Stock-Based Compensation

As of December 31, 2013, the Company had one active stock-based compensation plan, the 2006 Stock Incentive Plan (“2006 Plan”), and had options and restricted stock outstanding (but can make no future grants) under two other stock-based compensation plans, the 1992 Equity Incentive Plan (“1992 Plan”) and the 2001 Employee, Director, and Consultant Stock Option Plan (“2001 Plan”).

2006 Stock Incentive Plan

In fiscal 2006, the Company’s Board of Directors adopted the 2006 Plan, which was approved by the Company’s stockholders in May 2006. The 2006 Plan provided for the grant of up to 1,500,000 shares of the Company’s Class A common stock (subject to adjustment in the event of stock splits or other similar events) as incentive stock options, non-statutory stock options and stock settled appreciation rights (collectively “option awards”), restricted stock, restricted stock units, and other stock-based awards. Effective May 13, 2010, the Plan was amended to increase the number of the Company’s Class A common stock shares available to grant to 2,300,000. As a result of stockholder approval of the 2006 Plan, effective as of May 25, 2006, the Company will grant no further stock options, restricted stock or other awards under the 2001 Plan or the 1992 Plan. The Company’s Board of Directors administers the 2006 Plan and has sole discretion to grant awards under the 2006 Plan. The Company’s Board of Directors has delegated the authority to grant awards under the 2006 Plan, other than to the Company’s Chairman of the Board and Chief Executive Officer, to the Company’s Compensation and Management Development Committee (“the Compensation Committee”).

Long-Term Incentive Program

In fiscal 2005, the Company adopted the 2005 Long Term Incentive Plan (“2005 LTIP”) as a sub-plan under the 2001 Plan and the 1992 Plan. In May 2006, the Company amended the 2005 LTIP to provide that the 2005 LTIP is a sub-plan under the 2006 Plan. Under the amended 2005 LTIP, certain directors, officers, employees, and consultants, subject to approval by the Compensation Committee, may be selected as participants eligible to receive a percentage of their annual salary in future years, subject to the terms of the 2006 Plan. This percentage is based on the participant's level in the Company. In addition, the payment of this incentive can be made in several forms based on the participant's level including performance awards (payable in cash or common stock or some combination of cash and common stock as determined by the Compensation Committee), restricted stock, choice awards of restricted stock or options, or deferred annual bonus match awards. On July 23, 2009, the Compensation Committee further amended the 2005 LTIP to permit the Company to grant stock settled appreciation rights (“SSARs”) under the choice awards and to clarify that the Compensation Committee may consider the Company’s performance relative to the performance of its peers in determining the payout of performance awards, as further discussed below. For fiscal 2013, fiscal 2012 and fiscal 2011, compensation expense related to performance awards, restricted stock, options, SSARs, and deferred annual bonus match was $16.0 million, $16.7 million, and $18.4 million, net of capitalized compensation expense of $0.9 million, $1.0 million, and $1.1 million, respectively.

Performance awards under the 2005 LTIP are earned by participants based on achievement of performance goals established by the Compensation Committee. The performance period relating to the performance awards is a three-fiscal-year period. The performance goals, including each performance metric, weighting of each metric, and award levels for each metric, for such awards are communicated to each participant and are based on various predetermined earnings metrics. The performance awards are earned based on achievement of predetermined earnings performance metrics at the end of the three-fiscal-year performance period, assuming continued employment, and after the Compensation Committee’s consideration of the Company’s performance relative to the performance of its peers. The performance awards range from 0 percent to 300 percent of the participant's salary based on their level in the Company and the level of achievement of each performance metric. However, the actual award payment will be adjusted, based on the Company’s performance over a three-consecutive fiscal year measurement period, and any other factors as determined by the Compensation Committee. The actual award payment for the performance award component could double the individual’s targeted award payment, if the Company achieves maximum performance in all of its performance metrics, subject to any adjustments as determined by the Compensation Committee. The performance awards are payable 50 percent in cash and 50 percent in common stock or some combination of cash and common stock as determined by the Compensation Committee. For fiscal 2013, fiscal 2012, and fiscal 2011, compensation expense related to the performance awards was $4.3 million, $6.3 million, and $7.6 million, net of capitalized compensation expense of $0.2 million, $0.3 million, and $0.4 million, respectively.

Restricted stock of the Company under the 2005 LTIP is granted at no cost to participants. While participants are generally entitled to voting rights with respect to their respective shares of restricted stock, participants are generally not entitled to receive accrued cash dividends, if any, on restricted stock unless and until such shares have vested. The Company does not currently pay a dividend, and has no current plans to do so. For awards of restricted stock to date under the 2005 LTIP, restrictions limit the sale or transfer of these shares during a five year period whereby the restrictions lapse on 25 percent of these shares after two years and thereafter 25 percent each year for the next three years, subject to continued employment with the Company. In the event a participant is no longer employed by the Company, any unvested shares of restricted stock held by that participant will be forfeited. Upon issuance of restricted stock under the 2005 LTIP, unearned compensation is recorded at fair value on the date of grant to stockholders’ equity and subsequently amortized to expense over the five year restriction period. The fair value of restricted stock is based on the market value of the Company’s stock on the grant date. As of December 31, 2013, there was $35.4 million of total unrecognized compensation cost related to restricted stock included in additional paid-in capital in the Consolidated Balance Sheets. This unrecognized compensation cost is expected to be recognized over a weighted-average period of approximately 3.7 years. For fiscal 2013, fiscal 2012, and fiscal 2011, restricted stock expense was $9.2 million, $7.6 million and $7.7 million, net of capitalized compensation expense of $0.6 million, $0.5 million, and $0.5 million, respectively. For fiscal 2013, fiscal 2012, and fiscal 2011, the income tax benefit related to restricted stock expense was $3.4 million, $3.0 million, and $2.9 million, respectively. A summary of the status of the Company’s restricted stock activity is set forth below:



	Restricted Stock (in thousands)		Weighted Average Grant-Date Fair Value
Non-vested at December 25, 2012	395		$	94.98
Granted	106		165.62
Vested	(123	)	70.76
Forfeited	(27	)	103.25
Non-vested at December 31, 2013	351		$	124.26

Under the deferred annual bonus match award portion of the 2005 LTIP, eligible participants receive an additional 50 percent of their annual bonus, which is paid three years after the date of the original bonus payment provided the participant is still employed by the Company. For fiscal 2013, fiscal 2012, and fiscal 2011, compensation expense related to deferred annual bonus match awards was $2.1 million, $2.3 million, and $1.9 million, net of capitalized compensation expense of $0.1 million, $0.2 million, and $0.2 million, respectively, and was included in general and administrative expenses in the Consolidated Statements of Comprehensive Income.

Stock options under the 2005 LTIP are granted with an exercise price equal to the quoted market value of the Company’s common stock on the date of grant. In addition, stock options generally vest 25 percent after two years from the date of grant and thereafter 25 percent each year for the next three years and have a six-year term. The Company uses historical data to estimate pre-vesting forfeiture rates. As of December 31, 2013, there was no unrecognized compensation cost related to non-vested options. Stock-based compensation expense related to stock options was as follows for the periods indicated (in thousands):



	For the fiscal year ended
	December 31, 2013			December 25, 2012			December 27, 2011
Charged to general and administrative expenses	$	222		$	421		$	1,122
Income tax benefit	(83		)	(163		)	(428		)
Total stock-based compensation expense, net of tax	$	139		$	258		$	694
Effect on basic earnings per share	0.01			0.01			0.02
Effect on diluted earnings per share	0.01			0.01			0.02

The following table summarizes the Company’s stock option activity under its stock-based compensation plans during fiscal 2013:



	Shares (in thousands)		Weighted Average Exercise Price		Weighted Average Contractual Term Remaining (Years)	Aggregate Intrinsic Value (1) (in thousands)
Outstanding at December 25, 2012	46		$	59.94
Granted	3		156.30
Exercised	(13	)	45.38			1,649
Cancelled	—		—
Outstanding at December 31, 2013	36		$	71.93	1.6	3,736
Exercisable at December 31, 2013	36		$	71.93	1.6	$	3,736


(1)	Intrinsic value for activities other than exercises is defined as the difference between the grant price and the market value on the last day of fiscal 2013 of $176.69 for those stock options where the market value is greater than the exercise price. For exercises, intrinsic value is defined as the difference between the grant price and the market value on the date of exercise.

Cash received from the exercise of stock options in fiscal 2013, fiscal 2012, and fiscal 2011 was $0.6 million, $4.5 million, and $3.2 million respectively. Windfall tax benefits realized from exercised stock options in fiscal 2013, fiscal 2012, and fiscal 2011 were $8.1 million, $8.6 million, and $5.0 million, respectively, and were included as cash flows from financing activities in the Consolidated Statements of Cash Flows.

A SSAR is an award that allows the recipient to receive common stock equal to the appreciation in the fair market value of the Company’s Class A common stock between the date the award was granted and the conversion date for the number of shares vested. SSARs under the 2005 LTIP are granted with an exercise price equal to the quoted market value of the Company’s common stock on the date of grant. In addition, SSARs generally vest 25 percent after two years from the date of grant and thereafter 25 percent each year for the next three years and have a six-year term. As of December 31, 2013, the total unrecognized compensation cost related to non-vested SSARs was $0.9 million, which is net of a $0.3 million forfeiture estimate, and is expected to be recognized over a weighted-average period of approximately 4.2 years. The Company uses historical data to estimate pre-vesting forfeiture rates. For fiscal 2013, 2012, and 2011, stock-based compensation expense related to SSARs was $0.2 million, $0.1 million, and $0.1 million, respectively, and was charged to general and administrative expenses in the Consolidated Statements of Comprehensive Income.

The following table summarizes the Company’s SSAR activity under its stock-based compensation plan during fiscal 2013:



	Shares (in thousands)		Weighted Average Conversion Price (1)		Weighted Average Contractual Term Remaining (Years)	Aggregate Intrinsic Value (2) (in thousands)
Outstanding at December 25, 2012	20		$	89.70	3.9	$	1,355
Granted	18		165.58
Converted	(4	)	58.23
Cancelled	(1	)	99.60
Outstanding at December 31, 2013	33		$	135.73	4.5	$	1,343
Convertible at December 31, 2013	3		$	75.65	2.5	$	351


(1)	Conversion price is defined as the price from which SSARs are measured and is equal to the market value on the date of issuance.


(2)	Intrinsic value for activities other than conversions is defined as the difference between the grant price and the market value on the last day of fiscal 2013 of $176.69 for those SSARs where the market value is greater than the conversion price. For conversions, intrinsic value is defined as the difference between the grant price and the market value on the date of conversion.

All SSARs outstanding at December 31, 2013 have a conversion price ranging from $55.20 to $192.65 and are expected to be recognized over a weighted-average period of approximately 4.5 years.

The fair value for both stock options and SSARs (collectively “option awards”) is estimated on the grant date using the Black-Scholes option pricing model. The assumptions used to calculate the fair value of option awards are evaluated and revised, as necessary, to reflect market conditions and historical experience.

The weighted-average fair value of option awards granted and assumptions used for the Black-Scholes option pricing model were as follows for the periods indicated:



	For the fiscal year ended
	December 31, 2013			December 25, 2012			December 27, 2011
Fair value per option awards	$	55.63		$	53.18		$	37.46
Assumptions:
Expected term (years)	5			5			5
Expected volatility	36.5		%	40.3		%	40.3		%
Risk-free interest rate	1.3		%	0.8		%	1.3		%
Dividend yield	0.0		%	0.0		%	0.0		%


•	Expected term — The expected term of the option awards represents the period of time between the grant date of the option awards and the date the option awards are either exercised or canceled, including an estimate for those option awards still outstanding, and is derived from historical terms and other factors.


•	Expected volatility — The expected volatility is based on an average of the historical volatility of the Company’s stock price, for a period approximating the expected term, and the implied volatility of externally traded options of the Company’s stock that were entered into during the period.


•	Risk-free interest rate — The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of grant and with a maturity that approximates the option awards expected term.


•	Dividend yield — The dividend yield is based on the Company’s anticipated dividend payout over the expected term of the option awards.

The amounts presented for the weighted-average fair value of option awards granted are before the estimated effect of forfeitures, which reduce the amount of stock-based compensation expense recorded in the Consolidated Statements of Comprehensive Income.

1992 Equity Incentive Plan

The Company adopted the 1992 Plan in May 1992. A total of 8,600,000 shares of Class A common stock were authorized for issuance under the 1992 Plan as awards, which could have been in the form of stock options (both qualified and non-qualified), stock appreciation rights, performance shares, restricted stock, or stock units, to employees and consultants. As a result of stockholder approval of the 2006 Plan, effective as of May 25, 2006, the Company will grant no further stock options, restricted stock, or other awards under the 1992 Plan.

2001 Employee, Director, and Consultant Stock Option Plan

The Company adopted the 2001 Plan in June 2001. A total of 3,000,000 shares of Class A common stock were authorized for issuance under the 2001 Plan as awards, which could have been in the form of stock options to employees, directors, and consultants. As a result of stockholder approval of the 2006 Plan, effective as of May 25, 2006, the Company will grant no further stock options under the 2001 Plan.

1992 Employee Stock Purchase Plan

The Company adopted the 1992 Employee Stock Purchase Plan (“ESPP”) which was authorized to issue 825,000 shares of Class A common stock. The ESPP gives eligible employees the option to purchase Class A common stock (total purchases in a year may not exceed 10 percent of an employee’s current year compensation) at 85 percent of the fair market value of the Class A common stock at the end of each calendar quarter. There were approximately 20,000, 19,000, and 21,000 shares purchased with a weighted-average fair value of purchase rights of $25.01, $22.68, and $16.97 during fiscal 2013, fiscal 2012, and fiscal 2011, respectively. For fiscal 2013, fiscal 2012, and fiscal 2011, the Company recognized expense of approximately $0.5 million, $0.5 million, and $0.4 million in each of the respective years related to stock purchase plan discounts. Effective May 13, 2010, the Plan was amended to increase the number of the Company’s Class A common stock shares authorized for issuance to 925,000. Cumulatively, there were approximately 878,000 shares issued under this plan as of December 31, 2013, 858,000 shares issued under this plan as of December 25, 2012, and 839,000 shares issued under this plan as of December 27, 2011.