forfeited	(83,582	)	79.52		—		—
Outstanding at December 31, 2017	275,191		65.97		303,348		28.39
Granted	92,466		69.20		86,990		57.21
Released	(74,253	)	81.07		(15,737	)	98.54
Forfeited	(26,162	)	61.27		(72	)	53.49
Outstanding at December 31, 2018	267,242		$	63.35	374,529		$	31.05

Liability Classified Awards - Cash-settled Restricted Stock Units

The Company has granted cash-settled restricted stock units to certain employees. These instruments are recorded as liabilities at fair value as of the respective period end. For the year ended December 31, 2018, 59,686 units were issued, 702 units were vested and 5,218 units were forfeited. At December 31, 2018, there were 53,766 units outstanding. For the year ended December 31, 2018, $0.8 million was included as stock-based compensation expense related to cash-settled restricted stock units.

Liability Classified Awards

The Company has granted cash long-term incentive awards to certain employees (“LTIP awards”). Annual LTIP awards vest over a three-year period and are primarily determined using a multiplier from 0% to 200% of the target award based on the total shareholder return of the Company's common stock compared to the total shareholder returns of a peer group of companies. Though LTIP awards are only paid in cash, since the multiplier is primarily based on the price of the Company's common stock, the awards are considered stock-based compensation in accordance with U.S. GAAP and are classified as liabilities. For the years ended December 31, 2018, expense of $2.3 million was included in stock-based compensation expense related to the LTIP awards. For the years ended December 31, 2017 and 2016, credits of $1.0 million and $0.5 million, respectively, were included in stock-based compensation expense related to the LTIP awards. At December 31, 2018 and 2017, liabilities of $2.4 million and $0.2 million, respectively, were included as accrued employee compensation and benefits in the Consolidated Balance Sheets.